Exhibit 10(p)
ASSET PURCHASE AGREEMENT
Dated as of
March 23, 1999
by and among
Source One Mortgage Services Corporation,
as Seller,
Fund American Enterprises Holdings, Inc.,
as Parent,
and
Citicorp Mortgage, Inc.,
as Purchaser
TABLE OF CONTENTS
Page
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ARTICLE I - Certain Definitions...............................................1
Section 1.01 Certain Definitions..........................................1
ARTICLE II - Transfer of Assets and Assumption of Liabilities.................8
Section 2.01 Assets to be Sold............................................8
Section 2.02 Nonassignable Permits, Licenses, Leases and Contracts........10
Section 2.03 Liabilities Assumed by the Purchaser.........................11
Section 2.04 Liabilities Not Assumed by the Purchaser.....................11
ARTICLE III - Payment.........................................................12
Section 3.01 Calculation of Payment.......................................12
ARTICLE IV - Representations and Warranties of the Seller and the Parent......15
Section 4.01 Organization of the Seller and the Parent....................15
Section 4.02 Subsidiaries.................................................15
Section 4.03 Power and Authority..........................................15
Section 4.04 No Conflicts.................................................15
Section 4.05 Litigation; Compliance with Laws.............................16
Section 4.06 Financial Statements; SEC Reports............................17
Section 4.07 Purchased Assets; Real Property; Leases and Other
Contracts; Insurance.........................................18
Section 4.08 Employee Benefit and Pension Plan Matters....................19
Section 4.09 Labor Relations..............................................19
Section 4.10 Mortgage Loans...............................................20
Section 4.11 [Reserved]...................................................26
Section 4.12 Transactions with Affiliates.................................26
Section 4.13 Interest Rate Risk Management Instruments....................26
Section 4.14 Intellectual Property........................................27
Section 4.15 Environmental Liability......................................29
Section 4.16 Brokers......................................................29
Section 4.17 Information Supplied; Accuracy of Data.......................29
Section 4.18 Taxes........................................................30
ARTICLE V - Representations and Warranties of the Purchaser...................31
Section 5.01 Organization of the Purchaser................................31
Section 5.02 Power and Authority..........................................31
Section 5.03 No Conflicts.................................................31
Section 5.04 Brokers......................................................32
Section 5.05 Licenses.....................................................32
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ARTICLE VI - Employee and Employee-Related Matters............................32
Section 6.01 Basic Employment Matters.....................................32
Section 6.02 Defined Benefit Plans........................................33
Section 6.03 Defined Contribution Plans...................................33
Section 6.04 Severance Arrangements.......................................34
Section 6.05 Other Employee Benefits......................................34
ARTICLE VII - Closing.........................................................35
Section 7.01 The Closing..................................................35
ARTICLE VIII - Conditions to Obligations of the Purchaser to Consummate
the Transaction................................................35
Section 8.01 Representations and Warranties; Compliance with Covenants....35
Section 8.02 No Injunction................................................36
Section 8.03 Approvals....................................................36
Section 8.04 Third Party Consents.........................................36
Section 8.05 ▇▇▇▇ of Sale, etc............................................36
Section 8.06 Survey; Title Policies.......................................36
Section 8.07 Employment Agreement.........................................36
Section 8.08 Transfer Instructions........................................36
ARTICLE IX - Conditions to Obligations of the Seller and the Parent to
Consummate the Transaction.......................................37
Section 9.01 Representations and Warranties; Compliance with Covenants....37
Section 9.02 No Injunction................................................37
Section 9.03 Approvals....................................................37
Section 9.04 Third Party Consents.........................................37
Section 9.05 Assumption Agreement.........................................37
ARTICLE X - Covenants.........................................................38
Section 10.01 HSR Filings.................................................38
Section 10.02 Injunctions.................................................38
Section 10.03 Access to Information.......................................38
Section 10.04 No Extraordinary Actions by the Seller......................38
Section 10.05 Commercially Reasonable Efforts; Further Assurances.........40
Section 10.06 Bulk Sales Laws.............................................41
Section 10.07 Insurance and Benefits Contracts............................41
Section 10.08 Use of Names................................................41
Section 10.09 Transfer of Mortgage Loans..................................41
Section 10.10 Mail Received After Closing.................................42
Section 10.11 Confidentiality; Publicity..................................42
Section 10.12 Transition Services.........................................42
Section 10.13 Access to Records After the Closing.........................42
Section 10.14 Title Commitments; Surveys..................................43
Section 10.15 Updated Mortgage Loan Schedule..............................44
Section 10.16 System Upgrade..............................................44
Section 10.17 Final Certification and Recertification, etc................44
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Section 10.18 Repurchase of Mortgage Loans................................44
Section 10.19 Agreement Not to Compete; Non-Solicitation..................45
Section 10.20 Parent Guarantee............................................46
Section 10.21 Redemption of QUICS.........................................46
Section 10.22 Collection of Receivables...................................46
Section 10.23 SOM.........................................................47
Section 10.24 Private Label Subservicing Capability.......................47
Section 10.25 Northwest Pacific...........................................47
ARTICLE XI - Tax Matters......................................................48
Section 11.01 Allocation of Responsibility................................48
Section 11.02 Tax Returns.................................................48
Section 11.03 Tax Sharing and Tax Payment Agreements......................49
Section 11.04 Assistance and Cooperation..................................49
Section 11.05 Record Retention............................................50
Section 11.06 Contest.....................................................50
Section 11.07 Section 338(h)(10) Election.................................50
Section 11.08 Allocation of Purchase Price................................51
Section 11.09 Purchaser Activity on Closing Date and Post-Closing.........51
Section 11.10 Liability for Taxes and Related Matters.....................52
ARTICLE XII - Survival and Indemnification....................................53
Section 12.01 Survival....................................................53
Section 12.02 Indemnification by the Seller...............................53
Section 12.03 Indemnification by the Purchaser............................54
Section 12.04 Procedures for Making Claims Against Indemnifying Party.....54
Section 12.05 Limitations and Rules of Construction Regarding
Indemnification Obligations.................................55
Section 12.06 Defense of Claims...........................................56
Section 12.07 Remedies Exclusive..........................................57
ARTICLE XIII - Termination....................................................58
Section 13.01 Termination.................................................58
Section 13.02 Obligations Shall Cease.....................................58
Section 13.03 Fees and Expenses...........................................58
ARTICLE XIV - Miscellaneous...................................................58
Section 14.01 Complete Agreement..........................................58
Section 14.02 Waiver, Discharge, etc......................................58
Section 14.03 Notices.....................................................59
Section 14.04 Governing Law; Waiver of Jury Trial.........................60
Section 14.05 Headings....................................................60
Section 14.06 Successors..................................................60
Section 14.07 Third Parties...............................................60
Section 14.08 Counterparts................................................60
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EXHIBITS
Exhibit A Form of Assumption Agreement
Exhibit B Form of ▇▇▇▇ of Sale
Exhibit C Form of Transition Services Agreement
Exhibit D Form of Trademark Assignment
Exhibit E Form of Claim Notice
Appendix I 1998 Financial Statements
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SCHEDULES
Schedule 1.01 Disclosure Schedule
Schedule 2.01(a) Purchased Assets
Schedule 2.01(b) Excluded Assets
Schedule 2.03 Assumed Liabilities
Schedule 2.04 Subsidiary Obligations
Schedule 3.01(a) Closing Statement Procedures
Schedule 3.01(a)(ii) Chase Allocation
Schedule 5.03 Purchaser's Conflicts and Approvals
Schedule 6.01(a) Basic Employment Matters
Schedule 6.01(c) "Reinstated" Employees
Schedule 8.04 Third Party Consents (Purchaser's Condition)
Schedule 8.07 Employment Agreements
Schedule 8.08 Transfer Instructions
Schedule 9.04 Third Party Consents (Seller's Condition)
Schedule 10.04(a)(iv) Capital Expenditures
Schedule 10.04(a)(vi) Open Employee Requisitions
Schedule 10.16 System Upgrade
Schedule 10.22 Collection of Accounts
Schedule 10.23 SOM Approvals to Be Obtained
Schedule 12.05(b) Disregarded Exceptions
DISCLOSURE SCHEDULE
Sections 4.04, 4.05(b), 4.05(c), 4.06(c), 4.06(e), 4.07(a), 4.07(b), 4.07(c),
4.07(d), 4.08(a), 4.10(a), 4.10(f), 4.10(i)(A), 4.10(i)(B), 4.10(j), 4.10(k),
4.10(l), 4.10(q), 4.10(r)(i), 4.10(r)(ii), 4.10(u), 4.10(v)(iii), 4.12, 4.14(a),
4.14(c), 4.14(d), 4.14(f), 4.14(g), 4.17, 4.18(a)(iii), 4.18(a)(vii), 4.18(a)(x)
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT dated as of March 23, 1999, among Source One
Mortgage Services Corporation, a Delaware corporation (the "Seller"), Fund
American Enterprises Holdings, Inc., a Delaware corporation and the direct or
indirect owner of all of the common stock of the Seller (the "Parent"), and
Citicorp Mortgage, Inc., a Delaware corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement,
the Seller desires to sell, convey, assign, transfer and deliver to the
Purchaser, and the Purchaser desires to purchase and acquire from the Seller,
substantially all of the assets, subject to certain of the liabilities, of the
Seller's business of origination, selling and servicing of residential and
commercial mortgage loans and Seller's business relating to the sale of certain
insurance products (collectively, the "Business");
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained herein, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 CERTAIN DEFINITIONS. As used in this Agreement, unless the
context requires otherwise, the following terms shall have the meanings
indicated, and additional capitalized terms shall have the meanings assigned
elsewhere in this Agreement (with terms being defined in the singular having a
corresponding meaning in the plural and vice versa):
"ADJUSTMENT SCHEDULE" has the meaning assigned in Section 3.01(c).
"AFFILIATE" of any Person means any other Person, existing or future,
directly or indirectly, Controlling, Controlled by or under common Control with
the former Person.
"APPLICABLE REQUIREMENTS" means, with respect to a Mortgage Loan, all
applicable contractual requirements (including contractual requirements of
private investors), all applicable Laws, all requirements of any insurer under
any applicable Primary Insurance Policy, and all applicable requirements and
guidelines of FNMA, FHLMC, HUD, GNMA, FHA and VA.
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"APPRAISED VALUE" means with respect to any Mortgaged Property, the lesser
of (i) the purchase price paid for the related Mortgaged Property by the
Mortgagor with the proceeds of the Mortgage Loan and (ii) the value thereof as
determined by an appraisal made for the originator of the Mortgage Loan at the
time of origination of the Mortgage Loan by an appraiser who met the minimum
requirements of FNMA, FHLMC and HUD (an "approved appraiser"), provided,
however, in the case of a Refinanced Mortgage Loan, either (x) the appraisal was
made at the time of origination of such Refinanced Mortgage Loan by an approved
appraiser or (y) if a new appraisal was not needed to satisfy the Applicable
Requirements, the appraisal was made for the originator of the mortgage loan
that was replaced by such Refinanced Mortgage Loan at the time of origination of
such initial mortgage loan by an approved appraiser.
"APPROVALS" means franchises, licenses, permits, certificates of occupancy
and other approvals, authorizations and consents.
"ASSIGNMENT OF MORTGAGE" means an individual assignment of the Mortgage,
notice of transfer or equivalent instrument in recordable form, sufficient under
the laws of the jurisdiction wherein the related Mortgaged Property is located
to give record notice of the sale of the Seller's interest in the Mortgage to
the Purchaser or its designee.
"ASSUMED LIABILITIES" has the meaning assigned in Section 2.03.
"ASSUMPTION AGREEMENT" means a duly executed assumption agreement in
substantially the form of Exhibit A hereto.
"▇▇▇▇ OF SALE" means a duly executed ▇▇▇▇ of sale in substantially the
form of Exhibit B hereto.
"BUSINESS" has the meaning assigned in the preamble to this Agreement.
"BUSINESS DAY" means any day on which the Seller, Parent, Purchaser and
commercial banks in New York City and Michigan are open for business.
"CLOSING" means the closing of the transactions contemplated by this
Agreement.
"CLOSING DATE" means the date on which the Closing actually occurs.
"CLOSING STATEMENT" has the meaning assigned in Section 3.01(a).
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMERCIALLY REASONABLE EFFORTS" means the efforts that a prudent Person
desirous of achieving a result would use in similar circumstances to ensure that
such result is achieved in the required time frame.
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"CONTRACT" means any note, bond, mortgage, indenture, deed of trust,
license agreement, franchise, contract, agreement, Lease, instrument or
guarantee.
"CONTROL" means the power to direct or cause the direction of the
management and policies of another Person, whether through the ownership of
voting securities, by contract or otherwise.
"CONVENTIONAL MORTGAGE LOAN" means any Mortgage Loan that is neither an
FHA Loan nor a VA Loan.
"CUT-OFF DATE" has the meaning assigned in Section 4.10(b).
"DISCLOSURE SCHEDULE" means the disclosure schedule attached hereto as
Schedule 1.01.
"EMPLOYEES" has the meaning assigned in Section 6.01.
"EMPLOYEE PLANS" has the meaning assigned in Section 4.08.
"EMPLOYER" has the meaning assigned in Section 6.01.
"EXCLUDED ASSETS" has the meaning assigned in Section 2.01(b).
"FHA INSURANCE CONTRACT" or "FHA INSURANCE" means the contractual
obligation of FHA respecting the insurance of an FHA Loan pursuant to the
National Housing Act, as amended.
"FHA LOAN" means a Mortgage Loan which is the subject of an FHA Insurance
Contract as evidenced by a Mortgage Insurance Certificate.
"GAAP" means generally accepted accounting principles, applied
consistently with the Seller's past practices (to the extent such past practices
are consistent with generally accepted accounting principles).
"GAAP BOOK VALUE" means book value determined in accordance with GAAP.
"GOVERNMENTAL AGENCY" means any governmental body or other regulatory or
administrative agency or commission (including FNMA, FHLMC and GNMA).
"HAZARDOUS MATERIALS" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable,
polychlorinated biphenyls and radon gas; (b) any chemicals, materials or
substances defined as or included in the definition of "hazardous substances,"
"hazardous waste," "hazardous materials," "extremely hazardous substances,"
"toxic substances," "toxic pollutants," "contaminants," or "pollutants," or
words of similar import, under any applicable Laws; and (c) any materials which
could be or are defined by any applicable Law to be hazardous to human health.
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"INCOME TAX" means any federal, state, local, or foreign income or
franchise tax, and any other tax imposed on or measured by income, including any
interest, penalty, or addition thereto, whether disputed or not.
"INCOME TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto.
"INDEMNIFIABLE LOSS" means a Purchaser Indemnifiable Loss or a Seller
Indemnifiable Loss, as such terms are defined in Section 12.02 and Section
12.03, respectively.
"INDEMNIFIED PARTY" has the meaning assigned in Section 12.05.
"INDEMNIFYING PARTY" means a party having indemnification obligations
pursuant to Article XII.
"INTELLECTUAL PROPERTY RIGHTS" means any and all of the following used in
or related to the Business: (i) trade secrets, inventions, ideas and conceptions
of inventions, whether or not patentable, whether or not reduced to practice,
and whether or not yet made the subject of a patent application or applications,
(ii) United States, international and foreign patents, patent, applications and
statutory invention registrations, all rights therein provided by international
treaties or conventions and all improvements thereto, (iii) trademarks, service
marks, certification marks, collective marks, trade dress, logos, domain names,
product configurations, trade names, business names, corporate names, and other
source identifiers, whether or not registered, whether currently in use or not,
including all common law rights, and registrations and applications for
registration thereof, all rights therein provided by international treaties or
conventions, and all reissues, extension and renewals of any of the foregoing,
(iv) copyrightable works, copyrights, whether or not registered, and
registrations and applications for registration thereof in the United States or
any foreign country, and all rights therein provided by international treaties
or conventions, (v) Software, (vi) technical and business information, including
know-how, manufacturing and production processes and techniques, research and
development information, technical data, financial, marketing and business data,
pricing and cost information, business and marketing plans, and customer and
supplier lists and information, whether or not confidential, (vii) copies and
tangible embodiments of all the foregoing, in whatever form or medium, (viii)
licenses and sublicenses (whether as licensee, sublicensee, licensor or
sublicensor) in connection with any of the foregoing, and (ix) all goodwill
associated with the foregoing and all rights to ▇▇▇ or recover and retain
damages and costs and attorneys' fees for past, present, and future infringement
or breach of any of the foregoing; provided that Intellectual Property Rights
shall not include readily available commercial products such as off-the-shelf or
publicly vended software programs.
"JUDGMENT" means any judgment, ruling, order or decree.
"KNOWLEDGE" by a Person of a particular fact or matter means that a member
of senior management of such Person (i.e., a senior vice president or more
senior officer), after reasonable investigation, is actually aware of such fact
or matter, provided that any such member of senior
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management shall be presumed to know such fact or matter based on facts,
circumstances or information contained or described in the books, records or
files of such Person.
"LAW" means any order, writ, injunction, decree, judgment, ruling, law,
decision, opinion, statute, rule or regulation of any governmental, judicial,
legislative, executive, administrative or regulatory authority of the United
States, or of any state, local or foreign government or any subdivision thereof,
or of any Governmental Agency, including, without limitation, any federal, state
or local fair lending laws.
"LEASE" means any lease, sublease, easement, license, right-of-way or
similar interest in real or personal property.
"LIEN" means any lien, easement, encumbrance, mortgage or other
conflicting ownership or security interest in favor of any third party.
"LITIGATION" means any action, suit, claim, proceeding, investigation or
written inquiry by or before any Governmental Agency, court or arbitrator.
"LOAN GUARANTY CERTIFICATE" means the certificate evidencing a VA Guaranty
Agreement.
"LOAN-TO-VALUE RATIO" or "LTV" means with respect to any Mortgage Loan as
of any date of determination, the ratio on such date of the outstanding
principal amount of the Mortgage Loan to the Appraised Value of the Mortgaged
Property.
"MATERIAL ADVERSE EFFECT" or "MATERIAL ADVERSE CHANGE", with respect to
any party or with respect to the Business, means any change, occurrence or
effect, direct or indirect, that would have a material adverse effect on the
business, operations, properties (including tangible properties), financial
condition, assets, obligations or liabilities (whether absolute, accrued or
contingent) of such party and its subsidiaries taken as a whole or of the
Business taken as a whole, as the case may be.
"MORTGAGE" means the mortgage, deed of trust or other instrument creating
a lien on Mortgaged Property securing the Mortgage Note.
"MORTGAGE INSURANCE CERTIFICATE" means the certificate evidencing an FHA
Insurance Contract.
"MORTGAGE LOANS" means (i) the mortgage loans (including subprime loans)
and Pipeline Loans owned by Seller or the Subsidiaries and (ii) without
duplication, the mortgage loans for which Seller or a Subsidiary owns the
related Servicing Rights, in each case as identified on the Mortgage Loan
Schedule, and all of Seller's or a Subsidiary's rights and benefits with respect
thereto, including without limitation rights with respect to related payments
and proceeds (including real estate acquired in respect of a mortgage loan).
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"MORTGAGE LOAN SCHEDULE" has the meaning assigned in Section 4.10(b).
"MORTGAGE NOTE" means the original executed note or other evidence of the
Mortgage Loan indebtedness of a Mortgagor.
"MORTGAGED PROPERTY" means the Mortgagor's real property securing
repayment of a related Mortgage Note.
"MORTGAGOR" means the obligor on a Mortgage Note, the owner of the
Mortgaged Property and the grantor or mortgagor named in the related Mortgage
and such grantor's or mortgagor's successors in title to the Mortgaged Property.
"NET PURCHASE PRICE" has the meaning assigned in Section 3.01(a).
"OWNED MORTGAGE LOANS" means those mortgage loans referred to in clause
(i) of the definition of "Mortgage Loans".
"PERSON" means an individual, a corporation, a limited liability company,
a partnership, an unincorporated association, a joint venture, a government or
Governmental Agency or another entity or group.
"PRE-CLOSING SERVICING OBLIGATIONS" has the meaning assigned in Section
2.03.
"PIPELINE LOAN" means each pending mortgage loan to be secured by
residential real property by a mortgage lien (i) with respect to which Seller or
its Subsidiaries has (a) issued a commitment or otherwise agreed with an
applicant to fund, (b) determined to fund, (c) committed to a specified interest
rate or (d) issued a commitment (including, without limitation, bulk commitments
or assignments of trades) or otherwise agreed with a broker or correspondent
originator or purchaser to purchase and (ii) which has not closed or been
purchased from a correspondent as of the Closing Date.
"PRIMARY INSURANCE POLICY" means a policy of primary mortgage guaranty
insurance issued by an insurer acceptable to FNMA, FHLMC and any private
investor.
