**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 OFCONTENTS**

 
| 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

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| 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                           | Tax Matters                            | 30     |
|                                        |                                   |   |
| Section 5.20                           | Intellectual  Property                 | 32     |
|                                        |                                   |   |
| Section 5.21                           | Labor Matters                          | 33     |
|                                        |                                   |   |
| Section 5.22                           | Personnel                              | 34     |
|                                        |                                   |   |
| Section 5.23                           | Potential  Conflict of Interest        | 34     |
|                                        |                                   |   |
| Section 5.24                           | Propriety  of Past Payments            | 34     |
|                                        |                                   |   |
| Section 5.25                           | Brokers or  Finders                    | 35     |
|                                        |                                   |   |
| Section 5.26                           | Consumer  Complaints                   | 35     |
|                                        |                                   |   |
| Section 5.27                           | Insurance                              | 35     |
|                                        |                                   |   |
| ARTICLE VI                             |                                   |
| REPRESENTATIONS  AND WARRANTIES OF OPTIONEE |                                   |
|                                        |                                   |
| Section 6.1                            | Organization                           | 36     |
|                                        |                                   |   |
| Section 6.2                            | Authorization;  Validity of Agreement  | 36     |
|                                        |                                   |   |
| Section 6.3                            | Consents  and Approvals; No Violations | 36     |
|                                        |                                   |   |
| Section 6.4                            | Investment  Representation             | 37     |
|                                        |                                   |   |
| Section 6.5                            | Sufficient  Funds                      | 37     |
|                                        |                                   |   |
| Section 6.6                            | Brokers or  Finders                    | 37     |
|                                        |                                   |   |
| ARTICLE VII                            |                                   |
| COVENANTS                                   |                                   |
|                                        |                                   |   |
| Section 7.1                            | Interim  Operations of the Company     | 37     |

 

ii

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| Section 7.2  | Access;  Confidentiality                                          | 40     |
|-------------------|-------------------------------------------------------------------|--------|
|              |                                                              |   |
| Section 7.3  | Efforts and  Actions to Cause Closing to Occur                    | 41     |
|              |                                                              |   |
| Section 7.4  | Notification  of Certain Matters                                  | 43     |
|              |                                                              |   |
| Section 7.5  | No  Solicitation of Competing Transaction                         | 44     |
|              |                                                              |   |
| Section 7.6  | Transfer of  Optionors’ Shares                               | 45     |
|              |                                                              |   |
| Section 7.7  | Waiver  Pursuant to and Termination of Shareholders Agreement     | 45     |
|              |                                                              |   |
| Section 7.8  | Subsequent  Actions                                               | 45     |
|              |                                                              |   |
| Section 7.9  | FIRPTA  Certificates                                              | 45     |
|              |                                                              |   |
| Section 7.10 | Limitation  on Certain Actions                                    | 45     |
|              |                                                              |   |
| ARTICLE VIII |                                                              |
| TAX MATTERS       |                                                              |
|              |                                                              |
| Section 8.1  | Transfer  Taxes                                                   | 46     |
|              |                                                              |   |
| Section 8.2  | Tax Return  Filings                                               | 46     |
|              |                                                              |   |
| Section 8.3  | Tax  Indemnification                                              | 47     |
|              |                                                              |   |
| Section 8.4  | Cooperation                                                       | 49     |
|              |                                                              |   |
| Section 8.5  | Refunds and  Credits                                              | 49     |
|              |                                                              |   |
| Section 8.6  | Calculation  of Losses                                            | 50     |
|              |                                                              |   |
| Section 8.7  | Procedures  Relating to Indemnification of Tax Claims             | 50     |
|              |                                                              |   |
| Section 8.8  | Tax Sharing  Agreements                                           | 51     |
|              |                                                              |   |
| Section 8.9  | Miscellaneous                                                     | 51     |
|              |                                                              |   |
| ARTICLE IX   |                                                              |
| CONDITIONS        |                                                              |
|              |                                                              |   |
| Section 9.1  | Conditions  to Each Party’s Obligation to Effect the Closing | 51     |
|              |                                                              |   |
| Section 9.2  | Conditions  to Obligations of Optionee to Effect the Closing      | 51     |
|              |                                                              |   |
| Section 9.3  | Conditions  to Obligations of Optionors to Effect the Closing     | 53     |
|              |                                                              |   |
| ARTICLE X    |                                                              |
| TERMINATION       |                                                              |
|              |                                                              |
| Section 10.1 | Termination                                                       | 54     |
|              |                                                              |   |
| Section 10.2 | Effect of  Termination                                            | 55     |

 

iii

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| ARTICLE XI    |                                                          |
|--------------------|---------------------------------------------------------------|
| INDEMNIFICATION    |                                                          |
|               |                                                          |
| Section 11.1  | Survival of  Representations and Warranties; Time Limitations | 55 |
|               |                                                          |   |
| Section 11.2  | Indemnification;  Remedies                                    | 56 |
|               |                                                          |   |
| Section 11.3  | Notice of  Claim; Defense                                     | 60 |
|               |                                                          |   |
| Section 11.4  | Tax  Treatment of Indemnification Payments                    | 61 |
|               |                                                          |   |
| ARTICLE XII   |                                                          |
| MISCELLANEOUS      |                                                          |
|               |                                                          |
| Section 12.1  | Fees and  Expenses                                            | 61 |
|               |                                                          |   |
| Section 12.2  | Amendment  and Modification                                   | 61 |
|               |                                                          |   |
| Section 12.3  | Publicity                                                     | 62 |
|               |                                                          |   |
| Section 12.4  | Notices                                                       | 62 |
|               |                                                          |   |
| Section 12.5  | Counterparts                                                  | 64 |
|               |                                                          |   |
| Section 12.6  | Entire  Agreement; No Third Party Beneficiaries               | 64 |
|               |                                                          |   |
| Section 12.7  | Severability                                                  | 64 |
|               |                                                          |   |
| Section 12.8  | Governing  Law                                                | 64 |
|               |                                                          |   |
| Section 12.9  | Enforcement;  Venue                                           | 65 |
|               |                                                          |   |
| Section 12.10 | Waiver of  Jury Trial                                         | 65 |
|               |                                                          |   |
| Section 12.11 | Time of  Essence                                              | 65 |
|               |                                                          |   |
| Section 12.12 | Extension;  Waiver                                            | 65 |
|               |                                                          |   |
| Section 12.13 | No Other  Representations                                     | 65 |
|               |                                                          |   |
| Section 12.14 | Sole and  Exclusive Remedy                                    | 65 |
|               |                                                          |   |
| Section 12.15 | No  Consequential Damages                                     | 66 |
|               |                                                          |   |
| Section 12.16 | No Set-Off                                                    | 66 |
|               |                                                          |   |
| Section 12.17 | Assignment                                                    | 66 |
|               |                                                          |   |
| Section 12.18 | Documentation                                                 | 66 |
|               |                                                          |   |
| Section 12.19 | No Disparagement                                              | 66 |
|               |                                                          |   |
| Section 12.20 | No  Solicitation of Company Employees                         | 67 |

 

iv

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| Annexes and Exhibits to this Agreement                                     |                                                                                                |
|----------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------|
| Annex A                                                                    | Contingent Payment Agreement                                                                        |   |
| Exhibit A                                                             | Optionor Data                                                                                       |   |
| 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

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| 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

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**OPTIONAGREEMENT**

 

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

 

WHEREAS, the Optionors are the record and beneficial owners in theaggregate of 8,396,455 shares of common stock, par value $0.01 per share, ofthe 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’saffiliate, DLJ Mortgage Capital, Inc., a Delaware corporation (“DLJ”), to enter into the Flow Servicing RightsPurchase Agreement, dated as of January 28, 2005 (the “PurchaseAgreement”), between DLJ and Select Portfolio Servicing, Inc., a Utahcorporation (the “Servicer”), Optionee has requested, and Optionors haveagreed, to grant Optionee the Option; and

 

WHEREAS, the board of directors of the Company has approved, and deemsit advisable and in the best interests of the Company and its stockholders toconsummate, the acquisition of all outstanding shares of capital stock of theCompany by Optionee upon the exercise of the Option, which acquisition is to beeffected by the purchase of all the outstanding capital stock of the Company byOptionee upon the terms and subject to the conditions set forth herein;

 

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

 

**ARTICLE I**

**DEFINITIONS ANDINTERPRETATION**

** **

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

 

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

 

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

 

----

 

any proposalor offer by the Company or any Subsidiary of the Company to acquire outstandingshares 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 Personthat directly, or indirectly through one or more intermediaries, controls, iscontrolled 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) vote50% or more of the voting securities of such Person or (ii) direct orcause the direction of the management and policies of such Person, whether bycontract 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 OptionAgreement, together with the Exhibits, Schedules and Appendices hereto and theDisclosure Schedule.

 

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

 

“Balance Sheet” shall mean themost recent audited balance sheet of the Company and the Company Subsidiariesincluded in the Financial Statements.

 

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

 

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

 

“Business Day” shall mean a dayother than Saturday, Sunday or any day on which banks located in the State ofNew 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 andRestated 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 closingreferred to in Section 3.1.

 

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

 

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

 

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

 

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

 

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

 

2

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“Company” shall mean SPS HoldingCorp., a Delaware corporation.

 

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

 

“Company Group” means anycombined, unitary, consolidated or other affiliated group within the meaning ofSection 1504 of the Code or otherwise, of which the Company or any CompanySubsidiary 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 ofthe Company or any Company Subsidiary or that is necessary to conduct thebusiness of the Company or the Company Subsidiaries as presently conducted oras currently proposed to be conducted by the Company.

 

“Company Option” shall mean anoption to purchase any shares of the capital stock of the Company which hasbeen granted by the Company to any Person.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

3

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

 

“DLJ” shall mean DLJ Mortgage Capital, Inc., a Delawarecorporation.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

4

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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 Citytime, on August 12, 2005.

 

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

 

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

 

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

 

“Financial Statements” shallmean (a) the consolidated balance sheets of the Company and the CompanySubsidiaries as of December 31, 2004, 2003 and 2002, together withconsolidated statements of income, shareholders’ equity and cash flows for eachof the years then ended, all certified by Ernst & Young LLP,independent certified public accountants, whose reports thereon are includedtherein, and (b) an unaudited consolidated balance sheet of the Companyand the Company Subsidiaries as of June 30, 2005 and unauditedconsolidated statements of income, shareholders’ equity and cash flows for thesix month period then ended.

 

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

 

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

 

“FSA Additional Accretion Amount” shall mean an amount equal tothe sum of (i) $92,666.81 *times* thenumber 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 periodcommencing on and including the first day after the Measurement Date and endingon and including the Closing Date.

 

“FTC” shall mean the UnitedStates Federal Trade Commission.

 

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

 

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

 

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

 

5

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

 

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

 

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

 

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

 

“Key Employee” shall mean any executive officer of the Companyset 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 aKey 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 CompanySubsidiary’s business or affairs and/or the business or affairs of a relevantCompany Subsidiary, shall mean (i) the actual knowledge of MattHollingsworth after making a reasonable inquiry of the Key Employees, KimStevenson, Michelle Simon and Greg Harmer as to the accuracy of therepresentation 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 leasepursuant to which the Company or any Company Subsidiary leases any real orpersonal property, either as lessor or lessee (excluding leases relating solelyto personal property calling for rental or similar periodic payments notexceeding $10,000 per annum), each of which is set forth on Schedule 5.12of the Disclosure Schedule.

 

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

 

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

 

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

 

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“Losses” shall mean, withoutduplication, any and all actual losses, costs, obligations, liabilities,damages, settlement payments, awards, judgments, fines, penalties, damages,deficiencies or other charges (including without limitation reasonableattorneys’ fees and expenses and reasonable accountants’ fees and expenses); provided,however, that notwithstanding anything in this Agreement to thecontrary, 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 reservedagainst in the Closing Balance Sheet (other than the Specified Reserves and theLitigation Reserve Amount (as such term is defined in the Contingent PaymentAgreement)); provided, further, that such reserve amount has notbeen 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 forthe first proviso of this definition.

 

“Material Adverse Effect” or “Material Adverse Change” shall mean any changeor changes, effect or effects, event or events, or circumstance orcircumstances, that individually or in the aggregate are or may reasonably beexpected to be materially adverse to (i) the assets, properties, business,operations, income, or condition (financial or otherwise) of the Company andthe Company Subsidiaries, taken as a whole, other than any change, effect,event, occurrence or state of facts relating to (a) the economy or thefinancial markets in general, (b) the industry in which the Company andits Subsidiaries operate in general and not specifically relating to theCompany and its Subsidiaries, (c) the announcement of this Agreement orthe transactions contemplated hereby or the identity of Optionee, (d) failureof the Company or any Company Subsidiary to take any action that is restrictedby Section 7.1 and as to which Optionee does not consent; (e) changesin applicable Laws or regulations after the date hereof, or (f) changes inGAAP or regulatory accounting principles after the date hereof, or (ii) theability of the Company or the Optionors to perform their respective obligationsunder 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 hazardoussubstances, materials and wastes; petroleum and petroleum products; asbestosand asbestos-containing materials; polychlorinated biphenyls; lead andlead-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 tosuch term in the Contingent Payment Agreement.

 

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

 

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

 

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“MSRs” shall mean mortgage servicing rights.

 

“MSR Seller” shall mean Optionee’sAffiliates that are licensed to purchase and sell subprime residential mortgageloans, including DLJ.

 

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

 

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

 

“Option” shall have the meaningset forth in Section 2.1.

 

“Optionee” shall mean CreditSuisse 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 Lossesarising from claims under Section 11.2(c) (exclusive of legal feesincurred in connection with pursuing such claims).

 

“Optionee Indemnified Persons”shall mean, from and after the Closing Date, (i) Optionee and each of itsAffiliates, 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 Stockand 1,883,999 shares of Series C Preferred Stock held in the aggregate bythe Optionors.

 

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

 

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

 

“Percentage Interest” shall mean (i) for PMI, 61.36500%; (ii) forFSA, 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 inthe ordinary course of business for sums not yet due and payable, (b) Liensarising under original purchase price conditional sales contracts and equipmentleases with third parties entered into in the ordinary course of business,including Liens under Leases for personal property, (c) Liens arisingunder a Credit Facility, (d) Liens for Taxes and other governmentalcharges which are not due and payable or which may thereafter be paid withoutpenalty or which are being contested through appropriate administrative or judicialproceeding, and (e) other imperfections of title, restrictions orencumbrances, if any, which

 

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

 

“Person” shall mean a naturalperson, 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 deferredcompensation and each incentive compensation, stock purchase, stock option andother equity compensation plan, program, agreement or arrangement; eachseverance or termination pay, medical, surgical, hospitalization, lifeinsurance and other “welfare” plan, fund or program (within the meaning of Section 3(1) ofERISA); each profit-sharing, stock bonus or other “pension” plan, fund orprogram (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, maintainedor contributed to or required to be contributed to by the Company or by anyERISA Affiliate, or to which the Company or an ERISA Affiliate is party,whether written or oral, for the benefit of any director, employee or formeremployee of the Company or any Company Subsidiary.

 

“PMI” shall mean The PMI Group, Inc., a Delawarecorporation.

 

“PMI Additional Accretion Amount” shall mean an amount equal tothe sum of (i) $390,500.19 *times* thenumber 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 duringthe period commencing on and including the first day after the Measurement Dateand ending on and including the Closing Date.

 

“Post-Closing Tax Period” meansany taxable period (or portion thereof) beginning after the close of businesson the Closing Date.

 

“Pre-Closing Tax Period” meansany taxable period (or portion thereof) ending on or before the close ofbusiness on the Closing Date.

 

“Private Litigation” shall have the meaning ascribed to suchterm 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 PromissoryNote, dated as of September 30, 2004, issued by the Servicer to DexiaHoldings, 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 intangibleproperty Taxes.

 

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

 

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

 

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

 

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

 

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

 

“REO Property” shall mean that real property owned by theCompany 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 theSecurities Act of 1933, as amended.

 

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

 

“Servicer” shall mean SelectPortfolio Servicing, Inc., a Utah****corporation.

