Exhibit 10.1

 

Execution Copy

 

 

OPTION AGREEMENT

 

by and among

 

CREDIT SUISSE FIRST BOSTON (USA), INC.,

 

SPS HOLDING CORP.,

 

THE PMI GROUP, INC.,

 

FSA PORTFOLIO MANAGEMENT INC.

 

and

 

GREENRANGE PARTNERS LLC

 

dated as of

 

August 12, 2005

 

--------------------------------------------------------------------------------

 

TABLE OF CONTENTS

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

 

 

 

Section 1.1

Definitions

1

 

 

 

Section 1.2

Interpretation

13

 

 

 

ARTICLE II

 

THE OPTION

 

 

 

 

Section 2.1

Grant of Option

13

 

 

 

Section 2.2

Term of Option

14

 

 

 

Section 2.3

The Exercise Price

14

 

 

 

Section 2.4

Allocation of the Exercise Price

14

 

 

 

ARTICLE III

 

THE CLOSING

 

 

 

Section 3.1

Exercise of the Option and the Closing

14

 

 

 

Section 3.2

Deliveries by Optionors

15

 

 

 

Section 3.3

Deliveries and Payment by Optionee

15

 

 

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OF THE OPTIONORS

 

 

 

 

Section 4.1

Share Ownership

19

 

 

 

Section 4.2

Legal Power; Organization; Qualification of Optionors

19

 

 

 

Section 4.3

Binding Agreement

19

 

 

 

Section 4.4

No Conflict or Default

19

 

 

 

Section 4.5

Ownership and Possession of Option Shares

19

 

 

 

Section 4.6

Good Title Conveyed

20

 

 

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

 

 

Section 5.1

Authorization; Validity of Agreement; Company Action

20

 

 

 

Section 5.2

Other Board Approvals Regarding Transactions

21

 

 

 

Section 5.3

Capitalization

21

 

 

 

Section 5.4

Organization; Qualification of Company

22

 

 

 

Section 5.5

Subsidiaries and Affiliates

22

 

 

 

Section 5.6

Consents and Approvals; No Violations

22

 

 

 

Section 5.7

Financial Statements

23

 

i

--------------------------------------------------------------------------------

 

Section 5.8

No Undisclosed Liabilities

23

 

 

 

Section 5.9

Absence of Certain Changes

23

 

 

 

Section 5.10

Title to Properties; Liens

25

 

 

 

Section 5.11

Real Property

25

 

 

 

Section 5.12

Leases

26

 

 

 

Section 5.13

Environmental Matters

26

 

 

 

Section 5.14

Contracts and Commitments

27

 

 

 

Section 5.15

Litigation

28

 

 

 

Section 5.16

Compliance with Laws; Consent Orders

28

 

 

 

Section 5.17

Permits

29

 

 

 

Section 5.18

Employee Benefit Plans

29

 

 

 

Section 5.19 [a05-18060_1ex10d1.htm#Section5_19TaxMatters__044632]

Tax Matters [a05-18060_1ex10d1.htm#Section5_19TaxMatters__044632]

30

 

 

 

Section 5.20 [a05-18060_1ex10d1.htm#Section5_20IntellectualProperty__044643]

Intellectual Property
[a05-18060_1ex10d1.htm#Section5_20IntellectualProperty__044643]

32

 

 

 

Section 5.21 [a05-18060_1ex10d1.htm#Section5_21LaborMatters__044653]

Labor Matters [a05-18060_1ex10d1.htm#Section5_21LaborMatters__044653]

33

 

 

 

Section 5.22 [a05-18060_1ex10d1.htm#Section5_22Personnel_TheDisclosur_044705]

Personnel [a05-18060_1ex10d1.htm#Section5_22Personnel_TheDisclosur_044705]

34

 

 

 

Section 5.23 [a05-18060_1ex10d1.htm#Section5_23PotentialConflictOfInt_044707]

Potential Conflict of Interest
[a05-18060_1ex10d1.htm#Section5_23PotentialConflictOfInt_044707]

34

 

 

 

Section 5.24 [a05-18060_1ex10d1.htm#Section5_24ProprietyOfPastPayment_044711]

Propriety of Past Payments
[a05-18060_1ex10d1.htm#Section5_24ProprietyOfPastPayment_044711]

34

 

 

 

Section 5.25 [a05-18060_1ex10d1.htm#Section5_25BrokersOrFinders_NoAge_044715]

Brokers or Finders
[a05-18060_1ex10d1.htm#Section5_25BrokersOrFinders_NoAge_044715]

35

 

 

 

Section 5.26 [a05-18060_1ex10d1.htm#Section5_26ConsumerComplaints_The_044716]

Consumer Complaints
[a05-18060_1ex10d1.htm#Section5_26ConsumerComplaints_The_044716]

35

 

 

 

Section 5.27 [a05-18060_1ex10d1.htm#Section5_27Insurance_Schedule5_27_044721]

Insurance [a05-18060_1ex10d1.htm#Section5_27Insurance_Schedule5_27_044721]

35

 

 

 

ARTICLE VI [a05-18060_1ex10d1.htm#Articlevi_044725]

 

REPRESENTATIONS AND WARRANTIES OF OPTIONEE
[a05-18060_1ex10d1.htm#RepresentationsAndWarrantiesOfOpt_044726]

 

 

 

Section 6.1 [a05-18060_1ex10d1.htm#Section6_1Organization_OptioneeIs_044730]

Organization [a05-18060_1ex10d1.htm#Section6_1Organization_OptioneeIs_044730]

36

 

 

 

Section 6.2 [a05-18060_1ex10d1.htm#Section6_2AuthorizationValidityOf_044733]

Authorization; Validity of Agreement
[a05-18060_1ex10d1.htm#Section6_2AuthorizationValidityOf_044733]

36

 

 

 

Section 6.3 [a05-18060_1ex10d1.htm#Section6_3ConsentsAndApprovalsNoV_044735]

Consents and Approvals; No Violations
[a05-18060_1ex10d1.htm#Section6_3ConsentsAndApprovalsNoV_044735]

36

 

 

 

Section 6.4 [a05-18060_1ex10d1.htm#Section6_4InvestmentRepresentatio_044742]

Investment Representation
[a05-18060_1ex10d1.htm#Section6_4InvestmentRepresentatio_044742]

37

 

 

 

Section 6.5 [a05-18060_1ex10d1.htm#Section6_5SufficientFunds_Optione_044743]

Sufficient Funds
[a05-18060_1ex10d1.htm#Section6_5SufficientFunds_Optione_044743]

37

 

 

 

Section 6.6 [a05-18060_1ex10d1.htm#Section6_6BrokersOrFinders_Neithe_044745]

Brokers or Finders
[a05-18060_1ex10d1.htm#Section6_6BrokersOrFinders_Neithe_044745]

37

 

 

 

ARTICLE VII [a05-18060_1ex10d1.htm#Articlevii_044747]

 

COVENANTS [a05-18060_1ex10d1.htm#Covenants_044748]

 

 

 

 

Section 7.1 [a05-18060_1ex10d1.htm#Section7_1InterimOperationsOfTheC_044754]

Interim Operations of the Company
[a05-18060_1ex10d1.htm#Section7_1InterimOperationsOfTheC_044754]

37

 

ii

--------------------------------------------------------------------------------

 

Section 7.2 [a05-18060_1ex10d1.htm#Section7_2AccessConfidentiality_a_044808]

Access; Confidentiality
[a05-18060_1ex10d1.htm#Section7_2AccessConfidentiality_a_044808]

40

 

 

 

Section 7.3 [a05-18060_1ex10d1.htm#Section7_3EffortsAndActionsToCaus_044813]

Efforts and Actions to Cause Closing to Occur
[a05-18060_1ex10d1.htm#Section7_3EffortsAndActionsToCaus_044813]

41

 

 

 

Section 7.4 [a05-18060_1ex10d1.htm#Section7_4NotificationOfCertainMa_044824]

Notification of Certain Matters
[a05-18060_1ex10d1.htm#Section7_4NotificationOfCertainMa_044824]

43

 

 

 

Section 7.5 [a05-18060_1ex10d1.htm#Section7_5NoSolicitationOfCompeti_044828]

No Solicitation of Competing Transaction
[a05-18060_1ex10d1.htm#Section7_5NoSolicitationOfCompeti_044828]

44

 

 

 

Section 7.6 [a05-18060_1ex10d1.htm#Section7_6TransferOfOptionorsShar_044832]

Transfer of Optionors’ Shares
[a05-18060_1ex10d1.htm#Section7_6TransferOfOptionorsShar_044832]

45

 

 

 

Section 7.7 [a05-18060_1ex10d1.htm#Section7_7WaiverPursuantToAndTerm_044834]

Waiver Pursuant to and Termination of Shareholders Agreement
[a05-18060_1ex10d1.htm#Section7_7WaiverPursuantToAndTerm_044834]

45

 

 

 

Section 7.8 [a05-18060_1ex10d1.htm#Section7_8SubsequentActions_IfAtA_044836]

Subsequent Actions
[a05-18060_1ex10d1.htm#Section7_8SubsequentActions_IfAtA_044836]

45

 

 

 

Section 7.9 [a05-18060_1ex10d1.htm#Section7_9FirptaCertificates_Each_044838]

FIRPTA Certificates
[a05-18060_1ex10d1.htm#Section7_9FirptaCertificates_Each_044838]

45

 

 

 

Section 7.10 [a05-18060_1ex10d1.htm#Section7_10LimitationOnCertainAct_044840]

Limitation on Certain Actions
[a05-18060_1ex10d1.htm#Section7_10LimitationOnCertainAct_044840]

45

 

 

 

ARTICLE VIII [a05-18060_1ex10d1.htm#Articleviii_044843]

 

TAX MATTERS [a05-18060_1ex10d1.htm#TaxMatters_044845]

 

 

 

Section 8.1 [a05-18060_1ex10d1.htm#Section8_1TransferTaxes_AllTransf_044846]

Transfer Taxes [a05-18060_1ex10d1.htm#Section8_1TransferTaxes_AllTransf_044846]

46

 

 

 

Section 8.2 [a05-18060_1ex10d1.htm#Section8_2TaxReturnFilings_AtTheO_044848]

Tax Return Filings
[a05-18060_1ex10d1.htm#Section8_2TaxReturnFilings_AtTheO_044848]

46

 

 

 

Section 8.3 [a05-18060_1ex10d1.htm#Section8_3TaxIndemnification__044851]

Tax Indemnification [a05-18060_1ex10d1.htm#Section8_3TaxIndemnification__044851]

47

 

 

 

Section 8.4 [a05-18060_1ex10d1.htm#Section8_4Cooperation_TheOptionor_044901]

Cooperation [a05-18060_1ex10d1.htm#Section8_4Cooperation_TheOptionor_044901]

49

 

 

 

Section 8.5 [a05-18060_1ex10d1.htm#Section8_5RefundsAndCredits_AnyRe_044903]

Refunds and Credits
[a05-18060_1ex10d1.htm#Section8_5RefundsAndCredits_AnyRe_044903]

49

 

 

 

Section 8.6 [a05-18060_1ex10d1.htm#Section8_6CalculationOfLosses_The_044907]

Calculation of Losses
[a05-18060_1ex10d1.htm#Section8_6CalculationOfLosses_The_044907]

50

 

 

 

Section 8.7 [a05-18060_1ex10d1.htm#Section8_7ProceduresRelatingToInd_044909]

Procedures Relating to Indemnification of Tax Claims
[a05-18060_1ex10d1.htm#Section8_7ProceduresRelatingToInd_044909]

50

 

 

 

Section 8.8 [a05-18060_1ex10d1.htm#Section8_8TaxSharingAgreements_Th_044913]

Tax Sharing Agreements
[a05-18060_1ex10d1.htm#Section8_8TaxSharingAgreements_Th_044913]

51

 

 

 

Section 8.9 [a05-18060_1ex10d1.htm#Section8_9Miscellaneous_AllIndemn_044915]

Miscellaneous [a05-18060_1ex10d1.htm#Section8_9Miscellaneous_AllIndemn_044915]

51

 

 

 

ARTICLE IX [a05-18060_1ex10d1.htm#Articleix_044917]

 

CONDITIONS [a05-18060_1ex10d1.htm#Conditions_044919]

 

 

 

 

Section 9.1 [a05-18060_1ex10d1.htm#Section9_1ConditionsToEachPartysO_044921]

Conditions to Each Party’s Obligation to Effect the Closing
[a05-18060_1ex10d1.htm#Section9_1ConditionsToEachPartysO_044921]

51

 

 

 

Section 9.2 [a05-18060_1ex10d1.htm#Section9_2ConditionsToObligations_044925]

Conditions to Obligations of Optionee to Effect the Closing
[a05-18060_1ex10d1.htm#Section9_2ConditionsToObligations_044925]

51

 

 

 

Section 9.3 [a05-18060_1ex10d1.htm#Section9_3ConditionsToObligations_044939]

Conditions to Obligations of Optionors to Effect the Closing
[a05-18060_1ex10d1.htm#Section9_3ConditionsToObligations_044939]

53

 

 

 

ARTICLE X [a05-18060_1ex10d1.htm#Articlex_044945]

 

TERMINATION [a05-18060_1ex10d1.htm#Termination_044947]

 

 

 

Section 10.1 [a05-18060_1ex10d1.htm#Section10_1Termination_TheOptionA_044949]

Termination [a05-18060_1ex10d1.htm#Section10_1Termination_TheOptionA_044949]

54

 

 

 

Section 10.2 [a05-18060_1ex10d1.htm#Section10_2EffectOfTermination_In_044954]

Effect of Termination
[a05-18060_1ex10d1.htm#Section10_2EffectOfTermination_In_044954]

55

 

iii

--------------------------------------------------------------------------------

 

ARTICLE XI [a05-18060_1ex10d1.htm#Articlexi_044956]

 

INDEMNIFICATION [a05-18060_1ex10d1.htm#Indemnification_044958]

 

 

 

Section 11.1 [a05-18060_1ex10d1.htm#Section11_1SurvivalOfRepresentati_045000]

Survival of Representations and Warranties; Time Limitations
[a05-18060_1ex10d1.htm#Section11_1SurvivalOfRepresentati_045000]

55

 

 

 

Section 11.2 [a05-18060_1ex10d1.htm#Section11_2IndemnificationRemedie_045005]

Indemnification; Remedies
[a05-18060_1ex10d1.htm#Section11_2IndemnificationRemedie_045005]

56

 

 

 

Section 11.3 [a05-18060_1ex10d1.htm#Section11_3NoticeOfClaimDefense_a_045018]

Notice of Claim; Defense
[a05-18060_1ex10d1.htm#Section11_3NoticeOfClaimDefense_a_045018]

60

 

 

 

Section 11.4 [a05-18060_1ex10d1.htm#Section11_4TaxTreatmentOfIndemnif_045022]

Tax Treatment of Indemnification Payments
[a05-18060_1ex10d1.htm#Section11_4TaxTreatmentOfIndemnif_045022]

61

 

 

 

ARTICLE XII [a05-18060_1ex10d1.htm#Articlexii_045023]

 

MISCELLANEOUS [a05-18060_1ex10d1.htm#Miscellaneous_045025]

 

 

 

Section 12.1 [a05-18060_1ex10d1.htm#Section12_1FeesAndExpenses_AllCos_045027]

Fees and Expenses
[a05-18060_1ex10d1.htm#Section12_1FeesAndExpenses_AllCos_045027]

61

 

 

 

Section 12.2 [a05-18060_1ex10d1.htm#Section12_2AmendmentAndModificati_045029]

Amendment and Modification
[a05-18060_1ex10d1.htm#Section12_2AmendmentAndModificati_045029]

61

 

 

 

Section 12.3 [a05-18060_1ex10d1.htm#Section12_3Publicity_UntilTheClos_045032]

Publicity [a05-18060_1ex10d1.htm#Section12_3Publicity_UntilTheClos_045032]

62

 

 

 

Section 12.4 [a05-18060_1ex10d1.htm#Section12_4Notices_AllNoticesAndO_045034]

Notices [a05-18060_1ex10d1.htm#Section12_4Notices_AllNoticesAndO_045034]

62

 

 

 

Section 12.5 [a05-18060_1ex10d1.htm#Section12_5Counterparts_ThisAgree_045052]

Counterparts [a05-18060_1ex10d1.htm#Section12_5Counterparts_ThisAgree_045052]

64

 

 

 

Section 12.6 [a05-18060_1ex10d1.htm#Section12_6EntireAgreementNoThird_045054]

Entire Agreement; No Third Party Beneficiaries
[a05-18060_1ex10d1.htm#Section12_6EntireAgreementNoThird_045054]

64

 

 

 

Section 12.7 [a05-18060_1ex10d1.htm#Section12_7Severability_AnyTermOr_045056]

Severability [a05-18060_1ex10d1.htm#Section12_7Severability_AnyTermOr_045056]

64

 

 

 

Section 12.8 [a05-18060_1ex10d1.htm#Section12_8GoverningLaw_ThisAgree_045102]

Governing Law [a05-18060_1ex10d1.htm#Section12_8GoverningLaw_ThisAgree_045102]

64

 

 

 

Section 12.9 [a05-18060_1ex10d1.htm#Section12_9EnforcementVenue_ThePa_045104]

Enforcement; Venue
[a05-18060_1ex10d1.htm#Section12_9EnforcementVenue_ThePa_045104]

65

 

 

 

Section 12.10 [a05-18060_1ex10d1.htm#Section12_10WaiverOfJuryTrial_Eac_045106]

Waiver of Jury Trial
[a05-18060_1ex10d1.htm#Section12_10WaiverOfJuryTrial_Eac_045106]

65

 

 

 

Section 12.11 [a05-18060_1ex10d1.htm#Section12_11TimeOfEssence_EachOfT_045108]

Time of Essence [a05-18060_1ex10d1.htm#Section12_11TimeOfEssence_EachOfT_045108]

65

 

 

 

Section 12.12 [a05-18060_1ex10d1.htm#Section12_12ExtensionWaiver_AtAny_045111]

Extension; Waiver
[a05-18060_1ex10d1.htm#Section12_12ExtensionWaiver_AtAny_045111]

65

 

 

 

Section 12.13 [a05-18060_1ex10d1.htm#Section12_13NoOtherRepresentation_045113]

No Other Representations
[a05-18060_1ex10d1.htm#Section12_13NoOtherRepresentation_045113]

65

 

 

 

Section 12.14 [a05-18060_1ex10d1.htm#Section12_14SoleAndExclusiveRemed_045115]

Sole and Exclusive Remedy
[a05-18060_1ex10d1.htm#Section12_14SoleAndExclusiveRemed_045115]

65

 

 

 

Section 12.15 [a05-18060_1ex10d1.htm#Section12_15NoConsequentialDamage_045118]

No Consequential Damages
[a05-18060_1ex10d1.htm#Section12_15NoConsequentialDamage_045118]

66

 

 

 

Section 12.16 [a05-18060_1ex10d1.htm#Section12_16NoSetoff_AllPaymentsT_045120]

No Set-Off [a05-18060_1ex10d1.htm#Section12_16NoSetoff_AllPaymentsT_045120]

66

 

 

 

Section 12.17 [a05-18060_1ex10d1.htm#Section12_17Assignment_NeitherThi_045121]

Assignment [a05-18060_1ex10d1.htm#Section12_17Assignment_NeitherThi_045121]

66

 

 

 

Section 12.18 [a05-18060_1ex10d1.htm#Section12_18Documentation_ThisAgr_045123]

Documentation [a05-18060_1ex10d1.htm#Section12_18Documentation_ThisAgr_045123]

66

 

 

 

Section 12.19 [a05-18060_1ex10d1.htm#Section12_19NoDisparagement__045124]

No Disparagement [a05-18060_1ex10d1.htm#Section12_19NoDisparagement__045124]

66

 

 

 

Section 12.20 [a05-18060_1ex10d1.htm#Section12_20NoSolicitationOfCompa_045156]

No Solicitation of Company Employees
[a05-18060_1ex10d1.htm#Section12_20NoSolicitationOfCompa_045156]

67

 

iv

--------------------------------------------------------------------------------

 

Annexes and Exhibits to this Agreement

 

Annex A

Contingent Payment Agreement

 

Exhibit A [a05-18060_1ex10d1.htm#Exhibita_045207]

Optionor Data [a05-18060_1ex10d1.htm#Exhibita_045207]

 

Exhibit B

Signing Date Fee Matrix

 

 

 

 

Schedules to this Agreement

 

Schedule 1.1(a)

Schedule of Key Employees

 

Schedule 1.1(b)

Schedule of Key Employee Contracts

 

Schedule 1.1(c)

Schedule of Specified Disputes

 

 

 

 

Disclosure Schedules (delivered simultaneously with the execution hereof)

 

Schedule 5.3(a)

Capitalization – Holders of Company Options

 

Schedule 5.3(b)

Capitalization - Voting Trusts and Agreements (other than Shareholder Documents)

 

Schedule 5.3(c)

Capitalization - Exercise Right of Certain Holders of Company Options Following
the Closing Date

 

Schedule 5.5

Company Subsidiaries

 

Schedule 5.6

Consents and Approvals

 

Schedule 5.8

Undisclosed Liabilities

 

Schedule 5.9(a)

Potentially Adverse Changes

 

Schedule 5.9(b)

Incurred Liabilities and Obligations

 

Schedule 5.9(e)

Mortgage Servicing Rights Rollforward

 

Schedule 5.9(g)

Sale or Transfer of Properties or Assets

 

Schedule 5.9(i)

Disposal or Lapse of Intellectual Property

 

Schedule 5.9(j)

Increases in Compensation

 

Schedule 5.9(l)

Capital Additions

 

Schedule 5.9(m)

Capital Stock Distribution & Redemptions Since January 1, 2005

 

Schedule 5.11(a)

Real Property

 

Schedule 5.12

Leases

 

Schedule 5.13

Environmental Matters

 

Schedule 5.14(i)

Material Vendor Contracts

 

Schedule 5.14(ii)

Credit Facilities

 

Schedule 5.14(iii)

Mortgage Loan Servicing Agreements

 

Schedule 5.14(iv)

Consumer Group Agreements

 

Schedule 5.14(v)

Miscellaneous Agreements

 

Schedule 5.14(vi)

Agreements with Employees Containing Liabilities or Obligations Surviving
Severance or Termination

 

Schedule 5.14(vii)

Highly Compensated Employees

 

Schedule 5.14(b)

Alleged Material Breaches of Contract

 

Schedule 5.15

Litigation

 

Schedule 5.16

Compliance with Laws

 

Schedule 5.17

Company Permits

 

Schedule 5.18

Compensation and Benefit Programs

 

Schedule 5.18(e)

Accelerated Vesting of Company Options on the Closing Date

 

 

v

--------------------------------------------------------------------------------

 

Schedule 5.18(f)

Claims under Plans

 

Schedule 5.19(e)

Tax Audits & Examinations

 

Schedule 5.19(f)

Timing of Certain Tax Issues

 

Schedule 5.19(j)

Extensions of Statutes of Limitations for Tax Audits & Examinations

 

Schedule 5.19(k)

Withholding Deficiencies

 

Schedule 5.19(n)

List of Income Tax Return Jurisdictions

 

Schedule 5.20

Trademark & Service Mark Registrations and Applications & Domain Names

 

Schedule 5.21

Labor Matters

 

Schedule 5.22

List of Officers and Directors

 

Schedule 5.24

Propriety of Past Payments

 

Schedule 5.26

Consumer Complaints – General

 

Schedule 5.26(b)

Consumer Complaints – Housing Discrimination

 

Schedule 5.27

Insurance Coverage

 

 

vi

--------------------------------------------------------------------------------

 

OPTION AGREEMENT

 

Option Agreement, dated as of August 12, 2005, by and among Credit Suisse First
Boston (USA), Inc., a Delaware corporation (the “Optionee”), SPS Holding Corp.,
a Delaware corporation (the “Company”), The PMI Group, Inc., a Delaware
corporation (“PMI”), FSA Portfolio Management Inc., a New York corporation
(“FSA”), and Greenrange Partners LLC, a Connecticut limited liability company
(“Greenrange”) (each of Greenrange, PMI and FSA, individually an “Optionor” and
collectively the “Optionors”).  Certain capitalized terms used in this Agreement
have the meanings assigned to them in Article I.

 

WHEREAS, the Optionors are the record and beneficial owners in the aggregate of
8,396,455 shares of common stock, par value $0.01 per share, of the Company and
1,883,999 shares of Series C Preferred Stock, par value $0.01 per share, of the
Company (such common stock and preferred stock, collectively, the “Option
Shares”);

 

WHEREAS, as a condition and inducement to the willingness of Optionee’s
affiliate, DLJ Mortgage Capital, Inc., a Delaware corporation (“DLJ”), to enter
into the Flow Servicing Rights Purchase Agreement, dated as of January 28, 2005
(the “Purchase Agreement”), between DLJ and Select Portfolio Servicing, Inc., a
Utah corporation (the “Servicer”), Optionee has requested, and Optionors have
agreed, to grant Optionee the Option; and

 

WHEREAS, the board of directors of the Company has approved, and deems it
advisable and in the best interests of the Company and its stockholders to
consummate, the acquisition of all outstanding shares of capital stock of the
Company by Optionee upon the exercise of the Option, which acquisition is to be
effected by the purchase of all the outstanding capital stock of the Company by
Optionee upon the terms and subject to the conditions set forth herein;

 

NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein,
intending to be legally bound hereby, the parties hereto agree as follows:

 

ARTICLE I

DEFINITIONS AND INTERPRETATION

 

Section 1.1             Definitions.  For all purposes of this Agreement, except
as otherwise expressly provided or unless the context clearly requires
otherwise:

 

“Accountants” shall have the meaning set forth in Section 3.3(c)(iv).

