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EXHIBIT 10.10
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PARTNERSHIP INTEREST PURCHASE AGREEMENT
BY AND AMONG
ENHANCE FINANCIAL SERVICES GROUP INC.
AND ENHANCE C-BASS RESIDUAL FINANCE CORPORATION,
AS SELLERS,
CREDIT - BASED ASSET SERVICING
AND SECURITIZATION LLC, AS AN ACCOMMODATING PARTY,
AND
RESIDENTIAL FUNDING CORPORATION
AND RFC ACQUISITION CORP.,
AS PURCHASERS
DATED SEPTEMBER 28, 2000
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TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS........................................................1
ARTICLE II PURCHASE AND SALE OF PARTNERSHIP INTERESTS.......................13
2.1 Purchase and Sale of Partnership Interests......................13
2.2 Purchase Price..................................................13
2.3 Review and Purchase Price Adjustment............................13
ARTICLE III CLOSING.........................................................18
3.1 Closing and Closing Date........................................18
ARTICLE IV GENERAL REPRESENTATIONS AND WARRANTIES OF SELLERS AND
COMPANY..........................................................19
4.1 Organization....................................................19
4.2 Authority.......................................................19
4.3 Non-Contravention...............................................20
4.4 Consents, Approvals and Notices.................................20
4.5 Title to Partnership Interests..................................21
4.6 Partnership Activities..........................................21
4.7 Securities Laws.................................................21
4.8 Ownership of Partnership Interests; Capitalization of
the Company and Related Companies; Existing Options.............21
4.9 Financial Statements; Records...................................22
4.10 Litigation......................................................23
4.11 Compliance with Laws............................................24
4.12 Absence of Certain Changes or Events............................24
4.13 Taxes...........................................................25
4.14 Employee Benefits...............................................26
4.15 Property........................................................28
4.16 Insurance.......................................................29
4.17 Intellectual Property...........................................29
4.18 Material Contracts..............................................31
4.19 Employee Matters................................................33
4.20 Brokers.........................................................34
4.21 No Undisclosed Liabilities......................................34
4.22 Receivables.....................................................34
4.23 Powers of Attorney..............................................35
4.24 Reports.........................................................35
4.25 Derivative Transactions.........................................35
4.26 REMIC Residual Interests........................................35
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4.27 Statements Made.................................................36
ARTICLE V MORTGAGE BANKING AND RELATED REPRESENTATIONS OF SELLERS
AND COMPANY.......................................................36
5.1 Portfolio Information; Related Matters..........................36
5.2 Enforceability of Agreements....................................37
5.3 Advances........................................................38
5.4 No Recourse.....................................................38
5.5 Mortgage Loan Representations and Warranties....................39
5.6 Mortgage Banking Qualification..................................41
5.7 Custodial Accounts..............................................41
5.8 Inquiries.......................................................42
5.9 IRS Reports.....................................................42
5.10 Securitization Transactions.....................................42
5.11 Certain Due Diligence...........................................43
ARTICLE VI GENERAL REPRESENTATIONS AND WARRANTIES OF PURCHASERS.............43
6.1 Organization....................................................43
6.2 Authority.......................................................43
6.3 Non-Contravention...............................................44
6.4 Consents........................................................44
6.5 Brokers.........................................................44
6.6 No Regulatory Impediment........................................44
6.7 Securities Laws.................................................44
6.8 Availability of Funds...........................................45
6.9 Litigation......................................................45
ARTICLE VII COVENANTS.......................................................45
7.1 Conduct of Business.............................................45
7.2 Access to Records, Etc..........................................46
7.3 Taking of Necessary Action......................................47
7.4 Non Competition and Related Matters.............................48
7.5 Public Announcements............................................49
7.6 Further Assurances..............................................49
7.7 Non-Solicitation................................................50
7.8 Insurance.......................................................50
ARTICLE VIII CONDITIONS TO THE CLOSING......................................50
8.1 Conditions to Obligations of Each Party.........................50
8.2 Additional Conditions to the Obligations of Purchasers..........51
8.3 Additional Conditions to the Obligations of Sellers.............52
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ARTICLE IX TERMINATION, AMENDMENT AND WAIVER................................53
9.1 Termination.....................................................53
9.2 Effect of Termination...........................................54
ARTICLE X TAX MATTERS.......................................................54
10.1 Returns.........................................................54
10.2 Contests........................................................55
10.3 Payment of Taxes................................................55
10.4 Notices.........................................................56
10.5 Cooperation.....................................................57
10.6 Transfer Taxes..................................................57
ARTICLE XI INDEMNIFICATION BY SELLERS.......................................57
11.1 Indemnification.................................................57
11.2 Indemnification Procedure.......................................58
11.3 Limitation on Liability.........................................60
ARTICLE XII INDEMNIFICATION BY PURCHASER....................................61
12.1 Indemnification.................................................61
12.2 Indemnification Procedure.......................................61
12.3 Limitation on Liability.........................................62
ARTICLE XIII GENERAL PROVISIONS.............................................62
13.1 Notices.........................................................62
13.2 Interpretation..................................................64
13.3 Amendment and Modification; Waiver..............................64
13.4 Entire Agreement................................................64
13.5 Fees and Expenses...............................................64
13.6 Third Party Beneficiaries.......................................65
13.7 Assignment; Binding Effect......................................65
13.8 Governing Law...................................................65
13.9 Counterparts....................................................65
ARTICLE XIV CONCERNING THE EXONERATION OF THE COMPANY AND THE
RELATED COMPANIES...............................................65
14.1 Accommodation...................................................65
14.2 Exoneration.....................................................66
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SELLER DISCLOSURE SCHEDULE
Section 4.3 - Non-Contravention
Section 4.4 - Consents, Authorizations, Third Party
Consents
Section 4.8(b) - Membership Interests
Section 4.8(c) - Outstanding Membership Interest Rights
Section 4.8(d) - Options to Acquire Other Interests
Section 4.8(e) - Related Companies
Section 4.8(f) - Officers, Directors and Managers
Section 4.9(a) - Financial Statements of Company and Related
Companies
Section 4.9(b) - Financial Statements of Partnership
Section 4.10 - Litigation, Orders, Judgments, Injunctions
and Decrees
Section 4.11(a) - Applicable Requirements
Section 4.12 - Certain Changes or Events
Section 4.13(a) - Taxes
Section 4.13(g) - Tax Basis
Section 4.13(h) - Capital Accounts and Tax Basis
Section 4.14(a) - Employee Benefit Plans
Section 4.14(b)(xii) - Excess Employee Benefits
Section 4.14(b)(xiii) - Transaction Effects on Benefits
Section 4.15 - Leases, Liens and Impairments to Use of
Property
Section 4.16 - Insurance
Section 4.17 - Intellectual Property
Section 4.18 - Material Contracts
Section 4.19(a) - Employment Investigations
Section 4.23 - Powers of Attorney; Bank Accounts
Section 4.26 - REMIC Residual Interests
Section 5.1(b) - Securitization Receivables and Collateral
Certificates
Section 5.2(a) - Listed Agreements
Section 5.2(b) - Defaults
Section 5.2(c) - Breaches of Representations and Warranties
Section 5.2(d) - Liens on Agreements
Section 5.4 - Recourse Loans
Section 5.5 - Exceptions to Representations and Warranties
Section 5.5(e) - Physical Damage
Section 5.6 - Agency Approvals, Licenses, Etc.
Section 5.8 - Audits and Inquiries
PURCHASER DISCLOSURE SCHEDULE
Section 6.4 - Consents, Authorizations, Etc.
Section 7.1(b) - RFC Representatives
Section 8.2(i)(i) - Officers and Key Employees
Section 8.2(i)(ii) - Officers and Key Employees
Section 11.1(d) - Retained Liabilities
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EXHIBITS
Exhibit A - Form of Assignment of Partnership Interest
Exhibit 2.3 - Financial Assets
Exhibit 2.3(g)(iii) - Performing Loan Market Value Methodology
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PARTNERSHIP INTEREST PURCHASE AGREEMENT
This PARTNERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement"), is dated
September 28, 2000 (the "Effective Date"), by and among ENHANCE FINANCIAL
SERVICES GROUP INC., a New York corporation ("EFS"), and ENHANCE C-BASS RESIDUAL
FINANCE CORPORATION, a Delaware corporation ("Enhance GP" and, together with
EFS, the "Sellers"), CREDIT-BASED ASSET SERVICING AND SECURITIZATION LLC, a
Delaware limited liability company (the "Company"), and RESIDENTIAL FUNDING
CORPORATION, a Delaware corporation ("RFC"), and RFC ACQUISITION CORP., a
Delaware corporation ("RFC Sub" and, together with RFC, the "Purchasers").
W I T N E S S E T H:
WHEREAS, the Sellers own all of the partnership interests (the
"Partnership Interests") in Enhance Residuals, L.P., a Delaware limited
partnership ("the Partnership"), which is engaged in the business of holding
REMIC residual securities and a membership interest in the Company;
WHEREAS, the Company, directly or indirectly, is engaged in the business
of acquiring, selling, securitizing, servicing and subservicing residential
mortgage loans and securities based on and backed by such mortgage loans; and
WHEREAS, on the terms and subject to the conditions set forth herein, the
Sellers desire to sell, and Purchasers desire to purchase, the Partnership
Interests, and the Company wishes to accommodate such sale in the limited
capacity set forth herein.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS
In addition to terms defined elsewhere in this Agreement, the following
terms when used in this Agreement shall have the following meanings:
"ADJUSTABLE RATE LOAN" means any Mortgage Loan in respect of which the
related Mortgage Note provides for a rate of interest that fluctuates by
reference to any one or more indices (including, without limitation, the prime
or base rate announced from time to time by one or more banks, a commercial
paper based rate, or a rate derived from the yield on any type of obligation of
the United States).
"ADVANCES" means, with respect to the Company or a Related Company and the
Servicing Agreements, Master Servicing Agreements and Certificate Administration
Agreements, the moneys that have been advanced by the Company or a Related
Company on or before the Closing Date from its funds in connection with its
servicing of the Mortgage Loans in accordance with Applicable Requirements
(including, without limitation, principal, interest, taxes, ground rents,
assessments, insurance premiums and other costs, fees and expenses
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pertaining to the acquisition of title to and the preservation and the repair of
the Mortgaged Properties).
"AFFILIATE" of a Person means a Person that, directly or indirectly,
through one or more intermediaries, Controls, is Controlled by, or is under
common Control with, the first Person.
"AGENCY" means FHA, VA, GNMA, FNMA, FHLMC, HUD or a State Agency, as
applicable.
"AGREEMENT" has the meaning set forth in the introductory paragraph
hereof.
"APPLICABLE LAWS" means all applicable federal, state and local legal and
regulatory requirements (including statutes, rules, regulations and ordinances)
of the United States and of any other country in which a particular Person
operates or to which such Person is otherwise subject.
"APPLICABLE REQUIREMENTS" means and includes, as of the time of reference,
with respect to the Mortgage Loans, Servicing, and Securitization Transactions,
all of the following: (i) all contractual obligations of the Partnership, the
Company or any Related Company with respect to any Securitization Transaction,
Servicing under any Servicing Agreement, or any Mortgage Loan Document, (ii) all
Applicable Laws binding upon the Partnership, the Company or any Related Company
or any Originator or Prior Servicer, (iii) all other applicable requirements and
guidelines of each governmental agency, board, commission, instrumentality and
other governmental or quasi-governmental body or office having jurisdiction,
including, without limitation, those of any Investor and any Insurer, (iv) all
other applicable judicial and administrative judgments, orders, stipulations,
awards, writs and injunctions and (v) the applicable internal written guidelines
of the Company and any Related Company, including, without limitation, the
Company's Risk Management Policy Manuals, copies of which have been provided to
Purchaser, as each may be modified or amended from time to time after the
Effective Date and before the Closing Date with the prior written approval of
the Purchasers.
"AUDITED BALANCE SHEET" has the meaning set forth in Section 4.9(a)
hereof.
"BORROWINGS" means any indebtedness of the Partnership, the Company or the
Related Companies to third parties for borrowed money.
"BUSINESS DAY" means any day which is not a Saturday, Sunday or a day on
which national banks are authorized or obligated by law or executive order to be
closed in the State of Minnesota or New York.
"BUYDOWN" means the waiver by the Company or any Related Company 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
forgiving of accrued interest or any combination of the foregoing, and that
causes the VA to pay off the remaining amount of the Indebtedness owed and
acquired in respect of the related Mortgaged Property.
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"BUYDOWN LOSS" means that portion, if any, of the indebtedness of a
borrower with respect to a Mortgage Loan waived by the Company or the Related
Company in order to effect a Buydown.
"CERTIFICATE ADMINISTRATION" means certificate administration services in
respect of Collateral Certificate Pools or Mortgage Loans including, without
limitation, one or more of the following functions (or a portion thereof): (i)
the calculation of payments due to owners of mortgage-backed securities,
asset-backed securities, participation certificates or Mortgage Loans; (ii) the
transmittal of payments related to Mortgage Loans or Collateral Certificates;
(iii) the transmittal or payment of Advances; (iv) the preparation of reports to
Investors, tax authorities or the SEC; (v) the compliance with REMIC or other
relevant requirements; and (vi) the performance of certain other administrative
functions.
"CERTIFICATE ADMINISTRATION AGREEMENT" means an agreement pursuant to
which a Related Company provides Certificate Administration (including, without
limitation, any rights to certificate administration fees).
"CERTIFICATE ADMINISTRATION PORTFOLIO" means those Mortgage Loans or
Collateral Certificates subject to Certificate Administration Agreements.
"CLAIM NOTICE" means a written notice of a claim for indemnification under
Article XI hereof.
"CLOSING" has the meaning set forth in Section 3.1(a) hereof.
"CLOSING BALANCE SHEET AND INCOME STATEMENT" has the meaning set forth in
Section 10.3(a) hereof.
"CLOSING DATE" has the meaning set forth in Section 3.1(a) hereof.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor thereto.
"COLLATERAL CERTIFICATE" means a security based on and backed by a
Mortgage Pool, which security has been pledged, granted or sold to secure or
support payments on specific asset-backed securities which are administered
pursuant to a specific Certificate Administration Agreement.
"COLLATERAL CERTIFICATE POOL" means a group of Collateral Certificates
that have been pledged, granted or sold to secure or support payments on
specific asset-backed securities which are administered pursuant to a specific
Certificate Administration Agreement.
"COLLATERAL CERTIFICATE SALE AGREEMENT" means an agreement pursuant to
which the Company or a Related Company has sold or otherwise conveyed Collateral
Certificates and with respect to which the Company or such Related Company has a
repurchase obligation in the event of a breach by it of a representation,
warranty, covenant or undertaking made or given therein.
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"COMPANY'S KNOWLEDGE" means the knowledge of the chief executive officer,
the chief operating officer, any executive vice president, any senior managing
director, the general counsel, the chief financial officer, and the
treasurer/risk manager of the Company, after due and diligent inquiry, including
after due and diligent inquiry of the officers of the Related Companies.
"COMPANY LLC AGREEMENT" means that certain Third Amended and Restated
Limited Liability Company Agreement, dated January 1, 2000, among EFS, Mortgage
Guaranty Insurance Corporation and C-BASS Holding LLC.
"COMPETING TRANSACTION" means any agreement, including without limitation,
a letter of intent, with respect to the acquisition of the Partnership, the
Company or any Related Company, including any agreement with respect to the
acquisition of EFS which precludes EFS from selling its indirectly owned
Membership Interests, whether by merger, purchase of capital interests, purchase
of their respective material assets or properties or other takeover or business
combination other than as contemplated by this Agreement, including by virtue of
any holder of Membership Interests exercising (i) any rights of first refusal
provided for in the Company LLC Agreement or (ii) any tag along sale rights
provided for in the Company LLC Agreement; provided, however, any acquisition by
the Company or the members thereof of Membership Interests in the Company
pursuant to Section 9.5 of the Company LLC Agreement, the Equity Purchase and
Exchange Agreement (as defined in the Company LLC Agreement), or with the
consent of the Purchaser as contemplated under Section 7.1(b) hereof shall not
constitute a Competing Transaction.
"CONFIDENTIALITY AGREEMENTS" means the agreement dated April 25, 2000, by
and between RFC and EFS, and the agreement dated April 25, 2000, by and between
RFC and the Company.
"CONTRACT" means any contract, mortgage, indenture, lease, franchise,
license (not to include licenses granted by any State Agency), agreement or
instrument to which a Person is a party or by which any of its assets or
properties are bound or subject.
"CONTRACT PARTY" means any Person, other than the Sellers, the
Partnership, the Company or any Related Company, that is a party to a Contract.
"CONTROL" (including the terms "Controlled by" and "under common Control
with") means the direct or indirect possession of ordinary voting power to elect
a majority of the board of directors (or comparable body) of a Person or other
power to direct or cause the direction of the management and policies of such
Person.
"CONVENTIONAL LOAN" means a Mortgage Loan, other than an FHA Loan or VA
Loan or any other loan guaranteed or insured by a government agency.
"CUSTODIAL ACCOUNT" means all funds held or controlled by a Related
Company with respect to any Mortgage Loan for the benefit of another Person or
for a specified use, including, but not limited to, all principal and interest
funds and any other funds due to Investors, buydown funds, funds for the payment
of taxes, assessments, insurance premiums, ground rents and
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similar charges, funds from hazard insurance loss drafts and other mortgage
escrow and impound amounts (including interest thereon for the benefit of
Mortgagors, if applicable).
"CUSTODIAL FILE" means, with respect to a Mortgage Loan, all of the
documents that must be maintained on file with a document custodian or trustee
under Applicable Requirements.
"DAMAGES" means any and all assessments, judgments, liabilities, losses,
costs, damages or expenses (including interest, penalties and reasonable
attorneys', accountants', consultants' or experts' fees, expenses and
disbursements in connection with an action, suit, proceeding or claim), net of
any insurance proceeds or other reimbursement, and increased in an amount equal
to any increases in premiums or other amounts due as the result of the related
claims for such insurance proceeds or other reimbursement.
"DISCLOSURE SCHEDULES" means, collectively, the Purchaser Disclosure
Schedule and the Seller Disclosure Schedule.
"EDP" means the electronic data processing servicing bureau or system used
by the Company and the Related Companies.
"EFFECTIVE DATE" has the meaning set forth in the introductory
paragraph hereof.
"EFS" has the meaning set forth in the introductory paragraph hereof.
"EMPLOYEE BENEFIT PLAN" means any (a) thrift, retirement, deferred
compensation, excess benefit, stock, stock option and incentive plan, contract,
program, fund or arrangement of any kind, (b) health, life, disability, sick
leave or other group insurance arrangement or any other material fringe benefit
plan, including but not limited to any severance, vacation, holiday, educational
assistance, dependent care assistance or scholarship program, fund or
arrangement of any kind, and (c) other plan, program or fund (including any
provided for in any employment agreement) providing money, services, property or
other benefits, previously or currently maintained, contributed to or entered
into by the Company or any Related Company or by any entity on behalf of the
Company or any Related Company or any of their employees, or with respect to
which the Company or any Related Company has any liability with respect to any
employee, beneficiary, director, officer, shareholder, consultant or independent
contractor of the Company or any Related Company.
"ENHANCE GP" has the meaning set forth in the introductory paragraph
hereof.
"ENVIRONMENTAL LAWS" has the meaning set forth in Section 4.11(b)
hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"FHA" means Federal Housing Administration or any successor thereto.
"FHA LOANS" means Mortgage Loans which are insured by FHA.
"FHLMC" means Federal Home Loan Mortgage Corporation or any successor
thereto.
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"FINANCIAL STATEMENTS" has the meaning set forth in Section 4.9 hereof.
"FNMA" means Federal National Mortgage Association (now known as "Fannie
Mae") or any successor thereto.
"FORECLOSURE" means the process culminating in the acquisition of title to
a Mortgaged Property in a foreclosure sale or by a deed in lieu of foreclosure
or pursuant to any other comparable procedure allowed under Applicable
Requirements.
"GAAP" means generally accepted accounting principles in the United States
which, unless otherwise indicated, are applied on a consistent basis.
"GNMA" means Government National Mortgage Association or any
successor thereto.
"GOVERNMENTAL AUTHORITY" means each Agency or other United States federal,
state or local governmental commission, board or other regulatory authority or
agency or similar entity in other countries in which the applicable Person
operates.
"HAZARDOUS MATERIALS" means, without limitation, gasoline, petroleum
products, explosives, radioactive materials, polychlorinated biphenyl or related
or similar materials, asbestos, or any material containing asbestos, and any
other substance or material as may be defined as a hazardous or toxic substance
by any federal or state or local environmental law, ordinance, rule, regulation,
or order, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. 9601, ET
SEQ.), the Hazardous Material Transportation Act, as amended (49 U.S.C. 1801, ET
SEQ.), the Resource Conservation and Recovery Act, as amended (42 U.S.C. 6901,
ET SEQ.), the Federal Water Pollution Control Act, as amended (33 U.S.C. 1251,
ET SEQ.), the Clean Air Act, as amended (42 U.S.C. 7401, ET SEQ.), the Clean
Water Act (13 U.S.C. 1321, ET SEQ.) and any regulations promulgated pursuant
thereto.
"HSR" means the Hart-Scott Rodino Antitrust Improvements Act of 1976, as
amended, and applicable rules and regulations.
"HUD" means United States Department of Housing and Urban Development or
any successor thereto.
"INDEBTEDNESS" of any Person means (i) all liabilities and obligations,
contingent or otherwise, of such Person (a) in respect of borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof), (b) evidenced by bonds, debentures, notes
or other similar instruments, (c) representing the deferred purchase price of
property or services (other than liabilities incurred in the ordinary course of
business which are not more than ninety (90) days past due), (d) created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or the lender under such agreement in the event of default are
limited to repossession or sale of such property), (e) as lessee under
capitalized leases, (f) under banker's acceptances and letters of credit, (g) to
purchase, redeem, retire, defease or otherwise acquire for value any capital
stock or other equity interest, or (h) in respect of hedging obligations; (ii)
all liabilities and obligations of others of the type described in clause
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(i)(a) above that are guaranteed by such Person; and (iii) all liabilities and
obligations of others of the type described in clause (i)(a) above that are
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including
without limitation accounts and contract rights) owned by such Person (provided
that the Indebtedness of this type will be deemed to be in an amount not greater
than the fair market value of the property which is or may be subject to the
Lien).