 

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

 

“Shareholders Agreement” shall mean the Fourth Amended andRestated FCH Shareholders Agreement, dated as of March 31, 2000, by andamong Thomas D. Basmajian, Kim A. Stevenson, TATS, GE Capital EquityInvestments, 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) ShareholdersAgreement, (ii) the Registration Rights Agreement and (iii) theOzanne Agreement.

 

“Signing Date Fee Matrix” shall mean the Fee Matrix of the Serviceras 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 meaningset forth in Section 11.2(b).

 

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

 

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

 

“Specified Reserves” shall mean an amount (expressed as apositive number) equal to the reserves reflected in the Estimated ClosingBalance Sheet for (i) the Specified Disputes, (ii) the Specified TaxMatters and (iii) possible Regulatory Actions.  As of June 30, 2005, the reservesreflected in the balance sheet of the Company for (i) the SpecifiedDisputes 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 theSpecified Disputes, the Specified Tax Matters and Regulatory Actions reflectedin the Actual Closing Balance Sheet and the Closing Balance Sheet shall be thesame amounts as reflected in the Estimated Closing Balance Sheet.

 

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

 

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

 

“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 meaningascribed to such term in the Contingent Payment Agreement.

 

“Subsidiary” shall mean, withrespect to any Person, any corporation or other organization, whetherincorporated or unincorporated, of which (a) at least a majority of thesecurities or other interests having by their terms ordinary voting power toelect a majority of the board of directors or others performing similarfunctions with respect to such corporation or other organization is directly orindirectly owned or controlled by such Person and/or by any one or more of itsSubsidiaries, or (b) such Person or any other Subsidiary of such Person isa general partner (excluding any such partnership where such Person or anySubsidiary of such Person does not have a majority of the voting interest insuch partnership).

 

“Tax” or “Taxes” shall mean all taxes, charges, fees,duties, levies, penalties or other assessments imposed by any federal, state, localor 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 shallinclude interest, penalties or additions attributable thereto or attributableto any failure to comply with any requirement regarding Tax Returns.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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“Trade Secrets” shall mean allcategories of trade secrets as defined in the Uniform Trade Secrets Actincluding business information.

 

“Transactions” shall mean allthe transactions provided for or contemplated by this Agreement or theContingent Payment Agreement.

 

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

 

“Voting Debt” of any Personshall mean indebtedness having the right to vote in the election of the Boardof Directors (or comparable body) of such Person and debt convertible intosecurities 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 Agreementunless otherwise clearly indicated to the contrary.

 

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

 

(b)        Thewords “hereof”, “herein” and “herewith” and words of similar import shall,unless otherwise stated, be construed to refer to this Agreement as a whole andnot 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 otherwisespecified.

 

(c)         Themeaning assigned to each term defined herein shall be equally applicable toboth the singular and the plural forms of such term, and words denoting anygender shall include all genders.  Wherea word or phrase is defined herein, each of its other grammatical forms shallhave a corresponding meaning.

 

(d)        Areference to any party to this Agreement or any other agreement or documentshall include such party’s successors and permitted assigns.

 

(e)         Areference to any legislation or to any provision of any legislation shallinclude any amendment to, and any modification or reenactment thereof, anylegislative provision substituted therefor and all regulations and statutoryinstruments 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 theOptionors, 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, ofthe shares of Common Stock and Series C Preferred Stock set forth oppositesuch Optionor’s name on Exhibit A hereto free and clear of allEncumbrances.

 

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

 

Section 2.3             The Exercise Price.  The aggregate purchase price for the OptionShares (the “Exercise Price”) shall be the sum of (a) the CashPayment, which shall be paid by the Optionee to the Optionors in accordancewith Sections 2.4 and 3.3 hereof, plus (b) the Monthly ContingentPayments, which shall be paid by the Optionee (or the Servicer on behalf of theOptionee) to the Optionors in accordance with Section 2.4 hereof and theterms of the Contingent Payment Agreement, plus (c) the Final PaymentAmount, 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 ofthe Contingent Payment Agreement.

 

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

 

(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) $38,779,551and (B) the PMI Additional Accretion Amount and (ii) FSA shall bepaid an amount equal to the sum of (A) $9,202,499 and (B) the FSAAdditional Accretion Amount.  Each of theOptionors and the Company agree that Section 6(c) of the Certificateof Incorporation shall be deemed to be satisfied upon the receipt by PMI andFSA of the payments required by this Section 2.4(a).

 

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

 

**ARTICLE III**

**THE CLOSING**

** **

Section 3.1             Exercise of the Option and the Closing.  (a) The Optionee shall exercise theOption by providing each Optionor and the Company with a written notice of suchelection prior to the Expiration Time (the “Exercise Notice”), whichnotice shall specify the date, which shall be a month end for the Company, onwhich calculations for the Cash Payment shall be based (the “MeasurementDate”); provided, however, that the date so specified must beno 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.  Ifthe Optionee provides the Exercise Notice to the Optionors, then, except as setforth in Section 3.1(b), such notice shall constitute an irrevocablecommitment by the Optionee to purchase the Option Shares for the Exercise Pricein accordance with the terms of this Agreement, subject only to thesatisfaction or waiver of the conditions to Closing set forth in Article IX.  The Closing shall take place on theBusiness Day immediately following the Measurement Date.  If the conditions to Closing set forth in ArticleIX

 

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have not beensatisfied or waived on the Business Day immediately following such MeasurementDate, then the Measurement Date shall be changed to the next following monthend for the Company and the Closing shall take place on the Business Dayimmediately following such new Measurement Date.  The closing of the sale of the Option Sharesby 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., NewYork City time, on the Business Day immediately following the Measurement Dateunless another date or place is agreed upon in writing by each of the partieshereto.  The date upon which the Closingoccurs is referred to as the “Closing Date”.

 

(b)        Notwithstandingthe provisions of Section 3.1(a), in the event that the Company deliversto the Optionee a Disclosure Schedule Supplement at any time after theOptionee has delivered an Exercise Notice, then the Optionee may, at any timeprior 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 bydelivering to each of PMI and FSA a written notice (a “Revocation Notice”)prior to the Revocation Expiration Time stating that the Optionee has electedto revoke such Exercise Notice pursuant to this Section 3.1(b).  In addition, a copy of the Revocation Noticeshall be sent by email to counsel to PMI and FSA at the email addresses setforth in Section 12.4 prior to the Revocation Expiration Time.  If the Optionee provides the RevocationNotice 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 nofurther force or effect.  The delivery ofa Revocation Notice shall not terminate this Agreement, and the Optionee shallhave the right to deliver a new Exercise Notice in accordance with Section 3.1(a) atany time prior to the Expiration Time.

 

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

 

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

 

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

 

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

 

(d)        anyother certifications which may be reasonably required under applicable lawstating that no Taxes are due to any taxing authority for which Optionee couldhave liability to withhold and pay with respect to the transfer of OptionShares to Optionee pursuant to this Agreement.

 

Section 3.3             Deliveries and Payment by Optionee.

 

(a)         EstimatedClosing Balance Sheet.  At least ten (10) daysprior to the Closing, the Company shall deliver to the Optionee and eachOptionor an estimated consolidated balance sheet of the Company as of the closeof business on the Measurement Date with the estimated

 

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consolidatedbook value of the Company reflected therein (“Estimated Closing BalanceSheet”).  The Company shall preparethe Estimated Closing Balance Sheet in the same manner as the consolidatedbalance sheet comprising part of the financial statements issued by the Companyand audited by Ernst & Young LLP as of December 31, 2004.

 

(b)        EstimatedCash Payment.

 

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

 

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

 

(c)         ActualClosing Balance Sheet and Closing Cash Payment.

 

(i)            The“Closing Cash Payment” shall be an amountequal to (A) the consolidated book value of the Company on the MeasurementDate, 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 Agreementsand Subsequent Designated Agreements, *minus* (C) $62,500(representing one-half of the fee paid by the Optionee to the Federal TradeCommission in connection with the pre-merger notice filing required by the HSRAct), *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 SubsequentDesignated Agreements.

 

(ii)           Assoon as practicable after the Closing Date but in no event later than 30 daysthereafter, the Optionee shall deliver to each Optionor the proposed actualconsolidated balance sheet of the Company as of the close of business on theMeasurement Date (“Actual Closing Balance Sheet”), with the actualconsolidated book value of the Company as of the Measurement Date reflectedtherein, together with a computation of the proposed Closing Cash Payment and acertificate of the Chief Financial Officer of the Company stating that suchActual Closing Balance Sheet and Closing Cash Payment are true and correct andprepared on the basis described herein. The Optionee shall prepare the Actual Closing Balance Sheet in the samemanner as the

 

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

 

(iii)          TheOptionors and their respective counsel, accountants and other representativesshall have full access to all relevant accounting, financial and other recordsof the Company and the Company Subsidiaries reasonably requested in connectionwith the preparation, confirmation or review of the Actual Closing BalanceSheet and the calculation of the Closing Cash Payment.  The Company and the Optionee shall makeavailable to the Optionors, and their respective counsel, accountants and otherrepresentatives, such of their personnel as any of the Optionors may reasonablyrequest in connection with the preparation, confirmation or review of theActual Closing Balance Sheet and calculation of the Closing Cash Payment.

 

(iv)          Inthe event that either PMI or FSA does not agree with the amount of the proposedClosing Cash Payment, such Optionor may deliver to Optionee (with a copy toeach 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 ActualClosing Balance Sheet to the Optionors. If either PMI or FSA delivers an Objection to Optionee in accordancewith time limits set forth in the preceding sentence, PMI, FSA and the Optioneeshall negotiate in good faith with a view to resolving the dispute and arrivingat a mutually agreed amount for the Closing Cash Payment.  If such negotiations fail to resolve thedispute within thirty (30) days after the date the Objection was delivered toOptionee, the dispute shall be submitted to Ernst & Young LLP (or suchother “Big Four” accounting firm as is mutually agreed to by the Optionee, PMIand FSA) (the “Accountants”) for final and exclusive resolution.  The Company and the Optionee shall cooperatein good faith with the Accountants and shall afford the Accountants and theirrepresentatives full access to all relevant accounting, financial and otherrecords of the Company and the Company Subsidiaries reasonably requested inconnection with the preparation, confirmation or review of the Actual ClosingBalance Sheet and the calculation of the Closing Cash Payment.  The Company and the Optionee shall makeavailable to the Accountants and their representatives such of their personnelas the Accountants may reasonably request in connection with the preparation,confirmation or review of the Actual Closing Balance Sheet and calculation ofthe Closing Cash Payment.  TheAccountants shall afford each of PMI, FSA and the Optionee and their respectiverepresentatives the opportunity to present their positions as to the disputeand the calculation of the Closing Cash Payment (which opportunity shall notextend 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 statementof the Closing Cash Payment proposed by such party and shall be accompanied byreasonably detailed supporting documentation. No later than ten (10) days after the completion of thepresentations to the Accountants by PMI, FSA and the Optionee of theirrespective positions on the Closing Cash Payment, the Accountants shall delivertheir decision with respect to the actual Closing Cash Payment (which shallnot, under any circumstances, be less than the amount that was originallyproposed by the Optionee nor more than the largest amount that was proposed byany of the Optionors), which decision shall be in writing and shall include areasonably detailed description of the basis for such determination.  The Accountants’ determination of the actualClosing Cash

 

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Payment shall be final and binding upon allparties hereto.  The fees, costs andexpenses of the Accountants in connection with any such determination shall beborne by the Optionee if the Closing Cash Payment adopted by the Accountants isgreater than the Optionee’s originally proposed Closing Cash Payment by$250,000 or more and shall otherwise be borne by the Optionors in proportion tosuch Optionor’s Percentage Interest.  TheAccountants’ decision may be enforced in any state or federal court ofcompetent jurisdiction.

 

(v)           Ifneither 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 agreedto by the Optionors.  The Closing CashPayment, either as agreed to or determined pursuant to this Section 3(c),shall be referred to as the “Cash Payment” and the Actual ClosingBalance 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 EstimatedCash Payment, Optionors shall pay the amount of such shortfall to the Optioneein proportion to such Optionor’s Percentage Interest, and

 

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

 

not later than the earlier of (I) the fifth Business Day following theagreement or determination of the Cash Payment or (II) thirty (30) daysafter the date the Optionee delivers the Actual Closing Balance Sheet to theOptionors if no Objection is delivered to the Optionee, together with intereston such shortfall or excess from the Closing Date to but not including the dateof 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 bemade by wire transfer of immediately available funds to the accounts designatedby the Optionee or Optionors, as the case may be.

 

(d)        Atthe Closing, the Servicer shall pay, and the Optionee and the Company shallcause to be paid, to (i) PMI all amounts outstanding under the PromissoryNote to PMI as of the Closing Date and (ii) Dexia Holdings, Inc. allamounts 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 suchbank as PMI and Dexia Holdings, Inc., as the case may be, shall direct.

 

**ARTICLE IV**

**REPRESENTATIONSAND WARRANTIES OF THE OPTIONORS**

** **

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

 

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as of suchdate) and will be true and correct as of the Closing Date as though made on theClosing Date.

 

Section 4.1             Share Ownership. Such Optionor is the record and beneficial owner of the number of sharesof Common Stock and Series C Preferred Stock set forth opposite suchOptionor’s name on Exhibit A hereto. Except for the Promissory Notes, such Optionor owns no securities issuedby, or other obligations of, the Company or any Company Subsidiary which arenot 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 orunderstanding 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 typeset forth opposite such Optionor’s name on Exhibit A hereto.  Such Optionor has been duly organized, and isvalidly existing and in good standing, under the laws of its jurisdiction offormation, has all requisite power and authority to execute and deliver thisAgreement and to consummate the Transactions, and has taken all necessarycorporate or other action to authorize the execution, delivery and performanceof this Agreement.

 

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

 

Section 4.4             No Conflict or Default.  Neither the execution and delivery of thisAgreement nor the consummation by such Optionor of any of the Transactions willresult in a violation of, or a default under, or conflict with, or require anyconsent, approval or notice under, any contract, trust, commitment, agreement,obligation, understanding, arrangement or restriction of any kind to which suchOptionor is a party or by which such Optionor is bound or to which the OptionShares owned by such Optionor are subject, except as provided in theShareholder Documents and the Certificate of Incorporation.  Consummation by such Optionor of theTransactions will not violate, or require any consent, approval or noticeunder, any provision of any judgment, order, decree, statute, law, rule orregulation applicable to such Optionor or the Option Shares owned by suchOptionor, 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 andthe certificates representing such Option Shares are now, and at all timesduring the term hereof shall be, owned by such Optionor and held by suchOptionor, or by a nominee or custodian for the sole and exclusive benefit ofsuch Optionor, free and clear of all Encumbrances whatsoever.

 

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

 

**ARTICLE V**

** **

**REPRESENTATIONSAND WARRANTIES OF THE COMPANY**

** **

Except as specifically set forth in theDisclosure Schedule prepared and signed by the Company and delivered toOptionee simultaneously with the execution hereof, the Company represents andwarrants to Optionee that the statements contained in this Article V aretrue and correct as of the date of this Agreement (or, if made as of aspecified date, as of such date), and will be true and correct as of theClosing Date as though made on the Closing Date.  Each exception set forth in the Disclosure Schedule andeach other response to this Agreement set forth in the Disclosure Schedule isidentified by reference to, or has been grouped under a heading referring to, aspecific individual section of this Agreement and, except as otherwise specificallystated with respect to such exception, relates only to such section; provided,however, that any fact, matter or condition disclosed in any section ofsuch Disclosure Schedule in such a way as to make its relevance to arepresentation, warranty or covenant or representations, warranties orcovenants made elsewhere in this Agreement or information called for by anothersection of such Disclosure Schedule reasonably apparent shall bedeemed to be an exception to such representation, warranty or covenant orrepresentations, warranties or covenants or to be disclosed on such other section ofsuch Disclosure Schedule notwithstanding the omission of a reference orcross reference thereto.