 

“Acquisition Proposal” shall mean any proposal or offer made by any Person other
than Optionee or any Subsidiary of Optionee to acquire all or a substantial part
of the business or properties of the Company or any Company Subsidiary or
capital stock of the Company or any Company Subsidiary, whether by merger,
tender offer, exchange offer, sale of assets or similar transactions involving
the Company or any Subsidiary, division or operating or principal business unit
of the Company; provided, however, that an Acquisition Proposal shall not
include

 

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any proposal or offer by the Company or any Subsidiary of the Company to acquire
outstanding shares of Common Stock or Company Options not currently owned by an
Optionor.

 

“Actual Closing Balance Sheet”  shall mean the balance sheet referred to in
Section 3.3(c).

 

“Affiliate” shall mean a Person that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the
Person specified.  For purposes of this definition, the term “control” of a
Person means the possession, direct or indirect, of the power to (i) vote 50% or
more of the voting securities of such Person or (ii) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise, and the terms and phrases “controlling”, “controlled by” and “under
common control with” have correlative meanings.

 

“Agreement” or “this Agreement” shall mean this Option Agreement, together with
the Exhibits, Schedules and Appendices hereto and the Disclosure Schedule.

 

“Associate” shall have the meaning set forth in Rule 12b-2 promulgated under the
Securities Exchange Act of 1934, as amended.

 

“Balance Sheet” shall mean the most recent audited balance sheet of the Company
and the Company Subsidiaries included in the Financial Statements.

 

“Balance Sheet Date” shall mean the date of the Balance Sheet.

 

“Budget” shall mean the most recent budget of the Company delivered to the
Optionee prior to the execution of this Agreement.

 

“Business Day” shall mean a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.

 

“Cash Payment” shall mean the payment referred to in Section 3.3(c)(v).

 

“Certificate of Incorporation” shall mean the Amended and Restated Certificate
of Incorporation of SPS Holding Corp. as filed on September 30, 2004, with the
Secretary of State of the State of Delaware.

 

“Closing” shall mean the closing referred to in Section 3.1.

 

“Closing Balance Sheet” shall mean the balance sheet referred to in Section
3.3(c)(v).

 

“Closing Cash Payment” shall mean the payment referred to in Section 3.3(c)(i).

 

“Closing Date” shall have the meaning set forth in Section 3.1.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended.

 

“Common Stock” shall mean the common stock, par value $0.01, of the Company.

 

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“Company” shall mean SPS Holding Corp., a Delaware corporation.

 

“Company Board of Directors” shall mean the board of directors of the Company.

 

“Company Group” means any combined, unitary, consolidated or other affiliated
group within the meaning of Section 1504 of the Code or otherwise, of which the
Company or any Company Subsidiary is or has been a member for federal, state or
foreign tax purposes.

 

“Company Intellectual Property” shall mean all Intellectual Property that is
currently used in the business of the Company or any Company Subsidiary or that
is necessary to conduct the business of the Company or the Company Subsidiaries
as presently conducted or as currently proposed to be conducted by the Company.

 

“Company Option” shall mean an option to purchase any shares of the capital
stock of the Company which has been granted by the Company to any Person.

 

“Company Permits” shall mean all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities which are necessary for the
operation of the businesses of the Company and the Company Subsidiaries, taken
as a whole.

 

“Company Subsidiary” shall mean each Person which is a Subsidiary of the
Company.

 

“Computer Software” shall mean computer software programs, other than
pre-packaged or off-the-shelf software, databases and all documentation related
thereto.

 

“Consent Orders” shall mean, collectively, those federal and state consent
orders and class action settlements set forth on Schedule 5.6 of the Disclosure
Schedule.

 

“Contingent Payment Agreement” shall mean that certain Contingent Payment
Agreement, dated as of the date hereof, by and among the Servicer, the Optionee,
Greenrange, PMI and FSA, a copy of which has been attached hereto as Annex A.

 

“Copyrights” shall mean U.S. and foreign registered and unregistered copyrights
(including those in computer software and databases), rights of publicity and
all registrations and applications to register the same.

 

“Credit Facility” shall have the meaning set forth in Schedule 5.14(a)(ii) of
the Disclosure Schedule.

 

“Customer Accommodation” shall have the meaning ascribed to such term in the
Contingent Payment Agreement.

 

“Designated Litigation Expenses” shall have the meaning ascribed to such term in
the Contingent Payment Agreement.

 

“Disclosure Schedule” shall mean the disclosure schedule of even date herewith
prepared and signed by the Company and delivered to Optionee simultaneously with
the execution hereof, together with all Disclosure Schedule Supplements.

 

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“Disclosure Schedule Supplement” shall have the meaning set forth in
Section 7.4.

 

“DLJ” shall mean DLJ Mortgage Capital, Inc., a Delaware corporation.

 

“DOJ” shall mean the Antitrust Division of the United States Department of
Justice.

 

“Encumbrances” shall mean any and all Liens, options, claims, proxies, voting
trusts or agreements, obligations, understandings or arrangements or other
restrictions on title or transfer of any nature whatsoever, other than
restrictions on transfer arising under applicable securities laws.

 

“Environmental Claim” shall mean any claim, action, cause of action,
investigation or notice (written or oral) by any Person alleging actual or
potential liability for investigatory, cleanup or governmental response costs,
compliance actions or costs, damages, including, without limitation, natural
resources injury or property damages, or personal injuries, attorney’s fees or
penalties relating to (i) the presence, or release into the environment, of any
Materials of Environmental Concern at any location owned or operated by the
Company or any Company Subsidiary, or at any other location as the result of the
operation of any Company or Company Subsidiary business, now or in the past, or
(ii) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.

 

“Environmental Law” shall mean each federal, state, local and foreign law and
regulation relating to pollution, protection or preservation of human health or
the environment including ambient air, surface water, ground water, land surface
or subsurface strata, and natural resources, and including each law and
regulation relating to emissions, discharges, releases or threatened releases of
Materials of Environmental Concern, or otherwise relating to the manufacturing,
processing, distribution, use, treatment, generation, storage, containment
(whether above ground or underground), disposal, transport or handling of
Materials of Environmental Concern, or the preservation of the environment or
mitigation of adverse effects thereon and each law and regulation with regard to
record keeping, notification, disclosure and reporting requirements respecting
Materials of Environmental Concern.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended.

 

“ERISA Affiliate” shall mean any trade or business, whether or not incorporated,
that together with the Company would be deemed a “single employer” within the
meaning of Section 4001(b) of ERISA.

 

“Estimated Cash Payment” shall mean the payment referred to in Section 3.3(b).

 

“Estimated Closing Balance Sheet” shall mean the balance sheet referred to in
Section 3.3(a).

 

“Exercise Date” shall mean the date any Optionor first receives the Exercise
Notice.

 

“Exercise Notice” shall have the meaning set forth in Section 3.1.

 

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“Exercise Price” shall have the meaning set forth in Section 2.3.

 

“Expiration Time” shall mean 5:00 p.m., Salt Lake City time, on August 12, 2005.

 

“Federal Income Tax” means any Tax imposed under Subtitle A of the Code.

 

“Fee Matrix” shall have the meaning set forth in Section 9.2(l).

 

“Final Determination” means (i) with respect to Federal Income Taxes, a
“determination” as defined in Section 1313(a) of the Code or execution of an
Internal Revenue Service Form 870-AD and, (ii) with respect to Taxes other than
Federal Income Taxes, any final determination of liability in respect of a Tax
that, under applicable law, is not subject to further appeal, review or
modification through proceedings or otherwise (including the expiration of a
statute of limitations or a period for the filing of claims for refunds, amended
returns or appeals from adverse determinations).

 

“Financial Statements” shall mean (a) the consolidated balance sheets of the
Company and the Company Subsidiaries as of December 31, 2004, 2003 and 2002,
together with consolidated statements of income, shareholders’ equity and cash
flows for each of the years then ended, all certified by Ernst & Young LLP,
independent certified public accountants, whose reports thereon are included
therein, and (b) an unaudited consolidated balance sheet of the Company and the
Company Subsidiaries as of June 30, 2005 and unaudited consolidated statements
of income, shareholders’ equity and cash flows for the six month period then
ended.

 

“Final Payment Amount” shall have the meaning ascribed to such term in the
Contingent Payment Agreement.

 

“FSA” shall mean FSA Portfolio Management Inc., a New York corporation.

 

“FSA Additional Accretion Amount” shall mean an amount equal to the sum of
(i) $92,666.81 times the number of calendar months during the period commencing
on and including August 1, 2005, and ending on and including the Measurement
Date and (ii) $3,088.89 times the number of calendar days during the period
commencing on and including the first day after the Measurement Date and ending
on and including the Closing Date.

 

“FTC” shall mean the United States Federal Trade Commission.

 

“GAAP” shall mean United States generally accepted accounting principles,
applied on a consistent basis.

 

“Governmental Entity” shall mean any supranational, national, state, municipal,
local or foreign government, any instrumentality, subdivision, court,
administrative agency or commission or other authority thereof, or any
quasi-governmental or private body exercising any regulatory, taxing, importing
or other governmental or quasi-governmental authority.

 

“Greenrange” shall mean Greenrange Partners LLC, a Connecticut limited liability
company.

 

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“HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.

 

“Indebtedness” shall mean (i) all indebtedness for borrowed money or for the
deferred purchase price of property or services (other than current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices), (ii) any other indebtedness that is
evidenced by a note, bond, debenture or similar instrument, (iii) all
obligations under financing leases, (iv) all obligations in respect of
acceptances issued or created, (v) all liabilities secured by any lien on any
property and (vi) all guarantee obligations.

 

“Indemnification Threshold” shall have the meaning set forth in Section 11.2(f).

 

“Intellectual Property” shall mean all of the following:  Trademarks, Patents,
Copyrights, Trade Secrets and Licenses.

 

“Key Employee” shall mean any executive officer of the Company set forth on
Schedule 1.1(a) hereto.

 

“Key Employee Contracts” shall mean the employment agreements, sale agreements
or offer letters between the Company, on the one hand, and a Key Employee, on
the other hand, set forth on Schedule 1.1(b) hereto.

 

“Knowledge of the Company” concerning a particular subject, area or aspect of
the Company’s or the Company Subsidiary’s business or affairs and/or the
business or affairs of a relevant Company Subsidiary, shall mean (i) the actual
knowledge of Matt Hollingsworth after making a reasonable inquiry of the Key
Employees, Kim Stevenson, Michelle Simon and Greg Harmer as to the accuracy of
the representation and warranty in question and (ii) the actual knowledge,
without inquiry, of Bryan Marshall, John Pataky, Tim O’Brien, Brent Rasmussen,
Robert Holz, Craig Bullock, Kim Stevenson and Michelle Simon.

 

“Lease” shall mean each lease pursuant to which the Company or any Company
Subsidiary leases any real or personal property, either as lessor or lessee
(excluding leases relating solely to personal property calling for rental or
similar periodic payments not exceeding $10,000 per annum), each of which is set
forth on Schedule 5.12 of the Disclosure Schedule.

 

“Licenses” shall mean all licenses and agreements pursuant to which the Company
has acquired rights in or to any Trademarks, Patents or Copyrights, or licenses
and agreements pursuant to which the Company has licensed or transferred the
right to use any of the foregoing.

 

“Lien” means any mortgage, pledge, hypothecation, assignment, encumbrance, lien
(statutory or other) or other security agreement of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement or any financing lease having substantially the same
economic effect as any of the foregoing).

 

“Long-Term Incentive Plan” shall mean the Company’s Amended 1998 Long-Term
Incentive Plan, as amended to date.

 

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“Losses” shall mean, without duplication, any and all actual losses, costs,
obligations, liabilities, damages, settlement payments, awards, judgments,
fines, penalties, damages, deficiencies or other charges (including without
limitation reasonable attorneys’ fees and expenses and reasonable accountants’
fees and expenses); provided, however, that notwithstanding anything in this
Agreement to the contrary, the term “Losses” shall not include any losses,
costs, obligations, liabilities, damages, settlement payments, awards,
judgments, fines, penalties, damages, deficiencies or other charges to the
extent that such losses, costs, obligations, liabilities, damages, settlement
payments, awards, judgments, fines, penalties, damages, deficiencies or other
charges are reflected in or reserved against in the Closing Balance Sheet (other
than the Specified Reserves and the Litigation Reserve Amount (as such term is
defined in the Contingent Payment Agreement)); provided, further, that such
reserve amount has not been reduced to zero as a result of prior losses, costs,
obligations, liabilities, damages, settlement payments, awards, judgments,
fines, penalties, damages, deficiencies or other charges that would be “Losses”
hereunder but for the first proviso of this definition.

 

“Material Adverse Effect” or “Material Adverse Change” shall mean any change or
changes, effect or effects, event or events, or circumstance or circumstances,
that individually or in the aggregate are or may reasonably be expected to be
materially adverse to (i) the assets, properties, business, operations, income,
or condition (financial or otherwise) of the Company and the Company
Subsidiaries, taken as a whole, other than any change, effect, event, occurrence
or state of facts relating to (a) the economy or the financial markets in
general, (b) the industry in which the Company and its Subsidiaries operate in
general and not specifically relating to the Company and its Subsidiaries,
(c) the announcement of this Agreement or the transactions contemplated hereby
or the identity of Optionee, (d) failure of the Company or any Company
Subsidiary to take any action that is restricted by Section 7.1 and as to which
Optionee does not consent; (e) changes in applicable Laws or regulations after
the date hereof, or (f) changes in GAAP or regulatory accounting principles
after the date hereof, or (ii) the ability of the Company or the Optionors to
perform their respective obligations under this Agreement.

 

“Material Contract” shall have the meaning set forth in Section 5.14(b) hereof.

 

“Material Vendor Contract” shall have the meaning set forth in
Section 5.14(a)(i) hereof.

 

“Materials of Environmental Concern” shall mean chemicals; pollutants;
contaminants; wastes; toxic or hazardous substances, materials and wastes;
petroleum and petroleum products; asbestos and asbestos-containing materials;
polychlorinated biphenyls; lead and lead-based paints and materials; and radon.

 

“Measurement Date” shall have the meaning set forth in Section 3.1.

 

“Monthly Contingent Payment” shall have the meaning ascribed to such term in the
Contingent Payment Agreement.

 

“Mortgage Loans” shall have the meaning ascribed to such term in the Contingent
Payment Agreement.

 

“Mortgage Loan Servicing Error” shall have the meaning ascribed to such term in
the Contingent Payment Agreement.

 

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“MSRs” shall mean mortgage servicing rights.

 

“MSR Seller” shall mean Optionee’s Affiliates that are licensed to purchase and
sell subprime residential mortgage loans, including DLJ.

 

“Multiemployer Plan” shall mean any “multiemployer plan,” as defined in
Section 4001(a)(3) of ERISA, which is maintained for employees of the Company or
any ERISA Affiliate.

 

“Objection” shall have the meaning set forth in Section 3.3(c)(iii).

 

“Option” shall have the meaning set forth in Section 2.1.

 

“Optionee” shall mean Credit Suisse First Boston (USA), Inc., a Delaware
corporation.

 

“Optionee’s Environmental Expenditures” shall mean the lesser of (i) $250,000
and (ii) the aggregate amount of Optionee’s Losses arising from claims under
Section 11.2(c) (exclusive of legal fees incurred in connection with pursuing
such claims).

 

“Optionee Indemnified Persons” shall mean, from and after the Closing Date,
(i) Optionee and each of its Affiliates, and their respective officers,
directors, employees, agents, successors and assigns and (ii) the Company.

 

“Optionor” shall mean each of Greenrange, PMI and FSA.

 

“Option Shares” shall mean the 8,396,455 shares of Common Stock and 1,883,999
shares of Series C Preferred Stock held in the aggregate by the Optionors.

 

“Ozanne Agreement” shall mean the Agreement, dated as of September 8, 2004,
between James Ozanne, PMI and FSA concerning certain rights of first refusal,
tag-along/bring-along rights and other matters relating to the capital stock of
the Company.

 

“Patents” shall mean issued U.S. and foreign patents and pending patent
applications, patent disclosures, and any and all divisions, continuations,
continuations-in-part, reissues, reexaminations, and extensions thereof, any
counterparts claiming priority therefrom, utility models, patents of
importation/confirmation, certificates of invention and like statutory rights.

 

“Percentage Interest” shall mean (i) for PMI, 61.36500%; (ii) for FSA,
37.40412%; and (iii) for Greenrange, 1.23088%.

 

“Permitted Liens” shall mean (a) mechanics’, carrier’s, workmen’s, landlord’s,
repairmen’s or other like Liens arising or incurred in the ordinary course of
business for sums not yet due and payable, (b) Liens arising under original
purchase price conditional sales contracts and equipment leases with third
parties entered into in the ordinary course of business, including Liens under
Leases for personal property, (c) Liens arising under a Credit Facility,
(d) Liens for Taxes and other governmental charges which are not due and payable
or which may thereafter be paid without penalty or which are being contested
through appropriate administrative or judicial proceeding, and (e) other
imperfections of title, restrictions or encumbrances, if any, which

 

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Liens, imperfections of title, restrictions or encumbrances do not materially
impair the continued use and operation of the specific asset to which they
relate.

 

“Person” shall mean a natural person, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Entity or other entity or organization.

 

“Plan” shall mean each deferred compensation and each incentive compensation,
stock purchase, stock option and other equity compensation plan, program,
agreement or arrangement; each severance or termination pay, medical, surgical,
hospitalization, life insurance and other “welfare” plan, fund or program
(within the meaning of Section 3(1) of ERISA); each profit-sharing, stock bonus
or other “pension” plan, fund or program (within the meaning of Section 3(2) of
ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each case,
that is sponsored, maintained or contributed to or required to be contributed to
by the Company or by any ERISA Affiliate, or to which the Company or an ERISA
Affiliate is party, whether written or oral, for the benefit of any director,
employee or former employee of the Company or any Company Subsidiary.

 

“PMI” shall mean The PMI Group, Inc., a Delaware corporation.

 

“PMI Additional Accretion Amount” shall mean an amount equal to the sum of
(i) $390,500.19 times the number of calendar months during the period commencing
on and including August 1, 2005, and ending on and including the Measurement
Date and (ii) $13,016.67 times the number of calendar days during the period
commencing on and including the first day after the Measurement Date and ending
on and including the Closing Date.

 

“Post-Closing Tax Period” means any taxable period (or portion thereof)
beginning after the close of business on the Closing Date.

 

“Pre-Closing Tax Period” means any taxable period (or portion thereof) ending on
or before the close of business on the Closing Date.

 

“Private Litigation” shall have the meaning ascribed to such term in the
Contingent Payment Agreement.

 

“Promissory Notes” means the Promissory Note to PMI and the Promissory Note to
Dexia.

 

“Promissory Note to Dexia” means the Subordinated Promissory Note, dated as of
September 30, 2004, issued by the Servicer to Dexia Holdings, Inc.

 

“Promissory Note to PMI” means the Subordinated Promissory Note, dated as of
September 30, 2004, issued by the Servicer to PMI.

 

“Property Taxes” shall mean any real, personal and intangible property Taxes.

 

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“Purchase Agreement” shall mean the Flow Servicing Purchase Rights Agreement,
dated as of January 28, 2005, between DLJ and the Servicer.

 

“Real Property” shall mean all real property that is owned or leased by the
Company or any Company Subsidiary or that is reflected as an asset of the
Company or any Company Subsidiary on the Balance Sheet, other than REO Property.

 

“Registration Rights Agreement” shall mean the Registration Rights Agreement,
dated as of March 31, 2000, in respect of the capital stock of the Company.

 

“Regulatory Action” shall mean any action, suit or proceeding brought against
the Servicer by any Governmental Entity based, in whole or in part, upon (i) a
Mortgage Loan Servicing Error occurring prior to the Closing Date, (ii) a
failure by the Servicer to maintain prior to the Closing Date any state or
federal license required for the lawful operation of its mortgage loan servicing
business prior to the Closing Date or (iii) a failure of the Servicer to
maintain a physical presence in the State of Pennsylvania prior to the Closing
Date.

 

“Regulatory Payment” shall mean (i) to the extent the Mortgage Loan Servicing
Errors giving rise to the Regulatory Action occurs (A) before the Closing Date
or (B) both before the Closing Date and during the 180-day period immediately
after the Closing Date, 100% of all Losses (which shall include, for purposes of
this definition, any reverse and reimbursement payments made by the Servicer of
fees or other charges) based upon such Mortgage Loan Servicing Errors paid by
the Servicer arising out of such Regulatory Action; (ii) to the extent the
Mortgage Loan Servicing Errors giving rise to the Regulatory Action occurs both
before the Closing Date and after the 180-day period immediately after the
Closing Date, 50% of all Losses (which shall include, for purposes of this
definition, any reverse and reimbursement payments made by the Servicer of fees
or other charges) based upon such Mortgage Loan Servicing Errors paid by the
Servicer arising out of such Regulatory Action; (iii) to the extent that a
failure by the Servicer to maintain prior to the Closing Date any state or
federal license required for the lawful operation of its mortgage loan servicing
business prior to the Closing Date gives rise to the Regulatory Action, 100% of
all Losses based upon such failure paid by the Servicer arising out of such
Regulatory Action; and (iv) to the extent that a failure of the Servicer to
maintain a physical presence in the State of Pennsylvania prior to the Closing
Date gives rise to the Regulatory Action, 100% of all Losses based upon such
failure paid by the Servicer arising out of such Regulatory Action;  provided,
however, that Regulatory Payments shall not include any Losses that arise out of
any Customer Accommodation, Customer Reversal or Private Litigation.

 

“REO Property” shall mean that real property owned by the Company or any Company
Subsidiary that was acquired through foreclosure.

 

“Revocation Notice” shall have the meaning set forth in Section 3.1(b).

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

“Series C Preferred Stock” shall mean the Series C Convertible Preferred Stock,
par value $0.01 per share, of the Company.

 

“Servicer” shall mean Select Portfolio Servicing, Inc., a Utah corporation.

 

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“Servicing Agreement” shall have the meaning ascribed to such term in the
Contingent Payment Agreement.

 

“Shareholders Agreement” shall mean the Fourth Amended and Restated FCH
Shareholders Agreement, dated as of March 31, 2000, by and among Thomas D.
Basmajian, Kim A. Stevenson, TATS, GE Capital Equity Investments, Inc., FGIC
Services, Inc., PMI Mortgage Insurance Co., FSA, Nomura Principal Capital
Holding Trust and the Company, as amended on June 27, 2002, July 29, 2003 and
August 23, 2004.

 

“Shareholder Documents” shall mean the (i) Shareholders Agreement, (ii) the
Registration Rights Agreement and (iii) the Ozanne Agreement.

 

“Signing Date Fee Matrix” shall mean the Fee Matrix of the Servicer as it exists
on the date hereof, a copy of which is attached hereto as Exhibit B.

 

“Specified Disputes” shall mean the matters set forth in Schedule 1.1(c) hereto.

 

“Specified Indemnification Obligations” shall have the meaning set forth in
Section 11.2(b).

 

“Specified Private Litigation Matter” shall mean a Private Litigation that is
initially filed during 2006 or 2007 by or on behalf of a consumer in a court of
competent jurisdiction and for which written notice of such Private Litigation
(together with a copy of the consumer’s complaint) is delivered to the Optionors
prior to or on December 31, 2007 in accordance with Section 12.4.

 

“Specified Real Property” shall mean (i) 3815 South West Temple, Salt Lake City,
Utah, (ii) 92 West 3900 South, Salt Lake City, Utah, (iii) 3839 South West
Temple, Salt Lake City, Utah, (iv) 3902 S. State Street, Salt Lake City, Utah
and (v) 330 South Warminster Rd., Hatboro, Pennsylvania.

 

“Specified Reserves” shall mean an amount (expressed as a positive number) equal
to the reserves reflected in the Estimated Closing Balance Sheet for (i) the
Specified Disputes, (ii) the Specified Tax Matters and (iii) possible Regulatory
Actions.  As of June 30, 2005, the reserves reflected in the balance sheet of
the Company for (i) the Specified Disputes was $1,835,000, (ii) the Specified
Tax Matters was $1,775,000 and (iii) possible Regulatory Actions was $579,000. 
The parties agree that the reserves for the Specified Disputes, the Specified
Tax Matters and Regulatory Actions reflected in the Actual Closing Balance Sheet
and the Closing Balance Sheet shall be the same amounts as reflected in the
Estimated Closing Balance Sheet.

 

“Specified Tax Matters” shall mean the matters set forth in Sections
8.3(b)(i) and (ii) of this Agreement.

 

“Specified Tax Reserve” shall mean an amount equal to the reserves reflected in
the Estimated Closing Balance Sheet for the Specified Tax Matters.

 

“Straddle Period” shall mean any taxable period that includes (but does not end
on) the Closing Date.

 

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“Subsequent Designated Agreement” shall have the meaning ascribed to such term
in the Contingent Payment Agreement.

