<PAGE> 1
================================================================================
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
COMMISSION FILE NUMBER 1-6868
LOMAS FINANCIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 75-1043392
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1600 VICEROY DRIVE, DALLAS, TEXAS 75235
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (214) 879-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
COMMON STOCK, PAR VALUE $1 PER SHARE NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At September 27, 1995 the aggregate market value of the registrant's
common stock held by non-affiliates was $9.5 million.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES X NO
----- -----
On October 10, 1995, the Registrant and Certain of its subsidiaries filed
bankruptcy proceedings under Chapter 11 of the Federal Bankruptcy Code in the
District of Delaware.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the registrant's Common Stock, par
value $1 per share, as of September 27, 1995: Common Stock--20,149,231 shares.
================================================================================
<PAGE> 2
LOMAS FINANCIAL CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1995
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . 83
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . 89
</TABLE>
-2-
<PAGE> 3
LOMAS FINANCIAL CORPORATION
FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1995
PART I
ITEM 1. BUSINESS
Lomas Financial Corporation was incorporated in Delaware in 1960, and its
principal executive offices are located at 1600 Viceroy Drive in Dallas, Texas.
Unless the context otherwise requires, the "Company," as used herein, refers to
Lomas Financial Corporation ("LFC") and its subsidiaries.
The Company, through its wholly-owned subsidiary Lomas Mortgage USA, Inc.,
a Connecticut corporation ("Lomas Mortgage"), is principally engaged in the
business of servicing on behalf of third party investors of single-family
residential mortgages secured by properties located in all 50 states and the
District of Columbia. The Company also provides administrative services to
conduit issuers of mortgage-backed securities (sometimes referred to as "master
servicing"). In addition, the Company's mortgage banking operations include
mortgage and portfolio production activities, insurance agency operations,
property inspection, preservation and other field operations.
CHAPTER 11 PROCEEDINGS
On October 10, 1995, LFC, Lomas Mortgage and two other insignificant
subsidiaries of LFC (collectively the "Debtor Corporations") filed separate
voluntary petitions for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the District of Delaware. The petitioning subsidiaries are
Lomas Information Systems, Inc. and Lomas Administrative Services, Inc., both
of which are inactive and have relatively minor amounts of assets and
liabilities. The Chapter 11 cases are being jointly administered, with the
Debtor Corporations managing their businesses in the ordinary course as
debtors-in-possession subject to the control and supervision of the Bankruptcy
Court.
Simultaneously with the filing of the Chapter 11 petitions, Lomas Mortgage
made a motion seeking the Bankruptcy Court's approval of the sale (the
"Proposed Sale"), pursuant to Section 363 of the Bankruptcy Code, to First
Nationwide Mortgage Corporation ("First Nationwide") of its remaining mortgage
servicing rights, its related insurance agency business, Lomas Mortgage's real
estate owned acquired through loan foreclosures in connection with its
servicing business and its trade names for $150 million in cash, payable in
installments and the assumption of Lomas Mortgage's obligations related to its
mortgage servicing business. The purchase price is subject to adjustment based
on the differences between certain balance sheet accounts on the closing date
and on July 31, 1995, the date used for computation of the base purchase price,
and is subject to reduction by up to 15% of the purchase price in excess of $10
million for possible indemnities in favor of First Nationwide. Lomas Mortgage
is also seeking Bankruptcy Court approval of the assumption and assignment to
First Nationwide of the contracts relating to its loan servicing business and
of certain leases related to its loan production business which was sold to
First Nationwide on October 2, 1995. The Bankruptcy Court has set November 21,
1995 as the date for the hearing on the Proposed Sale, which is subject to
higher and better offers, and the proposed assumptions and assignments of
contracts and leases.
After giving effect to the sale to First Nationwide on October 2, 1995 and
the Proposed Sale, Lomas Mortgage will have no material remaining assets other
than its interest in ST Lending, Inc., which owns real estate having a book
value on June 30, 1995 of $28.2 million, certain other real estate assets
having a book value at June 30, 1995 of $37.3 million and reduced to $25.3
million at September 30, 1995 ($13.3 million of which is encumbered by a
mortgage securing borrowings of $38.4 million at September 30, 1995), and the
net proceeds of the October 2 sale and the Proposed Sale, which are estimated
to be approximately $212 million in the aggregate (unless a higher offer is
received for the assets subject to the Proposed Sale). The aggregate value of
these assets is less than Lomas Mortgage's indebtedness of approximately $378.8
million in aggregate principal amount at June 30, 1995. This will
-3-
<PAGE> 4
result in claims against Lomas Mortgage being liquidated in the Chapter 11
proceedings at less than 100% of their face value and may result in the equity
of Lomas Mortgage's sole stockholder (LFC) being diluted or canceled.
Similarly, after giving effect to the transactions described above, LFC's
assets will consist of its equity interest in Lomas Mortgage, an $8.0 million
note receivable from Residential Information Services that is subject to
payment contingencies, cash of approximately $11.0 million and other real
estate related assets of approximately $5.0 million. The value of these assets
is considerably less than LFC's indebtedness, consisting principally of public
indebtedness which has a principal amount of $140 million. This will result in
claims against LFC being liquidated in the Chapter 11 proceedings at less than
100% of their face value and may result in the equity of LFC's stockholders
being diluted or canceled. It is impossible at this time to predict the actual
recovery, if any, which different classes of creditors and stockholders will
realize. As a result of the reorganization proceedings, the Company may sell
additional assets or otherwise realize assets and liquidate or settle
liabilities for amounts other than those reflected in the consolidated
financial statements or related notes. The consolidated financial statements
do not include any adjustments that might result from the outcome of these
uncertainties. For further information on the Chapter 11 proceedings, see
"Item 3. Legal Proceedings."
SUBSEQUENT AND OTHER SIGNIFICANT EVENTS
In July 1995 the Company sold $1.6 billion principal amount of its
mortgage servicing portfolio to a financial institution for approximately $16.2
million cash. The Company was also reimbursed by the purchaser for servicing
advances made by the Company including tax advances and principal and interest
advances on delinquent loans which totaled approximately $17.9 million. This
sale, when finalized in October 1995, will result in a net loss of
approximately $1.7 million in fiscal 1996 of which $1.0 million has been
charged to previously established reserves.
Because the Company failed to meet certain ratios contained in its bank
credit lines at June 30, 1995, the Company repaid its credit line known as the
P&I line in July 1995. At June 30, 1995 the balance of this line was $7.8
million. The Company also repaid certain of its bank warehouse credit lines on
October 2, 1995. The balance of these lines at June 30, 1995 was $91.4
million.
At June 30, 1995 the Company was in default on certain covenants contained
in a warehouse and reverse repurchase agreement with a financial institution.
At June 30, 1995 the balance of the warehouse line was $73.3 million and the
balance of the reverse repurchase agreement was $44.1 million. In September
1995, the Company sold to a financial institution the first mortgage loans
underlying the reverse repurchase agreement for approximately $43.6 million and
paid off the corresponding amount of the credit line of $44.8 million. Loss
resulting from this transaction was approximately $500,000 for the first
quarter of fiscal 1996. The remaining first mortgage loans collateralizing the
warehouse agreement were also sold along with the Company's GNMA servicing
portfolio to First Nationwide.
In July 1995, LFC entered into a contract to sell its image processing
subsidiary. In September 1995, LFC completed the sale of the stock of this
subsidiary for $4.1 million in cash and a $320,000 promissory note. The sale
resulted in a gain of approximately $1.1 million for LFC and a prepaid expense
in Lomas Mortgage of $2.3 million which will be used for future image
processing costs.
In August 1995, Lomas Mortgage sold certain fixed assets of its field
services operation subsidiary. This sale was for $600,000 in cash and the
Company realized a gain of approximately $144,000. This gain is deferred until
that subsidiary's remaining receivables are collected and payables are paid.
In August 1995 the Company sold a servicing portfolio with a $3.0 billion
unpaid principal amount of mortgage loans to a financial institution for $6.0
million cash. In addition, the Company received from the purchaser a cash
payment of $8.7 million for deficit escrows and principal and interest
advances. This transaction resulted in a gain of approximately $200,000 which
will be reflected in the first quarter of fiscal 1996.
-4-
<PAGE> 5
In August 1995 the Company terminated $155 million notional amount of its
outstanding reverse interest rate swaps. The Company paid the counterparty
$6.0 million in cash and incurred a loss of $4.4 million of which $1.6 million
was recognized immediately and the remaining loss of $2.8 million is being
amortized over the remaining life of the swaps. The Company also terminated
the remaining $485 million notional amount of swaps on October 2, 1995. The
cost to terminate the remaining swaps was $18.8 million which came from the
sale of certain assets of Lomas Mortgage to First Nationwide as described in
the following paragraph. The Company still has outstanding fixed rate debt of
$518 million, therefore will continue to amortize a portion of the net loss
incurred on the swap ($9.2 million) until the original swap expiration date in
1998.
On September 5, 1995, the Company entered into an agreement to sell
certain assets and liabilities of Lomas Mortgage to First Nationwide including
the Company's GNMA servicing portfolio which represented approximately
one-third of Lomas Mortgage's servicing portfolio, the Company's investment in
Lomas Mortgage Partnership (which at June 30, 1995 was owned one-third by the
Company) and the Company's loan production business which included
approximately $313 million principal amount of mortgage loans held for sale at
July 31, 1995, and the payment of the related $302 million of warehouse lines
of credit secured by the mortgage loans held for sale at July 31, 1995. The
purchase price for this transaction was approximately $100 million (less $10
million which will be used to pay the Company's expense for transferring the
servicing), subject to certain adjustments, the payment of certain warehouse
indebtedness and the assumption of certain other liabilities. The outstanding
balance of the warehouse indebtedness at June 30, 1995 was $288.1 million. The
transaction closed on October 2, 1995 and resulted in a loss of approximately
$81 million which will be recorded in fiscal 1996. Cash of $35 million was
paid at closing and a portion of these funds were used to terminate the balance
of the swaps (see the preceding paragraph) and $12.0 million was escrowed with
FNMA in connection with certain recourse servicing to be sold in the Proposed
Sale. Approximately $41.5 million is expected to be paid on February 1, 1996
with the final payment of the balance due on October 2, 1996. The existing
warehouse debt of $208 million was also paid at closing.
In October 1995, the Company reached a second agreement with First
Nationwide to sell substantially all of the remaining servicing portfolio and
certain other assets of Lomas Mortgage. The purchase price for the Proposed
Sale will be approximately $150 million (less $10 million which will be used to
pay the Company's expense for transferring the servicing), subject to certain
adjustments, and the assumption of certain liabilities. The proposed
transaction is subject to higher and better offers and to approval by the
Bankruptcy Court. If no higher offer is received, the proposed transaction
would result in a loss to the Company of approximately $80 million. The
remaining significant assets of Lomas Mortgage will be its investments in its
buildings, real estate and ST Lending, Inc.
As a result of the transactions described in the preceding two paragraphs,
management abandoned its plans to consolidate its operations into one building
and, instead, marketed such building for sale. Accordingly, the Company wrote
down the building that was not written down to market during fiscal 1995. The
Company recorded a loss of $12 million in the first quarter of fiscal 1996 to
reflect the asset at fair value less estimated selling costs.
Lomas Mortgage announced on October 2, 1995 that it did not make the
approximately $17 million of scheduled interest payments on its 9 3/4% term
notes payable due October 1, 1997 and its 10 1/4% term notes payable due
October 1, 2001.
For additional information, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Item 8. Financial Statements and Supplementary Data."
FINANCIAL INFORMATION AND NARRATIVE DESCRIPTION OF INDUSTRY SEGMENTS
Financial information regarding revenues, operating profit and total
assets of the Company are included in "Item 8. Financial Statements and
Supplementary Data" within this report.
-5-
<PAGE> 6
MORTGAGE BANKING
Lomas Mortgage has provided mortgage servicing and mortgage-related
financial and administrative services since 1894. The primary mortgage banking
services and activities of the Company are discussed below.
Loan Administration
The Company's loan administration services consist of three principal
categories: "primary servicing" where the Company owns the servicing rights;
"master servicing" where the Company provides administrative services for
conduit issuers of mortgage-backed securities and monitors the work of primary
servicers who own the servicing rights; and "subservicing" where the Company
provides mortgage servicing on a subcontract basis for other parties who own
the servicing rights.
Primary Servicing. Primary servicing involves collecting monthly mortgage
payments, maintaining escrow accounts for the payment of ad valorem taxes,
hazard insurance and mortgage insurance premiums on behalf of homeowners,
remitting payments of principal and interest promptly to investors in the
underlying mortgages, reporting to those investors on financial transactions
related to such mortgages and generally administering the loans. The servicing
staff also must cause properties to be inspected periodically, determine the
adequacy of insurance coverage on each property, monitor delinquent accounts
for payment, and, in cases of extreme delinquency, institute and complete
either appropriate forbearance arrangements or foreclosure proceedings on
behalf of investors.
For providing these administrative services, the Company currently
receives a fee in an average amount of approximately .38 of 1 percent per year
on the unpaid principal amount of the primary servicing portfolio in the case
of single-family mortgage loans and commercial loans. Annual ancillary
servicing income, consisting principally of late charges, assumption and
foreclosure fees, and other miscellaneous charges, increases directly related
revenues to approximately .44 of 1 percent per year of the servicing portfolio
balance for residential and commercial loans. The Company also receives an
average fee of approximately .10 of 1 percent per year on the unpaid principal
amount of the subservicing portfolio. Servicing fees are collected by the
Company out of mortgage payments as they are received. The Company also
receives a benefit from the use as compensating balances of escrow, agency and
fiduciary funds, which varies based on the level of prevailing interest rates.
At June 30, 1995 the Company's primary servicing portfolio totaled $33.1
billion in unamortized principal amount. The total includes $25.3 billion of
servicing rights owned directly by the Company, $3.6 billion of such rights
owned by Lomas Mortgage Partnership (which at June 30, 1995 was owned one-third
by the Company and the portfolio of which was serviced entirely by the Company
and included in primary servicing portfolio in the accompanying financial
statements), and $4.0 billion of loans administered by the Company under
subservicing contracts with others.
The Company from time to time has undertaken mortgage servicing on a
subcontract basis for other parties who own the servicing rights. Typically,
the subservicer assumes responsibility for all loan administration activities
while the owner of the servicing rights normally retains the benefits of
accumulated escrow balances and the risk of foreclosure losses. Subservicing
fees are normally paid monthly on a per-loan basis calculated as an annual
dollar amount.
Master Servicing. Master servicing was created and introduced by the
Company in 1978 to provide administrative services to conduit issuers of
mortgage-backed securities. Typically, mortgages underlying mortgage-backed
securities are serviced by a number of primary servicers. Under most master
servicing arrangements, these primary servicers retain principal responsibility
for administering the mortgage loans and the Company acts as an intermediary in
overseeing the work of the primary servicers, monitoring their compliance with
the issuer's standards and consolidating their respective periodic accounting
reports for transmission to the issuer of the related securities.
-6-
<PAGE> 7
For performing these services the Company receives administrative fees,
which, at an annualized rate for the year ended June 30, 1995, averaged
approximately $70 per loan. At June 30, 1995 the Company's master servicing
portfolio totaled approximately $8.1 billion in unpaid principal amount
representing 140,227 loans.
Portfolio Production
From July 1, 1994 to June 30, 1995, the Company acquired servicing rights
to mortgage loans having an unpaid principal amount of $5.9 billion through
flow production. The Company also has complemented its flow production from
time to time by acquiring mortgage servicing rights in bulk from other
financial institutions. Bulk purchases totaled $2.6 billion of unpaid
principal balance during fiscal 1995.
Through its gathering system, the Company has acquired mortgage servicing
rights and, in certain cases, whole loans for the primary purpose of retaining
the servicing rights on such loans. Whole loans purchased by the Company have
been originated, underwritten and funded by retail originators or wholesalers
who make representations and warranties to the Company as to compliance with
required standards. In the event such representations and warranties are
breached, the originator or wholesaler typically is obligated to repurchase the
loan at its unpaid principal balance, thereby avoiding principal loss by the
Company.
During fiscal 1995, the gathering system included the sources set forth
below:
Flow Production
Wholesale Originations. The Company purchased servicing rights with
respect to newly originated loans from wholesalers on an ongoing basis
through the "Lomega" unit of its loan production system.
Public Pension Fund. The Company was a party to an exclusive ongoing
arrangement for the purchase, for the account of a major public pension
fund and from 85 lenders affiliated with that fund's mortgage origination
program, of all mortgages originated under the program.
State and Local Housing Authorities. The Company had exclusive
ongoing arrangements for the purchase of mortgage servicing rights from
lenders originating loans for lower income housing pursuant to bond
issuance programs of 9 state and local housing authorities.
Consolidation of Servicing. From time to time, the Company replaced
disparate primary servicers with respect to loans in the master servicing
portfolio and became the primary servicer of such loans.
Subservicing. The Company contracted to perform loan administration
functions for various investors who own the servicing rights.
Direct Originations. The Company originated in fiscal 1995 a
relatively small volume of single-family mortgage loans through telephone
and direct mail solicitation of existing homeowners in the mortgage
servicing portfolio through the "central funding unit" of its loan
production system.
From these "flow" sources during fiscal 1995 the Company acquired
servicing rights to mortgage loans having an unpaid principal amount of $5.9
billion.
Bulk Purchases. During the fiscal year ended June 30, 1995, the Company
acquired servicing rights to approximately $2.6 billion unpaid principal amount
of mortgage loans through bulk purchases including $787.3 million of servicing
rights acquired from Lomas Mortgage Partnership, which was owned one-third by
Lomas Mortgage. The Company's investment in the partnership was approximately
$4.1 million at June 30, 1995.
-7-
<PAGE> 8
The following table sets forth additions to and reductions in the
Company's mortgage servicing portfolio for the three years ended June 30, 1995
(in millions):
<TABLE>
<CAPTION>
Years Ended June 30
-------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Portfolio balance at beginning
of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33,990 $ 32,677 $ 29,339
Additions and reductions during period
Servicing rights acquired through:
Flow production . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,948 12,268 10,214
Bulk purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,568 1,463 2,960
Amortizations, satisfactions and foreclosures . . . . . . . . . . . . . (4,267) (10,906) (9,335)
Sales and other servicing releases . . . . . . . . . . . . . . . . . . (5,152) (1,512) (501)
-------- -------- --------
Portfolio balance at end of period . . . . . . . . . . . . . . . . . . . $ 33,087 $ 33,990 $ 32,677
======== ======== ========
</TABLE>
In fiscal 1993 and under the marketing name "Lomega," the Company
commenced a program for direct wholesale purchases of mortgage loans from
retail originators. Under this program the Company purchased conforming loans
from retail originators for packaging and resale to third party investors.
Retail originators from whom the Company purchased loans were required to meet
certain financial responsibility and underwriting criteria. The direct
wholesale purchase of loans from retail originators entailed additional market
risk in connection with predicting the rate of closings of loan commitments in
the mortgage pipeline and obtaining forward purchase commitments for the number
of loans that are expected to close. The Company also added a central funding
unit to its loan production system in fiscal 1993.
Warehousing and Sale of Loans
Under some of the Company's programs for purchasing servicing rights, the
Company also purchased whole loans from the originators and ultimately packaged
such loans in the form of mortgage-backed securities. The primary purpose of
the Company's purchases of whole loans was to retain the servicing rights on
such loans after their sale to investors. However, through Lomega, the Company
commenced a program for direct wholesale purchases of mortgage loans from
retail investors in fiscal 1993. In the period between the purchase of
mortgage loans by the Company from originators and their sale to investors as
mortgage-backed securities, a period of generally no more than three months,
the Company warehoused such loans under arrangements with commercial banks and
investment banks. Under these arrangements such banks advanced funds against
loans which have binding purchase commitments from governmental agencies or
private investors. During this period the Company received as net income the
difference between the interest received on mortgage loans held prior to sale
and the interest paid by the Company under the lines of credit or repurchase
agreements provided by such banks.
The Company packaged substantially all of its first mortgage loans that
were insured by the FHA or guaranteed by the VA into pools of loans and sold
these pools in the form of modified pass-through mortgage-backed securities
guaranteed by the Government National Mortgage Association ("GNMA") to dealers
in mortgage-backed securities. The Company generally pooled conventional
conforming loans and exchanged such pools for securities issued and guaranteed
by the Federal National Mortgage Association ("FNMA") or the Federal Home Loan
Mortgage Corporation ("FHLMC") which were then sold to such dealers. In
connection with such exchanges, the Company paid fees for agency guarantees of
principal and interest payments to the guaranteeing agency. In addition,
conventional non-conforming loans were sold to private institutional investors
in the form of private pass-through securities. Loans were sold pursuant to
commitments negotiated with FNMA, FHLMC, GNMA and institutional investors to
purchase loans meeting defined criteria. The agreements generally did not
require the Company to deliver any specific amount of mortgage loans. The
Company generally retained the servicing rights (including master servicing
rights) on the mortgages underlying the mortgage- backed securities. Exchanges
of loans into agency securities and sales of loans were generally made without
recourse to the Company in the event of default by the borrower subject, and in
the case of VA loans used to form GNMA pools, to limitations on the VA's loan
guarantees.
-8-
<PAGE> 9
As of June 30, 1995, the Company had an aggregate of $345.0 million in
unpaid principal amount of mortgage loans pledged to secure warehouse debt.
The Company's commitments to purchase and originate loans totaled $912.5
million of which approximately 92 percent, or $837.5 million, had been
committed for sale to financially responsible third parties at the Company's
cost. The remaining 8 percent, or $75.0 million, of the Company's commitments
to purchase and originate loans and $345.0 million of loans held for sale were
hedged by forward contracts to sell mortgage-backed securities of approximately
$344.3 million, which represented the Company's best estimate of its market
risk on such loans.
The Servicing Portfolio
The following table sets forth certain information regarding the Company's
mortgage servicing portfolio, including the subservicing portfolio, for the
periods indicated (dollars in millions, except average loan size):
<TABLE>
<CAPTION>
As of June 30
---------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Composition of servicing portfolio:
FHA--insured mortgage loans . . . . . . . . . . . . . . . . . . . . $ 6,958 $ 6,256 $ 7,059
VA--guaranteed mortgage loans . . . . . . . . . . . . . . . . . . . 3,248 3,451 3,998
Conventional mortgage loans . . . . . . . . . . . . . . . . . . . . 22,881 24,283 21,620
---------- ---------- ---------
Total servicing portfolio . . . . . . . . . . . . . . . . . . . . $ 33,087 $ 33,990 $ 32,677
========== ========== =========
Number of loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,325 565,531 605,655
Average loan size . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 61,235 $ 60,103 $ 53,953
</TABLE>
At June 30, 1995 the portfolio included an aggregate of $25.5 billion
unpaid principal amount of loans securing payment of mortgage-backed
securities. Of the total, $9.4 billion unpaid principal amount consisted of
loans included in pools of GNMA securities, $8.6 billion unpaid principal
amount consisted of loans included in securities supported by conventional
mortgages and backed by either FNMA or FHLMC, and $7.5 billion consisted of
conventional loans securing payment of other collateralized mortgage
obligations.
Subsequent to June 30, 1995, the Company entered into agreements to sell
substantially all of its servicing portfolio. For further information, see
"Item 1. Business--Subsequent and Other Significant Events."
The Company's mortgage servicing portfolio includes mortgage loans secured
by properties located in all 50 states and the District of Columbia, with the
greatest loan concentrations (in terms of unpaid principal amount) at June 30,
1995 in the states of California, Texas, Florida, New Jersey, Arizona,
Massachusetts, Illinois and Washington, which together accounted for
approximately 75 percent of the aggregate unpaid principal amount of the
portfolio. The Company's average loan size increased from $53,953 at June 30,
1993 to $61,235 at June 30, 1995 and the percentage of its portfolio comprised
of VA-guaranteed loans declined from 12.2 percent to 11.6 percent of the unpaid
principal balance of the portfolio during the same period.
-9-
<PAGE> 10
The following table shows the geographic distribution of the mortgages
underlying the mortgage servicing portfolio at June 30, 1995 (dollars in
millions):
GEOGRAPHIC DISTRIBUTION OF MORTGAGE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
UNPAID
NUMBER PRINCIPAL
STATE OF LOANS BALANCE
----- -------- ---------
<S> <C> <C>
Alabama . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,770 $ 141
Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 466 37
Arizona . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,027 807
Arkansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,696 51
California . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141,544 15,122
Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,385 502
Connecticut . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,480 319
Delaware . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,066 41
District of Columbia . . . . . . . . . . . . . . . . . . . . . . . 1,079 78
Florida . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,955 1,545
Georgia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,146 524
Hawaii . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,672 226
Idaho . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,714 76
Illinois . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,980 677
Indiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,240 210
Iowa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,411 73
Kansas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,009 70
Kentucky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,608 193
Louisiana . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,365 119
Maine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,207 86
Maryland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,186 577
Massachusetts . . . . . . . . . . . . . . . . . . . . . . . . . . 11,069 777
Michigan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,273 178
Minnesota . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,022 323
Mississippi . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,917 47
Missouri . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,223 150
Montana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,279 41
Nebraska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 784 20
Nevada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,357 315
New Hampshire . . . . . . . . . . . . . . . . . . . . . . . . . . 1,263 91
New Jersey . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,088 883
New Mexico . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,609 151
New York . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,217 525
North Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . 4,633 221
North Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . 529 12
Ohio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,269 402
Oklahoma . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,227 199
Oregon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,692 251
Pennsylvania . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,717 505
Rhode Island . . . . . . . . . . . . . . . . . . . . . . . . . . . 974 70
South Carolina . . . . . . . . . . . . . . . . . . . . . . . . . . 2,463 74
South Dakota . . . . . . . . . . . . . . . . . . . . . . . . . . . 230 6
Tennessee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,026 312
Texas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,867 4,351
Utah . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,692 209
Vermont . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122 7
Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,087 588
Washington . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,034 671
West Virginia . . . . . . . . . . . . . . . . . . . . . . . . . . 984 22
Wisconsin . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,799 78
Wyoming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 594 19
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,279 115
-------- --------
540,325 $ 33,087
======== ========
</TABLE>
-10-
<PAGE> 11
The weighted average interest rate for the servicing portfolio was 8.6
percent at June 30, 1995. The following table sets forth information regarding
the interest rate breakdown of the mortgage servicing portfolio at June 30,
1995:
BREAKDOWN BY INTEREST RATE OF MORTGAGE SERVICING PORTFOLIO
(percentage of unpaid principal balance)
<TABLE>
<CAPTION>
Percentage
of Total
7.99% 11.00% Unpaid
and 8.00-- 9.00-- 10.00-- and Principal
Lower 8.99% 9.99% 10.99% Higher Balance
----- ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C>
FHA--insured mortgage loans . . . . . . . . 7.61 6.30 3.93 1.99 1.20 21.03
VA--guaranteed mortgage loans . . . . . . . 2.10 3.72 2.63 .69 .68 9.82
Conventional mortgage loans . . . . . . . . 29.23 15.52 12.10 7.49 4.81 69.15
----- ----- ----- ----- ---- -----
Total . . . . . . . . . . . . . . . . . . 38.94 25.54 18.66 10.17 6.69 100.00
===== ===== ===== ===== ==== ======
</TABLE>
At June 30, 1995 approximately $9.7 billion or 29 percent of the primary
servicing portfolio consisted of adjustable rate mortgage loans.
The weighted average age of the servicing portfolio was 5.0 years at June
30, 1995. The following table sets forth information regarding the aging of
the mortgage servicing portfolio at June 30, 1995:
BREAKDOWN BY AVERAGE AGE OF MORTGAGE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
Percentage
Unpaid of Total
Percentage Principal Unpaid
Number of Number Amount Principal
Average Age of Loans of Loans (in millions) Balance
- ----------- -------- --------- ------------- ----------
<S> <C> <C> <C> <C>
1--5 years . . . . . . . . . . . . . . . . . . . . . . 213,776 39.6 $ 22,372 67.6
6--10 years . . . . . . . . . . . . . . . . . . . . . . 98,324 18.2 6,315 19.1
11--15 years . . . . . . . . . . . . . . . . . . . . . 30,936 5.7 1,377 4.2
More than 15 years . . . . . . . . . . . . . . . . . . 197,289 36.5 3,023 9.1
------- ----- -------- -----
Total . . . . . . . . . . . . . . . . . . . . . . . . 540,325 100.0 $ 33,087 100.0
======= ===== ======== =====
</TABLE>
Portfolio runoff rates during fiscal 1995 and 1994 were 12.6 percent and
33.0 percent, respectively.
Foreclosures and REO
The Company collects servicing fees from investors on a cash basis by
deducting the fee from mortgage payments as they are received. When a loan is
delinquent, and in the case of foreclosures, such income is not collected. In
some cases the Company is required to make guaranteed principal and interest
payments on certain mortgage-backed securities regardless of actual collection
from the underlying mortgage loans. In certain instances, the Company will buy
foreclosed loans out of a pool and either attempt to have them reinstated or
foreclose upon the secured properties. A portion of these advances on GNMA
loans are not recoverable. Mortgage guarantees and insurance provided by the
VA and the FHA, respectively, typically cover most of the foreclosure expenses,
and interest and principal advances of the servicer. FHA insurance covers 100
percent of the principal balance of any insured loan but generally does not
cover approximately two months of interest advances, the interest differential
between interest paid by the FHA on advances of principal and interest and the
rate at which the Company funds such advances, and approximately one-third of
the legal fees associated with the foreclosure. Prior to 1985 the Company
generally recovered 100 percent of the loan balance plus accrued interest at
any foreclosure of a VA-guaranteed loan. Beginning in 1985, the VA, in certain
cases known as VA No-Specified Bids commonly called "VA no-bids," has elected
to remit the maximum liability under its guaranty rather than to purchase the
foreclosed property. In the case
-11-
<PAGE> 12
of VA no-bids, a VA loan guaranty typically covers only the lesser of 25 to 50
percent of the unpaid principal balance or up to $46,000 for loans originated
after February 1, 1990. Prior to 1989 the maximum amount recoverable for VA
no- bids was $27,500 regardless of the loan balance.
Accordingly, the Company is subject to increased foreclosure risk with
respect to the VA-guaranteed loans in its portfolio, which comprised
approximately 11.6 percent or $3.8 billion in unpaid principal amount at June
30, 1995. The Company's losses in connection with VA no-bids (primarily in
connection with losses from unreimbursed interest advances, legal fees and the
liquidation of REO) were $3.2 million in fiscal 1995 and were $3.6 million for
the year ended June 30, 1994. The Company's losses with respect to
VA-guaranteed loans other than pursuant to VA no-bids (primarily in connection
with unreimbursed interest advances and legal fees) were $1.7 million in fiscal
1995 and $1.1 million for the year ended June 30, 1994. In addition, the
Company's losses in connection with FHA-insured loans (primarily in connection
with unreimbursed interest advances and legal fees) were $2.1 million in fiscal
1995 and were $3.3 million for the year ended June 30, 1994. Substantially all
of the remaining portfolio, primarily conventional loans, was serviced on a
non-recourse basis without risk of loss to the Company.
Property acquired through the foreclosure process, known as real estate
owned ("REO"), is frequently located in an area where real estate values have
declined significantly due to economic conditions. The Company then must
liquidate the property at an amount which, in most cases, results in a loss.
Losses occur primarily when foreclosure sale proceeds of the property
underlying a defaulted mortgage loan are less than the then outstanding
principal balance of such mortgage loan (net of the amount remitted by the VA)
and the costs of holding and disposing of such underlying property. This loss,
in the case of VA no-bids, is absorbed by the Company. The Company believes
its reserves are adequate to cover losses associated with all anticipated VA
no-bid cases.
In the case of loans backed by FNMA or FHLMC, the servicer has the option
to purchase insurance pursuant to which foreclosure losses are the
responsibility of FNMA or FHLMC, and not of the servicer. As is customary in
the industry, substantially all of the FNMA and FHLMC servicing in the
Company's portfolio is covered by such insurance. Additionally, substantially
all foreclosure risk on portfolios owned by private investors is borne by the
investors and not by the Company.
The following chart sets forth certain delinquency rates (expressed as a
percentage of the number of loans in the primary servicing portfolio) as at
each June 30 in the five years ended June 30, 1995:
LOAN DELINQUENCY RATES OF THE MORTGAGE SERVICING PORTFOLIO
<TABLE>
<CAPTION>
Year/Month 30-day 60-day 90-day 120+-day Net(1) Foreclosure Bankruptcies Gross(2)
- ---------- ------ ------ ------ -------- ------ ----------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1991 June . . . . . . 5.34 1.06 0.32 0.28 7.00 0.72 0.68 8.40
1992 June . . . . . . 4.17 0.77 0.26 0.24 5.44 0.80 0.69 6.93
1993 June . . . . . . 3.72 0.86 0.33 0.29 5.20 0.79 0.83 6.82
1994 June . . . . . . 3.43 0.85 0.29 0.36 4.93 0.88 0.83 6.64
1995 June . . . . . . 3.79 .91 0.32 0.29 5.30 0.95 0.81 7.05
- ---------------
</TABLE>
(1) Includes all delinquencies and forbearances; excludes foreclosures and
bankruptcies.
(2) Includes all delinquencies, forbearances, foreclosures and bankruptcies.
Other Services
Insurance Agency Services. The Company provides brokerage services for a
variety of insurance products related to the Company's business and the needs
of the Company's homeowners. The products include temporary hazard insurance,
permanent fire, casualty and extended homeowner coverages and mortgage life
insurance, accidental death, disability and hospital indemnity coverages. The
Company sells insurance products as agent and does not retain any underwriting
risk.
-12-
<PAGE> 13
Field Services. During fiscal 1995, the Company monitored the condition
of properties, assured property preservation and interviewed delinquent
mortgagors through its field services subsidiary. The Company's field services
unit, in addition to its work for the Company, also served approximately 30
leading mortgage servicers. In August 1995, the Company sold certain fixed
assets of the field services operations. See "Item 1. Business--Subsequent
and Other Significant Events."
DISCONTINUED OPERATIONS
Short Term Lending. The Company's short term lending operations were
conducted through its wholly-owned subsidiaries ST Lending, Inc. ("STL"), Lomas
Management, Inc. ("LMI"), which manages the assets of STL, and certain other
real estate subsidiaries. Short term lending operations included activities of
short term construction, acquisition and development lending. Substantially no
new commercial loans have been originated since September 1989. Continued
absence of liquidity in capital and credit markets has caused the Company to
make additional provisions for losses for operations and the disposal of
assets. During fiscal 1995 the Company provided reserves totaling $7.2 million
and $15.5 million, for future operations and expected loss on liquidation of
properties, respectively. At June 30, 1995 the Company had reserves in the
amount of $2.9 million to cover future operating losses and $15.2 million to
cover losses on liquidation of assets.
Information Systems. In December 1994 the Company completed the sale of
substantially all of the assets of its information systems subsidiary ("LIS").
LIS provided information management services and products to the mortgage
banking industry. Its products included software packages for mortgage loan
servicing, loan production, secondary marketing and master servicing. As
consideration for the sale, the Company received $2.5 million in cash; an $8.0
million note due five years after closing and accruing interest at a rate per
annum of 8 percent payable at maturity (which can be adjusted based on the
future financial performance of the purchaser); and a contingent interest equal
to 35 percent of the purchaser's adjusted gross revenues in excess of $55
million per year generated during the seven years ending December 31, 2001.
However, in March 1995, the parent of the purchaser announced its intention to
sell its mortgage banking business which includes the purchaser. According to
the agreement between the Company and the purchaser and under the scenario that
the purchaser's parent is selling the information systems business either with
or separately from its mortgage banking business, the Company may have the
right to accelerate the $8.0 million promissory note. In June 1995 the
purchaser decided not to convert its mortgage servicing portfolio to the LIS
servicing system. As a result, the Company recorded a provision of $24.4
million in June 1995 to write off the Company's carrying value of such asset.
During fiscal 1995 and 1994, the Company recorded total losses of $26.4 and
$33.5 million, respectively, in connection with the disposal.
For more information, see "Item 8. Financial Statements and Supplementary
Data."
REGULATION
The Company is subject to the rules and regulations of, and examinations
by, FNMA, FHLMC, VA, GNMA and state regulatory authorities with respect to
originating, processing, underwriting, selling, securitizing and servicing
residential mortgage loans. In addition, there are other federal and state
statutes and regulations affecting such activities. These rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for mortgage loans, prohibit discrimination,
provide for inspection and appraisals of properties, regulate payment features
and, in some cases, fix maximum interest rates, fees and loan amounts. The
Company is required to submit annual audited financial statements to investors,
and GNMA requires the maintenance of specified net worth levels. The Company's
affairs are also subject to examination by the Federal Housing Commissioner at
all times to assure compliance with FHA regulations, policies and procedures.
Mortgage origination activities are subject to the Equal Credit Opportunity
Act, Federal Truth-In-Lending Act, Real Estate Settlement Procedures Act
("RESPA") and the regulations promulgated thereunder which prohibit
discrimination and require the disclosure of certain information to borrowers
concerning credit and settlement costs. Many of the aforementioned regulatory
requirements are designed to protect the interest of consumers, while others
protect the owners or insurers of mortgage loans. Failure to comply with these
requirements can lead to loss of approved status, termination of servicing
-13-
<PAGE> 14
contracts without compensation to the servicer, demands for indemnification or
loan repurchases, class action lawsuits by borrowers and administrative
enforcement actions. As discussed in more detail in "Item 3. Legal
Proceedings," one of the reasons for the filing of Chapter 11 petitions of the
Debtor Corporations was the concern of the Agencies and private investors that
Lomas Mortgage would soon fail to satisfy many of the foregoing regulatory
requirements.
Certain states require that interest be paid to mortgagors on funds
deposited by them in escrow to cover mortgage- related payments such as
property taxes and insurance premiums. In late 1991, legislation was proposed
in the United States House of Representatives which would establish a uniform
interest payment requirement regarding the payment of interest on, and
otherwise regulate, escrow accounts. If this or similar legislation is enacted
in the future, it would reduce the benefit which the Company currently derives
from the use as compensating balances of that portion of escrow, agency and
fiduciary funds that relates to taxes and insurance. Other proposed federal
legislation, if enacted, would impose minimum capital requirements on FNMA and
FHLMC. To the extent this increases these agencies' costs of operation and a
portion of this cost is passed on to the Company, the Company's results of
operations could be adversely impacted. A recent final rule promulgated by HUD
under the Real Estate Settlement Procedures Act relating to escrow accounting
procedures which essentially mandates the use of aggregate analysis of escrow
accounts has reduced the benefit which the Company derives from escrow, agency
and fiduciary funds.
COMPETITION--GENERAL
The business conducted by the Company is competitive. The Company
competes with other mortgage bankers, other providers of information systems
services to the mortgage banking industry, financial institutions and
subsidiaries of industrial corporations. The Company believes that it competes
in obtaining sources of servicing rights on the basis of price and services
provided. Many of the Company's competitors have financial resources that are
substantially greater than those of the Company. In recent years the Company
has been at a significant competitive disadvantage due to the increasing gap
between its debt service requirements and its financial resources.
EMPLOYEES
At June 30, 1995 the Company had 1,223 full-time employees. None of the
Company's employees were represented by any union.
ITEM 2. PROPERTIES
The Company's principal executive offices are located at 1600 Viceroy
Drive, Dallas, Texas. Its mortgage banking and short term lending operations
are located in nearby buildings in Dallas, Texas, owned by the Company. The
buildings owned by the Company are subject to a first mortgage note executed in
favor of an insurance company. Certain of the Company's headquarter buildings
were held for sale at June 30, 1995, see "Item 1. Business--Subsequent and
Other Significant Events" and "Item 8. Financial Statements and Supplementary
Data." At June 30, 1995 the Company's continuing operations had future minimum
rental commitments for noncancelable leases for office space extending through
June 30, 1999 totaling $1,073,000.
ITEM 3. LEGAL PROCEEDINGS
On October 10, 1995, LFC, Lomas Mortgage and two other insignificant
subsidiaries of LFC (collectively the "Debtor Corporations") filed separate
voluntary petitions for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the District of Delaware. The subsidiary Debtor
Corporations, which have relatively minor amounts of assets and liabilities,
are Lomas Information Systems, Inc. and Lomas Administrative Services, Inc.
As set forth more fully in the Affidavit in Support of First Day Orders
filed with the Bankruptcy Court and filed herewith as Exhibit 10.42, the Debtor
Corporations' financial difficulties and the reasons for filing their
respective petitions were principally attributable to the loss of liquidity and
of the confidence of government and government-
-14-
<PAGE> 15
sponsored agencies (the "Agencies") and private investors who are initial
participants in the mortgage backed securities market. This loss of confidence
stemmed from operating losses incurred as a result of the record portfolio run
off rate experienced by Lomas Mortgage between October 1991 and August 1994 due
to the exceptionally high level of refinancings of mortgages in its mortgage
servicing portfolio as interest rates fell to levels not seen in nearly thirty
years. This unanticipated economic environment doubled Lomas Mortgage's
ordinary portfolio run-off rate (normally around 14% per annum but as high as
49% during this period), and required Lomas Mortgage to devote substantial
capital to replenishing its servicing portfolio. This cash drain, combined
with large book losses reflecting write-downs in servicing rights due to the
accelerated run-off, hindered Lomas Mortgage's ability to borrow, and required
it to sell servicing rights that had higher than average working capital
requirements, leading to a reduction in servicing income and an increase in
financial leverage.
Declining interest rates also hurt the Company in another manner. Between
July 2, 1992, and October 1993, Lomas Mortgage entered into an interest rate
swap program whereby it agreed to pay the interest rate on 30 day A1/P1
commercial paper in return for receiving 5-year fixed rates. While this
program was initially successful, the last $800 million notional principal
amount of swaps created a fluctuating liability which contributed to the
financial risk at the Company and hindered its efforts to sell itself.
Another significant cash problem for the Company was its LIS subsidiary.
LIS developed state-of-the-art computer software and a service bureau for the
mortgage banking industry. A negative marketing campaign sponsored by the
principal competitor of LIS, which capitalized on the poor financial condition
of the Company and the concomitant possibility of its failure, hurt LIS's
marketing efforts. While the Company ultimately divested LIS, principally for
contingent consideration, the Company contributed approximately $65 million to
LIS over the past several years, an amount that it could ill afford in light of
its financial condition.
In 1994, the Company began considering its available alternatives, given
the increasing gap between its debt service requirements and its financial
resources. In March 1994 the Company, with the assistance of its investment
banker, began to seek buyers interested in acquiring the entire company. This
process did not result in the sale of the entire company but did ultimately
result in the sale of LIS to Residential Information Services Limited
Partnership, an affiliate of Prudential Insurance Company, for primarily
contingent consideration.
In December 1994, the LFC board brought in new management which instituted
a complete review of the Company's operations. After a detailed analysis of
all of the Company's business units and balance sheets, new management
concluded that the Company could not be profitable with its current debt
structure and costs of doing business and in its current financial situation,
and faced the risk of termination of its mortgage servicing rights by the
Agencies. Accordingly, the Company reactivated the sale process.
At a meeting of the LFC board of directors on July 18, 1995, the LFC board
considered the results of the sale process and determined that the Company's
management should pursue negotiations toward a definitive agreement with First
Nationwide on the terms it had proposed.
After negotiations commenced, however, the Company became concerned that
the transaction proposed by First Nationwide, which required a Lomas Mortgage
bankruptcy filing before it was consummated, posed a risk that GNMA might
terminate a substantial portion of Lomas Mortgage's mortgage servicing rights
immediately upon such a bankruptcy filing. Approximately 34% of Lomas
Mortgage's mortgage servicing rights, accounting for over $80 million in value,
were potentially subject to confiscation by GNMA.
The Company also became concerned that, in light of the Company's mounting
financial difficulties, all of the Agencies, including GNMA, could declare
Lomas Mortgage to be on the verge of insolvency and could terminate Lomas
Mortgage's mortgage servicing rights even without a Lomas Mortgage bankruptcy
filing. Such a termination would be disastrous to the Company, resulting in a
potential immediate loss of the value of its mortgage servicing portfolios.
The Company concluded that it should sell its GNMA mortgage servicing portfolio
to a third party
-15-
<PAGE> 16
acceptable to GNMA as soon as possible. Therefore, Lomas Mortgage and First
Nationwide began to negotiate for an immediate sale of the GNMA mortgage
servicing rights.
Finally, the Company determined that an immediate sale of its "production"
business, the gathering system by which it acquired whole loans to be processed
into mortgage-backed securities, was also essential to maximizing value. A
Lomas Mortgage bankruptcy filing would result in the immediate loss of all the
value of "production" and could trigger significant Lomas Mortgage liabilities
relating to whole loans and commitments for mortgage-backed securities not yet
issued. Moreover, the value of "production" was threatened even without a
Lomas Mortgage bankruptcy filing because contracting parties, financial
institutions and employees were increasingly reluctant to deal with or rely on
Lomas Mortgage.
On September 5, 1995, Lomas Mortgage and First Nationwide entered into an
asset purchase agreement governing the sale to First Nationwide of various
Lomas Mortgage assets (the "GNMA Servicing Sale"). On October 2, 1995, the
closing on the GNMA Servicing Sale occurred.
On October 6, 1995, the board of Lomas Mortgage, and on October 9, 1995,
the board of LFC, held special meetings to consider the Company's strategic
direction following the GNMA Servicing Sale. At those meetings, management
discussed in detail the financial condition of LFC and Lomas Mortgage. After
careful consideration of the alternatives, management stated its belief that
the option with the best potential to maximize value for the Company's various
constituencies was to enter into the Asset Purchase Agreement with First
Nationwide (the "Asset Purchase Agreement") and thereafter to file petitions
for reorganization with respect to both LFC and Lomas Mortgage, and
simultaneously to seek bankruptcy court approval of the Asset Purchase
Agreement (with full notice to all interested parties and full opportunity for
higher and better offers to be made).
Following management's presentation, the boards deliberated about the
potential courses of action that were available to LFC and Lomas Mortgage. At
the conclusion of those deliberations, each board agreed with the
recommendations that Lomas Mortgage enter into the Asset Purchase Agreement and
that LFC and Lomas Mortgage file petitions for reorganization in an effort to
maximize value for the Company's various constituencies. The boards also
directed management to pursue a section 363 sale of Lomas Mortgage's remaining
servicing assets to First Nationwide, or any entity making a higher and better
offer.
THE CHAPTER 11 PROCEEDINGS
The discussion below sets forth various aspects of the Chapter 11
proceedings, but is not intended to be an exhaustive summary. For additional
information regarding the effect on the Debtor Corporations of the Chapter 11
proceedings, reference should be made to the Bankruptcy Code.
Under Chapter 11, the Debtor Corporations, as debtors-in-possession, are
authorized to continue to operate their businesses; however, they may not
engage in transactions outside the ordinary course of business without first
complying with the notice and hearing provisions of the Bankruptcy Code and
obtaining Bankruptcy Court approval where and when necessary.
Under Chapter 11, substantially all litigation and claims against the
Debtor Corporations at the date of the filings have been stayed while the
Debtor Corporations continue business operations as debtors-in-possession. The
Bankruptcy Code prohibits creditors who are subject to the jurisdiction of the
Bankruptcy Court from the Debtor Corporations, either by commencement or
continuation of a lawsuit or otherwise, unless the Bankruptcy Court terminates
or modifies the automatic stay of litigation or otherwise authorizes payments
by the Debtor Corporations. Accordingly, virtually all of the actions which
were pending against the Debtor Corporations were automatically stayed upon the
filing of the petitions.
At this time, no official unsecured creditors' committee has been formed
and is acting in the Chapter 11 proceedings. The United States Trustee, a
federal official with certain administrative responsibilities in respect of
-16-
<PAGE> 17
bankruptcy proceedings, will appoint one or more official unsecured creditors'
committee and may appoint an official equity security holders' committee to
represent the interests of stockholders of the Company. Official committees
have the right to review and object to certain business transactions and are
expected to participate in the formulation of any plan or plans of
reorganization. The committees are entitled to retain counsel and other
professionals, in each case at the expense of the Debtor Corporations, if they
are retained pursuant to an order of the Bankruptcy Court.
As debtors-in-possession, the Debtor Corporations have the right, subject
to Bankruptcy Court approval and certain other limitations, to assume or reject
certain executory contracts and unexpired leases. In this context,
"assumption" means that the Debtor Corporations agree to perform their
obligations under the contract or lease, and "rejection" means that the Debtor
Corporations are relieved of their obligations to perform further under the
contract or lease and are subject only to a claim for damages resulting from
the breach thereof. Any such damage claims are treated as general unsecured
claims in the reorganization proceedings. The Debtor Corporations are studying
executory contracts and unexpired leases to determine whether assumption or
rejection is appropriate.
Under the Bankruptcy Code, a creditor's claim is treated as secured only
to the extent of the value of such creditor's collateral, and the balance of
such creditor's claim is treated as unsecured. Generally, unsecured and
partially secured debt of an insolvent debtor does not accrue interest after
the Chapter 11 filing.
Claims which were contingent or unliquidated at the commencement of the
Chapter 11 proceedings are generally allowable against the Debtor Corporations.
These claims, including, without limitation, those which arise in connection
with rejection of unfavorable executory contracts and leases, could be
substantial.
PLAN OF REORGANIZATION--PROCEDURES
For 120 days after the date of the filing of a voluntary Chapter 11
petition, a debtor-in-possession has the exclusive right to propose and file a
plan of reorganization with the Bankruptcy Court. If a debtor-in-possession
files a plan of reorganization during the 120-day exclusive period, no other
party may file a plan of reorganization until 180 days after the date of filing
of the Chapter 11 petitions. Until the end of this 180-day period, the
debtor-in- possession has the exclusive right to solicit acceptances of the
plan. The Bankruptcy Court may extend the 120-day and 180-day periods for
cause shown.
The Debtor Corporations intend to file a plan or plans of reorganization
as soon as practicable. The Debtor Corporations currently have the exclusive
right to file a plan or plans of reorganizations until February 7, 1996 and, if
a plan is filed by such date, to solicit acceptances until April 7, 1996. Due
to the complexities and magnitude of the issues involved, the Debtor
Corporations may not to be able to file a plan or reorganization during the
initial 120- day exclusive period, in which case they will likely seek an
extension of such period. There can be no assurance that such extension will
be granted.
If the Debtor Corporations fail to file a plan during the exclusive period
or, if such plan has been filed, fail to obtain acceptance of such plan from
impaired classes of its creditors and equity security holders during the
exclusive solicitation period, any party in interest, including a creditor, an
equity security holder, a committee of creditors or equity security holders, or
an indenture trustee may file a plan. Additionally, if the Bankruptcy Court
were to appoint a trustee (see below), the exclusive period, if not previously
terminated, would terminate.
Before solicitation of acceptance or rejection of any plan or
reorganization may be made, the Bankruptcy Court requires that a disclosure
statement approved by the Bankruptcy Court and a copy or summary of the plan be
sent to those who are being solicited. Before approving a disclosure
statement, the Bankruptcy Court is required to determine that the disclosure
statement contains "adequate information," a term defined by the Bankruptcy
Code to be information of a kind and in sufficient detail to permit a
hypothetical reasonable investor typical of the class being solicited to make
an informed judgment about the plan.
-17-
<PAGE> 18
After a plan has been filed with the Bankruptcy Court, it will be sent,
along with a disclosure statement approved by the Bankruptcy Court following
hearing, to all classes of impaired creditors and equity security holders for
acceptance or rejection. A plan is considered accepted by a class of creditors
if it is accepted in writing by creditors who hold at least two-thirds in
amount and more than one-half in number of all allowed claims of that class
held by creditors who actually vote. A plan is considered accepted by a class
of equity security holders if it is accepted in writing by equity security
holders who hold at least two-thirds in amount of the allowed interests held by
all equity security holders in such class who actually vote.
Following acceptance or rejection of any plan by impaired classes of
creditors and equity security holders, the Bankruptcy Court at a noticed
hearing would consider whether to confirm the plan. Among other things, for
confirmation, the Bankruptcy Court is required to find that (i) each impaired
class of creditors and equity security holders will, pursuant to the plan,
receive at least as much as the class would have received in liquidation, (ii)
each impaired class of creditors and equity security holders has accepted the
plan by the requisite vote and (iii) confirmation of the plan is not likely to
be followed by the liquidation or need for further financial reorganization of
the debtor or any successor unless the plan proposes such liquidation or
reorganization.
If any impaired class of creditors or equity security holders does not
accept a plan and assuming that all of the other requirements of the Bankruptcy
Code are met, the proponent of the plan may invoke the so-called "cram down"
provisions of the Bankruptcy Code. Under these provisions, the Bankruptcy
Court may confirm a plan notwithstanding the nonacceptance of the plan by an
impaired class of creditors or equity security holders if certain requirements
of the Bankruptcy Code are met. These requirements may necessitate provision
in full for holders of more senior claims before provision for holders of more
junior claims and equity security holders could be made.
The Bankruptcy Code permits the Bankruptcy Court to appoint a trustee or
examiner on request of any creditor, equity security holder, committee or other
party in interest. In order for a trustee to be appointed, a requesting party
after notice and a hearing, must show cause, such as gross mismanagement by
current management, or show that such appointment is in the best interest of
the creditors in the case. No such showing is required for the appointment of
an examiner, although the scope of the examiner's investigation is left to be
determined by the Bankruptcy Court, after notice and a hearing. No request for
a trustee or an examiner has been made in the Debtor Corporations' Chapter 11
proceedings to date.
OTHER
The Company is involved in a number of lawsuits considered to be in the
normal course of business. In management's opinion, the resolution of these
disputes will not have a material adverse effect on the financial position of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-18-
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The New York Stock Exchange trading symbol for LFC's common stock is LFC.
The approximate number of holders of record of LFC's common stock at June 30,
1995 was 2,700. In addition, depository companies held stock for approximately
9,700 beneficial owners. There were approximately 2,300 holders of LFC's
warrants and approximately 300 holders of LFC's 9 percent Senior Convertible
Notes. During the last two fiscal years, LFC has not declared any dividends
and the high and low prices per share have been as follows:
<TABLE>
<CAPTION>
1995 1994 Dividends Declared
---------------- ----------------- ------------------
High Low High Low 1995 1994
------- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First quarter . . . . . . . . . . . . . . . . . 6 1/4 4 3/8 10 1/2 7 7/8 -- --
Second quarter . . . . . . . . . . . . . . . . 4 5/8 3 10 7/8 7 1/4 -- --
Third quarter . . . . . . . . . . . . . . . . . 3 1 3/4 9 1/4 7 1/4 -- --
Fourth quarter . . . . . . . . . . . . . . . . 1 3/8 1/2 8 1/2 4 5/8 -- --
</TABLE>
LFC is restricted from paying dividends on its common stock under the
terms of its $140 million 9 percent Senior Convertible Notes, which limits any
dividends to 50 percent of LFC's consolidated net income after January 1, 1992.
For information concerning restrictions of Lomas Mortgage's $150 million 9.75
percent notes and $190 million 10.25 percent notes on dividend payments and
advances to LFC, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Item 8. Financial
Statements and Supplementary Data."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
All periods presented below have been restated for discontinued
operations. See "Item 8. Financial Statements and Supplementary Data" and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations." Effective December 31, 1991 the Company adopted fresh
start reporting in connection with the Company's reorganization. See "Item 8.
Financial Statements and Supplementary Data--Accounting Policies." Since
January 1, 1992 a vertical black line has been placed to separate
pre-reorganization financial data from post-reorganization financial data since
they are not prepared on a comparable basis.
-19-
<PAGE> 20
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
Year Ended June 30 Six Months Six Months
----------------------------------- Ended Ended Year Ended
1995 1994 1993 June 30, 1992 December 31, 1991 June 30, 1991
---------- ---------- --------- ------------- ----------------- -------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: . . .
Revenues from continuing
operations . . . . . . . . . . $ 219,322 $ 271,058 $ 293,354 $ 132,613 $ 129,699 $ 210,656
Income (loss) from continuing
operations . . . . . . . . . . $ (104,632) $ (108,502) $ 29,557 $ 11,558 $ (2,652) $ 32,194
Loss from discontinued
operations . . . . . . . . . . $ (49,059) $ (74,164) $ (17,263) $ (29,280) $ (20,211) $(151,263)
Extraordinary item . . . . . . . -- -- -- -- $ 932,238 --
Net income (loss) . . . . . . . $ (153,691) $ (182,666) $ 12,294 (17,722) $ 909,375 $(119,069)
Earnings (loss) per share:
Income (loss) from continuing
operations . . . . . . . . . $ (5.19) $ (5.39) $ 1.47 $ .57 * *
Net income (loss) . . . . . . $ (7.63) $ (9.07) $ .61 $ (.88) * *
Average number of shares . . . . 20,154 20,132 20,117 20,108 * *
</TABLE>
*Not meaningful due to different capital structure.
<TABLE>
<CAPTION>
As of June 30
----------------------------------------------- As of
1995 1994 1993 1992 June 30, 1991
--------- ------- --------- --------- -------------
(in thousands of dollars)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Assets of continuing operations . . . . . . . . . 1,121,520 964,315 1,279,929 1,392,180 1,335,395
Purchased future mortgage servicing
income rights . . . . . . . . . . . . . . . . . 346,958 382,009 436,487 418,617 364,633
First mortgage loans held for sale . . . . . . . . 345,039 257,534 368,266 387,726 242,955
Term and senior convertible notes . . . . . . . . 518,688 523,229 532,198 515,020 62,020
Liabilities subject to Chapter 11 proceedings . . -- -- -- -- 2,010,741
Stockholders' equity (deficit) . . . . . . . . . . (11,878) 141,435 324,079 309,310 (602,703)
Escrow, agency and fiduciary funds . . . . . . . . 641,519 603,163 1,082,591 709,048 1,203,250
</TABLE>
<TABLE>
<CAPTION>
As of June 30
-----------------------------------------------------------
1995 1994 1993 1992 1991
--------- ---------- ---------- --------- --------
(dollars in billions, except loan data)
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Unpaid principal amount of mortgage loans serviced:
Mortgage servicing . . . . . . . . . . . . . . . . . $ 33.1 $ 34.0 $ 32.7 $ 29.3 $ 26.9
Master servicing . . . . . . . . . . . . . . . . . . $ 8.1 $ 8.4 $ 12.5 $ 10.1 $ 4.6
Number of loans:
Mortgage servicing . . . . . . . . . . . . . . . . . 540,325 565,531 605,655 600,205 628,734
Master servicing . . . . . . . . . . . . . . . . . . 140,227 136,609 169,302 120,864 84,680
Average loan size:
Mortgage servicing . . . . . . . . . . . . . . . . . $ 61,235 $ 60,103 $ 53,953 $ 48,881 $ 42,853
Master servicing . . . . . . . . . . . . . . . . . . $ 57,495 $ 61,816 $ 74,064 $ 83,193 $ 54,264
Loans serviced per employee . . . . . . . . . . . . . 1,026 980 920 886 916
</TABLE>
-20-
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's continuing operations recorded losses of $104.6 million and
$108.5 million for fiscal years ended June 30, 1995 and 1994, respectively.
For fiscal 1993 continuing operations produced pretax income of $33.4 million.
Discontinued operations incurred losses of $49.1 million, $74.2 million and
$17.3 million for fiscal 1995, 1994 and 1993, respectively.
The operating results of the Company during the three years ended June 30,
1995, 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Continuing operations:
Mortgage banking . . . . . . . . . . . . . . . . . . . . . . . . . . $ (82,821) $ (82,195) $ 40,031
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,521 (197) 13,207
---------- ---------- --------
Operating profit (loss) . . . . . . . . . . . . . . . . . . . . . (81,300) (82,392) 53,238
Operating expenses:
General and administrative . . . . . . . . . . . . . . . . . . . . (6,587) (9,327) (7,232)
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . (162) -- --
Provision for restructuring . . . . . . . . . . . . . . . . . . . (2,800) (3,630) --
Corporate interest . . . . . . . . . . . . . . . . . . . . . . . . (13,783) (13,153) (12,637)
---------- ---------- --------
Income (loss) from continuing operations before
federal income taxes . . . . . . . . . . . . . . . . . . . . . (104,632) (108,502) 33,369
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . -- -- 3,812
---------- ---------- --------
Income (loss) from continuing operations . . . . . . . . . . . . (104,632) (108,502) 29,557
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . (49,059) (74,164) (17,263)
---------- ---------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ (153,691) $ (182,666) $ 12,294
========== ========== ========
</TABLE>
Of the $104.6 million loss from continuing operations in fiscal 1995,
$57.7 million was non-recurring special provision for losses and $9.0 million
was restructuring charges in connection with the Company's 1995 reduction in
force plan. During fiscal 1995 the Company performed thorough analyses and
cleanup of mortgage servicing related receivables and other assets and recorded
charges totaling $19.7 million for mortgage servicing related receivables and
mortgage banking commitments and contingencies. In addition, the Company
recorded losses of approximately $35 million for certain buildings and other
assets that were or will be disposed of. Of the total $35 million, $3.0
million was included in the $9.0 million restructuring charges. Also included
in the $57.7 million was a loss related to the Company's reverse interest rate
swaps. At the beginning of the second quarter of fiscal 1995, the amount of
fixed rate debt dropped below the notional amount of the swaps, the Company
recorded a pro rata loss of $7.4 million. See "Item 8. Financial Statements
and Supplementary Data."
Loss from continuing operations in fiscal 1994 included $95.6 million
non-recurring charges. The Company reduced the carrying value of its
investment in purchased mortgage servicing rights by $80 million and recorded a
$15.6 million provision to cover the cost of two workforce reduction plans and
restructurings.
Loss from discontinued operations for fiscal 1995 included provisions for
writeoff of LIS earn-out revenues of $24.4 million and additional loss of $2.0
million from LIS operations through the date of sale of LIS. The Company also
recorded a provision of $7.2 million for future short term lending operations
through the disposition of all assets and a $15.5 million provision for losses
on disposition of all assets. Of the $74.2 million loss from discontinued
operations in fiscal 1994, $51 million was derived from special charges of a
$33.5 million provision related to the sale
-21-
<PAGE> 22
of LIS and a $17.5 million related to the short term lending operations. The
$23.2 million remainder loss for fiscal 1994 was derived from the LIS
operations.
RESTRUCTURING AND REDUCTION IN FORCE
In January 1995 the Company announced a restructuring and
reduction-in-force plan (the "1995 Plan"). Under the plan, the Company reduced
its staff by approximately 200 employees. The plan was completed by June 30,
1995. In connection with the 1995 Plan, the Company vacated one of its office
buildings which is being disposed of. The Company recorded charges of $6.0
million for the staff reduction and $3.0 million for the reduction in the
carrying value of the vacated building. Of the total $6.0 million of staff
reduction provision, $2.3 million was the pension plan curtailment loss
(noncash charge) related to the enhanced pension benefits for involuntary
retirees. The Company paid termination benefits of $3.7 million in cash
generated from its operations.
In fiscal 1994 the Company adopted two restructuring plans. The plans
were completed in December 1994. Under the two plans, the Company reduced its
staff by approximately 400 employees and paid cash termination benefits
totaling $9.5 million. Total provisions recorded by the continuing operations
under these plans were $15.6 million including noncash pension curtailment loss
of $1.3 million and writedowns of certain Company-owned office buildings and
termination of certain lease agreements of $3.9 million.
-22-
<PAGE> 23
RESULTS OF OPERATIONS--YEAR ENDED JUNE 30, 1995 COMPARED WITH YEAR ENDED JUNE
30, 1994
Mortgage Banking. During the years ended June 30, 1995, 1994 and 1993 the
operating results of mortgage banking were as follows (in millions):
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Loan Administration
Revenues . . . . . . . . . . . . . . . . . $ 123.7 $ 135.7 $ 137.4
Expenses . . . . . . . . . . . . . . . . . (51.4) (58.3) (57.1)
Impairment provisions . . . . . . . . . . (5.4) (80.0) --
Amortization . . . . . . . . . . . . . . . (52.5) $ 14.4 (67.7) $ (70.3) (61.6) $ 18.7
------- -------- --------
Master servicing
Revenues . . . . . . . . . . . . . . . . . 11.8 12.1 13.5
Expenses . . . . . . . . . . . . . . . . . (7.4) (8.0) (8.7)
Amortization . . . . . . . . . . . . . . . (1.3) 3.1 (0.6) 3.5 (0.3) 4.5
------- -------- --------
Insurance
Agency . . . . . . . . . . . . . . . . . . 9.8 8.9 8.2
Mortgage plans . . . . . . . . . . . . . . 5.9 4.7 4.4
Expenses . . . . . . . . . . . . . . . . . (5.6) 10.1 (4.9) 8.7 (4.9) 7.7
------- -------- --------
Banking (including warehousing and
investment income and interest expense)
Revenues . . . . . . . . . . . . . . . . . 38.7 44.8 50.3
Expenses . . . . . . . . . . . . . . . . . (68.4) (29.7) (66.7) (21.9) (65.1) (14.8)
------- -------- --------
Portfolio production
Revenues . . . . . . . . . . . . . . . . . 16.1 49.5 37.0
Expenses . . . . . . . . . . . . . . . . . (18.0) (1.9) (32.1) 17.4 (18.8) 18.2
------- -------- --------
Field services
Revenues . . . . . . . . . . . . . . . . . 11.2 13.6 15.1
Expenses . . . . . . . . . . . . . . . . . (11.7) (0.5) (13.1) 0.5 (13.8) 1.3
------- -------- --------
Fund and asset management
Revenues . . . . . . . . . . . . . . . . . -- 8.3 22.8
Expenses . . . . . . . . . . . . . . . . . -- -- (2.2) 6.1 (6.0) 16.8
------- -------- --------
General and administrative expense . . . . . (14.7) (17.1) (12.4)
------- ------- -------
Income (loss) before special provisions . (19.2) (73.1) 40.0
Special provisions for losses . . . . . . . . (57.4) -- --
Provision for restructuring . . . . . . . . . (6.2) (9.1) --
------- ------- -------
Income (loss) from continuing operations . $ (82.8) $ (82.2) $ 40.0
======= ======= =======
</TABLE>
-23-
<PAGE> 24
The loan administration unit generated operating income of $19.8 million
before a $5.4 million impairment provision in fiscal 1995 compared to income of
$9.7 million before an $80.0 million provision for impairment in fiscal 1994.
The operating results change reflected a significant decline in the
Company's servicing portfolio runoff rate from 33 percent during fiscal 1994 to
12.6 percent during fiscal 1995 as a result of higher mortgage interest rates
during the first nine months of fiscal 1995. Portfolio amortization expenses
declined from $67.7 million (before an $80 million impairment) in fiscal 1994
to $52.5 million (before a $5.4 million impairment) in fiscal 1995. However,
during the fourth quarter of fiscal 1995 lower mortgage interest rates had
prompted increase in prepayments and the Company recorded an impairment of $5.4
million. The annualized portfolio runoff rate for the June 1995 quarter was
12.7 percent compared to 10.3 percent in the March 1995 quarter. During the
first six months of fiscal 1994 the annualized portfolio runoff rate
accelerated to 41.5 percent, the Company booked an $80 million impairment
provision during that period. Loan administration related expenses decreased
from $58.3 million in fiscal 1994 to $51.4 million in fiscal 1995. The
decrease in expense reflected the reduction in force plans implemented by the
Company.
As a result of reduction in the Company-owned primary servicing portfolio
from $28.5 billion at June 30, 1994 to $26.6 billion at June 30, 1995,
servicing fees generated from the Company-owned portfolio declined from $129.6
million to $116.5 million. This decline is partially offset by increase in
subservicing fees. Subservicing fees increased from $6.1 million during fiscal
1994 to $7.2 million in fiscal 1995. Subservicing portfolio increased by
approximately $1.0 billion in unpaid principal balance of mortgage loans to
$6.5 billion at June 30, 1995.
Master servicing operations generated income of $3.1 million during fiscal
1995 compared to $3.5 million in fiscal 1994. Master servicing portfolio
totaled $8.1 billion and $8.4 billion at June 30, 1995 and 1994, respectively.
The Company periodically monitors its servicing portfolio to determine if
adjustments should be made to its amortization schedules or carrying values of
its PMSRs due to changes in interest rates, current prepayment rates, expected
future prepayment rates and certain other factors. The amortization and
impairment analyses are performed for individual mortgage tranches with similar
economic characteristics on an undiscounted basis. If an individual mortgage
tranche's estimated undiscounted net cash flow is less than the carrying value
of the tranche, that tranche is written down to the projected amount of the
undiscounted cash flow. In addition, the Company amortizes the capitalized
PMSRs in proportion to, and over the period of, the estimated net servicing
income. This policy causes a larger portion of the PMSRs to be amortized in
earlier periods. The expected life of the estimated net servicing income is
based on the expected prepayment rates of the underlying mortgages within the
tranches. See "Item 8. Financial Statements and Supplementary."
The following is an analysis of servicing fee income for the three years
ended June 30, 1995 (in thousands).
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Servicing fee income:
Primary:
Directly owned . . . . . . . . . . . . . . . . . . . . . . $ 116,475 $ 129,578 $ 134,241
Subservicing for others . . . . . . . . . . . . . . . . . 7,219 6,079 3,238
--------- --------- ---------
123,694 135,657 137,479
Master servicing portfolio . . . . . . . . . . . . . . . . . 11,782 12,103 13,456
--------- --------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 135,476 $ 147,760 $ 150,935
========= ========= =========
</TABLE>
-24-
<PAGE> 25
The following table sets forth certain information regarding the Company's
servicing portfolio (dollars in millions):
<TABLE>
<CAPTION>
June 30
---------------------
1995 1994
-------- -----------
<S> <C> <C>
Portfolio principal balances:
Primary:
Directly owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,560 $ 28,455
Subservicing for others . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,527 5,535
-------- --------
33,087 33,990
Master servicing portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,062 8,445
-------- --------
$ 41,149 $ 42,435
======== ========
Portfolio loan count:
Primary:
Directly owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 470,723 495,524
Subservicing for others . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,602 70,007
-------- --------
540,325 565,531
Master servicing portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,227 136,609
-------- --------
680,552 702,140
======== ========
Weighted average interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6% 8.3%
</TABLE>
Insurance agency and optional mortgage insurance operations contributed
income of $10.1 million in fiscal 1995 compared to $8.7 million in 1994. The
improved results during fiscal 1995 are primarily due to an increase in the
volume of insurance policies and higher insurance premiums on mortgage
insurance.
The banking unit recorded net expenses of $29.7 million for fiscal 1995
compared to $21.9 million for fiscal 1994. Banking revenues decreased by $6.1
million from $44.8 million in fiscal 1994 to $38.7 million in fiscal 1995. The
decrease in revenues is attributable primarily to the fact that the average
amount of the first mortgage loans held in warehouse pending delivery to
permanent investors was substantially lower in fiscal 1995 ($294 million) than
in fiscal 1994 ($432 million) as a result of lower production volumes caused by
higher interest rates. In addition, banking revenues for fiscal 1994 included
a $2.3 million interest rate swap termination fee which was not accounted for
as a hedge. Banking expenses increased by $1.7 million to $68.4 million in
fiscal 1995. Paid-in-full ("PIF") interest, which is incurred when loans
securing payment of mortgage-backed securities in the Company's primary
servicing portfolio are prepaid prior to the end of a given month, totaled $5.4
million for fiscal 1995 and was $18.7 million in fiscal 1994. However, the
positive variance on PIF interest was offset by the interest rate swap program
during fiscal 1995. During fiscal 1995 the interest rate swap program incurred
total interest expense of $2.6 million. For fiscal 1994 the swap program
reduced the Company's interest expense by $11.6 million.
Portfolio production operations recorded a loss of $1.9 million in fiscal
1995 compared to income of $17.4 million in fiscal 1994. Portfolio production
through flow acquisitions added $5.9 billion principal amount of mortgages to
the Company's mortgage servicing portfolio in fiscal 1995. In fiscal 1994 the
flow acquisition was $12.2 billion. The production volumes in fiscal 1995 were
affected by higher interest rates. Portfolio production revenues for the years
ended June 30, 1995 and 1994 included $2.2 million and $24.3 million,
respectively, of gains from sales of first mortgage loans and related servicing
rights. Included in the $2.2 million gains for fiscal 1995 was a $2.1 million
loss recorded on the sale of a servicing portfolio of $2.3 billion in unpaid
principal balance of mortgage loans. From the sale, the Company received $21.9
million of cash.
Fund and asset management unit was discontinued and transferred to
Capstead Mortgage Corporation ("Capstead") during fiscal 1994 when Capstead
became self-administered at September 30, 1993. Accordingly, the unit, which
contributed $6.1 million of income in fiscal 1994, contributed nothing in
fiscal 1995.
General and administrative expenses decreased from $17.1 million in fiscal
1994 to $14.7 million in fiscal 1995. The decrease is attributable to the
Company's cost-cutting efforts and streamlining of its operations.
-25-
<PAGE> 26
Of the $57.7 million total special provisions for losses taken in fiscal
1995 for continuing operations as discussed previously, $57.4 million was
recorded by the mortgage banking operations as follows:
. provisions of $13.1 million to cover certain mortgage servicing
related receivables and other assets ($7.1 million cash charge
and $6.0 million noncash charge);
. provision of $6.6 million (cash charge) for mortgage banking
commitments and other contingencies;
. provision of $26.9 million (noncash charges) for reduction in
the carrying values of Company-owned land and buildings;
. provision of $3.4 million (noncash charges) for reduction in the
carrying values of other fixed assets (furniture and equipment);
. a $7.4 million pro rata interest rate swap loss recognition.
The loss represented the mark-to-market exposure of the unhedged
swaps at the beginning of the second quarter of fiscal 1995 when
the amount of hedged fixed rate debt dropped below the notional
amount of the swaps.
Mortgage banking operations recorded a provision for restructuring of $6.2
million under the 1995 Plan of which $3.0 million was related to the vacated
office building previously discussed and $1.6 million represented noncash
pension curtailment loss. Mortgage banking division paid termination benefits
of $1.8 million in cash. In fiscal 1994 the Company adopted two restructuring
and reduction in force plans and the mortgage banking division recorded charges
totaling $9.1 million.
Other. The Company's other operations during the year ended June 30, 1995
recorded income of $1.5 million compared to a loss of $197,000 for fiscal 1994.
For fiscal 1995 and 1994, other income included gains of $2.8 million and $3.9
million, respectively, from settlements of certain contractual provisions
related to the Company's sale of ELLCO Leasing Corporation in fiscal 1991.
Other income for fiscal 1994 also included a $1.4 million of gain from sale of
a promissory note which the Company received in connection with the sale of its
life insurance operations. For fiscal 1995 and 1994 the Company's image
processing unit incurred losses of $3.6 million and $4.9 million (after a $1.3
million restructuring provision), respectively. In addition to the
restructuring provision recorded by the image processing unit, the Company's
other operations recorded provisions of $2.6 million in fiscal 1994 for
restructuring and writedown of investments.
RESULTS OF OPERATIONS--YEAR ENDED JUNE 30, 1994 COMPARED WITH YEAR ENDED JUNE
30, 1993
Loan administration operating income for fiscal 1994, before an $80.0
million provision to reduce the carrying value of the Company's investment in
PMSRs, was $9.7 million, down from $18.7 million in fiscal 1993, principally
because portfolio amortization at $67.7 million in fiscal 1994 before the $80.0
million provision for PMSR impairment was $6.1 million higher than in fiscal
1993. The Company's portfolio runoff rate on an annualized basis was 33.0
percent during fiscal 1994 compared to 31.3 percent during fiscal 1993. The
runoff rate on an annualized basis for the month of June 1994 had been reduced
to 18.6 percent. The Company's booked investment in its $34.0 billion primary
mortgage servicing portfolio was $382.0 million at June 30, 1994.
The decrease in master servicing revenues was principally a result of the
decline in the master servicing portfolio to $8.4 billion during fiscal 1994,
down from $12.5 billion at June 30, 1993, which was caused by unusually high
rates of runoff (particularly of Capstead Mortgage Corporation ("Capstead")
related mortgages) and the cessation of additions of new Capstead related loans
to the Company's master servicing portfolio.
The banking unit's net expense of $21.9 million for fiscal 1994 was $7.1
million higher than the $14.8 million net expense reported for fiscal 1993.
Paid-in-full ("PIF") interest, which is incurred when loans securing payment of
mortgage-backed securities in the Company's primary servicing portfolio are
prepaid prior to the end of a given month, was $18.7 million for both fiscal
1994 and 1993. Net interest savings from the Company's reverse interest rate
swaps declined from $17.7 million in fiscal 1993 to $13.9 million in fiscal
1994. Increased warehouse credit line commitment fees and service charges
resulted in a $2.6 million increase in net expense. Such fees and charges
totaled
-26-
<PAGE> 27
$4.5 million in fiscal 1994 as compared to $1.6 million in fiscal 1993,
principally due to increased warehouse credit facilities from $317.5 million at
June 30, 1993 to $580.0 million at June 30, 1994.
Subsequent to June 30, 1994, the Company renegotiated its mortgage loan
warehouse credit facilities with various banks to reduce the total bank
warehouse lines of credit from $580 million to $120 million. As a result, the
Company's banking fees were reduced in fiscal 1995.
Income from portfolio production for fiscal 1994 was $17.4 million, down
from $18.2 million in fiscal 1993. Revenues and expenses were $12.5 million
and $13.3 million higher in fiscal 1994 than in 1993, respectively. The
principal reason for the higher revenues and expenses in fiscal 1994 was
because of the higher portfolio production in fiscal 1994 than in 1993. The
Company added $12.2 billion principal amount of mortgages through flow
production to its servicing portfolio in fiscal 1994 and net of record
portfolio runoff, increased the unpaid principal balance of its primary
servicing portfolio from $32.7 billion at June 30, 1993. However, during
fourth quarter of fiscal 1994, as a result of higher interest rates, portfolio
production was $1.6 billion as compared to $4.4 billion in March quarter, $3.5
billion in December quarter and $2.7 billion in September quarter. The
decrease in portfolio production in the fourth quarter of fiscal 1994 accounted
for the decline in operating income in portfolio production operations in
fiscal 1994 as compared to fiscal 1993. Total portfolio production through
flow acquisition was $10.2 billion in fiscal 1993. Portfolio production
revenues for fiscal 1994 and 1993 included $24.3 million and $14.3 million,
respectively, of gains from sales of first mortgage loans and related servicing
income rights.
Due to termination of the management agreement between the Company and
Capstead, Capstead became self-administered at September 30, 1993. The fund
and asset management unit received $4.8 million in fiscal 1994 as a result of
the termination of the management agreement. The Company recorded Capstead
related fee income totaling $6.1 million and $16.8 million in fiscal 1994 and
1993, respectively.
The mortgage banking division's general and administrative costs increased
during fiscal 1994 principally as a result of increased legal expenses, other
external professional fees and corporate absorbed costs relating to unallocated
office space. In fiscal 1993 these costs were charged to its affiliates.
The Company established provisions of $80.0 million in fiscal 1994 for
impairment in the carrying value of its PMSRs in response to an unprecedented
level of mortgage prepayments in such periods. In addition, the mortgage
banking division also established in fiscal 1994 provisions to cover the cost
of the reduction-in-force that occurred in January 1994 and reduction-in-force
and restructuring that was approved in June 1994.
Other. Other operations recorded a loss of $197,000 for fiscal 1994
compared to an income of $13.2 million for fiscal 1993. Other income for
fiscal 1994 included $2.1 million of gain on sale of a promissory note, which
had been received by the Company in connection with the sale of its life
insurance operations and sale of an option to purchase 500,000 shares of
Capstead common stock. Amendments to certain contractual provisions related to
the Company's 1991 sale of ELLCO Leasing Corporation added $3.9 million in
other income in fiscal 1994. Other operations for fiscal 1994 also included a
$4.9 million loss from the Company's image processing operations. Other
operations, during fiscal 1994, recorded provisions for restructuring of $2.9
million and a $1.0 million charge for writedown of investments. Of the $2.9
million restructuring provisions, $1.3 million was included in the $4.9 million
loss from the image processing operations.
Other income during the year ended June 30, 1993 included a $2.2 million
of gain on sale of securities, amendments to the Company's relationship with
Capstead also contributed $3.0 million in other income. In addition, other
income included $4.9 million of investment income and $3.1 million derived from
other sources.
DISCONTINUED OPERATIONS
Discontinued operations include the Company's short term lending
operations and information systems operations.
-27-
<PAGE> 28
In December 1994 the Company completed the sale of substantially all of
the assets of its information systems subsidiary ("LIS") to an insurance
company ("Purchaser"). As consideration for the sale, the Company received
$2.5 million in cash; an $8.0 million note due five years after closing and
accruing interest at a rate per annum of 8 percent payable at maturity (which
can be adjusted based on the future financial performance of the Purchaser);
and a contingent interest equal to 35 percent of the Purchaser's adjusted gross
revenues in excess of $55 million per year generated during the seven years
ending December 31, 2001. However, in March 1995, the parent of the Purchaser
announced its intention to sell its mortgage banking business which includes
the Purchaser. According to the agreement between the Company and the
Purchaser and under the scenario that the Purchaser's parent is selling the
information systems business either with or separately from its mortgage
banking business, the Company would have the right to accelerate the $8.0
million promissory note. In June 1995 the Purchaser decided not to convert its
mortgage servicing portfolio to the LIS servicing system. As a result, the
Company recorded a provision of $24.4 million in June 1995 to write off the
Company's carrying value of such asset. During fiscal 1995 and 1994, the
Company recorded total losses of $26.4 million (including the $24.4 provision
for the earn-out) and $33.5 million, respectively, in connection with the
disposal.
The Company's discontinued short term lending operations include ST
Lending, Inc. ("STL"), Lomas Management, Inc. ("LMI"), which manages the
assets of STL, and certain other real estate operations. During fiscal 1995,
1994 and 1993 the Company provided reserves totaling $22.7 million, $17.5
million and $4.5 million, respectively, to cover expected loss on liquidation
of properties and future operating losses through the disposition of all
properties. For each of the three years ended June 30, 1995 losses of $51.9
million, $17.2 million and $14.2 million, respectively, had been charged to
these reserves.
See "Item 8. Financial Statements and Supplementary Data" for more
information.
LIQUIDITY AND CAPITAL RESOURCES
The outstanding capital and credit resources of the Company at June 30,
1995 included (in millions):
<TABLE>
<S> <C>
Short term debt (self-liquidating) of Lomas Mortgage:
Secured by first mortgage loans pending delivery to permanent investors . . . . . . . $ 164.8
Secured by FNMA securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.4
Secured by reverse repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . 44.1
Secured by high quality short term investments . . . . . . . . . . . . . . . . . . . . 251.0
Other short term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8
---------
591.1
---------
Term debt of Lomas Mortgage:
Notes due in 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150.0
Notes due in 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.8
---------
378.8
---------
Convertible notes of LFC due in 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . 139.9
Stockholders' equity (deficit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11.9)
---------
$ 1,097.9
=========
</TABLE>
Short term debt was $591.1 million at June 30, 1995, including $251.0
million principal amount borrowed under investment lines of credit and $288.1
million principal amount of warehouse and repurchase debt secured by
single-family mortgage loans pending delivery to permanent investors and
mortgage-backed securities. Investment lines of credit were secured by high
quality short term investments purchased with the proceeds of such lines of
credit. The short term notes payable under reverse repurchase agreements are
secured by single-family mortgage loans which,
-28-
<PAGE> 29
at that date, were committed for sale to institutional investors. Such short
term notes (and therefore the related warehouse indebtedness) normally are
self-liquidating and require no supplemental liquidity support from LFC or any
of its subsidiaries. Commercial paper and bank certificates of deposit of
non-affiliated commercial banks are funded with proceeds from, and are pledged
as collateral for, investment lines of credit. The commercial paper and bank
certificates of deposit have fixed rates of interest and generally mature
within 31 days, at which time the investment lines of credit are paid down. As
a result, all short term indebtedness is self-liquidating and none of it
constitutes any burden on operating cash flow.
Subsequent to June 30, 1995, the investment lines of credit were canceled
as the underlying investments matured.
Under the terms of the most restrictive servicing principal and interest
payment credit line (the "P&I Line") and warehouse agreement in effect at June
30, 1995, Lomas Mortgage's consolidated debt-to-equity ratio as defined in the
agreement was required not to exceed 270 percent; or 420 percent if adopting
both Statements of Financial Accounting Standards ("SFAS") No. 121 and No. 122
(see "Item 8. Financial Statements and Supplementary Data"). The minimum net
worth requirement for Lomas Mortgage as defined in the agreement was $140
million; or $85 million if adopting both SFAS No. 121 and No. 122. At June 30,
1995 Lomas Mortgage's debt-to-equity ratio was 316 percent and net worth as
defined was $119.9 million.
Because the Company failed to meet certain ratios contained in its bank
credit lines at June 30, 1995, the Company repaid its credit line known as the
P&I Line in July 1995. At June 30, 1995, the balance of this line was $7.8
million. The Company also repaid certain of its bank warehouse credit lines on
October 2, 1995. The balance of these lines at June 30, 1995, was $91.4
million.
At June 30, 1995, the Company was in default on certain covenants
contained in a warehouse and reverse repurchase agreement with a financial
institution. At June 30, 1995, the balance of the warehouse line was $73.3
million and the balance of the reverse repurchase agreement was $44.1 million.
In September 1995, the Company sold to a bank the first mortgage loans
underlying the reverse repurchase agreement and paid off the outstanding
balance of this credit line. The remaining first mortgage loans
collateralizing the warehouse agreement were also sold and related warehouse
debt was assumed by the purchaser. For further discussion, see "Item 1.
Business -- Subsequent and Other Significant Events."
During the fourth quarter of fiscal 1995 a repurchase agreement was
established with FNMA. Borrowings under this credit agreement are secured by
FNMA mortgage-backed securities. The terms and conditions are negotiated on a
transaction-by-transaction basis. No specified credit limit is stated in the
agreement. The outstanding balance at June 30, 1995 was $123.4 million. In
connection with the sale to First Nationwide, First Nationwide repaid this
repurchase agreement.
During fiscal 1995 the Company's discontinued short term lending
operations, through orderly liquidation of its properties, generated cash
totaling $101.7 million. These cash proceeds along with STL's existing cash at
June 30, 1994 enabled payment in full of STL's remaining secured debt of $62
million and provided approximately $39.1 million of liquidity to the Company's
consolidated operations.
STL was previously owned 51% by LFC and 19% by Lomas Mortgage. As of May
1, 1995 LFC's advances from STL represented approximately 51% of STL's equity
which was $66.5 million. LFC's ownership in STL was canceled with a return of
capital in the amount of the advances and therefore STL is owned 100% by Lomas
Mortgage.
STL's equity at June 30, 1995 was $32.6 million and Lomas Mortgage owed to
STL at that date $4.4 million.
During fiscal 1995 coverage for interest payments on the term notes of
Lomas Mortgage was provided by cash internally generated by that subsidiary.
Lomas Mortgage's operations during fiscal 1995, after paying interest on its
short term debt, generated $88.5 million in cash available for (i) payment of
interest on the subsidiary's $378.8 million term debt, (ii) investment in
portfolio maintenance and growth, (iii) intercompany advances to LFC and (iv)
addition to Lomas Mortgage's working capital.
During fiscal 1995 coverage for interest payments on LFC's $140 million of
convertible notes due 2003 and general corporate expenses were provided by
advances/return of capital from STL and periodic liquidations of other assets.
-29-
<PAGE> 30
Semiannual interest payments in the amount of $17.1 million on Lomas
Mortgage's senior notes and $6.3 million on LFC's senior convertible notes will
be due in October 1995. In addition, a final payment in the amount of $37.9
million along with accrued interest related to a mortgage note on the Company's
headquarters is due March 1996 and Lomas Mortgage's $150 million senior notes
are due on October 1, 1997. LFC is required to make annual deposits of $10
million beginning October 31, 1997 to a sinking fund for the redemption of
LFC's senior convertible notes.
As of June 30, 1995, the Company's failure to meet certain ratio
requirements contained in the covenants of the Company's $140 million senior
convertible note indenture, while not an event of default, limited the
Company's ability to issue additional term debt.
Lomas Mortgage announced on October 2, 1995 that it did not make the
approximately $17 million of scheduled interest payments on its 9 3/4% term
notes payable due October 1, 1997 and its 10 1/4% term notes payable due
October 1, 2001.
For additional information see "Item 1. Business--Chapter 11 Proceedings"
and "Item 1. Business--Subsequent and Other Significant Events."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-30-
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Lomas Financial Corporation:
We have audited the accompanying consolidated balance sheet of Lomas
Financial Corporation and subsidiaries (the "Company") as of June 30, 1995, and
the related statements of consolidated operations, stockholders' equity
(deficit) and cash flows for the year then ended. In connection with our audit
of the 1995 consolidated financial statements, we have also audited the
financial statement schedule, Schedule I--Condensed Financial Information of
Registrant, as of and for the year ended June 30, 1995. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to report on these
consolidated financial statements and financial statement schedule based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our report.
The accompanying 1995 consolidated financial statements and financial
statement schedule have been prepared assuming that the Company will continue
as a going concern. The Company has suffered recurring losses from operations,
has a net capital deficiency and, as discussed in the notes to the consolidated
financial statements, has not made its required interest payments on its term
notes payable due on October 2, 1995. In addition, as discussed in the notes
to the consolidated financial statements, the Company has sold or entered into
arrangements to dispose of certain assets subsequent to year end, resulting in
additional losses. Further, as discussed in the notes to the consolidated
financial statements, the Company and its wholly owned subsidiary, Lomas
Mortgage USA, filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code on October 10, 1995. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
As a result of the reorganization proceedings, the Company may sell additional
assets or otherwise realize assets and liquidate or settle liabilities for
amounts other than those reflected in the consolidated financial statements or
related notes. The 1995 consolidated financial statements and financial
statement schedule do not include any adjustments that might result from the
outcome of these uncertainties.
Because of the significance of the uncertainties discussed in the
preceding paragraph, we are unable to express, and we do not express, an
opinion on the accompanying 1995 consolidated financial statements and
financial statement schedule.
KPMG PEAT MARWICK LLP
Dallas, Texas
October 11, 1995
-31-
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Lomas Financial Corporation:
We have audited the accompanying consolidated balance sheet of Lomas
Financial Corporation and subsidiaries as of June 30, 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended June 30, 1994 listed in the index of
Item 14(a). Our audits also included the financial schedule as of and for the
two years in the period ended June 30, 1994. These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Lomas
Financial Corporation and subsidiaries at June 30, 1994, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended June 30, 1994, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule as of and for the two years in the period ended June 30, 1994, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Dallas, Texas
September 22, 1994
-32-
<PAGE> 33
CONSOLIDATED BALANCE SHEET
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,966 $ 7,206
First mortgage loans held for sale . . . . . . . . . . . . . . . . . . . . . . 345,039 257,534
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,318 117,452
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,248 84,155
Fixed assets--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,579 89,154
Foreclosed real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,348 8,934
----------- -----------
763,532 557,229
Less allowance for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . (32,481) (12,262)
----------- -----------
731,051 544,967
Purchased future mortgage servicing income rights--net . . . . . . . . . . . . 346,958 382,009
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . 23,545 30,133
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . . . . 33,550 113,258
----------- -----------
$ 1,155,070 $ 1,077,573
=========== ===========
Escrow, agency and fiduciary funds--see contra . . . . . . . . . . . . . . . . $ 641,519 $ 603,163
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . $ 57,171 $ 71,862
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 591,089 341,047
Term notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,770 383,311
Senior convertible notes payable . . . . . . . . . . . . . . . . . . . . . . 139,918 139,918
----------- -----------
1,166,948 936,138
----------- -----------
Stockholders' equity (deficit):
Common stock--par value $1, 20,146 and 20,100 shares issued
and outstanding, respectively . . . . . . . . . . . . . . . . . . . . . . 20,146 20,100
Other paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 309,761 309,429
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . . . . . (341,785) (188,094)
----------- -----------
(11,878) 141,435
----------- -----------
$ 1,155,070 $ 1,077,573
=========== ===========
Liability for escrow, agency and fiduciary funds--see contra . . . . . . . . . $ 641,519 $ 603,163
=========== ===========
</TABLE>
See notes to consolidated financial statements.
-33-
<PAGE> 34
STATEMENT OF CONSOLIDATED OPERATIONS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Mortgage servicing . . . . . . . . . . . . . . . . . . . . . . $ 134,349 $ 146,312 $ 148,736
Commissions and fees . . . . . . . . . . . . . . . . . . . . . 31,387 28,288 27,616
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,763 35,609 39,617
Investment . . . . . . . . . . . . . . . . . . . . . . . . . . 19,870 21,763 28,207
Gain on sales . . . . . . . . . . . . . . . . . . . . . . . . 1,601 24,479 16,365
Management fees--affiliates . . . . . . . . . . . . . . . . . -- 2,952 10,925
Other--affiliates . . . . . . . . . . . . . . . . . . . . . . -- 5,028 13,537
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,352 6,627 8,351
----------- ----------- -----------
219,322 271,058 293,354
----------- ----------- -----------
Expenses:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,856 80,431 75,717
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . 57,713 74,428 69,333
Depreciation and amortization . . . . . . . . . . . . . . . . 66,860 155,310 69,021
Other operating . . . . . . . . . . . . . . . . . . . . . . . 42,912 42,424 40,587
Provision for losses . . . . . . . . . . . . . . . . . . . . . 66,613 11,397 5,327
Provision for restructuring . . . . . . . . . . . . . . . . . 9,000 15,570 --
----------- ----------- -----------
323,954 379,560 259,985
----------- ----------- -----------
Income (loss) from continuing operations
before federal income taxes . . . . . . . . . . . . . . . . . (104,632) (108,502) 33,369
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . -- -- 3,812
----------- ----------- -----------
Income (loss) from continuing operations . . . . . . . . . . . . (104,632) (108,502) 29,557
----------- ----------- -----------
Loss from discontinued operations:
Loss from operations . . . . . . . . . . . . . . . . . . . . . (9,200) (32,264) (12,763)
Loss on disposal . . . . . . . . . . . . . . . . . . . . . . . (39,859) (41,900) (4,500)
----------- ----------- -----------
(49,059) (74,164) (17,263)
----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ (153,691) $ (182,666) $ 12,294
=========== =========== ===========
Earnings (loss) per share:
Income (loss) from continuing operations . . . . . . . . . . . $ (5.19) $ (5.39) $ 1.47
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ (7.63) $ (9.07) $ 0.61
Average number of shares . . . . . . . . . . . . . . . . . . . . 20,154 20,132 20,117
</TABLE>
See notes to consolidated financial statements.
-34-
<PAGE> 35
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
YEARS ENDED JUNE 30, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Other Retained
Shares Common Paid-in Earnings
Outstanding Stock Capital (Deficit) Total
----------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1992 . . . . . . . . . . . . . . . . . 20,076 $ 20,076 $ 306,956 $ (17,722) $ 309,310
Net Income . . . . . . . . . . . . . . . . . . . . . . . -- -- -- 12,294 12,294
Utilization of tax benefits of pre-reorganization
deductible temporary differences and net operating
loss carry forwards as a direct addition to paid-in
capital pursuant to fresh start reporting . . . . . . -- -- 2,371 -- 2,371
Issuance of stock under stock plans . . . . . . . . . . . 33 33 220 -- 253
Common stock canceled . . . . . . . . . . . . . . . . . . (12) (12) (137) -- (149)
-------- --------- ---------- --------- ---------
Balance at June 30, 1993 . . . . . . . . . . . . . . . . 20,097 20,097 309,410 (5,428) 324,079
Net loss . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- (182,666) (182,666)
Issuance of stock under stock plans . . . . . . . . . . . 3 3 19 -- 22
-------- --------- ---------- --------- ---------
Balance at June 30, 1994 . . . . . . . . . . . . . . . . 20,100 20,100 309,429 (188,094) 141,435
Net loss . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- (153,691) (153,691)
Issuance of stock under stock plans . . . . . . . . . . . 46 46 148 -- 194
Unfiled claims under Chapter 11 proceedings . . . . . . . -- -- 184 -- 184
-------- --------- ---------- --------- ---------
Balance at June 30, 1995 . . . . . . . . . . . . . . . . 20,146 $ 20,146 $ 309,761 $(341,785) $ (11,878)
======== ========= ========== ========= =========
</TABLE>
See notes to consolidated financial statements.
-35-
<PAGE> 36
STATEMENT OF CONSOLIDATED CASH FLOWS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . $ (153,691) $ (182,666) $ 12,294
Adjustments to reconcile income (loss) from continuing
operations to cash provided by operating activities
before working capital changes:
Loss from discontinued operations . . . . . . . . . . . 49,059 74,164 17,263
Depreciation and amortization . . . . . . . . . . . . . 66,860 155,310 69,021
Provision for losses . . . . . . . . . . . . . . . . . . 66,613 11,397 5,327
Provisions for restructuring . . . . . . . . . . . . . . 9,000 15,570 --
Loss/(gain) on sales of mortgage servicing rights . . . 775 (4,841) (2,439)
Federal income taxes . . . . . . . . . . . . . . . . . . -- -- 3,812
----------- ---------- ----------
Cash provided by operations before working
capital changes . . . . . . . . . . . . . . . . . . 38,616 68,934 105,278
Net change in first mortgage loans held for sale . . . . . . (84,677) 128,812 30,494
Net change in sundry receivables, payables
and other assets . . . . . . . . . . . . . . . . . . . . . (36,403) (46,383) (13,945)
Net cash used by discontinued operations . . . . . . . . . . (13,369) (21,216) (28,680)
----------- ---------- -----------
Net cash provided (used) by operating activities . . . (95,833) 130,147 93,147
----------- ---------- -----------
Investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . (186,847) (15,929) (130,013)
Maturities/sales of investments . . . . . . . . . . . . . . . 24,885 147,411 273,171
Purchases of loans from pools . . . . . . . . . . . . . . . . (6,941) (18,026) (34,981)
Sales of foreclosed real estate . . . . . . . . . . . . . . . 8,578 19,598 15,143
Net sales of/(additions to) fixed assets . . . . . . . . . . 899 (24,673) (8,878)
Purchases of future mortgage servicing income rights . . . . (60,640) (108,071) (85,181)
Sales of future mortgage servicing income rights . . . . . . 39,115 17,073 9,788
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 210 172 26
Net cash provided by discontinued operations . . . . . . . . 107,249 70,789 114,416
----------- ---------- ----------
Net cash provided (used) by investing activities . . . (73,492) 88,344 153,491
----------- ---------- ----------
Financing activities:
Net borrowings (repayments) of notes payable . . . . . . . . 250,041 (174,273) (136,768)
Term debt borrowings . . . . . . . . . . . . . . . . . . . . -- -- 348,899
Term debt repayments . . . . . . . . . . . . . . . . . . . . (4,541) (8,968) (331,639)
Net cash used by discontinued operations . . . . . . . . . . (61,987) (60,005) (118,008)
----------- ---------- -----------
Net cash provided (used) by financing activities . . . 183,513 (243,246) (237,516)
----------- ---------- -----------
Net increase (decrease) in cash and cash equivalents . . . . . 14,188 (24,755) 9,122
Net change in cash of discontinued operations . . . . . . . . . (1,428) (2,407) 1,820
Cash and cash equivalents at beginning of year . . . . . . . . 7,206 34,368 23,426
----------- ---------- ----------
Cash and cash equivalents at end of year . . . . . . . . . . . $ 19,966 $ 7,206 $ 34,368
=========== ========== ==========
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,317 $ 90,597 $ 71,776
Federal income tax . . . . . . . . . . . . . . . . . . . . . -- -- --
</TABLE>
See notes to consolidated financial statements.
-36-
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation. The consolidated
financial statements include the accounts of Lomas Financial Corporation
("LFC") and its subsidiaries (collectively, the "Company"). Significant
intercompany balances and transactions have been eliminated.
In fiscal 1990, LFC and certain of its subsidiaries filed petition for
reorganization under Chapter 11. In December 1991, the Bankruptcy Court
confirmed the Company's plan of reorganization and the Company adopted fresh
start reporting as of December 31, 1991. In connection therewith, the
Company's assets and liabilities were restated to reflect their fair values and
retained earnings (deficit) was reclassified to other paid-in capital.
Cash and Cash Equivalents. Cash and cash equivalents include cash on hand
and investments with original maturities of three months or less. Cash balances
having restrictions as to withdrawals and usage are recorded in the balance
sheet as investments (see "Investments" footnote).
First Mortgage Loans Held for Sale. First mortgage loans held for sale
are carried at the lower of cost or market determined on a net aggregate basis.
Adjustments to market are made by charges or credits to income.
Gains and Losses on Sale of Mortgage Loans. Gains or losses on sales of
mortgage loans are recognized based upon the difference between the selling
price and the carrying value of the related mortgage loans sold. Deferred
origination fees and expenses, net of commitment fees paid in connection with
the sale of the loans, are recognized at the time of sale in the gain or loss
determination.
Investments. Investments is comprised primarily of commercial paper and
bank certificates of deposit with maturities of less than 31 days and
restricted escrow deposits, marketable securities, treasury notes, and
certificates of deposit that are held to maturity. The impact of the Company's
adoption of Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" on July 1,
1994 did not have a material impact on the Company's consolidated financial
statements.
Foreclosed Real Estate. Foreclosed real estate is carried at the lower of
cost or fair value minus estimated selling costs.
Allowance for Losses. Possible losses are provided for based on
management's evaluation of each situation, including the determination of
collectibility and net realizable value of the asset or underlying collateral.
Fixed Assets. Fixed assets include land, buildings, furniture and
fixtures and other equipment and are carried at amortized cost. Depreciation
is computed on the straight line method over the estimated useful lives of the
related assets. Land and buildings that are anticipated to be disposed of are
carried at estimated market value net of estimated selling costs.
Purchased Future Mortgage Servicing Income Rights. Purchased future
mortgage servicing income rights ("PMSRs") represent the portion of the
purchase price of mortgage servicing portfolios acquired from others allocated
to future net servicing income to be derived from servicing such mortgages.
The Company periodically monitors its servicing portfolio to determine if
adjustments should be made to its amortization schedules or carrying values of
its PMSRs due to changes in interest rates, current prepayment rates, expected
future prepayment rates and certain other factors. The amortization and
impairment analyses are performed for individual mortgage tranches with similar
economic characteristics on an undiscounted basis. If an individual
-37-
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTING POLICIES--(CONTINUED)
mortgage tranche's estimated undiscounted net cash flow is less than the
carrying value of the tranche, that tranche is written down to the projected
amount of the undiscounted cash flow. In addition, the Company amortizes the
capitalized PMSRs in proportion to, and over the period of, the estimated net
servicing income. This policy causes a larger portion of the PMSRs to be
amortized in earlier periods. The expected life of the estimated net servicing
income is based on the expected prepayment rates of the underlying mortgages
within the tranches.
Effective April 1, 1993 the Company changed its methodology of measuring
the impairment and amortization and disaggregated the former December 31, 1991
PMSRs into individual mortgage tranches with similar economic characteristics.
Discounted cash flows were estimated for each tranche, and the former December
31, 1991 aggregated value, net of accumulated amortization, was allocated among
the disaggregated tranches in proportion to their relative discounted projected
net cash flows as of March 31, 1993.
Since April 1993 the Company had been using a simulation methodology to
estimate the future prepayments of the Company's servicing portfolio.
Effective July 1, 1994, the Company changed it estimates of prepayment speeds
from this simulation methodology to using published Constant Prepayment Rates
("CPRs"). This change in estimate did not have a material effect on the
consolidated financial statements of the Company for the year ended June 30,
1995.
Sales of Servicing Rights. The Company recognizes gain or loss on the
sales of servicing rights when all risks and rewards have irrevocably passed to
the purchasers and there are no unresolved contingencies.
Mortgage Servicing. Fees received for servicing mortgage loans owned by
investors are generally based on a stipulated percentage of the outstanding
monthly principal balance of such loans and are payable only out of interest
collected from mortgagors. Servicing fees, late charges and miscellaneous other
fees collected from mortgagors and others are recognized as income when
collected. Servicing costs are charged to expense as incurred. In addition,
the Company performs mortgage servicing on a subcontract basis for other
parties who own the servicing rights. Subservicing fees are usually agreed to
be paid on a per-loan basis calculated as an annual dollar amount paid monthly.
Reverse Repurchase Agreements. The Company, through its wholly owned
subsidiary, Lomas Mortgage USA ("Lomas Mortgage"), enters into reverse
repurchase agreements with financially responsible parties. Mortgage assets
purchased under agreements to resell are carried at the amounts of the original
purchase price which is calculated at a percentage of the market price. The
reverse repurchase agreements generally mature within 60 days and are covered
100 percent by binding purchase commitments issued by responsible financial
institutions. The counterparty is obligated to repurchase the underlying
mortgage assets at the Company's costs plus interest differential. The Company
finances the reverse repurchase agreements through a third party based on a
percentage of the repurchase commitments.
Reverse Interest Rate Swap Agreements. The Company, through Lomas
Mortgage, enters into interest rate swap agreements as a means of managing its
exposure to changes in interest rates. Interest rate swaps that reduce the
exposure of the Company, as a whole, to changes in interest rates are
designated as hedges of the Company's fixed rate debt and treated as hedges of
the debt. Swap agreements that do not reduce the Company's exposure to changes
in interest rates are not considered to be hedges. The interest differential to
be paid or received on swap agreements that are treated as hedges is accrued
over the life of the agreements as an adjustment to the interest expense of the
related debt. Gains or losses on early termination of interest rate swap
agreements designated as hedges are recognized over the remaining term of the
swap agreement. Interest rate swaps that are not considered hedges, and losses
where the fixed rate debt associated with the swap is reduced below the
notional amount of the swap, are marked to market with the unrealized gain or
loss, together with the accrued interest differential, treated as a gain or
loss and included in the accompanying statement of consolidated operations.
-38-
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTING POLICIES--(CONTINUED)
Federal Income Taxes. Income taxes have been provided in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, the deferred tax assets and liabilities
are determined based on the difference between the financial reporting and tax
basis of assets and liabilities and operating loss and tax credit carryforward
and enacted tax rates that will be in effect for the years in which the
differences are expected to reverse.
Escrow, Agency and Fiduciary Funds. The Company maintains certain cash
balances on behalf of its servicing customers and investors as part of its
servicing operations. These funds are held in trust in segregated generally
noninterest bearing bank accounts and are excluded from the corporate assets
and liabilities of the Company.
Earnings (Loss) Per Share. Primary earnings (loss) per share data for the
years ended June 30, 1995, 1994 and 1993 is computed using the weighted average
number of shares of common and, when dilutive, common stock equivalents
outstanding during the period. Common stock equivalents include units and
shares granted under the Lomas Financial Corporation 1991 Long Term Incentive
Plan for Non-Employee Directors (the "Directors Plan"), the 1991 Stock
Incentive Program (the "1991 Program") and the 1993 Intermediate and Long Term
Incentive Plan (the "1993 Program"). Common stock equivalents also include the
assumed exercise of dilutive stock options. For the years ended June 30, 1995,
1994 and 1993, assumed exercise of stock options is antidilutive and is,
therefore, excluded from the computation. Fully diluted per share data is
computed on the same basis as primary, but it also assumes (if dilutive) the
conversion of senior convertible notes with related adjustments for interest
and federal income tax expense. For the years ended June 30, 1995, 1994 and
1993, the fully diluted per share data is antidilutive.
Reclassifications. Certain reclassifications have been made to prior
years' financial statements to conform to the 1995 presentation.
CHAPTER 11 PROCEEDINGS
On October 10, 1995, LFC, Lomas Mortgage and two other insignificant
subsidiaries of LFC (collectively the "Debtor Corporations") filed separate
voluntary petitions for reorganization under Chapter 11 of the Federal
Bankruptcy Code in the District of Delaware. The petitioning subsidiaries are
Lomas Information Systems, Inc. and Lomas Administrative Services, Inc., both
of which are inactive and have relatively minor amounts of assets and
liabilities. The Chapter 11 cases are being jointly administered, with the
Debtor Corporations managing their businesses in the ordinary course as
debtors-in-possession subject to the control and supervision of the Bankruptcy
Court.
Simultaneously with the filing of the Chapter 11 petitions, Lomas Mortgage
made a motion seeking the Bankruptcy Court's approval of the sale (the
"Proposed Sale"), pursuant to Section 363 of the Bankruptcy Code, to First
Nationwide Mortgage Corporation ("First Nationwide") of its remaining mortgage
servicing rights, its related insurance agency business, Lomas Mortgage's real
estate owned acquired through loan foreclosures in connection with its
servicing business and its trade names for $150 million in cash, payable in
installments and the assumption of Lomas Mortgage's obligations related to its
mortgage servicing business. The purchase price is subject to adjustment based
on the differences between certain balance sheet accounts on the closing date
and on July 31, 1995, the date used for computation of the base purchase price,
and is subject to reduction by up to 15% of the purchase price in excess of $10
million for possible indemnities in favor of First Nationwide. Lomas Mortgage
is also seeking Bankruptcy Court approval of the assumption and assignment to
First Nationwide of the contracts relating to its loan servicing business (and
of certain leases related to its loan production business which was sold to
First Nationwide on October 2, 1995). The Bankruptcy Court has set November
21, 1995 as the date for the hearing on the Proposed Sale, which is subject to
higher and better offers, and the proposed assumptions and assignments of
contracts and leases.
-39-
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CHAPTER 11 PROCEEDINGS --(CONTINUED)
After giving effect to the sale to First Nationwide on October 2, 1995 and
the Proposed Sale, Lomas Mortgage will have no material remaining assets other
than its interest in ST Lending, Inc., which owns real estate having a book
value on June 30, 1995 of $28.2 million, certain other real estate assets
having a book value at June 30, 1995 of $37.3 million and reduced to $25.3
million at September 30, 1995 ($13.3 million of which is encumbered by a
mortgage securing borrowings of $38.4 million at September 30, 1995), and the
net proceeds of the October 2 sale and the Proposed Sale, which are estimated to
be approximately $212 million in the aggregate (unless a higher offer is
received for the assets subject to the Proposed sale). The aggregate value of
these assets is less than Lomas Mortgage's indebtedness of approximately $378.8
million in aggregate principal amount at June 30, 1995. This will result in
claims against Lomas Mortgage being liquidated in the Chapter 11 proceedings at
less than 100% of their face value and may result in the equity of Lomas
Mortgage's sole stockholder (LFC) being diluted or canceled. Similarly, after
giving effect to the transactions described above, LFC's assets will consist of
its equity interest in Lomas Mortgage, a $8.0 million note receivable from
Residential Information Services that is subject to payment contingencies,
cash of approximately $11.0 million and other real estate related assets of
approximately $5.0 million. The value of these assets is considerably less
than LFC's indebtedness, consisting principally of public indebtedness, which
has a principal amount of $140 million. This will result in claims against LFC
being liquidated in the Chapter 11 proceedings at less than 100% of their face
value and may result in the equity of LFC's stockholders being diluted or
canceled. It is impossible at this time to predict the actual recovery, if
any, which different classes of creditors and stockholders will realize. As a
result of the reorganization proceedings, the Company may sell additional
assets or otherwise realize assets and liquidate or settle liabilities for
amounts other than those reflected in the consolidated financial statements or
related notes. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
SUBSEQUENT AND OTHER SIGNIFICANT EVENTS
In July 1995 the Company sold $1.6 billion principal amount of its
mortgage servicing portfolio to a financial institution for approximately $16.2
million cash. The Company was also reimbursed by the purchaser for servicing
advances made by the Company including tax advances and principal and interest
advances on delinquent loans which totaled approximately $17.9 million. This
sale, when finalized in October 1995, will result in a net loss of
approximately $1.7 million in fiscal 1996 of which $1.0 million has been
charged to previously established reserves.
Because the Company failed to meet certain ratios contained in its bank
credit lines at June 30, 1995, the Company repaid its credit line known as the
P&I Line in July 1995. At June 30, 1995, the balance of this line was $7.8
million. The Company also repaid certain of its bank warehouse credit lines on
October 2, 1995. The balance of this line at June 30, 1995 was $91.4 million.
At June 30, 1995 the Company was in default on certain covenants contained
in a warehouse and reverse repurchase agreement with a financial institution.
At June 30, 1995 the balance of the warehouse line was $73.3 million and the
balance of the reverse repurchase agreement was $44.1 million. In September
1995, the Company sold to a financial institution the first mortgage loans
underlying the reverse repurchase agreement for approximately $43.6 million and
paid off the corresponding amount of the credit line of $44.8 million. Loss
resulting from this transaction was approximately $500,000 for the first
quarter of fiscal 1996. The remaining first mortgage loans collateralizing the
warehouse agreement were also sold along with the Company's GNMA servicing
portfolio to First Nationwide as described below.
In July 1995, LFC entered into a contract to sell its image processing
subsidiary. In September 1995, LFC completed the sale of the stock of this
subsidiary for $4.1 million in cash and a $320,000 promissory note. The sale
resulted in a gain of approximately $1.1 million for LFC and a prepaid expense
in Lomas Mortgage of $2.3 million which will be used for future image
processing costs.
-40-
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUBSEQUENT AND OTHER SIGNIFICANT EVENTS--(CONTINUED)
In August 1995, Lomas Mortgage sold certain fixed assets of its field
services operation subsidiary. This sale was for $600,000 in cash and the
Company realized a gain of approximately $144,000. This gain is deferred until
that subsidiary's remaining receivables are collected and payables are paid.
In August 1995 the Company also sold a servicing portfolio with $3.0
billion unpaid principal amount of mortgage loans to a financial institution
for $6.0 million cash. In addition, the Company received from the purchaser a
cash payment of $8.7 million for deficit escrows and principal and interest
advances. This transaction resulted in a gain of approximately $200,000 which
will be reflected in the first quarter of fiscal 1996.
In August 1995, the Company terminated $155 million notional amount of its
outstanding reverse interest rate swaps. The Company paid the counterparty
$6.0 million in cash and incurred a loss of $4.4 million, of which $1.6 million
was recognized immediately and the remaining loss of $2.8 million is being
amortized over the remaining life of the swaps. The Company also terminated
the remaining $485 million notional amount of swaps on October 2, 1995. The
cost to terminate the remaining swaps was $18.8 million which came from the
sale of certain assets of Lomas Mortgage to First Nationwide as described in
the following paragraph. The Company still has outstanding fixed rate debt of
$518 million, therefore will continue to amortize a portion of the net loss
incurred ($9.2 million) until the original swap expiration date in 1998.
On September 5, 1995, the Company entered into an agreement to sell
certain assets and liabilities of Lomas Mortgage to First Nationwide including
the Company's GNMA servicing portfolio which represented approximately
one-third of Lomas Mortgage's servicing portfolio, the Company's investment in
Lomas Mortgage Partnership (which at June 30, 1995 was owned one-third by the
Company) and the Company's loan production business which included
approximately $313 million principal amount of mortgage loans held for sale as
of July 31, 1995, and the payment of the related $302 million of warehouse
lines of credit and repurchase agreement secured by mortgage loans held for
sale as of July 31, 1995. The purchase price for this transaction was $100
million (less $10 million which will be used to pay the Company's expenses for
transferring the servicing), subject to certain adjustments, the payment of
certain warehouse indebtedness and the assumption of certain other liabilities.
The outstanding balance of the warehouse indebtedness at June 30, 1995 was
$288.1 million. The transaction closed on October 2, 1995 and resulted in a
loss of approximately $81 million which will be recorded in fiscal 1996. Cash
of $35 million was paid at closing and a portion of these funds were used to
terminate the balance of the swaps (see the preceding paragraph) and $12.0
million was escrowed with FNMA in connection with certain recourse servicing to
be sold in the Proposed Sale. Approximately $41.5 million is expected to be
paid by First Nationwide on February 1, 1996 with the final payment of the
balance due on October 2, 1996. The existing warehouse debt of $208 million
was also paid at closing.
In October 1995, the Company reached a second agreement with First
Nationwide to sell substantially all of the remaining servicing portfolio and
certain other assets of Lomas Mortgage. The purchase price for the Proposed
Sale will be approximately $150 million (less $10 million which will be used to
pay the Company's expense for transferring the servicing), subject to certain
adjustments, and the assumption of certain liabilities. The proposed
transaction is subject to higher and better offers and to the approval by the
Bankruptcy Court. If no higher offer is received, the proposed transaction
would result in a loss to the Company of approximately $80 million. The
remaining significant assets of Lomas Mortgage will be its investments in its
buildings, real estate and ST Lending, Inc.
As a result of the transactions described in the preceding two paragraphs,
management abandoned its plans to consolidate its operations into one building
and, instead, marketed such building for sale. Accordingly, the Company wrote
down the building that was not written down to market during fiscal 1995 (see
the second paragraph of "Pending Adoption of Authoritative Statements"). The
Company recorded a loss of $12 million in the first quarter of fiscal 1996 to
reflect the asset at fair value less estimated selling costs.
