<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended September 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)
(214) 879-4000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO ISSUERS 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 Sections 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 ISSUERS:
The number of shares outstanding of each of the issuer's classes of common
stock as of November 10, 1995: Common Stock, $1 par value -- 20,149,231
shares.
<PAGE> 2
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet -- September 30, 1995, and June 30, 1995 . . . . . . . . . . . . . . . 2
Statement of Consolidated Operations -- Quarter Ended September 30, 1995 and 1994 . . . . . . . . 3
Statement of Consolidated Cash Flows -- Quarter Ended September 30, 1995 and 1994 . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 11
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12
</TABLE>
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSOLIDATED BALANCE SHEET
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 1995 June 30, 1995
------------------ -------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 28,266 $ 19,966
First mortgage loans held for sale . . . . . . . . . . . . . . . . . . . 608 345,039
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,786 282,318
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,478 77,248
Fixed assets--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,117 52,579
Foreclosed real estate . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,348
----------- -----------
67,989 763,532
Less allowance for losses . . . . . . . . . . . . . . . . . . . . . . . . (4,574) (32,481)
----------- -----------
63,415 731,051
Purchased future mortgage servicing income rights--net . . . . . . . . . -- 346,958
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 16,768 23,545
Net assets of discontinued operations . . . . . . . . . . . . . . . . . . 33,800 33,550
Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 502,570 --
----------- -----------
$ 644,819 $ 1,155,070
=========== ===========
Escrow, agency and fiduciary funds--see contra . . . . . . . . . . . . . $ 678,529 $ 641,519
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . $ 49,258 $ 57,171
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 591,089
Term notes payable . . . . . . . . . . . . . . . . . . . . . . . . . 378,436 378,770
Senior convertible notes payable . . . . . . . . . . . . . . . . . . 139,918 139,918
Liabilities to be assumed in sale . . . . . . . . . . . . . . . . . 283,310 --
----------- -----------
850,922 1,166,948
----------- -----------
Stockholders' equity (deficit):
Common stock--20,149 and 20,146 shares issued and
outstanding, respectively . . . . . . . . . . . . . . . . . . . . 20,149 20,146
Other paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 309,763 309,761
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . (536,015) (341,785)
----------- -----------
(206,103) (11,878)
----------- -----------
$ 644,819 $ 1,155,070
=========== ===========
Liability for escrow, agency and fiduciary funds--see contra . . . . . . $ 678,529 $ 641,519
=========== ===========
</TABLE>
Note: The balance sheet at June 30, 1995, as presented is derived from the
audited financial statements at that date.
See notes to consolidated financial statements.
2
<PAGE> 4
STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarter Ended September 30
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Revenues:
Mortgage servicing . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,236 $ 32,914
Commissions and fees . . . . . . . . . . . . . . . . . . . . . . . . 6,741 8,131
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,170 5,768
Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,857 3,666
Gain on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3,179
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,262 463
----------- -----------
55,326 54,121
----------- -----------
Expenses:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,495 18,366
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,727 15,206
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 15,165 16,202
Other operating . . . . . . . . . . . . . . . . . . . . . . . . . . 10,006 9,797
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . 22,003 1,900
----------- -----------
87,396 61,471
----------- -----------
Loss from continuing operations before loss on assets held for sale . . (32,070) (7,350)
Loss on assets held for sale net of liabilities to be assumed . . . . . . (162,160) --
----------- -----------
Loss from continuing operations . . . . . . . . . . . . . . . . . . (194,230) (7,350)
Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . -- (5,500)
----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850)
=========== ===========
Loss per share:
Loss from continuing operations . . . . . . . . . . . . . . . . . . $ (9.63) $ (.37)
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9.63) $ (.64)
Average number of shares . . . . . . . . . . . . . . . . . . . . . . 20,167 20,135
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Quarter Ended September 30
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850)
Adjustments to reconcile net loss to net cash provided by operating
activities before working capital changes:
Loss from discontinued operations . . . . . . . . . . . . . . . -- 5,500
Loss on assets held for sale . . . . . . . . . . . . . . . . . . 162,160 --
Depreciation and amortization . . . . . . . . . . . . . . . . . 15,165 16,202
Provision for losses . . . . . . . . . . . . . . . . . . . . . . 22,003 1,900
(Gain) loss on sale of mortgage servicing rights . . . . . . . . 207 (1,734)
----------- -----------
Cash provided by operations before working capital changes . 5,305 9,018
Net change in first mortgage loans held for sale . . . . . . . . . . 58,435 88,735
Net change in sundry receivables, payables, and other assets . . . . (2,010) (19,114)
Net cash used by discontinued operations . . . . . . . . . . . . . . (676) (5,899)
----------- -----------
Net cash provided by operating activities . . . . . . . . . 61,054 72,740
----------- -----------
Investing activities:
Purchases of investments . . . . . . . . . . . . . . . . . . . . . . (2,067) (1,947)
Maturities/sales of investments . . . . . . . . . . . . . . . . . . 255,117 52,376
Purchases of loans from pools . . . . . . . . . . . . . . . . . . . (1,048) (3,734)
Sales of foreclosed real estate . . . . . . . . . . . . . . . . . . 1,400 3,095
Net purchases of fixed assets . . . . . . . . . . . . . . . . . . . 941 (619)
Purchases of future mortgage servicing income rights . . . . . . . . (14,320) (6,623)
Sales of future mortgage servicing income rights . . . . . . . . . . 12,167 15,636
Sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 3,903 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 27
Net cash provided by discontinued operations . . . . . . . . . . . . 5,092 67,897
----------- -----------
Net cash provided by investing activities . . . . . . . . . 261,185 126,108
----------- -----------
Financing activities:
Net repayments of notes payable . . . . . . . . . . . . . . . . . . (309,168) (116,454)
Term debt repayments . . . . . . . . . . . . . . . . . . . . . . . . (334) (1,946)
Net cash used by discontinued operations . . . . . . . . . . . . . . -- (43,239)
----------- -----------
Net cash used by financing activities . . . . . . . . . . . (309,502) (161,639)
----------- -----------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 12,737 37,209
Net change in cash of discontinued operations . . . . . . . . . . . . . . (4,437) (11,295)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 19,966 7,206
----------- -----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 28,266 $ 33,120
=========== ===========
Cash payments for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,114 $ 6,826
Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . -- --
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 1995
NOTE A -- BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements of Lomas
Financial Corporation ("LFC") and its subsidiaries (collectively, the
"Company") have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. They do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation at September 30, 1995, have been included. Operating
results for the quarter ended September 30, 1995 are not necessarily indicative
of the results that may be expected for the fiscal year ended June 30, 1996.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the annual report on Form 10-K of the Company for
the fiscal year ended June 30, 1995.
The unaudited consolidated financial statements have been prepared in
accordance with general accepted accounting principles applicable to a "going
concern" which contemplates the realization of assets and the liquidation of
liabilities in the ordinary course of business. Because of the Chapter 11
filings described below, such realization of assets and the liquidation of
liabilities is subject to significant uncertainties. Under Chapter 11
proceedings, the right of and the ultimate payments by the Company to
prepetition creditors and to the Company's stockholders may be substantially
altered. This is likely to result in claims being liquidated in the Chapter 11
proceedings at less than 100% of their face value. Certain claims in Chapter
11 may be asserted as having a priority in the plan of reorganization. The
Company has not proposed a plan of reorganization at this time and it is not
possible to predict the length of time the Company will operate under the
protection of Chapter 11.
NOTE B -- CHAPTER 11 PROCEEDINGS
On October 10, 1995, LFC, Lomas Mortgage USA, Inc. ("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.
On October 23, 1995, an official unsecured creditors committee was formed
and is acting in the Chapter 11 proceedings. 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.
Reference is made to "Item 3. Legal Proceedings" in the Company's annual report
on Form 10-K for the year ended June 30, 1995 for more information.
NOTE C -- ASSETS HELD FOR SALE AND LIABILITIES TO BE ASSUMED
On October 2, 1995, the Company closed the sale to First Nationwide
Mortgage Corporation ("First Nationwide") of Lomas Mortgage's GNMA servicing
portfolio (approximately $7.9 billion), its investment in Lomas Mortgage
Partnership and its loan production business including its mortgage loans held
for sale and the payment of the related warehouse lines of credit (the "Phase I
Sale"). The purchase price for the Phase I Sale was approximately $102
5
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
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.
Cash of $35 million was paid at closing of which $18.8 million was applied to
terminate the balance of Lomas Mortgage's swaps and $12 million was escrowed
with FNMA in connection with certain recourse servicing to be sold in the
proposed sale described in the following paragraph. Approximately $43 million
is expected to be paid on February 1, 1996, with the final payment of the
balance due on October 2, 1996.
In October 1995, the Company also reached a second agreement with First
Nationwide to sell substantially all of the remaining servicing portfolio
(approximately $12 billion) and certain other assets of Lomas Mortgage (the
"Phase II Sale"). The purchase price for the proposed sale will be
approximately $137 million based on September 30, 1995 balances (of which up to
$10 million 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 approval by the Bankruptcy Court.
The assets held for sale and liabilities to be assumed for the Phase I and
Phase II Sales except for purchased mortgage servicing income rights ("PMSRs")
are carried at their net book value which is assumed to be the market value.
The PMSRs have been written down to market value (based on Phase I and Phase II
Sales prices). The Company recognized a loss of approximately $162.2 million
during the quarter ended September 30, 1995.
At September 30, 1995, assets held for sale and liabilities to be assumed
were as follows (in thousands):
<TABLE>
<CAPTION>
Phase I Phase II
Sale Sale Total
------------ ------------ -----------
<S> <C> <C> <C>
Assets held for sale:
Cash . . . . . . . . . . . . . . . . . . . . . . $ -- $ 1,221 $ 1,221
First mortgage loans held for sale . . . . . . . 286,235 -- 286,235
Receivables . . . . . . . . . . . . . . . . . . 7,706 45,980 53,686
Investments . . . . . . . . . . . . . . . . . . 4,302 9,121 13,423
Fixed assets . . . . . . . . . . . . . . . . . . -- 190 190
Foreclosed real estate . . . . . . . . . . . . . -- 5,728 5,728
Purchased mortgage servicing income rights . . . 75,769 89,835 165,604
Prepaids and other assets . . . . . . . . . . . 120 2,981 3,101
Allowance for losses . . . . . . . . . . . . . . (6,107) (20,511) (26,618)
------------ ------------ -----------
$ 368,025 $ 134,545 $ 502,570
============ ============ ===========
Liabilities to be assumed:
Accounts payable and accrued expenses . . . . . $ 1,828 $ 7,407 $ 9,235
Notes payable . . . . . . . . . . . . . . . . . 274,075 -- 274,075
------------ ------------ -----------
$ 275,903 $ 7,407 $ 283,310
============ =========== ===========
</TABLE>
In addition, land and buildings that are included in fixed assets in the
consolidated balance sheet in the amount of $25.2 million are also held for
sale.
NOTE D -- TERMINATION OF REMAINING REVERSE INTEREST RATE SWAPS
During the September 1995 quarter, 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 was deferred.
On October 2, 1995, the Company terminated $485 million notional amount of
its remaining reverse interest swaps and paid the counterparty $18.8 million in
cash which came from the sale of certain assets of Lomas Mortgage
6
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED)
to First Nationwide as described in "NOTE C" to the consolidated financial
statements. Loss from the termination was $14.3 million. The Company
recognized $5.0 million of the expected loss during the quarter ended September
30, 1995. At September 30, 1995, the Company had an outstanding fixed rate
debt of $518 million which was hedged by the reverse interest rate swaps;
therefore, the remaining loss was deferred. As a result of the Chapter 11
filing on October 10, 1995, the Company wrote off the net deferred debits of
$9.1 million in October 1995.
Since the interest rate swap program's inception in July 1992 and through
its termination in October 1995, the swap program generated net cash of
approximately $4.5 million.
