<PAGE> 1
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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 December 31, 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 75235
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
(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 February 10, 1996: Common Stock, $1 par value -- 20,149,231 shares.
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<PAGE> 2
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1995
INDEX
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheet -- December 31, 1995, and June 30, 1995................. 2
Statement of Consolidated Operations -- Quarter and Six Months Ended December 31,
1995 and 1994................................................................... 3
Statement of Consolidated Cash Flows -- Six Months Ended December 31, 1995 and
1994............................................................................ 4
Notes to Consolidated Financial Statements......................................... 5-10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations.............................................................. 11-14
Liquidity and Capital Resources.................................................... 14
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................................................ 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................................. 15
</TABLE>
1
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1995
------------ ----------
(UNAUDITED) (NOTE)
<S> <C> <C>
Cash and cash equivalents............................................ $ 48,863 $ 19,966
First mortgage loans held for sale................................... 292 345,039
Investments.......................................................... 12,053 282,318
Receivables.......................................................... 89,724 77,248
Fixed assets -- net.................................................. 34,560 52,579
Foreclosed real estate............................................... -- 6,348
--------- ----------
136,629 763,532
Less allowance for losses............................................ (4,819) (32,481)
--------- ----------
131,810 731,051
Purchased future mortgage servicing income rights -- net............. -- 346,958
Prepaid expenses and other assets.................................... 2,494 23,545
Net assets of discontinued operations................................ 33,782 33,550
Assets held for sale................................................. 131,484 --
--------- ----------
$ 348,433 $1,155,070
========= ==========
Escrow, agency and fiduciary funds -- see contra..................... $ 341,360 $ 641,519
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Liabilities:
Accounts payable and accrued expenses.............................. $ 22,571 $ 57,171
Liabilities to be assumed in sale.................................. 27 --
Notes payable...................................................... -- 591,089
Term notes payable................................................. -- 378,770
Senior convertible notes payable................................... -- 139,918
Liabilities subject to Chapter 11 proceedings...................... 559,404 --
Prepetition liabilities to be assumed in sale...................... 2,847 --
--------- ----------
584,849 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)........................................ (566,328) (341,785)
--------- ----------
(236,416) (11,878)
--------- ----------
$ 348,433 $1,155,070
========= ==========
Liability for escrow, agency and fiduciary funds -- see contra....... $ 341,360 $ 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
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
-------------------- ---------------------
1995 1994 1995 1994
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Mortgage servicing.............................. $ 21,438 $ 34,371 $ 51,674 $ 67,285
Commissions and fees............................ 4,290 8,280 11,031 16,411
Interest........................................ 261 4,957 7,431 10,725
Investment...................................... 2,357 5,277 11,214 8,943
Gain on sales................................... (248) 411 (188) 3,590
Other........................................... 959 4,055 3,221 4,518
-------- -------- --------- --------
29,057 57,351 84,383 111,472
-------- -------- --------- --------
Expenses:
Interest........................................ 2,237 18,888 24,732 37,254
Personnel....................................... 9,167 15,399 26,894 30,605
Depreciation and amortization................... 775 15,662 15,940 31,864
Other operating................................. 10,603 11,940 20,609 21,737
Provision for losses............................ 1,851 29,171 23,854 31,071
-------- -------- --------- --------
24,633 91,060 112,029 152,531
-------- -------- --------- --------
Income (loss) from continuing operations before
loss on assets held for sale.................... 4,424 (33,709) (27,646) (41,059)
Loss on assets held for sale net of liabilities to
be assumed...................................... (18,364) -- (180,524) --
-------- -------- --------- --------
Loss from continuing operations before
reorganization items............................ (13,940) (33,709) (208,170) (41,059)
-------- -------- --------- --------
Reorganization items:
Interest earned on cash accumulated............. 1,984 -- 1,984 --
Writeoff of unamortized debt expense............ (6,571) -- (6,571) --
Writeoff of deferred interest swap debits....... (9,115) -- (9,115) --
Professional fees............................... (2,519) -- (2,519) --
Other........................................... (152) -- (152) --
-------- -------- --------- --------
(16,373) -- (16,373) --
-------- -------- --------- --------
Loss from continuing operations................... (30,313) (33,709) (224,543) (41,059)
Loss from discontinued operations................. -- (7,500) -- (13,000)
-------- -------- --------- --------
Net loss........................................ $(30,313) $(41,209) $(224,543) $(54,059)
======== ======== ========= ========
Loss per share:
Loss from continuing operations................. $ (1.50) $ (1.67) $ (11.14) $ (2.04)
Net loss........................................ $ (1.50) $ (2.04) $ (11.14) $ (2.68)
Average number of shares........................ 20,164 20,154 20,164 20,144
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 5
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31
-----------------------
1995 1994
--------- ---------
<S> <C> <C>
Operating activities:
Net loss........................................................... $(224,543) $ (54,059)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Loss from discontinued operations............................... -- 13,000
Loss on assets held for sale.................................... 180,524 --
Depreciation and amortization................................... 15,940 31,864
Provision for losses............................................ 23,854 31,071
Writeoff of net deferred debits on reverse interest rate
swaps.......................................................... 9,115 --
Writeoff of unamortized debt issuance cost...................... 6,571 --
--------- ---------
Cash provided by operations before working capital changes.... 11,461 21,876
Net change in first mortgage loans held for sale................... 345,278 (67,210)
Net change in sundry receivables, payables and other assets........ (39,229) (43,127)
Net cash used by discontinued operations........................... (1,572) (11,648)
--------- ---------
Net cash provided (used) by operating activities.............. 315,938 (100,109)
--------- ---------
Investing activities:
Purchases of investments........................................... (5,242) (136,438)
Maturities/sales of investments.................................... 271,021 14,470
Purchases of loans from pools...................................... (2,015) (6,081)
Sales of foreclosed real estate.................................... 3,174 5,824
Net (purchases)/sales of fixed assets.............................. 1,708 (869)
Purchases of future mortgage servicing income rights............... (14,434) (28,427)
Sales of future mortgage servicing income rights................... 12,170 17,020
Sale of subsidiaries............................................... 3,903 --
Net proceeds from assets sold to First Nationwide Mortgage
Corporation..................................................... 32,756 --
Net cash provided by discontinued operations....................... 8,153 93,269
--------- ---------
Net cash provided (used) by investing activities.............. 311,194 (41,232)
--------- ---------
Financing activities:
Net borrowings (repayments) of notes payable....................... (591,089) 216,830
Term debt repayments............................................... (334) (3,896)
Net cash used by discontinued operations........................... -- (61,987)
--------- ---------
Net cash provided (used) by financing activities.............. (591,423) 150,947
--------- ---------
Net increase in cash and cash equivalents............................ 35,709 9,606
Net change in cash of discontinued operations........................ (6,812) (3,225)
Cash and cash equivalents at beginning of period..................... 19,966 7,206
--------- ---------
Cash and cash equivalents at end of period........................... $ 48,863 $ 13,587
========= =========
Cash payments for:
Interest........................................................... $ 13,048 $ 36,735
Federal income tax................................................. -- --
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 6
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 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
December 31, 1995 have been included. Operating results for the quarter and six
months ended December 31, 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 generally 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. At December 31, 1995, the Company continues to record these
liabilities at their outstanding principal amounts.
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.
For 120 days after the date of the filing of a voluntary Chapter 11
petition, a debtor-in-possession has the exclusive right to propose and file a
plan of reorganization with the Bankruptcy Court. This exclusive right also
allows 180 days from the date of filing of the Chapter 11 petition for
solicitation of acceptances of any plan of reorganization. The Debtor
Corporations sought a 60 day extension of such periods. Such extension was
granted by the Bankruptcy Court on February 13, 1996. Consequently, the Debtor
Corporations currently have the exclusive right to file a plan or plans of
reorganization until April 8, 1996 and, if a plan is filed by such date, to
solicit acceptances until June 7, 1996.
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.
5
<PAGE> 7
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
DECEMBER 31, 1995
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 adjusted purchase price for the Phase I Sale was approximately $102
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 as described
in the following paragraph. This escrowed fund plus interest was released and
returned to the Company on February 1, 1996. The second installment
(approximately $41.5 million) of the purchase price was paid on January 30,
1996, with the final payment of the balance due on October 2, 1996.
In January 1996, the Bankruptcy Court approved the sale of substantially
all of the remaining mortgage servicing portfolio (approximately $12 billion)
and certain other assets of Lomas Mortgage to First Nationwide (the "Phase II
Sale"). The gross purchase price approved by the Bankruptcy Court is
approximately $178 million based on July 31, 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 gross purchase price based on December 31, 1995 balances is
approximately $160 million. The gross purchase price will be reduced by the
amount of any reserve which will be determined at the final payment date. The
Phase II Sale has closed on January 31, 1996 and the Company received $49.75
million in cash at closing of which $6.0 million was escrowed with a financial
institution for certain mortgage servicing related commitments. Approximately
$63 million is expected to be paid on June 1, 1996 with the final payment of the
balance due on February 1, 1997.
The assets held for sale and liabilities to be assumed in the Phase II
Sale, 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 based on the purchase price of the Phase
II Sale. The expected loss on the Phase II Sale of approximately $78.5 million
was recognized at September 30, 1995.
As a result of the sale of substantially all of the remaining assets of
Lomas Mortgage and the anticipated termination of substantially all of the
employees, the Company recorded loss on sale of assets totaling $18.4 million
and $180.5 million for the quarter and six months ended December 31, 1995,
respectively. The loss is calculated as follows (in thousands):
<TABLE>
<CAPTION>
PHASE I PHASE II
SALE SALE TOTAL
--------- --------- ---------
<S> <C> <C> <C>
Purchase price based on September 30, 1995
balances...................................... $ 102,122 $ 137,138 $ 239,260
Cost of assets sold/to be sold.................. (449,414) (212,352) (661,766)
Liabilities assumed/to be assumed............... 275,903 7,407 283,310
Mortgage servicing transfer fees................ (10,000) (10,000) (20,000)
Selling costs................................... (2,244) (720) (2,964)
--------- --------- ---------
Total loss recognized in September
quarter............................. (83,633) (78,527) (162,160)
--------- --------- ---------
Increase in purchase price...................... -- 7,750 7,750
Adjustments based on December 31, 1995
balances...................................... (1,574) (7,870) (9,444)
Selling costs................................... -- (1,400) (1,400)
Employee retention, severance and related
costs......................................... (6,108) (9,162) (15,270)
--------- --------- ---------
Total loss recognized in December
quarter............................. (7,682) (10,682) (18,364)
--------- --------- ---------
Total loss recognized............... $ (91,315) $ (89,209) $(180,524)
========= ========= =========
</TABLE>
6
<PAGE> 8
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
DECEMBER 31, 1995
At December 31, 1995, assets held for sale and liabilities to be assumed in
the Phase II Sale were as follows (in thousands):
<TABLE>
<S> <C>
Assets held for sale:
First mortgage loans held for sale...................................... $ 176
Receivables............................................................. 50,916
Investments............................................................. 6,535
Foreclosed real estate.................................................. 4,646
Purchased mortgage servicing income rights.............................. 89,902
Prepaids and other assets............................................... 270
Allowance for losses.................................................... (20,961)
--------
$131,484
========
Liabilities to be assumed:
Accounts payable and accrued expenses................................... $ 2,874
========
</TABLE>
In addition, land and buildings that are included in fixed assets in the
consolidated balance sheet in the
amount of $24.4 million are also held for sale.
NOTE D -- TERMINATION OF REMAINING REVERSE INTEREST RATE SWAPS
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 Phase I Sale as described in "NOTE C -- ASSETS HELD AND
LIABILITIES TO BE ASSUMED" to the consolidated financial statements. Loss from
the termination was $14.3 million. The Company recognized $5.2 million of the
expected loss at September 30, 1995. As a result of the Chapter 11 filing on
October 10, 1995, the net deferred debits of $9.1 million were written off in
October 1995 and were included in the reorganization expenses in the statement
of operations.
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 December 31, 1995, the
Company had reserves of $1.2 million to cover future operating losses through
the disposition of all properties. For the quarters and six months ended
December 31, 1995 and 1994, losses of $1.0 million, $7.8 million, $1.7 million
and $9.3 million, respectively, were charged to the reserves.
7
<PAGE> 9
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
DECEMBER 31, 1995
Net assets of discontinued short term lending operations at December 31,
1995, were as follows (in thousands):
<TABLE>
<S> <C>
Assets:
Mortgage notes receivable and foreclosed real estate, net of allowance
for losses of $9,965.................................................. $19,951
Cash and cash equivalents................................................ 8,292
Other assets............................................................. 238
-------
28,481
Less:
Accounts payable and accrued expenses.................................... (604)
Future operating loss reserves........................................... (1,193)
-------
$26,684
=======
</TABLE>
Net assets of the Company's discontinued LIS operations at December 31,
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 and six months
ended December 31, 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 and six months ended December
31, 1995 and 1994, the fully diluted per share data is antidilutive.
NOTE G -- PRO FORMA FINANCIAL INFORMATION
Pro forma financial information is required under Regulation S-X of the
rules of the Securities and Exchange Commission when there is a disposition of a
significant portion of a business by sale. Since the Phase I and Phase II Sales
to First Nationwide constitute a significant portion of the assets of the
Company, a pro forma balance sheet and pro forma statement of operations are
reflected in this footnote.
8
<PAGE> 10
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
DECEMBER 31, 1995
The historical data includes the Phase I Sale and the pro forma adjustment
reflects the Phase II Sale as if it had occurred at December 31, 1995 (in
thousands):
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL PRO FORMA BALANCE
DATA ADJUSTMENTS SHEET
---------- ---------- ---------
(NOTE)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 48,863 $ -- $ 48,863
First mortgage loans held for sale........................ 292 -- 292
Investments............................................... 12,053 -- 12,053
Receivables............................................... 89,724 159,943 249,667
Fixed assets -- net....................................... 34,560 (372) 34,188
--------- --------- ---------
136,629 159,571 296,200
Allowance for losses...................................... (4,819) (20,961) (25,780)
--------- --------- ---------
131,810 138,610 270,420
Prepaid expenses and other assets......................... 2,494 -- 2,494
Net assets of discontinued operations..................... 33,782 -- 33,782
Assets held for sale...................................... 131,484 (131,484) --
--------- --------- ---------
$ 348,433 $ 7,126 $ 355,559
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable and accrued expenses..................... $ 22,571 $ 10,000 $ 32,571
Liabilities to be assumed................................. 27 (27) --
--------- --------- ---------
22,598 9,973 32,571
--------- --------- ---------
Liabilities subject to Chapter 11 proceedings:
Accounts payable and accrued expenses................... 41,050 -- 41,050
Liabilities to be assumed............................... 2,847 (2,847) --
Term notes payable...................................... 378,436 -- 378,436
Senior convertible notes................................ 139,918 -- 139,918
--------- --------- ---------
562,251 (2,847) 559,404
--------- --------- ---------
Stockholders' equity (deficit)............................ (236,416) -- (236,416)
--------- --------- ---------
$ 348,433 $ 7,126 $ 355,559
========= ========= =========
</TABLE>
- ---------------
Note: The pro forma adjustments are to record the adjusted purchase price of
$159,943 for the Phase II Sale using the balances as of December 31, 1995.
9
<PAGE> 11
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
DECEMBER 31, 1995
The following pro forma statement of consolidated operations adjusts the
historical data as of December 31, 1995 and assumes the Phase I and Phase II
Sales occurred on July 1, 1995 (in thousands):
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA ADJUSTED
DATA ADJUSTMENTS BALANCE
---------- ----------- --------
(NOTES)
<S> <C> <C> <C>
Revenues:
Mortgage servicing................................ $ 51,674 $ (51,674) $ --
Commissions and fees.............................. 11,031 (4,922) 6,109
Interest.......................................... 7,431 (7,431) --
Investments....................................... 11,214 (5,940) 5,274
Gain on sales..................................... (188) (243) (431)
Other............................................. 3,221 (848) 2,373
---------- --------- --------
84,383 (71,058) 13,325
---------- --------- --------
Expenses:
Interest.......................................... 24,732 (10,625) 14,107
Personnel......................................... 26,894 (22,776) 4,118
Depreciation and amortization..................... 15,940 (14,596) 1,344
Other operating................................... 20,609 (15,247) 5,362
Provision for losses.............................. 23,854 (11,854) 12,000
---------- --------- --------
112,029 (75,098) 36,931
---------- --------- --------
Loss from continuing operations before loss on
assets held for sale.............................. (27,646) 4,040 (23,606)
Loss on assets held for sale........................ (180,524) 180,524 --
---------- --------- --------
Loss from continuing operations before
reorganization
items............................................. (208,170) 184,564 (23,606)
Reorganization items -- net......................... (16,373) -- (16,373)
---------- --------- --------
Loss from continuing operations..................... $ (224,543) $ 184,564 $(39,979)
========== ========= ========
Loss per share:
Loss from continuing operations................... $ (11.14) $ (1.98)
Average number of shares............................ 20,164 20,164
</TABLE>
- ---------------
Notes:
Pro forma adjustments:
- Mortgage servicing fees are eliminated.
