-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IENrqRxdA2lq3BhoAR85+ekZPmJnOSodsoLXFZwVIWzW+SldMCv+a1ovWtS2+LOw F5YcdP9D288BpfO8JCGhQw== 0000950134-95-002950.txt : 19951124 0000950134-95-002950.hdr.sgml : 19951124 ACCESSION NUMBER: 0000950134-95-002950 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LOMAS FINANCIAL CORP CENTRAL INDEX KEY: 0000060150 STANDARD INDUSTRIAL CLASSIFICATION: 6162 IRS NUMBER: 751043392 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06868 FILM NUMBER: 95592500 BUSINESS ADDRESS: STREET 1: 1600 VICEROY DR 8TH FLOOR CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 2148794000 MAIL ADDRESS: STREET 1: 1600 VICEROY DR STREET 2: 8TH FLOOR CITY: DALLAS STATE: TX ZIP: 75235 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS & NETTLETON FINANCIAL CORP DATE OF NAME CHANGE: 19881030 10-Q 1 FORM 10-Q FOR PERIOD ENDED SEPTEMBER 30, 1995 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES --- EXCHANGE ACT OF 1934 For the transition period from to -------------- ------------- Commission file number 1-6868 LOMAS FINANCIAL CORPORATION --------------------------- (Exact name of registrant as specified in its charter) Delaware 75-1043392 ----------------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1600 Viceroy Drive Dallas, Texas 75235 - - ----------------------------------------------- ------------- (Address of principal executive offices) (Zip Code) (214) 879-4000 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X NO --- --- On October 10, 1995, the Registrant and certain of its subsidiaries filed bankruptcy proceedings under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of each of the issuer's classes of common stock as of November 10, 1995: Common Stock, $1 par value -- 20,149,231 shares. 2 LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 INDEX
PAGE ---- PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheet -- September 30, 1995, and June 30, 1995 . . . . . . . . . . . . . . . 2 Statement of Consolidated Operations -- Quarter Ended September 30, 1995 and 1994 . . . . . . . . 3 Statement of Consolidated Cash Flows -- Quarter Ended September 30, 1995 and 1994 . . . . . . . . 4 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 5 - 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 11 Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11-12
1 3 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. CONSOLIDATED BALANCE SHEET LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (IN THOUSANDS)
September 30, 1995 June 30, 1995 ------------------ ------------- (Unaudited) (Note) ASSETS ------ Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . $ 28,266 $ 19,966 First mortgage loans held for sale . . . . . . . . . . . . . . . . . . . 608 345,039 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,786 282,318 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,478 77,248 Fixed assets--net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,117 52,579 Foreclosed real estate . . . . . . . . . . . . . . . . . . . . . . . . . -- 6,348 ----------- ----------- 67,989 763,532 Less allowance for losses . . . . . . . . . . . . . . . . . . . . . . . . (4,574) (32,481) ----------- ----------- 63,415 731,051 Purchased future mortgage servicing income rights--net . . . . . . . . . -- 346,958 Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . . 16,768 23,545 Net assets of discontinued operations . . . . . . . . . . . . . . . . . . 33,800 33,550 Assets held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . 502,570 -- ----------- ----------- $ 644,819 $ 1,155,070 =========== =========== Escrow, agency and fiduciary funds--see contra . . . . . . . . . . . . . $ 678,529 $ 641,519 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) ---------------------------------------------- Liabilities: Accounts payable and accrued expenses . . . . . . . . . . . . . . . $ 49,258 $ 57,171 Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 591,089 Term notes payable . . . . . . . . . . . . . . . . . . . . . . . . . 378,436 378,770 Senior convertible notes payable . . . . . . . . . . . . . . . . . . 139,918 139,918 Liabilities to be assumed in sale . . . . . . . . . . . . . . . . . 283,310 -- ----------- ----------- 850,922 1,166,948 ----------- ----------- Stockholders' equity (deficit): Common stock--20,149 and 20,146 shares issued and outstanding, respectively . . . . . . . . . . . . . . . . . . . . 20,149 20,146 Other paid-in capital . . . . . . . . . . . . . . . . . . . . . . . 309,763 309,761 Retained earnings (deficit) . . . . . . . . . . . . . . . . . . . . (536,015) (341,785) ----------- ----------- (206,103) (11,878) ----------- ----------- $ 644,819 $ 1,155,070 =========== =========== Liability for escrow, agency and fiduciary funds--see contra . . . . . . $ 678,529 $ 641,519 =========== ===========
Note: The balance sheet at June 30, 1995, as presented is derived from the audited financial statements at that date. See notes to consolidated financial statements. 2 4 STATEMENT OF CONSOLIDATED OPERATIONS (UNAUDITED) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Quarter Ended September 30 ------------------------------- 1995 1994 ----------- ----------- Revenues: Mortgage servicing . . . . . . . . . . . . . . . . . . . . . . . . . $ 30,236 $ 32,914 Commissions and fees . . . . . . . . . . . . . . . . . . . . . . . . 6,741 8,131 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,170 5,768 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,857 3,666 Gain on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3,179 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,262 463 ----------- ----------- 55,326 54,121 ----------- ----------- Expenses: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,495 18,366 Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,727 15,206 Depreciation and amortization . . . . . . . . . . . . . . . . . . . 15,165 16,202 Other operating . . . . . . . . . . . . . . . . . . . . . . . . . . 10,006 9,797 Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . 22,003 1,900 ----------- ----------- 87,396 61,471 ----------- ----------- Loss from continuing operations before loss on assets held for sale . . (32,070) (7,350) Loss on assets held for sale net of liabilities to be assumed . . . . . . (162,160) -- ----------- ----------- Loss from continuing operations . . . . . . . . . . . . . . . . . . (194,230) (7,350) Loss from discontinued operations . . . . . . . . . . . . . . . . . . . . -- (5,500) ----------- ----------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850) =========== =========== Loss per share: Loss from continuing operations . . . . . . . . . . . . . . . . . . $ (9.63) $ (.37) Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (9.63) $ (.64) Average number of shares . . . . . . . . . . . . . . . . . . . . . . 20,167 20,135
See notes to consolidated financial statements. 3 5 STATEMENT OF CONSOLIDATED CASH FLOWS (UNAUDITED) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (IN THOUSANDS)
Quarter Ended September 30 ------------------------------- 1995 1994 ----------- ----------- Operating activities: Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850) Adjustments to reconcile net loss to net cash provided by operating activities before working capital changes: Loss from discontinued operations . . . . . . . . . . . . . . . -- 5,500 Loss on assets held for sale . . . . . . . . . . . . . . . . . . 162,160 -- Depreciation and amortization . . . . . . . . . . . . . . . . . 15,165 16,202 Provision for losses . . . . . . . . . . . . . . . . . . . . . . 22,003 1,900 (Gain) loss on sale of mortgage servicing rights . . . . . . . . 207 (1,734) ----------- ----------- Cash provided by operations before working capital changes . 5,305 9,018 Net change in first mortgage loans held for sale . . . . . . . . . . 58,435 88,735 Net change in sundry receivables, payables, and other assets . . . . (2,010) (19,114) Net cash used by discontinued operations . . . . . . . . . . . . . . (676) (5,899) ----------- ----------- Net cash provided by operating activities . . . . . . . . . 61,054 72,740 ----------- ----------- Investing activities: Purchases of investments . . . . . . . . . . . . . . . . . . . . . . (2,067) (1,947) Maturities/sales of investments . . . . . . . . . . . . . . . . . . 255,117 52,376 Purchases of loans from pools . . . . . . . . . . . . . . . . . . . (1,048) (3,734) Sales of foreclosed real estate . . . . . . . . . . . . . . . . . . 1,400 3,095 Net purchases of fixed assets . . . . . . . . . . . . . . . . . . . 941 (619) Purchases of future mortgage servicing income rights . . . . . . . . (14,320) (6,623) Sales of future mortgage servicing income rights . . . . . . . . . . 12,167 15,636 Sale of subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . 3,903 -- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 27 Net cash provided by discontinued operations . . . . . . . . . . . . 5,092 67,897 ----------- ----------- Net cash provided by investing activities . . . . . . . . . 261,185 126,108 ----------- ----------- Financing activities: Net repayments of notes payable . . . . . . . . . . . . . . . . . . (309,168) (116,454) Term debt repayments . . . . . . . . . . . . . . . . . . . . . . . . (334) (1,946) Net cash used by discontinued operations . . . . . . . . . . . . . . -- (43,239) ----------- ----------- Net cash used by financing activities . . . . . . . . . . . (309,502) (161,639) ----------- ----------- Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . 12,737 37,209 Net change in cash of discontinued operations . . . . . . . . . . . . . . (4,437) (11,295) Cash and cash equivalents at beginning of period . . . . . . . . . . . . 19,966 7,206 ----------- ----------- Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 28,266 $ 33,120 =========== =========== Cash payments for: Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,114 $ 6,826 Federal income tax . . . . . . . . . . . . . . . . . . . . . . . . . -- --
See notes to consolidated financial statements. 4 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES SEPTEMBER 30, 1995 NOTE A -- BASIS OF FINANCIAL STATEMENT PRESENTATION The accompanying unaudited consolidated financial statements of Lomas Financial Corporation ("LFC") and its subsidiaries (collectively, the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation at September 30, 1995, have been included. Operating results for the quarter ended September 30, 1995 are not necessarily indicative of the results that may be expected for the fiscal year ended June 30, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the annual report on Form 10-K of the Company for the fiscal year ended June 30, 1995. The unaudited consolidated financial statements have been prepared in accordance with general accepted accounting principles applicable to a "going concern" which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. Because of the Chapter 11 filings described below, such realization of assets and the liquidation of liabilities is subject to significant uncertainties. Under Chapter 11 proceedings, the right of and the ultimate payments by the Company to prepetition creditors and to the Company's stockholders may be substantially altered. This is likely to result in claims being liquidated in the Chapter 11 proceedings at less than 100% of their face value. Certain claims in Chapter 11 may be asserted as having a priority in the plan of reorganization. The Company has not proposed a plan of reorganization at this time and it is not possible to predict the length of time the Company will operate under the protection of Chapter 11. NOTE B -- CHAPTER 11 PROCEEDINGS On October 10, 1995, LFC, Lomas Mortgage USA, Inc. ("Lomas Mortgage") and two other insignificant subsidiaries of LFC (collectively the "Debtor Corporations") filed separate voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. The petitioning subsidiaries are Lomas Information Systems, Inc. and Lomas Administrative Services, Inc., both of which are inactive and have relatively minor amounts of assets and liabilities. The Chapter 11 cases are being jointly administered, with the Debtor Corporations managing their businesses in the ordinary course as debtors-in-possession subject to the control and supervision of the Bankruptcy Court. On October 23, 1995, an official unsecured creditors committee was formed and is acting in the Chapter 11 proceedings. Official committees have the right to review and object to certain business transactions and are expected to participate in the formulation of any plan or plans of reorganization. Reference is made to "Item 3. Legal Proceedings" in the Company's annual report on Form 10-K for the year ended June 30, 1995 for more information. NOTE C -- ASSETS HELD FOR SALE AND LIABILITIES TO BE ASSUMED On October 2, 1995, the Company closed the sale to First Nationwide Mortgage Corporation ("First Nationwide") of Lomas Mortgage's GNMA servicing portfolio (approximately $7.9 billion), its investment in Lomas Mortgage Partnership and its loan production business including its mortgage loans held for sale and the payment of the related warehouse lines of credit (the "Phase I Sale"). The purchase price for the Phase I Sale was approximately $102 5 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) million (less $10 million which will be used to pay the Company's expense for transferring the servicing), subject to certain adjustments, the payment of certain warehouse indebtedness and the assumption of certain other liabilities. Cash of $35 million was paid at closing of which $18.8 million was applied to terminate the balance of Lomas Mortgage's swaps and $12 million was escrowed with FNMA in connection with certain recourse servicing to be sold in the proposed sale described in the following paragraph. Approximately $43 million is expected to be paid on February 1, 1996, with the final payment of the balance due on October 2, 1996. In October 1995, the Company also reached a second agreement with First Nationwide to sell substantially all of the remaining servicing portfolio (approximately $12 billion) and certain other assets of Lomas Mortgage (the "Phase II Sale"). The purchase price for the proposed sale will be approximately $137 million based on September 30, 1995 balances (of which up to $10 million will be used to pay the Company's expense for transferring the servicing), subject to certain adjustments and the assumption of certain liabilities. The proposed transaction is subject to higher and better offers and approval by the Bankruptcy Court. The assets held for sale and liabilities to be assumed for the Phase I and Phase II Sales except for purchased mortgage servicing income rights ("PMSRs") are carried at their net book value which is assumed to be the market value. The PMSRs have been written down to market value (based on Phase I and Phase II Sales prices). The Company recognized a loss of approximately $162.2 million during the quarter ended September 30, 1995. At September 30, 1995, assets held for sale and liabilities to be assumed were as follows (in thousands):
Phase I Phase II Sale Sale Total ------------ ------------ ----------- Assets held for sale: Cash . . . . . . . . . . . . . . . . . . . . . . $ -- $ 1,221 $ 1,221 First mortgage loans held for sale . . . . . . . 286,235 -- 286,235 Receivables . . . . . . . . . . . . . . . . . . 7,706 45,980 53,686 Investments . . . . . . . . . . . . . . . . . . 4,302 9,121 13,423 Fixed assets . . . . . . . . . . . . . . . . . . -- 190 190 Foreclosed real estate . . . . . . . . . . . . . -- 5,728 5,728 Purchased mortgage servicing income rights . . . 75,769 89,835 165,604 Prepaids and other assets . . . . . . . . . . . 120 2,981 3,101 Allowance for losses . . . . . . . . . . . . . . (6,107) (20,511) (26,618) ------------ ------------ ----------- $ 368,025 $ 134,545 $ 502,570 ============ ============ =========== Liabilities to be assumed: Accounts payable and accrued expenses . . . . . $ 1,828 $ 7,407 $ 9,235 Notes payable . . . . . . . . . . . . . . . . . 274,075 -- 274,075 ------------ ------------ ----------- $ 275,903 $ 7,407 $ 283,310 ============ =========== ===========
In addition, land and buildings that are included in fixed assets in the consolidated balance sheet in the amount of $25.2 million are also held for sale. NOTE D -- TERMINATION OF REMAINING REVERSE INTEREST RATE SWAPS During the September 1995 quarter, the Company terminated $155 million notional amount of its outstanding reverse interest rate swaps. The Company paid the counterparty $6.0 million in cash and incurred a loss of $4.4 million of which $1.6 million was recognized immediately and the remaining loss of $2.8 million was deferred. On October 2, 1995, the Company terminated $485 million notional amount of its remaining reverse interest swaps and paid the counterparty $18.8 million in cash which came from the sale of certain assets of Lomas Mortgage 6 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - (CONTINUED) to First Nationwide as described in "NOTE C" to the consolidated financial statements. Loss from the termination was $14.3 million. The Company recognized $5.0 million of the expected loss during the quarter ended September 30, 1995. At September 30, 1995, the Company had an outstanding fixed rate debt of $518 million which was hedged by the reverse interest rate swaps; therefore, the remaining loss was deferred. As a result of the Chapter 11 filing on October 10, 1995, the Company wrote off the net deferred debits of $9.1 million in October 1995. Since the interest rate swap program's inception in July 1992 and through its termination in October 1995, the swap program generated net cash of approximately $4.5 million. NOTE E -- DISCONTINUED OPERATIONS Discontinued operations include the Company's short term lending operations and information systems operations ("LIS"). The Company's discontinued short term lending operations include ST Lending, Inc. ("STL"), Lomas Management, Inc. ("LMI"), which manages the assets of STL, and certain other real estate operations. At September 30, 1995, the Company had reserves of $2.2 million to cover future operating losses through the disposition of all properties. For the quarters ended September 30, 1995 and 1994, losses of $0.7 million and $1.5 million, respectively, were charged to the reserves. Net assets of discontinued short term lending operations at September 30, 1995, were as follows (in thousands): Assets: Mortgage notes receivable and foreclosed real estate, net of allowance for losses of $12,316 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 22,715 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,748 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 783 --------- 29,246 Less: Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . . . (354) Future operating loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . (2,189) --------- $ 26,703 =========
Net assets of the Company's discontinued LIS operations at September 30, 1995 were $7.1 million including an $8.0 million note, net of accrued legal expense and other taxes of $0.9 million. NOTE F -- EARNINGS (LOSS) PER SHARE Primary earnings (loss) per share data for the quarters ended September 30, 1995 and 1994, are computed using the weighted average number of shares of common stock and, when dilutive, common stock equivalents outstanding during the period. Common stock equivalents include units and shares granted under the Lomas Financial Corporation 1991 Long Term Incentive Plan for Non-Employee Directors, the 1991 Stock Incentive Program and the 1993 Intermediate and Long Term Incentive Plan. Common stock equivalents also include the assumed exercise of dilutive stock options. Fully diluted per share data is computed on the same basis as primary, but it also assumes (if dilutive) the conversion of senior convertible notes with the related adjustments for interest and federal income tax expenses. For the quarters ended September 30, 1995 and 1994, the fully diluted per share data is antidilutive. 7 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The Company's continuing operations resulted in a net loss for the quarter ended September 30, 1995 of $194.2 million after recognizing expected losses of $162.2 million on assets held for sale. Operating loss from continuing operations for the quarter ended September 30, 1994 was $7.4 million. During the September 1994 quarter, discontinued operations incurred losses of $5.5 million. The operating results of the Company during the quarters ended September 30, 1995 and 1994, were as follows (in thousands):
Quarter Ended September 30 ------------------------------- 1995 1994 ----------- ----------- Operating income (loss): Mortgage banking . . . . . . . . . . . . . . . . . . . . . . $ (30,986) $ (862) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,596 (754) ----------- ----------- (28,390) (1,616) Corporate Expenses: General and administrative . . . . . . . . . . . . . . . . . (532) (2,151) Corporate interest . . . . . . . . . . . . . . . . . . . . . (3,148) (3,583) ----------- ----------- Loss before loss on assets held for sale . . . . . . . . (32,070) (7,350) Loss on assets held for sale . . . . . . . . . . . . . . . . . . (162,160) -- ----------- ----------- Loss from continued operations . . . . . . . . . . . . . (194,230) (7,350) Loss from discontinued operations . . . . . . . . . . . . . . . -- (5,500) ----------- ----------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850) =========== ===========
Mortgage Banking The mortgage banking division's operations during the September 30, 1995, quarter, before the $162.2 million loss on assets held for sale, reported a loss of $31.0 million compared to a loss of $0.9 million in the same period of fiscal 1995. As a result of the proposed sale of the majority of the mortgage banking's remaining assets and the anticipated termination of employees, included in the loss for the September 1995 quarter was a $12.0 million writedown of a Company-owned building and a $7.0 million writedown of prepaid pension expense based on a preliminary actuarial valuation of the Company's pension account. Also included in the September 1995 quarter was a $6.6 million loss on termination of interest rate swaps. 8 10 RESULTS OF OPERATIONS (CONTINUED) The mortgage banking division's revenues, expenses and contribution/loss from continuing operations for the quarters ended September 30, 1995 and 1994, were derived from the following sources (in millions):
Quarter Ended September 30 ------------------------------------ 1995 1994 ----------------- ----------------- Loan administration Revenues . . . . . . . . . . . . . . . . . . . . . . . . $ 29.2 $ 30.5 Expenses . . . . . . . . . . . . . . . . . . . . . . . . (11.8) (11.4) Amortization . . . . . . . . . . . . . . . . . . . . . . (14.0) $ 3.4 (14.0) $ 5.1 -------- -------- Master servicing Revenues . . . . . . . . . . . . . . . . . . . . . . . . 2.7 2.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . (1.5) (1.9) Amortization . . . . . . . . . . . . . . . . . . . . . . (0.1) 1.1 (0.2) 0.5 -------- -------- Insurance Agency . . . . . . . . . . . . . . . . . . . . . . . . . 2.8 2.7 Mortgage plans . . . . . . . . . . . . . . . . . . . . . 1.5 1.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . (1.4) 2.9 (1.4) 2.7 -------- -------- Banking (including warehousing and investment income and interest expense) Revenues . . . . . . . . . . . . . . . . . . . . . . . . 11.9 7.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . (26.6) (14.7) (14.9) (7.1) -------- -------- Portfolio production Revenues . . . . . . . . . . . . . . . . . . . . . . . . 4.4 6.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . (3.4) 1.0 (5.2) 1.5 -------- -------- Field services Revenues . . . . . . . . . . . . . . . . . . . . . . . . 1.7 3.0 Expenses . . . . . . . . . . . . . . . . . . . . . . . . (1.9) (0.2) (3.0) -- -------- -------- General and administrative expense . . . . . . . . . . . . . (5.5) (3.6) Writedown of building . . . . . . . . . . . . . . . . . . . (12.0) -- Writedown of prepaid pension . . . . . . . . . . . . . . . . (7.0) -- ------- ------- Loss from operations . . . . . . . . . . . . . . . . . . (31.0) (0.9) Loss on assets held for sale . . . . . . . . . . . . . . . . (162.2) -- ------- ------- Operating income (loss) . . . . . . . . . . . . . . . . $(193.2) $ (0.9) ======= =======
The loan administration unit generated operating income of $3.4 million and $5.1 million during the quarters ended September 30, 1995 and 1994, respectively. Servicing related revenues decreased by $1.3 million to $29.2 million for the September 30, 1995 quarter. The decrease in revenues is principally due to servicing sales. During the quarter ended September 30, 1995, the Company sold mortgage servicing rights related to a $4.6 billion unpaid principal balance of mortgage loans for $22.6 million of cash. At September 30, 1995 and 1994, the Company's servicing portfolio including subservicing totaled $30.1 billion and $33.1 billion, respectively. Master servicing operations generated income of $1.1 million for the quarter ended September 30, 1995, compared to $0.5 million of income in the quarter ended September 30, 1994. The increase in income reflected the cost reduction programs implemented by the Company. 9 11 RESULTS OF OPERATIONS (CONTINUED) The banking unit recorded net expenses of $14.7 million for the first quarter of fiscal 1996 compared to a $7.1 million net expense for the same period of fiscal 1995. Banking revenues increased by $4.1 million from $7.8 million in the September 1994 quarter to $11.9 million in the September 1995 quarter. The increase is attributable to the increase in the average amount of first mortgage loans held in warehouse pending delivery to permanent investors. The average warehoused first mortgage loans were $339.3 million during the September 1995 quarter compared to $271.5 million during the September 1994 quarter. The increase in revenues was partially offset by the increase in warehouse related interest expense of $3.0 million. Banking expenses during the quarter ended September 30, 1995 also included $6.6 million of loss recognized for the termination of interest rate swaps. In addition, the interest rate swaps reduced the Company's net interest expense by $0.8 million in the September 1994 quarter. For the September 1995 quarter, the Company incurred a net interest expense of $1.3 million on the interest rate swaps. Portfolio production operations recorded income of $1.0 million and $1.5 million for the quarters ended September 30, 1995 and 1994, respectively. Portfolio production revenues for the quarters ended September 30, 1995 and 1994 included $0.8 million and $3.2 million, respectively, of gains from sales of first mortgage loans and related servicing rights. In August 1995, the Company terminated its field services business and sold certain assets previously used by that operation. The transaction resulted in a gain of $142,000 which is being deferred until that subsidiary's remaining receivables are collected and payables are paid. General and administrative expense for the quarter ended September 1995 included a provision of $1.6 million. According to the Phase I Sale agreement with First Nationwide, the Company agreed to maintain the allowance for losses related to its loan administration and production operations at the same level as they were at July 31, 1995. Therefore, chargeoffs totaling $1.6 million during the two months ended September 30, 1995, were expensed and included in the general and administrative expense. As a result of the transactions described in "NOTE C" to the consolidated financial statements, management has abandoned its plan in the September 1995 quarter to consolidate its operations into one building and, therefore, will hold the building for sale. Accordingly, the Company recorded a loss of $12 million in the quarter ended September 30, 1995, to reflect the asset at fair value less estimated selling costs. The Company also recorded $7.0 million in personnel expense during the September 30, 1995 quarter to writedown its prepaid pension expense for staff reductions that occurred in connection with the sale of the Company's loan production business and the anticipated termination of the majority of the Company's employees. Other The Company's other operations generated income of $2.6 million during the quarter ended September 30, 1995, compared to a loss of $754,000 in the quarter ended September 30, 1994. The September 1995 quarter results included a $1.1 million gain from the sale of the Company's image processing operations. During the quarters ended September 30, 1995 and 1994, the image processing operations recorded losses of $153,000 and $1.3 million, respectively. Also included in other income for the September 1995 quarter was a $1.2 million cash received on the bankruptcy settlement from the Company's affiliate, Vista Properties, Inc. ("Vista"), representing the redemption of the Company's 19% common stock ownership which the Company carried at no book basis. In addition to the cash received on the settlement, the Company also received stock units consisting of 1,175 shares of Vista Series A preferred stock with par value of $0.01 per share and an initial coupon rate of 10% and 1,175 shares of Vista Class A common stock. The preferred stock has a liquidation preference of approximately $1.2 million and will be repriced in two years. Due to the restricted nature of the stock and uncertainty surrounding the market value, the Company recorded both issues at $1. Discontinued Operations Discontinued operations during the quarters ended September 30, 1995 and 1994, reported losses of $-0- and $5.5 million, respectively. During the quarter ended September 30, 1994, the Company provided reserves of $4.0 million for STL operations and $1.5 million for LIS operations. During the quarters ended September 30, 1995 and 1994, 10 12 RESULTS OF OPERATIONS (CONTINUED) STL operating losses of $749,000 and $1.5 million, respectively, were charged to the loss reserves. Operating loss for LIS of $5.3 million was charged to reserves for the quarter ended September 30, 1994. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1995, the Company had $274.1 million warehouse related debt outstanding. The debt was secured by single-family mortgage loans pending delivery to permanent investors. On October 2, 1995, the Phase I Sale closing date, the outstanding warehouse debt along with accrued interest was repaid by First Nationwide. Semiannual interest payments in the amount of $17.1 million on Lomas Mortgage's senior notes and $6.3 million of LFC's senior convertible notes were due in October 1995. Lomas Mortgage announced on October 2, 1995, that it did not make the approximately $17 million of scheduled interest payments on its 9 3/4% term notes payable due October 1, 1997, and its 10 1/4% term notes payable due October 1, 2001. LFC did not make the scheduled interest payments due on October 31, 1995 of approximately $6.3 million on its 9% senior convertible notes. In addition, a final payment in the amount of $37.9 million along with accrued interest related to a mortgage note on the Company's headquarters is due March 1996 and Lomas Mortgage's $150 million senior notes are due on October 1, 1997. LFC, Lomas Mortgage and two other insignificant subsidiaries of LFC filed voluntary petitions for Chapter 11 proceedings on October 10, 1995. For further information, see "NOTE B -- CHAPTER 11 PROCEEDINGS" of this report and "Item 3. Legal Proceedings" in the Company's annual report on Form 10-K for the year ended June 30, 1995. PART II -- OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Reference is made to "Item 3. Legal Proceedings" in the Company's annual report on Form 10-K for the year ended June 30, 1995, for a description of LFC's, Lomas Mortgage's and certain of its subsidiaries' Chapter 11 proceedings. There have been no material developments or changes to these proceedings except the formation of an official unsecured creditors committee on October 23, 1995. The Company is also involved in a number of other lawsuits considered to be in the normal course of business. In management's opinion, the resolution of these other disputes will not have a material adverse effect on the financial position of the Company. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits:
Exhibit Number ------ (10.1) Section 363 Asset Sale Agreement dated as of October 9, 1995, by and between First Nationwide Mortgage Corporation and Lomas Mortgage. (11) Computation of Earnings (Loss) Per Share (27) Financial Data Schedule (submitted to the Securities and Exchange Commission for its information).