NOTE E -- DISCONTINUED OPERATIONS
Discontinued operations include the Company's short term lending operations
and information systems operations ("LIS").
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. At September 30,
1995, the Company had reserves of $2.2 million to cover future operating losses
through the disposition of all properties. For the quarters ended September
30, 1995 and 1994, losses of $0.7 million and $1.5 million, respectively, were
charged to the reserves.
Net assets of discontinued short term lending operations at September 30,
1995, were as follows (in thousands):
<TABLE>
<S> <C>
Assets:
Mortgage notes receivable and foreclosed real estate, net of allowance for
losses of $12,316 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,715
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,748
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 783
---------
29,246
Less:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . (354)
Future operating loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . (2,189)
---------
$ 26,703
=========
</TABLE>
Net assets of the Company's discontinued LIS operations at September 30,
1995 were $7.1 million including an $8.0 million note, net of accrued legal
expense and other taxes of $0.9 million.
NOTE F -- EARNINGS (LOSS) PER SHARE
Primary earnings (loss) per share data for the quarters ended September 30,
1995 and 1994, are computed using the weighted average number of shares of
common stock 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 1991 Stock Incentive Program and the 1993 Intermediate and Long
Term Incentive Plan. Common stock equivalents also include the assumed exercise
of dilutive stock options. 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 the related adjustments for interest and federal income
tax expenses. For the quarters ended September 30, 1995 and 1994, the fully
diluted per share data is antidilutive.
7
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's continuing operations resulted in a net loss for the quarter
ended September 30, 1995 of $194.2 million after recognizing expected losses of
$162.2 million on assets held for sale. Operating loss from continuing
operations for the quarter ended September 30, 1994 was $7.4 million. During
the September 1994 quarter, discontinued operations incurred losses of $5.5
million.
The operating results of the Company during the quarters ended September
30, 1995 and 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended September 30
-------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating income (loss):
Mortgage banking . . . . . . . . . . . . . . . . . . . . . . $ (30,986) $ (862)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,596 (754)
----------- -----------
(28,390) (1,616)
Corporate Expenses:
General and administrative . . . . . . . . . . . . . . . . . (532) (2,151)
Corporate interest . . . . . . . . . . . . . . . . . . . . . (3,148) (3,583)
----------- -----------
Loss before loss on assets held for sale . . . . . . . . (32,070) (7,350)
Loss on assets held for sale . . . . . . . . . . . . . . . . . . (162,160) --
----------- -----------
Loss from continued operations . . . . . . . . . . . . . (194,230) (7,350)
Loss from discontinued operations . . . . . . . . . . . . . . . -- (5,500)
----------- -----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850)
=========== ===========
</TABLE>
Mortgage Banking
The mortgage banking division's operations during the September 30, 1995,
quarter, before the $162.2 million loss on assets held for sale, reported a
loss of $31.0 million compared to a loss of $0.9 million in the same period of
fiscal 1995. As a result of the proposed sale of the majority of the mortgage
banking's remaining assets and the anticipated termination of employees,
included in the loss for the September 1995 quarter was a $12.0 million
writedown of a Company-owned building and a $7.0 million writedown of prepaid
pension expense based on a preliminary actuarial valuation of the Company's
pension account. Also included in the September 1995 quarter was a $6.6
million loss on termination of interest rate swaps.
8
<PAGE> 10
RESULTS OF OPERATIONS (CONTINUED)
The mortgage banking division's revenues, expenses and contribution/loss
from continuing operations for the quarters ended September 30, 1995 and 1994,
were derived from the following sources (in millions):
<TABLE>
<CAPTION>
Quarter Ended September 30
------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
Loan administration
Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 29.2 $ 30.5
Expenses . . . . . . . . . . . . . . . . . . . . . . . . (11.8) (11.4)
Amortization . . . . . . . . . . . . . . . . . . . . . . (14.0) $ 3.4 (14.0) $ 5.1
-------- --------
Master servicing
Revenues . . . . . . . . . . . . . . . . . . . . . . . . 2.7 2.6
Expenses . . . . . . . . . . . . . . . . . . . . . . . . (1.5) (1.9)
Amortization . . . . . . . . . . . . . . . . . . . . . . (0.1) 1.1 (0.2) 0.5
-------- --------
Insurance
Agency . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 2.7
Mortgage plans . . . . . . . . . . . . . . . . . . . . . 1.5 1.4
Expenses . . . . . . . . . . . . . . . . . . . . . . . . (1.4) 2.9 (1.4) 2.7
-------- --------
Banking (including warehousing and investment income and
interest expense)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . 11.9 7.8
Expenses . . . . . . . . . . . . . . . . . . . . . . . . (26.6) (14.7) (14.9) (7.1)
-------- --------
Portfolio production
Revenues . . . . . . . . . . . . . . . . . . . . . . . . 4.4 6.7
Expenses . . . . . . . . . . . . . . . . . . . . . . . . (3.4) 1.0 (5.2) 1.5
-------- --------
Field services
Revenues . . . . . . . . . . . . . . . . . . . . . . . . 1.7 3.0
Expenses . . . . . . . . . . . . . . . . . . . . . . . . (1.9) (0.2) (3.0) --
-------- --------
General and administrative expense . . . . . . . . . . . . . (5.5) (3.6)
Writedown of building . . . . . . . . . . . . . . . . . . . (12.0) --
Writedown of prepaid pension . . . . . . . . . . . . . . . . (7.0) --
------- -------
Loss from operations . . . . . . . . . . . . . . . . . . (31.0) (0.9)
Loss on assets held for sale . . . . . . . . . . . . . . . . (162.2) --
------- -------
Operating income (loss) . . . . . . . . . . . . . . . . $(193.2) $ (0.9)
======= =======
</TABLE>
The loan administration unit generated operating income of $3.4 million and
$5.1 million during the quarters ended September 30, 1995 and 1994,
respectively. Servicing related revenues decreased by $1.3 million to $29.2
million for the September 30, 1995 quarter. The decrease in revenues is
principally due to servicing sales. During the quarter ended September 30,
1995, the Company sold mortgage servicing rights related to a $4.6 billion
unpaid principal balance of mortgage loans for $22.6 million of cash. At
September 30, 1995 and 1994, the Company's servicing portfolio including
subservicing totaled $30.1 billion and $33.1 billion, respectively.
Master servicing operations generated income of $1.1 million for the
quarter ended September 30, 1995, compared to $0.5 million of income in the
quarter ended September 30, 1994. The increase in income reflected the cost
reduction programs implemented by the Company.
9
<PAGE> 11
RESULTS OF OPERATIONS (CONTINUED)
The banking unit recorded net expenses of $14.7 million for the first
quarter of fiscal 1996 compared to a $7.1 million net expense for the same
period of fiscal 1995. Banking revenues increased by $4.1 million from $7.8
million in the September 1994 quarter to $11.9 million in the September 1995
quarter. The increase is attributable to the increase in the average amount of
first mortgage loans held in warehouse pending delivery to permanent investors.
The average warehoused first mortgage loans were $339.3 million during the
September 1995 quarter compared to $271.5 million during the September 1994
quarter. The increase in revenues was partially offset by the increase in
warehouse related interest expense of $3.0 million. Banking expenses during
the quarter ended September 30, 1995 also included $6.6 million of loss
recognized for the termination of interest rate swaps. In addition, the
interest rate swaps reduced the Company's net interest expense by $0.8 million
in the September 1994 quarter. For the September 1995 quarter, the Company
incurred a net interest expense of $1.3 million on the interest rate swaps.
Portfolio production operations recorded income of $1.0 million and $1.5
million for the quarters ended September 30, 1995 and 1994, respectively.
Portfolio production revenues for the quarters ended September 30, 1995 and
1994 included $0.8 million and $3.2 million, respectively, of gains from sales
of first mortgage loans and related servicing rights.
In August 1995, the Company terminated its field services business and sold
certain assets previously used by that operation. The transaction resulted in
a gain of $142,000 which is being deferred until that subsidiary's remaining
receivables are collected and payables are paid.
General and administrative expense for the quarter ended September 1995
included a provision of $1.6 million. According to the Phase I Sale agreement
with First Nationwide, the Company agreed to maintain the allowance for losses
related to its loan administration and production operations at the same level
as they were at July 31, 1995. Therefore, chargeoffs totaling $1.6 million
during the two months ended September 30, 1995, were expensed and included in
the general and administrative expense.
As a result of the transactions described in "NOTE C" to the consolidated
financial statements, management has abandoned its plan in the September 1995
quarter to consolidate its operations into one building and, therefore, will
hold the building for sale. Accordingly, the Company recorded a loss of $12
million in the quarter ended September 30, 1995, to reflect the asset at fair
value less estimated selling costs. The Company also recorded $7.0 million in
personnel expense during the September 30, 1995 quarter to writedown its
prepaid pension expense for staff reductions that occurred in connection with
the sale of the Company's loan production business and the anticipated
termination of the majority of the Company's employees.
Other
The Company's other operations generated income of $2.6 million during the
quarter ended September 30, 1995, compared to a loss of $754,000 in the quarter
ended September 30, 1994. The September 1995 quarter results included a $1.1
million gain from the sale of the Company's image processing operations.
During the quarters ended September 30, 1995 and 1994, the image processing
operations recorded losses of $153,000 and $1.3 million, respectively. Also
included in other income for the September 1995 quarter was a $1.2 million
cash received on the bankruptcy settlement from the Company's affiliate, Vista
Properties, Inc. ("Vista"), representing the redemption of the Company's 19%
common stock ownership which the Company carried at no book basis. In addition
to the cash received on the settlement, the Company also received stock units
consisting of 1,175 shares of Vista Series A preferred stock with par value of
$0.01 per share and an initial coupon rate of 10% and 1,175 shares of Vista
Class A common stock. The preferred stock has a liquidation preference of
approximately $1.2 million and will be repriced in two years. Due to the
restricted nature of the stock and uncertainty surrounding the market value,
the Company recorded both issues at $1.
Discontinued Operations
Discontinued operations during the quarters ended September 30, 1995 and
1994, reported losses of $-0- and $5.5 million, respectively. During the
quarter ended September 30, 1994, the Company provided reserves of $4.0 million
for STL operations and $1.5 million for LIS operations. During the quarters
ended September 30, 1995 and 1994,
10
<PAGE> 12
RESULTS OF OPERATIONS (CONTINUED)
STL operating losses of $749,000 and $1.5 million, respectively, were charged
to the loss reserves. Operating loss for LIS of $5.3 million was charged to
reserves for the quarter ended September 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, the Company had $274.1 million warehouse related
debt outstanding. The debt was secured by single-family mortgage loans pending
delivery to permanent investors. On October 2, 1995, the Phase I Sale closing
date, the outstanding warehouse debt along with accrued interest was repaid by
First Nationwide.
Semiannual interest payments in the amount of $17.1 million on Lomas
Mortgage's senior notes and $6.3 million of LFC's senior convertible notes were
due in October 1995. 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. LFC did not make the scheduled interest payments due on
October 31, 1995 of approximately $6.3 million on its 9% senior convertible
notes. 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, Lomas Mortgage and two other insignificant subsidiaries
of LFC filed voluntary petitions for Chapter 11 proceedings on October 10,
1995. For further information, see "NOTE B -- CHAPTER 11 PROCEEDINGS" of this
report and "Item 3. Legal Proceedings" in the Company's annual report on Form
10-K for the year ended June 30, 1995.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to "Item 3. Legal Proceedings" in the Company's annual
report on Form 10-K for the year ended June 30, 1995, for a description of
LFC's, Lomas Mortgage's and certain of its subsidiaries' Chapter 11
proceedings. There have been no material developments or changes to these
proceedings except the formation of an official unsecured creditors committee
on October 23, 1995.
The Company is also involved in a number of other lawsuits considered to be
in the normal course of business. In management's opinion, the resolution of
these other disputes will not have a material adverse effect on the financial
position of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number
------
<S> <C>
(10.1) Section 363 Asset Sale Agreement dated as of October 9, 1995, by and between First Nationwide Mortgage
Corporation and Lomas Mortgage.
