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As filed with the Securities and Exchange Commission on February 24, 2012
Registration No. 333-174246
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Amendment No. 4
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
 
NATIONSTAR MORTGAGE HOLDINGS INC.
(Exact name of registrant as specified in its charter)
 
         
Delaware
  6162   45-2156869
(State or Other Jurisdiction of Incorporation or Organization)
  (Primary Standard Industrial Classification Code Number)   (I.R.S. Employer
Identification No.)
 
350 Highland Drive
Lewisville, Texas 75067
(469) 549-2000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
 
Anthony W. Villani, Esq.
Executive Vice President and General Counsel
Nationstar Mortgage Holdings Inc.
350 Highland Drive
Lewisville, Texas, 75067
(469) 549-2000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
 
(Copies of all communications, including communications sent to agent for service)
 
     
Duane McLaughlin, Esq.
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
(212) 225-2000
  Richard B. Aftanas, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
4 Times Square
New York, New York 10036
(212) 735-3000
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:   o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o Accelerated filer  o Non-accelerated filer  þ Smaller reporting company  o
(Do not check if a smaller reporting company)
 
CALCULATION OF REGISTRATION FEE
 
                                         
              Proposed maximum
      Proposed maximum
      Amount of
 
Title of Each Class of
    Amount to
      offering price
      aggregate
      registration fee
 
Securities to be Registered     be registered(1)       per share(2)       offering price(1)(2)       (2)(3)  
Common Stock, $0.01 par value per share
      19,166,667 shares       $ 19.00       $ 364,166,673       $ 41,733.50  
                                         
(1)  Includes shares of common stock that the underwriters may purchase from us upon exercise of the overallotment option.
(2)  Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933, as amended.
(3)  Previously paid.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
Subject to Completion
Preliminary Prospectus dated February 24, 2012
 
PROSPECTUS
 
16,666,667 Shares
 
(NATIONSTAR MORTGAGE HOLDINGS LOGO)
 
Nationstar Mortgage Holdings Inc.
Common Stock
 
 
 
 
This is an initial public offering of common stock of Nationstar Mortgage Holdings Inc. We are selling 16,666,667 shares of our common stock. After this offering, the Initial Stockholder, an entity owned primarily by certain private equity funds managed by an affiliate of Fortress Investment Group LLC, will own approximately 80.8% of our common stock or 78.5% if the underwriters’ overallotment option is fully exercised.
 
The estimated initial public offering price is between $17.00 and $19.00 per share. We have applied to list our common stock on the New York Stock Exchange (“NYSE”) under the symbol “NSM”.
 
Investing in our common stock involves risks. See “Risk Factors” beginning on page 15.
 
 
 
 
Neither the Securities and Exchange Commission (“SEC”) nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
                 
   
Per Share
 
Total
 
Public offering price
           
Underwriting discount
           
Proceeds to us (before expenses)
           
 
We have granted the underwriters the right to purchase up to 2,500,000 additional shares of common stock at the public offering price less underwriting discounts and commissions, for the purpose of covering overallotments.
 
The underwriters expect to deliver the shares of common stock to investors on or about     , 2012.
 
 
 
 
BofA Merrill Lynch Citigroup Credit Suisse Wells Fargo Securities
Allen & Company LLC Barclays Capital J.P. Morgan Keefe, Bruyette & Woods Sterne Agee
 
 
 
 
The date of this prospectus is          , 2012.


 

 
We are responsible for the information contained in this prospectus and in any related free-writing prospectus we may prepare or authorize to be delivered to you. We have not authorized anyone to give you any other information, and we take no responsibility for any other information that others may give you. We are not, and the underwriters are not, making an offer of these securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this prospectus.
 
 
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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus. It may not contain all the information that may be important to you. You should read the entire prospectus carefully, including the section entitled “Risk Factors” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision to purchase shares of our common stock.
 
Nationstar Mortgage Holdings Inc. is a newly formed Delaware corporation that has not, to date, conducted any activities other than those incident to its formation and the preparation of this registration statement. Unless the context suggests otherwise, references in this prospectus to “Nationstar,” the “Company,” “we,” “us,” and “our” refer to Nationstar Mortgage LLC and its consolidated subsidiaries prior to the consummation of the Restructuring (as defined below), and to Nationstar Mortgage Holdings Inc. and its consolidated subsidiaries after the consummation of the Restructuring. References in this prospectus to “Fortress” refer to Fortress Investment Group LLC. For certain industry and other terms, investors are referred to the section entitled “Glossary of Industry and Other Terms” beginning on page 99. All amounts in this prospectus are expressed in U.S. dollars and the financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).
 
Company Overview
 
We are a leading high touch non-bank residential mortgage servicer with a broad array of servicing capabilities across the residential mortgage product spectrum. We have been the fastest growing mortgage servicer since 2007 as measured by growth in aggregate unpaid principal balance (“UPB”), having grown 70.2% annually on a compounded basis. As of December 31, 2011, we serviced over 645,000 residential mortgage loans with an aggregate UPB of $106.6 billion (including $7.8 billion of servicing under contract), making us the largest high touch non-bank servicer in the United States. Our clients include national and regional banks, government organizations, securitization trusts, private investment funds and other owners of residential mortgage loans and securities.
 
We attribute our growth to our strong servicer performance and high touch servicing model, which emphasizes borrower interaction to improve loan performance and minimize loan defaults and foreclosures. We believe our exceptional track record as a servicer, coupled with our ability to scale our operations without compromising servicer quality, have enabled us to add new mortgage servicing portfolios with relatively low capital investment. We are a preferred partner of many large financial organizations, including government-sponsored enterprises (“GSEs”) and other regulated institutions that value our strong performance and also place a premium on our entirely U.S.-based servicing operations. We employ over 2,500 people in the United States and are a licensed servicer in all 50 states.
 
In addition to our core servicing business, we are one of only a few non-bank servicers with a fully integrated loan originations platform and suite of adjacent businesses designed to meet the changing needs of the mortgage industry. Our originations platform complements and enhances our servicing business by allowing us to replenish our servicing portfolio as loans pay off over time, while our adjacent businesses broaden our product offerings by providing mortgage-related services spanning the life cycle of a mortgage loan. We believe our integrated approach, together with the strength and diversity of our servicing operations and our strategies for growing substantial portions of our business with minimal capital outlays (which we refer to as our “capital light” approach), position us to take advantage of the major structural changes currently occurring across the mortgage industry.
 
Servicing Industry Dynamics
 
Mortgage servicers provide day-to-day administration and servicing for loans on behalf of mortgage owners and earn revenues based primarily on the UPB of loans serviced. Servicers collect and remit monthly

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loan principal and interest payments and provide related services in exchange for contractual servicing fees. Servicers also provide special services such as overseeing the resolution of troubled loans. As the mortgage industry continues to struggle with elevated borrower delinquencies, this special servicing function has become a particularly important component of a mortgage servicer’s role and, we believe, a key differentiator among mortgage servicers.
 
According to Inside Mortgage Finance, there were approximately $10.3 trillion of U.S. residential mortgage loans outstanding as of December 31, 2011. In the aftermath of the U.S. financial crisis, the residential mortgage industry is undergoing major structural changes that affect the way mortgage loans are originated, owned and serviced. These changes have benefited and should continue to significantly benefit non-bank mortgage servicers. Banks currently dominate the residential mortgage servicing industry, servicing over 90% of all residential mortgage loans as of September 30, 2011. Over 50% of all residential mortgage loan servicing is concentrated among just four banks. However, banks are currently under tremendous pressure to exit or reduce their exposure to the mortgage servicing business as a result of increased regulatory scrutiny and capital requirements, headline risk associated with sizeable legal settlements, as well as potentially significant earnings volatility. Furthermore, banks’ mortgage servicing operations, which have historically been oriented towards payment processing, are often ill-equipped to maximize loan performance through high touch servicing.
 
As a result of these factors and the overall increased demands on servicers by mortgage owners, mortgage servicing is shifting from banks to non-bank servicers. Already, over the last 18 months, banks have completed servicing transfers on $275 billion of mortgage loans. We believe this represents a fundamental change in the mortgage servicing industry and expect the trend to continue at an accelerated rate in the future. Because the mortgage servicing industry is characterized by high barriers to entry, including the need for specialized servicing expertise and sophisticated systems and infrastructure, compliance with GSE and client requirements, compliance with state-by-state licensing requirements and the ability to adapt to regulatory changes at the state and federal levels, we believe we are one of the few mortgage servicers competitively positioned to benefit from the shift.
 
Our Business
 
 
Residential Mortgage Servicing
 
Our leading residential mortgage servicing business serves a diverse set of clients encompassing a broad range of mortgage loans, including prime and non-prime loans, traditional and reverse mortgage loans, GSE and government agency-insured loans, as well as private-label loans issued by non-government affiliated


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institutions. We have grown our residential mortgage servicing portfolio from an aggregate UPB of $12.7 billion as of December 31, 2007 to $106.6 billion as of December 31, 2011 (including $7.8 billion of servicing under contract). Since December 2008, we have added over $104 billion in UPB to our servicing platform through approximately 300 separate transfers from 30 different counterparties (excluding $7.8 billion of servicing under contract). This growth has been funded primarily through internally generated cash flows and proceeds from debt financings.
 
Our performance record stands out when compared to other mortgage servicers:
 
  •     As of December 2011, a GSE ranked us in the top 5 out of over 1,000 approved servicers in foreclosure prevention workouts.
 
  •     In 2011, we were in the top tier of rankings for Federal Housing Administration-(“FHA”) and Housing and Urban Development-approved servicers, with a Tier 1 ranking (out of four possible tiers).
 
  •     As of December 31, 2011, our delinquency and default rates on non-prime mortgages we service on behalf of third party investors in asset-backed securities (“ABS”) were each 40% lower than the peer group average.
 
Our high touch, active servicing approach emphasizes increased borrower contact in an effort to improve loan performance and reduce loan defaults and foreclosures, thereby minimizing credit losses and maximizing cash flows for our clients. Where appropriate, we perform loan modifications, often facilitated by government programs such as the Home Affordable Modification Program (“HAMP”), which serve as an effective alternative to foreclosure by keeping borrowers in their homes and bringing them current on their loans. We believe our proven servicing approach and relative outperformance have led large financial institutions, GSEs and government organizations to award major servicing and subservicing contracts to us, often on a repeat basis.
 
Our systems and infrastructure play a key role in our servicing success. Through careful monitoring and frequent direct communication with borrowers, we are able to quickly identify potential payment problems and work with borrowers to address issues efficiently. To this end, we leverage our proprietary processing, loss mitigation and caller routing systems to implement a single point of contact model for troubled loans that ensures smooth and prompt communication with borrowers, consistent with standards imposed on the largest bank servicers by the Office of the Comptroller of the Currency (the “OCC”), the Federal Reserve and the Federal Deposit Insurance Corporation (“FDIC”). Our core systems are scalable to multiples of our current size.
 
We service loans as the owner of mortgage servicing rights (“MSRs”), which we refer to as “primary servicing,” and we also service loans on behalf of other MSR or mortgage owners, which we refer to as “subservicing.” As of December 31, 2011, our primary servicing and subservicing portfolios represented 46.4% and 53.6%, respectively, of our total servicing portfolio (excluding $7.8 billion of servicing under contract).
 
Primary Servicing
 
Primary servicers act as servicers on behalf of mortgage owners and directly own the MSRs, which represent the contractual right to a stream of cash flows (expressed as a percentage of UPB) in exchange for performing specified mortgage servicing functions and temporarily advancing funds to cover payments on delinquent and defaulted mortgages.
 
We have grown our primary servicing portfolio to $45.8 billion in UPB as of December 31, 2011 (excluding $7.8 billion of servicing under contract) from $12.7 billion in UPB as of December 31, 2007, representing a compound annual growth rate of 37.8%. We plan to continue growing our primary servicing


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portfolio principally by acquiring MSRs from banks and other financial institutions under pressure to exit or reduce their exposure to the mortgage servicing business. As the servicing industry paradigm continues to shift from bank to non-bank servicers at an increasing pace, we believe there will be a significant opportunity to increase our market share of the servicing business.
 
We acquire MSRs on a standalone basis and have also developed an innovative model for investing on a capital light basis by co-investing with financial partners in “excess MSRs.” Excess MSRs are the servicing fee cash flows (“excess fees”) on a portfolio of mortgage loans after payment of a basic servicing fee. In these transactions, we provide all servicing functions in exchange for the basic servicing fee, then share the excess fee with our co-investment partner on a pro rata basis. Through December 31, 2011, we added $10 billion of loan servicing through excess MSRs and expect to continue to deploy this co-investment strategy in the future.
 
Subservicing
 
Subservicers act on behalf of MSR or mortgage owners that choose to outsource the loan servicing function. In our subservicing portfolio, we earn a contractual fee per loan we service. The loans we subservice often include pools of underperforming mortgage loans requiring high touch servicing capabilities. Many of our recent subservicing transfers have been facilitated by GSEs and other large mortgage owners that are seeking to improve loan performance through servicer upgrades. Subservicing represents another capital light means of growing our servicing business, as subservicing contracts are typically awarded on a no-cost basis and do not require substantial capital.
 
We have grown our subservicing portfolio to $53.0 billion in UPB as of December 31, 2011 by completing 290 transfers with 26 counterparties since we entered the subservicing business in August 2008. We expect to enter into additional subservicing arrangements as mortgage owners seek to transfer credit stressed loans to high touch subservicers with proven track records and the infrastructure and expertise to improve loan performance.
 
Adjacent Businesses
 
We operate or have investments in several adjacent businesses which provide mortgage-related services that are complementary to our servicing and originations businesses. These businesses offer an array of ancillary services, including providing services for delinquent loans, managing loans in the foreclosure/real estate owned (“REO”) process and providing title insurance agency, loan settlement and valuation services on newly originated and re-originated loans. We offer these adjacent services in connection with loans we currently service, as well as on a third party basis in exchange for base and/or incentive fees. In addition to enhancing our core businesses, these adjacent services present an opportunity to increase future earnings with minimal capital investment, including by expanding the services we provide to large banks and other financial institutions seeking to outsource these functions to a third party.
 
Originations
 
We are one of only a few non-bank servicers with a fully integrated loan originations platform to complement and enhance our servicing business. In 2011, we originated approximately $3.4 billion of loans, up from $2.8 billion in 2010. We originate primarily conventional agency (GSE) and government-insured residential mortgage loans and, to mitigate risk, typically sell these loans within 30 days while retaining the associated servicing rights.
 
A key determinant of the profitability of our primary servicing portfolio is the longevity of the servicing cash flows before a loan is repaid or liquidates. Our originations efforts are primarily focused on “re-origination,” which involves actively working with existing borrowers to refinance their mortgage loans. By re-originating loans for existing borrowers, we retain the servicing rights, thereby extending the longevity of the


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servicing cash flows, which we refer to as “recapture.” We recaptured 35.4% of the loans we service that were refinanced or repaid by the borrower during 2011 and our goal for 2012 is to achieve a recapture rate of over 55%. Because the refinanced loans typically have lower interest rates or lower monthly payments, and, in general, subsequently refinance more slowly and default less frequently, these refinancings also typically improve the overall quality of our primary servicing portfolio.
 
With our in-house originations capabilities, we believe we are better protected against declining servicing cash flows as we replace servicing run-off through new loan originations or retain our servicing portfolios through re-origination. In addition, our re-origination strategy allows us to generate additional loan servicing more cost-effectively than MSRs can otherwise be acquired in the open market.
 
Our Strengths
 
We believe our servicing platform, coupled with our originations and adjacent businesses, position us well for a variety of market environments. The following competitive strengths contribute to our leading market position and differentiate us from our competitors:
 
Top Performing Preferred Servicing Partner
 
Through careful monitoring and frequent direct communication with borrowers, our high touch, high-quality servicing model allows us to improve loan performance and reduce loan defaults and foreclosures, thereby minimizing credit losses and maximizing cash flows for our clients. In recognition of our performance, as of December 2011, a GSE ranked us in the top 5 out of over 1,000 approved servicers in foreclosure prevention workouts. Our demonstrated ability to achieve strong results and relative outperformance, as well as our entirely U.S.-based servicing operations, have made us a preferred partner of large financial institutions, GSEs and government organizations, which have awarded major servicing and subservicing contracts to us, often on a repeat basis.
 
Scalable Technology and Infrastructure
 
Our highly scalable technology and infrastructure have enabled us to manage rapid growth over the past several years while maintaining our high servicing standards and enhancing loan performance. We have made significant investments in loan administration, customer service, compliance and loss mitigation, as well as in employee training and retention. Our staffing, training and performance tracking programs, centralized in the Dallas/Fort Worth, Texas area, have allowed us to expand the size of our servicing team while maintaining high quality standards. With our core systems scalable to multiples of our current size, we believe our infrastructure positions us well to take advantage of structural changes in the mortgage industry. Because the mortgage servicing industry is characterized by high barriers to entry, we also believe we are one of the few mortgage servicers competitively positioned to benefit from existing and future market opportunities.
 
Track Record of Efficient Capital Deployment
 
We have an established track record of deploying capital to grow our business. For example, since December 2008, we have effectively used capital from internally generated cash flows and proceeds from debt financings to add over $104 billion in UPB to our servicing platform (excluding $7.8 billion of servicing under contract). In addition, we employ capital light strategies, including our innovative strategy for co-investment in excess MSRs with financial partners as well as subservicing arrangements, to add new mortgage servicing portfolios with relatively low capital investment. Through December 31, 2011, we added $10 billion of loan servicing through excess MSRs and expect to continue to deploy this co-investment strategy in the future, while also evaluating subservicing arrangements as mortgage owners seek to transfer credit stressed loans to high touch subservicers in order to improve loan performance. We believe that our experience of efficiently deploying capital for growth puts us in a strong position to manage future growth opportunities.


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Attractive Business Model with Strong Recurring Revenues
 
Banks are under tremendous pressure to exit or reduce their exposure to the mortgage servicing business, and GSEs are looking for strong mortgage servicers as the mortgage industry continues to struggle with elevated borrower delinquencies. As the shift from bank to non-bank servicers accelerates, we believe there will be a significant opportunity for us to achieve growth on attractive terms. Our senior management team has already demonstrated its ability to identify, evaluate and execute servicing portfolio acquisitions. We have developed an attractive business model to grow our business and generate strong, recurring, contractual fee-based revenue with minimal credit risk. These revenue streams provide us with significant capital to grow our business organically.
 
Integrated Originations Capabilities
 
As one of only a few non-bank servicers with a fully integrated loan originations platform, we are often able to extend the longevity of our servicing cash flows through loan refinancings. We recaptured 35.4% of the loans we service that were refinanced or repaid by the borrower during 2011 and our goal for 2012 is to achieve a recapture rate of over 55%. Because, in general, refinanced loans subsequently refinance more slowly and default less frequently than many currently outstanding loans, these refinancings also typically improve the overall quality of our primary servicing portfolio. We believe our in-house originations capabilities allow us to generate additional loan servicing more cost-effectively than MSRs can otherwise be acquired in the open market.
 
Strong and Seasoned Management Team
 
Our senior management team is comprised of experienced mortgage industry executives with a track record of generating financial and operational improvements. Our current Chief Executive Officer has been with us for more than a decade and has managed the company through the most recent economic downturn and through multiple economic cycles. Several members of our management team have held senior positions at other residential mortgage companies. Our senior management team has demonstrated its ability to adapt to changing market conditions and has developed a proven ability to identify, evaluate and execute successful portfolio and platform acquisitions. We believe that the experience of our senior management team and its management philosophy are significant contributors to our operating performance.
 
Growth Strategies
 
We expect to drive future growth in the following ways:
 
Grow Residential Mortgage Servicing
 
We expect to grow our business primarily by adding to our residential mortgage servicing portfolios through MSR acquisitions and subservicing transfers. Over the last 18 months, banks and other financial institutions have completed a significant number of MSR sales and subservicing transfers, and we expect an even greater number over the next 18 months. We are continuously reviewing, evaluating and, when attractive, pursuing MSR sales and subservicing transfers, and we believe we are well-positioned to compete effectively for these opportunities. We believe our success in this area has been, and will continue to be, driven by our strong servicer performance, as well as by the systems and infrastructure we have implemented to meet specific client requirements.
 
Pursue Capital Light Servicing Opportunities
 
We intend to pursue capital light strategies that will allow us to grow our MSR and subservicing portfolios with minimal capital outlays. Within our subservicing portfolio, since August 2008, we have grown our servicing UPB to $53.0 billion with no capital outlays. Many of our recent subservicing transfers have


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been facilitated by GSEs and other large mortgage owners and we expect to leverage our relationships to complete additional subservicing transfers as mortgage owners seek to transfer credit stressed loans to high touch servicers through subservicing arrangements. Within our MSR portfolio, we have developed an innovative strategy for co-investing on a capital light basis in excess MSRs with financial partners. Through December 31, 2011, we added $10 billion of loan servicing through excess MSRs and expect to continue to deploy this co-investment strategy in the future. We anticipate that these capital light strategies will allow us to significantly expand our mortgage servicing portfolio with reduced capital investment.
 
Expand Originations to Complement Servicing
 
We also expect our originations platform to play an important role in driving our growth and, in particular, enhancing the profitability of our servicing business. As one of only a few non-bank servicers with a fully integrated loan originations platform, we originate new GSE-eligible and FHA-insured loans for sale into the securitization market and retain the servicing rights associated with those loans. More importantly, we re-originate loans from existing borrowers seeking to take advantage of improved loan terms, thereby extending the longevity of the related servicing cash flows, which increases the profitability and the credit quality of the servicing portfolio. Through our originations platform, we generate additional loan servicing more cost-effectively than MSRs can otherwise be acquired in the open market. Finally, we facilitate borrower access to government programs designed to encourage refinancings of troubled or stressed loans, improving overall loan performance. We believe this full range of abilities makes us a more attractive counterparty to entities seeking to transfer servicing to us, and we expect it to contribute to the growth of our servicing portfolio.
 
Meet Evolving Needs of the Residential Mortgage Industry
 
We expect to drive growth across all of our businesses by being a solution provider to a wide range of financial and government organizations as they navigate the structural changes taking place across the mortgage industry. With banks under pressure to reduce their exposure to the mortgage market, with the U.S. government under pressure to address its large mortgage exposure and with weak market conditions contributing to elevated loan delinquencies and defaults, we expect there to be numerous compelling situations requiring our expertise. We believe the greatest opportunities will be available to servicers with the proven track record, scalable infrastructure and range of services that can be applied flexibly to address different organizations’ needs. To position ourselves for these opportunities, since 2010 we have expanded our business development team and hired a dedicated senior executive whose primary role is to identify, evaluate, and enhance acquisition and partnership opportunities across the mortgage industry, including with national and regional banks, mortgage and bond insurers, private investment funds and various government agencies. We have also expanded and enhanced our loan transfer, collections and loss mitigation infrastructure in order to be able to accommodate substantial additional growth. We expect these efforts to position us to be a key participant in the long term restructuring and recovery of the mortgage sector.
 
Corporate and Other Information
 
Nationstar Mortgage Holdings Inc. was recently incorporated for the purpose of effecting this offering and currently holds no material assets and does not engage in any operations. Prior to the completion of this offering, all of the equity interests in Nationstar Mortgage LLC will be transferred from FIF HE Holdings LLC (our “Initial Stockholder”) to two direct, wholly-owned subsidiaries of Nationstar Mortgage Holdings Inc. (the “Restructuring”). Additionally, as part of the Restructuring, certain parent entities of our Initial Stockholder that do not have any material assets or material liabilities other than their direct or indirect ownership of our Initial Stockholder, or any operations, will be merged with and into Nationstar Mortgage Holdings Inc., and the former shareholders of those parent entities will receive equity interests in our Initial Stockholder. Upon the completion of the Restructuring, we will conduct our business through Nationstar Mortgage LLC and its consolidated subsidiaries. Prior to the completion of this offering, we also will effect a 70,000 to 1 stock split pursuant to a stock dividend. All shares and per share data in this prospectus have been


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adjusted to reflect the stock split, except as otherwise indicated. In addition, in connection with this offering, the Initial Stockholder is offering to certain of our current and former members of management the opportunity to exchange their Series 1 Class A units for shares of our common stock that are currently held by the Initial Stockholder (the “Unit Exchange”). See “Principal Stockholder—Unit Exchange.”
 
Our executive offices are located at 350 Highland Drive, Lewisville, Texas 75067 and our telephone number is (469) 549-2000. Our Internet website address is www.nationstarholdings.com . Information on, or accessible through, our website is not part of this prospectus.
 
Nationstar Mortgage LLC was formed in 1994 in Denver, Colorado as Nova Credit Corporation, a Nevada corporation. In 1997, it moved its executive offices and primary operations to Dallas, Texas and changed its name to Centex Credit Corporation. In 2001, Centex Credit Corporation was merged into Centex Home Equity Company, LLC, a Delaware limited liability company (“CHEC”). In 2006, our Initial Stockholder acquired all of its outstanding membership interests (the “Acquisition”), and CHEC changed its name to Nationstar Mortgage LLC.
 
Our Principal Stockholder
 
Following the completion of this offering, our Initial Stockholder, an entity owned primarily by certain private equity funds managed by an affiliate of Fortress, a leading global investment manager that offers alternative and traditional investment products, will own approximately 80.8% of our outstanding common stock or 78.5% if the underwriters’ overallotment option is fully exercised. After this offering, the Initial Stockholder will own shares sufficient for the majority vote over fundamental and significant corporate matters and transactions. See “Risk Factors—Risks Related to Our Organization and Structure.”
 
Ownership Structure
 
Set forth below is the ownership structure of Nationstar Mortgage Holdings Inc. and its subsidiaries upon consummation of the Restructuring and this offering.
 
(FLOW CHART)


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The Offering
 
Common stock we are offering 16,666,667 shares
 
Common stock to be issued and outstanding after this offering 86,666,667 shares
 
Use of proceeds by us We estimate that the net proceeds to us from the sale of shares in this offering, after deducting offering expenses payable by us, will be approximately $276.7 million, assuming the shares are offered at $18.00 per share, which is the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus. We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including servicing acquisitions, which may include acquisitions from one or more affiliates of the underwriters in this offering. See “Use of Proceeds.”
 
Dividend policy We do not expect to pay dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used for the operation and growth of our business.
 
Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial position, results of operations, liquidity, legal requirements and restrictions that may be imposed by the indenture governing our 10.875% senior notes due 2015 (the “senior notes”). See “Dividend Policy.”
 
Risk factors Please read the section entitled “Risk Factors” beginning on page 15 for a discussion of some of the factors you should carefully consider before deciding to invest in our common stock.
 
Proposed NYSE symbol “NSM”
 
The number of shares of common stock to be issued and outstanding after the completion of this offering is based on 70,000,000 shares of common stock issued and outstanding as of February 24, 2012 after giving effect to the Restructuring and the 70,000 for 1 stock split (which will be effective prior to the completion of this offering), and excludes an additional 5,200,000 shares reserved for issuance under our equity incentive plan, 4,169,442 of which remain available for grant.
 
Except as otherwise indicated, all information in this prospectus:
 
  •     assumes an initial public offering price of $18.00 per share, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus;
 
  •     assumes no exercise by the underwriters of their option to purchase an additional 2,500,000 shares of common stock from us to cover overallotments; 
 
  •     does not include 1,030,558 unvested shares of restricted stock that we expect to grant to certain of our executive officers, directors and employees in connection with this offering;


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  •     does not give effect to any exchange of units of the Initial Stockholder by our current or former members of management for shares of our common stock in the Unit Exchange; and
 
  •     reflects a 70,000 for 1 stock split, which will be effective prior to the completion of this offering.


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SUMMARY CONSOLIDATED FINANCIAL DATA
 
The following tables summarize consolidated financial information of Nationstar Mortgage LLC, our predecessor company, as well as pro forma information that reflects the impact of our conversion to a taxable entity from a disregarded entity for tax purposes. We were formed on May 9, 2011 and have not, to date, conducted any activities other than those incident to our formation and the preparation of this registration statement. We were formed solely for the purpose of reorganizing the organizational structure of the Initial Stockholder and Nationstar Mortgage LLC, so that the issuer is a corporation rather than a limited liability company and our existing investors will own common stock rather than equity interests in a limited liability company. You should read these tables along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
 
The information in the following tables gives effect to the 70,000 for 1 stock split, which will be effective prior to the completion of this offering. The summary consolidated statement of operations data for the years ended December 31, 2009, 2010 and 2011 and the summary consolidated balance sheet data at December 31, 2010 and 2011 have been derived from our audited financial statements included elsewhere in this prospectus. The summary consolidated balance sheet data at December 31, 2009 has been derived from our audited financial statements that are not included in this prospectus.
 
                         
   
Year Ended December 31,
 
   
2009
   
2010
   
2011
 
    (in thousands, except per share data)  
Statement of Operations Data—Consolidated
                       
Revenues:
                       
Total fee income
    $100,218       $184,084       $268,598  
Gain (loss) on mortgage loans held for sale
    (21,349 )     77,344       109,136  
                         
Total revenues
    78,869       261,428       377,734  
Total expenses and impairments
    142,367       220,976       306,183  
Other income (expense):
                       
Interest income
    52,518       98,895       66,802  
Interest expense
    (69,883 )     (116,163 )     (105,375 )
Loss on interest rate swaps and caps
    (14 )     (9,801 )     298  
Fair value changes in ABS securitizations
          (23,297 )     (12,389 )
                         
Total other income (expense)
    (17,379 )     (50,366 )     (50,664 )
                         
Net (loss) income
    $(80,877 )     $(9,914 )     $20,887  
                         
Pro Forma Information (unaudited):
                       
Historical net income before taxes
                    $20,887  
Pro forma adjustment for taxes (1)
                     
                         
Pro forma net income
                    $20,887  
                         
                         
                         
Net income (loss) per share:
                       
Basic and diluted
    $(0.93 )     $(0.11 )     $0.24  
                         
Number of shares outstanding (2) :
                       
Basic and diluted
    86,667       86,667       86,667  
 
(1) Our pro forma effective tax rate for 2011 is 0%. The pro forma tax provision, before utilization of tax benefits, is $11,448 on pre-tax income of $20,887. We expect to assume certain tax attributes of certain parent entities of our Initial Stockholder as a result of the Restructuring, including approximately $196 million of net operating loss carry forwards as of December 31, 2011. We expect to record a full valuation allowance against any resulting deferred tax asset. The utilization of these tax attributes will be limited pursuant to Sections 382 and 383 of the Internal Revenue Code.


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(2) Represents the number of shares issued and outstanding after giving effect to our sale of common stock in this offering and does not include common stock that may be issued and sold upon exercise of the underwriters’ overallotment option.
 
                         
   
December 31,
   
2009
 
2010
 
2011
    (in thousands)
Balance Sheet Data—Consolidated
                       
Cash and cash equivalents
    $41,645       $21,223       $62,445  
Accounts receivable
    513,939       441,275       562,300  
Mortgage servicing rights
    114,605       145,062       251,050  
Total assets
    1,280,185       1,947,181       1,787,931  
Notes payable (1)
    771,857       709,758       873,179  
Unsecured senior notes
          244,061       280,199  
Legacy assets securitized debt
    177,675       138,662       112,490  
Excess spread financing (at fair value)
                44,595  
ABS nonrecourse debt (at fair value)
          496,692        
Total liabilities
    1,016,362       1,690,809       1,506,622  
Total members’ equity
    263,823       256,372       281,309  
 
(1) A summary of notes payable as of December 31, 2011 follows:
 
         
Notes Payable
 
December 31, 2011
    (in thousands)
Servicing
       
2010-ABS Advance Financing Facility
    $219,563  
2011-Agency Advance Financing Facility
    25,011  
MBS Advance Financing Facility
    179,904  
Securities Repurchase Facility (2011)
    11,774  
MSR Note
    10,180  
Originations
       
$300 Million Warehouse Facility
    251,722  
$100 Million Warehouse Facility
    16,047  
$175 Million Warehouse Facility
    46,810  
$50 Million Warehouse Facility
    7,310  
ASAP+ Short-Term Financing Facility
    104,858  
         
      $873,179  
         
 
The following tables summarize consolidated financial information for our Operating Segments. Management analyzes our performance in two separate segments, the Servicing Segment and the Originations Segment, which together constitute our Operating Segments. In addition, we have a legacy asset portfolio, which primarily consists of non-prime and non-conforming mortgage loans, most of which were originated from April to July 2007. The Servicing Segment provides loan servicing on our servicing portfolio and the


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Originations Segment involves the origination, packaging and sale of GSE mortgage loans into the secondary markets via whole loan sales or securitizations.
 
                         
   
Year Ended December 31,
   
2009
 
2010
 
2011
    (in thousands)
Statement of Operations Data—Operating Segments Information
                       
Revenues:
                       
Total fee income
    $101,289       $189,884       $269,585  
Gain on mortgage loans held for sale
    54,437       77,498       109,431  
                         
Total revenues
    155,726       267,382       379,016  
Total expenses and impairments
    118,429       194,203       279,537  
Other income (expense):
                       
Interest income
    8,404       12,111       14,981  
Interest expense
    (29,315 )     (60,597 )     (68,979 )
Gain (loss) on interest rate swaps and caps
          (9,801 )     298  
                         
Total other income (expense)
    (20,911 )     (58,287 )     (53,700 )
                         
Net income
    $16,386       $14,892       $45,779  
                         
 
                         
   
Year Ended December 31,
 
   
2009
   
2010
   
2011
 
    (in thousands)  
 
Net Income from Operating Segments to Adjusted EBITDA Reconciliation:
                       
Net income from Operating Segments
    $16,386       $14,892       $45,779  
Adjust for:
                       
Interest expense from unsecured senior notes
          24,628       30,464  
Depreciation and amortization
    1,542       1,873       3,395  
Change in fair value of MSRs
    27,915       6,043       39,000  
Fair value changes on excess spread financing (1)
                3,060  
Share-based compensation
    579       8,999       14,764  
Exit costs
                1,836  
Fair value changes on interest rate swaps
          9,801       (298 )
Ineffective portion of cash flow hedge
          (930 )     (2,032 )
                         
Adjusted EBITDA (2)
    $46,422       $65,306       $135,968  
                         
 
(1) Relates to a financing arrangement on certain MSRs which are carried at fair value under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 825, Financial Instruments.
 
(2) Adjusted EBITDA is a key performance measure used by management in evaluating the performance of our segments. Adjusted EBITDA represents our Operating Segments’ income (loss), and excludes income and expenses that relate to the financing of the senior notes, depreciable (or amortizable) asset base of the business, income taxes (if any), exit costs from our restructuring and certain non-cash items. Adjusted EBITDA also excludes results from our legacy asset portfolio and certain securitization trusts that were consolidated upon adoption of the new accounting guidance eliminating the concept of a qualifying special purpose entity (“QSPE”).
 
Adjusted EBITDA provides us with a key measure of our Operating Segments’ performance as it assists us in comparing our Operating Segments’ performance on a consistent basis. Management believes Adjusted


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EBITDA is useful in assessing the profitability of our core business and uses Adjusted EBITDA in evaluating our operating performance as follows:
 
  •     Financing arrangements for our Operating Segments are secured by assets that are allocated to these segments. Interest expense that relates to the financing of the senior notes is not considered in evaluating our operating performance because this obligation is serviced by the excess earnings from our Operating Segments after the debt obligations that are secured by their assets.
 
  •     To monitor operating costs of each Operating Segment excluding the impact from depreciation, amortization and fair value change of the asset base, exit costs from our restructuring and non-cash operating expense, such as share-based compensation. Operating costs are analyzed to manage costs per our operating plan and to assess staffing levels, implementation of technology-based solutions, rent and other general and administrative costs.
 
Management does not assess the growth prospects and the profitability of our legacy asset portfolio and certain securitization trusts that were consolidated upon adoption of the new accounting guidance, except to the extent necessary to assess whether cash flows from the assets in the legacy asset portfolio are sufficient to service its debt obligations.
 
We also use Adjusted EBITDA (with additional adjustments) to measure our compliance with covenants such as leverage coverage ratios for our senior notes.
 
Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
 
  •     Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;
 
  •     Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 
  •     Adjusted EBITDA does not reflect the cash requirements necessary to service principal payments related to the financing of the business;
 
  •     Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our corporate debt;
 
  •     although depreciation and amortization and changes in fair value of MSRs are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
 
  •     other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
 
Because of these and other limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Adjusted EBITDA is presented to provide additional information about our operations. Adjusted EBITDA is a non-GAAP measure and should be considered in addition to, but not as a substitute for or superior to, operating income, net income, operating cash flow and other measures of financial performance prepared in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.


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RISK FACTORS
 
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as other information contained in this prospectus, before deciding to invest in our common stock. The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations and cash flow, in which case, the trading price of our common stock could decline and you could lose all or part of your investment.
 
Risks Related to Our Business and Industry
 
Our foreclosure proceedings in certain states have been delayed due to inquiries by certain state Attorneys General, court administrators and state and federal government agencies, the outcome of which could have a negative effect on our operations, earnings or liquidity.
 
Allegations of irregularities in foreclosure processes, including so-called “robo-signing” by mortgage loan servicers, have gained the attention of the Department of Justice, regulatory agencies, state Attorneys General and the media, among other parties. On December 1, 2011, the Massachusetts Attorney General filed a lawsuit against five large mortgage providers alleging unfair and deceptive business practices, including the use of so-called “robo-signers.” In response, one of the mortgage providers has halted most lending in Massachusetts. Certain state Attorneys General, court administrators and government agencies, as well as representatives of the federal government, have issued letters of inquiry to mortgage servicers, including us, requesting written responses to questions regarding policies and procedures, especially with respect to notarization and affidavit procedures. These requests or any subsequent administrative, judicial or legislative actions taken by these regulators, court administrators or other government entities may subject us to fines and other sanctions, including a foreclosure moratorium or suspension. Additionally, because we do business in all fifty states, our operations may be affected by regulatory actions or court decisions that are taken at the individual state level.
 
In addition to these inquiries, several state Attorneys General have requested that certain mortgage servicers, including us, suspend foreclosure proceedings pending internal review to ensure compliance with applicable law, and we have received requests from four such state Attorneys General. Pursuant to these requests and in light of industry-wide press coverage regarding mortgage foreclosure documentation practices, we, as a precaution, had already delayed foreclosure proceedings in 23 states, so that we may evaluate our foreclosure practices and underlying documentation. Upon completion of our internal review and after responding to such inquiries, we resumed these previously delayed proceedings. Such inquiries, however, as well as continued court backlog and emerging court processes may cause an extended delay in the foreclosure process in certain states.
 
Even in states where we have not suspended foreclosure proceedings or where we have lifted or will soon lift any such delayed foreclosures, we have faced, and may continue to face, increased delays and costs in the foreclosure process. For example, we have incurred, and may continue to incur, additional costs related to the re-execution and re-filing of certain documents. We may also be required to take other action in our capacity as a mortgage servicer in connection with pending foreclosures. In addition, the current legislative and regulatory climate could lead borrowers to contest foreclosures that they would not otherwise have contested under ordinary circumstances, and we may incur increased litigation costs if the validity of a foreclosure action is challenged by a borrower. Delays in foreclosure proceedings could also require us to make additional servicing advances by drawing on our servicing advance facilities, or delay the recovery of advances, all or any of which could materially affect our earnings and liquidity and increase our need for capital.


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The Dodd-Frank Act could increase our regulatory compliance burden and associated costs, limit our future capital raising strategies, and place restrictions on certain originations and servicing operations all of which could adversely affect our business, financial condition and results of operations.
 
On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry in the United States. The Dodd-Frank Act includes, among other things: (i) the creation of a Financial Stability Oversight Council to identify emerging systemic risks posed by financial firms, activities and practices, and to improve cooperation among federal agencies; (ii) the creation of a Bureau of Consumer Financial Protection (“CFPB”) authorized to promulgate and enforce consumer protection regulations relating to financial products; (iii) the establishment of strengthened capital and prudential standards for banks and bank holding companies; (iv) enhanced regulation of financial markets, including the derivatives and securitization markets; and (v) amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator compensation, minimum repayment standards and prepayment considerations. On July 21, 2011, the CFPB obtained enforcement authority pursuant to the Dodd-Frank Act and began official operations. On October 13, 2011, the CFPB issued guidelines governing how it supervises mortgage transactions, which involves sending examiners to banks and other institutions that service mortgages to assess whether consumers’ interests are protected. On January 11, 2012, the CFPB issued guidelines governing examination procedures for bank and non-bank mortgage originators. The exact scope and applicability of many of these requirements to us are currently unknown as the regulations to implement the Dodd-Frank Act generally have not yet been finalized. These provisions of the Dodd-Frank Act and actions by the CFPB could increase our regulatory compliance burden and associated costs and place restrictions on certain originations and servicing operations, all of which could in turn adversely affect our business, financial condition and results of operations.
 
The enforcement consent orders by, agreements with, and settlements of, certain federal and state agencies against the largest mortgage servicers related to foreclosure practices could impose additional compliance costs on our servicing business, which could materially and adversely affect our financial condition and results of operations.
 
On April 13, 2011, the federal agencies overseeing certain aspects of the mortgage market, the OCC, the Federal Reserve and the FDIC, entered into enforcement consent orders with 14 of the largest mortgage servicers in the United States regarding foreclosure practices. The enforcement consent orders require the servicers, among other things to: (i) promptly correct deficiencies in residential mortgage loan servicing and foreclosure practices; (ii) make significant modifications in practices for residential mortgage loan servicing and foreclosure processing, including communications with borrowers and limitations on dual-tracking, which occurs when servicers continue to pursue foreclosure during the loan modification process; (iii) ensure that foreclosures are not pursued once a mortgage has been approved for modification and establish a single point of contact for borrowers throughout the loan modification and foreclosure processes; and (iv) establish robust oversight and controls pertaining to their third party vendors, including outside legal counsel, that provide default management or foreclosure services. While these enforcement consent orders are considered not to be preemptive of the state actions, it is currently unclear how state actions and proceedings will be affected by the federal consents.
 
On February 9, 2012, federal and state agencies announced a $25 billion settlement with five large banks that resulted from investigations of foreclosure practices. As part of the settlement, the banks have agreed to comply with various servicing standards relating to foreclosure and bankruptcy proceedings, documentation of borrowers’ account balances, chain of title, and evaluation of borrowers for loan modifications and short sales as well as servicing fees and the use of force-placed insurance. The settlement also provides for certain financial relief to homeowners.
 
Although we are not a party to the above enforcement consent orders and settlements, we could become subject to the terms of the consent orders and settlements if (i) we subservice loans for the mortgage servicers that are parties to the enforcement consent orders and settlements; (ii) the agencies begin to enforce


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the consent orders and settlements by looking downstream to our arrangement with certain mortgage servicers; (iii) the mortgage servicers for which we subservice loans request that we comply with certain aspects of the consent orders and settlements, or (iv) we otherwise find it prudent to comply with certain aspects of the consent orders and settlements. In addition, the practices set forth in such consent orders and settlements may be adopted by the industry as a whole, forcing us to comply with them in order to follow standard industry practices, or may become required by our servicing agreements. While we have made and continue to make changes to our operating policies and procedures in light of the consent orders and settlements, further changes could be required and changes to our servicing practices will increase compliance costs for our servicing business, which could materially and adversely affect our financial condition or results of operations.
 
On September 1, 2011 and November 10, 2011, the New York State Department of Financial Services entered into agreements regarding mortgage servicing practices with seven financial institutions. The additional requirements provided for in these agreements will increase operational complexity and the cost of servicing loans in New York. Other servicers, including us, could be required to enter into similar agreements. In addition, other states may also require mortgage servicers to enter into similar agreements. These additional costs could also materially and adversely affect our financial condition and results of operations.
 
Legal proceedings, state or federal governmental examinations or enforcement actions and related costs could have a material adverse effect on our liquidity, financial position and results of operations.
 
We are routinely and currently involved in legal proceedings concerning matters that arise in the ordinary course of our business. These legal proceedings range from actions involving a single plaintiff to class action lawsuits with potentially tens of thousands of class members. An adverse result in governmental investigations or examinations or private lawsuits, including purported class action lawsuits, may adversely affect our financial results. In addition, a number of participants in our industry, including us, have been the subject of purported class action lawsuits and regulatory actions by state regulators, and other industry participants have been the subject of actions by state Attorneys General. Although we believe we have meritorious legal and factual defenses to the lawsuits in which we are currently involved, the ultimate outcomes with respect to these matters remain uncertain. Litigation and other proceedings may require that we pay settlement costs, legal fees, damages, penalties or other charges, any or all of which could adversely affect our financial results. In particular, ongoing and other legal proceedings brought under state consumer protection statutes may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities and that could have a material adverse effect on our liquidity, financial position and results of operations.
 
Governmental investigations, both state and federal, can be either formal or informal. The costs of responding to the investigations can be substantial. In addition, government-mandated changes to servicing practices could lead to higher costs and additional administrative burdens, in particular regarding record retention and informational obligations.
 
The continued deterioration of the residential mortgage market may adversely affect our business, financial condition and results of operations.
 
Since mid-2007, adverse economic conditions, including high unemployment, have impacted the residential mortgage market, resulting in unprecedented delinquency, default and foreclosure rates, all of which have led to increased loss severities on all types of residential mortgage loans due to sharp declines in residential real estate values. Falling home prices have resulted in higher loan-to-value ratios (“LTVs”), lower recoveries in foreclosure and an increase in loss severities above those that would have been realized had property values remained the same or continued to increase. As LTVs increase, borrowers are left with equity in their homes that is not sufficient to permit them to refinance their existing loans. This may also provide borrowers an incentive to default on their mortgage loan even if they have the ability to make principal and interest payments, which we refer to as strategic defaults. Increased mortgage defaults negatively impact our


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Servicing Segment because they increase the costs to service the underlying loans and may ultimately reduce the number of mortgages we service.
 
Adverse economic conditions may also impact our Originations Segment. Declining home prices and increasing LTVs may preclude many potential borrowers, including borrowers whose existing loans we service, from refinancing their existing loans. An increase in prevailing interest rates could decrease our originations volume through our Consumer Direct Retail originations channel, our largest originations channel by volume from December 31, 2006 to December 31, 2011, because this channel focuses predominantly on refinancing existing mortgage loans.
 
A continued deterioration or a delay in any recovery in the residential mortgage market may reduce the number of mortgages we service or new mortgages we originate, reduce the profitability of mortgages currently serviced by us, adversely affect our ability to sell mortgage loans originated by us or increase delinquency rates. Any of the foregoing could adversely affect our business, financial condition and results of operations.
 
We may experience serious financial difficulties as some mortgage servicers and originators have experienced, which could adversely affect our business, financial condition and results of operations.
 
Since late 2006, a number of mortgage servicers and originators of residential mortgage loans have experienced serious financial difficulties and, in some cases, have gone out of business. These difficulties have resulted, in part, from declining markets for their mortgage loans as well as from claims for repurchases of mortgage loans previously sold under provisions requiring repurchase in the event of early payment defaults or breaches of representations and warranties regarding loan quality and certain other loan characteristics. Higher delinquencies and defaults may contribute to these difficulties by reducing the value of mortgage loan portfolios and requiring originators to sell their portfolios at greater discounts to par. In addition, the cost of servicing an increasingly delinquent mortgage loan portfolio may rise without a corresponding increase in servicing compensation. The value of many residual interests retained by sellers of mortgage loans in the securitization market has also been declining. Overall originations volumes are down significantly in the current economic environment. According to Inside Mortgage Finance, total U.S. residential mortgage originations volume decreased from $3.0 trillion in 2006 to $1.4 trillion in 2011. Any of the foregoing could adversely affect our business, financial condition and results of operations.
 
We service reverse mortgages, which subjects us to additional risks and could have a material adverse effect on our business, liquidity, financial condition and results of operations.
 
In December 2011, we signed an agreement to purchase the servicing rights to certain reverse mortgages (the “Reverse Mortgage Acquisition”) from Bank of America, N.A. (“BANA”), an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters of this offering. The reverse mortgage business is subject to substantial risks, including market, credit, interest rate, liquidity, operational and legal risks. A reverse mortgage is a loan available to seniors aged 62 or older that allows homeowners to borrow money against the value of their home. No repayment of the mortgage is required until the borrower dies or the home is sold. A deterioration of the market for reverse mortgages may reduce the number of reverse mortgages we service, reduce the profitability of reverse mortgages currently serviced by us and adversely affect our ability to sell reverse mortgages in the market. Although foreclosures involving reverse mortgages generally occur less frequently than forward mortgages, loan defaults on reverse mortgages leading to foreclosures may occur if borrowers fail to meet maintenance obligations, such as payment of taxes or home insurance premiums. An increase in foreclosure rates may increase our cost of servicing. As a reverse mortgage servicer, we will also be responsible for funding any payments due to borrowers in a timely manner, remitting to investors interest accrued, and paying for interest shortfalls. Advances on reverse mortgages are typically greater than advances on forward residential mortgages. They are typically recovered upon weekly or monthly reimbursement or from sale in the market. In the event we receive requests for advances in excess of amounts we are able to fund, we may not be able to fund these advance requests, which could materially and adversely affect our liquidity. Finally, we are subject to negative headline risk in the event that loan defaults on reverse mortgages lead to foreclosures or


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even evictions of elderly homeowners. All of the above factors could have a material adverse effect on our business, liquidity, financial condition and results of operations.
 
Borrowers with adjustable rate mortgage loans are especially exposed to increases in monthly payments and they may not be able to refinance their loans, which could cause delinquency, default and foreclosure and therefore adversely affect our business.
 
Borrowers with adjustable rate mortgage loans are exposed to increased monthly payments when the related mortgage loan’s interest rate adjusts upward from an initial fixed rate or a low introductory rate, as applicable, to the rate computed in accordance with the applicable index and margin. Borrowers with adjustable rate mortgage loans seeking to refinance their mortgage loans to avoid increased monthly payments as a result of an upwards adjustment of the mortgage loan’s interest rate may no longer be able to find available replacement loans at comparably low interest rates. This increase in borrowers’ monthly payments, together with any increase in prevailing market interest rates, may result in significantly increased monthly payments for borrowers with adjustable rate mortgage loans, which may cause delinquency, default and foreclosure. Increased mortgage defaults and foreclosures may adversely affect our business as they reduce the number of mortgages we service.
 
We principally service higher risk loans, which exposes us to a number of different risks.
 
A significant percentage of the mortgage loans we service are higher risk loans, meaning that the loans are to less creditworthy borrowers or for properties the value of which has decreased. These loans are more expensive to service because they require more frequent interaction with customers and greater monitoring and oversight. As a result, these loans tend to have higher delinquency and default rates, which can have a significant impact on our revenues, expenses and the valuation of our MSRs. It may also be more difficult for us to recover advances we are required to make with respect to higher risk loans. In connection with the ongoing mortgage market reform and regulatory developments, servicers of higher risk loans may be subject to increased scrutiny by state and federal regulators or may experience higher compliance costs, which could result in higher servicing costs. We may not be able to pass along any incremental costs we incur to our servicing clients. All of the foregoing factors could therefore adversely affect our business, financial condition and results of operations.
 
A significant change in delinquencies for the loans we service could adversely affect our business, financial condition and results of operations.
 
Delinquency rates have a significant impact on our revenues, our expenses and on the valuation of our MSRs as follows:
 
  •     Revenue.   An increase in delinquencies will result in lower revenue for loans we service for GSEs because we only collect servicing fees from GSEs for performing loans. Additionally, while increased delinquencies generate higher ancillary fees, including late fees, these fees are not likely to be recoverable in the event that the related loan is liquidated. In addition, an increase in delinquencies lowers the interest income we receive on cash held in collection and other accounts.
 
  •     Expenses.   An increase in delinquencies will result in a higher cost to service due to the increased time and effort required to collect payments from delinquent borrowers. It may also result in an increase in interest expense as a result of an increase in our advancing obligations.
 
  •     Liquidity.   An increase in delinquencies could also negatively impact our liquidity because of an increase in borrowing under our advance facilities.


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  •     Valuation of MSRs.   We base the price we pay for MSRs on, among other things, our projections of the cash flows from the related pool of mortgage loans. Our expectation of delinquencies is a significant assumption underlying those cash flow projections. If delinquencies were significantly greater than expected, the estimated fair value of our MSRs could be diminished. If the estimated fair value of MSRs is reduced, we could suffer a loss, which has a negative impact on our financial results.
 
A further increase in delinquency rates could therefore adversely affect our business, financial condition and results of operations.
 
Decreasing property values have caused an increase in LTVs, resulting in borrowers having little or negative equity in their property, which may reduce new loan originations and provide incentive to borrowers to strategically default on their loans.
 
According to CoreLogic, the percentage of borrowers who owe more on a related mortgage loan than the property is worth, or have negative equity in their property, reached approximately 23% in December 2011. We believe that borrowers with negative equity in their properties are more likely to strategically default on mortgage loans, which could materially affect our business. Also, with the exception of loans modified under the Making Home Affordable plan (“MHA”), we are unable to refinance loans with high LTVs. Increased LTVs could reduce our ability to originate loans for borrowers with low or negative equity and could adversely affect our business, financial condition and results of operations.
 
The industry in which we operate is highly competitive and our inability to compete successfully could adversely affect our business, financial condition and results of operations.
 
We operate in a highly competitive industry that could become even more competitive as a result of economic, legislative, regulatory and technological changes. In the servicing industry, we face competition in areas such as fees and performance in reducing delinquencies and entering successful modifications. Competition to service mortgage loans comes primarily from large commercial banks and savings institutions. These financial institutions generally have significantly greater resources and access to capital than we do, which gives them the benefit of a lower cost of funds. Additionally, our servicing competitors may decide to modify their servicing model to compete more directly with our servicing model, or our servicing model may generate lower margins as a result of competition or as overall economic conditions improve.
 
In the mortgage loan originations industry, we face competition in such areas as mortgage loan offerings, rates, fees and customer service. Competition to originate mortgage loans comes primarily from large commercial banks and savings institutions. These financial institutions generally have significantly greater resources and access to capital than we do, which gives them the benefit of a lower cost of funds.
 
In addition, technological advances and heightened e-commerce activities have increased consumers’ accessibility to products and services. This has intensified competition among banks and non-banks in offering mortgage loans and loan servicing. We may be unable to compete successfully in our industries and this could adversely affect our business, financial condition and results of operations.
 
We may not be able to maintain or grow our business if we cannot identify and acquire MSRs or enter into additional subservicing agreements on favorable terms.
 
Our servicing portfolio is subject to “run off,” meaning that mortgage loans serviced by us may be prepaid prior to maturity, refinanced with a mortgage not serviced by us or liquidated through foreclosure, deed-in-lieu of foreclosure or other liquidation process or repaid through standard amortization of principal. As a result, our ability to maintain the size of our servicing portfolio depends on our ability to originate additional mortgages or to acquire the right to service additional pools of residential mortgages. We may not be able to acquire MSRs or enter into additional subservicing agreements on terms favorable to us or at all,


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which could adversely affect our business, financial condition and results of operations. In determining the purchase price for MSRs and subservicing agreements, management makes certain assumptions, many of which are beyond our control, including, among other things:
 
  •     the rates of prepayment and repayment within the underlying pools of mortgage loans;
 
  •     projected rates of delinquencies, defaults and liquidations;
 
  •     future interest rates;
 
  •     our cost to service the loans;
 
  •     ancillary fee income; and
 
  •     amounts of future servicing advances.
 
We may not be able to recover our significant investments in personnel and our technology platform if we cannot identify and acquire MSRs or enter into additional subservicing agreements on favorable terms, which could adversely affect our business, financial condition and results of operations.
 
We have made, and expect to continue to make, significant investments in personnel and our technology platform to allow us to service additional loans. In particular, prior to acquiring a large portfolio of MSRs or entering into a large subservicing contract, we invest significant resources in recruiting, training, technology and systems. We may not realize the expected benefits of these investments to the extent we are unable to increase the pool of residential mortgages serviced, we are delayed in obtaining the right to service such loans or we do not appropriately value the MSRs that we do purchase or the subservicing agreements we enter into. Any of the foregoing could adversely affect our business, financial condition and results of operations.
 
We may not realize all of the anticipated benefits of potential future acquisitions, which could adversely affect our business, financial condition and results of operations.
 
Our ability to realize the anticipated benefits of potential future acquisitions of servicing portfolios, originations platforms or companies will depend, in part, on our ability to scale-up to appropriately service any such assets, and integrate the businesses of such acquired companies with our business. The process of acquiring assets or companies may disrupt our business and may not result in the full benefits expected. The risks associated with acquisitions include, among others:
 
  •     uncoordinated market functions;
 
  •     unanticipated issues in integrating information, communications and other systems;
 
  •     unanticipated incompatibility of purchasing, logistics, marketing and administration methods;
 
  •     not retaining key employees; and
 
  •     the diversion of management’s attention from ongoing business concerns.
 
Moreover, the success of any acquisition will depend upon our ability to effectively integrate the acquired servicing portfolios, originations platforms or businesses. The acquired servicing portfolios, originations platforms or businesses may not contribute to our revenues or earnings to any material extent, and cost savings and synergies we expect at the time of an acquisition may not be realized once the acquisition has been completed. If we inappropriately value the assets we acquire or the value of the assets we acquire


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declines after we acquire them, the resulting charges may negatively affect the carrying value of the assets on our balance sheet and our earnings. See “—We use financial models and estimates in determining the fair value of certain assets, such as MSRs and investments in debt securities. If our estimates or assumptions prove to be incorrect, we may be required to record impairment charges, which could adversely affect our earnings.” Furthermore, if we incur additional indebtedness to finance an acquisition, the acquired business may not be able to generate sufficient cash flow to service that additional indebtedness. Unsuitable or unsuccessful acquisitions could adversely affect our business, financial condition and results of operations.
 
We may be unable to obtain sufficient capital to meet the financing requirements of our business.
 
Our financing strategy includes the use of significant leverage. Accordingly, our ability to finance our operations and repay maturing obligations rests in large part on our ability to borrow money. We are generally required to renew our financing arrangements each year, which exposes us to refinancing and interest rate risks. See “Note 12 to Consolidated Financial Statements—Indebtedness.” Our ability to refinance existing debt and borrow additional funds is affected by a variety of factors including:
 
  •     limitations imposed on us under the indenture governing our senior notes and other financing agreements that contain restrictive covenants and borrowing conditions that may limit our ability to raise additional debt;
 
  •     the decrease in liquidity in the credit markets;
 
  •     prevailing interest rates;
 
  •     the strength of the lenders from which we borrow;
 
  •     limitations on borrowings on advance facilities imposed by the amount of eligible collateral pledged, which may be less than the borrowing capacity of the advance facility; and
 
  •     accounting changes that may impact calculations of covenants in our debt agreements.
 
In the ordinary course of our business, we periodically borrow money or sell newly-originated loans to fund our servicing and originations operations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” Our ability to fund current operations and meet our service advance obligations depends on our ability to secure these types of financings on acceptable terms and to renew or replace existing financings as they expire. Such financings may not be available with the GSEs or other counterparties on acceptable terms or at all.
 
An event of default, a negative ratings action by a rating agency, an adverse action by a regulatory authority or a general deterioration in the economy that constricts the availability of credit—similar to the market conditions that we have experienced during the last three years—may increase our cost of funds and make it difficult for us to renew existing credit facilities or obtain new lines of credit. We intend to continue to seek opportunities to acquire loan servicing portfolios and/or businesses that engage in loan servicing and/or loan originations. Our liquidity and capital resources may be diminished by any such transactions. Additionally, we believe that a significant acquisition may require us to raise additional capital to facilitate such a transaction, which may not be available on acceptable terms or at all.
 
In June 2011, the Basel Committee on Banking Supervision of the Bank of International Settlements announced the final framework for strengthening capital requirements, known as Basel III, which if implemented by U.S. bank regulatory agencies, will increase the cost of funding on banking institutions that we rely on for financing. Such Basel III requirements on banking institutions could reduce our sources of funding and increase the costs of originating and servicing mortgage loans. If we are unable to obtain


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sufficient capital on acceptable terms for any of the foregoing reasons, this could adversely affect our business, financial condition and results of operations.
 
We may not be able to continue to grow our loan originations volume, which could adversely affect our business, financial condition and results of operations.
 
Our loan originations business consists primarily of refinancing existing loans. While we intend to use sales lead aggregators and Internet marketing to reach new borrowers, our Consumer Direct Retail originations platform may not succeed because of the referral-driven nature of our industry. Further, our largest customer base consists of borrowers whose existing loans we service. Because we primarily service credit-sensitive loans, many of our existing servicing customers may not be able to qualify for conventional mortgage loans with us or may pose a higher credit risk than other consumers. Furthermore, our Consumer Direct Retail originations platform focuses predominantly on refinancing existing mortgage loans. This type of originations activity is sensitive to increases in interest rates.
 
Our loan originations business also consists of providing purchase money loans to homebuyers. The origination of purchase money mortgage loans is greatly influenced by traditional business clients in the home buying process such as realtors and builders. As a result, our ability to secure relationships with such traditional business clients will influence our ability to grow our purchase money mortgage loan volume and, thus, our loan originations business.
 
Our wholesale originations business operates largely through third party mortgage brokers who are not contractually obligated to do business with us. Further, our competitors also have relationships with our brokers and actively compete with us in our efforts to expand our broker networks. Accordingly, we may not be successful in maintaining our existing relationships or expanding our broker networks. If we are unable to continue to grow our loan originations business, this could adversely affect our business, financial condition and results of operations.
 
Our counterparties may terminate our servicing rights and subservicing contracts, which could adversely affect our business, financial condition and results of operations.
 
The owners of the loans we service and the primary servicers of the loans we subservice, may, under certain circumstances, terminate our MSRs or subservicing contracts, respectively.
 
As is standard in the industry, under the terms of our master servicing agreement with GSEs, GSEs have the right to terminate us as servicer of the loans we service on their behalf at any time and also have the right to cause us to sell the MSRs to a third party. In addition, failure to comply with servicing standards could result in termination of our agreements with GSEs. See “—Because we are required to follow the guidelines of the GSEs with which we do business and are not able to negotiate our fees with these entities for the purchase of our loans, our competitors may be able to sell their loans on more favorable terms.” Some GSEs may also have the right to require us to assign the MSRs to a subsidiary and sell our equity interest in the subsidiary to a third party. Under our subservicing contracts, the primary servicers for which we conduct subservicing activities have the right to terminate our subservicing rights with or without cause, with little notice and little to no compensation. We expect to continue to acquire subservicing rights, which could exacerbate these risks.
 
If we were to have our servicing or subservicing rights terminated on a material portion of our servicing portfolio, this could adversely affect our business, financial condition and results of operations.


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Federal, state and local laws and regulations could materially adversely affect our business, financial condition and results of operations.
 
Federal, state and local governments have recently proposed or enacted numerous laws, regulations and rules related to mortgage loans generally and foreclosure actions in particular. These laws, regulations and rules may result in delays in the foreclosure process, reduced payments by borrowers, modification of the original terms of mortgage loans, permanent forgiveness of debt and increased servicing advances. In some cases, local governments have ordered moratoriums on foreclosure activity, which prevent a servicer or trustee, as applicable, from exercising any remedies they might have in respect of liquidating a severely delinquent mortgage loan. Several courts also have taken unprecedented steps to slow the foreclosure process or prevent foreclosure altogether.
 
In addition, the Federal Housing Finance Agency (the “FHFA”) recently proposed changes to mortgage servicing compensation structures, including cutting servicing fees and channeling funds toward reserve accounts for delinquent loans.
 
Due to the highly regulated nature of the residential mortgage industry, we are required to comply with a wide array of federal, state and local laws and regulations that regulate, among other things, the manner in which we conduct our servicing and originations business and the fees we may charge. These regulations directly impact our business and require constant compliance, monitoring and internal and external audits. A material failure to comply with any of these laws or regulations could subject us to lawsuits or governmental actions, which could materially adversely affect our business, financial condition and results of operations.
 
In addition, there continue to be changes in legislation and licensing in an effort to simplify the consumer mortgage experience, which require technology changes and additional implementation costs for loan originators. We expect legislative changes will continue in the foreseeable future, which may increase our operating expenses.
 
Any of these changes in the law could adversely affect our business, financial condition and results of operations.
 
Unlike competitors that are banks, we are subject to state licensing and operational requirements that result in substantial compliance costs.
 
Because we are not a depository institution, we do not benefit from a federal exemption to state mortgage banking, loan servicing or debt collection licensing and regulatory requirements. We must comply with state licensing requirements and varying compliance requirements in all fifty states and the District of Columbia, and we are sensitive to regulatory changes that may increase our costs through stricter licensing laws, disclosure laws or increased fees or that may impose conditions to licensing that we or our personnel are unable to meet. In addition, we are subject to periodic examinations by state regulators, which can result in refunds to borrowers of certain fees earned by us, and we may be required to pay substantial penalties imposed by state regulators due to compliance errors. Future state legislation and changes in existing regulation may significantly increase our compliance costs or reduce the amount of ancillary fees, including late fees, that we may charge to borrowers. This could make our business cost-prohibitive in the affected state or states and could materially affect our business.
 
Federal and state legislative and agency initiatives in mortgage-backed securities (“MBS”) and securitization may adversely affect our financial condition and results of operations.
 
There are federal and state legislative and agency initiatives that could, once fully implemented, adversely affect our business. For instance, the risk retention requirement under the Dodd-Frank Act requires securitizers to retain a minimum beneficial interest in MBS they sell through a securitization, absent certain qualified residential mortgage (“QRM”) exemptions. Once implemented, the risk retention requirement may


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result in higher costs of certain originations operations and impose on us additional compliance requirements to meet servicing and originations criteria for QRMs. Additionally, the amendments to Regulation AB relating to the registration statement required to be filed by ABS issuers recently adopted by the SEC pursuant to the Dodd-Frank Act would increase compliance costs for ABS issuers, which could in turn increase our cost of funding and operations. Lastly, certain proposed federal legislation would permit borrowers in bankruptcy to restructure mortgage loans secured by primary residences. Bankruptcy courts could, if this legislation is enacted, reduce the principal balance of a mortgage loan that is secured by a lien on mortgaged property, reduce the mortgage interest rate, extend the term to maturity or otherwise modify the terms of a bankrupt borrower’s mortgage loan. Any of the foregoing could materially affect our financial condition and results of operations.
 
Our business would be adversely affected if we lose our licenses.
 
Our operations are subject to regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations. In most states in which we operate, a regulatory agency regulates and enforces laws relating to mortgage servicing companies and mortgage originations companies such as us. These rules and regulations generally provide for licensing as a mortgage servicing company, mortgage originations company or third party debt default specialist, requirements as to the form and content of contracts and other documentation, licensing of our employees and employee hiring background checks, licensing of independent contractors with which we contract, restrictions on collection practices, disclosure and record-keeping requirements and enforcement of borrowers’ rights. In certain states, we are subject to periodic examination by state regulatory authorities. Some states in which we operate require special licensing or provide extensive regulation of our business.
 
We believe that we maintain all material licenses and permits required for our current operations and are in substantial compliance with all applicable federal, state and local regulations. We may not be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could result in a default under our servicing agreements and have a material adverse effect on our operations. The states that currently do not provide extensive regulation of our business may later choose to do so, and if such states so act, we may not be able to obtain or maintain all requisite licenses and permits. The failure to satisfy those and other regulatory requirements could result in a default under our servicing agreements and have a material adverse effect on our operations. Furthermore, the adoption of additional, or the revision of existing, rules and regulations could adversely affect our business, financial condition and results of operations.
 
We may be required to indemnify or repurchase loans we originated, or will originate, if our loans fail to meet certain criteria or characteristics or under other circumstances.
 
The indentures governing our securitized pools of loans and our contracts with purchasers of our whole loans contain provisions that require us to indemnify or repurchase the related loans under certain circumstances. While our contracts vary, they contain provisions that require us to repurchase loans if:
 
  •     our representations and warranties concerning loan quality and loan circumstances are inaccurate, including representations concerning the licensing of a mortgage broker;
 
  •     we fail to secure adequate mortgage insurance within a certain period after closing;
 
  •     a mortgage insurance provider denies coverage; or
 
  •     we fail to comply, at the individual loan level or otherwise, with regulatory requirements in the current dynamic regulatory environment.
 
We believe that, as a result of the current market environment, many purchasers of residential mortgage loans are particularly aware of the conditions under which originators must indemnify or repurchase


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loans and would benefit from enforcing any repurchase remedies they may have. We believe that our exposure to repurchases under our representations and warranties includes the current unpaid balance of all loans we have sold. In the years ended December 31, 2008, 2009, 2010 and 2011, we sold an aggregate of $7.4 billion of loans. To recognize the potential loan repurchase or indemnification losses, we have recorded a reserve of $10.0 million as of December 31, 2011. Because of the increase in our loan originations since 2008, we expect that repurchase requests are likely to increase. Should home values continue to decrease, our realized loan losses from loan repurchases and indemnifications may increase as well. As such, our reserve for repurchases may increase beyond our current expectations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Analysis of Items on Consolidated Balance Sheet—Liabilities and Members’ Equity.” If we are required to indemnify or repurchase loans that we originate and sell or securitize that result in losses that exceed our reserve, this could adversely affect our business, financial condition and results of operations.
 
We may incur increased litigation costs and related losses if a borrower challenges the validity of a foreclosure action or if a court overturns a foreclosure, which could adversely affect our liquidity, business, financial condition and results of operations.
 
We may incur costs if we are required to, or if we elect to, execute or re-file documents or take other action in our capacity as a servicer in connection with pending or completed foreclosures. We may incur litigation costs if the validity of a foreclosure action is challenged by a borrower. If a court overturns a foreclosure because of errors or deficiencies in the foreclosure process, we may have liability to a title insurer or the purchaser of the property sold in foreclosure. These costs and liabilities may not be legally or otherwise reimbursable to us, particularly to the extent they relate to securitized mortgage loans. In addition, if certain documents required for a foreclosure action are missing or defective, we could be obligated to cure the defect or repurchase the loan. A significant increase in litigation costs could adversely affect our liquidity, and our inability to be reimbursed for an advance could adversely affect our business, financial condition and results of operations.
 
Because we are required to follow the guidelines of the GSEs with which we do business and are not able to negotiate our fees with these entities for the purchase of our loans, our competitors may be able to sell their loans to GSEs on more favorable terms.
 
Even though we currently originate conventional agency and government conforming loans, because we previously originated non-prime mortgage loans, we believe we are required to pay a higher fee to access the secondary market for selling our loans to GSEs. We believe that because many of our competitors have always originated conventional loans, they are able to sell newly originated loans on more favorable terms than us. As a result, these competitors are able to earn higher margins than we earn on originated loans, which could materially impact our business.
 