 

Section 5.1             Authorization; Validity of Agreement; Company Action.  The Company has full corporate power andauthority to execute and deliver this Agreement and the Contingent PaymentAgreement, and to consummate the Transactions. The execution, delivery and performance by the Company of this Agreementand the Contingent Payment Agreement and the consummation of the Transactionshave been duly authorized by the Company Board of Directors, and no othercorporate action on the part of the Company is necessary to authorize theexecution and delivery by the Company of this Agreement or the ContingentPayment Agreement or the consummation of the Transactions.  No vote of, or consent by, the holders of anyclass or series of capital stock issued by the Company is necessary toauthorize the execution and delivery by the Company of this Agreement or theContingent Payment Agreement or the consummation of the Transactions.  This Agreement has been duly executed anddelivered by the Company and, assuming due and valid authorization, execution anddelivery hereof by the Optionors and the Optionee, this Agreement is a validand binding obligation of the Company enforceable against the Company inaccordance with its terms, except (i) as limited by applicable bankruptcy,insolvency, reorganization, moratorium, fraudulent conveyance and other similarlaws of general application affecting enforcement of creditors’ rightsgenerally and (ii) the availability of the remedy of specific performanceor injunctive or other forms of equitable relief

 

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

 

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

 

Section 5.3             Capitalization. (a) The authorized capital stock of the Company consists of25,000,000 shares of Common Stock and 10,000,000 shares of preferred stock, parvalue $0.01 per share.  As of the datehereof, (i)  8,396,455 shares of Common Stock are issued and outstanding(excluding shares held in the treasury of the Company), (ii) 1,883,999shares of Series C Preferred Stock are issued and outstanding, (iii) noshares of Common Stock or Series C Preferred Stock are owned of record byany Person who is not an Optionor, (iv) 1,228,284 shares of Common Stockor Series C Preferred Stock are issued and held in the treasury of theCompany, (v) other than the Series C Preferred Stock, no shares ofpreferred stock are issued or outstanding, and (vi) 760,000 shares ofCommon Stock are reserved for issuance upon exercise of Company Options underthe Long-Term Incentive Plan.  As of thedate hereof, there are outstanding Company Options to purchase 299,737 sharesof Common Stock.  All the outstandingshares of the Company’s capital stock are, and all shares of Common Stock whichmay 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 issuedand outstanding.  Except as set forthabove, as of the date hereof, (i) there are no shares of capital stock ofthe Company authorized, issued or outstanding; (ii) there are no existingoptions, warrants, calls, pre emptive rights, subscriptions or other rights,agreements, arrangements or commitments of any character, relating to theissued or unissued capital stock of the Company or any Company Subsidiary,obligating the Company or any Company Subsidiary to issue, transfer or sell orcause to be issued, transferred or sold any shares of capital stock or VotingDebt of, or other equity or debt interest in, the Company or any CompanySubsidiary or securities convertible into or exchangeable for such shares orequity interests, or obligating the Company or any Company Subsidiary to grant,extend or enter into any such option, warrant, call, subscription or otherright, agreement, arrangement or commitment and (iii) there are nooutstanding contractual obligations of the Company or any Company Subsidiary torepurchase, redeem or otherwise acquire any shares of Common Stock, or othercapital stock of the Company, or any Company Subsidiary or Affiliate of theCompany or to provide funds to make any investment (in the form of a loan,capital contribution or otherwise) in any Company Subsidiary or any otherentity.  Except as set forth above,during the period from the date hereof to the Closing Date, the Company has notissued or committed to issue any shares of Common Stock or Series CPreferred Stock or any options, warrants, calls, preemptive rights,subscriptions or other rights, agreements, arrangements or commitments of anycharacter, relating to the issued or unissued capital stock of the Company orany Company Subsidiary, obligating the Company or any Company Subsidiary toissue, transfer or sell or cause to be issued, transferred or sold any sharesof 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 orexchangeable for such shares or equity interests, or obligating the Company orany Company Subsidiary to grant, extend or enter into any such option, warrant,call, subscription or other right, agreement, arrangement or commitment.

 

(b)        Otherthan the Shareholder Documents, there are no voting trusts or other agreementsor understandings to which any Optionor, the Company or any Company Subsidiaryis a party with respect to the voting of the capital stock of the Company orany of the Company Subsidiaries.

 

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

 

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

 

Section 5.5             Subsidiaries and Affiliates.  The Disclosure Schedule sets forth thename and jurisdiction of incorporation of each Company Subsidiary.  The Company does not own, directly orindirectly, any capital stock or other equity securities of any corporationother than Company Subsidiaries or have any direct or indirect equity orownership interest in any business other than in the Company Subsidiaries or inpublicly traded securities constituting less than five percent of theoutstanding equity of the issuing entity or subordinated or residual interestsin pools of mortgage-backed securities. All the outstanding capital stock of each Company Subsidiary is owneddirectly or indirectly by the Company free and clear of all Encumbrances andall material claims or charges of any kind, and is validly issued, fully paidand nonassessable.  Each CompanySubsidiary (i) is a corporation, limited liability company or limitedpartnership duly organized, validly existing and in good standing under thelaws of its jurisdiction of incorporation or formation; (ii) has fullcorporate, limited liability company or partnership power and authority tocarry on its business substantially as it is now being conducted and to own theproperties and assets it now owns; and (iii) is duly qualified or licensedto do business as a foreign corporation, limited liability company or limitedpartnership in good standing in every jurisdiction in which such qualificationis required, except where such failure to be duly qualified or licensed wouldnot have a Material Adverse Effect.  TheCompany has heretofore delivered to Optionee complete and correct copies of thecertificate of incorporation and by-laws of each Company Subsidiary, aspresently in effect.

 

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

 

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collectionagency laws, none of the execution, delivery or performance of this Agreementor the Contingent Payment Agreement by the Company, the consummation by theCompany of any of the Transactions or compliance by the Company with any of theprovisions hereof or thereof will (i) conflict with or result in anybreach of any provision of the certificate of incorporation, the by-laws orsimilar organizational documents of the Company or any Company Subsidiary, (ii) requirethe Company or any Company Subsidiary to make any filing with, or obtain anypermit, authorization, consent or approval of, any Governmental Entity or otherPerson (including consents from parties to loans, contracts, leases and otheragreements to which the Company or any Company Subsidiary is a party), (iii) requireany 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) adefault (or give rise to any right of termination, amendment, cancellation oracceleration) under, any Material Contract or restriction of any kind by whichthe Company is bound, or (iv) violate any order, writ, injunction, decree,statute, rule or regulation applicable to the Company, any CompanySubsidiary or any of their properties or assets, excluding from the foregoingclauses (ii), (iii) and (iv) such violations, breaches ordefaults which would not, individually or in the aggregate, impair in anymaterial respect the ability of Company or any Company’s Subsidiary toconsummate the Transactions or which arise from the regulatory status of theOptionee or any of its Affiilates.

 

Section 5.7             Financial Statements.  The Company has delivered to the Optioneetrue and correct copies of the Financial Statements.  The Financial Statements have been preparedfrom the books and records of the Company and the Company Subsidiaries, have beenprepared in accordance with GAAP applied on a consistent basis during theperiods involved (except as may be stated in the notes thereto), and fairlypresent the consolidated financial position and the consolidated results ofoperations and cash flows of the Company and the Company Subsidiaries as of thetimes and for the periods referred to therein (subject, in the case ofunaudited statements, to normally recurring year-end audit adjustments whichare not material either individually or in the aggregate).

 

Section 5.8             No Undisclosed Liabilities.  To the Knowledge of the Company, except (a) asdisclosed or reflected in the Financial Statements and (b) for liabilitiesand obligations incurred in the ordinary course of business and consistent withpast practice, since the Balance Sheet Date neither the Company nor any CompanySubsidiary 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 orthe Budget and except as disclosed or reflected in the Financial Statements,since the Balance Sheet Date, the Company and each Company Subsidiary hasconducted its respective business only in the ordinary course and consistentwith past practice, and neither the Company nor any Company Subsidiary has:

 

(a)         sufferedany Material Adverse Effect;

 

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

 

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series ofsimilar transactions, and all periodic installments or payments under any leaseor other agreement providing for periodic installments or payments, as a singleobligation 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 consistentwith past practice of liabilities and obligations reflected or reserved againstin the Balance Sheet or incurred in the ordinary course of business andconsistent with past practice since the Balance Sheet Date;

 

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

 

(e)         writtendown the value of any MSRs (other than those associated with Mortgage Loans) orwritten off as uncollectible any notes or accounts receivable, except for write-downsand write-offs in the ordinary course of business and consistent with pastpractice;

 

(f)         cancelledany debts owed to the Company by third parties or waived any claims or rightsof 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 orassets (real, personal or mixed, tangible or intangible), except in theordinary course of business and consistent with past practice;

 

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

 

(i)          disposedof or permitted to lapse any rights to the use of any material IntellectualProperty, or disposed of or disclosed to any Person other than representativesof Optionee or for a legitimate business purpose any Trade Secret nottheretofore a matter of public knowledge;

 

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

 

(k)         hiredor fired any Key Employee;

 

(l)          madeany single capital expenditure or commitment in excess of $100,000 foradditions to property, plant, equipment or intangible capital assets or madeaggregate capital expenditures and commitments in excess of $250,000 foradditions to property, plant, equipment or intangible capital assets;

 

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

 

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(n)        madeany change in any method of accounting or accounting practice except asrequired by GAAP;

 

(o)        otherthan as required by any Key Employee Contract, paid or loaned any amount to, orsold, 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 itsofficers or directors except for directors’ fees and compensation of officersin 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 CompanySubsidiary has good, valid and marketable title to all the properties andassets that it purports to own (tangible and intangible) free and clear of allLiens, other than Permitted Liens, including all the properties and assetsreflected in the Balance Sheet and not subsequently disposed of and all suchproperties and assets purchased by the Company or any Company Subsidiary sincethe date of the Balance Sheet except as set forth in the FinancialStatements.  The rights, properties andother assets presently owned, leased or licensed by the Company or the CompanySubsidiaries include all such rights, properties and other assets necessary topermit the Company and the Company Subsidiaries to conduct their respectivebusinesses in all material respects in the same manner as such businesses havebeen conducted prior to the date hereof.

 

Section 5.11           RealProperty.

 

(a)         TheDisclosure Schedule sets forth a complete list and the location of allReal Property.  There are no proceedings,claims, or disputes affecting any Real Property that might materially curtailor interfere with the Company’s use of such property.  Neither the whole nor any material portion ofthe Real Property nor any other assets of the Company or any Company Subsidiaryis subject to any governmental decree or order to be sold or is beingcondemned, expropriated or otherwise taken by any public authority with orwithout payment of compensation therefor, nor has any such condemnation,expropriation or taking been proposed to the Company.  Neither the Company nor any CompanySubsidiary is a party to any lease, assignment or similar arrangement underwhich the Company or any Company Subsidiary is a lessor, assignor or otherwisemakes available for use by any third party any portion of the Real Property,other than pursuant to a Lease.

 

(b)        Eachof the Company and each Company Subsidiary has obtained all appropriatecertificates of occupancy, licenses, easements and rights of way, includingproofs of dedication, required to use and operate the Real Property in themanner in which the Real Property is currently being used and operated andwhere the failure to have any such license would materially interfere with theuse of such property.  True and correctcopies of all such certificates, permits and licenses have heretofore beenfurnished to Optionee.  Each of theCompany and each Company Subsidiary has all approvals, permits and licenses(including any and all environmental permits) necessary to own or operate theReal Property as currently owned and operated; and no such approvals, permitsor licenses will be required, as a result of the Transactions, to be issuedafter the date hereof in order to permit the Company and the

 

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

 

Section 5.12           Leases.  TheDisclosure Schedule contains an accurate and complete listing of theLeases and the subleases to such Leases. A true and complete copy of each Lease has heretofore been delivered toOptionee.  Each Lease is in full forceand effect.  The leasehold estate createdby each Lease is free and clear of all Liens other than as created by orpursuant to such Lease or a sublease to such Lease.  There are no existing defaults by the Companyor any Company Subsidiary under any of the Leases.  No event has occurred that (whether with orwithout notice, lapse of time or the happening or occurrence of any otherevent) would constitute a default under any Lease by the Company or any CompanySubsidiary.  Neither the Company nor anyCompany Subsidiary has received notice, that any lessor under any Lease willnot consent (where such consent is necessary) to the consummation of theTransactions without requiring any modification of the rights or obligations ofthe lessee thereunder.

 

Section 5.13           Environmental Matters.

 

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

 

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

 

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

 

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

 

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

 

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

 

(i)            Neitherthe Company nor any Company Subsidiary has any agreement, contract orcommitment that provides for the payment to or by the Company in an aggregateamount in excess of $250,000 during a twelve-month period (each, a “MaterialVendor Contract”).

 

(ii)           Neitherthe Company nor any Company Subsidiary has any loan agreement or asset fundingagreement pursuant to which it receives credit or funding from a third party(each, a “Credit Facility”).

 

(iii)          Neitherthe Company nor any Company Subsidiary is a party to a servicing agreement,subservicing agreement, sale and servicing agreement, pooling and servicingagreement or similar agreement pursuant to which the Company or any CompanySubsidiary services mortgage loans or REO Property for third parties.

 

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

 

(v)           Otherthan the Key Employee Contracts, neither the Company nor any Company Subsidiaryhas any outstanding contracts with directors, officers, employees, agents,consultants, advisors, salesmen, sales representatives, distributors or dealersthat are not cancelable by it on notice of not longer than 90 days and withoutliability, penalty or premium.

 

(vi)          Otherthan the Key Employee Contracts, neither the Company nor any Company Subsidiaryis a party to or bound by any employment agreement or any other agreement thatcontains any severance or termination pay liabilities or obligations.

 

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

 

(viii)        Neitherthe Company nor any Company Subsidiary is restricted by agreement from carryingon its business anywhere in the world.

 

(ix)           Neitherthe Company nor any Company Subsidiary has outstanding any agreement to acquireany debt obligations of others, other than acquisitions of delinquent anddefaulted receivables in the ordinary course of business.

 

(x)            Neitherthe Company nor any Company Subsidiary has any outstanding loan to any Person,it being understood that obligations to reimburse employees for

 

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reasonable travel, entertainment or similarexpenses incurred in the ordinary course of business shall not be deemed loansfor such purposes.

 

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

 

(xii)          Otherthan as provided in clauses (i)–(xi) above, neither the Company nor any CompanySubsidiary has any agreement, contract or commitment the termination of whichwould result in a Material Adverse Effect or that otherwise is material to itsbusiness, operations or prospects.

 

(b)        Eachcontract, agreement, arrangement and commitment set forth on Schedule 5.14of the Disclosure Schedule, and each Lease, shall constitute a “MaterialContract.”  Neither the Company nor anyCompany Subsidiary is in material default under or in violation of any MaterialContract, nor, to the Knowledge of the Company, is there any valid basis forany 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 otherregulatory or administrative agency or commission pending or, to the Knowledgeof the Company, threatened against or involving the Company or any CompanySubsidiary that could reasonably be expected to result in a loss to the Companyor any Company Subsidiary in excess of $50,000 (excluding any legal fees andexpenses relating thereto that have been or may be incurred by the Company or aCompany Subsidiary), or which questions or challenges the validity of thisAgreement or any action taken or to be taken by the Company or any CompanySubsidiary pursuant to this Agreement or in connection with theTransactions.  Neither the Company norany Company Subsidiary is subject to any judgment, order or decree which mayhave a material adverse effect on its business practices or on its ability toacquire any property or conduct its business.

 

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

 

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

 

Section 5.18           Employee Benefit Plans.

 

(a)         TheDisclosure Schedule contains a true and complete list of all Plansmaintained by the Company and any ERISA Affiliate.  Neither the Company nor any ERISA Affiliatehas any commitment or formal plan, whether legally binding or not, to createany additional employee benefit plan or modify or change any existing Plan thatwould affect any employee or former employee of the Company or any CompanySubsidiary.  Neither the Company nor anyERISA Affiliate has ever maintained any Title IV Plans.  Neither the Company nor any ERISA Affiliateis an employer under a Multiemployer Plan.

 

(b)        Neitherthe Company or any Company Subsidiary, any Plan, any trust created thereunder,nor, the Knowledge of the Company, any trustee or administrator thereof hasengaged in a transaction in connection with which the Company or any CompanySubsidiary, 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 eithera civil penalty assessed pursuant to Section 409 or 502(i) of ERISAor a tax imposed pursuant to Section 4975 or 4976 of the Code.