 

“Subsidiary” shall mean, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (a) at least a
majority of the securities or other interests having by their terms ordinary
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person and/or by any one or
more of its Subsidiaries, or (b) such Person or any other Subsidiary of such
Person is a general partner (excluding any such partnership where such Person or
any Subsidiary of such Person does not have a majority of the voting interest in
such partnership).

 

“Tax” or “Taxes” shall mean all taxes, charges, fees, duties, levies, penalties
or other assessments imposed by any federal, state, local or foreign
governmental authority, including income, gross receipts, excise, property,
sales, gain, use, license, custom duty, unemployment, capital stock, transfer,
franchise, payroll, withholding, social security, minimum estimated, profit,
gift, severance, value added, disability, premium, recapture, credit,
occupation, service, leasing, employment, stamp and other taxes, and shall
include interest, penalties or additions attributable thereto or attributable to
any failure to comply with any requirement regarding Tax Returns.

 

“Tax Benefit” with respect to any event or adjustment for any Person means the
positive excess, if any, of the Tax liability of such Person without regard to
such event or adjustment over the Tax liability of such Person taking into
account such event or adjustment, with all other circumstances remaining
unchanged.

 

“Tax Claim” shall have the meaning set forth in Section 8.7.

 

“Tax Cost” with respect to any event or adjustment for any Person means the
positive excess, if any, of the Tax liability of such Person taking such event
or adjustment into account over the Tax liability of such Person without regard
to such event or adjustment, with all other circumstances remaining unchanged.

 

“Tax Return” shall mean any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any such document
prepared on a consolidated, combined or unitary basis and also including any
schedule or attachment thereto, and including any amendment thereof.

 

“Taxing Authority” means any governmental or regulatory authority, body or
instrumentality exercising any authority to impose, regulate or administer the
imposition of Taxes.

 

“Title IV Plan” shall mean a Plan that is subject to Section 302 or Title IV of
ERISA or Section 412 of the Code.

 

“Trademarks” shall mean U.S. and foreign registered and unregistered trademarks,
trade dress, service marks, logos, trade names, corporate names and all
registrations and applications to register the same.

 

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“Trade Secrets” shall mean all categories of trade secrets as defined in the
Uniform Trade Secrets Act including business information.

 

“Transactions” shall mean all the transactions provided for or contemplated by
this Agreement or the Contingent Payment Agreement.

 

“Transfer Tax” or “Transfer Taxes” means any federal, state, county, local,
foreign and other sales, use, transfer, conveyance, documentary transfer,
recording or other similar tax, fee or charge imposed upon the sale, transfer or
assignment of property or any interest therein or the recording thereof, and any
penalty, addition to Tax or interest with respect thereto.

 

“Voting Debt” of any Person shall mean indebtedness having the right to vote in
the election of the Board of Directors (or comparable body) of such Person and
debt convertible into securities having such rights.

 

Section 1.2             Interpretation.  When a reference is made in this
Agreement to a section or article, such reference shall be to a section or
article of this Agreement unless otherwise clearly indicated to the contrary.

 

(a)         Whenever the words “include” “includes” or “including” are used in
this Agreement they shall be deemed to be followed by the words “without
limitation.”

 

(b)        The words “hereof”, “herein” and “herewith” and words of similar
import shall, unless otherwise stated, be construed to refer to this Agreement
as a whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified.

 

(c)         The meaning assigned to each term defined herein shall be equally
applicable to both the singular and the plural forms of such term, and words
denoting any gender shall include all genders.  Where a word or phrase is
defined herein, each of its other grammatical forms shall have a corresponding
meaning.

 

(d)        A reference to any party to this Agreement or any other agreement or
document shall include such party’s successors and permitted assigns.

 

(e)         A reference to any legislation or to any provision of any
legislation shall include any amendment to, and any modification or reenactment
thereof, any legislative provision substituted therefor and all regulations and
statutory instruments issued thereunder or pursuant thereto.

 

ARTICLE II

THE OPTION

 

Section 2.1             Grant of Option.  Subject to the terms and conditions of
this Agreement, each of the Optionors, severally and not jointly, hereby grants
to Optionee an exclusive, irrevocable and nontransferable option (collectively,
the “Option”) to purchase all, but not less

 

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than all, of the shares of Common Stock and Series C Preferred Stock set forth
opposite such Optionor’s name on Exhibit A hereto free and clear of all
Encumbrances.

 

Section 2.2             Term of Option.  Optionee may exercise the Option, in
whole but not in part, at any time prior to the Expiration Time.  If the Option
is not validly exercised prior to the Expiration Time, the Option shall
terminate and be of no further force and effect without the need for any party
hereto to take any other or further action.

 

Section 2.3             The Exercise Price.  The aggregate purchase price for
the Option Shares (the “Exercise Price”) shall be the sum of (a) the Cash
Payment, which shall be paid by the Optionee to the Optionors in accordance with
Sections 2.4 and 3.3 hereof, plus (b) the Monthly Contingent Payments, which
shall be paid by the Optionee (or the Servicer on behalf of the Optionee) to the
Optionors in accordance with Section 2.4 hereof and the terms of the Contingent
Payment Agreement, plus (c) the Final Payment Amount, which shall be paid by the
Optionee (or the Servicer on behalf of the Optionee) to the Optionors in
accordance with Section 2.4 hereof and the terms of the Contingent Payment
Agreement.

 

Section 2.4             Allocation of the Exercise Price.  Optionee shall pay
(or cause the Servicer to pay on the Optionee’s behalf) the Exercise Price to
the Optionors as set forth below:

 

(a)           First, before any payment shall be made pursuant to
Section 2.4(b), (i) PMI shall be paid an amount equal to the sum of
(A) $38,779,551 and (B) the PMI Additional Accretion Amount and (ii) FSA shall
be paid an amount equal to the sum of (A) $9,202,499 and (B) the FSA Additional
Accretion Amount.  Each of the Optionors and the Company agree that
Section 6(c) of the Certificate of Incorporation shall be deemed to be satisfied
upon the receipt by PMI and FSA of the payments required by this Section 2.4(a).

 

(b)           Second, after the payment in full of all amounts required to be
paid pursuant to Section 2.4(a), the Optionors shall be paid the balance of the
Exercise Price in proportion to such Optionor’s Percentage Interest.

 

ARTICLE III

THE CLOSING

 

Section 3.1             Exercise of the Option and the Closing.  (a) The
Optionee shall exercise the Option by providing each Optionor and the Company
with a written notice of such election prior to the Expiration Time (the
“Exercise Notice”), which notice shall specify the date, which shall be a month
end for the Company, on which calculations for the Cash Payment shall be based
(the “Measurement Date”); provided, however, that the date so specified must be
no later than September 30, 2005.  The Exercise Notice shall be provided to the
Optionors not less than ten (10) Business Days prior to the Measurement Date. 
If the Optionee provides the Exercise Notice to the Optionors, then, except as
set forth in Section 3.1(b), such notice shall constitute an irrevocable
commitment by the Optionee to purchase the Option Shares for the Exercise Price
in accordance with the terms of this Agreement, subject only to the satisfaction
or waiver of the conditions to Closing set forth in Article IX.  The Closing
shall take place on the Business Day immediately following the Measurement
Date.  If the conditions to Closing set forth in Article IX

 

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have not been satisfied or waived on the Business Day immediately following such
Measurement Date, then the Measurement Date shall be changed to the next
following month end for the Company and the Closing shall take place on the
Business Day immediately following such new Measurement Date.  The closing of
the sale of the Option Shares by the Optionors to Optionee (the “Closing”) shall
take place at the offices of Cadwalader, Wickersham & Taft LLP, One World
Financial Center, New York, New York 10281 at 10:00 a.m., New York City time, on
the Business Day immediately following the Measurement Date unless another date
or place is agreed upon in writing by each of the parties hereto.  The date upon
which the Closing occurs is referred to as the “Closing Date”.

 

(b)        Notwithstanding the provisions of Section 3.1(a), in the event that
the Company delivers to the Optionee a Disclosure Schedule Supplement at any
time after the Optionee has delivered an Exercise Notice, then the Optionee may,
at any time prior to 5:00 p.m., Salt Lake City time, on the fifth (5th) Business
Day following the date of delivery to the Optionee of such Disclosure
Schedule Supplement (“Revocation Expiration Time”), revoke such Exercise Notice
by delivering to each of PMI and FSA a written notice (a “Revocation Notice”)
prior to the Revocation Expiration Time stating that the Optionee has elected to
revoke such Exercise Notice pursuant to this Section 3.1(b).  In addition, a
copy of the Revocation Notice shall be sent by email to counsel to PMI and FSA
at the email addresses set forth in Section 12.4 prior to the Revocation
Expiration Time.  If the Optionee provides the Revocation Notice to the
Optionors and their counsel in accordance with this Section 3.1(b), any
previously delivered Exercise Notice shall be void and shall have no further
force or effect.  The delivery of a Revocation Notice shall not terminate this
Agreement, and the Optionee shall have the right to deliver a new Exercise
Notice in accordance with Section 3.1(a) at any time prior to the Expiration
Time.

 

Section 3.2             Deliveries by Optionors.  At the Closing, each Optionor
shall deliver to Optionee:

 

(a)         certificates representing the number of shares of Common Stock and
Series C Preferred Stock set forth opposite such Optionor’s name on Exhibit A,
each such certificate to be accompanied by a separate stock power endorsed in
blank and duly and validly executed by such Optionor;

 

(b)        executed copies of the consents referred to in Section 7.3(c) hereof;

 

(c)         the officers’ certificates referred to in Sections 9.2(b) and
9.2(c) hereof; and

 

(d)        any other certifications which may be reasonably required under
applicable law stating that no Taxes are due to any taxing authority for which
Optionee could have liability to withhold and pay with respect to the transfer
of Option Shares to Optionee pursuant to this Agreement.

 

Section 3.3             Deliveries and Payment by Optionee.

 

(a)         Estimated Closing Balance Sheet.  At least ten (10) days prior to
the Closing, the Company shall deliver to the Optionee and each Optionor an
estimated consolidated balance sheet of the Company as of the close of business
on the Measurement Date with the estimated

 

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consolidated book value of the Company reflected therein (“Estimated Closing
Balance Sheet”).  The Company shall prepare the Estimated Closing Balance Sheet
in the same manner as the consolidated balance sheet comprising part of the
financial statements issued by the Company and audited by Ernst & Young LLP as
of December 31, 2004.

 

(b)        Estimated Cash Payment.

 

(i)            At the Closing, Optionee shall deliver to each Optionor an amount
equal to such Optionor’s allocable portion of the Estimated Cash Payment (which
shall be allocated in accordance with Section 2.4 hereof) by transfer of
immediately available funds to such account at such bank as such Optionor shall
direct, which amount is subject to adjustment as provided in Section 3.3(c).

 

(ii)           The “Estimated Cash Payment” shall be an amount equal to (A) the
consolidated book value of the Company on the Measurement Date, as reflected in
the Estimated Closing Balance Sheet, minus (B) the consolidated book value, as
of the Measurement Date, of all MSRs (including servicing assets and servicing
liabilities) under Servicing Agreements and Subsequent Designated Agreements,
minus (C) $62,500 (representing one-half of the fee paid by the Optionee to the
Federal Trade Commission in connection with the pre-merger notice filing
required by the HSR Act), plus (D) $15,500,000, plus (E) the Specified
Reserves.  No MSRs delivered by the MSR Seller after November 30, 2004 shall be
considered MSRs under Servicing Agreements or Subsequent Designated Agreements.

 

(c)         Actual Closing Balance Sheet and Closing Cash Payment.

 

(i)            The “Closing Cash Payment” shall be an amount equal to (A) the
consolidated book value of the Company on the Measurement Date, as reflected in
the Actual Closing Balance Sheet, minus (B) the consolidated book value, as of
the Measurement Date, of all MSRs (including servicing assets and servicing
liabilities) under Servicing Agreements and Subsequent Designated Agreements,
minus (C) $62,500 (representing one-half of the fee paid by the Optionee to the
Federal Trade Commission in connection with the pre-merger notice filing
required by the HSR Act), plus (D) $15,500,000, plus (E) the Specified
Reserves.  No MSRs delivered by the MSR Seller after November 30, 2004 shall be
considered MSRs under Servicing Agreements or Subsequent Designated Agreements.

 

(ii)           As soon as practicable after the Closing Date but in no event
later than 30 days thereafter, the Optionee shall deliver to each Optionor the
proposed actual consolidated balance sheet of the Company as of the close of
business on the Measurement Date (“Actual Closing Balance Sheet”), with the
actual consolidated book value of the Company as of the Measurement Date
reflected therein, together with a computation of the proposed Closing Cash
Payment and a certificate of the Chief Financial Officer of the Company stating
that such Actual Closing Balance Sheet and Closing Cash Payment are true and
correct and prepared on the basis described herein.  The Optionee shall prepare
the Actual Closing Balance Sheet in the same manner as the

 

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consolidated balance sheet comprising part of the financial statements issued by
the Company and audited by Ernst & Young LLP as of December 31, 2004.

 

(iii)          The Optionors and their respective counsel, accountants and other
representatives shall have full access to all relevant accounting, financial and
other records of the Company and the Company Subsidiaries reasonably requested
in connection with the preparation, confirmation or review of the Actual Closing
Balance Sheet and the calculation of the Closing Cash Payment.  The Company and
the Optionee shall make available to the Optionors, and their respective
counsel, accountants and other representatives, such of their personnel as any
of the Optionors may reasonably request in connection with the preparation,
confirmation or review of the Actual Closing Balance Sheet and calculation of
the Closing Cash Payment.

 

(iv)          In the event that either PMI or FSA does not agree with the amount
of the proposed Closing Cash Payment, such Optionor may deliver to Optionee
(with a copy to each other Optionor) a notice objecting to the amount of such
payment (an “Objection”) not later than thirty (30) days after the date the
Optionee delivers the Actual Closing Balance Sheet to the Optionors.  If either
PMI or FSA delivers an Objection to Optionee in accordance with time limits set
forth in the preceding sentence, PMI, FSA and the Optionee shall negotiate in
good faith with a view to resolving the dispute and arriving at a mutually
agreed amount for the Closing Cash Payment.  If such negotiations fail to
resolve the dispute within thirty (30) days after the date the Objection was
delivered to Optionee, the dispute shall be submitted to Ernst & Young LLP (or
such other “Big Four” accounting firm as is mutually agreed to by the Optionee,
PMI and FSA) (the “Accountants”) for final and exclusive resolution.  The
Company and the Optionee shall cooperate in good faith with the Accountants and
shall afford the Accountants and their representatives full access to all
relevant accounting, financial and other records of the Company and the Company
Subsidiaries reasonably requested in connection with the preparation,
confirmation or review of the Actual Closing Balance Sheet and the calculation
of the Closing Cash Payment.  The Company and the Optionee shall make available
to the Accountants and their representatives such of their personnel as the
Accountants may reasonably request in connection with the preparation,
confirmation or review of the Actual Closing Balance Sheet and calculation of
the Closing Cash Payment.  The Accountants shall afford each of PMI, FSA and the
Optionee and their respective representatives the opportunity to present their
positions as to the dispute and the calculation of the Closing Cash Payment
(which opportunity shall not extend for more than thirty (30) days after the
expiration of the thirty (30) day period described in the third sentence of this
Section 3.3(c)(iv)).  Each presentation shall include a statement of the Closing
Cash Payment proposed by such party and shall be accompanied by reasonably
detailed supporting documentation.  No later than ten (10) days after the
completion of the presentations to the Accountants by PMI, FSA and the Optionee
of their respective positions on the Closing Cash Payment, the Accountants shall
deliver their decision with respect to the actual Closing Cash Payment (which
shall not, under any circumstances, be less than the amount that was originally
proposed by the Optionee nor more than the largest amount that was proposed by
any of the Optionors), which decision shall be in writing and shall include a
reasonably detailed description of the basis for such determination.  The
Accountants’ determination of the actual Closing Cash

 

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Payment shall be final and binding upon all parties hereto.  The fees, costs and
expenses of the Accountants in connection with any such determination shall be
borne by the Optionee if the Closing Cash Payment adopted by the Accountants is
greater than the Optionee’s originally proposed Closing Cash Payment by $250,000
or more and shall otherwise be borne by the Optionors in proportion to such
Optionor’s Percentage Interest.  The Accountants’ decision may be enforced in
any state or federal court of competent jurisdiction.

 

(v)           If neither PMI nor FSA delivers an Objection to the Optionee in
accordance with Section 3.3(c)(iv), then the Closing Cash Payment proposed by
the Optionee shall be deemed agreed to by the Optionors.  The Closing Cash
Payment, either as agreed to or determined pursuant to this Section 3(c), shall
be referred to as the “Cash Payment” and the Actual Closing Balance Sheet,
either as agreed to or determined pursuant to this Section 3(c), shall be
referred to as the “Closing Balance Sheet.”  If the Cash Payment:

 

(A)          is less than the Estimated Cash Payment, Optionors shall pay the
amount of such shortfall to the Optionee in proportion to such Optionor’s
Percentage Interest, and

 

(B)           is more than the Estimated Cash Payment, the Optionee shall pay
the amount of such excess to Optionors in proportion to such Optionor’s
Percentage Interest

 

not later than the earlier of (I) the fifth Business Day following the agreement
or determination of the Cash Payment or (II) thirty (30) days after the date the
Optionee delivers the Actual Closing Balance Sheet to the Optionors if no
Objection is delivered to the Optionee, together with interest on such shortfall
or excess from the Closing Date to but not including the date of payment
calculated at the U.S. Prime Rate as published by The Wall Street Journal on the
Closing Date.  Payments pursuant to this paragraph shall be made by wire
transfer of immediately available funds to the accounts designated by the
Optionee or Optionors, as the case may be.

 

(d)        At the Closing, the Servicer shall pay, and the Optionee and the
Company shall cause to be paid, to (i) PMI all amounts outstanding under the
Promissory Note to PMI as of the Closing Date and (ii) Dexia Holdings, Inc. all
amounts outstanding under the Promissory Note to Dexia as of the Closing Date,
in each case by transfer of immediately available funds to such account of such
bank as PMI and Dexia Holdings, Inc., as the case may be, shall direct.

 

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE OPTIONORS

 

Each Optionor, severally and not jointly, represents and warrants to Optionee
that all of the statements contained in this Article IV, solely insofar as such
statements relate to such Optionor, are true and correct as of the date of this
Agreement (or, if made as of a specified date,

 

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as of such date) and will be true and correct as of the Closing Date as though
made on the Closing Date.

 

Section 4.1             Share Ownership.  Such Optionor is the record and
beneficial owner of the number of shares of Common Stock and Series C Preferred
Stock set forth opposite such Optionor’s name on Exhibit A hereto.  Except for
the Promissory Notes, such Optionor owns no securities issued by, or other
obligations of, the Company or any Company Subsidiary which are not listed on
Exhibit A hereto.  Except for the Shareholder Documents to which such Optionor
is a party, such Optionor is not a party to any voting trust or other voting
agreement or understanding with respect to the voting of capital stock of the
Company.

 

Section 4.2             Legal Power; Organization; Qualification of Optionors. 
Such Optionor is a legal entity of the type set forth opposite such Optionor’s
name on Exhibit A hereto.  Such Optionor has been duly organized, and is validly
existing and in good standing, under the laws of its jurisdiction of formation,
has all requisite power and authority to execute and deliver this Agreement and
to consummate the Transactions, and has taken all necessary corporate or other
action to authorize the execution, delivery and performance of this Agreement.

 

Section 4.3             Binding Agreement.  This Agreement has been duly
executed and delivered by such Optionor and, assuming due and valid
authorization, execution and delivery by the Company and the Optionee, this
Agreement constitutes a legal, valid and binding obligation of such Optionor,
enforceable against such Optionor in accordance with its terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance and other similar laws of general application affecting
enforcement of creditors’ rights generally and (ii) the availability of the
remedy of specific performance or injunctive or other forms of equitable relief
may be subject to equitable defenses and would be subject to the discretion of
the court before which any proceeding therefor may be brought.

 

Section 4.4             No Conflict or Default.  Neither the execution and
delivery of this Agreement nor the consummation by such Optionor of any of the
Transactions will result in a violation of, or a default under, or conflict
with, or require any consent, approval or notice under, any contract, trust,
commitment, agreement, obligation, understanding, arrangement or restriction of
any kind to which such Optionor is a party or by which such Optionor is bound or
to which the Option Shares owned by such Optionor are subject, except as
provided in the Shareholder Documents and the Certificate of Incorporation. 
Consummation by such Optionor of the Transactions will not violate, or require
any consent, approval or notice under, any provision of any judgment, order,
decree, statute, law, rule or regulation applicable to such Optionor or the
Option Shares owned by such Optionor, except for any necessary filing under the
HSR Act and any filing with or notice to the Federal Reserve Board.

 

Section 4.5             Ownership and Possession of Option Shares.  The Option
Shares owned by such Optionor and the certificates representing such Option
Shares are now, and at all times during the term hereof shall be, owned by such
Optionor and held by such Optionor, or by a nominee or custodian for the sole
and exclusive benefit of such Optionor, free and clear of all Encumbrances
whatsoever.

 

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Section 4.6             Good Title Conveyed.  The stock powers, endorsements,
assignments and other instruments to be executed and delivered by such Optionor
to Optionee at the Closing will be valid and binding obligations of such
Optionor, enforceable in accordance with their respective terms, and will
effectively vest in Optionee good, valid and marketable title to all the Option
Shares to be transferred to Optionee by such Optionor pursuant to and as
contemplated by this Agreement, free and clear of all Encumbrances.

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as specifically set forth in the Disclosure Schedule prepared and signed
by the Company and delivered to Optionee simultaneously with the execution
hereof, the Company represents and warrants to Optionee that the statements
contained in this Article V are true and correct as of the date of this
Agreement (or, if made as of a specified date, as of such date), and will be
true and correct as of the Closing Date as though made on the Closing Date. 
Each exception set forth in the Disclosure Schedule and each other response to
this Agreement set forth in the Disclosure Schedule is identified by reference
to, or has been grouped under a heading referring to, a specific individual
section of this Agreement and, except as otherwise specifically stated with
respect to such exception, relates only to such section; provided, however, that
any fact, matter or condition disclosed in any section of such Disclosure
Schedule in such a way as to make its relevance to a representation, warranty or
covenant or representations, warranties or covenants made elsewhere in this
Agreement or information called for by another section of such Disclosure
Schedule reasonably apparent shall be deemed to be an exception to such
representation, warranty or covenant or representations, warranties or covenants
or to be disclosed on such other section of such Disclosure
Schedule notwithstanding the omission of a reference or cross reference thereto.

 

Section 5.1             Authorization; Validity of Agreement; Company Action. 
The Company has full corporate power and authority to execute and deliver this
Agreement and the Contingent Payment Agreement, and to consummate the
Transactions.  The execution, delivery and performance by the Company of this
Agreement and the Contingent Payment Agreement and the consummation of the
Transactions have been duly authorized by the Company Board of Directors, and no
other corporate action on the part of the Company is necessary to authorize the
execution and delivery by the Company of this Agreement or the Contingent
Payment Agreement or the consummation of the Transactions.  No vote of, or
consent by, the holders of any class or series of capital stock issued by the
Company is necessary to authorize the execution and delivery by the Company of
this Agreement or the Contingent Payment Agreement or the consummation of the
Transactions.  This Agreement has been duly executed and delivered by the
Company and, assuming due and valid authorization, execution and delivery hereof
by the Optionors and the Optionee, this Agreement is a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance and other similar laws of
general application affecting enforcement of creditors’ rights generally and
(ii) the availability of the remedy of specific performance or injunctive or
other forms of equitable relief

 

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may be subject to equitable defenses and would be subject to the discretion of
the court before which any proceeding therefor may be brought.

 

Section 5.2             Other Board Approvals Regarding Transactions.  The
Company Board of Directors has (i) authorized the Company’s officers to waive
any rights the Company may have under any agreement or otherwise to object to
the granting of the Option to Optionee and the transfer to Optionee of any
Option Shares held by the Optionors and (ii) consented to the granting of the
Option to Optionee and the transfer to Optionee of all such Option Shares, and
none of the aforesaid actions by the Company Board of Directors has been
amended, rescinded or modified.  No state takeover statute is applicable to the
Transactions.

