SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarter ended December 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number:
0000906420
BANK UNITED CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3528556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 SOUTHWEST FREEWAY, SUITE 1600
HOUSTON, TX 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 543-6958
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Number of shares outstanding of the registrant's $0.01 par value common stock as
of January 31, 1997 were as follows:
TITLE OF EACH CLASS NUMBER OF SHARES
------------------- ----------------
Class A 28,354,276
Class B 3,241,320
<PAGE>
BANK UNITED CORP.
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.................................. 1
Consolidated Statements of Financial Condition -
December 31, 1996 and September 30, 1996........................ 1
Consolidated Statements of Operations -
For the Three Months Ended December 31, 1996 and 1995........... 2
Consolidated Statements of Stockholders' Equity -
For the Three Months Ended December 31, 1996 and 1995........... 3
Consolidated Statements of Cash Flows -
For the Three Months Ended December 31, 1996 and 1995........... 4
Notes to Consolidated Financial Statements...................... 5
Independent Accountants' Report................................. 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 17
Item 2. Changes in the Rights of the Company's Security Holders......... 18
Item 3. Defaults by the Company Upon Senior Securities................. 18
Item 4. Submission of Matters to a Vote of Security Holders............. 18
Item 5. Other Information............................................... 18
Item 6a.Exhibits........................................................ 18
Item 6b.Reports of Form 8-K............................................. 21
Signatures.............................................................. 22
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents .................................................................. $ 132,816 $ 119,523
Securities purchased under agreements to resell and federal funds sold ..................... 582,236 674,249
Securities ................................................................................. 65,451 65,693
Mortgage-backed securities
Held to maturity, at amortized cost (fair value of $593.3 million in 1997
and $609.2 million in 1996) ..................................................... 610,368 630,048
Available for sale, at fair value ..................................................... 981,816 1,027,860
Loans
Held to maturity (net of the allowance for credit losses of $43.5 million
in 1997 and $39.6 million in 1996) .............................................. 7,667,117 7,227,153
Held for sale ......................................................................... 289,893
292,335
Federal Home Loan Bank stock ............................................................... 198,241 179,643
Premises and equipment ..................................................................... 38,934 40,209
Mortgage servicing rights .................................................................. 152,139 123,392
Real estate owned (net of the allowance for losses of $740 thousand in
1997 and $986 thousand in 1996) ....................................................... 33,169 29,744
Deferred tax asset ......................................................................... 153,211 168,323
Other assets ............................................................................... 154,255 134,205
------------ ------------
TOTAL ASSETS ............................................................................... $ 11,059,646 $ 10,712,377
============ ============
LIABILITIES, MINORITY INTEREST, AND STOCKHOLDERS'
EQUITY
LIABILITIES
Deposits ................................................................................... $ 4,999,286 $ 5,147,945
Federal Home Loan Bank advances ............................................................ 3,860,461 3,490,386
Securities sold under agreements to repurchase and federal funds
purchased ............................................................................. 1,038,086 832,286
Senior Notes ............................................................................... 115,000 115,000
Advances from borrowers for taxes and insurance ........................................... 99,048 146,634
Other liabilities .......................................................................... 217,117 263,583
------------ ------------
Total liabilities ............................................................ 10,328,998 9,995,834
------------ ------------
MINORITY INTEREST
Preferred stock issued by consolidated subsidiary .......................................... 185,500 185,500
------------ ------------
STOCKHOLDERS' EQUITY
Common stock ............................................................................... 316 316
Paid-in capital ............................................................................ 129,286 129,286
Retained earnings .......................................................................... 416,514 403,674
Unrealized losses on securities and mortgage-backed
securities available for sale, net of tax ............................................. (968) (2,233)
------------ ------------
Total stockholders' equity ................................................... 545,148 531,043
------------ ------------
TOTAL LIABILITIES, MINORITY INTEREST, AND
STOCKHOLDERS' EQUITY .................................................................. $ 11,059,646 $ 10,712,377
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
1
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
---------------------------------------
1996 1995
-------- ---------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Short-term interest-earning assets ................................................... $ 9,343 $ 7,181
Trading account assets ............................................................... 17 16
Securities ........................................................................... 963 1,443
Mortgage-backed securities ........................................................... 26,816 38,178
Loans ................................................................................ 159,264 167,293
Federal Home Loan Bank stock ......................................................... 2,700 3,674
-------- ---------
Total interest income .................................................. 199,103 217,785
-------- ---------
INTEREST EXPENSE
Deposits ............................................................................. 66,724 71,826
Federal Home Loan Bank advances ...................................................... 51,924 70,785
Securities sold under agreements to repurchase
and federal funds purchased ..................................................... 12,359 15,526
Senior Notes ......................................................................... 2,311 2,604
-------- ---------
Total interest expense ................................................. 133,318 160,741
-------- ---------
Net interest income .................................................... 65,785 57,044
PROVISION FOR CREDIT LOSSES .......................................................... 6,914 2,669
-------- ---------
Net interest income after provision for credit losses .................. 58,871 54,375
---------
NON-INTEREST INCOME
Net gains (losses)
Sales of single family servicing rights and single family
warehouse loans .............................................................. 10,489 10,063
Securities and mortgage-backed securities ....................................... 641 (36)
Other loans ..................................................................... 940 3,261
Loan servicing fees and charges ...................................................... 12,684 10,461
Other ................................................................................ 4,912 3,173
-------- ---------
Total non-interest income .............................................. 29,666 26,922
-------- ---------
NON-INTEREST EXPENSE
Compensation and benefits ............................................................ 19,975 20,411
Occupancy ............................................................................ 4,255 4,626
Data processing ...................................................................... 3,801 3,970
Advertising and marketing ............................................................ 2,255 1,471
Amortization of intangibles .......................................................... 5,824 4,760
SAIF deposit insurance premiums ...................................................... 2,957 3,044
Furniture and equipment .............................................................. 1,219 1,580
Other ................................................................................ 12,792 9,430
-------- ---------
Total non-interest expense ............................................. 53,078 49,292
-------- ---------
Income before income taxes and minority interest ....................... 35,459 32,005
INCOME TAX EXPENSE ................................................................... 13,633 13,134
-------- ---------
INCOME BEFORE MINORITY INTEREST ...................................................... 21,826 18,871
Less minority interest
Subsidiary preferred stock dividends ............................................. 4,563 4,563
Payments in lieu of dividends .................................................... -- 224
-------- ---------
NET INCOME ........................................................................... $ 17,263 $ 14,084
======== =========
EARNINGS PER COMMON SHARE ............................................................ $ 0.55 $ 0.46
======== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
2
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------------------------------------------
CLASS A CLASS B CLASS C
----------------- ------------------ ---------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- ---- ---------- ---- --------- ---
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1995 .................... 23,828,400 $239 -- $-- 5,034,600 $50
Net income ........................ -- -- -- -- -- --
Change in unrealized
gains (losses) ................ -- -- -- -- -- --
---------- ---- ---------- ---- --------- ---
BALANCE AT
DECEMBER 31, 1995 ..................... 23,828,400 $239 -- $-- 5,034,600 $50
========== ==== ========== ==== ========= ===
BALANCE AT
SEPTEMBER 30, 1996 .................... 27,735,934 $277 3,859,662 $ 39 -- $--
Net income ........................ -- -- -- -- -- --
Dividend declared: common
stock ($0.14 per share) ...... -- -- -- -- -- --
Conversion of common stock ........ 618,342 7 (618,342) (7) -- --
Change in unrealized gains (losses) -- -- -- -- --
---------- ---- ---------- ---- --------- ---
BALANCE AT
DECEMBER 31, 1996 ..................... 28,354,276 $284 3,241,320 $ 32 -- $--
========== ==== ========== ==== ========= ===
</TABLE>
<TABLE>
<CAPTION>
UNREALIZED TOTAL
PAID-IN RETAINED GAINS
STOCKHOLDERS'
CAPITAL EARNINGS (LOSSES) EQUITY
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
BALANCE AT
SEPTEMBER 30, 1995 .................... $117,722 $ 384,739 $(6,647) $ 496,103
Net income ........................ -- 14,084 -- 14,084
Change in unrealized
gains (losses) ................ -- -- 3,328 3,328
-------- --------- ------- ---------
BALANCE AT
DECEMBER 31, 1995 ..................... $117,722 $ 398,823 $(3,319) $ 513,515
======== ========= ======= =========
BALANCE AT
SEPTEMBER 30, 1996 .................... $129,286 $ 403,674 $(2,233) $ 531,043
Net income ........................ -- 17,263 -- 17,263
Dividend declared: common
stock ($0.14 per share) ...... -- (4,423) -- (4,423)
Conversion of common stock ........ -- -- -- --
Change in unrealized gains (losses) -- -- 1,265 1,265
-------- --------- ------- ---------
BALANCE AT
DECEMBER 31, 1996 ..................... $129,286 $ 416,514 $ (968) $ 545,148
======== ========= ======= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
BANK UNITED CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash (used) provided by operating activities ........................... $ (110,796) $ 368,637
CASH FLOWS FROM INVESTING ACTIVITIES
Net change in securities purchased under agreements to resell and
federal funds sold .................................................. 92,013 (87,634)
Purchases of securities held to maturity ................................... -- (1,460)
Proceeds from maturities of securities held to maturity .................... -- 1,500
Purchases of mortgage-backed securities held to maturity ................... -- (3,841)
Repayments of mortgage-backed securities held to maturity .................. 19,258 107,578
Proceeds from sales of securities available for sale ....................... 45,336 64,983
Proceeds from sales of mortgage-backed securities available for sale ....... --
58,833
Repayments of mortgage-backed securities available for sale ................ 47,374 2,615
Purchases of loans held to maturity ........................................ (456,118) (78,284)
Proceeds from sales of loans held to maturity .............................. 10,619 --
Change in loans held to maturity ........................................... (12,364) 119,039
Purchases of Federal Home Loan Bank stock .................................. (15,898) --
Purchases of premises and equipment ........................................ (2,265) (1,173)
Proceeds from sales of real estate owned acquired through foreclosure ...... 13,466 10,919
Proceeds from sales of servicing rights .................................... 7,461 --
----------- -----------
Net cash (used) provided by investing activities ................. (251,118) 193,075
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits ..................................................... (148,659) (145,934)
Proceeds from Federal Home Loan Bank advances .............................. 1,386,202 100,000
Repayment of Federal Home Loan Bank advances ............................... (1,016,127) (135,000)
Net change in securities sold under agreements to repurchase and
federal funds purchased ............................................. 205,800 (234,533)
Change in advances from borrowers for taxes and insurance .................. (47,586) (48,315)
Payment of dividends ....................................................... (4,423) --
----------- -----------
Net cash provided (used) by financing activities ................. 375,207 (463,782)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ........................................... 13,293 97,930
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .................................... 119,523 112,931
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .......................................... $ 132,816 $ 210,861
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION AND NONCASH
INVESTING ACTIVITIES
Cash paid for interest ..................................................... $ 131,622 $ 165,352
Cash paid for income taxes ................................................. 185 429
Real estate owned acquired through foreclosure ............................. 20,776 15,083
Sales of real estate owned financed by the Bank ............................ 3,764 --
Securitization of loans .................................................... 49,157 --
Transfer of loans (to) from held to maturity ............................... (46) 178,690
Transfer of mortgage-backed securities from held to maturity
to available for sale ............................................... -- 1,244,945
Change in unrealized gains on securities and
mortgage-backed securities available for sale ....................... 1,265 3,328
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
Bank United Corp. (the "Parent Company") was incorporated in the state
of Delaware on December 19, 1988, and became the holding company for Bank
United, a federal savings bank (the "Bank") upon the Bank's formation on
December 30, 1988. In December 1996, the Parent Company formed a new, wholly
owned, Delaware subsidiary, BNKU Holdings, Inc. ("Holdings"). After acquiring
all of the common stock of Holdings, the Parent Company contributed all of the
common stock of the Bank to Holdings, and Holdings assumed the Parent Company's
obligations for $115 million 8.05% senior notes due May 15, 1998 (the "Senior
Notes"). As a result of these transactions, Holdings is the sole subsidiary of
the Parent Company and the Bank is the sole subsidiary of Holdings.
The accompanying unaudited Consolidated Financial Statements include
the accounts of the Parent Company, Holdings, the Bank, and the Bank's wholly
owned subsidiaries (collectively known as the "Company"). To date, the results
of operations of the Bank's subsidiaries have not been significant to the
consolidated results of operations. All significant intercompany accounts have
been eliminated in consolidation. The Parent Company has no significant assets
other than the equity interest in Holdings and Holdings has no significant
assets other than the equity interest in the Bank. Substantially all of the
Company's consolidated revenues are derived from the operations of the Bank.
2. BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements were
prepared in accordance with the instructions for Form 10-Q and, therefore, do
not include all disclosures necessary for a complete presentation of financial
condition, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments (consisting of only normal
recurring adjustments) that are necessary, in the opinion of management, for a
fair presentation of the interim financial statements have been included. The
results of operations for the three months ended December 31, 1996 are not
necessarily indicative of the results that may be expected for the entire fiscal
year or any interim period. The interim financial information should be read in
conjunction with the Consolidated Financial Statements and Notes included in the
Company's 1996 Annual Report on Form 10-K filed with the Securities and Exchange
Commission ("SEC").
Certain amounts within the accompanying Consolidated Financial
Statements and the related Notes as of September 30, 1996 and December 31, 1995
have been reclassified for comparative purposes to conform to the current
presentation. Such reclassifications had no effect on previously presented net
income or retained earnings.
3. EARNINGS PER COMMON SHARE
Earnings per common share is calculated by dividing net income
(adjusted in fiscal 1996 for earnings on the common stock equivalents
attributable to warrants issued by the Bank no longer outstanding as of August
1996) by the weighted average number of shares of common stock outstanding.
Common stock equivalents on the Bank's warrants were computed using the treasury
stock method. The table below presents information necessary for the computation
of earnings per common share (in thousands, except share data and earnings per
common share).
FOR THE THREE MONTHS
ENDED DECEMBER 31,
--------------------------
1996 1995
----------- ------------
Net income ....................................... $ 17,263 $ 14,084
Less: Bank's net income attributable to common
stock equivalents on warrants ...... -- (940)
----------- ------------
Net income applicable to common shares ........... $ 17,263 $ 13,144
=========== ============
Average number of common shares outstanding ...... 31,595,596 28,863,000
=========== ============
EARNINGS PER COMMON SHARE ........................ $ 0.55 $ 0.46
=========== ============
4. EMPLOYEE BENEFITS
On October 1, 1996, the Company adopted Statement of Financial
Accounting Standard ("SFAS") No. 123, "Accounting for Stock-Based Compensation."
This statement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages adoption of that method
for all employee stock compensation plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the
5
<PAGE>
intrinsic value based method currently
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
being followed by the Company and make pro forma disclosures of net income and
earnings per share under the fair value based method of accounting. The Company
will continue accounting for stock-based employee compensation plans in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" and will disclose pro forma fair value
information as prescribed by SFAS No. 123.
1996 STOCK INCENTIVE PLAN
In December 1996, the Company granted options to purchase 147,500
shares of its common stock to certain employees of the Bank under the Bank
United 1996 Stock Incentive Plan. Compensation expense was not recognized for
the stock options because the options had an exercise price approximating the
fair value of the Company's common stock at the date of grant. These options
will vest at the end of three years ("cliff vesting") and will expire if not
exercised within ten years of the date of grant. The maximum number of shares of
Class A common stock available for grant under this plan is 1,600,000 shares.
MANAGEMENT COMPENSATION PROGRAM
In June 1996, the Company's Board of Directors approved a management
compensation program for the Company's executive officers, other key officers
and employees, and certain directors containing the following provisions: (i) a
cash bonus of $4.0 million; (ii) the award of 318,342 shares of Company Class B
common stock with restrictions on its transferability for a period of three
years from its issuance ("Restricted Stock"); and (iii) the issuance of
1,154,520 options for purchase of an equivalent number of shares of Company
common stock (such options vest ratably from the date of grant through June 26,
1999 and may not be exercised prior to the third anniversary of the date of
grant). The options' exercise price of $20.125 per share was set at an amount
not less than the fair market value at the date of the grant and the options
will expire if not exercised within ten years of the date of the grant.
Compensation expense totalling $7.8 million, $4.8 million net of tax,
was recognized in the quarter ended June 30, 1996 for the cash bonus and the
Restricted Stock award. Compensation expense was not recognized for the stock
options, as the options had an exercise price approximating the fair value of
the Company's common stock at the date of grant.
DIRECTOR STOCK COMPENSATION PLAN
In June 1996, the Company's Board of Directors approved a director
stock plan for each member of the Company's Board who is not an employee of the
Company or any subsidiary of the Company ("Eligible Director"). Each Eligible
Director will be granted stock options to purchase 1,000 shares of Class A
common stock of the Company when first elected to the Company's Board of
Directors and following each annual stockholders' meeting thereafter. The
options exercise price is 115% of the fair value of the Company's common stock
at the date of grant. The Company granted 10,000 options under the director
stock plan during fiscal 1996. These options vest and become exercisable if and
when the fair value of the Company's common stock equals or exceeds the exercise
price of the option on any day during the 30-day period commencing on the first
anniversary of the date of the grant ("vesting window"). If these stock options
do not vest during the vesting window, they will be cancelled and all vested
options will expire if not exercised within ten years of the date of grant. The
maximum number of shares of Class A common stock available for grant under this
plan is 250,000 shares.
A summary of the status of the Company's stock option plans as of
December 31, 1996 and changes during the three months ending on that date is
presented below. The Company granted no options in the quarter ended December
31, 1995 and had no options outstanding at December 31, 1995. No options were
exercised, forfeited or expired during the three months ended December 31, 1996.
The weighted-average grant date fair value for the options granted during the
three months ended December 31, 1996 was $9.50 per share. The fair value of each
stock option was estimated using the Black- Scholes option pricing model with
the following weighted-average assumptions used for grants in the three months
ended December 31, 1996: estimated volatility of 25.79%; risk-free interest rate
of 6.22%; dividend yield of 2.10%; and an expected life of ten years. The
weighted- average remaining contractual life of options outstanding at December
31, 1996 was 9.6 years. None of the options outstanding at December 31, 1996
were exercisable.
6
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Number of Weighted-Average Range of
SHARES EXERCISE PRICE EXERCISE PRICES
--------- ------ -----------------
Granted during fiscal 1996 ........ 1,164,520 $20.15 $20.125 - $27.394
Granted during fiscal 1997 ........ 147,500 26.85 $25.250 - $26.875
--------- ------ -----------------
Outstanding at December 31, 1996 .. 1,312,020 20.91 $20.125 - $27.394
========= ====== =================
The Company applies APB Opinion No. 25 in accounting for its stock
compensation plans. Accordingly, no compensation cost has been recognized for
its stock option plans. Had compensation cost been determined based on the fair
value at the grant date for awards consistent with SFAS No. 123, the Company's
net income and earnings per share would have been $16.6 million and $0.53 for
the three months ended December 31, 1996.
5. RECENT ACCOUNTING STANDARDS
On October 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This statement requires that long-lived assets and certain identified
intangibles held and used by an entity, along with goodwill related to those
assets, be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. An
impairment loss must be recognized if the estimate of the future cash flows
(undiscounted and without interest charges) resulting from the use of the asset
and its eventual disposition is less than the carrying amount of the asset. The
adoption of this pronouncement did not have a material effect on the
Consolidated Financial Statements.
In June 1996, SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities" was issued. This statement
requires that, after a transfer of financial assets, an entity recognize the
financial and servicing assets it controls and the liabilities it has incurred,
derecognize financial assets when control has been surrendered, and derecognize
liabilities when extinguished. This statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. This statement is effective for transfers and servicing
of financial assets and extinguishment of liabilities occurring after December
31, 1996. SFAS No. 127, "Deferral of Certain Provisions of FASB Statement No.
125", was issued in December 1996 and defers for one year the effective date of
SFAS No. 125 for (i) secured borrowings and collateral for all transactions and
(ii) transfers of financial assets for repurchase agreements, dollar rolls,
securities lending, and similar transactions. SFAS No. 125, as amended, is to be
applied prospectively and earlier or retroactive application is not permitted.
Implementation of these pronouncements should have no material effect on the
Consolidated Financial Statements.
6. SUBSEQUENT EVENTS
In January 1997, the Company filed a registration statement with the
SEC to register 10.2 million outstanding shares of its Class A common stock.
These shares were subject to restrictions on sale and transfer due to agreements
entered into in connection with the Company's August 1996 common stock public
offering. Such restrictions expire as follows; 7.4 million shares on February
10, 1997 and 2.8 million shares on August 14, 1997. After these dates, the 10.2
million shares may be offered and sold from time to time by the holding
shareholders. The Company will not receive any of the proceeds from the sale of
these shares.