"PURCHASED ASSETS" has the meaning assigned in Section 2.01(a).
"QUICS" has the meaning assigned in Section 2.03.
"REFINANCED MORTGAGE LOAN" means a Mortgage Loan the proceeds of which
were not used to purchase the related Mortgaged Property.
"RELATED DOCUMENTS" means all other agreements and instruments described
in this Agreement that are to be executed and delivered at or prior to the
Closing in connection with the transactions contemplated hereby.
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"RETAINED LIABILITIES" has the meaning assigned in Section 2.04.
"SELLER IPR" means all Intellectual Property Rights owned by or licensed
to the Seller or a Subsidiary.
"SERVICING RIGHTS" means the right, title and interest of the Seller and
each Subsidiary in and to the servicing of the Mortgage Loans.
"SOFTWARE" means computer software and subsequent versions thereof
developed or currently being developed, manufactured, sold or marketed by the
Seller or any Subsidiary or acquired from third parties, including without
limitation, source code, object code, objects, comments, screens, user
interfaces, report formats, templates, menus, buttons and icons, and all files,
data materials, manuals, design notes and other items and documentation related
thereto or associated therewith.
"SUBSERVICED MORTGAGE LOANS" means the mortgage loans identified as such
on the Mortgage Loan Schedule.
"SUBSERVICING RIGHTS" means the right, title and interest of the Seller
and each Subsidiary in and to the subservicing of the Subserviced Mortgage
Loans.
"SUBSIDIARIES" means Central Pacific Mortgage Corporation ("CPM"), CMC
Insurance Agency, Inc., MHMC Insurance Agency, Inc., SOMSC Services, Inc. and
Source One Mortgage Corporation ("SOM"), the wholly owned subsidiaries of the
Seller.
"TAXES" (including, with correlative meaning, the term "TAXABLE") means
all taxes, charges, fees, duties, levies, or other assessments imposed by any
federal, state, local or foreign taxing authority, including without limitation
federal, state, local and foreign income, profits, franchise, gross receipts,
environmental, customs duty, severances, stamp, payroll, sales, use, employment,
unemployment, disability, property, withholding, backup withholding, excise,
production, occupation, service, service use, leasing and leasing use, AD
VALOREM, value added, occupancy, transfer, and other taxes, of any nature
whatsoever, together with all interest, penalties and additions imposed with
respect to such amounts and any interest in respect of such penalties and
additions.
"TAX RETURNS" means all returns and reports, information returns, or payee
statements (including, but not limited to elections, declarations, filings,
forms, statements, disclosures, schedules, estimates and information returns)
required to be supplied to a Tax authority relating to Taxes.
"THIRD PARTY IPR" means the rights possessed by the Seller or any
Subsidiary in any other Person's Intellectual Property Rights, including without
limitation, patents, copyrights, trademarks, or trade secrets, which relate to
or are used in the Business and which are not owned by the Seller or any
Subsidiary.
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"TRADE SECRETS" means each trade secret included in the Intellectual
Property Rights.
"TRADEMARK ASSIGNMENT" means a duly executed trademark assignment in
substantially the form of Exhibit D hereto.
"TRANSFER INSTRUCTIONS" means the transfer instructions identified on
Schedule 8.08.
"TRANSITION SERVICES AGREEMENT" has the meaning assigned in Section 10.12.
"VA GUARANTY AGREEMENT" means the obligation of the United States to pay a
specific percentage of a Mortgage Loan (subject to a maximum amount) upon
default of the Mortgagor pursuant to the Serviceman's Readjustment Act, as
amended.
"VA LOAN" means a Mortgage Loan which is the subject of a VA Guaranty
Agreement as evidenced by a Loan Guaranty Certificate.
"VA NO-BID" means a VA no-bid or a VA buydown.
"YEAR 2000 COMPLIANT" means, with respect to an internal system, that at
all times before, during and after January 1, 2000, such internal system
accurately processes and handles date and time data from, into and between the
twentieth and twenty-first centuries, and the years 1999 and 2000, including,
without limitation, leap year calculations, to the extent that other information
technology used in combination with such internal systems and such products and
services properly exchange date and time data with it.
ARTICLE II
TRANSFER OF ASSETS AND
ASSUMPTION OF LIABILITIES
Section 2.01 ASSETS TO BE SOLD.
(a) Upon the terms and subject to the conditions of this Agreement, at the
Closing, the Seller shall sell, convey, assign, transfer and deliver to the
Purchaser all of the properties, Contracts, Approvals, rights and assets (of
every kind, nature, character and description, real, personal or mixed, tangible
or intangible, accrued, contingent or otherwise, and wherever situated) of the
Seller, other than the Excluded Assets. Such assets and property shall include,
without limitation, all right, title and interest of the Seller in all land,
offices, buildings (together with improvements, appurtenances, licenses and
permits), motor vehicles, equipment, furniture and fixtures, supplies,
stationery, cash and cash equivalents, Owned Mortgage Loans, other loans, the
Servicing Rights, the Subservicing Rights, accrued interest, interests in real
estate investment conduits, securities, hedging instruments (other than ▇▇▇▇▇▇
relating to the Servicing Rights), accounts receivable (including written-off
accounts), bank accounts (including escrow accounts), credits, deferred
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charges, security deposits, advance payments, prepaid expenses, deposits,
Approvals of any Governmental Agency or other third party, claims (including
insurance claims), suits and judgments against third parties (including warranty
claims relating to goods, equipment or real property sold to the Seller and
claims arising from the infringement of any Intellectual Property Right), all of
the outstanding capital stock of the Subsidiaries, the Seller's investment in
MERSCORP, Inc., the right to receive mail, payments on loans and accounts
receivable and other communications, Software and licenses and other rights to
use Software, lists of customers and suppliers, other files and business
records, advertising materials, customer application forms, Seller IPR, Third
Party IPR, the Seller's right, title and interest in Contracts and the goodwill
associated with the foregoing, but shall not include the Excluded Assets. All
the assets to be transferred pursuant to this Agreement are referred to
collectively herein as the "Purchased Assets". The Purchased Assets shall
include, without limitation, all assets in the categories described on Schedule
2.01(a) owned by the Seller immediately prior to the Closing. For purposes of
this Agreement, except where the context requires otherwise, the properties,
contracts, rights and assets of the Subsidiaries shall be considered Purchased
Assets.
(b) Notwithstanding anything to the contrary in this Agreement, the
Purchased Assets shall not include any of the following (the "Excluded Assets"):
(i) any deferred Tax assets and current Tax receivables relating to the Seller
and the Subsidiaries; (ii) any claims, refunds, credits or overpayments with
respect to any Taxes paid or incurred by the Seller and its Affiliates, or any
related interest received from the relevant taxing authority for periods ending
prior to the Closing Date, and the appropriately prorated portion thereof for
periods commencing prior to the Closing Date and ending on or after the Closing
Date; (iii) the rights of the Seller under this Agreement and the Related
Documents; (iv) the minute books, stock transfer books, seal and general
corporate accounting records of the Seller; (v) Contracts relating to any
Employee Plans (other than those relating to post-Closing benefits provided to
or for the benefit of persons who are employees of CPM on the Closing Date) and
Contracts to make any payment to an employee, officer or director of the Seller
or an Affiliate; (vi) Contracts between the Seller on the one hand and the
Parent or its Affiliates (other than the Subsidiaries) on the other hand, and
any claims or rights of the Seller thereunder, except as provided in the
Transition Services Agreement; (vii) insurance policies (other than financial
guarantee or similar policies insuring other Purchased Assets); (viii) any
capital stock of, or other investments in, Financial Security Assurance Holdings
Ltd. ("FSA"), US West Inc., Northwest Pacific Mortgage Company ("Northwest
Pacific") or any other corporation of which the Seller owns less than all of the
outstanding capital stock (except for the Seller's investment in MERSCORP,
Inc.), and the Seller's interest in Insurance Partners L.P.; (ix) any mortgage
loans or servicing or subservicing rights not identified on the Mortgage Loan
Schedule; (x) hedging instruments related to the Servicing Rights; (xi) prepaid
expenses related to any of the foregoing; (xii) recorded goodwill; and (xiii)
without duplication, all assets listed on Schedule 2.01(b).
(c) The sale, conveyance, assignment, transfer and delivery of the
Purchased Assets shall be effected by delivery by the Seller to the Purchaser at
the Closing or otherwise in accordance with the Transfer Instructions of (i) the
▇▇▇▇ of Sale and the Trademark Assignment, (ii) good and sufficient warranty
deeds in recordable or registrable form, with respect to all real property owned
by the Seller and included in the Purchased Assets, (iii) certificates
representing all
9
of the outstanding stock of each of the Subsidiaries, duly endorsed in blank or
accompanied by stock powers duly endorsed in blank, (iv) endorsements in blank
(or otherwise as required by Applicable Requirements) of Mortgage Notes and
Assignments of Mortgage with respect to the Seller's and the Subsidiaries'
Mortgage Loans sufficient to transfer all of the Seller's and the Subsidiaries'
right, title and interest in the Mortgage Loans and (v) such other instruments
of conveyance and transfer as the Purchaser shall reasonably request in
accordance with the Transfer Instructions or otherwise.
Section 2.02 NONASSIGNABLE PERMITS, LICENSES, LEASES AND CONTRACTS.
(a) To the extent that any Contract or Approval to be included in the
Purchased Assets would be subject to termination or restriction or is not
capable of being assigned, transferred, subleased or sublicensed without the
consent or waiver of the issuer thereof or the other party thereto or any third
party, or if such assignment, transfer or sublease would constitute a breach
thereof or a violation of any Law, this Agreement shall not constitute an
assignment, transfer, sublease or sublicense thereof.
(b) The Seller agrees to use Commercially Reasonable Efforts prior to the
Closing to obtain the consents and waivers and to resolve any impracticalities
of assignment referred to in Section 2.02(a) and to obtain any other consents
and waivers necessary to sell, convey, assign, transfer and deliver title to
such Purchased Assets to the Purchaser at the Closing, subject to Section
10.05(b).
(c) To the extent that the consents and waivers referred to in Section
2.02(a) are not obtained by the Seller, or until the impracticalities of
transfer referred to therein are resolved, and subject to Section 10.05(b), (i)
the Seller shall use Commercially Reasonable Efforts (x) to provide to the
Purchaser the benefits of any Contract or Approval intended to be included in
the Purchased Assets, (y) to cooperate in any arrangement, reasonable and lawful
as to the Seller and the Purchaser, designed to provide such benefits to the
Purchaser and (z) at the Purchaser's request, to enforce for the account and at
the expense of the Purchaser any rights of the Seller arising from the Contracts
and Approvals intended to be included among the Purchased Assets, including the
right to elect to terminate or not renew in accordance with the terms thereof on
the advice of the Purchaser, which termination shall, upon becoming effective,
relieve the Seller of any further obligation under this Section 2.02(c) with
respect to such Contract or Approval, and (ii) after the Closing, the Purchaser
shall use Commercially Reasonable Efforts to perform the obligations of the
Seller arising under such Contracts and Approvals, to the extent the Purchaser
receives the benefit thereof. The Seller and the Purchaser shall cooperate with
each other to take such actions, including entering into subservicing agreements
or similar arrangements, as are reasonably calculated to effectuate the intent
of the preceding sentence. Notwithstanding anything to the contrary in the
foregoing, the Purchaser may determine, in its reasonable discretion, that any
Contract (except with respect to servicing or subservicing agreements) or
Approval for which the required consents and waivers referred to in Section
2.02(a) are not obtained by the Seller, or the impracticalities of transfer
referred to therein are not resolved, by the Business Day prior to the Closing
Date, shall not be a Purchased Asset, and in that event all rights and
obligations with respect to such Contract or
10
Approval shall be retained by the Seller. The Purchaser shall give notice to the
Seller of any such determination on or within 30 days after the Closing Date,
provided that at the time of such notice such consents and waivers have not been
obtained, and such impracticalities of transfer have not been resolved. The
Purchaser shall, upon request of the Seller, use Commercially Reasonable Efforts
to provide the following assistance to the Seller in connection with its
attempting to obtain any consents or waivers required hereunder: (i) providing
reasonable access to an appropriate employee or employees of the Purchaser
solely for the purpose of speaking with third parties (from whom any consents or
waivers are requested by the Seller) concerning the general nature of the
business of the Purchaser to the extent it relates to the Purchaser's
obligations to acquire the Purchased Assets and the Contracts and (ii) the
provision of financial information concerning the Purchaser, subject to
customary confidentiality arrangements.
Section 2.03 LIABILITIES ASSUMED BY THE PURCHASER. Upon the terms and
subject to the conditions of this Agreement, the Purchaser agrees to assume as
of the Closing Date the following liabilities of the Seller (collectively, the
"Assumed Liabilities"), and only such liabilities: (i) the liabilities set forth
on Schedule 2.03, including without limitation the Seller's obligations under
$92 million principal amount of 9% debentures due June 1, 2012 (the
"Debentures"), $18.723 million principal amount due October 15, 2001 (the
"Notes") and $55.976 million principal amount of quarterly income capital
securities (the "QUICS"), provided that such liabilities and obligations that
accrue, or arise out of or are based on acts or omissions occurring, prior to
the Closing Date shall be Assumed Liabilities only to the extent they are
reflected on the Adjustment Schedule; (ii) the liabilities and obligations of
the Seller that accrue based on services performed on or after the Closing Date
under all Contracts and Approvals included in the Purchased Assets; (iii)
subject to Section 12.02(d), liabilities relating to VA No-bids in connection
with Mortgage Loans originated or committed prior to the Closing Date; and (iv)
subject to Section 12.02(e), obligations ("Pre-Closing Servicing Obligations")
with respect to (A) customary representations and warranties made in connection
with Mortgage Loans sold prior to the Closing Date, with Servicing Rights
retained by the Seller and (B) performance by the Seller prior to the Closing
Date of its duties under the Servicing Rights in accordance with their terms.
For the avoidance of doubt, it is understood that Pre-Closing Servicing
Obligations shall not include (i) any credit-related or other recourse,
indemnification or similar obligations (other than for breaches of customary
representations and warranties) and (ii) any liabilities or obligations of the
Seller based on or arising out of any violations of Law (provided that the
failure of an individual Mortgage Loan to conform to the Applicable Requirements
shall not be considered a violation of Law for these purposes) or any
intentional or bad faith violation of the Seller's contractual obligations. The
assumption of the Assumed Liabilities shall be effected by delivery by the
Purchaser to the Seller at the Closing of the Assumption Agreement, whereby the
Purchaser shall assume and agree to pay and discharge in accordance with their
terms the Assumed Liabilities.
Section 2.04 LIABILITIES NOT ASSUMED BY THE PURCHASER. All obligations and
liabilities of the Seller not constituting Assumed Liabilities, including any
other obligations and liabilities that arise before, on or after the Closing
Date based on or arising out of an act or omission occurring before the Closing
Date (whether or not disclosed to the Purchaser), are hereinafter referred to as
the "Retained Liabilities". Retained Liabilities shall include, but not be
limited to, (i) any deferred
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Tax liabilities and current Tax liability relating to the Seller and its
subsidiaries, except for current Taxes payable attributable to periods beginning
before the Closing Date and ending after the Closing Date, (ii) any pension or
employee benefits liabilities, (iii) any obligation of the Seller under any
servicing sale agreement (including, without limitation, servicing transfer
obligations at the expiration of interim or subservicing agreements, repurchase
or indemnification provisions, or purchase price adjustments due to prepayments,
delinquencies or document deficiencies), (iv) any obligations to repurchase, or
otherwise indemnify or reimburse any third party for losses or claims with
respect to, mortgage loans (other than the Pre-Closing Servicing Obligations),
(v) any VA-vendee indemnifications, and (vi) any liabilities arising out of
Litigation which is pending on the Closing Date or which arises after the
Closing Date based on an act or omission occurring before the Closing Date. In
addition, any obligations and liabilities of the Subsidiaries (other than the
normal operating liabilities of the Subsidiaries set forth on Schedule 2.04,
which shall be treated as Assumed Liabilities for purposes of the Closing
Statement and the Adjustment Schedule) that arise before, on or after the
Closing Date based on an act or omission occurring before the Closing Date
(including, without limitation, all liabilities of the types referred to in the
preceding sentence) shall be Retained Liabilities for all purposes of this
Agreement. Notwithstanding anything to the contrary in the foregoing, any
liabilities of the Subsidiaries arising out of Litigation which is pending on
the Closing Date or which arises after the Closing Date based on an act or
omission occurring before the Closing Date, whether or not described on Schedule
2.04, shall be Retained Liabilities for all purposes of this Agreement. The
obligations and liabilities of the Subsidiaries which are Retained Liabilities
as described in this Section 2.04 shall be assumed by the Seller and the Parent
at the Closing pursuant to an appropriate assumption agreement. The Purchaser
shall not assume or be liable with respect to the Retained Liabilities.
ARTICLE III
PAYMENT
Section 3.01 CALCULATION OF PAYMENT.
(a) (i) In consideration of the transfer of the Purchased Assets and the
covenants of the Seller and the Parent in this Agreement, the Purchaser shall
deliver or cause to be delivered to the Seller at the Closing the Assumption
Agreement, and the Purchaser shall pay to the Seller, by wire transfer of
immediately available funds to an account designated by the Seller, the amount
reflected on a statement (the "Closing Statement") prepared in accordance with
the procedures detailed on Schedule 3.01(a), which amount (the "Net Purchase
Price") shall be equal to: (A) the value of the Servicing Rights plus (B) the
GAAP Book Value (except as otherwise indicated on Schedule 3.01(a)) of the other
Purchased Assets plus (C) $65 million minus (D) the GAAP Book Value of the
Assumed Liabilities minus (E) (without duplication with (D)) the ▇▇▇▇-to-market
adjustment for the debt obligations included in the Assumed Liabilities;
provided, however, that the Purchaser shall retain $2,000,000 as a holdback
amount. The Purchaser shall reimburse itself from the holdback amount for
amounts owing from the Seller to the Purchaser under this Agreement or any
Related Document in accordance with Section 12.04 (Procedures for Making Claims
Against Indemnifying Party). At the time the Adjustment Amount is paid pursuant
to Section 3.01(d), the
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Purchaser shall pay to the Seller the amount, if any, by which the holdback
amount (taking into account all reimbursements previously made to the Purchaser
from such amount and any amounts owing to the Purchaser in respect of the
Adjustment Amount) exceeds $500,000. Thereafter, within three Business Days
after the end of each month, the Seller will make any payment to the Purchaser
required to keep the holdback amount at $500,000 until the first anniversary of
the Closing Date. On the first anniversary of the Closing Date, the Purchaser
shall remit to the Seller any monies remaining in the holdback amount less any
amounts for pending claims identified by the Purchaser. Retention of the monies
until the first anniversary of the Closing Date and release of any remaining
funds after such anniversary in no manner abrogates or modifies the
indemnification or other obligations of the Seller or the Parent under this
Agreement.
(ii) The provisions of Section 2.02(c) shall apply with respect to
any Contract if the parties have not received, by the Business Day before the
Closing Date, the written consent of each other party to that Contract to the
assignment of the Seller's rights thereunder to the Purchaser; provided that if
consents have not been so obtained with respect to the subservicing agreements
with Chase Manhattan Mortgage Corp. ("Chase"), for all purposes of calculating
the purchase price under this Agreement, including for purposes of the Closing
Statement and the Adjustment Schedule, the value of the Purchased Assets shall
be reduced by $8 million (the "Chase Amount"). The Chase Amount will be
allocated to each of the four Chase subservicing agreements in accordance with
Schedule 3.01(a)(ii), which the Purchaser and the Seller will jointly prepare
within five Business Days after the Closing Date. The Purchaser will pay to the
Seller 1/24th of the amount allocated to each Chase subservicing agreement for
each month such agreement has not been terminated by Chase after the Closing.
Such payment shall be made by wire transfer of immediately available funds no
later than the third Business Day after the end of the relevant month. If, after
the Closing Date, Chase consents to the assignment of a subservicing agreement,
the Purchaser will pay to the Seller the remainder of the Chase Amount allocated
to that agreement; if Chase terminates an agreement, the Purchaser will retain
the remainder of the portion of the Chase Amount allocated to that agreement.
Notwithstanding anything to the contrary in the foregoing, if Chase terminates
any subservicing agreement because of a breach of such agreement by the Seller
or its Affiliates occurring prior to the Closing, the Purchaser will retain (or
the Seller will repay to the Purchaser) the unearned portion of the Chase Amount
allocated to that agreement, and if Chase terminates any such agreement because
of a breach of such agreement by the Purchaser or its Affiliates occurring after
the Closing, the Purchaser will pay (or the Seller will retain) the unearned
portion of the Chase Amount allocated to that agreement to the Seller.