11 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (b) Reports on Form 8-K: Form 8-K dated October 30, 1995, reported the press release of the New York Stock Exchange ("NYSE") regarding the suspension of trading of LFC's common stock and convertible notes and application to delist the issue by the NYSE. No financial statements were filed. 12 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. LOMAS FINANCIAL CORPORATION ---------------------------------------------------------------- (Registrant) Date: November 14, 1995 By: /S/ERIC D. BOOTH ---------------------------------------------------------------- Eric D. Booth President, Chief Executive Officer and Director Date November 14, 1995 By: /S/GARY WHITE ---------------------------------------------------------------- Gary White Senior Vice President and Chief Financial Officer
13 15 INDEX TO EXHIBITS
Sequentially Exhibit Numbered Number Description Page - - ------ ----------- ------------- (10.1) Section 363 Asset Sale Agreement dated as of October 9, 1995, by and between First Nationwide Mortgage Corporation and Lomas Mortgage. (11) Computation of Earnings (Loss) Per Share (27) Financial Data Schedule (submitted to the Securities and Exchange Commission for its information).
14 EX-10.1 2 ASSET SALE AGREEMENT 1 EXHIBIT 10.1 SECTION 363 ASSET SALE AGREEMENT THIS SECTION 363 ASSET SALE AGREEMENT (this "Agreement") dated as of October 9, 1995, is made by and between FIRST NATIONWIDE MORTGAGE CORPORATION, a Delaware corporation ("Buyer"), and LOMAS MORTGAGE USA, INC., a Connecticut corporation (the "Company"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company is engaged in the business of servicing, subservicing and master servicing mortgage loans pursuant to the Mortgage Servicing Agreements (as defined herein) (the "Servicing Business"); and WHEREAS, the Company intends to file a voluntary petition (the "Petition") for reorganization relief pursuant to Chapter 11 of title 11 of the United States Code, 11 U.S.C. sections 101 et seq., as amended by the Bankruptcy Reform Act of 1994 (the "Bankruptcy Code"), in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") on or about October 10, 1995; and WHEREAS, Buyer desires to purchase and acquire from the Company certain assets and rights, and the Company desires to sell, convey, assign and transfer all 2 of such assets and rights to Buyer, in the manner and subject to the terms and conditions set forth herein and in accordance with Sections 105, 363 and 365 of the Bankruptcy Code; and WHEREAS, the Company desires to assign to Buyer and Buyer desires to assume from the Company certain liabilities, in the manner and subject to the terms and conditions set forth herein and in accordance with Sections 105, 363 and 365 of the Bankruptcy Code. NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements, representations and warranties herein contained, and intending to be legally bound hereby, the parties hereto do hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS For purposes of this Agreement, except as otherwise expressly provided herein or unless the context otherwise requires, the terms defined in this Article I shall have the meanings assigned to them in this Article I and shall include the plural as well as the singular. 2 3 Accounts Receivable -- The accounts receivable which comprise those general ledger accounts of the Company set forth on Schedule I hereto. Acquisition -- The acquisition by Buyer of all of the Assets and the assumption by Buyer of all of the Assumed Liabilities pursuant to this Agreement. Acquisition Proposal -- As defined in Section 5.17(a). Adjusted Final Purchase Price -- As defined in Section 2.3(d). Advances -- Amounts that have been advanced by the Company in connection with servicing, subservicing or master servicing the Mortgage Loans (including, without limitation, principal, interest, taxes and insurance premiums) and which are required or permitted to be paid by the Company as the servicer, subservicer or master servicer of the Mortgage Loans pursuant to applicable Investor requirements or the terms of the applicable Mortgage Servicing Agreements. Affiliate -- With respect to any Person, any Person directly or indirectly controlling, controlled by, or under common control with such other Person, and any Subsidiary of such Person. For purposes of this definition, "control" (including with correlative meaning, the 3 4 terms "controlled by" and "under common control with") as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise. Agency -- FHA, VA, GNMA, FNMA, FHLMC, FmHA, the Texas Veterans' Land Board or a State Agency, as applicable. Agreement -- As defined in the recitals hereof, including all schedules and exhibits hereto, amendments hereof and supplements thereof. Ancillary Income -- Charges for late Mortgage Loan payments, charges for dishonored checks, pay-off fees, assumption fees, commissions and administrative fees on insurance and other fees and charges collected from or assessed against the mortgagor, other than those charges payable to an Agency or Investor under the terms of the Mortgage Servicing Agreements. Assets -- As defined in Section 2.1(a). Assumed Contracts -- The contract rights, licenses, permits, approvals, authorizations and franchises set forth on Schedule II hereto, together with any addi- 4 5 tional contract rights added to such schedule pursuant to Section 5.7 hereof. Assumed Liabilities -- As defined in Section 2.1(c). Bankruptcy Code -- As defined in the recitals hereof. Bankruptcy Court -- As defined in the recitals hereof. Base Portfolio -- The Mortgage Servicing Portfolio on July 31, 1995, as set forth in a tape (magnetic media) delivered to Buyer, provided, however, that the Base Portfolio shall not include (i) any Mortgage Loan which on July 31, 1995 was an Excluded Loan or (ii) any Mortgage Loan for which the Company is not the primary servicer. Base Portfolio Loan -- Any Mortgage Loan included in the Base Portfolio. Base Purchase Price -- As defined in Section 2.2. Book Value -- Book value calculated in accordance with GAAP consistently applied without allowance for reserves. Burdensome Condition -- As defined in Section 6.2(d). 5 6 Buydown -- The waiver by Buyer of a portion of the indebtedness of a Mortgage Loan, which can take the form of a reduction of the principal, a credit to escrow or unapplied funds accounts, the forgiveness of accrued interest or any combination of the foregoing, and which causes the VA to pay off the remaining amount of the indebtedness owed and acquire the Collateral. Buyer -- As defined in the recitals hereof. Buyer Schedule -- As defined in Section 4.2(b). Citicorp Agreement -- As defined in Section 2.6(e). Closing -- The closing of the Acquisition as defined in Section 2.3(a). Closing Adjustment Documents -- As defined in Section 2.4(a). Closing Portfolio -- The Mortgage Servicing Portfolio on the Closing Date, provided, however, that the Closing Portfolio shall not include (i) any Mortgage Loan which on the Closing Date is an Excluded Loan or (ii) any Mortgage Loan for which the Company is not the primary servicer. Closing Portfolio Loan -- Any Mortgage Loan included in the Closing Portfolio. 6 7 Closing Date -- The date and time of Closing as defined in Section 2.3(a). Code -- The Internal Revenue Code of 1986, as amended. Collateral -- The property securing a Mortgage Loan. Company Schedule -- As defined in Section 3.2. Confidentiality Agreement -- As defined in Section 5.3. Contracts -- The Assumed Contracts, the Leases and the Mortgage Servicing Agreements. Conversion Date -- For any Mortgage Loan, the date the servicing of such Mortgage Loan shall have been fully converted and transferred from the Company's operating systems to those of Buyer. Custodial Accounts -- All escrow, impound, suspense (loan level and other) and custodial accounts maintained with respect to the Mortgage Loans for purposes of receiving and disbursing payments of principal, interest, taxes, insurance, assessments and similar charges (and interest, if any, accrued on such funds for the benefit of mortgagors) relating to Mortgage Loans. Disagreement -- As defined in Section 2.4(b). Employees -- As defined in Section 5.11. 7 8 Encumbrance -- Any lien, pledge, security interest, claim, charge, easement, limitation, commitment, restriction or encumbrance of any kind or nature whatsoever. Escrow Funds -- Amounts held in Custodial Accounts, with respect to Mortgage Loans held for the purpose of paying property taxes, hazard insurance premiums, assessments and other such items as provided in the Mortgage and the Regulations. Excluded Assets -- As defined in Section 2.1(b). Excluded Liabilities -- As defined in Section 2.1(d). Excluded Loan -- A Mortgage Loan with respect to which as of a specified date: (i) the Mortgage Loan is two months or more past due (for purposes of this Agreement a Mortgage Loan is two months or more "past due" if a scheduled monthly payment of principal, interest and (if required) escrow due on the first day of a month is not paid by the mortgagor on or before the last calendar day of the next succeeding month); (ii) the first action necessary to be taken to commence proceedings in foreclosure, or a sale 8 9 under power of sale, or other acquisition of title to the Collateral based upon a default by the mortgagor under the Note or Mortgage, under the law of the state wherein the Collateral is located, has been taken under the terms of the Note or Mortgage and the relevant Mortgage Servicing Agreement; (iii) any litigation is pending relating to a Mortgage Loan the adverse outcome of which would have a material adverse effect on the enforceability of the Mortgage Loan or on the economic value of the related Servicing Rights; (iv) the mortgagor has sought relief under or has otherwise been subjected to the federal bankruptcy laws or any other similar federal or state laws of general application for the relief of debtors, through the institution of appropriate proceedings, and such proceedings are continuing; (v) a demand for Repurchase has been received by the Company and the basis for the Repurchase demand has not been cured prior to the due date for such Repurchase; or (vi) the Mortgage Loan is identified on the Company's books and records as a "fraudulent loan." 9 10 FF&E -- The furniture, fixtures and equipment owned or leased by the Company and set forth on Schedule X hereto. FHA -- Federal Housing Administration. FHA Loans -- Mortgage Loans which are insured by FHA, or which are intended by the Company to be insured by FHA, or with respect to which a representation has been made to the mortgagor (in a commitment letter, truth- in-lending disclosure statement or otherwise in writing) that such Mortgage Loan is or will be insured by FHA. FHLMC -- Federal Home Loan Mortgage Corporation. Final Order -- An order or judgment of a court, the implementation or operation or effect of which has not been stayed and as to which order or judgment (or any revision, modification or amendment thereof reasonably acceptable to Buyer) the time to appeal or seek review or rehearing or writ of certiorari has expired and as to which no appeal or petition for review or rehearing or certiorari has been taken. Final Purchase Price -- As defined in Section 2.5(h). Final Settlement -- As defined in Section 2.7. 10 11 Final Settlement Amount -- As defined in Section 2.7. Final Settlement Date -- As defined in Section 2.7. First Order -- An order of the Bankruptcy Court, in form and substance reasonably satisfactory to Buyer, which approves, among other things, (i) sales procedures relating to disposition of the Assets set forth in Section 5.17 hereof and (ii) payment of the Termination Payment to Buyer pursuant to Section 8.4. First Payment -- As defined in Section 2.3(c). FmHA -- The Farmers Home Administration, now known as the Rural Housing and Community Development Service. FmHA Loans -- Mortgage Loans which are insured by FmHA, or which are intended by the Company to be insured by FmHA, or with respect to which a representation has been made to the mortgagor (in a commitment letter, truth-in-lending disclosure statement or otherwise in writing) that such Mortgage Loan is or will be insured by FmHA. FNMA -- Federal National Mortgage Association. Foreclosure -- The acquisition of title to Collateral in a foreclosure sale or pursuant to any other 11 12 comparable procedure allowed under applicable law or Regulation, including pending foreclosures where the first step required under applicable Regulations to initiate a foreclosure proceeding has been taken or could have been taken. GAAP -- Generally accepted accounting principles as used in the United States of America as in effect at the time any applicable financial statements were prepared. GNMA -- Government National Mortgage Association. Governmental Entity -- Any government or any agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government having authority in the United States or any other nation, whether federal, state or local. HSR Act -- The Hart-Scott-Rodino Antitrust Improvements Act of 1976. HUD -- United States Department of Housing and Urban Development. Independent Accounting Firm -- Price Waterhouse LLP, or if Price Waterhouse LLP shall be unwilling to serve in such capacity, any "Big Six" accounting firm or 12 13 its successor (other than the present independent public accountants of Buyer, the Company or any of their Affiliates or any independent public accountants who were such within the previous two years). Injunction -- As defined in Section 6.1(b). Insurer -- A Person who insures or guarantees all or any portion of the risk of loss upon borrower default on any of the Mortgage Loans, including, without limitation, the FHA, the VA and any private mortgage insurer, and providers of life, hazard, disability, title or other insurance with respect to any of the Mortgage Loans or the Collateral. Investments -- The investment assets relating to the Servicing Business which comprise those general ledger accounts of the Company set forth on Schedule III hereto. Investor -- Any Person who owns a Mortgage Loan or mortgage-backed security backed by a Mortgage Loan, or the servicing rights or master servicing rights to a Mortgage Loan or mortgage-backed security backed by a Mortgage Loan, subserviced, serviced or master serviced by the Company pursuant to a Mortgage Servicing Agreement. Last Day -- As defined in Section 2.3(a). 13 14 Leased Properties -- The leasehold interests of the Company in real property pursuant to the Leases. Leases -- The leases set forth on Schedule IV hereto pursuant to which the Company leases real property or FF&E. Licenses -- As defined in Section 3.9. LIS -- Lomas Insurance Services, Inc., a Connecticut corporation and a wholly owned subsidiary of the Company. LIS Common Stock -- As defined in Section 3.1(b). LIS Contracts -- As defined in Section 3.30. LIS Shares -- As defined in Section 3.1(b). LIS Subsidiaries -- As defined in Section 3.1(d). Loan Documents -- The file or files containing the photostatic copy or copies on other media and, to the extent required by the Regulations, original documents, of the Mortgage, the Note and other loan documents with respect to each Mortgage Loan, as well as the related credit and closing packages, disclosures, custodial documents, and all other files, books, records and documents reasonably necessary to (i) establish the eligibility of the Mortgage Loans for insurance by an Insurer or 14 15 for sale or delivery to an Investor, (ii) service the Mortgage Loans in accordance with the Regulations, and (iii) comply with the Regulations regarding the Mortgage Loan documentation to be maintained by a servicer of the Mortgage Loans or its document custodian. Loss -- Any liability, loss, cost, damage, penalty, fine, obligation or expense of any kind whatsoever (including, without limitation, reasonable attorneys', accountants', consultants' or experts' fees and disbursements, interest, at the Federal Funds Rate plus 1% (as published in the "Money Rates" section of The Wall Street Journal as in effect from time to time), on any amounts that the Buyer is required to pay or pledge (including, without limitation, those amounts paid or pledged with respect to a lost note, bond or letter of credit) in connection with an indemnifiable event and any direct marginal internal costs actually incurred (to the extent that the Buyer has received the prior approval of the Company to utilize its internal staff, which approval shall not be unreasonably withheld or delayed, provided that adequate information, including but not limited to, an estimate of such internal costs, is given to the Company)). 15 16 Material Adverse Effect -- A material adverse effect on the Assets, the Assumed Liabilities or the Servicing Business, in each case taken as a whole, or on the Company's ability to consummate the transactions contemplated by this Agreement. Mortgage -- With respect to a Mortgage Loan, a mortgage, deed of trust or other security instrument creating a lien upon real property and any other property described therein which secures a Note, together with any assignment, reinstatement, extension, endorsement or modification of any thereof. Mortgage Loan -- Any closed mortgage loan in the Mortgage Servicing Portfolio, whether or not the related mortgage is included in a securitized portfolio, as evidenced by a note or notes duly secured by mortgages or deeds of trust. Mortgage Servicing Agreements -- The contracts or arrangements between the Company and an Investor, as set forth on Schedule V hereto, pursuant to which the Company subservices, services or master services Mortgage Loans for such Investor, together with any additional mortgage servicing agreements added to such Schedule V pursuant to Section 5.7 hereof. 16 17 Mortgage Servicing Portfolio -- The portfolio of mortgage loans subserviced, serviced or master serviced by the Company pursuant to Mortgage Servicing Agreements. Non-Amortizing Loan -- A Mortgage Loan intended to be self-amortizing but which will have a principal amount due to be paid to Investors notwithstanding payment by the mortgagor of the full amount scheduled to be paid to retire the indebtedness of the Mortgage Loan. Note -- With respect to a Mortgage Loan, a promissory note or notes, or other evidence of indebtedness, with respect to such Mortgage Loan secured by a Mortgage or Mortgages, together with any assignment, reinstatement, extension, endorsement or modification thereof. Notice of Disagreement -- As defined in Section 2.4(b). Other Assets -- The assets relating to the Servicing Business which comprise those general ledger accounts of the Company set forth on Schedule VI hereto. Overbid Notice -- As defined in Section 5.17(a) hereof. Overbid Transaction -- An Acquisition Proposal made in writing by a Qualified Third Party (i) which 17 18 provides for consideration having a fair market value, as determined by the Board of Directors of the Company which exceeds the Base Purchase Price (or, if Buyer has delivered a Topping Offer to the Company, the Topping Offer Amount) by at least $1,500,000 and (ii) the terms and conditions of which (including the amount and value of the consideration thereunder) are reasonably determined by the Board of Directors of the Company to be, when taken in their entirety, no less favorable to the Company than the terms and conditions set forth in this Agreement. Parent -- As defined in Section 3.7. Pending Claim Amount -- As defined in Section 2.7. Person -- Any individual, corporation, company, partnership (limited or general), joint venture, association, trust or other entity. Petition -- As defined in the recitals hereof. PMI -- Private mortgage insurance. Pool -- An aggregate of one or more Mortgage Loans that have been pledged or granted to secure mortgage-backed securities or participation certificates. Post-Closing Terminated Loan -- Each Closing Portfolio Loan with respect to which the Investor, other 18 19 than GNMA, FNMA or FHLMC (i) shall have successfully objected to the assumption of the related Mortgage Servicing Agreement by Buyer pursuant to the 365 Order, or (ii) shall have terminated, or given notice of termination of, the related Mortgage Servicing Agreement in accordance with its terms (other than due to repayment in full of such Closing Portfolio Loans or the breach by Buyer of the terms of such Mortgage Servicing Agreement). Pre-Closing Period -- As defined in Section 7.1(a). Qualified Third Party -- A Third Party who the Board of Directors of the Company has determined in the exercise of its fiduciary duty (i) is financially able to consummate an Overbid Transaction and (ii) has the licenses and qualifications set forth in Section 4.5. Records -- All records and original documents which pertain to and are utilized to administer, reflect, monitor, evidence or record information respecting, the Assets, including without limitation the Loan Documents. Recourse Loan -- Any Mortgage Loan as to which the Company has an obligation to repurchase, reimburse, indemnify or hold harmless any Person based solely upon the default under or the foreclosure or sale of the Collateral for the Mortgage Loan without regard to a 19 20 breach or default of any contractual representation, warranty or undertaking or misfeasance or malfeasance by the Company. Regulations -- (i) Federal, state and local laws, rules and regulations with respect to the origination, insuring, purchase, sale, pooling, servicing, subservicing, master servicing or filing of claims in connection with a Mortgage Loan, (ii) the responsibilities and obligations relating to the Mortgage Loans set forth in any agreement between the Company and an Investor or private mortgage insurer (including, without limitation, Mortgage Servicing Agreements and selling and servicing guides), (iii) the laws, rules, regulations, guidelines, handbooks and other requirements of an Investor, Agency, private mortgage insurer, public housing program or Investor program with respect to the origination, insuring, purchase, sale, pooling, servicing, subservicing, master servicing or filing of claims in connection with a Mortgage Loan and (iv) the terms and provisions of the Loan Documents. REO -- Any residential real property owned in fee simple by the Company as a result of a Foreclosure instituted in the conduct of the Servicing Business. 20 21 Repurchase -- The purchase of a Mortgage Loan out of a Pool or an Investor's portfolio by Buyer or the Company. Requisite Regulatory Approvals -- As defined in Section 6.1(a). RIS Agreement -- The Excelis Service Bureau Agreement, dated as of December 16, 1994, by and between Residential Information Services Limited Partnership and the Company. Scheduled Liabilities -- As defined in Section 2.1(c). Second Order -- An order of the Bankruptcy Court, in form reasonably satisfactory to Buyer approving the consummation of the Acquisition. Second Payment -- As defined in Section 2.3(d). Servicing Business -- As defined in the recitals hereto. Servicing Rights -- The right to receive the servicing fees and any Ancillary Income the servicer, subservicer or master servicer is entitled to receive arising from or connected to the Mortgage Loans and the related obligations to (i) administer and collect payments for the reduction of principal and interest, (ii) pay taxes and insurance premiums, (iii) remit all amounts 21 22 in accordance with any servicing agreements, (iv) provide foreclosure services and full escrow administration and (v) perform such other obligations as may, from time to time, be imposed under Agency or Investor guidelines and the Mortgage Servicing Agreements. State Agency -- Any state agency with authority to regulate the business of the Company, determine the investment or servicing requirements with regard to loans originated, purchased or serviced by the Company or otherwise participate in or promote mortgage lending. Subservicing and Transition Services Agreement -- As defined in Section 5.27. Subsidiary -- With respect to any Person, any corporation, partnership or other organization, whether incorporated or unincorporated, which is required by GAAP to be consolidated with such Person for financial reporting purposes. Taxes -- All taxes, charges, fees, levies or other assessments imposed by any United States Federal, state, local or foreign taxing authority, including, but not limited to, income, excise, property, sales, transfer, use, profits, franchise, payroll, employment, unemployment, back-up withholding, gains, withholding, ad valorem, social security, stamp or other taxes (including 22 23 any interest, additions to tax or penalties applicable thereto). Tax Return -- Any return, report, information return, schedule or other document, including any related or supporting information, with respect to Taxes. Termination Payment -- As defined in Section 8.4. Third Party -- Any Person other than the Company, Buyer or any of their respective Affiliates. Third Party Claim -- As defined in Section 7.1(d). 365 Order -- As defined in Section 6.2(c). Topping Offer -- As defined in Section 5.17(b). Topping Offer Amount -- The base purchase price specified in the most recent Topping Offer delivered by Buyer to the Company pursuant to Section 5.17(b) hereof, which base purchase price exceeds the base purchase price in the most recent Overbid Transaction by at least $1,500,000. Topping Right -- As defined in Section 5.17(b). Trade Names -- The brand names, copyrights, patents, service marks, trademarks, trade names, state or federal common law usages and registration or applica- 23 24 tions for registration of any of the foregoing, each as set forth on Schedule IX hereto. Treasury Regulations -- The regulations promulgated under the Code. Turkey Pile Loan -- Any whole mortgage loan owned by the Company which was bought out of a Pool or otherwise repurchased from an Investor. VA -- The United States Department of Veterans' Affairs. VA Loans -- Mortgage Loans which are guaranteed by the VA, or which are intended by the Company to be guaranteed by the VA, or with respect to which a representation has been made to the mortgagor (in a commitment letter, truth-in-lending disclosure statement or otherwise in writing) that such Mortgage Loan is or will be guaranteed by the VA. VA No-Bid -- A delinquent VA Loan with respect to which the VA has notified Buyer or the Company that the VA intends to exercise its option to pay the amount guaranteed by the VA and relinquish all rights in the Collateral securing such VA Loan to Buyer or the Company. 