In January 1997, the Company filed a registration statement with the
SEC for the offering of $100 million fixed-rate subordinated notes due 2004 and
$120 million fixed-rate subordinated notes due 2007. Net proceeds from this
offering will be used to repurchase and retire the Company's $115 million, 8.05%
Senior Notes due May 1998 and to pay related costs and expenses. The Company
will use the remainder of the net proceeds of the offering to increase the
equity capital of the Bank. The Bank will use the proceeds of such investment
for general corporate purposes, which may include the acquisition of the stock
or assets of financial institutions and the funding of internal growth. The
completion of the subordinated debt offering is contingent upon market
conditions and other factors.
7
<PAGE>
BANK UNITED CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On January 17, 1997, the Company sold all of its 61 retail mortgage
origination offices located outside of Texas, its El Paso retail origination
office, four of its twelve wholesale lending offices, and related administrative
and support functions to National City Mortgage Co ("NCM"). The Company's sale
of these businesses was consistent with its commitment to advance its strategic
focus on traditional community and commercial banking products and services. The
Company intends to continue its mortgage origination capability in Texas through
its 70-branch locations in the state and will retain certain units of its
mortgage business, including its mortgage servicing business. The Company does
not expect the sale to have a material adverse effect on its financial condition
or results of operation. The assets sold will be transferred to NCM on February
1, 1997.
8
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors and Stockholders of
Bank United Corp.:
We have reviewed the accompanying condensed consolidated statement of financial
condition of Bank United Corp. and its subsidiaries (collectively known as the
"Company") as of December 31, 1996, and the related condensed consolidated
statements of operations, stockholders' equity, and cash flows for the
three-month periods ended December 31, 1996 and 1995. These financial statements
are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition of Bank United
Corp. and its subsidiary as of September 30, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated October 28, 1996, we
expressed an unqualified opinion, including an explanatory paragraph regarding
the Company's change in its method of accounting for mortgage servicing rights
effective October 1, 1994 on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
statement of financial condition as of September 30, 1996 is fairly stated, in
all material respects, in relation to the consolidated statement of financial
condition from which it has been derived.
Deloitte & Touche LLP
January 23, 1997
9
<PAGE>
BANK UNITED CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCUSSION OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
AND 1995
GENERAL
Net income was $17.3 million ($0.55 per share) for the three months
ended December 31, 1996, compared to $ 14.1 million ($0.46 per share) for the
three months ended December 31, 1995, reflecting a 23% increase. Operating
earnings were $33.9 million and $28.8 million for the same periods. Operating
earnings includes net income before taxes and minority interest and excludes net
gains (losses) on securities, mortgage-backed securities ("MBS"), and other
loans. The increase in net income and operating earnings reflected an increase
in net interest income and higher loan servicing fees and charges, partially
offset by an increase in the provision for credit losses and increased
non-interest expenses.
NET INTEREST INCOME
Net interest income was $65.8 million for the three months ended
December 31, 1996, compared to $57.0 million for the three months ended December
31, 1995, reflecting an $8.8 million, or 15 % increase. This increase is
attributable to a 53 basis point increase in the net yield on interest-earning
assets ("net yield"), partially offset by a $1.1 billion decrease in average
interest-earning assets.
AVERAGE BALANCE SHEET, INTEREST INCOME/EXPENSE, AND AVERAGE YIELD/RATE
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------------
1996 1995
----------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE(2) BALANCE INTEREST RATE(2)
----------- -------- ---- ----------- -------- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Short-term interest-earning assets ....................... $ 634,129 $ 9,343 5.77 % $ 450,470 $ 7,181 6.24%
Trading account assets ................................... 1,186 17 5.73 1,119 16 5.72
Securities ............................................... 75,534 963 5.06 113,995 1,443 5.02
Mortgage-backed securities ............................... 1,612,074 26,816 6.65 2,278,177 38,178 6.70
Loans (1) ................................................ 7,724,234 159,264 8.24 8,253,639 167,293 8.11
FHLB stock ............................................... 183,361 2,700 5.84 226,072 3,674 6.45
----------- -------- ---- ----------- -------- ----
Total interest-earning assets ................... 10,230,518 199,103 7.77 11,323,472 217,785 7.69
Non-interest-earning assets ................................... 543,404 -- -- 392,908 -- --
----------- -------- ---- ----------- -------- ----
TOTAL ASSETS .................................... $10,773,922 -- -- $11,716,380 -- --
=========== ======== ==== =========== ======== ====
INTEREST-BEARING LIABILITIES
Deposits ................................................. $ 5,110,113 66,724 5.18 $ 5,139,670 71,826 5.54
FHLB advances ............................................ 3,599,127 51,924 5.65 4,376,559 70,785 6.33
Securities sold under agreements to
repurchase and federal funds purchased .................. 872,321 12,359 5.54 1,027,475 15,526 5.91
Senior Notes ............................................. 115,000 2,311 8.05 115,000 2,604 9.05
----------- -------- ---- ----------- -------- ----
Total interest-bearing liabilities .............. 9,696,561 133,318 5.42 10,658,704 160,741 5.94
Non-interest-bearing liabilities and stockholders' equity ..... 1,077,361 -- -- 1,057,676 -- --
----------- -------- ---- ----------- -------- ----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ............................ $10,773,922 -- -- $11,716,380 -- --
=========== ======== ==== =========== ======== ====
Net interest income/interest rate spread ...................... -- $ 65,785 2.35% -- $ 57,044 1.75%
=========== ======== ==== =========== ======== ====
Net yield on interest-earning assets .......................... -- -- 2.63% -- -- 2.10%
=========== ======== ==== =========== ======== ====
Ratio of average interest-earning assets to
average interest-bearing liabilities ..................... 1.06 -- -- 1.06 -- --
=========== ======== ==== =========== ======== ====
</TABLE>
(1) Includes nonaccrual loans.
(2) Annualized.
10
<PAGE>
BANK UNITED CORP.
During the three months ended December 31, 1996, the yield on
interest-earning assets increased 8 basis points and the cost of funds decreased
52 basis points as compared to the three months ended December 31, 1995,
resulting in an increase in the net yield, to 2.63% from 2.10% for the same
periods. The net yield was positively impacted by the recognition of $4.1
million and $1.5 million of non-accretable discounts during the three months
ended December 31, 1996 and 1995. These discounts principally related to
potential credit risks on bulk purchases of single family loans and increased
the yield on interest-earning assets by 16 basis points and 5 basis points in
the respective periods. Upon obtaining sufficient seasoning, payoffs, and
stabilized delinquencies, a portion of these discounts were recognized into
income. Excluding the effects of these loan discounts, the net yield increased
44 basis points, to 2.48% during the three months ended December 31, 1996, from
2.04% during the three months ended December 31, 1995.
During the three months ended December 31, 1996, average short-term
market interest rates declined as compared to the year ago quarter, resulting in
declines in the adjusted yield on interest-earning assets and the cost of funds.
The adjusted yield on interest-earning assets declined at a slower rate than the
decrease in the cost of funds, due to the lessening of the impact of periodic
caps on adjustable-rate loans and adjustable-rate MBSs during the current
quarter compared to a year ago quarter.
The decrease in average interest-earning assets is reflected in the
loan and MBS portfolios, primarily due to sales and principal repayments.
PROVISION FOR CREDIT LOSSES
The provision for credit losses increased $4.2 million from the year
ago quarter to $6.9 million for the three months ended December 31, 1996. The
increased provision resulted from single family loan purchases as well as
changes in the composition of the loan portfolio. Single family loan purchases
were $353 million and $93 million for the quarters ended December 31, 1996 and
1995. The commercial and consumer loan portfolios increased 81% and 87% from the
year ago quarter.
ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
COMMERCIAL MORTGAGE
MULTI- REAL ESTATE BANKER
SINGLE SINGLE FAMILY MULTI- FAMILY AND FINANCE
FAMILY (1) CONSTRUCTION CONSUMER FAMILY CONSTRUCTION SMALL BUSINESS LINE OF CREDIT TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1995 $ 29,632 $ 361 $ 3,247 $ 2,855 $ 199 $ 97 $ 410 $ 36,801
Provision ............. 1,250 52 1,373 (53) 23 24 -- 2,669
Net charge-offs ....... (933) -- (1,208) -- -- -- -- (2,141)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1995 $ 29,949 $ 413 $ 3,412 $ 2,802 $ 222 $ 121 $ 410 $ 37,329
========== ========== ========== ========== ========== ========== ========== ==========
Balance at September 30, 1996 $ 28,672 $ 693 $ 5,219 $ 4,118 $ 232 $ 314 $ 412 $ 39,660
Provision ............. 4,718 225 996 634 -- 230 111 6,914
Net charge-offs ....... (1,868) -- (1,174) -- -- -- -- (3,042)
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1996 $ 31,522 $ 918 $ 5,041 $ 4,752 $ 232 $ 544 $ 523 $ 43,532
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
(1) Includes single family portfolio and warehouse loans.
11
<PAGE>
BANK UNITED CORP.
NONPERFORMING ASSETS
DECEMBER 31, SEPTEMBER 30,
1996 1996
--------- ---------
(IN THOUSANDS)
Nonaccrual loans
Single family ........................... $ 88,817 $ 92,187
Consumer ................................ 1,362 1,039
Multi-family ............................ 22 144
Commercial real estate and small business 183 350
--------- ---------
90,384 93,720
Discounts ............................... (410) (4,077)
--------- ---------
Net nonaccrual loans ............ 89,974 89,643
REO, primarily single family properties ....... 33,909 30,730
--------- ---------
Total nonperforming assets ...... $ 123,883 $ 120,373
========= =========
SELECTED ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
AT OR FOR AT OR FOR
THE THREE MONTHS THE YEAR ENDED
ENDED DECEMBER 31, 1996 SEPTEMBER 30,
----------------------- -------------
<S> <C> <C>
Allowance for credit losses to net nonaccrual loans
Single family ............................... 35.59% 32.46%
Total ....................................... 48.38 44.24
Allowance for credit losses to total loans ........ 0.54 0.52
Nonperforming assets to total assets .............. 1.12 1.12
Net nonaccrual loans to total loans ............... 1.12 1.19
Nonperforming assets to total loans and REO ....... 1.54 1.59
Net loan charge-offs to average loans - Annualized
Single family ............................... 0.12 0.12
Total ....................................... 0.16 0.17
</TABLE>
Nonperforming assets increased $3.5 million, or 3%, to $123.9
million at December 31, 1996, compared to $120.4 million at September 30, 1996.
Single family nonaccrual loans decreased $3.4 million primarily from loans being
foreclosed on and transferred to Real Estate Owned ("REO"). Discounts decreased
$3.7 million, reflecting the recognition of non-accretable discounts into
income. See "Net Interest Income".
At December 31, 1996 and September 30, 1996, the recorded investment
in impaired loans pursuant to SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" totalled $3.6 million and $3.9 million, respectively. The
average outstanding balance for the three months ended December 31, 1996 was
$4.0 million and the average outstanding balance for fiscal 1996 was $4.4
million.
NET GAINS (LOSSES)
Net gains (losses) declined $1.2 million, or 9%, to $12.1 million during
the three months ended December 31, 1996, compared to $13.3 million during the
prior year quarter. This decrease primarily reflects a decrease in gains on
sales of single family and multi-family portfolio loans. See "Discussion of
Financial Condition Changes from September 30, 1996 to December 31, 1996".
LOAN SERVICING FEES AND CHARGES
Loan servicing fees and charges increased $2.2 million, or 21%, to
$12.7 million for the three months ended December 31, 1996, from $10.5 million
for the three months ended December 31, 1995. This increase reflects a larger
portfolio of single family loans serviced for others of $9.5 billion at December
31, 1996, compared to $8.2 billion at December 31, 1995.
12
<PAGE>
BANK UNITED CORP.
NON-INTEREST EXPENSE
Non-interest expense was $53.1 million for the three months ended
December 31, 1996 and $49.3 million for the three months ended December 31,
1995, or 1.97% and 1.68% of average total assets for those same periods.
The increase in non-interest expense reflects increased advertising
costs, legal expense, and amortization of intangibles. Advertising costs
increased due to a new advertising campaign introduced during the first quarter
of fiscal 1997. Legal expense, which is included in other non-interest expense,
increased during the three months ended December 31, 1996 as compared to the
year ago quarter due to costs associated with the Bank's supervisory goodwill
and forbearance litigation. See "Legal Proceedings". The increase in
amortization of intangibles resulted from purchases of single family mortgage
servicing rights during the three months ended December 31, 1996.
Offsetting the above items was a decrease in compensation and
benefits, reflecting a drop in average full-time equivalent employees to 2,276
for the three months ended December 31, 1996, from 2,651 for the three months
ended December 31, 1995. The number of average full-time equivalent employees
decreased as a result of the restructuring of the mortgage origination business
of the mortgage banking segment. See "Management's Discussion and Analysis
Discussion of Results of Operations - Mortgage Banking Restructure" in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1996.
DISCUSSION OF CHANGES IN FINANCIAL CONDITION FROM SEPTEMBER 30, 1996 TO DECEMBER
31, 1996
GENERAL
Total assets increased during the three months ended December 31,
1996 by $347.3 million, or 3%, to $11.1 billion. The majority of the increase
occurred in the loan portfolio, principally due to purchases and originations,
funded primarily with Federal Home Loan Bank ("FHLB") advances and securities
sold under agreements to repurchase ("reverse repurchase agreements").
ORIGINATION, PURCHASE, AND SALE OF LOANS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
---------------------------------------
1996 1995
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance, September 30 ...................................... $ 7,519,488 $ 8,260,240
Originations
Single family .......................................... 649,752 927,699
Single family construction ............................. 196,974 105,625
Consumer ............................................... 23,768 24,304
Multi-family, commercial real estate, and small business 132,667 84,994
Purchases
Single family .......................................... 352,552 93,176
Consumer ............................................... 41,626 --
Multi-family, commercial real estate, and small business 152,834 7,927
Net change in mortgage banker finance line of credit .......... 103,210 32,431
Repayments .................................................... (603,754) (534,699)
Securitized loans sold or transferred (1) ..................... (490,516) (728,455)
Sales ......................................................... (102,665) (342,710)
Other ......................................................... (18,926) (8,949)
----------- -----------
Ending balance, December 31 .......................................... $ 7,957,010 $ 7,921,583
=========== ===========
</TABLE>
(1) Primarily represents loans securitized by the mortgage banking segment
and sold to third parties.
13
<PAGE>
BANK UNITED CORP.
LOAN PORTFOLIO
DECEMBER 31, SEPTEMBER 30,
1996 1996
---------- ----------
(IN THOUSANDS)
Single family ........................ $6,450,418 $6,369,974
Single family construction ........... 272,123 240,488
Consumer ............................. 210,767 168,513
Multi-family ......................... 538,978 472,074
Multi-family construction ............ 45,263 30,608
Commercial real estate ............... 52,848 9,928
Commercial real estate construction .. 28,722 21,473
Assisted living facilities ........... 41,933 8,750
Small business ....................... 73,399 58,331
Mortgage banker finance line of credit 242,559 139,349
---------- ----------
TOTAL LOANS ................... $7,957,010 $7,519,488
========== ==========
SUMMARY
Single family ........................ $6,450,418 $6,369,974
Commercial ........................... 1,295,825 981,001
Consumer ............................. 210,767 168,513
---------- ----------
$7,957,010 $7,519,488
========== ==========
Securities purchased under agreements to resell ("repurchase
agreements") and federal funds sold decreased $92.0 million, contributing to the
funding of loan purchases and originations.
During the first quarter of fiscal 1997, $76.4 million of small
business loans were purchased, a portion of which were pooled into securities
totalling $44.3 million and sold for a gain of $362,000.
Commercial loans, which include single family construction,
multi-family, assisted living facilities, small business, and mortgage banker
finance line of credit loans, increased $314.8 million, or 32%, during the three
months ended December 31, 1996, primarily reflecting purchases and originations.
Additionally, the Company had $874.8 million and $705.0 million of outstanding
commercial loan commitments that had not been funded as of December 31, 1996 and
1995. This increase is consistent with the Company's strategy to reduce its
reliance on single family residential lending lines of business by developing
higher margin commercial and consumer lending lines of business. The Company
recently added assisted living facilities loans to its commercial portfolio.
During the three months ended December 31, 1996, the Company originated $33.4
million of such loans.
Single family loans increased during the three months ended December
31, 1996 despite lower originations and principal repayments. Purchases of
single family loans increased during the three months ended December 31, 1996 as
compared to the prior year quarter in an effort to offset the effect of
principal repayments in that portfolio. Single family loan originations
decreased, reflecting a decline in mortgage refinance activity due to higher
average market interest rates during the three months ended December 31, 1996 as
compared to the three months ended December 31, 1995. Refinancings approximated
$168.4 million and $300.2 million, or 25% and 31%, respectively, of total loan
originations during these periods. During the three months ended December 31,
1996, $159.5 million of single family loan originations were retained for
portfolio, as compared to $190.3 million during the three months ended December
31, 1995.
During the three months ended December 31, 1996, the Company sold
$9.8 million of single family loans held by the banking operations segment for a
gain of $867,000 compared to sales of $93.7 million of single family loans held
by the banking operations segment for a gain of $1.5 million and $150.5 million
of multi-family loans for a gain of $2.3 million during the three months ended
December 31, 1995.
14
<PAGE>
BANK UNITED CORP.
Mortgage servicing rights increased $28.7 million to $152.1 at
December 31, 1996, compared to $123.4 million at September 30, 1996. During the
three months ended December 31, 1996, the Company purchased servicing rights
associated with $1.1 billion in single family loans at a premium of $20.9
million. The Company also entered into a contract to purchase servicing rights
associated with $3.8 billion in loans for a premium of $60.8 million. The
purchase is expected to close during the second quarter of fiscal 1997. A
deposit of $11.6 million was paid and is included in other assets on the
Statements of Financial Condition as of December 31, 1996.
Deposits decreased $148.7 million, or 3%, during the three months
ended December 31, 1996 primarily due to maturities of consumer certificates of
deposit that were not renewed.
In the aggregate, FHLB advances, reverse repurchase agreements, and
federal funds purchased increased $575.9 million during the three months ended
December 31, 1996 primarily to fund loan purchases and originations.
LIQUIDITY
The Bank is required by the Office of Thrift Supervision ("OTS") to
maintain average daily balances of liquid assets and short-term liquid assets in
amounts equal to 5% and 1%, respectively, of net withdrawable deposits and
borrowings payable on demand or with unexpired maturities of one year or less.
The Bank's average daily liquidity ratio for December 1996 was 5.19% and the
average short-term liquidity ratio for December 1996 was 2.51%.
The primary sources of funds consist of deposits, advances from the
FHLB, reverse repurchase agreements, and principal repayments on loans and MBS.
Funding resources are principally used to meet ongoing commitments to fund
deposit withdrawals, repay borrowings, fund existing and continuing loan
commitments, and maintain liquidity. Management believes that the Bank has
adequate resources to fund all of its commitments.
The Company has no significant assets other than its equity in
Holdings; the Company's ability to pay dividends on its common stock and to meet
its other cash obligations is dependent upon the receipt of dividends from
Holdings. Holdings ability to pay dividends to the Company and meet debt service
requirements on the Senior Notes is dependent on the extent to which it receives
common stock dividends from the Bank. The declaration of dividends by the Bank
on all classes of its capital stock is subject to the discretion of the Board of
Directors of the Bank, the terms of the Bank Preferred Stock, applicable
regulatory requirements, and compliance with the covenants of the Senior Notes.
See Note 6 to the Consolidated Financial Statements for a discussion of
subsequent events.
The ability of the Bank to pay dividends is subject to regulation
by the OTS. At December 31, 1996, the Bank had $167.1 million of available
capacity for the payment of dividends under these requirements. The ability of
the Bank to pay dividends is also subject to covenants provided in the indenture
agreement for the Senior Notes. Under the Senior Note indenture, aggregate
dividends paid by the Bank on its preferred stock, and certain other payments or
investments are limited to the sum of (i) 50% of the Company's consolidated net
income (or, if negative, 100% of such deficit) after March 31, 1993, subject to
certain exclusions, (ii) the proceeds from any issuance of capital stock by the
Company after March 31, 1993, and (iii) $12 million. At January 1, 1997, $74.5
million was available for payment of dividends under this restriction.
REGULATORY MATTERS
The Bank's capital level at December 31, 1996 and September 30,
1996 qualified it as "well-capitalized", the highest of five tiers under
applicable regulatory definitions. The Bank's capital ratios at December 31,
1996 and September 30, 1996, and the applicable regulatory capital requirements
were as follows:
DECEMBER 31, 1996 SEPTEMBER 30, 1996 REQUIREMENT
----------------- ------------------ -----------
Tangible capital 6.63% 6.57% 1.50
Core capital ... 6.69 6.64 3.00
Tier 1 capital . 12.03 12.40 6.00
15
<PAGE>
BANK UNITED CORP.