(b) The Seller shall prepare the Closing Statement as of a date no more
than five Business Days prior to Closing and (except as otherwise described in
Section 3.01(a)) as if the Closing had occurred on such earlier date, provided
that the GAAP Book Value of the Purchased Assets and the Assumed Liabilities
(other than the "▇▇▇▇-to-market" debt adjustment) shown thereon shall be
determined as of the last day of the prior month. The Closing Statement shall be
delivered to the Purchaser no less than two Business Days prior to the Closing
Date. The Purchaser and its representatives shall have full access to the
accounting records from which the Closing Statement was prepared.
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(c) Not later than 30 calendar days after the Closing Date, the Purchaser
shall prepare or cause to be prepared a statement of the items shown on the
Closing Statement (the "Adjustment Schedule"). The Adjustment Schedule shall be
prepared in the same manner as the Closing Statement, except that all amounts
shall be determined as of the Closing Date, and the Adjustment Schedule shall
reflect the reduction of the holdback amount in accordance with Section
3.01(a)(i). The Seller and its representatives shall have full access to the
accounting records from which the Adjustment Schedule was prepared.
(d) Subject to Section 3.01(e), the Seller shall pay to the Purchaser the
Adjustment Amount (as defined below) if such amount is a negative number, and
the Purchaser shall pay to the Seller the Adjustment Amount if such amount is a
positive number, in either event promptly after its determination, by wire
transfer of immediately available funds equal to such excess, together with
interest thereon for each day after the Closing Date to the date of such payment
at 5% per annum (the "Interest Rate"), to an account to be designated in writing
by the Purchaser or the Seller, as the case may be. "Adjustment Amount" means a
positive or negative number equal to (i) the Net Purchase Price reflected on the
Adjustment Schedule (as modified pursuant to Section 3.01(e), if appropriate)
minus (ii) the Net Purchase Price reflected on the Closing Statement.
(e) If, within 30 calendar days after the delivery of the Adjustment
Schedule to the Seller pursuant to Section 3.01(c), the Seller determines in
good faith that the Net Purchase Price reflected therein is inaccurate, the
Seller shall give notice to the Purchaser within such 30-day period (i) setting
forth the Seller's determination of the Net Purchase Price and (ii) specifying
in reasonable detail the Seller's basis for its disagreement with the
Purchaser's computation of the Net Purchase Price. The failure by the Seller so
to express its disagreement within such 30-day period shall constitute
acceptance of the Net Purchase Price reflected on the Adjustment Schedule. If
the Seller and the Purchaser are unable to resolve their disagreement within 30
days after receipt by the Purchaser of notice of such disagreement, the items in
dispute shall be referred to independent accountants selected by the Purchaser
and the Seller (the "Accountants"). The Accountants shall make a determination
(which shall not constitute an audit or valuation with respect to the Adjustment
Schedule or any item thereon) as to each of the items in dispute, which
determination shall be (A) in writing, (B) furnished to each of the Seller and
the Purchaser as promptly as practicable after the items in dispute have been
referred to the Accountants and (C) final, conclusive and binding on the parties
hereto. The Adjustment Schedule shall thereupon be modified in accordance with
the Accountants' determination. The fees and expenses of the Accountants shall
be shared equally by the Seller and Purchaser. Within three Business Days after
either (i) the expiration of the 30-day period referred to in this Section
3.01(e) if the Seller does not within such period give the notice of
disagreement provided for above, or (ii) the date on which the Accountants
furnish to the Seller and the Purchaser such firm's written determination, the
appropriate party shall make payment in accordance with Section 3.01(d) hereof.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE PARENT
The Seller and the Parent, jointly and severally, represent and warrant to
the Purchaser as follows:
Section 4.01 ORGANIZATION OF THE SELLER AND THE PARENT. Each of the Seller
and the Parent is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, with the requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as now being conducted.
Section 4.02 SUBSIDIARIES.
(a) The Seller owns, beneficially and of record, all of the capital stock
of each Subsidiary, free and clear of all Liens. The outstanding stock of each
Subsidiary has been validly issued and is fully paid and non-assessable. There
are no outstanding options, rights or warrants to acquire any equity interest in
any Subsidiary. Each of the Subsidiaries has been duly organized and is validly
existing and in good standing under the laws of its jurisdiction of
organization, with the requisite corporate power and authority to own, operate
and lease its properties and to carry on its business as now being conducted.
(b) Other than (i) the investments identified as Excluded Assets in
Section 2.01(b), (ii) shares of the capital stock of the Subsidiaries and the
Seller's investment in MERSCORP, Inc. and (iii) interests, acquired and held in
the ordinary course of the Business, in real estate investment conduits and
other entities organized for the exclusive purpose of holding mortgage loans,
the Seller does not, directly or indirectly, own, control or have the power to
vote any equity securities of any other corporation, partnership, joint venture,
trust or other business entity.
Section 4.03 POWER AND AUTHORITY. Each of the Seller and the Parent has
the requisite corporate power and authority to execute and deliver this
Agreement and the Related Documents to which it is or will be a party and to
perform the transactions contemplated hereby and thereby to be performed by it.
All corporate action on the part of the Seller and the Parent, necessary to
approve or to authorize the execution and delivery of this Agreement and the
Related Documents to which it is a party, and the performance of the
transactions contemplated hereby and thereby to be performed by it, has been
duly taken. This Agreement is a valid and binding obligation of the Seller and
the Parent, enforceable in accordance with its terms.
Section 4.04 NO CONFLICTS. Except as may be required under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act (the "HSR Act") and except as set
forth in Section 4.04 of the Disclosure Schedule (which Section the Seller
agrees to provide to the Purchaser within five Business Days after the date of
this Agreement), neither the execution or delivery by the Seller and the Parent
of this Agreement or any Related Document to which it is or will be a party nor
the performance of the transactions contemplated hereby or thereby to be
performed by it shall:
15
(i) conflict with or result in a breach of any provision of the
Certificate of Incorporation (or other charter documents) or Bylaws of the
Parent, the Seller or any Subsidiary;
(ii) violate any Law applicable to the Parent, the Seller or any
Subsidiary or by which the Parent, the Seller or any Subsidiary or any of their
properties is bound; or
(iii) constitute an event of default under, permit the termination
of, give rise to a right to accelerate any indebtedness under, or otherwise
violate, breach or conflict with, any material Contract or Approval binding on
the Parent, the Seller or any Subsidiary, or by which any material asset which
will be a Purchased Asset is bound, or result in the creation of any Lien upon
any asset which will be a Purchased Asset, other than such Liens that may be
imposed by or as a result of any action of the Purchaser or any of its
Affiliates; or require any consent, approval, authorization or other order or
action of, or notice to, or declaration, filing or registration with any
Governmental Agency or other third party.
Section 4.05 LITIGATION; COMPLIANCE WITH LAWS.
(a) To the Seller's Knowledge, neither the Seller nor any Subsidiary (i)
is in violation of, or has received any notice alleging a violation of, any
applicable Law or any Approval issued or required to be obtained thereunder or
(ii) has any unsatisfied liability or obligation in respect of any such
violation. The Seller and the Subsidiaries own or possess in the operation of
the Business all Approvals which are necessary for the conduct of the Business.
(b) Except as set forth in Section 4.05(b) of the Disclosure Schedule,
there is no pending or, to the Knowledge of the Seller, threatened Litigation by
or before any Governmental Agency, court or arbitrator, to which the Seller or
any Subsidiary is a party or by which any asset that will be a Purchased Asset
may be bound or affected, nor, to the Knowledge of the Seller, is there any
reasonable basis therefor. Since January 1, 1996, no Governmental Agency has
initiated any proceeding or, to the Seller's Knowledge, any investigation into
the business or operations of the Parent, the Seller or any Subsidiary, except
for routine audits and similar proceedings that did not result in the
determination of any violations, criticisms, citations or exceptions that, if
not cured, would have a Material Adverse Effect on the Business. There are no
unresolved violations, criticisms, citations or exceptions by any Governmental
Agency with respect to any examinations of the Seller or any Subsidiary that, if
not cured, would have a Material Adverse Effect on the Business.
(c) Except as set forth in Section 4.05(c) of the Disclosure Schedule, on
the date hereof, neither the Seller nor any of its Subsidiaries is a party to
any consent decree and, to the Knowledge of the Parent and the Seller, none are
threatened, pending or contemplated.
16
Section 4.06 FINANCIAL STATEMENTS; SEC REPORTS.
(a) Since January 1, 1997, the Seller has filed all required reports,
schedules, forms, statements and other documents (including exhibits and all
other information incorporated therein) with the Securities and Exchange
Commission (the "SEC"). As of their respective dates, such documents (the
"Seller SEC Documents") complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, and the rules of the SEC applicable to such
Seller SEC Documents, and no Seller SEC Document when filed contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) Attached hereto as Appendix I is a draft of the Seller's financial
statements for the year ended December 31, 1998 (the "1998 Financial
Statements"). The 1998 Financial Statements include a balance sheet of the
Seller and its consolidated subsidiaries as of December 31, 1998 (the "1998
Balance Sheet"), together with related statements of operations, changes in
shareholder's equity and cash flows of the Seller and its consolidated
subsidiaries (and notes thereto) for such period. The 1998 Financial Statements
fairly present, and the Seller's audited 1998 financial statements as filed with
the SEC will fairly present, in all material respects the consolidated financial
position and the consolidated results of operations and cash flows of the Seller
and its consolidated subsidiaries for the period therein identified in
conformity with GAAP (except as may be indicated in the notes thereto).
(c) Except for (i) liabilities or obligations incurred by the Seller or
its consolidated subsidiaries in the ordinary course of business and not
required by GAAP to be set forth on the 1998 Balance Sheet (all material known
items of which are described in Section 4.06(c) of the Disclosure Schedule) and
(ii) liabilities of and obligations incurred by the Seller and the consolidated
subsidiaries in the ordinary course of business since December 31, 1998 (none of
which known items could reasonably be expected to cause a Material Adverse
Effect on the Business), there is no material liability or obligation (whether
absolute, accrued or contingent) that is not set forth on the 1998 Balance
Sheet.
(d) The Seller has previously delivered to the Purchaser copies of the
Seller's internally prepared accounting reports for January 1999, and will
deliver such reports for February 1999 when available (such reports
collectively, the "Internal Reports"). The statements of income for the months
ended January 31 and February 28, 1999 and the balance sheets as of January 31
and February 28, 1999 included in the Internal Reports were or will be prepared
consistently with the 1998 Financial Statements in accordance with GAAP as
appropriate for the preparation of interim reports of that type.
(e) Since December 31, 1998 there has been no Material Adverse Change in
the operations, business or financial condition of the Business (other than as a
result of changes in general economic, political or industry conditions
including, without limitation, rises and falls in interest rates and/or
prepayment rates or forecasts or changes due to military action or war). Since
17
December 31, 1998, except as identified on Section 4.06(e) of the Disclosure
Schedule, there has been no action taken by the Seller or any of its
Subsidiaries of the type described in Section 10.04(a).
Section 4.07 PURCHASED ASSETS; REAL PROPERTY; LEASES AND OTHER CONTRACTS;
INSURANCE.
(a) Except as described in Section 4.07(a) of the Disclosure Schedule, the
Seller has good and marketable title to the Mortgage Loans included in the
Purchased Assets, and good and indefeasible title to, a leasehold interest in or
the right to use all other Purchased Assets, and at the Closing will (subject to
Section 2.02) have the right to convey and transfer to the Purchaser, all
Purchased Assets, and the Subsidiaries have good and indefeasible title to, a
leasehold interest in or the right to use all their assets, in each case free
and clear of all Liens, except for Liens for Taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings. All of the
tangible assets which will be Purchased Assets and the assets leased or licensed
under Contracts which will be Purchased Assets are in good operating condition
and repair, reasonable wear and tear excepted. The assets that will be Purchased
Assets and Excluded Assets, taken together, include all material properties,
Contracts, rights and assets which are being used in the conduct of the Business
at the date hereof. The Purchased Assets, together with any Contracts otherwise
excluded from the definition of "Purchased Assets" pursuant to Section 2.02(c)
and 3.01(a), comprise all the material properties, Contracts, rights and assets
required by the Seller and its Subsidiaries to conduct the Business. The
Purchased Assets are not subject to any option to purchase or right of first
refusal.
(b) Section 4.07(b) of the Disclosure Schedule contains a brief
description of all real property owned in fee simple or held pursuant to a Lease
by the Seller or a Subsidiary that will be included in the Purchased Assets,
other than REO properties. Except as set forth in Section 4.07(b) of the
Disclosure Schedule, (i) no condemnation proceedings have been instituted or, to
the Knowledge of the Seller, threatened with respect to any such real property,
and (ii) the Leases are all in full force and effect and no notices of default
have been given or received thereunder. Section 4.07(b) of the Disclosure
Schedule accurately sets forth all payment obligations under the Leases,
expiration dates of the Leases and options to renew or cancel the Leases.
(c) Section 4.07(c) of the Disclosure Schedule contains a complete and
correct list of all Contracts that will be included in the Purchased Assets or
the Assumed Liabilities. Except as set forth in Section 4.07(c) of the
Disclosure Schedule, all such Contracts listed or required to be listed pursuant
to the preceding sentence are in full force and effect and are valid and binding
obligations of the Seller or a Subsidiary and, to the Seller's Knowledge, of the
other parties thereto. The Seller has provided to the Purchaser true and
complete copies of all such Contracts. Except as set forth in Section 4.07(c) of
the Disclosure Schedule, no party to any such Contract is in default in any
material respect under any such Contract; nor to the Knowledge of the Seller,
does there presently exist any event or condition which, with the passage of
time or giving of notice or both, would be reasonably expected to constitute
such a default. The accounts receivable of the Seller and the Subsidiaries to be
reflected on the Closing Statement represent bona fide amounts receivable for
services rendered in the ordinary course of the Business. The values at which
accounts receivable,
18
net of reserves, are carried on the books and records of the Seller and the
Subsidiaries reflect the amounts deemed collectible in accordance with GAAP.
(d) Section 4.07(d) on the Disclosure Schedule contains a complete and
correct list of (i) all material insurance policies under which the Seller or a
Subsidiary is a named insured and that provide coverage with respect to the
Purchased Assets and (ii) any outstanding claims under such insurance policies
related to the Purchased Assets. Neither Seller nor any Subsidiary has received
notice of cancellation of any such policies.
Section 4.08 EMPLOYEE BENEFIT AND PENSION PLAN MATTERS.
(a) Section 4.08(a) on the Disclosure Schedule lists all material pension,
retirement, profit sharing, deferred compensation, stock option, stock purchase,
stock ownership, stock appreciation right, savings, bonus, severance, vacation,
incentive, medical, dental or health, life, accident, disability or other
employee benefit plans, programs, agreements, understandings or arrangements,
including, without limitation, all employee benefit plans as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), for the benefit of any of the present or former directors or
employees of the Business or their beneficiaries or dependents, or which are
maintained or sponsored by the Seller or a Subsidiary, or to which the Seller or
a Subsidiary makes, or is required to make, contributions (collectively,
"Employee Plans").
(b) Except to the extent that any of the following would not, individually
or in the aggregate, have a Material Adverse Effect on the Business, (i) each of
the Employee Plans and its administration and operation are in compliance in all
material respects with all applicable Laws and, except as otherwise permitted or
required by applicable Law, the provisions of such Employee Plan and (ii) all
contributions, premiums, benefits or other payments required to be made to or
with respect to any Employee Plan which is a welfare plan within the meaning of
Section 3(1) of ERISA for all periods preceding the Closing Date and for the
period including the Closing Date have, or prior to the Closing Date will have,
been made.
Section 4.09 LABOR RELATIONS. With respect to any employees of the
Business, neither the Seller nor any Subsidiary is a party to any collective
bargaining agreement with a labor organization certified by the National Labor
Relations Board (the "NLRB"), and (a) there is no unfair labor practice charge
or complaint against the Seller or a Subsidiary pending before the NLRB, (b)
there is no labor strike, or organized dispute, slowdown, work stoppage or other
form of collective labor activity actually pending or, to the knowledge of the
Seller or a Subsidiary, threatened against or affecting the Seller or a
Subsidiary, (c) there is no union representation claim or petition pending
before the NLRB and (d) neither the Seller nor any Subsidiary has experienced
any organized dispute, slowdown, work stoppage or other form of collective
activity in the past three years.
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Section 4.10 MORTGAGE LOANS.
(a) Except as otherwise described with respect to SOM in Section 4.10(a)
of the Disclosure Schedule, each of the Seller, CPM and SOM is (i) an approved
seller/servicer of mortgage loans for ▇▇▇▇▇▇ ▇▇▇ ("FNMA") and ▇▇▇▇▇▇▇ Mac
("FHLMC") in good standing, (ii) a Department of Housing and Urban Development
("HUD") approved mortgagee pursuant to Section 203 of the National Housing Act,
(iii) authorized by Government National Mortgage Association ("GNMA") as an
eligible issuer/servicer and in good standing to service GNMA loans and (iv) a
Federal Housing Administration ("FHA") approved mortgagee and (except for SOM) a
Veterans Administration ("VA") approved lender in good standing to originate and
service FHA and VA loans. Neither the Seller nor either such Subsidiary has been
suspended as a mortgagee or servicer by the FHA, the VA, FHMLC, FNMA or GNMA,
and each of the Seller and CPM has facilities, procedures and experienced
personnel necessary for the sound servicing of FHA, VA, FHMLC, FNMA and GNMA
loans. No event has occurred, including but not limited to a change in insurance
coverage, which would make the Seller or either such Subsidiary unable to comply
with FNMA, FHLMC, HUD, GNMA, FHA or VA eligibility requirements or which would
require notification by the Seller or either such Subsidiary to FNMA, FHLMC,
HUD, GNMA, FHA or VA.
(b) In connection with the execution of this Agreement, Seller has
delivered to Purchaser in a computer tape format reasonably acceptable to
Purchaser, a report that identifies the Mortgage Loans (and which identifies the
Mortgage Loans that are Owned Mortgage Loans) and the Subserviced Mortgage Loans
(the "Mortgage Loan Schedule," which term includes, except where the context
requires otherwise, the updated schedule to be prepared and delivered in
accordance with Section 10.15 (Updated Mortgage Loan Schedule)). The Mortgage
Loan Schedule identifies each Mortgage Loan owned, or serviced by the Seller and
the Subsidiaries and each Subserviced Mortgage Loan subserviced by the Seller
and the Subsidiaries (identifying any third party owner or servicer) and sets
forth the following information with respect to each such Mortgage Loan and
Subserviced Mortgage Loan (or, with respect to each Pipeline Mortgage Loan, such
of the following information as is then available) as of the close of business
on the last day of the preceding month (the "Cut-off Date"): (1) the Seller's
mortgage loan identifying number; (2) the mortgagor's first and last name; (3)
the street address of the mortgaged property including the state and zip code;
(4) a code indicating whether the mortgaged property is owner-occupied; (5) the
type of dwelling constituting the mortgaged property; (6) the original term to
maturity in months; (7) the original date of the mortgage; (8) to the extent
available, the LTV at origination; (9) the mortgage interest rate in effect on
the Cut-off Date; (10) the date on which the first monthly payment was due; (11)
the stated maturity date; (12) the amount of the monthly payment of principal
and interest at origination; (13) the amount of the monthly payment as of the
Cut-off Date; (14) the last due date on which a monthly payment was actually
applied to the unpaid principal balance; (15) the original principal amount;
(16) [reserved]; (17) to the extent available, a code indicating the purpose of
the loan (e.g., purchase financing, rate/term refinancing, cash-out
refinancing); (18) the mortgage interest rate at origination; (19) to the extent
available, a code indicating the documentation style (i.e., full, alternative or
reduced); (20) a code indicating if the Mortgage Loan or Subserviced Mortgage
Loan is subject to a Primary Insurance Policy; (21) a code indicating if the
Mortgage
20
Loan or Subserviced Mortgage Loan is an FHLMC, FNMA or GNMA loan, is owned by
the Seller or a Subsidiary or has been sold to private investors; (22) a code
indicating if the Mortgage Loan or Subserviced Mortgage Loan is an FHA or VA
loan; (23) a code indicating if the mortgage loan servicing is owned, interim
serviced or subserviced, (24) to the extent available, the appraised value of
the mortgaged property as of a given date; (25) to the extent available, the
sale price of the mortgaged property, if applicable; (26) the actual unpaid
principal balance of the Mortgage Loan or Subserviced Mortgage Loan as of the
Cut-off Date; (27) the servicing fee, including any excess servicing fee
retained by the Seller; (28) any guarantee fees; (29) whether the Mortgage Loan
or Subserviced Mortgage Loan is in foreclosure (provided that this information
will be included on the updated Mortgage Loan Schedule only) or is an REO
property; and (30) with respect to each adjustable rate Mortgage Loan: (i) the
first adjustment date; (ii) the applicable index and margin; (iii) the maximum
mortgage interest rate; (iv) the minimum mortgage interest rate; (v) the
periodic rate cap; (vi) the first adjustment date following the Cut-off Date;
and (vii) a code indicating whether the Mortgage Loan is a convertible mortgage
loan. With respect to all such Mortgage Loans and Subserviced Mortgage Loans in
the aggregate for each investor or owner or servicer, the Mortgage Loan Schedule
sets forth the following information, as of the related Cut-off Date: (1) the
number of Mortgage Loans; (2) the aggregate principal balance; (3) the weighted
average mortgage interest rate; and (4) the weighted average maturity. The
information set forth in the Mortgage Loan Schedule is complete, true and
correct in all material respects as of the date hereof.