24 25 ARTICLE II TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES 2.1 Purchase and Sale of Assets; Assumption of Liabilities (a) Upon the terms and subject to the conditions set forth in this Agreement, at the Closing the Company shall sell, convey, assign, transfer and deliver to Buyer, and Buyer shall purchase and accept from the Company, all of the Company's right, title and interest in and to, as of the Closing Date, the following assets (collectively, the "Assets"): (i) the Servicing Rights; (ii) the LIS Shares; (iii) the REO; (iv) the Accounts Receivable; (v) the FF&E; (vi) the Contracts; (vii) the Records; (viii) the Custodial Accounts and the Escrow Funds; (ix) the Trade Names; (x) the Investments and the Other Assets; and (xi) the Turkey Pile Loans. 25 26 (b) It is understood and agreed that Buyer is not acquiring from the Company, and the Company shall retain ownership of, all right, title and interest in and to, any property or asset which is not being transferred pursuant to this Section 2.1 (collectively, the "Excluded Assets"). (c) Upon the terms and subject to the conditions set forth in this Agreement, except as otherwise provided herein, on the Closing Date, the Company shall assign to Buyer, and Buyer shall accept and assume from the Company, and Buyer agrees to pay, honor, perform and discharge all obligations with respect to, and shall be solely and exclusively liable for (except to the extent indemnifiable pursuant to Article VII hereof), all of the liabilities and obligations of the Company that arise under or relate to (i) the Servicing Rights, (ii) the Contracts, and (iii) those liabilities which comprise the general ledger accounts of the Company set forth on Schedule VII hereto (the "Scheduled Liabilities"), in each case which liabilities and obligations become due and payable on or after the Closing Date (the "Assumed Liabilities"). (d) It is understood and agreed that, except as expressly set forth in this Agreement, Buyer shall not 26 27 assume or be liable for any of the debts, obligations or liabilities (including without limitation any liability for Taxes) of the Company or any of its Subsidiaries of any kind or nature whatsoever (whether or not accrued or fixed, absolute or contingent, known or unknown), and the Company and its Subsidiaries shall remain and be solely and exclusively liable with regard to such debts, liabilities and obligations (collectively, the "Excluded Liabilities"). 2.2 Purchase Price The aggregate purchase price to be paid to the Company for the Assets shall be $150,000,000 (the "Base Purchase Price"), provided, however, that such Base Purchase Price shall be finally determined in accordance with Sections 2.4 and 2.5 hereof. Buyer shall pay to the Company $10,000,000 of such Base Purchase Price subject to and in accordance with the provisions of Exhibit 2.2 hereto. 2.3 Closing; Payment of Base Purchase Price (a) The sale and purchase of the Assets and assumption of the Assumed Liabilities hereunder (the "Closing") shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom, New York, New York, or at such 27 28 other place as shall be mutually agreeable to the parties. The Closing shall take place on the first day which is the last day of a month (the "Last Day") and is no earlier than the first business day following the date on which the conditions to the consummation of the Acquisition set forth in Article VI (other than the conditions relating to the receipt of officer's certificates and legal opinions) have first been satisfied or, where permissible,waived, or at such other time as the parties shall hereafter agree (the "Closing Date"),provided, however, that if the Last Day is not a business day, then the Closing shall take place on the first business day of the next month, provided furthe, however, that in such case, for purposes of this Agreement, except as otherwise specifically provided herein, all references to the Closing Date shall be deemed to refer to the Last Day. (b) At the Closing, the Company shall deliver, or shall cause to be delivered, to Buyer the following: (i) an executed Bill of Sale and Assignment in substantially the form of Exhibit 2.3(b)(i; (ii) Lease Assignment and Assumption Agreements substantially in the form of Exhibit 2.3(b)(ii) with respect to all of the Leases, exe- 28 29 cuted and acknowledged by the Company in recordable form; (iii) certificates evidencing the LIS Shares, duly endorsed in blank or with stock powers duly endorsed in blank, together with such other documents as Buyer may reasonably request to evidence the transfer to Buyer of good and marketable title in and to the LIS Shares; (iv) all documentation required to exempt the Company from the withholding requirement of Section 1445 of the Code, consisting of an affidavit from the Company to Buyer stating under penalty of perjury that the Company is not a foreign person and providing the Company's U.S. taxpayer identification number. Notwithstanding anything to the contrary set forth herein, if the Company fails to provide Buyer with such affidavit, Buyer shall be entitled to withhold the requisite amounts from the Final Purchase Price in accordance with Section 1445 of the Code; (v) a copy of resolutions duly adopted by the Board of Directors of the Company authorizing the execution of this Agreement and the consummation of the transactions contemplated hereby, certified 29 30 as of the Closing Date by the Secretary or Assistant Secretary of the Company; (vi) the consents and other documents required to be delivered pursuant to Section 6.3; and (vii) such other documents, agreements and instruments as Buyer shall reasonably request to effect the transfer of the Assets from the Company to Buyer. (c) At the Closing, Buyer shall take the following actions: (i) Buyer shall pay to the Company $42,000,000, by wire transfer to such account as the Company shall designate in writing at least one business day prior to the Closing Date (such amount paid by Buyer pursuant to this clause (i), the "First Payment"); (ii) Buyer shall deliver an executed Assumption Agreement in substantially the form of Exhibit 2.3(c); (iii) Buyer shall deliver a copy of resolutions duly adopted by the Board of Directors of Buyer authorizing the execution of this Agreement and the consummation of the transactions contemplat- 30 31 ed hereby, certified as of the Closing Date by the Secretary or Assistant Secretary of Buyer; and (iv) Buyer shall deliver the documents required to be delivered pursuant to Section 6.2. (d) On the 120th day following the Closing Date, Buyer shall pay to the Company, by wire transfer to such account as the Company shall specify in writing at least one business day prior thereto, the amount obtained by subtracting (i) the amount of the First Payment from (ii) 85% of the amount obtained by subtracting (X) $10 million from (Y) the Final Purchase Price (such amount obtained by subtracting $10 million from the Final Purchase Price is referred to herein as the "Adjusted Final Purchase Price"), provided, however, that if the Final Purchase Price is in Disagreement or has otherwise not been determined, the payment shall be $77,000,000 (the amount paid by Buyer pursuant to this clause (d), the "Second Payment"). The remaining portion of the Final Purchase Price shall be paid on the Final Settlement Date, subject to the terms and conditions set forth in Section 2.7. 31 32 2.4 Closing Adjustment Documents In order to prepare for the final determination of the Base Purchase Price as contemplated in Section 2.5 hereof, the parties shall proceed as follows: (a) As soon as reasonably practicable following the Closing Date, and in no event more than 120 days thereafter, the Company shall prepare and deliver to Buyer (i) a schedule of the Closing Portfolio Loans, which schedule shall set forth, with respect to each such loan, the unpaid principal balance thereof as of the Closing Date, (ii) a schedule of the Excluded Loans as of the Closing Date, which schedule shall set forth with respect to each such loan the unpaid principal amount thereof as of the Closing Date, (iii) a schedule setting forth in reasonable detail the Book Value, as of the Closing Date, of the Accounts Receivable, (iv) a schedule setting forth in reasonable detail the Book Value, as of the Closing Date, of the Scheduled Liabilities, (v) a schedule setting forth the unpaid principal balance of each Closing Portfolio Loan with respect to which a reduction to the Base Purchase Price shall be made pursuant to Section 2.5(d) hereof, (vi) a schedule setting forth in reasonable detail the Book Value, as of the Closing Date, of the Investments and the Other Assets, 32 33 (vii) a schedule setting forth in reasonable detail the Book Value, as of the Closing Date, of the REO, (viii) a schedule setting forth in reasonable detail the aggregate Book Value, as of the Closing Date, of the Turkey Pile Loans, and (ix) a schedule setting forth in reasonable detail the calculations contemplated by Section 2.5 below (collectively, the "Closing Adjustment Documents"). The parties shall cooperate in the preparation of the Closing Adjustment Documents in accordance with this Section 2.4 and Section 2.5 hereof, including such additional documents as may be necessary to calculate the Final Purchase Price adjustments. Without limiting the generality of the foregoing, to the extent necessary, Buyer shall provide the Company and its designees with reasonable access to Buyer's books, records, personnel and representatives which relate to the Assets and the Assumed Liabilities and such other information as the Company may require in connection with the preparation of the Closing Adjustment Documents and with respect to the resolution of any Disagreement (as defined below). (b) Within twenty days after delivery of the Closing Adjustment Documents to Buyer, Buyer may dispute all or any portion of the Closing Adjustment Documents by giving written notice (a "Notice of Disagreement") to the 33 34 Company setting forth in reasonable detail the basis for any such dispute (any such dispute being hereinafter called a "Disagreement"). The parties shall promptly commence good faith negotiations with a view to resolving all such Disagreements. If Buyer does not give a Notice of a Disagreement in accordance with the provisions of the first sentence of this paragraph (b) within the twenty-day period set forth therein, Buyer shall be deemed to have irrevocably accepted the Closing Adjustment Documents in the form delivered to Buyer by the Company, provided, however, that such acceptance of the Closing Adjustment Documents by Buyer shall not be deemed to preclude or otherwise limit Buyer's rights to indemnification in accordance with Article VII hereof. (c) If Buyer shall deliver a Notice of Disagreement and the Company shall not dispute all or any portion of such Notice of Disagreement by giving written notice to Buyer setting forth in reasonable detail the basis for such dispute within twenty days following the delivery of such Notice of Disagreement, the Company shall be deemed to have irrevocably accepted the Closing Adjustment Documents as modified in the manner described in the Notice of Disagreement. If the Company disputes all or any portion of the Notice of Disagreement within 34 35 the twenty-day period described in the previous sentence, and within twenty days following the delivery to Buyer of the notice of such dispute Buyer and the Company do not resolve the Disagreement (as evidenced by a written agreement among the parties hereto), such Disagreement shall be referred to the Independent Accounting Firm for a resolution of such Disagreement in accordance with the terms of this Agreement. The determinations made by such firm with respect to any Disagreement shall be final and binding upon the parties and the amount so determined shall be used to complete the final Closing Adjustment Documents. Buyer and the Company shall use their best efforts to cause the Independent Accounting Firm to render its determination as soon as practicable after referral of the Disagreement to such firm, and each shall cooperate with such firm and provide such firm with reasonable access to the books, records, personnel and representatives of it and its Subsidiaries and such other information as such firm may require in order to render its determination. All of the fees and expenses of any Independent Accounting Firm retained pursuant to this paragraph (c) shall be paid one-half by Buyer and one-half by the Company. 35 36 2.5 Calculation of Adjustments In connection with the calculation of the Final Purchase Price (as defined below) and the preparation and delivery of the Closing Adjustment Documents, the following adjustments shall be made to the Base Purchase Price: (a) Closing Portfolio. The Base Purchase Price shall be (i) increased by an amount equal to 1.50% of the amount of the unpaid principal balance of all Closing Portfolio Loans which were not Base Portfolio Loans and (ii) decreased by an amount equal to 1.10% of the reduction in the amount of the unpaid principal balance of all Base Portfolio Loans between July 31, 1995 and the Closing Date. (b) Book Value of Accounts Receivable. The Base Purchase Price shall be (i) increased by the amount, if any, by which the aggregate Book Value of the Accounts Receivable as of the Closing Date exceeds $73,152,000 or (ii) decreased by the amount, if any, by which $73,152,000 exceeds the aggregate Book Value of the Accounts Receivable as of the Closing Date. (c) Book Value of Scheduled Liabilities. The Base Purchase Price shall be (i) increased by the amount, if any, by which $20,069,000 exceeds the aggregate Book Value, as of the Closing Date, of the Scheduled Liabili- 36 37 ties, or (ii) decreased by the amount, if any, by which the aggregate Book Value, as of the Closing Date, of the Scheduled Liabilities exceeds $20,069,000. (d) Adjustment for Prepayments of Loans. If at any time on or prior to the sixtieth (60th) day following the Closing Date, the outstanding principal balance of a Closing Portfolio Loan is paid in full prior to the expiration of the scheduled term thereof, the Base Purchase Price will be reduced by an amount equal to 1.10% (except with respect to Mortgage Loans funded and entered on the Company's system after July 31, 1995, for which a multiple of 1.50% shall be used) of the unpaid principal amount of such loan as of the Closing Date. (e) Book Value of Investments and Other Assets. The Base Purchase Price shall be (i) increased by the amount by which the aggregate Book Value of the Investments and the Other Assets as of the Closing Date exceeds $8,944,000 or (ii) decreased by the amount by which $8,944,000 exceeds the aggregate Book Value of the Investments and the Other Assets as of the Closing Date. (f) Book Value of REO. The Base Purchase Price shall be (i) increased by the amount by which the aggregate Book Value of the REO as of the Closing Date exceeds $6,092,000 or (ii) decreased by the amount by 37 38 which $6,092,000 exceeds the aggregate Book Value of the REO as of the Closing Date. (g) Adjustment for Turkey Pile Loans. The Base Purchase Price shall be increased by an amount equal to the aggregate Book Value of all Turkey Pile Loans, if any, as of the Closing Date. (h) Netting of Adjustments. The adjustments to the Base Purchase Price described in paragraphs (a) through (g) of this Section 2.5 shall be netted, such that there shall be determined an aggregate increase or decrease in the Base Purchase Price. The Base Purchase Price, as finally determined in the manner provided in Sections 2.4 and 2.5 hereof, and as further adjusted pursuant to the terms of Section 2.6, is referred to herein as the "Final Purchase Price." 2.6 Adjustment for Post-Closing Terminated Loans. (a) With respect to any Closing Portfolio Loan which is a Post-Closing Terminated Loan as of the 120th day after the Closing Date, the Base Purchase Price shall be reduced by an amount equal to (i) 1.10% of the aggregate unpaid principal balance as of the Closing Date of any such loan which was a Base Portfolio Loan or (ii) 38 39 1.50% of the aggregate unpaid principal balance as of the Closing Date of any other such loan. (b) With respect to any Closing Portfolio Loan which became a Post-Closing Terminated Loan after the 120th day after the Closing Date and before the first anniversary of the Closing Date, the Base Purchase Price shall be further reduced by an amount equal to (i) 1.10% of the aggregate unpaid principal balance as of the Closing Date of any such loan which was a Base Portfolio Loan or (ii) 1.50% of the aggregate unpaid principal balance as of the Closing Date of any other such loan. (c) The amount of the reduction in the Base Purchase Price as calculated in accordance with subsection (a) or (b) of this Section 2.6 shall be offset by the amount of any termination or similar fees or charges actually received by Buyer in connection with the termination of the servicing of such Post-Closing Terminated Loans. (d) Not less than five business days prior to the 120th day after the Closing Date or the Final Settlement Date, as the case may be, Buyer shall deliver to the Company a schedule setting forth in reasonable detail the Post-Closing Terminated Loans and a statement of the 39 40 calculations contemplated by paragraphs (a) and (b) of this Section 2.6. (e) With respect to the Mortgage Loans serviced by the Company pursuant to the Mortgage Servicing Purchase and Sale Agreement, dated as of July 31, 1987, by and between Citicorp Mortgage, Inc. ("Citicorp") and the Company, as amended by Addendum Number One dated December 1, 1992 (the "Citicorp Agreement"), the Company and Buyer agree to the terms and provisions set forth on Exhibit 2.6(e) hereto. 2.7 Final Settlement No later than ten business days following the one-year anniversary of the Closing Date (the "Final Settlement Date"), the parties hereto shall effect a settlement (the "Final Settlement"), either by telephone or in person at a mutually convenient location. On the Final Settlement Date, Buyer shall wire transfer in immediately available funds to an account specified by the Company on the business day immediately preceding the Final Settlement Date an amount equal to (i) the amount by which (X) the Adjusted Final Purchase Price exceeds (Y) the sum of the First Payment and the Second Payment, less (ii) the aggregate amount of all Losses indemnifiable by the Company pursuant to the terms of this Agreement for which 40 41 Buyer shall have given notice to the Company, in accordance with Article VII, prior to the one-year anniversary of the Closing Date, provided, however, that in no event shall the amount contemplated by clause (ii) above exceed 15% of the Adjusted Final Purchase Price. In all cases, the amount payable at the Final Settlement shall be accompanied by interest thereon calculated at the Federal Funds Rate plus 1% as published in the "Money Rates" section of The Wall Street Journal as in effect from time to time for the period from the Closing Date to the Final Settlement Date (such total amount payable on the Final Settlement Date, whether payable by Buyer or the Company, is referred to herein as the "Final Settlement Amount"). Notwithstanding the foregoing, with respect to any Losses for which Buyer seeks indemnity from the Company and for which Buyer shall have timely provided notice to the Company pursuant to the provisions of this Section 2.7 and of Article VII of this Agreement, but with respect to which Losses the Company has provided Buyer prior to the Final Settlement Date with a written notice of dispute regarding its obligation to indemnify Buyer, which notice shall state the amount of all such claims and the reasons for the Company's dispute thereof, an amount equal to the aggregate dollar amount sufficient to satisfy Buyer's 41 42 claims for indemnification for such Losses (the "Pending Claim Amount"), which amount shall not be greater than 15% of the Adjusted Final Purchase Price, shall be deducted from the Final Settlement Amount otherwise payable by Buyer pursuant to this Section 2.7, and Buyer shall pay to the Company an amount equal to the Final Settlement Amount as so adjusted and shall place in escrow an amount equal to the Pending Claim Amount, pursuant to the terms of an Escrow Agreement to be entered into by Buyer and the Company in form and substance mutually satisfactory to them. 2.8 Prorations. Any payments made or due under or pursuant to the Leases and the Assumed Contracts (including without limitation amounts paid by the Company prior to the Closing for maintenance and repair services to be provided after the Closing, prepaid postage or machine rental for any period after the Closing), all use, real and personal property Taxes, all water and sewer charges not based upon consumption and all assessments for public improvements, if any, related to the Assets shall be prorated between Buyer and the Company on the basis of a 365-day year and the number of days elapsed through the Closing Date, with the Company being liable for amounts 42 43 attributable to periods through the Closing Date and Buyer being liable for amounts attributable to periods after the Closing Date. With respect to any products sold or services rendered pursuant to the Assumed Contracts, the Company and Buyer shall use their best efforts to arrange for vendors to bill the Company directly for the same through the Closing Date for products sold or services rendered on or prior to the Closing Date and to bill Buyer directly after the Closing Date for products sold or services rendered after the Closing Date. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Buyer as follows: 3.1 Organization; Capitalization (a) Each of the Company and LIS is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut. Each Subsidiary of LIS is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. The Company has full corporate power and authority to conduct the Servicing Business as now conducted and to own or lease the Assets 43 44 and is duly licensed or qualified to do business and is in good standing in each state or jurisdiction where the ownership or leasing of the Assets or the conduct of the Servicing Business requires such licensing or qualification, except where the failure to be so licensed or qualified would not have a Material Adverse Effect. Each of LIS and its Subsidiaries has full corporate power and authority to carry on its business as now conducted and to own or lease all of its properties and assets and is duly licensed or qualified to do business and is in good standing in each state or jurisdiction where the ownership or leasing of its properties or assets or the conduct of its business requires such licensing or qualification, except where the failure to be so licensed or qualified would not have or would not reasonably be expected to have a Material Adverse Effect. The Company has previously made available to Buyer accurate and complete copies of the articles of incorporation and by-laws of LIS and each Subsidiary of LIS as in effect on the date of this Agreement. (b) The authorized capital stock of LIS consists of 5,000 shares of common stock, par value $1.00 per share ("LIS Common Stock"), and no shares of preferred stock. There are 3,350 shares of LIS Common Stock 44 45 issued and outstanding (the "LIS Shares"), all of which are duly authorized, validly issued, fully paid, nonassessable and free of pre-emptive rights, with no personal liability attaching to the ownership thereof. All of the outstanding shares of LIS Common Stock are owned by the Company, free and clear of all Encumbrances, contracts, rights, options and assignments whatsoever. No shares of LIS Common Stock are reserved for issuance. Neither LIS nor any of its Affiliates has or is bound by any outstanding subscriptions, options, warrants, calls, commitments, agreements or other rights of any character calling for the purchase or issuance of any shares of LIS Common Stock or any securities representing the right to purchase or otherwise receive any shares of LIS Common Stock. There are no voting trusts, proxies, or other agreements or understandings with respect to the voting of the LIS Common Stock. (c) The Company has good and marketable title to the LIS Shares, free and clear of all Encumbrances, contracts, rights, options and assignments whatsoever. Upon payment of the First Payment to the Company at the Closing in accordance with Section 2.3(b)(i) of this Agreement, at the Closing the Company 45 46 will convey to Buyer good and valid title to the LIS Shares, free and clear of all Encumbrances. (d) LIS does not own any equity interest, directly or indirectly, in any Subsidiary or any other Person other than (i) Lomas Insurance Services of Arizona, Inc., (ii) Lomas Insurance Services of Florida, Inc., (iii) Lomas Insurance Services of Louisiana, Inc., (iv) Lomas General Insurance Services, Inc., and (v) Lomas Insurance Services of Virginia, Inc. (collectively, the "LIS Subsidiaries"). LIS owns, directly or through one of the LIS Subsidiaries, all of the issued and outstanding capital stock of the LIS Subsidiaries, free and clear of all Encumbrances, contracts, rights, options and assignments whatsoever, and all of such shares are duly authorized, validly issued, fully paid, nonassessable and free of pre-emptive rights, with no personal liability attaching to the ownership thereof. None of the LIS Subsidiaries has or is bound by any outstanding subscriptions, options, warrants, calls, commitments, agreements or other rights of any character calling for the purchase or issuance of any shares of capital stock of such Subsidiaries or any securities representing the right to purchase or otherwise receive any shares of capital stock of such Subsidiaries. There are no voting trusts, prox- 46 47 ies or other agreements or understandings with respect to the voting of the capital stock of the LIS Subsidiaries. 