- Commissions and fees remaining primarily relate to the insurance unit not
sold.
- Interest income of warehouse loans eliminated.
- Investment income related to warehouse loans eliminated and interest
income is recorded on receivables from First Nationwide.
- Interest expense eliminated on warehouse debt but remains for the term
notes payable through October 9, 1995.
- Mortgage banking related personnel costs and other operating expenses
eliminated as of July 1, 1995.
- Depreciation and amortization on mortgage banking assets eliminated
including amortization of PMSRs.
- Provision for losses remaining is the writedown of one of the Company
buildings which occurred in the first quarter of fiscal 1996.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's continuing operations recorded a loss of $13.9 million before
net reorganization expenses of $16.4 million for the quarter ended December 31,
1995. Operating loss for the same quarter of fiscal 1995 was $33.7 million. For
the six months periods ended December 31, 1995 and 1994, losses from continuing
operations were $208.2 million (before net reorganization expenses of $16.4
million) and $41.1 million, respectively. Discontinued operations incurred
losses of $7.5 million and $13.0 million during the quarter and six months ended
December 31, 1994, respectively.
The operating results of the Company during the quarters and six months
ended December 31, 1995 and 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
-------------------- ---------------------
1995 1994 1995 1994
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Continuing operations:
Mortgage banking......................... $ 5,261 $(28,711) $ (25,725) $(29,573)
Other.................................... 55 2,670 2,651 1,916
-------- -------- --------- --------
Operating income...................... 5,316 (26,041) (23,074) (27,657)
-------- -------- --------- --------
Operating expenses:
General and administrative............... (577) (4,037) (1,109) (6,188)
Corporate interest....................... (315) (3,631) (3,463) (7,214)
-------- -------- --------- --------
Income (loss) before sale of assets... 4,424 (33,709) (27,646) (41,059)
Loss on assets held for sale............... (18,364) -- (180,524) --
-------- -------- --------- --------
Loss from continuing operations before
reorganization items................ (13,940) (33,709) (208,170) (41,059)
Reorganization items -- net................ (16,373) -- (16,373) --
-------- -------- --------- --------
Loss from continuing operations.......... (30,313) (33,709) (224,543) (41,059)
Loss from discontinued operations.......... -- (7,500) -- (13,000)
-------- -------- --------- --------
Net loss................................. $(30,313) $(41,209) $(224,543) $(54,059)
======== ======== ========= ========
</TABLE>
Mortgage Banking
The mortgage banking division's operations during the December 31, 1995
quarter reported an income of $5.3 million before loss on assets held for sale
of $18.4 million and net reorganization expenses of $16.9 million compared to a
loss of $28.7 million for the December 1994 quarter. Included in the December
1994 quarter were special provisions of $27.7 million to cover certain mortgage
servicing-related receivables, commitments and other contingencies, pro rata
interest rate swap loss and reduction in the carrying values of Company-owned
buildings and land. For the six months ended December 31, 1995 and 1994,
mortgage banking operations incurred losses of $25.7 million (before the $180.5
million loss recorded on assets held for sale and $16.9 million net
reorganization expenses) and $29.6 million, respectively.
11
<PAGE> 13
Revenues, expenses and contribution/loss from the mortgage banking
division's continuing operations for the quarters and six months ended December
31, 1995 and 1994 were as follows (in millions):
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
--------------------------------- ----------------------------------
1995 1994 1995 1994
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loan administration
Revenues..................... $ 20.1 $ 31.7 $ 49.3 $ 62.2
Expenses..................... (12.5) (12.4) (24.3) (23.8)
Amortization................. (0.3) $ 7.3 (12.7) $ 6.6 (14.3) $ 10.7 (26.7) $ 11.7
------ ------ ------- ------
Master servicing
Revenues..................... 2.1 3.1 4.8 5.7
Expenses..................... (2.1) (1.3) (3.6) (3.2)
Amortization................. (0.1) (0.1) (0.8) 1.0 (0.2) 1.0 (1.0) 1.5
------ ------ ------- ------
Insurance
Agency....................... 2.5 2.2 5.3 4.9
Mortgage plans............... 1.2 1.5 2.7 2.9
Expenses..................... (1.3) 2.4 (1.5) 2.2 (2.7) 5.3 (2.9) 4.9
------ ------ ------- ------
Banking (including warehousing
and investment income and
interest expense)
Revenues..................... 2.5 8.9 14.4 16.7
Expenses..................... (2.2) 0.3 (15.6) (6.7) (28.8) (14.4) (30.5) (13.8)
------ ------ ------- ------
Portfolio production
Revenues..................... 0.1 3.9 4.5 10.6
Expenses..................... (1.0) (0.9) (4.5) (0.6) (4.4) 0.1 (9.7) 0.9
------ ------ ------- ------
Field services
Revenues..................... -- 3.0 1.7 5.9
Expenses..................... (0.1) (0.1) (3.1) (0.1) (2.0) (0.3) (6.1) (0.2)
------ ------ ------- ------
General and administrative
expense...................... (2.6) (3.4) (8.1) (6.9)
Special provision for losses... -- (27.7) -- (27.7)
Writedown of building.......... -- -- (12.0) --
Writedown of prepaid pension... (1.0) -- (8.0) --
------ ------ ------
Loss from operations......... 5.3 (28.7) (25.7) (29.6)
Loss on assets held for sale... (18.4) -- (180.5) --
------ ------ ------
Loss from continuing
operations before
reorganization items...... (13.1) (28.7) (206.2) (29.6)
Reorganization items........... (16.9) -- (16.9) --
------ ------ ------
Net loss..................... $(30.0) $(28.7) $(223.1) $(29.6)
====== ====== ======
</TABLE>
On October 2, 1995, the Company closed the sale of its GNMA mortgage
servicing totaling approximately $7.9 billion in unpaid principal balances of
mortgage loans to First Nationwide. During the six months ended December 31,
1995, the Company sold mortgage servicing rights related to $12.6 billion unpaid
principal balance of mortgage loans. The remaining mortgage servicing portfolio
owned by the Company at December 31, 1995 totaling approximately $12 billion
along with certain other assets and liabilities were sold to First Nationwide on
January 31, 1996. See "NOTE C -- ASSETS HELD AND LIABILITIES TO BE ASSUMED" to
the consolidated financial statements. The Company will continue to service
these mortgage loans under subservicing contract until they are transferred in
March 1996.
12
<PAGE> 14
The banking unit recorded income of $300,000 for the quarter ended December
31, 1995 compared to a loss of $6.7 million in the same period of 1994. For the
six months ended December 31, 1995 and 1994, losses from the banking unit were
$14.4 million and $13.8 million, respectively. On October 2, 1995, the Phase I
Sale closing date, all warehouse debt and repurchase agreements secured by first
mortgage loans totaling $274.1 million were repaid. The Company also terminated
its outstanding reverse interest rate swaps on that date and paid the
counterparty $18.8 million in cash. No interest was accrued on Lomas Mortgage's
$340 million notes since October 10, 1995, the Chapter 11 filing date.
General and administrative expense for the quarter and six months ended
December 1995 included provisions of $500,000 and $2.1 million, respectively.
The Company maintained the allowance for losses related to its loan
administration and production at the same level as they were at July 31, 1995.
As a result, chargeoffs during this period were expensed and included in the
general and administrative expense. According to the Bankruptcy Court approved
amended Phase II Sale contract, First Nationwide will deduct from the purchase
price the uncollectible amounts related to the servicing receivables, therefore,
the Company has discontinued the replenishment of those reserves beginning
January 1, 1996.
The Company's prepaid pension expense at July 1, 1995 was approximately $14
million. The Company wrote down its prepaid pension by $7.0 million in September
1995 and an additional $1.0 million in November 1995, leaving a balance of $6.4
million. Because of the sale of substantially all of the remaining assets of
Lomas Mortgage and the anticipated termination of substantially all of its
employees, the remaining balance of the prepaid pension was written off at
December 31, 1995 and is included as a part of the costs related to the Phase I
and Phase II Sales.
Other
The Company's other operations generated income of $55,000 and $2.7 million
during the quarter and six months ended December 31, 1995, respectively,
compared to income of $2.7 million and $1.9 million for the same periods in
1994. For the six months period of fiscal 1996, other income included a $1.2
million cash received on the bankruptcy settlement from the Company's affiliate,
Vista Properties, Inc. ("Vista"), which represented the redemption of the
Company's 19% common stock ownership that the Company carried at no book basis.
The quarter and six months of December 1994 results included a $2.8 million gain
from settlement of certain contractual provisions related to the Company's sale
of ELLCO Leasing Corporation in fiscal 1991. Also included in the quarter and
six months of fiscal 1995 results were losses of $700,000 and $2.1 million,
respectively, from its image processing subsidiary. The image processing unit
was sold in the first quarter of fiscal 1996 and the Company recorded a gain of
$1.1 million.
Special Provision for Losses
The Company provided reserves at December 31, 1994 totaling $37.1 million,
of which $27.7 was for the mortgage banking operations. The reserves were
established to cover (i) certain mortgage servicing related receivables and
other assets; (ii) reduction in the carrying values of Company-owned buildings
and land; (iii) mortgage banking commitments and other contingencies; (iv) pro
rata mark-to-market loss on interest rate swaps; and (v) additional loss related
to the Company's discontinued operations including its commercial lending
operations and information systems operations.
Discontinued Operations
During the quarter and six months ended December 31, 1994, the Company
provided reserves totaling $7.0 million and $11.0 million, respectively, for its
discontinued short-term lending operations. Losses incurred in the amount of
$1.0 million, $7.8 million, $1.7 million and $9.3 million for the quarter and
six months ended December 31, 1995 and 1994, respectively, were charged to these
reserves. At December 31, 1995, the Company had a reserve balance of $1.2
million to cover the operating loss through the liquidation of all the remaining
real estate assets.
13
<PAGE> 15
The Company also recorded losses of $500,000 and $2.0 million for the
quarter and six months ended December 31, 1994, respectively, to cover operating
loss of its information systems business through December 16, 1994, the date
that subsidiary was sold.
LIQUIDITY AND CAPITAL RESOURCES
On October 2, 1995, in connection with the Phase I Sale, First Nationwide
repaid the outstanding warehouse related debt of approximately $274.1 million
along with accrued interest. The Company also terminated its outstanding reverse
interest rate swaps and paid the counterparty $18.8 million. On February 6,
1996, the Company had cash totaling approximately $150 million.
On October 10, 1995 LFC, Lomas Mortgage and two other insignificant
subsidiaries of LFC filed voluntary petitions for Chapter 11 proceedings.
Liabilities subject to Chapter 11 proceedings at December 31, 1995, were as
follows (in millions):
<TABLE>
<S> <C>
Term debt of Lomas Mortgage:
-- Notes due in 1997...................................................... $150.0
-- Notes due in 2002...................................................... 190.0
-- Mortgage note due in 1996.............................................. 38.4
------
378.4
Convertible notes of LFC due in 2003........................................ 139.9
Accrued interest on term notes.............................................. 23.8
Other payables.............................................................. 20.2
------
$562.3
======
</TABLE>
For more information regarding the Chapter 11 filing, 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.
14
<PAGE> 16
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 and
the grant by the Bankruptcy Court on February 13, 1996 of an extension of the
periods within which the Debtor Corporations have the exclusive right to file
their respective plans or joint plan of reorganization and solicit acceptances
thereto for an additional 60 days, through and including April 8, 1996 and June
7, 1996, respectively.
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 amended and restated as of January
4, 1996 by and between First Nationwide Mortgage Corporation and
Lomas Mortgage.
(10.2) -- Subservicing and Transition Services Agreement dated as of January
31, 1996 by and between First Nationwide Mortgage Corporation and
Lomas Mortgage.
(10.3) -- Letter Employment Agreement dated December 22, 1995 between Lomas
Mortgage and Carey B. Wickland.
(11) -- Computation of Earnings (Loss) Per Share.
(27) -- Financial Data Schedule (submitted to the Securities and Exchange
Commission for its information).
</TABLE>
(b) Reports on Form 8-K:
Form 8-K dated January 12, 1996 reported two press releases issued by
LFC on January 5, 1996 and January 12, 1996, respectively, announcing the
seeking of approval from the Unites States Bankruptcy Court of an amended
asset sale agreement between Lomas Mortgage and First Nationwide, and the
approval of the amended asset sale agreement by the Bankruptcy Court judge.
No financial statements were filed.
Form 8-K dated February 1, 1996 reported a press release issued by LFC
on January 31, 1996 announcing the closing of the sale of virtually all of
its mortgage servicing assets to First Nationwide. No financial statements
were filed.
15
<PAGE> 17
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.
LOMAS FINANCIAL CORPORATION
------------------------------------
(Registrant)
Date: February 14, 1996 By: /s/ ERIC D. BOOTH
---------------------------------
Eric D. Booth
President, Chief Executive Officer
and Director
Date: February 14, 1996 By: /s/ GARY WHITE
---------------------------------
Gary White
Senior Vice President and Chief
Financial Officer
16
<PAGE> 18
INDEX TO EXHIBITS Sequentially
<TABLE>
<CAPTION>
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C> <C>
(10.1) Section 363 Asset Sale Agreement amended and restated as of January
4, 1996 by and between First Nationwide Mortgage Corporation and
Lomas Mortgage.
(10.2) Subservicing and Transition Services Agreement dated as of January
31, 1996 by and between First Nationwide Mortgage Corporation and
Lomas Mortgage.
(10.3) Letter Employment Agreement dated December 22, 1995 between Lomas
Mortgage and Carey B. Wickland.
(11) Computation of Earnings (Loss) Per Share.
(27) Financial Data Schedule (submitted to the Securities and Exchange
Commission for its information).
</TABLE>
<PAGE> 1
EXHIBIT 10.1
Section 363
Asset Sale Agreement
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES . . . . . . . . . . . . . . . . 25
2.1 Purchase and Sale of Assets; Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . 25
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.3 Closing; Payment of Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.4 Closing Adjustment Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
2.5 Calculation of Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.6 Adjustment for Post-Closing Terminated Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
2.7 Final Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.8 Prorations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . 43
3.1 Organization; Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.2 Authority; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.4 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.5 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.6 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
3.7 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.8 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
3.9 Mortgage Banking Licenses and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.10 Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
3.11 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
3.12 Title to Certain Mortgage Loans; Mortgage Servicing Agreements . . . . . . . . . . . . . . 55
3.13 No Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
3.14 Mortgage Servicing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
3.15 Compliance with Mortgage Banking Regulations . . . . . . . . . . . . . . . . . . . . . . . 57
3.16 Custodial Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
3.17 Inquiries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
3.18 Advances; Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
3.19 Physical Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
3.20 Pool Certification and Recertification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
3.21 Payment of Taxes, Insurance Premiums, Other Amounts . . . . . . . . . . . . . . . . . . . . . . . . 66
3.22 Tax Identification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
3.23 Single Family Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
3.24 ARMs and Conversion Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3.25 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
3.26 FHA, VA and PMI Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
3.27 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
3.28 RIS Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3.29 Trade Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
3.30 No Material Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . . . . . . 72
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.2 Authority; No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
4.3 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.4 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.5 Mortgage Banking Licenses and Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
4.6 Brokers and Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.7 No Material Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
ARTICLE V
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.1 Conduct Prior to Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
5.2 Regulatory Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
5.3 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
5.4 Legal Conditions to Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
5.5 Advice of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
5.6 Transfer Fees and Certain Other Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
5.7 Additional Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
5.8 Submission for Court Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
5.9 Assignment of Mortgages and Endorsements of Notes . . . . . . . . . . . . . . . . . . . . . . . . . 94
5.10 Final Certification and Re-Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
5.11 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
5.12 Insurance Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
5.13 Non-Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
5.14 Remittances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
5.15 Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.16 Interest Rate Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.17 Acquisition Proposals; Overbid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
5.18 Forwarding of Payments and Other Items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
5.19 Assignment of Certain Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
5.20 Custodial Fund Interest and Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
5.21 IRS Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
5.22 Information Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
5.23 Reconciliation of Suspense Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
5.24 ARM Loan Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
5.25 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
5.26 Trade Names License . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
5.27 Subservicing and Transition Services Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
5.28 Establishment of Escrow Account under RIS Agreement . . . . . . . . . . . . . . . . . . . . . . . . 111
ARTICLE VI
CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 112
6.1 Conditions to Each Party's Obligations Under This Agreement . . . . . . . . . . . . . . . . . . . . 112
6.2 Additional Conditions to the Obligations of the Company Under This Agreement . . . . . . . . . . . . 113
6.3 Additional Conditions to Buyer's Obligations Under This Agreement . . . . . . . . . . . . . . . . . 115
ARTICLE VII
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 120
7.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
ARTICLE VIII
TERMINATION, WAIVER AND AMENDMENT . . . . . . . . . . . . . . . . . . . 137
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
8.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
8.3 Amendment, Extension and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140
8.4 Termination Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
ARTICLE IX
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 142
9.1 Survival; Buyer's Rights Following Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142
9.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
9.3 Release and Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143
9.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
9.5 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
9.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144
9.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
9.8 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
9.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
9.11 Exclusive Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
</TABLE>
<PAGE> 6
EXECUTION COPY
SECTION 363 ASSET SALE AGREEMENT
THIS SECTION 363 ASSET SALE AGREEMENT (this "Agreement")
amended and restated as of January 4, 1996, 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 filed 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
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> 7
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.