 

Section 5.3             Capitalization.  (a) The authorized capital stock of the
Company consists of 25,000,000 shares of Common Stock and 10,000,000 shares of
preferred stock, par value $0.01 per share.  As of the date hereof, (i) 
8,396,455 shares of Common Stock are issued and outstanding (excluding shares
held in the treasury of the Company), (ii) 1,883,999 shares of Series C
Preferred Stock are issued and outstanding, (iii) no shares of Common Stock or
Series C Preferred Stock are owned of record by any Person who is not an
Optionor, (iv) 1,228,284 shares of Common Stock or Series C Preferred Stock are
issued and held in the treasury of the Company, (v) other than the Series C
Preferred Stock, no shares of preferred stock are issued or outstanding, and
(vi) 760,000 shares of Common Stock are reserved for issuance upon exercise of
Company Options under the Long-Term Incentive Plan.  As of the date hereof,
there are outstanding Company Options to purchase 299,737 shares of Common
Stock.  All the outstanding shares of the Company’s capital stock are, and all
shares of Common Stock which may be issued pursuant to the exercise of
outstanding Company Options will be, when issued in accordance with the
respective terms thereof, duly authorized, validly issued, fully paid and
non-assessable.  There is no Voting Debt of the Company or any Company
Subsidiary issued and outstanding.  Except as set forth above, as of the date
hereof, (i) there are no shares of capital stock of the Company authorized,
issued or outstanding; (ii) there are no existing options, warrants, calls, pre
emptive rights, subscriptions or other rights, agreements, arrangements or
commitments of any character, relating to the issued or unissued capital stock
of the Company or any Company Subsidiary, obligating the Company or any Company
Subsidiary to issue, transfer or sell or cause to be issued, transferred or sold
any shares of capital stock or Voting Debt of, or other equity or debt interest
in, the Company or any Company Subsidiary or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company or
any Company Subsidiary to grant, extend or enter into any such option, warrant,
call, subscription or other right, agreement, arrangement or commitment and
(iii) there are no outstanding contractual obligations of the Company or any
Company Subsidiary to repurchase, redeem or otherwise acquire any shares of
Common Stock, or other capital stock of the Company, or any Company Subsidiary
or Affiliate of the Company or to provide funds to make any investment (in the
form of a loan, capital contribution or otherwise) in any Company Subsidiary or
any other entity.  Except as set forth above, during the period from the date
hereof to the Closing Date, the Company has not issued or committed to issue any
shares of Common Stock or Series C Preferred Stock or any options, warrants,
calls, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or unissued
capital stock of the Company or any Company Subsidiary, obligating the Company
or any Company Subsidiary to issue, transfer or sell or cause to be issued,
transferred or sold any shares of capital stock or Voting Debt of, or other
equity or debt

 

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interest in, the Company or any Company Subsidiary or securities convertible
into or exchangeable for such shares or equity interests, or obligating the
Company or any Company Subsidiary to grant, extend or enter into any such
option, warrant, call, subscription or other right, agreement, arrangement or
commitment.

 

(b)        Other than the Shareholder Documents, there are no voting trusts or
other agreements or understandings to which any Optionor, the Company or any
Company Subsidiary is a party with respect to the voting of the capital stock of
the Company or any of the Company Subsidiaries.

 

(c)         Following the Closing Date, no holder of Company Options will have
any right to receive shares of capital stock or other securities issued by the
Company or any Company Subsidiary upon the exercise of Company Options.

 

Section 5.4             Organization; Qualification of Company.  The Company
(i) is a corporation duly organized, validly existing and in good standing under
the laws of its state of incorporation; (ii) has full corporate power and
authority to carry on its business as it is now being conducted and to own the
properties and assets it now owns; and (iii) is duly qualified or licensed to do
business as a foreign corporation in good standing in every jurisdiction in
which such qualification is required.  The Company has heretofore delivered to
Optionee complete and correct copies of the certificate of incorporation and
by-laws of the Company as presently in effect.

 

Section 5.5             Subsidiaries and Affiliates.  The Disclosure
Schedule sets forth the name and jurisdiction of incorporation of each Company
Subsidiary.  The Company does not own, directly or indirectly, any capital stock
or other equity securities of any corporation other than Company Subsidiaries or
have any direct or indirect equity or ownership interest in any business other
than in the Company Subsidiaries or in publicly traded securities constituting
less than five percent of the outstanding equity of the issuing entity or
subordinated or residual interests in pools of mortgage-backed securities.  All
the outstanding capital stock of each Company Subsidiary is owned directly or
indirectly by the Company free and clear of all Encumbrances and all material
claims or charges of any kind, and is validly issued, fully paid and
nonassessable.  Each Company Subsidiary (i) is a corporation, limited liability
company or limited partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or formation;
(ii) has full corporate, limited liability company or partnership power and
authority to carry on its business substantially as it is now being conducted
and to own the properties and assets it now owns; and (iii) is duly qualified or
licensed to do business as a foreign corporation, limited liability company or
limited partnership in good standing in every jurisdiction in which such
qualification is required, except where such failure to be duly qualified or
licensed would not have a Material Adverse Effect.  The Company has heretofore
delivered to Optionee complete and correct copies of the certificate of
incorporation and by-laws of each Company Subsidiary, as presently in effect.

 

Section 5.6             Consents and Approvals; No Violations.  Except for the
Consent Orders and otherwise as set forth on Schedule 5.6 of the Disclosure
Schedule and for the filings, permits, authorizations, consents and approvals as
may be required under, and other applicable requirements of, the HSR Act, state
securities or blue sky laws and state mortgage banking or

 

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collection agency laws, none of the execution, delivery or performance of this
Agreement or the Contingent Payment Agreement by the Company, the consummation
by the Company of any of the Transactions or compliance by the Company with any
of the provisions hereof or thereof will (i) conflict with or result in any
breach of any provision of the certificate of incorporation, the by-laws or
similar organizational documents of the Company or any Company Subsidiary,
(ii) require the Company or any Company Subsidiary to make any filing with, or
obtain any permit, authorization, consent or approval of, any Governmental
Entity or other Person (including consents from parties to loans, contracts,
leases and other agreements to which the Company or any Company Subsidiary is a
party), (iii) require any consent, approval or notice under, or result in a
violation or breach of, or constitute (with or without due notice or the passage
of time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any Material Contract or restriction of any
kind by which the Company is bound, or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Company, any Company
Subsidiary or any of their properties or assets, excluding from the foregoing
clauses (ii), (iii) and (iv) such violations, breaches or defaults which would
not, individually or in the aggregate, impair in any material respect the
ability of Company or any Company’s Subsidiary to consummate the Transactions or
which arise from the regulatory status of the Optionee or any of its Affiilates.

 

Section 5.7             Financial Statements.  The Company has delivered to the
Optionee true and correct copies of the Financial Statements.  The Financial
Statements have been prepared from the books and records of the Company and the
Company Subsidiaries, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be stated in the
notes thereto), and fairly present the consolidated financial position and the
consolidated results of operations and cash flows of the Company and the Company
Subsidiaries as of the times and for the periods referred to therein (subject,
in the case of unaudited statements, to normally recurring year-end audit
adjustments which are not material either individually or in the aggregate).

 

Section 5.8             No Undisclosed Liabilities.  To the Knowledge of the
Company, except (a) as disclosed or reflected in the Financial Statements and
(b) for liabilities and obligations incurred in the ordinary course of business
and consistent with past practice, since the Balance Sheet Date neither the
Company nor any Company Subsidiary has any liability or obligation of any nature
in excess of $250,000, whether or not accrued, contingent or otherwise.

 

Section 5.9             Absence of Certain Changes.  Except as contemplated by
this Agreement or the Budget and except as disclosed or reflected in the
Financial Statements, since the Balance Sheet Date, the Company and each Company
Subsidiary has conducted its respective business only in the ordinary course and
consistent with past practice, and neither the Company nor any Company
Subsidiary has:

 

(a)         suffered any Material Adverse Effect;

 

(b)        incurred any liability or obligation (absolute, accrued, contingent
or otherwise) except items incurred in the ordinary course of business and
consistent with past practice, none of which exceeds $250,000 (counting
obligations or liabilities arising from one transaction or a

 

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series of similar transactions, and all periodic installments or payments under
any lease or other agreement providing for periodic installments or payments, as
a single obligation or liability);

 

(c)         paid, discharged or satisfied any claim, liability or obligation
(whether absolute, accrued, contingent or otherwise) in excess of $250,000 other
than the payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice of liabilities and obligations reflected or
reserved against in the Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the Balance Sheet Date;

 

(d)        permitted or allowed any of its property or assets (real, personal or
mixed, tangible or intangible) to be subjected to any Lien except for Permitted
Liens;

 

(e)         written down the value of any MSRs (other than those associated with
Mortgage Loans) or written off as uncollectible any notes or accounts
receivable, except for write-downs and write-offs in the ordinary course of
business and consistent with past practice;

 

(f)         cancelled any debts owed to the Company by third parties or waived
any claims or rights of the Company against third parties, in either case in
excess of $250,000;

 

(g)        sold, transferred, or otherwise disposed of any material amount of
its properties or assets (real, personal or mixed, tangible or intangible),
except in the ordinary course of business and consistent with past practice;

 

(h)        terminated or permitted to lapse any material Company Permit (as
defined in Section 5.17 below);

 

(i)          disposed of or permitted to lapse any rights to the use of any
material Intellectual Property, or disposed of or disclosed to any Person other
than representatives of Optionee or for a legitimate business purpose any Trade
Secret not theretofore a matter of public knowledge;

 

(j)          granted any general increase in the compensation of officers or
employees (including any such increase pursuant to any bonus, pension, profit
sharing or other plan or commitment) not in the ordinary course of business;

 

(k)         hired or fired any Key Employee;

 

(l)          made any single capital expenditure or commitment in excess of
$100,000 for additions to property, plant, equipment or intangible capital
assets or made aggregate capital expenditures and commitments in excess of
$250,000 for additions to property, plant, equipment or intangible capital
assets;

 

(m)        declared, paid or set aside for payment any dividend or other
distribution in respect of its capital stock or redeemed, purchased or otherwise
acquired, directly or indirectly, any shares of capital stock or other
securities of the Company, except for the redemption, purchase or other
acquisition of shares of Common Stock or Company Options not currently owned by
an Optionor;

 

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(n)        made any change in any method of accounting or accounting practice
except as required by GAAP;

 

(o)        other than as required by any Key Employee Contract, paid or loaned
any amount to, or sold, transferred or leased any properties or assets (real,
personal or mixed, tangible or intangible) to, or entered into any agreement or
arrangement with, any of its officers or directors or any Affiliate or Associate
of any of its officers or directors except for directors’ fees and compensation
of officers in the ordinary course of business; or

 

(p)        agreed, whether in writing or otherwise, to take any action described
in this section.

 

Section 5.10           Title to Properties; Liens.  Each of the Company and each
Company Subsidiary has good, valid and marketable title to all the properties
and assets that it purports to own (tangible and intangible) free and clear of
all Liens, other than Permitted Liens, including all the properties and assets
reflected in the Balance Sheet and not subsequently disposed of and all such
properties and assets purchased by the Company or any Company Subsidiary since
the date of the Balance Sheet except as set forth in the Financial Statements. 
The rights, properties and other assets presently owned, leased or licensed by
the Company or the Company Subsidiaries include all such rights, properties and
other assets necessary to permit the Company and the Company Subsidiaries to
conduct their respective businesses in all material respects in the same manner
as such businesses have been conducted prior to the date hereof.

 

Section 5.11           Real Property.

 

(a)         The Disclosure Schedule sets forth a complete list and the location
of all Real Property.  There are no proceedings, claims, or disputes affecting
any Real Property that might materially curtail or interfere with the Company’s
use of such property.  Neither the whole nor any material portion of the Real
Property nor any other assets of the Company or any Company Subsidiary is
subject to any governmental decree or order to be sold or is being condemned,
expropriated or otherwise taken by any public authority with or without payment
of compensation therefor, nor has any such condemnation, expropriation or taking
been proposed to the Company.  Neither the Company nor any Company Subsidiary is
a party to any lease, assignment or similar arrangement under which the Company
or any Company Subsidiary is a lessor, assignor or otherwise makes available for
use by any third party any portion of the Real Property, other than pursuant to
a Lease.

 

(b)        Each of the Company and each Company Subsidiary has obtained all
appropriate certificates of occupancy, licenses, easements and rights of way,
including proofs of dedication, required to use and operate the Real Property in
the manner in which the Real Property is currently being used and operated and
where the failure to have any such license would materially interfere with the
use of such property.  True and correct copies of all such certificates, permits
and licenses have heretofore been furnished to Optionee.  Each of the Company
and each Company Subsidiary has all approvals, permits and licenses (including
any and all environmental permits) necessary to own or operate the Real Property
as currently owned and operated; and no such approvals, permits or licenses will
be required, as a result of the Transactions, to be issued after the date hereof
in order to permit the Company and the

 

25

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Company Subsidiaries, following the Closing, to continue to own or operate the
Real Property in the same manner as heretofore, other than any such approvals,
permits or licenses that are ministerial in nature and are normally issued in
due course upon application therefore without further action by the applicant.

 

Section 5.12           Leases.  The Disclosure Schedule contains an accurate and
complete listing of the Leases and the subleases to such Leases.  A true and
complete copy of each Lease has heretofore been delivered to Optionee.  Each
Lease is in full force and effect.  The leasehold estate created by each Lease
is free and clear of all Liens other than as created by or pursuant to such
Lease or a sublease to such Lease.  There are no existing defaults by the
Company or any Company Subsidiary under any of the Leases.  No event has
occurred that (whether with or without notice, lapse of time or the happening or
occurrence of any other event) would constitute a default under any Lease by the
Company or any Company Subsidiary.  Neither the Company nor any Company
Subsidiary has received notice, that any lessor under any Lease will not consent
(where such consent is necessary) to the consummation of the Transactions
without requiring any modification of the rights or obligations of the lessee
thereunder.

 

Section 5.13           Environmental Matters.

 

(a)         Each of the Company and the Company Subsidiaries is in compliance in
all material respects with all Environmental Laws.  Such compliance includes,
but is not limited to, the possession by the Company and each of the Company
Subsidiaries of all material permits and other governmental authorizations
required under all applicable Environmental Laws, and compliance in all material
respects with the terms and conditions thereof.

 

(b)        There is no Environmental Claim by any Person that is pending or, to
the Knowledge of the Company, threatened against the Company or any Company
Subsidiary, or against any Person whose liability for any Environmental Claim
the Company or any Company Subsidiary has retained or assumed either
contractually or by operation of law, except as would not cause a Material
Adverse Effect.

 

(c)         There are no past or present actions, activities, circumstances,
conditions, events or incidents, including the release, emission, discharge,
presence or disposal of any Materials of Environmental Concern, that could form
the basis of any Environmental Claim against the Company or any Company
Subsidiary or against any Person whose liability for any Environmental Claim the
Company or any Company Subsidiary has retained or assumed either contractually
or by operation of law, except as would not cause a Material Adverse Effect.

 

(d)        Except in accordance with applicable Environmental Laws and as would
not cause a Material Adverse Effect, and so as not to give rise to an
Environmental Claim (i) Materials of Environmental Concern have not been
generated, used, treated or stored on, transported to or from, or released on,
at or from, any past or present facilities, properties or operations of the
Company or any Company Subsidiary and (ii) Materials of Environmental Concern
have not been disposed of on any past or present facilities, properties or
operations of the Company or any Company Subsidiary.

 

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(e)         The Company has provided to Optionee a copy of each assessment,
report, datum, result of investigations or audit, that is in the possession of
the Company or any Company Subsidiary regarding environmental matters pertaining
to the compliance (or noncompliance) by the Company or any Company Subsidiary
with any Environmental Laws.

 

Section 5.14           Contracts and Commitments.  (a) Except as set forth in
the Disclosure Schedule:

 

(i)            Neither the Company nor any Company Subsidiary has any agreement,
contract or commitment that provides for the payment to or by the Company in an
aggregate amount in excess of $250,000 during a twelve-month period (each, a
“Material Vendor Contract”).

 

(ii)           Neither the Company nor any Company Subsidiary has any loan
agreement or asset funding agreement pursuant to which it receives credit or
funding from a third party (each, a “Credit Facility”).

 

(iii)          Neither the Company nor any Company Subsidiary is a party to a
servicing agreement, subservicing agreement, sale and servicing agreement,
pooling and servicing agreement or similar agreement pursuant to which the
Company or any Company Subsidiary services mortgage loans or REO Property for
third parties.

 

(iv)          Other than Material Vendor Contracts, there exist no purchase or
sales contracts, or commitments or proposals of the Company or any Company
Subsidiary.

 

(v)           Other than the Key Employee Contracts, neither the Company nor any
Company Subsidiary has any outstanding contracts with directors, officers,
employees, agents, consultants, advisors, salesmen, sales representatives,
distributors or dealers that are not cancelable by it on notice of not longer
than 90 days and without liability, penalty or premium.

 

(vi)          Other than the Key Employee Contracts, neither the Company nor any
Company Subsidiary is a party to or bound by any employment agreement or any
other agreement that contains any severance or termination pay liabilities or
obligations.

 

(vii)         Other than pursuant to the Key Employee Contracts, neither the
Company nor any Company Subsidiary has any employee to whom it is paying
compensation at the annual rate of more than $250,000 for services rendered.

 

(viii)        Neither the Company nor any Company Subsidiary is restricted by
agreement from carrying on its business anywhere in the world.

 

(ix)           Neither the Company nor any Company Subsidiary has outstanding
any agreement to acquire any debt obligations of others, other than acquisitions
of delinquent and defaulted receivables in the ordinary course of business.

 

(x)            Neither the Company nor any Company Subsidiary has any
outstanding loan to any Person, it being understood that obligations to
reimburse employees for

 

27

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reasonable travel, entertainment or similar expenses incurred in the ordinary
course of business shall not be deemed loans for such purposes.

 

(xi)           Except as in the ordinary course of business, neither the Company
nor any Company Subsidiary has any power of attorney outstanding or any
obligations or liabilities (whether absolute, accrued, contingent or otherwise),
as guarantor, surety, co signer, endorser, co maker, indemnitor or otherwise in
respect of the obligation of any Person, corporation, partnership, joint
venture, association, organization or other entity.

 

(xii)          Other than as provided in clauses (i)–(xi) above, neither the
Company nor any Company Subsidiary has any agreement, contract or commitment the
termination of which would result in a Material Adverse Effect or that otherwise
is material to its business, operations or prospects.

 

(b)        Each contract, agreement, arrangement and commitment set forth on
Schedule 5.14 of the Disclosure Schedule, and each Lease, shall constitute a
“Material Contract.”  Neither the Company nor any Company Subsidiary is in
material default under or in violation of any Material Contract, nor, to the
Knowledge of the Company, is there any valid basis for any claim of material
default under or violation of any Material Contract.

 

Section 5.15           Litigation.  Except for the Specified Disputes, there is
no action, suit, inquiry, proceeding or investigation by or before any court or
governmental or other regulatory or administrative agency or commission pending
or, to the Knowledge of the Company, threatened against or involving the Company
or any Company Subsidiary that could reasonably be expected to result in a loss
to the Company or any Company Subsidiary in excess of $50,000 (excluding any
legal fees and expenses relating thereto that have been or may be incurred by
the Company or a Company Subsidiary), or which questions or challenges the
validity of this Agreement or any action taken or to be taken by the Company or
any Company Subsidiary pursuant to this Agreement or in connection with the
Transactions.  Neither the Company nor any Company Subsidiary is subject to any
judgment, order or decree which may have a material adverse effect on its
business practices or on its ability to acquire any property or conduct its
business.

 

Section 5.16           Compliance with Laws; Consent Orders.  The Company and
the Company Subsidiaries are in compliance in all material respects with each
Consent Order, with all laws, rules and regulations, ordinances, judgments,
decrees, orders, writs and injunctions of all Governmental Entities that affect
the business, properties or assets of the Company or any Company Subsidiary, and
no notice, charge, claim, action or assertion has been received by the Company
or any Company Subsidiary or has been filed, commenced or, to the Knowledge of
the Company, threatened against the Company or any Company Subsidiary alleging
any material violation of any of the foregoing, that, if determined adversely to
the Company or any Company Subsidiary, could reasonably be expected to have a
material adverse effect on its business practices or on its ability to acquire
any property or conduct its business.  The Company and each Company Subsidiary
have in place policies and procedures to enable them to comply with the material
terms of each Consent Order; to the Knowledge of the Company, no events have
occurred that would preclude the Company and the Company Subsidiaries from being
able to comply with the material terms of each Consent Order.

 

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Section 5.17           Permits.  The Company and the Company Subsidiaries hold
all Company Permits, and no Company Permit is subject to any pending proceeding
seeking revocation or forfeiture.  The Company and the Company Subsidiaries are
in compliance in all material respects with the terms of the Company Permits.

 

Section 5.18           Employee Benefit Plans.

 

(a)         The Disclosure Schedule contains a true and complete list of all
Plans maintained by the Company and any ERISA Affiliate.  Neither the Company
nor any ERISA Affiliate has any commitment or formal plan, whether legally
binding or not, to create any additional employee benefit plan or modify or
change any existing Plan that would affect any employee or former employee of
the Company or any Company Subsidiary.  Neither the Company nor any ERISA
Affiliate has ever maintained any Title IV Plans.  Neither the Company nor any
ERISA Affiliate is an employer under a Multiemployer Plan.

 

(b)        Neither the Company or any Company Subsidiary, any Plan, any trust
created thereunder, nor, the Knowledge of the Company, any trustee or
administrator thereof has engaged in a transaction in connection with which the
Company or any Company Subsidiary, any Plan, any such trust, or any trustee or
administrator thereof, or any party dealing with any Plan or any such trust
could be subject to either a civil penalty assessed pursuant to Section 409 or
502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code.

 

(c)         Each Plan has been operated and administered in all material
respects in accordance with its terms and applicable law, including but not
limited to ERISA and the Code.

 

(d)        Each Plan intended to be “qualified” within the meaning of
Section 401(a) of the Code is the subject of a favorable determination letter
from the Internal Revenue Service, and nothing has occurred since the date of
such letter which resulted or is likely to result in the revocation of such
determination, and the trusts maintained thereunder are exempt from taxation
under Section 501(a) of the Code.  Each Plan intended to satisfy the
requirements of Section 501(c)(9) has satisfied such requirements.

 

(e)         The consummation of the Transactions will not, either alone or in
combination with another event, (i) except as provided in any Key Employee
Contract and set forth on Schedule 5.18 of the Disclosure Schedule, entitle any
current or former employee, director or officer of the Company or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment,
except as expressly provided in this Agreement, or (ii) accelerate the time of
payment or vesting, or increase the amount of compensation due any such
employee, director or officer.

 

(f)         Except for routine claims for benefits, there are no pending,
anticipated or, to the Knowledge of the Company, threatened claims by or on
behalf of any Plan, by any employee or beneficiary covered under any such Plan,
or otherwise involving any such Plan.

 

(g)        No amounts payable under the Plans will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code.

 

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Section 5.19                                Tax Matters.

 

(a)                                  (i) The Company, each Company Subsidiary,
and each Company Group has timely filed or caused to be timely filed, and with
respect to Tax Returns due between the date of this Agreement and the Closing
Date will timely file (taking into account any applicable extensions), all
material Tax Returns required to be filed by the Code or by applicable state,
local or foreign Tax laws, (ii) all such Tax Returns are, or in the case of such
Tax Returns not yet filed, will be, true, complete and correct in all material
respects, and (iii) all Taxes shown on such Tax Returns or otherwise owed have
been timely paid, or in the case of Taxes due between the date of this Agreement
and the Closing Date, will be timely paid.

 

(b)                                 The most recent audited financial statements
for the Company reflect an adequate reserve for all Taxes payable by the Company
and each Company Subsidiary for all taxable periods and portions thereof through
the date of such financial statements, and, in the case of Taxes owed as of the
date hereof, an adequate reserve is (and until the Closing Date will continue to
be) reflected in the accruals for Taxes payable on the June 30, 2005 balance
sheet, in each case in addition to any accruals established to reflect timing
differences and any accruals reflected only in the notes thereto.

 

(c)                                  There are no liens for Taxes upon the
Company’s assets except liens for current Taxes not yet due and payable and
immaterial liens.

 

(d)                                 Neither the Company nor any of its
Subsidiaries is a “United States real property holding corporation” within the
meaning of Section 897(c)(2) of the Code, and none of the Optionors is a
“foreign person” within the meaning of Section 1445 of the Code.

 

(e)                                  Except as set forth on Schedule 5.19(e) of
the Disclosure Schedule, (i) no Tax Return of the Company, any Company
Subsidiary or any Company Group is under audit or examination by the Internal
Revenue Service, (ii) no material Tax Return of the Company, any Company
Subsidiary or any Company Group is under audit or examination by any other
Taxing Authority, and (iii) no notice of such an audit or examination has been
received by the Company or any Company Subsidiary.

 

(f)                                    Each deficiency resulting from any audit
or examination relating to Taxes by any Taxing Authority has been timely paid. 
No issues relating to Taxes were raised by the relevant Taxing Authority in any
completed audit or examination that can reasonably be expected to recur in a
later taxable period.  The relevant statute of limitations is closed with
respect to the Federal, foreign and material state and local Tax Returns of the
Company, each Company Subsidiary and each Company Group for all years through
June 30, 2000.

 

(g)                                 Other than this Agreement, none of the
Company, any Company Subsidiary or any Company Group is a party to or is bound
by any Tax sharing agreement, Tax indemnity obligation or similar agreement,
arrangement or practice with respect to Taxes (including, without limitation,
any advance pricing agreement, closing agreement or other agreement relating to
Taxes with any Taxing Authority).

 

(h)                                 Neither the Company nor any Company
Subsidiary will be required to include in a taxable period ending after the
Closing Date any taxable income attributable to income that

 

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accrued, but was not recognized, in a Pre-Closing Tax Period, as a result of an
adjustment under Section 481 of the Code, the installment method of accounting,
the long-term contract method of accounting, the cash method of accounting, any
comparable provision of state, local, or foreign Tax law, or for any other
reason.

 

(i)                                     No consent under Section 341 of the Code
has been made with respect to the Company or any Company Subsidiary, or any
property held by the Company or any Company Subsidiary, (ii) no property of the
Company or any Company Subsidiary is “tax exempt use property” within the
meaning of Section 168(h) of the Code, and (iii) none of the assets of the
Company or any Company Subsidiary is subject to a lease under Section 7701(h) of
the Code or under any predecessor section thereof.