3.2 Authority; No Violation (a) Subject to the entry of the Second Order, the Company has full corporate power and authority to execute and deliver this Agreement and any documents, agreements or instruments to be executed by it pursuant to this Agreement and to consummate the transactions contemplated hereby and thereby. Subject to the entry of the Second Order, the execution and delivery of this Agreement and any documents, agreements or instruments to be executed and delivered by the Company pursuant to this Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all requisite corporate action in respect thereof on the part of the Company and Parent, and no other corporate proceedings on the part of the Company or Parent are necessary to consummate the transactions contemplated hereby and thereby. This Agreement has been duly and validly executed and delivered by the Company and, subject to the entry of the Second Order and assuming this Agreement constitutes a valid and binding obligation of Buyer, such agreement constitutes a valid and binding obligation of the Company, enforceable against 47 48 the Company in accordance with its terms, and the other documents, agreements and instruments to be delivered by the Company pursuant to this Agreement will, when executed and delivered, be duly executed and delivered by the Company and will constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms (in all cases, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (whether applied in a proceeding in equity or at law)). (b) Except as set forth in Section 3.2(b) of the disclosure schedule which has previously been delivered by the Company to Buyer (the "Company Schedule"), and subject to the entry of the Second Order, neither the execution and delivery by the Company of this Agreement or any document, agreement or instrument to be executed by the Company pursuant to this Agreement, nor the consummation by the Company of the transactions contemplated hereby or thereby, nor compliance by the Company with any of the terms or provisions hereof, will (i) conflict with or result in a breach of any provision of the articles of incorporation, by-laws or similar governing documents of the Company, LIS or any of the LIS Subsidiaries or (ii) 48 49 assuming the consents, permits, authorizations, approvals, filings and registrations referred to in Section 3.3 hereof and Section 3.3 of the Company Schedule are obtained or made, (x) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to the Company or any Subsidiary of the Company or any of their respective properties or assets or (y) violate, conflict with, result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time, or both, would constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration or the creation of any Encumbrance upon any of the Assets under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement (including without limitation any Mortgage Servicing Agreement) or other instrument or obligation to which the Company or any Subsidiary of the Company is a party, or by which the Company or any Subsidiary of the Company or any of their respective assets may be bound or affected, except, in the case of clause (y) above, for such violations, conflicts, breaches or defaults which, either 49 50 individually or in the aggregate, would not have a Material Adverse Effect. 3.3 Consents and Approvals Except as set forth in Section 3.3 of the Company Schedule, and subject to the entry of the Second Order, no consents, permits, authorizations or approvals of, or filings or registrations with, any Governmental Entities, government-sponsored agencies or corporations or other Persons are necessary to be obtained or made by the Company or any Subsidiary of the Company in connection with the execution and delivery by the Company of this Agreement or any document, agreement or instrument to be executed by the Company pursuant to this Agreement or the consummation by the Company of the transactions contemplated hereby or thereby, except for such consents, permits, authorizations or approvals the failure of which to obtain would not, individually or in the aggregate, have a Material Adverse Effect. 3.4 Financial Information Each of the Company, LIS and the LIS Subsidiaries maintains records which accurately reflect transactions relating to the Assets and the Assumed Liabilities in reasonable detail, and maintains accounting controls, policies and procedures sufficient to ensure that 50 51 such transactions are (i) executed in accordance with its management's general or specific authorization, as applicable, and (ii) recorded in a manner which permits the preparation of financial statements in accordance with GAAP and applicable regulatory accounting requirements, and the documentation pertaining thereto is retained, protected and duplicated in all material respects in accordance with prudent business practices and applicable regulatory requirements. The books and records of each of the Company, LIS and the LIS Subsidiaries reflect only actual transactions. The Accounts Receivable, Investments, Other Assets, REO and Scheduled Liabilities are carried on the Company's balance sheet in accordance with GAAP consistently applied. 3.5 Contracts (a) The Company has made available to Buyer a correct and complete copy of each written Contract listed on Schedules II, IV and V. With respect to each Contract: (A) the Contract is valid, binding and in full force and effect; (B) the Company is not in breach or default thereof (except for breaches and defaults of the type referred to in Section 365(b)(2) of the Bankruptcy Code), and, to the knowledge of the Company, no event has occurred which, with notice or lapse of time or both, 51 52 would constitute a breach or default (except for breaches and defaults of the type referred to in Section 365(b)(2) of the Bankruptcy Code) by the Company, or would permit termination, modification, or acceleration against the Company under such Contract; (C) the Company has not repudiated or waived any material provision of any such Contract other than in the ordinary course of business; (D) all amounts due and payable by the Company through the Closing Date pursuant to such Contract have been or will be paid; and (E) to the knowledge of the Company, no other party to any such Contract is in breach or default thereunder and no event has occurred which, with notice or lapse of time or both, would constitute a breach or default by such other party, or would permit termination, modification, or acceleration against such other party, under such Contract. (b) With respect to each Lease relating to real property, except as set forth on Section 3.5(b) of the Company Schedule, (A) no waiver or indulgence or postponement of any material obligation thereunder has been granted by any lessor or sublessor; (B) neither the Company nor any of its Subsidiaries has entered into any sublease or assignment with respect to its interest as tenant in such Lease; and (C) neither the Company nor any 52 53 Subsidiary of the Company has received any notice that it has breached any material term, condition or covenant of any such Lease (except for breaches of the type referred to in Section 365(b)(2) of the Bankruptcy Code). 3.6 Title to Assets The Company has good and marketable title to (or, as to leased property, a valid leasehold interest in) all of the Assets, free and clear of all Encumbrances, except (i) as set forth on Section 3.6 of the Company Schedule, (ii) for statutory liens for amounts not yet delinquent or which are being contested in good faith, (iii) for Encumbrances securing the Assumed Liabilities, and (iv) such Encumbrances that do not in the aggregate materially detract from the value or interfere with the use or operations of the Asset subject thereto. The Company as lessee has the right under valid and subsisting Leases to occupy, use, possess and control all of the Leased Property leased by the Company, as presently occupied, used, possessed and controlled by the Company, or to use and possess the leased FF&E as presently used and possessed by the Company, as the case may be. 3.7 Brokers and Finders Neither the Company nor any of its officers, directors, employees, agents or Affiliates has employed 53 54 any broker, finder or financial advisor or incurred any liability for any broker's or finder's fees or commissions in connection with the transactions contemplated hereby, except that Lomas Financial Corporation ("Parent") and the Company have engaged, and will pay a fee or commission to, Salomon Brothers Inc in accordance with the terms of the letter agreement by and between Salomon Brothers Inc and Parent. 3.8 Legal Proceedings Except as set forth in Section 3.8 of the Company Schedule, neither the Company nor any of its Subsidiaries is a party to any, and there are no pending or, to the knowledge of the Company, threatened, legal, administrative, arbitral or other proceedings, claims, actions or governmental or regulatory investigations of any nature (i) against the Company or any of its Subsidiaries and relating to or involving the Assets or the Assumed Liabilities, as to which there is a reasonable probability of an adverse determination and which, if adversely determined, would, individually or in the aggregate, have a Material Adverse Effect, or (ii) challenging the validity or propriety of the transactions contemplated by this Agreement. Except as otherwise disclosed in Section 3.8 of the Company Schedule, there 54 55 is no injunction, order, judgment, decree or regulatory restriction imposed upon the Company or any of its Subsidiaries and relating to or involving the Assets or the Assumed Liabilities which has had a Material Adverse Effect. 3.9 Mortgage Banking Licenses and Qualifications (a) The Company (i) is qualified (A) by FHA as a mortgagee and servicer for FHA Loans, (B) by the VA as a lender and servicer for VA Loans, (C) by FNMA and FHLMC as a seller/servicer of single-family and multifamily mortgage loans to FNMA and FHLMC and (D) by GNMA as an authorized issuer and servicer of GNMA-guaranteed mortgage-backed securities, and (ii) has all other certifications, authorizations, licenses, permits and other approvals (together with the items set forth in clause (i) above, the "Licenses") necessary to conduct the Servicing Business, and is in good standing under all applicable federal, state and local laws and regulations thereunder as a mortgage lender and servicer. (b) The Company has complied with all such Licenses, and the Company knows of no threatened suspension, cancellation or invalidation of, or penalties (including fines or refunds) under, any such License. 55 56 (c) To the Company's knowledge, each broker or correspondent involved in the origination of the Mortgage Loans, and all prior servicers thereof, had all such Licenses necessary to conduct such activities at the time so conducted. 3.10 Mortgage Loans The Company has previously delivered to Buyer a tape (magnetic media) which sets forth certain information regarding the Mortgage Loans as of July 31, 1995. The information contained in such tape is true, complete and correct in all material respects as of July 31, 1995. Except as set forth in Section 3.10 of the Company Schedule, each Mortgage Loan is (i) evidenced by a Note with such terms as are customary in the business, (ii) duly secured by a Mortgage with such terms as are customary in the business and which grants the holder thereof a first priority lien (except as otherwise indicated in the tape referred to above) on the subject property (including any improvements thereon), each such Mortgage constituting a security interest that has been duly perfected and maintained (or is in the process of perfection in due course) as a first lien subject only to Taxes and assessments not yet delinquent, and to such other matters as evidenced by a lender's title insurance policy and, where applicable, 56 57 subject to the interests of the Texas Veterans' Land Board, and is in full force and effect, (iii) accompanied by a hazard insurance policy (and a flood insurance policy and certification where required under the terms of the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, each as amended) covering improvements on the premises subject to such Mortgage, with a loss payee clause in favor of the Company or an assignee of the Company, such insurance policy covering such risks as are customarily insured against in accordance with industry practice and which are required to be insured against pursuant to Investor requirements, and (iv) accompanied by a mortgage insurance certificate or a loan guarantee certificate, in either case, as required by applicable Regulations. The Company has complied in all material respects with all of its obligations under the insurance policies described in the previous sentence. 3.11 Enforceability All Mortgage Loans are valid and legally binding obligations of the borrowers thereunder, to the knowledge of the Company have been duly executed by a borrower of legal capacity, are enforceable in accordance with their terms (except as enforcement thereof may be 57 58 limited by (i) bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (whether applied in a proceeding in equity or at law), (ii) state laws requiring creditors to proceed against the collateral before pursuing the borrower, and (iii) state laws on deficiencies), and conform to all applicable Regulations. Neither the operation of any of the terms of any Mortgage Loan, nor the exercise of any right thereunder, has rendered or will render the related Mortgage or Note unenforceable, in whole or in part, or subject it to any right of rescission, setoff, counterclaim or defense, and no such right of rescission, setoff, counterclaim or defense has been asserted with respect thereto. The Loan Documents were in compliance in all material respects with applicable Regulations and Agency, Investor and Insurer requirements upon origination of the underlying Mortgage Loan and are complete in all material respects. 3.12 Title to Certain Mortgage Loans; Mortgage Servicing Agreements (a) All Mortgage Loans held in the account of the Company (whether or not for future sale or delivery to an Investor) are owned by the Company free and clear of all Encumbrances. Such Mortgage Loans have been duly 58 59 recorded or submitted for recordation in due course in the appropriate filing office in the name of the Company as mortgagee. The Company has not, with respect to any such Mortgage Loan, released any security therefor, except upon receipt of reasonable consideration for such release, or accepted prepayment of any such Mortgage Loan which has not been promptly applied to such Mortgage Loan. (b) All of the Mortgage Servicing Agreements and the Servicing Rights are owned by the Company, free and clear of any Encumbrances, including without limitation the right to receive servicing fees. 3.13 No Recourse Except with respect to VA No-Bids, the FmHA Loans and as set forth in Section 3.13 of the Company Schedule, none of the Mortgage Loans are Recourse Loans. 3.14 Mortgage Servicing Agreements The Company has previously made available to Buyer true and complete copies of all Mortgage Servicing Agreements set forth on Schedule V hereto. The Mortgage Servicing Agreements and the Regulations set forth all the terms and conditions of the Company's rights against and obligations to the Agencies and Investors with re- 59 60 spect to the Mortgage Loans, and there are no written or oral agreements that modify or amend any such Mortgage Servicing Agreement in any material respect. All of the Mortgage Servicing Agreements are valid and binding obligations of the Company and all of the other parties thereto, are in full force and effect, and are enforceable in accordance with their terms, except as enforcement thereof may be limited by general principles of equity whether applied in a court of law or a court of equity and by bankruptcy, insolvency and similar laws affecting creditors' rights and remedies generally. Except as set forth in Section 3.14 of the Company Schedule, there is no default or breach under, or dispute regarding the material terms of, or claim of default or breach by any party under, any such Mortgage Servicing Agreement, and no event has occurred which with the passage of time or the giving of notice or both would constitute a default or breach by any party under any such Mortgage Servicing Agreement or would permit termination, modification or acceleration of any such Mortgage Servicing Agreement. Except as set forth in Section 3.14 of the Company Schedule, there is no pending or, to the knowledge of the Company, threatened cancellation of any Mortgage Servicing Agreement, and the Company has not re- 60 61 ceived written notice to the effect that any Investor or Agency intends to terminate or is considering terminating its relationship with the Company. Except as set forth in Section 3.14 of the Company Schedule, no material sanctions or penalties have been imposed upon the Company subsequent to January 1, 1992 under any Mortgage Servicing Agreement or under any Regulation applicable to the Company. 3.15 Compliance with Mortgage Banking Regulations (a) The Company and, with respect to each Mortgage Loan, to the knowledge of the Company, each prior servicer and originator of any such loan, has been and is (including without limitation, with respect to (i) the ownership and operation of its properties and (ii) the documentation, underwriting, origination, purchase, assumption, modification, sale, pooling and servicing, subservicing and master servicing of Mortgage Loans by the Company and such prior servicers and originators) in compliance in all material respects with all Regulations, orders, writs, decrees, injunctions and other requirements of any court or governmental authorities applicable to any of them (including, without limitation, (x) the rules, regulations and requirements of FHA, VA, FmHA, 61 62 FNMA, HUD, FHLMC and GNMA, (y) any applicable local, state or federal law or ordinance, and any regulations or orders issued thereunder, governing or pertaining to fair housing or unlawful discrimination in residential lending (including without limitation anti-redlining, equal credit opportunity, and fair credit reporting), truth-in-lending, real estate settlement procedures, adjustable rate mortgages, adjustable rate mortgage disclosures or consumer credit (including without limitation the federal Consumer Credit Protection Act, the federal Truth-in-Lending Act and Regulation Z thereunder, the federal Real Estate Settlement Procedures Act of 1974 and Regulation X thereunder, and the federal Equal Credit Opportunity Act and Regulation B thereunder) and (z) all applicable usury and interest limitations laws), except where the failure to so comply would not have a Material Adverse Effect. Without limiting the generality of the foregoing, the Company and, to the knowledge of the Company, each prior servicer and originator of the Mortgage Loans has been and is in compliance in all respects with all servicer and other requirements of the FHA, VA, FmHA, FNMA, FHLMC, GNMA, Investors and any Insurer (including, without limitation, any applicable net worth requirements) which are applicable to it, and all applicable underwriting 62 63 standards of such Agencies, Investors or Insurers. To the knowledge of the Company, each correspondent or broker from whom the Company has purchased Mortgage Loans had all approvals necessary to enable it to take applications and close such Mortgage Loans. (b) The Company has timely filed, or will have timely filed by the Closing Date, all reports required by any Agency, Investor or Insurer or by any federal, state or municipal law, regulation or ordinance, and where the failure to so timely file would have a Material Adverse Effect. Neither the Company nor, with respect to any Mortgage Loan, to the knowledge of the Company, any prior originator or servicer of any such loan, has done or failed to do, or has caused to be done or omitted to be done, any act, the effect of which would operate to invalidate or materially impair (i) any approvals of the FHA, VA, FmHA, FNMA, FHLMC, GNMA, HUD or any Investor, (ii) any FHA insurance or commitment of the FHA to insure, (iii) any VA or FmHA guaranty or commitment of the VA or FmHA to guaranty, (iv) any private mortgage insurance or commitment of any private mortgage insurer to insure, (v) any title insurance policy, (vi) any hazard insurance policy, (vii) any flood insurance policy required by the National Flood Insurance Act of 63 64 1968, as amended, (viii) any fidelity bond, direct surety bond, or errors and omissions insurance policy required by HUD, GNMA, FNMA, FHA, FHLMC, FmHA, VA or private mortgage insurers or (ix) any surety or guaranty agreement. (c) Except as set forth in Section 3.15 of the Company Schedule, since January 1, 1992, no Agency, Investor or Insurer has (y) claimed that the Company has violated or has not complied with the applicable underwriting standards with respect to Mortgage Loans sold by the Company to an Investor or (z) imposed restrictions on the activities (including commitment authority) of the Company. There exist no known facts or circumstances which would entitle an Investor to demand repurchase of a Mortgage Loan from the Company or which would entitle an Insurer to demand indemnification from the Company, to cancel any mortgage insurance held for the Company's benefit, or to reduce any mortgage insurance benefits payable to the Company, or would lead any Investor to require a letter of credit from the Company, in each case with respect to any Mortgage Loan. 3.16 Custodial Accounts The Company has full power and authority to maintain Custodial Accounts for all of the Mortgage 64 65 Loans, as required by applicable Regulations, and has established Custodial Accounts for all Escrow Funds relating to Servicing Rights, and is the lawful fiduciary of all Custodial Accounts related to the Mortgage Loans. Such Custodial Accounts comply in all material respects with (i) all applicable Regulations (including without limitation Regulations governing the appropriate identification of such accounts and the calculation of the amount of the monthly payments for deposit into Custodial Accounts that mortgagors are required to make) and (ii) any terms of the Mortgage Loans (and Mortgage Servicing Agreements) relating thereto. The Custodial Accounts contain the amounts shown in the records of the Company, which amounts represent all monies received or advanced by the Company as required by the applicable Regulations, less amounts remitted by or on behalf of the Company pursuant to applicable Regulations, except for checks in process. Except as to payments that are past due under the terms of the applicable Loan Documents, all payments of principal and interest due and payable on the Mortgage Loans and all Custodial Account deposits for Taxes, assessments, ground rents and fire or hazard insurance have been credited to the appropriate Custodial Accounts. The Custodial Accounts do not have any material funding 65 66 deficiency. The escrow analysis with respect to each Mortgage Loan has been completed for the most recent required date under applicable Regulations. Notification to the mortgagor of all payment adjustments or credits resulting from such escrow analysis, annual statements of Taxes and interest paid by the mortgagor and any other statement required by all applicable Regulations has been mailed by the Company or, to the knowledge of the Company, by the applicable servicer with respect to master serviced loans. To the extent required by applicable Regulations, funds have been advanced by the Company or each servicer, as applicable, to each Custodial Account as necessary to timely make all scheduled escrow disbursements. Except as required by applicable Regulations in effect as of the date of this Agreement, the Company is not required to pay interest on the Custodial Accounts. 3.17 Inquiries Section 3.17 of the Company Schedule contains a true and correct list of all of the audits and investigations of the Company by any Agency, Investor or private mortgage insurer or HUD commenced since January 1, 1992, not made in the ordinary course of business, the result of which audits and investigations claimed a material 66 67 failure to comply with applicable Regulations and resulted in (i) a repurchase of Mortgage Loans or Collateral by the Company, (ii) indemnification by the Company in connection with Mortgage Loans, (iii) rescission of an insurance or guaranty contract or agreement in connection with Mortgage Loans or (iv) payment by the Company of a penalty to an Agency, HUD, an Investor or an Insurer. Except as otherwise set forth in Section 3.17 of the Company Schedule, no such audit or investigation is pending or, to the knowledge of the Company, threatened. The Company has made available to Buyer copies of all written reports and materials received or sent by the Company in connection with such audits and investigations. 3.18 Advances; Accounts Receivable Except as set forth in Section 3.18 of the Company Schedule, there are no pooling, participation, servicing or other agreements to which the Company is a party which obligate it to make servicing advances with respect to defaulted or delinquent Mortgage Loans, other than as provided in, FNMA or FHLMC pooling and servicing agreements. The Accounts Receivable are valid and subsisting amounts owing to the Company, are carried on the books of the Company at values determined in accordance with GAAP and are not subject to any setoffs or claims of 67 68 the account debtor arising from acts or omissions of the Company nor, to the knowledge of the Company, is any Investor or Agency insolvent or otherwise unable to repay any Accounts Receivable or Advances as required by applicable Regulations. Except as set forth in Section 3.18 of the Company Schedule, the Company has not received notice from an Agency, Investor, Insurer or other Person disputing or denying a claim by the Company for reimbursement in connection with any Accounts Receivable or Advances. As of July 31, 1995, the aggregate Book Value of the Accounts Receivable was $73,152,000. 3.19 Physical Damage Except as set forth on Section 3.19 of the Company Schedule, to the knowledge of the Company there exists no physical damage to the Collateral or any REO from fire, flood, windstorm, earthquake, tornado, hurricane or any other similar casualty, which physical damage would or would reasonably be expected to cause any Mortgage Loan to become delinquent or adversely affect the value or marketability of any Mortgage Loan, Servicing Right, REO or Collateral. 