"INDEMNIFIED PURCHASER ENTITIES" has the meaning set forth in Section 11.1
hereof.
"INDEMNIFIED SELLER ENTITIES" has the meaning set forth in Section 12.1
hereof.
"INDEPENDENT ACCOUNTANT" has the meaning set forth in Section 10.1 hereof.
"INSURER" means (i) a Person who insures or guarantees all or any portion
of the risk of loss on any Mortgage Loan, including, without limitation, any
Agency and any provider of PMI, standard or special hazard insurance, flood
insurance, earthquake insurance or title insurance with respect to any Mortgage
Loan or related Mortgaged Property, (ii) a Person who provides, with respect to
a Contract or any Applicable Requirements, any fidelity bond, direct surety
bond, letter of credit, other credit enhancement instrument or errors and
omissions policy, or (iii) a provider of an insurance policy against certain
specific losses or shortfalls with respect to Collateral Certificates or
Securitization Receivables.
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 4.17(a)
hereof.
"INTERIM FINANCIAL STATEMENTS" has the meaning set forth in Section
4.9 hereof.
"INVESTOR" means FHLMC, FNMA, an investor that is not an Agency, including
Securitization Trustees, the Sellers or any Affiliate thereof, or any other
Person who owns or holds Mortgage Loans serviced or subserviced by a Related
Company pursuant to a Servicing Agreement, Master Servicing Agreement or
Certificate Administration Agreement, as applicable, or a designee of any of the
foregoing acting on behalf of any of the foregoing.
"IRS" means the Internal Revenue Service of the United States of America
or any successor agency or authority.
"LICENSES" has the meaning set forth in Section 5.6 hereof.
"LIEN" means any mortgage, pledge, security interest, claim, lien, charge
or similar encumbrance.
"LISTED AGREEMENT" means any Servicing Agreement, Collateral Certificate
Sale Agreement or Mortgage Loan Sale Agreement.
"LITIGATION" means any action, suit, claim or administrative or other
proceeding or investigation.
"MASTER SERVICING" means master servicing services in respect of Mortgage
Loans, including, without limitation, one or more of the following functions (or
a portion thereof): (i) to
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supervise and oversee the performance of Servicers of their obligations under
Servicing Agreements, and (ii) to cause Mortgage Loans to be serviced in the
event a Servicer is terminated.
"MASTER SERVICING AGREEMENT" means an agreement pursuant to which a
Related Company provides Master Servicing (including, without limitation, any
rights to Master Servicing fees).
"MATERIAL ADVERSE EFFECT" means any effect that is, or reasonably could be
expected to be, individually or together with all other related or relevant
effects, materially adverse to the business, operations, assets, financial
condition or future prospects of the Partnership, the Company, any of the
Related Companies or EFS (as applicable); PROVIDED, HOWEVER, that a downgrade in
the rating of the debt securities of EFS shall not constitute a Material Adverse
Effect with respect to EFS unless such downgrade results in such securities
being rated by two of the three nationally recognized rating agencies below the
following levels: Moody's (senior unsecured debt) Baa2; Standard & Poor's (long
term local issuer credit) BBB; Fitch (senior unsecured debt) BBB.
"MATERIAL CONTRACT" has the meaning set forth in Section 4.18 hereof.
"MEMBERSHIP INTERESTS" means the limited liability company membership
interests in the Company.
"MORTGAGE ESCROW PAYMENT" means the portion, if any, of a Mortgage Loan
Payment that, pursuant to the related Mortgage Loan Documents, must be made by a
Mortgagor for deposit in a Custodial Account for the payment of real estate
taxes and assessments, insurance premiums, ground rents and similar items.
"MORTGAGE INSTRUMENT" means, with respect to a Mortgage Loan, a mortgage,
deed of trust or other security instrument creating a lien upon real property
and any other property described therein which secures a Mortgage Note, together
with any assignment, reinstatement, extension, endorsement or modification
thereof.
"MORTGAGE LOAN" means a mortgage loan that either is a Portfolio Loan or
as to which a Related Company provides Servicing and that is included in the
Servicing Portfolio.
"MORTGAGE LOAN DOCUMENTS" means the Custodial File and all other documents
relating to Mortgage Loans required to document and service the Mortgage Loans
by Applicable Requirements, whether on hard copy, microfiche or its equivalent
or in electronic format and, to the extent required by Applicable Requirements,
credit and closing packages and disclosures.
"MORTGAGE LOAN PAYMENT" means each scheduled installment amount on a
Mortgage Loan, whether for principal, interest, escrow or other purpose,
required or permitted to be paid by the Mortgagor in accordance with the terms
of the Mortgage Loan Documents.
"MORTGAGE LOAN SALE AGREEMENT" means an agreement pursuant to which the
Company or a Related Company has sold or otherwise conveyed Mortgage Loans and
with
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respect to which the Company or such Related Company has a repurchase obligation
in the event of a breach by it of a representation, warranty, covenant or
undertaking made or given therein.
"MORTGAGE LOAN SCHEDULE" means the information provided by the Company or
the Sellers with respect to the Mortgage Loans pursuant to Section 5.1 hereof.
"MORTGAGE NOTE" means a promissory note or notes, or other evidence of
Indebtedness, with respect to a Mortgage Loan secured by a Mortgage Instrument,
together with any assignment, reinstatement, extension, endorsement or
modification thereof.
"MORTGAGE POOL" means a group of Mortgage Loans that have been pledged,
granted or sold to secure or support payments on specific mortgage-backed
securities or specific participation certificates.
"MORTGAGED PROPERTY" means the mortgaged property, consisting of a single
parcel of real property with a detached single-family residence thereon, or a
two- to four-family dwelling, a townhouse, or an individual condominium unit in
a condominium, a cooperative unit, or an individual unit in a planned unit
development, that secures a Mortgage Note and that is subject to a Mortgage
Instrument.
"MORTGAGOR" means the obligor(s) on a Mortgage Note.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA.
"ORIGINATOR" means, with respect to any Mortgage Loan, the entity or
entities that (i) took the relevant Mortgagor's loan application, (ii) processed
the relevant Mortgagor's loan application or (iii) closed and/or funded such
Mortgage Loan.
"OVERLAP PERIOD" has the meaning set forth in Section 10.3 hereof.
"PARTNERSHIP" has the meaning set forth in the recitals hereto.
"PARTNERSHIP FINANCIAL STATEMENTS" has the meaning set forth in Section
4.9(b) hereof.
"PARTNERSHIP INTERESTS" has the meaning set forth in the recitals hereto.
"PERSON" means any individual, partnership, joint venture, corporation,
limited liability entity, trust, unincorporated organization, government or
other entity.
"PMI" means the default insurance provided by private mortgage
insurance companies.
"PORTFOLIO LOAN" means a Mortgage Loan that, as of the Effective Date or
the Closing Date, is owned by the Company or a Related Company.
"PRE-CLOSING PERIODS" has the meaning set forth in Section 10.1 hereof.
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"PREVIOUSLY DISPOSED LOAN" means any Mortgage Loan that is not a Portfolio
Loan or a Serviced Loan and that was securitized or sold to any Person by the
Company or any Related Company prior to the Closing Date.
"PREVIOUSLY DISPOSED SERVICING RIGHTS" means any residential mortgage
Servicing rights that the Company or any Related Company sold to a Person prior
to the Closing Date.
"PRIOR SERVICER" means any party that was a servicer or subservicer of any
Mortgage Loan before the Company or any Related Company or the current Servicer,
as applicable, became the servicer or subservicer of the Mortgage Loan.
"PURCHASE PRICE" has the meaning set forth in Section 2.2 hereof.
"PURCHASE PRICE ADJUSTMENT AMOUNT" has the meaning set forth in Section
2.3 hereof.
"PURCHASERS" has the meaning set forth in the introductory paragraph
hereof.
"PURCHASERS' REVIEW" has the meaning set forth in Section 2.3 hereof.
"PURCHASER DISCLOSURE SCHEDULE" means the disclosure schedule delivered by
Purchasers to the Sellers on the Effective Date, and updated (other than with
respect to Section 8.2(i)(i), 8.2(i)(ii) and 11.1(d) thereof) and delivered to
the Sellers on the Closing Date.
"RATING AGENCY" means any nationally recognized statistical credit agency
that at the time of any determination thereof has outstanding a rating on one or
more classes of mortgage-backed securities or asset-backed securities at the
request of any issuer of mortgage-backed securities or asset-backed securities.
"RECOURSE" means any arrangement pursuant to which a Related Company bears
the risk of any part of the ultimate losses incurred in connection with a
default under or Foreclosure of a Mortgage Loan not owned by the Company or a
Related Company, except insofar as such risk of loss is based upon (i) a breach
by the Company or a Related Company of a contractual representation, warranty or
covenant or (ii) expenses, such as legal fees, in excess of the reimbursement
limits, if any, set forth in the Applicable Requirements.
"RELATED COMPANIES" means Litton Loan Servicing LP, NoteWorld LLC,
Wynwood, Inc., South Plains Mortgage LLC, and any Subsidiaries of the Company or
any of the foregoing.
"REMIC" means a real estate mortgage investment conduit within the meaning
of Section 860D of the Code.
"REO" means any real property owned by the Company or a Related Company.
"RETAINED LIABILITIES" has the meaning set forth in Section 11.1(d)
hereof.
"RFC" has the meaning set forth in the introductory paragraph hereof.
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"RFC SUB" has the meaning set forth in the introductory paragraph hereof.
"REVIEW DATE" has the meaning set forth in Section 2.3(b) hereof.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" has the meaning set forth in Section 4.7 hereof.
"SECURITIZATION ENTITY" means any trust, corporation, partnership or other
entity which holds Mortgage Loans in connection with a Securitization
Transaction.
"SECURITIZATION ISSUER" means any Affiliate of the Company or a Related
Company which is the issuer of the Securities or depositor of the Mortgage Loans
or Securitization Receivables in any Securitization
Transaction.
"SECURITIZATION INSTRUMENTS" has the meaning set forth in Section 5.10
hereof.
"SECURITIZATION RECEIVABLES" means REMIC residual interests and all rights
of the Partnership, the Company or the Related Companies to receive payments
(including, without limitation, assets classified as residual strips,
certificates, or interest only strips on such entities' financial statements)
under a Securitization Transaction, but excluding rights to receive payments in
respect of Servicing Compensation.
"SECURITIZATION TRANSACTION" means any transaction, however named, between
a Person and any one or more purchasers and/or Investors which provides for the
monetization of a discrete pool of mortgage loans and/or mortgage notes through
debt securities or ownership interests issued by a special purpose vehicle
supported or backed by mortgage loans and/or mortgage notes that have been
transferred to the special purpose vehicle by such Person.
"SECURITIZATION TRUSTEE" means any entity that is a trustee with regard to
any Securitization Transaction.
"SELLERS" has the meaning set forth in the introductory paragraph hereof.
"SELLER DISCLOSURE SCHEDULE" means the disclosure schedule delivered by
the Sellers to the Purchasers on the Effective Date, and updated and delivered
to the Purchasers on the Closing Date.
"SELLERS' INSURANCE POLICIES" has the meaning set forth in Section 7.9(b)
hereof.
"SELLERS' KNOWLEDGE" means the knowledge of any officer or employee of
either Seller, after due and diligent inquiry, including after due and diligent
inquiry of officers and key employees of the Company and the Related Companies.
"SERVICER" means the Person responsible for performing the servicing or
subservicing functions in connection with a Mortgage Loan in or related to the
Servicing Portfolio.
"SERVICING" means master servicing, servicing and subservicing rights and
obligations with respect to the Mortgage Loans, Securitization Receivables,
Collateral Certificates or REO, including, without limitation, one or more of
the following functions (or a portion thereof): (i)
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the administration and collection of payments for the reduction of principal
and/or the application of interest on a Mortgage Loan; (ii) the collection of
payments on account of taxes and insurance; (iii) the remittance of appropriate
portions of collected payments; (iv) the provision of full escrow
administration; (v) the pursuit of Foreclosure and alternate remedies against a
Mortgaged Property; and (vi) the administration and liquidation of REO, together
with the right to receive the Servicing Compensation and any ancillary fees
arising from or connected to the Serviced Loans, the benefit of the related
Custodial Accounts and any other related accounts maintained by the Company or
any of the Related Companies pursuant to Applicable Requirements and, in each
case, all rights, powers and privileges incident to any of the foregoing, and
expressly includes the related Custodial Accounts, the Mortgage Loan Documents
and the right to enter into arrangements with third parties that generate
ancillary fees and benefits with respect to the Serviced Loans.
"SERVICING AGREEMENT" means an agreement between an Investor and a Related
Company pursuant to which a Related Company provides the Servicing and master
services, services or subservices the Serviced Loans in the Servicing Portfolio,
including Master Servicing Agreements and Certificate
Administration Agreements.
"SERVICING COMPENSATION" means any Servicing fees and any other Servicing
compensation which the Related Companies are entitled to receive pursuant to any
Servicing Agreement.
"SERVICING PORTFOLIO" means the Mortgage Loans as to which the Company or
any of the Related Companies has Servicing responsibilities or receives
Servicing Compensation, either pursuant to a Servicing Agreement or as a result
of the ownership of the Portfolio Loans, Securitization Receivables, Collateral
Certificates or REO.
"STATE AGENCY" means any state agency or other entity with authority to
regulate the mortgage-related activities of the Company or the Related Companies
or to determine the investment or servicing requirements with regard to mortgage
loan origination, purchasing, servicing, master servicing, certificate
administration or collection activity performed by the Company or the Related
Companies.
"SUBSIDIARY" means, with respect to any entity, a corporation or other
entity of which 50% or more of the outstanding shares of stock or other equity
interests are Controlled by such entity, either directly or indirectly, through
one or more intermediaries, except for a trust or other form of passive
ownership entity that issues mortgage-backed securities in which the Company or
any Related Company has an ownership interest.
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
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"TAX RETURN" means any return, declaration, report, claim for refund, or
information return relating to Taxes, including any schedule or attachment
thereto, and including any amendment thereof.
"THIRD PARTY CONSENTS" has the meaning set forth in Section 4.4
hereof.
"TRANSFER TAXES" has the meaning set forth in Section 10.7.
"VA" means the United States Department of Veteran Affairs and any
successor thereto.
"VA LOANS" means Mortgage Loans which are guaranteed by the VA.
"VA NO BID" means a delinquent VA loan with respect to which the VA has
notified the Servicer that the VA intends to exercise its option to pay the
amount guaranteed by the VA and relinquish all rights in the Mortgaged Property
securing such VA loan to the buyer, the Company, or a Related Company, as the
case may be.
ARTICLE II
PURCHASE AND SALE OF PARTNERSHIP INTERESTS
2.1 PURCHASE AND SALE OF PARTNERSHIP INTERESTS. On the terms and subject
to the conditions of this Agreement, (a) EFS shall, at the Closing on the
Closing Date, sell, transfer, assign and deliver to RFC or its designee all of
the limited partnership interests in the Partnership, and (b) Enhance GP shall,
at the Closing on the Closing Date, sell, transfer, assign and deliver to RFC
Sub all of the general partnership interests in the Partnership, in each case
free and clear of any Liens, by execution and delivery of Assignments of
Partnership Interests substantially in the form attached hereto as EXHIBIT A.
2.2 PURCHASE PRICE. In consideration for the Partnership Interests,
Purchasers shall pay an amount equal to $100,000,000 (the "Purchase Price") less
the Purchase Price Adjustment Amount, if any, by wire transfer of immediately
available funds to such account as the Sellers shall designate in writing to RFC
at least two (2) Business Days prior to the Closing Date.
2.3 REVIEW AND PURCHASE PRICE ADJUSTMENT.
(a) The following definitions shall apply for purposes of this Section
2.3:
"CASH FLOW SECURITIES PORTFOLIO AMOUNT" means the valuation produced from
models using the total loss estimates, discount rates, and prepayment vector
estimates established pursuant to Section 2.3(e) hereof.
"CONSOLIDATED MORTGAGE RELATED ASSETS" means the assets described as
mortgage related assets on the financial statements of the Company. At
June 30, 2000, the Consolidated Mortgage Related Assets equaled
$841,325,239.
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"CONSOLIDATED MORTGAGE ASSET ACCRETION" means the interest revenue
recognized on the income statement of the Company, based on the applicable
discount rate for all Consolidated Mortgage Related Assets.
"GROSS ADJUSTMENT AMOUNT" means an amount equal to the Review Date Amount,
less the sum of (i) the Mortgage Loan and REO Amount, (ii) the Cash Flow
Securities Portfolio Amount, and (iii) the Market Spread Adjustment.
"INTERIM PERIOD" means that period of time beginning on July 1, 2000 and
ending on the Review Date.
"MARKET SPREAD ADJUSTMENT" has the meaning set forth in Section
2.3(f) hereof.
"MORTGAGE LOANS AND REO AMOUNT" has the meaning set forth in Section
2.3(g) hereof.
"MORTGAGE SECURITIES" means mortgage-backed securities (including B
pieces), participation certificates and other rights of the Company or the
Related Companies to receive payments, other than Servicing Compensation, under
Securitization Transactions, including, without limitation, assets classified as
residual strips, certificates or interest only strips on such entity's financial
statements.
"MORTGAGE SECURITIES MODEL VERIFICATION" has the meaning set forth
in Section 2.3(d) hereof.
"REVIEW DATE AMOUNT" means the Company's valuation of its assets as of
June 30, 2000, as indicated on EXHIBIT 2.3 attached hereto and updated as of the
Review Date as follows: (i) increased or decreased by an amount equal to (x) the
purchase price for all Consolidated Mortgage Related Assets acquired or created
by the Company during the Interim Period minus (y) the sale price of all
Consolidated Mortgage Related Assets sold by the Company during the Interim
Period, (ii) increased by any Consolidated Mortgage Asset Accretion attributable
to the Interim Period, (iii) reduced by any Consolidated Mortgage Related Asset
cash principal and interest payments received during the Interim Period, (iv)
increased by any hedge gains during the Interim Period, (v) reduced by any hedge
losses during the Interim Period, and (vi) increased or decreased by any net
change to the "Deferred costs-escrow and corporate advances" account and the
"Deferred transaction costs" account. The Review Date Amount shall not include
any adjustments between June 30, 2000 and the Review Date to the carrying value
of Consolidated Mortgage Related Assets to reflect unrealized impairment or
enhancement of the value of the Consolidated Mortgage Related Assets. The
Company will provide the Purchasers and their agents with schedules showing the
calculation of the Review Date Amount and will cooperate reasonably with the
Purchasers and their agents in reconciling to their satisfaction the accuracy of
the Review Date Amount.
"WORKOUT METHOD" has the meaning set forth in Section 2.3(g) hereof.
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(b) As of October 31, 2000, or September 30, 2000 if the parties
mutually agree (the "Review Date"), Purchasers shall conduct a valuation and
review (the "Purchasers' Review") of the Consolidated Mortgage Related Assets,
which shall include a determination of the Cash Flow Securities Portfolio
Amount, the Market Spread Adjustment and the Mortgage Loans and REO Amount, each
of which are components of the Gross Adjustment Amount. If the Gross Adjustment
Amount is positive, representing a decline in value of the Consolidated Mortgage
Related Assets from the Review Date Amount, then the Purchase Price shall be
reduced by an amount (the "Purchase Price Adjustment Amount") equal to 45.94% of
the Gross Adjustment Amount. The Purchase Price Adjustment Amount, however,
shall not exceed $15,000,000.
(c) The Company shall perform a review of the Consolidated Mortgage
Related Assets as of the Review Date as promptly as practicable and except as
otherwise provided in this Section 2.3 shall use principles and methodologies
utilized in the ordinary course of business and consistent with the review done
by the Company as of March 31, 2000, for the Cash Flow Securities Portfolio
Amount and as of June 30, 2000 for the Mortgage Loan and REO Amount. The purpose
of the Purchasers' Review, in part, is to duplicate and reconfirm the valuation
of certain items included in Consolidated Mortgage Related Assets determined in
the review performed by the Company. The Company shall provide reasonable
assistance and support to Purchasers and their agents in their efforts to
complete the Purchasers' Review simultaneously with completion of the Company's
review. The Company shall also reasonably assist Purchasers and their agents
prior to the Review Date in preparations that will expedite the Purchasers'
Review and the work to be completed in arriving at the Gross Adjustment Amount,
if any. In any event, the Purchasers' Review and the Company's review shall have
been completed and the Purchase Price Adjustment Amount, if any, shall be
determined prior to the Closing Date.
(d) In order to enable Purchasers to confirm calculations supporting the
component of the Review Date Amount consisting of Mortgage Securities (the
"Mortgage Securities Model Verification"), the Company will provide to
Purchasers and their agents (to the extent such items are used in its review
consistent with the last review performed), from time to time upon request of
Purchasers, with respect to each Mortgage Security that may be included in the
Review Date Amount, an estimated total loss on associated collateral (with
related nonlinear loss vectors where applicable), a combined voluntary and
involuntary prepayment vector, and a discount rate. The Company will provide
access to schedules containing the detailed calculation of each discount rate
for each Mortgage Security included as part of EXHIBIT 2.3, to the extent
relevant, to Purchasers and their agents for verification of the computations.
The Company will assist in reconciliation of all of its INTEX modeled Mortgage
Securities valuations with the INTEX modeled valuations as produced by
Purchasers' agents. With respect to any Mortgage Securities not modeled by INTEX
but instead modeled using the Company's "hand priced" model or other proprietary
models, the valuation results will be supported by actual schedules or
month-by-month model output. In the event that Purchasers and their agents are
unable to reconcile valuations produced by the Company's INTEX model, its
"hand-priced" model or other proprietary models, Purchasers may request that
such dispute be resolved by a big 5 accounting firm mutually acceptable to the
parties which shall determine which of the output of the Company's or the
Purchaser's models that are in dispute is more appropriate or whether any
proposed adjustment by Purchaser to the output of a model of the Company is
appropriate. The output of the model or the adjusted output of the model
approved by the big 5 accounting firm will be used by the Purchasers or their
agents in the determination of the Cash Flow Securities Amount for the
appropriate Mortgage Securities.