 

(c)         EachPlan has been operated and administered in all material respects in accordancewith its terms and applicable law, including but not limited to ERISA and theCode.

 

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

 

(e)         Theconsummation of the Transactions will not, either alone or in combination withanother event, (i) except as provided in any Key Employee Contract and setforth on Schedule 5.18 of the Disclosure Schedule, entitle any current orformer employee, director or officer of the Company or any ERISA Affiliate toseverance pay, unemployment compensation or any other payment, except asexpressly provided in this Agreement, or (ii) accelerate the time ofpayment or vesting, or increase the amount of compensation due any suchemployee, director or officer.

 

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

 

(g)        Noamounts payable under the Plans will fail to be deductible for federal incometax purposes by virtue of Section 280G of the Code.

 

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Section 5.19                                Tax Matters.

 

(a)                                  (i) TheCompany, each Company Subsidiary, and each Company Group has timely filed orcaused to be timely filed, and with respect to Tax Returns due between the dateof this Agreement and the Closing Date will timely file (taking into accountany applicable extensions), all material Tax Returns required to be filed bythe Code or by applicable state, local or foreign Tax laws, (ii) all suchTax 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 Taxesshown on such Tax Returns or otherwise owed have been timely paid, or in thecase of Taxes due between the date of this Agreement and the Closing Date, willbe timely paid.

 

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

 

(c)                                  Thereare no liens for Taxes upon the Company’s assets except liens for current Taxesnot yet due and payable and immaterial liens.

 

(d)                                 Neitherthe Company nor any of its Subsidiaries is a “United States real propertyholding corporation” within the meaning of Section 897(c)(2) of theCode, and none of the Optionors is a “foreign person” within the meaning of Section 1445of the Code.

 

(e)                                  Exceptas set forth on Schedule 5.19(e) of the Disclosure Schedule, (i) noTax Return of the Company, any Company Subsidiary or any Company Group is underaudit or examination by the Internal Revenue Service, (ii) no material TaxReturn of the Company, any Company Subsidiary or any Company Group is under auditor examination by any other Taxing Authority, and (iii) no notice of suchan audit or examination has been received by the Company or any CompanySubsidiary.

 

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

 

(g)                                 Otherthan this Agreement, none of the Company, any Company Subsidiary or any CompanyGroup is a party to or is bound by any Tax sharing agreement, Tax indemnityobligation or similar agreement, arrangement or practice with respect to Taxes(including, without limitation, any advance pricing agreement, closingagreement or other agreement relating to Taxes with any Taxing Authority).

 

(h)                                 Neitherthe Company nor any Company Subsidiary will be required to include in a taxableperiod ending after the Closing Date any taxable income attributable to incomethat

 

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

 

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

 

(j)                                     Exceptas set forth on Schedule 5.19(j) of the Disclosure Schedule, there are nooutstanding agreements or waivers extending, or having the effect of extending,the statutory period of limitation applicable to any Tax Returns required to befiled with respect to the Company, any Company Subsidiary or any Company Groupand none of the Company, any Company Subsidiary or any Company Group hasrequested any extension of time within which to file any Tax Return, whichreturn has not yet been filed.

 

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

 

(l)                                     TheCompany has made available to the Optionee for inspection (i) complete andcorrect copies of all material Tax Returns of the Company, each CompanySubsidiary and each Company Group (but, in the case of any Company Group, onlythe portions of such Tax Returns relating to the Company or any CompanySubsidiary) relating to Taxes for all taxable periods for which the applicablestatute of limitations has not yet expired and (ii) complete and correctcopies of all private letter rulings, revenue agent reports, informationdocument requests, notices of proposed deficiencies, deficiency notices,protests, petitions, closing agreements, settlement agreements, pending rulingrequests, and any similar documents, submitted by, received by or agreed to byor on behalf of the Company or any Company Subsidiary, or, to the extentrelated to the income, business, assets, operations, activities or status ofthe Company or any Company Subsidiary, submitted by, received by or agreed toby or on behalf of any Company Group, and relating to Taxes for all taxableperiods for which the statute of limitations has not yet expired.

 

(m)                               Neitherthe Company nor any Company Subsidiary has been a party to any distributionoccurring during the last three (3) years that was treated by the partiesas a tax-free distribution under Section 355 of the Code.

 

(n)                                 Neitherthe 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)                                 TheDisclosure Schedule sets forth each state, county, local, municipal orforeign jurisdiction in which the Company or any Company Subsidiary files a TaxReturn relating to state and local income, franchise, license, excise, networth, property or sales and use taxes.

 

(p)                                 Neitherthe Company nor any Company Subsidiary has ever (i) made an election underSection 1362 of the Code to be treated as an S corporation for FederalIncome Tax purposes or (ii) made any similar election under any comparableprovision of any state, local or foreign tax law.

 

(q)                                 TheCompany and each Company Subsidiary have properly and in a timely mannerdocumented their transfer pricing methodology in compliance with Section 482(and any related sections) of the Code, the Treasury regulations promulgatedthereunder and any comparable provisions of state, local, domestic or foreigntax law.

 

Section 5.20                                IntellectualProperty.

 

(a)                                  TheDisclosure Schedule sets forth a true and complete list (includingexpiration dates) of all patents and patent applications, trademarkregistrations and applications, service mark registrations and applications,Computer Software, Copyright registrations and applications, materialunregistered trademarks, service marks, and Copyrights, and Internet domainnames, together with all licenses related to the foregoing, whether the Companyor any Company Subsidiary is the licensee or licensor thereunder, that are usedin and are material to the business of the Company or any Company Subsidiary.

 

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

 

(c)                                  Allregistrations and applications for Intellectual Property that are owned by theCompany or any Company Subsidiary and that are used in and are material to theconduct of the businesses of the Company or the Company Subsidiaries ascurrently conducted are, (i) to the Knowledge of the Company, valid andenforceable, (ii) subsisting, in proper form and have been dulymaintained, including the submission of all necessary filings and fees inaccordance with the legal and administrative requirements of the appropriatejurisdictions, and (iii) have not lapsed, expired or been abandoned, andno patent, registration or application therefore is the subject of any opposition,interference, cancellation proceeding or other legal or governmental proceedingbefore any Governmental Entity in any jurisdiction.

 

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

 

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Company or any Company Subsidiary hasinfringed, misappropriated or otherwise conflicted with any proprietary rightsof any third parties; and (v) all such Intellectual Property will be ownedor available for use by any of the Company and the Company Subsidiariesimmediately after the Closing.

 

(e)                                  TheComputer Software used in and material to the business of the Company or anyCompany Subsidiary was either:  (i) developedby employees of the Company or such Company Subsidiary within the scope oftheir employment or (ii) developed on behalf of the Company or any CompanySubsidiary by a third party, and all ownership rights therein have beenassigned or otherwise transferred to or vested in the Company or such CompanySubsidiary, as the case may be, pursuant to written agreements or the Companyor such Company Subsidiary has taken commercially reasonable steps to ensurethat it has licensed or acquired from a third party pursuant to a writtenlicense, assignment, or other contract that is in full force and effect and ofwhich neither the Company nor any Company Subsidiary (as applicable) is inmaterial breach.

 

(f)                                    Neitherthe Company nor any Company Subsidiary is, nor will it be as a result of theexecution and delivery of this Agreement or the performance of its obligationsunder this Agreement, in breach of any material license, sublicense or otheragreement relating to the Company Intellectual Property.

 

Section 5.21                                Labor Matters.

 

(a)                                  Thereis no labor strike, dispute, corporate campaign, slowdown, stoppage orlockout actually pending, or to the Knowledge of the Company, threatenedagainst or affecting the Company or any Company Subsidiary and during the pastfive years there has not been any such action. To the Knowledge of the Company, no representation question existsrespecting the employees of the Company or any Company Subsidiary.

 

(b)                                 Noneof the employees of the Company or any Company Subsidiary is represented by anylabor organization and, to the Knowledge of the Company, there have been nounion organizing activities among the employees of the Company or any CompanySubsidiary within the past five years, nor does any question concerningrepresentation exist concerning such employees.

 

(c)                                  (i) Eachof the Company and each of the Company Subsidiaries is and has been incompliance in all material respects with all applicable laws respectingemployment and employment practices, terms and conditions of employment, wagesand hours, immigration, the payment of social security and similar taxes,occupational safety and health and plant closing, and is not and has notengaged in any unfair labor practice that could reasonably be expected toresult in a loss to the Company or any Company Subsidiary in excess of$250,000; (ii) no unfair labor practice complaint against the Company orany of the Company Subsidiaries is pending before the National Labor RelationsBoard; (iii) no employee grievance exists which could reasonably beexpected to have a Material Adverse Effect; (iv) no arbitration proceedingarising out of or under any collective bargaining agreement is pending and noclaim therefor has been asserted; and (v) no collective bargainingagreement is currently being negotiated by the Company or any of the CompanySubsidiaries.

 

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(d)                                 Tothe Knowledge of the Company, no charge with respect to or relating to theCompany or any Company Subsidiary is pending before the Equal EmploymentOpportunity Commission or any other agency responsible for the prevention ofunlawful employment practices.

 

Section 5.22                                Personnel.  The Disclosure Schedule sets forth atrue and complete list of (i) the names and current salaries of alldirectors and elected and appointed officers of each of the Company and theCompany Subsidiaries; (ii) the names and wage rates for non-salaried andnon-executive salaried employees of each of the Company and the CompanySubsidiaries by classification and (iii) all group insurance programs ineffect for employees of each of the Company and the Company Subsidiaries.  Neither the Company nor any CompanySubsidiary is in default with respect to any of the obligations referred to inthe preceding sentence.  Except as setforth on Schedule 5.22 of the Disclosure Schedule, to the Knowledge of theCompany, no Key Employee or group of employees responsible for a businesssegment of the Company or any Company Subsidiary has provided writtennotification to the Company or any Company Subsidiary of an intention toterminate employment with the Company or any Company Subsidiary as a result ofthe Transactions.

 

Section 5.23                                PotentialConflict of Interest.  No KeyEmployee (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, exceptfor claims for compensation, reasonable unreimbursed travel or entertainmentexpenses, accrued vacation pay or accrued benefits under any employee benefitplan existing on the date hereof, (c) has made, on behalf of the Companyor any Company Subsidiary, any material payment or commitment to pay anymaterial commission, fee or other amount to, or to purchase or obtain orotherwise contract to purchase or obtain any goods or services from, any otherPerson of which any Key Employee (or, to the Knowledge of the Company, arelative of any Key Employee) is a partner or shareholder (except holdingssolely for passive investment purposes of securities of publicly held andtraded entities constituting less than 5% of the equity of any such entity), (d) owesany money to the Company or any Company Subsidiary or (e) has any materialinterest in any property, real or personal, tangible or intangible, used in orpertaining to the business of the Company or any Company Subsidiary.

 

Section 5.24                                Proprietyof Past Payments.  (a) Nounrecorded fund of the Company or any Company Subsidiary has been establishedfor any purpose, (b) no accumulation or use of corporate funds of theCompany or any Company Subsidiary has been made without being properlyaccounted for in the books and records of the Company or such CompanySubsidiary, (c) no payment has been made by or on behalf of the Company orany Company Subsidiary with the understanding that any part of such payment isto be used for any purpose other than that described in the documentssupporting such payment and (d) none of the Company, any CompanySubsidiary, any director, officer, employee or agent of the Company or anyCompany Subsidiary or any other Person associated with or acting for or onbehalf of the Company or any Company Subsidiary has, directly or indirectly,made any contribution, gift, bribe, rebate, payoff, influence payment, kickbackor other payment to any Person, private or public, regardless of form, whetherin money, property or services that is illegal, (i) to obtain favorabletreatment for the Company, any Company Subsidiary or any Affiliate of theCompany in securing business, (ii) to pay for favorable treatment forbusiness secured for the Company, any Company

 

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Subsidiary or any Affiliate of the Company, (iii) toobtain special concessions, or for special concessions already obtained, for orin respect of the Company or any Company Subsidiary.  To the Knowledge of the Company, neither theCompany nor any Company Subsidiary nor any current director, officer oremployee of the Company or any Company Subsidiary nor any other Person actingon behalf of the Company or any Company Subsidiary, has accepted or receivedany unlawful contribution, payment, gift, kickback, expenditure or other itemof value in connection with the business of the Company or any CompanySubsidiary.

 

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

 

Section 5.26                                ConsumerComplaints.  The Company and theCompany Subsidiaries have no open consumer complaints that have not beenresponded to within the time limitations set forth in the Real EstateSettlement Procedures Act of 1974, as amended.

 

Section 5.27                                Insurance.  Schedule 5.27 of the Disclosure Schedule setsforth a true and complete list of all insurance policies, other insurancearrangements and other contracts or arrangements for the transfer or sharing ofinsurance risks by the Company or any Company Subsidiary in force on the datehereof with respect to the business or assets of the Company or any CompanySubsidiary.  All such policies are infull force and effect, all premiums due thereon have been paid by the Companyand the Company Subsidiary (as applicable) and the Company and each CompanySubsidiary is otherwise in compliance in all material respects with the termsand provisions of such policies (other than the policies set forth on Schedule 5.27of the Disclosure Schedules which will terminate at the Closing as a result ofthe sale of the Option Shares to the Optionee). Furthermore, (a) neither the Company nor any Company Subsidiary hasreceived any written notice of cancellation or non-renewal of any such policyor arrangement nor, to the Company’s knowledge, is the termination of any suchpolicies or arrangements threatened (except that certain policies willterminate at the Closing as a result of the sale of the Option Shares to theOptionee), (b) there is no material claim of the Company or any CompanySubsidiary pending under any of such policies or arrangements as to which theCompany or any Company Subsidiary has received written notice from any of itsinsurance carriers stating that such insurance carrier is denying liability ofsuch claim or defending such claim under a reservation of rights clause, (c) neitherthe Company nor any Company Subsidiary has received any written notice from anyof its insurance carriers that any insurance premiums will be increasedmaterially in the future or that any insurance coverage presently provided forwill not be available to the Company or any Company Subsidiary in the future,and (d) neither the Company nor any Company Subsidiary has knowingly madeany material misstatement, omission or misrepresentation for the purpose ofobtaining any such policy or arrangement that is reasonably likely to result ina loss of coverage under such policy or arrangement.  Except as set forth on Schedule 5.27 ofthe Disclosure Schedule, no such policy or arrangement will terminate at the Closingas a result of the sale of the Option Shares to the Optionee and, to theKnowledge of the Company, no event has occurred that is reasonably likely toresult in any claims by the Company’s directors or officers under the Company’sD&O Insurance.

 

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**ARTICLE VI**

 

**REPRESENTATIONSAND 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 allrequisite corporate or other power and authority and all necessary governmentalapprovals to own, lease and operate its properties and to carry on its businessas now being conducted, except where the failure to be in good standing or tohave such power, authority, and governmental approvals would not adverselyeffect Optionee’s ability to consummate the Transactions.

 

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

 

Section 6.3                                      Consentsand Approvals; No Violations.  Exceptfor the filings, permits, authorizations, consents and approvals as may berequired under, and other applicable requirements of the HSR Act and statesecurities or blue sky laws, none of the execution, delivery or performance ofthis Agreement and the Contingent Payment Agreement by Optionee, theconsummation by Optionee of the Transactions or compliance by Optionee with anyof the provisions hereof and thereof will (i) conflict with or result inany breach of any provision of the certificate of incorporation or by-laws ofOptionee, (ii) require the Optionee to make any filing with, or obtain anypermit, authorization, consent or approval of, any Governmental Entity, (iii) resultin a violation or breach of, or constitute (with or without due notice or lapseof time or both) a default (or give rise to any right of termination,cancellation or acceleration) under, any of the terms, conditions or provisionsof any note, bond, mortgage, indenture, lease, license, contract, agreement orother instrument or obligation to which Optionee or any of its Subsidiaries isa party or by which any of them or any of their respective properties or assetsmay 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 anyof their properties or assets, excluding from the foregoing clauses (ii), (iii) and(iv) such violations, breaches or defaults which would not, individuallyor in the aggregate, impair in any material respect Optionee’s ability toconsummate the Transactions or which arise from the regulatory status of theCompany or the Company Subsidiaries.