3.20 Pool Certification and Recertification Except as set forth in Section 3.20 of the Company Schedule: (i) each Mortgage Loan included in a 68 69 Pool meets all eligibility requirements for inclusion in such Pool, in accordance with all applicable standards of eligibility for loan pooling; (ii) the Loan Documents for each Mortgage Loan contain or will contain, within the period required by applicable Regulations, all items required by applicable Regulations for the certification of Pools by the appropriate Agency or Investor and such Pools will be in compliance with all applicable Agency or Investor requirements and guidelines, within the period required by applicable Regulations; (iii) all Pools relating to the Mortgage Loans have been or will be, within the period required by applicable Regulations, certified in accordance with applicable Regulations, and the securities backed by such Pools have been issued on uniform documents, promulgated in the applicable Agency or Investor guide without any material deviations therefrom; (iv) all Pools relating to the Mortgage Loans are or will be, within the period required by applicable Regulations, eligible for recertification by the appropriate custodian; (v) the principal balance outstanding and owing on the Mortgage Loans in each Pool equals or exceeds the amount owing to the corresponding security holder of such Pool; (vi) no Mortgage Loan has been bought out of a Pool without all required prior written 69 70 approvals; and (vii) each Mortgage Loan included in a Pool satisfied the requirements of Section 3(a)(41)(A)(i) and (ii) of the Securities Exchange Act of 1934, as amended, so that interests in such Pools constitute "mortgage related securities" under Section 3(a)(41) of such Act. 3.21 Payment of Taxes, Insurance Premiums, Other Amounts The responsibilities of the Company and, to the knowledge of the Company, all prior servicers and originators of the Mortgage Loans with respect to all applicable Taxes (including tax reporting for the period prior to the Closing), special assessments, ground rents, flood insurance premiums, hazard insurance premiums and mortgage insurance premiums that are related to the Mortgage Loans have been met. 3.22 Tax Identification All tax identifications for the individual mortgagor under a Mortgage Loan (or evidence that reasonable attempts have been made to obtain such in accordance with applicable Regulations) are contained in the Loan Documents. All of such tax identifications are correct and complete in all material respects, and property de- 70 71 scriptions contained in any Loan Document are legally sufficient. 3.23 Single Family Loans Except as set forth in Section 3.23 of the Company Schedule, (i) all Mortgage Loans are secured by single family (i.e., one to four family) residential real property and (ii) the full principal amount of each note related to a Mortgage Loan has been advanced to the mortgagor, either by payment directly to such mortgagor, or by payment made on request or approval of the mortgagor, and there is no obligation or requirement for future advances. 3.24 ARMs and Conversion Loans If the Mortgage Loan documents grant the related mortgagor the right to convert the Mortgage Loan to a fixed-rate Mortgage Loan and the related mortgagor previously has exercised such right, or provide that the interest rate or installment or payment amount of the Mortgage Note may be adjusted prospectively, then: (i) all of the terms of the Mortgage Loan documents may be enforced by the holder thereof, its successors and assigns, subject to bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity (whether ap- 71 72 plied in a proceeding in equity or at law), (ii) any such adjustments will not, or did not, affect the priority of the lien of the related Mortgage or Note, and (iii) all adjustments have been made (and the resulting interest rates and payment amounts are correct), and the respective mortgagors advised thereof, in accordance with the applicable Regulations. No mortgagor has made, or to the Company's knowledge, has threatened to make any claim or complaint that any adjustment was inappropriately made or inappropriately omitted. At or prior to the Closing Date, the Company shall make available to Buyer all loan histories available to the Company on magnetic media, and all such loan histories are complete and accurate in all material respects. 3.25 Taxes Except as set forth in Section 3.25 of the Company Schedule: (a) The Company and each of its Subsidiaries have (i) timely filed (or will have timely filed by the Closing Date) with the appropriate taxing authorities all Tax Returns in respect of the Assets, including all consolidated federal income Tax Returns relating to each of LIS and its Subsidiaries, required to be filed and such Tax Returns are true, complete and correct in 72 73 all material respects and (ii) paid in full, or made adequate provision in accordance with GAAP for the payment of, all Taxes due and payable through the Closing Date. (b) Each of LIS and the LIS Subsidiaries has (i) timely filed (or will have timely filed by the Closing Date) with the appropriate taxing authorities all Tax Returns required to be filed and such Tax Returns are true, complete and correct in all material respects and (ii) paid in full, or made adequate provision in accordance with GAAP for the payment of, all Taxes due and payable through the Closing Date. (c) There are no liens for Taxes upon any of the Assets or any of the assets owned directly or indirectly by LIS or any of the LIS Subsidiaries, except liens for Taxes not yet due or payable. (d) None of LIS or any of its Subsidiaries has, nor has any Person on LIS' behalf, (i) received any notice of deficiency or assessment from any taxing authorities with respect to liability for Taxes that have not been fully paid or finally settled, (ii) granted any requests, agreements, consents or waivers to extend the statutory period of limitations applicable to the assessment of any Taxes with respect to any Tax 73 74 Returns of LIS or any of its Subsidiaries or (iii) filed any elections, consents or waivers with respect to Taxes (including, without limitation, a consent pursuant to section 341(f) of the Code) of LIS or any of its Subsidiaries. (e) There are no ongoing audits or examinations (including administrative or court proceedings) with regard to any Taxes of LIS or any of its Subsidiaries or Tax Returns required to be filed with respect to LIS or any of its Subsidiaries or Taxes or Tax Returns of any affiliated group (within the meaning of Section 1504 of the Code) or similar group under state, local or other law of which LIS and its Subsidiaries are members. (f) No taxing authority is now asserting or threatening to assert any deficiency or assessment for additional Taxes with respect to or attributable to LIS or any of its Subsidiaries, and neither LIS nor the Company has knowledge of any facts that, if known to any taxing authority, would likely result in the issuance of a notice of proposed deficiency or similar notice of intention to assess Taxes against LIS or any of its Subsidiaries. (g) No payment which will, or may, be made by LIS or any of its Subsidiaries to any employee, 74 75 director or agent thereof will constitute an "excess parachute payment" within the meaning of section 280G of the Code. (h) There has been no change in the method of accounting utilized by LIS or any of its Subsidiaries that would require any adjustment to taxable income pursuant to section 481 of the Code, and none of the Company, LIS or any of its Subsidiaries has any knowledge that the Internal Revenue Service has proposed any such adjustment or has proposed any such change in accounting method. (i) Any and all agreements or arrangements of which LIS or any of its Subsidiaries is a party and that provide for the allocation or sharing of Taxes or Tax benefits or refunds shall be cancelled and terminated as of the Closing Date and will have no effect and be unenforceable as of the Closing Date. 3.26 FHA, VA and PMI Claims. All claims submitted, required to be submitted and allowed to be submitted, by the Company to the FHA, the VA or any provider of PMI, as applicable, have been properly and timely submitted to FHA, the VA or such private mortgage insurer. 75 76 3.27 Fairness Opinion. The Company has received an opinion, dated the date of this Agreement, from Salomon Brothers Inc to the effect that, subject to the terms, conditions and qualifications set forth therein, as of the date thereof the consideration to be received by the Company pursuant to this Agreement is fair to the Company from a financial point of view. Buyer acknowledges that the foregoing representation is not intended to create any responsibility of Salomon Brothers Inc to the Buyer in respect of its opinion referred to in the preceding sentence. 3.28 RIS Agreement Upon consummation of the transactions contemplated by this Agreement, no payment, fee or penalty will be or become payable by Buyer pursuant to the terms of the RIS Agreement. 3.29 Trade Names. (a) Schedule IX contains a true and complete list and description of any Trade Names owned by the Company and any licenses or similar agreements pursuant to which the Company is granted rights with respect to any Trade Names. (b) Except as set forth in Section 3.29 of the Company Schedule, the Company has the unrestricted right to use the Trade Names, free and clear of any claims by 76 77 any Person (other than the claims of any licensors under licensing or similar agreements), and the consummation of the transactions contemplated by this Agreement will not alter or impair any such right. No claims have been asserted by any Person with respect to the use by the Company of any Trade Names or challenging or questioning the validity or effectiveness of any license or similar agreement with respect thereto, and, to the knowledge of the Company, there is no basis for any such claim. Except as set forth in Section 3.29 of the Company Schedule, no Trade Name is subject to any outstanding order, judgment, decree, stipulation or agreement restricting the use thereof by the Company. 3.30 LIS and LIS Subsidiaries. (a) Compliance with Applicable Law. Except as disclosed in Section 3.30(a) of the Company Schedule, LIS and each of the LIS Subsidiaries hold all licenses, franchises, permits and authorizations necessary for the lawful conduct of their respective businesses under and pursuant to all, and have complied with and are not in default in any material respect under any, applicable law, statute, order, rule, regulation, policy and/or guideline of any Governmental Entity relating to LIS or any of the LIS Subsidiaries, and neither LIS nor any of 77 78 the LIS Subsidiaries knows of, or has received notice of, any material violations of any of the above. (b) Undisclosed Liabilities. Neither LIS nor any of its Subsidiaries has incurred any liabilities or obligations of any nature whatsoever (whether accrued, absolute, contingent or otherwise, asserted or unasserted, known or unknown) except for (i) liabilities and obligations stated or adequately reserved against on, or described in the notes to, the June 30, 1995 consolidated balance sheet of LIS, (ii) liabilities and obligations specifically identified in Section 3.30(b) of the Company Schedule, and (iii) liabilities incurred in the ordinary course of business since June 30, 1995 which, individually or in the aggregate, have not had a material adverse effect on the business, assets, properties, financial condition or results of operations of LIS and the LIS Subsidiaries taken as a whole, and which, if incurred after the date of this Agreement, would be permissible under Section 5.1 hereof. (c) Certain Contracts. Except as set forth in Section 3.30(c) of the Company Schedule, neither LIS nor any of the LIS Subsidiaries is a party to or is bound by any contract, arrangement, commitment or understanding (whether written or oral): (i) with respect to the 78 79 employment of any directors, officers, employees or consultants which provides for an obligation to pay and/or accrue compensation of $25,000 or more per annum, (ii) which, upon the consummation of the transactions contemplated by this Agreement will (either alone or upon the occurrence of any additional acts or events) result in any payment (whether of severance pay or otherwise) becoming due from LIS or any of the LIS Subsidiaries to any officer or employee thereof, (iii) which is an agreement (including data processing, software programming and licensing contracts) not terminable on 60 days or less notice (without payment or condition) involving the payment of more than $100,000 per annum, (iv) with or to a labor union or guild (including any collective bargaining agreement, (v) (including any stock option plan, stock appreciation rights plan, restricted stock plan or stock purchase plan) any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement, or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. The Company has previously made available to Buyer true and correct copies of all (I) employment, consulting 79 80 and deferred compensation agreements to which LIS or any of the LIS Subsidiaries is a party between LIS or one of the LIS Subsidiaries, on the one hand, and any Affiliate of the Company (other than LIS and the LIS Subsidiaries), on the other hand and (II) each LIS Contract (as defined below) in existence as of the date of this Agreement. Each contract, arrangement, commitment or understanding of the type described in this Section 3.30(c), whether or not set forth in Section 3.30(c) of the Company Schedule, is referred to herein as an "LIS Contract", and neither the Company, LIS nor any of the LIS Subsidiaries knows of, or has received notice of, any material violation of any LIS Contract. Except as set forth in Section 3.30(c) of the Company Schedule, (i) each LIS Contract is valid and binding and in full force and effect, (ii) LIS and each of the LIS Subsidiaries has in all material respects performed all obligations required to be performed by it to date under each LIS Contract, and (iii) to the knowledge of the Company, no event or condition exists which constitutes or, after notice or lapse of time or both, would constitute, a material default on the part of any party under any such LIS Contract. 80 81 (d) Ownership of Property. LIS or one of its Subsidiaries, as the case may be, has good and marketable title to or a valid leasehold interest in all of its assets and properties, whether real or personal, tangible or intangible, reflected on the June 30, 1995 balance sheet of LIS, or acquired subsequent thereto (except to the extent that such assets and properties have been disposed of for fair value in the ordinary course of business since June 30, 1995), free and clear of all Encumbrances except as set forth in Section 3.30(d) of the Company Schedule and except for such Encumbrances that do not in the aggregate materially detract from the value or interfere with the use or operations of the asset or property subject thereto. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER Buyer hereby represents and warrants to the Company as follows: 4.1 Organization Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has full corporate power and authority to carry on its business as now conducted. 81 82 4.2 Authority; No Violation (a) Buyer has full corporate power and authority to execute and deliver this Agreement and any documents, agreements or instruments to be executed and delivered by Buyer pursuant to this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and any documents, agreements or instruments to be executed and delivered by Buyer pursuant to this Agreement, and the consummation of the transactions contemplated hereby and thereby, have been duly and validly authorized by all requisite corporate action in respect thereof on the part of Buyer and no other corporate proceedings on the part of Buyer are necessary to consummate the transactions contemplated hereby and thereby. This Agreement has been duly and validly executed and delivered by Buyer and, assuming this Agreement constitutes a valid and binding obligation of the Company, such agreement constitutes a valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, and the other documents, agreements and instruments to be delivered by Buyer pursuant to this Agreement will, when executed and delivered, be duly executed and delivered by Buyer and will constitute legal, valid and binding obligations of Buyer, 82 83 enforceable against Buyer in accordance with their terms (in all cases, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (whether applied in a proceeding in equity or at law)). (b) Neither the execution and delivery by Buyer of this Agreement, or any document, agreement or instrument to be executed by Buyer pursuant to this Agreement, nor the consummation by Buyer of the transactions contemplated hereby, nor compliance by Buyer with any of the terms or provisions hereof, will (i) conflict with or result in a breach of any provision of the articles of incorporation or by-laws of Buyer or (ii) assuming the consents, permits, authorizations, approvals, filings and registrations set forth in Section 4.3 of the disclosure schedule which has previously been delivered by Buyer to the Company (the "Buyer Schedule") are obtained or made, (A) violate any statute, code, ordinance, rule, regulation, judgment, order, writ, decree or injunction applicable to Buyer or any of its properties or assets or (B) violate, conflict with, result in a breach of any provisions of, constitute a default (or an event which, with notice or lapse of time, or both, would 83 84 constitute a default) under, result in the termination of, accelerate the performance required by, or result in a right of termination or acceleration or the creation of any Encumbrance upon any of the properties or assets of Buyer under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Buyer is a party, or by which its properties or assets may be bound or affected, except, in the case of clause (B) above, for such violations, conflicts, breaches or defaults which, either individually or in the aggregate, would not have a material adverse effect on Buyer's ability to consummate the transactions contemplated hereby. 4.3 Consents and Approvals Except as set forth in Section 4.3 of the Buyer Schedule, and subject to the entry of the Second Order, no consents, permits, authorizations or approvals of, or filings or registrations with, any governmental or regulatory authorities, government-sponsored agencies or corporations or other Persons are necessary to be obtained or made by Buyer in connection with the execution and delivery by Buyer of this Agreement or any document, agreement or instrument to be executed by Buyer pursuant 84 85 to this Agreement or the consummation by Buyer of the transactions contemplated hereby. 4.4 Financing On or prior to the Closing Date, Buyer shall have sufficient funds to enable Buyer to consummate the transactions contemplated hereby and to pay the fees and expenses required to be paid by Buyer related thereto. 4.5 Mortgage Banking Licenses and Qualifications Buyer (i) is qualified (A) by FHA as a mortgagee and servicer for FHA Loans, (B) by the VA as a lender and servicer for VA Loans, (C) by FNMA and FHLMC as a seller/servicer of first mortgages to FNMA and FHLMC and (D) by GNMA as an authorized issuer and servicer of GNMA-guaranteed mortgage-backed securities; and (ii) has all other Licenses necessary to conduct the Servicing Business, and is in good standing under all applicable federal, state and local laws and regulations thereunder as a mortgage lender and servicer. 4.6 Brokers and Finders Neither Buyer nor any of its officers, directors, employees, agents or Affiliates has employed any broker, finder or financial advisor or incurred any liability for any broker's or finder's fees or commis- 85 86 sions in connection with the transactions contemplated hereby, except that Buyer has engaged, and will pay a fee or commission to, (i) Donaldson, Lufkin and Jenrette ("DLJ") in accordance with the terms of the letter agreement by and between DLJ and Buyer and (ii) UBS Securities ("UBS") in accordance with the terms of the letter agreement by and between UBS and Buyer. ARTICLE V COVENANTS 5.1 Conduct Prior to Closing During the period from the date of this Agreement and continuing until the Closing Date, except as expressly contemplated or permitted by this Agreement or with the prior written consent of Buyer, the Company shall, and shall cause each of its Subsidiaries to, conduct its business relating to the Assets and the Assumed Liabilities in the ordinary course consistent with past practice. Except as may be required by the Regulations, and subject to the orders of the Bankruptcy Court, the Company shall, and shall cause each of its Subsidiaries to, use its best efforts to: (I) preserve its present business organization and relationships intact; (II) keep available to itself and Buyer the present services of its employees; and (III) preserve for itself and Buyer the 86 87 goodwill of the customers of the Company and its Subsidiaries and others with whom business relationships exist, in each case, as relates to the Assets and the Assumed Liabilities. Without limiting the generality of the foregoing, except as set forth in Section 5.1 of the Schedule or as otherwise expressly contemplated or permitted by this Agreement or consented to in writing by Buyer, and subject to the orders of the Bankruptcy Court, the Company shall not, and shall not permit its Subsidiaries to: (a) fail to pay and discharge any of its obligations, bills or other liabilities relating to the Assets or the Assumed Liabilities as they become due, except to the extent that it is disputing the amounts thereof in good faith; (b) acquire, sell, transfer, lease or otherwise dispose of any of the Assets, other than in the ordinary course of business, provided, however, that nothing contained herein shall permit the Company to sell or acquire Servicing Rights or to sell any Mortgage Loans on a servicing released basis; (c) except as may be required by applicable Regulations, materially alter or vary its methods or policies of (i) underwriting, pricing, originating, ware- 87 88 housing, selling or servicing, or buying or selling rights to service, mortgage loans, (ii) hedging (which term includes both buying futures and forward commitments from financial institutions) its mortgage loan positions or commitments, and (iii) obtaining financing and credit; (d) engage or participate in any material transaction, or incur or sustain any material obligation, with respect to the Assets, except in the ordinary course of business; (e) amend, terminate or cancel, or take or fail to take any other action that is likely to result in an amendment, termination or cancellation of, any Contract except in the ordinary course of business and except for actions with respect to Contracts for which the Company would not be required to give notice to Buyer pursuant to Section 5.7 hereof; (f) except in the ordinary course of business, take any action (i) materially impairing Buyer's rights in any Contract or Asset (including without limitation through the assignment, creation of an Encumbrance on or other disposition of, any Asset), (ii) waiving any material right, whether in equity or at law, that it has with respect to any Mortgage Loan or (iii) otherwise material- 88 89 ly adverse to the interest of Buyer with respect to the Assets or the Assumed Liabilities; (g) take any action, or fail to take any action, that is intended to result in a breach or violation of any of the representations and warranties of the Company contained in this Agreement or would cause any condition to the transactions contemplated hereby not to be satisfied, except, in every case, as may be required by law; (h) change its accounting principles or methods in effect at June 30, 1995, except as required or permitted by GAAP as concurred with by the Company's auditors or as otherwise specifically contemplated by this Agreement; (i) solicit any Mortgage Loan for participation in the Company's bi-weekly payment program except that the Company may complete any solicitations commenced prior to the date hereof; (j) make any improvements to the Leased Properties, except with respect to normal maintenance or refurbishing made in the ordinary course of business or as required pursuant to the terms of any Lease; (k) amend, terminate or cancel, or take or fail to take any other action that may result in an 89 90 amendment, termination or cancellation of, any Lease, lease relating to FF&E or Contract except in the ordinary course of business and except for actions with respect to Contracts for which the Company would not be required to give notice to Buyer pursuant to Section 5.7 hereof; or (l) agree to do any of the foregoing. 