In our transactions with the GSEs, we are required to follow specific guidelines that impact the way we service and originate mortgage loans including:
 
  •     our staffing levels and other servicing practices;
 
  •     the servicing and ancillary fees that we may charge;
 
  •     our modification standards and procedures; and
 
  •     the amount of non-reimbursable advances.
 
In particular, the FHFA has directed GSEs to align their guidelines for servicing delinquent mortgages they own or guarantee, which can result in monetary incentives for servicers that perform well and penalties


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for those that do not. In addition, FHFA has directed Fannie Mae to assess compensatory fees against servicers in connection with delinquent loans, foreclosure delays, and other breaches of servicing obligations.
 
We cannot negotiate these terms with the GSEs and they are subject to change at any time. A significant change in these guidelines that has the effect of decreasing our fees or requires us to expend additional resources in providing mortgage services could decrease our revenues or increase our costs, which could adversely affect our business, financial condition and results of operations.
 
We are required to make servicing advances that can be subject to delays in recovery or may not be recoverable in certain circumstances, which could adversely affect our liquidity, business, financial condition and results of operations.
 
During any period in which a borrower is not making payments, we are required under most of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements for investors, pay property taxes and insurance premiums, legal expenses and other protective advances. We also advance funds to maintain, repair and market real estate properties on behalf of investors. As home values change, we may have to reconsider certain of the assumptions underlying our decisions to make advances and, in certain situations, our contractual obligations may require us to make certain advances for which we may not be reimbursed. In addition, in the event a mortgage loan serviced by us defaults or becomes delinquent, the repayment to us of the advance may be delayed until the mortgage loan is repaid or refinanced or a liquidation occurs. As a reverse mortgage servicer, we will also be responsible for funding any payments due to borrowers in a timely manner, remitting to investors interest accrued and paying for interest shortfalls. Advances on reverse mortgages are typically greater than advances on forward residential mortgages. They are typically recovered upon weekly or monthly reimbursement or from sale in the market. In the event we receive requests for advances in excess of amounts we are able to fund, we may not be able to fund these advance requests, which could materially and adversely affect our liquidity. A delay in our ability to collect an advance may adversely affect our liquidity, and our inability to be reimbursed for an advance could adversely affect our business, financial condition and results of operations.
 
Changes to government mortgage modification programs could adversely affect future incremental revenues.
 
Under HAMP and similar government programs, a participating servicer may be entitled to receive financial incentives in connection with any modification plans it enters into with eligible borrowers and subsequent success fees to the extent that a borrower remains current in any agreed upon loan modification. While we participate in and dedicate numerous resources to HAMP, we may not continue to participate in or realize future revenues from HAMP or any other government mortgage modification program. Changes in legislation or regulation regarding HAMP that result in the modification of outstanding mortgage loans and changes in the requirements necessary to qualify for refinancing mortgage loans may impact the extent to which we participate in and receive financial benefits from such programs, or may increase the expense of our participation in such programs. Changes in government loan modification programs could also result in an increase to our costs.
 
HAMP is currently scheduled to expire on December 31, 2013. If HAMP is not extended, this could decrease our revenues, which would adversely affect our business, financial condition and results of operations.
 
Under the MHA, a participating servicer may receive a financial incentive to modify qualifying loans, in accordance with the plan’s guidelines and requirements. The MHA also allows us to refinance loans with a high LTV of up to 125%. This allows us to refinance loans to existing borrowers who have little or negative equity in their homes. Changes in legislation or regulations regarding the MHA could reduce our volume of refinancing originations to borrowers with little or negative equity in their homes. Changes to HAMP, the MHA and other similar programs could adversely affect future incremental revenues.


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We are highly dependent upon programs administered by GSEs such as Fannie Mae and Freddie Mac to generate revenues through mortgage loan sales to institutional investors. Any changes in existing U.S. government-sponsored mortgage programs could materially and adversely affect our business, liquidity, financial position and results of operations.
 
In February 2011, the Obama Administration delivered a report to Congress regarding a proposal to reform the housing finance markets in the United States. The report, among other things, outlined various potential proposals to wind down the GSEs and reduce or eliminate over time the role of the GSEs in guaranteeing mortgages and providing funding for mortgage loans, as well as proposals to implement reforms relating to borrowers, lenders and investors in the mortgage market, including reducing the maximum size of loans that the GSEs can guarantee, phasing in a minimum down payment requirement for borrowers, improving underwriting standards and increasing accountability and transparency in the securitization process.
 
Our ability to generate revenues through mortgage loan sales to institutional investors depends to a significant degree on programs administered by the GSEs, such as Fannie Mae and Freddie Mac, a government agency, Ginnie Mae, and others that facilitate the issuance of MBS in the secondary market. These GSEs play a critical role in the residential mortgage industry and we have significant business relationships with many of them. Almost all of the conforming loans we originate qualify under existing standards for inclusion in guaranteed mortgage securities backed by GSEs. We also derive other material financial benefits from these relationships, including the assumption of credit risk by these GSEs on loans included in such mortgage securities in exchange for our payment of guarantee fees and the ability to avoid certain loan inventory finance costs through streamlined loan funding and sale procedures.
 
Any discontinuation of, or significant reduction in, the operation of these GSEs or any significant adverse change in the level of activity in the secondary mortgage market or the underwriting criteria of these GSEs could materially and adversely affect our business, liquidity, financial position and results of operations.
 
The conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S. federal government, could adversely affect our business and prospects.
 
Due to increased market concerns about the ability of Fannie Mae and Freddie Mac to withstand future credit losses associated with securities held in their investment portfolios, and on which they provide guarantees without the direct support of the U.S. federal government, on July 30, 2008, the U.S. government passed the Housing and Economic Recovery Act of 2008. On September 7, 2008, the FHFA, placed Fannie Mae and Freddie Mac into conservatorship and, together with the U.S. Treasury, established a program designed to boost investor confidence in their respective debt and MBS. As the conservator of Fannie Mae and Freddie Mac, the FHFA controls and directs the operations of Fannie Mae and Freddie Mac and may (i) take over the assets and operations of Fannie Mae and Freddie Mac with all the powers of the shareholders, the directors and the officers of Fannie Mae and Freddie Mac and conduct all business of Fannie Mae and Freddie Mac; (ii) collect all obligations and money due to Fannie Mae and Freddie Mac; (iii) perform all functions of Fannie Mae and Freddie Mac which are consistent with the conservator’s appointment; (iv) preserve and conserve the assets and property of Fannie Mae and Freddie Mac; and (v) contract for assistance in fulfilling any function, activity, action or duty of the conservator.
 
In addition to the FHFA becoming the conservator of Fannie Mae and Freddie Mac, the U.S. Treasury and the FHFA have entered into preferred stock purchase agreements among the U.S. Treasury, Fannie Mae and Freddie Mac pursuant to which the U.S. Treasury will ensure that each of Fannie Mae and Freddie Mac maintains a positive net worth.
 
Although the U.S. Treasury has committed capital to Fannie Mae and Freddie Mac, these actions may not be adequate for their needs. If these actions are inadequate, Fannie Mae and Freddie Mac could continue to suffer losses and could fail to honor their guarantees and other obligations. The future roles of Fannie Mae and


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Freddie Mac could be significantly reduced and the nature of their guarantees could be considerably limited relative to historical measurements. Any changes to the nature of the guarantees provided by Fannie Mae and Freddie Mac could redefine what constitute agency and government conforming MBS and could have broad adverse market implications. Such market implications could adversely affect our business and prospects.
 
The geographic concentration of our servicing portfolio may result in a higher rate of delinquencies, which could adversely affect our business, financial condition and results of operations.
 
As of December 31, 2011, approximately 9%, 14% and 14% of the aggregate outstanding loan balance in our servicing portfolio was secured by properties located in California, Florida and Texas, respectively. Some of these states have experienced severe declines in property values and are experiencing a disproportionately high rate of delinquencies and foreclosures relative to other states. To the extent these states continue to experience weaker economic conditions or greater rates of decline in real estate values than the United States generally, the concentration of loans we service in those regions may increase the effect of the risks listed in this “Risk Factors” section. The impact of property value declines may increase in magnitude and it may continue for a long period of time. Additionally, if states in which we have greater concentrations of business were to change their licensing or other regulatory requirements to make our business cost-prohibitive, we may be required to stop doing business in those states or may be subject to higher cost of doing business in those states, which could adversely affect our business, financial condition and results of operations.
 
We use financial models and estimates in determining the fair value of certain assets, such as MSRs and investments in debt securities. If our estimates or assumptions prove to be incorrect, we may be required to record impairment charges, which could adversely affect our earnings.
 
We use internal financial models that utilize, wherever possible, market participant data to value certain of our assets, including our MSRs, newly originated loans held for sale and investments in debt securities for purposes of financial reporting. These models are complex and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the modeling requirements of MSRs are complex because of the high number of variables that drive cash flows associated with MSRs. Even if the general accuracy of our valuation models is validated, valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of the models. If loan loss levels are higher than anticipated, due to an increase in delinquencies or prepayment speeds, or financial market illiquidity continues beyond our estimate, the value of certain of our assets may decrease. We may be required to record impairment charges, which could impact our ability to satisfy minimum net worth covenants of $175.0 million and borrowing conditions in our debt agreements and adversely affect our business, financial condition or results of operations. Errors in our financial models or changes in assumptions could adversely affect our earnings. See “—We may not realize all of the anticipated benefits of potential future acquisitions, which could adversely affect our business, financial condition and results of operations.”
 
Our earnings may decrease because of changes in prevailing interest rates.
 
Our profitability is directly affected by changes in prevailing interest rates. The following are the material risks we face related to changes in prevailing interest rates:
 
  •     an increase in prevailing interest rates could generate an increase in delinquency, default and foreclosure rates resulting in an increase in both operating expenses and interest expense and could cause a reduction in the value of our assets;
 
  •     an increase in prevailing interest rates could adversely affect our loan originations volume because refinancing an existing loan would be less attractive for homeowners and qualifying for a loan may be more difficult for consumers;
 
  •     an increase in prevailing interest rates would increase the cost of servicing our outstanding debt, including our ability to finance servicing advances and loan originations;


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  •     a decrease in prevailing interest rates may require us to record a decrease in the value of our MSRs; and
 
  •     a decrease in prevailing interest rates could reduce our earnings from our custodial deposit accounts.
 
Our hedging strategies may not be successful in mitigating our risks associated with interest rates.
 
From time to time, we have used various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. The derivative financial instruments that we select may not have the effect of reducing our interest rate risks. In addition, the nature and timing of hedging transactions may influence the effectiveness of these strategies. Poorly designed strategies, improperly executed and documented transactions or inaccurate assumptions could actually increase our risks and losses. In addition, hedging strategies involve transaction and other costs. Our hedging strategies and the derivatives that we use may not be able to adequately offset the risks of interest rate volatility and our hedging transactions may result in or magnify losses. Furthermore, interest rate derivatives may not be available on favorable terms or at all, particularly during economic downturns. Any of the foregoing risks could adversely affect our business, financial condition and results of operations.
 
A downgrade in our servicer ratings could have an adverse effect on our business, financial condition and results of operations.
 
Standard & Poor’s and Fitch rate us as a residential loan servicer. Our current favorable ratings from the rating agencies are important to the conduct of our loan servicing business. These ratings may be downgraded in the future. Any such downgrade could adversely affect our business, financial condition and results of operations.
 
We depend on the accuracy and completeness of information about borrowers and counterparties and any misrepresented information could adversely affect our business, financial condition and results of operations.
 
In deciding whether to extend credit or to enter into other transactions with borrowers and counterparties, we may rely on information furnished to us by or on behalf of borrowers and counterparties, including financial statements and other financial information. We also may rely on representations of borrowers and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. We additionally rely on representations from public officials concerning the licensing and good standing of the third party mortgage brokers through which we do business. While we have a practice of independently verifying the borrower information that we use in deciding whether to extend credit or to agree to a loan modification, including employment, assets, income and credit score, if any of this information is intentionally or negligently misrepresented and such misrepresentation is not detected prior to loan funding, the value of the loan may be significantly lower than expected. Whether a misrepresentation is made by the loan applicant, the mortgage broker, another third party or one of our employees, we generally bear the risk of loss associated with the misrepresentation. We have controls and processes designed to help us identify misrepresented information in our loan originations operations. We, however, may not have detected or may not detect all misrepresented information in our loan originations or from our business clients. Any such misrepresented information could adversely affect our business, financial condition and results of operations.
 
Technology failures could damage our business operations and increase our costs, which could adversely affect our business, financial condition and results of operations.
 
The financial services industry as a whole is characterized by rapidly changing technologies, and system disruptions and failures caused by fire, power loss, telecommunications failures, unauthorized intrusion, computer viruses and disabling devices, natural disasters and other similar events may interrupt or delay our ability to provide services to our borrowers. Security breaches, acts of vandalism and developments


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in computer capabilities could result in a compromise or breach of the technology that we use to protect our borrowers’ personal information and transaction data. Despite our efforts to ensure the integrity of our systems, it is possible that we may not be able to anticipate or implement effective preventive measures against all security breaches, especially because the techniques used change frequently or are not recognized until launched, and because security attacks can originate from a wide variety of sources, including third parties such as persons involved with organized crime or associated with external service providers. Those parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. These risks may increase in the future as we continue to increase our reliance on the internet and use of web-based product offerings and on the use of cybersecurity.
 
A successful penetration or circumvention of the security of our systems or a defect in the integrity of our systems or cybersecurity could cause serious negative consequences for our business, including significant disruption of our operations, misappropriation of our confidential information or that of our customers, or damage to our computers or operating systems and to those of our customers and counterparties. Any of the foregoing events could result in violations of applicable privacy and other laws, financial loss to us or to our customers, loss of confidence in our security measures, customer dissatisfaction, significant litigation exposure and harm to our reputation, all of which could adversely affect our business, financial condition and results of operations.
 
The success and growth of our business will depend upon our ability to adapt to and implement technological changes.
 
Our mortgage loan originations business is currently dependent upon our ability to effectively interface with our brokers, borrowers and other third parties and to efficiently process loan applications and closings. The originations process is becoming more dependent upon technological advancement, such as our continued ability to process applications over the Internet, accept electronic signatures, provide process status updates instantly and other borrower-expected conveniences. Maintaining and improving this new technology and becoming proficient with it may also require significant capital expenditures. As these requirements increase in the future, we will have to fully develop these technological capabilities to remain competitive and any failure to do so could adversely affect our business, financial condition and results of operations.
 
Any failure of our internal security measures or breach of our privacy protections could cause harm to our reputation and subject us to liability, any of which could adversely affect our business, financial condition and results of operations.
 
In the ordinary course of our business, we receive and store certain confidential information concerning borrowers. Additionally, we enter into third party relationships to assist with various aspects of our business, some of which require the exchange of confidential borrower information. If a third party were to compromise or breach our security measures or those of the vendors, through electronic, physical or other means, and misappropriate such information, it could cause interruptions in our operations and expose us to significant liabilities, reporting obligations, remediation costs and damage to our reputation. Any of the foregoing risks could adversely affect our business, financial condition and results of operations. See also “—Technology failures could damage our business operations and increase our costs, which could adversely affect our business, financial condition and results of operations.”
 
Our vendor relationships subject us to a variety of risks.
 
We have significant vendors that, among other things, provide us with financial, technology and other services to support our servicing and originations businesses. With respect to vendors engaged to perform activities required by servicing criteria, we have elected to take responsibility for assessing compliance with the applicable servicing criteria for the applicable vendor and are required to have procedures in place to provide reasonable assurance that the vendor’s activities comply in all material respects with servicing criteria


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applicable to the vendor. In the event that a vendor’s activities do not comply with the servicing criteria, it could negatively impact our servicing agreements. In addition, if our current vendors were to stop providing services to us on acceptable terms, including as a result of one or more vendor bankruptcies due to poor economic conditions, we may be unable to procure alternatives from other vendors in a timely and efficient manner and on acceptable terms, or at all. Further, we may incur significant costs to resolve any such disruptions in service and this could adversely affect our business, financial condition and results of operations.
 
The loss of the services of our senior managers could adversely affect our business.
 
The experience of our senior managers is a valuable asset to us. Our management team has significant experience in the residential mortgage originations and servicing industry. We do not maintain key life insurance policies relating to our senior managers. The loss of the services of our senior managers could adversely affect our business.
 
Our business could suffer if we fail to attract and retain a highly skilled workforce.
 
Our future success will depend on our ability to identify, hire, develop, motivate and retain highly qualified personnel for all areas of our organization, in particular skilled managers, loan servicers, debt default specialists, loan officers and underwriters. Trained and experienced personnel are in high demand and may be in short supply in some areas. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. We may not be able to attract, develop and maintain an adequate skilled workforce necessary to operate our businesses and labor expenses may increase as a result of a shortage in the supply of qualified personnel. If we are unable to attract and retain such personnel, we may not be able to take advantage of acquisitions and other growth opportunities that may be presented to us and this could materially affect our business, financial condition and results of operations.
 
Negative public opinion could damage our reputation and adversely affect our earnings.
 
Reputation risk, or the risk to our business, earnings and capital from negative public opinion, is inherent in our business. Negative public opinion can result from our actual or alleged conduct in any number of activities, including lending and debt collection practices, corporate governance, and actions taken by government regulators and community organizations in response to those activities. Negative public opinion can also result from media coverage, whether accurate or not. Negative public opinion can adversely affect our ability to attract and retain customers, trading counterparties and employees and can expose us to litigation and regulatory action. Although we take steps to minimize reputation risk in dealing with our customers and communities, this risk will always be present in our organization.
 
Risks Related to Our Organization and Structure
 
If the ownership of our common stock continues to be highly concentrated, it may prevent you and other minority stockholders from influencing significant corporate decisions and may result in conflicts of interest.
 
Following the completion of this offering, the Initial Stockholder, which is primarily owned by certain private equity funds managed by an affiliate of Fortress, will own approximately 80.8% of our outstanding common stock or 78.5% if the underwriters’ overallotment option is fully exercised. As a result, the Initial Stockholder will own shares sufficient for the majority vote over all matters requiring a stockholder vote, including: the election of directors; mergers, consolidations and acquisitions; the sale of all or substantially all of our assets and other decisions affecting our capital structure; the amendment of our certificate of incorporation and our bylaws; and our winding up and dissolution. This concentration of ownership may delay,


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deter or prevent acts that would be favored by our other stockholders. The interests of the Initial Stockholder may not always coincide with our interests or the interests of our other stockholders. This concentration of ownership may also have the effect of delaying, preventing or deterring a change in control of us. Also, the Initial Stockholder may seek to cause us to take courses of action that, in its judgment, could enhance its investment in us, but which might involve risks to our other stockholders or adversely affect us or our other stockholders, including investors in this offering. As a result, the market price of our common stock could decline or stockholders might not receive a premium over the then-current market price of our common stock upon a change in control. In addition, this concentration of share ownership may adversely affect the trading price of our common stock because investors may perceive disadvantages in owning shares in a company with significant stockholders. See “Principal Stockholder” and “Description of Capital Stock—Anti-Takeover Effects of Delaware Law, Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.”
 
We are a holding company with no operations and will rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations and to pay dividends.
 
We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries, which own our operating assets. As a result, we will be dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends on our common stock. Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions. If we are unable to obtain funds from our subsidiaries, we may be unable to, or our board may exercise its discretion not to, pay dividends.
 
We do not anticipate paying any dividends on our common stock in the foreseeable future.
 
We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock because we intend to use cash flow generated by operations to grow our business. The indenture governing our senior notes restricts our ability to pay cash dividends on our common stock. We may also enter into credit agreements or other borrowing arrangements in the future that restrict or limit our ability to pay cash dividends on our common stock. See “Dividend Policy.”
 
Certain provisions of the Stockholders Agreement, our amended and restated certificate of incorporation and our amended and restated bylaws could hinder, delay or prevent a change in control of us, which could adversely affect the price of our common stock.
 
Certain provisions of our Stockholders Agreement with our Initial Stockholder (the “Stockholders Agreement”), our amended and restated certificate of incorporation and our amended and restated bylaws will contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors or the Initial Stockholder. These provisions provide for:
 
  •     a classified board of directors with staggered three-year terms;
 
  •     removal of directors only for cause and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote (provided, however, that for so long as the Initial Stockholder and certain other affiliates of Fortress and permitted transferees (collectively, the “Fortress Stockholders”) beneficially own at least 40% of our issued and outstanding common stock, directors may be removed with or without cause with the affirmative vote of a majority of the voting interest of stockholders entitled to vote);
 
  •     provisions in our amended and restated certificate of incorporation and amended and restated bylaws will prevent stockholders from calling special meetings of our stockholders (provided, however, that for so long as the Fortress Stockholders beneficially own at least 25% of our


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  issued and outstanding common stock, any stockholders that collectively beneficially own at least 25% of our issued and outstanding common stock may call special meetings of our stockholders);
 
  •     advance notice requirements by stockholders with respect to director nominations and actions to be taken at annual meetings;
 
  •     certain rights to the Fortress Stockholders with respect to the designation of directors for nomination and election to our board of directors, including the ability to appoint a majority of the members of our board of directors for so long as the Fortress Stockholders continue to beneficially own at least 40% of our issued and outstanding common stock. See “Certain Relationships and Related Party Transactions—Stockholders Agreement”;
 
  •     no provision in our amended and restated certificate of incorporation or amended and restated bylaws for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of our common stock can elect all the directors standing for election;
 
  •     our amended and restated certificate of incorporation and our amended and restated bylaws will only permit action by our stockholders outside a meeting by unanimous written consent, provided, however, that for so long as the Fortress Stockholders beneficially own at least 25% of our issued and outstanding common stock, our stockholders may act without a meeting by written consent of a majority of our stockholders; and
 
  •     under our amended and restated certificate of incorporation, our board of directors has authority to cause the issuance of preferred stock from time to time in one or more series and to establish the terms, preferences and rights of any such series of preferred stock, all without approval of our stockholders. Nothing in our amended and restated certificate of incorporation precludes future issuances without stockholder approval of the authorized but unissued shares of our common stock.
 
In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our Initial Stockholder, our management or our board of directors. Public stockholders who might desire to participate in these types of transactions may not have an opportunity to do so, even if the transaction is favorable to stockholders. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change our management and board of directors and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium. See “Description of Capital Stock—Anti-Takeover Effects of Delaware Law, Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws.”
 
Certain of our stockholders have the right to engage or invest in the same or similar businesses as us.
 
The Fortress Stockholders have other investments and business activities in addition to their ownership of us. Under our amended and restated certificate of incorporation, the Fortress Stockholders have the right, and have no duty to abstain from exercising such right, to engage or invest in the same or similar businesses as us, do business with any of our clients, customers or vendors or employ or otherwise engage any of our officers, directors or employees. If the Fortress Stockholders or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty, to the fullest extent permitted by law, to offer such corporate opportunity to us, our stockholders or our affiliates.


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In the event that any of our directors and officers who is also a director, officer or employee of any of the Fortress Stockholders acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as our director or officer and such person acts in good faith, then to the fullest extent permitted by law such person is deemed to have fully satisfied such person’s fiduciary duties owed to us and is not liable to us, if the Fortress Stockholder pursues or acquires the corporate opportunity or if the Fortress Stockholder does not present the corporate opportunity to us. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”
 
Risks Related to this Offering
 
An active trading market for our common stock may never develop or be sustained.
 
Although we have applied to have our common stock approved for listing on the NYSE, an active trading market for our common stock may not develop on that exchange or elsewhere or, if developed, that market may not be sustained. Accordingly, if an active trading market for our common stock does not develop or is not maintained, the liquidity of our common stock, your ability to sell your shares of common stock when desired and the prices that you may obtain for your shares of common stock will be adversely affected.
 
The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.
 
Even if an active trading market develops, the market price of our common stock may be highly volatile and could be subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. The initial public offering price of our common stock will be determined by negotiation between us and the representatives of the underwriters based on a number of factors and may not be indicative of prices that will prevail in the open market following completion of this offering. If the market price of our common stock declines significantly, you may be unable to resell your shares at or above your purchase price, if at all. The market price of our common stock may fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
 
  •     variations in our quarterly or annual operating results;
 
  •     changes in our earnings estimates (if provided) or differences between our actual financial and operating results and those expected by investors and analysts;
 
  •     the contents of published research reports about us or our industry or the failure of securities analysts to cover our common stock after this offering;
 
  •     additions or departures of key management personnel;
 
  •     any increased indebtedness we may incur in the future;
 
  •     announcements by us or others and developments affecting us;
 
  •     actions by institutional stockholders;
 
  •     litigation and governmental investigations;
 
  •     changes in market valuations of similar companies;
 
  •     speculation or reports by the press or investment community with respect to us or our industry in general;


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  •     increases in market interest rates that may lead purchasers of our shares to demand a higher yield;
 
  •     announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures or capital commitments; and
 
  •     general market, political and economic conditions, including any such conditions and local conditions in the markets in which our customers are located.
 
These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. The stock market in general has from time to time experienced extreme price and volume fluctuations, including in recent months. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management’s attention and resources.
 
Future offerings of debt or equity securities by us may adversely affect the market price of our common stock.
 
In the future, we may attempt to obtain financing or to further increase our capital resources by issuing additional shares of our common stock or offering debt or other equity securities, including commercial paper, medium-term notes, senior or subordinated notes, debt securities convertible into equity or shares of preferred stock. In particular, we intend to continue to seek opportunities to acquire loan servicing portfolios and/or businesses that engage in loan servicing and/or loan originations. Future acquisitions could require substantial additional capital in excess of cash from operations. We would expect to finance the capital required for acquisitions through a combination of additional issuances of equity, corporate indebtedness, asset-backed acquisition financing and/or cash from operations.
 
Issuing additional shares of our common stock or other equity securities or securities convertible into equity may dilute the economic and voting rights of our existing stockholders or reduce the market price of our common stock or both. Upon liquidation, holders of such debt securities and preferred shares, if issued, and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common stock. Debt securities convertible into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of equity securities issuable upon conversion. Preferred shares, if issued, could have a preference with respect to liquidating distributions or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, which may adversely affect the amount, timing or nature of our future offerings. Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us. See “Description of Capital Stock.”
 
The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.
 
After this offering, there will be 86,666,667 shares of common stock outstanding or 89,166,667 shares outstanding if the underwriters exercise their overallotment option in full. Of our issued and outstanding shares, all the common stock sold in this offering will be freely transferable, except for any shares held by our “affiliates,” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Following completion of the offering, approximately 80.8% of our outstanding common stock (or 78.5% if the underwriters exercise their overallotment option in full) will be held by the Initial Stockholder and can be resold into the public markets in the future in accordance with the requirements of Rule 144. See “Shares Eligible For Future Sale.”


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We and our executive officers, directors and the Initial Stockholder (who will hold in the aggregate approximately 80.8% of our outstanding common stock immediately after the completion of this offering or 78.5% if the underwriters exercise their overallotment option in full) have agreed with the underwriters that, subject to certain exceptions, for a period of 180 days after the date of this prospectus, we and they will not directly or indirectly offer, pledge, sell, contract to sell, sell any option or contract to purchase or otherwise dispose of any common stock or any securities convertible into or exercisable or exchangeable for common stock, or in any manner transfer all or a portion of the economic consequences associated with the ownership of common stock, or cause a registration statement covering any common stock to be filed, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. See “Underwriting—No Sales of Similar Securities.” Merrill Lynch, Pierce, Fenner & Smith Incorporated may waive these restrictions at its discretion.
 
Pursuant to the Stockholders Agreement, the Initial Stockholder and certain of its affiliates and permitted third party transferees will have the right, in certain circumstances, to require us to register their approximately 70,000,000 shares of our common stock under the Securities Act for sale into the public markets. Upon the effectiveness of such a registration statement, all shares covered by the registration statement will be freely transferable. See “Certain Relationships and Related Party Transactions—Stockholders Agreement.”
 
The market price of our common stock may decline significantly when the restrictions on resale by our existing stockholders lapse. A decline in the price of our common stock might impede our ability to raise capital through the issuance of additional common stock or other equity securities.
 
The future issuance of additional common stock in connection with our incentive plans, acquisitions or otherwise will dilute all other stockholdings.
 
After this offering, assuming the underwriters exercise their overallotment option in full, we will have an aggregate of 905,633,333 shares of common stock authorized but unissued and not reserved for issuance under our incentive plans. We may issue all of these shares of common stock without any action or approval by our stockholders, subject to certain exceptions. We also intend to continue to evaluate acquisition opportunities and may issue common stock in connection with these acquisitions. Any common stock issued in connection with our incentive plans, acquisitions, the exercise of outstanding stock options or otherwise would dilute the percentage ownership held by the investors who purchase common stock in this offering.
 
Investors in this offering will suffer immediate and substantial dilution.
 
The initial public offering price of our common stock will be substantially higher than the as adjusted net tangible book value per share issued and outstanding immediately after this offering. Our net tangible book value per share as of December 31, 2011 was approximately $4.02 and represents the amount of book value of our total tangible assets minus the book value of our total liabilities, after giving effect to the 70,000 for 1 stock split, divided by the number of our shares of common stock then issued and outstanding. Investors who purchase common stock in this offering will pay a price per share that substantially exceeds the net tangible book value per share of common stock. If you purchase shares of our common stock in this offering, you will experience immediate and substantial dilution of $11.56 in the net tangible book value per share, based upon the initial public offering price of $18.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus). Investors that purchase common stock in this offering will have purchased 19.2% of the shares issued and outstanding immediately after the offering, but will have paid 26.2% of the total consideration for those shares.
 
Conflicts of interest may exist with respect to certain underwriters of this offering.
 
BANA, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters of this offering, is the lender under our $175 Million Warehouse Facility and Merrill Lynch, Pierce, Fenner &


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Smith Incorporated was an initial purchaser in connection with the offering in March 2010 of our senior notes. In addition, in December 2011, we entered into the Reverse Mortgage Acquisition with BANA. BANA is obligated among other things, under certain circumstances and subject to various terms and conditions, to repurchase certain of the loans associated with the servicing rights that were sold to us and, for a limited time, to make certain advances, including principal advances, with respect to the underlying mortgage loans to the borrower, and we are obligated to reimburse BANA monthly for these advances for one year. Also, in September 2011, we purchased certain MSRs relating to residential mortgage loans with an aggregate UPB of approximately $10 billion as of December 31, 2011 from BANA for approximately $69.6 million.
 
Wells Fargo Bank, N.A., an affiliate of Wells Fargo Securities, LLC, one of the underwriters of this offering, is the lender under our 2010-ABS Advance Financing Facility. Wells Fargo Bank, N.A. also acts as Master Servicer under certain of our Servicing Agreements related to mortgage loans for which we act as servicer. Wells Fargo Bank, N.A. receives customary fees and commissions for these transactions.
 
Citibank, N.A., an affiliate of Citigroup Global Markets Inc., one of the underwriters of this offering, is the lender under our $100 Million Warehouse Facility. Citibank, N.A. receives customary fees and commissions for this transaction.
 
Barclays Bank plc, an affiliate of Barclays Capital Inc., one of the underwriters of this offering, is the lender under our 2011-Agency Advance Financing Facility and our $50 Million Warehouse Facility. Barclays Bank plc receives customary fees and commissions for these transactions.
 
Additionally, we intend to make further purchases of servicing rights from third parties in the future, which could include our underwriters or their affiliates, and it is possible that we may use a portion of the proceeds of this offering to fund such future acquisitions. In connection with such acquisitions, we may enter into additional borrowing arrangements, including with our underwriters or their affiliates. Therefore, conflicts of interest could exist because underwriters or their affiliates could receive proceeds from this offering in addition to the underwriting discounts and commissions described in this prospectus. See “Underwriting—Other Relationships.”
 
We will have broad discretion in the use of a significant part of the net proceeds from this offering and may not use them effectively.
 
Our management currently intends to use the net proceeds from this offering in the manner described in “Use of Proceeds” and will have broad discretion in the application of a significant part of the net proceeds from this offering. The failure by our management to apply these funds effectively could affect our ability to operate and grow our business.
 
As a public company, we will incur additional costs and face increased demands on our management.
 
As a public company with shares listed on a U.S. exchange, we will need to comply with an extensive body of regulations that did not apply to us previously, including provisions of the Sarbanes Oxley Act of 2002 (the “Sarbanes-Oxley Act”), regulations of the SEC and requirements of the NYSE. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. For example, as a result of becoming a public company, we intend to add independent directors, create additional board committees and adopt certain policies regarding internal controls and disclosure controls and procedures. In addition, we will incur additional costs associated with our public company reporting requirements and maintaining directors’ and officers’ liability insurance. We are currently evaluating and monitoring developments with respect to these rules, which may impose additional costs on us and materially affect our business, financial condition and results of operations.


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We will be required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal controls by the end of our fiscal year ending December 31, 2013, and the outcome of that effort may adversely affect our business, financial condition and results of operations.
 
As a U.S.-listed public company, we will be required to comply with Section 404 of the Sarbanes-Oxley Act by December 31, 2013. Section 404 will require that we evaluate our internal control over financial reporting to enable management to report on, and our independent auditors to audit as of the end of our fiscal year ended December 31, 2013, the effectiveness of those controls. While we have begun the lengthy process of evaluating our internal controls, we are in the early phases of our review and will not complete our review until well after this offering is completed. The outcome of our review may adversely affect our business, financial condition and results of operations. During the course of our review, we may identify control deficiencies of varying degrees of severity, and we may incur significant costs to remediate those deficiencies or otherwise improve our internal controls. As a public company, we will be required to report control deficiencies that constitute a “material weakness” in our internal control over financial reporting. We would also be required to obtain an audit report from our independent auditors regarding the effectiveness of our internal controls over financial reporting. If we fail to implement the requirements of Section 404 in a timely manner, we may be subject to sanctions or investigation by regulatory authorities, including the SEC or the NYSE. Furthermore, if we discover a material weakness or our auditor does not provide an unqualified audit report, our share price could decline and our ability to raise capital could be impaired.
 
Risks Related to Taxation
 
Our ability to use net operating loss and any tax credit carryovers and certain built-in losses to reduce future tax payments is limited by provisions of the Internal Revenue Code, and may be subject to further limitation as a result of the transactions contemplated by this offering.
 
Sections 382 and 383 of the Internal Revenue Code contain rules that limit the ability of a company that undergoes an ownership change, which is generally any change in ownership of more than 50% of its stock over a three-year period, to utilize its net operating loss and tax credit carryforwards and certain built-in losses recognized in years after the ownership change. These rules generally operate by focusing on ownership changes involving stockholders owning directly or indirectly 5% or more of the stock of a company and any change in ownership arising from a new issuance of stock by the company. Generally, if an ownership change occurs, the yearly taxable income limitation on the use of net operating loss and tax credit carryforwards and certain built-in losses is equal to the product of the applicable long-term tax exempt rate and the value of the company’s stock immediately before the ownership change. As a result of the Restructuring, we expect to assume the net operating losses of certain parent entities of our Initial Stockholder. However, our use of the $196 million of federal net operating losses that we expect to assume in the Restructuring will be subject to annual taxable income limitations. As a result, we may be unable to offset our taxable income with losses, or our tax liability with credits, before such losses and credits expire and therefore would incur larger federal income tax liability.
 
In addition, it is possible that the transactions described in this offering, either on a standalone basis or when combined with future transactions (including issuances of new shares of our common stock and sales of shares of our common stock), will cause us to undergo one or more ownership changes. In that event, we generally would not be able to use our pre-change loss or credit carryovers or certain built-in losses prior to such ownership change to offset future taxable income in excess of the annual limitations imposed by Sections 382 and 383 and those attributes already subject to limitations (as a result of prior ownership changes) may be subject to more stringent limitations.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Some of the statements under “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Industry,” “Business” and elsewhere in this prospectus may contain forward-looking statements that reflect our current views with respect to, among other things, future events and financial performance. You can identify these forward-looking statements by the use of forward-looking words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates,” “target,” “projects,” “contemplates” or the negative version of those words or other comparable words. Any forward-looking statements contained in this prospectus are based upon our historical performance and on our current plans, estimates and expectations in light of information currently available to us. The inclusion of this forward-looking information should not be regarded as a representation by us, Fortress, the Initial Stockholder, the underwriters or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business, prospects, growth strategy and liquidity. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to:
 
  •     the delay in our foreclosure proceedings due to inquiries by certain state Attorneys General, court administrators and state and federal government agencies;
 
  •     the impact of the ongoing implementation of the Dodd-Frank Act on our business activities and practices, costs of operations and overall results of operations;
 
  •     the impact on our servicing practices of enforcement consent orders and agreements entered into by certain federal and state agencies against the largest mortgage servicers;
 
  •     increased legal proceedings and related costs;
 
  •     the continued deterioration of the residential mortgage market, increase in monthly payments on adjustable rate mortgage loans, adverse economic conditions, decrease in property values and increase in delinquencies and defaults;
 
  •     the deterioration of the market for reverse mortgages and increase in foreclosure rates for reverse mortgages;
 
  •     our ability to efficiently service higher risk loans;
 
  •     our ability to mitigate the increased risks related to servicing reverse mortgages;
 
  •     our ability to compete successfully in the mortgage loan servicing and mortgage loan originations industries;
 
  •     our ability to maintain or grow the size of our servicing portfolio and realize our significant investments in personnel and our technology platform by successfully identifying attractive acquisition opportunities, including MSRs, subservicing contracts, servicing platforms and originations platforms;
 
  •     our ability to scale-up appropriately and integrate our acquisitions to realize the anticipated benefits of any such potential future acquisitions;
 
  •     our ability to obtain sufficient capital to meet our financing requirements;


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  •     our ability to grow our loan originations volume;
 
  •     the termination of our servicing rights and subservicing contracts;
 
  •     changes to federal, state and local laws and regulations concerning loan servicing, loan origination, loan modification or the licensing of entities that engage in these activities;
 
  •     loss of our licenses;
 
  •     our ability to meet certain criteria or characteristics under the indentures governing our securitized pools of loans;
 
  •     our ability to follow the specific guidelines of GSEs or a significant change in such guidelines;
 
  •     delays in our ability to collect or be reimbursed for servicing advances;
 
  •     changes to HAMP, HARP, MHA or other similar government programs;
 
  •     changes in our business relationships with Fannie Mae, Freddie Mac, Ginnie Mae and others that facilitate the issuance of MBS;
 
  •     changes to the nature of the guarantees of Fannie Mae and Freddie Mac and the market implications of such changes;
 
  •     errors in our financial models or changes in assumptions;
 
  •     requirements to write down the value of certain assets;
 
  •     changes in prevailing interest rates;
 
  •     our ability to successfully mitigate our risks through hedging strategies;
 
  •     changes to our servicer ratings;
 
  •     the accuracy and completeness of information about borrowers and counterparties;
 
  •     our ability to maintain our technology systems and our ability to adapt such systems for future operating environments;
 
  •     failure of our internal security measures or breach of our privacy protections;
 
  •     failure of our vendors to comply with servicing criteria;
 
  •     the loss of the services of our senior managers;
 
  •     changes to our income tax status;
 
  •     failure to attract and retain a highly skilled work force;
 
  •     changes in public opinion concerning mortgage originators or debt collectors;
 
  •     changes in accounting standards;


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  •     conflicts of interest with certain underwriters in this offering;
 
  •     conflicts of interest with Fortress and our Initial Stockholder; and
 
  •     other risks described in the “Risk Factors” section of this prospectus beginning on page 15.
 
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this prospectus. The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We do not undertake any obligation to publicly update or review any forward-looking statement except as required by law, whether as a result of new information, future developments or otherwise.
 
If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from what we may have expressed or implied by these forward-looking statements. We caution that you should not place undue reliance on any of our forward-looking statements. You should specifically consider the factors identified in this prospectus that could cause actual results to differ before making an investment decision to purchase our common stock. Furthermore, new risks and uncertainties arise from time to time, and it is impossible for us to predict those events or how they may affect us.


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USE OF PROCEEDS
 
The net proceeds to us from the sale of the 16,666,667 shares of common stock offered hereby are estimated to be approximately $276.7 million, assuming an initial public offering price of $18.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus) and after deducting the offering expenses payable by us. We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including servicing acquisitions, which may include acquisitions from one or more affiliates of the underwriters in this offering.
 
A $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) the net proceeds to us from this offering by $15.6 million, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.


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DIVIDEND POLICY
 
We do not expect to pay dividends on our common stock for the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be used for the operation and growth of our business. Our ability to pay dividends to holders of our common stock is limited as a practical matter by the terms of some of our debt, including the indenture governing the senior notes and other indebtedness. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations—Description of Certain Indebtedness.”
 
Any future determination to pay dividends on our common stock will be at the discretion of our board of directors and will depend upon many factors, including our financial position, results of operations, liquidity, legal requirements, restrictions that may be imposed by the terms in current and future financing instruments and other factors deemed relevant by our board of directors.


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CAPITALIZATION
 
The following sets forth our cash and cash equivalents and capitalization as of December 31, 2011:
 
  •     on an actual basis; and
 
  •     on an as adjusted basis to give effect to the Restructuring and sale of 16,666,667 shares of common stock by us in this offering, at an assumed initial public offering price of $18.00 per share, the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us.
 
You should read this table in conjunction with “Use of Proceeds,” “Selected Consolidated Historical Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited consolidated financial statements and related notes and other financial information included elsewhere in this prospectus.
                 
   
December 31, 2011
 
   
Actual
   
As Adjusted
 
    (in thousands)  
 
Cash and cash equivalents
  $ 62,445     $ 339,142  
                 
Debt:
               
Unsecured senior notes
  $ 280,199     $ 280,199  
Notes payable:
               
Servicing:
               
MBS Advance Financing Facility
    179,904       179,904  
Securities Repurchase Facility (2011)
    11,774       11,774  
2010-ABS Advance Financing Facility
    219,563       219,563  
2011-Agency Advance Financing Facility
    25,011       25,011  
MSR Note
    10,180       10,180  
Originations:
               
$300 Million Warehouse Facility
    251,722       251,722  
$175 Million Warehouse Facility
    46,810       46,810  
$100 Million Warehouse Facility
    16,047       16,047  
$50 Million Warehouse Facility
    7,310       7,310  
ASAP+ Short-Term Financing Facility
    104,858       104,858  
                 
Total notes payable
    873,179       873,179  
                 
Non-recourse debt—Legacy Assets
    112,490       112,490  
Excess spread financing (at fair value)
    44,595       44,595  
                 
Total debt
    1,310,463       1,310,463  
Stockholders’ and members’ equity:
               
Members’ equity
    281,309        
Preferred stock, par value $0.01 per share; 300,000,000 shares authorized and no shares issued and outstanding, as adjusted
           
Common stock, par value $0.01 per share; 1,000,000,000 shares authorized and 86,666,667 shares issued and outstanding, as adjusted (1)
          867  
Additional paid-in capital
          557,139  
                 
Total stockholders’ and members’ equity
    281,309       558,006  
                 
Total capitalization
  $ 1,591,772     $ 1,868,469  
                 
(1) Does not include 1,030,558 unvested shares of restricted stock that we expect to grant to certain of our executive officers, directors and employees in connection with this offering.


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DILUTION
 
If you invest in our common stock, your ownership interest will be diluted to the extent of the difference between the initial public offering price in this offering per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock upon consummation of this offering. Net tangible book value per share represents the book value of our total tangible assets less the book value of our total liabilities divided by the number of shares of common stock then issued and outstanding.
 
Our net tangible book value as of December 31, 2011 was approximately $281.3 million, or approximately $4.02 per share based on the 70,000,000 shares of common stock issued and outstanding as of such date after giving effect to the 70,000 for 1 stock split of our common stock. After giving effect to our sale of common stock in this offering at the initial public offering price of $18.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus), and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of December 31, 2011 would have been $558.0 million, or $6.44 per share (assuming no exercise of the underwriters’ overallotment option). This represents an immediate and substantial dilution of $11.56 per share to new investors purchasing common stock in this offering. The following table illustrates this dilution per share:
 
                 
Assumed initial public offering price per share
          $ 18.00  
Net tangible book value per share as of December 31, 2011
  $ 4.02          
Increase in net tangible book value per share attributable to this offering
    2.42          
                 
Pro forma as adjusted net tangible book value per share after giving effect to this offering
            6.44  
                 
Dilution per share to new investors in this offering
          $ 11.56  
                 
 
A $1.00 increase (decrease) in the assumed initial public offering price of $18.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus) would increase (decrease) our net tangible book value by $15.6 million, the pro forma as adjusted net tangible book value per share after this offering by $0.18 per share and the dilution to new investors in this offering by $0.82 per share, assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
 
The following table summarizes, on a pro forma basis as of December 31, 2011, the differences between the number of shares of common stock purchased from us, the total price and the average price per share paid by existing stockholders and by the new investors in this offering, before deducting the underwriting discounts and commissions and estimated offering expenses payable by us, at an assumed initial public offering price of $18.00 per share (the midpoint of the estimated initial public offering price range set forth on the cover page of this prospectus).
 
                                         
                    Average
   
Shares Purchased
 
Total Consideration
  Price per
   
Number
 
Percent
 
Amount
 
Percent
 
Share
    (in thousands)   (in thousands)    
 
Existing Stockholders
    70,000       80.8 %   $ 845,689       73.8 %   $ 12.08  
New investors
    16,667       19.2       300,000       26.2       18.00  
                                         
Total
    86,667       100.0 %   $ 1,145,689       100.0 %        
                                         
 
A $1.00 increase (decrease) in the assumed initial offering price would increase (decrease) total consideration paid by new investors and average price per share paid by new investors by $16.7 million and


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$1.00 per share, respectively. An increase (decrease) of 1.0 million in the number of shares offered by us would increase (decrease) total consideration paid by new investors and average price per share paid by new investors by $18.0 million and $0 per share, respectively.
 
If the underwriters’ overallotment option is fully exercised, the pro forma as adjusted net tangible book value per share after this offering as of December 31, 2011 would be approximately $6.73 per share and the dilution to new investors per share after this offering would be $11.27 per share.
 
Certain of our current and former members of management who hold membership interests in the Initial Stockholder have been offered the opportunity to exchange those interests for shares of our common stock in the Unit Exchange. The Unit Exchange will not affect the number of shares of our common stock outstanding after this offering, as all shares that are being offered in exchange for the units are currently held by the Initial Stockholder. See “Description of Capital Stock — Unit Exchange.”


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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
 
The following tables present selected consolidated financial information of Nationstar Mortgage LLC, our predecessor company, as well as pro forma information that reflects the impact of our conversion to a taxable entity from a disregarded entity for tax purposes. We were formed on May 9, 2011 and have not, to date, conducted any activities other than those incident to our formation and the preparation of this registration statement. We were formed solely for the purpose of reorganizing the organizational structure of the Initial Stockholder and Nationstar Mortgage LLC, so that the issuer is a corporation rather than a limited liability company and our existing investors will own common stock rather than equity interests in a limited liability company.
 
This prospectus does not include financial statements of Nationstar Mortgage Holdings Inc., as it has been incorporated solely for the purpose of effecting this offering and currently holds no material assets and does not engage in any operations. Prior to the completion of this offering, all of the equity interests in Nationstar Mortgage LLC will be transferred from our Initial Stockholder to two direct, wholly-owned subsidiaries of Nationstar Mortgage Holdings Inc., pursuant to the Restructuring. We anticipate this transaction will be accounted for as a reorganization of entities under common control. Accordingly, there will be no change in the basis of the underlying assets and liabilities.
 
You should read these tables along with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and our consolidated financial statements and the related notes included elsewhere in this prospectus.
 
The information in the following tables gives effect to the 70,000 for 1 stock split, which will be effective prior to the completion of this offering.
 
The selected consolidated statement of operations data for the years ended December 31, 2009, 2010 and 2011 and the selected consolidated balance sheet data at December 31, 2010 and 2011 have been derived from our audited financial statements included elsewhere in this prospectus. The selected consolidated statement of operations data for the years ended December 31, 2007 and 2008 and the selected consolidated balance sheet data at December 31, 2008 and 2009 have been derived from our audited financial statements that are not included in this prospectus. The selected consolidated balance sheet data at December 31, 2007 has been derived from our unaudited financial statements, which are not included in this prospectus.


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Year Ended December 31,
 
   
2007
   
2008
   
2009
   
2010
   
2011
 
    (in thousands, except per share data)  
Statement of Operations Data—Consolidated
                                       
Revenues:
                                       
Total fee income
    $46,301       $74,007       $100,218       $184,084       $268,598  
Gain (loss) on mortgage loans held for sale
    (94,673 )     (86,663 )     (21,349 )     77,344       109,136  
                                         
Total revenues
    (48,372 )     (12,656 )     78,869       261,428       377,734  
Total expenses and impairments
    259,222       147,777       142,367       220,976       306,183  
Other income (expense):
                                       
Interest income
    163,022       92,060       52,518       98,895       66,802  
Interest expense
    (118,553 )     (65,548 )     (69,883 )     (116,163 )     (105,375 )
Gain (loss) on interest rate swaps and caps
    (21,353 )     (23,689 )     (14 )     (9,801 )     298  
Fair value changes in ABS securitizations
                      (23,297 )     (12,389 )
                                         
Total other income (expense)
    23,116       2,823       (17,379 )     (50,366 )     (50,664 )
                                         
Net (loss) income
    $(284,478 )     $(157,610 )     $(80,877 )     $(9,914 )     $20,887  
                                         
                                         
Pro Forma Information (unaudited):
                                       
Historical net income before taxes
                                    $20,887  
Pro forma adjustment for taxes (1)
                                     
                                         
Pro forma net income
                                    $20,887  
                                         
                                         
Net income (loss) per share:
                                       
Basic and diluted
    $(3.28 )     $(1.82 )     $(0.93 )     $(0.11 )     $0.24  
                                         
Number of shares outstanding (2) :
                                       
Basic and diluted
    86,667       86,667       86,667       86,667       86,667  
 
(1) Our pro forma effective tax rate for 2011 is 0%. The pro forma tax provision, before utilization of tax benefits, is $11,448 on pre-tax income of $20,887. We expect to assume certain tax attributes of certain parent entities of our Initial Stockholder as a result of the Restructuring, including approximately $196 million of net operating loss carry forwards as of December 31, 2011. We expect to record a full valuation allowance against any resulting deferred tax asset. The utilization of these tax attributes will be limited pursuant to Sections 382 and 383 of the Internal Revenue Code.
 
(2) Represents the number of shares issued and outstanding after giving effect to our sale of common stock in this offering and does not include common stock that may be issued and sold upon exercise of the underwriters’ overallotment option.
 
                                         
   
December 31,
   
2007
 
2008
 
2009
 
2010
 
2011
    (in thousands)
Balance Sheet Data—Consolidated
                                       
Cash and cash equivalents
    $41,251       $9,357       $41,645       $21,223       $62,445  
Accounts receivable
    190,408       355,975       513,939       441,275       562,300  
Mortgage servicing rights
    82,634       110,808       114,605       145,062       251,050  
Total assets
    1,303,221       1,122,001       1,280,185       1,947,181       1,787,931  
Notes payable (1)
    967,307       810,041       771,857       709,758       873,179  
Unsecured senior notes
                      244,061       280,199  
Legacy assets securitized debt
                177,675       138,662       112,490  
Excess spread financing (at fair value)
                            44,595  
ABS nonrecourse debt (at fair value)
                      496,692        
Total liabilities
    1,041,525       866,079       1,016,362       1,690,809       1,506,622  
Total members’ equity
    261,696       255,922       263,823       256,372       281,309  


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(1) A summary of notes payable as of December 31, 2011 follows:
 
         
Notes Payable
 
December 31, 2011
    (in thousands)
Servicing
       
2010-ABS Advance Financing Facility
  $ 219,563  
2011-Agency Advance Financing Facility
    25,011  
MBS Advance Financing Facility
    179,904  
Securities Repurchase Facility (2011)
    11,774  
MSR Note
    10,180  
Originations
       
$300 Million Warehouse Facility
    251,722  
$100 Million Warehouse Facility
    16,047  
$175 Million Warehouse Facility
    46,810  
$50 Million Warehouse Facility
    7,310  
ASAP+ Short-Term Financing Facility
    104,858  
         
    $ 873,179  
         
 
The following tables summarize consolidated financial information for our Operating Segments. Management analyzes our performance in two separate segments, the Servicing Segment and the Originations Segment, which together constitute our Operating Segments. In addition, we have a legacy asset portfolio, which primarily consists of non-prime and non-conforming mortgage loans, most of which were originated from April to July 2007. The Servicing Segment provides loan servicing on our servicing portfolio and the Originations Segment involves the origination, packaging and sale of GSE mortgage loans into the secondary markets via whole loan sales or securitizations.
 
                                         
   
Year Ended December 31,
   
2007
 
2008
 
2009
 
2010
 
2011
    (in thousands)
Statement of Operations Data—Operating Segments Information
                                       
Revenues:
                                       
Total fee income
    $50,123       $75,190       $101,289       $189,884       $269,585  
Gain on mortgage loans held for sale
    88,489       21,985       54,437       77,498       109,431  
                                         
Total revenues
    138,612       97,175       155,726       267,382       379,016  
Total expenses and impairments
    196,995       85,832       118,429       194,203       279,537  
Other income (expense):
                                       
Interest income
    52,097       12,792       8,404       12,111       14,981  
Interest expense
    (51,955 )     (17,007 )     (29,315 )     (60,597 )     (68,979 )
Gain (loss) on interest rate swaps and caps
                      (9,801 )     298  
                                         
Total other income (expense)
    142       (4,215 )     (20,911 )     (58,287 )     (53,700 )
                                         
Net income (loss)
    $(58,241 )     $7,128       $16,386       $14,892       $45,779  
                                         
 


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Year Ended December 31,
 
   
2007
   
2008
   
2009
   
2010
   
2011
 
    (in thousands)  
 
Net Income (loss) from Operating Segments to Adjusted EBITDA Reconciliation:
                                       
Net income (loss) from Operating Segments
    $(58,241 )     $7,128       $16,386       $14,892       $45,779  
Adjust for:
                                       
Interest expense from unsecured senior notes
                      24,628       30,464  
Depreciation and amortization
    3,348       1,172       1,542       1,873       3,395  
Change in fair value of MSRs
    16,015       11,701       27,915       6,043       39,000  
Fair value changes on excess spread financing
                            3,060  
Share-based compensation
    1,633       1,633       579       8,999       14,764  
Exit costs
                            1,836  
Goodwill impairment
    12,000                          
Fair value changes on interest rate swaps
                      9,801       (298 )
Ineffective portion of cash flow hedge
                      (930 )     (2,032 )
                                         
Adjusted EBITDA (1)
    $(25,245 )     $21,634       $46,422       $65,306       $135,968  
                                         
 
(1) Adjusted EBITDA is a key performance measure used by management in evaluating the performance of our segments. Adjusted EBITDA represents our Operating Segments’ income (loss) and excludes income and expenses that relate to the financing of the senior notes, depreciable (or amortizable) asset base of the business, income taxes (if any), exit costs from our restructuring and certain non-cash items. Adjusted EBITDA also excludes results from our legacy asset portfolio and certain securitization trusts that were consolidated upon adoption of the new accounting guidance eliminating the concept of a QSPE.
 
Adjusted EBITDA provides us with a key measure of our Operating Segments’ performance as it assists us in comparing our Operating Segments’ performance on a consistent basis. Management believes Adjusted EBITDA is useful in assessing the profitability of our core business and uses Adjusted EBITDA in evaluating our operating performance as follows:
 
•    Financing arrangements for our Operating Segments are secured by assets that are allocated to these segments. Interest expense that relates to the financing of our senior notes is not considered in evaluating our operating performance because this obligation is serviced by the excess earnings from our Operating Segments after the debt obligations that are secured by their assets.
 
•    To monitor operating costs of each Operating Segment excluding the impact from depreciation, amortization and fair value change of the asset base, exit costs from our restructuring and non-cash operating expense, such as share-based compensation. Operating costs are analyzed to manage costs per our operating plan and to assess staffing levels, implementation of technology-based solutions, rent and other general and administrative costs.
 
Management does not assess the growth prospects and the profitability of our legacy asset portfolio and certain securitization trusts that were consolidated upon adoption of the new accounting guidance, except to the extent necessary to assess whether cash flows from the assets in the legacy asset portfolio are sufficient to service its debt obligations.
 
We also use Adjusted EBITDA (with additional adjustments) to measure our compliance with covenants such as leverage coverage ratios for our senior notes.
 
Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
 
•    Adjusted EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

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•    Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 
•    Adjusted EBITDA does not reflect the cash requirements necessary to service principal payments related to the financing of the business;
 
•    Adjusted EBITDA does not reflect the interest expense or the cash requirements necessary to service interest or principal payments on our corporate debt;
 
•    although depreciation and amortization and changes in fair value of MSRs are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and Adjusted EBITDA does not reflect any cash requirements for such replacements; and
 
•    other companies in our industry may calculate Adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure.
 
Because of these and other limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business. Adjusted EBITDA is presented to provide additional information about our operations. Adjusted EBITDA is a non-GAAP measure and should be considered in addition to, but not as a substitute for or superior to, operating income, net income, operating cash flow and other measures of financial performance prepared in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA only supplementally.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 
Nationstar Mortgage Holdings Inc. is a newly formed Delaware corporation that has not, to date, conducted any activities other than those incident to its formation and the preparation of this registration statement. Upon the completion of the Restructuring, we will conduct our business through Nationstar Mortgage LLC and its consolidated subsidiaries. The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and related notes and other financial information appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. See “Special Note Regarding Forward-Looking Statements.” Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in “Risk Factors” and elsewhere in this prospectus. Except where the context otherwise requires, the terms “we,” “us,” or “our” refer to the business of Nationstar Mortgage LLC and its consolidated subsidiaries.
 
General
 
Our Business
 
We are a leading high touch non-bank residential mortgage servicer with a broad array of servicing capabilities across the residential mortgage product spectrum. We have been the fastest growing mortgage servicer since 2007 as measured by annual percentage growth in UPB, having grown 70.2% annually on a compounded basis. As of December 31, 2011, we serviced over 645,000 residential mortgage loans with an aggregate UPB of $106.6 billion, making us the largest high touch non-bank servicer in the United States. Our total servicing portfolio as of December 31, 2011 includes approximately $7.8 billion of reverse residential mortgage loans for which we entered into an agreement to acquire the MSRs in December 2011 and closed the transaction in January 2012.
 
We service loans as the owner of the MSRs, which we refer to as “primary servicing,” and we also service loans on behalf of other MSR or mortgage owners, which we refer to as “subservicing.” We acquire MSRs on a standalone basis and have also developed an innovative model for investing on a capital light basis by co-investing with financial partners in “excess MSRs.” Subservicing represents another capital light means of growing our servicing business, as subservicing contracts are typically awarded on a no-cost basis and do not require substantial capital. As of December 31, 2011, our primary servicing and subservicing portfolios represented 46.4% and 53.6%, respectively, of our total servicing portfolio, excluding approximately $7.8 billion of reverse residential mortgage loans for which we entered into an agreement to acquire the MSRs in December 2011 and closed the transaction in January 2012. In addition, we operate or have investments in several adjacent businesses designed to meet the changing needs of the mortgage industry. These businesses offer an array of ancillary services, including providing services for delinquent loans, managing loans in the foreclosure/REO process and providing title insurance agency, loan settlement and valuation services on newly originated and re-originated loans.
 
We are one of only a few non-bank servicers with a fully integrated loan originations platform to complement and enhance our servicing business. We originate primarily conventional agency (GSE) and government-insured residential mortgage loans and, to mitigate risk, typically sell these loans within 30 days while retaining the associated servicing rights. Our originations efforts are primarily focused on “re-origination,” which involves actively working with existing borrowers to refinance their mortgage loans. By re-originating loans for existing borrowers, we retain the servicing rights, thereby extending the longevity of the servicing cash flows, which we refer to as “recapture.”
 
We also have a legacy asset portfolio, which consists primarily of non-prime and nonconforming residential mortgage loans, most of which we originated from April to July 2007. In November 2009, we


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engaged in a transaction through which we term-financed our legacy assets with a non-recourse loan that requires no additional capital or equity contributions. Additionally, we consolidated certain securitization trusts where it was determined that we had both the power to direct the activities that most significantly impact the variable interest entities’ (“VIE”) economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE pursuant to new consolidation accounting guidance related to VIEs adopted on January 1, 2010.
 
The analysis of our financial condition and results of operations as discussed herein is primarily focused on the combined results of our two Operating Segments: the Servicing Segment and the Originations Segment.
 
Managing Business Performance
 
Management is focused on several key initiatives to manage our Operating Segments: (i) effective management of our servicing portfolio; (ii) growing our servicing portfolio through the acquisition of MSRs or entering into subservicing contracts; (iii) originating and selling primarily conventional agency (GSE) and government-insured residential mortgage loans while retaining the MSRs; (iv) extending the longevity of the servicing cash flows before loans are repaid or liquidate by increasing our recapture rate; and (v) growing our adjacent businesses. We also focus on access to diverse and multiple liquidity sources to finance the acquisition of MSRs, our obligations to pay advances as required by our servicing agreements, and our loan originations.
 
Servicing Segment
 
As part of our primary servicing portfolio, we act as servicers on behalf of mortgage owners by purchasing MSRs from existing servicers, or from owners of mortgage loans or pools of mortgage loans, or by retaining the MSRs related to the loans that we originate and sell. We acquire MSRs on a standalone and a capital light basis. Additionally, we enter into subservicing contracts with MSR or mortgage owners that choose to outsource the servicing function, pursuant to which we earn a contractual fee per loan we service.
 
Servicing fee income is primarily based on the aggregate UPB of loans serviced and varies by loan type. Other factors that impact servicing fee income include delinquency rates, prepayment speeds and loss mitigation activity. Delinquency rates on the loans we service impact the contractual servicing and ancillary fees we receive and the costs to service. Delinquent loans cost more to service than performing loans due to the additional resources and required servicing advances. We monitor our delinquency levels through our staffing models, our business plans and macroeconomic analysis.
 
The largest cost in our Servicing Segment is staffing cost, which is primarily impacted by delinquency levels and the size of our portfolio. Other operating costs in our Servicing Segment include technology, occupancy and general and administrative costs. The cost of financing our servicing advances is another expense. We continually monitor these costs to improve efficiency by streamlining workflows and implementing technology-based solutions.
 
We also provide an array of adjacent services, including providing services for delinquent loans, managing loans in the foreclosure/REO process and providing title insurance agency, loan settlement and valuation services on newly originated and re-originated loans.
 
Originations Segment
 
In addition to our core servicing business, we are one of only a few non-bank servicers with a fully integrated loan originations platform. Because a key determinant of the profitability of our primary servicing portfolio is the longevity of the servicing cash flows before a loan is repaid or liquidates, our originations efforts are primarily focused on “re-origination.”


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Our originations platform complements and enhances our servicing business by allowing us to replenish our servicing portfolio as loans pay off over time. Because the refinanced loans typically have lower interest rates or lower monthly payments, and, in general, subsequently refinance more slowly and default less frequently, these refinancings also typically improve the overall quality of our primary servicing portfolio. In addition, our re-originations strategy allows us to generate additional loan servicing more cost-effectively than MSRs can otherwise be acquired in the open market. Finally, with our in-house originations capabilities, we believe we are better protected against declining servicing cash flows as we replace servicing run-off through new loan originations or retain our servicing portfolios through re-originations.
 
Prevailing interest rates and housing market trends, with a strong housing market leading to higher loan refinancings and a weak housing market leading to lower loan refinancings, are the key factors impacting the volume of re-originations and our Originations Segment. We continually evaluate interest rate movements and trends to assess the impact on volume of refinancings, as well as their corresponding impact on revenue and costs.
 
In evaluating revenue per loan originated, we focus on various revenue sources, including loan origination points and fees and overall gain or loss on the sale or securitization of the loan. These components are compared to established revenue targets and operating plans.
 
In addition to the cost of financing our originations, our Originations Segment operating costs include staffing costs, sales commissions, technology, rent and other general and administrative costs. We continually monitor costs through comparisons to operating plans.
 
Market Considerations
 
Revenues from our Operating Segments primarily consist of (i) servicing fee income based generally on the aggregate UPB of loans serviced and (ii) gain on mortgage loans held for sale based generally on our originations volume. Maintaining and growing our revenues depends on our ability to acquire additional MSRs, enter into additional subservicing contracts and opportunistically increase our originations volume and our recapture rate.
 
Servicing Segment
 
Current trends in the mortgage servicing industry include elevated borrower delinquencies, a significant increase in loan modifications and the need for high touch servicing expertise, which emphasizes borrower interaction to improve loan performance and reduce loan defaults and foreclosures.
 
In the aftermath of the U.S. financial crisis, the residential mortgage industry is undergoing major structural changes that affect the way residential mortgage loans are originated, owned and serviced. These changes have benefited and should continue to benefit non-bank mortgage servicers. Banks currently dominate the residential mortgage servicing industry, servicing over 90% of all residential mortgage loans as of September 30, 2011. Over 50% of all residential mortgage loan servicing is concentrated among just four banks. However, banks are currently under tremendous pressure to exit or reduce their exposure to the mortgage servicing business as a result of increased regulatory scrutiny and capital requirements, headline risk associated with sizeable legal settlements, as well as potentially significant earnings volatility.
 
In addition, as the mortgage industry continues to struggle with elevated borrower delinquencies, the special servicing function has become a particularly important component of a mortgage servicer’s role and, we believe, a key differentiator among mortgage servicers, as GSEs and other mortgage owners are focused on home ownership preservation and superior credit performance. However, banks’ servicing operations, which are primarily oriented towards payment processing, are often ill-equipped to maximize loan performance through high touch servicing. This trend has led to increased demand for experienced high touch servicers and


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provides us opportunities to acquire additional MSRs, including co-investing with financial partners in excess MSRs, and to enter into additional subservicing contracts.
 
As a result of these factors and the overall increased demands on servicers by mortgage owners, mortgage servicing is shifting from banks to non-bank mortgage servicers. Already, over the last 18 months, banks have completed servicing transfers on over $250 billion of mortgage loans. We believe this represents a fundamental change in the mortgage servicing industry and expect the trend to continue at an accelerated rate in the future. Because the mortgage servicing industry is characterized by high barriers to entry, including the need for specialized servicing expertise and sophisticated systems and infrastructure, compliance with GSE and client requirements, compliance with state-by-state licensing requirements and the ability to adapt to regulatory changes at the state and federal levels, we believe we are one of the few mortgage servicers competitively positioned to benefit from the shift.
 
However, we cannot predict how many, if any, MSRs or subservicing opportunities will be available in the future; if we will be able to acquire MSRs from third parties, on a standalone basis or by co-investing with financial partners in excess MSRs, if at all; if we will be able to enter into additional subservicing contracts, including any transactions facilitated by GSEs; or whether these MSRs will be available at acceptable prices or on acceptable terms. See “Risk Factors.”
 
Originations Segment
 
Today’s U.S. residential mortgage originations sector primarily offers conventional agency and government conforming mortgage loans. Non-prime and alternative lending programs and products represent only a small fraction of total originations. This has led to a consolidation among mortgage lenders in both the retail and wholesale channels and has resulted in less competition. In addition to such consolidation, some mortgage originators have exited the market entirely.
 
Originations volume is impacted by changes in interest rates and the housing market. Depressed home prices and increased LTVs may preclude many potential borrowers, including borrowers whose existing loans we service, from refinancing their existing loans. An increase in prevailing interest rates could decrease the originations volume through our Consumer Direct Retail originations channel, our largest originations channel by volume, because this channel focuses predominantly on refinancing existing mortgage loans.
 
In addition, there continue to be changes in legislation and licensing in an effort to simplify the consumer mortgage experience, which require technology changes and additional implementation costs for loan originators. We expect legislative changes will continue in the foreseeable future, which may increase our operating expenses. See “Business—Regulation.”
 
Critical Accounting Policies
 
Various elements of our accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. In particular, we have identified three policies that, due to the judgment, estimates and assumptions inherent in those policies, are critical to an understanding of our consolidated financial statements. These policies relate to: (a) fair value measurements (b) sale of mortgage loans and (c) accounting for mortgage loans held for investment, subject to nonrecourse debt. We believe that the judgment, estimates and assumptions used in the preparation of our consolidated financial statements are appropriate given the factual circumstances at the time. However, given the sensitivity of our consolidated financial statements to these critical accounting policies, the use of other judgments, estimates and assumptions could result in material differences in our results of operations or financial condition. Management currently views its fair value measurements, which include (i) the valuation of mortgage loans held for sale, (ii) the valuation of mortgage loans held for investment, subject to ABS nonrecourse debt, (iii) the valuation of MSRs, (iv) the valuation of derivative instruments, (v) the valuation of


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ABS nonrecourse debt, (vi) the valuation of excess spread financing, sale of mortgage loans, and accounting for mortgage loans held for investment, subject to nonrecourse debt to be our critical accounting policies.
 
Fair Value Measurements
 
Mortgage Loans Held for Sale—Through September 30, 2009, we recorded mortgage loans held for sale at the lower of amortized cost or fair value on an aggregate basis grouped by delinquency status. Effective October 1, 2009, we elected to measure newly originated conventional residential mortgage loans held for sale at fair value, as permitted under current accounting guidance. We estimate fair value by evaluating a variety of market indicators including recent trades and outstanding commitments, calculated on an aggregate basis.
 
 
Mortgage Loans Held for Investment, Subject to ABS Nonrecourse Debt—We determine the fair value on loans held for investment, subject to ABS nonrecourse debt using internally developed valuation models. These valuation models estimate the exit price we expect to receive in the loan’s principal market. Although we utilize and give priority to observable market inputs, such as interest rates and market spreads within these models, we typically are required to utilize internal inputs, such as prepayment speeds, credit losses and discount rates. These internal inputs require the use of our judgment and can have a significant impact on the determination of the loan’s fair value. In December 2011, we sold our remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. Upon deconsolidation of this VIE, we derecognized the securitized mortgage loans held for investment, subject to ABS nonrecourse debt.
 
 
MSRs at Fair Value—We recognize MSRs related to all existing forward residential mortgage loans transferred to a third party in a transfer that meets the requirements for sale accounting. Additionally, we may acquire the rights to service forward residential mortgage loans through the purchase of these rights from third parties. We apply fair value accounting to this class of MSRs, with all changes in fair value recorded as a charge or credit to servicing fee income in the consolidated statement of operations. We estimate the fair value of these MSRs using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates and credit losses.
 
We use internal financial models that use, wherever possible, market participant data to value these MSRs. These models are complex and use asset-specific collateral data and market inputs for interest and discount rates. In addition, the modeling requirements of MSRs are complex because of the high number of variables that drive cash flows associated with MSRs. Even if the general accuracy of our valuation models is validated, valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of the models. On a periodic basis, a large portion of these MSRs are reviewed by an outside valuation expert.
 