Total risk-based capital 12.74 13.09 8.00
FORWARD-LOOKING INFORMATION
Statements and financial discussion and analysis by management
contained herein that are not historical facts are forward-looking statements
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve a number of risks and
uncertainties. The important factors that could cause actual results to differ
materially from the forward-looking statements include, without limitation,
changes in interests rates and economic conditions; the shift in the Company's
emphasis from residential mortgage lending to community and commercial banking
activities; the restructuring and sale of a substantial part of the Company's
mortgage banking origination business; increased competition for deposits and
loans; changes in the availability of funds; changes in local economic and
business conditions; changes in availability of residential mortgage loans
originated by other financial institutions or the Company's ability to purchase
such loans on favorable terms; transactions in the Company's common stock that
might result in an ownership change triggering an annual limitation on the use
of the Company's net operating loss carryforwards under Section 382 of the
Internal Revenue Code of 1986, as amended; changes in the ability of Bank United
to pay dividends on its common stock; changes in applicable statutes and
government regulations or their interpretation; the continuation of the
significant disparity in the deposit insurance premiums paid by thrift
institutions and commercial banks; changes in government programs that
facilitate the issuance of MBS or the Company's continued eligibility to
participate in such programs; the loss of senior management or operating
personnel; claims with respect to representations and warranties made by the
Company to purchasers and insurers of mortgage loans and to purchasers of
mortgage servicing rights; claims of noncompliance by the Company with statutory
and regulatory requirements; and changes in the status of litigation to which
the Company is a party. For further information regarding these factors, see
"Risk Factors" in the Registration Statement on Form S-1 dated January 3, 1997,
related to the registration of 10.2 million shares of the Company's common stock
filed with the SEC (File No. 333-19237).
16
<PAGE>
BANK UNITED CORP.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 7, 1995, Maxxam Inc. ("Maxxam") filed a Petition for
Review in the United States Court of Appeals for the Fifth Circuit seeking to
modify, terminate, and set aside the order, dated December 30, 1988 (the
"Order"), of the Federal Savings and Loan Insurance Corporation ("FSLIC")
approving the acquisition, which was consummated on December 31, 1988 and
involved substantially all the Bank's initial assets and liabilities (the
"Acquisition"). On December 8, 1995, Maxxam filed a Motion to Intervene and a
Complaint in Intervention in an action pending in the U.S. District Court for
the Southern District of Texas, entitled FEDERAL DEPOSIT INSURANCE CORPORATION
V. CHARLES E. HURWITZ, also seeking to set aside the Order. Maxxam's Motion to
Intervene was granted by the District Court Judge on November 21, 1996. Maxxam
contends, in both cases, that it submitted the most favorable bid to acquire the
assets and liabilities of United Savings Association of Texas ("Old USAT") and
that it should have been selected as the winning bidder. In its brief to the
Court of Appeals, Maxxam has asserted that the Court should order the OTS "to
award Bank United to Maxxam" and that the Bank would bear no harm in that event
because it is entitled to full indemnification by the Federal Deposit Insurance
Corporation ("FDIC") as manager of the FSLIC Resolution Fund, pursuant to
Section 7(a)(2) of the Assistance Agreement.
The Company is not a party to either of these proceedings. The Bank
intervened in the Fifth Circuit case and may file a Motion to Intervene in the
District Court case at a later date. On December 10, 1996, the Fifth Circuit
Court, in a PER CURIAM opinion and order, affirmed the order approving the
Acquisition in all respects. The time for appeal to the Supreme Court of the
United States has not yet expired, and the Bank does not know whether Maxxam
will appeal the decision of the Fifth Circuit Court. Management believes, after
consultation with legal counsel, that the claims of Maxxam are barred by
applicable time limits, have no basis for assertion under existing law, and will
not have a material adverse effect on the Bank's or the Company's financial
condition, results of operations, or liquidity.
On July 25, 1995, the Bank, the Parent Company (including its
predecessors) and Hyperion Partners L.P. (collectively, "Plaintiffs") filed suit
against the United States of America in the United States Court of Federal
Claims for breach of contract and taking of property without compensation in
contravention of the Fifth Amendment of the United States Constitution. The
action arose because the passage of Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") and the regulations adopted by the OTS
pursuant to FIRREA deprived Plaintiffs of their contractual rights that resulted
in contractual obligations owed to Plaintiffs.
In December 1988, the United States, through its agencies, entered
into certain agreements with the Plaintiffs. Plaintiffs contend that the
obligations were undertaken to induce, and did induce, the Parent Company's
acquisition of substantially all of the assets and the secured, deposit, and
certain tax liabilities of Old USAT, an insolvent savings and loan association,
thereby relieving the FSLIC, an agency of the United States government, of the
immense costs and burdens of taking over and managing or liquidating the
institution. The FSLIC actively solicited buyers for Old USAT, and in the weeks
preceding the Acquisition the Parent Company and the FSLIC negotiated the terms
of a complex transaction involving six contractual documents. To accomplish this
transaction, the FSLIC and its regulating agency, the Federal Home Loan Bank
Board ("FHLBB"), which was also an agency of the United States government, were
required to undertake to pay certain other amounts of money over time and to
count for regulatory purposes certain monies and book entries of the Bank in
ways that allowed the Company greater leverage to increase the size of the Bank
prudently and profitably. The United States obtained the right to share in this
leveraged growth through warrants for stock and through so-called "tax benefit
payments" to the United States from the Parent Company and the Bank.
The lawsuit alleges breaches of the United States' contractual
obligations (i) to abide by a capital forbearance, which would have allowed the
Bank to operate for ten years under negotiated capital levels lower than the
levels required by the then existing regulations or successor regulations, (ii)
to abide by its commitment to allow the Bank to count $110 million of
subordinated debt as regulatory capital for all purposes and (iii) to abide by
an accounting forbearance, which would have allowed the Bank to count as capital
for regulatory purposes, and to amortize over a period of twenty-five years, the
$30.7 million difference between certain FSLIC payment obligations to the Bank
and the discounted present value of those future FSLIC payments. The lawsuit
17
<PAGE>
BANK UNITED CORP.
seeks monetary relief for the breaches
by the United States of its contractual obligations to Plaintiffs and, in the
alternative, seeks just compensation for a taking of property and for a denial
of due process under the Fifth Amendment to the United States Constitution.
The lawsuit was stayed from the outset by a judge of the Court of
Federal Claims pending the Supreme Court's decision in the UNITED STATES V.
WINSTAR CORP., an action by three other thrifts raising similar issues (the
"WINSTAR cases"). Since the Supreme Court ruling, the Chief Judge of the Court
of Federal Claims convened a number of status conferences to establish a case
management protocol for the more than 100 lawsuits on the Court of Federal
Claims docket, that, like Plaintiffs' case, involve issues similar to those
raised in the WINSTAR cases.
Following a number of status conferences, Chief Judge Loren Smith of
the United States Court of Federal Claims transferred all WINSTAR-related cases
to his own docket and entered an Omnibus Case Management Order governing
proceedings in such cases, including the Company's case. Under the Omnibus Case
Management Order, Chief Judge Smith serves as the "Managing Judge" for all
WINSTAR-related cases and may assign other judges of the United States Court of
Federal Claims to resolve pre-trial discovery disputes and common legal issues
and to conduct trials. The Government and Plaintiffs exchanged certain
significant documents as early as October 2, 1996 pursuant to a court order, and
the Company and the Bank have responded to the Government's first discovery
request. Trials on damages in two of the three WINSTAR cases that were decided
by the United States Supreme Court in July 1996 are scheduled for early 1997.
Damages trials in the remaining cases subject to the Omnibus Case Management
Plan are scheduled to begin four months after completion of the first two
damages trials. The Company's case is one of thirteen cases that "shall be
accorded priority in the scheduling" of the damages trials under the Omnibus
Case Management Order. On January 3, 1997, the court issued a scheduling order
scheduling the trial of the Company's case in the third month after the trials
of the "priority" cases begin.
In December 1996, Chief Judge Smith decided the motion IN LIMINE on
damage theories of Glendale Federal, one of four WINSTAR plaintiffs, and allowed
Glendale Federal to assert several other alternative damage theories against the
Government. While the Company expects Plaintiffs' claims for damages to exceed
$200 million, the Company is unable to predict the outcome of Plaintiffs' suit
against the United States and the amount of judgment for damages, if any, that
may be awarded. The Company, on November 27, 1996, moved for partial summary
judgment on liability and is pursuing an early trial on damages. Uncertainties
remain concerning the administration of the Omnibus Case Management Order and
the future course of the Company's lawsuit pursuant to the Omnibus Case
Management Order. Accordingly, the Company cannot predict the timing of any
resolution of its claims. The Company expects the trial of its case to commence
during the first quarter of fiscal 1998. The Company is unable to predict the
outcome of its suit against the United States and the amount of judgment for
damages, if any, that may be awarded. Consequently, no assurances can be given
as to the results of this suit.
The Bank and the Company have entered into an agreement with
Hyperion Partners L.P. acknowledging the relative value, as among the parties,
of their claims in the pending litigation. The agreement confirms that the Bank
and the Company are entitled to receive 85% of the amount, if any, recovered as
a result of the settlement of or a judgment on such claims, and that Hyperion
Partners L.P. is entitled to receive 15% of such amount. The agreement was
approved by the disinterested directors of the Company. Plaintiffs will continue
to cooperate in good faith and will use their best efforts to maximize the total
amount, if any, that they may recover.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
Not applicable.
ITEM 3. DEFAULTS BY THE COMPANY UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6A. EXHIBITS
Exhibits followed by a parenthetical reference are incorporated by
reference herein from the document
18
<PAGE>
BANK UNITED CORP.
described in such parenthetical reference.
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
2.1 - Form of Letter Agreement, by and among the general and
limited partners of Hyperion Partners, L.P., dated as of June
17, 1996, relating to certain transactions consummated prior
to the Offering (Exhibit 2.1 to Form S-1 filed on June 18,
1996)
2.2 - Merger Agreement, dated as of June 17, 1996, by and between
the Company and Hyperion Holdings relating to the Merger
(Exhibit 2.2 to Form S-1 filed on August 7, 1996)
3.1 - Form of Restated Certificate of Incorporation of the
Registrant, as amended (Exhibit 3.1 to Form S-1 filed on June
18, 1996)
3.2 - Form of Bylaws of the Registrant (Exhibit 3.2 to Form S-1
filed on June 18, 1996)
4.1 - Indenture, dated as of May 15, 1993, between the Registrant
and Bank of New York, as Trustee, relating to the
Registrant's 8.05% Senior Notes due May 15, 1998 (Exhibit 4.1
to Form S-1 filed on June 18, 1996)
4.2 - Form of 8.05% Senior Note due May 15, 1998 (included in the
Indenture filed as Exhibit 4.1 hereto) (Exhibit 4.2 to Form
S-1 filed on June 18, 1996)
4.3 - Exchange and Registration Rights relating to 8.05% Senior
Notes due May 15, 1998 (Exhibit 4.3 to Form S-1 filed on June
18, 1996)
4.4 - First Supplemental Indenture, dated as of January 23, 1995,
between the Registrant and the Bank of New York, as Trustee,
relating to 8.05% Senior Notes due May 15, 1998 (Exhibit 4.4
to Form S-1 filed on une 18, 1996)
4.5 - Form of Class A common stock certificate (Exhibit 4.5 to
Form S-1 filed on July 25, 1996)
10.1 - Assistance Agreement dated December 30, 1988, among the
Bank, the Registrant, Hyperion Holdings Inc., Hyperion
Partners L.P., and the FSLIC (Exhibit 10.1 to Form S-1 filed
on June 18, 1996)
10.1a - Settlement and Termination Agreement dated as of December
23, 1993, among the Bank, the Registrant, Hyperion Holdings
Inc., Hyperion Partners L.P., and the FDIC (Exhibit 10.1a to
Form S-1 filed on June 18, 1996)
10.1b - Tax Benefits Agreement dated December 28, 1993, among the
Bank, the Registrant, Hyperion Holdings Inc., Hyperion
Partners L.P., and the FDIC (Exhibit 10.1b to Form S-1 filed
on June 18, 1996)
10.2 - Acquisition Agreement dated December 30, 1988, between the
Bank and the FSLIC (Exhibit 10.2 to Form S-1 filed on June
18, 1996)
10.3 - Warrant Agreement dated December 30, 1988, between the Bank
and the FSLIC (Exhibit 10.3 to Form S-1 filed on June 18,
1996)
10.3a - Amended and Restated Warrant Agreement dated December 28,
1993, between the Bank and the FDIC (Exhibit 10.3a to Form
S-1 filed on June 18, 1996)
10.4 - Regulatory Capital Maintenance Agreement, dated December
30, 1988 among the Bank, the Registrant, Hyperion Holdings,
Hyperion Partners, and the FSLIC (terminated) (Exhibit 10.4
to Form S-1 filed on June 18, 1996)
10.5 - Federal Stock Charter of the Bank and First Amendment to
charter approved on August 26, 1992 (Exhibit 10.5 to Form S-1
filed on June 18, 1996)
10.6 - Amended and Restated Federal Stock Charter of the Bank and
Second Amendment approved on October 30, 1992 (Exhibit 10.6
to Form S-1 filed on June 18, 1996)
10.6a - Third Amendment to the Federal Stock Charter of the Bank
approved on April 23, 1996 (Exhibit 10.6a to Form S-1 filed
on June 18, 1996)
10.6b - Amended and Restated Bylaws of the Bank (Exhibit 10.6b to
Form S-1 filed on June 18, 1996)
10.7 - Specimen Preferred Stock, Series A, certificate, $25.00 per
share stated value, of the Bank (Exhibit 10.7 to Form S-1
filed on June 18, 1996)
10.7a - Certificate of Designation of Noncumulative Preferred
Stock, Series A of the Bank (Exhibit 10.7a to Form S-1 filed
on June 18, 1996)
10.7b - Specimen Preferred Stock, Series B, certificate, $25.00 per
19
<PAGE>
BANK UNITED CORP.
share stated value, of the Bank (Exhibit 10.7b to Form S-1
filed on June 18, 1996)
10.7c - Certificate of Designation of Noncumulative Preferred
Stock, Series B of the Bank (Exhibit 10.7c to Form S-1 filed
on June 18, 1996)
10.8 - Data Processing Agreement dated January 1, 1992, between
the Bank and Systematics Financial Services, Inc., a First
Amendment (dated October 28, 1992), and Second Amendment
(dated September 1, 1992) (Exhibit 10.8 to Form S-1 filed on
June 18, 1996)
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
10.8a - Third Amendment, dated December 17, 1993, to the Data
Processing Agreement, dated January 1, 1992, between the Bank
and Systematics Financial Services, Inc. (Exhibit 10.8a to
Form S-1 filed on June 18, 1996)
10.8b - Fourth Amendment, dated March 28, 1994, to the Data
Processing Agreement, dated January 1, 1992, between the Bank
and Systematics Financial Services, Inc. (Exhibit 10.8b to
Form S-1 filed on June 18, 1996)
10.8c - Fifth Amendment, dated April 1, 1994 to the Data Processing
Agreement, dated January 1, 1992, between the Bank and
Systematics Financial Services, Inc. (Exhibit 10.8c to Form
S-1 filed on June 18, 1996)
10.8d - Sixth Amendment, dated February 26, 1996 to the Data
Processing Agreement, dated January 1, 1992, between the Bank
and Systematics Financial Services, Inc. (Exhibit 10.8d to
Form S-1 filed on June 18, 1996)
10.9 - Management and Consulting Services Agreement dated January
1, 1992, between the Bank and Systematics Financial Services
Inc., First Amendment (dated March 18, 1992), and Second
Amendment (dated September 1, 1992) (Exhibit 10.9 to Form S-1
filed on June 18, 1996)
10.10 - Lease Agreement dated April 1, 1989, between the Bank and
Homart Development Co. (Leased premises at 3200 Southwest
Freeway) and First Amendment thereto dated January 31, 1990
(Exhibit 10.10 to Form S-1 filed on June 18, 1996)
10.10a - Second Amendment dated November 14, 1994 to Lease Agreement
dated April 1, 1989, between the Bank and Homart Development
Co. (assigned to HD Delaware Properties, Inc.) (Exhibit
10.10a to Form S-1 filed on June 18, 1996)
10.10b - Third Amendment dated January 8, 1996 to Lease Agreement
dated April 1, 1989, between the Bank and Homart Development
Co. (predecessor in interest of HMS Office, L.P.) (Exhibit
10.10b to Form S-1 filed on June 18, 1996)
10.11 - Lease Agreement dated November 20, 1990, between the Bank
and Greenway Plaza, LTD. (Leased premises at 3800 Buffalo
Speedway) (Exhibit 10.11 to Form S-1 filed on June 18, 1996)
10.12 - Employment Agreement dated March 18, 1991, between the Bank
and Barry C. Burkholder (Exhibit 10.12 to Form S- 1 filed on
June 18, 1996)
10.12a - Amendment, dated April 10, 1996, to the Employment
Agreement between the Bank and Barry C. Burkholder (Exhibit
10.12a to Form S-1 filed on June 18, 1996)
10.13 - Letter Agreement Related to Employment, dated April 4,
1990, between the Bank and Anthony J. Nocella (Exhibit 10.13
to Form S-1 filed on June 18, 1996)
10.14 - Letter Agreement Related to Employment, dated June 18,
1990, between the Bank and George R. Bender (Exhibit 10.14 to
Form S-1 filed on June 18, 1996)
10.15 - Letter Agreement Related to Employment, dated April 6,
1990, between the Bank and Jonathon K. Heffron (Exhibit 10.15
to Form S-1 filed on June 18, 1996)
10.16 - Letter Agreement Related to Employment, dated May 10, 1991,
between the Bank and Leslie H. Green (Exhibit 10.16 to Form
S-1 filed on June 18, 1996)
10.17 - Management Incentive Plan dated April 20, 1992 (Exhibit
10.17 to Form S-1 filed on June 18,
20
<PAGE>
BANK UNITED CORP.
1996)
10.18 - Letter Agreement, dated January 5, 1990, between Hyperion
Partners and certain shareholders of the Registrant with
respect to the provision of managerial assistance to the
Registrant (Exhibit 10.18 to Form S-1 filed on June 18, 1996)
10.22 - Supplemental Executive Savings Plan of the Bank (Exhibit
10.22 to Form S-1 filed on June 18, 1996)
10.23 - Directors Supplemental Savings Plan of the Bank (Exhibit
10.23 to Form S-1 filed on June 18, 1996)
10.24 - Warrant Purchase and Exchange Agreement, dated July 23,
1996, by and among the Parent Company, the Bank and the
Federal Deposit Insurance Corporation (Exhibit 10.24 to Form
S-1 filed on July 25, 1996)
10.25 - Tax Sharing Agreement dated as of May 1, 1996, by and
between the Parent Company and the Bank (Exhibit 10.25 to
Form 10-K filed on December 20, 1996)
10.26 - Form of The Company's 1996 Stock Incentive Plan (Exhibit
10.26 to Form S-1 filed on July 25, 1996)
EXHIBIT NO. IDENTIFICATION OF EXHIBIT
- ----------- -------------------------
10.27 - Form of The Company's Director Stock Plan (Exhibit 10.27 to
Form S-1 filed on July 25, 1996)
10.28 - Employment Agreement, dated August 1, 1996, between the
Company and Barry C. Burkholder (Exhibit 10.28 to Form 10-K
filed on December 20, 1996)
10.29 - Employment Agreement, dated August 1, 1996, between the
Company and Anthony J. Nocella (Exhibit 10.29 to Form 10-K
filed on December 20, 1996)
10.30 - Employment Agreement, dated August 1, 1996, between the
Company and Jonathon K. Heffron (Exhibit 10.30 to Form 10-K
filed on December 20, 1996)
10.31 - Employment Agreement, dated August 1, 1996, between the
Company and Ronald D. Coben (Exhibit 10.31 to Form 10-K filed
on December 20, 1996)
10.32 - Form of Nontransferable Stock Agreement (Exhibit 10.32 to
Form S-1 filed on July 25, 1996)
10.33 - Form of Stock Option Agreement (Exhibit 10.33 to Form S-1
filed on July 25, 1996)
10.34 - Consulting Agreement (Exhibit 10.34 to Form 10-K filed on
December 20, 1996)
10.35 - Recovery Agreement (Exhibit 10.35 to Form 10-K filed on
December 20, 1996)
10.36 - Stock Purchase Agreement, dated January 15, 1993, between
Hyperion Partners and Hyperion Holdings (Exhibit 10.36 to
Form S-1 filed on July 25, 1996)
10.37* - Second Supplemental Indenture, dated December 3, 1996,
between the Company and BNKU Holdings, Inc.
10.38* - Asset Purchase and Sale Agreement, dated January 17, 1997,
between the Bank and National City Mortgage Co.
21 - Subsidiaries of the Registrant (Exhibit 21 to Form S-1
filed on August 7, 1996)
27* - Financial Data Schedule
* Filed herewith.
ITEM 6B. REPORTS ON FORM 8-K
The Company did not file a report on Form 8-K during the three months ended
December 31, 1996.
21
<PAGE>
BANK UNITED CORP.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANK UNITED CORP.