Accounts Receivable -- The accounts receivable which comprise
those general ledger accounts of the Company set forth on Schedule I hereto.
2
<PAGE> 8
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 Base Price -- As defined in Section 2.5(h).
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 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
3
<PAGE> 9
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 additional contract rights added to such schedule pursuant to
Section 5.7 hereof.
Assumed Liabilities -- As defined in Section 2.1(c).
4
<PAGE> 10
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).
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
5
<PAGE> 11
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.
Closing Date -- The date and time of Closing as defined in
Section 2.3(a).
Code -- The Internal Revenue Code of 1986, as amended.
6
<PAGE> 12
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).
Disputed Claim -- As defined in Section 7.1(j).
Employees -- As defined in Section 5.11.
Encumbrance -- Any lien, pledge, security interest, claim,
charge, easement, limitation, commit-
7
<PAGE> 13
ment, 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 under power of sale, or other
acquisition of title to the Collateral based upon a default by the
mort-
8
<PAGE> 14
gagor 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."
FF&E -- The furniture, fixtures and equipment owned or leased
by the Company and set forth on Schedule X hereto.
9
<PAGE> 15
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 Settlement -- 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
10
<PAGE> 16
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 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
11
<PAGE> 17
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.
Indemnification Cap -- As defined in Section 7.1(h).
Independent Accounting Firm -- Price Waterhouse LLP, or if
Price Waterhouse LLP shall be unwilling to serve in such capacity, any "Big
Six" accounting firm or its successor (other than the present independent
public accountants of Buyer, the Company or any of their Affiliates or any
independent public accountants who were such within the previous two years).
12
<PAGE> 18
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.
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.
13
<PAGE> 19
Licenses -- As defined in Section 3.9.
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 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
14
<PAGE> 20
pledged with respect to a lost note, bond or letter of credit) in connection
with an indemnifiable event and any direct marginal internal costs actually
incurred (to the extent that the Buyer has received the prior approval of the
Company to utilize its internal staff, which approval shall not be unreasonably
withheld or delayed, provided that adequate information, including but not
limited to, an estimate of such internal costs, is given to the Company)).
Material Adverse Effect -- A material adverse effect on the
Assets, the Assumed Liabilities or 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,
15
<PAGE> 21
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.
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.
16
<PAGE> 22
Notice of Disagreement -- As defined in Section 2.4(b).
Origination and Servicing Representation--Those
representations and warranties of the Company contained in Article III hereof
the breach or inaccuracy of which would constitute or result in a failure by
the Company to originate, service, subservice or master service the Mortgage
Loans in accordance with applicable Regulations.
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 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
17
<PAGE> 23
than the terms and conditions set forth in this Agreement.
Parent -- As defined in Section 3.7.
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 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).
Qualified Institution -- A firm or individual mutually
agreeable to the parties who possesses expertise in the relevant areas of the
mortgage banking business,
18
<PAGE> 24
to whom Disputed Claims will be submitted for resolution. If the parties are
unable to agree on a Qualified Institution, each party shall designate a
nationally recognized mortgage banking expert, and the two designated experts
shall jointly select a third expert, which shall be the Qualified Institution.
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 breach or default of any
contractual representation, warranty or undertaking or misfeasance or
malfeasance by the Company.
19
<PAGE> 25
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.
Repurchase -- The purchase of a Mortgage Loan out of a Pool or
an Investor's portfolio by Buyer or the Company.
20
<PAGE> 26
Requisite Regulatory Approvals -- As defined in Section
6.1(a).
Reserve -- As defined in Section 7.1(k).
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 in accordance with any servicing agreements, (iv) provide foreclosure
services and full escrow administration and
21
<PAGE> 27
(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 any interest, additions to tax or penalties applicable thereto).
22
<PAGE> 28
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 applications for registration of any of the foregoing, each as
set forth on Schedule IX hereto.
23
<PAGE> 29
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.
Undisputed Claim -- As defined in Section 7.1(j).
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.
24
<PAGE> 30
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 REO;
(iii) the Accounts Receivable;
(iv) the FF&E;
(v) the Contracts;
(vi) the Records;
(vii) the Custodial Accounts and the Escrow
Funds;
(viii) the Trade Names;
(ix) the Investments and the Other Assets;
and
(x) the Turkey Pile Loans.
(b) It is understood and agreed that Buyer is not
acquiring from the Company, and the Company shall
25
<PAGE> 31
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 assume or be liable for any of the
debts, obligations or liabilities (including without limitation any liability
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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 $178,260,000 (the "Base Purchase Price"), provided, however,
that (i) such Base Purchase Price shall be adjusted in accordance with Sections
2.4, 2.5 and 2.6 hereof and (ii) $10,000,000 of the Base Purchase Price shall
be paid subject to and in accordance with the provisions of Exhibit 2.2 hereto.
The purchase price as finally determined shall be paid by Buyer to the Company
in accordance with the terms and provisions of this Article II and Article VII.
2.3 Closing; Payment of
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 January 31, 1996 (the "Closing Date").
(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, executed and acknowledged by the Company in recordable
form;
(iii) 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
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purchase price in accordance with Section 1445 of the Code;
(iv) a copy of resolutions duly adopted by the
Board of Directors of the Company authorizing the execution of this
Agreement and the consummation of the transactions contemplated
hereby, certified as of the Closing Date by the Secretary or Assistant
Secretary of the Company;
(v) the consents and other documents required
to be delivered pursuant to Section 6.3; and
(vi) 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 $49,750,000,
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");
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(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
contemplated 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
(the "Second Payment") by subtracting from the Adjusted Base Price (as defined
in Section 2.5(h) hereof) the sum of (W) the amount of the First Payment plus
(X) $10 million (to be paid pursuant to the provisions of Exhibit 2.2), plus
(Y) $20,510,000 plus (Z) the greater of $16,000,000 or the 12% Holdback (as
defined below), provided, however, that if the Adjusted Base Price is in
Disagreement or has otherwise not been determined as of such date, the amount
to be used in lieu thereof to
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calculate the Second Payment shall be an amount equal to the arithmetic mean of
Buyer's and the Company's respective good faith estimates of such Adjusted Base
Price at such time. The remaining portion of the purchase price (other than
the $10 million to be paid pursuant to the provisions of Exhibit 2.2) shall be
paid on the Final Settlement Date, subject to the terms and conditions set
forth in Section 2.7. The "12% Holdback" shall be an amount equal to 12% of
the difference obtained by subtracting $30,510,000 from the Adjusted Base
Price.
2.4 Closing Adjustment Documents
In order to prepare for the final determination of the
Adjusted Base 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
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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, (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 adjustments to the Base Purchase Price. Without limiting the generality of
the foregoing, to the extent necessary, Buyer shall provide the Company and its
designees with reasonable
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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 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.
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(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 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
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<PAGE> 40
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.
2.5 Calculation of Adjustments
In connection with the calculation of the Adjusted Base 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
(except that, with respect to all Closing Portfolio Loans which were Excluded
Loans at July 31, 1995, the adjustment to be made pursuant to this clause (i)
shall be 0.95% of the amount of the unpaid principal balance of such loans as
of the Closing Date) and (ii) decreased by
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<PAGE> 41
an amount equal to 0.95% 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 $72,601,000 or
(ii) decreased by the amount, if any, by which $72,601,000 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
$17,166,000 exceeds the aggregate Book Value, as of the Closing Date, of the
Scheduled Liabilities, or (ii) decreased by the amount, if any, by which the
aggregate Book Value, as of the Closing Date, of the Scheduled Liabilities
exceeds $17,166,000.
(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 0.95% (except with respect to Mortgage Loans
funded and
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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
$6,100,000 or (ii) decreased by the amount by which $6,100,000 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 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
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decrease in the Base Purchase Price. The Base Purchase Price, as adjusted in
the manner provided in Sections 2.4, 2.5 and 2.6(a) hereof, and as further
adjusted pursuant to the terms of Section 2.6(b), is referred to herein as the
"Adjusted Base 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) 0.95% 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 (except that, with
respect to all Closing Portfolio Loans which were Excluded Loans at July 31,
1995, the adjustment to be made pursuant to this clause (ii) shall be 0.95% of
the amount of the unpaid principal balance of such loans as of the Closing
Date).
(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 Adjusted Base
Price
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shall be further reduced by an amount equal to (i) 0.95% 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 (except that, with respect to all
Closing Portfolio Loans which were Excluded Loans at July 31, 1995, the
adjustment to be made pursuant to this clause (ii) shall be 0.95% of the amount
of the unpaid principal balance of such loans as of the Closing Date).
(c) The amount of the reduction in the Base Purchase Price
and the Adjusted Base 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 calculations
contemplated by paragraphs (a) or (b), as the case may be, of this Section 2.6.
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(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
(a) 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 the balance of the Adjusted Base Price as
determined below. The balance of the Adjusted Base Price shall be determined
by adjusting the Adjusted Base Price determined as of the 120th day after the
Closing Date to reflect the resolution of any Disagreements and any further
purchase price adjustments pursuant to Section 2.6(b) and then subtracting
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therefrom the sum of the First Payment, plus the Second Payment, plus the $10
million being paid pursuant to Exhibit 2.2, plus the amount of all Undisputed
Claims, plus the aggregate amount of the Reserve to be established by Buyer on
the one-year anniversary of the Closing Date pursuant to Section
7.1(k)(provided, however, that the aggregate amount to be withheld from the
balance of the Adjusted Base Price with respect to Undisputed Claims and the
Reserve established pursuant to Section 7.1(k) shall not exceed the
Indemnification Cap).
(b) The amount payable by Buyer at the Final Settlement
(exclusive of any amount by which $20,510,000 exceeds the Reserve established
in accordance with Section 7.1(k)) shall be accompanied by interest on such
amount 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.
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
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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
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.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as
follows:
3.1 Organization; Capitalization
The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Connecticut. The
Company has full corporate power and authority to conduct the Servicing
Business as now conducted and to own or lease the 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 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.
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
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<PAGE> 49
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 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,
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<PAGE> 50
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 or (ii) assuming the consents, permits,
authorizations, approvals, filings and registrations referred to in Section 3.3
hereof and Section 3.3 of the Company Schedule are obtained or made, (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
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<PAGE> 51
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 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 connec-
46
<PAGE> 52
tion with the execution and delivery by the Company of this Agreement or any
document, agreement or instrument to be executed by the Company pursuant to
this Agreement or the consummation by the Company of the transactions
contemplated hereby or thereby, except for such consents, permits,
authorizations or approvals the failure of which to obtain would not,
individually or in the aggregate, have a Material Adverse Effect.
3.4 Financial Information
The Company 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 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 transactions recorded in the books and records of
the Company reflect only actual transactions. The Accounts
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<PAGE> 53
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, 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
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<PAGE> 54
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
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,
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(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 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 that will
result in or give rise to any liability to Buyer.
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,
50
<PAGE> 56
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 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 certifica-
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tions, 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.
(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
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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, 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
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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 (except for certain of the Mortgage Loans
included in the First Eastern Portfolio (as defined in Section 7.1(a)) are
valid and legally binding obligations of the borrowers thereunder, to the
knowledge of the Company have been duly executed by a borrower of legal
capacity, are enforceable in accordance with their terms (except as enforcement
thereof may be limited by (i) bankruptcy, insolvency or other similar 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
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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 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.
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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 respect to the Mortgage Loans, and there are no
written or oral agreements that modify or amend any such Mortgage Servicing
Agreement in any material respect. All of the Mortgage Servicing Agreements
are valid and binding obligations of the Company 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
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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
received 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
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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, 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
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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 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
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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 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
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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 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,
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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 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 dis-
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bursements. 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 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.
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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 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
$72,601,000.
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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 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,
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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 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 applic-
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able 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 descriptions contained in any Loan Document are
legally sufficient.
3.23 Single Family Loans
Except as set forth in Section 3.23 of the Company Schedule,
(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.
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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 applied in a proceeding in equity or at law), (ii) any such
adjustments will not, or did not, affect the priority of the lien of the
related Mortgage or Note, and (iii) all adjustments have been made (and the
resulting interest rates and payment amounts are correct), and the respective
mortgagors advised thereof, in accordance with the applicable Regulations. No
mortgagor has made, or to the Company's knowledge, has threatened to make any
claim or complaint that any adjustment was inappropriately made or
inappropriately omitted. At or prior to the Closing Date, the Company shall
make available to Buyer all loan histories available to the Company on magnetic
media, and
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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
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.
(b) There are no liens for Taxes upon any of the
Assets, except liens for Taxes not yet due or payable.
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.
3.27 Fairness Opinion.
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The Company has received an opinion 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 the Agreement as originally executed on October 9, 1995 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
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claims by 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 No Material Violation. As of January 4, 1996, the
Company is unaware of any material violation of any of its representations,
warranties or covenants contained herein or any other events or circumstances
that would result in a Material Adverse Effect.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company as follows:
4.1 Organization
Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, and has full corporate
power and authority to carry on its business as now conducted.
4.2 Authority; No Violation
(a) Buyer has full corporate power and authority to
execute and deliver this Agreement and any documents, agreements or instruments
to be executed and delivered by Buyer pursuant to this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and any documents, agreements or instruments to be executed and
delivered by Buyer pursuant to this Agreement, and the consummation of the
transactions contemplated hereby and thereby, have been duly and validly
authorized by all requisite corporate action in respect thereof on the part of
Buyer and no other corporate proceedings on the part of Buyer are necessary to
consummate the transactions contemplated hereby and thereby. This Agreement
has been duly and
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validly executed and delivered by Buyer and, assuming this Agreement
constitutes a valid and binding obligation of the Company, such agreement
constitutes a valid and binding obligation of Buyer, enforceable against Buyer
in accordance with its terms, and the other documents, agreements and
instruments to be delivered by Buyer pursuant to this Agreement will, when
executed and delivered, be duly executed and delivered by Buyer and will
constitute legal, valid and binding obligations of Buyer, enforceable against
Buyer in accordance with their terms (in all cases, subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights generally
and subject, as to enforceability, to general principles of equity (whether
applied in a proceeding in equity or at law)).
(b) Neither the execution and delivery by Buyer of this
Agreement, or any document, agreement or instrument to be executed by Buyer
pursuant to this Agreement, nor the consummation by Buyer of the transactions
contemplated hereby, nor compliance by Buyer with any of the terms or
provisions hereof, will (i) conflict with or result in a breach of any
provision of the articles of incorporation or by-laws of Buyer or (ii) assuming
the consents, permits, authorizations, approvals,
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filings and registrations set forth in Section 4.3 of the disclosure schedule
which has previously been delivered by Buyer to the Company (the "Buyer
Schedule") are obtained or made, (A) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Buyer or any of its properties or assets or (B) violate, conflict with, result
in a breach of any provisions of, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of, accelerate the performance required by, or result in a
right of termination or acceleration or the creation of any Encumbrance upon
any of the properties or assets of Buyer under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer is a party,
or by which its properties or assets may be bound or affected, except, in the
case of clause (B) above, for such violations, conflicts, breaches or defaults
which, either individually or in the aggregate, would not have a material
adverse effect on Buyer's ability to consummate the transactions contemplated
hereby.