 

(j)                                     Except as set forth on Schedule 5.19(j)
of the Disclosure Schedule, there are no outstanding agreements or waivers
extending, or having the effect of extending, the statutory period of limitation
applicable to any Tax Returns required to be filed with respect to the Company,
any Company Subsidiary or any Company Group and none of the Company, any Company
Subsidiary or any Company Group has requested any extension of time within which
to file any Tax Return, which return has not yet been filed.

 

(k)                                  Except as set forth on Schedule 5.19(k) of
the Disclosure Schedule, the Company and each Company Subsidiary have complied
in all respects with all applicable laws relating to the payment and withholding
of Taxes (including withholding of Taxes pursuant to Sections 1441, 1442, 3121
and 3402 of the Code or any comparable provision of any state, local or foreign
laws) and have, within the time and in the manner prescribed by applicable law,
withheld from and paid over to the proper Taxing Authorities all amounts
required to be so withheld and paid over under such laws.

 

(l)                                     The Company has made available to the
Optionee for inspection (i) complete and correct copies of all material Tax
Returns of the Company, each Company Subsidiary and each Company Group (but, in
the case of any Company Group, only the portions of such Tax Returns relating to
the Company or any Company Subsidiary) relating to Taxes for all taxable periods
for which the applicable statute of limitations has not yet expired and
(ii) complete and correct copies of all private letter rulings, revenue agent
reports, information document requests, notices of proposed deficiencies,
deficiency notices, protests, petitions, closing agreements, settlement
agreements, pending ruling requests, and any similar documents, submitted by,
received by or agreed to by or on behalf of the Company or any Company
Subsidiary, or, to the extent related to the income, business, assets,
operations, activities or status of the Company or any Company Subsidiary,
submitted by, received by or agreed to by or on behalf of any Company Group, and
relating to Taxes for all taxable periods for which the statute of limitations
has not yet expired.

 

(m)                               Neither the Company nor any Company Subsidiary
has been a party to any distribution occurring during the last three (3) years
that was treated by the parties as a tax-free distribution under Section 355 of
the Code.

 

(n)                                 Neither the Company nor any Company
Subsidiary is a party to any “listed transaction” as defined in Treasury
Regulation Section 1.6011-4(b)(2).

 

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(o)                                 The Disclosure Schedule sets forth each
state, county, local, municipal or foreign jurisdiction in which the Company or
any Company Subsidiary files a Tax Return relating to state and local income,
franchise, license, excise, net worth, property or sales and use taxes.

 

(p)                                 Neither the Company nor any Company
Subsidiary has ever (i) made an election under Section 1362 of the Code to be
treated as an S corporation for Federal Income Tax purposes or (ii) made any
similar election under any comparable provision of any state, local or foreign
tax law.

 

(q)                                 The Company and each Company Subsidiary have
properly and in a timely manner documented their transfer pricing methodology in
compliance with Section 482 (and any related sections) of the Code, the Treasury
regulations promulgated thereunder and any comparable provisions of state,
local, domestic or foreign tax law.

 

Section 5.20                                Intellectual Property.

 

(a)                                  The Disclosure Schedule sets forth a true
and complete list (including expiration dates) of all patents and patent
applications, trademark registrations and applications, service mark
registrations and applications, Computer Software, Copyright registrations and
applications, material unregistered trademarks, service marks, and Copyrights,
and Internet domain names, together with all licenses related to the foregoing,
whether the Company or any Company Subsidiary is the licensee or licensor
thereunder, that are used in and are material to the business of the Company or
any Company Subsidiary.

 

(b)                                 The Company or the Company Subsidiaries have
title to, or hold valid licensees to, all Company Intellectual Property, free
and clear of all Encumbrances (other than restrictions on assignment or
transfer).

 

(c)                                  All registrations and applications for
Intellectual Property that are owned by the Company or any Company Subsidiary
and that are used in and are material to the conduct of the businesses of the
Company or the Company Subsidiaries as currently conducted are, (i) to the
Knowledge of the Company, valid and enforceable, (ii) subsisting, in proper form
and have been duly maintained, including the submission of all necessary filings
and fees in accordance with the legal and administrative requirements of the
appropriate jurisdictions, and (iii) have not lapsed, expired or been abandoned,
and no patent, registration or application therefore is the subject of any
opposition, interference, cancellation proceeding or other legal or governmental
proceeding before any Governmental Entity in any jurisdiction.

 

(d)                                 With respect to the Intellectual Property
used in and material to the business of the Company or any Company Subsidiary as
conducted on the Exercise Date:  (i) the Company and each such Company
Subsidiary owns and possesses all right, title and interest in and to, or has
taken commercially reasonable steps to ensure that it has a valid and
enforceable license to use, such Intellectual Property; (ii) no claim by any
third party contesting the validity, enforceability, use or ownership of any of
the Intellectual Property has been made or, to the Knowledge of the Company, is
threatened; (iii) neither the Company nor any such Company Subsidiary has
received any notices of any infringement or misappropriation by any third party
with respect to the Intellectual Property; (iv) to the Knowledge of the Company,
none of the

 

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Company or any Company Subsidiary has infringed, misappropriated or otherwise
conflicted with any proprietary rights of any third parties; and (v) all such
Intellectual Property will be owned or available for use by any of the Company
and the Company Subsidiaries immediately after the Closing.

 

(e)                                  The Computer Software used in and material
to the business of the Company or any Company Subsidiary was either: 
(i) developed by employees of the Company or such Company Subsidiary within the
scope of their employment or (ii) developed on behalf of the Company or any
Company Subsidiary by a third party, and all ownership rights therein have been
assigned or otherwise transferred to or vested in the Company or such Company
Subsidiary, as the case may be, pursuant to written agreements or the Company or
such Company Subsidiary has taken commercially reasonable steps to ensure that
it has licensed or acquired from a third party pursuant to a written license,
assignment, or other contract that is in full force and effect and of which
neither the Company nor any Company Subsidiary (as applicable) is in material
breach.

 

(f)                                    Neither the Company nor any Company
Subsidiary is, nor will it be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any material license, sublicense or other agreement relating to the Company
Intellectual Property.

 

Section 5.21                                Labor Matters.

 

(a)                                  There is no labor strike, dispute,
corporate campaign, slowdown, stoppage or lockout actually pending, or to the
Knowledge of the Company, threatened against or affecting the Company or any
Company Subsidiary and during the past five years there has not been any such
action.  To the Knowledge of the Company, no representation question exists
respecting the employees of the Company or any Company Subsidiary.

 

(b)                                 None of the employees of the Company or any
Company Subsidiary is represented by any labor organization and, to the
Knowledge of the Company, there have been no union organizing activities among
the employees of the Company or any Company Subsidiary within the past five
years, nor does any question concerning representation exist concerning such
employees.

 

(c)                                  (i) Each of the Company and each of the
Company Subsidiaries is and has been in compliance in all material respects with
all applicable laws respecting employment and employment practices, terms and
conditions of employment, wages and hours, immigration, the payment of social
security and similar taxes, occupational safety and health and plant closing,
and is not and has not engaged in any unfair labor practice that could
reasonably be expected to result in a loss to the Company or any Company
Subsidiary in excess of $250,000; (ii) no unfair labor practice complaint
against the Company or any of the Company Subsidiaries is pending before the
National Labor Relations Board; (iii) no employee grievance exists which could
reasonably be expected to have a Material Adverse Effect; (iv) no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and no claim therefor has been asserted; and (v) no collective
bargaining agreement is currently being negotiated by the Company or any of the
Company Subsidiaries.

 

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(d)                                 To the Knowledge of the Company, no charge
with respect to or relating to the Company or any Company Subsidiary is pending
before the Equal Employment Opportunity Commission or any other agency
responsible for the prevention of unlawful employment practices.

 

Section 5.22                                Personnel.  The Disclosure
Schedule sets forth a true and complete list of (i) the names and current
salaries of all directors and elected and appointed officers of each of the
Company and the Company Subsidiaries; (ii) the names and wage rates for
non-salaried and non-executive salaried employees of each of the Company and the
Company Subsidiaries by classification and (iii) all group insurance programs in
effect for employees of each of the Company and the Company Subsidiaries. 
Neither the Company nor any Company Subsidiary is in default with respect to any
of the obligations referred to in the preceding sentence.  Except as set forth
on Schedule 5.22 of the Disclosure Schedule, to the Knowledge of the Company, no
Key Employee or group of employees responsible for a business segment of the
Company or any Company Subsidiary has provided written notification to the
Company or any Company Subsidiary of an intention to terminate employment with
the Company or any Company Subsidiary as a result of the Transactions.

 

Section 5.23                                Potential Conflict of Interest.  No
Key Employee (a) owns or holds, directly or indirectly, in whole or in part, any
Company Intellectual Property, (b) has any material claim, charge, action or
cause of action against the Company or any Company Subsidiary, except for claims
for compensation, reasonable unreimbursed travel or entertainment expenses,
accrued vacation pay or accrued benefits under any employee benefit plan
existing on the date hereof, (c) has made, on behalf of the Company or any
Company Subsidiary, any material payment or commitment to pay any material
commission, fee or other amount to, or to purchase or obtain or otherwise
contract to purchase or obtain any goods or services from, any other Person of
which any Key Employee (or, to the Knowledge of the Company, a relative of any
Key Employee) is a partner or shareholder (except holdings solely for passive
investment purposes of securities of publicly held and traded entities
constituting less than 5% of the equity of any such entity), (d) owes any money
to the Company or any Company Subsidiary or (e) has any material interest in any
property, real or personal, tangible or intangible, used in or pertaining to the
business of the Company or any Company Subsidiary.

 

Section 5.24                                Propriety of Past Payments.  (a) No
unrecorded fund of the Company or any Company Subsidiary has been established
for any purpose, (b) no accumulation or use of corporate funds of the Company or
any Company Subsidiary has been made without being properly accounted for in the
books and records of the Company or such Company Subsidiary, (c) no payment has
been made by or on behalf of the Company or any Company Subsidiary with the
understanding that any part of such payment is to be used for any purpose other
than that described in the documents supporting such payment and (d) none of the
Company, any Company Subsidiary, any director, officer, employee or agent of the
Company or any Company Subsidiary or any other Person associated with or acting
for or on behalf of the Company or any Company Subsidiary has, directly or
indirectly, made any contribution, gift, bribe, rebate, payoff, influence
payment, kickback or other payment to any Person, private or public, regardless
of form, whether in money, property or services that is illegal, (i) to obtain
favorable treatment for the Company, any Company Subsidiary or any Affiliate of
the Company in securing business, (ii) to pay for favorable treatment for
business secured for the Company, any Company

 

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Subsidiary or any Affiliate of the Company, (iii) to obtain special concessions,
or for special concessions already obtained, for or in respect of the Company or
any Company Subsidiary.  To the Knowledge of the Company, neither the Company
nor any Company Subsidiary nor any current director, officer or employee of the
Company or any Company Subsidiary nor any other Person acting on behalf of the
Company or any Company Subsidiary, has accepted or received any unlawful
contribution, payment, gift, kickback, expenditure or other item of value in
connection with the business of the Company or any Company Subsidiary.

 

Section 5.25                                Brokers or Finders.  No agent,
broker, investment banker, financial advisor or other firm or Person is or will
be entitled to any brokers’ or finder’s fee or any other commission or similar
fee in connection with any of the Transactions as a result of any action taken
by the Company.

 

Section 5.26                                Consumer Complaints.  The Company
and the Company Subsidiaries have no open consumer complaints that have not been
responded to within the time limitations set forth in the Real Estate Settlement
Procedures Act of 1974, as amended.

 

Section 5.27                                Insurance.  Schedule 5.27 of the
Disclosure Schedule sets forth a true and complete list of all insurance
policies, other insurance arrangements and other contracts or arrangements for
the transfer or sharing of insurance risks by the Company or any Company
Subsidiary in force on the date hereof with respect to the business or assets of
the Company or any Company Subsidiary.  All such policies are in full force and
effect, all premiums due thereon have been paid by the Company and the Company
Subsidiary (as applicable) and the Company and each Company Subsidiary is
otherwise in compliance in all material respects with the terms and provisions
of such policies (other than the policies set forth on Schedule 5.27 of the
Disclosure Schedules which will terminate at the Closing as a result of the sale
of the Option Shares to the Optionee).  Furthermore, (a) neither the Company nor
any Company Subsidiary has received any written notice of cancellation or
non-renewal of any such policy or arrangement nor, to the Company’s knowledge,
is the termination of any such policies or arrangements threatened (except that
certain policies will terminate at the Closing as a result of the sale of the
Option Shares to the Optionee), (b) there is no material claim of the Company or
any Company Subsidiary pending under any of such policies or arrangements as to
which the Company or any Company Subsidiary has received written notice from any
of its insurance carriers stating that such insurance carrier is denying
liability of such claim or defending such claim under a reservation of rights
clause, (c) neither the Company nor any Company Subsidiary has received any
written notice from any of its insurance carriers that any insurance premiums
will be increased materially in the future or that any insurance coverage
presently provided for will not be available to the Company or any Company
Subsidiary in the future, and (d) neither the Company nor any Company Subsidiary
has knowingly made any material misstatement, omission or misrepresentation for
the purpose of obtaining any such policy or arrangement that is reasonably
likely to result in a loss of coverage under such policy or arrangement.  Except
as set forth on Schedule 5.27 of the Disclosure Schedule, no such policy or
arrangement will terminate at the Closing as a result of the sale of the Option
Shares to the Optionee and, to the Knowledge of the Company, no event has
occurred that is reasonably likely to result in any claims by the Company’s
directors or officers under the Company’s D&O Insurance.

 

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ARTICLE VI

 

REPRESENTATIONS AND WARRANTIES OF OPTIONEE

 

Optionee represents and warrants to each Optionor and the Company that:

 

Section 6.1                                      Organization.  Optionee is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware and has all requisite corporate or other power and authority and all
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure to be in
good standing or to have such power, authority, and governmental approvals would
not adversely effect Optionee’s ability to consummate the Transactions.

 

Section 6.2                                      Authorization; Validity of
Agreement.  Optionee has full corporate power and authority to execute and
deliver this Agreement and the Contingent Payment Agreement and to consummate
the Transactions.  The execution, delivery and performance by Optionee of this
Agreement and the Contingent Payment Agreement and the consummation of the
Transactions have been duly authorized by the board of directors of Optionee,
and no other corporate action on the part of Optionee is necessary to authorize
the execution and delivery by Optionee of this Agreement or the Contingent
Payment Agreement or the consummation of the Transactions.  No vote of, or
consent by, the holders of any class or series of stock or Voting Debt issued by
Optionee is necessary to authorize the execution and delivery by Optionee of
this Agreement or the Contingent Payment Agreement or the consummation by it of
the Transactions.  Each of this Agreement and the Contingent Payment Agreement
has been duly executed and delivered by Optionee, and, assuming due and valid
authorization, execution and delivery hereof and thereof by each other party
thereto, is a valid and binding obligation of Optionee, enforceable against
Optionee in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws of general application affecting enforcement of creditors’
rights generally and (ii) the availability of the remedy of specific performance
or injunctive or other forms of equitable relief may be subject to equitable
defenses and would be subject to the discretion of the court before which any
proceeding therefor may be brought.

 

Section 6.3                                      Consents and Approvals; No
Violations.  Except for the filings, permits, authorizations, consents and
approvals as may be required under, and other applicable requirements of the HSR
Act and state securities or blue sky laws, none of the execution, delivery or
performance of this Agreement and the Contingent Payment Agreement by Optionee,
the consummation by Optionee of the Transactions or compliance by Optionee with
any of the provisions hereof and thereof will (i) conflict with or result in any
breach of any provision of the certificate of incorporation or by-laws of
Optionee, (ii) require the Optionee to make any filing with, or obtain any
permit, authorization, consent or approval of, any Governmental Entity,
(iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, license, contract,
agreement or other instrument or obligation to which Optionee or any of its
Subsidiaries is a party or by which any of them or any of their respective
properties or assets may be bound, or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable

 

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to Optionee, any of its Subsidiaries or any of their properties or assets,
excluding from the foregoing clauses (ii), (iii) and (iv) such violations,
breaches or defaults which would not, individually or in the aggregate, impair
in any material respect Optionee’s ability to consummate the Transactions or
which arise from the regulatory status of the Company or the Company
Subsidiaries.

 

Section 6.4                                      Investment Representation. 
Optionee is acquiring the Option Shares for investment for its own account, not
as a nominee or agent, and not with a view to, or for resale in connection with,
any distribution thereof in violation of the Securities Act.

 

Section 6.5                                      Sufficient Funds.  Optionee has
available, or has made valid and effective arrangements to obtain (through
existing credit arrangements or otherwise), sufficient funds to acquire all of
the Option Shares to be purchased pursuant hereto and to pay all fees and
expenses incurred by it related to the Transactions.

 

Section 6.6                                      Brokers or Finders.  Neither
Optionee nor any of its Subsidiaries or its Affiliates has entered into any
agreement or arrangement entitling any agent, broker, investment banker,
financial advisor or other firm or Person to any broker’s or finder’s fee or any
other commission or similar fee in connection with any of the Transactions.

 

ARTICLE VII

 

COVENANTS

 

Section 7.1                                      Interim Operations of the
Company.  The Company covenants and agrees that, after the date hereof and prior
to the Closing Date, except (i) as expressly provided in this Agreement, (ii) as
set forth in the Disclosure Schedule, or (iii) as may be agreed in writing by
Optionee:

 

(a)                                  the business of the Company and the Company
Subsidiaries shall be conducted substantially in the same manner as heretofore
conducted and in the ordinary course, and the Company and the Company
Subsidiaries shall use commercially reasonable efforts to preserve the business
organization of the Company and the Company Subsidiaries intact, keep available
the services of the current officers and employees of the Company and the
Company Subsidiaries and maintain the existing relations with franchisees,
customers, suppliers, creditors, business partners and others having business
dealings with the Company or the Company Subsidiaries;

 

(b)                                 the Company and the Company Subsidiaries
shall timely respond to all customer complaints as required by any applicable
law or Governmental Entity;

 

(c)                                  neither the Company nor any Company
Subsidiary shall:  (i) amend its certificate of incorporation or by-laws or
similar organizational documents, (ii) issue, sell, transfer, pledge, dispose of
or encumber any shares of any class or series of its capital stock or Voting
Debt, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of any class or
series of its capital stock or any Voting Debt, other than the shares of Common
Stock reserved for issuance on the date hereof pursuant to the exercise of
Company Options outstanding on the date hereof,

 

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(iii) declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to any shares of any class or series of its
capital stock; (iv) split, combine or reclassify any shares of any class or
series of its stock; or (v) redeem, purchase or otherwise acquire directly or
indirectly any shares of any class or series of its capital stock, or any
instrument or security which consists of or includes a right to acquire such
shares (other than the redemption, purchase or other acquisition by the Company
or any Company Subsidiary of shares of Common Stock or Company Options not
currently owned by an Optionor);

 

(d)                                 neither the Company nor any Company
Subsidiary shall organize any new Subsidiary or acquire any capital stock or
other equity securities, or equity or ownership interest in the business, of any
other Person;

 

(e)                                  neither the Company nor any Company
Subsidiary shall modify, amend or terminate any of its Material Contracts or
waive, release or assign any material rights or claims, except in the ordinary
course of business and consistent with past practice;

 

(f)                                    neither the Company nor any Company
Subsidiary shall terminate or permit to lapse any material Company Permit;

 

(g)                                 neither the Company nor any of the Company
Subsidiaries shall:  (i) incur or assume any long term Indebtedness, or except
in the ordinary course of business, incur or assume short term Indebtedness
exceeding $250,000 in the aggregate from the date hereof until the Closing;
(ii) pay, repay, discharge, purchase, repurchase or satisfy any Indebtedness
(other than the Promissory Notes) issued or guaranteed by the Company or any
Company Subsidiary, except as required by the terms thereof; (iii) modify the
terms of any Indebtedness or other liability, other than modifications of short
term debt in the ordinary and usual course of business and consistent with past
practice; (iv) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the obligations of
any other Person, except in the ordinary course of business and consistent with
past practice; (v) make any loans, advances or capital contributions to, or
investments in, any other Person (other than to or in wholly owned Subsidiaries
of the Company existing on the date hereof); (vi) write down the value of any
MSRs or write off as uncollectible any notes or accounts receivable other than
as required or permitted by GAAP; (vii) dispose of or permit to lapse any rights
to any material Intellectual Property or (viii) change any of the banking or
safe deposit arrangements described or referred to in the Disclosure Schedule in
any adverse manner;

 

(h)                                 neither the Company nor any Company
Subsidiary shall lease, license, mortgage, pledge or encumber any assets other
than in the ordinary course of business and consistent with the past practice or
purchase, transfer, sell or dispose of any assets other than in the ordinary
course of business and consistent with past practice or dispose of or permit to
lapse any rights to any material Intellectual Property other than in the
ordinary course of business and consistent with past practice;

 

(i)                                     neither the Company nor any Company
Subsidiary shall (i) fire any Key Employee other than for cause or (ii) hire any
Person performing functions similar to or compensated at the same level as a Key
Employee; provided, however, that the Company and any Company Subsidiary may
hire a Person that replaces a Key Employee who resigns after the

 

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date hereof if the Company has consulted with the Optionee in good faith prior
to hiring such Person (it being agreed that neither the Company nor any Company
Subsidiary shall have any obligation to follow or adopt any recommendation made
by the Optionee in respect of hiring such Person);

 

(j)                             neither the Company nor any Company Subsidiary
shall make any change in the compensation payable or to become payable to any of
its officers, directors, employees, agents or consultants (other than normal
recurring increases in the ordinary course of business) or to Persons providing
management services, or enter into or amend any employment, severance,
consulting, termination or other agreement with, or employee benefit plan for,
any of its officers, directors, employees, Affiliates, agents or consultants or
make any change in its existing borrowing or lending arrangements for or on
behalf of any of such Persons pursuant to an employee benefit plan or otherwise;

 

(k)                                  neither the Company nor any Company
Subsidiary shall (i) pay or make any accrual or arrangement for payment of any
pension, retirement allowance or other employee benefit pursuant to any existing
plan, agreement or arrangement to any officer, director, employee or Affiliate
or pay or agree to pay or make any accrual or arrangement for payment to any
officer, director, employee or Affiliate of any amount relating to unused
vacation days, except to the extent the Company or a Company Subsidiary is
legally or contractually obligated to do so or such action is required under a
current policy of the Company or a Company Subsidiary, (ii) adopt or pay, grant,
issue, accelerate or accrue salary or other payments or benefits pursuant to any
pension, profit-sharing, bonus, extra compensation, incentive, deferred
compensation, stock purchase, stock option, stock appreciation right, group
insurance, severance pay, retirement or other employee benefit plan, agreement
or arrangement, or any employment or consulting agreement with or for the
benefit of any director, officer, employee, agent or consultant, whether past or
present, except to the extent the Company or a Company Subsidiary is legally or
contractually obligated to do so or such action is required under a current
policy of the Company or a Company Subsidiary, or (iii) amend in any material
respect any such existing plan, agreement or arrangement in a manner
inconsistent with the foregoing;

 

(l)                                     neither the Company nor any Company
Subsidiary shall permit any insurance policy naming it as a beneficiary or a
loss payable payee to be cancelled or terminated without notice to Optionee,
except (i) policies providing coverage for losses not in excess of $250,000
which are replaced without diminution of or gaps in coverage and (ii) policies
that terminate at the Closing as a result of the sale of the Option Shares to
the Optionee;

 

(m)                               neither the Company nor any of the Company
Subsidiaries shall enter into any contract or transaction relating to the
purchase of assets other than in the ordinary course of business and consistent
with past practice;

 

(n)                                 other than the Promissory Notes, which shall
be paid in full by the Servicer at or prior to the Closing, neither the Company
nor any Company Subsidiary shall pay, repurchase, discharge or satisfy any of
its claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business and consistent with past
practice, of claims, liabilities or obligations

 

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reflected or reserved against in, or contemplated by, the Financial Statements
or incurred since the Balance Sheet date in the ordinary course of business;

 

(o)                                 neither the Company nor any of the Company
Subsidiaries shall adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of the Company or any Company Subsidiary;

 

(p)                                 neither the Company nor any Company
Subsidiary shall (i) change any of the accounting methods used by it unless
required by GAAP or (ii) make any election relating to Taxes, change any
election relating to Taxes already made, adopt any accounting method relating to
Taxes, change any accounting method relating to Taxes unless required by GAAP,
enter into any closing agreement relating to Taxes, settle any claim or
assessment relating to Taxes or consent to any claim or assessment relating to
Taxes or any waiver of the statute of limitations for any such claim or
assessment;

 

(q)                                 neither the Company nor any of the Company
Subsidiaries shall take, or agree to or commit to take, any action that would or
is reasonably likely to result in any of the conditions to the Closing set forth
in Article IX not being satisfied, or would make any representation or warranty
of the Company contained herein inaccurate in any material respect at, or as of
any time prior to, the Closing Date, or that would materially impair the ability
of the Company, Optionee or the Optionors to consummate the Closing in
accordance with the terms hereof or materially delay such consummation; and

 

(r)                                    neither the Company nor any of the
Company Subsidiaries shall enter into any agreement, contract, commitment or
arrangement to do any of the foregoing, or authorize, recommend, propose or
announce an intention to do, any of the foregoing.