Derivative Financial Instruments—We utilize certain derivative instruments in the ordinary course of our business to manage our exposure to changes in interest rates. These derivative instruments include forward sales of MBS, forward loan sale commitments and interest rate swaps and caps. We also issue interest rate lock commitments (“IRLCs”) to borrowers in connection with single family mortgage loan originations. We recognize all derivative instruments on our consolidated statement of financial position at fair value. The estimated fair values of forward sales of MBS and interest rate swaps and caps are based on quoted market values and are recorded as other assets or derivative financial instruments liabilities in the consolidated balance sheet. The initial and subsequent changes in value on forward sales of MBS are a component of gain/(loss) on mortgage loans held for sale in the consolidated statement of operations. The estimated fair values of IRLCs and forward sale commitments are based on quoted market values. Fair value amounts of IRLCs are adjusted for expected execution of outstanding loan commitments. IRLCs and forward sale commitments are recorded as a component of mortgage loans held for sale in the consolidated balance sheet. The initial and


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subsequent changes in value of IRLCs and forward sale commitments are a component of gain on mortgage loans held for sale in the consolidated statement of operations.
 
ABS Nonrecourse Debt—Effective January 1, 2010, new accounting guidance related to VIEs eliminated the concept of a QSPE, and all existing special purpose entities (“SPEs”) are subject to the new consolidation guidance. Upon adoption of this new accounting guidance, we identified certain securitization trusts where we, through our affiliates, continued to hold beneficial interests in these trusts. These retained beneficial interests obligate us to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant. In addition, as master servicer on the related mortgage loans, we retain the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE. When it is determined that we have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, the assets and liabilities of these VIEs are included in our consolidated financial statements. Upon consolidation of these VIEs, we derecognized all previously recognized beneficial interests obtained as part of the securitization, including any retained investment in debt securities, and any remaining residual interests. In addition, we recognized the securitized mortgage loans as mortgage loans held for investment, subject to ABS nonrecourse debt, and the related asset-backed certificates acquired by third parties as ABS nonrecourse debt on our consolidated balance sheet.
 
We estimate the fair value of ABS nonrecourse debt based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. In December 2011, we sold our remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the variable interest. Upon deconsolidation of this VIE in 2011, we derecognized the related ABS nonrecourse debt.
 
Excess Spread Financing—In December 2011, we entered into a sale and assignment agreement, which we treated as a financing with an affiliated entity, whereby we sold the right to receive 65% of the excess cash flow generated from a certain underlying MSR portfolio after receipt of a fixed basic servicing fee per loan. We will retain all ancillary income associated with servicing the portfolio and 35% of the excess cash flow after receipt of the fixed basic servicing fee. We measure this financing arrangement at fair value to more accurately represent the future economic performance of the acquired MSRs and related excess servicing financing. We estimate the fair value of this financing using a process that combines the use of a discounted cash flow model and analysis of quoted market prices based on the value of the underlying MSRs.
 
Sale of Mortgage Loans—Transfers of financial assets are accounted for as sales when control over the assets has been surrendered by us. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from us, (2) the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) we do not maintain effective control over the transferred assets through either (a) an agreement that entitles and obligates us to repurchase or redeem them before their maturity or (b) the ability to unilaterally cause the holder to return specific assets. Loan securitizations structured as sales as well as whole loan sales are accounted for as sales of mortgage loans and the resulting gains or losses on such sales, net of any accrual for standard representations and warranties, are reported in operating results as a component of gain/(loss) on mortgage loans held for sale in the consolidated statement of operations during the period in which the securitization closes or the sale occurs.
 
Mortgage Loans Held for Investment, Subject to Nonrecourse Debt—We account for the loans that were transferred to held for investment from held for sale during October 2009 in a manner similar to ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . At the date of transfer, we evaluated such loans to determine whether there was evidence of deterioration of credit quality since acquisition and if it was probable that we would be unable to collect all amounts due according to the loan’s contractual terms. The transferred loans were aggregated into separate pools of loans based on common risk


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characteristics (loan delinquency). We consider expected prepayments, and estimate the amount and timing of undiscounted expected principal, interest, and other cash flows for each aggregated pool of loans. The determination of expected cash flows utilizes internal inputs such as prepayment speeds and credit losses. These internal inputs require the use of judgement and can have a significant impact on the accretion of income and/or valuation allowance. We determine the excess of the pool’s scheduled contractual principal and contractual interest payments over all cash flows expected as of the transfer date as an amount that should not be accreted (nonaccretable difference). The remaining amount is accreted into interest income over the remaining life of the pool of loans (accretable yield). The difference between the undiscounted cash flows expected and the investment in the loan is recognized as interest income on a level-yield method over the life of the loan. Increases in expected cash flows subsequent to the transfer are recognized prospectively through an adjustment of the yield on the loans over the remaining life. Decreases in expected cash flows subsequent to transfer are recognized as a valuation allowance.
 
Recent Developments
 
Updated Loan Agreements
 
In January 2012, we extended the maturity date of our $75 million warehouse facility with BANA, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, an underwriter in this offering, to January 2013 and increased the committed amount under this warehouse facility to $175 million. We herein refer to this facility as our $175 Million Warehouse Facility.
 
In February 2012, we extended the maturity date of our $100 Million Warehouse Facility to January 2013. Also in February 2012, we extended the maturity date of our $300 Million Warehouse Facility to February 2013 and decreased the committed amount under this warehouse facility to $150 million.
 
For a description of our facilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations—Description of Certain Indebtedness.”
 
MSR Purchase
 
In December 2011, we entered into a servicing rights sale and issuer transfer agreement (the “Servicing Rights Sale and Issuer Transfer Agreement”) with BANA, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, an underwriter in this offering. Under the Servicing Rights Sale and Issuer Transfer Agreement, we agreed to purchase certain servicing rights relating to reverse mortgage loans with an aggregate UPB as of December 31, 2011 of approximately $18 billion and assume certain liabilities associated with such MSRs. On December 22, 2011, we deposited in escrow the purchase price of the MSRs relating to reverse mortgage loans with an aggregate UPB as of December 31, 2011 of approximately $7.8 billion, and the related advances. The acquisition was completed on January 3, 2012. Our acquisition of MSRs related to an additional $9.5 billion of UPB as of December 31, 2011 is expected to close during 2012 upon receipt of certain specified third party approvals. On December 23, 2011, we paid a deposit of $9.0 million related to such servicing. Additionally, we expect to subservice on behalf of the bank certain reverse mortgage loans with a UPB as of December 31, 2011 of approximately $1.4 billion beginning in the latter half of 2012. These reverse mortgage loan servicing rights represent a new class of servicing rights for us and will be accounted for under the amortization method.
 
Recently Appointed Executive Officers
 
In February 2012, we appointed David C. Hisey as Chief Financial Officer of Nationstar Mortgage Holdings Inc. Mr. Hisey is expected to assume this position on February 27, 2012. Subject to regulatory approval, Mr. Hisey will hold the same position at Nationstar Mortgage LLC. Mr. Hisey was previously the Executive Vice President and Deputy Chief Financial Officer for Fannie Mae, a role he held since 2008. From 2005 to 2008, he served as Senior Vice President and Controller for Fannie Mae. Prior to his most recent


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assignment at Fannie Mae, he also briefly served as Executive Vice President and Chief Financial Officer. Prior to joining Fannie Mae, Mr. Hisey was Corporate Vice President of Financial Services Consulting, Managing Director and practice leader of the Lending and Leasing Group of BearingPoint, Inc., a management consulting and systems integration company. Prior to joining BearingPoint in 2001, Mr. Hisey was an audit partner with KPMG, LLP; his tenure at KPMG spanned 19 years from 1982 to 2001. He received a Bachelor of Business Administration degree in Accounting from James Madison University and is a certified public accountant.
 
In February 2012, we appointed Harold Lewis as President and Chief Operating Officer of Nationstar Mortgage Holdings, Inc. Mr. Lewis is expected to assume these positions on February 27, 2012. Subject to regulatory approval, Mr. Lewis will hold the same positions at Nationstar Mortgage LLC. Mr. Lewis was previously the Chief Operating Officer at CitiMortgage, responsible for Operations, Technology and key CitiMortgage functions. In this role, Mr. Lewis oversaw more than 9,000 employees and was also responsible for Customer Experience, Services, Agency Relations and Re-engineering. Mr. Lewis joined CitiMortgage in April 2009 as head of the Citi Homeowner Assistance Program. Prior to CitiMortgage, Mr. Lewis held executive positions at Fannie Mae for seven years, most recently as Senior Vice President of National Servicing where he was responsible for the management of 1,400 mortgage servicers. Mr. Lewis has also held senior management roles with Resource Bancshares Mortgage Group, Nations Credit, Bank of America/Barnett Bank, Cardinal Bank Shares and Union Planter National Bank. Mr. Lewis received his Bachelor of Science degree in Business from Memphis State University.
 
Potential MSR Acquisitions
 
We believe there are significant opportunities to grow our business by acquiring additional MSRs and complementary assets, and we actively explore potential acquisition opportunities in the ordinary course of our business. We are currently in discussions with several financial institutions to acquire additional MSRs relating to residential mortgage loans and complementary assets that could result in our entering into one or more definitive acquisition agreements prior to or immediately following the completion of this offering. Potential portfolios include servicing rights relating to residential mortgage loans with an aggregate UPB in excess of $50 billion from a large financial institution and of approximately $10 billion from two other financial institutions. We can provide no assurances that we will enter into these agreements or as to the timing of any potential acquisition.


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Results of Operations
 
The following table summarizes our consolidated operating results for the periods indicated.
 
                         
   
Year Ended December 31,
 
   
2011
   
2010
   
2009
 
    (in thousands)  
 
Revenues:
                       
Servicing fee income
    $233,411       $167,126       $90,195  
Other fee income
    35,187       16,958       10,023  
                         
Total fee income
    268,598       184,084       100,218  
Gain (loss) on mortgage loans held for sale
    109,136       77,344       (21,349 )
                         
Total revenues
    377,734       261,428       78,869  
Expenses and impairments:
                       
Salaries, wages and benefits
    202,290       149,115       90,689  
General and administrative
    82,183       58,913       30,494  
Provision for loan losses
    3,537       3,298        
Loss on sale of foreclosed real estate
    6,833       205       7,512  
Occupancy
    11,340       9,445       6,863  
Loss on available-for-sale securities—other than temporary
                6,809  
                         
Total expenses and impairments
    306,183       220,976       142,367  
Other income (expense):
                       
Interest income
    66,802       98,895       52,518  
Interest expense
    (105,375 )     (116,163 )     (69,883 )
Gain (loss) on interest rate swaps and caps
    298       (9,801 )     (14 )
Fair value changes in ABS securitizations
    (12,389 )     (23,297 )      
                         
Total other income (expense)
    (50,664 )     (50,366 )     (17,379 )
                         
Net income (loss)
    $20,887       $(9,914 )     $(80,877 )
                         
 
We provide further discussion of our results of operations for each of our reportable segments under “—Segment Results” below. Certain income and expenses not allocated to our reportable segments are presented under “—Legacy Portfolio and Other” below and discussed in “Note 24 to Consolidated Financial Statements—Business Segment Reporting.”
 
Comparison of Consolidated Results for the Years Ended December 31, 2011 and 2010
 
Revenues increased $116.3 million from $261.4 million for the year ended December 31, 2010 to $377.7 million for the year ended December 31, 2011, due to increases in both our total fee income and our gain on mortgage loans held for sale offset by MSR fair value adjustments amounting to $39.0 million. The increase in our total fee income was primarily the result of our higher average servicing portfolio balance of $81.5 billion for the year ended December 31, 2011, compared to $38.7 billion for the year ended December 31, 2010, and an increase in modification fees earned from HAMP and other non-HAMP modifications. The increase in the gain on loans held for sale was a result of the $620.6 million, or 22.2%, increase in the amount of loans originated during the 2011 period compared to the 2010 period and higher margins earned on the sale of residential mortgage loans during the period.
 
Expenses and impairments increased $85.2 million from $221.0 million for the year ended December 31, 2010 to $306.2 million for the year ended December 31, 2011, primarily due to the increase in compensation expenses related to increased staffing levels in order to accommodate our larger servicing portfolio and originations volumes as well as other related increases in general and administrative expenses.


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Other expense increased $0.3 million from $50.4 million for the year ended December 31, 2010 to $50.7 million for the year ended December 31, 2011, primarily due to a decrease in our net interest margin resulting from higher average outstanding balances on our outstanding warehouse and advance facilities. This amount was partially offset by the impact of our fair value mark-to-market charges that were realized on our 2009-ABS interest rate swap for $9.8 million for the year ended December 31, 2010, compared to a $0.3 million gain recognized for the year ended December 31, 2011.
 
Comparison of Consolidated Results for the Years Ended December 31, 2010 and 2009
 
Revenues increased $182.5 million from $78.9 million for the year ended December 31, 2009 to $261.4 million for the year ended December 31, 2010, primarily due to the significant increase in our total fee income and an increase in our gain on mortgage loans held for sale. The increase in our total fee income was primarily a result of (1) our higher average servicing portfolio balance of $38.7 billion for the year ended December 31, 2010, compared to $25.8 billion for the year ended December 31, 2009, and (2) an increase in portfolio level performance-based fees and fees earned for loss mitigation activities. The increase in the gain on loans held for sale was a result of the $1.3 billion, or 88.7%, increase in the amount of loans originated during 2010 as well as the elimination of lower of cost or market adjustments related to our legacy asset portfolio.
 
Expenses and impairments increased $78.6 million from $142.4 million for the year ended December 31, 2009 to $221.0 million for the year ended December 31, 2010, primarily due to the increase in compensation expenses related to increased staffing levels in order to accommodate our larger servicing portfolio and originations as well as other related increases in general and administrative expenses. Our 2010 operating results include an additional $12.1 million in share-based compensation expense from revised compensation arrangements executed with certain members of our executive team. Additionally, expenses and impairments increased from the consolidation of certain VIEs from January 1, 2010, and from expenses associated with the settlement of certain claims.
 
Other expense increased $33.0 million from $17.4 million for the year ended December 31, 2009 to $50.4 million for the year ended December 31, 2010, primarily due to the effects of the consolidation of certain VIEs and the losses on our outstanding interest rate swap positions during 2010.
 
Segment Results
 
Our primary business strategy is to generate recurring, stable income from managing and growing our servicing portfolio. We operate through two business segments: the Servicing Segment and the Originations Segment, which we refer to collectively as our Operating Segments. We report the activity not related to either operating segment in Legacy Portfolio and Other. Legacy Portfolio and Other includes primarily all subprime mortgage loans (i) originated mostly from April to July 2007 or (ii) acquired from CHEC, and VIEs which were consolidated pursuant to the January 1, 2010 adoption of new consolidation guidance related to VIEs. As of December 31, 2011, we had no consolidated VIEs.
 
The accounting policies of each reportable segment are the same as those of the consolidated financial statements except for (i) expenses for consolidated back-office operations and general overhead expenses such as executive administration and accounting and (ii) revenues generated on inter-segment services performed. Expenses are allocated to individual segments based on the estimated value of the services performed, including estimated utilization of square footage and corporate personnel, as well as the equity invested in each segment. Revenues generated or inter-segment services performed are valued based on similar services provided to external parties.


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Servicing Segment
 
The Servicing Segment provides loan servicing on our primary and subservicing portfolios, including the collection of principal and interest payments and the generation of ancillary fees related to the servicing of mortgage loans.
 
The following table summarizes our operating results from our Servicing Segment for the periods indicated.
 
                         
   
Year Ended December 31,
 
   
2011
   
2010
   
2009
 
    (in thousands)  
 
Revenues:
                       
Servicing fee income
    $238,394       $175,569       $91,266  
Other fee income
    17,082       7,273       8,867  
                         
Total fee income
    255,476       182,842       100,133  
Gain on mortgage loans held for sale
                 
                         
Total revenues
    255,476       182,842       100,133  
Expenses and impairments:
                       
Salaries, wages and benefits
    123,655       78,269       56,726  
General and administrative
    48,611       24,664       10,669  
Occupancy
    5,664       4,350       3,502  
                         
Total expenses and impairments
    177,930       107,283       70,897  
Other income (expense):
                       
Interest income
    2,263       263       4,143  
Interest expense
    (58,024 )     (51,791 )     (25,877 )
Gain (loss) on interest rate swaps and caps
    298       (9,801 )      
                         
Total other income (expense)
    (55,463 )     (61,329 )     (21,734 )
                         
Net income
    $22,083       $14,230       $7,502  
                         
 
Increase in aggregate UPB of our servicing portfolio primarily governs the increase in revenues, expenses and other income (expense) of our Servicing Segment.
 
The table below provides detail of the characteristics of our servicing portfolio at the periods indicated.
 
                         
   
December 31,
 
   
2011
   
2010
   
2009
 
    (in millions)  
 
Servicing Portfolio
                       
Unpaid principal balance (by investor):
                       
Special servicing
    $10,165       $4,893       $1,554  
GSEs
    69,772       52,194       24,235  
Non-agency securitizations
    18,868       7,089       7,875  
                         
Total boarded unpaid principal balance
    98,805       64,176       33,664  
Servicing under contract
    7,781              
                         
Total servicing portfolio unpaid principal balance
    $106,586       $64,176       $33,664  
                         


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The table below provides detail of the characteristics and key performance metrics of our servicing portfolio at and for the periods indicated.
 
                         
   
Year Ended December 31,
 
   
2011 (1)
   
2010
   
2009
 
    (dollars in millions, except for average loan amount)  
 
Loan count—servicing
    596,011       389,172       230,615  
Ending unpaid principal balance
    $98,805       $64,176       $33,664  
Average unpaid principal balance
    $81,491       $38,653       $25,799  
Average loan amount
    $165,778       $164,904       $145,977  
Average coupon
    5.43 %     5.74 %     6.76 %
Average FICO credit score
    627       631       644  
60+ delinquent (% of loans) (2)
    14.7 %     17.0 %     19.9 %
Total prepayment speed (12 month constant pre-payment rate (“CPR”))
    13.4 %     13.3 %     16.3 %
 
(1) Characteristics and key performance metrics for the year ended December 31, 2011 exclude approximately $7.8 billion of reverse residential mortgage loans for which we entered into an agreement to acquire the MSRs in December 2011 and closed in January 2012.
 
(2) Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan.
 
For the Years Ended December 31, 2011 and 2010
 
Servicing fee income consists of the following for the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2011
   
2010
 
    (in thousands)  
 
Servicing fee income
    $207,102       $118,443  
Loss mitigation and performance-based incentive fees
    15,671       16,621  
Modification fees
    32,552       21,792  
Late fees and other ancillary charges
    23,728       22,828  
Other servicing fee related revenues
    1,401       1,928  
                 
Total servicing fee income before MSR fair value adjustments
    280,454       181,612  
Fair value adjustments on excess spread financing
    (3,060 )      
MSR fair value adjustments
    (39,000 )     (6,043 )
                 
Total servicing fee income
    $238,394       $175,569  
                 
 
The following tables provide servicing fee income and UPB by primary servicing and subservicing for and at the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2011
   
2010
 
    (in thousands)  
 
Servicing fee income
               
Primary servicing
    $164,096       $161,312  
Subservicing
    116,358       20,300  
                 
Total servicing fee income before MSR fair value adjustments
    $280,454       $181,612  
                 


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December 31,
 
   
2011
   
2010
 
    (in millions)  
 
UPB
               
Primary servicing
    $45,817       $34,404  
Subservicing
    52,988       29,772  
                 
Total unpaid principal balance
    $98,805       $64,176  
                 
 
Servicing fee income was $238.4 million for the year ended December 31, 2011 compared to $175.6 million for the year ended December 31, 2010, an increase of $62.8 million, or 35.8%, primarily due to the net effect of the following:
 
  •     Increase of $88.7 million due to higher average UPB of $81.5 billion in the 2011 period compared to $38.7 billion in the comparable 2010 period. The increase in our servicing portfolio was primarily driven by an increase in average UPB for loans serviced for GSEs and other subservicing contracts for third party investors of $61.0 billion in the 2011 period compared to $28.0 billion in the comparable 2010 period. In addition, we also experienced an increase in average UPB for our private asset-backed securitizations portfolio, which increased to $13.0 billion in the year ended December 31, 2011 compared to $7.4 billion in the comparable 2010 period.
 
  •     Increase of $10.8 million due to higher modification fees earned from HAMP and non-HAMP modifications.
 
  •     Decrease of $0.9 million due to decreased loss mitigation and performance-based incentive fees earned from a GSE.
 
  •     Decrease of $33.0 million from change in fair value on MSRs which was recognized in servicing fee income. The fair value of our MSRs is based upon the present value of the expected future cash flows related to servicing these loans. The revenue components of the cash flows are servicing fees, interest earned on custodial accounts, and other ancillary income. The expense components include operating costs related to servicing the loans (including delinquency and foreclosure costs) and interest expenses on servicing advances. The expected future cash flows are primarily impacted by prepayment estimates, delinquencies, and market discount rates. Generally, the value of MSRs increases when interest rates increase and decreases when interest rates decline due to the effect those changes in interest rates have on prepayment estimates. Other factors affecting the MSR value includes the estimated effects of loan modifications on expected cash flows. Such modifications tend to positively impact cash flows by extending the expected life of the affected MSR and potentially producing additional revenue opportunities depending on the type of modification. In valuing the MSRs, we believe our assumptions are consistent with the assumptions other major market participants use. These assumptions include a level of future modification activity that we believe major market participants would use in their valuation of MSRs. Internally, we have modification goals that exceed the assumptions utilized in our valuation model. Nevertheless, were we to apply an assumption of a level of future modifications consistent with our internal goals to our MSR valuation, we do not believe the resulting increase in value would be material. Additionally, several state Attorneys General have requested that certain mortgage servicers, including us, suspend foreclosure proceedings pending internal review to ensure compliance with applicable law, and we received requests from four such state Attorneys General. Although we have resumed those previously delayed proceedings, changes in the foreclosure process that may be required by government or regulatory bodies could increase the cost of servicing and diminish the value of our MSRs. We utilize assumptions of servicing costs that include delinquency and foreclosure costs that we


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  believe major market participants would use to value their MSRs. We periodically compare our internal MSR valuation to third party valuation of our MSRs to help substantiate our market assumptions. We have considered the costs related to the delayed proceedings in our assumptions and we do not believe that any resulting decrease in the MSR was material given the expected short-term nature of the issue.
 
Other fee income was $17.1 million for the year ended December 31, 2011 compared to $7.3 million for the year ended December 31, 2010, an increase of $9.8 million, or 134.2%, due to higher commissions earned on lender placed insurance and higher REO sales commissions.
 
The following table provides other fee income by primary servicing, subservicing and adjacent businesses for the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2011
   
2010
 
    (in thousands)  
 
Other fee income
               
Primary servicing
    $5,520       $6,865  
Subservicing
    3,038       408  
Adjacent businesses
    8,524        
                 
Total other fee income
    $17,082       $7,273  
                 
 
Expenses and impairments were $177.9 million for the year ended December 31, 2011 compared to $107.3 million for the year ended December 31, 2010, an increase of $70.6 million, or 65.8%, primarily due to the increase of $45.4 million in salaries, wages and benefits expense resulting primarily from an increase in average headcount from 1,178 in 2010 to 1,966 in 2011 and an increase of $25.2 million in general and administrative and occupancy-related expenses associated with increased headcount and growth in the servicing portfolio. Our 2011 operating results include an $8.2 million increase in share-based compensation expense from revised compensation arrangements executed with certain members of our executive team during the third quarter of 2010.
 
The following table provides primary servicing, subservicing, adjacent businesses and other Servicing Segment expenses for the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2011
   
2010
 
    (in thousands)  
 
Expenses and impairments
               
Primary servicing
    $70,549       $82,772  
Subservicing
    82,938       18,276  
Adjacent businesses
    9,100        
Other Servicing Segment expenses
    15,343       6,235  
                 
Total expenses and impairments
    $177,930       $107,283  
                 
 
Other Servicing Segment expenses primarily include share-based compensation expenses.


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Total other income (expense) was $(55.5) million for the year ended December 31, 2011 compared to $(61.3) million for the year ended December 31, 2010, a decrease in expense, net of income, of $5.8 million, or 9.5%, primarily due to the net effect of the following:
 
  •     Interest income was $2.3 million for the year ended December 31, 2011 compared to $0.3 million for the year ended December 31, 2010, an increase of $2.0 million due to higher average outstanding custodial cash deposit balances on custodial cash accounts as a result of the growth in our servicing portfolio.
 
  •     Interest expense was $58.0 million for the year ended December 31, 2011 compared to $51.8 million for the year ended December 31, 2010, an increase of $6.2 million, or 12.0%, primarily due to higher average outstanding debt of $642.9 million in the year ended December 31, 2011 compared to $638.6 million in the comparable 2010 period. The impact of the higher debt balances is partially offset by lower interest rates due to declines in the base LIBOR and decreases in the overall index margin on outstanding servicer advance facilities. Interest expense from the senior notes was $30.3 million and $22.1 million, respectively, for the years ended December 31, 2011 and 2010. Interest expense also includes gains for the ineffective portion of cash flow hedge of $2.0 million and $0.9 million, respectively, for the years ended December 31, 2011 and 2010.
 
  •     Loss on interest rate swaps and caps was $9.8 million for the year ended December 31, 2010 compared to a $0.3 million gain for the year ended December 31, 2011. Effective October 1, 2010, we designated an existing interest rate swap as a cash flow hedge against outstanding floating rate financing associated with one of our outstanding servicer advance facilities. This interest rate swap is recorded at fair value, with any changes in fair value related to the effective portion of the hedge being recorded as an adjustment to other comprehensive income. Prior to this designation, any changes in fair value were recorded as a loss on interest rate swaps and caps on our statement of operations. In conjunction with our October 2011 amendment to our 2010-ABS Advance Financing Facility, we paid off our 2009-ABS Advance Financing Facility and transferred the related collateral to the 2010-ABS Advance Financing Facility. Concurrently with the repayment of the 2009-ABS Advance Financing Facility, we de-designated the underlying interest rate swap on our 2009-ABS Advance Financing Facility. Our outstanding 2010-ABS interest rate swap served as an economic hedge during the period it was outstanding for the year ended December 31, 2011.
 
For the Years Ended December 31, 2010 and 2009
 
Servicing fee income consists of the following for the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2010
   
2009
 
    (in thousands)  
 
Servicing fee income
    $118,443       $83,659  
Loss mitigation and performance-based incentive fees
    16,621       7,658  
Modification fees
    21,792       3,868  
Late fees and other ancillary charges
    22,828       21,901  
Other servicing fee related revenues
    1,928       2,095  
                 
Total servicing fee income before MSR fair value adjustments
    181,612       119,181  
MSR fair value adjustments
    (6,043 )     (27,915 )
                 
Total servicing fee income
    $175,569       $91,266  
                 


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The following tables provide servicing fee income and UPB by primary servicing and subservicing for and at the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2010
   
2009
 
    (in thousands)  
 
Servicing fee income
               
Primary servicing
    $161,312       $116,966  
Subservicing
    20,300       2,215  
                 
Total servicing fee income before MSR fair value adjustments
    $181,612       $119,181  
                 
 
                 
   
December 31,
 
   
2010
   
2009
 
    (in millions)  
 
UPB
               
Primary servicing
    $34,404       $32,871  
Subservicing
    29,772       793  
                 
Total unpaid principal balance
    $64,176       $33,664  
                 
 
Servicing fee income was $175.6 million for the year ended December 31, 2010 compared to $91.3 million for the year ended December 31, 2009, an increase of $84.3 million, or 92.3%, primarily due to the net effect of the following:
 
  •     Increase of $34.8 million due to higher average UPB of $38.7 billion in 2010 compared to $25.8 billion in 2009. The increase in our servicing portfolio was primarily driven by an increase in average UPB for loans serviced for GSEs and other subservicing contracts for third party investors of $31.2 billion in 2010 compared to $17.2 billion in 2009. This increase was partially offset by a decrease in average UPB for our asset-backed securitizations portfolio, which decreased to $7.4 billion in 2010 compared to $8.6 billion in 2009.
 
  •     Increase of $8.9 million due to increased loss mitigation and performance-based incentive fees earned from a GSE.
 
  •     Increase of $17.9 million due to higher fees earned from HAMP and from modification fees earned on non-HAMP modifications. As a high touch servicer, we use modifications as a key loss mitigation tool. Under HAMP, subject to a program participation cap, we, as a servicer, will receive an initial incentive payment of up to $1,500 for each loan modified in accordance with HAMP subject to the condition that the borrower successfully completes a trial modification period. With this program, the servicer must forego any late fees and may not charge any other fees. In addition, provided that a HAMP modification does not become 90 days or more delinquent, we will receive an additional incentive fee of up to $1,000. Initial redefault rates have been favorable, averaging 10% to 20%. The HAMP program has an expiration date of December 31, 2012 and is only applicable to first lien mortgages that were originated on or before January 1, 2009. For non-HAMP modifications, we generally do not waive late fees, and we charge a modification fee. These amounts are collected at the time of the modification.
 
  •     Increase of $21.9 million from change in fair value on MSRs which was recognized in servicing fee income. The fair value of our MSRs is based upon the present value of the expected future cash flows related to servicing these loans. The revenue components of the cash flows are servicing fees, interest earned on custodial accounts, and other ancillary income. The expense components include operating costs related to servicing the loans (including delinquency and


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  foreclosure costs) and interest expenses on servicing advances. The expected future cash flows are primarily impacted by prepayment estimates, delinquencies, and market discount rates. Generally, the value of MSRs increases when interest rates increase and decreases when interest rates decline due to the effect those changes in interest rates have on prepayment estimates. Other factors affecting the MSR value includes the estimated effects of loan modifications on expected cash flows. Such modifications tend to positively impact cash flows by extending the expected life of the affected MSR and potentially producing additional revenue opportunities depending on the type of modification. In valuing the MSRs, we believe our assumptions are consistent with the assumptions other major market participants use. These assumptions include a level of future modification activity that we believe major market participants would use in their valuation of MSRs. Internally, we have modification goals that exceed the assumptions utilized in our valuation model. Nevertheless, were we to utilize an assumption of a level of future modifications consistent with our internal goals to our MSR valuation, we do not believe the resulting increase in value would be material.
 
  •     Increase of $0.9 million due to an increase in ancillary and late fees arising from growth in the servicing portfolio. Late fees are recognized as revenue at collection.
 
Other fee income was $7.3 million for the year ended December 31, 2010 compared to $8.9 million for the year ended December 31, 2009, a decrease of $1.6 million, or 18.0%, due to lower lender-placed insurance commissions and lower REO sales commissions resulting from a decline in REO sales managed by our internal REO sales group.
 
The following table provides other fee income by primary servicing and subservicing for the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2010
   
2009
 
    (in thousands)  
 
Other fee income
               
Primary servicing
    $6,865       $8,867  
Subservicing
    408        
                 
Total other fee income
    $7,273       $8,867  
                 
 
Expenses and impairments were $107.3 million for the year ended December 31, 2010 compared to $70.9 million for the year ended December 31, 2009, an increase of $36.4 million, or 51.3%, primarily due to an increase of $21.6 million in salaries, wages and benefits expense resulting from an increase in headcount from 910 in 2009 to 1,178 in 2010 and $4.9 million in additional share-based compensation from revised compensation arrangements with certain of our executives. Additionally, we recognized an increase of $14.8 million in general and administrative and occupancy expenses associated with increased headcount, growth in the servicing portfolio and increases in reserves for non-recoverable advances.


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The following table provides key primary servicing, subservicing and other Servicing Segment expenses for the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2010
   
2009
 
    (in thousands)  
 
Expenses and impairments
               
Primary servicing
    $82,772       $67,330  
Subservicing
    18,276       2,232  
Other Servicing Segment expenses
    6,235       1,335  
                 
Total expenses and impairments
    $107,283       $70,897  
                 
 
Other Servicing Segment expenses primarily include share-based compensation expenses.
 
Total other income (expense) was $(61.3) million for the year ended December 31, 2010 compared to $(21.7) million for the year ended December 31, 2009, an increase in expense, net of income, of $39.6 million, or 182.5%, primarily due to the net effect of the following:
 
  •     Interest income decreased $3.8 million due to lower average index rates received on custodial cash deposits associated with mortgage loans serviced combined with lower average outstanding custodial cash deposit balances.
 
  •     Interest expense increased $25.9 million primarily due to higher average outstanding debt of $638.6 million in 2010 compared to $313.3 million in 2009, offset by lower interest rates due to declines in the base LIBOR and decreases in the overall index margin on outstanding servicer advance facilities. Additionally, in 2010, we have included the balances related to our outstanding corporate note and senior unsecured debt balances, and the related interest expense thereon, as a component of our Servicing Segment. As a result of the weakening housing market, we continued to carry approximately $530.9 million in residential mortgage loans that we were unable to securitize as mortgage loans held for sale on our balance sheet throughout most of 2009. During this time period, we allocated a portion of our outstanding corporate note balance to Legacy Portfolio and Other to account for the increased capacity and financing costs we incurred while these loans were retained on our balance sheet. For the year ended December 31, 2010, we recorded $22.1 million in interest expense related to our outstanding corporate and senior notes.
 
  •     Loss on interest rate swaps and caps was $9.8 million for the year ended December 31, 2010, with no corresponding gain or loss recognized for the year ended December 31, 2009. The loss for the period was a result of a decline in fair value recognized during the period on outstanding interest rate swaps designed to economically hedge the interest rate risk associated with our 2009-ABS Advance Financing Facility. This facility was not executed until the end of the fourth quarter of 2009, so we did not recognize any corresponding fair value adjustments during the year ended December 31, 2009.
 
Originations Segment
 
The Originations Segment involves the origination, packaging, and sale of GSE mortgage loans into the secondary markets via whole loan sales or securitizations.


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The following table summarizes our operating results from our Originations Segment for the periods indicated.
 
                         
   
Year Ended December 31,
 
   
2011
   
2010
   
2009
 
    (in thousands)  
 
Revenues:
                       
Servicing fee income
    $—       $—       $—  
Other fee income
    14,109       7,042       1,156  
                         
Total fee income
    14,109       7,042       1,156  
Gain on mortgage loans held for sale
    109,431       77,498       54,437  
                         
Total revenues
    123,540       84,540       55,593  
Expenses and impairments:
                       
Salaries, wages and benefits
    71,697       57,852       31,497  
General and administrative
    26,344       26,761       14,586  
Occupancy
    3,566       2,307       1,449  
                         
Total expenses and impairments
    101,607       86,920       47,532  
Other income (expense):
                       
Interest income
    12,718       11,848       4,261  
Interest expense
    (10,955 )     (8,806 )     (3,438 )
                         
Total other income (expense)
    1,763       3,042       823  
                         
Net income
    $23,696       $662       $8,884  
                         
 
Increase in originations volume primarily governs the increase in revenues, expenses and other income (expense) of our Originations Segment. The table below provides detail of the loan characteristics of loans originated for the periods indicated.
 
                         
   
Year Ended December 31,
 
   
2011
   
2010
   
2009
 
    (in millions)  
 
Originations Volume:
                       
Retail
    $2,200       $1,608       $1,093  
Wholesale
    1,212       1,184       386  
                         
Total Originations Volume
    $3,412       $2,792       $1,479  
                         
 
For the Years Ended December 31, 2011 and 2010
 
Total revenues were $123.5 million for the year ended December 31, 2011 compared to $84.5 million for the year ended December 31, 2010, an increase of $39.0 million, or 46.2%, primarily due to the net effect of the following:
 
  •     Other fee income was $14.1 million for the year ended December 31, 2011 compared to $7.0 million for the year ended December 31, 2010, an increase of $7.1 million, or 101.4%, primarily due to higher points and fees collected as a result of the $620.6 million increase in loan originations volume, combined with a decrease in fees paid to third party mortgage brokers.


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Gain on mortgage loans held for sale consists of the following for the periods indicated.
 
                 
   
Year Ended December 31,
 
   
2011
   
2010
 
    (in thousands)  
 
Gain on sale
    $68,567       $51,839  
Provision for repurchases
    (5,534 )     (4,649 )
Capitalized servicing rights
    36,474       26,253  
Fair value mark-to-market adjustments
    11,159       2,301  
Mark-to-market on derivatives/hedges
    (1,235 )     1,754  
                 
Total gain on mortgage loans held for sale
    $109,431       $77,498  
                 
 
  •     Gain on mortgage loans held for sale was $109.4 million for the year ended December 31, 2011, compared to $77.5 million for the year ended December 31, 2010, an increase of $31.9 million, or 41.2%, primarily due to the net effect of the following:
 
  •     Increase of $16.8 million from larger volume of originations, which increased from $2.8 billion in 2010 to $3.4 billion in 2011, and higher margins earned on the sale of residential mortgage loans during the period.
 
  •     Increase of $10.2 million from capitalized MSRs due to the larger volume of originations and subsequent retention of MSRs.
 
  •     Increase of $8.9 million resulting from the change in fair value on newly-originated loans.
 
  •     Decrease of $3.0 million from change in unrealized gains/losses on derivative financial instruments. These include IRLCs and forward sales of MBS.
 
  •     Decrease of $0.9 million from an increase in our provision for repurchases as a result of the increase in our loan sale volume.
 
Expenses and impairments were $101.6 million for the year ended December 31, 2011 compared to $86.9 million for the year ended December 31, 2010, an increase of $14.7 million, or 16.9%, primarily due to the net effect of the following:
 
  •     Increase of $13.8 million in salaries, wages and benefits expense from increase in average headcount of 688 in 2010 to 988 in 2011 and increases in performance-based compensation due to increases in originations volume.
 
  •     Increase of $0.8 million in general and administrative and occupancy expense primarily due to an increase in our overhead expenses from the higher originations volume in the 2011 period. Additionally we recorded total charges in November 2011 of $1.8 million related to our strategic decision to refocus our strategy with respect to our originations platform.
 
Total other income (expense) was $1.8 million for the year ended December 31, 2011 compared to $3.0 million for the year ended December 31, 2010, a decrease in income, net of expense, of $1.2 million, or 40.0%, primarily due to the net effect of the following:
 
  •     Interest income was $12.7 million for the year ended December 31, 2011 compared to $11.8 million for the year ended December 31, 2010, an increase of $0.9 million, or 7.6%, representing interest earned from originated loans prior to sale or securitization. The increase is primarily due to the increase in the volume of originations. Loans are typically sold within 30 days of origination.


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  •     Interest expense was $11.0 million for the year ended December 31, 2011 compared to $8.8 million for the year ended December 31, 2010, an increase of $2.2 million, or 25.0%, primarily due to an increase in originations volume in 2011 and associated financing required to originate these loans, combined with a slight increase in outstanding average days in warehouse on newly originated loans.
 
For the Years Ended December 31, 2010 and 2009
 
Total revenues were $84.5 million for the year ended December 31, 2010 compared to $55.6 million for the year ended December 31, 2009, an increase of $28.9 million, or 52.0%, primarily due to the net effect of the following:
 
  •     Other fee income was $7.0 million for the year ended December 31, 2010 compared to $1.2 million for the year ended December 31, 2009, an increase of $5.8 million or 483.3%, primarily due to our election to measure newly originated conventional residential mortgage loans held for sale at fair value, effective October 1, 2009. Subsequent to this election, any collected points and fees related to originated mortgage loans held for sale are included in other fee income. Prior to this election, points and fees were recorded as deferred originations income and recognized over the life of the mortgage loan as an adjustment to our interest income yield or, when the related loan was sold to a third party purchaser, included as a component of gain on mortgage loans held for sale.
 
  •     Gain on mortgage loans held for sale was $77.5 million for the year ended December 31, 2010 compared to $54.4 million for the year ended December 31, 2009, an increase of $23.1 million, or 42.5%, primarily due to the net effect of the following:
 
  •  Increase of $22.4 million from improved margins and larger volume of originations, which increased from $1.5 billion for the year ended December 31, 2009 to $2.8 billion for the year ended December 31, 2010.
 
  •  Increase of $17.9 million from capitalized MSRs due to the larger volume of originations and subsequent retention of servicing rights.
 
  •  Decrease of $0.7 million from change in unrealized gains/(losses) on derivative financial instruments. These include IRLCs and forward sales of MBS.
 
  •  Decrease of $20.2 million from recognition of points and fees earned on mortgage loans held for sale for the year ended December 31, 2009. Effective October 1, 2009, all points and fees are recognized at origination upon the election to apply fair value accounting to newly-originated loans and are recognized as a component of other fee income.
 
Expenses and impairments were $86.9 million for the year ended December 31, 2010 compared to $47.5 million for the year ended December 31, 2009, an increase of $39.4 million, or 82.9%, primarily due to the net effect of the following:
 
  •     Increase of $26.4 million in salaries, wages and benefits expense from increase in headcount of 452 in 2009 to 688 in 2010 and increases in performance-based compensation. Additionally, we recognized $3.6 million in share-based compensation expense from revised compensation arrangements with certain of our executives.
 
  •     Increase of $13.1 million in general and administrative and occupancy expense primarily due to increase in overhead expenses from the larger volume of originations in 2010 and expenses associated with certain claims.


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Total other income (expense) was $3.0 million for the year ended December 31, 2010 compared to $0.8 million for the year ended December 31, 2009, an increase in income, net of expense, of $2.2 million, or 275.0%, primarily due to the net effect of the following:
 
  •     Interest income increased $7.5 million from interest earned from originated loans prior to sale or securitization. The increase is primarily due to the increase in the volume of originations. Loans are typically sold within 30 days of origination.
 
  •     Interest expense increased $5.4 million primarily due to an increase in originations volume in 2010 and associated financing required to originate these loans combined with a slight increase in outstanding average days in warehouse on newly originated loans.
 
Legacy Portfolio and Other
 
Through December 2009, our Legacy Portfolio and Other consisted primarily of non-prime and non-conforming residential mortgage loans that we primarily originated from April to July 2007. Revenues and expenses are primarily a result of mortgage loans transferred to securitization trusts that were structured as secured borrowings, resulting in carrying the securitized loans as mortgage loans on our consolidated balance sheets and recognizing the asset-backed certificates as nonrecourse debt. Prior to September 2009, these residential mortgage loans were classified as mortgage loans held for sale on our consolidated balance sheet and carried at the lower of cost or fair value and financed through a combination of our existing warehouse facilities and our corporate note. These loans were transferred on October 1, 2009, from mortgage loans held for sale to a held-for-investment classification at fair value on the transfer date. Subsequent to the transfer date, we completed the securitization of the mortgage loans, which was structured as a secured borrowing. This structure resulted in carrying the securitized loans as mortgages on our consolidated balance sheet and recognizing the asset-backed certificates acquired by third parties as nonrecourse debt.
 
Effective January 1, 2010, new accounting guidance eliminated the concept of a QSPE. Consequently, all existing securitization trusts are considered VIEs and are now subject to the new consolidation guidance. Upon consolidation of certain of these VIEs, we recognized the securitized mortgage loans related to these securitization trusts as mortgage loans held for investment, subject to ABS nonrecourse debt. See “Note 3 to Consolidated Financial Statements — Variable Interest Entities and Securitizations.” Additionally, we elected the fair value option provided for by ASC 825-10, Financial Instruments-Overall . Assets and liabilities related to these VIEs are included in Legacy Assets and Other in our segmented results.
 
In December 2011, we sold our remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the variable interest. Upon deconsolidation of this VIE, we derecognized the related mortgage loans held for investment, subject to ABS nonrecourse debt and the ABS nonrecourse debt.


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The following table summarizes our operating results from Legacy Portfolio and Other for the periods indicated.
 
                         
   
Year Ended December 31,
 
   
2011
   
2010
   
2009
 
    (in thousands)  
 
Revenues:
                       
Servicing fee income
    $1,972       $820       $—  
Other fee income
    3,996       2,643        
                         
Total fee income
    5,968       3,463        
Gain on mortgage loans held for sale
                (75,786 )
                         
Total revenues
    5,968       3,463       (75,786 )
Expenses and impairments:
                       
Salaries, wages and benefits
    7,233       13,148       3,537  
General and administrative
    7,228       7,488       5,239  
Provision for loan losses
    3,537       3,298        
Loss on sale of foreclosed real estate
    6,833       205       7,512  
Occupancy
    2,110       2,788       1,912  
Loss on available-for-sale securities—other-than-temporary
                6,809  
                         
Total expenses and impairments
    26,941       26,927       25,009  
Other income (expense):
                       
Interest income
    44,866       77,521       44,114  
Interest expense
    (36,396 )     (55,566 )     (40,568 )
Loss on interest rate swaps and caps
                (14 )
Fair value changes in ABS securitizations
    (12,389 )     (23,297 )      
                         
Total other income (expense)
    (3,919 )     (1,342 )     3,532  
                         
Net loss
    $(24,892 )     $(24,806 )     $(97,263 )
                         
 
The table below provides detail of the characteristics of our securitization trusts included in Legacy Portfolio and Other for the periods indicated.
 
                         
   
Year Ended December 31,
 
   
2011
   
2010 (1)
   
2009
 
    (in thousands)  
 
Legacy Portfolio and Other:
                       
Performing—UPB
    $279,730       $1,037,201       $345,516  
Nonperforming (90+ Delinquency)—UPB
    90,641       337,779       141,602  
Real Estate Owned—Estimated Fair Value
    3,668       27,337       10,262  
                         
Total Legacy Portfolio and Other—UPB
    $374,039       $1,402,317       $497,380  
                         
 
(1) Amounts include one previously off-balance sheet securitization which was consolidated upon adoption of ASC 810, Consolidation , related to consolidation of certain VIEs.
 
For the Years Ended December 31, 2011 and 2010
 
Total revenues were $6.0 million for the year ended December 31, 2011 compared to $3.5 million for the year ended December 31, 2010, an increase of $2.5 million. This increase was primarily a result of higher ancillary income on our legacy portfolio.


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Interest income, net of interest expense, decreased to $8.5 million for the year ended December 31, 2011 as compared to $21.9 million for the year ended December 31, 2010. The decrease in net interest income was primarily due to the effects of the derecognition of a previously consolidated VIE as of July 1, 2010.
 
Fair value changes in ABS securitizations were $12.4 million for the year ended December 31, 2011 as compared to a $23.3 million decrease for the year ended December 31, 2010. Fair value changes in ABS securitizations is the net result of the reductions in the fair value of the assets (Mortgage loans held for investment and REO) and the reductions in the fair value of the liabilities (ABS nonrecourse debt).
 
For the Years Ended December 31, 2010 and 2009
 
Total revenues were $3.5 million for the year ended December 31, 2010, compared to $(75.8) million for the year ended December 31, 2009. This increase was primarily a result of a change in classification on mortgage loans held for sale discussed above, with no gain on mortgage loans held for sale recorded for the year ended December 31, 2010, compared to a loss of $75.8 million recorded for the year ended December 31, 2009.
 
Expenses and impairments were $26.9 million for the year ended December 31, 2010 compared to $25.0 million for the year ended December 31, 2009, an increase of $1.9 million, or 7.6%, primarily due to an increase in headcount and allocated expenses for corporate support functions and executive oversight. Additionally, we recognized $3.6 million in additional share-based compensation expense from revised compensation arrangements with certain of our executives, as well as a $3.3 million provision for loan losses. These expense increases were offset by the net impact of the adoption of new accounting guidance on the consolidation of certain securitization trusts which resulted in a $7.3 million reduction in charges from losses realized on foreclosed real estate and a decrease of $6.8 million in other-than-temporary impairments recognized on our investment in debt securities available-for-sale.
 
Total other income (expense) was $(1.3) million for the year ended December 31, 2010 compared to $3.5 million for the year ended December 31, 2009, a decrease of $4.8 million, or 137.1%. The decrease was primarily due to an increase in our net interest income, offset by fair value changes in our ABS securitizations. Interest income, net of interest expense, increased to $21.9 million for the year ended December 31, 2010 as compared to $3.5 million for the year ended December 31, 2009. The increase in interest income, net was due to the consolidation of certain securitization trusts upon the adoption of new accounting guidance related to VIEs. Fair value changes in ABS securitizations included a loss of $23.3 million for the year ended December 31, 2010, with no corresponding amount for the year ended December 31, 2009, due to the election of the fair value option on consolidated VIEs.


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Analysis of Items on Consolidated Balance Sheet
 
The following table presents our consolidated balance sheets for the periods indicated.
 
                 
   
December 31,
 
   
2011
   
2010
 
    (in thousands)  
 
Assets
               
Cash and cash equivalents
    $62,445       $21,223  
Restricted cash
    71,499       91,125  
Accounts receivable, net
    562,300       441,275  
Mortgage loans held for sale
    458,626       369,617  
Mortgage loans held for investment, subject to nonrecourse debt—Legacy Assets
    243,480       266,320  
Mortgage loans held for investment, subject to ABS nonrecourse debt
          538,440  
Receivables from affiliates
    4,609       8,993  
Mortgage servicing rights
    251,050       145,062  
Property and equipment, net
    24,073       8,394  
Real estate owned, net (includes $— and $17,509, respectively, of real estate owned, subject to ABS nonrecourse debt)
    3,668       27,337  
Other assets
    106,181       29,395  
                 
Total assets
    $1,787,931       $1,947,181  
                 
Liabilities and members’ equity
               
Notes payable
    $873,179       $709,758  
Unsecured senior notes
    280,199       244,061  
Payables and accrued liabilities
    183,789       75,054  
Derivative financial instruments
    12,370       7,801  
Derivative financial instruments, subject to ABS nonrecourse debt
          18,781  
Nonrecourse debt—Legacy Assets
    112,490       138,662  
Excess spread financing (at fair value)
    44,595        
ABS nonrecourse debt (at fair value)
          496,692  
                 
Total liabilities
    1,506,622       1,690,809  
Total members’ equity
    281,309       256,372  
                 
Total liabilities and members’ equity
    $1,787,931       $1,947,181  
                 
 
Assets
 
Restricted cash consists of certain custodial accounts related to collections on certain mortgage loans and mortgage loan advances that have been pledged to debt counterparties under various master repurchase agreements (“MRAs”). Restricted cash was $71.5 million at December 31, 2011, a decrease of $19.6 million from December 31, 2010, primarily a result of decreased servicer advance reimbursement amounts.
 
Accounts receivable consists primarily of accrued interest receivable on mortgage loans and securitizations, collateral deposits on surety bonds and advances made to nonconsolidated securitization trusts, as required under various servicing agreements related to delinquent loans, which are ultimately paid back to us from the securitization trusts. Accounts receivable increased $121.0 million to $562.3 million at December 31, 2011, primarily due to our larger outstanding servicing portfolio, which resulted in a $43.0 million increase in corporate and escrow advances and a $64.9 million increase in outstanding delinquency advances.
 
Mortgage loans held for sale are carried at fair value. We estimate fair value by evaluating a variety of market indicators including recent trades and outstanding commitments. Mortgage loans held for sale were


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$458.6 million at December 31, 2011, an increase of $89.0 million from December 31, 2010, primarily due to $3.3 billion in mortgage loan sales offset by $3.4 billion loan originations during the year ended December 31, 2011.
 
Mortgage loans held for investment, subject to nonrecourse debt — Legacy Assets consist of nonconforming or subprime mortgage loans securitized which serve as collateral for the nonrecourse debt. Mortgage loans held for investment, subject to nonrecourse debt — Legacy Assets was $243.5 million at December 31, 2011, a decrease of $22.8 million from December 31, 2010, as $19.7 million UPB was transferred to REO during the year ended December 31, 2011.
 
Mortgage loans held for investment, subject to ABS nonrecourse debt consist of mortgage loans that were recognized upon the adoption of accounting guidance related to VIEs effective January 1, 2010. To more accurately represent the future economic performance of the securitization collateral and related debt balances, we elected the fair value option provided for by ASC 825-10. Effective December 2011, we met the requirements under applicable accounting guidance to deconsolidate the VIE. As such, mortgage loans held for investment, subject to ABS nonrecourse debt were eliminated.
 
Receivables from affiliates consist of periodic transactions with Nationstar Regular Holdings, Ltd., a subsidiary of the Initial Stockholder. These transactions typically involve the monthly payment of principal and interest advances that are required to be remitted to securitization trusts as required under various Pooling and Servicing Agreements. These amounts are later repaid to us when principal and interest advances are recovered from the respective borrowers. Receivables from affiliates were $4.6 million at December 31, 2011, a decrease of $4.4 million from December 31, 2010, as a result of increased recoveries on outstanding principal and interest advances.
 
MSRs at fair value consist of servicing assets related to all existing forward residential mortgage loans transferred to a third party in a transfer that meets the requirements for sale accounting or through the acquisition of the right to service residential mortgage loans that do not relate to our assets. MSRs were $251.1 million at December 31, 2011, an increase of $106.0 million over December 31, 2010, primarily a result of the purchase of two significant servicing portfolios for $102.5 million combined with capitalization of $36.5 million newly created MSRs, partially offset by a $39.0 million decrease in the fair value of our MSRs.
 
Property and equipment, net is comprised of land, furniture, fixtures, leasehold improvements, computer software, computer hardware, and software in development and other. These assets are stated at cost less accumulated depreciation. Property and equipment, net increased $15.7 million from December 31, 2010 to $24.1 million at December 31, 2011, as we invested in information technology systems to support volume growth in both our Servicing Segment and Originations Segment.
 
REO, net represents property we acquired as a result of foreclosures on delinquent mortgage loans. REO, net is recorded at estimated fair value, less costs to sell, at the date of foreclosure. Any subsequent operating activity and declines in value are charged to earnings. REO, net was $3.7 million at December 31, 2011, a decrease of $23.6 million from December 31, 2010. This decrease was primarily a result of derecognition of our VIE in December 2011.
 
Other assets include deferred financing costs, derivative financial instruments, prepaid expenses, loans subject to repurchase rights from Ginnie Mae and equity method investments. Other assets increased $76.8 million from December 31, 2010 to $106.2 million, due to $28.9 million in deposits on pending servicing rights acquisitions that are expected to close in 2012, $35.7 million in loans subject to repurchase rights from Ginnie Mae, $4.5 million in margin call deposits and an acquisition of a 22% investment in ANC Acquisition LLC (“ANC”) for an initial investment of $6.6 million. See “Note 10 to Consolidated Financial Statements—Other Assets.”


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Liabilities and Members’ Equity
 
At December 31, 2011, total liabilities were $1,506.6 million, a $184.2 million decrease from December 31, 2010. The decrease in total liabilities was primarily a result of derecognition of our VIE in December 2011. Upon derecognition of this VIE, we derecognized the related ABS nonrecourse debt, a $496.7 million decrease since December 31, 2010. This decrease was partially offset by an increase in notes payable of $163.4 million since December 31, 2010 related to the financing of our increased servicing and loan origination activities and the issuance of $34.7 million of additional unsecured senior debt in December 2011, as well as the addition of $44.6 million of excess spread financing also in December 2011.
 
Included in our payables and accrued liabilities caption on our balance sheet is our reserve for repurchases and indemnifications of $10.0 million and $7.3 million at December 31, 2011 and 2010, respectively. This liability represents our (i) estimate of losses to be incurred on the repurchase of certain loans that we previously sold and (ii) estimate of losses to be incurred for indemnification of losses incurred by purchasers or insurers with respect to loans that we sold. Certain sale contracts include provisions requiring us to repurchase a loan or indemnify the purchaser or insurer for losses if a borrower fails to make certain initial loan payments due to the acquirer or if the accompanying mortgage loan fails to meet certain customary representations and warranties. These representations and warranties are made to the loan purchasers or insurers about various characteristics of the loans, such as the manner of origination, the nature and extent of underwriting standards applied and the types of documentation being provided and typically are in place for the life of the loan. Although the representations and warranties are in place for the life of the loan, we believe that most repurchase requests occur within the first five years of the loan. In the event of a breach of the representations and warranties, we may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. In addition, an investor may request that we refund a portion of the premium paid on the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale. We record a provision for estimated repurchases, loss indemnification and premium recapture on loans sold, which is charged to gain (loss) on mortgage loans held for sale.
 
The activity of our outstanding repurchase reserves were as follows for the periods indicated.
 
                         
   
Year Ended December 31,
 
    2011     2010     2009  
    (in thousands)  
 
Repurchase reserves, beginning of period
    $7,321       $3,648       $3,965  
Additions
    5,534       4,649       820  
Charge-offs
    (2,829 )     (976 )     (1,137 )
                         
Repurchase reserves, end of period
    $10,026       $7,321       $3,648  
                         
 
The following table summarizes the changes in UPB and loan count related to unresolved repurchase and indemnification requests for the periods indicated.
 
                                                 
   
Year Ended December 31,
 
    2011     2010     2009  
    UPB     Count     UPB     Count     UPB     Count  
    (in millions, except count)  
 
Beginning balance
  $ 4.3       21     $ 1.3       8     $ 0.3       3  
Repurchases & indemnifications
    (6.9 )     (37 )     (1.9 )     (8 )     (2.7 )     (17 )
Claims initiated
    32.4       154       10.8       53       4.6       28  
Rescinded
    (16.9 )     (77 )     (5.9 )     (32 )     (0.9 )     (6 )
                                                 
Ending balance
  $ 12.9       61     $ 4.3       21     $ 1.3       8  
                                                 


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The following table details our loan sales by period.
 
                                                                                 
   
Year Ended December 31,
 
    2011     2010     2009     2008     Total  
    (in billions, except count)  
    $     Count     $     Count     $     Count     $     Count     $     Count  
 
Loan sales
  $ 3.3       16,629     $ 2.6       13,090     $ 1.0       5,344     $ 0.5       3,412     $ 7.4       38,475  
 
We increase the reserve by applying an estimated loss factor to the principal balance of loan sales. Secondarily, the reserve may be increased based on outstanding claims received. We have observed an increase in repurchase requests in each of the last three years. We believe that because of the increase in our loan originations since 2008, repurchase requests are likely to increase. Should home values continue to decrease, our realized loan losses from loan repurchases and indemnifications may increase as well. As such, our reserve for repurchases may increase beyond our current expectations. While the ultimate amount of repurchases and premium recapture is an estimate, we consider the liability to be adequate at each balance sheet date.
 
At December 31, 2011, outstanding members’ equity was $281.3 million, a $24.9 million increase from December 31, 2010, which is primarily attributable to our net income of $20.9 million in 2011 and $14.8 million in share-based compensation, partially offset by $4.3 million distributions to parent and $5.3 million in tax related share based settlements of units by members.
 
Recent Accounting Developments
 
Accounting Standards Update No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements (Update No. 2011-03). Update No. 2011-03 is intended to improve the accounting and reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This amendment removes the criterion pertaining to an exchange of collateral such that it should not be a determining factor in assessing effective control, including (1) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (2) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in the update. The amendments in this update will be effective for interim and annual periods beginning after December 15, 2011. The adoption of Update No. 2011-03 is not expected to have a material impact on our financial condition, liquidity or results of operations.
 
Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (Update No. 2011-04). Update No. 2011-04 is intended to provide common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (“IFRS”). The changes required in this update include changing the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of Update No. 2011-04 is not expected to have a material impact on our financial condition, liquidity or results of operations.
 
Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (Update No. 2011-05). Update No. 2011-05 is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Update No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and now requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update does not change the items that must be reported in other


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comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this update are to be applied retrospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of Update No. 2011-05 is not expected to have a material impact on our financial condition, liquidity or results of operations.
 
Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No 2011-05 (Update No. 2011-12). Update 2011-12 is intended to temporarily defer the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income as required by Update No. 2011-05. All other requirements in Update 2011-05 are not affected by this update. This update does not change the requirement to present reclassifications adjustments within other comprehensive income either on the face of the statement that reports other comprehensive income or in the notes to the financial statements (Update 2011-05). The amendments in this update are effective for interim and annual periods beginning after December 15, 2011. The adoption of Update No. 2011-12 is not expected to have a material impact on our financial condition liquidity or results of operations.
 
Liquidity and Capital Resources
 
Liquidity measures our ability to meet potential cash requirements, including the funding of servicing advances, the payment of operating expenses, the originations of loans and the repayment of borrowings. Our cash balance increased from $21.2 million as of December 31, 2010 to $62.4 million as of December 31, 2011, primarily due to cash inflows in our financing activities, partially offset by cash outflows from operating and investing activities. Our cash balance decreased from $41.6 million as of December 31, 2009 to $21.2 million as of December 31, 2010, primarily due to greater cash outflows from our financing activities to repay our outstanding debt facilities.
 
We grew our servicing portfolio from $33.7 billion in UPB as of December 31, 2009 to $106.6 billion in UPB as of December 31, 2011 (including $7.8 billion of servicing under contract). We shifted our strategy after 2007 to leverage our industry-leading servicing capabilities and capitalize on the opportunities to grow our originations platform which has led to the strengthening of our liquidity position. As a part of our shift in strategy, we ceased originating non-prime loans in 2007, and new originations have been focused on loans that are eligible to be sold to GSEs. Since 2008, substantially all originated loans have either been sold or are pending sale.
 
As part of the normal course of our business, we borrow money periodically to fund servicing advances and loan originations. The loans we originate are financed through several warehouse lines on a short-term basis. We typically hold the loans for approximately 30 days and then sell the loans or place them in government securitizations and repay the borrowings under the warehouse lines. We rely upon several counterparties to provide us with financing facilities to fund a portion of our servicing advances and to fund our loan originations on a short-term basis. Our ability to fund current operations depends upon our ability to secure these types of short-term financings on acceptable terms and to renew or replace the financings as they expire.
 
In March 2010, we completed the offering of $250.0 million of senior notes, which were issued with an issue discount of $7.0 million for net cash proceeds of $243.0 million, with a maturity date of April 2015. In December 2011, we completed an additional offering of $35.0 million of senior notes. The additional offering was issued with an issue discount of $0.3 million for net cash proceeds of $34.7 million, with a maturity date of April 2015. Under the terms of these senior notes, we pay interest semi-annually to the note holders at an interest rate of 10.875%.
 
At this time, we see no material negative trends that we believe would affect our access to long-term borrowings, short-term borrowings or bank credit lines sufficient to maintain our current operations, or would


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likely cause us to cease to be in compliance with any applicable covenants in our indebtedness or that would inhibit our ability to fund operations and capital commitments for the next 12 months.
 
Our primary sources of funds for liquidity include: (i) lines of credit, other secured borrowings and the senior notes; (ii) servicing fees and ancillary fees; (iii) payments received from sale or securitization of loans; and (iv) payments received from mortgage loans held for sale.
 
Our primary uses of funds for liquidity include: (i) funding of servicing advances; (ii) originations of loans; (iii) payment of interest expenses; (iv) payment of operating expenses; (v) repayment of borrowings; and (vi) payments for acquisitions of MSRs.
 
Our servicing agreements impose on us various rights and obligations that affect our liquidity. Among the most significant of these obligations is the requirement that we advance our own funds to meet contractual principal and interest payments for certain investors and to pay taxes, insurance, foreclosure costs and various other items that are required to preserve the assets being serviced. Delinquency rates and prepayment speed affect the size of servicing advance balances. As a result of the agreement we entered into to purchase the servicing rights to certain reverse mortgages from BANA, we will be required to fund payments due to borrowers, which advances are typically greater than advances on forward residential mortgages. These advances are typically recovered upon weekly or monthly reimbursement or from sale in the market.
 
We intend to continue to seek opportunities to acquire loan servicing portfolios and/or businesses that engage in loan servicing and/or loan originations. Future acquisitions could require substantial additional capital in excess of cash from operations. We would expect to finance the capital required for acquisitions through a combination of additional issuances of equity, corporate indebtedness, asset-backed acquisition financing and/or cash from operations.
 
Operating Activities
 
Our operating activities used ($28.9) million of cash flow for the year ended December 31, 2011 compared to ($101.7) million of cash flow for the same period in the prior year. The decrease in cash used in operating activities of $72.8 million during the 2011 period was primarily due to higher volume sales of residential mortgage loans offset by higher cash outflows for working capital.
 
The improvement was primarily due to the net effect of the following:
 
  •     $718.6 million improvement in proceeds received from sale of originated loans, which provided $3,339.9 million and $2,621.3 million for the years ending December 31, 2011 and 2010, respectively, partially offset by a $620.6 million increase in cash used to originate loans. Mortgage loans originated and purchased, net of fees, used $3,412.2 million and $2,791.6 million in the years ending December 31, 2011 and 2010, respectively.
 
  •     $74.0 million decrease in cash outflows used for working capital, which used ($21.6) million cash for the year ended December 31, 2011 and provided $52.4 million during the same period in the prior year.
 
Our operating activities used ($101.7) million and ($83.6) million of cash flow for the years ended December 31, 2010 and 2009, respectively. The decrease of $18.1 million was primarily due to the net effect of the following:
 
  •     Increase of $1,613.9 million attributable to increased proceeds received from sale of loans, offset by decrease in cash attributable to $1,311.1 million increase in originations volume.


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  •     Decrease in principal payments/prepayments received and other changes in mortgages loans held for sale of $439.2 million.
 
  •     Increase of $136.2 million primarily due to decreased delinquency advances to investors to cover scheduled payments of principal and interest that are required to be remitted to securitization trusts.
 
  •     Increase of $71.0 million attributable to a decrease in net loss period over period, primarily as a result of increased revenues from our higher servicing portfolio and increased volume in loan originations.
 
Investing Activities
 
Our investing activities used ($81.9) million and provided $101.2 million and $30.0 million of cash flow for the years ended December 31, 2011, 2010, and 2009, respectively. The $183.1 million decrease in cash flows used by investing activities from the 2010 period to the 2011 period was primarily a result of a $96.5 million increase in total purchases and deposits on MSRs offset by a $27.8 million increase in cash proceeds from sales of REO. Also, in March 2011, we acquired a 22% interest in ANC for an initial investment of $6.6 million. ANC is the parent company of National Real Estate Information Services, LP (“NREIS”), a real estate services company. The increase in cash flows from investing activities from 2009 to 2010 was primarily a result of an increase in cash proceeds from sales of REO and principal payments received and other changes on mortgage loans held for investment, subject to ABS nonrecourse debt.
 
Financing Activities
 
Our financing activities provided $152.0 million of cash flow during the year ended December 31, 2011 and used $(20.0) million and provided $85.9 million of cash flow for the years ended December 31, 2010 and 2009, respectively. During the year ended December 31, 2011, we provided $172.0 million more cash as a result of additional borrowings to finance the growth in our servicing and originations business compared to the 2010 period. During the year ended December 31, 2011, we used $58.1 million to repay ABS nonrecourse debt, used $3.5 million for debt financing costs and borrowed an additional $163.4 million from our existing warehouse and debt facilities as we expanded both our servicing and originations platforms. The primary source of financing cash flow during the year ended December 31, 2010 was $243.0 million proceeds from offering the senior notes. During the year ended December 31, 2010, we used $103.5 million to repay ABS nonrecourse debt, used $14.9 million for debt financing costs and used $62.1 million to repay the outstanding notes payable. The increase in cash outflow from financing activities from 2009 to 2010 was primarily a result of repayment of ABS and Legacy Asset nonrecourse debt. We also did not receive any capital contributions from our existing members in 2010, compared to $20.7 million in capital contributions received in 2009. In 2009, we issued nonrecourse debt, which provided $191.3 million in cash.


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Contractual Obligations
 
The table below sets forth our contractual obligations, excluding our legacy asset securitized debt and our excess spread financing, at December 31, 2011:
 
                                         
          2013
    2015
    After
       
   
2012
   
to 2014
   
to 2016
   
2016
   
Total
 
    (in thousands)  
 
Unsecured Senior Notes
    $—       $—       $285,000       $—       $285,000  
Interest expense from Unsecured Senior Notes
    31,510       62,848       7,748             102,106  
MBS Advance Financing Facility
    179,904                         179,904  
Securities Repurchase Facility (2011)
    11,774                         11,774  
2010-ABS Advance Financing Facility
          219,563                   219,563  
2011-Agency Advance Financing Facility
    25,011                         25,011  
MSR Note
    5,553       4,627                   10,180  
$300 Million Warehouse Facility
          251,722                   251,722  
$175 Million Warehouse Facility
          46,810                   46,810  
$100 Million Warehouse Facility
          16,047                   16,047  
$50 Million Warehouse Facility
    7,310                         7,310  
ASAP+ Short-Term Financing Facility
    104,858                         104,858  
Operating Leases
    9,837       17,299       8,109       727       35,972  
                                         
Total
    $375,757       $618,916       $300,857       $727       $1,296,257  
                                         
 
In addition to the above contractual obligations, we have also been involved with several securitizations of ABS, which were structured as secured borrowings. These structures resulted in us carrying the securitized loans as mortgages on our consolidated balance sheet and recognizing the asset-backed certificates acquired by third parties as nonrecourse debt. The timing of the principal payments on this nonrecourse debt is dependent on the payments received on the underlying mortgage loans and liquidation of REO. The outstanding principal balance on our Nonrecourse Debt—Legacy Assets and was $112.5 million, at December 31, 2011. The repayment of our excess spread financing is based on amounts received on the underlying mortgage loans. As such, we have excluded the financing from the table above. The fair value of our excess spread financing was $44.6 million at December 31, 2011.
 
Description of Certain Indebtedness
 
Senior Unsecured Notes
 
On March 26, 2010, Nationstar Mortgage LLC and Nationstar Capital Corporation, as co-issuers, completed a private offering of $250.0 million aggregate principal amount of 10.875% senior notes due 2015, or the “existing notes.” By means of a separate prospectus, Nationstar Mortgage LLC and Nationstar Capital Corporation completed an exchange of $250.0 million aggregate principal amount of 10.875% senior notes due 2015, or the “registered notes,” for an equal principal amount of the existing notes in an offering that was registered under the Securities Act. On December 19, 2011, Nationstar Mortgage LLC and Nationstar Capital Corporation, as co-issuers, completed a further issuance of $35.0 million aggregate principal amount of 10.875% senior notes due 2015 on terms identical to those of the existing senior notes, other than the issue date and offering price. Pursuant to a registration rights agreement, by means of a separate prospectus, Nationstar Mortgage LLC and Nationstar Capital Corporation intend to offer to exchange up to $35.0 million aggregate principal amount of 10.875% senior notes due 2015, or the “registered follow-on notes,” for an equal principal amount of the existing senior notes in an offering that will have been registered under the Securities Act. The registered follow-on notes will be fungible with the registered notes upon issuance. This prospectus shall not be deemed to be an offer to exchange such notes. The existing notes, the registered notes, the follow-on notes, and the registered follow-on notes are referred to herein as the senior notes. The aggregate principal amount of outstanding senior notes under this series is $285.0 million.