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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 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-
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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 commissions in
connection with the transactions contemplated hereby, except that Buyer has
engaged, and will pay a fee or commission to, (i) Donaldson, Lufkin and
Jenrette ("DLJ") in accordance with the terms of the letter agreement by and
between DLJ and Buyer and (ii) UBS Securities ("UBS") in accordance with the
terms of the letter agreement by and between UBS and Buyer.
4.7 No Material Violation. As of January 4, 1996, Buyer
is unaware of any material violation of any of the representations, warranties
or covenants of the Company contained herein or any other events or
circumstances that would result in a Material Adverse Effect.
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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 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
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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, warehousing, selling or servicing, or buying or selling rights to
service, mortgage loans, (ii) hedging (which term includes both buying futures
and forward commitments from financial institutions) its mortgage loan
positions or commitments, and (iii) obtaining financing and credit;
(d) engage or participate in any material transaction,
or incur or sustain any material obligation,
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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 materially adverse to the interest of Buyer with
respect to the Assets or the Assumed Liabilities;
(g) take any action, or fail to take any action, that is
intended to result in a breach or violation of any of the representations and
warranties of the Company contained in this Agreement or would cause any
condition to the transactions contemplated hereby not to
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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 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.
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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, licenses, 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 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
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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 exercising 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
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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
Regulations, 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
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(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 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
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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").
(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
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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
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 warran-
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ties, 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, license, authorization, order or ap-
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proval of, or any exemption by, any Governmental Entity and any other third
party which is required to be obtained by Buyer or the Company, or any of their
respective Affiliates, in connection with the transactions contemplated by this
Agreement; provided, however, that 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 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
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supplement or amend the Schedules delivered to each other in connection with
the execution of this Agreement to reflect any matter which, if existing,
occurring or known at the date of this Agreement, would have been required to
be set forth or described in such Schedules or which is necessary to correct
any information in such Schedules which has been rendered inaccurate thereby.
Except for additions provided pursuant to Section 5.7, no supplement or
amendment to such Schedules shall have any effect for the purpose of
determining the satisfaction of the conditions set forth in Section 6.3(a)
hereof, as the case may be, the accuracy of the representations or warranties
of the Company set forth therein, the compliance by the Company with its
covenants set forth herein or the obligation of the Company to indemnify Buyer
or any other Person pursuant to Article VII hereof.
5.6 Transfer Fees and Certain Other Costs
(a) The Company shall bear the cost of: (i) all fees
required to be paid in connection with or obtaining approval for the transfer
of the Assets by the 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
assign-
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ments 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 custodial termination fees, (vi) providing notices
to HUD, VA and hazard and mortgage insurance providers, (vii) the cost of
preparing and recording any release instruments necessary to clear title to any
Assets, (viii) all Taxes incurred in connection with the transactions
contemplated by this Agreement (in connection therewith, the Company shall file
(or cause to be filed) in the ordinary course all Tax Returns and other
documentation with respect to
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such Taxes, and if required by applicable law, Buyer shall join in the
execution of such Tax Returns) and (ix) the cost of delivering, by insured
shipping by bulk transfer or other customary industry practice, all Loan
Documents and other Records to Buyer's principal place of business. Buyer and
the Company shall each pay one-half of the cost of sending notices to borrowers
required by the Real Estate Settlement Procedures Act, and the Company agrees
to timely cooperate with Buyer in sending such notices. If the Company fails
to pay any amount required by this Section 5.6 and as a result Buyer pays such
amount, the Company shall be liable to the Buyer for the amount paid and such
amount may be deducted from any amount payable by Buyer pursuant to Section
2.7. Buyer will work diligently and cooperate with the Company to obtain
necessary approvals and the most favorable costs, rates and prices for the
items referred to herein if the provider of the service is satisfactory to
Buyer in the exercise of its reasonable judgment. If the Company chooses to
contract with any Person to provide any of the services described in this
Section 5.6(a) or in Section 5.9, Buyer shall have the right to consent to the
Company's use of such Person, which consent may not be unreasonably withheld or
delayed.
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(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 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
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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
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.
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(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 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,
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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.
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
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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 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 recerti-
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fication, 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 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 recertifi-
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cation 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 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 Insurance Solicitation. For a period of three
years following the Closing Date, the Company's insurance agency subsidiaries
shall have the non-exclu-
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sive right to solicit the borrowers under all of the Mortgage Loans as of the
Closing Date for the purpose of selling property and casualty insurance, but
not force placed property and casualty insurance. Buyer agrees, if requested
by the Company, to assist in the solicitation of such borrowers by providing
such services (principally clerical and processing services) as it may legally
perform in consideration of the payment of reasonable costs therefor by the
Company to Buyer, such fees to be negotiated in good faith between the parties
prior to any such solicitation by Buyer on the Company's behalf. Nothing
contained in this Section 5.12 shall be construed to require either the Company
or Buyer to take any action prohibited by applicable law or regulation. Buyer
is currently unaware that performing such clerical and processing services is
contrary to applicable law or regulation.
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 corre-
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spondents 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 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 Servic-
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es 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 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
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the Closing Date, the Company shall calculate the appropriate rate and payment
adjustments and notify the related mortgagor in accordance with all
Regulations.
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 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 dis-
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cussions concerning, or enter into any understandings or agreements with any
Third Party with respect to, any Acquisition Proposal. 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
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by copies of the form of definitive agreement or other 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
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intend to make a Topping Offer, the Company shall deliver 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 thirty (30) 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
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which are received by the Company after such thirty (30) 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 Clos-
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ing Date, fully paid, life of the loan tax service contracts issued by First
American Real Estate Tax Services, Inc. related to all Mortgage Loans. The
Company also shall assign to Buyer, effective as of the Closing Date, such
fully paid, life of the loan flood zone certification contracts issued by a
company acceptable to Buyer related to all Mortgage Loans as have been obtained
by the Company by the Closing Date. The Company shall obtain, at its expense,
the required consents, if any, to assign such tax service contracts (subject to
the 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. Subject to Section 5.22, 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,
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notices and filings required by the Code and rules, regulations and
interpretations thereunder in connection with the Servicing Rights and Mortgage
Loans with respect to events that occurred prior to the Closing Date, including
without limitation, the reporting of all interest paid by the Company for the
account of mortgagors under the Mortgage Loans.
5.22 Information Reporting. The Buyer shall, at its sole
cost and expense, assume the Company's obligation to (i) file IRS Forms
1099-INT ("Statement for Recipients of Interest Income") with respect to
interest payments made by the Company in respect of the Escrow Funds for the
1996 taxable year, (ii) file IRS Forms 1098 ("Mortgage Interest Statement")
with respect to interest received by the Company in respect of the Mortgage
Loans during the 1996 taxable year, (iii) prepare and issue Schedule K-1's
required to be issued by the Company for the taxable period beginning January
1, 1996 in respect of those Mortgage Loans that are part of a Pool and (iv)
prepare, file and issue any other similar Tax Returns, IRS Forms or statements,
as the Company may reasonably request, required to be prepared, filed or issued
for the taxable period beginning January 1, 1996. In connection therewith, the
Company and Buyer agree to prepare, file
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and execute any and all documentation required by applicable law to be
prepared, filed and executed in order to authorize the Buyer to assume the
reporting obligations set forth in the preceding sentence.
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) appro-
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priately adjusted the interest rate and payment, and (v) otherwise complied
with all applicable Regulations.
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 royalty-free license with respect to the Trade Names, including the
right to use the Trade Name Lomas in connection with the
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insurance subsidiaries. Such license shall be in form and substance reasonably
acceptable to the parties.
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 January 4, 1996, and (subject to the
validity of Buyer's representations in Section 4.7) 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
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(h) None of the Requisite Regulatory Approvals shall
contain any Burdensome Condition relating to 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,
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agreements or instruments executed pursuant to this Agreement, provided,
however, that with respect to claims for breaches of representations and
warranties relating to the servicing and/or origination of any Mortgage Loan
(other than as specifically set forth elsewhere in this Section 7.1(a)) the
indemnification shall be limited to (X) Losses actually incurred at the time
such claim is asserted, (Y) Third Party Claims (as hereinafter defined) and (Z)
claims relating to breaches discovered by Buyer in the normal course of
business, which claim, if submitted, could reasonably be expected to entitle an
Investor to demand repurchase of the Mortgage Loan in question or entitle an
Insurer to demand indemnification, cancel any mortgage insurance, or reduce any
mortgage insurance or guarantee benefits with respect to the Mortgage Loan in
question, (ii) any breach or nonperformance of any covenant to be performed by
the Company pursuant to this Agreement or any of the documents, agreements or
instruments executed pursuant to this Agreement, (iii) the Excluded Assets or
the Excluded Liabilities (whether arising before, on or after the Closing
Date), (iv) the failure by the Company to obtain all of the waivers, consents,
estoppels and approvals of any Governmental Entity or other third party
required in order to consummate the
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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 for which Foreclosure proceedings
have been initiated prior to the one-year anniversary of the Closing Date, (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 uncollectability of any of
the Accounts Receivable (provided, that for purposes of this clause (viii) the
term "Loss" shall be deemed to be the amount of a reserve, to be accrued on the
books and records of Buyer in accordance with GAAP on the first anniversary of
the Closing Date, with respect to the aggregate dollar amount of the
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Accounts Receivable which remain uncollected as of the first anniversary of the
Closing Date, as reduced in accordance with Section 7.1(l)), (ix) any
Repurchases for which Buyer has received notice prior to the one-year
anniversary of the Closing Date (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 0.95% (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 as of the Closing Date, less the servicing fees,
if any, actually received by Buyer with respect to such Mortgage Loan), (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
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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 anniversary of the Closing Date), and (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). For purposes of establishing whether any
matter is indemnifiable pursuant to Section 7.1(a)(i) hereof, the accuracy of
the representations and warranties made by the Company in this Agreement shall
be determined without giving effect to the qualifications to such
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
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shall indemnify and hold harmless the Company and each of its Affiliates
(without duplication) from and against any and all Losses which any of them
actually suffer, incur or sustain arising out of or attributable to (whether or
not arising out of third party claims) (i) any inaccuracy in or breach of any
representation or warranty made by Buyer in this Agreement or any of the
documents, agreements or instruments executed pursuant to this Agreement, (ii)
any breach or non-performance of any covenant to be performed by Buyer pursuant
to this Agreement or any of the documents, agreements or instruments executed
pursuant to this Agreement, and (iii) any action taken or omitted to be taken
by Buyer or any of its Affiliates subsequent to the Closing and resulting from
or arising in connection with Buyer's and its Affiliates' conduct of the
business relating to the Assets and the Assumed Liabilities subsequent to the
Closing to the extent such Losses are not otherwise indemnifiable by the
Company pursuant to the terms of this Agreement.
(c) The indemnified party shall promptly notify the
indemnifying party of the discovery by it of, or the assertion against it of,
any claim or potential liability for which indemnification is provided herein
or the commencement of any action or proceeding in respect
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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.
(d) With respect to a claim for indemnification arising
out of or involving an assertion by a third party of liability of an
indemnified party (a "Third Party Claim"), upon receipt by the indemnifying
party of the notice of claim for indemnity required to be given by the
indemnified party pursuant to subsection (c) hereof, the indemnifying party
shall have the right at any time thereafter to assume the defense thereof and
be represented, at its own expense, by legal counsel and/or accountants of its
own choosing, in and with respect to
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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,
settlements, 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
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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 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
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expenses incurred by the indemnifying party as a result of the indemnified
party's decision to continue to contest such Third Party Claim.
(e) Notwithstanding anything to the contrary contained
herein, if the indemnifying party has not assumed control of the defense of any
Third Party Claim within sixty (60) days after its receipt of a notice of claim
for indemnity from the indemnified party, or if the indemnifying party has
abandoned control of any Third Party Claim, the indemnified party shall have
the right to assume the defense thereof, and subject to the provisions of this
Article VII, the costs and expenses incurred by the indemnified party in
connection therewith shall be borne by the indemnifying party. In addition, 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
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assume and direct the defense of such Third Party Claim. In such an event, the
indemnifying party shall pay the fees and disbursements of counsel to each of
the indemnifying party and the indemnified party. In all other cases, the
indemnifying party and the indemnified party shall each pay the costs and
disbursements of their respective counsel, and, prior to entering into a final
settlement or compromise, the indemnified party shall follow the procedures
required of the indemnifying party in paragraph (d) of this Section 7.1.
(f) Notwithstanding anything to the contrary contained
in paragraphs (d) or (e) of this Section 7.1, in the event prompt action is
required with respect to the defense of a Third Party Claim, the indemnified
party shall, subject to the terms and conditions of this Article VII, have the
right to assume the defense of such Third Party Claim; provided, however, that
in the event that the indemnifying party subsequently elects to assume the
defense of such Third Party Claim, then the provisions set forth in paragraphs
(d) and (e) of this Section 7.1 shall be applicable and the indemnifying party
shall, subject to the terms and conditions of this Article VII, reimburse the
indemnified party for any costs and expenses incurred by the indemnified party
prior to the date
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the indemnifying party assumes control of such Third Party Claim.
(g) The right of an indemnified party under this
Section 7.1 shall be subject to the condition that notice of any claim for
indemnification under Section 7.1(a)(i) or Section 7.1(b)(i) shall have been
given prior to the expiration of the survival period of the representation or
warranty to which the claim relates as set forth in Section 9.1 hereof.
(h) In no event shall the Company's indemnity
obligation under Section 7.1(a) exceed an amount (the "Indemnification Cap")
equal to the sum of (i) $20,510,000 plus (ii) the greater of $16,000,000 or the
12% Holdback.
(i) Buyer shall use reasonable efforts at all times to
minimize the claims and losses for which the Company may be liable under this
Agreement. Without limiting the foregoing, in carrying out its duty to
mitigate claims and losses for which the Company may be liable, Buyer shall use
prudent mortgage banking practices and, in any case, not less than that degree
of care that Buyer exercises with respect to the conduct of its existing
mortgage banking business.
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(j) Promptly upon receipt of a claim for
indemnification, the party receiving such claim shall either acknowledge in
writing the validity of the claim (an "Undisputed Claim") or within 20 days
from the receipt of such notice dispute the claim for indemnification by
written notice setting forth to the extent practicable the reasons for such
dispute (a "Disputed Claim"). If the party receiving a notice of claim does
not give notice that it disputes the claim within such twenty day period, the
claim shall be deemed to be an Undisputed Claim. The parties shall promptly
commence good faith negotiations with a view to resolving all Disputed Claims.
Any Disputed Claim which is finally resolved shall thereafter be an Undisputed
Claim in an amount equal to the amount of the claim as so finally resolved.
(k) On the first anniversary of the Closing Date,
provided that the aggregate amount of Undisputed Claims does not equal or
exceed the Indemnification Cap, Buyer shall establish reserve accounts
(collectively, the "Reserve") for estimated Losses relating to the following
items indemnifiable by the Company pursuant to Section 7.1(a): (A) a reserve
established in accordance with GAAP for uncollectible Accounts Receivable
outstanding as
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of such date, (B) the reserve contemplated by Section 7.1(a)(x) with respect to
indemnifiable Losses relating to the First Eastern Portfolio, (C) a reserve
established in accordance with GAAP sufficient to cover breaches or alleged
breaches of the Origination and Servicing Representations determined in
accordance with clause (Z) of Section 7.1(a)(i), and (D) a reserve sufficient
to cover all other unresolved, disputed or theretofore unasserted claims
indemnifiable by the Company pursuant to Section 7.1(a) (including all other
existing Disputed Claims). If the Company disputes any portion of the amounts
included by Buyer in the Reserve pursuant to clause (A) above then such dispute
or disputes shall be referred promptly to the Independent Accounting Firm whose
determination of the appropriate amount relating to such items to be included
in the Reserve shall be binding on all parties. If the Company disputes the
amount included in the Reserve with respect to clause (B), such dispute shall
be referred promptly to the Independent Accounting Firm whose determination of
the appropriate amount of the Loss to be charged to the Reserve shall have the
status of an Undisputed Claim. Such determination shall be final and binding
on all parties. If on the second anniversary of the Closing Date there
continue to be Disputed
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Claims with respect to Origination and Servicing Representations, such claims
shall be submitted to the Qualified Institution who shall determine the amount
of the Loss which shall then be an Undisputed Claim to be charged to the
Reserve. The determination of the Qualified Institution shall be final and
binding on all parties. If the Company disputes any portion of the amounts
included by Buyer in the Reserve pursuant to clause (D) above, then on the
second anniversary of the Closing Date (or such earlier date as the Buyer may
determine), the parties shall cause the dispute to be referred promptly to the
Qualified Institution whose determination of the appropriate amount relating to
such items to be included in the Reserve shall be final and binding on all
parties.