(Registrant)
Date FEBRUARY 13, 1997 /s/ BARRY C. BURKHOLDER
Barry C. Burkholder
President
Chief Executive Officer
(Duly Authorized Officer)
Date FEBRUARY 13, 1997 /s/ ANTHONY J. NOCELLA
Anthony J. Nocella
Executive Vice President
Chief Financial Officer
22
<PAGE>
EXHIBIT 10.37
THIS SECOND SUPPLEMENTAL INDENTURE dated as of December 3, 1996, among
BANK UNITED CORP., formerly named USAT Holdings Inc., a Delaware corporation
(the "Company"), BNKU HOLDINGS, INC., a Delaware corporation ("BNKU Holdings")
and THE BANK OF NEW YORK, a banking corporation duly organized and existing
under the laws of the State of New York, as trustee under the Indenture referred
to below (the "Trustee").
WITNESSETH
WHEREAS, the Company and the Trustee are parties to an Indenture, dated as
of May 15, 1993, and a First Supplemental Indenture dated as of January 23, 1995
(collectively, the "Indenture"), relating to the Company's 8.05% Senior Notes
due May 15, 1998 (the "Securities");
WHEREAS, substantially all of the Company's consolidated properties and
assets consist of Two Million Eight Hundred Seventeen Thousand Seven Hundred
Sixty Eight (2,817,768) shares (the "Shares") of common stock, $0.01 par value
per share, of Bank United, a federally chartered savings bank, representing all
of the outstanding common stock of Bank United;
WHEREAS, BNKU Holdings, a Wholly Owned Subsidiary of the Company, was
formed for the sole purpose of holding the Shares;
WHEREAS, the Company intends to enter into a Stock Transfer Agreement with
BNKU Holdings, under which it will transfer the Shares to BNKU Holdings;
WHEREAS, Section 801 of the Indenture requires that in connection with the
transfer of the Shares BNKU Holdings shall assume by an indenture supplemental
to the Indenture the due and punctual payment of the principal (and premium, if
any) and interest on the Securities and the performance of every covenant of the
Indenture on the part of the Company to be performed or observed; and
WHEREAS, the consent of the Holders of the Outstanding Securities is not
required to enter into this Second Supplemental Indenture;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Company, BNKU Holdings and the Trustee mutually covenant and
agree for the equal and proportionate benefit of the respective Holders from
time to time of the Securities as follows:
Section 1. SUBSTITUTION AND ASSUMPTION OF OBLIGATIONS. In accordance with
Section 801 of the Indenture, BNKU Holdings hereby assumes the due and punctual
payment of the principal (and premium, if any) and interest on the Securities
and the performance of every covenant of the Indenture on the part of the
Company to be performed or observed.
Section 2. COMPANY TO REMAIN OBLIGATED. Notwithstanding Section 802 of the
Indenture, which provides that the Company shall be relieved of all obligations
and covenants under
1
<PAGE>
the Indenture and the Securities upon a transfer of all or substantially all of
its properties and assets as an entirety, the Company shall take no action with
respect to the shares of capital stock of BNKU Holdings that it would not have
been permitted to take with respect to the Shares prior to the date hereof, and
shall continue to perform and observe every covenant of the Indenture and shall
remain obligated as a co-obligor with BNKU Holdings on the Securities; provided,
however, that the Company shall, upon BNKU Holdings' request, pay the principal
(and premium, if any) and interest on, and indemnify BNKU Holdings against any
loss that BNKU Holdings may sustain with respect to, the Securities.
Section 3. MISCELLANEOUS. The Trustee accepts the trusts hereunder and
agrees to perform the same, but only upon the terms and conditions set forth in
the Indenture and in this Second Supplemental Indenture, to all of which the
Company agrees. The provisions of this Second Supplemental Indenture shall
become effective immediately upon the execution and delivery hereof. The
Indenture is hereby ratified and confirmed and shall remain and continue in full
force and effect in accordance with the terms and provisions thereof, as
supplemented and amended by this Second Supplemental Indenture, and with such
omissions, variations and modifications thereof as may be appropriate to make
each such term and condition conform to this Second Supplemental Indenture, and
the Indenture and this Second Supplemental Indenture shall be read, taken and
construed together as one instrument. Capitalized terms used but not defined in
this Second Supplemental Indenture are defined in the Indenture and shall have
the meanings specified in the Indenture, unless the context otherwise requires.
This Second Supplemental Indenture may be executed in several counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one instrument.
Section 4. GOVERNING LAW. This Second Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed, and their respective corporate seals
to be hereunto affixed and attested, all as of the day and year first written
above.
BANK UNITED CORP.
(CORPORATE SEAL)
By: /s/ BARRY C. BURKHOLDER
Name: Barry C. Burkholder
Title: President
Attest:
By: /s/ RANDOLPH C. HENSON
Name: Randolph C. Henson
Title: Corporate Secretary
2
<PAGE>
BNKU HOLDINGS, INC.
(CORPORATE SEAL)
By: /s/ JONATHON K. HEFFRON
Name: Jonathon K. Heffron
Title: Vice President
Attest:
By: /s/ RANDOLPH C. HENSON
Name: Randolph C. Henson
Title: Corporate Secretary
THE BANK OF NEW YORK
(CORPORATE SEAL)
By: /s/ REMO J. REALE
Name: REMO J. REALE
Title: ASSISTANT VICE PRESIDENT
Attest:
By: /s/ MARY LA GUMINA
Name: MARY LA GUMINA
Title: ASSISTANT VICE PRESIDENT
3
<PAGE>
ACKNOWLEDGEMENTS
STATE OF Texas
COUNTY OF Harris
On the 3rd day of December, 1996, before me personally came Barry C.
Burkholder, to me known, who, being by me duly sworn, did depose and say that he
is President of BANK UNITED CORP., one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation; and that he signed his name thereto by like authority.
/s/ KATHLYNN L. CARTER
Kathlynn L. Carter
[NOTARY SEAL]
4
<PAGE>
ACKNOWLEDGEMENTS
STATE OF Texas
COUNTY OF Harris
On the 3rd day of December, 1996, before me personally came Jonathon K.
Heffron, to me known, who, being by me duly sworn, did depose and say that he is
Vice President of BNKU HOLDINGS, INC.., one of the corporations described in and
which executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by authority of the Board of Directors of said
corporation; and that he signed his name thereto by like authority.
/s/ KATHLYNN L. CARTER
Kathlynn L. Carter
[NOTARY SEAL]
5
<PAGE>
ACKNOWLEDGEMENTS
STATE OF NEW YORK
COUNTY OF NEW YORK
On the 3rd day of December, 1996, before me personally came REMO J. REALE,
to me known, who, being by me duly sworn, did depose and say that he is
ASSISTANT VICE PRESIDENT of THE BANK OF NEW YORK, one of the corporations
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by authority of the Board of Directors of said
corporation; and that he signed his name thereto by like authority.
/s/ WILLIAM J. CASSELS
WILLIAM J. CASSELS
Notary Public, State of New York
No. 01CA5027729
Qualified in Bronx County
Certificate Filed in New York County
Commission Expires May 16, 1998
6
EXHIBIT 10.38
================================================================================
ASSET PURCHASE AND SALE AGREEMENT
AMONG
BANK UNITED, A FEDERAL SAVINGS BANK
COMMONWEALTH UNITED MORTGAGE COMPANY
AND
NATIONAL CITY MORTGAGE CO.
================================================================================
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
PAGE
----
ARTICLE I Definitions............................................... 1
ARTICLE II Terms of Purchase and Sale of Assets...................... 9
2.1 Purchase and Sale of Assets............................... 9
2.2 Assumption of Liabilities................................. 9
2.3 Purchase Price............................................ 9
2.4 Timing of Payments........................................ 10
2.5 Post Closing and Final Purchase Price..................... 10
2.6 Method of Payment......................................... 10
2.7 Objection Procedure....................................... 10
2.8 Tax Allocation............................................ 11
2.9 Closing................................................... 12
ARTICLE III Representations and Warranties of Seller.................. 12
3.1 Organization.............................................. 12
3.2 Authority................................................. 12
3.3 Binding Agreement......................................... 12
3.4 Defaults.................................................. 13
3.5 Operating Authority; Qualifications....................... 13
3.6 Assets.................................................... 13
3.7 Intellectual Property Rights.............................. 13
3.8 Files and Records......................................... 14
3.9 Origination Premises Leases............................... 14
3.10 Contracts and Commitments................................. 14
3.11 Employee Benefit Plans.................................... 15
3.12 Labor and Employment Matters.............................. 16
3.13 Litigation................................................ 16
3.14 Tax Matters............................................... 16
3.15 No Commissions to Third Parties........................... 17
3.16 Compliance with Law....................................... 17
3.17 Good Standing............................................. 17
3.18 Insurance................................................. 17
3.19 Regulatory and Investor Matters........................... 18
3.20 Environmental Matters..................................... 18
3.21 Correspondent Agreements.................................. 19
3.22 Activities Pending Closing................................ 19
3.23 Disclaimer................................................ 20
i
<PAGE>
ARTICLE IV Representations and Warranties of Buyer................... 20
4.1 Organization.............................................. 20
4.2 Authority................................................. 21
4.3 Binding Agreement......................................... 21
4.4 Defaults.................................................. 21
4.5 No Commissions to Third Parties........................... 21
4.6 Financial Capability...................................... 22
4.7 Good Standing............................................. 22
ARTICLE V Certain General Covenants................................. 22
5.1 Pursuit of Approvals...................................... 22
5.2 Confidentiality........................................... 22
5.3 Expenses.................................................. 23
5.4 Post Closing Information.................................. 23
5.5 Books and Records......................................... 23
5.6 Further Assurances........................................ 24
5.7 Personnel................................................. 24
5.8 Employee Benefit Plans; Workers Compensation Plan......... 27
5.9 Non-Competition........................................... 27
5.10 Data Base................................................. 28
5.11 Whole Loan Purchase Obligation............................ 28
5.12 Operation of Origination Business from the Initial Closing Date
to the Closing Date....................................... 28
5.13 Origination Premises Lease Expenses....................... 29
ARTICLE VI Indemnity and Recourse; Other Remedies.................... 30
6.1 Seller's Indemnity........................................ 30
6.2 Buyer's Indemnity......................................... 31
6.3 Indemnity Procedures...................................... 31
ARTICLE VII Restrictions on Solicitation; Confidentiality............. 34
7.1 Confidentiality........................................... 34
7.2 Wholesale Operations...................................... 35
7.3 Enforcement of Article VII................................ 35
ARTICLE VIII Miscellaneous............................................. 35
8.1 Survival.................................................. 35
8.2 Amendment................................................. 36
8.3 Counterparts.............................................. 36
8.4 Entire Agreement.......................................... 36
8.5 Rights Cumulative; Waivers................................ 36
8.6 Additional Actions........................................ 36
8.7 Section Headings.......................................... 36
8.8 Notices................................................... 36
ii
<PAGE>
8.9 Governing Law............................................. 37
8.10 Successors and Assigns.................................... 37
8.11 Further Agreements........................................ 38
8.12 Publicity................................................. 38
8.13 Severability ............................................. 38
8.14 Waivers................................................... 38
8.15 Exhibits and Schedules.................................... 38
8.16 General Interpretive Principles........................... 38
8.17 Reproduction of Documents................................. 39
SCHEDULES
1.1(c) Agency Agreements
1.1(f) Assets
(i) Purchased Furniture, Fixtures and Equipment and
Purchased Lease-Hold Improvements
(ii) Security Deposits Pursuant to Origination Premise
Leases and Assumed Furniture, Fixtures and Equipment
Leases
(iii) Security Deposits Pursuant to Assumed Contracts
(iv) Supplies
(v) Files and Records
(vi) Intellectual Property Rights
(vii) Assignable Permits
(ix) Additional Assets
1.1(h) Assumed Contracts
1.1(i) Assumed Furniture, Fixtures and Equipment Leases
1.1(j) Assumed Liabilities
1.1(r) Correspondent Agreements
1.1(v) Employees
(i) Origination Business
(ii) Origination Support Business
1.1(y) Excluded Assets
1.1(ap) Intellectual Property Rights
1.1(aq) Knowledge
(i) Members of the Executive Management Group
(ii) Certain Administrative Department Personnel
1.1(ax) Origination Premises
1.1(ay) Origination Premises Leases
1.1(az) Origination Support Business
1.1(bb) Permitted Liens
1.1(bh) Purchased Furniture, Fixtures and Equipment
1.1(bi) Purchased Leasehold Improvements
1.1(bs) Wholesale
iii
<PAGE>
2.3(b) Net Assets Price
2.5(a) Closing Statement
3.5 Exceptions - Permits
3.11(a) Employee Pension Benefit Plan and Multi-Employer Plan
3.11(b) Employee Benefit Plans - Prohibited Transactions
3.11(c) Retiree Medical,Disability and Life Insurance Benefits
3.11(f) Employee Benefit Plans - Pending or Threatened Claims
3.12 Labor and Employment Matters
3.19 Pending or Threatened Disputes or Controversies with
Governmental Authorities or Investors
3.22 Activities Pending Closing
5.11 Whole Loan Purchase Obligation
5.13 Origination Premises Leases with Sixty Day Determination Period
EXHIBITS
Exhibit A Tax Allocation of Purchase Price and Assumed Liabilities
iv
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made and entered into dated and effective as of
this 17th day of January, 1997, by and among Bank United, a federal savings bank
("Seller"), Commonwealth United Mortgage Company, a Texas corporation (the
"Subsidiary"), and National City Mortgage Co., a corporation organized under the
laws of the State of Ohio ("Buyer").
WHEREAS, Seller and Subsidiary are, among other things,
engaged in the retail and wholesale residential mortgage loan origination
business on a national basis, the Origination Business (as hereinafter
defined); and
WHEREAS, subject to the terms and conditions of this
Agreement, Seller and Subsidiary wish to sell to Buyer, and Buyer wishes
to purchase from Seller and Subsidiary, certain assets that relate to or
are used in connection with the Origination Business and otherwise as set
forth below, all in consideration of the purchase price described below
and Buyer's assumption of certain liabilities and obligations of Seller,
as set forth below; and
WHEREAS, Seller and Subsidiary have determined that the
Purchase Price to be paid by Buyer and Buyer's assumption of the Assumed
Liabilities hereunder will constitute receipt by Seller and Subsidiary of
fair value for the Assets to be conveyed to Buyer.
NOW, THEREFORE, in consideration of the premises, the mutual
representations, warranties, covenants, agreements, and conditions
contained herein, and in order to set forth the terms and conditions of
such sale and purchase and the mode of carrying the same into effect, the
parties agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS.
In addition to the abbreviations and terms otherwise defined in the text
of this Agreement, the following capitalized terms used herein shall have the
respective meanings set forth below; the terms defined herein include the plural
as well as the singular and the singular as well as the plural:
(a) "AFFILIATES" with respect to any Person means any other Person
directly or indirectly controlling, controlled by, or under common control
with such Person.
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(b) "AGENCY" means FNMA, FHLMC, GNMA, VA, or FHA, or a Private
Investor, as applicable.
(c) "AGENCY AGREEMENTS" means the agreement or agreements (including
all exhibits and schedules thereto and all amendments and supplements
thereof) between Seller and the related Agency which authorize or enable
Seller to originate Pipeline Mortgage Loans to be sold to, insured or
guaranteed by such Agency, which agreements are identified on Schedule
1.1(c) hereto.
(d) "AGENCY REQUIREMENTS" means the applicable rules, regulations,
directives, and instructions of an Agency, including, without limitation,
the applicable requirements of the Guides and the Agency Agreements.
(e) "AGREEMENT" means this Asset Purchase and Sale Agreement, as the
same may be amended or supplemented in accordance with its terms including
all Exhibits and Schedules attached hereto or delivered pursuant hereto.
(f) "ASSETS" means the following assets of Seller and Subsidiary
listed on Schedule 1.1(f), other than the Excluded Assets, used in
connection with the Origination Business, whether or not carried on the
books and records of Seller: (i) the Purchased Furniture, Fixtures and
Equipment and the Purchased Leasehold Improvements; (ii) all rights of
Seller under the Origination Premises Leases and Assumed Furniture,
Fixtures and Equipment Leases, if any (inclusive of all rights in security
deposits and other sums owing to lessee in connection therewith set forth
on Schedule 1.1(f)(ii)); (iii) all rights of Seller under the Assumed
Contracts, if any (inclusive of all rights in security deposits and other
sums owing to Seller in connection therewith set forth on Schedule
1.1(f)(iii)); (iv) the Supplies; (v) the Files and Records; (vi) the
Intellectual Property Rights; (vii) the Assignable Permits; (viii) the
Goodwill; and (ix) those additional assets of Seller listed on Schedule
1.1(f)(ix).
(g) "ASSIGNABLE PERMITS" means all Permits that relate to or are
used in connection with the Origination Business, to the extent assignable
to Buyer.
(h) "ASSUMED CONTRACTS" means only those contracts listed on
Schedule 1.1(h).
(i) "ASSUMED FURNITURE, FIXTURES AND EQUIPMENT LEASES" means only
those lease agreements with respect to furniture, fixtures and equipment
listed on Schedule 1.1(i).
(j) "ASSUMED LIABILITIES" means only those obligations of Seller
arising on or after the Closing Date that relate solely to the Origination
Premises Leases, the Assumed Furniture, Fixtures and Equipment Leases, and
the Assumed Contracts, and those additional liabilities listed on Schedule
1.1(j).
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(k) "BUYER" means National City Mortgage Co.
(l) "CLCS" means the COBOL main frame based data processing system
owned by Seller using leased mainframe space from Alltel.
(m) "CLOSING" shall have the meaning given in Section 2.9 hereof.
(n) "CLOSING DATE" means January 31, 1997.
(o) "CLOSING STATEMENT" shall have the meaning given in Section
2.5(a) hereof.
(p) "CODE" means the Internal Revenue Code of 1986, as amended.
(q) "CONTRACTS" means all contracts, agreements, instruments,
commitments, and other binding arrangements, whether oral or written, to
which Seller or Subsidiary are a party or by which Seller or Subsidiary or
any of the Assets is bound or subject, and that relate to or are used in
connection with the Origination Business, including, without limitation,
guarantees, leases, indentures, evidences of indebtedness, rental
agreements, options, insurance policies, binding purchase orders and sales
orders, collective bargaining agreements, union contracts, licenses, and
Employee Benefit Plans.
(r) "CORRESPONDENT AGREEMENTS" means those agreements listed on
Schedule 1.1(r), pursuant to which Persons agree to sell to Seller or the
Subsidiary certain residential mortgage loans.
(s) "CUSTODIAL AGREEMENTS" means the agreement or agreements
governing the retention of the originals of each Mortgage Note, Mortgage,
Assignment of Mortgage, and other Mortgage Loan Documents as referred to
by and in accordance with the related Agency Agreements.
(t) "DATA BASE" means all information in the computer tape delivered
by Seller to Buyer in a format agreeable to Buyer and Seller.
(u) "DISCLOSURE SCHEDULE" means the compilation of schedules
referenced in this Agreement.
(v) "EMPLOYEE" or "EMPLOYEES" means the individual(s) employed by
Seller or the Subsidiary who are engaged in the Origination Business or
the Origination Support Business and listed on Schedule 1.1(v)(i) or
Schedule 1.1(v)(ii) respectively. Schedules 1.1(v)(i) and 1.1(v)(ii) shall
also contain such Employees' social security numbers and job title.
(w) "EMPLOYEE BENEFIT PLAN" means any pension, retirement,
profit-sharing, deferred compensation, bonus, or incentive plan, practice,
or arrangement, whether formal
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or informal, any other employee benefit program, arrangement, agreement,
or understanding, any medical, vision, dental, or other health plan and
any life insurance plan and including, without limitation, any "employee
benefit plan," as defined in Section 3(3) of ERISA, maintained by Seller
or the Subsidiary or to which Seller or the Subsidiary contributes or is a
party or is bound or under which it may have liability or under which
employees of Seller are eligible to participate or derive a benefit.
(x) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
(y) "EXCLUDED ASSETS" means the assets identified as excluded assets
on Schedule 1.1(y).
(z) "FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
(aa) "FHA" means the Federal Housing Administration of the
Department of Housing and Urban Development of the United States and any
successor thereto.
(ab) "FHLMC" means the Federal Home Loan Mortgage Corporation and
any successor thereto.
(ac) "FHLMC GUIDE" means the FHLMC Sellers' & Services' Guide, and
any amendments or additions thereto.
(ad) "FNMA" means the Federal National Mortgage Association and any
successor thereto.
(ae) "FNMA GUIDES" means the FNMA Selling Guide and the FNMA
Servicing Guide, and any amendments or additions thereto.