(11) Computation of Earnings (Loss) Per Share
(27) Financial Data Schedule (submitted to the Securities and Exchange Commission for its information).
</TABLE>
11
<PAGE> 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(b) Reports on Form 8-K:
Form 8-K dated October 30, 1995, reported the press release of the
New York Stock Exchange ("NYSE") regarding the suspension of trading
of LFC's common stock and convertible notes and application to delist
the issue by the NYSE. No financial statements were filed.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
LOMAS FINANCIAL CORPORATION
----------------------------------------------------------------
(Registrant)
Date: November 14, 1995 By: /S/ERIC D. BOOTH
----------------------------------------------------------------
Eric D. Booth
President, Chief Executive Officer and Director
Date November 14, 1995 By: /S/GARY WHITE
----------------------------------------------------------------
Gary White
Senior Vice President and Chief Financial Officer
</TABLE>
13
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
- - ------ ----------- -------------
<S> <C>
(10.1) Section 363 Asset Sale Agreement dated as of October 9, 1995, by and between First
Nationwide Mortgage Corporation and Lomas Mortgage.
(11) Computation of Earnings (Loss) Per Share
(27) Financial Data Schedule (submitted to the Securities and Exchange Commission for its
information).
</TABLE>
14
<PAGE> 1
EXHIBIT 10.1
SECTION 363 ASSET SALE AGREEMENT
THIS SECTION 363 ASSET SALE AGREEMENT (this "Agreement") dated
as of October 9, 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,
subservicing and master servicing mortgage loans pursuant to the Mortgage
Servicing Agreements (as defined herein) (the "Servicing Business"); and
WHEREAS, the Company intends to file a voluntary petition (the
"Petition") for reorganization relief pursuant to Chapter 11 of title 11 of the
United States Code, 11 U.S.C. sections 101 et seq., as amended by the
Bankruptcy Reform Act of 1994 (the "Bankruptcy Code"), in the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on or
about October 10, 1995; and
WHEREAS, Buyer desires to purchase and acquire from the
Company certain assets and rights, and the Company desires to sell, convey,
assign and transfer all
<PAGE> 2
of such assets and rights to Buyer, in the manner and subject to the
terms and conditions set forth herein and in accordance with Sections 105, 363
and 365 of the Bankruptcy Code; and
WHEREAS, the Company desires to assign to Buyer and
Buyer desires to assume from the Company certain liabilities, in the manner and
subject to the terms and conditions set forth herein and in accordance with
Sections 105, 363 and 365 of the Bankruptcy Code.
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.
2
<PAGE> 3
Accounts Receivable -- The accounts receivable which comprise
those general ledger accounts of the Company 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.
Acquisition Proposal -- As defined in Section 5.17(a).
Adjusted Final Purchase Price -- As defined in Section 2.3(d).
Advances -- Amounts that have been advanced by the Company 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 as the
servicer, subservicer or master servicer of the Mortgage Loans pursuant to
applicable Investor requirements or the terms of the applicable Mortgage
Servicing Agreements.
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
3
<PAGE> 4
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.
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 addi-
4
<PAGE> 5
tional contract rights added to such schedule pursuant to
Section 5.7 hereof.
Assumed Liabilities -- As defined in Section 2.1(c).
Bankruptcy Code -- As defined in the recitals hereof.
Bankruptcy Court -- As defined in the recitals hereof.
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 (i) any Mortgage Loan which
on July 31, 1995 was an Excluded Loan or (ii) any Mortgage Loan for which the
Company is not the primary servicer.
Base Portfolio Loan -- Any Mortgage Loan included in the Base
Portfolio.
Base Purchase Price -- As defined in Section 2.2.
Book Value -- Book value calculated in accordance with GAAP
consistently applied without allowance for reserves.
Burdensome Condition -- As defined in Section 6.2(d).
5
<PAGE> 6
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).
Citicorp Agreement -- As defined in Section 2.6(e).
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
(i) any Mortgage Loan which on the Closing Date is an Excluded Loan or (ii) any
Mortgage Loan for which the Company is not the primary servicer.
Closing Portfolio Loan -- Any Mortgage Loan included in the
Closing Portfolio.
6
<PAGE> 7
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.
Contracts -- The Assumed Contracts, the Leases and the
Mortgage Servicing Agreements.
Conversion Date -- For any Mortgage Loan, the date the
servicing of such Mortgage Loan shall have been 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).
Employees -- As defined in Section 5.11.
7
<PAGE> 8
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 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
8
<PAGE> 9
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;
(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 and the basis for the Repurchase demand has not been cured
prior to the due date for such Repurchase; or
(vi) the Mortgage Loan is identified on the Company's books
and records as a "fraudulent loan."
9
<PAGE> 10
FF&E -- The furniture, fixtures and equipment owned or leased
by the Company and set forth on Schedule X hereto.
FHA -- Federal Housing Administration.
FHA Loans -- Mortgage Loans which are insured by FHA, or which
are intended by the Company to be insured 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 Order -- An order or judgment of a court, the
implementation or operation or effect of which has not been stayed and as to
which order or judgment (or any revision, modification or amendment thereof
reasonably acceptable to Buyer) the time to appeal or seek review or rehearing
or writ of certiorari has expired and as to which no appeal or petition for
review or rehearing or certiorari has been taken.
Final Purchase Price -- As defined in Section 2.5(h).
Final Settlement -- As defined in Section 2.7.
10
<PAGE> 11
Final Settlement Amount -- As defined in Section 2.7.
Final Settlement Date -- As defined in Section 2.7.
First Order -- An order of the Bankruptcy Court, in form and
substance reasonably satisfactory to Buyer, which approves, among other things,
(i) sales procedures relating to disposition of the Assets set forth in Section
5.17 hereof and (ii) payment of the Termination Payment to Buyer pursuant to
Section 8.4.
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 otherwise in writing) that such
Mortgage Loan is or will be insured by FmHA.
FNMA -- Federal National Mortgage Association.
Foreclosure -- The acquisition of title to Collateral in a
foreclosure sale or pursuant to any other
11
<PAGE> 12
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 -- Government National Mortgage Association.
Governmental Entity -- Any government or any agency, bureau,
board, commission, court, department, 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.
HSR Act -- The Hart-Scott-Rodino Antitrust Improvements Act of
1976.
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
12
<PAGE> 13
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 -- The investment assets relating to the Servicing
Business which comprise those general ledger accounts of the Company set forth
on Schedule III hereto.
Investor -- Any Person who owns a Mortgage Loan or
mortgage-backed security backed by a Mortgage Loan, or the servicing rights or
master servicing rights to a Mortgage Loan or mortgage-backed security backed
by a Mortgage Loan, subserviced, serviced or master serviced by the Company
pursuant to a Mortgage Servicing Agreement.
Last Day -- As defined in Section 2.3(a).
13
<PAGE> 14
Leased Properties -- The leasehold interests of the
Company in real property pursuant to the Leases.
Leases -- The leases set forth on Schedule IV hereto pursuant
to which the Company leases real property or FF&E.
Licenses -- As defined in Section 3.9.
LIS -- Lomas Insurance Services, Inc., a Connecticut
corporation and a wholly owned subsidiary of the Company.
LIS Common Stock -- As defined in Section 3.1(b).
LIS Contracts -- As defined in Section 3.30.
LIS Shares -- As defined in Section 3.1(b).
LIS Subsidiaries -- As defined in Section 3.1(d).
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 for insurance by an Insurer or
14
<PAGE> 15
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.
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)).
15
<PAGE> 16
Material Adverse Effect -- A material adverse effect on the
Assets, the Assumed Liabilities or the Servicing Business, in each case taken
as a whole, or on the Company's ability to consummate the transactions
contemplated by this Agreement.
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 -- Any closed mortgage loan in the Mortgage
Servicing Portfolio, whether or not the related mortgage is included in a
securitized portfolio, as evidenced by a note or notes duly secured by
mortgages or deeds of trust.
Mortgage Servicing Agreements -- The contracts or arrangements
between the Company and an Investor, as set forth on Schedule V hereto,
pursuant to which the Company subservices, services or master services Mortgage
Loans for such Investor, together with any additional mortgage servicing
agreements added to such Schedule V pursuant to Section 5.7 hereof.
16
<PAGE> 17
Mortgage Servicing Portfolio -- The portfolio of mortgage
loans subserviced, serviced or master serviced by the Company pursuant to
Mortgage Servicing Agreements.
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 -- The assets relating to the Servicing Business
which comprise those general ledger accounts of the Company set forth on
Schedule VI hereto.
Overbid Notice -- As defined in Section 5.17(a) hereof.
Overbid Transaction -- An Acquisition Proposal made in
writing by a Qualified Third Party (i) which
17
<PAGE> 18
provides for consideration having a fair market value, as determined by the
Board of Directors of the Company which exceeds the Base Purchase Price (or, if
Buyer has delivered a Topping Offer to the Company, the Topping Offer Amount)
by at least $1,500,000 and (ii) the terms and conditions of which (including
the amount and value of the consideration thereunder) are reasonably determined
by the Board of Directors of the Company to be, when taken in their entirety,
no less favorable to the Company than the terms and conditions set forth in
this Agreement.
Parent -- As defined in Section 3.7.
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.
Petition -- As defined in the recitals hereof.
PMI -- Private mortgage insurance.
Pool -- An aggregate of one or more Mortgage Loans that have
been pledged or granted to secure mortgage-backed securities or participation
certificates.
Post-Closing Terminated Loan -- Each Closing Portfolio Loan
with respect to which the Investor, other
18
<PAGE> 19
than GNMA, FNMA or FHLMC (i) shall have successfully objected to the assumption
of the related Mortgage Servicing Agreement by Buyer pursuant to the 365 Order,
or (ii) shall have terminated, or given notice of termination of, the related
Mortgage Servicing Agreement in accordance with its terms (other than due to
repayment in full of such Closing Portfolio Loans or the breach by Buyer of the
terms of such Mortgage Servicing Agreement).
Pre-Closing Period -- As defined in Section 7.1(a).
Qualified Third Party -- A Third Party who the Board of
Directors of the Company has determined in the exercise of its fiduciary duty
(i) is financially able to consummate an Overbid Transaction and (ii) has the
licenses and qualifications set forth in Section 4.5.
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 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
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breach or default of any contractual representation, warranty or undertaking or
misfeasance or malfeasance by the Company.
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 the Company and an Investor
or private mortgage insurer (including, without limitation, Mortgage Servicing
Agreements 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 and (iv) the terms and provisions of the Loan Documents.
REO -- Any residential real property owned in fee simple by
the Company as a result of a Foreclosure instituted in the conduct of the
Servicing Business.
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Repurchase -- The purchase of a Mortgage Loan out of a Pool or
an Investor's portfolio by Buyer or the Company.
Requisite Regulatory Approvals -- As defined in Section 6.1(a).
RIS Agreement -- The Excelis Service Bureau Agreement, dated
as of December 16, 1994, by and between Residential Information Services
Limited Partnership and the Company.
Scheduled Liabilities -- As defined in Section 2.1(c).
Second Order -- An order of the Bankruptcy Court, in form
reasonably satisfactory to Buyer approving the consummation of the Acquisition.
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, 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
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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 and
the Mortgage Servicing Agreements.
State Agency -- Any state agency with authority to regulate
the business of the Company, determine the investment or servicing requirements
with regard to loans originated, purchased or serviced by the Company or
otherwise participate in or promote mortgage lending.
Subservicing and Transition Services Agreement -- As defined
in Section 5.27.
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.
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
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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.
Termination Payment -- As defined in Section 8.4.
Third Party -- Any Person other than the Company, Buyer or any
of their respective Affiliates.
Third Party Claim -- As defined in Section 7.1(d).
365 Order -- As defined in Section 6.2(c).
Topping Offer -- As defined in Section 5.17(b).