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(e) The Company will provide Purchasers and their agents with respect to
each Mortgage Security included in the Review Date Amount (to the extent such
items are used in its review consistent with the last review performed), an
estimated total loss on associated collateral (with related non-linear loss
vectors where applicable), a combined voluntary and involuntary prepayment
vector, and the discount rate that the Company used in performing its review at
the Review Date. Such discount rates shall be computed by the Company consistent
with the procedures utilized by the Company as of June 30, 2000, including the
return on equity goals set by the Company for each rating class of Mortgage
Security. Based upon such information, and such other information as Purchasers
deem relevant, Purchasers and their agents shall compute the Cash Flow
Securities Portfolio Amount. In the event the Sellers dispute the Purchasers'
determination of the Cash Flow Securities Portfolio Amount, Purchasers shall
provide the Sellers with the valuation determined by the Purchasers for each
Mortgage Security included in the determination of the Cash Flow Securities
Portfolio Amount. The Sellers may request that any disputed valuation of any
particular Mortgage Security be resolved by a mutually acceptable securities
dealer regularly dealing in the market for such securities, which shall
determine the appropriate valuation for the disputed Mortgage Security, which
valuation shall in any event be set in an amount equal to or between the
valuations proposed by the parties.
(f) Subsequent to the valuation established pursuant to subsection (e)
above, all rated (in the category of "B3" or "B-" or higher) Mortgage Securities
whose collateral is a rated security will be subject to further valuation by the
Purchasers and their agents utilizing spread and overall prepayment speed
(combined voluntary plus involuntary) assumptions with respect to such
Securities as described below. In making such further valuation, the Purchasers
and the Sellers will provide new issuance and secondary spreads for all
combinations of asset types and ratings classes and the Company will provide
overall prepayment speeds. For purposes of this analysis the Purchaser will
utilize the appropriate yield for each Mortgage Security referenced on page QY
of the Bloomberg system and inserting such yield in the appropriate place on the
yield/price table QY for such Mortgage Security. In the event there is a dispute
as to any applicable spread, either Purchasers or Sellers may request that the
disputed spread be determined by a mutually acceptable securities dealer
regularly dealing in the market for such category of security, which shall
determine the appropriate spread, but which shall in any event be set in an
amount equal to or between the spread amounts proposed by the Purchasers and
Sellers. In the event there is a dispute as to any applicable prepayment speed
or yield provided by the Bloomberg system as set forth above, the Purchasers or
Sellers may request that the disputed items be determined by a mutually
acceptable securities dealer as described above. The further valuation of the
rated Mortgage Securities under this subsection (f) shall thereupon be
calculated by Purchasers or their agents utilizing the calculator functionality
on page QY of the Bloomberg System. If the aggregate rated securities portfolio
valuation thereby established is more or less than the aggregate valuation for
such rated Mortgage Securities as calculated in the determination of the Cash
Flow Securities Portfolio Amount, such difference shall constitute the "Market
Spread Adjustment". Notwithstanding the above, Purchasers and Sellers, after
consultation with the Company, shall mutually agree to exclude or include
certain Mortgage Securities from the above calculation where, due to credit
impairment or other well understood market conditions (such as those associated
with the evaluation of non-rated securities), such exclusion or inclusion would
be appropriate.
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(g) In order to perform the review of those components of Consolidated
Mortgage Related Assets consisting of Mortgage Loans and REO, the Company will
provide Purchasers and their agents with loan level collateral information in a
format similar to that provided for prior due diligence by RFC. Purchasers will
determine a market valuation of the Mortgage Loans and REO for the following
categories of assets utilizing the specified discount rates or methodology: (i)
REO utilizing a discount rate of 13%; (ii) FHA and VA Loans utilizing a discount
rate of 9% (or 9.5%, if utilized by the Company with respect to any Mortgage
Loan); (iii) Mortgage Loans (other than as covered by subsection (ii)) that are
performing loans utilizing a the methodology set forth on EXHIBIT 2.3(G)(III)
hereto, and (iv) Mortgage Loans that are non-performing loans utilizing a
discount rate of 13%. In the event that the Sellers dispute the aggregate
valuation of any category of assets as determined by Purchaser above, the
Sellers may request that any such disputed aggregate value of an asset category
be resolved by a mutually acceptable valuation firm which shall determine the
appropriate market valuation for the disputed asset category, which shall in any
event be set in an amount equal to or between the valuations proposed by the
parties and which in the case of a dispute of a valuation covered by subsection
(iii) above shall be resolved using the methodology set forth on EXHIBIT
2.3(G)(III). In the event that the Sellers do not wish for any such disputed
aggregate value of an asset category to be resolved by a valuation firm, Sellers
may request that such dispute (other than a dispute as to the valuation covered
by subsection (iii) above) be resolved by tracking actual performance of the
assets within such disputed asset category ("Workout Method"). In such event,
the aggregate value of the disputed asset category which had been proposed by
the Purchasers shall be used for purposes of determining the Purchase Price
Adjustment Amount, if any. Thereafter, beginning with the quarterly period
ending on March 31, 2001, and for each subsequent quarterly period, if the
actual aggregate net cash proceeds from the collection or disposition of the
assets within the disputed asset category after October 31, 2000, and by the end
of such period, exceeds the value which has been used by the Purchasers in
determining the Purchase Price Adjustment Amount ("Excess Proceeds"), the
Purchasers shall within 30 days of the end of such quarterly period pay to the
Sellers, as a reduction of the Purchase Price Adjustment Amount, a sum equal to
45.94% of such Excess Proceeds, not to exceed, in any event, the Purchase Price
Adjustment Amount, if any, attributable to the disputed asset category of the
Mortgage Loans and REO Amount. The market value of the Mortgage Loans and REO as
agreed to or as finally determined pursuant to this subsection (without
reference to the Workout Method) is referred to herein as the "Mortgage Loans
and REO Amount."
(h) Purchasers and Sellers agree to consult and resolve in good faith
any dispute as to the determination or calculation of any amount under this
Section 2.3. If Purchasers and Sellers cannot resolve any such dispute, it shall
be resolved by dispute resolution procedures consistent with those otherwise
provided for in this Section 2.3. The fees of any independent firm utilized by
the parties for any dispute resolution contemplated by Section 2.3 shall be
borne half by Purchasers and half by Sellers. Purchasers and Sellers shall
indemnify the independent firm in connection its services, provided the
independent firm acts in good faith and without negligence.
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(i) Notwithstanding the foregoing provisions of this Section 2.3, the
Company shall not be obligated to provide any information described above to any
other party to this Agreement to the extent such information is not information
owned by the Company or is subject to an obligation of confidentiality of the
Company to a third party, unless the relevant third party consents to the
disclosure thereof and then only to the extent and for such purposes as set
forth in such consent; provided, however, that with respect to estimated total
losses, aggregate combined voluntary and involuntary prepayment vectors,
discount rates, and loss vectors by aggregate product type, the Company
acknowledges that it is either under no obligation to a third party regarding,
or the parties hereto have obtained the necessary third party consent to, the
disclosure of such information by the Company as contemplated by, and for the
purposes described in, this Section 2.3, and the Company shall so disclose such
information to the extent such information is used by the Company in its review
in accordance with this Section 2.3, consistent with the last review performed.
(j) The obligations of the Company under this Section 2.3 are subject to
Article XIV hereof.
ARTICLE III
CLOSING
3.1 CLOSING AND CLOSING DATE.
(a) Unless this Agreement shall have been terminated and the
transactions herein abandoned pursuant to Section 9.1, subject to the provisions
of Article VIII, the closing (the "Closing") of the purchase and sale of the
Partnership Interests shall take place at the New York City offices of
Kirkpatrick & Lockhart LLP, at 10:00 a.m., New York City time, on the day that
is two (2) days after the satisfaction or waiver of the conditions set forth in
Article VIII has occurred, or at such other place and time and on such other
date as the parties may agree. The date on which the Closing occurs is herein
called the "Closing Date." The parties hereby agree that the effective time of
Closing for all purposes shall be 11:59 p.m., New York City time, on the Closing
Date.
(b) At the Closing, the following actions shall be taken:
(i) Purchasers shall pay the Purchase Price to the Sellers
by wire transfer of immediately available funds to such account as the
Sellers shall designate in writing at least two (2) business days prior to
the Closing Date;
(ii) Sellers shall deliver to Purchasers the respective Assignments
of Partnership Interests substantially in the form attached hereto as EXHIBIT A
(including a certificate of joinder of the Partnership), together with such
other documents as Purchasers may reasonably request to evidence the transfer to
Purchasers of good and marketable title in and to the Partnership Interests,
free and clear of any and all Liens;
(iii) Sellers shall deliver to Purchasers copies of the resolutions
of their respective boards of directors, authorizing the execution of this
Agreement and the consummation of the transactions contemplated hereby, which
resolutions shall be certified by an appropriate officer of each of the Sellers
as true, complete and correct;
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(iv) Purchasers shall deliver to Sellers copies of the resolutions
of their respective boards of directors authorizing the execution of this
Agreement and the consummation of the transactions contemplated hereby, which
resolutions shall be certified by an appropriate officer of each of the
Purchasers as true, complete and correct; and
(v) Each party shall take such other actions, and shall
execute and deliver such other instruments or documents, as shall be
required under the terms of this Agreement.
ARTICLE IV
GENERAL REPRESENTATIONS AND WARRANTIES OF SELLERS AND COMPANY
Sellers, jointly and severally, make the representations and warranties
set forth below (which representations and warranties are deemed effective as of
the Effective Date and the Closing Date, except to the extent particular
representations and warranties state that they are made as of specific dates and
are not otherwise stated to be updated). Subject to Article XIV hereof, the
Company also makes such representations and warranties but only insofar as they
relate to the Company or the Related Companies (which representations and
warranties are deemed effective as of the Effective Date and the Closing Date,
except to the extent particular representations and warranties state that they
are made as of specific dates and are not otherwise stated to be updated).
4.1 ORGANIZATION.
(a) Each of the Sellers is a corporation duly organized, validly
existing and in good standing under the laws of its state of incorporation.
(b) The Partnership, the Company and each Related Company is,
respectively, a company or limited liability entity duly organized, validly
existing and, to the extent relevant under Applicable Law, in good standing
under the laws of the jurisdiction of its organization. Each of such entities
has and at all relevant times has had full power and authority to own, lease and
operate all of its properties and assets and to carry on its business as it is
now being and presently proposed to be conducted. The Partnership, the Company
and each Related Company are, and at all relevant times have been, duly
qualified to do business and in good standing in each jurisdiction in which the
nature of their business or properties makes or made such qualification and
standing necessary, except where failure to be so qualified or in good standing
could not have or would not reasonably be expected to have a Material Adverse
Effect.
4.2 AUTHORITY. Each of the Sellers and the Company has full corporate or
limited liability company power and authority to execute and deliver this
Agreement, and any documents, agreements and instruments to be executed and
delivered by it pursuant to or in connection with this Agreement and to perform
its obligations and consummate the transactions contemplated hereunder and
thereunder. The execution and delivery by each of the Sellers and the Company of
this Agreement and any documents, agreements or instruments to be executed and
delivered by it pursuant to or in connection with this Agreement, and the
consummation of the transactions and the performance of the obligations
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of each of the Sellers and the Company,
and no other corporate proceedings on the part of the Sellers or the
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Company are necessary to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly and validly executed and delivered by each
of the Sellers and the Company and constitutes a valid and legally binding
agreement of each of them, enforceable against each of them in accordance with
its terms, and the other documents, agreements and instruments to be executed
and delivered by the Sellers and the Company pursuant to this Agreement will,
when executed and delivered, be duly and validly executed by the Sellers and the
Company and constitute valid and legally binding obligations of each of them,
enforceable against each of them in accordance with their terms, except in each
case as affected by any bankruptcy, insolvency, fraudulent conveyance,
reorganization and other similar laws relating to or affecting creditors' rights
generally and general equitable principles (whether considered in a proceeding
in equity or at law).
4.3 NON-CONTRAVENTION. Except as described on Section 4.3 of the Seller
Disclosure Schedule, the execution and delivery of this Agreement and any
document, agreement or instrument to be executed pursuant to this Agreement by
the Sellers and the Company do not, and the consummation by each of the Sellers
and the Company of the transactions contemplated hereby and thereby and the
performance by each of the Sellers and the Company of the obligations which it
is obligated to perform hereunder and thereunder will not, (a) violate any
provision of the organizational documents of the Sellers, the Partnership, the
Company or any Related Company or give rise to any right, privilege, payment,
claim or other like opportunity in respect of any partner, member or shareholder
of Sellers, the Partnership, the Company or any Related Company, or (b) assuming
that all consents, authorizations, orders and approvals of, filings or
registrations with, and notices to, each Governmental Authority listed in
Sections 4.4 and 5.6 of the Seller Disclosure Schedule and all Third Party
Consents listed in Sections 4.4 and 5.6 of the Seller Disclosure Schedule have
been obtained or made, (i) violate any Applicable Law, or (ii) violate, result
in the termination or the acceleration (or a right of termination or
acceleration) of, or conflict with or constitute a default (or an event which,
with notice or lapse of time, or both, would constitute a default) under, any
Material Contract to which the Sellers, the Partnership, the Company or any
Related Company is a party or by which any of their respective assets or
properties are bound or affected.
4.4 CONSENTS, APPROVALS AND NOTICES. Except as described in Section 4.4
or 5.6 of the Seller Disclosure Schedule, no consent, authorization, approval,
waiver, order, license, certificate or permit or act of or from, or notice to,
any Governmental Authority or private party, any Rating Agency, any party to any
Contract to which the Sellers, the Partnership, the Company or any Related
Company is a party or by which any of their respective assets or properties are
bound or affected, or any other Person (collectively, "Third Party Consents"),
is required for (i) the execution and delivery of this Agreement or of any
document, agreement or instrument required to be executed pursuant to or in
connection with this Agreement by the Sellers, the Partnership, the Company or
any Related Company and (ii) the consummation by the Sellers and the Company of
the transactions contemplated hereby and thereby.
4.5 TITLE TO PARTNERSHIP INTERESTS. The sale and delivery to Purchasers
of the Partnership Interests pursuant to the provisions of this Agreement will
transfer to Purchasers good and marketable title thereto, free and clear of any
adverse claims or Liens with respect thereto.
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4.6 PARTNERSHIP ACTIVITIES. Since the Sellers' acquisition of the
Partnership Interests and, to the best of the Sellers' Knowledge, since the
formation of the predecessor entities, the Partnership has not conducted any
activities other than ownership of Securitization Receivables, its Membership
Interests in the Company and "cleanup" call rights, and activities incident
thereto, including its exercise of rights as a holder of Securitization
Receivables (including exercise of "cleanup" call rights and purchases of loans
and other assets pursuant thereto and the sale of the loans and assets so
purchased).
4.7 SECURITIES LAWS. The Partnership Interests were acquired by the
Sellers and the Partnership's Membership Interests were acquired by the Sellers
and the Partnership, respectively, in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and applicable state securities laws. Neither of the Sellers, nor the
Partnership, nor any person acting on their behalf, has offered or sold the
Partnership Interests or the Membership Interests by means of any general
solicitation or general advertising within the meaning of Rule 502(c) under the
Securities Act. The offer and sale of the Partnership Interests in the manner
contemplated herein are transactions that do not require registration under the
Securities Act.
4.8 OWNERSHIP OF PARTNERSHIP INTERESTS; CAPITALIZATION OF THE
COMPANY AND RELATED COMPANIES; EXISTING OPTIONS.
(a) The Sellers together own all of the Partnership Interests of
the Partnership, free and clear of all Liens.
(b) The Company's authorized capital Membership Interests consists of an
unlimited amount of Membership Interests. Section 4.8(b) of the Seller
Disclosure Schedule sets forth (i) the Membership Interests that are issued and
outstanding and the ownership thereof, all of which are validly issued and fully
paid subject to the obligations described in Section 4.8(b) of the Seller
Disclosure Schedule, and not subject to preemptive rights; (ii) the number of
Membership Interests reacquired by the Company and not cancelled or retired; and
(iii) the number of options or other rights outstanding to purchase or acquire
Membership Interests (the "Options"). 45.94% of the issued and outstanding
Membership Interests is owned beneficially and of record by the Partnership,
free and clear of any Liens. Except as set forth in Section 4.8(b) of the Seller
Disclosure Schedule, no holder of any Membership Interests has been required to
make any additional capital contributions to the Company which have not been
made.
(c) Except as set forth in Section 4.8(c) of the Seller Disclosure
Schedule, there are no outstanding obligations, subscriptions, warrants, calls,
redemptive rights, options or other rights of any character calling for the
purchase from the Sellers, the Partnership, the Company, or any Related Company,
or other contracts or commitments of any of these Persons providing for the
issuance of, or the granting of rights to acquire, any partnership or equity
interest in the Partnership, the Company or any Related Company, or any rights,
securities or other instruments convertible into or exchangeable for any
partnership or equity interest in the Partnership, the Company or any Related
Company other than those (i) contemplated by this Agreement or (ii) created by
Purchasers or any of their Affiliates. There are no voting trusts, proxies or
other agreements or understandings with respect to the voting of the Partnership
Interests, the Membership Interests or any partnership or equity interest in any
Related Company.
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(d) The Partnership, the Company and the Related Companies do not own or
have any option to acquire, directly or indirectly, any equity interest in any
Person, other than ownership of trusts or other forms of passive ownership
entities that issue mortgage-backed securities, and except as set forth in
Section 4.8(d) of the Seller Disclosure Schedule.
(e) The Related Companies are listed on Section 4.8(e) of the Seller
Disclosure Schedule and have the authorized and outstanding capitalization as
stated therein. The Company owns, directly or through one of its Subsidiaries,
all of the issued and outstanding partnership or equity interests of the Related
Companies, free and clear of all Liens, contracts, rights, options and
assignments whatsoever, and all of such partnership or equity interests are duly
authorized, validly issued, fully paid, non-assessable and free of preemptive
rights.
(f) All officers, directors or managers of the Company and the Related
Companies are listed on Section 4.8(f) of the Seller Disclosure Schedule along
with a designation of which persons have been designated or appointed directly
or indirectly by Sellers.
4.9 FINANCIAL STATEMENTS; RECORDS.
(a) Set forth in Section 4.9(a) of the Seller Disclosure Schedule are
the following financial statements (collectively, the "Financial Statements"):
(i) consolidated audited balance sheets as of DECEMBER 31, 1999 (the "Audited
Balance Sheet"), and DECEMBER 31, 1998, and the related audited statements of
operations, changes in equity and cash flows for the years then ended for the
Company and the Related Companies, and (ii) consolidated unaudited balance
sheets as of June 30, 2000, and the related unaudited statements of operations
and changes in equity for the six (6) months then ended for the Company and the
Related Companies ("Interim Financial Statements"). Except as otherwise
indicated in Section 4.9(a) of the Seller Disclosure Schedule, the Financial
Statements were prepared, and reflect the consolidated assets and liabilities
and results of operations of the Company and the Related Companies, in
accordance with GAAP, applied on a consistent basis throughout the periods
covered by such statements, and fairly present the financial position of the
Company and the Related Companies as of the dates thereof and the results of the
Company's and the Related Companies' operations for the periods then ended
(subject, in the case of any unaudited statements, to audit adjustments which
are normal in nature and not material in amount, and to the absence of footnotes
which are required by GAAP). All changes in accounting methods reflected in the
Financial Statements and all adjustments resulting from such changes were made
in accordance with GAAP.
(b) Set forth in Section 4.9(b) of the Seller Disclosure Schedule are
the unaudited June 30, 2000 financial statements of the Partnership
("Partnership Financial Statements"). Except as otherwise indicated in Section
4.9(b) of the Seller Disclosure Schedule, such financial statements were
prepared, and reflect the assets and liabilities and results of operations of
the Partnership, in accordance with GAAP, applied on a consistent basis
throughout the period covered by such statements, and fairly present the
financial position of the Partnership as of the date thereof and the results of
the Partnership's operations for the period then ended (subject to audit
adjustments which are normal in nature and not material in amount, and to the
absence of footnotes which are required by GAAP). All changes in accounting
methods reflected in the Partnership Financial Statements and all adjustments
resulting from such changes were made in accordance with GAAP.
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(c) Each of the Partnership, the Company and the Related Companies
maintain books and records which accurately reflect in all material respects
transactions in reasonable detail, and maintain accounting controls, policies
and procedures sufficient to ensure that such transactions are (i) executed in
accordance with its management's general or specific authorization, as
applicable, and (ii) recorded 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 accordance with prudent business practices and
applicable regulatory requirements. The books and records of the Partnership,
the Company and the Related Companies reflect only actual transactions.
4.10 LITIGATION.
(a) Except as set forth in Section 4.10 or 4.17(b) of the Seller
Disclosure Schedule, there is no Litigation pending or, to the best of the
Sellers' Knowledge or the Company's Knowledge, threatened before any court,
arbitrator or Governmental Authority against the Partnership, the Company or any
Related Company, which seeks (or based on the claimed violations could seek)
Damages in excess of $100,000 or claims that any of such entities' ordinary
business practices violate in any material respect any Applicable Laws. There is
no material investigation, examination or review pending with respect to the
Partnership, the Company or any Related Company by any Governmental Authority,
other than review of license applications which have been filed or will be filed
by the Company or the Related Companies with State Agencies. Section 4.10 of the
Seller Disclosure Schedule lists all orders, judgments, injunctions and decrees
applicable to the Partnership, the Company or any Related Company and none of
such entities is in violation of any such order, judgment, injunction or decree
applicable to it.
(b) None of the Partnership, the Company or any Related Company is
subject to any cease-and-desist or other order issued by, or is a party to any
agreement or memorandum of understanding with, or is a party to any commitment
letter or similar undertaking to, or is subject to any order or directive (other
than orders or directives of general application applicable to all companies
engaged in particular types of businesses) by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any board resolutions at
the request of, any Agency or other Governmental Authority that restricts the
conduct of its business or that in any manner relates to its capital adequacy,
its credit policies, its management or its business, nor has any such entity
been advised by any Agency or other Governmental Authority that it is
considering issuing or requesting any of the foregoing.
4.11 COMPLIANCE WITH LAWS.
(a) Except as set forth in Sections 4.11(a), 5.5 or 5.6 of the Seller
Disclosure Schedule, the operations of the Partnership, the Company and the
Related Companies and any joint ventures, strategic alliances, preferred partner
or similar arrangements in which they participate are being conducted in
compliance with all Applicable Laws and Applicable Requirements.
(b) Each of the Partnership, the Company and the Related Companies are,
and have been, in compliance with all applicable federal, state and local laws,
including common law, regulations and ordinances, and with all applicable
decrees and orders, relating to pollution or the discharge of or exposure to
Hazardous Materials in the environment or workplace ("Environmental Laws").