(af) "FILES AND RECORDS" means only those Seller's books of account,
files, records, original documents, papers, customer lists (including
those relating to realtors, builders, contractors, and borrowers), Data
Bases, data, manuals, warranties relating to Purchased Furniture, Fixtures
and Equipment and Assumed Furniture, Fixtures and Equipment Leases, dealer
and distributor lists, and other files and records used in the Origination
Business, in each case in whatever form, including without limitation tape
capture, computer disk or diskette, or other media, except for files and
records related to Mortgage Loans closed by Seller prior to Closing, and
not purchased by Buyer, together with all records, books, accounts, files,
documents, papers, customer lists, Data Bases, data, manuals, warranties
relating to Purchased Furniture, Fixtures and Equipment leases, dealer and
distribution lists and other files and records of the Subsidiary. Excluded
from Files and Records are any such items which Buyer and Seller agree are
or may be removed from the Origination Premises prior to or after the
Closing Date.
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(ag) "FINAL PAYMENT DATE" means the date on which the Final Purchase
Price is paid to Seller pursuant to this Agreement.
(ah) "GNMA" means the Government National Mortgage Association and
any successor thereto.
(ai) "GNMA GUIDE" means the GNMA Mortgage Backed Securities Guide,
as applicable.
(aj) "GOODWILL" means all goodwill associated with the Origination
Business, including the right of Buyer to represent itself to third
parties as the successor in interest to the Origination Business.
(ak) "GOVERNMENTAL AUTHORITY" means any federal, state or municipal
agency, department, commission or other governmental authority, including
any domestic or foreign court or tribunal of competent jurisdiction.
(al) "GUIDES" means the FHLMC Guide, the FNMA Guide, the GNMA Guide,
and any other Private Investor Guide, as applicable.
(am) "HAZARDOUS MATERIALS" means any substance, chemical, waste or
other material which is or may be at any time listed, defined or otherwise
identified as hazardous, toxic or dangerous under any applicable law
including, without limitation, asbestos, PCBs, petroleum, petroleum
product or by-product, crude oil, natural gas, natural gas liquids,
liquefied natural gas, or synthetic gas useable for fuel, and "source,"
"special nuclear," and "by-product" material as defined in the Atomic
Energy Act of 1954, 42 U.S.C. ss.ss. 2001 ET SEQ.
(an) "INITIAL CLOSING" shall have the meaning given in Section 2.9
hereof.
(ao) "INITIAL CLOSING DATE" means the date on which Buyer remits to
Seller the applicable portion of the Purchase Price as determined in
accordance with Article II hereof, which date shall be as specified in
Section 2.9 hereof.
(ap) "INTELLECTUAL PROPERTY RIGHTS" means any and all rights of
Seller to use the Tradenames and the items set forth on Schedule 1.1(ap).
(aq) "KNOWLEDGE" means, with respect to Seller or Subsidiary, the
actual knowledge, by a member of the executive management group of Seller
(also, along with their title, are listed on Schedule 1.1(aq)(i)) of a
particular fact, condition or circumstance and, with respect to Buyer, the
actual knowledge by a member of the executive management group of Buyer of
a particular fact, condition or circumstance. "Best knowledge", or a term
substantially similar, when referring to Seller or Subsidiary means
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the Knowledge of the executive management group and certain administrative
department personnel (who, along with their title, are listed on Schedule
1.1(aq)(ii)).
(ar) "LEASEHOLD IMPROVEMENTS" means all leasehold improvements and
fixtures owned by Seller at the Origination Premises.
(as) "LIABILITIES" means any and all liabilities and obligations of
every nature or kind (whether accrued, absolute, contingent or otherwise,
and whether asserted or unasserted, known or unknown and whether due or to
become due).
(at) "LIEN" means any lien, claim, mortgage, security interest,
pledge, charge, easement, servitude, or other encumbrance of any kind,
including any thereof arising under any conditional sales or other title
retention agreement.
(au) "MATERIAL ADVERSE CHANGE" means a change which results in a
liability equal to or in excess of $50,000.
(av) "OPERATIVE DOCUMENTS" means this Agreement and each other
agreement, certificate, and document executed and delivered, or required
to be executed and delivered, in connection herewith.
(aw) "ORIGINATION BUSINESS" means the businesses engaged in by
Seller or the Subsidiary of originating, producing and acquiring retail or
wholesale residential mortgage loans from the Origination Premises, as
well as the Origination Support Business, excluding the residential
mortgage loan business in the State of Texas except for the El Paso
metropolitan area. The Origination Business does not include, by way of
example only, the business engaged in by Seller of (i) activities related
to Pipeline Mortgage Loans, (ii) performing administrative duties relating
to Mortgage Loans under agreements that provide for payment to Seller or
the Subsidiary of a servicing or subservicing fee, (iii) purchasing,
selling or securitizing mortgage loans, (iv) telemarketing of mortgage
loan originations, (v) originating "B&C" mortgage loans, (vi) refinancing
of mortgage loans currently serviced by Seller or the Subsidiary, or (vii)
originating home equity loans.
(ax) "ORIGINATION PREMISES" means the retail branch offices,
satellite offices, wholesale offices and regional operating centers of
Seller or the Subsidiary, together with any appurtenant storage
facilities, as identified on Disclosure Schedule 1.1(ax) to the extent
used in connection with the Origination Business. Excluded from
Origination Premises is Seller's Headquarters space located in Houston,
Texas, and all other premises even if utilized in conjunction with the
Origination Business.
(ay) "ORIGINATION PREMISES LEASES" means the real property leases
listed on Schedule 1.1(ay).
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(az) "ORIGINATION SUPPORT BUSINESS" means that portion of the
closing, post-closing, shipping, insuring, and underwriting management
functions related to the Origination Business identified on Schedule
1.1(az).
(ba) "PERMITS" means licenses, permits, authorizations, and
approvals issued or granted by: (i) any Governmental Authority or any
agency or instrumentality thereof; (ii) any self-regulatory organization;
or (iii) FNMA, FHLMC, GNMA, FHA and VA.
(bb) "PERMITTED LIENS" means those liens set forth on Schedule
1.1(bb).
(bc) "PERSON" means an individual, corporation, partnership, joint
venture, association, joint stock company, trust, or unincorporated
organization or a federal, state, city, municipal, or foreign government
or an agency or political subdivision thereof.
(bd) "PIPELINE MORTGAGE LOANS" means all registrations for and
applications from prospective borrowers for Residential Mortgage Loans
that have been put into process by Seller or the Subsidiary as of the
Closing Date which have not yet been closed and which are listed on
Schedule 1.21 of the Transitional Services Agreement.
(be) "PMI POLICY" means a policy of private primary mortgage
guaranty insurance issued by a Qualified Insurer on conventional loans.
(bf) "PRELIMINARY PURCHASE PRICE" means the purchase price,
calculated in accordance with Sections 2.3 and 2.4.
(bg) "PURCHASE PRICE" means the aggregate amount required to be paid
pursuant to Section 2.5 (net of any and all adjustments or deductions as
provided therein).
(bh) "PURCHASED FURNITURE, FIXTURES AND EQUIPMENT" or "PURCHASED
F,F&E" means furniture, fixtures and equipment owned by Seller and used or
located at any of the Origination Premises, including, without limitation,
the furniture, fixtures and equipment listed on Schedule 1.1(bh) and all
furniture, fixtures and equipment owned by the Subsidiary.
(bi) "PURCHASED LEASEHOLD IMPROVEMENTS" means Leasehold Improvements
located at any of the Origination Premises, including, without limitation,
the Leasehold Improvements listed on Schedule 1.1(bi).
(bj) "QUALIFIED INSURER" means a mortgage guaranty insurance company
duly authorized and licensed where required by law to transact mortgage
guaranty insurance business and approved as an insurer by FNMA and/or
FHLMC.
(bk) "RESIDENTIAL MORTGAGE LOAN" means a loan secured or to be
secured by a mortgage or deed of trust on real property improved by a
residence for occupancy by not
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more than four families, including an individual unit in condominium, a
cooperative ownership development, or a planned unit development by
prospective retail and wholesale mortgage loan borrowers.
(bl) "RETURN" means any report, return or other information required
to be supplied to a Governmental Authority by Seller or the Subsidiary in
connection with Taxes including, where permitted or required, combined or
consolidated returns for any group of entities that includes Seller or any
Affiliate.
(bm) "SCHEDULE" means the schedules referenced in this Agreement
which comprise the Disclosure Schedule.
(bn) "SELLER" means Bank United, a federal savings bank, or its
successors in interest or assigns.
(bo) "SUPPLIES" means all consumable supplies owned by Seller or the
Subsidiary that relate to or are used in connection with the Origination
Business and that are either (A) located at the Origination Premises or
(B) of the sort that, wherever they may be situated, are used only in
connection with the Origination Business.
(bp) "TAXES" means all taxes, charges, fees, levies or other
assessments (including, without limitation, income, gross receipts, gains,
transfer, ad valorem, value added, excise, personal or real property,
sales, use, production, recoding, license, payroll, transfer, business and
occupation, disability, employment, severance, franchise or withholding
taxes), imposed (whether directly or by withholding) by any Governmental
Authority and includes any estimated tax, assessment, interest and
penalties (civil or criminal) or additions to tax. It shall include any
obligations of the Seller or the Subsidiary in connection with or related
to any tax sharing or similar arrangements between the Seller or the
Subsidiary and any other Person.
(bq) "TRADENAMES" means the names "Commonwealth United Mortgage
Company" and "Tidewater Financial Services," and with regard to the latter
name, any derivatives thereof, whether used or held for use, registered or
unregistered, and any and all applications for registration of the
foregoing.
(br) "VA" means the Veterans Administration of the United States and
any successor thereto.
(bs) "WHOLESALE" means that portion of Seller's wholesale
residential mortgage loan origination business identified on Schedule
1.1(bs).
(bt) "WORKERS COMPENSATION PLAN" means any plan, practice or
arrangement, whether formal or informal, maintained by Seller (or to which
Seller contributes or is a
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party or is bound or under which Seller may have liability) for the
purpose of providing Employees with state mandated workers compensation.
ARTICLE II
TERMS OF PURCHASE AND SALE OF ASSETS
2.1 PURCHASE AND SALE OF ASSETS
Subject to the terms, conditions and provisions hereof, Seller and
Subsidiary agree to sell to the Buyer, and Buyer agrees to purchase from Seller
and Subsidiary the Assets in consideration of the payment of the Final Purchase
Price as hereinafter provided.
On the Closing Date, Seller and Subsidiary shall sell, assign, transfer,
convey, and deliver to Buyer, free and clear of all Liens, and Buyer shall
purchase from Seller and Subsidiary, the Assets.
2.2 ASSUMPTION OF LIABILITIES
On the Closing Date, Buyer shall assume the Assumed Liabilities. Except
for the Assumed Liabilities, Buyer shall not assume or otherwise be responsible
or liable for or bound by any Liabilities of Seller or Subsidiary. Except for
the Assumed Liabilities, nothing in this Agreement is intended or shall be
deemed to subject Buyer, any of its Affiliates, or any of the officers,
directors, servants, employees, partners, or agents of Buyer or its affiliates,
to any liability by reason of the transfer of assets contemplated hereby under
the laws of the United States of America, any State, territory, or possession
thereof, or the District of Columbia, or any other jurisdiction based, in whole
or in part, directly or indirectly, on any theory of law, including without
limitation, any theory of successor, assignee, or transferee liability.
2.3 PURCHASE PRICE
Buyer shall pay to Seller and Subsidiary for the sale, conveyance,
transfer, assignment, and delivery of the Assets the sum of the following
amounts (the "Purchase Price"):
(a) a base price (the "Production Premium") which shall be in the amount
of ten million five hundred thousand dollars ($10,500,000.00); and
(b) a net asset price (the "Net Assets Price") for the Purchased
Furniture, Fixtures and Equipment and Other Assets listed on
Schedule 1.1(f) (which shall include the amount of any security
deposits or other sums owing Seller in conjunction with Assumed
Contracts, and the proration of prepaid rent or other expenses for
any period extending past the Closing Date) less the Liabilities
which shall be as shown on Schedule 2.3(b).
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2.4 TIMING OF PAYMENTS
The Production Premium plus an estimate of the Net Assets Price
("Preliminary Purchase Price"), shall be paid by Buyer to Seller at the Initial
Closing.
2.5 POST CLOSING AND FINAL PURCHASE PRICE
(a) As soon as practicable after the sixtieth day after the Closing
Date, the Parties agree that a calculation of the final Net Assets Price
shall be prepared by the Seller and delivered to the Buyer (the "Closing
Statement"). Such Closing Statement shall be in the form of, and contain
the same items as, Schedule 2.5(a) hereto, and shall be prepared
consistent with the methodology used in preparing Schedule 2.5(a). The
Preliminary Purchase Price shall be adjusted in accordance with the
Closing Statement and the provisions of this Article 2, to arrive at the
Final Purchase Price.
(b) The Final Purchase Price paid by Buyer shall consist of the net
sum of the following: (i) the Production Premium and the Net Assets Price.
Any adjustments to amounts paid as and for the Preliminary Purchase Price
or the Final Purchase Price shall be remitted by Buyer or Seller, as
appropriate, within fifteen (15) days of delivery of the Closing Statement
to Buyer (except as such fifteen day period is adjusted by Section 2.7
hereof).
2.6 METHOD OF PAYMENT
Unless otherwise stated, all payments to Seller under this Agreement shall
be made in immediately available funds by wire transfer to an account designated
in writing by Seller to Buyer or as otherwise instructed by Seller by notice
hereunder. Unless otherwise stated, all payments to Buyer under this Agreement
shall be made in immediately available funds by wire transfer to an account
designated in writing by Buyer to Seller, or as otherwise instructed by Buyer by
notice hereunder.
2.7 OBJECTION PROCEDURE
The Buyer and Seller shall each either accept the Closing Statement and
the adjustment (if any) to be made to the Preliminary Purchase Price to arrive
at the Final Purchase Price or notify the other of their objections to the
correctness of the Closing Statement and/or such adjustment to the Preliminary
Purchase Price. Each objecting party (an "Objecting Party") shall notify the
other in writing within fifteen (15) days following the delivery of the Closing
Statement to the Buyer. The Objecting Party's notice of objection (an
"Objection") shall contain a detailed description of such party's objection to
the Closing Statement and the corresponding adjustment to the Preliminary
Purchase Price. If neither the Buyer nor Seller delivers such an Objection
within such time, the Closing Statement and adjustment to the Preliminary
Purchase Price, if any, will be deemed accepted by the Buyer and Seller. If
either the Buyer and/or Seller delivers an Objection to the other, the recipient
of an Objection shall respond to such Objection and describe
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the responding party's (a "Responding Party") position with respect thereto in
writing (a "Response") within fifteen (15) days following the Responding Party's
receipt of an Objection. The Buyer and Seller shall make a good faith effort to
resolve any disputed items within fifteen (15) days following the receipt by the
Objecting Party of the Responding Party's Response, but if they are unable to do
so, the remaining disputed items shall be presented to Ernst & Young LLP, or
such other firm of nationally recognized independent public accountants as shall
be mutually agreed upon by the parties hereto (the "Arbitrator"), to make a
final written determination with respect to the correctness of each item
remaining in dispute. The Arbitrator shall not be regarded as a mere fact finder
or appraiser, but shall exercise its independent discretion and judgment as an
accountant and shall have the full immunities of an arbitrator. The Arbitrator
will be directed to make a final written determination within thirty (30) days
of the dispute being submitted to it. The Arbitrator shall have full access to
all requisite accounting and other records of Seller, and its determination of
all matters and disputes shall be final and binding on the parties hereto. The
fees and expenses of the Arbitrator in rendering its opinion shall be paid by
the losing party, or if each party to the arbitration shall prevail on certain
issues, then the fees and expenses of the Arbitrator shall be paid as determined
by the Arbitrator. In addition, the Arbitrator shall award to the prevailing
party reasonable attorneys' and/or other professional fees and other costs
incurred in connection with the arbitration proceeding as determined by the
Arbitrator. In the event that each party prevails on certain issues, the
Arbitrator may award reasonable attorneys' and/or other professional fees and
other costs incurred in connection with the arbitration proceeding to such
parties and in such amounts as it deems proper in its sole discretion.
If any amount is payable by either the Buyer or Seller based upon the
Closing Statement, as a result of their mutual agreement or following the
resolution of any dispute by the Arbitrator, then such party shall reimburse the
other by wire transfer of funds within five (5) business days following the
parties' mutual agreement or the decision of the Arbitrator.
2.8 TAX ALLOCATION
The Purchase Price for the Assets and the Assumed Liabilities shall be
allocated, for tax purposes, as set forth on Exhibit "A" hereto. Neither Buyer
nor Seller shall file any tax returns or, in a judicial or administrative
proceeding, assert or maintain any tax reporting position that is inconsistent
with this Agreement or the allocation agreed to in accordance with this
Agreement.
2.9 CLOSING
The Closing shall take place at the corporate headquarters of Seller at
11:00 a.m., Central Standard Time, on January 31, 1997, unless another location
or time or place is mutually agreed upon by the parties in writing. The Initial
Closing shall take place at the corporate headquarters of Seller at 11:00 a.m.,
Central Standard Time, on the date hereof. It is understood by both the Seller
and the Buyer that all of the risks and rewards in connection with the
transaction and services contemplated in the Operative Documents shall remain
with the Seller from the Initial Closing through the Closing Date and will not
pass to the Buyer until February 1, 1997.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows as of the date
hereof and as of the Closing Date:
3.1 ORGANIZATION
Seller is a federal savings bank duly organized, validly existing and in
good standing under the laws of the United States of America. The Subsidiary is
a corporation, duly organized, validly existing and in good standing under the
laws of the State of Texas. In addition, the Subsidiary is in good standing
under the laws of the State of Vermont.
3.2 AUTHORITY
(a) Seller's and Subsidiary's execution and delivery of this
Agreement, and their consummation of the transactions contemplated hereby
(inclusive of the sale of the Assets to Buyer on the terms and conditions
hereof), have been duly and validly authorized by all requisite corporate
action;
(b) Seller and Subsidiary have the full corporate power and
authority to enter into, deliver, and perform this Agreement and any other
Operative Documents to be entered into by it;
(c) This Agreement has been duly executed and delivered by Seller
and Subsidiary.
3.3 BINDING AGREEMENT
This Agreement has been, and each other Operative Document to which Seller
or Subsidiary are a party will be, duly executed and delivered by a duly
authorized officer of each, and this Agreement constitutes, and each such other
Operative Document, when executed and delivered by each, will constitute their
legal, valid, and binding obligation enforceable against each in accordance with
its terms, except as may be limited by bankruptcy, insolvency, moratorium,
receivership, conservatorship, reorganization or similar laws affecting the
rights of creditors generally or equitable principles limiting the right to
obtain specific performance or other similar relief.
3.4 DEFAULTS
The execution, delivery, and performance by Seller and the Subsidiary of
the Operative Documents to which it is a party do not, and the consummation of
the transactions contemplated by the Operative Documents will not, (a) violate
any provision of the charter or bylaws of Seller
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or the Subsidiary, (b) result in any breach or violation of or be in conflict
with or constitute (with or without due notice or lapse or time or both) a
default (or give rise to any right of termination, modification, cancellation,
or acceleration that, if exercised, would impair Seller's or the Subsidiary's
ability, financial or otherwise, to perform its obligations under and consummate
the transactions contemplated by the Operative Documents) under (i) any term of
any agreement or instrument to which Seller or the Subsidiary is a party or by
which Seller or the Subsidiary or any of their Assets or properties is bound, or
(ii) any law, ordinance, regulation, rule, judgment, decree, or order binding
upon Seller or Assets, or (c) result in the creation or imposition of any Lien
upon any of the Assets.
3.5 OPERATING AUTHORITY; QUALIFICATIONS
Except as provided on Schedule 3.5, Seller and the Subsidiary have all
material Permits from all federal, state and local governments and governmental
authorities necessary for the lawful conduct of the Origination Business and all
such Permits are valid and in good standing and are not subject to any
suspension, modification or revocation or proceedings related thereto.
3.6 ASSETS
Seller and the Subsidiary have good and valid title to all of the Assets
to which they assert claims of ownership, and valid leasehold interests in all
of the Assets leased by them, in each case free and clear of all Liens, other
than Liens for taxes not yet due and payable. Upon transfer of the Assets to
Buyer pursuant to Section 2.1 hereof, Buyer will have good and valid title to
the Assets free and clear of all Liens (other than Liens created by Buyer).
Seller and the Subsidiary enjoy, and are entitled to, quiet possession of all
tangible Assets owned or leased by them.
3.7 INTELLECTUAL PROPERTY RIGHTS
Seller and the Subsidiary owns or possesses adequate licenses or other
rights to use all Intellectual Property Rights that are necessary to the
operation of the Origination Business, free and clear of all Liens (other than
rights of any licensors) other than Permitted Liens and Liens that will be
released upon the sale of the Assets to Buyer.
3.8 FILES AND RECORDS
The Files and Records are accurate and complete in all material respects.
3.9 ORIGINATION PREMISES LEASES
(a) True, correct and complete copies of the Origination Premises
Leases have been provided to Buyer in Schedule 1.1(ay).