(l) On each successive anniversary of the Closing Date
following the first anniversary, Buyer shall review the amount of the Reserve
attributable to uncollected Accounts Receivable in order to determine an
appropriate reserve in accordance with GAAP for uncollectible Accounts
Receivable outstanding as of such date. The parties promptly shall refer any
dispute arising out of any such annual review to the Independent Accounting
Firm whose determination of the appropriate amount to be included in the
Reserve shall be binding on all parties.
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The parties shall maintain this annual review process until all Accounts
Receivable have been collected by Buyer in full or have been finally determined
to be uncollectible.
(m) On each successive anniversary of the Closing Date
following the second anniversary, Buyer shall review the amount of the Reserve
to determine the amount necessary to cover Disputed Claims which have not yet
been resolved. If the Company disputes any portion of the amounts included by
Buyer in the Reserve in connection with such annual review, the parties
promptly shall refer any such dispute to the Qualified Institution whose
determination of the appropriate amount to be included in the Reserve shall be
binding on all parties. The parties shall maintain this annual review process
until all Disputed Claims have been finally resolved.
(n) The Reserve established in accordance with Section
7.1(k) shall be adjusted in accordance with the annual reviews described in the
two preceding paragraphs and as each Disputed Claim is resolved. As promptly
as practicable following the second anniversary of the Closing, Buyer shall pay
to the Company the amount, if any, by which (A) the amount withheld at the
Final Settlement Date as a result of the calculation of the Re-
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serve pursuant to Section 2.7(a) less the amount of any Disputed Claims which
become Undisputed Claims after such date, exceeds (B) the remaining amount of
the Reserve. Thereafter, not less frequently than annually, Buyer shall
recompute the amount resulting from the calculation set forth in the previous
sentence as of such date and shall pay to the Company the amount computed
thereby less the aggregate of all amounts previously paid by Buyer pursuant to
this Section 7.1(n).
(o) In the case of any referral of a dispute to either
the Independent Accounting Firm or the Qualified Institution, Buyer and the
Company shall use their respective best efforts to cause such firm to render
its determination as soon as practicable following such referral, and each
party shall cooperate with such firm and shall provide such firm with
reasonable access to its books, records, personnel and representatives and such
other information as such firm may require in order to render its
determination. All of the fees and expenses of the Independent Accounting Firm
or the Qualified Institution, as the case may be, shall be paid one-half by
Buyer and one-half by the Company.
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ARTICLE VIII
TERMINATION, WAIVER AND AMENDMENT
8.1 Termination
This Agreement may be terminated on or at any time prior to
the Closing Date:
(a) by the mutual written consent of the parties hereto;
(b) by either Buyer or the Company upon written notice
to the other party (i) 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 nonappeal-
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able order enjoining or otherwise prohibiting the consummation of any of the
transactions contemplated by this Agreement;
(c) by either Buyer or the Company (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant or other agreement contained herein) if there shall have
been a material breach of any of the representations or warranties set forth in
this Agreement on the part of the other party, which breach is not cured within
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
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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 January 31, 1996, unless the failure of such
occurrence shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe its agreements as set forth in this Agreement
required to be performed or observed by such party on or before the Closing
Date;
(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 January 15, 1996.
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 provi-
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sions 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.
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
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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 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
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(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 hereunder, 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
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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 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.
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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).
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, howev-
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er, 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 certified mail (return receipt requested), or by overnight
courier, cable, telegram or telex addressed as follows:
(a) If to the Company, to:
Lomas Mortgage USA, Inc.
1600 Viceroy Drive
Dallas, Texas 75235
Attention: 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)
Jaffe, Raitt, Heuer & Weiss
Suite 2400
One Woodward Avenue
Detroit, Michigan 48226
Attention: Mark K. Rabidoux, Esq.
(313) 961-8358 (facsimile)
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(b) If to Buyer, to:
First Nationwide Bank,
A Federal Savings Bank
200 Crescent Court, Suite 1350
Dallas, Texas 75201
Attention: Christie S. Flanagan, Esq.
(214) 871-5199 (facsimile)
Copies to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: J. Gregory Milmoe, Esq.
(212) 735-2000 (facsimile)
and
Weiner, Brodsky, Sidman & Kider
1350 New York Avenue, N.W.
Suite 800
Washington, D.C. 20005
Attention: Harvey E. Weiner, Esq.
(202) 628-2011 (facsimile)
(c) If to counsel for creditors' committee, to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Martin J. Bienenstock, Esq.
(212) 310-8007 (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
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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 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.
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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: Executive Vice President
LOMAS MORTGAGE USA, INC.
By: /s/ ERIC D. BOOTH
--------------------------------
Name: Eric D. Booth
Title: Chief Executive Officer
<PAGE> 154
The Exhibits and Schedules to the Section 363 Asset Sale Agreement amended and
restated as of January 4, 1996 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.
EXHIBITS
Exhibit 2.2 Base Purchase Price
Exhibit 2.3(b)(i) Bill of Sale and Assignment
Exhibit 2.3(b)(ii) Lease Assignment and Assumption Agreement
Exhibit 2.3(c) Assumption Agreement
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
<PAGE> 155
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 5.1 Conduct Prior to Closing
<PAGE> 1
EXHIBIT 10.2
SUBSERVICING AND TRANSITION SERVICES AGREEMENT
THIS SUBSERVICING AND TRANSITION SERVICES AGREEMENT (this
"Agreement"), dated as of January 31, 1996, by and between First Nationwide
Mortgage Corporation, a Delaware corporation ("Principal") and Lomas Mortgage
USA, Inc., a Connecticut corporation ("Subservicer"). Principal and
Subservicer are referred to jointly as the "Parties," or individually as a
"Party."
RECITALS
WHEREAS, pursuant to that certain Section 363 Asset Sale
Agreement, amended and restated as of January 4, 1996 (the "Asset Sale
Agreement"), by and between Principal and Subservicer, Principal acquired (the
"Acquisition") from Subservicer the servicing rights to certain mortgage loans,
together with certain other assets, as more fully set forth in the Asset Sale
Agreement; and
WHEREAS, Principal and Subservicer desire that, in order to
provide for the orderly transfer and conversion of the servicing rights to
Principal's operations systems, for a period of time following the Acquisition
as set forth herein, Subservicer shall provide the subservicing and other
transition-related services set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements, representations and warranties contained herein,
and intending to be legally bound hereby, the Parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
For all purposes of this Agreement, except as expressly
provided herein or unless the context requires otherwise, the following terms
shall have the meanings specified in this Article I and the Asset Sale
Agreement. The definitions of such terms are equally applicable to
<PAGE> 2
the singular and plural forms of such terms and to the masculine, feminine and
neuter genders of such terms.
1.1 "Agency": FHA, VA, FmHA, FNMA, FHLMC, the Texas
Veterans' Land Board or a State Agency, as applicable.
1.2 "Agreement": As defined in the first paragraph of
this Agreement.
1.3 "Ancillary Income": As defined in Section 3.1
hereof.
1.4 "Asset Sale Agreement": As defined in the
recitals hereof.
1.5 "Business Day": Any day other than (a) a Saturday
or Sunday, or (b) a day on which banking institutions in the State of Texas are
authorized or obligated by law or by executive order to be closed.
1.6 "Conventional Loan": A Mortgage Loan which is not
insured by FHA or FmHA or guaranteed by VA.
1.7 "Conversion Date": For any Mortgage Loan, the
date the servicing of such Mortgage Loan shall have been fully converted and
transferred from Subservicer's operating systems to those of Principal.
1.8 "Effective Date": January 31, 1996.
1.9 "Custodial Accounts": All escrow, impound,
suspense (loan level and other) and custodial accounts maintained with respect
to the Mortgage Loans for purposes of receiving and disbursing payments of
principal, interest, taxes, insurance, assessments and similar charges (and
interest, if any, accrued on such funds for the benefit of mortgagors) relating
to Mortgage Loans.
1.10 "Custodial Interest Amount": As defined in
Section 3.4 hereof.
1.11 "FHA": The Federal Housing Administration of the
Department of Housing and Urban Development of the United States of America or
their respective successors.
1.12 "FHLMC": The Federal Home Loan Mortgage
Corporation or any successor thereto.
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1.13 "FmHA": The Farmers Home Administration, now
known as the Rural Housing and Community Development Service.
1.14 "FNMA": The Federal National Mortgage Association
or any successor thereto.
1.15 "Government Loan": A Mortgage Loan the payments
of which are partially or fully insured by FHA or FmHA or guaranteed by VA.
1.16 "Guides": All Mortgage Loan-related published
guidance of FHA, FHLMC, FmHA, FNMA, HUD, VA and any private mortgage insurers,
including without limitation mortgagee letters, announcements, circulars,
handbooks and manuals which establish requirements or procedures applicable to
the origination, administration, pooling, servicing or subservicing of the
Mortgage Loans or claims against FHA or FmHA, VA or a provider of private
mortgage insurance in connection therewith.
1.17 "Investor": Any Person who owns a Mortgage Loan
or mortgage-backed securities backed by a Mortgage Loan, or the servicing
rights or master servicing rights to a Mortgage Loan or mortgage-backed
securities backed by a Mortgage Loan, subserviced, serviced or master serviced
by Principal pursuant to a Servicing Agreement.
1.18 "IRS": United States Internal Revenue Service.
1.19 "Loan Documents": As defined in the Asset Sale
Agreement.
1.20 "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.
1.21 "Mortgage Insurance": A contract with FHA, FmHA,
VA or a private mortgage insurer insuring or guaranteeing full or partial
payment of principal, interest and related expenses of a Mortgage Loan.
1.22 "Mortgage Loan": Any "Mortgage Loan" as such term
is defined in the Asset Sale Agreement.
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1.23 "Mortgage Pool Insurance": A contract of
insurance issued with respect to a pool of Mortgage Loans generally covering
Investor losses not covered by PMI.
1.24 "Mortgagor": The Person(s) obligated to make the
payments under the terms of the Mortgage Loan.
1.25 "Note" -- with respect to a Mortgage Loan, a
promissory note or notes, or other evidence of indebtedness, with respect to
such Mortgage Loan secured by a Mortgage or Mortgages, together with any
assignment, reinstatement, extension, endorsement or modification thereof.
1.26 "NSF Fees": Fees charged to Mortgagors for checks
returned for insufficient funds.
1.27 "Party": As defined in the first paragraph of
this Agreement.
1.28 "Person": Any individual, corporation, company,
partnership (limited or general), joint venture, association, trust or other
entity.
1.29 "PMI": Private mortgage insurance excluding FHA,
FmHA or VA coverage.
1.30 "Principal": As defined in the first paragraph of
this Agreement.
1.31 "Private Investors": Any Investor other than an
Agency.
1.32 "Private Servicing Agreements": The agreements or
arrangements between Principal and a Private Investor pursuant to which
Principal services the Mortgage Loans owned by the Private Investor.
1.33 "Regulations": (i) Federal, state and local laws,
rules and regulations with respect to the origination, insuring, purchase,
sale, pooling, servicing, subservicing, master servicing or filing of claims in
connection with a Mortgage Loan, (ii) the responsibilities and obligations
relating to the Mortgage Loans set forth in any agreement between Principal and
an Agency, Investor or Mortgage Insurer (including, without limitation,
Servicing Agreements and Guides), (iii) the laws, rules, regulations,
guidelines, handbooks and other
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<PAGE> 5
requirements of an Investor, Agency, Mortgage Insurer, public housing program
or Investor program with respect to the origination, insuring, purchase, sale,
pooling, servicing, subservicing, master servicing or filing of claims in
connection with a Mortgage Loan and (iv) the terms and provisions of the Loan
Documents.
1.34 "Servicing": The rights and obligations with
respect to servicing the Mortgage Loans under the Guides and the Servicing
Agreements.
1.35 "Servicing Advance": An advance of funds which is
required or permitted pursuant to applicable Regulations to be made in
connection with the performance of the Subservicing Functions, including
advances related to the maintenance of hazard insurance, payment of property
taxes or Mortgage Insurance premiums, advances to pay reasonable expenditures
related to foreclosure proceedings, reasonable expenditures related to the
defense of any lawsuit to defend title to any property subject to a Mortgage
Loan or to defend title to any property acquired as a result of a foreclosure,
and all expenses incurred in making repairs to any property subject to a
Mortgage Loan, advances necessary due to deficiencies in the amount of
principal, interest or escrow payments received by Subservicer, and other
advances to pay third party expenses related to the servicing of Mortgage
Loans.
1.36 "Servicing Agreements": The Agency contracts and
Private Servicing Agreements pursuant to which the Mortgage Loans are serviced,
master serviced and subserviced.
1.37 "State Agency": Any state agency with
authority to regulate the business of Subservicer or Principal, determine the
investment or servicing requirements with regard to loans originated, purchased
or serviced by Subservicer or Principal, or otherwise participate in or promote
mortgage lending.
1.38 "Subservicer": As defined in the first paragraph
of this Agreement.
1.39 "Subservicing Functions": The Servicing functions
to be performed by Subservicer with respect to the Mortgage Loans, as specified
in Section 2.1.
1.40 "Term": As defined in Section 7.3
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1.41 "VA": The Department of Veteran's Affairs of the
United States of America or any successor thereto.
1.42 "VA Loans" -- Mortgage Loans which are guaranteed
by the VA, or which were intended by the Subservicer to be guaranteed by the
VA, or with respect to which a representation has been made to the mortgagor
(in a commitment letter, truth-in-lending disclosure statement or otherwise in
writing) that such Mortgage Loan is or will be guaranteed by the VA.
1.43 "VA No-Bid" -- A delinquent VA Loan with respect
to which the VA has notified Principal or Subservicer that the VA intends to
exercise its option to pay the amount guaranteed by the VA and relinquish all
rights in the collateral securing such VA Loan to Principal or Subservicer.
ARTICLE II
SUBSERVICING FUNCTIONS
2.1 Subservicing Functions. Commencing on the
Effective Date, and continuing throughout the Term, Subservicer shall perform
certain services, referred to herein as the "Subservicing Functions", with
respect to each Mortgage Loan, as follows:
(a) distribute payment media to Mortgagors and
receive and process daily all Mortgage Loan payments through, if
servicer so elects, Subservicer's existing depository bank
relationships;
(b) set up and manage Custodial Accounts,
including accounting for custodial funds and reconciling balances in
accordance with Investor reporting requirements;
(c) timely make all appropriate escrow deposits
and disbursements including taxes, assessments and other public
charges, hazard and flood insurance premiums, FHA, FmHA or PMI
insurance premiums and (subject to Section 3.3 hereof) Servicing
Advances;
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(d) prepare, balance and submit Mortgage Loan
reports required under the Servicing Agreements and the Guides;
(e) where required by the Investor, prepare and
forward to Investors all remittances with respect to the Mortgage
Loans;
(f) provide Principal with all information
necessary or reasonably requested by Principal to enable Principal to
file IRS reports covering Mortgage Loan payments and remittances and
file all IRS reports incident to the Servicing of the Mortgage Loans
covering the period comprising the Term;
(g) provide and handle all Mortgage Insurance
delinquency notices;
(h) handle or, as appropriate, supervise,
monitor and carry out, collection actions, delinquency management
activities, bankruptcy actions, foreclosure proceedings, workouts and
other loss mitigation activities and Mortgage Insurance claim
submissions with respect to the Mortgage Loans;
(i) timely and accurately process Mortgage Loan
payoffs and provide for the timely release of mortgages;
(j) assure that the improvements on the
premises securing each Mortgage Loan are insured by a hazard insurance
policy and, if applicable, using its best efforts, a flood insurance
policy that satisfies the applicable Regulations;
(k) furnish to Principal standard monthly
management reports substantially in the form of Schedule I and any
special reports which Principal and Subservicer may agree, with the
cost of such special reports to be paid by Principal;
(l) provide customer service, including without
limitation, answering telephone calls, responding to inquiries from
customers regarding their respective accounts, correcting customers'
accounts, notifying Mortgagors and processing ARM adjustments,
handling assumptions and partial re-
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<PAGE> 8
leases, performing escrow analysis and providing reports and
remittances to Investors;
(m) timely and accurately perform all master
servicing functions with respect to those Mortgage Loans for which
Principal owns the rights to the master servicing thereof; and
(n) such other functions as are necessary and
consistent with subservicing of mortgage loans that are generally
accepted in the mortgage industry.