(c) The Mortgage Loans have been underwritten, originated, held and
serviced in compliance in all material respects with all Applicable
Requirements. In the case of all Mortgage Loans described in the Mortgage Loan
Schedule or the Seller's and the Subsidiaries' books and records as FHA Loans or
VA Loans, the related Mortgage is guaranteed by the VA to the maximum extent
permitted by law or fully insured by the FHA, all necessary steps have been
taken to make and keep such guarantee or insurance valid, binding and
enforceable, and the related FHA Insurance Contract or VA Guaranty Agreement is
the binding, valid and enforceable obligation of the VA or the FHA, as the case
may be, without surcharge, set-off or defense.
(d) The Mortgage Notes evidencing the Mortgage Loans and the notes and
other evidences of indebtedness and related security agreements for all other
loans to be included among the Purchased Assets are correct in original amount,
genuine as to signatures of makers and endorsers, and accurate as to lien
priority and in all material respects as to description of collateral; the
related mortgages and other liens have been recorded and perfected in accordance
with the Applicable Requirements; and such notes and other evidences of
indebtedness and related security agreements were given for valid consideration
and constitute legally binding and enforceable claims against the makers and
endorsers thereof (except as enforceability may be limited by bankruptcy,
insolvency and other laws relating to creditors' rights generally or by general
equitable principles), without any set-off, defense or counterclaim, for the
full amounts shown on the books and records of the Seller and the Subsidiaries.
All insurance products for which the Seller or a Subsidiary has acted as agent
have been underwritten, marketed and sold in compliance with applicable Law and
constitute legally binding and enforceable claims against the insurer and the
insured (except as enforceability may be limited by bankruptcy, insolvency and
other laws relating to creditors' rights generally or by general equitable
principles).
21
(e) The Parent and its subsidiaries have not, and the Seller and the
Parent have no Knowledge that any other person has, taken any action or omitted
to take any reasonably required action, which action or omission would impair
the rights of the Seller, the Subsidiaries or (after the Closing) the Purchaser
in the Mortgage Loans or prevent any such person from collecting any amounts due
thereunder.
(f) Except as disclosed in Section 4.10(f) of the Disclosure Schedule, the
Seller has no Knowledge that any taxes, ground rents, water charges, sewer
rents, assessments (including assessments payable in future installments),
insurance premiums, leasehold payments or other outstanding charges affecting
the related Mortgaged Properties with respect to any Mortgage Loan, in each case
that are due, have not been paid.
(g) The terms of each Mortgage Note and each Mortgage with respect to any
Mortgage Loan have not been impaired, waived, altered or modified in any
respect, except (i) in the case of a Conventional Mortgage Loan, by written
instrument, recorded in the applicable public recording office if necessary to
maintain the lien priority of the Mortgage, and the substance of any such
waiver, alteration or modification has been approved by the insurer under the
Primary Insurance Policy, if any, and the title insurer, to the extent required
by the related policy, and (ii) in the case of an FHA Loan or a VA Loan, by
written instrument, and the substance of any such waiver, alteration or
modification has been approved by the FHA or the VA, as the case may be, to the
extent required by the applicable insurance agreement, and in each case, the
substance of any waiver, alteration or modification is reflected on the Mortgage
Loan Schedule. No instrument of waiver, alteration or modification has been
executed, and no Mortgagor has been released, in whole or in part, except in
connection with an assumption agreement approved by the insurer under the
Primary Insurance Policy, if any, and the title insurer, to the extent required
by the policy, and which assumption agreement has been delivered to the
custodian and the terms of which are reflected in the Mortgage Loan Schedule.
(h) No Mortgage with respect to any Mortgage Loan has been satisfied,
cancelled, subordinated or rescinded, in whole or in part, and the related
Mortgaged Property has not been released from the lien of the Mortgage, in whole
or in part, nor has any instrument been executed that would effect any such
satisfaction, cancellation, subordination, rescission or release, except in
connection with an assumption agreement which has been delivered to the related
custodian and which has been approved (a) in the case of a Conventional Mortgage
Loan, by the insurer under the Primary Insurance Policy, if any, and (b) in the
case of an FHA Loan or a VA Loan, by the FHA or the VA, as the case may be, to
the extent required by the applicable insurance agreement; and, in any event,
any such release is reflected on the Mortgage Loan Schedule.
(i) Each Mortgage with respect to any Mortgage Loan is a valid, existing
and enforceable first lien on the related Mortgaged Property (except for those
identified in Section 4.10(i)(A) of the Disclosure Schedule, all of which are
valid, existing and enforceable second liens subordinate only to a first lien),
including all improvements on the Mortgaged Property, subject only to (i) the
lien of current real property taxes and assessments not yet due and payable,
(ii)
22
covenants, conditions and restrictions, rights of way, easements and other
matters of the public record as of the date of recording being acceptable to
mortgage lending institutions generally and the FHMLC, FNMA, GNMA, HUD, FHA or
the VA, as the case may be, and any private investor and specifically referred
to in the lender's title insurance policy or attorney's opinion of title
delivered to the originator of the Mortgage Loan and which do not adversely
affect the Appraised Value of the Mortgaged Property, and (iii) other matters to
which like properties are commonly subject which do not materially interfere
with the benefits of the security intended to be provided by the Mortgage or the
use, enjoyment, value or marketability of the related Mortgaged Property and
which shall not in any way prevent realization of the benefits of any FHA
Insurance Contract or VA Guaranty Agreement, if applicable. All of the Mortgage
Properties securing the Mortgage Loans are residential properties, except for
those identified in Section 4.10(i)(B) of the Disclosure Schedule. Except to the
extent identified in Section 4.10(i)(A) of the Disclosure Schedule, any security
agreement, chattel mortgage or equivalent document related to and delivered in
connection with any such Mortgage Loan establishes and creates a valid, existing
and enforceable first lien and first priority security interest on the property
described therein and the Seller has full right to sell and assign the same to
the Purchaser. Except to the extent identified in Section 4.10(i)(A) of the
Disclosure Schedule, the Mortgaged Property was not, at the time of origination
of the Mortgage Loan, subject to a mortgage, deed of trust, deed to secure debt
or other security instrument creating a lien subordinate to the lien of the
Mortgage, which subordinate lien could cause such Mortgage Loan not to be
saleable to FHLMC, FNMA or GNMA.
(j) Except for Mortgage Loans identified in Section 4.10(j) of the
Disclosure Schedule, the proceeds of each Mortgage Loan have been fully
disbursed to or for the account of the related Mortgagor and there is no
obligation for the Mortgagee to advance additional funds thereunder and any and
all requirements as to completion of any on-site or off-site improvement and as
to disbursements of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making or closing each Mortgage Loan and
the recording of the Mortgage have been paid, and the related Mortgagor is not
entitled to any refund of any amounts paid or due to the Mortgagee pursuant to
the Mortgage Note or Mortgage.
(k) Each Mortgage Loan is covered by an American Land Title Association or
similar lender's title insurance policy (or a title commitment or title binder
committing the title company to issue such title insurance policy) or, where
customary, an attorney's opinion of title, in each case meeting the Applicable
Requirements, issued by an insurer acceptable to FNMA, FHLMC, HUD, GNMA, FHA or
VA, as applicable, and any private investor and qualified to do business in the
jurisdiction where the Mortgaged Property is located, insuring the Seller or a
Subsidiary, its successors and assigns as to the lien of the Mortgage in the
original principal amount of the Mortgage Loan and against any loss by reason of
the invalidity or unenforceability of the lien. Additionally, such lender's
title insurance policy affirmatively insures (or, for Pipeline Loans, will
insure at the Closing Date or when the Mortgage Loan is closed) ingress and
egress to and from the Mortgaged Property, and against encroachments by or upon
the Mortgaged Property or any interest therein. The Seller or a Subsidiary is
(or, for Pipeline Loans, will be at the Closing Date or when the Mortgage Loan
is closed) the sole insured of each lender's title insurance policy, and each
lender's title insurance policy is (or, for Pipeline Loans, will be at the
Closing Date or when the
23
Mortgage Loan is closed) in full force and effect and will be in full force and
effect upon the consummation of the transactions contemplated by this Agreement.
To the Seller's and the Parent's Knowledge, except as disclosed in Section
4.10(k) of the Disclosure Schedule, no claims have been made under a lender's
title insurance policy, and no prior holder of the related Mortgage, including
the Seller, has done, by act or omission, anything which would impair the
coverage of any lender's title insurance policy.
(l) Each appraisal made in connection with the origination of a Mortgage
Loan was performed in accordance with the requirements of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989. Except as disclosed
in Section 4.10(l) of the Disclosure Schedule or to the extent otherwise
permitted or required by the Applicable Requirements, each Conventional Mortgage
Loan (other than second mortgage loans identified on Section 4.10(i)(A) of the
Disclosure Schedule) with an LTV at origination in excess of 80% is subject to a
Primary Insurance Policy, which insures as to payment defaults that portion of
the Mortgage Loan in excess of the portion of the Appraised Value of the
Mortgaged Property required by FNMA and FHLMC, whether or not such Mortgage Loan
has been sold to FNMA or FHLMC. All provisions of such Primary Insurance Policy
have been and are being complied with, such policy is in full force and effect,
and all premiums due thereunder have been paid. Except as disclosed in Section
4.10(l) of the Disclosure Schedule, any Mortgage subject to any such Primary
Insurance Policy obligates the Mortgagor thereunder to maintain such insurance
and to pay all premiums and charges in connection therewith. The Mortgage
Interest Rate for the Mortgage Loan does not include any such insurance premium.
(m) (i) No material error, omission, misrepresentation, negligence, fraud
or similar occurrence with respect to a Mortgage Loan has taken place on the
part of any Person, including without limitation the Mortgagor, any appraiser,
any builder or developer, any correspondent or broker, any employee of the
Seller or a Subsidiary, or any other party involved in the origination of the
Mortgage Loan or in the application of any insurance in relation to such
Mortgage Loan, and (ii) no action has been taken or failed to be taken, no event
has occurred and no state of facts exists or has existed on or prior to the
Closing Date (whether or not known to the Seller on or prior to such date) which
has resulted or will result in an exclusion from, denial of, or defense to
coverage under any Primary Insurance Policy (including, without limitation, any
exclusions, denials or defenses which would limit or reduce the availability of
the timely payment of the full amount of the loss otherwise due thereunder to
the insured) whether arising out of actions, representations, errors, omissions,
negligence, or fraud of the Seller, the related Mortgagor or any party involved
in the application for such coverage, including the appraisal, plans and
specifications and other exhibits or documents submitted therewith to the
insurer under such insurance policy, or for any other reason under such
coverage, but not including the failure of such insurer to pay by reason of such
insurer's breach of such insurance policy or such insurer's financial inability
to pay.
(n) The brokers and correspondents involved in the origination of any
Mortgage Loan have complied in all material respects with all internal policies
and procedures of the Seller or CPM with respect to the origination of such
Mortgage Loans.
24
(o) To the Seller's Knowledge, all contracts or agreements between the
Seller or any Subsidiary on the one hand, and any broker or correspondent on the
other hand, require any such broker or correspondent to repurchase from the
Seller or a Subsidiary the Mortgage Loans originated by such broker or
correspondent on terms and conditions substantially identical to the related
repurchase obligations of the Seller or a Subsidiary to FNMA, GNMA, FHLMC, HUD,
FHA, VA or any private investor with respect to such Mortgage Loans.
(p) The Seller has no Knowledge, with respect to any Mortgage Loan, that
the Mortgaged Property is not in material compliance with all applicable
environmental Laws, including, without limitation, Laws relating to asbestos and
other Hazardous Materials. The Seller has not, and the Seller has no Knowledge
that the related Mortgagor has, received any notice of any violation or
potential violation of any such Law.
(q) Except as disclosed in Section 4.10(q) of the Disclosure Schedule, the
Seller has no Knowledge that the file relating to a serviced Mortgage Loan does
not contain all documentation necessary for the Purchaser to service such
Mortgage Loan following the Closing.
(r) Except as disclosed in Section 4.10(r)(i) of the Disclosure Schedule,
all Mortgage Loans have been initially certified, finally certified and/or
recertified in accordance with Applicable Requirements. All Mortgage Loans
listed in Section 4.10(r)(i) of the Disclosure Schedule have no impediment to
final certification and/or recertification by the applicable deadline, giving
effect to any available extension. The mortgage loan documents to be delivered
to the Purchaser will include all documents necessary (other than Assignments of
Mortgage that are to be delivered after the Closing Date and other than
documents identified in Section 4.10(r)(ii) of the Disclosure Schedule) in order
for the Purchaser's document custodian to finally certify or recertify, as
applicable, the Mortgage Loans by applicable deadlines, giving effect to any
available extension. Each Mortgage Loan included in a mortgage loan pool meets
all the eligibility requirements of the investor for inclusion in such mortgage
pool. After reconciliation required hereunder, each security of each mortgage
pool will be balanced to the collateral and the expected cash will be deposited
in the applicable custodial account.
(s) All flood and hazard insurance policies and flood certifications with
respect to Mortgage Loans were obtained where required, are in compliance with
applicable Laws and remain in full force and effect.
(t) Except for Mortgage Loans that are delinquent or in default, or which
have been foreclosed, the Seller has no Knowledge of any circumstances or
conditions with respect to the Mortgage, the Mortgaged Property, the Mortgagor
or the Mortgagor's credit standing that can reasonably be expected to cause
institutional investors investing in loans of the same type as a Mortgage Loan
to regard such Mortgage Loan to be an unacceptable investment or adversely
affect the value of the Mortgage Loan.
25
(u) Except for Mortgage Loans disclosed in Section 4.10(u) of the
Disclosure Schedule, all of the Mortgage Loans have been sold to investors, and
are being serviced, without recourse to the Seller or any Subsidiary (other than
for breaches of customary representations and warranties).
(v) With respect to the Subserviced Mortgage Loans:
(i) The Subserviced Mortgage Loans are being subserviced in
compliance in all material respects with the provisions of the applicable
subservicing agreements.
(ii) The Parent and its subsidiaries have not, and the Seller and
the Parent have no Knowledge that any other person has, taken any action
or omitted to take any reasonably required action, which action or
omission would impair the rights of the Seller, the Subsidiaries or (after
the Closing) the Purchaser in the Subserviced Mortgage Loans or prevent
any such person from collecting any amounts due thereunder.
(iii) Except as disclosed in Section 4.10(v)(iii) of the Disclosure
Schedule, the Seller has no Knowledge that the file relating to a
Subserviced Mortgage Loan does not contain all documentation necessary for
the Purchaser to subservice such Subserviced Mortgage Loan in accordance
with the related subservicing agreement following the Closing.
(iv) All of the Subserviced Mortgage Loans are being subserviced
without recourse to the Seller or any Subsidiary (other than for breaches
of customary representations and warranties).
Section 4.11 [RESERVED]
Section 4.12 TRANSACTIONS WITH AFFILIATES. Since January 1, 1997, except
as set forth in Section 4.12 of the Disclosure Schedule, neither the Seller nor
any Subsidiary has purchased, acquired or leased any property or services from
or sold, transferred or leased any property or services to, or lent or advanced
any money to, or borrowed any money from, or acquired any capital stock,
obligations or securities of, or made any management consulting or similar fee
agreement with the Parent or any other Affiliate of the Parent or any officer,
director or employee of the Seller or any Affiliate of the Seller.
Section 4.13 INTEREST RATE RISK MANAGEMENT INSTRUMENTS. All interest rate
swaps, caps, floors and option agreements and other interest rate risk
management arrangements entered into for the account of the Seller or the
Subsidiaries were entered into in the ordinary course of business and in
accordance with prudent business practice and applicable rules, regulations and
policies of any Governmental Agency and with counterparties believed to be
financially responsible and are legal, valid and binding obligations of the
Seller or one of the Subsidiaries and, to the Seller's Knowledge, of the other
parties thereto, enforceable against the Seller or the applicable Subsidiary,
and to the Seller's Knowledge, in accordance with their terms (except as
enforceability may be limited by bankruptcy, insolvency and other laws relating
to creditors' rights generally or by general equitable
26
principles), without any set-off, defense or counterclaim, and are in full force
and effect with respect to the Seller or the applicable Subsidiary and, to the
Seller's Knowledge, the other parties thereto. The Seller and the Subsidiaries
have duly performed all of their material obligations thereunder to the extent
that such obligations to perform have accrued, and there are no breaches,
violations or defaults or allegations or assertions of such by any party
thereunder.
Section 4.14 INTELLECTUAL PROPERTY.
(a) Section 4.14(a) of the Disclosure Schedule sets forth a list of all
trademarks, trade names, service marks, copyrights and patents, or applications
therefor, which constitute material Seller IPR. The Seller IPR constitutes all
of the Intellectual Property Rights necessary to conduct the Business. Except as
set forth in Section 4.14(a) of the Disclosure Schedule, the Seller or one of
the Subsidiaries is the sole owner of all right, title and interest in, or a
valid right to use, the Seller IPR, free and clear of all Liens. All renewal
fees and actions reasonably required to be taken for the maintenance or
protection of the Seller IPR have been paid and taken. Except as set forth in
Section 4.14(a) of the Disclosure Schedule, the Seller or one of the
Subsidiaries has the exclusive, unqualified right to use the Seller IPR and to
transfer the Seller IPR to the Purchaser. Neither the Seller nor the Parent has
received any charge, complaint, claim, demand or notice alleging that the
ownership or use of the Seller IPR constitutes any interference with or
infringement or misappropriation of any rights of any Person, and the Seller has
no Knowledge of any reasonable basis therefor. To the Seller's Knowledge, no
Person has interfered with, infringed or misappropriated any Seller IPR. The
Seller IPR is not subject to any outstanding Judgment or Contract prohibiting or
restricting the use thereof by the Seller or its Subsidiaries with respect to
the Business or prohibiting or restricting the licensing or transfer thereof by
the Seller and its Subsidiaries to the Purchaser or any other Person, or
restricting the use thereof by the Purchaser or any other Person.
(b) The Seller and its Subsidiaries have the unqualified right to use the
Third Party IPR in connection with and for the Business, and there is no
prohibition or restriction against the Purchaser's use of any of the Third Party
IPR following the Closing, except to the extent that the right to use such Third
Party IPR arises under a Contract which is deemed to be an Excluded Asset
pursuant to Section 3.01(a).
(c) Except to the extent set forth in Section 4.14(c) of the Disclosure
Schedule, neither the Seller nor any Subsidiary has entered into any agreement
to indemnify any Person against any charge of infringement of any Intellectual
Property Right or misappropriation of any trade secret.
(d) Except as set forth in Section 4.14(d) of the Disclosure Schedule, all
Software, computer hardware and other systems currently used in the Business are
Year 2000 Compliant. Except as set forth in Section 4.14(d) of the Disclosure
Schedule, each third party whose systems interface with the Business' internal
systems has advised the Seller that such third party's systems will be Year 2000
Compliant, and by the Closing Date, the Seller will have used Commercially
Reasonable Efforts to verify the accuracy of such advice.
27
(e) The Seller and each of the Subsidiaries have taken all reasonable,
customary and usual measures to protect the trade secrets used in or related to
the Business. To the extent that information of a confidential nature has been
used in relation to the Business in the five-year period prior to the date of
this Agreement, such information (except insofar as it has fallen into the
public domain through no fault of the Seller or the Subsidiaries) has been kept
strictly confidential and has not been disclosed otherwise than subject to a
customary confidentiality agreement.
(f) Except as set forth in Section 4.14(f) of the Disclosure Schedule, all
records and systems (including without limitation computer systems) and all data
and information of the Business is owned by the Seller or one or more of the
Subsidiaries, and is recorded, stored, maintained or operated or otherwise held
by the Seller or one or more of the Subsidiaries and is not wholly or partly
dependent on any facilities which are not under the exclusive ownership or
control of the Seller or one or more of the Subsidiaries and which are included
in the Purchased Assets.
(g) None of the operations of the Business involve the unlicensed or
unauthorized use of confidential information. To the Seller's Knowledge, the
processes employed, the services provided, the business conducted and the
products used or dealt in by the Seller and each of the Subsidiaries in the
conduct of the Business do not infringe any Intellectual Property Rights of any
unaffiliated Person. Except as set forth in Section 4.14(g) of the Disclosure
Schedule, none of the operations of the Business give rise to any royalty or
like payment obligation for the use of any Third Party IPR.