Topping Offer Amount -- The base purchase price specified in
the most recent Topping Offer delivered by Buyer to the Company pursuant to
Section 5.17(b) hereof, which base purchase price exceeds the base purchase
price in the most recent Overbid Transaction by at least $1,500,000.
Topping Right -- As defined in Section 5.17(b).
Trade Names -- The brand names, copyrights, patents, service
marks, trademarks, trade names, state or federal common law usages and
registration or applica-
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tions for registration of any of the foregoing, each as set forth on Schedule
IX hereto.
Treasury Regulations -- The regulations promulgated under the
Code.
Turkey Pile Loan -- Any whole mortgage loan owned by
the Company which was bought out of a Pool or otherwise repurchased from an
Investor.
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 or the Company 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 or the Company.
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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;
(ii) the LIS Shares;
(iii) the REO;
(iv) the Accounts Receivable;
(v) the FF&E;
(vi) the Contracts;
(vii) the Records;
(viii) the Custodial Accounts and the Escrow
Funds;
(ix) the Trade Names;
(x) the Investments and the Other Assets; and
(xi) the Turkey Pile Loans.
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(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 (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 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, (ii) the Contracts, and (iii) those liabilities which comprise the
general ledger accounts of the Company set forth on Schedule VII hereto (the
"Scheduled Liabilities"), in each case 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
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assume or be liable for any of the debts, obligations or liabilities (including
without limitation any liability for Taxes) 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 $150,000,000 (the "Base Purchase Price"), provided, however,
that such Base Purchase Price shall be finally determined in accordance with
Sections 2.4 and 2.5 hereof. Buyer shall pay to the Company $10,000,000 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
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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
furthe, however, that in such case, for purposes of this Agreement, except as
otherwise 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)(i;
(ii) Lease Assignment and Assumption Agreements
substantially in the form of Exhibit 2.3(b)(ii) with respect to all of
the Leases, exe-
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cuted and acknowledged by the Company in recordable form;
(iii) certificates evidencing the LIS 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 LIS Shares;
(iv) all documentation required to exempt the
Company from the withholding requirement of Section 1445 of the Code,
consisting of an affidavit from the Company to Buyer stating under
penalty of perjury that the Company is not a foreign person and
providing the Company's U.S. taxpayer identification number.
Notwithstanding anything to the contrary set forth herein, if the
Company fails to provide Buyer with such affidavit, Buyer shall be
entitled to withhold the requisite amounts from the Final Purchase
Price in accordance with Section 1445 of the Code;
(v) 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
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as of the Closing Date by the Secretary or Assistant Secretary of the
Company;
(vi) the consents and other documents required
to be delivered pursuant to Section 6.3; and
(vii) such other documents, agreements and
instruments as Buyer shall reasonably request to effect 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 $42,000,000,
by wire transfer to such account as the Company shall designate in
writing at least one business day prior to the Closing Date (such
amount paid by Buyer pursuant to this clause (i), the "First
Payment");
(ii) Buyer shall deliver an executed Assumption
Agreement in substantially the form of Exhibit 2.3(c);
(iii) 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
contemplat-
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ed hereby, certified as of the Closing Date by the Secretary
or Assistant Secretary of Buyer; and
(iv) 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 Purchase 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 $77,000,000 (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.
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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 120 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 setting forth in reasonable detail the Book Value, as of
the Closing Date, of the Accounts Receivable, (iv) a schedule setting forth in
reasonable detail the Book Value, as of the Closing Date, of the Scheduled
Liabilities, (v) 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(d) hereof, (vi) a schedule setting
forth in reasonable detail the Book Value, as of the Closing Date, of the
Investments and the Other Assets,
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(vii) a schedule setting forth in reasonable detail the Book Value, as of the
Closing Date, of the REO, (viii) a schedule setting forth in reasonable detail
the aggregate Book Value, as of the Closing Date, of the Turkey Pile Loans, and
(ix) 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 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
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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 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
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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
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.
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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 $73,152,000 or
(ii) decreased by the amount, if any, by which $73,152,000 exceeds the
aggregate Book Value of the Accounts Receivable as of the Closing Date.
(c) Book Value of Scheduled Liabilities. The Base
Purchase Price shall be (i) increased by the amount, if any, by
which $20,069,000 exceeds the aggregate Book Value, as of the Closing Date, of
the Scheduled Liabili-
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ties, or (ii) decreased by the amount, if any, by which the aggregate Book
Value, as of the Closing Date, of the Scheduled Liabilities exceeds
$20,069,000.
(d) 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.
(e) Book Value of Investments and Other Assets. The Base
Purchase Price shall be (i) increased by the amount by which the aggregate Book
Value of the Investments and the Other Assets as of the Closing Date exceeds
$8,944,000 or (ii) decreased by the amount by which $8,944,000 exceeds the
aggregate Book Value of the Investments and the Other Assets as of the Closing
Date.
(f) Book Value of REO. The Base Purchase Price shall be
(i) increased by the amount by which the aggregate Book Value of the REO as of
the Closing Date exceeds $6,092,000 or (ii) decreased by the amount by
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which $6,092,000 exceeds the aggregate Book Value of the REO as of the Closing
Date.
(g) Adjustment for Turkey Pile Loans. The Base Purchase
Price shall be increased by an amount equal to the aggregate Book Value of all
Turkey Pile Loans, if any, as of the Closing Date.
(h) Netting of Adjustments. The adjustments to the Base
Purchase Price described in paragraphs (a) through (g) 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 Price, as finally
determined in the manner provided in Sections 2.4 and 2.5 hereof, and as
further adjusted pursuant to the terms of Section 2.6, is referred to herein as
the "Final Purchase Price."
2.6 Adjustment for Post-Closing Terminated Loans.
(a) With respect to any Closing Portfolio Loan which is a
Post-Closing Terminated Loan as of the 120th day after the Closing Date, the
Base Purchase Price shall be reduced by an amount equal to (i) 1.10% of the
aggregate unpaid principal balance as of the Closing Date of any such loan
which was a Base Portfolio Loan or (ii)
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1.50% of the aggregate unpaid principal balance as of the Closing Date of any
other such loan.
(b) With respect to any Closing Portfolio Loan which became a
Post-Closing Terminated Loan after the 120th day after the Closing Date and
before the first anniversary of the Closing Date, the Base Purchase Price shall
be further reduced by an amount equal to (i) 1.10% of the aggregate unpaid
principal balance as of the Closing Date of any such loan which was a Base
Portfolio Loan or (ii) 1.50% of the aggregate unpaid principal balance as of
the Closing Date of any other such loan.
(c) The amount of the reduction in the Base Purchase Price as
calculated in accordance with subsection (a) or (b) of this Section 2.6 shall
be offset by the amount of any termination or similar fees or charges actually
received by Buyer in connection with the termination of the servicing of such
Post-Closing Terminated Loans.
(d) Not less than five business days prior to the 120th day
after the Closing Date or the Final Settlement Date, as the case may be, Buyer
shall deliver to the Company a schedule setting forth in reasonable detail the
Post-Closing Terminated Loans and a statement of the
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calculations contemplated by paragraphs (a) and (b) of this Section 2.6.
(e) With respect to the Mortgage Loans serviced by the
Company pursuant to the Mortgage Servicing Purchase and Sale Agreement, dated
as of July 31, 1987, by and between Citicorp Mortgage, Inc. ("Citicorp") and
the Company, as amended by Addendum Number One dated December 1, 1992 (the
"Citicorp Agreement"), the Company and Buyer agree to the terms and provisions
set forth on Exhibit 2.6(e) hereto.
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 Adjusted
Final Purchase Price 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
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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 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
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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 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.
2.8 Prorations.
Any payments made or due under or pursuant to the Leases and
the Assumed Contracts (including without limitation amounts paid by the Company
prior to the Closing for maintenance and repair services to be provided after
the Closing, prepaid postage or machine rental for any period after the
Closing), all use, real and personal property Taxes, all water and sewer
charges not based upon consumption and all assessments for public improvements,
if any, related to the Assets shall be prorated between Buyer and the Company
on the basis of a 365-day year and the number of days elapsed through the
Closing Date, with the Company being liable for amounts
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attributable to periods through the Closing Date and Buyer being liable for
amounts attributable to periods after the Closing Date. With respect to any
products sold or services rendered pursuant to the Assumed Contracts, the
Company and Buyer shall use their best efforts to arrange for vendors to bill
the Company directly for the same through the Closing Date for products sold or
services rendered on or prior to the Closing Date and to bill Buyer directly
after the Closing Date for products sold or services rendered after the Closing
Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as follows:
3.1 Organization; Capitalization
(a) Each of the Company and LIS is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Connecticut. Each Subsidiary of LIS is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation. The Company has full corporate power and authority to conduct
the Servicing Business as now conducted and to own or lease the Assets
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and is duly licensed or qualified to do business 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 requires such licensing or qualification,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect. Each of LIS and its Subsidiaries has full corporate
power and authority to carry on its business as now conducted and to own or
lease all of its properties and assets and is duly licensed or qualified to do
business and is in good standing in each state or jurisdiction where the
ownership or leasing of its properties or assets or the conduct of its business
requires such licensing or qualification, except where the failure to be so
licensed or qualified would not have or would not reasonably be expected to
have a Material Adverse Effect. The Company has previously made available to
Buyer accurate and complete copies of the articles of incorporation and by-laws
of LIS and each Subsidiary of LIS as in effect on the date of this Agreement.
(b) The authorized capital stock of LIS
consists of 5,000 shares of common stock, par value $1.00 per share ("LIS
Common Stock"), and no shares of preferred stock. There are 3,350 shares of
LIS Common Stock
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issued and outstanding (the "LIS Shares"), 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 LIS Common Stock are owned by the Company, free and clear
of all Encumbrances, contracts, rights, options and assignments whatsoever. No
shares of LIS Common Stock are reserved for issuance. Neither LIS 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 LIS Common Stock or any
securities representing the right to purchase or otherwise receive any shares
of LIS Common Stock. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the LIS Common Stock.
(c) The Company has good and marketable title
to the LIS Shares, free and clear of all Encumbrances, contracts, rights,
options and assignments whatsoever. Upon payment of the First Payment to the
Company at the Closing in accordance with Section 2.3(b)(i) of this Agreement,
at the Closing the Company
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will convey to Buyer good and valid title to the LIS Shares, free and clear of
all Encumbrances.
(d) LIS does not own any equity interest,
directly or indirectly, in any Subsidiary or any other Person other than (i)
Lomas Insurance Services of Arizona, Inc., (ii) Lomas Insurance Services of
Florida, Inc., (iii) Lomas Insurance Services of Louisiana, Inc., (iv) Lomas
General Insurance Services, Inc., and (v) Lomas Insurance Services of Virginia,
Inc. (collectively, the "LIS Subsidiaries"). LIS owns, directly or through one
of the LIS Subsidiaries, all of the issued and outstanding capital stock of the
LIS Subsidiaries, free and clear of all Encumbrances, contracts, rights,
options and assignments whatsoever, and all of such shares are duly authorized,
validly issued, fully paid, nonassessable and free of pre-emptive rights, with
no personal liability attaching to the ownership thereof. None of the LIS
Subsidiaries 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 capital stock of such
Subsidiaries or any securities representing the right to purchase or otherwise
receive any shares of capital stock of such Subsidiaries. There are no voting
trusts, prox-
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ies or other agreements or understandings with respect to the
voting of the capital stock of the LIS Subsidiaries.
3.2 Authority; No Violation
(a) Subject to the entry of the Second Order, 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. Subject to the entry of the Second Order, 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 Parent, and no other corporate proceedings on the part of the
Company or Parent are necessary to consummate the transactions contemplated
hereby and thereby. This Agreement has been duly and validly executed and
delivered by the Company and, subject to the entry of the Second Order 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
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the Company in accordance with its terms, and the other documents, agreements
and instruments to be delivered 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"), and subject to the entry of the Second Order, 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, LIS or any of the LIS Subsidiaries or (ii)
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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, (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 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 is a party, or by which
the Company or any Subsidiary of the Company or any of their respective assets
may be bound or affected, except, in the case of clause (y) above, for such
violations, conflicts, breaches or defaults which, either
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individually or in the aggregate, would not have a Material Adverse Effect.