 

Section 7.2                                      Access; Confidentiality. 
(a) Between the date of this Agreement and the Closing, the Company shall
(i) afford Optionee and its authorized representatives full and complete access
during normal working hours to all books, records, offices and other facilities
of the Company and each Company Subsidiary, including employees, (ii) permit
Optionee to make such inspections and to make copies of such books and records
as it may reasonably require and (iii) furnish Optionee with such financial and
operating data and other information as Optionee may from time to time
reasonably request.  Optionee and its authorized representatives shall conduct
all such inspections in a manner that will minimize disruptions to the business
and operations of the Company and the Company Subsidiaries.

 

(b)                                 Optionee and its authorized representatives
(including its designated engineers or consultants) may at any time during
normal business hours, upon reasonable advance notice, enter into and upon all
or any portion of the Company’s or any Company Subsidiary’s properties
(including all Real Property and all real estate which is the subject of a
Lease) in order to investigate and assess, as Optionee deems necessary or
appropriate in its sole and absolute discretion, the environmental condition of
such properties or the business conducted thereat.  The Company shall, and shall
cause the Company Subsidiaries to, cooperate with Optionee and its authorized
representatives in conducting such investigation, shall allow Optionee and its
authorized representatives full access during normal business hours, upon
reasonable advance notice, to their properties and businesses, together with
full permission to conduct such

 

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investigation, and shall provide to Optionee and its authorized representatives
all plans, soil or surface or ground water tests or reports, any environmental
investigation results, reports or assessments previously or contemporaneously
conducted or prepared by or on behalf of, or in the possession of or reasonably
available to the Company or any Company Subsidiary or any of their engineers,
consultants or agents and all other information relating to environmental
matters in respect of their properties and businesses.

 

(c)                                  Each party agrees that it will treat in
confidence all documents, materials and other information which it shall have
obtained regarding the other party during the course of the negotiations leading
to the consummation of the transactions contemplated hereby (whether obtained
before or after the date of this Agreement), the investigation provided for
herein and the preparation of this Agreement and other related documents, and,
if the transactions contemplated hereby are not consummated, each party will
return to the other party all copies of nonpublic documents and materials which
have been furnished in connection therewith; provided, however, that the
Optionors shall not be required to return any documents or materials to the
Company if the transactions contemplated hereby are not consummated.  Such
documents, materials and information shall not be communicated to any third
Person (other than, in the case of the Optionee, the Company and the Optionors,
their respective counsel, accountants, financial advisors or lenders).  No party
shall use any confidential information in any manner whatsoever except solely
for the purpose of evaluating the proposed purchase and sale of the Option
Shares and consummating the Transactions; provided, however, that after the
Closing, Optionee may use or disclose any confidential information reasonably
related to the business of the Company or the Company Subsidiaries.  The
obligation of each party to treat such documents, materials and other
information in confidence shall not apply to any information which (i) is or
becomes available to such party from a source other than the other party not in
breach of an obligation of confidentiality, (ii) is or becomes available to the
public other than as a result of disclosure by such party or its agents, or
(iii) is required to be disclosed under applicable law or judicial process, but
only to the extent it must be disclosed.

 

Section 7.3                                      Efforts and Actions to Cause
Closing to Occur.  (a) Following the Exercise Date and until the Closing, upon
the terms and subject to the conditions of this Agreement, Optionee and the
Company shall use their respective commercially reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done and cooperate
with each other party hereto in order to do, all things necessary, proper or
advisable (subject to any applicable laws) to consummate the Closing and the
other Transactions as promptly as practicable including, but not limited to, the
preparation and filing of all forms, registrations and notices required to be
filed to consummate the Closing and the other Transactions and the taking of
such actions as are necessary to obtain any requisite approvals, authorizations,
consents, orders, licenses, permits, qualifications, exemptions or waivers by
any third party or Governmental Entity.  In addition, no party hereto shall take
any action after the Exercise Date that could reasonably be expected to
materially delay the obtaining of, or result in not obtaining, any permission,
approval or consent from any Governmental Entity or other Person required to be
obtained prior to Closing.  Following the Exercise Date and until the Closing,
each Optionor shall use its commercially reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done and cooperate with each
other party hereto in order to do, all things necessary, proper or advisable
(subject to any applicable laws) within such Optionor’s control to

 

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cause the satisfaction of the conditions to Closing (solely with respect to such
Optionor) set forth in Sections 9.1(b), 9.2(c), 9.2(e), 9.2(g) and 9.2(h).

 

(b)                                 Following the Exercise Date and until the
Closing, each party shall promptly consult with the other parties hereto with
respect to, provide any necessary information with respect to, and provide the
other parties (or their respective counsel) with copies of, all filings made by
such party with any Governmental Entity or any other information supplied by
such party to a Governmental Entity in connection with this Agreement and the
Transactions.  Each party hereto shall promptly provide the other parties with
copies of any communication received by such party from any Governmental Entity
regarding any of the Transactions.  If any party hereto or Affiliate thereof
receives a request for additional information or documentary material from any
such Governmental Entity with respect to any of the Transactions, then such
party shall endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other parties, an
appropriate response in compliance with such request.  To the extent that
transfers, amendments or modifications of permits (including environmental
permits) are required as a result of the execution of this Agreement or
consummation of any of the Transactions, the Company shall use its commercially
reasonable efforts to effect such transfers, amendments or modifications.

 

(c)                                  The Company shall use its commercially
reasonable efforts to obtain, prior to the Closing, (i) the unconditional
consent to the Closing and the other Transactions of each lender to whom the
Company or any Company Subsidiary owes in excess of $250,000 as of the Closing
Date; (ii) the unconditional consent to the Closing and the other Transactions
of each Person holding a mortgage or lien on real property or material personal
property owned or leased by the Company or any Company Subsidiary; (iii) the
unconditional consent to the Closing and the other Transactions of each lessor
of real or material personal property leased by the Company; (iv) the
unconditional consent to the Closing and the other Transactions of the issuer of
each material insurance policy referred to in the Disclosure Schedule (other
than the policies set forth on Schedule 5.27 of the Disclosure Schedules which
terminate at the Closing as a result of the sale of the Option Shares to the
Optionee) and (v) the unconditional consent to the Closing and the other
Transactions of each other party to each material contract with the Company or
any Company Subsidiary, in each case if required by the terms of such loan,
mortgage, lease, insurance policy or contract, but only if and to the extent
that the failure to obtain such consent would adversely affect the Company or
any Company Subsidiary or the ability of the Company to consummate the
Transactions.  All such consents shall be in writing and executed counterparts
thereof shall be delivered to Optionee at or prior to the Closing.

 

(d)                                 In addition to and without limiting the
agreements of the parties contained above, the Company, Optionee and the
Optionors shall, following the Exercise Date:

 

(i)                                     take promptly all actions necessary to
make the filings required of them or any of their Affiliates under the HSR Act;

 

(ii)                                  comply at the earliest practicable date
with any request for additional information or documentary material received by
the Company, Optionee, the Optionors or any of their Affiliates from the FTC or
the DOJ pursuant to the HSR Act or from any state Attorney General or other
Governmental Entity in connection with antitrust matters;

 

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(iii)                               cooperate with each other in connection with
any filing under the HSR Act and in connection with resolving any investigation
or other inquiry concerning the Transactions commenced by the FTC, DOJ, any
state Attorney General or any other Governmental Entity;

 

(iv)                              use all reasonable commercial efforts to
resolve such objections, if any, as may be asserted with respect to the
Transactions under any antitrust law; and

 

(v)                                 advise the other parties promptly of any
material communication received by such party from the FTC, DOJ, any state
Attorney General or any other Governmental Entity regarding any of the
Transactions, and of any understandings, undertakings or agreements (oral or
written) such party proposes to make or enter into with the FTC, DOJ, any state
Attorney General or any other Governmental Entity in connection with the
Transactions.

 

Concurrently with the filing of notifications under the HSR Act or as soon
thereafter as practicable, the Optionors and Optionee shall each request early
termination of the HSR Act waiting period.

 

(e)                                  Notwithstanding the foregoing or any other
covenant herein contained, nothing in this Agreement shall be deemed to require
any party hereto (i) to divest or hold separate any assets or agree to limit its
future activities, method or place of doing business, (ii) to commence any
litigation against any entity in order to facilitate the consummation of any of
the Transactions or (iii) to defend against any litigation brought by any
Governmental Entity seeking to prevent the consummation of, or impose
limitations on, any of the Transactions.

 

(f)                                    The Company and each Company Subsidiary
shall take all action reasonably requested by Optionee, including the
preparation for delivery at the Closing of all notes, financing documents,
mortgages, loan agreements, pledges, filing statements contemplated by the
Uniform Commercial Code and officer’s certificates as Optionee may request for
the purpose of consummating Optionee’s financing of the Transactions.

 

Section 7.4                                      Notification of Certain
Matters.  (a) From time to time prior to the earlier of Closing or the
termination of this Agreement, the Company shall supplement or amend the
Disclosure Schedule with respect to any matter, whether existing as of the date
hereof or arising thereafter, that was, or would have been, required to be set
forth or described in the Disclosure Schedule.  Each supplement to or amendment
of the Disclosure Schedule (a “Disclosure Schedule Supplement”) made after the
execution hereof shall be effective and shall be deemed to modify the
representations and warranties made pursuant to this Agreement, from and after
the delivery to Optionees of such Disclosure Schedule Supplement.  The Company
and Optionee shall give notice to the other promptly (with a copy to each
Optionor) after becoming aware of (i) the occurrence or non occurrence of any
event whose occurrence or non occurrence would be likely to cause either (A) any
representation or warranty set forth in this Agreement that is qualified as to
materiality to be untrue or incorrect in any respect at any time from the date
hereof to the Closing Date or any representation or warranty that is not so
qualified to be untrue or incorrect in any material respect at any time from the
date hereof to the Closing Date or (B) any condition set forth in Article IX to
be unsatisfied at any time from the date hereof to the

 

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Closing Date and (ii) any failure to perform in any material respect any
obligation or to comply in any material respect with any agreement or covenant
to be performed or complied with hereunder; provided, however, that (x) the
delivery of any notice pursuant to this section shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice and
(y) the failure to give such notice shall not be required from and after the
time the party to whom such notice is to be given has actual knowledge of the
information required to be included in such notice.

 

(b)                                 The Company shall deliver to Optionee (with
a copy to each Optionor) copies of (i) all audit reports, letter rulings,
technical advice memoranda and similar documents issued by a Governmental Entity
relating to the United States federal, state, local or foreign Taxes due from or
with respect to the Company or any Company Subsidiary, (ii) any closing
agreements entered into by the Company or any Company Subsidiary with any taxing
authority, which come into the possession of the Company after the date hereof,
(iii) any letter of revocation of a Company Permit, (iv) any complaints of
material litigation filed by or against the Company or any Company Subsidiary,
and (v) any agreements to terminate any Material Contracts.

 

Section 7.5                                      No Solicitation of Competing
Transaction.

 

(a)                                  Neither the Optionors, the Company nor any
Company Subsidiary shall (and each of the Optionors, the Company and the Company
Subsidiaries shall instruct its respective officers, directors, employees,
representatives and agents, including investment bankers, attorneys and
accountants, not to), directly or indirectly, encourage, solicit, initiate or
participate in discussions or negotiations with, or provide any information to,
any Person or group (other than Optionee, any of its Affiliates or
representatives) concerning any Acquisition Proposal.  None of the Optionors,
the Company or any Company Subsidiary shall enter into any agreement with
respect to any Acquisition Proposal.  Upon execution of this Agreement, the
Optionors and the Company shall immediately cease any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing, and the Optionors and the Company shall request (or if
any of them has the contractual right to do so, demand) the return of all
confidential documents, analyses, financial statements, projections,
descriptions and other data previously furnished to others in connection with
the Optionors’ efforts to sell the Company.  The Company or the Optionors shall
immediately notify Optionee of the existence of any proposal or inquiry received
by the Company, and the Company shall immediately communicate to Optionee the
terms of any proposal or inquiry which it may receive (and shall immediately
provide to Optionee copies of any written materials received by the Company in
connection with such proposal, discussion, negotiation or inquiry) and the
identity of the party making such proposal or inquiry.

 

(b)                                 Neither the Company Board of Directors nor
any committee thereof shall (i) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Optionee, the approval by such Company Board of
Directors or any such committee of this Agreement, (ii) approve or recommend or
propose to approve or recommend, any Acquisition Proposal or (iii) authorize the
Company to enter into any agreement with respect to any Acquisition Proposal.

 

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Section 7.6                                      Transfer of Optionors’ Shares. 
The Company hereby waives any and all rights the Company may have under all
agreements between the Company and one or more of the Optionors or otherwise to
object to the transfer to Optionee of the Option Shares and hereby covenants not
to consent, where it has the discretion to do so, to the transfer of any Option
Shares to any Person other than Optionee.

 

Section 7.7                                      Waiver Pursuant to and
Termination of Shareholders Agreement.  Each of the Optionors and the Company
hereby waives any restrictions on transfer, rights of first refusal, tag along
rights and bring along rights that it may have pursuant to Sections 3, 4 and 5
of the Shareholders Agreement and Sections 2, 3 and 4 of the Ozanne Agreement in
respect of the sale of the Option Shares to Optionee in accordance with the
terms of this Agreement; provided, however, that such waiver shall not affect
any Optionor’s rights under this Agreement.  Each of the Optionors and the
Company hereby agree that, in the event the Closing occurs, the Shareholders
Agreement, the Ozanne Agreement and the Registration Rights Agreement shall
terminate immediately upon Closing and be of no further force and effect without
any liability to any Optionor or the Company.

 

Section 7.8                                      Subsequent Actions.  If at any
time after the Closing Optionee will consider or be advised that any deeds,
bills of sale, instruments of conveyance, assignments, assurances or any other
actions or things are necessary or desirable (i) to vest, perfect or confirm
ownership (of record or otherwise) in Optionee, its right, title or interest in,
to or under any or all of the Option Shares, (ii) to vest, perfect or confirm
ownership (of record or otherwise) in the Company and each Company Subsidiary,
any of its rights, properties or assets or (iii) otherwise to carryout this
Agreement, the Optionors and the Company shall execute and deliver all deeds,
bills of sale, instruments of conveyance, powers of attorney, assignments and
assurances and take and do all such other actions and things as may be
reasonably requested by Optionee and at the expense of Optionee in order to
vest, perfect or confirm any and all right, title and interest in, to and under
such rights, properties or assets in Optionee or the Company or any Company
Subsidiary.

 

Section 7.9                                      FIRPTA Certificates.  Each
Optionor shall deliver to the Optionee at or prior to the Closing a certificate,
in form and substance reasonably satisfactory to the Optionee and consistent
with Treasury Regulation Section 1.1445-2, certifying that it is not a foreign
person.

 

Section 7.10                                Limitation on Certain Actions. 
Prior to the Closing, the Optionee shall not take any action, or request that
the Company or any Company Subsidiary take any action, that, alone or in
combination with another event, could (i) entitle any current or former
employee, director or officer of the Company or any Company Subsidiary to
severance pay, unemployment compensation or any other payment or (ii) accelerate
the time of payment or vesting, or increase the amount of compensation due any
such employee, director or officer.

 

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ARTICLE VIII

 

TAX MATTERS

 

Section 8.1                                      Transfer Taxes.  All Transfer
Taxes and related amounts incurred in connection with the transactions
contemplated herein will be split equally among Optionors on the one hand and
Optionee on the other.  The Optionors and the Optionee will cooperate to timely
prepare any Tax Returns or other filings relating to such Transfer Taxes,
including any claim for exemption or exclusion from the application or
imposition of any Transfer Taxes.  Unless otherwise required by applicable law, 
the Optionors will file all Tax Returns or other filings with respect to
Transfer Taxes, the Optionee will pay to Optionors, not later than five
(5) Business Days before the due date for payment of such Transfer Taxes, an
amount equal to 50% of the Transfer Taxes shown on such return or other filing,
and promptly following the filing thereof, the Optionors will furnish to the
Optionee a copy of such return or other filing and a copy of a receipt showing
payment of any such Transfer Tax.  With respect to any such returns or filings
required to be filed by the Optionee, the Optionors will pay to the Optionee,
not later than five (5) Business Days before the due date for payment of such
Transfer Taxes, an amount equal to 50% of the Transfer Taxes shown on such
return or other filing, and the Optionee will furnish to the Optionors a copy of
such return or other filing and a copy of a receipt showing payment of any
Transfer Tax.

 

Section 8.2                                      Tax Return Filings.  At the
Optionors’ expense, the Optionee shall, or shall cause the Company and each
Company Subsidiary to, timely prepare and file with the relevant Taxing
Authorities all Tax Returns of the Company and each Company Subsidiary covering
a Pre-Closing Tax Period or a Straddle Period the due date for filing of which,
determined taking into account extensions, is after the Closing Date; provided
that the Optionee shall furnish the Optionors with a copy of such Tax Returns
not later than thirty (30) days before such Tax Returns are due, and no such Tax
Returns shall be filed with any Taxing Authority without the Optionors’ written
consent, which consent shall not be unreasonably withheld..  The Optionors
shall, or shall cause the Company and each Company Subsidiary to, timely prepare
and file with the relevant Taxing Authorities all Tax Returns for any taxable
periods of the Company, any of each Company Subsidiary, or for each Company
Group with respect to which the Company or any Company Subsidiary is the parent,
the due date for filing of which, determined taking into account extensions, is
on or before the Closing Date.  Any Tax Returns described in this Section 8.2
shall be prepared on a basis consistent with applicable law and the past
practices of the Company and each Company Subsidiary and in a manner that does
not distort taxable income (e.g., by deferring income or accelerating
deductions).  All Tax Returns for a taxable period including the Closing Date
shall be filed on the basis that the relevant taxable period ended as of the
close of business on the Closing Date, unless the relevant Taxing Authority will
not accept such a Tax Return.  Further, the Optionee, the Company and/or each
Company Subsidiary shall not enter into any transaction on the Closing Date
(i) not contemplated by this Agreement, and (ii) outside the ordinary course of
business which may result in the Company or any Company Subsidiary paying
additional Taxes.  Promptly following the filing of any Pre-Closing Tax Period
Tax Return or a Straddle Period Tax Return that the Optionee is responsible for
preparing pursuant to this Section 8.2, the Optionee shall provide to the
Optionors a schedule detailing the reasonable out-of-pocket costs paid to third
parties in the preparation of such Tax Returns (the “Tax Return Cost
Schedule”).  The Optionors shall reimburse Optionee, not later than thirty (30)

 

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days after receipt of any Tax Return Cost Schedule (i) the full amount reflected
thereon in respect of any Pre-Closing Tax Period Tax Return, and (ii) in the
case of any Straddle Period Tax Return, the amount reflected on such Tax Return
Cost Schedule multiplied by a fraction, the numerator of which is the amount of
Tax reflected on the related Straddle Period Tax Return for which the Optionors
are liable, and the denominator of which is the total amount of Tax shown as due
on such Straddle Period Tax Return.

 

Section 8.3                                      Tax Indemnification.

 

(a)                                  Optionors Indemnification.  From and after
the Closing, notwithstanding any disclosures set forth in the Disclosure
Schedule, the Optionors, severally in proportion with such Optionor’s Percentage
Interest, and not jointly, shall be liable for, and shall indemnify all Optionee
Indemnified Persons against and hold them harmless from (i) all liability for
Taxes of the Company, each Company Subsidiary and each Company Group with
respect to any Pre-Closing Tax Period, (ii) all liability (as a result of
Treasury Regulation § 1.1502-6(a) or otherwise) for Taxes of the Optionors or
any other corporation which is or has ever been affiliated with the Optionors
(other than the Company or any Company Subsidiary) or with whom the Company or
any Company Subsidiary otherwise joins, has ever joined, or is or has ever been
required to join, in filing any consolidated, combined or unitary Tax Return
prior to the Closing Date, (iii) all liability for Taxes of the Company, any
Company Subsidiary or any Company Group arising (directly or indirectly) as a
result of the sale of the Option Shares,  (iv) any Loss resulting from any
breach of representation or warranty contained in Section 5.19, and (v) all
liability for reasonable legal fees and expenses attributable to any item in the
foregoing clauses, provided, however, that all Losses, including legal fees and
expenses, relating to Specified Tax Matters shall not be considered Losses for
which indemnification is provided pursuant to this Section 8.3(a) and
indemnification for Specified Tax Matters shall instead be provided under
Section 8.3(b).  Notwithstanding the above, Optionors’ liability and
indemnification obligation with respect to Taxes pursuant to this
Section 8.3(a) shall be reduced by the amount reflected as a liability or in the
reserve for Taxes on the Closing Balance Sheet (other than the Specified Tax
Reserves) and, in addition, by the amount of any estimated Taxes paid by or on
behalf of any Company, Company Subsidiary or Company Group; provided, however,
that all Losses for Specified Tax Matters for which indemnification is provided
pursuant to Section 8.3(b), below, shall not be reduced by the amount reflected
as a liability or in the reserve for Taxes on the Closing Balance Sheet.

 

(b)                                 From and after the Closing Date,
notwithstanding any disclosures set forth in the Disclosure Schedule, the
Optionors, severally in proportion with such Optionor’s Percentage Interest, and
not jointly, shall be liable for and shall indemnify all Optionee Indemnified
Persons in the manner set forth in Sections 8.3(b)(iii) and (iv) against all
liability for Taxes of the Company, any Company Subsidiary, or any Company Group
arising as a result of:

 

(i)                                     a successful Internal Revenue Service
challenge of the Company’s characterization of its $5,000,000 tax loss for the
2003 Tax year as a result of sale of shares of capital stock of Truman as an
ordinary loss, requiring such loss to be treated as a capital loss, and

 

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(ii)                                  a successful Internal Revenue Service
challenge of the Company’s amortization treatment of purchased mortgage
servicing rights, requiring the purchased mortgage servicing rights to be
amortized over a longer period.

 

(iii)                               The Optionee shall be indemnified for the
full amount of any disallowed ordinary loss in the event of the occurrence of
the Specified Tax Matter described in Section 8.3(b)(i); provided, however, that
the Optionee shall subsequently reimburse the Optionors for such indemnification
payment if, and then only to the extent, after taking all other available
capital losses into account, the Company, any Company Subsidiary, any Company
Group or the Optionee has filed a Tax Return on which it has offset capital gain
by part or all of the capital loss from the sale of the shares of capital stock
of Truman.

 

(iv)                              The amount for which the Optionee shall be
indemnified with respect to the Specified Tax Matter described in
Section 8.3(b)(ii) shall be equal to (A) the amount of Taxes payable to the
Internal Revenue Service with respect to the Specified Tax Matter, reduced by
(B) an amount equal to the present value of the expected tax benefits
(determined using a 5% discount rate) arising solely from an increase in the
amount of amortization of purchase mortgage servicing rights taken into account
after the Closing Date with respect to the Specified Tax Matter, which expected
tax benefit shall not, however, include any amount of amortization that could
not be used to offset income as a result of a limitation imposed under
Section 382 of the Code and shall be determined by assuming a 35% effective Tax
rate.

 

(c)                                  Notwithstanding any disclosures set forth
in the Disclosure Schedule, Optionee shall be liable for and shall indemnify the
Optionors from and against, and agrees to promptly pay the Optionors, all Tax
Losses incurred as a result of a claim, notice of deficiency, or assessment by,
or any obligation owing to, any taxing authority for any Taxes of the Company,
any Company Subsidiary or any Company Group with respect to any Post-Closing Tax
Period.

 

(d)                                 Straddle Periods.  In the case of any
Straddle Period:

 

(i)                                     Property Taxes of the Company and each
Company Subsidiary for the Pre-Closing Tax Period shall equal the Property Taxes
for such Period multiplied by a fraction, the numerator of which is the number
of days during the Straddle Period that are in the Pre-Closing Tax Period and
the denominator of which is the number of days in the Straddle Period; and

 

(ii)                                  the Taxes of the Company and each Company
Subsidiary (other than Property Taxes) for the Pre-Closing Tax Period shall be
computed by assuming that the portion of the Straddle Period ending on the
Closing Date constitutes a separate taxable period and by taking into account
the actual taxable events occurring during such period (except that exemptions,
allowances and deductions for a Straddle Period that are calculated on an annual
or periodic basis, such as the deduction for depreciation, shall be apportioned
ratably on a per diem basis).

 

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(e)                                  The indemnity obligation under this
Section 8.3 in respect of Taxes for a Straddle Period shall initially be
satisfied by its payment to the Optionee, or at the Optionee’s direction, to the
Company, of the excess of (i) such Taxes for the Pre-Closing Tax Period, over
(ii) the amount of such Taxes paid by the Company or any Company Subsidiary on
or prior to the Closing Date (including any estimated Taxes) and any amount
reflected as a liability or in the reserve for Taxes on the Closing Balance
Sheet (other than the Specified Tax Reserve).  At least thirty (30) days prior
to the due date (including extensions) of such Tax Return, Optionee shall
deliver to Optionors a copy of such Tax Return which will permit Optionors to
review and substantiate the accuracy of such Tax Return.  If the aggregate
amount of Tax so determined to be attributable to the Pre-Closing Tax Period is
in excess of the amount of such Taxes paid by the Company or any Company
Subsidiary on or prior to the Closing Date (including any estimated Taxes) and
any amount reflected as a liability or in the reserve for Taxes on the Closing
Balance Sheet (other than the Specified Tax Reserve), Optionors shall pay such
excess to Optionee no later than 5 days prior to the date of such Tax Return. 
If the amount of such Taxes attributable to the Pre-Closing Tax Period is less
than the amount of such Taxes paid by the Company or any Company Subsidiary on
or prior to the Closing Date (including any estimated Taxes) and any amount
reflected as a liability or in the reserve for Taxes on the Closing Balance
Sheet (other than the Specified Tax Reserve), Optionees shall pay to the
Optionors the amount of such excess not less than 5 days prior to the due date
of such Tax Return.  The payments to be made pursuant to this
Section 8.3(e) with respect to a Straddle Period shall be appropriately adjusted
to reflect any Final Determination with respect to Straddle Period Taxes.