 

Section 6.4                                      InvestmentRepresentation.  Optionee isacquiring the Option Shares for investment for its own account, not as anominee or agent, and not with a view to, or for resale in connection with, anydistribution thereof in violation of the Securities Act.

 

Section 6.5                                      SufficientFunds.  Optionee has available, orhas made valid and effective arrangements to obtain (through existing creditarrangements or otherwise), sufficient funds to acquire all of the OptionShares to be purchased pursuant hereto and to pay all fees and expensesincurred by it related to the Transactions.

 

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

 

**ARTICLE VII**

 

**COVENANTS**

 

Section 7.1                                      InterimOperations of the Company.  TheCompany covenants and agrees that, after the date hereof and prior to theClosing Date, except (i) as expressly provided in this Agreement, (ii) asset forth in the Disclosure Schedule, or (iii) as may be agreed in writingby Optionee:

 

(a)                                  thebusiness of the Company and the Company Subsidiaries shall be conductedsubstantially in the same manner as heretofore conducted and in the ordinarycourse, and the Company and the Company Subsidiaries shall use commerciallyreasonable efforts to preserve the business organization of the Company and theCompany Subsidiaries intact, keep available the services of the currentofficers and employees of the Company and the Company Subsidiaries and maintainthe existing relations with franchisees, customers, suppliers, creditors,business partners and others having business dealings with the Company or theCompany Subsidiaries;

 

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

 

(c)                                  neitherthe Company nor any Company Subsidiary shall: (i) amend its certificate of incorporation or by-laws or similarorganizational documents, (ii) issue, sell, transfer, pledge, dispose ofor encumber any shares of any class or series of its capital stock or VotingDebt, or securities convertible into or exchangeable for, or options, warrants,calls, commitments or rights of any kind to acquire, any shares of any class orseries of its capital stock or any Voting Debt, other than the shares of CommonStock reserved for issuance on the date hereof pursuant to the exercise ofCompany Options outstanding on the date hereof,

 

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(iii) declare, set aside or pay anydividend or other distribution payable in cash, stock or property with respectto 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 orseries of its capital stock, or any instrument or security which consists of orincludes a right to acquire such shares (other than the redemption, purchase orother acquisition by the Company or any Company Subsidiary of shares of CommonStock or Company Options not currently owned by an Optionor);

 

(d)                                 neitherthe Company nor any Company Subsidiary shall organize any new Subsidiary oracquire any capital stock or other equity securities, or equity or ownershipinterest in the business, of any other Person;

 

(e)                                  neitherthe Company nor any Company Subsidiary shall modify, amend or terminate any ofits Material Contracts or waive, release or assign any material rights orclaims, except in the ordinary course of business and consistent with pastpractice;

 

(f)                                    neitherthe Company nor any Company Subsidiary shall terminate or permit to lapse anymaterial Company Permit;

 

(g)                                 neitherthe Company nor any of the Company Subsidiaries shall:  (i) incur or assume any long termIndebtedness, or except in the ordinary course of business, incur or assumeshort term Indebtedness exceeding $250,000 in the aggregate from the datehereof until the Closing; (ii) pay, repay, discharge, purchase, repurchaseor satisfy any Indebtedness (other than the Promissory Notes) issued orguaranteed by the Company or any Company Subsidiary, except as required by theterms thereof; (iii) modify the terms of any Indebtedness or otherliability, other than modifications of short term debt in the ordinary andusual 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 inthe ordinary course of business and consistent with past practice; (v) makeany loans, advances or capital contributions to, or investments in, any otherPerson (other than to or in wholly owned Subsidiaries of the Company existing onthe date hereof); (vi) write down the value of any MSRs or write off asuncollectible any notes or accounts receivable other than as required orpermitted by GAAP; (vii) dispose of or permit to lapse any rights to anymaterial Intellectual Property or (viii) change any of the banking or safedeposit arrangements described or referred to in the Disclosure Schedule inany adverse manner;

 

(h)                                 neitherthe Company nor any Company Subsidiary shall lease, license, mortgage, pledgeor encumber any assets other than in the ordinary course of business andconsistent with the past practice or purchase, transfer, sell or dispose of anyassets other than in the ordinary course of business and consistent with pastpractice or dispose of or permit to lapse any rights to any materialIntellectual Property other than in the ordinary course of business andconsistent with past practice;

 

(i)                                     neitherthe Company nor any Company Subsidiary shall (i) fire any Key Employeeother than for cause or (ii) hire any Person performing functions similarto 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 aKey Employee who resigns after the

 

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date hereof if the Company has consulted withthe Optionee in good faith prior to hiring such Person (it being agreed thatneither the Company nor any Company Subsidiary shall have any obligation tofollow or adopt any recommendation made by the Optionee in respect of hiringsuch Person);

 

(j)                             neither the Company norany Company Subsidiary shall make any change in the compensation payable or tobecome payable to any of its officers, directors, employees, agents orconsultants (other than normal recurring increases in the ordinary course ofbusiness) or to Persons providing management services, or enter into or amendany employment, severance, consulting, termination or other agreement with, oremployee benefit plan for, any of its officers, directors, employees,Affiliates, agents or consultants or make any change in its existing borrowingor lending arrangements for or on behalf of any of such Persons pursuant to anemployee benefit plan or otherwise;

 

(k)                                  neitherthe Company nor any Company Subsidiary shall (i) pay or make any accrualor arrangement for payment of any pension, retirement allowance or otheremployee benefit pursuant to any existing plan, agreement or arrangement to anyofficer, director, employee or Affiliate or pay or agree to pay or make anyaccrual or arrangement for payment to any officer, director, employee orAffiliate of any amount relating to unused vacation days, except to the extentthe Company or a Company Subsidiary is legally or contractually obligated to doso or such action is required under a current policy of the Company or aCompany Subsidiary, (ii) adopt or pay, grant, issue, accelerate or accruesalary 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 anyemployment or consulting agreement with or for the benefit of any director, officer,employee, agent or consultant, whether past or present, except to the extentthe Company or a Company Subsidiary is legally or contractually obligated to doso or such action is required under a current policy of the Company or aCompany Subsidiary, or (iii) amend in any material respect any suchexisting plan, agreement or arrangement in a manner inconsistent with theforegoing;

 

(l)                                     neitherthe Company nor any Company Subsidiary shall permit any insurance policy namingit as a beneficiary or a loss payable payee to be cancelled or terminatedwithout notice to Optionee, except (i) policies providing coverage forlosses not in excess of $250,000 which are replaced without diminution of orgaps in coverage and (ii) policies that terminate at the Closing as aresult of the sale of the Option Shares to the Optionee;

 

(m)                               neitherthe Company nor any of the Company Subsidiaries shall enter into any contractor transaction relating to the purchase of assets other than in the ordinarycourse of business and consistent with past practice;

 

(n)                                 other than thePromissory Notes, which shall be paid in full by the Servicer at or prior tothe 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), otherthan the payment, discharge or satisfaction in the ordinary course of businessand consistent with past practice, of claims, liabilities or obligations

 

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reflected or reserved against in, orcontemplated by, the Financial Statements or incurred since the Balance Sheetdate in the ordinary course of business;

 

(o)                                 neitherthe Company nor any of the Company Subsidiaries shall adopt a plan of completeor partial liquidation, dissolution, merger, consolidation, restructuring,recapitalization or other reorganization of the Company or any CompanySubsidiary;

 

(p)                                 neitherthe Company nor any Company Subsidiary shall (i) change any of theaccounting methods used by it unless required by GAAP or (ii) make anyelection relating to Taxes, change any election relating to Taxes already made,adopt any accounting method relating to Taxes, change any accounting methodrelating to Taxes unless required by GAAP, enter into any closing agreementrelating to Taxes, settle any claim or assessment relating to Taxes or consentto any claim or assessment relating to Taxes or any waiver of the statute oflimitations for any such claim or assessment;

 

(q)                                 neitherthe Company nor any of the Company Subsidiaries shall take, or agree to orcommit to take, any action that would or is reasonably likely to result in anyof the conditions to the Closing set forth in Article IX not beingsatisfied, or would make any representation or warranty of the Companycontained herein inaccurate in any material respect at, or as of any time priorto, the Closing Date, or that would materially impair the ability of theCompany, Optionee or the Optionors to consummate the Closing in accordance withthe terms hereof or materially delay such consummation; and

 

(r)                                    neitherthe 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) Betweenthe date of this Agreement and the Closing, the Company shall (i) affordOptionee and its authorized representatives full and complete access duringnormal working hours to all books, records, offices and other facilities of theCompany and each Company Subsidiary, including employees, (ii) permitOptionee to make such inspections and to make copies of such books and recordsas it may reasonably require and (iii) furnish Optionee with suchfinancial and operating data and other information as Optionee may from time totime reasonably request.  Optionee andits authorized representatives shall conduct all such inspections in a mannerthat will minimize disruptions to the business and operations of the Companyand the Company Subsidiaries.

 

(b)                                 Optioneeand its authorized representatives (including its designated engineers orconsultants) may at any time during normal business hours, upon reasonableadvance notice, enter into and upon all or any portion of the Company’s or anyCompany Subsidiary’s properties (including all Real Property and all realestate which is the subject of a Lease) in order to investigate and assess, asOptionee deems necessary or appropriate in its sole and absolute discretion,the environmental condition of such properties or the business conductedthereat.  The Company shall, and shallcause the Company Subsidiaries to, cooperate with Optionee and its authorizedrepresentatives in conducting such investigation, shall allow Optionee and itsauthorized representatives full access during normal business hours, uponreasonable advance notice, to their properties and businesses, together withfull permission to conduct such

 

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investigation, and shall provide to Optioneeand its authorized representatives all plans, soil or surface or ground watertests or reports, any environmental investigation results, reports orassessments previously or contemporaneously conducted or prepared by or onbehalf of, or in the possession of or reasonably available to the Company orany Company Subsidiary or any of their engineers, consultants or agents and allother information relating to environmental matters in respect of theirproperties and businesses.

 

(c)                                  Eachparty agrees that it will treat in confidence all documents, materials andother information which it shall have obtained regarding the other party duringthe course of the negotiations leading to the consummation of the transactionscontemplated hereby (whether obtained before or after the date of thisAgreement), the investigation provided for herein and the preparation of thisAgreement and other related documents, and, if the transactions contemplatedhereby are not consummated, each party will return to the other party allcopies of nonpublic documents and materials which have been furnished inconnection therewith; provided, however, that the Optionors shallnot be required to return any documents or materials to the Company if thetransactions contemplated hereby are not consummated.  Such documents, materials and informationshall not be communicated to any third Person (other than, in the case of theOptionee, the Company and the Optionors, their respective counsel, accountants,financial advisors or lenders).  No partyshall use any confidential information in any manner whatsoever except solelyfor the purpose of evaluating the proposed purchase and sale of the OptionShares and consummating the Transactions; provided, however, that after theClosing, Optionee may use or disclose any confidential information reasonablyrelated to the business of the Company or the Company Subsidiaries.  The obligation of each party to treat suchdocuments, materials and other information in confidence shall not apply to anyinformation which (i) is or becomes available to such party from a sourceother than the other party not in breach of an obligation of confidentiality, (ii) isor becomes available to the public other than as a result of disclosure by suchparty or its agents, or (iii) is required to be disclosed under applicablelaw or judicial process, but only to the extent it must be disclosed.

 

Section 7.3                                      Effortsand Actions to Cause Closing to Occur. (a) Following the Exercise Date and until the Closing, upon theterms and subject to the conditions of this Agreement, Optionee and the Companyshall use their respective commercially reasonable efforts to take, or cause tobe taken, all actions, and to do, or cause to be done and cooperate with eachother party hereto in order to do, all things necessary, proper or advisable(subject to any applicable laws) to consummate the Closing and the otherTransactions as promptly as practicable including, but not limited to, thepreparation and filing of all forms, registrations and notices required to befiled to consummate the Closing and the other Transactions and the taking ofsuch actions as are necessary to obtain any requisite approvals,authorizations, consents, orders, licenses, permits, qualifications, exemptionsor waivers by any third party or Governmental Entity.  In addition, no party hereto shall take anyaction after the Exercise Date that could reasonably be expected to materiallydelay the obtaining of, or result in not obtaining, any permission, approval orconsent from any Governmental Entity or other Person required to be obtainedprior to Closing.  Following the ExerciseDate and until the Closing, each Optionor shall use its commercially reasonableefforts to take, or cause to be taken, all actions, and to do, or cause to bedone and cooperate with each other party hereto in order to do, all thingsnecessary, proper or advisable (subject to any applicable laws) within suchOptionor’s control to

 

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cause the satisfaction of the conditions toClosing (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)                                 Followingthe Exercise Date and until the Closing, each party shall promptly consult withthe other parties hereto with respect to, provide any necessary informationwith respect to, and provide the other parties (or their respective counsel)with copies of, all filings made by such party with any Governmental Entity orany other information supplied by such party to a Governmental Entity inconnection with this Agreement and the Transactions.  Each party hereto shall promptly provide theother parties with copies of any communication received by such party from anyGovernmental Entity regarding any of the Transactions.  If any party hereto or Affiliate thereofreceives a request for additional information or documentary material from anysuch Governmental Entity with respect to any of the Transactions, then suchparty shall endeavor in good faith to make, or cause to be made, as soon asreasonably practicable and after consultation with the other parties, anappropriate response in compliance with such request.  To the extent that transfers, amendments ormodifications of permits (including environmental permits) are required as aresult of the execution of this Agreement or consummation of any of theTransactions, the Company shall use its commercially reasonable efforts toeffect such transfers, amendments or modifications.

 

(c)                                  TheCompany shall use its commercially reasonable efforts to obtain, prior to theClosing, (i) the unconditional consent to the Closing and the otherTransactions of each lender to whom the Company or any Company Subsidiary owesin excess of $250,000 as of the Closing Date; (ii) the unconditionalconsent to the Closing and the other Transactions of each Person holding amortgage or lien on real property or material personal property owned or leasedby the Company or any Company Subsidiary; (iii) the unconditional consentto the Closing and the other Transactions of each lessor of real or materialpersonal property leased by the Company; (iv) the unconditional consent tothe Closing and the other Transactions of the issuer of each material insurancepolicy referred to in the Disclosure Schedule (other than the policies setforth on Schedule 5.27 of the Disclosure Schedules which terminate at theClosing as a result of the sale of the Option Shares to the Optionee) and (v) theunconditional consent to the Closing and the other Transactions of each otherparty to each material contract with the Company or any Company Subsidiary, ineach case if required by the terms of such loan, mortgage, lease, insurancepolicy or contract, but only if and to the extent that the failure to obtainsuch consent would adversely affect the Company or any Company Subsidiary orthe ability of the Company to consummate the Transactions.  All such consents shall be in writing andexecuted counterparts thereof shall be delivered to Optionee at or prior to theClosing.

 

(d)                                 Inaddition 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 allactions necessary to make the filings required of them or any of theirAffiliates under the HSR Act;

 

(ii)                                  comply at theearliest practicable date with any request for additional information ordocumentary material received by the Company, Optionee, the Optionors or any oftheir Affiliates from the FTC or the DOJ pursuant to the HSR Act or from anystate Attorney General or other Governmental Entity in connection withantitrust matters;

 

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(iii)                               cooperate with eachother in connection with any filing under the HSR Act and in connection withresolving any investigation or other inquiry concerning the Transactionscommenced by the FTC, DOJ, any state Attorney General or any other GovernmentalEntity;

 

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

 

(v)                                 advise the otherparties promptly of any material communication received by such party from theFTC, DOJ, any state Attorney General or any other Governmental Entity regardingany 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 withthe Transactions.

 

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

 

(e)                                  Notwithstandingthe foregoing or any other covenant herein contained, nothing in this Agreementshall be deemed to require any party hereto (i) to divest or hold separateany assets or agree to limit its future activities, method or place of doingbusiness, (ii) to commence any litigation against any entity in order tofacilitate the consummation of any of the Transactions or (iii) to defendagainst any litigation brought by any Governmental Entity seeking to preventthe consummation of, or impose limitations on, any of the Transactions.