(h) Neither the Seller, any Subsidiary nor, to the Seller's Knowledge, any
Person with which the Seller or any Subsidiary have contracted, is in breach in
any material respect of any license, sublicense, Contract or assignment granted
to or by it with respect to any Intellectual Property Rights, including but not
limited to the use, maintenance, or support of any Software or hardware, nor
does the Seller have any Knowledge of any disputes or disagreements with respect
thereto.
(i) There are no issued patents or registered copyrights included in the
Intellectual Property Rights. All marks included in the Intellectual Property
Rights ("Marks") that have been registered with the United States Patent and
Trademark Office are currently in compliance with all formal legal requirements
(including the timely postregistration filing of affidavits or use and
incontestability and renewal applications), are valid and enforceable, and are
not subject to any maintenance fees or taxes or actions falling due within 90
days after the Closing Date, except where the failure thereof would not
reasonably be expected to result in a Material Adverse Effect on the Business.
All products and materials containing a ▇▇▇▇ ▇▇▇▇ the proper federal
registration notice where permitted by law, except where the failure thereof
would not reasonably be expected to result in a Material Adverse Effect on the
Business.
(l) The Seller and its Subsidiaries have taken all reasonable customary
and usual precautions to protect the secrecy, confidentiality, and value of
their Trade Secrets. The Seller or one of its Subsidiaries has good title and an
absolute right to use the Trade Secrets. To the Seller's Knowledge, none of the
Trade Secrets are part of the public knowledge or literature, or have been
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used, divulged, or appropriated either for the benefit of any Person (other than
the Seller or its Subsidiaries) or to the detriment of the Seller or one of its
Subsidiaries. No Trade Secret is subject to any adverse claim or, to the
Seller's Knowledge, has been challenged or threatened in any way.
Section 4.15 ENVIRONMENTAL LIABILITY. Neither the Seller nor, to the
Seller's Knowledge, any third party has engaged in the generation, use,
manufacture, treatment, transportation, storage or disposal of any Hazardous
Material on any of the properties included in the Purchased Assets, and the
Seller has no Knowledge that any such properties, as currently used and
occupied, do not comply in all material respects with applicable Laws and
Approvals, including those relating to land use, pollution, Hazardous Materials
and the environment. There is no Litigation and there are no private
investigations or remediation activities or governmental investigations pending
or, to the Seller's Knowledge threatened, seeking to impose, or that would
reasonably be expected to result in the imposition, on the Seller or any
Subsidiary of any material obligation or liability under any Law relating to
pollution, Hazardous Materials or the environment, nor does the Seller know of
any reasonable basis therefor.
Section 4.16 BROKERS. Neither the Parent nor any Affiliate has retained
any broker or finder, and no broker or finder has acted on behalf of the Parent
or any Affiliate in connection with this Agreement or the transactions provided
for hereby (other than ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Securities, Inc., all of whose fees and
expenses are for the Seller's account).
Section 4.17 INFORMATION SUPPLIED; ACCURACY OF DATA.
(a) The written materials (including computer tapes and disks) identified
in Section 4.17 of the Disclosure Schedule provided by or on behalf of the
Parent, the Seller, any of its Subsidiaries or any of their Affiliates to the
Purchaser or any of its Affiliates in connection with the negotiation of this
Agreement and the consummation of the transactions contemplated hereby are true,
complete and correct in all material respects; provided, however, that all
forward-looking information (including, without limitation, forecasts and
budgets) shall be excluded from the purview of this Section 4.17(a); and,
provided, further, that in the event that any matter identified in Section 4.17
of the Disclosure Schedule is covered specifically by any other representation
and warranty made by the Seller and Parent hereunder, such other representation
and warranty shall control.
(b) The records (including computer records), files and other information
in written or recorded form relating to, or used by the Seller and the
Subsidiaries in connection with, the Business accurately reflect in all material
respects the information supplied to the Seller by third parties and the actions
taken by the Seller. To the Seller's Knowledge, all servicing accounts
maintained by or on behalf of Seller or any of its Subsidiaries accurately
reflect all transactions in such accounts and all information supplied to the
Seller by third parties.
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Section 4.18 TAXES. (a) With respect to Taxes:
(i) for the purposes of this Section 4.18, the term "Sellers" shall
include the Seller and each of the Subsidiaries, the capital stock of which is
included among the Purchased Assets;
(ii) all Income Tax Returns that are required to be filed by or with
respect to the Parent or the Sellers have been timely filed, and all Income
Taxes required to be shown thereon as owing have been paid, except where the
failure to file Income Tax Returns or to pay Income Taxes would not have a
Material Adverse Effect on the Sellers;
(iii) except to the extent disclosed on Section 4.18(a)(iii) of the
Disclosure Schedule, no adjustments relating to Taxes of the Subsidiaries have
been proposed by the Internal Revenue Service or any state, local or foreign
taxing authority, whether informally or in writing, and to the Sellers'
Knowledge no basis exists for such an adjustment;
(iv) to the Seller's Knowledge, there are no pending or threatened
actions or proceedings for the assessment or collection of Taxes against the
Subsidiaries, other than as set forth on Section 4.18(a)(iii) of the Disclosure
Schedule;
(v) to the Seller's Knowledge, there are no Tax liens on any
Purchased Assets other than for taxes that are not yet due and payable, or for
Taxes that are being contested in good faith and that are properly reflected on
the Closing Statement;
(vi) no Subsidiary has been, at any time, a member of any
partnership or joint venture or the holder of a beneficial interest in any trust
for any period for which the applicable statute of limitations for any Income
Tax has not expired;
(vii) except as disclosed in Section 4.18(a)(vii) of the Disclosure
Schedule, no waivers of statutes of limitation have been given by the
Subsidiaries or requested with respect to any Tax Return of the Subsidiaries;
(viii) there are no requests for information by any Governmental
Agency currently outstanding relating to the Taxes of the Subsidiaries;
(ix) to the Seller's Knowledge, there are no proposed reassessments
of the Purchased Assets or any property owned by the Subsidiaries, or other
proposals that could increase the amount of Tax to which the Subsidiaries would
be subject; and
(x) Except as disclosed in Section 4.18(a)(x) of the Disclosure
Schedule, no penalties under Section 6721, 6722 or 6723 of the Code have been
assessed against the Seller or any of the Subsidiaries, or if penalties have
been assessed, all such penalties have been abated.
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(b) Sellers have delivered to the Purchaser a true and complete copy of
each Tax sharing, Tax allocation or Tax payment agreement or arrangement
involving the Subsidiaries, and a true and complete description of all such
unwritten or informal agreements or arrangements.
(c) Except as otherwise provided in this Agreement, on the Closing
Statement reserves and allowances will have been provided, adequate to satisfy
all liabilities for Taxes relating to the Subsidiaries for periods through the
Closing Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
The Purchaser represents and warrants to the Seller and the Parent as
follows:
Section 5.01 ORGANIZATION OF THE PURCHASER. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite power and authority to own, operate and
lease its properties and to carry on its business as now being conducted.
Section 5.02 POWER AND AUTHORITY. The Purchaser has the requisite power
and authority to execute and deliver this Agreement and the Related Documents to
which it is or will be a party and to perform the transactions contemplated
hereby and thereby to be performed by it. All corporate action on the part of
the Purchaser necessary to approve or to authorize the execution and delivery of
this Agreement and the Related Documents to which it is or will be a party and
the performance of the transactions contemplated hereby and thereby to be
performed by it has been duly taken. This Agreement is a valid and binding
obligation of the Purchaser, enforceable in accordance with its terms.
Section 5.03 NO CONFLICTS. Except as may be required under the HSR Act and
except as set forth on Schedule 5.03, neither the execution or delivery by the
Purchaser of this Agreement or the Related Documents to which it is or will be a
party nor the performance by the Purchaser of the transactions contemplated
hereby or thereby to be performed by it, shall:
(i) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of the Purchaser;
(ii) violate any Law applicable to the Purchaser or by which the
Purchaser or any of its properties is bound; or
(iii) require any consent, approval, authorization or other order or
action of, or notice to, or declaration, filing or registration with, any
Governmental Agency or other third party.
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Section 5.04 BROKERS. The Purchaser has not retained any broker or finder,
and no broker or finder has acted on behalf of the Purchaser, in connection with
this Agreement or the transactions provided for hereby.
Section 5.05 LICENSES. The Purchaser is (i) an approved seller/servicer of
mortgage loans for FNMA and FHLMC in good standing, (ii) a HUD approved
mortgagee pursuant to Section 203 of the National Housing Act, (iii) authorized
by GNMA as an eligible issuer/servicer and in good standing to service GNMA
loans and (iv) a FHA approved mortgagee and a VA approved lender in good
standing to originate and service FHA and VA loans. The Purchaser has not been
suspended as a mortgagee or servicer by the FHA, the VA, FHLMC, FNMA or GNMA,
and the Purchaser has facilities, procedures and experienced personnel necessary
for the sound servicing of FHA, VA, FHLMC, FNMA and GNMA loans.
ARTICLE VI
EMPLOYEES AND EMPLOYEE-RELATED MATTERS
Section 6.01 BASIC EMPLOYMENT MATTERS.
(a) Effective as of the Closing Date, the Purchaser or an Affiliate of the
Purchaser (the "Employer") shall offer to employ, at their then-current rates of
base pay, all employees of the Seller employed in the Business on the day before
the Closing Date, but excluding (i) any employees who are absent from work due
to an approved leave of absence (but excluding any absence reasonably expected
to be of short duration taken in accordance with Seller's standard policy for
such absences, including, but not limited to, vacation, jury duty, bereavement
and illness) or on corrective action or job discontinuance, (ii) any employees
identified on Schedule 6.01(a), which the Purchaser agrees to deliver to the
Seller at least ten Business Days before the Closing Date, and (iii) at the
Employer's discretion, any persons referred to as "excluded employees" in
Section 10.04(a)(vi). The employees to whom the Employer is obligated or
otherwise elects to offer employment pursuant to the preceding sentence and who
accept such employment are referred to collectively herein as the "Employees,"
which term, unless the context requires otherwise, includes the employees of the
Subsidiaries employed in the Business on the Closing Date (it being understood
that, as of the Closing and for purposes of this Article VI, such employees of
the Subsidiaries will continue to participate in any applicable separate
employee benefit and compensation plans maintained by the employing Subsidiary,
rather than the Employer's corresponding plan).
(b) Notwithstanding anything to the contrary in the foregoing, any
employee of the Seller referred to in clause (i) of Section 6.01(a) employed in
the Business who is absent from work on the Closing Date due to a leave of
absence as referred to above and who, within six months after the commencement
of such absence, reports for employment and is able to return to active
employment with the Employer, shall be eligible to return to his or her former
position if it is then available or, if such position is not available, shall be
eligible to seek another position with the Employer for a 30-day period (and
shall be offered employment by the Employer for at least such
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30-day period at the same rate of base pay); provided, however, that employees
referred to in this sentence shall be considered Employees for purposes of this
Agreement from and after the time they report for employment and are able to
return to active employment with the Purchaser.
(c) The Seller will pay all targeted bonuses and any other incentive
compensation to the Employees for the period between January 1, 1999 and the
Closing Date in accordance with the Seller's and the Subsidiaries' existing
incentive compensation plans. With respect to those employees listed on Schedule
6.01(c), the Employer shall "reinstate" their prior service with Seller upon the
first anniversary of their reemployment date with Seller (as set forth on
Schedule 6.01(c)) for purposes of this Article VI.
(d) The Employer will, subject to changes necessitated by or in response
to regulatory considerations, business performance or matters of fairness and
equity, maintain incentive compensation plans substantially consistent with the
Seller's existing plans (other than any bonuses or other compensation in respect
of the sale of the Business). Subject to this Article VI, after the Closing
Date, the Employer may modify, alter or terminate, in its sole and exclusive
discretion, any of the terms and conditions of employment of the Employees.
Nothing in this Agreement shall prevent the Employer from terminating the
employment of any Employee at any time after the Closing Date, in its sole and
exclusive discretion. Any non-competition agreements between an Employee and the
Seller or any of its Affiliates shall terminate as of the time such Employee
commences employment with the Employer.
Section 6.02 DEFINED BENEFIT PLANS. Effective as of the day before the
date the person becomes an Employee, such Employee shall cease to be an active
employee for purposes of the Seller's Retirement Plan (the "Retirement Plan").
As of the date the person becomes an Employee (for each such person, the
"Employment Date"), the Employer shall cause such Employee who participated in
the Retirement Plan to participate and commence to accrue benefits under the
Employer's pension plan on the same terms and conditions applicable to other
comparably situated employees of the Employer and its participating Affiliates.
The Employer shall grant past service credit for purposes of eligibility for
participation and vesting (but not for purposes of benefit credit) under the
Employer's pension plan to such Employee for all service credited as of the
Employment Date under the Retirement Plan.
Section 6.03 DEFINED CONTRIBUTION PLANS. Effective as of the day before
the Employment Date, each Employee shall cease to be an active employee for
purposes of the Seller's Savings Incentive Plan (the "SIP"). As of the
Employment Date the Employer shall cause each Employee who was eligible to
participate in the SIP to be eligible to participate in the Employer's savings
investment plan on the same terms and conditions applicable to other comparably
situated employees of the Employer and its participating Affiliates. The
Employer shall grant past service credit for purposes of eligibility and vesting
to each Employee under the Employer's savings investment plan ("ESIP") for all
service credited to such Employee as of the Employment Date under the SIP. The
Employees shall be eligible to make direct rollovers from the SIP to the ESIP in
the form of cash and participant notes held by the SIP.
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Section 6.04 SEVERANCE ARRANGEMENTS. From the Employment Date until the
date which is six months after the Closing Date, each Employee shall be entitled
to severance benefits in accordance with the Seller's existing severance
program. After the date which is six months after the Closing Date, the Employer
shall provide each Employee with the Employer's severance program (as the same
may be amended) on the same basis as applicable to other comparably situated
employees of the Employer and its participating affiliates providing benefits in
the event of termination of employment. The Employer will grant past service
credit for all purposes under its severance program to each Employee for all
service credited to such Employee as of the Employment Date under the
corresponding severance programs of the Seller. The Seller and the Purchaser
shall share, in accordance with the following sentence, the obligation for all
severance benefits in the aggregate payable in accordance with the Seller's or
the applicable Subsidiary's severance plans ("covered severance payments") to
(i) all Employees whose employment with the Employer and its Affiliates is
terminated within six months after the Closing Date and (ii) all employees to
whom the Employer is not required to offer employment because they are
identified on Schedule 6.01(a) and whose employment with the Seller or its
Affiliates is terminated within six months after the Closing Date. The Seller
shall be responsible for the first $1,500,000 of covered severance payments; the
Seller shall be responsible for 75%, and the Purchaser shall be responsible for
the balance, of covered severance payments between $1,500,001 and $2,500,000;
the Purchaser and the Seller shall each be responsible for 50% of covered
severance payments between $2,500,001 and $3,500,000; the Purchaser shall be
responsible for 75%, and the Seller shall be responsible for the balance, of
covered severance payments between $3,500,001 and $4,500,000; and the Purchaser
shall be responsible for all covered severance payments above $4,500,000. Each
party shall reimburse the other promptly after receipt of reasonable documentary
evidence for amounts owed pursuant to the preceding sentence. The Employer and
its Affiliates will not hire or rehire any such employee in respect of whom the
Seller has made any portion of such severance payments, and the Parent and its
Affiliates will not hire or rehire any such employee in respect of whom the
Purchaser has made any portion of such severance payments (other than Employees
whose employment with the Employer and its Affiliates has been terminated), in
either case until the first anniversary of such employee's termination.
Section 6.05 OTHER EMPLOYEE BENEFITS.
(a) As of the Employment Date, the Employer shall cause each Employee to
participate in the welfare benefit plans (as defined in Section 3(1) of ERISA)
sponsored or maintained by the Employer and its participating Affiliates on the
same terms and conditions applicable to other comparably situated employees of
the Employer and its participating Affiliates. The Employer will waive any
pre-existing conditions clause and will grant past service credit for all
purposes under each such welfare plan, other than retiree medical, to each
Employee for all service credited as of the Employment Date under the
corresponding welfare plans of the Seller. The Employer shall also cause the
welfare benefit plans referred to in this Section 6.05(a) to give each Employee
credit for the portion of 1999 deductibles that were satisfied prior to the
Employment Date. Notwithstanding anything herein to the contrary, the Seller
shall be responsible for (i) all covered welfare benefit claims under its and
the Subsidiaries' employee benefit plans by each Employee or eligible dependents
that arise for treatment received prior to the Employment Date, and with respect
to
34
Employees or their eligible dependents who were hospitalized on the Closing
Date, that arise by reason of events occurring before such Employees or eligible
dependents are discharged from the hospital and (ii) workers' compensation
payments in respect of events occurring prior to the Closing Date.
(b) During 1999, the Employer shall grant to all Employees the number of
vacation days for which they would be eligible had they continued to be
employees of the Seller, except for any days which have been used as of the
Employment Date. Starting as of January 1, 2000, the Employer shall provide the
Employees with vacation time under the vacation policies applicable to other
comparably situated employees of the Employer and its Affiliates and will grant
past service credit for all purposes under such policies to Employees for all
service credited as of the Employment Date under the vacation policies of the
Seller.
ARTICLE VII
CLOSING
Section 7.01 THE CLOSING. The Closing shall be held at 10:00 a.m. on the
earliest date that is five Business Days after the satisfaction or waiver of all
of the conditions to Closing set out in Articles VIII and IX hereto (other than
any condition to be satisfied or waived at the Closing) at the offices of the
Purchaser at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, or at such other
time and place as may mutually be agreed upon by the parties hereto. At the
Closing, the appropriate parties shall take all other actions not previously
taken but required to be taken hereunder on or prior to the Closing Date. The
transfer of the Purchased Assets to the Purchaser and the assumption of the
Assumed Liabilities by the Purchaser shall be deemed to occur at 12:01 a.m. on
the Closing Date.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
TO CONSUMMATE THE TRANSACTION
The obligations of the Purchaser to be performed at the Closing shall be
subject to the satisfaction or waiver, at or prior to the Closing, of the
following conditions:
Section 8.01 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH COVENANTS.
The representations and warranties of the Seller and the Parent contained in
this Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect as though such representations
and warranties were made at the Closing except for changes expressly permitted
or contemplated by this Agreement; the covenants required to be performed by the
Seller and the Parent at or prior to the Closing pursuant to the terms of this
Agreement shall have been duly performed in all material respects; and the
Purchaser shall have received a certificate of the President or a Vice President
of each of the Seller and the Parent to that effect.
35
Section 8.02 NO INJUNCTION. No Judgment shall have been rendered in any
Litigation which has the effect of enjoining the consummation of the
transactions contemplated by this Agreement.
Section 8.03 APPROVALs. All Approvals required from any Governmental
Agency in order to consummate the transactions contemplated by this Agreement
and to conduct the Business following the Closing shall have been obtained
(other than Approvals of which the failure to obtain, individually or in the
aggregate, would not have a Material Adverse Effect on the Business), and all
applicable waiting periods under the HSR Act and other applicable Laws shall
have expired or been terminated, without the imposition of any materially
burdensome restrictions or conditions on the Purchaser.
Section 8.04 THIRD PARTY CONSENTS. Each of the Approvals set forth in
Schedule 8.04 of this Agreement shall have been obtained.
Section 8.05 ▇▇▇▇ OF SALE, ETC. The Seller shall have duly authorized,
executed and delivered to the Purchaser the ▇▇▇▇ of Sale and the Trademark
Assignment, each dated as of the Closing Date, and the deeds and other
instruments of conveyance referred to in Section 2.01(c).
Section 8.06 SURVEY; TITLE POLICIES. The Purchaser shall have received the
surveys and commitments to issue title policies with respect to the real
property owned by the Seller, as specified in Section 10.14.
Section 8.07 EMPLOYMENT AGREEMENT. Those persons identified on Schedule
8.07 shall have executed employment agreements with the Purchaser effective as
of the Closing Date, in form and substance satisfactory to the Purchaser,
provided that (i) the Purchaser will offer each such person comparable
compensation and benefits to those he or she has currently and will not require
relocation as a condition of such employment and (ii) unless the Purchaser
notifies the Seller within 30 days after the date of this Agreement that it
elects to terminate this Agreement on account of the failure of this condition
(in which event the Agreement shall be deemed to have been terminated by the
parties' mutual consent pursuant to Section 13.01(a)), this condition shall be
deemed to have been waived by the Purchaser.
Section 8.08 TRANSFER INSTRUCTIONS. The Transfer Instructions identified
on Schedule 8.08 to be completed prior to the Closing Date shall have been
completed in all material respects.