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Interest is payable on the senior notes semi-annually in arrears on April 1 and October 1, starting on October 1, 2010, with interest accruing from March 26, 2010.
 
We may redeem some or all of the senior notes at any time before April 1, 2013 at a price equal to 100% of the aggregate principal amount thereof plus accrued and unpaid interest, if any, to the redemption date and a make-whole premium. The make-whole premium is the greater of (i) 1.0% of the then outstanding principal amount of the note or (ii) the sum of (a)(i) the redemption price of the note at April 1, 2013 (such redemption price being set forth in the table below) and (ii) all required interest payments due on the note through April 1, 2013 (excluding accrued but unpaid interest to such redemption date), computed using a discount rate equal to the applicable treasury rate plus 50 basis points over (b) the then outstanding principal amount of the note. On or after April 1, 2013, we may also redeem the senior notes, in whole or in part, at the following redemption prices set forth below (expressed as percentages of principal amount), plus accrued and unpaid interest, if any, if redeemed during the 12-month period commencing on April 1 of the years set forth below:
 
         
Year
 
Percentage
 
 
2013
    105.438 %
2014 and thereafter
    100.000 %
 
In addition, on or prior to April 1, 2013, we may use the net cash proceeds of one or more equity offerings to redeem up to 35.0% of the principal amount of all senior notes issued at a redemption price equal to 110.875% of the principal amount of the senior notes redeemed plus accrued and unpaid interest.
 
Upon a “change of control” (as defined in the indenture), we (or a third party) must offer to redeem all of the senior notes for a payment equal to 101% of the senior notes’ principal amount plus accrued and unpaid interest thereon. This offering will not result in a change of control.
 
The senior notes are guaranteed, jointly and severally, on a senior basis by all of our current and future wholly-owned domestic restricted subsidiaries other than securitization entities and subsidiaries designated as unrestricted subsidiaries. The senior notes are our and the guarantors’ general unsecured obligation and are pari passu in right of payment with all existing and any future senior indebtedness; effectively junior in right of payment to all existing and future senior unsecured indebtedness to the extent of the assets securing such indebtedness; and senior in right of payment to all existing and future subordinated indebtedness.
 
The indenture governing the senior notes contains certain limitations and restrictions on us and our restricted subsidiaries’ ability to, among other things:
 
  •     incur additional indebtedness;
 
  •     issue preferred and disqualified stock;
 
  •     purchase or redeem capital stock;
 
  •     make certain investments;
 
  •     pay dividends or make other payments or loans or transfer property;
 
  •     sell assets;
 
  •     enter into certain types of transactions with affiliates involving consideration in excess of $5.0 million; and
 
  •     sell all or substantially all of the our or a guarantor’s assets or merge with or into another company.


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The covenants are subject to important exceptions and qualifications described below.
 
We and our restricted subsidiaries are prohibited from incurring or issuing additional indebtedness and disqualified stock and its restricted subsidiaries are prohibited from issuing preferred stock unless our corporate indebtedness to tangible net worth ratio for the most recently ended four full fiscal quarters would be less than 1.10 to 1.00 on a pro forma basis and the consolidated leverage ratio for the most recently ended four fiscal quarters would be less than 4.50 to 1.00. In addition, we may, among other things, incur certain working capital credit facilities debt not to exceed $35 million; indebtedness of foreign subsidiaries not to exceed 5% of total assets of foreign subsidiaries; acquired debt so long as we would be permitted to incur at least an additional $1 of indebtedness under the debt ratios; and a general debt basket not to exceed $12.5 million.
 
Furthermore, we and our restricted subsidiaries are prohibited from purchasing or redeeming capital stock; making certain investments, paying dividends or making other payments or loans or transfers of property, unless we could incur an additional dollar of indebtedness under our debt ratios and such payment is less than 50% of our consolidated net income minus 100% of any loss plus certain other items that increase the size of the payment basket. In addition, we may, among other things, make any payment from the proceeds of a capital contribution or concurrent offering of our equity interests; make stock buy-backs from current and former employees/directors in an amount to not exceed $2.5 million per year, subject to carryover of unused amounts into subsequent years and subject to increase for cash proceeds from certain equity issuances to employees/directors and cash proceeds from key man life insurance; make investments in joint ventures in an amount not to exceed (i) $5 million and (ii) 1.00% of total assets; pay dividends following a public offering up to 6% per annum of the net proceeds received by us; make any other restricted payments up to $17.5 million. Moreover, we may make investments in an amount not to exceed the greater of (i) $30 million and (ii) 1.00% of total assets.
 
The indenture contains certain events of default, including (subject, in some cases, to customary cure periods and materiality thresholds) defaults based on (i) the failure to make payments under the indenture when due, (ii) breach of covenants, (iii) cross-defaults to certain other indebtedness, (iv) certain bankruptcy or insolvency events, (v) material judgments and (vi) invalidity of material guarantees.
 
Consolidated EBITDA, as defined in the indenture governing the senior notes, is the key financial covenant measure that monitors our ability to undertake investing and financing functions, such as making investments/acquisitions, paying dividends, and incurring additional indebtedness.
 
The ratios included in the indenture for the senior notes are incurrence based compared to the customary ratio covenants that are often found in credit agreements that require a company to maintain a certain ratio.
 
The consolidated leverage ratio as defined in the indenture is equal to Corporate Indebtedness, as defined in the indenture, divided by Consolidated EBITDA, and limits our activities as discussed above, if the ratio is equal to or greater than 4.5.


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Consolidated EBITDA is computed as follows:
 
         
    Twelve Months Ended
 
   
December 31, 2011
 
    (in thousands)  
 
Net income
    $20,887  
Adjust for:
       
Impact from consolidation of securitization trusts (1)
    1,178  
Interest expense from unsecured senior notes
    30,464  
Depreciation and amortization
    4,063  
Change in fair value of excess spread financing
    3,060  
Change in fair value of MSRs (2)
    40,016  
Exit costs
    3,604  
Share-based compensation
    14,815  
Fair value changes on interest rate swap
    (298 )
Ineffective portion of cash flow hedge
    (2,032 )
(Gain) loss from asset sales and other than temporary impairment of assets
    10,371  
Amortization/write-off of deferred financing cost for debt obligations in existence prior to issuance of senior notes
    4,025  
Servicing resulting from transfers of financial assets
    (36,474 )
Other
    264  
         
Consolidated EBITDA
    $93,943  
         
 
(1) Represents impact to net income from the consolidation of certain securitization trusts. Net income, as defined in the Indenture, is based on GAAP in effect as of December 31, 2009, and does not include the impact of the consolidation of identified VIEs where we have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
 
(2) Represents change in fair value of MSRs after deconsolidation of the securitization trusts as discussed in note (1) above.
 
Servicing
 
Our Servicing Segment’s debt consists of senior notes, advance financing facilities, MSR Note and excess spread financing at fair value.
 
Advance Financing Facilities
 
Our advance financing facilities are used to finance our obligations to pay advances as required by our servicing agreements. These servicing agreements may require us to advance certain payments to the owners of the mortgage loans we service, including P&I advances, T&I advances, or legal fees, maintenance and preservation costs, or corporate advances. We draw on one or more of our advance financing facilities periodically throughout the month, as necessary, and we repay any facilities on which we have drawn when advances are recovered through liquidations, prepayments and reimbursement of advances from modifications.
 
MBS Advance Financing Facility
 
In September 2009, we entered into our MBS Advance Financing Facility. This facility is maintained with a GSE and currently has a total size of $275.0 million. The interest rate on this facility is based on LIBOR plus a margin of 2.50%, and its stated maturity date is December 2012.


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Our MBS Advance Facility is secured by certain servicing advance receivables and is subject to margin calls in the event that the value of our collateral decreases. The facility requires us to comply with various customary operating covenants and performance tests on the underlying receivables related to payment rates and minimum balance. As of December 31, 2011, we were in compliance with all covenants and performance tests under this facility and had an aggregate principal amount of $179.9 million outstanding.
 
Securities Repurchase Facility (2011)
 
In December 2011, we entered into an MRA with a financial services company, which expires in March 2012. The MRA states that we may from time to time transfer to the financial services company eligible securities against the transfer of funds by the financial services company, with a simultaneous agreement by the financial services company to transfer such securities to us at a certain date, or on demand by us, against the transfer of funds from us. Additionally, the financial services company may elect to extend the transfer date for an additional 90 days at mutually agreed upon terms. The interest rate is based on LIBOR plus a margin of 3.50%. As of December 31, 2011, we have pledged our $55.6 million outstanding retained interest in the outstanding nonrecourse debt — legacy assets securitization which was structured as a financing to secure obligations under the MRA. The outstanding balance of this facility at December 31, 2011 was $11.8 million.
 
2009-ABS Advance Financing Facility
 
Our 2009-ABS Advance Financing Facility was maintained with a financial services company and, before repayment, had a total size of $350.0 million, comprised of $174.0 million in term notes the balance of which stayed constant and $176.0 million in variable funding notes the balance of which fluctuated with our financing needs. The interest rate on this facility was based on LIBOR, subject to an interest rate swap, and had a weighted average cost of 4.82% during the year ended December 31, 2010. The stated maturity date of this facility was December 2013, twenty-four months after the stated repayment date of December 2011.
 
Our 2009-ABS Advance Financing Facility was secured by certain servicing advance receivables and was a nonrecourse obligation. The facility required us to comply with various customary operating covenants and performance tests on the underlying receivables related to payment rates and minimum balance. This facility was repaid in October 2011.
 
2010-ABS Advance Financing Facility
 
In December 2010, we entered into our 2010-ABS Advance Financing Facility. This facility is maintained with an affiliate of Wells Fargo Securities, LLC, an underwriter in this offering, and currently has a total size of $300 million. The interest rate on this facility is based on LIBOR plus a margin of 3.00%, and its stated maturity date is May 2014.
 
Our 2010-ABS Advance Financing Facility is secured by certain servicing advance receivables and is a nonrecourse obligation. The facility requires us to comply with various customary operating covenants and performance tests on the underlying receivables related to payment rates and minimum balance. As of December 31, 2011, we were in compliance with all covenants and performance tests under this facility and had an aggregate principal amount of $219.6 million outstanding.
 
2011-Agency Advance Financing Facility
 
In October 2011, we entered into our 2011-Agency Advance Financing Facility. This facility is maintained with an affiliate of Barclays Capital Inc., an underwriter in this offering, and currently has a total size of $75 million. The interest rate on this facility is based on LIBOR plus 2.50%, and its stated maturity date is October 2012.


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Our 2011-Agency Advance Financing Facility is secured by certain servicing advance receivables and is a nonrecourse obligation. The facility requires us to comply with various customary operating covenants and performance tests on the underlying receivables related to payment rates and minimum balance. As of December 31, 2011, we were in compliance with all covenants and performance tests under this facility and had an aggregate principal amount of $25.0 million outstanding.
 
MSR Note
 
In October 2009, we entered into our MSR Note. This note is maintained with a GSE and had an original aggregate principal amount of $22.2 million. The interest rate on this note is based on LIBOR plus a margin of 2.50%, and its stated maturity date is October 2013.
 
Our MSR Note was used to finance our acquisition of certain MSRs and is secured by all of our rights, title and interest in the acquired MSRs. The MSR Note requires us to comply with various customary operating covenants, specific covenants, including maintaining a disaster recovery plan and maintaining priority of the lender’s lien, and certain covenants related to the collateral and limitations on the creation of liens on the collateral or assigned servicing compensation. As of December 31, 2011, we were in compliance with all covenants and had an aggregate principal amount of $10.2 million outstanding under the MSR Note.
 
Excess Spread Financing at Fair Value
 
We acquired MSRs on a pool of agency residential mortgage loans (the “Portfolio”) on September 30, 2011. In December 2011, we entered into a sale and assignment agreement which is treated as a financing with an indirect wholly owned subsidiary of Newcastle Investment Corp. (“Newcastle”). Fortress, an affiliate of our Initial Stockholder, is Newcastle’s manager. We accounted for this transaction as a financing arrangement, in which we sold to Newcastle the right to receive 65% of the excess cash flow generated from the Portfolio after receipt of a fixed basic servicing fee per loan. The sale price was $43.7 million. We will retain all ancillary income associated with servicing the Portfolio and 35% of the excess cash flow after receipt of the fixed basic servicing fee. Nationstar will continue to be the servicer of the Portfolio and will provide all servicing and advancing functions. Newcastle will not have prior or ongoing obligations associated with the Portfolio.
 
Contemporaneous with the above, we entered into a refinanced loan agreement with Newcastle. Should we refinance any loan in the Portfolio, subject to certain limitations, we will be required to transfer the new loan or a replacement loan of similar economic characteristics into the Portfolio. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above.
 
We record acquired servicing rights on forward residential mortgages at fair value, with all subsequent changes in fair value recorded as a charge or credit to servicing fee income in the consolidated statement of operations. We estimate the fair value of our forward MSRs and the excess servicing spread financing using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. We elected to measure this financing arrangement at fair value, as permitted under ASC 825, Financial Instruments to more accurately represent the future economic performance of the acquired MSRs and related excess servicing financing. The fair value of the agreement was $44.6 million at December 31, 2011. This financing is nonrecourse to us.
 
Originations
 
Our Originations Segment’s debt consists of warehouse facilities and our ASAP+ Short-Term Financing Facility.


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Warehouse Facilities
 
Our warehouse facilities are used to finance our loan originations on a short-term basis. In the ordinary course, we originate mortgage loans on a near-daily basis, and we use a combination of our four warehouse facilities and cash to fund the loans. We agree to transfer to our counterparty certain mortgage loans against the transfer of funds by the counterparty, with a simultaneous agreement by the counterparty to transfer the loans back to us at a date certain, or on demand by us, against the transfer of funds from us. We typically renegotiate our warehouse facilities on an annual basis. See “Industry—Originations Industry Overview.” We sell our newly originated mortgage loans to our counterparty to finance the originations of our mortgage loans and typically repurchase the loans within 30 days of origination when we sell the loans to a GSE or into a government securitization.
 
$300 Million Warehouse Facility
 
In July 2006, we entered into our $300 Million Warehouse Facility, which is maintained with a financial services company. The interest rate on this facility is based on LIBOR plus a margin of 3.25%, and its stated maturity date is February 2012.
 
Our $300 Million Warehouse Facility requires us to comply with various customary operating covenants and specific covenants, including maintaining a minimum tangible net worth of $175.0 million, limitations on transactions with affiliates, maintenance of liquidity of $20 million and the maintenance of additional funding through warehouse loans. As of December 31, 2011, we were in compliance with all covenants and performance tests under this facility and had an aggregate principal amount of $251.7 million outstanding.
 
In February 2012, we negotiated an extension of the $300 Million Warehouse Facility with the financial services company. We extended the maturity date to February 2013 and decreased the committed amount to $150 million.
 
$175 Million Warehouse Facility
 
In February 2010, we entered into a $75 million warehouse facility and in January 2012, we extended the maturity date of this warehouse facility to January 2013 and increased the committed amount under this warehouse facility to $175 million. We herein refer to this facility as our $175 Million Warehouse Facility. This facility is maintained with BANA, an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, an underwriter in this offering. The interest rate on this facility is based on LIBOR plus a spread ranging from 1.75% to 2.50%.
 
Our $175 Million Warehouse Facility requires us to comply with various customary operating covenants and specific covenants, including financial covenants regarding our liquidity ratio of liabilities and warehouse credit to net worth, maintenance of a minimum tangible net worth of $150.0 million, maintenance of additional warehouse facilities and limitations on entering into warehouse facilities with more favorable terms (with respect to the lender) than this facility without also applying those more favorable terms to this facility. As of December 31, 2011, we were in compliance with all covenants and performance tests under this facility and had an aggregate principal amount of $46.8 million outstanding.
 
$100 Million Warehouse Facility
 
In October 2009, we entered into our $100 Million Warehouse Facility, which is maintained with an affiliate of Citigroup Global Markets Inc., an underwriter in this offering. The interest rate on this facility is based on LIBOR plus a margin of 3.50%, and its stated maturity date is January 2013.


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Our $100 Million Warehouse Facility requires us to comply with various customary operating covenants and specific covenants, including maintaining additional warehouse facilities, restrictions on the assignment of purchased loans, limits on transactions with affiliates and certain financial covenants, including maintaining a minimum tangible net worth of $150.0 million. As of December 31, 2011, we were in compliance with all covenants and performance tests under this facility and had an aggregate principal amount of $16.0 million outstanding.
 
$50 Million Warehouse Facility
 
In March 2011, we entered into our $50 Million Warehouse Facility, which is maintained with an affiliate of Barclays Capital Inc., an underwriter in this offering. The interest rate on this facility is based on LIBOR plus a spread of 1.45% to 3.95%, which varies based on the underlying transferred collateral, and its stated maturity date is March 2012. As of December 31, 2011, we were in compliance with all covenants and performance tests under this facility and the outstanding balance was $7.3 million.
 
ASAP+ Short-Term Financing Facility
 
In March 2009, we entered into our ASAP+ Short-Term Financing Facility. This facility is maintained with a GSE and currently has a total facility size of $200 million. The interest rate on this facility is based on LIBOR plus a margin of 1.50%, and the agreements executed pursuant to this facility typically have a maturity of up to 45 days.
 
Our ASAP+ Short-Term Financing Facility is used to finance our loan originations on a short-term basis. Pursuant to these agreements, we agree to transfer to the GSE certain mortgage loans against the transfer of funds by the GSE, with a simultaneous agreement by the counterparty to transfer the loans back to us at a date certain, or on demand by us, against the transfer of funds from us. As of December 31, 2011, we had an aggregate principal amount of $104.9 million outstanding.
 
Legacy Assets and Other
 
Legacy Asset Term-Funded Notes
 
In November 2009, we completed the securitization of mortgage assets and issued approximately $222.4 million of our Legacy Asset Term-Funded Notes. The interest rate is 7.50%, subject to an available funds cap. In conjunction with the securitization, we reclassified our legacy assets as “held for investment” on our consolidated balance sheet and recognize the Legacy Asset Term-Funded Notes as non-recourse debt. We pay the principal and interest on these notes using the cash flows from the underlying legacy assets, which serve as collateral for the debt. As of December 31, 2011, the aggregate UPB of the legacy assets that secure our Legacy Asset Term-Funded Notes was $373.1 million. Monthly cash flows generated from the legacy assets are used to service the debt, which has a final legal maturity of October 2039. As of December 31, 2011, our Legacy Asset Term-Funded Notes had a par amount and carrying value, net of financing costs and unamortized discount of $130.8 million and $112.5 million, respectively.
 
Variable Interest Entities
 
We have been the transferor in connection with a number of securitizations or asset-backed financing arrangements, from which we have continuing involvement with the underlying transferred financial assets. We aggregate these securitizations or asset-backed financing arrangements into two groups: (1) securitizations of residential mortgage loans and (2) transfers accounted for as secured borrowings.
 
On securitizations of residential mortgage loans, our continuing involvement typically includes acting as servicer for the mortgage loans held by the trust and holding beneficial interests in the trust. Our responsibilities as servicer include, among other things, collecting monthly payments, maintaining escrow


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accounts, providing periodic reports and managing insurance in exchange for a contractually specified servicing fee. The beneficial interests held consist of both subordinate and residual securities that were retained at the time of the securitization. Prior to January 1, 2010, each of these securitization trusts was considered a QSPE, and these trusts were excluded from our consolidated financial statements.
 
We also maintain various agreements with SPEs, under which we transfer mortgage loans and/or advances on residential mortgage loans in exchange for cash. These SPEs issue debt supported by collections on the transferred mortgage loans and/or advances. These transfers do not qualify for sale treatment because we continue to retain control over the transferred assets. As a result, we account for these transfers as financings and continue to carry the transferred assets and recognize the related liabilities on our consolidated balance sheets. Collections on the mortgage loans and/or advances pledged to the SPEs are used to repay principal and interest and to pay the expenses of the entity. The holders of these beneficial interests issued by these SPEs do not have recourse to us and can only look to the assets of the SPEs themselves for satisfaction of the debt.
 
Prior to January 1, 2010, we evaluated each SPE for classification as a QSPE. QSPEs were not consolidated in our consolidated financial statements. When a SPE was determined to not be a QSPE, we further evaluated it for classification as a VIE. When a SPE met the definition of a VIE, and when it was determined that we were the primary beneficiary, we included the SPE in our consolidated financial statements.
 
A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is the entity that, through its variable interests has both the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
 
Effective January 1, 2010, new accounting guidance eliminated the concept of a QSPE and all existing SPEs are now subject to new consolidation guidance. Upon adoption of this new accounting guidance, we identified certain securitization trusts where we, through our affiliates, continued to hold beneficial interests in these trusts. These retained beneficial interests obligate us to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant. In addition, we as master servicer on the related mortgage loans, retain the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE. When it is determined that we have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, the assets and liabilities of these VIEs are included in our consolidated financial statements. Upon consolidation of these VIEs, we derecognized all previously recognized beneficial interests obtained as part of the securitization, including any retained investment in debt securities, MSRs, and any remaining residual interests. In addition, we recognized the securitized mortgage loans as mortgage loans held for investment, subject to ABS nonrecourse debt, and the related asset-backed certificates (ABS nonrecourse debt) acquired by third parties as ABS nonrecourse debt on our consolidated balance sheet. The net effect of the accounting change on January 1, 2010 members’ equity was an $8.1 million charge to members’ equity.
 
As a result of market conditions and deteriorating credit performance on these consolidated VIEs, we expect minimal to no future cash flows on the economic residual. Under GAAP, we would be required to provide for additional allowances for loan losses on the securitization collateral as credit performance deteriorated, with no offsetting reduction in the securitization’s debt balances, even though any nonperformance of the assets will ultimately pass through as a reduction of amounts owed to the debt holders, once they are extinguished. Therefore, we would be required to record accounting losses beyond our economic exposure.


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To more accurately represent the future economic performance of the securitization collateral and related debt balances, we elected the fair value option provided for by ASC 825-10, Financial Instruments—Overall . This option was applied to all eligible items within the VIE, including mortgage loans held for investment, subject to ABS nonrecourse debt, and the related ABS nonrecourse debt.
 
Subsequent to this fair value election, we no longer record an allowance for loan loss on mortgage loans held for investment, subject to ABS nonrecourse debt. We continue to record interest income in our consolidated statement of operations on these fair value elected loans until they are placed on a nonaccrual status when they are 90 days or more past due. The fair value adjustment recorded for the mortgage loans held for investment is classified within fair value changes of ABS securitizations in our consolidated statement of operations.
 
Subsequent to the fair value election for ABS nonrecourse debt, we continue to record interest expense in our consolidated statement of operations on the fair value elected ABS nonrecourse debt. The fair value adjustment recorded for the ABS nonrecourse debt is classified within fair value changes of ABS securitizations in our consolidated statement of operations.
 
Under the existing pooling and servicing agreements of these securitization trusts, the principal and interest cash flows on the underlying securitized loans are used to service the asset-backed certificates. Accordingly, the timing of the principal payments on this nonrecourse debt is dependent on the payments received on the underlying mortgage loans and liquidation of REO.
 
We consolidate the SPEs created for the purpose of issuing debt supported by collections on loans and advances that have been transferred to it as VIEs, and we are the primary beneficiary of these VIEs. We consolidate the assets and liabilities of the VIEs onto our consolidated financial statements.
 
A summary of the assets and liabilities of our transactions with VIEs included in our consolidated financial statements as of December 31, 2011 is presented in the following table:
 
                         
   
December 31, 2011
 
          Transfers
       
          Accounted for
       
    Securitization
    as Secured
       
   
Trusts
   
Borrowings
   
Total
 
    (in thousands)  
 
Assets
Restricted cash
    $—       $22,316       $22,316  
Accounts receivable
          279,414       279,414  
Mortgage loans held for investment, subject to nonrecourse debt
          237,496       237,496  
Mortgage loans held for investment, subject to ABS nonrecourse debt
                 
Real estate owned
          3,668       3,668  
                         
Total Assets
    $—       $542,894       $542,894  
                         
 
Liabilities
Notes payable
    $—       $244,574       $244,574  
Payables and accrued liabilities
          977       977  
Outstanding servicer advances
                 
Derivative financial instruments, subject to ABS nonrecourse debt
          112,490       112,490  
Nonrecourse debt—Legacy Assets
                 
ABS nonrecourse debt
                 
                         
Total Liabilities
    $—       $358,041       $358,041  
                         


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On December 23, 2011, we sold our remaining variable interest in a securitization trust that has been a consolidated VIE since January 1, 2010. In accordance with ASC 810, Consolidation, we evaluated this securitization trust and determined that we no longer have both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE and this securitization trust was derecognized as of December 23, 2011. Upon derecognition of this VIE, we derecognized the securitized mortgage loans held for investment, subject to ABS nonrecourse debt, the related ABS nonrecourse debt, as well as certain other assets and liabilities of the securitization trust, and recognized any MSRs on the consolidated balance sheet. Any impact of this derecognition on our consolidated statement of operations was recognized in 2011.
 
Off Balance Sheet Arrangements
 
A summary of the outstanding collateral and certificate balances for securitization trusts, including any retained beneficial interests and MSRs, that were not consolidated by us for the periods indicated are presented in the following table.
 
                         
   
December 31,
       
   
2011 (1)
    2010        
    (in thousands)  
 
Total collateral balances
    $4,579,142       $4,038,978          
Total certificate balances
    4,582,598       4,026,844          
Total MSRs at fair value
    28,635       26,419          
 
 
(1) Unconsolidated securitization trusts consist of VIE’s where we have neither the power to direct the activities that most significantly impact the VIE’s economic performance or the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.
 
Derivatives
 
We enter into IRLCs with prospective borrowers. These commitments are carried at fair value in accordance with ASC 815, Derivatives and Hedging . ASC 815 clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The estimated fair values of IRLCs are based on quoted market values and are recorded in other assets in the consolidated balance sheets. The initial and subsequent changes in the value of IRLCs are a component of gain (loss) on mortgage loans held for sale.
 
We actively manage the risk profiles of our IRLCs and mortgage loans held for sale on a daily basis. To manage the price risk associated with IRLCs, we enter into forward sales of MBS in an amount equal to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, we enter into forward sales of MBS to deliver mortgage loan inventory to investors. The estimated fair values of forward sales of MBS and forward sale commitments are based on quoted market values and are recorded as a component of other assets and mortgage loans held for sale, respectively, in the consolidated balance sheets. The initial and subsequent changes in value on forward sales of MBS and forward sale commitments are a component of gain (loss) on mortgage loans held for sale.
 
Periodically, we enter into interest rate swap agreements to hedge the interest payment on the warehouse debt and securitization of our mortgage loans held for sale. These interest rate swap agreements generally require us to pay a fixed interest rate and receive a variable interest rate based on LIBOR. Unless designated as an accounting hedge, we record losses on interest rate swaps as a component of gain/(loss) on interest rate swaps and caps in our consolidated statements of operations. Unrealized losses on undesignated


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interest rate derivatives are separately disclosed under operating activities in the consolidated statements of cash flows.
 
On October 1, 2010, we designated an existing interest rate swap as a cash flow hedge against outstanding floating rate financing associated with the Nationstar Mortgage Advance Receivables Trust 2009-ABS Advance Financing Facility financing. This interest rate swap was a cash flow hedge under ASC 815 and was recorded at fair value on our consolidated balance sheet, with any changes in fair value being recorded as an adjustment to other comprehensive income. To qualify as a cash flow hedge, the hedge must be highly effective at reducing the risk associated with the exposure being hedged and must be formally designated at hedge inception. We consider a hedge to be highly effective if the change in fair value of the derivative hedging instrument is within 80% to 125% of the opposite change in the fair value of the hedged item attributable to the hedged risk. Ineffective portions of the cash flow hedge are reflected in earnings as they occur as a component of interest expense. In conjunction with the October 2011 amendment to the 2010-ABS Advance Financing Facility, we paid off our 2009-ABS Advance Financing Facility and transferred the related collateral to the 2010-ABS Advance Financing Facility. Concurrently with the repayment of 2009-ABS Advance Financing Facility we de-designated the underlying interest rate swap on the 2009-ABS Advance Financing Facility. The interest rate swap associated with the 2010-ABS Advance Financing Facility served as an economic hedge for the remainder of 2011.


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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to a variety of market risks which include interest rate risk, consumer credit risk and counterparty credit risk.
 
Interest Rate Risk
 
Changes in interest rates affect our operations primarily as follows:
 
Servicing Segment
 
  •     an increase in interest rates would increase our costs of servicing our outstanding debt, including our ability to finance servicing advances;
 
  •     a decrease (increase) in interest rates would generally increase (decrease) prepayment rates and may require us to report a decrease (increase) in the value of our MSRs;
 
  •     a change in prevailing interest rates could impact our earnings from our custodial deposit accounts; and
 
  •     an increase in interest rates could generate an increase in delinquency, default and foreclosure rates resulting in an increase in both operating expenses and interest expense and could cause a reduction in the value of our assets.
 
Originations Segment
 
  •     a substantial and sustained increase in prevailing interest rates could adversely affect our loan originations volume because refinancing an existing loan would be less attractive and qualifying for a loan may be more difficult; and
 
  •     an increase in interest rates would increase our costs of servicing our outstanding debt, including our ability to finance loan originations;
 
We actively manage the risk profiles of IRLCs and mortgage loans held for sale on a daily basis and enter into forward sales of MBS in an amount equal to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, we enter into forward sales of MBS to deliver mortgage loan inventory to investors.
 
Consumer Credit Risk
 
We sell our loans on a non-recourse basis. We also provide representations and warranties to purchasers and insurers of the loans sold that typically are in place for the life of the loan. In the event of a breach of these representations and warranties, we may be required to repurchase a mortgage loan or indemnify the purchaser, and any subsequent loss on the mortgage loan may be borne by us. If there is no breach of a representation and warranty provision, we have no obligation to repurchase the loan or indemnify the investor against loss. The outstanding UPB of loans sold by us represents the maximum potential exposure related to representation and warranty provisions.
 
We maintain a reserve for losses on loans repurchased or indemnified as a result of breaches of representations and warranties on our sold loans. Our estimate is based on our most recent data regarding loan repurchases and indemnity payments, actual credit losses on repurchased loans, recovery history, among other factors. Our assumptions are affected by factors both internal and external in nature. Internal factors include, among other things, level of loan sales, as well as to whom the loans are sold, the expectation of credit loss on


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repurchases and indemnifications, our success rate at appealing repurchase demands and our ability to recover any losses from third parties. External factors that may affect our estimate includes, among other things, the overall economic condition in the housing market, the economic condition of borrowers, the political environment at investor agencies and the overall U.S. and world economy. Many of the factors are beyond our control and may lead to judgments that are susceptible to change.
 
Counterparty Credit Risk
 
We are exposed to counterparty credit risk in the event of non-performance by counterparties to various agreements. We monitor the credit ratings of our counterparties and do not anticipate losses due to counterparty non-performance.
 
Sensitivity Analysis
 
We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential impact on fair values based on hypothetical changes (increases and decreases) in interest rates.
 
We use a duration-based model in determining the impact of interest rate shifts on our loan portfolio, certain other interest-bearing liabilities measured at fair value and interest rate derivatives portfolios. The primary assumption used in these models is that an increase or decrease in the benchmark interest rate produces a parallel shift in the yield curve across all maturities.
 
We utilize a discounted cash flow analysis to determine the fair value of MSRs and the impact of parallel interest rate shifts on MSRs. The primary assumptions in this model are prepayment speeds, market discount rates and cost to service. However, this analysis ignores the impact of interest rate changes on certain material variables, such as the benefit or detriment on the value of future loan originations, non-parallel shifts in the spread relationships between MBS, swaps and U.S. Treasury rates and changes in primary and secondary mortgage market spreads. For mortgage loans, IRLCs and forward delivery commitments on MBS, we rely on a model in determining the impact of interest rate shifts. In addition, for IRLCs, the borrower’s propensity to close their mortgage loans under the commitment is used as a primary assumption.
 
Our total market risk is influenced by a wide variety of factors including market volatility and the liquidity of the markets. There are certain limitations inherent in the sensitivity analysis presented, including the necessity to conduct the analysis based on a single point in time and the inability to include the complex market reactions that normally would arise from the market shifts modeled.
 
We used December 31, 2011 market rates on our instruments to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in fair value may not be linear.


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The following table summarizes the estimated change in the fair value of our assets and liabilities sensitive to interest rates as of December 31, 2011 given hypothetical instantaneous parallel shifts in the yield curve:
 
                 
   
Change in Fair Value
 
    Down
    Up
 
   
25 bps
   
25 bps
 
    (in thousands)  
 
Increase (decrease) in assets
               
Mortgage loans held for sale
    $3,442       $(4,213)  
Mortgage servicing rights
    (5,512)       6,202  
Other assets (derivatives)
               
IRLCs
    1,584       (2,592)  
                 
Total change in assets
    (486)       (603)  
Increase (decrease) in liabilities
               
Derivative financial instruments
               
Interest rate swaps and caps
    1,562       (942)  
Forward MBS trades
    5,416       (6,669)  
Excess spread financing
    (253)       330  
                 
Total change in liabilities
    6,725       (7,281)  
                 
Total, net change
    $(7,211)       $6,678  
                 


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GLOSSARY OF INDUSTRY AND OTHER TERMS
 
Adjustable Rate Mortgage.   A mortgage loan where the interest rate on the loan adjusts periodically based on a specified index and margin agreed to at the time the loan is originated.
 
Agency and Government Conforming Loan.   A mortgage loan that meets all requirements (loan type, maximum amount, LTV ratio and credit quality) for purchase by Fannie Mae, Freddie Mac or FHA (as defined below).
 
Basic Servicing Fee.   The servicing fee paid in an excess MSR arrangement to a servicer in exchange for the provision of servicing functions on a portfolio of mortgage loans, after which the servicer and the co-investment partner share the excess fees on a pro rata basis.
 
Compensating Interest.   Money paid to the owner of a mortgage loan or pool of mortgage loans on a monthly basis (typically by the servicer from its own funds) to compensate the owner of the mortgage loan for interest shortfalls caused by intra-month prepayments.
 
Consumer Direct Retail Originations.   A type of mortgage loan origination pursuant to which a lender markets refinancing and purchase money mortgage loans directly to selected consumers through telephone call centers or the Internet.
 
Conventional Mortgage Loans.   A mortgage loan that is not guaranteed or insured by the FHA, the VA (as defined below) or any other government agency. Although a conventional loan is not insured or guaranteed by the government, it can still follow the guidelines of GSEs (as defined below).
 
Corporate Advance.   A servicing advance to pay costs and expenses incurred in foreclosing upon, preserving and selling REO, including attorneys’ and other professional fees and expenses incurred in connection with foreclosure and liquidation or other legal proceedings arising in the course of servicing the mortgage loans.
 
Credit-Sensitive Loan.   A mortgage loan with certain characteristics such as low borrower credit quality, relaxed original underwriting standards and high LTV, which we believe indicates that the mortgage loan presents an elevated credit risk.
 
Delinquent Loan.   A mortgage loan that is 30 or more days past due from its scheduled due date.
 
Department of Veterans Affairs (“VA”).   The VA is a cabinet-level department of the U.S. federal government, which guarantees certain home loans for qualified borrowers.
 
Distributed Retail Originations.   A type of mortgage loan origination pursuant to which a lender markets primarily purchase money mortgage loans directly to consumers from local branches.
 
Excess Fees.   In an excess MSR arrangement, the servicing fee cash flows on a portfolio of mortgage loans after payment of the basic servicing fee.
 
Excess MSRs.   MSRs with a co-investment partner pursuant to which the servicer receives a basic servicing fee and the servicer and co-investment partner share the excess fees. This co-investment strategy reduces the required upfront capital from the servicer.
 
Fannie Mae.   The Federal National Mortgage Association, a federally chartered association that buys mortgage loans from lenders and resells them as securities in the secondary mortgage market.


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Federal Housing Administration (“FHA”).   The FHA is a U.S. federal government agency within the Department of Housing and Urban Development (“HUD”). It provides mortgage insurance on loans made by FHA-approved lenders in compliance with FHA guidelines throughout the United States.
 
Float Income.   Interest income earned by a servicer on (i) funds collected from borrowers during the period of time between receipt of the funds and the remittance of the funds to investors and (ii) funds collected from borrowers for the payment of taxes and insurance, where applicable.
 
Freddie Mac.   The Federal Home Loan Mortgage Corporation, a federally chartered corporation that buys mortgage loans from lenders and resells them as securities in the secondary mortgage market.
 
Ginnie Mae.   The Government National Mortgage Association, a wholly-owned U.S. federal government corporation that is an agency of the Department of Housing and Urban Development. The main focus of Ginnie Mae is to ensure liquidity for U.S. federal government-insured mortgages including those insured by the FHA. Ginnie Mae guarantees to investors who purchase MBS the timely payment of principal and interest. Ginnie Mae securities are the only MBS to carry the full faith and credit guarantee of the U.S. federal government.
 
Government-Sponsored Enterprise (“GSE”).   Financing corporations established by the U.S. Congress, including Fannie Mae, Freddie Mac and the Federal Home Loan Banks.
 
High Touch Servicing.   A servicing model that is designed to increase borrower repayment performance with a view towards home ownership preservation and to decrease borrower delinquencies and defaults on mortgage portfolios. This model emphasizes a focus on loss mitigation and frequent interactions with borrowers—via telephone, mail, electronic communications and other personal contact methods.
 
Home Affordable Modification Program (“HAMP”).   A U.S. federal government program designed to help eligible homeowners avoid foreclosure through mortgage loan modifications. Participating servicers may be entitled to receive financial incentives in connection with loan modifications they enter into with eligible borrowers and subsequent success fees to the extent that a borrower remains current in any agreed upon loan modification.
 
Home Affordable Refinance Program (“HARP”).   A U.S. federal government program designed to help eligible homeowners refinance their existing mortgage loans. The mortgage must be owned or guaranteed by a GSE, and applicants must be up-to-date on their mortgage payments but unable to obtain refinancing because the value of their homes has declined.
 
Independent Loan Servicer.   A loan servicer that is not affiliated with a depository institution.
 
Loan Modification.   Temporary or permanent modifications, including re-modifications, to the terms and conditions of a borrower’s original mortgage loan. Loan modifications are usually made to loans that are in default, or in imminent danger of defaulting.
 
Loan-to-Value Ratio (“LTV”).   The UPB of a mortgage loan as a percentage of the total appraised value of the property that secures the loan. LTV is one of the key risk factors that originators assess when qualifying borrowers for a mortgage loan. A loan with a low LTV is seen as less of a credit risk than a loan with a high LTV. An LTV over 100% indicates that the UPB of the mortgage loan exceeds the value of the property.
 
Loss Mitigation.   The range of servicing activities designed by a servicer to minimize the losses suffered by the owner of a mortgage loan in connection with a borrower default. Loss mitigation techniques include short-sales, deed-in-lieu of foreclosures and loan modifications, among other options.


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Making Home Affordable Plan (“MHA”).   Also known as the President of the United States’ Homeowner Affordability and Stability Plan. A U.S. federal government program designed to help eligible homeowners avoid foreclosure and keep their homes by refinancing their existing mortgages. MHA loans are available to eligible homeowners with LTVs ratios of up to 125%.
 
Mortgage Servicing Right (“MSR”).   The right to service a loan or pool of loans and to receive a servicing fee. MSRs may be bought and sold, resulting in the transfer of loan servicing obligations.
 
Non-Conforming Mortgage Loan.   A mortgage loan that does not meet the standards of eligibility for purchase or securitization by Fannie Mae, Freddie Mac or Ginnie Mae.
 
Non-Recoverable Advance.   A servicing advance made by a servicer, which will not ultimately be recoverable by the servicer from funds received upon liquidation of the underlying property of the mortgage loan.
 
Originations.   The process through which a lender provides a mortgage loan to a borrower.
 
P&I Advance.   A servicing advance to cover scheduled payments of principal and interest that have not been timely paid by borrowers. P&I Advances serve to ensure the cash flows paid to holders of securities issued by the residential MBS trust.
 
Prepayment Speed.   The rate at which mortgage prepayments occur or are projected to occur. The statistic is calculated on an annualized basis and expressed as a percentage of the outstanding principal balance.
 
Primary Servicer.   The servicer that owns the right to service a mortgage loan or pool of mortgage loans. This differs from a subservicer, which has a contractual right with the primary servicer to service a mortgage loan or pool of mortgage loans in exchange for a subservicing fee.
 
Prime Mortgage Loan.   Generally, a high-quality mortgage loan that meets the underwriting standards set by Fannie Mae, Freddie Mac and Ginnie Mae and is eligible for purchase or securitization in the secondary mortgage market. Conventional mortgage loans generally have lower default risk and are made to borrowers with good credit records and a monthly income at least three to four times greater than their monthly housing expenses (mortgage payments plus taxes and other debt payments). Mortgages not classified as conventional mortgages are generally called either jumbo prime, non-prime or Alt-A.
 
Real Estate Owned (“REO”).   Property acquired by the servicer on behalf of the owner of a mortgage loan or pool of mortgage loans, usually through foreclosure or a deed-in-lieu of foreclosure on a defaulted loan. The servicer or a third party real estate management firm is responsible for selling the REO. Net proceeds of the sale are returned to the owner of the related loan or loans. In most cases, the sale of REO does not generate enough to pay off the balance of the loan underlying the REO, causing a loss to the owner of the related mortgage loan.
 
Recapture Rate.   For refinance eligible portfolios, the ratio of the UPB of loans re-originated to the UPB of the loans voluntarily paid off by the borrowers over a defined measurement period. The present calculation of the denominator includes borrowers who may have paid off their mortgage by any means including selling their house.
 
Re-origination.   The process of actively working with existing borrowers to refinance their mortgage loans. By re-originating loans for existing borrowers, we retain the servicing rights, thereby extending the longevity of the servicing cash flows.
 
Residential Mortgage-Backed Security (“RMBS”).   A fixed income security backed by pools of residential mortgages.


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Servicing.   The performance of contractually specified administrative functions with respect to a mortgage loan or pool of mortgage loans. Duties of a servicer typically include, among other things, collecting monthly payments, maintaining escrow accounts, providing periodic reports and managing insurance. A servicer is generally compensated with a specific fee outlined in the contract established prior to the commencement of the servicing activities.
 
Servicing Advance.   In the course of servicing loans, servicers are required to make servicing advances that are reimbursable from collections on the related mortgage loan. There are typically three types of servicing advances: P&I Advances, T&I Advances and Corporate Advances. Servicing advances are reimbursed to the servicer if and when the borrower makes a payment on the underlying mortgage loan or upon liquidation of the underlying mortgage loan. The types of servicing advances that a servicer must make are set forth in its servicing agreement with the owner of the mortgage loan or pool of mortgage loans.
 
Servicing Advance Facility.   A secured financing facility backed by a pool of mortgage servicing advance receivables made by a servicer to the owner of a mortgage loan or pool of mortgage loans.
 
Special Servicers.   Special servicers are responsible for enhancing recoveries on delinquent loans and REO assets. Loans are transferred to a special servicer based on predetermined delinquency or other performance measures.
 
Subservicing.   Subservicing is the process of outsourcing the duties of the primary servicer to a third party servicer. The third party servicer performs the servicing responsibilities for a fee and is typically not responsible for making servicing advances.
 
T&I Advance.   A servicing advance to pay specified expenses associated with the preservation of a mortgaged property or the liquidation of defaulted mortgage loans, including but not limited to property taxes, insurance premiums or other property-related expenses that have not been timely paid by borrowers in order for the lien holder to maintain their interest in the property.
 
Unpaid Principal Balance (“UPB”).   The amount of principal outstanding on a mortgage loan or a pool of mortgage loans. UPB is used as a means of estimating the future revenue stream for a servicer.
 
Warehouse Facility.   A type of facility used to finance mortgage loan originations. Pursuant to a warehouse facility, a loan originator typically agrees to transfer to a counterparty certain mortgage loans against the transfer of funds by the counterparty, with a simultaneous agreement by the counterparty to transfer the loans back to the originator at a date certain, or on demand, against the transfer of funds from the originator.
 
Wholesale Originations.   A type of mortgage loan origination pursuant to which a lender acquires refinancing and purchase money mortgage loans from third party mortgage brokers or correspondent lenders.


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INDUSTRY
 
We conduct our business in the residential mortgage industry in the United States. We participate in two distinct, but related, sectors of the mortgage industry: residential mortgage loan servicing, which includes primary servicing and subservicing, and residential mortgage loan originations.
 
Servicing Industry Overview
 
According to Inside Mortgage Finance, there were approximately $10.3 trillion in residential mortgage loans outstanding in the United States as of December 31, 2011. Each mortgage loan must be serviced by a loan servicer. Primary servicers, which are loan servicers that own the MSRs they service, generally earn a contractual per loan fee of 25 to 50 basis points per annum on the UPB of loans serviced, as well as incentive fees and associated ancillary fees, such as late fees. Subservicers, which are loan servicers that service loans on behalf of other MSR or mortgage owners, generally receive a contractual per loan fee the equivalent of between 5 to 45 basis points per annum on the UPB of loans serviced. Consequently, a loan servicer can create value for both itself and the mortgage owner and, in the case of a subservicing arrangement, for the owner of the MSRs, by increasing the number of borrowers that remain current in their repayment obligations. Owners may include a lender, third party investor or, in the case of a securitized pool of mortgages, a residential MBS trust.
 
Loan servicing, including primary servicing and subservicing, predominantly involves the calculation, collection and remittance of principal and interest payments, the administration of mortgage escrow accounts, the collection of insurance claims, the administration of foreclosure procedures, the management of REO and the disbursement of required advances.
 
In a weak economic and credit environment with elevated delinquencies and defaults, servicing is operationally more challenging and more capital intensive as servicers need to add and train staff to manage the increase in delinquent borrowers. In addition, servicers are generally required to make advances on delinquent mortgage loans for principal and interest payments, taxes, insurance, legal fees and property maintenance fees, all of which are typically recovered upon foreclosure or liquidation. According to CoreLogic, completed foreclosures reached 830,000 in 2011. Furthermore, Fannie Mae estimates that as of December 31, 2010 and September 30, 2011, it had $764 billion and $724 billion of assets, respectively, within its own portfolio with characteristics that we believe make them credit-sensitive.
 
Mortgage Servicing Functions
 
Loan servicers play a key role in the residential mortgage market by providing loan servicing functions on behalf of MSR or mortgage owners, including collecting and remitting monthly loan principal and interest payments, taxes and insurance, performing customer service functions and taking active steps to minimize any potential losses associated with borrower delinquencies and defaults.
 
Primary Servicing
 
Typically, a primary servicer is contractually obligated to service a mortgage loan in accordance with accepted servicing industry practices as well as applicable regulations and statutes. A primary servicer’s rights and obligations are governed by the pooling and servicing agreement for the underlying loans.
 
To the extent a borrower does not make a payment, primary servicers are generally required to make advances of principal and interest, taxes, insurance and legal fees until such time as the underlying property is liquidated or the servicer determines that additional advances will not be recoverable from future payments, proceeds or other collections on the mortgage loan. In the event of a foreclosure, primary servicers are entitled to reimbursement of advances from the sale proceeds of the related property, and, if these advances are non-recoverable, from collections on other mortgage loans in the related mortgage pool.


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Collection efforts attempt to maximize early contact with late or newly delinquent borrowers, with more focused attention on borrowers of lower credit quality. In addition, primary servicers are responsible for closely managing their collection calls and letter campaigns which are tailored to specific loan products.
 
Subservicing
 
A subservicer’s rights and obligations are governed by the subservicing agreement with the third party that owns the related MSRs.
 
As a result of more timely reimbursement of advances, subservicing is distinct from, and generally requires much less capital than, primary servicing. Subservicers typically are only required to make advances on an intra-month basis. Like primary servicers, in the event of a foreclosure, subservicers are entitled to reimbursement of monthly advances from the sale proceeds of the related property or, if these advances are non-recoverable, from collections on co-pooled mortgage loans. Additionally, subservicers are typically entitled to direct monthly reimbursement from the owner of the MSRs of any shortfall between the aggregate amount advanced by the subservicer and the aggregate amount of reimbursement from the sale proceeds of related property or from the collections on co-pooled mortgage loans.
 
As with primary servicers, subservicers attempt to maximize early contact with late or newly delinquent borrowers and must closely manage their product-tailored collection calls and letter campaigns.
 
Loan Servicing Landscape
 
The Traditional Bank Servicing Model
 
The majority of loan servicing in the United States is performed by the nation’s money center banks such as Bank of America, Wells Fargo, JPMorgan Chase and Citigroup, which together serviced over 50% of all outstanding mortgage loans on one-to-four-family residences as of December 31, 2011. These traditional bank servicers primarily service conventional, performing mortgages and are most effective at routine account management of portfolios with low delinquencies that require limited interaction with the borrowers, or so-called front-end activities.
 
The traditional bank servicer model, which was developed to process simple payments and to minimize costs, functioned well in environments characterized by low delinquencies and defaults, and is best described as “traditional servicing.” In the current environment of elevated delinquencies, foreclosures, liquidation proceedings and REO activity, however, traditional servicers are experiencing higher operating costs, and their performance metrics are declining. According to Calculated Risk, from 2007 through 2010, approximately 3.4 million homes were lost to foreclosure. In addition, based on information from the Mortgage Bankers Association, as of December 31, 2011, approximately 7.7% of mortgages in the United States were in the process of foreclosure or were 90 or more days delinquent, representing approximately 3.7 to 3.9 million mortgages.
 
At the same time, banks are currently under tremendous pressure to exit or reduce their exposure to the servicing business as a result of increased regulatory scrutiny and capital requirements, headline risk associated with sizeable legal settlements and potentially significant earnings volatility.
 
The High Touch Servicing Model
 
In contrast to the traditional bank servicer model, the high touch servicer model emphasizes increased borrower contact in an effort to improve loan performance and reduce loan defaults and foreclosures, thereby minimizing credit losses and maximizing cash flows, or so-called back-end activities. In addition to more normalized environments, the high touch servicing model functions well in environments characterized by elevated delinquencies, foreclosures, liquidation proceedings and REO activity. We believe there is a very


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limited number of servicers such as us that are able to operate both front- and back-end activities effectively in a variety of market environments. Finally, we believe current market opportunities favor and are greatest for servicers of this nature, as compared to traditional, bank-owned servicers.
 
Servicer Compensation
 
Loan servicers earn servicing fees through their MSRs and subservicing contracts, as the case may be, and these fees represent the largest source of revenue from loan servicing operations.
 
Primary Servicer Compensation
 
By purchasing MSRs, primary servicers generally receive a contractual per loan servicing fee of 25 to 50 basis points per annum on the UPB of the loans serviced. The servicing fees are typically supplemented by incentive fees and ancillary fees. Incentive fees include modification initiation and success fees from the HAMP program and modification or collateral workout related incentives from various pool owners and GSEs. Ancillary fees include late fees, non-sufficient funds fees, convenience fees and interest income earned on loan payments that have been collected but have not yet been remitted to the owner of the mortgage loan.
 
Primary servicers have additional opportunities to provide value-added services to the owners of the loans they service. These value-added adjacent services include providing services for delinquent loans, managing loans in the foreclosure/REO process and providing title insurance agency, loan settlement and valuation services on newly originated and re-originated loans.
 
Subservicer Compensation
 
Under subservicing arrangements, where loan servicers do not pay to acquire MSRs and only have intra-month advancing obligations, the subservicers generally receive a contractual per loan servicing fee the equivalent of between 5 to 45 basis points per annum on the UPB of the loans serviced. As with primary servicers, subservicers typically supplement their subservicing fees through incentive and ancillary fees as well as the provision of adjacent services.
 
Advances
 
In the course of servicing delinquent loans, servicers are required to make advances that are reimbursable from collections on the related mortgage loan, or in the event of a non-recoverable advance, from collections on other mortgage loans in the related mortgage pool.
 
There are generally three types of advances: P&I Advances, T&I Advances and Corporate Advances.
 
P&I Advances:   Advances to cover scheduled payments of principal and interest that have not been timely paid by borrowers. P&I Advances serve to smooth the cash flows paid to holders of securities issued by the residential MBS trust.
 
T&I Advances:   Advances to pay specified expenses associated with the preservation of a mortgaged property or the liquidation of defaulted mortgage loans, including, but not limited to, property taxes, insurance premiums or other property-related expenses that have not been timely paid by borrowers.
 
Corporate Advances:   Advances to pay costs and expenses incurred in loan foreclosure and REO preservation and sale, including attorneys’ and other professional fees and expenses incurred in connection with foreclosure and liquidation or other legal proceedings arising in the course of servicing mortgage loans.


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A servicer may decide to stop making P&I Advances prior to liquidation of the mortgage loan if the servicer deems future P&I Advances to be non-recoverable. In this circumstance, T&I Advances and Corporate Advances will likely continue in order to preserve existing value of the mortgage loan and complete the foreclosure and REO sale process.
 
Servicers of GSE securities are reimbursed by the GSE for their advances upon completion of the foreclosure sale at which point the mortgage loan is repurchased out of the MBS trust by the GSE. Servicers of GSE securities are not responsible for managing REO. Conversely, servicers of non-agency MBS are obligated under the servicing agreement to make advances through liquidation of the related REO.
 
Advances are non-interest bearing assets. Non-bank servicers typically utilize securitizations or match funded liabilities to finance their advances. The securitizations are generally non-recourse to the servicer, and the advances are financed at a discount to par accounting for the non-interest bearing nature of the asset. Advance rates for securitizations generally range between 70% to 85% depending upon the rating and structure.
 
In the course of servicing reverse mortgages, servicers are also required to make advances (i) to the borrowers under the mortgage documents; (ii) for property taxes, insurance, field visits, property inspections, legal fees, appraisals, broker price opinions and securing and maintaining the mortgaged property in the event of a foreclosure and subsequent sale; and (iii) of mortgage insurance premiums to HUD. Advances on reverse mortgages are typically greater than advances on forward residential mortgages.
 
Unlike traditional mortgage borrowers, reverse mortgage borrowers are not required to remit monthly payments of principal and interest to amortize loans or reimburse advances. Borrowers repay advances (with the exception of advances for payment of taxes or insurance) at their discretion. Some borrowers choose to pay down previous advances, but most never make monthly payments. Instead, these advances are reimbursed by the owner of the reverse mortgage securities to the servicer on a weekly or monthly basis or from sale in the market. Servicers are generally responsible for accurately adjusting the interest rates charged for advances made to borrowers.
 
Industry Dynamics
 
We believe a number of factors associated with the dislocation in the mortgage industry have led to a supply and demand imbalance in the residential mortgage servicing market, creating a market opportunity for high touch servicers. These factors include:
 
Elevated delinquencies, defaults, foreclosures and REO
 
According to CoreLogic, completed foreclosures have increased from 514,000 in 2007 to 830,000 in 2011. The Mortgage Bankers Association forecasts that delinquent loans and loans in foreclosure peaked in early 2010 but will stay elevated for quite some time. Moody’s Analytics projects that home prices will not begin to recover until 2013. In a period of elevated mortgage delinquencies and defaults, servicing becomes operationally more challenging as servicers need to dedicate more resources to manage the higher volume of delinquent borrowers. In the current environment of elevated delinquencies, foreclosures, liquidation proceedings and REO activity, we believe traditional bank servicers will continue to recognize the importance of high touch servicing characterized by a strong emphasis on superior asset performance and loss mitigation expertise, and seek to partner with servicers that they believe can be more effective at minimizing credit losses and maximizing loan performance.
 


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BAR CHART
 
Source: Mortgage Bankers Association, HOPE NOW, CoreLogic, Calculated Risk
 
Regulatory and legislative factors
 
We believe banks are currently under tremendous pressure to exit or reduce their exposure to the mortgage servicing business as a result of increased regulatory scrutiny and capital requirements, headline risk associated with sizeable legal settlements and potentially significant earnings volatility. As a result of the severe dislocation in the U.S. housing market and the related fallout, regulatory and legislative attention on the mortgage industry has increased. Numerous legislative and regulatory actions have been proposed, and we believe the following factors will continue to increase compliance costs for the largest servicers and cause many of them to exit or reduce their exposure to the mortgage servicing business.
 
           
Increased Capital Requirements
      Pending Basel III standards impose material capital charges for banks holding mortgage servicing assets
           
         
Earnings Volatility
      QRM provision in the Dodd-Frank Act requires banks to retain risk on balance sheet
        Mark-to-market exposure creates earnings volatility
        Difficult to hedge variability
           
         
“Demonization” of Banking System
      Signed consent orders with the OCC, the Federal Reserve and the FDIC
        Settlement with federal and state agencies
        Negotiations with state Attorneys General
           
         
           
Regulatory Scrutiny & Headline Risk
      Mortgage settlements with RMBS holders
        “Robo-signing” headlines
        Robust loan put-back from GSEs
        Servicing requirements regarding delinquent mortgages

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        Modification of servicing compensation related to Fannie Mae and Freddie Mac loans
        New regulations from the recently formed CFPB
        Additional litigation brought by Attorneys General of non-participating states
 
Additionally, we believe there is a limited number of non-bank servicers such as us who are positioned to capitalize upon these opportunities and provide a high level of service. We believe these factors will continue to drive a separation within the servicing market between front-end and back-end servicing compensation.
 
Reform of GSEs
 
On September 7, 2008, FHFA placed Fannie Mae and Freddie Mac into conservatorship and, together with the U.S. Treasury, established a program designed to boost investor confidence in their respective debt and MBS. The U.S. government has expressed interest in reforming and significantly reducing the participation of the GSEs in the residential mortgage market. As a result of their conservatorship and the anticipation of their eventual reduced participation in the residential mortgage market, we believe the GSEs will continue to facilitate servicing transfers to strong, proven servicers with a track record of improving asset performance and mitigating credit losses. We expect these transfers to accelerate as market forces continue to erode portfolio performance. Due to our history of strong asset performance and our long-standing relationships with the GSEs, we believe we are among a very limited number of servicers positioned to acquire additional GSE-controlled servicing.
 
In addition to the market opportunities that we have identified and we believe will continue to present themselves, numerous government programs and initiatives continue to provide advantages for servicers with loss mitigation expertise. We expect servicers that are flexible and adept at implementing government hardship assistance programs will be rewarded with higher incentive fees and more servicing transfers from the GSEs. In contrast, we expect that, as a part of a recent FHFA initiative, servicers not meeting certain performance benchmarks will be penalized with compensatory fees and potential servicing revocations. We believe these trends favor servicers such as us that have a track record of improving asset performance on the loans they service.
 
Opportunities under HAMP
 
In response to the rising level of foreclosures, in February 2009, the U.S. Treasury announced the implementation of HAMP designed to keep borrowers in their homes. HAMP is currently scheduled to expire on December 31, 2013. HAMP provides financial incentives to loan servicers and borrowers to successfully modify qualifying residential mortgages. Under the program, servicers receive an up-front fee of $1,000 for each completed modification and an additional $500 if the loan is current, but are at risk of imminent default while the borrower is in the HAMP trial period, typically a three-month period in which no foreclosure sales can occur and the borrower’s ability to meet the modified loan’s terms and conditions is gauged. Servicers also receive success fees of as much as $1,000 each year for up to three years, which accrue monthly and are paid annually on the anniversary of the month in which the trial period plan was executed. The annual incentives are predicated on the borrower remaining in good standing, meaning that the borrower must not be more than two months delinquent at any time during the year.
 
Originations Industry Overview
 
According to Inside Mortgage Finance, total residential mortgage originations in the United States were $1.35 trillion in 2011, a decrease of 17.2% compared to 2010. Of the 2011 originations, approximately 90% were conforming mortgages guaranteed by GSEs, including Fannie Mae and Freddie Mac, or government

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agencies such as the FHA and the VA. From 2006 to December 31, 2011, the annual aggregate principal balance of newly originated mortgage loans that were either insured or guaranteed by government agencies or sold to GSEs or into government securitizations remained relatively flat at $1.2 trillion.
 
The U.S. residential mortgage market consists of a primary mortgage market that links borrowers and lenders and a secondary mortgage market that links lenders and investors. In the primary mortgage market, residential mortgage lenders such as mortgage banking companies, commercial banks, savings institutions, credit unions and other financial institutions originate or provide mortgages to borrowers. Lenders obtain liquidity for originations in a variety of ways, including by selling mortgages or mortgage-related securities into the secondary mortgage market. Banks that originate mortgage loans also have access to customer deposits to fund their originations business. The secondary mortgage market consists of institutions engaged in buying and selling mortgages in the form of whole loans, which represent mortgages that have not been securitized, and mortgage-related securities. The GSEs and a government agency, Ginnie Mae, participate in the secondary mortgage market by purchasing mortgage loans and mortgage-related securities for investment and by issuing guaranteed mortgage-related securities.
 
Loan Originations Process
 
Residential mortgage loans are generally originated through either a direct retail lending channel or a wholesale mortgage brokerage network.
 
A direct retail lending channel consists of a centralized retail platform and/or distributed retail branches. A centralized retail platform is a telephone based platform with multiple loan officers in one location. Typical loan originations channels for a direct retail lending network include realtors, homebuilders, credit unions, banks, the Internet and refinances from existing servicing portfolios. In a direct lending retail network, the lender controls all loan originations processes, including sourcing the borrower, taking the application and setting the interest rate, ordering the appraisal and underwriting, processing, closing and funding the loan.
 
Loans sourced by mortgage brokers are funded by the lender and generally closed in the lender’s name. When originating loans through mortgage brokers, the mortgage broker’s role is to identify the applicant, assist in completing the loan application, gather necessary information and documents and serve as the liaison to the borrower through the lending process. The lender reviews and underwrites the application submitted by the mortgage broker, approves or denies the application, sets the interest rate and other terms of the loan and, upon acceptance by the borrower and satisfaction of all conditions required by the lender, funds the loan. Because mortgage brokers conduct their own marketing, employ their own personnel to complete the loan applications and maintain contact with the borrowers, mortgage brokers represent an efficient loan originations channel.
 
The length of time from the origination or purchase of a mortgage loan to its sale or securitization generally ranges from 10 to 60 days, depending on a variety of factors including loan volume, product type, interest rates and capital markets conditions. An important source of capital for the residential mortgage industry is warehouse lending. These facilities provide funding to mortgage loan originators until the loans are sold to investors in the secondary mortgage loan market.
 
Types of Mortgage Loans
 
Mortgage loans generally fall into one of the following five categories: prime conforming mortgage loans, prime non-conforming mortgage loans, government mortgage loans, non-prime mortgage loans and prime second-lien mortgage loans.
 
Prime Conforming Mortgage Loans:   These are prime credit quality first-lien mortgage loans (i.e. mortgage loans that, in the event of default, have priority over all other liens or claims) secured by single-


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family residences that meet or “conform” to the underwriting standards established by Fannie Mae or Freddie Mac for inclusion in their guaranteed mortgage securities programs.
 
Prime Non-Conforming Mortgage Loans:   These are prime credit quality first-lien mortgage loans secured by single-family residences that either (i) do not conform to the underwriting standards established by Fannie Mae or Freddie Mac, because they have original principal amounts exceeding Fannie Mae and Freddie Mac limits, which are commonly referred to as jumbo mortgage loans, or (ii) have alternative documentation requirements and property or credit-related features (e.g., higher LTV or debt-to-income ratios) but are otherwise considered prime credit quality due to other compensating factors.
 
Government Mortgage Loans:   These are first-lien mortgage loans secured by single-family residences that are insured by the FHA or guaranteed by the VA and securitized into Ginnie Mae securities.
 
Non-prime Mortgage Loans:   These are first-lien and certain junior lien mortgage loans secured by single-family residences, made to individuals with credit profiles that do not qualify for a prime loan, have credit-related features that fall outside the parameters of traditional prime mortgage loans or have performance characteristics that otherwise expose us to comparatively higher risk of loss.
 
Prime Second-Lien Mortgage Loans:   These are open- and closed-end mortgage loans (i.e. mortgage loans that do, in the case of an open-end loan, or do not, in the case of a closed-end loan, allow the borrower to increase the amount of the mortgage at a later time) secured by a second or more junior lien on single-family residences, which include home equity mortgage loans.
 
Due to the significant stress in the residential mortgage industry experienced over the last few years, underwriting standards have improved. Some of these improvements include the elimination or significant reduction of mortgage affordability products such as no income verification loans, limited or no documentation loans, option adjustable rate mortgage loans and non-owner occupied loans. Also, underwriting standards now include higher minimum credit scores and lower maximum LTVs than were acceptable under past lending practices. These improvements in underwriting standards should lead to improved performance.


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BUSINESS
 
Company Overview
 
We are a leading high touch non-bank residential mortgage servicer with a broad array of servicing capabilities across the residential mortgage product spectrum. We have been the fastest growing mortgage servicer since 2007 as measured by growth in aggregate unpaid principal balance (“UPB”), having grown 70.2% annually on a compounded basis. As of December 31, 2011, we serviced over 645,000 residential mortgage loans with an aggregate UPB of $106.6 billion (including $7.8 billion of servicing under contract), making us the largest high touch non-bank servicer in the United States. Our clients include national and regional banks, government organizations, securitization trusts, private investment funds and other owners of residential mortgage loans and securities.
 
We attribute our growth to our strong servicer performance and high touch servicing model, which emphasizes borrower interaction to improve loan performance and minimize loan defaults and foreclosures. We believe our exceptional track record as a servicer, coupled with our ability to scale our operations without compromising servicer quality, have enabled us to add new mortgage servicing portfolios with relatively low capital investment. We are a preferred partner of many large financial organizations, including government-sponsored enterprises (“GSEs”) and other regulated institutions that value our strong performance and also place a premium on our entirely U.S.-based servicing operations. We employ over 2,500 people in the United States and are a licensed servicer in all 50 states.
 
In addition to our core servicing business, we are one of only a few non-bank servicers with a fully integrated loan originations platform and suite of adjacent businesses designed to meet the changing needs of the mortgage industry. Our originations platform complements and enhances our servicing business by allowing us to replenish our servicing portfolio as loans pay off over time, while our adjacent businesses broaden our product offerings by providing mortgage-related services spanning the life cycle of a mortgage loan. We believe our integrated approach, together with the strength and diversity of our servicing operations and our strategies for growing substantial portions of our business with minimal capital outlays (which we refer to as our “capital light” approach), position us to take advantage of the major structural changes currently occurring across the mortgage industry.
 
Servicing Industry Dynamics
 
Mortgage servicers provide day-to-day administration and servicing for loans on behalf of mortgage owners and earn revenues based primarily on the UPB of loans serviced. Servicers collect and remit monthly loan principal and interest payments and provide related services in exchange for contractual servicing fees. Servicers also provide special services such as overseeing the resolution of troubled loans. As the mortgage industry continues to struggle with elevated borrower delinquencies, this special servicing function has become a particularly important component of a mortgage servicer’s role and, we believe, a key differentiator among mortgage servicers.
 
According to Inside Mortgage Finance, there were approximately $10.3 trillion of U.S. residential mortgage loans outstanding as of December 31, 2011. In the aftermath of the U.S. financial crisis, the residential mortgage industry is undergoing major structural changes that affect the way mortgage loans are originated, owned and serviced. These changes have benefited and should continue to significantly benefit non-bank mortgage servicers. Banks currently dominate the residential mortgage servicing industry, servicing over 90% of all residential mortgage loans as of September 30, 2011. Over 50% of all residential mortgage loan servicing is concentrated among just four banks. However, banks are currently under tremendous pressure to exit or reduce their exposure to the mortgage servicing business as a result of increased regulatory scrutiny and capital requirements, headline risk associated with sizeable legal settlements, as well as potentially


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significant earnings volatility. Furthermore, banks’ mortgage servicing operations, which have historically been oriented towards payment processing, are often ill-equipped to maximize loan performance through high touch servicing.
 
As a result of these factors and the overall increased demands on servicers by mortgage owners, mortgage servicing is shifting from banks to non-bank servicers. Already, over the last 18 months, banks have completed servicing transfers on $275 billion of mortgage loans. We believe this represents a fundamental change in the mortgage servicing industry and expect the trend to continue at an accelerated rate in the future. Because the mortgage servicing industry is characterized by high barriers to entry, including the need for specialized servicing expertise and sophisticated systems and infrastructure, compliance with GSE and client requirements, compliance with state-by-state licensing requirements and the ability to adapt to regulatory changes at the state and federal levels, we believe we are one of the few mortgage servicers competitively positioned to benefit from the shift.
 
Our Business
 
(NATIONSTAR MORTGAGE CHART)
 
Residential Mortgage Servicing
 
Our leading residential mortgage servicing business serves a diverse set of clients encompassing a broad range of mortgage loans, including prime and non-prime loans, traditional and reverse mortgage loans, GSE and government agency-insured loans, as well as private-label loans issued by non-government affiliated institutions. We have grown our residential mortgage servicing portfolio from an aggregate UPB of $12.7 billion as of December 31, 2007 to $106.6 billion as of December 31, 2011 (including $7.8 billion of servicing under contract). Since December 2008, we have added over $104 billion in UPB to our servicing platform through approximately 300 separate transfers from 30 different counterparties (excluding $7.8 billion of servicing under contract). This growth has been funded primarily through internally generated cash flows and proceeds from debt financings.
 
Our performance record stands out when compared to other mortgage servicers:
 
  •     As of December 2011, a GSE ranked us in the top 5 out of over 1,000 approved servicers in foreclosure prevention workouts.


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  •     In 2011, we were in the top tier of rankings for Federal Housing Administration-(“FHA”) and Housing and Urban Development-approved servicers, with a Tier 1 ranking (out of four possible tiers).
 
  •     As of December 31, 2011, our delinquency and default rates on non-prime mortgages we service on behalf of third party investors in asset-backed securities (“ABS”) were each 40% lower than the peer group average.
 
Our high touch, active servicing approach emphasizes increased borrower contact in an effort to improve loan performance and reduce loan defaults and foreclosures, thereby minimizing credit losses and maximizing cash flows for our clients. Where appropriate, we perform loan modifications, often facilitated by government programs such as the Home Affordable Modification Program (“HAMP”), which serve as an effective alternative to foreclosure by keeping borrowers in their homes and bringing them current on their loans. We believe our proven servicing approach and relative outperformance have led large financial institutions, GSEs and government organizations to award major servicing and subservicing contracts to us, often on a repeat basis.
 
Our systems and infrastructure play a key role in our servicing success. Through careful monitoring and frequent direct communication with borrowers, we are able to quickly identify potential payment problems and work with borrowers to address issues efficiently. To this end, we leverage our proprietary processing, loss mitigation and caller routing systems to implement a single point of contact model for troubled loans that ensures smooth and prompt communication with borrowers, consistent with standards imposed on the largest bank servicers by the Office of the Comptroller of the Currency (the “OCC”), the Federal Reserve and the Federal Deposit Insurance Corporation (“FDIC”). Our core systems are scalable to multiples of our current size.
 