-41-
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SUBSEQUENT AND OTHER SIGNIFICANT EVENTS--(CONTINUED)
Lomas Mortgage announced on October 2, 1995, that it did not make the
approximately $17 million of scheduled interest payments on its 9 3/4% term
notes payable due October 1, 1997 and its 10 1/4% term notes payable due
October 1, 2001.
There were no formal plans nor definitive agreements for the
aforementioned dispositions nor were any of these assets held for sale at June
30, 1995, therefore any losses incurred from these transactions will be
recorded by the Company in fiscal 1996.
PENDING ADOPTION OF AUTHORITATIVE STATEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" is required to be adopted for fiscal years beginning after
December 15, 1995. The statement requires companies to determine whether
recognition of an impairment loss is required on assets held and assets to be
disposed of and, if so, to measure that impairment.
If the sum of the expected future cash flows, undiscounted and without
interest charges, is less than the assets' carrying amount, then an impairment
loss is to be recognized. Measurement of an impairment loss is based on the
fair value of the asset. The statement requires long-lived assets that are to
be disposed of to be reported at the lower of the carrying amount or fair value
less cost to sell. As a result of a reduction in work force and in an effort
to reduce other operating expenses, the Company planned to consolidate its
operations from the buildings in which it occupied at June 30, 1995 to one
building (the "Building") and market its buildings, other than the Building,
for sale. During the fiscal year ended June 30, 1995, the Company recorded a
loss of approximately $35 million on buildings, other than the Building and
other assets that were or will be disposed of. The impact, if any, of the
implementation of SFAS No. 121 on the Company's consolidated financial
statements is expected to be immaterial.
SFAS No. 122, "Accounting for Mortgage Servicing Rights, an Amendment of
SFAS Statement No. 65," is effective for financial statements issued for fiscal
years beginning after December 15, 1995. This SFAS requires the Company to
measure impairment of its mortgage servicing rights based on the difference
between the carrying amount of the servicing rights and their fair value. If
SFAS No. 122 had been adopted at June 30, 1995, the Company would have recorded
a valuation allowance ranging from $125 million to $150 million. The fair
value range was determined from quoted market prices, subsequent sales of
servicing and present values of cash flows for this asset. There will be no
methodology changes in determining scheduled amortization from adopting SFAS
No. 122. Management plans to adopt SFAS No. 122 during the year ending June
30, 1997.
See "Subsequent and Other Significant Events."
REDUCTION IN FORCE AND RESTRUCTURINGS
Due to the cessation of the mortgage refinancing boom and decline in
mortgage servicing portfolio runoff rates experienced since early 1994, the
Company's mortgage production activity and revenues had precipitously declined.
To offset declines in production-related revenues, to reduce its
servicing-related cost and to streamline its operations, the Company adopted
three reduction-in-force and restructuring plans, the December 1993 plan and
the June 1994 plan (collectively the "1994 Plans") and the January 1995 plan
(the "1995 Plan").
The 1995 Plan was completed by June 30, 1995 and the Company reduced its
staff by approximately 200 employees. In connection with the 1995 Plan, the
Company recorded a charge of $6.0 million, of which approximately $2.3 million
was the pension plan curtailment loss (noncash charge) related to the enhanced
pension benefits for involuntary retirees. Under the 1995 Plan the Company
paid termination benefits totaling $3.7 million in cash generated from its
operations. In addition, the Company recorded a $3.0 million provision for the
reduction
-42-
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
REDUCTION IN FORCE AND RESTRUCTURINGS--(CONTINUED)
in the carrying value of one of its office buildings which was vacated in
connection with the 1995 Plan and is being disposed of.
The 1994 Plans were completed by December 31, 1994. The Company reduced
its staff by approximately 400 employees through involuntary terminations and
voluntary early retirements. Also included in the 1994 Plans were writedowns
of certain fixed assets and termination of certain lease agreements. The
Company recorded provisions in fiscal 1994 totaling $15.6 million for the 1994
Plans of which $9.5 million represented termination benefits paid and $1.3
million was the pension plan curtailment loss (noncash charge) related to the
enhanced benefits for voluntary early retirees.
FIRST MORTGAGE LOANS HELD FOR SALE
At June 30, 1995 the Company's first mortgage loans held for sale totaled
approximately $345.0 million in principal amount, of which $338.4 million, or
98%, was committed for sale to third parties. Approximately two-thirds of the
Company's commitments to sell mortgage loans held for sale are related to
exclusive ongoing commitments from a major public pension fund and various
state and local housing authorities to purchase, at the Company's cost, loans
or FNMA- guaranteed, mortgage-backed securities collateralized by loans
originated under programs sponsored by those investors. At June 30, 1995 and
1994, first mortgage loans held for sale included approximately $125.3 million
and $138.6 million, respectively, of FNMA mortgage-backed securities. At June
30, 1995 approximately 92% of the Company's pipeline (i.e., commitments to
purchase loans or extend credit) was not subject to significant market risk as
it has been committed for sale to the major public pension fund or various
state and local housing authorities at the Company's cost. The remaining 8% of
the Company's pipeline was hedged by commitments by third parties to purchase
such loans which represented the Company's best estimate of its market risk on
its pipeline.
At June 30, 1995 first mortgage loans held for sale also included $44.8
million of loans held under reverse repurchase agreements.
Subsequent to June 30, 1995, the Company entered into agreements to sell
its loan production business. For further discussion, see "Subsequent and
Other Significant Events."
INVESTMENTS
Investments consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Commercial paper and bank certificates of deposit . . . . . . . . . $ 251,025 $ 72,104
Restricted investments . . . . . . . . . . . . . . . . . . . . . . . 18,890 32,281
Mortgage servicing partnership . . . . . . . . . . . . . . . . . . . 4,069 5,377
Other investments . . . . . . . . . . . . . . . . . . . . . . . . . 4,938 4,973
Fixed maturity securities . . . . . . . . . . . . . . . . . . . . . 3,373 71
Marketable equity securities . . . . . . . . . . . . . . . . . . . . 23 2,646
--------- ---------
$ 282,318 $ 117,452
========= =========
</TABLE>
Commercial paper and bank certificates of deposit are funded with
proceeds from, and are pledged as collateral for, investment lines of credit.
The commercial paper and bank certificates of deposit have fixed rates of
interest and generally mature within 31 days, at which time the investment
lines of credit are paid down. Revenue from the net interest spread on these
transactions totaled approximately $15.8 million, $14.2 million and $11.5
million for the years ended June 30, 1995, 1994 and 1993, respectively.
Investment income for the years ended June 30, 1994 and 1993
-43-
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INVESTMENTS--(CONTINUED)
also included $2.3 million and $9.3 million, respectively, of gains, fees and
interest income received on reverse interest rate swaps which were not
accounted for as hedges.
Restricted investments at June 30, 1994 included $10 million held in
escrow deposits securing the Company's indemnification obligations in
connection with the sale on April 30, 1990 of the Company's commercial leasing
subsidiary, ELLCO Leasing Corporation. Restricted investments at June 30, 1995
and 1994 also included $7.5 million and $10.4 million, respectively, of
marketable securities purchased to fund certain benefit plans and treasury
notes and certificates of deposit of $5.0 million and $7.3 million at June 30,
1995 and 1994, respectively, pledged to secure contingent repurchase
obligations. Also at June 30, 1995 and 1994, cash and certificates of deposit
of $5.2 million and $2.9 million, respectively, were either held on behalf of
others or pledged to provide surety for various performance and
indemnifications.
RECEIVABLES
Receivables consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30
--------------------
1995 1994
-------- --------
<S> <C> <C>
Escrow deficiencies . . . . . . . . . . . . . . . . . . . . . . . . . $ 40,726 $ 39,542
Advances on mortgage-backed securities . . . . . . . . . . . . . . . . 12,612 7,821
Foreclosure claims . . . . . . . . . . . . . . . . . . . . . . . . . . 9,008 6,308
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,424 2,685
Receivables for servicing related advances and settlements . . . . . . 3,855 8,811
Other accounts receivable . . . . . . . . . . . . . . . . . . . . . . 2,470 3,324
Mortgage notes receivable . . . . . . . . . . . . . . . . . . . . . . 2,027 9,284
Property inspection fees receivable . . . . . . . . . . . . . . . . . 1,359 1,587
Servicing sales receivable . . . . . . . . . . . . . . . . . . . . . . 595 4,150
Amounts due from officers . . . . . . . . . . . . . . . . . . . . . . 172 643
-------- --------
$ 77,248 $ 84,155
======== ========
</TABLE>
Escrow deficiencies and advances on mortgage-backed securities represent
the advances the Company makes in connection with its loan servicing
activities. The Company makes certain payments for property taxes and insurance
premiums in advance of collecting them from specific mortgagors. Also, in
connection with servicing mortgage-backed securities guaranteed by GNMA or
FNMA, the Company advances certain principal and interest payments to security
holders prior to collection from mortgagors.
FIXED ASSETS
During fiscal 1995 the Company recorded provisions totaling $34.6 million
for the writedown of the carrying value of certain of its office buildings and
fixed assets. Included in the $34.6 million provisions, $3.0 million was
related to writedown of an office building which was vacated and being disposed
of in connection with the Company's 1995 restructuring plan, and therefore, was
included in provisions for restructuring.
-44-
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FIXED ASSETS--(CONTINUED)
Fixed assets consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30
---------------------
1995 1994
--------- ---------
<S> <C> <C>
Land and buildings held for sale . . . . . . . . . . . . . . . . . . . $ 22,474 $ --
Land and buildings in use . . . . . . . . . . . . . . . . . . . . . . 21,195 70,065
Furniture, equipment and leasehold improvements . . . . . . . . . . . 25,087 31,208
Capitalized computer software . . . . . . . . . . . . . . . . . . . . 1,838 2,703
--------- ---------
70,594 103,976
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . (18,015) (14,822)
--------- ---------
$ 52,579 $ 89,154
========= =========
</TABLE>
See "Subsequent and Other Significant Events".
PROVISIONS FOR LOSSES
During the year ended June 30, 1995, the Company established special
reserves totaling $57.7 million and $49.1 million for its continuing and
discontinuing operations, respectively, as follows (in millions):
<TABLE>
<CAPTION>
Non-
Cash Cash
Charges Charges Total
-------- ------- -----
<S> <C> <C> <C>
Provision for mortgage servicing related
receivables and other assets . . . . . . . . . . . . . . $ 7.1 $ 6.0 $13.1
Reduction in the carrying value of Company-owned
land and buildings . . . . . . . . . . . . . . . . . . . -- 27.1 27.1
Reduction in the carrying values of certain
fixed assets (furniture and equipment) . . . . . . . . . -- 4.5 4.5
Mortgage banking commitments and other
contingencies . . . . . . . . . . . . . . . . . . . . . 6.6 -- 6.6
Pro rata swap loss recognition . . . . . . . . . . . . . . -- 7.4 7.4
Other . . . . . . . . . . . . . . . . . . . . . . . . . . -- (1.0) (1.0)
----- ------ ------
Total special provisions . . . . . . . . . . . . . . . 13.7 44.0 57.7
Regular provision for foreclosures . . . . . . . . . . . . -- 8.9 8.9
----- ------ ------
Total continuing operations . . . . . . . . . . . . . 13.7 52.9 66.6
----- ------ ------
Provision for loss from discontinued operations . . . . . -- 9.2 9.2
Provision for loss on disposal . . . . . . . . . . . . . . -- 15.5 15.5
Provision for writedown of earn-out revenues
from sale of LIS . . . . . . . . . . . . . . . . . . . . -- 24.4 24.4
----- ------ ------
Total discontinued operations . . . . . . . . . . . . -- 49.1 49.1
----- ------ ------
$13.7 $102.0 $115.7
===== ====== ======
</TABLE>
-45-
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ALLOWANCE FOR LOSSES
Activity in the allowance account was as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Beginning balance . . . . . . . . . . . . . . . . . . . . . $ 12,262 $ 10,831 $ 16,101
Provisions for losses . . . . . . . . . . . . . . . . . . . 66,613 11,397 5,327
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . (54,641) (12,857) (12,059)
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . 8,695 -- 2,058
Other changes--net . . . . . . . . . . . . . . . . . . . . . (448) 2,891 (596)
--------- -------- --------
Ending balance . . . . . . . . . . . . . . . . . . . . . . . $ 32,481 $ 12,262 $ 10,831
========= ======== ========
</TABLE>
The allowance for losses was allocated as follows (in thousands):
<TABLE>
<CAPTION>
June 30
--------------------
1995 1994
-------- --------
<S> <C> <C>
Foreclosed real estate . . . . . . . . . . . . . . . . . . . . . . . . $ 2,993 $ 3,529
Foreclosure claims . . . . . . . . . . . . . . . . . . . . . . . . . . 8,447 3,971
Servicing related receivables and other assets . . . . . . . . . . . . 8,651 1,114
Mortgage banking commitments and other contingencies . . . . . . . . . 6,788 --
Fixed assets (buildings, furniture and equipment) . . . . . . . . . . 2,602 1,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 2,648
-------- --------
$ 32,481 $ 12,262
======== ========
</TABLE>
PURCHASED FUTURE MORTGAGE SERVICING INCOME RIGHTS
During the year ended June 30, 1995 and 1994, the Company established
provisions of $5.4 million and $80.0 million, respectively, related to
impairment in the carrying value of PMSRs. This provision resulted from the
unprecedented prepayments that the Company has experienced and the related
revision of estimated future prepayment speeds.
PMSRs consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Cost of PMSRs . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 553,614 $535,307
Capitalized excess servicing fees . . . . . . . . . . . . . . . . . 3,043 3,003
--------- ---------
556,657 538,310
Less: Accumulated amortization . . . . . . . . . . . . . . . . . . (209,699) (156,301)
--------- ---------
$ 346,958 $382,009
========= =========
</TABLE>
-46-
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PURCHASED FUTURE MORTGAGE SERVICING INCOME RIGHTS--(CONTINUED)
Changes in PMSRs were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------------
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Beginning balance . . . . . . . . . . . . . . . . . . . . $ 382,009 $436,487 $418,617
Additions . . . . . . . . . . . . . . . . . . . . . . . . 60,405 110,665 88,384
Sales and writeoffs . . . . . . . . . . . . . . . . . . . (36,554) (16,896) (7,350)
Amortization . . . . . . . . . . . . . . . . . . . . . . . (53,502) (68,247) (63,164)
Impairment writeoff . . . . . . . . . . . . . . . . . . . (5,400) (80,000) --
----------- --------- ---------
Ending balance . . . . . . . . . . . . . . . . . . . . . . $ 346,958 $ 382,009 $ 436,487
========== ========= =========
</TABLE>
At June 30, 1995, 1994 and 1993 the Company serviced 540,325, 565,531 and
605,655 loans, respectively. The aggregate unpaid principal balance of the
Company's servicing portfolio was $33.1 billion, $34.0 billion and $32.7
billion at June 30, 1995, 1994 and 1993, respectively.
Subsequent to June 30, 1995, the Company entered into agreements to sell
substantially all of its servicing portfolio. For further discussion, see
"Subsequent and Other Significant Events."
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
June 30
--------------------
1995 1994
-------- --------
<S> <C> <C>
Prepaid pension expense . . . . . . . . . . . . . . . . . . . . . . . $ 14,203 $ 16,797
Unamortized debt issuance cost . . . . . . . . . . . . . . . . . . . . 6,988 8,656
Other prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,190 1,857
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,164 2,823
-------- --------
$ 23,545 $ 30,133
======== ========
</TABLE>
At June 30, 1995 and 1994, the Company's net assets of discontinued
operations included prepaid pension expense of $0.6 million and $1.8 million,
respectively.
-47-
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DEBT
Outstanding balances and average interest rates were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
Average Annual Average Annual
Interest Rate for Interest Rate for
Year Ended Year Ended
June 30, 1995 June 30, 1994
June 30, 1995 (%) June 30, 1994 (%)
------------- ---------------- ------------- -----------------
<S> <C> <C> <C> <C>
Notes Payable:
Warehouse lines of credit . . $164,694 4.0 $239,639 3.5
Investment lines of credit* . 251,025 1.1 72,105 1.0
Repurchase agreements . . . . 123,379 6.4 -- 4.3
Reverse repurchase agreement . 44,145 6.6 5,931 3.3
Senior secured working capital
credit agreement . . . . . . -- 8.3 22,000 7.3
Other . . . . . . . . . . . . 7,846 2.1 1,372 2.0
-------- ----- -------- -----
$591,089 4.3 $341,047 3.2
======== ===== ======== =====
Term Notes Payable:
Notes payable due 1997 . . . . $150,000 9.8 $150,000 9.8
Notes payable due 2002 . . . . 190,000 10.3 190,000 10.3
Mortgage note payable due
1996** . . . . . . . . . . . 38,770 10.0 40,026 10.0
Other term notes payable . . . -- -- 3,285 2.5
-------- ----- -------- -----
$378,770 10.0 $383,311 10.3
======== ===== ======== =====
Senior convertible notes
due 2003 . . . . . . . . . . . $139,918 9.0 $139,918 9.0
======== ===== ======== =====
</TABLE>
______________
* Subsequent to June 30, 1995, these lines were canceled as the
underlying investments matured.
** The mortgage note is payable in monthly installments and matures
March 1, 1996. It is secured by the Company's headquarter
buildings.
Warehouse lines of credit are used to support warehouse fundings and are
principally fee-based arrangements that are calculated as a percentage of the
total commitments and/or a percentage of the outstanding balance. Substantially
all first mortgage loans held for sale are pledged as collateral. Total
warehouse lines of credit available at June 30, 1995 were $345 million, of
which $120 million was with a group of participating banks. The Company also
has entered into investment lines of credit arrangements with several financial
institutions. Borrowings under these lines of credit are invested in and are
secured by commercial paper and bank certificates of deposit. Escrow, agency
and fiduciary funds maintained in trust accounts normally serve as compensating
balances under the warehouse and investment lines of credit arrangements, and
the Company incurs a reduced interest rate on borrowings as a result of these
compensating balances.
The Company also had certain off balance sheet transaction arrangements
with several banks which hold the Company's deposits (escrow, fiduciary and
custodial funds). Under these arrangements, the deposits serve as compensating
balances and the Company receives income from the investable balances and
benefits from reduced interest rates.
Mortgage-backed securities held for sale to investors are financed from
time to time through repurchase agreements with securities dealers in the
business of providing such financing. These repurchase agreements, which
generally mature in 60 days or less, conform to the standard form of agreement
utilized by the Public Securities Association. The terms and conditions of
these repurchase agreements, including interest rate, are negotiated on a
transaction-by-transaction basis.
During the fourth quarter of fiscal 1995, a repurchase agreement was
established with FNMA. Borrowings under this credit agreement are secured by
FNMA mortgage-backed securities. The terms and conditions are negotiated on a
transaction-by-transaction basis. No specified credit limit is stated in the
agreement. The outstanding balance at June 30, 1995 was $123.4 million. In
connection with the sale to First Nationwide, First Nationwide repaid this
repurchase agreement.
-48-
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DEBT--(CONTINUED)
Other notes payable represented the Company's borrowings under the
servicing principal and interest payments agreement (the "P&I Line"). Under
the P&I Line the Company could borrow up to $30 million from participating
banks for the payment of principal and interest to mortgage-backed security
holders. The P&I Line was secured by certain mortgage pools.
Under the terms of the P&I Line and warehouse agreement that contained the
most restrictive covenants, Lomas Mortgage was restricted from making dividend
payments to LFC if, after giving effect thereto, the aggregate amount of such
payments should exceed the sum of (i) $3.8 million (less any intercompany
advances); plus (ii) 50 percent of Lomas Mortgage's accumulated consolidated
income before taxes since October 1, 1992; or reduced by 100 percent of
consolidated loss before income taxes; plus (iii) (a) before November 30, 1993,
the fair value of the aggregate net proceeds received by Lomas Mortgage from
the issuance or sale after October 1, 1992 of its capital stock (b) after
November 30, 1993, the aggregate net cash proceeds received from the issuance
or sale of capital stock and warrants, options and rights to purchase its
capital stock. The minimum net worth requirement, as defined, under these
covenants at June 30, 1995 was $140 million; or $85 million if the company
elected to adopt both SFAS No. 121 and No. 122. Lomas Mortgage's net worth as
defined at that date was $119.9 million after recording a $30.3 million loss on
certain buildings and other assets, which restricted Lomas Mortgage from
declaring dividends or making additional advances to LFC. The covenants also
required that Lomas Mortgage's consolidated debt to equity ratio as defined not
to exceed 270 percent; or 420 percent if adopting both SFAS No. 121 and No.
122. At June 30, 1995 such ratio was 316 percent.
Because the Company failed to meet certain ratios contained in its bank
credit lines at June 30, 1995, the Company repaid the P&I Line in July 1995.
At June 30, 1995, the balance of this line was $7.8 million. The Company also
repaid certain of its bank warehouse credit lines on October 2, 1995.
At June 30, 1995 the Company was in default on certain covenants contained
in a warehouse and reverse repurchase credit agreements with a financial
institution. At June 30, 1995 the balance of the warehouse line was $73.3
million and the balance of the reverse repurchase agreement was $44.1 million.
In September 1995, the Company sold to a bank the first mortgage loans
underlying the reverse repurchase agreement and paid off the outstanding
balance of this credit line. In September 1995, the remaining first mortgage
loans collateralizing the warehouse line of credit were also sold and related
warehouse debt was assumed by the purchaser. For further discussion, see
"Subsequent and Other Significant Events."
On October 1, 1992 the Company, through Lomas Mortgage, issued $340
million principal amount of unsecured notes. The notes were issued in two
tranches: $150 million of 9.75% notes due 1997 and $190 million of 10.25% notes
due 2002. The blended interest cost on these notes is 10.03%. The net proceeds
of this offering were used to retire $330 million of increasing rate term notes
due 1999 which Lomas Mortgage issued pursuant to LFC's plan of reorganization.
See "Subsequent and Other Significant Events" for discussion of the non-payment
of the scheduled interest payments due on October 2, 1995.
The senior convertible notes due 2003 bear interest at 9% and are
convertible into approximately 8,000,000 shares of LFC's common stock at a
conversion price of $17.50 per share. The notes may be redeemed in whole or in
part at the option of the Company on or after October 31, 1993 at prices
ranging from 107.2% decreasing to 100% on or after October 31, 2001. Beginning
in 1997 the Company is required to provide sinking fund payments of $10 million
principal each year until 2002. Dividends are restricted to 50% of LFC's
accumulated consolidated net income, as defined in the indenture, since January
1, 1992. As of June 30, 1995, the Company's failure to meet certain ratio
requirements contained in the covenants, while not an event of default, limits
the Company's ability to issue additional term debt.
-49-
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DEBT--(CONTINUED)
At June 30, 1995 Notes Payable and Repurchase Agreements are due within
one year and maturities of the term notes payable and the senior convertible
notes payable were as follows in the following fiscal years (in thousands):
<TABLE>
<S> <C>
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38,770
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 329,918
---------
$ 518,688
=========
</TABLE>
FEDERAL INCOME TAXES
The Company files a consolidated federal income tax return. All companies
included in the consolidated federal income tax return are jointly and
severally liable for any tax assessments based on such consolidated return.
Fresh start reporting requires the Company to report federal income tax
expense when in a taxable position before utilization of 1991
pre-reorganization net operating loss carryforwards and recognition of the
benefit of pre- reorganization deductible temporary differences. Benefits
realized in the consolidated tax return from utilization of pre-reorganization
net operating loss carryforwards and recognition of pre-reorganization
deductible temporary differences existing at confirmation of LFC's plan of
reorganization but for which a net deferred tax asset was not recorded are
reported as direct additions to paid-in capital under fresh start reporting.
The federal income tax equivalent provision (benefit) is reflected in the
statement of consolidated operations as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Tax (benefit) applicable to:
Continuing operations . . . . . . . . . . . . . . . . . . . $ -- $ -- $ 3,812
Discontinued operations . . . . . . . . . . . . . . . . . . -- -- (1,441)
--------- -------- --------
$ -- $ -- $ 2,371
========= ======== ========
Utilization of tax benefits of pre-reorganization deductible
temporary differences and net operating loss carryforwards
as a direct addition to paid-in capital pursuant to fresh
start reporting . . . . . . . . . . . . . . . . . . . . . $ -- $ -- $ 2,371
========= ======== ========
</TABLE>
-50-
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEDERAL INCOME TAXES--(CONTINUED)
The difference between actual tax expense (benefit) on continuing
operations and the amount computed by applying the statutory rate to income
(loss) from continuing operations consisted of the following components (in
thousands):
<TABLE>
<CAPTION>
Year Ended June 30
--------------------------------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate . . . . . . . . . . $ (36,621) $(37,976) $ 11,679
Book/tax difference in amortization of purchased future
mortgage servicing income and goodwill . . . . . . . . . . (424) (2,752) (2,673)
Change in beginning-of-the-year balance of valuation
allowance for deferred tax assets allocated to income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 52,871 70,023 --
Discontinued operations . . . . . . . . . . . . . . . . . . (15,826) (29,295) (4,601)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (593)
--------- -------- --------
Actual tax expense . . . . . . . . . . . . . . . . . . . $ -- $ -- $ 3,812
========= ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1995 and 1994 are presented below.
<TABLE>
<CAPTION>
June 30
---------------------
1995 1994
--------- ---------
<S> <C> <C>
Deferred tax assets:
Post-reorganization net operating loss carryover . . . . . . . . . . $ 105,925 $ 64,355
Pre-reorganization net operating loss carryover . . . . . . . . . . 110,950 110,950
Loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,562 39,926
Deferred income on terminated swap agreements . . . . . . . . . . . 1,578 3,253
Purchased servicing writedown . . . . . . . . . . . . . . . . . . . 23,359 28,446
Employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . 3,029 3,594
Partnership income . . . . . . . . . . . . . . . . . . . . . . . . . 1,061 114
Uniform capitalization expense . . . . . . . . . . . . . . . . . . . 3,141 2,331
Miscellaneous assets . . . . . . . . . . . . . . . . . . . . . . . . 135 39
--------- ---------
Total gross deferred tax assets . . . . . . . . . . . . . . . . . 282,740 253,008
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . (252,888) (200,017)
--------- ---------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . 29,852 52,991
--------- ---------
Deferred tax liabilities:
Software development costs . . . . . . . . . . . . . . . . . . . . . -- 20,918
Pension overfunding . . . . . . . . . . . . . . . . . . . . . . . . 4,806 4,913
Accelerated depreciation . . . . . . . . . . . . . . . . . . . . . . 17,878 17,995
Partnership loss . . . . . . . . . . . . . . . . . . . . . . . . . . 670 686
Excess mortgage servicing fees . . . . . . . . . . . . . . . . . . . 1,926 3,660
Lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 794
Miscellaneous liabilities . . . . . . . . . . . . . . . . . . . . . 4,572 4,025
--------- ---------
Total gross deferred tax liabilities . . . . . . . . . . . . . . . 29,852 52,991
--------- ---------
Net deferred tax liability . . . . . . . . . . . . . . . . . . $ -- $ --
========= =========
</TABLE>
-51-
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FEDERAL INCOME TAXES--(CONTINUED)
The Company and its subsidiaries have a total deferred tax liability of
$30 million as of June 30, 1995. Gross deferred tax assets totaled $283
million as of June 30, 1995 subject to a valuation allowance of approximately
$253 million. Of this valuation allowance, approximately $101.7 million relates
to pre-reorganization tax attributes. Future utilization of these tax
attributes on a consolidated basis will result in adjustments to paid-in
capital. The net change in the valuation allowance for the fiscal year ended
June 30, 1995 was an increase of $53 million.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which these temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment. Tax
benefits subsequently recognized related to the valuation allowance for
deferred tax assets as of June 30, 1995, will be allocated to paid-in-capital,
for pre-reorganization tax attributes, and to income tax benefits that would be
reported in the statement of consolidated operations, for post- reorganization
tax attributes.
The Company had a consolidated tax net operating loss carryforward at June
30, 1995 totaling approximately $620 million. Of this total, $317 million arose
prior to the 1991 reorganization and will be subject to the limitations of
Internal Revenue Code Section 382. These carryovers expire in the years 2003
through 2009.
STOCKHOLDERS' EQUITY (DEFICIT)
At June 30, 1995 LFC had 100,000,000 shares of $1 par value common stock
(the "Common Stock") authorized and 20,146,000 shares issued and outstanding.
The Common Stock has no preemptive or other subscription rights and there are
no conversion rights, redemption or sinking fund provisions with respect to
such shares.
LFC issued warrants to its pre-reorganization equity holders to purchase
an aggregate of 7,000,000 shares of Common Stock at a price equal to $29.75 per
share. The warrants expire October 31, 2001.
At June 30, 1995 there were 17,300,000 shares reserved for future issuance
for the conversion of senior convertible notes, the warrants and stock plans
(see "Stock Plans" below).
STOCK PLANS
The Company has three stock incentive plans, namely the Directors Plan,
the 1991 Program and the 1993 Program.
Directors Plan. Directors of the Company who are not employees
participate in the Directors Plan. On November 2, 1993 each participating
director was granted 500 units under the Directors Plan and an additional 500
units were granted to each participating director at the 1994 Annual
Stockholders Meeting. Each unit represents the right of the holder thereof to
be paid one share of Common Stock at the earlier of (i) the date such holder
terminates service as a director of the Company and (ii) the tenth anniversary
of the date of the award. The number of shares of Common Stock that may be
granted under the Directors Plan is 100,000, and at June 30, 1995 there were
18,000 units outstanding.
1993 Program. The 1993 Program provides for the grant of any or all of
the following types of awards: (1) stock options, including incentive stock
options and non-qualified stock options; (2) stock appreciation rights, either
in tandem with stock options or freestanding; (3) restricted stock awards; (4)
performance shares; (5) performance units; (6) dividend equivalents; and (7)
other stock-based awards to key personnel and executives based on each such
individual's present and potential contribution to the success of the Company.
The 1993 Program authorizes the
-52-
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
STOCK PLANS--(CONTINUED)
issuance of Common Stock (or with respect to which awards may be granted) up to
a maximum of 1,800,000 shares; provided, no more than 300,000 shares may be
granted in any one fiscal year.
Information on stock options is summarized below (in thousands, except
price per share):
<TABLE>
<CAPTION>
Number of Price Aggregate
Shares Per Share Option Price
---------- --------- ------------
<S> <C> <C> <C>
Outstanding at July 1, 1993 . . . . . . . . . . . . 326 $8.25 $ 2,689
Granted . . . . . . . . . . . . . . . . . . . . . . 301 $8.25 2,485
Canceled . . . . . . . . . . . . . . . . . . . . . . (76) $8.25 (629)
-------- --------
Outstanding at June 30, 1994 . . . . . . . . . . . . 551 $8.25 4,545
Canceled . . . . . . . . . . . . . . . . . . . . . . (208) $8.25 (1,716)
-------- --------
Outstanding at June 30, 1995 . . . . . . . . . . . . 343 $8.25 $ 2,829
======== ========
</TABLE>
The options expire at various dates beginning February 13, 2002 and ending
January 25, 2004. At June 30, 1995 and 1994 options for 280,000 and 276,000
shares, respectively, were exercisable.
MORTGAGE SERVICING PORTFOLIO RISKS
The Company's combined primary servicing and subservicing portfolios
include mortgage loans secured by properties located in all 50 states and the
District of Columbia with the heaviest loan concentrations (in terms of unpaid
principal amount) in the states of California, Texas, Florida, New Jersey,
Arizona, Massachusetts, Illinois and Washington. The Company's servicing
portfolio is comprised of the following:
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
----------------------- -----------------------
Principal Principal
Number Balance Number Balance
of Outstanding of Outstanding
Loans (in millions) Loans (in millions)
-------- ------------- --------- -------------
<S> <C> <C> <C> <C>
FHA--insured mortgage loans . . . . . . . 170,525 $ 6,052 175,746 $ 5,283
VA--guaranteed mortgage loans . . . . . . 105,235 3,489 110,389 3,115
Conventional mortgage loans . . . . . . . 194,963 17,019 209,389 20,057
-------- -------- -------- --------
470,723 26,560 495,524 28,455
Subservicing . . . . . . . . . . . . . . . 69,602 6,527 70,007 5,535
-------- -------- -------- --------
540,325 $ 33,087 565,531 $ 33,990
======== ======== ======== ========
</TABLE>
Upon foreclosure, an FHA/VA property is typically conveyed to HUD or VA.
However, when it is in the VA's financial interest, it has the authority to
deny conveyance of the foreclosed property to the VA ("VA no-bids"). The VA
instead reimburses the Company based on a percentage of the loan's outstanding
principal balance. For GNMA loans or VA no-bids, the foreclosed property is
conveyed to the Company, and the Company assumes the market risk of disposing
of the property.
In some cases, the Company is required to make guaranteed principal and
interest payments on certain mortgage- backed securities regardless of actual
collection from the underlying mortgage loans. In certain instances, the
Company will buy foreclosed loans out of a pool and either attempt to have them
reinstated or foreclose upon the secured properties. A portion of these
advances on GNMA loans are not recoverable. As of June 30, 1995 and 1994, a
reserve for GNMA loans on unrecoverable advances and VA no-bids of
approximately $2.3 million and $3.1 million, respectively, had been
established.
-53-
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
MORTGAGE SERVICING PORTFOLIO RISKS--(CONTINUED)
GNMA losses, including advances and VA no-bids, for the years ended June
30, 1995, 1994 and 1993, were $7.1 million, $8.0 million and $9.3 million,
respectively.
At June 30, 1995 the Company was servicing approximately $355 million in
recourse loans. The Company is obligated to purchase individual mortgages from
investors if such mortgages are foreclosed. Approximately $7.6 million of
these loans were greater than 90 days delinquent as of June 30, 1995.
The Company carried blanket bond and errors and omissions coverage of $35
million each at June 30, 1995.
Subsequent to June 30, 1995, the Company entered into agreements to sell
substantially all of its servicing portfolio. For further discussion, see
"Subsequent and Other Significant Events."
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
Reverse Interest Rate Swaps. The Company, through Lomas Mortgage, has
entered into reverse interest rate swap agreements since July 1992. Under the
terms of these swap agreements, the Company receives an annual fixed rate of
interest and pays a floating rate of interest based on the 30-day average A1/P1
commercial paper rate. At June 30, 1995 interest rate swaps in the aggregate
notional amount of $640 million were outstanding, all of which were designated
as hedges. These swaps will mature in October 1998. The Company receives an
average fixed interest rate of 4.75 percent on these swaps. The floating
interest rate, which the Company pays, at June 30, 1995 was 6.16 percent. The
Company has not entered into any additional interest rate swap agreements since
November 1993. During fiscal 1995, the Company incurred net interest expense
of $2.5 million from the swaps. For fiscal 1994 and 1993, the swaps resulted
in net interest savings of $13.9 million and $17.7 million, respectively, which
included gains of $2.3 million and $7.2 million, respectively, recognized on
termination of swaps that were accounted for as speculative. Since its
inception in July 1992 and through June 30, 1995, the swap program has
generated net cash of $30.9 million.
The terms of the swaps provide that the counterparty, under certain
circumstances, can demand collateral from Lomas Mortgage to protect against
mark-to-market exposure attributable to the agreements. At June 30, 1995,
Lomas Mortgage had pledged servicing rights related to approximately $6.7
billion of mortgage loans as collateral which had a carrying value of
approximately $133 million.
At the beginning of the second quarter of fiscal 1995, the amount of fixed
rate debt dropped below the notional amount of the swaps ($800 million), the
Company recorded a pro rata loss of approximately $7.4 million which is
included in the provision for losses. The fixed rate debt increased over the
notional amount of the swaps during the same quarter and the entire $800
million amount of swaps has been accounted for as a hedge since December 31,
1994. The deferred amount resulting from the pro rata loss is being amortized
over the remaining life of the swaps.
The swap agreements also contain certain default and termination
provisions whereby the counterparty can terminate the agreements prior to their
maturity, including a provision which permits the counterparty to terminate if,
in its reasonable business judgment, there has been a material adverse change
since April 1, 1994 in the business, assets, operations or financial condition.
During the fourth quarter of fiscal 1995, the Company terminated $160 million
notional amount of its swaps and reduced the notional amount of outstanding
swaps at June 30, 1995 to $640 million. In connection with the termination,
the Company paid to the counterparty $5.0 million in cash and incurred a loss
of approximately $2.2 million which is being amortized over the remaining term
of the swaps.
Based on the interest rates and credit worthiness of the counterparty at
June 30, 1995, if the swap agreements had been terminated as of that date,
Lomas Mortgage would have incurred a liability (net of $9.2 million deferred
credits) of approximately $16.3 million.
-54-
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS--(CONTINUED)
Subsequent to June 30, 1995, the remaining swaps were terminated. See
"Subsequent and Other Significant Events."
Loans Sold With Recourse. The Company has sold, with recourse,
single-family mortgage loans with unpaid principal balances aggregating $343
million at June 30, 1995. The Company is obligated to repurchase individual
mortgages if such mortgages reach specified stages of delinquency. At June 30,
1995 restricted cash balances of $700,000 and treasury notes totaling $3.8
million, included in investments in the accompanying consolidated balance
sheet, were pledged to secure the Company's contingent repurchase obligations.
Commitments to Purchase and to Sell Loans. At June 30, 1995 the Company's
commitments to purchase and originate loans totaled $912.5 million of which
approximately 92%, or $837.5 million, had been committed for sale to
financially responsible third parties at the Company's cost. The remaining 8%,
or $75.0 million, of the Company's commitments to purchase and originate loans
and $345 million of loans held for sale that were hedged by forward contracts
to sell mortgage-backed securities of approximately $344.3 million, which
represented the Company's best estimate of its market risk on such loans.
If secondary market interest rates decline after the Company commits to an
interest rate for a loan, the loan may not close and the Company may incur a
loss from the cost of covering its obligations under any related forward
commitments. If secondary market interest rates increase after the Company
commits to an interest rate for a loan and the Company has not obtained a
forward commitment, the Company may incur a loss when the loan is subsequently
sold.
Paid-in-Full Interest. In connection with servicing certain
mortgage-backed securities under most of the Company's servicing agreements,
the Company is required to pay to investors a full month's interest on each
loan although the loan may be paid off other than on a month-end basis.
Therefore, the Company is obligated to pay the investor interest at the agreed
rate from the date of loan payoff through the end of the calendar month without
reimbursement. At June 30, 1995 the unpaid principal balance of the Company's
mortgage servicing portfolio that is subject to paid-in-full interest totaled
$19.3 billion.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") 107 requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for those that it is practicable to
estimate fair value. Fair value estimates are made as of a specific point in
time based on the characteristics of the financial instruments and the relevant
market information. Where available quoted market prices are used, and in other
cases, fair values are based on estimates using present value or other
valuation techniques. These techniques involve uncertainties and are
significantly affected by the assumptions used and the judgments made regarding
risk characteristics of various financial instruments, discount rates,
estimates of future cash flows, future expected loss experience and other
factors. Changes in assumptions could significantly affect these estimates and
the resulting fair values. The derived fair value estimates cannot be
substantiated by comparison to independent markets and could not be realized in
an immediate sale of the instruments.
Under SFAS 107 fair value estimates are based on existing financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. The aggregate fair value amounts presented do not
represent the underlying market value of the Company.
Described below are the methods and assumptions used by the Company in
estimating fair values.
-55-
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
Cash and Cash Equivalents. The carrying amounts reported in the
consolidated balance sheet approximate the fair values as maturities are less
than three months.
First Mortgage Loans Held For Sale. The carrying amounts approximate fair
values for first mortgage loans that are committed for sale to third parties at
the Company's cost. Fair value of first mortgage loans that are not committed
for sale at the reporting date is estimated using the current value of similar
types of loans.
Investments. Commercial paper and bank certificates of deposit generally
mature within 31 days; therefore, the carrying amounts reported in the
consolidated balance sheet are the approximate fair value. Restricted cash
balances approximate the fair value. Fair value on fixed-maturity debt
securities are based on quoted market prices.
Discontinued Operations. The carrying amounts for cash represent the fair
value. Notes receivables' fair value is estimated by discounting cash flows at
interest rates currently being offered for loans with similar terms to
borrowers of similar credit quality. Debt securities' fair value is estimated
using the quoted market price.
Notes Payable and Repurchase Agreements. The carrying amounts approximate
fair values due to the short term maturity of these instruments.
Term Notes and Senior Convertible Notes Payable. Fair value is based on
the quoted market prices.
Reverse Interest Rate Swaps. Fair values are obtained from dealer quotes.
These values represent the estimated amount the Company would receive or pay to
terminate the agreements at the reporting date.
Commitments to Purchase and to Sell Loans. The fair value of commitments
to purchase loans is based upon the difference between the current value of
similar loans and the price at which the Company has committed to purchase the
loans. The fair value of commitments to sell loans is the estimated amount that
the Company would receive or pay to terminate the commitments at the reporting
date based on market prices for similar financial instruments.
-56-
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)
The estimated fair values of the Company's on-balance sheet and
off-balance sheet financial instruments were as follows (in thousands):
<TABLE>
<CAPTION>
June 30, 1995 June 30, 1994
------------------------ -----------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents . . . . . . . . $ 19,966 $ 19,966 $ 7,206 $ 7,206
First mortgage loans held for sale . . . . $ 345,039 $ 344,326 $ 257,534 $ 258,067
Investments . . . . . . . . . . . . . . . $ 275,767 $ 277,310 $ 109,418 $ 107,614
Net assets of discontinued operations:
Cash . . . . . . . . . . . . . . . . . . $ 1,544 $ 1,544 $ 2,972 $ 2,972
Restricted cash investments . . . . . . $ -- $ -- $ 38,399 $ 38,399
Notes receivable . . . . . . . . . . . . $ 11,281 $ 11,321 $ 39,048 $ 38,400
Debt securities . . . . . . . . . . . . -- -- $ 61,987 $ 52,689
Financial Liabilities:
Notes payable and repurchase agreements . $ 591,089 $ 591,089 $ 341,047 $ 341,047
Term notes and senior convertible
notes payable . . . . . . . . . . . . . $ 518,688 $ 301,858 $ 523,229 $ 483,921
Off-balance sheet items:
Reverse interest rate swaps (liability) . -- $ (25,485) -- $ (65,505)
Commitments to purchase loans (liability) -- $ 859 -- $ (46)
Commitments to sell loans (liability) . . -- $ (516) -- $ 6
</TABLE>
LEGAL PROCEEDINGS
On October 10, 1995, LFC, Lomas Mortgage and two other insignificant
subsidiaries of LFC filed separate voluntary petitions for reorganization under
Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. For
more information, see "Chapter 11 Proceedings."
The Company is involved in a number of lawsuits considered to be in the
normal course of business. In management's opinion, the resolution of these
disputes will not have a material adverse effect on the financial position of
the Company.
-57-
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LEASES
The Company's continuing operations incurred rental expense and had future
minimum rental commitments at June 30, 1995 for noncancelable leases as follows
(in thousands):
<TABLE>
<CAPTION>
Office
Space Equipment Total
------- --------- -------
<S> <C> <C> <C>
Expense for the years ended June 30:
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,038 $ 1,512 $ 2,550
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,977 $ 1,054 $ 4,031
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,316 $ 811 $ 4,127
Commitments for the years ending June 30:
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 519 $ 1,949 $ 2,468
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 275 1,663 1,938
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 1,257 1,476
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 60 120
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- --
-------- ------- -------
Total minimum lease payments . . . . . . . . . . . . . . . . $ 1,073 $ 4,929 $ 6,002
======== ======= =======
</TABLE>
PENSION PLANS
Defined Benefit Plan. The Company's pension plan is sponsored by Lomas
Mortgage. The plan is a noncontributory plan which covers substantially all
employees of the Company. Benefits are based on the employee's years of service
and compensation. Pension plan assets consist principally of listed stocks and
bonds and United States government securities. The Company makes contributions
to the plan which equal or exceed the minimum amounts required by the Employee
Retirement Income Security Act of 1974.
Credits to expense related to the defined benefit plan included the
following components (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
-------------------------------
1995 1994 1993
--------- ---------- --------
<S> <C> <C> <C>
Actual return on plan assets . . . . . . . . . . . . . . . . $ 867 $ 4,009 $ 3,927
Net amortization and deferrals . . . . . . . . . . . . . . . 2,900 132 195
Service costs--benefits earned . . . . . . . . . . . . . . . (1,538) (1,768) (1,557)
Interest on projected benefit obligations . . . . . . . . . (1,880) (2,259) (2,206)
Curtailment . . . . . . . . . . . . . . . . . . . . . . . . -- (1,260) --
-------- -------- --------
Net credit (expense) recognized . . . . . . . . . . . . . . $ 349 $ (1,146) $ 359
======== ======== ========
</TABLE>
-58-
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
PENSION PLANS--(CONTINUED)
The funded status of the Company's defined benefit plan after giving
effect to accruals and contributions was as follows (in thousands):
<TABLE>
<CAPTION>
June 30
--------------------
1995 1994
-------- --------
<S> <C> <C>
Plan assets at market value . . . . . . . . . . . . . . . . . . . . . $ 29,422 $ 45,385
Actuarial present value of projected benefit obligations . . . . . . . (16,344) (29,872)
-------- --------
Excess plan assets . . . . . . . . . . . . . . . . . . . . . . . . . 13,078 15,513
Unrecognized excess plan assets being amortized over 15 years . . . . (3,026) (6,077)
Unrecognized actuarial loss . . . . . . . . . . . . . . . . . . . . . 5,467 11,574
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . (716) (1,169)
Loss on curtailment . . . . . . . . . . . . . . . . . . . . . . . . . -- (1,260)
-------- --------
Prepaid pension expense recorded in the financial statements . . . . . $ 14,803 $ 18,581
======== ========
Actuarial present value of accumulated benefit obligations . . . . . . $ 14,294 $ 25,452
Actuarial present value of vested benefit obligations . . . . . . . . $ 13,120 $ 23,316
</TABLE>
As a result of reduction in work force and restructuring activities,
curtailment losses of $3.2 million for fiscal 1995 is included in the above
amounts.
Assumptions used in the accounting were:
<TABLE>
<CAPTION>
June 30
-----------------------
1995 1994 1993
------ ------- ------
<S> <C> <C> <C>
Discount/settlement rates . . . . . . . . . . . . . . . . . . . . . 8.0% 7.5% 8.0%
Rates of increase in compensation levels . . . . . . . . . . . . . . 7.9% 8.1% 8.1%
Expected long term rate of return on assets . . . . . . . . . . . . 9.0% 9.0% 9.0%
</TABLE>
Defined Contribution Plan. The Company has also established a 401(k)
savings plan effective April 1, 1993. Substantially all employees of the
Company are eligible to participate in the plan. Eligible employees are
entitled to contribute up to 12% of salary, and the Company matches up to 35%
of an employee's contributions up to 6% of salary. The total amount of
contributions made by the Company during fiscal 1995, 1994 and 1993 was
$254,000, $445,000 and $108,000, respectively.
MANAGEMENT SECURITY PLAN
The Company has a Management Security Plan ("MSP") for certain of its
employees. Key employees of the Company who participate in MSP will be paid in
the event of retirement or death a portion of the employee's salary which such
employee chooses as the basis for computation of retirement or death benefits.
The Company ceased new enrollments in 1985. Funds contributed to the plan are
held in a trust. The assets of the trust were included in Investments and
totaled $6.9 million at June 30, 1995. The trust's assets are invested at the
discretion of the outside trustee. At June 30, 1995 the assets consisted
primarily of listed common stocks and fixed-income investments. Income and
expenses of the trust are included in the Company's statement of consolidated
operations. The trust is irrevocable and subject only to the claims of
creditors in the event of the insolvency of the Company. At June 30, 1995, the
MSP plan was overfunded by approximately $770,000.
DISCONTINUED OPERATIONS
Discontinued operations include the Company's short term lending
operations and information systems operations.
-59-
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DISCONTINUED OPERATIONS--(CONTINUED)
In December 1994 the Company completed the sale of substantially all of
the assets of its information systems subsidiary ("LIS") to an insurance
company ("Purchaser"). As consideration for this sale, the Company received
$2.5 million in cash; an $8.0 million note due five years after closing and
accruing interest at a rate per annum of 8 percent payable at maturity (which
can be adjusted based on the future financial performance of the Purchaser);
and a contingent interest equal to 35 percent of the Purchaser's adjusted gross
revenues in excess of $55 million per year generated during the seven years
ending December 31, 2001. However, in March 1995, the parent of the Purchaser
announced its intention to sell its mortgage banking business which includes
the Purchaser. According to the agreement between the Company and the
Purchaser and under the scenario that the Purchaser's parent is selling the
information systems business either with or separately from its mortgage
banking business, the Company may have the right to accelerate the $8.0 million
promissory note. In June 1995 the Purchaser decided not to convert its
mortgage servicing portfolio to the LIS servicing system. As a result, the
Company recorded a provision of $24.4 million in June 1995 to write off the
Company's carrying value of such assets. During fiscal 1995 and 1994, the
Company recorded total losses of $26.4 million and $33.5 million, respectively,
in connection with the disposal. At June 30, 1995 net assets of LIS were
$6,869,000 including the $8.0 million note, net of accrued legal expense and
other taxes of $1,131,000.
The Company's discontinued short term lending operations include ST
Lending, Inc. ("STL"), Lomas Management, Inc. ("LMI"), which manages the
assets of STL, and certain other real estate operations. The Company is
discontinuing its short term lending operations by orderly liquidation of its
portfolio of construction, acquisition and development loans, and foreclosed
real estate. Substantially no new commercial loans and only a limited number of
residential single-family construction loans have been originated since June
1989. The Company provided reserves totaling $22.7 million, $17.5 million and
$4.5 million, for fiscal 1995, 1994 and 1993, respectively, to cover expected
loss on liquidation of properties and future operating losses through the
disposition of all properties. At June 30, 1995, the Company had reserves in
the amount of $2.9 million to cover future operating losses and $15.2 million
to cover losses on liquidation of assets.
Operating results from discontinued operations for the years ended June
30, 1995, 1994 and 1993, were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------
1995 1994 1993
---------- --------- ----------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 19,425 $ 49,039 $ 51,800
========== ========= ==========
Loss from discontinued operations:
Loss from operations:
LIS . . . . . . . . . . . . . . . . . . . . . . . . $ (36,248) $ (23,164) $ (14,293)
STL and LMI . . . . . . . . . . . . . . . . . . . . (15,199) (16,552) (14,391)
Other real estate operations . . . . . . . . . . . . (435) (636) 260
Loss on disposal--LIS . . . . . . . . . . . . . . . . (24,409) (25,000) --
Provisions for future operating losses--LIS . . . . . (2,000) (8,500) --
Loss on disposal--STL . . . . . . . . . . . . . . . . (11,385) (16,900) (4,500)
Loss on disposal--other real estate operations . . . . (4,065) -- --
Provisions for future operating losses--STL . . . . . (7,200) (600) --
---------- --------- ----------
(100,941) (91,352) (32,924)
Loss charged to reserves . . . . . . . . . . . . . . . 51,882 17,188 14,220
Tax benefit applicable to discontinued STL . . . . . . -- -- 1,441
---------- --------- ----------
Loss from discontinued operations . . . . . . . . . $ (49,059) $ (74,164) $ (17,263)
========== ========= ==========
</TABLE>
-60-
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DISCONTINUED OPERATIONS--(CONTINUED)
Net assets of discontinued short term lending operations were as follows
(in thousands):
<TABLE>
<CAPTION>
June 30
----------------------
1995 1994
--------- ---------
<S> <C> <C>
Assets:
Mortgage notes receivable and foreclosed real estate, net of
allowance for losses of $15,213 and $17,904, respectively . . . $ 27,747 $ 111,432
Cash and restricted cash investments . . . . . . . . . . . . . . . 1,322 39,292
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 903 2,491
--------- ---------
29,972 153,215
Less:
Secured notes payable . . . . . . . . . . . . . . . . . . . . . . -- (61,987)
Accrued interest payable and other . . . . . . . . . . . . . . . . (386) (3,257)
Other reserves . . . . . . . . . . . . . . . . . . . . . . . . . . (2,905) (2,092)
--------- ---------
$ 26,681 $ 85,879
========= =========
</TABLE>
During the first six months of fiscal 1995, STL completed the sale of 12
of its properties for approximately $31.1 million, the proceeds from the sale
along with STL's then existing cash enabled payment in full of STL's remaining
secured debt of $62.0 million. STL also advanced $39.1 million, during fiscal
1995, to LFC's consolidated operations.
TRANSACTIONS WITH AFFILIATES
The Company, through Lomas Mortgage, is a partner and manager of Lomas
Mortgage Partnership (the "Partnership"). The Company owns one-third of the
Partnership and at June 30, 1995 the Company's investment in the Partnership
approximated $4.1 million. The Partnership is engaged primarily in acquiring
mortgage servicing and servicing single- family mortgages. The Company
subservices all mortgages in the Partnership's mortgage servicing portfolio for
its usual subservicing fees. During fiscal 1995 the Company acquired from the
Partnership approximately $787.3 million in unpaid principal balance of
mortgage servicing rights for approximately $13.0 million of cash. This
transaction resulted in a gain of $4.9 million for the Partnership. This
mortgage servicing portfolio was originally sold to the Partnership by the
Company in fiscal 1994 at a loss of $1.3 million. The Company's one-third of
the net gain realized from the transactions was deferred and is being amortized
over approximately nine years through adjusting the carrying value of the PMSRs
related to that portfolio. During fiscal 1994 and 1993 the Company sold to the
Partnership approximately $1.2 billion and $361.8 million, respectively, in
unpaid principal balance of mortgage servicing income rights with carrying
value of $13.7 million and $4.7 million for $12.1 million and $4.7 million of
cash, respectively. During the years ended June 30, 1995, 1994 and 1993 the
Company received subservicing fees of approximately $4.5 million, $3.9 million
and $1.4 million from the Partnership, respectively.
During fiscal 1993 and 1994 the management contract between Lomas Mortgage
and Capstead Mortgage Corporation ("Capstead"), a real estate investment trust,
was amended and terminated. Capstead became entirely self-managed on September
30, 1993. Lomas Mortgage continues to service Capstead's, mortgage servicing
portfolio existing at the termination of the management agreement which had an
unpaid principal balance of $2.6 billion at June 30, 1995. During fiscal 1994
and 1993 the Company recognized total income of $6.0 million and $17.2 million,
respectively (excluding reimbursed expenses), from the amended management
agreement and the non-compete agreement. The Company entered into the
non-compete agreement in fiscal 1993 as a part of the amendment to the
management agreement. The Company agreed that for a period of one year after
the termination of the agreement not to compete, organize or provide management
services to any real estate investment trust. The Company's contractual
relationship with Capstead during fiscal 1994 and 1993 resulted in the
following (in thousands):
-61-
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
TRANSACTIONS WITH AFFILIATES--(CONTINUED)
<TABLE>
<CAPTION>
Year Ended June 30
--------------------
1994 1993
-------- --------
<S> <C> <C>
Management fee income . . . . . . . . . . . . . . . . . . . . . . . . $ 2,952 $ 9,854
Servicing and master servicing fee income . . . . . . . . . . . . . . $ 10,042 $ 15,809
Sale of first mortgage loans . . . . . . . . . . . . . . . . . . . . . $ 4,516 $ 14,160
Purchase of servicing rights . . . . . . . . . . . . . . . . . . . . . $ 3,379 $ 33,475
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,028 $ 13,537
</TABLE>
Operating costs related to the Capstead management fee income were
approximately $2.1 million and $5.8 million for the years ended June 1994 and
1993, respectively.
The Company, through a wholly-owned subsidiary (which is accounted for as
a discontinued operation), was a manager of Liberte Investors ("Liberte"), a
real estate investment trust. In October 1993, Liberte filed for a
pre-packaged bankruptcy and emerged from the bankruptcy proceedings in April
1994. A substantial portion of Liberte's real estate portfolio was spun off to
its creditors and the management agreement was terminated in April 1995. For
the years ended June 30, 1995, 1994 and 1993 the Company received management
fees of $167,000, $1.9 million and $2.9 million, respectively, under the
management agreement.
QUARTERLY RESULTS (UNAUDITED)
The following is a summary of the unaudited quarterly results of
operations for the two years ended June 30, 1995 (in thousands of dollars,
except per share amounts):
<TABLE>
<CAPTION>
Year Ended June 30, 1995
---------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenues from continuing operations . . . . . . . . 54,121 57,351 52,316 55,534
Loss from continuing operations . . . . . . . . . . (7,350) (33,709) (19,549) (44,024)
Loss from discontinued operations . . . . . . . . . (5,500) (7,500) (5,600) (30,459)
Net loss . . . . . . . . . . . . . . . . . . . . . . (12,850) (41,209) (25,149) (74,483)
Loss per common share:
Loss from continuing operations . . . . . . . . . (.37) (1.67) (.97) (2.18)
Net loss . . . . . . . . . . . . . . . . . . . . . (.64) (2.04) (1.25) (3.69)
</TABLE>
During the second quarter of fiscal 1995, the Company's continuing
operations established provisions of $29.6 million for mortgage servicing
related receivables, mortgage banking commitments and contingencies, pro rata
interest rate swap loss and reduction in carrying value of certain fixed
assets.
The third quarter of fiscal 1995 operating results from continuing
operations included a $9.0 million provision for the Company's 1995 reduction
in force and restructurings.
During the fourth quarter of fiscal 1995, loss from continuing operations
included provisions totaling $30.2 million for additional losses related to the
mortgage servicing and loan production operations and writedown of certain
buildings and other fixed assets.
Loss from discontinued operations for the fourth quarter of fiscal 1995
included a provision of $24.4 million to write off the Company's contingent
earnout interest in the future revenues of the information system business.
-62-
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
QUARTERLY RESULTS (UNAUDITED)--(CONTINUED)
For information concerning the Company's fiscal 1995 reduction in force
and restructuring plan, see "Reduction in Force and Restructurings" footnote.
<TABLE>
<CAPTION>
Year Ended June 30, 1994
----------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues from continuing operations . . . . . . . . 80,064 65,761 63,833 61,400
Loss from continuing operations . . . . . . . . . . (39,698) (42,503) (4,746) (21,555)
Loss from discontinued operations . . . . . . . . . (9,869) (5,635) (12,923) (45,737)
Net loss . . . . . . . . . . . . . . . . . . . . . . (49,567) (48,138) (17,669) (67,292)
Loss per common share:
Loss from continuing operations . . . . . . . . . (1.97) (2.11) (.24) (1.07)
Net loss . . . . . . . . . . . . . . . . . . . . . (2.46) (2.39) (.88) (3.34)
</TABLE>
During the first quarter and second quarter of fiscal 1994, the Company
established provisions of $50.0 million and $30.0 million, respectively,
related to impairment in the carrying value of PMSRs.
For information concerning the Company's reduction in force and
restructuring in the second quarter and fourth quarter, see "Reduction in Force
and Restructurings" footnote.
In the fourth quarter of fiscal 1994, the Company recorded a provision of
$33.5 million relating to the pending sale of substantially all the assets of
LIS.
-63-
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INDUSTRY SEGMENT DATA OF CONTINUING OPERATIONS
The following summarizes the Company's industry segment data of continuing
operations as of June 30, 1995, 1994 and 1993 and for the years then ended (in
thousands):
<TABLE>
<CAPTION>
Year Ended June 30
-------------------------------------
1995 1994 1993
----------- ---------- ---------
<S> <C> <C> <C>
Revenues
Mortgage banking . . . . . . . . . . . . . . . . . $ 209,245 $ 262,019 $ 279,874
Other . . . . . . . . . . . . . . . . . . . . . . 11,097 9,039 13,880
---------- ---------- ---------
220,342 271,058 293,754
Intersegment revenues eliminated
in consolidation . . . . . . . . . . . . . . . . (1,020) -- (400)
---------- ---------- ---------
Total revenues per statement of
consolidated operations . . . . . . . . . . . . $ 219,322 $ 271,058 $ 293,354
========== ========== =========
Operating profit (loss)
Mortgage banking . . . . . . . . . . . . . . . . . $ (82,821) $ (82,195) $ 40,031
Other . . . . . . . . . . . . . . . . . . . . . . 1,521 (197) 13,207
---------- ---------- ---------
Operating profit (loss) . . . . . . . . . . . . (81,300) (82,392) 53,238
General and administrative . . . . . . . . . . . . (6,587) (9,327) (7,232)
Provision for losses . . . . . . . . . . . . . . . (162) -- --
Provision for restructuring . . . . . . . . . . . (2,800) (3,630) --
Corporate interest expense . . . . . . . . . . . . (13,783) (13,153) (12,637)
---------- ---------- ---------
Operating income (loss) before
federal income taxes . . . . . . . . . . . . . (104,632) (108,502) 33,369
Federal income taxes . . . . . . . . . . . . . . . . -- -- 3,812
---------- ---------- ---------
Income (loss) from continuing operations . . . . $ (104,632) $ (108,502) $ 29,557
========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
June 30
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Identifiable Assets
Mortgage banking . . . . . . . . . . . . . . . . $1,108,245 $ 926,995 $1,217,498
Other . . . . . . . . . . . . . . . . . . . . . 13,275 37,320 62,431
---------- ---------- ----------
1,121,520 964,315 1,279,929
Net assets of discontinued operations . . . . . 33,550 113,258 174,582
---------- ---------- ----------
Total assets per consolidated balance sheet . $1,155,070 $1,077,573 $1,454,511
========== ========== ==========
</TABLE>
-64-
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INDUSTRY SEGMENT DATA OF CONTINUING OPERATIONS--(CONTINUED)
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Depreciation and Amortization Expense
Mortgage banking . . . . . . . . . . . . . . . . $ 65,426 $ 153,787 $ 68,342
Other . . . . . . . . . . . . . . . . . . . . . 1,434 1,523 679
---------- ---------- ----------
$ 66,860 $ 155,310 $ 69,021
========== ========== ==========
Net Charges to Allowance for Losses
Mortgage banking . . . . . . . . . . . . . . . . $ 53,420 $ 12,410 $ 11,955
Other . . . . . . . . . . . . . . . . . . . . . 1,221 447 104
---------- ---------- ----------
$ 54,641 $ 12,857 $ 12,059
========== ========== ==========
Capital expenditures
Mortgage banking . . . . . . . . . . . . . . . . $ 511 $ 24,042 $ 9,021
Other . . . . . . . . . . . . . . . . . . . . . 1,179 1,016 576
---------- ---------- ----------
$ 1,690 $ 25,058 $ 9,597
========== ========== ==========
</TABLE>
Intersegment charges to Lomas Mortgage operations are as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended June 30
----------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
LIS for data processing and telecommunications . . $ 12,811 $ 17,061 $ 17,918
Lomas Administrative Services, Inc. ("LAS")
for various administrative services . . . . . . 7,542 7,487 8,064
LAS for office space . . . . . . . . . . . . . . . 2,833 6,026 1,717
Intellifile, Inc. for image processing . . . . . . 1,020 2,926 --
LFC for management fees . . . . . . . . . . . . . 1,500 1,630 1,970
LFC for interest expense (income) . . . . . . . . (697) (518) 166
---------- ---------- ----------
$ 25,009 $ 34,612 $ 29,835
========== ========== ==========
</TABLE>
Beginning fiscal 1994 LAS changed its method of allocating office space
costs. Prior to fiscal 1994 Lomas Mortgage received credit for depreciation and
interest expense related to the office space occupied by other affiliates and
unallocated office space totaling approximately $4.2 million. These costs were
absorbed by Lomas Mortgage since fiscal 1994.
-65-
<PAGE> 66
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
LOMAS FINANCIAL CORPORATION
CONDENSED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 560 $ (1,237)
Receivables (including $1,076 and $7,062, respectively, due
from subsidiaries eliminated in consolidation) . . . . . . . . . . 1,224 7,689
Investments (including $123,782 and $211,404, respectively,
investments in subsidiaries eliminated in consolidation) . . . . . 127,368 229,872
Less allowance for losses . . . . . . . . . . . . . . . . . . . . . . . (3,997) (2,383)
---------- -----------
124,595 235,178
Fixed assets, prepaid expenses and other assets . . . . . . . . . . . . 2,236 4,748
Net assets of discontinued operations . . . . . . . . . . . . . . . . 5,393 72,088
---------- -----------
$ 132,784 $ 310,777
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued expenses (including $-0- and
$15,295, respectively, due to subsidiaries eliminated
in consolidation) . . . . . . . . . . . . . . . . . . . . . . . . $ 4,744 $ 29,424
Senior convertible notes payable . . . . . . . . . . . . . . . . . . 139,918 139,918
---------- -----------
144,662 169,342
---------- -----------
Stockholders' equity (deficit):
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,146 20,100
Other paid-in capital (including $1,300 eliminated
in consolidation) . . . . . . . . . . . . . . . . . . . . . . . . 309,761 309,429
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . (341,785) (188,094)
---------- -----------
(11,878) 141,435
---------- -----------
$ 132,784 $ 310,777
========== ===========
</TABLE>
-66-
<PAGE> 67
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
LOMAS FINANCIAL CORPORATION
CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Investment (excluding dividends from subsidiaries) . . . . . . $ 802 $ 3,234 $ 6,244
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,931 4,098 6,644
----------- ----------- -----------
3,733 7,332 12,888
----------- ----------- -----------
Expenses:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,888 13,260 12,898
General and administrative . . . . . . . . . . . . . . . . . . 9,549 13,957 7,232
----------- ----------- -----------
23,437 27,217 20,130
----------- ----------- -----------
Loss before federal income tax benefit
and equity in income (loss) of subsidiaries . . . . . . . . . (19,704) (19,885) (7,242)
Federal income tax benefit . . . . . . . . . . . . . . . . . . . -- -- 7,265
Equity in income (loss) of subsidiaries . . . . . . . . . . . . . (91,330) (96,819) 15,355
----------- ----------- -----------
(111,034) (116,704) 15,378
Loss from discontinued operations . . . . . . . . . . . . . . . . (42,657) (65,962) (3,084)
----------- ----------- -----------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ (153,691) $ (182,666) $ 12,294
=========== =========== ===========
Dividends paid by subsidiaries . . . . . . . . . . . . . . . . . $ 891 $ 744 $ 21,083
=========== =========== ===========
</TABLE>
-67-
<PAGE> 68
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
LOMAS FINANCIAL CORPORATION
CONDENSED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended June 30
---------------------------------------
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Operating activities:
Net income (loss) . . . . . . . . . . . . . . . . . . . . . $ (153,691) $ (182,666) $ 12,294
Adjustments to reconcile income (loss) from continuing
operations to net cash used by operating activities
before working capital changes:
Loss from discontinued operations . . . . . . . . . . . 42,657 65,962 3,084
Depreciation and amortization . . . . . . . . . . . . . 202 232 226
Provisions for losses and restructuring . . . . . . . . 2,962 4,630 --
Equity (income) loss of subsidiaries . . . . . . . . . . 91,330 96,819 (15,355)
Federal income tax benefit . . . . . . . . . . . . . . . -- -- (7,265)
----------- ----------- ---------
Cash used by operations before working capital
changes . . . . . . . . . . . . . . . . . . . . . . (16,540) (15,023) (7,016)
Net change in receivables, payable and other assets . . . . (8,425) (3,912) (7,219)
----------- ----------- ---------
Net cash used by operating activities . . . . . . (24,965) (18,935) (14,235)
----------- ----------- ---------
Investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . (3,358) (3,525) (997)
Sales of investments . . . . . . . . . . . . . . . . . . . . 15,765 26,467 4,681
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 31 (151)
----------- ----------- ---------
Net cash provided by investing activities . . . . . 12,407 22,973 3,533
----------- ----------- ---------
Financing activities:
Change in receivables from (payables to) subsidiaries . . . (7,062) 5,639 34,197
Net funding of subsidiaries operations . . . . . . . . . . . (8,935) (19,854) (23,998)
Change in receivables from (payables to) discontinued
operations . . . . . . . . . . . . . . . . . . . . . . . . 30,352 7,015 (6,455)
----------- ----------- ---------
Net cash provided (used) by financing activities . . 14,355 (7,200) 3,744
----------- ----------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . 1,797 (3,162) (6,958)
Cash and cash equivalents at beginning of year . . . . . . . . (1,237) 1,925 8,883
----------- ----------- ---------
Cash and cash equivalents at end of year . . . . . . . . . . . $ 560 $ (1,237) $ 1,925
=========== =========== =========
</TABLE>
-68-
<PAGE> 69
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
(a) 1. Ernst & Young LLP was dismissed effective as of January 24, 1995 as
the Registrant's independent auditors. The Registrant was satisfied with the
accounting and audit services performed by Ernst & Young LLP. The decision to
change auditors was based on economic considerations as part of the
Registrant's ongoing cost reduction efforts. In order to reach this decision,
between November 1, 1994 and January 24, 1995 management obtained proposals for
accounting and audit services from several accounting firms, including Ernst &
Young LLP. These firms were allowed to review the Registrant's financial
statements and accounting policies and principles.
2. The Ernst & Young LLP reports dated August 27, 1993 and September 22,
1994 on the Registrant's consolidated financial statements for the two fiscal
years ended June 30, 1993 and June 30, 1994, did not contain an adverse opinion
or a disclaimer of opinion, nor was any such report qualified or modified as to
uncertainty, audit scope, or accounting principles.
3. On January 24, 1995, the decision to change independent auditors was
recommended by the Audit Committee of the Registrant's Board of Directors to
the Registrant's Board of Directors and approved by the Registrant's Board of
Directors.
4. During the two fiscal years ended June 30, 1993 and June 30, 1994,
and through the date of dismissal of Ernst & Young LLP, there were no
disagreements between the Registrant and Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreement(s), if not resolved to the satisfaction
of Ernst & Young LLP, would have caused it to make reference to the subject
matter of the disagreement(s) in connection with its report.
5. No reportable event described in paragraph (a) (1) (v) of Item 304 of
Regulation S-K has occurred during the Registrant's two fiscal years ended June
30, 1993 and June 30, 1994, and through the date of dismissal of Ernst & Young
LLP.
(b) On January 30, 1995, the Registrant engaged KPMG Peat Marwick LLP as its
independent auditors.
During the Registrant's two fiscal years ended June 30, 1993 and June 30,
1994 and the fiscal quarter ended September 30, 1994, and through the date of
engagement of KPMG Peat Marwick LLP, neither the Registrant (nor someone on its
behalf) consulted with KPMG Peat Marwick LLP regarding any of the matters
specified in Item 304 (a) (2) of Regulation S-K.
-69-
<PAGE> 70
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE REGISTRANT
WILLIAM J. ANDERSON -- Executive Vice President and Director of Operations
of Paloma Partners Management Company (provides management services), a member
of the Investor Group, since 1993, Chief Executive Officer of Inverness
Petroleum Ltd. since 1984, Chairman of Inverness Petroleum Ltd. since 1988 and
Chairman of Dylex Limited, Canada since 1995; also, President of Inverness
Petroleum Ltd. from 1984 to 1993; former Chairman of the Canadian Association
of Petroleum Producers (formerly Independent Petroleum Association of Canada)
and presently a member of the Canadian, Alberta and Ontario Institutes of
Chartered Accountants. Age 47. Director of LFC since 1994. Member of the
Audit Committee.
ERIC D. BOOTH -- Chief Executive Officer of the Company, President of LFC
and Chairman of the Board of Directors of Lomas Mortgage since December 1994;
President of Lomas Mortgage since September 1995; prior thereto, Chairman and
Chief Executive Officer of Independence One Mortgage Corporation (a mortgage
banking company) from 1991 to 1994; Executive Vice President and Chief
Financial Officer of Michigan National Corporation (a bank holding company)
from 1985 to 1993; Senior Vice President and Chief Financial Officer of Lomas
Mortgage USA, Inc. (formerly The Lomas & Nettleton Company) from 1983 to 1985.
Age 51. Director of LFC since December 1994. Chairman of the Executive
Committee and member of the Special Marketing Committee.
MARK M. FELDMAN -- Executive Vice President and Chief Restructuring
Officer of LFC and Executive Vice President and Director of Lomas Mortgage
since July 1995; previously, President of Cold Spring Management, Inc. (general
partner of investment partnership), a member of the Investor Group, from 1989
to June 1995; Chairman of the Board and Chief Executive Officer of CLC of
America, Inc. from 1987 to 1988; trustee of Baron Asset Fund (an open end
mutual fund) since 1987 and of Aerospace Creditors Liquidating Trust (holds and
realizes upon the sale of assets formerly owned by a subsidiary of LTV
Corporation) since 1993. Age 44. Director of LFC since 1993. Chairman of the
Special Marketing Committee and member of the Executive Committee and the Audit
Committee.
ROBERT LEBUHN -- Chairman of Investor International (U.S.), Inc. from 1984
to 1994, when he retired; also a director of Acceptance Insurance Companies
Inc., Cambrex Corporation, Enzon, Inc. and USAIR Group, Inc.; President and
Trustee, Geraldine R. Dodge Foundation. Age 63. Director of LFC since 1993
and Chairman of the Board of Directors of LFC since January 1995. Member of
the Executive Committee, the Compensation Committee, the Audit Committee and
the Nominating Committee.
ROBERT V. LINDSAY -- President of J. P. Morgan & Co. Incorporated (a bank
holding company) and Morgan Guaranty Trust Company of New York from 1980 to
1988, when he retired; subsequently served as Chairman of the International
Council of J. P. Morgan & Co. Incorporated from 1988 to 1990; also a director
of The Chubb Corporation, Fluor Corporation, Hudson Chartered Corp. (formerly
Fishkill National Corp.), J. P. Morgan (Suisse) S.A., Russell Reynolds
Associates, Inc. and United Meridian Corp.; also serves as Senior Adviser to
Unibank Denmark A/S, Copenhagen; Chairman of John Simon Guggenheim Memorial
Foundation; member of the National Board of the Smithsonian Associates. Age
69. Director of LFC since 1992. Chairman of the Nominating Committee. MR.
LINDSAY RESIGNED AS A DIRECTOR OF LFC EFFECTIVE OCTOBER 10, 1995.
REID NAGLE -- President of SNL Securities, L.P. (a database publisher
specializing in financial institutions) since 1987; President of Shadwell
Management, Inc. (an investment company specializing in securities of financial
institutions) since 1993; also, a director of TeleBanc Financial Corporation
and Metropolitan Bank for Savings. Age 43. Director of LFC since 1993.
Member of the Compensation Committee and the Nominating Committee.
PAUL T. WALKER -- Independent Financial Consultant since 1991; prior
thereto, Executive Vice President and Senior Credit Policy Officer of The Chase
Manhattan Bank, N.A. (a national banking association) from 1985 to 1990, when
he retired; associated with The Chase Manhattan Bank, N.A. from 1957 to 1990;
trustee of The DBL
-70-
<PAGE> 71
Liquidating Trust (former assets of Drexel, Burnham & Lambert) since 1992. Age
60. Director of LFC since 1992. Chairman of the Compensation Committee and
member of the Executive Committee and the Nominating Committee.
W. RAY WALLACE -- Chairman since 1992 and President and Chief Executive
Officer since 1958 of Trinity Industries, Inc. (metal products). Age 72.
Director of LFC since 1966. Chairman of the Audit Committee and member of the
Executive Committee. MR. WALLACE RETIRED AS A DIRECTOR OF LFC EFFECTIVE
OCTOBER 11, 1995.
PAUL S. WOLANSKY -- Managing Director of Paloma Partners International
Investors Corp. (manages investments in China) since 1992 and of Cold Spring
Management, Inc. (general partner of investment partnership), a member of the
Investor Group, since 1990; Partner, Battle Fowler (a law firm based in New
York) from 1987 to 1990; trustee of Aerospace Creditors Liquidating Trust
(holds and realizes upon the sale of assets formerly owned by a subsidiary of
LTV Corporation) since 1993; director of The Cathay Investment Fund, Limited
(invests in Chinese companies) since 1994. Age 39. Director of LFC since
1993. Member of the Compensation Committee and the Special Marketing
Committee.
Messrs. Feldman, LeBuhn, Nagle and Wolansky were nominated for election as
directors of LFC pursuant to the terms of an agreement between LFC and the
Investor Group, as further described under "Item 13. Certain Relationships and
Related Transactions--Agreement with the Investor Group."
In December 1994, the Board of Directors of LFC increased the number of
directors of LFC from 10 to 12 and appointed Mr. Anderson to serve as a
director of LFC effective December 7, 1994 and Mr. Booth to serve as a director
of LFC effective December 12, 1994. Mr. Anderson currently serves as an
executive officer of Paloma Partners Management Company, a member of the
Investor Group.
In connection with his retirement as Chairman and Chief Executive Officer
of LFC effective December 31, 1994, Jess Hay was appointed Chairman Emeritus of
LFC effective January 1, 1995 and continued to serve as a director of LFC. Mr.
LeBuhn was appointed as Chairman of the Board of Directors of LFC effective
January 1, 1995. Mr. Hay resigned from his positions as Chairman Emeritus and
director of LFC effective March 2, 1995, and the Board of Directors of LFC
reduced the number of directors of LFC from 12 to 11 to eliminate the vacancy
created by Mr. Hay's resignation.
Effective April 11, 1995, Rod Dammeyer resigned from his position as a
director of LFC, reducing the number of directors of LFC to 10. Gary H. Kell
resigned from his position as a director of LFC effective September 5, 1995,
reducing the number of directors of LFC to nine. As stated above, Mr. Lindsay
resigned as a director of LFC effective October 10, 1995 and Mr. Wallace
retired as a director of LFC effective October 11, 1995 reducing the number of
directors of LFC to seven.
EXECUTIVE OFFICERS OF THE REGISTRANT
JAMES B. ALLEMAN -- Senior Vice President of Lomas Mortgage since June
1995; prior thereto, Senior Vice President of Lomas Administrative Services,
Inc. from 1994 to June 1995; previously, Director of Human Resources from 1991
to 1993, Director of Strategic Planning from 1990 to 1991 and Director of Human
Resources from 1989 to 1990 of Pacific Enterprises Oil Company (USA); prior
thereto, Director of Human Resources of Terra Resources, Inc. from 1988 to
1989. Age 41.
ERIC D. BOOTH -- Chief Executive Officer of the Company. See information
under "Directors of the Registrant" above.
THOMAS J. CLOONEY -- Senior Vice President and Chief Accounting Officer of
the Company since December 1994; previously, Executive Vice President --
Operations from 1992 to 1994 and Senior Vice President of Operations during
1992 of Lomas Information Systems, Inc.; Senior Vice President -- Accounting of
Lomas Administrative Services, Inc. from 1990 to 1992; prior thereto, Senior
Vice President -- Audit during 1990, Vice
-71-
<PAGE> 72
President -- Audit from 1988 to 1990 and Assistant Vice President of Audit from
1987 to 1988 of the Company. Age 47.
ROBERT R. DENTON -- Executive Vice President of the Company since December
1994; Treasurer of the Company since April 1995; also Principal of Woodward
Securities Corporation (a full service broker/dealer) since 1994 and President
of Pegasus Investment Advisors, Inc. since 1992; prior thereto, Chief Executive
Officer of World Wide Financial Corporation (provides diversified financial
services) from 1993 to 1994; Executive Vice President of Independence One
Mortgage Corporation (a mortgage banking company) from 1989 to 1993; First Vice
President of Michigan National Corporation (a bank holding company) from 1985
to 1993; and Vice President of Lomas Mortgage USA, Inc. (formerly The Lomas &
Nettleton Company) from 1983 to 1985. Age 45.
W. JOSEPH DRYER -- Senior Vice President of the Company and Chief Control
Officer of LFC since January 1995; also, President and Director of Russian
River Energy Co. from 1992 to 1994 and Vice President, Treasurer and Director
of Geothermal Resources International, Inc. since 1984. Age 40.
MARK M. FELDMAN -- Executive Vice President and Chief Restructuring
Officer of LFC. See information under "Directors of the Registrant" above.
LOUIS P. GREGORY -- Senior Vice President and General Counsel since 1994
and Secretary since May 1995 of the Company; Vice President and Associate
General Counsel of the Company from 1990 to 1994; prior thereto, attorney of
the Company from 1988 to July 1990. Age 40.
KATHLEEN SNOBLE -- Executive Vice President of Lomas Mortgage since
January 1995; prior thereto, Senior Vice President from October 1994 to January
1995 of Lomas Mortgage; previously, Loan Servicing Division Manager of HomeFed
Bank/National Home Mortgage from 1992 to 1993; Loan Servicing Manager, Vice
President of Wells Fargo Bank from 1990 to 1992; and Loan Service Division
Manager, Senior Vice President and First Vice President of Great American Bank
from 1987 to 1990. Age 54.
GARY WHITE -- Senior Vice President and Chief Financial Officer of the
Company since 1981, Director of Lomas Mortgage from 1992 to 1995 and Executive
Vice President of Lomas Mortgage since 1994; prior thereto, Vice President of
Control from 1979 to 1981 and Treasurer of the Company from 1974 to 1979. Age
60.
CAREY B. WICKLAND -- President and Chief Operating Officer of Lomas
Management, Inc., a subsidiary of LFC ("LMI"), since 1987, President and Chief
Operating Officer of ST Lending, Inc., a subsidiary of Lomas Mortgage ("STL"),
since 1992, and Senior Vice President of Lomas Mortgage since 1995; prior
thereto, Executive Vice President of LMI from 1982 to 1987. Age 54.
-72-
<PAGE> 73
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during the fiscal years ended June 30,
1995, 1994 and 1993 for (a) each individual serving as LFC's Chief Executive
Officer during the fiscal year ended June 30, 1995, (b) the Company's four most
highly compensated executive officers (other than individuals serving as Chief
Executive Officer) who were serving as executive officers at the end of the
fiscal year ended June 30, 1995 and (c) two additional individuals who were not
serving as executive officers of the Company at the end of the fiscal year
ended June 30, 1995, but for whom disclosure would have otherwise been required
(collectively, the "Named Executives"). This information includes the dollar
value of base salaries, bonus awards and long term incentive plan payouts, the
number of stock options or stock appreciation rights granted and certain other
compensation.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
-----------------------------
Annual Compensation Awards Term Payouts
----------------------------------- ------------ ----------
Other Securities
Annual Underlying All Other
Name and Salary Bonus Compensation Options/SARs LTIP Compensation
Principal Position Year ($) ($) ($) (#) Payouts($) ($)
- ------------------------------------- ---- ------- ------- ------------ ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Eric D. Booth(1) . . . . . . . . . . 1995 334,616 200,000 -- 200,000(2) -- --
President and Chief 1994 -- -- -- -- -- --
Executive Officer 1993 -- -- -- -- -- --
Jess Hay(3) . . . . . . . . . . . . . 1995 398,077(4) -- -- -- -- 697,365(5)
Former Chairman and Chief . . . . . 1994 600,000 -- -- 75,000 -- 2,470(6)
Executive Officer 1993 600,000 360,000 -- 35,000 160,388(7) 816(6)
Gary H. Kell(8) . . . . . . . . . . . 1995 449,323 610,645(9) -- -- -- 2,336(6)
President and Chief Operating Officer 1994 301,538 542,500(9) -- 30,000 -- 2,470(6)
of Lomas Mortgage USA, Inc. . . . 1993 250,000 850,000(9) 104,015(10) 4,500 -- 816(6)
James L. Crowson(11) . . . . . . . . 1995 289,777 90,625(12) -- -- --
585,377(13)
Former Executive Vice President . . 1994 254,538 -- -- 20,000 -- 2,508(6)
1993 225,000 135,500 -- 8,000 32,078(7) 779(6)
Carey B. Wickland . . . . . . . . . . 1995 242,700 151,682(14) -- -- 398,660(15) 2,336(6)
President and Chief Operating 1994 221,000 100,000(14) -- 5,000 161,835 2,560(6)
Officer of Lomas Management, Inc. 1993 210,000 100,000(14) -- -- 119,564 727(6)
Gary White(16) . . . . . . . . . . . 1995 228,646(17) 72,500(12) -- -- --
50,619(18)
Senior Vice President 1994 197,847 98,209 -- -- -- 2,276(6)
and Chief Financial Officer 1993 169,346 108,999 -- -- -- 530(6)
Robert E. Byerley, Jr.(19) . . . . . 1995 205,562(20) 90,625(12) -- -- --
452,888(21)
Former Senior Vice President 1994 192,385 99,585 -- -- -- 1,674(6)
and Treasurer 1993 143,122 132,068 -- -- -- 388(6)
Robert R. Denton(22) . . . . . . . . 1995 139,423 100,000 -- 100,000(2) -- --
Executive Vice President 1994 -- -- -- -- -- --
1993 -- -- -- -- -- --
</TABLE>
(1) Compensation information for Mr. Booth relates to the period beginning
December 12, 1994, when he became the President and Chief Executive
Officer of LFC, and ending June 30, 1995.
(2) Messrs. Booth and Denton have been granted stock appreciation rights
in the form of phantom shares under LFC's 1993 Intermediate and Long
Term Incentive Plan. They have been granted 200,000 and 100,000
phantom shares, respectively. Except as otherwise set forth in
applicable agreements, each share entitles the grantee to receive a
payment for each fiscal year during his employment term equal to the
excess, if any, of (i) the average of the closing prices of a share of
LFC's Common Stock for the 30-day period immediately preceding June 30
of such fiscal year over (ii) the base value of the phantom share at
the time of such payment. If on June 30 of any fiscal year the
average of the closing prices of a share of LFC's Common Stock for the
immediately preceding 30 day period is higher than the base value, the
base value shall be reset to such closing price. Except as set forth
in applicable agreements, the phantom shares and all rights relating
thereto shall terminate when Mr. Booth's or Mr. Denton's, as the case
may be, employment with LFC ceases. These phantom shares are without
value unless the current market price of LFC's Common Stock exceeds
the base value at the time the phantom shares were granted. The "base
value" at the time
-73-
<PAGE> 74
the phantom shares were granted was $3.75 representing the closing
price of a share of LFC's Common Stock on December 6, 1994. The
current market price of LFC's Common Stock was $.50 per share as of
June 30, 1995 and $.625 per share as of September 27, 1995. As a
result, the value of these phantom shares for these executive officers
was $0 as of June 30, 1995 and as of September 27, 1995.
(3) Mr. Hay retired as Chairman and Chief Executive Officer of LFC
effective December 31, 1994.
(4) Represents $323,077 of base salary and $75,000 of payment for
consulting services.
(5) Represents $500,000 of severance payment received under termination
agreement, $150,000 of benefits received under the Company's
Management Security Plan, $46,154 of payment for unused vacation and
$1,211 of matching contributions by the Company under its 401(k) plan.
(6) These amounts listed in All Other Compensation represent matching
contributions by the Company under its 401(k) plan.
(7) Represents the fair market value of the stock on the date of grant and
the amount of the cash components of intermediate term awards, which
the Securities and Exchange Commission ("SEC") rules categorize as
long term incentive plan ("LTIP") payouts, since the awards serve as
incentive for performance to occur over a period longer than one
fiscal year. The Company, however, considers them to be intermediate
term awards. Payouts shown for 1993 were made pursuant to awards
granted in 1991.
(8) Mr. Kell resigned as President and Chief Operating Officer of Lomas
Mortgage effective August 29, 1995.
(9) Includes deferred amounts of $138,770, $70,625 and $200,000 for fiscal
years 1995, 1994 and 1993, respectively. Pursuant to Mr. Kell's
severance agreement, unpaid deferred amounts shall be payable on July
1, 1996 and July 1, 1997.
(10) In late fiscal 1993, the Company transferred Mr. Kell from Sacramento,
California to Dallas and in connection with this relocation, the
Company purchased Mr. Kell's Sacramento home at his cost of $440,000
and subsequently sold it for $352,000.
(11) Mr. Crowson retired as Executive Vice President of LFC effective June
30, 1995.
(12) These amounts represent the fair market value of shares of LFC's
Common Stock (as "Performance Awards" under LFC's 1993 Intermediate
and Long Term Incentive Plan) and the amount of the cash component of
ad hoc bonuses granted to James L. Crowson, Gary White and Robert E.
Byerley, Jr. in recognition of their efforts related to the sale of
Lomas Information Systems, Inc. and the Company's expense reduction
program.
(13) Represents $572,141 of severance payment received under severance
agreement, $10,900 of payment for unused vacation and $2,336 of
matching contributions by the Company under its 401(k) plan.
(14) Of the amount paid in fiscal 1995, $52,182 represents payments made in
recognition of Mr. Wickland's efforts related to the sale of certain
assets of STL. The remaining amounts for fiscal years 1995, 1994 and
1993 represent payments made quarterly under a retention plan
applicable to certain key officers of LMI. The final payment under
such plan is scheduled for the quarter ended December 31, 1995.
(15) See "--Long Term Incentive Plans--Awards in Last Fiscal Year."
(16) Effective December 1, 1994, Mr. White retired as an employee of LFC
and was retained as a consultant of LFC.
(17) Represents $99,846 of base salary and $128,800 of payment for
consulting services.
(18) Represents $32,667 of benefits received under the Company's Management
Security Plan, $16,923 of payment for unused vacation and $1,029 of
matching contributions by the Company under its 401(k) plan.
(19) Effective March 29, 1995, Mr. Byerley retired as an executive officer
of LFC and was retained as a consultant of LFC. Effective May 31,
1995, his retention as a consultant with LFC was terminated.
(20) Represents $175,562 of base salary and $30,000 in payment for
consulting services.
(21) Represents severance payments of $286,778 and $156,067 received under
consulting agreement and termination agreement, respectively, $8,785
of payment for unused vacation and $1,258 of matching contributions by
the Company under its 401(k) plan.
(22) Compensation information for Mr. Denton relates to the period
beginning December 12, 1994, when he became Executive Vice President
of LFC, and ending June 30, 1995.
OPTION/STOCK APPRECIATION RIGHT (SAR) GRANTS IN LAST FISCAL YEAR
There were no grants of stock options to the Named Executives under LFC's
1991 Long Term Stock Incentive Program and 1993 Intermediate and Long Term
Incentive Program during the fiscal year ended June 30, 1995.
The following table shows information regarding grants of SARs to the
Named Executives under Lomas Financial Corporation's 1993 Intermediate and Long
Term Incentive Program during the fiscal year ended June 30, 1995.
-74-
<PAGE> 75
SAR GRANTS IN LAST FISCAL YEAR*
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------------------------
Number of Percent of
Securities Total SARs
Underlying Granted to
SARs Employees in Base Price Expiration
Name Granted (#)(1) Fiscal Year(2) ($/SH)(1) Date
- ------------------------------------------ -------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Eric D. Booth . . . . . . . . . . . . . . 200,000 66.7% 3.75 (1)
Jess Hay . . . . . . . . . . . . . . . . -- N/A N/A N/A
Gary H. Kell . . . . . . . . . . . . . . -- N/A N/A N/A
James L. Crowson . . . . . . . . . . . . -- N/A N/A N/A
Carey B. Wickland . . . . . . . . . . . . -- N/A N/A N/A
Gary White . . . . . . . . . . . . . . . -- N/A N/A N/A
Robert E. Byerley, Jr. . . . . . . . . . -- N/A N/A N/A
Robert R. Denton . . . . . . . . . . . . 100,000 33.3% 3.75 (1)
</TABLE>
- ---------------
* The column for "Potential Realization Value at Assumed Annual Rates of Stock
Price Appreciation for SAR Term" or any valuation alternative using the
grant date present value has been omitted since the value of these SARs was
$0 as of June 30, 1995 and as of September 27, 1995. See Footnote (2) to
SUMMARY COMPENSATION TABLE.
(1) See Footnote (2) to SUMMARY COMPENSATION TABLE above.
(2) Total SARs granted = 300,000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table summarizes for the Named Executives the total number
of securities underlying unexercised stock options, both exercisable and
unexercisable, held at June 30, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES*
<TABLE>
<CAPTION>
Number of Securities Underlying
Unexercised Options at Fiscal Year-End
---------------------------------------
Name Exercisable Unexercisable
- ------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Eric D. Booth . . . . . . . . . . . . . . . . . . . . . . . . -- --
Jess Hay . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 25,000
Gary H. Kell . . . . . . . . . . . . . . . . . . . . . . . . 30,000 10,000
James L. Crowson . . . . . . . . . . . . . . . . . . . . . . 33,334 6,666
Carey B. Wickland . . . . . . . . . . . . . . . . . . . . . . 6,334 1,666
Gary White . . . . . . . . . . . . . . . . . . . . . . . . . 19,000 6,000
Robert E. Byerley, Jr. . . . . . . . . . . . . . . . . . . . 24,000 6,000
Robert R. Denton . . . . . . . . . . . . . . . . . . . . . . -- --
</TABLE>
- ---------------
* The columns for "Number of Shares Acquired on Exercise" and "Value Realized"
have been omitted because there were no options exercised during the fiscal
year ended June 30, 1995. In-the-Money Options are those where the fair
market value of the underlying securities exceeds the exercise price of the
option. The "Value of Unexercised, In-the-Money Options at Fiscal Year-End"
column has been omitted from the table since the exercise price of $8.25 per
share exceeded the fair market value of the underlying stock on June 30,
1995, which was $.50 per share, for both exercisable and unexercisable
options.
LONG TERM INCENTIVE PLANS--AWARDS IN LAST FISCAL YEAR
The following table shows information regarding the long term incentive
awards during the fiscal year ended June 30, 1995. The amount of $370,952 of
the cash award to Mr. Wickland was made pursuant to the ST Lending, Inc.
Intermediate Term Incentive Compensation Plan, the amount of the awards under
which were a direct result of
-75-
<PAGE> 76
the success of STL's achievement of two of the Company's business objectives:
the retirement of STL's indebtedness and the preservation of the Company's
equity interest in the assets of STL. STL's debt was fully retired in October
1994 and, therefore, this plan was terminated. The remaining $27,708 of the
cash award to Mr. Wickland was made pursuant to the Long-Term Incentive
Compensation Plan for the Senior Officers of LMI, the amount of the awards
under which are a direct result of the success of such senior officers' orderly
liquidation of the remaining assets of STL and certain other assets of the
Company.
LONG TERM INCENTIVE PLANS -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Performance
Number of or Other Period Estimated Future
Shares of Units Until Matu- Payouts under Non-Stock
Name or Other Rights ration of Payout Price-Based Plans Maximum
- --------------------------------------- --------------- ---------------- -------------------------
<S> <C> <C> <C>
Eric D. Booth . . . . . . . . . . . . -- N/A N/A
Jess Hay . . . . . . . . . . . . . . -- N/A N/A
Gary H. Kell . . . . . . . . . . . . -- N/A N/A
James L. Crowson . . . . . . . . . . -- N/A N/A
Carey B. Wickland . . . . . . . . . . $398,660 9/30/96 $151,404
Gary White . . . . . . . . . . . . . -- N/A N/A
Robert E. Byerley, Jr. . . . . . . . -- N/A N/A
Robert R. Denton . . . . . . . . . . -- N/A N/A
</TABLE>
PENSION PLAN
The following table shows the estimated annual pension benefits payable to
a covered participant at normal retirement age (age 65) under the Company's
qualified defined benefit pension plan, as well as non-qualified supplemental
pension plans that provide benefits that would otherwise be denied participants
by reason of certain limitations imposed under the Internal Revenue Code on
qualified plan benefits, based on remuneration that is covered under the plans
and years of service with the Company:
PENSION PLAN TABLE ($)
<TABLE>
<CAPTION>
Years of Service
---------------------------------------------------------------------------------------
Renumeration 15 20 25 30 35
- ------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
125,000 36,101 48,134 60,168 72,201 84,235
150,000 44,163 58,884 73,605 88,326 103,047
175,000 52,226 69,634 87,043 104,451 121,860
200,000 60,288 80,384 100,480 120,576 140,672
250,000 76,413 101,884 127,355 152,826 178,297
300,000 92,538 123,384 154,230 185,076 215,922
350,000 108,663 144,884 181,105 217,326 253,547
400,000 124,788 166,384 207,980 249,576 291,172
450,000 140,913 187,884 234,855 281,826 328,797
500,000 157,038 209,384 261,730 314,076 366,422
550,000 173,163 230,884 288,605 346,326 404,047
600,000 189,288 252,384 315,480 378,576 441,672
650,000 205,413 273,884 342,355 410,826 479,297
700,000 221,538 295,384 369,230 443,076 516,922
</TABLE>
-76-
<PAGE> 77
Covered compensation includes Salary as reported in the Summary
Compensation Table for each Named Executive. The calculation of benefits under
the plan is based on the highest average of the rates of monthly earnings for
five consecutive years over the 10 years preceding retirement. The credited
years of service (projected to normal retirement age) for Messrs. Booth,
Wickland and Denton are 20, 23 and 26, respectively. Benefits are computed on
a straight life annuity basis and payable for the lifetime of the participant.
Retirement benefits are reduced for early retirement and joint survivorship
options but are not subject to deduction for Social Security benefits or other
offset amounts.
Upon their respective retirements, Messrs. Hay, Crowson, White and Byerley
received lump-sum payments in the amount of $1,093,384, $301,982, $855,049 and
$167,851, respectively, representing their pension benefits due under the
qualified plan and $1,162,504, $34,352, $122,911 and $8,883, respectively,
representing their pension benefits due under the non- qualified plan.
Pursuant to their election to participate in the Company's enhanced pension
program, Messrs. Crowson and Byerley were credited with five additional years
of age and service for purposes of calculating their benefits under the
qualified plan.
In connection with his resignation, Mr. Kell will receive lump sum
payments in the amount of approximately $496,000 and $135,000 representing his
pension benefits due under the qualified plan and the non-qualified plan,
respectively. In addition, Mr. Kell was credited with additional years of
service and age resulting in an enhanced pension benefit of approximately
$25,000 payable on or before December 31, 1996.
MANAGEMENT SECURITY PLAN
Under the Company's Management Security Plan applicable to certain key
employees of the Company who elected to participate in such plan, in the event
of retirement or death, the participants will receive benefits equal to that
portion of their base salary chosen by such employee as the basis for the
computation of retirement or death benefit. The Company ceased new enrollments
in this plan in 1985 and has since arranged for the benefits thereunder to be
funded through a plan to which no further contributions from the Company are
anticipated based on current actuarial projections.
Each participant makes a contribution toward the cost of this plan based
upon such participant's age and the amount of benefits to be received. The
following table shows the annual benefits payable to the Named Executives:
<TABLE>
<CAPTION>
First 12 Months Next 108 Months
Following Retirement Thereafter
-------------------- --------------------
<S> <C> <C>
Eric D. Booth* . . . . . . . . . . . . . . . . . . . . -- --
Jess Hay(1) . . . . . . . . . . . . . . . . . . . . . . $300,000 $150,000
Gary H. Kell(2) . . . . . . . . . . . . . . . . . . . . $94,000 $47,000
James L. Crowson* . . . . . . . . . . . . . . . . . . . -- --
Carey B. Wickland . . . . . . . . . . . . . . . . . . . $135,000 $67,500
Gary White(3) . . . . . . . . . . . . . . . . . . . . . $70,000 $35,000
Robert E. Byerley, Jr.* . . . . . . . . . . . . . . . . -- --
Robert R. Denton* . . . . . . . . . . . . . . . . . . -- --
</TABLE>
- ---------------
* This Named Executive is not a participant in this plan.
(1) Mr. Hay retired as Chairman and Chief Executive Officer of LFC effective
December 31, 1994.
(2) Mr. Kell resigned as President and Chief Operating Officer of Lomas
Mortgage effective August 29, 1995. He was credited with additional years
of age and service for purposes of calculating his benefits under the
Management Security Plan.
(3) Mr. White retired as an employee of LFC effective December 1, 1994 at
which time he was retained as a consultant of LFC.
LMI INCENTIVE PLANS
Mr. Wickland is the chief operating officer of LMI, which manages the
Company's discontinued short term lending operations, the assets of which are
held by another wholly-owned subsidiary, STL. Mr. Wickland and other
executives of LMI directly involved in the management of STL participated in a
separate performance based cash
-77-
<PAGE> 78
incentive program that was directly related to (i) the liquidation of STL's
debt and (ii) the preservation of the Company's equity interest in STL's
assets. Payouts to Mr. Wickland under this plan in fiscal 1995 totaled
$370,952. STL's debt was fully retired in October 1994 and, therefore, this
plan was terminated and there will be no further awards under this plan. Mr.
Wickland and other executives of LMI directly involved in the management of STL
participate in another separate performance based cash incentive program that
is directly related to the orderly liquidation of the remaining assets of STL
and certain other assets of the Company. Under this plan, a stated percentage
of the cash realized from October 1, 1994 to September 30, 1996 from such asset
liquidations will be added to an incentive compensation pool. A stated
percentage of the resulting incentive compensation pool is distributed to the
participants in this plan on a monthly basis. Payouts to Mr. Wickland under
this plan in fiscal 1995 totaled $27,708.
LOMAS MORTGAGE PERFORMANCE AND RETENTION INCENTIVE PLAN
Effective October 5, 1995, the Board of Directors of Lomas Mortgage
adopted a Performance and Retention Incentive Plan (the "Retention Plan")
designed to encourage employee retention and maintenance of a high level of
performance through Lomas Mortgage's restructuring period by providing a
performance and retention award to each participant in the Retention Plan. All
full-time employees of Lomas Mortgage are eligible participants in the
Retention Plan. The Retention Plan provides for lump sum cash payments to four
groups of participants (in amounts ranging from one-half to one full month of
annual base salary for most participants and 50% to 75% of annual base salary
for certain employees who have been identified as "key" to the restructuring
process) upon the earliest of (a) October 1, 1996 or June 30, 1996 (depending
upon a participant's designated group) or (b) the date of the participant's
termination by reason of death, retirement, disability, involuntary termination
without cause or voluntary termination for good reason as defined by the
Retention Plan. The amount of each participant's award within the ranges
described above shall generally be determined by the discretionary evaluation
of such participant's performance by the Chief Executive Officer of Lomas
Mortgage (provided, however, that award determinations for Senior Vice
Presidents and above will be subject to the approval of the Board of Directors
of Lomas Mortgage). The Chief Executive Officer of Lomas Mortgage may add
individuals as participants in any group he deems appropriate. The Retention
Plan does not restrict the Chief Executive Officer of Lomas Mortgage from
proposing bonuses to employees subject to the approval of the Board of
Directors of Lomas Mortgage. Additionally, the Chief Executive Officer of
Lomas Mortgage may award additional performance or retention awards to support
personnel participants not to individually exceed three months of annual base
pay and not to cumulatively exceed $500,000. Participants who are terminated
for cause or who voluntarily terminate their employment forfeit any award under
the Retention Plan. The Retention Plan is intended to supersede any and all
prior retention or incentive letters, contracts and other agreements and
arrangements providing for retention or incentive pay benefits to employees of
Lomas Mortgage.
LOMAS MORTGAGE SEVERANCE PAY PLAN
Effective October 5, 1995, the Board of Directors of Lomas Mortgage
adopted, with the subsequent approval of the Bankruptcy Court, a Severance Pay
Plan (the "Severance Plan") designed to encourage employee retention and
maintenance of a high level of performance through Lomas Mortgage's
restructuring period by providing for a reasonable level of financial and
employment security. All full-time employees of Lomas Mortgage are eligible
participants under the Severance Plan. The Severance Plan provides for lump
sum cash payments to four groups of participants (in amounts ranging from two
months to eighteen months of annual base salary depending upon job level) upon
the earliest of (a) October 1, 1997 or (b) the date of the participant's
involuntary termination without cause or voluntary termination for good reason
as defined by the Severance Plan. Employees earn a week's pay for each
additional full year of service after the first five years. Additionally,
terminated employees are entitled to receive their accrued vacation pay, three
months of continued medical coverage and outplacement assistance. Employees
who are terminated for cause or who voluntarily terminate their employment will
not receive any benefits under the Severance Plan. The Severance Plan is
intended to supersede any existing severance plan or any individual agreement
relating to employment (or termination thereof). The Severance Plan provides,
however, that to the extent a participant's severance pay received under the
Severance Plan is less than severance pay that such participant would have
received under the previous Lomas Group Severance Pay Plan, such participant
shall be entitled to receive that difference. Effective October 6, 1995 the
Lomas Financial Group Pension Plan (as restated effective January 1, 1991) was
-78-
<PAGE> 79
amended to provide for additional retirement benefits for eligible employees
whose employment is involuntarily terminated after January 1, 1996. The
Severance Plan was also amended effective October 6, 1995 to offset the
benefits payable under the Severance Plan to an employee by such additional
retirement benefit, if any, payable under the Lomas Financial Group Pension
Plan to such employee.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is composed of four non-employee directors.
Directors Walker, LeBuhn, Nagle and Wolansky comprise the Compensation
Committee with Mr. Walker serving as Chairman. Messrs. LeBuhn, Nagle and
Wolansky were nominated for election as directors of LFC pursuant to the terms
of an agreement between LFC and the Investor Group, as further described under
"Item 13. Certain Relationships and Related Transactions-- Agreement with the
Investor Group." The Board of Directors of LFC has delegated to this Committee
the authority to administer all compensation programs of LFC and its
subsidiaries. The Committee is responsible for (a) approving all salaries in
excess of $150,000; (b) designing, administering and making grants under short,
intermediate and long term incentive plans; and (c) overseeing the actions of
the Chief Executive Officer in fixing salaries of officers whose salaries are
less than $150,000 per year. Jess Hay, who retired as Chairman and Chief
Executive Officer of LFC effective December 31, 1994, is a member of the
compensation committee of Trinity Industries, Inc. W. Ray Wallace, former
director of LFC who retired effective October 11, 1995, is the Chairman,
President and Chief Executive Officer of Trinity Industries, Inc. To the best
of the Company's knowledge, there was no other instance in fiscal 1995 in which
an executive officer of the Company served as a director or member of a
compensation committee of another corporation in a situation where an executive
officer of such other corporation served as a director or member of the
Compensation Committee of LFC.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive annual compensation
at the rate of $30,000 and fees of $1,500 for each Board of Directors' meeting
attended and $1,000 for each Board committee meeting attended on a day that a
Board of Directors' meeting is not held. In addition, each non-employee
director receives group life insurance coverage in the amount of $100,000.
Non-employee directors receive a retirement benefit for 10 years following
retirement in an annual amount equal to 10 percent of the annual retainer in
effect at the time of termination of service as a director multiplied by the
number of years of service, with the maximum annual retirement benefit not to
exceed the applicable annual retainer amount. The annual retirement benefit
will be paid in quarterly installments commencing on the first day of the
fourth month following the retirement date. If a director dies prior to
expiration of 10 years following retirement, the director's beneficiary will be
entitled to receive payments for the remainder of the 10-year period. If a
director dies while serving as such, a preretirement death benefit will be paid
as though the individual had retired on the date of death.
Non-employee directors also participate in the Lomas Financial Corporation
1991 Long Term Incentive Plan for Non- Employee Directors (the "Directors'
Plan"). The number of shares of Common Stock that may be subject to awards
granted under the Directors' Plan is 100,000, subject to adjustment for stock
splits, stock dividends, recapitalization, mergers and similar events specified
in the Directors' Plan. Shares of Common Stock delivered upon the payment of
awards may be newly issued shares or shares acquired by the Company in open
market or other purchases.
On November 1, 1994, the date of LFC's last annual meeting of
stockholders, each non-employee director was granted 500 units under the
Directors' Plan. On the date of each annual meeting of LFC's stockholders,
each non-employee director who is elected to office on such date is to be
awarded 500 units. Each unit represents the right of the holder thereof to be
paid one share of LFC's Common Stock at the earlier of (i) the date such holder
terminates service as a director of LFC and (ii) the tenth anniversary of the
date of award of such unit. All units are to be paid in the event of a defined
change in control of the Company, as set forth in the Directors' Plan.
-79-
<PAGE> 80
Unit holders also are entitled to receive, in respect of each outstanding
unit, an amount equal to the per share amount of any regular cash dividends
paid on LFC's Common Stock after the effective date of the Directors' Plan.
Messrs. Gene H. Bishop, Robert G. Boucher, Dolph Briscoe, Hugh G.
Robinson, Douglas L. Rock and Harvey M. Schuster and Dr. Diana S. Natalicio are
all former directors of LFC who decided not to stand for reelection last year
at LFC's 1994 Annual Meeting of Stockholders. In connection with their
retirement, Messrs. Boucher, Briscoe, Robinson, Rock and Schuster received
$77,430, $227,400, $77,430, $77,430 and $77,430, respectively, representing the
lump-sum settlement of their retirement benefits and the fair market value of
the shares to which they were entitled under the Directors' Plan. Mr. Bishop
and Dr. Natalicio each received $12,000 representing the fair market value of
the shares to which they were entitled under the Directors' Plan and are
receiving $300,000 and $90,000, respectively, representing their retirement
benefits paid in quarterly installments as described above.
In connection with Rod Dammeyer's resignation from LFC's Board of
Directors on April 11, 1995, the Company paid Mr. Dammeyer $55,939
representing the lump-sum settlement of his retirement benefits and the fair
market value of the shares to which he was entitled under the Directors' Plan.
In connection with Robert Lindsay's resignation from LFC's Board of
Directors effective October 10, 1995 and Ray Wallace's retirement from LFC's
Board of Directors effective October 11, 1995, Messrs. Lindsay and Wallace will
receive their respective retirement benefits and shares under the Directors'
Plan to which they are entitled.
EMPLOYMENT AND OTHER COMPENSATORY AGREEMENTS
Eric D. Booth. In December 1994, LFC entered into an employment agreement
with Mr. Booth with a term expiring June 30, 1996 providing for ongoing
employment as President and Chief Executive Officer of LFC. Mr. Booth's base
salary for fiscal 1996 is $615,000, and the employment agreement entitles Mr.
Booth to a minimum annual base salary increase of 5 percent. Under the
agreement, Mr. Booth is eligible to receive an annual bonus equal to up to 50%
of base salary for such fiscal year based upon personal and corporate goals and
objectives. The agreement entitles Mr. Booth to participate in LFC's 1993
Intermediate and Long-Term Incentive Plan under which Mr. Booth was granted
200,000 phantom shares entitling him to receive a payment in each fiscal year
in the employment term equal to any increase in value of such shares during
such year. The agreement also entitles Mr. Booth to be provided employee
benefits on the same basis as other senior executives of the Company. On July
1, 1996 and each anniversary thereof, the expiration date of the agreement may
be extended an additional year if LFC or Mr. Booth has given notice to that
effect not earlier than 120 days and not later than 60 days prior to any such
July 1. In the event of termination of employment without cause or other
breach of the agreement by LFC or upon Mr. Booth's termination of his
employment for good reason, Mr. Booth shall be entitled to receive (i) payment
of base salary through the balance of the employment term, (ii) (A) a prorated
portion of the annual bonus and (B), if Mr. Booth has given notice that he
desires to extend the employment term and such termination occurs in the 60-day
period prior to the end of the applicable fiscal year, 50% of the annual bonus
received for that fiscal year, (iii) amounts due with respect to the phantom
shares as if Mr. Booth had remained employed through the end of the employment
term and (iv) continued provision of health and welfare benefits through the
balance of the employment term. Upon termination of employment within one year
of the consummation of a sale of the Company, Mr. Booth shall be entitled to
receive (i) payment of base salary through the balance of the employment term,
(ii) 100% of the annual bonus that he would have been eligible to receive
through the balance of the employment term and (iii) amounts due with respect
to the phantom shares through the consummation of such sale determined by the
stock price at the time of such sale.
Jess Hay. Mr. Hay had an employment agreement with LFC expiring June 30,
1996 providing for ongoing employment as Chairman and Chief Executive Officer
of the Company and a base salary for fiscal 1995 of $600,000. Mr. Hay
announced in August 1994 his intention to retire as an officer of the Company
on December 31, 1994 and to step down as chairman and chief executive officer
of the Company on the earlier of that date or the date on which his successor
was to be named by the Company's Board of Directors. Mr. Hay's successor, Eric
D. Booth, was named by LFC's Board of Directors effective December 12, 1995.
-80-
<PAGE> 81
Mr. Hay and LFC entered into a 10-year consulting agreement effective
January 1, 1995 pursuant to which Mr. Hay retired and his employment with LFC
was terminated effective December 31, 1994. He was appointed Chairman Emeritus
of the Company's Board of Directors effective January 1, 1995 and he continued
to serve as a director of LFC. Under the consulting agreement, Mr. Hay's
payment would have been $300,000 per year for the first three years, $100,000
per year for the next three years and $50,000 per year for the last four years
of the consulting agreement. Mr. Hay and LFC entered into a termination
agreement effective March 2, 1995 pursuant to which Mr. Hay's consulting
agreement was terminated and Mr. Hay resigned from his positions as Chairman
Emeritus and director of LFC. In connection with the termination, Mr. Hay
received $500,000 in lieu of his termination benefits provided for in the
consulting agreement. The Company will continue, at the employee premium rate,
all existing health care and life insurance coverages provided by the Company
as of August 2, 1994 to Mr. Hay and his wife until the earlier of December 31,
2004 or such time that Mr. Hay receives comparable coverage as a result of
future employment. Mr. Hay's outstanding options will continue to be
exercisable for the remainder of their original terms. If, on or before
December 31, 1995, LFC enters into a definitive agreement providing for the
sale of LFC or Lomas Mortgage and such definitive agreement results in the
closing of such sale on or before June 30, 1996, Mr. Hay will be entitled to
participate to the extent of $500,000 in the Company's "success bonus"
arrangement related to the sale of all or substantially all of the Company.
Gary H. Kell. On August 29, 1995, Lomas Mortgage entered into a severance
agreement with Mr. Kell pursuant to which Mr. Kell resigned and his employment
with Lomas Mortgage was terminated. In exchange for the consideration received
under the severance agreement, Mr. Kell agreed to use his best efforts for a
period of ninety days to assist in the consummation of a transaction with First
Nationwide or one of its affiliates, whereby it acquires Lomas Mortgage's
contract with a public employees retirement system. Mr. Kell had an employment
agreement with Lomas Mortgage expiring December 31, 2005 and providing for
ongoing employment as President and Chief Operating Officer of Lomas Mortgage.
Under his employment agreement, Mr. Kell's base salary for fiscal 1996 would
have been $454,800. Mr. Kell received lump-sum severance pay equal to 200% of
his annual salary at the time of termination and payment representing accrued
but unpaid amounts owing with respect to his fiscal 1996 bonus. As provided in
his employment agreement, he was credited with additional years of age and
service for purposes of calculating benefits under the Lomas Financial Group
Excess Benefit Plan and the Company's Management Security Plan. Mr. Kell is
entitled to receive the amounts carried in his deferred compensation account on
July 1, 1996 and July 1, 1997. Mr. Kell will be eligible to participate in
Lomas Mortgage's health and welfare plans at the employee premium rate until
the earlier of twenty-four months or such time that Mr. Kell receives
comparable coverage as a result of future employment. All Mr. Kell's options
will be fully vested and will expire on August 31, 1997.
James L. Crowson. Due to Mr. Crowson's desire to participate in the
Company's enhanced pension program, Mr. Crowson and LFC entered into a
severance agreement effective June 30, 1995 pursuant to which he retired and
his employment with LFC was terminated. Mr. Crowson had an employment
agreement with LFC expiring December 31, 1995 and providing for ongoing
employment as Executive Vice President of LFC. Mr. Crowson's base salary for
fiscal 1995 was $275,000. Mr. Crowson received lump-sum severance pay equal to
two and one-half times his annual salary at the time of termination and payment
representing vested and enhanced pension and retirement benefits payable to him
under the Company's plans. If on or before December 31, 1995 LFC effects a
sale of LFC or Lomas Mortgage to an entity with whom LFC has held discussions
relating thereto on or before June 30, 1995, Mr. Crowson will be entitled to
participate in and receive a payment of $200,000 pursuant to the Company's
"success bonus" arrangement related to the sale of all or substantially all of
the Company. Mr. Crowson will be eligible to participate in the Company's
health and welfare plans at the employee premium rate until the earlier of
twelve months and thereafter for the remainder of the period set forth in the
enhanced pension program or such time that Mr. Crowson receives comparable
coverage as a result of future employment. All Mr. Crowson's options will be
fully vested and will expire on June 30, 1997. Mr. Crowson will continue to be
eligible to participate in the Company's Stock Based Incentive Compensation
Plan.
Carey B. Wickland. Mr. Wickland has an employment agreement with Lomas
Management, Inc. ("LMI") expiring on March 31, 1997, and providing for ongoing
employment as President and Chief Operating Officer of LMI. Mr. Wickland's base
salary for fiscal 1996 is $250,320, and the agreement entitles Mr. Wickland to
a minimum annual base salary increase of 5 percent. The agreement also
entitles Mr. Wickland to fully participate in all existing
-81-
<PAGE> 82
benefit programs of LMI and the Company (or plans or arrangements that provide
at least equivalent benefits). In the event of termination of employment
without cause or other breach of the agreement by LMI or upon Mr. Wickland's
termination of his employment for good reason, including a defined change in
control of the Company, Mr. Wickland shall be entitled to receive lump-sum
severance pay in lieu of any payment to Mr. Wickland that may arise under an
Employee Separation Plan (the "LMI Separation Plan") applicable to certain key
employees of LMI, or otherwise under his employment agreement, in an amount
equal to the greater of (i) one and one-half times his annual base salary and
(ii) the total amount of his base salary that would have accrued from the date
of his termination until the earlier of (a) March 31, 1997, and (b) 48 months
after his termination (the "Severance Determination Period"). Under the LMI
Separation Plan, Mr. Wickland would receive, but for the terms of his
employment agreement, a lump sum cash payment equal to a percentage of his base
salary upon the occurrence on or before January 31, 1996 of any of the
following events: (i) involuntary termination (i.e., termination without
cause); (ii) constructive discharge; or (iii) mutually agreed to early
retirement. Unless terminated for cause, LMI shall maintain Mr. Wickland's
full participation in all existing benefit programs including but not limited
to LMI's Long-Term Incentive Plan and Management Retention Plan (or shall
arrange to provide Mr. Wickland with substantially similar benefits) for not
less than the Severance Determination Period and three months thereafter.