Subservicer shall perform all Subservicing Functions only in accordance in all
material respects with applicable law, the appropriate FHA, FmHA, VA and Agency
requirements, the Servicing Agreements, the FNMA/FHLMC servicing guides, all
other applicable Regulations and generally accepted prudent mortgage banking
practices. In subservicing the Mortgage Loans for Principal, Subservicer shall
exercise at least the same degree of care and skill it presently exercises in
servicing loans for Investors. Without limiting the foregoing, where
applicable, Subservicer shall comply in all material respects with the
regulations of FHA, FmHA, VA and providers of PMI, as applicable, including
without limitation the giving of all notices and submitting of all claims
required to be given or submitted to FHA, FmHA, VA or a provider of PMI, as
applicable, to the end that the full benefit of the insurance or guaranty in
connection with Mortgage Loans that are insured or guaranteed by FHA, FmHA, VA
or a provider of PMI will inure to the Investor, Principal or Subservicer, as
their interests may appear.
2.2 Title to Servicing. The Parties agree that legal
title to the Servicing is held by Principal. Any obligations established in the
Servicing Agreements incident to the origination, sale or servicing of the
Mortgage Loans and not specifically set forth in this Agreement shall be the
responsibility of Principal. Principal shall be responsible for complying with
any repurchase obligations as may be required by the Servicing Agreements,
provided that Subservicer shall provide to Principal, within five (5) Business
Days following its receipt of a repurchase demand from an Investor, notice of
such repurchase demand and any instructions with respect to such repurchase
demands.
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2.3 Additional Services. If there are services in
addition to the Subservicing Functions which Principal desires Subservicer to
perform with respect to the Mortgage Loans, Principal shall present a request
to Subservicer identifying the services to be performed. Such additional
services shall be performed on the terms agreed to by the Parties.
2.4 Foreclosure/Bankruptcy Administration Expenses.
Principal shall be responsible for any Servicing Advances or any
nonreimbursable expenses, including attorney fees, or losses incurred in
connection with, or as a result of, foreclosure and bankruptcy proceedings
involving the Mortgage Loans. Subservicer may utilize the same outside counsel
and third party services for foreclosure and bankruptcy proceedings as are
utilized in servicing its own servicing portfolio unless specifically requested
by Principal to discontinue the use of any such vendor. Subservicer will
prepare a final accounting of each foreclosure and Principal will reimburse
Subservicer as to any unreimbursed expenses and losses on such Mortgage Loans.
Provided however, Subservicer shall not be reimbursed for losses or expenses
incurred as a result of its material non-performance nor shall subservicing
fees be paid to Subservicer on Mortgage Loans in foreclosure or in bankruptcy
for those additional months required to finalize cases as a result of
Subservicer's non-performance.
2.5 Property Disposition. If so directed by
Principal, Subservicer will perform tasks associated with property disposition
including property management, maintenance, marketing and repairs, on terms
agreed to by the Parties.
2.6 Notice to Investors/Principal. Subservicer shall
notify the Investor and Principal when it becomes aware of any matter,
condition or event that would, in Subservicer's reasonable judgment, materially
impair an Investor's security with respect to the Mortgage Loan (including,
without limitations, VA No-bids and denied mortgage insurance or guaranty
claims), or Principal's interest in the Servicing on such Mortgage Loan.
2.7 Litigation. Any litigation with respect to the
Mortgage Loans shall be managed by Principal unless it is agreed by the Parties
that other arrangements should be made. Any transmittal of litigation to
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Principal shall be made in writing directed to the attention of the Principal's
in-house counsel in accordance with the notice provisions hereof. Subservicer
shall cooperate in obtaining or making available information or documents
respecting Mortgage Loans involved in litigation as may be reasonably requested
by Principal or its counsel. Subservicer shall not be responsible for any
costs, expenses or liabilities, including attorneys' fees, related to
litigation unless such arises as a result of Subservicer not complying in all
material respects with the terms of this Agreement or Investor requirements and
guidelines.
ARTICLE III
PAYMENT OF FEES, INCOME, EXPENSES AND ADVANCES
3.1 Ancillary Income. Subservicer may charge
Mortgagors ancillary fees related to the performance of the Subservicing
Functions and for services or products provided, including late charges, NSF
fees, assumption fees and other incidental fees or charges, in all cases in a
manner consistent with its past practices (collectively, "Ancillary Income") as
are permitted by all applicable Regulations. Principal shall be entitled to
all such Ancillary Income.
3.2 Payment of Servicing Fees. Subservicer shall
remit to Principal all servicing fees collected on any Mortgage Loan no later
than the second Business Day following the day on which such fees are received,
net of amounts due Subservicer, if any, under Sections 3.3 or 3.4 and net of
any guarantee fee. Subservicer shall provide to Principal a daily statement of
the servicing fees collected on the Mortgage Loans based on the Mortgagor
payments received by Subservicer. No later than the fifth Business Day after
the applicable Investor cut-off date of each month Subservicer shall provide a
statement setting forth in reasonable detail the prior month's servicing fees.
3.3 Advances. (a) Principal shall be responsible for
funding all Servicing Advances required to be made by Subservicer pursuant to
this Agreement by forwarding to Subservicer, within one (1) Business Day
following Subservicer's written notice to Principal requesting such funding
(which notice shall include reasonable documentation of all such Servicing
Advances for which
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funding is requested) the amount of Servicing Advances for which funding is
requested by Subservicer. Subservicer shall utilize funds received from
Principal in accordance with this Section 3.3(a) solely to fund Servicing
Advances required to be made by Subservicer under this Agreement or otherwise
under applicable requirements and in accordance with the purposes set forth in
its written request to Principal, and for no other purposes whatsoever. Upon
collection of Servicing Advances by Subservicer from time to time, such
collections shall be promptly applied in full, to the extent thereof, in the
following order of priority: (i) to reimburse Principal for any unrecouped
Servicing Advances disbursed to Subservicer and (ii) to reimburse Subservicer
for any unrecouped Servicing Advances disbursed by Subservicer from
Subservicer's corporate resources if Subservicer has elected in any instance to
fund Servicing Advances from its own corporate resources.
(b) Subservicer shall diligently endeavor to collect and
recover from Mortgagors all Servicing Advances made by Subservicer which are
not timely paid by, but which are the ultimate obligations of, the Mortgagors.
3.4 Interest on Custodial Accounts. Subservicer shall
be responsible for calculating and posting in Mortgagors' respective accounts
on behalf of Principal any interest due to such Mortgagors on funds deposited
in the Custodial Accounts as may be required by applicable Regulations.
Principal shall be responsible for funding such amount (the "Custodial Interest
Amount") of all such interest advances by forwarding to Subservicer within one
(1) Business Day following Subservicer's written notice to Principal requesting
such funding (which notice shall include reasonable documentation of such
Custodial Interest Amount for which funding is requested) the Custodial
Interest Amount for which funding is requested by Subservicer. Subservicer
shall utilize funds received from Principal in accordance with this Section 3.4
solely to fund Custodial Interest Amount required to be made by Subservicer
under this Agreement or otherwise under applicable requirements and in
accordance with the purposes set forth in its written request to Principal, and
for no other purposes whatsoever. No later than the fifth Business Day of each
month, Subservicer shall provide Principal with a schedule setting forth in
reasonable detail the calculation of the Custodial Interest Amount for the
prior month.
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3.5 Subservicing Fee. In consideration for
Subservicer's performance of the Subservicing Functions and the other
administrative and transition-related services provided for herein, Principal
shall pay to Subservicer on a monthly basis, with respect to those active
Mortgage Loans for which Subservicer performs the Subservicing Functions and
other services hereunder at the beginning of such month (A) for all such
Mortgage Loans with respect to which Principal owns the rights to the primary
servicing thereof, an amount equal to the product of (i) $7.08 multiplied by
(ii) the total number of such Mortgage Loans, (B) for all such Mortgage Loans
with respect to which Principal owns the rights to the subservicing thereof, an
amount equal to the aggregate of all monthly fees which Principal shall be
entitled to receive as the subservicer of such Mortgage Loans and (C) for all
such Mortgage Loans with respect to which Principal owns the rights to the
master servicing thereof, an amount equal to the sum of (i) the aggregate
amount of all costs actually incurred by Subservicer during such month in
performing its obligations hereunder with respect to such Mortgage Loans
(including a reasonable allocation of Subservicer's personnel costs, it being
understood that such allocation may include certain personnel costs not
historically allocated to master servicing functions) plus (ii) an amount equal
to $5,000.00 multiplied by the number of business days in such month (the
amount payable by Principal on a monthly basis pursuant to this Section 3.5 is
referred to herein as the "Subservicing Fee"), provided, however, that the
portion of the Subservicing Fee attributable to any Mortgage Loan, for any
month in which the Conversion Date with respect to such Mortgage Loan shall
have occurred, shall be prorated for the number of calendar days elapsed in the
month prior to and including the Conversion Date. No later than the fifth
Business Day of each month, Subservicer shall provide Principal with a
statement detailing the calculation of the Subservicing Fee for the prior
month. Within three (3) Business Days following its receipt of such statement,
Principal shall pay the Subservicing Fee for the previous month to Subservicer.
ARTICLE IV
INSURANCE
4.1 Maintenance of Fidelity Bond and Errors and
Omissions Insurance. Principal and Subservicer each
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hereby agrees to obtain and maintain at its own expense, and shall furnish each
other with satisfactory evidence of, a blanket fidelity bond and errors and
omission/mortgage impairment insurance policy which shall be maintained in full
force and effect throughout the Term covering their respective officers and
employees and other Persons acting on their behalf in their respective
capacities as Principal and Subservicer with regard to the Mortgage Loans. The
issuer, type and amount of coverage shall be at least equal to the most
restrictive of the Agencies' requirements, if such party were servicing the
Mortgage Loans for such Agency in addition to other mortgage loans being
serviced by such party for such Agency. In the event that any such bond or
policy shall cease to be in effect, Principal and Subservicer, as the case may
be, shall obtain from an insurer a replacement bond and policy meeting the
above requirements. No provision of this Section shall operate to diminish,
restrict or otherwise limit Principal's or Subservicer's responsibilities and
obligations as set forth in this Agreement.
ARTICLE V
TRANSITION SERVICES
5.1 Conversion Procedures. Subservicer shall comply
with Principal's reasonable instructions for conversion of all mortgage data to
Principal's data processing and record keeping systems, at Principal's expense.
Delivery of all documents and data requested by Principal shall be in
accordance with procedures set forth herein and such other procedures as
Principal may reasonably request.
5.2 Transfer of Loan Documents. During the Term, at
such time and in such manner as Principal shall reasonably request in advance,
Subservicer shall deliver to Principal, and shall bear the cost of the transfer
and delivery of, the Loan Documents other than any Loan Documents held by a
custodian in a custodial file. Subservicer shall comply with all reasonable
requirements of Principal relating to such delivery. Subservicer shall pay for
insured shipping by bulk transfer or other customary industry practice of any
Loan Documents, and such documents shall be delivered to the location specified
by Principal within five (5) Business Days after Principal's request for such
deliv- ery, or as soon as
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practicable given the size of the request, except for foreclosure files, which
shall be so delivered within twenty (20) Business Days. All Loan Documents or
other documents transferred from Subservicer to Principal from time to time in
connection herewith shall be appropriately boxed or packaged and all transfers
shall be accompanied by an inventory sheet specifically listing and identifying
each enclosed item.
5.3 Custodial Files. Subservicer shall assign to
Principal any custodial agreements which Principal shall elect to assume during
the Term. Principal shall be responsible for obtaining any necessary Investor
approvals regarding any new custodial arrangements required by Principal with
respect to the Mortgage Loans. Any fees charged by Subservicer's custodians
due to termination of existing custodial agreements during the Term (including
terminations made at the request of Principal), and any costs incurred in
transferring files or documents to or from any custodian shall be borne by
Subservicer. Principal shall pay all custodial fees of any custodian engaged
by Principal. At least thirty (30) days prior to the date on which Principal
intends to move any custodial files, Principal shall provide Subservicer with
written notice of the name and address of the custodian to which control of any
custodial files is to be transferred.
5.4 Forwarding Post-Conversion Date Items. With
respect to any checks, other funds or documents in respect of any Mortgage Loan
which are received by Subservicer or made payable to Subservicer and provided
to Subservicer within thirty (30) calendar days after the applicable Conversion
Date, and which relate to any payments due under the Mortgage Loans and
collectible by the servicer under the terms of the Servicing Agreements,
Subservicer shall, after identification, promptly endorse such checks or
transfer such other funds to Principal without recourse and send the same to
Principal via overnight mail. Any checks or other funds in respect of any
Mortgage Loan which are received by Subservicer after such thirty (30) day
period shall be endorsed without recourse by Subservicer to Principal and sent
by first class mail to Principal within five (5) Business Days of receipt,
without identification. Except as otherwise provided herein, Subservicer shall
promptly forward by first class mail to Principal all borrower correspondence,
insurance notices, tax bills or any other correspondence or documentation
related to the Mortgage Loans
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which are received by Subservicer after the applicable Conversion Date.
Subservicer shall have no obligation with respect to forwarding post-Conversion
Date items to Principal after one-hundred and twenty (120) calendar days
following the applicable Conversion Date.
5.5 Notice to Mortgagors, Insurers and Others.
Subservicer shall, at its own expense (no later than fifteen (15) days prior to
the applicable Conversion Date in the case of (d) below), and in each case in
accordance with applicable Regulations:
(a) notify all mortgage insurers, including FHA,
FmHA, VA and all issuers of private mortgage insurance, by certified mail,
return receipt requested, that all insurance premium billings for the Mortgage
Loans must be sent to Principal after the applicable Conversion Date, request
that such mortgage insurers change the endorsement of applicable insurance
policies to read in favor of Principal and provide Principal with copies of the
certified mail receipts;
(b) transmit to applicable tax service agents or
applicable taxing authorities, as appropriate, notification of the transfer of
the Servicing to Principal and instructions to deliver all notices and tax
bills and insurance statements, as the case may be, to Principal from and after
the applicable Conversion Date;
(c) transmit to applicable hazard or flood
insurance companies and/or agents notification of the transfer of Servicing to
Principal and instructions to deliver all notices and insurance statements to
Principal from and after the applicable Conversion Date. Such notification
shall request that any applicable hazard or flood insurance companies and/or
agents make any notations necessary to indicate the changed mortgagee; and
(d) mail to the mortgagor of each mortgage
securing a Mortgage Loan a letter advising the mortgagor of the transfer of the
Servicing to Principal, the form and content of which letter shall have been
approved by Principal.
5.6 Assignment of Mortgages and Endorsement of Notes.
To the extent required by applicable law or the applicable Investor or Insurer,
immediately following the Effective Date, Subservicer shall prepare, execute
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and (i) record with the appropriate state or local recording offices
assignments to Principal of the Mortgages securing the Mortgage Loans,
including, without limitation, blanket assignments wherever possible and
permitted by the applicable Investor and (ii) provide Principal with an
endorsement of each of the Notes. Subservicer shall arrange for each
assignment to be forwarded to Principal after recordation. Subservicer shall
cooperate with Principal with respect to Principal's obligation to assign
Mortgages to Investors, including providing Principal with the identity of any
contractors preparing assignments of Mortgages to Principal on behalf of
Subservicer.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Principal. Principal represents and warrants to
Subservicer that:
(a) Principal is (i) a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware and (ii) duly qualified to transact any and all of
its business, including the Servicing of the Mortgage Loans;
(b) the execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate
action on the part of Principal and the execution and delivery of this
Agreement by Principal and the performance of and compliance with the
terms hereof by it will not (i) violate, contravene or create a
default under any applicable federal, state or local laws, licenses or
permits or (ii) violate, contravene or create a default under (x) any
organizational document of the Principal or (y) any contract,
agreement or instrument to which the Principal is a party or by which
Principal or any of its property is bound, except, in the case of
clause (y), for such violations, contravention or defaults which would
not, individually or in the aggregate, have a material adverse effect
on Principal's ability to perform its obligations hereunder;
(c) the execution and delivery of this Agreement
by Principal and the performance of and
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compliance with its obligations and covenants do not require the
consent or approval of any governmental authority or, if such consent
or approval is required, it has been obtained as of the date of this
Agreement;
(d) assuming the due authorization and valid
execution and delivery of this Agreement by Subservicer, this
Agreement, when executed and delivered by Principal, will constitute a
valid, legal and binding obligation of Principal, enforceable against
Principal in accordance with its terms, except as the enforcement may
be limited by applicable debtor relief laws and except as certain
equitable remedies may not be available regardless of whether
enforcement is sought in equity or law.