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(c) There is no suit, claim, action or proceeding pending or, to the
best of the Sellers' Knowledge or the Company's Knowledge, threatened, before
any Governmental Authority or other forum in which the Partnership, the Company
or any Related Company has been or, with respect to threatened proceedings, may
reasonably be expected to be, named as a defendant (i) for alleged noncompliance
(including by any predecessor) with Environmental Laws, or (ii) relating to the
release into the environment of any Hazardous Material whether or not occurring
at or on a site owned, leased or operated by the Partnership, the Company or any
Related Company.
(d) To the best of the Sellers' Knowledge and the Company's Knowledge,
there is no reasonable basis for any suit, claim, action or proceeding as
described in Section 4.11(c) hereof.
4.12 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the
Financial Statements, in the Partnership Financial Statements, or in public
reports filed by EFS with the SEC prior to Effective Date, since December 31,
1999, nothing has occurred which has had a Material Adverse Effect upon EFS, the
Partnership, the Company or any Related Company. Since December 31, 1999, except
as set forth in Section 4.12 of the Seller Disclosure Schedule or as expressly
permitted by this Agreement, the Partnership, the Company and the Related
Companies have operated their respective businesses only in the ordinary course
and consistent with past practice and there has not been:
(a) any material change by any of such entities in accounting methods,
principles or practices, or valuation assumptions with respect to their
financial assets (including, but not limited to, assumptions regarding
pre-payment speeds, loss curves, loss severity, and similar matters), except as
required by Applicable Law or by changes in GAAP;
(b) except in the ordinary course of business consistent with past
practice, any entry by any of such entities into any material contract,
transaction or commitment, including any loan, lease, purchase or sale of
assets, incurrence of Indebtedness or any commitment therefor;
(c) any material loss, damage, destruction or any other casualty to any
of the properties of any of such entities, other than REO, whether or not
covered by insurance (it being understood that material loss, damage,
destruction or any other casualty to property subject to Mortgage Instruments in
favor of the Company, and to property subject to Mortgage Instruments in favor
of the Partnership as a result of the Partnership's exercise of its, shall not
be encompassed by this representation);
(d) any capital expenditure by any of such entities not in the
ordinary course of business;
(e) the declaration or payment of any dividend or other distribution (in
kind or otherwise) on, or any recapitalization, combination or subdivision with
respect to, or any purchase or redemption of, any of the partnership or equity
interests of any of such entities;
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(f) any increase in the salaries or other compensation or employee
benefits with respect to any employees of any of such entities other than normal
increases in the ordinary course of business consistent with past practices;
(g) any write-off by or in respect of any of such entities as
uncollectible of any note or account receivable, except write-offs in the
ordinary course of business consistent with past practice;
(h) any agreement by any of such entities to do any of the
foregoing; or
(i) an adverse determination or downgrading of any credit rating of the
Company or any Related Company by any Rating Agency.
4.13 TAXES.
(a) On a timely basis, the Partnership, the Company and each Related
Company have filed or caused to be filed, or will file or cause to be filed on
or prior to the Closing Date, all Tax Returns which are required to be filed by,
or with respect to such entities on or prior to the Closing Date (taking into
account any properly granted extensions of time to file any Tax Return). All
such Tax Returns were and will be true, complete and correct in all material
respects. Except as set forth in Section 4.13(a) of the Seller Disclosure
Schedule, all Taxes due and payable by such entities, with respect to taxable
years or other taxable periods ending on or prior to the Closing Date have been,
or on or prior to the Closing Date will be, paid or adequately disclosed in
writing to Purchasers and fully provided for as a continuing liability of the
Sellers or the Company except to the extent of items which may be disputed by
applicable taxing authorities, but for which there is substantial authority to
support the position taken by the taxpayer or which have been adequately
reserved against on the Financial Statements in accordance with GAAP. Except as
set forth in Section 4.13(a) of the Seller Disclosure Schedule, to the best of
the Sellers' Knowledge and the Company's Knowledge, (i) there are no waivers in
effect of the applicable statutory period of limitation for Taxes of the
Partnership, the Company or the Related Companies for any taxable period, (ii)
no audit of any Tax Return of the Partnership, the Company or any Related
Company is being conducted by any governmental agency, and (iii) no deficiency
assessment or proposed adjustment with respect to any Tax liability of such
entities for any taxable period is pending or threatened.
(b) There are no Liens for Taxes upon any of the assets of the
Partnership, the Company or any Related Company, except for Liens for Taxes not
yet due and payable, and except for Liens for Taxes on REO (it being understood
that Liens for Taxes on property subject to Mortgage Instruments in favor of the
Company, and Liens for Taxes on property subject to Mortgage Instruments in
favor of the Partnership as a result of the Partnership's exercise of its
"cleanup" call rights, shall not be encompassed by this representation).
(c) The Partnership, the Company and Related Companies have withheld and
paid or accrued all Taxes required to have been withheld and paid or accrued in
connection with amounts paid or owing to any employee, creditor, independent
contractor or other Person, except for such Taxes accruing in the ordinary
course of business and not yet due.
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(d) None of the Partnership, the Company or any Related Company is a
party to any tax election that could reasonably be expected to have a material
adverse ongoing effect on the any of such entities.
(e) None of the Partnership, the Company or any Related Company is bound
by or is a party to any Tax sharing, Tax indemnity, or any similar agreement
related to Taxes.
(f) None of the Partnership, the Company or any Related Company has
entered into any agreements that would result in the disallowance or limitation
of any Tax deductions pursuant to Section 280G of the Code.
(g) At December 31, 1999, the aggregate tax basis of the Sellers in the
Partnership Interests and the aggregate tax basis of the Partnership in the
Securitization Receivables held at such date is accurately reflected in Section
4.13(g) of the Seller Disclosure Schedule.
(h) At December 31, 1999, the capital account and Membership Interests
of each Member of the Company and the tax basis of the Partnership in its
Membership Interests is accurately reflected in Section 4.13(h) of the Seller
Disclosure Schedule.
(i) No election under Section 754 of the Code has been made by the
Partnership or any predecessor partnership, or will be made by the Partnership
in any Tax Return filed before the Closing Date or otherwise prepared under the
direction of the Sellers.
4.14 EMPLOYEE BENEFITS.
(a) Set forth on Section 4.14(a) of the Seller Disclosure Schedule is an
accurate and complete list of each Employee Benefit Plan (i) to which the
Partnership, the Company or any Related Company contributes or is a party or by
which any such entities is bound or under which any of such entities may have
liability and (ii) under which any of such entities (or their beneficiaries) are
eligible to participate or derive a benefit, other than any incidental or DE
MINIMIS employee benefit which the Company or a Related Company is not required
to maintain. With respect to each of the Employee Benefit Plans, the Sellers
have delivered to Purchasers true and complete copies of each of the following
documents: a copy of the Employee Benefit Plan (including all amendments
thereto); a copy of the audited annual report, if required under ERISA, with
respect to each such Employee Benefit Plan for the last three (3) years; a copy
of the actuarial report, if required under ERISA, with respect to each such
Employee Benefit Plan for the last three (3) years; if the Employee Benefit Plan
is funded through a trust or any other funding vehicle, a copy of the trust or
other funding agreement and the latest financial statements thereof; the most
recent determination letter received from the IRS with respect to each Employee
Benefit Plan that is intended to be qualified under Section 401 of the Code.
None of the Partnership, the Company or any Related Company is in breach of any
Employee Benefit Plan in any material respect, and each Employee Benefit Plan is
in compliance with all Applicable Laws and has been administered and operated in
accordance with its terms. Section 4.14(a) of the Seller Disclosure Schedule
accurately indicates whether the Employee Benefit Plans are intended to be
qualified under the Code and whether such Plans are funded or unfunded.
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(b) (i) All contributions (including all employer contributions and
employee salary reduction contributions) to any Employee Benefit Plan required
to be paid or accrued by the Partnership, the Company or any Related Company
prior to June 30, 2000 have been paid or are properly accrued and reflected on
the balance sheet at that date included in the Interim Financial Statements or
the Partnership Financial Statements.
(ii) The Audited Balance Sheet or the Partnership Financial
Statements adequately reflect to the extent required by GAAP, all liabilities of
the Partnership and the Company and the Related Companies with respect to the
Employee Benefit Plans.
(iii) The Partnership, the Company and the Related Companies have
complied with and performed all material obligations and responsibilities
arising under ERISA, the Code or otherwise by Applicable Law that are required
to be complied with and performed by such entities under or in connection with
the Employee Benefit Plans.
(iv) No liability under Title IV of ERISA has been incurred by the
Partnership, the Company or any Related Company since the effective date of
ERISA that has not been satisfied in full, and no condition exists that presents
a risk to any of such entities of incurring liability for premiums due to the
Pension Benefit Guaranty Corporation.
(v) Each Employee Benefit Plan that is intended to be "qualified"
within the meaning of Section 401(a) of the Code has received a favorable
determination letter from the IRS or is the subject of a pending application for
a determination letter and, to the best of the Sellers' Knowledge and the
Company's Knowledge, no event has occurred and no condition exists which could
reasonably be expected to result in the revocation of any such determination.
(vi) No Employee Benefit Plan subject to Title IV of ERISA has been
terminated or is or has been the subject of termination proceedings pursuant to
Title IV of ERISA.
(vii) None of the Partnership, the Company or any Related Company
has engaged in any transaction in connection with any Plan that could reasonably
be expected to result in the imposition of a penalty pursuant to Section 502(i)
of ERISA, damages pursuant to Section 409 of ERISA or Tax pursuant to Section
4975(a) of the Code.
(viii) No liability, claim, action or litigation has been incurred,
made, commenced or, to the best of the Sellers' Knowledge or the Company's
Knowledge, threatened with respect to any Employee Benefit Plan involving any
employees of the Partnership, the Company or any Related Company, other than
routine claims for benefits.
(ix) With respect to any Employee Benefit Plan which is subject to
Title IV of ERISA, as of the most recent actuarial valuation prepared for such
Employee Benefit Plan, the aggregate present value of the accrued liabilities
thereof did not exceed the aggregate fair market value of the assets allocable
thereto.
(x) No Employee Benefit Plan is a Multiemployer Plan.
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(xi) No "leased employee," as that term is defined in Section 414(n)
of the Code, performs services for the Partnership, the Company or any Related
Company.
(xii) Except as set forth in Section 4.14(b)(xii) of the Seller
Disclosure Schedule, no Employee Benefit Plan provides benefits, including,
without limitation, death or medical benefits (whether or not insured), with
respect to current or former employees of the Partnership, the Company or any
Related Company beyond their retirement or other termination of service (other
than (i) coverage mandated by Applicable Law, (ii) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of the Partnership, the Company or any Related Company, (iv) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary) or (v) as required under employment agreements in effect on January
1, 2000, which have been disclosed on Section 4.14(b)(xii) of the Seller
Disclosure Schedule).
(xiii) Except as set forth in Section 4.14(b)(xiii) of the Seller
Disclosure Schedule, the consummation of the transactions contemplated by this
Agreement will not, by themselves (i) entitle any current or former employee or
officer of the Partnership, the Company or any Related Company or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment,
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer, or (ii) without giving effect to
the investments of any pension plans of Purchasers or any pension plan in which
Purchaser's employees may participate, result in any prohibited transaction
described in Section 406 of ERISA or Section 4975 of the Code for which an
exemption is not available.
4.15 PROPERTY.
(a) Except as set forth in Section 4.15 of the Seller Disclosure Schedule,
the Partnership, the Company and the Related Companies (i) have good and
marketable title, free and clear of all Liens, to their respective properties
and assets, real and personal, tangible and intangible, which are reflected on
the statements of financial condition of such entities on the Interim Financial
Statements or the Partnership Financial Statements or acquired after June 30,
2000, other than for (A) mechanic's or other like liens arising or incurred in
the ordinary course of business; (B) Liens for Taxes, assessments and other
governmental charges which are not due and payable; (C) Liens for Taxes on REO
(D) other imperfections in title or encumbrances, if any, which, when combined
with the Liens in clauses (A), (B) (C) and (E), do not materially impair the use
of the properties or assets based upon their present use; and (E) Liens set
forth on Section 4.15 of the Seller Disclosure Schedule (it being understood
that Liens on property subject to Mortgage Instruments in favor of the Company,
and Liens on property subject to Mortgage Instruments in favor of the
Partnership as a result of the Partnership's exercise of its "cleanup" call
rights, shall not be encompassed by the representation in Section 4.15(a)(i));
and (ii) have the right to occupy, use, possess and control all property
presently leased as presently occupied, used, possessed or controlled. With
respect to all leases and subleases of the Partnership, the Company and the
Related Companies, all rents and other amounts due thereunder have been paid and
no such entity is in default under any material term thereof. To the best of the
Sellers' Knowledge and the Company's Knowledge, no other party to any such lease
or sublease has breached or is in default thereof.
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(b) The Partnership, the Company and Related Companies will be entitled to
continue to use unimpaired after the Closing Date (to the extent such use by
such entities is unimpaired as of the Closing Date) all property which is
material to the assets, liabilities, business, results of operations or
financial condition of such entities, except as set forth in Seller's Disclosure
Schedule. Except to the extent adequate reserves have been or will be set aside
on the books and records of the Partnership, the Company and Related Companies
in accordance with GAAP consistently applied, all material tangible personal
property of such entities is in good condition, ordinary wear and tear excepted.
4.16 INSURANCE. Section 4.16 of the Seller Disclosure Schedule lists all
policies of insurance relating to the business or operation of the Partnership,
the Company or Related Companies in effect as of the date of the Agreement
(other than title insurance policies or insurance policies relating exclusively
to Mortgage Loans or other loans owned or serviced by the Related Companies),
which policies name the Partnership, the Company or the applicable Related
Company as an insured party thereunder. As of the Effective Date, all such
policies are in full force and effect, all premiums due thereon have been paid,
and the Partnership, the Company or the Related Companies, as applicable, have
complied in all material respects with the provisions thereof. The insurance
coverages the Related Companies maintain with respect to the Servicing Portfolio
satisfy all material Agency and Investor requirements and comply with Applicable
Law and Applicable Requirements.
4.17 INTELLECTUAL PROPERTY.
(a) The Partnership, the Company and Related Companies have the right to
use (i) all foreign and domestic patents and patent applications, (ii) all
copyright registrations and copyright applications, trademark registrations,
trademark registration applications, service mark registrations, service mark
registration applications and trade names, (iii) all material unregistered
copyrights, trademarks, and service marks, and (iv) all material computer
software and proprietary information, in each case which is owned by the
Partnership, the Company, a Related Company or an Affiliate thereof and used by
any such entity (collectively, the "Intellectual Property"), free and clear of
all Liens and licenses to third parties. Section 4.17 of the Seller Disclosure
Schedule lists (i) all Intellectual Property owned by the Partnership, the
Company or any of the Related Companies that is the subject of a registration or
application or constitutes material unregistered copyrights, trademarks or
service marks or constitutes material software or proprietary information and
(ii) all license agreements to which the Partnership, the Company or any Related
Company is a party or by which any of them is bound relating to Intellectual
Property, whether the Partnership, the Company or Related Company is the
licensee or licensor thereunder (the "Scheduled Intellectual Property"), other
than licenses related to off-the-shelf computer software, or software which is
generally commercially available and for which either the purchase price or
annual license fee is less than $50,000, used by one or more of those entities.
The registrations included in the Scheduled Intellectual Property are valid and
subsisting, and to the Sellers' Knowledge and the Company's Knowledge all other
Intellectual Property owned by or used by the Partnership, the Company or
Related Companies is valid and enforceable.
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(b) Unless otherwise indicated in Section 4.17 of the Seller Disclosure
Schedule, (i) there are no existing or, to the best of the Sellers' Knowledge or
the Company's Knowledge, threatened claims by any third party based on the use
by, or challenging the ownership of, the Partnership, the Company or any Related
Company or the validity of any Intellectual Property, or any claims challenging
any rights of the Partnership, the Company or any Related Company under the
license agreements listed in Section 4.17 of the Seller Disclosure Schedule;
(ii) to the best of the Sellers' Knowledge and the Company's Knowledge, (1) none
of the Intellectual Property infringes upon any intellectual property or
intellectual property rights of others, (2) none of the Intellectual Property is
being infringed by others in any material respect and (3) none of the material
rights of Partnership, the Company or any Related Company under the license
agreements listed in Section 4.17 of the Seller Disclosure Schedule is being
violated in any material respect; (iii) the Partnership, the Company and the
Related Companies own all right, title and interest in the Intellectual
Property; and (iv) to the best of the Sellers' Knowledge and the Company's
Knowledge, none of the Partnership, the Company or any Related Company has
received any oral or written claim or demand from any Person pertaining to or
challenging the right of any of such entities to use any Intellectual Property,
and no Litigation has been instituted, is pending or, to the best of the
Sellers' Knowledge or the Company's Knowledge, is threatened which challenges
such rights.
(c) There are no settlements, consents, judgments, injunctions, decrees or
orders to which the Partnership, the Company or any Related Company is a party
which restrict the Partnership, the Company or any Related Company's rights to
use any Intellectual Property. The consummation of the transactions contemplated
by this Agreement will not result in the loss or impairment of the Partnership,
the Company or any Related Company's rights to own or use any of the
Intellectual Property nor require the consent of any government agency or third
party to their continued use of the Intellectual Property.
(d) Any and all software, computer applications and computer hardware used
by the Partnership, the Company or any Related Company in the operation of its
business (including, without limitation, any EDP software) currently properly
calculates all date-related information and data before, during and after the
year 2000 without error or degradation of processing capabilities.
4.18 MATERIAL CONTRACTS. Section 4.18 of the Seller Disclosure Schedule is
a complete and accurate list of all Contracts to which the Partnership, the
Company or any Related Company is a party on the date hereof (which such Section
of the Seller Disclosure Schedule will be updated as of the Closing Date), and
with respect to which any party has not completed performance thereunder (with
"completed performance" meaning, in the case of a Contract for the purchase or
sale of Mortgage Loans, Collateral Certificates, Securitization Receivables or
Servicing, that the assets being purchased or sold have been delivered and the
purchase price therefor paid), which fall within any of the following categories
(each a "Material Contract"):
(i) any Contract (including the lease of personal property from or
to third parties) providing for payments in excess of $250,000 for the remaining
term of the Contract, which Contract is not terminable at will by the
Partnership, the Company or any Related Company, both without cost or other
liability in excess of $25,000 to the Partnership, the Company or Related
Company and upon notice of ninety (90) days or less;
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(ii) any Contract in which the Partnership, the Company or any
Related Company is participating as a general partner, member, joint venturer,
as a preferred party, part of a strategic alliance, or which otherwise involves
a sharing of profits or revenues (which shall not include Contracts related to
the Company's or Related Companies' ownership interests in a trust or other form
of passive ownership entity that issues mortgage-backed securities to which the
Company or a Related Company is not a party);
(iii) any Contract which will survive the Closing under which the
Partnership, the Company or any Related Company has created, incurred, assumed,
or guaranteed (or may create, incur, assume, or guarantee) Indebtedness for
borrowed money (including capitalized lease obligations), other than Recourse in
connection with the sale in the ordinary course of business of Mortgage Loans or
obligations under Servicing Agreements entered into in the ordinary course of
business, disclosed pursuant to Section 5.4;
(iv) any Contract pursuant to which the Partnership, the Company or
any Related Company leases real property;
(v) any Contract prohibiting or materially restricting the
Partnership, the Company, or any Related Company from competing in any business;
(vi) any Contract between the Sellers or any of their Affiliates
(other than the Partnership, the Company or any Related Company), on the one
hand, and the Partnership, the Company or any Related Company on the other hand;
(vii) any Contract between the Partnership, the Company or any
Related Company, on the one hand, and any Affiliate, officer, director or equity
holder of the Partnership, the Company or any Related Company or any Affiliate
of any such officer, director or equity holder, on the other hand;
(viii) any Contract between any Related Company and an insurance
company which has authorized the Related Company to act as such insurance
company's representative in the sale, placement, writing or administration of
insurance;
(ix) any Contract with any Person providing for the payment of fees
or other compensation to such Person in excess of $100,000 per annum or $200,000
for the remaining term of such Contract and which is not terminable at will by
the Partnership, the Company or any Related Company, both without cost or other
liability in excess of $50,000 to the Partnership, the Company or Related
Company and upon notice of ninety (90) days or less;
(x) each Contract with respect to the employment of any present or
former directors, officers, employees or consultants with continuing payment
obligations, other than those terminable within thirty (30) days without
payment.
(xi) each Contract which, upon the occurrence of any one or more
specified acts or events (including without limitation, the consummation of the
transactions contemplated by this Agreement or the termination of the employment
of any person, or both), will result in any payment (whether of severance pay or
otherwise) in excess of $50,000 becoming due from the Partnership, the Company
or any Related Company to any present or former director, officer, employee or
consultant thereof;
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(xii) each Contract any of the benefits of which, automatically or
at the option of a Contract Party, will be increased, or the vesting of the
benefits of which, automatically or at the option of a Contract Party, will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(xiii) any Contract providing for the purchase or sale, on or after
the Effective Date, of Servicing rights associated with Mortgage Loans with an
aggregate principal balance in excess of $10,000,000 on a bulk or flow basis
other than any such Contract providing for such purchase or sale at the option
of the Partnership, the Company or any Related Company, provided that any
Contract excludable pursuant to this subsection need not be disclosed pursuant
to any other subsection of this Section 4.18;
(xiv) any Contract to purchase or sell Mortgage Loans, Collateral
Certificates, or Securitization Receivables from, to, or with the Partnership,
the Company or any Related Company for a total purchase or sale price in excess
of $10,000,000, other than at the option of the Partnership, the Company or the
Related Company, provided that any Contract excludable pursuant to this
subsection need not be disclosed pursuant to any other subsection of this
Section 4.18;
(xv) any Contract to sell Mortgage Loans or Collateral Certificates
for more than $10,000,000 that include terms that may result in a requirement or
obligation on the part of the Company or a Related Company to repurchase a
Mortgage Loan due to regulatory non-compliance, failure to timely provide
required trailing documents to the counterparty thereof or breach of the
representations and warranties with respect to such Mortgage Loans or Collateral
Certificates, provided that any Contract excludable pursuant to this subsection
need not be disclosed pursuant to any other subsection of this Section 4.18; and
(xvi) any Contract that, in the reasonable judgment of the Sellers
or the Company, is otherwise material to the business of the Partnership, the
Company or Related Companies.