 

(f)                                    TheCompany and each Company Subsidiary shall take all action reasonably requestedby Optionee, including the preparation for delivery at the Closing of allnotes, financing documents, mortgages, loan agreements, pledges, filingstatements contemplated by the Uniform Commercial Code and officer’scertificates as Optionee may request for the purpose of consummating Optionee’sfinancing of the Transactions.

 

Section 7.4                                      Notificationof Certain Matters.  (a) Fromtime to time prior to the earlier of Closing or the termination of thisAgreement, the Company shall supplement or amend the Disclosure Schedule withrespect to any matter, whether existing as of the date hereof or arisingthereafter, that was, or would have been, required to be set forth or describedin the Disclosure Schedule.  Eachsupplement to or amendment of the Disclosure Schedule (a “Disclosure Schedule Supplement”)made after the execution hereof shall be effective and shall be deemed tomodify the representations and warranties made pursuant to this Agreement, fromand after the delivery to Optionees of such Disclosure Schedule Supplement.  The Company and Optionee shall give notice tothe other promptly (with a copy to each Optionor) after becoming aware of (i) theoccurrence or non occurrence of any event whose occurrence or non occurrencewould be likely to cause either (A) any representation or warranty setforth in this Agreement that is qualified as to materiality to be untrue orincorrect in any respect at any time from the date hereof to the Closing Dateor any representation or warranty that is not so qualified to be untrue orincorrect in any material respect at any time from the date hereof to the ClosingDate or (B) any condition set forth in Article IX to be unsatisfiedat any time from the date hereof to the

 

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

 

(b)                                 TheCompany shall deliver to Optionee (with a copy to each Optionor) copies of (i) allaudit reports, letter rulings, technical advice memoranda and similar documentsissued 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 CompanySubsidiary, (ii) any closing agreements entered into by the Company or anyCompany Subsidiary with any taxing authority, which come into the possession ofthe Company after the date hereof, (iii) any letter of revocation of aCompany Permit, (iv) any complaints of material litigation filed by oragainst the Company or any Company Subsidiary, and (v) any agreements toterminate any Material Contracts.

 

Section 7.5                                      NoSolicitation of Competing Transaction.

 

(a)                                  Neitherthe Optionors, the Company nor any Company Subsidiary shall (and each of theOptionors, the Company and the Company Subsidiaries shall instruct itsrespective officers, directors, employees, representatives and agents,including investment bankers, attorneys and accountants, not to), directly orindirectly, encourage, solicit, initiate or participate in discussions ornegotiations with, or provide any information to, any Person or group (otherthan Optionee, any of its Affiliates or representatives) concerning anyAcquisition Proposal.  None of theOptionors, the Company or any Company Subsidiary shall enter into any agreementwith respect to any Acquisition Proposal. Upon execution of this Agreement, the Optionors and the Company shall immediatelycease any existing activities, discussions or negotiations with any partiesconducted heretofore with respect to any of the foregoing, and the Optionorsand the Company shall request (or if any of them has the contractual right todo so, demand) the return of all confidential documents, analyses, financialstatements, projections, descriptions and other data previously furnished toothers in connection with the Optionors’ efforts to sell the Company.  The Company or the Optionors shall immediatelynotify Optionee of the existence of any proposal or inquiry received by theCompany, and the Company shall immediately communicate to Optionee the terms ofany proposal or inquiry which it may receive (and shall immediately provide toOptionee copies of any written materials received by the Company in connectionwith such proposal, discussion, negotiation or inquiry) and the identity of theparty making such proposal or inquiry.

 

(b)                                 Neitherthe Company Board of Directors nor any committee thereof shall (i) withdrawor 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 thisAgreement, (ii) approve or recommend or propose to approve or recommend,any Acquisition Proposal or (iii) authorize the Company to enter into anyagreement with respect to any Acquisition Proposal.

 

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

 

Section 7.7                                      WaiverPursuant to and Termination of Shareholders Agreement.  Each of the Optionors and the Company herebywaives any restrictions on transfer, rights of first refusal, tag along rights andbring along rights that it may have pursuant to Sections 3, 4 and 5 of theShareholders Agreement and Sections 2, 3 and 4 of the Ozanne Agreement inrespect of the sale of the Option Shares to Optionee in accordance with theterms of this Agreement; provided, however, that such waivershall not affect any Optionor’s rights under this Agreement.  Each of the Optionors and the Company herebyagree that, in the event the Closing occurs, the Shareholders Agreement, theOzanne Agreement and the Registration Rights Agreement shall terminateimmediately upon Closing and be of no further force and effect without anyliability to any Optionor or the Company.

 

Section 7.8                                      SubsequentActions.  If at any time after theClosing Optionee will consider or be advised that any deeds, bills of sale,instruments of conveyance, assignments, assurances or any other actions orthings are necessary or desirable (i) to vest, perfect or confirmownership (of record or otherwise) in Optionee, its right, title or interestin, to or under any or all of the Option Shares, (ii) to vest, perfect orconfirm ownership (of record or otherwise) in the Company and each CompanySubsidiary, any of its rights, properties or assets or (iii) otherwise tocarryout this Agreement, the Optionors and the Company shall execute anddeliver all deeds, bills of sale, instruments of conveyance, powers ofattorney, assignments and assurances and take and do all such other actions andthings as may be reasonably requested by Optionee and at the expense of Optioneein 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 orany Company Subsidiary.

 

Section 7.9                                      FIRPTACertificates.  Each Optionor shalldeliver to the Optionee at or prior to the Closing a certificate, in form andsubstance reasonably satisfactory to the Optionee and consistent with TreasuryRegulation Section 1.1445-2, certifying that it is not a foreign person.

 

Section 7.10                                Limitationon Certain Actions.  Prior to theClosing, the Optionee shall not take any action, or request that the Company orany Company Subsidiary take any action, that, alone or in combination withanother event, could (i) entitle any current or former employee, directoror officer of the Company or any Company Subsidiary to severance pay,unemployment compensation or any other payment or (ii) accelerate the timeof payment or vesting, or increase the amount of compensation due any suchemployee, director or officer.

 

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**ARTICLE VIII**

 

**TAX MATTERS**

 

Section 8.1                                      TransferTaxes.  All Transfer Taxes andrelated amounts incurred in connection with the transactions contemplatedherein will be split equally among Optionors on the one hand and Optionee onthe other.  The Optionors and theOptionee will cooperate to timely prepare any Tax Returns or other filingsrelating to such Transfer Taxes, including any claim for exemption or exclusionfrom the application or imposition of any Transfer Taxes.  Unless otherwise required by applicablelaw,  the Optionors will file all TaxReturns or other filings with respect to Transfer Taxes, the Optionee will payto Optionors, not later than five (5) Business Days before the due datefor payment of such Transfer Taxes, an amount equal to 50% of the TransferTaxes shown on such return or other filing, and promptly following the filingthereof, the Optionors will furnish to the Optionee a copy of such return orother filing and a copy of a receipt showing payment of any such TransferTax.  With respect to any such returns orfilings required to be filed by the Optionee, the Optionors will pay to theOptionee, not later than five (5) Business Days before the due date forpayment of such Transfer Taxes, an amount equal to 50% of the Transfer Taxesshown on such return or other filing, and the Optionee will furnish to theOptionors a copy of such return or other filing and a copy of a receipt showingpayment of any Transfer Tax.

 

Section 8.2                                      TaxReturn Filings.  At the Optionors’expense, the Optionee shall, or shall cause the Company and each CompanySubsidiary to, timely prepare and file with the relevant Taxing Authorities allTax Returns of the Company and each Company Subsidiary covering a Pre-ClosingTax Period or a Straddle Period the due date for filing of which, determinedtaking into account extensions, is after the Closing Date; provided thatthe Optionee shall furnish the Optionors with a copy of such Tax Returns notlater than thirty (30) days before such Tax Returns are due, and no such TaxReturns shall be filed with any Taxing Authority without the Optionors’ writtenconsent, which consent shall not be unreasonably withheld..  The Optionors shall, or shall cause theCompany and each Company Subsidiary to, timely prepare and file with therelevant Taxing Authorities all Tax Returns for any taxable periods of theCompany, any of each Company Subsidiary, or for each Company Group with respectto which the Company or any Company Subsidiary is the parent, the due date forfiling of which, determined taking into account extensions, is on or before theClosing Date.  Any Tax Returns describedin this Section 8.2 shall be prepared on a basis consistent withapplicable law and the past practices of the Company and each CompanySubsidiary and in a manner that does not distort taxable income (e.g.,by deferring income or accelerating deductions).  All Tax Returns for a taxable periodincluding the Closing Date shall be filed on the basis that the relevanttaxable period ended as of the close of business on the Closing Date, unlessthe relevant Taxing Authority will not accept such a Tax Return.  Further, the Optionee, the Company and/oreach Company Subsidiary shall not enter into any transaction on the Closing Date(i) not contemplated by this Agreement, and (ii) outside the ordinarycourse of business which may result in the Company or any Company Subsidiarypaying additional Taxes.  Promptlyfollowing the filing of any Pre-Closing Tax Period Tax Return or a StraddlePeriod Tax Return that the Optionee is responsible for preparing pursuant tothis Section 8.2, the Optionee shall provide to the Optionors a schedule detailingthe reasonable out-of-pocket costs paid to third parties in the preparation ofsuch Tax Returns (the “Tax Return Cost Schedule”).  The Optionors shall reimburse Optionee, notlater than thirty (30)

 

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

 

Section 8.3                                      TaxIndemnification.

 

(a)                                  OptionorsIndemnification.  From and after theClosing, notwithstanding any disclosures set forth in the Disclosure Schedule,the Optionors, severally in proportion with such Optionor’s PercentageInterest, and not jointly, shall be liable for, and shall indemnify all OptioneeIndemnified Persons against and hold them harmless from (i) all liabilityfor Taxes of the Company, each Company Subsidiary and each Company Group withrespect to any Pre-Closing Tax Period, (ii) all liability (as a result ofTreasury Regulation § 1.1502-6(a) or otherwise) for Taxes of theOptionors or any other corporation which is or has ever been affiliated withthe Optionors (other than the Company or any Company Subsidiary) or with whomthe Company or any Company Subsidiary otherwise joins, has ever joined, or isor has ever been required to join, in filing any consolidated, combined orunitary Tax Return prior to the Closing Date, (iii) all liability forTaxes 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 breachof representation or warranty contained in Section 5.19, and (v) allliability for reasonable legal fees and expenses attributable to any item inthe foregoing clauses, provided, however, that all Losses,including legal fees and expenses, relating to Specified Tax Matters shall notbe considered Losses for which indemnification is provided pursuant to this Section 8.3(a) andindemnification 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 thisSection 8.3(a) shall be reduced by the amount reflected as aliability or in the reserve for Taxes on the Closing Balance Sheet (other thanthe Specified Tax Reserves) and, in addition, by the amount of any estimatedTaxes paid by or on behalf of any Company, Company Subsidiary or Company Group;provided, however, that all Losses for Specified Tax Matters forwhich indemnification is provided pursuant to Section 8.3(b), below, shallnot be reduced by the amount reflected as a liability or in the reserve forTaxes on the Closing Balance Sheet.

 

(b)                                 Fromand after the Closing Date, notwithstanding any disclosures set forth in the DisclosureSchedule, the Optionors, severally in proportion with such Optionor’sPercentage Interest, and not jointly, shall be liable for and shall indemnifyall 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 CompanySubsidiary, or any Company Group arising as a result of:

 

(i)                                     a successfulInternal 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 ofcapital stock of Truman as an ordinary loss, requiring such loss to be treatedas a capital loss, and

 

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(ii)                                  a successful InternalRevenue Service challenge of the Company’s amortization treatment of purchasedmortgage servicing rights, requiring the purchased mortgage servicing rights tobe amortized over a longer period.

 

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

 

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

 

(c)                                  Notwithstandingany disclosures set forth in the Disclosure Schedule, Optionee shall be liablefor and shall indemnify the Optionors from and against, and agrees to promptlypay the Optionors, all Tax Losses incurred as a result of a claim, notice ofdeficiency, or assessment by, or any obligation owing to, any taxing authorityfor any Taxes of the Company, any Company Subsidiary or any Company Group withrespect to any Post-Closing Tax Period.

 

(d)                                 StraddlePeriods.  In the case of any StraddlePeriod:

 

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

 

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

 

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(e)                                  Theindemnity obligation under this Section 8.3 in respect of Taxes for aStraddle Period shall initially be satisfied by its payment to the Optionee, orat the Optionee’s direction, to the Company, of the excess of (i) suchTaxes for the Pre-Closing Tax Period, over (ii) the amount of such Taxespaid 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 inthe reserve for Taxes on the Closing Balance Sheet (other than the SpecifiedTax Reserve).  At least thirty (30) daysprior to the due date (including extensions) of such Tax Return, Optionee shalldeliver to Optionors a copy of such Tax Return which will permit Optionors toreview and substantiate the accuracy of such Tax Return.  If the aggregate amount of Tax so determinedto be attributable to the Pre-Closing Tax Period is in excess of the amount ofsuch Taxes paid by the Company or any Company Subsidiary on or prior to theClosing Date (including any estimated Taxes) and any amount reflected as aliability or in the reserve for Taxes on the Closing Balance Sheet (other thanthe Specified Tax Reserve), Optionors shall pay such excess to Optionee nolater than 5 days prior to the date of such Tax Return.  If the amount of such Taxes attributable tothe Pre-Closing Tax Period is less than the amount of such Taxes paid by theCompany or any Company Subsidiary on or prior to the Closing Date (includingany estimated Taxes) and any amount reflected as a liability or in the reservefor 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 5days prior to the due date of such Tax Return. The payments to be made pursuant to this Section 8.3(e) withrespect to a Straddle Period shall be appropriately adjusted to reflect anyFinal Determination with respect to Straddle Period Taxes.

 

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

 

(g)                                 Anyindemnification obligation under this Article VIII shall remain in fullforce for the applicable statute of limitations, taking into account anyextensions, plus thirty (30) days.

 

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

 

Section 8.5                                      Refundsand Credits.  Any refund or credit ofTaxes of the Company or any Company Subsidiary for any taxable period ending onor before the Closing Date shall be for the account of the Optionors.  Notwithstanding the foregoing, however, anysuch refund or credit shall be for the account of the Optionee to the extentthat 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 StraddlePeriod 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 anyof their respective

 

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Affiliates, including theOptionee).  Any refund or credit of Taxesof the Company or any Company Subsidiary for any Post-Closing Tax Period shallbe for the account of the Optionee; provided, however, any such refund orcredit shall be for the account of the Optionors to the extent that suchrefunds or credits are attributable (determined on a marginal basis) to thecarryforward from a Pre-Closing Tax Period (or the portion of a Straddle Periodthat ends on the Closing Date) of items of loss, deductions or other Tax itemsof the Company or any Company Subsidiary (or any of their respectiveAffiliates, including the Optionee).  Anyrefund or credit of Taxes of the Company or any Company Subsidiary for anyStraddle Period shall be equitably apportioned between the Optionors and theOptionee.  Each party shall, or shallcause its Affiliates to, forward to any other party entitled under this Section8.5 to any refund or credit of Taxes any such refund within 10 days after suchrefund is received or reimburse such other party for any such credit within 10days 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 TaxBenefit to the payor party attributable to the receipt of such refund and/orthe payment of such amounts to the payee party. The parties shall treat any payments under this section as an adjustmentto the Exercise Price, unless, and then only to the extent, otherwise requiredby a Final Determination.  The control ofthe prosecution of a claim for refund of Taxes paid pursuant to a deficiencyassessed subsequent to the Closing Date as a result of an audit shall begoverned by the provisions of Section 8.7.

 

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

 

Section 8.7                                      ProceduresRelating to Indemnification of Tax Claims.