6.2 Subservicer. Subservicer represents and warrants
to Principal that:
(a) Subservicer is (i) a corporation duly
organized, validly existing and in good standing under the laws of the
State of Connecticut and (ii) duly qualified to transact any and all
of its business, including the Subservicing Functions assumed in this
Agreement;
(b) the execution, delivery and performance of
this Agreement have been duly authorized by all necessary corporate
action on the part of Subservicer and the execution and delivery of
this Agreement by Subservicer and the performance of and compliance
with the terms hereby by it will not (i) violate, contravene or create
a default under any applicable federal, state or local laws, licenses
or permits or (ii) violate, contravene or create a default under (x)
any charter document or bylaw of Subservicer or (y) any contract,
agreement or instrument to which the Subservicer is a party or by
which Subservicer or any of its property is bound, except, in the case
of clause (y), for such violations, contravention or defaults which
would not, individually or in the aggregate, have a material adverse
effect on Subservicer's ability to perform the Subservicing Functions
or any of its other obligations hereunder;
(c) the execution and delivery of this
Agreement by Subservicer and the performance of and
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compliance with its obligations and covenants do not require the
consent or approval of any governmental authority or, if such consent
or approval is required, it has been obtained as of the date of this
Agreement;
(d) assuming the due authorization and valid
execution and delivery of this Agreement by Principal, this Agreement,
when executed and delivered by Subservicer, will constitute a valid,
legal and binding obligation of Subservicer, enforceable against
Subservicer in accordance with its terms, except as the enforcement
may be limited by applicable debtor relief laws and except as certain
equitable remedies may not be available regardless of whether
enforcement is sought in equity or law;
(e) there is no litigation pending or, to
Subservicer's knowledge, threatened, which, if determined adversely to
Subservicer, would adversely affect the execution, delivery or
enforceability of this Agreement or Subservicer's ability to perform
its obligations hereunder;
(f) Subservicer (i) is qualified (A) by FHA as
a mortgagee and servicer for FHA Loans, (B) by the VA as a lender and
servicer for VA Loans, (C) by FNMA and FHLMC as a seller/servicer of
first mortgages to FNMA and FHLMC, and (D) by FmHA as required in
connection with the origination and servicing of FmHA Loans; and (ii)
has all other certifications, authorizations, licenses, permits and
other approvals (together with the items set forth in clause (i)
above, the "Licenses") necessary to conduct the Subservicing
Functions, and is in good standing under all applicable federal, state
and local laws and regulations thereunder as a mortgage lender and
servicer, and has complied with all such Licenses, and knows of no
threatened suspension, cancellation or invalidation of, or penalties
(including fines or refunds) under, any such License; and
(g) Subservicer has in full force and effect
all insurance necessary to perform its obligations hereunder,
including without limitation (i) an adequate errors and omissions
policy or policies satisfying the requirements of all applicable
regulatory authorities, other governmental entities or
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other third parties with respect to its operations and (ii) a standard
mortgage banker's blanket bond.
ARTICLE VII
DEFAULT; TERM AND TERMINATION
7.1 Default by Subservicer. Principal may terminate
this Agreement upon the happening of any one or more of the following events:
(a) any inaccuracy when made in any material
respect of any representation or warranty of Subservicer contained in
this Agreement and failure of Subservicer to cure the condition or
event causing any such representation or warranty to be inaccurate
within thirty (30) days or such longer period as may be required by
Subservicer acting with due diligence after Subservicer's receipt of
written notice from Principal requesting that such inaccuracy be cured
or corrected; or
(b) failure of Subservicer to duly observe or
perform in any material respect any covenant, condition or term in
this Agreement which breach continues for a period of thirty (30) days
or such longer period as may be required by Subservicer acting with
due diligence after receipt of written notice by Subservicer from
Principal specifying such failure and requesting that it be remedied.
If any of the events giving rise to a termination right specified in (a) or (b)
above shall occur, Subservicer shall give notice of such occurrence to
Principal promptly following the occurrence of such event. Any such termination
shall be effective as of the date stated in a written notice delivered to
Subservicer.
7.2 Default by Principal. Subservicer may terminate
this agreement upon the happening of any one or more of the following events:
(a) any inaccuracy when made in any material
respect of any representation or warranty of Principal contained in
this Agreement and failure of Principal to cure the condition or event
causing any such representation or warranty to be inaccurate within
thirty (30) days or such longer period as may
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be required by Principal acting with due diligence after Principal's
receipt of written notice from Subservicer requesting that such
inaccuracy be cured or corrected; or
(b) failure of Principal to duly observe or
perform in any material respect any covenant, condition or term of
this Agreement which breach shall continue for a period of thirty (30)
days or such longer period as may be required by Principal acting with
due diligence after receipt of written notice by Principal from
Subservicer, specifying such breach and requesting that it be
remedied.
If any of the events giving rise to a termination right specified in (a) or (b)
above shall occur, Principal shall give notice of such occurrence to
Subservicer promptly following the occurrence of such event. Any such
termination shall be effective as of the date stated in a written notice
delivered to Principal.
7.3 Term. The term of this Agreement (the "Term")
shall commence on the Effective Date and shall continue through, and this
Agreement shall terminate on the earlier of (a) any termination of this
Agreement in accordance with the provisions of Section 7.1 or Section 7.2, or
(b) 90 days following the final Conversion Date, but in no event later than
June 30, 1996, provided, however, that, notwithstanding the foregoing,
Subservicer's obligations hereunder with respect to all Mortgage Loans for
which Principal owns the rights to the master servicing thereof shall terminate
upon the earlier to occur of (i) the effective date of any agreement between
Principal and Residential Information Services Limited Partnership ("RIS") with
respect to the master servicing of such Mortgage Loans and (ii) the final
Conversion Date for the Mortgage Loans (other than those for which Principal
owns the rights to the master servicing). Upon any termination of this
Agreement, each Party shall assist the other Party in the orderly termination
of this Agreement and shall take all reasonable actions necessary for the
orderly and undisrupted continuation of business by all parties affected
hereby.
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7.4 Loss of License, Qualifications. In the event
that, at any time during the Term, Subservicer ceases to be licensed and
qualified by any of the Agencies as set forth in clause (i) of Section 6.2(f)
hereof, then Subservicer shall cease to be a "subservicer" of the Mortgage
Loans but shall continue to perform all of its obligations under this
Agreement, including without limitation those obligations referred to as
"Subservicing Functions," except that, (a) within thirty days following
Subservicer's notice to Principal of its failure to be so licensed or
qualified, Subservicer shall notify all Mortgagors in accordance with
applicable Regulations that Principal will be responsible for servicing the
Mortgage Loans thereafter and that checks to be mailed for purposes of
remitting payments to Principal shall be made payable to Principal, (b)
Subservicer shall provide all other notices to such other Persons and (c) the
Parties shall cooperate with each other and take all such further action as
shall be necessary to properly service the Mortgage Loans in accordance with
all applicable Regulations.
7.5 Principal's Right to Supplement Services.
Notwithstanding anything to the contrary contained herein, in the event that
Subservicer shall fail to observe or perform in any material respect any
covenant, condition or term in this Agreement which breach continues for 30
days after notice to Subservicer from Principal, Principal shall have the
right, in lieu of terminating this Agreement in accordance with Section 7.1, to
take any and all actions necessary or appropriate to allow it to perform the
services or other obligations of Subservicer under this Agreement for such
period as Subservicer shall continue to fail to perform such covenants or
obligations (including, without limitations, hiring additional employees to
perform functions which would otherwise be the responsibilities of
Subservicer's employees or contracting with third parties to provide those
services and functions which Subservicer has failed to continue providing
hereunder). Principal shall be entitled to a reduction of any Subservicing Fee
otherwise payable by it under this Agreement in an amount equal to all
reasonably documented out-of-pocket costs and expenses incurred by Principal in
connection with any actions taken by it pursuant to its rights under this
Section 7.5 during such month to which the Subservicing Fee relates.
ARTICLE VIII
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INDEMNIFICATION
8.1 Indemnification by Principal. Principal shall
indemnify and hold Subservicer harmless from and shall reimburse Subservicer
for any losses, damages, claims, causes of action or expenses of any nature
(including reasonable attorney's fees) incurred by Subservicer which arise out
of or result from:
(a) the inaccuracy of any representation of
Principal contained in this Agreement or breach of any warranty made
by, or the failure to observe or perform any covenant or agreement
made or to be performed by, Principal pursuant to this Agreement; or
(b) Principal's failure to fulfill the
Servicing responsibilities not assumed by Subservicer.
8.2 Indemnification by Subservicer. Subservicer shall
indemnify and hold Principal harmless from and shall reimburse Principal for
any losses, damages, claims, causes of action or expenses of any nature
(including reasonable attorney's fees) incurred by Principal which arise out of
or result from:
(a) the inaccuracy of any representation of
Subservicer contained in this Agreement or breach of any warranty made
by, or the failure to observe or perform any covenant or agreement
made or to be performed by, Subservicer pursuant to this Agreement; or
(b) Subservicer's failure to perform the
Subservicing Functions assumed by Subservicer;
provided, however, that the limitations set forth in Section 7.1(h) of the
Asset Sale Agreement shall not be applicable to this Section 8.2.
ARTICLE IX
MISCELLANEOUS
9.1 Non-Solicitation. From and after the date hereof,
neither Subservicer nor any of its affiliates shall, during the remaining term
of any of the
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Mortgage Loans (i) take any action, by telephone, by mail or otherwise, to
solicit the prepayment of the Mortgage Loans by the Mortgagors, in whole or in
part, (ii) take any action intended to facilitate or encourage the
correspondents of Subservicer or any of its affiliates that originated the
Mortgage Loans to solicit the prepayment of the Mortgage Loans by the
Mortgagors, in whole or in part, or (iii) disseminate to any third party, for
compensation or otherwise, any complete or partial list of the Mortgagors on
the Mortgage Loans, for the purpose of soliciting the prepayment of Mortgage
Loans; provided, that this provision shall not prohibit Subservicer or any of
its affiliates from providing such lists in any judicial proceedings or in
response to a request by a government entity, Agency or Investor.
9.2 Books and Records; Access.
(a) Subservicer shall maintain the Loan
Documents in accordance with applicable requirements.
(b) During the Term, Principal and its
officers, employees, representatives and agents shall have full and
complete access to all of the properties, books, records, computer
discs and tapes and all other information involving the business and
operations of Subservicer relating to the Mortgage Loans and to
Subservicer's procedures and Subservicer shall cause its officers,
directors, employees, representatives and agents, during normal
business hours and upon reasonable notice, to discuss the business
affairs, operations, assets and liabilities of Subservicer with
Principal and its directors, officers, employees, agents and others,
as Principal considers necessary or appropriate for the purpose of
overseeing and supervising the operations of Subservicer pursuant to
this Agreement.
(c) In order to facilitate the oversight and
supervisory functions of Principal, Subservicer shall provide to
Principal (and its agents and representatives), without charge (except
with respect to online computer access), office space at Subservicer's
servicing facility in Dallas, Texas and reasonable use of all
facilities available at that site, including without limitation desks
and chairs, telephones, personal computer equipment and
23
<PAGE> 24
telecopy and copying machines. Such space and facilities shall be
provided throughout the Term.
(d) Subservicer shall furnish Principal with
its internally prepared financial statements on a monthly basis, and
promptly furnish annually its audited financial statements, uniform
single audit and Investor compliance audits which relate to
Subservicer's residential servicing portfolio as they may be performed
from time to time. Subservicer shall also furnish Principal any
"management letters" prepared by its outside accountants which reflect
on internal controls and procedures relating to Subservicer respon-
sibilities to Principal. Subservicer shall work with its outside
accountants and Principal to ensure that work done by the outside
accountants relating to the annual Investor compliance audits may be
relied upon to the maximum extent possible by Principal's outside
auditors.
(e) Subservicer shall advise Principal in
writing of any pending, or to the best of Subservicer's knowledge
threatened, action, by way of a proceeding or otherwise, to revoke or
limit any license, permit, authorization or approval issued or granted
by any federal, state or local government quasi- governmental body, or
any agency or instrumentally thereof, including without limitation the
Agencies, necessary for Subservicer to conduct its business, or to
impose any penalty or other disciplinary sanction in connection with
any of them, or any sanction that would materially adversely affect
Subservicer's business. Subservicer shall immediately notify
Principal of any failure or anticipated failure on its part to observe
or perform any warranty, representation, covenant or agreement
required to be observed or performed by it hereunder.
9.3 Management Meetings. As often as practicable but
not less frequently than once per month, Principal shall cause members of its
senior management team to meet with members of the senior management team of
Subservicer, at Subservicer's headquarters in Dallas, Texas, for the purpose of
reviewing Subservicer's business and operations, the status of the transfer and
conversion of the servicing of the Mortgage Loans to Principal's system and
such other matters as reasonably relate to the business and operations of
Subservicer.
24
<PAGE> 25
9.4 Costs and Expenses. Except as otherwise provided
in this Agreement, each Party shall pay its own costs and expenses.
9.5 Confidentiality of Information. Principal and
Subservicer and their affiliates shall, and shall cause their respective
directors, officers, employees and authorized representatives to hold in strict
confidence and not use or disclose to any other Person or entity, without the
prior written consent of the other Party, all information concerning customers
or proprietary business procedures, servicing fees or prices, policies or plans
of the other Party or any of its affiliates received by them from the other
Party in connection with the transactions contemplated hereby.
9.6 Survival. None of the covenants, representations
or warranties contained herein, or in any document delivered or to be delivered
pursuant hereto, other than those contained in Sections 9.1 and 9.5, shall
survive any termination of this Agreement.
9.7 Notices. All notices, requests, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given upon delivery.
Notice may be delivered in person, by mail or by express delivery. In the case
of mailing, such notice shall be sent by registered or certified mail, return
receipt requested, postage prepaid, to the address stated in the Asset Sale
Agreement or to such other address as Principal or Subservicer shall have
specified in writing to the other.
9.8 Entire Agreement, Amendment. This Agreement and
the Asset Sale Agreement (including the exhibits and schedules thereto)
constitute the entire agreement between the Parties with respect to the matters
set forth herein and supersede all prior agreements with respect thereto. This
Agreement may be amended by an instrument in writing signed by the Parties.
Any provision of this Agreement may be waived, but only in a written instrument
signed by the Party against whom such waiver is sought to be enforced.
9.9 No Third Party Rights. Nothing in this Agreement,
express or implied, shall confer on any Person other than the Parties hereto
and their respective suc-
25
<PAGE> 26
cessors and assigns, any rights, obligations, remedies or liabilities.
9.10 Headings. Headings on the Articles and Sections
in the Agreement are for reference purposes only and shall not be deemed to
have any substantive effect.
9.11 Applicable Laws. This Agreement shall be
construed in accordance with and governed by the laws of the state of Texas
without application of its principles covering conflicts of law.
9.12 Incorporation of Exhibits. Any exhibit or
schedule attached hereto shall be incorporated herein and shall be understood
to be a part hereof as though included in the body of this Agreement.
9.13 Counterparts. This Agreement may be executed in
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original and all of which, taken together, shall constitute one and the
same agreement.
9.14 Successors; Assignment. This Agreement shall be
binding upon, and extend to the benefit of the respective successors of the
Parties; provided, however, the rights and obligations of any Party under this
Agreement may not be assigned by such Party without the written consent of the
other Party, which consent shall not be unreasonably withheld.
9.15 Severability. If any provision of this Agreement
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
26
<PAGE> 27
IN WITNESS WHEREOF, each of the undersigned parties to this
Agreement has caused this Agreement to be duly executed by one of its duly
authorized officers, all as of the date first above written.
"SUBSERVICER"
Lomas Mortgage USA, Inc.
By: /s/ MARK M. FELDMAN
---------------------------------
Name: Mark M. Feldman
-------------------------------
Title: Executive Vice President
------------------------------
"PRINCIPAL"
First Nationwide Mortgage Corporation
By: /s/ STEPHEN SIMCOCK
---------------------------------
Name: Stephen Simcock
-------------------------------
Title: Vice - President
------------------------------
27
<PAGE> 28
SCHEDULE I
OWNED SERVICING -- FNMA/FHLMC/PRIVATES
1. Investor Cut-Off Reports
FNMA
o Pool to Security Reports and Range Reports
o Expected Cash Reports and Range Reports
o Pool Deficiency Reports
o FNMA Turnaround Reports
o FNMA Shortage/Surplus Reconciliations
o Standard FNMA Accounting Package (to include trial balance,
collection report, paid in full, curtailments paid in advance
and delinquent reports)
FHLMC
o Cash Activity Analysis (Remittance Analysis)
o FHLMC Adjustment Letters
o Expected Cash Reports
o Standard FHLMC Accounting Package (to include trial balance,
collection report, paid in full, curtailments paid in advance
and delinquent reports)
PRIVATES
o Pool to Security Reports and Summaries
o Expected Cash Reports and Summaries
o Standard Private Accounting Package (to include trial balance,
collection report, paid in full, curtailments paid in advance
and delinquent reports)
2. Custodial Reconciliations to Cash Book and Expected Cash
3. Cash activity summarized from (1) CSM 718 report (provide Monthly
Remittance Recap and Daily Summary of Advances) and (2) Schedule of
P&I Advances & Recoveries.