3.3 Consents and Approvals
Except as set forth in Section 3.3 of the Company Schedule,
and subject to the entry of the Second Order, 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 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
Each of the Company, LIS and the LIS Subsidiaries maintains
records which accurately reflect transactions relating to the Assets and the
Assumed Liabilities in reasonable detail, and maintains accounting controls,
policies and procedures sufficient to ensure that
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such transactions are (i) executed in accordance with its management's general
or specific authorization, as applicable, and (ii) recorded 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 each of the Company, LIS and the LIS
Subsidiaries reflect only actual transactions. The Accounts Receivable,
Investments, Other Assets, REO and Scheduled Liabilities are carried on the
Company's balance sheet in accordance with GAAP consistently applied.
3.5 Contracts
(a) The Company has made available to Buyer a correct and
complete copy of each written Contract listed on Schedules II, IV and V. With
respect to each Contract: (A) the Contract is valid, binding and in full force
and effect; (B) the Company is not in breach or default thereof (except for
breaches and defaults of the type referred to in Section 365(b)(2) of the
Bankruptcy Code), and, to the knowledge of the Company, no event has occurred
which, with notice or lapse of time or both,
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would constitute a breach or default (except for breaches and defaults of the
type referred to in Section 365(b)(2) of the Bankruptcy Code) by the Company,
or would permit termination, modification, or acceleration against the Company
under such Contract; (C) the Company 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 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.
(b) With respect to each Lease relating to real property,
except as set forth on Section 3.5(b) of the Company Schedule, (A) no waiver or
indulgence or postponement of any material obligation thereunder has been
granted by any lessor or sublessor; (B) neither the Company nor any of its
Subsidiaries has entered into any sublease or assignment with respect to its
interest as tenant in such Lease; and (C) neither the Company nor any
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Subsidiary of the Company has received any notice that it has breached any
material term, condition or covenant of any such Lease (except for breaches of
the type referred to in Section 365(b)(2) of the Bankruptcy Code).
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) for Encumbrances securing the Assumed
Liabilities, and (iv) 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. The Company as lessee has the right under valid and
subsisting Leases to occupy, use, possess and control all of the Leased
Property leased by the Company, as presently occupied, used, possessed and
controlled by the Company, or to use and possess the leased FF&E as presently
used and possessed by the Company, as the case may be.
3.7 Brokers and Finders
Neither the Company nor any of its officers, directors,
employees, agents or Affiliates has employed
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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 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 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) 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
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is no injunction, order, judgment, decree or regulatory restriction imposed
upon the Company or any of its Subsidiaries 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 single-family and
multifamily mortgage loans 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 is in good standing under all
applicable federal, state and local laws and regulations thereunder as a
mortgage lender and servicer.
(b) The Company 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.
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(c) 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. The information contained in such tape is true, complete and
correct in all material respects as of July 31, 1995. 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) duly secured by a
Mortgage with such terms as are customary in the business and which grants the
holder thereof a first priority lien (except as otherwise indicated in the tape
referred to above) 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, and to such other matters as evidenced by a lender's title
insurance policy and, where applicable,
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subject to the interests of the Texas Veterans' Land Board, and is in full
force and effect, (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 an assignee of
the Company, 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. The Company 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
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limited by (i) 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), (ii) state laws
requiring creditors to proceed against the collateral before pursuing the
borrower, and (iii) state laws on deficiencies), and conform to all applicable
Regulations. Neither the operation of any of the terms of any Mortgage 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 in compliance in all material respects with
applicable Regulations and Agency, Investor and Insurer requirements upon
origination of the underlying Mortgage Loan and are complete in all material
respects.
3.12 Title to Certain Mortgage Loans; Mortgage
Servicing Agreements
(a) All Mortgage Loans held in the account of the
Company (whether or not for future sale or delivery to an Investor) are owned
by the Company free and clear of all Encumbrances. Such Mortgage Loans have
been duly
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recorded or submitted for recordation in due course in the appropriate filing
office in the name of the Company as mortgagee. The Company has not, 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) All of the Mortgage Servicing Agreements and the
Servicing Rights are owned by the Company, free and clear of any Encumbrances,
including without limitation the right to receive servicing fees.
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 rights against and obligations to the
Agencies and Investors with re-
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spect 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 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 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 the Company
has not re-
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ceived written notice to the effect that any Investor or Agency intends to
terminate or is considering terminating its relationship with the Company.
Except as set forth in Section 3.14 of the Company Schedule, no material
sanctions or penalties have been imposed upon the Company subsequent to January
1, 1992 under any Mortgage Servicing Agreement or under any Regulation
applicable to the Company.
3.15 Compliance with Mortgage Banking Regulations
(a) The Company and, with respect to each Mortgage Loan,
to the knowledge of the Company, each prior servicer and originator of any 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 by
the Company 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,
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FNMA, HUD, FHLMC and GNMA, (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 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 and, to the knowledge of the Company,
each prior servicer and originator of the Mortgage 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
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standards of such Agencies, Investors or Insurers. To the knowledge of the
Company, each correspondent or broker from whom the Company has purchased
Mortgage Loans had all approvals necessary to enable it to take applications
and close such Mortgage Loans.
(b) The Company has 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 ordinance, and
where the failure to so timely file would have a Material Adverse Effect.
Neither the Company nor, with respect to any Mortgage Loan, 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 insurance or commitment of the FHA to insure, (iii) any VA or FmHA
guaranty or commitment of the VA or FmHA to guaranty, (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
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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 or (ix) any surety or guaranty agreement.
(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 has violated or has not complied with the applicable
underwriting standards with respect to Mortgage Loans sold by the Company to an
Investor or (z) imposed restrictions on the activities (including commitment
authority) of the Company. There exist no known facts or circumstances which
would entitle an Investor to demand repurchase of a Mortgage Loan from the
Company or which would entitle an Insurer to demand indemnification from the
Company, to cancel any mortgage insurance held for the Company's benefit, or to
reduce any mortgage insurance benefits payable to the Company, or would lead
any Investor to require a letter of credit from the Company, in each case with
respect to any Mortgage Loan.
3.16 Custodial Accounts
The Company has full power and authority to maintain Custodial
Accounts for all of the Mortgage
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Loans, as required by applicable Regulations, and has established Custodial
Accounts for all Escrow 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, which amounts represent all monies
received or advanced by the Company as required by the applicable Regulations,
less amounts remitted by or on behalf of the Company 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
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deficiency. The escrow analysis with respect to each 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 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 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, the Company is not
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 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
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failure to comply with applicable Regulations and resulted in (i) a repurchase
of Mortgage Loans or Collateral by the Company, (ii) indemnification by the
Company 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 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 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 is a party which obligate it to make servicing advances with respect to
defaulted or delinquent Mortgage Loans, other than as provided in, FNMA or
FHLMC pooling and servicing agreements. The Accounts Receivable are valid and
subsisting amounts owing to the Company, are carried on the books of the
Company at values determined in accordance with GAAP and are not subject to any
setoffs or claims of
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the account debtor arising from acts or omissions of the Company 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, the
Company has not received notice from an Agency, Investor, Insurer or other
Person disputing or denying a claim by the Company for reimbursement in
connection with any Accounts Receivable or Advances. As of July 31, 1995, the
aggregate Book Value of the Accounts Receivable was $73,152,000.
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 or any REO 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, REO or Collateral.
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
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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 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
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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 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
Documents. All of such tax identifications are correct and complete in all
material respects, and property de-
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scriptions 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,
(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 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 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 ap-
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plied 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.
3.25 Taxes
Except as set forth in Section 3.25 of the Company Schedule:
(a) The Company and each of its Subsidiaries 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 Assets,
including all consolidated federal income Tax Returns relating to each of LIS
and its Subsidiaries, required to be filed and such Tax Returns are true,
complete and correct in
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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.
(b) Each of LIS and the LIS Subsidiaries
has (i) timely filed (or will have timely filed by the Closing Date) with the
appropriate taxing authorities all Tax Returns 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.
(c) There are no liens for Taxes upon any of the
Assets or any of the assets owned directly or indirectly by LIS or any of the
LIS Subsidiaries, except liens for Taxes not yet due or payable.
(d) None of LIS or any of its Subsidiaries has,
nor has any Person on LIS' behalf, (i) received any notice of deficiency or
assessment from any taxing authorities with respect to liability for Taxes that
have not been fully paid or finally settled, (ii) granted any requests,
agreements, consents or waivers to extend the statutory period of limitations
applicable to the assessment of any Taxes with respect to any Tax
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Returns of LIS or any of its Subsidiaries or (iii) filed any elections,
consents or waivers with respect to Taxes (including, without limitation, a
consent pursuant to section 341(f) of the Code) of LIS or any of its
Subsidiaries.
(e) There are no ongoing audits or examinations
(including administrative or court proceedings) with regard to any Taxes of LIS
or any of its Subsidiaries or Tax Returns required to be filed with respect to
LIS or any of its Subsidiaries or Taxes or Tax Returns of any affiliated group
(within the meaning of Section 1504 of the Code) or similar group under state,
local or other law of which LIS and its Subsidiaries are members.
(f) No taxing authority is now asserting or
threatening to assert any deficiency or assessment for additional Taxes with
respect to or attributable to LIS or any of its Subsidiaries, and neither LIS
nor the Company has knowledge of any facts that, if known to any taxing
authority, would likely result in the issuance of a notice of proposed
deficiency or similar notice of intention to assess Taxes against LIS or any of
its Subsidiaries.
(g) No payment which will, or may, be made by LIS
or any of its Subsidiaries to any employee,
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director or agent thereof will constitute an "excess parachute payment" within
the meaning of section 280G of the Code.
(h) There has been no change in the method of
accounting utilized by LIS or any of its Subsidiaries that would require any
adjustment to taxable income pursuant to section 481 of the Code, and none of
the Company, LIS or any of its Subsidiaries has any knowledge that the Internal
Revenue Service has proposed any such adjustment or has proposed any such
change in accounting method.
(i) Any and all agreements or arrangements of
which LIS or any of its Subsidiaries is a party and that provide for the
allocation or sharing of Taxes or Tax benefits or refunds shall be cancelled
and terminated as of the Closing Date and will have no effect and be
unenforceable as of the Closing Date.
3.26 FHA, VA and PMI Claims.
All claims submitted, required to be submitted and allowed to
be submitted, by the Company to the FHA, the VA or any provider of PMI, as
applicable, have been properly and timely submitted to FHA, the VA or such
private mortgage insurer.
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3.27 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.
3.28 RIS Agreement
Upon consummation of the transactions contemplated by this
Agreement, no payment, fee or penalty will be or become payable by Buyer
pursuant to the terms of the RIS Agreement.
3.29 Trade Names. (a) Schedule IX contains a true and
complete list and description of any Trade Names owned by the Company and any
licenses or similar agreements pursuant to which the Company is granted rights
with respect to any Trade Names.
(b) Except as set forth in Section 3.29 of the Company
Schedule, the Company has the unrestricted right to use the Trade Names, free
and clear of any claims by
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any Person (other than the claims of any licensors under licensing or similar
agreements), and the consummation of the transactions contemplated by this
Agreement will not alter or impair any such right. No claims have been
asserted by any Person with respect to the use by the Company of any Trade
Names or challenging or questioning the validity or effectiveness of any
license or similar agreement with respect thereto, and, to the knowledge of the
Company, there is no basis for any such claim. Except as set forth in Section
3.29 of the Company Schedule, no Trade Name is subject to any outstanding
order, judgment, decree, stipulation or agreement restricting the use thereof
by the Company.