 

(f)                                    Any indemnity payment to be made under
this Section 8.3, other than an indemnity payment described in the immediately
preceding paragraph, 8.3(e), shall be paid within 10 days after the indemnified
party makes written demand upon the indemnifying party, but in no case earlier
than 5 Business Days prior to the date on which the relevant Taxes are required
to be paid to the relevant Taxing Authority (including as estimated Tax
payments).

 

(g)                                 Any indemnification obligation under this
Article VIII shall remain in full force for the applicable statute of
limitations, taking into account any extensions, plus thirty (30) days.

 

Section 8.4                                      Cooperation.  The Optionors,
the Company and the Optionee shall reasonably cooperate, and shall cause their
respective Affiliates, officers, employees, agents, auditors and representatives
reasonably to cooperate, in preparing and filing all Tax Returns, including
maintaining and making available to each other all records necessary in
connection with Taxes, and in resolving all disputes and audits with respect to
all taxable periods relating to Taxes, including all Tax Claims.

 

Section 8.5                                      Refunds and Credits.  Any
refund or credit of Taxes of the Company or any Company Subsidiary for any
taxable period ending on or before the Closing Date shall be for the account of
the Optionors.  Notwithstanding the foregoing, however, any such refund or
credit shall be for the account of the Optionee to the extent that such refunds
or credits are attributable (determined on a marginal basis) to the carryback
from a Post-Closing Tax Period (or the portion of a Straddle Period that begins
on the date after the Closing Date) of items of loss, deductions or other Tax
items of the Company or any Company Subsidiary (or any of their respective

 

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Affiliates, including the Optionee).  Any refund or credit of Taxes of the
Company or any Company Subsidiary for any Post-Closing Tax Period shall be for
the account of the Optionee; provided, however, any such refund or credit shall
be for the account of the Optionors to the extent that such refunds or credits
are attributable (determined on a marginal basis) to the carryforward from a
Pre-Closing Tax Period (or the portion of a Straddle Period that ends on the
Closing Date) of items of loss, deductions or other Tax items of the Company or
any Company Subsidiary (or any of their respective Affiliates, including the
Optionee).  Any refund or credit of Taxes of the Company or any Company
Subsidiary for any Straddle Period shall be equitably apportioned between the
Optionors and the Optionee.  Each party shall, or shall cause its Affiliates to,
forward to any other party entitled under this Section 8.5 to any refund or
credit of Taxes any such refund within 10 days after such refund is received or
reimburse such other party for any such credit within 10 days after the credit
is allowed or applied against other Tax liability; provided, however, that any
such amounts shall be net of any Tax Cost or Tax Benefit to the payor party
attributable to the receipt of such refund and/or the payment of such amounts to
the payee party.  The parties shall treat any payments under this section as an
adjustment to the Exercise Price, unless, and then only to the extent, otherwise
required by a Final Determination.  The control of the prosecution of a claim
for refund of Taxes paid pursuant to a deficiency assessed subsequent to the
Closing Date as a result of an audit shall be governed by the provisions of
Section 8.7.

 

Section 8.6                                      Calculation of Losses.  The
amount of any Loss for which indemnification is provided under this Article VIII
shall be net of any amounts recoverable by the indemnified party under insurance
policies with respect to such Loss and shall be (i) increased to take account of
any net Tax Cost to the indemnified party arising from the receipt of indemnity
payments hereunder (grossed up for such increase) and (ii) reduced to take
account of any net Tax Benefit realized by the indemnified party arising from
the incurrence or payment of any such Loss.  Any indemnity payment under this
Agreement shall be treated as an adjustment to the Exercise Price for Tax
purposes, unless, and then only to the extent, otherwise required by a Final
Determination.

 

Section 8.7                                      Procedures Relating to
Indemnification of Tax Claims.

 

(a)                                  Notice.  If a claim shall be made by any
Taxing Authority, which, if successful, might result in an indemnity payment to
any Optionee Indemnified Person pursuant to Section 8.3, the Optionee shall
promptly notify the Optionors in writing of such claim (a “Tax Claim”).  Failure
to give notice of a Tax Claim to the Optionors within a sufficient period of
time and in reasonably sufficient detail to allow the Optionors to effectively
contest such Tax Claim shall affect the liability of the Optionors to any
Optionee Indemnified Person only to the extent that the Optionors’ position is
actually and materially prejudiced as a result thereof.

 

(b)           Control of Proceedings.  The Optionors shall, at the Optionors’
expense, control all proceedings taken in connection with any Tax Claim relating
solely to Taxes of the Company or any Company Subsidiary for a Pre-Closing Tax
Period, and may make all decisions in connection with such Tax Claim, provided,
however, that the Optionors shall not settle any such Tax Claim without prior
written consent of the Optionee, which consent shall not be unreasonably
withheld, if such settlement would increase the Tax liability of the Company
and/or Optionee for any Post-Closing Period.  The Optionors and the Optionee
shall

 

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jointly control all proceedings taken in connection with any Tax Claim relating
solely to Taxes of the Company or any Company Subsidiary for a Straddle Period,
and neither party shall settle any such Tax Claim without the written consent of
the other party.  The Optionee shall control all proceedings with respect to all
other Tax Claims.

 

Section 8.8                                      Tax Sharing Agreements.  The
Optionors shall cause any and all Tax sharing agreements between (i) the
Optionors or any of their Affiliates (other than the Company and any Company
Subsidiary) and (ii) the Company or any Company Subsidiary, to be terminated on
or before the Closing Date.  After the Closing Date, no party shall have any
rights or obligations under any such Tax sharing agreements.

 

Section 8.9                                      Miscellaneous.  All indemnity
obligations payable under this Article VIII by or to Optionors shall be in
accordance with each Optionor’s Percentage Interest.

 

ARTICLE IX

 

CONDITIONS

 

Section 9.1                                      Conditions to Each Party’s
Obligation to Effect the Closing.  The respective obligation of each party to
effect the Closing shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions:

 

(a)                                  Statutes; Court Orders.  No statute,
rule or regulation shall have been enacted or promulgated by any Governmental
Entity which prohibits the consummation of the Closing; and there shall be no
order or injunction of a court of competent jurisdiction in effect precluding
consummation of the Closing.

 

(b)                                 HSR Approval.  The applicable waiting period
under the HSR Act shall have expired or been terminated.

 

(c)                                  Contingent Payment Agreement.  The
Contingent Payment Agreement shall have been executed by each other party
thereto and shall be in full force and effect.

 

Section 9.2                                      Conditions to Obligations of
Optionee to Effect the Closing.  The obligations of Optionee to consummate the
Closing shall be subject to the satisfaction on or prior to the Closing Date of
each of the following conditions:

 

(a)                                  Government Action.  There shall not be
threatened or pending any suit, action or proceeding by any Governmental Entity:

 

(i)                                     seeking to prohibit or impose any
limitations on Optionee’s ownership or operation (or that of any of its
Subsidiaries or Affiliates) of all or a portion of their or the Company’s
businesses or assets, or to compel Optionee or the Company or any of their
respective Subsidiaries or Affiliates to dispose of or hold separate any portion
of the business or assets of the Company or Optionee or any of their respective
Subsidiaries or Affiliates;

 

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(ii)                                  seeking to restrain or prohibit the
consummation of the Closing or the performance of any of the other Transactions,
or seeking to obtain from the Company or Optionee any damages in connection with
the performance of this Agreement or the other Transactions;

 

(iii)                               seeking to impose limitations on the ability
of Optionee, or rendering Optionee unable, to accept for payment or pay for or
purchase some or all of the Option Shares or consummate the Closing;

 

(iv)                              seeking to impose limitations on the ability
of Optionee effectively to exercise full rights of ownership of the Option
Shares, including the right to vote the Option Shares; or

 

(v)                                 which otherwise is reasonably likely to have
a material adverse effect on the prospects, consolidated financial condition,
businesses or results of operations of the Company and the Company Subsidiaries,
considered as a whole;

 

or there shall be any statute, rule, regulation, judgment, order or injunction
enacted, entered, enforced, promulgated or deemed applicable to the
Transactions, or any other action shall be taken by any Governmental Entity,
other than the application to the Transactions of applicable waiting periods
under the HSR Act, that is reasonably likely to result, directly or indirectly,
in any of the consequences referred to in clauses (i) through (v) above.

 

(b)                                 Certificate of Company’s Officers.  The
Company shall have delivered to Optionee at the Closing a certificate signed by
the chief executive officer of the Company and by the chief financial officer of
the Company, dated the Closing Date, in form and substance reasonably
satisfactory to Optionee, to the effect that, as of the Closing Date, (w) all of
the representations and warranties of the Company set forth in this Agreement
that are qualified as to materiality are true and correct, (x) all such
representations and warranties that are not so qualified are true and correct in
all material respects, (y) there has not occurred any Material Adverse Change
since the date hereof and (z) the Company has performed all material obligations
required under this Agreement to be performed by it, at or prior to the Closing.

 

(c)                                  Certificates of Optionors’ Officers.  Each
Optionor shall have delivered to Optionee at the Closing a certificate signed by
an officer of such Optionor involved with such Optionor’s investment in the
Company, dated the Closing Date, in form and substance reasonably satisfactory
to Optionee, to the effect that, as of the Closing Date, (x) all of the
representations and warranties of such Optionor set forth in this Agreement that
are qualified as to materiality are true and correct, (y) all such
representations and warranties that are not so qualified are true and correct in
all material respects and (z) such Optionor has performed all material
obligations required under this Agreement to be performed by it.

 

(d)                                 Consents Obtained.  All material consents of
any Person necessary to the consummation of the Closing and the other
Transactions, including consents from parties to loans, contracts, leases or
other agreements and consents from Governmental Entities, including, without
limitation, all consents related to the transfer of all state, federal or
foreign licenses and/or confirmation that such licenses have been transferred or
reapplications

 

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approved, whether federal, state or local shall have been obtained, and a copy
of each such consent shall have been provided to Optionee at or prior to the
Closing.

 

(e)                                  Resignation of Directors and Officers. 
Such members of the boards of directors and such officers of the Company and the
Company Subsidiaries as are designated in a written notice delivered at least
two (2) Business Days prior to the Closing by Optionee to the Company shall have
tendered, effective at the Closing, their resignations as such directors and
officers or shall have been removed.

 

(f)                                    Material Adverse Change.  There shall not
have occurred any Material Adverse Change.

 

(g)                                 Representations and Warranties.  All of the
representations and warranties of the Optionors and the Company set forth in
this Agreement that are qualified as to materiality shall be true and correct in
all respects and each such representation or warranty that is not so qualified
shall be true and correct in all material respects, in each case as of the
Closing Date.

 

(h)                                 No Optionor Breach.  No Optionor shall have
failed to perform in any material respect any obligation or to comply in any
material respect with any agreement or covenant to be performed or complied with
by such Optionor under this Agreement.

 

(i)                                     No Company Breach.  The Company shall
not have failed to perform in any material respect any obligation or to comply
in any material respect with any agreement or covenant to be performed or
complied with by it under this Agreement.

 

(j)                                     Acquisition of Common Stock and
Termination of Company Options.  The Company shall have consummated the
acquisition of all outstanding shares of Common Stock not owned by an Optionor. 
There shall not be outstanding any Company Option that does not terminate upon
the Closing.

 

(k)                                  Certain Payments.  The Company shall have
made the payment to the Chief Executive Officer of the Company that is required
under his employment agreement and is due and payable at Closing.

 

(l)                                     Fee Matrix.  The Company shall have
delivered to Optionee at the Closing a copy of the Fee Matrix of the Servicer as
it exists as of the Closing (the “Fee Matrix”).  The Fee Matrix shall not
reflect any increase in any fee set forth in the Signing Date Fee Matrix, unless
the Optionee has consented to such increase.

 

The foregoing conditions are for the sole benefit of Optionee, may be waived by
Optionee, in whole or in part, at any time and from time to time in the sole
discretion of Optionee.  The failure by Optionee at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right and each
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time.

 

Section 9.3                                      Conditions to Obligations of
Optionors to Effect the Closing.  The obligations of the Optionors to consummate
the Closing shall be subject to the satisfaction on or prior to the Closing Date
of each of the following conditions:

 

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(a)                                  Government Action.  There shall not be
threatened or pending any suit, action or proceeding by any Governmental Entity
seeking to restrain or prohibit the consummation of the Closing or the
performance of any of the Transactions, or seeking to obtain from the Company or
Optionee any damages that are material in relation to the Company or the Company
Subsidiaries.

 

(b)                                 Representations and Warranties.  All of the
representations and warranties of Optionee set forth in this Agreement that are
qualified as to materiality shall be true and correct in all respects and each
such representation or warranty that is not so qualified shall be true and
correct in all material respects, in each case as of the date of this Agreement
and as of the Closing Date.

 

(c)                                  No Optionee Breach.  Optionee shall not
have failed to perform in any material respect any material obligation or to
comply in any material respect with any agreement or covenant of Optionee to be
performed or complied with by it under this Agreement.

 

(d)                                 Certificate of Optionee’s Officer. 
Optionors and the Company shall have received from Optionee a certificate, dated
the Closing Date, duly executed by an officer of Optionee to the effect of
paragraphs (a) and (b) above.

 

(e)                                  Satisfaction of Promissory Notes.  All
amounts outstanding under the Promissory Notes shall have been paid in full on
or prior to the Closing Date.

 

(f)                                    Purchase Agreement.  MSR Seller shall
have performed all of its obligations under the Purchase Agreement required to
be performed by it on or prior to the Closing Date.

 

The foregoing conditions are for the sole benefit of the Optionors, may be
waived on behalf of all Optionors by PMI and FSA, acting jointly, in whole or in
part, at any time and from time to time in the sole discretion of PMI and FSA. 
The failure by the Optionors at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.

 

ARTICLE X

 

TERMINATION

 

Section 10.1                                Termination.  The Option and this
Agreement shall terminate at the Expiration Time, without the need for any party
hereto to take any action, if the Option has not been properly exercised prior
to the Expiration Time in accordance with Section 3.1(a).  In addition, the
Option and this Agreement may be terminated or abandoned at any time prior to
the Closing Date:

 

(a)                                  By the mutual written consent of Optionee,
PMI and FSA;

 

(b)                                 By either PMI or FSA if Optionee shall have
breached in any material respect any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach cannot
be or has not been cured within 30 days after the giving of

 

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written notice by either PMI or FSA to Optionee and each other party hereto
specifying such breach; or

 

(c)                                  By Optionee if any Optionor or the Company
shall have breached any representation, warranty, covenant or other agreement
contained in this Agreement which would give rise to the failure of a condition
set forth in Article IX which breach cannot be or has not been cured within 30
days after giving written notice by Optionee to all Optionors specifying such
breach.

 

(d)                                 By PMI and FSA, acting jointly, at any time
after the first Business Day immediately following November 30, 2005 if the
Closing has not occurred on or before such first Business Day and by either PMI
or FSA at any time after the first Business Day immediately following
December 31, 2005 if the Closing has not occurred on or before such first
Business Day.

 

(e)                                  By Optionee at any time after the first
Business Day immediately following November 30, 2005 if the Closing has not
occurred on or before such first Business Day.

 

Section 10.2                                Effect of Termination.  In the event
of the termination or abandonment of the Option or this Agreement by any party
hereto pursuant to the terms of this Agreement, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination or abandonment is made, and there shall be no
liability or obligation thereafter on the part of Optionee, the Optionors or the
Company except (a) for breach of this Agreement prior to such termination or
abandonment, (b) as set forth in Sections 12.1, 12.19 and 12.20, and (c) for
breach of the confidentiality provisions of Section 7.2(c).  Notwithstanding
anything to the contrary contained herein, the termination or abandonment of the
Option or this Agreement shall not terminate the Purchase Agreement.

 

ARTICLE XI

 

INDEMNIFICATION

 

Section 11.1                                Survival of Representations and
Warranties; Time Limitations.

 

(a)                                  The representations, warranties, covenants
and agreements made herein shall survive the Closing, subject to the other
provisions of this Article XI.

 

(b)                                 The right of any Optionee Indemnified Person
to initiate any action against any Optionor for a breach of any of the covenants
or agreements of the Company or any Optionor set forth herein shall terminate on
December 31, 2007; except with respect to such covenants or agreements set forth
in this Agreement that by their terms are required to be performed from and
after such date (including, without limitation, the covenants and agreements set
forth in Section 11.2(d)).

 

(c)                                  The right of any Optionee Indemnified
Person to initiate any action against any Optionor for a breach of any of the
representations or warranties of the Optionors set forth in Article IV or any of
the representations or warranties of the Company set forth in Sections 5.3 and
5.5 shall survive indefinitely.

 

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(d)                                 The right of any Optionee Indemnified Person
to initiate any action against any Optionor for any breach of the
representations or warranties of the Company set forth in Section 5.19 shall
terminate thirty (30) days after the expiration of the applicable statute of
limitations, taking into account any extensions.

 

(e)                                  The right of any Optionee Indemnified
Person to initiate any action against any Optionor for any breach of the
representations or warranties of the Company set forth herein (other than the
representations or warranties set forth in Sections 5.3, 5.5 and 5.19), shall
terminate on December 31, 2007.

 

Section 11.2                                Indemnification; Remedies.

 

(a)                                  From and after the Closing Date, each
Optionor shall, severally and not jointly, indemnify, defend and hold harmless
each Optionee Indemnified Person from and against any and all Losses incurred by
such Optionee Indemnified Person arising from any breach of any representation
or warranty of such Optionor set forth in Article IV of this Agreement or any
covenant or agreement of such Optionor set forth in this Agreement.

 

(b)                                 From and after the Closing Date, each
Optionor, severally in proportion with such Optionor’s Percentage Interest, and
not jointly, shall indemnify, defend and hold harmless each Optionee Indemnified
Person from and against any and all Losses incurred by such Optionee Indemnified
Person arising from (i) any breach by the Company on the Closing Date of any
representation or warranty of the Company set forth in Article V of this
Agreement, (ii) any breach by the Company prior to the Closing (which has not
been cured or set forth in the Disclosure Schedules prior to the Closing Date)
of any covenant of the Company contained in this Agreement,
(iii) notwithstanding whether any indemnity obligation exists pursuant to
Sections 11.2(b)(i) or 11.2(b)(ii) and notwithstanding any disclosures set forth
in the Disclosure Schedule, the facts underlying the Specified Disputes to the
extent that such Losses arise from events that have occurred prior to the
Closing Date or (iv) notwithstanding whether any indemnity obligation exists
pursuant to Sections 11.2(b)(i) or 11.2(b)(ii) and notwithstanding any
disclosures set forth in the Disclosure Schedule, indemnification by the Company
or a Company Subsidiary of directors or officers thereof (other than persons
that are employed by the Company or a Company Subsidiary on the Closing Date)
but only to the extent that such indemnification is mandatory under the terms of
(A) an enforceable written indemnification agreement entered into by the Company
or a Company Subsidiary with such director or officer prior to the Closing Date,
(B) the certificate of incorporation or bylaws of the Company or a Company
Subsidiary as they existed on or prior to the Closing Date or (C) applicable law
(the “Specified Indemnification Obligations”) and such Losses arise from a
Mortgage Loan Servicing Error occurring before the Closing Date or a Regulatory
Action; provided, however, that the Optionors’ liability and indemnification
obligation with respect to Specified Disputes shall be reduced by any amount
received by an Optionee Indemnified Person in respect of any counter claim
asserted by any Optionee Indemnified Person in connection with such Specified
Dispute; provided, further, that the Optionors’ liability and indemnification
obligation with respect to the Specified Indemnification Obligations shall be
reduced by any amount recovered pursuant to insurance policies or other
contractual indemnities, which recovery each Optionee Indemnified Person agrees
to pursue to the extent commercially reasonable.  The right of an

 

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Optionee Indemnified Person to initiate any action against any Optionor for
indemnification relating to the Specified Indemnification Obligations shall
terminate on December 31, 2007.

 

(c)                                  Notwithstanding whether any indemnity
obligation exists pursuant to Sections 11.2(b)(i) or 11.2(b)(ii) and
notwithstanding any disclosures set forth in the Disclosure Schedule, from and
after the Closing Date, each Optionor shall, severally in proportion with such
Optionor’s Percentage Interest, and not jointly, indemnify, defend and hold
harmless each Optionee Indemnified Person from and against any and all Losses
incurred by such Optionee Indemnified Person in respect of any Specified Real
Property that arise from any Environmental Claim, to the extent arising from
actions or conditions existing prior to the Closing Date; provided, however,
that such liability and indemnification of the Optionors shall not apply with
respect to (and the following shall not constitute Losses for purposes of this
Section 11.2(c)):  (i) the costs of any environmental testing, sampling or
monitoring performed by or on behalf of an Optionee Indemnified Person,
including the costs of any Phase I and Phase II environmental site assessments;
(ii) any Losses arising from remedial or other actions to the extent such
actions entail costs greater than necessary to meet the minimum standards
mandated by applicable Environmental Laws; (iii) any Losses to the extent caused
by or resulting from any action or omission of any Optionee Indemnified Person
(provided, however, that the discovery of any environmental condition while
conducting any Phase I or Phase II environmental site assessments shall not
constitute an action causing or resulting in a Loss for purposes of this clause
(iii)); and (iv) any Losses arising or resulting from any REO Property;
provided, further, that such liability and indemnification of the Optionors
shall be reduced by any amount recovered by any Optionee Indemnified Person
pursuant to insurance policies, contractual indemnities, leaking tank or other
governmental remediation trust funds, or cost recovery or contribution claims or
from landlords, which recoveries each Optionee Indemnified Person agrees to
pursue to the extent commercially reasonable.  For any Optionee Indemnified
Person to be eligible for indemnification under this Section 11.2(c), such
person must have complied in all material respects with applicable Environmental
Laws, as well as any orders or directives of any Governmental Entity, in
connection with or relating to the issues for which indemnification is sought. 
No claim may be made against any Optionor for indemnification pursuant to this
Section 11.2(c) unless the aggregate amount of Optionee’s Losses (exclusive of
legal fees incurred in connection with pursuing such claim) arising from claims
under this Section 11.2(c) exceed $250,000, and in such event, shall be
recoverable under this Section 11.2(c) only to the extent Optionee’s Losses
(exclusive of legal fees incurred in connection with pursuing such claim prior
to satisfying such threshold and exclusive of any Losses in the first sentence
of this Section 11.2(c) for which the Optionors are not liable) under this
Section 11.2(c) exceed $250,000 in the aggregate.  The portion of any Losses not
subject to indemnification by the Optionors pursuant to this
Section 11.2(c) shall be borne by the Optionee Indemnified Persons and shall not
be subject to indemnification under any other provision of this Agreement or the
Contingent Payment Agreement.  The right of an Optionee Indemnified Person to
initiate any action against any Optionor for indemnification under this
Section 11.2(c) shall terminate on December 31, 2007.

 

(d)                                 Notwithstanding whether any indemnity
obligation exists pursuant to Sections 11.2(b)(i) or 11.2(b)(ii) and
notwithstanding any disclosures set forth in the Disclosure Schedule, from and
after December 31, 2007, each Optionor shall, severally in proportion with such
Optionor’s Percentage Interest, and not jointly, indemnify, defend and hold
harmless the

 

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Servicer from and against any and all (i) Designated Litigation Expenses paid by
the Servicer on or after January 1, 2006 (subject to the immediately following
sentence) arising from a Specified Private Litigation Matter to the extent that
such Designated Litigation Expense was not deducted from a Monthly Contingent
Payment or the Final Payment Amount and (ii) Customer Accommodations paid by the
Servicer on or after January 1, 2006 (subject to the immediately following
sentence) to the extent that such Customer Accommodations were not deducted from
a Monthly Contingent Payment or the Final Payment Amount; provided, however,
that the Optionors shall not be required to make any payments under this
Section 11.2(d) until either (i) the Final Payment Amount is paid in full in
accordance with the Contingent Payment Agreement or (ii) the Optionee provides
written notice to the Optionors that the Final Payment Amount is zero.  The
Servicer shall have the right to defend any Specified Private Litigation Matter
through counsel of its own choosing and may enter into any settlement,
compromise or discharge of a Specified Private Litigation Matter without the
consent of any Optionor and may pay any Customer Accommodation without the
consent of any Optionor; provided, however, that if the Servicer enters into any
settlement, compromise or discharge of a Specified Private Litigation Matter
without the prior written consent of PMI and FSA that results in Designated
Litigation Expenses in excess of $15,000, then the aggregate amount of
Designated Litigation Expenses recoverable by the Servicer from the Optionors
under this Section 11.2(d) and the Contingent Payment Agreement shall equal the
sum of (i) $15,000 plus (ii) two-thirds of the total Designated Litigation
Expenses for such Specified Private Litigation Matter in excess of $15,000;
provided, further, that if the Servicer makes or pays any Customer Accommodation
without the prior written consent of PMI and FSA that results in a Customer
Accommodation in excess of $10,000, then the aggregate amount of such Customer
Accommodation recoverable by the Servicer from the Optionors under this
Section 11.2(d) and the Contingent Payment Agreement shall equal the sum of
(i) $10,000 plus (ii) two-thirds of the total Customer Accommodation for such
Customer Accommodation in excess of $10,000.  The portion of any Designated
Litigation Expenses not subject to indemnification by the Optionors pursuant to
this Section 11.2(d) as a result of the immediately preceding sentence shall be
borne by the Servicer and shall not be subject to indemnification under any
other provision of this Agreement or the Contingent Payment Agreement.