Gary White. Due to Mr. White's desire to retire as an employee under the
Company's Voluntary Early Retirement Program, Mr. White and LFC entered into a
consulting agreement effective December 1, 1994 pursuant to which he retired
and his employment with LFC was terminated. Mr. White had an employment
agreement with LFC expiring July 31, 2000 providing for ongoing employment as
Senior Vice President and Chief Financial Officer of LFC and a base salary for
fiscal 1995 of $220,000. The consulting agreement shall terminate on September
30, 1997 and provides for Mr. White to continue to serve as Senior Vice
President and Chief Financial Officer of the Company until such termination.
The consulting agreement provides for payment to Mr. White of (i) a monthly
retainer of $18,400 during the consulting term, (ii) a bonus of $50,000 on or
before September 30, 1995, (iii) a bonus of $165,600 on or before September 30,
1996 and (iv) a bonus of $165,600 on or before September 30, 1997. The Company
will continue, at the employee premium rate, all existing health care and life
insurance coverages currently provided by the Company to Mr. White and his wife
for the term of the consulting agreement. Mr. White's outstanding options will
be fully vested and continue to be exercisable for the remainder of their
original terms. In the event of termination of Mr. White's retention without
cause or other breach of the agreement by LFC, Mr. White shall be entitled to
receive as liquidated damages an amount in cash equal to the unpaid portion of
the bonuses that he would have been entitled to receive through the balance of
the consulting term.
Robert E. Byerley, Jr. Due to Mr. Byerley's desire to participate in the
Company's enhanced pension program, Mr. Byerley and LFC entered into a
consulting agreement effective March 29, 1995 pursuant to which he retired and
his employment with LFC was terminated. Mr. Byerley had an employment
agreement with LFC expiring March 31, 1995 providing for ongoing employment as
Senior Vice President and Treasurer of LFC and a base salary for fiscal 1995 of
$228,400. The consulting agreement provided for its termination on the earlier
of the date on which a sale of LFC or Lomas Mortgage was effected or September
30, 1995 and for Mr. Byerley to continue to serve as Senior Vice President of
LFC until such termination. Mr. Byerley received lump-sum severance pay equal
to 200% of his annual salary at the time of termination, except for a portion
of which was deferred, and payment representing vested and enhanced pension and
retirement benefits payable to him under the Company's plans. During the term
of the consulting agreement, Mr. Byerley's payment was a monthly retainer paid
in advance of $15,000.
Mr. Byerley and LFC entered into a termination agreement effective May 31,
1995 pursuant to which Mr. Byerley's consulting agreement was terminated. In
connection with the termination, Mr. Byerley received $55,000 in lieu of his
termination benefits provided for in the consulting agreement and $101,067 in
lieu of his deferred payment under the consulting agreement. Mr. Byerley will
be eligible to participate in the Company's health and welfare plans at the
employee premium rate until the earlier of May 31, 1997 and thereafter for the
remainder of the period set forth in the enhanced pension program or such time
that Mr. Byerley receives comparable coverage as a result of future employment.
All Mr. Byerley's options will be fully vested and will expire on August 31,
1997. Mr. Byerley will continue to be eligible to participate in the Company's
Stock Based Incentive Compensation Plan.
-82-
<PAGE> 83
Robert R. Denton. In December 1994, LFC entered into an employment
agreement with Mr. Denton with a term expiring June 30, 1996 providing for
ongoing employment as Executive Vice President of LFC. Mr. Denton's base
salary for fiscal 1996 is $256,250, and the employment agreement entitles Mr.
Denton to a minimum annual base salary increase of 5 percent. Under the
agreement, Mr. Denton is eligible to receive an annual bonus equal to up to 50%
of base salary for such fiscal year based upon personal and corporate goals and
objectives. The agreement entitles Mr. Denton to participate in LFC's 1993
Intermediate and Long-Term Incentive Plan under which Mr. Denton was granted
100,000 phantom shares entitling him to receive a payment in each fiscal year
in the employment term equal to any increase in value of such shares during
such year. The agreement also entitles Mr. Denton to be provided employee
benefits on the same basis as other senior executives of the Company. On July
1, 1996 and each anniversary thereof, the expiration date of the agreement may
be extended an additional year if LFC or Mr. Denton has given notice to that
effect not earlier than 120 days and not later than 60 days prior to any such
July 1. In the event of termination of employment without cause or other
breach of the agreement by LFC or upon Mr. Denton's termination of his
employment for good reason, Mr. Denton shall be entitled to receive (i) payment
of base salary through the balance of the employment term, (ii) (A) a prorated
portion of the annual bonus and (B), if Mr. Denton has given notice that he
desires to extend the employment term and such termination occurs in the 60-day
period prior to the end of the applicable fiscal year, 50% of the annual bonus
received for that fiscal year, (iii) amounts due with respect to the phantom
shares as if Mr. Denton had remained employed through the end of the employment
term and (iv) continued provision of health and welfare benefits through the
balance of the employment term. Upon termination of employment within one year
of the consummation of a sale of the Company, Mr. Denton shall be entitled to
receive (i) payment of base salary through the balance of the employment term,
(ii) 100% of the annual bonus that he would have been eligible to receive
through the balance of the employment term and (iii) amounts due with respect
to the phantom shares through the consummation of such sale determined by the
stock price at the time of such sale.
1993 Intermediate and Long Term Incentive Plan. Pursuant to the Lomas
Financial Corporation 1993 Intermediate and Long Term Incentive Plan, in which
program Messrs. Booth, Wickland, White and Denton participate, in the event of
a defined change in control of the Company with respect to certain of the
Company's senior executive officers (which, for the purposes of this provision
only, shall include no more than 10 persons; provided that a limited number of
additional senior executive officers may also be included with respect to this
provision if each such additional person is approved by the Compensation
Committee and the Board), all stock options and SARs would become fully vested
and immediately exercisable for such senior executive officers, the
restrictions applicable to all shares of restricted stock would lapse for such
senior executive officers, and the vesting of performance shares or performance
units would be determined as if the performance period or performance cycle had
ended upon such defined change in control for such senior executive officers.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during fiscal 1995 all Section 16(a) filing requirements
were complied with except for (1) a Form 3 report reflecting no beneficial
ownership of securities that was filed 19 days late by Mr. William Anderson in
connection with his appointment to LFC's Board of Directors; (2) a Form 4
report covering two transactions that was filed 32 days late by Lynda-Ross
Vega, former Executive Vice President of Systems of Lomas Information Systems,
Inc.; and (3) a Form 5 report covering two transactions (which should have been
reported earlier on a Form 4 but were not reported) that was filed 7 days late
by Mr. Robert E. Byerley, Jr., former Senior Vice President and Treasurer of
the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Listed in the following table and the notes thereto is certain information
with respect to the beneficial ownership of shares of LFC's Common Stock, as of
September 27, 1995 (except as noted in the footnotes to the table), by each
person or group within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended, who is
-83-
<PAGE> 84
known to the management of the Company to be the beneficial owner of more than
5 percent of LFC's outstanding Common Stock.
<TABLE>
<CAPTION>
Amount and
Title Nature of Percent
of Beneficial of
Class Name and Address of Beneficial Owner Ownership Class*
- -------- ------------------------------------------------- ------------ -------
<S> <C> <C> <C>
Common Investor Group(1)
Stock Greenwich - American Centre
2 American Lane
Greenwich, Connecticut 06836-2571 . . . . . . 4,902,679(2) 23.9(3)
The Equitable Companies(4)
787 Seventh Avenue
New York, New York 10019 . . . . . . . . . . . 1,475,443(5) 6.8(6)
Tweedy, Browne L.P.(7)
52 Vanderbilt Avenue
New York, NY 10017 . . . . . . . . . . . . . . 1,159,225(8) 5.7
</TABLE>
(1) Based on information set forth in the Schedule 13D joint filing dated
March 30, 1992, and most recently amended on October 6, 1995, by Cold
Spring Associates, L.P., a Delaware limited partnership ("CSA"); Green
Pond Associates, L.P., a Delaware limited partnership ("GPA"); Cold Spring
Management, Inc., a Delaware corporation ("Cold Spring Management"); Green
Pond Management, Inc., a Delaware corporation ("Green Pond Management");
Paloma Securities, L.P., a Delaware limited partnership ("Paloma");
Sunrise Partners Limited Partnership, a Delaware limited partnership
("Sunrise Partners"); Dawn General Partner Corp., a Delaware corporation
("Dawn General Partner"); Paloma General Partners, L.P., a Delaware
limited partnership ("Paloma General Partners"); Paloma Partners
Management Company, a Delaware corporation ("Paloma Management"); S.
Donald Sussman; and Paul Wolansky (collectively, the "Investor Group") and
Form 4 for August 1992 filed September 8, 1992, by GPA and Green Pond
Management (the "Investor Group Filings"). According to the Investor
Group Filings, CSA is the beneficial owner of 1,223,348 shares of Common
Stock; GPA is the beneficial owner of 2,274,850 shares of Common Stock and
$4,295,000 principal amount of LFC's convertible notes due 2003 (the
"Notes"), which are convertible into an additional 245,428 shares of
Common Stock; Sunrise Partners is the beneficial owner of 131,983 shares
of Common Stock and $1,697,000 principal amount of Notes, which are
convertible into an additional 96,971 shares of Common Stock; Paloma is
the beneficial owner of 929,300 shares of Common Stock; and Mr. Wolansky
is the beneficial owner of 457 shares of Common Stock and $6,000 principal
amount of Notes, which are convertible into an additional 342 shares of
Common Stock.
Cold Spring Management, Green Pond Management, Dawn General Partner,
Paloma General Partners, Paloma Management and Mr. Sussman do not directly
own any shares of Common Stock. According to the Investor Group Filings,
(i) Cold Spring Management, as a general partner of CSA, may be deemed to
be the beneficial owner of all of the shares of Common Stock beneficially
owned by CSA; (ii) Green Pond Management, as a general partner of GPA, may
be deemed to be the beneficial owner of all of the shares of Common Stock
and Notes beneficially owned by GPA; (iii) each of Dawn General Partner
and Paloma General Partners, as general partners of Sunrise Partners, may
be deemed to be beneficial owners of all of the Common Stock and Notes
beneficially owned by Sunrise Partners; (iv) Paloma Management, as general
partner of each of Paloma and Paloma General Partners, may be deemed to be
the beneficial owner of all of the shares of Common Stock beneficially
owned by Paloma and Sunrise Partners; (v) Mr. Sussman may be deemed to be
the beneficial owner of all of the shares of Common Stock and Notes owned
by GPA, CSA, Sunrise Partners and Paloma; and (vi) as a result of his
stock ownership of Green Pond Management, Mr. Wolansky may be deemed to be
the beneficial owner of all the shares of Common Stock and Notes owned by
GPA.
(2) Includes 245,428, 96,971 and 342 shares of Common Stock issuable to GPA,
Sunrise Partners and Mr. Wolansky, respectively, upon the conversion of
Notes in an aggregate principal amount of $5,998,000.
(3) Calculated based upon 20,491,955 shares of Common Stock that would be
outstanding upon conversion of GPA, Sunrise Partners and Mr. Wolansky's
Notes.
(4) Includes The Equitable Companies Incorporated, a holding company and a
Delaware corporation at the address noted above in the table; Alpha
Assurances I.A.R.D. Mutuelle and Alpha Assurances Vie Mutuelle, both
located at 101-100 Terrasse Boieldieu, 92042 Paris La Defense France; AXA
Assurances I.A.R.D. Mutuelle and AXA Assurances Vie Mutuelle, both located
at La Grande Arche, Pardi Nord, 92044 Paris La Defense France; Uni Europe
Assurance Mutuelle, located at 24 Rue Drouot, 75009 Paris France (each of
which are insurance companies organized under the laws of France); and
AXA, a holding company organized under the laws of France, located at 23
Avenue Matignon, 75008 Paris France (collectively, "The Equitable
Companies").
(5) Based on information set forth in the Schedule 13G dated February 10,
1993, and most recently amended on February 10, 1995, filed jointly by The
Equitable Companies, The Equitable Companies Incorporated, as a parent
holding company, beneficially owns the Common Stock indirectly through the
following subsidiaries: The Equitable Life Assurance Society of the
United States ("The Equitable") beneficially
-84-
<PAGE> 85
owns 1,475,443 shares of Common Stock, of which 1,299,402 shares will be
issuable upon the exercise of warrants and $438,000 principal amount of
the Notes which are convertible into 25,028 shares of Common Stock.
(6) Includes 1,299,402 shares of Common Stock issuable upon the exercise of
warrants and 25,028 shares of Common Stock issuable upon the conversion of
the Notes in an aggregate principal amount of $438,000 to The Equitable.
(7) Includes Tweedy, Browne Company L.P. ("TBC"), a Delaware limited
partnership; TBK Partners, L.P. ("TBK"), a Delaware limited partnership;
and Vanderbilt Partners, L.P. ("Vanderbilt"), a Delaware limited
partnership. The general partners of each of TBC, TBK and Vanderbilt are
Christopher H. Browne, William H. Browne, James M. Clark, Jr. and John D.
Spears. In addition, Thomas P. Knapp is a general partner of Vanderbilt.
(8) Based on information set forth in the Schedule 13D dated October 4, 1993,
and as most recently amended on July 12, 1995, TBC beneficially owns
1,159,225 shares of Common Stock of which 210 shares are held in an
account for a charitable foundation of which Christopher H. Browne and
James M. Clark, Jr. are two of the trustees; TBK beneficially owns 94,955
shares of Common Stock; and Vanderbilt beneficially owns 50,600 shares of
Common Stock. James M. Clark, Jr. may be deemed to beneficially own 2,090
shares of Common Stock, for which he may be deemed to have sole or shared
voting power. John D. Spears may be deemed to beneficially own 17,570
shares of Common Stock, for which he may be deemed to have sole or shared
voting power. TBC has investment discretion with respect to 1,159,225
shares of Common Stock held in various accounts on behalf of customers.
Of these shares of Common Stock, TBC has (i) no power to vote 232,695
shares and (ii) sole power to vote 926,530 shares. Each of the general
partners, solely by reason of their positions as such, may be deemed to
have (i) shared power to direct the disposition of all of the shares of
Common Stock held on behalf of customers, and (ii) shared power to vote
the 926,530 shares held in certain accounts on behalf of customers. TBK
has sole power to vote and dispose of 94,955 shares of Common Stock,
except that the general partners in TBK, solely by reason of their
positions as such, may be deemed to have shared power to vote and dispose
of such shares. Vanderbilt has sole power to vote and dispose of 50,600
shares of Common Stock, except that the general partners of Vanderbilt,
solely by reason of their positions as such, may be deemed to have shared
power to vote and dispose of such shares.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
Listed in the following table and the notes thereto is certain information
with respect to the beneficial ownership of shares of LFC's Common Stock, as of
September 27, 1995 (except as noted in the footnotes to the table), by the
directors and executive officers listed in the Summary Compensation Table and
by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and
Title Nature of Percent
of Beneficial of
Class Name of Beneficial Owner Ownership Class*
- --------- ----------------------------------------------- ---------- -------
<S> <C> <C> <C>
Common William Anderson . . . . . . . . . . . . . . . --(1) *
Stock Eric D. Booth . . . . . . . . . . . . . . . . . --(1) *
Mark M. Feldman . . . . . . . . . . . . . . . . 1,000(1) *
Robert LeBuhn . . . . . . . . . . . . . . . . . 4,000(1) *
Robert V. Lindsay . . . . . . . . . . . . . . . 5,500(1)(2) *
Reid Nagle . . . . . . . . . . . . . . . . . . 1,000(1) *
Paul T. Walker . . . . . . . . . . . . . . . . 4,500(1) *
W. Ray Wallace . . . . . . . . . . . . . . . . 5,735(1)(2) *
Paul S. Wolansky . . . . . . . . . . . . . . . 1,799(1) *
Jess Hay . . . . . . . . . . . . . . . . . . . 228,678(3) 1.12
Gary H. Kell . . . . . . . . . . . . . . . . . 30,010(3) *
James L. Crowson . . . . . . . . . . . . . . . 54,736(3) *
Carey B. Wickland . . . . . . . . . . . . . . . 6,334(3) *
Gary White . . . . . . . . . . . . . . . . . . 29,025(3) *
Robert E Byerley, Jr. . . . . . . . . . . . . . 24,002(3) *
Robert R. Denton. . . . . . . . . . . . . . . . 8(3) *
All Directors and Executive Officers as a Group
(16 persons, excluding Messrs. Hay,
Kell, Crowson and Byerley) . . . . . . . . . 70,831(3)(4) *
</TABLE>
*Denotes less than 1%.
-85-
<PAGE> 86
(1) Amounts include shares of Common Stock issuable as follows:
<TABLE>
<CAPTION>
Right to Acquire
------------------------------------------------------------------
Notes
----------------------
Principal Number of Restricted Exercisable
Amount Shares Warrants Stock Units Options
--------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
William Anderson . . . . . . . . . . -- -- -- --
Eric D. Booth . . . . . . . . . . . . -- -- -- --
Mark M. Feldman . . . . . . . . . . . -- -- -- 1,000 --
Robert LeBuhn . . . . . . . . . . . . -- -- -- 1,000 --
Robert V. Lindsay . . . . . . . . . . -- -- -- 3,500 --
Reid Nagle . . . . . . . . . . . . . -- -- -- 1,000 --
Paul T. Walker . . . . . . . . . . . -- -- -- 3,500 --
W. Ray Wallace . . . . . . . . . . . -- -- 2,235 3,500 --
Paul S. Wolansky . . . . . . . . . . $6,000 342 -- 1,000 --
</TABLE>
Includes 2,000 and 1,000 shares held jointly by Messrs. Lindsay and
Walker, respectively, with their respective spouses.
Includes three shares held by the spouse of Mr. Wallace, as to which he
disclaims beneficial ownership.
As a result of his ownership in Green Pond Management, certain shares of
Common Stock beneficially owned by the Investor Group may be deemed to be
beneficially owned by Mr. Wolansky. See footnote (1) under "--Security
Ownership of Certain Beneficial Owners."
(2) Mr. Lindsay resigned as a director of LFC effective October 10, 1995, and
Mr. Wallace retired as a director of LFC effective October 11, 1995.
(3) Amounts include shares of Common Stock issuable to Messrs. Hay, Kell,
Crowson, Wickland, White, Byerley and Denton and all directors and
executive officers as a group as follows:
<TABLE>
<CAPTION>
Right to Acquire
--------------------------------------------------
Notes
----------------------
Principal Number of Exercisable
Amount Shares Warrants Options
--------- --------- -------- -----------
<S> <C> <C> <C> <C>
Jess Hay . . . . . . . . . . . . . . . . . . . . . . $27,000 1,542 52,871 125,000
Gary H. Kell . . . . . . . . . . . . . . . . . . . . -- -- 9 30,000
James L Crowson . . . . . . . . . . . . . . . . . . . -- -- -- 33,334
Carey B. Wickland . . . . . . . . . . . . . . . . . . -- -- -- 6,334
Gary White . . . . . . . . . . . . . . . . . . . . . -- -- 670 19,000
Robert E. Byerley, Jr. . . . . . . . . . . . . . . . -- -- 2 24,000
Robert R. Denton . . . . . . . . . . . . . . . . . . -- -- -- --
All Directors and Executive Officers
as a Group (16 persons, excluding Messrs. Hay,
Kell, Crowson and Byerley) . . . . . . . . . . . . . $6,000 342 2,912 35,501
</TABLE>
(4) Includes (a) 2,000 and 1,000 shares of Common Stock held by Messrs.
Lindsay and Walker, respectively, jointly with their respective spouses
and (b) three shares held by the spouse of Mr. Wallace, as to which he
disclaims beneficial ownership. All non-employee director nominees as a
group hold 14,500 restricted stock units representing the right to acquire
14,500 shares of Common Stock in certain events (see "Item 11. Directors
and Officers of the Registrant--Compensation of Directors"). In addition,
certain additional shares of Common Stock beneficially owned by the
Investor Group may be deemed to be beneficially owned by Mr. Wolansky, a
director of the Company, as a result of his equity ownership in Green Pond
Management (see footnote (1) under "--Security Ownership of Certain
Beneficial Owners").
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT INDEBTEDNESS
In January 1995, the Company made a secured $90,000 bridge loan to W.
Joseph Dryer when he became Senior Vice President and Chief Control Officer of
the Company. The rate of interest on the loan was 8.5%. Proceeds of the loan
were used by Mr. Dryer in connection with his purchase of a home in Dallas as a
result of his relocation of employment from San Francisco, California to
Dallas. The loan and accrued interest were paid back in full by Mr. Dryer on
March 9, 1995 upon the sale of his home in California.
The Company, in July 1993, made an unsecured $100,000 loan to Robert E.
Byerley, Jr., former Senior Vice President and Treasurer of the Company. The
loan was evidenced by a note payable to the Company due in two annual
installments of $50,000 each, plus accrued interest, due, respectively, on July
15, 1995 and July 15, 1996. Interest on the note floated with the prime
lending rate as published in THE WALL STREET JOURNAL. Proceeds of the loan
were used by Mr. Byerley in connection with his purchase of a home. The loan
and accrued interest was paid back in full by Mr. Byerley on March 29, 1995
pursuant to his consulting agreement with the Company which was subsequently
terminated effective May 31, 1995.
-86-
<PAGE> 87
AGREEMENT WITH THE INVESTOR GROUP
On August 3, 1993 LFC entered into an agreement (the "Investor Group
Agreement") with LFC's largest stockholder. Pursuant to the Investor Group
Agreement, LFC agreed to (i) elect Mark M. Feldman to immediately fill a
vacancy on the Board until the 1993 Annual Meeting, (ii) propose an amendment
to its Restated Certificate of Incorporation for consideration by its
stockholders to increase the maximum number of its directors to 17, (iii)
nominate four persons to be designated by the Investor Group for election at
the 1993 Annual Meeting to serve as directors of LFC, (iv) nominate three
persons to be designated by the Investor Group for election at the 1994 Annual
Meeting to serve as directors of LFC and (v) other matters as set forth in the
Investor Group Agreement. In an amendment to the Investor Group Agreement
dated September 23, 1994, LFC agreed (i) to fix the number of directors to be
elected at the 1994 Annual Meeting at 10 and (ii) to nominate an additional
person (for a total of 4 persons) to be designated by the Investor Group for
election at the 1994 Annual Meeting to serve as a director of LFC. The
Investor Group designated Mark M. Feldman, Robert LeBuhn, Reid Nagle and Paul
S. Wolansky as its designees for nomination for director at the 1993 Annual
Meeting and designated Mark M. Feldman, Robert LeBuhn, Reid Nagle and Paul S.
Wolansky for nomination at the 1994 Annual Meeting. Pursuant to the terms of
the Investor Group Agreement, LFC's Board committees generally will have
approximately the same ratio of the Investor Group's designees to the total
committee membership as the total number of Investor Group's designees to the
membership of the Board. Mr. Wolansky is a member of the Investor Group and an
executive officer of CSA, and Mr. Feldman is a former member of the Investor
Group and former executive officer of CSA and GPA. CSA and GPA beneficially
own 5.8 percent and 12.6 percent, respectively, of LFC's Common Stock as of
September 27, 1995. Pursuant to the terms of the Investor Group Agreement, the
Investor Group voted all of its shares at the 1994 Annual Meeting of LFC's
stockholders in favor of the election of all 10 nominees for director of LFC.
The Investor Group Agreement provides that it will expire upon the earlier to
occur of (i) the resignation of all the director designees of the Investor
Group from LFC's Board or (ii) immediately after the 1995 Annual Meeting of
LFC's stockholders.
Effective June 30, 1995, Cold Spring Management and Green Pond Management
redeemed Mr. Feldman's interests in these companies and he withdrew from the
Investor Group. Upon becoming an executive officer of LFC effective July 1,
1995, Mr. Feldman remained a director of LFC but ceased to be a director of
LFC pursuant to the Investor Group Agreement.
OTHER TRANSACTIONS
Employment Agreement with Mark M. Feldman. In June 1995, LFC and Lomas
Mortgage entered into an employment agreement with Mark M. Feldman, a director
of LFC, with a term commencing on July 1, 1995 and ending on the later of July
1, 1996 and the financial restructuring of the Company. The employment
agreement provides for ongoing employment as Executive Vice President and Chief
Restructuring Officer of LFC and an annual base salary of $300,000. Mr.
Feldman may also be eligible for bonus compensation at the discretion of the
Company. The agreement also entitles Mr. Feldman to be provided employee
benefits on the same basis as the other senior executives of the Company or, if
he opts out of the Company health insurance plan, a cash payment equal to the
amount of health insurance premium the Company would have paid on his behalf.
In the event of termination of employment without cause or other breach of the
agreement by the Company or upon Mr. Feldman's termination of his employment
for good reason, Mr. Feldman shall be entitled to receive (i) payment of base
salary through the balance of the employment term, (ii) any bonus payment to
which he would otherwise have been entitled and (iii) continued provision of
health and welfare benefits through the balance of the employment term.
Consulting and Termination Agreement with Ramona Taylor. Due to the
desire of Ramona Taylor, former Senior Vice President and Secretary of LFC, to
retire under the Company's Voluntary Early Retirement Program, Ms. Taylor and
LFC entered into a consulting agreement effective December 1, 1994 pursuant to
which her employment with LFC was terminated. In connection with her
retirement, Ms. Taylor received $684,768 representing her pension benefits due
under the qualified plan and is to receive $43,000 during the first 12 months
following retirement and $193,500 the next 108 months thereafter under the
Management Security Plan. Ms. Taylor had an employment agreement with LFC
expiring September 30, 1995 providing for ongoing employment as Senior Vice
President and
-87-
<PAGE> 88
Secretary of LFC and a base salary for fiscal 1995 of $130,000. The consulting
agreement was to terminate on December 31, 1996 and provided for Ms. Taylor to
continue to serve as Senior Vice President and Secretary of LFC until such
termination. The consulting agreement provided for payment to Ms. Taylor of
$141,700 for the first 13 months and $130,800 for the remaining 12 months of
the consulting term. Ms. Taylor and LFC entered into a termination agreement
effective April 30, 1995 pursuant to which Ms. Taylor's consulting agreement
was terminated. In connection with the termination, Ms. Taylor received
$207,998 representing her termination benefits provided for in the consulting
agreement. The Company will continue, at the employee premium rate, all
existing health care and life insurance coverages provided by the Company as of
December 1, 1994 to Ms. Taylor until the earlier of December 31, 1996 or such
time that Ms. Taylor receives comparable coverage as a result of future
employment. Ms. Taylor's outstanding options are fully vested and will
continue to be exercisable for the remainder of their original terms.
Bert P. Headden Employment Termination. In connection with the termination
of his employment as Executive Vice President of Lomas Mortgage effective
January 20, 1995, Bert P. Headden received $277,200 of severance payment as
provided for under the terms of Mr. Headden's employment agreement with Lomas
Mortgage dated November 11, 1994.
-88-
<PAGE> 89
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(i) The following consolidated financial statements are included in
Item 8.
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Consolidated Balance Sheet--June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . 33
Statement of Consolidated Operations--Years Ended June 30, 1995, 1994 and 1993 . . . 34
Statement of Consolidated Stockholders' Equity (Deficit)--Years Ended
June 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Statement of Consolidated Cash Flows--Years Ended June 30, 1995, 1994 and 1993 . . . 36
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . 37
(ii) The following financial statement schedule is included in Item 8:
Schedule I--Condensed Financial Information of Registrant . . . . . . . . . . . . . . 66
</TABLE>
All other schedules are omitted as the required information is
inapplicabale or the information is presented in the
Consolidated Financial Statements or related notes.
Financial statements (and summarized financial information) of
unconsolidated subsidiaries and 50-Percent-or- Less-Owned Persons
accounted for by the equity method are not presented because they do not,
individually or in aggregate, constitute a significant subsidiary.
(b) Exhibits:
Exhibit
Number
-------
(3.1) Restated Certificate of Incorporation of Lomas Financial
Corporation.
* (3.2) Restated Bylaws of Lomas Financial Corporation (Exhibit 3.1
to LFC's Form 10-Q for the quarterly period ended March 31,
1995).
* (4.1) Indenture dated as of November 1, 1991 between LFC and Texas
Commerce Bank National Association, as Trustee, relating to
$140,000,000 9% Senior Convertible Notes Due 2003 (Exhibit
T3C to LFC's Application for Qualification of Indenture
under the Trust Indenture Act of 1939 on Form T-3 relating
to Senior Notes Due 2003, filed on December 24, 1991, No.
22-21558).
* (4.2) Indenture dated as of October 1, 1992 between Lomas Mortgage
and Bankers Trust Company, as Trustee, relating to
$150,000,000 9-3/4% Senior Notes due October 1, 1997 and
$190,000,000 10-1/4% Senior Notes due October 1, 2002
(Exhibit T3C to Lomas Mortgage's Application for
Qualification of Indenture under the Trust Indenture Act of
1939 on Form T-3 related to Senior Notes due 1999, filed on
December 24, 1991, No. 22-21559).
* (4.3) Warrant Agreement dated as of January 30, 1992 between LFC
and Society National Bank (formerly Ameritrust Company
National Association), as Warrant Agent (Exhibit 4.4 to
LFC's Form 8 filed on April 22, 1993).
-89-
<PAGE> 90
* (10.1) Lomas Financial Corporation and Subsidiaries Tax Sharing
Agreement dated as of June 30, 1992 (Exhibit 10.18 to Lomas
Mortgage's preliminary Registration Statement on Form S-1
filed on September 4, 1992, No. 33-48529).
* (10.2) Interest Rate and Currency Exchange Agreement (the "Interest
Rate and Currency Exchange Agreement") dated July 7, 1992
between Lomas Mortgage and Lehman Brothers Special Financing
Inc. ("LBSF") (Exhibit 10.14 to the Lomas Mortgage's Form
10-K for the fiscal year ended June 30, 1993).
* (10.3) Amendment No. 1 to Interest Rate and Currency Exchange
Agreement dated May 25, 1994 (Exhibit 10.2 to LFC's Form
10-K for the fiscal year ended June 30, 1994).
* (10.4) Amended and Restated Master Pledge Agreement dated April 8,
1994 between Lomas Mortgage, as Pledgor, and LBSF, as
Pledgee (the "Amended and Restated Master Pledge Agreement")
(Exhibit 10.4 to LFC's Form 10-Q for the quarterly period
ended March 31, 1994).
* (10.5) Amendment No. 1 to Amended and Restated Master Pledge
Agreement dated May 25, 1994 (Incorporated by reference to
Exhibit 10.1 to LFC's Form 10-K for the fiscal year ended
June 30, 1994).
* (10.6) Amendment No. 2 to Amended and Restated Master Pledge
Agreement dated as of July 15, 1994 (Exhibit 10.9 to LFC's
Form 10-Q for the quarterly period ended December 31, 1994).
* (10.7) Restated Loan and Security Agreement dated July 8, 1993
among Lomas Mortgage, the bank signatories thereto, Bank
One, Texas, N.A., as Administrative Agent, and Texas
Commerce Bank National Association, as Syndication Agent
(the "Restated Loan and Security Agreement") (Exhibit 10.1
to Lomas Mortgage's Form 10-K for the fiscal year ended June
30, 1993).
* (10.8) First Amendment to Restated Loan and Security Agreement
dated September 15, 1993 (Exhibit 10.3 to LFC's Form 10-Q
for the quarterly period ended December 31, 1993).
* (10.9) Second Amendment to Restated Loan and Security Agreement
dated September 30, 1993 (Exhibit 10.4 to LFC's Form 10-Q
for the quarterly period ended December 31, 1993).
* (10.10) Third Amendment to Restated Loan and Security Agreement
dated November 30, 1993 (Exhibit 10.5 to LFC's Form 10-Q for
the quarterly period ended December 31, 1993).
* (10.11) Fourth Amendment to Restated Loan and Security Agreement
dated February 28, 1994 (Exhibit 10.1 to LFC's Form 10-Q for
the quarterly period ended December 31, 1994).
* (10.12) Fifth Amendment to Restated Loan and Security Agreement
dated March 31, 1994 (Exhibit 10.3 to LFC's Form 10-Q for
the quarterly period ended March 31, 1994).
* (10.13) Sixth Amendment to Restated Loan and Security Agreement
dated September 15, 1994 (Exhibit 10.3 to LFC's Form 10-K
for the fiscal year ended June 30, 1994).
* (10.14) Seventh Amendment to Restated Loan and Security Agreement
dated June 30, 1994 (Exhibit 10.4 to LFC's Form 10-K for the
fiscal year ended June 30, 1994).
* (10.15) Eighth Amendment to Restated Loan and Security Agreement
dated November 29, 1994 (Exhibit 10.2 to LFC's Form 10-Q for
the quarterly period ended December 31, 1994).
* (10.16) Ninth Amendment to Restated Loan and Security Agreement
dated February 13, 1995 and effective as of December 31,
1994 (Exhibit 10.20 to LFC's Form 10-Q for the quarterly
period ended December 31, 1994).
(10.17) Tenth Amendment to Restated Loan and Security Agreement (and
Waiver) dated as of June 30, 1995.
-90-
<PAGE> 91
* (10.18) Agreement dated August 3, 1993 between LFC and entities and
individuals listed therein as the Investor Group (the
"Investor Group Agreement") (Exhibit 1 to LFC's Form 8-K
filed on August 5, 1993).
* (10.19) Amendment to the Investor Group Agreement dated as of
September 23, 1994 (Exhibit 10.10 to LFC's Form 10-Q for the
quarterly period ended December 31, 1994).
* (10.20) Agreement dated September 29, 1993 between LFC and IDS Bond
Fund, Inc. (Exhibit 10.3 to LFC's Form 10-Q for the
quarterly period ended September 30, 1993).
* (10.21) Agreement dated September 30, 1993 between LFC and General
Electric Capital Corporation (Exhibit 10.4 to LFC's Form
10-Q for the quarterly period ended September 30, 1993).
* (10.22) Agreement regarding Delaware Law dated November 9, 1993
between LFC and entities and individuals listed therein as
the Investor Group (Exhibit 10.1 to LFC's Form 10-Q for the
quarterly period ended December 31, 1993).
* (10.23) Master Repurchase Agreement (the "Master Repurchase
Agreement") dated April 11, 1994 between Lomas Mortgage and
DLJ Mortgage Capital, Inc. ("DLJ")(Exhibit 10.5 to LFC's
Form 10-Q for the quarterly period ended March 31, 1994).
* (10.24) First Amendment to Master Repurchase Agreement dated April
11, 1994 between Lomas Mortgage and DLJ (Exhibit 10.6 to
LFC's Form 10-Q for the quarterly period ended March 31,
1994).
* (10.25) Whole Loan Financing Facility dated May 16, 1994 (the "Whole
Loan Financing Facility") between Lomas Mortgage and DLJ
(Exhibit 10.3 to LFC's Form 10-Q for the quarterly period
ended December 31, 1994).
* (10.26) Promissory Note dated as of May 16, 1994 executed by Lomas
Mortgage for the benefit of DLJ in the principal amount of
$600,000,000 (the "Promissory Note") (Exhibit 10.4 to LFC's
Form 10-Q for the quarterly period ended December 31, 1994).
* (10.27) Whole Loan Financing Program Tri-Party Custody Agreement
dated as of May 16, 1994 between Lomas Mortgage, as
Customer, DLJ and Bank One, Texas, N.A., as Custodian (the
"Tri-Party Custody Agreement") (Exhibit 10.5 to LFC's Form
10-Q for the quarterly period ended December 31, 1994).
* (10.28) Pledge Agreement dated as of May 16, 1994 by and between DLJ
and Lomas Mortgage (the "Pledge Agreement") (Exhibit 10.6 to
LFC's Form 10-Q for the quarterly period ended December 31,
1994).
* (10.29) Commitment Letter dated May 18, 1994 between Lomas Mortgage
and DLJ (the "1994 Commitment Letter") relating to the Whole
Loan Financing Facility, the Promissory Note, the Pledge
Agreement and the Tri- Party Custody Agreement
(collectively, the "Agreements") (Exhibit 10.7 to LFC's Form
10-Q for the quarterly period ended December 31, 1994).
* (10.30) Amendment to the 1994 Commitment Letter dated February 8,
1995 and effective as of December 31, 1994 (Exhibit 10.8 to
LFC's Form 10-Q for the quarterly period ended December 31,
1994).
(10.31) Commitment Letter dated May 22, 1995 between Lomas Mortgage
and DLJ (the "1995 Commitment Letter") relating to the
Agreements.
(10.32) Letter dated June 27, 1995 between Lomas Mortgage and DLJ
modifying and amending the 1995 Commitment Letter and the
Agreements.
* (10.33) Agreement dated September 30, 1994 among LFC, General
Electric Capital Corporation and ELLCO Leasing Corporation
relating to the termination of the General Escrow and the
General
-91-
<PAGE> 92
Escrow Agreement (Exhibit 10.11 to LFC's Form 10-Q for the
quarterly period ended December 31, 1994).
* (10.34) Asset Purchase Agreement dated as of December 16, 1994 by
and between Lomas Information Systems, Inc., as Seller,
Residential Information Services Limited Partnership, as
Buyer, LFC, Lomas Mortgage and Residential Services
Corporation of America (Exhibit 10.12 to LFC's Form 10-Q for
the quarterly period ended December 31, 1994).
* (10.35) Commitment Agreement dated as of April 24, 1995 between
Lomas Mortgage, as Lender, and Federal National Mortgage
Association ("Fannie Mae") (Exhibit 10.8 of LFC's Form 10-Q
for the quarterly period ended March 31, 1995).
* (10.36) As Soon As Pooled Option II Letter Agreement dated April 24,
1995 between Lomas Mortgage, as Lender, and Fannie Mae
(Exhibit 10.9 of LFC's Form 10-Q for the quarterly period
ended March 31, 1995).
(10.37) Asset Purchase Agreement dated as of September 5, 1995 by
and between First Nationwide Mortgage Corporation ("First
Nationwide") and Lomas Mortgage.
(10.38) First Amendment to Asset Purchase Agreement dated as of
October 2, 1995 by and between First Nationwide and Lomas
Mortgage.
(10.39) Master Repurchase Agreement dated as of September 19, 1995
between First Nationwide and Lomas Mortgage.
(10.40) Tri-Party Custody Agreement dated as of September 19, 1995
by and among Lomas Mortgage, as Seller, First Nationwide, as
Buyer, and Bank One, Texas, National Association, as
Custodian.
(10.41) Subservicing and Transition Services Agreement dated as of
October 2, 1995 between First Nationwide and Lomas Mortgage.
(10.42) Affidavit of Eric D. Booth in Support of First Day Orders
filed in connection with the Chapter 11 petitions of the
Debtor Corporations.
* (10.43) Employment Agreement dated as of April 1, 1993 between Lomas
Management, Inc., LFC and Carey B. Wickland (Exhibit 10.18
to LFC's Form 10-K for the fiscal year ended June 30, 1993).
(10.44) First Amendment to Employment Agreement dated as of May 23,
1995 by and among Carey B. Wickland, Lomas Management, Inc.,
LFC and Lomas Mortgage.
* (10.45) Employment Agreement dated as of August 1, 1993 between
Lomas Information Systems, Inc. and Thomas J. Clooney
(Exhibit 10.7 to LFC's Form 10-Q for the quarterly period
ended March 31, 1995).
* (10.46) Employment Agreement dated March 1, 1994 between Lomas
Mortgage and Gary H. Kell (Exhibit 10.10 to LFC's Form 10-Q
for the quarterly period ended March 31, 1994).
* (10.47) Amendment to Employment Agreement dated March 31, 1995
between Lomas Mortgage and Gary H. Kell (Exhibit 10.5 to
LFC's Form 10-Q for the quarterly period ended March 31,
1995).
(10.48) Severance Agreement dated as of August 29, 1995 between
Lomas Mortgage and Gary H. Kell.
* (10.49) Consulting Agreement dated as of August 2, 1994 by and
between LFC and Jess Hay (Exhibit 10.17 to LFC's Form 10-Q
for the quarterly period ended December 31, 1994).
* (10.50) Termination Agreement effective March 2, 1995 by and between
LFC and Jess Hay (Exhibit 10.3 to LFC's Form 10-Q for the
quarterly period ended March 31, 1995).
-92-
<PAGE> 93
* (10.51) Consulting Agreement dated as of November 1, 1994 by and
between LFC and Gary White (Exhibit 10.18 to LFC's Form 10-Q
for the quarterly period ended December 31, 1994).
(10.52) First Amendment to Consulting Agreement dated as of May 23,
1995 by and between LFC, Lomas Mortgage and Gary White.
(10.53) Second Amendment to Consulting Agreement dated as of
September 21, 1995 by and between LFC, Lomas Mortgage,
ST Lending, Inc. and Gary White.
* (10.54) Consulting Agreement dated as of November 1, 1994 by and
between LFC and Ramona Taylor (Exhibit 10.19 to LFC's Form
10-Q for the quarterly period ended December 31, 1994).
* (10.55) Termination Agreement effective April 30, 1995 by and
between LFC and Ramona Taylor (Exhibit 10.6 to LFC's Form
10-Q for the quarterly period ended March 31, 1995).
* (10.56) Employment Agreement dated as of December 1, 1994 by and
between LFC and Eric D. Booth (Exhibit 10.13 to LFC's Form
10-Q for the quarterly period ended December 31, 1994).
* (10.57) First Amendment to Employment Agreement dated as of May 11,
1995 by and between LFC and Eric D. Booth (Exhibit 10.12 to
LFC's Form 10-Q for the quarterly period ended March 31,
1995).
* (10.58) Lomas Financial Corporation 1993 Intermediate and Long Term
Incentive Plan Phantom Stock Agreement dated as of December
12, 1994 between LFC and Eric D. Booth (Exhibit 10.15 to
LFC's Form 10-Q for the quarterly period ended December 31,
1994).
* (10.59) Employment Agreement dated as of December 1, 1994 by and
between LFC and Robert R. Denton (Exhibit 10.14 to LFC's
Form 10-Q for the quarterly period ended December 31, 1994).
* (10.60) First Amendment to Employment Agreement dated as of May 11,
1995 by and between LFC and Robert R. Denton (Exhibit 10.13
to LFC's Form 10-Q for the quarterly period ended March 31,
1995).
* (10.61) Lomas Financial Corporation 1993 Intermediate and Long Term
Incentive Plan Phantom Stock Agreement dated as of December
12, 1994 between LFC and Robert R. Denton (Exhibit 10.16 to
LFC's Form 10-Q for the quarterly period ended December 31,
1994).
* (10.62) Employment Agreement dated as of January 3, 1995 by and
between LFC and W. Joseph Dryer (Exhibit 10.1 to LFC's Form
10-Q for the quarterly period ended March 31, 1995).
(10.63) First Amendment to Employment Agreement dated as of May 11,
1995 by and between W. Joseph Dryer, LFC and Lomas Mortgage.
* (10.64) Consulting Agreement dated as of March 29, 1995 by and
between LFC and Robert E. Byerley, Jr. (Exhibit 10.4 to
LFC's Form 10-Q for the quarterly period ended March 31,
1995).
(10.65) Termination Agreement dated as of May 25, 1995, by and
between LFC and Robert E. Byerley, Jr.
(10.66) Severance Agreement dated as of May 18, 1995 by and between
LFC and James L. Crowson.
(10.67) Employment Agreement dated as of June 28, 1995 by and
between LFC, Lomas Mortgage and Mark M. Feldman.
* (10.68) Lomas Financial Group Pension Plan (Exhibit 10.10 to Lomas
Mortgage's preliminary Registration Statement on Form S-1
filed on June 26, 1992, No. 33-48529).
-93-
<PAGE> 94
* (10.69) Amendment No. 1 to the Lomas Financial Group Pension Plan as
restated effective January 1, 1991 (Exhibit 10.4 to LFC's
Form 10-K for the fiscal year ended June 30, 1993).
(10.70) Amendment No. 2 to the Lomas Financial Group Pension Plan as
restated effective January 1, 1991.
(10.71) Amendment No. 3 to the Lomas Financial Group Pension Plan as
restated effective January 1, 1991.
(10.72) Amendment No. 4 to the Lomas Financial Group Pension Plan as
restated effective January 1, 1991.
* (10.73) Lomas Financial Group Excess Benefit Plan (Exhibit 10.5 to
LFC's Form 10-K for the fiscal year ended June 30, 1993).
* (10.74) Trust under the Lomas Financial Group Excess Pension Plan
(Exhibit 10.5 to LFC's Form 8 filed on April 22, 1993).
* (10.75) Lomas Financial Corporation Management Security Plan
(Exhibit 10.12 to Lomas Mortgage's preliminary Registration
Statement on Form S-1 filed on June 26, 1992, No. 33-48529).
* (10.76) Trust Under the Lomas Financial Corporation Management
Security Plan (Exhibit 10.7 to LFC's Form 8 filed on April
22, 1993).
* (10.77) Lomas Financial Corporation 1991 Long Term Stock Incentive
Program (Exhibit 10.14 to Lomas Mortgage's preliminary
Registration Statement on Form S-1 filed on June 26, 1992,
No. 33-48529).
* (10.78) Lomas Financial Corporation 1991 Long Term Incentive Plan
for Non-Employee Directors (Exhibit 10.8 to LFC's Form 10-K
for the fiscal year ended June 30, 1992).
* (10.79) Lomas Financial Corporation Non-Employee Director Retirement
Plan (Exhibit 10.11 to LFC's Form 8 filed on April 22,
1993).
* (10.80) Lomas 401(k) Savings Plan (Exhibit 10.1 to LFC's Form 10-Q
for the quarterly period ended March 31, 1993).
* (10.81) Lomas Financial Group 401(k) Savings Plan Trust Agreement
(Exhibit 10.2 to LFC's Form 10-Q for the quarterly period
ended March 31, 1993).
* (10.82) Lomas Financial Corporation 1993 Intermediate and Long Term
Incentive Plan (Exhibit 10.1 to LFC's Form 10-Q for the
quarterly period ended September 30, 1993).
* (10.83) Amendment No. 1 to the Lomas Financial Corporation 1993
Intermediate and Long Term Incentive Plan (Exhibit 10.2 to
LFC's Form 10-Q for the quarterly period ended September 30,
1993).
* (10.84) Amendment No. 2 to the Lomas Financial Corporation 1993
Intermediate and Long Term Incentive Plan (Exhibit 10.2 to
LFC's Form 10-Q for the quarterly period ended December 31,
1993).
* (10.85) Lomas Financial Corporation Success Bonus Arrangement
(Exhibit 10.10 to LFC's Form 10-Q for the quarterly period
ended March 31, 1995).
* (10.86) Lomas Financial Corporation Stock Based Incentive
Compensation Plan (Exhibit 10.11 to LFC's Form 10-Q for the
quarterly period ended March 31, 1995).
(10.87) Long-Term Incentive Compensation Plan for the Senior
Officers of Lomas Management, Inc.
-94-
<PAGE> 95
(10.88) Lomas Mortgage USA, Inc. Severance Pay Plan.
(10.89) Amendment No. 1 to the Lomas Mortgage USA, Inc. Severance
Pay Plan.
(10.90) Lomas Mortgage USA, Inc. Performance and Retention Incentive
Plan.
(11) Computation of Earnings (Loss) Per Share.
(21) Lomas Financial Corporation and Subsidiaries.
(23.1) Consent of independent auditors--KPMG Peat Marwick LLP.
(23.2) Consent of independent auditors--Ernst & Young LLP
(27) Financial Data Schedules (submitted to the Securities and
Exchange Commission for its information).
(99.1) Press Release regarding $17 Million in Scheduled Note
Payments Not Made by Lomas; Expiration of Grace Period at
End of Month; and Completion of Sale of Certain Mortgage
Banking Business Assets.
(99.2) Press Release regarding LFC and Lomas Mortgage Chapter 11
Filing and Agreement Reached for Sale of
Substantially All Remaining Assets of Lomas Mortgage to
First Nationwide Subsidiary.
- ---------------
* Incorporated by reference.
(c) Reports on Form 8-K:
Form 8-K dated September 7, 1995 reporting the intended sale of the
Company's GNMA servicing rights and its loan production business to
a financial institution. There were no financial statements filed.
-95-
<PAGE> 96
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
LOMAS FINANCIAL CORPORATION
Registrant
Date: October 11, 1995 GARY WHITE
---------------------------
Gary White
Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: October 11, 1995 ERIC D. BOOTH
----------------------------------
Eric D. Booth
President, Chief Executive Officer
and Director
-96-
<PAGE> 97
Pursuant to the requirements of the Securities Exchange Act of 1934 and in
response to General Instruction D to Form 10-K, this report has been signed
below on behalf of the registrant by the following directors on the dates
indicated.
Date: October 11, 1995 By WILLIAM ANDERSON
-----------------------------
(William Anderson)
Date: October 11, 1995 By ERIC D. BOOTH
-----------------------------
(Eric D. Booth)
Date: October 3, 1995 By MARK M. FELDMAN
-----------------------------
(Mark M. Feldman)
Date: October 3, 1995 By ROBERT LEBUHN
-----------------------------
(Robert LeBuhn)
Date: October 5, 1995 By ROBERT V. LINDSAY
-----------------------------
(Robert V. Lindsay)
Date: October 3, 1995 By REID NAGLE
-----------------------------
(Reid Nagle)
Date: October 4, 1995 By PAUL T. WALKER
-----------------------------
(Paul T. Walker)
Date: October 5, 1995 By W. RAY WALLACE
-----------------------------
(W. Ray Wallace)
Date: October 11, 1995 By PAUL WOLANSKY
-----------------------------
(Paul Wolansky)
-97-
<PAGE> 98
INDEX TO EXHIBITS
Exhibit
Number
-------
(3.1) Restated Certificate of Incorporation of Lomas Financial
Corporation.
* (3.2) Restated Bylaws of Lomas Financial Corporation (Exhibit 3.1
to LFC's Form 10-Q for the quarterly period ended March 31,
1995).
* (4.1) Indenture dated as of November 1, 1991 between LFC and Texas
Commerce Bank National Association, as Trustee, relating to
$140,000,000 9% Senior Convertible Notes Due 2003 (Exhibit
T3C to LFC's Application for Qualification of Indenture
under the Trust Indenture Act of 1939 on Form T-3 relating
to Senior Notes Due 2003, filed on December 24, 1991, No.
22-21558).
* (4.2) Indenture dated as of October 1, 1992 between Lomas Mortgage
and Bankers Trust Company, as Trustee, relating to
$150,000,000 9-3/4% Senior Notes due October 1, 1997 and
$190,000,000 10-1/4% Senior Notes due October 1, 2002
(Exhibit T3C to Lomas Mortgage's Application for
Qualification of Indenture under the Trust Indenture Act of
1939 on Form T-3 related to Senior Notes due 1999, filed on
December 24, 1991, No. 22-21559).
* (4.3) Warrant Agreement dated as of January 30, 1992 between LFC
and Society National Bank (formerly Ameritrust Company
National Association), as Warrant Agent (Exhibit 4.4 to
LFC's Form 8 filed on April 22, 1993).
<PAGE> 99
* (10.1) Lomas Financial Corporation and Subsidiaries Tax Sharing
Agreement dated as of June 30, 1992 (Exhibit 10.18 to Lomas
Mortgage's preliminary Registration Statement on Form S-1
filed on September 4, 1992, No. 33-48529).
* (10.2) Interest Rate and Currency Exchange Agreement (the "Interest
Rate and Currency Exchange Agreement") dated July 7, 1992
between Lomas Mortgage and Lehman Brothers Special Financing
Inc. ("LBSF") (Exhibit 10.14 to the Lomas Mortgage's Form
10-K for the fiscal year ended June 30, 1993).
* (10.3) Amendment No. 1 to Interest Rate and Currency Exchange
Agreement dated May 25, 1994 (Exhibit 10.2 to LFC's Form
10-K for the fiscal year ended June 30, 1994).
* (10.4) Amended and Restated Master Pledge Agreement dated April 8,
1994 between Lomas Mortgage, as Pledgor, and LBSF, as
Pledgee (the "Amended and Restated Master Pledge Agreement")
(Exhibit 10.4 to LFC's Form 10-Q for the quarterly period
ended March 31, 1994).
* (10.5) Amendment No. 1 to Amended and Restated Master Pledge
Agreement dated May 25, 1994 (Incorporated by reference to
Exhibit 10.1 to LFC's Form 10-K for the fiscal year ended
June 30, 1994).
* (10.6) Amendment No. 2 to Amended and Restated Master Pledge
Agreement dated as of July 15, 1994 (Exhibit 10.9 to LFC's
Form 10-Q for the quarterly period ended December 31, 1994).
* (10.7) Restated Loan and Security Agreement dated July 8, 1993
among Lomas Mortgage, the bank signatories thereto, Bank
One, Texas, N.A., as Administrative Agent, and Texas
Commerce Bank National Association, as Syndication Agent
(the "Restated Loan and Security Agreement") (Exhibit 10.1
to Lomas Mortgage's Form 10-K for the fiscal year ended June
30, 1993).
* (10.8) First Amendment to Restated Loan and Security Agreement
dated September 15, 1993 (Exhibit 10.3 to LFC's Form 10-Q
for the quarterly period ended December 31, 1993).
* (10.9) Second Amendment to Restated Loan and Security Agreement
dated September 30, 1993 (Exhibit 10.4 to LFC's Form 10-Q
for the quarterly period ended December 31, 1993).
* (10.10) Third Amendment to Restated Loan and Security Agreement
dated November 30, 1993 (Exhibit 10.5 to LFC's Form 10-Q for
the quarterly period ended December 31, 1993).
* (10.11) Fourth Amendment to Restated Loan and Security Agreement
dated February 28, 1994 (Exhibit 10.1 to LFC's Form 10-Q for
the quarterly period ended December 31, 1994).
* (10.12) Fifth Amendment to Restated Loan and Security Agreement
dated March 31, 1994 (Exhibit 10.3 to LFC's Form 10-Q for
the quarterly period ended March 31, 1994).
* (10.13) Sixth Amendment to Restated Loan and Security Agreement
dated September 15, 1994 (Exhibit 10.3 to LFC's Form 10-K
for the fiscal year ended June 30, 1994).
* (10.14) Seventh Amendment to Restated Loan and Security Agreement
dated June 30, 1994 (Exhibit 10.4 to LFC's Form 10-K for the
fiscal year ended June 30, 1994).
* (10.15) Eighth Amendment to Restated Loan and Security Agreement
dated November 29, 1994 (Exhibit 10.2 to LFC's Form 10-Q for
the quarterly period ended December 31, 1994).
* (10.16) Ninth Amendment to Restated Loan and Security Agreement
dated February 13, 1995 and effective as of December 31,
1994 (Exhibit 10.20 to LFC's Form 10-Q for the quarterly
period ended December 31, 1994).
(10.17) Tenth Amendment to Restated Loan and Security Agreement (and
Waiver) dated as of June 30, 1995.
<PAGE> 100
* (10.18) Agreement dated August 3, 1993 between LFC and entities and
individuals listed therein as the Investor Group (the
"Investor Group Agreement") (Exhibit 1 to LFC's Form 8-K
filed on August 5, 1993).
* (10.19) Amendment to the Investor Group Agreement dated as of
September 23, 1994 (Exhibit 10.10 to LFC's Form 10-Q for the
quarterly period ended December 31, 1994).
* (10.20) Agreement dated September 29, 1993 between LFC and IDS Bond
Fund, Inc. (Exhibit 10.3 to LFC's Form 10-Q for the
quarterly period ended September 30, 1993).
* (10.21) Agreement dated September 30, 1993 between LFC and General
Electric Capital Corporation (Exhibit 10.4 to LFC's Form
10-Q for the quarterly period ended September 30, 1993).
* (10.22) Agreement regarding Delaware Law dated November 9, 1993
between LFC and entities and individuals listed therein as
the Investor Group (Exhibit 10.1 to LFC's Form 10-Q for the
quarterly period ended December 31, 1993).
* (10.23) Master Repurchase Agreement (the "Master Repurchase
Agreement") dated April 11, 1994 between Lomas Mortgage and
DLJ Mortgage Capital, Inc. ("DLJ")(Exhibit 10.5 to LFC's
Form 10-Q for the quarterly period ended March 31, 1994).
* (10.24) First Amendment to Master Repurchase Agreement dated April
11, 1994 between Lomas Mortgage and DLJ (Exhibit 10.6 to
LFC's Form 10-Q for the quarterly period ended March 31,
1994).
* (10.25) Whole Loan Financing Facility dated May 16, 1994 (the "Whole
Loan Financing Facility") between Lomas Mortgage and DLJ
(Exhibit 10.3 to LFC's Form 10-Q for the quarterly period
ended December 31, 1994).
* (10.26) Promissory Note dated as of May 16, 1994 executed by Lomas
Mortgage for the benefit of DLJ in the principal amount of
$600,000,000 (the "Promissory Note") (Exhibit 10.4 to LFC's
Form 10-Q for the quarterly period ended December 31, 1994).
* (10.27) Whole Loan Financing Program Tri-Party Custody Agreement
dated as of May 16, 1994 between Lomas Mortgage, as
Customer, DLJ and Bank One, Texas, N.A., as Custodian (the
"Tri-Party Custody Agreement") (Exhibit 10.5 to LFC's Form
10-Q for the quarterly period ended December 31, 1994).
* (10.28) Pledge Agreement dated as of May 16, 1994 by and between DLJ
and Lomas Mortgage (the "Pledge Agreement") (Exhibit 10.6 to
LFC's Form 10-Q for the quarterly period ended December 31,
1994).
* (10.29) Commitment Letter dated May 18, 1994 between Lomas Mortgage
and DLJ (the "1994 Commitment Letter") relating to the Whole
Loan Financing Facility, the Promissory Note, the Pledge
Agreement and the Tri- Party Custody Agreement
(collectively, the "Agreements") (Exhibit 10.7 to LFC's Form
10-Q for the quarterly period ended December 31, 1994).
* (10.30) Amendment to the 1994 Commitment Letter dated February 8,
1995 and effective as of December 31, 1994 (Exhibit 10.8 to
LFC's Form 10-Q for the quarterly period ended December 31,
1994).
(10.31) Commitment Letter dated May 22, 1995 between Lomas Mortgage
and DLJ (the "1995 Commitment Letter") relating to the
Agreements.
(10.32) Letter dated June 27, 1995 between Lomas Mortgage and DLJ
modifying and amending the 1995 Commitment Letter and the
Agreements.
* (10.33) Agreement dated September 30, 1994 among LFC, General
Electric Capital Corporation and ELLCO Leasing Corporation
relating to the termination of the General Escrow and the
General
<PAGE> 101
Escrow Agreement (Exhibit 10.11 to LFC's Form 10-Q for the
quarterly period ended December 31, 1994).
* (10.34) Asset Purchase Agreement dated as of December 16, 1994 by
and between Lomas Information Systems, Inc., as Seller,
Residential Information Services Limited Partnership, as
Buyer, LFC, Lomas Mortgage and Residential Services
Corporation of America (Exhibit 10.12 to LFC's Form 10-Q for
the quarterly period ended December 31, 1994).
* (10.35) Commitment Agreement dated as of April 24, 1995 between
Lomas Mortgage, as Lender, and Federal National Mortgage
Association ("Fannie Mae") (Exhibit 10.8 of LFC's Form 10-Q
for the quarterly period ended March 31, 1995).
* (10.36) As Soon As Pooled Option II Letter Agreement dated April 24,
1995 between Lomas Mortgage, as Lender, and Fannie Mae
(Exhibit 10.9 of LFC's Form 10-Q for the quarterly period
ended March 31, 1995).
(10.37) Asset Purchase Agreement dated as of September 5, 1995 by
and between First Nationwide Mortgage Corporation ("First
Nationwide") and Lomas Mortgage.
(10.38) First Amendment to Asset Purchase Agreement dated as of
October 2, 1995 by and between First Nationwide and Lomas
Mortgage.
(10.39) Master Repurchase Agreement dated as of September 19, 1995
between First Nationwide and Lomas Mortgage.
(10.40) Tri-Party Custody Agreement dated as of September 19, 1995
by and among Lomas Mortgage, as Seller, First Nationwide, as
Buyer, and Bank One, Texas, National Association, as
Custodian.
(10.41) Subservicing and Transition Services Agreement dated as of
October 2, 1995 between First Nationwide and Lomas Mortgage.
(10.42) Affidavit of Eric D. Booth in Support of First Day Orders
filed in connection with the Chapter 11 petitions of the
Debtor Corporations.
* (10.43) Employment Agreement dated as of April 1, 1993 between Lomas
Management, Inc., LFC and Carey B. Wickland (Exhibit 10.18
to LFC's Form 10-K for the fiscal year ended June 30, 1993).
(10.44) First Amendment to Employment Agreement dated as of May 23,
1995 by and among Carey B. Wickland, Lomas Management, Inc.,
LFC and Lomas Mortgage.
* (10.45) Employment Agreement dated as of August 1, 1993 between
Lomas Information Systems, Inc. and Thomas J. Clooney
(Exhibit 10.7 to LFC's Form 10-Q for the quarterly period
ended March 31, 1995).
* (10.46) Employment Agreement dated March 1, 1994 between Lomas
Mortgage and Gary H. Kell (Exhibit 10.10 to LFC's Form 10-Q
for the quarterly period ended March 31, 1994).
* (10.47) Amendment to Employment Agreement dated March 31, 1995
between Lomas Mortgage and Gary H. Kell (Exhibit 10.5 to
LFC's Form 10-Q for the quarterly period ended March 31,
1995).
(10.48) Severance Agreement dated as of August 29, 1995 between
Lomas Mortgage and Gary H. Kell.
* (10.49) Consulting Agreement dated as of August 2, 1994 by and
between LFC and Jess Hay (Exhibit 10.17 to LFC's Form 10-Q
for the quarterly period ended December 31, 1994).
* (10.50) Termination Agreement effective March 2, 1995 by and between
LFC and Jess Hay (Exhibit 10.3 to LFC's Form 10-Q for the
quarterly period ended March 31, 1995).
<PAGE> 102
* (10.51) Consulting Agreement dated as of November 1, 1994 by and
between LFC and Gary White (Exhibit 10.18 to LFC's Form 10-Q
for the quarterly period ended December 31, 1994).
(10.52) First Amendment to Consulting Agreement dated as of May 23,
1995 by and between LFC, Lomas Mortgage and Gary White.
(10.53) Second Amendment to Consulting Agreement dated as of
September 21, 1995 by and between LFC, Lomas Mortgage,
ST Lending, Inc. and Gary White.
* (10.54) Consulting Agreement dated as of November 1, 1994 by and
between LFC and Ramona Taylor (Exhibit 10.19 to LFC's Form
10-Q for the quarterly period ended December 31, 1994).
* (10.55) Termination Agreement effective April 30, 1995 by and
between LFC and Ramona Taylor (Exhibit 10.6 to LFC's Form
10-Q for the quarterly period ended March 31, 1995).
* (10.56) Employment Agreement dated as of December 1, 1994 by and
between LFC and Eric D. Booth (Exhibit 10.13 to LFC's Form
10-Q for the quarterly period ended December 31, 1994).
* (10.57) First Amendment to Employment Agreement dated as of May 11,
1995 by and between LFC and Eric D. Booth (Exhibit 10.12 to
LFC's Form 10-Q for the quarterly period ended March 31,
1995).
* (10.58) Lomas Financial Corporation 1993 Intermediate and Long Term
Incentive Plan Phantom Stock Agreement dated as of December
12, 1994 between LFC and Eric D. Booth (Exhibit 10.15 to
LFC's Form 10-Q for the quarterly period ended December 31,
1994).
* (10.59) Employment Agreement dated as of December 1, 1994 by and
between LFC and Robert R. Denton (Exhibit 10.14 to LFC's
Form 10-Q for the quarterly period ended December 31, 1994).
* (10.60) First Amendment to Employment Agreement dated as of May 11,
1995 by and between LFC and Robert R. Denton (Exhibit 10.13
to LFC's Form 10-Q for the quarterly period ended March 31,
1995).
* (10.61) Lomas Financial Corporation 1993 Intermediate and Long Term
Incentive Plan Phantom Stock Agreement dated as of December
12, 1994 between LFC and Robert R. Denton (Exhibit 10.16 to
LFC's Form 10-Q for the quarterly period ended December 31,
1994).
* (10.62) Employment Agreement dated as of January 3, 1995 by and
between LFC and W. Joseph Dryer (Exhibit 10.1 to LFC's Form
10-Q for the quarterly period ended March 31, 1995).
(10.63) First Amendment to Employment Agreement dated as of May 11,
1995 by and between W. Joseph Dryer, LFC and Lomas Mortgage.
* (10.64) Consulting Agreement dated as of March 29, 1995 by and
between LFC and Robert E. Byerley, Jr. (Exhibit 10.4 to
LFC's Form 10-Q for the quarterly period ended March 31,
1995).
(10.65) Termination Agreement dated as of May 25, 1995, by and
between LFC and Robert E. Byerley, Jr.
(10.66) Severance Agreement dated as of May 18, 1995 by and between
LFC and James L. Crowson.
(10.67) Employment Agreement dated as of June 28, 1995 by and
between LFC, Lomas Mortgage and Mark M. Feldman.
* (10.68) Lomas Financial Group Pension Plan (Exhibit 10.10 to Lomas
Mortgage's preliminary Registration Statement on Form S-1
filed on June 26, 1992, No. 33-48529).
<PAGE> 103
* (10.69) Amendment No. 1 to the Lomas Financial Group Pension Plan as
restated effective January 1, 1991 (Exhibit 10.4 to LFC's
Form 10-K for the fiscal year ended June 30, 1993).
(10.70) Amendment No. 2 to the Lomas Financial Group Pension Plan as
restated effective January 1, 1991.
(10.71) Amendment No. 3 to the Lomas Financial Group Pension Plan as
restated effective January 1, 1991.
(10.72) Amendment No. 4 to the Lomas Financial Group Pension Plan as
restated effective January 1, 1991.
* (10.73) Lomas Financial Group Excess Benefit Plan (Exhibit 10.5 to
LFC's Form 10-K for the fiscal year ended June 30, 1993).
* (10.74) Trust under the Lomas Financial Group Excess Pension Plan
(Exhibit 10.5 to LFC's Form 8 filed on April 22, 1993).
* (10.75) Lomas Financial Corporation Management Security Plan
(Exhibit 10.12 to Lomas Mortgage's preliminary Registration
Statement on Form S-1 filed on June 26, 1992, No. 33-48529).
* (10.76) Trust Under the Lomas Financial Corporation Management
Security Plan (Exhibit 10.7 to LFC's Form 8 filed on April
22, 1993).
* (10.77) Lomas Financial Corporation 1991 Long Term Stock Incentive
Program (Exhibit 10.14 to Lomas Mortgage's preliminary
Registration Statement on Form S-1 filed on June 26, 1992,
No. 33-48529).
* (10.78) Lomas Financial Corporation 1991 Long Term Incentive Plan
for Non-Employee Directors (Exhibit 10.8 to LFC's Form 10-K
for the fiscal year ended June 30, 1992).
* (10.79) Lomas Financial Corporation Non-Employee Director Retirement
Plan (Exhibit 10.11 to LFC's Form 8 filed on April 22,
1993).
* (10.80) Lomas 401(k) Savings Plan (Exhibit 10.1 to LFC's Form 10-Q
for the quarterly period ended March 31, 1993).
* (10.81) Lomas Financial Group 401(k) Savings Plan Trust Agreement
(Exhibit 10.2 to LFC's Form 10-Q for the quarterly period
ended March 31, 1993).
* (10.82) Lomas Financial Corporation 1993 Intermediate and Long Term
Incentive Plan (Exhibit 10.1 to LFC's Form 10-Q for the
quarterly period ended September 30, 1993).
* (10.83) Amendment No. 1 to the Lomas Financial Corporation 1993
Intermediate and Long Term Incentive Plan (Exhibit 10.2 to
LFC's Form 10-Q for the quarterly period ended September 30,
1993).
* (10.84) Amendment No. 2 to the Lomas Financial Corporation 1993
Intermediate and Long Term Incentive Plan (Exhibit 10.2 to
LFC's Form 10-Q for the quarterly period ended December 31,
1993).
* (10.85) Lomas Financial Corporation Success Bonus Arrangement
(Exhibit 10.10 to LFC's Form 10-Q for the quarterly period
ended March 31, 1995).
* (10.86) Lomas Financial Corporation Stock Based Incentive
Compensation Plan (Exhibit 10.11 to LFC's Form 10-Q for the
quarterly period ended March 31, 1995).
(10.87) Long-Term Incentive Compensation Plan for the Senior
Officers of Lomas Management, Inc.
<PAGE> 104
(10.88) Lomas Mortgage USA, Inc. Severance Pay Plan.
(10.89) Amendment No. 1 to the Lomas Mortgage USA, Inc. Severance
Pay Plan.
(10.90) Lomas Mortgage USA, Inc. Performance and Retention Incentive
Plan.
(11) Computation of Earnings (Loss) Per Share.
(21) Lomas Financial Corporation and Subsidiaries.
(23.1) Consent of independent auditors--KPMG Peat Marwick LLP.
(23.2) Consent of independent auditors--Ernst & Young LLP
(27) Financial Data Schedules (submitted to the Securities and
Exchange Commission for its information).
(99.1) Press Release regarding $17 Million in Scheduled Note
Payments Not Made by Lomas; Expiration of Grace Period at
End of Month; and Completion of Sale of Certain Mortgage
Banking Business Assets.
(99.2) Press Release regarding LFC and Lomas Mortgage Chapter 11
Filing and Agreement Reached for Sale of
Substantially All Remaining Assets of Lomas Mortgage to
First Nationwide Subsidiary.
- ---------------
* Incorporated by reference.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
LOMAS FINANCIAL CORPORATION
* * * * *
LOMAS FINANCIAL CORPORATION, a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
1. This Restated Certificate of Incorporation and the amendments
to the corporation's Restated Certificate of Incorporation contemplated hereby
were duly adopted by the corporation's Board of Directors at a meeting duly
held on August 3, 1993, and the amendment to the corporation's Restated
Certificate of Incorporation was adopted by the corporation's stockholders at a
meeting duly held on November 2, 1993, in accordance with Sections 242 and 245
of the General Corporation Law of the State of Delaware.
2. The name of the corporation is Lomas Financial Corporation and
the name under which the corporation was originally incorporated was Wallace
Properties, Inc. The date of filing its original Certificate of Incorporation
with the Secretary of State was March 7, 1960.
3. This Restated Certificate of Incorporation amends, restates
and integrates the provisions of the Certificate of Incorporation of this
corporation as hereby and heretofore amended or supplemented.
4. The text of the corporation's Restated Certificate of
Incorporation as hereby amended and heretofore amended is hereby restated to
read as herein set forth in full:
FIRST: The name of the Corporation is Lomas Financial Corporation.
SECOND: Its registered office in the State of Delaware is located at
No. 1209 Orange Street in the City of Wilmington, County Of New Castle. The
name and address of its registered agent is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as the same exists or may hereafter be
amended ("Delaware Law").
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 103,000,000, consisting of 100,000,000 shares
of Common Stock, par value $1.00 per share (the "Common Stock"), and 3,000,000
shares of Preferred Stock, par value $1.00 per share (the "Preferred Stock").
<PAGE> 2
The Board of Directors is hereby empowered to authorize by resolution
or resolutions from time to time the issuance of one or more classes or series
of Preferred Stock and to fix the designations, powers, preferences and
relative, participating, optional or other rights, if any, and the
qualifications, limitations or restrictions thereof, if any, with respect to
each such class or series of Preferred Stock and the number of shares
constituting each such class or series, and to increase or decrease the number
of shares of any such class or series to the extent permitted by Delaware Law;
provided that any such class or series of Preferred Stock may only be issued in
connection with a refinancing of any outstanding indebtedness of the
Corporation or any subsidiary of the Corporation.
FIFTH: The names and places of residence of the incorporators are
deleted in accordance with Section 245 of the Delaware Law.
SIXTH: (a) The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors consisting of not
less than seven (7) nor more than seventeen (17) directors, the exact number of
directors to be determined from time to time solely by resolution adopted by
the affirmative vote of a majority of the entire Board of Directors.
(b) There shall be no cumulative voting in the election of directors.
Election of directors need not be by written ballot unless the bylaws of the
Corporation so provide.
(c) Notwithstanding the foregoing, whenever the holders of one or
more classes or series of Preferred Stock shall have the right, voting
separately as a class or series, to elect directors, the election, term of
office, filling of vacancies, removal and other features of such directorships
shall be governed by the terms of the resolution or resolutions adopted by the
Board of Directors pursuant to ARTICLE FOURTH applicable thereto, and such
directors so elected shall not be subject to the provisions of this ARTICLE
SIXTH unless otherwise provided therein.
SEVENTH: The Board of Directors shall have the power to adopt, amend
or repeal the bylaws of the Corporation.
The stockholders may adopt, amend or repeal the bylaws only with the
affirmative vote of the holders of not less than 66 2/3% of the total voting
power of all outstanding securities of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class.
EIGHTH: Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of stockholders
at an annual or special meeting duly noticed and called in accordance with the
Delaware Law, and may not be taken by written consent of stockholders without a
meeting.
2
<PAGE> 3
NINTH: Special meetings of the stockholders may be called by the
Board of Directors or the Chairman of the Board of Directors of the Corporation
and may not be called by any other person. Notwithstanding the foregoing,
whenever holders of one or more classes or series of Preferred Stock shall have
the right, voting separately as a class or series, to elect directors, such
holders may call, pursuant to the terms of the resolution or resolutions
adopted by the Board of Directors pursuant to ARTICLE FOURTH hereto, special
meetings of holders of such Preferred Stock.
TENTH: (1) A director of the Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director to the fullest extent permitted by Delaware Law.
(2)(a) Each person (and the heirs, executors or administrators of
such person) who was or is a party or is threatened to be made a party to, or
is involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was a director or officer of the Corporation or is or
was serving at the request of the Corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by the Corporation to the fullest extent
permitted by Delaware Law. The right to indemnification conferred in this
ARTICLE TENTH shall also include the right to be paid by the Corporation the
expenses incurred in connection with any such proceeding in advance of its
final disposition to the fullest extent authorized by Delaware Law. The right
to indemnification conferred in this ARTICLE TENTH shall be a contract right.
(b) The Corporation may, by action of its Board of Directors, provide
indemnification to such of the employees and agents of the Corporation to such
extent and to such effect as the Board of Directors shall determine to be
appropriate and authorized by Delaware Law.
(3) The Corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss incurred by such person in any such capacity or arising out
of his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under Delaware Law.
(4) The rights and authority conferred in this ARTICLE TENTH shall
not be exclusive of any other right which any person may otherwise have or
hereafter acquire.
3
<PAGE> 4
(5) Neither the amendment nor repeal of this ARTICLE TENTH, nor the
adoption of any provision of this Certificate of Incorporation or the Bylaws of
the Corporation, nor, to the fullest extent permitted by Delaware Law, any
modification of law, shall eliminate or reduce the effect of this ARTICLE TENTH
in respect of any acts or omissions occurring prior to such amendment, repeal,
adoption or modification.
ELEVENTH: The Corporation reserves the right to amend this Restated
Certificate of Incorporation in any manner permitted by the Delaware Law and
all rights and powers conferred upon stockholders, directors and officers
herein are granted subject to this reservation. Notwithstanding the foregoing,
the provisions set forth in ARTICLES SIXTH, SEVENTH, EIGHTH, NINTH, TENTH and
this ARTICLE ELEVENTH may not be repealed or amended in any respect, and no
other provision may be adopted, amended or repealed which would have the effect
of modifying or permitting the circumvention of the provisions set forth in
ARTICLES SIXTH, SEVENTH, EIGHTH, NINTH, TENTH and this ARTICLE ELEVENTH, unless
such action is approved by the affirmative vote of the holders of not less than
66 2/3% of the total voting power of all outstanding securities of the
Corporation then entitled to vote generally in the election of directors,
voting together as a single class.
TWELFTH: No nonvoting equity securities of the Corporation may be
issued; this provision, included in this Restated Certificate of Incorporation
in compliance with Section 1123 of the United States Bankruptcy Code, 11 U.S.C.
Section 1123, shall have no force and effect except to the extent required by
such Section so long as such Section is in effect and applicable to the
Corporation.
IN WITNESS WHEREOF, said Lomas Financial Corporation has caused this
certificate to be signed by Jess Hay, its Chairman of the Board of Directors
and Chief Executive Officer, and attested to by Ramona Taylor, its Secretary,
and has caused its corporate seal to be hereunto affixed, this 12th day of
November, 1993.
LOMAS FINANCIAL CORPORATION
By: /s/ JESS HAY
-----------------------------------
Name: Jess Hay
Title: Chairman of the Board of
Directors and Chief Executive
Officer
Attest:
/s/ RAMONA TAYLOR
- ------------------------------
Ramona Taylor, Secretary
4
<PAGE> 1
EXHIBIT 10.17
10TH AMENDMENT TO RESTATED LOAN AND SECURITY AGREEMENT
(And Waiver)
THIS DOCUMENT is entered into as of June 30, 1995, between LOMAS
MORTGAGE USA, INC., a Connecticut corporation (the "COMPANY"), the banks listed
on the signature pages below ("LENDERS"), BANK ONE, TEXAS, N.A., as
Administrative Agent (in that capacity "ADMINISTRATIVE AGENT"), and TEXAS
COMMERCE BANK NATIONAL ASSOCIATION, as Syndication Agent (together with
Administrative Agent, "AGENTS").
The Company, Lenders, and Agents have entered into the Restated Loan
and Security Agreement (as amended through the date of this amendment and as
further renewed, extended, amended, and restated, the "LOAN AGREEMENT") dated
as of July 8, 1993, providing for revolving loans to the Company. The Company
has notified Agents and Lenders that it is not in compliance with the financial
covenants in SECTIONS 7.2(A), 7.2(C), and 7.4 of the Loan Agreement as of May
31, 1995 (the "SUBJECT DEFAULTS"). The Company has requested that Lenders
waive the Subject Defaults, which Lenders have agreed to do subject to and upon
the terms and conditions of this document. To induce Lenders to waive the
Subject Defaults, the Company has agreed to those terms and conditions.
Accordingly, for adequate and sufficient consideration, the parties agree as
follows:
1. CERTAIN DEFINITIONS. Unless otherwise specified in this
document (a) all terms defined in the Loan Agreement have the same meanings
when used in this document and (b) all references to "Sections" are references
to the Loan Agreement's sections.
2. AMENDMENTS. Effective as of the dates indicated:
(a) Effective as of the date of this document, the
following term in SECTION 1.1 is entirely amended as follows:
"OBLIGATIONS" mean all present and future
indebtedness, obligations, and liabilities of the Company to
Agents or to Lenders or to both, and all renewals and
extensions thereof or any part thereof, arising pursuant to
this agreement, any other Loan Paper, the Servicing Facility,
or any "LOAN PAPER" under the Servicing Facility, and all
interest accrued thereon, and reasonable attorneys' fees and
other costs incurred in the drafting, negotiation,
enforcement, or collection thereof, or any amendment, waiver,
restructuring, or any matter related thereto, regardless of
whether such indebtedness, obligations, and liabilities are
direct, indirect, fixed, contingent, joint, several or joint
and several.
(b) Effective as of June 22, 1995, the following terms in
SECTION 1.1 are entirely amended as follows:
"COVERED RATE" means a 2.50% annual interest rate.
"DEFAULT RATE" means for any day, an annual rate of
interest equal from day to day to the lesser of EITHER (a) the
Base Rate plus 5.25% OR (b) the Maximum Rate.
"FEDERAL-FUNDS RATE" means, for any day, the annual
interest rate equal to the SUM of (a) 2.50% PLUS (b) an annual
interest rate (rounded upwards, if necessary, to the nearest
0.01%) determined by Administrative Agent to be equal to
EITHER (i) the
<PAGE> 2
weighted average of the rates on overnight federal-funds
transactions with members of the Federal Reserve System
arranged by federal-funds brokers for that day (or, if not a
Business Day, for the preceding Business Day) as set forth in
the Federal Reserve Statistical Release published by the Board
of Governors of the Federal Reserve System applicable for that
day, OR (ii) if not so published for any Business Day, the
average quotations for that day on those transactions received
by Administrative Agent from three federal-funds brokers of
recognized standing selected by it.
"SWING BORROWING," "SWING COMMITMENT," "SWING NOTES,"
and "SWING PERCENTAGE" are entirely deleted.
"TERMINATION DATE" means, for the purposes of:
(a) Lenders' Commitments or any other
agreements or obligations to extend credit under the
Loan Papers, the earlier of EITHER (i) July 31, 1995,
OR (b) the date that all Lenders' Commitments and any
other agreements or obligations to extend credit
under the Loan Papers terminate or are cancelled
under this agreement; and
(b) The final maturity of the Ratable
Notes, September 30, 1995.
"WET SUBLIMIT", at any time, means 5% of the total
Commitments as of June 23, 1995, and 0% of the total
Commitments as of June 28, 1995.
(c) Effective as of June 22, 1995 (i) Administrative
Agent has terminated its commitment to extend Swing Borrowings, (ii)
the Principal Debt of all Swing Borrowings, and interest on that
Principal Debt, is immediately due and payable, (iii) all references
in the Loan Agreement to Swing Borrowings, Swing Commitments, Swing
Notes, and Swing Percentage are deleted, and (iv) SECTION 2.2(C) is
entirely amended as follows:
(c) [INTENTIONALLY BLANK].
(d) Effective as of the date of this document, SECTION
7.2 is entirely amended as follows:
7.2 Leverage Ratios. Directly or indirectly
create, incur, or suffer to exist:
(a) Any Debt if, after giving effect
thereto and to any simultaneous retirement of other Debt, the
Company's consolidated Debt (OTHER THAN Excepted Debt) would
exceed EITHER 270% of the Company's Consolidated Net Worth OR,
after the Company adopts Financial Accounting Standards Board
Statement Nos. 121 and 122 (if ever), 420% of the Company's
Consolidated Net Worth;
(b) [INTENTIONALLY BLANK]; or
(c) [INTENTIONALLY BLANK].
2
<PAGE> 3
(e) Effective as of the date of this document, SECTION
7.3(B)(I) is entirely amended as follows:
(i) $3,800,000 as reduced by the outstanding
principal of any advances or loans (at any date of
determination) by the Company or any of its Subsidiaries to
Lomas Financial Corporation permitted under SECTION 7.8(E),
(f) Effective as of the date of this document, SECTION
7.4 is entirely amended as follows:
7.4 Consolidated Net Worth. Permit its
Consolidated Net Worth to be less than the greater of EITHER
(i) the amount required by FHA, FHLMC, FNMA, VA, and GNMA at
any and all times for maintaining the Company's status as an
approved mortgagee, seller/servicer, or issuer, OR (ii) EITHER
$140,000,000 OR, after the Company adopts Financial Accounting
Standards Board Statement Nos. 121 and 122 (if ever),
$85,000,000.
(g) Effective as of the date of this document, SECTION
7.8(E) is entirely amended as follows:
(e) While no Potential Default or Default exists,
loans or advances to Lomas Financial Corporation by the
Company or any of its Subsidiaries that never exceed a total
of $3,800,000 principal and that were loaned or advanced
before May 31, 1995 -- as that amount is reduced by any
dividends made to Lomas Financial Corporation on or after
December 31, 1994;
(h) Effective as of the date of this document, SECTIONS
8.1(H) and (I) are entirely amended as follows:
(h) Either the Company or Lomas Financial
Corporation or both shall (i) execute an assignment for the
benefit of creditors; or (ii) become or be adjudicated
bankrupt or insolvent; or (iii) admit in writing its
respective inability to pay its respective debts generally as
they become due; or (iv) apply for or consent to the
appointment of a conservator, receiver, trustee, or liquidator
of it or of all or a substantial part of its respective
Property; or (v) file a voluntary petition seeking
reorganization or an arrangement with creditors or to take
advantage or seek any relief under any bankruptcy, insolvency,
or other similar Law; or (vi) file an answer admitting the
material allegations of, or consenting to, or default in, a
petition filed against it in any proceedings under any
bankruptcy, insolvency, or other similar Law; or (vii)
institute, or voluntarily be or become a party to, any other
judicial proceedings intended to effect a discharge of its
respective Debts, obligations, liabilities, or indebtedness,
in whole or in part, or a postponement of the maturity or the
collection thereof, or a suspension of any of the rights of
the Lenders granted in the Loan Papers.
(i) If (A) an order, judgment, or decree shall be
entered by any Tribunal approving a petition seeking
reorganization of either the Company or Lomas Financial
Corporation or both or appointing a conservator, receiver,
trustee, or liquidator for either the Company or Lomas
Financial Corporation or both or all or any substantial part
of its respective Property, or (B) a petition is filed against
the Company or Lomas Financial Corporation or both seeking
reorganization, an arrangement with creditors,
3
<PAGE> 4
or any other relief under any bankruptcy, insolvency, or other
similar Law and such petition is not discharged within 60 days
after the filing thereof.
(i) Effective as of the date of this document, Sections
8.2(A), (B) and (C) are entirely amended as follows:
(a) Upon the occurrence of a Default described in
SECTIONS 8.1(H) or (I) in respect of the Company (but not
Lomas Financial Corporation), the Lenders' Commitments to lend
under this agreement shall be terminated and the outstanding
Principal Debt, and the accrued and unpaid interest thereon,
and the other Obligations shall automatically become due and
payable, without presentment, demand, protest, notice of
protest, notice of protest and nonpayment, notice of
acceleration or of intent to accelerate, or other notice of
any kind, all of which are expressly waived by the Company.
(b) Upon the occurrence of a Default -- EXCLUDING
those described in SECTIONS 8.1(H) and (I) as they relate to
the Company but INCLUDING those described in those two
sections as they relate to Lomas Financial Corporation -- and
regardless of whether any other Lender has, or other Lenders
have, waived such Default as to itself, any Lender may
terminate its Commitment to lend under this agreement and
reduce any claim in respect of its Note to judgment.
(c) Upon the occurrence of a Default -- EXCLUDING
those described in SECTIONS 8.1(H) and (I) as they relate to
the Company but INCLUDING those described in those two
sections as they relate to Lomas Financial Corporation --
Agents shall, upon the direction of the Determining Lenders,
declare the Principal Debt, and the accrued and unpaid
interest thereon, plus all other Obligations of the Company to
Agents and the Lenders, or any part thereof, to be immediately
due and payable, whereupon they shall be due and payable, and
the commitments of Lenders to lend under this agreement shall
be automatically terminated.
3. WAIVER. Upon the Company's request and effective as of May
31, 1995, Lenders waive the Subject Defaults for the period ending May 31,
1995, and the ensuing period through the date of this document, which waiver is
not a waiver of any other existing or future Defaults or Potential Defaults or
of either Agent's or any Lender's rights to otherwise insist upon compliance by
the Company with each Loan Paper.
4. CONDITIONS PRECEDENT. The foregoing amendments and waiver are
not effective unless and until the following conditions precedent are
satisfied:
(a) Administrative Agent receives counterparts of this
document executed by the Company, both Agents, and every Lender.
(b) Payment to Agent of all Principal Debt of Swing
Borrowings and interest accrued thereon that are outstanding, if any,
as of the date of this document.
(c) The 14th Amendment to Servicing Payments Loan and
Security Agreement dated the date of this document, between the
Company, Agents, and Lenders in respect of the Servicing Facility is
fully executed and delivered by those parties and all of the
conditions precedent to its effectiveness have been satisfied.
4
<PAGE> 5
(d) All of the representations and warranties in this
document and each of the other Loan Papers are true and correct as of
-- as if made on -- the date of this document.
(e) The Company pays to Administrative Agent for the
account of each Lender -- in respect of this document and the document
referred to in CLAUSE (B) above -- a $15,000 amendment and waiver fee
for each Lender.
(f) Payment to or on behalf of each Agent and every
Lender all of the fees and expenses required to be paid by the Company
under PARAGRAPH 7 below and which have been invoiced to the Company
and remain unpaid as of the date of this document.
5. RATIFICATIONS. This document modifies and supersedes all
inconsistent terms and provisions of the other Loan Papers. Except as
expressly modified and superseded by this document, the terms and provisions of
the other Loan Papers are ratified and confirmed and continue in full force and
effect. The Company, all Lenders, and Agents agree that the Loan Papers, as
amended by this document, continue to be legal, valid, binding, and enforceable
in accordance with their respective terms. The Company ratifies and confirms
that all Liens granted to Agents, on behalf of Lenders, were intended to, do,
and continue to secure the full payment and performance of the Obligations, as
that term is amended in this document. The Company shall perform such acts and
duly authorize, execute, acknowledge, deliver, file, and record such additional
documents as either Agent or any Lender may reasonably request in order to
perfect and protect such Liens and preserve and protect the rights of Agents
and Lenders in respect of all present and future Collateral.
6. REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to Lenders and Agents that (a) this document and the other Loan Papers
to be delivered under this document have been duly authorized, executed, and
delivered by the Company, (b) no action of, or filing with, any Tribunal is
required to authorize, or is otherwise required in connection with, the
execution, delivery, and performance by the Company of this document and those
other Loan Papers (c) this document and those other Loan Papers are valid and
binding upon the Company and are enforceable against the Company in accordance
with their respective terms, except as limited by the Bankruptcy Code of the
United States of America and all other similar Laws affecting the rights of
creditors generally, (d) the execution, delivery, and performance by the
Company of this document and those other Loan Papers do not require the consent
of any other Person and do not and will not constitute a violation of any Laws,
agreement, or understanding to which the Company is a party or by which the
Company is bound, (e) the representations and warranties in the Loan Agreement,
as amended by this document, and each other Loan Paper are true and correct in
all material respects on and as of the date of this document as though made as
of the date of this document, and (f) as of the date of this document, no
Default or Potential Default (other than the Subject Defaults that are waived
by this document) exists.
7. EXPENSES. The Company shall pay (a) all reasonable legal fees
and expenses incurred by either or both Agents and by every Lender in
connection with the Subject Defaults, any consultation in respect of the
Subject Defaults and the rights of Agents and Lenders in connection with the
Subject Defaults, and the preparation, negotiation, execution of this document
and the other Loan Papers, (b) all reasonable legal fees incurred by Agents and
Lenders in connection with any amendments, consents, waivers, or approvals
executed in connection with this Loan Agreement and other Loan Papers, (c) all
fees, charges or taxes for the recording or filing of financing statements and
other security instruments, (d) all other reasonable out-of-pocket expenses of
Agents and Lenders in connection with the preparation, negotiation, execution
of this document and the other Loan Papers, including courier expenses incurred
in connection with the Mortgage Collateral, and (e) all amounts expended,
advanced or incurred by Agents or any Lender to satisfy any obligation of the
Company
5
<PAGE> 6
under this document or any of the other Loan Papers or to collect Notes, or to
enforce the rights of Agents or any Lender under this document or any of the
other Loan Papers, which amounts shall include all court costs, attorneys' fees
(including, without limitation, for trial, appeal, other proceedings, and
otherwise in connection with the administration of this document), fees of
auditors and accountants, and investigation expenses reasonably incurred by
Agents and Lenders in connection with any such matters. To the extent that
either Agent or any Lender pays all or any part of the items specified in
CLAUSES (A) through (E) above, such payments, together with interest thereon at
the post-maturity rate specified in the Note of that Agent or that Lender, as
applicable, shall be included in the Obligations. In addition, the Company
agrees to pay any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this document, the
Notes and the other Loan Papers, and agrees to save Agents and each Lender
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes.
8. RELEASE. To the fullest extent lawful, the Company gives this
release to induce Lenders to enter into this document. THE COMPANY RELEASES,
RELINQUISHES, AND FOREVER DISCHARGES -- AND FOREVER WAIVES AND RELEASES AND
RIGHT OR POWER TO BRING ANY CLAIM OR CAUSE OF ACTION IN RESPECT OF -- EVERY
PRESENT AND FUTURE KNOWN AND UNKNOWN CLAIM, DEMAND, ACTION, AND CAUSE OF ACTION
OF ANY KIND OR CHARACTER THAT THE COMPANY MAY HAVE AGAINST EITHER AGENT, ANY
LENDER, OR THEIR RESPECTIVE SUCCESSORS, ASSIGNS, OFFICERS, DIRECTORS,
EMPLOYEES, ATTORNEYS, AGENTS, OR REPRESENTATIVES IN ANY WAY RELATED TO ANY
TRANSACTION THAT HAS ANY CONNECTION WITH ANY LOAN PAPER AND THAT OCCURRED
BEFORE THE DATE OF THIS DOCUMENT. THE FOREGOING RELEASE APPLIES, WITHOUT
LIMITATION, TO ANY ACTIONS OR OMISSIONS, BREACH OF FIDUCIARY DUTY, BREACH OF
ANY DUTY OF FAIR DEALING, BREACH OF CONFIDENCE, BREACH OF FUNDING COMMITMENT,
UNDUE INFLUENCE, DURESS, ECONOMIC COERCION, CONFLICT OF INTEREST, NEGLIGENCE,
BAD FAITH, MALPRACTICE, VIOLATIONS OF THE RACKETEER INFLUENCED AND CORRUPT
ORGANIZATIONS ACT, INTENTIONAL OR NEGLIGENT INFLICTION OF MENTAL DISTRESS,
TORTIOUS INTERFERENCE WITH CONTRACTUAL RELATIONS OR WITH CORPORATE GOVERNANCE
OR PROSPECTIVE BUSINESS ADVANTAGE, BREACH OF CONTRACT, DECEPTIVE TRADE
PRACTICES, LIBEL, SLANDER, CONSPIRACY, OR CHARGING, COLLECTING, OR RECEIVING
USURIOUS INTEREST.
9. REFERENCES. All references in the Loan Papers to the "Loan
Agreement" refer to the Loan Agreement as amended by this document. Because
this document is a "Loan Paper" referred to in the Loan Agreement, then the
provisions relating to Loan Papers in SECTIONS 1 and 10 are incorporated in
this document by reference, the same as if included in this document verbatim.
10. COUNTERPARTS. This document may be executed in any number of
counterparts with the same effect as if all signatories had signed the same
document, and all of those counterparts must be construed together to
constitute one and the same document.
11. PARTIES BOUND. This document binds and inures to the Company,
Agents, each Lender, and (subject to SECTION 10.10) their respective successors
and assigns.
12. ENTIRETY. THIS DOCUMENT, THE LOAN AGREEMENT AS AMENDED BY IT,
AND THE OTHER LOAN PAPERS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES FOR
THE TRANSACTIONS THEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
6
<PAGE> 7
EXECUTED on June 30, 1995, but effective as provided in this document.
<TABLE>
<S> <C>
1600 Viceroy Dr., 4th Floor LOMAS MORTGAGE USA, INC., as the Company
Dallas, Texas 75235
Attn: Robert R. Denton,
Executive Vice President
By /s/ PAUL D. FLETCHER
-------------------------------------------------------------
Telecopy: 214/879-7018 Paul D. Fletcher, Senior Vice President
Mortgage Finance Group BANK ONE, TEXAS, N.A.,
1717 Main Street, 4th Floor as Administrative Agent and a Lender
Dallas, Texas 75201
Attn: Kathleen C. Stewart,
Vice President
Telecopy: 214/290-2275 By /s/ KATHLEEN C. STEWART
-------------------------------------------------------------
Kathleen C. Stewart, Vice President
717 Travis Street - 7-TCB-S56 TEXAS COMMERCE BANK NATIONAL
Houston, Texas 77002 ASSOCIATION, as Syndication Agent and a Lender
Attn: Carlotta M. Hudler,
Vice President
Telecopy: 713/216-2082 By /s/ CARLOTTA M. HUDLER
-------------------------------------------------------------
Carlotta M. Hudler, Vice President
First Bank Place, 2nd Floor MPFP0801 FIRST BANK NATIONAL ASSOCIATION,
601 Second Avenue South as a Lender
Minneapolis, Minnesota 55402-4302
Attn: Kathlyn K. Slater,
Vice President
Telecopy: 612/973-0826
By /s/ KATHLYN K. SLATER
-------------------------------------------------------------
Kathlyn K. Slater, Vice President
8333 Douglas Avenue GUARANTY FEDERAL BANK, F.S.B.,
Dallas, Texas 75255 as a Lender
Attn: Abbie Y. Tidmore,
Vice President
Telecopy: 214/360-1660
By /s/ ABBIE Y. TIDMORE
-------------------------------------------------------------
Abbie Y. Tidmore, Vice President
</TABLE>
7
<PAGE> 1
EXHIBIT 10.31
Donaldson, Lufkin & Jenrette
DLJ Mortgage Capital, Inc. . 140 Broadway, Suite 4000,
New York, NY 10005-1285 . (212) 504-8071
May 22, 1995
Lomas Mortgage USA, Inc.
1600 Viceroy Drive
Dallas, Texas 75235
Telephone: 214-879-7010
Facsimile: 214-879-7018
Attention: Paul Fletcher
This Commitment Letter confirms our agreement between Lomas Mortgage USA
("Lomas") and DLJ Mortgage Capital, Inc. ("DLJ") pursuant to which DLJ shall
provide committed financing collateralized by eligible Mortgage Loans or Other
Loans in accordance with the terms and conditions hereof and as set forth in
the Whole Loan Funding Facility, the Promissory Note, and the Pledge Agreement
dated May 16, 1994 and the Tri-Party Custody Agreement(s) executed by Lomas
related thereto (collectively, the "Agreements"). Capitalized terms not
defined herein shall have the meanings ascribed to them in the Agreements.
In the event of a conflict between the terms of this Commitment Letter and the
terms of the Agreements, the terms of this Commitment Letter shall control with
respect to those purchases of whole mortgage loans or any interests in any
whole mortgage loans by DLJ or Advances made by DLJ up to the amount committed
below. Amounts purchased by or borrowed from DLJ in excess of that committed
herein shall be made in accordance with the Agreements.
Subject to the terms and conditions hereof and the Agreements, including the
performance by Lomas of its obligations set forth below, DLJ hereby commits to:
1. Provide a revolving credit line for residential Mortgage Loans under
the Agreements until May 31, 1996 as follows, after which DLJ shall
have no further obligation to purchase or to make Advances under this
Commitment Letter, unless amended in writing by the parties hereto:
(a) $200 million for Mortgage Loans and Required Documents
delivered to Custodian in accordance with Section 3, 4 or 5 of
the Custody Agreement and where related Purchase Commitments
have been assigned and delivered to DLJSC ("Gestation
Transactions");
(b) $200 million for Mortgage Loans, which shall include all other
first-lien Mortgage Loans, and Required Documents delivered to
Custodian in accordance with Section 6 or 7 of the Custody
Agreement ("Interim Transactions");
(c) $200 million for Title I second mortgage Mortgage Loans,
manufactured housing loans, other second mortgage Mortgage
Loans and Required Documents delivered to Custodian in
accordance with the Custody Agreement ("Other Transactions");
provided, however, that:
(i) the total committed credit line of (a) and (b) above, when
combined, shall not exceed $200 million;
(ii) no Mortgage Loan shall be in excess of $650,000;
(iii) the total of all Advances involving Mortgage Loans not yet
delivered, but which shall be delivered, to Custodian in
accordance with Section 9(b) of the Custody Agreement ("Wet
Transaction"), shall not exceed $25 million; and
(iv) Lomas maintains outstanding transactions in an amount such
that the monthly average of all Interim Transactions exceeds
the monthly average outstanding of all Wet Transactions for
each calendar month.
1
<PAGE> 2
2. Maintain a funding rate as follows:
(a) 50 basis points over the offered LIBOR rate of comparable
maturity for any Mortgage-Backed Security repurchase agreement
transaction ("MBS Repo");
(b) 75 basis points over the offered LIBOR rate of comparable
maturity for any Gestation Transaction;
(c) 110 basis points over the opening Federal Funds rate of
comparable maturity for any Interim Transaction; and
(d) 150 basis points over the opening Federal Funds rate of
comparable maturity for any Other Transaction.
provided, however, that (i) on any calendar quarter end the funding
rate shall be as quoted by DLJ in good faith, (ii) DLJ may charge
Lomas for any related daylight overdraft charge imposed by Custodian,
if any, and (iii) DLJ shall charge Lomas additional basis points as a
funding rate (as agreed upon by Lomas and DLJ) for the impact on DLJ's
capital of any MBS Repo. The foregoing commitment by DLJ is
hereinafter referred to as the "Commitment."
3. DLJ shall maintain a funding rate of 1.625% for any Interim
Transaction that has been balance funded by escrow deposits at a
financial institution approved by DLJ in its sole discretion, provided
that Lomas irrevocably assigns any compensation that may be payable to
it by such financial institution to DLJ.
Lomas commits to:
1. Pay DLJ a Commitment Fee of $306,000 (15 bp Commitment plus $6,000 Due
Diligence review) payable as follows: $31,000 upon execution of this
Commitment Letter and $25,000 on the first Business Day of each month,
commencing July 1, 1995.
2. With respect to each Advance, provide to DLJ, when such Advance is
made and thereafter on a daily mark to market basis collateral
consisting of, amongst other items specified in the Agreements,
eligible Mortgage Loans equal to:
a. For Advances related to MBS Repo Transactions covered by a
Purchase Commitment from CALPERS, 101% of each such Advance;
b. For Advances related to Gestation Transactions, 102% of each
such Advance;
c. For Advances related to Wet Transactions and Interim
Transactions (other than Title I second mortgage Mortgage
Loans, manufactured housing loans, or other second mortgage
Mortgage Loans), 102% of each such Advance;
d. For Advances related to Wet and Interim Transactions Advances
related to Other Transactions, 105% of each such Advance;
3. Provide Purchase Commitment assignments related to the Collateral to
DLJ, such Purchase Commitments to adhere to "Good Delivery"
guidelines;
4. Pay DLJ by the tenth day of each month or of the month following the
expiration or termination of the Commitment, a Non-usage Fee if the
average principal balance of all Advances outstanding during the
immediately preceding calendar month is less than $100 million. Such
Non-usage Fee shall be calculated by multiplying (a) the amount
representing the difference between $100 million and the average
outstanding principal balance of all Advances for the relevant month
by (b) 15 basis points, and dividing such product by 12;
5. Provide evidence to DLJ that Lomas has, and will continue to maintain,
insurance coverage for itself and its subsidiaries that encompasses
employee dishonesty, forgery or alteration, theft, disappearance and
destruction, robbery and safe burglary, property (other than money and
securities), and computer fraud in an aggregate amount of at least
$1,000,000 and shall include DLJ Mortgage Capital, Inc. as a Loss
Payee; and
2
<PAGE> 3
6. Notify DLJ of its intent to borrow under an Advance no later than 11
a.m. (New York time) on the day of such Advance.
DLJ shall have the right to terminate this Commitment Letter, and DLJ shall no
longer be obligated to make Advances under this Commitment and may accelerate
the maturity dates of all Advances then outstanding, upon the occurrence of a
Commitment Letter Termination Event. Upon such termination, DLJ shall have no
obligation to return any fees collected and may utilize any remedy provided in
the Agreements. A Commitment Letter Termination Event shall include any one or
more of the following:
1. An "Event of Default" shall have occurred under any of the Agreements
which shall include a breach by Lomas of any agreement contained in
this Commitment Letter (following the expiration of any grace or
notice period) including the items set forth under "Required Financial
Statements", or there occurs any event set forth under "Litigation",
"Consolidation and Merger" or "Financial Requirements", in Annex A
attached hereto (following the expiration of any grace or notice
period).
2. A "Material Adverse Change" shall have occurred in the business or
operations of Lomas which is defined as the occurrence of any of the
events or circumstances set forth under "Financial Requirements" in
Annex A.
3. There occurs a change in ownership of Lomas, unless (i) the resulting,
surviving or transferee entity is a corporation organized under the
laws of the United States of America or a political subdivision
thereof; (ii) such entity assumes all the obligations of Lomas under
this Commitment Letter and Agreements and each outstanding Advance (or
has such obligations guaranteed in a manner and by a Guarantor
acceptable to DLJ); and (iii) DLJ receives as part of the
aforementioned transaction prior assurances or additional credit
support from such entity and any Guarantor to the extent that DLJ
would not otherwise be satisfied with the financial condition of the
surviving entity or Guarantor. "Guarantor" shall mean a guarantor or
a party providing a similar obligation satisfactory to DLJ.
4. There occurs a catastrophic event or events resulting in the effective
absence of a "repo market" for a period of at least 30 consecutive
days respecting mortgage loans and the same results in DLJ not being
able to finance any Advance through the repo market with DLJ's
traditional repo counterparties. Upon the occurrence of such an
event, Lomas shall not be obligated to make any further payments of
Commitment Fees or Non-usage Fees.
Please acknowledge your agreement to the foregoing by signing and returning the
enclosed duplicate of this letter, whereby this Commitment Letter shall become
a binding agreement between DLJ and Lomas.
DLJ Mortgage Capital, Inc.
BY: /s/ ROD ENNICO
NAME: Rod Ennico
TITLE: Senior Vice President
AGREED AND ACCEPTED as of the date first above written:
Lomas Mortgage USA, Inc.
BY: /s/ PAUL D. FLETCHER
NAME: Paul D. Fletcher
TITLE: Senior Vice President
3
<PAGE> 4
ANNEX A
1. LITIGATION: Any litigation or proceeding affecting Lomas and its
subsidiaries that is likely to be adversely determined and which, if
adversely determined, could have a material adverse effect on the
Collateral or the ability of Lomas to pay and perform on the
Obligations.
2. CONSOLIDATION AND MERGER: Lomas consolidates or amalgamates with, or
merges into or transfers all or substantially all its assets to
another entity and, at the time of such consolidation, amalgamation,
merger or transfer, the resulting, surviving or transferee entity
fails to assume all the obligations of Lomas and its subsidiaries
under this Commitment Letter and the Agreements by operation of law or
pursuant to an agreement satisfactory to DLJ.
3. FINANCIAL REQUIREMENTS:
(a) A material adverse change in Lomas' business, operations or
financial condition that would materially and adversely affect the
ability of Lomas to perform its obligation under this Commitment
Letter and the Agreements as determined in good faith by DLJ;
(b) GAAP Net Worth is less than $150 million;
(c) Adjusted Net Worth (ANW) is less than $50 million*;
(d) Lomas, directly or indirectly, engages in any business other than
the mortgage banking business other than businesses related to the
mortgage banking industry or typically engaged in by participants in
such industry;
(e) Lomas sells any asset other than in the ordinary course of its
business; and
(f) Lomas guarantees the debt obligation of any other entity or
entities that , in aggregate, exceeds $50 million.
Adjusted Net Worth shall mean, at any date, the sum of Tangible Net
Worth** plus 1% of the aggregate outstanding principal balance of all
1 to 4 family residential mortgage loans in Lomas Mortgage USA, Inc.'s
owned servicing portfolio.
** Tangible Net Worth shall mean the excess of total assets over total
debt determined in accordance with GAAP but shall exclude all assets
(other than deferred commitment fees) which would be classified as
intangible assets under GAAP (e.g., purchased and capitalized value of
servicing rights, excess servicing fees, and goodwill).
4. REQUIRED FINANCIAL STATEMENTS:
(a) Lomas shall deliver to DLJ within 90 days after the last day of
its fiscal year, its audited consolidated statements of income and
statement of changes in cash flow for such year and balance sheet as
of the end of such year in each case presented fairly in accordance
with GAAP and the requirements of HUD Handbook IG 4000.3 REV and
accompanied, in all cases, by an unqualified report of Ernst & Young
or another firm of independent certified public accountants reasonably
acceptable to DLJ.
(b) Lomas shall deliver to DLJ within 60 days after the last day of
each of the first three fiscal quarters in any fiscal year of Lomas,
its consolidated statements of income and statement of changes in cash
flow for such quarter and balance sheet as of the end of such quarter
presented fairly in accordance with GAAP and accompanied by FNMA Form
1002 and FHLMC Form 1055.
(c) Lomas shall deliver to DLJ within 30 days after the last day of
each calendar month that is not a quarter or year end in any fiscal
year of Lomas, (i) its consolidated statement of income for such month
and balance sheet as of the end of such month accompanied in each case
by a certificate of the chief financial officer or treasurer of Lomas
stating that such financial statements are presented fairly in
accordance with GAAP and the requirements of HUD Handbook IG 4000.3
REV (subject to routine and year-end audit adjustments) and (ii) an
officer's certificate from its
4
<PAGE> 5
chief financial officer or treasurer certifying that there does not
exist an event of default in the Agreements or in this Annex.
(d) Lomas shall deliver to DLJ as soon as available copies of all
proxy statements, financial statements, and reports which Lomas sends
to its stockholders, and copies of all regular, periodic and special
reports, and all registration statements (without exhibits, unless
requested by DLJ) under the Securities Act of 1933, as amended, which
it files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any
national securities exchange.
(e) Lomas shall deliver or cause to be delivered to DLJ as soon as the
same are available, copies of all regular, periodic and special audit
reports conducted by GNMA, FNMA and/or FHLMC with respect to Lomas'
operations.
5
<PAGE> 6
COMPANY LETTERHEAD
Date
Patricia Robins
Senior Credit Analyst
DONALDSON, LUFKIN AND JENRETTE
Credit Administration, 25th Floor
140 Broadway
New York, New York 10005-1285
RE: The Commitment Letter dated as of May 22, 1995, between Lomas Mortgage
USA, Inc. (the "Borrower") and DLJ Mortgage Capital, Inc. ("DLJ")
Dear Ms. Robins:
This Compliance Certificate is furnished pursuant to the Agreement dated as of
____________ between Lomas Mortgage USA, Inc and DLJ.
The following is true, correct and complete:
1. I am a member of the management of the Borrower holding the office
indicated below;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the
transactions and conditions of the Borrower during the period from
the date of the last Compliance Certificate given under the Agreement
to the date hereof.
3. The examinations did not disclose, and I have no knowledge of, the
existence of any condition or event which constitutes a Default or
Event of Default during or at the end of the referenced period or as
of the date of this Compliance Certificate; and
4. Schedule 1 attached hereto sets forth financial data and computations
evidencing the Company's compliance with the financial covenants set
forth in the Agreement dated as of _____________________
The foregoing certifications are made and delivered this ____ day of
___________, 1995.
________________________________________
Officer of Lomas Mortgage USA, Inc.
Name:
Title:
6
<PAGE> 7
DONALDSON, LUFKIN AND JENRETTE
COMPLIANCE CERTIFICATE
_____________________
Date
<TABLE>
<CAPTION>
I. GAAP NET WORTH
Required Actual
-------- ------
<S> <C> <C> <C>
$ 150,000,000 ________________
I. ADJUSTED NET WORTH
GAAP Net Worth ________________
Less:
Purchased Mtg. Servicing Rights ________________
Plus:
UPB of Owned Servicing Portfolio x 1% ________________
ACTUAL ADJUSTED NET WORTH $ 50,000,000 ________________
</TABLE>
IV. OTHER INFORMATION
ORIGINATION YEAR TO DATE - Please send LOMEGA production report
monthly.
SERVICING AS OF MONTH END - Please send reports to include owned
servicing, subservicing, and master servicing to include delinquency
information and WAC information.
Please provide a breakdown of Notes Payable.
7
<PAGE> 1
EXHIBIT 10.32
Lomas Mortgage USA, Inc.
1600 Viceroy Drive
Dallas, Texas 75235
June 27, 1995
DLJ Mortgage Capital Inc.
140 Broadway, 40th Floor
New York, New York 10005-1285
Attention: Rod Ennico
Ladies and Gentlemen:
Reference is made to the Commitment Letter (the "Commitment
Letter") dated May 22, 1995 between Lomas Mortgage USA, Inc. ("Lomas") and DLJ
Mortgage Capital, Inc. ("DLJ"). The Commitment Letter relates to committed
financing provided by DLJ in accordance with the terms and conditions set forth
in the Commitment Letter, the Whole Loan Funding Facility, the Pledge
Agreement, the Promissory Note and the Tri-Party Custody Agreement dated May
16, 1994 (collectively, the "Agreements"). Capitalized terms and phrases not
otherwise defined herein shall have the meanings ascribed to them in the
Agreements.
DLJ and Lomas hereby agree as follows:
1. Pursuant to notice given in accordance with the terms
of the Agreements by DLJ to Lomas on June 14, 1995 the portion of the
Facility relating to Wet Transactions was terminated, and as of June
26, 1995 the outstanding principal amount of the Facility relating to
the Wet Transactions, together with all interest thereon was paid in
full.
2. DLJ and Lomas hereby agree that the total committed
credit line relating to Gestation Transactions and Interim
Transactions when combined shall be increased to and shall not exceed
$225,000,000.00, provided that as additional Collateral for the
Facility, Lomas shall have pledged the Servicing Collateral referred
to below. The parties agree that Lomas shall not be required to pay
the balance of the Commitment Fee payable under the Commitment Letter.
However, Lomas shall pay the new Commitment Fee of $315,375.00 in
installments. DLJ acknowledges receipt of $25,000.00 on June 1, 1995.
On the date hereof, Lomas shall pay DLJ $157,685.50. On September 30,
1995, Lomas shall pay DLJ $78,843.75 and on December 31, 1995, Lomas
shall pay DLJ $78,843.75. The Commitment Letter shall expire on May 31,
1996. In addition, Lomas hereby agrees to promptly pay the reasonable
fees and disbursements of DLJ's counsel incurred in connection with
this transaction.
3. DLJ hereby agrees that separate and apart from the
portion of the Facility terminated as described in paragraph 1 above
and as a new extension of credit, DLJ shall
<PAGE> 2
-2-
provide a new financing facility to Lomas with respect to Wet
Transactions in accordance with all the terms and conditions of the
Agreements, provided that: (i) notwithstanding the terms of the
Commitment Letter, the total of all Advances outstanding relating to
Wet Transactions shall not exceed $15,000,000.00 in the aggregate;
(ii) Lomas shall pledge as additional Collateral for the Wet
Transactions the Servicing Rights referred to below; (iii)
notwithstanding the provisions of the Pledge Agreement and Section
9(b) of the Tri-Party Custody Agreement, Lomas shall cause the deposit
with Custodian of the documents set forth in 7(a) and 7(b) of the Tri-
Party Custody Agreement for such Wet Mortgage Loan within three (3)
Business Days after the date of the related Advance and Custodial
Receipt; (iv) Lomas shall cause the Custodian to arrange to have an
employee of the Custodian personally appear at the offices of Lomas on
each Business Day, at Lomas' expense, for purposes of taking
possession of, and returning to the offices of the Custodian, the
documents set forth in 7(a) and 7(b) of the Tri-Party Custody
Agreement for each Wet Mortgage Loan as and when received by Lomas;
and (v) in addition to the other termination provisions provided under
the Agreements, the foregoing new financing facility with respect to
Wet Transactions shall be terminable by DLJ at any time, upon
telephonic notice to Lomas (a) if Lomas and DLJ have not executed a
definitive purchase agreement providing for the transfer of all
servicing rights relating to mortgage loans originated or acquired by
Quality Mortgage USA, Inc. from Lomas to DLJ, in form and substance
reasonably acceptable to DLJ by July 20, 1995 or prior to such date if
DLJ determines in its sole discretion that such purchase agreement is
not likely to be executed, or (b) if Lomas shall be in material
violation of any of its obligations pursuant to such purchase
agreement following the execution thereof.
4. Sections 3(b) and (c) of Annex A to the Commitment
Letter are hereby amended to provide that if Lomas's "GAAP Net Worth
is less than $85 million," or if Lomas's "Adjusted Net Worth (ANW) is
less than $35 million, " then an Event of Default shall have occurred
and a Material Adverse Change shall have occurred in the business or
operations of Lomas.
5. The parties acknowledge and agree that pursuant to
the Notice of Borrowing delivered each day to DLJ under the Facility,
the total amount of the Advance under the Facility is advanced and
fully repaid on the next succeeding business day and further, that
each such Advance is a separate and distinct loan. Accordingly, the
pledge of the Servicing Rights does not in any event relate to or
secure antecedent debt but is intended to secure the new Advances to
be made on or after the date hereof pursuant to the terms of the
Agreements and this letter.