With respect to each such Contract described in the subsections
immediately above, except as set forth in the Seller Disclosure Schedule, (i)
each is a valid and binding obligation of the Partnership, the Company or the
applicable Related Company and, to the best of the Sellers' Knowledge and the
Company's Knowledge, of the applicable Contract Party or Parties, (ii) the
Partnership, the Company or the applicable Related Company is not in breach or
default thereof and, to the best of the Sellers' Knowledge and the Company's
Knowledge, no event has occurred which would, with notice or the passage of time
or both, constitute a breach or default by the Partnership, the Company or
applicable Related Company, permit termination, modification or acceleration
against the Partnership, the Company or the applicable Related Company
thereunder, give any Contract Party the right to prevent the Partnership, the
Company or the applicable Related Company from performing its obligations
hereunder or result in a Lien upon any of the assets of the Partnership, the
Company or any Related Company, (iii) neither the
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Partnership, the Company or any Related Company, nor any Contract Party thereto,
has repudiated or waived (other than waivers by Contract Parties which benefit
the Partnership, the Company or the applicable Related Company) any material
provision thereof, (iv) all amounts due and payable by the Partnership, the
Company, or the applicable Related Company through the Closing Date pursuant
thereto have been or will be paid other than amounts incurred in the ordinary
course and not yet paid consistent with past practice and (v) to the best of the
Sellers' Knowledge and the Company's Knowledge, no Contract Party thereto is in
breach or default thereunder and no event has occurred which, with notice or the
passage of time or both, would constitute a breach or default by such Contract
Party, or would permit termination, modification or acceleration against such
Contract Party thereunder. With respect to any lease disclosed pursuant to this
Section 4.18, all rents and other amounts currently due thereunder have been
paid; except as disclosed in Section 4.18 of the Seller Disclosure Schedule, no
waiver or indulgence or postponement of any obligation thereunder has been
granted by any lessor or sublessor; none of the Partnership, the Company or any
Related Company has entered into any sublease or assignment with respect to its
interest as tenant in such lease; and none of Partnership, the Company or any
Related Company has received any notice that it has breached any term, condition
or covenant of such lease.
4.19 EMPLOYEE MATTERS.
(a) EMPLOYMENT INVESTIGATIONS. Except as disclosed in Section 4.10 or
4.19(a) of the Seller Disclosure Schedule, none of the Partnership, the Company
or any Related Company has been within the last five (5) years, nor, to the best
of the Sellers' Knowledge or the Company's Knowledge, is likely to become, the
subject of or involved in any investigation, complaint or proceeding by the
United States Department of Labor, the Office of Federal Contract Compliance,
the Equal Employment Opportunity Commission, the National Labor Relations Board
or any similar federal, state or local body dealing with any employment policies
and practices of the Partnership, the Company or any Related Company or any
Person currently employed by Partnership, the Company or any Related Company.
(b) EMPLOYEES. The Partnership does not have any employees, and to the
best of Seller's and the Company's Knowledge, has not had any employees since
its formation. None of the Partnership, the Company or any Related Company is a
party to or otherwise subject to any collective bargaining agreement or any
other agreement with any labor union. There is no pending or, to the best of the
Sellers' Knowledge or the Company's Knowledge, threatened attempt to unionize
any Persons who currently are employed by the Partnership, the Company or any
Related Company. None of the Partnership, the Company or any Related Company is
the subject of or, to the best of the Sellers' Knowledge or the Company's
Knowledge, threatened with any collective labor dispute or material grievance.
4.20 BROKERS. No broker, investment banker, financial advisor or other
Person, other than Morgan Stanley & Co. Incorporated, and the Company, pursuant
to the Sales Fee Agreement, by and among EFS, the Partnership and the Company
dated April 8, 1999, the fees and expenses of each of which will be paid by the
Sellers, is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Sellers or
any their Affiliates.
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4.21 NO UNDISCLOSED LIABILITIES. Except for (i) liabilities disclosed,
adequately reserved for or otherwise specifically reflected in the Interim
Financial Statements and the Partnership Financial Statements and (ii)
liabilities incurred in the ordinary course of business consistent with past
practice by the Partnership, the Company or any Related Company (and not in
violation of any representation, warranty, covenant or other term or provision
of this Agreement), none of the Partnership, the Company or any Related Company
has incurred any liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, asserted or unasserted, known or unknown and
whether or not required to be shown on a balance sheet prepared in accordance
with GAAP and there is no existing condition, situation or set of circumstances
that reasonably could be expected to result in such liability or obligation.
4.22 RECEIVABLES. All accounts receivable or other receivables of the
Partnership, the Company and the Related Companies (other than Mortgage Loans
and Securitization Receivables) represent the right to be paid for valid and
bona fide sales, services rendered or other transactions actually made in the
ordinary course of business. The reserves for doubtful accounts reflected in the
Financial Statements have been established both in accordance with GAAP and
consistent with the past practices of the Partnership, the Company and the
Related Companies.
4.23 POWERS OF ATTORNEY. Section 4.23 of the Seller Disclosure Schedule
lists the names and addresses of all Persons holding a power of attorney on
behalf of Partnership, the Company or any Related Company.
4.24 REPORTS.
[INTENTIONALLY OMITTED]
4.25 DERIVATIVE TRANSACTIONS. Except as set forth in Section 4.25 of the
Seller Disclosure Schedule, since June 30, 2000, none of the Partnership, the
Company or the Related Companies has engaged in transactions in or involving
forwards, futures, options on futures, swaps or other derivative instruments
except as principal for purposes of hedging interest rate risk on U.S.
dollar-denominated securities and other financial instruments. The financial
position of the Partnership, the Company or Related Companies on a consolidated
basis under or with respect to each such instrument has been reflected in the
books and records of Partnership, the Company or the Related Companies in
accordance with GAAP consistently applied, and no open exposure (I.E., exposure
other than as a hedge against another exposure) of the Partnership, the Company
or Related Companies with respect to any such instrument (or with respect to
multiple instruments with respect to any single counterparty) exceeds $100,000.
4.26 REMIC RESIDUAL INTERESTS. Except as set forth on Section 4.26 of the
Seller Disclosure Schedule, none of the Partnership, the Company or any Related
Company is the owner of any Securitization Receivable for any purpose, including
for Tax purposes. Also set forth in Section 4.26 of the Seller Disclosure
Schedule is the estimate of the future cash flows and taxable income for the
period January 1, 2000 through the scheduled maturity of the modeled
Securitization Receivables owned by the Partnership as of January 1, 2000, which
was prepared by the Partnership on April 11, 2000 using the software model
purchased from PaineWebber Incorporated pursuant to an agreement dated April 8,
1999 ("Model"), utilizing the
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information available to the Partnership on April 1, 2000 (which consisted
primarily of data provided to the Partnership by third parties) and based on
certain hypothetical assumptions (the "Assumptions") as to the performance of
the Securitization Receivables and of the mortgage loans underlying such
Securitization Receivables, future interest rates and other factors which affect
the cash flow and taxable income associated with the Securitization Receivables;
provided, however, that no representation is made regarding the reliability or
accuracy of the Model or such data provided by third parties or that Assumptions
will coincide with actual market conditions or events and the parties
acknowledge that the actual performance of the Securitization Receivables and
the mortgage loans underlying the Securitization Receivables may not be
consistent with the estimates shown on Section 4.26 of the Seller Disclosure
Schedule. Further, any Securitization Receivables shown as owned by the
Partnership, the Company or any Related Company on Section 4.26 of the Seller
Disclosure Schedule are and will be treated as owned for tax purposes. There are
no indemnities, make-wholes or similar contractual rights, or rescission rights
or any other rights on the part of any Person to require the Partnership, the
Company or any Related Company to re-acquire any Securitization Receivables
formerly sold or transferred by them under any circumstances.
4.27 STATEMENTS MADE. No representation, warranty or written statement
made by the Sellers and the Company in this Agreement, in any Schedule or
Exhibit to this Agreement, or in any written statement or certificate furnished
by or on behalf of the Sellers and the Company to Purchasers pursuant to the
terms of this Agreement, contains or will contain any misstatement of a material
fact or omits or will omit to state a material fact necessary in order to make
the representations, warranties and statements contained herein and therein not
misleading in light of the circumstances in which they are made.
ARTICLE V
MORTGAGE BANKING AND RELATED
REPRESENTATIONS OF SELLERS AND COMPANY
Sellers, jointly and severally, make the representations and warranties
set forth below (which representations and warranties are deemed effective as of
the Effective Date and the Closing Date, except to the extent particular
representations and warranties state that they are made as of specific dates and
are not otherwise stated to be updated). Subject to Article XIV hereof, the
Company also makes such representations and warranties but only insofar as they
relate to the Company or the Related Companies (which representations and
warranties are deemed effective as of the Effective Date and the Closing Date,
except to the extent particular representations and warranties state that they
are made as of specific dates and are not otherwise stated to be updated).
5.1 PORTFOLIO INFORMATION; RELATED MATTERS.
(a) The Sellers have previously delivered to Purchaser one or more tapes
(magnetic media) which set forth the following information (which will be
updated as of the Review Date and as of the Closing Date), with respect to each
Mortgage Loan, including, but not limited to:
(i) the loan number of each such Mortgage Loan;
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(ii) the unpaid principal balance and original term to maturity of
each such Mortgage Loan;
(iii) the payment status of each such Mortgage Loan;
(iv) the balance of the escrow account related to each such Mortgage
Loan;
(v) the monthly principal and interest payments for each such
Mortgage Loan;
(vi) the monthly escrow payment for each such Mortgage Loan;
(vii) the interest rate of each such Mortgage Loan, and whether such
interest rate is adjustable;
(viii) the state in which the property securing each such Mortgage
Loan is located;
(ix) the identity of the Agency or Investor and any Pool number;
(x) whether such Mortgage Loan is secured by a first or other lien;
(xi) the gross servicing fee;
(xii) the guarantee fee, if any; and
(xiii) if such loan is an Adjustable Rate Loan, the current interest
rate, the next date (if any) upon which payments and interest rates are to
be adjusted, the gross margin, the respective index and the maximum
interest rate chargeable during the term of such loan.
(b) The Sellers have previously delivered to Purchaser one or more
tapes (magnetic media) which set forth the information on Section 5.1(b) of
Seller Disclosure Schedule with respect to the Securitization Receivables
and Collateral Certificates (which such tape or tapes will be updated as of
the Review Date and as of the Closing Date).
(c) The information furnished by the Sellers to Purchasers pursuant
to Section 5.1(a) and (b) hereof was true and correct in all material respects
as of the date furnished.
5.2 ENFORCEABILITY OF AGREEMENTS.
(a) A true and complete list of all Listed Agreements to which the
Company or any Related Company is a party, other than Collateral Certificate
Sale Agreements or Mortgage Loan Sale Agreements providing for a total sale
price in each instance of $10,000,000 or less, and with respect to which any
party has not yet completed performance thereunder (with "completed performance"
meaning, in the case of a Listed Agreement for the purchase or sale of Mortgage
Loans, Collateral Certificates, Securitization Receivables or Servicing, that
the assets being purchased or sold have been delivered and the purchase price
therefor paid), as of the Effective Date is set forth on Section 5.2(a) of the
Seller Disclosure Schedule, which shall be updated as of the Closing Date. Each
Listed Agreement sets forth all the terms and conditions of the rights of
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the Company or the Related Company against, and obligations to, the applicable
Agencies, Contract Parties, Investors and Insurers, and, except as set forth on
Section 5.2(a) of the Seller Disclosure Schedule, there are no written or oral
agreements that modify, supplement or amend any Listed Agreement required to be
listed on Schedule 5.2(a) other than such modifications, supplements or
amendments which would not materially affect the rights of the Company or the
Related Company under the related Listed Agreement. Each Listed Agreement is a
valid and binding obligation of the Company or the Related Company and, to the
best of the Sellers' Knowledge and the Company's Knowledge, the Listed Agreement
is in full force and effect, and is enforceable against the Company or the
Related Company and each Contract Party thereto in accordance with its terms,
except as such enforceability may be affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization and other similar laws relating to or
affecting creditors' rights generally and general principles of equity (whether
considered in a proceeding in equity or at law).
(b) Except as set forth in Section 5.2(b) of the Seller Disclosure
Schedule, there is no default or breach by the Company or any Related Company
under any Listed Agreement or under Applicable Requirements related thereto, 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 the Company or the Related Company
under Listed Agreement or the Applicable Requirements related thereto or would
permit termination or modification of any Listed Agreement by a third party,
without the consent of the Company or the Related Company. There is no pending
or, to the best of the Sellers' Knowledge or the Company's Knowledge, threatened
cancellation or partial termination of a Listed Agreement by a Contract Party.
(c) Except as set forth in Section 5.2(c) of the Seller Disclosure
Schedule, there exists no breach by the Company or any Related Company of a
representation and warranty set forth in any Listed Agreement (each of which was
made as of the date specified in such Listed Agreement), which breach gives rise
to a repurchase, indemnification, or other remedy against the Company or the
Related Company under such Listed Agreement.
(d) Except as set forth in Section 5.2(d) of the Seller Disclosure
Schedule, the rights of the Company or any Related Company related to Servicing
under a Servicing Agreement to which the Company or Related Company is currently
a party, including the right to receive Servicing Compensation, are owned by or
for the account of the Company or the applicable Related Company free and clear
of any Liens.
5.3 ADVANCES. Each Advance has been duly and validly made and the Company
or Related Company making such Advance has a right of reimbursement from the
applicable Mortgagors, Investors, Insurers or otherwise. Each Advance is carried
on the books of the Company or a Related Company at values determined in
accordance with GAAP and, except as reflected in that value; is not subject to
any set-off or claim that could be asserted against the Company or the Related
Company, and neither the Company nor any Related Company has any notice from an
Investor, Insurer or other appropriate party in which the Investor, Insurer or
party disputes or denies a claim by the Company or the Related Company for
reimbursement in connection with any Advance. Except as set forth in Section 5.3
of the Seller Disclosure Schedule, there are no pooling, participation,
servicing or other agreements to which the Company or any of the Related
Companies is a party which obligates it to make servicing advances with respect
to defaulted or delinquent Mortgage Loans, other than as expressly provided in
the Servicing Agreements, Master Servicing Agreements or Certificate
Administration Agreements.
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5.4 NO RECOURSE. Except with respect to those Mortgage Loans listed in
Section 5.4 of the Seller Disclosure Schedule (which is provided as a matter of
disclosure only and not as a limitation on liability for purposes of Section
11.1 of this Agreement), none of the Servicing Agreements or Securitization
Instruments provide for Recourse to the Company or any Related Company.
5.5 MORTGAGE LOAN REPRESENTATIONS AND WARRANTIES. Except as set forth in
Section 5.5 of the Seller Disclosure Schedule and except, with respect to
Portfolio Loans only, those breaches of representations and warranties contained
in Section 5.5(b), (c), (d), (e), or (g) resulting from facts or circumstances
in existence at the time the Company or any Related Company acquired such
Portfolio Loan from a third party ("existing defects") and as to which the
Company or any Related Company both (i) did not obtain protection against the
risk of loss pertaining to such existing defects from the seller of such
Portfolio Loan, or if it did obtain such protection, it did not rely on such
protection as documented by the related purchase approval memorandum, and (ii)
specifically discounted the purchase price for such Portfolio Loan or the
aggregate pool of loans to account for such existing defects:
(a) INVESTOR/INSURER REQUIREMENTS. There exists no fact or circumstance
that would entitle any Insurer or Investor to (i) demand either repurchase of
any Mortgage Loan or the related Mortgaged Property or indemnification for
losses from the Company or any Related Company, (ii) impose sanctions, penalties
or special requirements in respect of any Mortgage Loan on, Company or any
Related Company, or (iii) rescind any insurance policy or reduce insurance
benefits in respect of any Mortgage Loan (other than payments with regard to the
Mortgage Loan). There exist no facts or circumstances that would entitle an
Investor or any Person to demand repurchase of a Previously Disposed Loan, a
Previously Disposed Servicing Right, a Securitization Receivable or Collateral
Certificate or that would entitle an Insurer to demand indemnification from a
Related Company with respect to any Previously Disposed Loan, Previously
Disposed Servicing Right, Securitization Receivable or Collateral Certificate.
(b) ENFORCEABILITY OF MORTGAGE LOAN. Each Mortgage Note and the related
Mortgage Instrument are genuine and each is the legal, valid and binding
obligation of the maker thereof, enforceable in accordance with its terms,
subject to bankruptcy, insolvency and similar laws affecting generally the
enforcement of creditor's rights and the discretion of a court to grant specific
performance of contracts or other equitable remedies. Each Mortgage Loan is not
subject to any right of rescission, set-off, counterclaim or defense, including
the defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage Instrument, or the exercise of any right thereunder, render
the Mortgage Note or the Mortgage Instrument unenforceable, in whole or in part,
or subject to any right of rescission, set-off, counterclaim or defense,
including the defense of usury, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect thereto.
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(c) MORTGAGE INSURANCE OR GUARANTY. Each Mortgage Loan that is represented
by any Related Company to have FHA insurance is, or is eligible in the normal
course of business to be, insured by FHA pursuant to the National Housing Act.
Each Mortgage Loan that is represented by the Related Company to be guaranteed
by VA is, or is eligible in the normal course of business to be, guaranteed by
VA pursuant to the Serviceman's Readjustment Act. If required by the applicable
Investor, each Conventional Loan is, or prior to the Closing Date will be,
insured as to payment defaults by a PMI policy in the amount required, and by an
Insurer approved by the applicable Investor. All provisions of such PMI policy
have been and are being complied with, such PMI policy is in full force and
effect and all premiums due thereunder to be paid on or prior to the Closing
Date will be paid by the obligated party by the Closing Date. There are no
defenses, counterclaims, or rights of set-off affecting the validity or
enforceability of any PMI policy covering a Mortgage Loan. Any Mortgage Loan
which obligates the Mortgagor thereunder to maintain a PMI policy obligates the
Mortgagor to pay all premiums and charges in connection therewith. The interest
rate on each Mortgage Loan under which the Mortgagor is obligated to maintain a
PMI policy is net of any such insurance premium.
(d) COMPLIANCE WITH LAWS. Each Related Company (and the Originator and any
Prior Servicer for which any Related Company is legally responsible) has
complied with respect to each Mortgage Loan held by it, and the Mortgage Loans
comply, with every Applicable Requirement and every Applicable Law, including,
without limitation, the fair housing, anti-redlining, equal credit opportunity,
truth-in-lending, real estate settlement procedures, fair credit reporting, and
every other prohibition against unlawful discrimination in residential mortgage
lending or governing consumer credit, and also including, without limitation,
the Real Estate Settlement Procedures Act of 1974 and Regulation X, Consumer
Credit Reporting Act, Equal Credit Opportunity Act of 1975 and Regulation B,
Fair Credit Reporting Act, Truth in Lending Act and Regulation Z, Flood Disaster
Protection Act of 1973 and any applicable regulations related thereto, state
consumer credit statutes and regulations, all as amended.
(e) DAMAGE, CONDEMNATION. Except as disclosed on Section 5.5(e) of the
Seller Disclosure Schedule, which schedule shall be updated as of the Closing
Date, as of the Effective Date there exists no physical damage to any Mortgaged
Property or REO from fire, flood, windstorm, earthquake, tornado, hurricane or
any other similar casualty, which physical damage would cause any Mortgage Loan
to become delinquent or materially and adversely affect the value or
marketability of any Mortgage Loan, the Servicing Rights or any Mortgaged
Property or REO or the eligibility of any Mortgage Loan for insurance benefits,
or the amount of insurance benefits, provided by any Insurer. There is no
proceeding pending for the total or partial condemnation of, or eminent domain
with respect to, any Mortgaged Property or REO and the Related Companies have no
knowledge that all or any part of any Mortgaged Property or REO has been or will
be condemned.
(f) ORIGINATION, SALE AND SERVICING PRACTICES. The origination, purchase,
sale, servicing and securitization practices used by the applicable Related
Company (or any Originator and/or any Prior Servicer for which any Related
Company is responsible) with respect to each Mortgage Loan comply with
Applicable Requirements.
(g) HAZARDOUS MATERIAL. Neither any Related Company nor any Prior Servicer
has engaged in any activity that involves or involved the generation, use,
manufacture, treatment, transportation, storage in tanks or otherwise, or
disposal of Hazardous Material on or from any Mortgaged Property or REO and no
(i) presence, release, threatened release, discharge, spillage or migration of
Hazardous Material in violation of any existing Applicable Requirement, (ii)
condition that has resulted in any use, ownership or transfer restriction, or
(iii) condition of actual nuisance, has occurred on or from any such Mortgaged
Property or REO.
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(h) ADJUSTABLE RATE LOANS. With respect to each Adjustable Rate Loan,
each of the Related Companies and each Prior Servicer has (i) properly and
accurately entered into its system, or subsequently corrected, all data required
to service the Mortgage Loan in accordance with all Applicable Requirements,
(ii) properly and accurately adjusted or subsequently corrected, the mortgage
interest rate on each interest adjustment date, (iii) properly and accurately
adjusted, or subsequently corrected, the monthly payment on each payment
adjustment date, (iv) properly and accurately calculated, or subsequently
corrected, the amortization of principal and interest on each payment adjustment
date, in each case in compliance with all Applicable Requirements, and (v)
executed and delivered any and all necessary notices required under, and in a
form that complies with, all Applicable Requirements regarding interest rate and
payment adjustments.
Purchasers acknowledge that Sellers and the Company do not necessarily
have actual knowledge with respect to the matters addressed in this Section 5.5,
and Sellers acknowledge that the representations and warranties made in this
Section 5.5 are intended to allocate risk of loss to Sellers for the purposes of
Article XI hereof.