5.2 Regulatory Matters (a) The parties hereto shall cooperate with each other and use their best efforts to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings, and to obtain as promptly as practicable all permits, consents, approvals and authorizations of all Governmental Entities (including, without limitation, the filing required by the HSR Act) and third parties, which are necessary or advisable to consummate the transactions contemplated by this Agreement (it being understood that the Company shall be responsible for obtaining all such approvals, waivers and consents from such parties with whom the Company or any of its Subsidiaries is in contractual privity). All filing fees and expenses incurred in connection with the filing made under the HSR Act shall be borne by the party making such filing. Buyer and the Company shall have the right to review in advance, and to 90 91 the extent practicable each will consult with the other on, in each case subject to applicable laws relating to the exchange of information, all the information relating to Buyer or the Company, as the case may be, and any of their respective Affiliates, which appear in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions contemplated by this Agreement; provided, however, that nothing contained herein shall be deemed to provide either party with a right to review any information provided to any Governmental Entity on a confidential basis in connection with the transactions contemplated hereby. The parties hereto agree that they will consult with each other with respect to the obtaining of all permits, consents, approvals and authorizations of all third parties and Governmental Entities necessary or advisable to consummate the transactions contemplated by this Agreement and each party will keep the other apprised of the status of matters relating to completion of the transactions contemplated herein. All consents required in connection with the consummation of the Acquisition pursuant to the terms of the Mortgage Servicing Agreements shall be in writing and shall be in form and substance reasonably satisfactory to Buyer. In exer- 91 92 cising the foregoing rights and obligations, each of the parties hereto shall act reasonably and as promptly as practicable. (b) Each party shall, upon request, furnish the other with all information concerning itself, its Subsidiaries, directors, officers, stockholders and other Affiliates, and such other matters as may be reasonably necessary or advisable in connection with any statement, filing, notice or application made by or on behalf of Buyer, the Company or any of their respective Subsidiaries to any Governmental Entity in connection with the transactions contemplated by this Agreement. (c) Buyer and the Company shall promptly advise each other upon receiving any communication from any Governmental Entity or third party whose consent or approval is required for consummation of the transactions contemplated by this Agreement which causes such party to believe that there is a reasonable likelihood that any such consent or approval will not be obtained or that the receipt of any such approval will be materially delayed. (d) The parties hereto shall cooperate with each other and use their best efforts to obtain all appropriate Investor consents necessary to effect a transfer to Buyer, in accordance with all FHLMC Regula- 92 93 tions, of all of the Company's legal right, title and interest in and to that portion of the Servicing Rights that relates to Mortgage Loans with respect to which (i) FHLMC owns the beneficial interest in the Mortgage Loans or in a participation interest in the Mortgage Loans, or (ii) FHLMC has sold participation interests in the Mortgage Loans. 5.3 Access to Information (a) During the period from the date hereof through the Closing Date, upon reasonable notice and subject to applicable laws relating to the exchange of information, the Company shall provide to Buyer and its representatives, accountants and counsel, full and complete access to all of the properties, books, records, operating reports, audit reports, any reports of Governmental Entities and responses thereto, operating instructions and procedures (and all correspondence with Governmental Entities), Tax Returns, financial statements and other financial information and all other information relating to the Assets and the Assumed Liabilities, as Buyer may from time to time reasonably request, to make copies of such books, records and other documents and to discuss the business affairs, condition (financial and otherwise), assets and liabilities of the Company, with 93 94 such third persons, including, without limitation, their directors, officers, employees, agents, accountants, attorneys, customers and creditors, as Buyer considers necessary or appropriate for the purposes of familiarizing itself with the Assets, Assumed Liabilities and the Mortgage Loans, determining compliance with any of the representations, warranties and covenants of the Company set forth herein, and obtaining any necessary orders, consents or approvals of the transactions contemplated by this Agreement. In connection with such examination and access, Buyer agrees to observe any confidentiality agreements between the Company or its Subsidiaries and third parties related to such information. The information and access contemplated by this Section 5.3 shall be provided during normal business hours, upon reasonable written or oral notice and in such manner as will not unreasonably interfere with the conduct of the Company's or its Subsidiaries' respective businesses. Buyer will hold all such information in confidence to the extent required by, and in accordance with, the provisions of the confidentiality agreement dated November 22, 1994, between Buyer and Parent (the "Confidentiality Agreement"). 94 95 (b) For purposes of Buyer's investigation pursuant to this Section 5.3, the Company shall use its reasonable efforts to cause any document custodian, service bureau, accountant, loan correspondent, third party servicer or other third party under contract to the Company or any of its Subsidiaries to furnish to Buyer and to its authorized representatives full access to such party's premises and all of its books, records and properties, including, without limitation, all loan, investment, regulatory, financial, accounting, real estate, tax and property records and files relating to the Assets and the Assumed Liabilities, including, without limitation, all files, computer records and customer information necessary for the conversion after the Closing Date of all accounts, products and operating systems of the Company to such systems as Buyer may designate. The Company shall use its reasonable efforts to cause any document custodian, service bureau, accountant, third party servicer or other third party to provide adequate space and facilities and the cooperation of its personnel, including, without limitation, copying facilities, to the end that such examination shall be completed expeditiously, completely and accurately. The Company shall, upon request, provide Buyer and its authorized 95 96 representatives, with all information relating to the Mortgage Loans, to the extent legally permissible. Any such investigation or examination pursuant to this Section 5.3, shall be at Buyer's expense. (c) No investigation by Buyer made heretofore or hereafter shall affect the representations and warranties, covenants or indemnification obligations of the Company which are contained herein and each such provision shall survive such investigation. 5.4 Legal Conditions to Transaction Subject to the terms and conditions of this Agreement, each of Buyer and the Company shall use its commercially reasonable efforts (a) to take, or cause to be taken, all actions necessary, proper or advisable to comply promptly with all legal requirements which may be imposed on such parties or their respective Affiliates with respect to the transactions contemplated by this Agreement and, subject to the conditions set forth in Article VI hereof, to consummate the transactions contemplated by this Agreement and (b) to obtain (and to cooperate with the other party to obtain) any consent, authorization, order or approval of, or any exemption by, any Governmental Entity and any other third party which is required to be obtained by Buyer or the Company, or 96 97 any of their respective Affiliates, in connection with the transactions contemplated by this Agreement; provided, however, that neither party shall be required to take any action pursuant to the foregoing if the taking of such action or such compliance or the obtaining of such consent, authorization, order or approval or exemption is likely, in the reasonable opinion of such party's board of directors, to result in the imposition of a Burdensome Condition (as defined below). If any required consent or approval of or waiver by such third parties (excluding Governmental Entities) is not obtained prior to the Closing, or if the assignment of any Contract would be ineffective or would adversely affect any material rights or benefits thereunder so that Buyer would not in fact receive all such rights and benefits, or that Buyer would not be able to assume the associated obligations and liabilities, the parties, each without cost, expense or liability to the other (except as provided in Article VII hereof), shall cooperate in good faith to develop an alternative arrangement to achieve the economic results intended. 5.5 Advice of Changes Prior to the Closing Date, each of Buyer and the Company shall promptly advise the other party of any 97 98 change or event which it believes would or would be reasonably likely to cause or constitute a material breach of any of its representations, warranties or covenants contained herein or, solely in the case of the Company, having a Material Adverse Effect. From time to time prior to the Closing Date, the parties will promptly supplement or amend the Schedules delivered to each other in connection with the execution of this Agreement to reflect any matter which, if existing, occurring or known at the date of this Agreement, would have been required to be set forth or described in such Schedules or which is necessary to correct any information in such Schedules which has been rendered inaccurate thereby. Except for additions provided pursuant to Section 5.7, no supplement or amendment to such Schedules shall have any effect for the purpose of determining the satisfaction of the conditions set forth in Section 6.3(a) hereof, as the case may be, the accuracy of the representations or warranties of the Company set forth therein, the compliance by the Company with its covenants set forth herein or the obligation of the Company to indemnify Buyer or any other Person pursuant to Article VII hereof. 98 99 5.6 Transfer Fees and Certain Other Costs (a) The Company shall bear the cost of: (i) all fees required to be paid in connection with or obtaining approval for the transfer of the Assets by the Company to Buyer, including, without limitation, any transfer fees payable to FNMA, FHLMC, state housing Agencies, Investors and licensors, (ii) the cost of (and shall arrange for performance of) any required assignments and recordation and re-recordation of assignments and Mortgages securing Mortgage Loans as a result of transfers to the Company from prior servicers and as a result of the transfer in connection with the transactions contemplated by this Agreement, (iii) transfer fees, if any, relating to relevant tax service contracts, but no more than $10.00 per Mortgage Loan, (iv) all costs and expenses associated with recertifying all Mortgage Loans serviced for Investors, within the time required by such Investor, as a result of transfer to the Company, from prior servicers, including, but not limited to, all recording and mailing costs, those fees paid by Buyer to its document custodian in connection with such custodian's review of the Mortgage Loan files (not to exceed $2.50 per file) and the costs of curing document defects and supplying missing documents, (v) any custodi- 99 100 al termination fees, (vi) providing notices to HUD, VA and hazard and mortgage insurance providers, (vii) the cost of preparing and recording any release instruments necessary to clear title to any Assets, (viii) all Taxes incurred in connection with the transactions contemplated by this Agreement (in connection therewith, the Company shall file (or cause to be filed) in the ordinary course all Tax Returns and other documentation with respect to such Taxes, and if required by applicable law, Buyer shall join in the execution of such Tax Returns) and (ix) the cost of delivering, by insured shipping by bulk transfer or other customary industry practice, all Loan Documents and other Records to Buyer's principal place of business. Buyer and the Company shall each pay one-half of the cost of sending notices to borrowers required by the Real Estate Settlement Procedures Act, and the Company agrees to timely cooperate with Buyer in sending such notices. If the Company fails to pay any amount required by this Section 5.6 and as a result Buyer pays such amount, the Company shall be liable to the Buyer for the amount paid and such amount may be deducted from any amount payable by Buyer pursuant to Section 2.7. Buyer will work diligently and cooperate with the Company to obtain necessary approvals and the most favorable costs, 100 101 rates and prices for the items referred to herein if the provider of the service is satisfactory to Buyer in the exercise of its reasonable judgment. If the Company chooses to contract with any Person to provide any of the services described in this Section 5.6(a) or in Section 5.9, Buyer shall have the right to consent to the Company's use of such Person, which consent may not be unreasonably withheld or delayed. (b) Nothing contained in this Section 5.6 shall constitute a waiver by any party hereto of the right to recover damages, including recovery of costs and expenses covered by this Section 5.6, from the other party in the event of a breach by such other party of the terms and provisions of this Agreement. 5.7 Additional Contracts From the date hereof until the Closing Date, prior to entering into any additional contract or group of related contracts in connection with any of the Assets or the Assumed Liabilities (other than a Mortgage Servicing Agreement which was entered into in the ordinary course of business), which contract or group of related contracts would call for payments of more than $250,000 in any year and would not be terminable through notice of 30 days or less without cost or penalty, the Company 101 102 shall notify Buyer in writing of any intent to enter into such contract and shall afford Buyer reasonable access to the documents relating thereto. Buyer shall relate to the Company by 12:00 p.m. on the next business day after being so notified, its decision whether or not to accept such additional contract. The failure by Buyer to respond prior to 12:00 p.m. on such next business day shall be deemed an acceptance of such additional contract. Any additional contracts accepted or deemed accepted by Buyer under this Section 5.7, and any contract entered into by the Company subsequent to the date hereof for which the Company shall not be required to notify Buyer pursuant to the terms of this Section 5.7, shall be added to the applicable Schedule hereto and thereby become part of the Contracts to be assumed by Buyer. 5.8 Submission for Court Approval. (a) The Company shall submit this Agreement for the approval of the Bankruptcy Court, including approval of the provisions set forth in Section 5.17 and assumption and assignment of the Contracts as set forth in Section 6.2(c) and 6.3(c) hereof, as promptly as practicable after the date hereof, but in no event later than five business days after the filing of the Petition. Buyer shall cooperate with the Company in obtaining such 102 103 Bankruptcy Court approval, including providing evidence, if requested, of Buyer's ability to perform the obligations of the Company and its Subsidiaries under the Contracts listed on Schedules II, IV and V hereto. In connection with its application for the First Order, the Company shall seek approval of and support the over-bid procedure set forth in Section 5.17 hereof and the Termination Payment set forth in Section 8.4 hereof. (b) The Company will promptly deliver to Buyer copies of all pleadings, motions, notices, statements, schedules, applications, reports and other papers to be filed in the Company's Chapter 11 case relating to the Company or its Subsidiaries. 5.9 Assignment of Mortgages and Endorsements of Notes Beginning immediately following the Closing Date, to the extent required by applicable law or the applicable Investor or Insurer, the Company shall prepare, execute and (i) record with the appropriate state or local recording offices assignments to Buyer of the Mortgages securing the Mortgage Loans, including, without limitation, blanket assignments wherever possible and permitted by the Regulations and (ii) provide Buyer with an endorsement of each of the Notes. The Company shall 103 104 arrange for each assignment to be forwarded to Buyer, after recordation, in numerical order, by pool number. The Company shall cooperate with Buyer with respect to Buyer's obligation to assign Mortgages to Investors, including providing Buyer with the identity of any contractors preparing assignments of Mortgages to Buyer on behalf of the Company. For purposes of obtaining information in order to prepare assignments and endorse Notes, after the Closing, Buyer shall give the Company access to any of the Loan Documents transferred by the Company to Buyer, including access to any Loan Documents held by a custodian, and allow the Company to utilize space at the offices of Buyer (or the offices of any of its Affiliates at which the Loan Documents to which the Company requires access are located) for purposes of preparing the assignments and endorsements. The Company shall use its best efforts to, or use its best efforts to cause its contractor to, prepare and record on an expedited priority basis all assignments and any other documents necessary or appropriate to record releases or make such releases effective in connection with the foreclosure and payoff of any Mortgage Loan. 104 105 5.10 Final Certification and Re-Certification (a) Closing Date Deadline. The Company shall use its best efforts to obtain the final certification or recertification, as applicable, of any Pool with respect to which the deadline for final certification or recertification is a date that occurs on or before the Closing Date. If it appears that a Pool required to be finally certified or recertified on or before the Closing Date will not be so certified or recertified, then, subject to any necessary approval of the Investor, Buyer may request that the Company repurchase any Mortgage Loan that is preventing the Pool from being finally certified or recertified in time to permit the Pool to be so certified or recertified by the Closing Date. Buyer may require, as a condition to the transfer of the Servicing Rights to a Pool that is required to be, but is not, finally certified or recertified on the Closing Date, that the Company post, or pay the cost of posting, any letter of credit or performance bond required by the applicable Investor with respect to the Pool to the extent of the proportion which its delinquent uncertified or unrecertified pools bears to all delinquent uncertified or unrecertified pools under Buyer's issuer number, and reimburse Buyer for any 105 106 proportionate Losses resulting from, arising out of or relating to the Pool not being finally certified or recertified by the deadline. (b) Post Closing Date Deadline. The Company shall obtain such documents and shall take such steps as are necessary to enable Buyer, through the exercise of reasonable efforts after the Closing Date, to obtain by the appropriate deadline the final certification or recertification, as applicable, of any Pool with respect to which the deadline for final certification or recertification is after the Closing Date, including the recertification of Pools in connection with the transfer of Servicing Rights to Buyer hereunder. If the Company does not take such actions and, as a result, Buyer cannot obtain by the appropriate deadline, through the exercise of reasonable efforts after the Closing Date, the final certification or recertification of any Pool with respect to which the deadline for final certification or recertification is after the Closing Date, then upon the request of Buyer, the Company shall (i) post, or pay the cost of posting, any letter of credit or performance bond required by the applicable Investor to the extent of the proportion which its delinquent uncertified 106 107 or unrecertified pools bears to all delinquent uncertified or unrecertified pools under Buyer's issuer number, and reimburse Buyer for any proportionate Losses resulting from, arising out of or relating to the failure to obtain final certification or recertification by the deadline, and (ii) if permitted by the applicable Investor, repurchase, or pay all Losses related to Buyer's repurchase of, any Mortgage Loan that is preventing such a Pool from being finally certified or recertified. (c) On and after the Closing Date, all documents necessary for the final certification or recertification of a Pool shall be delivered by the Company to Buyer. If Buyer's document custodian returns a document to Buyer for correction or missing information, Buyer shall forward the document to the Company, and the Company shall promptly correct the document or insert the appropriate information and return the document to Buyer. 5.11 Employees Prior to the Closing, Buyer shall offer employment to those employees of the Company set forth on Schedule VIII hereto (the "Employees"), which schedule shall be delivered on or prior to the Closing Date, effective as of the Closing Date, on such terms as Buyer, in its sole discretion, shall determine (which terms, including compensation terms, may be different from those 107 108 now received from the Company). Buyer shall not be obligated to employ any Employee, but shall offer to such Employees employment, and shall hire such Employees that accept employment, effective immediately following the Closing. In the event the Acquisition is not consummated, Buyer's offer of employment to the Employees shall be deemed to be withdrawn. 5.12 Resignations. On the Closing Date, the Company shall cause to be delivered to Buyer duly signed resignations, effective immediately following the Closing, of all directors of LIS and, to the extent requested by Buyer, each of the LIS Subsidiaries. 5.13 Non-Solicitation. From and after the date hereof, neither the Company nor any of its Affiliates shall, during the remaining term of any of the Mortgage Loans (i) take any action, by telephone, by mail or otherwise, to solicit the prepayment of the Mortgage Loans by the Mortgagors, in whole or in part, (ii) take any action intended to facilitate or encourage the correspondents of the Company or any of its Affiliates that originated the Mortgage Loans to solicit the prepayment of the Mortgage Loans by the mortgagors, in whole or in part, (iii) solicit borrowers of Mortgage Loans who are delinquent with respect to late fees or other charges by 108 109 offering to forgive such delinquent obligations in exchange for a partial payment or other incentives which result in payment of less than all of such outstanding delinquent obligations, or (iv) disseminate to any third party, for compensation or otherwise, any complete or partial list of the mortgagors on the Mortgage Loans for the purpose of soliciting the prepayment of Mortgage Loans; provided, that this provision shall not prohibit the Company or any of its Affiliates from providing such lists in any judicial proceedings or in response to a request by a Government Entity, Agency or Investor. 5.14 Remittances. Unless otherwise agreed to by the parties or required by the applicable Agency or Investor, the Company shall make the first payment of principal and interest due immediately following the Closing Date to Investors, and shall pay all related guaranty fees for the applicable month, from the payments received by the Company with respect to such Mortgage Loans pursuant to the Subservicing and Transition Services Agreement. In the event the payments so received by the Company are insufficient to pay these amounts, Buyer agrees to provide to the Company the additional funds necessary to pay these amounts by wiring immediately 109 110 available funds to the Company no later than twenty-four (24) hours prior to the required remittance date. 5.15 Bills. All bills (including, without limitation, tax and insurance bills) pertaining to the Mortgage Loans with respect to which the earlier of the payment deadline to take advantage of a discount or the payment deadline to avoid a penalty is before, on or within thirty (30) days after the Closing Date shall be paid by the Company, and the Company shall pay such bills in accordance with the Regulations. All penalties and interest due on any Mortgage Loan resulting from the Company's failure to pay a bill in accordance with this Section 5.14 shall be borne by the Company. 5.16 Interest Rate Adjustments. For any Mortgage Loan that is an adjustable rate mortgage loan, or fixed rate loan that is being converted to an adjustable rate loan, in connection with which the interest rate and payment amount must be adjusted, and the mortgagor notified of the adjustments, in accordance with the Regulations before, on or within sixty (60) days after the Closing Date, the Company shall calculate the appropriate rate and payment adjustments and notify the related mortgagor in accordance with all Regulations. 110 111 5.17 Acquisition Proposals; Overbid Provisions. (a) From the date of this Agreement through the Closing Date, the Company will not, directly or indirectly, through any Affiliate, officer, director, employee, representative (including, but not limited to, any investment banker, financial advisor, attorney or accountant) or agent of the Company or any of its Subsidiaries (i) solicit, initiate or encourage any inquiries or proposals from a Third Party that constitute, or would reasonably be expected to lead to, a proposal or offer for a merger, consolidation, business combination, sale of substantial assets, sale of a substantial percentage of shares of capital stock (including, without limitation, by way of a tender offer) or similar transaction involving the Company, LIS, any of the LIS Subsidiaries or any of the Company's Subsidiaries owning any of the Assets (an "Acquisition Proposal") and any Third Party (it being understood that any notices approved by the Bankruptcy Court in connection with the First Order shall not constitute a breach of this provision), or (ii) engage in negotiations or discussions concerning, or enter into any understandings or agreements with any Third Party with respect to, any Acquisition Proposal. 