4. Loan Servicing portfolio activity status, which reflects
month-to-month changes (beginning balance, new loans, paid in full,
amortization, ending balance) in number of loans and principal balance
by Investor (ESSRMF03).
5. Delinquency report by Investor, which reflects number and balance of
loans past due by delinquency category with ratios (MRKPR072).
6. Foreclosure report, which reflects number of loans and principal
balance by status, i.e., referred, sold, conveyed, etc.
28
<PAGE> 29
7. Bankruptcy report, which includes relevant information, including past
due status summary.
8. Foreclosure claim loss report for each loan case finalized during the
month.
9. Reporting on servicing portfolio geographic statistics (ESSRSA08).
10. REO status report, if applicable.
11. Reports tracking activities relating to escrow administration, ARM
adjustments, assumptions, partial releases and other servicing-related
activities.
12. P&I Advance to General Ledger Reconciliation
13. T&I Advance to General Ledger Reconciliation
29
<PAGE> 1
EXHIBIT 10.3
[LOMAS LETTERHEAD]
December 22, 1995
Mr. Carey B. Wickland
1600 Viceroy Drive
Dallas, TX 75235
Dear Carey:
This letter will confirm the terms of our agreement with respect to your
employment with Lomas Mortgage USA, Inc. ("LMUSA") and the employee benefit
plans and other arrangements in which you shall be eligible to participate in
connection with such employment.
Your employment by LMUSA shall be for a term (the "Employment Term") which
shall commence on January 1, 1996 and shall terminate on December 31, 1997;
provided that the Chief Executive Officer of LMUSA (the "CEO"), upon payment of
the benefits provided by this letter, may involuntarily terminate your
employment hereunder at any time during the Employment Term. The Employment
Term shall terminate in any and all events upon the termination of your
employment hereunder.
During the Employment Term, you shall serve as Senior Vice President of LMUSA
and President and Chief Operating Officer of Lomas Management, Inc. ("LMI").
You shall report directly to the CEO and shall have such duties and authority
as shall be determined from time to time by the CEO and the Board of Directors
of LMUSA. During the Employment Term, you shall devote substantially all of
your business time and best efforts to the performance of your duties hereunder
and shall not engage in any other business, profession or occupation for
compensation or otherwise.
During the Employment Term, LMUSA shall pay you an annual base salary at a rate
of $250,000. You are eligible to participate in the Lomas Mortgage USA, Inc.
Performance and Retention Incentive Plan (the "Retention Plan"). The Retention
Plan is designed to encourage you to remain with LMUSA and maintain a high
level of performance through its restructuring period.
As a participant in the Retention Plan you will be eligible to receive a
minimum award of fifty percent and a maximum award of seventy five percent of
your annual base salary. You will receive the maximum award available to you
under the Retention Plan unless your performance substantially deteriorates.
The amount of your award under the Retention Plan within the minimum and
maximum range described above shall be determined by the discretionary
evaluation of your performance by the CEO (subject to the approval of LMUSA's
Board of Directors). It is the CEO's sincere intent, assuming your performance
is sustained at its current level, that you will receive the maximum available
award to you under the Retention Plan.
<PAGE> 2
Mr. Carey B. Wickland
December 22, 1995
Page 2
Your award under the Retention Plan is payable to you at the earlier of (a)
your involuntary termination by the CEO without cause or your voluntary
termination for good reason as defined by the Retention Plan or (b) December
31, 1996 (notwithstanding the payment dates set forth in the Retention Plan
with respect to other employees of LMUSA who are participants under the
Retention Plan). A copy of the Retention Plan is attached as Attachment 1
hereto for your review.
You will also be eligible for severance benefits under the Lomas Mortgage USA,
Inc. Severance Pay Plan (the "Severance Plan") in an amount equal to eighteen
months of your annual base salary payable upon the earliest of (a) December 31,
1997 (notwithstanding the payment date set forth in the Severance Plan with
respect to other employees of LMUSA who are participants under the Severance
Plan) or (b) the date of your involuntary termination without cause or
voluntary termination for good reason as defined by the Severance Plan. A copy
of the Severance Plan is attached as Attachment 2 hereto for your review.
Based on your annual base salary hereunder, the amounts that will be paid to
you if you continue to meet the conditions of eligibility under the Retention
Plan and the Severance Plan are as follows:
<TABLE>
<CAPTION>
PAID EARLIER OF
INVOLUNTARY
TERMINATION
WITHOUT CAUSE/
VOLUNTARY
TERMINATION FOR
PLAN MINIMUM: MAXIMUM: GOOD REASON OR:
- ---------- ---------- -------- ---------------
<S> <C> <C> <C>
Retention Plan $125,000 $187,500 December 31, 1996
Severance Plan $375,000 $375,000 December 31, 1997
Total: $500,000 $562,500
</TABLE>
A condition of your eligibility for the Retention Plan and the Severance Plan
is the requirement that you release LMUSA and its affiliates from any prior
obligation for severance benefits or termination benefits, other than the
Severance Plan and the Lomas Financial Group Management Security Plan. A
release is enclosed as Attachment 3 hereto for you to execute and return to Jim
Alleman, Director of Human Resources.
Additionally, a condition of your continued eligibility for benefits under the
Retention Plan is that you treat your eligibility with the strictest
confidence. Should you breach the confidentiality of your eligibility you will
forfeit your rights to receive payments under the Retention Plan.
Your eligibility for the Retention Plan should be interpreted as a statement of
the value that you have to LMUSA.
During the Employment Term, you shall be entitled to continue your
participation in the Lomas Financial Group Pension Plan as restated effective
January 1, 1991, the Lomas 401(k) Savings Plan and the Lomas Financial Group
Excess Pension Plan. In addition, you shall be eligible for the
<PAGE> 3
Mr. Carey B. Wickland
December 22, 1995
Page 3
payment of an additional retirement benefit under the Lomas Financial Group
Pension Plan as restated effective January 1, 1991 (made available pursuant to
an amendment to such plan effective October 6, 1995 to eligible employees whose
employment is involuntarily terminated after January 1, 1996). The payment to
you of this additional retirement benefit would reduce your severance benefits
under the Severance Plan in accordance with the Severance Plan.
You hereby specifically forfeit your continued participation in the Long Term
Incentive Compensation Plan for the Senior Officers of Lomas Management, Inc.,
payment by LMUSA of any country club dues and fees and any and all welfare and
other benefits not specifically provided herein (including, but not limited to,
any and all welfare and other benefits provided pursuant to the Employment
Agreement effective April 1, 1993 among LMI, Lomas Financial Corporation and
Carey B. Wickland, as amended by the First Amendment to Employment Agreement
dated as of May 23, 1995 among LMI, Lomas Financial Corporation, LMUSA and
Carey B. Wickland (collectively, the "Employment Agreement")) except for those
benefits normally provided to active or inactive employees. Notwithstanding
the preceding sentence or any of the other provisions set forth herein, this
letter agreement shall not adversely affect or enhance any rights or claims
existing as of the date hereof that you may have under the Employment Agreement
with respect to the Lomas Financial Group Management Security Plan.
To the extent your employment hereunder is involuntarily terminated by LMUSA
with "cause" or is voluntarily terminated by you and such termination is not a
"voluntarily termination with good reason" (as such terms are defined under
either the Retention Plan or the Severance Plan), you shall be entitled to
receive your annual base salary through the date of termination and such other
benefits that may be due in accordance with the plans, policies and procedures
of LMUSA.
This letter agreement is in lieu of and supersedes any and all prior contracts,
incentive programs, plans, oral and written representations and other
agreements relating to employment or severance or termination pay or benefits
and for which you may file a claim as a general unsecured creditor of LMUSA or
any of its affiliates in their pending bankruptcy proceedings, except for the
Lomas Financial Group Management Security Plan.
This letter agreement shall be effective as of January 1, 1996.
Please evidence your agreement with the provisions of this letter agreement by
signing in the space indicated on the page immediately following.
Sincerely,
/s/ ERIC D. BOOTH
Eric D. Booth
President and Chief Executive Officer
Attachments (3)
<PAGE> 4
Mr. Carey B. Wickland
December 22, 1995
Page 4
ACCEPTED AND AGREED TO (return signed copy to Jim Alleman, Human Resources
Dept.):
/s/ CAREY B. WICKLAND Date:
- ------------------------------- -------------------------------
Carey B. Wickland
<PAGE> 5
ATTACHMENT 1
Lomas Mortgage USA, Inc.
Performance and Retention Incentive Plan
(Incorporated by reference to Exhibit 10.90 of LFC's Form 10-K for the fiscal
year ended June 30, 1995.)
<PAGE> 6
ATTACHMENT 2
Lomas Mortgage USA, Inc.
Severance Pay Plan
(Incorporated by reference to Exhibits 10.88 and 10.89 of LFC's Form 10-K for
the fiscal year ended June 30, 1995.)
<PAGE> 7
ATTACHMENT 3
Release Agreement
<PAGE> 8
RELEASE AGREEMENT
THIS RELEASE AGREEMENT (the "Agreement") is made and entered into this
22nd day of December, 1995, by and between CAREY B.
WICKLAND ("Employee") and LOMAS MORTGAGE USA, INC. ("Lomas").
RECITALS
WHEREAS, Lomas currently provides severance pay or termination pay
benefits to some of its employees through such documents as retention letters,
contracts and other agreements and arrangements. Such retention letters,
contracts and other agreements and arrangements are referred to collectively
herein as the "Severance Agreements" and specifically DO NOT include the Lomas
Mortgage USA, Inc. Severance Pay Plan adopted by the Board of Directors of
Lomas Mortgage USA. Inc. on September 18, 1995, but effective October 5, 1995
(the "Severance Plan"), and the Lomas Financial Group Management Security Plan
(the "Management Security Plan").
WHEREAS, Employee may currently be covered under the Severance
Agreements; and
WHEREAS, Lomas has established the Lomas Mortgage USA, Inc.
Performance and Retention and Incentive Plan (the "Retention Plan") and the
Severance Plan and has offered Employee the opportunity to participate in the
Retention Plan and the Severance Plan; and
WHEREAS, Employee desires to participate in the Retention Plan and the
Severance Plan; and
WHEREAS, a condition of Employee's participation in the Retention Plan
and the Severance Plan is the execution of this Agreement and relinquishment of
any claims for benefits under the Severance Agreements;
NOW, THEREFORE, upon the execution of this Agreement and in
consideration of the mutual promises and agreements contained herein, the
Recitals contained herein, and for other good and valuable consideration, the
sufficiency of which is hereby acknowledged, Employee and Lomas agree to the
following:
1.1 Consideration. In consideration for Employee's execution of
this Agreement and relinquishment of any and all claims for benefits under the
Severance Agreements, Employee will be eligible to participate in the Retention
Plan and the Severance Plan.
1.2 Settlement of All Claims and Disputes. Employee conditionally
releases, acquits, and forever discharges and covenants not to sue Lomas, its
subsidiaries, parents, affiliated and related corporations, firms,
associations, partnerships and entities, and its and their shareholders,
directors, officers, employers, employees, agents, attorneys, representatives
and insurers from and for any and all claims, claims for benefits, liabilities,
obligations, promises, agreements, damages, causes of action, rights, debts,
demands, costs, damages, and expenses (including attorneys' fees and expenses)
under any municipal, local, state, or federal law, common or statutory, for any
actions or omissions whatsoever, whether known or unknown, related to or
arising out of Employee's participation in the Severance Agreements or any
other promises or representations concerning severance pay or benefits, or
Employee's rights or entitlements thereto, which existed or may have existed
prior to, or contemporaneously with, or subsequent to, the execution of this
Agreement (the "Release"). The Release is, however, conditioned upon the
continued effectiveness of the Retention Plan and the Severance Plan and Lomas'
continued performance under and in accordance with those Plans. If, for any
reason whatsoever, Lomas is unable or unwilling to meet its
<PAGE> 9
obligations under the Retention Plan and the Severance Plan, the Release shall
be null and void and Employee shall not have relinquished any of his rights or
remedies under the applicable Severance Agreements. Nothing in this Agreement
is intended or shall be interpreted to affect any benefits to which Employee
may become entitled under the Retention Plan, the Severance Plan or the
Management Security Plan.
1.3 Entire Agreement. It is understood and agreed that this
Agreement contains the entire agreement between the parties hereto and
supersedes any and all prior agreements, arrangements, or undertakings between
the parties hereto relating to the subject matter hereof.
1.4 Representations. Employee hereby acknowledges and expressly
warrants and represents for himself that he has read and understands the effect
of this Agreement and voluntarily executes this Agreement after having had the
opportunity to consult independent legal counsel of Employee's choice.
1.5 Counterparts. This Agreement may be executed in counterparts,
each of which, when so executed and delivered, shall be deemed to be an
original and all of which, taken together, shall constitute one and the same
agreement.
EXECUTED this 22nd day of December, 1995.
LOMAS MORTGAGE USA, INC. EMPLOYEE
By: /s/ ERIC D. BOOTH /s/ CAREY B. WICKLAND
-------------------------------- -------------------------------------
Name: Eric D. Booth Carey B. Wickland
Title: President and Chief
Executive Officer
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER SHARE
LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31 December 31
------------------------ -----------------------
1995 1994 1995 1994
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY:
- --------
Average common shares outstanding . . . . . 20,149 20,132 20,149 20,115
Common stock equivalents under Non-Employee
Directors Long Term Incentive Plan . . . 15 22 15 29
---------- ---------- --------- ---------
Total shares . . . . . . . . . 20,164 20,154 20,164 20,144
========== ========== ========= =========
Loss from continuing operations . . . . . . $ (30,313) $ (33,709) $(224,543) $ (41,059)
Loss from discontinued operations . . . . . -- (7,500) -- (13,000)
---------- ---------- --------- ---------
Net loss . . . . . . . . . . . $ (30,313) $ (41,209) $(224,543) $ (54,059)
========== ========== ========= =========
Per share amounts:
Loss from continuing operations . . . $ (1.50) $ (1.67) $ (11.14) $ (2.04)
Loss from discontinued operations . . -- (.37) -- (.64)
---------- ---------- --------- ---------
Net loss . . . . . . . . . . . $ (1.50) $ (2.04) $ (11.14) $ (2.68)
========== ========== ========= =========
FULLY DILUTED:
- --------------
Average common shares outstanding . . . . . 20,149 20,132 20,149 20,115
Common stock equivalents under Non-Employee
Directors Long Term Incentive Plan . . . 15 22 15 29
---------- ---------- --------- ---------
Total shares . . . . . . . . . 20,164 20,154 20,164 20,144
========== ========== ========= =========
Loss from continuing operations . . . . . . $ (30,313) $ (33,709) $(224,543) $ (41,059)
Loss from discontinued operations . . . . . -- (7,500) -- (13,000)
---------- ---------- --------- ---------
Net loss . . . . . . . . . . . $ (30,313) $ (41,209) $(224,543) $ (54,059)
========== ========== ========= =========
Per share amounts:
Loss from continuing operations . . . $ (1.50) $ (1.67) $ (11.14) $ (2.04)
Loss from discontinued operations . . -- (.37) -- (.64)
---------- ---------- --------- ---------
Net loss . . . . . . . . . . . $ (1.50) $ (2.04) $ (11.14) $ (2.68)
========== ========== ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 48,863
<SECURITIES> 1,866
<RECEIVABLES> 89,724
<ALLOWANCES> (4,819)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 53,516
<DEPRECIATION> (18,956)
<TOTAL-ASSETS> 348,433
<CURRENT-LIABILITIES> 0
<BONDS> 518,354
<COMMON> 20,149
0
0
<OTHER-SE> (256,565)
<TOTAL-LIABILITY-AND-EQUITY> 348,433
<SALES> 0
<TOTAL-REVENUES> 29,057
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 55,282
<LOSS-PROVISION> 1,851
<INTEREST-EXPENSE> 2,237
<INCOME-PRETAX> (30,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,313)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,313)
<EPS-PRIMARY> (1.50)
<EPS-DILUTED> (1.50)
</TABLE>