6. Lomas hereby confirms its agreement with DLJ that the
Servicing Rights as defined in the Acknowledgement Agreement dated as
of June 27, 1995 among FNMA, DLJ and Lomas shall be included within
the definition of and shall be treated as Collateral as defined in the
Pledge Agreement. Lomas does hereby grant, pledge and assign to DLJ
and its successors and assigns, as security for the payment of the
Obligations, a first priority perfected security interest in all of
Lomas' right, title and interest in and to the Servicing Rights,
including any Contract termination fee, as
<PAGE> 3
-3-
referenced in the Acknowledgement Agreement. The foregoing Servicing
Rights constitute all of Lomas's Fannie Mae Servicing Rights
(exclusive of any recourse Servicing Rights) with respect to mortgage
loans in the approximate principal amount of $3,300,000,000.00.
7. With respect to the foregoing Pledge:
a. Lomas represents and warrants to DLJ that (i)
Lomas has not been disqualified or terminated as a
seller/servicer by FNMA, (ii) subject to the rights of FNMA
under the Acknowledgement Agreement, any suspension of Lomas
as a seller/servicer for FNMA does not affect Lomas's right to
service the Mortgages or affect the Servicing Rights or the
Security Interest (each such term as defined in the
Acknowledgement Agreement), (iii) Lomas has not violated,
defaulted under or breached the terms of the Fannie Mae
Contract or the Guide (as each such term is defined in the
Acknowledgement Agreement), and the Fannie Mae Contract is in
full force and effect, (iv) no consent or other approval is
necessary for Lomas to grant the Security Interest to DLJ
except for such consents and other approvals as have been
obtained, or will be obtained by virtue of the Acknowledgement
Agreement and (v) Lomas has done all things necessary or
required to grant the Security Interest.
b. Lomas shall service, or cause to be serviced,
all Mortgages in accordance with the Fannie Mae Contract and
the Guide, and shall not violate, default under or breach the
terms of the Fannie Mae Contract or the Guide.
c. Lomas shall immediately deliver to DLJ (i) a
fully executed counterpart of the Acknowledgement Agreement,
(ii) an executed UCC-1 Financing Statement with respect to the
Security Interest, (iii) a release of each security interest
in the Servicing Rights held by any person other than DLJ, and
(iv) a power of attorney executed by Lomas conforming with the
description in the Acknowledgement Agreement.
d. Lomas shall promptly deliver to DLJ (i) all
documents required under the Fannie Mae Contract or the Guide
or necessary to effectuate the transfer of the Servicing
Rights, endorsed or otherwise completed in blank, and (ii)
such other documents with respect to the Security Interest as
DLJ or FNMA may require from time to time.
8. The provisions of this letter shall be deemed to
modify and amend the Agreements, including the Pledge Agreement, to
the extent provided herein, and shall be governed by and construed in
accordance with the laws of the State of New York, except to the
extent preempted by federal law.
<PAGE> 4
-4-
If this letter accurately sets forth the terms of the agreement
between Lomas and DLJ, kindly sign the enclosed copy of this letter and return
such copy to the address for Lomas set forth above.
LOMAS MORTGAGE USA, INC.
By: /s/ PAUL D. FLETCHER
--------------------------------
Name: Paul D. Fletcher
Title: Senior Vice President
AGREED AND ACCEPTED:
DLJ MORTGAGE CAPITAL, INC.
By: /s/ ROD ENNICO
----------------------------
Name: Rod Ennico
Title: Senior Vice President
<PAGE> 1
EXHIBIT 10.37
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated as of
September 5, 1995, is made by and between First Nationwide Mortgage
Corporation, a Delaware corporation ("Buyer"), and Lomas Mortgage USA, Inc., a
Connecticut corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the Company is engaged in the business of servicing,
sub-servicing and master servicing mortgage loans (the "Servicing Business"),
including (i) the servicing and subservicing of mortgage loans held in pools
securing mortgage-backed securities guaranteed by the Government National
Mortgage Association ("GNMA") (the servicing and subservicing of such mortgage
loans by the Company is referred to herein as the "GNMA Servicing") and (ii)
the master servicing of mortgage loans held in pools evidenced by pass-through
certificates held by the California Public Employees' Retirement System
("CALPERS") and issued pursuant to the CALPERS Member Home Loan Conduit Program
(the master servicing by the Company of such mortgage loans is referred to
herein as the "CALPERS Master Servicing"); and
<PAGE> 2
WHEREAS, the Company is also engaged in the business of
originating, purchasing, selling and delivering mortgage loans (the "Production
Business"); and
WHEREAS, Lomas Mortgage Services, Inc, a Delaware corporation
and a wholly owned subsidiary of the Company ("LMS"), is the 33% Managing
General Partner of Lomas Mortgage Partnership, L.P., a limited partnership
organized under the laws of the State of Delaware ("LMP"), which partnership
owns the servicing rights to certain mortgage loans subserviced by the Company;
and
WHEREAS, Buyer desires to purchase and acquire from the
Company all of the 1,000 issued and outstanding shares of common stock, par
value $1.00 per share, of LMS (the "LMS Shares"), together with certain assets
and rights relating to the GNMA Servicing, the CALPERS Master Servicing and the
Production Business, and the Company desires to sell, convey, assign and
transfer all of such assets and rights to Buyer, in the manner and subject to
the terms and conditions set forth herein; and
WHEREAS, the Company desires to assign to Buyer and Buyer
desires to assume from the Company certain liabilities relating to the GNMA
Servicing, the CALPERS Master Servicing and the Production Business, in the
2
<PAGE> 3
manner and subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements, representations and warranties herein contained,
and intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, the terms defined in
this Article I shall have the meanings assigned to them in this Article I and
shall include the plural as well as the singular.
Accounts Receivable -- Those accounts receivable relating to
the GNMA Servicing, the CALPERS Master Servicing and the Production Business
(including the Advances relating to the GNMA Servicing) which are set forth on
Schedule I hereto.
Acquisition -- The acquisition by Buyer of all of the Assets
and the assumption by Buyer of all of the Assumed Liabilities pursuant to this
Agreement.
3
<PAGE> 4
Adjusted Final Purchase Price -- As defined in Section 2.3(d).
Advances -- Amounts that have been advanced by the Company or
LMP, as the case may be, in connection with servicing, subservicing or master
servicing the Mortgage Loans (including, without limitation, principal,
interest, taxes and insurance premiums) and which are required or permitted to
be paid by the Company or LMP, as the case may be, as the servicer, subservicer
or master servicer of the Mortgage Loans pursuant to applicable Investor
requirements or the terms of the applicable Contracts.
Affiliate -- With respect to any Person, any Person directly
or indirectly controlling, controlled by, or under common control with such
other Person, and any Subsidiary of such Person. For purposes of this
definition, "control" (including with correlative meaning, the terms
"controlled by" and "under common control with") as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through ownership of voting securities, by contract or otherwise.
4
<PAGE> 5
Agency -- FHA, VA, GNMA, FNMA, FHLMC, FmHA, the Texas
Veterans' Land Board or a State Agency, as applicable.
Agreement -- As defined in the recitals hereof, including all
schedules and exhibits hereto, amendments hereof and supplements thereof.
Ancillary Income -- Charges for late Mortgage Loan payments,
charges for dishonored checks, pay-off fees, assumption fees, commissions and
administrative fees on insurance and other fees and charges collected from or
assessed against the mortgagor, other than those charges payable to an Agency
or Investor under the terms of the Mortgage Servicing Agreements.
Assets -- As defined in Section 2.1(a).
Assumed Contracts -- The contract rights, licenses, permits,
approvals, authorizations and franchises set forth on Schedule II hereto,
together with any additional contract rights added to such schedule pursuant to
Section 5.7 hereof.
Assumed Liabilities -- As defined in Section 2.1(c).
Bank Warehouse Line -- The Conformed and Amended Restated Loan
and Security Agreement between the Company, Bank One, Texas, N.A. as
administrative agent,
5
<PAGE> 6
Texas Commerce Bank National Association as syndication agent and the lenders
set forth in Schedule 1.1(a) thereto.
Base Portfolio -- The Mortgage Servicing Portfolio on July 31,
1995, as set forth in a tape (magnetic media) delivered to Buyer, provided,
however, that the Base Portfolio shall not include any Mortgage Loan which on
July 31, 1995 was an Excluded Loan.
Base Portfolio Loan -- Any Mortgage Loan included in the Base
Portfolio.
Base Purchase Price -- As defined in Section 2.2.
Bond Program Agency -- Any state or local agency or
organization set forth on Schedule IV hereto.
Bond Program Loans -- Those Warehouse Loans and Pipeline Loans
to be pooled, sold and delivered by the Company pursuant to any Bond Program.
Bond Programs -- Those bond purchasing programs set forth on
Schedule IV hereto pursuant to which a state or local agency or organization
has issued bonds the proceeds of which have been or will be used to purchase
securities issued by the Company, or issued by FNMA or FHLMC and serviced by
the Company, and backed by Mortgage Loans.
6
<PAGE> 7
Book Value -- Book value calculated in accordance with GAAP
consistently applied without allowance for reserves.
Buydown -- The waiver by Buyer 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
Collateral.
Buyer -- As defined in the recitals hereof.
Buyer Schedule -- As defined in Section 4.2(b).
CALPERS -- As defined in the recitals hereof.
CALPERS Master Servicing -- As defined in the recitals hereof.
Closing -- The closing of the Acquisition as defined in
Section 2.3(a).
Closing Adjustment Documents -- As defined in Section 2.4(a).
Closing Portfolio -- The Mortgage Servicing Portfolio on the
Closing Date, provided, however, that the Closing Portfolio shall not include
any Mortgage Loan which on the Closing Date is an Excluded Loan.
7
<PAGE> 8
Closing Portfolio Loan -- Any Mortgage Loan included in the
Closing Portfolio.
Closing Date -- The date and time of Closing as defined in
Section 2.3(a).
Code -- The Internal Revenue Code of 1986, as amended.
Collateral -- The property securing a Mortgage Loan.
Company Schedule -- As defined in Section 3.2.
Confidentiality Agreement -- As defined in Section 5.3.
Consenting Bond Program Loan -- A Bond Program Loan for which
a consent to assignment of the Bond Program Agency's agreement with the
Company, if required pursuant to the terms of such agreement in order to assign
such agreement to Buyer or to effect a waiver of such Agency's termination
right with respect to the Acquisition, shall have been received by Buyer in
writing.
Contracts -- The Assumed Contracts, the Investor Commitments,
the Loan Purchase Commitments and the Mortgage Servicing Agreements.
Conversion Date -- For any Mortgage Loan, the date the
servicing of such Mortgage Loan shall have been
8
<PAGE> 9
fully converted and transferred from the Company's operating systems to those
of Buyer.
Custodial Accounts -- All escrow, impound, suspense (loan
level and other) and custodial accounts maintained with respect to the Mortgage
Loans for purposes of receiving and disbursing payments of principal, interest,
taxes, insurance, assessments and similar charges (and interest, if any,
accrued on such funds for the benefit of mortgagors) relating to Mortgage
Loans.
Disagreement -- As defined in Section 2.4(b).
DLJ Line -- The arrangements between the Company and DLJ
Mortgage evidenced by (i) the Commitment Letter dated May 22, 1995 between the
Company and DLJ Mortgage, and (ii) the Whole Loan Funding Facility, the Pledge
Agreement, the Promissory Note and the Tri-Party Custody Agreement, each dated
May 16, 1994.
DLJ Mortgage -- DLJ Mortgage Capital, Inc.
Employee -- As defined in Section 5.12.
Encumbrance -- Any lien, pledge, security interest, claim,
charge, easement, limitation, commitment, restriction or encumbrance of any
kind or nature whatsoever.
Escrow Funds -- Amounts held in Custodial Accounts, with
respect to Mortgage Loans held for the
9
<PAGE> 10
purpose of paying property taxes, hazard insurance premiums, assessments and
other such items as provided in the Mortgage and the Regulations.
Excluded Assets -- As defined in Section 2.1(b).
Excluded Liabilities -- As defined in Section 2.1(d).
Excluded Loan -- A Mortgage Loan with respect to which as of a
specified date:
(i) the Mortgage Loan is two months or more past due
(for purposes of this Agreement a Mortgage Loan is two months or more
"past due" if a scheduled monthly payment of principal, interest and
(if required) escrow due on the first day of a month is not paid by
the mortgagor on or before the last calendar day of the next
succeeding month);
(ii) the first action necessary to be taken to commence
proceedings in foreclosure, or a sale under power of sale, or other
acquisition of title to the Collateral based upon a default by the
mortgagor under the Note or Mortgage, under the law of the state
wherein the Collateral is located, has been taken under the terms of
the Note or Mortgage and the relevant Mortgage Servicing Agreement;
10
<PAGE> 11
(iii) any litigation is pending relating to a Mortgage
Loan the adverse outcome of which would have a material adverse effect
on the enforceability of the Mortgage Loan or on the economic value of
the related Servicing Rights;
(iv) the mortgagor has sought relief under or has
otherwise been subjected to the federal bankruptcy laws or any other
similar federal or state laws of general application for the relief of
debtors, through the institution of appropriate proceedings, and such
proceedings are continuing;
(v) a demand for Repurchase has been received by the
Company or LMP and the basis for the Repurchase demand has not been
cured prior to the due date for such Repurchase;
(vi) the Mortgage Loan was intended by the Company to be
an FHA Loan, FmHA Loan or VA Loan but is ineligible for FHA or FmHA
insurance or VA guaranty as applicable; or
(vii) the Mortgage Loan is identified on the Company's
books and records as a "fraudulent loan."
FHA -- Federal Housing Administration.
FHA Loans -- Mortgage Loans which are insured by FHA, or which
are intended by the Company to be in-
11
<PAGE> 12
sured by FHA, or with respect to which a representation has been made to the
mortgagor (in a commitment letter, truth-in-lending disclosure statement or
otherwise in writing) that such Mortgage Loan is or will be insured by FHA.
FHLMC -- Federal Home Loan Mortgage Corporation.
Final Purchase Price -- As defined in Section 2.5(j).
Final Settlement -- As defined in Section 2.7.
Final Settlement Amount -- As defined in Section 2.7.
Final Settlement Date -- As defined in Section 2.7.
First Payment -- As defined in Section 2.3(c).
FmHA -- The Farmers Home Administration, now known as the
Rural Housing and Community Development Service.
FmHA Loans -- Mortgage Loans which are insured by FmHA, or
which are intended by the Company to be insured by FmHA, or with respect to
which a representation has been made to the mortgagor (in a commitment letter,
truth-in-lending disclosure statement or other-
12
<PAGE> 13
wise in writing) that such Mortgage Loan is or will be insured by FmHA.
FNMA -- Federal National Mortgage Association.
FNMA Line -- Those arrangements between the Company and FNMA
as evidenced by (i) the Commitment Agreement dated as of April 24, 1995,
between the Company and FNMA, and (ii) the letter agreement dated April 24,
1995, between the Company and FNMA.
Foreclosure -- The acquisition of title to Collateral in a
foreclosure sale or pursuant to any other comparable procedure allowed under
applicable law or Regulation, including pending foreclosures where the first
step required under applicable Regulations to initiate a foreclosure proceeding
has been taken or could have been taken.
GAAP -- Generally accepted accounting principles as used in
the United States of America as in effect at the time any applicable financial
statements were prepared.
GNMA -- As defined in the recitals hereof.
GNMA Servicing -- As defined in the recitals hereof.
Governmental Entity -- Any government or any agency, bureau,
board, commission, court, department,
13
<PAGE> 14
official, political subdivision, tribunal or other instrumentality of any
government having authority in the United States or any other nation, whether
federal, state or local.
HUD -- United States Department of Housing and Urban
Development.
Independent Accounting Firm -- Price Waterhouse LLP, or if
Price Waterhouse LLP shall be unwilling to serve in such capacity, any "Big
Six" accounting firm or its successor (other than the present independent
public accountants of Buyer, the Company or any of their Affiliates or any
independent public accountants who were such within the previous two years).
Injunction -- As defined in Section 6.1(b).
Insurer -- A Person who insures or guarantees all or any
portion of the risk of loss upon borrower default on any of the Mortgage Loans,
including, without limitation, the FHA, the VA and any private mortgage
insurer, and providers of life, hazard, disability, title or other insurance
with respect to any of the Mortgage Loans or the Collateral.
Investments -- Those investment assets set forth on Schedule X
under the headings "Restricted Cash
14
<PAGE> 15
and Cash Equivalents -- Bank One - Warehouse," and "Mortgage Loans."
Investor -- Any Person who (i) owns a Mortgage Loan or
mortgage-backed securities backed by a Mortgage Loan, or the servicing rights
or master servicing rights to a Mortgage Loan or mortgage-backed securities
backed by a Mortgage Loan, subserviced, serviced or master serviced by the
Company or LMP pursuant to a Mortgage Servicing Agreement or (ii) is a party
(other than the Company or LMP) to an Investor Commitment.
Investor Commitment -- The optional or mandatory commitments,
set forth on Schedule IV hereto, of a Person to purchase a Mortgage Loan, a
Pipeline Loan or a portion of a Mortgage Loan or Pipeline Loan owned or to be
acquired by the Company, or securities based on and backed by such Mortgage
Loans or Pipeline Loans, together with any additional commitments added to such
Schedule IV pursuant to Section 5.7 hereof.
Last Day -- As defined in Section 2.3(a).
LBSF -- Lehman Brothers Special Financing Inc.
Licenses -- As defined in Section 3.9.
LMP -- As defined in the recitals hereof.
LMS -- As defined in the recitals hereof.
15
<PAGE> 16
LMS Shares -- As defined in the recitals hereof.
Loan Documents -- The file or files containing the photostatic
copy or copies on other media and, to the extent required by the Regulations,
original documents, of the Mortgage, the Note and other loan documents with
respect to each Mortgage Loan, as well as the related credit and closing
packages, disclosures, custodial documents, and all other files, books, records
and documents reasonably necessary to (i) establish the eligibility of the
Mortgage Loans or Pipeline Loans for insurance by an Insurer or for sale or
delivery to an Investor, (ii) service the Mortgage Loans in accordance with the
Regulations, and (iii) comply with the Regulations regarding the Mortgage Loan
documentation to be maintained by a servicer of the Mortgage Loans, or its
document custodian.
Loan Purchase Commitment -- The written commitments, set forth
on Schedule VI hereto, of the Company to originate (by forward commitment or
otherwise) or purchase mortgage loans, together with any additional commitments
added to such Schedule VI pursuant to Section 5.7 hereof.
16
<PAGE> 17
Loss -- Any liability, loss, cost, damage, penalty, fine,
obligation or expense of any kind whatsoever (including, without limitation,
reasonable attorneys', accountants', consultants' or experts' fees and
disbursements, interest, at the Federal Funds Rate plus 1% (as published in the
"Money Rates" section of The Wall Street Journal as in effect from time to
time), on any amounts that the Buyer is required to pay or pledge (including,
without limitation, those amounts paid or pledged with respect to a lost note
bond or letter of credit) in connection with an indemnifiable event and any
direct marginal internal costs actually incurred (to the extent that the Buyer
has received the prior approval of the Company to utilize its internal staff,
which approval shall not be unreasonably withheld or delayed, provided that
adequate information, including but not limited to, an estimate of such
internal costs, is given to the Company)).
Material Adverse Effect -- A material adverse effect on the
Assets, the Assumed Liabilities or on the GNMA Servicing, in each case taken as
a whole, or on the Company's ability to consummate the transactions
contemplated by this Agreement.
17
<PAGE> 18
Mortgage -- 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 Note, together with any
assignment, reinstatement, extension, endorsement or modification of any
thereof.
Mortgage Loan -- (A) Any closed mortgage loan, whether or not
the related mortgage is included in a securitized portfolio, evidenced by a
note or notes duly secured by mortgages or deeds of trust, which loan, whether
single-family or multi-family, is (i) serviced or subserviced by the Company
and held in a pool securing mortgage-backed securities or other certificates
guaranteed by GNMA, (ii) master serviced by the Company pursuant to the CALPERS
Member Home Loan Conduit Program or (iii) a loan the Servicing Rights for which
are owned by LMP, (B) the Warehouse Loans and (C) a secured personal loan
serviced by the Company pursuant to the CALPERS Member Home Loan Conduit
Program.
Mortgage Servicing Agreements -- The contracts or arrangements
between the Company or LMP and an Investor, as set forth on Schedule V hereto,
pursuant to which the Company or LMP owns the rights to service Mortgage Loans
for such Investor, together with any additional
18
<PAGE> 19
mortgage servicing agreements added to such Schedule V pursuant to Section 5.7
hereof.
Mortgage Servicing Portfolio -- The portfolio of mortgage
loans serviced by the Company and held in pools securing mortgage-backed
securities or other certificates guaranteed by GNMA.
Non-Amortizing Loan -- A Mortgage Loan intended to be
self-amortizing but which will have a principal amount due to be paid to
Investors notwithstanding payment by the mortgagor of the full amount scheduled
to be paid to retire the indebtedness of the Mortgage Loan.
Note -- 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.
Notice of Disagreement -- As defined in Section 2.4(b).
Other Assets -- Those assets set forth on Schedule X hereto
under the heading "Prepaid expenses and other assets -- Prepaid GNMA and
investment commitment fees," "--prepaid security deposits" and "prepaid rent."
Parent -- As defined in Section 3.7.
19
<PAGE> 20
Pending Claim Amount -- As defined in Section 2.7.
Person -- Any individual, corporation, company, partnership
(limited or general), joint venture, association, trust or other entity.
Pipeline Loans -- Those pending loans to be secured by a first
or second priority mortgage lien on a one-to-four family residence with respect
to which, as of the Closing Date, an application has been submitted by the
prospective borrower with (i) the Company or (ii) a correspondent or brokerage
originator (and which, in the case of those loans referred to in this clause
(ii), such correspondent or brokerage originator has registered such loan with
the Company), and which have not yet closed or been purchased from the
correspondent or brokerage originator on the Closing Date.
Pool -- An aggregate of one or more Mortgage Loans that have
been pledged or granted to secure mortgage-backed securities or participation
certificates.
Production Business -- As defined in the recitals hereof.
Production Business Assets -- Those assets and rights relating
to the Production Business set forth on
20
<PAGE> 21
Schedule III hereto, which schedule will be completed and delivered on or
before the Closing Date.
Rate-Locked Loans -- All Pipeline Loans which, as of the
Closing Date, the Company has committed to fund or purchase at a specified
interest rate and discount points or premium, provided, however, that a
Rate-Locked Loan need not have been approved to be considered such for purposes
of this Agreement.
Records -- All records and original documents which pertain to
and are utilized to administer, reflect, monitor, evidence or record
information respecting, the Assets, including without limitation the Loan
Documents.
Recourse Loan -- Any Mortgage Loan as to which the Company or
LMP has an obligation to repurchase, reimburse, indemnify or hold harmless any
Person based solely upon the default under or the foreclosure or sale of the
Collateral for the Mortgage Loan without regard to a breach or default of any
contractual representation, warranty or undertaking or misfeasance or
malfeasance by the Company or LMP, as the case may be.
Regulations -- (i) Federal, state and local laws, rules and
regulations with respect to the origination, insuring, purchase, sale, pooling,
servicing, subservicing, master servicing or filing of claims in
21
<PAGE> 22
connection with a Mortgage Loan or a Pipeline Loan, (ii) the responsibilities
and obligations relating to the Mortgage Loans and the Pipeline Loans set forth
in any agreement between the Company or LMP and an Investor or private mortgage
insurer (including, without limitation, Mortgage Servicing Agreements, Investor
Commitments and selling and servicing guides), (iii) the laws, rules,
regulations, guidelines, handbooks and other requirements of an Investor,
Agency, private mortgage insurer, public housing program or Investor program
with respect to the origination, insuring, purchase, sale, pooling, servicing,
subservicing, master servicing or filing of claims in connection with a
Mortgage Loan or a Pipeline Loan and (iv) the terms and provisions of the Loan
Documents.
Repurchase -- The purchase of a Mortgage Loan out of a Pool or
an Investor's portfolio by Buyer, the Company or LMP.
Requisite Regulatory Approvals -- As defined in Section 6.1(a).
Second Payment -- As defined in Section 2.3(d).
Servicing Business -- As defined in the recitals hereto.
Servicing Rights -- The right to receive the servicing fees
and any Ancillary Income the servicer,
22
<PAGE> 23
subservicer or master servicer is entitled to receive arising from or connected
to the Mortgage Loans and the related obligations to (i) administer and collect
payments for the reduction of principal and interest, (ii) pay taxes and
insurance premiums, (iii) remit all amounts in accordance with any servicing
agreements, (iv) provide foreclosure services and full escrow administration
and (v) perform such other obligations as may, from time to time, be imposed
under Agency or Investor guidelines or the Assumed Contracts and the Mortgage
Servicing Agreements.
State Agency -- Any state agency with authority to regulate
the business of the Company or LMP, determine the investment or servicing
requirements with regard to loans originated, purchased or serviced by the
Company or LMP or otherwise participate in or promote mortgage lending.
Subservicing and Transition Services Agreement -- As defined
in Section 5.8.
Subsidiary -- With respect to any Person, any corporation,
partnership or other organization, whether incorporated or unincorporated,
which is required by GAAP to be consolidated with such Person for financial
reporting purposes.
23
<PAGE> 24
Swap Agreement -- The arrangements between the Company and
LBSF as evidenced by (i) the Interest Rate and Currency Exchange Agreement,
dated July 2, 1992, between the Company and LBSF, as amended by the Letter
Agreements dated May 25, 1994 and August 25, 1995 and (ii) the Amended and
Restated Master Pledge Agreement dated as of April 8, 1994, as amended by
Amendment No.1 thereto dated May 25, 1994.
Taxes -- All taxes, charges, fees, levies or other assessments
imposed by any United States federal, state, local or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer, use,
profits, franchise, payroll, employment, unemployment, back-up withholding,
gains, withholding, ad valorem, social security, stamp or other taxes
(including any interest, additions to tax or penalties applicable thereto).
Tax Return -- Any return, report, information return, schedule
or other document, including any related or supporting information with respect
to Taxes.
Third Party Claim -- As defined in Section 7.1(d).
Turkey Pile Loans -- Those Warehouse Loans which are not
covered by existing commitments for deliv-
24
<PAGE> 25
ery to an Investor and which loans do not qualify for standard Investor or
Agency delivery programs.
VA -- The United States Department of Veterans' Affairs.
VA Loans -- Mortgage Loans which are guaranteed by the VA, or
which are intended by the Company to be guaranteed by the VA, or with respect
to which a representation has been made to the mortgagor (in a commitment
letter, truth-in-lending disclosure statement or otherwise in writing) that
such Mortgage Loan is or will be guaranteed by the VA.
VA No-Bid -- A delinquent VA Loan with respect to which the VA
has notified Buyer, the Company or LMP that the VA intends to exercise its
option to pay the amount guaranteed by the VA and relinquish all rights in the
Collateral securing such VA Loan to Buyer, the Company or LMP.
Warehouse For Others -- Those mortgage loans held by the
Company which the Company has the right to resell to or on behalf of its loan
correspondents.
Warehouse Lines -- The Bank Warehouse Line, the FNMA Line and
the DLJ Line.
25
<PAGE> 26
Warehouse Loans -- The mortgage loans owned by the Company and
held for sale, other than the Warehouse For Others.
ARTICLE II
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
2.1 Purchase and Sale of Assets;
Assumption of Liabilities
(a) Upon the terms and subject to the conditions set forth in
this Agreement, at the Closing the Company shall sell, convey, assign, transfer
and deliver to Buyer, and Buyer shall purchase and accept from the Company, all
of the Company's right, title and interest in and to, as of the Closing Date,
the following assets (collectively, the "Assets"):
(i) the Servicing Rights (other than those
owned by LMP);
(ii) the Warehouse Loans;
(iii) the Pipeline Loans;
(iv) the Accounts Receivable;
(v) the LMS Shares;
(vi) the Contracts;
(vii) the Records;
(viii) the Custodial Accounts and the Escrow
Funds;
26
<PAGE> 27
(ix) the Production Business Assets; and
(x) the Investments and the Other Assets.
(b) It is understood and agreed that Buyer is not acquiring
from the Company, and the Company shall retain ownership of, all right, title
and interest in and to, any property or asset which is not being transferred
pursuant to this Section 2.1 (including but not limited to (i) the name Lomas
Mortgage USA or any combination or derivation thereof and (ii) any logos,
service marks, or trademarks, advertising material or slogans or similar items
used on or prior to the Closing Date by the Company or any of its Affiliates in
connection with its business, except that Buyer may use the names "Lomas
Mortgage Services, Inc." and "Lomas Mortgage Partnership" in connection with
the business of LMP for a period of 90 days from the Closing Date)
(collectively, the "Excluded Assets").
(c) Upon the terms and subject to the conditions set forth in
this Agreement, except as otherwise provided herein, on the Closing Date, the
Company shall assign to Buyer, and Buyer shall accept and assume from the
Company, and Buyer agrees to pay, honor, perform and discharge all obligations
with respect to, and shall be
27
<PAGE> 28
solely and exclusively liable for (except to the extent indemnifiable pursuant
to Article VII hereof), all of the liabilities and obligations of the Company
that arise under or relate to (i) the Servicing Rights (other than those owned
by LMP), (ii) the Contracts, (iii) the Pipeline Loans, (iv) the Warehouse
Loans, and (v) those liabilities set forth on Schedule VII hereto, and which
liabilities and obligations become due and payable on or after the Closing Date
(the "Assumed Liabilities").
(d) It is understood and agreed that, except as expressly set
forth in this Agreement, Buyer shall not assume or be liable for any of the
debts, obligations or liabilities of the Company or any of its Subsidiaries of
any kind or nature whatsoever (whether or not accrued or fixed, absolute or
contingent, known or unknown), and the Company and its Subsidiaries shall
remain and be solely and exclusively liable with regard to such debts,
liabilities and obligations (collectively, the "Excluded Liabilities").
2.2 Purchase Price
The aggregate purchase price to be paid to the Company for the
Assets shall be $100 million (the "Base Purchase Price"), provided, however,
that such Base Purchase Price shall be determined in accordance with
28
<PAGE> 29
Sections 2.4 and 2.5 hereof. Buyer shall pay to the Company $10 million of
such Base Purchase Price subject to and in accordance with the provisions of
Exhibit 2.2 hereto.
2.3 Closing; Payment of Base
Purchase Price
(a) The sale and purchase of the Assets and assumption of
the Assumed Liabilities hereunder (the "Closing") shall occur at the offices of
Skadden, Arps, Slate, Meagher & Flom, New York, New York, or at such other
place as shall be mutually agreeable to the parties. The Closing shall take
place on the first day which is the last day of a month (the "Last Day") and is
no earlier than the first business day following the date on which the
conditions to the consummation of the Acquisition set forth in Article VI
(other than the conditions relating to the receipt of officer's certificates
and legal opinions) have first been satisfied or, where permissible, waived, or
at such other time as the parties shall hereafter agree (the "Closing Date"),
provided, however, that if the Last Day is not a business day, then the Closing
shall take place on the first business day of the next month, provided further,
however, that in such case, for purposes of this Agreement, except as otherwise
29
<PAGE> 30
specifically provided herein, all references to the Closing Date shall be
deemed to refer to the Last Day.
(b) At the Closing, the Company shall deliver, or shall cause
to be delivered, to Buyer the following:
(i) an executed Bill of Sale and Assignment in
substantially the form of Exhibit 2.3(b);
(ii) certificates evidencing the LMS Shares,
duly endorsed in blank or with stock powers duly endorsed in blank,
together with such other documents as Buyer may reasonably request to
evidence the transfer to Buyer of good and marketable title in and to
the LMS Shares;
(iii) a copy of resolutions duly adopted by the
Board of Directors of the Company authorizing the execution of this
Agreement and the consummation of the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or Assistant
Secretary of the Company;
(iv) the consents and other documents required
to be delivered pursuant to Section 6.3; and
(v) such other documents, agreements and
instruments as Buyer shall reasonably request to
30
<PAGE> 31
evidence the transfer of the Assets from the Company to Buyer.
(c) At the Closing, Buyer shall take the following
actions:
(i) Buyer shall pay to the Company $27 million,
less the amounts paid pursuant to clause (ii) below, by wire transfer
to such account as the Company shall designate in writing at least one
business day prior to the Closing Date, provided, however, that if the
amount payable pursuant to clause (ii) below exceeds $27 million, then
no amount shall be paid by Buyer pursuant to this clause (i) (such
amount, if any, paid by Buyer pursuant to this clause (i), together
with the amount paid pursuant to clause (ii) below, the "First
Payment");
(ii) Buyer shall pay to LBSF on behalf of the
Company, by wire transfer to such account(s) as the Company shall
notify Buyer at least one business day prior to the Closing Date, all
amounts necessary to close out and settle the Swap Agreement pursuant
to its terms;
(iii) Buyer shall pay to the lenders under the
Warehouse Lines on behalf of the Company,
31
<PAGE> 32
by wire transfer to such account(s) as the Company shall notify Buyer
at least one business day prior to the Closing Date, those amounts
owing under the Warehouse Lines to be paid by Buyer as set forth in
Section 5.11 hereof;
(iv) Buyer shall deliver an executed Assumption
Agreement in substantially the form of Exhibit 2.3(c);
(v) Buyer shall deliver a copy of resolutions
duly adopted by the Board of Directors of Buyer authorizing the
execution of this Agreement and the consummation of the transactions
contemplated hereby, certified as of the Closing Date by the Secretary
or Assistant Secretary of Buyer; and
(vi) Buyer shall deliver the documents required
to be delivered pursuant to Section 6.2.
(d) On the 120th day following the Closing Date, Buyer
shall pay to the Company, by wire transfer to such account as the Company shall
specify in writing at least one business day prior thereto, the amount obtained
by subtracting (i) the amount of the First Payment from (ii) 85% of the amount
obtained by subtracting (X) $10 million from (Y) the Final Purchase Price (such
amount obtained by subtracting $10 million from the Final Pur-
32
<PAGE> 33
chase Price is referred to herein as the "Adjusted Final Purchase Price"),
provided, however, that if the Final Purchase Price is in Disagreement or has
otherwise not been determined, the payment shall be $76.5 million less the
amount of the First Payment (the amount paid by Buyer pursuant to this clause
(d), the "Second Payment"). The remaining portion of the Final Purchase Price
shall be paid on the Final Settlement Date, subject to the terms and conditions
set forth in Section 2.7.
2.4 Closing Adjustment Documents
In order to prepare for the final determination of the Base
Purchase Price as contemplated in Section 2.5 hereof, the parties shall proceed
as follows:
(a) As soon as reasonably practicable following the
Closing Date, and in no event more than 90 days thereafter, the Company shall
prepare and deliver to Buyer (i) a schedule of the Closing Portfolio Loans,
which schedule shall set forth, with respect to each such loan, the unpaid
principal balance thereof as of the Closing Date, (ii) a schedule of the
Excluded Loans as of the Closing Date, which schedule shall set forth with
respect to each such loan the unpaid principal amount thereof as of the Closing
Date, (iii) a schedule of the Pipeline Loans as of the Closing Date, which
schedule
33
<PAGE> 34
shall designate, with respect to each such Pipeline Loan, the principal amount
thereof and whether such Pipeline Loan is a Rate-Locked Loan, (iv) a schedule
setting forth, in reasonable detail, the gain or loss, as of the Closing Date,
on each Pipeline Loan which is a Rate-Locked Loan (as determined in accordance
with the provisions of Exhibit 2.5 hereto), (v) a schedule setting forth all of
the Investor Commitments as of the Closing Date, (vi) a schedule setting forth,
in reasonable detail, the gain or loss, as of the Closing Date, on each
Investor Commitment (as determined in accordance with the provisions of Exhibit
2.5 hereto), (vii) a schedule of the Warehouse Loans as of the Closing Date,
which schedule shall set forth, with respect to each such loan, the unpaid
principal balance thereof as of the Closing Date, (viii) a schedule setting
forth, in reasonable detail, the gain or loss as of the Closing Date, on each
Warehouse Loan other than the Turkey Pile Loans (as determined in accordance
with the provisions of Exhibit 2.5 hereto), (ix) a schedule setting forth in
reasonable detail the Book Value, as of the Closing Date, of the Accounts
Receivable, (x) a schedule setting forth in reasonable detail the Book Value,
as of the Closing Date, of those Assumed Liabilities set forth on Schedule VII
here-
34
<PAGE> 35
to, (xi) a schedule setting forth the unpaid principal balance of each Closing
Portfolio Loan with respect to which a reduction to the Base Purchase Price
shall be made pursuant to Section 2.5(g) hereof, (xii) a schedule setting
forth in reasonable detail the adjustment to the Base Purchase Price
contemplated by Section 2.5(h), (xiii) a schedule setting forth the Book Value,
as of the Closing Date, of the Investments, the Other Assets and the Company's
investment in LMP, and (xiv) a schedule setting forth in reasonable detail the
calculations contemplated by Section 2.5 below (collectively, the "Closing
Adjustment Documents"). The parties shall cooperate in the preparation of the
Closing Adjustment Documents in accordance with this Section 2.4 and Section
2.5 hereof, including such additional documents as may be necessary to
calculate the Final Purchase Price adjustments. Without limiting the
generality of the foregoing, to the extent necessary, Buyer shall provide the
Company and its designees with reasonable access to Buyer's books, records,
personnel and representatives which relate to the Assets and the Assumed
Liabilities and such other information as the Company may require in connection
with the preparation of the Closing Adjustment
35
<PAGE> 36
Documents and with respect to the resolution of any Disagreement (as defined
below).
(b) Within twenty days after delivery of the Closing
Adjustment Documents to Buyer, Buyer may dispute all or any portion of the
Closing Adjustment Documents by giving written notice (a "Notice of
Disagreement") to the Company setting forth in reasonable detail the basis for
any such dispute (any such dispute being hereinafter called a "Disagreement").
The parties shall promptly commence good faith negotiations with a view to
resolving all such Disagreements. If Buyer does not give a Notice of a
Disagreement in accordance with the provisions of the first sentence of this
paragraph (b) within the twenty-day period set forth therein, Buyer shall be
deemed to have irrevocably accepted the Closing Adjustment Documents in the
form delivered to Buyer by the Company, provided, however, that such acceptance
of the Closing Adjustment Documents by Buyer shall not be deemed to preclude or
otherwise limit Buyer's rights to indemnification in accordance with Article
VII hereof.
(c) If Buyer shall deliver a Notice of Disagreement and
the Company shall not dispute all or any portion of such Notice of Disagreement
by giving written notice to Buyer setting forth in reasonable detail the
36
<PAGE> 37
basis for such dispute within twenty days following the delivery of such Notice
of Disagreement, the Company shall be deemed to have irrevocably accepted the
Closing Adjustment Documents as modified in the manner described in the Notice
of Disagreement. If the Company disputes all or any portion of the Notice of
Disagreement within the twenty-day period described in the previous sentence,
and within twenty days following the delivery to Buyer of the notice of such
dispute Buyer and the Company do not resolve the Disagreement (as evidenced by
a written agreement among the parties hereto), such Disagreement shall be
referred to the Independent Accounting Firm for a resolution of such
Disagreement in accordance with the terms of this Agreement. The
determinations made by such firm with respect to any Disagreement shall be
final and binding upon the parties and the amount so determined shall be used
to complete the final Closing Adjustment Documents. Buyer and the Company
shall use their best efforts to cause the Independent Accounting Firm to render
its determination as soon as practicable after referral of the Disagreement to
such firm, and each shall cooperate with such firm and provide such firm with
reasonable access to the books, records, personnel and representatives of it
and its Subsidiaries and such other
37
<PAGE> 38
information as such firm may require in order to render its determination. All
of the fees and expenses of any Independent Accounting Firm retained pursuant
to this paragraph (c) shall be paid one-half by Buyer and one-half by the
Company.
2.5 Calculation of Adjustments
In connection with the calculation of the Final Purchase Price
(as defined below) and the preparation and delivery of the Closing Adjustment
Documents, the following adjustments shall be made to the Base Purchase Price:
(a) Closing Portfolio. The Base Purchase Price shall be
(i) increased by an amount equal to 1.50% of the amount of the unpaid principal
balance of all Closing Portfolio Loans which were not Base Portfolio Loans and
(ii) decreased by an amount equal to 1.10% of the reduction in the amount of
the unpaid principal balance of all Base Portfolio Loans between July 31, 1995
and the Closing Date.
(b) Book Value of Accounts Receivable. The Base Purchase
Price shall be (i) increased by the amount, if any, by which the aggregate Book
Value of the Accounts Receivable as of the Closing Date exceeds $12,223,000 or
(ii) decreased by the amount, if any, by which
38
<PAGE> 39
$12,223,000 exceeds the aggregate Book Value of the Accounts Receivable as of
the Closing Date.
(c) Adjustment for Book Value of Assumed Liabilities.
The Base Purchase Price shall be (i) increased by the amount, if any, by which
$3,011,000 exceeds the aggregate Book Value, as of the Closing Date, of the
liability accounts set forth on Schedule VII, or (ii) decreased by the amount,
if any, by which the aggregate Book Value as of the Closing Date, of the
liability accounts set forth on Schedule VII exceed $3,011,000.
(d) Adjustment for Change in Net Gain or Loss on
Rate-Locked Pipeline Loans and Investor Commitments. The Base Purchase Price
shall be increased or decreased, as the case may be, by an amount equal to the
aggregate net gain or loss on (i) all of the Pipeline Loans which are
Rate-Locked Loans and (ii) all of the Investor Commitments. For purposes of
this Section 2.5(d), the gain or loss on each such Rate-Locked Loan and
Investor Commitment shall be determined as of the Closing Date in accordance
with the provisions of Exhibit 2.5 hereto.
(e) Adjustment for Warehouse Loans. The Base Purchase
Price shall be (i) increased by an amount equal to the amount, if any, by which
the aggregate unpaid principal balance of the Warehouse Loans as of the Clos-
39
<PAGE> 40
ing Date exceeds $295,693,000 or (ii) decreased by an amount equal to the
amount, if any, by which $295,693,000 exceeds the aggregate unpaid principal
balance of the Warehouse Loans as of the Closing Date.
(f) Adjustment for Net Gain or Loss on Warehouse Loans.
The Base Purchase Price shall be increased or decreased, as the case may be, by
an amount equal to the aggregate net gain or loss on all of the Mortgage Loans
which, as of the Closing Date, were Warehouse Loans (other than the Turkey Pile
Loans). For purposes of this Section 2.5(f), the gain or loss on each such
Warehouse Loan shall be determined as of the Closing Date in accordance with
the provisions of Exhibit 2.5 hereto.
(g) Adjustment for Prepayments of Loans. If at any time
on or prior to the sixtieth (60th) day following the Closing Date, the
outstanding principal balance of a Closing Portfolio Loan is paid in full prior
to the expiration of the scheduled term thereof, the Base Purchase Price will
be reduced by an amount equal to 1.10% (except with respect to Mortgage Loans
funded and entered on the Company's system after July 31, 1995, for which a
multiple of 1.50% shall be used) of the unpaid principal amount of such loan as
of the Closing Date.
40
<PAGE> 41
(h) Adjustment for Warehouse Lines. The Base Purchase
Price shall be (i) decreased by the amount, if any, by which the outstanding
principal balance owing under the Warehouse Lines (exclusive of all such
outstanding balances advanced to fund the Warehouse For Others) exceeds
$302,013,000, or (ii) increased by the amount, if any, by which $302,013,000
exceeds the outstanding principal balance owing under the Warehouse Lines
(exclusive of all such outstanding balances advanced to fund the Warehouse For
Others).
(i) Net Worth Adjustment for Investments and Other
Assets. The Base Purchase Price shall be (i) increased by the amount by which
the aggregate Book Value of the Investments, the Other Assets and the Company's
investment in LMP, each as of the Closing Date, exceeds $22,329,000 or (ii)
decreased by the amount by which $22,329,000 exceeds the aggregate Book Value
of the Investments, the Other Assets and the Company's investment in LMP, each
as of the Closing Date.
(j) Netting of Adjustments. The adjustments to the Base
Purchase Price described in paragraphs (a) through (i) of this Section 2.5
shall be netted, such that there shall be determined an aggregate increase or
decrease in the Base Purchase Price. The Base Purchase
41
<PAGE> 42
Price, as adjusted for Closing Date balances in the manner provided in Sections
2.4 and 2.5 hereof, is referred to herein as the "Final Purchase Price."
2.6 Bond Program Loans
(a) The amount payable by Buyer to the Company pursuant
to Section 2.3(d) hereof on the 120th day following the Closing shall be
decreased by the aggregate amount of the net loss on each Bond Program Loan as
of the Closing Date, computed pursuant to Section 2.5(f), without regard to the
adjustment made pursuant to Section 2.5(d), which Bond Program Loan was not a
Consenting Bond Program Loan as of the 120th day following the Closing Date.
(b) If any Bond Program Loan becomes a Consenting Bond
Program Loan after the 120th day following the Closing Date but on or before
the one-year anniversary of the Closing Date, then the amount of the loss with
respect to such loan deducted pursuant to Section 2.6(a) shall be added back to
the Final Settlement Amount.
(c) If any Bond Program Loan is held by Buyer on the
one-year anniversary of the Closing Date, such loan shall be marked-to-market
as of such date in accordance with the provisions set forth on Exhibit 2.5, and
the aggregate amount of gains or losses with respect to
42
<PAGE> 43
all such Bond Program Loans as compared to the aggregate amount of gains or
losses with respect to such loans computed as of the Closing Date as set forth
in the Closing Adjustment Documents shall be deducted from or added to, as the
case may be, the Final Settlement Amount payable by Buyer pursuant to Section
2.7.
2.7 Final Settlement
No later than ten business days following the one-year
anniversary of the Closing Date (the "Final Settlement Date"), the parties
hereto shall effect a settlement (the "Final Settlement"), either by telephone
or in person at a mutually convenient location. On the Final Settlement Date,
Buyer shall wire transfer in immediately available funds to an account
specified by the Company on the business day immediately preceding the Final
Settlement Date an amount equal to (i) the amount by which (X) the Final
Purchase Price less $10 million exceeds (Y) the sum of the First Payment and
the Second Payment, less (ii) the aggregate amount of all Losses indemnifiable
by the Company pursuant to the terms of this Agreement for which Buyer shall
have given notice to the Company, in accordance with Article VII, prior to the
one-year anniversary of the Closing Date, provided, however, that in no event
shall the amount contemplated
43
<PAGE> 44
by clause (ii) above exceed 15% of the Adjusted Final Purchase Price. In all
cases, the amount payable at the Final Settlement shall be accompanied by
interest thereon calculated at the Federal Funds Rate plus 1% as published in
the "Money Rates" section of The Wall Street Journal as in effect from time to
time for the period from the Closing Date to the Final Settlement Date (such
total amount payable on the Final Settlement Date, whether payable by Buyer or
the Company, is referred to herein as the "Final Settlement Amount").
Notwithstanding the foregoing, with respect to any Losses for which Buyer seeks
indemnity from the Company and for which Buyer shall have timely provided
notice to the Company pursuant to the provisions of this Section 2.7 and of
Article VII of this Agreement, but with respect to which Losses the Company has
provided Buyer prior to the Final Settlement Date with a written notice of
dispute regarding its obligation to indemnify Buyer, which notice shall state
the amount of all such claims and the reasons for the Company's dispute
thereof, an amount equal to the aggregate dollar amount sufficient to satisfy
Buyer's claims for indemnification for such Losses (the "Pending Claim
Amount"), which amount shall not be greater than 15% of the Adjusted Final
Purchase Price, shall be deducted from
44
<PAGE> 45
the Final Settlement Amount otherwise payable by Buyer pursuant to this Section
2.7, and Buyer shall pay to the Company an amount equal to the Final Settlement
Amount as so adjusted and shall place in escrow an amount equal to the Pending
Claim Amount, pursuant to the terms of an Escrow Agreement to be entered into
by Buyer and the Company in form and substance mutually satisfactory to them.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as follows:
3.1 Organization
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut. LMS
is a corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware. LMP is a limited partnership organized
under the laws of the State of Delaware. The Company has full corporate power
and authority to conduct the Servicing Business and the Production Business as
now conducted and to own or lease the Assets and is duly licensed or qualified
to do business
45
<PAGE> 46
and is in good standing in each state or jurisdiction where the ownership or
leasing of the Assets or the conduct of the Servicing Business and the
Production Business requires such licensing or qualification, except where the
failure to be so licensed or qualified would not have a Material Adverse
Effect.
(b) The authorized capital stock of LMS consists of 1,000
shares of common stock, par value $1.00 per share ("LMS Common Stock") and no
shares of preferred stock. There are 1,000 shares of LMS Common Stock issued
and outstanding all of which are duly authorized, validly issued, fully paid,
nonassessable and free of pre-emptive rights, with no personal liability
attaching to the ownership thereof. All of the outstanding shares of LMS
Common Stock are owned by the Company, free and clear of all Encumbrances,
contracts, rights, options and assignments whatsoever. No shares of LMS Common
Stock are reserved for issuance. Neither LMS nor any of its Affiliates has or
is bound by any outstanding subscriptions, options, warrants, calls,
commitments, agreements or other rights of any character calling for the
purchase or issuance of any shares of LMS Common Stock or any securities
representing the right to purchase or otherwise receive any shares of LMS
Common Stock. There are no
46
<PAGE> 47
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the LMS Common Stock.
3.2 Authority; No Violation
(a) The Company has full corporate power and authority to
execute and deliver this Agreement and any documents, agreements or instruments
to be executed by it pursuant to this Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and any documents, agreements or instruments to be executed and
delivered by the Company pursuant to this Agreement, and the consummation of
the transactions contemplated hereby and thereby, have been duly and validly
authorized by all requisite corporate action in respect thereof on the part of
the Company and no other corporate proceedings on the part of the Company are
necessary to consummate the transactions contemplated hereby and thereby. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming this Agreement constitutes a valid and binding obligation of Buyer,
such agreement constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, and the other
documents, agreements and instruments to be deliv-
47
<PAGE> 48
ered by the Company pursuant to this Agreement will, when executed and
delivered, be duly executed and delivered by the Company and will constitute
legal, valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms (in all cases, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity (whether
applied in a proceeding in equity or at law)).
(b) Except as set forth in Section 3.2(b) of the
disclosure schedule which has previously been delivered by the Company to Buyer
(the "Company Schedule"), neither the execution and delivery by the Company of
this Agreement or any document, agreement or instrument to be executed by the
Company pursuant to this Agreement, nor the consummation by the Company of the
transactions contemplated hereby or thereby, nor compliance by the Company with
any of the terms or provisions hereof, will (i) conflict with or result in a
breach of any provision of the articles of incorporation, by-laws or similar
governing documents of the Company, LMS or LMP or (ii) assuming the consents,
permits, authorizations, approvals, filings and registrations referred to in
Section 3.3 hereof and Section 3.3 of the Company Schedule are obtained or
made,
48
<PAGE> 49
(x) violate any statute, code, ordinance, rule, regulation, judgment, order,
writ, decree or injunction applicable to the Company or any Subsidiary of the
Company or LMP or any of their respective properties or assets or (y) violate,
conflict with, result in a breach of any provisions of, constitute a default
(or an event which, with notice or lapse of time, or both, would constitute a
default) under, result in the termination of, accelerate the performance
required by, or result in a right of termination or acceleration or the
creation of any Encumbrance upon any of the Assets under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement (including without limitation any Mortgage Servicing
Agreement) or other instrument or obligation to which the Company or any
Subsidiary of the Company or LMP is a party, or by which the Company or any
Subsidiary of the Company or LMP or any of the Assets may be bound or affected,
except, in the case of clause (y) above, for such violations, conflicts,
breaches or defaults which, either individually or in the aggregate, would not
have a Material Adverse Effect.
49
<PAGE> 50
3.3 Consents and Approvals
Except as set forth in Section 3.3 of the Company Schedule, no
consents, permits, authorizations or approvals of, or filings or registrations
with, any Governmental Entities, government-sponsored agencies or corporations
or other Persons are necessary to be obtained or made by the Company or any
Subsidiary of the Company or LMP in connection with the execution and delivery
by the Company of this Agreement or any document, agreement or instrument to be
executed by the Company pursuant to this Agreement or the consummation by the
Company of the transactions contemplated hereby or thereby, except for such
consents, permits, authorizations or approvals the failure of which to obtain
would not, individually or in the aggregate, have a Material Adverse Effect.
3.4 Financial Information
The Company, LMS and LMP maintain records which accurately
reflect transactions relating to the Assets and the Assumed Liabilities in
reasonable detail, and maintain accounting controls, policies and procedures
sufficient to ensure that such transactions are (i) executed in accordance with
its management's general or specific authorization, as applicable, and (ii)
recorded
50
<PAGE> 51
in a manner which permits the preparation of financial statements in accordance
with GAAP and applicable regulatory accounting requirements, and the
documentation pertaining thereto is retained, protected and duplicated in all
material respects in accordance with prudent business practices and applicable
regulatory requirements. The books and records of the Company, LMS and LMP
reflect only actual transactions. The Assumed Liabilities set forth on
Schedule VII hereto are carried on the Company's balance sheet in accordance
with GAAP consistently applied.
3.5 Contracts
(a) Except as set forth in Section 3.5 of the Company
Schedule, the Company has made available to Buyer a correct and complete copy
of each written Contract listed on Schedules II, IV, V and VI. With respect to
each Contract: (A) the Contract is valid, binding and in full force and effect;
(B) the Company or LMP, as the case may be, is not in breach or default
thereof, and, to the knowledge of the Company, no event has occurred which,
with notice or lapse of time or both, would constitute a breach or default by
the Company or LMP, or would permit termination, modification, or acceleration
against the Company or LMP under such Contract; (C) the
51
<PAGE> 52
Company or LMP has not repudiated or waived any material provision of any such
Contract other than in the ordinary course of business; (D) all amounts due and
payable by the Company or LMP through the Closing Date pursuant to such
Contract have been or will be paid; and (E) to the knowledge of the Company, no
other party to any such Contract is in breach or default thereunder and no
event has occurred which, with notice or lapse 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, under such
Contract.
3.6 Title to Assets
The Company has good and marketable title to (or, as to leased
property, a valid leasehold interest in) all of the Assets, free and clear of
all Encumbrances, except (i) as set forth on Section 3.6 of the Company
Schedule, (ii) for statutory liens for amounts not yet delinquent or which are
being contested in good faith, (iii) the Assumed Liabilities, (iv) the
Encumbrance on the Servicing Rights associated with the Swap Agreement, and (v)
such Encumbrances that do not in the aggregate materially detract from the
value or interfere with the use or operations of the Asset subject thereto.
52
<PAGE> 53
3.7 Brokers and Finders
Neither the Company nor LMP nor any of their respective
officers, directors, employees, agents or Affiliates has employed any broker,
finder or financial advisor or incurred any liability for any broker's or
finder's fees or commissions in connection with the transactions contemplated
hereby, except that Lomas Financial Corporation ("Parent") and the Company have
engaged, and will pay a fee or commission to, Salomon Brothers Inc in
accordance with the terms of the letter agreement by and between Salomon
Brothers Inc and Parent.
3.8 Legal Proceedings
Except as set forth in Section 3.8 of the Company Schedule,
neither the Company nor any of its Subsidiaries nor LMP is a party to any, and
there are no pending or, to the knowledge of the Company, threatened, legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature (i) against the Company or any of
its Subsidiaries or LMP and relating to or involving the Assets or the Assumed
Liabilities, as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would, individually or in the
aggregate, have a Material Adverse Effect, or (ii)
53
<PAGE> 54
challenging the validity or propriety of the transactions contemplated by this
Agreement. Except as otherwise disclosed in Section 3.8 of the Company
Schedule, there is no injunction, order, judgment, decree or regulatory
restriction imposed upon the Company, any of its Subsidiaries or LMP and
relating to or involving the Assets or the Assumed Liabilities which has had a
Material Adverse Effect.
3.9 Mortgage Banking Licenses
and Qualifications
(a) The Company (i) is qualified (A) by FHA as a
mortgagee and servicer for FHA Loans, (B) by the VA as a lender and servicer
for VA Loans, (C) by FNMA and FHLMC as a seller/servicer of first mortgages to
FNMA and FHLMC and (D) by GNMA as an authorized issuer and servicer of
GNMA-guaranteed mortgage-backed securities; and (ii) has all other
certifications, authorizations, licenses, permits and other approvals (together
with the items set forth in clause (i) above, the "Licenses") necessary to
conduct the Servicing Business and the Production Business, and is in good
standing under all applicable federal, state and local laws and regulations
thereunder as a mortgage lender and servicer.
54
<PAGE> 55
(b) LMP (i) is qualified (A) by FHA as a mortgagee and
servicer for FHA Loans, (B) by the VA as a lender and servicer for VA Loans,
(C) by FNMA and FHLMC as a servicer of first mortgages for FNMA and FHLMC and
(D) by GNMA as an authorized issuer and servicer of GNMA-guaranteed
mortgage-backed securities; and (ii) has all other Licenses necessary to
conduct its business as presently conducted, and is in good standing under all
applicable federal, state and local laws and regulations thereunder as a
mortgage lender and servicer.
(c) Each of the Company and LMP has complied with all
such Licenses, and the Company knows of no threatened suspension, cancellation
or invalidation of, or penalties (including fines or refunds) under, any such
License.
(d) To the Company's knowledge, each broker or
correspondent involved in the origination of the Mortgage Loans, and all prior
servicers thereof, had all such Licenses necessary to conduct such activities
at the time so conducted.
3.10 Mortgage Loans
The Company has previously delivered to Buyer a tape (magnetic
media) which sets forth certain information regarding the Mortgage Loans as of
July 31, 1995.
55
<PAGE> 56
The information contained in such tape is true, complete and correct in all
material respects as of July 31, 1995. As of July 31, 1995, the aggregate
unpaid principal balance of the Base Portfolio Loans, the Mortgage Loans master
serviced by the Company pursuant to the CALPERS Master Servicing and the
Excluded Loans was $7,481,427,033, $2,141,305,483, and $214,684,118,
respectively. Except as set forth in Section 3.10 of the Company Schedule,
each Mortgage Loan is (i) evidenced by a Note with such terms as are customary
in the business, (ii) except as to loans described in clause (C) of the
definition of Mortgage Loan, duly secured by a Mortgage with such terms as are
customary in the business and which grants the holder thereof a first priority
lien on the subject property (including any improvements thereon), each such
Mortgage constituting a security interest that has been duly perfected and
maintained (or is in the process of perfection in due course) as a first lien
subject only to taxes and assessments not yet delinquent except as to non-
escrowed Mortgage loans, the Servicing Rights to which are held by LMP, and to
such other matters as evidenced by a lender's title insurance policy and, where
applicable, subject to the interests of the Texas Veterans' Land Board, and is
in full force and ef-
56
<PAGE> 57
fect, (iii) accompanied by a hazard insurance policy (and a flood insurance
policy and certification where required under the terms of the National Flood
Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, each as
amended) covering improvements on the premises subject to such Mortgage, with a
loss payee clause in favor of the Company or LMP or an assignee of the Company
or LMP, such insurance policy covering such risks as are customarily insured
against in accordance with industry practice and which are required to be
insured against pursuant to Investor requirements, and (iv) accompanied by a
mortgage insurance certificate or a loan guarantee certificate, in either case,
as required by applicable Regulations. Each of the Company and LMP has
complied in all material respects with all of its obligations under the
insurance policies described in the previous sentence.
3.11 Enforceability
All Mortgage Loans are valid and legally binding obligations
of the borrowers thereunder, to the knowledge of the Company have been duly
executed by a borrower of legal capacity, are enforceable in accordance with
their terms (except as enforcement thereof may be limited by (i) bankruptcy,
insolvency or other similar
57
<PAGE> 58
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding in equity or at law),
(ii) state laws requiring creditors to proceed against the collateral before
pursuing the borrower, and (iii) state laws on deficiencies), and conform (or,
in the case of Pipeline Loans, will conform) to all applicable Regulations.
Neither the operation of any of the terms of any Mortgage Loan or Pipeline
Loan, nor the exercise of any right thereunder, has rendered or will render the
related Mortgage or Note unenforceable, in whole or in part, or subject it to
any right of rescission, setoff, counterclaim or defense, and no such right of
rescission, setoff, counterclaim or defense has been asserted with respect
thereto. The Loan Documents were (or, in the case of the Pipeline Loans, will
be) in compliance in all material respects with applicable Regulations and
Agency, Investor and Insurer requirements upon origination of the underlying
Mortgage Loan (or Pipeline Loan, as the case may be) and are (or, in the case
of the Pipeline Loans, will be) complete in all material respects.
58
<PAGE> 59
3.12 Title to Certain Mortgage Loans;
Mortgage Servicing Agreements
(a) Except as set forth in Section 3.12 of the Company
Schedule, all Mortgage Loans held in the account of the Company or LMP (whether
or not for future sale or delivery to an Investor) are owned by the Company or
LMP, as the case may be, free and clear of all Encumbrances, other than those
Encumbrances pursuant to the Warehouse Lines. Such Mortgage Loans have been
duly recorded or submitted for recordation in due course in the appropriate
filing office in the name of the Company or LMP as mortgagee. Neither the
Company nor LMP has, with respect to any such Mortgage Loan, released any
security therefor, except upon receipt of reasonable consideration for such
release, or accepted prepayment of any such Mortgage Loan which has not been
promptly applied to such Mortgage Loan.
(b) Except as set forth in Section 3.12(b) of the
Company Schedule, all of the Mortgage Servicing Agreements and the Servicing
Rights are owned by the Company or LMP, free and clear of any Encumbrances,
including without limitation the right to receive servicing fees.
59
<PAGE> 60
3.13 No Recourse
Except with respect to VA No-Bids, the FmHA Loans and as set
forth in Section 3.13 of the Company Schedule, none of the Mortgage Loans are
Recourse Loans.
3.14 Mortgage Servicing Agreements
The Company has previously made available to Buyer true and
complete copies of all Mortgage Servicing Agreements set forth on Schedule V
hereto. The Mortgage Servicing Agreements and the Regulations set forth all
the terms and conditions of the Company's or LMP's rights against and
obligations to the Agencies and Investors with respect to the Mortgage Loans,
and there are no written or oral agreements that modify or amend any such
Mortgage Servicing Agreement in any material respect. All of the Mortgage
Servicing Agreements are valid and binding obligations of the Company or LMP
and all of the other parties thereto, are in full force and effect, and are
enforceable in accordance with their terms, except as enforcement thereof may
be limited by general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally. Except as set forth in Section 3.14
of the Company Schedule, there is no default or breach under, or dispute
60
<PAGE> 61
regarding the material terms of, or claim of default or breach by any party
under, any such Mortgage Servicing Agreement, and no event has occurred which
with the passage of time or the giving of notice or both would constitute a
default or breach by any party under any such Mortgage Servicing Agreement or
would permit termination, modification or acceleration of any such Mortgage
Servicing Agreement. Except as set forth in Section 3.14 of the Company
Schedule, there is no pending or, to the knowledge of the Company, threatened
cancellation of any Mortgage Servicing Agreement, and neither the Company nor
LMP has received written notice to the effect that any Investor or Agency
intends to terminate or is considering terminating its relationship with the
Company or LMP. Except as set forth in Section 3.14 of the Company Schedule,
no material sanctions or penalties have been imposed upon the Company or LMP
subsequent to January 1, 1992 under any Mortgage Servicing Agreement or under
any Regulation applicable to the Company or LMP.
3.15 Compliance with Mortgage Banking
Regulations
(a) The Company and LMP and, with respect to each
Mortgage Loan and Pipeline Loan, to the knowledge of the Company, each prior
servicer and originator of any
61
<PAGE> 62
such loan, has been and is (including without limitation, with respect to (i)
the ownership and operation of its properties and (ii) the documentation,
underwriting, origination, purchase, assumption, modification, sale, pooling
and servicing, subservicing and master servicing of Mortgage Loans and Pipeline
Loans by the Company and LMP and such prior servicers and originators) in
compliance in all material respects with all Regulations, orders, writs,
decrees, injunctions and other requirements of any court or governmental
authorities applicable to any of them (including, without limitation, (x) the
rules, regulations and requirements of FHA, VA, FmHA, FNMA, HUD, FHLMC and
GNMA, as applicable, (y) any applicable local, state or federal law or
ordinance, and any regulations or orders issued thereunder, governing or
pertaining to fair housing or unlawful discrimination in residential lending
(including without limitation anti-redlining, equal credit opportunity, and
fair credit reporting), truth-in-lending, real estate settlement procedures,
adjustable rate mortgages, adjustable rate mortgage disclosures or consumer
credit (including without limitation the federal Consumer Credit Protection
Act, the federal Truth-in-Lending Act and Regulation Z thereunder, the federal
Real Estate Settlement Procedures
62
<PAGE> 63
Act of 1974 and Regulation X thereunder, and the federal Equal Credit
Opportunity Act and Regulation B thereunder) and (z) all applicable usury and
interest limitations laws), except where the failure to so comply would not
have a Material Adverse Effect. Without limiting the generality of the
foregoing, the Company, LMP and to the knowledge of the Company, each prior
servicer and originator of the Mortgage Loans and Pipeline Loans has been and
is in compliance in all respects with all servicer and other requirements of
the FHA, VA, FmHA, FNMA, FHLMC, GNMA, Investors and any Insurer (including,
without limitation, any applicable net worth requirements) which are applicable
to it, and all applicable underwriting standards of such Agencies, Investors or
Insurers. To the knowledge of the Company, each correspondent or broker from
whom the Company or one of its Subsidiaries or LMP has purchased FHA Loans,
FmHA Loans or VA Loans had all FHA, FmHA and VA approvals necessary to enable
it to take applications and close FHA Loans, FmHA Loans and/or VA Loans.
(b) The Company and LMP have each timely filed, or will
have timely filed by the Closing Date, all reports required by any Agency,
Investor or Insurer or by any federal, state or municipal law, regulation or
ordi-
63
<PAGE> 64
nance, and where the failure to so timely file would have a Material Adverse
Effect. None of the Company, LMP, or, with respect to any Mortgage Loan or
Pipeline Loan and to the knowledge of the Company, any prior originator or
servicer of any such loan, has done or failed to do, or has caused to be done
or omitted to be done, any act, the effect of which would operate to invalidate
or materially impair (i) any approvals of the FHA, VA, FmHA, FNMA, FHLMC, GNMA,
HUD or any Investor, (ii) any FHA or FmHA insurance or commitment of the FHA or
FmHA to insure, (iii) any VA guarantee or commitment of the VA to guarantee,
(iv) any private mortgage insurance or commitment of any private mortgage
insurer to insure, (v) any title insurance policy, (vi) any hazard insurance
policy, (vii) any flood insurance policy required by the National Flood
Insurance Act of 1968, as amended, (viii) any fidelity bond, direct surety
bond, or errors and omissions insurance policy required by HUD, GNMA, FNMA,
FHA, FHLMC, FmHA, VA or private mortgage insurers, (ix) any surety or guaranty
agreement or (x) any guaranty issued by GNMA to the Company or LMP respecting
mortgage backed securities issued or serviced by the Company or LMP and other
like guaranties.
64
<PAGE> 65
(c) Except as set forth in Section 3.15 of the Company
Schedule, since January 1, 1992, no Agency, Investor or Insurer has (y) claimed
that the Company or LMP has violated or has not complied with the applicable
underwriting standards with respect to Mortgage Loans sold by the Company or
LMP to an Investor or (z) imposed restrictions on the activities (including
commitment authority) of the Company or LMP. There exist no known facts or
circumstances which would entitle an Investor to demand repurchase of a
Mortgage Loan or a Pipeline Loan from the Company or LMP or which would entitle
an Insurer to demand indemnification from the Company or LMP, to cancel (or
deny with respect to any such Pipeline Loan) any mortgage insurance held for
the Company's or LMP's benefit, or to reduce any mortgage insurance benefits
payable to the Company or LMP, or would lead GNMA to require a letter of credit
from the Company or LMP, in each case with respect to any Mortgage Loan or
Pipeline Loan.
3.16 Custodial Accounts
Each of the Company and LMP has full power and authority to
maintain Custodial Accounts for all of the Mortgage Loans, as required by
applicable Regulations, and has established Custodial Accounts for all Escrow
65
<PAGE> 66
Funds relating to Servicing Rights, and is the lawful fiduciary of all
Custodial Accounts related to the Mortgage Loans. Such Custodial Accounts
comply in all material respects with (i) all applicable Regulations (including
without limitation Regulations governing the appropriate identification of such
accounts and the calculation of the amount of the monthly payments for deposit
into Custodial Accounts that mortgagors are required to make) and (ii) any
terms of the Mortgage Loans (and Mortgage Servicing Agreements) relating
thereto. The Custodial Accounts contain the amounts shown in the records of
the Company or LMP, which amounts represent all monies received or advanced by
the Company or LMP as required by the applicable Regulations, less amounts
remitted by or on behalf of the Company or LMP pursuant to applicable
Regulations, except for checks in process. Except as to payments that are past
due under the terms of the applicable Loan Documents, all payments of principal
and interest due and payable on the Mortgage Loans and all Custodial Account
deposits for taxes, assessments, ground rents and fire or hazard insurance have
been credited to the appropriate Custodial Accounts. The Custodial Accounts do
not have any material funding deficiency. The escrow analysis with respect to
each
66
<PAGE> 67
Mortgage Loan has been completed for the most recent required date under
applicable Regulations. Notification to the mortgagor of all payment
adjustments or credits resulting from such escrow analysis, annual statements
of taxes and interest paid by the mortgagor and any other statement required by
all applicable Regulations has been mailed by LMP or the Company or, to the
knowledge of the Company, by the applicable servicer with respect to master
serviced loans. To the extent required by applicable Regulations, funds have
been advanced by the Company, LMP or each servicer, as applicable, to each
Custodial Account as necessary to timely make all scheduled escrow
disbursements. Except as required by applicable Regulations in effect as of
the date of this Agreement, neither the Company nor LMP is required to pay
interest on the Custodial Accounts.
3.17 Inquiries
Section 3.17 of the Company Schedule contains a true and
correct list of all of the audits and investigations of the Company or LMP by
any Agency, Investor or private mortgage insurer or HUD commenced since January
1, 1992, not made in the ordinary course of business, the result of which
audits and investigations claimed a material failure to comply with applicable
Regulations
67
<PAGE> 68
and resulted in (i) a repurchase of Mortgage Loans or Collateral by the Company
or LMP, (ii) indemnification by the Company or LMP in connection with Mortgage
Loans, (iii) rescission of an insurance or guaranty contract or agreement in
connection with Mortgage Loans or (iv) payment by the Company or LMP of a
penalty to an Agency, HUD, an Investor or an Insurer. Except as otherwise set
forth in Section 3.17 of the Company Schedule, no such audit or investigation
is pending or, to the knowledge of the Company, threatened. The Company has
made available to Buyer copies of all written reports and materials received or
sent by the Company or LMP in connection with such audits and investigations.
3.18 Advances; Accounts Receivable
Except as set forth in Section 3.18 of the Company Schedule,
there are no pooling, participation, servicing or other agreements to which the
Company or LMP is a party which obligate it to make servicing advances with
respect to defaulted or delinquent Mortgage Loans, other than as provided in
GNMA, FNMA or FHLMC pooling and servicing agreements. The Advances and the
Accounts Receivable are valid and subsisting amounts owing to the Company or
LMP, are carried on the books of the Company at values determined in
accordance with GAAP and are not
68
<PAGE> 69
subject to any setoffs or claims of the account debtor arising from acts or
omissions of the Company or LMP nor, to the knowledge of the Company, is any
Investor or Agency insolvent or otherwise unable to repay any Accounts
Receivable or Advances as required by applicable Regulations. Except as set
forth in Section 3.18 of the Company Schedule, neither the Company nor LMP has
received any notice from an Agency, Investor, Insurer or other Person disputing
or denying a claim by the Company or LMP for reimbursement in connection with
any Accounts Receivable or Advances. As of July 31, 1995, the aggregate Book
Value of the Accounts Receivable was $12,223,000.
3.19 Physical Damage
Except as set forth on Section 3.19 of the Company Schedule,
to the knowledge of the Company there exists no physical damage to the
Collateral from fire, flood, windstorm, earthquake, tornado, hurricane or any
other similar casualty, which physical damage would or would reasonably be
expected to cause any Mortgage Loan to become delinquent or adversely affect
the value or marketability of any Mortgage Loan, Servicing Right or Collateral.
69
<PAGE> 70
3.20 Pool Certification and Recertification
Except as set forth in Section 3.20 of the Company Schedule:
(i) each Mortgage Loan included in a Pool meets all eligibility requirements
for inclusion in such Pool, in accordance with all applicable standards of
eligibility for loan pooling; (ii) the Loan Documents for each Mortgage Loan
contain or will contain, within the period required by applicable Regulations,
all items required by applicable Regulations for the certification of Pools by
the appropriate Agency or Investor and such Pools will be in compliance with
all applicable Agency or Investor requirements and guidelines, within the
period required by applicable Regulations; (iii) all Pools relating to the
Mortgage Loans have been or will be, within the period required by applicable
Regulations, certified in accordance with applicable Regulations, and the
securities backed by such Pools have been issued on uniform documents,
promulgated in the applicable Agency or Investor guide without any material
deviations therefrom; (iv) all Pools relating to the Mortgage Loans are or will
be, within the period required by applicable Regulations, eligible for
recertification by the appropriate custodian; (v) the principal balance
outstanding and owing on the Mortgage Loans in each Pool equals or
70
<PAGE> 71
exceeds the amount owing to the corresponding security holder of such Pool;
(vi) no Mortgage Loan has been bought out of a Pool without all required prior
written approvals; and (vii) each Mortgage Loan included in a Pool satisfied
the requirements of Section 3(a)(41)(A)(i) and (ii) of the Securities Exchange
Act of 1934, as amended, so that interests in such Pools constitute "mortgage
related securities" under Section 3(a)(41) of such Act.
3.21 Payment of Taxes, Insurance
Premiums, Other Amounts
The responsibilities of the Company, LMP and, to the knowledge
of the Company, all prior servicers and originators of the Mortgage Loans with
respect to all applicable Taxes (including tax reporting for the period prior
to the Closing), special assessments, ground rents, flood insurance premiums,
hazard insurance premiums and mortgage insurance premiums that are related to
the Mortgage Loans have been met.
3.22 Tax Identification
All tax identifications for the individual mortgagor under a
Mortgage Loan (or evidence that reasonable attempts have been made to obtain
such in accordance with applicable Regulations) are contained in the Loan
71
<PAGE> 72
Documents. All of such tax identifications are correct and complete in all
material respects, and property descriptions contained in any Loan Document are
legally sufficient.
3.23 Single Family Loans
Except as set forth in Section 3.23 of the Company Schedule
and except for the loans described in clause (C) of the definition of Mortgage
Loan, (i) all Mortgage Loans are secured by single family (i.e., one to four
family) residential real property and (ii) the full principal amount of each
note related to a Mortgage Loan has been advanced to the mortgagor, either by
payment directly to such mortgagor, or by payment made on request or approval
of the mortgagor, and there is no obligation or requirement for future
advances.
3.24 Investor and Loan Purchase Commitments
Set forth in Section 3.24 of the Company Schedule is a
complete and correct list of (x) each Investor Commitment (including the
aggregate amount thereof) to which the Company or LMP is party as of the date
of this Agreement, (y) the name of each Investor, (z) the execution,
performance and expiration dates of each Investor Commitment, (xx) the types of
loans covered by such Investor Commitment, (yy) with respect to Loan Purchase
72
<PAGE> 73
Commitments, the respective aggregate principal amounts of loan applications in
process, approved applications, and funded loans under each such commitment,
and (zz) with respect to Investor Commitments, an identification of pair-off
penalties, if any. The Company has made available to Buyer complete and
correct copies of all Investor Commitments and Loan Purchase Commitments in
effect on such date. Each Investor Commitment and Loan Purchase Commitment
constitutes a valid and binding obligation of the Company or LMP, and, to the
knowledge of the Company, all of the other parties thereto, enforceable in
accordance with its terms, subject to bankruptcy, insolvency or other similar
laws affecting the enforcement of creditors' rights generally and by general
principles of equity (whether applied in a proceeding in equity or at law).
3.25 ARMs and Conversion Loans
If the Mortgage Loan documents grant the related mortgagor the
right to convert the Mortgage Loan to a fixed-rate Mortgage Loan and the
related mortgagor previously has exercised such right, or provide that the
interest rate or installment or payment amount of the Mortgage Note may be
adjusted prospectively, then: (i) all of the terms of the Mortgage Loan
documents may be
73
<PAGE> 74
enforced by the holder thereof, its successors and assigns, subject to
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and general principles of equity (whether applied
in a proceeding in equity or at law), (ii) any such adjustments will not, or
did not, affect the priority of the lien of the related Mortgage or Note, and
(iii) all adjustments have been made (and the resulting interest rates and
payment amounts are correct), and the respective mortgagors advised thereof, in
accordance with the applicable Regulations. No mortgagor has made, or to the
Company's knowledge, has threatened to make any claim or complaint that any
adjustment was inappropriately made or inappropriately omitted. At or prior to
the Closing Date, the Company shall make available to Buyer all loan histories
available to the Company on magnetic media, and all such loan histories are
complete and accurate in all material respects.
3.26 Taxes
Except as otherwise provided in this Agreement, the Company,
LMS and LMP have (i) timely filed (or will have timely filed by the Closing
Date) with the appropriate taxing authorities all Tax Returns in respect of the
74
<PAGE> 75
Assets required to be filed and such Tax Returns are true, complete and correct
in all material respects and (ii) paid in full, or made adequate provision in
accordance with GAAP for the payment of, all Taxes due and payable through the
Closing Date. There are no liens for Taxes upon any of the Assets, except
liens for Taxes not yet due or payable.
3.27 FHA and VA Claims.
All claims submitted, required to be submitted and allowed to
be submitted, by the Company and LMP to the FHA or the VA, as applicable, have
been properly and timely submitted to FHA or the VA.
3.28 Fairness Opinion.
The Company has received an opinion, dated the date of this
Agreement, from Salomon Brothers Inc to the effect that, subject to the terms,
conditions and qualifications set forth therein, as of the date thereof the
consideration to be received by the Company pursuant to this Agreement is fair
to the Company from a financial point of view. Buyer acknowledges that the
foregoing representation is not intended to create any responsibility of
Salomon Brothers Inc to the Buyer in respect of its opinion referred to in the
preceding sentence.
75
<PAGE> 76
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company as follows:
4.1 Organization
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has full corporate
power and authority to carry on its business as now conducted.
4.2 Authority; No Violation
(a) Buyer has full corporate power and authority to
execute and deliver this Agreement and any documents, agreements or instruments
to be executed and delivered by Buyer pursuant to this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and any documents, agreements or instruments to be executed and
delivered by Buyer pursuant to this Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all requisite corporate action in respect thereof on the part of
Buyer and no other corporate proceedings on the part of Buyer are necessary to
consummate the transactions contemplated hereby and thereby. This Agreement
has been duly and
76
<PAGE> 77
validly executed and delivered by Buyer and, assuming this Agreement
constitutes a valid and binding obligation of the Company, such agreement
constitutes a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, and the other documents, agreements and
instruments to be delivered by Buyer pursuant to this Agreement will, when
executed and delivered, be duly executed and delivered by Buyer and will
constitute legal, valid and binding obligations of Buyer, enforceable against
Buyer in accordance with their terms (in all cases, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity (whether
applied in a proceeding in equity or at law)).
(b) Neither the execution and delivery by Buyer of this
Agreement, or any document, agreement or instrument to be executed by Buyer
pursuant to this Agreement, nor the consummation by Buyer of the transactions
contemplated hereby, nor compliance by Buyer with any of the terms or
provisions hereof, will (i) conflict with or result in a breach of any
provision of the articles of incorporation or by-laws of Buyer or (ii) assuming
the consents, permits, authorizations, approvals,
77
<PAGE> 78
filings and registrations set forth in Section 4.3 of the disclosure schedule
which has previously been delivered by Buyer to the Company (the "Buyer
Schedule") are obtained or made, (A) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Buyer or any of its properties or assets or (B) violate, conflict with, result
in a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in a
right of termination or acceleration or the creation of any Encumbrance upon
any of the properties or assets of Buyer under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer is a party,
or by which its properties or assets may be bound or affected, except, in the
case of clause (B) above, for such violations, conflicts, breaches or defaults
which, either individually or in the aggregate, would not have a material
adverse effect on Buyer's ability to consummate the transactions contemplated
hereby.
78
<PAGE> 79
4.3 Consents and Approvals
Except as set forth in Section 4.3 of the Buyer Schedule, no
consents, permits, authorizations or approvals of, or filings or registrations
with, any governmental or regulatory authorities, government-sponsored agencies
or corporations or other Persons are necessary to be obtained or made by Buyer
in connection with the execution and delivery by Buyer of this Agreement or any
document, agreement or instrument to be executed by Buyer pursuant to this
Agreement or the consummation by Buyer of the transactions contemplated hereby.
4.4 Financing
On or prior to the Closing Date, Buyer shall have sufficient
funds to enable Buyer to consummate the transactions contemplated hereby and to
pay the fees and expenses required to be paid by Buyer related thereto.
4.5 Mortgage Banking Licenses
and Qualifications
Buyer (i) is qualified (A) by FHA as a mortgagee and servicer
for FHA Loans, (B) by the VA as a lender and servicer for VA Loans, (C) by FNMA
and FHLMC as a seller/servicer of first mortgages to FNMA and FHLMC and (D) by
GNMA as an authorized issuer and servicer of GNMA-guaranteed mortgage-backed
securities; and (ii) has all
79
<PAGE> 80
other Licenses necessary to conduct the Servicing Business, and is in good
standing under all applicable federal, state and local laws and regulations
thereunder as a mortgage lender and servicer.
4.6 Brokers and Finders
Neither Buyer nor any of its officers, directors, employees,
agents or Affiliates has employed any broker, finder or financial advisor or
incurred any liability for any broker's or finder's fees or commissions in
connection with the transactions contemplated hereby, except that Buyer has
engaged, and will pay a fee or commission to, (i) Donaldson, Lufkin and
Jenrette ("DLJ") in accordance with the terms of the letter agreement by and
between DLJ and Buyer and (ii) UBS Securities ("UBS") in accordance with the
terms of the letter agreement by and between UBS and Buyer.
ARTICLE V
COVENANTS
5.1 Conduct Prior to Closing
During the period from the date of this Agreement and
continuing until the Closing Date, except as expressly contemplated or
permitted by this Agreement or with the prior written consent of Buyer, the
Company shall, and shall cause LMP to the extent practicable, to
80
<PAGE> 81
conduct its business relating to the Assets and the Assumed Liabilities in the
ordinary course consistent with past practice. Except as may be required by
the Regulations, the Company shall, and shall cause LMP, to the extent
practicable, to use its best efforts to: (I) preserve its present business
organization and relationships intact; (II) keep available to itself and Buyer
the present services of its employees; and (III) preserve for itself and Buyer
the goodwill of the customers of the Company and LMP and others with whom
business relationships exist, in each case, as relates to the business related
to the Assets and the Assumed Liabilities. Without limiting the generality of
the foregoing, except as set forth in Section 5.1 of the Schedule or as
otherwise expressly contemplated or permitted by this Agreement or consented to
in writing by Buyer, the Company shall not, and shall not permit LMP, to the
extent practicable, to:
(a) fail to pay and discharge any of its obligations,
bills or other liabilities relating to the Assets or the Assumed Liabilities as
they become due, except to the extent that it is disputing the amounts thereof
in good faith;
(b) acquire, sell, transfer, lease or otherwise dispose
of any of the Assets, other than in the
81
<PAGE> 82
ordinary course of business, provided, however, that nothing contained herein
shall permit the Company or LMP to sell or acquire Servicing Rights (other than
the acquisition of Servicing Rights in connection with the origination of
mortgage loans) or to sell any Mortgage Loans on a servicing released basis
(other than sales from current production in the ordinary course of the
Company's business consistent with the Company's practice for the 60-day period
immediately preceding the date of this Agreement);
(c) except as may be required by applicable Regulations
and except as to the Company's business of warehousing loans for others,
materially alter or vary its methods or policies of (i) underwriting, pricing,
originating, warehousing, selling or servicing, or buying or selling rights to
service, mortgage loans, (ii) hedging (which term includes both buying futures
and forward commitments from financial institutions) its mortgage loan
positions or commitments, and (iii) obtaining financing and credit;
(d) engage or participate in any material transaction, or
incur or sustain any material obligation, with respect to the Assets or the
GNMA Servicing, except in the ordinary course of business;
82
<PAGE> 83
(e) amend, terminate or cancel, or take or fail to take
any other action that is likely to result in an amendment, termination or
cancellation of, any Contract except in the ordinary course of business and
except for actions with respect to Contracts for which the Company would not be
required to give notice to Buyer pursuant to Section 5.7 hereof;
(f) except in the ordinary course of business, take any
action (i) materially impairing Buyer's rights in any Contract or Asset
(including without limitation through the assignment, creation of an
Encumbrance on or other disposition of, any Asset), (ii) waiving any material
right, whether in equity or at law, that it has with respect to any Mortgage
Loan or (iii) otherwise materially adverse to the interest of Buyer with
respect to the Assets or the Assumed Liabilities;
(g) take any action, or fail to take any action, that is
intended to result in a breach or violation of any of the representations and
warranties of the Company contained in this Agreement or would cause any
condition to the transactions contemplated hereby not to be satisfied, except,
in every case, as may be required by law; or
83
<PAGE> 84
(h) change its accounting principles or methods in effect
at July 31, 1995, except as required or permitted by GAAP as concurred to by
the Company's auditors or as otherwise specifically contemplated by this
Agreement;
(i) solicit any Mortgage Loan or Pipeline Loan for
participation in the Company's bi-weekly payment program except that the
Company may complete any solicitations commenced prior to the date hereof; or
(j) agree to do any of the foregoing.
5.2 Regulatory Matters
(a) The parties hereto shall cooperate with each other and
use their best efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all Governmental Entities and third parties, which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (it being understood that the Company shall be responsible for
obtaining all such approvals, waivers and consents from such parties with whom
the Company or LMP is in contractual privity). Buyer and the Company shall
have the right to review in advance, and to the extent
84
<PAGE> 85
practicable each will consult with the other on, in each case subject to
applicable laws relating to the exchange of information, all the information
relating to Buyer or the Company, as the case may be, and any of their
respective Affiliates, which appear in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in
connection with the transactions contemplated by this Agreement; provided,
however, that nothing contained herein shall be deemed to provide either party
with a right to review any information provided to any Governmental Entity on a
confidential basis in connection with the transactions contemplated hereby.
The parties hereto agree that they will consult with each other with respect to
the obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to consummate
the transactions contemplated by this Agreement and each party will keep the
other apprised of the status of matters relating to completion of the
transactions contemplated herein. In exercising the foregoing rights and
obligations, each of the parties hereto shall act reasonably and as promptly as
practicable.
85
<PAGE> 86
(b) Buyer and the Company shall, upon request, furnish
each other with all information concerning themselves, their respective
Subsidiaries, directors, officers, stockholders and other Affiliates, and such
other matters as may be reasonably necessary or advisable in connection with
any statement, filing, notice or application made by or on behalf of Buyer, the
Company or any of their respective Subsidiaries to any Governmental Entity in
connection with the transactions contemplated by this Agreement.
(c) Buyer and the Company shall promptly advise each
other upon receiving any communication from any Governmental Entity or third
party whose consent or approval is required for consummation of the
transactions contemplated by this Agreement which causes such party to believe
that there is a reasonable likelihood that any such consent or approval will
not be obtained or that the receipt of any such approval will be materially
delayed.
5.3 Access to Information
(a) During the period from the date hereof through the
Closing Date, upon reasonable notice and subject to applicable laws relating to
the exchange of information, the Company and LMP shall provide to Buyer and its
representatives, accountants and counsel, full
86
<PAGE> 87
and complete access to all of the properties, books, records, operating
reports, audit reports, any reports of Governmental Entities and responses
thereto, operating instructions and procedures (and all correspondence with
Governmental Entities), Tax Returns, financial statements and other financial
information and all other information relating to the Assets and the Assumed
Liabilities, as Buyer may from time to time reasonably request, to make copies
of such books, records and other documents and to discuss the business affairs,
condition (financial and otherwise), assets and liabilities of the Company and
LMP, with such third persons, including, without limitation, their directors,
officers, employees, agents, accountants, attorneys, customers and creditors,
as Buyer considers necessary or appropriate for the purposes of familiarizing
itself with the Assets, Assumed Liabilities and the Mortgage Loans, determining
compliance with any of the representations, warranties and covenants of the
Company set forth herein, and obtaining any necessary orders, consents or
approvals of the transactions contemplated by this Agreement. In connection
with such examination and access, Buyer agrees to observe any confidentiality
agreements between the Company or its Subsidiaries and third parties related to
such information.
87
<PAGE> 88
The information and access contemplated by this Section 5.3 shall be provided
during normal business hours, upon reasonable written or oral notice and in
such manner as will not unreasonably interfere with the conduct of the
Company's or its Subsidiaries' or LMP's respective businesses. Buyer will hold
all such information in confidence to the extent required by, and in accordance
with, the provisions of the confidentiality agreement dated November 22, 1994,
between Buyer and Parent (the "Confidentiality Agreement").
(b) For purposes of Buyer's investigation pursuant to
this Section 5.3, the Company shall use its reasonable efforts to cause any
document custodian, service bureau, accountant, loan correspondent, third party
servicer or other third party under contract to the Company, LMS or LMP to
furnish to Buyer and to its authorized representatives full access to such
party's premises and all of its books, records and properties, including,
without limitation, all loan, investment, regulatory, financial, accounting,
real estate, tax and property records and files relating to the Assets and the
Assumed Liabilities, including, without limitation, all files, computer records
and customer information necessary for the conversion after the Closing Date of
all
88
<PAGE> 89
accounts, products and operating systems of the Company and LMP to such systems
as Buyer may designate. The Company shall use its reasonable efforts to cause
any document custodian, service bureau, accountant, third party servicer or
other third party to provide adequate space and facilities and the cooperation
of its personnel, including, without limitation, copying facilities, to the end
that such examination shall be completed expeditiously, completely and
accurately. The Company shall, upon request, provide Buyer and its authorized
representatives, with all information relating to the Mortgage Loans, to the
extent legally permissible. Any such investigation or examination pursuant to
this Section 5.3, shall be at Buyer's expense.
(c) No investigation by Buyer made heretofore or
hereafter shall affect the representations and warranties, covenants or
indemnification obligations of the Company which are contained herein and each
such provision shall survive such investigation.
5.4 Legal Conditions to Transaction
Subject to the terms and conditions of this Agreement, each of
Buyer and the Company shall use its commercially reasonable efforts (a) to
take, or cause to be taken, all actions necessary, proper or advisable to
89
<PAGE> 90
comply promptly with all legal requirements which may be imposed on such
parties or their respective Affiliates with respect to the transactions
contemplated by this Agreement and, subject to the conditions set forth in
Article VI hereof, to consummate the transactions contemplated by this
Agreement and (b) to obtain (and to cooperate with the other party to obtain)
any consent, authorization, order or approval of, or any exemption by, any
Governmental Entity and any other third party which is required to be obtained
by Buyer or the Company, or any of their respective Affiliates, in connection
with the transactions contemplated by this Agreement; provided, however, that
Buyer shall not be required to take any action pursuant to the foregoing if the
taking of such action or such compliance or the obtaining of such consent,
authorization, order or approval or exemption is likely, in the reasonable
opinion of Buyer's board of directors, to result in the imposition of a
Burdensome Condition (as defined below).
5.5 Advice of Changes
Prior to the Closing Date, each of Buyer and the Company shall
promptly advise the other party of any change or event which it believes would
or would be reasonably likely to cause or constitute a material
90
<PAGE> 91
breach of any of its representations, warranties or covenants contained herein
or, solely in the case of the Company, having a Material Adverse Effect. From
time to time prior to the Closing Date, the parties will promptly supplement or
amend the Schedules delivered to each other in connection with the execution of
this Agreement to reflect any matter which, if existing, occurring or known at
the date of this Agreement, would have been required to be set forth or
described in such Schedules or which is necessary to correct any information in
such Schedules which has been rendered inaccurate thereby. Except for
additions provided pursuant to Section 5.7, no supplement or amendment to such
Schedules shall have any effect for the purpose of determining the satisfaction
of the conditions set forth in Section 6.3(a) hereof, as the case may be, the
accuracy of the representations or warranties of the Company set forth therein,
the compliance by the Company with its covenants set forth herein or the
obligation of the Company to indemnify Buyer or any other Person pursuant to
Article VII hereof.
5.6 Transfer Fees and Certain Other Costs
(a) The Company shall bear the cost of: (i) all fees
required to be paid in connection with or obtaining approval for the transfer
of the Assets by the
91
<PAGE> 92
Company to Buyer, including, without limitation, any transfer fees payable to
GNMA, FNMA, FHLMC, state housing Agencies, Investors and licensors, (ii) the
cost of (and shall arrange for performance of) any required assignments and
recordation and re-recordation of assignments and Mortgages securing Mortgage
Loans as a result of transfers to the Company from prior servicers and as a
result of the transfer in connection with the transactions contemplated by this
Agreement, (iii) transfer fees, if any, relating to relevant tax service
contracts, but no more than $10.00 per Mortgage Loan, (iv) all costs and
expenses associated with recertifying all Mortgage Loans serviced for
Investors, within the time required by such Investor, as a result of transfer
to the Company, from prior servicers, including, but not limited to, all
recording and mailing costs and the costs of curing document defects and
supplying missing documents, (v) any custodial termination fees, (vi) providing
notices to HUD, VA and hazard and mortgage insurance providers, (vii) the cost
of preparing and recording any release instruments necessary to clear title to
any Assets, (viii) all Taxes incurred in connection with the transactions
contemplated by this Agreement (in connection therewith, the Company shall file
(or cause to be filed)
92
<PAGE> 93
in the ordinary course all Tax Returns and other documentation with respect to
such Taxes, and if required by applicable law Buyer shall join in the execution
of such Tax Returns) and (ix) the cost of delivering, by insured shipping by
bulk transfer or other customary industry practice, all Loan Documents and
other Records to Buyer's principal place of business. Buyer and the Company
shall each pay one-half of the cost of sending notices to borrowers required by
the Real Estate Settlement Procedures Act, and the Company agrees to timely
cooperate with Buyer in sending such notices. If the Company fails to pay any
amount required by this Section 5.6 and as a result Buyer pays such amount, the
Company shall be liable to the Buyer for the amount paid and such amount may be
deducted from any amount payable by Buyer pursuant to Section 2.7. Buyer will
work diligently and cooperate with the Company to obtain necessary approvals
and the most favorable costs, rates and prices for the items referred to herein
if the provider of the service is satisfactory to Buyer in the exercise of its
reasonable judgment. If the Company chooses to contract with any Person to
provide any of the services described in this Section 5.6(a) or in Section 5.9,
Buyer shall have the right to consent to the Company's use of such Person,
93
<PAGE> 94
which consent may not be unreasonably withheld or delayed.
(b) Nothing contained in this Section 5.6 shall
constitute a waiver by any party hereto of the right to recover damages,
including recovery of costs and expenses covered by this Section 5.6, from the
other party in the event of a breach by such other party of the terms and
provisions of this Agreement.
5.7 Additional Contracts
From the date hereof until the Closing Date, prior to entering
into any additional contract or group of related contracts in connection with
any of the Assets or the Assumed Liabilities (other than a Mortgage Servicing
Agreement, an Investor Commitment, a Loan Purchase Commitment or any Loan
Document with respect to a Warehouse Loan or a Pipeline Loan, in each case
which was entered into in the ordinary course of business), which contract or
group of related contracts would call for payments of more than $250,000 in any
year and would not be terminable through notice of 30 days or less without cost
or penalty, the Company shall, or shall cause LMP to, notify Buyer in writing
of any intent to enter into such contract and shall afford Buyer reasonable
access to the documents relating thereto. Buyer shall relate to
94
<PAGE> 95
the Company or LMP, as the case may be, by 12:00 p.m. on the next business day
after being so notified, its decision whether or not to accept such additional
contract. The failure by Buyer to respond prior to 12:00 p.m. on such next
business day shall be deemed an acceptance of such additional contract. Any
additional contracts accepted or deemed accepted by Buyer under this Section
5.7, and any contract entered into by the Company or LMP subsequent to the date
hereof for which the Company or LMP shall not be required to notify Buyer
pursuant to the terms of this Section 5.7, shall be added to the applicable
Schedule hereto and thereby become part of the Contracts to be assumed by
Buyer.
5.8 Subservicing and Transition
Services Agreement
Prior to or simultaneously with the Closing, Buyer and the
Company shall enter into the Subservicing and Transition Services Agreement
substantially in the form of Exhibit 5.8 (the "Subservicing and Transition
Services Agreement") and providing for the provision by the Company of the
services set forth therein relating to the Mortgage Loans transferred to Buyer
hereunder and the transition of the servicing of the Mortgage Loans to Buyer's
operations systems.
95
<PAGE> 96
5.9 Assignment of Mortgages
and Endorsements of Notes
Beginning immediately following the Closing Date, to the
extent required by applicable law or the applicable Investor or Insurer, the
Company shall prepare, execute and (i) record with the appropriate state or
local recording offices assignments to Buyer of the Mortgages securing the
Mortgage Loans, including, without limitation, blanket assignments wherever
possible and permitted by the Regulations and (ii) provide Buyer with an
endorsement of each of the Notes. The Company shall arrange for each
assignment to be forwarded to Buyer, after recordation, in numerical order, by
pool number. The Company shall cooperate with Buyer with respect to Buyer's
obligation to assign Mortgages to Investors, including providing Buyer with the
identity of any contractors preparing assignments of Mortgages to Buyer on
behalf of the Company. For purposes of obtaining information in order to
prepare assignments and endorse Notes, after the Closing, Buyer shall give the
Company access to any of the Loan Documents transferred by the Company to
Buyer, including access to any Loan Documents held by a custodian, and allow
the Company to utilize space at the offices of Buyer (or the offices of any of
its Affiliates
96
<PAGE> 97
at which the Loan Documents to which the Company requires access are located)
for purposes of preparing the assignments and endorsements. The Company shall
use its best efforts to, or use its best efforts to cause its contractor to,
prepare and record on an expedited priority basis all assignments and any other
documents necessary or appropriate to record releases or make such releases
effective in connection with the foreclosure and payoff of any Mortgage Loan.
5.10 Final Certification and
Re-Certification
(a) Closing Date Deadline. The Company or LMP, as the case
may be, shall use its best efforts to obtain the final certification or
recertification, as applicable, of any Pool with respect to which the deadline
for final certification or recertification is a date that occurs on or before
the Closing Date. If it appears that a Pool required to be finally certified
or recertified on or before the Closing Date will not be so certified or
recertified, then, subject to any necessary approval of the Investor, Buyer may
request that the Company repurchase any Mortgage Loan that is preventing the
Pool from being finally certified or recertified in time to permit the Pool to
be so certified or recertified
97
<PAGE> 98
by the Closing Date. Buyer may require, as a condition to the transfer of the
Servicing Rights to a Pool that is required to be, but is not, finally
certified or recertified on the Closing Date, that the Company post, or pay the
cost of posting, any letter of credit or performance bond required by the
applicable Investor with respect to the Pool to the extent of the proportion
which its delinquent uncertified or unrecertified pools bears to all delinquent
uncertified or unrecertified pools under Buyer's issuer number, and reimburse
Buyer for any proportionate Losses resulting from, arising out of or relating
to the Pool not being finally certified or recertified by the deadline.
(b) Post Closing Date Deadline. The Company or LMP, as the
case may be, shall obtain such documents and shall take such steps as are
necessary to enable Buyer, through the exercise of reasonable efforts after the
Closing Date, to obtain by the appropriate deadline the final certification or
recertification, as applicable, of any Pool with respect to which the deadline
for final certification or recertification is after the Closing Date, including
the recertification of Pools in connection with the transfer of Servicing
Rights to Buyer hereunder. If the Company or LMP, as the case may be,
98
<PAGE> 99
does not take such actions and, as a result, Buyer cannot obtain by the
appropriate deadline, through the exercise of reasonable efforts after the
Closing Date, the final certification or recertification of any Pool with
respect to which the deadline for final certification or recertification is
after the Closing Date, then upon the request of Buyer, the Company shall (i)
post, or pay the cost of posting, any letter of credit or performance bond
required by the applicable Investor to the extent of the proportion which its
delinquent uncertified or unrecertified pools bears to all delinquent
uncertified or unrecertified pools under Buyer's issuer number, and reimburse
Buyer for any proportionate Losses resulting from, arising out of or relating
to the failure to obtain final certification or recertification by the
deadline, and (ii) if permitted by the applicable Investor, repurchase, or pay
all Losses related to Buyer's repurchase of, any Mortgage Loan that is
preventing such a Pool from being finally certified or recertified.
(c) On and after the Closing Date, all documents necessary
for the final certification or recertification of a Pool shall be delivered by
the Company to Buyer. If Buyer's document custodian returns a document to
Buyer for correction or missing information, Buyer
99
<PAGE> 100
shall forward the document to the Company, and the Company shall promptly
correct the document or insert the appropriate information and return the
document to Buyer.
5.11 Payment of Warehouse Lines;
Release of Warehouse Loans
On or prior to the Closing, Buyer shall take such action as is
necessary to (i) pay off in full on behalf of the Company all outstanding
amounts owing under the Bank Warehouse Line and the FNMA Line and (ii) pay to
DLJ Mortgage on behalf of the Company all outstanding principal and accrued
interest under the DLJ Line other than any such outstanding amounts advanced to
fund the Warehouse For Others. The Company shall, with the cooperation of
Buyer, cause all Encumbrances on the Warehouse Loans to be released upon
Buyer's payments in accordance with this Section 5.11, such that, at the
Closing, Buyer shall acquire title to the Warehouse Loans free and clear of any
Encumbrances.
5.12 Employees
Prior to the Closing, Buyer shall offer employment to those
employees of the Company set forth on Schedule VIII hereto (the "Employees"),
which schedule shall be delivered on or prior to the Closing Date,
100
<PAGE> 101
effective as of the Closing Date, on such terms as Buyer, in its sole
discretion, shall determine (which terms, including compensation terms, may be
different from those now received from the Company). Buyer shall not be
obligated to employ any Employee, but shall offer to such Employees employment,
and shall hire such Employees that accept employment, effective immediately
following the Closing. In the event the Acquisition is not consummated,
Buyer's offer of employment to the Employees shall be deemed to be withdrawn.
5.13 Closing and Funding of Pipeline Loans
Following the Closing, Buyer shall assume and be responsible
for all obligations relating to all of the Pipeline Loans, and all Pipeline
Loans will be closed in Buyer's name and funded by Buyer, and all matters
relating to the closing, funding, sale, delivery and servicing of the Pipeline
Loans will be managed by Buyer and its officers and employees, provided,
however, that nothing contained in this Section 5.13 shall be deemed to
preclude or otherwise limit the right of Buyer to be indemnified for any breach
of a representation or warranty by the Company in accordance with the
provisions of Article VII hereof.
5.14 Resignations
101
<PAGE> 102
On the Closing Date, the Company shall cause to be delivered
to Buyer duly signed resignations, effective immediately following the Closing,
of all directors of LMS.
5.15 Swap Agreement
At the Closing, Buyer shall pay to LBSF on behalf of the
Company an amount in cash necessary to close out and settle the Swap Agreement
in accordance with the terms thereof. The Company shall, with the cooperation
of Buyer, take all such action as may be necessary such that, upon payment by
Buyer of any amounts to be paid to LBSF under the Swap Agreement at the
Closing, LBSF shall release the Encumbrance on the Servicing Rights and Buyer
shall acquire such Servicing Rights free and clear of any Encumbrances
whatsoever.
5.16 Non-Solicitation. From and after the date hereof,
neither the Company nor any of its Affiliates shall, during the remaining term
of any of the Mortgage Loans (i) take any action, by telephone, by mail or
otherwise, to solicit the prepayment of the Mortgage Loans by the Mortgagors,
in whole or in part, (ii) take any action intended to facilitate or encourage
the correspondents of the Company or any of its Affiliates that originated the
Mortgage Loans to solicit the prepayment
102
<PAGE> 103
of the Mortgage Loans by the mortgagors, in whole or in part, (iii) solicit
borrowers of Mortgage Loans who are delinquent with respect to late fees or
other charges by offering to forgive such delinquent obligations in exchange
for a partial payment or other incentives which result in payment of less than
all of such outstanding delinquent obligations, or (iv) disseminate to any
third party, for compensation or otherwise, any complete or partial list of the
mortgagors on the Mortgage Loans for the purpose of soliciting the prepayment
of Mortgage Loans; provided, that this provision shall not prohibit the Company
or any of its Affiliates from providing such lists in any judicial proceedings
or in response to a request by a Government Entity, Agency or Investor.
5.17 Remittances. Unless otherwise agreed to by the parties
or required by GNMA, the Company shall make the first payment of principal and
interest due immediately following the Closing Date to holders of GNMA
securities relating to the Mortgage Loans, and shall pay all related guaranty
fees for the applicable month, from the payments received by the Company with
respect to such Mortgage Loans pursuant to the Subservicing and Transition
Services Agreement. In the event the payments so received by the Company are
insufficient to pay these
103
<PAGE> 104
amounts, Buyer agrees to provide to the Company the additional funds necessary
to pay these amounts by wiring immediately available funds to the Company no
later than twenty-four (24) hours prior to the required remittance date.
5.18 Bills. All bills (including, without limitation, tax
and insurance bills) pertaining to the Mortgage Loans with respect to which the
earlier of the payment deadline to take advantage of a discount or the payment
deadline to avoid a penalty is before, on or within thirty (30) days after the
Closing Date shall be paid by the Company, and the Company shall pay such bills
in accordance with the Regulations. All penalties and interest due on any
Mortgage Loan resulting from the Company's failure to pay a bill in accordance
with this Section 5.18 shall be borne by the Company.
5.19 Interest Rate Adjustments. For any Mortgage Loan that
is an adjustable rate mortgage loan, or fixed rate loan that is being converted
to an adjustable rate loan, in connection with which the interest rate and
payment amount must be adjusted, and the mortgagor notified of the adjustments,
in accordance with the Regulations before, on or within sixty (60) days after
the Closing Date, the Company shall calculate the appro-
104
<PAGE> 105
priate rate and payment adjustments and notify the related mortgagor in
accordance with all Regulations.
5.20 Forwarding of Payments and Other Items. With respect to
any checks, other funds or documents in respect of any Mortgage Loan which are
received by the Company or made payable to the Company and provided to the
Company within ninety (90) calendar days after the Conversion Date, and which
relate to any payments due under the Mortgage Loans and collectible by the
servicer under the terms of the Mortgage Servicing Agreements, the Company
shall, after identification, promptly endorse such checks or transfer such
other funds to Buyer without recourse and send the same to Buyer via overnight
mail. Any checks or other funds in respect of any Mortgage Loan which are
received by the Company after such ninety (90) day period shall be endorsed
without recourse by the Company to Buyer and sent by first class mail to Buyer
within five (5) business days of receipt, without identification. Except as
otherwise provided herein, the Company shall promptly forward by first class
mail to Buyer all borrower correspondence, insurance notices, tax bills or any
other correspondence or documentation related to the Mortgage Loans which are
received by the Company after the Conversion Date. The Company shall have no
105
<PAGE> 106
obligation with respect to forwarding post-Conversion Date items to Buyer after
one-hundred and twenty (120) calendar days following the Conversion Date. All
penalties and interest due in connection with a Mortgage Loan resulting from
the Company's failure to forward bills or related information to Buyer as
provided above shall be borne by the Company. The Company shall cooperate with
Buyer to obtain tax bills with respect to which the earlier of the payment
deadline to take advantage of a discount or the payment deadline to avoid a
penalty is between the thirty first (31st) and sixtieth (60th) day after the
Conversion Date.
5.21 Assignment of Certain Contracts. The Company shall
assign to Buyer, effective as of the Closing Date, fully paid, life of the loan
tax service contracts issued by First American Real Estate Tax Services, Inc.
related to all Mortgage Loans. The Company also shall assign to Buyer,
effective as of the Closing Date, such fully paid, life of the loan flood zone
certification contracts issued by a company acceptable to Buyer related to all
Mortgage Loans as have been obtained by the Company by the Closing Date. The
Company shall obtain, at its expense, the required consents, if any, to assign
such tax service contracts (subject to the limita-
106
<PAGE> 107
tions set forth in Section 5.6(a)(iii)) and flood zone certification contracts
to Buyer.
5.22 Custodial Fund Interest and Reporting. The Company
shall pay interest on Escrow Funds accrued through the Closing Date to the
extent interest with respect to Escrow Funds is required to be paid under the
Regulations for the benefit of mortgagors under the Mortgage Loans. The
Company shall credit such interest to the related Custodial Account before the
Escrow Funds are transferred to Buyer.
5.23 IRS Reporting. The Company shall, at its sole cost and
expense, prepare and file with the Internal Revenue Service all reports, forms,
notices and filings required by the Code and rules, regulations and
interpretations thereunder in connection with the Servicing Rights and Mortgage
Loans with respect to events that occurred prior to the Closing Date, including
without limitation, the reporting of all interest paid by the Company for the
account of mortgagors under the Mortgage Loans.
5.24 Reconciliation of Suspense Accounts. As soon as
practicable following the Closing Date, the Company shall effect a
reconciliation of all funds held in suspense (both loan level and other).
Buyer shall
107
<PAGE> 108
have the opportunity to review and approve the results of such reconciliation.
Any disputes relating to Buyer's review and approval of the results of such
reconciliation shall be subject to the dispute resolution mechanism set forth
in Section 2.4. Following final approval of the suspense account
reconciliation, Buyer shall promptly remit to the Company the aggregate amount
of any excess funds held in such suspense accounts as set forth in the results
of such reconciliation.
5.25 Retention Plan. As soon as practicable following the
date hereof, the Company shall establish a retention incentive plan for
employees of the Company set forth on Schedule IX hereto (which schedule will
be delivered on or prior to the Closing Date), in amounts and at such times as
shall be jointly determined by the Company and Buyer.
5.26 ARM Loan Review. Buyer may, at its option and
at its sole cost and expense, conduct a review of all adjustable rate Mortgage
Loans to confirm that the Company or LMP, as appropriate, (i) provided all
appropriate disclosures to the mortgagors, (ii) made all appropriate
adjustments in accordance with applicable Regulations, (iii) provided the
mortgagor with all appropriate notices, (iv) appropriately adjusted the
interest
108
<PAGE> 109
rate and payment, and (v) otherwise complied with all applicable Regulations.
5.27 USAA Encumbrance on Servicing Rights.
On or prior to the Closing Date, the Company shall take such
actions as are necessary to remove the Encumbrance on the Servicing Rights
securing the obligations of the Company to USAA such that, at the Closing, the
Servicing Rights shall be transferred to Buyer free and clear of any
Encumbrances held by USAA.
ARTICLE VI
CONDITIONS
6.1 Conditions to Each Party's
Obligations Under This Agreement
The respective obligations of each party to consummate the
Acquisition shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions:
(a) All approvals of Governmental Entities (including for
purposes of this clause (a), GNMA) required to be obtained in connection with
the transactions contemplated by this Agreement shall have been obtained,
109
<PAGE> 110
all notices required to be filed with any Governmental Entity in connection
with and prior to the consummation of the transactions contemplated by this
Agreement shall have been filed, all such regulatory approvals shall be in full
force and effect, and all notice periods and waiting periods required by law or
regulation in respect thereof or otherwise applicable to the transactions
contemplated by this Agreement shall have expired or been terminated (all such
approvals and the expiration of all such waiting periods being referred to
herein as the "Requisite Regulatory Approvals").
(b) No order, injunction or decree issued by any court
or agency of competent jurisdiction or other legal restraint or prohibition (an
"Injunction") preventing the consummation of the Acquisition or any of the
other transactions contemplated by this Agreement shall be in effect. No
statute, rule, regulation, order, injunction or decree shall have been enacted,
entered, promulgated or enforced by any Governmental Entity which prohibits,
restricts or makes illegal consummation of the Acquisition.
110
<PAGE> 111
6.2 Additional Conditions to the
Obligations of the Company
Under This Agreement
The obligations of the Company to consummate the Acquisition
shall be subject to the satisfaction on or prior to the Closing Date of each of
the following additional conditions unless waived by the Company pursuant to
Section 8.3 hereof:
(a) The obligations of Buyer required to be performed
by the Buyer at or prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed and complied with in all material
respects and the representations and warranties of Buyer set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except for any representation or warranty which speaks as of an
earlier date), and the Company shall have received a certificate of an
executive officer of Buyer to such effect, provided, however, that nothing
contained in this Section 6.2(a) shall be deemed to preclude, or otherwise
limit, the right of the Company to be indemnified for any breach of a
representation or warranty by Buyer in accordance with the provisions of
Article VII hereof; and
111
<PAGE> 112
(b) No proceeding initiated by any Governmental Entity
seeking an Injunction shall be pending; and
(c) None of the Requisite Regulatory Approvals shall
contain a condition or requirement relating to the Company or any of the
Company's Affiliates which would or would reasonably be expected to so
materially adversely impact the economic or business benefits of the
transaction contemplated hereby so as to render inadvisable, in the reasonable
good faith judgement of the Board of Directors of the Company, the consummation
of such transactions.
6.3 Additional Conditions to Buyer's
Obligations Under This Agreement
The obligations of Buyer to consummate the Acquisition shall
be subject to the satisfaction on or prior to the Closing Date of each of the
following conditions unless waived by Buyer pursuant to Section 8.3 hereof:
(a) (i) The obligations of the Company required to be
performed on or prior to the Closing Date pursuant to the terms of this
Agreement shall have been duly performed and complied with in all material
respects, (ii) the representations and warranties of the Company set forth in
this Agreement shall be true and
112
<PAGE> 113
correct in all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except for any
representation or warranty which speaks as of an earlier date), provided,
however, that for purposes of determining the satisfaction of the condition
contained in this clause (ii), no effect shall be given to any exception in
such representations and warranties relating to materiality or a "Material
Adverse Effect," and provided further, however, that the condition contained in
this clause (ii) shall be deemed to be satisfied even if all of such
representations and warranties are not true and correct unless the failure of
any of the representations or warranties to be so true and correct,
individually or in the aggregate, would have or would reasonably be expected to
have a Material Adverse Effect, and provided further, however, that nothing
contained in this Section 6.3(a) shall be deemed to preclude, or otherwise
limit, the right of Buyer to be indemnified for any breach of a representation
or warranty by the Company in accordance with the provisions of Article VII
hereof, and (iii) Buyer shall have received a certificate of an executive
officer of the Company in form and substance satisfactory to Buyer; and
113
<PAGE> 114
(b) No proceeding initiated by any Governmental Entity
seeking an Injunction shall be pending; and
(c) The Company shall have received from all Investors
or Insurers which are government agencies or are government-sponsored agencies
or corporations, other than GNMA (including, without limitation, VA, FHA, FNMA
and FHLMC), all consents required as a result of the consummation of the
Acquisition, and shall have properly filed all notices with such agencies and
corporations which are required as a result of the consummation of the
Acquisition; and
(d) The consent, approval or waiver of each Person
identified in Section 3.6 of the Company Schedule (other than the Governmental
Entities referred to in Section 6.1(a), 6.3(c) or 6.3(i)) whose consent or
approval shall be required in connection with the consummation of the
Acquisition shall have been obtained in writing in a form reasonably acceptable
to Buyer, except where the failure to obtain such consent, approval or waiver,
individually or in the aggregate, would not have a Material Adverse Effect; and
(e) Buyer shall have received evidence reasonably
satisfactory to it of the termination and release of all Encumbrances on the
Assets except for (i) liens
114
<PAGE> 115
for Taxes not yet due and payable and (ii) the Assumed Liabilities; and
(f) Subsequent to July 31, 1995, no event shall have
occurred or failed to occur which has caused or could reasonably be expected to
cause a Material Adverse Effect; and
(g) None of the Requisite Regulatory Approvals shall
contain any condition or requirement relating to Buyer or any of Buyer's
Affiliates or the Assets and the Assumed Liabilities which would or would
reasonably be expected to so materially adversely impact the economic or
business benefits of the transactions contemplated hereby so as to render
inadvisable, in the reasonable good faith judgment of the Board of Directors of
Buyer, the consummation of such transactions; and
(h) The Company and Buyer shall have entered into the
Subservicing and Transition Services Agreement; and
(i) The Company and Buyer shall have received an
opinion of Davis Polk & Wardwell, or other counsel to the Company reasonably
satisfactory to Buyer, in form and substance satisfactory to Buyer, to the
effect that the consummation of the Acquisition in accordance with the terms
and provisions of this Agreement
115
<PAGE> 116
will not (i) violate the certificate of incorporation or bylaws of the Company
or any statute, law, rule, regulation or order applicable to the Company or
(ii) violate, result in a default under, constitute a breach of, or result in a
right of acceleration or termination under, any agreement, contract, mortgage
or indenture to which the Company is a party or by which the Company or any of
the Assets may be bound; and
(j) Buyer shall have received evidence reasonably
satisfactory to it of the termination by GNMA of the cross-default agreement
between the Company and LMP.