 

(e)                                  Notwithstanding whether any indemnity
obligation exists pursuant to Sections 11.2(b)(i) or 11.2(b)(ii) and
notwithstanding any disclosures set forth in the Disclosure Schedule, from and
after the Closing Date, each Optionor shall, severally in proportion with such
Optionor’s Percentage Interest, and not jointly, indemnify the each Optionee
Indemnified Person for (i) 100% of the first $500,000 of Regulatory Payments
paid by the Servicer after the Closing; (ii) 60% of the next $4.5 million of
Regulatory Payments paid by the Servicer after the Closing; (iii) 75% of the
next $5.0 million of Regulatory Payments paid by the Servicer after the Closing;
and (iv) 100% of all additional Regulatory Payments paid by the Servicer after
the Closing.  The portion of any Regulatory Payments not subject to
indemnification by the Optionors pursuant to this Section 11.2(e) shall be borne
by the Servicer and shall not be subject to indemnification under any other
provision of this Agreement or the Contingent Payment Agreement and shall not
count towards the satisfaction of the Indemnification Threshold.  The Servicer
shall have the right to defend any Regulatory Action occurring prior to the
Closing Date through counsel of its own choosing and may enter into any
settlement, compromise or discharge of such Regulatory Action without the
consent of any Optionor, except that the Servicer shall (i) act in good faith
and exercise ordinary business care and

 

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prudence in entering into any settlement, compromise or discharge of such
Regulatory Action and (ii) consult in good faith with the Optionors prior to
entering into any settlement, compromise or discharge of a Regulatory Action
that would result in a Regulatory Payment of $250,000 or more (it being agreed
that the Servicer shall have no obligation under this Section 11.2(e) to follow
or adopt any recommended action made by the Optionors hereunder).  The right of
an Optionee Indemnified Person to initiate any action against any Optionor for
indemnification under this Section 11.2(e) shall terminate on December 31, 2007.

 

(f)                                    No claim may be made against any Optionor
for indemnification pursuant to Sections 11.2(b)(i) or 11.2(b)(ii) unless the
aggregate amount of Optionee’s Losses (exclusive of legal fees incurred in
connection with pursuing such claim) arising from claims under
Sections 11.2(b)(i) and 11.2(b)(ii) (together with the amount of the Optionee’s
Environmental Expenditures, if any) exceed $2,500,000 (the “Indemnification
Threshold”), and in such event, shall be recoverable under such sections only to
the extent Optionee’s Losses (exclusive of legal fees incurred in connection
with pursuing such claim prior to satisfying the Indemnification Threshold)
under such sections (together with the amount of the Optionee’s Environmental
Expenditures, if any) exceed $2,500,000 in the aggregate; provided, however,
that solely for purposes of determining whether the Indemnification Threshold
has been satisfied, the qualification of any representation, warranty or
covenant by reference to the terms “material” or “Material Adverse Effect” shall
be disregarded and the determination of whether any such representation,
warranty or covenant contained herein (other than Section 5.9(a)) has been
breached prior to satisfying the Indemnification Threshold shall be made without
regard to such qualification; provided, further, that once the Indemnification
Threshold has been satisfied, references to the terms “material” or “Material
Adverse Effect” shall no longer be disregarded.

 

(g)                                 Under no circumstances shall the Optionors’
liability under Sections 11.2(a), 11.2(b), 11.2(c), 11.2(d) and 11.2(e) exceed
$25,000,000 in the aggregate, nor shall the liability of any Optionor under
Sections 11.2(a), 11.2(b), 11.2(c), 11.2(d) and 11.2(e) exceed such Optionor’s
proportionate share of the Losses incurred by Optionee, based on such Optionor’s
Percentage Interest.

 

(h)                                 Notwithstanding anything to the contrary
contained herein, the Optionee agrees that the sole and exclusive remedy
available to any Optionee Indemnified Person relating to (i) Losses arising from
Regulatory Actions, including Regulatory Payments, shall be under
Section 11.2(e) hereof, (ii) Losses arising from Private Litigation, including
Designated Litigation Expenses, shall be under the Contingent Payment Agreement
and Section 11.2(d) hereof, (iii) Customer Accommodations shall be under the
Contingent Payment Agreement and Section 11.2(d) hereof and (iv) Advances,
including Nonrecoverable Advances, and Customer Reversals (in each case as such
terms are defined in the Contingent Payment Agreement) shall be under the
Contingent Payment Agreement.  Accordingly, no Optionee Indemnified Person shall
have any rights to indemnification with respect to such matters under
Sections 11.2(b)(i) or 11.2(b)(ii).

 

(i)                                     No Optionor shall be liable to any
Optionee Indemnified Person pursuant to Sections 8.3(a), 8.3(b) or 11.2, to the
extent the conduct giving rise to the right to indemnification is attributable
to or arises out of the conduct of any Optionee Indemnified Person after the
Closing Date, except for purposes of Sections 11.2(b)(iv), 11.2(d) and 11.2(e)

 

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to the extent that Mortgage Loan Servicing Errors giving rise to indemnification
thereunder occur both before the Closing Date and during the 180 day period
immediately after the Closing Date.  Notwithstanding anything to the contrary
contained herein, the Optionee agrees that the Optionors shall have no liability
for, and shall not provide any indemnification with respect to, any Mortgage
Loan Servicing Errors that occur solely after the Closing Date.

 

(j)                                     Notwithstanding anything to the contrary
contained in this Agreement or the Contingent Payment Agreement, neither the
inclusion of the Signing Date Fee Matrix as an exhibit hereto nor the delivery
of the Fee Matrix at Closing shall alter or limit in any way any Optionee
Indemnified Person’s rights under this Article XI; provided, however, that this
Section 11.2(j) shall not in any way limit or otherwise effect the ability of
the Optionors to utilize the Signing Date Fee Matrix or the Fee Matrix in any
action, suit or proceeding relating to this Agreement or the Contingent Payment
Agreement (including, without limitation, in any dispute resolution pursuant to
Section 3.3(c)(iv) of this Agreement or Section 3(e) of the Contingent Payment
Agreement).

 

Section 11.3           Notice of Claim; Defense.  (a) The Optionee Indemnified
Person shall give each Optionor prompt notice of any claim (including
third-party claims) that may give rise to any indemnification obligation under
this Article XI (without regard to whether the Indemnification Threshold has
been satisfied), together with the estimated amount of such claim, and the
Optionors shall have the right to assume the defense (at their expense) of any
such third-party claim (other than a Regulatory Action or a Private Litigation)
through counsel of their own choosing by so notifying the Optionee Indemnified
Person within 30 days of the first receipt by any Optionor of such notice from
the Optionee Indemnified Person; provided, however, that any such counsel shall
be reasonably satisfactory to Optionee.  Failure to give such notice shall not
affect the indemnification obligations hereunder in the absence of actual and
material prejudice.  If, under applicable standards of professional conduct, a
conflict with respect to any significant issue between any Optionee Indemnified
Person and any Optionor exists in respect of such third-party claim, the
Optionee Indemnified Person shall be entitled to assume the defense of such
third-party claim through counsel of its own choosing and, if the
Indemnification Threshold has been satisfied, the Optionors shall pay the
reasonable fees and expenses of such counsel.  If the Indemnification Threshold
has been satisfied, the Optionors shall be liable for the fees and expenses of
counsel employed by any Optionee Indemnified Person for any period during which
the Optionors have not assumed the defense of any such third-party claim (other
than during any period in which the Optionee Indemnified Person will have failed
to give notice of the third-party claim as provided above).  If the Optionors
assume such defense, the Optionee Indemnified Person shall have the right to
participate in the defense thereof and to employ counsel, at its own expense,
separate from the counsel employed by the Optionors, it being understood that
the Optionors shall control such defense.  If the Optionors choose to defend or
prosecute a third-party claim, the Optionee Indemnified Person shall cooperate
in the defense or prosecution thereof, which cooperation shall include, to the
extent reasonably requested by the Optionors, the retention, and the provision
to Optionors, of records and information reasonably relevant to such third-party
claim, and making employees of the Company available on a mutually convenient
basis to provide additional information and explanation of any materials
provided hereunder.  If the Optionors choose to defend or prosecute any
third-party claim, the Optionee Indemnified Person shall agree to any
settlement, compromise or discharge of such third-party claim that the Optionors
may recommend and that, by its terms, discharges all the Optionee Indemnified

 

60

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Persons from the full amount of liability in connection with such third-party
claim; provided, however, that, without the consent of the Optionee Indemnified
Person, the Optionors shall not consent to, and the Optionee Indemnified Person
shall not be required to agree to, the entry of any judgment or enter into any
settlement that (i) provides for injunctive or other non-monetary relief
affecting any Optionee Indemnified Person, (ii) does not include as an
unconditional term thereof the giving of a release from all liability with
respect to such claim by each claimant or plaintiff to each Optionee Indemnified
Person that is the subject of such third-party claim, or (iii) does not include
as an unconditional term thereof the obligation to keep all terms and conditions
of such settlement confidential.

 

(b)                                 Notwithstanding the forgoing, if the
Optionee Indemnified Person determines in good faith that there is a reasonable
probability that a third-party claim that may give rise to any indemnification
obligation under this Article XI may materially adversely affect the business of
the Company or any Company Subsidiary from and after the Closing Date, then the
Optionee Indemnified Person may, by notice to each Optionor, conduct and
control, through counsel of its choosing, which counsel shall be reasonably
acceptable to the Optionors, the defense, compromise or settlement of any such
claim.  In any such case, the Optionors shall cooperate in connection therewith
and shall furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may be
reasonably requested by the Optionee Indemnified Person in connection therewith;
provided, that the Optionors may participate, through counsel chosen by it and
at its own expense, in the defense of any such claim as to which the Optionee
Indemnified Person has so elected to conduct and control the defense thereof.

 

Section 11.4                                Tax Treatment of Indemnification
Payments.  The parties agree to treat any indemnification payment pursuant to
this Agreement as an adjustment to the Exercise Price for Tax purposes.

 

ARTICLE XII

 

MISCELLANEOUS

 

Section 12.1                                Fees and Expenses.  All costs and
expenses incurred in connection with this Agreement, the Contingent Payment
Agreement and the consummation of the Transactions shall be paid by the party
incurring such expenses, except as specifically provided to the contrary in this
Agreement.  The Optionee shall pay any fee payable to the Federal Trade
Commission in connection with the pre-merger notice filing required by the HSR
Act, but the Optionee shall be entitled to reimbursement of $62,500 of such fee
at the Closing in accordance with Section 3.3(b).

 

Section 12.2                                Amendment and Modification.  This
Agreement may be amended, modified and supplemented in any and all respects,
but, except as otherwise contemplated by Section 7.4 with respect to Disclosure
Schedule Supplements, such amendments shall be made only by a written instrument
signed by all of the parties hereto expressly stating that such instrument is
intended to amend, modify or supplement this Agreement.

 

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Section 12.3                                Publicity.  Until the Closing, or
the date the Transactions are terminated or abandoned pursuant to Article X,
neither the Optionors, the Company, Optionee nor any of their respective
Affiliates shall issue or cause the publication of any press release or other
public announcement or provide comments to the press when requested with respect
to this Agreement or the other Transactions without prior consultation with the
other party, except as may be required by law or by any listing agreement with a
national securities exchange or trading market.

 

Section 12.4                                Notices.  All notices and other
communications hereunder shall be in writing and shall be delivered personally
by hand, by facsimile (which is confirmed) or sent by an overnight courier
service, such as Federal Express, to the parties at the following addresses (or
at such other address for a party as shall be specified by such party by like
notice):

 

if to Optionee, to:

 

Credit Suisse First Boston (USA), Inc.
c/o Credit Suisse First Boston LLC
Eleven Madison Avenue, 4th Floor
New York, New York 10010
Attention:  Bruce Kaiserman                                        
Telephone:  (212) 538-1962
Telecopy:  (917) 326-7936

 

with copies to (which copies shall not constitute notice):

 

Credit Suisse First Boston (USA), Inc.
c/o Credit Suisse First Boston LLC
One Madison Avenue, 9th Floor
New York, New York 10010
Attention:  Colleen A. Graham, Esq.
Telephone:  (212) 325-7951
Telecopy:  (212) 325-8282

 

Cadwalader, Wickersham & Taft LLP
One World Financial Center
New York, NY  10281
Attention:  William P. Mills, III, Esq.
Telephone:  212-504-6436
Telecopy:  212-504-6666

 

if to PMI, to:

 

The PMI Group, Inc.
PMI Plaza
3003 Oak Road
Walnut Creek, CA  94597
Attention:  General Counsel

Telephone:  925-658-6384
Telecopy: 925-658-6175

 

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with a copy to (which copy shall not constitute notice):

 

Bracewell & Giuliani LLP
711 Louisiana Street, Suite 2300
Houston, Texas  77002
Attention:  William S. Anderson
Telephone:  713-221-1122
Telecopy:  713-437-5370
Email:  will.anderson@bracewellgiuliani.com

 

if to FSA, to:

 

FSA Portfolio Management Inc.,
c/o Financial Security Assurance Holdings Ltd.
31 West 52nd Street
New York, New York  10019
Attention:  General Counsel
Telephone:  212-339-3482
Telecopy:  212-339-0849
Email:  generalcounsel@fsa.com

 

if to Greenrange, to:

 

if via mail:

 

P.O. Box 975
Darien, CT 06820

 

if via personal delivery or overnight courier service:

 

114 Goodwives River Rd.
Darien, CT 06820

 

Attention:  James H. Ozanne
Telephone:  (203) 655-5410
Telecopy:  (203) 655-6044

 

if to the Company, to:

 

SPS Holding Corp.
P. O. Box 65250
Salt Lake City, UT 84165-0250
Attention:  General Counsel
Telephone:  (801) 293-2512
Telecopy:  (801) 293-3907

 

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with a copy to (which copy shall not constitute notice):

 

Thomas F. Cooney, III
Kirkpatrick & Lockhart Nicholson Graham LLP
1800 Massachusetts Avenue, N.W.
Second Floor
Washington, D.C.  20036
Telephone:  (202) 778-9076
Telecopy:  (202) 778-9100

 

All notices given pursuant to this Section 12.4 shall be deemed to have been
given (i) if delivered personally on the date of delivery or on the date
delivery was refused by the addressee, (ii) if delivered by facsimile
transmission, when transmitted to the applicable number so specified in (or
pursuant to) this Section 12.4 and an appropriate confirmation is received or
(iii) if delivered by overnight courier, on the date of delivery as established
by the return receipt or courier service confirmation (or the date on which the
courier service confirms that acceptance of delivery was refused by the
addressee).

 

Section 12.5           Counterparts.  This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties.  Copies of executed
counterparts transmitted by telecopy or other electronic transmission service
shall be considered original executed counterparts, provided receipt of such
counterparts is confirmed.

 

Section 12.6                                Entire Agreement; No Third Party
Beneficiaries.  This Agreement, the Contingent Payment Agreement and the
Purchase Agreement (a) constitutes the entire agreement and supersedes all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof and thereof and (b) is not intended to
confer any rights or remedies upon any Person other than the parties hereto and
thereto.

 

Section 12.7                                Severability.  Any term or provision
of this Agreement that is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability of the remaining
terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.  If the
final judgment of a court of competent jurisdiction or other authority declares
that any term or provision hereof is invalid, void or unenforceable, the parties
agree that the court making such determination shall have the power to reduce
the scope, duration, area or applicability of the term or provision, to delete
specific words or phrases, or to replace any invalid, void or unenforceable term
or provision with a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.

 

Section 12.8                                Governing Law.  This Agreement shall
be governed by and construed in accordance with the laws of the State of New
York without giving effect to the principles of conflicts of law thereof.

 

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Section 12.9                                Enforcement; Venue.  The parties
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached.  It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of the United States located in the State of New York or
in New York state court, this being in addition to any other remedy to which
they are entitled at law or in equity.  In addition, each of the parties hereto
(a) consents to submit itself to the personal jurisdiction of any Federal court
located in the State of New York or any New York state court in the event any
dispute arises out of this Agreement or any of the Transactions, (b) agrees that
it shall not attempt to deny or defeat such personal jurisdiction by motion or
other request for leave from any such court and (c) agrees that it shall not
bring any action relating to this Agreement or any of the Transactions in any
court other than a Federal or state court sitting in the State of New York.

 

Section 12.10                          Waiver of Jury Trial.  EACH PARTY HERETO
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS.

 

Section 12.11                          Time of Essence.  Each of the parties
hereto hereby agrees that, with regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.

 

Section 12.12                          Extension; Waiver.  At any time prior to
the Closing Date, the parties may (a) extend the time for the performance of any
of the obligations or other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties of the other parties
contained in this Agreement or in any document delivered pursuant to this
Agreement or (c) waive compliance by the other parties with any of the
agreements or conditions contained in this Agreement.  Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.  The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.

 

Section 12.13                          No Other Representations.  Optionee
acknowledges and agrees that the representations and warranties of the Optionors
and the Company contained in this Agreement are the sole and exclusive
representations and warranties of the Optionors and the Company to the Optionee
in connection with the transactions contemplated by this Agreement and that,
except as provided in Article IV and V, none of the Company or any Optionor
makes or has made any express or implied representation or warranty to the
Optionee regarding the Option Shares, the Company or any Company Subsidiaries or
their respective businesses.

 

Section 12.14                          Sole and Exclusive Remedy.  Except with
respect to instances of fraudulent misrepresentation, the indemnification
provisions of Article XI shall be the sole and exclusive remedy of the Optionee
Indemnified Persons for any breach by the Company or any Optionor of any
representations, warranties, covenants or agreements contained in this Agreement
or otherwise with respect to this Agreement.

 

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Section 12.15                          No Consequential Damages.  In no event
will any party to this Agreement be liable to any other party or any Optionee
Indemnified Person for any punitive, exemplary, indirect, special, incidental or
consequential damages, including lost profits or savings, damage to business
reputation or loss of opportunity.

 

Section 12.16                          No Set-Off.  All payments to be made by
the Optionee to an Optionor pursuant to this Agreement or the Contingent Payment
Agreement (including, without limitation, the Cash Payment, the Monthly
Contingent Payments and the Final Payment Amount) shall be made without any
setoff, abatement, withholding, deduction, counter claim or reduction in respect
of, or otherwise affected by, any claim or dispute related to this Agreement
(including, without limitation, any claim pursuant to Article XI), any Servicing
Agreement or any Subsequent Designated Agreement that the Optionee or the
Company or any of their respective parents, Subsidiaries or Affiliates may have
with any of the Optionors or their respective parents, Subsidiaries or
Affiliates.

 

Section 12.17                          Assignment.  Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties.  Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.

 

Section 12.18                          Documentation.  This Agreement was
initially prepared by Optionee’s legal counsel as a matter of convenience only,
and such document has been thoroughly reviewed by the Optionors, the Company and
their legal counsel and the input of the Optionors, the Company and their legal
counsel was properly considered, and therefore, no interpretation will be made
in favor of any of the parties or any of their respective Affiliates with
respect to this Agreement for the reason that such document was prepared by
Optionee’s legal counsel.

 

Section 12.19                          No Disparagement.

 

(a)                                  Subject to Section 12.19(d), the Optionee
agrees that, prior to the Closing, in the event that this Agreement is
terminated, for a period of three years commencing on the date of such
termination, and, in the event that the Closing occurs, for a period of three
years commencing on the Closing Date, neither the Optionee nor any of its
officers, directors, employees, counsel or other representatives shall publish
in the media or make an oral statement related to this Agreement, the Contingent
Payment Agreement or the Purchase Agreement with the intent or understanding
that it be published in the media, or willfully make any statement to any other
Person, that would libel, slander, disparage or denigrate the Company or any
Company Subsidiary or any of their respective past or present officers,
directors or shareholders.

 

(b)                                 Subject to Section 12.19(d), the Company
agrees that, prior to the Closing, in the event that this Agreement is
terminated, for a period of three years commencing on the date of such
termination and, in the event that the Closing occurs, for a period of three
years commencing on the Closing Date, neither the Company nor any of its
officers, directors, employees, counsel or other representatives shall publish
in the media or make an oral statement related to this Agreement, the Contingent
Payment Agreement or the Purchase

 

66

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Agreement with the intent or understanding that it be published in the media, or
willfully make any statement to any other Person, that would libel, slander,
disparage or denigrate the Optionee or any of its Subsidiaries or any of their
respective past or present officers, directors or shareholders.

 

(c)                                  Subject to Section 12.19(d), each Optionor
agrees, severally and not jointly, that, prior to the Closing, in the event that
this Agreement is terminated, for a period of three years commencing on the date
of such termination and, in the event that the Closing occurs, for a period of
three years commencing on the Closing Date, neither such Optionor nor any of its
officers, directors, employees, counsel or other representatives shall publish
in the media or make an oral statement related to this Agreement, the Contingent
Payment Agreement or the Purchase Agreement with the intent or understanding
that it be published in the media, or willfully make any statement to any other
Person directly related to this Agreement, the Contingent Payment Agreement or
the Purchase Agreement, that would libel, slander, disparage or denigrate the
Optionee or any of its Subsidiaries or any of their respective past or present
officers, directors or shareholders.

 

(d)                                 The provisions of Sections 12.19(a), (b) and
(c) shall not restrict or otherwise limit the ability of the Optionee, any
Optionor, the Company or any Company Subsidiary nor any of their respective
officers, directors, employees, counsel or other representatives to make any
statement in connection with any action, suit, investigation, examination, or
proceeding or any filing with or submission to any Governmental Entity or any
statement required by applicable law or judicial process.

 

Section 12.20                          No Solicitation of Company Employees. 
The Optionee agrees that, prior to the Closing and, in the event that this
Agreement is terminated, for a period of one year commencing on the date of such
termination, neither the Optionee nor any of its Affiliates nor any of their
respective officers, directors or employees shall, directly or indirectly,
actively call on or solicit any employee or officer of the Company or any
Company Subsidiary regarding employment of such person; provided, however, that
the foregoing provision shall not prohibit the Optionee or any of its Affiliates
from engaging in a general solicitation of employment not specifically directed
towards an employee of SPS, including, but not limited to, solicitations by
means of a general advertisement or through a professional recruiter or as a
result of a general inquiry received by the Optionee or its affiliate regarding
potential employment by an employee of SPS.

 

[SIGNATURES ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, Optionee, the Company and each of the Optionors have
executed this Agreement or caused this Agreement to be executed by their
respective officers thereunto duly authorized as of the date first written
above.

 

 

CREDIT SUISSE FIRST BOSTON (USA),
INC.

 

 

 

 

 

By

/s/ James P. Healy

 

 

Name: James P. Healy

 

 

Title: Managing Director

 

 

 

 

 

 

SPS HOLDING CORP.

 

 

 

 

 

By

/s/ Matt Hollingsworth

 

 

Name: Matt Hollingsworth

 

 

Title: CEO

 

 

 

 

 

 

 

THE PMI GROUP, INC.

 

 

 

 

 

 

 

By

/s/ Victor J. Bacigalupi

 

 

Name: Victor J. Bacigalupi

 

 

Title: Executive Vice President, Chief Administrative Officer and General
Counsel

 

 

 

 

 

 

 

By

/s/ Donald P. Lofe, Jr.

 

 

Name: Donald P. Lofe, Jr.

 

 

Title: Executive Vice President and General Counsel

 

 

 

 

 

 

 

FSA PORTFOLIO MANAGEMENT INC.

 

 

 

 

 

 

 

By

/s/ Bruce E. Stern

 

 

Name: Bruce E. Stern

 

 

Title: General Counsel and Managing Director

 

 

 

 

 

 

 

GREENRANGE PARTNERS LLC

 

 

 

 

 

By

/s/ James H. Ozanne

 

 

Name:

 

 

Title:

 

Signature Page to Option Agreement

 

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Exhibit A

 

OPTIONOR DATA

 

Name of Optionor

 

Type of
Legal Entity

 

Jurisdiction of
Organization

 

Number of
Shares
of Series C
Preferred Stock

 

Number of
Shares of
Common Stock

 

 

 

 

 

 

 

 

 

 

 

The PMI Group, Inc.

 

Corporation

 

Delaware

 

1,522,666

 

5,152,485

 

 

 

 

 

 

 

 

 

 

 

FSA Portfolio Management Inc.

 

Corporation

 

New York

 

361,333

 

3,140,620

 

 

 

 

 

 

 

 

 

 

 

Greenrange Partners LLC

 

Limited Liability Company

 

Connecticut

 

None

 

103,350

 

 

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