We service loans as the owner of mortgage servicing rights (“MSRs”), which we refer to as “primary servicing,” and we also service loans on behalf of other MSR or mortgage owners, which we refer to as “subservicing.” As of December 31, 2011, our primary servicing and subservicing portfolios represented 46.4% and 53.6%, respectively, of our total servicing portfolio (excluding $7.8 billion of servicing under contract).
 
Primary Servicing
 
Primary servicers act as servicers on behalf of mortgage owners and directly own the MSRs, which represent the contractual right to a stream of cash flows (expressed as a percentage of UPB) in exchange for performing specified mortgage servicing functions and temporarily advancing funds to cover payments on delinquent and defaulted mortgages.
 
We have grown our primary servicing portfolio to $45.8 billion in UPB as of December 31, 2011 (excluding $7.8 billion of servicing under contract) from $12.7 billion in UPB as of December 31, 2007, representing a compound annual growth rate of 37.8%. We plan to continue growing our primary servicing portfolio principally by acquiring MSRs from banks and other financial institutions under pressure to exit or reduce their exposure to the mortgage servicing business. As the servicing industry paradigm continues to shift from bank to non-bank servicers at an increasing pace, we believe there will be a significant opportunity to increase our market share of the servicing business.
 
We acquire MSRs on a standalone basis and have also developed an innovative model for investing on a capital light basis by co-investing with financial partners in “excess MSRs.” Excess MSRs are the servicing fee cash flows (“excess fees”) on a portfolio of mortgage loans after payment of a basic servicing fee. In these transactions, we provide all servicing functions in exchange for the basic servicing fee, then share the excess fee with our co-investment partner on a pro rata basis. Through December 31, 2011, we added


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$10 billion of loan servicing through excess MSRs and expect to continue to deploy this co-investment strategy in the future.
 
Subservicing
 
Subservicers act on behalf of MSR or mortgage owners that choose to outsource the loan servicing function. In our subservicing portfolio, we earn a contractual fee per loan we service. The loans we subservice often include pools of underperforming mortgage loans requiring high touch servicing capabilities. Many of our recent subservicing transfers have been facilitated by GSEs and other large mortgage owners that are seeking to improve loan performance through servicer upgrades. Subservicing represents another capital light means of growing our servicing business, as subservicing contracts are typically awarded on a no-cost basis and do not require substantial capital.
 
We have grown our subservicing portfolio to $53.0 billion in UPB as of December 31, 2011 by completing 290 transfers with 26 counterparties since we entered the subservicing business in August 2008. We expect to enter into additional subservicing arrangements as mortgage owners seek to transfer credit stressed loans to high touch subservicers with proven track records and the infrastructure and expertise to improve loan performance.
 
Adjacent Businesses
 
We operate or have investments in several adjacent businesses which provide mortgage-related services that are complementary to our servicing and originations businesses. These businesses offer an array of ancillary services, including providing services for delinquent loans, managing loans in the foreclosure/real estate owned (“REO”) process and providing title insurance agency, loan settlement and valuation services on newly originated and re-originated loans. We offer these adjacent services in connection with loans we currently service, as well as on a third party basis in exchange for base and/or incentive fees. In addition to enhancing our core businesses, these adjacent services present an opportunity to increase future earnings with minimal capital investment, including by expanding the services we provide to large banks and other financial institutions seeking to outsource these functions to a third party.
 
Originations
 
We are one of only a few non-bank servicers with a fully integrated loan originations platform to complement and enhance our servicing business. In 2011, we originated approximately $3.4 billion of loans, up from $2.8 billion in 2010. We originate primarily conventional agency (GSE) and government-insured residential mortgage loans and, to mitigate risk, typically sell these loans within 30 days while retaining the associated servicing rights.
 
A key determinant of the profitability of our primary servicing portfolio is the longevity of the servicing cash flows before a loan is repaid or liquidates. Our originations efforts are primarily focused on “re-origination,” which involves actively working with existing borrowers to refinance their mortgage loans. By re-originating loans for existing borrowers, we retain the servicing rights, thereby extending the longevity of the servicing cash flows, which we refer to as “recapture.” We recaptured 35.4% of the loans we service that were refinanced or repaid by the borrower during 2011 and our goal for 2012 is to achieve a recapture rate of over 55%. Because the refinanced loans typically have lower interest rates or lower monthly payments, and, in general, subsequently refinance more slowly and default less frequently, these refinancings also typically improve the overall quality of our primary servicing portfolio.


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With our in-house originations capabilities, we believe we are better protected against declining servicing cash flows as we replace servicing run-off through new loan originations or retain our servicing portfolios through re-origination. In addition, our re-origination strategy allows us to generate additional loan servicing more cost-effectively than MSRs can otherwise be acquired in the open market.
 
Our Strengths
 
We believe our servicing platform, coupled with our originations and adjacent businesses, position us well for a variety of market environments. The following competitive strengths contribute to our leading market position and differentiate us from our competitors:
 
Top Performing Preferred Servicing Partner
 
Through careful monitoring and frequent direct communication with borrowers, our high touch, high-quality servicing model allows us to improve loan performance and reduce loan defaults and foreclosures, thereby minimizing credit losses and maximizing cash flows for our clients. In recognition of our performance, as of December 2011, a GSE ranked us in the top 5 out of over 1,000 approved servicers in foreclosure prevention workouts. Our demonstrated ability to achieve strong results and relative outperformance, as well as our entirely U.S.-based servicing operations, have made us a preferred partner of large financial institutions, GSEs and government organizations, which have awarded major servicing and subservicing contracts to us, often on a repeat basis.
 
Scalable Technology and Infrastructure
 
Our highly scalable technology and infrastructure have enabled us to manage rapid growth over the past several years while maintaining our high servicing standards and enhancing loan performance. We have made significant investments in loan administration, customer service, compliance and loss mitigation, as well as in employee training and retention. Our staffing, training and performance tracking programs, centralized in the Dallas/Fort Worth, Texas area, have allowed us to expand the size of our servicing team while maintaining high quality standards. With our core systems scalable to multiples of our current size, we believe our infrastructure positions us well to take advantage of structural changes in the mortgage industry. Because the mortgage servicing industry is characterized by high barriers to entry, we also believe we are one of the few mortgage servicers competitively positioned to benefit from existing and future market opportunities.
 
Track Record of Efficient Capital Deployment
 
We have an established track record of deploying capital to grow our business. For example, since December 2008, we have effectively used capital from internally generated cash flows and proceeds from debt financings to add over $104 billion in UPB to our servicing platform (excluding $7.8 billion of servicing under contract). In addition, we employ capital light strategies, including our innovative strategy for co-investment in excess MSRs with financial partners as well as subservicing arrangements, to add new mortgage servicing portfolios with relatively low capital investment. Through December 31, 2011, we added $10 billion of loan servicing through excess MSRs and expect to continue to deploy this co-investment strategy in the future, while also evaluating subservicing arrangements as mortgage owners seek to transfer credit stressed loans to high touch subservicers in order to improve loan performance. We believe that our experience of efficiently deploying capital for growth puts us in a strong position to manage future growth opportunities.
 
Attractive Business Model with Strong Recurring Revenues
 
Banks are under tremendous pressure to exit or reduce their exposure to the mortgage servicing business, and GSEs are looking for strong mortgage servicers as the mortgage industry continues to struggle with elevated borrower delinquencies. As the shift from bank to non-bank servicers accelerates, we believe


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there will be a significant opportunity for us to achieve growth on attractive terms. Our senior management team has already demonstrated its ability to identify, evaluate and execute servicing portfolio acquisitions. We have developed an attractive business model to grow our business and generate strong, recurring, contractual fee-based revenue with minimal credit risk. These revenue streams provide us with significant capital to grow our business organically.
 
Integrated Originations Capabilities
 
As one of only a few non-bank servicers with a fully integrated loan originations platform, we are often able to extend the longevity of our servicing cash flows through loan refinancings. We recaptured 35.4% of the loans we service that were refinanced or repaid by the borrower during 2011 and our goal for 2012 is to achieve a recapture rate of over 55%. Because, in general, refinanced loans subsequently refinance more slowly and default less frequently than many currently outstanding loans, these refinancings also typically improve the overall quality of our primary servicing portfolio. We believe our in-house originations capabilities allow us to generate additional loan servicing more cost-effectively than MSRs can otherwise be acquired in the open market.
 
Strong and Seasoned Management Team
 
Our senior management team is comprised of experienced mortgage industry executives with a track record of generating financial and operational improvements. Our current Chief Executive Officer has been with us for more than a decade and has managed the company through the most recent economic downturn and through multiple economic cycles. Several members of our management team have held senior positions at other residential mortgage companies. Our senior management team has demonstrated its ability to adapt to changing market conditions and has developed a proven ability to identify, evaluate and execute successful portfolio and platform acquisitions. We believe that the experience of our senior management team and its management philosophy are significant contributors to our operating performance.
 
Growth Strategies
 
We expect to drive future growth in the following ways:
 
Grow Residential Mortgage Servicing
 
We expect to grow our business primarily by adding to our residential mortgage servicing portfolios through MSR acquisitions and subservicing transfers. Over the last 18 months, banks and other financial institutions have completed a significant number of MSR sales and subservicing transfers, and we expect an even greater number over the next 18 months. We are continuously reviewing, evaluating and, when attractive, pursuing MSR sales and subservicing transfers, and we believe we are well-positioned to compete effectively for these opportunities. We believe our success in this area has been, and will continue to be, driven by our strong servicer performance, as well as by the systems and infrastructure we have implemented to meet specific client requirements.
 
Pursue Capital Light Servicing Opportunities
 
We intend to pursue capital light strategies that will allow us to grow our MSR and subservicing portfolios with minimal capital outlays. Within our subservicing portfolio, since August 2008, we have grown our servicing UPB to $53.0 billion with no capital outlays. Many of our recent subservicing transfers have been facilitated by GSEs and other large mortgage owners and we expect to leverage our relationships to complete additional subservicing transfers as mortgage owners seek to transfer credit stressed loans to high touch servicers through subservicing arrangements. Within our MSR portfolio, we have developed an innovative strategy for co-investing on a capital light basis in excess MSRs with financial partners. Through December 31, 2011, we added $10 billion of loan servicing through excess MSRs and expect to continue to


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deploy this co-investment strategy in the future. We anticipate that these capital light strategies will allow us to significantly expand our mortgage servicing portfolio with reduced capital investment.
 
Expand Originations to Complement Servicing
 
We also expect our originations platform to play an important role in driving our growth and, in particular, enhancing the profitability of our servicing business. As one of only a few non-bank servicers with a fully integrated loan originations platform, we originate new GSE-eligible and FHA-insured loans for sale into the securitization market and retain the servicing rights associated with those loans. More importantly, we re-originate loans from existing borrowers seeking to take advantage of improved loan terms, thereby extending the longevity of the related servicing cash flows, which increases the profitability and the credit quality of the servicing portfolio. Through our originations platform, we generate additional loan servicing more cost-effectively than MSRs can otherwise be acquired in the open market. Finally, we facilitate borrower access to government programs designed to encourage refinancings of troubled or stressed loans, improving overall loan performance. We believe this full range of abilities makes us a more attractive counterparty to entities seeking to transfer servicing to us, and we expect it to contribute to the growth of our servicing portfolio.
 
Meet Evolving Needs of the Residential Mortgage Industry
 
We expect to drive growth across all of our businesses by being a solution provider to a wide range of financial and government organizations as they navigate the structural changes taking place across the mortgage industry. With banks under pressure to reduce their exposure to the mortgage market, with the U.S. government under pressure to address its large mortgage exposure and with weak market conditions contributing to elevated loan delinquencies and defaults, we expect there to be numerous compelling situations requiring our expertise. We believe the greatest opportunities will be available to servicers with the proven track record, scalable infrastructure and range of services that can be applied flexibly to address different organizations’ needs. To position ourselves for these opportunities, since 2010 we have expanded our business development team and hired a dedicated senior executive whose primary role is to identify, evaluate, and enhance acquisition and partnership opportunities across the mortgage industry, including with national and regional banks, mortgage and bond insurers, private investment funds and various government agencies. We have also expanded and enhanced our loan transfer, collections and loss mitigation infrastructure in order to be able to accommodate substantial additional growth. We expect these efforts to position us to be a key participant in the long term restructuring and recovery of the mortgage sector.
 
Our Operations
 
Residential Mortgage Servicing
 
We are a leading high touch non-bank residential mortgage servicer with a broad array of servicing capabilities across the residential mortgage product spectrum. We service loans as the owner of MSRs, which we refer to as “primary servicing,” and we also service loans on behalf of other MSR or mortgage owners, which we refer to as “subservicing.” The servicing portfolio consists of acquired MSRs, subservicing transferred from various third parties and loans originated by our integrated originations platform.
 
We service these loans using a high touch servicing model designed to improve loan performance and reduce loan defaults and foreclosures. Certain of the loans underlying the MSRs that we own are credit sensitive in nature and the value of these MSRs is more likely to be affected by changes in credit losses than by interest rate movement. The remaining loans underlying our MSRs are prime agency and government conforming residential mortgage loans for which the value of these MSRs is more likely to be affected by interest rate movement than changes in credit losses.


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As of December 31, 2011, we serviced over 645,000 residential mortgage loans with an aggregate UPB of $106.6 billion (including $7.8 billion of servicing under contract). As of December 31, 2011, our primary servicing and subservicing portfolios represented 46.4% and 53.6%, respectively, of our total servicing portfolio (excluding $7.8 billion of servicing under contract). The table below indicates the portion of our servicing portfolio that is primary servicing and subservicing, as well as the portion of our primary servicing portfolio that is credit sensitive and interest rate sensitive at and for the periods indicated. Our subservicing portfolio is assumed to be credit sensitive in nature.
 
                                 
   
December 31,
 
   
2008
   
2009
   
2010
   
2011
 
    (in millions)  
 
Servicing Portfolio
                               
Primary Portfolio
                               
Unpaid principal balance (by investor):
                               
Credit Sensitive Loans
                               
GSE/FHA
    $10,227       $22,897       $19,675       $26,541  
RMBS
    9,415       8,390       7,519       6,803  
                                 
Total Credit Sensitive Loans
    19,642       31,287       27,194       33,344  
Interest Sensitive Loans-GSE/FHA
    1,700       1,584       7,210       12,473  
                                 
Total Primary Portfolio
    21,342       32,871       34,404       45,817  
Subservicing Portfolio
                               
Unpaid principal balance (by investor):
                               
Special Servicing
          793       4,078       9,238  
GSE/FHA
                25,694       31,280  
RMBS
                      12,470  
                                 
Total Subservicing Portfolio
          793       29,772       52,988  
Servicing under contract
                      7,781  
                                 
Total Servicing Portfolio
    $21,342       $33,664       $64,176       $106,586  
                                 
                     
            (in thousands)        
Summary Financial Data:
                               
Total revenue
    $74,601       $100,133       $182,842       $255,476  
Net income
    14,718       7,502       14,230       22,083  
 
The table below provides detail of the characteristics and key performance metrics of our servicing portfolio at and for the periods indicated.
 
                                 
   
December 31,
 
   
2008
   
2009
   
2010
   
2011 (2)
 
    (in millions, except for average loan amount and loan count)  
 
Loan count—servicing
    159,336       230,615       389,172       596,011  
Ending unpaid principal balance
    $21,342       $33,664       $64,176       $98,805  
Average unpaid principal balance
    $12,775       $25,799       $38,653       $81,491  
Average loan amount
    $133,943       $145,977       $164,904       $165,788  
Average coupon
    7.49 %     6.76 %     5.74 %     5.43 %
Average FICO credit score
    588       644       631       627  
60+ delinquent (% of loans) (1)
    13.1 %     19.9 %     17.0 %     14.7 %
Total prepayment speed (12 month constant pre-payment rate)
    16.2 %     16.3 %     13.3 %     13.4 %
 
(1) Loan delinquency is based on the current contractual due date of the loan. In the case of a completed loan modification, delinquency is based on the modified due date of the loan.
 
(2) Characteristics and key performance metrics of our servicing portfolio for the year ended December 31, 2011 exclude approximately $7.8 billion of reverse residential mortgage loans for which we entered into an agreement to acquire the MSRs in December 2011 and closed in January 2012.


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      Our Servicing Model
 
Our servicing business produces strong recurring, contractual fee-based revenue with minimal credit risk. Servicing fees are primarily based on the aggregate UPB of the loans serviced and the payment structure varies by loan source and type. For loans that we do not originate, the services we provide and the fees we receive vary depending on our agreement with the owner of the mortgage loan or the owner of the MSR, as the case may be. These include differences in rate of servicing fees as a percentage of UPB and in the structure of advances. For a more detailed description of advances, see “Industry—Servicing Industry Overview.”
 
Our high touch servicing model emphasizes individual default specialist accountability for loan performance, which we refer to as “credit loss ownership,” and loss mitigation practices to improve loan performance and reduce loan defaults and foreclosures. We seek to ensure that each loan that we service is paid in accordance with its terms. In circumstances where the borrower is, or is at risk of becoming, delinquent or in default, we employ both industry standard and proprietary strategies to work proactively with borrowers in an effort to avoid foreclosure by keeping borrowers in their homes and bringing them current on their loans. We refer to this frequent interaction with borrowers—via phone, Internet, mailings, and personal contact methods—as high touch servicing. Our high touch servicing model and operating culture have proven especially valuable in the current environment characterized by elevated borrower delinquencies.
 
To ensure a customer-centric focus, we have separate account resolution and foreclosure prevention groups for each type of mortgage owner for which we service loans. We maintain centralized loan administration and default management groups, which provide services to all customers.
 
We are dedicated to a culture of customer service and credit loss ownership for our servicing employees. We hire recent college graduates and train them in the mortgage servicing business by systematically rotating them through a variety of our business teams. Our new employees initially work on performing loans and loans that are less than 30 days past due. After gaining experience in this environment, we train our employees in the more challenging 60 and 90 day delinquent categories, where we particularly emphasize a culture of ownership and accountability.
 
To select the best resolution option for a delinquent loan, we perform a structured analysis of all options using information provided by the borrower as well as external data. We use recent broker price opinions, automated valuation models and other methods to value the property. We then determine the option with the best expected outcome for the owner of the mortgage loan. Where appropriate, we perform modifications, often facilitated by government programs such as HAMP. In the current environment, such loan modifications often provide a better outcome for owners of mortgage loans than foreclosure. We believe that our high touch servicing model is more effective in keeping borrowers in their homes and bringing them current on their loans. This is a win-win situation for the owners of mortgage loans or MSRs, as the case may be, as well as for the borrowers that we serve. We conducted over 29,000 loan modifications in 2011 as compared to over 41,000 in 2010. The majority of loans modified were delinquent, although we modified some performing loans proactively under the American Securitization Forum guidelines. Although the most common term modified is the interest rate, some modifications also involve the forbearance or rescheduling of delinquent principal and interest. Of the loans we modified in 2011, over 10,000 were modified pursuant to the Making Home Affordable plan (“MHA”). Under the MHA, we receive an annual financial incentive for up to four years, provided certain conditions are met. At the same time, we forego uncollected late fees incurred in the year of modification for each qualifying loan modification.
 
The GSEs act as a source of liquidity for the secondary mortgage market and contract with various independent servicers to service their mortgage loan portfolio. In transactions with the GSEs, we are required to follow specific guidelines that impact the way we service and originate mortgage loans including:
 
  •     our staffing levels and other servicing practices;


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  •     the servicing and ancillary fees that we may charge;
 
  •     our modification standards and procedures; and
 
  •     the amount of advances that are reimbursable.
 
In December 2009, we entered into a strategic relationship with a GSE, which contemplates, among other things, significant MSRs and subservicing transfers to us upon terms to be determined. Under this arrangement, if certain delivery thresholds have been met, the GSE may require us to establish an operating division or newly created subsidiary with separate, dedicated employees within a specified timeline to service the loans underlying the MSRs or subservice the MSRs underlying the subservicing transfers. After a specified time period, the GSE may purchase the subsidiary at an agreed upon price.
 
Our Servicing Portfolio
 
Our servicing portfolio consists of MSRs we retain from loans that we originate; MSRs we acquire from third party investors, including in transactions facilitated by GSEs, such as Fannie Mae and Freddie Mac; and MSRs we manage through subservicing contracts with third party investors. Our loan servicing operations are located in Lewisville, Texas. In October 2011, we entered into an operating sublease agreement for approximately 53,000 square feet of office space in Houston, Texas, which we plan to use as we continue to grow our servicing business.
 
The loans we service have typically been securitized—meaning that the originator of the loan has pooled the loan together with multiple other loans and then sold securities to third party investors that are secured by loans in the securitization pool. We typically service loans that have been securitized pursuant to one of two arrangements: as a primary servicer or as a subservicer.
 
Primary Servicing
 
As a primary servicer, we service loans by purchasing the MSRs from the mortgage owner or retaining the MSRs related to the loans we originate. Pursuant to our servicing arrangements, we generally receive a contractual per loan fee between approximately 25 to 50 basis points annually on the UPB, with a weighted average across our servicing portfolio of approximately 31 basis points.
 
The servicing fees are typically supplemented by incentive fees and ancillary fees. Incentive fees include modification initiation and success fees from HAMP and modification or collateral workout related incentives from various pool owners and GSEs. Ancillary fees include late fees, non-sufficient funds fees, convenience fees and interest income earned on loan payments that have been collected but have not yet been remitted to the owner of the mortgage loan, or “float.”
 
In addition to acquiring MSRs on a standalone basis, we have also developed an innovative model for investing on a capital light basis by co-investing with financial partners in excess MSRs. In these transactions, we provide all servicing functions in exchange for the basic servicing fee, then share the excess fee with our co-investment partner on a pro rata basis.
 
A key determinant of the profitability of our primary servicing portfolio is the longevity of the servicing cash flows before a loan is repaid or liquidates. As one of only a few non-bank servicers with an integrated originations platform, we are often able to extend the longevity of the servicing cash flows through loan refinancings by retaining the servicing rights of the loans we re-originate. Because the refinanced loans typically have lower interest rates or lower monthly payments, and, in general, subsequently refinance more slowly and default less frequently, these refinancings also typically improve the overall quality of our primary servicing portfolio.


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As a primary servicer, we have additional opportunities to provide an array of adjacent services, including providing services for delinquent loans, managing loans in the foreclosure/REO process and providing title insurance agency, loan settlement and valuation services on newly originated and re-originated loans for a base or incentive fee. See “—Adjacent Businesses.”
 
As of December 31, 2011, our primary servicing portfolio consisted of loans with an aggregate UPB of $45.8 billion, representing 46.4% of our total servicing portfolio (excluding $7.8 billion of servicing under contract). We have grown our primary servicing portfolio to $45.8 billion in UPB as of December 31, 2011 (excluding $7.8 billion of servicing under contract) from $12.7 billion in UPB in 2007, representing a compound annual growth rate of 37.8%.
 
The charts below illustrate the composition of our primary servicing portfolio by type and product as of December 31, 2011.
 
         
(PIE CHART)     (PIE CHART)  
 
As set forth in the chart below, our primary servicing portfolio is diversified with respect to geography. As of December 31, 2011, 56.3% of the aggregate UPB of the loans we service were secured by properties located in the ten largest states by population. Therefore, we are not as susceptible to local and regional real estate price fluctuations as primary servicers whose portfolios are more concentrated in a single state or region.
 
(PIE CHART)


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Subservicing
 
Alternatively, we may enter into a subservicing agreement with MSR or mortgage owners pursuant to which we agree to service the loans on behalf of such MSR or mortgage owners. Under such subservicing arrangements, where we do not pay to acquire the MSRs and only have intra-month advance obligations, we generally receive a contractual per loan fee the equivalent of between 5 to 45 basis points annually on the UPB.
 
As with our primary servicing arrangements, we typically supplement our subservicing fees through incentive and ancillary fees as well as the provision of adjacent services. See “—Adjacent Businesses.”
 
As of December 31, 2011, our subservicing portfolio consisted of loans with an aggregate UPB of $53.0 billion, representing 53.6% of our total servicing portfolio (excluding $7.8 billion of servicing under contract). Since we entered the subservicing business in August 2008, we have grown our subservicing portfolio to $53.0 billion as of December 31, 2011.
 
The charts below illustrate the composition of our subservicing portfolio by type and product as of December 31, 2011.
 
         
(PIE CHART)     (PIE CHART)  
 
As set forth in the chart below, our subservicing portfolio is diversified with respect to geography. As of December 31, 2011, 51.3% of the aggregate UPB of the loans we subservice were secured by properties located in the ten largest states by population. Therefore, we are not as susceptible to local and regional real estate price fluctuations as subservicers whose portfolios are more concentrated in a single state or region.


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(PIE CHART)
 
Adjacent Businesses
 
We operate or have investments in several adjacent businesses which provide mortgage-related services that are complementary to our servicing and originations businesses. These businesses offer an array of ancillary services, including providing services for delinquent loans, managing loans in the foreclosure/REO process and providing title insurance agency, loan settlement and valuation services on newly originated and re-originated loans. We offer these adjacent services in connection with loans we currently service, as well as on a third party basis in exchange for base and/or incentive fees. In addition to enhancing our core businesses, these adjacent services present an opportunity to increase future earnings with minimal capital investment, including by expanding the services we provide to large banks and other financial institutions seeking to outsource these functions to a third party.
 
Key Drivers of Profitability
 
The following key factors drive the amount of profit we generate from our servicing operations.
 
Aggregate UPB:   Servicing fees are usually earned as a percentage of UPB or a per loan amount and growth in the UPB of a portfolio means growth in servicing fees. Additionally, a larger servicing portfolio generates increased ancillary fees and leads to larger custodial balances that generate greater float income. A larger servicing portfolio also drives increases in expenses, including additional interest expense to finance the servicing advances as the size of our portfolio increases.
 
In addition, servicers of GSE-insured loans collect servicing fees only on performing loans while servicers of non-GSE residential mortgage-backed securities (“MBS”) are entitled to servicing fees on both performing loans and delinquent loans. The servicing fee relating to delinquent loans is accrued and paid from liquidation proceeds ahead of the reimbursement of advances. The aggregate UPB from which we earn fees thus depends partly on the relative number of non-performing GSEs we have in our portfolio. Because our high touch active servicing approach emphasizes increased borrower contact, we believe we can effectively minimize the percentage of such non-performing loans and therefore maximize the UPB from which we earn servicing fees.
 
Stability and longevity of servicing cash flows:   We are able to generate servicing fees by extending the longevity of our serving cash flows. Prepayment speed, which is the measurement of how quickly UPB is reduced, thus significantly affects our profitability. Items reducing UPB include normal monthly principal


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payments, refinancings, voluntary property sales and involuntary property sales such as foreclosures or short sales. Prepayment speed impacts future servicing fees, fair value of servicing rights, float income, interest expense on advances and compensating interest expense. When prepayment speed increases, our servicing fees decrease faster than projected due to the shortened life of a portfolio. The converse is true when prepayment speed decreases.
 
Prepayment speed affects our float income as well. Decreased prepayment speed typically leads to our holding lower float balances before remitting payoff collections to the investor and lower float income due to a lower invested balance. Lower prepayments have been associated with higher delinquency rates, higher advance balances and interest expense.
 
In addition, as one of only a few non-bank servicers with an integrated originations platform, we are often able to extend the longevity of the servicing cash flows through loan refinancings by retaining the servicing rights of the loans we re-originate. Because the refinanced loans typically have lower interest rates or lower monthly payments, and in general, subsequently refinance more slowly and default less frequently, these refinancings also typically improve the overall quality of our primary servicing portfolio.
 
Ability to add new servicing business:   We seek to increase the size of our servicing portfolio in several ways. We increase our primary servicing portfolio by acquiring MSRs, either on a standalone basis or by co-investing with financial partners in “excess MSRs”. We also grow our subservicing portfolio by entering into additional subservicing arrangements with MSR or mortgage owners.
 
In addition, we have highly scalable technology and infrastructure, which have enabled us to manage rapid growth over the past several years while maintaining our high servicing standards and enhancing loan performance. We have made significant investments in loan administration, customer service, compliance and loss mitigation, as well as in employee training and retention. In addition, our staffing, training and performance tracking programs, centralized in the Dallas/Fort Worth, Texas area, have allowed us to expand the size of our servicing team while maintaining high quality standards.
 
Cost of servicing:   Our profitability is inversely proportional to our cost of servicing. As a result, we actively manage our servicing costs in order to maximize profitability. However, several factors affect our servicing costs.
 
Delinquent loans are more expensive to service than performing loans because our cost of servicing is higher and, although credit losses are generally not a concern for our financial results, our advances to investors increase, which results in higher financing costs. Performing loans include those loans that are current or have been delinquent for less than 30 days in accordance with their original terms and those loans on which borrowers are making scheduled payments under loan modifications, forbearance plans or bankruptcy plans. We consider all other loans to be delinquent.
 
When borrowers are delinquent, the amount of funds that we are required to advance to the owners of the loans on behalf of the borrowers increases. While the collectability of advances is generally not an issue, we do incur significant costs to finance those advances. We intend to utilize both securitization and revolving credit facilities to finance our advances. As a result, increased delinquencies result in increased interest expense.
 
The cost of servicing delinquent loans is higher than the cost of servicing performing loans primarily because the loss mitigation techniques that we employ to keep borrowers in their homes are more costly than the techniques used in handling a performing loan. When loans are performing, we have limited interaction with the borrowers, and relatively low-cost customer service personnel conduct most of the interaction. Once a loan becomes delinquent, however, we must employ our loss mitigation capabilities to work with the borrower to return the loan to performing status. These procedures involve increased contact with the borrower and the development of forbearance plans, loan modifications or other techniques by highly skilled consultants with


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higher compensation. On those occasions when loans go into foreclosure, we incur additional costs related to both coordinating the work of local attorneys to represent us in the foreclosure process and employing specialists to service the real estate and manage the sale of those foreclosed properties on behalf of our investors. A significant increase in delinquencies would cause us to increase our activities in these areas resulting in increased operating expenses.
 
Our high touch servicer model, which seeks to improve loan performance and reduce loan defaults and foreclosures, allows us to minimize the additional costs associated with such defaults and foreclosures.
 
Capital efficiency:   Our ability to use our capital efficiently in managing growth is also a significant driver of our profitability. We employ capital light strategies, including our innovative strategy for co-investment in excess MSRs with financial partners as well as subservicing arrangements, to add new mortgage servicing portfolios with relatively low capital investment. Through December 31, 2011, we added $10 billion of loan servicing through excess MSRs and expect to continue to deploy this co-investment strategy in the future, while also evaluating subservicing arrangements as mortgage owners seek to transfer credit stressed loans to high touch servicers to improve loan performance.
 
Servicing Organization
 
The servicing organization is comprised of four primary functional areas as detailed below.
 
Loan Administration:   The loan administration area includes the customer service, payment processing, loan accounting, escrow, taxes and insurance and document administration groups. The customer service group is primarily responsible for handling borrower inquiries including date of last payment, date of next payment due, arranging for a payment, refinance assistance and standard escrow and balance questions. In December 2011, the customer service group managed over 125,000 calls and service inquiries. The payment processing group is responsible for posting borrower payments and managing any payment-related issues. The majority of the borrower payments are posted electronically via our lock-box operation, Western Union, Automated Clearing House or web-based payments. The loan accounting group manages the payoff of loans. The escrow, taxes and insurance group manage all escrow balances and the external vendors we utilize for property insurance and tax tracking. The document administration group manages the lien release process upon the payoff of a loan and the tracking of loan documents for new originations.
 
Account Resolution:   The account resolution group is responsible for early stage collections (borrowers who are 1 to 59 days delinquent). For accounts where payments are past due but not yet delinquent (less than 30 days past due), we use a behavioral scoring methodology to prioritize our borrower calling efforts. The key drivers of behavioral score are payment pattern behavior (i.e., if the borrower historically has made their payment on the 5th of each month and that pattern changes more attention will be paid to the borrower) and updated credit scores. For accounts 31 to 59 days delinquent, default specialists are assigned individual accounts and are charged with making contact with the delinquent borrower to understand the reason for delinquency and attempt to collect a payment or work on an alternative solution. In the account resolution group, we use a combination of predictive dialer technology and account level assignments to contact the borrowers. The primary objective of this group is to reduce delinquency levels.
 
Foreclosure Prevention:   The foreclosure prevention group, commonly referred to in the industry as loss mitigation, is responsible for late stage collections (borrowers who are 60 or more days delinquent). The primary focus of this group is reducing delinquency levels. All accounts in this group are assigned to individual default specialists loss mitigators. The primary role of the default specialist loss mitigator is to contact the borrower and understand the reasons for the borrower’s delinquency and the borrower’s desire and ability to stay in their house. The foreclosure prevention group performs most of our government and other loan modifications.


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Default Management:   The default management area includes the foreclosure, bankruptcy, REO and claims processing groups. The foreclosure group manages accounts involved in the foreclosure process. In the late stage delinquency status, we will initiate foreclosure proceedings in accordance with state foreclosure timelines. Accounts in the foreclosure group are assigned to foreclosure specialists based on a state-specific assignment. The primary focus of the foreclosure group is to perform the foreclosure process in accordance with the state timelines. Any account which has filed for bankruptcy is assigned to a bankruptcy specialist who will administer the bankruptcy plan proceedings in accordance with applicable law and in conjunction with an outsourcing firm. The REO group manages properties within the servicing portfolio that have completed the foreclosure process. We use both internal and external resources to manage the disposition of the REO properties. The primary goal of the REO team is to dispose of the property within an acceptable timeframe at the lowest possible loss.
 
Originations
 
We are one of only a few non-bank servicers with a fully integrated loan originations platform. We are licensed to originate residential mortgage loans in all the 48 contiguous states plus Alaska and the District of Columbia and have obtained all required federal approvals to originate FHA, Department of Veterans Affairs (“VA”) and conventional loans. We originate primarily conventional agency and government conforming residential mortgage loans, which we either sell to other secondary market participants, referred to as conduits, or securitize through the issuance of Fannie Mae, Freddie Mac or Ginnie Mae bonds. As such, we minimize any credit or interest rate risk by not retaining loans on our balance sheet for more than approximately 30 days beyond funding. As set forth in the table below, originations volumes have increased significantly as we have expanded our conventional market footprint.
 
                                 
   
Year Ended December 31,
 
   
2008
   
2009
   
2010
   
2011
 
    (in millions)  
 
Originations Volume:
                               
Retail
    $538       $1,093       $1,608       $2,200  
Wholesale
    4       386       1,184       1,212  
                                 
                                 
Total Originations
    $542       $1,479       $2,792       $3,412  
                                 
    (in thousands)  
Summary Financial Data:
                               
Total revenue
    $22,574       $55,593       $84,540       $123,540  
Net income (loss)
    (7,590 )     8,884       662       23,696  
 
We view our originations platform as an important tool to complement and enhance our servicing business. A key determinant of the profitability of our primary servicing portfolio is the longevity of the servicing cash flows before a loan is repaid or liquidates. Our originations efforts are primarily focused on ‘‘re-origination,” which involves actively working with existing borrowers to refinance their mortgage loans. Because the refinanced loans typically have lower interest rates or lower monthly payments, and, in general, subsequently refinance more slowly and default less frequently, these refinancings also typically improve the overall quality of our primary servicing portfolio. In addition, our re-origination strategy allows us to generate additional loan servicing more cost-effectively than the MSRs can otherwise be acquired in the open market. Finally, with our in-house originations capabilities, we believe we are better protected against declining servicing cash flows as we replace servicing run-off through new loan originations or retain our servicing portfolios through re-origination. While our originations business is profitable on a standalone basis, we believe its primary value is to stabilize and enhance our loan servicing cash flows.


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Our Originations Platform
 
We originate loans through our Consumer Direct Retail channel and our Wholesale channel. Our largest channel is our Consumer Direct Retail channel, which operates as a centralized call center. Our second largest channel, the Wholesale channel, involves brokers sourcing borrowers for us. In 2011, we reduced the footprint of our traditional retail branch network by closing offices in non-strategic locations (Alabama, Tennessee, Vermont and Massachusetts). Our remaining retail branches in Texas and the Midwest are focused on building our core relationships with builders and realtors. Our strategy enables us to diversify and grow our originations in all interest rate cycles without becoming overly reliant on any single segment of the mortgage loan market.
 
We originate purchase money loans and refinance existing loans, including those that we service. Our strategy is to mitigate the credit, market and interest rate risk from loan originations by either selling newly originated loans or placing them in GSEs or government securitizations. We typically sell new loans within 30 days of origination, and we do not expect to hold any of the loans that we currently originate on our balance sheet on a long-term basis. At the time of sale, we have the option to retain the MSRs on loans we originate.
 
Our originations capability differentiates us from other non-bank, high touch loan servicers without an integrated originations platform by:
 
  •     providing us with an organic source of new loans to service, as existing loans are repaid or otherwise liquidated, more cost-effectively than MSRs can otherwise be acquired in the open market;
 
  •     providing an attractive complement to servicing by allowing us to modify and refinance mortgage loans, including loans that we service;
 
  •     creating a diversified source of revenue that we believe better protects us against declining servicing cash flows; and
 
  •     building brand recognition.
 
Originations Organization
 
Each of our loan originations channels has dedicated operations, support and fulfillment functions, including processing, underwriting, closing and shipping, which are primarily performed at our offices in Lewisville, Texas. As part of our efforts to manage credit risk and enhance operating efficiencies, the underwriting, closing, funding and shipping for all of our originations channels are managed centrally. Centralizing these functions enables us to control loan quality, loan processing times, cost and, ultimately, borrower satisfaction. Our two mortgage loan originations channels are discussed in more detail below:
 
Consumer Direct Retail Originations
 
In 2011, our largest originations channel was our Consumer Direct Retail channel. We employ a single centralized call center strategy leveraging multiple potential borrower lead sources. In our Consumer Direct Retail channel, each sales team typically consists of between 10 and 12 mortgage professionals managed by a sales leader. Three to four sales leaders report to a senior vice president responsible for the specific lead source.
 
Our primary divisions within our Consumer Direct Retail channel are Renewal, New Customer Acquisition, and Partner Plus. Each division specializes in meeting the needs of their specific target borrowers.


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This strategy provides a flexible organizational structure capable of shifting to new opportunities quickly. The three divisions of our Consumer Direct Retail channel are as follows:
 
Renewal:   Focuses on retaining current borrowers in our servicing portfolio and utilizes an integrated approach with our Servicing Segment to capture borrowers who either qualify to refinance their current mortgage or who take action indicating they may be paying off their loan. The Renewal teams receive leads for borrowers from telemarketing, live transfers and scheduled callbacks from Customer Service and website programs.
 
New Customer Acquisition:   Focuses on generating new mortgage business from prospective borrowers. We use credit bureau modeling to identify borrowers who are likely to be in the market for and likely to qualify to refinance their existing mortgage loan. Marketing channels include telemarketing, direct marketing, Internet lead aggregators, credit bureau triggers such as mortgage inquiries and website programs.
 
Partner Plus:   Focuses on serving the needs of strategic and joint marketing clients who, in many cases, do not have the originations capabilities to provide refinancing for their own portfolios. Currently, we are providing originations services to several servicers without originations capability. In many instances, these alliances involve providing certain incentives for the borrower to refinance, such as the payment of closing fees. These programs typically begin with a direct mail announcement of the relationship followed by direct marketing campaigns to increase borrower responses. This channel also offers REO financing for us and our partners through a centralized platform in Lewisville, Texas.
 
Wholesale Originations
 
The primary business strategy of the Wholesale channel is to acquire high-quality servicing at a reduced price through a network of non-exclusive relationships with various approved mortgage companies and mortgage brokers. The Wholesale channel is comprised of five sales regions throughout the United States, each staffed with a regional sales manager, and three centralized sales regions that operate out of our offices in Lewisville, Texas. Each region generally has 8 to 12 account executives whose primary responsibility is to source and service mortgage brokers. We provide a variety of conforming conventional mortgage loans to our brokers to allow them to better service their borrowers.
 
Mortgage brokers identify applicants, help them complete a loan application, gather required information and documents, and act as our liaison with the borrower during the lending process. We review and underwrite an application submitted by a broker, accept or reject the application, determine the range of interest rates and other loan terms, and fund the loan upon acceptance by the borrower and satisfaction of all conditions to the loan. By relying on brokers to market our products and assist the borrower throughout the loan application process, we can increase loan volume through our Wholesale channel with proportionately lower increases in overhead costs compared with the costs of increasing loan volume in loan originations through our retail channels.
 
New brokers are sourced through our account executives, industry trade shows forums and our website. The broker approval process is critical to maintaining a high quality network of brokers. Brokers must meet various requirements and must complete the broker application package, provide evidence of appropriate state licenses, articles of incorporation, financial statements, resumes of key personnel and other information as needed. The Wholesale operations team reviews all submitted materials to determine whether the broker should be approved. The broker application is reviewed and investigated by our quality control and risk management department before final approval is provided. The process is designed to ensure that borrowers we acquire through our Wholesale channel are working with reputable and legitimate mortgage brokers.


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Our ongoing investment in technology has allowed us to provide our broker network with the ability to obtain instantaneous online loan decisions, product options and corresponding pricing. We believe that the utility and convenience of online loan decisions and product options are a value-added service that has and will continue to solidify our business relationships. In addition, our website provides our brokers with loan status reports, product guidelines, loan pricing, interest rate locks and other added features. We expect to continue to adapt web-based technologies to enhance our one-on-one relationships with our brokers.
 
Technology
 
In the vast majority of cases, our key, critical systems are hosted, managed and maintained by our in-house Information Technology team. Our key systems consist of a combination of vendor developed applications as well as internally developed proprietary systems. On our most critical vendor developed applications (OPUS, XpressQual, TMO, LSAMS, FORTRACS, and Equator) we maintain license rights to the source code to enable in-house customization of these systems to meet our business needs in a time effective manner.
 
Servicing
 
For our Servicing Segment, our system of record is LSAMS, which we use for all loan accounting functions, claims functions and supports our Customer Service functions. Our early stage account collection efforts are focused and prioritized through the use of ESP, our proprietary early delinquency score model, used to identify higher risk accounts. Our collections and loss mitigation efforts are supported by Remedy, a proprietary default management system which, along with our proprietary Net Present Value engine and our proprietary Property Valuation Management system, enables our loan resolution personnel to guide our borrowers to the optimal economic workout alternative based on the unique factors of each borrower’s situation. For our foreclosure and bankruptcy processes, we use the FORTRACS system, which integrates with the Lendstar system to enable online communications and case tracking with our attorney network. For properties whereby we complete foreclosure and take them into REO status, we utilize the web-based REO management system REOTrans to manage the marketing and disposition of our owned real estate. To support our Investor Reporting functions, we use a combination of systems that include LSAMS and Lewtan ABS, a vendor hosted system. We also have a website, www.NationstarMtg.com, that is a fully automated system to apply and process mortgage loan applications and that our existing borrowers can access to receive information on their account. Information on, or accessible through, our website is not a part of this prospectus.
 
Originations
 
The critical systems that support our loan originations activities include:
 
  •     MLS (Marketing Lead System), our proprietary marketing lead system which routes, tracks and delivers leads to our loan officers, who we refer to as our mortgage professionals;
 
  •     OPUS, a web-based point-of-sale system that provides product eligibility and pricing to our retail sales force;
 
  •     TMO, our loan originations system used for loan processing, underwriting and closing;
 
  •     XpressQual, a web-based point-of-sale system that provides product eligibility and pricing to our wholesale brokers and allows them to submit loans to us online;
 
  •     www.NationstarBroker.com, our website for wholesale brokers to receive information on our products and services;


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  •     CLASS, our proprietary system used to manage our sales relationships and licensing of our wholesale brokers;
 
  •     ODE, a rules-based pricing and eligibility engine that is integrated with OPUS, XpressQual and TMO;
 
  •     High Cost Fee Engine, our proprietary compliance fee engine that enforces both federal and local high cost and fee limits throughout the loan originations process; and
 
  •     CLT (Compliance License Tracker), our proprietary system that maintains and tracks all mortgage professionals’ locational licensing to ensure that leads and applications are only processed by properly licensed mortgage professionals.
 
For our Consumer Direct Retail channel, the loan originations process starts when a lead is imported (or accepted) into our Marketing Lead System (MLS), a propriety system that our mortgage professionals use to manage the initial borrower contact process. Once a mortgage professional has made contact with a potential borrower, the mortgage professional moves the lead into OPUS, our web-based point-of-sale system. Here, our mortgage professionals capture the necessary loan application information, obtain credit reports to determine full product eligibility and establish pricing to facilitate the sales process. Once our mortgage professionals have helped our borrowers determine the program and pricing that meets their needs, the loan application is transferred into TMO, our loan originations system where we complete the loan process, underwrite the loan, prepare the closing documents and complete the loan process.
 
For our Wholesale originations channel, we provide our brokers a web-based point of sale system, XpressQual, to use to access product eligibility and pricing and to submit loans online. We also use TMO in this channel for the processing, underwriting and closing functions. Through XpressQual, our brokers have access to a web-based portal where they can upload their loan applications to determine product eligibility and loan pricing. Once they select a program and price, the broker is able to submit the file to us for processing as well as lock the rate using XpressQual. As in our retail originations channels, once submitted for processing, the file is transferred into TMO to verify the application information, clear conditions, underwrite and close the loan. Supporting OPUS, XpressQual and TMO, we also utilize a vendor developed rules-based pricing and eligibility engine called ODE as well as a proprietary compliance fee engine that enforces high cost and fee limits throughout the entire originations process. There is also a Compliance License Tracker system that maintains and tracks all mortgage professional and location level licensing. All systems are fully integrated and share information to ensure complete, up-to-date and accurate information for reporting purposes. To protect our business in the event of disaster, we have implemented a disaster recovery data facility in a co-location in Irving, Texas where we maintain near real-time replication of all critical servicing systems and data.
 
Employees
 
As of December 31, 2011, we had a total of 2,599 employees, all of whom are based in the United States. None of our employees are members of any labor union or subject to any collective bargaining agreement and we have never experienced any business interruption as a result of any labor dispute. Our employees are allocated among our business functions as follows:
 
  •     62% are in our Servicing Segment;
 
  •     25% are in our Originations Segment; and
 
  •     13% are in support functions, including Human Resources, Accounting and other corporate functions.


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In our Servicing Segment, we hire recent college graduates and teach them our high touch servicing model. Our loan servicers and debt default specialists follow a training program in which they first service performing loans and slightly delinquent loans. As they gain experience, they service more delinquent loans and assume increased personal responsibility for servicing a certain set of loans and contacting certain borrowers. In our Originations Segment, we hire experienced conventional mortgage originators and provide them with training to acclimate them to us, as well as compliance and regulatory training.
 
Regulation
 
Our business is subject to extensive federal, state and local regulation. Our loan originations, loan servicing and debt collection operations are primarily regulated at the state level by state licensing authorities and administrative agencies. Because we do business in all fifty states and the District of Columbia, we, along with certain of our employees who engage in regulated activities, must apply for licensing as a mortgage banker or lender, loan servicer and/or debt default specialist, pursuant to applicable state law. These state licensing requirements typically require an application process, processing fees, background checks and administrative review. Our servicing operations center in Lewisville, Texas is licensed (or maintains an appropriate statutory exemption) to service mortgage loans in all fifty states and the District of Columbia. Our retail loan originations channel is licensed to originate loans in at least the states in which it operates, and our direct originations channel is licensed to originate loans in the 48 contiguous states plus Alaska and the District of Columbia. From time to time, we receive requests from states and other agencies for records, documents and information regarding our policies, procedures and practices regarding our loan originations, loan servicing and debt collection business activities, and undergo periodic examinations by state regulatory agencies. We incur significant ongoing costs to comply with these licensing requirements.
 
While the U.S. federal government does not primarily regulate loan originations, the federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 requires all states to enact laws that require all U.S. sales representatives to be individually licensed or registered if they intend to offer mortgage loan products. These licensing requirements include enrollment in the Nationwide Mortgage Licensing System, application to state regulators for individual licenses, a minimum of 20 hours of pre-licensing education, an annual minimum of eight hours of continuing education and the successful completion of both national and state exams.
 
In addition to licensing requirements, we must comply with a number of federal consumer protection laws, including, among others:
 
  •     the Gramm-Leach-Bliley Act, which requires us to maintain privacy with respect to certain consumer data in our possession and to periodically communicate with consumers on privacy matters;
 
  •     the Fair Debt Collection Practices Act, which regulates the timing and content of debt collection communications;
 
  •     the Truth in Lending Act and Regulation Z thereunder, which require certain disclosures to the mortgagors regarding the terms of the mortgage loans;
 
  •     the Fair Credit Reporting Act, which regulates the use and reporting of information related to the credit history of consumers;
 
  •     the Equal Credit Opportunity Act and Regulation B thereunder, which prohibit discrimination on the basis of age, race and certain other characteristics, in the extension of credit;
 
  •     the Homeowners Protection Act, which requires the cancellation of mortgage insurance once certain equity levels are reached;


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  •     the Home Mortgage Disclosure Act and Regulation C thereunder, which require financial institutions to report certain public loan data;
 
  •     the Fair Housing Act, which prohibits discrimination in housing on the basis of race, sex, national origin, and certain other characteristics; and
 
  •     Regulation AB under the Securities Act, which requires certain registration, disclosure and reporting for MBS.
 
We must also comply with applicable state and local consumer protection laws, which may impose more comprehensive and costly restrictions than the regulations listed above. In a response to the decline in the housing market and the increase in foreclosures, many local governments have extended the time period necessary prior to initiating foreclosure proceedings, which prevent a servicer or trustee, as applicable, from exercising any remedies they might have in respect of liquidating a severely delinquent mortgage loan in a timely manner.
 
On February 7, 2012, the Financial Crimes Enforcement Network (“FinCEN”) finalized regulations that require non-bank residential mortgage lenders and originators to establish anti-money laundering programs and file suspicious activity reports as FinCEN requires of other types of financial institutions. The final rule was published in the Federal Register on February 14, 2012 and will be effective 60 days thereafter.
 
On May 28, 2009, we voluntarily entered into an agreement to actively participate as a loan servicer in HAMP, which enables eligible borrowers to avoid foreclosure through a more affordable and sustainable loan modification made in accordance with HAMP guidelines, procedures, directives and requirements. Loan modifications pursuant to HAMP may include a rescheduling of payments or a reduction in the applicable interest rates and, in some cases, a reduction in the principal amount due. Under HAMP, subject to a program participation cap, we, as a servicer, will receive an initial incentive payment of up to $1,500 for each loan modified in accordance with HAMP subject to the condition that the borrower successfully completes a trial modification period. In addition, provided that a HAMP modification does not become 90 days or more delinquent, we will receive an incentive of up to $1,000. As of December 31, 2011, over 24,000 loans with a UPB of $4.9 billion after modification had been modified through HAMP. HAMP is currently scheduled to expire on December 31, 2013.
 
On July 21, 2010, President Obama signed the Dodd-Frank Act into law. The Dodd-Frank Act represents a comprehensive overhaul of the financial services industry in the United States. The Dodd-Frank Act includes, among other things: (1) the creation of a Financial Stability Oversight Council to identify emerging systemic risks posed by financial firms, activities and practices, and to improve cooperation among federal agencies; (2) the creation of the Bureau of Consumer Financial Protection (“CFPB”) authorized to promulgate and enforce consumer protection regulations relating to financial products; (3) the establishment of strengthened capital and prudential standards for banks and bank holding companies; (4) enhanced regulation of financial markets, including derivatives and securitization markets; (5) amendments to the Truth in Lending Act aimed at improving consumer protections with respect to mortgage originations, including originator compensation, minimum repayment standards, and prepayment considerations. On July 21, 2011, the CFPB obtained enforcement authority pursuant to the Dodd-Frank Act and began official operations. On October 13, 2011, the CFPB issued guidelines governing how the agency supervises mortgage transactions, which involves sending examiners to banks and other institutions that service mortgages to assess whether consumers’ interests are protected. On January 11, 2012, the CFPB issued guidelines governing examination procedures for bank and non-bank mortgage originators. The exact scope of and applicability of many of these requirements to us are currently unknown, as the regulations to implement the Dodd-Frank Act generally have not yet been finalized. These provisions of the Dodd-Frank Act and actions by the CFPB could increase our regulatory compliance burden and associated costs and place restrictions on certain originations and servicing operations, all of which could in turn adversely affect our business, financial condition or results of operations.


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On April 13, 2011, the federal agencies overseeing certain aspects of the mortgage market, the OCC, the Federal Reserve and the FDIC, entered into enforcement consent orders with 14 of the largest mortgage servicers in the United States regarding foreclosure practices. The enforcement consent orders require the servicers, among other things, to: (1) promptly correct deficiencies in residential mortgage loan servicing and foreclosure practices; (2) make significant modifications in practices for residential mortgage loan servicing and foreclosure processing, including communications with borrowers and limitations on dual-tracking, which occurs when servicers continue to pursue foreclosure during the loan modification process; (3) ensure that foreclosures are not pursued once a mortgage has been approved for modification and establish a single point of contact for borrowers throughout the loan modification and foreclosure processes; and (4) establish robust oversight and controls pertaining to their third party vendors, including outside legal counsel, that provide default management or foreclosure services. While these enforcement consent orders are considered not to be preemptive of the state actions, it is currently unclear how state actions and proceedings will be affected by the federal consents.
 
On February 9, 2012, federal and state agencies announced a $25 billion settlement with five large banks that resulted from investigations of foreclosure practices. As part of the settlement, the banks have agreed to comply with various servicing standards relating to foreclosure and bankruptcy proceedings, documentation of borrowers’ account balances, chain of title, and evaluation of borrowers for loan modifications and short sales as well as servicing fees and the use of force-placed insurance. The settlement also provides for certain financial relief to homeowners.
 
On September 1, 2011 and November 10, 2011, the New York State Department of Financial Services entered into agreements regarding mortgage servicing practices with seven financial institutions. The additional requirements provided for in these agreements will increase operational complexity and the cost of servicing loans in New York. Other servicers, including us, could be required to enter into similar agreements. In addition, other states may also require mortgage servicers to enter into similar agreements.
 
On December 1, 2011, the Massachusetts Attorney General filed a lawsuit against five large mortgage providers alleging unfair and deceptive business practices, including the use of so-called “robo-signers.” In response, one of the mortgage providers has halted most lending in Massachusetts.
 
We, among others in our industry, received a subpoena from the New York State Department of Financial Services dated January 18, 2012, requesting the production of documents related to lender placed insurance, also known as “force-placed insurance,” business. We have and are continuing to provide responsive documents.
 
Although we are not a party to the above enforcement consent orders, and settlements, we could become subject to the terms of the consent orders and settlements if (1) we subservice loans for the servicers that are parties to the enforcement consent orders and settlements; (2) the agencies begin to enforce the consent orders and settlements by looking downstream to our arrangement with certain mortgage servicers; (3) the mortgage servicers for which we subservice loans request that we comply with certain aspects of the consent orders and settlements; or (4) we otherwise find it prudent to comply with certain aspects of the consent orders and settlements. In addition, the practices set forth in such consent orders and settlements may be adopted by the industry as a whole, forcing us to comply with them in order to follow standard industry practices, or may become required by our servicing agreements. While we have made and continue to make changes to our operating policies and procedures in light of the consent orders and settlements, further changes could be required, and changes to our servicing practices will increase compliance costs for our servicing business, which could materially and adversely affect our financial condition or results of operations.
 
Competition
 
In our Servicing Segment, we compete with large financial institutions and with other independent servicers. Our ability to differentiate ourselves from other loan servicers through our high touch servicing


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model and culture of credit loss ownership largely determines our competitive position within the mortgage loan servicing industry.
 
In our Originations Segment, we compete with large financial institutions and local and regional mortgage bankers and lenders. Our ability to differentiate the value of our financial products primarily through our mortgage loan offerings, rates, fees and customer service determines our competitive position within the mortgage loan originations industry.
 
Seasonality
 
Our Originations Segment is subject to seasonal fluctuations, and activity tends to diminish somewhat in the months of December, January and February, when home sales volume and loan originations volume are at their lowest. This typically causes seasonal fluctuations in our Originations Segment’s revenue. Our Servicing Segment is not subject to seasonality.
 
Intellectual Property
 
We use a variety of methods, such as trademarks, patents, copyrights and trade secrets, to protect our intellectual property. We also place appropriate restrictions on our proprietary information to control access and prevent unauthorized disclosures.
 
Properties
 
Our principal executive headquarters is located in Lewisville, Texas. At our main campus in Lewisville, Texas, we lease two buildings containing an aggregate of approximately 201,000 square feet of general office space, pursuant to two leases, both of which are currently due to expire in the first half of 2014. In addition to serving as our principal executive headquarters, our main Lewisville campus houses a portion of our servicing operations and all of our Consumer Direct Retail originations platform. We also own a parcel of undeveloped land at our campus location which can be used for future expansion.
 
We lease an additional approximately 40,000 square feet of space in Lewisville, Texas, which is currently due to expire in August 2013. This building houses our wholesale loan originations platform and some administrative support functions. We also maintain two separate leases of approximately 83,000 and 80,000 square feet at another location in Lewisville, Texas, which are currently due to expire in March 2017. In October 2011, we entered into an operating sublease agreement for approximately 53,000 square feet of office space in Houston, Texas, which will expire in November 2014, which we plan to use to tap into the ample human capital resources available in the market while we continue to grow our servicing business.
 
As of December 31, 2011, we had seven Distributed Retail branch leases. Our typical Distributed Retail branch office is between 1,200 and 3,000 square feet with lease terms of five years or less.
 
We have one lease of approximately 80,000 square feet on property located in Parsippany, New Jersey which we no longer utilize and which is being actively marketed for disposal. Additionally, we have leases on 18 locations that we no longer utilize. These leases are for square footage ranging from approximately 120 square feet to 4,100 square feet and expire at various dates through June 2014.
 
Legal Proceedings
 
We are routinely and currently involved in legal proceedings concerning matters that arise in the ordinary course of our business. These legal proceedings range from actions involving a single plaintiff to class action lawsuits with potentially tens of thousands of class members. An adverse result in governmental investigations or examinations, or private lawsuits, including purported class action lawsuits, could have a material adverse effect on our financial results. In addition, a number of participants in our industry, including


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us, have been the subject of purported class action lawsuits and regulatory actions by state regulators, and other industry participants have been the subject of actions by states’ Attorneys General. Although we believe that we have meritorious legal and factual defenses to the lawsuits in which we are currently involved, the ultimate outcomes with respect to these matters remain uncertain. Litigation and other proceedings may require that we pay settlement costs, legal fees, damages, penalties or other charges, which could adversely affect our financial results. In particular, ongoing and other legal proceedings brought under state consumer protection statutes may result in a separate fine for each violation of the statute, which, particularly in the case of class action lawsuits, could result in damages substantially in excess of the amounts we earned from the underlying activities and that could have a material adverse effect on our liquidity and financial position.
 
Governmental investigations, both state and federal, can be either formal or informal. The costs of responding to the investigations can be substantial. In addition, government-mandated changes to servicing practices could lead to higher costs and additional administrative burdens, in particular, those regarding record retention and informational obligations.


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MANAGEMENT
 
Directors and Executive Officers
 
The following table sets forth the name, age and position of individuals who currently serve as the directors and executive officers of Nationstar Mortgage Holdings Inc. The following also includes certain information regarding our directors’ and officers’ individual experience, qualifications, attributes and skills, and brief statements of those aspects of our directors’ backgrounds that led us to conclude that they should serve as directors.
 
             
Name
 
Age
 
Position
 
Wesley R. Edens
    50    
Chairman and Director
Jay Bray
    45    
Director, President, Chief Executive Officer and Chief Financial Officer
Robert H. Gidel
    60    
Director
Roy Guthrie
    58    
Director
Brett Hawkins
    48    
Director
Michael D. Malone
    58    
Director
Robert Appel
    51    
Executive Vice President of Servicing
Douglas Krueger
    43    
Executive Vice President of Capital Markets
Amar Patel
    40    
Executive Vice President of Portfolio Investments
Lisa Rogers
    48    
Executive Vice President of Originations
Anthony W. Villani
    55    
Executive Vice President and General Counsel
 
In February 2012, we appointed Dave C. Hisey as Chief Financial Officer and Harold Lewis as President and Chief Operating Officer. Mr. Hisey and Mr. Lewis are expected to assume their respective positions on February 27, 2012. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—General—Recent Developments.” As of that date, Jay Bray will continue to serve as Chief Executive Officer.
 
Wesley R. Edens was appointed to our board in 2012. He has been Co-Chairman of the board of directors of Fortress, an affiliate of our Initial Stockholder, since August 2009. From 2006 to 2009, he was Chairman of the board of directors of Fortress. He has also been a member of the Management Committee of Fortress since co-founding Fortress in 1998. He is responsible for Fortress’s private equity and publicly traded alternative investment businesses. He is also Chairman of the board of directors of each of Aircastle Limited, Brookdale Senior Living Inc., Eurocastle Investment Limited, Florida East Coast Railway Corp., GateHouse Media, Inc., Mapeley Limited, Newcastle Investment Corp. and RailAmerica, Inc. and a director of GAGFAH S.A., Penn National Gaming Inc., Springleaf Finance Corporation and Springleaf Finance Inc. Mr. Edens was Chief Executive Officer of Global Signal Inc., a real estate investment trust, from February 2004 to April 2006 and Chairman of its board of directors from October 2002 to January 2007. Mr. Edens also previously served on the boards of the following publicly traded company and registered investment companies: Crown Castle Investment Corp. (merged with Global Signal Inc.) from January 2007 to July 2007; Fortress Brookdale Investment Fund LLC, from August 13, 2000 (deregistered with the Securities and Exchange Commission (“SEC”) in March 2009); Fortress Pinnacle Investment Fund, from July 24, 2002 (deregistered with the SEC in March 2008); Fortress Investment Trust II, from July 2002 (deregistered with the SEC in January 2011); and RIC Coinvestment Fund LP, from May 10, 2006 (deregistered with the SEC in June 2009). Prior to forming Fortress, Mr. Edens was a partner and managing director of BlackRock Financial Management Inc., where he headed BlackRock Asset Investors, a private equity fund. In addition, Mr. Edens was formerly a partner and managing director of Lehman Brothers. Mr. Edens holds a B.S. in Finance from Oregon State University. Mr. Edens has extensive credit, private equity finance and management expertise, extensive experience as an


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officer and director of public companies and deep familiarity with Nationstar, and we believe he is qualified to serve on our board.
 
Jay Bray was appointed to our board in 2012. He has also served as our President and Chief Executive Officer since 2012 and as our Chief Financial Officer since 2011. Mr. Bray has also served as the President of Nationstar Mortgage LLC since July 2011, as the Chief Executive Officer of Nationstar Mortgage LLC since October 2011, as the Chief Financial Officer of Nationstar Mortgage LLC since he joined Nationstar in May 2000, as a Manager of Nationstar Mortgage LLC since October 2011, and as a Director of Nationstar Capital Corporation since March 2010. Mr. Bray has over 22 years of experience in the mortgage servicing and originations industry. From 1988 to 1994, Mr. Bray worked with Arthur Andersen in Atlanta, Georgia, where he served as an audit manager from 1992 to 1994. From 1994 to 2000, Mr. Bray held a variety of leadership roles at Bank of America and predecessor entities, where he managed the Asset Backed Securitization process for mortgage-related products, developed and implemented a secondary execution strategy and profitability plan and managed investment banking relationships, secondary marketing operations and investor relations. Additionally, Mr. Bray led the portfolio acquisition, pricing and modeling group. Mr. Bray holds a B.A.A. in Accounting from Auburn University and is a Certified Public Accountant in the State of Georgia. As a result of his service as Nationstar Mortgage LLC’s Chief Financial Officer for over 11 years, as well as his over 22 years of experience in the mortgage industry, Mr. Bray possesses a deep understanding of our business and the mortgage industry and we believe he is qualified to serve on our board.
 
Robert H. Gidel was appointed to our board in 2012. He has been a principal in Liberty Partners, LLC, a company that invests in both private and publicly traded real estate and finance focused operating companies, since 1998. He has also been a member of the board of directors and the chairman of the compensation committee of Developers Diversified Realty, a real estate investment trust, since 1999. Mr. Gidel has also served as Chairman of the board of directors of LNR Property Holdings, a private multi-asset real estate company, from 2005 until 2007. Until January 2007, Mr. Gidel was also a member of the board of directors and lead director of Global Signal Inc., a real estate investment trust. He has been a trustee of Fortress Registered Investment Trust and a director of Fortress Investment Fund II, LLC since 1999, both of which are registered investment companies. From 1996 until 2005, Mr. Gidel was the independent member of the investment committee of the Lone Star Funds I, II, III, IV and V. Mr. Gidel was also a member of the board of directors of U.S. Restaurant Properties, Inc. until 2005 and a member of the board of directors of American Industrial Properties Real Estate Investment Trust until 2001. Mr. Gidel holds a B.S.B.A. in Finance Insurance and Real Estate from the Warrington College of Business at the University of Florida. Mr. Gidel has extensive expertise in real estate finance as well as wide-ranging prior experience as a director, and we believe he is qualified to serve on our board.
 
Roy A. Guthrie was appointed to our board in 2012. He has also been a member of the board of directors and a member of the audit committee of Bluestem Brands, Inc. since 2010. He is also a member of the board of directors of Garrison Capital, LLC and Enova International, Inc. From 2005 to 2012, he served as Executive Vice President of Discover Financial Services, where he also served as Chief Financial Officer from 2005 to 2011 and as Treasurer from 2009 to 2010. Prior to joining Discover Financial Services, Mr. Guthrie was President and Chief Executive Officer of CitiFinancial International, LTD, a Consumer Finance Business of Citigroup, from 2000 to 2004, and he served on Citigroup’s Management Committee throughout this period. Mr. Guthrie was also Chief Financial Officer of Associates First Capital Corporation from 1996 to 2000, while it was a public company, and he served as a member of its board from 1998 to 2000. Mr. Guthrie holds a B.A. in Economics from Hanover College and an M.B.A. from Drake University. Mr. Guthrie has valuable expertise in consumer finance as well as extensive experience as an officer and director of public companies, and we believe he is qualified to serve on our board.
 
Brett Hawkins was appointed to our board in 2012. He co-founded GGL Global Gaming, a private video game, social networking, and digital content distribution platform, in 2004, and has served on the board of GGL’s parent corporation, Professional Interactive Entertainment, Inc., since its founding. Mr. Hawkins previously served as Vice President for Finance of DVDExpress.com, Inc. and President of its successor,


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Express Media Group, an early e-commerce business selling DVDs, video games, and peripherals. In March 2001, DVDExpress.com, Inc. filed a voluntary petition in the United States Bankruptcy Court, seeking reorganization relief under the provisions of Chapter 11 of Title 11 of the United States Bankruptcy Code. Mr. Hawkins has also held senior management positions at UBS/Warburg Dillon Read, where from 1997 to 1999 he was a Managing Director overseeing European Principal Finance, BlackRock Capital Finance, where from 1996 to 1997 he was Director of European Acquisitions & Operations, Lehman Brothers, where from 1994 to 1996 he was an Executive Director of Lehman Brothers International Europe and from 1993 to 1994 a Senior Vice President at Lehman Brothers Inc., and Salomon Brothers Inc., where from 1988 to 1993 he was a Vice President of Mortgage Trading with responsibility for Whole Loan CMO Business. Mr. Hawkins holds a B.B.A. in Finance and an M.B.A. in Finance, both from the University of Wisconsin - Madison. Mr. Hawkins has extensive experience in finance as well as valuable knowledge of the mortgage finance industry, Internet-based sales and customer service platforms, and we believe he is qualified to serve on our board.
 
Michael D. Malone was appointed to our board in 2012. He is a member of the Compensation Committee and the Audit Committee of Morgans Hotel Group Co. and has been one of its directors since January 2008. From February 2008 until February 2012, he served as a Managing Director of Fortress, an affiliate of our Initial Stockholder, where he was in charge of the Charlotte, North Carolina office and responsible for the business of the capital formation group in the southeast and southwest regions of the United States. Mr. Malone retired from Bank of America in November 2007, after nearly 24 years of service as Senior Executive Banker and Managing Director. Over those years Mr. Malone worked in and ran a number of investment banking businesses for the bank and its subsidiary, Banc of America Securities, including real estate, gaming, lodging, leisure, and the financial sponsors businesses. Mr. Malone holds a B.S. in General Studies from the University of Kentucky. Mr. Malone has valuable experience in both finance and real estate, and we believe he is qualified to serve on our board.
 
Robert Appel is our Executive Vice President of Servicing and has served in such capacity since 2011. He holds the same position at Nationstar Mortgage LLC and has served in this capacity since joining Nationstar in February 2008. Mr. Appel has over 21 years of experience in the mortgage industry and five years of public accounting experience. From 1985 to 1990, he served as an audit manager with Ernst and Young LLP. From 1990 to 1992, he held a position as Vice President of Control for Tyler Cabot Mortgage Securities Fund, a NYSE listed bond fund. From 1992 to 1999, Mr. Appel held a position at Capstead Mortgage where he started a master servicing organization and later became Senior Vice President of Default Management for Capstead’s primary servicer. From 1999 to 2003, he was Managing Director of GMAC’s Master Servicing operation. From 2003 to 2005, Mr. Appel was Chief Executive Officer of GMAC’s United Kingdom mortgage lending business. From 2005 to 2008, he served as Servicing Manager of GMAC’s $100 billion non-prime residential servicing platform. Mr. Appel holds a B.S., cum laude, in Business Control Systems from the University of North Texas and was formerly a Certified Public Accountant, Certified Financial Planner and a former member of the Freddie Mac Default Advisory Group.
 
Douglas Krueger is our Executive Vice President of Capital Markets and has served in such capacity since 2011. He holds the same position at Nationstar Mortgage LLC and has served in this capacity since joining Nationstar in February 2009. Mr. Krueger has over 20 years of experience in the mortgage industry. For five years, Mr. Krueger held various senior leadership roles with CitiMortgage managing the secondary marketing and master servicing areas. Mr. Krueger also served as Senior Vice President with Principal Residential Mortgage for 13 years. Mr. Krueger holds a B.B.A. from the University of Iowa and has earned the Chartered Financial Analyst designation.
 
Amar Patel is our Executive Vice President of Portfolio Investments and has served in such capacity since 2011. He holds the same position at Nationstar Mortgage LLC and has served in this capacity since joining Nationstar in June 2006. Mr. Patel has over 19 years of experience in the mortgage industry. From 1993 to 2006, Mr. Patel held various management roles at Capstead Mortgage Corporation, last serving as Senior Vice President of Asset and Liability Management. Mr. Patel holds a B.B.A. in Finance and Mathematics from Baylor University and an M.B.A. from Southern Methodist University.