111 112 Notwithstanding the foregoing, to the extent required by the fiduciary obligations of the Board of Directors of the Company based on the advice of counsel, (i) the Company may furnish non-public information with respect to the Company and its Subsidiaries to any Qualified Third Party pursuant to an agreement which explicitly acknowledges the existence of this Agreement and the Overbid and Termination Fee procedures contained herein and requires such Third Party to adhere to them and may participate in discussions and negotiations with such Qualified Third Party, provided that the Company has notified Buyer not later than one (1) business day after the receipt of the corresponding offer, proposal or inquiry, and has indicated in such notice the identity of the offeror and all of the material terms thereof, and (ii) upon receipt by the Company of an Acquisition Proposal from a Qualified Third Party which the Board of Directors of the Company has in good faith reasonably determined constitutes an Overbid Transaction, the Company shall deliver a written notice to Buyer (an "Overbid Notice") advising it of the foregoing determination by its Board of Directors (which notice shall be accompanied by copies of the form of definitive agreement or other 112 113 documentation proposed to be entered into in connection with such Acquisition Proposal). (b) Upon delivery by the Company to Buyer of an Overbid Notice in accordance with the provisions of subsection (a) hereof, Buyer shall have the right (a "Topping Right") to deliver to the Company, within five calendar days following the receipt by Buyer of such Overbid Notice, a written offer (a "Topping Offer") to amend the terms of this Agreement in order to provide for a base purchase price having a value at least $1.5 million higher than the base purchase price provided for under the Acquisition Proposal to which such Overbid Notice relates. In the event that Buyer exercises such Topping Right (i) the Company may disclose such Topping Offer to such Qualified Third Party and (ii) within five calendar days following receipt by the Company of Buyer's notice of Topping Offer, Buyer and the Company shall enter into an amendment to this Agreement to reflect the Company's acceptance of Buyer's Topping Offer (unless the Company has received an additional Acquisition Proposal constituting an Overbid Transaction). If within the time period specified Buyer has failed to make a Topping Offer or has notified the Company in writing that it does not intend to make a Topping Offer, the Company shall deliver 113 114 to Buyer the Termination Fee described in Section 8.4 and thereafter may enter into the definitive agreement with the Qualified Third Party described in the Overbid Notice. (c) Following the execution of any amendment to this Agreement pursuant to subsection (b) above, the provisions of this Section 5.17 shall remain in effect and the receipt by the Company of any other offers, proposals or inquiries relating to any Acquisition Proposal shall be subject to the provisions of this Section 5.17. 5.18 Forwarding of Payments and Other Items. With respect to any checks, other funds or documents in respect of any Mortgage Loan which are received by the Company or made payable to the Company and provided to the Company within ninety (90) calendar days after the Conversion Date, and which relate to any payments due under the Mortgage Loans and collectible by the servicer under the terms of the Mortgage Servicing Agreements, the Company shall, after identification, promptly endorse such checks or transfer such other funds to Buyer without recourse and send the same to Buyer via overnight mail. Any checks or other funds in respect of any Mortgage Loan which are received by the Company after such ninety (90) 114 115 day period shall be endorsed without recourse by the Company to Buyer and sent by first class mail to Buyer within five (5) business days of receipt, without identification. Except as otherwise provided herein, the Company shall promptly forward by first class mail to Buyer all borrower correspondence, insurance notices, tax bills or any other correspondence or documentation related to the Mortgage Loans which are received by the Company after the Conversion Date. The Company shall have no obligation with respect to forwarding post-Conversion Date items to Buyer after one-hundred and twenty (120) calendar days following the Conversion Date. All penalties and interest due in connection with a Mortgage Loan resulting from the Company's failure to forward bills or related information to Buyer as provided above shall be borne by the Company. The Company shall cooperate with Buyer to obtain tax bills with respect to which the earlier of the payment deadline to take advantage of a discount or the payment deadline to avoid a penalty is between the thirty first (31st) and sixtieth (60th) day after the Conversion Date. 5.19 Assignment of Certain Contracts. The Company shall assign to Buyer, effective as of the Closing Date, fully paid, life of the loan tax service con- 115 116 tracts issued by First American Real Estate Tax Services, Inc. related to all Mortgage Loans. The Company also shall assign to Buyer, effective as of the Closing Date, such fully paid, life of the loan flood zone certification contracts issued by a company acceptable to Buyer related to all Mortgage Loans as have been obtained by the Company by the Closing Date. The Company shall obtain, at its expense, the required consents, if any, to assign such tax service contracts (subject to the limitations set forth in Section 5.6(a)(iii)) and flood zone certification contracts to Buyer. 5.20 Custodial Fund Interest and Reporting. The Company shall pay interest on Escrow Funds accrued through the Closing Date to the extent interest with respect to Escrow Funds is required to be paid under the Regulations for the benefit of mortgagors under the Mortgage Loans. The Company shall credit such interest to the related Custodial Account before the Escrow Funds are transferred to Buyer. 5.21 IRS Reporting. The Company shall, at its sole cost and expense, prepare and timely file, or cause to be prepared and timely filed with the Internal Revenue Service all reports, forms, notices and filings required by the Code and rules, regulations and interpretations 116 117 thereunder in connection with the Servicing Rights and Mortgage Loans with respect to events that occurred prior to the Closing Date, including without limitation, the reporting of all interest paid by the Company for the account of mortgagors under the Mortgage Loans. 5.22 Tax Return Preparation and Filing; Refunds. (a) The Company shall prepare and file, or cause to be prepared and filed, (in each case at the Company's sole cost and expense and in a manner consistent with past practice) on a timely basis all Tax Returns relating to Taxes of LIS and the LIS Subsidiaries for all Pre-Closing Periods (as defined in Section 7.1(a)(xii) hereof). The Company shall pay, or cause to be paid, all Taxes shown to be due and payable thereon. (b) Buyer shall prepare and file, or cause to be prepared and filed, (in each case at the Buyer's sole cost and expense and in a manner consistent with past practice) on a timely basis all Tax Returns, other than those provided for in Section 5.22(a) hereof, relating to Taxes of LIS and the LIS Subsidiaries. Subject to Section 7.1(a)(xii) hereof, Buyer shall pay, or cause to be paid, all Taxes shown to be due and payable thereon. (c) Any refunds or credits of Taxes of LIS or any of the LIS Subsidiaries with respect to (i) any Pre- 117 118 Closing Period shall be for the account of the Company, and if received or utilized by the Buyer, any of its Affiliates, LIS or the LIS Subsidiaries shall be paid to the Company within five business days after Buyer, any of its Affiliates, LIS or the LIS Subsidiaries receives such refund or utilizes such credit, (ii) any taxable period beginning after the Closing Date shall be for the account of the Buyer, and if received or utilized by the Company or any of its Affiliates, shall be paid by the Company to the Buyer within five business days after the Company or any of its Affiliates receives such refund or utilizes such credit and (ii) any period that begins before the Closing Date but ends after the Closing Date shall be apportioned between the Company and the Buyer in the same manner as such Taxes are apportioned pursuant to Section 7.1(a)(xii), (b)(iv) and (c) hereof. (d) The Company and the Buyer shall, and shall cause their respective officers, employees, agents, auditors and representatives to reasonably cooperate in preparing and filing all Tax Returns (including amended returns and claims for refunds) covered by this Agreement, including maintaining and making available to each other all records necessary in connection with Taxes payable with respect to such Tax Returns and in resolving 118 119 all disputes, audits and refund claims with respect to such Tax Returns and Taxes. 5.23 Reconciliation of Suspense Accounts. As soon as practicable following the Closing Date, the Company shall effect a reconciliation of all funds held in suspense (both loan level and other). Buyer shall have the opportunity to review and approve the results of such reconciliation. Any disputes relating to Buyer's review and approval of the results of such reconciliation shall be subject to the dispute resolution mechanism set forth in Section 2.4. Following final approval of the suspense account reconciliation, Buyer shall promptly remit to the Company the aggregate amount of any excess funds held in such suspense accounts as set forth in the results of such reconciliation. 5.24 ARM Loan Review. Buyer may, at its option and at its sole cost and expense, conduct a review of all adjustable rate Mortgage Loans to confirm that the Company (i) provided all appropriate disclosures to the mortgagors, (ii) made all appropriate adjustments in accordance with applicable Regulations, (iii) provided the mortgagor with all appropriate notices, (iv) appropriately adjusted the interest rate and payment, and (v) otherwise complied with all applicable Regulations. 119 120 5.25 Further Assurances Subject to the terms and conditions of this Agreement, the Company and Buyer shall do all things reasonably necessary or desirable and within their control to effect the consummation of the transactions contemplated hereby. At any time and from time to time after the Closing Date, the Company and Buyer shall, each upon the request of the other, do or cause to be done, execute, acknowledge and deliver all such further acts, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably necessary or desirable to sell, assign, convey and transfer to and vest in Buyer all of the Company's right, title and interest in and to the Assets and to evidence the assumption by Buyer of the Assumed Liabilities. 5.26 Trade Names License Effective as of the Closing Date, Buyer shall enter into a licensing agreement with the Company pursuant to which Buyer shall grant the Company a license with respect to the Trade Names. Such license shall be in form and substance reasonably acceptable to the parties. 120 121 5.27 Subservicing and Transition Services Agreement Prior to or simultaneously with the Closing, Buyer and the Company shall enter into the Subservicing and Transition Services Agreement substantially in the form of Exhibit 5.27 (the "Subservicing and Transition Services Agreement") and providing for the provision by the Company of the services set forth therein relating to the Mortgage Loans transferred to Buyer hereunder and the transition of the servicing of the Mortgage Loans to Buyer's operations systems. 5.28 Establishment of Escrow Account under RIS Agreement On or prior to the Closing Date and subject to the approval of the Bankruptcy Court, the Company shall establish a cash escrow account for the benefit of Residential Information Services Limited Partnership pursuant to Section III.C.(ii) of the RIS Agreement, unless the Bankruptcy Court shall otherwise direct. 121 122 ARTICLE VI CONDITIONS 6.1 Conditions to Each Party's Obligations Under This Agreement The respective obligations of each party to consummate the Acquisition shall be subject to the satisfaction on or prior to the Closing Date of the following conditions: (a) All approvals of Governmental Entities required to be obtained in connection with the transactions contemplated by this Agreement shall have been obtained, all notices required to be filed with any Governmental Entity in connection with and prior to the consummation of the transactions contemplated by this Agreement shall have been filed, all such regulatory approvals shall be in full force and effect, and all notice periods and waiting periods required by law or regulation in respect thereof or otherwise applicable to the transactions contemplated by this Agreement shall have expired or been terminated (all such approvals and the expiration of all such waiting periods being referred to herein as the "Requisite Regulatory Approvals"). (b) No order, injunction or decree issued by any court or agency of competent jurisdiction or other 122 123 legal restraint or prohibition (an "Injunction") preventing the consummation of the Acquisition or any of the other transactions contemplated by this Agreement shall be in effect. No statute, rule, regulation, order, injunction or decree shall have been enacted, entered, promulgated or enforced by any Governmental Entity which prohibits, restricts or makes illegal consummation of the Acquisition. 6.2 Additional Conditions to the Obligations of the Company Under This Agreement The obligations of the Company to consummate the Acquisition shall be subject to the satisfaction on or prior to the Closing Date of each of the following additional conditions unless waived by the Company pursuant to Section 8.3 hereof: (a) The obligations of Buyer required to be performed by the Buyer at or prior to the Closing Date pursuant to the terms of this Agreement shall have been duly performed and complied with in all material respects and the representations and warranties of Buyer set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except for any representation or warranty which 123 124 speaks as of an earlier date), and the Company shall have received a certificate of an executive officer of Buyer to such effect, provided, however, that nothing contained in this Section 6.2(a) shall be deemed to preclude, or otherwise limit, the right of the Company to be indemnified for any breach of a representation or warranty by Buyer in accordance with the provisions of Article VII hereof; and (b) No proceeding initiated by any Governmental Entity seeking an Injunction shall be pending; and (c) The Bankruptcy Court shall have entered the First Order and the Second Order. The Second Order shall have authorized the Company and its Subsidiaries to convey to Buyer all of its right, title and interest in and to the Assets free and clear of all Encumbrances of any nature whatsoever. Simultaneous with entry of the Second Order, all Contracts (other than those Mortgage Servicing Agreements with respect to which the Investor shall have successfully objected to the assumption thereof by Buyer) shall have been assumed and the Bankruptcy Court shall have approved such assumption and the assignment thereof by the Company pursuant to Section 365 of the Bankruptcy Code by an order in form reasonably acceptable to Buyer and the Company (the "365 Order"). The 124 125 365 Order shall provide that the Contracts will be transferred to, and remain in full force and effect for the benefit of, Buyer notwithstanding any provision in such Contracts (including those described in sections 365(b)(2) and (f) of the Bankruptcy Code) that prohibits such assignment or transfer; and (d) None of the Requisite Regulatory Approvals shall contain a condition or requirement relating to the Company or any of the Company's Affiliates which would or would reasonably be expected to so materially adversely impact the economic or business benefits of the transaction contemplated hereby so as to render inadvisable, in the reasonable good faith judgment of the Board of Directors of the Company, the consummation of such transactions (such a condition or requirement, whether relating to the Company or Buyer, is referred to herein as a "Burdensome Condition"). 6.3 Additional Conditions to Buyer's Obligations Under This Agreement The obligations of Buyer to consummate the Acquisition shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions unless waived by Buyer pursuant to Section 8.3 hereof: 125 126 (a) (i) The obligations of the Company required to be performed on or prior to the Closing Date pursuant to the terms of this Agreement shall have been duly performed and complied with in all material respects, (ii) the representations and warranties of the Company set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except for any representation or warranty which speaks as of an earlier date), provided, however, that for purposes of determining the satisfaction of the condition contained in this clause (ii), no effect shall be given to any exception in such representations and warranties relating to materiality or a "Material Adverse Effect," and provided further, however, that the condition contained in this clause (ii) shall be deemed to be satisfied even if all of such representations and warranties are not true and correct unless the failure of any of the representations or warranties to be so true and correct, individually or in the aggregate, would have or would reasonably be expected to have a Material Adverse Effect, and provided further, however, that nothing contained in this Section 6.3(a) shall be deemed to preclude, or otherwise limit, the 126 127 right of Buyer to be indemnified for any breach of a representation or warranty by the Company in accordance with the provisions of Article VII hereof, and (iii) Buyer shall have received a certificate of an executive officer of the Company in form and substance satisfactory to Buyer; and (b) No proceeding initiated by any Governmental Entity seeking an Injunction shall be pending; and (c) The Bankruptcy Court shall have entered the First Order and the Second Order, each of which shall be Final Orders. The Second Order shall have authorized the Company and its Subsidiaries to convey to Buyer all of its right, title and interest in and to the Assets free and clear of all Encumbrances of any nature whatsoever. Simultaneous with entry of the Second Order, all Contracts (other than those Mortgage Servicing Agreements with respect to which the Investor shall have successfully objected to the assumption thereof by Buyer) shall have been assumed and the Bankruptcy Court shall have approved such assumption and the assignment thereof by the Company pursuant to the 365 Order, and such 365 Order shall have been entered and shall have become a Final Order. The 365 Order shall provide that the Contracts will be transferred to, and remain in full force and 127 128 effect for the benefit of, Buyer notwithstanding any provision in such Contracts (including those described in sections 365(b)(2) and (f) of the Bankruptcy Code) that prohibits such assignment or transfer. Nothing in this Section 6.3(c), or any other section of this Agreement, shall preclude the Company or Buyer from consummating the transactions contemplated herein if Buyer, in its sole discretion, waives the requirement that the Second Order, 365 Order or any other orders be Final Orders. No notice of such waiver of this or any other condition to Closing need be given except to the Company or Buyer, as explicitly required in this Agreement, it being the intention of the parties hereto that Buyer shall be entitled to, and is not waiving, the protection of Section 363(m) of the Bankruptcy Code, the mootness doctrine and any similar statute or body of law if the Closing occurs in the absence of a Final Order; and (d) The Company shall have received from all Investors or Insurers which are government agencies or are government-sponsored agencies or corporations, (including, without limitation, VA, FHA, FNMA and FHLMC), all consents required as a result of the consummation of the Acquisition, and shall have properly filed all notic- 128 129 es with such agencies and corporations which are required as a result of the consummation of the Acquisition; and (e) The consent, approval or waiver of each Person identified in Section 3.6 of the Company Schedule (other than the Governmental Entities referred to in Section 6.1(a) or 6.3(d)) whose consent or approval shall be required in connection with the consummation of the Acquisition shall have been obtained in writing in a form reasonably acceptable to Buyer, except where the failure to obtain such consent, approval or waiver, individually or in the aggregate, would not have a Material Adverse Effect; and (f) Buyer shall have received evidence reasonably satisfactory to it of the termination and release of all Encumbrances on the Assets except for (i) liens for Taxes not yet due and payable and (ii) the Assumed Liabilities; and (g) Subsequent to July 31, 1995, no event shall have occurred or failed to occur which has caused or could reasonably be expected to cause a Material Adverse Effect; and (h) None of the Requisite Regulatory Approvals shall contain any Burdensome Condition relating to 129 130 Buyer or any of Buyer's Affiliates, the Assets or the Assumed Liabilities; and (i) The Company shall have taken all action required to have been taken and made all payments required to have been made to permit assumption and assignment to Buyer under Section 365(b) and (f) of the Bankruptcy Code of the Contracts listed on Schedules II, IV and V hereto; and (j) The Company and Buyer shall have entered into the Subservicing and Transition Services Agreement. ARTICLE VII INDEMNIFICATION 7.1 Indemnification (a) From and after the Closing Date, subject to the terms and conditions of this Agreement, the Company shall indemnify and hold harmless Buyer and each of its Affiliates (without duplication) from and against any and all Losses which any of them actually suffer, incur or sustain arising out of or attributable to (whether or not arising out of third party claims) (i) any inaccuracy in or breach of any representation or warranty made by the Company in this Agreement or any of the documents, agreements or instruments executed pursuant to this Agreement, (ii) any breach or nonperformance of any cove- 130 131 nant to be performed by the Company pursuant to this Agreement or any of the documents, agreements or instruments executed pursuant to this Agreement, (iii) the Excluded Assets or the Excluded Liabilities (whether arising before, on or after the Closing Date), (iv) the failure by the Company to obtain all of the waivers, consents, estoppels and approvals of any Governmental Entity or other third party required in order to consummate the Acquisition and the other transactions contemplated by this Agreement or to prevent any violation, conflict, default, breach, loss of rights, modification, acceleration, termination, right of termination or Encumbrance as a result of such consummation, (v) VA No-Bids, and Buydowns resulting from or made to avoid a VA No-Bid, in connection with any VA Loan, (vi) any Non-Amortizing Loans, (vii) any of the Company's (a) escrow practices, (b) practices with regard to the adjustment of interest rates and payment amounts on Mortgage Loans and the general administration of Mortgage Loans that provide for the adjustment of the interest rate and payment amount, and (c) practices with regard to insurance, including without limitation forced placement insurance, earthquake insurance and the retention and remittance of proceeds, in each case prior to the Closing Date, (viii) the 131 132 uncollectability of any of the Accounts Receivable, (ix) any Repurchases, (provided, that for purposes of this clause (ix) the term "Loss" shall include, with respect to each Mortgage Loan which is the subject of a Repurchase, an amount equal to 1.10% percent (other than Mortgage Loans funded and entered on the Company's system after July 31, 1995, for which a multiple of 1.50% shall be used) multiplied by the outstanding principal balance of such Mortgage Loan at the time of Repurchase), (x) those Mortgage Loans serviced by the Company on behalf of FNMA, the Servicing Rights relating to which were transferred to the Company by First Federal Savings Bank of Boston, First Eastern Funding Corporation and First Eastern Mortgage Corporation (collectively, the "First Eastern Entities") pursuant to the Mortgage Servicing Purchase and Sale Agreement, dated as of September 30, 1991, by and among the Company, the First Eastern Entities and First Eastern Bankshares Corporation (the "First Eastern Portfolio") (the Losses indemnifiable by the Company pursuant to this Section 7.1(a)(x) shall include an amount equal to the aggregate amount of all unrealized losses on the First Eastern Portfolio which have been accrued or reserved against on the books and records of Buyer in accordance with GAAP as of the first 132 133 anniversary of the Closing Date), (xi) the commercially reasonable sale of any of the Turkey Pile Loans, provided, however, that in each case where the sale of any such loan results in a gain, the amount of such gain shall be deducted from the aggregate amount of Losses indemnifiable by the Company pursuant to Section 7.1(a) (or which would be indemnifiable but for the operation of Section 7.1(h)), and (xii) all Taxes of or relating to LIS or any of its Subsidiaries for all taxable periods ending on or before the Closing Date and the portion ending on the Closing Date of any taxable period that includes (but does not end on) the Closing Date (the "Pre-Closing Period"), including without limitation, any liability for Taxes (A) imposed upon LIS or any of its Subsidiaries pursuant to section 1.1502-6 of the Treasury Regulations (and any comparable state, local or foreign law or regulation) as a result of being a member of an affiliated group, within the meaning of section 1504 of the Code, (B) with respect to any deferred intercompany gain arising in connection with or as a result of the transactions contemplated by this Agreement and (C) with respect to any gain recognized by the Company upon or as a result of the transfer of the LIS Shares. For purposes of establishing whether any matter is indemnifiable 133 134 pursuant to Section 7.1(a)(i) hereof, the accuracy of the representations and warranties made by the Company in this Agreement shall be determined without giving effect to the qualifications to such representations and warranties concerning "knowledge," "materiality" or "Material Adverse Effect" and without giving effect to the disclosure of any exceptions to such representations and warranties on any Schedule, Exhibit or other written or oral notice (other than any exceptions set forth in Sections 3.13 and 3.23 of the Company Schedule). (b) From and after the Closing Date, subject to the terms and conditions of this Agreement, Buyer shall indemnify and hold harmless the Company and each of its Affiliates (without duplication) from and against any and all Losses which any of them actually suffer, incur or sustain arising out of or attributable to (whether or not arising out of third party claims) (i) any inaccuracy in or breach of any representation or warranty made by Buyer in this Agreement or any of the documents, agreements or instruments executed pursuant to this Agreement, (ii) any breach or non-performance of any covenant to be performed by Buyer pursuant to this Agreement or any of the documents, agreements or instruments executed pursuant to this Agreement, (iii) any action taken or omitted 134 135 to be taken by Buyer or any of its Affiliates subsequent to the Closing and resulting from or arising in connection with Buyer's and its Affiliates' conduct of the business relating to the Assets and the Assumed Liabilities subsequent to the Closing to the extent such Losses are not otherwise indemnifiable by the Company pursuant to the terms of this Agreement, and (iv) all Taxes of LIS or any of its Subsidiaries for any taxable period ending after the Closing Date (except to the extent such taxable period began before the Closing Date, in which case Buyer's indemnity shall cover only that portion of Losses relating to any such Taxes that is not attributable to the Pre-Closing Period). (c) For purposes of determining the amount of Taxes for or which relate to a taxable period that begins before but ends after the Closing Date, the Closing Date shall be treated as the last day of the taxable period, and the portion of any tax that is allocable to the taxable period that is deemed to end on the Closing Date: (i) in the case of Taxes that are either (A) based upon or related to income or receipts or (B) imposed in connection with any sale or other transfer or assignment of property (real or personal, tangible or intangible), shall be deemed to equal the amount that would be payable 135 136 if the period for which such tax is assessed ended on and included the Closing Date, and (ii) in the case of Taxes other than those Taxes described in clause (i) hereof, shall be computed on a per diem basis. (d) The indemnified party shall promptly notify the indemnifying party of the discovery by it of, or the assertion against it of, any claim or potential liability for which indemnification is provided herein or the commencement of any action or proceeding in respect of which indemnity may be sought hereunder, which notification shall state in reasonable detail the basis of such claim or potential liability, including the specific date of such claim, the third parties affected thereby, and the specific facts relating to the incident which gave rise to such claim or potential liability, provided, however, that the indemnified party shall not be foreclosed from seeking indemnification pursuant to this Article VII by any failure to provide timely notice of the existence of a third party claim to the indemnifying party except and only to the extent that the indemnifying party actually incurs an out-of-pocket expense or otherwise has been damaged or prejudiced as a result of such delay. 