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ARTICLE IX
CONDITIONS TO OBLIGATIONS OF THE SELLER
AND THE PARENT TO CONSUMMATE THE TRANSACTION
The obligations of the Seller and the Parent to be performed at the
Closing shall be subject to the satisfaction or waiver, at or prior to the
Closing, of the following conditions:
Section 9.01 REPRESENTATIONS AND WARRANTIES; COMPLIANCE WITH COVENANTS.
The representations and warranties of the Purchaser contained in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though such representations and warranties
were made at the Closing except for changes expressly permitted or contemplated
by this Agreement; the covenants required to be performed by the Purchaser at or
prior to the Closing pursuant to the terms of this Agreement shall have been
duly performed in all material respects; and the Seller shall have received a
certificate of the President or a Vice President of the Purchaser to such
effect.
Section 9.02 NO INJUNCTION. No Judgment shall have been rendered in any
Litigation which has the effect of enjoining the consummation of the
transactions contemplated by this Agreement.
Section 9.03 APPROVALS. All Approvals required from any Governmental
Agency in order to consummate the transactions contemplated by this Agreement
shall have been obtained (other than Approvals of which the failure to obtain,
individually or in the aggregate, would not have a Material Adverse Effect on
the Seller or the Parent), and all applicable waiting periods under the HSR Act
and other applicable laws shall have expired or been terminated, without the
imposition of any materially burdensome restrictions or conditions on the
Seller.
Section 9.04 THIRD PARTY CONSENTS. Each of the Approvals identified on
Schedule 9.04 shall have been obtained.
Section 9.05 ASSUMPTION AGREEMENT. The Purchaser shall have duly
authorized, executed and delivered to the Seller the Assumption Agreement, dated
as of the Closing Date, and shall have acknowledged the ▇▇▇▇ of Sale.
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ARTICLE X
COVENANTS
Section 10.01 HSR FILINGS. As soon as practicable after the execution of
this Agreement, the parties shall make all filings with the appropriate
Governmental Agencies of the information and documents required or contemplated
by the HSR Act with respect to the transactions contemplated by this Agreement.
The Seller and the Parent, on the one hand, and the Purchaser, on the other
hand, shall use their respective best efforts to comply as expeditiously as
possible with all lawful requests of such Governmental Agencies for additional
information and documents.
Section 10.02 INJUNCTIONS. If any court having jurisdiction over any of
the parties hereto issues or otherwise promulgates any restraining order,
injunction, decree or similar order which prohibits the consummation of any of
the transactions contemplated hereby or by any Related Document, the parties
hereto shall use Commercially Reasonable Efforts to have such restraining order,
injunction, decree or similar order dissolved or otherwise eliminated as
promptly as possible and to pursue the underlying Litigation diligently and in
good faith. Notwithstanding anything to the contrary contained in this
Agreement, nothing contained in this Section 10.02 shall limit the respective
rights of the parties to terminate this Agreement pursuant to Section 13.01 or
shall limit or otherwise affect the respective conditions to the obligations of
the parties set forth in Articles VIII and IX hereof.
Section 10.03 ACCESS TO INFORMATION. Between the date of this Agreement
and the Closing Date, the Seller shall, and shall cause its Affiliates to, upon
reasonable request by the Purchaser, (i) provide the Purchaser and its
accountants, counsel and other authorized representatives reasonable access,
during normal business hours and under reasonable circumstances, to any and all
premises, properties, Contracts, commitments, books, records and other
information of or relating to the Business and to the officers, employees and
agents of the Business and (ii) cause its officers to furnish to the Purchaser
and its authorized representatives any financial, environmental, health and
safety, technical and operating data and other information pertaining to the
Business, as the Purchaser shall from time to time reasonably request and which
is either normally available to the Seller in the ordinary and usual course of
business or which may be obtained or produced by the Seller at a de minimis cost
to the Seller; PROVIDED, HOWEVER, that such access may be limited to the
location at which the relevant information is normally maintained and shall not
unreasonably interfere with the operations of the Seller and its Affiliates, and
the Seller and its Affiliates shall not be required to give the Purchaser access
to any information relating solely to the Excluded Assets.
Section 10.04 NO EXTRAORDINARY ACTIONS BY THE SELLER.
(a) In each case except as (x) consented to or approved by the Purchaser
in writing (which consent shall not be unreasonably withheld, bearing in mind
the Purchaser's plans to operate the Business after the Closing), (y) required
by this Agreement or the Related Documents or (z) related to the Excluded Assets
or the Retained Liabilities, from the date hereof until the Closing, the Parent
and the Seller shall not take any action that would cause their representations
and warranties herein to be untrue in any material respect and shall conduct the
Business only in the
38
ordinary course and in accordance with its present policies and procedures
(including loan collection and chargeoff practices) and use Commercially
Reasonable Efforts to preserve intact its present business organization, keep
available the services of its present management and employees and preserve its
relationships with suppliers and customers and others having business dealings
with it (including, to the extent consistent with the provisions of this
Agreement, the Parent and its Affiliates) so that the Business shall not be
impaired in any material respect, and the Seller and the Subsidiaries will not
(and the Parent will cause the Seller and the Subsidiaries not to):
(i) Permit or allow any of the assets that will be Purchased Assets
to be subjected to any Lien, except as set forth in Section 4.07 of the
Disclosure Schedule and except for Liens for Taxes not yet due and payable or
which are being contested in good faith by appropriate proceedings;
(ii) Sell, transfer or otherwise dispose of or agree to dispose of,
or acquire or agree to acquire, any material assets that would be Purchased
Assets except in the ordinary course of business, or sell, transfer or otherwise
dispose of or agree to dispose of any material servicing rights, other than
pursuant to Contracts identified on Section 4.07(c) of the Disclosure Schedule
or extensions thereof on substantially similar terms. To the extent the Seller
needs to sell servicing rights in the ordinary course of business, the Seller
shall sell such servicing rights to the Purchaser in accordance with the flow
matrix set forth on Exhibit A to Schedule 3.01(a)(i)(A);
(iii) Grant any general increase or implement any general decrease
in the compensation of officers or employees (including any such increase
pursuant to any bonus, pension, profit-sharing or other plan or commitment) or
grant any increase in the compensation payable or to become payable to any
officer or employee, other than (A) in the ordinary course of business or
pursuant to promotions or (B) bonuses payable by the Seller in connection with
the consummation of the transactions contemplated by this Agreement;
(iv) Other than as set forth in Schedule 10.04(a)(iv), make any
single capital expenditure or commitment in excess of $50,000 for additions to
property, plant, equipment or intangible capital assets that would be included
in the Purchased Assets or make aggregate capital expenditures and commitments
for such purposes in excess of $200,000;
(v) Enter into any agreement for real estate tax service or any
other agreement (other than Mortgage Loans or commitments to make Mortgage
Loans) for a non-cancelable term in excess of one year or involving aggregate
payments by the Seller in excess of $25,000; or
(vi) Except as set forth in Schedule 10.04(a)(vi), hire any person
who would become an Employee, provided that the Seller may hire (A) any
non-exempt employee to fill a vacancy or (B) any other person, it being
understood that (x) any person described in this clause (B) to whose employment
the Purchaser has not consented shall be an "excluded employee" to whom the
Employer will not be required to offer employment under Section 6.01 and (y) the
Seller will advise each such employee to that effect in connection with its
offer of employment.
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(b) The Parent and the Seller agree to cooperate with the Purchaser
throughout the period prior to the Closing to meet with employees of the
Business at such times as shall be approved by a representative of the Parent or
the Seller, for purposes of retaining such employees.
(c) From the date hereof until the Closing or the earlier termination of
this Agreement, the Seller and the Parent will not, and will cause their
officers, directors, employees and agents not to, initiate contact with, solicit
any inquiries from, request or invite submission of any proposal or offer from,
or provide any confidential information to, or participate in any negotiations
with, any third party in connection with any possible proposal by such third
party regarding a sale of all or any substantial portion of the assets of the
Business, provided that the provisions of this paragraph shall not apply to any
assets that would be Excluded Assets.
Section 10.05 COMMERCIALLY REASONABLE EFFORTS; FURTHER ASSURANCES.
(a) Upon the terms and subject to the conditions hereof, the Seller and
the Parent, on the one hand, and the Purchaser, on the other hand, agree to use
Commercially Reasonable Efforts to take or cause to be taken all actions, and to
do or cause to be done all things, necessary, proper or advisable to ensure that
the conditions set forth in Articles VIII and IX are satisfied and to consummate
and make effective the transactions contemplated by this Agreement and the
Related Documents (including without limitation, the preparation of supplemental
indentures and other documents in connection with assumption of the Debentures,
the Notes and the QUICS), insofar as such matters are within their respective
control.
(b) Except as otherwise expressly provided for in this Agreement, through
the date which is 180 days after the Closing Date (i) each of the Purchaser and
the Seller shall, and shall cause each of their respective Affiliates to, use
Commercially Reasonable Efforts to obtain at the earliest practicable date,
whether before or after the Closing Date, all consents required to be obtained
by it for the performance of the transactions contemplated by this Agreement and
the Related Documents, (ii) the Seller shall use Commercially Reasonable Efforts
to obtain, whether before or after the Closing Date, any amendments, novations,
releases, waivers, consents or approvals with respect to all outstanding
Contracts of the Seller which are necessary either to cure any defaults
thereunder existing immediately prior to the Closing Date or for the
consummation of the transactions contemplated by this Agreement and the Related
Documents, and (iii) each party hereto shall execute and deliver such
instruments, certificates and other documents and take such other actions as any
other party hereto may reasonably require in order to carry out this Agreement
or any of the Related Documents and the transactions contemplated hereby and
thereby; PROVIDED, HOWEVER, that (A) in obtaining any such amendments,
novations, releases, waivers, consents or approvals, no party hereto shall, or
shall permit any of its Affiliates to, agree to any amendment of any such
instrument which imposes any obligation or liability on another party without
the prior written consent of such other party, and (B) except as otherwise
expressly provided by this Agreement, no party hereto shall be obligated to
execute any guarantees or undertakings or otherwise incur or assume any expense
or liability (other than for filing fees and similar costs required in
connection with the purchase and sale of the Purchased Assets) in obtaining any
such release, novation, approval, consent, authorization or waiver.
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(c) The Purchaser, on the one hand, and the Seller and the Parent, on the
other hand, shall provide such information and cooperate fully with each other
party hereto in making such applications, filings and other submissions which
may be required or reasonably necessary in order to obtain all approvals,
consents, authorizations and waivers as may be required from any Governmental
Agency or other third party in connection with the transactions contemplated by
this Agreement and the Related Documents and shall promptly use Commercially
Reasonable Efforts to make each such application, filing or other submission,
including without limitation, any supplemental filing.
Section 10.06 BULK SALES LAWS. The Purchaser hereby waives compliance by
the Seller with the provisions of the "bulk sales" or similar laws of any
jurisdiction and all bulk sales tax provisions in all states. The Seller and the
Parent shall indemnify the Purchaser and hold it harmless from and against any
and all claims, losses, damages, liabilities, costs and expenses incurred by the
Purchaser or any of its Affiliates as a result of any failure to comply with any
such laws.
Section 10.07 INSURANCE AND BENEFITS CONTRACTS. The Seller shall use
Commercially Reasonable Efforts to maintain all insurance policies and binders
relating to the Business in full force and effect at all times up to and
including the Closing Date and shall pay all premiums, deductibles and
retro-adjustment ▇▇▇▇▇▇▇▇, if any, with respect thereto covering all periods,
and ensuring coverage of the Business, up to and including the Closing Date.
Section 10.08 USE OF NAMES.
(a) As soon as reasonably practicable after the Closing, the Seller shall
(i) change its corporate name to one not including the words "Source One" or any
confusingly similar words and (ii) cease to use (including use through the
internet) any written materials, including, without limitation, signs, labels,
packing materials, letterhead, advertising and promotional materials and forms,
which include the words "Source One" or any trademark, trade name, domain name,
service ▇▇▇▇ or trade dress owned by the Seller and the Subsidiaries prior to
the Closing Date.
(b) As soon as reasonably practicable after the Closing, the Purchaser
shall cease to use any written materials, including, without limitation, labels,
packing materials, letterhead, advertising materials and forms, that identify
the Business as an Affiliate of the Parent; PROVIDED, HOWEVER, that the
Purchaser may use signs, inventory, checks, application forms, sales literature,
letterhead, business cards or the like in existence as of the Closing Date until
the earlier of the exhaustion of such materials or the date six months after the
Closing Date.
Section 10.09 TRANSFER OF MORTGAGE LOANS. The Seller shall, both before
and after the Closing, at its expense, complete the steps required by the
Transfer Instructions in accordance with the applicable timetable and take all
such other actions and pay such other costs as are, in the Purchaser's
reasonable judgment, necessary to effect and evidence the transfer of all of the
Seller's and the Subsidiaries' right, title and interest in and to the Mortgage
Loans.
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Section 10.10 MAIL RECEIVED AFTER CLOSING. Following the Closing, (i) the
Purchaser may receive and open all mail addressed or directed to the Seller at
the offices of the Business, (ii) to the extent that such mail and the contents
thereof relate to the Purchased Assets, the Business or to any of the Assumed
Liabilities, the Purchaser may deal with the contents thereof in its sole
discretion and (iii) the Purchaser shall forward any other such mail to the
Seller.
Section 10.11 CONFIDENTIALITY; PUBLICITY. Each party shall hold, and shall
use its best efforts to cause its employees and agents to hold, in strict
confidence all information concerning another party furnished to it by such
other, all in accordance with the Confidentiality Agreement previously executed
and delivered by the parties in connection with the transactions contemplated
hereby, which shall remain in full force and effect and shall survive any
termination of this Agreement for a period of one year. Any release to the
public of information with respect to the matters contemplated by this Agreement
(including without limitation any termination of this Agreement) shall be made
only in the form and manner approved by the Purchaser, the Seller and the
Parent, provided that if a party is required by law to make any disclosure
concerning such matters, such party shall discuss in good faith with the other
parties the form and content of such disclosure prior to its release.
Section 10.12 TRANSITION SERVICES. At the Closing, the parties will
execute and deliver an agreement substantially in the form of Exhibit C (the
"Transition Services Agreement").
Section 10.13 ACCESS TO RECORDS AFTER THE CLOSING.
(a) The Seller, on the one hand, and the Purchaser, on the other hand,
recognize that subsequent to the Closing they may have information and documents
which relate to the Business, its employees, its properties, the Purchased
Assets, the Excluded Assets, the Retained Liabilities, the Excluded Liabilities
and Taxes and to which the other party may need access subsequent to the
Closing. Each party shall provide the other party access, during normal business
hours on reasonable notice, to all such information and documents, and to such
of its employees, which such other party reasonably requests. The Purchaser, on
the one hand, and the Seller, on the other hand, agree that prior to the
destruction or disposition of any such documents or any books or records
pertaining to or containing such information at any time within five years (or,
in any matter involving Taxes, until the later of the expiration of all
applicable statutes of limitations (including extensions thereof) or the
conclusion of all litigation (including exhaustion of all appeals relating
thereto) with respect to such Taxes) after the Closing Date, each party shall
provide not less than 30 calendar days prior written notice to the other of any
such proposed destruction or disposal. If the recipient of such notice desires
to obtain any such documents, it may do so by notifying the other party in
writing at any time prior to the scheduled date for such destruction or
disposal. Such notice must specify the documents which the requesting party
wishes to obtain. The parties shall then promptly arrange for the delivery of
such documents. All out-of-pocket costs associated with the delivery of the
requested documents shall be paid by the requesting party.
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(b) With respect to audits conducted by federal, state and local taxing
authorities, Purchaser agrees to provide Parent with responses to information
document requests presented by such taxing authorities within 30 calendar days.
Such information document requests may include, but shall not be limited to, all
tax matters related to Seller and subsidiaries for all tax years currently open
under the relevant jurisdictions' statute of limitation.
Section 10.14 TITLE COMMITMENTS; SURVEYS.
(a) The Seller shall, not less than 30 days prior to the Closing Date,
deliver to the Purchaser a commitment of a title insurance company reasonably
satisfactory to the Purchaser to issue an owner's policy of title insurance on a
standard American Land Title Association form covering title to each parcel of
real property owned by the Seller described in Section 4.07(b) in an amount
reasonably satisfactory to the Purchaser naming the Purchaser as the insured.
The Seller agrees to pay the cost of such title insurance commitments.
(b) As soon as reasonably practicable after the execution of this
Agreement, the Seller shall, at its expense, furnish to the Purchaser a current
on-the-ground staked "as-built" survey of the owned premises included in the
Purchased Assets made in accordance with the "Minimum Standard Detail
Requirements for ALTA/ACSM Land Title Surveys" jointly established by ALTA and
ACSM in 1992 and meeting the accuracy requirements of an Urban Class Survey, as
defined therein, including Items 1-44, 6-11 and 13 on Table A contained therein
(the "Survey") prepared by a registered land surveyor licensed in the state
where such premise is located (the "Surveyor"), and which survey shall otherwise
be acceptable to the Purchaser, in its reasonable discretion, and the title
company for deletion of the exceptions pertaining to areas and boundaries. The
Survey (including specifically the certificate of the Surveyor forming a part
thereof) shall be in form and substance acceptable to the Purchaser, in its
reasonable discretion, and to the title insurance company and shall locate all
existing improvements, easements and rights-of-way (which shall show recording
data, if applicable), encroachments, conflicts and protrusions affecting such
premises, water, sewer, gas and electric lines, telephone and television cable
lines and the size and capacity thereof, parking spaces and the size of each,
shall set forth the outside perimeter of the premises, shall contain a metes and
bounds description of the premises and shall set forth the acres included within
the premises. The Survey shall contain a statement on the face thereof
certifying as to the Zone Designation by the Secretary of Housing and Urban
Development with reference to the appropriate Flood Insurance Rate Map Number
(which Flood Insurance Rate Map Number shall be the current Flood Insurance Rate
Map for the community in which the premises is located). In the event the Survey
shows any easement, right-of-way, encroachment, conflict or protrusion affecting
the premises that is unacceptable to the Purchaser, in its reasonable
discretion, the Purchaser shall within 20 days after receipt of such Survey, the
title commitment and a legible copy of each exception document, notify the
Seller in writing of such fact. The Seller shall then promptly undertake to
eliminate or modify such unacceptable matters to the satisfaction of the
Purchaser, as determined in its reasonable discretion. In the event the Seller
is unable to do so prior to the Closing, the Purchaser may accept such title to
the premises as the Seller can deliver and receive a credit against the purchase
price in an amount reasonably acceptable to the Purchaser.
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Section 10.15 UPDATED MORTGAGE LOAN SCHEDULE. Within five Business Days
after the Closing Date, the Seller shall deliver to the Purchaser an updated
copy of the Mortgage Loan Schedule as of the Closing Date. The information set
forth in such updated Mortgage Loan Schedule shall be complete, true and correct
in all material respects as of its date.
Section 10.16 SYSTEM UPGRADE. Prior to the Closing Date, the Seller will
complete the upgrade of its investor accounting system in accordance with
Schedule 10.16 to the extent the timetable on such Schedule would require
completion by such date.
Section 10.17 FINAL CERTIFICATION AND RECERTIFICATION, ETC.
(a) The Seller shall use Commercially Reasonable Efforts prior to the
Closing Date to (i) obtain final certification or recertification, as
applicable, of any Mortgage Loan pool and (ii) obtain any Mortgage Loan
documents that are missing.
(b) The Seller shall use Commercially Reasonable Efforts prior to the
Closing Date to ensure that all investor reporting is fully reconciled and
balanced. The Seller will reimburse the Purchaser for any reasonable
post-Closing out-of-pocket expenses required to reconcile and balance investor
reporting in respect of the Mortgage Loans and to maintain such reconciliation
until the scheduled completion of the investor accounting upgrade contemplated
by Section 10.16, or arising out of the failure of such reporting to be
reconciled and balanced on the Closing Date.
(c) From the date of this Agreement until the Closing Date, the Seller
shall provide reports and documentation to the Purchaser every two weeks
regarding the status of the matters referred to in this Section 10.17.
Section 10.18 REPURCHASE OF MORTGAGE LOANS.
(a) If the Purchaser determines that a Mortgage Loan will or may be
required to be repurchased from a third party or may be subject to a claim for
indemnification pursuant to Section 12.02, in either case arising out of (x) the
Pre-Closing Servicing Obligations or (y) a breach of the representations and
warranties contained in Section 4.10, then in order to mitigate any losses the
Seller may bear with respect to such Mortgage Loan, the Purchaser shall take
such steps as it would take with respect to other comparable mortgage loans in
its own portfolio. Such steps shall include using Commercially Reasonable
Efforts to enforce any contractual remedies that may be available to the
Purchaser under any agreement with any broker or correspondent; provided,
however, that no failure of a broker or correspondent to perform its obligations
under the applicable Contract shall relieve the Seller of its obligations
hereunder. Such steps may also include entering into indemnification agreements
with the applicable investors in lieu of repurchase; provided, however, that as
a condition of entering into any such indemnification agreement with an
investor, the Purchaser may require that the Seller provide to the Purchaser a
"back-to-back" indemnification agreement with respect to the applicable Mortgage
Loan(s).