(b) Seller and, where applicable, the Subsidiary, have valid and
enforceable leasehold interests in the Origination Premises Leases and
such interests are free and clear
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of all Liens. The Origination Premises Leases are in full force and effect
and are legal, valid and binding obligations of Seller or the Subsidiary,
and to the best knowledge of Seller and the Subsidiary, each other party
thereto, enforceable in accordance with their terms, except as may be
limited by bankruptcy, insolvency, moratorium, receivership,
conservatorship, reorganization or similar laws affecting the rights of
creditors generally or equitable principles limiting the right to obtain
specific performance or other similar relief; there are no existing
defaults or circumstances which, with notice or the passage of time or
otherwise, would constitute defaults, by Seller or the Subsidiary or, to
the knowledge of Seller and the Subsidiary, any other party to the
Origination Premises Lease.
(c) To Seller's and the Subsidiary's best knowledge, none of the
buildings and structures located on real property subject to the
Origination Premises Leases, violate any restrictive covenants, or
encroach on any property owned by others which violation or encroachment
has or may have a material adverse effect on the Origination Business at
the relevant location. To Seller's knowledge, no condemnation proceeding
is pending, or to the knowledge of Seller and the Subsidiary, threatened,
which would preclude or impair in any material respect the use of any real
property subject to the Lease, for the uses for which it is currently
being used.
3.10 CONTRACTS AND COMMITMENTS
(i) Each Assumed Contract is a legal, valid and binding obligation of
Seller or the Subsidiary, and to the knowledge of Seller and the Subsidiary, of
each other party thereto, enforceable in accordance with its terms (except as
may be limited by bankruptcy, insolvency, moratorium, receivership,
conservatorship, reorganization or similar laws affecting the rights of
creditors generally or equitable principles limiting the right to obtain
specific performance or other similar relief), and is in full force and effect;
(ii) Seller and the Subsidiary has duly performed in all material respects all
of its obligations thereunder to the extent that such obligations to perform
have accrued; (iii) to Seller's and the Subsidiary's knowledge, there are no
breaches, violations or defaults or allegations or assertions of such by any
other party under any such agreement which, individually or in the aggregate,
could reasonably be expected to result in a loss to Seller, the Subsidiary or
Buyer in excess of $25,000; and (iv) each such agreement was entered into by
Seller and the Subsidiary in the ordinary course of business.
3.11 EMPLOYEE BENEFIT PLANS
(a) Except as set forth in Schedule 3.11(a), neither Seller nor
Subsidiary maintain or contribute to any (i) employee pension benefit plan
(as defined in Section 3(2) of ERISA) that is a defined benefit plan
described in Section 3(35) of ERISA or Section 414(j) of the Code or (ii)
multi-employer plan described in Section 4001(a)(3) of ERISA or Section
414(f) of the Code.
(b) Except as set forth in Schedule 3.11(b), neither Seller nor any
of its respective directors, officers, employees or agents has, with
respect to any Employee
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Benefit Plan that is maintained by or contributed to or with respect to
which costs or liabilities are accrued by Seller, engaged in any conduct
that would result in any taxes or penalties on prohibited transactions
under Section 4975 of the Code or under Section 502(i) or Section 502(l)
of ERISA or in breach of fiduciary duty liability under Section 409 of
ERISA.
(c) Except as set forth in Schedule 3.11(c), none of the Employee
Benefit Plans provides for or promises retiree medical, disability, or
life insurance benefits to any Employees.
(d) Each of the Employee Benefit Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code, and each of
the trusts established thereunder that is intended to be "qualified"
within the meaning of Section 401(a) and 501(a) of the Code, has been
determined by the Internal Revenue Service to be so qualified, and to
Seller's knowledge nothing has occurred since the date of the most recent
such determination that would adversely affect the qualified status of any
of such Employee Benefit Plans or the trusts thereunder.
(e) Each of the Employee Benefit Plans that is a group health plan
(within the meaning of Section 5000(b)(1) of the Code) complies and has
complied in all material respects with the requirements of Part 6 of Title
I of ERISA and Section 4980B of the Code.
(f) Except as set forth in Schedule 3.11(f) there are no pending or
threatened claims by or on behalf of any Employee, or dependent of an
Employee, covered under any Employee Benefit Plan (other than routine
claims for benefits); nor are there any such claims pending or threatened
under any local, state, or federal discrimination law regarding employment
or former employment with Seller or covered under any conciliation
agreement reached with any agency responsible for administration of such
laws.
(g) Seller has not made any commitment regarding the continuation of
any Employee Benefit Plan after the Initial Closing Date as to any
Employees to be hired by Buyer, and Seller may amend, cancel, terminate,
or otherwise modify any Employee Benefit Plan at any time.
3.12 LABOR AND EMPLOYMENT MATTERS
Except to the extent set forth in Schedule 3.12, with regard to the
Origination Business, (a) Seller is not engaged in, and has not engaged in, any
unfair labor practice; (b) there is no labor strike, dispute, slowdown or
stoppage actually pending or to Seller's knowledge threatened against or
directly affecting Seller; (c) no union is currently certified, and there is no
union representation question and no union or other organizational activity that
would be subject to the National Labor Relations Act (29 U.S.C. ss. 151 ET SEQ.)
exists or to Seller's knowledge is threatened; (d) no
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grievance or arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claims therefor exist or to Seller's
knowledge are threatened; (e) no collective bargaining agreement exists which is
binding on Seller; (f) Seller has not experienced any material work stoppage or
other material labor difficulty; and (g) Seller is not delinquent in any
payments to any of its current or former officers, directors, employees or
agents for any wages, salaries, commissions, bonuses, benefits or other
compensation for any services performed by them or amounts required to be
reimbursed to them.
3.13 LITIGATION
There is no action, suit, proceeding or investigation pending, or to
Seller's knowledge, threatened against Seller or the Subsidiary which, either in
any one instance or in the aggregate, may result in any impairment or economic
loss of value to the Assets, or which would draw into question the validity of
this Agreement or of any action taken or to be taken in connection with the
obligations of Seller or the Subsidiary contemplated herein, or which would be
likely to impair materially the ability of Seller or the Subsidiary to perform
under the terms of this Agreement.
3.14 TAX MATTERS
(a) RETURNS FILED AND TAXES PAID. All Returns with respect to the
Assets or income therefrom, the Liabilities of Seller or the Subsidiary or
payments in respect thereof or the operation of the Origination Business,
that are required to be filed on or prior to Closing have been duly filed
on a timely basis. No Lien exists on or with respect to any of the Assets
in connection with any failure or alleged failure of Seller or the
Subsidiary to pay any Taxes due on or prior to Closing.
(b) LIABILITY FOR TAXES. Seller shall be liable for all Taxes
imposed on the Assets or the income therefrom, the Liabilities of Seller
or the Subsidiary or payments in respect thereof, or any other Taxes of
Seller or the Subsidiary (i) for any taxable year or period that ends on
or before the Closing Date and (ii) with respect
to any taxable year or period beginning before and ending after the
Closing Date, that portion of such taxable year beginning before the
period ending on and including the Closing Date. All excise, sales, use
and transfer taxes that are payable or that arise as a result of the
transactions contemplated by this Agreement shall be paid by Seller.
3.15 NO COMMISSIONS TO THIRD PARTIES
Except for fees or commissions due to Bayview Financial Trading Group and
those persons listed on Schedule 3.22, neither Seller nor the Subsidiary have
dealt with any broker or agent or anyone else including current employees of the
Seller who might be entitled to a fee, commission or any other financial
consideration in connection with the transaction contemplated hereby. Buyer
shall not be obligated to pay any fee or commission to any person by virtue of
any action or inaction by Seller.
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3.16 COMPLIANCE WITH LAW
Seller and Subsidiary have complied with any and all material requirements
of any federal or state law including, without limitation, the provisions of any
federal or state law, or regulation governing or pertaining to permissible
charges in a consumer transaction for personal, family, or household purposes,
in connection with the extension of credit, including, but not limited to, laws
relating to usury, truth-in-lending, fair housing, real estate settlement
practices and procedures, escrow practices, unlawful discrimination in
residential lending, anti-redlining, equal credit opportunity, and fair credit
reporting, debt collection, loan disclosures, or other consumer protection
matters, laws regulating unfair or deceptive acts or practices, and all other
federal or state laws and regulations pertaining to the Origination Business.
3.17 GOOD STANDING
Seller and the Subsidiary are mortgage lenders and servicers in good
standing with the Agencies and all appropriate Governmental Authorities.
3.18 INSURANCE
All policies of general liability, theft, life, fire, worker's
compensation, health, directors and officers, and other forms of insurance owned
or held by Seller and the Subsidiary with regard to the Origination Business (i)
are in full force and effect and all premiums that are due and payable with
respect thereto are currently paid; (ii) are sufficient for compliance with all
requirements of applicable law, Agency Requirements, Agency Agreements and of
all other agreements to which Seller is a party; (iii) are valid, outstanding
and enforceable policies (except as may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the rights of creditors
generally and the availability of equitable remedies); and (iv) will remain in
full force and effect through the Closing Date.
3.19 REGULATORY AND INVESTOR MATTERS
Except as set forth in Schedule 3.19, there are no pending, or, to the
knowledge of Seller and the Subsidiary, threatened, disputes or controversies
between Seller and any federal, state or local Governmental Authority (including
any Agency) or any Investor in connection with the Origination Business.
3.20 ENVIRONMENTAL MATTERS
For purposes of this Agreement, the following terms shall have the
indicated meanings:
"ENVIRONMENTAL LAW" means any federal, state or local law, statute,
ordinance, rules, regulation, code, license, permit, authorization,
approval, consent, order, determination, judgment, decree, injunction or
agreement with any Governmental Authority relating to (1) the health,
protection, preservation or restoration of the
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environment including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil,
wetlands, plant and animal life or any other natural resource,
conservation, and/or (2) the use, storage, recycling, treatment,
generation, transportation, processing, handling labeling, production,
release or disposal of Hazardous Substances. The term Environmental Law
includes without limitation (1) the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. Section 9601, ET
SEQ; the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C.
9601(2)(D); the Resource Conservation and Recovery Act, as amended, 42
U.S.C. Section 6901, ET SEQ; the Clean Air Act, as amended, 42 U.S.C.
Section 7401, ET SEQ; the Federal Water Pollution Control Act, as amended
by the Clean Water Act, 33 U.S.C. Section 1251, ET SEQ; the Toxic
Substances Control Act, as amended, 15 U.S.C. Section 9601, ET SEQ; the
Emergency Planning and Community Right to Know Act, 42 U.S.C. Section
11001, ET SEQ; the Safe Drinking Water Act, 42 U.S.C. Section 300f, ET
SEQ; and all comparable state and local laws, and (2) any common law
(including without limitation common law that may impose strict liability)
that may impose liability for injuries or damages due to the release of
any Hazardous Substance.
"HAZARDOUS SUBSTANCE" means (i) any hazardous wastes, toxic
chemicals, materials, substances or wastes as defined by or for the
purposes of any Environmental Law; (ii) any "oil", as defined by the Clean
Water Act, as amended from time to time, and regulations promulgated
thereunder (including crude oil or any fraction thereof and any petroleum
products or derivatives thereof); (iii) any substance, the presence of
which is prohibited, regulated or controlled by any applicable federal,
state or local laws, regulations, statutes or ordinances now in force or
hereafter enacted relating to waste disposal or environmental protection
with respect to the exposure to, or manufacture, possession, presence,
use, generation, storage, transportation, treatment, release, emission,
discharge, disposal, abatement, cleanup, removal, remediation or handling
of any such substance; (iv) any asbestos or asbestos-containing materials,
polychlorinated biphenyls ("PCBs") in the form of electrical equipment,
fluorescent light fixtures with ballasts, cooling oils or any other form,
urea formaldehyde, atmospheric radon; (v) any solid, liquid, gaseous or
thermal irritant or contaminant, such as smoke, vapor, soot, fumes,
alkalis, acids, chemicals, pesticides, herbicides, sewage, industrial
sludge or other similar wastes; (vi) industrial, nuclear or medical
by-products; (vii) any lead based paint or coating and (viii) any
underground storage tank(s).
To the best of Seller's and the Subsidiary's knowledge, neither
Seller nor the Subsidiary is in violation of or has any (i) liability,
absolute or contingent, in connection with or under any Environmental Law,
except any such violations or liabilities which would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse
Change; (ii) to the best of Seller's and the Subsidiary's knowledge, none
of Origination Premises or properties that will secure Pipeline Mortgage
Loans (together hereinafter referred to as "Properties") is in violation
of or has any liability, absolute or contingent, under any Environmental
Law, except any such violations or liabilities which,
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individually or in the aggregate, would not have a Material Adverse
Change; and (iii) to the best of Seller's and the Subsidiary's knowledge,
there are no actions, suits, demands, notices, claims, investigations or
proceedings pending or threatened relating to any Properties including,
without limitation any notices, demand letters or requests for information
from any federal or state environmental agency relating to any such
liability under or violation of Environmental Law, which would impose a
liability upon Seller or the Subsidiary pursuant to any Environmental Law,
except such as would not, individually or in the aggregate. have a
Material Adverse Change.
3.21 CORRESPONDENT AGREEMENTS
Schedule 1.1(r) sets forth a list of all written Correspondent Agreements
relating to the correspondent loan origination and purchase activities to which
Seller and/or Subsidiary are a party. To the knowledge of Seller and the
Subsidiary (i) each of such Correspondent Agreements is a valid and subsisting
contract in full force and effect; (ii) Seller and the Subsidiary are not in
material default thereunder; (iii) no other party to any such agreement is in
material default thereunder, has claimed Seller or the Subsidiary is in default
thereunder or has an ongoing dispute with Seller or the Subsidiary; (iv) there
are no facts or conditions that have occurred which, through the passage of time
or the giving of notice, or both, would constitute a material default by any
party thereunder, or would cause an acceleration of any material obligation of
any party thereto or the creation of a Lien upon any of the Assets; and (v) no
such agreement gives any other party thereto the right to terminate such
agreement except upon proper notice as provided therein.
3.22 ACTIVITIES PENDING CLOSING
From January 1, 1997 and until the Initial Closing Date, Seller and
Subsidiary have conducted the Origination Business only in the ordinary course
of business, in accordance in all material respects with applicable law and
Agency Requirements and has used all reasonable efforts to preserve intact the
Origination Business. Except as otherwise specifically provided in this
Agreement and subject to applicable law, from January 1, 1997 and until the
Initial Closing Date, Seller has not, without the prior written consent of
Buyer:
(a) Amended or terminated any agreement designated an Assumed
Contract;
(b) Except in the ordinary course of business at fair market value,
bought or otherwise acquired or sold, transferred, assigned, encumbered or
otherwise disposed of or entered into any contract, agreement,
understanding or other arrangement to buy, acquire, sell, transfer,
assign, encumber or otherwise dispose of any Assets or Assumed Liabilities
of Seller existing on the date hereof.
or
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(c) Except as provided in Schedule 3.22, adopted or amended (except
as required by law) any bonus, profit sharing, compensation, severance,
termination, stock option, pension, retirement, deferred compensation,
employment or other employee benefit agreements, trusts, plans, funds or
other arrangements for the benefit or welfare of any Employee, or
increase, the compensation or fringe benefits of any Employee or pay any
benefit not required by any existing plan or arrangement or take any
action or grant any benefit not required under the terms of any existing
agreements, trusts, plans, funds or other such arrangements or enter into
any contract, agreement, commitment or arrangement to do any of the
foregoing.
3.23 DISCLAIMER
Except as expressly provided herein, no representation or warranty of any
kind or nature (express or implied) is being made by Seller, Subsidiary or their
agents with respect to the Assets or the Origination Business, including,
without limitation, any representation or warranty regarding the
merchantability, fitness for a particular purpose, condition, use, quantity,
workmanship or existence of any Asset.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants as follows:
4.1 ORGANIZATION
Buyer is a corporation and is duly organized, validly existing, and in
good standing under the laws of Ohio.
4.2 AUTHORITY
(a) Buyer's execution and delivery of this Agreement, and its
consummation of the transactions contemplated hereby (inclusive of the
sale of the Assets to Buyer on the terms and conditions hereof), have been
duly and validly authorized by all requisite corporate action;
(b) Buyer has the full corporate power and authority to enter into,
deliver, and perform this Agreement and any other Operative Documents to
be entered into by it; and
(c) This Agreement has been duly executed and delivered by Buyer.
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4.3 BINDING AGREEMENT
This Agreement has been and each other Operative Document to which Buyer
is a party will be, duly executed and delivered by a duly authorized officer of
Buyer, and this Agreement constitutes, and each such other Operative Document,
when executed and delivered by Buyer, will constitute, its legal, valid, and
binding obligation enforceable against it in accordance with its terms except as
may be limited by bankruptcy, insolvency, moratorium, receivership,
conservatorship, reorganization or similar laws affecting the rights of
creditors generally or equitable principles limiting the right to obtain
specific performance or other similar relief.
4.4 DEFAULTS
The execution, delivery, and performance by Buyer of the Operative
Documents to which it is a party do not, and the consummation of the
transactions contemplated by the Operative Documents will not (a) violate any
provision of the charter or bylaws of Buyer or (b) result in any breach or
violation of or be in conflict with or constitute (with or without due notice or
lapse or time or both) a default (or give rise to any right of termination,
modification, cancellation, or acceleration) that, if exercised, would impair
Buyer's ability, financial or otherwise, to perform its obligations under and
consummate the transactions contemplated by the Operative Documents under (i)
any term of any agreement or instrument to which Buyer is a party or by which
Buyer or any of its assets or properties is bound, or (ii) any law, ordinance,
regulation, rule, judgment, decree or order binding upon Buyer or any of its
assets or properties.
4.5 NO COMMISSIONS TO THIRD PARTIES
Buyer has not dealt with any broker or agent or anyone else who might be
entitled to a fee or commission in connection with this transaction.
4.6 FINANCIAL CAPABILITY
Buyer has the financial resources required to consummate the transactions
contemplated hereby from existing sources of financing.
4.7 GOOD STANDING
Buyer is a mortgage lender and servicer in good standing with the Agencies
and all appropriate Governmental Authorities.
ARTICLE V
CERTAIN GENERAL COVENANTS
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5.1 PURSUIT OF APPROVALS
The parties shall cooperate and use their reasonable efforts to obtain all
necessary approvals, consents, authorizations and the like to consummate the
transactions contemplated herein including, without limitation, any applicable
approval, consent or authorization by any Governmental Authority, any Agency,
Investor and such other Persons or entities as may be required under the Assumed
Contracts, Investor Agreements, other agreements of Seller relative to the
Origination Business or applicable law, PROVIDED, however, that it shall be the
obligations of Seller at Seller's expense to apply for and obtain all applicable
Agency and Investor approvals and consents under Assumed Contracts and other
agreements of Seller. If, at anytime after the Closing Date, Buyer shall
consider or be advised that any mortgages need to be assigned, or checks or
notes endorsed to facilitate the performance of the transactions contemplated by
the transitional services agreement entered into by the parties on the date
hereof, Seller and Subsidiary shall be deemed to have granted to Buyer, acting
through its duly authorized officers, an irrevocable, limited power of attorney
to execute and deliver all such mortgages or notes, and such limited power of
attorney shall allow Buyer to execute such documents as are reasonably necessary
to enable Buyer to file certificates of assumed or fictitious names for the
Tradenames. In exercising such powers of attorney, Buyer must exercise
reasonable care and prudence to insure that they are only exercised in
furtherance of the transactions contemplated by the Operative Documents, by duly
authorized officers of Buyer.
5.2 CONFIDENTIALITY
Except as necessary to carry out the transactions contemplated by this
Agreement or except to the extent that disclosure is required by applicable law
or regulatory policy, all information or documents including, but not limited
to, information concerning business procedures, finances, policies and plans of
the other party (whether in hard copy, computer, electronic, microfiche or other
format) ("Information") furnished hereunder by any party to any other party
shall be kept confidential by the party to whom it is furnished (and such party
shall use reasonable efforts to cause its agents and representatives to maintain
the confidentiality of such documents) and in the event such transactions are
not consummated, each shall return to the other all information furnished
hereunder and shall not thereafter use the same for any purpose until such time
as such information becomes publicly available, except to the extent (i) it was
known by such other party without breach of any obligation of confidentiality
prior to being received, or (ii) it is or thereafter becomes lawfully obtainable
from other sources, or (iii) it is necessary to disclose the same to any
Governmental Authority having jurisdiction over the parties or their Affiliates
or as otherwise may be required by applicable law (the party intending to make
disclosure in such circumstances shall give the other parties prompt notice
prior to making such disclosures so that such other parties may seek a
protective order or other appropriate remedy prior to such disclosure), or (iv)
such duty of confidentiality is waived in writing by the other party. The
foregoing sentence notwithstanding, each party agrees with the other not to use
any Information for any purpose, including any competitive purpose, other than
as may be necessary for Buyer to operate the Origination Business.