3.30 LIS and LIS Subsidiaries.
(a) Compliance with Applicable Law. Except as disclosed
in Section 3.30(a) of the Company Schedule, LIS and each of the LIS
Subsidiaries hold all licenses, franchises, permits and authorizations
necessary for the lawful conduct of their respective businesses under and
pursuant to all, and have complied with and are not in default in any material
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to LIS or any of the LIS
Subsidiaries, and neither LIS nor any of
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the LIS Subsidiaries knows of, or has received notice of, any material
violations of any of the above.
(b) Undisclosed Liabilities. Neither LIS nor any of its
Subsidiaries has incurred any liabilities or obligations of any nature
whatsoever (whether accrued, absolute, contingent or otherwise, asserted or
unasserted, known or unknown) except for (i) liabilities and obligations stated
or adequately reserved against on, or described in the notes to, the June 30,
1995 consolidated balance sheet of LIS, (ii) liabilities and obligations
specifically identified in Section 3.30(b) of the Company Schedule, and (iii)
liabilities incurred in the ordinary course of business since June 30, 1995
which, individually or in the aggregate, have not had a material adverse effect
on the business, assets, properties, financial condition or results of
operations of LIS and the LIS Subsidiaries taken as a whole, and which, if
incurred after the date of this Agreement, would be permissible under Section
5.1 hereof.
(c) Certain Contracts. Except as set forth in Section
3.30(c) of the Company Schedule, neither LIS nor any of the LIS Subsidiaries is
a party to or is bound by any contract, arrangement, commitment or
understanding (whether written or oral): (i) with respect to the
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employment of any directors, officers, employees or consultants which provides
for an obligation to pay and/or accrue compensation of $25,000 or more per
annum, (ii) which, upon the consummation of the transactions contemplated by
this Agreement will (either alone or upon the occurrence of any additional acts
or events) result in any payment (whether of severance pay or otherwise)
becoming due from LIS or any of the LIS Subsidiaries to any officer or employee
thereof, (iii) which is an agreement (including data processing, software
programming and licensing contracts) not terminable on 60 days or less notice
(without payment or condition) involving the payment of more than $100,000 per
annum, (iv) with or to a labor union or guild (including any collective
bargaining agreement, (v) (including any stock option plan, stock appreciation
rights plan, restricted stock plan or stock purchase plan) any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement, or the value of any of the benefits of which will be calculated on
the basis of any of the transactions contemplated by this Agreement. The
Company has previously made available to Buyer true and correct copies of all
(I) employment, consulting
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and deferred compensation agreements to which LIS or any of the LIS
Subsidiaries is a party between LIS or one of the LIS Subsidiaries, on the one
hand, and any Affiliate of the Company (other than LIS and the LIS
Subsidiaries), on the other hand and (II) each LIS Contract (as defined below)
in existence as of the date of this Agreement. Each contract, arrangement,
commitment or understanding of the type described in this Section 3.30(c),
whether or not set forth in Section 3.30(c) of the Company Schedule, is
referred to herein as an "LIS Contract", and neither the Company, LIS nor any
of the LIS Subsidiaries knows of, or has received notice of, any material
violation of any LIS Contract.
Except as set forth in Section 3.30(c) of the Company
Schedule, (i) each LIS Contract is valid and binding and in full force and
effect, (ii) LIS and each of the LIS Subsidiaries has in all material respects
performed all obligations required to be performed by it to date under each LIS
Contract, and (iii) to the knowledge of the Company, no event or condition
exists which constitutes or, after notice or lapse of time or both, would
constitute, a material default on the part of any party under any such LIS
Contract.
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(d) Ownership of Property. LIS or one of its Subsidiaries,
as the case may be, has good and marketable title to or a valid leasehold
interest in all of its assets and properties, whether real or personal,
tangible or intangible, reflected on the June 30, 1995 balance sheet of LIS, or
acquired subsequent thereto (except to the extent that such assets and
properties have been disposed of for fair value in the ordinary course of
business since June 30, 1995), free and clear of all Encumbrances except as set
forth in Section 3.30(d) of the Company Schedule and except for such
Encumbrances that do not in the aggregate materially detract from the value or
interfere with the use or operations of the asset or property subject thereto.
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.
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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 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,
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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, 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
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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.
4.3 Consents and Approvals
Except as set forth in Section 4.3 of the Buyer Schedule, and
subject to the entry of the Second Order, 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
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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 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 commis-
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sions 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 each of its Subsidiaries to, 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, and subject to the orders of the Bankruptcy Court, the Company
shall, and shall cause each of its Subsidiaries 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
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goodwill of the customers of the Company and its Subsidiaries and others with
whom business relationships exist, in each case, as relates 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, and subject to the orders of the Bankruptcy Court, the Company shall
not, and shall not permit its Subsidiaries 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 ordinary course of business, provided,
however, that nothing contained herein shall permit the Company to sell or
acquire Servicing Rights or to sell any Mortgage Loans on a servicing released
basis;
(c) except as may be required by applicable Regulations,
materially alter or vary its methods or policies of (i) underwriting, pricing,
originating, ware-
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housing, 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, except in
the ordinary course of business;
(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 material-
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ly 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;
(h) change its accounting principles or methods in effect
at June 30, 1995, except as required or permitted by GAAP as concurred with by
the Company's auditors or as otherwise specifically contemplated by this
Agreement;
(i) solicit any Mortgage 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;
(j) make any improvements to the Leased Properties, except
with respect to normal maintenance or refurbishing made in the ordinary course
of business or as required pursuant to the terms of any Lease;
(k) amend, terminate or cancel, or take or fail to take
any other action that may result in an
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amendment, termination or cancellation of, any Lease, lease relating to FF&E or
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; or
(l) 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 (including, without limitation, the
filing required by the HSR Act) 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 any
of its Subsidiaries is in contractual privity). All filing fees and expenses
incurred in connection with the filing made under the HSR Act shall be borne by
the party making such filing. Buyer and the Company shall have the right to
review in advance, and to
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the extent 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. All consents required in connection with the
consummation of the Acquisition pursuant to the terms of the Mortgage Servicing
Agreements shall be in writing and shall be in form and substance reasonably
satisfactory to Buyer. In exer-
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cising the foregoing rights and obligations, each of the parties hereto shall
act reasonably and as promptly as practicable.
(b) Each party shall, upon request, furnish the other
with all information concerning itself, its 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.
(d) The parties hereto shall cooperate with each other
and use their best efforts to obtain all appropriate Investor consents
necessary to effect a transfer to Buyer, in accordance with all FHLMC
Regula-
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tions, of all of the Company's legal right, title and interest in and to
that portion of the Servicing Rights that relates to Mortgage Loans with
respect to which (i) FHLMC owns the beneficial interest in the Mortgage Loans
or in a participation interest in the Mortgage Loans, or (ii) FHLMC has sold
participation interests in the Mortgage Loans.
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 shall provide to Buyer and its
representatives, accountants and counsel, full 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, with
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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. 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' 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").
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(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 or any of its
Subsidiaries 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 accounts, products and operating systems of the Company
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
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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
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
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any of their respective Affiliates, in connection with the transactions
contemplated by this Agreement; provided, however, that neither party shall 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 such
party's board of directors, to result in the imposition of a Burdensome
Condition (as defined below). If any required consent or approval of or waiver
by such third parties (excluding Governmental Entities) is not obtained prior
to the Closing, or if the assignment of any Contract would be ineffective or
would adversely affect any material rights or benefits thereunder so that Buyer
would not in fact receive all such rights and benefits, or that Buyer would not
be able to assume the associated obligations and liabilities, the parties, each
without cost, expense or liability to the other (except as provided in Article
VII hereof), shall cooperate in good faith to develop an alternative
arrangement to achieve the economic results intended.
5.5 Advice of Changes
Prior to the Closing Date, each of Buyer and the Company shall
promptly advise the other party of any
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change or event which it believes would or would be reasonably likely to
cause or constitute a material 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.
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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 Company to Buyer, including, without limitation, any
transfer fees payable to 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, those fees paid by Buyer to its document
custodian in connection with such custodian's review of the Mortgage Loan files
(not to exceed $2.50 per file) and the costs of curing document defects and
supplying missing documents, (v) any custodi-
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al 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) 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,
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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, 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 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
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shall 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 the Company 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 subsequent to the date hereof for which
the Company 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 Submission for Court Approval.
(a) The Company shall submit this Agreement for the approval
of the Bankruptcy Court, including approval of the provisions set forth in
Section 5.17 and assumption and assignment of the Contracts as set forth in
Section 6.2(c) and 6.3(c) hereof, as promptly as practicable after the date
hereof, but in no event later than five business days after the filing of the
Petition. Buyer shall cooperate with the Company in obtaining such
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Bankruptcy Court approval, including providing evidence, if requested, of
Buyer's ability to perform the obligations of the Company and its Subsidiaries
under the Contracts listed on Schedules II, IV and V hereto. In connection
with its application for the First Order, the Company shall seek approval of
and support the over-bid procedure set forth in Section 5.17 hereof and the
Termination Payment set forth in Section 8.4 hereof.
(b) The Company will promptly deliver to Buyer copies of all
pleadings, motions, notices, statements, schedules, applications, reports and
other papers to be filed in the Company's Chapter 11 case relating to the
Company or its Subsidiaries.
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
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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 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.
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5.10 Final Certification and Re-Certification
(a) Closing Date Deadline. The Company 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 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
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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 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 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
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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 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 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, 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
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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.
5.12 Resignations. 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 LIS and, to the extent
requested by Buyer, each of the LIS Subsidiaries.
5.13 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 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
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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.
5.14 Remittances. Unless otherwise agreed to by the
parties or required by the applicable Agency or Investor, the Company shall
make the first payment of principal and interest due immediately following the
Closing Date to Investors, 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 amounts, Buyer agrees to provide to the Company the
additional funds necessary to pay these amounts by wiring immediately
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available funds to the Company no later than twenty-four (24) hours prior to
the required remittance date.
5.15 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 5.14 shall be borne by the Company.
5.16 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 appropriate rate
and payment adjustments and notify the related mortgagor in accordance with all
Regulations.
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5.17 Acquisition Proposals; Overbid Provisions.
(a) From the date of this Agreement through the
Closing Date, the Company will not, directly or indirectly, through any
Affiliate, officer, director, employee, representative (including, but not
limited to, any investment banker, financial advisor, attorney or accountant)
or agent of the Company or any of its Subsidiaries (i) solicit, initiate or
encourage any inquiries or proposals from a Third Party that constitute, or
would reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of a
substantial percentage of shares of capital stock (including, without
limitation, by way of a tender offer) or similar transaction involving the
Company, LIS, any of the LIS Subsidiaries or any of the Company's Subsidiaries
owning any of the Assets (an "Acquisition Proposal") and any Third Party (it
being understood that any notices approved by the Bankruptcy Court in
connection with the First Order shall not constitute a breach of this
provision), or (ii) engage in negotiations or discussions concerning, or enter
into any understandings or agreements with any Third Party with respect to, any
Acquisition Proposal.
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Notwithstanding the foregoing, to the extent required by the fiduciary
obligations of the Board of Directors of the Company based on the advice of
counsel, (i) the Company may furnish non-public information with respect to the
Company and its Subsidiaries to any Qualified Third Party pursuant to an
agreement which explicitly acknowledges the existence of this Agreement and the
Overbid and Termination Fee procedures contained herein and requires such Third
Party to adhere to them and may participate in discussions and negotiations
with such Qualified Third Party, provided that the Company has notified Buyer
not later than one (1) business day after the receipt of the corresponding
offer, proposal or inquiry, and has indicated in such notice the identity of
the offeror and all of the material terms thereof, and (ii) upon receipt by the
Company of an Acquisition Proposal from a Qualified Third Party which the Board
of Directors of the Company has in good faith reasonably determined constitutes
an Overbid Transaction, the Company shall deliver a written notice to Buyer (an
"Overbid Notice") advising it of the foregoing determination by its Board of
Directors (which notice shall be accompanied by copies of the form of
definitive agreement or other
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documentation proposed to be entered into in connection with such Acquisition
Proposal).