ARTICLE VII
INDEMNIFICATION
7.1 Indemnification
(a) From and after the Closing Date, subject to the
terms and conditions of this Agreement, the Company shall indemnify and hold
harmless Buyer and each of its Affiliates (without duplication) from and
against any and all Losses which any of them actually suffer, incur or sustain
arising out of or attributable to (whether or not arising out of third party
claims) (i) any inaccuracy in or breach of any representation or warranty made
by the Company in this Agreement or any of the documents,
116
<PAGE> 117
agreements or instruments executed pursuant to this Agreement, (ii) any breach
or nonperformance of any covenant to be performed by the Company pursuant to
this Agreement or any of the documents, agreements or instruments executed
pursuant to this Agreement, (iii) the Excluded Assets or the Excluded
Liabilities (whether arising before, on or after the Closing Date), (iv) the
failure by the Company to obtain all of the waivers, consents, estoppels and
approvals of any Governmental Entity or other third party required in order to
consummate the Acquisition and the other transactions contemplated by this
Agreement or to prevent any violation, conflict, default, breach, loss of
rights, modification, acceleration, termination, right of termination or
Encumbrance as a result of such consummation, (v) VA No-Bids, and Buydowns
resulting from or made to avoid a VA No-Bid, in connection with any VA Loan,
(vi) any Non-Amortizing Loans, (vii) any of the Company's or LMP's (a) escrow
practices, (b) practices with regard to the adjustment of interest rates and
payment amounts on Mortgage Loans and the general administration of Mortgage
Loans that provide for the adjustment of the interest rate and payment amount
("ARM practices"), and (c) practices with regard to insurance, including
without limitation forced place-
117
<PAGE> 118
ment insurance, earthquake insurance and the retention and remittance of
proceeds ("insurance practices"), in each case prior to the Closing Date in
connection with the GNMA Servicing, (viii) the uncollectability of any of the
Accounts Receivable, (ix) any Repurchases, (provided, that for purposes of this
clause (ix) the term "Loss" shall include, with respect to each Mortgage Loan
which is the subject of a Repurchase, an amount equal to 1.10 percent (other
than Mortgage Loans funded and entered on the Company's system after July 31,
1995, for which a multiple of 1.50% shall be used) multiplied by the
outstanding principal balance of such Mortgage Loan at the time of Repurchase),
and (x) the commercially reasonable sale of any of the Turkey Pile Loans,
provided, however, that in each case where the sale of any such loan results in
a gain, the amount of such gain shall be deducted from the aggregate amount of
Losses indemnifiable by the Company pursuant to Section 7.1(a) (or which would
be indemnifiable but for the operation of Section 7.1(h)). For purposes of
establishing whether any matter is indemnifiable pursuant to Section 7.1(a)(i)
hereof, the accuracy of the representations and warranties made by the Company
in this Agreement shall be determined without giving effect to the
qualifications to such representa-
118
<PAGE> 119
tions and warranties concerning "knowledge," "materiality" or "Material Adverse
Effect" and without giving effect to the disclosure of any exceptions to such
representations and warranties on any Schedule, Exhibit or other written or
oral notice (other than any exceptions set forth in Sections 3.12, 3.13 and
3.23 of the Company Schedule).
(b) From and after the Closing Date, subject to the
terms and conditions of this Agreement, Buyer shall indemnify and hold harmless
the Company and each of its Affiliates (without duplication) from and against
any and all Losses which any of them actually suffer, incur or sustain arising
out of or attributable to (whether or not arising out of third party claims)
(i) any inaccuracy in or breach of any representation or warranty made by Buyer
in this Agreement or any of the documents, agreements or instruments executed
pursuant to this Agreement, (ii) any breach or non-performance of any covenant
to be performed by Buyer pursuant to this Agreement or any of the documents,
agreements or instruments executed pursuant to this Agreement, and (iii) any
action taken or omitted to be taken by Buyer or any of its Affiliates
subsequent to the Closing and resulting from or arising in connection with
Buyer's and its Affiliates' conduct of
119
<PAGE> 120
the business relating to the Assets and the Assumed Liabilities subsequent to
the Closing to the extent such Losses are not otherwise indemnifiable by the
Company pursuant to the terms of this Agreement.
(c) The indemnified party shall promptly notify the
indemnifying party of the discovery by it of, or the assertion against it of,
any claim or potential liability for which indemnification is provided herein
or the commencement of any action or proceeding in respect of which indemnity
may be sought hereunder, which notification shall state in reasonable detail
the basis of such claim or potential liability, including the specific date of
such claim, the third parties affected thereby, and the specific facts relating
to the incident which gave rise to such claim or potential liability, provided,
however, that the indemnified party shall not be foreclosed from seeking
indemnification pursuant to this Article VII by any failure to provide timely
notice of the existence of a third party claim to the indemnifying party except
and only to the extent that the indemnifying party actually incurs an
out-of-pocket expense or otherwise has been damaged or prejudiced as a result
of such delay.
120
<PAGE> 121
(d) With respect to a claim for indemnification arising out
of or involving an assertion by a third party of liability of an indemnified
party (a "Third Party Claim"), upon receipt by the indemnifying party of the
notice of claim for indemnity required to be given by the indemnified party
pursuant to subsection (c) hereof, the indemnifying party shall have the right
at any time thereafter to assume the defense thereof and be represented, at its
own expense, by legal counsel and/or accountants of its own choosing, in and
with respect to any (i) settlement negotiations and (ii) action, suit or other
proceeding, whether legal, administrative or arbitrative, including any appeal
proceeding, in each instance with respect to the matter giving rise to said
Third Party Claim. If the indemnifying party chooses to defend any such Third
Party Claim, the indemnified party shall make available to the indemnifying
party any personnel or any books, records or other documents within its control
that are reasonably necessary or appropriate for such defense. The
indemnifying party shall have the right, in its sole discretion and at its
expense, to control the defense of such Third Party Claim, including without
limitation, the right to designate counsel and to control all negotiations,
litigation, arbitration, set-
121
<PAGE> 122
tlements, compromises and appeals of any such claim or potential claim;
provided, however, that prior to entering into a final settlement or compromise
with respect to such Third Party Claim, the indemnifying party shall obtain the
indemnified party's consent (which consent shall not be unreasonably withheld
or delayed) to such settlement or compromise if such settlement or compromise
would materially and adversely affect the business, financial condition or
results of operations of the indemnified party. Notwithstanding the foregoing,
if an offer of settlement or compromise is received by or communicated to the
indemnifying party with respect to a Third Party Claim and the indemnifying
party notifies the indemnified party in writing of the indemnifying party's
willingness to settle or compromise such Third Party Claim on the basis set
forth in such notice and the indemnified party declines to accept such
settlement or compromise, the indemnified party may continue to contest such
Third Party Claim, free of any participation by the indemnifying party, at the
indemnified party's sole expense. The obligation of the indemnifying party to
the indemnified party with respect to such Third Party Claim shall be equal to
the lesser of (i) the amount of the offer of settlement or compromise which the
indemnified
122
<PAGE> 123
party declined to accept plus the costs and expenses of the indemnified party
prior to the date the indemnifying party notifies the indemnified party of the
indemnifying party's willingness to settle or compromise such Third Party Claim
or (ii) the amount the indemnified party is obligated to pay as a result of the
indemnified party's continuing to contest such Third Party Claim including
costs and expenses with respect thereto; and the indemnifying party shall be
entitled to recover (by set off or otherwise) from the indemnified party any
additional expenses incurred by the indemnifying party as a result of the
indemnified party's decision to continue to contest such Third Party Claim.
(e) Notwithstanding anything to the contrary
contained herein, if the indemnifying party has not assumed control of the
defense of any Third Party Claim within sixty (60) days after its receipt of a
notice of claim for indemnity from the indemnified party, or if the
indemnifying party has abandoned control of any Third Party Claim, the
indemnified party shall have the right to assume the defense thereof, and
subject to the provisions of this Article VII, the costs and expenses incurred
by the indemnified party in connection therewith shall be borne by the
indemnifying party. In addition,
123
<PAGE> 124
in connection with any Third Party Claim in which the indemnified party shall
reasonably conclude, based upon an opinion of its counsel, that (i) there is a
conflict of interest between the indemnifying party and the indemnified party
in the conduct of the defense of such Third Party Claim or (ii) there are
specific defenses available to the indemnified party which are different from
or additional to those available to the indemnifying party and which could be
materially adverse to the indemnifying party, then the indemnified party shall
have the right to assume and direct the defense of such Third Party Claim. In
such an event, the indemnifying party shall pay the fees and disbursements of
counsel to each of the indemnifying party and the indemnified party. In all
other cases, the indemnifying party and the indemnified party shall each pay
the costs and disbursements of their respective counsel, and, prior to entering
into a final settlement or compromise, the indemnified party shall follow the
procedures required of the indemnifying party in paragraph (d) of this Section
7.1.
(f) Notwithstanding anything to the contrary
contained in paragraphs (d) or (e) of this Section 7.1, in the event prompt
action is required with respect to the defense of a Third Party Claim, the
indem-
124
<PAGE> 125
nified party shall, subject to the terms and conditions of this Article VII,
have the right to assume the defense of such Third Party Claim; provided,
however, that in the event that the indemnifying party subsequently elects to
assume the defense of such Third Party Claim, then the provisions set forth in
paragraphs (d) and (e) of this Section 7.1 shall be applicable and the
indemnifying party shall, subject to the terms and conditions of this Article
VII, reimburse the indemnified party for any costs and expenses incurred by the
indemnified party prior to the date the indemnifying party assumes control of
such Third Party Claim.
(g) The right of an indemnified party under this
Section 7.1 shall be subject to the condition that notice of any claim for
indemnification under Section 7.1(a)(i) or Section 7.1(b)(i) shall have been
given prior to the expiration of the survival period of the representation or
warranty to which the claim relates as set forth in Section 9.1 hereof.
(h) No claim by Buyer for indemnification shall be made
pursuant to Section 7.1(a) until the aggregate of indemnifiable claims against
the Company is greater than $6,107,000 (and the indemnification obligation
shall only be for amounts in excess of such amount).
125
<PAGE> 126
In no event shall the Company's indemnity obligation under Section 7.1(a)
exceed an amount equal to 15% of the Adjusted Final Purchase Price.
(i) Buyer shall use reasonable efforts at all times to
minimize the claims and losses for which the Company may be liable under this
Agreement. Without limiting the foregoing, in carrying out its duty to
mitigate claims and losses for which the Company may be liable, Buyer shall use
prudent mortgage banking practices and, in any case, not less than that degree
of care that Buyer exercises with respect to the conduct of its existing
mortgage banking business.
ARTICLE VIII
TERMINATION, WAIVER AND AMENDMENT
8.1 Termination
This Agreement may be terminated on or at any time prior to
the Closing Date:
(a) by the mutual written consent of the parties hereto;
(b) by either Buyer or the Company upon written notice
to the other party (i) ten (10) days after the date on which any request or
application for a Requisite Regulatory Approval shall have been denied or with-
126
<PAGE> 127
drawn at the request or recommendation of the Governmental Entity which must
grant such Requisite Regulatory Approval, unless within the 10-day period
following such denial or withdrawal a petition for rehearing or an amended
application has been filed with the applicable Governmental Entity, provided,
however, that no party shall have the right to terminate this Agreement
pursuant to this clause (i) if such denial or request or recommendation for
withdrawal shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such party set
forth herein or (ii) if any Governmental Entity of competent jurisdiction shall
have issued a final nonappealable order enjoining or otherwise prohibiting the
consummation of any of the transactions contemplated by this Agreement;
(c) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have
been a material breach of any of the representations or warranties set forth in
this Agreement on the part of the other party, which breach is not cured within
ten (10) days following written notice to the party committing such breach, or
127
<PAGE> 128
which breach, by its nature, cannot be cured prior to the Closing, and which
breach, individually or together with all other such breaches, would have a
Material Adverse Effect, in the case of breaches by the Company, or a material
adverse effect on Buyer's ability to consummate the transactions contemplated
hereby, in the case of breaches by Buyer;
(d) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have
been a material breach of any of the covenants or agreements set forth in this
Agreement on the part of the other party, which breach shall not have been
cured within ten (10) days following receipt by the breaching party of written
notice of such breach from the other party hereto; or
(e) by Buyer or the Company, if the Closing Date shall
not have occurred on or prior to October 31, 1995, unless the failure of such
occurrence shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements as set forth in this Agreement
required to be performed or observed by such party on or before the Closing
Date.
128
<PAGE> 129
8.2 Effect of Termination
In the event of a termination of this Agreement pursuant to
Section 8.1 hereof, this Agreement shall become void and have no effect, except
that the provisions relating to confidentiality and expenses set forth in
Sections 5.3 and 9.2 hereof, respectively, and this Section 8.2, shall survive
any such termination, provided, however, that except as provided in this
Section 8.2, no such termination shall relieve any party from liability for any
willful breach of this Agreement.
8.3 Amendment, Extension and Waiver
Subject to applicable law, the parties hereto may (i) amend
this Agreement, (ii) extend the time for the performance of any of the
obligations or other acts of any other party hereto, (iii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (iv) waive compliance with any of the
agreements or conditions contained in Articles V and VI hereof. This Agreement
may not be amended except by an instrument in writing signed on behalf of each
of the parties hereto. Any agreement on the part of a party hereto to any
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party, but such
129
<PAGE> 130
waiver or failure to insist on strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
ARTICLE IX
MISCELLANEOUS
9.1 Survival; Buyer's Rights
Following Closing
(a) The representations and warranties set forth in Articles
III and IV hereof, other than those contained in Section 3.6 hereof, shall
survive for a period of one year following the Closing Date, and the
representations and warranties contained in Section 3.6 hereof shall survive
the Closing Date indefinitely.
(b) The covenants and agreements set forth in this Agreement
shall not survive the Closing, except for those covenants and agreements which
by their terms apply in whole or in part after such date.
9.2 Expenses
Except as otherwise specified in this Agreement, each party
hereto shall bear and pay all costs and expenses incurred by it in connection
with the transactions contemplated hereby, including fees and expenses of its
own financial consultants, accountants and counsel,
130
<PAGE> 131
provided, however, that nothing contained in this Section 9.2 shall limit a
party's rights to recover damages for willful breach of this Agreement as
specified in, and subject to the provisions of, Section 8.2 hereof.
9.3 Entire Agreement
This Agreement, together with the documents, schedules and
other writings referred to herein or delivered pursuant hereto, and the
Confidentiality Agreement contain the entire agreement and understanding of the
parties with respect to the subject matter contained herein or therein. This
Agreement supersedes all prior arrangements and understandings between the
parties, both written or oral, with respect to its subject matter (other than
the Confidentiality Agreement).
9.4 Parties in Interest
The Agreement shall be binding upon and shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns, provided, however, that nothing in this Agreement,
expressed or implied, is intended to confer upon any other Person any rights,
remedies, obligations or liabilities of any nature whatsoever under or by
reason of this Agreement.
131
<PAGE> 132
9.5 Assignment
No party hereto may assign any of its rights or obligations
hereunder to any other Person, without the prior written consent of the other
party.
9.6 Notices
All notices or other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by prepaid
registered or certified mail (return receipt requested), or by overnight
courier, cable, telegram or telex addressed as follows:
(a) If to the Company, to:
Lomas Mortgage USA, Inc.
1600 Viceroy Drive
Dallas, Texas 75235
Attention: General Counsel
(214) 879-7075 (facsimile)
Copies to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Robert J. Levine, Esq.
(212) 450-5571 (facsimile)
and
Jaffe, Raitt, Hever & Weiss
Suite 2400
One Woodward Avenue
Detroit, Michigan 48226
Attention: Mark K. Rabidoux, Esq.
(313) 961-8358 (facsimile)
132
<PAGE> 133
(b) If to Buyer, to:
First Nationwide Bank,
A Federal Savings Bank
200 Crescent Court, Suite 1350
Dallas, Texas 75201
Attention: Christie S. Flanagan, Esq.
(214) 871-5199 (facsimile)
Copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: J. Gregory Milmoe, Esq.
(212) 735-2000 (facsimile)
and
Weiner, Brodsky, Sidman & Kider
1350 New York Avenue, N.W.
Suite 800
Washington, D.C. 20005
Attention: Harvey E. Weiner, Esq.
(202) 628-2011 (facsimile)
9.7 Captions
The table of contents and captions contained in this Agreement
are for reference purposes only and are not part of this Agreement.
9.8 Counterparts
This Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one Agreement.
9.9 Governing Law
133
<PAGE> 134
This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to the
principles of conflict of laws thereof.
134
<PAGE> 135
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement as of the day and year first above written.
FIRST NATIONWIDE MORTGAGE
CORPORATION
By: /s/ Richard E. Morrison
-------------------------------------
Name: Richard E. Morrison
Title: Senior Vice President
LOMAS MORTGAGE USA, INC.
By: /s/ Eric D. Booth
-------------------------------------
Name: Eric D. Booth
Title: Chief Executive Officer
<PAGE> 136
The Schedules and Exhibits to the Asset Purchase Agreement dated as of
September 5, 1995 by and between First Nationwide Mortgage Corporation, as
Buyer, and Lomas Mortgage USA, Inc., as the Company (the "Asset Purchase
Agreement"), have not been filed herewith pursuant to Item 601(b)(2) of
Regulation S-K. Pursuant to this Regulation, set forth below is a list briefly
identifying the contents of all omitted Schedules and Exhibits to the Asset
Purchase Agreement. In addition, pursuant to such Regulation, the registrant
hereby agrees to furnish supplementally a copy of any such omitted Schedules
and Exhibits to the Securities and Exchange Commission upon request.
COMPANY SCHEDULE
Company Schedule - Section 3.2(b) No Violation
Company Schedule - Section 3.3 Consents and Approvals
Company Schedule - Section 3.5 Contracts
Company Schedule - Section 3.6 Title to Assets
Company Schedule - Section 3.8 Legal Proceedings
Company Schedule - Section 3.10 Mortgage Loans
Company Schedule - Section 3.12 Title to Certain Mortgage Loans;
Mortgage Servicing Agreements
Company Schedule - Section 3.13 Recourse Loans
Company Schedule - Section 3.14 Breaches, Cancellations, Penalties
under Servicing Agreements,
Regulations
Company Schedule - Section 3.15 Compliance with Mortgage Banking
Regulations
Company Schedule - Section 3.17 Audits, Investigations, Complaints
by Agencies, Investors, Insurers
Company Schedule - Section 3.18 Advance Requirements Subserviced
Loans for GNMA Only
Company Schedule - Section 3.19 Loans with Physical Damage to
Property
Company Schedule - Section 3.20 Report of Outstanding Pools
Company Schedule - Section 3.23 Multi-Family Loans
Company Schedule - Section 3.24 Investor and Loan Purchase
Commitments
Company Schedule - Section 5.1 Conduct Prior to Closing
BUYER SCHEDULE
Buyer Schedule - Section 4.2(b) No Violation
Buyer Schedule - Section 4.3 Consents and Approval
SCHEDULES
Schedule I Accounts Receivable
Schedule II Assumed Contracts - Mortgage Servicing Agreements
Schedule III Production Business Assets
Schedule IV Investor Commitments
<PAGE> 137
Schedule V Mortgage Servicing Agreements
Schedule VI Loan Purchase Commitments
Schedule VII Assumed Liabilities - Accounts Payable and Accrued
Expenses
Schedule X Investments and Other Assets
EXHIBITS
Exhibit 2.2 Purchase Price
Exhibit 2.3(b) Bill of Sale
Exhibit 2.3(c) Instrument of Assumption
Exhibit 2.5 Adjustment for Change in Net Gain or Loss on Rate-Locked
Pipeline Loans and Investor Commitments
Exhibit 5.8 Subservicing and Transition Services Agreement
<PAGE> 1
EXHIBIT 10.38
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
This First Amendment (the "First Amendment"), dated as of
October 2, 1995, amends that certain Asset Purchase Agreement (the
"Agreement"), dated as of September 5, 1995, by and between First Nationwide
Mortgage Corporation, a Delaware corporation ("Buyer"), and Lomas Mortgage USA,
Inc., a Connecticut corporation (the "Company").
WHEREAS, Buyer and the Company previously entered into the
Agreement, pursuant to which Buyer will acquire certain assets and assume
certain liabilities of the Company, all as more fully set forth in the
Agreement; and
WHEREAS, Buyer and the Company desire to amend certain
provisions of the Agreement;
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, representations and warranties contained herein and in the
Agreement, and intending to be legally bound hereby, the parties hereto do
hereby agree as follows:
1. The first paragraph of the recitals to the Agreement
is hereby amended in its entirety to read as follows:
WHEREAS, the Company is engaged in the business of
servicing, subservicing and master servicing mortgage loans
(the "Servicing Business"), including (i) the servicing and
subservicing of mortgage loans held in pools securing
mortgage-backed securities guaranteed by the Government
National Mortgage Association ("GNMA"), (ii) the servicing of
certain mortgage loans held in pools securing mortgage- backed
securities held by the Bond Program Agencies (as defined
herein) and issued and guaranteed by the Federal National
Mortgage Association ("FNMA") pursuant to the Bond Programs
(as defined herein) (the servicing and subservicing of such
mortgage loans by the Company as described in clauses (i) and
(ii) is referred to herein as the "Purchased Servicing") and
(iii) the master servicing of mort-
<PAGE> 2
gage loans held in pools evidenced by pass-through
certificates (A) held by the California Public Employees'
Retirement System ("CALPERS") and issued pursuant to the
CALPERS Member Home Loan Conduit Program, (B) issued by the
Texas Veterans Land Board, or (C) otherwise issued or
guaranteed by FNMA and master serviced by the Company under
FNMA seller-servicer number 21055 (the master servicing by the
Company of all such mortgage loans is referred to herein as
the "Purchased Master Servicing"); and
2. The definitions of "GNMA Servicing" and "CALPERS
Master Servicing" are hereby deleted and in each place in the Agreement where
such terms appear, the terms "Purchased Servicing" and "Purchased Master
Servicing", respectively, are hereby substituted in place thereof.
3. The following definitions are hereby added to Article
I of the Agreement as follows:
Buyer Repurchase Agreement -- That certain Master Repurchase
Agreement, dated as of September 19, 1995, by and between
Buyer and the Company, including all annexes, exhibits and
schedules thereto.
Purchased Servicing -- As defined in the recitals hereof.
Purchased Master Servicing -- As defined in the recitals
hereof.
4. The definition of Mortgage Loan in Article I of the
Agreement is hereby amended in its entirety to read as follows:
Mortgage Loan -- (A) Any closed mortgage loan, whether or not
the related mortgage is included in a securitized portfolio,
evidenced by a note or notes duly secured by mortgages or
deeds of trust, which loan, whether single-family or
multi-family, is (i) serviced or subserviced by the Company
and comprises part of the Purchased Servicing, (ii) master
serviced by the Company and comprises part of the Purchased
Master Servicing or (iii) a loan the Servicing Rights
2
<PAGE> 3
for which are owned by LMP, (B) the Warehouse Loans and (C) a
secured personal loan serviced by the Company pursuant to the
CALPERS Member Home Loan Conduit Program.
5. The definition of Warehouse Lines in Article I of the
Agreement is hereby amended in its entirety to read as follows:
Warehouse Lines -- The Bank Warehouse Line, the FNMA Line, the
DLJ Line and the Buyer Repurchase Agreement.
6. The definition of Warehouse Loans in Article I of the
Agreement is hereby amended in its entirety to read as follows:
Warehouse Loans -- The mortgage loans (i) owned by the Company
and held for sale, other than the Warehouse For Others or (ii)
which have been sold by the Company under agreements to
repurchase such loans pursuant to the terms of any of the
Warehouse Lines.
7. Section 2.3(c) of the Agreement is hereby amended by
substituting, in place of the words "$27 million," in each place where such
words appear, the words "$35 million,".
8. Section 2.5(h) of the Agreement is hereby amended in
its entirety to read as follows:
(h) Adjustment for Warehouse Lines. The Base
Purchase Price shall be (i) decreased by the amount, if any,
by which the aggregate amount of all obligations of the
Company outstanding and owing under the Warehouse Lines
(exclusive of all such outstanding obligations relating to
funds advanced to fund the Warehouse For Others) exceeds
$302,013,000, or (ii) increased by the amount, if any, by
which $302,013,000 exceeds the aggregate amount of all
obligations of the Company outstanding and owing under the
Warehouse Lines (exclusive of all such outstanding obligations
relating to funds advanced to fund the Warehouse For Others).
3
<PAGE> 4
9. Section 2.5(j) of the Agreement is hereby amended by
adding the words "and as further adjusted pursuant to the terms of Section
2.6," before the words "is referred to herein as the "Final Purchase Price" in
the last sentence of such section.
10. Section 2.6 of the Agreement is hereby amended in its
entirety to read as follows:
2.6 Bond Program Loans
(a) The amount payable by Buyer to the Company
pursuant to Section 2.3(d) hereof on the 120th day following
the Closing shall be decreased by (i) the aggregate amount of
the net loss on each Bond Program Loan as of the Closing Date,
computed pursuant to Section 2.5(f), without regard to the
adjustment made pursuant to Section 2.5(d), which Bond Program
Loan was not a Consenting Bond Program Loan as of the 120th
day following the Closing Date and (ii) 1.10% multiplied by
the unpaid principal amount as of the Closing Date of each
Closing Portfolio Loan held in a Pool securing mortgage-backed
securities held by a Bond Program Agency from which the
Company shall not have received its written consent, in form
and substance reasonably satisfactory to Buyer, to the
transactions contemplated by this Agreement as of the 120th
day following the Closing Date. The deductions contemplated
by this Section 2.6(a) shall be taken into account by the
parties in calculating the Final Purchase Price pursuant to
Section 2.5.
(b) If any Bond Program Loan becomes a Consenting
Bond Program Loan after the 120th day following the Closing
Date but on or before the one-year anniversary of the Closing
Date, then the amount of the loss with respect to such loan
deducted pursuant to Section 2.6(a) shall be added to the
Final Settlement Amount. If the Company shall have received a
consent from any Bond Program Agency, after the 120th day
following the Closing but on or before the one-year
anniversary of the Closing Date, with respect to which a
deduction shall have been
4
<PAGE> 5
made pursuant to clause (ii) of subsection (a) above, then the
aggregate amount of all such deductions so made with respect
to each such Bond Program Agency from which a consent shall
have been received shall be added to the Final Settlement
Amount.
(c) If any Bond Program Loan is held by Buyer on
the one-year anniversary of the Closing Date, such loan shall
be marked-to-market as of such date in accordance with the
provisions set forth on Exhibit 2.5, and the aggregate amount
of gains or losses with respect to all such Bond Program Loans
as compared to the aggregate amount of gains or losses with
respect to such loans computed as of the Closing Date as set
forth in the Closing Adjustment Documents shall be deducted
from or added to, as the case may be, the Final Settlement
Amount payable by Buyer pursuant to Section 2.7.
11. Section 5.11 of the Agreement is hereby amended in
its entirety to read as follows:
5.11 Payment of Warehouse Lines;
Release of Warehouse Loans
On or prior to the Closing, Buyer shall take such
action as is necessary to (i) pay off in full on behalf of the
Company all outstanding principal and accrued interest owing
under the Bank Warehouse Line, the FNMA Line and the DLJ Line
other than any such outstanding obligations relating to the
Warehouse For Others and (ii) cancel all outstanding
repurchase obligations owing under the Buyer Repurchase
Agreement as of the Closing Date. The Company shall, with the
cooperation of Buyer, cause all Encumbrances on the Warehouse
Loans to be released upon Buyer's payments in accordance with
this Section 5.11, such that, at the Closing, Buyer shall
acquire title to the Warehouse Loans free and clear of any
Encumbrances.
12. Schedule II and Schedule V to the Agreement are
hereby amended by adding to each of such schedules the following items:
5
<PAGE> 6
o Texas Veterans Land Board Master Servicing Agreement
o FmHA Master Servicing under FNMA seller-servicer 21055
13. Schedule II to the Agreement is hereby amended to
delete the item "Tuttle & Co. contract" from such schedule.
14. The parties hereby agree that, for purposes of
computing the adjustment to the Base Purchase Price for the net gain or loss on
Rate-Locked Pipeline Loans and Investor Commitments pursuant to Section 2.5(d)
of the Agreement, all trades which were assigned by the Company to Buyer in
connection with Buyer's purchase of mortgage loans under the Buyer Repurchase
Agreement shall be included in such price adjustment calculation as though such
trades had not been assigned by the Company.
15. Capitalized terms used but not defined herein shall
have the meanings set forth in the Agreement.
16. This First Amendment may be executed in counterparts,
or facsimiles thereof, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this First
Amendment as of the date first set forth above.
FIRST NATIONWIDE MORTGAGE CORPORATION
By: /s/ LAWRENCE P. WASHINGTON
---------------------------------
Name: Lawrence P. Washington
Title: EVP
LOMAS MORTGAGE USA, INC.
By: /s/ ERIC D. BOOTH
---------------------------------
Name: Eric D. Booth
Title: CEO
7
<PAGE> 1
EXHIBIT 10.39
Public Securities Association [PSA LOGO]
40 Broad Street, New York, NY 10004-2373
Telephone (212) 809-7000
MASTER REPURCHASE AGREEMENT
DATED AS OF SEPTEMBER 19, 1995
BETWEEN:
FIRST NATIONWIDE MORTGAGE CORPORATION
AND
LOMAS MORTGAGE USA, INC.
1. APPLICABILITY
From time to time the parties hereto may enter into transactions in
which one party ("Seller") agrees to transfer to the other ("Buyer") securities
or financial instruments ("Securities") against the transfer of funds by Buyer,
with a simultaneous agreement by Buyer to transfer to Seller such Securities at
a date certain or on demand, against the transfer of funds by Seller. Each such
transaction shall be referred to herein as a "Transaction" and shall be
governed by this Agreement, including any supplemental terms or conditions
contained in Annex I hereto, unless otherwise agreed in writing.
2. DEFINITIONS
(a) "Act of Insolvency", with respect to any party, (i) the
commencement by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar
law, or such party seeking the appointment of a receiver, trustee, custodian or
similar official for such party or any substantial part of its property, or
(ii) the commencement of any such case or proceeding against such party, or
another seeking such an appointment, or the filing against a party of an
application for a protective decree under the provisions of the Securities
Investor Protection Act of 1970, which (A) is consented to or not timely
contested by such party, (B) results in the entry of an order for relief, such
an appointment, the issuance of such a protective decree or the entry of an
order having a similar effect, or (C) is not dismissed within 15 days, (iii)
the making by a party of a general assignment for the benefit of creditors, or
(iv) the admission in writing by a party of such party's inability to pay such
party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided by
Seller to Buyer pursuant to Paragraph 4(a) hereof;
(c) "Buyer's Margin Amount", with respect to any Transaction as of
any date, the amount obtained by application of a percentage (which may be
equal to the percentage that is agreed to as the Seller's Margin Amount under
subparagraph (q) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date;
(d) "Confirmation", the meaning specified in Paragraph 3(b) hereof;
(e) "Income", with respect to any Security at any time, any
principal thereof then payable and all interest, dividends or other
distributions thereon;
(f) "Margin Deficit", the meaning specified in Paragraph 4(a)
hereof;
(g) "Margin Excess", the meaning specified in Paragraph 4(b)
hereof;
(h) "Market Value", with respect to any Securities as of any date,
the price for such Securities on such date obtained from a generally recognized
source agreed to by the parties or the most recent closing bid quotation from
such a source, plus accrued Income to the extent not included therein (other
than any Income credited or transferred to, or applied to the obligations of,
Seller pursuant to Paragraph 5 hereof) as of such date (unless contrary to
market practice for such Securities);
(i) "Price Differential", with respect to any Transaction
hereunder as of any date, the aggregate amount obtained by daily application of
the Pricing Rate for such Transaction to the Purchase Price for such
Transaction on a 360 day per year basis for the actual number of days during
the period commencing on (and including) the Purchase Date for such Transaction
and ending on (but excluding) the date of determination (reduced by any amount
of such Price Differential previously paid by Seller to Buyer with respect to
such Transaction);
<PAGE> 2
(j) "Pricing Rate", the per annum percentage rate for
determination of the Price Differential;
(k) "Prime Rate", the prime rate of U.S. money center commercial
banks as published in The Wall Street Journal;
(l) "Purchase Date", the date on which Purchased Securities are
transferred by Seller to Buyer;
(m) "Purchase Price", (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to Buyer, and (ii) thereafter,
such price increased by the amount of any cash transferred by Buyer to Seller
pursuant to Paragraph 4(b) hereof and decreased by the amount of any cash
transferred by Seller to Buyer pursuant to Paragraph 4(a) hereof or applied to
reduce Seller's obligations under clause (ii) of Paragraph 5 hereof;
(n) "Purchased Securities", the Securities transferred by Seller
to Buyer in a Transaction hereunder, and any Securities substituted therefor in
accordance with Paragraph 9 hereof. The term "Purchased Securities" with
respect to any Transaction at any time also shall include Additional Purchased
Securities delivered pursuant to Paragraph 4(a) and shall exclude Securities
returned pursuant to Paragraph 4(b);
(o) "Repurchase Date", the date on which Seller is to repurchase
the Purchased Securities from Buyer, including any date determined by
application of the provisions of Paragraphs 3(c) or 11 hereof;
(p) "Repurchase Price", the price at which Purchased Securities
are to be transferred from Buyer to Seller upon termination of a Transaction,
which will be determined in each case (including Transactions terminable upon
demand) as the sum of the Purchase Price and the Price Differential as of the
date of such determination, increased by any amount determined by the
application of the provisions of Paragraph 11 hereof;
(q) "Seller's Margin Amount", with respect to any Transaction as
of any date, the amount obtained by application of a percentage (which may be
equal to the percentage that is agreed to as the Buyer's Margin Amount under
subparagraph (c) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date.
3. INITIATION; CONFIRMATION; TERMINATION
(a) An agreement to enter into a Transaction may be made orally or
in writing at the initiation of either Buyer or Seller. On the Purchase Date
for the Transaction, the Purchased Securities shall be transferred to Buyer or
its agent against the transfer of the Purchase Price to an account of Seller.
(b) Upon agreeing to enter into a Transaction hereunder, Buyer or
Seller (or both), as shall be agreed, shall promptly deliver to the other party
a written confirmation of each Transaction (a "Confirmation"). The Confirmation
shall describe the Purchased Securities (including CUSIP number, if any),
identify Buyer and Seller and set forth (i) the Purchase Date, (ii) the
Purchase Price, (iii) the Repurchase Date, unless the Transaction is to be
terminable on demand, (iv) the Pricing Rate or Repurchase Price applicable to
the Transaction, and (v) any additional terms or conditions of the Transaction
not inconsistent with this Agreement. The Confirmation, together with this
Agreement, shall constitute conclusive evidence of the terms agreed between
Buyer and Seller with respect to the Transaction to which the Confirmation
relates, unless with respect to the Confirmation specific objection is made
promptly after receipt thereof. In the event of any conflict between the terms
of such Confirmation and this Agreement, this Agreement shall prevail.
(c) In the case of Transactions terminable upon demand, such
demand shall be made by Buyer or Seller, no later than such time as is
customary in accordance with market practice, by telephone or otherwise on or
prior to the business day on which such termination will be effective. On the
date specified in such demand, or on the date fixed for termination in the case
of Transactions having a fixed term, termination of the Transaction will be
effected by transfer to Seller or its agent of the Purchased Securities and any
Income in respect thereof received by Buyer (and not previously credited or
transferred to, or applied to the obligations of, Seller pursuant to Paragraph
5 hereof) against the transfer of the Repurchase Price to an account of Buyer.
4. MARGIN MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased
Securities subject to all Transactions in which a particular party hereto is
acting as Buyer is less than the aggregate Buyer's Margin Amount for all such
Transactions (a "Margin Deficit"), then Buyer may by notice to Seller require
Seller in such Transactions, at Seller's option, to transfer to Buyer cash or
additional Securities reasonably acceptable to Buyer ("Additional Purchased
Securities"), so that the cash and aggregate Market Value of the Purchased
Securities, including any such Additional Purchased Securities, will thereupon
equal or exceed such aggregate Buyer's Margin Amount (decreased by the amount
of any Margin Deficit as of such date arising from any Transactions in which
such Buyer is acting as Seller).
(b) If at any time the aggregate Market Value of all Purchased
Securities subject to all Transactions in which a particular party hereto is
acting as Seller exceeds the aggregate Seller's Margin Amount for all such
Transactions at such time (a "Margin Excess"), then Seller may by notice to
Buyer require Buyer in such Transactions, at Buyer's option, to transfer cash
or Purchased Securities to Seller, so that the aggregate Market Value of the
Purchased Securities, after deduction of any such cash or any Purchased
Securities so transferred, will thereupon not exceed such aggregate Seller's
Margin Amount (increased by the amount of any Margin Excess as of such date
arising from any Transactions in which such Seller is acting as Buyer).
(c) Any cash transferred pursuant to this Paragraph shall be
attributed to such Transactions as shall be agreed upon by Buyer and Seller.
2
<PAGE> 3
(d) Seller and Buyer may agree, with respect to any or all
Transactions hereunder, that the respective rights of Buyer or Seller (or both)
under subparagraphs (a) and (b) of this Paragraph may be exercised only where a
Margin Deficit or Margin Excess exceeds a specified dollar amount or a
specified percentage of the Repurchase Prices for such Transactions (which
amount or percentage shall be agreed to by Buyer and Seller prior to entering
into any such Transactions).
(e) Seller and Buyer may agree, with respect to any or all
Transactions hereunder, that the respective rights of Buyer and Seller under
subparagraphs (a) and (b) of this Paragraph to require the elimination of a
Margin Deficit or a Margin Excess, as the case may be, may be exercised
whenever such a Margin Deficit or Margin Excess exists with respect to any
single Transaction hereunder (calculated without regard to any other
Transaction outstanding under this Agreement).
5. INCOME PAYMENTS
Where a particular Transaction's term extends over an Income payment
date on the Securities subject to that Transaction, Buyer shall, as the parties
may agree with respect to such Transaction (or, in the absence of any
agreement, as Buyer shall reasonably determine in its discretion), on the date
such Income is payable either (i) transfer to or credit to the account of
Seller an amount equal to such Income payment or payments with respect to any
Purchased Securities subject to such Transaction or (ii) apply the Income
payment or payments to reduce the amount to be transferred to Buyer by Seller
upon termination of the Transaction. Buyer shall not be obligated to take any
action pursuant to the preceding sentence to the extent that such action would
result in the creation of a Margin Deficit, unless prior thereto or
simultaneously therewith Seller transfers to Buyer cash or Additional Purchased
Securities sufficient to eliminate such Margin Deficit.
6. SECURITY INTEREST
Although the parties intend that all Transactions hereunder be sales
and purchases and not loans, in the event any such Transactions are deemed to
be loans, Seller shall be deemed to have pledged to Buyer as security for the
performance by Seller of its obligations under each such Transaction, and shall
be deemed to have granted to Buyer a security interest in, all of the Purchased
Securities with respect to all Transactions hereunder and all proceeds thereof.
7. PAYMENT AND TRANSFER
Unless otherwise mutually agreed, all transfers of funds hereunder
shall be in immediately available funds. All Securities transferred by one
party hereto to the other party (i) shall be in suitable form for transfer or
shall be accompanied by duly executed instruments of transfer or assignment in
blank and such other documentation as the party receiving possession may
reasonably request, (ii) shall be transferred on the book-entry system of a
Federal Reserve Bank, or (iii) shall be transferred by any other method
mutually acceptable to Seller and Buyer. As used herein with respect to
Securities, "transfer" is intended to have the same meaning as when used in
Section 8-313 of the New York Uniform Commercial Code or, where applicable, in
any federal regulation governing transfers of the Securities.
8. SEGREGATION OF PURCHASED SECURITIES
To the extent required by applicable law, all Purchased Securities in
the possession of Seller shall be segregated from other securities in its
possession and shall be identified as subject to this Agreement. Segregation
may be accomplished by appropriate identification on the books and records of
the holder, including a financial intermediary or a clearing corporation. Title
to all Purchased Securities shall pass to Buyer and, unless otherwise agreed by
Buyer and Seller, nothing in this Agreement shall preclude Buyer from engaging
in repurchase transactions with the Purchased Securities or otherwise pledging
or hypothecating the Purchased Securities, but no such transaction shall
relieve Buyer of its obligations to transfer Purchased Securities to Seller
pursuant to Paragraphs 3, 4 or 11 hereof, or of Buyer's obligation to credit or
pay Income to, or apply Income to the obligations of, Seller pursuant to
Paragraph 5 hereof.
- --------------------------------------------------------------------------------
REQUIRED DISCLOSURE FOR TRANSACTIONS IN WHICH THE SELLER RETAINS CUSTODY OF THE
PURCHASED SECURITIES
Seller is not permitted to substitute other securities for those
subject to this Agreement and therefore must keep Buyer's securities segregated
at all times, unless in this Agreement Buyer grants Seller the right to
substitute other securities. If Buyer grants the right to substitute, this
means that Buyer's securities will likely be commingled with Seller's own
securities during the trading day. Buyer is advised that, during any trading
day that Buyer's securities are commingled with Seller's securities, they
[will]* [may]** be subject to liens granted by Seller to [its clearing bank]*
[third parties]** and may be used by Seller for deliveries on other securities
transactions. Whenever the securities are commingled, Seller's ability to
resegregate substitute securities for Buyer will be subject to Seller's ability
to satisfy [the clearing]* [any]** lien or to obtain substitute securities.
- --------------------------------------------------------------------------------
* Language to be used under 17 C.F.R. Section 403.4(e) if Seller is a
government securities broker or dealer other than a financial
institution.
** Language to be used under 17 C.F.R. Section 403.5(d) if Seller is a
financial institution.
3
<PAGE> 4
9. SUBSTITUTION
(a) Seller may, subject to agreement with and acceptance by Buyer,
substitute other Securities for any Purchased Securities. Such substitution
shall be made by transfer to Buyer of such other Securities and transfer to
Seller of such Purchased Securities. After substitution, the substituted
Securities shall be deemed to be Purchased Securities.
(b) In Transactions in which the Seller retains custody of
Purchased Securities, the parties expressly agree that Buyer shall be deemed,
for purposes of subparagraph (a) of this Paragraph, to have agreed to and
accepted in this Agreement substitution by Seller of other Securities for
Purchased Securities; provided, however, that such other Securities shall have
a Market Value at least equal to the Market Value of the Purchased Securities
for which they are substituted.
10. REPRESENTATIONS
Each of Buyer and Seller represents and warrants to the other that (i)
it is duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder
and has taken all necessary action to authorize such execution, delivery and
performance, (ii) it will engage in such Transactions as principal (or, if
agreed in writing in advance of any Transaction by the other party hereto, as
agent for a disclosed principal), (iii) the person signing this Agreement on
its behalf is duly authorized to do so on its behalf (or on behalf of any such
disclosed principal), (iv) it has obtained all authorizations of any
governmental body required in connection with this Agreement and the
Transactions hereunder and such authorizations are in full force and effect and
(v) the execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance, charter, by-law or
rule applicable to it or any agreement by which it is bound or by which any of
its assets are affected. On the Purchase Date for any Transaction Buyer and
Seller shall each be deemed to repeat all the foregoing representations made by
it.
11. EVENTS OF DEFAULT
In the event that (i) Seller fails to repurchase or Buyer fails to
transfer Purchased Securities upon the applicable Repurchase Date, (ii) Seller
or Buyer fails, after one business day's notice, to comply with Paragraph 4
hereof, (iii) Buyer fails to comply with Paragraph 5 hereof, (iv) an Act of
Insolvency occurs with respect to Seller or Buyer, (v) any representation made
by Seller or Buyer shall have been incorrect or untrue in any material respect
when made or repeated or deemed to have been made or repeated, or (vi) Seller
or Buyer shall admit to the other its inability to, or its intention not to,
perform any of its obligations hereunder (each an "Event of Default"):
(a) At the option of the nondefaulting party, exercised by written
notice to the defaulting party (which option shall be deemed to have been
exercised, even if no notice is given, immediately upon the occurrence of an
Act of Insolvency), the Repurchase Date for each Transaction hereunder shall be
deemed immediately to occur.
(b) In all Transactions in which the defaulting party is acting as
Seller, if the nondefaulting party exercises or is deemed to have exercised the
option referred to in subparagraph (a) of this Paragraph, (i) the defaulting
party's obligations hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable, (ii) to the
extent permitted by applicable law, the Repurchase Price with respect to each
such Transaction shall be increased by the aggregate amount obtained by daily
application of (x) the greater of the Pricing Rate for such Transaction or the
Prime Rate to (y) the Repurchase Price for such Transaction as of the
Repurchase Date as determined pursuant to subparagraph (a) of this Paragraph
(decreased as of any day by (A) any amounts retained by the nondefaulting party
with respect to such Repurchase Price pursuant to clause (iii) of this
subparagraph, (B) any proceeds from the sale of Purchased Securities pursuant
to subparagraph (d)(i) of this Paragraph, and (C) any amounts credited to the
account of the defaulting party pursuant to subparagraph (e) of this Paragraph)
on a 360 day per year basis for the actual number of days during the period
from and including the date of the Event of Default giving rise to such option
to but excluding the date of payment of the Repurchase Price as so increased,
(iii) all Income paid after such exercise or deemed exercise shall be retained
by the nondefaulting party and applied to the aggregate unpaid Repurchase
Prices owed by the defaulting party, and (iv) the defaulting party shall
immediately deliver to the nondefaulting party any Purchased Securities subject
to such Transactions then in the defaulting party's possession.
(c) In all Transactions in which the defaulting party is acting as
Buyer, upon tender by the nondefaulting party of payment of the aggregate
Repurchase Prices for all such Transactions, the defaulting party's right,
title and interest in all Purchased Securities subject to such Transactions
shall be deemed transferred to the nondefaulting party, and the defaulting
party shall deliver all such Purchased Securities to the nondefaulting party.
(d) After one business day's notice to the defaulting party (which
notice need not be given if an Act of Insolvency shall have occurred, and which
may be the notice given under subparagraph (a) of this Paragraph or the notice
referred to in clause (ii) of the first sentence of this Paragraph), the
nondefaulting party may:
(i) as to Transactions in which the defaulting party is
acting as Seller, (A) immediately sell, in a recognized market at such
price or prices as the nondefaulting party may reasonably deem
satisfactory, any or all Purchased Securities subject to such
Transactions and apply the proceeds thereof to the aggregate unpaid
Repurchase Prices and any other amounts owing by the defaulting party
hereunder
4
<PAGE> 5
or (B) in its sole discretion elect, in lieu of selling all or a
portion of such Purchased Securities, to give the defaulting party
credit for such Purchased Securities in an amount equal to the price
therefor on such date, obtained from a generally recognized source or
the most recent closing bid quotation from such a source, against the
aggregate unpaid Repurchase Prices and any other amounts owing by the
defaulting party hereunder: and
(ii) as to Transactions in which the defaulting party is
acting as Buyer, (A) purchase securities ("Replacement Securities") of
the same class and amount as any Purchased Securities that are not
delivered by the defaulting party to the nondefaulting party as
required hereunder or (B) in its sole discretion elect, in lieu of
purchasing Replacement Securities, to be deemed to have purchased
Replacement Securities at the price therefor on such date, obtained
from a generally recognized source or the most recent closing bid
quotation from such a source.
(e) As to Transactions in which the defaulting party is acting as
Buyer, the defaulting party shall be liable to the nondefaulting party (i) with
respect to Purchased Securities (other than Additional Purchased Securities),
for any excess of the price paid (or deemed paid) by the nondefaulting party
for Replacement Securities therefor over the Repurchase Price for such
Purchased Securities and (ii) with respect to Additional Purchased Securities,
for the price paid (or deemed paid) by the nondefaulting party for the
Replacement Securities therefor. In addition, the defaulting party shall be
liable to the nondefaulting party for interest on such remaining liability with
respect to each such purchase (or deemed purchase) of Replacement Securities
from the date of such purchase (or deemed purchase) until paid in full by
Buyer. Such interest shall be at a rate equal to the greater of the Pricing
Rate for such Transaction or the Prime Rate.
(f) For purposes of this Paragraph 11, the Repurchase Price for
each Transaction hereunder in respect of which the defaulting party is acting
as Buyer shall not increase above the amount of such Repurchase Price for such
Transaction determined as of the date of the exercise or deemed exercise by the
nondefaulting party of its option under subparagraph (a) of this Paragraph.
(g) The defaulting party shall be liable to the nondefaulting
party for the amount of all reasonable legal or other expenses incurred by the
nondefaulting party in connection with or as a consequence of an Event of
Default, together with interest thereon at a rate equal to the greater of the
Pricing Rate for the relevant Transaction or the Prime Rate.
(h) The nondefaulting party shall have, in addition to its rights
hereunder, any rights otherwise available to it under any other agreement or
applicable law.
12. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereinto and will
enter into each Transaction hereunder in consideration of and in reliance upon
the fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in the
performance of any such obligations shall constitute a default by it in respect
of all Transactions hereunder, (ii) that each of them shall be entitled to set
off claims and apply property held by them in respect of any Transaction
against obligations owing to them in respect of any other Transactions
hereunder and (iii) that payments, deliveries and other transfers made by
either of them in respect of any Transaction shall be deemed to have been made
in consideration of payments, deliveries and other transfers in respect of any
other Transactions hereunder, and the obligations to make any such payments,
deliveries and other transfers may be applied against each other and netted.
13. NOTICES AND OTHER COMMUNICATIONS
Unless another address is specified in writing by the respective party
to whom any notice or other communication is to be given hereunder, all such
notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in Annex 11 attached hereto.
14. ENTIRE AGREEMENT; SEVERABILITY
This Agreement shall supersede any existing agreements between the
parties containing general terms and conditions for repurchase transactions.
Each provision and agreement herein shall be treated as separate and
independent from any other provision or agreement herein and shall be
enforceable notwithstanding the unenforceability of any such other provision or
agreement.
15. NON-ASSIGNABILITY; TERMINATION
The rights and obligations of the pates under this Agreement and under
any Transaction shall not be assigned by either party without the prior written
consent of the other party. Subject to the foregoing, this Agreement and any
Transactions shall be binding upon and shall inure to the benefit of the
parties and their respective successors and assigns. This Agreement may be
cancelled by either party upon giving written notice to the other, except that
this Agreement shall, notwithstanding such notice, remain applicable to any
Transactions then outstanding.
5
<PAGE> 6
16. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York
without giving effect to the conflict of law principles thereof.
17. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party
shall constitute a waiver of any other Event of Default and no exercise of any
remedy hereunder by any party shall constitute a waiver of its right to
exercise any other remedy hereunder. No modification or waiver of any provision
of this Agreement and no consent by any party to a departure herefrom shall be
effective unless and until such shall be in writing and duly executed by both
of the parties hereto. Without limitation on any of the foregoing, the failure
to give a notice pursuant to subparagraphs 4(a) or 4(b) hereof will not
constitute a waiver of any right to do so at a later date.
18. USE OF EMPLOYEE PLAN ASSETS
(a) If assets of an employee benefit plan subject to any provision
of the Employee Retirement Income Security Act of 1974 ("ERISA") are intended
to be used by either party hereto (the "Plan Party") in a Transaction, the Plan
Party shall so notify the other party prior to the Transaction. The Plan Party
shall represent in writing to the other party that the Transaction does not
constitute a prohibited transaction under ERISA or is otherwise exempt
therefrom, and the other party may proceed in reliance thereon but shall not be
required so to proceed.
(b) Subject to the last sentence of subparagraph (a) of this
Paragraph, any such Transaction shall proceed only if Seller furnishes or has
furnished to Buyer its most recent available audited statement of its financial
condition and its most recent subsequent unaudited statement of its financial
condition.
(c) By entering into a Transaction pursuant to this Paragraph,
Seller shall be deemed (i) to represent to Buyer that since the date of
Seller's latest such financial statements, there has been no material adverse
change in Seller's financial condition which Seller has not disclosed to Buyer,
and (ii) to agree to provide Buyer with future audited and unaudited statements
of its financial condition as they are issued, so long as it is a Seller in any
outstanding Transaction involving a Plan Party.
19. INTENT
(a) The parties recognize that each Transaction is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the United
States Code, as amended (except insofar as the type of Securities subject to
such Transaction or the term of such Transaction would render such definition
inapplicable), and a "securities contract" as that term is defined in Section
741 of Title 11 of the United States Code, as amended.
(b) It is understood that either party's right to liquidate
Securities delivered to it in connection with Transactions hereunder or to
exercise any other remedies pursuant to Paragraph 11 hereof, is a contractual
right to liquidate such Transaction as described in Sections 555 and 559 of
Title 11 of the United States Code, as amended.
20. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the
parties is a broker or dealer registered with the Securities and
Exchange Commission ("SEC") under Section 15 of the Securities
Exchange Act of 1934 ("1934 Act"), the Securities Investor Protection
Corporation has taken the position that the provisions of the
Securities Investor Protection Act of 1970 ("SIPA") do not protect the
other party with respect to any Transaction hereunder;
(b) in the case of Transactions in which one of the
parties is a government securities broker or a government securities
dealer registered with the SEC under Section 15C of the 1934 Act, SIPA
will not provide protection to the other party with respect to any
Transaction hereunder; and
(c) in the case of Transactions in which one of the
parties is a financial institution, funds held by the financial
institution pursuant to a Transaction hereunder are not a deposit and
therefore are not insured by the Federal Deposit Insurance
Corporation, the Federal Savings and Loan Insurance Corporation or the
National Credit Union Share Insurance Fund, as applicable.
(Name of Party) (Name of Party)
FIRST NATIONWIDE MORTGAGE CORPORATION LOMAS MORTGAGE USE, INC.
By /s/ J. RANDY SLATT By /s/ LOUIS P. GREGORY
Title President Title Senior Vice President
Date 9/19/95 Date 9/19/95
6
<PAGE> 7
ANNEX I
(continued)
SUPPLEMENTAL TERMS TO
MASTER REPURCHASE AGREEMENT,
DATED AS OF SEPTEMBER 19, 1995, BETWEEN
FIRST NATIONWIDE MORTGAGE CORPORATION AND
LOMAS MORTGAGE USA, INC.
1. APPLICABILITY. These Supplemental Terms to Master Repurchase
Agreement (the "Supplemental Terms") modify the terms and conditions
under which the parties hereto, from time to time, enter into
Transactions under the Master Repurchase Agreement (the "Master
Repurchase Agreement") dated as of September 19, 1995, between First
Nationwide Mortgage Corporation and Lomas Mortgage USA, Inc. (the
Master Repurchase Agreement, together with these Supplemental Terms,
constitutes the "Agreement"). To the extent that these Supplemental
Terms conflict with the terms of the Master Repurchase Agreement,
these Supplemental Terms shall control.
2. ADDITIONAL DEFINITIONS. Capitalized terms used in these Supplemental
Terms and not otherwise defined shall have the meanings set forth in
the Master Repurchase Agreement. Capitalized terms used in the Master
Repurchase Agreement whose definitions are modified in these
Supplemental Terms shall, for all purposes of the Agreement, be deemed
to have such modified definitions. Unless otherwise indicated, all
references to a particular time in the Agreement are to Dallas, Texas
time.
"Agency" shall refer to GNMA, FNMA and/or FHLMC as applicable.
"Agency Commitment" shall refer to a commitment by an Agency to issue
or guaranty an Agency Security, which commitment is valid, binding and
in full force and effect.
"Agency Security" shall refer to a GNMA Security, a FNMA Security or a
FHLMC Security.
"Approvals" shall refer to the approvals of the Takeout Investors
described in Paragraph 9(b)(ii) of these Supplemental Terms.
"Assignment of Trade Letter" shall refer to a letter in the form of
Exhibit B hereto, executed by the Seller, the Buyer and the Takeout
Investor identified as the "buyer" therein, confirming the assignment
to the Buyer of the Seller's rights under a Takeout Commitment.
I-1
<PAGE> 8
"Bankruptcy Code" shall refer to Title 11 of the United States Code.
"Buyer" shall mean First Nationwide Mortgage Corporation. For
purposes of any provision herein which calls for the delivery of
documents "to the Buyer" such provision shall include any entity
serving as custodian for the Buyer as may be set forth in an agreement
among the Seller, the Buyer and such custodian.
"Buyer's Margin Amount" shall have the meaning set forth in the Master
Repurchase Agreement except that the percentage referred to therein
for each Transaction shall be specified in the related Confirmation
and Funding Request.
"Confirmation and Funding Request" shall have the meaning ascribed to
"Confirmation" as set forth in the Master Repurchase Agreement and
shall be substantially in the form attached hereto as Exhibit A.
"Covered" shall have the meaning specified in Paragraph 8(a) of these
Supplemental Terms and the term "Coverage" shall have the correlative
meaning.
"FHA" shall refer to the Federal Housing Administration.
"FHLMC" shall refer to the Federal Home Loan Mortgage Corporation.
"FHLMC Guide" shall refer to the Freddie Mac Single Family
Seller/Servicer Guide, as such guide may hereafter from time to time
be amended.
"FHLMC Security" shall refer to a Mortgage Participation Certificate
issued and guaranteed by FHLMC and backed by a pool of Mortgage Loans.
"FNMA" shall refer to the Federal National Mortgage Association.
"FNMA Guide" shall refer to the Fannie Mae MBS Selling and Servicing
Guide, as such guide may hereafter from time to time be amended.
"FNMA Security" shall refer to a Guaranteed Mortgage PassThrough
Certificate issued and guaranteed by FNMA and backed by a pool of
Mortgage Loans.
"GNMA" shall refer to the Government National Mortgage Association.
"GNMA Guide" shall refer to the GNMA Mortgage-Backed Securities Guide,
as such guide may hereafter from time to time be amended.
"GNMA Security" shall refer to a fully-modified pass-through
mortgage-backed certificate guaranteed by GNMA and backed by a pool of
Mortgage Loans.
I-2
<PAGE> 9
"Housing Authority Mortgage Loans" shall refer to Mortgage Loans
offered by the Seller to the Buyer under the Agreement which have been
originated under a program administered by a Housing Authority Takeout
Investor and with respect to which such Housing Authority Takeout
Investor has issued a valid, binding and enforceable commitment to the
Seller to purchase Agency Securities to be backed by such Mortgage
Loans.
"Mortgage Loans" shall refer to single family residential mortgage
loans.
"Required Mortgage Documents" with respect to a Mortgage Loan shall
refer to (i) the original note which evidences such Mortgage Loan,
endorsed in blank and without recourse, (ii) an assignment of the deed
of trust or mortgage which secures such Mortgage Loan with the
assignee in blank but otherwise in recordable form but not recorded
and all interim assignments, if any, (iii) a Warehouse Lender's
Release Letter, and (iv) such other documents which relate to such
Mortgage Loan as the Buyer may, in its reasonable discretion, require.
"Securities" shall, in addition to the definition of "Securities" set
forth in the Master Repurchase Agreement, include Mortgage Loans, any
notes which evidence Mortgage Loans and all documents, including
without limitation any of the Required Mortgage Documents, which
secure, or otherwise relate to any Mortgage Loan.
"Seller" shall refer to Lomas Mortgage USA, Inc.
"Seller's Margin Amount" shall have the meaning set forth in the
Master Repurchase Agreement except that the percentage referred to
therein for each Transaction shall be specified in the related
Confirmation and Funding Request.
"Takeout Commitment" shall refer to a trade confirmation from the
Takeout Investor to the Seller confirming the details of a forward
trade between the Takeout Investor and the Seller with respect to one
or more Agency Securities, which trade confirmation shall be valid,
binding and in full force and effect.
"Takeout Investor" shall refer to (a) the Agencies, (b) the California
Public Employees' Retirement System, (c) the entities set forth on
Part A of Schedule I (the "Private Takeout Investors"), (d) the
entities set forth on Part B of Schedule I (the "Housing Authority
Takeout Investors"), and (e) such other securities dealers or other
financial institutions as may be acceptable to the Buyer in its sole
discretion.
"Transaction" shall, in addition to the definition set forth in the
Master Repurchase Agreement, refer to substitutions pursuant to
Paragraph 9 of the Master Repurchase Agreement.
"VA" shall refer to the Department of Veterans Affairs.
I-3
<PAGE> 10
"Warehouse Lender's Release Letter" shall refer to (a) a document
executed by an entity other than the Seller (the "Warehouse Lender")
which states that the Mortgage Loan(s) delivered therewith are
delivered in trust and that a security interest therein has been
retained by the Warehouse Lender pending payment of the Warehouse
Release Purchase Price therefor and that upon payment of such
Warehouse Release Purchase Price, such trust will be terminated and
all claim of the Warehouse Lender to such Mortgage Loans and such
security interest will be released or (b) a document executed by the
Seller which states that the Mortgage Loan(s) delivered therewith are
not subject to any claim or security interest in favor of any entity.
"Warehouse Release Purchase Price" shall mean, as to any Mortgage
Loan, the amount stated in the Warehouse Lender's Release Letter, if
any, applicable thereto, as the amount which must be received by the
Warehouse Lender thereunder for the security interest of such
Warehouse Lender in such Mortgage Loan to be released.
3. MODIFICATIONS TO MASTER REPURCHASE AGREEMENT.
(a) All references to Buyer in the Master Repurchase Agreement
shall be deemed to be references to First Nationwide Mortgage
Corporation and all references to Seller in the Master
Repurchase Agreement shall be deemed to be references to Lomas
Mortgage USA, Inc.
(b) Paragraph 11(d)(ii) of the Master Repurchase Agreement is
hereby deleted in its entirety and restated as follows:
(ii) as to Transactions in which the defaulting party is
the Buyer, at reasonable prices therefor and on such dates as it may
determine in its sole discretion, (A) purchase securities or mortgage
loans (collectively, "Replacement Securities") of the same class and
amount, in the case of securities, and of substantially the same
maturity, principal amount and interest rate, in the case of mortgage
loans, as any Purchased Securities that are not delivered by the
defaulting party to the nondefaulting party as required hereunder or
(B) elect, in lieu of purchasing Replacement Securities, to be deemed
to have Purchased Replacement Securities.
4. CONFIRMATION AND FUNDING REQUESTS.
(a) A Confirmation and Funding Request shall be prepared and duly
executed by the Seller and delivered to the Buyer prior to
2:30 p.m. on the business day preceding the proposed Purchase
Date for the Transaction. The Buyer shall, as soon as
practicable following receipt of a Confirmation and Funding
Request and in any event no later than 9:00 a.m. on the
proposed Purchase Date, either reject such Confirmation and
Funding Request or deliver to Seller a completed and signed
Confirmation and Funding Request.
I-4
<PAGE> 11
(b) Each Confirmation and Funding Request shall be binding upon
the parties hereto upon written acceptance thereof by the
Buyer.
(c) Notwithstanding the last sentence of Paragraph 3(b) of the
Master Repurchase Agreement and except as set forth in
Paragraphs 23 and 24 of these Supplemental Terms, in the event
of any conflict between the terms of a Confirmation and
Funding Request and the Agreement, such Confirmation and
Funding Request shall prevail. In the event of any conflict
between the terms of a Confirmation and Funding Request and
the terms set forth in Paragraphs 23 and 24 of these
Supplemental Terms, the terms set forth in Paragraphs 23 and
24 of these Supplemental Terms shall prevail.
5. INCOME PAYMENTS. All payments and distributions, whether in cash or
in kind, made on or with respect to the Purchased Securities shall,
unless otherwise mutually agreed by the Buyer and Seller, be paid,
delivered or transferred:
(a) in the case of Agency Securities, directly to the Buyer; and
(b) in the case of Mortgage Loans, so long as an Event of Default
on the part of Seller or an Additional Event of Termination
set forth in Paragraph 11 of these Supplemental Terms shall
not have occurred and be continuing, directly to Seller from
the related mortgagor.
6. MARKET VALUE DETERMINATION. The Buyer shall determine the Market
Value for the Purchased Securities from time to time and at such time
as it may elect in its sole discretion. Notwithstanding any provision
of the Agreement to the contrary, the Buyer shall assign a zero Market
Value to any Mortgage Loan (i) that has been delinquent for at least
thirty (30) days, or (ii) with respect to which there is a breach of a
representation, warranty or covenant made by Seller in the Agreement
that materially adversely affects the Buyer's interest in such
Mortgage Loan as determined by the Buyer in its sole discretion and
which breach has not been cured by Seller prior to the date on which
Market Value is being determined; provided, however, that for any
Purchased Securities with respect to which (x) the Takeout Commitment
relevant to such Purchased Securities remain in full force and effect,
(y) such Purchased Securities satisfy all applicable requirements of
such Takeout Commitment, and (z) the Takeout Investor obligated under
such Takeout Commitment remains satisfactory to the Buyer in its
reasonable discretion, the Market Value of such Purchased Securities
shall be the cash price ultimately payable therefor under the terms of
such Takeout Commitment.
7. INTENT OF THE PARTIES; SECURITY INTEREST.
(a) Each Transaction is entered into in contemplation of either
(i) the sale of one or more Mortgage Loans or (ii) the
issuance of one or more Agency Securities backed by the
related Mortgage Loans. Subject to Paragraph 16 of these
I-5
<PAGE> 12
Supplemental Terms, the parties intend that Seller will act as
issuer or seller/servicer with respect to such Mortgage Loans
and Agency Securities, as applicable, and that each Agency
Security will be issued in the name of, and delivered to or
upon the order of, the Buyer.
(b) The parties intend that each Transaction shall be entitled to
the treatment afforded a "repurchase agreement" as defined in
Section 101(47) of the Bankruptcy Code. The parties further
intend that in the event, for any reason, any Transaction is
construed by any court to not be entitled to such treatment,
then such Transaction shall qualify as, and be entitled to the
treatment afforded to, a "securities contract" as defined in
Section 741(7) of the Bankruptcy Code.
(c) In the event, for any reason, any Transaction is construed by
any court as a secured loan rather than a purchase and sale,
the parties intend that the Buyer shall have a perfected first
priority security interest in all right title and interest of
the Seller in and to (i) the Purchased Securities, (ii) any
Takeout Commitment assigned to the Buyer pursuant to the
Agreement, and (iii) any proceeds of the foregoing.
(d) Seller shall pay all fees and expenses associated with
perfecting such security interest including, without
limitation, the filing of financing statements, or
continuation statements to such financing statements or any
other filing in connection with the perfection of such
security interest and Seller shall pay all fees and expenses
(including, without limitation, the reasonable fees and
expenses of counsel) incurred by the Buyer in connection with
the enforcement of its security interest.
8. COVERAGE; DELIVERY OF ADDITIONAL DOCUMENTS; ASSIGNMENT.
(a) Prior to the payment by the Buyer of the Purchase Price on the
Purchase Date for each Transaction involving Mortgage Loans
which are not Housing Authority Mortgage Loans, the Seller
shall deliver to the Buyer evidence that all Mortgage Loans,
other than Housing Authority Mortgage Loans, sold to the Buyer
and not repurchased by the Seller under this Agreement, after
giving effect to the Transaction then contemplated are
"Covered." For purposes of the Agreement, the Mortgage Loans
other than the Housing Authority Mortgage Loans shall be
Covered if and only if:
(i) There are Agency Commitments in amounts and with
characteristics (including coupon, maturity and type
of underlying Mortgage Loans and availability in
light of the Seller's other agreements) sufficient to
permit the issuance of Agency Securities with respect
to all such Mortgage Loans; and
I-6
<PAGE> 13
(ii) the Seller has delivered to the Buyer fully executed
(including facsimile copies of counterparts with
originals to follow by overnight delivery service)
Assignment of Trade Letters with respect to Takeout
Commitments with characteristics (including coupon,
maturity and types of Agency Security) sufficient to
permit the sale of all Agency Securities to be issued
in respect of all such Mortgage Loans for an
aggregate purchase price no less than the aggregate
Purchase Price for such Mortgage Loans.
(b) Notwithstanding anything in the Master Repurchase Agreement to
the contrary, absent the express consent of the Buyer,
Mortgage Loans are the only Securities which the Seller may
sell to the Buyer under the Agreement.
(c) Prior to the payment by the Buyer of the Purchase Price on the
Purchase Date for a Transaction and contemporaneously with the
delivery by the Seller of the Confirmation and Funding Request
with respect to such Transaction, the Seller shall deliver to
the Buyer or its agent the Required Mortgage Documents with
respect to each Mortgage Loan to be included in such
Transaction.
(d) The delivery to the Buyer of an Assignment of Trade Letter
shall constitute the absolute assignment and irrevocable
transfer by the Seller to the Buyer of all right, title and
interest of the Seller under the Takeout Commitment described
therein and shall also constitute the representation and
warranty of the Seller that (i) such Takeout Commitment is in
full force and effect and is not subject to any claim or right
of setoff in favor of the related Takeout Investor, and (ii)
the Seller has full right and title to such Takeout Commitment
and full right to irrevocably assign and absolutely transfer
its interest therein to the Buyer.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Each party represents and warrants, and shall on and as of the
Purchase Date of each Transaction be deemed to represent and
warrant, as follows:
(i) The execution, delivery and performance of the
Agreement and the performance of each Transaction do
not and will not result in or require the creation of
any lien, security interest or other charge or
encumbrance (other than pursuant hereto) upon or with
respect to any of its properties; and
(ii) The Agreement is, and each Transaction when entered
into under the Agreement will be, a legal, valid and
binding obligation of it enforceable against it in
accordance with the terms of the Agreement, subject
to applicable bankruptcy, insolvency and similar laws
affecting creditors'
I-7
<PAGE> 14
rights generally and subject, as to enforceability,
to general principles of equity (regardless of
whether enforcement is sought in a proceeding in
equity or at law).
(b) Seller represents and warrants, and shall on and as of the
Purchase Date of each Transaction be deemed to represent and
warrant, as follows:
(i) The consummation of the Transaction as contemplated
herein will not violate any applicable policy,
regulation or guideline of the FHA or VA or result in
the voiding or reduction of the FHA insurance, VA
guarantee or any other insurance or guarantee in
respect of any Mortgage Loan, and such insurance or
guarantee is in full force and effect or shall be in
full force and effect as required by the applicable
GNMA Guide, FNMA Guide or FHLMC Guide;
(ii) Seller is a GNMA-approved issuer, a GNMA-approved
servicer, a FHA-approved mortgagee, a VA- approved
lender, a FNMA-approved issuer, a FNMA-approved
servicer and/or a FHLMC-approved seller/servicer in
good standing, as applicable, and is in good standing
with the California Public Employees' Retirement
System, each Private Takeout Investor and each
Housing Authority Takeout Investor for whom such
concept is applicable (collectively for the Agencies
and the other Takeout Investors, the "Approvals");
(iii) Seller is servicing each Mortgage Loan in strict
conformity with the servicing standards described in
the provisions of Paragraph 16 of these Supplemental
Terms;
(iv) Each Mortgage Loan which is not a Housing Authority
Mortgage Loan which has been or, pursuant to such
Transaction, is to be, sold to the Buyer under the
Agreement and has not been repurchased by the Seller
is Covered;
(v) There exists for each Housing Authority Mortgage Loan
a valid, binding and enforceable commitment to the
Seller from the Housing Authority which administers
the program pursuant to which such Housing Authority
Mortgage Loan was originated to purchase Agency
Securities to be backed by such Housing Authority
Mortgage Loan;
(vi) Each and every document, certificate, instrument,
insurance policy, escrow and any other item relating
to a Mortgage Loan necessary to satisfy the final
delivery requirements of FHLMC, FNMA or GNMA as
required by the FHLMC Guide, the FNMA Guide or the
GNMA Guide, as applicable, for the issuance of the
related Agency Security are in form
I-8
<PAGE> 15
and substance acceptable to FHLMC, FNMA or GNMA, as
appropriate, and have either been delivered to the
Buyer or its agent or are held by the Seller in trust
for the Buyer;
(vii) Any Agency Commitment relied upon by the Seller for
purposes of determining Coverage remains in full
force and effect;
(viii) The Takeout Commitments and Assignments of Trade
Letters relevant to the Agreement are each the legal,
valid and binding obligation of the Seller
enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency and
similar laws affecting creditors, rights generally
and subject, as to enforceability, to general
principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at
law);
(ix) Each Takeout Commitment assigned by Seller to the
Buyer pursuant to Paragraph 8(d) of these
Supplemental Terms and each Assignment of Trade
Letter delivered to the Buyer pursuant to the
Agreement is enforceable by the Buyer against the
related Takeout Investor; and
(x) Each Mortgage Loan that is the subject of such
Transaction is owned by the Seller free and clear of
any security interest or lien (or will be, upon
payment by the Buyer of the Warehouse Release
Purchase Price with respect thereto in accordance
with the terms set forth in any Warehouse Lender's
Release Letter accompanying the Required Mortgage
Documents for such Mortgage Loans).
(c) Seller covenants with the Buyer as follows:
(i) Seller shall immediately notify the Buyer by
telephone and in writing if any Approvals are
withdrawn or modified or threatened to be withdrawn
or modified or suspended;
(ii) [Intentionally Omitted];
(iii) Seller shall be, simultaneously with the payment of
the Purchase Price by the Buyer on the Purchase Date,
the legal and beneficial owner of such Purchased
Securities (and of any related Takeout Commitments)
free and clear of any lien, security interest, option
or encumbrance except for the security interest
created by the Agreement;
(iv) Seller shall service the Mortgage Loans in strict
conformity with the servicing standards described in
the provisions of Paragraph 16 of these Supplemental
Terms; and
I-9
<PAGE> 16
(v) Seller shall pay the legal fees and expenses of Akin,
Gump, Strauss, Hauer and Feld, L.L.P., counsel to the
Buyer, in connection with the negotiation,
preparation and execution of the Agreement, upon the
execution and delivery thereof, such fees and
expenses to be in the amount of $25,000.
10. EVENTS OF DEFAULT.
(a) The term "Event of Default" shall, in addition to the
definition set forth in the Master Repurchase Agreement,
including the following events:
(i) Any governmental or self-regulatory authority shall
take possession of the Buyer or Seller or all or
substantially all its property or appoint any
trustee, receiver, conservator or other official, or
the Buyer or Seller shall take any action to
authorize any of the actions set forth in this clause
(i).
(ii) The Buyer or Seller shall have reasonably determined
that the other party is or will be unable to meet its
commitments under the Agreement, shall have notified
such other party of such determination and such other
party shall not have responded with appropriate
information to the contrary to the satisfaction of
the notifying party within forty-eight (48) hours.
(iii) A final judgment by any competent court in the United
States of America for the payment of money in an
amount of at least $500,000 is rendered against the
defaulting party, and the same remains undischarged
or unpaid for a period of 60 days during which
execution of such judgment is not effectively stayed.
(iv) The Agreement shall for any reason cease to create a
valid first priority security interest in any of the
Purchased Securities (and Takeout Commitments)
purported to be covered thereby; provided, however,
that such circumstance shall not constitute an Event
of Default if, after determining the Market Value of
the Mortgage Loans without taking into account the
Mortgage Loans with respect to which such
circumstance has occurred, no other Event of Default
shall have occurred and be continuing.
(v) Any representation or warranty made by Seller in the
Agreement shall have been incorrect or untrue in any
material respect when made or repeated or when deemed
to have been made or repeated and the Buyer's
interests shall have been materially adversely
affected thereby as determined by the Buyer in its
reasonable discretion.
I-10
<PAGE> 17
(vi) Seller shall breach any covenant in the Agreement and
the Buyer's interests shall have been materially
adversely affected thereby as determined by the Buyer
in its reasonable discretion.
(vii) An Act of Insolvency shall occur with respect to a
controlling entity of Seller.
(viii) Any Approvals of Seller are modified or revoked and
the Buyer's interests shall have been materially
adversely affected thereby as determined by the Buyer
in its reasonable discretion.
(b) In addition to the other remedies available to the Buyer or
Seller upon the occurrence and during the continuance of an
Event of Default by the other party, the Buyer shall have the
following additional remedies upon the occurrence and during
the continuance of an Event of Default by Seller:
(i) All rights of Seller to receive payments which it
would otherwise be authorized to receive pursuant to
Paragraph 5 of these Supplemental Terms shall cease,
and all such rights shall thereupon become vested in
the Buyer, which shall thereupon have the sole right
to receive such payments and apply them to the
aggregate unpaid Repurchase Prices owed by Seller.
(ii) The Buyer in its sole discretion may terminate the
Seller as the servicer of the Mortgage Loans with
respect to which the Seller is the servicer without
the payment of any termination fee, penalty or
compensation to Seller and all rights of Seller to
receive servicing fees shall cease, and all such
rights shall thereupon become vested in the Buyer or
its designee, which shall thereupon have the sole
right to receive such payments and apply them to the
aggregate of the unpaid Repurchase Prices owed by
Seller; Seller shall deliver all documents with
respect to such Mortgage Loans and any related Agency
Securities as the Buyer shall in its sole discretion
direct.
(iii) All payments that are received by Seller contrary to
the provisions of the preceding clauses shall be
received in trust for the benefit of the Buyer and
shall be segregated from other funds of Seller.
(c) Any sale of Purchased Securities under Paragraph 11 of the
Master Repurchase Agreement shall be conducted in a
commercially reasonable manner, and in connection therewith,
the Seller agrees that the sale of any Purchased Securities
pursuant to a Takeout Commitment assigned and transferred to
the Buyer by the Seller pursuant to Paragraph 8(d) of these
Supplemental Terms shall constitute a sale conducted in a
commercially reasonable manner.
I-11
<PAGE> 18
(d) Expenses incurred in connection with an Event of Default shall
include without limitation those costs and expenses (including
reasonable legal fees) incurred by the nondefaulting party as
a result of the early termination of any repurchase agreement
or reverse repurchase agreement entered into by the
nondefaulting party in connection with the Transaction then in
default.
11. ADDITIONAL EVENTS OF TERMINATION. At the option of the Buyer,
exercised by written notice to Seller, the Repurchase Date for any or
all Transactions under the Agreement shall be deemed to immediately
occur in the event that:
(a) In the reasonable judgment of the Buyer a material adverse
change shall have occurred in the business, operations,
properties, prospects or condition (financial or otherwise) of
Seller after the date of the Agreement;
(b) The Buyer shall request written assurances satisfactory to the
Buyer in its sole discretion as to the financial well-being of
Seller and such assurances shall not have been provided within
seventy-two (72) hours of Seller's receipt of such request;
(c) Seller shall be in default with respect to any covenants under
any material contract or agreement to which it is a party
which default results in acceleration of the obligations of
Seller under such contract or agreement by any other party
thereto; or
(d) Seller shall consolidate with or merge into any other entity
or convey or transfer its properties and assets substantially
as an entirety to any entity unless the surviving or resulting
entity shall be acceptable to the Buyer in its sole discretion
and such entity expressly assumes by written agreement,
executed and delivered to the Buyer in form and substance
satisfactory to the Buyer, the performance of all of Seller's
duties and obligations under the Agreement.
The acceleration of the Repurchase Date as provided in this Paragraph
11 shall be in addition to any other rights of the parties to cause
such an acceleration under the Agreement. No failure on the part of
the Buyer to exercise, and no delay in exercising any right hereunder,
shall operate as a waiver thereof; nor shall any single or partial
exercise of any right or waiver of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right.
I-12
<PAGE> 19
12. FINANCIAL STATEMENTS.
(a) The Seller shall provide the Buyer copies of such financial
information regarding the Seller as is reasonably available
and as the Buyer may reasonably request.
(b) Seller shall provide the Buyer as and when available, at the
expense of Seller and upon request of the Buyer, with any and
all press releases, announcements and public filings,
including but not limited to public filings with the
Securities and Exchange Commission.
13. REPURCHASE PRICE; METHOD OF PAYMENTS. The Price Differential shall be
payable in arrears with respect to each Transaction involving Mortgage
Loans, together with the Purchase Price therefor, on the Repurchase
Date for the related Transaction or as may be otherwise mutually
agreed upon by the parties and as specified in the related
Confirmation and Funding Request. Payment of the Repurchase Price and
all other amounts owing to the Buyer under the Agreement shall be made
by wire transfer in immediately available funds. Payment of the
Purchase Price and all other amounts owing to the Seller under the
Agreement shall be made by wire transfer in immediately available
funds.
14. ADDITIONAL INFORMATION. Seller shall provide the Buyer, from time to
time at Seller's expense, with such information of a financial or
operational nature as the Buyer may reasonably request promptly upon
receipt of such request. The Buyer and its permitted assigns (and its
attorneys, auditors and agents when requested by the Buyer) shall have
the right, upon reasonable prior written notice to the Seller, to
visit the offices of the Seller and to discuss the affairs, finances
and accounts of the Seller with, and to be advised as to the same by,
its officers and to examine the books of account and records of the
Seller pertaining to each Mortgage Loan that is the subject of any
Transaction, and to make or be provided with copies and extracts
therefrom, and, upon reasonable notice, to discuss the affairs,
finances and accounts of the Seller with, and to be advised as to the
same by, the independent accountants of the Seller (and by this
provision Seller authorizes such accountants to discuss such affairs,
finances and accounts, whether or not a representative of the Seller
is present), all at such reasonable times and intervals and to such
reasonable extent as the Buyer may desire. Such inspection shall
occur upon the request of the Buyer at a mutually agreeable location
during regular business hours and on a date not more than two (2)
business days after the date of such request. The Seller will pay the
reasonable out-of-pocket expenses of the Buyer exercising its rights
pursuant to this Paragraph 14.
15. MARGIN MAINTENANCE. Paragraph 4(a) of the Master Repurchase Agreement
is hereby modified to provide that if the notice to be given by the
Buyer to Seller under such paragraph is given at or prior to 10:00
a.m. on a business day, Seller shall transfer the cash or Additional
Purchased Securities to the Buyer prior to the close of business
I-13
<PAGE> 20
in Dallas, Texas on the date of such notice, and if such notice is
given after 10:00 a.m. Seller shall transfer the cash or Additional
Purchased Securities prior to the close of business in Dallas, Texas
on the business day following the date of such notice.
16. SERVICING ARRANGEMENTS. With respect to any Mortgage Loan purchased
by the Buyer hereunder for which the Seller acted as servicer at the
time of such purchase:
(a) The parties hereto agree and acknowledge that, notwithstanding
the purchase and sale of the Mortgage Loans contemplated
hereby, Seller shall, prior to the repurchase of such Mortgage
Loans, continue to service the Mortgage Loans for the benefit
of the Buyer and, if the Buyer shall exercise its rights to
sell the Mortgage Loans pursuant to the Agreement, the Buyer's
assigns;
(b) Seller shall service and administer the Mortgage Loans in
accordance with prudent mortgage loan servicing standards and
procedures generally accepted in the mortgage banking industry
and in any event in accordance with standards and procedures
no less protective of the interests of the owner of the
Mortgage Loans than it follows with respect to its own
Mortgage Loans; provided, however, that Seller shall at all
times comply with applicable law and FHA regulations and VA
regulations so that the FHA insurance, VA guarantee or any
other applicable insurance or guarantee in respect of any
Mortgage Loan is not impaired, voided or reduced and Seller
shall at all times maintain accurate and complete records of
its servicing of the Mortgage Loans;
(c) Seller shall provide the Buyer and its permitted assigns with
periodic reports concerning the Mortgage Loans with such
frequency and containing such information as the Buyer or its
permitted assigns may reasonably request; and
(d) Any Mortgage Loans purchased by the Buyer pursuant to the
Agreement shall be purchased "servicing released" and the
Buyer shall, in connection with the exercise of its rights to
sell the Mortgage Loans in exercise of its remedies under the
Agreement, have the option to sell the Mortgage Loans on a
servicing released basis without the payment of any
termination fee, penalty or compensation to Seller.
17. FURTHER ASSURANCES. At any time and from time to time at the request
of the Buyer, and without further consideration, the Seller will
execute and deliver, or cause the execution and delivery of, such
other instruments of sale, transfer, conveyance, assignment and
confirmation and take or cause to be taken such other action as the
Buyer may reasonably deem necessary or desirable in order to effect
the purposes of the Agreement.
18. THE BUYER AS ATTORNEY-IN-FACT. The Buyer is hereby appointed to act
after the occurrence and during the continuation of an Event of
Default as the attorney-in-fact
I-14
<PAGE> 21
of Seller for the purpose of carrying out the provisions of the
Agreement and taking any action and executing any instruments that the
Buyer may deem necessary or advisable to accomplish the purposes
hereof, which appointment as attorney-in-fact is irrevocable and
coupled with an interest. Without limiting the generality of the
foregoing, the Buyer and its assigns shall have the right and power
after the occurrence and during the continuation of any Event of
Default to receive, endorse and collect all checks made payable to the
order of Seller representing any payment on account of the principal
of or interest on any of the Purchased Securities and to give full
discharge for the same.
19. NOTICES. All notices and other communications provided for under the
Agreement shall be in writing (including telegraphic, facsimile or
telex communication), and such notices and other communications shall,
when mailed, telegraphed, communicated by facsimile transmission or
telexed, be effective when received at the address for notices for the
party to whom such notices or communications are to be given;
provided, however, that a facsimile transmission shall be deemed to be
received when transmitted so long as the transmitting machine has
provided an electronic confirmation of such transmission, and provided
further, however, that all financial statements delivered shall be
hand-delivered or sent by first-class mail.
20. COUNTERPARTS. The Agreement may be executed in any number of
counterparts, each of which counterpart shall be deemed to be an
original, and such counterparts shall constitute but one and the same
instrument.
21. INCORPORATION OF TERMS. The Master Repurchase Agreement as
supplemented hereby shall be read, taken and construed as one and the
same instrument.
22. BINDING EFFECT; ASSIGNABILITY. The Agreement shall be binding upon
and inure to the benefit of the Buyer and the Seller and their
respective successors and assigns; provided, however, that the Seller
shall not have the right to assign its rights hereunder or any
interest herein (by operation of law or otherwise) without the prior
written consent of the Buyer, provided that in connection with any
such assignment the assignee shall expressly agree in writing to
assume all the obligations of the Seller hereunder.
23. MAXIMUM PURCHASE PRICE; PURCHASE AND REPURCHASE DATES.
Notwith-standing anything to the contrary in the Agreement or any
Confirmation, (a) the maximum Purchase Price to be paid by the Buyer
on the Purchase Date relevant to any Mortgage Loan which is not a
Housing Authority Mortgage Loan shall be ninety-eight percent (98%) of
the principal amount thereof, (b) the maximum Purchase Price to be
paid by the Buyer on the Purchase Date relevant to any Mortgage Loan
which is a Housing Authority Mortgage Loan shall be eighty-five
percent (85%) of the principal amount thereof, (c) the maximum
aggregate Purchase Price at any time shall not exceed EIGHTY MILLION
DOLLARS ($80,000,000), (d) the Purchase Date for any
I-15
<PAGE> 22
Transaction shall be on or before September 29, 1995, and (e) the
Repurchase Date for any Transaction shall be on or before October 2,
1995.
24. USURY SAVINGS. The parties intend to comply with any applicable usury
law. Accordingly, in the event, for any reason, any Transaction is
construed by any court as a secured loan rather than a purchase and
sale, in no event shall the rate of interest contracted for, charged
or received for the use, forbearance or detention of money under the
Agreement exceed the highest rate permitted by law. If any
construction of the Agreement indicates a different right given to the
Buyer to ask for or receive any larger sum as interest, such is a
mistake in calculation or wording which this clause shall override and
control, it being the intention of the parties that the Agreement
shall in all things comply with applicable law and proper adjustments
shall automatically be made accordingly. In the event that the Buyer
shall ever receive, collect or apply as interest, any sum in excess of
the maximum nonusurious rate permitted by applicable law (the "Maximum
Rate"), if any, such excess amount shall be applied to the reduction
of the unpaid principal balance of any indebtedness owed to the Buyer
under the Agreement, and if the same be paid in full, any remaining
excess shall be paid to the Seller. In determining whether or not the
interest paid or payable, under any specific contingency, exceeds the
Maximum Rate, if any, the Seller and the Buyer shall, to the maximum
extent permitted under applicable law: (a) characterize any
nonprincipal payment as an expense or fee rather than as interest, (b)
exclude voluntary prepayments and the effects thereof, and (c)
"spread" the total amount of interest throughout the entire term of
the Agreement. To the extent that TEX. REV. CIV. STAT. ANN. art
5069-1.04, as amended (the "Act"), is relevant for purposes of
determining the Maximum Rate, such rate shall be determined under the
Act pursuant to the "indicated rate ceiling", from time to time in
effect, as referred to and defined in article 1.04(a)(1) of the Act;
subject, however, to the limitations on such applicable ceiling
referred to and defined in article 1.04(b)(2) of the Act, and further
subject to any right the Buyer may have subsequently, under applicable
law, to change the method of determining the Maximum Rate.
25. Governing Law; Jurisdictional Matters. The Agreement shall be
governed by and interpreted in accordance with the laws of the State
of Texas. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE
AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF STATE OF TEXAS,
OR THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF TEXAS,
AND, BY EXECUTION AND DELIVERY OF THE AGREEMENT, THE PARTIES HEREBY
ACCEPT FOR THEMSELVES AND IN RESPECT OF THEIR PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE
PARTIES HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF
ANY SUCH ACTION OR PROCEEDING IN SUCH JURISDICTIONS. THIS SUBMISSION
TO JURISDICTION IS NONEXCLUSIVE AND DOES NOT PRECLUDE THE BUYER FROM
OBTAINING JURISDICTION OVER THE SELLER IN ANY COURT OTHERWISE HAVING
JURISDICTION.
I-16
<PAGE> 23
26. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY (A) IRREVOCABLY AND
UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW, TRIAL
BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THE AGREEMENT
AND FOR ANY COUNTERCLAIM THEREIN, (B) CERTIFY THAT NO PARTY HERETO NOR
ANY REPRESENTATIVE OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (C)
ACKNOWLEDGE THAT IT ENTERED INTO THIS AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED HEREBY BASED UPON AMONG OTHER THINGS THE MUTUAL WAIVERS
AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH.
I-17
<PAGE> 24
EXHIBIT A
CONFIRMATION
UNDER
MASTER REPURCHASE AGREEMENT
DATED AS OF SEPTEMBER 19, 1995
BETWEEN BUYER AND SELLER
Buyer: First Nationwide Mortgage Corporation
C/O First Nationwide Bank
200 Crescent Court
Suite 1350
Dallas, Texas 75201
Attention:
Seller: Lomas Mortgage USA, Inc.
1600 Viceroy Drive
Dallas, Texas 75235
Attention:
Purchased Securities: Mortgage Loans under the Master Repurchase Agreement
dated as of September 19, 1995, between Buyer and
Seller (capitalized terms used and not otherwise
defined in this Confirmation have the meanings
specified in such Master Repurchase Agreement,
including the Supplemental Terms attached thereto).
The Mortgage Loans offered for sale to the Buyer
hereby include any notes which evidence such Mortgage
Loans, all other Required Mortgage Documents with
respect to such Mortgage Loans, and all other
documents which secure, or otherwise relate to, such
Mortgage Loans (to the extent not delivered to the
Buyer or its agent contemporaneously herewith, all
such notes, Required Mortgaged Documents and other
documents are held by the Seller in trust for the
benefit of the Buyer and will be delivered to the
Buyer upon request).
CHECK THE APPLICABLE BOX AND COMPLETE THE BLANKS:
[ ] The Mortgage Loans are not Housing Authority Mortgage Loans
[ ] The Mortgage Loans are Housing Authority Mortgage Loans
Aggregate Principal
Balance of Number of
Mortgage Loans: _________________ Mortgage Loans: _________________
A-1
<PAGE> 25
Purchase Date: __________________ (Not later than September 29, 1995)
Repurchase Date: __________________ (Not later than October 2, 1995)
Purchase Price: 98% if not Housing Authority Mortgage Loans
85% if Housing Authority Mortgage Loans
Pricing Rate: Prime Rate
Percentage used
to determine
Buyer's Margin
Amount: 93% if not Housing Authority Mortgage Loans
80% if Housing Authority Mortgage Loans
Percentage used
to determine
Seller's Margin
Amount: N.A.
LOMAS MORTGAGE USA, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
AGREED AND ACCEPTED
FIRST NATIONWIDE MORTGAGE
CORPORATION
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
Attachment: Schedule of Mortgage Loans covered hereby
A-2
<PAGE> 26
SCHEDULE I TO
CONFIRMATION DATED: _______________
UNDER
MASTER REPURCHASE AGREEMENT
DATED AS OF SEPTEMBER 19, 1995
BETWEEN FIRST NATIONWIDE MORTGAGE CORPORATION
AND LOMAS MORTGAGE USA, INC.
Page 1 of ___
<TABLE>
<CAPTION>
Loan # Borrower Loan Principal Interest Loan Product Date of Purchase
Name Amount Balance Rate Type Code Loan Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Grand Totals
- ------------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE> 27
EXHIBIT B
ASSIGNMENT OF TRADE LETTER
[See attached]
B-1
<PAGE> 28
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSIGNMENT OF TRADE LETTER
LOMEGA
Securities Dealer/Buyer Securities, Inc.
Trade Reference: 8675309
Trade Date: Oct. 1, 1994
Security: 30 Yr. GNMA 1
Coupon: 9.00%
Trade Amount: $1,000,000
Amounts Assigned: 1,000,000
Settlement Date: Nov. 12, 1994
Trade Price: 100-02/32s
Special Instructions: ___________________
Seller: Lomas Mortgage USA, Inc.
Lender's Trade Reference: EV26809
Dear Sirs:
Regarding the above referenced trade the ("Commitment"), this is to
confirm that (i) the Commitment is in full force and effect, (ii) the
Commitment has been assigned to First Nationwide Mortgage Corp ("First
Nationwide") whose acceptance of such (the "Assignment") is indicated below,
(iii) First Nationwide is obligated to deliver securities to the Securities
Dealer named above ("Buyer") in accordance with the Commitment, and (iv) Buyer
will accept delivery of said securities from and return funds to First
Nationwide in accordance with the Commitment.
Buyer agrees that upon acceptance of the Assignment, Buyer will
release Lomas ("Seller") from any and all obligations in connection with the
Commitment. In the event either Buyer or First Nationwide fails to perform or
in any way defaults on the terms of the Commitment, the non-defaulting party
will have full, undiluted rights of recourse and recovery as provided for in
the Commitment.
The above notwithstanding, if Buyer fails to accept the Assignment,
First Nationwide will have no obligations to Buyer or Seller regarding the
Commitment.
Please execute the Agreement in the space provided below and return by
facsimile to First Nationwide at (415) 904-0169, ATTN: John Kim. Any questions
regarding this Assignment may be directed to Mr. Kim at (415) 904-1423.
Sincerely,
Seller: Lomas Mortgage USA, Inc.
By:_____________________________
Name:___________________________
Title:__________________________
Date:___________________________
Agreed to:
First Nationwide Mortgage Corp Buyer:
By:_____________________________ By:_____________________________
Name:___________________________ Name:___________________________
Title:__________________________ Title:__________________________
Date:___________________________ Date:___________________________
Page 1 of 1
<PAGE> 29
ANNEX II
NOTICES AND OTHER COMMUNICATIONS
IF TO SELLER:
Name: Louis P. Gregory Address: Lomas Mortgage USA, Inc.
Title: General Counsel 1600 Viceroy Drive
Telephone: 214-879-7070 Dallas, Texas 75265-5644
Facsimile: 214-879-7075
IF TO BUYER:
Name: Christie S. Flanagan Address: First Nationwide Mortgage Corporation
Title: General Counsel 200 Crescent Court, Suite 1350
Telephone: 214-871-5188 Dallas, Texas 75201
Facsimile: 214-871-5199
<PAGE> 1
EXHIBIT 10.40
TRI-PARTY CUSTODY AGREEMENT
by and among
LOMAS MORTGAGE USA, INC.,
as "Seller"
FIRST NATIONWIDE MORTGAGE CORPORATION
as "Buyer"
and
BANK ONE, TEXAS, NATIONAL ASSOCIATION,
as "Custodian"
Dated as of September 19, 1995
<PAGE> 2
This TRI-PARTY CUSTODY AGREEMENT is made and entered into as of
September 19, 1995, by and among Lomas Mortgage USA, Inc. (the "Seller"), First
Nationwide Mortgage Corporation (the "Buyer") and Bank One, Texas, National
Association ("Bank One").
PRELIMINARY MATTERS
A. The Seller and the Buyer have entered into that certain Master
Repurchase Agreement dated as of even date herewith (together with the
Supplemental Terms thereto and any Confirmations from time to time
entered into thereunder, the "Repurchase Agreement").
B. The Repurchase Agreement contemplates the offer and sale by the Seller
to the Buyer from time to time of certain Mortgage Loans, the delivery
to the Buyer or its agent of certain documents which evidence or
relate to such Mortgage Loans, and the release of such Mortgage Loans
by the Buyer to the Seller.
C. The parties wish to provide for the appointment of Bank One by the
Buyer as custodian on behalf of the Buyer (in such capacity, the
Custodian") and to set forth their agreement regarding the delivery of
documents by the Seller to the Custodian and the inspection and
release of such documents by the Custodian.
AGREEMENT
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms
have the meanings indicated.
"Agency" shall refer to GNMA, FNMA and/or FHLMC as applicable.
"Agency Security" shall refer to a GNMA Security, a FNMA Security or a
FHLMC Security.
"Agreement" shall refer to this Agreement, as supplemented or amended
from time to time.
"Bank One" shall have the meaning specified in the preamble to this
Agreement.
"Buyer" shall have the meaning specified in the preamble to this
Agreement.
<PAGE> 3
"Certification" shall refer to Custodian's certification included in
each Document Submission Summary.
"Custodian" shall have the meaning specified in Preliminary Matter C
to this Agreement.
"DDA Account" shall refer to demand deposit account no. 1886481967,
with Bank One, which account is styled "First Nationwide Mortgage Corp., Re:
Bank One, Texas Tri-Party Custody Agreement, dated September 19, 1995."
"Deposited Documents" shall refer to all documents relating to
Mortgage Loans, including without limitation all Required Documents, deposited
with the Custodian pursuant to this Agreement.
"Document Submission Summary" shall mean a Document Submission Summary
in the form attached hereto as Exhibit A, having appended thereto a Mortgage
Loan Schedule.
"FHLMC" shall refer to the Federal Home Loan Mortgage Corporation.
"FHLMC Security" shall refer to a Mortgage Participation Certificate
issued and guaranteed by FHLMC and backed by a pool of Mortgage Loans.
"FNMA" shall refer to the Federal National Mortgage Association.
"FNMA Security" shall refer to a Guaranteed Mortgage PassThrough
Certificate issued and guaranteed by FNMA and backed by a pool of Mortgage
Loans.
"GNMA" shall refer to the Government National Mortgage Association.
"GNMA Security" shall refer to a fully-modified pass-through
mortgage-backed certificate guaranteed by GNMA and backed by a pool of Mortgage
Loans.
"Mortgage" shall refer to the deed of trust or mortgage which secures
a Mortgage Loan.
"Mortgage Loans" shall refer to single family residential mortgage
loans.
"Mortgage Loan Schedule" shall refer to a completed schedule in the
form attached as Schedule I to Exhibit A to this Agreement.
"Note" shall refer to the promissory note which evidences a Mortgage
Loan.
"Required Documents" shall have the meaning specified in Paragraph 4
of this Agreement.
2
<PAGE> 4
"Repurchase Agreement" shall have the meaning specified in Preliminary
Matter A to this Agreement.
"Seller" shall have the meaning specified in the preamble to this
Agreement.
"Title Company" shall refer to the title company or other entity other
than the Seller or any entity affiliated (within the meaning of such term set
forth in Paragraph 16) with the Seller that is serving as closing agent with
respect to a Mortgage Loan originated by or on behalf of the Seller with funds
provided to the Seller by the Buyer pursuant to the Repurchase Agreement in
connection with the sale of such Mortgage Loan to the Buyer thereunder.
"Warehouse Lender's Release Letter" shall refer to (a) a document
executed by an entity other than the Seller (the "Warehouse Lender") which
states that the Mortgage Loan(s) delivered therewith are delivered in trust and
that a security interest therein has been retained by the Warehouse Lender
pending payment of the Warehouse Release Purchase Price therefor and that upon
payment of such Warehouse Release Purchase Price, such trust will be terminated
and all claim of the Warehouse Lender to such Mortgage Loans and such security
interest will be released or (b) a document executed by the Seller which states
that the Mortgage Loan(s) delivered therewith are not subject to any claim or
security interest in favor of any entity.
"Warehouse Release Purchase Price" shall mean, as to any Mortgage
Loan, the amount stated in the Warehouse Lender's Release Letter, if any,
applicable thereto, as the amount which must be received by the Warehouse
Lender thereunder for the security interest of such Warehouse Lender in such
Mortgage Loan to be released.
2. Appointment of Custodian. The Buyer hereby appoints Bank One
as Custodian and Bank One hereby accepts its appointment as the Custodian, to
act as the bailee and agent of the Buyer and its successors and permitted
assigns, for the purpose of taking custody of all Deposited Documents delivered
hereunder.
3. Deposit of Documents. The Seller shall deposit with the
Custodian, and the Custodian agrees, subject to Paragraph 2 above and the other
terms and conditions hereof, to hold as custodian and bailee on behalf of and
as agent for the Buyer, and its successors and permitted assigns, such
documents as it is required to deliver to the Buyer or its agents under the
Repurchase Agreement. The Custodian shall be responsible for identifying on
its books and records that all such documents are being held for the benefit of
the Buyer and for maintaining all Deposited Documents in separate records and
files.
4. Required Documents. For each Mortgage Loan that is identified
on a Document Submission Summary, the Seller shall deposit with the Custodian
the following required documents (the "Required Documents") relating to such
Mortgage Loan, and all such other documents as the Buyer may require, and which
documents the Buyer notifies the Custodian to accept:
3
<PAGE> 5
a. The Note which evidences such Mortgage Loan, endorsed
by a duly authorized representative of the Seller in blank and without
recourse;
b. an assignment of the Mortgage which secures such
Mortgage Loan with assignee in blank but otherwise in recordable form
but not recorded and all interim assignments, if any;
c. a Document Submission Summary; and
d. an executed Warehouse Lender's Release Letter.
5. Certification of Documentation. Upon receipt of each Document
Submission Summary, the Custodian shall review the Deposited Documents
delivered therewith to determine whether such Deposited Documents comprise the
Required Documents for the Mortgage Loans identified on the Mortgage Loan
Schedule attached to such Document Submission Summary and to determine whether
all such Required Documents are complete and appear regular on their face,
whether each such document purporting to be an original appears on its face to
be so, and whether each such document purporting to be a certified photocopy or
conformed copy appears on its face to be a complete copy of its original. The
Custodian shall confirm that:
a. The Note bears an original signature or signatures
purporting to be the signature or signatures of the person or persons
named as the maker;
b. except for the endorsement in blank, neither the Note
nor any assignment of the Mortgage contain any notations on their face
which evidence any claims, liens, security interests, encumbrances or
restrictions on transfer;
c. the original principal amount of the Note is greater
than or equal to the current outstanding principal amount of the Note
as reported to the Custodian by the Seller on the relevant Mortgage
Loan Schedule;
d. the rate of interest borne by the Mortgage Loan as
set forth on the Note is equal to the rate of interest for such
Mortgage Loan as reported to the Custodian by the Seller on the
relevant Mortgage Loan Schedule;
e. the Note has been endorsed in blank and bears
original endorsements which complete the chain of ownership from the
original holder or payee to the Seller;
f. the original assignment of the Mortgage in blank
bears the original signature purporting to be the signature of the
named mortgagee or beneficiary (and any other necessary party,
including subsequent assignors); a photocopy of each interim
assignment bears the signature purporting to be the signature of the
named mortgagee or beneficiary (and any other necessary party,
including subsequent assignors) and bears a
4
<PAGE> 6
certification of an officer of the Seller, the entity selling the
Mortgage Loan to the Seller, or a title company to the effect that
such interim assignment has been recorded or sent for recording in the
appropriate real estate recording office; and such assignment and such
interim assignments complete the chain of title from the originator to
the Seller;
g. the information set forth on the Mortgage Loan
Schedule attached to the Document Submission Summary respecting each
Mortgage Loan appears to reflect accurately the information contained
in the related Required Documents; and
h. the Warehouse Lender's Release Letter, as applicable,
has been duly executed by either the Warehouse Lender or the Seller
and is addressed to either the Seller (if executed by the Warehouse
Lender) or the Buyer (if executed by the Seller).
The Custodian shall notify the Seller and the Buyer of any documents
that are missing, incomplete on their face or patently inconsistent and of any
Mortgage Loans that do not satisfy the criteria listed above. The Seller shall
promptly deposit such missing documents with the Custodian or complete or
correct the documents. When the Required Documents have been received and
reviewed by the Custodian and the Custodian has determined that they are in
correct and complete form as provided herein and that they satisfy the
aforementioned conditions, the Custodian shall deliver to the Buyer a signed
Certification.
6. Further Obligations of Custodian. The Custodian shall
promptly notify the Buyer if (i) the Seller fails to pay any amount due to the
Custodian in connection with this Agreement or (ii) the Custodian's direct
employees responsible for performing the duties outlined in this Agreement have
received written notification that any mortgage, pledge, lien, encumbrance or
security interest (other than for the benefit of the Buyer) has been placed on
the Required Documents, the Deposited Documents or the Mortgage Loans relating
thereto.
The Custodian shall use reasonable care and due diligence in the
performance of its duties hereunder and shall, subject to the other provisions
of this Agreement, hold the Deposited Documents under its exclusive custody and
control and in accordance with Custodian's customary custodial standards that
it applies when it is acting as document custodian for GNMA, FNMA and FHLMC.
7. Copies of Required Documents. The Custodian shall furnish the
Buyer and its auditors, upon the written request of the Buyer, with copies of
the Deposited Documents. Any documents furnished to the Buyer pursuant to this
Agreement, including without limitation documents furnished pursuant to this
Paragraph 7, shall be at the expense of the Seller.
8. Right to Inspect. The Buyer (and its attorneys, auditors and
agents when requested by the Buyer) shall have the right, upon reasonable prior
written notice to the Custodian, to visit the office of the Custodian, to
review the custody and administrative procedures and to discuss the Delivered
Documents and the records of the Custodian relating
5
<PAGE> 7
to this Agreement with officers of the Custodian and to examine the books of
account and records of the Custodian pertaining to the same, and to make or be
provided with copies and extracts therefrom, and, upon reasonable notice, to
discuss the same with, and to be advised as to the same by, the independent
accountants of the Custodian (and by this provision the Custodian authorizes
such accountants to discuss the same, whether or not a representative of the
Custodian is present), all at such reasonable times and intervals and to such
reasonable extent as the Buyer may desire.
9. Delivery of Delivered Documents to the Buyer. The Custodian
shall promptly deliver to the Buyer or its designee any or all Required
Documents and other Deposited Documents in the Custodian's custody upon the
Buyer's written request.
10. Custodian Fees. It is understood that the Custodian will
charge such fees for its services under this Agreement as are set forth in a
separate agreement (the "Fee Letter," a true and correct copy of which has been
provided to the Buyer) between the Custodian and the Seller and subject in any
case to Paragraph 11 below. The payment of such fees, together with the
Custodian's expenses in connection herewith, shall be solely the obligation of
the Seller; provided, that to the extent the Seller does not pay such fees and
expenses, the Buyer shall pay same and shall be subrogated to the rights of the
Custodian with respect thereto to the extent of such payment. In consideration
of the undertakings of the Buyer in the preceding sentence, the Custodian
agrees not to amend or modify the Fee Letter without the consent of the Buyer.
11. Termination. The Custodian may terminate its obligations
under this Agreement upon 30 days' prior written notice to the Seller and the
Buyer; provided however, that the Custodian shall remain obligated pursuant to
the terms hereof with respect to any liability arising prior to the date of
such termination. In the event of such termination, the Buyer shall appoint a
successor custodian and the Custodian shall promptly transfer to the successor
custodian, as directed, all Required Documents and other Deposited Documents
being held by the Custodian under this Agreement. If no successor custodian is
designated, the Custodian shall deliver all Required Documents and Deposited
Documents to the Buyer. This Agreement may be terminated at any time by the
Buyer.
12. DDA Account; Wire Transfers. The DDA Account has been
established by the Buyer at Bank One. All fees and expenses related to the DDA
Account shall be for the account of the Seller; provided, that to the extent
the Seller does not pay such fees and expenses, the Buyer shall pay same and
shall be subrogated to the rights of the Custodian with respect thereto to the
extent of such payment. From time to time the Seller may wish to finance the
acquisition or origination of a Mortgage Loan that is to be sold by the Seller
to the Buyer with funds provided by the Buyer, which funds shall be wired by
the Buyer to the DDA Account and supplemented, to the extent necessary, by
deposits by the Seller into the DDA Account. The Seller (Lomas Mortgage USA,
Inc.) shall enter disbursement instructions with respect to sums on deposit in
the DDA Account through Bank One's ECDA Wire System and Bank One shall release
such wire instructions and disburse such funds upon receipt of such
instructions provided
6
<PAGE> 8
that (a) sufficient funds are on deposit in the DDA Account, (b) such
instructions do not include the Seller as payee, (c) such instructions conform
to the instructions set forth in the applicable Warehouse Lender's Release
Letter, or are to a Title Company, as applicable, and (d) if the Buyer issues
conflicting instructions Bank One shall follow the Buyer's instructions. Upon
request, Bank One shall provide the Warehouse Lender or Title Company, as
applicable, the Seller or the Buyer with the federal wire reference number for
a particular wire transfer.
13. Seller's Representations and Warranties. The Seller hereby
represents and warrants to the Buyer and the Custodian that:
a. The payee named in any wire instructions from the DDA
Account shall be either (i) the Warehouse Lender from whom Mortgage
Loans sold to the Buyer are being acquired with the proceeds of such
wire or (ii) the Title Company through whom Mortgage Loans sold to the
Buyer are being originated with the proceeds of such wire;
b. the wire transfer to or other deposit in the DDA
Account of funds by the Buyer shall constitute the payment by the
Buyer of the Purchase Price (as defined in the Repurchase Agreement)
for Mortgage Loans under the Repurchase Agreement;
c. only funds intended to be used to finance the
acquisition or origination of Mortgage Loans sold to the Buyer under
the Repurchase Agreement shall be deposited in the DDA Account; and
d. except as the Buyer may otherwise agree in writing,
funds from time to time on deposit in the DDA Account shall only be
used for the purpose of financing the acquisition or origination of
Mortgage Loans sold to the Buyer under the Repurchase Agreement.
14. Notices. All written communications hereunder shall be
mailed, telecopied or delivered, to each party at its address as indicated on
Schedule I or at such other address as shall be designated by such party in a
written notice to the other parties. All such notices and communications shall
be effective when delivered to the party to which such notice is to be given.
15. Concerning the Custodian. Notwithstanding anything to the
contrary in this Agreement, the Custodian shall not be liable for any action or
omission to act hereunder except for its own gross negligence or wilful
misconduct. The Custodian may act or refrain from acting in reliance upon any
written communication of the Buyer concerning the delivery of the Deposited
Documents. Notwithstanding any provision hereof to the contrary, the Custodian
shall have no duty to service the Mortgage Loans.
16. Representations by and Covenants of the Custodian. The
Custodian hereby represents and warrants to the Buyer and the Seller as of the
date of this Agreement as follows:
7
<PAGE> 9
a. The Custodian has been duly organized and is validly
existing as a national banking association and is duly qualified to do
business and in good standing as a foreign corporation (or is exempt
from such requirement) in each jurisdiction in which failure to so
qualify would have a material adverse effect on the Buyer or the
Seller, and has full corporate power and authority to own its
properties and conduct its business as currently conducted;
b. the Custodian has all requisite corporate power and
authority to enter into and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby; the
execution and delivery by the Custodian of this Agreement and the
consummation by the Custodian of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate
action on the part of the Custodian; this Agreement has been duly and
validly executed and delivered by the Custodian and constitutes a
legal, valid and binding obligation of the Custodian, enforceable
against the Custodian, in accordance with its terms, subject to
bankruptcy, reorganization, insolvency, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and
to general principles of equity; neither the execution and delivery by
the Custodian of this Agreement, nor the consummation by the Custodian
of any of the transactions contemplated hereby, nor the fulfillment by
the Custodian of the terms hereof, will conflict with, or violate,
result in a material breach of or constitute a material default (with
or without notice or lapse of time, or both) under (i) any term or
provision of the Certificate of Incorporation or By-laws of Custodian
or any governmental rule applicable to the Custodian or (ii) any term
or provision of any indenture or other agreement or instrument, to
which the Custodian is a party or by which the Custodian or any
material portion of its properties are bound; no governmental action
is required by or with respect to the Custodian in connection with the
execution and delivery of this Agreement by the Custodian or the
consummation by the Custodian of the transactions contemplated hereby;
c. the Custodian does not have and will not assert or
permit to be asserted any security interest or other adverse interest,
lien or encumbrance against the Required Documents, the Deposited
Documents, or the Mortgage Loans;
d. the Custodian covenants to maintain, at its own
expense, at all times during the existence of this Agreement and keep
in full force and effect, such (1) fidelity insurance, (2) theft of
documents insurance, (3) forgery insurance, (4) fire insurance and (5)
errors and omissions insurance, as the Custodian deems appropriate;
e. the Custodian shall perform its obligations under
this Agreement in accordance with prudent standards and procedures
generally accepted in the mortgage banking industry and in accordance
with the standards of the Agencies; provided, however, that the
Custodian shall at all times comply with applicable law and FHA
regulations and VA regulations so that the FHA insurance, VA guarantee
or any other
8
<PAGE> 10
applicable insurance or guarantee in respect of any Mortgage Loan is
not impaired, voided or reduced; the Custodian shall at all times
maintain accurate and complete records in connection with the
performance of its obligations under this Agreement; and
f. the Custodian hereby represents and warrants to the
Buyer that the Custodian is not controlling, controlled by, under
common control with or otherwise affiliated with, the Seller or any
other person controlling, controlled by, under common control with or
otherwise affiliated with, the Seller, and covenants and agrees with
the Buyer that in the event any such affiliation occurs, the Custodian
shall give the Buyer prior written notice thereof (the term
"affiliate," as used herein, means all persons or entities directly or
indirectly controlling, controlled by, or under common control with
the Seller and the term "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the
management policies of any person or entity, whether through ownership
of securities, by contract [except as may be provided under, or
ancillary to, any credit or security agreements with the Seller to
which the Custodian is or may hereafter be a party] or otherwise).
17. Duties of the Custodian. The Custodian shall have no duties
or responsibilities except those that are specifically set forth herein. If
the Custodian shall request instructions from the Buyer with respect to any
act, action or failure to act in connection with this Agreement, the Custodian
shall be entitled to take or refrain from taking such action and continue to
act or refrain from acting unless and until the Custodian shall have received
written instructions from the Buyer.
18. Representations by the Parties as to this Agreement. The
Custodian, the Seller and the Buyer each separately represent and warrant to
each other that this Agreement has been duly authorized, executed and delivered
by it and constitutes the legal, valid and binding obligation of such party
enforceable in accordance with its terms.
19. Indemnification. The Seller agrees to indemnify the Custodian
against, and to hold it harmless from, any liabilities, and any related
out-of-pocket expenses, which it may incur in connection with this Agreement,
other than any liabilities and expenses arising out of the Custodian's gross
negligence or willful misconduct. To the extent that the Seller fails so to
indemnify the Custodian, the Buyer shall so indemnify the Custodian and shall
be subrogated to the rights of the Custodian with respect to any payment made
by the Buyer in respect thereof. The Custodian agrees to indemnify the Buyer
and the Seller against liabilities and out-of-pocket expenses which such party
may incur, including legal fees and expenses as incurred, in connection with
this Agreement which are directly and proximately caused by the Custodian's
gross negligence or willful misconduct.
20. Authorizations. Any of the persons whose signatures and
titles appear on Schedule I are authorized, acting singly, to act for the
Seller, the Buyer, or the Custodian, as the case may be, under this Agreement.
9
<PAGE> 11
21. Amendments, Etc. No amendment or waiver of any provision of
this Agreement nor consent to any departure herefrom shall in any event be
effective unless the same shall be in writing and signed by all the parties
hereto (provided that the Buyer may modify the Required Documents set forth in
Paragraph 4 hereof by giving written notice of such modification to the Seller
and the Custodian), and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
22. Responsibility of Custodian. Notwithstanding anything to the
contrary contained herein, the Custodian shall only be responsible to the
Buyer, the Seller and any assignee from the Buyer of its interests hereunder
with respect to the obligations and responsibilities of the Custodian assumed
by it hereunder. The parties hereto agree that the Buyer shall be entitled to
assign its rights hereunder without the consent of any party hereto to any
entity selected by the Buyer. The Buyer shall advise the Custodian in writing
of any such assignment and prior to receiving such advice the Custodian shall
be fully protected in dealing with the Buyer to the exclusion of any such
assignee.