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Lisa A. Rogers is our Executive Vice President of Originations and has served in such capacity since 2012. She holds the same position at Nationstar Mortgage LLC. Ms. Rogers has over 18 years of leadership experience in the mortgage industry. Prior to joining Nationstar in September 2011, Ms. Rogers was Senior Vice President, National Wholesale Operations and Support Manager for Wells Fargo Home Mortgage. Ms. Rogers had been with Wells Fargo since 1993 in a variety of roles including production risk management and strategic development. Ms. Rogers is a Master Certified Mortgage Banker and a graduate of both the School of Mortgage Banking and the Mortgage Bankers Association Future Leaders Program. Ms. Rogers is a past instructor of the School of Mortgage Banking.
 
Anthony W. Villani is our Executive Vice President and General Counsel and has served in such capacity since 2012. Pending regulatory approval, he will also hold the same position at Nationstar Mortgage LLC, which he joined in October 2011 as an Executive Vice President. Prior to joining Nationstar, Mr. Villani was Vice President and Associate General Counsel of Goldman, Sachs & Co. where he served as the managing attorney for Litton Loan Servicing LP, a Goldman Sachs company, from June 2008 until September 2011. He has also served as Executive Vice President and General Counsel of EMC Mortgage Corporation, a wholly-owned subsidiary of The Bear Stearns Companies Inc. Mr. Villani holds a J.D. from Oklahoma City University School of Law and a B.S. in Political Science from Arizona State University. Mr. Villani was admitted to the Oklahoma Bar in 1983 and the Texas Bar in 1989.
 
Other Significant Employees
 
John M. Draghi is our Executive Vice President of Capital Planning and Strategic Partnerships and has served in such capacity since joining Nationstar in February 2012. Although Mr. Draghi is not one of our executive officers, he makes significant contributions to our business. Mr. Draghi has over 25 years of experience in the mortgage industry. From 2009 to 2012, Mr. Draghi was a Managing Director at Fortress, an affiliate of our Initial Stockholder, and worked closely with our senior management. Prior to joining Fortress, Mr. Draghi was the Chief Executive Officer, Chief Operating Officer and Chief Investment Officer at C-BASS, an industry leader in residential investing and servicing, from 1996 to 2007. Prior to joining C-BASS, Mr. Draghi worked in the securities industry for 12 years, including as a Vice President at PaineWebber, where he was responsible for trading residential whole loans, new issue non-Agency MBS, Subordinated Securities and REMIC Residuals. Prior to PaineWebber, he worked at Lehman Brothers for eight years in both Capital Markets and Structured Finance and as a senior auditor at Coopers & Lybrand. In addition, Mr. Draghi has consulted in the subordinated mortgage market for a select group of institutional investors. Mr. Draghi holds a B.S.B.A. from Boston University and is an inactive certified public accountant.
 
Board of Directors
 
In connection with the Restructuring, we will adopt a new certificate of incorporation and new bylaws. Our amended and restated certificate of incorporation will provide that our board shall consist of not less than three and not more than eleven directors as the board of directors may from time to time determine. Our board of directors is divided into three classes that are, as nearly as possible, of equal size. Each class of directors is elected for a three-year term of office, but the terms are staggered so that the term of only one class of directors expires at each annual general meeting. The initial terms of the Class I, Class II and Class III directors will expire in 2013, 2014 and 2015, respectively. Messrs. Guthrie and Malone will each serve as a Class I director, Messrs. Gidel and Hawkins will each serve as a Class II director and Messrs. Edens and Bray will each serve as a Class III director. All officers serve at the discretion of the board of directors. Under our stockholders agreement (the “Stockholders Agreement”) with our Initial Stockholder, we are required to take all reasonable actions within our control (including nominating as directors the individuals designated by our Initial Stockholder that otherwise meet our reasonable standards for board nominations), subject to applicable regulatory and listing requirements (including the director independence requirements of the NYSE), so that up to a majority and, in some circumstances, a majority plus one, depending upon the size of the board (depending upon the level of ownership of the Initial Stockholder and certain other affiliates of Fortress and permitted transferees (referred to in this prospectus, collectively, as the “Fortress Stockholders”)) of the members of our board of directors are individuals designated by our Initial


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Stockholder. Upon completion of this offering, and in accordance with our Stockholders Agreement, our board of directors will consist of six directors, four of whom will be “independent,” as defined under the rules of the NYSE. Our board of directors has determined that Messrs. Hawkins, Gidel, Guthrie and Malone will be our independent directors.
 
Our amended and restated certificate of incorporation will not provide for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of common stock can elect all of the directors standing for election, and the holders of the remaining shares will not be able to elect any directors, subject to our obligations under our Stockholders Agreement discussed in the previous paragraph.
 
Committees of the Board of Directors
 
Upon completion of this offering, we will establish the following committees of our board of directors.
 
Audit Committee
 
The audit committee:
 
  •     reviews the audit plans and findings of our independent registered public accounting firm and our internal audit and risk review staff, as well as the results of regulatory examinations, and tracks management’s corrective action plans where necessary;
 
  •     reviews our financial statements, including any significant financial items and/or changes in accounting policies, with our senior management and independent registered public accounting firm;
 
  •     reviews our financial risk and control procedures, compliance programs and significant tax, legal and regulatory matters; and
 
  •     has the sole discretion to appoint annually our independent registered public accounting firm, evaluate its independence and performance and set clear hiring policies for employees or former employees of the independent registered public accounting firm.
 
The members of the audit committee are Messrs. Guthrie (Chair), Gidel, and Malone. Upon effectiveness of the registration statement, each member of the committee will be “independent,” as defined under the rules of the NYSE and Rule 10A-3 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Our board of directors has determined that each director appointed to the audit committee is financially literate, and the board has determined that Mr. Guthrie is our audit committee financial expert.
 
Nominating and Corporate Governance Committee
 
The nominating and corporate governance committee:
 
  •     reviews the performance of our board of directors and makes recommendations to the board regarding the selection of candidates, qualification and competency requirements for service on the board and the suitability of proposed nominees as directors;
 
  •     advises the board with respect to the corporate governance principles applicable to us;
 
  •     oversees the evaluation of the board and management;


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  •     reviews and approves in advance any related party transaction, other than those that are pre-approved pursuant to pre-approval guidelines or rules established by the committee; and
 
  •     recommends guidelines or rules to cover specific categories of transactions.
 
The members of the nominating and corporate governance committee are Messrs. Malone (chair), Gidel and Hawkins. Each member of our nominating and corporate governance committee is independent, as defined under the rules of the NYSE.
 
Compensation Committee
 
The compensation committee:
 
  •     reviews and recommends to the board the salaries, benefits and equity incentive grants for all employees, consultants, officers, directors and other individuals we compensate;
 
  •     reviews and approves corporate goals and objectives relevant to Chief Executive Officer compensation, evaluates the Chief Executive Officer’s performance in light of those goals and objectives, and determines the Chief Executive Officer’s compensation based on that evaluation; and
 
  •     oversees our compensation and employee benefit plans.
 
The members of the compensation committee are Messrs. Hawkins (chair), Gidel and Malone. Each member of our compensation committee is independent, as defined under the rules of the NYSE. The “independent” directors that are appointed to the compensation committee are also “non-employee” directors as defined in Rule 16b-3(b)(3) under the Exchange Act and “outside” directors within the meaning of Section 162(m)(4)(c)(i) of the Code.
 


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COMPENSATION DISCUSSION AND ANALYSIS
 
This Compensation Discussion and Analysis is designed to provide an understanding of the compensation program for our President, Chief Executive Officer and Chief Financial Officer, Jay Bray, our Executive Vice President, Servicing, Robert L. Appel, our Executive Vice President, Portfolio Investments, Amar Patel, our Executive Vice President, Capital Markets, Douglas Krueger and our former Chairman and Chief Executive Officer, Anthony H. Barone, (collectively, our named executive officers or “NEOs”), with respect to our 2011 fiscal year. Effective October 7, 2011, Mr. Bray became our Chief Executive Officer and Mr. Barone became the Chairman of the Board of Managers of Nationstar Mortgage LLC. Our executive officers receive no direct compensation from us. The executives who run our Company are compensated by Nationstar Mortgage LLC, and therefore, the disclosure in this section relates to the compensation arrangements of Nationstar Mortgage LLC. References to “our” compensation policies in this section refer to the joint policies and practices of us and Nationstar Mortgage LLC.
 
Compensation Philosophy and Objectives
 
Our primary executive compensation goals are to attract, motivate and retain the most talented and dedicated executives and to align annual and long-term incentives while enhancing unitholder value. To achieve these goals we maintain compensation plans that:
 
  •     Deliver a mix of fixed and at-risk compensation, including through the grants of restricted units and restricted preferred units.
 
  •     Through dividend equivalents on grants of restricted units and restricted preferred units, tie a portion of the overall compensation of executive officers to the dividends we pay to our unitholders.
 
  •     Encourage the achievement of our short- and long-term goals on both the individual and company levels.
 
Process for Setting Executive Officer Compensation
 
Peter Smith, the designated manager (the “Manager”) of our Initial Stockholder, the sole member of the Company (our “Parent”), and its unitholders evaluate our performance, including the achievement of key investment and capital raising goals, and the individual performance of each NEO, with a goal of setting overall compensation at levels that our Parent and its unitholders believe are appropriate.
 
Participation of Management.   Our NEOs are not directly responsible for determining our Chief Executive Officer’s compensation, although they regularly provide information to our Parent and its unitholders that is relevant to its evaluation of the NEOs’ compensation (for instance, in terms of our performance against established compensation goals and otherwise). By contrast, the Chief Executive Officer plays a more active role in determining the compensation of the other NEOs, who are his subordinates. He regularly advises our Parent and its unitholders of his own evaluation of their job performance and offers for consideration his own recommendations for their compensation levels. Final compensation decisions are executed by the Manager.
 
Compensation Consultant.   We have not retained a compensation consultant to review our policies and procedures with respect to executive compensation, although the Company or Parent may elect in the future to retain a compensation consultant if they determine that doing so would assist it in implementing and maintaining compensation plans.
 
Risk Considerations.   In developing and reviewing the executive incentive programs, our Parent and unitholders consider the business risks inherent in program designs to ensure they do not induce executives to


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take unacceptable levels of business risk for the purpose of increasing their incentive plan awards. Our Parent and unitholders believe that the mix of compensation components used in the determination of our NEOs’ compensation reflects the performance of our Company and the performance of the individual employee and does not encourage our NEOs to take unreasonable risks relating to the business. Our NEOs’ ownership interest in the Company aligns our NEOs’ interests with our long-term performance and discourages excessive risk taking.
 
Elements of Compensation
 
Our executive compensation consists of the elements set forth below. Determinations regarding any one element of compensation affect determinations regarding each other element of compensation, because the goal of our Parent and unitholders is to set overall compensation at an appropriate level. Our Parent and unitholders take into account in this regard the extent to which different compensation elements are at-risk. Accordingly, for example, the amount of salary paid to an NEO is considered by our Parent and unitholders in determining the amount of any cash bonus or restricted unit or restricted preferred unit award, but the relationship among the elements is not formulaic because of the need to balance the likelihood that the at-risk components of compensation will actually be paid at any particular level. We further base overall compensation packages of our executive officers on their experience, current market conditions, business trends, and overall Company performance. As a result, the total compensation of our NEOs in 2011 consisted of the following elements: (1) base salary, (2) non-equity incentive plan awards, (3) equity awards, and (4) participation in employee benefit plans.
 
Base Salary
 
We utilize base salary as the foundation of our compensation program. Base salaries for our NEOs are established based upon the scope of their responsibilities and what is necessary to recruit and retain skilled executives. We believe that our executives’ base salaries are comparable with salaries paid to executives at companies of a similar size and with a similar performance to us. Base salaries are reviewed annually in accordance with the NEO’s annual performance evaluation and increased from time to time in view of each NEO’s individual responsibilities, individual and company performance, and experience.
 
Messrs. Bray, Patel, Krueger and Barone had entered into employment agreements with the Company that set a minimum salary upon execution of the agreement; however, their employment agreements expired in 2011 and they are currently employees at will. Mr. Appel has entered into an employment agreement with the Company that set a minimum salary upon execution of the agreement. These base salaries are intended to complement the at-risk components of the Company’s compensation program by assuring that our NEOs will receive an appropriate minimum level of compensation.
 
Annual Bonus Plans
 
Annual bonus incentives keyed to short-term objectives form an important part of our compensation program. Our annual bonus plans are designed to provide incentives to achieve certain financial goals of the Company, as well as personal objectives.
 
The Incentive Plan for Messrs. Barone, Bray, Appel and Patel.   Messrs. Barone, Bray, Appel, and Patel participate in our Annual Incentive Compensation Plan (the “Incentive Plan”). The Incentive Plan provides for payment of annual cash incentive bonuses from a pool equal to 5% of the Company’s Operating Cash Flow. Operating Cash Flow is generally equal to Adjusted EBITDA from the Operating Segments less servicing resulting from transfers of financial assets. In calculating Operating Cash Flow, non-cash components affecting Adjusted EBITDA both positively and negatively, if any, are excluded. This measure of Operating Cash Flow is intended to represent the Company’s cash revenues less all fully allocated cash and accrued expenses. Tying bonus payments to Operating Cash Flow puts a significant portion of these executives’ salary at risk and ties their compensation to our operational and financial results. The Incentive


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Plan is maintained by Nationstar Mortgage LLC and is administered by our Parent. Our Parent chose the Company’s Operating Cash Flow as an incentive metric believing that it reflects the efficiency with which our management team manages the Company on a short- and long-term basis.
 
Our Parent may not decrease the amount of the bonus pool. Each fiscal year, our Parent determines each applicable NEO’s allocable portion of the bonus pool for that fiscal year, provided, however, that our Parent may not reduce any executive’s allocable percentage to less than 75% of the executive’s percentage for the prior fiscal year. To receive the actual award, the NEO must be employed by the Company (and not have given notice of intent to resign) on the last day of the fiscal year to which the bonus relates.
 
The following are our NEO’s target bonus percentages for 2011:
 
         
    Allocable
 
    Percentage of the
 
Name
 
Bonus Pool
 
 
Jay Bray
    31.7%  
Robert L. Appel
    17.2%  
Amar Patel
    15.5%  
Anthony H. Barone
    35.6%  
 
Annual Incentive Program for Mr. Krueger.   Mr. Krueger participates in our annual cash incentive program, which includes Company and individual performance measures. Mr. Krueger’s key objectives for 2011 were Operating Cash Flow (20% weight factor in final payout), secondary marketing profit/loss (30% weight) and other deliverables (50% weight). In 2011, Mr. Krueger’s other responsibilities were associated with managing hedging risks, execution of loan sales, GSE and investor relations and frequency of repurchase requests. Under the annual incentive program, Company and individual performance measures are established at the beginning of the fiscal year by the Company’s Board of Managers. At year end, the Board of Managers rates the results for each key objective on a scale of one to five. The rating is multiplied by the weight of each key objective to result in a weighted score, with five being the highest possible score. The weighted score is converted into a percentage and multiplied by Mr. Krueger’s bonus opportunity to result in the annual cash incentive awarded. The annual cash incentive is generally paid in a single installment in the first quarter following completion of the plan year. Mr. Krueger must be employed by the Company on December 31 of the award year and not have given notice of termination by the time that the award is paid to receive the bonus. As a condition of participation in the annual incentive plan, Mr. Krueger is subject to a non-solicitation covenant. Following our public offering, we anticipate Mr. Krueger will continue to receive annual incentive awards but the Compensation Committee has made no definitive decisions regarding future awards.
 
Long-Term Incentive Plans
 
Equity Incentive Plan.   We have provided long-term incentives in the form of grants of Series 1 and Series 2 Class A units (“Units”) and restricted preferred units relating to Series 1 Class C and Class D preferred units (“RSUs”) of the Initial Stockholder to our NEOs to promote sustained high performance. Units and RSUs are granted pursuant to the limited liability company agreement of the Initial Stockholder and individual award agreements. No Units or RSUs were granted to NEOs in 2011. In 2010, substantial one-time grants of Units and RSUs, subject to three-year vesting, were granted to each of Messrs. Bray, Appel, Patel and Barone based on a review of our existing compensation arrangements with our most highly valued executives and the business environment. Specifically, the grants were intended to both serve as a long-term incentive device, a retention device and to further align the interests of Messrs. Bray, Appel, Patel and Barone with the Company in the future.
 
The Units and RSUs vest over a three year period. Each RSU represents the right to receive one Series 1 Class C preferred unit or one Series 1 Class D preferred unit, as applicable, upon vesting and settlement of the RSU. If the Company pays a dividend to Class C or Class D unitholders (other than with


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respect to any pre-2010 preferred yield), the executive will be entitled to receive a proportionate payment based on the number of RSUs he holds, whether or not they have vested.
 
Our equity arrangements provide for accelerated vesting of the number of Units and RSUs scheduled to vest on the next scheduled vesting date, if any, where the employment of an applicable NEO is terminated without “cause” (other than within six months after a “change in control”), by such NEO for “good reason” or upon death or disability, subject to the NEO executing a general release of claims in favor of the Company. If the employment of an applicable NEO is terminated without cause within six months following a change in control, subject to the NEO executing a general release of claims in favor of the Company, all unvested Units and RSUs will vest. We believe that such a provision benefits the Company and its unitholders by giving our NEOs some protection so they may make decisions about the Company and any potential transaction free from concerns about the impact to their unvested equity awards. On any other termination of employment, all unvested Units and RSUs will be forfeited.
 
Following termination of employment, the applicable series will have certain repurchase rights with respect to the Series 1 and Series 2 Class A units and the Series 1 Class C and Class D preferred units. The applicable series, and if the series elects not to exercise its right, the Fortress Funds, which own the Initial Stockholder, may repurchase the applicable units for 30 days following the executive’s termination of employment. The repurchase price per unit is calculated as set forth in the limited liability company agreement of the Initial Stockholder and the applicable award agreements. Thus, the repurchase price differs based on the unit’s series, as well as the reason for termination. Class A units granted to Messrs. Bray, Appel, Patel and Barone, may be repurchased (a) following a termination for cause at the lesser of fair market value on the date of (i) termination or (ii) grant, and (b) following a termination for any other reason, for fair market value on the date of termination. The Series 1 Class A units granted to these executives are subject to the Unit Exchange offered by the Initial Stockholder, pursuant to which these executives may elect to receive shares of our common stock. Class C and D units may be repurchased for an amount equal to the sum of (i) the purchase price of the units plus any additional capital contributions less any distribution paid with respect to the units and (ii) any accrued and preferred yield less any accrued unpaid pre-2010 preferred yield.
 
Equity Plan Adopted in Connection with our Initial Public Offering.   We have adopted the 2012 Incentive Compensation Plan (the “Plan”), which will enable us to offer certain key employees, consultants and non-employee directors equity-based awards. In connection with this offering, we expect to make grants of restricted stock to management in the total amount of 963,890 shares and to members of the Board in the total amount of 66,668 shares. Of this amount, we expect to grant our NEOs, Mr. Bray and Mr. Krueger, 333,334 shares and 16,667 shares, respectively. There is no current understanding or agreement with respect to any awards to be made to our other NEOs. The purpose of the Plan is to enhance our profitability and value for the benefit of stockholders by enabling us to offer equity-based incentives in order to attract, retain and reward such individuals, while strengthening the mutuality of interests between those individuals and our stockholders. Up to 5,200,000 shares of our common stock may be issued under the plan with annual increases of 150,000 shares of common stock per year (subject to adjustment to reflect certain transactions and events specified in the Plan, as described below). The maximum aggregate awards that may be granted during any fiscal year will be 3,000,000 shares, or $20 million with respect to a cash-based award. We intend to file with the SEC a registration statement on Form S-8 covering the shares issuable under the Plan.
 
The following is a summary of the material terms and provisions of the Plan and certain tax effects of participation in the Plan. This summary is qualified in its entirety by reference to the complete text of the Plan, which is attached hereto as Exhibit 10.57 and incorporated herein. To the extent that there is a conflict between this summary and the Plan, the terms of the Plan will govern. Capitalized terms that are used but not defined in this summary have the meanings given to them in the Plan.


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Description of the Plan
 
Plan Administration.   The Plan will be administered by the compensation committee (the “Committee”), which will have discretion and authority to interpret the Plan, prescribe, amend and rescind rules and regulations regarding the Plan, select Participants to receive Awards, determine the form, terms and conditions of Awards, and take other actions it deems necessary or advisable for the proper operation or administration of the Plan.
 
Stock Options and Stock Appreciation Rights.   All Stock Options granted under the Plan are intended to be non-qualified share options and are not intended to qualify as “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code. Stock Appreciation Rights may be awarded either alone or in tandem with Nonqualified Stock Options. Stock Options and Stock Appreciation Rights will have maximum terms of ten years. Stock Options and Stock Appreciation Rights will be subject to the following terms and conditions:
 
  •     The Exercise Price for each Share subject to a Stock Option or Stock Appreciation Right will be not less than the Fair Market Value of a Share on the date of grant.
 
Restricted Units, Restricted Stock, Deferred Shares and Performance Shares.   Restricted Units, Restricted Stock, Deferred Shares and Performance Shares are subject to the following terms and conditions:
 
  •     The Committee will determine the purchase price, the vesting schedule and performance objectives, if any, with respect to the grant of Restricted Shares, Restricted Units, Deferred Shares and Performance Shares.
 
Other Stock-Based Awards.   The Committee may, from time to time, grant Awards other than those referred to above that consist of, are denominated in, or are otherwise related to Shares. These Awards may include, among other things, stock units or phantom or hypothetical shares. The Committee has broad discretion to determine any terms and conditions that will apply to Other Stock-Based Awards under the Plan.
 
Cash-Based Awards.   The Committee may grant Cash-Based Awards that may be settled in cash or other property, including shares of Common Stock. The Committee has broad discretion to determine any terms and conditions that will apply to Cash-Based Awards under the Plan.
 
Transfer.   Awards may not be transferred by a Participant other than by will or the laws of descent and distribution, except that Restricted Stock may be freely transferred after the restrictions lapse or are satisfied and the Shares are delivered.
 
Adjustments.   The maximum number of Shares available for issuance under the Plan, the individual and aggregate limits described above, the number of Shares underlying outstanding Awards and the Exercise Price applicable to outstanding Awards shall be equitably adjusted upon certain events effecting the capitalization of Nationstar Mortgage Holdings Inc. such as a recapitalization or stock split. Upon the occurrence of certain extraordinary corporate transactions, such as a dissolution, sale, or merger of Nationstar Mortgage Holdings Inc., the Committee has discretion to cancel each Award in exchange for an amount in cash or to provide for the exchange of each Award for an Award with respect to some or all of the property which a holder of the number of shares of Common Stock subject to such Award would have received in the transaction.
 
Change in Control.   The Committee has discretion to provide for acceleration of vesting and/or payment of Awards upon a Change in Control, as defined in the Plan.
 
Amendment and Termination.   The Committee has authority at any time to amend or terminate the Plan, provided that such amendment may not be prejudicial to any Participant. No material revision to the Plan may become effective without stockholder approval. For this purpose, a revision will be deemed to be material based on


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the rules adopted by the NYSE from time to time or if it materially increases the number of Shares that may be issued under the Plan (other than as a result of an adjustment described above or automatic increases). NYSE rules currently provide that material revisions which require stockholder approval include a material increase in the number of shares available under the Plan, a material expansion of the types of awards available under the plan, a material expansion of the class of employees, directors, or other service providers eligible under the Plan, a material extension of the term of the Plan, a material change in the method of determining the strike price of options under the Plan and an amendment to permit option repricing. The Plan will terminate, if not sooner as a result of Committee action, on the 10th anniversary of the date the Plan is adopted.
 
Summary of Federal Income Tax Consequences of Awards
 
The following is a brief summary of the principal U.S. federal income tax consequences of Awards and transactions under the Plan. This summary is not intended to be exhaustive and, among other things, does not describe state, local or foreign tax consequences.
 
Nonqualified Stock Options and Stock Appreciation Rights.   A Participant will not recognize any income at the time a Nonqualified Stock Option or Stock Appreciation Right is granted, nor will we be entitled to a deduction at that time. When a Nonqualified Stock Option is exercised, the Participant will recognize ordinary income in an amount equal to the excess of the Fair Market Value of the Shares received as of the date of exercise over the Exercise Price. When a Stock Appreciation Right is exercised, the Participant will recognize ordinary income in an amount equal to the cash received or, if the Stock Appreciation Right is paid in Shares, the Fair Market Value of the Shares received as of the date of exercise. Payroll taxes are required to be withheld from the Participant on the amount of ordinary income recognized by the Participant. We will be entitled to a tax deduction with respect to a Nonqualified Stock Option or Stock Appreciation Right in the same amount as the Participant recognizes income.
 
Restricted Units, Restricted Stock and Performance Awards.   A Participant will not recognize any income at the time a Restricted Unit, Share of Restricted Stock or Performance Award is granted, nor will we be entitled to a deduction at that time. When a Restricted Unit is redeemed, the Participant will recognize ordinary income in an amount equal to the Fair Market Value of the Shares received or, if the Restricted Unit is paid in cash, the amount payable. In the year in which Shares of Restricted Stock or the Performance Award are no longer subject to a substantial risk of forfeiture (i.e., in the year that the Shares vest), the Participant will recognize ordinary income in an amount equal to the excess of the Fair Market Value of the Shares on the date of vesting over the amount, if any, the Participant paid for the Shares. A Participant may, however, elect within 30 days after receiving Restricted Stock to recognize ordinary income in the year of receipt instead of the year of vesting. If an election is made, the amount of income recognized by the Participant will be equal to the excess of the Fair Market Value of the Shares on the date of receipt over the amount, if any, the Participant paid for the Shares. Payroll taxes are required to be withheld from the Participant on the amount of ordinary income recognized by the Participant. We will be entitled to a tax deduction in the same amount as the Participant recognizes income.
 
Deferred Shares.   In general, the grant of Deferred Shares will not result in income for the Participant or in a tax deduction for us. Upon the settlement of such an award, the Participant will recognize ordinary income equal to the aggregate value of the payment received, and we generally will be entitled to a tax deduction in the same amount.
 
Cash-Based Awards.   A Participant will not recognize any income at the time of the grant to the Participant of a Cash-Based Award. The Participant will recognize income at the time that cash is paid to the participant pursuant to a Cash-Based Award, in the amount paid. Payroll taxes will be required to be withheld at that time. We will be entitled to a tax deduction in the same amount as the amount the Participant recognizes income.


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Long-Term Incentive Plan.   Mr. Krueger participates in a long-term incentive plan which is designed to reward company and individual performance and serve as a retention device. Awards are determined at the conclusion of the plan year (calendar) based upon the Company’s overall financial performance and Mr. Krueger’s contribution to those results. The Company made no long-term incentive awards to NEOs in 2011. However, Messrs. Bray, Patel and Barone received awards in 2008 that vested in 2011 in the amounts of $200,000, $150,000 and $300,000, respectively. Following our public offering, we anticipate Mr. Krueger will continue to receive long-term incentive awards. However, the Compensation Committee has made no definitive decisions regarding future awards. Awards are approved by our Board of Managers with an award date of December 31 of the year just concluded. The award is generally subject to a three year cliff vesting requirement from the date of the award, which provides an important retention incentive as the executive must remain employed by the Company to receive the award. The award ordinarily is paid in a single installment in the first quarter of the third year following grant. Mr. Krueger must be employed by the Company on the date of payout to receive the award.
 
Severance Benefits
 
As noted above, we have entered into an employment agreement with Mr. Appel and we had entered into employment agreements with Messrs. Bray, Patel, Krueger and Barone that expired in 2011. While the employment agreements are in effect, the agreements provide severance benefits to such officers in the circumstances described in greater detail below in the section entitled “Employment Agreements.”
 
Other Compensation Components
 
All of our executive officers are eligible to participate in our employee benefit plans, including medical, dental, life insurance and 401(k) plans. These plans are available to all employees and do not discriminate in favor of our NEOs. In addition, we reimburse Mr. Barone and Mr. Bray for the cost of life insurance premiums pursuant to our Executive Life Program. We do not view perquisites as a significant element of our comprehensive compensation structure; however, we believe some perquisites are necessary for the Company to attract and retain superior management talent for the benefit of all unitholders. The value of these benefits to the NEOs is set forth in the Summary Compensation Table under the column “All Other Compensation” and details about each benefit is set forth in a table following the Summary Compensation Table.
 
Summary Compensation Table
 
The following table sets forth the annual compensation for the NEOs serving at the end of fiscal year 2011.
 
                                                         
                            Non-Stock
             
                      Stock
    Incentive Plan
    All Other
       
          Salary
    Bonus
    Awards
    Compensation
    Compensation
    Total
 
Name
 
Year
   
($)
   
($)
   
($)(1)
   
($)
   
($)
   
($)
 
 
Jay Bray
    2011       320,000                   1,633,459 (2)     11,048 (6)     1,964,507  
      2010       320,000             9,918,148       809,434 (3)     11,048 (6)     11,058,630  
      2009       289,800                   630,235 (5)     11,069 (7)     931,104  
Robert L. Appel
    2011       275,000                   886,495 (2)     6,875 (8)     1,168,370  
      2010       275,000             6,467,985       439,288 (3)     5,500 (8)     7,187,773  
      2009       275,000                   342,035 (5)     5,500 (8)     622,535  
Amar Patel
    2011       255,000                   797,958 (2)     6,231 (8)     1,059,189  
      2010       255,000             4,147,863       395,415 (3)     6,231 (8)     4,804,509  
      2009       255,000                   307,875 (5)     6,231 (8)     569,106  
Douglas Krueger
    2011       257,500                   350,000 (2)     7,725 (8)     615,225  
      2010       250,000                   425,000 (9)     3,125 (8)     678,125  
      2009       215,064       50,000 (10)           350,000 (11)     41,239 (12)     656,303  
Anthony H. Barone
    2011       424,350                   1,832,088 (2)     17,036 (13)     2,273,474  
      2010       424,350             9,584,458       907,862 (3)     16,116 (4)     10,932,786  
      2009       424,350                   706,872 (5)     16,116 (4)     1,147,338  


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(1) Represents the aggregate grant date fair value, as computed in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 718, Compensation—Stock Compensation excluding the effect of estimated forfeitures during the applicable vesting periods, of units and RSUs granted to the NEOs. Information with respect to vesting of these awards is disclosed in the Grant of Plan Based Awards table and the accompanying notes.
 
(2) These amounts will be paid in the first quarter of fiscal year 2012 but represent awards with respect to the Company’s and individual performance in fiscal year 2011.
 
(3) These amounts were paid in the first quarter of fiscal year 2011 but represent awards with respect to the Company’s and individual performance in fiscal year 2010.
 
(4) Represents payment of a life insurance premium equal to $9,216 and a $6,900 contribution to Mr. Barone’s 401(k) account.
 
(5) These amounts were paid in the first quarter of fiscal 2010 but represent awards with respect to the Company’s and individual performance in fiscal year 2009.
 
(6) Represents payment of a life insurance premium equal to $5,998 and a $5,050 contribution to Mr. Bray’s 401(k) account.
 
(7) Represents payment of a life insurance premium equal to $5,998 and a $5,071 contribution to Mr. Bray’s 401(k) account.
 
(8) Represents a contribution to the NEO’s 401(k) account.
 
(9) Of this amount, $300,000 was paid in the first quarter of fiscal year 2011, although it represents an award with respect to the Company’s and Mr. Krueger’s individual performance in fiscal year 2010. The remaining $125,000 is pursuant to the Long-Term Incentive Plan, described above, and is subject to three-year time-based cliff vesting; this amount will become vested on December 31, 2013 as long as Mr. Krueger remains employed with the Company.
 
(10) Represents a sign-on bonus Mr. Krueger received pursuant to his employment agreement when he joined the Company.
 
(11) Of this amount, $225,000 was paid in the first quarter of fiscal year 2010, although it represents an award with respect to the Company’s and Mr. Krueger’s individual performance in fiscal year 2009, as described in Annual Incentive Program for Mr. Krueger . The remaining $125,000 is pursuant to the Long-Term Incentive Plan, described above, and is subject to three-year time-based cliff vesting; this amount will become vested on December 31, 2012 as long as Mr. Krueger remains employed with the Company.
 
(12) Represents payment of a relocation expenses equal to $39,469 and a $1,770 contribution to Mr. Krueger’s 401(k) account.
 
(13) Represents payment of a life insurance premium equal to $9,216 and a $7,820 contribution to Mr. Barone’s 401(k) account.


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Grants of Plan-Based Awards
 
The following table sets forth, for each of the Executive Officers, the grants of awards under any plan during the fiscal year ended December 31, 2011.
 
         
    Estimated
 
    Future
 
    Payouts
 
    Under
 
    Non-Equity
 
    Incentive Plan
 
    Awards
 
Name
 
Target ($)
 
 
Jay Bray
    1,633,459 (1 )
Robert L. Appel
    886,495 (1 )
Amar Patel
    797,958 (1 )
Douglas Krueger
    350,000 (2 )
Anthony H. Barone
    1,832,088 (1 )
 
(1) Represents amounts granted under the Incentive Plan as described in Incentive Plan for Messrs. Barone, Bray, Appel and Patel .
 
(2) Represents the amount granted under the Annual Incentive Program for Mr. Krueger, as described above.
 
Outstanding Equity Awards at Fiscal Year End
 
The following table sets forth, for each of the NEOs the outstanding equity awards as of the end of the fiscal year ended December 31, 2011, as described in greater detail in Long-Term Incentive Plan . The unvested Series 1 Class A units may be exchanged for shares of our common stock pursuant to the Unit Exchange offered by the Initial Stockholder.
 
                                                 
   
Stock Awards
 
    Number of Units That Have
    Market Value of Units That Have
 
   
Not Vested (#)
   
Not Vested ($)
 
Name
 
1A
   
2A
   
1C&1D
   
1A
   
2A
   
1C&1D
 
 
Jay Bray (1)
    56,880       10,633       692,917       4,492,347       7,908       961,338  
Robert L. Appel (2)
    34,128       6,379       415,750       2,695,408       4,744       576,803  
Amar Patel (3)
    22,752       4,254       277,167       1,796,939       3,164       384,535  
Douglas Krueger
                                   
Anthony H. Barone (4)
    68,256       12,758       831,500       5,390,816       9,488       1,153,606  
 
(1) This award is subject to vesting. With respect to the Series 1 Class A, the award will vest with respect to 56,880 Series 1 Class A units on June 30, 2012. With respect to the Series 2 Class A, the award will vest with respect to 10,633 Series 2 Class A units on June 30, 2012. With respect to the Series 1 Class C and D preferred units, the award will vest with respect to 692,917 units on June 30, 2012.
 
(2) This award is subject to vesting. With respect to the Series 1 Class A, the award will vest with respect to 34,128 units on June 30, 2012. With respect to the Series 2 Class A, the award will vest with respect to 6,379 units on June 30, 2012. With respect to the Series 1 Class C and D preferred units, the award will vest with respect to 415,750 units on June 30, 2012.
 
(3) This award is subject to vesting. With respect to the Series 1 Class A, the award will vest with respect to 22,752 Series 1 Class A units on June 30, 2012. With respect to the Series 2 Class A, the award will vest with respect to 4,254 Series 2 Class A units on June 30, 2012. With respect to the Series 1 Class C and D preferred units, the award will vest with respect to 277,167 units on June 30, 2012.
 
(4) This award is subject to vesting. With respect to the Series 1 Class A, the award will vest with respect to 68,256 Series 1 Class A units on June 30, 2012. With respect to the Series 2 Class A, the award will vest


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with respect to 12,758 on June 30, 2012. With respect to the Series 1 Class C and D preferred units, the award will vest with respect to 831,500 units on June 30, 2012.
 
Stock Vested
 
The following table sets forth, for each of the NEOs, information with respect to the vesting of equity-based awards during the fiscal year ended December 31, 2011. The Series 1 Class A units may be exchanged for shares of our common stock pursuant to the Unit Exchange offered by the Initial Stockholder.
 
                                                 
   
Stock Awards
 
    Number of Shares
       
   
Acquired on Vesting (#)
   
Value Realized on Vesting ($)
 
Name
 
1A
   
2A
   
1C&1D
   
1A
   
2A
   
1C&1D
 
 
Jay Bray
    56,880       10,631       692,917       3,651,920       8,079       888,060  
Robert L. Appel
    34,128       6,379       415,750       2,191,152       4,847       532,836  
Amar Patel
    22,752       4,252       277,167       1,460,768       3,231       355,223  
Douglas Krueger
                                   
Anthony H. Barone
    68,256       12,758       831,500       4,382,303       9,695       1,065,672  
 
Employment Agreements
 
The Company has entered into employment agreements with all of our NEOs.
 
Employment Agreements of Messrs. Barone and Bray
 
Mr. Barone and the Company entered into an amended and restated employment agreement pursuant to which Mr. Barone agreed to serve as our Chief Executive Officer on September 17, 2010. Mr. Bray and the Company entered into an amended and restated employment agreement pursuant to which Mr. Bray agreed to serve as our Chief Financial Officer on September 17, 2010. Pursuant to their terms, the agreements expired on September 17, 2011 and July 10, 2011, respectively. Pursuant to the employment agreements, upon a termination for any reason or no reason, Messrs. Barone and Bray are bound by one-year post-termination non-competition, non-solicitation, confidentiality and non-disparagement covenants. These covenants survive the termination or expiration of Messrs. Barone’s and Bray’s employment agreements.
 
Prior to expiration, the employment agreements provided, among other things, for payments to the executive following certain terminations of employment. If prior to the expiration, Mr. Barone’s employment or Mr. Bray’s employment had been terminated by the Company without “cause” or had been terminated by him for “good reason,” subject to his execution of a release of claims, he would have been entitled to (1) 18 months of continued base salary, (2) an amount equal to 150% of the average of his annual cash bonus for the three most recently completed fiscal years and (3) continued coverage under the Company’s medical plan until the earlier of (a) the time he becomes eligible for coverage from a new employer and (b) 12 months following the date of termination. If Mr. Barone’s or Mr. Bray’s employment would have terminated due to his resignation, subject to his execution of a release of claims, he would have been entitled to (1) six months of continued base salary and (2) 50% of the average of his annual cash bonus for the three most recently completed fiscal years. Following the expiration of the term, Mr. Barone and Mr. Bray continued as employees at-will and are not entitled to any severance payments under their respective employment agreements upon any subsequent termination.
 
Employment Agreement of Mr. Appel
 
Mr. Appel and the Company entered into an amended employment agreement pursuant to which Mr. Appel agreed to serve as our Executive Vice President, Servicing on September 17, 2010. The initial term of the employment agreement ends on February 3, 2011 and will be automatically renewed for two additional periods of one year commencing on each of February 4, 2011 and February 4, 2012 unless either party gives


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the other notice of intent not to renew by no later than January 4, 2011 and January 4, 2012, respectively. Failure by the Company to renew Mr. Appel’s term of employment on February 4, 2011 and February 4, 2012, would entitle Mr. Appel to terminate his employment for “good reason” and receive the severance payments described below. Pursuant to the employment agreement, upon a termination for any reason or no reason, Mr. Appel is bound by one-year post-termination non-competition, non-solicitation, confidentiality and non-disparagement covenants. These covenants survive the termination or expiration of Mr. Appel’s employment agreement.
 
The employment agreement provides for a one-time cash retention bonus of $400,000 if Mr. Appel is employed by the Company on February 4, 2013 (and has not given notice of his intent to resign). If Mr. Appel’s employment is terminated by the Company without “cause” or is terminated by Mr. Appel for “good reason,” subject to his execution of a release of claims, he would be entitled to (1) an amount equal to (a) 12 months of base salary plus (b) a lump sum severance payment of $175,000, (2) a prorated portion of the annual cash incentive bonus for the year of termination, (3) if such termination occurs prior to February 4, 2013, the retention bonus, and (4) continued coverage under the Company’s medical plan until the earlier of (a) the time Mr. Appel becomes eligible for coverage from a new employer and (b) 12 months following the date of termination. Following February 3, 2013, absent an earlier termination of his employment agreement, Mr. Appel will continue as an employee at-will and will not be entitled to any severance payments under his employment agreement upon any subsequent termination.
 
Employment Agreement of Mr. Patel
 
Mr. Patel and the Company entered into an amended and restated employment agreement pursuant to which Mr. Patel agreed to serve as our Executive Vice President on September 17, 2010. Pursuant to its terms, the agreement expired on June 1, 2011. Pursuant to the employment agreement, upon a termination for any reason or no reason, Mr. Patel is bound by one-year post-termination non-competition, non-solicitation, confidentiality and non-disparagement covenants. These covenants survive the termination or expiration of Mr. Patel’s employment agreement.
 
Prior to the expiration of the agreement, if Mr. Patel’s employment had been terminated by the Company without “cause” or had been terminated by Mr. Patel for “good reason,” subject to Mr. Patel’s execution of a release of claims, he would have been entitled to (1) six months of continued base salary, (2) an amount equal to 50% of his annual cash bonus paid to him for the most recently completed fiscal year and (3) continued coverage under the Company’s medical plan until the earlier of (a) the time he became eligible for coverage from a new employer and (b) six months following the date of termination. Following June 1, 2011, Mr. Patel continued as an employee at-will and will not be entitled to any severance payments under his employment agreement upon any subsequent termination.
 
Employment Agreement of Mr. Krueger
 
Mr. Krueger and the Company entered into an employment agreement pursuant to which Mr. Krueger agreed to serve as our Executive Vice President, Capital Markets on February 19, 2009. Pursuant to its terms, the agreement expired on February 18, 2011. Pursuant to the agreement, Mr. Krueger is bound by a six-month post-termination non-competition, a one-year post-termination non-solicitation, confidentiality and non-disparagement covenants. These covenants survive the termination or expiration of Mr. Krueger’s employment agreement.
 
Prior to the expiration of the agreement, if Mr. Krueger’s employment had been terminated by the Company without “cause” or had been terminated by Mr. Krueger for “good reason,” subject to Mr. Krueger’s execution of a release of claims, he would have been entitled to (1) accrued benefits, (2) an amount equal to Mr. Krueger’s unpaid base salary and guaranteed bonus through February 18, 2011 and (3) continued coverage under the Company’s medical plan until the earlier of (a) the time he becomes eligible for coverage from a new employer and (b) six months following the date of termination. Following February 18, 2011, Mr. Krueger


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continued as an employee at-will and will not be entitled to any severance payments under his employment agreement upon any subsequent termination.
 
Potential Payments Upon Termination or Change in Control
 
The following table sets forth the value of benefits that would have been payable to the NEOs assuming a termination of employment or change of control on December 31, 2011.
 
                                         
                            After
 
                      Termination without
    Change in
 
                      Cause Other than
    Control,
 
                      After A Change in
    Termination
 
                Voluntary
    Control or for Good
    without
 
    Death
    Disability
    Termination
    Reason
    Cause
 
   
($)
   
($)
   
($)
   
($)
   
($)
 
 
Jay Bray
    5,461,593 (1)     5,461,593 (1)           5,461,593 (1)     5,461,593 (2)
Robert L. Appel
    3,276,955 (1)     3,276,955 (1)           5,027,275 (2)(3)     5,027,275 (2)(3)
Amar Patel
    2,184,638 (1)     2,184,638 (1)           2,184,638 (1)     2,184,638 (2)
Douglas Krueger
    125,000 (4)     125,000 (4)                  
Anthony H. Barone
    6,553,910 (1)     6,553,910 (1)           6,553,910 (1)     6,553,910 (2)
 
(1) Pursuant to the award agreements granting each of Messrs. Barone, Bray, Appel and Patel units and RSUs, in the event the NEO’s employment terminates as a result of the NEO’s death, disability or voluntary resignation for good reason or as a result of the Company terminating the NEO’s employment without cause other than in connection with a change in control, an additional tranche of any outstanding and unvested equity awards will become vested.
 
(2) Pursuant to the award agreements granting each of Messrs. Barone, Bray, Appel and Patel units and RSUs, in the event the NEO’s employment terminates as a result the Company terminating the NEO’s employment without cause within 6 months following a change in control, all of the NEO’s outstanding and unvested equity awards will become vested.
 
(3) Pursuant to his employment agreement upon a termination without cause, Mr. Appel will receive a severance payment of $1,750,320 ($275,000 of salary continuation, $400,000 retention bonus, $175,000 lump sum, $886,495 pro rated bonus (full year as of December 31, 2011) and $13,825 medical benefits). The remaining amount of $3,276,955 is pursuant to the unit and RSU award agreements described in Note (2) above.
 
(4) Pursuant to the Long-Term Incentive Plan, in the event of termination due to death or disability Mr. Krueger will receive a pro rata payout of his outstanding awards.
 
Director Compensation
 
Nationstar Mortgage Holdings Inc. has not yet paid any compensation to our directors. Following completion of this offering, we will pay an annual fee to each independent director equal to $50,000, payable in semi-annual installments. In addition, an annual fee of $10,000 will be paid to each member of the audit committee of the board of directors, and an annual fee of $5,000 will be paid to each member of the nominating and corporate governance committee and the compensation committee of the board of directors. The chairman of the audit committee will receive an additional annual fee of $15,000. The chairmen of board committees, other than the audit committee, will each receive an additional fee of $5,000. Fees to independent directors may be made by issuance of common stock, based on the value of such common stock at the date of issuance, rather than in cash, provided that any such issuance does not prevent such director from being determined to be independent and such shares are granted pursuant to a stockholder approved plan or the issuance is otherwise exempt from NYSE listing requirements. Affiliated directors, however, will not be separately compensated by us. All members of the board of directors will be reimbursed for reasonable costs and expenses incurred in attending meetings of our board of directors. Following the completion of this


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offering, each independent director will be eligible to receive awards of our common stock under the Plan described above.
 
The Nationstar Mortgage LLC Board of Managers is currently comprised of three members elected by our unitholders: Anthony Barone (Chairman), Peter Smith and Jay Bray. Each of Messrs. Barone, Smith and Bray receives no payments in addition to what has been described as a result of his service on the Board of Managers (earned but unpaid salary, accrued but unpaid time off, reimbursable business expenses, vested benefits and benefit continuation pursuant to employee benefit plans).


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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
Under SEC rules, a related person is an officer, director, nominee for director or beneficial holder of more than 5% of any class of our voting securities since the beginning of the last fiscal year or an immediate family member of any of the foregoing. Our board of directors has approved a written related party transaction policy that will take effect prior to completion of this offering. Pursuant to this policy, directors (including director nominees), executive officers and employees are required to report to the General Counsel any transactions or circumstances that may create or appear to create a conflict between the personal interests of the individual and the interests of the Company, regardless of the amount involved. The General Counsel reports these transactions to the nominating and corporate governance committee of the board of directors, which is responsible for evaluating each related party transaction and making a recommendation to the disinterested members of the board of directors as to whether the transaction at issue is fair, reasonable and within Company policy and whether it should be ratified and approved. The nominating and corporate governance committee, in making its recommendation, considers various factors, including the benefit of the transaction to the Company, the terms of the transaction and whether they are at arm’s-length and in the ordinary course of the Company’s business, the direct or indirect nature of the related person’s interest in the transaction, the size and expected term of the transaction, and other facts and circumstances that bear on the materiality of the related party transaction under applicable law and listing standards.
 
Prior to the adoption of the written policy, our board of directors used similar processes and controls to obtain information from our directors, executive officers and significant stockholders regarding related party transactions and then determined, based on the facts and circumstances, whether we or a related person had a direct or indirect material interest in these transactions. When considering potential transactions involving a related party, our officers notified our board of directors of the proposed transaction, provided a brief background of the transaction and scheduled a meeting with the board of directors to review the matter. At such meetings, our Chief Executive Officer, Chief Financial Officer and other members of management, as appropriate, provided information to the board of directors regarding the proposed transaction, after which the board of directors and management discussed the transaction and the implications of engaging a related party as opposed to an unrelated third party. If the board of directors (or specified directors as required by applicable legal requirements) determined that the transaction was in our best interests, it voted to approve entering into the transaction with the applicable related party.
 
Other than compensation agreements and other arrangements which are described under “Compensation Discussion and Analysis” and the transactions described below, since January 1, 2011, there has not been, and there is not currently proposed, any transaction or series of similar transactions to which we were or will be a party in which the amount involved exceeded or will exceed $120,000 and in which any related person had or will have a direct or indirect material interest.
 
We currently serve as the loan servicer for two securitized loan portfolios managed by Newcastle Investment Corp. (“Newcastle”), which is managed by an affiliate of Fortress, for which we receive a monthly net servicing fee equal to 0.5% per annum on the UPB of the portfolios. For the years ended December 31, 2009, 2010 and 2011, we received servicing fees of $7.5 million, $6.5 million and $5.8 million, respectively. The outstanding UPB as of December 31, 2010 and December 31, 2011, was $1.2 billion and $1.1 billion, respectively.
 
In December 2011, we entered into a sale and assignment agreement (the “Sale Agreement”) with an indirect wholly owned subsidiary of Newcastle. We are an affiliate of Newcastle’s manager, which is an affiliate of Fortress. We acquired MSRs on a pool of agency residential mortgage loans in September 2011 (the “Portfolio”). Pursuant to the Sale Agreement, we sold to Newcastle the right to receive 65% of the excess cash flow generated from the MSRs of the Portfolio after receipt of a fixed basic servicing fee per loan. The sale price was $43.7 million. We will retain all ancillary income associated with servicing the Portfolio and 35% of the excess cash flow after receipt of the fixed basic servicing fee. We will continue to be the servicer of the loans and provide all servicing and advancing functions for the Portfolio. Newcastle will not have prior


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or ongoing obligations associated with the Portfolio. Contemporaneous with the above, in December 2011, we entered into a refinanced loan agreement with Newcastle. Should we refinance any loan in the Portfolio, subject to certain limitations, we will be required to transfer the new loan or a replacement loan of similar economic characteristics into the Portfolio. The new or replacement loan will be governed by the same terms set forth in the Sale Agreement described above. This Sale Agreement will be accounted for as a financing arrangement by us. The fair value on the outstanding note related to this agreement was $44.6 million at December 31, 2011. Additionally, as a component of the underlying agreement, Newcastle will be required to remit to us a holdback amount of $3.3 million, pending certain conditions being satisfied by us. Such amount is recorded in accounts receivable.
 
We currently serve as the loan subservicer for three loan portfolios managed by FCDB FF1 LLC, FCDB 8020 REO LLC, FCDB FF1 2008-1 Trust, FCDB UB 8020 Residential LLC and FCDB GMPL 2008-1 Trust, which is managed by an affiliate of Fortress, for which we receive a monthly per loan subservicing fee and other performance incentive fees subject to our agreement with them. For the years ended December 31, 2009, December 31, 2010, and December 31, 2011, we received $1.0 million, $0.6 million and $2.3 million of subservicing fees, respectively. The outstanding UPB as of December 31, 2010 and December 31, 2011, was $121.1 million and $2.1 million, respectively.
 
In September 2010, we entered into a marketing agreement with Springleaf Home Equity, Inc., Springleaf Financial Services of Arkansas, Inc. and MorEquity, Inc. (collectively, the “Entities”), each of which is indirectly owned by investment funds managed by affiliates of Fortress. Pursuant to this agreement, we market our mortgage origination products to customers of the Entities, and are compensated by the origination fees of loans that we refinance. For the years ended December 31, 2010 and December 31, 2011, we recognized revenue of $0.4 million and $3.2 million, respectively. The marketing agreement is set to expire on December 31, 2012. Additionally, in January 2011, we entered into three agreements to act as the loan subservicer for the Entities for a whole loan portfolio and two securitized loan portfolios totaling $4.4 billion for which we receive a monthly per loan subservicing fee and other performance incentive fees subject to our agreement with the Entities. For the year ended December 31, 2011, we recognized revenue of $9.9 million in additional servicing and other performance incentive fees related to these portfolios.
 
In March 2011, we entered into a limited partnership agreement with ANC. ANC is the parent company of NREIS which through the ANC partnership we hold a non-controlling interest in NREIS, an ancillary real estate services and vendor management company that directly and indirectly provides title agency settlement or valuation services for loan originations and default management. We offer these adjacent services in connection with loans we currently service, as well as on a third party basis in exchange for base and/or incentive fees. In addition to enhancing our core businesses, these adjacent services present an opportunity to increase future earnings with minimal capital investment, including by expanding the services we provide to large banks and other financial institutions seeking to outsource these functions to a third party. As we are able to exercise significant influence, but not control, over the policies and procedures of the entity, and we own less than 50% of the voting interest, we apply the equity method of accounting. During the year ended December 31, 2011 we disbursed $4.9 million for servicing-related advances.
 
Stockholders Agreement
 
General
 
On February 17, 2012, we entered into the Stockholders Agreement with the Initial Stockholder.
 
As discussed further below, the Stockholders Agreement provides certain rights to the Initial Stockholder with respect to the designation of directors for nomination and election to our board of directors, as well as registration rights for certain of our securities owned by the Fortress Stockholders.


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Our Stockholders Agreement provides that the parties thereto will use their respective reasonable efforts (including voting or causing to be voted all of our voting shares beneficially owned by each) so that no amendment is made to our amended and restated certificate of incorporation or amended and restated bylaws in effect as of the date of the Stockholders Agreement that would add restrictions to the transferability of our shares by the Initial Stockholder or its permitted transferees which are beyond those provided for in our amended and restated certificate of incorporation, amended and restated bylaws, the Stockholders Agreement or applicable securities laws, or that nullify the rights set out in the Stockholders Agreement of the Initial Stockholder or its permitted transferees unless such amendment is approved by the Initial Stockholder.
 
Designation and Election of Directors
 
Our Stockholders Agreement will provide that, for so long as the Stockholders Agreement is in effect, we and the Fortress Stockholders shall take all reasonable actions within our respective control (including voting or causing to be voted all of the securities entitled to vote generally in the election of our directors held of record or beneficially owned by the Fortress Stockholders, and, with respect to us, including in the slate of nominees recommended by the board those individuals designated by the Initial Stockholder) so as to elect to the board, and to cause to continue in office, not more than six directors (or such other number as the Initial Stockholder may agree in writing), of whom, at any given time:
 
  •     a number of directors equal to a majority of the board of directors shall be individuals designated by the Initial Stockholder, for so long as the Fortress Stockholders beneficially own at least 40% of our voting power, provided that if the board consists of more than six directors, then the Initial Stockholder shall have the right to designate a number of directors equal to a majority of the board plus one director;
 
  •     at least three directors shall be individuals designated by the Initial Stockholder, for so long as the Fortress Stockholders beneficially own less than 40% but at least 20% of our voting power, provided that if the board of directors consists of more than six directors, then the Initial Stockholder shall have the right to designate a number of directors equal to a majority of the board minus one director;
 
  •     at least two directors shall be individuals designated by the Initial Stockholder for so long as the Fortress Stockholders beneficially own less than 20% but at least 10% of our voting power, provided that if the board of directors consists of more than six directors, then the Initial Stockholder shall have the right to designate a number of directors (rounded up to the nearest whole number) that would be required to maintain the Initial Stockholder’s proportional representation on the board of directors; and
 
  •     at least one director shall be an individual designated by the Initial Stockholder for so long as the Fortress Stockholders beneficially own less than 10% but at least 5% of our voting power, provided that if the board of directors consists of more than six directors, then the Initial Stockholder shall have the right to designate a number of directors (rounded up to the nearest whole number) that would be required to maintain the Initial Stockholder’s proportional representation on the board of directors.
 
In accordance with the Stockholders Agreement, the Initial Stockholder has designated Messrs. Edens, Gidel, Guthrie, Hawkins and Malone for election to our board of directors.
 
Registration Rights
 
Demand Rights.   Under our Stockholders Agreement, the Fortress Stockholders will have, for so long as the Fortress Stockholders beneficially own an amount of our common stock (whether owned at the time of


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this offering or subsequently acquired) equal to or greater than 1% of our shares of common stock issued and outstanding immediately after the consummation of this offering (a “Registrable Amount”), “demand” registration rights that allow the Fortress Stockholders, at any time after 180 days following the consummation of this offering, to request that we register under the Securities Act an amount equal to or greater than a Registrable Amount. The Fortress Stockholders will be entitled to unlimited demand registrations so long as such persons, together, beneficially own a Registrable Amount. We are also not required to effect any demand registration within three months of a “firm commitment” underwritten offering to which the requestor held “piggyback” rights, described below, and which included at least 50% of the shares of common stock requested by the requestor to be included. We are not obligated to grant a request for a demand registration within three months of any other demand registration.
 
Piggyback Rights.   For so long as the Fortress Stockholders beneficially own an amount of our common stock equal to or greater than 1% of our common stock issued and outstanding immediately after the consummation of this offering, such Fortress Stockholders will also have “piggyback” registration rights that allow them to include the common stock that they own in any public offering of equity securities initiated by us (other than those public offerings pursuant to registration statements on Forms S-4 or S-8 or pursuant to an employee benefit plan arrangement) or by any of our other stockholders that have registration rights. The “piggyback” registration rights of the Fortress Stockholders are subject to proportional cutbacks based on the manner of the offering and the identity of the party initiating such offering.
 
Shelf Registration.   Under our Stockholders Agreement, we will grant to the Initial Stockholder or any of its respective permitted transferees, for so long as it beneficially owns a Registrable Amount, the right to request a shelf registration on Form S-3 providing for offerings of our common stock to be made on a continuous basis until all shares covered by such registration have been sold, subject to our right to suspend the use of the shelf registration prospectuses for a reasonable period of time (not exceeding 60 days in succession or 90 days in the aggregate in any 12 month period) if we determine that certain disclosures required by the shelf registration statements would be detrimental to us or our stockholders. In addition, the Initial Stockholder may elect to participate in such shelf registrations within ten days after notice of the registration is given.
 
Indemnification; Expenses; Lock-ups.   Under our Stockholders Agreement, we will agree to indemnify the applicable selling stockholder and its officers, directors, employees, managers, members partners, agents and controlling persons against any losses or damages resulting from any untrue statement or omission of material fact in any registration statement or prospectus pursuant to which it sells shares of our common stock, unless such liability arose from the applicable selling stockholder’s misstatement or omission, and the applicable selling stockholder has agreed to indemnify us against all losses caused by its misstatements or omissions. We will pay all registration expenses incidental to our performance under the Stockholders Agreement, and the applicable selling stockholder will pay its portion of all underwriting discounts, commissions and transfer taxes, if any, relating to the sale of its shares of common stock under the Stockholders Agreement. We have agreed to enter into, and to cause our officers and directors to enter into, lock-up agreements in connection with any exercise of registration rights by the Fortress Stockholders.


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PRINCIPAL STOCKHOLDER
 
Prior to this offering, all of the shares of outstanding common stock of Nationstar Mortgage Holdings Inc. were owned by the Initial Stockholder, FIF HE Holdings LLC.
 
The following table sets forth information regarding the ownership of our common stock. Other than the Initial Stockholder and its direct and indirect equity holders, we are not aware of any person, or group of affiliated persons, who beneficially owns more than five percent of our outstanding common stock. The percentage of beneficial ownership is based on 70,000,000 shares of common stock outstanding prior to this offering, and 86,666,667 shares of common stock to be outstanding after the completion of this offering, in each case, after giving effect to the Restructuring and the 70,000 for 1 stock split (which will be effective prior to the completion of this offering), and assuming no exercise of the underwriters’ overallotment option.
 
                                 
    Number of Shares
    Number of Shares
 
    Beneficially Owned
    Beneficially Owned
 
   
Prior to the Offering
   
After the Offering
 
    Number
    Percentage
    Number
    Percentage
 
Name
 
of Shares
   
of Shares
   
of Shares
   
of Shares
 
 
Initial Stockholder (1)
    70,000,000       100 %     70,000,000       80.8 %
                                 
(1) FIF HE Holdings LLC. The address of the Initial Stockholder is c/o Fortress Investment Group LLC, 1345 Avenue of the Americas, 46th Floor, New York, New York 10105. The text below contains information with respect to the beneficial ownership the Initial Stockholder.
 
The following table sets forth information as of January 31, 2012 regarding the beneficial ownership of the Initial Stockholder’s issued and outstanding Series 1 units by:
 
  •     each person or group who is known by us to own beneficially more than 5% of the Initial Stockholder’s issued and outstanding Series 1 Class A units;
 
  •     each of our directors;
 
  •     each of our NEOs; and
 
  •     all of our directors and executive officers as a group.
 
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities or has the right to acquire such powers within 60 days. The information does not necessarily indicate beneficial ownership for any other purpose. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each beneficial owner identified in the table possesses sole voting and investment power over all Series 1 units shown as beneficially owned by the beneficial owner. For purposes of the calculations in the table below, the number of Series 1 units deemed outstanding includes Series 1 units issuable upon exercise of options held by the respective person which may be exercised within 60 days after January 31, 2012. For purposes of calculating each person’s percentage ownership, Series 1 units issuable pursuant to options exercisable within 60 days after January 31, 2012 are included as outstanding and beneficially owned for that person or group, but are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Unless otherwise indicated in the table or footnotes below, the address for each beneficial owner is c/o Nationstar Mortgage LLC, 350 Highland Drive, Lewisville, Texas 75067.


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The Initial Stockholder has four types of issued and outstanding Series 1 units. Series 1 Class A units have voting rights. Series 1 Class B preferred units, Series 1 Class C preferred units and Series 1 Class D units do not have voting rights. The percentage of beneficial ownership of the Initial Stockholder’s Series 1 units is based on 13,210,932 Series 1 Class A units, 1,000 Series 1 Class B units, 81,938,773 Series 1 Class C preferred units and 83,028,948 Series 1 Class D preferred units issued and outstanding as of January 31, 2012. The table excludes the Series 1 Class B units as they are beneficially owned by the Initial Stockholder and an employee who is not an executive officer or director. The table assumes that the underwriters will not exercise their overallotment option. None of our executive officers, NEOs or directors, other than those set forth below, holds units in the Initial Stockholder.
 
                                                       
    Number of Shares Beneficially
   
    Owned    
    Number of
    Percentage of
   
    Series 1 Units (1)     Series 1 Units (1)    
    Series 1
    Series 1
    Series 1
    Series 1
      Series 1
      Series 1
   
Name of Beneficial Owner
 
Class A
    Class C     Class D     Class A       Class C       Class D    
Executive Officers, NEOs and Directors
                                                     
Anthony H. Barone
    104,828       531,037       537,552                          
Jay Bray
    77,473       442,530       447,959                          
Robert Appel
    44,744       340,725       345,262                          
Amar Patel
    31,116       227,149       230,175                          
Douglas Krueger
                                         
All executive officers, NEOs and directors as a group (5 persons)
    258,161       1,541,441       1,560,948       2.0   %     1.9   %     1.9   %
5% Interest holders
                                                     
Fortress Fund III Funds (2)
    6,434,408       40,198,666       20,147,999       48.7   %     49.1   %     24.3   %
Fortress Fund IV Funds (2)
    6,434,411       40,198,666       61,320,001       48.7   %     49.1   %     73.9   %
* Less than 1%
 
(1) The Initial Stockholder issues its equity interests in two series, each of which relates to certain specified assets of the LLC: Series 1 units, which relate to all the issued and outstanding membership interests in Nationstar Mortgage LLC; and Series 2 units, which relate to equity interests in a separate entity, which is not a subsidiary of Nationstar Mortgage LLC. Certain executive compensation arrangements include equity grants of the Series 2 units of our Initial Stockholder. See “Compensation Discussion and Analysis.”
 
(2) Fortress Fund III Funds represent Fortress Investment Fund III LP, Fortress Investment Fund III (Fund B) LP, Fortress Investment Fund III (Fund C) LP, Fortress Investment Fund III (Fund D) L.P., Fortress Investment Fund III (Fund E) L.P., FIF III B HE BLKR LLC, and FIF III C HE BLKR LLC. Fortress Fund IV Funds represent Fortress Investment Fund IV (Fund A) L.P., Fortress Investment Fund IV (Fund B) L.P., Fortress Investment Fund IV (Fund C) L.P., Fortress Investment Fund IV (Fund D) L.P., Fortress Investment Fund IV (Fund E) L.P., Fortress Investment Fund IV (Fund F) L.P. and Fortress Investment Fund IV (Fund G) L.P., FIF IV B HE BLKR LLC and FIF IV CFG HE BLKR LLC. Fortress Fund III GP LLC is the general partner of each of the Fortress Fund III Funds (excluding FIF III B HE BLKR LLC and FIF III C HE BLKR LLC, which are wholly owned by Fortress Investment Fund III (Fund B) L.P. and Fortress Investment Fund III (Fund C) L.P., respectively). The sole managing member of Fortress Fund III GP LLC is Fortress Investment Fund GP (Holdings) LLC. The sole managing member of Fortress Investment Fund III GP (Holdings) LLC is Fortress Operating Entity I LP (“FOE I”). FIG Corp. is the general partner of FOE I, and FIG Corp. is wholly owned by Fortress Investment Group LLC. Fortress Fund IV GP L.P. is the general partner of each of the Fortress Fund IV Funds (excluding FIF IV HE BLKR LLC and FIF IV CFG HE BLKR LLC, which are wholly owned by Fortress Investment Fund IV (Fund B) L.P., and Fortress Investment Fund IV (Fund C) L.P., Fortress Investment Fund IV (Fund F) L.P. and Fortress Investment Fund IV (Fund G) L.P., respectively). Fortress Fund IV GP Holdings Ltd. is the general partner of Fortress Fund IV GP L.P. Fortress Fund IV GP Holdings Ltd. is wholly owned by FOE I. FIG Corp. is the general partner of FOE I. FIG Corp. is wholly owned by Fortress Investment Group LLC


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(“Fortress”). As of January 31, 2012, Wesley R. Edens owned approximately 14.14% of Fortress. By virtue of his ownership interest in Fortress and certain of its affiliates, as well as his role in advising certain investment funds, Wesley R. Edens may be deemed to be the natural person that has sole voting and investment control over the shares listed as beneficially owned by the Initial Stockholder. Mr. Edens disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The address of all persons listed above is c/o Fortress Investment Group LLC, 1345 Avenue of the Americas, 46th Floor, New York, New York 10105.
 
Unit Exchange
 
Certain of our current and former members of management (the “Eligible Participants”) previously received Series 1 Class A units of the Initial Stockholder as consideration for services provided to Nationstar Mortgage LLC and its subsidiaries. In connection with this offering, the Initial Stockholder is offering to these Eligible Participants the opportunity to exchange their Series 1 Class A units for shares of our common stock that are currently held by the Initial Stockholder in the Unit Exchange. Eligible Participants that accept the Unit Exchange on or before the pricing of this offering will be eligible to receive a number of shares of our common stock based upon a formula tied to the initial public offering price per share in this offering. The Unit Exchange will not affect the number of shares of our common stock outstanding after this offering, as all shares that are being offered in exchange for the units are currently held by the Initial Stockholder. Each Eligible Participant will receive 4.005 shares of our common stock for each Series 1 Class A unit (based upon the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus). To the extent that any of the Eligible Participants’ Series 1 Class A units have already vested, the grant offered to such Eligible Participants in redemption of such units will vest upon grant by us. To the extent that any of these units have not vested at the time of the Unit Exchange, we anticipate that the grants offered to such Eligible Participants in redemption of such units will, to the greatest extent reasonably possible, vest in such amounts, at such times and upon such terms as the original unvested units.
 
The following table sets forth the number of shares and percentage of shares of our common stock that the Initial Stockholder, each of our current executive officers, NEOs and directors, and all of our executive officers, NEOs and directors as a group, would own if each of the Eligible Participants accepts the Unit Exchange on or prior to the pricing of the offer made hereby (based upon the midpoint of the estimated initial public offering price range set forth on the cover of this prospectus). None of our executive officers, NEOs or directors, other than those set forth below, will receive any shares of our common stock in the Unit Exchange.
 
                 
    Number of Shares Beneficially
    Owned After this Offering (1)
    Number of
  Percentage of
Name of Beneficial Owner
  Shares   Shares
 
Initial Stockholder
    68,657,915       79.2 %
Executive Officers, NEOs and Directors
               
Anthony H. Barone
    419,852       *    
Jay Bray
    310,291       *    
Robert Appel
    179,206       *    
Amar Patel
    124,624       *    
Douglas Krueger
           
All executive officers, NEOs and directors as a group (12 persons)
    1,033,973       1.2 %
* Less than 1%
 
(1) Does not include 1,030,558 unvested shares of restricted stock that we expect to grant to certain of our executive officers, directors and employees in connection with this offering.


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DESCRIPTION OF CAPITAL STOCK
 
The following descriptions are summaries of the material terms of our amended and restated certificate of incorporation and amended and restated bylaws as will be in effect upon the consummation of this offering. These descriptions contain all information which we consider to be material, but may not contain all of the information that is important to you. To understand them fully, you should read our amended and restated certificate of incorporation and amended and restated bylaws, copies of which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part.
 
Please note that, with respect to any of our shares held in book-entry form through The Depository Trust Company or any other share depositary, the depositary or its nominee will be the sole registered and legal owner of those shares, and references in this prospectus to any “stockholder” or “holder” of those shares means only the depositary or its nominee. Persons who hold beneficial interests in our shares through a depositary will not be registered or legal owners of those shares and will not be recognized as such for any purpose. For example, only the depositary or its nominee will be entitled to vote the shares held through it, and any dividends or other distributions to be paid, and any notices to be given, in respect of those shares will be paid or given only to the depositary or its nominee. Owners of beneficial interests in those shares will have to look solely to the depositary with respect to any benefits of share ownership, and any rights they may have with respect to those shares will be governed by the rules of the depositary, which are subject to change from time to time. We have no responsibility for those rules or their application to any interests held through the depositary.
 
Under our amended and restated certificate of incorporation, our authorized capital stock will consist of:
 
  •     1,000,000,000 shares of common stock, par value $0.01 per share; and
 
  •     300,000,000 preferred shares, par value $0.01 per share.
 
Upon completion of this offering, there will be outstanding 86,666,667 shares of common stock after giving effect to the Restructuring and the 70,000 for 1 stock split, (which will be effective prior to the completion of this offering), and assuming no exercise of the underwriters’ overallotment option, and no outstanding shares of preferred stock.
 
The following is a description of the material terms of our amended and restated certificate of incorporation and amended and restated bylaws. We refer you to our amended and restated certificate of incorporation and amended and restated bylaws, copies of which have been filed with the SEC as exhibits to our registration statement of which this prospectus forms a part.
 