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(b) If the Purchaser repurchases a Mortgage Loan as contemplated by the
first sentence of the preceding paragraph, the Seller shall purchase such
Mortgage Loan from the Purchaser for the price paid by the Purchaser to
repurchase such Mortgage Loan. The Purchaser shall service each Mortgage Loan so
repurchased by the Seller pursuant to a Services Agreement in form agreeable to
the parties. In addition, with respect to each such repurchased Mortgage Loan,
the Purchaser shall, at the Seller's request, exercise any contractual remedies
that may be available against any applicable broker or correspondent. The
Seller's obligations under this Section 10.18(b) shall terminate on the date
which is eight years and six months after the Closing Date. For purposes of the
monetary limitation described in Section 12.05(c) on the Seller's
indemnification obligations with respect to Mortgage Loan Claims after the
seventh anniversary of the Closing Date, only actual monetary losses incurred by
the Seller upon complete liquidation of a Mortgage Loan repurchased pursuant to
this Section 10.18 (rather than any gross repurchase price paid to the
Purchaser) shall be considered Purchaser Indemnifiable Losses arising out of
Mortgage Loan Claims.
(c) After the Closing Date, the Seller may repurchase mortgage loans in
connection with the Retained Liabilities and request the Purchaser to service
such mortgage loans on the Seller's behalf. In the event the Seller requests the
Purchaser to perform such servicing, the Seller and the Purchaser shall enter
into a Services Agreement in form agreeable to the parties.
(d) The Seller shall indemnify the Purchaser for any losses or
out-of-pocket costs or expenses incurred by the Purchaser in performing its
duties under Section 10.18, except for any such losses, costs or expenses
arising from the negligence or willful misconduct of the Purchaser.
Section 10.19 AGREEMENT NOT TO COMPETE; NON-SOLICITATION.
(a) Each of the Parent and the Seller agrees that during the period ending
on the fifth anniversary of the Closing Date, neither the Parent nor the Seller
nor any other entity of which the Parent or the Seller owns, directly or
indirectly, 25% or more of the voting stock or other similar equity interests
(collectively, the "Parent's Affiliates"; provided that FSA and any of its
majority-owned subsidiaries will not be considered a Parent's Affiliate unless
Parent directly or indirectly (x) owns 50% or more of FSA's voting stock or
similar equity interests or (y) otherwise has the power to elect, or has
designated, a majority of FSA's board of directors) will engage in the business
of originating, selling or servicing residential mortgage loans in the United
States (the "mortgage business"). Nothing in this paragraph (a) shall restrict
any Parent's Affiliate from investing in the debt or equity securities of, or
lending funds or rendering advice or other services to, any other entity, or
from engaging in any other business activity, except in each case as
specifically provided in the preceding sentence.
(b) Notwithstanding anything to the contrary in paragraph (a) of this
Section 10.19, any Parent's Affiliate may acquire any entity or business which
engages in the mortgage business (a "covered business"), provided that (i) such
acquired entity or business is primarily engaged in one or more non-mortgage
businesses and (ii) if more than 25% of such acquired entity's gross revenues
are derived from the covered business during the twelve full calendar months
immediately
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preceding such acquisition, then within one year after the date of such
acquisition, the Parent's Affiliate shall have ceased conducting the covered
business or shall have entered into a binding agreement (which may be an
agreement with the Purchaser) for the disposition of the covered business. If
any such binding agreement shall terminate prior to the completion of the sale
of the covered business, the Parent's Affiliate shall cease conducting the
covered business or enter into a new binding agreement for its disposition
within three months after the date of such termination.
(c) Each of the Seller and the Parent agrees that (i) from the date of
this Agreement to the Closing Date, it will not solicit any customers of the
Business or use any list of customers, suppliers, brokers, correspondents or
other business contacts of the Business maintained by the Seller or any of its
Subsidiaries for any purpose except to promote the Business, and from and after
the date of this Agreement it will not allow any unaffiliated party to use such
lists or information for any purpose, (ii) from and after the Closing Date, it
will not solicit on a targeted basis any person who became a customer of the
Seller or any of its Subsidiaries in connection with the Business or use any
list of customers, suppliers, brokers, correspondents or other business contacts
maintained by the Seller or any of its Subsidiaries in connection with the
Business and (iii) from the date of this Agreement until the third anniversary
of the Closing Date, the Parent and its Affiliates not engaged in the Business
will not, and from the Closing Date until the third anniversary of the Closing
Date, the Seller will not, solicit for employment or employ any employee of the
Business, other than any such employee who will not be or has not been offered
post-closing employment pursuant to Section 6.01 or whose employment with the
Seller or the Purchaser has otherwise been terminated, whether voluntarily or
involuntarily; provided that this provision shall not be violated by any general
solicitation or advertising not directed at any such employee or group of
employees.
Section 10.20 PARENT GUARANTEE. The Parent hereby unconditionally and
irrevocably guarantees all of the obligations of the Seller pursuant to this
Agreement and the Related Documents.
Section 10.21 REDEMPTION OF QUICS. The Seller will cause notice of
redemption of the QUICS to be sent to the holders thereof on the Closing Date,
and will use Commercially Reasonable Efforts in order to cause the QUICS to be
redeemed as soon as reasonably practicable following the Closing Date.
Section 10.22 COLLECTION OF RECEIVABLES.
(a) The Seller will indemnify the Purchaser and hold it harmless against
any losses arising out of the failure of any accounts receivable included in the
Purchased Assets to be collectible in accordance with their terms. The Purchaser
agrees to use Commercially Reasonable Efforts after the Closing to collect such
accounts receivable. The Purchaser may require the Seller to comply with this
Section 10.22 by repurchasing at the face amount plus accrued interest any such
accounts receivable which have not been collected by 180 days after their due
date (or such other date as is shown on Schedule 10.22).
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(b) For purposes of this Section 10.22, the Purchased Assets shall include
the right to receive interest at 7% per annum on the face amount of those
receivables included in the Purchased Assets related to sales of mortgage loans
or mortgage loan servicing prior to the Closing Date, provided that the Seller
shall receive a credit against the amount of such interest for any interest
received by the Purchaser in accordance with the terms of such receivables. Such
interest shall be computed from the Closing Date to the date each such
receivable is (i) collected by the Purchaser or (ii) repurchased by the Seller
in accordance with Section 10.22(a). The Purchaser may deduct amounts owing
under this Section 10.22(b) from the holdback amount or request such amount from
the Seller in accordance with Section 12.04.
Section 10.23 SOM. The Seller will use Commercially Reasonable Efforts to
obtain all Approvals for SOM listed on Section 4.10(a) of the Disclosure
Schedule and Schedule 10.23. The Purchaser will cooperate with and assist the
Seller in obtaining such Approvals and shall reimburse Seller for its reasonable
out-of-pocket costs and expenses incurred in seeking such Approvals (including
up to $150,000 for such costs and expenses paid or incurred prior to the date of
this Agreement); provided that any such reimbursed amounts shall not be included
in the value of the Purchased Assets for purposes of the Closing Statement and
the Adjustment Schedule. If the parties determine that such Approvals will not
be obtained before the Closing, the Purchaser and the Seller will cooperate in
using Commercially Reasonable Efforts to make alternative arrangements.
Section 10.24 PRIVATE LABEL SUBSERVICING CAPABILITY. Prior to the Closing,
the Seller will use Commercially Reasonable Efforts to complete and test
enhancements to its servicing system sufficient to enable customer service,
collections, delinquency and default management of Subserviced Mortgage Loans
under a name different from that used in connection with the servicing of the
Mortgage Loans (or any subset thereof). The Seller will reimburse the Purchaser
for its reasonable and necessary expenses (including but not limited to the
incremental internal and external costs to complete the aforementioned
enhancements). The parties agree that if Chase terminates a subservicing
agreement on account of a failure to so complete and test such enhancements, the
Seller shall pay to the Purchaser, as liquidated damages and not as a penalty,
the unearned portion of the Chase Amount allocated to such agreement, and the
Purchaser shall not be entitled to any other remedy from the Seller or the
Parent for such termination or the resulting loss of prospective benefits or
advantages. The previous sentence notwithstanding, the Seller shall indemnify
the Purchaser for any out-of-pocket losses arising out of a failure of the
servicing system to operate in a manner substantially similar to the manner in
which it operated prior to the implementation of the enhancements contemplated
by this Section 10.24.
Section 10.25 NORTHWEST PACIFIC. Prior to the Closing, the Seller will
transfer the stock of Northwest Pacific, in a manner that will not adversely
affect the operation of the Business after the Closing, so that such stock is
directly owned by the Seller or will liquidate Northwest Pacific in a manner
that its assets and liabilities are transferred directly to the Seller and will
be Excluded Assets and Retained Liabilities.
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ARTICLE XI
TAX MATTERS
Section 11.01 ALLOCATION OF RESPONSIBILITY.
(a) All Taxes based on the ownership of property (other than any sales,
use, transfer, income or franchise Taxes) imposed with respect to the Purchased
Assets for a tax or assessment period that included the Closing Date shall be
apportioned between the Seller and the Purchaser, with the Seller bearing a
portion of such taxes based on the number of days in the tax or assessment
period prior to the Closing Date and the Purchaser bearing a portion of such
Taxes based on the number of days in the tax or assessment period on or after
the Closing Date.
(b) Taxes described in Section 11.01(a) shall initially be timely paid as
provided by applicable Law and the paying party shall be entitled to
reimbursement from the non-paying party in accordance with the obligations of
the parties described in such Section except that the Purchaser shall not be
entitled to reimbursement until the amount of Taxes described in Section
11.01(a) to be reimbursed by the Seller to the Purchaser exceeds the amount of
the "real estate taxes payable" and "personal property taxes payable" recorded
on the Adjustment Schedule. The paying party shall promptly notify the
non-paying party in writing of the payment of any such tax and the non-paying
party shall make such reimbursement within ten business days after it receives
such notice. Any payment not made within such time shall bear interest at a rate
per annum equal to the Interest Rate.
(c) Seller shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar taxes and fees ("Transfer
Taxes") arising out of or in connection with the transactions effected pursuant
to this Agreement, and shall indemnify, defend, and hold harmless the Purchaser
(and its Affiliates) against Transfer Taxes in excess of such amount. Seller
shall file all necessary documentation and Tax Returns with respect to such
Transfer Taxes, and Purchaser shall cooperate with Seller with respect to such
filings.
Section 11.02 TAX RETURNS.
(a) Parent and Seller shall join and Seller shall cause the Subsidiaries
to join, for any taxable year or portion thereof ending on or prior to the
Closing Date, in (i) the consolidated federal Income Tax Returns and (ii) any
combined, consolidated or unitary state or local income or franchise tax returns
with respect to which the Seller and the Subsidiaries are required to be
included or have been included in accordance with the most recent past practice
of the Seller. Seller shall properly prepare (or cause to be prepared) and
timely file (or cause to be timely filed) all applicable separate company state,
local, and foreign Income Tax Returns of the Seller and the Subsidiaries for any
taxable year ending on or before the Closing Date, and Seller or the
Subsidiaries, as applicable, shall timely and fully pay all Income Taxes shown
thereon. Purchaser shall, subject to Seller's consent (which shall not be
withheld unreasonably), properly prepare (or cause to be prepared), and
Purchaser shall file (or cause to be timely filed) all separate company income
and franchise tax returns of the Subsidiaries for any taxable year or period
commencing prior to the Closing Date and ending subsequent to the Closing Date.
Purchaser shall provide drafts
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of such returns to Seller for Seller's review and comment no later than 30 days
prior to filing. Purchaser shall accept all reasonable comments of the Seller
with respect to such Tax Returns. All such returns shall be consistent with the
most recent equivalent returns filed with respect to such Subsidiaries. Seller
shall, upon written notice from Purchaser, provide Purchaser with funds to
timely pay the portion of the tax liability shown on such income or franchise
tax returns which is described as being the responsibility of the Seller under
this Agreement, and Purchaser shall timely pay over (or cause to be paid over)
such amounts to the appropriate authority.
(b) Subject to Seller and the Seller's Subsidiaries making or causing to
be made the payments required by it and providing the information it is required
to provide or cause to be provided hereunder, Purchaser shall prepare and file
all other Tax Returns required of Seller and Seller's Subsidiaries (including
without limitation all information returns and payee statements required under
the Code or applicable state law for the entire calendar year), shall cause to
be paid all Taxes payable with respect thereto, and shall cause to be reported
on such Tax Returns any transactions or payments by or relating to Seller, and
Seller's subsidiaries occurring after the Closing Date.
Section 11.03 TAX SHARING AND TAX PAYMENT AGREEMENTS.
(a) Any amounts (including deferred taxes which become current through the
end of the Closing Date by virtue of the transactions which are the subject of
this Agreement) that would be required to be paid pursuant to any Tax Sharing or
Tax Payment Agreement to which either the Seller or the Seller's Subsidiaries is
a party shall be paid prior to the Closing Date and all such agreements shall be
terminated as to the Seller, and the Seller's Subsidiaries as of the Closing
Date, and the Seller and the Seller's Subsidiaries shall have no further
obligations thereunder, provided all such payments have been made. For purposes
of this section the term "Tax Sharing Agreement" and "Tax Payment Agreement"
includes any agreement or arrangement, whether or not written, providing for the
sharing or allocation of liability for Taxes of the parties thereto.
Section 11.04 ASSISTANCE AND COOPERATION. After the Closing Date Seller
and Purchaser shall:
(a) assist in all reasonable respects (and cause their respective
affiliates to assist) the other party in preparing any Tax Returns or reports
for which such other party is responsible for under this Agreement;
(b) cooperate in all reasonable respects in preparing for any audits of,
or disputes with taxing authorities regarding, any Tax Returns of the Seller and
the Subsidiaries;
(c) provide timely notice to the other in writing of any pending or
threatened tax audits or assessments of the Seller and the Subsidiaries for
Taxable periods for which the other may have a liability under this Agreement;
and
49
(d) furnish the other with copies of all correspondence received from any
taxing authority in connection with any tax audit or information request with
respect to such Taxable period.
Section 11.05 RECORD RETENTION. After the Closing Date Seller shall
retain, until the applicable statutes of limitation (including extensions) have
expired, copies of the Subsidiaries' separate company returns, supporting work
schedules, and other records or information in the possession of the Seller
which may be relevant to such returns for all tax periods or portions thereof
ending before or including the Closing Date and shall not destroy or otherwise
dispose of any such records without first providing the Purchaser with a
reasonable opportunity to review and copy the same.
Section 11.06 CONTEST. Purchaser shall have the right to exercise, at
Purchaser's expense, complete control of any issue raised in any inquiry,
examination or proceeding with respect to Taxes imposed on or with respect to
the assets purchased by the Purchaser, and the Taxes of Seller's Subsidiaries
for which the Purchaser is required to bear the tax burden hereunder or for
which Purchaser gets the tax benefit hereunder of any refund or credit, except
that prior to settling any issue in any way that affects the tax benefits
available to the Seller for any time period after the Closing Date, Purchaser
will consult with the Seller. Seller shall have the right to exercise, at
Seller's expense, complete control of any issue raised in any inquiry,
examination or proceeding with respect to Taxes imposed on or with respect to
the assets purchased by the Purchaser, and the Taxes of the Seller's
Subsidiaries for which the Seller is required to bear the tax burden hereunder
or for which Seller gets the tax benefit hereunder of any refund or credit,
except that prior to settling any issue in any way that affects the tax benefits
available to the Purchaser for any time period up to the Closing Date, Seller
will consult with the Purchaser. Each party shall notify the other in writing
upon learning of that any such issue has been raised.
Section 11.07 SECTION 338(h)(10) ELECTION.
(a) Seller, the Subsidiaries and Purchaser shall jointly make timely and
irrevocable elections under Section 338(h)(10) of the Code and, if permissible,
similar elections under any applicable state or local income tax laws, and
Purchaser shall make timely and irrevocable elections under Section 338(g) of
the Code. Seller and Purchaser shall report the transaction consistent with such
elections under Section 338(g) and Section 338(h)(10) of the Code or any similar
state or local tax provisions (the "Elections"), and shall take no position
contrary thereto unless and to the extent required to do so pursuant to a
determination (as defined in Section 1313(a) of the Code or any similar state or
local tax provision).
(b) To the extent possible, Seller and Purchaser shall execute at or prior
to the Closing any and all forms necessary to effectuate the Elections
(including, without limitation, Internal Revenue Service Form 8023 and any
similar forms under state and local income tax laws (the "Section 338 Forms")).
In the event, however, any Section 338 Forms are not executed at the Closing,
the Seller and the Purchaser shall prepare and complete each Section 338 Form no
later than 60 days prior to the date such Section 338 Form is required to be
filed. Seller and Purchaser
50
shall each cause the Section 338 Form to be duly executed by an authorized
person for Seller and Purchaser in each case, and shall duly and timely file the
Section 338 Forms in accordance with applicable Tax laws and the terms of this
Agreement.
Section 11.08 ALLOCATION OF PURCHASE PRICE.
(a) After giving effect to the allocation required by Section 3.01,
Purchaser and Seller shall act together in good faith to determine and agree
upon the amount of the MADSP (as defined under Treasury Regulation Section
1.338(h)(10)-1(f)) and the allocation of such MADSP among the Purchased Assets.
The tax allocation of the Purchase Price among the Purchased Assets (as
determined by Section 3.01 of this Agreement, except that with respect to the
Seller's Subsidiaries, the Purchase Price shall be allocated to the assets of
the Seller's Subsidiaries) shall be made by Purchaser and Seller acting together
and in good faith, all in accordance with Section 1060 of the Code, the
applicable regulations thereunder and with Treasury Regulation Section
1.338(h)(10)-1(f). Any issue that remains unresolved with respect to the amount
or allocation of the Purchase Price on the date that is 120 days prior to the
date on which the Section 338 Forms are required to be filed shall be referred
to a nationally recognized accounting firm jointly selected by Seller and
Purchaser (the "Neutral Auditors"), and the Neutral Auditors shall resolve such
issue no later than 60 days prior to the date on which the Section 338 Forms are
required to be filed. The fees and expenses of the Neutral Auditors shall be
borne equally by Seller and Purchaser. Seller and Purchaser shall (i) be bound
by such allocation for purposes of determining any Taxes, (ii) prepare and file
all Tax Returns to be filed with any taxing authority in a manner consistent
with such allocation and (iii) take no position inconsistent with such
allocation in any Tax Return, any proceeding before any taxing authority or
otherwise. Appropriate adjustment shall be made to such allocation to specific
categories of assets to reflect any Purchase Price adjustment pursuant to this
Agreement or other adjustment required pursuant to law. In the event such
allocation is disputed by any taxing authority, the party receiving notice of
such dispute shall promptly notify the other party of such dispute, and Seller
and Purchaser shall cooperate in good faith in responding to such challenge in
order to preserve the effectiveness of such allocation.
(b) Each of the Purchaser and the Seller shall timely file a Form 8594
Asset Acquisition Statement of Allocation consistent with the Adjustment
Schedule, shall provide a copy of such form to the other party hereto and shall
file a copy of such form with its federal income Tax Return for the periods that
includes the Closing Date. Each of the Purchaser and Seller further agrees not
to take any position inconsistent with the allocations contemplated by this
Section for any Tax purpose.
Section 11.09 PURCHASER ACTIVITY ON CLOSING DATE AND POST-CLOSING.
(a) On the Closing Date, Purchaser shall cause the Subsidiaries to conduct
their business in the ordinary course in substantially the same manner as
presently conducted and shall not permit the Subsidiaries to effect any
extraordinary transactions (other than any such transactions expressly required
by applicable law or by this Agreement) that could result in Tax liability in
excess of the Tax liability associated with the conduct of its business in the
ordinary course.
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(b) Purchaser shall not, with respect to any Taxable year or period ending
on or before the Closing Date (or, with respect to any Taxable year or period
beginning before and ending after the Closing Date, the portion of such taxable
period ending on and including the Closing Date) (a "Pre-Closing Period", and
any Taxable year and period (or portion thereof) not included in a Pre-Closing
Period, a "Post-Closing Period"), (i) file any amended Tax Return with respect
to the Subsidiaries, (ii) carry back any loss or other Tax attribute of the
Subsidiaries, or (iii) take any position with respect to Taxes of the
Subsidiaries that would have the effect of shifting income from a Post-Closing
Period to a Pre-Closing Period unless, in each case, Seller shall have consented
in writing to such action by Purchaser, provided, in each case, Seller's consent
shall not be withheld unreasonably.