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5.3 EXPENSES
(a) Seller and Buyer shall, except as otherwise specifically
provided herein, each bear its own respective expenses incurred in
connection with the preparation, execution, and performance of the
Operative Documents and the transactions contemplated thereby, including,
without limitation, all fees and expenses of agents, representatives,
counsel, and accountants.
(b) Buyer shall be responsible for (i) paying any and all transfer,
conveyance, recording, and similar fees or taxes (including, without
limitation, sales, use, and real and personal property transfer taxes)
arising from the sale of the Assets pursuant to this Agreement and (ii)
preparing and filing any returns, reports, or other filings required in
connection therewith.
5.4 POST CLOSING INFORMATION
From time to time after the Closing Date and until two-hundred twenty
(220) days after the Closing Date, the parties shall deliver to each other such
information and data as any party may reasonably request, including that
required in order to enable such party to complete and file all Federal, state,
and local forms that may be required to be filed by it and to complete all
customary tax and accounting procedures and otherwise to enable such party to
satisfy its internal accounting, tax, and other requirements.
5.5 BOOKS AND RECORDS
(a) For a period of seven years after the Closing Date, if Buyer
desires to dispose of any of the books and records acquired from Seller
pursuant to this Agreement that relate to the Origination Business
conducted prior to the Closing Date, notice to such effect shall be given
by Buyer to Seller, and Seller shall be given an opportunity prior to any
such disposition, at its cost and expense, to remove and retain all or any
part of such books and records as it may select. During the period such
books and records are preserved and kept by Buyer, duly authorized
representatives of Seller shall, on reasonable prior notice, have access
thereto during normal business hours to examine, inspect, and copy such
books and records at Seller's expense.
(b) For a period of three years after the Closing Date, if Seller
desires to dispose of any of the books and records in its possession on
the Closing Date that relate to the Origination Business conducted prior
to the Closing Date, notice to such effect shall be given by Seller to
Buyer and Buyer shall be given an opportunity prior to any such
disposition, at its cost and expense, to remove and retain all or any part
of such books and records as it may select. During the period such books
and records are preserved and kept by Seller, duly authorized
representatives of Buyer shall, on reasonable prior notice, have access
thereto during normal business hours to examine, inspect, and copy such
books and records at Buyer's expense.
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5.6 FURTHER ASSURANCES
Each of the parties shall execute such documents and other papers and take
such further actions as may be reasonably required or desirable to carry out the
provisions of and the transactions contemplated by the Operative Documents.
5.7 PERSONNEL
(a) Promptly after the Initial Closing Date, Buyer shall offer
employment effective at 12:01 a.m. Central Standard Time on February 1,
1997 to all of the Employees upon substantially the same terms and
conditions, exclusive of employee benefits as existed with such Employees
immediately prior to the Closing. Employees who are on temporary leave of
absence on the Closing Date will have the effective date of their offer of
employment deferred to the date on which they are available to return to
active employment status. In the event such Employees are not available to
return to active employment status by September 1, 1997, Buyer shall be
under no further obligation to offer them employment. In the event
Employees identified on Schedule 1.1(v)(ii) are not employed by Buyer on
March 31, 1997 or have terminated or refused employment with Buyer, prior
to March 31, 1997, Buyer shall have the option of offering employment to
other Employees of Seller engaged in the Origination Support Business on
the same terms and conditions as offered to Employees hired on February 1,
1997 (adjusted for the difference in the date employment commences),
provided Seller shall consent prior to such offer, which consent shall not
be unreasonably withheld.
However, nothing in this Section shall be deemed to require that Seller
continue to employ any of said Employees after the Closing Date.
(b) Seller and the Subsidiary shall allow Buyer reasonable access to
Seller's and the Subsidiary's employees prior to the Closing.
(c) Seller shall be solely responsible for all compensation, bonuses
and other payments, and all sick pay, workers' compensation, disability
pay, severance pay, vacation pay, deferred compensation, profit-sharing
benefits, health care benefits and any other employee benefit, accrued
through the Closing Date for which Seller or the Subsidiary are obligated
under any Contract or Employee Benefit Plan, or under any personnel or
employee manual or policy or under any law or regulation. If any Employee
has accrued an amount of vacation in excess of one hundred percent (100%)
of their eligibility with Seller, pursuant to Seller's carry forward,
Seller will pay the excess amount, if any, to such Employees on January
31, 1997, or as soon thereafter as practicable. In addition, Seller shall
pay to Buyer, an amount equal to the accrued value of the vacation pay for
Employees hired by Buyer, as accrued through the Closing Date, and net of
any direct payments made by Seller to Employees.
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(d) Buyer is not assuming, nor shall it have any responsibility
whatsoever for the continuation of, or any liabilities under or in
connection with, any Employee Benefit Plan or any employment contract,
collective bargaining agreement, or severance arrangement of Seller or the
Subsidiary. Buyer is not, and shall not be deemed to be, a successor
employer to Seller or the Subsidiary with respect to any Employee Benefit
Plan; and no plan adopted or maintained by Buyer after the Closing is or
shall be deemed to be a "successor plan", as such term is defined in
Section 4021(a) of ERISA, of any Employee Benefit Plan. No assets held
under any Employee Benefit Plan shall be transferred to Buyer or to any
plan adopted or maintained by Buyer. Seller shall remain fully liable with
respect to all Employee Benefits Plans, and Buyer does not and will not be
required to assume by law, or under any form of any Employee Benefit Plan,
any of the responsibilities or liabilities under any Employee Benefit
Plan.
(e) Buyer shall assume liability for severance pay, if any, payable
to any employee who is terminated by Buyer after the Employee becomes an
employee of Buyer. Such payments shall be made pursuant to Buyer's
severance policy, if any, in effect on the date of termination. Buyer
shall compute severance pay by giving Employees credit for years of
service with Seller or the Subsidiary, to the same extent such service was
recognized under Seller's or the Subsidiary's severance policy. Until
January 1, 1998, Buyer agrees to provide Employees with vacation allowance
equal to the vacation allowance provided under Seller's vacation policy.
On and after January 1, 1998, Employees' vacation allowance shall be
determined solely in accordance with Buyer's vacation policy, as in effect
on such date.
(f) Neither Buyer nor Seller intends this Agreement to create any
rights or interests, except as between Buyer and Seller, and no present,
former, or future employee of Buyer or Seller shall be treated as a third
party beneficiary in or under this Agreement.
(g) To the extent possible, upon Buyer's request, Seller shall
cooperate with Buyer to transfer to Buyer Seller's experience rating in
states other than Texas for state unemployment tax purposes.
(h) The Employees hired by Buyer will be offered the opportunity to
become participants as of 12:01 a.m. Central Standard Time on the day
after the Closing Date in the health insurance plan of the Buyer. The
Employees hired by Buyer will be eligible (i) to participate as of 12:01
a.m. Central Standard Time on March 1, 1997, or as soon thereafter as
practicable, in the 401(k) plan of the Buyer (the "New 401(k) Plan") and
(ii) to "rollover" any amounts distributed from the 401(k) and profit
sharing accounts established under the Employee Benefit Plans into a new
401(k) or profit sharing account established under the New 401(k) Plan.
Seller agrees to vest all Employees as of Closing Date who are hired by
Buyer herein, in all benefit amounts under Seller's 401(k) plan. Buyer
further agrees that all Employees hired by Buyer herein shall be given
full credit for all years of service with Seller in connection with
eligibility and vesting in Buyer's plans except for the non-contributory
retirement plan. For purposes of the Buyer's non-contributory retirement
plan, Employees hired by the Buyer herein, shall be given no credit for
years of service with the Seller in connection with eligibility to
participate, benefit service and vesting. Employees hired by the Buyer
herein will be treated as a new hires for purposes of the non-
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contributory retirement plan. Further, there shall be no waiting period or
preexisting condition exclusions in connection with any health, or life
insurance or disability plan of Buyer for said Employees.
(i) Buyer shall pay Seller, as a part of the Net Assets Price, the
full amount of any employee advances or draws advanced by Seller prior to
the Closing Date to Employees hired by Buyer, which are shown on the books
and records of Seller, and shall receive from Seller an assignment of
Seller's rights to collect or offset any such advances or draws against
commissions, or other compensation or expense reimbursements due said
Employees. (Seller will indemnify Buyer for any advances or draws that
Buyer is unable to recover from commissions, or other compensation or
expense reimbursement due said Employees within 365 days of the Closing
Date provided that such indemnification shall terminate as to those
Employees for whom Buyer alters its compensation plans or methods for
paying draws in any material respect when such alterations occur. Such
indemnification shall not be subject to the provisions of Section 6.3(e)).
(j) If Buyer provides notice of termination to any of the Employees
in the Origination Support Business who are listed on Schedule 1.1(v)(ii)
on or prior to March 31, 1997 and terminates such Employee(s) on or before
April 30, 1997, then Seller agrees to reimburse Buyer for any severance
payments made by Buyer to such Employee(s), for the amount that such
Employees would have been entitled to under the applicable Employee
Benefit Plan of the Seller (generally two weeks salary for each year of
service). Buyer covenants to pay to such Employees the amount of severance
to which such Employees would be entitled under the applicable Employee
Benefit Plan.
(k) Seller shall pay for any commissions and overrides which are due
to Employees on Pipeline Mortgage Loans which close after the Closing
Date.
5.8 EMPLOYEE BENEFIT PLANS; WORKERS COMPENSATION PLAN
(a) Seller shall be solely liable and responsible for all
liabilities for costs of hospitalization and all other forms of medical
treatment arising with respect to any Employee Benefit Plan of the Seller
or the Subsidiary (including all liabilities arising under Code Section
4980B), and shall indemnify and hold harmless the Buyer from and against
any and all liabilities arising with respect to any Employee Benefit Plan
of the Seller providing medical coverage including, without limitation,
all obligations and liabilities for hospitalization and any form of
medical treatment of an Employee or dependent which occurs on or prior to
the Closing Date, provided, however, that if any such medical treatment is
(i) of a continuous nature, (ii) continues during the period subsequent to
the Closing Date (the "Post-Closing Continuous Medical Treatments") and
(iii) relates to an Employee hired by Buyer or a dependent thereof, then
Buyer shall be liable for the portion
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of such Post-Closing Continuous Medical Treatments incurred after the
Closing Date thereunder.
(b) Seller shall be solely liable and responsible for all costs of
hospitalization and all other forms of medical treatment or other benefits
arising with respect to the Workers Compensation Plan and shall indemnify
and hold harmless the Buyer, from and against any and all such
liabilities.
(c) Buyer shall not have any liability with respect to any Employee
Benefit Plan. This paragraph shall not limit Buyer's obligations set forth
in other provisions of this Section 5.8.
(d) Seller shall not be liable or responsible for any costs of
hospitalization or other forms of medical treatment that are provided to
Employees hired by Buyer under the health insurance plan of Buyer.
5.9 NON-COMPETITION
For a two year period following the Closing Date, Seller covenants and
agrees with Buyer that it shall not engage in, and shall cause its employees,
officers, directors and Affiliates not to engage in the business of originating
retail first mortgage loans from borrowers located in the states or other
jurisdictions in which the Origination Premises are located (with the exception
of the State of Texas), including but not limited to serving as an officer,
director, proprietor, employee, agent, consultant, partner, shareholder or
investor (other than (i) as a passive investor with less than five percent (5%)
of the outstanding capital stock of a publicly traded corporation). Seller
further covenants and agrees with Buyer that during the two year period
following the Closing Date, Seller will not, and shall cause its employees,
officers, directors and Affiliates not to employ any Employee except with the
express written permission of Buyer.
The prior paragraph shall not limit Seller, its employees, officers,
directors and Affiliates from during such two year period (a) conducting any of
the wholesale or correspondent mortgage origination business which Seller
conducts on the date hereof and which Buyer is not conducting at any time during
such two year period, (b) engaging in activities related to Pipeline Mortgage
Loans, (c) performing administrative duties relating to Mortgage Loans under
agreements that provide for payment to Seller or the Subsidiary of a servicing
or subservicing fee, (d) purchasing, selling or securitizing mortgage loans,
(iv) telemarketing of mortgage loan originations, (e) originating "B&C" mortgage
loans, (vi) refinancing of mortgage loans currently serviced by Seller or the
Subsidiary, or (vii) originating home equity loans.
5.10 DATA BASE
Seller shall deliver the Data Base to Buyer in a format mutually agreeable
within thirty (30) days after the date hereof.
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5.11 WHOLE LOAN PURCHASE OBLIGATION
Seller agrees to purchase from Buyer adjustable rate mortgage loans up to
the aggregate principal amount of $200,000,000 per annum for each of the two
years beginning on the Closing Date with the product mix and terms set forth on
Schedule 5.11 and pursuant to a whole loan purchase agreement to be entered into
by and between Seller and Buyer on the Closing Date.
5.12 OPERATION OF ORIGINATION BUSINESS FROM THE INITIAL CLOSING DATE TO THE
CLOSING DATE
From the Initial Closing Date to the Closing Date, Seller and Subsidiary
shall conduct the Origination Business only in the ordinary course of business,
in accordance in all material respects with applicable law, Agency Requirements
and Investor Agreements. In addition, until the Closing Date, Seller and
Subsidiary shall not, without the prior written consent of Buyer:
(a) amend or terminate any agreement designated an Assumed Contract;
(b) acquire or sell, transfer, assign, encumber or otherwise dispose
of or enter into any contract, agreement, understanding or other
arrangement to buy, acquire, sell, transfer, assign, encumber or otherwise
dispose of any Assets or Assumed Liabilities of Seller or Subsidiary
existing on the date hereof;
or
(c) adopt or amend (except as required by law) any bonus, profit
sharing, compensation, severance, termination, stock option, pension,
retirement, deferred compensation, employment or other employee benefit
agreements, trusts, plans, funds or other arrangements for the benefit or
welfare of any Employee, or increase, the compensation or fringe benefits
of any Employee or pay any benefit not required by any existing plan or
arrangement or take any action or grant any benefit not required under the
terms of any existing agreements, trusts, plans, funds or other such
arrangements or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
5.13 ORIGINATION PREMISES LEASE EXPENSES
Seller covenants to obtain from the relevant Landlords assignments to
Buyer of all Origination Premises Leases on or before May 1, 1997, or such later
date as the parties mutually agree. If (a) Seller is unable to obtain a consent
by such date, (b) at some point thereafter during the term of the relevant
Lease, Buyer is prohibited by the relevant landlord from occupying the relevant
premises and (c) Buyer moves to a new premise, then Seller will reimburse Buyer
for the following expenses: (i) the difference in the occupancy costs between
the present lease and the new lease which Buyer enters into for the period from
the date of the move until the end of the original term of the present lease,
provided that the space for the new lease is substantially similar to that for
the present lease; (ii) reasonable and prudent out-of-pocket moving costs of
Buyer associated with the move from the present premises to the new premises;
(iii) if there is an
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interruption in business, an amount of $600 per day for such disruption; and
(iv) any unamortized Purchased Leasehold Improvements. Buyer shall use its best
efforts to minimize the expenses for which Seller is required to reimburse
Buyer. In addition, Seller shall give Buyer prompt notice of any anticipated
move and work with Buyer to minimize such expenses.
With regard to the Origination Premises Leases identified on Schedule
5.13, the Seller shall have a period of sixty (60) days from the Closing Date to
determine whether it is able or willing to assign any such leases to Buyer,
whether in whole or in part. During such sixty day period, Buyer and Seller
shall be allocated and pay the respective percentages of the monthly lease
payments most recently reflected on the Seller's rent roll. In connection
therewith Seller shall, with respect to each such Origination Premises Leases
have three (3) options, to wit: 1) Seller may partition the property and either
sublease, or assign a portion of the Origination Premises to Buyer; 2) Seller
may elect to keep the leased premises for its own use entirely, in which event
Buyer will relocate; or 3) Seller may abandon its entire interest in an
Origination Premises Lease, and assign said interest to Buyer. The parties agree
and understand that the provisions of this subparagraph are intended to allow
the Seller to resolve issues relating to a limited number of Origination
Premises Leases with special concerns previously identified by Seller and Buyer.
Seller agrees to provide reasonable notice of its election of options under this
paragraph. In the event Seller elects to partition, no financial adjustments are
required, and Buyer shall assume responsibility for its allocated portion of the
Origination Premises Lease on the effective date of the assignment or sublease.
In the Event Seller elects to keep the entire space for its own use, Buyer shall
be entitled to reimbursement for expenses in accordance with the provisions of
the the first paragraph of this Section 5.13. In the event Seller elects to
abandon its interest, Buyer will be entitled to reimbursement for expenses
incurred in connection with the "excess space" it assumes responsibility for.
Reimbursement for this "excess space" will be determined by calculating the
ratio of the "excess space" to the entire space covered by such Origination
Premises Lease, then multiplying that ratio times the projected lease expenses
over the remaining term of said lease to arrive at the total projected lease
expenses for the excess space over the remaining term. Seller shall then
reimburse Buyer for eighty-five percent (85%) of such amount attributable to the
excess space.
With regard to the Origination Premises Lease in Fort Lauderdale, Florida,
Seller shall also assign to Buyer its interest as sublessor in a sublease. Buyer
shall be entitled to seek reimbursement for the full amount of any sublease
payments for the remaining original term of the assigned sublease to which it
would be entitled under said sublease, if they are not remitted by the
sublessee.
Should a dispute arise between Buyer and Seller with regard to the
provisions of this Section 5.13, the parties shall submit the dispute to
arbitration to be conducted in accordance with the provisions of Section 2.7 of
this Agreement.
ARTICLE VI
INDEMNITY AND RECOURSE; OTHER REMEDIES
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6.1 SELLER'S INDEMNITY
Seller shall save, indemnify and hold harmless Buyer and its Affiliates
and the successors, assigns, officers, directors, servants, employees, partners,
and agents of any of them (the "Buyer Indemnified Parties"), promptly upon
demand at any time and from time to time, from and against any and all actions
and claims asserted against any Buyer Indemnified Party, and shall reimburse the
Buyer Indemnified Parties for any and all actual losses, Liabilities, damages,
charges, Liens, deficiencies, or expenses of any nature including, without
limitation, reasonable attorneys' fees ("Buyer's Losses"), to the extent that
Buyer's Losses are incurred by or assessed against any Buyer Indemnified Party
and arise out of or result from:
(a) the inaccuracy in any respect of any representation or warranty
made by Seller in any Operative Document;
(b) the failure by Seller to perform or observe any material term,
condition, or provision of any Operative Document;
(c) the assertion against any Buyer Indemnified Party or the Assets
of any claims, other than claims arising from the Assumed Liabilities,
based upon the rights of any creditor, officer, director, employee,
Agency, mortgagor, customer or agent of Seller, any of its Affiliates or
prior parties in interest; and
(d) the assertion against any Buyer Indemnified Party or the Assets
of any claims based upon any Liabilities of Seller, any of its Affiliates
or prior parties in interest or any Liabilities relating to the
operations, assets, or properties of Seller, any of its Affiliates or
prior parties in interest, other than the Assumed Liabilities.
Seller shall not be entitled to such indemnification under Section 6.1(c)
or (d) for any matters related to Environmental Laws.
6.2 BUYER'S INDEMNITY
Buyer shall save, indemnify and hold harmless Seller and its Affiliates
and the successors, assigns, officers, directors, partners, employees, servants,
and agents of any of them (the "Seller Indemnified Parties"), promptly upon
demand at any time and from time to time, from and against any and all actions
and claims asserted against any Seller Indemnified Party and shall reimburse
Seller Indemnified Party for any and all actual losses, Liabilities, damages,
charges, Liens, deficiencies or expenses of any nature including, without
limitation, reasonable attorneys' fees ("Seller's Losses"), to the extent and
only to the extent that Seller's Losses are incurred by or assessed against any
Seller Indemnified Party and arise out of or result from:
(a) the inaccuracy in any respect of any representation or warranty
made by Buyer in any Operative Document;
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(b) the failure by Buyer to perform or observe any material term or
provision of any Operative Document;
(c) the Assumed Liabilities;
(d) the assertion against any Seller Indemnified Party of any
material claim based upon the failure of Buyer to continue to perform any
service or activity previously performed by Seller that Buyer is required
to perform pursuant to the Operative Documents.
6.3 INDEMNITY PROCEDURES
(a) If any legal proceedings, claims, or demands are instituted or
asserted by any Person in respect of which any of the Buyer Indemnified
Parties or Seller Indemnified Parties may seek indemnification from any
party hereto pursuant to the provisions hereof (such legal proceedings,
claims, or demands being referred to individually as a "Claim" and
collectively as the "Claims"), the indemnified party, after receipt by it
of written notice of the commencement or assertion of such Claim, shall
promptly cause a written notice of such Claim to be made to the
indemnifying party; provided that failure to give such notice shall not
(i) relieve the indemnifying party of its indemnification obligations
hereunder, unless such failure to provide notice shall have materially and
substantially prejudiced the rights of the indemnifying party under
Section 6.3(b), or (ii) result in any Liability of the indemnified party
to the indemnifying party. The provision of such notice of Claim within
the applicable survival period specified in Section 8.1 shall preserve the
Indemnified Party's Claim for reimbursement or indemnity.