Common Stock
 
Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Except as provided with respect to any other class or series of stock, the holders of our common stock will possess the exclusive right to vote for the election of directors and for all other purposes. Our amended and restated certificate of incorporation does not provide for cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of common stock can elect all of the directors standing for election, and the holders of the remaining shares will not be able to elect any directors; provided, however, that pursuant to the Stockholders Agreement that we have entered into with the Initial Stockholder, we will be required to take all reasonable actions within our control (including nominating as directors the individuals designated by the Initial Stockholder) so that up to a majority (or other number, depending upon the level of ownership of the Initial Stockholder) of the members of our board of directors are individuals designated by the Initial Stockholder.


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Subject to any preference rights of holders of any preferred stock that we may issue in the future, holders of our common stock are entitled to receive dividends, if any, declared from time to time by our board of directors out of legally available funds. In the event of our liquidation, dissolution or winding up, the holders of our common stock are entitled to share ratably in all assets remaining after the payment of liabilities, subject to any rights of holders of our preferred stock prior to distribution.
 
Holders of our common stock have no preemptive, subscription, redemption or conversion rights. Any shares of common stock sold under this prospectus will be validly issued, fully paid and nonassessable upon issuance against full payment of the purchase price for such shares.
 
Preferred Stock
 
Our board of directors has the authority, without action by our stockholders, to issue preferred stock and to fix voting powers for each class or series of preferred stock, and to provide that any class or series may be subject to redemption, entitled to receive dividends, entitled to rights upon dissolution, or convertible or exchangeable for shares of any other class or classes of capital stock. The rights with respect to a series or class of preferred stock may be greater than the rights attached to our common stock. It is not possible to state the actual effect of the issuance of any shares of our preferred stock on the rights of holders of our common stock until our board of directors determines the specific rights attached to that preferred stock. The effect of issuing preferred stock could include, among other things, one or more of the following:
 
  •     restricting dividends in respect of our common stock;
 
  •     diluting the voting power of our common stock or providing that holders of preferred stock have the right to vote on matters as a class;
 
  •     impairing the liquidation rights of our common stock; or
 
  •     delaying or preventing a change of control of us.
 
Stockholders Agreement
 
For a description of the Stockholders Agreement that we have entered into with the Initial Stockholder, see “Certain Relationships and Related Party Transactions—Stockholders Agreement.”
 
Anti-Takeover Effects of Delaware Law, Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
 
The following is a summary of certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws that may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interest, including those attempts that might result in a premium over the market price for the shares held by stockholders.
 
Authorized but Unissued Shares
 
The authorized but unissued shares of our common stock and our preferred stock will be available for future issuance without obtaining stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of our common stock and preferred stock could render more difficult or discourage an attempt to obtain control over us by means of a proxy contest, tender offer, merger or otherwise.


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Delaware Business Combination Statute
 
We are organized under Delaware law. Some provisions of Delaware law may delay or prevent a transaction that would cause a change in our control.
 
Our amended and restated certificate of incorporation provides that Section 203 of the Delaware General Corporation Law, as amended, an anti-takeover law, will not apply to us. In general, this statute prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction by which that person became an interested stockholder, unless the business combination is approved in a prescribed manner. For purposes of Section 203, a business combination includes a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and an interested stockholder is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of voting stock.
 
Other Provisions of Our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws
 
Our amended and restated certificate of incorporation provides for a staggered board of directors consisting of three classes of directors. Directors of each class are chosen for three-year terms upon the expiration of their current terms and each year one class of our directors will be elected by our stockholders. The terms of the first, second and third classes will expire in 2013, 2014 and 2015, respectively. We believe that classification of our board of directors will help to assure the continuity and stability of our business strategies and policies as determined by our board of directors. Additionally, there is no cumulative voting in the election of directors. This classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult. At least two annual meetings of stockholders, instead of one, will generally be required to effect a change in a majority of our board of directors. Thus, the classified board provision could increase the likelihood that incumbent directors will retain their positions. The staggered terms of directors may delay, defer or prevent a tender offer or an attempt to change control of us, even though a tender offer or change in control might be believed by our stockholders to be in their best interest. In addition, our amended and restated certificate of incorporation and amended and restated bylaws provide that directors may be removed only for cause and only with the affirmative vote of at least 80% of the voting interest of stockholders entitled to vote; provided, however, that for so long as the Fortress Stockholders beneficially own at least 40% of our issued and outstanding common stock, directors may be removed with or without cause with the affirmative vote of a majority of the voting interest of stockholders entitled to vote.
 
Pursuant to our amended and restated certificate of incorporation, shares of our preferred stock may be issued from time to time, and the board of directors is authorized to determine and alter all rights, preferences, privileges, qualifications, limitations and restrictions without limitation. See “—Preferred Stock.”
 
Ability of our Stockholders to Act
 
Our amended and restated certificate of incorporation and amended and restated bylaws do not permit our stockholders to call special stockholders meetings; provided, however, that for so long as the Fortress Stockholders beneficially own at least 25% of our issued and outstanding common stock, any stockholders that collectively beneficially own at least 25% of our issued and outstanding common stock may call special meetings of our stockholders. Written notice of any special meeting so called shall be given to each stockholder of record entitled to vote at such meeting not less than 10 or more than 60 days before the date of such meeting, unless otherwise required by law.
 
Under our amended and restated certificate of incorporation and amended and restated bylaws, any action required or permitted to be taken at a meeting of our stockholders may be taken without a meeting by written consent of a majority of our stockholders for so long as the Fortress Stockholders beneficially own at least 25% of our issued and outstanding common stock. After the Fortress Stockholders beneficially own less


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than 25% of our issued and outstanding stock, only action by unanimous written consent of our stockholders can be taken without a meeting.
 
Our amended and restated bylaws provide that nominations of persons for election to our board of directors may be made at any annual meeting of our stockholders, or at any special meeting of our stockholders called for the purpose of electing directors, (a) by or at the direction of our board of directors or (b) by any of our stockholders. In addition to any other applicable requirements, for a nomination to be properly brought by a stockholder, such stockholder must have given timely notice thereof in proper written form to our Secretary of the Company. To be timely, a stockholder’s notice must be delivered to or mailed and received at our principal executive offices (a) in the case of an annual meeting of stockholders, not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by a stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of our stockholders called for the purpose of electing directors, not later than the close of business on the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs.
 
Our amended and restated bylaws provide that no business may be transacted at any annual meeting of our stockholders, other than business that is either (a) specified in the notice of meeting given by or at the direction of our board of directors, (b) otherwise properly brought before the annual meeting by or at the direction of our board of directors, or (c) otherwise properly brought by any of our stockholders. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to our Secretary. To be timely, a stockholder’s notice must be delivered to or mailed and received at our principal executive offices not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; provided, however, that in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, notice by a stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure of the date of the annual meeting was made, whichever first occurs.
 
Limitations on Liability and Indemnification of Directors and Officers
 
Our amended and restated certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for breach of a fiduciary duty as a director, except for the following (to the extent such exemption is not permitted under the Delaware General Corporation Law, as amended from time to time):
 
  •     any breach of the director’s duty of loyalty to us or our stockholders;
 
  •     intentional misconduct or a knowing violation of law;
 
  •     liability under Delaware corporate law for an unlawful payment of dividends or an unlawful stock purchase or redemption of stock; or
 
  •     any transaction from which the director derives an improper personal benefit.
 
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we must indemnify our directors and officers to the fullest extent permitted by law. We are also expressly authorized to advance certain expenses (including attorneys’ fees and disbursements and court costs) to our directors and officers and carry directors’ and officers’ insurance providing indemnification for our directors


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and officers for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive officers.
 
Prior to the completion of this offering, we intend to enter into separate indemnification agreements with each of our directors and executive officers. Each indemnification agreement will provide, among other things, for indemnification to the fullest extent permitted by law and our amended and restated certificate of incorporation against (i) any and all expenses and liabilities, including judgments, fines, penalties and amounts paid in settlement of any claim with our approval and counsel fees and disbursements, (ii) any liability pursuant to a loan guarantee, or otherwise, for any of our indebtedness, and (iii) any liabilities incurred as a result of acting on our behalf (as a fiduciary or otherwise) in connection with an employee benefit plan. The indemnification agreements will provide for the advancement or payment of all expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our amended and restated certificate of incorporation. These provisions and agreements may have the practical effect in some cases of eliminating our stockholders’ ability to collect monetary damages from our directors and executive officers.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
 
Corporate Opportunity
 
Under our amended and restated certificate of incorporation, to the extent permitted by law:
 
  •     the Fortress Stockholders have the right to, and have no duty to abstain from, exercising such right to, engage or invest in the same or similar business as us, do business with any of our clients, customers or vendors or employ or otherwise engage any of our officers, directors or employees;
 
  •     if the Fortress Stockholders or any of their officers, directors or employees acquire knowledge of a potential transaction that could be a corporate opportunity, they have no duty to offer such corporate opportunity to us, our stockholders or affiliates;
 
  •     we have renounced any interest or expectancy in, or in being offered an opportunity to participate in, such corporate opportunities; and
 
  •     in the event that any of our directors and officers who is also a director, officer or employee of any of the Fortress Stockholders acquires knowledge of a corporate opportunity or is offered a corporate opportunity, provided that this knowledge was not acquired solely in such person’s capacity as our director or officer and such person acted in good faith, then such person is deemed to have fully satisfied such person’s fiduciary duty and is not liable to us if any of the Fortress Stockholders pursues or acquires such corporate opportunity or if such person did not present the corporate opportunity to us.
 
Transfer Agent
 
The registrar and transfer agent for our common stock is American Stock Transfer and Trust Company, LLC.
 
Listing
 
We have applied to list our common stock on the NYSE under the symbol “NSM.”


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SHARES ELIGIBLE FOR FUTURE SALE
 
Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that sales of shares or availability of any shares for sale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of common stock (including shares issued on the exercise of options, warrants or convertible securities, if any) or the perception that such sales could occur, could adversely affect the market price of our common stock and our ability to raise additional capital through a future sale of securities.
 
Upon completion of this offering, we will have 86,666,667 shares of common stock issued and outstanding (or a maximum of 89,166,667 shares if the underwriters exercise their overallotment option in full). All of the 16,666,667 shares of our common stock sold in this offering (or 19,166,667 shares if the underwriters exercise their overallotment option in full) will be freely tradable without restriction or further registration under the Securities Act unless such shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act. Upon completion of this offering, approximately 80.8% of our outstanding common stock will be held by the Initial Stockholder. These shares will be “restricted securities” as that phrase is defined in Rule 144. Subject to certain contractual restrictions, including the lock-up agreements described below, holders of restricted shares will be entitled to sell those shares in the public market if they qualify for an exemption from registration under Rule 144 or any other applicable exemption under the Securities Act. Subject to the lock-up agreements described below and the provisions of Rules 144 and 701, additional shares will be available for sale as set forth below.
 
Lock-Up Agreements
 
We and our executive officers, directors and the Initial Stockholder have agreed with the underwriters that, subject to certain exceptions, for a period of 180 days after the date of this prospectus, we and they will not directly or indirectly offer, pledge, sell, contract to sell, sell any option or contract to purchase or otherwise dispose of any common stock or any securities convertible into or exercisable or exchangeable for common stock, or in any manner transfer all or a portion of the economic consequences associated with the ownership of common stock, or cause a registration statement covering any common stock to be filed, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. See “Underwriting—No Sales of Similar Securities.” Merrill Lynch, Pierce, Fenner & Smith Incorporated may waive these restrictions at its discretion.
 
The 180-day restricted period described in the preceding paragraph will be automatically extended if (i) during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event relating to us occurs or (ii) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day restricted period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless Merrill Lynch, Pierce, Fenner & Smith Incorporated provides a written waiver of such extension. Merrill Lynch, Pierce, Fenner & Smith Incorporated has no present intent or arrangement to release any of the securities subject to these lock-up agreements. The release of any lock-up is considered on a case by case basis. Factors in deciding whether to release shares may include the length of time before the lock-up expires, the number of shares involved, the reason for the requested release, market conditions, the trading price of our common stock, historical trading volumes of our common stock and whether the person seeking the release is an officer, director or affiliate of the Company.
 
Rule 144
 
In general, under Rule 144 under the Securities Act, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six


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months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
 
A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of one percent of the then outstanding shares of our common stock or the average weekly trading volume of our common stock reported through the NYSE during the four calendar weeks preceding such sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us.
 
Rule 701
 
In general, under Rule 701 of the Securities Act, most of our employees, consultants or advisors who purchased shares from us in connection with a qualified compensatory stock plan or other written agreement are eligible to resell those shares 90 days after the date of this prospectus in reliance on Rule 144, but without compliance with the holding period or certain other restrictions contained in Rule 144.
 
Registration Rights
 
Pursuant to the Stockholders Agreement that we will enter into prior to completion of this offering, the Initial Stockholder and certain of its affiliates and permitted third party transferees will have the right, in certain circumstances, to require us to register their shares of our common stock under the Securities Act for sale into the public markets at any time following the expiration of the 180-day lock-up period described above. The Initial Stockholder and certain of its affiliates and permitted third party transferees will also be entitled to piggyback registration rights with respect to any future registration statement that we file for an underwritten public offering of our securities. Upon the effectiveness of such a registration statement, all shares covered by the registration statement will be freely transferable. If these rights are exercised and the Initial Stockholder sells a large number of shares of common stock, the market price of our common stock could decline. See “Certain Relationships and Related Party Transactions—Stockholders Agreement” for a more detailed description of these registration rights.


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CERTAIN U.S. FEDERAL INCOME AND ESTATE TAX CONSIDERATIONS
TO NON-U.S. HOLDERS
 
The following discussion is a summary of certain U.S. federal income and estate tax considerations generally applicable to the purchase, ownership and disposition of our common stock by Non-U.S. Holders. A “Non-U.S. Holder” means a person (other than a partnership) that is not a citizen or resident of the United States, a U.S. domestic corporation, or a person that would otherwise be subject to U.S. federal income tax on a net income basis in respect of such common stock. This discussion deals only with our common stock held as capital assets by holders who purchase common stock in this offering. This discussion does not cover all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership or disposition of our common stock by prospective investors in light of their particular circumstances. In particular, this discussion does not address all of the tax considerations that may be relevant to persons in special tax situations, including persons that will hold shares of our common stock in connection with a U.S. trade or business or a U.S. permanent establishment, hold more than 5% of our common stock, are a “controlled foreign corporation” or a “passive foreign investment company”, or are otherwise subject to special treatment under the Code. You should consult your own tax advisors about the tax consequences of the purchase, ownership, and disposition of our common stock in light of your own particular circumstances, including the tax consequences under state, local, foreign and other tax laws and the possible effects of any changes in applicable tax laws.
 
Furthermore, this summary is based upon the provisions of the Code, the Treasury regulations promulgated thereunder and administrative and judicial interpretations thereof, all as of the date hereof. Such authorities may be repealed, revoked, modified or subject to differing interpretations, possibly on a retroactive basis, so as to result in U.S. federal income tax or estate tax consequences different from those discussed below. This discussion does not address any other U.S. federal tax considerations (such as gift tax) or any state, local or non-U.S. tax considerations.
 
Dividends
 
As discussed under “Dividend Policy” above, we do not currently expect to pay dividends. In the event that we do make a distribution of cash or property with respect to our common stock, any such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the Non-U.S. Holder’s investment, up to such holder’s tax basis in the common stock. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in “Sale, Exchange or Other Taxable Disposition of Common Stock.”
 
Dividends paid to you generally will be subject to U.S. federal withholding tax at a 30% rate, or such lower rate as may be specified by an applicable tax treaty. Even if you are eligible for a lower treaty rate, we and other payors will generally be required to withhold at a 30% rate (rather than the lower treaty rate) on dividend payments to you, unless:
 
  •     you have furnished to us or such other payor a valid Internal Revenue Service (“IRS”) Form W-8BEN or other documentary evidence establishing your entitlement to the lower treaty rate with respect to such payments, and
 
  •     in the case of actual or constructive dividends paid to a foreign entity after December 31, 2013, you or the foreign entity, if required, have provided the withholding agent with certain information with respect to your or the entity’s direct and indirect U.S. owners, and, if you hold the common stock through a foreign financial institution, such institution has entered into an


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  agreement with the U.S. government to collect and provide to the U.S. tax authorities information about its accountholders (including certain investors in such institution or entity).
 
If you are eligible for a reduced rate of U.S. federal withholding tax pursuant to an applicable income tax treaty or otherwise, you may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS. Investors are encouraged to consult with their own tax advisors regarding the possible implications of these withholding requirements on their investment in the common stock.
 
Sale, Exchange or Other Taxable Disposition of Common Stock
 
You generally will not be subject to U.S. federal income tax with respect to gain recognized on a sale, exchange or other taxable disposition of shares of our common stock unless you are an individual present in the United States for 183 or more days in the taxable year of the sale, exchange or other taxable disposition, and certain other requirements are met. If you are such an individual, you will generally be subject to a flat 30% tax on any gain derived from the sale, exchange or other taxable disposition that may be offset by U.S. source capital losses (even though you are not considered a resident of the United States).
 
In the case of the sale or disposition of common stock after December 31, 2014, you may be subject to a 30% withholding tax on the gross proceeds of the sale or disposition unless the requirements described in the last bullet point above under “—Dividends” are satisfied. Investors are encouraged to consult with their own tax advisors regarding the possible implications of these withholding requirements on their investment in the common stock and the potential for a refund or credit in the case of any withholding tax.
 
Information Reporting and Backup Withholding
 
We must report annually to the IRS and to each Non-U.S. holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S. holder resides under the provisions of an applicable income tax treaty.
 
A Non-U.S. holder may be subject to backup withholding for dividends paid to such holder unless such holder certifies under penalty of perjury that it is a Non-U.S. holder or such holder otherwise establishes an exemption. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a Non-U.S. holder’s U.S. federal income tax liability provided the required information is timely furnished to the IRS.
 
U.S. Federal Estate Tax
 
Shares of our common stock held (or deemed held) by an individual Non-U.S. Holder at the time of his or her death will be included in such Non-U.S. Holder’s gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.


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UNDERWRITING
 
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and Wells Fargo Securities, LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of shares of common stock set forth opposite its name below.
 
         
    Number
 
Underwriter
 
of Shares
 
 
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
                  
Citigroup Global Markets Inc.
                  
Credit Suisse Securities (USA) LLC
                  
Wells Fargo Securities, LLC
                  
Allen & Company LLC
                  
Barclays Capital Inc.
                  
J.P. Morgan Securities LLC
                  
Keefe, Bruyette & Woods, Inc.
                  
Sterne, Agee & Leach, Inc.
                  
         
Total
    16,666,667  
         
 
Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
 
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
 
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer’s certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
 
Commissions and Discounts
 
The representatives have advised us that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $      per share. After the initial offering, the public offering price, concession or any other term of the offering may be changed.
 
The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their option to purchase additional shares.
 


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Per Share
   
Without Option
   
With Option
       
 
Public offering price
    $       $       $          
Underwriting discount
    $       $       $          
Proceeds, before expenses, to us
    $       $       $          
 
The expenses of the offering, not including the underwriting discount, are estimated at $3.8 million and are payable by us. The underwriters have agreed to reimburse us for certain expenses in connection with this offering.
 
Option to Purchase Additional Shares
 
We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to 2,500,000 additional shares at the public offering price, less the underwriting discount. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriter’s initial amount reflected in the above table.
 
No Sales of Similar Securities
 
We, the Initial Stockholder, our executive officers and directors have agreed not to sell or transfer any common stock or securities convertible into, exchangeable for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated. Specifically, we and these other persons have agreed, with certain limited exceptions, not to directly or indirectly
 
  •     offer, pledge, sell or contract to sell any common stock,
 
  •     sell any option or contract to purchase any common stock,
 
  •     purchase any option or contract to sell any common stock,
 
  •     grant any option, right or warrant for the sale of any common stock,
 
  •     lend or otherwise dispose of or transfer any common stock,
 
  •     request or demand that we file a registration statement related to the common stock, or
 
  •     enter into any swap or other agreement that transfers, in whole or in part, the economic consequence of ownership of any common stock whether any such swap or transaction is to be settled by delivery of shares or other securities, in cash or otherwise.
 
This lock-up provision applies to common stock and to securities convertible into or exchangeable or exercisable for or repayable with common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition. This lockup provision does not apply to: (i) any securities to be sold pursuant to this offering; (ii) any shares of common stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date of the underwriting agreement; (iii) any grants of stock options, restricted stock or notional units to employees, directors or contractors pursuant to the terms of any plan in effect as of the closing of this offering, issuances of common stock pursuant to the exercise of such options or the exercise of any other employee stock options outstanding on the date of the underwriting

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agreement; (iv) any shares of common stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan; (v) any registration statement on Form S-8 under the 1933 Act with respect to the foregoing clauses; (vi) any issuance of options or shares pursuant to an exchange for units of the Initial Stockholder; (vii) any pledge of shares of common stock by the Initial Stockholder as collateral in connection with any debt financing of the Initial Stockholder, any of its affiliates or Fortress Investment Group LLC; (viii) any exchange, transfer or other disposition by the Initial Stockholder of options or shares of common stock pursuant to an exchange for units of the Initial Stockholder; (ix) any transfer by the Initial Stockholder, our executive officers and directors as a bona fide gift or gifts; (x) any transfer by the Initial Stockholder, our executive officers and directors to any trust for their or their immediately family’s direct or indirect benefit; (xi) any transfer by the Initial Stockholder, our executive officers and directors as a distribution to their limited partners or stockholders; (xii) any transfer by the Initial Stockholder, our executive officers and directors to funds managed by an affiliate of Fortress Investment Group LLC; or (xiii) any transfer by the Initial Stockholder, our executive officers and directors to their affiliates or to any investment fund or other entity controlled or managed by them. In the event that either (x) during the last 17 days of the lock-up period referred to above, we issue an earnings release or material news or a material event relating to us occurs or (y) prior to the expiration of the lock-up period, we announce that we will release earnings results or become aware that material news or a material event will occur during the 16-day period beginning on the last day of the lock-up period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
 
Reserved Share Program
 
At our request, the underwriters have reserved for sale, at the initial public offering price, up to 5% of the shares offered by this prospectus for sale to some of our directors, officers, employees, business associates and related persons, including employees of Fortress. If these persons purchase reserved shares, it will reduce the number of shares available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
 
NYSE Listing
 
We have applied to list our common stock on the NYSE under the symbol “NSM.” In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.
 
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:
 
  •     the valuation multiples of publicly traded companies that the representatives believe to be comparable to us,
 
  •     our financial information,
 
  •     the history of, and the prospects for, our company and the industry in which we compete,
 
  •     an assessment of our management, its past and present operations, and the prospects for, and timing of, our future revenues,
 
  •     the present state of our development, and


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  •     the above factors in relation to market values and various valuation measures of other companies engaged in activities similar to ours.
 
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
 
The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
 
Price Stabilization, Short Positions and Penalty Bids
 
Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.
 
In connection with the offering, the underwriters may purchase and sell our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares described above. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the option granted to them. “Naked” short sales are sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of shares of common stock made by the underwriters in the open market prior to the completion of the offering.
 
The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
 
Similar to other purchase transactions, the underwriters’ purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on the NYSE, in the over-the-counter market or otherwise.
 
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
 
Electronic Distribution
 
In connection with the offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail.


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Other Relationships
 
Some of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions. In addition, in the ordinary course of their business activities, the underwriters and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers. Such investments and securities activities may involve securities and/or instruments of ours or our affiliates. The underwriters and their affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or financial instruments and may hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
 
Bank of America, N.A. (“BANA”), an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated, one of the underwriters of this offering, is the lender under our $175 Million Warehouse Facility and Merrill Lynch, Pierce, Fenner & Smith Incorporated was an initial purchaser in connection with the offering in March 2010 of our senior notes.
 
Wells Fargo Bank, N.A., an affiliate of Wells Fargo Securities, LLC, one of the underwriters of this offering, is the lender under our 2010-ABS Advance Financing Facility. Wells Fargo Bank, N.A. also acts as Master Servicer under certain of our Servicing Agreements related to mortgage loans for which we act as servicer. Wells Fargo Bank, N.A. receives customary fees and commissions for these transactions.
 
Citibank, N.A., an affiliate of Citigroup Global Markets Inc., one of the underwriters of this offering, is the lender under our $100 Million Warehouse Facility. Citibank, N.A. receives customary fees and commissions for this transaction.
 
Barclays Bank plc, an affiliate of Barclays Capital Inc., one of the underwriters of this offering, is the lender under our 2011-Agency Advance Financing Facility and our $50 Million Warehouse Facility. Barclays Bank plc receives customary fees and commissions for these transactions.
 
In December 2011, we signed an agreement to purchase the servicing rights to certain reverse mortgages (the “Reverse Mortgage Acquisition”) from BANA. Under the Reverse Mortgage Acquisition, we agreed to purchase certain servicing rights relating to reverse mortgage loans with an aggregate UPB as of December 31, 2011 of approximately $18 billion and assume certain liabilities associated with such MSRs. On December 22, 2011, we deposited in escrow the purchase price of the MSRs relating to reverse mortgage loans with an aggregate UPB as of December 31, 2011 of approximately $7.8 billion and the related advances. The acquisition was completed on January 3, 2012. Our acquisition of MSRs related to an additional $9.5 billion of UPB as of December 31, 2011 is expected to close during 2012 upon receipt of certain specified third party approvals. On December 23, 2011, we paid a deposit of $9.0 million related to such servicing. Additionally, we expect to subservice on behalf of the bank certain reverse mortgage loans with a UPB as of December 31, 2011 of approximately $1.4 billion beginning in the later portion of 2012.
 
The purchase agreement for the Reverse Mortgage Acquisition provides for customary mutual representations and warranties and cross-indemnities. BANA is obligated among other things, under certain circumstances and subject to various terms and conditions, to repurchase certain of the loans associated with the servicing rights that were sold to us and, for a limited time, to make certain advances, including principal advances, with respect to the underlying mortgage loans to the borrower, and we are obligated to reimburse BANA monthly for these advances for one year.
 
Also, in September 2011, we purchased certain MSRs relating to residential mortgage loans with an aggregate UPB of approximately $10 billion as of December 31, 2011 from BANA for approximately


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$69.6 million. In connection with this transaction, we and BANA made customary representations and warranties to each other and agreed to customary cross-indemnities.
 
We intend to continue to actively seek additional servicing acquisitions from third parties, potentially including from the underwriters or their affiliates. In connection with such acquisitions, we may enter into additional borrowing arrangements, including with our underwriters or their affiliates.
 
In connection with the settlement agreement that BANA, certain affiliates of Bank of America and Countrywide Financial Corporation (“Countrywide”) entered into with The Bank of New York Mellon relating to certain legacy Countrywide residential mortgage-backed securitization repurchase exposures (the “Settlement”), BANA agreed to transfer the servicing related to certain high-risk loans to approved subservicers. The Company is an approved subservicer under the Settlement. While the Settlement has not received final court approval, BANA expects to transfer the servicing under the Settlement of certain loans to us in accordance with the terms of the Settlement for which we expect to be paid subservicing fees in accordance with the Settlement.
 
Notice to Prospective Investors in the European Economic Area
 
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), will effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, no offer of shares may be made to the public in that Relevant Member State other than:
 
  A.  to any legal entity which is a qualified investor as defined in the Prospectus Directive;
 
  B.  to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150, natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospectus Directive, subject to obtaining the prior consent of the representatives; or
 
  C.  in any other circumstances falling within Article 3(2) of the Prospectus Directive,
 
provided that no such offer of shares shall require the Company or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.
 
Each person in a Relevant Member State (other than a Relevant Member State where there is a Permitted Public Offer) who initially acquires any shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that (A) it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive, and (B) in the case of any shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the Prospectus Directive, the shares acquired by it in the offering have not been acquired on behalf of, nor have they been acquired with a view to their offer or resale to, persons in any Relevant Member State other than “qualified investors” as defined in the Prospectus Directive, or in circumstances in which the prior consent of the representatives have been given to the offer or resale. In the case of any shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives have been obtained to each such proposed offer or resale.


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The Company, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement.
 
This prospectus has been prepared on the basis that any offer of shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of shares. Accordingly any person making or intending to make an offer in that Relevant Member State of shares which are the subject of the offering contemplated in this prospectus may only do so in circumstances in which no obligation arises for the Company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. Neither the Company nor the underwriters have authorized, nor do they authorize, the making of any offer of shares in circumstances in which an obligation arises for the Company or the underwriters to publish a prospectus for such offer.
 
For the purpose of the above provisions, the expression “an offer to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
 
Notice to Prospective Investors in the United Kingdom
 
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.
 
Notice to Prospective Investors in Switzerland
 
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX’’) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland.
 
Neither this document nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes (“CISA”). The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.


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Notice to Prospective Investors in the Dubai International Financial Centre
 
This prospectus supplement relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (“DFSA”). This prospectus supplement is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus supplement nor taken steps to verify the information set forth herein and has no responsibility for the prospectus supplement. The shares to which this prospectus supplement relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus supplement you should consult an authorized financial advisor.
 
Notice to Prospective Investors in France
 
Neither this prospectus nor any other offering material relating to the shares described in this prospectus has been submitted to the clearance procedures of the Autorité des Marchés Financiers or of the competent authority of another member state of the European Economic Area and notified to the Autorité des Marchés Financiers . The shares have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France. Neither this prospectus nor any other offering material relating to the shares has been or will be:
 
  •     released, issued, distributed or caused to be released, issued or distributed to the public in France; or
 
  •     used in connection with any offer for subscription or sale of the shares to the public in France.
 
Such offers, sales and distributions will be made in France only:
 
  •     to qualified investors (investisseurs qualifiés) and/or to a restricted circle of investors (cercle restreint d’investisseurs), in each case investing for their own account, all as defined in, and in accordance with articles L.411-2, D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code monétaire et financier;
 
  •     to investment services providers authorized to engage in portfolio management on behalf of third parties; or
 
  •     in a transaction that, in accordance with article L.411-2-II-1°-or-2°-or 3° of the French Code monétaire et financier and article 211-2 of the General Regulations (Règlement Général) of the Autorité des Marchés Financiers, does not constitute a public offer (appel public à l’épargne).
 
The shares may be resold directly or indirectly, only in compliance with articles L.411-1, L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French Code monétaire et financier .
 
Notice to Prospective Investors in Hong Kong
 
The shares may not be offered or sold in Hong Kong by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32, Laws of Hong Kong), or (ii) to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a “prospectus” within the meaning of the Companies


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Ordinance (Cap. 32, Laws of Hong Kong) and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
 
Notice to Prospective Investors in Singapore
 
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
 
Where the shares are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
 
  •     a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
 
  •     a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,
 
shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
 
  •     to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person pursuant to an offer that is made on terms that such shares, debentures and units of shares and debentures of that corporation or such rights and interest in that trust are acquired at a consideration of not less than S$200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of securities or other assets, and further for corporations, in accordance with the conditions specified in Section 275 of the SFA;
 
  •     where no consideration is or will be given for the transfer; or
 
  •     where the transfer is by operation of law.
 
Notice to Prospective Investors in Australia
 
No prospectus or other disclosure document (as defined in the Corporations Act 2001 (Cth) of Australia (“Corporations Act”)) in relation to the common stock has been or will be lodged with the Australian Securities & Investments Commission (“ASIC”). This document has not been lodged with ASIC


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and is only directed to certain categories of exempt persons. Accordingly, if you receive this document in Australia:
 
  (a)  you confirm and warrant that you are either:
 
  (i)  a “sophisticated investor” under section 708(8)(a) or (b) of the Corporations Act;
 
  (ii)  a “sophisticated investor” under section 708(8)(c) or (d) of the Corporations Act and that you have provided an accountant’s certificate to us which complies with the requirements of section 708(8)(c)(i) or (ii) of the Corporations Act and related regulations before the offer has been made;
 
  (iii)  a person associated with the company under section 708(12) of the Corporations Act; or
 
  (iv)  a “professional investor” within the meaning of section 708(11)(a) or (b) of the Corporations Act, and to the extent that you are unable to confirm or warrant that you are an exempt sophisticated investor, associated person or professional investor under the Corporations Act any offer made to you under this document is void and incapable of acceptance; and
 
  (b)  you warrant and agree that you will not offer any of the common stock for resale in Australia within 12 months of that common stock being issued unless any such resale offer is exempt from the requirement to issue a disclosure document under section 708 of the Corporations Act.


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LEGAL MATTERS
 
Certain legal matters relating to this offering will be passed upon for us by Cleary Gottlieb Steen & Hamilton LLP, New York, New York. Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York will act as counsel to the underwriters.
 
EXPERTS
 
The consolidated financial statements of Nationstar Mortgage LLC at December 31, 2011 and 2010, and for each of the three years in the period ended December 31, 2011, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.


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MARKET AND INDUSTRY DATA AND FORECASTS
 
Certain market and industry data included in this prospectus has been obtained from third party sources that we believe to be reliable. Market estimates are calculated by using independent industry publications, government publications and third party forecasts in conjunction with our assumptions about our markets. We have not independently verified such third party information. While we are not aware of any misstatements regarding any market, industry or similar data presented herein, such data involves risks and uncertainties and is subject to change based on various factors, including those discussed under the headings “Special Note Regarding Forward-Looking Statements” and “Risk Factors” in this prospectus.


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WHERE YOU CAN FIND MORE INFORMATION
 
We have filed a registration statement, of which this prospectus is a part, on Form S-1 with the SEC relating to this offering. This prospectus does not contain all of the information in the registration statement and the exhibits included with the registration statement. References in this prospectus to any of our contracts, agreements or other documents are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contracts, agreements or documents. You may read and copy the registration statement, the related exhibits and other material we file with the SEC at the SEC’s public reference room in Washington, D.C. at 100 F Street, Room 1580, N.E., Washington, D.C. 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the SEC. Please call the Commission at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The website address is http://www.sec.gov.
 
Upon the effectiveness of the registration statement, we will be subject to the informational requirements of the Exchange Act, and, in accordance with the Exchange Act, will file reports, proxy and information statements and other information with the SEC. Such annual, quarterly and special reports, proxy and information statements and other information can be inspected and copied at the locations set forth above. We intend to make this information available on the investors relations section of our website, www.nationstarholdings.com. Information on, or accessible through, our website is not part of this prospectus.


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NATIONSTAR MORTGAGE LLC

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS
 
 
         
Audited Consolidated Financial Statements
       
    F-2  
    F-3  
    F-4  
    F-5  
    F-6  
    F-8  


F-1


Table of Contents

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
The Members of
Nationstar Mortgage LLC
 
We have audited the accompanying consolidated balance sheets of Nationstar Mortgage LLC and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, members’ equity and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nationstar Mortgage LLC and subsidiaries at December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.
 
As discussed in Note 3 to the consolidated financial statements, the Company changed its method of accounting for transfers of financial assets and consolidation of variable interest entities, effective January 1, 2010.
 
/s/   Ernst & Young LLP
 
Dallas, Texas
February 23, 2012


F-2


Table of Contents

 
Consolidated Financial Statements
 
NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
CONSOLIDATED BALANCE SHEETS
 
                 
    December 31,
    December 31,
 
   
2011
   
2010
 
    (dollars in thousands)  
 
Assets
               
Cash and cash equivalents
    $62,445       $21,223  
Restricted cash (includes $— and $1,472, respectively, of restricted cash, subject to ABS nonrecourse debt)
    71,499       91,125  
Accounts receivable (includes $— and $2,392, respectively, of accrued interest, subject to ABS nonrecourse debt)
    562,300       441,275  
Mortgage loans held for sale
    458,626       369,617  
Mortgage loans held for investment, subject to nonrecourse debt—Legacy Assets, net of allowance for loan losses of $5,824 and $3,298, respectively
    243,480       266,320  
Mortgage loans held for investment, subject to ABS nonrecourse debt (at fair value)
          538,440  
Receivables from affiliates
    4,609       8,993  
Mortgage servicing rights—fair value
    251,050       145,062  
Property and equipment, net of accumulated depreciation of $39,201 and $35,346, respectively
    24,073       8,394  
REO, net (includes $— and $17,509, respectively, of REO, subject to ABS nonrecourse debt)
    3,668       27,337  
Other assets
    106,181       29,395  
                 
Total assets
    $1,787,931       $1,947,181  
                 
Liabilities and members’ equity
               
Notes payable
    $873,179       $709,758  
Unsecured senior notes
    280,199       244,061  
Payables and accrued liabilities (includes $— and $95, respectively, of accrued interest payable, subject to ABS nonrecourse debt)
    183,789       75,054  
Derivative financial instruments
    12,370       7,801  
Derivative financial instruments, subject to ABS nonrecourse debt
          18,781  
Nonrecourse debt—Legacy Assets
    112,490       138,662  
Excess spread financing (at fair value)
    44,595        
ABS nonrecourse debt (at fair value)
          496,692  
                 
Total liabilities
    1,506,622       1,690,809  
                 
Commitments and contingencies—See Note 19
               
Total members’ equity
    281,309       256,372  
                 
Total liabilities and members’ equity
    $1,787,931       $1,947,181  
                 
 
See accompanying notes to the consolidated financial statements.


F-3


Table of Contents

 
 
NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF OPERATIONS
 
                         
   
For the year ended December 31,
 
   
2011
   
2010
   
2009
 
    (dollars in thousands)  
 
Revenues:
                       
Servicing fee income
    $233,411       $167,126       $90,195  
Other fee income
    35,187       16,958       10,023  
                         
Total fee income
    268,598       184,084       100,218  
Gain/(loss) on mortgage loans held for sale
    109,136       77,344       (21,349 )
                         
Total revenues
    377,734       261,428       78,869  
                         
Expenses and impairments:
                       
Salaries, wages and benefits
    202,290       149,115       90,689  
General and administrative
    82,183       58,913       30,494  
Provision for loan losses
    3,537       3,298        
Loss on foreclosed real estate
    6,833       205       7,512  
Occupancy
    11,340       9,445       6,863  
Loss on available for sale securities—other-than-temporary
                6,809  
                         
Total expenses and impairments
    306,183       220,976       142,367  
                         
Other income (expense):
                       
Interest income
    66,802       98,895       52,518  
Interest expense
    (105,375 )     (116,163 )     (69,883 )
Gain/(loss) on interest rate swaps and caps
    298       (9,801 )     (14 )
Fair value changes in ABS securitizations
    (12,389 )     (23,297 )      
                         
Total other income (expense)
    (50,664 )     (50,366 )     (17,379 )
                         
Net income / (loss)
    $20,887       $(9,914 )     $(80,877 )
                         
Unaudited pro forma information (Note 27):
                       
Historical net income before taxes
    $20,887                  
Pro forma adjustment for taxes
                     
                         
Pro forma net income
    $20,887                  
                         
 
See accompanying notes to the consolidated financial statements.


F-4


Table of Contents

 
NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY AND COMPREHENSIVE INCOME
 
                         
          Accumulated Other
    Total Members’
 
    Members’
    Comprehensive
    Units and
 
   
Units
   
Income
   
Members’ Equity
 
    (dollars in thousands)  
 
Balance at December 31, 2008
    $255,922       $—       $255,922  
Capital contributions
    87,951             87,951  
Share-based compensation
    827             827  
Net loss and comprehensive loss
    (80,877 )           (80,877 )
                         
Balance at December 31, 2009
    263,823             263,823  
Cumulative effect of change in accounting principles as of January 1, 2010 related to adoption of new accounting guidance on consolidation of variable interest entities
    (8,068 )           (8,068 )
Share-based compensation
    12,856             12,856  
Tax related share-based settlement of units by members
    (3,396 )           (3,396 )
Comprehensive loss:
                       
Net loss
    (9,914 )           (9,914 )
Change in value of cash flow hedge
          1,071       1,071  
                         
Total comprehensive loss
                    (8,843 )
                         
Balance at December 31, 2010
    255,301       1,071       256,372  
Share-based compensation
    14,815             14,815  
Distributions to parent
    (4,348 )           (4,348 )
Tax related share-based settlement of units by members
    (5,346 )           (5,346 )
Comprehensive income:
                       
Net income
    20,887             20,887  
Change in value of cash flow hedge
          (1,071 )     (1,071 )
                         
Total comprehensive income
                    19,816  
                         
Balance at December 31, 2011
    $281,309       $—       $281,309  
                         
 
See accompanying notes to the consolidated financial statements.


F-5


Table of Contents

 
NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                         
   
Year Ended
 
   
2011
   
2010
   
2009
 
    (dollars in thousands)  
 
Operating activities
                       
Net income / (loss)
    $20,887       $(9,914 )     $(80,877 )
Adjustments to reconcile net income / (loss) to net cash provided by operating activities:
                       
Share-based compensation
    14,815       12,856       827  
(Gain) / loss on mortgage loans held for sale
    (109,136 )     (77,344 )     21,349  
Provision for loan losses
    3,537       3,298        
Loss on foreclosed real estate
    6,833       205       7,512  
Loss on equity method investments
    107              
(Gain) / loss on derivatives including ineffectiveness on interest rate swaps and caps
    (2,331 )     8,872       (2,422 )
Impairment of investments in debt securities
                6,809  
Fair value changes in ABS securitizations
    12,389       23,297        
Fair value changes in excess financing spread
    3,060              
Depreciation and amortization
    4,063       2,117       1,767  
Change in fair value on mortgage servicing rights
    39,000       6,043       27,915  
Amortization of debt discount
    13,331       18,731       21,287  
Amortization of discounts
    (5,042 )     (4,526 )     (1,394 )
Mortgage loans originated and purchased, net of fees
    (3,412,185 )     (2,791,639 )     (1,480,549 )
Cost of loans sold, net of fees
    3,339,859       2,621,275       1,007,369  
Principal payments/prepayments received and other changes in mortgage loans originated as held for sale
    63,578       32,668       471,882  
Changes in assets and liabilities:
                       
Accounts receivable, net
    (83,133 )     41,148       (157,964 )
Receivables from affiliates
    4,384       3,958       66,940  
Other assets
    (44,576 )     (861 )     (6,961 )
Payables and accrued liabilities
    101,657       8,163       12,869  
                         
Net cash used in operating activities
    (28,903 )     (101,653 )     (83,641 )
                         
 
Continued on following page.


F-6


Table of Contents

 
NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
 
                         
   
Year Ended
 
   
2011
   
2010
   
2009
 
    (dollars in thousands)  
 
Investing activities
                       
Principal payments received and other changes on mortgage loans held for investment, subject to ABS nonrecourse debt
    $40,000       $48,838       $—  
Property and equipment additions, net of disposals
    (19,742 )     (3,936 )     (3,029 )
Acquisition of equity method investee
    (6,600 )            
Deposits on reverse mortgage servicing rights, net
    (26,893 )            
Deposits on / purchase of forward mortgage servicing rights, net of liabilities incurred
    (96,467 )     (17,812 )     (1,169 )
Proceeds from sales of REO
    27,823       74,107       34,181  
                         
Net cash (used in) / provided by investing activities
    (81,879 )     101,197       29,983  
                         
Financing activities
                       
Transfers from restricted cash, net
    16,812       (33,731 )     (31,763 )
Issuance of nonrecourse debt, net
                191,272  
Issuance of unsecured senior notes, net
    35,166       243,013        
Issuance of excess spread financing
    40,492              
Increase / (decrease) in notes payable
    163,421       (62,099 )     (60,395 )
Repayment of nonrecourse debt—Legacy assets
    (30,433 )     (45,364 )     (15,809 )
Repayment of ABS nonrecourse debt
    (58,091 )     (103,466 )      
Repayment of excess servicing spread financing
    (2,207 )            
Capital contributions from members
                20,700  
Distributions to parent
    (4,348 )            
Debt financing costs
    (3,462 )     (14,923 )     (18,059 )
Tax related share-based settlement of units by members
    (5,346 )     (3,396 )      
                         
Net cash provided by / (used in) financing activities
    152,004       (19,966 )     85,946  
                         
Net increase in cash and cash equivalents
    41,222       (20,422 )     32,288  
Cash and cash equivalents at beginning of period
    21,223       41,645       9,357  
                         
Cash and cash equivalents at end of period
    $62,445       $21,223       $41,645  
                         
Supplemental disclosures of non-cash activities
                       
Transfer of mortgage loans held for sale to REO at fair value
    $90       $352       $36,164  
Transfer of mortgage loans held for investment to REO at fair value
    6,291       18,928       5,561  
Transfer of mortgage loans held for sale to held for investment at fair value
                319,183  
Transfer of mortgage loans held for investment, subject to ABS nonrecourse debt to REO at fair value
    17,528       37,127        
Contribution of intercompany payable from parent
                67,251  
Change in value of cash flow hedge—accumulated other comprehensive income
    (1,071 )     1,071        
Mortgage servicing rights resulting from sale or securitization of mortgage loans
    36,474       26,253       8,332  
Liabilities incurred from purchase of forward mortgage servicing rights
    6,333             22,211  
 
See accompanying notes to the consolidated financial statements.


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise stated)
 
1.  Nature of Business and Basis of Presentation
 
Nature of Business
 
Nationstar Mortgage LLC’s (Nationstar or the Company) principal business is the servicing of residential mortgage loans for others and the origination and selling or securitization of single-family conforming mortgage loans to government-sponsored entities (GSE) or other third party investors in the secondary market.
 
The sale or securitization of mortgage loans typically involves Nationstar retaining the right to service the mortgage loans that it sells. The servicing of mortgage loans includes the collection of principal and interest payments and the assessment of ancillary fees related to the servicing of mortgage loans. Additionally, Nationstar periodically obtains servicing rights through the acquisition of servicing portfolios from third parties and entering into subservicing arrangements.
 
Corporate Reorganization (Unaudited)
 
In conjunction with the filing and effectiveness of a Form S-1 Registration Statement under the Securities Act of 1933, Nationstar will become a wholly owned indirect subsidiary of Nationstar Mortgage Holdings Inc. Nationstar Mortgage Holdings Inc. was formed solely for the purpose of reorganizing the structure of FIF HE Holdings LLC (FIF) and Nationstar so that the common stock issuer is a corporation rather than a limited liability company. As such, the existing investors will own common stock rather than equity interests in a limited liability company. Because Nationstar Mortgage Holdings Inc. upon formation and prior to the reorganization, will have had no operations, Nationstar will be the predecessor company. The reorganization will be accounted for as a reorganization under common control and, accordingly, there will be no change in the basis of the assets and liabilities.
 
Basis of Presentation
 
The consolidated financial statements include the accounts of Nationstar, a Delaware limited liability company, and its wholly owned subsidiaries and those variable interest entities (VIEs) where Nationstar is the primary beneficiary. Nationstar applies the equity method of accounting to investments when the entity is not a VIE and Nationstar is able to exercise significant influence, but not control, over the policies and procedures of the entity but owns less than 50% of the voting interests. Intercompany balances and transactions have been eliminated. Results of operations, assets and liabilities of VIEs are included from the date that the Company became the primary beneficiary through the date the Company ceases to be the primary beneficiary. Nationstar is a subsidiary of FIF HE Holdings LLC (FIF), a subsidiary of Fortress Private Equity Funds III and IV (Fortress). Nationstar evaluated subsequent events through the date these consolidated financial statements were issued.
 
2.  Significant Accounting Policies
 
Use of Estimates in Preparation of Consolidated Financial Statements
 
The accompanying consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States (GAAP). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates


F-8


Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
due to factors such as adverse changes in the economy, increases in interest rates, changes in prepayment assumptions, declines in home prices or discrete events adversely affecting specific borrowers, and such differences could be material.
 
Reclassification Adjustments
 
Certain prior-period amounts have been reclassified to conform to the current-period presentation.
 
Cash and Cash Equivalents
 
Cash and cash equivalents include unrestricted cash on hand and other highly liquid investments having an original maturity of less than three months.
 
Restricted Cash
 
Restricted cash consists of certain custodial accounts related to Nationstar’s portfolio securitizations or to collections on certain mortgage loans and mortgage loan advances that have been pledged to various Advance Financing Facilities under Master Repurchase Agreements. Restricted cash also includes certain fees collected on mortgage loan payments that are required to be remitted to a government-sponsored entity (GSE) to settle outstanding guarantee fee requirements.
 
Mortgage Loans Held for Sale
 
Nationstar maintains a strategy of originating mortgage loan products primarily for the purpose of selling to government-sponsored entities or other third party investors in the secondary market. Generally, all newly originated mortgage loans held for sale are delivered to third party purchasers or securitized within three months after origination.
 
Through September 30, 2009, mortgage loans held for sale were carried at the lower of amortized cost or fair value on an aggregate basis grouped by delinquency status. Effective October 1, 2009, Nationstar elected to measure newly originated prime residential mortgage loans held for sale at fair value, as permitted under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 825, Financial Instruments . Nationstar estimates fair value by evaluating a variety of market indicators, including recent trades and outstanding commitments, calculated on an aggregate basis (see Note 15—Fair Value Measurements).
 
In connection with Nationstar’s election to measure mortgage loans held for sale at fair value, Nationstar is no longer permitted to defer the loan originations fees, net of direct loan originations costs associated with these loans. Prior to October 1, 2009, Nationstar deferred all nonrefundable fees and costs as required under ASC 310, Receivables . In accordance with this guidance, loan originations fees, net of direct loan originations costs were capitalized and added as an adjustment to the basis of the individual loans originated. These fees are accreted into income as an adjustment to the loan yield over the life of the loan or recognized when the loan is sold to a third party purchaser.
 
Mortgage Loans Held for Investment, Subject to Nonrecourse Debt—Legacy Assets, Net
 
Mortgage loans held for investment, subject to nonrecourse debt—Legacy Assets principally consist of nonconforming or subprime mortgage loans securitized which serve as collateral for the issued debt. These


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
loans were transferred on October 1, 2009 from mortgage loans held for sale at fair value on the transfer date, as determined by the present value of expected future cash flows, with no valuation allowance recorded. The difference between the undiscounted cash flows expected and the investment in the loan is recognized as interest income on a level-yield method over the life of the loan. Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at transfer are not recognized as a yield adjustment or as a loss accrual or a valuation allowance. Increases in expected cash flows subsequent to the transfer are recognized prospectively through adjustment of the yield on the loans over the remaining life. Decreases in expected cash flows subsequent to transfer are recognized as a valuation allowance.
 
Allowance for Loan Losses on Mortgage Loans Held for Investment
 
An allowance for loan losses is established by recording a provision for loan losses in the consolidated statement of operations when management believes a loss has occurred on a loan held for investment. When management determines that a loan held for investment is partially or fully uncollectible, the estimated loss is charged against the allowance for loan losses. Recoveries on losses previously charged to the allowance are credited to the allowance at the time the recovery is collected.
 
Nationstar accounts for the loans that were transferred to held for investment from held for sale during October 2009 in a manner similar to ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality . At the date of transfer, management evaluated such loans to determine whether there was evidence of deterioration of credit quality since acquisition and if it was probable that Nationstar would be unable to collect all amounts due according to the loan’s contractual terms. The transferred loans were aggregated into separate pools of loans based on common risk characteristics (loan delinquency). Nationstar considers expected prepayments, and estimates the amount and timing of undiscounted expected principal, interest, and other cash flows for each aggregated pool of loans. The determination of expected cash flows utilizes internal inputs such as prepayment speeds and credit losses. These internal inputs require the use of judgement and can have a significant impact on the accretion of income and/or valuation allowance. Nationstar determines the excess of the pool’s scheduled contractual principal and contractual interest payments over all cash flows expected as of the transfer date as an amount that should not be accreted (nonaccretable difference). The remaining amount is accreted into interest income over the remaining life of the pool of loans (accretable yield).
 
Over the life of the transferred loans, management continues to estimate cash flows expected to be collected. Nationstar evaluates at the balance sheet date whether the present value of the loans determined using the effective interest rates has decreased, and if so, records an allowance for loan loss. The present value of any subsequent increase in the transferred loans cash flows expected to be collected is used first to reverse any existing allowance for loan loss related to such loans. Any remaining increase in cash flows expected to be collected are used to adjust the amount of accretable yield recognized on a prospective basis over the remaining life of the loans.
 
Nationstar accounts for its allowance for loan losses for all other mortgage loans held for investment in accordance with ASC 450-20, Loss Contingencies . The allowance for loan losses represents management’s best estimate of probable losses inherent in the loans held for investment portfolio. Mortgage loans held for investment portfolio is comprised primarily of large groups of homogeneous residential mortgage loans. These loans are evaluated based on the loan’s present delinquency status. The estimate of probable losses on these loans considers the rate of default of the loans and the amount of loss in the event of default. The rate of default is based on historical experience related to the migration of these from each delinquency category to


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
default over a twelve month period. The entire allowance is available to absorb probable credit losses from the entire held for investment portfolio.
 
Substantially, all mortgage loans held for investment were transferred from mortgage loans held for sale at fair value in October 2009.
 
Mortgage Loans Held for Investment, Subject to ABS Nonrecourse Debt, Net
 
Effective January 1, 2010, new accounting guidance eliminated the concept of a Qualifying Special Purpose Entity (QSPE) and all existing securitization trusts are considered VIEs and are subject to new consolidation guidance provided in ASC 810. Upon consolidation of any VIEs, Nationstar recognized the securitized mortgage loans related to these securitization trusts as mortgage loans held for investment, subject to ABS nonrecourse debt (see Note 3, Variable Interest Entities and Securitizations). Additionally, Nationstar elected the fair value option provided for by ASC 825-10.
 
In December 2011, Nationstar sold its remaining variable interest in a securitization trust that has been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. Upon deconsolidation of this VIE, Nationstar derecognized the securitized mortgage loans held for investment, subject to ABS nonrecourse debt, the related ABS nonrecourse debt, as well as certain other assets and liabilities of the securitization trust, and recognized any mortgage servicing rights on the consolidated balance sheet.
 
Receivables from Affiliates
 
Nationstar engages in periodic transactions with Nationstar Regular Holdings, Ltd., a subsidiary of FIF. These transactions typically involve the monthly payment of principal and interest advances that are required to be remitted to the securitization trusts as required under various Pooling and Servicing Agreements. These amounts are later repaid to Nationstar when principal and interest advances are recovered from the respective borrowers. In addition, receivables from affiliates include amounts due to FIF from settlements on interest rate swap agreements between FIF and various financial institutions. These settled amounts are collected by Nationstar and are ultimately due to FIF.
 
Mortgage Servicing Rights (MSRs)
 
Nationstar recognizes MSRs related to all existing residential mortgage loans transferred to a third party in a transfer that meets the requirements for sale accounting and for which the servicing rights are retained. Additionally, Nationstar may acquire the rights to service residential mortgage loans that do not relate to assets transferred by Nationstar through the purchase of these rights from third parties.
 
Nationstar identifies MSRs related to all existing forward residential mortgage loans transferred to a third party in a transfer that meets the requirements for sale accounting or through the acquisition of rights to service forward residential mortgage loans that do not relate to assets transferred by Nationstar through the purchase of these rights from third parties as a class of MSR. Nationstar applies fair value accounting to this class of MSRs, with all changes in fair value recorded as charges or credits to servicing fee income in accordance with ASC 860-50, Servicing Assets and Liabilities .
 
Additionally, Nationstar has entered into a contract to acquire and hold servicing rights for reverse mortgage loans. For this class of servicing rights, Nationstar will apply the amortization method (i.e., lower of cost or market) with the capitalized cost of the MSRs amortized in proportion and over the period of the


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
estimated net future servicing income and recognized as an adjustment to servicing fee income. The expected period of the estimated net servicing income is based, in part, on the expected prepayment period of the underlying reverse mortgages. This class of MSRs will be periodically evaluated for impairment. For purposes of measuring impairment, MSRs will be stratified based on predominant risk characteristics of the underlying serviced loans. These risk characteristics include loan type (fixed or adjustable rate), term and interest rate. Impairment, if any, will represent the excess of amortized cost of an individual stratum over its estimated fair value and will be recognized through a valuation allowance.
 
Property and Equipment, Net
 
Property and equipment, net is comprised of land, furniture, fixtures, leasehold improvements, computer software, and computer hardware. These assets are stated at cost less accumulated depreciation. Repairs and maintenance are expensed as incurred. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets. Cost and accumulated depreciation applicable to assets retired or sold are eliminated from the accounts, and any resulting gains or losses are recognized at such time through a charge or credit to general and administrative expenses.
 
Real Estate Owned (REO), Net
 
Nationstar holds REO as a result of foreclosures on delinquent mortgage loans. REO is recorded at estimated fair value less costs to sell at the date of foreclosure. Any subsequent declines in fair value are credited to a valuation allowance and charged to operations as incurred.
 
Variable Interest Entities
 
Nationstar has been the transferor in connection with a number of securitizations or asset-backed financing arrangements, from which Nationstar has continuing involvement with the underlying transferred financial assets. Nationstar aggregates these securitizations or asset-backed financing arrangements into two groups: 1) securitizations of residential mortgage loans that were accounted for as sales and 2) financings accounted for as secured borrowings.
 
On securitizations of residential mortgage loans, Nationstar’s continuing involvement typically includes acting as servicer for the mortgage loans held by the trust and holding beneficial interests in the trust. Nationstar’s responsibilities as servicer include, among other things, collecting monthly payments, maintaining escrow accounts, providing periodic reports and managing insurance in exchange for a contractually specified servicing fee. The beneficial interests held consist of both subordinate and residual securities that were retained at the time of the securitization. Prior to January 1, 2010, each of these securitization trusts was considered QSPEs, and these trusts were excluded from Nationstar’s consolidated financial statements.
 
Nationstar also maintains various agreements with special purpose entities (SPEs), under which Nationstar transfers mortgage loans and/or advances on residential mortgage loans in exchange for cash. These SPEs issue debt supported by collections on the transferred mortgage loans and/or advances. These transfers do not qualify for sale treatment because Nationstar continues to retain control over the transferred assets. As a result, Nationstar accounts for these transfers as financings and continues to carry the transferred assets and recognizes the related liabilities on Nationstar’s consolidated balance sheets. Collections on the mortgage loans and/or advances pledged to the SPEs are used to repay principal and interest and to pay the expenses of the entity. The holders of these beneficial interests issued by these SPEs do not have recourse to Nationstar and can only look to the assets of the SPEs themselves for satisfaction of the debt.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
 
Prior to January 1, 2010, Nationstar evaluated each special purpose entity (SPE) for classification as a QSPE. QSPEs were not consolidated in Nationstar’s consolidated financial statements. When an SPE was determined to not be a QSPE, Nationstar further evaluated it for classification as a VIE. When an SPE met the definition of a VIE, and when it was determined that Nationstar was the primary beneficiary, Nationstar included the SPE in its consolidated financial statements.
 
Effective January 1, 2010, new accounting guidance eliminated the concept of a QSPE and all existing SPEs are subject to new consolidation guidance. Upon adoption of this new accounting guidance, Nationstar identified certain securitization trusts where Nationstar, or through its affiliates, continued to hold beneficial interests in these trusts. These retained beneficial interests obligate Nationstar to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant. In addition, Nationstar as Master Servicer on the related mortgage loans, retains the power to direct the activities of the VIE that most significantly impact the economic performance of the VIE. When it is determined that Nationstar has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, the assets and liabilities of these VIEs are included in Nationstar’s consolidated financial statements. Upon consolidation of these VIEs, Nationstar derecognized all previously recognized beneficial interests obtained as part of the securitization, including any retained investment in debt securities, mortgage servicing rights, and any remaining residual interests. In addition, Nationstar recognized the securitized mortgage loans as mortgage loans held for investment, subject to ABS nonrecourse debt, and the related asset-backed certificates (ABS nonrecourse debt) acquired by third parties as ABS nonrecourse debt on Nationstar’s consolidated balance sheet.
 
As a result of market conditions and deteriorating credit performance on these consolidated VIEs, Nationstar expects minimal to no future cash flows on the economic residual. Under existing GAAP, Nationstar would be required to provide for additional allowances for loan losses on the securitization collateral as credit performance deteriorated, with no offsetting reduction in the securitization’s debt balances, even though any nonperformance of the assets will ultimately pass through as a reduction of amounts owed to the debt holders, once they are extinguished. Therefore, Nationstar would be required to record accounting losses beyond its economic exposure.
 
To more accurately represent the future economic performance of the securitization collateral and related debt balances, Nationstar elected the fair value option provided for by ASC 825-10, Financial Instruments-Overall . This option was applied to all eligible items within the VIE, including mortgage loans held for investment, subject to ABS nonrecourse debt, and the related ABS nonrecourse debt.
 
Subsequent to this fair value election, Nationstar no longer records an allowance for loan loss on mortgage loans held for investment, subject to ABS nonrecourse debt. Nationstar continues to record interest income in Nationstar’s consolidated statement of operations on these fair value elected loans until they are placed on a nonaccrual status when they are 90 days or more past due. The fair value adjustment recorded for the mortgage loans held for investment is classified within fair value changes of ABS securitizations in Nationstar’s consolidated statement of operations.
 
Subsequent to the fair value election for ABS nonrecourse debt, Nationstar continues to record interest expense in Nationstar’s consolidated statement of operations on the fair value elected ABS nonrecourse debt. The fair value adjustment recorded for the ABS nonrecourse debt is classified within fair value changes of ABS securitizations in Nationstar’s consolidated statement of operations.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
 
Under the existing pooling and servicing agreements of these securitization trusts, the principal and interest cash flows on the underlying securitized loans are used to service the asset-backed certificates. Accordingly, the timing of the principal payments on this nonrecourse debt is dependent on the payments received on the underlying mortgage loans and liquidation of REO.
 
Nationstar consolidates the SPEs created for the purpose of issuing debt supported by collections on loans and advances that have been transferred to it as VIEs, and Nationstar is the primary beneficiary of these VIEs. Nationstar consolidates the assets and liabilities of the VIEs onto its consolidated financial statements.
 
In December 2011, Nationstar sold its remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. In accordance with ASC 810, Consolidation , Nationstar evaluated this securitization trust and determined that Nationstar no longer has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Consequently, this securitization trust was derecognized as of December 31, 2011. Upon deconsolidation of this VIE, Nationstar derecognized the securitized mortgage loans held for investment, subject to ABS nonrecourse debt, the related ABS nonrecourse debt, as well as certain other assets and liabilities of the securitization trust, and recognized any mortgage servicing rights on the consolidated balance sheet. The impact of this derecognition on Nationstar’s consolidated statement of operations was recognized in 2011 in the fair value changes in ABS securitizations line item.
 
Derivative Financial Instruments
 
Nationstar enters into interest rate lock commitments (IRLCs) with prospective borrowers. These commitments are carried at fair value in accordance with ASC 815, Derivatives and Hedging . ASC 815 clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The estimated fair values of IRLCs are based on quoted market values and are recorded in other assets in the consolidated balance sheets. The initial and subsequent changes in the value of IRLCs are a component of gain (loss) on mortgage loans held for sale.
 
Nationstar actively manages the risk profiles of its IRLCs and mortgage loans held for sale on a daily basis. To manage the price risk associated with IRLCs, Nationstar enters into forward sales of MBS in an amount equal to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held for sale, Nationstar enters into forward sales of MBS to deliver mortgage loan inventory to investors. The estimated fair values of forward sales of MBS and forward sale commitments are based on quoted market values and are recorded as a component of other assets and mortgage loans held for sale, respectively, in the consolidated balance sheets. The initial and subsequent changes in value on forward sales of MBS and forward sale commitments are a component of gain (loss) on mortgage loans held for sale.
 
Periodically, Nationstar has entered into interest rate swap agreements to hedge the interest payment on the warehouse debt and securitization of its mortgage loans held for sale. These interest rate swap agreements generally require Nationstar to pay a fixed interest rate and receive a variable interest rate based on LIBOR. Unless designated as an accounting hedge, Nationstar records losses on interest rate swaps as a component of gain/(loss) on interest rate swaps and caps in Nationstar’s consolidated statements of operations. Unrealized losses on undesignated interest rate derivatives are separately disclosed under operating activities in the consolidated statements of cash flows.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
 
On October 1, 2010, the Company designated an existing interest rate swap as a cash flow hedge against outstanding floating rate financing associated with the Nationstar Mortgage Advance Receivables Trust 2009-ADV1 financing. This interest rate swap was a cash flow hedge under ASC 815 and was recorded at fair value on the Company’s consolidated balance sheet, with any changes in fair value being recorded as an adjustment to other comprehensive income. To qualify as a cash flow hedge, the hedge must be highly effective at reducing the risk associated with the exposure being hedged and must be formally designated at hedge inception. Nationstar considers a hedge to be highly effective if the change in fair value of the derivative hedging instrument is within 80% to 125% of the opposite change in the fair value of the hedged item attributable to the hedged risk. Ineffective portions of the cash flow hedge are reflected in earnings as they occur as a component of interest expense. In conjunction with the October 2011 amendment to the 2010-ABS Advance Financing Facility, Nationstar paid off its 2009-ABS Advance Financing Facility and transferred the related collateral to the 2010-ABS Advance Financing Facility. Concurrently with the repayment of the 2009-ABS Advance Financing Facility, Nationstar de-designated the underlying interest rate swap on the 2009-ABS Advance Financing Facility. The interest rate swap associated with the 2010-ABS Advance Financing Facility was treated as an economic hedge for the remainder of 2011.
 
During 2008, Nationstar entered into interest rate cap agreements to hedge the interest payment on the servicing advance facility. These interest rate cap agreements generally require an upfront payment and receive cash flow only when a variable rate based on LIBOR exceeds a defined interest rate. These interest rate cap agreements are not designated as hedging instruments, and unrealized gains and losses are recorded in loss on interest rate swaps and caps in Nationstar’s consolidated statements of operations.
 
Interest Income
 
Interest income is recognized using the interest method. Revenue accruals for individual loans are suspended and accrued amounts reversed when the mortgage loan becomes contractually delinquent for 90 days or more. Delinquency payment status is based on the most recently received payment from the borrower. The accrual is resumed when the individual mortgage loan becomes less than 90 days contractually delinquent. For individual loans that have been modified, a period of six timely payments is required before the loan is returned to an accrual basis. Interest income also includes (1) interest earned on custodial cash deposits associated with the mortgage loans serviced and (2) deferred originations income, net of deferred originations costs and other revenues derived from the originations of mortgage loans, which is deferred and recognized over the life of a mortgage loan or recognized when the related loan is sold to a third party purchaser.
 
Servicing Fee Income
 
Servicing fees include contractually specified servicing fees, late charges, prepayment penalties and other ancillary charges. Servicing encompasses, among other activities, the following processes: billing, collection of payments, movement of cash to the payment clearing bank accounts, investor reporting, customer service, recovery of delinquent payments, instituting foreclosure, and liquidation of the underlying collateral.
 
Nationstar recognizes servicing and ancillary fees as they are earned, which is generally upon collection of the payments from the borrower. In addition, Nationstar also receives various fees in the course of providing servicing on its various portfolios. These fees include modification fees for modifications performed outside of government programs, modification fees for modifications pursuant to various government programs, and incentive fees for servicing performance on specific GSE portfolios.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
 
Fees recorded on modifications of mortgage loans held for investment performed outside of government programs are deferred and recognized as an adjustment to the loans held for investment. These fees are accreted into interest income as an adjustment to the loan yield over the life of the loan. Fees recorded on modifications of mortgage loans serviced by Nationstar for others are recognized on collection and are recorded as a component of service fee income. Fees recorded on modifications pursuant to various government programs are recognized when Nationstar has completed all necessary steps and the loans have performed for the minimum required time frame to establish eligibility for the fee. Revenue earned on modifications pursuant to various government programs is included as a component of service fee income. Incentive fees for servicing performance on specific GSE portfolios are recognized as various incentive standards are achieved and are recorded as a component of service fee income.
 
Sale of Mortgage Loans
 
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from Nationstar, (ii) the transferee has the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) Nationstar does not maintain effective control over the transferred assets through either (a) an agreement that entitles and obligates Nationstar to repurchase or redeem them before their maturity or (b) the ability to unilaterally cause the holder to return specific assets.
 
Loan securitizations structured as sales, as well as whole loan sales, are accounted for in accordance with ASC 860 , Transfers and Servicing , and the resulting gains on such sales, net of any accrual for recourse obligations, and are reported in operating results during the period in which the securitization closes or the sale occurs.
 
Share-Based Compensation Expense
 
Share-based compensation is recognized in accordance with ASC 718, Compensation—Stock Compensation . This guidance requires all share-based payments to employees, including grants of employee stock options, to be recognized as an expense in the consolidated statements of operations, based on their fair values. The amount of compensation is measured at the fair value of the awards when granted and this cost is expensed over the required service period, which is normally the vesting period of the award.
 
Advertising Costs
 
Advertising costs are expensed as incurred and are included as part of general and administrative expenses.
 
Income Taxes
 
For federal income tax purposes, Nationstar has elected to be a disregarded entity and is treated as a branch of its parent, FIF HE Holdings LLC. FIF HE Holdings LLC is taxed as a partnership, whereby all income is taxed at the member level. Certain states impose income taxes on LLC’s. However, Nationstar does not believe it is subject to material state or local income tax in any of the jurisdictions in which it does business.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
2.  Significant Accounting Policies (continued)
 
 
Recent Accounting Developments
 
Accounting Standards Update No. 2011-03, Reconsideration of Effective Control for Repurchase Agreements (Update No. 2011-03). Update No. 2011-03 is intended to improve the accounting and reporting of repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This amendment removes the criterion pertaining to an exchange of collateral such that it should not be a determining factor in assessing effective control, including (i) the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee, and (ii) the collateral maintenance implementation guidance related to that criterion. Other criteria applicable to the assessment of effective control are not changed by the amendments in the update. The amendments in this update will be effective for interim and annual periods beginning after December 15, 2011. The adoption of Update No. 2011-03 will not have a material impact on Nationstar’s financial condition, liquidity or results of operations.
 
Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS (Update No. 2011-04). Update No. 2011-04 is intended to provide common fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards (IFRS). The changes required in this update include changing the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements. The amendments in this update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of Update No. 2011-04 will not have a material impact on Nationstar’s financial condition, liquidity or results of operations.
 
Accounting Standards Update No. 2011-05, Presentation of Comprehensive Income (Update No. 2011-05). Update No. 2011-05 is intended to improve the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. Update No. 2011-05 eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity and now requires that all non-owner changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The amendments in this update are to be applied retrospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of Update No. 2011-05 will not have a material impact on Nationstar’s financial condition, liquidity or results of operations.
 