5.6 MORTGAGE BANKING QUALIFICATION. Except as set forth in Section 5.6 of
the Seller Disclosure Schedule, each of the Company and the Related Companies:
(a) to the extent required for the conduct of its business is approved (i) by
FHA as an approved mortgagee and servicer for FHA Loans, (ii) by VA as an
approved lender and servicer for VA Loans, (iii) by FNMA and FHLMC as an
approved seller/servicer of first lien Mortgage Loans, and (iv) by GNMA as an
authorized issuer and approved servicer of GNMA-guaranteed mortgage-backed
securities and (b) has all other material certifications, authorizations,
licenses, permits and other approvals, including, without limitation, those
required by State Agencies, that are necessary to conduct the Company's and the
Related Companies' business as it presently is being conducted (the approvals
set forth in this Section 5.6 being collectively referred to as "Licenses" and
are listed on Section 5.6 of the Seller Disclosure Schedule). Litton Loan
Servicing LP is an approved "Alternative Loan Servicer" and "Residential Special
Servicer" by Standard & Poor's Corporation and is rated "RSS1" as a Special
Servicer, and "RPS2" as a Primary Servicer--Subprime Loans and Primary
Servicer--HLTV Loans by Fitch IBCA. The Company and each Related Company has
complied with, and is in compliance with all requirements relating to, all such
Licenses, and none of the Company or any Related Company knows of challenges
against, nor any threatened suspension, cancellation or invalidation of, nor any
material penalties (including fines or refunds) under, any such License. Except
as set forth in Section 5.6 of the Seller Disclosure Schedule, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will affect the validity of any such License,
and all such Licenses will remain in full force and effect immediately after the
Closing Date. The Company and each Related Company has complied with, and is in
compliance with all requirements relating to, all such Licenses, and the Company
and each Related Company knows of no challenges against, nor any threatened
suspension, cancellation or invalidation of, nor any material penalties
(including fines or refunds) under any such License.
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5.7 CUSTODIAL ACCOUNTS. All Custodial Accounts required to be maintained
by the Related Companies have been established and continuously maintained in
all material respects in accordance with Applicable Requirements. Except as to
payments which are past due under the Mortgage Loans, all Custodial Account
balances required by the Mortgage Loans and paid to the Related Companies for
the account of the Mortgagors under the Mortgage Loans have been credited to the
appropriate account and have been retained in and disbursed from the appropriate
account in accordance with the Applicable Requirements. With regard to Mortgage
Loans that provide for Mortgage Escrow Payments, the Related Companies and, to
the best of the Sellers' Knowledge and the Company's Knowledge, each Originator
and Prior Servicer, in all material respects, has (i) computed the amount of
such payments in accordance with Applicable Requirements, (ii) paid on a timely
basis all charges and other items to be paid out of the Mortgage Escrow
Payments, and when required by the applicable Servicing Agreement has advanced
its own funds to pay such charges and items, and (iii) delivered to the related
Mortgagors the statements and notices required by Applicable Requirements in
connection with the Custodial Accounts, including without limitation statements
of taxes and other items paid out of the Mortgage Escrow Payments and notices of
adjustments to the amount of the Mortgage Escrow Payments.
5.8 INQUIRIES. Section 5.8 of the Seller Disclosure Schedule contains a
true and correct list of each written notice of an audit, investigation, report
or complaint in respect of the Company or any Related Companies by any Agency,
Investor or Insurer received by any Related Company since JANUARY 1, 1997, which
asserted a material failure to comply with Applicable Law or resulted in (a) a
repurchase by the Company or the Related Companies from such Agency, Investor or
Insurer of five or more Mortgage Loans and/or REO acquired as a result of
defaults under five or more Mortgage Loans in any period equal to or less than
one year, (b) indemnification of Investors or Insurers by the Related Companies
in connection with five (5) or more Mortgage Loans as a result of related
problems or defects in any period equal to or less than one year, (c) rescission
of an insurance or guaranty contract or agreement applicable to five (5) or more
Mortgage Loans as a result of related problems or defects in any period equal to
or less than one year, (d) payment of a material penalty by the Company or any
Related Company to any Agency, Insurer or Investor or (e) restrictions on the
activities or commitment authority of any Related Company that are currently in
effect. Except as set forth in Section 5.8 of the Seller Disclosure Schedule and
except for customary ongoing quality control and monitoring examinations or
reviews, no such audit, investigation, report or complaint is pending.
5.9 IRS REPORTS. The Related Companies have filed or will file all IRS
forms that are required to be filed with respect to all Servicing for activity
that occurred on or before December 31, 1999.
5.10 SECURITIZATION TRANSACTIONS. Each of the Company and the Related
Companies has complied with all agreements and all conditions to be performed or
satisfied by it with respect to all agreements and arrangements to which it is a
party with regard to Securitization Transactions (such agreements and
arrangements are collectively referred to as the "Securitization Instruments").
Each Securitization Issuer, Securitization Trustee and Servicer has performed
all of its respective obligations for which the Company or any Related Company
is responsible under Securitization Instruments and under the Securities
Exchange Act or any other existing law relating to Securitization Transactions,
and has made all filings required to be made by or under the Securities Exchange
Act. No Securitization Issuer, Securitization Trustee or Servicer has taken any
action which would adversely affect the characterization or tax treatment for
federal, state or local income or franchise tax purposes of any Securitization
Entity or any securities issued in a Securitization Transaction for which the
Company or any Related Company is responsible, and all required federal, state
and local tax and information returns relating to any Securitization Transaction
for which the Company or any Related Company is responsible which were required
to have been filed before the Effective Date have been properly filed.
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5.11 CERTAIN DUE DILIGENCE. With respect to any REMIC residual interest
that has previously been sold by the Partnership, adequate due diligence was
performed by the Partnership at the time of such sale to ensure that the tax
ownership of such REMIC residual interest was appropriately transferred pursuant
to Treasury Regulation Section 1.860E-1(c).
ARTICLE VI
GENERAL REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Purchasers, jointly and severally, make the representations and warranties
set forth below (which representations and warranties are deemed effective as of
both the Effective Date and the Closing Date):
6.1 ORGANIZATION. Each Purchaser is a corporation duly organized and
validly existing under the laws of the State of Delaware.
6.2 AUTHORITY. Each Purchaser has full corporate power and authority to
execute and deliver this Agreement and any documents, agreements and instruments
to be executed and delivered by it pursuant to or in connection with this
Agreement and to perform its obligations and consummate the transactions
contemplated hereunder and thereunder. The execution and delivery by each
Purchaser of this Agreement and any documents, agreements or instruments to be
executed and delivered by it pursuant to or in connection with this Agreement,
and the consummation of the transactions and the performance of the obligations
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action on the part of each Purchaser, and no other
proceedings on the part of either Purchaser are necessary to consummate the
transactions contemplated hereby and thereby. This Agreement has been duly and
validly executed and delivered by each Purchaser and constitutes a valid and
legally binding agreement of each Purchaser, enforceable against each Purchaser
in accordance with its terms, and the other documents, agreements and
instruments to be delivered by each Purchaser pursuant to this Agreement will,
when executed and delivered, be duly and validly executed by each Purchaser and
constitute valid and legally binding obligations of each Purchaser, enforceable
against each Purchaser in accordance with their terms, except as affected by any
bankruptcy, insolvency, fraudulent conveyance, reorganization and other similar
laws relating to or affecting creditors' rights generally and general equitable
principles (whether considered in a proceeding in equity or at law).
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6.3 NON-CONTRAVENTION. The execution and delivery of this Agreement and
any document, agreement or instrument to be executed pursuant to this Agreement
by each Purchaser does not, and the consummation by each Purchaser of the
transactions contemplated hereby and thereby and the performance by each
Purchaser of the obligations which it is obligated to perform hereunder and
thereunder will not, (i) violate any provision of the organizational documents
of either Purchaser or (ii) assuming that all consents, authorizations, orders
or approvals of, filings or registrations with, and notices to, each
Governmental Authority listed in Section 6.4 of the Purchaser Disclosure
Schedule and all Third Party Consents listed in Section 6.4 of the Purchaser
Disclosure Schedule have been obtained or made, (A) violate in any respect any
Applicable Law or (B) violate, result in the termination or the acceleration of,
or conflict with or constitute a default (or an event which, with notice or
lapse of time, or both, would constitute a default) under, any material Contract
to which either Purchaser is a party or by which any of its assets or properties
is bound or affected.
6.4 CONSENTS. Except as described in Section 6.4 of the Purchaser
Disclosure Schedule, no consent, authorization, approval, waiver, order,
license, certificate or permit or act of or from, or notice to, any Governmental
Authority or private party, any Rating Agency, any party to any Contract to
which the Purchasers are a party or by which any of their respective assets or
properties are bound or affected, or any other Person is required for (i) the
execution and delivery of this Agreement or any document, agreement or
instrument required to be executed pursuant to or in connection with this
Agreement by the Purchasers and (ii) the consummation by the Purchasers of the
transactions contemplated hereby and thereby.
6.5 BROKERS. No broker, investment banker, financial advisor or other
Person other than J.P. Morgan or The Chotin Group is entitled to any broker's,
finder's, financial advisor's or other similar fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of either of the Purchasers or any of their Affiliates.
6.6 NO REGULATORY IMPEDIMENT. Purchasers are not aware of any fact
relating to their business, operations, financial condition or legal status that
could reasonably be expected to impair their ability to obtain, on a timely
basis, all consents, approvals, licenses and permits from Governmental
Authorities necessary for the consummation of the transactions contemplated
hereby.
6.7 SECURITIES LAWS. Purchasers are acquiring the Partnership Interests
for investment and not with a view to their resale or distribution. Neither of
the Purchasers, nor any Person acting on their behalf, has done anything which
would cause the offer and sale of the Partnership Interests in the manner
contemplated herein to require registration of such offer and sale under the
Securities Act.
6.8 AVAILABILITY OF FUNDS. The Purchasers have, or have available under
credit agreements in effect on the Effective Date, all the funds the Purchasers
will require to pay the Purchase Price and to fulfill all their other
obligations under this Agreement, and the Purchasers have no reasonable basis to
believe that they will not have on the Closing Date all the funds they will
require to pay the Purchaser Price and to fulfill all their other obligations
under this Agreement.
6.9 LITIGATION. There is no Litigation pending or, to the best of the
knowledge of either Purchaser, threatened against either of the Purchasers or
any of their Affiliates seeking to prevent or delay completion of the
transactions which are the subject of this Agreement or to recover Damages if
those transactions are completed.
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ARTICLE VII
COVENANTS
7.1 CONDUCT OF BUSINESS.
(a) Except as contemplated by this Agreement, or except with the consent
of RFC, from the Effective Date to the Closing Date (or the earlier termination
of this Agreement in accordance with its terms), the Sellers agree to use
commercially reasonable efforts to cause the Partnership, the Company and each
Related Company to, and the Company agrees to, and to use its commercially
reasonable efforts to cause each Related Company to, conduct its business and
operations in the ordinary and usual course consistent with past practice,
prudent business practice, and Applicable Requirements, including, but not
limited to, maintaining its methods of doing business, valuing its financial
assets, hedging, risk management policies and hiring policies, and remaining in
compliance with all covenants in its debt instruments.
(b) From the Effective Date to the Closing Date, EFS agrees not to
approve, and to cause the Partnership and its designees and appointees not to
approve, any matter requiring the consent or approval of the Executive Committee
of the Company, the Board of Managers of the Company or the Members of the
Company, except with the consent of RFC; provided, however, that RFC shall use
commercially reasonable efforts, including making available from time to time,
those Persons designated on Section 7.1(b) of the Purchaser Disclosure Schedule,
to respond to requests for consent from EFS pursuant to this subsection 7.1(b)
in a timely manner, taking into account the nature of the matter for which
consent is requested and the market circumstances then prevailing; provided
further, that a failure by RFC to respond to any such request shall in no event
be deemed to a consent to the requested matter. Sellers shall not be required to
update the Seller Disclosure Schedule to reflect any matters approved by RFC
pursuant to this subsection 7.1(b).
(c) From the Effective Date to the Closing Date, Sellers agree to cause
the Partnership not to take any action, enter into any transaction, or make any
election, except with the consent of RFC or as otherwise contemplated by this
Agreement.
(d) The Sellers and the Company shall promptly advise Purchasers in
writing of any change or development or combination of changes or developments
that would cause the representations and warranties in Article IV or V to be
untrue in any material respect;
(e) The Sellers, the Partnership, the Company and Related Companies shall
not establish or otherwise incur any intercompany payables, receivables, loans,
cash overdrafts, advances and other similar accounts between the Related
Companies, on the one hand, and the Sellers or any of their Affiliates, on the
other hand, except for matters in the ordinary course of business, and to the
extent such items will be satisfied on or before the Closing;
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(f) Notwithstanding the fact that such action might otherwise be permitted
pursuant to this Section 7.1, and other than with respect to actions taken by
Sellers for the purposes of reaching or attempting to reach an agreement for a
Competing Transaction, the Sellers and the Company shall not, nor shall they
permit any Related Company to, take any action that would or could reasonably be
expected to result in any of the conditions to the obligations of Purchasers set
forth in this Agreement not being satisfied or that would materially impair the
ability of the Sellers to consummate the transactions contemplated herein in
accordance with the terms hereof or that would materially delay such
consummation.
7.2 ACCESS TO RECORDS, ETC.
(a) The Sellers and the Company agree to permit Purchasers and their
accountants, counsel and other authorized representatives to have, during the
period from the Effective Date to the Closing Date, reasonable access to the
premises, books and records of the Sellers, the Partnership, the Company and the
Related Companies and all other information in the possession of the Sellers,
the Partnership, the Company, and the Related Companies with respect to the
business, affairs, financial condition, assets and liabilities of the Sellers,
the Partnership, the Company and the Related Companies, as Purchasers may from
time to time reasonably request, and to make copies of such books, records and
other documents during normal business hours. The Sellers agree to use
commercially reasonable efforts to, and the Company agrees to make available to
Purchasers upon reasonable advance notice and during normal business hours, the
employees of the Partnership, the Company and Related Companies, as Purchasers
may reasonably request, provided that such availability shall not interfere with
the normal operations of the Partnership, the Company and the Related Companies.
Except as otherwise agreed to by the Sellers or the Company, as applicable, any
information heretofore or hereafter obtained from the Sellers or the
Partnership, the Company or any Related Company by either Purchaser or its
representatives shall be subject to the terms of the Confidentiality Agreements
(with information received by either Purchaser or its representative being
deemed to be received by RFC and RFC Sub and being subject to all the terms of
the Confidentiality Agreements to the same extent as though it were a party to
them), and such information shall be held by Purchasers and their
representatives in accordance with the terms of the Confidentiality Agreements;
provided that after the Closing the Confidentiality Agreements shall not apply
to any such information relating solely to the Partnership.
(b) Purchasers agree that following the Closing Date, the Sellers and
their attorneys, accountants, officers and other representatives shall have
reasonable access, during normal business hours, provided that such access shall
not interfere with the normal operations of the Partnership, the Company and the
Related Companies, to the books and records of the Partnership, the Company and
the Related Companies may from time to time reasonably request to the extent
they relate to a period prior to the Closing Date (and shall permit such Persons
to examine and copy such books and records to the extent reasonably requested by
such party) in connection with regulatory compliance, indemnification claim
verification, pending or threatened litigation, financial reporting and tax
matters (including financial and tax audits and tax contests) and other similar
business purposes.
(c) No investigation by Purchasers shall affect the representations and
warranties, covenants or indemnification obligations of the Sellers and the
Company which are contained herein and each such provision shall survive such
investigation.
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(d) During the period from the date of this Agreement to the Closing Date
or termination of this Agreement in accordance with its terms, the Sellers and
the Company will cause one or more of their designated representatives to confer
periodically with representatives of Purchasers and to report the general status
of the ongoing operations of the Partnership, the Company and the Related
Companies. The Sellers and the Company will promptly notify Purchasers of any
material change in the business or operation of the Partnership, the Company and
the Related Companies and of any material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), or the institution or the threat of material Litigation involving
the Partnership, the Company or Related Company, and will keep Purchasers fully
informed of such events. Starting immediately after the date hereof, the Sellers
and the Company shall cause the Partnership, the Company and the Related
Companies to promptly provide Purchasers monthly unaudited balance sheets and
income statements and such other reports and materials as are normally prepared
and provided to the Partnership, or the Board of Managers or Executive Committee
of the Company, and such other reports as otherwise may be reasonably requested
by Purchasers. Any such reports and materials shall be provided to Purchasers
subject to the terms of the Confidentiality Agreements.
7.3 TAKING OF NECESSARY ACTION.
(a) Each of the parties hereto agrees to use commercially reasonable
efforts to take or cause to be taken all action and promptly to do or cause to
be done all things necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement, including all actions
which are necessary to cause the conditions in Article VIII to be fulfilled.
(b) The Sellers shall, at their sole cost and expense: (i) as soon as
practicable after the Effective Date, file or cause to be filed all such
applications, notices, registrations and requests as may be required or
advisable to be filed by it with any party with whom the Partnership, the
Company or any Related Company is in contract privity, including all
applications for Agency and Investor and other Third Party consents, and with
any Governmental Authorities, in connection with the transactions contemplated
hereby, (ii) furnish Purchasers with copies of all documents (except documents
or portions thereof for which confidential treatment has been requested or
given) and correspondence (A) prepared by or on behalf of the Sellers, the
Partnership, the Company or any Related Company for submission to any
Governmental Authorities or (B) received by or on behalf of the Sellers, the
Partnership, the Company or any Related Company from any Governmental Authority,
in each case in connection with the transactions contemplated hereby, and (iii)
use its commercially reasonable efforts to consult with and keep Purchasers
informed as to the status of such matters.
(c) Purchasers shall use commercially reasonable efforts to cooperate with
the Sellers in the preparation and filing of all applications, notices,
registrations and responses to requests for additional information from
Governmental Authorities and any parties whose Third Party Consent the Sellers
seek in connection with the transactions contemplated by this Agreement,
including providing such information as the Sellers may reasonably request for
inclusion in such applications, notices, registrations and responses. The
Sellers and Purchasers shall each pay one-half the cost of any HSR filing.
Purchasers shall have the right to review and to approve all forms of consents
to be used by the Sellers to obtain all Investor consents necessary to
consummate the transactions contemplated by this Agreement.
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(d) The Purchasers and the Sellers will each make as promptly as
practicable the filing, if any, they are required to make under HSR with regard
to the transactions which are the subject of this Agreement and each of them
will use commercially reasonable efforts (including providing information to the
Federal Trade Commission or the Department of Justice) to cause the waiting
periods under HSR to be terminated or to expire as promptly as practicable. The
Purchasers and Sellers will each provide information and cooperate in all other
respects to assist the other of them in making its filing under HSR if one is
required.
(e) The Sellers agree to cause, no later than the Closing Date: (i) the
asset shown as "Due From Parent" on the Partnership Financial Statements to be
transferred out of the Partnership; (ii) the liability shown as "Due to C-Bass"
on the Partnership Financial Statements to be transferred out of the Partnership
or fully discharged; (iii) $1,100,000 of cash to be transferred into an account
of the Partnership to fund a portion of the line item shown as "Other
Liabilities" on the Partnership Financial Statements; (iv) all unfunded
liabilities of the Partnership incurred between June 30, 2000 and the Closing
Date to be fully funded; and (v) all amounts borrowed by EFS from the
Partnership between June 30, 2000 and the Closing Date to be fully repaid.
7.4 NON COMPETITION AND RELATED MATTERS.
(a) Neither the Sellers nor any of their Affiliates shall at any time
after the Effective Date make use of, disclose or divulge to any Person any
information of a proprietary, secret or confidential nature relating to the
Partnership, the Company or the Related Companies, except that such information
may be disclosed (i) where necessary, to any Person in connection with the
obtaining of the consents contemplated or required by the terms of this
Agreement, (ii) if required by court order, decree or any Applicable Law
(provided the Person with respect to which confidential information is being
disclosed, to the extent permitted, has been given sufficient notice thereof so
as to be in a position to seek an appropriate protective order), (iii) during
the course of or in connection with any litigation or claim with respect to
obligations or liabilities relating to the Partnership, the Company or the
Related Companies prior to Closing, including any governmental investigation,
arbitration or other proceeding in connection therewith, (iv) if required in
connection with any regulatory, governmental or related investigation, inquiry
or proceeding or any regulatory compliance requirements imposed upon the Sellers
or any of their Affiliates, (v) to Rating Agencies or (vi) as required to comply
with law or the rules of a stock exchange or automated securities quotation
system on which securities of either of the Sellers or any of their Affiliates
are listed or quoted.
(b) The Sellers agree that, for a period of three (3) years from and after
the Closing Date, neither the Sellers nor any Affiliate of the Sellers will: (i)
directly or indirectly solicit, induce or attempt to induce any officer or
employee of the Partnership, the Company or any Related Company to leave the
employ of any of such entities, (ii) directly or indirectly solicit any Person
(including without limitation any broker or correspondent) to terminate or limit
such Person's contractual and/or business relationships with the Partnership,
the Company or any Related Company or any of their respective successors, or
(iii) directly or indirectly engage in any business activity in competition with
any of the lines of business of the Partnership, the Company or any Related
Company as of the Closing Date.
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7.5 PUBLIC ANNOUNCEMENTS. Unless otherwise required by law or applicable
rules of a stock exchange or automated securities quotation system, prior to the
Closing Date, no news release or other public announcement pertaining to the
transactions contemplated by this Agreement shall be made by or on behalf of any
party hereto without the prior approval of the other parties hereto. Unless
otherwise required by law or applicable rules of a stock exchange or automated
securities quotation system, no news release or other public announcement shall
be made by or on behalf of a party hereto regarding the financial terms of this
Agreement without the prior approval of the other parties hereto. In the event
that a party hereto is required by law or applicable rules of a stock exchange
or automated securities quotation system to make a public announcement
pertaining to the transactions contemplated by this Agreement or regarding the
financial terms of this Agreement, such party shall exercise its reasonable
efforts to permit the other party to review the announcement prior to the time
that the announcement is made. For purposes of this Section 7.5 public
announcements required by law shall include, without limitation, disclosures
that are required in connection with securities laws or regulatory approvals
required to be obtained in connection with the transactions contemplated by this
Agreement. In this regard, the parties shall make a joint public announcement of
the transactions contemplated hereby in a form mutually agreed upon by RFC, EFS
and the Company.