 

(a)                                  Notice.  If a claim shall be made by any TaxingAuthority, which, if successful, might result in an indemnity payment to any OptioneeIndemnified Person pursuant to Section 8.3, the Optionee shall promptlynotify the Optionors in writing of such claim (a “TaxClaim”).  Failure to givenotice of a Tax Claim to the Optionors within a sufficient period of time andin reasonably sufficient detail to allow the Optionors to effectively contestsuch Tax Claim shall affect the liability of the Optionors to any OptioneeIndemnified Person only to the extent that the Optionors’ position is actuallyand 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 Claimrelating solely to Taxes of the Company or any Company Subsidiary for aPre-Closing Tax Period, and may make all decisions in connection with such TaxClaim, provided, however, that the Optionors shall not settle anysuch Tax Claim without prior written consent of the Optionee, which consentshall not be unreasonably withheld, if such settlement would increase the Taxliability 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 inconnection with any Tax Claim relating solely to Taxes of the Company or anyCompany Subsidiary for a Straddle Period, and neither party shall settle anysuch Tax Claim without the written consent of the other party.  The Optionee shall control all proceedingswith respect to all other Tax Claims.

 

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

 

Section 8.9                                      Miscellaneous.  All indemnity obligations payable under this Article VIIIby or to Optionors shall be in accordance with each Optionor’s PercentageInterest.

 

**ARTICLE IX**

 

**CONDITIONS**

 

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

 

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

 

(b)                                 HSRApproval.  The applicable waitingperiod under the HSR Act shall have expired or been terminated.

 

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

 

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

 

(a)                                  GovernmentAction.  There shall not bethreatened or pending any suit, action or proceeding by any GovernmentalEntity:

 

(i)                                     seeking toprohibit or impose any limitations on Optionee’s ownership or operation (orthat of any of its Subsidiaries or Affiliates) of all or a portion of their orthe Company’s businesses or assets, or to compel Optionee or the Company or anyof their respective Subsidiaries or Affiliates to dispose of or hold separateany portion of the business or assets of the Company or Optionee or any oftheir respective Subsidiaries or Affiliates;

 

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(ii)                                  seeking to restrainor prohibit the consummation of the Closing or the performance of any of theother Transactions, or seeking to obtain from the Company or Optionee anydamages in connection with the performance of this Agreement or the otherTransactions;

 

(iii)                               seeking to imposelimitations on the ability of Optionee, or rendering Optionee unable, to acceptfor payment or pay for or purchase some or all of the Option Shares orconsummate the Closing;

 

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

 

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

 

or there shall be any statute, rule, regulation, judgment, order orinjunction enacted, entered, enforced, promulgated or deemed applicable to theTransactions, or any other action shall be taken by any Governmental Entity,other than the application to the Transactions of applicable waiting periodsunder 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)                                 Certificateof Company’s Officers.  The Companyshall have delivered to Optionee at the Closing a certificate signed by thechief executive officer of the Company and by the chief financial officer ofthe Company, dated the Closing Date, in form and substance reasonablysatisfactory to Optionee, to the effect that, as of the Closing Date,(w) all of the representations and warranties of the Company set forth in thisAgreement that are qualified as to materiality are true and correct,(x) all such representations and warranties that are not so qualified aretrue and correct in all material respects, (y) there has not occurred anyMaterial Adverse Change since the date hereof and (z) the Company hasperformed all material obligations required under this Agreement to beperformed by it, at or prior to the Closing.

 

(c)                                  Certificatesof Optionors’ Officers.  EachOptionor shall have delivered to Optionee at the Closing a certificate signedby an officer of such Optionor involved with such Optionor’s investment in theCompany, dated the Closing Date, in form and substance reasonably satisfactoryto Optionee, to the effect that, as of the Closing Date, (x) all of therepresentations and warranties of such Optionor set forth in this Agreementthat are qualified as to materiality are true and correct, (y) all suchrepresentations and warranties that are not so qualified are true and correctin all material respects and (z) such Optionor has performed all materialobligations required under this Agreement to be performed by it.

 

(d)                                 ConsentsObtained.  All material consents ofany Person necessary to the consummation of the Closing and the otherTransactions, including consents from parties to loans, contracts, leases orother agreements and consents from Governmental Entities, including, withoutlimitation, all consents related to the transfer of all state, federal orforeign licenses and/or confirmation that such licenses have been transferredor reapplications

 

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

 

(e)                                  Resignationof Directors and Officers.  Suchmembers of the boards of directors and such officers of the Company and theCompany Subsidiaries as are designated in a written notice delivered at leasttwo (2) Business Days prior to the Closing by Optionee to the Companyshall have tendered, effective at the Closing, their resignations as suchdirectors and officers or shall have been removed.

 

(f)                                    MaterialAdverse Change.  There shall not haveoccurred any Material Adverse Change.

 

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

 

(h)                                 NoOptionor Breach.  No Optionor shallhave failed to perform in any material respect any obligation or to comply inany material respect with any agreement or covenant to be performed or compliedwith by such Optionor under this Agreement.

 

(i)                                     NoCompany Breach.  The Company shallnot have failed to perform in any material respect any obligation or to complyin any material respect with any agreement or covenant to be performed orcomplied with by it under this Agreement.

 

(j)                                     Acquisitionof Common Stock and Termination of Company Options.  The Company shall have consummated theacquisition of all outstanding shares of Common Stock not owned by anOptionor.  There shall not be outstandingany Company Option that does not terminate upon the Closing.

 

(k)                                  CertainPayments.  The Company shall havemade the payment to the Chief Executive Officer of the Company that is requiredunder his employment agreement and is due and payable at Closing.

 

(l)                                     FeeMatrix.  The Company shall havedelivered to Optionee at the Closing a copy of the Fee Matrix of the Serviceras it exists as of the Closing (the “Fee Matrix”).  The Fee Matrix shall not reflect any increasein any fee set forth in the Signing Date Fee Matrix, unless the Optionee hasconsented to such increase.

 

The foregoing conditions are for the sole benefit of Optionee, may bewaived by Optionee, in whole or in part, at any time and from time to time inthe sole discretion of Optionee.  Thefailure by Optionee at any time to exercise any of the foregoing rights shallnot be deemed a waiver of any such right and each such right shall be deemed anongoing right which may be asserted at any time and from time to time.

 

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

 

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(a)                                  GovernmentAction.  There shall not bethreatened or pending any suit, action or proceeding by any Governmental Entityseeking to restrain or prohibit the consummation of the Closing or theperformance of any of the Transactions, or seeking to obtain from the Companyor Optionee any damages that are material in relation to the Company or theCompany Subsidiaries.

 

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

 

(c)                                  NoOptionee Breach.  Optionee shall nothave failed to perform in any material respect any material obligation or tocomply in any material respect with any agreement or covenant of Optionee to beperformed or complied with by it under this Agreement.

 

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

 

(e)                                  Satisfactionof Promissory Notes.  All amountsoutstanding under the Promissory Notes shall have been paid in full on or priorto the Closing Date.

 

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

 

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

 

**ARTICLE X**

 

**TERMINATION**

 

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

 

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

 

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

 

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

 

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

 

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

 

(e)                                  ByOptionee 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                                Effectof Termination.  In the event of thetermination or abandonment of the Option or this Agreement by any party heretopursuant to the terms of this Agreement, written notice thereof shall forthwithbe given to the other party or parties specifying the provision hereof pursuantto which such termination or abandonment is made, and there shall be noliability or obligation thereafter on the part of Optionee, the Optionors orthe Company except (a) for breach of this Agreement prior to suchtermination or abandonment, (b) as set forth in Sections 12.1, 12.19and 12.20, and (c) for breach of the confidentiality provisions of Section 7.2(c).  Notwithstanding anything to the contrarycontained herein, the termination or abandonment of the Option or thisAgreement shall not terminate the Purchase Agreement.

 

**ARTICLE XI**

 

**INDEMNIFICATION**

 

Section 11.1                                Survivalof Representations and Warranties; Time Limitations.

 

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

 

(b)                                 Theright of any Optionee Indemnified Person to initiate any action against anyOptionor for a breach of any of the covenants or agreements of the Company orany Optionor set forth herein shall terminate on December 31, 2007; exceptwith respect to such covenants or agreements set forth in this Agreement thatby 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)                                  Theright of any Optionee Indemnified Person to initiate any action against anyOptionor for a breach of any of the representations or warranties of theOptionors set forth in Article IV or any of the representations orwarranties of the Company set forth in Sections 5.3 and 5.5 shall surviveindefinitely.

 

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(d)                                 Theright of any Optionee Indemnified Person to initiate any action against anyOptionor for any breach of the representations or warranties of the Company setforth in Section 5.19 shall terminate thirty (30) days after theexpiration of the applicable statute of limitations, taking into account anyextensions.

 

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

 

Section 11.2                                Indemnification;Remedies.

 

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

 

(b)                                 Fromand after the Closing Date, each Optionor, severally in proportion with suchOptionor’s Percentage Interest, and not jointly, shall indemnify, defend andhold harmless each Optionee Indemnified Person from and against any and allLosses incurred by such Optionee Indemnified Person arising from (i) anybreach by the Company on the Closing Date of any representation or warranty ofthe Company set forth in Article V of this Agreement, (ii) any breachby the Company prior to the Closing (which has not been cured or set forth inthe Disclosure Schedules prior to the Closing Date) of any covenant of theCompany contained in this Agreement, (iii) notwithstanding whether anyindemnity obligation exists pursuant to Sections 11.2(b)(i) or11.2(b)(ii) and notwithstanding any disclosures set forth in theDisclosure Schedule, the facts underlying the Specified Disputes to the extentthat such Losses arise from events that have occurred prior to the Closing Dateor (iv) notwithstanding whether any indemnity obligation exists pursuantto Sections 11.2(b)(i) or 11.2(b)(ii) and notwithstanding anydisclosures set forth in the Disclosure Schedule, indemnification by theCompany or a Company Subsidiary of directors or officers thereof (other thanpersons that are employed by the Company or a Company Subsidiary on the ClosingDate) but only to the extent that such indemnification is mandatory under theterms of (A) an enforceable written indemnification agreement entered intoby the Company or a Company Subsidiary with such director or officer prior tothe Closing Date, (B) the certificate of incorporation or bylaws of theCompany or a Company Subsidiary as they existed on or prior to the Closing Dateor (C) applicable law (the “Specified Indemnification Obligations”)and such Losses arise from a Mortgage Loan Servicing Error occurring before theClosing Date or a Regulatory Action; provided, however, that theOptionors’ liability and indemnification obligation with respect to SpecifiedDisputes shall be reduced by any amount received by an Optionee IndemnifiedPerson in respect of any counter claim asserted by any Optionee IndemnifiedPerson in connection with such Specified Dispute; provided, further,that the Optionors’ liability and indemnification obligation with respect tothe Specified Indemnification Obligations shall be reduced by any amountrecovered pursuant to insurance policies or other contractual indemnities,which recovery each Optionee Indemnified Person agrees to pursue to the extentcommercially reasonable.  The right of an

 

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

 

(c)                                  Notwithstandingwhether any indemnity obligation exists pursuant to Sections 11.2(b)(i) or11.2(b)(ii) and notwithstanding any disclosures set forth in theDisclosure Schedule, from and after the Closing Date, each Optionor shall,severally in proportion with such Optionor’s Percentage Interest, and notjointly, indemnify, defend and hold harmless each Optionee Indemnified Personfrom and against any and all Losses incurred by such Optionee IndemnifiedPerson in respect of any Specified Real Property that arise from any EnvironmentalClaim, to the extent arising from actions or conditions existing prior to theClosing Date; provided, however, that such liability andindemnification of the Optionors shall not apply with respect to (and thefollowing shall not constitute Losses for purposes of this Section 11.2(c)):  (i) the costs of any environmentaltesting, sampling or monitoring performed by or on behalf of an OptioneeIndemnified Person, including the costs of any Phase I and Phase IIenvironmental site assessments; (ii) any Losses arising from remedial orother actions to the extent such actions entail costs greater than necessary tomeet the minimum standards mandated by applicable Environmental Laws; (iii) anyLosses to the extent caused by or resulting from any action or omission of anyOptionee Indemnified Person (provided, however, that thediscovery of any environmental condition while conducting any Phase I or PhaseII environmental site assessments shall not constitute an action causing orresulting in a Loss for purposes of this clause (iii)); and (iv) anyLosses arising or resulting from any REO Property; provided, further,that such liability and indemnification of the Optionors shall be reduced byany amount recovered by any Optionee Indemnified Person pursuant to insurancepolicies, contractual indemnities, leaking tank or other governmentalremediation trust funds, or cost recovery or contribution claims or fromlandlords, which recoveries each Optionee Indemnified Person agrees to pursueto the extent commercially reasonable. For any Optionee Indemnified Person to be eligible for indemnificationunder this Section 11.2(c), such person must have complied in all materialrespects with applicable Environmental Laws, as well as any orders ordirectives of any Governmental Entity, in connection with or relating to theissues for which indemnification is sought. No claim may be made against any Optionor for indemnification pursuantto this Section 11.2(c) unless the aggregate amount of Optionee’sLosses (exclusive of legal fees incurred in connection with pursuing suchclaim) 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) onlyto the extent Optionee’s Losses (exclusive of legal fees incurred in connectionwith pursuing such claim prior to satisfying such threshold and exclusive ofany Losses in the first sentence of this Section 11.2(c) for whichthe Optionors are not liable) under this Section 11.2(c) exceed$250,000 in the aggregate.  The portionof any Losses not subject to indemnification by the Optionors pursuant to this Section 11.2(c) shallbe borne by the Optionee Indemnified Persons and shall not be subject toindemnification under any other provision of this Agreement or the ContingentPayment Agreement.  The right of anOptionee Indemnified Person to initiate any action against any Optionor forindemnification under this Section 11.2(c) shall terminate on December 31,2007.

 

(d)                                 Notwithstandingwhether any indemnity obligation exists pursuant to Sections 11.2(b)(i) or11.2(b)(ii) and notwithstanding any disclosures set forth in theDisclosure Schedule, from and after December 31, 2007, each Optionorshall, severally in proportion with such Optionor’s Percentage Interest, andnot jointly, indemnify, defend and hold harmless the

 

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Servicer from and against any and all (i) DesignatedLitigation Expenses paid by the Servicer on or after January 1, 2006(subject to the immediately following sentence) arising from a SpecifiedPrivate Litigation Matter to the extent that such Designated Litigation Expensewas not deducted from a Monthly Contingent Payment or the Final Payment Amountand (ii) Customer Accommodations paid by the Servicer on or after January 1,2006 (subject to the immediately following sentence) to the extent that suchCustomer Accommodations were not deducted from a Monthly Contingent Payment orthe Final Payment Amount; provided, however, that the Optionorsshall not be required to make any payments under this Section 11.2(d) untileither (i) the Final Payment Amount is paid in full in accordance with theContingent Payment Agreement or (ii) the Optionee provides written noticeto the Optionors that the Final Payment Amount is zero.  The Servicer shall have the right to defendany Specified Private Litigation Matter through counsel of its own choosing andmay enter into any settlement, compromise or discharge of a Specified PrivateLitigation Matter without the consent of any Optionor and may pay any CustomerAccommodation without the consent of any Optionor; provided, however,that if the Servicer enters into any settlement, compromise or discharge of aSpecified Private Litigation Matter without the prior written consent of PMIand FSA that results in Designated Litigation Expenses in excess of $15,000,then the aggregate amount of Designated Litigation Expenses recoverable by theServicer from the Optionors under this Section 11.2(d) and theContingent Payment Agreement shall equal the sum of (i) $15,000 plus (ii) two-thirdsof the total Designated Litigation Expenses for such Specified PrivateLitigation Matter in excess of $15,000; provided, further, thatif the Servicer makes or pays any Customer Accommodation without the priorwritten consent of PMI and FSA that results in a Customer Accommodation inexcess of $10,000, then the aggregate amount of such Customer Accommodationrecoverable by the Servicer from the Optionors under this Section 11.2(d) andthe Contingent Payment Agreement shall equal the sum of (i) $10,000 plus (ii) two-thirdsof the total Customer Accommodation for such Customer Accommodation in excessof $10,000.  The portion of anyDesignated Litigation Expenses not subject to indemnification by the Optionorspursuant to this Section 11.2(d) as a result of the immediatelypreceding sentence shall be borne by the Servicer and shall not be subject toindemnification under any other provision of this Agreement or the ContingentPayment Agreement.