23. Incorporation of Preliminary Matters, Schedules and Exhibits.
The Preliminary Matters set forth in this Agreement preceding Paragraph 1 and
all schedules and exhibits referred to herein are incorporated and made a part
hereof as though fully set forth herein.
24. Severability. If any provision of this Agreement is declared
invalid by any court of competent jurisdiction, such invalidity shall not
affect any other provision, and this Agreement shall be enforced to the fullest
extent required by law.
25. Binding Effect. This Agreement shall be binding and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns provided, however, that neither the Seller nor the Custodian may assign
this Agreement or any of its rights or obligations hereunder except with the
prior written consent of the Buyer.
26. Counterparts. This Agreement may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
such counterparts shall constitute but one and the same instrument.
27. Governing Law; Jurisdictional Matters. The Agreement shall be
governed by and interpreted in accordance with the laws of the State of Texas.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE AGREEMENT MAY BE BROUGHT IN
THE COURTS OF THE STATE OF STATE OF TEXAS, OR THE UNITED STATES OF AMERICA FOR
THE NORTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF THE
AGREEMENT, THE PARTIES HEREBY ACCEPT FOR THEMSELVES AND IN RESPECT OF THEIR
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. THE PARTIES HEREBY IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH
ACTION OR PROCEEDING IN SUCH JURISDICTIONS. THIS
10
<PAGE> 12
SUBMISSION TO JURISDICTION IS NONEXCLUSIVE AND DOES NOT PRECLUDE THE BUYER FROM
OBTAINING JURISDICTION OVER THE SELLER OR THE CUSTODIAN IN ANY COURT OTHERWISE
HAVING JURISDICTION.
28. WAIVER OF JURY TRIAL. THE PARTIES HERETO HEREBY (A)
IRREVOCABLY AND UNCONDITIONALLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY LAW,
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THE AGREEMENT AND
FOR ANY COUNTERCLAIM THEREIN, (B) CERTIFY THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (C) ACKNOWLEDGE THAT IT ENTERED INTO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY BASED UPON AMONG OTHER
THINGS THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS PARAGRAPH.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
11
<PAGE> 13
IN WITNESS WHEREOF, the Seller, the Buyer and the Custodian have
caused their names to be signed hereto by their respective officers thereunto
duly authorized, all as of the date and year first above written.
LOMAS MORTGAGE USA, INC.
By: /s/ LOUIS P. GREGORY
-----------------------------------
Name: Louis P. Gregory
---------------------------------
Title: Senior Vice President
--------------------------------
BANK ONE, TEXAS, N.A.,
as Custodian and, solely for
purposes of Paragraph 12, in
its individual capacity
By: /s/ GLORIA SADLER
-----------------------------------
Name: Gloria Sadler
---------------------------------
Title: Vice President
--------------------------------
FIRST NATIONWIDE MORTGAGE
CORPORATION
By: /s/ J. RANDY SCOTT
-----------------------------------
Name: J. Randy Scott
---------------------------------
Title: President
--------------------------------
12
<PAGE> 14
SCHEDULE I
SELLER NOTICES
Name: Louis P. Gregory Address: 1600 Viceroy Drive
------------------------ ---------------------------
Title: General Counsel Dallas, Texas 75265-5644
------------------------ ---------------------------
Telephone: 214-879-7070
------------------------ ---------------------------
Facsimile: 214-879-7075
------------------------ ---------------------------
SELLER AUTHORIZATIONS
Any of the persons whose signatures and titles appear below are authorized,
acting singly, to act for Seller under this Agreement:
Name Title Signature
---- ----- ---------
Richard Ringering SVP /s/ RICHARD RINGERING
Sandy Tolbert EVP /s/ SANDY TOLBERT
Julie Maddox VP /s/ JULIE MADDOX
Paul Fletcher SVP /s/ PAUL FLETCHER
CUSTODIAN NOTICES
Name: Gloria Sadler Address: Banc One, Texas
------------------------ ---------------------------
Title: Vice President 1900 Pacific Avenue
------------------------ ---------------------------
Telephone: 214-290-6082 6th floor
------------------------ ---------------------------
Facsimile: 214-290-6069 Dallas, Texas 75201
------------------------ ---------------------------
I-1
<PAGE> 15
CUSTODIAN AUTHORIZATIONS
Any person whose signatures and titles appear below is authorized, acting
singly, to act for Custodian under this Agreement:
Name Title Signature
---- ----- ---------
Gloria Sadler Vice President
----------------------------------
----------------------------------
BUYER NOTICES
Name: Christie S. Flanagan Address: 200 Crescent Court
------------------------ ---------------------------
Title: General Counsel Suite 1350
------------------------ ---------------------------
Telephone: 214-871-5188 Dallas, Texas 75201
------------------------ ---------------------------
Facsimile: 214-871-5199
------------------------ ---------------------------
BUYER AUTHORIZATIONS
Any of the persons whose signatures and titles appear below, including
any other authorized officers, are authorized, acting singly, to act for the
Buyer under this Agreement:
Name Title Signature
---- ----- ---------
Susan A. Billings EVP
----------------------------------
Betty Seatter FVP
----------------------------------
Donna Bowles AVP /s/ DONNA BOWLES
----------------------------------
Rosemarie Mallett SVP
----------------------------------
Kevin Gillespie EVP
----------------------------------
Georgia Moses SVP
----------------------------------
Francine Constable SVP /s/ FRANCINE CONSTABLE
----------------------------------
I-2
<PAGE> 16
EXHIBIT A
DOCUMENT SUBMISSION SUMMARY NO.______
BUYER: CUSTODIAN:
First Nationwide Mortgage Corp. Bank One, Texas, National Association
___________________________________ ______________________________________
___________________________________ ______________________________________
Attn: Attn:
Facsimile: Facsimile
RE: Tri-Party Custody Agreement dated as of September 19, 1995
among Lomas Mortgage USA, Inc. ("Seller"), Buyer and Custodian
(the "Custody Agreement")
Reference is made to the Agreement. Capitalized terms not defined herein have
the meanings specified in the Custody Agreement. Contemporaneous herewith
Seller has submitted each of the Mortgage Loans identified on the attached
schedule to the Buyer for purchase by the Buyer under the Repurchase Agreement.
REPRESENTATION AND WARRANTY OF SELLER
Seller hereby represents and warrants that:
(a) the Required Documents with respect to such Mortgage Loans
have been, or are hereby, submitted to Custodian pursuant to the Custody
Agreement; and
(b) all other documents necessary for such Mortgage Loans (other
than such Mortgage Loans as are "Housing Authority Mortgage Loans") to satisfy
the terms of the "Takeout Commitments" and "Agency Commitments" by which such
Mortgage Loans are "Covered" (each term in quotation marks having the meaning
specified in the Repurchase Agreement), including but not limited to mortgages,
insurance policies, loan applications and appraisals, are held by Seller as
bailee and custodian in trust for the Buyer.
LOMAS MORTGAGE USA, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
Date:_________________________________
A-1
<PAGE> 1
EXHIBIT 10.41
SUBSERVICING AND TRANSITION SERVICES AGREEMENT
THIS SUBSERVICING AND TRANSITION SERVICES AGREEMENT (this
"Agreement"), dated as of October 2, 1995, by and between First Nationwide
Mortgage Corporation, a Delaware corporation ("Principal") and Lomas Mortgage
USA, Inc., a Connecticut corporation ("Subservicer"). Principal and
Subservicer are referred to jointly as the "Parties," or individually as a
"Party."
RECITALS
WHEREAS, pursuant to that certain Asset Purchase Agreement,
dated as of September 5, 1995, as amended (the "Asset Purchase Agreement"), by
and between Principal and Subservicer, Principal acquired (the "Acquisition")
from Subservicer the servicing rights to certain mortgage loans, together with
certain other assets, as more fully set forth in the Asset Purchase Agreement;
and
WHEREAS, Principal and Subservicer desire that, in order to
provide for the orderly transfer and conversion of the servicing rights to
Principal's operations systems, for a period of time following the Acquisition
as set forth herein, Subservicer shall provide the subservicing and other
transition-related services set forth herein, including without limitation
performing such subservicing and transition-related services for any additional
mortgage loans the servicing rights to which shall have been acquired from
Subservicer by Principal at any time following the date of this Agreement;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements, representations and warranties contained herein,
and intending to be legally bound hereby, the Parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
For all purposes of this Agreement, except as expressly
provided herein or unless the context requires otherwise, the following terms
shall have the meanings
<PAGE> 2
specified in this Article I and the Asset Purchase Agreement. The definitions
of such terms are equally applicable to the singular and plural forms of such
terms and to the masculine, feminine and neuter genders of such terms.
1.1 "Agency": FHA, VA, FmHA, GNMA, FNMA, FHLMC, the
Texas Veterans' Land Board or a State Agency, as applicable.
1.2 "Agreement": As defined in the first paragraph of
this Agreement.
1.3 "Ancillary Income": As defined in Section 3.1
hereof.
1.4 "Asset Purchase Agreement": As defined in the
recitals hereof.
1.5 "Business Day": Any day other than (a) a Saturday
or Sunday, or (b) a day on which banking institutions in the State of Texas are
authorized or obligated by law or by executive order to be closed.
1.6 "Conventional Loan": A Mortgage Loan which is not
insured by FHA or FmHA or guaranteed by VA.
1.7 "Conversion Date": For any Mortgage Loan, the
date the servicing of such Mortgage Loan shall have been fully converted and
transferred from Subservicer's operating systems to those of Principal.
1.8 "Effective Date": October 2, 1995.
1.9 "Custodial Accounts": All escrow, impound,
suspense (loan level and other) and custodial accounts maintained with respect
to the Mortgage Loans for purposes of receiving and disbursing payments of
principal, interest, taxes, insurance, assessments and similar charges (and
interest, if any, accrued on such funds for the benefit of mortgagors) relating
to Mortgage Loans.
1.10 "Custodial Interest Amount": As defined in
Section 3.4 hereof.
1.11 "FHA": The Federal Housing Administration of the
Department of Housing and Urban Development of the United States of America or
their respective successors.
2
<PAGE> 3
1.12 "FHLMC": The Federal Home Loan Mortgage
Corporation or any successor thereto.
1.13 "FmHA": The Farmers Home Administration, now
known as the Rural Housing and Community Development Service.
1.14 "FNMA": The Federal National Mortgage Association
or any successor thereto.
1.15 "GNMA": The Government National Mortgage
Association or any successor thereto.
1.16 "Government Loan": A Mortgage Loan the payments
of which are partially or fully insured by FHA, FmHA or guaranteed by VA.
1.17 "Guides": All Mortgage Loan-related published
guidance of FHA, FHLMC, FmHA, FNMA, GNMA, HUD, VA and any private mortgage
insurers, including without limitation mortgagee letters, announcements,
circulars, handbooks and manuals which establish requirements or procedures
applicable to the origination, administration, pooling, servicing or
subservicing of the Mortgage Loans or claims against FHA or FmHA, VA or a
provider of private mortgage insurance in connection therewith.
1.18 "Investor": Any Person who (i) owns a Mortgage
Loan or mortgage-backed securities backed by a Mortgage Loan, or the servicing
rights or master servicing rights to a Mortgage Loan or mortgage-backed
securities backed by a Mortgage Loan, subserviced, serviced or master serviced
by Principal or LMP pursuant to a Servicing Agreement or (ii) is a party (other
than Principal or LMP) to an Investor Commitment (as defined in the Asset
Purchase Agreement).
1.19 "IRS": United States Internal Revenue Service.
1.20 "LMP": Lomas Mortgage Partnership, L.P., a
limited partnership organized under the laws of the State of Delaware.
1.21 "Loan Documents": As defined in the Asset
Purchase Agreement.
1.22 "Mortgage" -- With respect to a Mortgage Loan, a
mortgage, deed of trust or other security instru-
3
<PAGE> 4
ment creating a lien upon real property and any other property described
therein which secures a Note, together with any assignment, reinstatement,
extension, endorsement or modification of any thereof.
1.23 "Mortgage Insurance": A contract with FHA, FmHA,
VA or a private mortgage insurer insuring or guaranteeing full or partial
payment of principal, interest and related expenses of a Mortgage Loan.
1.24 "Mortgage Loan": Any "Mortgage Loan" as such term
is defined in the Asset Purchase Agreement, together with any additional
mortgage loans the servicing rights to which Subservicer shall have transferred
or assigned to Principal at any time following the date hereof.
1.25 "Mortgage Pool Insurance": A contract of
insurance issued with respect to a pool of Mortgage Loans generally covering
Investor losses not covered by PMI.
1.26 "Mortgagor": The Person(s) obligated to make the
payments under the terms of the Mortgage Loan.
1.27 "Note" -- 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.
1.28 "NSF Fees": Fees charged to Mortgagors for checks
returned for insufficient funds.
1.29 "Party": As defined in the first paragraph of
this Agreement.
1.30 "Person": Any individual, corporation, company,
partnership (limited or general), joint venture, association, trust or other
entity.
1.31 "PMI": Private mortgage insurance excluding FHA,
FmHA or VA coverage.
1.32 "Principal": As defined in the first paragraph of
this Agreement.
4
<PAGE> 5
1.33 "Private Investors": Any Investor other than an
Agency.
1.34 "Private Servicing Agreements": The agreements or
arrangements between Principal or LMP and a Private Investor pursuant to which
Principal or LMP services the Mortgage Loans owned by the Private Investor.
1.35 "Regulations": (i) Federal, state and local laws,
rules and regulations with respect to the origination, insuring, purchase,
sale, pooling, servicing, subservicing, master servicing or filing of claims in
connection with a Mortgage Loan, (ii) the responsibilities and obligations
relating to the Mortgage Loans set forth in any agreement between Principal or
LMP and an Agency, Investor or Mortgage Insurer (including, without limitation,
Servicing Agreements and Guides), (iii) the laws, rules, regulations,
guidelines, handbooks and other requirements of an Investor, Agency, Mortgage
Insurer, public housing program or Investor program with respect to the
origination, insuring, purchase, sale, pooling, servicing, subservicing, master
servicing or filing of claims in connection with a Mortgage Loan and (iv) the
terms and provisions of the Loan Documents.
1.36 "Servicing": The rights and obligations with
respect to servicing the Mortgage Loans under the Guides and the Servicing
Agreements.
1.37 "Servicing Advance": An advance of funds which is
required or permitted pursuant to applicable Regulations to be made in
connection with the performance of the Subservicing Functions, including
advances related to the maintenance of hazard insurance, payment of property
taxes or Mortgage Insurance premiums, advances to pay reasonable expenditures
related to foreclosure proceedings, reasonable expenditures related to the
defense of any lawsuit to defend title to any property subject to a Mortgage
Loan or to defend title to any property acquired as a result of a foreclosure,
and all expenses incurred in making repairs to any property subject to a
Mortgage Loan, advances necessary due to deficiencies in the amount of
principal, interest or escrow payments received by Subservicer, and other
advances to pay third party expenses related to the servicing of Mortgage
Loans.
1.38 "Servicing Agreements": The Agency contracts and
Private Servicing Agreements pursuant to which
5
<PAGE> 6
the Mortgage Loans are serviced, master serviced and subserviced.
1.39 "State Agency": Any state agency with authority
to regulate the business of the Company or LMP, determine the investment or
servicing requirements with regard to loans originated, purchased or serviced
by the Company or LMP, or otherwise participate in or promote mortgage lending.
1.40 "Subservicer": As defined in the first paragraph
of this Agreement.
1.41 "Subservicing Functions": The Servicing functions
to be performed by Subservicer with respect to the Mortgage Loans, as specified
in Section 2.1.
1.42 "Term": As defined in Section 7.3
1.43 "VA": The Department of Veteran's Affairs of the
United States of America or any successor thereto.
1.44 "VA Loans" -- Mortgage Loans which are guaranteed
by the VA, or which were intended by the Subservicer to be guaranteed by the
VA, or with respect to which a representation has been made to the mortgagor
(in a commitment letter, truth-in-lending disclosure statement or otherwise in
writing) that such Mortgage Loan is or will be guaranteed by the VA.
1.45 "VA No-Bid" -- A delinquent VA Loan with respect
to which the VA has notified Principal, Subservicer or LMP that the VA intends
to exercise its option to pay the amount guaranteed by the VA and relinquish
all rights in the collateral securing such VA Loan to Principal, subservicer or
LMP.
ARTICLE II
SUBSERVICING FUNCTIONS
2.1 Subservicing Functions. Commencing on the
Effective Date, and continuing throughout the Term, Subservicer shall perform
certain services, referred to herein as the "Subservicing Functions", with
respect to each Mortgage Loan, as follows:
6
<PAGE> 7
(a) distribute payment media to Mortgagors and
receive and process daily all Mortgage Loan payments through, if
servicer so elects, Subservicer's existing depository bank
relationships;
(b) set up and manage Custodial Accounts,
including accounting for custodial funds and reconciling balances in
accordance with Investor reporting requirements;
(c) timely make all appropriate escrow deposits
and disbursements including taxes, assessments and other public
charges, hazard and flood insurance premiums, FHA, FmHA or PMI
insurance premiums and (subject to Section 3.3 hereof) Servicing
Advances;
(d) prepare, balance and submit Mortgage Loan
reports required under the Servicing Agreements and the Guides;
(e) where required by the Investor, prepare and
forward to Investors all remittances with respect to the Mortgage
Loans;
(f) provide IRS reports covering Mortgage Loan
payments and remittances and file all IRS reports incident to the
Servicing of the Mortgage Loans covering the period comprising the
Term;
(g) provide and handle all Mortgage Insurance
delinquency notices;
(h) handle or, as appropriate, supervise,
monitor and carry out, collection actions, delinquency management
activities, bankruptcy actions, foreclosure proceedings, workouts and
other loss mitigation activities and Mortgage Insurance claim
submissions with respect to the Mortgage Loans;
(i) timely and accurately process Mortgage Loan
payoffs and provide for the timely release of mortgages;
(j) assure that the improvements on the
premises securing each Mortgage Loan are insured by a hazard insurance
policy and, if applicable, using
7
<PAGE> 8
its best efforts, a flood insurance policy that satisfies the
applicable Regulations;
(k) furnish to Principal standard monthly
management reports substantially in the form of Schedule I and any
special reports which Principal and Subservicer may agree, with the
cost of such special reports to be paid by Principal;
(l) provide customer service, including without
limitation, answering telephone calls, responding to inquiries from
customers regarding their respective accounts, correcting customers'
accounts, notifying Mortgagors and processing ARM adjustments,
handling assumptions and partial releases, performing escrow analysis
and providing reports and remittances to Investors; and
(m) such other functions as are necessary and
consistent with subservicing of mortgage loans that are generally
accepted in the mortgage industry.
Subservicer shall perform all Servicing Functions only in accordance in all
material respects with applicable law, the appropriate FHA, FmHA, VA and Agency
requirements, the Servicing Agreements, the FNMA/FHLMC servicing guides, all
other applicable Regulations and generally accepted prudent mortgage banking
practices. In subservicing the Mortgage Loans for Principal, Subservicer shall
exercise at least the same degree of care and skill it presently exercises in
servicing loans for Investors. Without limiting the foregoing, where
applicable, Subservicer shall comply in all material respects with the
regulations of FHA, FmHA, VA and providers of PMI, as applicable, including
without limitation the giving of all notices and submitting of all claims
required to be given or submitted to FHA, FmHA, VA or a provider of PMI, as
applicable, to the end that the full benefit of the insurance or guaranty in
connection with Mortgage Loans that are insured or guaranteed by FHA, FmHA, VA
or a provider of PMI will inure to the Investor, Principal or Subservicer, as
their interests may appear.
2.2 Title to Servicing. The Parties agree that legal
title to the Servicing is held by Principal. Any obligations established in the
Servicing Agreements incident to the origination, sale or servicing of the
8
<PAGE> 9
Mortgage Loans and not specifically set forth in this Agreement shall be the
responsibility of Principal. Principal shall be responsible for complying with
any repurchase obligations as may be required by the Servicing Agreements,
provided that Subservicer shall provide to Principal, within five (5) Business
Days following its receipt of a repurchase demand from an Investor, notice of
such repurchase demand and any instructions with respect to such repurchase
demands.
2.3 Additional Services. If there are services in
addition to the Subservicing Functions which Principal desires Subservicer to
perform with respect to the Mortgage Loans, Principal shall present a request
to Subservicer identifying the services to be performed. Such additional
services shall be performed on the terms agreed to by the Parties.
2.4 Foreclosure/Bankruptcy Administration Expenses.
Principal shall be responsible for any Servicing Advances or any
nonreimbursable expenses, including attorney fees, or losses incurred in
connection with, or as a result of, foreclosure and bankruptcy proceedings
involving the Mortgage Loans. Subservicer may utilize the same outside counsel
and third party services for foreclosure and bankruptcy proceedings as are
utilized in servicing its own servicing portfolio unless specifically requested
by Principal to discontinue the use of any such vendor. Subservicer will
prepare a final accounting of each foreclosure and Principal will reimburse
Subservicer as to any unreimbursed expenses and losses on such Mortgage Loans.
Provided however, Subservicer shall not be reimbursed for losses or expenses
incurred as a result of its material non-performance nor shall subservicing
fees be paid to Subservicer on Mortgage Loans in foreclosure or in bankruptcy
for those additional months required to finalize cases as a result of
Subservicer's non-performance.
2.5 Property Disposition. If so directed by
Principal, Subservicer will perform tasks associated with property disposition
including property management, maintenance, marketing and repairs, on terms
agreed to by the Parties.
2.6 Notice to Investors/Principal. Subservicer shall
notify the Investor and Principal when it becomes aware of any matter,
condition or event that would, in Subservicer's reasonable judgment, materially
9
<PAGE> 10
impair an Investor's security with respect to the Mortgage Loan (including,
without limitations, VA No-bids and denied mortgage insurance or guaranty
claims), or Principal's interest in the Servicing on such Mortgage Loan.
2.7 Litigation. Any litigation with respect to the
Mortgage Loans shall be managed by Principal unless it is agreed by the Parties
that other arrangements should be made. Any transmittal of litigation to
Principal shall be made in writing directed to the attention of the Principal's
in-house counsel in accordance with the notice provisions hereof. Subservicer
shall cooperate in obtaining or making available information or documents
respecting Mortgage Loans involved in litigation as may be reasonably requested
by Principal or its counsel. Subservicer shall not be responsible for any
costs, expenses or liabilities, including attorneys' fees, related to
litigation unless such arises as a result of Subservicer not complying in all
material respects with the terms of this Agreement or Investor requirements and
guidelines.
ARTICLE III
PAYMENT OF FEES, INCOME, EXPENSES, AND ADVANCES
3.1 Ancillary Income. Subservicer may charge
Mortgagors ancillary fees related to the performance of the Subservicing
Functions and for services or products provided, including late charges, NSF
fees, assumption fees and other incidental fees or charges, in all cases in a
manner consistent with its past practices (collectively, "Ancillary Income") as
are permitted by all applicable Regulations. Principal shall be entitled to
all such Ancillary Income.
3.2 Payment of Servicing Fees. Subservicer shall
remit to Principal all servicing fees collected on any Mortgage Loan no later
than the second Business Day following the day on which such fees are received,
net of amounts due Subservicer, if any, under Sections 3.3 or 3.4 and net of
any guarantee fee. Subservicer shall provide to Principal a daily statement of
the servicing fees collected on the Mortgage Loans based on the Mortgagor
payments received by Subservicer. No later than the fifth Business Day after
the applicable Investor cut-off date of each month Subservicer shall provide a
statement
10
<PAGE> 11
setting forth in reasonable detail the prior month's servicing fees.
3.3 Advances. (a) Principal shall be responsible for
funding all Servicing Advances required to be made by Subservicer pursuant to
this Agreement by forwarding to Subservicer, within one (1) Business Day
following Subservicer's written notice to Principal requesting such funding
(which notice shall include reasonable documentation of all such Servicing
Advances for which funding is requested) the amount of Servicing Advances for
which funding is requested by Subservicer. Subservicer shall utilize funds
received from Principal in accordance with this Section 3.3(a) solely to fund
Servicing Advances required to be made by Subservicer under this Agreement or
otherwise under applicable requirements and in accordance with the purposes set
forth in its written request to Principal, and for no other purposes
whatsoever. Upon collection of Servicing Advances by Subservicer from time to
time, such collections shall be promptly applied in full, to the extent
thereof, in the following order of priority: (i) to reimburse Principal for
any unrecouped Servicing Advances disbursed to Subservicer and (ii) to
reimburse Subservicer for any unrecouped Servicing Advances disbursed by
Subservicer from Subservicer's corporate resources if Subservicer has elected
in any instance to fund Servicing Advances from its own corporate resources.
(b) Subservicer shall diligently endeavor to collect and
recover from Mortgagors all Servicing Advances made by Subservicer which are
not timely paid by, but which are the ultimate obligations of, the Mortgagors.
3.4 Interest on Custodial Accounts. Subservicer shall
be responsible for calculating and posting in Mortgagors' respective accounts
on behalf of Principal any interest due to such Mortgagors on funds deposited
in the Custodial Accounts as may be required by applicable Regulations.
Principal shall be responsible for funding such amount (the "Custodial Interest
Amount") of all such interest advances by forwarding to Subservicer within one
(1) Business Day following Subservicer's written notice to Principal requesting
such funding (which notice shall include reasonable documentation of such
Custodial Interest Amount for which funding is requested) the Custodial
Interest Amount for which funding is requested by Subservicer. Subservicer
shall utilize funds received from Principal in accordance with
11
<PAGE> 12
this Section 3.4 solely to fund Custodial Interest Amount required to be made
by Subservicer under this Agreement or otherwise under applicable requirements
and in accordance with the purposes set forth in its written request to
Principal, and for no other purposes whatsoever. No later than the fifth
Business Day of each month, Subservicer shall provide Principal with a schedule
setting forth in reasonable detail the calculation of the Custodial Interest
Amount for the prior month.
3.5 Subservicing Fee. In consideration for
Subservicer's performance of the Subservicing Functions and the other
administrative and transition-related services provided for herein, Principal
shall pay to Subservicer on a monthly basis, with respect to those active
Mortgage Loans for which Subservicer performs the Subservicing Functions and
other services hereunder at the beginning of such month (A) for all such
Mortgage Loans with respect to which Principal owns the rights to the primary
servicing thereof, an amount equal to the product of (i) $7.08 multiplied by
(ii) the total number of such Mortgage Loans and (B) for all such Mortgage
Loans with respect to which Principal owns the rights to the master servicing
or subservicing thereof, an amount equal to the aggregate of all monthly fees
which Principal shall be entitled to receive as the master servicer or
subservicer, as the case may be, of such Mortgage Loans, (the amount payable by
Principal on a monthly basis pursuant to this Section 3.5 is referred to herein
as the "Subservicing Fee"), provided, however, that the portion of the
Subservicing Fee attributable to any Mortgage Loan, for any month in which the
Conversion Date with respect to such Mortgage Loan shall have occurred, shall
be prorated for the number of calendar days elapsed in the month prior to and
including the Conversion Date. No later than the fifth Business Day of each
month, Subservicer shall provide Principal with a statement detailing the
calcula- tion of the Subservicing Fee for the prior month. Within three (3)
Business Days following its receipt of such statement, Principal shall pay the
Subservicing Fee for the previous month to Subservicer.
ARTICLE IV
INSURANCE
4.1 Maintenance of Fidelity Bond and Errors and
Omissions Insurance. Principal and Subservicer each
12
<PAGE> 13
hereby agrees to obtain and maintain at its own expense, and shall furnish each
other with satisfactory evidence of, a blanket fidelity bond and errors and
omission/mortgage impairment insurance policy which shall be maintained in full
force and effect throughout the Term covering their respective officers and
employees and other Persons acting on their behalf in their respective
capacities as Principal and Subservicer with regard to the Mortgage Loans. The
issuer, type and amount of coverage shall be at least equal to the most
restrictive of the Agencies' requirements, if such party were servicing the
Mortgage Loans for such Agency in addition to other mortgage loans being
serviced by such party for such Agency. In the event that any such bond or
policy shall cease to be in effect, Principal and Subservicer, as the case may
be, shall obtain from an insurer a replacement bond and policy meeting the
above requirements. No provision of this Section shall operate to diminish,
restrict or otherwise limit Principal's or Subservicer's responsibilities and
obligations as set forth in this Agreement.
ARTICLE V
TRANSITION SERVICES
5.1 Conversion Procedures. Subservicer shall comply
with Principal's reasonable instructions for conversion of all mortgage data to
Principal's data processing and record keeping systems, at Principal's expense.
Delivery of all documents and data requested by Principal shall be in
accordance with procedures set forth herein and such other procedures as
Principal may reasonably request.
5.2 Transfer of Loan Documents. During the Term, at
such time and in such manner as Principal shall reasonably request in advance,
Subservicer shall deliver to Principal, and shall bear the cost of the transfer
and delivery of, the Loan Documents other than any Loan Documents held by a
custodian in a custodial file. Subservicer shall comply with all reasonable
requirements of Principal relating to such delivery. Subservicer shall pay for
insured shipping by bulk transfer or other customary industry practice of any
Loan Documents, and such documents shall be delivered to the location specified
by Principal within five (5) Business Days after Principal's request for such
deliv- ery, or as soon as
13
<PAGE> 14
practicable given the size of the request, except for foreclosure files, which
shall be so delivered within twenty (20) Business Days. All Loan Documents or
other documents transferred from Subservicer to Principal from time to time in
connection herewith shall be appropriately boxed or packaged and all transfers
shall be accompanied by an inventory sheet specifically listing and identifying
each enclosed item.
5.3 Custodial Files. Subservicer shall assign to
Principal any custodial agreements which Principal shall elect to assume during
the Term. Principal shall be responsible for obtaining any necessary Investor
approvals regarding any new custodial arrangements required by Principal with
respect to the Mortgage Loans. Any fees charged by Subservicer's custodians
due to termination of existing custodial agreements during the Term (including
terminations made at the request of Principal), and any costs incurred in
transferring files or documents to or from any custodian shall be borne by
Subservicer. Principal shall pay all custodial fees of any custodian engaged
by Principal. At least thirty (30) days prior to the date on which Principal
intends to move any custodial files, Principal shall provide Subservicer with
written notice of the name and address of the custodian to which control of any
custodial files is to be transferred.
5.4 Forwarding Post-Transfer Date Items. With respect
to any checks, other funds or documents in respect of any Mortgage Loan which
are received by Subservicer or made payable to Subservicer and provided to
Subservicer within ninety (90) calendar days after the applicable Conversion
Date, and which relate to any payments due under the Mortgage Loans and
collectible by the servicer under the terms of the Servicing Agreements,
Subservicer shall, after identification, promptly endorse such checks or
transfer such other funds to Principal without recourse and send the same to
Principal via overnight mail. Any checks or other funds in respect of any
Mortgage Loan which are received by Subservicer after such ninety (90) day
period shall be endorsed without recourse by Subservicer to Principal and sent
by first class mail to Principal within five (5) Business Days of receipt,
without identification. Except as otherwise provided herein, Subservicer shall
promptly forward by first class mail to Principal all borrower correspondence,
insurance notices, tax bills or any other correspondence or documentation
related to the Mortgage Loans
14
<PAGE> 15
which are received by Subservicer after the applicable Conversion Date.
Subservicer shall have no obligation with respect to forwarding post-Conversion
Date items to Principal after one-hundred and twenty (120) calendar days
following the applicable Conversion Date.
5.5 Notice to Mortgagors, Insurers and Others.
Subservicer shall, at its own expense (no later than fifteen (15) days prior to
the applicable Conversion Date in the case of (d) below), and in each case in
accordance with applicable Regulations:
(a) notify all mortgage insurers, including FHA,
FmHA, VA and all issuers of private mortgage insurance, by certified mail,
return receipt requested, that all insurance premium billings for the Mortgage
Loans must be sent to Principal after the applicable Conversion Date, request
that such mortgage insurers change the endorsement of applicable insurance
policies to read in favor of Principal and provide Principal with copies of the
certified mail receipts;
(b) transmit to applicable tax service agents or
applicable taxing authorities, as appropriate, notification of the transfer of
the Servicing to Principal and instructions to deliver all notices and tax
bills and insurance statements, as the case may be, to Principal from and after
the applicable Conversion Date;
(c) transmit to applicable hazard or flood
insurance companies and/or agents notification of the transfer of Servicing to
Principal and instructions to deliver all notices and insurance statements to
Principal from and after the applicable Conversion Date. Such notification
shall request that any applicable hazard or flood insurance companies and/or
agents make any notations necessary to indicate the changed mortgagee; and
(d) mail to the mortgagor of each mortgage
securing a Mortgage Loan a letter advising the mortgagor of the transfer of the
Servicing to Principal, the form and content of which letter shall have been
approved by Principal.
5.6 Assignment of Mortgages and Endorsement of Notes.
To the extent required by applicable law or the applicable Investor or Insurer,
immediately following the Effective Date, Subservicer shall prepare, execute
15
<PAGE> 16
and (i) record with the appropriate state or local recording offices
assignments to Principal of the Mortgages securing the Mortgage Loans,
including, without limitation, blanket assignments wherever possible and
permitted by the applicable Investor and (ii) provide Principal with an
endorsement of each of the Notes. Subservicer shall arrange for each
assignment to be forwarded to Principal after recordation. Subservicer shall
cooperate with Principal with respect to Principal's obligation to assign
Mortgages to Investors, including providing Principal with the identity of any
contractors preparing assignments of Mortgages to Principal on behalf of
Subservicer.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Principal. Principal represents and warrants to
Subservicer that:
(a) Principal is (i) a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and (ii) duly qualified to transact any and all of
its business, including the Servicing of the Mortgage Loans;
(b) the execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate
action on the part of Principal and the execution and delivery of this
Agreement by Principal and the performance of and compliance with the
terms hereof by it will not (i) violate, contravene or create a
default under any applicable federal, state or local laws, licenses or
permits or (ii) violate, contravene or create a default under (x) any
organizational document of the Principal or (y) any contract,
agreement or instrument to which the Principal is a party or by which
Principal or any of its property is bound, except, in the case of
clause (y), for such violations, contravention or defaults which would
not, individually or in the aggregate, have a material adverse effect
on Principal's ability to perform its obligations hereunder;
(c) the execution and delivery of this
Agreement by Principal and the performance of and
16
<PAGE> 17
compliance with its obligations and covenants do not require the
consent or approval of any governmental authority or, if such consent
or approval is required, it has been obtained as of the date of this
Agreement;
(d) assuming the due authorization and valid
execution and delivery of this Agreement by Subservicer, this
Agreement, when executed and delivered by Principal, will constitute a
valid, legal and binding obligation of Principal, enforceable against
Principal in accordance with its terms, except as the enforcement may
be limited by applicable debtor relief laws and except as certain
equitable remedies may not be available regardless of whether
enforcement is sought in equity or law.
6.2 Subservicer. Subservicer represents and warrants
to Principal that:
(a) Subservicer is (i) a corporation duly
organized, validly existing and in good standing under the laws of the
State of Connecticut and (ii) duly qualified to transact any and all
of its business, including the Subservicing Functions assumed in this
Agreement;
(b) the execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate
action on the part of Subservicer and the execution and delivery of
this Agreement by Subservicer and the performance of and compliance
with the terms hereby by it will not (i) violate, contravene or create
a default under any applicable federal, state or local laws, licenses
or permits or (ii) violate, contravene or create a default under (x)
any charter document or bylaw of Subservicer or (y) any contract,
agreement or instrument to which the Subservicer is a party or by
which Subservicer or any of its property is bound, except, in the case
of clause (y), for such violations, contravention or defaults which
would not, individually or in the aggregate, have a material adverse
effect on Subservicer's ability to perform the Subservicing Functions
or any of its other obligations hereunder;
(c) the execution and delivery of this
Agreement by Subservicer and the performance of and
17
<PAGE> 18
compliance with its obligations and covenants do not require the
consent or approval of any governmental authority or, if such consent
or approval is required, it has been obtained as of the date of this
Agreement;
(d) assuming the due authorization and valid
execution and delivery of this Agreement by Principal, this Agreement,
when executed and delivered by Subservicer, will constitute a valid,
legal and binding obligation of Subservicer, enforceable against
Subservicer in accordance with its terms, except as the enforcement
may be limited by applicable debtor relief laws and except as certain
equitable remedies may not be available regardless of whether
enforcement is sought in equity or law;
(e) there is no litigation pending or, to
Subservicer's knowledge, threatened, which, if determined adversely to
Subservicer, would adversely affect the execution, delivery or
enforceability of this Agreement or Subservicer's ability to perform
its obligations hereunder;
(f) Subservicer (i) is qualified (A) by FHA as
a mortgagee and servicer for FHA Loans, (B) by the VA as a lender and
servicer for VA Loans, (C) by FNMA and FHLMC as a seller/servicer of
first mortgages to FNMA and FHLMC, (D) by GNMA as an authorized issuer
and servicer of GNMA-guaranteed mortgage- backed securities and (E) by
FmHA as required in connection with the origination and servicing of
FmHA Loans; and (ii) has all other certifications, authorizations,
licenses, permits and other approvals (together with the items set
forth in clause (i) above, the "Licenses") necessary to conduct the
Subservicing Functions, and is in good standing under all applicable
federal, state and local laws and regulations thereunder as a mortgage
lender and servicer, and has complied with all such Licenses, and
knows of no threatened suspension, cancellation or invalidation of, or
penalties (including fines or refunds) under, any such License; and
(g) Subservicer has in full force and effect
all insurance necessary to perform its obligations hereunder,
including without limitation (i) an adequate errors and omissions
policy or policies
18
<PAGE> 19
satisfying the requirements of all applicable regulatory authorities,
other governmental entities or other third parties with respect to its
operations and (ii) a standard mortgage banker's blanket bond.
ARTICLE VII
DEFAULT; TERM AND TERMINATION
7.1 Default by Subservicer. Principal may terminate
this Agreement upon the happening of any one or more of the following events:
(a) any inaccuracy when made in any material
respect of any representation or warranty of Subservicer contained in
this Agreement and failure of Subservicer to cure the condition or
event causing any such representation or warranty to be inaccurate
within thirty (30) days or such longer period as may be required by
Subservicer acting with due diligence after Subservicer's receipt of
written notice from Principal requesting that such inaccuracy be cured
or corrected; or
(b) failure of Subservicer to duly observe or
perform in any material respect any covenant, condition or term in
this Agreement which breach continues for a period of thirty (30) days
or such longer period as may be required by Subservicer acting with
due diligence after receipt of written notice by Subservicer from
Principal specifying such failure and requesting that it be remedied.
If any of the events giving rise to a termination right specified in (a) or (b)
above shall occur, Subservicer shall give notice of such occurrence to
Principal promptly following the occurrence of such event. Any such termination
shall be effective as of the date stated in a written notice delivered to
Subservicer.
7.2 Default by Principal. Subservicer may terminate
this agreement upon the happening of any one or more of the following events:
(a) any inaccuracy when made in any material
respect of any representation or warranty of Principal contained in
this Agreement and failure of Principal to cure the condition or event
causing
19
<PAGE> 20
any such representation or warranty to be inaccurate within thirty
(30) days or such longer period as may be required by Principal acting
with due diligence after Principal's receipt of written notice from
Subservicer requesting that such inaccuracy be cured or corrected; or
(b) failure of Principal to duly observe or
perform in any material respect any covenant, condition or term of
this Agreement which breach shall continue for a period of thirty (30)
days or such longer period as may be required by Principal acting with
due diligence after receipt of written notice by Principal from
Subservicer, specifying such breach and requesting that it be
remedied.
If any of the events giving rise to a termination right specified in (a) or (b)
above shall occur, Principal shall give notice of such occurrence to
Subservicer promptly following the occurrence of such event. Any such
termination shall be effective as of the date stated in a written notice
delivered to Principal.
7.3 Term. The term of this Agreement (the "Term")
shall commence on the Effective Date and shall continue through, and this
Agreement shall terminate on the earlier of (a) any termination of this
Agreement in accordance with the provisions of Section 7.1 or Section 7.2, or
(b) 90 days following the final Conversion Date, but in no event later than
June 30, 1996. Upon any termination of this Agreement, each Party shall assist
the other Party in the orderly termination of this Agreement and shall take all
reasonable actions necessary for the orderly and undisrupted continuation of
business by all parties affected hereby.
7.4 Loss of License, Qualifications. In the event
that, at any time during the Term, Subservicer ceases to be licensed and
qualified by any of the Agencies as set forth in clause (i) of Section 6.2(f)
hereof, then Subservicer shall cease to be a "subservicer" of the Mortgage
Loans but shall continue to perform all of its obligations under this
Agreement, including without limitation those obligations referred to as
"Subservicing Functions," except that, (a) within thirty days following
subservicer's notice to Principal of its failure to be so licensed or
qualified, Subservicer shall notify all Mortgagors in accordance with
applicable Regulations that
20
<PAGE> 21
Principal will be responsible for servicing the Mortgage Loans thereafter and
that checks to be mailed for purposes of remitting payments to Principal shall
be made payable to Principal, (b) Subservicer shall provide all other notices
to such other Persons and (c) the Parties shall cooperate with each other and
take all such further action as shall be necessary to properly service the
Mortgage Loans in accordance with all applicable Regulations.
7.5 Principal's Right to Supplement Services.
Notwithstanding anything to the contrary contained herein, in the event that
subservicer shall fail to observe or perform in any material respect any
covenant, condition, or term in this Agreement which breach continues for 30
days after notice to Subservicer from Principal, Principal shall have the
right, in lieu of terminating this Agreement in accordance with Section 7.1,
to take any and all actions necessary or appropriate to allow it to perform the
services or other obligations of Subservicer under this Agreement for such
period as Subservicer shall continue to fail to perform such covenants or
obligations (including, without limitations, hiring additional employees to
perform functions which would otherwise be the responsibilities of
Subservicer's employees or contracting with third parties to provide those
services and functions which Subservicer has failed to continue providing
hereunder. Principal shall be entitled to a reduction of any Subservicing Fee
otherwise payable by it under this Agreement in an amount equal to all
reasonably documented out-of-pocket costs and expenses incurred by Principal in
connection with any actions taken by it pursuant to its rights under this
Section 7.5 during such month to which the Subservicing Fee relates.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by Principal. Principal shall
indemnify and hold Subservicer harmless from and shall reimburse Subservicer
for any losses, damages, claims, causes of action or expenses of any nature
(including reasonable attorney's fees) incurred by Subservicer which arise out
of or result from:
(a) the inaccuracy of any representation of
Principal contained in this Agreement or
21
<PAGE> 22
breach of any warranty made by, or the failure to observe or perform
any covenant or agreement made or to be performed by, Principal
pursuant to this Agreement; or
(b) Principal's failure to fulfill the
Servicing responsibilities not assumed by Subservicer.
8.2 Indemnification by Subservicer. Subservicer shall
indemnify and hold Principal harmless from and shall reimburse Principal for
any losses, damages, claims, causes of action or expenses of any nature
(including reasonable attorney's fees) incurred by Principal which arise out of
or result from:
(a) the inaccuracy of any representation of
Subservicer contained in this Agreement or breach of any warranty made
by, or the failure to observe or perform any covenant or agreement
made or to be performed by, Subservicer pursuant to this Agreement; or
(b) Subservicer's failure to perform the
Subservicing Functions assumed by Subservicer;
provided, however, that the limitations set forth in Section 7.1(h) of the
Asset Purchase Agreement shall not be applicable to this Section 8.2.
ARTICLE IX
MISCELLANEOUS
9.1 Non-Solicitation. From and after the date hereof,
neither Subservicer nor any of its affiliates shall, during the remaining term
of any of the Mortgage Loans (i) take any action, by telephone, by mail or
otherwise, to solicit the prepayment of the Mortgage Loans by the Mortgagors,
in whole or in part, (ii) take any action intended to facilitate or encourage
the correspondents of Subservicer or any of its affiliates that originated the
Mortgage Loans to solicit the prepayment of the Mortgage Loans by the
Mortgagors, in whole or in part, or (iii) disseminate to any third party, for
compensation or otherwise, any complete or partial list of the Mortgagors on
the Mortgage Loans, for the purpose of soliciting the prepayment of Mortgage
Loans; provided,
22
<PAGE> 23
that this provision shall not prohibit Subservicer or any of its affiliates
from providing such lists in any judicial proceedings or in response to a
request by a government entity, Agency or Investor.
9.2 Books and Records; Access.
(a) Subservicer shall maintain the Mortgage
Loan Documents in accordance with applicable requirements.
(b) During the Term, Principal and its
officers, employees, representatives and agents shall have full and
complete access to all of the properties, books, records, computer
discs and tapes and all other information involving the business and
operations of Subservicer relating to the Mortgage Loans and to
Subservicer's procedures and Subservicer shall cause its officers,
directors, employees, representatives and agents, during normal
business hours and upon reasonable notice, to discuss the business
affairs, operations, assets and liabilities of Subservicer with
Principal and its directors, officers, employees, agents and others,
as Principal considers necessary or appropriate for the purpose of
overseeing and supervising the operations of Subservicer pursuant to
this Agreement.
(c) In order to facilitate the oversight and
supervisory functions of Principal, Subservicer shall provide to
Principal (and its agents and representatives), without charge (except
with respect to online computer access), office space at Subservicer's
servicing facility in Dallas, Texas and reasonable use of all
facilities available at that site, including without limitation desks
and chairs, telephones, personal computer equipment and telecopy and
copying machines. Such space and facilities shall be provided
throughout the Term.
(d) Subservicer shall furnish Principal with
its internally prepared financial statements on a monthly basis, and
promptly furnish annually its audited financial statements, uniform
single audit and Investor compliance audits which relate to
Subservicer's residential servicing portfolio as they may be performed
from time to time. Subservicer shall also furnish Principal any
"management letters" prepared by its outside accountants which
23
<PAGE> 24
reflect on internal controls and procedures relating to Subservicer
responsibilities to Principal. Subservicer shall work with its outside
accountants and Principal to ensure that work done by the outside
accountants relating to the annual Investor compliance audits may be
relied upon to the maximum extent possible by Principal's outside
auditors.
(e) Subservicer shall advise Principal in
writing of any pending, or to the best of Subservicer's knowledge
threatened, action, by way of a proceeding or otherwise, to revoke or
limit any license, permit, authorization or approval issued or granted
by any federal, state or local government quasi- governmental body, or
any agency or instrumentally thereof, including without limitation the
Agencies, necessary for Subservicer to conduct its business, or to
impose any penalty or other disciplinary sanction in connection with
any of them, or any sanction that would materially adversely affect
Subservicer's business. Subservicer shall immediately notify
Principal of any failure or anticipated failure on its part to observe
or perform any warranty, representation, covenant or agreement
required to be observed or performed by it hereunder.
9.3 Management Meetings. As often as practicable but
not less frequently than once per month, Principal shall cause members of its
senior management team to meet with members of the senior management team of
Subservicer, at Subservicer's headquarters in Dallas, Texas, for the purpose of
reviewing Subservicer's business and operations, the status of the transfer and
conversion of the servicing of the Mortgage Loans to Principal's system and
such other matters as reasonably relate to the business and operations of
Subservicer.
9.4 Costs and Expenses. Except as otherwise provided
in this Agreement, each Party shall pay its own costs and expenses.
9.5 Confidentiality of Information. Principal and
Subservicer and their affiliates shall, and shall cause their respective
directors, officers, employees and authorized representatives to hold in strict
confidence and not use or disclose to any other Person or entity, without the
prior written consent of the other Party, all information concerning customers
or proprietary business procedures, servicing fees or prices, policies or plans
24
<PAGE> 25
of the other Party or any of its affiliates received by them from the other
Party in connection with the transactions contemplated hereby.
9.6 Survival. None of the covenants, representations
or warranties contained herein, or in any document delivered or to be delivered
pursuant hereto, or any rights of the Parties arising thereunder, other than
those contained in Section 9.1, shall survive any termination of this
Agreement.
9.7 Notices. All notices, requests, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given upon delivery.
Notice may be delivered in person, by mail or by express delivery. In the case
of mailing, such notice shall be sent by registered or certified mail, return
receipt requested, postage prepaid, to the address stated in the Asset Purchase
Agreement or to such other address as Principal or Subservicer shall have
specified in writing to the other.
9.8 Entire Agreement, Amendment. This Agreement and
the Asset Purchase Agreement constitute the entire agreement between the
Parties with respect to the matters set forth herein and supersede all prior
agreements with respect thereto. This Agreement may be amended by an
instrument in writing signed by the Parties. Any provision of this Agreement
may be waived, but only in a written instrument signed by the Party against
whom such waiver is sought to be enforced.
9.9 No Third Party Rights. Nothing in this Agreement,
express or implied, shall confer on any Person other than the Parties hereto
and their respective successors and assigns, any rights, obligations, remedies
or liabilities.
9.10 Headings. Headings on the Articles and Sections
in the Agreement are for reference purposes only and shall not be deemed to
have any substantive effect.
9.11 Applicable Laws. This Agreement shall be
construed in accordance with and governed by the laws of the state of Texas
without application of its principles covering conflicts of law.
25
<PAGE> 26
9.12 Incorporation of Exhibits. Any exhibit or
schedule attached hereto shall be incorporated herein and shall be understood
to be a part hereof as though included in the body of this Agreement.
9.13 Counterparts. This Agreement may be executed in
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original and all of which, taken together, shall constitute one and the
same agreement.
9.14 Successors; Assignment. This Agreement shall be
binding upon, and extend to the benefit of the respective successors of the
Parties; provided, however, the rights and obligations of any Party under this
Agreement may not be assigned by such Party without the written consent of the
other Party, which consent shall not be unreasonably withheld.
9.15 Severability. If any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
26
<PAGE> 27
IN WITNESS WHEREOF, each of the undersigned parties to this
Agreement has caused this Agreement to be duly executed in duplicate originals
by one of its duly authorized officers, all as of the date first above written.
"SUBSERVICER"
Lomas Mortgage USA, Inc.
By: /s/ ERIC D. BOOTH
------------------------------
Name: Eric D. Booth
----------------------------
Title: CEO
---------------------------
"PRINCIPAL"
First Nationwide Mortgage Corporation
By: /s/ LAWRENCE P. WASHINGTON
------------------------------
Name: Lawrence P. Washington
----------------------------
Title: E.V.P.
---------------------------
27
<PAGE> 28
SCHEDULE I
Owned Servicing -GNMA
1. Investor Cut-Off Reports
11710D-GNMA I&II (hard copy)
11710A-GNMA I&II (on fiche)
Trial Balance (on fiche)
Standard GNMA Accounting Package (on fiche)
2. Bank Reconciliations
3. Cash activity summarized from (1) CSM 718 report (provide Monthly
Remittance Recap and Daily Summary of Advances) and (2) Schedule of
P&I Advances & Recoveries.
4. Loan Servicing portfolio activity status, which reflects
month-to-month changes (beginning balance, new loans, paid in full,
amortization, ending balance) in number of loans and principal balance
by Investor (ESSRMF03).
5. Delinquency report by Investor, which reflects number and balance of
loans past due by delinquency category with ratios (MRKPR072).
6. Foreclosure report, which reflects number of loans and principal
balance by status, i.e., referred, sold, conveyed, etc.
7. Bankruptcy report, which includes relevant information, including past
due status summary.
8. Foreclosure claim loss report for each loan case finalized during the
month.
9. Reporting on servicing portfolio geographic statistics (ESSRSA08).
10. REO status report, if applicable.
11. Reports tracking activities relating to escrow administration, ARM
adjustments, assumptions, partial releases and other servicing-related
activities.
28
<PAGE> 1
EXHIBIT 10.42
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
- - - - - - - - - - - - - - - - - - - - x
: Chapter 11
In re :
: Case No. 95-1235(PJW)
LOMAS FINANCIAL CORPORATION :
LOMAS MORTGAGE USA, INC., :
LOMAS INFORMATION SYSTEMS, INC. : Jointly Administered
and LOMAS ADMINISTRATIVE :
SERVICES, INC. :
:
Debtors. :
:
- - - - - - - - - - - - - - - - - - - - x
AFFIDAVIT OF ERIC D. BOOTH
IN SUPPORT OF FIRST DAY ORDERS
STATE OF )
) ss:
COUNTY OF )
ERIC BOOTH, being duly sworn, deposes and says:
1. I am Chief Executive Officer of Lomas Financial
Corporation ("LFC") and of Lomas Mortgage USA, Inc. ("LMUSA") (together,
"Lomas"). I have been employed by Lomas since December 1994. I submit this
affidavit in connection with Lomas's Chapter 11 filings and in support of the
various orders sought and motions filed with the Court contemporaneously
herewith (the "First Day Orders").
2. Lomas is in the mortgage banking business, deriving
its income principally from fees for servicing
<PAGE> 2
mortgages which are backed by various governmental or quasi-governmental
agencies. The confidence of those agencies, of the financial institutions that
originate mortgages and purchase mortgage-backed securities, and ultimately of
the homeowners whose mortgages are serviced by LMUSA, are crucial to Lomas's
business.
3. Since March 1994, in the face of serious financial
difficulties, Lomas and its advisors have considered a number of different
strategic alternatives, including the sale of the majority of its businesses to
a third party. Throughout that period, the size of LMUSA's mortgage servicing
portfolio and the related income from mortgage servicing fees have steadily
declined while the debt servicing obligations in respect of LFC's and LMUSA's
unsecured debts have remained the same.
4. Lomas's steadily deteriorating financial condition
recently caused the risk of regulatory or investor intervention (threats of
which began to occur). Following an extensive marketing effort to sell its
entire business enterprise and a draconian expense-reduction program, Lomas
agreed in early-September to sell a portion of LMUSA's mortgage servicing
business. LFC and LMUSA have now filed petitions for reorganization and are
filing a motion seeking the Court's approval of a sale of substantially all of
the remaining assets of LMUSA pursuant to section 363(b) of the Bankruptcy
Code.
- 2 -
<PAGE> 3
BACKGROUND
A. Business of the Debtors
5. LFC is a Delaware corporation with its principal
executive offices in Dallas, Texas. Through its wholly-owned subsidiary,
LMUSA, Lomas has been one of the nation's largest participants in the mortgage
banking industry. Lomas has provided mortgage servicing and mortgage-related
financial and administrative services since 1894.
6. On September 24, 1989, LFC and several affiliates
filed petitions for reorganization under Chapter 11 of the Bankruptcy Code, 11
U.S.C. Section 1101, et seq. (the "LFC Reorganization"). LMUSA did not file
a bankruptcy petition in those cases. LFC's plan of reorganization was
confirmed on December 30, 1991 and the plan was consummated on January 31,
1992. Since its emergence from Chapter 11, LFC has been primarily a holding
company, and LMUSA has been its principal operating subsidiary.
7. On September 30, 1995, LMUSA had outstanding long
term unsecured public debt in the aggregate principal amount of $340 million
and $38.8 million of debt owed to an insurance company secured by buildings
owned by LMUSA. At that date, LFC had outstanding long term unsecured public
debt totalling $139.9 million in principal amount.
8. For the fiscal years ended June 30, 1995 and 1994,
Lomas's continuing operations recorded losses of $104.6 million and $108.5
million, respectively.
- 3 -
<PAGE> 4
9. The principal line of business of LMUSA is the
servicing on behalf of third-party investors of single-family residential
mortgages secured by properties located in all 50 states and the District of
Columbia. As mortgage servicer, LMUSA is paid a servicing fee out of each
mortgage payment made by a homeowner and receives other ancillary benefits as
well. As of June 30, 1995, LMUSA's total combined mortgage servicing portfolio
aggregated $41.2 billion in unpaid principal amount and included 680,552 loans.
10. LMUSA's mortgage services consist of three
categories: "primary servicing" where LMUSA owns the servicing rights;
"subservicing" where it provides mortgage servicing on a subcontract basis for
other parties who own the servicing rights; and "master servicing" where it
provides administrative services for issuers of mortgage- backed securities and
monitors the work of primary servicers who own the servicing rights.
11. Both primary servicing and subservicing involve
collecting monthly mortgage payments, maintaining escrow accounts for the
payment of property taxes, hazard insurance and mortgage insurance premiums on
behalf of homeowners, remitting payments of principal and interest promptly to
investors in the underlying mortgages, reporting to those investors on
financial transactions related to such mortgages and generally administering
the mortgage loans. The servicing staff also must cause properties to be
- 4 -
<PAGE> 5
inspected periodically, determine the adequacy of insurance coverage on each
property, monitor delinquent accounts for payment, and, in cases of extreme
delinquency, institute and complete either appropriate forbearance arrangements
or foreclosure proceedings on behalf of investors.
12. Because mortgages have a limited term of years and
can be prepaid or refinanced, LMUSA's mortgage servicing portfolios "run off"
over time. Historically, LMUSA has experienced an annual run-off rate of
approximately 14%. Due to such constant run-off, the size of its mortgage
servicing portfolios and the related servicing fee income steadily declines
unless servicing rights for new mortgages can be acquired or "produced" at the
same or a higher rate.
13. LMUSA does not "originate" mortgages as depositary
institutions and other mortgage banks do. Rather, to replenish its mortgage
servicing portfolios, LMUSA acquires servicing rights by (a) buying servicing
rights "in bulk" from other institutions, or (b) buying "whole" mortgages from
originators and then, through the creation and issuance of mortgage-backed
securities, selling the beneficial interest in the mortgages to investors while
retaining the right to service the mortgages on the investors' behalf.
14. For Lomas buying servicing rights in bulk has
generally not been as profitable as "producing" servicing rights by creating
mortgage-backed securities. Therefore,
- 5 -
<PAGE> 6
LMUSA has in recent years been replenishing its mortgage servicing portfolio,
in large measure, by creating and issuing mortgage-backed securities and
retaining the servicing rights on the underlying mortgages.
15. The creation and issuance of mortgage-backed
securities generally follows the same basic steps. LMUSA, as issuer, obtains a
commitment from a financial institution to purchase a mortgage-backed security
from LMUSA with specified terms, including the interest rate paid, the types of
mortgages included in the "pool" relating to that security and the type of
agency guaranty (or lack thereof, in some instances) obtained with respect to
those mortgages. LMUSA acquires whole loans (by buying them from originators)
that satisfy the characteristics set forth in the commitment. Then, LMUSA
enters into a "guaranty agreement" with respect to the "pool" of mortgages it
has assembled with one of the three agencies that operate mortgage-backed
securities programs under federal law -- the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC") (collectively, the
"Agencies"). The securities issued for each pool of mortgages are then sold to
investors in the marketplace through the financial institution that made the
initial commitment. Investors receive monthly payments of principal and
interest as set forth in the securities.
- 6 -
<PAGE> 7
16. Under the agreements between the Agencies and LMUSA1
LMUSA becomes the servicer of the mortgages, collecting the monthly principal,
interest and escrow payments, and remitting in accordance with the requirements
of the program. If a mortgagor fails to make a scheduled mortgage payment the
servicer is required to advance funds to cover the shortfall so that the
investor is paid on time. The guaranteeing Agency steps in to make those
payments (or, in some cases, a portion thereof) only if LMUSA defaults.
17. As servicer, LMUSA retains bare legal title to the
mortgages so that it will be able to perform its servicing functions. The
mortgages and related documents are in the possession and control of LMUSA or a
third party document custodian. LMUSA, as servicer, also has control of
custodial bank accounts through which flow the principal and interest and tax
and insurance monies paid by homeowners, usually as joint owner with the
related Agency.
18. All of these custodial bank accounts are in LMUSA's
name, but only as custodian for the homeowners and/or investors who,
indirectly, own the beneficial interest in the underlying mortgages. Thus the
monies flowing through the custodial accounts are not the property
____________________
1 LMUSA also services mortgage loans as whole loans or as mortgage-backed
securities for a large number of private investors such as financial
institutions and insurance companies. Most are documented by written contracts
requiring LMUSA to perform the same basic services as LMUSA provides for the
Agencies and generally requiring LMUSA to maintain its status as an eligible
seller/servicer with the Agencies.
- 7 -
<PAGE> 8
of LMUSA, which is only acting as custodian for homeowners and/or investors.
19. As servicer, LMUSA is obligated to advance funds into
the custodial bank accounts primarily to assure that the investors are paid
principal and interest on a date certain.
20. LMUSA, as servicer, is also obligated to advance
funds to cover expenses related to mortgage loans which are "non-performing,"
e.g., the costs of foreclosure on the mortgaged properties.
21. Finally, LMUSA, as servicer, is obligated to advance
funds as needed to custodial clearing house accounts to assure that the cash
flowing from the "lock box" custodial bank accounts -- the bank accounts in
which the underlying mortgage payments (whether by check or wire) are collected
- -- is sufficient to permit the requisite transfer of funds to the investor
custodial bank accounts.
22. Except in very limited instances, the various
advances made by LMUSA on behalf of the investors are reimbursed to LMUSA
either out of the custodial bank accounts, out of individual mortgage or
mortgage pool insurance coverage or, in the non-performing loan situation, out
of the proceeds of the sale of the mortgaged property.
- 8 -
<PAGE> 9
B. LMUSA Suffers from Adverse
Economic Developments
23. Because the confidence of securities brokers and the
guaranteeing Agencies is essential to the mortgage-backed securities business,
A SELLER/SERVICER CANNOT CONTINUE TO ISSUE MORTGAGE-BACKED SECURITIES IF ITS
FINANCIAL HEALTH IS UNCERTAIN. The federal Agencies -- GNMA, FNMA and FHLMC --
will shun an ailing seller/servicer out of concern that the seller/servicer
will be unable to meet its payment obligations to investors, increasing the
risk that the Agencies' guaranty will be called upon. Brokers will refuse to
enter into commitments with an ailing seller/servicer to avoid the risk that
the seller/servicer will be unable to deliver the promised mortgage-backed
security, thereby forcing the broker to seek a new commitment at a cost that
may be less favorable.
24. Starting late last year, LMUSA began to lose the
confidence of securities brokers and the guaranteeing Agencies, because of its
financial decline. Likewise, it began to lose the confidence of its lenders
and contract parties, including some of the servicers for which it was doing
subservicing.
25. Beginning in October 1991, and for the following 35
months, LMUSA experienced an exceptionally high level of refinancings of
mortgages in its servicing portfolios, as interest rates fell to levels not
seen in nearly thirty years. This unanticipated economic
- 9 -
<PAGE> 10
environment tripled LMUSA's ordinary portfolio "run-off" rate, with serious
consequences for LMUSA's financial condition and its ability to maintain vital
working capital.
26. In the period from October 1991 through August 1994,
as homeowners rushed to take advantage of dramatically lower interest rates,
LMUSA's run-off rate increased from an historical 14% to 29% with monthly
annualized rates as high as 49%. Because it acquired new mortgage servicing
rights primarily by purchasing rather than initiating new mortgages, LMUSA was
at a severe financial disadvantage when compared to other mortgage service
companies which actually originated mortgage loans and then retained the
servicing rights to those mortgages. As a purchaser rather than an originator
of new mortgages, LMUSA was required to pay a front-loaded premium for each new
loan it bought. Thus, as interest rates continued to fall, LMUSA was forced to
expend increasing amounts of capital just to keep its mortgage portfolios, and
its related fee income, at pre-existing levels. Further, since servicing
rights were booked as assets with average lives of eight to twelve years, the
accelerated run-off rate required huge write-downs of LMUSA's servicing rights
assets, which in turn caused serious erosion of its net worth.
27. The massive refinancing levels spurred by falling
interest rates did not slow until August 1994, when interest rates stabilized.
During the period October 1991 through August 1994, LMUSA's primary mortgage
servicing
- 10 -
<PAGE> 11
portfolio experienced run-off of approximately $26 billion, which LMUSA managed
to substantially replenish over that time.
28. Due to its worsening financial condition, however,
LMUSA's ability to borrow was hindered, further hastening its financial
decline.
29. Mortgage servicing companies are particularly
dependent upon working capital facilities for a number of reasons. Most
notably, mortgage-backed securities require mortgage servicing companies to
make principal and interest payments to security holders even if they have not
yet been collected from homeowners (and to make up other shortfalls).
Historically, LMUSA maintained a $30 million revolving working capital facility
that was drawn down by LMUSA each month in order to make principal and interest
("P&I") payments to investors and was repaid by LMUSA shortly thereafter when
payments from borrowers were received. LMUSA also maintained a general working
capital facility of $25 million. Recently, the lenders had required both
facilities to be secured by some of LMUSA's mortgage servicing rights.
30. As LMUSA's financial condition worsened, its ability
to borrow under both of its working capital facilities was reduced. Eventually
LMUSA lost the ability to draw any amounts under either facility. As a result,
LMUSA was forced to sell those servicing rights which involved higher working
capital requirements in LMUSA. In
- 11 -
<PAGE> 12
fiscal 1994 and 1995, LMUSA had to sell $9.9 billion in such servicing rights.
31. As LMUSA's servicing portfolio diminished, its income
stream diminished at a disproportionately high rate. At the same time, Lomas's
debt servicing obligations remained constant, and its leverage therefore
steadily increased. Furthermore, as its financial condition worsened, to meet
Lomas's debt servicing obligations, LMUSA was required to forego replenishing
its mortgage servicing portfolios. This resulted in further erosion in LMUSA's
mortgage servicing portfolio due to run-off, with an attendant reduction in fee
income.
32. Declining interest rates also hurt Lomas in another
manner. Between July 2, 1992, and November, 1993, Lomas entered into an
interest rate swap program whereby it exchanged earnings on thirty day A1/P1
commercial paper in return for five year fixed rates. While this program was
initially successful, the last $800 million of swaps were trapped in the
precipitous decline in interest rates, causing a fluctuating liability which
contributed to the financial risk at Lomas.
33. Another significant cash and credibility problem for
Lomas was its Lomas Information Systems ("LIS") subsidiary. LIS developed
state-of-the-art computer software and a service bureau for the mortgage
banking industry. A negative marketing campaign sponsored by the principal
competitor of LIS, which capitalized on the poor
- 12 -
<PAGE> 13
financial condition of Lomas and the concomitant possibility of its failure,
was successful. While Lomas ultimately divested LIS, principally for
contingent consideration, Lomas had to contribute approximately $65 million in
cash to LIS over the past few years, contributions which it could ill-afford
under the circumstances.
34. Finally, a de novo imaging business created by Lomas,
INTELLIFILE, competed for scarce financial and managerial resources at an
impropitious time.
C. Marketing and Sale of Certain Assets
Prior to the Filings
35. Early in 1994, Lomas began considering its available
alternatives, given the increasing gap between its debt and its financial
resources.
1. The Marketing Effort
36. At a meeting of the LFC board of directors on January
25, 1994, representatives of Salomon Brothers, Inc. ("Salomon"), seeking to be
retained as Lomas's investment banking advisers, discussed current trends in
the mortgage banking industry and presented a preliminary valuation of Lomas.
At that meeting, the LFC board determined that Salomon Brothers should be
retained to sell the entire company, including LMUSA and LIS.
37. Shortly thereafter, Salomon began to work on an
offering memorandum for use in discussions with potential buyers.
- 13 -
<PAGE> 14
38. Beginning in March 1994, Salomon contacted over fifty
potential acquirors concerning their potential interest in a transaction with
Lomas. Approximately twenty-five entities signed confidentiality agreements
and received the offering memorandum that Salomon had prepared.
39. By the end of the Salomon auction process in mid-May
1994, however, no formal bids had been submitted for the purchase of the entire
company, although three bidders had expressed an interest in buying LIS
separately. Later that month, Lomas announced that it would proceed with the
marketing of LIS,2 and would continue to evaluate the sale of the remainder of
the company.
40. In the auction process, Lomas was approached by a
bidder which initially sought to acquire only LMUSA's mortgage servicing
portfolio. Lomas rejected this proposal. Late in the spring, this same bidder
proposed acquiring the shares of LMUSA, but during the negotiations it lowered
and then withdrew its bid.
41. In the fall of 1994, a third party initiated
discussions with Lomas concerning the possibility of a joint venture between
the two companies of their mortgage servicing business. In the course of those
discussions, that company conducted extensive due diligence regarding
____________________
2 LIS was later sold to Residential Information Services Limited
Partnership, an affiliate of Prudential Insurance Company of America.
- 14 -
<PAGE> 15
Lomas. No formal proposal was ever submitted to Lomas concerning such a
transaction.
42. In December, 1995, the Board of LFC brought in new
management which instituted a complete review of Lomas's operations. After a
detailed analysis of all of Lomas's business units and balance sheets, done on
an expedited basis, new management concluded that:
a. there were several millions of dollars of
assets that needed to be written down or charged off and
operational problems to be corrected. (This was done by June
30, 1995.)
b. two of the Lomas's business units (including
INTELLIFILE) were losing money and had no short term prospect
of recovering. (Both units were sold in August of 1995.)
c. three business units at LMUSA (including
master servicing) were marginally profitable but LMUSA was
unable to strengthen them due to its deteriorating financial
condition.
d. only two business units at LMUSA were strong
(mortgage servicing and its insurance agency subsidiaries).
However, in order to pay its debt service, LMUSA foresaw the
need to sell portions of the servicing business every six
months.
e. a major cost reduction program was required.
(This was implemented in January 1995 and resulted in a staff
reduction of 450 employees and elimination of unnecessary
expenses.)
43. In May a budget was prepared for the up-coming fiscal
year under the direction of new management. The budget showed that LFC and its
consolidated operations could not make money with its current debt structure,
its cost of doing business and its current financial condition. Under these
circumstances, and especially since LMUSA was
- 15 -
<PAGE> 16
subject to Agency review of its financial condition and potential Agency
termination of its mortgage servicing rights, new management and the LFC board
of directors concluded that it was necessary to reactivate the efforts to sell
Lomas's operating businesses in order to maximize the value of those
businesses.
44. In the spring of 1995, Salomon again contacted twelve
companies, with eight of whom it had conducted preliminary discussions the
previous year.
45. From May through July 1995, several potential
acquirors conducted due diligence with respect to a potential purchase of
Lomas. In early July, Lomas received proposals from two bidders, including
First Nationwide Mortgage Corporation. ("First Nationwide").
46. First Nationwide proposed a transaction, pursuant to
a Lomas "prepackaged" bankruptcy, in which, among other things, First
Nationwide would combine Lomas's mortgage servicing business with First
Nationwide's existing mortgage servicing. The First Nationwide proposal
regarding the LMUSA assets had a stated value of $310 million.
47. The competing proposal also contemplated a Lomas
prepackaged bankruptcy following which Lomas would emerge as a stand-alone
mortgage servicing company. The competing proposal had a stated value of
approximately $245 million.
48. At a meeting of the LFC board of directors on July
18, 1995, representatives of Salomon detailed the terms
- 16 -
<PAGE> 17
of the two competing proposals and offered their assessment of the strengths
and weaknesses of each. In addition to the higher price proposed by First
Nationwide, Salomon noted that the First Nationwide bid had several advantages:
First Nationwide, unlike the competing bidder, was a GNMA-approved mortgage
servicer; First Nationwide's proposal had no financing contingency and included
a willingness to consider an interim $25 million working capital commitment;
and First Nationwide had significant experience in consummating comparable
transactions.
49. Taking into account the Salomon presentation and
after carefully reviewing and considering the Lomas's financial condition and
its alternatives, the LFC board determined that Lomas's management should
pursue negotiations toward a definitive agreement with First Nationwide on the
terms proposed.
50. After negotiations commenced, however, Lomas
management became concerned that the transaction proposed by First Nationwide,
which contemplated a Lomas bankruptcy filing before it was consummated, posed a
risk that GNMA might terminate a substantial portion of LMUSA's mortgage
servicing rights immediately upon a Lomas bankruptcy filing. Approximately 34%
of LMUSA's mortgage servicing rights, accounting for approximately $80 million
in value, were subject to confiscation by GNMA.
51. GNMA has taken the position that, under its enabling
legislation, it is exempt from the strictures of
- 17 -
<PAGE> 18
the automatic stay under Section 362 of the Bankruptcy Code. Lomas was advised
that, in prior bankruptcy cases, GNMA had terminated the GNMA mortgage
servicing portfolios of the debtor mortgage companies under the applicable
guaranty agreements.
52. Although Lomas does not necessarily agree that GNMA
is exempt from the automatic stay, Lomas determined that any risk to LMUSA's
GNMA servicing rights should be avoided in order to maximize the value of
LMUSA's assets.
2. The GNMA Servicing Sale
53. Lomas management was also growing concerned that, in
light of Lomas's mounting financial difficulties, all of the Agencies,
including GNMA, might be able to declare LMUSA to be on the verge of insolvency
and to seek to terminate LMUSA's mortgage servicing rights even without a LMUSA
bankruptcy filing.3 Such a termination would be disastrous to Lomas, resulting
in a potential immediate loss of value of the mortgage servicing portfolio.
Lomas concluded that it should sell its GNMA mortgage servicing
____________________
3 Under section 8.03 of the standard GNMA Guaranty Agreement, any
"impending or actual insolvency on the part of the Issuer (LMUSA)" is an event
of default granting GNMA rights under 8.05 to extinguish the Issuer's rights to
the servicing. Chapter 5, section 5.2 of the FHLMC Seller's Guide states that
sellers and servicers may be disqualified for, among other things, "(I)mpending
or actual insolvency". Section 206.03 of the FNMA Seller's Guide provides that
FNMA may terminate the lenders' contract for, among other things, failure "to
meet (FNMA's) net worth and other financial requirements."
- 18 -
<PAGE> 19
portfolio to a third party acceptable to GNMA as soon as possible. Therefore,
Lomas and First Nationwide began to negotiate for the sale of the GNMA mortgage
servicing rights.
54. For a number of reasons, the most important of which
was the risk that LMUSA would lose its approvals as an authorized
seller/servicer for the Agencies and thus its ability to sell new mortgage
loans into mortgage-backed securities, Lomas also determined that an immediate
sale of its "production" business -- the gathering system by which it acquired
whole loans to be processed into mortgage-backed securities -- was also
essential to maximizing value. A Lomas bankruptcy filing would result in the
immediate loss of all the value of "production" and could trigger significant
LMUSA liabilities relating to whole loans and commitments for mortgage-backed
securities not yet issued. Additionally, the production unit was a net user of
LMUSA's declining working capital. Finally, the value of "production" was
threatened even without a Lomas bankruptcy filing because contracting parties
and financial institutions were increasingly reluctant to deal with or rely on
LMUSA.
55. LMUSA had experienced increasing difficulty in
obtaining commitments from financial institutions to purchase its
mortgage-backed securities. As early as May, 1995 Smith Barney notified LMUSA
that it would no longer
- 19 -
<PAGE> 20
enter into such commitments with LMUSA. Several other institutions followed
Smith Barney over the next few months.
56. LMUSA was concerned that it might not be able to
continue to acquire whole loans in sufficient volume to meet its
mortgage-backed securities commitments. Sellers of such loans had begun to
refuse to sell loans to LMUSA out of concern that LMUSA would be unable to
obtain the financing necessary to consummate such purchases. Many other buyers
were available, and sellers of mortgages therefore chose to do business
elsewhere rather than risk a damaging change in interest rates between the time
that LMUSA agreed to buy a loan and the time when the sale was consummated.
57. Also, LMUSA faced great potential liability if it
could not meet its commitments. If LMUSA could not deliver whole loans
sufficient to satisfy a particular commitment, it might be liable in damages to
the financial institution that had entered into such a commitment in the event
that interest rates changed unfavorably in the interim.
58. Beginning in May, 1995, LMUSA's "warehouse" financing
lines at Bank One and Donaldson, Lufkin & Jenrette ("DLJ") -- which it used to
fund its purchase and warehousing of first mortgage loans -- started to be
adversely affected by LMUSA's operating results. (These financing arrangements
had allowed LMUSA to purchase between $300 to $400 million a month in mortgage
loans.)
- 20 -
<PAGE> 21
59. As a result of LMUSA's deteriorating financial
condition, on May 31, 1995, LMUSA was no longer in compliance with certain of
its financial covenants. In response to LMUSA's non-compliance, the Bank One
warehouse facility was amended to eliminate any new borrowings or draws after
July 31, 1995. The facility's termination date was amended from November 30,
1995 to September 30, 1995. In addition, the Bank One warehouse agreement was
further amended to increase borrowing rates, increase commitment fees,
eliminate certain types of whole loans and cross collateralize itself with
another secured working capital facility.
60. In late June, LMUSA successfully renegotiated its DLJ
warehouse facility for another year term. Due to the Bank One warehouse
facility default, LMUSA was relying solely on DLJ for incremental borrowings.
At the end of August 1995, LMUSA was unable to meet the financial requirements
required in the DLJ facility and the DLJ facility was also in "default." By
mid-September, DLJ refused to commit to any additional borrowings under its
warehouse facility. At this point LMUSA had no financing arrangements
available to fund the purchase of its loan origination pipeline and all of its
outstanding warehouse borrowings were due and payable on October 2, 1995.
(Having committed to buy loans through the month of September, LMUSA managed to
arrange a warehouse facility with First
- 21 -
<PAGE> 22
Nationwide to fund the acquisition of loans until October 2, 1995.)
3. The GNMA Servicing Sale Agreement
61. On September 5, 1995, the boards of LFC and LMUSA met
to consider a proposed asset purchase agreement governing the sale of various
LMUSA assets to First Nationwide (the "GNMA Servicing Sale"). At the board
meetings, Lomas management described the GNMA Servicing Sale in detail and
detailed the reasons why it recommended the Sale as outlined above. In
addition, Salomon delivered an opinion to the boards to the effect that the
transaction was fair from a financial point of view to LFC and LMUSA.
62. First Nationwide agreed to acquire the following
assets from LMUSA:
a. the GNMA mortgage servicing rights;
b. LMUSA's "production" business;
c. the "warehouse" loans representing whole
loans in the process of being securitized as mortgage-backed
securities, other than "warehouse" loans owned by LMUSA
subject to repurchase agreements with loan originators;
d. the whole loan commitments already in the
LMUSA production pipeline but not yet funded or processed into
mortgage-backed securities;
e. LMUSA's accounts receivable relating to
items a through d;
f. 100% of the common stock of Lomas Mortgage
Services, Inc. (which owns 33% and is the general partner of
Lomas Mortgage Partnership, L.P., a partnership which also
produces (GNMA) mortgage- backed securities and was in the
same risky situation because of its relationship to LMUSA);
- 22 -
<PAGE> 23
g. certain fixed assets relating to LMUSA's
"production" business.
63. In exchange for those assets, First Nationwide agreed
to pay LMUSA $100 million as follows:
a. $10 million (10% of the purchase price) in
cash, to be retained by First Nationwide and paid to LMUSA as
certain milestones are met in the transfer of the Purchased
Assets;
b. 27% (subsequently amended to 35%) of the
purchase price to be paid at the closing, less the amount
necessary to satisfy certain outstanding obligations of LMUSA
to Lehman Brothers under certain swap agreements dated (an
obligation approximating $18.5 million);
c. 49.5% (subsequently amended to 41.5%) of the
purchase price to be paid 120 days after the closing;
d. 13.5% of the purchase price to be paid one
year after the closing date, adjusted to subtract any
indemnification amounts owed to First Nationwide by LMUSA.
64. The second and third installments will also be
adjusted to reflect (i) changes in certain balance sheet accounts between July
31, 1995, the date used to calculate the base purchase price, and the closing
date; and all variations in the assets purchased and the contracts assumed on
the closing date from the parties' expectations regarding those assets and
contracts at the time the GNMA Servicing Sale was signed.
65. In addition, First Nationwide agreed to assume
LMUSA's liabilities relating to the servicing rights, contracts, "pipeline"
loans and "warehouse" loans purchased by First Nationwide, and to pay at the
closing any amounts owed by LMUSA to FNMA, to DLJ and to Bank One all of which
- 23 -
<PAGE> 24
were LMUSA's warehouse lenders, to the extent such obligations were secured by
the "warehouse" loans.
66. LMUSA also agreed to indemnify First Nationwide for a
period of one year following the closing for certain losses incurred by First
Nationwide over $6.107 million, up to a maximum of 15% of the final purchase
price over $10 million.
67. In connection with the GNMA Servicing Sale, the
parties entered into a transition services agreement pursuant to which LMUSA
contracted to act as subservicer with respect to the assets to be transferred
to First Nationwide and agreed to perform certain other functions necessary to
that transition.
68. As a condition to closing the GNMA Servicing Sale,
First Nationwide required LMUSA to implement an employee retention plan
relating to those LMUSA employees who are necessary to effectuate the transfer
of the mortgage servicing assets over a six-to-twelve month transition period
(the "Transition Period").
69. Since the GNMA mortgage servicing is performed by the
same LMUSA employees servicing the remainder of LMUSA's servicing mortgage
portfolios and since First Nationwide had already determined that it would not
hire LMUSA's employees after the Transition Period (at least not in Dallas),
LMUSA had to implement an enhanced employee retention and severance program for
all of its servicing employees as a prudent business matter and to satisfy its
- 24 -
<PAGE> 25
transaction obligations. Meanwhile, LMUSA had already severely reduced its
corporate staff. Thus, LMUSA cannot afford to lose any of its remaining
skeletal corporate staff which is running all of its legal, accounting, public
disclosure, financial, human resources and information systems functions.
70. Working with LMUSA's outside accounting firm on an
expedited basis, management developed an enhanced employee retention and
severance plan (the "Employee Compensation Plan") which has two essential
components: (i) a performance bonus for all remaining LMUSA employees, based on
a percentage of base salary, to be paid by October 1, 1996; and (ii) a
severance payment for all remaining LMUSA employees to be made at the earlier
of involuntary termination or October 31, 1997. The LMUSA board of directors
approved the Employee Compensation Plan on September 18, 1995, to be effective
October 1, 1995, prior to the closing of the GNMA Servicing Sale.
4. The Presentations to the Agencies
71. The GNMA Servicing Sale required GNMA not only to
approve the transfer of the servicing portfolio to First Nationwide, but also
required GNMA to approve the subservicing by LMUSA of the GNMA servicing
portfolio during the Transition Period. The sale also required certain
critical approvals of the other two Agencies.
72. Meanwhile, LMUSA's deteriorated financial condition
had arguably put the Agencies in a position to
- 25 -
<PAGE> 26
terminate LMUSA's mortgage servicing rights. Thus it was essential that LMUSA
obtain the cooperation and support of all three Agencies -- GNMA, FNMA and
FHLMC -- while it determined how best to preserve the value of its remaining
mortgage servicing portfolios.
73. In early September, LMUSA made presentations to each
of the Agencies to obtain their cooperation and support, not only through the
closing of the GNMA Servicing Sale but also through the Transition Period.
74. Through discussions and negotiations which continued
until the eve of the closing of the GNMA Servicing Sale, the Agencies agreed to
allow the transfer of the GNMA servicing rights owned by LMUSA and the rights
to subservice LMP loans to FNMC, while at the same time revoking LMUSA's rights
to create new securities or acquire new servicing rights.
75. The Agencies also determined to put LMUSA under
particularly close scrutiny ("close watch plus" in the words of one Agency) so
any deterioration in the quality of LMUSA's servicing -- especially through the
loss of its employees -- could result in the Agencies enforcing their
termination rights to the fullest extent possible.
76. On October 2, 1995, the closing on the GNMA Servicing
Sale occurred. At that time, bonuses previously approved by the LMUSA board of
directors were paid to the core management team and certain critical support
employees
- 26 -
<PAGE> 27
who had worked to successfully structure, negotiate, present to the Agencies
and effectuate the Sale.
77. As efforts to close the GNMA Servicing Sale
proceeded, during September LMUSA and First Nationwide negotiated towards a
definitive agreement for the sale of the remainder of LMUSA's mortgage
servicing rights and its insurance agency business for $150 million. This
resulted in the definitive agreement that the boards of LMUSA and LFC
subsequently approved.
THE CHAPTER 11 FILINGS
A. Reasons for the Chapter 11 Filings
78. On October 6 and 9, 1995, respectively, the boards of
LMUSA and LFC held special meetings to consider Lomas's strategic direction
following the GNMA Sale. At these meetings, management discussed in detail the
financial condition of LFC and LMUSA.
79. Management detailed the steady deterioration in the
size of LMUSA's mortgage servicing portfolio during the previous year. They
observed that as the size of LMUSA's servicing portfolio decreased, LMUSA
experienced a concomitant reduction in its cash flow. Because LMUSA's debt
servicing obligations remained constant, however, LMUSA was forced to further
liquidate its mortgage portfolio in order to pay its debts as they became due.
This created a continuing downward spiral that would lead, inevitably, to the
liquidation of the company.
- 27 -
<PAGE> 28
80. Management discussed the inability of LMUSA to make
dividend payments to LFC, depriving LFC of the funds necessary to meet its own
debt servicing obligations. (On October 2, 1995, a $17.1 million dollar
payment to bondholders had been due from LMUSA. Lomas management determined
not to make that payment until the boards had met to consider Lomas's situation
and alternatives. If not for the Chapter 11 filings, on October 31, 1995, a
$6.3 million payment would have been due from LFC to its bondholders.)
81. Management noted that, in the absence of a
transaction with a third party, the assets of LMUSA would inevitably dissipate
due to portfolio run-off. Management reviewed the status of the discussions
with the agencies and the actions they had taken. Management also detailed the
terms of the proposed contract with First Nationwide (the "Second FN Contract")
for the purchase of LMUSA's remaining mortgage servicing assets, together with
its insurance agencies -- a contract which First Nationwide would enter into
only on the condition that the sale would be approved under section 363 of the
Bankruptcy Code.
82. After its presentation, management stated its belief
that the option with the best potential to maximize value for Lomas's various
constituencies was to enter into the Second FN Contract and thereafter to file
petitions for reorganization with respect to both LFC and LMUSA, and
simultaneously to seek bankruptcy court approval of the Second FN Contract
(with full notice to all interested
- 28 -
<PAGE> 29
parties and full opportunity for higher and better offers to be made).
83. In addition, at the board meetings, Salomon delivered
an opinion to the LFC and the LMUSA boards that the transaction was fair from a
financial point of view to LFC and LMUSA.
84. Following the presentations, the boards deliberated
about the potential courses of action that were available to LFC and LMUSA. At
the conclusion of those deliberations, the boards agreed with the
recommendation that LFC and LMUSA sign the Second FN Contract and file
petitions for reorganization in an effort to maximize value for Lomas's various
constituencies. The boards also directed management to pursue a section 363
sale of LMUSA's remaining servicing assets to First Nationwide, or any entity
making a higher and better offer pursuant to the procedures set forth in the
Second FN Contract.
85. On October 9, 1995, LMUSA and First Nationwide
entered into the Second FN Contract.
86. On October 10, 1995, LFC and LMUSA filed petitions
for reorganization in this Court.
B. The Section 363 Sale
87. On the petition date, Lomas is filing a motion for
approval of a sale of all of the remaining mortgage servicing assets of LMUSA
and its related insurance agency business to First Nationwide pursuant to
section 363 of the Bankruptcy Code (the "Section 363 Sale"). The motion
- 29 -
<PAGE> 30
details procedures for the submission of competing bids for the asset to be
sold and for objections, if any, to the proposed sale.
88. The following assets are to be sold pursuant to the
Section 363 Sale:
e. all of LMUSA's remaining mortgage servicing,
subservicing and master servicing rights (the "Servicing
Rights").
f. the common stock of Lomas Insurance Services,
Inc., a subsidiary of LMUSA.
g. any residential real property owned in fee
simple by LMUSA as a result of foreclosures.
h. LMUSA's accounts receivable.
i. certain furniture, fixtures and equipment of
LMUSA.
j. certain LMUSA's contracts and unexpired
leases.
k. LMUSA's records relating to the business sold.
l. LMUSA's custodial accounts and escrow funds
relating to the business sold.
m. LMUSA's trade names.
n. LMUSA's investments and other assets relating
to the business sold.
89. In exchange for those assets, First Nationwide has
agreed to pay LMUSA $150 million. The purchase price (less $10 million, which
will be paid as milestones in the process of transferring servicing are
achieved) will be paid as follows:
o. $42 million (30%) to be paid at closing.
p. $77 million (55%) to be paid 120 days after
the closing date.
- 30 -
<PAGE> 31
q. the balance of $21 million (15%), less any
indemnification amounts payable by LMUSA, to be paid one year
after the closing date.
90. First Nationwide has also agreed to assume the
liabilities of LMUSA that relate to:
r. the Servicing Rights.
s. certain contracts and unexpired leases.
t. certain scheduled liabilities.
91. For a number of reasons, the boards and management of
Lomas have determined that a sale of the remaining mortgage servicing (and
related insurance agency) assets of LMUSA at this time represents the best
strategy for maximizing value for Lomas's creditors, and that an expedited sale
of those assets is the only way to maintain the value of those assets for its
creditors.
92. First, in the absence of a sale of LMUSA's remaining
mortgage servicing portfolio in the near future, the value of the portfolios
will decline steadily as mortgages within the portfolio are refinanced or
prepaid. LMUSA is ineligible in bankruptcy to reestablish itself as a
qualified servicer with GNMA, FNMA or FHLMC for new pools of mortgage loans.
Furthermore, even before the filing, it was clear that the Agencies would not
stand still and allow LMUSA to continue servicing unless they were comforted
that a sale to a qualified buyer of the mortgage servicing assets would be
accomplished expeditiously. As a result, THERE IS NO PROSPECT OF RESTARTING
LMUSA'S "PRODUCTION" FRANCHISE TO STEM THIS INEVITABLE LOSS OF VALUE.
- 31 -
<PAGE> 32
93. Second, LMUSA's Chapter 11 filing inevitably will
cause an additional strain on its employees that could have deleterious effects
on its continuing mortgage servicing obligations. Lomas's employees are well
known for their diligence and expertise in the mortgage servicing field. In
the last six years, however, these dedicated employees have endured an endless
stream of difficult events that has tested their resolve. These trying
situations have included LFC's first filing and emergence from bankruptcy, a 35
month period of frantic mortgage processing as LMUSA struggled to replace
mortgages that were being refinanced at an unprecedented rate, major staff
reductions, losses from operations, a nineteen-month effort to sell the entire
company, and the current petitions for Chapter 11. Lomas management is
concerned that the accumulated stress of these events -- any one of which might
test the employees of any other company to their limits -- and the fact that
other mortgage companies are heavily in the Dallas market now to hire servicing
employees could result in massive resignations and leave LMUSA without the
skill and expertise that its employees bring to its business. A prompt sale of
LMUSA's remaining mortgage servicing assets along with the Employee
Compensation Program discussed above will greatly reduce this risk.
94. Third, Lomas is aware that FNMA and FHMLC will not
long tolerate an ongoing relationship with a mortgage servicing company
operating either in financial
- 32 -
<PAGE> 33
distress or in Chapter 11. There is a very real threat that the Agencies will
seek to terminate LMUSA as a qualified servicer unless an orderly transfer of
their respective servicing rights occurs very quickly. While Lomas believes
that the automatic stay provided under Section 362 of the Bankruptcy Code would
prevent such a devastating action, there remains a risk that those agencies
could succeed in their efforts through motions to lift the stay. If so, LMUSA
and its creditors could lose a substantial amount of the value of nearly all of
its remaining servicing rights. An expeditious sale of the LMUSA's remaining
mortgage servicing portfolios will eliminate this risk. Finally, a sale of
LMUSA's remaining servicing portfolio at this time would enable Lomas to
maximize the value that still exists on its mortgage servicing portfolio.
OTHER FIRST DAY MOTIONS AND APPLICATIONS
95. In connection with the preparation for these
bankruptcy proceedings, I have reviewed numerous proposed "first day"
applications and motions.4 As set forth more fully below, I believe that the
entry of orders granting the relief requested in these motions and applications
is critical to the Debtors' ability to preserve the value of their estates and
ultimately to reorganize.
____________________
4 Unless otherwise indicated, capitalized terms not defined herein are
defined in the respective first day motion or application.
- 33 -
<PAGE> 34
Professional Retentions
96. The Debtors have filed applications to retain
bankruptcy counsel, special counsel, accountants and strategic communications
consultants. I believe that the services to be provided by these professionals
are necessary to the success of these reorganization proceedings
Joint Administration
97. The Debtors are affiliates as that term is defined in
section 101(2) of the Code and as used in Fed. R. Bankr. P. 1015(b).
98. Joint administration of their cases is appropriate
because the Debtors intend to file with this Court numerous motions and
applications. As such, the joint administration of these cases, including the
combining of notices to creditors of the respective estates, as well as the
notices and hearing of all matters at the same time, including without
limitation, motions and adversary proceedings, will promote the economical,
efficient and convenient administration of the Debtors' estates.
99. The rights of creditors of each of the Debtors will
not be adversely affected by joint administration of these cases. Joint
administration will not affect substantive rights. To the extent that proofs
of claim are required to be filed, each creditor shall be entitled to file a
claim against the particular estate which owes it money. Finally, supervision
of the administrative
- 34 -
<PAGE> 35
aspects of the chapter 11 cases by the Court and the Office of the United
States Trustee will be simplified.
Authority to Mail Initial Notices
100. The Debtors have initially identified over fifty
thousand entities to which notice must be given. The Debtors maintain lists of
the names and addresses of all such entities on various computer programs,
which permit the Debtors to print mailing labels for each creditor.
101. Transferring this information to the form of a
mailing label matrix described by General Order No. 8 would be a monumental
task, with a substantial risk of error in transcription. Moreover, in light of
the size of the mailing, this Court is likely to direct the Debtors to complete
the mailings. Consequently, the Debtors believe it is in the best interest of
their estates and creditors to avoid the costs and risks associated with
preparing and filing the mailing label matrix. Additionally the Debtors
propose to undertake all other mailings directed by the Court, the United
States Trustee or required by the Bankruptcy Code or the Local Rules for the
United States Bankruptcy Court for the District of Delaware.
Extension of Time to File Schedules and Statements
102. Due to the scope and complexity of Debtors' business,
the diversity of their operations and assets, and the number of creditors, the
fifteen-day automatic extension of time to file the Schedules provided by
Bankruptcy Rule 1007(c) will not be sufficient to permit completion of the
- 35 -
<PAGE> 36
Schedules. Accordingly, the Debtors require additional time to bring their
books and records up to date and to collect the data needed for the preparation
and filing of the Schedules.
103. At this juncture, I believe that an extension of
forty-five (45) additional days (for a total of 60 days), pursuant to
Bankruptcy Rule 1007(c), will provide sufficient time to prepare and file the
Schedules. Accordingly, the Debtors request such an extension without
prejudice to their right to seek any further extension(s) from this Court, or
to seek a waiver of the requirement for filing certain schedules.
Employee Wages and Benefits
104. Debtors have both salaried and hourly employees. All
employees are paid every two weeks for services provided in the two weeks
preceding and including the pay day. Overtime is paid two weeks in arrears.
All employees are paid through a single payroll account. Most employees have
elected direct deposit to their accounts. Temporaries and independent
contractors are paid through a disbursements account. On October 6, 1995, all
of the Debtors' employees were paid their wages and salaries earned through
October 6, 1995. Consequently, as of the Petition Date, the only salary
obligations owed by the Debtors to their employees would be amounts owed on
account of services provided by the employees since October 6, 1995, and
amounts which may be owed to certain employees for overtime and
- 36 -
<PAGE> 37
other payroll adjustments. The Debtors' salary obligations to the Chief
Executive Officer and Chief Financial Officer are current as of the Petition
Date. Accordingly, I believe that no employee (including the Debtors'
officers) is owed in excess of $4000 on account of pre-petition wages and
salaries and certainly on average, the amount is less than $500 per employee.
Debtors estimate that total pre-petition wages and salaries which remain unpaid
as of the Petition Date are approximately $300,000. To the extent that any
pre-petition wages or salaries are owing, the Debtors' active employees will be
immediately affected by any delay in payment of these amounts.
105. As a standard business practice related to the
cyclical work requirements of mortgage servicing and as a result of reductions
in their workforce and attrition, the Debtors increasingly must supplement
their workforce with the use of temporaries (on average, 75 to 100 individuals
at any one time). Debtors are billed weekly for temporary services and
generally pay for those services on a weekly basis. Prior to the Petition
Date, Debtors paid for all temporary services for which it had been billed. On
average, Debtors pay approximately $60,000 per week for temporary employees.
Debtors desire to pay the charges for temporary employees and for independent
contractors in the ordinary course as they come due to ensure that Debtors will
have access to temporary employees as their needs demand.
- 37 -
<PAGE> 38
106. Additionally, in the ordinary course of business,
many of the Debtors' employees incur a variety of business expenses, including
without limitation travel and relocation expenses, which, consistent with
ordinary practice, are reimbursable. It would be inequitable and cause an
undue hardship if those active employees were required to bear those expenses,
some of which may be substantial and all of which were incurred on behalf of
the Debtors in the expectation that they would be reimbursed promptly. Such
expenses are typically paid by the Debtors on a rolling basis as processed. As
of the Petition Date, the Debtors believe that less than $25,000 in the
aggregate was owed on account of pre-petition reimbursable employee business
expenses.
107. Like most major businesses, the Debtors provide their
employees with certain general welfare benefits, including, without limitation,
medical, dental, disability protection, jury duty pay, vacation and holiday
pay, bereavement and sick day pay, life insurance and other insurance coverage.
The Debtors also provides retirees with medical and in some instances life
insurance benefits. Some of these benefits are funded by Debtors and others are
provided by Debtors but paid for by the employees. These additional benefits
are an integral and important part of each employee's total compensation
package. Interruption of such additional benefits would seriously disrupt the
morale of the Debtors' employees and would undermine the Debtors'
- 38 -
<PAGE> 39
reorganization efforts. Thus, the Debtors request authority to pay
pre-petition amounts attributable to such benefits from time to time, as and
when such amounts become due.
108. The Debtors request authority to pay, from time to
time, as and when due, certain pre-petition claims, premiums and administrative
expenses related to medical and dental benefits (collectively, "Pre-Petition
Medical Benefits") for their employees and their eligible dependents.
109. Medical insurance is provided to the Debtors'
employees, and approximately 90 retirees and former employees as a function of
termination agreements, through a self-funded PPO and two insured HMO programs
(collectively referred to hereinafter as the "Plan"). The Debtors pay the
medical claims and the employee makes a monthly contribution in the form of
payroll deductions for the right to participate in the Plan. The amount of the
employee's contribution varies depending on whether the employee participates
in an HMO or PPO, and whether the employee's spouse or dependents are covered.
Because a portion of the Plan is self-funded, the Debtors' payment obligation
varies from week to week. On average, the Debtors' monthly contribution is
approximately $110,000. Additionally, on a monthly basis, the Debtors pay the
administrator of the Plan an additional $4200 for management fees associated
with administering the Plan. Further, Debtors pay approximately $3300 for stop
loss coverage. Employer contributions,
- 39 -
<PAGE> 40
administrative fees and claims are paid through a Voluntary Employee Benefit
Association (VEBA). The Debtors believe it is critical that they be authorized
to continue making these payments on a regular basis as and when they come due
for the active and terminated employees and until June 30, 1996 for the retired
employees and employees covered under termination agreements.
110. Additionally, the Debtors are required by the Plan to
pay medical claims that exceed the policy deductible of $300 for individuals or
$900 per family and are less than the stop-loss of $5,000 per employee. As of
the Petition Date, the Debtors owed approximately $250,000 for medical claims.
Although claims vary significantly throughout the year, the Debtors estimate
the average monthly payments for medical claims are $250,000. Debtors believe
they must pay the employees' medical claims to retain employees and minimize
disruption of Debtors' business. Additionally, the Debtors believe that
delaying the discontinuation of retiree medical coverage through June of 1996
will avoid significant disruption and burden to these parties and will
therefore facilitate these Debtors' postpetition operations.
111. If amounts relating to the Pre-Petition Medical
Benefits claims of these employees are not paid, certain providers of health
care would seek payment directly from the Debtors' employees and might refuse
to provide continuing medical services or treatment to them. Permission to pay
the Pre-Petition Medical Benefits is
- 40 -
<PAGE> 41
particularly necessary for those employees who currently are receiving services
or who are recuperating from recent medical treatment. In addition, these
employees might not receive disability income replacement payments. The morale
of the Debtors' employees would be seriously undermined if medical benefits
were interrupted. More importantly, however, the Debtors desire to avoid the
risk that its employees will not be given needed treatment because health care
providers have not been paid for pre-petition services rendered to them.
Therefore, the Debtors request authority to take all steps necessary to pay
those claims, premiums and administrative expenses for the Pre-Petition Medical
Benefits.
112. Based on their tenure with the Debtors, the Debtors'
employees are permitted to take paid time off for vacation, sick leave,
bereavement and jury duty. Employees are also compensated for certain
holidays. Certain employees have accrued vacation and sick leave and other
leave based upon work performed pre-petition. The Debtors' estimate a
liability of approximately $750,000 for earned and unpaid vacation. In
general, the Debtors do not propose to pay such amounts in lump sum cash
payments, but rather request authority to permit such employees to use their
accrued paid vacation days, sick days and other leave post-petition and to be
paid for such leave in the ordinary course. In the event that employees
terminated postpetition have accrued unused vacation pay, the Debtors request
- 41 -
<PAGE> 42
authority to pay the employee the balance (up to a cap of two weeks) in a
single lump sum payment.
113. In order to maintain employee confidence and morale,
the Debtors request authority to continue providing the employee benefits
described in this application consistent with pre-petition customs and
policies, including the severance and retention compensation of post-petition
separating employees who are terminated by the Debtors without cause.
Consistent with the Debtors' pre-petition policies, such separating employees
will receive a severance benefit in a minimum amount of two months pay and a
maximum amount of 18 months pay. Minimum benefits are based on the employees'
job level. Employees earn a week's pay for each additional full year of
service after the first five years. This severance benefit applies to all of
the Debtors' employees. Additionally, terminated employees are entitled to
receive their accrued vacation pay, three months of continued medical coverage,
and outplacement assistance. However, no other group insurance or other
welfare benefits are available to terminated employees during the severance
period. In addition to the severance benefits, employees are also eligible to
receive a retention award. For most employees this award is one-half to one
full month of pay. For certain employees who have been identified as "key" to
the restructuring process (72 employees) the retention award is equal to
50%-75% of annual base compensation. The Debtors request authority to pay
expenses associated with
- 42 -
<PAGE> 43
prepetition severance-related medical and outplacement expenses, which costs
the Debtors estimate will not exceed $8,000. Additionally, the Debtors request
authority to pay severance and retention benefits to their employees who are
involuntarily terminated without cause or in accordance with the plan document
distribution dates after the Petition Date.
114. The Debtors also make available to their employees
certain additional benefits, including: workers compensation insurance, and
short and long term disability benefits. The dental insurance premiums are
paid entirely by the employees in the form of payroll deductions. Workers'
compensation insurance is handled through Aetna, and the monthly premiums are
$28,000. The Debtors provide disability benefits for all employees. Short
term and long term disability is self-funded. Additionally, the Debtors
provide term life insurance for all employees, disabled employees, employees
covered by termination agreements, and Outside Directors. Debtor will continue
to provide coverage for Outside Directors and employees covered by termination
agreements through June 30, 1996 only. To the extent there may be any
pre-petition amounts owing under these plans the Debtors request authority to
pay such amounts as and when they become due.
115. The Debtors also make available to employees a 401(k)
Savings Plan. The plan allows employees to contribute a portion of their
salary to the plan on a pre-
- 43 -
<PAGE> 44
tax basis and the Debtors match a percentage of the employee contribution. The
employer matching contribution is approximately $17,000 per month. The Debtors
also pay the administrative and trustee fees for the plan, which cost
approximately $10,000 per month. The Debtors request authority to continue the
plan on behalf of the employees, and pay prepetition expenses as they come due.
116. The Debtors make available to employees a defined
pension plan that provides pension benefits based on years of service and wage
history. The plan is overfunded and requires no contributions on the part of
the Debtors for benefits. The administrative and trustee fees are
approximately $50,000 per month. In conjunction with the pension plan, the
Debtors maintain a Supplemental Executive Retirement Plan (SERP) which provides
benefits to employees who because of IRS regulations cannot receive the full
value of their pension benefit from the Pension Plan. This plan does not
provide benefits in addition to the Pension Plan. The monthly cost to
administer this plan is approximately $1000. The Debtors request authority to
continue the plans and to pay benefits and administrative fees as they become
due.
117. The Pension Plan assets exceed the liabilities as of
June 30, 1996 by approximately $7.2 million. These funds cannot be reverted to
the creditors without paying an excise tax equal to 50% of the value returned.
Therefore, the pension plan was recently amended
- 44 -
<PAGE> 45
to provide for an enhanced benefit roughly equivalent to a portion of the
severance benefits. The severance plan was recently amended to offset the
benefits paid from the pension plan.
118. Additionally, the Debtors recently adopted a
retention incentive program, separate from the severance benefits described
above. Under the retention program, employees who remain with the Debtors
during the reorganization process and are terminated without cause are entitled
to receive a set payment (depending on the employee's level) ranging from two
weeks-one month (the standard payment covering the vast majority of the
Debtors' employees) to a maximum of 6-9 months salary (available to certain
"key" managers).
119. No prepetition amounts are due on account of either
the severance program or the retention incentive program. The Debtors will
continue both of these programs on a post-petition basis, and will make
payments thereunder as and when such payments come due.
120. As with other major business corporations, certain of
the benefits that the Debtors offer their employees, such as medical benefits,
dental insurance, and life insurance involve payroll deductions as employee co-
contributions or otherwise. In such cases, the Debtors make deductions from an
employee's payroll check and subsequently pay those funds, along with any
required employer co-contributions, to various appropriate third parties. The
- 45 -
<PAGE> 46
Debtors also routinely and ordinarily make deductions from employee's payroll
relating to federal, state and local tax withholdings (approximately $1,000,000
per month), employee savings programs, including a 401(k) plan, child support
orders or garnishments. The Debtors request authority to pay over to the
appropriate parties all such funds in accordance with existing company policies
and practices.
121. The circumstances of the Debtors' cases provide
compelling justification for maintenance of the employee benefits described
herein, including the severance and retention programs. The Debtors have
engaged in a sale of substantially all of their mortgage loan servicing
portfolio. A condition of the sale requires the Debtors to continue to service
the mortgage loans for a period estimated to take six months to one year while
the portfolio is being transferred to the buyer. During this period the
Debtors will be required to retain a fully staffed Loan Administration
Department and associated support functions totaling approximately 1,000
employees. These employees are aware of the sale and that no offers of
employment will be extended to them at the end of the period by the buyer.
Should the Debtors fail to perform in accordance with the sale agreement, the
value received from the sale could be substantially reduced for two reasons.
First, the federal agencies, FHLMC, and FNMA, could terminate their servicing
agreements, removing their portion of the servicing portfolio. Second, the
buyer, who has retained 15% of the
- 46 -
<PAGE> 47
sales price in reserve pending review of the representations and warranties,
could reduce the sale price by some portion of that reserve based upon the
Debtors' performance.
122. Absent the relief requested herein, the employees
would have little reason to remain with the Debtors and would likely seek
employment elsewhere. The annual turnover for the organization is typically
twenty-five percent, and has increased to thirty percent during the last few
months. Without the relief requested, the Debtors' ability to preserve their
business assets and ultimately restructure will be adversely affected if they
are unable to retain their dedicated and loyal employees. Accordingly, it is
critical that the hardship and disruption caused by this Chapter 11 proceeding
be minimized in order to preserve morale and maintain the Debtors' workforce.
123. I believe that they will have sufficient cash from
ongoing operations and proceeds of asset sales to pay all amounts provided for
herein as they come due.
Adequate Assurance to Utilities
124. The Utility Companies provide the Debtors with
Utility Services in at least 12 states which are essential to the continuation
of its businesses, i.e., necessary telephone and communication services and
other related supplies and services and necessary water and electric supplies
and services. In the aggregate, the utility bills average approximately
$500,000 per month, with the majority of these bills being related to utility
- 47 -
<PAGE> 48
services, and particularly telephone service, integral to the operation of the
Debtors' businesses.
125. Should the telephone companies, power companies or
other Utilities Companies providing service to the Debtors refuse or
discontinue such service after the Stay Period, the impact to the Debtor's
business operations, revenues and reorganization efforts would be devastating.
126. The Debtors submit that, as more fully set forth
below, adequate assurance exists based upon (i) their record of substantially
timely payment to the Utility Companies as the debts have become due, (ii)
their ability to pay for post-petition services on a current basis going
forward and (iii) the Utility Companies' entitlement to an administrative
expense claim for unpaid post-petition services.
127. As of this date, the Debtors believe that they are
generally current with all Utility Companies, except to the extent that the
Debtors have not yet been billed for pre-petition utility services or the
Debtors have been billed but payment for such services was not yet due, or
checks on account of such services were issued but will not be honored because
of the commencement of these cases.
128. Further, the Debtors believe that cash from recent
asset sales and the revenue generated from their operations will provide them
with sufficient cash to pay for post-petition Utility Services on a current
basis. The Utility Companies are further protected by their entitlement
- 48 -
<PAGE> 49
to an administrative expense priority under Section 503 of the Bankruptcy Code
for any unpaid post-petition Utility Services.
Maintain Bank Accounts Business Forms
and Cash Management System
129. The Debtors currently maintain corporate accounts
with the banks listed on Exhibit A to the Motion (the "Accounts").5 In
general, the Debtors utilize several types of bank accounts in their cash
management system.
130. The Debtors each maintain primary and secondary
operating accounts (the "Concentration Accounts") into which monies received
are deposited, and from which transfers are made in the ordinary course of the
Debtors' business. LFC and LIS, for all practical purposes, maintain only one
Concentration Account each, and conduct all of their business through these
Accounts. LAS has no accounts.
131. LMUSA, as the primary operating entity in these
jointly administered Chapter 11 proceedings, maintains numerous accounts in
addition to its Concentration Accounts.
____________________
5 In addition to the Accounts described herein, the Debtors maintain
over 2,000 custodial bank accounts (the "Custodial Accounts") for
use in their mortgage servicing business. The funds held in the
Custodial Accounts are held by the Debtors for the benefit of third
parties, and, as such, do not constitute funds of these Debtors'
estates. By separate application filed concurrently herewith, the
Debtors are requesting authorization to maintain the Custodial
Accounts consistent with their prepetition practice.
- 49 -
<PAGE> 50
First, LMUSA maintains two payroll accounts with BankOne and with First
Interstate, respectively, and these Accounts are funded from LMUSA's
Concentration Account to cover each payroll. Additionally, the Payroll
Accounts are used to pay employees of the Debtors' non-debtor subsidiaries, and
the non-debtor subsidiaries fund the payroll accounts to cover their own
payroll. Further, LMUSA maintains two controlled disbursement accounts with
Chemical Bank and with First American Bank. These are zero-balance accounts,
and are funded on an as needed basis from the Concentration Account. LMUSA
also maintains numerous depository accounts for the receipt of payables, and
monies received in these accounts are swept into LMUSA's Concentration Accounts
to the extent practicable. Finally, LMUSA maintains numerous disbursement and
depository accounts in order to remain in compliance with various state
regulations and statutes relating to the mortgage servicing business. These
accounts typically have minimal balances and are maintained pursuant to state
regulations which require an entity doing business in a particular state to
maintain a bank account there.
132. The Debtors seek a waiver of the requirement that new
bank accounts for all of their existing Accounts be opened. If enforced in
this case, such a requirement would unnecessarily disrupt the Debtors' business
and impair their efforts to preserve the value of their estates. For example,
the Debtors' employees would be caused great hardship if the Debtors were
required to substitute new
- 50 -
<PAGE> 51
debtor-in-possession payroll accounts for the existing Payroll Account and
suffer the attendant delays, confusion and disruptions that would necessarily
result.
133. Consequently, I believe that it is imperative that
the Debtors be permitted to continue using their existing Accounts in order to
avoid unnecessary disruption to the normal operations of their business. The
Debtors believe that only if their bank accounts are continued in their current
form can their transition to Chapter 11 be smooth and orderly, and thereby
create a minimum of interference with continuing operations. No checks issued
from the Accounts prior to the commencement of this case will be honored,
unless authorized by separate order of this Court.6 Moreover, the Debtors'
personnel can readily distinguish between pre-petition and post-petition
obligations without closing existing accounts and opening new ones.
134. Because some of the banks are located outside the
District of Delaware, the Debtors also seek a waiver of the requirement that
their Accounts be held at designated depositories in the District of Delaware.
All of the Accounts are in financially stable banking institutions.
135. Additionally, the Debtors, in the ordinary course of
their business, use many checks, invoices, contracts and other business forms.
The Debtors typically generate in excess of 15,000 checks per month. By virtue
of
__________________________________
6 Contemporaneously herewith, the Debtors have filed Motions seeking
authority, inter alia, to make certain prepetition payments to its
employees and honor certain prepetition checks.
- 51 -
<PAGE> 52
the nature and scope of the business in which the Debtors are engaged, and the
numerous customers, suppliers of goods and services and other parties with whom
the Debtors deal, the Debtors need to be permitted to continue to use their
existing business forms without alteration or change. A substantial amount of
time and expense would be required of the Debtors in order to print new checks
and other business forms. Accordingly, the Debtors respectfully request that
they be authorized to continue to use their existing business forms. The
Debtors believe that the absence of any prejudice to any party coupled with the
"doctrine of necessity" amply justifies such continued use.
136. The Debtors likewise require the ability to continue
to utilize their cash management system so that they may continue the
uninterrupted operation of their business and the business of their
subsidiaries.7
137. As described above, funds received by the Debtors are
deposited daily to their respective concentration accounts. The concentration
accounts are used for all receipts and disbursement funding, including the
funding of special purpose accounts, such as payroll accounts and other
accounts.
__________________________________
7 As noted above, the Custodial Accounts are not the subject of this
Motion and are not included in the following description of the
Debtors' cash management system. Likewise, funds processed by the
Debtors on a daily basis in the normal operation of their mortgage
servicing business are not considered to be part of the Debtors' cash
management system.
- 52 -
<PAGE> 53
138. The Debtors' internal mechanisms for handling funds
are described above in connection with the description of the Debtors'
Accounts. Each of the Debtors' financial operations is maintained, to the
greatest extent possible, on separate, stand-alone systems. Intercompany
transfers are kept to a minimum, and promptly recorded as intercompany payables
and receivables. Additionally, to the extent that one of the Debtors' is
required to advance funds to another Debtor or to a non-debtor subsidiary, an
intercompany balance is promptly recorded. The Debtors anticipate that
intercompany transfers on a postpetition basis will be minimal.
139. As noted previously, the Debtors maintain many
Custodial Accounts. At times, the Debtors are obligated under the mortgage
servicing and pooling agreements to temporarily fund shortfalls in receipts to
the Custodial Accounts. These advances are recovered by the Debtors in the
normal course of business pursuant to the terms of such servicing and pooling
contracts. For example, the Debtors may be required to advance principle and
interest payments to investors holding the securities backed by the mortgages
served by the Debtors, irrespective of whether the Debtors have actually
collected these funds from the mortgagors. These timely payments to investors
are required pursuant to servicing contracts, and as noted, such advances are
typically recaptured by the Debtors pursuant to
- 53 -
<PAGE> 54
the relevant agreements in the ordinary course of their business.
140. It is critical for the Debtors to continue to use
their existing cash management system. The Debtors' business is both
substantial and complex. It is essential to the successful reorganization of
the Debtors that there be minimal disruptions to their ordinary affairs. The
Debtors require the ability to continue to utilize their cash management system
so that they may continue the uninterrupted operation of its business.
141. Moreover, these systems are highly automated and
computerized and include the necessary accounting controls to enable the
Debtors as well as creditors and the Court, to trace funds through the system.
Any significant disruption in these systems and any resulting cash crisis would
directly threaten the reorganization effort and the viability of the Debtors.
The Debtors shall continue to maintain strict records with respect to all
transfers of cash so that it may readily account for all transfers.
142. Finally, the Debtors seek a period of 40 days to come
into compliance with section 345 of the Bankruptcy Code, during which time the
Debtors request that they be permitted to continue to hold and deposit funds in
accordance with their existing cash management and investment policies. A copy
of the Debtors' Investment Guidelines is attached as an exhibit to the Motion.
- 54 -
<PAGE> 55
143. Although many of the Debtors' deposits and
investments comply with section 345, certain of those deposits and investments
may not strictly comply. For example, the Debtors collectively maintain
investments totalling approximately $34 million in a money market fund which
invests exclusively in government-backed securities and Treasury Bills.
Additionally, the Debtors' various operating accounts will often have balances
substantially in excess of the $100,000 federally insured cap. Further, as a
result of the filing of the Debtors' bankruptcy petitions, the Debtors hold an
investment portfolio of approximately $7 million consisting of equity
securities and other investments maintained to fund a prepetition executive
retirement compensation program through the mechanism of a "Rabbi Trust." These
investments likewise do not strictly comply with Section 345(b) and the Debtors
require the extension proposed herein to avoid the potential losses associated
with a hasty sell-off of these assets.