(b) Upon delivery by the Company to Buyer of an
Overbid Notice in accordance with the provisions of subsection (a) hereof,
Buyer shall have the right (a "Topping Right") to deliver to the Company,
within five calendar days following the receipt by Buyer of such Overbid
Notice, a written offer (a "Topping Offer") to amend the terms of this
Agreement in order to provide for a base purchase price having a value at least
$1.5 million higher than the base purchase price provided for under the
Acquisition Proposal to which such Overbid Notice relates. In the event that
Buyer exercises such Topping Right (i) the Company may disclose such Topping
Offer to such Qualified Third Party and (ii) within five calendar days
following receipt by the Company of Buyer's notice of Topping Offer, Buyer and
the Company shall enter into an amendment to this Agreement to reflect the
Company's acceptance of Buyer's Topping Offer (unless the Company has received
an additional Acquisition Proposal constituting an Overbid Transaction). If
within the time period specified Buyer has failed to make a Topping Offer or
has notified the Company in writing that it does not intend to make a Topping
Offer, the Company shall deliver
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to Buyer the Termination Fee described in Section 8.4 and thereafter may enter
into the definitive agreement with the Qualified Third Party described in the
Overbid Notice.
(c) Following the execution of any amendment to
this Agreement pursuant to subsection (b) above, the provisions of this Section
5.17 shall remain in effect and the receipt by the Company of any other offers,
proposals or inquiries relating to any Acquisition Proposal shall be subject to
the provisions of this Section 5.17.
5.18 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)
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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 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.
5.19 Assignment of Certain Contracts. The Company shall
assign to Buyer, effective as of the Closing Date, fully paid, life of the
loan tax service con-
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tracts 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 limitations set forth in Section 5.6(a)(iii))
and flood zone certification contracts to Buyer.
5.20 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.
5.21 IRS Reporting. The Company shall, at its sole cost
and expense, prepare and timely file, or cause to be prepared and timely filed
with the Internal Revenue Service all reports, forms, notices and filings
required by the Code and rules, regulations and interpretations
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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.
5.22 Tax Return Preparation and Filing; Refunds. (a)
The Company shall prepare and file, or cause to be prepared and filed, (in each
case at the Company's sole cost and expense and in a manner consistent with
past practice) on a timely basis all Tax Returns relating to Taxes of LIS and
the LIS Subsidiaries for all Pre-Closing Periods (as defined in Section
7.1(a)(xii) hereof). The Company shall pay, or cause to be paid, all Taxes
shown to be due and payable thereon.
(b) Buyer shall prepare and file, or cause to be prepared and
filed, (in each case at the Buyer's sole cost and expense and in a manner
consistent with past practice) on a timely basis all Tax Returns, other than
those provided for in Section 5.22(a) hereof, relating to Taxes of LIS and the
LIS Subsidiaries. Subject to Section 7.1(a)(xii) hereof, Buyer shall pay, or
cause to be paid, all Taxes shown to be due and payable thereon.
(c) Any refunds or credits of Taxes of LIS or any of the LIS
Subsidiaries with respect to (i) any Pre-
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Closing Period shall be for the account of the Company, and if received or
utilized by the Buyer, any of its Affiliates, LIS or the LIS Subsidiaries shall
be paid to the Company within five business days after Buyer, any of its
Affiliates, LIS or the LIS Subsidiaries receives such refund or utilizes such
credit, (ii) any taxable period beginning after the Closing Date shall be for
the account of the Buyer, and if received or utilized by the Company or any
of its Affiliates, shall be paid by the Company to the Buyer within five
business days after the Company or any of its Affiliates receives such refund
or utilizes such credit and (ii) any period that begins before the Closing Date
but ends after the Closing Date shall be apportioned between the Company and
the Buyer in the same manner as such Taxes are apportioned pursuant to Section
7.1(a)(xii), (b)(iv) and (c) hereof.
(d) The Company and the Buyer shall, and shall cause their
respective officers, employees, agents, auditors and representatives to
reasonably cooperate in preparing and filing all Tax Returns (including amended
returns and claims for refunds) covered by this Agreement, including
maintaining and making available to each other all records necessary in
connection with Taxes payable with respect to such Tax Returns and in resolving
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all disputes, audits and refund claims with respect to such Tax Returns and
Taxes.
5.23 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 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.
5.24 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 (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 rate and payment, and (v)
otherwise complied with all applicable Regulations.
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5.25 Further Assurances
Subject to the terms and conditions of this Agreement, the
Company and Buyer shall do all things reasonably necessary or desirable and
within their control to effect the consummation of the transactions
contemplated hereby. At any time and from time to time after the Closing Date,
the Company and Buyer shall, each upon the request of the other, do or cause to
be done, execute, acknowledge and deliver all such further acts, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
necessary or desirable to sell, assign, convey and transfer to and vest in
Buyer all of the Company's right, title and interest in and to the Assets and
to evidence the assumption by Buyer of the Assumed Liabilities.
5.26 Trade Names License
Effective as of the Closing Date, Buyer shall enter into a
licensing agreement with the Company pursuant to which Buyer shall grant the
Company a license with respect to the Trade Names. Such license shall be in
form and substance reasonably acceptable to the parties.
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5.27 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 5.27 (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.
5.28 Establishment of Escrow Account
under RIS Agreement
On or prior to the Closing Date and subject to the approval of
the Bankruptcy Court, the Company shall establish a cash escrow account for the
benefit of Residential Information Services Limited Partnership pursuant to
Section III.C.(ii) of the RIS Agreement, unless the Bankruptcy Court shall
otherwise direct.
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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 required to be
obtained in connection with the transactions contemplated by this Agreement
shall have been obtained, 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
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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.
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
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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
(b) No proceeding initiated by any Governmental Entity
seeking an Injunction shall be pending; and
(c) The Bankruptcy Court shall have entered the First
Order and the Second Order. The Second Order shall have authorized the Company
and its Subsidiaries to convey to Buyer all of its right, title and interest in
and to the Assets free and clear of all Encumbrances of any nature whatsoever.
Simultaneous with entry of the Second Order, all Contracts (other than those
Mortgage Servicing Agreements with respect to which the Investor shall have
successfully objected to the assumption thereof by Buyer) shall have been
assumed and the Bankruptcy Court shall have approved such assumption and the
assignment thereof by the Company pursuant to Section 365 of the Bankruptcy
Code by an order in form reasonably acceptable to Buyer and the Company (the
"365 Order"). The
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365 Order shall provide that the Contracts will be transferred to, and remain
in full force and effect for the benefit of, Buyer notwithstanding any
provision in such Contracts (including those described in sections 365(b)(2)
and (f) of the Bankruptcy Code) that prohibits such assignment or transfer; and
(d) 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 judgment of the Board of Directors of the Company, the consummation
of such transactions (such a condition or requirement, whether relating to the
Company or Buyer, is referred to herein as a "Burdensome Condition").
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:
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(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 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
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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
(b) No proceeding initiated by any Governmental Entity
seeking an Injunction shall be pending; and
(c) The Bankruptcy Court shall have entered the First
Order and the Second Order, each of which shall be Final Orders. The Second
Order shall have authorized the Company and its Subsidiaries to convey to Buyer
all of its right, title and interest in and to the Assets free and clear of all
Encumbrances of any nature whatsoever. Simultaneous with entry of the Second
Order, all Contracts (other than those Mortgage Servicing Agreements with
respect to which the Investor shall have successfully objected to the
assumption thereof by Buyer) shall have been assumed and the Bankruptcy Court
shall have approved such assumption and the assignment thereof by the Company
pursuant to the 365 Order, and such 365 Order shall have been entered and shall
have become a Final Order. The 365 Order shall provide that the Contracts will
be transferred to, and remain in full force and
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effect for the benefit of, Buyer notwithstanding any provision in such
Contracts (including those described in sections 365(b)(2) and (f) of the
Bankruptcy Code) that prohibits such assignment or transfer. Nothing in this
Section 6.3(c), or any other section of this Agreement, shall preclude the
Company or Buyer from consummating the transactions contemplated herein if
Buyer, in its sole discretion, waives the requirement that the Second Order,
365 Order or any other orders be Final Orders. No notice of such waiver of
this or any other condition to Closing need be given except to the Company or
Buyer, as explicitly required in this Agreement, it being the intention of the
parties hereto that Buyer shall be entitled to, and is not waiving, the
protection of Section 363(m) of the Bankruptcy Code, the mootness doctrine and
any similar statute or body of law if the Closing occurs in the absence of a
Final Order; and
(d) The Company shall have received from all
Investors or Insurers which are government agencies or are government-sponsored
agencies or corporations, (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 notic-
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es with such agencies and corporations which are required as a result of the
consummation of the Acquisition; and
(e) 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) or 6.3(d)) 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
(f) Buyer shall have received evidence reasonably
satisfactory to it of the termination and release of all Encumbrances on the
Assets except for (i) liens for Taxes not yet due and payable and (ii) the
Assumed Liabilities; and
(g) 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
(h) None of the Requisite Regulatory Approvals shall
contain any Burdensome Condition relating to
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Buyer or any of Buyer's Affiliates, the Assets or the Assumed Liabilities; and
(i) The Company shall have taken all action required to
have been taken and made all payments required to have been made to permit
assumption and assignment to Buyer under Section 365(b) and (f) of the
Bankruptcy Code of the Contracts listed on Schedules II, IV and V hereto; and
(j) The Company and Buyer shall have entered into the
Subservicing and Transition Services Agreement.
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, agreements or
instruments executed pursuant to this Agreement, (ii) any breach or
nonperformance of any cove-
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nant 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 (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, and (c) practices with regard to insurance,
including without limitation forced placement insurance, earthquake insurance
and the retention and remittance of proceeds, in each case prior to the Closing
Date, (viii) the
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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), (x) those Mortgage Loans serviced by
the Company on behalf of FNMA, the Servicing Rights relating to which were
transferred to the Company by First Federal Savings Bank of Boston, First
Eastern Funding Corporation and First Eastern Mortgage Corporation
(collectively, the "First Eastern Entities") pursuant to the Mortgage Servicing
Purchase and Sale Agreement, dated as of September 30, 1991, by and among the
Company, the First Eastern Entities and First Eastern Bankshares Corporation
(the "First Eastern Portfolio") (the Losses indemnifiable by the Company
pursuant to this Section 7.1(a)(x) shall include an amount equal to the
aggregate amount of all unrealized losses on the First Eastern Portfolio which
have been accrued or reserved against on the books and records of Buyer in
accordance with GAAP as of the first
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anniversary of the Closing Date), (xi) 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)), and (xii) all Taxes of or relating to LIS or any of its
Subsidiaries for all taxable periods ending on or before the Closing Date and
the portion ending on the Closing Date of any taxable period that includes (but
does not end on) the Closing Date (the "Pre-Closing Period"), including without
limitation, any liability for Taxes (A) imposed upon LIS or any of its
Subsidiaries pursuant to section 1.1502-6 of the Treasury Regulations (and any
comparable state, local or foreign law or regulation) as a result of being a
member of an affiliated group, within the meaning of section 1504 of the Code,
(B) with respect to any deferred intercompany gain arising in connection with
or as a result of the transactions contemplated by this Agreement and (C) with
respect to any gain recognized by the Company upon or as a result of the
transfer of the LIS Shares. For purposes of establishing whether any matter is
indemnifiable
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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 representations 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 3.13 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, (iii) any action
taken or omitted
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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 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, and (iv)
all Taxes of LIS or any of its Subsidiaries for any taxable period ending after
the Closing Date (except to the extent such taxable period began before the
Closing Date, in which case Buyer's indemnity shall cover only that portion of
Losses relating to any such Taxes that is not attributable to the Pre-Closing
Period).