7.6 FURTHER ASSURANCES. Each party hereto shall cooperate with the others,
and execute and deliver, or use commercially reasonable efforts to cause to be
executed and delivered, all such instruments, and to make all filings with and
to obtain all consents, approvals or authorizations of any governmental or
regulatory authority or any other Person under any permit, license, agreement,
indenture or other instrument, and take all such other actions as such party may
reasonably be requested to take by the other parties hereto from time to time,
consistent with the terms of this Agreement, in order to effectuate the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
7.7 NON-SOLICITATION. From and after the Effective Date, Sellers shall not
directly or indirectly solicit, and Sellers shall prevent any of their
Affiliates from directly or indirectly soliciting, by means of direct mail,
telephone or personal solicitation, the Mortgagors of any of the Mortgage Loans
(a) for purposes of prepayment or refinancing or modification of such Mortgage
Loans, except as may be required by Investor loss mitigation requirements; or
(b) for any financial services or products, including, but not limited to, (i)
checking and savings accounts, certificates of deposit, safe deposit boxes,
automatic teller machines, second mortgage loans, equity source accounts,
personal loans and credit cards, and (ii) ordinary life, ordinary health, credit
life, credit health, credit unemployment and any other forms of group or
individual insurance coverages. Notwithstanding the foregoing, it is understood
and agreed that promotions undertaken by Sellers or their Affiliates which are
directed to the general public at large, or segments thereof, provided that no
segment shall consist primarily of the Mortgage Loans, including, without
limitation, mass mailing based on commercially acquired mailing lists,
newspaper, radio and television advertisements, shall not constitute
solicitation under this Section 7.7.
7.8 INSURANCE.
(a) To the extent that (i) any insurance policies controlled by the
Sellers and their Affiliates ("Sellers' Insurance Policies") cover any loss,
liability, claim, damage or expense relating to the Company and the Related
Companies or their respective business, assets and current or former employees
("Company Liabilities") and relate to or arise out of occurrences prior to the
Closing Date and (ii) Sellers' Insurance Policies continue after the Closing to
permit claims to be made thereunder with respect to Company Liabilities relating
to or arising out of occurrences prior to the Closing Date ("Company Claims"),
the Sellers shall cooperate and cause their Affiliates to cooperate with
Purchasers, the Company and the Related Companies in submitting Company Claims
(or pursuing Company Claims previously made) on behalf of Purchasers, the
Company or the Related Companies under the Sellers' Insurance Policies.
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(b) To the extent that, after the Closing Date, Purchasers or the Sellers
require any information regarding claim data, payroll or other information which
the other of them possesses or controls in order to make filings with insurance
carriers, the Sellers shall promptly supply such information to Purchasers and
Purchasers shall promptly supply such information to the Sellers, as the case
may be.
ARTICLE VIII
CONDITIONS TO THE CLOSING
8.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of
Purchasers and the Sellers hereunder are subject to the satisfaction, at or
prior to the Closing Date, of the following conditions:
(a) NO INJUNCTION. At the Closing Date there shall be no (i) injunction,
restraining order or decree of any nature of any court or Governmental Authority
of competent jurisdiction in effect that restrains or prohibits the purchase of
the Partnership Interests, or (ii) pending action, suit or proceeding brought by
any Governmental Authority or third party which seeks to restrain or prohibit
the purchase of the Partnership Interests.
(b) REGULATORY AUTHORIZATIONS; THIRD PARTY CONSENTS. Each consent,
authorization, order, approval or License listed in Section 4.4 or 5.6 of the
Seller Disclosure Schedule and Section 6.4 of the Purchaser Disclosure Schedule
shall have been obtained and any applicable waiting period in respect thereof
shall have expired or been terminated on or before the Closing Date.
(c) HSR APPROVAL. Any waiting period applicable to the consummation of the
transactions contemplated by this Agreement under HSR shall have expired or been
terminated, and no action shall have been instituted by the U.S. Department of
Justice or U.S. Federal Trade Commission challenging or seeking to enjoin the
consummation of this transaction, which action shall have not been withdrawn or
terminated.
(d) GROSS ADJUSTMENT AMOUNT. The Gross Adjustment Amount shall have been
determined, provided that, in the event that the Gross Adjustment Amount is
subject to a dispute being resolved in accordance with Section 2.3, the time by
which this condition must be satisfied shall be extended to a date two (2)
business days after the resolution of such dispute.
(e) WAIVER. Purchasers shall have received waivers executed by the holders
of all outstanding Membership Interests other than Sellers with respect to the
exercise of any tag along sale rights and rights of first refusal provided for
in the Company LLC Agreement.
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8.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PURCHASERS. The obligation
of Purchasers to consummate the transactions contemplated by this Agreement is
subject to the satisfaction at or prior to the Closing Date of each of the
following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Sellers and the Company contained in Articles IV and V of this Agreement
shall be true and correct in all material respects as of the Effective Date and
as of the Closing Date as though made at and as of the Closing Date (except to
the extent that any representation and warranty is made as of a specific date
prior to the Closing Date, in which case such representation and warranty shall
be true and correct as of such date); PROVIDED, HOWEVER, that for purposes of
determining the satisfaction of the condition contained in this clause (a), no
effect shall be given to any exception in any individual representation and
warranty relating to materiality or a "Material Adverse Effect".
(b) PERFORMANCE OF COVENANTS. The Sellers and the Company shall have
performed in all material respects all obligations and agreements, and complied
in all material respects with all covenants and conditions, contained in this
Agreement to be performed or complied with by them prior to or at the Closing
Date.
(c) CERTIFICATES. Purchasers shall have received separate certificates of
the Sellers and the Company dated the Closing Date, executed on behalf of the
Sellers and the Company, to the effect that the conditions specified in Sections
8.2(a) and 8.2(b) have been fulfilled.
(d) RESIGNATIONS. Purchasers shall have received duly signed resignations,
effective immediately following the Closing, of all Sellers' designated members
of the board of managers, officers or directors of the Company or any Related
Company.
(e) LEGAL OPINIONS. Purchasers shall have received legal opinions of
Clifford Chance Rogers & Wells LLP or other counsel reasonably acceptable to the
Purchasers, dated as of the Closing Date, in form and substance reasonably
satisfactory to Purchasers, and containing customary assumptions and conditions.
(f) MATERIAL ADVERSE CHANGE. No fact or circumstance shall have occurred
with respect to EFS, the Partnership, the Company or any Related Company that
has, or reasonably is likely to have, a Material Adverse Effect.
(g) MARKET CONDITIONS. There shall not have occurred any material
disruption or any material adverse change in the banking, financial, mortgage or
capital markets generally.
(h) DELIVERIES. The Sellers and the Company shall have complied with each
and every one of their obligations to deliver documents, materials, tapes and
information set forth in Articles II, III, V and VII and delivered such other
certificates and documents as Purchasers and their counsel shall reasonably
request, including confirmation that the Partnership continues to own a 45.94%
Membership Interest in the Company.
(i) RETENTION OF KEY EMPLOYEES. (i) The officers and key employees of the
Company and the Related Companies identified in Section 8.2(i) of the Purchaser
Disclosure Schedule shall not have resigned or indicated their intention to do
so, and (ii) no more than two (2) officers and key employees of the Company and
the Related Companies identified in Section 8.2(i)(ii) of the Purchaser
Disclosure Schedule shall have resigned or indicated their intention to do so.
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(j) LEASE. Sellers shall have executed an indemnification agreement with
the Company in form and substance satisfactory to Purchasers and the Company
providing for indemnification of the Company in the event that there is any
change in the terms of the lease or sublease, including, but not limited to the
duration thereof, the square footage covered thereby, or amounts payable
thereunder, for the continued use of the office space currently subleased by
Company from EFS, at 335 Madison Avenue, New York, New York, and the furniture,
fixtures and equipment currently leased by Company from EFS. Such
indemnification agreement shall be deemed satisfactory to the Company if it
provides for indemnification of the Company for all costs and expenses arising
as a result of any change in the duration of such lease or sublease, the amounts
payable thereunder, or the square footage covered thereby. The satisfaction of
this condition may not be waived by the Purchasers without the consent of the
Company.
(k) JOINDER. The Partnership shall have executed a joinder agreement
establishing the Partnership as a member in good standing and the holder of
45.94% of the outstanding Membership Interests.
8.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SELLERS. The obligation of
the Sellers to consummate the transaction contemplated by this Agreement is
subject to the satisfaction at or prior to the Closing Date of each of the
following additional conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Purchasers contained in Article VI of this Agreement shall be true and correct
in all material respects as of the Closing Date as though made at and as of the
Closing Date; PROVIDED, HOWEVER, that for purposes of determining the
satisfaction of the condition contained in this clause (a), no effect shall be
given to any exception in any individual representation and warranty relating to
materiality or a "Material Adverse Effect".
(b) PERFORMANCE OF COVENANTS. Purchasers shall have performed in all
material respects all obligation and agreements, and complied in all material
respects with all covenants and conditions, contained in this Agreement to be
performed or complied with by them prior to or at the Closing Date.
(c) CERTIFICATE. The Sellers shall have received a certificate of
Purchasers, dated the Closing Date, executed on behalf of Purchasers, to the
effect that the conditions specified in sections 8.3(a) and 8.3(b) have been
fulfilled.
(d) LEGAL OPINIONS. Sellers shall have received a legal opinion of the
General Counsel of RFC, dated as of the Closing Date, in form and substance
reasonably satisfactory to Purchasers, and containing customary assumptions and
conditions.
(e) DELIVERIES. The Purchasers shall have complied with each and every
one of their obligations to deliver documents, materials and information set
forth in Articles II, III and VII and delivered such other certificates and
documents as Sellers and their counsel shall reasonably request.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) by mutual written consent of the Sellers and Purchasers;
(b) by either the Sellers or the Purchasers upon written notice given to
the other in the event of a material breach or material default in the
performance by such other party of any representation, warranty, covenant or
agreement contained in this Agreement, which has not been, or cannot be, cured
within 30 days after written notice thereof, describing such breach or default
in reasonable detail, is given by the terminating party to the breaching or
defaulting party;
(c) by either the Sellers or the Purchasers upon written notice to the
other in the event that (i) any request or application for a requisite approval
shall have been denied or withdrawn at the request or recommendation of the
Governmental Authority which must grant such approval; provided, that neither
the Sellers nor Purchasers shall have the right to terminate this Agreement
pursuant to this Section 9.1(c) 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 agreements of such party set forth herein or
(ii) any Governmental Authority (including any court of competent jurisdiction),
the consent of which is necessary for the consummation of the transactions
contemplated hereby, shall have issued an order, decree or ruling or taken any
other official action enjoining or otherwise prohibiting the transactions
contemplated by this Agreement or denying approval of any application or notice
for approval to consummate such transactions, and such order, decree, ruling or
other action shall have become final and non-appealable; or
(d) by Purchasers or Sellers upon the occurrence of a Competing
Transaction;
(e) by the Purchasers or Sellers if the Closing does not occur by December
31, 2000 or, in the event that the Gross Adjustment Amount is subject to a
dispute being resolved in accordance with Section 2.3 on December 31, 2000, if
the Closing does not occur by the date that is two(2) business days after
resolution of such dispute.
9.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided above, this Agreement (other than this Section 9.2) shall
become void and of no further force and effect and, other than in the event of a
termination pursuant to Section 9.1(b), (d) or (e), there shall be no duties,
liabilities or obligations of any kind or nature whatsoever on the part of any
party hereto to the other parties based either upon this Agreement or the
transactions contemplated hereby, except that the obligations of the parties
referred to in Section 7.5 and under the Confidentiality Agreements, shall
continue to apply following any such termination of this Agreement. In the event
of the termination of this Agreement by the Sellers or the Purchasers pursuant
to Section 9.1(d), then Sellers shall pay to Purchasers U.S. $4.0 million as
liquidated damages. Sellers shall also give written notice to Purchasers of any
such Competing Transaction, which notice shall be given immediately after
executing any agreement providing for the Competing Transaction, and which shall
set forth the parties to and the terms and conditions of the Competing
Transaction. In the event of the termination of this Agreement by Purchasers or
Sellers pursuant to Section 9.1(e), unless terminated (i) by Sellers as a result
of a failure by Purchasers to fulfill the conditions in Section 8.3, or (ii) by
Purchasers as a result of a failure by Sellers to fulfill the conditions in
Section 8.1(a) or 8.2(g) of this Agreement, Sellers shall pay to Purchasers U.S.
$2.0 million as liquidated damages; PROVIDED, HOWEVER, Sellers shall pay
Purchasers an additional U.S. $2.0 million in the event that either of the
Sellers enter into an agreement for a Competing Transaction on or prior to
December 31, 2001. Subject to Article XIV hereof, in the event Sellers or
Purchasers terminate this Agreement pursuant to section 9.1(b), then the
terminating party shall have the right to sue the breaching party for any and
all Damages sustained or incurred as a result of such breach and termination.
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ARTICLE X
TAX MATTERS
10.1 RETURNS. The Sellers shall have the obligation to file or cause to be
filed all Tax Returns that are required to be filed by or with respect to the
Partnership for all taxable years or other taxable periods, or portions thereof,
ending on or prior to the Closing Date ("Pre-Closing Periods"). Purchasers will
have the obligation to prepare all Tax Returns relating to the Overlap Period.
Purchasers and the Sellers shall in good faith take all available measures so
that all Tax periods with respect to the Partnership end on or immediately prior
to the Closing Date. No later than 60 days prior to the due date for the filing
of any Tax Return with respect to any Pre-Closing Periods (taking account of
extensions), Sellers shall (1) provide the Purchasers with a draft of such Tax
Return and (2) provide the Purchasers with access to all records of the
Partnership in Sellers' possession or control reasonably necessary to enable the
Purchasers and their representatives to evaluate the draft Tax Returns provided
with such notice. No later than 45 days prior to the due date for the filing of
such Tax Return, the Purchasers shall notify Sellers of any reasonable
objections the Purchasers may have to any items set forth in such draft Tax
Return. Purchasers and Sellers agree to consult and resolve in good faith any
such objection, it being understood and agreed that in the absence of any such
resolution, either party may submit the issue in dispute to a nationally
recognized accounting firm mutually acceptable to Purchasers and Sellers (the
"Independent Accountant") and the Purchasers and Sellers shall request that the
Independent Accountant, within 30 days after such submission, determine and
report to the Sellers and Purchasers upon such disputed items, and such
determination shall be final, binding and conclusive on Purchasers and Sellers.
The fees of any Independent Accountant shall be borne half by Purchasers and
half by Sellers. Purchasers and Sellers shall indemnify the Independent
Accountant in connection its services, provided the Independent Accountant acts
in good faith and without gross negligence.
10.2 CONTESTS. The Sellers and their duly appointed representatives shall
have the exclusive authority to control any audit or examination by any taxing
authority, initiate any claim for refund, amend any Tax Return and contest,
resolve and defend against any assessment for additional Taxes, notice of Tax
deficiency or other adjustment of Taxes of or relating to any liability of the
Partnership or its partners for all Pre-Closing Periods; PROVIDED, HOWEVER, that
neither Purchasers nor any of their duly appointed representatives shall without
the prior written consent of the Sellers, which consent shall not be
unreasonably withheld, enter into any settlement of any contest or otherwise
compromise any issue that affects or may affect the tax liability of the Sellers
or any of their Affiliates for Pre-Closing Periods. Purchasers and their duly
appointed representatives shall have the exclusive authority to control any
audit or examination by any taxing authority, initiate any claim for a refund,
amend any Tax Return and contest, resolve and defend against any assessment for
additional Taxes, notice of Tax deficiency or other adjustment of Taxes of or
relating to any liability of the Partnership or its partners for Taxes for any
taxable year or other taxable period ending after the Closing Date; PROVIDED,
HOWEVER, that neither Sellers nor any of their duly appointed representatives
shall, without the prior written consent of the Purchasers, which consent shall
not be unreasonably withheld, enter into any settlement of any contest or
otherwise compromise any issue that affects or may affect the Tax liability of
the Purchasers or any of their Affiliates for any taxable year or other taxable
period or portion thereof ending on or after the Closing Date.
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10.3 PAYMENT OF TAXES.
(a) Taxes of the Partnership that relate to any taxable year or other
taxable period beginning on or before the Closing Date and ending after the
Closing Date (the "Overlap Period") shall be apportioned between the portion of
such period ending on the Closing Date and the portion of such period beginning
after the Closing Date on the basis of an interim closing of the books as of the
Closing Date (the "Closing Balance Sheet and Income Statement"), and based on
accounting methods, elections and conventions that do not have the effect of
distorting income or expenses. The Closing Balance Sheet and Income Statement
shall be prepared by the Company not later than 60 days after the Closing Date,
and provided for the Sellers and the Purchasers. The Sellers shall pay to
Purchasers or the appropriate taxing authority the Taxes calculated with respect
to the portion of the Overlap Period ending on the Closing Date (as determined
by the Sellers and Purchasers using the procedure set forth under Section 10.1),
but any such payment required by the Sellers shall be reduced by the amount of
such Taxes already paid by the Sellers or any Affiliate of the Sellers
(including, without limitation, the Partnership) on or prior to the Closing Date
or accrued or otherwise reflected as a liability for such period on the Closing
Balance Sheet and Income Statement.
(b) Except as otherwise provided in this Section, the Sellers agree to
indemnify and hold harmless Purchasers against all Taxes of or with respect to
the Partnership for all taxable years or other taxable periods ending on or
prior to the Closing Date and, with respect to any Overlap Period, the portion
of such taxable year or other taxable period ended on the Closing Date; if and
to the extent that the amount of such Taxes would, in any case or in the
aggregate, exceed the aggregate amount of recorded liability accruals for Taxes
reflected on the Closing Balance Sheet and Income Statement.
(c) After the Closing Date, the participation of the Partnership in all
Tax sharing agreements and other Tax sharing arrangements with respect to
taxable years ending on or prior to the Closing Date to which the Sellers, or
any Affiliate of the Sellers (other than the Partnership), on the one hand, and
the Partnership on the other, are parties shall be terminated and none of the
Sellers, the Purchasers or the Partnership shall have any continuing obligation
to make any payment thereunder.
(d) The parties hereto agree that all indemnification payments under
Section 10.3 shall be treated as adjustments to the Purchase Price.
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10.4 NOTICES.
(a) Purchasers shall promptly forward to the Sellers (and to the Company
to the extent it involves the Company) all written notifications and other
communications from any taxing authority received by Purchasers or any of their
Affiliates relating to any Tax audit or other proceeding relating to the Tax
liability of or with respect to the Partnership, the Company or the Related
Companies with regard to any Pre-Closing Period or Overlap Period. The failure
of Purchasers to give the Sellers such written notice shall excuse the Sellers
from their obligations under Section 10.3 with respect to any increased Tax
liability directly or indirectly attributable to the subject matter of any such
written notification or other communication, but only to the extent that such
failure on the part of Purchasers (a) results in a Tax liability greater than
the Tax liability owing by the Sellers or their Affiliates had such failure not
occurred or (b) otherwise adversely affects the ability of the Sellers to defend
the action.
(b) Sellers shall promptly forward to the Purchasers (and to the Company
to the extent it involves the Company) all written notifications and other
communications from any taxing authority received by Sellers or any of their
Affiliates relating to any Tax audit or other proceeding relating the Tax
liability of or with respect to the Partnership, the Company or the Related
Companies with regard for an Overlap Period or a period which begins after the
Closing Date. The failure of the Sellers to give the Purchasers such written
notice shall excuse the Purchasers from their obligations under Section 10.3
with respect to any increased Tax liability directly or indirectly attributable
to the subject matter of any such written notification or other communication,
but only to the extent that such failure on the part of Sellers (a) results in a
Tax liability greater than the Tax liability owing by the Purchasers or their
Affiliates had such failure not occurred or (b) otherwise adversely affects the
ability of the Purchasers to defend the action.
10.5 COOPERATION. Purchasers shall provide the Sellers and their designees
with such assistance as may reasonably be requested by the Sellers, or any such
designee, in connection with the preparation of any Tax Return, audit or
judicial or administrative proceeding or determination relating to liability for
Taxes of or with respect to the Partnership, including, but not limited to,
access to the books and records, and the assistance of the officers and
employees, of the Partnership and, to the extent they can do so, of the Company
and the Related Companies. Sellers shall provide the Purchasers and their
designees with such assistance as may reasonably be requested by the Purchasers,
or any such designee, in connection with the preparation of any Tax Return,
audit or judicial or administrative proceeding or determination relating to
liability for Taxes of or with respect to the Partnership, including, but not
limited to, access to the books and records, and the assistance of the former
officers and employees, of the Partnership and, to the extent they can do so, of
the Company and the Related Companies. Purchasers and the Sellers acknowledge
that any and all information obtained in connection with the preparation of any
Tax Return, audit or judicial or administrative proceeding or determination
pursuant to this Section 10.5 is of a confidential nature and that all such
information shall be used only for the purposes set forth in the immediately
preceding sentence.
10.6 TRANSFER TAXES. All stamp, transfer, documentary, sales, use,
registration and other such taxes and fees (including any penalties and
interest) incurred in connection with this Agreement and the transactions
contemplated hereby (collectively, the "Transfer Taxes") shall be paid by the
Sellers, and the Sellers shall, at their own expense, properly file on a timely
basis all necessary Tax Returns and other documentation with respect to any
Transfer Tax and provide to Purchasers evidence of payment of all Transfer
Taxes.
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ARTICLE XI
INDEMNIFICATION BY SELLERS
11.1 INDEMNIFICATION. In addition to and not in limitation of the
indemnities provided in Article X (which Article sets forth the exclusive remedy
of Purchasers and the Sellers in respect of the matters covered thereby) from
and after the Closing Date, subject to the other provisions of this Article XI,
the Sellers shall indemnify Purchasers and the Partnership and each of their
respective current, former and future officers, directors, agents and employees
(collectively, the "Indemnified Purchaser Entities") and hold each of them
harmless from and against, and agrees to assume liability for, any and all
Damages suffered, paid or incurred by any Indemnified Purchaser Entity, arising
from or in connection with or resulting from:
(a) any breach of any of the representations and warranties made
by the Sellers or the Company to Purchasers in this Agreement,
(b) any breach by the Sellers or the Company of any covenant, obligation
or agreement of the Sellers or the Company contained in this Agreement;
(c) any third party claims or costs reasonably incurred by Purchasers to
avoid or otherwise mitigate Damages in connection with any facts, matters or
circumstances which, in the reasonable judgment of the Purchasers, could result
in a third party claim against either Purchaser, in either case resulting from,
based on or arising out of, directly or indirectly, in whole or in part, the
operation of the business of the Partnership, the Company or the Related
Companies prior to the Closing Date;
(d) any of the matters referred to in Section 11.1(d) of the Purchaser
Disclosure Schedule (the "Retained Liabilities"); and
(e) VA No Bids, and Buydowns resulting from or made to avoid a VA No Bid,
in connection with any VA guaranteed Mortgage Loan owned by the Company or a
Related Company on the Closing Date with respect to which Foreclosure
proceedings have been initiated within two (2) years after the Closing Date,
including a Buydown Loss.