Authority to Honor Certain Prepetition Checks
144. In the day-to-day operation of their mortgage
servicing lending business, the Debtors record mortgage documents and deeds, as
well as other documents of legal significance, with recording offices and
registries (collectively referred to hereinafter as the "Registries") in
various localities and jurisdictions throughout the United States. Typically,
the Registries charge a de
- 55 -
<PAGE> 56
minimis fee (the "Recording Fees") of between $8 and $100. The Debtors pay the
Recording Fees by check.
145. In the Debtors' experience, it is common for the
Registries to delay weeks or even months before cashing or depositing checks
submitted by the Debtors on account of the Recording Fees. As of the Petition
Date, the Debtors estimate that approximately 2,000 small pre-petition checks
remain outstanding, totalling less than $50,000 in the aggregate.
146. The Debtors seek authorization to honor pre-petition
checks of less than $100 in amount for several reasons. First, and most
importantly, in the event that the checks submitted for recording fees were
bounced or returned, the resulting failure to comply with the rules and
regulations of the various Registries could place a cloud on the title of third
parties for whom the Debtors service mortgages. The liability to potential
third parties associated with failure to comply with filing and recording
covenants could be significant; the potential loss of public confidence in the
certainty of title to real property could be catastrophic.
147. Finally, as noted above, the total amount of uncashed
pre-petition checks relating to Recording Fees is estimated by the Debtors not
to exceed $50,000: this sum represents only a small fraction of the Debtors'
total assets. The potential harm of failing to properly record necessary
documents in Registries throughout the United
- 56 -
<PAGE> 57
States far outweighs the costs associated with honoring these checks.
Authority to Pay Sales and Use Taxes
148. In preparation for these proceedings, and the related
goal of husbanding available cash resources, the Debtors have sold numerous
pieces of furniture, equipment and artwork from their Dallas headquarters. In
so doing, the Debtors have incurred use taxes and collected sales taxes from
their customers on behalf of state and local taxing authorities in the state of
Texas for future payment to such taxing authorities (the "Taxing Authorities").
149. On the Petition Date, the Debtors held Taxes
collected from pre-petition business activities which had not yet been paid to
the Taxing Authorities. The Debtors estimate that the total amount of
pre-petition Taxes owing to the various Taxing Authorities is less than
$13,000. This amount represents a tiny fraction of the Debtors' total assets.
150. The Debtors seek authority to pay such pre-petition
Taxes to the relevant Taxing Authorities in the ordinary course of their
operations, as and when such payments become due.
Ordinary Course Professionals
151. Issues often arise in the course of the Debtors'
business in various localities and jurisdictions primarily involving real
estate issues and foreclosure litigation relating out of the operation of the
Debtors'
- 57 -
<PAGE> 58
mortgage lending and servicing business. In order to deal with these matters
efficiently, the Debtors customarily retain Ordinary Course Professionals as
local counsel on an "as needed" basis to provide their services and represent
the Debtors' interests in such jurisdictions and localities.
152. Because of the number and geographic diversity of the
professionals which are regularly retained by the Debtors, it would be unwieldy
and burdensome to both the Debtors and this Court to request each such Ordinary
Course Professional to apply separately for approval of their employment and
compensation. Instead, the Debtors propose that they be permitted to pay,
without formal application to the Court by any Ordinary Course Professional or
by the Debtors, one hundred percent (100%) of the interim fees and
disbursements to each of the Ordinary Course Professionals upon the submission
to the Debtors of an appropriate invoice setting forth in reasonable detail the
nature of the services rendered, so long as such payment does not exceed
$250,000 per month for all Ordinary Course Professionals or $50,000 per month
for any one Ordinary Course Professional. In the event that any Ordinary
Course Professional exceeds the monthly maximum set forth above, payment of all
of that party's fees will become subject to approval of the Court for that
month.
153. The Debtors submit that the continued employment and
post-petition compensation of the Ordinary Course Professionals is in the best
interests of the Debtors'
- 58 -
<PAGE> 59
estates, creditors, and other parties in interest. While generally the
Ordinary Course Professionals the Debtors have previously engaged wish to
represent the Debtors on an ongoing basis, the Debtors expect that many may be
unwilling to do so if they are unable to be paid on a regular basis for
post-petition services rendered. Moreover, as discussed more fully below, if
the expertise and background knowledge of certain of these Ordinary Course
Professionals with respect to the particular areas and matters for which they
were responsible prior to the Petition Date is lost, the estates will
undoubtedly incur additional, unnecessary expenses, as other professionals
without such background and expertise will have to be retained and then be paid
to do work already performed by the Ordinary Course Professionals. It is thus
in the best interests of the Debtors' estates that the Debtors avoid any
disruption in the professional services they require in the day-to-day
operation of business by continuing to retain and compensate their Ordinary
Course Professionals.
154. As noted above, the Debtors employ approximately 149
lawyers or firms in connection with the prosecution of foreclosure actions and
related legal proceedings. Most of the Ordinary Course Professionals do not
hold retainers from the Debtors, and invoice the Debtors in arrears for
services rendered, typically on an hourly basis.
- 59 -
<PAGE> 60
155. The Debtors' request for authorization to pay the
Prepetition Fees outstanding to such Ordinary Course Professional is justified
on several grounds. First, the Debtors expect that many of the Ordinary Course
Professionals will refuse to perform services for the Debtors on a
post-petition basis if their Prepetition Fees remain unpaid. Thus, failure to
pay the relatively de minimis Prepetition Fees could require the Debtors to
locate and retain substitute counsel and arrange for the transfer of numerous
open files to new counsel. The potential for significant disruption to the
Debtors' business operations is manifest; the time and energy spent by the
Debtors' management on locating substitute counsel would clearly be better
spent on managing the Debtors post-petition operations than overseeing myriad
foreclosure actions.
156. Additionally, the prepetition sums owing to the
Ordinary Course Professionals do not exceed $250,000 in the aggregate, or less
than $2,000 on average per Ordinary Course Professional. This aggregate amount
represents only a small percentage of the Debtors' total assets.
157. Payment of Prepetition Fees to each of the Ordinary
Course Professionals, if authorized, will be conditioned upon such
Professional's commitment to provide post-petition services to the Debtors
without interruption. The Debtors reserve the right to recover all sums paid
to Ordinary Course Professionals on account of Prepetition Fees in the event
that such professionals refuse to provide
- 60 -
<PAGE> 61
services to the Debtors on a postpetition basis on terms substantially similar
to those pertaining before the Petition Date.
158. As a mortgage servicer, LMUSA is responsible for
collecting homeowners' monthly mortgage payments, remitting to investors
payments of principal and interest, maintaining escrow accounts for the payment
of property taxes, hazard insurance, and insurance premiums, and disbursing
funds to make these payments when due. LMUSA performs these servicing
functions pursuant to servicing agreements, including agreements with the
quasi-government agencies that guarantee payments to investors, e.g., FNMA and
FHLMC (the "Servicing Agreements").
Authority to Maintain Custodial Accounts and Forms
159. As a mortgage servicer, LMUSA maintains custodial
bank accounts it has established with various banks on behalf of homeowners
and/or investors through which flow the principal and interest and tax and
insurance monies (the "Custodial Accounts"). All of the Custodial Accounts are
in the name of LMUSA as custodian.
160. The Custodial Accounts maintained by LMUSA fall into
four categories:
u. First, LMUSA maintains Custodial Accounts as
custodian for homeowners in which the homeowners' mortgage payments initially
are deposited. Most mortgage payments are made by check and are deposited into
Custodial Accounts called "lockboxes" maintained by LMUSA at
- 61 -
<PAGE> 62
four banks -- Bank One Arizona, Bank of America Chicago, First Interstate
Texas, and Bank of America Baltimore (collectively, the "Lockbox Banks"). Some
homeowners make their mortgage payments via the Automated Clearing House
Network (the "ACH"), an arrangement whereby funds are transferred
electronically from the homeowners' personal accounts into Custodial Accounts
maintained by LMUSA, on behalf of the homeowners, at Bank One.
v. Second, LMUSA maintains a Custodial Account
at Bank One Dallas which is the central clearing account to which all of the
Lockbox Banks transmit the deposits representing mortgage payments they have
received from the homeowners (the "Central Clearing Account").8
w. Third, LMUSA maintains numerous Custodial
Accounts at various banks, on behalf of investors, through which remittances of
principal and interest are made to the investors (the "Principal and Interest
Custodial Accounts") after having been collected from homeowners. The portion
of mortgage payments attributable to principal and interest is transmitted from
the Central Clearing Account at Bank One into these Principal and Interest
Custodial Accounts. The monies are held in the Principal and Interest
Custodial Accounts pending remittance to investors. On the date that principal
and interest remittances are due, funds
__________________________________
8 LMUSA also maintains a custodial clearing house account at Bank of New York
for the processing of payments made on mortgage loans which it is subservicing
for CDC Servicing, Inc., another mortgage servicer.
- 62 -
<PAGE> 63
are transmitted to be remitted to the investors via check or wire.
x. Fourth, LMUSA maintains custodial escrow bank
accounts on behalf of the homeowners and investors for the payment of taxes and
insurance (the "Tax and Custodial Accounts"). When LMUSA acquires loans for
servicing, it deposits into another Custodial Account (the "Acquisition
Account") funds paid by homeowners to be used to pay taxes and insurance for
the underlying mortgaged properties. Once LMUSA begins servicing the mortgage
loans, these funds are transferred to the Tax and Insurance Custodial Accounts.
The Tax and Insurance Custodial Accounts also receive from the Central Clearing
Account the portion of homeowners' monthly mortgage payments allocable to taxes
and insurance. When tax and insurance payments are due to be paid to insurance
companies or local property tax authorities, funds are transferred to another
Custodial Account on which checks are drawn (the "Disbursement Account"). If
LMUSA releases loans to a new servicer, remaining funds allocable to the
payment of taxes and insurance are transferred from the Tax and Insurance
Custodial Accounts to yet another Custodial Account pending transmittal to the
new servicer via check or wire (the "Service Release Account"). The
Acquisition Account, the Tax and Insurance Custodial Accounts, the Disbursement
Clearing Account and the Service Release Account are all Custodial Accounts
maintained by LMUSA on behalf of homeowners and investors.
- 63 -
<PAGE> 64
161. The funds contained in the Custodial Accounts are not
the property of LMUSA, but rather are held by LMUSA as custodian for homeowners
and/or investors. The funds are held by LMUSA as custodian so that LMUSA is
able to perform its mortgage servicing functions for those parties.
162. In order to continue to operate LMUSA's mortgage
servicing business which constitutes the Debtors' core business operations, the
Debtors request that:
(a) LMUSA be authorized to maintain the Custodial
Accounts, in accordance with LMUSA's usual mortgage
servicing operations and procedures;
(b) LMUSA be authorized to use, in their present form,
any documents relating to the Custodial Accounts;
(c) all banks providing custodial accounts be authorized
and directed to service and administer the Custodial
Accounts without interruption, and in the usual and
ordinary course, and to receive, process, honor and
pay any and all checks and drafts drawn on, or wire
instructions or ACH transactions initiated by LMUSA
with respect to the Custodial Accounts, whether
presented before or after the commencement of these
chapter 11 cases for payment by the holders thereof.
Authority to Pay Certain Prepetition Claims
and Continue Performance in the Ordinary Course
- 64 -
<PAGE> 65
163. The Debtors also seek authority to pay certain
prepetition claims and continue performance in the ordinary course of business
in connection with their mortgage servicing operations.
164. In connection with servicing a mortgage portfolio
that as of June, 1995 aggregated $33.1 billion and included 540,325 loans,
LMUSA maintains certain programs and policies with its mortgagors and incurs
other expenses necessary to properly service the loans and monitor and
administer the mortgage on behalf of its investors.
165. From time to time, LMUSA will offer mortgagor's
special servicing programs or options such as bi-weekly payment plans and loan
modifications for a fee. If a mortgagor who has signed-up for a program or
selected an option later decides within a specified period of time to cancel,
LMUSA provides the mortgagor with a full refund. LMUSA's average monthly
liability for refunds is approximately $15,000. LMUSA seeks authority to
continue to honor such refund requests in the ordinary course of business.
166. If LMUSA is responsible for paying certain taxes or
recording fees from the escrow account on behalf of a mortgagor and LMUSA does
not timely make such payments or fails to pay the proper amount, LMUSA is
responsible for any penalties and interest imposed by the government authority.
It is critical that LMUSA be authorized to pay any outstanding prepetition
penalties and interest; otherwise,
- 65 -
<PAGE> 66
the mortgagor will be required to pay for LMUSA's error. If the homeowner
refuses or is unable to pay the penalties and interest, in many instances, the
taxing authority can foreclose on the property which will negatively impact
LMUSA's loan run-off rate. In reality, the homeowner is likely to simply
offset the amount of the penalty against future mortgage payments and the delay
in payment will actually increase the amount of the penalty and LMUSA's
liability. LMUSA estimates that its average monthly liability for penalties
and interest is approximately $20,000.
167. When a prospective homeowner applies for a mortgage,
a loan application fee is collected to enable LMUSA to, among other things,
process the application, appraise the property and obtain a credit report on
the applicant. LMUSA obtains such services from various vendors and is billed
periodically. LMUSA seeks authority to pay these vendors any prepetition
amounts that may be due, which the Debtor estimates is approximately $60,000.
LMUSA cannot process mortgage applications without this information and the
cost of these services has already been fronted by the applicant.
168. As part of its mortgage servicing operations, LMUSA
is required to pay various fees and expenses such as (i) fees for the
preparation and recording of lien releases when loans are satisfied, (ii) loan
guarantee fees, (iii) pool insurance fees, (iv) off-site document retrieval
fees,
- 66 -
<PAGE> 67
(v) document custodian fees, and (vi) other miscellaneous trustee fees incurred
in connection with servicing a loan. LMUSA estimates that its average monthly
liability with respect to these types of fees is approximately $________. In
many instances, the cost of these fees are incorporated in the service fee
collected by LMUSA from the homeowner. LMUSA's ability to continue to service
loans would be severely impaired if it were not able to pay the outstanding
prepetition amounts owed to the various vendors that provide these critical
services.
169. When a mortgage is added to LMUSA's portfolio, LMUSA
contracts with First American Real Estate Tax Service ("FARETS") to monitor and
assist with the payment of taxes on the properties. The cost of using FARETS
is recovered by LMUSA from the mortgagor as part of the mortgage servicing fee.
On average, LMUSA's monthly liability to FARETS is approximately $300,000.
Currently, FARETS monitors the tax payments for LMUSA's entire portfolio and
the Debtor has determined that using FARETS is far more cost efficient than if
LMUSA were to attempt to handle such services directly. The disruption if
LMUSA were forced to find another service would be considerable and could lead
to substantially increased penalty and interest liabilities for missed tax
payments which would be very detrimental to these estates.
170. When a mortgagor defaults on a loan, LMUSA contracts
with First American Field Services ("FAFS") to
- 67 -
<PAGE> 68
immediately inspect the properties to determine the appropriate recourse. FAFS
is interfaced with LMUSA's servicing system and provides this crucial service
in a timely and cost-efficient manner. It would be extremely disruptive if
LMUSA were forced to find another vendor or multiple vendors to replace FAFS
and the attendant delays necessary in getting a new inspection company up to
speed would have a negative impact on these estates.
171. Occasionally, LMUSA makes errors in connection with
administering the escrow funds. When an error is discovered by LMUSA or the
mortgagor, LMUSA immediately corrects the problem. LMUSA estimates that its
average monthly liability to correct such errors is approximately $20,000.
LMUSA seeks this Court's authority to correct errors that are discovered in
connection with LMUSA's administration of the escrow accounts.
172. LMUSA currently collects mortgage payments from over
500,000 homeowners. Mortgage coupons have already been mailed to mortgagors
with routing to certain banks and lockboxes. These financial institutions have
specialized software that enables them to process the mortgage payments
quickly. LMUSA estimates that its outstanding liability to its banks for these
lockbox services is approximately $225,000. The Debtor is not aware of any
other lockbox service that has the necessary software to replace these
institutions and the Debtor would suffer substantial
- 68 -
<PAGE> 69
financial losses if these banks refused to process or delayed processing of the
mortgage payments.
173. The relief described above is necessary because the
success and viability of the Debtors' business, and hence of their ability to
reorganize, is totally dependent upon the ability to continue to efficiently
service their mortgage portfolio. Any delay by LMUSA in honoring its
obligations under the agreements described in detail above will severely and
irreparably impair the Debtors' ability to do business and might well doom to
failure the Debtors' efforts to reorganize at the very outset.
174. The value of the Debtors' mortgage portfolio is
directly proportional to LMUSA's ability to service that portfolio. If the
Debtors' are not able to provide and obtain the services described above, the
Debtors' cash flow will suffer and the value of the portfolio will decline
substantially.
175. If the Debtors fail to pay the prepetition amounts
discussed above, in many instances the mortgagor will either have the right to
off set those amounts against future mortgage payments or they may simply delay
or completely withhold payment of invoices pending a determination of their
rights. Obviously, any delay in the receipt of payments from its mortgagors
would be devastating to the Debtors' prospects for reorganization.
- 69 -
<PAGE> 70
Conclusion
Accordingly, for the reasons stated herein and in each of the
first day motions, the Debtors request that the First Day Orders be approved.
I declare under penalty of perjury that the foregoing
information is true and correct to the best of my knowledge, information and
belief.
/s/ ERIC D. BOOTH
Eric D. Booth
SWORN to and subscribed before me, a notary public for the
state and county aforesaid, this 9th day of October, 1995.
/s/ JUDY T. ANDERSON
Notary Public
My Commission Expires:
JUDY T. ANDERSON
BY PUBLIC, MACOMB COUNTY, MCGHAN
ACTING IN WAYNE COUNTY
COMMISSION EXPRESS OCTOBER 20, 1999
- 70 -
<PAGE> 71
EXHIBIT 10.44
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is dated as of May 23,
1995 and is by and among Carey B. Wickland ("Executive"), Lomas Management,
Inc. (the "Company") and Lomas Financial Corporation (the "Parent").
WHEREAS, the parties have come to recognize over the course of
Executive's employment that the business of the Parent is inextricably linked
to the operations of its principal subsidiary, Lomas Mortgage USA, Inc.
("LMUSA"); and
WHEREAS, the parties have come to recognize over the same
period that the greatest portion of Executive's time and effort must be devoted
to LMUSA if the Parent is to preserve its value to its shareholders; and
WHEREAS, the parties wish to formalize the contractual
relationship between LMUSA and Executive;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein and for other good and valuable
consideration, the parties agree as follows:
1. Position. In addition to serving as President and
Chief Operating Officer of the Company, Executive shall serve as Senior Vice
President of LMUSA and shall have such duties and responsibilities with regard
to LMUSA as are consistent with those of a senior vice president. Executive
shall devote such time as is necessary to the performance of his duties for
LMUSA. Section 2 of the Employment Agreement effective as of April 1, 1993
(the "Employment Agreement") is amended accordingly.
2. Termination. Executive's term of employment with
LMUSA shall be co-terminus with his employment with the Company subject to the
terms of the Employment Agreement. Executive's employment with LMUSA may only
be terminated concurrently with his employment with the Company as provided in
Sections 7 and 8 of the Employment Agreement.
3. Specific Amendments. Section 8 of the Employment
Agreement is hereby amended by adding a Subsection 8(h) thereto to read as
follows:
(h) Notwithstanding any other provisions of this Section
8, if the Executive's employment shall be terminated for any reason
other than Cause, the Executive shall be entitled to receive after the
Determination Period three months of continued health care coverage in
the Executive's current health care plan at the Executive's current
enrolled level of coverage (i.e., individual or family coverage) at
the Company's sole expense, plus coverage thereafter at the
Executive's current coverage at the Executive's sole expense (the
Executive's expense to be calculated at the total prevailing monthly
premium [employee plus employer costs] as of the annual plan renewal
date each year), such coverage to continue until the date of the first
to occur of (a) the Executive's eligibility
<PAGE> 72
for other employer-sponsored health coverage, (b) the Executive's
eligibility for Medicare, (c) the Executive's 65th birthday or (d) the
end of the 60th month after the Determination Period.
4. Indemnification. Executive shall enjoy the same duty
of indemnification from LMUSA as he enjoys from the Company and the Parent for
the performance of Executive's duties on behalf of LMUSA.
5. Joint and Several Liability. The liability of LMUSA
and the Company for payment of the salary, bonus, benefits and other
perquisites due Executive under the Employment Agreement shall be joint and
several, without requirement to apportion between LMUSA and the Company the
relative time and effort spent on behalf of each by Executive.
6. Relation Back. This First Amendment to Employment
Agreement relates back to the execution of the Employment Agreement such that
LMUSA assumes joint and several liability for all of the Company's and the
Parent's duties and obligations to Executive from and after that date to and
including the present and ratifies all agreements and understandings between
the Executive and the Company and/or the Parent.
7. Execution by LMUSA. LMUSA joins in the execution of
this First Amendment to Employment Agreement, although not originally a party
to the Employment Agreement, for the purpose of acknowledging the terms of this
First Amendment to Employment Agreement and to signify that it is contractually
bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this First
Amendment to Employment Agreement as of the date written above.
LOMAS MANAGEMENT, INC.
By: /s/ ERIC D. BOOTH
-----------------------------------------
Its: Chief Executive Officer
----------------------------------------
LOMAS FINANCIAL CORPORATION
By: /s/ ERIC D. BOOTH
-----------------------------------------
Its: President & Chief Executive Officer
----------------------------------------
-2-
<PAGE> 73
LOMAS MORTGAGE USA, INC.
By: /s/ ERIC D. BOOTH
-----------------------------------------
Its: Chairman & Chief Executive Officer
----------------------------------------
/s/ CAREY B. WICKLAND
- --------------------------------------------
Carey B. Wickland
-3-
<PAGE> 1
EXHIBIT 10.44
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is dated as of May 23,
1995 and is by and among Carey B. Wickland ("Executive"), Lomas Management,
Inc. (the "Company") and Lomas Financial Corporation (the "Parent").
WHEREAS, the parties have come to recognize over the course of
Executive's employment that the business of the Parent is inextricably linked
to the operations of its principal subsidiary, Lomas Mortgage USA, Inc.
("LMUSA"); and
WHEREAS, the parties have come to recognize over the same
period that the greatest portion of Executive's time and effort must be devoted
to LMUSA if the Parent is to preserve its value to its shareholders; and
WHEREAS, the parties wish to formalize the contractual
relationship between LMUSA and Executive;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein and for other good and valuable
consideration, the parties agree as follows:
1. Position. In addition to serving as President and
Chief Operating Officer of the Company, Executive shall serve as Senior Vice
President of LMUSA and shall have such duties and responsibilities with regard
to LMUSA as are consistent with those of a senior vice president. Executive
shall devote such time as is necessary to the performance of his duties for
LMUSA. Section 2 of the Employment Agreement effective as of April 1, 1993
(the "Employment Agreement") is amended accordingly.
2. Termination. Executive's term of employment with
LMUSA shall be co-terminus with his employment with the Company subject to the
terms of the Employment Agreement. Executive's employment with LMUSA may only
be terminated concurrently with his employment with the Company as provided in
Sections 7 and 8 of the Employment Agreement.
3. Specific Amendments. Section 8 of the Employment
Agreement is hereby amended by adding a Subsection 8(h) thereto to read as
follows:
(h) Notwithstanding any other provisions of this Section
8, if the Executive's employment shall be terminated for any reason
other than Cause, the Executive shall be entitled to receive after the
Determination Period three months of continued health care coverage in
the Executive's current health care plan at the Executive's current
enrolled level of coverage (i.e., individual or family coverage) at
the Company's sole expense, plus coverage thereafter at the
Executive's current coverage at the Executive's sole expense (the
Executive's expense to be calculated at the total prevailing monthly
premium [employee plus employer costs] as of the annual plan renewal
date each year), such coverage to continue until the date of the first
to occur of (a) the Executive's eligibility
<PAGE> 2
for other employer-sponsored health coverage, (b) the Executive's
eligibility for Medicare, (c) the Executive's 65th birthday or (d) the
end of the 60th month after the Determination Period.
4. Indemnification. Executive shall enjoy the same duty
of indemnification from LMUSA as he enjoys from the Company and the Parent for
the performance of Executive's duties on behalf of LMUSA.
5. Joint and Several Liability. The liability of LMUSA
and the Company for payment of the salary, bonus, benefits and other
perquisites due Executive under the Employment Agreement shall be joint and
several, without requirement to apportion between LMUSA and the Company the
relative time and effort spent on behalf of each by Executive.
6. Relation Back. This First Amendment to Employment
Agreement relates back to the execution of the Employment Agreement such that
LMUSA assumes joint and several liability for all of the Company's and the
Parent's duties and obligations to Executive from and after that date to and
including the present and ratifies all agreements and understandings between
the Executive and the Company and/or the Parent.
7. Execution by LMUSA. LMUSA joins in the execution of
this First Amendment to Employment Agreement, although not originally a party
to the Employment Agreement, for the purpose of acknowledging the terms of this
First Amendment to Employment Agreement and to signify that it is contractually
bound by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this First
Amendment to Employment Agreement as of the date written above.
LOMAS MANAGEMENT, INC.
By: /s/ ERIC D. BOOTH
-----------------------------------------
Its: Chief Executive Officer
----------------------------------------
LOMAS FINANCIAL CORPORATION
By: /s/ ERIC D. BOOTH
-----------------------------------------
Its: President & Chief Executive Officer
----------------------------------------
-2-
<PAGE> 3
LOMAS MORTGAGE USA, INC.
By: /s/ ERIC D. BOOTH
-----------------------------------------
Its: Chairman & Chief Executive Officer
----------------------------------------
/s/ CAREY B. WICKLAND
- --------------------------------------------
Carey B. Wickland
-3-
<PAGE> 1
EXHIBIT 10.48
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT dated as of August 29, 1995, by and between Lomas
Mortgage USA, Inc., a Connecticut corporation (the "Company") and Gary Kell
("Executive").
WHEREAS, the Company desires to transfer all or substantially all of
its assets to First Nationwide, Inc. or one of its affiliates ("First
Nationwide"); and
WHEREAS, as a material part of the proposed transaction with First
Nationwide, the Company desires Executive's cooperation and best efforts to
transfer to First Nationwide the Company's contract (the "CALPERS CONTRACT")
with the California Public Employees' Retirement System; and
WHEREAS, in exchange for the consideration herein set forth, Executive
is willing to give his best efforts to consummate a transaction whereby First
Nationwide acquires all or substantially all of the assets of the Company,
including the transfer of the CALPERS CONTRACT;
WHEREAS, the Company has issued a certain letter to Executive dated
March 1, 1994 as amended by a letter dated March 31, 1995 (as amended, the
"Employment Protection Letter");
WHEREAS, the Company desires to terminate the employer-employee
relationship between the Company and Executive; and
WHEREAS, the Company and Executive desire to enter into this Agreement
to provide, among other things, for the payment to Executive of certain
severance benefits upon termination of the employer-employee relationship
between the Company and Executive;
1
<PAGE> 2
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and in cancellation and settlement of certain obligations of
the Company set forth herein, the parties agree as follows:
1. Termination. The Company hereby terminates its employment
relationship with Executive. Executive hereby resigns as a director or officer
of the Company and all of its affiliates.
2. Severance Benefit. (a) The Company hereby simultaneously pays
Executive (i) $703,600 (which amount is before all applicable federal, state
and local withholding taxes) in full satisfaction of his 200% severance benefit
pursuant to the Employment Protection Letter, in consideration of Executive's
covenant pursuant to paragraph 3 below, and in consideration of Executive's
release pursuant to Paragraph 2(b) below; (ii) $49,000 representing accrued but
unused vacation and (iii) $72,000 representing accrued but unpaid amounts owing
under the Company's Fiscal 1996 bonus plan. Within five (5) business days
after the date hereof, the Company will pay Executive his accrued wages through
the date of this Agreement.
On or before December 31, 1996, the Company will pay Executive $25,054
representing an enhanced retirement benefit derived by crediting Executive with
additional years of age and service through age 55 under the Lomas Financial
Group Excess Benefit Plan, effective January 1, 1989. Upon payment of any
plan-required employee contributions, the Company will pay Executive an
enhanced retirement benefit under and in accordance with the Company's
Management Security Plan derived by crediting Executive with additional years
of age and service through age 55. The Company will pay Executive the
following amounts (representing
2
<PAGE> 3
the unpaid amounts due under the "Deferred Incentive Compensation Agreements")
(as such term is defined in the Employment Protection Letter) on the dates
indicated:
<TABLE>
<CAPTION>
Payment Date Amount
------------ -----------
<S> <C>
July 1, 1996 $139,591.77
July 1, 1997 $ 93,061.19
</TABLE>
The Company will reimburse Executive, in accordance with current
Company policy, for all necessary and reasonable costs and expenses incurred on
behalf of the Company for the period set forth in paragraph 3 below. The
Company will cause to be paid to Executive Executive's vested interest in the
Company pension plan and the Company 401(k) plan.
(b) Executive hereby releases and shall not be eligible to
participate in the "success bonus" arrangement established by the Compensation
Committee of the Board of Directors of Lomas Financial Corporation for senior
executives of the Company in connection with the sale of all or a substantial
portion of the Company.
(c) Executive will be eligible to participate in the Company's
welfare plans as amended from time to time to include group medical plan, group
life plan and group accidental death and dismemberment plan at the employee
premium rate for twenty-four months subsequent to this Agreement; provided,
however, that Executive's right to such continued participation shall cease if
Executive receives comparable coverage as a result of future employment. In
the event that Executive's participation in any such welfare plan is barred,
the Company shall arrange to provide Executive with benefits substantially
similar to those which Executive would otherwise have been entitled to receive
under such welfare plans from which his continued participation is barred.
3
<PAGE> 4
(d) All 40,000 outstanding stock options with an exercise price of
$8.25 granted to Executive shall be fully vested and shall expire August 31,
1997.
(e) Executive hereby releases any rights, if any, and shall not be
eligible to participate in the "Stock Based Incentive Compensation Plan"
arrangement established by the Compensation Committee of the Board of Directors
of Lomas Financial Corporation for senior executives of the Company.
(f) Notwithstanding anything to the contrary contained herein,
Executive does not release any rights he may have under the agreements and/or
documents listed on the attached Exhibit "A" (except to the extent that such
rights would result in a duplication of the amounts expressly made payable as
otherwise provided in this Agreement); provided, however, Executive agrees that
his right to (i) "a lump sum cash payment equal to 200% of his then current
annual base salary" and (ii) an enhanced pension benefit under the Lomas
pension plan pursuant to the Employee Protection Letter is fully satisfied by
the payment described in paragraph 2 above.
(g) Executive expressly acknowledges and agrees that the severance
benefits described in this Paragraph 2 constitute the only benefits to which
Executive is entitled as a result of Executive's severance and that upon
execution of this Agreement by Executive and the Company, the 200% severance
benefit under the Employment Protection Letter shall be fully satisfied.
3. Best Efforts. Executive agrees to use his best efforts for a
period of ninety (90) days to assist in the consummation of a transaction with
First Nationwide whereby it acquires the CALPERS CONTRACT. Any relationship of
Executive to the Company under this paragraph shall that of an independent
contractor.
4
<PAGE> 5
4. No Adverse Position. Except as required by law, during the period
from August 31, 1995 through August 31, 2000, Executive shall not directly or
indirectly participate by or on behalf of any person, firm, partnership, joint
venture, association, corporation or other business organization, entity or
enterprise in any pending or threatened action, claim, suit or proceeding which
is or threatens to become adverse to the Company or any business currently
conducted by the Company, by or before any state, Federal, foreign, or other
court or governmental department, commission, board, bureau, agency or
instrumentality, except that Employee may enforce all of his rights under this
Agreement.
5. Confidentiality. Executive shall not disclose or use for
Executive's own benefit or purposes or the benefit or purposes of any other
person, firm, partnership, joint venture, association, corporation or other
business organization, entity or enterprise other than the Company and any of
its subsidiaries or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods, plans, or the
business and affairs of the Company generally, or of any subsidiary or
affiliate of the Company; provided that the foregoing shall not apply to
information which is not unique to the Company or which is generally known to
the industry or the public other than as a result of Executive's breach of this
covenant or which is disclosed to First Nationwide. Any provision of this
Agreement to the contrary notwithstanding, Executive's obligations pursuant to
this Paragraph 5 shall survive any termination of this Agreement.
6. Specific Performance. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Paragraph 4 or
5
<PAGE> 6
Paragraph 5 would be inadequate and, in recognition of this fact, Executive
agrees that, in the event of such a breach or threatened breach, in addition to
any remedies at law, the Company, without posting any bond, shall be entitled
to obtain equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available.
7. Miscellaneous.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(b) Entire Agreement; Amendments. This Agreement supersedes all
prior agreements between Executive and the Company relating to Executive's
employment and the termination thereof, including, without limitation, the 200%
severance benefit under the Employment Protection Letter; provided, however,
that this Agreement shall not impair any rights or benefits accrued by
Executive under any benefit plan, compensation arrangement or pension, excess
retirement or management security plan of the Company prior to the termination
of his employment, including the items set forth on Exhibit "A". Except as
aforesaid, there are no restrictions, agreements, promises, warranties,
covenants or undertakings between the parties with respect to the subject
matter herein other than those expressly set forth herein. This Agreement may
not be altered, modified, or amended except by written instrument signed by the
parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or
6
<PAGE> 7
deprive such party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by Executive
and shall be assignable by the Company only with the consent of Executive which
consent shall not be unreasonably withheld; provided that no such assignment by
the Company shall relieve the Company of any liability hereunder, whether
accrued before or after such assignment.
(f) Arbitration. Any dispute between the parties to this Agreement
arising from or relating to the terms of this Agreement or the retention of
Executive by the Company shall be submitted to arbitration in Dallas, Texas
under the auspices of the American Arbitration Association.
(g) Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed to
the respective addresses set forth on the execution page of this Agreement;
provided that all notices to the Company shall be directed to the attention of
the General Counsel of the Lomas Financial Group or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt.
7
<PAGE> 8
(h) In the event that all or any portion of the amounts paid to
Executive pursuant to paragraph 2 above are set aside pursuant to Chapter 5 of
the United States Bankruptcy Code, such claim(s) released by Executive or
satisfied in exchange for payment on such claim(s) shall be revived
automatically, and any release or satisfaction of such claim(s) shall be null
and void.
(i) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
/s/ GARY KELL
-----------------------------------
GARY KELL
Address: #11 Downs Lake Circle
Dallas, Texas 75230
LOMAS MORTGAGE USA, INC.
ATTEST: By: /s/ LOUIS P. GREGORY
-----------------------------------
Louis P. Gregory
Senior Vice President
/s/ AUDREY CRAFTON
- ------------------------------
Assistant Secretary
Address: 1600 Viceroy Drive
Dallas, Texas 75235
(SEAL)
8
<PAGE> 9
EXHIBIT "A"
1. The Lomas Financial Group Pension Plan as Restated Effective January
1, 1991, dated April 21, 1992, as amended by Amendment No. 1 to the
Lomas Financial Group Pension Plan as Restated Effective January 1,
1991.
2. The Lomas Financial Group Pension Trust dated April 21, 1992.
3. Lomas 401(k) Savings Plan.
4. Lomas Financial Group 401(k) Savings Plan Trust Agreement, effective
April 1, 1993.
5. The Lomas Financial Group Excess Benefit Plan, effective January 1,
1989.
6. Trust under The Lomas Financial Group Excess Benefit Plan, dated April
2, 1993.
7. Management Security Plan of Lomas & Nettleton Financial Corporation
and Subsidiary and Affiliated Companies as Restated Effective June 1,
1982, as amended by Amendment No. 1, Management Security Plan of Lomas
& Nettleton Financial Corporation and Subsidiary and Affiliated
Companies.
8. Trust under The Lomas Financial Group Management Security Plan, dated
April 2, 1993.
9. Letter dated March 1, 1994 to Gary Kell from Jess Hay.
10. Letter dated March 31, 1995 from Eric Booth to Gary Kell.
11. Amounts payable to Gary Kell pursuant to Deferred Incentive
Compensation Agreements.
12. 40,000 stock options.
<PAGE> 1
EXHIBIT 10.52
FIRST AMENDMENT TO CONSULTING AGREEMENT
This First Amendment to Consulting Agreement is dated as of May 23,
1995 and is by and between Gary White ("Consultant") and Lomas Financial
Corporation (the "Company").
WHEREAS, the parties have come to recognize over the course of
Consultant's retention that the business of the Company is inextricably linked
to the operations of its principal subsidiary, Lomas Mortgage USA, Inc.
("LMUSA"); and
WHEREAS, the parties have come to recognize over the same
period that the greatest portion of Consultant's time and effort must be
devoted to LMUSA if the Company is to preserve its value to its shareholders;
and
WHEREAS, the parties wish to formalize the contractual
relationship between LMUSA and Consultant;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein and for other good and valuable
consideration, the parties agree as follows:
1. Position. In addition to continuing to be an officer
of the Company with the title of Senior Vice President - Control and serving as
a consultant to the Company, Consultant shall continue to be an officer of
LMUSA with the title of Executive Vice President and shall serve as a
consultant to LMUSA and render such advice and services to LMUSA as reasonably
may be requested by the Chief Executive Officer or the Board of Directors of
LMUSA. Consultant shall devote such time as is necessary to the performance of
his duties for LMUSA subject to Section 3 of the Consulting Agreement dated as
of November 1, 1994 (the "Consulting Agreement"). Sections 1 and 3 of the
Consulting Agreement are amended accordingly.
2. Termination. Consultant's consulting term with LMUSA
shall be co-terminus with his retention by the Company subject to the terms of
the Consulting Agreement. Consultant's retention by LMUSA may only be
terminated concurrently with his retention by the Company as provided in
Section 6 of the Consulting Agreement.
3. Specific Amendments.
(a) Subsection 4(d) of the Consulting Agreement
is hereby amended and restated in its
entirety to read as follows:
(d) Consultant shall not be
eligible to participate in the "success
bonus" arrangement established by the
Compensation Committee of the Board of
Directors for senior executives of the
Company in connection with the sale of all or
a substantial portion of the Company.
<PAGE> 2
(b) Subsection 7(a) of the Consulting Agreement
is hereby amended and restated in its
entirety to read as follows:
(a) Status of Consultant.
During the Consulting Term, Consultant shall
not be an employee of the Company or LMUSA
and shall not be entitled to participate in
any employee benefit plans or other benefits
or conditions of employment available to the
employees of the Company or LMUSA except to
the extent set forth in paragraphs 4(b), (c)
and (e). Consultant shall have no authority
to act as an agent of the Company or LMUSA,
except on authority specifically so
delegated, and he shall not represent to the
contrary to any person. Consultant shall
only consult, render advice and perform such
tasks as Consultant determines are necessary
to achieve the results specified by the
Company and LMUSA. Although the Company and
LMUSA may specify the results to be achieved
by the Consultant and may control and direct
him in that regard, neither the Company nor
LMUSA shall control or direct the Consultant
as to the details or means by which such
results are accomplished.
4. Indemnification. Consultant shall enjoy the same
duty of indemnification from LMUSA as he enjoys from the Company for the
performance of Consultant's duties on behalf of LMUSA.
5. Joint and Several Liability. The liability of LMUSA
and the Company for payment of the retainer, bonus, benefits and other
perquisites due Consultant under the Consulting Agreement shall be joint and
several, without requirement to apportion between LMUSA and the Company the
relative time and effort spent on behalf of each by Consultant.
6. Relation Back. This First Amendment to Consulting
Agreement relates back to the execution of the Consulting Agreement such that
LMUSA assumes joint and several liability for all of the Company's duties and
obligations to Consultant from and after that date to and including the present
and ratifies all agreements and understandings between the Company and
Consultant.
7. Execution by LMUSA. LMUSA joins in the execution of
this First Amendment to Consulting Agreement, although not originally a party
to the Consulting Agreement, for the purpose of acknowledging the terms of this
First Amendment to Consulting Agreement and to signify that it is
contractually bound by the terms hereof.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this First
Amendment to Consulting Agreement as of the date written above.
LOMAS FINANCIAL CORPORATION
By: /s/ ERIC D. BOOTH
---------------------------------------------
Its: President & Chief Executive Officer
--------------------------------------------
LOMAS MORTGAGE USA, INC.
By: /s/ ERIC D. BOOTH
---------------------------------------------
Its: Chairman & Chief Executive Officer
--------------------------------------------
/s/ GARY WHITE
- ------------------------------------------------
Gary White
-3-
<PAGE> 1
EXHIBIT 10.53
SECOND AMENDMENT TO CONSULTING AGREEMENT
This Second Amendment to Consulting Agreement is dated as of September
21, 1995 and is by and between Gary White ("Consultant"), Lomas Financial
Corporation (the "Company"), Lomas Mortgage USA, Inc. ("LMUSA") and ST Lending,
Inc. ("STL").
WHEREAS, the parties have come to recognize over the course of
Consultant's retention that the business of the Company is inextricably linked
to the operations of its principal subsidiary, LMUSA, and LMUSA's subsidiary,
STL; and
WHEREAS, the parties have come to recognize over the same period that
the greatest portion of Consultant's time and effort must be devoted to LMUSA,
and LMUSA's subsidiary, STL, if the Company is to preserve its value to its
shareholders; and
WHEREAS, the parties wish to formalize the contractual relationship
between LMUSA, STL and Consultant;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein and for other good and valuable consideration, the
parties agree as follows:
1. Position. In addition to continuing to be an officer of the
Company with the title of Senior Vice President - Control and serving as a
consultant to the Company, Consultant shall continue to be an officer of LMUSA
with the title of Executive Vice President and an officer of STL with the title
of Senior Vice President & Controller and shall serve as a consultant to LMUSA
and STL and render such advice and services to LMUSA and STL as reasonably may
be requested by the Chief Executive Officer or the Board of Directors of LMUSA
and STL. Consultant shall devote such time as is necessary to the performance
of his duties for LMUSA and STL. Sections 1 and 3 of the Consulting Agreement
dated as of November 1, 1994 (the "Consulting Agreement") are amended
accordingly.
2. Termination. Consultant's consulting term with LMUSA and STL
shall be co-terminus with his retention by the Company subject to the terms of
the Consulting Agreement. Consultant's retention by LMUSA and STL may only be
terminated concurrently with his retention by the Company as provided in
Section 6 of the Consulting Agreement.
3. Specific Amendments.
(a) Section 2 of the Consulting Agreement is hereby
amended and restated in its entirety to read as follows:
2. Term of Agreement. Consultant shall be
retained by the Company for a period commencing on December 1,
1994 (the "Effective Date"), and terminating on September 30,
1997 (the "Consulting Term").
<PAGE> 2
(b) Section 3 of the Consulting Agreement is hereby
amended and restated in its entirety to read as follows:
3. Position and Responsibilities. Consultant
agrees to serve as a consultant to the Company and its
subsidiaries and affiliates and to render such advice and
services to the Company and its subsidiaries and affiliates as
reasonably may be requested by the Chief Executive Officer or
the Board of Directors of the Company. The services to be
performed by Consultant under this Agreement shall include,
but not be limited to, the performance of the services
(including supervisory services) that Consultant was
performing in the period immediately preceding the Effective
Date, and Consultant shall continue to perform such services
during the Consulting Term unless and until another person is
designated to perform any of such services by the Chief
Executive Officer or the Board of Directors. Consultant shall
devote substantially all his working time and effort to
rendering services under this Agreement. During the
Consulting Term Consultant shall make himself available in
person to render such services at the Company's headquarters
location on a regular basis equivalent to not less than five
days per week, allowing for reasonable and customary vacations
and taking into account the nature of the services provided.
(c) Section 4 of the Consulting Agreement is hereby
amended and restated in its entirety as follows:
4. Compensation. (a) The Company shall pay
Consultant (i) a monthly retainer (the "Retainer") of $18,400
during the Consulting Term, (ii) a bonus of $50,000 on or
before September 30, 1995, (the "1995 Bonus"), (iii) a bonus
of $165,600 on or before September 30, 1996 (the "1996 Bonus")
and (iv) a bonus of $165,600 on or before September 30, 1997
(the "1997 Bonus" and, together with the 1995 and 1996
Bonuses, the "Bonuses").
(b) During the Consulting Term, the Company shall
continue the participation of Consultant and his spouse in all
employee benefit arrangements of the Company that provide life
insurance and health, medical, hospitalization and similar
benefits, to the extent that Consultant and his spouse are
covered under existing policies, if any, on a basis no less
favorable than that on which they are currently covered under
any such plan or policy.
(c) All outstanding stock options granted to
Consultant prior to the date of his retirement under any stock
incentive plan of the Company shall be fully vested as of such
date and shall continue to be exercisable for the remainder of
their terms.
(d) Consultant shall not be eligible to
participate in the "success bonus" arrangement established by
the Compensation Committee of the Board of
-2-
<PAGE> 3
Directors for senior executives of the Company in connection
with the sale of all or a substantial portion of the Company.
(d) Subsection 6.(a) of the Consulting Agreement is
hereby amended and restated in its entirety to read as follows:
6. Termination and Liquidated Damages. (a) This
Agreement and Consultant's retention hereunder may be
terminated at any time by either party upon sixty (60) days
prior written notice to the other party. In the event of (i)
such a termination by the Company, other than a termination
for "Cause," as hereinafter defined, or (ii) a termination at
any time by Consultant as a result of a breach of this
Agreement by the Company, Consultant shall be entitled to
receive as liquidated damages an amount in cash equal to the
unpaid portion of the Bonuses.
(e) Subsection 7.(a) of the Consulting Agreement is
hereby amended and restated in its entirety to read as follows:
7. Status; Taxes.
(a) Status of Consultant. During the Consulting
Term, Consultant shall not be an employee of the Company,
LMUSA or STL, and shall not be entitled to participate in any
employee benefit plans or other benefits or conditions of
employment available to the employees of the Company except to
the extent set forth in paragraphs 4(b), (c) and (d).
Consultant shall have no authority to act as an agent of the
Company, LMUSA or STL, except on authority specifically so
delegated, and he shall not represent to the contrary to any
person. Consultant shall only consult, render advice and
perform such tasks as Consultant determines are necessary to
achieve the results specified by the Company, LMUSA or STL.
Although the Company, LMUSA or STL may specify the results to
be achieved by the Consultant and may control and direct him
in that regard, the Company, LMUSA and STL shall not control
or direct the Consultant as to the details or means by which
such results are accomplished.
(f) Section 11 of the Consulting Agreement is hereby
deleted in its entirety and Section 12 of the Consulting Agreement is
redesignated as Section 11. The new Subsections 11(b) and (g) are
hereby amended and restated in their entirety to read as follows:
11. Miscellaneous.
* * *
-3-
<PAGE> 4
(b) Entire Agreement; Amendments. This Agreement
supersedes all prior agreements between Consultant and the
Company relating to Consultant's employment and the
termination thereof, including, without limitation, the
Employment Agreement, and, together with the agreements
evidencing the stock options and other awards referred to in
Paragraph 4(c) and the documents evidencing the benefits to
which Consultant and his spouse are entitled pursuant to
Paragraphs 4(b) and (d), contains the entire understanding of
the parties with respect to the retention of Consultant by the
Company; provided, however, that this Agreement shall not
impair any rights or benefits accrued by Consultant under any
benefit plan, compensation arrangement or pension, excess
retirement or management security plan of the Company prior to
the termination of his employment on December 1, 1994. Except
as aforesaid, there are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with
respect to the subject matter herein other than those
expressly set forth herein. This Agreement may not be
altered, modified, or amended except by written instrument
signed by the parties hereto.
* * *
(g) Successors; Binding Agreement. This
Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective heirs,
representatives, successors and assigns.
4. Indemnification. Consultant shall enjoy the same duty of
indemnification from LMUSA and STL as he enjoys from the Company for the
performance of Consultant's duties on behalf of LMUSA or STL.
5. Joint and Several Liability. The liability of LMUSA, STL and
the Company for payment of the retainer, bonus, benefits and other perquisites
due Consultant under the Consulting Agreement shall be joint and several,
without requirement to apportion between LMUSA, STL and the Company the
relative time and effort spent on behalf of each by Consultant.
6. Relation Back. This Second Amendment to Consulting Agreement
relates back to the execution of the Consulting Agreement such that LMUSA and
STL assume joint and several liability for all of the Company's duties and
obligations to Consultant from and after that date to and including the present
and ratifies all agreements and understandings between the Company and
Consultant.
7. Execution by LMUSA and STL. LMUSA and STL each join in the
execution of this Second Amendment to Consulting Agreement, although not
originally a party to the Consulting Agreement, for the purpose of
acknowledging the terms of this Second Amendment to Consulting Agreement and to
signify that it is contractually bound by the terms hereof.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Second
Amendment to Consulting Agreement as of the date written above.
LOMAS FINANCIAL CORPORATION
By: /s/ LOUIS P. GREGORY
---------------------------------------------
Its: Senior Vice President & General Counsel
--------------------------------------------
LOMAS MORTGAGE USA, INC.
By: /s/ LOUIS P. GREGORY
---------------------------------------------
Its: Senior Vice President & General Counsel
--------------------------------------------
ST LENDING, INC.
By: /s/ LOUIS P. GREGORY
---------------------------------------------
Its: Senior Vice President & General Counsel
--------------------------------------------
/s/ GARY WHITE
- ------------------------------------------------
Gary White
-5-
<PAGE> 1
EXHIBIT 10.63
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement is dated as of May 11,
1995 and is by and between W. Joseph Dryer ("Executive") and Lomas Financial
Corporation (the "Company").
WHEREAS, the parties have come to recognize over the course of
Executive's employment that the business of the Company is inextricably linked
to the operations of its principal subsidiary, Lomas Mortgage USA, Inc.
("LMUSA"); and
WHEREAS, the parties have come to recognize over the same
period that the greatest portion of Executive's time and effort must be devoted
to LMUSA if the Company is to preserve its value to its shareholders; and
WHEREAS, the parties wish to formalize the contractual
relationship between LMUSA and Executive;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants contained herein and for other good and valuable
consideration, the parties agree as follows:
1. Position. In addition to serving as Senior Vice
President of the Company, Executive shall serve as Senior Vice President of
LMUSA and shall have such duties and responsibilities with regard to LMUSA as
are consistent with those of a senior vice president. Executive shall devote
such time as is necessary to the performance of his duties for LMUSA. Section
2 of the Employment Agreement dated January 3, 1995 (the "Agreement") is
amended accordingly.
2. Termination. Executive's term of employment with
LMUSA shall be co-terminus with his employment with the Company subject to the
terms of the Agreement. Executive's employment with LMUSA may only be
terminated concurrently with his employment with the Company as provided in
section 7 of the Agreement.
3. Specific Amendments.
(a) Subsection 7(e) of the Employment Agreement
is amended by deleting the final sentence
thereof.
(b) Subsection 8(d)(ii) of the Employment
Agreement is hereby amended and restated in
its entirety to read as follows:
(ii) in lieu of any further payments
of salary to the Executive for periods
subsequent to the Date of Termination the
Company shall, on the fifth day following the
Date of Termination, pay as severance pay to
the Executive, a lump sum amount equal to the
greater of (A) the amount of the Executive's
Base Salary which would have accrued pursuant
to Subsection 4(a)
<PAGE> 2
hereof for a period (the "Determination
Period") commencing on the Date of
Termination and ending on January 3, 1997 and
(B) the amount of severance pay the Executive
would have been entitled to under the Company
severance plan in effect on May 1, 1995, a
copy of which is attached hereto as Exhibit
"A"; and
(c) Exhibit "A" attached hereto is incorporated
into the Employment Agreement with the same
effect as if originally attached thereto.
4. Indemnification. Executive shall enjoy the same duty
of indemnification from LMUSA as he enjoys from the Company for the performance
of Executive's duties on behalf of LMUSA.
5. Joint and Several Liability. The liability of LMUSA
and the Company for payment of the salary, bonus, benefits and other
perquisites due Executive under the Agreement shall be joint and several,
without requirement to apportion between LMUSA and the Company the relative
time and effort spent on behalf of each by Executive.
6. Relation Back. This First Amendment to Employment
Agreement relates back to the execution of the Employment Agreement such that
LMUSA assumes joint and several liability for all of the Company's duties and
obligations to Executive from and after that date to and including the present
and ratifies all agreements and understandings between the Company and
Executive.
7. Execution by LMUSA. LMUSA joins in the execution of
this First Amendment to Employment Agreement, although not originally a party
to the Agreement, for the purpose of acknowledging the terms of this First
Amendment to Employment Agreement and to signify that it is contractually bound
by the terms hereof.
IN WITNESS WHEREOF, the parties have executed this First
Amendment to Employment Agreement as of the date written above.
LOMAS FINANCIAL CORPORATION
By: /s/ ERIC D. BOOTH
-----------------------------------
Its: CEO
----------------------------------
-2-
<PAGE> 3
LOMAS MORTGAGE USA, INC.
By: /s/ LOUIS P. GREGORY
-----------------------------------------
Its: Senior Vice President & General Counsel
----------------------------------------
/s/ W. JOSEPH DRYER
- --------------------------------------------
W. Joseph Dryer
-3-
<PAGE> 4
Exhibit "A"
<PAGE> 5
The Company will pay the employee through the last day he or she works plus up
to a maximum of 80 hours of unused vacation awarded on his or her last
employment anniversary date.
No law requires a company to pay severance pay upon termination. No unused sick
time, floating personal days or birthday time will be paid at termination.
JOB REFERENCES
If called for a job reference, the Company supplies only the dates of
employment and the last position held by the employee. Additional information
may be released only upon written request from the terminated employee at the
Company's discretion.
All inquiries and responses should be directed through the Human Resources
Department.
SEVERANCE PLAN
- -- QUALIFYING EVENTS
Standard benefits under the Company's Severance Plan are available to
eligible, terminated employees under the following circumstances:
-- When there is a general company-wide, division-wide, or unit-wide
reduction-in-force.
-- When a particular position within a unit is eliminated in order to
increase efficiency or because of budget constraints.
- -- EMPLOYEE ELIGIBILITY
An employee who has been terminated because of one of the above described
events and who has a scheduled workweek of 24 or more hours is eligible to
receive certain severance benefits as set out below, provided that all of
the following conditions are met:
-- the employee must have been involuntarily terminated without cause;
and
-- the employee must not be eligible to receive any other form of
severance pay; and
-- the employee must not have been offered an alternative employment
opportunity in any capacity by the Company or any of its
subsidiaries or affiliates; and
-- the employee must not be reemployed by the Company or any of its
subsidiaries or affiliates during the period for which severance is
being paid; and
-- the employee must sign a waiver and release form, waiving and
releasing any claims he or she may have against the Company relating
to his or her employment or the termination thereof.
- -- SEVERANCE PAY
The amount of severance pay to be received by an eligible, terminated
employee shall be determined on the basis of the employee's status at
the time of termination and on the employee's length of service as of the
Lomas Financial Group - (2-94)
Personnel Policies 53
<PAGE> 6
employee's last employment anniversary (based only on the eligible, terminated
employee's most recent hire date).
Severance pay will be based on the employee's base annual salary or regular
weekly wage in effect on the last day of active employment (exclusive of
overtime, commissions, bonus, incentive pay, or any other special payments).
Applicable deductions and withholding will apply.
Any pay mandated by state or federal law (or which would be mandated absent
prior notice), such as plant closing benefits and the like, will reduce the
amount of severance pay otherwise payable hereunder. Benefits hereunder may not
be assigned or alienated, whether voluntarily or involuntarily, and any attempt
to do so will be null and void to the fullest extent permitted by law.
- --------------------------------------------------------------------------------
IF THE ELIGIBLE AND THE ELIGIBLE THE AMOUNT OF
EMPLOYEE IS (A/AN): EMPLOYEE HAS BEEN SEVERANCE PAY IS:
WITH THE COMPANY:
- --------------------------------------------------------------------------------
Non-officer Five years or less two months
Non-officer More than five years two months*
Officer (any Officer other Five years of less four months
than a Senior Officer)
Officer (any Officer other More than five years four months*
than a Senior Officer)
Senior Officer Five years or less six months
Senior Officer More than five but six months*
less than 20 years
Senior Officer More than 20 years one year**
- --------------------------------------------------------------------------------
* Plus one week of additional pay for each full year employed with the
Company (since last hire date) in excess of five years.
** Plus one week of additional pay for each full year employed with the
Company (since last hire date) in excess of 20 years.
- --------------------------------------------------------------------------------
In addition, an eligible, terminated employee who receives approved severance
pay will also receive pay for a maximum of 80 hours of available vacation time,
as awarded at the employee's last anniversary of employment. The eligible,
terminated employee shall not receive any pay for unused floating personal
days, birthday time or sick time.
Lomas Financial Group - (2-94)
Personnel Policies 54
<PAGE> 7
In lieu of the above standard severance benefits, the Company may elect, in its
sole discretion, to provide severance benefits which could either enhance or
diminish the standard benefits described above, as it deems appropriate and in
the best interests of the Company.
- -- CONTINUATION OF CERTAIN BENEFITS AFTER TERMINATION
Each eligible, terminated employee who is under age 50 (or who is over age
50, but has not completed 15 years of continuous service to the Company)
and who receives approved severance pay will also be entitled to three
months of continued health care coverage in the eligible, terminated
employee's current health care plan and at the employee's current enrolled
level of coverage, i.e., individual or family coverage, so that if the
eligible, terminated employee has not obtained other employer-sponsored
health coverage, three on the 18 months of eligible COBRA-required
coverage will be at the Company's sole expense and the remaining 15 months
of COBRA-required coverage will be at the eligible, terminated employee's
sole expense (the employee's expense to be calculated at the total
prevailing monthly premium [employee plus employer costs] as of the annual
plan renewal date each year).
Each eligible, terminated employee who receives approved severance pay and
who, on the effective termination date, is 50 years of age or older and
has 15 or more years of continuous service with the Company since his or
her last hire date, will be entitled to receive three months of continued
health care coverage in the eligible, terminated employee's current
health care plan at the employee's current enrolled level of coverage
(i.e., individual or family coverage) at the Company's sole expense, plus
coverage thereafter at the eligible, terminated employee's current
coverage at the employee's sole expense (the employee's expense to be
calculated at the total prevailing monthly premium [employee plus employer
costs] as of the annual plan renewal date each year), such coverage to
continue until the date of the first to occur of (a) the employee's
eligibility for other employer-sponsored health coverage, (b) the
employee's eligibility for Medicare, (c) the employee's 65th birthday or
(d) the end of the 60th month after the date of the employee's
termination.
Lomas Financial Group - (2-94)
Personnel Policies 55
<PAGE> 8
- -- OTHER PROVISIONS
If a terminated employee is rehired within the period for which severance
pay is being or has been paid, such employee will be required to refund
the amount of severance pay received that is in excess of the employee's
actual period of unemployment with the Company, and no further severance
payments will be made after the rehire.
For information concerning the payment of benefits under the Company's
Pension Plan or 401(k) Plan, please refer to the section of this Employee
Handbook relating to the treatment of such benefits upon termination.
Other than stated in this section (or the sections referred to in this
section), no other benefits will be continued or paid by the Company with
respect to an eligible, terminated employee who receives the severance
benefits described above.
- -- ADDITIONAL INFORMATION
The following information is furnished by the Plan Administrator of the
Severance Plan to comply with government regulations. If you have any
questions or you want to contact someone regarding your benefits under the
Severance Plan, you may contact the Human Resources Department.
-- Name of the plan: Lomas Financial Group Severance Pay Plan.
-- Plan Administrator: The Plan Administrator of the Severance Plan
is a committee appointed under the authority of the
Company's Board of Directors. The Plan Administrator may be
contacted at 1600 Viceroy Drive, P.O. Box 655644, Dallas, Texas
75265-5644, (214) 879-7613. The Plan Administrator is also the
named "fiduciary" for purposes of ERISA.
-- Agent for service of legal process: Same as Plan Administrator.
-- Plan year: The Severance Plan and all of its records are kept on a
calendar year basis, January 1 to December 31.
-- Type of plan and funding medium: The Severance Plan is a welfare
benefit plan providing severance pay benefits upon the
occurrence of certain specific events to terminated participants
who meet all of the eligibility requirements. It is unfunded,
non-insured and unsecured. Benefits are payable solely from the
general assets of the Company.
-- Severance Plan continuation: Although the Company currently
intends to continue the Severance Plan indefinitely, rights
hereunder are neither "vested" nor "accrued", and the Company,
through its Board of Directors, Chief Executive Officer, or any
committee authorized by the Board of Directors, reserves the right
to change or end the Severance Plan at any time. This right to
amend or terminate the Severance Plan applies even if the Company
has full knowledge of an impending event which could result in
benefits being payable under the Severance Plan but for the
amendment or terminaton.
Lomas Financial Group - (2-94)
Personnel Policies 56
<PAGE> 9
The Plan Administrator shall have complete fiduciary discretion and
authority to interpret and construe the Severance Plan, including, without
limitation, all questions of eligibility, benefits, and status arising
under the Severance Plan. This discretion extends, but is not limited
to, determining whether an employee is a participant in the Severance
Plan, under what circumstances a participant in the Severance Plan is
eligible to receive benefits, if any, and the determination and
calculation of such benefits.
If an employee believes he or she is due benefits under the Severance
Plan, he or she may file a claim therefor with the Plan Administrator. A
decision will generally be made within 90 days (180 days if special
circumstances so require) and sent to the employee in writing, citing the
reasons for the decision and a reference to the provisions on which it is
based. An employee (or his or her representative) may appeal any denied
claim, review pertinent documents, and submit issues and comments in
writing. However, any appeal must be made in writing within 60 days of
the initial denial.
The Plan Administrator shall review the appealed claim and make a final
decision within 60 days of its receipt of the appeal (120 days if special
circumstances so require). The decision of the Plan Administrator on
appeal will be final, binding, and conclusive on all parties involved.
-- YOUR RIGHTS UNDER THE LAW
The Employee Retirement Income Security Act of 1974 (ERISA) provides
certain rights and protection to participants of the Company's employee
benefit plans. As a participant in the Severance Plan covered by ERISA,
you are entitled to the rights and protection guaranteed by ERISA,
including the rights to:
-- Examine, without charge, at the Plan Administrator's office, all
plan documents, and copies of all documents filed by the Plan
Administrator with the U.S. Department of labor, such as the annual
report and plan descriptions.
-- Obtain copies of all plan documents and certain other plan
information upon written request to the Plan Administrator. The
Plan Administrator may charge a reasonable fee for copies.
-- Receive the plan's annual financial report. The Plan Administrator
is required by law to furnish each participant with a copy of the
annual report.
In addition to creating rights for plan participants, ERISA imposes duties
upon the people who are responsible for the operation of an employee benefit
plan. The people who operated the Severance Plan, called "fiduciaries" of
the Severance Plan, have a duty to do so prudently and in the interest of
you and other participants and beneficiaries of the Severance Plan.
Lomas Financial Group - (2-94)
Personnel Policies 57
<PAGE> 10
No one, including Lomas or any other person, may terminate your
employment or otherwise discriminate against you in any way to
prevent you from obtaining a benefit or exercising your rights under
ERISA.
If your claim for a benefit is denied in whole or in part, you must
receive a written explanation of the reasons for the denial. You have
the right to have the Plan Administrator review and reconsider your
claim.
Under ERISA, there are steps you can take to enforce these rights:
-- If you request materials from the Plan Administrator and do
not receive them within 30 days, you may file suit in a federal
court. In such a case, the court may require the Plan
Administrator to provide the materials and pay you up to $100
a day until you receive the materials, unless the materials
were not sent because of reasons beyond the control of the
Plan Administrator.
-- If you have a claim for benefits that is denied in whole or in
part, you may file suit in a state or federal court. If you are
discriminated against for asserting your rights, you may seek
assistance from the U.S. Department of Labor, or you may file
suit in a federal court. The court will decide who should pay
court costs and legal fees. If you suit is successful, the
court may order the person you have sued to pay these costs
and fees. If you lose, the court may order you to pay these
costs and fees; for example, if it finds your claim is
frivolous.
If you have any questions about the Severance Plan, you should contact
the Plan Administrator. If you have any questions about this statement
or about your rights under ERISA, you should contact the nearest area
office of the U.S. Labor Management Services Administration, Department
of Labor.
Lomas Financial Group - (2-94)
Personnel Policies 58
<PAGE> 1
EXHIBIT 10.65
TERMINATION AGREEMENT
TERMINATION AGREEMENT (the "Agreement") dated as of May 25, 1995, by
and between Lomas Financial Corporation, a Delaware corporation (the "Company")
and Robert E. Byerley, Jr. ("Consultant").
WHEREAS, Consultant and the Company entered into an Employment
Agreement dated as of April 1, 1993 (the "Employment Agreement");
WHEREAS, effective March 29, 1995, Consultant participated in the
enhanced pension program offered by the Company and the parties terminated the
Employment Agreement;
WHEREAS, Consultant and the Company entered into a Consulting
Agreement dated March 29, 1995 (the "Consulting Agreement");
WHEREAS, Consultant wishes to resign from his positions with the
Company and its affiliates and the parties desire to terminate the Consulting
Agreement; and
WHEREAS, the Company and Consultant desire to enter into this
Agreement to provide, among other things, for the payment to Consultant of
certain termination benefits upon termination of the consulting relationship
between the Company and Consultant;
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and in cancellation and settlement of all obligations under
the Consulting Agreement, the parties agree as follows:
1. Termination of Engagement. Consultant's engagement by the Company
will be terminated effective May 31, 1995 (the "Termination Date"). Effective
the Termination Date, Consultant
1
<PAGE> 2
will resign from all positions held with the Company or any of its affiliates.
Consultant's secretary, Deborah Nesbitt, will be terminated on the Termination
Date but will receive as severance pay (in lieu of any payment under the
Company severance plan) fifty percent (50%) of her current annual base salary.
2. Termination Benefits. (a) On May 31, 1995 the Company will pay
Consultant $55,000 in lieu of his termination benefits under Paragraph 7(a) of
the Consulting Agreement and $101,067 in lieu of the Deferred Payment (as such
term is defined in the Consulting Agreement). Upon receipt of the amounts
specified in this paragraph, Consultant and the Company will jointly notify
Bank One, Texas, N.A. that it is to release to the Company the letter of credit
securing payment of the Deferred Payment.
(b) Consultant shall not be eligible to participate in the "success
bonus" arrangement, attached as Exhibit "A" to the Consulting Agreement,
established by the Compensation Committee of the Board of Directors for senior
executives of the Company in connection with the sale of all or a substantial
portion of the Company.
(c) (i) Consultant will be eligible to participate in the Company's
welfare plans as amended from time to time to include group medical plan, group
life plan and group accidental death and dismemberment plan at the employee
premium rate until May 31, 1997 and, thereafter, on the basis and for the
remainder of the period set forth in the enhanced pension program offered by
the Company; provided, however, that Consultant's right to such continued
2
<PAGE> 3
participation shall cease if Consultant receives comparable coverage as a
result of future employment. In the event that Consultant's participation in
any such welfare plan is barred, the Company shall arrange to provide
Consultant with benefits substantially similar to those which Consultant would
otherwise have been entitled to receive under such welfare plans from which his
continued participation is barred.
(d) All 30,000 outstanding stock options with an exercise price of
$8.25 granted to Consultant shall be fully vested and shall expire on May 31,
1997 and the Company shall make such amendments to the plans and the
outstanding awards as may be necessary to effectuate the provisions of this
Paragraph 2(d).
(e) Consultant shall continue to be eligible to participate in the
"Stock Based Incentive Compensation Plan" arrangement, attached to the
Consulting Agreement as Exhibit "B", established by the Compensation Committee
of the Board of Directors for senior executives of the Company.
(f) It is intended that the amounts paid hereunder to Consultant
shall constitute revenues to Consultant. To the extent consistent with
applicable law, the Company will not withhold any amounts therefrom as federal
income tax withholding from wages or as employee contributions under the
Federal Insurance Contributions Act or any other state or federal laws.
Consultant shall be solely responsible for the withholding and/or payment of
any federal, state or local income or payroll taxes.
(g) Consultant expressly acknowledges and agrees that the
3
<PAGE> 4
termination benefits described in this Paragraph 2 constitute the only benefits
to which Consultant is entitled as a result of Consultant's termination and
that upon execution of this Agreement by Consultant and the Company, the
Consulting Agreement shall be null and void.
3. Non-Competition. Prior to May 31, 1995, Consultant shall not
directly or indirectly be or remain employed by, or render services for, any
person, firm, partnership, joint venture, association, corporation or other
business organization, entity or enterprise engaged in any business, which is
in competition with any business currently conducted by the Company. During
the period from March 30, 1995 through March 30, 2000, Consultant shall not
directly or indirectly participate by or on behalf of any person, firm,
partnership, joint venture, association, corporation or other business
organization, entity or enterprise in any pending or threatened action, claim,
suit or proceeding which is or threatens to become adverse to the Company or
any business currently conducted by the Company, by or before any state,
Federal, foreign, or other court or governmental department, commission, board,
bureau, agency or instrumentality.
4. Confidentiality. Consultant shall not disclose or use for
Consultant's own benefit or purposes or the benefit or purposes of any other
person, firm, partnership, joint venture, association, corporation or other
business organization, entity or enterprise other than the Company and any of
its subsidiaries or affiliates, any trade secrets, information, data, or other
confidential
4
<PAGE> 5
information relating to customers, development programs, costs, marketing,
trading, investment, sales activities, promotion, credit and financial data,
manufacturing processes, financing methods, plans, or the business and affairs
of the Company generally, or of any subsidiary or affiliate of the Company;
provided that the foregoing shall not apply to information which is not unique
to the Company or which is generally known to the industry or the public other
than as a result of Consultant's breach of this covenant. Any provision of
this Agreement to the contrary notwithstanding, Consultant's obligations
pursuant to this Paragraph 4 shall survive any termination of this Agreement
and Consultant's retention hereunder.
5. Specific Performance. Consultant acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Paragraph 3 or Paragraph 4 would be inadequate and, in
recognition of this fact, Consultant agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available.
6. Miscellaneous.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(b) Entire Agreement; Amendments. This Agreement supersedes
5
<PAGE> 6
all prior agreements between Consultant and the Company relating to
Consultant's engagement and the termination thereof, including, without
limitation, the Consulting Agreement, and, together with the agreements
evidencing the stock options and other awards referred to in Paragraph 2(d) and
the documents evidencing the benefits to which Consultant is entitled pursuant
to Paragraphs 2(c) and (e), contains the entire understanding of the parties
with respect to the retention of Consultant by the Company; provided, however,
that this Agreement shall not impair any rights or benefits accrued by
Consultant under any benefit plan, compensation arrangement or pension, excess
retirement or management security plan of the Company prior to the termination
of his engagement on May 31, 1995. Except as aforesaid, there are no
restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter herein other than those
expressly set forth herein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and
6
<PAGE> 7
enforceability of the remaining provisions of this Agreement shall not be
affected thereby.
(e) Assignment. This Agreement shall not be assignable by Consultant
and shall be assignable by the Company only with the consent of Consultant
which consent shall not be unreasonably withheld; provided that no such
assignment by the Company shall relieve the Company of any liability hereunder,
whether accrued before or after such assignment.
(f) Arbitration. Any dispute between the parties to this Agreement
arising from or relating to the terms of this Agreement or the retention of
Consultant by the Company shall be submitted to arbitration in Dallas, Texas
under the auspices of the American Arbitration Association.
(g) Successors; Binding Agreement.
(i) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or the assets of the Company
to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place.
(ii) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs,
representatives, successors and assigns.
(h) Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in
7
<PAGE> 8
writing and shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the execution page of this
Agreement; provided that all notices to the Company shall be directed to the
attention of the General Counsel of the Lomas Financial Group or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
(i) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
<TABLE>
<S> <C>
/s/ ROBERT E. BYERLEY, J.
--------------------------
Robert E. Byerley, Jr.
Address: 3600 N. Versailles
Dallas, Texas 75209
LOMAS FINANCIAL CORPORATION
ATTEST: By: /s/ ERIC BOOTH
--------------------------
Eric Booth
President & Chief
/s/ LOUIS P. GERGORY Executive Officer
- --------------------------
Louis P. Gregory, Secretary
Address: 1600 Viceroy Drive
Dallas, Texas 75235
(SEAL)
</TABLE>
9
<PAGE> 1
EXHIBIT 10.66
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT dated as of May 18, 1995, by and between Lomas
Financial Corporation, a Delaware corporation (the "Company") and James L.
Crowson ("Executive").
WHEREAS, Executive and the Company have previously entered into an
Employment Agreement dated as of July 1, 1991 (the "Employment Agreement");
WHEREAS, effective June 30, 1995, Executive wishes to participate in
the enhanced pension program offered by the Company and the parties wish to
terminate the Employment Agreement; and
WHEREAS, the Company and Executive desire to enter into this Agreement
to provide, among other things, for the payment to Executive of certain
severance benefits upon termination of the employer-employee relationship
between the Company and Executive;
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein and Executive's long prior service to the Company, and in
cancellation and settlement of all obligations under the Employment Agreement,
the parties agree as follows:
1. Resignation. Executive shall remain employed by the Company as an
Executive Vice President until June 30, 1995 (the "Termination Date"), upon
which date Executive shall elect to participate in the enhanced pension program
offered by the Company pursuant to which he will be credited with five (5)
additional years of age and service under the Company pension plan.
Executive's secretary, Patsy Covelli, will be terminated on the Termination
Date but will receive as severance pay (in lieu of any
1
<PAGE> 2
payment under the Company severance plan) fifty percent (50%) of her current
annual base salary.
2. Severance Benefit. (a) (i) On May 18, 1995 the Company will pay
Executive $572,141 representing all of his severance benefits pursuant to the
Employment Agreement less all applicable federal, state and local withholding
taxes; (ii) on the Termination Date the Company will pay Executive for up to
eighty (80) hours of accrued but unused vacation and (iii) the Company will
reimburse Executive, in accordance with current Company policy, for all
necessary and reasonable costs and expenses incurred on behalf of the Company.
The Company will cause to be paid to Executive, on or before (i) July 15, 1995,
approximately $173,016 and $31,071, representing, respectively, Executive's
vested interest in the Company pension plan and supplemental excess retirement
plan, (ii) July 15, 1995, approximately $121,154 representing the enhanced
pension benefit payable to Executive under the enhanced pension program
referred to in Paragraph 1 and (iii) August 15, 1995, the vested interest of
Executive (increased by the enhanced pension program referred to in Paragraph
1) in the Company 401(k) plan.
(b) If, within six (6) months after the Termination Date the Company
effects a Transaction, as hereinafter defined, with an individual or entity
with whom the Company has held discussions on or before the Termination Date
regarding a possible Transaction, Executive shall be eligible to participate in
the "success bonus" arrangement attached hereto as Exhibit "A" established by
the Compensation Committee of the Board of Directors for senior
2
<PAGE> 3
executives of the Company in connection with the sale of all or a substantial
portion of the Company. In the context of this Paragraph 2(b), a "Transaction"
shall mean a disposition or transfer of all or a majority of the stock or
assets of the Company or Lomas Mortgage USA, Inc., whether in the form of a
sale, spin-off, joint venture or other similar arrangement, in one transaction
or a series of transactions after January 1, 1994.
(c) Executive will be eligible to participate in the Company's
welfare plans as amended from time to time to include group medical plan, group
life plan and group accidental death and dismemberment plan at the employee
premium rate for twelve (12) months subsequent to the Termination Date and,
thereafter, on the basis and for the remainder of the period set forth in the
enhanced pension program offered by the Company; provided, however, that
Executive's right to such continued participation shall cease if Executive
receives comparable coverage as a result of future employment. In the event
that Executive's participation in any such welfare plan is barred, the Company
shall arrange to provide Executive with benefits substantially similar to those
which Executive would otherwise have been entitled to receive under such
welfare plans from which his continued participation is barred.
(d) All 40,000 outstanding stock options with an exercise price of
$8.25 granted to Executive shall be fully vested and shall expire June 30, 1997
and the Company shall make such amendments to the plans and the outstanding
awards as may be necessary to effectuate the provisions of this Paragraph 2(d).
3
<PAGE> 4
(e) Executive shall continue to be eligible to participate in the
"Stock Based Incentive Compensation Plan" arrangement attached hereto as
Exhibit "B" established by the Compensation Committee of the Board of Directors
for senior executives of the Company.
(f) Executive expressly acknowledges and agrees that the severance
benefits described in this Paragraph 2 constitute the only benefits to which
Executive is entitled as a result of Executive's severance and that upon
execution of this Agreement by Executive and the Company, the Employment
Agreement shall be null and void.
3. Position and Responsibilities. Prior to the Termination Date,
Executive agrees to render such advice and services to the Company as
reasonably may be requested by the Chief Executive Officer or the Board of
Directors of the Company. The services to be performed by Executive under this
Agreement shall include, but not be limited to, financial restructuring of the
Company, facilitation of a Transaction, liquidation of the Conseco Tranche B
Security and the Vista Properties prepackaged bankruptcy, and Executive shall
perform such services prior to the Termination Date unless and until another
person is designated to perform any of such services by the Chief Executive
Officer or the Board of Directors. Allowing for reasonable and customary paid
vacations and taking into account the nature of the services provided,
Executive shall devote substantially all of his working time and effort to
rendering services under this Agreement.
4. Compensation. The Company shall continue to pay
4
<PAGE> 5
Executive his current monthly salary through the Termination Date.
5. Expenses and Other Facilities. (a) Executive shall be reimbursed
on the same basis as set forth in the Employment Agreement for necessary and
reasonable business expenses incurred by Executive in connection with the
performance of his duties hereunder.
(b) The Company shall continue to make available to Executive through
the Termination Date, without any expense to him, an office and such
administrative staff as reasonably may be necessary to perform his duties. In
addition, the Company will provide for telephone, telecopy, Xerox, supplies,
mail, and express mail services as may reasonably be required by Executive.
6. Termination and Liquidated Damages. (a) This Agreement and
Executive's retention hereunder may be terminated at any time by either party
upon ten (10) days prior written notice to the other party. In the event of
(i) such a termination by the Company, other than a termination for "Cause," as
hereinafter defined, or (ii) a termination at any time by Executive as a result
of a breach of this Agreement by the Company, Executive shall be entitled to
receive as liquidated damages an amount in cash equal to the then-present value
of all remaining payments due hereunder through June 30, 1995. Such amount
shall be calculated using a discount rate of 6% per annum and shall be paid in
a single sum not later than ten (10) days after any such termination.
(b)(i) In the event of a voluntary termination of his retention
hereunder by Executive prior to the close of business on
5
<PAGE> 6
the Termination Date other than as set forth in clause (a) (ii) above, the
Company will have no further obligation to make payments to Executive following
any such termination and Executive shall forfeit, to the extent not already
paid, all rights to his portion of the "success bonus" described in Paragraph
2(b) and his portion of the "Stock Based Incentive Compensation Plan" described
in Paragraph 2(e). Executive shall not be subject to liability for breach of
this Agreement by reason of his voluntary termination of his retention
hereunder.
(ii) In the event of a termination of Executive's retention hereunder
by the Company for "Cause," the Company will have no further obligation to make
payments to Executive following any such termination and Executive shall
forfeit, to the extent not already paid, all rights to his portion of the
"success bonus" described in Paragraph 2(b) and his portion of the "Stock Based
Incentive Compensation Plan" described in Paragraph 2(e).
(c) For purposes of this Agreement, "Cause" shall mean (i)
Executive's willful and continued failure substantially to perform his duties
hereunder (other than as a result of Executive's death, "disability" [as
defined under the Company's Long-Term Disability Plan] and other than as a
result of breach of this Agreement by the Company), (ii) Executive's dishonesty
in the performance of his duties hereunder or (iii) an act or acts on
Executive's part constituting a felony under the laws of the United States or
any state thereof.
(d) In the event of any termination of this Agreement
6
<PAGE> 7
pursuant to this Paragraph 6, the Company shall continue to provide Executive
with the benefits specified in Paragraph 2(c).
7. Non-Competition. Prior to the close of business on the Termination
Date, Executive shall not directly or indirectly be or remain employed by, or
render services for, any person, firm, partnership, joint venture, association,
corporation or other business organization, entity or enterprise engaged in any
business, which is in competition with any business currently conducted by the
Company. During the period from May 18, 1995 through May 18, 2000, Executive
shall not directly or indirectly participate by or on behalf of any person,
firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise in any pending or threatened action, claim,
suit or proceeding which is or threatens to become adverse to the Company or
any business currently conducted by the Company, by or before any state,
Federal, foreign, or other court or governmental department, commission, board,
bureau, agency or instrumentality.
8. Confidentiality. Executive shall not disclose or use for
Executive's own benefit or purposes or the benefit or purposes of any other
person, firm, partnership, joint venture, association, corporation or other
business organization, entity or enterprise other than the Company and any of
its subsidiaries or affiliates, any trade secrets, information, data, or other
confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and
financial data, manufacturing processes, financing methods,
7
<PAGE> 8
plans, or the business and affairs of the Company generally, or of any
subsidiary or affiliate of the Company; provided that the foregoing shall not
apply to information which is not unique to the Company or which is generally
known to the industry or the public other than as a result of Executive's
breach of this covenant. Any provision of this Agreement to the contrary
notwithstanding, Executive's obligations pursuant to this Paragraph 8 shall
survive any termination of this Agreement and Executive's retention hereunder.
9. Specific Performance. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Paragraph 7 or Paragraph 8 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to obtain equitable relief in the form of
specific performance, temporary restraining order, temporary or permanent
injunction or any other equitable remedy which may then be available.
10. Miscellaneous.
(a) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS.
(b) Entire Agreement; Amendments. This Agreement supersedes all
prior agreements between Executive and the Company relating to Executive's
employment and the termination thereof, including, without limitation, the
Employment Agreement, and, together with
8
<PAGE> 9
the agreements evidencing the stock options and other awards referred to in
Paragraph 2(d) and the documents evidencing the benefits to which Executive is
entitled pursuant to Paragraphs 2(a), (b), (c) and (e), contains the entire
understanding of the parties with respect to the retention of Executive by the
Company; provided, however, that this Agreement shall not impair any rights or
benefits accrued by Executive under any benefit plan, compensation arrangement
or pension, excess retirement or management security plan of the Company prior
to the termination of his employment on June 30, 1995. Except as aforesaid,
there are no restrictions, agreements, promises, warranties, covenants or
undertakings between the parties with respect to the subject matter herein
other than those expressly set forth herein. This Agreement may not be
altered, modified, or amended except by written instrument signed by the
parties hereto.
(c) No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be considered
a waiver of such party's rights or deprive such party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
(e) Assignment. This Agreement shall not be assignable by
9
<PAGE> 10
Executive and shall be assignable by the Company only with the consent of
Executive which consent shall not be unreasonably withheld; provided that no
such assignment by the Company shall relieve the Company of any liability
hereunder, whether accrued before or after such assignment.
(f) Arbitration. Any dispute between the parties to this Agreement
arising from or relating to the terms of this Agreement or the retention of
Executive by the Company shall be submitted to arbitration in Dallas, Texas
under the auspices of the American Arbitration Association.
(g) Successors; Binding Agreement.
(i) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or the assets of the Company
to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any
such succession shall be a breach of this Agreement and shall entitle
Executive to the benefits set forth in Paragraph 6(a).
(ii) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective heirs,
representatives, successors and assigns.
(h) Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement shall be in
10
<PAGE> 11
writing and shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the execution page of this
Agreement; provided that all notices to the Company shall be directed to the
attention of the General Counsel of the Lomas Financial Group or to such other
address as either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address shall be effective
only upon receipt.
(i) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
/s/ JAMES L. CROWSON
-----------------------------------
JAMES L. CROWSON
Address: 4500 Roland, #807
Dallas, TX 75219
LOMAS FINANCIAL CORPORATION
ATTEST: By: /s/ ERIC BOOTH
--------------------------------
Eric Booth
President & Chief
Executive Officer
/s/ LOUIS P. GREGORY
- ------------------------------
Louis P. Gregory, Secretary
Address: 1600 Viceroy Drive
Dallas, Texas 75235
(SEAL)
12
<PAGE> 13
Exhibit "A"
"Success Bonus" Arrangement
<PAGE> 14
[LOMAS LETTERHEAD]
Date: September 9, 1994
To: Gary Kell
Jim Crowson
Bert Byerley
Gary White
Ramona Taylor
From: Jess Hay
Re: Success Bonuses - Project X
As you previously have been advised, the Board of Directors of Lomas
Financial Corporation, in January 1994, retained Salomon Brothers,
Inc. to assist Lomas in evaluating strategic alternatives to maximize
stockholder values. Options to be considered include the possibility
of merging with or being acquired (in whole or in substantial part) by
another institution.
As an incentive to you and other senior officers of the Company, the
Compensation Committee of the Board, at the meeting thereof on January
25, 1994, adopted the following resolution related to the Salomon
initiative (which is referred to in the resolution as Project X):
"RESOLVED, that a formula for establishing the
aggregate amount of success bonuses to be awarded upon the
successful conclusion of Project X is hereby approved as
follows:
A. The minimum aggregate amount
payable at closure of any
transaction resulting from
Project X that is acceptable
to the Board of Directors: $2,000,000
14
<PAGE> 15
Memorandum
September 9, 1994
Page Two
B. The aggregate amount payable at
various prices per share
(including the $2 million
minimum):
<TABLE>
<S> <C>
$13.50 $2,200,000
$13.75 $2,400,000
$14.00 $2,600,000
$14.25 $2,800,000
$14.50 $3,000,000
$14.75 $3,200,000
$15.00 $3,400,000
$15.25 $3,600,000
$15.50 $3,800,000
$15.75 $4,000,000
$16.00 $4,200,000
$16.25 $4,400,000
$16.50 $4,600,000
$16.75 $4,800,000
$17.00 $5,000,000
$17.25 $5,200,000
$17.50 $5,400,000
$17.75 $5,600,000
$18.00 $5,800,000
$18.25 $6,000,000
$18.50 $6,200,000
$18.75 $6,400,000
$19.00 $6,600,000
$19.50 $6,800,000
$20.00 $7,000,000
</TABLE>
FURTHER RESOLVED, that 50 percent of any aggregate bonuses
payable under the foregoing formula hereby is allocated to and shall
be distributed to Jess Hay.
FURTHER RESOLVED, that 50 percent of any aggregate bonuses
payable under the foregoing formula shall be allocated among and
distributed to Gary Kell, James L. Crowson, David L. Chapman II,
Robert E. Byerley, Jr., Gary White, and up to 15 other key executives
to be designated by Jess Hay, in such respective amounts as may be
determined by Jess Hay."
(The 50 percent of the aggregate bonuses payable under the foregoing
resolutions which is to be allocated by me hereinafter is called "the residual
bonus pool".)
15
<PAGE> 16
Memorandum
September 9, 1994
Page Three
Initially, the residual bonus pool was allocated as follows:
<TABLE>
<CAPTION>
Name Percentage
---- ----------
<S> <C>
Gary Kell 17.5
James L. Crowson 17.5
Robert E. Byerley, Jr. 15.0
David L. Chapman II 15.0
Gary White 15.0
Ramona Taylor 7.5
Others 12.5
-----
100.0
=====
</TABLE>
Subsequent to this initial allocation, David Chapman's employment by the
Company has been terminated and his 15 percent share of the residual bonus
pool has been reallocated, resulting in the following current distribution of
the pool:
<TABLE>
<CAPTION>
Name Percentage
---- ----------
<S> <C>
Gary Kell 20.0
James L. Crowson 20.0
Robert E. Byerley, Jr. 17.5
Gary White 17.5
Ramona Taylor 10.0
Others 15.0
-----
100.0
=====
</TABLE>
Please call me if you have any questions.
/s/ JESS HAY
JESS HAY
JH/vm
<PAGE> 17
Exhibit "B"
Stock Based Incentive Compensation Plan
<PAGE> 18
[LOMAS LETTERHEAD]
Date: November 2, 1994
To: James L. Crowson
Robert E. Byerley, Jr.
Ramona Taylor
Gary White
From: Jess Hay
Re: Stock Based Incentive Compensation Plan
As you previously have been advised, the Compensation Committee of the
Company's Board of Directors, in August 1994, approved a Fiscal 1995
"Stock Based Incentive Compensation Plan" for the four of you and me.
A copy of the approved plan is appended as Exhibit A for your review
and retention.
You will note that compensation (if any) payable under the plan is
based on the relationship between the average price of Lomas Financial
Corporation's common stock during the first quarter of Fiscal 1995
("the base price" as defined in the plan) and the average price of
LFC's common stock during the month of June 1995 ("the year-end price"
as defined in the plan). Appended as Exhibits B and C, respectively,
are computations of the "base price" by Solomon Brothers Inc. and by
our Treasury Department. Solomon's report (Exhibit B) indicates that
the average closing price for LFC's stock during the three months
ended September 30, 1994 was $5.44 per share, and our internal report
(Exhibit C) fixes that average at $5.43. For your purposes, I suggest
use of Solomon's $5.44 per share.
Should you have any questions regarding the plan, please give me a
call.
Many thanks.
/s/ JESS HAY
Jess Hay
<PAGE> 19
EXHIBIT A
(Memorandum 11/02/94)
Page 1 of 2
Lomas Financial Corporation
Proposed Stock Based Incentive Compensation
Plan for Senior Corporate Officers
Fiscal 1995
1) Participants:
<TABLE>
<CAPTION>
Name Salary
------------------------ --------
<S> <C>
Jess Hay $450,000*
James L. Crowson $275,000
Robert E. Byerley, Jr. $220,000
Gary White $220,000
Ramona Taylor $130,000
</TABLE>
_________________
*For purposes of this plan, Mr. Hay's salary is deemed to be
the sum of (i) his salary for the first six months of the year
($300,000) plus (ii) his consulting fees for the final six
months of the year ($150,000).
2) The concept of the proposed plan is to tie fiscal 1995 incentive
compensation for the five participants directly to the performance of
the Company's common stock and thereby to relate such incentive
compensation to enhancement of shareholder value. Specifically, it is
proposed that the amount of each participant's fiscal 1995 incentive
compensation be based on the amount of appreciation realized during
the year in the market price of the Company's common stock. As
proposed, the process for determining the amount of such appreciation
in the value of the Company's common stock and the resulting incentive
compensation, if any, payable to the respective participants would be
as follows:
Step 1. The average price of Lomas Financial Corporation's
("LFC") common stock on the New York Stock Exchange
at the close of each of the business days of July,
August and September 1994 shall be determined and
shall constitute the "base price."
<PAGE> 20
EXHIBIT A
(Memorandum 11/02/94)
Page 2 of 2
Step 2. The average price of LFC's common stock on the New
York Stock Exchange at the close of each of the
business days of June 1995 shall be determined and
shall constitute the "year-end price"; provided, at
the discretion of the Compensation Committee, the
closing prices on the final two business days of
June 1995 need not be included in determining the
year-end price.
Step 3. The relationship between the year-end price and
the base price shall be determined on July 1,
1995, and then:
<TABLE>
<CAPTION>
Then each participant
shall receive incen-
tive compensation in
If the year-end price July 1995 equal to the
represents as a percen- indicated percentage
tage of the base price of his or her salary
----------------------- ----------------------
<S> <C>
Less than 110 percent 0.0 percent*
110 percent 15.0 percent
115 percent 22.5 percent
120 percent 30.0 percent
125 percent 37.5 percent
130 percent 45.0 percent
135 percent 52.5 percent
140 percent 60.0 percent
145 percent 67.5 percent
150 percent 75.0 percent
160 percent 90.0 percent
170 percent 105.0 percent
180 percent 120.0 percent
190 percent 135.0 percent
200 percent 150.0 percent
</TABLE>
________________
*If no incentive compensation is payable under the foregoing
formula, the Compensation Committee, in its discretion, nonetheless
may elect to award individual bonuses to some or all of the
participants based on the Committee's evaluation of each
participant's contribution to the achievement of the Company's
objectives for fiscal 1995.
<PAGE> 21
EXHIBIT B
(Memorandum 11/02/94)
Page 1 of 1
SALOMON BROTHERS INC
LOMAS FINANCIAL CORPORATION
DAILY DATA -- 7/1/94 THROUGH 9/30/94
[GRAPH]
<PAGE> 22
EXHIBIT C
(Memorandum 11/02/94)
Page 1 of 1
LOMAS FINANCIAL CORPORATION
COMMON STOCK CLOSING PRICES PER SHARE
(JULY 1994 THRU SEPTEMBER 1994)
<TABLE>
<CAPTION>
CLOSING CLOSING CLOSING
DATE PRICE DATE PRICE DATE PRICE
---- ----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
01-JUL-94 6 1/8 01-AUG-94 5 01-SEP-94 5 3/4
05-JUL-94 6 1/8 02-AUG-94 5 1/2 02-SEP-94 5 7/8
06-JUL-94 5 7/8 03-AUG-94 5 1/4 06-SEP-94 5 7/8
07-JUL-94 5 3/4 04-AUG-94 5 1/8 07-SEP-94 5 3/4
08-JUL-94 5 3/4 05-AUG-94 5 1/4 08-SEP-94 5 3/4
11-JUL-94 5 5/8 08-AUG-94 5 5/8 09-SEP-94 5 3/4
12-JUL-94 5 1/2 09-AUG-94 5 5/8 12-SEP-94 5 13/32
13-JUL-94 5 1/2 10-AUG-94 5 5/8 13-SEP-94 5 5/8
14-JUL-94 5 3/8 11-AUG-94 5 1/2 14-SEP-94 5 3/4
15-JUL-94 5 3/8 12-AUG-94 5 3/8 15-SEP-94 5 3/4
18-JUL-94 5 3/8 15-AUG-94 5 1/4 16-SEP-94 5 5/8
19-JUL-94 5 16-AUG-94 5 3/8 19-SEP-94 5 5/8
20-JUL-94 5 17-AUG-94 5 1/2 20-SEP-94 5 3/8
21-JUL-94 4 1/2 18-AUG-94 5 1/2 21-SEP-94 5 1/2
22-JUL-94 4 3/4 19-AUG-94 5 1/4 22-SEP-94 4 3/4
25-JUL-94 4 3/4 22-AUG-94 5 7/8 23-SEP-94 4 7/8
26-JUL-94 4 5/8 23-AUG-94 6 1/4 26-SEP-94 5 1/8
27-JUL-94 4 7/8 24-AUG-94 6 27-SEP-94 4 3/4
28-JUL-94 4 7/8 25-AUG-94 5 7/8 28-SEP-94 5 1/4
29-JUL-94 4 7/8 26-AUG-94 6 29-SEP-94 5
29-AUG-94 5 3/4 30-SEP-94 5
30-AUG-94 5 7/8
31-AUG-94 5 7/8
</TABLE>
AVERAGE DAILY CLOSING PRICE PER SHARE DURING THE PERIOD $5.43
<PAGE> 1
EXHIBIT 10.67
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT dated as of June 28, 1995 by and between LOMAS
FINANCIAL CORPORATION, a Delaware corporation and its wholly-owned subsidiary,
LOMAS MORTGAGE USA, INC., a Connecticut corporation, (jointly, the "Company")
and MARK M. FELDMAN ("Executive").
WHEREAS, the Company desires to employ Executive as its Executive Vice
President and Chief Restructuring Officer ("EVP");
WHEREAS, the parties intend that Executive shall also be a Director of
the Company;
WHEREAS, the Company and Executive desire to enter into an agreement
(the "Agreement") embodying the terms of such employment;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the parties
agree as follows:
1. TERM OF EMPLOYMENT. Executive's employment by the Company
shall be for a term (the "Employment Term") which shall commence on July 1, 1995
(the "Commencement Date") and shall end on the later of one year from the
Commencement Date and the date on which a plan of reorganization or liquidation
of the Company under the Bankruptcy Code of the United States is confirmed,
unless sooner terminated in accordance with the provisions of this Agreement.
<PAGE> 2
2. POSITION.
(a) During the Employment Term Executive shall serve as
EVP and shall have such duties and authority as are consistent with such
position. Executive shall report directly to the President of the Company. The
goals and objectives of Executive's employment shall be formulated together
with Eric D. Booth, President of the Company, consistent with strategic
direction set by the Board of Directors of the Company. Executive shall, during
the Employment Term, be nominated for election to the Board of Directors at any
election called for the purpose of electing directors. Executive shall serve on
the Board without additional compensation, provided, however, that nothing
herein shall impair any accrued benefits arising from the prior service of
Executive as a Director, which accrued benefits shall be an obligation of the
Company and shall (if not paid sooner) be payable on the termination of
employment under this or any subsequent employment agreement between Executive
and the Company.
(b) During the Employment Term, Executive shall devote
substantially all of his business time and best efforts to the performance of
his duties hereunder and shall not engage in any other business, profession or
occupation for compensation or otherwise, except such business interests and
fiduciary obligations as are consistent with (but are not limited to) those
currently being pursued by Executive to the extent that such interests and
obligations do not materially interfere with Executive's performance of his
duties for the Company.
-2-
<PAGE> 3
(c) Executive shall be permitted to reside in the
location of his choice, but shall spend as much time in Dallas, Texas as he and
the Company reasonably deem necessary to perform his duties hereunder.
3. BASE SALARY. During the Employment Term, the Company shall pay
Executive an annual base salary (the "Base Salary") at the rate of $300,000,
payable in arrears, in accordance with the usual payment practices of the
Company. Executive may also be eligible for bonus compensation at the
discretion of the Company either by approval of the Board of Directors or by
appropriate order of the Bankruptcy Court.
4. EMPLOYEE BENEFITS. During the Employment Term, Executive shall
be provided employee benefits (the "Employee Benefits") as shall be maintained
by the Company from time to time on the same basis as the other senior
executives of the Company. At the option of Executive, he shall receive a cash
payment equal to the amount of health insurance premium the Company would have
paid on his behalf in return for which Executive shall opt out of the Company
health insurance plan. Executive shall be entitled to four weeks of paid
vacation during each 12 month period of this Agreement, or a prorated portion
thereof in the event that this Agreement is terminated prior to the expiration
of such 12 month period, which shall be immediately accrued in full. The
Company shall reimburse Executive for any unused vacation time upon termination
of employment as provided hereunder. As a senior executive, Executive shall be
expected to remain in communication with the Company during periods of
vacation.
-3-
<PAGE> 4
5. BUSINESS EXPENSES AND PERQUISITES. The Company shall reimburse
such of Executive's travel, entertainment and other business expenses as are
reasonably and necessary incurred by Executive during the Employment Term in
the performance of his duties hereunder, in accordance with the Company's
policies as in effect from time to time applicable to the reimbursement of such
expenses incurred by senior executives. Subject to the reasonable approval of
the CEO, Executive may have use of a furnished office in the New York City area
commensurate with the Executive's needs, taking into account the proportion of
his business time spent in such location.. To the extent any expenditure under
this paragraph 5 is reportable by Executive and the Company as "wages" or other
compensation received by and/or paid to Executive, Executive shall be entitled
to receive additional compensation appropriately "grossed up" to cover
Executive's tax liability resulting from such reporting and from the receipt of
any such additional compensation.
6. TERMINATION. Except as provided in this Section 6, upon a
termination of employment Executive shall be entitled to no other payment or
benefit under this Agreement or any other plan or program of the Company, and
the entitlements described in this Section 6 shall be his exclusive
entitlements in the event of termination of employment.
(a) FOR CAUSE BY THE COMPANY.
(i) Subject to the notification and cure
provisions of subparagraph (ii) of this Section 6(a), Executive's
employment hereunder may be terminated by the Company for "Cause." For
purposes of this Agreement, "Cause" shall mean (A) Executive's willful
and continued failure substantially to perform his duties
-4-
<PAGE> 5
hereunder, including duties directed by the Board consistent with the
provisions of Section 2(a) (other than as a result of total or partial
incapacity due to physical or mental illness), (B) material dishonesty
in the performance of Executive's duties hereunder, (C) an act or acts
on Executive's part constituting a felony under the laws of the United
States or any state thereof, excluding acts imputed to Executive by
reason of his position as EVP of the Company, or (D) any other willful
act or omission which is materially injurious to the Company and its
subsidiaries and affiliates, taken as a whole, financially or
otherwise (including but not limited to breach of the non-competition
and confidentiality covenants set forth in Sections 7 and 8 hereof).
For purposes of clause (D) of this Section 6(a)(1), an act or failure
to act, on the part of Executive, shall be deemed "willful" if done,
or omitted to be done, by Executive not in good faith and without
reasonable belief that the act or omission was in or not opposed to
the best interests of the Company.
(ii) If the Company proposes to terminate
Executive's employment hereunder for Cause pursuant to clause (A) of
Section 6(a)(i), the Company shall give Executive written notice. Such
notice shall be given with sufficient particularity that Executive
will have an opportunity to correct the situation to the reasonable
satisfaction of the Company within 60 days. If such correction is not
so made, the Company may, within 60 days after the expiration of the
time within which Executive had the opportunity to correct such
situation, give written notice to Executive that it is terminating his
employment for Cause effective forthwith with the effect stated in
this Section 6(a).
-5-
<PAGE> 6
(iii) If Executive is terminated for Cause, he
shall be entitled to receive his Base Salary through the date of
termination. All other benefits due Executive following Executive's
termination of employment pursuant to this Subsection 6(a) shall be
determined in accordance with the plans, policies and practices of the
Company.
(b) DISABILITY OR DEATH. Unless terminated sooner
pursuant to the provisions of this Agreement, Executive's employment hereunder
shall terminate upon (i) his death or (ii) at the Company's election if
Executive becomes physically or mentally incapacitated and is therefore unable
for a period of 3 consecutive months to perform his duties (such incapacity is
hereinafter referred to as "Disability"). Any question as to the existence of
the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing. The determination of Disability made in writing to
the Company and Executive shall be final and conclusive for all purposes of the
Agreement.
Upon termination of Executive's employment hereunder by reason of
death, Executive's estate shall receive continued payment of his Base Salary at
the rate in effect at the time of Executive's death through the end of the
month in which his death occurs. Upon termination of Executive's employment
hereunder by reason of Disability, Executive shall receive continued payment of
his Base Salary through the date on which Executive
-6-
<PAGE> 7
is first eligible to receive payment of disability benefits in lieu of Base
Salary to the maximum extent permitted under the Company's employee benefit
plans as then in effect. All other benefits due Executive following Executive's
termination by reason of Disability or death shall be determined in accordance
with the plans, policies and practices of the Company.
(c) WITHOUT CAUSE BY THE COMPANY. Executive's employment
may not be terminated by the Company without "Cause" (other than by reason of
death or Disability) except upon six (6) months prior written notice, which
notice may be given only as of the end of a fiscal quarter and, in any event,
shall not be effective prior to the first anniversary of the Commencement Date.
Executive shall receive continued payment of Base Salary through the Balance of
the Employment Term (in the same amounts and at the same times as if there had
been no such termination of employment) together with any bonus payment which
may have been authorized by the Company and to which he would have been
entitled payable on the date it otherwise would have been paid but for the
termination without cause. Executive shall continue to receive health and
welfare benefits, and all other Employee Benefits, through the balance of the
Employment Term (as if there had been no such termination of employment). All
other benefits due Executive following Executive's termination of employment by
the Company without Cause shall be determined in accordance with the plans,
policies and practices of the Company.
(d) TERMINATION BY EXECUTIVE. Subject to the notification
and cure provisions of this Section 6(d), Executive may terminate his
employment for Good Reason
-7-
<PAGE> 8
pursuant to this Section 6(d) and thereupon shall be entitled to the same
payments and benefits as described in Section 6(c) above. For purposes of this
Section 6(d), "Good Reason" shall mean the occurrence of any of the following
events without the prior written consent of Executive: (i) removal of Executive
from his position as EVP other than for Cause, death or Disability, (ii) a
failure by the Company to pay Executive any amounts due, or to provide
Executive with any of the benefits granted to Executive hereunder or (iii) a
material reduction or change inconsistent with the provisions of Section 2(a)
in Executive's duties and responsibilities.
If Executive proposes to terminate his employment for Good Reason
pursuant to this Section 6(d), he shall give the Company written notice. Such
notice shall be given with sufficient particularity that the Company will have
an opportunity to correct the situation to the reasonable satisfaction of
Executive within 60 days. If such correction is not so made, Executive may,
within 60 days after the expiration of the time within which the Company had
the opportunity to correct such situation, give written notice to the Company
that he is terminating his employment for Good Reason effective forthwith with
the effect stated in this Section 6(d).
If Executive terminates his employment hereunder other than for Good
Reasons as defined in this Section 6(d), he shall be entitled to receive the
payments and benefits to which he would be entitled in the event of a
termination of employment by the Company for Cause.
7. TERMINATION AS A RESULT OF NON-RENEWAL OF THE
EMPLOYMENT TERM. If Executive's employment with the Company terminates by
reason of the
-8-
<PAGE> 9
expiration or non-renewal of the Employment Term, Executive shall be entitled
to receive Base Salary through the end of the Employment Term. All other
benefits due Executive following Executive's termination of employment shall be
determined in accordance with the plans, policies and practices of the Company.
8. NOTICE OF TERMINATION. Any purported termination of
employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of employment under the provision so indicated.
9. NON-COMPETITION. Executive acknowledges and
recognizes the highly competitive nature of the businesses of the Company and
accordingly agrees that:
(a). During the Employment Term, Executive shall not enter
into any competitive endeavors with and shall not undertake any commercial
activity which is contrary to the best interests of the Company, including
becoming an employee, owner (except for passive investments of not more than 1%
of the outstanding shares of, or any other equity interest in, any company or
entity listed or traded on a national securities exchange or in an
over-the-counter securities market), officer, agent or director of any firm or
person in any geographic area in which the Company or any of its affiliates
conducted any such competing line of business.
(b). During the Employment Term and for a period of one
year after termination of Executive's employment, Executive shall not directly
or indirectly knowingly,
-9-
<PAGE> 10
or under circumstances in which he reasonably should have known, induce any
employee of the Company to engage in any activity in which Executive is
prohibited from engaging by this Section 9 above or to terminate his employment
with the Company and shall not directly or indirectly knowingly, or under
circumstances in which he reasonably should have known, employ or offer
employment to any such person unless such person shall have ceased to be
employed by the Company and such cessation of employment shall have occurred at
least three months prior thereto, except that Executive may employ or offer
employment to any person whose employment was terminated by the Company (other
than at the direction of Executive).
11. CONFIDENTIALITY. Executive shall not, during the
Employment Term or thereafter, without the prior written consent of the Board,
use, divulge, disclose or make accessible to any other person, firm,
partnership or corporation any Confidential Information, as hereinafter
defined, except (i) while employed by the Company in the business of and for
the benefit of the Company or (ii) when required to do so by a court of law, by
any governmental agency having supervisory authority over the business of the
Company or by any administrative body or legislative body, including a
committee thereof, with jurisdiction to order him to divulge, disclose or make
accessible such Information; provided, that in the case of any such requirement
or purported requirement if, and to the extent permitted by law, Executive
shall provide written notice to the Company prior to producing such
Information, which notice shall be given at least 10 days prior to the
producing of such Information, if practicable, so that the Company may seek a
protective order or other appropriate remedy. For purposes of this Agreement,
"Confidential
-10-
<PAGE> 11
Information" shall mean all non-public information concerning the business of
the Company, including, without limitation, information relating to its
financial products, product development, customer lists, relationships with
customers, other information about or provided by customers, financial
information, business and marketing plans and strategies, operating policies
and manuals, securities positions, and current or prospective transactions,
except for specific items which become publicly available information other
than through a breach by Executive of his fiduciary duty or any confidentiality
agreement, including without limitation this Section 11. Executive agrees that
upon termination of his employment hereunder for any reason, he shall return to
the Company immediately all memoranda, books, papers, plans, information,
letters and other data, and all copies thereof or therefrom, in any way
relating to the business of the Company, except that he may retain personal
notes, notebooks and diaries. Executive further agrees that he shall not retain
or use for his account at any time any trade name, trademark, service mark or
other proprietary business designation used or owned in connection with the
business of the Company.
12. SPECIFIC PERFORMANCE AND OTHER REMEDIES. Executive
acknowledges and agrees that the Company has no adequate remedy at law for a
breach or threatened breach of Sections 9 or 10 of this Agreement, and, in
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company (i)
without posting any bond, shall be entitled to obtain equitable relief in the
form of specific performance, temporary restraining order, temporary or
permanent injunction or any other equitable remedy which may then
-11-
<PAGE> 12
be available and (ii) shall have no further obligation to make any payments to
Executive. Nothing in this Agreement shall be construed as prohibiting the
Company from pursuing any other remedies at law or in equity that it may have
or any other rights that it may have under any other agreement.
13. INDEMNIFICATION. The Company shall indemnify
Executive against liabilities incurred as a result of or in connection with any
actions taken or omitted to be taken in the performance of his duties hereunder
to the fullest extent permitted by Delaware law. Executive acknowledges that
the Company's Certificate of Incorporation currently provides such
indemnification to its officers and directors.
14. MISCELLANEOUS.
(a). GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS.
(b). ENTIRE AGREEMENT/AMENDMENTS. This Agreement contains
the entire understanding of the parties with respect to the employment of
Executive by the Company. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein and therein.
This Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
(c). NO WAIVER. The failure of a party to insist upon
strict adherence to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence
-12-
<PAGE> 13
to that term or any other term of this Agreement. Any such waiver must be in
writing and signed by Executive or an authorized officer of the Company, as the
case may be.
(d). SEVERABILITY. It is expressly understood and agreed
that although Executive and the Company consider the restrictions contained in
Sections 9 and 10 to be reasonable, if a final judicial determination is made
by a court of competent jurisdiction that such restrictions are unenforceable
restriction against Executive, such provision shall not be rendered void but
shall be deemed amended to apply to the maximum extent enforceable.
Alternatively, if any court of competent jurisdiction finds that any
restriction contained in Section 9 or 10 is unenforceable, and such restriction
cannot be amended so as to make it enforceable, such finding shall not affect
the enforceability of any of the other restrictions contained herein. In the
event that any one or more of the other provisions of this Agreement shall be
or become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not be affected thereby.
(e). ASSIGNMENT. This Agreement shall not be assignable by
Executive and shall be assignable by the Company only with the consent of
Executive.
(f). SUCCESSORS; BINDING aGREEMENT. This Agreement shall
inure to the benefit of and be binding upon the personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees of the parties hereto.
(g) COMMUNICATIONS. For the purpose of this Agreement,
notices and all other communications provided for in this Agreement shall be in
writing and shall be
-13-
<PAGE> 14
deemed to have been duly given when faxed or delivered or two business days
after being mailed by United States registered or certified mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth on the execution page of this Agreement or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective only upon receipt;
provided that all notices to the Company shall be directed to the attention of
the General Counsel with a copy to the Secretary of the Company.
(h). WITHHOLDING TAXES. The Company may withhold from any
and all amounts payable under this Agreement such Federal state and local taxes
as may be required to be withheld pursuant to any applicable law or regulation.
(i). SURVIVORSHIP. The respective rights and obligations
of the parties hereunder shall survive any termination of Executive's
employment to the extent necessary to the agreed preservation of such rights
and obligations.
(j). COUNTERPARTS. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effective as
if the signatures thereto and hereto were upon the same instrument.
(k). HEADINGS. The headings of the sections contained in
this Agreement are for convenience only and shall not be deemed to control or
affect the meaning or construction of any provision of this Agreement.
(l). LIABILITY OF THE COMPANY. Lomas Financial, Inc. and
Lomas Mortgage USA, together with their respective affiliates, shall be jointly
and severally liable to Executive for the performance of all obligations
required of "the Company", as that term
-14-
<PAGE> 15
is used in this Agreement. Executive may seek damages for breach of this
Agreement from Lomas Financial Corporation or Lomas Mortgage USA, Inc. or any
affiliate of either of those entities.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
EXECUTIVE:
/s/ MARK M. FELDMAN
-----------------------------
Mark M. Feldman
Address
COMPANY:
LOMAS FINANCIAL CORPORATION
By: /s/ ERIC D. BOOTH
--------------------------
Its: CEO
-------------------------
Lomas Financial Corporation
1600 Viceroy Drive
Dallas, Texas 75235
LOMAS MORTGAGE USA, INC.
By: /s/ ERIC D. BOOTH
--------------------------
Its: CEO
-------------------------
Lomas Mortgage USA, Inc.
1600 Viceroy Drive
Dallas, Texas 75235
-15-
<PAGE> 1
EXHIBIT 10.70
011095
AMENDMENT NO. TWO TO
The Lomas Financial Group Pension Plan
(As Restated Effective January 1, 1991)
Pursuant to the authority set forth in Article XV thereof, The Lomas
Financial Group Pension Plan (As Restated Effective January 1, 1991), is hereby
amended as of the dates set forth below only:
<TABLE>
<CAPTION>
RESTATED OR
ADDED PAGES AMENDED SECTION EFFECTIVE DATES
----------- --------------- ---------------
<S> <C> <C>
ii through iii Table of Contents
5 2.12 (updated to reflect January 1, 1994
new 401(a)(17) limit on
compensation)
28 through 29A 5.01 (added subparagraph 8) January 1, 1994
5.02 (added subparagraph 3) January 1, 1994
5.03 (added subparagraph 3) January 1, 1994
5.04 (added new section) January 1, 1994
5.05 (added new section) October 28, 1994
36 through 38 8.01 (added new final paragraph) December 16, 1994
42A through 43 9.09 (added new section) January 1, 1993
</TABLE>
<PAGE> 2
011095
THE LOMAS FINANCIAL GROUP PENSION PLAN
AS RESTATED EFFECTIVE
JANUARY 1, 1991
<PAGE> 3
<TABLE>
<S> <C> <C>
2.44 RETIRED PARTICIPANT . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.45 SEVERANCE FROM SERVICE . . . . . . . . . . . . . . . . . . . . . . . . 10
2.46 SPECIFIED FIDUCIARY . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.47 TERMINATED PARTICIPANT . . . . . . . . . . . . . . . . . . . . . . . . 10
2.48 TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.49 TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.50 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III PARTICIPATION AND SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.01 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.02 Credited Service . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.03 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.04 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.05 Employment by More than One Participating Employer . . . . . . . . . . 18
3.06 Special Rules for Employees of National Homes Acceptance Corporation . 18
3.07 Special Rules for Employees of Great Lakes Mortgage Corporation . . . 19
3.08 Special Rules for Employees of Advance Mortgage Corporation . . . . . 20
3.09 Special Rules for Employees of MNet Corporation . . . . . . . . . . . 21
3.10 Special Rules for Employees of Vista Properties, Inc. . . . . . . . . 22
ARTICLE IV CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.01 Employer Contributions . . . . . . . . . . . . . . . . . . . . . . . . 23
4.02 Participant Contributions . . . . . . . . . . . . . . . . . . . . . . 23
4.03 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.04 Reversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.05 Transfer of Voluntary After-Tax Employee Contributions . . . . . . . . 25
ARTICLE V RETIREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.01 At Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . 26
5.02 At Early Retirement Date . . . . . . . . . . . . . . . . . . . . . . . 28
5.03 At Late Retirement Date . . . . . . . . . . . . . . . . . . . . . . . 29
5.04 Minimum Monthly Benefit For Participants Whose Compensation in any
Year Prior to January 1, 1994 Exceeded $150,000 . . . . . . . . . . . . 29A
5.05 1994 Special Early Retirement Provisions . . . . . . . . . . . . . . . 29A
ARTICLE VI DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.01 Prior to Actual Retirement or Other Severance From Service . . . . . . 30
6.02 After Actual Retirement or Other Severance From Service . . . . . . . 32
</TABLE>
Amendment No. Two ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.03 Spouse is Deemed Beneficiary . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.01 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.02 Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.03 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.04 Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.05 Age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII OTHER SEVERANCE FROM SERVICE . . . . . . . . . . . . . . . . . . . . . . . . 35
8.01 Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.02 Effect of Prior Distribution . . . . . . . . . . . . . . . . . . . . . 36
8.03 Early Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.04 Terminated Participant's Address . . . . . . . . . . . . . . . . . . . 37
8.05 Payment of Terminated Participant's Benefits . . . . . . . . . . . . . 38
8.06 Limitation Amount . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IX SETTLEMENT OPTIONS-DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . 38
9.01 When Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.02 Basic Pension and Automatic Option . . . . . . . . . . . . . . . . . . 39
9.03 Optional Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.04 Insurance Contracts . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.05 Date of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.06 Purchase of Annuities . . . . . . . . . . . . . . . . . . . . . . . . 41
9.07 Suspension of Benefits After Retirement . . . . . . . . . . . . . . . 42
9.08 Preservation of Merged Plan Optional Pension Amounts . . . . . . . . . 42
9.09 Eligible Rollover Distributions . . . . . . . . . . . . . . . . . . . 42A
ARTICLE X PLAN TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.01 Right to Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.02 Partial Termination . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.03 Liquidation of Trust Fund . . . . . . . . . . . . . . . . . . . . . . 43
10.04 Manner of Distribution . . . . . . . . . . . . . . . . . . . . . . . . 47
10.05 Residual Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XI SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS . . . . . . . . . . . 47
11.01 Successor Employer . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.02 Merger or Consolidation of Plans . . . . . . . . . . . . . . . . . . . 47
ARTICLE XII RESTRICTIONS ON BENEFITS PAYABLE TO HIGHLY COMPENSATED
PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.01 Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.02 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
Amendment No. Two iii
<PAGE> 5
under this Plan; provided, however, that the total of an Employee's
bonus, incentive pay and commissions taken into account for any Plan
Year, when his base pay and overtime are under a certain dollar amount
(specified below), shall not, when added to his base pay and overtime,
cause the total to exceed such dollar amount for such Plan Year. Such
dollar amount was $60,535 for 1991, and is $62,500 for 1992 and each
year thereafter. If his base pay and overtime for such Plan Year equal
or exceed such dollar amount, then no additional bonus, incentive pay
or commissions shall be taken into account for such Plan Year. In
determining Compensation hereunder, any election by an Employee to
reduce his compensation pursuant to Section 125 or 401(k) of the Code
shall be disregarded. Notwithstanding the preceding provisions of this
Section 2.12, for purposes of determining benefits which accrue
hereunder after December 31, 1988 and before January 1, 1994, the
total Compensation of a Participant to be taken into account for a
given Plan Year shall not exceed $200,000 (as automatically increased
in accordance with Treasury Department Regulations to reflect
cost-of-living adjustments) and for purposes of determining benefits
which accrue hereunder after December 31, 1993, the Total Compensation
of a Participant to be taken into account for a given Plan Year shall
not exceed $150,000 (as automatically increased in accordance with
Treasury Department regulations to reflect cost-of-living
adjustments), provided, however, that such limitation on Compensation
shall, in no event, reduce a Participant's Accrued Benefit to an
amount less than the greater of (i) the sum of the amount of the
Participant's Accrued Benefit as of December 31, 1988 (determined
without regard to such limitation) plus the amount of the
Participant's Accrued Benefit earned after December 31, 1988
(determined by taking such limitation into account), or (ii) the
amount of the Participant's entire Accrued Benefit, with such
limitation taken into account for all Plan Years during which such
Accrued Benefit was earned.