 

(e)                                  Notwithstandingwhether any indemnity obligation exists pursuant to Sections 11.2(b)(i) or11.2(b)(ii) and notwithstanding any disclosures set forth in theDisclosure Schedule, from and after the Closing Date, each Optionor shall,severally in proportion with such Optionor’s Percentage Interest, and notjointly, indemnify the each Optionee Indemnified Person for (i) 100% ofthe first $500,000 of Regulatory Payments paid by the Servicer after theClosing; (ii) 60% of the next $4.5 million of Regulatory Payments paid bythe Servicer after the Closing; (iii) 75% of the next $5.0 million ofRegulatory Payments paid by the Servicer after the Closing; and (iv) 100%of all additional Regulatory Payments paid by the Servicer after theClosing.  The portion of any RegulatoryPayments not subject to indemnification by the Optionors pursuant to this Section 11.2(e) shallbe borne by the Servicer and shall not be subject to indemnification under anyother provision of this Agreement or the Contingent Payment Agreement and shallnot count towards the satisfaction of the Indemnification Threshold.  The Servicer shall have the right to defendany Regulatory Action occurring prior to the Closing Date through counsel ofits own choosing and may enter into any settlement, compromise or discharge ofsuch Regulatory Action without the consent of any Optionor, except that theServicer shall (i) act in good faith and exercise ordinary business careand

 

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prudence in entering into any settlement,compromise or discharge of such Regulatory Action and (ii) consult in goodfaith with the Optionors prior to entering into any settlement, compromise ordischarge 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 obligationunder this Section 11.2(e) to follow or adopt any recommended actionmade by the Optionors hereunder).  Theright of an Optionee Indemnified Person to initiate any action against anyOptionor for indemnification under this Section 11.2(e) shallterminate on December 31, 2007.

 

(f)                                    Noclaim may be made against any Optionor for indemnification pursuant toSections 11.2(b)(i) or 11.2(b)(ii) unless the aggregate amountof Optionee’s Losses (exclusive of legal fees incurred in connection withpursuing such claim) arising from claims under Sections 11.2(b)(i) and11.2(b)(ii) (together with the amount of the Optionee’s EnvironmentalExpenditures, if any) exceed $2,500,000 (the “Indemnification Threshold”),and in such event, shall be recoverable under such sections only to the extentOptionee’s Losses (exclusive of legal fees incurred in connection with pursuingsuch claim prior to satisfying the Indemnification Threshold) under suchsections (together with the amount of the Optionee’s EnvironmentalExpenditures, if any) exceed $2,500,000 in the aggregate; provided, however,that solely for purposes of determining whether the Indemnification Thresholdhas been satisfied, the qualification of any representation, warranty orcovenant 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 beenbreached prior to satisfying the Indemnification Threshold shall be madewithout regard to such qualification; provided, further, that once theIndemnification Threshold has been satisfied, references to the terms “material”or “Material Adverse Effect” shall no longer be disregarded.

 

(g)                                 Underno 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 theaggregate, 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’sproportionate share of the Losses incurred by Optionee, based on such Optionor’sPercentage Interest.

 

(h)                                 Notwithstandinganything to the contrary contained herein, the Optionee agrees that the soleand exclusive remedy available to any Optionee Indemnified Person relating to (i) Lossesarising from Regulatory Actions, including Regulatory Payments, shall be under Section 11.2(e) hereof,(ii) Losses arising from Private Litigation, including DesignatedLitigation Expenses, shall be under the Contingent Payment Agreement and Section 11.2(d) hereof,(iii) Customer Accommodations shall be under the Contingent PaymentAgreement and Section 11.2(d) hereof and (iv) Advances,including Nonrecoverable Advances, and Customer Reversals (in each case as suchterms are defined in the Contingent Payment Agreement) shall be under theContingent Payment Agreement. Accordingly, no Optionee Indemnified Person shall have any rights toindemnification with respect to such matters under Sections 11.2(b)(i) or11.2(b)(ii).

 

(i)                                     NoOptionor shall be liable to any Optionee Indemnified Person pursuant toSections 8.3(a), 8.3(b) or 11.2, to the extent the conduct giving rise tothe right to indemnification is attributable to or arises out of the conduct ofany Optionee Indemnified Person after the Closing Date, except for purposes ofSections 11.2(b)(iv), 11.2(d) and 11.2(e)

 

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to the extent that Mortgage Loan ServicingErrors giving rise to indemnification thereunder occur both before the ClosingDate and during the 180 day period immediately after the Closing Date.  Notwithstanding anything to the contrarycontained herein, the Optionee agrees that the Optionors shall have noliability for, and shall not provide any indemnification with respect to, anyMortgage Loan Servicing Errors that occur solely after the Closing Date.

 

(j)                                     Notwithstandinganything to the contrary contained in this Agreement or the Contingent PaymentAgreement, neither the inclusion of the Signing Date Fee Matrix as an exhibithereto nor the delivery of the Fee Matrix at Closing shall alter or limit inany 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 orotherwise effect the ability of the Optionors to utilize the Signing Date FeeMatrix or the Fee Matrix in any action, suit or proceeding relating to thisAgreement or the Contingent Payment Agreement (including, without limitation, inany dispute resolution pursuant to Section 3.3(c)(iv) of thisAgreement or Section 3(e) of the Contingent Payment Agreement).

 

Section 11.3           Noticeof Claim; Defense.  (a) The OptioneeIndemnified Person shall give each Optionor prompt notice of any claim (includingthird-party claims) that may give rise to any indemnification obligation underthis Article XI (without regard to whether the Indemnification Threshold hasbeen satisfied), together with the estimated amount of such claim, and theOptionors shall have the right to assume the defense (at their expense) of anysuch third-party claim (other than a Regulatory Action or a Private Litigation)through counsel of their own choosing by so notifying the Optionee IndemnifiedPerson within 30 days of the first receipt by any Optionor of such notice fromthe Optionee Indemnified Person; provided, however, that any suchcounsel shall be reasonably satisfactory to Optionee.  Failure to give such notice shall not affectthe indemnification obligations hereunder in the absence of actual and materialprejudice.  If, under applicablestandards of professional conduct, a conflict with respect to any significantissue between any Optionee Indemnified Person and any Optionor exists inrespect of such third-party claim, the Optionee Indemnified Person shall beentitled to assume the defense of such third-party claim through counsel of itsown choosing and, if the Indemnification Threshold has been satisfied, theOptionors shall pay the reasonable fees and expenses of such counsel.  If the Indemnification Threshold has beensatisfied, the Optionors shall be liable for the fees and expenses of counselemployed by any Optionee Indemnified Person for any period during which theOptionors have not assumed the defense of any such third-party claim (otherthan during any period in which the Optionee Indemnified Person will havefailed to give notice of the third-party claim as provided above).  If the Optionors assume such defense, theOptionee Indemnified Person shall have the right to participate in the defensethereof and to employ counsel, at its own expense, separate from the counselemployed by the Optionors, it being understood that the Optionors shall controlsuch defense.  If the Optionors choose todefend or prosecute a third-party claim, the Optionee Indemnified Person shallcooperate in the defense or prosecution thereof, which cooperation shallinclude, to the extent reasonably requested by the Optionors, the retention,and the provision to Optionors, of records and information reasonably relevantto such third-party claim, and making employees of the Company available on amutually convenient basis to provide additional information and explanation ofany materials provided hereunder.  If theOptionors choose to defend or prosecute any third-party claim, the OptioneeIndemnified Person shall agree to any settlement, compromise or discharge ofsuch third-party claim that the Optionors may recommend and that, by its terms,discharges all the Optionee Indemnified

 

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

 

(b)                                 Notwithstandingthe forgoing, if the Optionee Indemnified Person determines in good faith thatthere is a reasonable probability that a third-party claim that may give riseto any indemnification obligation under this Article XI may materiallyadversely affect the business of the Company or any Company Subsidiary from andafter the Closing Date, then the Optionee Indemnified Person may, by notice toeach Optionor, conduct and control, through counsel of its choosing, whichcounsel 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 therewithand shall furnish such records, information and testimony and attend suchconferences, discovery proceedings, hearings, trials and appeals as may bereasonably requested by the Optionee Indemnified Person in connectiontherewith; provided, that the Optionors may participate, through counsel chosenby it and at its own expense, in the defense of any such claim as to which theOptionee Indemnified Person has so elected to conduct and control the defensethereof.

 

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

 

**ARTICLE XII**

 

**MISCELLANEOUS**

 

Section 12.1                                Feesand Expenses.  All costs and expensesincurred in connection with this Agreement, the Contingent Payment Agreementand the consummation of the Transactions shall be paid by the party incurringsuch expenses, except as specifically provided to the contrary in thisAgreement.  The Optionee shall pay anyfee payable to the Federal Trade Commission in connection with the pre-mergernotice filing required by the HSR Act, but the Optionee shall be entitled toreimbursement of $62,500 of such fee at the Closing in accordance with Section 3.3(b).

 

Section 12.2                                Amendmentand Modification.  This Agreement maybe amended, modified and supplemented in any and all respects, but, except asotherwise 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 theparties 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 theTransactions are terminated or abandoned pursuant to Article X, neitherthe Optionors, the Company, Optionee nor any of their respective Affiliatesshall issue or cause the publication of any press release or other publicannouncement or provide comments to the press when requested with respect tothis Agreement or the other Transactions without prior consultation with theother party, except as may be required by law or by any listing agreement witha national securities exchange or trading market.

 

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

 

if toOptionee, to:

 

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

 

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

 

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

 

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

 

if to PMI, to:

 

The PMI Group, Inc.PMI Plaza3003 Oak RoadWalnut Creek, CA  94597Attention:  General Counsel

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

 

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

 

Bracewell & Giuliani LLP711 Louisiana Street, Suite 2300Houston, Texas  77002Attention:  William S. AndersonTelephone:  713-221-1122Telecopy:  713-437-5370Email: will.anderson@bracewellgiuliani.com

 

if to FSA, to:

 

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

 

if toGreenrange, to:

 

if via mail:

 

P.O. Box 975Darien, CT 06820

 

if via personal delivery or overnight courierservice:

 

114 Goodwives River Rd.Darien, CT 06820

 

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

 

if to theCompany, to:

 

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

 

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

 

Thomas F. Cooney, IIIKirkpatrick & Lockhart Nicholson Graham LLP1800 Massachusetts Avenue, N.W.Second FloorWashington, D.C.  20036Telephone:  (202) 778-9076Telecopy:  (202) 778-9100

 

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

 

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

 

Section 12.6                                EntireAgreement; No Third Party Beneficiaries. This Agreement, the Contingent Payment Agreement and the PurchaseAgreement (a) constitutes the entire agreement and supersedes all prioragreements and understandings, both written and oral, among the parties withrespect to the subject matter hereof and thereof and (b) is not intendedto confer any rights or remedies upon any Person other than the parties heretoand thereto.

 

Section 12.7                                Severability.  Any term or provision of this Agreement thatis 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 thevalidity or enforceability of the remaining terms and provisions hereof or thevalidity or enforceability of the offending term or provision in any othersituation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction or otherauthority declares that any term or provision hereof is invalid, void orunenforceable, the parties agree that the court making such determination shallhave the power to reduce the scope, duration, area or applicability of the termor 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 validand enforceable and that comes closest to expressing the intention of theinvalid or unenforceable term or provision.

 

Section 12.8                                GoverningLaw.  This Agreement shall begoverned by and construed in accordance with the laws of the State of New Yorkwithout giving effect to the principles of conflicts of law thereof.

 

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

 

Section 12.10                          Waiverof Jury Trial.  EACH PARTY HERETOHEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDINGOR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THETRANSACTIONS.

 

Section 12.11                          Timeof Essence.  Each of the partieshereto hereby agrees that, with regard to all dates and time periods set forthor referred to in this Agreement, time is of the essence.

 

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

 

Section 12.13                          NoOther Representations.  Optioneeacknowledges and agrees that the representations and warranties of theOptionors and the Company contained in this Agreement are the sole andexclusive representations and warranties of the Optionors and the Company tothe Optionee in connection with the transactions contemplated by this Agreementand that, except as provided in Article IV and V, none of the Company orany Optionor makes or has made any express or implied representation orwarranty to the Optionee regarding the Option Shares, the Company or anyCompany Subsidiaries or their respective businesses.

 

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

 

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Section 12.15                          NoConsequential Damages.  In no eventwill any party to this Agreement be liable to any other party or any OptioneeIndemnified Person for any punitive, exemplary, indirect, special, incidentalor consequential damages, including lost profits or savings, damage to businessreputation or loss of opportunity.

 

Section 12.16                          NoSet-Off.  All payments to be made bythe Optionee to an Optionor pursuant to this Agreement or the ContingentPayment Agreement (including, without limitation, the Cash Payment, the MonthlyContingent Payments and the Final Payment Amount) shall be made without anysetoff, abatement, withholding, deduction, counter claim or reduction inrespect of, or otherwise affected by, any claim or dispute related to thisAgreement (including, without limitation, any claim pursuant to Article XI),any Servicing Agreement or any Subsequent Designated Agreement that theOptionee or the Company or any of their respective parents, Subsidiaries orAffiliates 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 partieshereto (whether by operation of law or otherwise) without the prior writtenconsent of the other parties.  Subject tothe preceding sentence, this Agreement shall be binding upon, inure to thebenefit of and be enforceable by the parties and their respective successorsand assigns.

 

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

 

Section 12.19                          NoDisparagement.

 

(a)                                  Subjectto Section 12.19(d), the Optionee agrees that, prior to the Closing, inthe event that this Agreement is terminated, for a period of three yearscommencing on the date of such termination, and, in the event that the Closingoccurs, for a period of three years commencing on the Closing Date, neither theOptionee nor any of its officers, directors, employees, counsel or otherrepresentatives shall publish in the media or make an oral statement related tothis Agreement, the Contingent Payment Agreement or the Purchase Agreement withthe intent or understanding that it be published in the media, or willfullymake any statement to any other Person, that would libel, slander, disparage ordenigrate the Company or any Company Subsidiary or any of their respective pastor present officers, directors or shareholders.

 

(b)                                 Subjectto Section 12.19(d), the Company agrees that, prior to the Closing, in theevent that this Agreement is terminated, for a period of three years commencingon the date of such termination and, in the event that the Closing occurs, fora period of three years commencing on the Closing Date, neither the Company norany of its officers, directors, employees, counsel or other representativesshall publish in the media or make an oral statement related to this Agreement,the Contingent Payment Agreement or the Purchase

 

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

 

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

 

(d)                                 Theprovisions of Sections 12.19(a), (b) and (c) shall not restrict orotherwise limit the ability of the Optionee, any Optionor, the Company or anyCompany Subsidiary nor any of their respective officers, directors, employees,counsel or other representatives to make any statement in connection with anyaction, suit, investigation, examination, or proceeding or any filing with orsubmission to any Governmental Entity or any statement required by applicablelaw or judicial process.

 

Section 12.20                          NoSolicitation of Company Employees. The Optionee agrees that, prior to the Closing and, in the event thatthis Agreement is terminated, for a period of one year commencing on the dateof such termination, neither the Optionee nor any of its Affiliates nor any oftheir respective officers, directors or employees shall, directly orindirectly, actively call on or solicit any employee or officer of the Companyor any Company Subsidiary regarding employment of such person; provided,however, that the foregoing provision shall not prohibit the Optionee orany of its Affiliates from engaging in a general solicitation of employment notspecifically directed towards an employee of SPS, including, but not limitedto, solicitations by means of a general advertisement or through a professionalrecruiter or as a result of a general inquiry received by the Optionee or itsaffiliate regarding potential employment by an employee of SPS.

 

[SIGNATURES ON FOLLOWING PAGE]

 

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IN WITNESS WHEREOF, Optionee, the Company andeach of the Optionors have executed this Agreement or caused this Agreement tobe executed by their respective officers thereunto duly authorized as of thedate 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 toOption Agreement*

 

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Exhibit A

 

**OPTIONORDATA**

 
| **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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