(b) Subject to the next sentence, the indemnifying party shall have
the right, at its option and expense, to assume the defense, settlement,
or other disposition (collectively "Defense") of any Claim, provided that
within twenty (20) days of receiving the notice with respect to such Claim
pursuant to Section 6.3(a) hereof (or within such shorter period of time
as an answer or other responsive action may be required), the indemnifying
party, by notice delivered to the indemnified party, elects to assume such
Defense and each indemnifying party acknowledges its obligation hereunder
to indemnify the indemnified party with respect to such Claim.
Notwithstanding the foregoing, the indemnifying party shall not have the
right to assume the Defense of any Claim if: (i) representation of both
the indemnified and indemnifying parties by the same counsel would be
prohibited by rules or regulations governing the professional conduct of
such counsel due to actual or potential differing interests between them;
(ii) the indemnified party determines in good faith that there is a
significant possibility that such Claim may materially and adversely
affect it or its Affiliates other than as a result of monetary damages.;
or (iii) the indemnified party determines in good faith that the
indemnifying party has insufficient financial resources to satisfy any
monetary damages reasonably likely to result from such Claim.
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(c) If the indemnifying party has assumed the Defense of a Claim in
accordance with Section 6.3(b) hereof, then the following shall apply:
(i) except as provided in clause (v) of this Section 6.3(c)
the indemnified party shall have the right to participate and assist
in, but not control, the Defense of such Claim and to employ its own
counsel in connection therewith;
(ii) except as provided in clause (v) of this Section 6.3(c)
the indemnifying party shall not be liable to the indemnified party
for the fees or expenses of the indemnified party's counsel or other
expenses incurred by the indemnified party in connection with
participating in the Defense of such Claim, except that the
indemnifying party shall be liable for any such fees and expenses
incurred prior to the time the indemnifying party assumed such
Defense;
(iii) counsel used by the indemnifying party in connection
with the Defense of such Claim shall be reasonably satisfactory to
the indemnified party;
(iv) except as provided in clause (v) of this Section 6.3(c),
the indemnifying party shall have no liability with respect to any
compromise or settlement of such Claim effected without its consent,
which consent shall not be unreasonably withheld;
(v) if the indemnifying party shall fail or omit to diligently
prosecute the Defense of such Claim, then (A) the indemnified party
shall have the right to control the Defense of such Claim, (B) the
indemnifying party shall be liable to the indemnified party for the
fees and expenses of the indemnified party's counsel and other
expenses incurred by the indemnified party in connection with the
Defense of such Claim and (C) the indemnifying party shall be liable
for any settlement of such Claim effected by the indemnified party;
and
(vi) the indemnifying party shall not effect any compromise or
settlement of such Claim without the consent of the indemnified
party, which consent shall not be unreasonably withheld, unless such
compromise or settlement includes a full release of the indemnified
party, neither the indemnified party's business nor its name nor the
business or name of any of its Affiliates will not be damaged by
such settlement, and such settlement is limited strictly to monetary
damages.
(d) If the indemnifying party does not assume the Defense of a Claim
(whether because it elects not to or has no right to) the following shall
apply:
(i) the indemnifying party shall have the right, at its sole
cost and expense, to participate in, but not control, the Defense of
such Claim and to employ its own counsel in connection therewith;
and
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(ii) the indemnifying party shall have no liability with
respect to any compromise or settlement of such Claim effected
without its consent, which shall not be unreasonably withheld.
(e) Notwithstanding any other provision hereof, an indemnifying
party shall not be liable under this Article VI for any Claims sustained
by the indemnified party unless and until the aggregate amount of all such
Claims sustained by the indemnified party shall exceed $200,000, in which
event the indemnifying party shall be liable for all such Claims in excess
of $200,000.
(f) The parties agree to cooperate to the fullest extent possible in
connection with any Claim in respect of which indemnification is sought
under this Agreement.
(g) After the Closing, the rights set forth in this Article VI shall
be each party's sole and exclusive remedies against the other party hereto
for breaches of representations or covenants contained in this Agreement
or any other Operative Document.
(h) The amount of indemnification to which either party shall be
entitled under this Article VI shall be (i) reduced by (A) the amount of
any insurance proceeds actually received by the Indemnified Party or other
cash payments directly attributable to the claim in question if the
Indemnified Party effects such recovery, provided that Buyer shall have no
obligation to pursue any insurance claim, and (B) the value of the "Tax
Benefit" (as hereinafter defined), if any, computed at the Assumed Rate
(as defined below) for all Taxes, such Tax Benefit to be reduced, but not
below zero, by the cost of any "Tax Detriment" (as hereinafter defined),
computed at the Assumed Rate, it being the intent of the parties that the
indemnity provided for in this Article VI be net of all insurance
recoveries and all income tax effects to the Indemnified Party. For
purposes of this Section 6.3(h), (i) the "Assumed Rate" shall be the
maximum combined rate applicable to C corporations on the date of any
payment to the Indemnified Party; (ii) the term "Tax Benefit" shall mean
an item that results in an increase in the deductions allowable to the
Indemnified Party under the Code irrespective of whether the Indemnified
Party has any income against which to take the deduction; and (iii) the
term "Tax Detriment" shall mean an item that results in an increased item
of gross income of the Indemnified Party pursuant to the Code. The present
value of future tax benefits or liabilities shall be determined utilizing
a discount rate of 8% per annum.
(i) Except as otherwise provided in this Article VI, all
indemnification shall be paid for by the indemnifying party on a dollar
for dollar basis without regard to or application of any multiple.
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ARTICLE VII
RESTRICTIONS ON SOLICITATION; CONFIDENTIALITY
7.1 CONFIDENTIALITY
Following the Closing, Seller shall, and shall cause its Affiliates to,
keep confidential all information concerning the Origination Business known to
it and neither Seller nor any of its Affiliates shall use any such information
for its own business, except that Seller may use information concerning the
Origination Business to the extent reasonably necessary to conduct its affairs
and to arrange and dispose of its assets and liabilities not purchased or
assumed by Buyer. Further, nothing contained herein shall be deemed to restrict
the utility of Seller to disclose or report information relating to the
Origination Business pursuant to applicable banking, securities, insurance or
other laws or regulations.
7.2 WHOLESALE OPERATIONS
If Buyer shall close any offices from which Seller currently conducts
Wholesale operations within six (6) months after the Closing Date hereof and
provides Seller thirty (30) days prior written notice of such, Seller agrees to
reimburse Buyer for (a) any severance costs of Buyer under its existing benefits
plans to Employees hired by Buyer (or their replacements) who work in the
Wholesale operations (including those who work in underwriting and post-closing)
at the Origination Premises (as if such Employees were terminated today for all
purposes, including vesting), (b) the present value (determined using a discount
rate of 8%) of the then remaining lease payments for the Origination Premises
related thereto, assuming the lease term and payments are the same as under the
present leases, and (c) unamortized Purchased Leasehold Improvements. If the
relevant Origination Premises is used for retail and Wholesale operations, the
amount of the lease payment from Seller to Buyer shall be prorated in proportion
to that portion of the premises used for Wholesale operations.
7.3 ENFORCEMENT OF ARTICLE VII
Seller acknowledges that its failure or threatened failure to comply with
the provisions of this Article VII will result in immediate, irreparable, and
continuing damage to Buyer for which there will be no adequate remedy at law and
that, in the event of its failure or threatened failure so to comply, Buyer and
its successors, legal representatives, and assigns shall be entitled to
temporary and permanent injunctive relief and to such other and further relief
as may be necessary and proper to ensure compliance with the provisions of this
Article VII.
ARTICLE VIII
MISCELLANEOUS
8.1 SURVIVAL
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The representations and warranties contained in Article III and Article IV
and the remedies for the inaccuracy or breach thereof and the indemnities and
reimbursements provided for in Article V or VII hereof shall survive the Closing
Date for a period of two (2) years. The indemnities provided for in Article VI
and the representations set forth in Section 3.14 shall survive for a period of
six (6) years.
8.2 AMENDMENT
This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
8.3 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, but all of which shall be considered one and
the same instrument
8.4 ENTIRE AGREEMENT
The Operative Documents contain the entire agreement between the parties
and supersede all prior agreements, arrangements, and understandings relating to
the subject matter thereof. There are no written or oral agreements,
understanding, representations, or warranties between the parties other than
those set forth in the Operative Documents.
8.5 RIGHTS CUMULATIVE; WAIVERS
The rights of each of the parties under this Agreement are cumulative, may
be exercised as often as any party considers appropriate, and are in addition to
each such party's rights under any of the other Operative Documents or, except
as otherwise modified herein, under law. The rights of each of the parties
hereunder shall not be capable of being waived or varied otherwise than by an
express waiver or variation in writing. Any failure to exercise or any delay in
exercising any of such rights shall not operate as a waiver or variation of that
or any other such right. Any defective or partial exercise of any of such rights
shall not preclude any other or further exercise of that or any other such
right. No act or course of conduct or negotiation on the part of any party shall
in any way preclude such party from exercising any such right or constitute a
suspension or any variation of any such right.
8.6 ADDITIONAL ACTIONS
Buyer and Seller agree to cooperate and take such actions necessary to (i)
vest, perfect or conform, of record or otherwise, in the Buyer its right, title
or interest in, to or under any of the Assets, or (ii) otherwise carry out the
purposes of this Agreement.
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8.7 SECTION HEADINGS
The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
8.8 NOTICES
All notices and other communications hereunder shall be in writing
(including a writing delivered by facsimile transmission) and shall be deemed to
have been duly given (i) when delivered, if sent by registered or certified mail
(return receipt requested), (ii) when delivered, if delivered personally or by
telecopy, or (iii) on the second following business day, if sent by United
States Express Mail or overnight courier, in each case to the parties at the
following addresses (or at such other addresses as shall be specified by like
notice):
If to Seller:
Jonathon K. Heffron, Esq.
Executive V.P., C.O.O., & General Counsel Bank United, a federal
savings bank 3200 Southwest Freeway
Suite 1600
Houston, TX 77027
If to Buyer to:
President
National City Mortgage Co.
3232 Newmark Drive
Miamisburg, OH 45342
with copies to:
Robert C. Ellis, Esq.
National City Bank of Columbus
155 East Broad Street
Columbus, OH 43251
8.9 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas without reference to the choice of law principles
thereof.
8.10 SUCCESSORS AND ASSIGNS
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This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and their respective permitted successors and assigns. Without the
consent of the other parties hereto, no party hereto may assign or delegate its
rights or duties hereunder, except that Buyer may assign this Agreement and its
rights hereunder, in whole or in part, to any direct or indirect wholly-owned
subsidiary of Buyer, provided that no such assignment shall relieve Buyer of its
obligations hereunder.
8.11 FURTHER AGREEMENTS
Seller and Buyer each agree to execute and deliver to the other such
reasonable and appropriate additional documents, instruments, or agreements as
may be necessary or appropriate to effectuate the purposes of this Agreement
(including but not limited to updates of Exhibits and Schedules to be attached
hereto and incorporated herein).
8.12 PUBLICITY
Buyer and Seller agree to consult with each other and to coordinate the
issuance of any press release or similar public announcement or communication
containing the other's name and relating to the execution or performance of this
Agreement and the transactions contemplated hereby; PROVIDED, HOWEVER, that no
party shall be restrained, after consultation with the other party, from making
such disclosure as it shall be advised by counsel is required by law or by the
applicable regulations of any regulatory body or securities exchange to be made.
Without the prior written consent of the parties, neither Seller nor Buyer shall
advertise or publicize in any newspaper or periodical any of the transactions
contemplated by this Agreement using either Seller's or Buyer's name, including
by way of a "tombstone" advertisement.
8.13 SEVERABILITY
This Agreement shall be deemed severable, and the invalidity or
unenforceability of any term or provision hereof shall not affect the validity
or enforceability of this Agreement or of any other term or provision hereof.
8.14 WAIVERS
No term or provision of this Agreement may be waived or modified unless
such waiver or modification is in writing and signed by the party against whom
such waiver or modification is sought to be enforced.
8.15 EXHIBITS AND SCHEDULES
The Exhibits and Schedules to this Agreement are hereby incorporated and
made a part hereof and are an integral part of this Agreement.
8.16 GENERAL INTERPRETIVE PRINCIPLES
37
<PAGE>
For purposes of this Agreement, except as otherwise expressly provided or
unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned
to them in this Agreement and include the plural as well as the singular,
and the use of any gender herein shall be deemed to include the other
gender;
(b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting
principles;
(c) references herein to "Articles", "Sections", "Subsections",
"Paragraphs", and other subdivisions without reference to a document are
to designated Articles, Sections, Subsections, Paragraphs, and other
subdivisions of this Agreement;
(d) a reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the same Section
in which the reference appears, and this rule shall also apply to
Paragraphs and other subdivisions;
(e) the words "herein", "hereof", "hereunder", and other words of
similar import refer to this Agreement as a whole and not to any
particular provision; and
(f) the term "include" or "including" shall mean by reason of
enumeration.
8.17 REPRODUCTION OF DOCUMENTS
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers, and modifications that may hereafter be
executed, (b) documents received by any party on the Initial Closing Date or
Closing Date, and (c) financial statements, certificates, and other information
previously or hereafter furnished, may be reproduced by any photographic,
photostatic, microfilm, micro-card, miniature photographic, or other similar
process. The parties agree that any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding,
whether or not the original is in existence and whether or not such reproduction
was made by a party in the regular course of business, and that any enlargement,
facsimile, or further reproduction of such reproduction shall likewise be
admissible in evidence.
IN WITNESS WHEREOF, this Agreement has been signed on behalf of each
of the parties hereto by their authorized representatives, all as of the day and
year first above written.
BANK UNITED, a federal savings bank
By: /s/GEORGE R. BENDER
Name: George R. Bender
Title: Executive Vice President
38
<PAGE>
COMMONWEALTH UNITED MORTGAGE COMPANY
By: /s/GEORGE R. BENDER
Name: George R. Bender
Title: Executive Vice President
NATIONAL CITY MORTGAGE CO.
By: /s/LEO KNIGHT
Name: Leo Knight
Title: President
39
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
EXHIBIT A
TAX ALLOCATION OF PURCHASE PRICE AND ASSUMED LIABILITIES
INITIAL ALLOCATION OF PRELIMINARY PURCHASE PRICE
PRODUCTION PREMIUM: $10,500,000.00
FURNITURE, FIXTURE & EQUIPMENT: $ 1,203,615.00
--------------
TOTAL: $11,703,615.00
This Exhibit A will be updated to reflect the Final Purchase Price after
determination of same in accordance with Section 2.5 of the Asset Purchase and
Sale Agreement.
40
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
SCHEDULE 2.5(A)
CLOSING STATEMENT
Production Premium $10,500,000.00
Estimated Net Assets Price $ 1,203.615.00
--------------
Preliminary Purchase Price $11,703.615.00
==============
WIRE TRANSFER INSTRUCTIONS
Bank United
3200 Southwest Fwy
Houston, Texas
ABA NO. 3130-71-904
Attention: Lynne King, Treasury
41
<PAGE>
ASSET PURCHASE AND SALE AGREEMENT
SCHEDULE 5.11
PRODUCT MIX AND TERMS FOR PURCHASE OF
ADJUSTABLE RATE MORTGAGE LOANS
In connection with the consummation of the transaction contemplated by the
Asset Purchase and Sale Agreement entered into by the parties hereto, Seller
would be willing to acquire ARM Loans with an aggregate outstanding principal
balance up to four hundred million dollars ($400,000,000) within the 24 months
following the Closing Date; provided, however, that the aggregate principal
balance of ARM Loans purchased shall not exceed two hundred million dollars
($200,000,000) in either of the 12 calendar month periods contemplated
hereunder. All ARM loans eligible to be purchased pursuant to the terms of this
commitment must be in conformance with applicable Agency Guidelines and Investor
Requirements and the terms of a separate whole loan purchase agreement to be
entered into by the parties hereto. Further, based on the annual aggregate
principal balance of loans purchased, Seller would not be obligated to purchase
loans in excess of the following limitations:
(is less than or equal to) 15% Second Homes
(is less than or equal to) 5% Condo Concentration
(is less than or equal to) 35% Loans in excess of $500,000*
(is less than or equal to) 15% Condominium
(is less than or equal to) 40% LTV 75-80%
(is less than or equal to) 15% 2-4 Units
(is less than or equal to) 75% California Properties
*Loans in excess of $800,000 must be pre-approved by Seller.
An example of a daily or monthly pricing matrix is:
<TABLE>
<CAPTION>
=====================================================================================================
3/1's 5/1's 7/1's
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Index: 1 Year Treasury Index: 3 Year Treasury Index: 4 Year Treasury
- -----------------------------------------------------------------------------------------------------
Net Spread to Index:210 bps Net Spread to Index:160 bps Net Spread to Index:170 bps
- -----------------------------------------------------------------------------------------------------
Gross Reset Margin: 2.75% Gross Reset Margin: 2.75% Gross Reset Margin: 2.75%
- -----------------------------------------------------------------------------------------------------
Gross Life Cap: 6.00% Gross Life Cap: 5.00% Gross Life Cap: 5.00%
- -----------------------------------------------------------------------------------------------------
Period Cap: 2.00% Period Cap: 2.00% Period Cap: 2.00%
- -----------------------------------------------------------------------------------------------------
Servicing: 25 bps Servicing: 25 bps Servicing: 25 bps
- -----------------------------------------------------------------------------------------------------
Buy Ups: 2 x 1 (101-00 maximum) Buy Ups: 3 x 1 (101-00 maximum) Buy Ups: 3 x 1 (101-00 maximum)
- -----------------------------------------------------------------------------------------------------
Buy Downs: 2 x 1 Buy Downs: 3 x 1 Buy Downs: 4 x 1
=====================================================================================================
</TABLE>
42
<PAGE>
The following products will be acquired:
================================================================================
Loan Type Description
- --------------------------------------------------------------------------------
1 Month COFI Negam, Resets to fully indexed in 3 mos.
- --------------------------------------------------------------------------------
1 Month Libor Negam, Resets to fully indexed in 3 mos.
- --------------------------------------------------------------------------------
6 Month Libor - conforming 6 month Libor indexed ARM
- --------------------------------------------------------------------------------
6 Month Libor - non-conforming 6 month Libor indexed ARM
- --------------------------------------------------------------------------------
1 Year/(12 month reset) non-conforming 1 year Treasury indexed ARM
- --------------------------------------------------------------------------------
3 Year/1 Year - non-conforming 1 year Treasury ARM with 3 year fixed
- --------------------------------------------------------------------------------
5 Year/1 Year - non-conforming 1 Year Treasury ARM with 5 year fixed
- --------------------------------------------------------------------------------
7 Year/1 Year - non-conforming 1 Year Treasury ARM with 7 year fixed
- --------------------------------------------------------------------------------
10 Year/1 Year - non-conforming 1 Year Treasury ARM with 10 year fixed
- --------------------------------------------------------------------------------
30 Year SISA - non-conforming 30 Year Fixed
- --------------------------------------------------------------------------------
30 Year SISA - conforming 30 Year Fixed
================================================================================
These loans will be acquired either on a servicing retained basis or on a
servicing released to us. The prices will be set on a weekly basis to an index
or in some cases on a monthly basis.
Other provisions would be:
1. Fall out percentage 35% apply RFC penalty.
2. No solicitation of delivered product.
43
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 125,987
<INT-BEARING-DEPOSITS> 6,829
<FED-FUNDS-SOLD> 582,236
<TRADING-ASSETS> 1,174
<INVESTMENTS-HELD-FOR-SALE> 1,045,927
<INVESTMENTS-CARRYING> 610,534
<INVESTMENTS-MARKET> 593,463
<LOANS> 7,957,010
<ALLOWANCE> 43,532
<TOTAL-ASSETS> 11,059,646
<DEPOSITS> 4,999,286
<SHORT-TERM> 4,898,547
<LIABILITIES-OTHER> 316,165
<LONG-TERM> 115,000
0
0
<COMMON> 316
<OTHER-SE> 544,832
<TOTAL-LIABILITIES-AND-EQUITY> 11,059,646
<INTEREST-LOAN> 159,264
<INTEREST-INVEST> 37,139
<INTEREST-OTHER> 2,700
<INTEREST-TOTAL> 199,103
<INTEREST-DEPOSIT> 66,724
<INTEREST-EXPENSE> 133,318
<INTEREST-INCOME-NET> 65,785
<LOAN-LOSSES> 6,914
<SECURITIES-GAINS> 641
<EXPENSE-OTHER> 53,078
<INCOME-PRETAX> 35,459
<INCOME-PRE-EXTRAORDINARY> 17,263
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,263
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.55
<YIELD-ACTUAL> 2.63
<LOANS-NON> 90,384
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 39,660
<CHARGE-OFFS> 3,096
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 43,532
<ALLOWANCE-DOMESTIC> 43,532
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