136 137 (e) With respect to a claim for indemnification arising out of or involving an assertion by a third party of liability of an indemnified party (a "Third Party Claim"), upon receipt by the indemnifying party of the notice of claim for indemnity required to be given by the indemnified party pursuant to subsection (d) hereof, the indemnifying party shall have the right at any time thereafter to assume the defense thereof and be represented, at its own expense, by legal counsel and/or accountants of its own choosing, in and with respect to any (i) settlement negotiations and (ii) action, suit or other proceeding, whether legal, administrative or arbitrative, including any appeal proceeding, in each instance with respect to the matter giving rise to said Third Party Claim. If the indemnifying party chooses to defend any such Third Party Claim, the indemnified party shall make available to the indemnifying party any personnel or any books, records or other documents within its control that are reasonably necessary or appropriate for such defense. The indemnifying party shall have the right, in its sole discretion and at its expense, to control the defense of such Third Party Claim, including without limitation, the right to designate counsel and to control all negotiations, litigation, arbitration, set- 137 138 tlements, compromises and appeals of any such claim or potential claim; provided, however, that prior to entering into a final settlement or compromise with respect to such Third Party Claim, the indemnifying party shall obtain the indemnified party's consent (which consent shall not be unreasonably withheld or delayed) to such settlement or compromise if such settlement or compromise would materially and adversely affect the business, financial condition or results of operations of the indemnified party. Notwithstanding the foregoing, if an offer of settlement or compromise is received by or communicated to the indemnifying party with respect to a Third Party Claim and the indemnifying party notifies the indemnified party in writing of the indemnifying party's willingness to settle or compromise such Third Party Claim on the basis set forth in such notice and the indemnified party declines to accept such settlement or compromise, the indemnified party may continue to contest such Third Party Claim, free of any participation by the indemnifying party, at the indemnified party's sole expense. The obligation of the indemnifying party to the indemnified party with respect to such Third Party Claim shall be equal to the lesser of (i) the amount of the offer of settlement or compromise which the indemnified 138 139 party declined to accept plus the costs and expenses of the indemnified party prior to the date the indemnifying party notifies the indemnified party of the indemnifying party's willingness to settle or compromise such Third Party Claim or (ii) the amount the indemnified party is obligated to pay as a result of the indemnified party's continuing to contest such Third Party Claim including costs and expenses with respect thereto; and the indemnifying party shall be entitled to recover (by set off or otherwise) from the indemnified party any additional expenses incurred by the indemnifying party as a result of the indemnified party's decision to continue to contest such Third Party Claim. (f) Notwithstanding anything to the contrary contained herein, if the indemnifying party has not assumed control of the defense of any Third Party Claim within sixty (60) days after its receipt of a notice of claim for indemnity from the indemnified party, or if the indemnifying party has abandoned control of any Third Party Claim, the indemnified party shall have the right to assume the defense thereof, and subject to the provisions of this Article VII, the costs and expenses incurred by the indemnified party in connection therewith shall be borne by the indemnifying party. In addition, 139 140 in connection with any Third Party Claim in which the indemnified party shall reasonably conclude, based upon an opinion of its counsel, that (i) there is a conflict of interest between the indemnifying party and the indemnified party in the conduct of the defense of such Third Party Claim or (ii) there are specific defenses available to the indemnified party which are different from or additional to those available to the indemnifying party and which could be materially adverse to the indemnifying party, then the indemnified party shall have the right to assume and direct the defense of such Third Party Claim. In such an event, the indemnifying party shall pay the fees and disbursements of counsel to each of the indemnifying party and the indemnified party. In all other cases, the indemnifying party and the indemnified party shall each pay the costs and disbursements of their respective counsel, and, prior to entering into a final settlement or compromise, the indemnified party shall follow the procedures required of the indemnifying party in paragraph (e) of this Section 7.1. (g) Notwithstanding anything to the contrary contained in paragraphs (e) or (f) of this Section 7.1, in the event prompt action is required with respect to the defense of a Third Party Claim, the indemnified party 140 141 shall, subject to the terms and conditions of this Article VII, have the right to assume the defense of such Third Party Claim; provided, however, that in the event that the indemnifying party subsequently elects to assume the defense of such Third Party Claim, then the provisions set forth in paragraphs (e) and (f) of this Section 7.1 shall be applicable and the indemnifying party shall, subject to the terms and conditions of this Article VII, reimburse the indemnified party for any costs and expenses incurred by the indemnified party prior to the date the indemnifying party assumes control of such Third Party Claim. (h) The right of an indemnified party under this Section 7.1 shall be subject to the condition that notice of any claim for indemnification under Section 7.1(a)(i) or Section 7.1(b)(i) shall have been given prior to the expiration of the survival period of the representation or warranty to which the claim relates as set forth in Section 9.1 hereof. (i) No claim by Buyer for indemnification shall be made pursuant to Section 7.1(a) (except with respect to Losses indemnifiable by the Company pursuant to Section 7.1(a)(xi), for which the Company shall indemnify Buyer on a first-dollar basis) until the aggregate 141 142 of all such indemnifiable claims against the Company is greater than $20,510,000 (and the indemnification obligation shall only be for amounts in excess of such amount). In no event shall the Company's indemnity obligation under Section 7.1(a) exceed an amount equal to 15% of the Adjusted Final Purchase Price. (j) Buyer shall use reasonable efforts at all times to minimize the claims and losses for which the Company may be liable under this Agreement. Without limiting the foregoing, in carrying out its duty to mitigate claims and losses for which the Company may be liable, Buyer shall use prudent mortgage banking practices and, in any case, not less than that degree of care that Buyer exercises with respect to the conduct of its existing mortgage banking business. ARTICLE VIII TERMINATION, WAIVER AND AMENDMENT 8.1 Termination This Agreement may be terminated on or at any time prior to the Closing Date: (a) by the mutual written consent of the parties hereto; 142 143 (b) by either Buyer or the Company upon written notice to the other party (i) thirty (30) days after the date on which any request or application for a Requisite Regulatory Approval shall have been denied or withdrawn at the request or recommendation of the Governmental Entity which must grant such Requisite Regulatory Approval, unless within the 30-day period following such denial or withdrawal a petition for rehearing or an amended application has been filed with the applicable Governmental Entity, provided, however, that no party shall have the right to terminate this Agreement pursuant to this clause (i) if such denial or request or recommendation for withdrawal shall be due to the failure of the party seeking to terminate this Agreement to perform or observe the covenants and agreements of such party set forth herein or (ii) if any Governmental Entity of competent jurisdiction shall have issued a final nonappealable order enjoining or otherwise prohibiting the consummation of any of the transactions contemplated by this Agreement; (c) by either Buyer or the Company (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a materi- 143 144 al breach of any of the representations or warranties set forth in this Agreement on the part of the other party, which breach is not cured within thirty (30) days following written notice to the party committing such breach, or which breach, by its nature, cannot be cured prior to the Closing, and which breach, individually or together with all other such breaches, would have a Material Adverse Effect, in the case of breaches by the Company, or a material adverse effect on Buyer's ability to consummate the transactions contemplated hereby, in the case of breaches by Buyer; (d) by either Buyer or the Company (provided that the terminating party is not then in material breach of any representation, warranty, covenant or other agreement contained herein) if there shall have been a material breach of any of the covenants or agreements set forth in this Agreement on the part of the other party, which breach shall not have been cured within thirty (30) days following receipt by the breaching party of written notice of such breach from the other party hereto; (e) by Buyer or the Company, if the Closing Date shall not have occurred on or prior to December 31, 1995, unless the failure of such occurrence shall be due to the failure of the party seeking to terminate this 144 145 Agreement to perform or observe its agreements as set forth in this Agreement required to be performed or observed by such party on or before the Closing Date; (f) by Buyer or the Company, if five calendar days shall have elapsed after the delivery by the Company of an Overbid Notice to Buyer and Buyer has not delivered a Topping Offer to the Company; (g) by Buyer, if the Bankruptcy Court has not entered the First Order within ten days following the date of the filing with the Bankruptcy Court of the motion seeking the First Order; or (h) by Buyer, if the Bankruptcy Court has not entered the Second Order by November 30, 1995. 8.2 Effect of Termination In the event of a termination of this Agreement pursuant to Section 8.1 hereof, this Agreement shall become void and have no effect, except that the provisions relating to confidentiality and expenses set forth in Sections 5.3 and 9.2 hereof, respectively, this Section 8.2, and, to the extent applicable, Section 8.4, shall survive any such termination, provided, however, that except as provided in this Section 8.2, no such termination shall relieve any party from liability for any willful breach of this Agreement. 145 146 8.3 Amendment, Extension and Waiver Subject to applicable law, the parties hereto may (i) amend this Agreement, (ii) extend the time for the performance of any of the obligations or other acts of any other party hereto, (iii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, or (iv) waive compliance with any of the agreements or conditions contained in Articles V and VI hereof. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto. Any agreement on the part of a party hereto to any extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party, but such waiver or failure to insist on strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. 8.4 Termination Payment. In the event that (a) this Agreement is terminated pursuant to Section 8.1(f), (b) the Board of Directors of the Company shall have withdrawn its support for the Acquisition or modified its support for the Acquisition in a manner adverse to Buyer, or (c) the Company 146 147 shall have entered into a definitive agreement with a Qualified Third Party with respect to an Acquisition Proposal as contemplated by Section 5.17(b), then the Company shall pay to Buyer promptly, but in no event more than two business days following the date of the applicable event described in clauses (a), (b) and (c) above, by wire transfer of immediately available funds, to such account as Buyer shall designate, an amount (the "Termination Payment") equal to the greater of (X) $3 million or (Y) 50% of the amount by which the consideration paid pursuant to any alternative Acquisition Proposal exceeds the Base Purchase Price set forth in this Agreement, provided, that in no event shall the amount paid by the Company to Buyer pursuant to this Section 8.4 exceed $5 million. If within one year from the date of any termination of this Agreement pursuant to Article VIII hereof (other than pursuant to Section 8.1(f)), the Company consummates an Acquisition Proposal (excluding any restructuring of capital of the Company solely with their existing creditors in exchange for their outstanding debt), simultaneously with the consummation of such Acquisition Proposal and provided that this Agreement has not been terminated because of a material breach of Buyer's obligations, representations or warranties here- 147 148 under, the Company will pay to Buyer the Termination Payment. ARTICLE IX MISCELLANEOUS 9.1 Survival; Buyer's Rights Following Closing (a) The representations and warranties set forth in Articles III and IV hereof, other than those contained in Section 3.6 hereof, shall survive for a period of one year following the Closing Date, and the representations and warranties contained in Section 3.6 hereof shall survive the Closing Date indefinitely. (b) The covenants and agreements set forth in this Agreement shall not survive the Closing, except for those covenants and agreements which by their terms apply in whole or in part after such date. 9.2 Expenses Except as otherwise specified in this Agreement, each party hereto shall bear and pay all costs and expenses incurred by it in connection with the transactions contemplated hereby, including fees and expenses of its own financial consultants, accountants and counsel, provided, however, that nothing contained in this Section 9.2 shall limit a party's rights to recover damages for 148 149 willful breach of this Agreement as specified in, and subject to the provisions of, Section 8.2 hereof. 9.3 Release and Settlement. On the Closing Date, the Company shall be deemed to have released, compromised and settled any and all claims, rights, and causes of action that the Company may have against Buyer or its Affiliates pursuant to sections 544 through 550 of the Bankruptcy Code, inclusive, arising out of the prepetition transfer of assets from the Company to Buyer consummated on October 2, 1995, including, but not limited to, any fraudulent transfer or conveyance claims that might have been assertable by a creditor prior to the Company's Chapter 11 case. 9.4 Entire Agreement This Agreement, together with the documents, schedules and other writings referred to herein or delivered pursuant hereto, and the Confidentiality Agreement, the First Order and the Second Order contain the entire agreement and understanding of the parties with respect to the subject matter contained herein or therein. This Agreement supersedes all prior arrangements and understandings between the parties, both written or oral, with respect to its subject matter (other than the Confidentiality Agreement). 149 150 9.5 Parties in Interest The Agreement shall be binding upon and shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, provided, however, that nothing in this Agreement, expressed or implied, is intended to confer upon any other Person any rights, remedies, obligations or liabilities of any nature whatsoever under or by reason of this Agreement. 9.6 Assignment No party hereto may assign any of its rights or obligations hereunder to any other Person, without the prior written consent of the other party provided, however, that Buyer may assign to an Affiliate of Buyer all of its rights hereunder to assume the rights and obligations of the Company under those Contracts pursuant to which the Company services, subservices or master services multi-family Mortgage Loans (as set forth on Section 3.23 of the Company Schedule). 9.7 Notices All notices or other communications hereunder shall be in writing and shall be deemed given if delivered personally or mailed by prepaid registered or certi- 150 151 fied mail (return receipt requested), or by overnight courier, cable, telegram or telex addressed as follows: (a) If to the Company, to: Lomas Mortgage USA, Inc. 1600 Viceroy Drive Dallas, Texas 75235 Attention: Louis Gregory, Esq. (214) 879-7075 (facsimile) Copies to: Davis Polk & Wardwell 450 Lexington Avenue New York, New York 10017 Attention: Robert J. Levine, Esq. (212) 450-4800 (facsimile) and Jaffe, Raitt, Heuer & Weiss Suite 2400 One Woodward Avenue Detroit, Michigan 48226 Attention: Mark K. Rabidoux, Esq. (313) 961-8358 (facsimile) (b) If to Buyer, to: First Nationwide Bank, A Federal Savings Bank 200 Crescent Court, Suite 1350 Dallas, Texas 75201 Attention: Christie S. Flanagan, Esq. (214) 871-5199 (facsimile) Copies to: Skadden, Arps, Slate, Meagher & Flom 919 Third Avenue New York, New York 10022 Attention: J. Gregory Milmoe, Esq. (212) 735-2000 (facsimile) and 151 152 Weiner, Brodsky, Sidman & Kider 1350 New York Avenue, N.W. Suite 800 Washington, D.C. 20005 Attention: Harvey E. Weiner, Esq. (202) 628-2011 (facsimile) 9.8 Captions The table of contents and captions contained in this Agreement are for reference purposes only and are not part of this Agreement. 9.9 Counterparts This Agreement may be executed in any number of counterparts, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one Agreement. 9.10 Governing Law This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the principles of conflict of laws thereof. 9.11 Exclusive Jurisdiction. The parties hereby agree that, without limitation of any party's right to appeal any order of the Bankruptcy Court, (a) the Bankruptcy Court shall retain exclusive jurisdiction to enforce the terms of this Agreement and to decide any claims or disputes which may arise or result from, or be 152 153 connected with this Agreement, any breach or default hereunder, or the transactions contemplated herein, and (b) any and all claims, actions, causes of action, suits and proceedings relating to the foregoing shall be filed and maintained only in the Bankruptcy Court, and the parties hereby consent and submit to the jurisdiction of the Bankruptcy Court. 153 154 IN WITNESS WHEREOF, each of the undersigned has executed this Agreement as of the day and year first above written. FIRST NATIONWIDE MORTGAGE CORPORATION By: /S/ LAWRENCE P. WASHINGTON --------------------------------- Name: Lawrence P. Washington Title: E.V.P. LOMAS MORTGAGE USA, INC. By: /S/ ERIC D. BOOTH --------------------------------- Name: Eric D. Booth Title: CEO 155 The Exhibits and Schedules to the Section 363 Asset Sale Agreement dated as of October 9, 1995 by and between First Nationwide Mortgage Corporation, as Buyer, and Lomas Mortgage USA, Inc., as the Company (the "Asset Sale Agreement"), have not been filed herewith pursuant to Item 601(b)(2) of Regulation S-K. Pursuant to this Regulation, set forth below is a list briefly identifying the contents of all omitted Exhibits and Schedules to the Asset Sale Agreement. In addition, pursuant to such Regulation, the registrant hereby agrees to furnish supplementally a copy of any such omitted Exhibits and Schedules to the Securities and Exchange Commission upon request. EXHIBITS Exhibit 2.2 Base Purchase Price Exhibit 2.3(b)(i) Bill of Sale Exhibit 2.3(b)(ii) Form of Lease Assignment and Assumption Agreement Exhibit 2.3(c) Instrument of Assumption Exhibit 2.6(e) Terms and Provisions with respect to the Mortgage Loans serviced by the Company pursuant to the Citicorp Agreement Exhibit 5.27 Subservicing and Transition Services Agreement BUYER SCHEDULE Buyer Schedule - Section 4.3 Consents and Approvals SCHEDULES Schedule I Accounts Receivable Schedule II Assumed Contracts (other than Mortgage Servicing Agreements and Leases) Schedule III Investments Related to Servicing Business Schedule IV Leases Schedule V Mortgage Servicing Agreements Schedule VI Other Assets Related to Servicing Business Schedule VII Scheduled Liabilities Schedule VIII Employees Schedule IX Trade Names Schedule X Furniture, Fixtures and Equipment COMPANY SCHEDULE Section 3.2(b) Authority; No Violation Section 3.3 Consents and Approvals
156 Section 3.5(b) Leases Section 3.6 Title to Assets Section 3.8 Legal Proceedings Section 3.10 Mortgage Loans Section 3.13 No Recourse Section 3.14 Mortgage Servicing Agreement Defaults Section 3.15(c) Compliance with Mortgage Banking Regulations Section 3.17 Inquiries Section 3.18 Advances; Accounts Receivable Section 3.19 Physical Damage Section 3.20 Pool Certification Section 3.23 Single Family Loans Section 3.25 Taxes Section 3.29(b) Trade Names Section 3.30(a) LIS and LIS Subsidiaries -- Compliance with Applicable Laws Section 3.30(b) LIS and LIS Subsidiaries -- Undisclosed Liabilities Section 3.30(c) LIS and LIS Subsidiaries -- Certain Contracts Section 3.30(d) LIS and LIS Subsidiaries -- Ownership of Property Section 5.1 Conduct Prior to Closing
EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 COMPUTATION OF EARNINGS (LOSS) PER SHARE LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (in thousands, except per share amouts)
Quarter Ended September 30 ------------------------------- 1995 1994 ---------- --------- PRIMARY: Average common shares outstanding . . . . . . . . . . . . . . . . 20,149 20,100 Common stock equivalents under Non-Employee Directors Long Term Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . 18 35 ---------- ---------- Total Shares . . . . . . . . . . . . . . . . . . . . . . 20,167 20,135 ========== ========== Loss from continuing operations . . . . . . . . . . . . . . . . . $ (194,230) $ (7,350) Loss from discontinued operations . . . . . . . . . . . . . . . . -- (5,500) ---------- ---------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850) ========== ========== Per share amounts: Loss from continuing operations . . . . . . . . . . . . . . . $ (9.63) $ (0.37) Loss from discontinued operations . . . . . . . . . . . . . . -- (0.27) ---------- ---------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (9.63) $ (0.64) ========== ========== FULLY DILUTED: Average common shares outstanding . . . . . . . . . . . . . . . . 20,149 20,100 Common stock equivalents under Non-Employee Directors Long Term Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . 18 35 ---------- ---------- Total Shares . . . . . . . . . . . . . . . . . . . . . . . 20,167 20,135 ========== ========== Loss from continuing operations . . . . . . . . . . . . . . . . . $ (194,230) $ (7,350) Loss from discontinued operations . . . . . . . . . . . . . . . . -- (5,500) ---------- ---------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (194,230) $ (12,850) ========== ========== Per share amounts: Loss from continuing operations . . . . . . . . . . . . . . . $ (9.63) $ (0.37) Loss from discontinued operations . . . . . . . . . . . . . . -- (0.27) ---------- ---------- Net loss . . . . . . . . . . . . . . . . . . . . . . . . . $ (9.63) $ (0.64) ========== ==========
EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1995 JUL-01-1995 SEP-30-1995 28,266 8,751 14,478 (4,574) 0 0 51,947 (15,830) 644,819 0 518,354 20,149 0 0 (226,252) 644,819 0 55,326 0 0 42,898 184,163 22,495 (194,230) 0 (194,230) 0 0 0 (194,230) (9.63) (9.63)
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