2.13 COVERED COMPENSATION means the average (without indexing) of the
taxable wage bases in effect for each calendar year during the
thirty-five (35) year period ending with the calendar year in which
the Participant attains (or will attain) social security retirement
age (as defined in Code Section 415(b)(8)). In determining an
Employee's Covered Compensation for a Plan Year, the taxable wage base
for the current Plan Year and any subsequent Plan Year shall be
assumed to be the same as the taxable wage base in effect as of the
beginning of the Plan Year for which the determination is being made.
An Employee's Covered Compensation for a Plan Year after the thirty-
five (35) year period described above is the Employee's Covered
Compensation for the Plan Year during which the Employee attained
social security retirement age. An Employee's Covered Compensation for
a Plan Year before the thirty-five (35) year period described above is
the taxable wage base in effect as of the beginning of the Plan Year.
An Employee's Covered Compensation shall be automatically adjusted for
each Plan Year.
Amendment No. Two 5
<PAGE> 6
(b) .65% of a Participant's Final Monthly Compensation in
excess of Covered Compensation multiplied by his
applicable Years of Credited Service (not to exceed,
as to any Participant under (1), (4) or (5) above, 35
Years of Credited Service and, as to any Participant
under (2) or (3) above, 35 Years of Credited Service
minus his Years of Credited Service completed through
the date first referenced in said (2) or (3) above,
whichever is applicable to him).
(7) In addition to the foregoing and to the minimum benefit
provided under Section 5.04 if applicable, any Participant in
the Financial Plan prior to January 1, 1979 shall be entitled
to the balance, if any, of his Excess Earnings Account.
(8) Any Employee who had Compensation in any year prior to January
1, 1994 in excess of $150,000 shall have a minimum monthly
benefit as described in Section 5.04 hereof.
5.02 At Early Retirement Date
An Active Participant who elects to retire on his Early Retirement
Date shall be fully vested in his Accrued Benefit and shall receive a
monthly benefit equal to his Accrued Benefit, to be payable at his
Normal Retirement Date; provided, however, that the Participant may
elect earlier commencement of benefits at any time on or after the
date of his Actual Retirement. Should the Participant commence
receiving benefits prior to his Normal Retirement Date--(1) any
portion of his Accrued Benefit provided under the Benefit Formula in
Section 5.01 shall be reduced in accordance with the following
reduction table:
<TABLE>
<CAPTION>
PARTICIPANT'S PARTICIPANT'S
AGE AT PERCENTAGE AGE AT PERCENTAGE
COMMENCEMENT PAYABLE COMMENCEMENT PAYABLE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
64 92.30% 59 65.38%
63 84.61% 58 61.53%
62 76.92% 57 57.69%
61 73.07% 56 52.92%
60 69.23% 55 48.61%
</TABLE>
(2) In addition, any portion of his Accrued Benefit provided under
any Schedule A, B, C, D or E (attached hereto) shall be
reduced in accordance with the reduction table set forth in
such Schedule.
Amendment No. Two 28
<PAGE> 7
The percentages set forth in the table above and in such Schedules A,
B, C, D or E apply if the Participant's Normal Retirement Date is the
first day of the month coincident with or next following his
sixty-fifth (65th) birthday. If his Normal Retirement Date is later
than such first day of the month, different percentages will apply,
determined on the same basis as the percentages set forth in said
tables.
(3) Any Employee who had Compensation in any year prior to January
1, 1994 in excess of $150,000 shall have minimum monthly
benefit as described in Section 5.04 hereof.
5.03 At Late Retirement Date
(1) If a Participant remains in the employ of a Participating
Employer after his Normal Retirement Date, he shall be fully
vested in his Accrued Benefit as of his Normal Retirement Date,
but shall not be entitled to receive any payment of retirement
benefits from this Plan until his Actual Retirement, subject,
however, to any required minimum distribution pursuant to
Section 9.05(ii) hereof. Such Participant on his Actual
Retirement date shall receive benefits based on his age at
his Actual Retirement date which shall be equal to the
Actuarial Equivalent of the lump-sum value of the amount
required to pay the greater of (1) his Accrued Benefit earned
at his Normal Retirement Date, increased by interest computed
on the basis of the interest and mortality assumptions used for
the actuarial valuation of the Trust Fund (during the Plan
Year in which his Normal Retirement Date occurs) for the
period beginning on his Normal Retirement Date and ending on
the date of his Actual Retirement, or (2) his Accrued Benefit
determined pursuant to Section 5.01 hereof on the basis of
Credited Service and Compensation earned (i) before his Normal
Retirement Date and (ii) after the later of January 1, 1988 or
his Normal Retirement Date (or after his Normal Retirement
Date in the event that the Internal Revenue Service issues
final regulations which require that this calculation be made
without regard to whether Compensation and Credited Service
are earned before or after January 1, 1988). Such benefits
shall be payable in accordance with the provisions of Article
IX.
(2) The Accrued Benefit for any Participant who remains in the
employ of a Participating Employer after the required
distribution date as provided in Section 9.05(ii) shall be
reduced by the Actuarial Equivalent of the total distributions
made to the Participant as of the close of each Plan Year
during which distribution is made, and
Amendment No. Two 29
<PAGE> 8
recalculated as of each January 1, following the required
distribution date.
(3) Any Employee who had Compensation in any year prior to January
1, 1994 in excess of $150,000 shall have a minimum monthly
benefit as described in Section 5.04 hereof.
5.04 Minimum Monthly Benefit For Participants Whose Compensation in any
Year Prior to January 1, 1994 Exceeded $150,000
If the Compensation of a Participant employed on January 1, 1994, for
any year prior to January 1, 1994, exceeded $150,000, such Participant
shall in no event have a monthly benefit less than the sum of a, and
b, as follows:
a. The monthly benefit accrued under this Plan as of December 31,
1993, determined by applying the limitation on annual earnings
under Code Section 401(a)(17) for a given Plan Year.
b. The monthly benefit that would accrue under this Plan between
December 31, 1993, and the date of the Participant's
termination of employment, applying the limitation on annual
earnings under Code Section 401(a)(17) as applicable to
benefit accrual on and after January 1, 1994, as described in
Section 2.12, but using only the Participant's Benefit Service
completed after December 31, 1993.
5.05 1994 Voluntary Early Retirement Provisions
The following special early retirement provisions shall apply to the
Eligible Participants defined herein.
(1) Definitions -- The following terms used in this Section 5.05
shall have the following meanings:
(a) ELECTION PERIOD means the election period beginning
on September 12, 1994 and ending on October 28,
1994, during which an Eligible Participant was
allowed to elect a Voluntary Early Retirement
Benefit.
(b) ELIGIBLE PARTICIPANT means a Participant who is at
least age 50 and would have had at least five (5)
years of Credited Service by December 31, 1994 (as
defined herein and without being adjusted in
accordance with Section 5.05(3)(a) below) with Lomas
Financial Corporation or any member of the controlled
group of companies (as defined in Section 414 of the
Internal Revenue Code of 1986)
Amendment No. Two 29A
<PAGE> 9
of which Lomas Financial Corporation is a part, other
than employees of Lomas Management, Inc. or Lomas
Information Systems, Inc. or Gary H. Kell, James L.
Crowson and Jess Hay.
In determining eligibility for the Voluntary Early
Retirement Program, service with respect to which a
Participant has previously received a lump sum
payment shall be disregarded.
(2) Benefit -- During the Election Period, an Eligible Participant
may elect, on a form provided by the Pension Committee, to
retire effective as of December 1, 1994 and to receive a
Voluntary Early Retirement Benefit. Such Eligible Participant
shall be fully vested in the amount of such benefit, which
shall be in lieu of any other benefit he would otherwise be
eligible for under this Plan to the extent such other benefit
is attributable to the same period of Credited Service as was
counted in determining his Voluntary Early Retirement Benefit.
Any Voluntary Early Retirement Benefit payable under this
Section 5.05 shall commence as of December 1, 1994 and except
to the extent otherwise provided in this Section 5.05, shall
be payable pursuant to Article IX hereof.
(3) Amount of Voluntary Early Retirement Benefit -- Except as
otherwise limited or restricted by subparagraph (c) below, the
monthly amount of an Eligible Participant's Voluntary Early
Retirement Benefit shall be equal to his Monthly Retirement
Benefit (determined in accordance with subparagraphs (a) and
(b) below).
(a) Monthly Retirement Benefit. An Eligible Participant's
Monthly Retirement Benefit shall (subject to (b)
below) be equal to the amount of Accrued Benefit that
he would have under the benefit formula in the Plan
on December 31, 1994, if his Accrued Benefit were
determined under said formula as of December 31,
1994, but using three (3) additional years of service
credit and assuming he received, in addition to his
Compensation earned through June 30, 1994, an amount
equal to his base rate of pay from July 1, 1994,
through December 31, 1994, plus bonuses, to the
extent includable under Section 2.12.
(b) Adjustment for Commencement at other than Normal
Retirement Date. If an Eligible Participant's
Voluntary Early Retirement Benefit commences before
his Normal Retirement Date, the early reduction
factors in effect under the Plan, shall be used to
determine the amount of the benefit based on the
Amendment No. Two 29B
<PAGE> 10
Eligible Participant's age as of December 31, 1994
plus three (3) years. If an Eligible Participant's
Voluntary Early Retirement Benefit commences after
his Normal Retirement date, no adjustment to the
amount applicable to him under the above provision of
this Section will be made; however, in no event will
his benefit be less than the benefit to which he
would be entitled if he did not receive the Special
Early Retirement Benefit.
(c) Limitations and Restrictions of Benefits. The
benefits determined under this Section shall not
exceed the limitations set forth in Section 16.02
hereof and shall be subject to the restrictions of
Article XII hereof.
Amendment No. Two 29C
<PAGE> 11
(2) is his vested interest in his Employer-Derived Accrued
Benefit, based on his Years of Credited Service in accordance
with the following:
<TABLE>
<CAPTION>
YEARS OF VESTED
CREDITED SERVICE PERCENTAGE
---------------- ----------
<S> <C>
Less than 5 years 0%
5 years or more 100%
</TABLE>
Notwithstanding the preceding provisions of this paragraph (2), if
Schedule A, B, C, D, or E (attached hereto) applies to such
Participant, and if a greater vested percentage is provided for in
such Schedule, such greater vested percentage shall apply to the
Participant. Upon incurring a severance from service, a Terminated
Participant shall immediately forfeit any portion of his
Employer-Derived Accrued Benefit in which he is not vested under this
paragraph (2). Any such Terminated Participant who has only a zero
vested percentage in his Employer-Derived Accrued Benefit at the time
of his Severance from Service shall be deemed to have received at such
time an immediate distribution of such zero vested percentage.
Notwithstanding the preceding provisions of this Section 8.01, any
Participant who, as of May 13, 1994 was an Employee of Lomas
Information Systems, Inc. and who, prior to December 16, 1994, did not
transfer to the employment of another Employer participating in the
Plan, or an Affiliate of Employer, shall have a fully vested interest
in his Accrued Benefit determined as of such date.
8.02 Effect of Prior Distribution
In the event that a Terminated Participant receives any payment of his
vested Accrued Benefit (determined under Section 8.01 hereof) and
later is re-employed by a Participating Employer and re-commences
participation in the Plan an Active Participant, Credited Service
attributable to his prior period of employment shall not be forfeited
and shall be fully restored; provided that if such Participant fails
to make repayment in the manner described below, such Credited Service
shall be restored only for purposes of determining his vested Accrued
Benefit and only to the extent provided in Section 3.02(3)(d)
hereof. Such a Participant shall be considered to have made repayment
if, within five (5) years following his Re-employment Commencement
Date, he repays to the Trustee the full amount of such previous
payments (with interest equal to the lesser of (1) five percent (5%)
or (2) interest computed on the basis of the interest and mortality
assumptions used for the actuarial valuation of the Trust Fund
coincident with or immediately preceding his Re-employment Commencing
Date).
Amendment No. Two 36
<PAGE> 12
8.03 Early Retirement
In the event that a Terminated Participant has a vested benefit
hereunder at the time of his Severance from Service, he shall be
entitled to request commencement of benefits at any time thereafter.
Should the Participant commence receiving benefits prior to his Normal
Retirement Date--(1) Any portion of his vested Accrued Benefit
provided under the Benefit Formula in Section 5.01 shall be reduced in
accordance with the following reduction table:
<TABLE>
<CAPTION>
PARTICIPANT'S PARTICIPANT'S
AGE AT PERCENTAGE AGE AT PERCENTAGE
COMMENCEMENT PAYABLE COMMENCEMENT PAYABLE
------------ ---------- ------------- ----------
<S> <C> <C> <C>
64 92.30% 44 16.49%
63 84.61% 43 15.20%
62 76.92% 42 14.03%
61 73.07% 41 12.96%
60 69.23% 40 11.98%
59 65.38% 39 11.08%
58 61.53% 38 10.26%
57 57.69% 37 9.50%
56 52.92% 36 8.80%
55 48.61% 35 8.16%
54 39.21% 34 7.57%
53 35.75% 33 7.02%
52 32.65% 32 6.52%
51 29.85% 31 6.05%
50 27.33% 30 5.62%
49 25.06% 29 5.23%
48 23.00% 28 4.86%
47 21.13% 27 4.52%
46 19.43% 26 4.20%
45 17.89% 25 3.91%
</TABLE>
(2) In addition, any portion of his Accrued Benefit provided under
Schedule A, B, C, D or E (attached hereto) shall be reduced in
accordance with the reduction table set forth in such
Schedule.
The percentages set forth in the table above and in such
Schedule A, B, C, D or E (attached hereto) apply if the
Participant's Normal Retirement Date is the first day of the
month coincident with or next following his sixty-fifth (65th)
birthday. If his Normal Retirement Date is later than such
first day of the month, different percentages will apply,
determined on the same basis as the percentages set forth in
said tables.
8.04 Terminated Participants Address
It shall be the obligation of the Terminated Participant to keep the
Pension Committee informed of his current address.
Amendment No. Two 37
<PAGE> 13
8.05 Payment of Terminated Participant's Benefits
Except as otherwise provided in Section 8.03 hereof, payment of a
benefit to a Terminated Participant shall commence at the time such
Terminated Participant would have been entitled to benefits had he
continued in active employment to the earlier of his (i) Normal
Retirement Date, (ii) Death or (iii) Total and Permanent Disability. A
Terminated Participant's vested Accrued Benefit shall be payable
pursuant to the provisions of Section 9.02; provided, however, that
the Participant may elect that payment be made pursuant to one of the
optional forms set forth in Section 9.03 hereof.
8.06 Limitation Amount
Notwithstanding anything herein to the contrary, if the present value
of a Terminated Participant's vested Accrued Benefit is less than Three
thousand five hundred dollars ($3,500.00), such benefit shall be paid
in a lump sum as soon as practicable after such Participant terminates
employment. In determining such present value, the interest rate to be
used shall not be less than the greater of the interest rate specified
under the Plan or the interest rate that would be used, as of the
beginning of the Plan Year in which such payment is made, by the
Pension Benefit Guaranty Corporation for purposes of determining the
single sum value of immediate annuities as if the Plan were then
terminated.
ARTICLE IX
SETTLEMENT OPTIONS-DISTRIBUTION OF BENEFITS
9.01 When Payable
No Participant or his Beneficiary shall receive any payment under this
Plan until the occurrence of one of the following events:
(1) the Participant's Normal, Early or Late retirement;
(2) the death of the Participant;
(3) the Disability Retirement of the Participant as herein
described;
(4) the Participant's Severance from Service; and
(5) the termination of this Plan.
In no event shall any Participant have any interest in the Trust Fund
except as provided in this Plan and the Trust.
Amendment No. Two 38
<PAGE> 14
under Schedule A, B, C, D or E (attached hereto) be less than the
amount that would have been applicable to the Participant at such time
under the Merged Plan if such Merged Plan monthly benefit were to be
payable to the Participant in such optional mode of payment,
determined on the basis of the actuarial equivalent interest and
mortality assumptions that would have been used under said Merged Plan
for purposes of determining the amount of such optional mode of
payment.
9.09 Eligible Rollover Distributions
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article, a
distributee may elect at the time and in the manner prescribed by the
Committee, to have any portion of an eligible rollover distribution
made on or after January 1, 1993, paid directly to an eligible
retirement plan specified by the distributee in a direct rollover. The
following definitions apply:
(1) Eligible rollover distribution: An eligible rollover
distribution is any lump sum distribution under this Section,
except that an eligible rollover distribution does not include
any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code, and the portion of any
distribution that is not includible in gross income.
(2) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in Section 408(a) of
the Code, an individual retirement annuity described in
Section 408(b) of the Code, an annuity plan described in
Section 403(a) of the Code, or a qualified trust described in
Section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account
or individual retirement annuity.
(3) Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's
surviving spouse and the Employee's or former Employee's
spouse or former spouse who is the alternate payee under a
qualified domestic relations order, as defined in Section
414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
(4) Direct rollover: A direct rollover is a payment by the plan to
the eligible retirement plan specified by the distributee.
Amendment No. Two 42A
<PAGE> 15
ARTICLE X
PLAN TERMINATION
10.01 Right to Terminate
In accordance with the procedures set forth in this Article X, the
Company, acting through the Board, may terminate the Plan at any time.
Subject to applicable requirements, if any, of ERISA governing
termination of "Employee Pension Benefit Plans," the Company, acting
through the Board, shall direct and require the Trustee to liquidate
the Trust Fund, or the applicable portion thereof, in accordance with
the provisions of this Article X.
10.02 Partial Termination
Upon termination of the Plan with respect to a group of Participants
which constitutes a partial termination of the Plan, the Trustee shall
allocate and segregate for the benefit of such Participants the
proportionate interest of such Participants in the Trust Fund. Such
proportionate interest shall be determined by an independent,
government-enrolled actuary. Such actuary shall make this
determination on the basis of the contributions made, the provisions
of this Article, and such other considerations as the actuary deems
appropriate. The Participating Employers, the Trustee and the Pension
Committee shall have no responsibility with respect to the
determination of any such proportionate interest. The funds so
allocated and segregated shall be used by the Trustee to pay benefits
to or on behalf of such Participants in accordance with Section 10.03.
10.03 Liquidation of Trust Fund
Upon termination of the Plan with respect to all Participants, or upon
termination of the Plan with respect to a group of Participants
constituting a partial termination of the Plan, each such
Participant's Accrued Benefit, based on his Credited Service and
Compensation prior to the date of termination, shall become fully
vested and nonforfeitable; provided,
Amendment No. Two 43
<PAGE> 16
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising Amendment No. Two to The Lomas Financial Group
Pension Plan (As Restated Effective January 1, 1991), LOMAS MORTGAGE USA, INC.,
as the Employer, has caused its corporate seal to be affixed hereto and these
presents to be duly executed in its name and behalf by its proper officers
thereunto authorized this 27th day of December, 1994.
ATTEST: LOMAS MORTGAGE USA, INC.
/s/ RAMONA TAYLOR By: /s/ GARY WHITE
Secretary Name: Gary White
Title: Sr. Vice President
(CORPORATE SEAL)
STATE OF TEXAS )
)ss.
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public in and for said County
and State on this 27th day of December, 1994, personally appeared Gary White,
to me known to be the identical person who subscribed the name Lomas Mortgage
USA, Inc. to the foregoing instrument as its Sr. Vice President, and
acknowledged to me that he executed the same as his free and voluntary act and
deed and as the free and voluntary act and deed of such organization for the
uses and purposes therein set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, the day and year last above
written.
/s/ ROWLAND C. FOSTER
Notary Public
My Commission Expires:
(Notary Seal)
Rowland C. Foster
Notary Public, State of Texas
My Commission Expires 07-30-1996
<PAGE> 1
EXHIBIT 10.71
AMENDMENT NO. THREE TO
The Lomas Financial Group Pension Plan
(As Restated Effective January 1, 1991)
Pursuant to the authority set forth in Article XV thereof, The Lomas
Financial Group Pension Plan (As Restated Effective January 1, 1991), is hereby
amended as of the date set forth below only:
<TABLE>
<CAPTION>
RESTATED OR
ADDED PAGES AMENDED SECTION EFFECTIVE DATE
----------- --------------- --------------
<S> <C> <C>
ii through iii Table of Contents
29C through 29G 5.06 (new section) March 1, 1995
</TABLE>
<PAGE> 2
THE LOMAS FINANCIAL GROUP PENSION PLAN
AS RESTATED EFFECTIVE
JANUARY 1, 1991
<PAGE> 3
<TABLE>
<S> <C> <C>
2.44 RETIRED PARTICIPANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.45 SEVERANCE FROM SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.46 SPECIFIED FIDUCIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.47 TERMINATED PARTICIPANT . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.48 TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.49 TRUST FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.50 TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE III PARTICIPATION AND SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.01 Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.02 Credited Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.03 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.04 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.05 Employment by More than One Participating Employer . . . . . . . . . . . . . 18
3.06 Special Rules for Employees of National Homes Acceptance Corporation . . . . 18
3.07 Special Rules for Employees of Great Lakes Mortgage Corporation . . . . . . . 19
3.08 Special Rules for Employees of Advance Mortgage Corporation . . . . . . . . . 20
3.09 Special Rules for Employees of MNet Corporation . . . . . . . . . . . . . . . 21
3.10 Special Rules for Employees of Vista Properties, Inc. . . . . . . . . . . . . 22
ARTICLE IV CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.01 Employer Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.02 Participant Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.03 Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.04 Reversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.05 Transfer of Voluntary After-Tax Employee Contributions . . . . . . . . . . . 25
ARTICLE V RETIREMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.01 At Normal Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . 26
5.02 At Early Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.03 At Late Retirement Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.04 Minimum Monthly Benefit For Participants Whose Compensation in any
Year Prior to January 1, 1994 Exceeded $150,000 . . . . . . . . . . . . . . . 29A
5.05 1994 Special Early Retirement Provisions . . . . . . . . . . . . . . . . . . 29A
5.06 1995 Voluntary Enhanced Retirement Provisions . . . . . . . . . . . . . . . . 29C
ARTICLE VI DEATH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.01 Prior to Actual Retirement or Other Severance From Service . . . . . . . . . 30
</TABLE>
Amendment No. Three ii
<PAGE> 4
<TABLE>
<S> <C> <C>
6.02 After Actual Retirement or Other Severance From Service . . . . . . . . . . . 32
6.03 Spouse is Deemed Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE VII DISABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.01 Disability Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.02 Determination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.03 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.04 Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.05 Age 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VIII OTHER SEVERANCE FROM SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.01 Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.02 Effect of Prior Distribution . . . . . . . . . . . . . . . . . . . . . . . . 36
8.03 Early Retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.04 Terminated Participant's Address . . . . . . . . . . . . . . . . . . . . . . 37
8.05 Payment of Terminated Participant's Benefits . . . . . . . . . . . . . . . . 38
8.06 Limitation Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE IX SETTLEMENT OPTIONS-DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . . . . 38
9.01 When Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
9.02 Basic Pension and Automatic Option . . . . . . . . . . . . . . . . . . . . . 39
9.03 Optional Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
9.04 Insurance Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.05 Date of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.06 Purchase of Annuities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.07 Suspension of Benefits After Retirement . . . . . . . . . . . . . . . . . . . 42
9.08 Preservation of Merged Plan Optional Pension Amounts . . . . . . . . . . . . 42
9.09 Eligible Rollover Distributions . . . . . . . . . . . . . . . . . . . . . . . 42A
ARTICLE X PLAN TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.01 Right to Terminate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.02 Partial Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.03 Liquidation of Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.04 Manner of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.05 Residual Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XI SUCCESSOR EMPLOYER AND MERGER OR CONSOLIDATION OF PLANS . . . . . . . . . . . . . . . 47
11.01 Successor Employer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.02 Merger or Consolidation of Plans . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE XII RESTRICTIONS ON BENEFITS PAYABLE TO HIGHLY COMPENSATED PARTICIPANTS . . . . . . . . . 48
12.01 Restriction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.02 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
Amendment No. Three iii
<PAGE> 5
Eligible Participant's age as of December 31, 1994
plus three (3) years. If an Eligible Participant's
Voluntary Early Retirement Benefit commences after
his Normal Retirement date, no adjustment to the
amount applicable to him under the above provision of
this Section will be made; however, in no event will
his benefit be less than the benefit to which he
would be entitled if he did not receive the Special
Early Retirement Benefit.
(c) Limitations and Restrictions of Benefits. The
benefits determined under this Section shall not
exceed the limitations set forth in Section 16.02
hereof and shall be subject to the restrictions of
Article XII hereof.
5.06 1995 Voluntary Enhanced Retirement Provisions
The following special enhanced retirement provisions shall apply to
the Eligible Participants defined herein.
(1) Definitions -- The following terms used in this Section 5.06
shall have the following meanings:
(a) ELECTION PERIOD means the election period of at least
30 days communicated to an Eligible Participant (in
connection with the Participant's termination of
employment referred in (b) below) during which the
Eligible Participant is allowed to elect (on a form
or forms furnished by the Company) a Voluntary
Enhanced Retirement Benefit, as described in Section
5.06(3).
(b) ELIGIBLE PARTICIPANT means a Participant whose
employment with the Company is terminated under the
Company's reduction-in-force program between March 1,
1995 and June 30, 1995 and who executes a general
release in the form attached hereto as Exhibit A,
("General Release").
(2) Benefit Election -- During the Election Period, an Eligible
Participant may elect, on such form or forms as provided by
the Company, to receive a Voluntary Enhanced Retirement
Benefit. Each Eligible Participant who duly elects the
Voluntary Enhanced Retirement Benefit described in this
Section 5.06 shall be fully vested in the amount of such
benefit, which shall be in lieu of any other benefit he would
otherwise be eligible for under this Plan to the extent such
other benefit is attributable to the same period of Credited
Service used in determining his Voluntary Enhanced Retirement
Benefit. Any Voluntary Enhanced Retirement Benefit payable
under
Amendment No. Three 29C
<PAGE> 6
this Section 5.05 shall commence as of the first day of the
month following the Election Period (or later date if the
Participant elects to defer commencement of his Voluntary
Enhanced Retirement Benefit) and except to the extent
otherwise provided in this Section 5.06, shall be payable
pursuant to Article IX hereof; provided, however, if the
Participant elects to receive his Voluntary Enhanced
Retirement Benefit in the form of an immediate lump sum
distribution, such distribution may, if administratively
practicable, be paid prior to the first day of the month
following the Election Period, but in no event earlier than
the first day following the expiration of the Election Period.
(3) Amount of Voluntary Enhanced Retirement Benefit -- Except as
otherwise limited or restricted by subparagraph (d) below, the
monthly amount of an Eligible Participant's Voluntary Enhanced
Retirement Benefit shall be equal to his Monthly Retirement
Benefit (determined in accordance with subparagraphs (a), (b),
(c) and (d) below).
(a) Monthly Retirement Benefit. An Eligible Participant's
Monthly Retirement Benefit shall, subject to
subparagraph (b) below, be equal to the amount of his
Accrued Benefit under the current benefit formula, if
his Accrued Benefit were determined under said
formula as of his date of termination, increased by
crediting each Eligible Participant with five (5)
additional years of service credit and assuming his
Final Monthly Compensation is equal to 1/12 of his
highest amount of annual wages reported on Form W-2,
plus any salary reduction amounts under section 125
or 401(k) of the Code, for each of the last five
calendar years. However, such Monthly Retirement
Benefit shall not be less than 1/12 of $1,000
multiplied by his years of Credited Service (not to
exceed five such years).
(b) Adjustment for Commencement at other than Normal
Retirement Date. If an Eligible Participant's
Voluntary Enhanced Retirement Benefit commences
before his Normal Retirement Date, the early
reduction factors in effect under the Plan, shall be
used to determine the amount of the benefit based on
the Eligible Participant's age as of the date of
commencement plus five (5) years. If an Eligible
Participant's Voluntary Enhanced Retirement Benefit
commences after his Normal Retirement Date, no
adjustment to the amount applicable to him under the
above provision of this Section will be made;
however, in no event will his
Amendment No. Three 29D
<PAGE> 7
benefit be less than the benefit to which he would be
entitled if he did not receive the Voluntary Enhanced
Retirement Benefit.
(c) Maximum and Minimum Amounts. The amount of the
Participant's Monthly Retirement Benefit under the
above provisions of this Section shall not be less
than the minimum benefit described below nor more
than the maximum benefit described below.
Minimum Benefit - The amount of Basic Pension (life
only) that would be applicable to the Participant
(assuming full vested status) if the provisions of
this Section did not apply, plus the amount of Basic
Pension (life only) that is the Actuarial Equivalent
(based on assumptions used for determining lump sum
present values hereunder) of 112% of the present
value amount determined under the Lump Sum Table
below.
Maximum Benefit - The amount of Basic Pension (life
only) that would be applicable to the Participant
(assuming full vested status) if the provisions of
this Section did not apply, plus the amount of Basic
Pension (life only) that is the Actuarial Equivalent
(based on the assumptions used for determining lump
sum present values hereunder) of 150% of the present
value amount determined under the Present Value Table
below.
Amendment No. Three 29E
<PAGE> 8
Present Value Table
<TABLE>
<CAPTION>
==============================================================================================================
AND THE ELIGIBLE
IF THE ELIGIBLE PARTICIPANT HAS
PARTICIPANT IS CREDITED SERVICE
(A/AN): OF: PRESENT VALUE IS:
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-officer Five years or less 1/6 of Annual Pay
- --------------------------------------------------------------------------------------------------------------
Non-officer More than five 1/6 of Annual Pay plus 1/52 of
years Annual Pay for each full year of
Credited Service over 5 years
- --------------------------------------------------------------------------------------------------------------
Officer (any Five years or less 1/3 of Annual Pay
Officer other than
a Senior Officer)
- --------------------------------------------------------------------------------------------------------------
Officer (any More than five 1/3 of Annual Pay plus 1/52 of
Officer other than years Annual Pay for each full year of
a Senior Officer) Credited Service over 5 years
- --------------------------------------------------------------------------------------------------------------
Senior Officer Five years or less 1/2 of Annual Pay
- --------------------------------------------------------------------------------------------------------------
Senior Officer More than five but 1/2 of Annual Pay plus 1/52 of
less than 20 years Annual Pay for each full year of
Credited Service over 5 years
- --------------------------------------------------------------------------------------------------------------
Senior Officer More than 20 years Annual Pay plus 1/52 of Annual Pay
for each full year of Credited
Service over 20 years
==============================================================================================================
</TABLE>
For purposes of this Present Value Table, "Annual
Pay" is the Participant's base annual salary in
effect on the last day of active employment
(exclusive of overtime, commissions, bonus, incentive
pay, or any other special payments), but not to
exceed the maximum amount of annual compensation
allowed under Section 2.12 hereof, and Credited
Service shall not include the additional five (5)
years added under (a) above.
Amendment No. Three 29F
<PAGE> 9
(d) Limitations and Restrictions of Benefits. The
benefits determined under this Section shall not
exceed the limitations set forth in Section 16.02
hereof and shall be subject to the restrictions of
Article XII hereof.
Amendment No. Three 29G
<PAGE> 10
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising Amendment No. Three to The Lomas Financial
Group Pension Plan (As Restated Effective January 1, 1991), LOMAS MORTGAGE USA,
INC., as the Employer, has caused its corporate seal to be affixed hereto and
these presents to be duly executed in its name and behalf by its proper
officers thereunto authorized this 30th day of June, 1995.
ATTEST: LOMAS MORTGAGE USA, INC.
/s/ PATSY PETTIT By: /s/ LOUIS P. GREGORY
Assistant Secretary Name: Louis P. Gregory
Title: Senior Vice President &
General Counsel
(CORPORATE SEAL)
STATE OF TEXAS )
)SS.
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public in and for said
County and State on this 18th day of July, 1995, personally appeared Louis P.
Gregory, to me known to be the identical person who subscribed the name Lomas
Mortgage USA, Inc., to the foregoing instrument as its Senior V.P. and General
Counsel and acknowledged to me that he executed the same as his free and
voluntary act and deed and as the free and voluntary act and deed of such
organization for the uses and purposes therein set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, the day and year last above
written.
/s/ SUE GRISHAM
Notary Public
My Commission Expires:
SUE GRISHAM
Notary Public, State of Texas
My Commission Expires 09-30-1997
<PAGE> 1
EXHIBIT 10.72
AMENDMENT NO. FOUR (REVISED) TO
THE LOMAS FINANCIAL GROUP PENSION PLAN
(AS RESTATED EFFECTIVE JANUARY 1, 1991)
Pursuant to the authority set forth in Article XV of The Lomas
Financial Group Pension Plan (As Restated Effective January 1, 1991) (the
"Plan"), Lomas Mortgage USA, Inc. (the "Company") hereby amends the Plan,
effective as set forth herein, as follows:
I. Section 2.04 of the Plan is amended, effective October 6, 1995, by the
addition of a new provision (as attached hereto) at the end of such
Section, which provides for new interest rate and mortality
assumptions for determining single sum payments.
II. Section 3.01 (3) of the Plan is amended, effective October 6, 1995, by
the addition of a new provision (as attached hereto) at the end of
such Section, which modifies the participation requirements of the
Plan.
III. Article V of the Plan is amended, effective October 6, 1995, by the
addition of a new Section 5.07 (as attached hereto), which provides
for an additional retirement benefit for certain employees whose jobs
are eliminated.
IV. Article VI of the Plan is amended, effective October 6, 1995, by the
addition of a new Section 6.04 (as attached hereto), which eliminates
death benefits payable in the event of a Plan participant's death
prior to the commencement of such participant's "Accrued Benefit" (as
defined in the Plan) except for the minimum survivor benefits required
to be paid under the Employee Retirement Income Security Act of 1974,
as amended and the Internal Revenue Code of 1986 as amended (the
"Codes"), and certain other amounts as described in 6.04 of the Plan.
<PAGE> 2
V. Section 8.01 of the Plan is amended, effective October 6, 1995, by the
addition of a new provision (as attached hereto) at the end of such
Section, which provides full vesting for Participants whose employment
terminates on or after the beginning of the reduction-in-force
announced effective January 1, 1994.
VI. Section 8.06 of the Plan is amended, effective October 6, 1995, by the
addition of a new provision (as attached hereto) at the end of such
Section, which provides for new interest rate and mortality
assumptions for determining single sum payments of $3,500 or less.
VII. Section 16.02 of the Plan is amended, effective October 6, 1995, by
the addition of a new provision (as attached hereto) at the end of
such Section, which provides for new interest rate and mortality
assumptions to be used for purposes of applying the limitations of
Code Section 415 to benefits hereunder, determined in accordance with
the form and time of payment.
2
<PAGE> 3
I. New Provision Added at End of Section 2.04
Notwithstanding the above provisions of this Section 2.04, any
single-sum payment made on or after October 6, 1995 shall be
calculated using the following interest rate and mortality table;
provided, however, that the following new interest rate and mortality
table shall not apply to any former Participant who has prior to the
date of adoption of this Amendment No. Four to the Plan, been given
written notice of such former Participant's right to elect to receive
a single-sum payment based on the prior interest and mortality
assumptions, and who elects single-sum form of payment on or before
December 1, 1995:
Interest
Rat: The annual interest rate on 30-year Treasury
securities for the month preceding the month in which
the date of distribution occurs (as specified in
accordance with the regulations issued under Code
Section 417 (e) ).
Mortalit
Table: The mortality table based on the prevailing
commissioners' standard table used to determine
reserves for group annuity contracts issued on the
date as of which the single-sum is being determined
(as prescribed in accordance with the regulations
issued under Code Section 417 (e)).
II. New Provision Added to the End of Section 3.01 (3).
Notwithstanding the provisions of the immediately preceding sentence
of this paragraph (3), effective October 6, 1995, the participation of
any eligible Employee who does not become a Participant in accordance
with paragraphs (1) and (2) above and whose employment with the
Employer is involuntarily terminated on or after January 1, 1996,
shall commence on the first day of the month immediately following his
Employment Commencement Date.
III. 5.07 Additional Retirement Benefit.
Effective as of the later of (i) January 1, 1996, or (ii) the earlier
of (a) the date on which the Internal Revenue Service issues a
favorable determination letter with respect to Amendment No. Four to
the Plan including this Section 5.07, or (b)March 1,1996, each
Participant whose job with the Company is eliminated on or after
3
<PAGE> 4
January 1, 1996 shall be entitled to a retirement benefit from the
Plan in the amount of his Accrued Benefit (assuming full vested
status), determined without regard to this Section 5.07 as of his
termination of employment date with the Company, plus an amount equal
to the amount of Basic Pension (life only) that is the Actuarial
Equivalent of the present value determined under the Present Value
Table below:
PRESENT VALUE TABLE
<TABLE>
<CAPTION>
------------------------------------------------------------------
IF THE ELIGIBLE PARTICIPANT IS IN A: PRESENT VALUE IS:
------------------------------------------------------------------
<S> <C>
Job assigned less than or equal to 247 18.52% of Annual Pay
points
------------------------------------------------------------------
Job assigned more than 247 points but 37.04% of Annual Pay
less than or equal to 421 points
------------------------------------------------------------------
Job assigned more than 421 points but 55.56% of Annual Pay
less than or equal to 964 points
------------------------------------------------------------------
Job assigned more than 964 points 150% of Annual Pay
------------------------------------------------------------------
</TABLE>
For purposes of the Present Value Table, "Annual Pay" is the
Participant's base annual salary in effect on the last day of active
employment (exclusive of overtime, commissions, bonus, incentive pay,
or any other special payments), but not to exceed the maximum amount
of annual compensation allowed under Section 2.12 hereof, and "points"
are the points assigned to a particular job classification pursuant to
the Hay Job Evaluation System.
The benefits determined under this Section shall not exceed the
limitations set forth in Section 16.02 hereof and shall be subject to
the restrictions of Article XII hereof.
IV. 6.04 Death After Adoption of Amendment No. Four.
Notwithstanding the provisions in the previous Sections of this
Article VI, effective as of October 6, 1995, no death benefit shall be
payable from the Plan, upon the death of any Participant prior to the
commencement of the Participant's Accrued Benefit, except as provided
in this Section 6.04. The death benefit payable under this Section
6.04 shall be an amount equal to the sum of the amounts described in
Sections 6.01(1) and 6.01 (2), if
4
<PAGE> 5
any, payable in accordance with Section 6.03, and if the Participant
was vested and married with a surviving spouse at the date of the
Participant's death, a "qualified preretirement survivor annuity" as
described in Code Section 417(c) in a monthly amount payable to the
surviving spouse, in the form of a life annuity with the value equal
to the value of payments which such spouse would have received,
pursuant to Section 9.02 (2) hereof, had the Participant commenced
receipt of his benefits on the day immediately preceding the date of
his death. The qualified preretirement survivor annuity benefit
described above shall be payable to the spouse as of the first day of
any month coinciding with or next following the day of the
Participant's death, as elected by the Participant's spouse, or in the
event the Participant's spouse fails to make such an election, as of
the Participant's Normal Retirement Date.
V. New Provision Added at End of Section 8.01.
Notwithstanding the above provisions of this Section, the vested
percentage shall be 100%, regardless of Years of Credited Service, for
any Participant whose employment terminates after the beginning of the
Employer's reduction-in-force that was announced effective January 1,
1994.
VI. New Provision Added at the end of Section 8.06.
Notwithstanding the foregoing, the determination of the present value
of any single-sum payments made under this Section 8.06 on or after
October 6, 1995, shall be based on the interest rate and mortality
table specified in Section 2.04 as amended by Amendment No. Four to
the Plan.
VII New Paragraph (7) Added at end of Section 16.02
(7) Interest Rate and Mortality Table -- Notwithstanding the above
provisions of this Section, effective October 6, 1995, for purposes of
determining Actuarial Equivalent amounts under paragraph (1)(a), (b)
or (c) above, the following interest rate and mortality table shall be
used, as applicable.
Interest
Rate: The interest rate specified in the last paragraph of
Section 2.04 (i.e., 30-Year Treasury rate) shall be
used as to any single-sum form of payment under
paragraph (1) (a) above.
5
<PAGE> 6
Mortality
Table The mortality table specified in the last paragraph
of Section 2.04 (i.e., prevailing commissioner's
standard table for group annuity contracts) shall be
used as to all forms and times of payment under
paragraph (1) (a), (b) and (c), above.
6
<PAGE> 7
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising Amendment No. Four to the Lomas Financial Group
Pension Plan (As Restated Effective January 1, 1991), the Company has caused
its corporate seal to be affixed hereto and the presents to be duly executed in
its name and behalf by its proper officers thereunto authorized this 9th day
of October, 1995.
ATTEST: LOMAS MORTGAGE USA, INC.
/s/ EUGENE BURNS By: /s/ LOUIS P. GREGORY
- ----------------------------- -------------------------------
Assistant Secretary Name: Louis P. Gregory
Title: Sr. Vice President & General Counsel
(CORPORATE SEAL)
STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State on this 12th day of October, 1995, personally appeared Louis P. Gregory,
to be known to be the identical person who subscribed the name Lomas Mortgage
USA, Inc., to the foregoing instrument at its coreporate offices, and
acknowledged to me that he executed the same as his free and voluntary act and
deed and as the free and voluntary act and deed of such organization for the
uses and purposes therein set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, the day and year last above
written.
/s/ SUE GRISHAM
-------------------------------
Notary Public
My Commission Expires:
9/30/97
- ---------------------------
(NOTARY SEAL)
SUE GRISHAM
Notary Public, State of Texas
My Commission Expires 09-30-1997
7
<PAGE> 1
EXHIBIT 10.87
LONG-TERM INCENTIVE COMPENSATION PLAN
FOR THE SENIOR OFFICERS OF LOMAS MANAGEMENT, INC. (THE "PLAN")
Background
After application of the proceeds of the September 30, 1994 sale of 12 of the
assets of ST Lending, Inc. ("STL") to Lennar Partners, the assets of STL
totaled approximately $79.2 million and included (in addition to cash and
intercompany receivables) the following (in millions):
<TABLE>
<S> <C>
Escrowed funds, related to the
Lennar transaction $ 4.75
Earning loans 10.90
Non-earning loans 3.30
Real estate owned 36.60
Reserves (5.70)
------
Portfolio balance, net of reserves $49.85
======
</TABLE>
Lomas Management, Inc. ("LMI") manages the assets of STL and is responsible for
the liquidation of the foregoing balance of STL's portfolio of investments in a
manner which will preserve, to the extent possible, STL's stockholder's equity
which is held 51 percent by Lomas Financial Corporation and 49 percent by Lomas
Mortgage USA.
LMI also is responsible for the disposition of two properties which are owned
by LLG Lands, Inc. (a wholly-owned subsidiary of Lomas Financial Corporation),
namely, a parking garage located at 145 East Maryland in Indianapolis, Indiana
which is carried at a book value net of reserves of $1.5 million, and a tract
of land in the Houston area referred to as Nassau Bay which is carried at a
book value net of reserves of $150,000.
-1-
<PAGE> 2
Plan Purpose
The purpose of this Plan is to relate a portion of the compensation of the
senior officers of LMI directly to the interests of Lomas Financial Corporation
and Lomas Mortgage USA by rewarding them for the orderly liquidation of the
remaining assets of STL (exclusive of the escrowed funds related to the Lennar
transaction which are covered by a separate plan) and the two assets of LLG
Lands, Inc. mentioned above.
To that end, as STL's investments held at October 1, 1994 (exclusive of the
escrowed funds related to the Lennar transaction which are covered by a
separate plan) and the above-mentioned properties owned by LLG Lands are
liquidated, for cash realized on or before September 30, 1996 from asset
liquidations, amounts will be added to an incentive compensation pool as set
out below:
Pool Accumulation Table
<TABLE>
<CAPTION>
Cash Realizations Amount of Each Asset Liquidation
From Aggregate Asset (Stated as a percentage of Cash
Liquidations Realization) to be added to Pool
-------------------- --------------------------------
<S> <C>
First $5,250,000 .500%
Next $ 1 0, 000, 000 .625%
Next $ 1 0, 000, 000 .875%
Next $ 1 0, 000, 000 1.000%
Excess over $35,250,000 1.125%
</TABLE>
Plan Participants
The participants in the Plan are limited to the top executives of LMI and
include:
<TABLE>
<CAPTION>
Percentage of
Name Pool Allocation
------------------------ ---------------
<S> <C>
Carey Wickland 45%
Greg Winchester 30%
Others (to be designated
by Carey Wickland) 25%
---
100%
===
</TABLE>
-2-
<PAGE> 3
Plan Distributions
Distributions of the resulting incentive compensation pool would be made to the
participants on the 15th day of the month following the end of the fiscal
quarter in which one or more related Asset Liquidations occur.
However, for Asset Liquidations during the period beginning October 1, 1994 and
ending March 31, 1995, the distribution of the resulting incentive compensation
pool will be made on or about April 17, 1995. Moreover, the final incentive
compensation pool distribution will occur on or about October 15, 1996.
The phrase "each addition to the pool" means the amount of cash that is added
to the pool when the net cash received from each Asset Liquidation is
multiplied by the relevant percentage factor taken from the Pool Accumulation
Table.
In the event any participant voluntarily terminates his or her employment as an
officer of LMI (for any reason other than death or permanent disability) or in
the event of his or her involuntary termination for cause, his or her interest
in any accumulated and undistributed balance in the incentive compensation pool
will be forfeited. In the event of any participant's involuntary termination
without cause or in the event of his or her death or permanent disability (as
defined in the Lomas Financial Group's Long-Term Disability Plan), the
participant's interest in the pool accumulated prior to his or her involuntary
termination without cause or his or her death or disability will be paid to the
participant or his or her estate as scheduled under the plan.
APPROVED:
/s/ ERIC D. BOOTH
- ----------------------------
Eric Booth
Date: March 6, 1995
-3-
<PAGE> 4
EXHIBIT 10.72
AMENDMENT NO. FOUR (REVISED) TO
THE LOMAS FINANCIAL GROUP PENSION PLAN
(AS RESTATED EFFECTIVE JANUARY 1, 1991)
Pursuant to the authority set forth in Article XV of The Lomas
Financial Group Pension Plan (As Restated Effective January 1, 1991) (the
"Plan"), Lomas Mortgage USA, Inc. (the "Company") hereby amends the Plan,
effective as set forth herein, as follows:
I. Section 2.04 of the Plan is amended, effective October 6, 1995, by the
addition of a new provision (as attached hereto) at the end of such
Section, which provides for new interest rate and mortality
assumptions for determining single sum payments.
II. Section 3.01 (3) of the Plan is amended, effective October 6, 1995, by
the addition of a new provision (as attached hereto) at the end of
such Section, which modifies the participation requirements of the
Plan.
III. Article V of the Plan is amended, effective October 6, 1995, by the
addition of a new Section 5.07 (as attached hereto), which provides
for an additional retirement benefit for certain employees whose jobs
are eliminated.
IV. Article VI of the Plan is amended, effective October 6, 1995, by the
addition of a new Section 6.04 (as attached hereto), which eliminates
death benefits payable in the event of a Plan participant's death
prior to the commencement of such participant's "Accrued Benefit" (as
defined in the Plan) except for the minimum survivor benefits required
to be paid under the Employee Retirement Income Security Act of 1974,
as amended and the Internal Revenue Code of 1986 as amended (the
"Codes"), and certain other amounts as described in 6.04 of the Plan.
<PAGE> 5
V. Section 8.01 of the Plan is amended, effective October 6, 1995, by the
addition of a new provision (as attached hereto) at the end of such
Section, which provides full vesting for Participants whose employment
terminates on or after the beginning of the reduction-in-force
announced effective January 1, 1994.
VI. Section 8.06 of the Plan is amended, effective October 6, 1995, by the
addition of a new provision (as attached hereto) at the end of such
Section, which provides for new interest rate and mortality
assumptions for determining single sum payments of $3,500 or less.
VII. Section 16.02 of the Plan is amended, effective October 6, 1995, by
the addition of a new provision (as attached hereto) at the end of
such Section, which provides for new interest rate and mortality
assumptions to be used for purposes of applying the limitations of
Code Section 415 to benefits hereunder, determined in accordance with
the form and time of payment.
2
<PAGE> 6
I. New Provision Added at End of Section 2.04
Notwithstanding the above provisions of this Section 2.04, any
single-sum payment made on or after October 6, 1995 shall be
calculated using the following interest rate and mortality table;
provided, however, that the following new interest rate and mortality
table shall not apply to any former Participant who has prior to the
date of adoption of this Amendment No. Four to the Plan, been given
written notice of such former Participant's right to elect to receive
a single-sum payment based on the prior interest and mortality
assumptions, and who elects single-sum form of payment on or before
December 1, 1995:
Interest
Rat: The annual interest rate on 30-year Treasury
securities for the month preceding the month in which
the date of distribution occurs (as specified in
accordance with the regulations issued under Code
Section 417 (e) ).
Mortalit
Table: The mortality table based on the prevailing
commissioners' standard table used to determine
reserves for group annuity contracts issued on the
date as of which the single-sum is being determined
(as prescribed in accordance with the regulations
issued under Code Section 417 (e)).
II. New Provision Added to the End of Section 3.01 (3).
Notwithstanding the provisions of the immediately preceding sentence
of this paragraph (3), effective October 6, 1995, the participation of
any eligible Employee who does not become a Participant in accordance
with paragraphs (1) and (2) above and whose employment with the
Employer is involuntarily terminated on or after January 1, 1996,
shall commence on the first day of the month immediately following his
Employment Commencement Date.
III. 5.07 Additional Retirement Benefit.
Effective as of the later of (i) January 1, 1996, or (ii) the earlier
of (a) the date on which the Internal Revenue Service issues a
favorable determination letter with respect to Amendment No. Four to
the Plan including this Section 5.07, or (b)March 1,1996, each
Participant whose job with the Company is eliminated on or after
3
<PAGE> 7
January 1, 1996 shall be entitled to a retirement benefit from the
Plan in the amount of his Accrued Benefit (assuming full vested
status), determined without regard to this Section 5.07 as of his
termination of employment date with the Company, plus an amount equal
to the amount of Basic Pension (life only) that is the Actuarial
Equivalent of the present value determined under the Present Value
Table below:
PRESENT VALUE TABLE
<TABLE>
<CAPTION>
------------------------------------------------------------------
IF THE ELIGIBLE PARTICIPANT IS IN A: PRESENT VALUE IS:
------------------------------------------------------------------
<S> <C>
Job assigned less than or equal to 247 18.52% of Annual Pay
points
------------------------------------------------------------------
Job assigned more than 247 points but 37.04% of Annual Pay
less than or equal to 421 points
------------------------------------------------------------------
Job assigned more than 421 points but 55.56% of Annual Pay
less than or equal to 964 points
------------------------------------------------------------------
Job assigned more than 964 points 150% of Annual Pay
------------------------------------------------------------------
</TABLE>
For purposes of the Present Value Table, "Annual Pay" is the
Participant's base annual salary in effect on the last day of active
employment (exclusive of overtime, commissions, bonus, incentive pay,
or any other special payments), but not to exceed the maximum amount
of annual compensation allowed under Section 2.12 hereof, and "points"
are the points assigned to a particular job classification pursuant to
the Hay Job Evaluation System.
The benefits determined under this Section shall not exceed the
limitations set forth in Section 16.02 hereof and shall be subject to
the restrictions of Article XII hereof.
IV. 6.04 Death After Adoption of Amendment No. Four.
Notwithstanding the provisions in the previous Sections of this
Article VI, effective as of October 6, 1995, no death benefit shall be
payable from the Plan, upon the death of any Participant prior to the
commencement of the Participant's Accrued Benefit, except as provided
in this Section 6.04. The death benefit payable under this Section
6.04 shall be an amount equal to the sum of the amounts described in
Sections 6.01(1) and 6.01 (2), if
4
<PAGE> 8
any, payable in accordance with Section 6.03, and if the Participant
was vested and married with a surviving spouse at the date of the
Participant's death, a "qualified preretirement survivor annuity" as
described in Code Section 417(c) in a monthly amount payable to the
surviving spouse, in the form of a life annuity with the value equal
to the value of payments which such spouse would have received,
pursuant to Section 9.02 (2) hereof, had the Participant commenced
receipt of his benefits on the day immediately preceding the date of
his death. The qualified preretirement survivor annuity benefit
described above shall be payable to the spouse as of the first day of
any month coinciding with or next following the day of the
Participant's death, as elected by the Participant's spouse, or in the
event the Participant's spouse fails to make such an election, as of
the Participant's Normal Retirement Date.
V. New Provision Added at End of Section 8.01.
Notwithstanding the above provisions of this Section, the vested
percentage shall be 100%, regardless of Years of Credited Service, for
any Participant whose employment terminates after the beginning of the
Employer's reduction-in-force that was announced effective January 1,
1994.
VI. New Provision Added at the end of Section 8.06.
Notwithstanding the foregoing, the determination of the present value
of any single-sum payments made under this Section 8.06 on or after
October 6, 1995, shall be based on the interest rate and mortality
table specified in Section 2.04 as amended by Amendment No. Four to
the Plan.
VII New Paragraph (7) Added at end of Section 16.02
(7) Interest Rate and Mortality Table -- Notwithstanding the above
provisions of this Section, effective October 6, 1995, for purposes of
determining Actuarial Equivalent amounts under paragraph (1)(a), (b)
or (c) above, the following interest rate and mortality table shall be
used, as applicable.
Interest
Rate: The interest rate specified in the last paragraph of
Section 2.04 (i.e., 30-Year Treasury rate) shall be
used as to any single-sum form of payment under
paragraph (1) (a) above.
5
<PAGE> 9
Mortality
Table The mortality table specified in the last paragraph
of Section 2.04 (i.e., prevailing commissioner's
standard table for group annuity contracts) shall be
used as to all forms and times of payment under
paragraph (1) (a), (b) and (c), above.
6
<PAGE> 10
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the
foregoing instrument comprising Amendment No. Four to the Lomas Financial Group
Pension Plan (As Restated Effective January 1, 1991), the Company has caused
its corporate seal to be affixed hereto and the presents to be duly executed in
its name and behalf by its proper officers thereunto authorized this 9th day
of October, 1995.
ATTEST: LOMAS MORTGAGE USA, INC.
/s/ EUGENE BURNS By: /s/ LOUIS P. GREGORY
- ----------------------------- -------------------------------
Assistant Secretary Name: Louis P. Gregory
Title: Sr. Vice President & General Counsel
(CORPORATE SEAL)
STATE OF TEXAS )
) ss.
COUNTY OF DALLAS )
BEFORE ME, the undersigned, a Notary Public in and for said County and
State on this 12th day of October, 1995, personally appeared Louis P. Gregory,
to be known to be the identical person who subscribed the name Lomas Mortgage
USA, Inc., to the foregoing instrument at its coreporate offices, and
acknowledged to me that he executed the same as his free and voluntary act and
deed and as the free and voluntary act and deed of such organization for the
uses and purposes therein set forth.
GIVEN UNDER MY HAND AND SEAL OF OFFICE, the day and year last above
written.
/s/ SUE GRISHAM
-------------------------------
Notary Public
My Commission Expires:
9/30/97
- ---------------------------
(NOTARY SEAL)
SUE GRISHAM
Notary Public, State of Texas
My Commission Expires 09-30-1997
7
<PAGE> 11
EXHIBIT 10.90
LOMAS MORTGAGE (USA), INC.
PERFORMANCE AND RETENTION INCENTIVE PLAN
PURPOSE
The purpose of this Lomas Mortgage (USA), Inc. Performance and Retention
Incentive Plan is to retain and motivate employees by providing Performance and
Retention Awards. The Performance and Retention Awards are provided in order
to maintain and enhance the value of the Company by helping to retain and
motivate employees through the completion date of the transfer of assets. This
Plan will help ensure the receipt of a full price for those assets and the
preservation of any portion of the sale price held back by the purchaser
contingent on the Company's successful completion of the transfer.
1. DEFINITIONS
When used in this Plan and initially capitalized, the following words
and phrases shall have the following meanings unless the context
clearly requires otherwise:
1.1 "PERFORMANCE AND RETENTION AWARD" shall mean a bonus provided
under Section 3.1 of the Plan.
1.2 "BASE COMPENSATION" shall mean, as to any Participant for any
period, his annual base salary paid to him by the Company for such
period before reduction under a tax qualified plan of the Company and
before reduction for any other amounts contributed by the Company on
his behalf to any other employee benefit plan.
1.3. "BOARD OF DIRECTORS" shall mean the Board of Directors of
Lomas Mortgage (USA), Inc.
1.4 "CAUSE" shall mean, as to any Participant, that such
Participant shall have committed prior to his termination of
employment with the Company:
(a) an intentional act of fraud, embezzlement, theft or any
other material violation of law in connection with the
Participant's duties or in the course of his employment with
the Company;
(b) intentional wrongful damage to material assets of the
Company;
(c) intentional wrongful disclosure of material confidential
information of the Company;
<PAGE> 12
(d) intentional wrongful engagement in any competitive
activity which would constitute a material breach of the duty
of loyalty; or
(e) intentional breach of any stated material employment
policy of the Company.
No act, or failure to act, on the part of a Participant shall be
deemed "intentional" if it was due primarily to an error in judgment
or negligence, but shall be deemed "intentional" only if done, or
omitted to be done, by the Participant not in good faith and without
reasonable belief that his action or omission was in, or not opposed
to, the best interests of the Company.
1.5 "CHIEF EXECUTIVE OFFICER" shall mean the Chief Executive
Officer of the Company.
1.6 "COMPANY" shall mean Lomas Mortgage Company (USA) and any
successor corporations.
1.7 "DESIGNATED GROUP" shall mean any one of the groups of
employees designated on Schedule 1, as such schedule may be amended
from time to time.
1.8 "DISABLED" shall mean a Participant unable, as a result of
incapacity due to a physical or mental illness, to perform his duties
with the Company, and shall be deemed to exist at such time as such
Participant becomes eligible to receive benefits under the disability
income plan of the Company.
1.9 "EFFECTIVE DATE" shall mean October 5, 1995.
1.10 "PARTICIPANT" shall mean any person who becomes a
Participant in the Plan as provided in Section 2.1 or 2.2 and who has
not ceased to be a Participant pursuant to Section 2.3.
1.11 "PLAN" shall mean the Company's Performance and Retention
Incentive Plan, as the same may be hereafter amended from time to
time.
1.12 "VOLUNTARY TERMINATION FOR GOOD REASON" shall mean voluntary
termination of employment by a Covered Employee, other than
retirement, within 90 days of:
(a) a reduction in the Covered Employee's base salary or the
maximum benefits possible to be earned by such Covered
Employee hereunder, or
(b) relocation of the Covered Employee's assigned office
location to a location that is greater than 35 miles from its
former location, or, with respect to any employee (i) whose
primary
2
<PAGE> 13
work location is his home or is outside the state of Texas or
otherwise not at a location of the Company or its affiliates
on a full time basis (a "Commuter"), and (ii) who is
reimbursed by the Company for the costs of such commutation (a
"Commutation Arrangement"), termination of such Commuter's
Commutation Arrangement or modification thereof by the Company
so as to increase the expense or inconvenience of the
Arrangement to the Commuter.
2. PARTICIPATION
2.1 INITIAL PARTICIPANTS. An employee in the employ of the
Company who is a member of a Designated Group on the Effective Date
shall become a Participant in the Plan as of the Effective Date.
2.2 NEW PARTICIPANTS. Any other employee of the Company who
becomes a member of a Designated Group after the Effective Date and is
notified in a letter by the Company of his participation shall become
a Participant in the Plan as of the date he becomes a member of a
Designated Group subject to any conditions set forth in such letter.
2.3 TERMINATION OF PARTICIPATION. Any Participant whose
employment with the Company terminates for any reason other than
death, retirement, disability, involuntary termination without cause
or Voluntary Termination for Good Reason shall cease to be a
Participant. If an individual who became a Participant in the Plan
later ceases to be a member of a Designated Group by reason of job
reassignment or job reclassification, then such individual shall
likewise cease to be a Participant.
3. DETERMINATION OF AWARD AMOUNT
3.1 PERFORMANCE AND RETENTION AWARDS. Subject to Section 3.2,
each Participant shall be entitled to receive a Performance and
Retention Award in an amount equal to:
(a) a percentage, within the range of percentages of the
Performance and Retention Award percentages specified on
Schedule 1, determined by the Chief Executive Officer's
discretionary evaluation of the Participant's performance
(provided, however, that with respect to award determinations
for Senior Vice Presidents and above, such determinations will
be subject to the approval of the Board of Directors), times
(b) the Participant's Base Compensation at the time of payment.
3
<PAGE> 14
3.2 DEATH, RETIREMENT AND DISABILITY. Each Participant whose
employment terminates by reason of death retirement or disability
shall be entitled to a Performance and Retention Award determined by
multiplying the minimum percentage of the applicable range of
percentage specified on Schedule 1 by the Participant's Base
Compensation at the date of such event.
3.3 OPERATIONAL BONUSES AND RAISES. Nothing herein shall be
construed to restrict the Chief Executive Officer from proposing
bonuses to employees subject to the approval of the Board of
Directors. Additionally, the Chief Executive Officer may, in his
sole discretion, award additional performance or retention awards to
key Participants in Tiers 3 and 4 on Schedule 1, not to individually
exceed three months base pay and not to cumulatively exceed $500,000.
4. PAYMENT OF AWARDS
4.1 TIME OF PAYMENT OF PERFORMANCE AND RETENTION AWARDS. The
Company shall pay the Performance and Retention Awards in cash to the
Participants entitled thereto on (or in the case of clause (b), within
10 business days after) the earliest of the following dates:
(a) October 1, 1996, or, if a participant in Designated Group
Tier 4 in Schedule 1, June 30, 1996, or
(b) the date of the Participant's termination by reason of
death, retirement, disability, involuntary termination without
Cause, or Voluntary Termination for Good Reason.
4.2 DEATH BENEFICIARY. In the event of a Participant's death,
the maximum benefit otherwise payable to him shall be payable to the
beneficiary which has been designated by the Participant to receive
benefits payable under the Company's group insurance program. If a
Participant has failed to designate a beneficiary, or if such
designated beneficiary predeceased the Participant, then such
Participant's benefits under the Plan shall be paid in accordance with
the following order of priority:
(a) to the Participant's surviving spouse, or if there be
none surviving,
(b) to the Participant's estate.
Any such payment shall be made as soon as practicable following the
Participant's death.
4
<PAGE> 15
5. FORFEITURE OF AWARDS
5.1 FORFEITURE UPON TERMINATION FOR CAUSE. Payment of any portion
of a Participant's award under the Plan shall be forfeited, and the
Company shall have no further obligation hereunder to such
Participant, if the Participant is discharged from employment for
Cause prior to payment of his award.
6. ADMINISTRATION
6.1 ADMINISTRATION BY THE CHIEF EXECUTIVE OFFICER OF THE COMPANY.
The administration of the Plan, the exclusive power to interpret it,
and the responsibility for carrying out its provisions are vested in
the Chief Executive Officer of the Company. The Chief Executive
Officer shall establish such rules, regulations and procedures as he
shall deem necessary or advisable. The Chief Executive Officer shall
have the right, in his discretion, (a) to delegate his authority for
administration of the Plan, and (b) to retain accountants, attorneys
and such other advisors as he shall deem necessary or advisable in
connection with the administration of the Plan. The expenses of the
Chief Executive Officer in administering the Plan shall be paid
directly by the COMPANY.
6.2. LIMITATION OF LIABILITY. Neither the Company nor the Chief
Executive Officer nor any other director, officer, employee or agent
of the Company shall be liable for any action taken or omitted to be
taken by such person under the Plan except in the case of gross
negligence or willful misconduct. Any action taken or omitted to be
taken by any such person in good faith reliance on the advice of any
accountant, actuary, attorney or other advisor retained by the Chief
Executive Officer shall be conclusively presumed not to involve gross
negligence or willful misconduct. The Chief Executive Officer and all
other such person shall be indemnified by the Company against losses,
liabilities, claims, costs and expenses in connection with serving as
administrator of the Plan, unless resulting from gross negligence or
willful misconduct.
7. AMENDMENT
7.1 RIGHT TO AMEND. The Company reserves the right to modify or
amend, in whole or in part, the Plan at any time; provided, however,
that the minimum benefit applicable to a Participant hereunder shall
not be reduced without such Participant's consent.
8. GENERAL PROVISIONS
8.1 LIMITATION ON RIGHTS. Neither the establishment of the Plan
nor participation herein shall be construed as conferring any legal
rights upon any employee or other person for continuation of
employment, nor shall such
5
<PAGE> 16
establishment or participation give him any rights to any benefits
whatsoever, except to the extent specifically set forth herein.
8.2 TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Plan all federal, state, city or other taxes as
shall be required to be withheld pursuant to any law or government
regulation or ruling.
8.3 SPENDTHRIFT PROVISION. Subject to any applicable law, no
benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge,
and any attempt to do so shall void the Participant's benefits under
the Plan, nor shall any such benefit be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of
the Participant. In the event that the Chief Executive Officer of the
Company shall find that any Participant has attempted to violate such
provision, such benefit shall be forfeited subject to the discretion
of the Chief Executive Officer with approval of the Board of
Directors. In the event that the non-employee directors of the Board
of Directors shall find that the Chief Executive Officer has attempted
to violate such provision, such benefit shall be forfeited subject to
the non-employee directors' discretion.
8.4 THE PLAN IS NOT FUNDED. The Company shall pay benefits under
the Plan from its general assets. No property of the Company is or
shall be, by reason of this Plan, held in trust for any employee of
the Company, nor shall any person have an interest in or lien or prior
claim upon any property of the Company by reason of the Plan or the
Company's obligations to make payments hereunder.
8.5 AWARDS ARE NOT COMPENSATION. The amounts awarded to a
Participant under the Plan shall not be deemed to be compensation for
the purpose of calculating the amount of a Participant's benefits or
contributions under a pension, profit sharing or stock bonus plan
qualified under section 401 (a) of the internal Revenue Code of 1986,
as amended, the amount of life insurance payable under any life
insurance plan established or maintained by the Company, or the amount
of any disability benefits payable under any disability plan
established or maintained by the Company, except to the extent
specifically provided for in any such plan.
8.6 SUCCESSOR EMPLOYERS MUST ASSUME. Except in any case where
such successor would become so obligated as a matter of law without
further act or deed, the Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise)
to all or any portion of the business and or assets of the Company, or
of any division of the Company, which is an employer of any
Participant to expressly assume and agree to perform the obligations
under the Plan in the same manner and to the same extent (except as
otherwise expressly provided in the Plan) that the Company would be
required to perform such obligations as if no such succession had
taken place. Any such
6
<PAGE> 17
assumptions and agreement shall be obtained prior to the effectiveness
of such succession.
8.7 GOVERNING LAW. The Plan will be construed and governed in all
respects in accordance with applicable federal law and, to the extent
not preempted by such federal law, in accordance with the internal
substantive laws of the State of Delaware.
8.8 GENDER AND NUMBER. Unless the context clearly indicates
otherwise, the masculine gender when used in the Plan shall include
the feminine, and the singular number shall include the plural and the
plural number the singular.
8.9 HEADINGS. Headings of Sections in this instrument are for
convenience only, and do not constitute any part of the Plan.
EXECUTED at 12:15 p.m., Dallas, Tx as of September 25, 1995
Lomas Mortgage (USA), Inc.
By: /s/ ERIC D. BOOTH
-----------------------
Title: CEO
--------------------
7
<PAGE> 18
SCHEDULE 1 TO PERFORMANCE/RETENTION PLAN
DESIGNATED GROUPS AND BONUS PERCENTAGES
<TABLE>
<CAPTION>
PERFORMANCE AND INCENTIVE
TIER NAME OF DESIGNATED GROUP AWARD PERCENTAGE
- ---- ------------------------ -------------------------
<S> <C> <C>
1 Executive Managers (Core Managers) 50% to 75%
2 Senior Managers (Critical Managers) 50% to 75%
3 Select Managers & Professionals* 50% to 75%
4 Other employees* 1/2 month to 1 month salary
</TABLE>
* Additionally, the Chief Executive Officer may make additional awards
up to $500,000 to employees in Tier 4 as specified in Section 3.3.
8
<PAGE> 1
EXHIBIT 10.88
================================================================================
LOMAS MORTGAGE (USA), INC.
SEVERANCE PAY PLAN
================================================================================
<PAGE> 2
Lomas Mortgage (USA), Inc.
Severance Pay Plan
PURPOSE
The purpose of this Lomas Mortgage (USA), Inc. Plan is to retain employees by
providing severance protection designed to help bridge the gap in earnings
while they are between jobs and to counteract the need to seek new employment
and leave the Company while their services are still vital to a reorganization.
1. DEFINITIONS
When used in this Plan and initially capitalized, the following words
and phrases shall have the following meanings unless the context
clearly requires otherwise:
1.1 "BASE COMPENSATION" shall mean, as to any Participant for any
period, his annual base salary paid to him by the Company for such
period before reduction under a tax qualified plan of the Company and
before reduction for any other amounts contributed by the Company on
his behalf to any other employee benefit plan.
1.2 "BOARD OF DIRECTORS" shall mean the Board of Directors of
Lomas Mortgage (USA), Inc.
1.3 "CAUSE" shall mean, as to any Participant, that such
Participant shall have committed prior to his termination of
employment with the Company:
(a) an intentional act of fraud, embezzlement, theft or any
other material violation of law in connection with the
Participant's duties or in the course of his employment with
the company;
(b) intentional wrongful damage to material assets of the
Company;
(c) intentional wrongful disclosure of material confidential
information of the Company;
(d) intentional wrongful engagement in any competitive
activity which would constitute a material breach of the duty
of loyalty; or
(e) intentional breach of any stated material employment
policy of the Company.
No act, or failure to act, on the part of a Participant shall be
deemed "intentional" if it was due primarily to an error in judgment
or negligence, but shall be deemed "intentional" only if done, or
omitted to be done, by the Participant not in good
<PAGE> 3
faith and without reasonable belief that his action or omission was
in, or not opposed to, the best interests of the Company.
1.4 "COMPANY" shall mean Lomas Mortgage (USA), Inc. and any
successor corporation.
1.5 "COVERED EMPLOYEE" shall mean, an employee described in
Section 2.1 of this Plan.
1.6 "DESIGNATED GROUP" shall mean any one of the groups of
employees designated on Schedule 1, as such schedule may be amended
from time to time.
1.7 "EFFECTIVE DATE" shall mean October 5, 1995.
1.8 "PLAN" shall mean the Lomas Mortgage (USA) Severance Plan, as
the same may be hereafter amended from time to time.
1.9 "QUALIFYING TERMINATION" shall mean either, (1) Voluntary
Termination for Good Reason during the Term of the Plan; or (2) the
involuntary termination of an employee's employment by the Company
during the Term of the Plan for any reason other than Cause.
Notwithstanding the foregoing, "Qualifying Termination" shall not mean
any termination of any employee's employment with the Company by
reason of any of the following:
(a) An employee's loss of employment owing to failure to
perform his or her responsibilities as an employee;
(b) The termination of an employee's employment with the
Company resulting from the sale or other disposition by the
Company of the business, unit or facility (or substantially
all of the assets of the business, unit or facility) in which
the employee is employed, if either of the following
circumstances exists: (i) the purchaser or successor or any
related corporation extends an offer of employment after the
disposition to the employee on terms that include: (a) the
same salary, (b) a primary office location that is within 35
miles of the employee's current office location; provided,
however, that with respect to any employee (i) whose primary
work location prior to any such sale or other disposition was
his home or was outside the state of Texas or otherwise not at
a location of the Company or its affiliates on a full time
basis (a "Commuter"), and (ii) who prior to such sale or
disposition was reimbursed by the Company for the costs of
such commutation (a "Commutation Arrangement"), such offer of
employment shall continue such Commutation Arrangement on a
basis that is substantially similar in all particulars, and
without additional expense or inconvenience to the Commuter,
to that in effect prior to any sale or disposition, (c) no
2
<PAGE> 4
condition that the employee travel more frequently than in his
prior position, and (d) no condition that the employee refrain
from engaging in any business activity in which he, with the
approval of the Company, previously was engaged; or (ii) the
employee accepts other employment with the purchaser or
successor or with any corporation related to any of them;
(c) Any transfer of an employee's employment within the
Company; or
(d) Withdrawal from, or loss of, an employee's employment
with the Company as a result of the employee's inability,
owing to incapacity due to a physical or mental illness, to
perform his duties with the Company, which inability shall be
deemed to exist at such time as such employee becomes eligible
to receive benefits under the disability income plan of the
Company.
1.10 "SEVERANCE BENEFITS" shall mean the Severance Pay, Severance
Health Insurance, and Severance Outplacement Assistance as set for in
Sections 3.1, 3.2 and 3.3 of this Plan.
1.11 "SEVERANCE HEALTH INSURANCE" shall mean the health insurance
coverage as set for in Section 3.2 of this Plan.
1.12 "SEVERANCE OUTPLACEMENT ASSISTANCE" shall mean the
outplacement assistance as set for in Section 3.3 of this Plan.
1.13 "SEVERANCE PAY" shall mean the sum payable as set for in
Section 3.1 of this Plan.
1.14 "TERM" shall mean the period commencing on the Effective Date
and ending at the time determined in accordance with Section 7.2.
1.15 "VOLUNTARY TERMINATION FOR GOOD REASON" shall mean voluntary
termination of employment by a Covered Employee, other than
retirement, within 90 days of:
(a) a reduction in the Covered Employee's base salary or
benefits hereunder, or
(b) relocation of the Covered Employee's primary work
location to a location greater than 35 miles from its former
location or, with regard to a Commuter, termination of such
Commuter's Commutation Arrangement or modification thereof by
the Company so as to increase the expense or inconvenience of
the Arrangement to the Commuter, or
3
<PAGE> 5
(c) a condition of employment that requires the employee to
travel more that was previously required in his previous
position or reduces in any way the reimbursement for housing,
travel, automobile or any other expenses previously provided
to the employee, or
(d) a condition of employment that explicitly or implicitly
requires the employee to refrain from any outside business
activities or compensation in which he has, with the consent
of the Company, previously been engaged and from which he has
received or has the potential to receive remuneration.
2. COVERED EMPLOYEES
2.1 WHO IS A COVERED EMPLOYEE. An employee of the Company who is
treated under the Company's personnel policies as member of the
Designated Group at a time when he incurs a Qualifying Termination
shall be a Covered Employee and shall be eligible to receive the
benefits described in the Plan.
3. SEVERANCE BENEFITS
3.1 AMOUNTS OF SEVERANCE PAY. The Company shall pay Severance Pay
to a Covered Employee in an amount equal to the Base Compensation of
such Covered Employee for the period specified in Schedule 1 for the
Designated Group of which such Covered Employee was at the time of his
Qualifying Termination. Severance Pay under the Plan, however, shall
not be less than the severance pay the participant would have been
entitled to under the previous Lomas Financial Corporation Employee
Severance Pay Plan, provided in Exhibit 1.
3.2 SEVERANCE HEALTH INSURANCE. The Company shall provide health
insurance coverage to a Covered Employee on terms substantially equal
to, and not more costly to the Covered Employee than, the coverage
that the Company provided at the time of his Qualifying Termination
for a period of 90 days following his Qualifying Termination.
3.3 SEVERANCE OUTPLACEMENT ASSISTANT. The Company, or an agent of
the Company, shall provide assistance inresume preparation and job
search counseling to a Covered Employee within 60 days of the time of
his Qualifying Termination, subject to a cumulative limitation on
costs to the Company of $250 per person.
3.4 EFFECT OF OTHER SEVERANCE BENEFIT PROGRAMS.
4
<PAGE> 6
(a) The Severance Benefits provided for hereunder, unless
otherwise specified herein, are in lieu of any payments to
which a Covered Employee would otherwise be entitled under any
existing severance plan or any individual agreement relating
to employment (or termination thereof) with the Company.
(b) By acceptance of any Severance Benefits under the Plan, a
Covered Employee shall be deemed to waive, release and forever
discharge any and all claims to the payment of any amount
under any individual agreement relating to employment (or
termination thereof) with the Company or any severance benefit
under any severance plan or program of the Company other than
the Plan. As a condition of eligibility herein each Covered
Employee will be required to execute a general release
provided by the Company.
3.5 NO DUTY TO MITIGATE. A Covered Employee shall not be required
by reason of the Plan to mitigate damages or the amount of his
Severance Benefits under the Plan by seeking other employment or
otherwise, nor shall the amount of such Severance Benefits be reduced
or adjusted by compensation earned by the Covered Employee as a result
of employment after his termination of employment.
3.6 LIABILITY OF THE COMPANY. Lomas Mortgage (USA), Inc. and its
affiliates shall be jointly and severally liable for the performance
of all obligations to employees described herein. Covered Employees
may seek payment of Severance Benefits to which they are entitled
hereunder from Lomas Mortgage (USA), Inc. or any of its affiliates.
4. CESSATION OF BENEFITS
4.1 REEMPLOYMENT WITH THE COMPANY. If he already has received
benefits under the Plan, a Covered Employee who recommences employment
with the Company shall not be entitled to further benefits under the
Plan upon any subsequent Qualifying Termination.
5. DISTRIBUTION OF CASH PAYMENTS
5.1 SEVERANCE PAY. The Company shall pay a Covered Employee the
amount to which he became entitled under Section 3.1 in one lump sum
within a reasonable time, but in no event more than 20 business days,
after the date his Qualifying Termination occurs.
5
<PAGE> 7
6. ADMINISTRATION
6.1 IN GENERAL DELEGATION. The Plan shall be administered by the
Company, which shall be the named fiduciary under the Plan. The
Company shall have sole and absolute discretion to interpret where
necessary all provisions of the Plan (including, without limitation,
supplying omissions from, correcting deficiencies in, or resolving
inconsistencies or ambiguities in, the language of the Plan), to
determine the rights and status under the Plan of employees or other
persons, to resolve questions or disputes arising under the Plan and
to make any determinations with respect to the benefits payable
hereunder and the persons entitled thereto as may be necessary for the
purposes of the Plan. Without limiting the generality of the
foregoing, the Company is hereby granted the authority to (i)
determine whether a particular termination of employment constitutes a
"Qualifying Termination" and (ii) to determine whether a particular
employee is a "Covered Employee" under the Plan.
The Company may delegate any of its administrative duties, including,
without limitation, duties with respect to the processing, review,
investigation, approval and payment of Severance Benefits, to a named
administrator or administrators. The Company's determination of the
rights of any employee hereunder shall be final and binding on all
persons, subject only to the claims procedures outlined in Section 6.3
hereof.
6.2 REGULATIONS. The Company shall promulgate any rules and
regulations that it deems necessary to carry out the purposes of the
Plan, or to interpret the terms and conditions of the Plan; provided,
however, that no rule, regulation or interpretation shall be contrary
to the provisions of the Plan. The rules, regulations and
interpretations made by the Company shall, subject only to the claims
procedure outlined in Section 6.3 hereof, be final and binding on any
employee or former employee of the Company.
6.3 CLAIMS PROCEDURE. The Company shall determine the rights of
any employee or former employee of the Company to any benefits
hereunder. Any employee or former employee of the Company who
believes that he is entitled to receive any benefits other than as
initially determined by the Company, may file a claim in writing with
the Company's Benefits Committee. The Company shall no later than 90
days after the receipt of a claim either allow or deny the claim in
writing. If a claimant does not receive written notice of the
Company's decision on his claim within such 90-day period, the claim
shall be deemed to have been denied in full.
A denial of a claim, wholly or partially, shall be written in a manner
calculated to be understood by the claimant and shall include:
(a) the specific reason or reasons for the denial;
6
<PAGE> 8
(b) specific reference to pertinent Plan provisions on which
the denial is based;
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of which such material or information is
necessary; and
(d) an explanation of the claim-review procedure.
A claimant whose claim is denied (or his duly authorized
representative) may within 30 days after receipt of denial of his
claim request a review of such denial by the Company by filing with
the Company's Benefits Committee a written request for review of his
claim. If the claimant does not file a request for review with the
Company's Benefits Committee within such 30-day period, the claimant
shall be deemed to have acquiesced in the original decision of the
Company on his claim. If a written request for review is so filed
within such 30- day period, the Company shall conduct a full and fair
review of such claim. During such full review, the claimant shall be
given the opportunity to review documents that are pertinent to his
laim and to submit issues and comments in writing and, if he requests
a hearing, to present his case in person at a hearing scheduled by the
Company.
The Company shall notify the claimant of its decision on review within
60 days after receipt of a request for a review. Notice of the
decision on review shall be in writing. If the decision on review is
not furnished to the claimant within such 60-day period, the claim
shall be deemed to have been denied on review.
6.4 REVOCABILITY OF COMPANY ACTION. Any action by the Company
with respect to the rights under the Plan of any employee or former
employee shall be revocable by the Company as to payments or
distributions not yet made to such person, and acceptance of any
benefits under the Plan constitutes acceptance of and agreement to any
appropriate adjustments made by the Company in future payments or
distributions to such person to offset any excess or underpayment
previously made to him with respect to any benefits; provided,
however, that nothing in this Section 6.4 shall authorize the Company
to amend or terminate the Plan.
7. AMENDMENT OR TERMINATION OF PLAN
7.1 RIGHT TO AMEND OR TERMINATE. The Company reserves the right
at any time, without prior or other approval of any employee or former
employee, to change, modify, amend, or terminate the Plan provided,
however, that no such amendments or modifications that could adversely
affect the participation herein of
7
<PAGE> 9
any Covered Employee will be effective as to such Covered Employee
without such Covered Employer's prior written consent. No such
amendment, modification or change shall adversely affect any benefit
under the Plan previously paid or provided to a Covered Employee (or
his successor or interest).
7.2 END DATE OF PLAN. Not withstanding any other provisions
herein, the Plan shall end as of October 1, 1997 and all Covered
Employees still employed as of that date will receive the Severance
Pay to which they are entitled as if they had incurred a Qualifying
Termination under the provisions of this Plan no later than ten days
following that date regardless whether their employment is terminated
or is continued.
8. GENERAL PROVISIONS
8.1 LIMITATION ON RIGHTS. The establishment of the Plan and
participation herein shall not be construed as conferring any legal
rights upon any employee or other person for continuation of
employment, nor shall such establishment or participation give him any
rights to any benefits whatsoever, except to the extent specifically
set forth herein.
8.2 TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Plan all federal, state city or other taxes as
shall be required to be withheld pursuant to any law or government
regulation or ruling.
8.3 SPENDTHRIFT PROVISION. Subject to any applicable law, no
benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment pledge, encumbrance or charge,
and any attempt to do so shall be void, nor shall any such benefit be
in any manner liable for or subject to the debts, contracts,
liabilities, engagements or torts of the Covered Employee. In the
event that the Chief Executive Officer of the Company shall find that
any Covered Employee has attempted to violate such provision, such
benefit shall be forfeited subject to the discretion of the Chief
Executive Officer with approval of the Board of Directors. In the
event that the non-employee directors of the Board of Directors shall
find that the Chief Executive Officer has attempted to violate such
provision, such benefit shall be forfeited subject to the non-
employee directors' discretion.
8.4 THE PLAN IS NOT FUNDED. (a) The Company shall pay benefits
under the Plan from its general assets. No property of the Company is
or shall be, by reason of this Plan, held in trust for any employee of
the Company, nor shall any person have an interest in or lien or prior
claim upon any property of the Company by reason of the Plan or the
Company's obligations to make payments hereunder; (b) any provision of
this Plan to the contrary notwithstanding, this Plan shall never be
construed or operated in any way as a "pension plan", within the
meaning of the Employee Retirement Income Security Act of 1974, as
8
<PAGE> 10
amended, and the regulations promulgated thereunder ("ERISA"), but
shall at all times be construed and operated as a "welfare plan",
within the meaning of ERISA.
8.5 AWARDS ARE NOT COMPENSATION. The amounts awarded to a Covered
Employee under the Plan shall not be deemed to be compensation for the
purpose of calculating the amount of a Covered Employee's benefits or
contributions under a pension, profit sharing or stock bonus plan
qualified under section 401 (a) of the Internal Revenue Code of 1986,
as amended, the amount of life insurance payable under any life
insurance plan established or maintained by the Company, or the amount
of any disability benefits payable under any disability plan
established or maintained by the Company, except to the extent
specifically provided for in any such plan.
8.6 SUCCESSOR EMPLOYERS MUST ASSUME. Except in any case where
such successor would become so obligated as a matter of law without
further act or deed, the Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise)
to all or any portion of the business and or assets of the Company, or
of any division of the Company, which is an employer of any Covered
Employee to expressly assume and agree to perform the obligations
under the Plan in the same manner and to the same extent (except as
otherwise expressly provided in the Plan) that the Company would be
required to perform such obligations as if no such succession had
taken place. Any such assumptions and agreement shall be obtained
prior to the effectiveness of such succession.
8.7 GOVERNING LAW. The Plan will be construed and governed in all
respects in accordance with applicable federal law and, to the extent
not preempted by such federal law, in accordance with the internal
substantive laws of the State of Delaware.
8.8 GENDER AND NUMBER. Unless the context clearly indicates
otherwise, the masculine gender when used in the Plan shall include
the feminine, and the singular number shall include the plural and the
plural number the singular.
8.9 HEADINGS. Headings of Sections in this instrument are for
convenience only, and do not constitute any part of the Plan.
9
<PAGE> 11
EXECUTED at Dallas, Texas as of October 5, 1995
Lomas Mortgage (USA), Inc.
By: /s/ ERIC D. BOOTH
----------------------------
Title: CEO
-------------------------
10
<PAGE> 12
SCHEDULE 1 TO EMPLOYEE SEVERANCE PLAN
DESIGNATED GROUPS AND SEVERANCE PAY
<TABLE>
<CAPTION>
JOB
TIER NAME OF DESIGNATED GROUP EVALUATION POINTS SYEVERANCE PAY*
- ---- ------------------------ ----------------- ---------------
<S> <C> <C> <C>
1 Senior Executives 965 and above 18 months
2 Management 422 to 964 6 months
3 Professionals 248 to 421 4 months
4 All other employees 0 to 247 2 months
</TABLE>
* But in no event less severance pay than would have been provided to any
participant under the previous Lomas Financial Corporation Employee Severance
Pay Plan contained in the Employee Handbook and provided in Exhibit 1.
11
<PAGE> 1
EXHIBIT 10.89
AMENDMENT NO. 1
TO THE
LOMAS MORTGAGE USA, INC. SEVERANCE PAY PLAN
This Amendment No. 1 to the Lomas Mortgage USA, Inc. Severance Pay
Plan (the "Plan") is executed by Lomas Mortgage USA, Inc. (the "Company")
effective as of October 6, 1995.
W I T N E S S E T H:
WHEREAS, the Company adopted the Plan, effective October 5, 1995 for
the purpose of retaining its employees by providing severance protection; and
WHEREAS, the Company has adopted an amendment to its pension plan to
provide for an additional retirement benefit for its eligible employees whose
jobs are eliminated; and
WHEREAS, the Company desires to amend the Plan pursuant to the terms
thereof to offset the benefits payable under the Plan by the additional
retirement benefit, if any, payable from the Company's pension plan;
NOW, THEREFORE, the Plan is amended as follows.
(1) Section 3.2 of the Plan is amended by adding a new sentence to
the end thereof to read as follows:
Notwithstanding the preceding provisions of this Section 3.1, the
amount of any Severance Pay payable to a Covered Employee under the
Plan shall be reduced by the amount of the additional retirement
benefit multiplied by .9091 except for those employees not receiving
an excise tax gross up equivalent, if any, payable to the Covered
Employee pursuant to the provisions of Section 5.07 of The Lomas
Financial Group Pension Plan (As Restated Effective January 1,
1991)(the "Pension Plan"), the amount of such reduction to be
determined under the terms of the Pension Plan based on the value of a
single sum payment of the additional retirement benefit thereunder
calculated at the time Severance Pay otherwise would be payable
hereunder.
(2) Schedule 1 to the Plan hereby is amended by restatement in its
entirety to read as follows:
<PAGE> 2
Schedule I to Employees Severance Plan
Designated Groups and Severance Pay
<TABLE>
<CAPTION>
Tier Name of Job Severance Pay
Designated Group Evaluation Points
<S> <C> <C> <C>
1 Senior Executives 965 and above 18 months
2 Management 422 5o 964 6 months
3 Professionals 248 to 421 4 months
4 All Other Employees 0 to 247 2 months
</TABLE>
*But in no event less severance pay than would have been provided to any
participant under the previous Lomas Financial Corporation Employee Severance
Pay Plan contained in the Employee Handbook and provided in Exhibit 1, reduced
for certain payments from the Lomas Financial Group Pension Plan (As Restated
Effective January 1, 1994) as described in the Lomas Mortgage USA, Inc.
Severance Pay Plan.
IN WITNESS WHEREOF, the Company has executed this Amendment No. 1 on this 12th
day of October, 1995, effective as set forth above.
LOMAS MORTGAGE USA, INC.
By: /s/ ERIC D. BOOTH
------------------------------
<PAGE> 1
EXHIBIT 10.90
LOMAS MORTGAGE (USA), INC.
PERFORMANCE AND RETENTION INCENTIVE PLAN
PURPOSE
The purpose of this Lomas Mortgage (USA), Inc. Performance and Retention
Incentive Plan is to retain and motivate employees by providing Performance and
Retention Awards. The Performance and Retention Awards are provided in order
to maintain and enhance the value of the Company by helping to retain and
motivate employees through the completion date of the transfer of assets. This
Plan will help ensure the receipt of a full price for those assets and the
preservation of any portion of the sale price held back by the purchaser
contingent on the Company's successful completion of the transfer.
1. DEFINITIONS
When used in this Plan and initially capitalized, the following words
and phrases shall have the following meanings unless the context
clearly requires otherwise:
1.1 "PERFORMANCE AND RETENTION AWARD" shall mean a bonus provided
under Section 3.1 of the Plan.
1.2 "BASE COMPENSATION" shall mean, as to any Participant for any
period, his annual base salary paid to him by the Company for such
period before reduction under a tax qualified plan of the Company and
before reduction for any other amounts contributed by the Company on
his behalf to any other employee benefit plan.
1.3. "BOARD OF DIRECTORS" shall mean the Board of Directors of
Lomas Mortgage (USA), Inc.
1.4 "CAUSE" shall mean, as to any Participant, that such
Participant shall have committed prior to his termination of
employment with the Company:
(a) an intentional act of fraud, embezzlement, theft or any
other material violation of law in connection with the
Participant's duties or in the course of his employment with
the Company;
(b) intentional wrongful damage to material assets of the
Company;
(c) intentional wrongful disclosure of material confidential
information of the Company;
<PAGE> 2
(d) intentional wrongful engagement in any competitive
activity which would constitute a material breach of the duty
of loyalty; or
(e) intentional breach of any stated material employment
policy of the Company.
No act, or failure to act, on the part of a Participant shall be
deemed "intentional" if it was due primarily to an error in judgment
or negligence, but shall be deemed "intentional" only if done, or
omitted to be done, by the Participant not in good faith and without
reasonable belief that his action or omission was in, or not opposed
to, the best interests of the Company.
1.5 "CHIEF EXECUTIVE OFFICER" shall mean the Chief Executive
Officer of the Company.
1.6 "COMPANY" shall mean Lomas Mortgage Company (USA) and any
successor corporations.
1.7 "DESIGNATED GROUP" shall mean any one of the groups of
employees designated on Schedule 1, as such schedule may be amended
from time to time.
1.8 "DISABLED" shall mean a Participant unable, as a result of
incapacity due to a physical or mental illness, to perform his duties
with the Company, and shall be deemed to exist at such time as such
Participant becomes eligible to receive benefits under the disability
income plan of the Company.
1.9 "EFFECTIVE DATE" shall mean October 5, 1995.
1.10 "PARTICIPANT" shall mean any person who becomes a
Participant in the Plan as provided in Section 2.1 or 2.2 and who has
not ceased to be a Participant pursuant to Section 2.3.
1.11 "PLAN" shall mean the Company's Performance and Retention
Incentive Plan, as the same may be hereafter amended from time to
time.
1.12 "VOLUNTARY TERMINATION FOR GOOD REASON" shall mean voluntary
termination of employment by a Covered Employee, other than
retirement, within 90 days of:
(a) a reduction in the Covered Employee's base salary or the
maximum benefits possible to be earned by such Covered
Employee hereunder, or
(b) relocation of the Covered Employee's assigned office
location to a location that is greater than 35 miles from its
former location, or, with respect to any employee (i) whose
primary
2
<PAGE> 3
work location is his home or is outside the state of Texas or
otherwise not at a location of the Company or its affiliates
on a full time basis (a "Commuter"), and (ii) who is
reimbursed by the Company for the costs of such commutation (a
"Commutation Arrangement"), termination of such Commuter's
Commutation Arrangement or modification thereof by the Company
so as to increase the expense or inconvenience of the
Arrangement to the Commuter.
2. PARTICIPATION
2.1 INITIAL PARTICIPANTS. An employee in the employ of the
Company who is a member of a Designated Group on the Effective Date
shall become a Participant in the Plan as of the Effective Date.
2.2 NEW PARTICIPANTS. Any other employee of the Company who
becomes a member of a Designated Group after the Effective Date and is
notified in a letter by the Company of his participation shall become
a Participant in the Plan as of the date he becomes a member of a
Designated Group subject to any conditions set forth in such letter.
2.3 TERMINATION OF PARTICIPATION. Any Participant whose
employment with the Company terminates for any reason other than
death, retirement, disability, involuntary termination without cause
or Voluntary Termination for Good Reason shall cease to be a
Participant. If an individual who became a Participant in the Plan
later ceases to be a member of a Designated Group by reason of job
reassignment or job reclassification, then such individual shall
likewise cease to be a Participant.
3. DETERMINATION OF AWARD AMOUNT
3.1 PERFORMANCE AND RETENTION AWARDS. Subject to Section 3.2,
each Participant shall be entitled to receive a Performance and
Retention Award in an amount equal to:
(a) a percentage, within the range of percentages of the
Performance and Retention Award percentages specified on
Schedule 1, determined by the Chief Executive Officer's
discretionary evaluation of the Participant's performance
(provided, however, that with respect to award determinations
for Senior Vice Presidents and above, such determinations will
be subject to the approval of the Board of Directors), times
(b) the Participant's Base Compensation at the time of payment.
3
<PAGE> 4
3.2 DEATH, RETIREMENT AND DISABILITY. Each Participant whose
employment terminates by reason of death retirement or disability
shall be entitled to a Performance and Retention Award determined by
multiplying the minimum percentage of the applicable range of
percentage specified on Schedule 1 by the Participant's Base
Compensation at the date of such event.
3.3 OPERATIONAL BONUSES AND RAISES. Nothing herein shall be
construed to restrict the Chief Executive Officer from proposing
bonuses to employees subject to the approval of the Board of
Directors. Additionally, the Chief Executive Officer may, in his
sole discretion, award additional performance or retention awards to
key Participants in Tiers 3 and 4 on Schedule 1, not to individually
exceed three months base pay and not to cumulatively exceed $500,000.
4. PAYMENT OF AWARDS
4.1 TIME OF PAYMENT OF PERFORMANCE AND RETENTION AWARDS. The
Company shall pay the Performance and Retention Awards in cash to the
Participants entitled thereto on (or in the case of clause (b), within
10 business days after) the earliest of the following dates:
(a) October 1, 1996, or, if a participant in Designated Group
Tier 4 in Schedule 1, June 30, 1996, or
(b) the date of the Participant's termination by reason of
death, retirement, disability, involuntary termination without
Cause, or Voluntary Termination for Good Reason.
4.2 DEATH BENEFICIARY. In the event of a Participant's death,
the maximum benefit otherwise payable to him shall be payable to the
beneficiary which has been designated by the Participant to receive
benefits payable under the Company's group insurance program. If a
Participant has failed to designate a beneficiary, or if such
designated beneficiary predeceased the Participant, then such
Participant's benefits under the Plan shall be paid in accordance with
the following order of priority:
(a) to the Participant's surviving spouse, or if there be
none surviving,
(b) to the Participant's estate.
Any such payment shall be made as soon as practicable following the
Participant's death.
4
<PAGE> 5
5. FORFEITURE OF AWARDS
5.1 FORFEITURE UPON TERMINATION FOR CAUSE. Payment of any portion
of a Participant's award under the Plan shall be forfeited, and the
Company shall have no further obligation hereunder to such
Participant, if the Participant is discharged from employment for
Cause prior to payment of his award.
6. ADMINISTRATION
6.1 ADMINISTRATION BY THE CHIEF EXECUTIVE OFFICER OF THE COMPANY.
The administration of the Plan, the exclusive power to interpret it,
and the responsibility for carrying out its provisions are vested in
the Chief Executive Officer of the Company. The Chief Executive
Officer shall establish such rules, regulations and procedures as he
shall deem necessary or advisable. The Chief Executive Officer shall
have the right, in his discretion, (a) to delegate his authority for
administration of the Plan, and (b) to retain accountants, attorneys
and such other advisors as he shall deem necessary or advisable in
connection with the administration of the Plan. The expenses of the
Chief Executive Officer in administering the Plan shall be paid
directly by the COMPANY.
6.2. LIMITATION OF LIABILITY. Neither the Company nor the Chief
Executive Officer nor any other director, officer, employee or agent
of the Company shall be liable for any action taken or omitted to be
taken by such person under the Plan except in the case of gross
negligence or willful misconduct. Any action taken or omitted to be
taken by any such person in good faith reliance on the advice of any
accountant, actuary, attorney or other advisor retained by the Chief
Executive Officer shall be conclusively presumed not to involve gross
negligence or willful misconduct. The Chief Executive Officer and all
other such person shall be indemnified by the Company against losses,
liabilities, claims, costs and expenses in connection with serving as
administrator of the Plan, unless resulting from gross negligence or
willful misconduct.
7. AMENDMENT
7.1 RIGHT TO AMEND. The Company reserves the right to modify or
amend, in whole or in part, the Plan at any time; provided, however,
that the minimum benefit applicable to a Participant hereunder shall
not be reduced without such Participant's consent.
8. GENERAL PROVISIONS
8.1 LIMITATION ON RIGHTS. Neither the establishment of the Plan
nor participation herein shall be construed as conferring any legal
rights upon any employee or other person for continuation of
employment, nor shall such
5
<PAGE> 6
establishment or participation give him any rights to any benefits
whatsoever, except to the extent specifically set forth herein.
8.2 TAX WITHHOLDING. The Company may withhold from any amounts
payable under this Plan all federal, state, city or other taxes as
shall be required to be withheld pursuant to any law or government
regulation or ruling.
8.3 SPENDTHRIFT PROVISION. Subject to any applicable law, no
benefit under the Plan shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge,
and any attempt to do so shall void the Participant's benefits under
the Plan, nor shall any such benefit be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of
the Participant. In the event that the Chief Executive Officer of the
Company shall find that any Participant has attempted to violate such
provision, such benefit shall be forfeited subject to the discretion
of the Chief Executive Officer with approval of the Board of
Directors. In the event that the non-employee directors of the Board
of Directors shall find that the Chief Executive Officer has attempted
to violate such provision, such benefit shall be forfeited subject to
the non-employee directors' discretion.
8.4 THE PLAN IS NOT FUNDED. The Company shall pay benefits under
the Plan from its general assets. No property of the Company is or
shall be, by reason of this Plan, held in trust for any employee of
the Company, nor shall any person have an interest in or lien or prior
claim upon any property of the Company by reason of the Plan or the
Company's obligations to make payments hereunder.
8.5 AWARDS ARE NOT COMPENSATION. The amounts awarded to a
Participant under the Plan shall not be deemed to be compensation for
the purpose of calculating the amount of a Participant's benefits or
contributions under a pension, profit sharing or stock bonus plan
qualified under section 401 (a) of the internal Revenue Code of 1986,
as amended, the amount of life insurance payable under any life
insurance plan established or maintained by the Company, or the amount
of any disability benefits payable under any disability plan
established or maintained by the Company, except to the extent
specifically provided for in any such plan.
8.6 SUCCESSOR EMPLOYERS MUST ASSUME. Except in any case where
such successor would become so obligated as a matter of law without
further act or deed, the Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise)
to all or any portion of the business and or assets of the Company, or
of any division of the Company, which is an employer of any
Participant to expressly assume and agree to perform the obligations
under the Plan in the same manner and to the same extent (except as
otherwise expressly provided in the Plan) that the Company would be
required to perform such obligations as if no such succession had
taken place. Any such
6
<PAGE> 7
assumptions and agreement shall be obtained prior to the effectiveness
of such succession.
8.7 GOVERNING LAW. The Plan will be construed and governed in all
respects in accordance with applicable federal law and, to the extent
not preempted by such federal law, in accordance with the internal
substantive laws of the State of Delaware.
8.8 GENDER AND NUMBER. Unless the context clearly indicates
otherwise, the masculine gender when used in the Plan shall include
the feminine, and the singular number shall include the plural and the
plural number the singular.
8.9 HEADINGS. Headings of Sections in this instrument are for
convenience only, and do not constitute any part of the Plan.
EXECUTED at 12:15 p.m., Dallas, Tx as of September 25, 1995
Lomas Mortgage (USA), Inc.
By: /s/ ERIC D. BOOTH
-----------------------
Title: CEO
--------------------
7
<PAGE> 8
SCHEDULE 1 TO PERFORMANCE/RETENTION PLAN
DESIGNATED GROUPS AND BONUS PERCENTAGES
<TABLE>
<CAPTION>
PERFORMANCE AND INCENTIVE
TIER NAME OF DESIGNATED GROUP AWARD PERCENTAGE
- ---- ------------------------ -------------------------
<S> <C> <C>
1 Executive Managers (Core Managers) 50% to 75%
2 Senior Managers (Critical Managers) 50% to 75%
3 Select Managers & Professionals* 50% to 75%
4 Other employees* 1/2 month to 1 month salary
</TABLE>
* Additionally, the Chief Executive Officer may make additional awards
up to $500,000 to employees in Tier 4 as specified in Section 3.3.
8
<PAGE> 1
EXHIBIT 11
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended June 30
------------------------------------------------
1995 1994 1993
------------- -------------- -------------
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE:
Average common shares outstanding . . . . . . . . . . . . . 20,131 20,099 20,087
Common stock equivalents under Non-employee
Directors Long Term Incentive Plan . . . . . . . . . . 23 33 30
------------- -------------- -------------
TOTAL SHARES . . . . . . . . . . . . . . . . . . . . . . . . 20,154 20,132 20,117
============= ============== =============
Income (loss) from continuing operations . . . . . . . . . . . . $ (104,632) $ (108,502) $ 29,557
Loss from discontinued operations . . . . . . . . . . . . . . . . (49,059) (74,164) (17,263)
------------- -------------- -------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ (153,691) $ (182,666) $ 12,294)
============= ============== =============
Primary earnings (loss) per share:
Income (loss) from continuing operations . . . . . . . . . $ (5.19) $ (5.39) $ 1.47
Loss from discontinued operations . . . . . . . . . . . . . (2.44) (3.68) (.86)
------------- -------------- -------------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . $ (7.63) $ (9.07) $ .61
============= ============== =============
ADDITIONAL COMPUTATION OF EARNINGS (LOSS) PER SHARE:
FULLY DILUTED EARNINGS (LOSS) PER SHARE:
Average common shares outstanding . . . . . . . . . . . . . 20,131 20,099 20,087
Common stock equivalents under Non-employee
Directors Long Term Incentive Plan . . . . . . . . . . 23 33 30
------------- -------------- -------------
TOTAL SHARES . . . . . . . . . . . . . . . . . . . 20,154 20,132 20,117
============= ============== =============
Income (loss) from continuing operations . . . . . . . . . . . . $ (104,632) $ (108,502) $ 29,557
Loss from discontinued operations . . . . . . . . . . . . . . . . (49,059) (74,164) (17,263)
------------- -------------- -------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . $ (153,691) $ (182,666) $ 12,294
============= ============== =============
Fully diluted earnings (loss) per share:
Income (loss) from continuing operations . . . . . . . . . $ (5.19) $ (5.38) $ 1.47
Loss from discontinued operations . . . . . . . . . . . . . (2.44) (3.68) (.86)
------------- -------------- -------------
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . $ (7.63) $ (9.07) $ .61
============= ============== =============
</TABLE>
<PAGE> 1
EXHIBIT 21
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
CORPORATE STRUCTURE
June 30, 1995
The consolidated structure of the Company is set forth in the following
table which identifies each corporate entity's subsidiaries and shows the state
of incorporation in which each of LFC and its subsidiaries are incorporated.
Except as otherwise specified, each entity is headquartered at 1600 Viceroy
Drive in Dallas.
<TABLE>
<CAPTION>
State of
Corporation Incorporation
----------- -------------
<S> <C>
Lomas Financial Corporation(1) . . . . . . . . . . . . . . . . Delaware
Lomas Mortgage USA, Inc. . . . . . . . . . . . . . . . . . . Connecticut
Lomas Mortgage Services, Inc. . . . . . . . . . . . . . . . Delaware
Property Exchange USA, Inc. . . . . . . . . . . . . . . . . Texas
Lomas Field Services, Inc. . . . . . . . . . . . . . . . . Nevada
Gibraltar Deed Company . . . . . . . . . . . . . . . . . . California
Lomas Insurance Services, Inc. . . . . . . . . . . . . . . Connecticut
Lomas Insurance Services of Arizona, Inc.(2) . . . . . . Arizona
Lomas Insurance Services of Florida, Inc.(2) . . . . . Florida
Lomas Insurance Services of Louisiana, Inc.(2) . . . . Louisiana
Lomas General Insurance Services, Inc.(2) . . . . . . . Texas
Lomas Insurance Services of Virginia, Inc.(2) . . . . . Virginia
L&N Funding Corporation . . . . . . . . . . . . . . . . . . Delaware
ST Lending, Inc. . . . . . . . . . . . . . . . . . . . . . Delaware
Meaderose, Inc. . . . . . . . . . . . . . . . . . . . . . Nevada
L&N Consultants, Inc.(4) . . . . . . . . . . . . . . . . Nevada
LNC Holdings, Inc. . . . . . . . . . . . . . . . . . . Nevada
Lomas New York, Inc. . . . . . . . . . . . . . . . . . . . New York
Lomas Mortgage Funding Corporation . . . . . . . . . . . . Texas
INTELLIFILE, INC.(3) . . . . . . . . . . . . . . . . . . . . Nevada
Lomas Information Systems, Inc. . . . . . . . . . . . . . . . Nevada
Lomas Management, Inc. . . . . . . . . . . . . . . . . . . . Nevada
Custodial Funding Corporation . . . . . . . . . . . . . . . Nevada
Lomas Properties, Inc. . . . . . . . . . . . . . . . . . . . Texas
Louisiana National Land Corporation . . . . . . . . . . . . Louisiana
Lomas Investment Properties, Inc. . . . . . . . . . . . . . Nevada
Bay South, Inc. . . . . . . . . . . . . . . . . . . . . . . Nevada
Naples Bay View, Inc. . . . . . . . . . . . . . . . . . . . Florida
Financial Insurance Ltd.(5) . . . . . . . . . . . . . . . . . Bermuda
Lomas Housing Management Corp. . . . . . . . . . . . . . . . Texas
Roosevelt Office Center, Inc.(6) . . . . . . . . . . . . . . New York
Vistamar, Inc. . . . . . . . . . . . . . . . . . . . . . . . Puerto Rico
LLG Lands, Inc. . . . . . . . . . . . . . . . . . . . . . . . Arkansas
</TABLE>
Notes to Table of Corporate Structure:
(1) Unless otherwise stated, each affiliated entity is a corporation and is 100
percent owned by the indicated parent company.
(2) Located at 1420 Viceroy Drive, Dallas, Texas 75235.
(3) Located at 8600 Harry Hines, Dallas, Texas 75235.
(4) 100 percent of common stock owned by LFC but only 50 percent of the voting
stock. Preferred stock owned by third parties including 50 percent of the
voting stock.
(5) Located at Dorchester House, P.O. Box HM2020, Church Street, Hamilton 5,
Bermuda.
(6) Located at 67 Wall Street, Suite 2411, New York, New York 10005.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-52764, Form S-8 No. 33-52393 and Form S-8 No.
33-52391) pertaining to the Lomas Financial Corporation 1991 Stock Incentive
Program, the Lomas Financial Corporation 1993 Intermediate and Long Term
Incentive Plan, and the Lomas Financial Corporation 1991 Long Term Incentive
Plan for Non-Employee Directors, respectively, of our disclaimer report dated
October 11, 1995, relating to the consolidated balance sheet of Lomas Financial
Corporation and subsidiaries as of June 30, 1995, and the related statements of
consolidated operations, stockholders' equity (deficit) and cash flows for the
year then ended, and the related schedule. Such disclaimer report appears in
the June 30, 1995, annual report on Form 10-K of Lomas Financial Corporation.
Our report dated October 11, 1995 disclaims an opinion on the 1995
consolidated financial statements and schedule of the Company because of
uncertainties related to the Company's ability to continue as a going concern.
KPMG PEAT MARWICK LLP
Dallas, Texas
October 12, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-52764, Form S-8 No. 33-52393 and Form S-8 No.
33-52391) pertaining to the Lomas Financial Corporation 1991 Stock Incentive
Program, the Lomas Financial Corporation 1993 Intermediate and Long Term
Incentive Plan, and the Lomas Financial Corporation 1991 Long Term Incentive
Plan for Non-Employee Directors, respectively, of our report dated September
22, 1994, with respect to the consolidated financial statements and schedule
of Lomas Financial Corporation included in the Form 10-K for the year ended
June 30, 1995.
ERNST & YOUNG LLP
Dallas, Texas
October 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000060150
<NAME> GARY WHITE
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 19,966
<SECURITIES> 11,358
<RECEIVABLES> 77,248
<ALLOWANCES> (32,481)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,155,070
<CURRENT-LIABILITIES> 0
<BONDS> 518,688
<COMMON> 20,146
0
0
<OTHER-SE> (32,024)
<TOTAL-LIABILITY-AND-EQUITY> 1,155,070
<SALES> 0
<TOTAL-REVENUES> 219,322
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 167,485
<LOSS-PROVISION> 75,613
<INTEREST-EXPENSE> 80,856
<INCOME-PRETAX> (104,632)
<INCOME-TAX> 0
<INCOME-CONTINUING> (104,632)
<DISCONTINUED> (49,059)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (153,691)
<EPS-PRIMARY> (7.63)
<EPS-DILUTED> (7.63)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
NEWS RELEASE
- ----------------------------
SITRICK AND COMPANY, INC.
LOS ANGELES/NEW YORK
Contact: Sitrick and Company
Michael Sitrick
(310) 788-2850
Richard Wool
(212) 755-2850
LOMAS DOES NOT MAKE $17 MILLION IN SCHEDULED NOTE PAYMENTS; GRACE PERIOD
EXPIRES AT END OF MONTH; SALE OF CERTAIN MORTGAGE BANKING
BUSINESS ASSETS COMPLETED
DALLAS, TX - OCTOBER 2,1995 -- Lomas Financial Corporation (NYSE: LFC)
said today that its mortgage banking subsidiary, Lomas Mortgage USA, Inc., did
not make approximately $17 million of scheduled interest payments on its 9-3/4
percent Senior Notes due October 1, 1997 and its 10-1/4 percent Senior Notes
due October 1, 2002. Lomas said it is continuing to review its alternatives.
The company noted that failure to pay interest is not an Event of Default under
the Indenture for the Notes until a 30-day grace period has elapsed.
Separately, the company announced the completion of the previously
reported sale of certain assets by Lomas Mortgage USA, Inc. to First Nationwide
Mortgage Corporation, a subsidiary of First Nationwide Bank. Lomas said that
substantially all of the $36.9 million of proceeds from the first installment
of the $100 million cash purchase price was applied to the retirement of its
secured interest rate swaps, transaction expenses and certain other payments
required in connection with the closing of the sale. The company said that it
expected to receive the approximately $63 million balance in two installments
to be paid in February and October 1996.
###
1875 Century Park East, Suite 950
Los Angeles, CA 90067
(310) 788-2850 Fax (310) 788-2855
<PAGE> 1
EXHIBIT 99.2
NEWS RELEASE
- -------------------------
SITRICK AND COMPANY, INC.
LOS ANGELES/NEW YORK
Contact: Sitrick And Company
Michael Sitrick
(310) 788-2850
Richard Wool
(212) 755-2850
LOMAS FINANCIAL CORP. AND LOMAS MORTGAGE USA FILE CHAPTER 11;
AGREEMENT REACHED FOR SALE OF SUBSTANTIALLY ALL
REMAINING ASSETS OF LOMAS MORTGAGE
USA TO FIRST NATIONWIDE SUBSIDIARY
DALLAS, TX -- OCTOBER 10, 1995 -- Lomas Financial Corporation (NYSE:
LFC) and its mortgage banking subsidiary, Lomas Mortgage USA, Inc. (LMUSA),
today filed for protection under Chapter 11 of the federal bankruptcy code in
the United States Bankruptcy Court for the District of Delaware in Wilmington,
Delaware.
Concurrently, Lomas said that it has reached an agreement for the sale
of substantially all of the remaining assets of its mortgage banking
subsidiary, LMUSA, to a subsidiary of First Nationwide Bank for $150 million,
subject to certain adjustments, and the assumption of certain liabilities. The
sale is subject to, among other things, Bankruptcy Court approval. Lomas said
that a hearing date and timetable will be set by the Bankruptcy Court.
The company said the filing and the sale were necessitated by its
deteriorating financial condition and the resulting concerns of the federally
sponsored agencies -- GNMA, FNMA and FHLMC -- as well as private participants in
the mortgaged-backed securities industry, and the company's inability to access
the capital necessary to maintain its business.
1
1875 Century Park East, Suite 950
Los Angeles, CA 90067
(810) 788-2850 Fax: (810) 788-2855
<PAGE> 2
In papers filed with the Bankruptcy Court, Lomas attributed its
financial difficulties primarily to the exceptionally high level of
refinancings of mortgages in its servicing portfolios between October 1991 and
August 1994, which caused a rapid run-off of its servicing portfolio. Unlike
many mortgage bankers, Lomas does not itself originate mortgage loans, but
rather buys loans from originators. As a result of the extremely high run-off
rate, Lomas was faced with increasing capital needs to replenish its portfolio,
and was forced to take write-offs of its servicing rights assets that caused
serious erosion of its net worth and adversely affected its ability to borrow
to finance its operations.
The papers said that Lomas and its advisors have considered a number
of different strategic alternatives including the sale of a majority of its
businesses to a third party. The company stated that the size of LMUSA's
mortgage servicing portfolio and the related income from mortgage servicing
fees have steadily declined over the past few years, while the debt servicing
obligations in respect of LFC's and LMUSA's unsecured debts have remained the
same. Lomas said its deteriorating financial condition caused the risk of
agency or private mortgage investor intervention, the threats of which recently
began to occur. As a result, the company said, it determined that it was
"necessary...to sell Lomas's operating businesses to maximize the value of those
businesses."
LMUSA agreed in early September to sell its GNMA mortgage servicing
and loan production businesses, and LMUSA is now seeking the Bankruptcy Court's
approval of a sale of substantially all of its remaining assets, pursuant to
section 363(b) of the Bankruptcy Code.
###
2