Section 11.10 LIABILITY FOR TAXES AND RELATED MATTERS.
(a) Except to the extent of any amounts reserved for Taxes (other than
reserves for deferred taxes, if any) on the Closing Statement, Parent and Seller
shall be responsible for and indemnify and hold harmless Purchaser, against any
and all liability (including reasonable fees for attorneys and other outside
consultants incurred in contesting or otherwise in connection with any such
liability as reasonably agreed to by Seller and parent) for (i) Taxes of the
Subsidiaries for any Taxable year or period ending on or before the Closing
Date, (ii) Taxes relating to the Purchased Assets for any Taxable year or period
ending on or before the Closing Date, (iii) with respect to any Taxable year or
period beginning before and ending after the Closing Date, Taxes of the
Subsidiaries and Taxes relating to the Purchased Assets for the portion of such
taxable period ending on and including the Closing Date, (iv) all income,
franchise or similar Taxes measured by income or gain realized on the deemed
sale of assets resulting, directly or indirectly, from the Elections, (v) all
liability for income Taxes of Seller or any affiliate (other than liability for
Income Taxes of the Subsidiaries arising out of a Post-closing Period) thereof
arising from the application of Treasury Regulations ss. 1.1502-6 or any
analogous state or local tax provision. Seller shall be entitled to all refunds
with respect to Taxes for which Seller has responsibility hereunder, other than
refunds resulting from carrybacks from taxable years beginning after the Closing
Date.
(b) Purchaser shall be liable for and indemnify Seller for the Taxes (and
reasonable fees for attorneys and other outside consultants incurred in
contesting or otherwise in connection with an such liability as reasonably
agreed to by Purchaser) that are not allocated to Seller pursuant to Paragraph
(a).
(c) For purposes of Sections 11.10(a) and 11.10(b), whenever it is
necessary to determine the liability for Taxes of the Subsidiaries or Taxes
relating to the Purchased Assets for a portion of a Taxable year or period that
begins before and ends after the Closing Date, the determination of such Taxes
for the portion of the year or period ending on, and the portion of the year or
period beginning after, the Closing Date shall be determined by assuming that
the Seller, or the Subsidiaries, as applicable, had a Taxable year or period
which ended at the close of the Closing Date, except that (A) exemptions,
allowances or deductions that are calculated on an annual basis, such as the
deduction for depreciation, and (B) all taxes that are imposed on a periodic
basis with
52
respect to the Purchased Asset or otherwise measured by the level of any item
such Taxes or items shall be apportioned pro rata by day. For purposes of
Section 11.10(a) and 11.10(b), any state net operating losses that are available
as of the Closing Date shall, to the extent permitted by applicable law, be
applied first to reduce the gain realized for state Tax purposes on the deemed
asset sale resulting from the Elections.
(d) Parent, Seller and Purchaser will treat any payment by Purchaser or
Seller under this Agreement as an adjustment to the Purchase Price unless
otherwise required by a final and non-appealable decision, in which case any
such payment shall be made on an after tax basis.
(e) The indemnity set out above in this Section 11.10 shall, anything in
this Agreement to the contrary notwithstanding, survive until the expiration of
the applicable statutes of limitation, including extensions thereof, and Article
XII hereof shall not apply to Taxes.
ARTICLE XII
SURVIVAL AND INDEMNIFICATION
Section 12.01 SURVIVAL. The representations and warranties in Article IV
and Article V hereof shall survive the Closing but shall terminate and be of no
further force and effect on the third anniversary of the Closing Date; provided
that the representations and warranties in Section 4.10 (Mortgage Loans) shall
terminate and be of no further force and effect on the date which is eight years
and six months after the Closing Date. Unless a specific period is set forth in
this Agreement (in which event such specified period shall control), all other
covenants and agreements contained in this Agreement shall survive the Closing
and remain in effect indefinitely. With respect to a claim for indemnification
that may fall under more than one provision of Section 12.02 or 12.03, the
expiration of the survival period for a claim under one applicable provision
shall not impact in any way a party's right to bring a claim under another
applicable provision, the survival period of which has not yet expired.
Section 12.02 INDEMNIFICATION BY THE SELLER. On the terms set forth
herein, the Seller and the Parent, jointly and severally, shall indemnify,
defend and hold harmless the Purchaser, each of its Affiliates and each of their
respective past, present and future directors, officers, agents and
representatives (together, the "Purchaser Indemnitees") from and against any and
all liabilities, obligations, claims, suits, damages, civil and criminal
penalties and fines, out-of-pocket costs and expenses, including without
limitation any reasonable and necessary attorney's and other professional fees,
after deducting any insurance proceeds received by the Purchaser Indemnitees in
connection therewith ("Purchaser Indemnifiable Losses"), relating to, resulting
from or arising out of the following:
(a) any breach of any representation, warranty, covenant or undertaking by
the Seller or the Parent contained in this Agreement or any Related Document;
(b) any Retained Liabilities or any matters related to the Excluded
Assets;
53
(c) any claim by any Employee based on or arising out of matters occurring
before the Closing Date;
(d) any VA No-bids relating to Mortgage Loans originated or committed
before the Closing Date; provided that the Seller's and the Parent's obligations
pursuant to this clause (d) shall expire on the second anniversary of the
Closing Date; and
(e) any Pre-Closing Servicing Obligations; provided that the Seller's and
the Parent's obligations pursuant to this clause (e) shall expire on the date
which is eight years and six months after the Closing Date.
The items described in clauses (a) through (e) above are collectively
referred to herein as "Purchaser Claims".
Section 12.03 INDEMNIFICATION BY THE PURCHASER. On the terms set forth
herein, the Purchaser shall indemnify, defend and hold harmless the Seller, each
of its Affiliates (including the Parent), and each of their respective past,
present and future directors, officers, agents and representatives (together,
the "Seller Indemnitees"), from and against any liabilities, obligations,
claims, suits, damages, civil and criminal penalties and fines, out-of-pocket
costs and expenses, including without limitation any reasonable and necessary
attorney's and other professional fees, after deducting any insurance proceeds
received by the Seller Indemnitees in connection therewith ("Seller
Indemnifiable Losses") relating to, resulting from or arising out of any of the
following:
(a) any breach of any representation, warranty, covenant or undertaking of
the Purchaser contained in this Agreement or any Related Document;
(b) any Assumed Liabilities;
(c) any matters related to the Purchased Assets based on or arising out of
matters occurring after the Closing Date; and
(d) any claim by any Employee based on or arising out of matters occurring
on or after the Closing Date.
The items described in clauses (a) through (d) above are collectively
referred to herein as "Seller Claims".
Section 12.04 PROCEDURES FOR MAKING CLAIMS AGAINST INDEMNIFYING PARTY.
(a) Except with respect to third party claims made under Section 12.06
(which shall be governed by that Section), from time to time on or before the
first anniversary of the Closing Date, in the case of Section 3.01(a), or the
expiration, if any, of the applicable indemnification obligation, in the case of
Section 12.02 or Section 12.03, the Purchaser or the Indemnified Party, as the
case
54
may be (a "claimant"), may give notice in substantially the form of Exhibit E
hereto to the Seller or the Indemnifying Party, as the case may be, specifying
in reasonable detail the nature and dollar amount of any deduction the Purchaser
has made from the holdback amount under Section 3.01(a) or any claim under
Section 12.02 or Section 12.03 of this Agreement (each a "claim"); a claimant
may from time to time make more than one claim (including any supplements
thereto) with respect to any underlying state of facts. If the Seller or the
Indemnifying Party, as the case may be, gives notice disputing any claim (a
"counter notice") within 30 days following receipt of the notice regarding such
claim, such claim shall be resolved as provided in Section 12.04(b). If no
counter notice is received by the claimant within such 30-day period, then the
dollar amount of the claim as set forth in the original notice shall be deemed
established for purposes of this Agreement and, at the end of such 30-day
period, in the case of a claim under Section 12.02 or Section 12.03, the
Indemnifying Party shall make a payment to the Indemnified Party in the dollar
amount claimed in the notice. Any claim pending at the expiration of the
indemnification period under Section 12.01, Section 12.02(d) or Section 12.02(e)
shall be tolled until such claim has been resolved and the Indemnifying Party
has made any required payments to the Indemnified Party.
(b) If the counter notice as described in Section 12.04(a) is timely
received with respect to a claim, the parties shall attempt in good faith to
agree on resolution of the disputed amount. The Indemnifying Party shall pay to
Indemnified Party all non-disputed amounts in accordance with the time period
specified in Section 12.04(a). Any amount mutually agreed upon or awarded to the
Indemnified Party under a final and non-appealable Judgment of a court of
competent jurisdiction shall be paid by the Indemnifying Party within five
Business Days following agreement or Judgment, as applicable. If the parties'
agreement or the Judgment determines that a withdrawal of monies from the
holdback under Section 3.01(a) was not appropriate, the Purchaser shall replace
those monies in the holdback amount, or if the time for maintaining the holdback
has expired under Section 3.01(a), pay those monies directly to Seller within
five Business Days after such determination.
Section 12.05 LIMITATIONS AND RULES OF CONSTRUCTION REGARDING
INDEMNIFICATION OBLIGATIONS.
(a) Notwithstanding any other provision in this Agreement, the liability
of an Indemnifying Party to indemnify the Purchaser Indemnitees or the Seller
Indemnitees, as the case may be (the "Indemnified Party") pursuant to Section
12.02 or Section 12.03 against any Indemnifiable Losses arising out of a breach
of a representation or warranty included in Article IV or Article V or pursuant
to Section 12.02(d) (relating to VA No-bids) or Section 12.02(e) (relating to
Pre-Closing Servicing Obligations) shall be limited to claims as to which the
Indemnified Party has given to the Indemnifying Party written notice of a claim
within the survival period set forth in Section 12.01, Section 12.02(d) or
Section 12.02(e), as the case may be, whether or not any such Indemnifiable
Losses have then actually been sustained.
(b) For purposes of Section 12.02 and Section 12.03, in determining
whether a representation or warranty included in Article IV (except for Section
4.15) or Article V has been breached, any qualification in such representation
or warranty with respect to the Indemnifying
55
Party's Knowledge shall be disregarded (i.e., a breach shall be deemed to have
occurred whether or not the Indemnifying Party had Knowledge of the facts giving
rise to the breach). For purposes of Section 12.02, in determining whether a
representation or warranty included in Article IV has been breached, the
Sections of the Disclosure Schedule identified on Schedule 12.05(b) shall be
disregarded (i.e., a breach shall be deemed to have occurred whether or not the
relevant Section of the Disclosure Schedule gives notice of exceptions to the
representation or warranty).
(c) Notwithstanding anything to the contrary in this Agreement, (i) the
Parent's and the Seller's liability for any Purchaser Claims arising out of a
breach of the representations and warranties contained in Article IV (other than
Section 4.10), and the Purchaser's liability for any Seller Claims arising out
of a breach of the representations and warranties contained in Article V, shall
be limited as follows: the Indemnifying Party shall be liable for (A) 90% of the
first $1,000,000 of all related Indemnifiable Losses, and all such Indemnifiable
Losses in excess of $1,000,000, to the extent such Indemnifiable Losses arise
from claims made on or before the first anniversary of the Closing Date, (B) 80%
of the first $1,000,000 of all related Indemnifiable Losses, and all such
Indemnifiable Losses in excess of $1,000,000, to the extent such Indemnifiable
Losses arise from claims made after the first anniversary of the Closing Date
and on or before the second anniversary of the Closing Date and (C) 50% of all
related Indemnifiable Losses to the extent such Indemnifiable Losses arise from
claims made after the second anniversary of the Closing Date and on or before
the last date on which claims may be made pursuant to this Agreement, and (ii)
the Parent's and the Seller's aggregate liability for Mortgage Loan Claims (as
defined below) made after the seventh anniversary of the Closing Date and on or
before the last date on which claims may be made pursuant to this Agreement
shall be limited to the amount, if any, by which $15 million exceeds the amount
of all Mortgage Loan Claims previously determined to be Purchaser Indemnifiable
Losses pursuant to this Agreement (including, without limitation, pursuant to
Section 10.18(b)). "Mortgage Loan Claims" means any Purchaser Claims arising out
of (x) a breach of the representations and warranties contained in Section 4.10
or (y) the Pre-Closing Servicing Obligations.
Section 12.06 DEFENSE OF CLAIMS.
(a) If an Indemnified Party shall receive written notice of the assertion
of any third party claim with respect to which an Indemnifying Party is
obligated under this Agreement to provide indemnification, such Indemnified
Party shall give the Indemnifying Party prompt notice thereof; PROVIDED,
HOWEVER, that the failure of any Indemnified Party to give such notice shall not
relieve any Indemnifying Party of its obligations under this Article XII, except
to the extent that such Indemnifying Party is actually prejudiced by such
failure to give notice. Such notice shall describe the claim in reasonable
detail, and, if practicable, shall indicate the estimated amount of the
Indemnifiable Loss that has been or may be sustained by such Indemnified Party.
(b) An Indemnifying Party, at such Indemnifying Party's own expense and
through counsel chosen by such Indemnifying Party (which counsel shall be
reasonably satisfactory to the Indemnified Party), may elect to defend any third
party claim; and if it so elects, it shall, within 20 Business Days after
receiving notice of such third party claim (or sooner, if the nature of such
third
56
party claim so requires), notify the Indemnified Party of its intent to do so,
and such Indemnified Party shall cooperate in the defense of such third party
claim. Such Indemnifying Party shall pay such Indemnified Party's reasonable
out-of-pocket expenses incurred in connection with such cooperation. After
notice from an Indemnifying Party to an Indemnified Party of its election to
assume the defense of a third party claim, such Indemnifying Party shall not be
liable to such Indemnified Party under this Article XII for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with the
defense thereof; PROVIDED, HOWEVER, that such Indemnified Party shall have the
right to employ one counsel to represent such Indemnified Party and all other
persons entitled to indemnification in respect of such claim hereunder (which
counsel shall be reasonably acceptable to the Indemnifying Party) if, in such
Indemnified Party's reasonable judgment, either a conflict of interest between
such Indemnified Party and such Indemnifying Party exists in respect of such
claim or there may be defenses available to such Indemnified Party which are
different from or in addition to those available to such Indemnifying Party, and
in that event (i) the reasonable fees and expenses of such separate counsel
shall be paid by such Indemnifying Party and (ii) each of such Indemnifying
Party and such Indemnified Party shall have the right to direct its own defense
in respect of such claim. If any Indemnifying Party elects not to defend against
a third party claim, or fails to notify an Indemnified Party of its election
within a reasonable period of time, such Indemnified Party may defend,
compromise and settle such third party claim; PROVIDED, HOWEVER, that no such
Indemnified Party may, without the prior written consent of the Indemnifying
Party (which consent shall not be unreasonably withheld), settle or compromise
any third party claim or consent to the entry of any Judgment which does not
include as an unconditional term thereof the delivery by the claimant to the
Indemnifying Party of a written release from all liability in respect of such
third party claim. The Indemnifying Party may defend, compromise and settle any
third party claim on such terms as it deems appropriate, PROVIDED, HOWEVER, that
no Indemnifying Party may, without the prior written consent of the Indemnified
Party (which consent shall not be unreasonably withheld), settle or compromise
any third party claim or consent to the entry of any Judgment which does not
include as an unconditional term thereof the delivery by the claimant to the
Indemnified Party of a written release from all liability in respect of such
third party claim.
Section 12.07 REMEDIES EXCLUSIVE. The remedies provided to the parties in
this Article XII for the matters set forth in this Article XII shall be
exclusive and shall preclude assertion by them of all other rights and the
seeking of all other remedies for such matters against any other party hereto;
provided that any party hereto shall not be precluded from (i) seeking specific
performance or any other available remedy for a breach of a covenant or
agreement contained in this Agreement or in any Related Document or (ii) seeking
any other remedy explicitly provided by any other provision of this Agreement or
a Related Document.
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ARTICLE XIII
TERMINATION
Section 13.01 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual consent of the parties hereto;
(b) upon written notice by any party hereto, if (i) any court of competent
jurisdiction in the United States or any other Governmental Agency shall have
issued a Judgment or taken any other action restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and (ii) such
Judgment or other action shall have become final and nonappealable; or
(c) upon written notice at any time on or after June 30, 1999 by the
Purchaser or the Seller, if the Closing has not occurred by such date, provided
that the failure to close is not the result of a material breach of this
Agreement by the terminating party.
Section 13.02 OBLIGATIONS SHALL CEASE. In the event that this Agreement
shall be terminated pursuant to Section 13.01 hereof, all obligations of the
parties hereto under this Agreement shall terminate and there shall be no
liability of any party hereto to any other party except (a) for the obligations
with respect to confidentiality and publicity contained in Section 10.11 hereof
and (b) as set forth in Section 13.03; provided that nothing contained in this
Section shall relieve any party of liability for its bad faith or willful
violation of the provisions of this Agreement.
Section 13.03 FEES AND EXPENSES. Except as otherwise specifically provided
herein, each party hereto shall pay all of the fees and expenses incurred by it
in connection herewith.
ARTICLE XIV
MISCELLANEOUS
Section 14.01 COMPLETE AGREEMENT. This Agreement, the Related Documents,
the Confidentiality Agreement and the exhibits attached hereto and thereto and
the documents referred to herein and therein shall constitute the entire
agreement between the parties hereto with respect to the subject matter hereof
and thereof and shall supersede all previous negotiations, commitments and
writings with respect to such subject matter.
Section 14.02 WAIVER, DISCHARGE, ETC. This Agreement may not be released,
discharged, abandoned, waived, changed or modified in any manner, except by an
instrument in writing signed on behalf of each of the parties hereto by their
duly authorized representatives. The failure of any party hereto to enforce at
any time any of the provisions of this Agreement shall in no way be construed to
be a waiver of any such provision, nor in any way be construed to affect the
validity of this Agreement or any part thereof or the right of any party
thereafter to enforce each and every
58
such provision. No waiver of any breach of this Agreement shall be held to be a
waiver of any other or subsequent breach. If any provision of this Agreement
shall be declared by any court of competent jurisdiction to be illegal or
unenforceable, the other provisions shall not be affected, but shall remain in
full force and effect.
Section 14.03 NOTICES. All notices, requests and demands to or upon the
respective parties hereto shall be in writing, including by telecopy, and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made (a) if delivered by hand (including by courier), when delivered,
(b) in the case of mail, three Business Days after deposit in United States
first class mail, postage prepaid and (c) in the case of telecopy notice, when
receipt has been confirmed by the transmitting telecopy operator. In each case
notice shall be sent to the address of the party to be notified, as follows, or
to such other address as may be hereafter designated by the respective parties
hereto in accordance with these notice provisions:
If to the Purchaser, to:
Citicorp Mortgage, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Legal Department
With a copy to:
Citigroup Inc.
Corporate Legal Department
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Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
If to the Seller or Parent, to:
Source One Mortgage Services Corporation
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Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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With a copy to:
Fund American Enterprises Holdings, Inc.
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Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Section 14.04 GOVERNING LAW; WAIVER OF JURY TRIAL.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to conflict of law principles.
(b) Each party waives, to the fullest extent permitted by applicable law,
any right it may have to a trial by jury in respect of any action, suit or
proceeding arising out of or relating to this Agreement or any Related Document.
Section 14.05 HEADINGS. The descriptive headings of the several Articles
and Sections of this agreement are inserted for convenience only and do not
constitute a part of this Agreement.
Section 14.06 SUCCESSORS. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto except with the prior written consent of the other parties or by
operation of law, provided that without such consent the Seller may assign its
rights and obligations hereunder to the Parent or any of the Parent's direct or
indirect wholly owned subsidiaries, and the Purchaser may assign its rights and
obligations hereunder to Citigroup Inc. or any of its direct or indirect wholly
owned subsidiaries, in which event such assignee shall be substituted for the
assignor for purposes of this Agreement to the extent appropriate, but without
affecting any liability of the assignor hereunder.
Section 14.07 THIRD PARTIES. Except as specifically set forth or referred
to herein (including, without limitation, in Article XII), nothing herein
expressed or implied is intended or shall be construed to confer upon or given
any person or entity, other than the parties hereto and their successors and
permitted assigns, any rights or remedies under or by reason of this Agreement.
Section 14.08 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same instrument and
each of which shall be deemed an original.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed by its duly authorized representatives as of the day and year
first above written.
SOURCE ONE MORTGAGE SERVICES
CORPORATION,
as Seller
By:
-------------------------------
Name:
Title:
FUND AMERICAN ENTERPRISES HOLDINGS, INC.,
as Parent
By:
-------------------------------
Name:
Title:
CITICORP MORTGAGE, INC.
as Purchaser
By:
-------------------------------
Name:
Title:
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