(c) For purposes of determining the amount of Taxes for
or which relate to a taxable period that begins before but ends after the
Closing Date, the Closing Date shall be treated as the last day of the taxable
period, and the portion of any tax that is allocable to the taxable period that
is deemed to end on the Closing Date: (i) in the case of Taxes that are either
(A) based upon or related to income or receipts or (B) imposed in connection
with any sale or other transfer or assignment of property (real or personal,
tangible or intangible), shall be deemed to equal the amount that would be
payable
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if the period for which such tax is assessed ended on and included the
Closing Date, and (ii) in the case of Taxes other than those Taxes described in
clause (i) hereof, shall be computed on a per diem basis.
(d) 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.
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(e) 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 (d) 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-
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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
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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.
(f) 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,
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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 (e) of this Section
7.1.
(g) Notwithstanding anything to the contrary contained in
paragraphs (e) or (f) of this Section 7.1, in the event prompt action is
required with respect to the defense of a Third Party Claim, the indemnified
party
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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
(e) and (f) 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.
(h) 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.
(i) No claim by Buyer for indemnification shall be made
pursuant to Section 7.1(a) (except with respect to Losses indemnifiable by the
Company pursuant to Section 7.1(a)(xi), for which the Company shall indemnify
Buyer on a first-dollar basis) until the aggregate
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of all such indemnifiable claims against the Company is greater than
$20,510,000 (and the indemnification obligation shall only be for amounts in
excess of such amount). 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.
(j) 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;
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(b) by either Buyer or the Company upon written notice
to the other party (i) thirty (30) days after the date on which any request or
application for a Requisite Regulatory Approval shall have been denied or
withdrawn at the request or recommendation of the Governmental Entity which
must grant such Requisite Regulatory Approval, unless within the 30-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 materi-
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al 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
thirty (30) days following written notice to the party committing such breach,
or 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 thirty (30) days following receipt by the breaching party of
written notice of such breach from the other party hereto;
(e) by Buyer or the Company, if the Closing Date shall
not have occurred on or prior to December 31, 1995, unless the failure of such
occurrence shall be due to the failure of the party seeking to terminate this
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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;
(f) by Buyer or the Company, if five calendar days
shall have elapsed after the delivery by the Company of an Overbid Notice to
Buyer and Buyer has not delivered a Topping Offer to the Company;
(g) by Buyer, if the Bankruptcy Court has not entered
the First Order within ten days following the date of the filing with the
Bankruptcy Court of the motion seeking the First Order; or
(h) by Buyer, if the Bankruptcy Court has not entered
the Second Order by November 30, 1995.
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, this Section 8.2, and, to the extent
applicable, Section 8.4, 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.
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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 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.
8.4 Termination Payment.
In the event that (a) this Agreement is terminated pursuant to
Section 8.1(f), (b) the Board of Directors of the Company shall have withdrawn
its support for the Acquisition or modified its support for the Acquisition in
a manner adverse to Buyer, or (c) the Company
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shall have entered into a definitive agreement with a Qualified Third Party
with respect to an Acquisition Proposal as contemplated by Section 5.17(b),
then the Company shall pay to Buyer promptly, but in no event more than two
business days following the date of the applicable event described in clauses
(a), (b) and (c) above, by wire transfer of immediately available funds, to
such account as Buyer shall designate, an amount (the "Termination Payment")
equal to the greater of (X) $3 million or (Y) 50% of the amount by which the
consideration paid pursuant to any alternative Acquisition Proposal exceeds the
Base Purchase Price set forth in this Agreement, provided, that in no event
shall the amount paid by the Company to Buyer pursuant to this Section 8.4
exceed $5 million. If within one year from the date of any termination of this
Agreement pursuant to Article VIII hereof (other than pursuant to Section
8.1(f)), the Company consummates an Acquisition Proposal (excluding any
restructuring of capital of the Company solely with their existing creditors in
exchange for their outstanding debt), simultaneously with the consummation of
such Acquisition Proposal and provided that this Agreement has not been
terminated because of a material breach of Buyer's obligations, representations
or warranties here-
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under, the Company will pay to Buyer the Termination Payment.
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, provided, however, that
nothing contained in this Section 9.2 shall limit a party's rights to recover
damages for
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willful breach of this Agreement as specified in, and subject to the provisions
of, Section 8.2 hereof.
9.3 Release and Settlement. On the Closing Date,
the Company shall be deemed to have released, compromised and settled
any and all claims, rights, and causes of action that the Company may
have against Buyer or its Affiliates pursuant to sections 544 through
550 of the Bankruptcy Code, inclusive, arising out of the prepetition
transfer of assets from the Company to Buyer consummated on October 2,
1995, including, but not limited to, any fraudulent transfer or
conveyance claims that might have been assertable by a creditor prior
to the Company's Chapter 11 case.
9.4 Entire Agreement
This Agreement, together with the documents, schedules and
other writings referred to herein or delivered pursuant hereto, and the
Confidentiality Agreement, the First Order and the Second Order 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).
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9.5 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.
9.6 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 provided, however, that Buyer may assign to an Affiliate of Buyer all of
its rights hereunder to assume the rights and obligations of the Company under
those Contracts pursuant to which the Company services, subservices or master
services multi-family Mortgage Loans (as set forth on Section 3.23 of the
Company Schedule).
9.7 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 certi-
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fied 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: Louis Gregory, Esq.
(214) 879-7075 (facsimile)
Copies to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Robert J. Levine, Esq.
(212) 450-4800 (facsimile)
and
Jaffe, Raitt, Heuer & Weiss
Suite 2400
One Woodward Avenue
Detroit, Michigan 48226
Attention: Mark K. Rabidoux, Esq.
(313) 961-8358 (facsimile)
(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
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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)
9.8 Captions
The table of contents and captions contained in this Agreement
are for reference purposes only and are not part of this Agreement.
9.9 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.
9.10 Governing Law
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.
9.11 Exclusive Jurisdiction. The parties hereby agree
that, without limitation of any party's right to appeal any order of the
Bankruptcy Court, (a) the Bankruptcy Court shall retain exclusive jurisdiction
to enforce the terms of this Agreement and to decide any claims or disputes
which may arise or result from, or be
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<PAGE> 153
connected with this Agreement, any breach or default hereunder, or the
transactions contemplated herein, and (b) any and all claims, actions, causes
of action, suits and proceedings relating to the foregoing shall be filed and
maintained only in the Bankruptcy Court, and the parties hereby consent and
submit to the jurisdiction of the Bankruptcy Court.
153
<PAGE> 154
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/ LAWRENCE P. WASHINGTON
---------------------------------
Name: Lawrence P. Washington
Title: E.V.P.
LOMAS MORTGAGE USA, INC.
By: /S/ ERIC D. BOOTH
---------------------------------
Name: Eric D. Booth
Title: CEO
<PAGE> 155
The Exhibits and Schedules to the Section 363 Asset Sale Agreement dated as of
October 9, 1995 by and between First Nationwide Mortgage Corporation, as Buyer,
and Lomas Mortgage USA, Inc., as the Company (the "Asset Sale 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 Exhibits and Schedules to the Asset Sale Agreement. In
addition, pursuant to such Regulation, the registrant hereby agrees to furnish
supplementally a copy of any such omitted Exhibits and Schedules to the
Securities and Exchange Commission upon request.
<TABLE>
<S> <C>
EXHIBITS
Exhibit 2.2 Base Purchase Price
Exhibit 2.3(b)(i) Bill of Sale
Exhibit 2.3(b)(ii) Form of Lease Assignment and Assumption Agreement
Exhibit 2.3(c) Instrument of Assumption
Exhibit 2.6(e) Terms and Provisions with respect to the Mortgage Loans serviced by the
Company pursuant to the Citicorp Agreement
Exhibit 5.27 Subservicing and Transition Services Agreement
BUYER SCHEDULE
Buyer Schedule - Section 4.3 Consents and Approvals
SCHEDULES
Schedule I Accounts Receivable
Schedule II Assumed Contracts (other than Mortgage Servicing Agreements and Leases)
Schedule III Investments Related to Servicing Business
Schedule IV Leases
Schedule V Mortgage Servicing Agreements
Schedule VI Other Assets Related to Servicing Business
Schedule VII Scheduled Liabilities
Schedule VIII Employees
Schedule IX Trade Names
Schedule X Furniture, Fixtures and Equipment
COMPANY SCHEDULE
Section 3.2(b) Authority; No Violation
Section 3.3 Consents and Approvals
</TABLE>
<PAGE> 156
<TABLE>
<S> <C>
Section 3.5(b) Leases
Section 3.6 Title to Assets
Section 3.8 Legal Proceedings
Section 3.10 Mortgage Loans
Section 3.13 No Recourse
Section 3.14 Mortgage Servicing Agreement Defaults
Section 3.15(c) Compliance with Mortgage Banking Regulations
Section 3.17 Inquiries
Section 3.18 Advances; Accounts Receivable
Section 3.19 Physical Damage
Section 3.20 Pool Certification
Section 3.23 Single Family Loans
Section 3.25 Taxes
Section 3.29(b) Trade Names
Section 3.30(a) LIS and LIS Subsidiaries -- Compliance with Applicable Laws
Section 3.30(b) LIS and LIS Subsidiaries -- Undisclosed Liabilities
Section 3.30(c) LIS and LIS Subsidiaries -- Certain Contracts
Section 3.30(d) LIS and LIS Subsidiaries -- Ownership of Property
Section 5.1 Conduct Prior to Closing
</TABLE>
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(in thousands, except per share amouts)
<TABLE>
<CAPTION>
Quarter Ended September 30
-------------------------------
1995 1994
---------- ---------
<S> <C> <C>
PRIMARY:
Average common shares outstanding . . . . . . . . . . . . . . . . 20,149 20,100
Common stock equivalents under Non-Employee Directors Long Term
Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . 18 35
---------- ----------
Total Shares . . . . . . . . . . . . . . . . . . . . . . 20,167 20,135
========== ==========
Loss from continuing operations . . . . . . . . . . . . . . . . . $ (194,230) $ (7,350)
Loss from discontinued operations . . . . . . . . . . . . . . . . -- (5,500)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850)
========== ==========
Per share amounts:
Loss from continuing operations . . . . . . . . . . . . . . . $ (9.63) $ (0.37)
Loss from discontinued operations . . . . . . . . . . . . . . -- (0.27)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (9.63) $ (0.64)
========== ==========
FULLY DILUTED:
Average common shares outstanding . . . . . . . . . . . . . . . . 20,149 20,100
Common stock equivalents under Non-Employee Directors Long Term
Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . 18 35
---------- ----------
Total Shares . . . . . . . . . . . . . . . . . . . . . . . 20,167 20,135
========== ==========
Loss from continuing operations . . . . . . . . . . . . . . . . . $ (194,230) $ (7,350)
Loss from discontinued operations . . . . . . . . . . . . . . . . -- (5,500)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850)
========== ==========
Per share amounts:
Loss from continuing operations . . . . . . . . . . . . . . . $ (9.63) $ (0.37)
Loss from discontinued operations . . . . . . . . . . . . . . -- (0.27)
---------- ----------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (9.63) $ (0.64)
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 28,266
<SECURITIES> 8,751
<RECEIVABLES> 14,478
<ALLOWANCES> (4,574)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 51,947
<DEPRECIATION> (15,830)
<TOTAL-ASSETS> 644,819
<CURRENT-LIABILITIES> 0
<BONDS> 518,354
<COMMON> 20,149
0
0
<OTHER-SE> (226,252)
<TOTAL-LIABILITY-AND-EQUITY> 644,819
<SALES> 0
<TOTAL-REVENUES> 55,326
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 42,898
<LOSS-PROVISION> 184,163
<INTEREST-EXPENSE> 22,495
<INCOME-PRETAX> (194,230)
<INCOME-TAX> 0
<INCOME-CONTINUING> (194,230)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (194,230)
<EPS-PRIMARY> (9.63)
<EPS-DILUTED> (9.63)
</TABLE>