For the purposes of establishing whether any matter is indemnifiable pursuant to
this Section 11.1, or whether any representation or warranty in this Agreement
has been breached, the accuracy of the representations and warranties made in
this Agreement shall be determined without giving effect to any updates after
the Effective Date to any disclosure on the Seller Disclosure Schedule, or the
Purchaser Disclosure Schedule, as the case may be, which adds information which
was not set forth on such Disclosure Schedule delivered as of the Effective
Date.
11.2 INDEMNIFICATION PROCEDURE.
(a) If an Indemnified Purchaser Entity believes that a claim, demand or
other circumstance exists that has given or may reasonably be expected to give
rise to a right of indemnification under this Article XI (whether or not the
amount of Damages relating thereto is then quantifiable), such Indemnified
Purchaser Entity shall promptly assert its claim for indemnification by giving a
Claim Notice to the Sellers. Each Claim Notice shall describe the claim in
reasonable detail. The failure to so notify the Sellers shall not relieve the
Sellers of any obligation to indemnify any Indemnified Purchaser Entity unless
the Sellers demonstrate that such failure materially prejudices the rights or
increases the liability of the Sellers with respect to the claim to which the
Claim Notice relates and then the Sellers' obligation to indemnify shall be
reduced only by the amount that they actually have been damaged thereby.
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(b) If any claim or demand by an Indemnified Purchaser Entity under this
Article XI relates to an action or claim filed or made against an Indemnified
Purchaser Entity by a third party, except as otherwise provided herein, the
Sellers may elect at any time to negotiate a settlement or a compromise of such
action or claim or to defend such action or claim, in each case at their sole
cost and expense (subject to the last sentence of this Section 11.2(b)) and with
their own counsel, provided that such counsel is satisfactory to the Indemnified
Purchaser Entity in the exercise of its reasonable discretion. If (i) within ten
(10) days of receipt from an Indemnified Purchaser Entity of any Claim Notice
with respect to a third-party action or claim, the Sellers (A) advise such
Indemnified Purchaser Entity in writing that the Sellers will not elect to
defend, settle or compromise such action or claim or (B) fail to make such an
election to defend, settle, or compromise such action or claim in writing, (ii)
the Indemnified Purchaser Entity reasonably believes that the assumption of the
defense or prosecution of all or a portion of such action or claim is necessary
to assure that its right or ability to enforce any portion of the Mortgage Loans
or Servicing or its other mortgage loans or servicing rights or to assure that
its method of doing business or its authority and approvals to service or
originate loans are not materially impaired or its reputation, or (iii)
Purchasers reasonably determine that there likely exists a material conflict
between the interests of the Indemnified Purchaser Entities and the interests of
the Sellers, such Indemnified Purchaser Entity may, at its option, defend,
settle or otherwise compromise or pay such action or claim and the costs and
expenses arising out of the defense, settlement or compromise of any such action
or claim shall be Damages subject to indemnification hereunder. If the
Indemnified Purchaser Entity shall elect to exercise such right, the Sellers
shall have the right to participate in, but not control, the defense, compromise
or settlement of such third party claim at its sole cost and expense. Each
Indemnified Purchaser Entity shall make available to the Sellers all information
reasonably available to such Indemnified Purchaser Entity relating to such
action or claim. In addition, the parties hereto shall render to each other such
assistance as may reasonably be requested in order to ensure the proper and
adequate defense of any such action or claim. The party in charge of the defense
shall keep the other party fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. If the Sellers
elect to defend any such action or claim, then the Indemnified Purchaser Entity
shall be entitled to participate in such defense with the counsel of its choice,
which shall be reasonably acceptable to the Sellers, at such Indemnified
Purchaser Entity's sole cost and expense. Neither the Sellers nor the
Indemnified Purchaser Entity shall be entitled to settle, compromise or
otherwise dispose of any action or claim of more than $10,000 without the
written consent of the other, which consent shall not be unreasonably withheld
or delayed. The Sellers shall not settle, compromise or otherwise dispose of any
action or claim that imposes any non-monetary obligation on any Indemnified
Purchaser Entity without Purchasers' consent, which may be given or withheld in
their sole discretion.
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(c) If an indemnification claim made under this Article XI involves a
matter other than a third party claim, the Sellers shall have thirty (30) days
after receipt of the Claim Notice to object to such claim by delivery of a
written notice of objection to the Indemnified Purchaser Entities, specifying in
reasonable detail the basis of such objection. Failure to timely so object shall
constitute a final and binding acceptance of the indemnification claim by the
Sellers, and the claim shall be paid in accordance with Section 11.2(d) hereof.
(d) The Sellers shall pay any claim for which they are liable hereunder
within thirty (30) days after the receipt of a Claims Notice. If the Sellers
dispute any portion of a Claims Notice, they shall pay the undisputed portion
while negotiating the disputed portion. In the event the Sellers do not make a
payment when due under the terms of this Agreement, interest shall be paid on
such payment at a rate per annum (using a 365 day year) of ten percent (10%) and
such interest shall be calculated from the date the payment was due to the date
of payment. Acceptance by an Indemnified Purchaser Entity of such interest shall
not constitute a waiver of any rights such party may have against the other for
breach of the Agreement or for failure to make payment when due.
11.3 LIMITATION ON LIABILITY. Notwithstanding anything to the contrary
contained in this Article XI, the Indemnified Purchaser Entities shall not be
entitled to indemnification pursuant to this Article XI with respect to any
claim for indemnification pursuant to Section 11.1 as follows:
(a) (i) with respect to any claim of indemnification pursuant to Section
11.1(a) (to the extent the relevant representation or warranty was made in
Article IV or Section 5.11), if the related Claim Notice is not received on or
before the date that is three years after the Closing Date or to the extent the
aggregate Damages which are the subject of those claims exceed $40,000,000, but
in the case of a claim made for breach of Section 4.10, after giving effect to
the application of the $500,000 threshold set forth in subsection (ii)(A) below;
except notwithstanding the above: (A) with respect to matters covered by Section
4.13 or 4.14, Article X or Section 5.11, time limit for delivery of a Claim
Notice will expire 30 days after expiration of the applicable statute of
limitations with respect to the subject matter of the claim and there will be no
limitation on the amount of aggregate Damages; and (B) with respect to matters
covered by Sections 4.1 or 4.8, there shall be no time limit for delivery of a
Claim Notice, but there will be no indemnity to the extent the aggregate Damages
exceed the Purchase Price, and
(ii) with respect to any claim for indemnification pursuant to
Section 11.1(a), (to the extent the relevant representation or warranty was made
in Article V, except for Section 5.11, or in Section 4.10 to the extent provided
for below), if the related Claim Notice is not received by Sellers on or before
the date that is ten years after the Closing Date or, with respect to Investor
requests for the repurchase of a Mortgage Loan, the term of the affected
Mortgage Loan, as the case may be, and there will be no indemnity to the extent
the aggregate Damages exceed the Purchase Price; except notwithstanding the
above: (A) no Claim Notice shall be sent with respect to a breach of Section 5.5
regarding a Portfolio Loan or a breach of Section 4.10 regarding Litigation
related to an individual mortgage loan, mortgaged property, or REO until Damages
to the Company for such breaches aggregate in excess of $500,000, and then only
to the extent of such excess with Damages being measured for these purposes in
the case of a breach of Section 5.5 regarding a Portfolio Loan as a loss with
respect to, or the reduced value of, a Portfolio Loan from the book value
reflected in the Interim Financial Statements, or the purchase price thereof, if
acquired after June 30, 2000, in either event without giving effect to any
further write downs other than to reflect payments received; and (B) with
respect to matters covered by Section 5.6, there shall be no time limit for
delivery of a Claim Notice or limitation on the amount of aggregate Damages; and
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(b) with respect to any claim for indemnification pursuant to Section
11.1(c), if the related Claim Notice is not received within three years of the
Closing Date, and there will be no indemnity to the extent the aggregate Damages
exceed the Purchase Price.
(c) with respect to any claim for indemnification pursuant to Sections
11.1(b), (d) or (e), there shall be no time limit for delivery of a Claim Notice
or limitation on the amount of aggregate Damages.
(d) The indemnification provided for in Section 11.1, subject to the
limitations in this Section 11.3, is the sole remedy to which either of the
Purchasers is entitled because of any breach of the representations and
warranties of the Sellers in this Agreement, except in the case of fraud.
11.4 DAMAGES TO COMPANY. Notwithstanding any other provisions of this
Agreement, except Section 8.2(j) and Article XIV, to the extent Damages consist
of Damages to the Company or a Related Company (whether because the assets of
the Company or a Related Company are not as represented and warranted, because
facts are not as represented or warranted, or otherwise), the liability of the
Sellers under this Article XI will be 45.94% of the Damages suffered by the
Company or the Related Company.
ARTICLE XII
INDEMNIFICATION BY PURCHASER
12.1 INDEMNIFICATION. In addition to and not in limitation of the
indemnities provided in Article X (which Article sets forth the exclusive remedy
of Purchasers and the Sellers in respect of the matters covered thereby), from
and after the Closing Date, subject to the other provisions of this Article XII,
Purchasers agree to indemnify the Sellers and their Affiliates and each of their
respective current, former and future officers, directors, agents and employees
(collectively, the "Indemnified Seller Entities") and to hold each of them
harmless from and against, and agree to assume liability for, any and all
Damages, suffered, paid or incurred by any Indemnified Seller Entity arising
from, in connection with or resulting from any breach by Purchasers of any
covenant, obligation or agreement of Purchasers contained in this Agreement due
to be performed by Purchasers after the Closing Date.
12.2 INDEMNIFICATION PROCEDURE.
(a) If an Indemnified Seller Entity believes that a claim, demand or other
circumstance exists that has given or may reasonably be expected to give rise to
a right of indemnification under this Article XII (whether or not the amount of
Damages relating thereto is then quantifiable), such Indemnified Seller Entity
shall promptly assert its claim for indemnification by giving a Claim Notice to
Purchasers. Each Claim Notice shall describe the claim in reasonable detail. The
failure to so notify Purchasers shall not relieve Purchasers of any obligation
to indemnify any Indemnified Seller Entity unless such failure materially
prejudices the rights or increases the liability of Purchasers with respect to
the claim to which the Claim Notice related and then Purchasers' obligation to
indemnify shall be reduced only by the amount that it actually has been damaged
thereby.
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(b) If any claim or demand by an Indemnified Seller Entity under this
Article XII relates to an action or claim filed or made against an Indemnified
Seller Entity by a third party, except as otherwise provided herein, Purchasers
may elect at any time to negotiate a settlement or a compromise of such action
or claim or to defend any such action or claim, in each case at their sole cost
and expense (subject to the last sentence of this Section 12.2(b)) and with
their own counsel; provided that such counsel is satisfactory to the Indemnified
Seller Entity in the exercise of its reasonable discretion. If, within ten (10)
days of receipt from an Indemnified Seller Entity of any Claim Notice with
respect to a third party action or claim, Purchasers (i) advise such Indemnified
Seller Entity in writing that Purchasers will not elect to defend, settle or
compromise such action or claim, or (ii) fail to make such an election to
defend, settle, or compromise such action or claim in writing, such Indemnified
Seller Entity may (subject to Purchasers' continuing right of election in the
preceding sentence), at its option, defend, settle or otherwise compromise or
pay such action or claim. Unless and until Purchasers make an election in
accordance with this Section 12.2(b), all of such Indemnified Seller Entity's
reasonable costs and expenses arising out of the defense, settlement or
compromise of any such action or claim shall be Damages subject to
indemnification hereunder to the extent provided herein. Each Indemnified Seller
Entity shall make available to Purchasers all information reasonably available
to it relating to such action or claim. In addition, the parties shall render to
each other such assistance as may reasonably be requested in order to ensure the
proper and adequate defense of any such action or claim. The party in charge of
the defense shall keep the other party fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. If
Purchasers elect to defend any such action or claim, then the Indemnified Seller
Entity shall be entitled to participate in such defense with counsel of its
choice, which shall be reasonably acceptable to Purchasers, at such Indemnified
Seller Entity's sole cost and expense. Neither Purchasers nor the Indemnified
Seller Entity shall be entitled to settle, compromise or otherwise dispose of
any action or claim of more than $10,000 without the written consent of the
other, which consent shall not be unreasonably withheld or delayed.
12.3 LIMITATION ON LIABILITY. Notwithstanding anything to the contrary
contained in this Article XII, the Indemnified Seller Entities shall not be
entitled to indemnification pursuant to this Article XII with respect to any
claim for indemnification pursuant to Section 12.1:
(i) the Claim Notice with respect to which is not received on or
before the date that is three (3) years after the Closing Date; or
(ii) for aggregate Damages for all such claims in excess of $40
million.
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ARTICLE XIII
GENERAL PROVISIONS
13.1 NOTICES. All notices and other communications required or permitted
to be given hereunder shall be in writing and shall be deemed given if delivered
personally, transmitted by facsimile (and telephonically confirmed), mailed by
registered or certified mail with postage prepaid and return receipt requested,
or sent by commercial overnight courier, courier fees prepaid, to the parties at
the following addresses:
(a) if to Purchasers:
Residential Funding Corporation
8400 Normandale Lake Blvd., Suite 600
Minneapolis, MN 55437
Attn: Ken Duncan, Managing Director
with copies to:
Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W.
Suite 200
Washington, D.C. 20036
Attn: Laurence E. Platt, Esq.
and
Residential Funding Corporation
8400 Normandale Lake Blvd., Suite 600
Minneapolis, MN 55437
Attn: General Counsel
(b) if to the Sellers:
Enhance Financial Services Group Inc.
335 Madison Avenue
New York, NY 10017
Attn: Samuel Bergman, Esq., General Counsel
with copies to
Clifford Chance Rogers & Wells LLP
200 Park Avenue
New York, NY 10166
Attn: David W. Bernstein, Esq.
(c) if to the Company
Credit-Based Asset Servicing and Securitization, LLC
335 Madison Avenue, 19th Floor
New York, New York 10017
Attn: Chief Executive Officer
General Counsel
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with copies to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, N.Y. 10022
Attn: Paul N. Watterson, Esq.
or to such other Person or address as any party shall specify by notice in
writing to the other parties in accordance with this Section 13.1. All such
notices or other communications shall be deemed to have been received on the
date of the personal delivery or facsimile transmission (with telephone
confirmation) or on the third Business Day after the mailing or dispatch thereof
by first class mail from within the United States of America; provided that
notice of change of address shall be effective only upon receipt.
13.2 INTERPRETATION. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.3 AMENDMENT AND MODIFICATION; WAIVER.
(a) This Agreement and the Disclosure Schedules hereto may not be amended
except by an instrument or instruments in writing signed and delivered on behalf
of each of the parties hereto.
(b) At any time prior to the Closing Date, any party hereto which is
entitled to the benefits hereof may (i) extend the time for the performance of
any of the obligations or other acts of the other party, (ii) waive any
inaccuracy in the representations and warranties of the other party contained
herein or in any schedule hereto or in any document delivered pursuant hereto,
or (iii) waive compliance with any of the agreements of the other party or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed and delivered on behalf of such party.
13.4 ENTIRE AGREEMENT. This Agreement (including the Disclosure Schedules,
Exhibits and any agreement executed by (a) the Sellers or any Affiliate of the
Sellers and (b) Purchasers or any Affiliate of Purchasers on the Effective Date)
and the Confidentiality Agreements constitute the entire agreement and supersede
all other prior agreements and understandings, both written and oral, between
the parties with respect to the subject matter hereof, including a letter dated
August 25, 2000 from RFC to Morgan Stanley & Co. Incorporated which was signed
by EFS.
13.5 FEES AND EXPENSES. None of the expenses incurred or to be incurred by
the Sellers in connection with this Agreement and the consummation of the
transactions contemplated hereby (including all fees and expenses for services
rendered by any attorneys, accountants, investment bankers and other advisors
and agents of the Sellers in connection with the transactions contemplated
hereby) shall be expended by, or accrued or otherwise reflected on the books and
records of, the Partnership, the Company or the Related Companies.
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13.6 THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express or
implied, is intended to confer upon any Person (including, without limitation,
employees of the Sellers, the Partnership, the Company or the Related Companies)
other than the parties hereto or the Exonerated Parties with respect to Article
XIV, or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
13.7 ASSIGNMENT; BINDING EFFECT. This Agreement shall not be assigned by
any party hereto without the prior written consent of the other parties. This
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns.
13.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to conflicts of
laws principles thereof.
13.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
ARTICLE XIV
CONCERNING THE EXONERATION OF THE
COMPANY AND THE RELATED COMPANIES
14.1 ACCOMMODATION. The Company is a party to this Agreement at the
request of the Purchasers who desired that the Company carefully review the
representations and warranties in Article IV (insofar as they apply to the
Company) and in Article V as well as the covenants in Sections 2.3 and 7.1
hereof (such review is herein referred to as the "Review"). The Purchasers
assured the Company that the Company's becoming a party hereto for the purposes
of the Review would not result in any liability or obligation on the part of the
Company nor would the Purchasers be entitled to assert a claim against the
Company on account of the Review other than with respect to the Section 2.3
Obligations, as defined below. The Sellers, with respect to any liability or
obligation to them as a result of the Company becoming a party hereto or the
Review, made an equivalent assurance. As an accommodation to the Purchasers, the
Company, with the concurrence of its equity owners (a majority of the equity
interests in the Company being owned by persons other than the Sellers), agreed
to become a party to this Agreement on the condition that this Article XIV be
added to this Agreement. The Purchasers and the Sellers acknowledge that the
addition of Article XIV was the sole reason for the Company's becoming a party
to this Agreement and that but for the addition of this Article XIV the Company
would not have become a party to this Agreement. This paragraph is included in
Article XIV to memorialize the circumstances under which Article XIV was added
to this Agreement and as an aid in the construction of the following provisions
of Article XIV.
14.2 EXONERATION. Each of RFC, RFC Sub, EFS and Enhance GP acknowledges
and agrees, on behalf of itself and any person claiming by or through any of
them (and taking into account the provisions of Section 13.6 to the effect that
there are no third party beneficiaries of this Agreement), that notwithstanding
anything in this Agreement, any other instrument or any law (including statutes,
common law and regulations) (such law is hereinafter collectively referred to as
"Law") to the contrary, that:
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(a) with the sole exception of the obligations of the Company expressly
set forth in Section 2.3, as modified by the provisions of subsection (e) below,
(such obligations as so modified are herein referred to as the "Section 2.3
Obligations"), this Agreement creates no obligation, duty or liability of any
nature, legal or otherwise, on the part of the Company, any of the Related
Companies or any member (other than the Sellers as provided pursuant to this
Agreement), member of a member, officer, manager or employee of any of the
Company, or any of the Related Companies (such persons are collectively referred
to herein as the "Exonerated Persons"), any such obligation, duty or liability
that would have arisen in the absence of this Article XIV, whether under Law ,
contract or otherwise, being expressly waived by each of RFC, RFC Sub, EFS and
Enhance GP;
(b) other than with respect to the Section 2.3 Obligations, there shall be
no obligation duty or liability of any nature, legal or otherwise, on the part
of any Exonerated Person arising from, in connection with, or resulting from the
Review, any such obligation, duty or liability that would have arisen in the
absence of this Article XIV, whether under Law, contract or otherwise, being
expressly waived by each of RFC, RFC Sub, EFS and Enhance GP;
(c) except for any breach of the Section 2.3 Obligations, claims for which
may be asserted only against the Company (and not against any other Exonerated
Person) by RFC and RFC Sub, none of RFC, RFC Sub, EFS or Enhance GP will assert
any claim against any Exonerated Person arising from, in connection with, or
resulting from this Agreement or the Review (such a claim is herein referred to
as a "Prohibited Claim");
(d) if despite the provisions of subsection (c) above, any of RFC, RFC
Sub, EFS or Enhance GP assert a Prohibited Claim, the person asserting the
Prohibited Claim shall indemnify and hold harmless each Exonerated Person
against whom the Prohibited Claim has been asserted from all liabilities, costs
and expenses (including the costs and expenses of investigating and defending
against such prohibited Claim, which shall encompass reasonable attorneys' fees
and expenses) arising therefrom; and
(e) the obligations of the Company under Section 2.3 hereof shall be
deemed by this subsection (e) to be modified such that there shall be no breach
thereof unless it is demonstrated that the Company did not perform such
obligations in good faith.
It is the express intention of the parties, and regardless of whether a
different result may occur under Section 13.8 hereof, that the provisions of
this Section shall be construed as broadly as possible to provide the maximum
possible benefit to the Exonerated Persons and that any ambiguity in such
provisions shall be resolved in favor of the Exonerated Persons.
[SIGNATURES CONTAINED ON THE FOLLOWING PAGES]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their respective officers hereunto duly authorized
all on the Effective Date.
PURCHASERS:
RESIDENTIAL FUNDING CORPORATION
By: /s/ KEENEN DAMMEN
--------------------------
Name: KEENEN DAMMEN
--------------------------
Title: MANAGING DIRECTOR
--------------------------
RFC Acquisition Corp.
By: /s/ KEENEN DAMMEN
--------------------------
Name: KEENEN DAMMEN
--------------------------
Title: MANAGING DIRECTOR
--------------------------
[SIGNATURES CONTINUED ON THE FOLLOWING PAGES]
<PAGE>
[SIGNATURES CONTINUED FROM PRECEDING PAGES]
SELLERS:
ENHANCE FINANCIAL SERVICES GROUP INC.
By: /s/ DANIEL GROSS
---------------------------------------
Name: DANIEL GROSS
---------------------------------------
Title: PRESIDENT & CEO
---------------------------------------
ENHANCE C-BASS RESIDUAL FINANCE CORPORATION
By: /s/ J. KEITH BAKER
---------------------------------------
Name: J. KEITH BAKER
---------------------------------------
Title: SENIOR VICE PRESIDENT
---------------------------------------
[SIGNATURES CONTINUED ON THE FOLLOWING PAGE]
<PAGE>
[SIGNATURES CONTINUED FROM PRECEDING PAGES]
COMPANY:
CREDIT-BASED ASSET SERVICING AND
SECURITIZATION LLC
By: /s/ SAUL I. SANDERS
---------------------------------------
Name: SAUL I. SANDERS
---------------------------------------
Title: COO
---------------------------------------