Accounting Standards Update No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No 2011-05 (Update No. 2011-12). Update 2011-12 is intended to temporarily defer the effective date of the requirement to present separate line items on the income statement for reclassification adjustments of items out of accumulated other comprehensive income into net income as required by Update No. 2011-05. All other requirements in Update 2011-05 are not affected by this update. This update does not change the requirement to present reclassifications adjustments within other comprehensive income either on the face of the statement that reports other comprehensive income or in the notes to the financial statements (Update 2011-05). The amendments in this update are effective for interim and annual periods beginning after December 15, 2011. The adoption of Update No. 2011-12 will not have a material impact on our financial condition, liquidity or results of operations.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 
3.  Variable Interest Entities and Securitizations
 
A VIE is an entity that has either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. A VIE is consolidated by its primary beneficiary, which is the entity that, through its variable interests has both the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
 
Effective January 1, 2010, new accounting guidance eliminated the concept of a QSPE and all existing SPEs are subject to new consolidation guidance. Upon adoption of this new accounting guidance, Nationstar identified certain securitization trusts where Nationstar had both the power to direct the activities that most significantly impacted the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, the assets and liabilities of these VIEs were included in Nationstar’s consolidated financial statements. The net effect of the accounting change on January 1, 2010 members’ equity was an $8.1 million charge to members’ equity.
 
In December 2011, Nationstar sold its remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. In accordance with ASC 810, Nationstar has evaluated this securitization trust and determined that Nationstar no longer has both the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, and this securitization trust was derecognized as of December 31, 2011. Upon deconsolidation of this VIE, Nationstar derecognized the securitized mortgage loans held for investment, subject to ABS nonrecourse debt, the related ABS nonrecourse debt, as well as certain other assets and liabilities of the securitization trust, and recognized any MSRs on the consolidated balance sheet. The impact of this derecognition on Nationstar’s consolidated statement of operations was recognized in the fourth quarter of 2011 in the fair value changes in ABS securitizations line item.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
3.  Variable Interest Entities and Securitizations (continued)
 
 
A summary of the assets and liabilities of Nationstar’s transactions with VIEs included in Nationstar’s consolidated financial statements as of December 31, 2011 and 2010 is presented in the following table (in thousands):
 
                         
          Transfers
       
          Accounted for as
       
    Securitization
    Secured
       
December 31, 2011
 
Trusts(1)
   
Borrowings
   
Total
 
 
Assets
Restricted cash
    $—       $22,316       $22,316  
Accounts receivable
          279,414       279,414  
Mortgage loans held for investment, subject to nonrecourse debt
          237,496       237,496  
Mortgage loans held for investment, subject to ABS nonrecourse debt
                 
REO
          3,668       3,668  
                         
Total Assets
    $—       $542,894       $542,894  
                         
                         
Liabilities                        
Notes payable
    $—       $244,574       $244,574  
Payables and accrued liabilities
          977       977  
Outstanding servicer advances
                 
Derivative financial instruments, subject to ABS nonrecourse debt
                 
Nonrecourse debt—Legacy Assets
          112,490       112,490  
ABS nonrecourse debt
                 
                         
Total Liabilities
    $—       $358,041       $358,041  
                         
 
 
(1) In December 2011, Nationstar sold its remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. Upon deconsolidation of this VIE, Nationstar derecognized the related assets and liabilities.
 


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
3.  Variable Interest Entities and Securitizations (continued)
 
                         
          Transfers
       
          Accounted for as
       
    Securitization
    Secured
       
December 31, 2010
 
Trusts
   
Borrowings
   
Total
 
 
Assets
Restricted cash
    $1,472       $32,075       $33,547  
Accounts receivable
    2,392       286,808       289,200  
Mortgage loans held for investment, subject to nonrecourse debt
          261,305       261,305  
Mortgage loans held for investment, subject to ABS nonrecourse debt
    538,440             538,440  
REO
    17,509       9,505       27,014  
                         
Total Assets
    $559,813       $589,693       $1,149,506  
                         
                         
Liabilities                        
Notes payable
    $—       $236,808       $236,808  
Payables and accrued liabilities
    95       1,173       1,268  
Outstanding servicer advances(1)
    32,284             32,284  
Derivative financial instruments
          7,801       7,801  
Derivative financial instruments, subject to ABS nonrecourse debt
    18,781             18,781  
Nonrecourse debt—Legacy Assets
          138,662       138,662  
ABS nonrecourse debt
    497,289             497,289  
                         
Total Liabilities
    $548,449       $384,444       $932,893  
                         
 
 
(1) Outstanding servicer advances consists of principal and interest advances paid by Nationstar to cover scheduled payments and interest that have not been timely paid by borrowers. These outstanding servicer advances are eliminated upon the consolidation of the securitization trusts.
 
A summary of the outstanding collateral and certificate balances for securitization trusts, including any retained beneficial interests and MSRs, that were not consolidated by Nationstar for the periods ending December 31, 2011 and 2010 is presented in the following table (in thousands):
 
                 
    December 31,
    December 31,
 
   
2011
   
2010
 
 
Total collateral balances
    $4,579,142       $4,038,978  
Total certificate balances
    4,582,598       4,026,844  
Total mortgage servicing rights at fair value
    28,635       26,419  
 
Nationstar has not retained any variable interests in the unconsolidated securitization trusts that were outstanding as of December 31, 2011 or 2010, and therefore does not have a significant maximum exposure to loss related to these unconsolidated VIEs. A summary of mortgage loans transferred to unconsolidated

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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
3.  Variable Interest Entities and Securitizations (continued)
 
securitization trusts that are 60 days or more past due and the credit losses incurred in the unconsolidated securitization trusts are presented below (in thousands):
 
                                                 
For the Year Ended,
 
December 31, 2011
   
December 31, 2010
   
December 31, 2009
 
    Principal
          Principal
          Principal
       
    Amount
          Amount
          Amount
       
    of Loans
          of Loans
          of Loans
       
    60 Days or
    Credit
    60 Days or
    Credit
    60 Days or
    Credit
 
   
More Past Due
   
Losses
   
More Past Due
   
Losses
   
More Past Due
   
Losses
 
 
Total securitization trusts
    $1,066,130       $335,221       $830,953       $242,905       $1,286,234       $871,995  
 
Certain cash flows received from securitization trusts accounted for as sales for the dates indicated were as follows (in thousands):
 
                                                 
For the Year Ended,
 
December 31, 2011
   
December 31, 2010
   
December 31, 2009
 
    Servicing Fees
    Loan
    Servicing Fees
    Loan
    Servicing Fees
    Loan
 
   
Received
   
Repurchases
   
Received
   
Repurchases
   
Received
   
Repurchases
 
 
Total securitization trusts
    $28,569       $—       $29,129       $—       $32,593       $—  
 
4.  Consolidated Statement of Cash Flows—Supplemental Disclosure
 
Total interest paid for the years ended December 31, 2011, 2010, and 2009, was approximately $90.8 million, $91.8 million, and $47.6 million, respectively.
 
5.  Accounts Receivable
 
Accounts receivable consist primarily of accrued interest receivable on mortgage loans and securitizations, collateral deposits on surety bonds, and advances made to unconsolidated securitization trusts, as required under various servicing agreements related to delinquent loans, which are ultimately paid back to Nationstar from such trusts.
 
Accounts receivable consist of the following (in thousands):
 
                 
    December 31,
    December 31,
 
   
2011
   
2010
 
 
Delinquent interest advances
    $213,737       $148,751  
Corporate and escrow advances
    299,946       256,921  
Insurance deposits
    1,750       6,390  
Accrued interest (includes $— and $2,392, respectively, subject to ABS nonrecourse debt)
    1,512       4,302  
Receivables from trusts
    4,664       6,607  
Accrued servicing fees
    20,865       12,789  
Other
    19,826       5,515  
                 
Total accounts receivable
    $562,300       $441,275  
                 


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
6.  Mortgage Loans Held for Sale and Investment
 
Mortgage loans held for sale
 
Mortgage loans held for sale consist of the following (in thousands):
 
                 
   
December 31,
 
   
2011
   
2010
 
 
Mortgage loans held for sale—unpaid principal balance
    $442,596       $365,337  
Mark-to-market adjustment
    16,030       4,280  
                 
Total mortgage loans held for sale
    $458,626       $369,617  
                 
 
Mortgage loans held for sale on a nonaccrual status are presented in the following table for the periods indicated (in thousands):
 
                         
   
December 31,
 
   
2011
   
2010
   
2009
 
 
Mortgage loans held for sale—Non-performing
    $—       $371       $252  
                         
 
A reconciliation of the changes in mortgage loans held for sale to the amounts presented in the consolidated statements of cash flows for the dates indicated is presented in the following table (in thousands):
 
                 
   
For the Year Ended December 31,
 
   
2011
   
2010
 
 
Mortgage loans held for sale—beginning balance
    $369,617       $201,429  
Mortgage loans originated and purchased, net of fees
    3,412,185       2,791,639  
Cost of loans sold, net of fees
    (3,339,859 )     (2,621,275 )
Principal payments received on mortgage loans held for sale and other changes
    19,668       (1,349 )
Transfer of mortgage loans held for sale to held for investment due to bankruptcy and foreclosures
    (2,697 )      
Transfer of mortgage loans held for sale to REO
    (288 )     (827 )
                 
Mortgage loans held for sale—ending balance
    $458,626       $369,617  
                 


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
6.  Mortgage Loans Held for Sale and Investment (continued)
 
Mortgage loans held for investment, subject to nonrecourse debt—Legacy Assets, net
 
Mortgage loans held for investment, subject to nonrecourse debt—Legacy Assets, net as of the dates indicated include (in thousands):
 
                 
    December 31,
    December 31,
 
   
2011
   
2010
 
 
Mortgage loans held for investment, subject to nonrecourse debt—Legacy Assets, net—unpaid principal balance
    $375,720       $411,878  
Transfer discount
               
Accretable
    (22,392 )     (25,219 )
Non-accretable
    (104,024 )     (117,041 )
Allowance for loan losses
    (5,824 )     (3,298 )
                 
Total mortgage loans held for investment, subject to nonrecourse debt—legacy assets, net
    $243,480       $266,320  
                 
 
The changes in accretable yield on loans transferred to mortgage loans held for investment, subject to nonrecourse debt—Legacy Assets were as follows (in thousands):
 
                 
    Year Ended
    Year Ended
 
Accretable Yield
 
December 31, 2011
   
December 31, 2010
 
 
Balance at the beginning of the period
    $25,219       $22,040  
Additions
           
Accretion
    (4,131 )     (4,082 )
Reclassifications from (to) nonaccretable discount
    1,304       7,261  
Disposals
           
                 
Balance at the end of the period
    $22,392       $25,219  
                 
 
Nationstar may periodically modify the terms of any outstanding mortgage loans held for investment, subject to nonrecourse debt-legacy assets, net for loans that are either in default or in imminent default. Modifications often involve reduced payments by borrowers, modification of the original terms of the mortgage loans, forgiveness of debt and/or increased servicing advances. As a result of the volume of modification agreements entered into, the estimated average outstanding life in this pool of mortgage loans has been extended. Nationstar records interest income on the transferred loans on a level-yield method. To maintain a level-yield on these transferred loans over the estimated extended life, Nationstar reclassified approximately $1.3 million and $7.3 million for the years ended December 31, 2011 and 2010, respectively, from nonaccretable difference. Furthermore, the Company considers the decrease in principal, interest, and other cash flows expected to be collected arising from the transferred loans as an impairment, and Nationstar recorded provisions of $3.5 million and $3.3 million for loan losses for the years ended December 31, 2011 and 2010, respectively, on the transferred loans to reflect this impairment.
 
Nationstar collectively evaluates all mortgage loans held for investment, subject to nonrecourse debt-legacy assets for impairment. The changes in the allowance for loan losses on mortgage loans held for


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
6.  Mortgage Loans Held for Sale and Investment (continued)
 
investment, subject to nonrecourse debt-legacy assets, net were as follows (in thousands) for the dates indicated:
 
                         
   
Year Ended December 31, 2011
 
   
Performing
   
Non-Performing
   
Total
 
 
Balance at the beginning of the period
    $829       $2,469       $3,298  
Provision for loan losses
    1,346       2,191       3,537  
Recoveries on loans previously charged-off
                 
Charge-offs
    (534 )     (477 )     (1,011 )
                         
Balance at the end of the period
    $1,641       $4,183       $5,824  
                         
Ending balance—Collectively evaluated for impairment
    $283,770       $91,950       $375,720  
                         
 
                         
   
Year Ended December 31, 2010
 
   
Performing
   
Non-Performing
   
Total
 
 
Balance at the beginning of the period
    $—       $—       $—  
Provision for loan losses
    829       2,469       3,298  
Recoveries on loans previously charged-off
                 
Charge-offs
                 
                         
Balance at the end of the period
    $829       $2,469       $3,298  
                         
Ending balance—Collectively evaluated for impairment
    $310,730       $101,148       $411,878  
                         
 
Loan delinquency and Loan-to-Value Ratio (LTV) are common credit quality indicators that Nationstar monitors and utilizes in its evaluation of the adequacy of the allowance for loan losses, of which the primary indicator of credit quality is loan delinquency. LTV refers to the ratio of comparing the loan’s unpaid principal balance to the property’s collateral value. Loan delinquencies and unpaid principal balances are updated monthly based upon collection activity. Collateral values are updated from third party providers on a periodic basis. The collateral values used to derive the LTV’s shown below were obtained at various dates, but the majority were within the last twenty-four months. For an event requiring a decision based at least in part on the collateral value, the Company takes its last known value provided by a third party and then adjusts the value based on the applicable home price index.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
6.  Mortgage Loans Held for Sale and Investment (continued)
 
 
The following tables provide the outstanding unpaid principal balance of Nationstar’s mortgage loans held for investment by credit quality indicators as of December 31, 2011 and 2010.
 
                 
    December 31,
    December 31,
 
   
2011
   
2010
 
    (in thousands)  
 
Credit Quality by Delinquency Status
               
Performing
    $283,770       $310,730  
Non-Performing
    91,950       101,148  
                 
Total
    $375,720       $411,878  
                 
Credit Quality by Loan-to-Value Ratio
               
Less than 60
    $42,438       $47,568  
Less than 70 and more than 60
    15,968       17,476  
Less than 80 and more than 70
    25,190       26,771  
Less than 90 and more than 80
    32,620       36,079  
Less than 100 and more than 90
    33,708       37,551  
Greater than 100
    225,796       246,433  
                 
Total
    $375,720       $411,878  
                 
 
Performing loans refer to loans that are less than 90 days delinquent. Non-performing loans refer to loans that are greater than 90 days delinquent.
 
Mortgage loans held for investment, subject to ABS nonrecourse debt
 
In December 2011, Nationstar sold its remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. Upon deconsolidation of this VIE, Nationstar derecognized the securitized mortgage loans held for investment, subject to ABS nonrecourse debt, the related ABS nonrecourse debt, as well as certain other assets and liabilities of the securitization trust, and recognized any mortgage servicing rights on the consolidated balance sheet.
 
Mortgage loans held for investment, subject to ABS nonrecourse debt as of December 31, 2010 includes (in thousands):
 
         
    December 31,
 
   
2010
 
 
Mortgage loans held for investment, subject to ABS nonrecourse debt—unpaid principal balance
    $983,106  
Fair value adjustment
    (444,666 )
         
Mortgage loans held for investment, subject to ABS nonrecourse debt, net
    $538,440  
         
 
As of December 31, 2010 approximately $223.5 million of the unpaid principal balance of mortgage loans held for investment, subject to ABS nonrecourse debt were over 90 days past due. The fair value of such loans was approximately $117.6 million.


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 
7.  Investment in Debt Securities
 
Nationstar held bonds retained from securitization trusts as of December 31, 2009 that were classified as available-for-sale securities and were carried at fair value (in thousands). Effective January 1, 2010 all existing securitization trusts are considered VIEs and upon consolidation of these VIEs, Nationstar derecognized all previously recognized beneficial interests, including retained investment in debt securities, obtained as part of the securitization (see Note 3—Variable Interest Entities & Securitizations).
 
The following table presents a summary of other-than-temporary losses recognized on outstanding debt securities for the period before the consolidation (in thousands):
 
         
    Other-than-
 
Year Ended December 31, 2009
  Temporary  
 
Retained bonds security rating
       
BBs
    $(5,505 )
Bs
    (1,214 )
         
Total retained bonds
    (6,719 )
Retained net interest margin securities
    (90 )
         
Loss on available-for-sale securities—other-than-temporary
    $(6,809 )
         
 
8.  Mortgage Servicing Rights (MSRs)
 
MSRs at fair value
 
MSRs arise from contractual agreements between Nationstar and investors in mortgage securities and mortgage loans. Nationstar records MSR assets when it sells loans on a servicing-retained basis, at the time of securitization or through the acquisition or assumption of the right to service a financial asset. Under these contracts, Nationstar performs loan servicing functions in exchange for fees and other remuneration.
 
The fair value of the MSRs is based upon the present value of the expected future cash flows related to servicing these loans. Nationstar receives a base servicing fee ranging from 0.25% to 0.50% annually on the remaining outstanding principal balances of the loans. The servicing fees are collected from investors. Nationstar determines the fair value of the MSRs by the use of a cash flow model that incorporates prepayment speeds, discount rate, and other assumptions (including servicing costs) that management believes are consistent with the assumptions other major market participants use in valuing the MSRs. Certain of the forward loans underlying the MSRs are prime agency and government conforming residential forward mortgage loans and as such are more interest rate sensitive whereas the remaining MSRs are more credit sensitive. The nature of the forward loans underlying the MSRs affects the assumptions that management believes other major market participants use in the valuing the MSRs. During 2010, Nationstar began obtaining third party valuations of a portion of its MSRs to assess the reasonableness of the fair value calculated by the cash flow model.
 
Certain of the forward loans underlying the mortgage servicing rights carried at fair value that are owned by Nationstar are credit sensitive in nature and the value of these mortgage servicing rights is more likely to be affected from changes in credit losses than from interest rate movement. The remaining forward loans underlying Nationstar’s MSRs held at fair value are prime agency and government conforming residential mortgage loans for which the value of these MSRs is more likely to be affected from interest rate movement than changes in credit losses.


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
8.  Mortgage Servicing Rights (MSRs) (continued)
 
 
Nationstar used the following weighted average assumptions in estimating the fair value of MSRs for the dates indicated:
 
                 
    December 31,
    December 31,
 
   
2011
   
2010
 
 
Credit Sensitive MSRs
               
Discount rate
    25.71%       24.96%  
Total prepayment speeds
    15.80%       18.13%  
Expected weighted-average life
    5.15 years       4.90 years  
Credit losses
    35.42%       36.71%  
 
                 
    December 31,
    December 31,
 
   
2011
   
2010
 
 
Interest Rate Sensitive MSRs
               
Discount rate
    10.46%       13.57%  
Total prepayment speeds
    19.02%       17.19%  
Expected weighted-average life
    5.04 years       5.12 years  
Credit losses
    9.73%       8.80%  
 
The activity of MSRs carried at fair value is as follows for the year ended December 31, 2011 and 2010 (in thousands):
 
                 
   
Year Ended December 31,
 
   
2011
   
2010
 
 
Fair value at the beginning of the period
    $145,062       $114,605  
Additions:
               
Servicing resulting from transfers of financial assets
    36,474       26,253  
Recognition of servicing assets from derecognition of variable interest entities
    5,714       2,866  
Purchases of servicing assets
    102,800       17,812  
Deductions:
               
Derecognition of servicing assets due to new accounting guidance on consolidation of variable interest entities
          (10,431 )
Changes in fair value:
               
Due to changes in valuation inputs or assumptions used in the valuation model
    (14,207 )     9,455  
Other changes in fair value
    (24,793 )     (15,498 )
                 
Fair value at the end of the period
    $251,050       $145,062  
                 
Unpaid principal balance of forward loans serviced for others
               
Originated or purchased mortgage loans
               
Credit sensitive loans
    $32,408,623       $24,964,329  
Interest sensitive loans
    11,844,831       6,722,312  
                 
Total owned loans
    $44,253,454       $31,686,641  
                 


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
8.  Mortgage Servicing Rights (MSRs) (continued)
 
The following table shows the hypothetical effect on the fair value of the MSRs using various unfavorable variations of the expected levels of certain key assumptions used in valuing these assets at December 31, 2011 and 2010 (in thousands):
 
                                                 
          Total Prepayment
       
   
Discount Rate
   
Speeds
   
Credit Losses
 
    100 bps
    200 bps
    10%
    20%
    10%
    20%
 
    Adverse
    Adverse
    Adverse
    Adverse
    Adverse
    Adverse
 
   
Change
   
Change
   
Change
   
Change
   
Change
   
Change
 
 
December 31, 2011
                                               
Mortgage servicing rights
    $(6,640 )     $(12,929 )     $(13,281 )     $(25,215 )     $(5,081 )     $(10,944 )
December 31, 2010
                                               
Mortgage servicing rights
    $(3,828 )     $(7,458 )     $(8,175 )     $(16,042 )     $(4,310 )     $(9,326 )
 
These sensitivities are hypothetical and should be evaluated with care. The effect on fair value of a 10% variation in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors (e.g., a decrease in total prepayment speeds may result in an increase in credit losses), which could impact the above hypothetical effects.
 
In November 2008, Nationstar acquired MSRs on a portfolio of residential mortgage loans with an aggregate unpaid principal balance of $12.7 billion from a third-party servicer. Nationstar’s share of the acquisition price was $35.4 million. An additional amount was paid by a third-party investor in the underlying loans to the previous servicer. Contemporaneously, Nationstar and the third-party investor entered into a supplemental servicing agreement, which, among other matters, established that any sale by Nationstar of these servicing rights had to be approved by the investor and that if Nationstar were to sell the MSRs in the five-year period following the acquisition transaction, Nationstar would be entitled to the proceeds from the sale of up to a specified amount of the then existing aggregate unpaid principal balance of the underlying mortgage loans, the investor would be entitled to a specified amount, and the remaining excess proceeds, if any, over and above these allocations would be retained by Nationstar. In October 2009, Nationstar acquired MSRs on a portfolio of residential mortgage loans with an aggregate unpaid principal balance of $12.3 billion from another third party servicer. Nationstar’s share of the acquisition price of these servicing rights was $23.4 million. An additional amount was paid by a third-party investor in the underlying loans to the previous servicer. Contemporaneously, Nationstar and the third-party investor entered into a supplemental servicing agreement, which, among other matters, established that any sale by Nationstar of these servicing rights had to be approved by the investor and that if Nationstar were to sell the MSRs following the acquisition transaction, Nationstar would be entitled to the proceeds from the sale of up to a specified amount of the then existing aggregate unpaid principal balance of the underlying mortgage loans, the investor would be entitled to a specified amount, and the remaining excess proceeds, if any, over and above these allocations would be retained by Nationstar. Nationstar carries these MSRs at their estimated fair value, which includes consideration of the effect of the restriction on any sale by Nationstar due to the investor’s right to approve such sale. Under the supplemental servicing agreement, Nationstar is entitled to all of the contractually specified servicing fees, ancillary fees and also certain incentive fees, if certain performance conditions are met, and does not share these servicing revenues with the investor.


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
8.  Mortgage Servicing Rights (MSRs) (continued)
 
 
MSRs at amortized cost
 
In December 2011 Nationstar entered into a contract to acquire certain reverse mortgage MSRs with an unpaid principal balance of $7.8 billion. These MSR assets or liabilities will initially be recorded at their fair value and subsequently accounted for using the amortization method. The acquisition was completed in January 2012.
 
Subserviced loans
 
In addition to the two classes of MSRs that the Company services for others, Nationstar also subservices loans on behalf of owners of MSRs or loans for a fee. The Company has no recorded value for its subservicing arrangements. At December 31, 2011 and 2010, the unpaid principal balances under subservicing arrangements were $53.7 billion and $30.6 billion, respectively.
 
Total servicing and ancillary fees from Nationstar’s servicing portfolio of residential mortgage loans are presented in the following table for the periods indicated (in thousands):
 
                         
   
For the Years Ended December 31,
 
   
2011
   
2010
   
2009
 
 
Servicing fees
    $191,652       $103,690       $89,893  
Ancillary fees
    82,099       70,130       28,642  
                         
Total servicing and ancillary fees
    $273,751       $173,820       $118,535  
                         
 
9.  Property and Equipment, Net
 
Property and equipment, net (in thousands), and the corresponding ranges of estimated useful lives were as follows. Software in development will be substantially deployed in 2012.
 
                     
    December 31,
    December 31,
    Range of Estimated
   
2011
   
2010
   
Useful Life
 
Furniture, fixtures and equipment
    $33,334       $26,733     3-5 years
Capitalized software costs
    14,356       10,272     5 years
Building and leasehold improvements
    7,887       5,507     1-5 years
Software in development and other
    6,862       393      
                     
      62,439       42,905      
Less: Accumulated depreciation and amortization
    (39,201 )     (35,346 )    
Plus: Land
    835       835      
                     
Total property and equipment, net
    $24,073       $8,394      
                     


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 
10.  Other Assets
 
Other assets consisted of the following (in thousands):
 
                 
December 31,
 
2011
   
2010
 
 
Derivative financial instruments
    $11,302       $8,666  
Deferred financing costs
    12,059       14,396  
Deposits pending on servicing rights acquisitions
    28,904        
Loans subject to repurchase right from Ginnie Mae
    35,735        
Equity method investment
    6,493        
Margin call deposits
    4,518        
Prepaid expenses
    4,286       3,379  
Unsecured loans
    1,827       2,064  
Other
    1,057       890  
                 
Total other assets
    $106,181       $29,395  
                 
 
Deposits pending on servicing rights acquisitions primarily consist of amounts transferred to third parties for the future acquisition of mortgage servicing. In December 2011, the Company entered into an agreement with a financial institution to acquire the rights to service reverse mortgages with an unpaid principal balance of approximately $9.5 billion, of which the underlying reserve mortgages are currently owned by an unaffiliated government-sponsored entity. The purchase of these acquired servicing rights will be executed pending the approval of the government-sponsored entity. Upon execution of the purchase, Nationstar will assume responsibility for advance obligations on the underlying reverse mortgage loans. At December 31, 2011, the maximum unfunded advance obligation was approximately $1.9 billion. Nationstar deposited $9.0 million with the financial institution for the purchase of these servicing rights. As of December 31, 2011, Nationstar has placed in escrow $17.9 million relating to the purchase of the mortgage servicing rights and related outstanding advance balances with the same financial institution. Such purchase was completed in January 2012. In addition, the Company has entered into separate agreements to purchase forward mortgage servicing rights. These amounts are carried as deposits on acquired servicing rights acquisitions until the underlying forward residential mortgage loan balances are transferred to Nationstar. As of December 31, 2011, Nationstar has deposited $2.0 million with a counterparty for servicing rights on forward mortgages that are expected to be originated and transferred to Nationstar during the first quarter of 2012.
 
For certain loans sold to GNMA (Ginnie Mae), Nationstar as the servicer has the unilateral right to repurchase without Ginnie Mae’s prior authorization any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days. Once Nationstar has the unilateral right to repurchase the delinquent loan, Nationstar has effectively regained control over the loan and under GAAP, must re-recognize the loan on its balance sheet and establish a corresponding repurchase liability as well regardless of Nationstar’s intention to repurchase the loan. At December 31, 2011 the Company’s re-recognized loans included in other assets and the corresponding liability in payables and accrued liabilities was $35.7 million.
 
In March 2011, Nationstar acquired a 22% interest in ANC Acquisition LLC (ANC) for an initial investment of $6.6 million. ANC is the parent company of National Real Estate Information Services, LP (NREIS) a real estate services company. As Nationstar is able to exercise significant influence, but not control, over the policies and procedures of the entity, and Nationstar owns less than 50% of the voting interests, Nationstar applies the equity method of accounting.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
10.  Other Assets (continued)
 
 
NREIS, an ancillary real estate services and vendor management company, offers comprehensive settlement and property valuation services for both originations and default management channels. Direct or indirect product offerings include title insurance agency, tax searches, flood certification, default valuations, full appraisals and broker price opinions.
 
A summary of the assets, liabilities, and operations of ANC as of December 31, 2011 are presented in the following tables (in thousands):
 
         
    December 31,
 
   
2011
 
 
ASSETS
       
Cash
    $2,486  
Accounts receivable
    5,296  
Receivables from affiliates
    92  
Equity method investments
    2,788  
Property and equipment, net
    1,995  
Goodwill and other intangible assets
    33,876  
Other assets
    590  
         
Total Assets
    $47,123  
         
LIABILITIES
       
Notes payable
    $4,724  
Payables and accrued liabilities
    13,236  
         
Total Liabilities
    $17,960  
         
 
         
    From Acquisition
 
    through
 
   
December 31, 2011
 
 
REVENUES
       
Sales
    $40,479  
Cost of sales
    (34,047 )
         
Net sales revenues
    6,432  
OTHER INCOME/(EXPENSE)
       
Operating costs
    (12,805 )
Income from equity method investments
    1,810  
Depreciation and amortization
    (1,105 )
Other income / (expenses)
    244  
Gain due to reversal of contingent consideration
    5,000  
Loss from discontinued operations
    (60 )
         
Total other income/(expense)
    (6,916 )
         
Net loss
    $(484 )
         
 
Nationstar recorded a net charge to earnings of $0.1 million for the year ended December 31, 2011, related to loss on equity method investments, which is included as a component of other fee income in Nationstar’s consolidated statement of operations.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 
11.  Derivative Financial Instruments
 
The following table shows the effect of derivative financial instruments that were designated as accounting hedges for the years ended December 31, 2011 and 2010, respectively.
 
The Effect of Derivative Instruments on the Statement of Operations
(in thousands)
 
                                         
                      Location of
       
                      Gain (Loss)
       
                      Recognized
       
                      in Income on
       
    Amount of
    Location of
    Amount of
    Derivative
    Amount of
 
    Gain (Loss)
    Gain (Loss)
    Gain (Loss)
    (Ineffective
    Gain (Loss)
 
    Recognized
    Reclassified
    Reclassified
    Portion and
    Recognized
 
    in OCI on
    from Accumulated
    from Accumulated
    Amount
    in Income on
 
Derivatives in
  Derivative
    OCI into Income
    OCI into Income
    Excluded from
    Derivative
 
ASC 815 Cash Flow
  (Effective
    (Effective
    (Effective
    Effectiveness
    (Ineffective
 
Hedging Relationships
 
Portion)
   
Portion)
   
Portion)
   
Testing)
   
Portion)
 
 
For the year ended December 31, 2011
Interest Rate Swap
    $(1,071 )     Interest Expense       $165       Interest Expense       $2,032  
 
For the year ended December 31, 2010
Interest Rate Swap
    $1,071       Interest Expense       $—       Interest Expense       $930  
 
The following tables provide the outstanding notional balances and fair values of outstanding positions for the dates indicated, and recorded gains/(losses) during the periods indicated (in thousands):
 
                             
                    Recorded
 
    Expiration
  Outstanding
          Gains /
 
   
Dates
 
Notional
   
Fair Value
   
(Losses)
 
 
Year ended December 31, 2011
                           
MORTGAGE LOANS HELD FOR SALE
                           
Loan sale commitments
  2012     $28,047       $634       $592  
OTHER ASSETS
                           
IRLCs
  2012     736,377       11,302       6,598  
LIABILITIES
                           
Interest rate swaps and caps
  2012-2015     193,500       6,540       1,261  
Forward MBS trades
  2012     691,725       5,830       (9,792 )
Interest rate swap, subject to ABS nonrecourse debt(1)
                  (8,058 )
                             
Year ended December 31, 2010
                           
MORTGAGE LOANS HELD FOR SALE
                           
Loan sale commitments
  2011     $28,641       $42       $(1,397 )
OTHER ASSETS
                           
IRLCs
  2011     391,990       4,703       2,289  
Forward MBS trades
  2011     546,500       3,963       580  
LIABILITIES
                           
Interest rate swaps and caps
  2011-2013     429,000       7,801       8,872  
Interest rate swap, subject to ABS nonrecourse debt
  2013     245,119       18,781       2,049  
 
 
(1) In December 2011, Nationstar sold its remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. Upon deconsolidation of this VIE, Nationstar derecognized the related ABS nonrecourse debt and therefore the underlying interest rate swap, subject to ABS nonrecourse debt.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 
12.  Indebtedness
 
Notes Payable
 
A summary of the balances of notes payable for the dates indicated is presented below (in thousands).
 
                                 
   
December 31, 2011
   
December 31, 2010
 
          Collateral
          Collateral
 
   
Outstanding
   
Pledged
   
Outstanding
   
Pledged
 
 
$50 million warehouse facility
    $7,310       $7,672       $—       $—  
$175 million warehouse facility
    46,810       51,040       43,059       45,429  
$300 million warehouse facility
    251,722       265,083       209,477       223,119  
$100 million warehouse facility
    16,047       16,715       39,014       40,640  
Securities repurchase facility (2011)
    11,774       55,603              
ABS advance financing facility (2009)
                236,808       285,226  
2010-ABS advance facility
    219,563       249,499              
2011-Agency advance facility
    25,011       28,811              
MSR note
    10,180       16,230       15,733       18,951  
ASAP+ facility
    104,858       104,006       51,105       53,230  
MBS advance financing facility
    179,904       182,096       114,562       142,327  
                                 
Total notes payable
    $873,179       $976,755       $709,758       $808,922  
                                 
 
In March 2011, Nationstar executed a Master Repurchase Agreement (MRA) with a financial institution, under which Nationstar may enter into transactions, for an aggregate amount of $50 million, in which Nationstar agrees to transfer to the same financial institution certain mortgage loans and certain securities against the transfer of funds by the same financial institution, with a simultaneous agreement by the same financial institution to transfer such mortgage loans and securities to Nationstar at a date certain, or on demand by Nationstar, against the transfer of funds from Nationstar. The interest rate is based on LIBOR plus a spread of 1.45% to 3.95%, which varies based on the underlying transferred collateral. The maturity date of this MRA is March 2012.
 
In February 2010, Nationstar executed an MRA with a financial institution, which was set to expire in October 2011, but was extended through January 2013. The amended MRA states that from time to time Nationstar may enter into transactions, for an aggregate amount of $175 million, in which Nationstar agrees to transfer to the same financial institution certain mortgage loans against the transfer of funds by the same financial institution, with a simultaneous agreement by the same financial institution to transfer such mortgage loans to Nationstar at a date certain, or on demand by Nationstar, against the transfer of funds from Nationstar. The amended interest rate is based on LIBOR plus a spread ranging from 1.75% to 2.50%.
 
Nationstar has an MRA with a financial services company, which was amended in February 2012 to expire in February 2013 and reduce the committed amount to $150 million. The MRA states that from time to time Nationstar may enter into transactions, for an aggregate amount of $300 million, in which Nationstar agrees to transfer to the financial services company certain mortgage loans or MBS against the transfer of funds by the financial services company, with a simultaneous agreement by the financial services company to transfer such mortgage loans or MBS to Nationstar at a certain date, or on demand by Nationstar, against the transfer of funds from Nationstar. The interest rate is based on LIBOR plus a margin of 3.25%.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
12.  Indebtedness (continued)
 
 
In October 2009, Nationstar executed an MRA with a financial institution. This MRA states that from time to time Nationstar may enter into transactions, for an aggregate amount of $100 million, in which Nationstar agrees to transfer to the financial institution certain mortgage loans against the transfer of funds by the financial institution, with a simultaneous agreement by the financial institution to transfer such mortgage loans to Nationstar at a certain date, or on demand by Nationstar, against the transfer of funds from Nationstar. The interest rate is based on LIBOR plus a spread of 3.50%. The maturity date of this MRA with the financial institution is January 2013.
 
In December 2011, Nationstar entered into a securities repurchase facility with a financial services company that expires in March 2012. The MRA states that Nationstar may from time to time transfer to the financial services company eligible securities against the transfer of funds by the financial services company, with a simultaneous agreement by the financial services company to transfer such securities to Nationstar at a certain date, or on demand by Nationstar, against the transfer of funds from Nationstar. Additionally, the financial services company may elect to extend the transfer date for an additional 90 days at mutually agreed upon terms. The interest rate is based on LIBOR plus a margin of 3.50%. As of December 31, 2011, Nationstar has pledged the Company’s $55.6 million outstanding retained interest in the outstanding Nonrecourse debt—Legacy Assets securitization which was structured as a financing.
 
Nationstar maintains its 2009-ABS Advance Financing Facility with a financial services company. This facility has the capacity to purchase up to $350 million of advance receivables. The interest rate is based on LIBOR plus a spread ranging from 3.00% to 12.00%. The maturity date of this facility with the financial services company is December 2011. This debt is nonrecourse to Nationstar. In October 2011 this facility was repaid and replaced with the 2010-ABS Advance Financing Facility described below.
 
In December 2010, Nationstar executed the 2010-ABS Advance Financing Facility with a financial institution. This facility has the capacity to purchase up to $300 million of advance receivables. The interest rate is based on LIBOR plus a spread of 3.00%. This facility was amended in October 2011, and matures in May 2014. In conjunction with this amendment Nationstar paid off the 2009-ABS Advance Financing Facility and transferred the related collateral to the amended 2010-ABS Advance Financing Facility. This debt is nonrecourse to Nationstar.
 
In October 2011, Nationstar executed the 2011-Agency Advance Financing Facility with a financial institution. This facility has the capacity to borrow up to $75 million and the interest rate is based on LIBOR plus a spread of 2.50%. The maturity date of this facility is October 2012. This facility is secured by servicing advance receivables and is nonrecourse to Nationstar.
 
In connection with the October 2009 MSR acquisition, Nationstar executed a four-year note agreement with a government-sponsored enterprise (GSE). As collateral for this note, Nationstar has pledged Nationstar’s rights, title, and interest in the acquired servicing portfolio. The interest rate is based on LIBOR plus 2.50%. The maturity date of this facility is October 2013.
 
During 2009, Nationstar began executing As Soon As Pooled Plus agreements with a GSE, under which Nationstar transfers to the GSE eligible mortgage loans that are to be pooled into the GSE MBS against the transfer of funds by the GSE. The interest rate is based on LIBOR plus a spread of 1.50%. These agreements typically have a maturity of up to 45 days.
 
In September 2009, Nationstar executed a one-year committed facility agreement with a GSE, under which Nationstar agrees to transfer to the GSE certain servicing advance receivables against the transfer of


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
12.  Indebtedness (continued)
 
funds by the GSE. This facility has the capacity to purchase up to $275 million in eligible servicing advance receivables. The interest rate is based on LIBOR plus a spread of 2.50%. The maturity date of this facility was amended in December 2011 to extend the maturity through December 2012.
 
Unsecured Senior Notes
 
In March 2010, Nationstar completed the offering of $250 million of unsecured senior notes, which were issued with an issue discount of $7.0 million for net cash proceeds of $243.0 million, with a maturity date of April 2015. These unsecured senior notes pay interest semi-annually at an interest rate of 10.875%. In September 2011, Nationstar completed an exchange offer of the $250.0 million in 10.875% unsecured senior notes for new notes that have been registered under the Securities Act of 1933. The exchange notes are identical in all material respects to the privately issued notes, except for the transfer restrictions and registrations rights that do not apply to the exchanged notes, and different administrative terms.
 
The indenture for the unsecured senior notes contains various covenants and restrictions that limit Nationstar’s, or certain of its subsidiaries’, ability to incur additional indebtedness, pay dividends, make certain investments, create liens, consolidate, merge or sell substantially all of their assets, or enter into certain transactions with affiliates.
 
In December 2011, Nationstar completed an additional offering of $35 million of unsecured senior notes. The additional offering was issued with an issue discount of $0.3 million for net cash proceeds of $34.7 million, with a maturity date of April 2015.
 
The additional notes will rank equally in right of payment with all of our existing and future senior debt and will rank senior in right of payment to all of our existing and future subordinated debt. The additional notes will be effectively junior in right of payment to all of our existing and future senior secured debt to the extent of the assets securing such debt and to any existing and future liabilities of our non-guarantor subsidiaries.
 
Nonrecourse Debt—Legacy Assets
 
In November 2009, Nationstar completed the securitization of approximately $222 million of ABS, which was structured as a secured borrowing. This structure resulted in Nationstar carrying the securitized loans as mortgages on Nationstar’s consolidated balance sheet and recognizing the asset-backed certificates acquired by third parties as nonrecourse debt, totaling approximately $112.5 million and $138.7 million at December 31, 2011 and 2010, respectively. The principal and interest on these notes are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. The interest rate paid on the outstanding securities is 7.50%, which is subject to an available funds cap. The total outstanding principal balance on the underlying mortgage loans serving as collateral for the debt was approximately $373.1 million and $430.0 million at December 31, 2011 and 2010, respectively. Accordingly, the timing of the principal payments on this nonrecourse debt is dependent on the payments received on the underlying mortgage loans. The unpaid principal balance on the outstanding notes was $130.8 million and $161.2 million at December 31, 2011 and 2010, respectively.
 
ABS Nonrecourse Debt
 
Effective January 1, 2010, new accounting guidance eliminated the concept of a QSPE, and all existing securitization trusts are considered VIEs and are subject to new consolidation guidance provided in


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
12.  Indebtedness (continued)
 
ASC 810. Upon consolidation of these VIEs, Nationstar derecognized all previously recognized beneficial interests obtained as part of the securitization. In addition, Nationstar recognized the securitized mortgage loans as mortgage loans held for investment, subject to ABS nonrecourse debt, and the related asset-backed certificates acquired by third parties as ABS nonrecourse debt on Nationstar’s consolidated balance sheet (see Note 3, Variable Interest Entities and Securitizations). Additionally, Nationstar elected the fair value option provided for by ASC 825-10. The principal and interest on these notes are paid using the cash flows from the underlying mortgage loans, which serve as collateral for the debt. The interest rate paid on the outstanding securities is based on LIBOR plus a spread ranging from 0.13% to 2.00%, which is subject to an interest rate cap.
 
In December 2011, Nationstar sold its remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. Upon deconsolidation of this VIE, Nationstar derecognized the securitized mortgage loans held for investment, subject to ABS nonrecourse debt, the related ABS nonrecourse debt, as well as certain other assets and liabilities of the securitization trust, and recognized any mortgage servicing rights on the consolidated balance sheet. The total outstanding principal balance on the underlying mortgage loans and REO serving as collateral for the debt was approximately $1,025.3 million at December 31, 2010. The timing of the principal payments on this ABS nonrecourse debt is dependent on the payments received on the underlying mortgage loans. The outstanding principal balance on the outstanding notes related to these consolidated securitization trusts was $1,037.9 million at December 31, 2010.
 
Excess Spread Financing Debt at Fair Value
 
Nationstar acquired mortgage servicing rights on a pool of agency residential mortgage loans (the Portfolio) on September 30, 2011. In December 2011, Nationstar entered into a sale and assignment agreement which is treated as a financing with an indirect wholly owned subsidiary of Newcastle Investment Corp. (Newcastle). Nationstar is an affiliate of Newcastle’s manager. Nationstar, in a transaction accounted for as a financing arrangement, sold to Newcastle the right to receive 65% of the excess cash flow generated from the Portfolio after receipt of a fixed basic servicing fee per loan. The sale price was $43.7 million. Nationstar will retain all ancillary income associated with servicing the Portfolio and 35% of the excess cash flow after receipt of the fixed basic servicing fee. Nationstar will continue to be the servicer of the Portfolio and will provide all servicing and advancing functions. Newcastle will not have prior or ongoing obligations associated with the Portfolio.
 
Contemporaneous with the above, Nationstar entered into a refinanced loan agreement with Newcastle. Should Nationstar refinance any loan in the Portfolio, subject to certain limitations, Nationstar will be required to transfer the new loan or a replacement loan of similar economic characteristics into the Portfolio. The new or replacement loan will be governed by the same terms set forth in the sale and assignment agreement described above.
 
Nationstar records acquired servicing rights on forward residential mortgages at fair value, with all subsequent changes in fair value recorded as a charge or credit to servicing fee income in the consolidated statement of operations. Nationstar estimates the fair value of its forward mortgage servicing rights and the excess servicing spread financing using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. Nationstar elected to measure this financing arrangement at fair value, as permitted under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 825, Financial Instruments to more accurately represent the future


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
12.  Indebtedness (continued)
 
economic performance of the acquired MSRs and related excess servicing financing. The fair value of the agreement was $44.6 million at December 31, 2011. This financing is nonrecourse to Nationstar.
 
Financial Covenants
 
As of December 31, 2011, Nationstar was in compliance with its covenants on Nationstar’s borrowing arrangements and credit facilities. These covenants generally relate to Nationstar’s tangible net worth, liquidity reserves, and leverage requirements.
 
13.  Repurchase Reserves
 
Certain whole loan sale contracts include provisions requiring Nationstar to repurchase a loan if a borrower fails to make certain initial loan payments due to the acquirer or if the accompanying mortgage loan fails to meet customary representations and warranties. These representations and warranties are made to the loan purchasers about various characteristics of the loans, such as manner of origination, the nature and extent of underwriting standards applied and the types of documentation being provided and typically are in place for the life of the loan. In the event of a breach of the representations and warranties, the Company may be required to either repurchase the loan or indemnify the purchaser for losses it sustains on the loan. In addition, an investor may request that Nationstar refund a portion of the premium paid on the sale of mortgage loans if a loan is prepaid within a certain amount of time from the date of sale. Nationstar records a provision for estimated repurchases and premium recapture on loans sold, which is charged to gain (loss) on mortgage loans held for sale. The reserve for repurchases is included as a component of payables and accrued liabilities. The current unpaid principal balance of loans sold by Nationstar represents the maximum potential exposure to repurchases related to representations and warranties. Reserve levels are a function of expected losses based on actual pending and expected claims, repurchase requests, historical experience, and loan volume. While the amount of repurchases and premium recapture is uncertain, Nationstar considers the liability to be adequate.
 
The activity of the outstanding repurchase reserves were as follows (in thousands):
 
                         
   
December 31,
 
   
2011
   
2010
   
2009
 
 
Repurchase reserves, beginning of period
    $7,321       $3,648       $3,965  
Additions
    5,534       4,649       820  
Charge-offs
    (2,829 )     (976 )     (1,137 )
                         
Repurchase reserves, end of period
    $10,026       $7,321       $3,648  
                         


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 
14.  General and Administrative Expenses
 
General and administrative expense consists of the following for the dates indicated (in thousands):
 
                         
   
For the Year Ended December 31,
 
   
2011
   
2010
   
2009
 
 
Depreciation and amortization
    $4,063       $2,117       $1,767  
Advertising
    4,723       4,559       3,882  
Equipment
    4,605       3,862       3,300  
Servicing
    21,014       14,122       1,951  
Telecommunications
    3,832       2,347       1,590  
Legal and professional fees
    16,130       14,736       9,610  
Postage
    5,978       4,220       2,315  
Stationary and supplies
    3,964       2,594       1,500  
Travel
    3,491       2,231       827  
Dues and fees
    5,404       4,114       2,264  
Insurance, Taxes, and Other
    8,979       4,011       1,488  
                         
Total general and administrative expense
    $82,183       $58,913       $30,494  
                         
 
15.  Fair Value Measurements
 
ASC 820, Fair Value Measurements and Disclosures, provides a definition of fair value, establishes a framework for measuring fair value, and requires expanded disclosures about fair value measurements. The standard applies when GAAP requires or allows assets or liabilities to be measured at fair value and, therefore, does not expand the use of fair value in any new circumstance.
 
ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tiered fair value hierarchy based on the level of observable inputs used in the measurement of fair value (e.g., Level 1 representing quoted prices for identical assets or liabilities in an active market; Level 2 representing values using observable inputs other than quoted prices included within Level 1; and Level 3 representing estimated values based on significant unobservable inputs). In addition, ASC 820 requires an entity to consider all aspects of nonperformance risk, including its own credit standing, when measuring the fair value of a liability. Under ASC 820, related disclosures are segregated for assets and liabilities measured at fair value based on the level used within the hierarchy to determine their fair values.
 
The following describes the methods and assumptions used by Nationstar in estimating fair values:
 
Cash and Cash Equivalents, Restricted Cash, Notes Payable —The carrying amount reported in the consolidated balance sheets approximates fair value.
 
Mortgage Loans Held for Sale —Nationstar originates mortgage loans in the U.S. that it intends to sell to Fannie Mae, Freddie Mac, and Ginnie Mae (collectively, the Agencies). Additionally, Nationstar holds mortgage loans that it intends to sell into the secondary markets via whole loan sales or securitizations. Nationstar measures newly originated prime residential mortgage loans held for sale at fair value.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
15.  Fair Value Measurements (continued)
 
 
Mortgage loans held for sale are typically pooled together and sold into certain exit markets, depending upon underlying attributes of the loan, such as agency eligibility, product type, interest rate, and credit quality.
 
Mortgage loans held for sale are valued using a market approach by utilizing either: (i) the fair value of securities backed by similar mortgage loans, adjusted for certain factors to approximate the fair value of a whole mortgage loan, including the value attributable to mortgage servicing and credit risk, (ii) current commitments to purchase loans or (iii) recent observable market trades for similar loans, adjusted for credit risk and other individual loan characteristics. As these prices are derived from quoted market prices, Nationstar classifies these valuations as Level 2 in the fair value disclosures.
 
Mortgage Loans Held for Investment, subject to nonrecourse debt—Legacy Assets —Nationstar determines the fair value of loans held for investment, subject to nonrecourse debt—Legacy Assets using internally developed valuation models. These valuation models estimate the exit price Nationstar expects to receive in the loan’s principal market. Although Nationstar utilizes and gives priority to observable market inputs such as interest rates and market spreads within these models, Nationstar typically is required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates. These internal inputs require the use of judgment by Nationstar and can have a significant impact on the determination of the loan’s fair value. As these prices are derived from a combination of internally developed valuation models and quoted market prices, Nationstar classifies these valuations as Level 3 in the fair value disclosures.
 
Mortgage Loans Held for Investment, subject to ABS nonrecourse debt —Nationstar determines the fair value of loans held for investment, subject to ABS nonrecourse debt using internally developed valuation models. These valuation models estimate the exit price Nationstar expects to receive in the loan’s principal market. Although Nationstar utilizes and gives priority to observable market inputs such as interest rates and market spreads within these models, Nationstar typically is required to utilize internal inputs, such as prepayment speeds, credit losses, and discount rates. These internal inputs require the use of judgment by Nationstar and can have a significant impact on the determination of the loan’s fair value. As these prices are derived from a combination of internally developed valuation models and quoted market prices, Nationstar classifies these valuations as Level 3 in the fair value disclosures. In December 2011, Nationstar sold its remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. Upon deconsolidation of this VIE, Nationstar derecognized the securitized mortgage loans held for investment, subject to ABS nonrecourse debt.
 
Mortgage Servicing Rights—Fair Value —Nationstar will typically retain the servicing rights when it sells forward loans into the secondary market. Nationstar estimates the fair value of its forward MSRs using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds and discount rates. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency and coupon dispersion. These assumptions require the use of judgment by Nationstar and can have a significant impact on the determination of the MSR’s fair value. Periodically, management obtains third party valuations of a portion of the portfolio to assess the reasonableness of the fair value calculations provided by the cash flow model. Because of the nature of the valuation inputs, Nationstar classifies these valuations as Level 3 in the fair value disclosures.
 
REO —Nationstar determines the fair value of REO properties through the use of third party appraisals and broker price opinions, adjusted for estimated selling costs. Such estimated selling costs include


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
15.  Fair Value Measurements (continued)
 
realtor fees and other anticipated closing costs. These values are adjusted to take into account factors that could cause the actual liquidation value of foreclosed properties to be different than the appraised values. This valuation adjustment is based upon Nationstar’s historical experience with REO. REO is classified as Level 3 in the fair value disclosures.
 
Derivative Instruments —Nationstar enters into a variety of derivative financial instruments as part of its hedging strategy. The majority of these derivatives are exchange-traded or traded within highly active dealer markets. In order to determine the fair value of these instruments, Nationstar utilizes the exchange price or dealer market price for the particular derivative contract; therefore, these contracts are classified as Level 2. In addition, Nationstar enters into IRLCs with prospective borrowers. These commitments are carried at fair value based on fair value of related mortgage loans which is based on observable market data. Nationstar adjusts the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. IRLCs are recorded in other assets in the consolidated balance sheets. These IRLCs are classified as Level 2 in the fair value disclosures.
 
Unsecured Senior Notes —The fair value of unsecured senior notes is based on quoted market prices and is considered Level 1 from the market observable inputs used to determine fair value.
 
Nonrecourse Debt—Legacy Assets —Nationstar estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. These prices are derived from a combination of internally developed valuation models and quoted market prices.
 
Excess Spread Financing —Nationstar estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. As these prices are derived from a combination of internally developed valuation models and quoted market prices based on the value of the underlying MSRs, Nationstar classifies these valuations as Level 3 in the fair value disclosures.
 
ABS Nonrecourse Debt —Nationstar estimates fair value based on the present value of future expected discounted cash flows with the discount rate approximating current market value for similar financial instruments. As these prices are derived from a combination of internally developed valuation models and quoted market prices, Nationstar classifies these valuations as Level 3 in the fair value disclosures. Effective December 2011, Nationstar sold its remaining variable interest in a securitization trust that had been a consolidated VIE since January 1, 2010 and deconsolidated the VIE. Upon deconsolidation of this VIE, Nationstar derecognized the related ABS nonrecourse debt.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
15.  Fair Value Measurements (continued)
 
 
The estimated carrying amount and fair value of Nationstar’s financial instruments and other assets and liabilities measured at fair value on a recurring basis is as follows for the dates indicated (in thousands):
 
                                 
         
December 31, 2011
 
    Total
   
Recurring Fair Value Measurements
 
   
Fair Value
   
Level 1
   
Level 2
   
Level 3
 
 
Assets
                               
Mortgage loans held for sale(1)
    $458,626       $—       $458,626       $—  
Mortgage servicing rights—fair value(1)
    251,050                   251,050  
Other assets:
                               
IRLCs
    11,302             11,302        
                                 
Total assets
    $720,978       $—       $469,928       $251,050  
                                 
Liabilities
                               
Derivative financial instruments
                               
Interest rate swaps and caps
    $6,540       $—       $6,540       $—  
Forward MBS trades
    5,830             5,830        
Excess spread financing
    44,595                   44,595  
                                 
Total liabilities
    $56,965       $—       $12,370       $44,595  
                                 
 
 
(1) Based on the nature and risks of these assets and liabilities, the Company has determined that presenting them as a single class is appropriate.
 


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
15.  Fair Value Measurements (continued)
 
                                 
         
December 31, 2010
 
    Total
   
Recurring Fair Value Measurements
 
   
Fair Value
   
Level 1
   
Level 2
   
Level 3
 
 
Assets
                               
Mortgage loans held for sale(1)
    $369,617       $—       $369,617       $—  
Mortgage loans held for investment, subject to ABS nonrecourse debt(1)
    538,440                   538,440  
Mortgage servicing rights(1)
    145,062                   145,062  
Other assets:
                               
IRLCs
    4,703             4,703        
Forward MBS trades
    3,963             3,963        
                                 
Total assets
    $1,061,785       $—       $378,283       $683,502  
                                 
Liabilities
                               
Derivative financial instruments
                               
Interest rate swaps and caps
    $7,801       $—       $7,801       $—  
Derivative financial instruments, subject to ABS nonrecourse debt
    18,781             18,781        
ABS nonrecourse debt(1)
    496,692                   496,692  
                                 
Total liabilities
    $523,274       $—       $26,582       $496,692  
                                 
 
 
(1) Based on the nature and risks of these assets and liabilities, the Company has determined that presenting them as a single class is appropriate.

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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
15.  Fair Value Measurements (continued)
 
 
The table below presents a reconciliation for all of Nationstar’s Level 3 assets and liabilities measured at fair value on a recurring basis for the dates indicated (in thousands):
 
                 
   
ASSETS
       
    Mortgage
   
LIABILITIES
 
    Servicing
    Excess
 
   
Rights
   
Spread Financing
 
 
Year ended December 31, 2011
               
Beginning balance
    $145,062       $—  
Transfers into Level 3
           
Transfers out of Level 3
           
Total gains or losses
               
Included in earnings
    (39,000 )     3,060  
Included in other comprehensive income
           
Purchases, issuances, sales and settlements
               
Purchases
    102,800        
Issuances
    36,474       43,742  
Sales
           
Settlements
    5,714       (2,207 )
                 
Ending balance
    $251,050       $44,595  
                 
 
                                 
    ASSETS    
LIABILITIES
 
    Mortgage Loans
                   
    Held for Investment,
    Mortgage
          ABS
 
    Subject to ABS
    Servicing
    Total
    Non-recourse
 
   
Nonrecourse Debt
   
Rights
   
Assets
   
Debt
 
 
Year ended December 31, 2010
                               
Beginning balance(1)
    $928,891       $104,174       $1,033,065       $884,846  
Transfers into Level 3
                       
Transfers out of Level 3
                       
Total gains or losses
                               
Included in earnings
    71,239       (6,043 )     65,196       16,938  
Included in other comprehensive income
                       
Purchases, issuances, sales and settlements
                               
Purchases
          17,812       17,812        
Issuances
          26,253       26,253        
Sales
                       
Settlements
    (461,690 )     2,866       (458,824 )     (405,092 )
                                 
Ending balance
    $538,440       $145,062       $683,502       $496,692  
                                 
 
 
(1) Amounts include derecognition of previously retained beneficial interests and mortgage servicing rights upon adoption of ASC 810 related to consolidation of certain VIEs.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
15.  Fair Value Measurements (continued)
 
 
The table below presents the items which Nationstar measures at fair value on a nonrecurring basis (in thousands).
 
                                         
    Nonrecurring
          Total
 
   
Fair Value Measurements
    Total Estimated
    Gains (Losses)
 
   
Level 1
   
Level 2
   
Level 3
   
Fair Value
   
Included in Earnings
 
 
Year ended December 31, 2011
                                       
Assets
                                       
REO(1)
    $—       $—       $3,668       $3,668       $(6,833 )
                                         
Total assets
    $—       $—       $3,668       $3,668       $(6,833 )
                                         
Year ended December 31, 2010
                                       
Assets
                                       
REO(1)
    $—       $—       $27,337       $27,337       $—  
                                         
Total assets
    $—       $—       $27,337       $27,337       $—  
                                         
 
 
(1) Based on the nature and risks of these assets and liabilities, the Company has determined that presenting them as a single class is appropriate.
 
The table below presents a summary of the estimated carrying amount and fair value of Nationstar’s financial instruments (in thousands).
 
                                 
   
December 31, 2011
   
December 31, 2010
 
    Carrying
    Fair
    Carrying
    Fair
 
   
Amount
   
Value
   
Amount
   
Value
 
 
Financial assets:
                               
Cash and cash equivalents
    $62,445       $62,445       $21,223       $21,223  
Restricted cash
    71,499       71,499       91,125       91,125  
Mortgage loans held for sale
    458,626       458,626       369,617       369,617  
Mortgage loans held for investment, subject to nonrecourse debt—Legacy assets
    243,480       226,890       266,320       238,515  
Mortgage loans held for investment, subject to ABS nonrecourse debt
                538,440       538,440  
Derivative instruments
    11,302       11,302       8,666       8,666  
Financial liabilities:
                               
Notes payable
    873,179       873,179       709,758       709,758  
Unsecured senior notes
    280,199       282,150       244,061       244,375  
Derivative financial instruments
    12,370       12,370       7,801       7,801  
Derivative instruments, subject to ABS nonrecourse debt
                18,781       18,781  
Nonrecourse debt—Legacy assets
    112,490       114,037       138,662       140,197  
Excess spread financing
    44,595       44,595              
ABS nonrecourse debt
                496,692       496,692  


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
 
16.  Employee Benefits
 
Nationstar holds a contributory defined contribution plan (401(k) plan) that covers substantially all full-time employees. Nationstar matches 50% of participant contributions, up to 6% of each participant’s total eligible annual base compensation. Matching contributions totaled approximately $2.3 million, $1.5 million, and $1.0 million for the years ended December 31, 2011, 2010, and 2009, respectively.
 
17.  Member’s Equity
 
The limited liability company interests in FIF HE Holdings LLC are represented by four separate classes of units, Class A Units, Class B Units, Class C Preferred Units and Class D Preferred Units, as defined in the FIF HE Holdings LLC Amended and Restated Limited Liability Company Agreement dated December 31, 2008 (the Agreement). Class A Units have voting rights and Class B Units, Class C Preferred Units and Class D Preferred Units have no voting rights. Distributions and allocations of profits and losses to members are made in accordance with the Agreement. Class C Preferred Units and Class D Preferred Units represent preferred priority return units, accruing distribution preference on any contributions at an annual rate of 15% and 20%, respectively.
 
A total of 100,887 Class A Units were granted to certain management members on the date of Nationstar’s acquisition by FIF. No consideration was paid for the Class A Units, and these units vest in accordance with the Vesting Schedule per the Agreement, generally in years three through five after grant date. All of these outstanding units were completely vested as of July 11, 2011.
 
Effective September 17, 2010, FIF HE Holdings LLC executed the FIF HE Holdings LLC Fifth Amended and Restated Limited Liability Company Agreement (the Fifth Agreement). This Fifth Agreement provided for a total of 457,526 Class A Units to be granted to certain management members. No consideration was paid for the granted units, and the units vest in accordance with the Vesting Schedule per the Fifth Agreement.
 
Simultaneously with the execution of the Fifth Agreement, FIF HE Holdings LLC executed several Restricted Series I Preferred Stock Unit Award Agreements (PRSU Agreements). These Agreements provided for a total of 3,304,000 Class C Units and 3,348,000 Class D Units to be granted to certain management members. No consideration was paid for the granted units, and the units vest in accordance with the Vesting Schedule per the PRSU Agreements.
 
These awards were valued using a sum of the parts analysis in computing the fair value of the Company’s equity. The analysis adds the value of the servicing and originations businesses to the value of the assets and securities that Nationstar owns. The value of the servicing and originations businesses is derived using both a market approach and an income approach. The market approach considers market multiples from public company examples in the industry. The income approach employs a discounted cash flow analysis that utilizes several factors to capture the ongoing cash flows of the business and then is discounted with an assumed equity cost of capital. The valuation of the assets applies a net asset value method utilizing a variety of assumptions, including assumptions for prepayments, cumulative losses and other variables. Recent market transactions, experience with similar assets and securities, current business combinations and analysis of the underlying collateral, as available, are considered in the valuation.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
17.  Member’s Equity (continued)
 
 
The Class A, Class C and Class D Units were scheduled to vest over 1.8 years. The vesting schedule of these Units is as follows:
 
                                 
   
September 17, 2010
   
June 30, 2011
   
June 30, 2012
   
Total
 
 
Class A Units
    93,494       182,016       182,016       457,526  
Class C Units
    1,101,332       1,101,334       1,101,334       3,304,000  
Class D Units
    1,116,000       1,116,000       1,116,000       3,348,000  
 
The weighted average grant date fair value of the Units was $4.23. Effective during 2011, the Company filed an offering document with the Securities and Exchange Commission. As a result, the Company revalued the preferred unit awards based on the fair value of the repurchase option at the balance sheet date. Subsequent to December 31, 2011, Nationstar expects to recognize $3.9 million of compensation expense in the first six months of 2012 for employee and non-employee awards.
 
Total share-based compensation expense, net of forfeitures, recognized for the years ended, December 31, 2011, 2010 and 2009 is provided in the table below (in thousands).
 
                     
For the Year Ended December 31,
2011
 
2010
 
2009
 
  $14,815       $12,856       $827  
                     
 
18.  Capital Requirements
 
Certain of Nationstar’s secondary market investors require various capital adequacy requirements, as specified in the respective selling and servicing agreements. To the extent that these mandatory, imposed capital requirements are not met, Nationstar’s secondary market investors may ultimately terminate Nationstar’s selling and servicing agreements, which would prohibit Nationstar from further originating or securitizing these specific types of mortgage loans. In addition, these secondary market investors may impose additional net worth or financial condition requirements based on an assessment of market conditions or other relevant factors.
 
Among Nationstar’s various capital requirements related to its outstanding selling and servicing agreements, the most restrictive of these requires Nationstar to maintain a minimum adjusted net worth balance of $132.3 million. As of December 31, 2011, Nationstar was in compliance with all of its selling and servicing capital requirements.
 
Additionally, Nationstar is required to maintain a minimum tangible net worth of at least $175 million as of each quarter-end related to its outstanding Master Repurchase Agreements on its outstanding repurchase facilities. As of December 31, 2011, Nationstar was in compliance with these minimum tangible net worth requirements.
 
19.  Commitments and Contingencies
 
Litigation and Regulatory Matters
 
In the ordinary course of business, Nationstar and its subsidiaries and current and former officers and employees (for the purposes of this section, sometimes collectively referred to as the Company and Related


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.  Commitments and Contingencies (continued)
 
Parties) are routinely named as defendants in various legal actions, including class actions and other litigation, arising in connection with activities related to a national mortgage servicer and lender. Certain of the actual or threatened legal actions include claims for substantial compensatory, punitive and/or, statutory damages or claims for an indeterminate amount of damages. Further, in the ordinary course of business the Company and Related Parties can be or are involved in governmental and regulatory examinations, information gathering requests, investigations and proceedings (both formal and informal), regarding the Company’s business, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief.
 
The Company seeks to resolve all litigation and regulatory matters in the manner management believes is in the best interest of the Company and contests liability, allegations of wrongdoing and, where applicable, the amount of damages or scope of any penalties or other relief sought as appropriate in each pending matter. On at least a quarterly basis, the Company assesses its liabilities and contingencies in connection with outstanding legal and regulatory proceedings utilizing the latest information available. Where available information indicates that it is probable a liability has been incurred and the Company can reasonably estimate the amount of that loss an accrued liability is established. The actual costs of resolving these proceedings may be substantially higher or lower than the amounts accrued.
 
A 50 state task force of attorneys general as well as certain federal agencies are investigating issues related to the conduct of certain mortgage servicing companies and related service providers, in connection with mortgage foreclosures. While the Company is not involved in the investigation or negotiations regarding a settlement, the ultimate outcome could have a material impact on other mortgage servicers, including the Company.
 
When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. Once the matter is deemed to be both probable and estimable, the Company will establish an accrued liability and record a corresponding amount to litigation related expense. The Company will continue to monitor the matter for further developments that could affect the amount of the accrued liability that has been previously established. Litigation related expense, which includes the fees paid to external legal providers, of $9.3 million, $9.4 million and $4.9 million were included in general and administrative expense on the consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009, respectively.
 
For a number of matters for which a loss is probable or reasonably possible in future periods, whether in excess of a related accrued liability or where there is no accrued liability, the Company may be able to estimate a range of possible loss. In determining whether it is possible to provide an estimate of loss or range of possible loss, the Company reviews and evaluates its material litigation and regulatory matters on an ongoing basis, in conjunction with any outside counsel handling the matter. For those matters for which an estimate is possible, management currently believes the aggregate range of reasonably possible loss is $0.5 million to $3.2 million in excess of the accrued liability (if any) related to those matters. This estimated range of possible loss is based upon currently available information and is subject to significant judgment, numerous assumptions and known and unknown uncertainties. The matters underlying the estimated range will change from time to time, and actual results may vary substantially from the current estimate. Those matters for which an estimate is not possible are not included within this estimated range. Therefore, this estimated


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.  Commitments and Contingencies (continued)
 
range of possible loss represents what management believes to be an estimate of possible loss only for certain matters meeting these criteria. It does not represent the Company’s maximum loss exposure.
 
Based on current knowledge, and after consultation with counsel, management believes that the current legal accrued liability is appropriate, and the amount of any incremental liability arising from these matters is not expected to have a material adverse affect on the consolidated financial condition of the Company, although the outcome of such proceedings could be material to the Company’s operating results and cash flows for a particular period depending on among other things, the level of the Company’s revenues or income for such period. However, in the event of significant developments on existing cases, it is possible that the ultimate resolution, if unfavorable, may be material to the Company’s consolidated financial statements.
 
Lease Commitments
 
Nationstar leases various office facilities under non-cancelable lease agreements with primary terms extending through 2017. These lease agreements generally provide for market-rate renewal options and may provide for escalations in minimum rentals over the lease term (see Note 22, Restructuring Charges). Minimum annual rental commitments for office leases with unrelated parties and with initial or remaining terms of one year or more, net of sublease payments, are presented below (in thousands).
 
         
2012
  $ 9,756  
2013
    9,922  
2014
    7,351  
2015
    4,854  
2016
    3,255  
Thereafter
    727  
         
Total
  $ 35,865  
         
 
Loan and Other Commitments
 
Nationstar enters into IRLCs with prospective borrowers whereby the Company commits to lend a certain loan amount under specific terms and interest rates to the borrower. These IRLCs are treated as derivatives and are carried at fair value (See Note 15, Fair Value Measures).
 
In January 2012, the Company completed its acquisition of certain MSRs related to approximately $7.8 billion of unpaid principal balance of reverse mortgage loans from a financial services company. As servicer for these reverse mortgage loans, among other things, the Company is obligated to make advances to the loan customers as required. At January 1, 2012, the Company’s maximum unfunded advance obligation related to these MSRs was approximately $1.5 billion. Upon funding any portion of these advances, the Company expects to securitize and sell the advances in transactions that will be accounted for as financing arrangements.
 
Other Contingencies
 
In June 2011, the Company entered into an agreement to subservice loans for a financial services company. The Company began to subservice these loans in July and August 2011. This subservicing agreement included, among other things, a loss incentive and sharing arrangement. Under this arrangement, the Company can earn incentive fees of up to $2.5 million for successfully mitigating losses within a specific


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
19.  Commitments and Contingencies (continued)
 
subserviced population of loans. This incentive fee would be recognized when earned. For this same population of loans, the Company is subject to loss sharing under certain conditions. Should losses in this population of loans exceed a specified level, the Company would be required to share a portion of the losses on such loans up to a maximum of $10.0 million. Losses under this arrangement would be recognized at the point at which the Company determines that a liability is expected to be incurred. At December 31, 2011, the Company has estimated no liability under this agreement.
 
During December 2009, Nationstar entered into a strategic relationship with a major mortgage market participant, which contemplates, among other things, significant mortgage servicing rights and subservicing transfers to Nationstar upon terms to be determined. Under this arrangement, if certain delivery thresholds have been met, the market participant may require Nationstar to establish an operating division or newly created subsidiary with separate, dedicated employees within a specified timeline to service such mortgage servicing rights and subservicing. After a specified time period, this market participant may purchase the subsidiary at an agreed upon price. Since December 2010, all of the required delivery thresholds with this market participant have been met, but the market participant has not required the Company to establish an operating division or newly created subsidiary with separate, dedicated employees.
 
20.  Termination of Company
 
The duration of Nationstar’s existence is indefinite per the Agreement and shall continue until dissolved in accordance with the terms of the Agreement and the Delaware Limited Liability Company Act (DLLCA).
 
21.  Limited Liability of Members
 
The members of a Delaware limited liability company are generally not liable for the acts and omissions of the company, much in the same manner as the shareholders, officers and directors of a corporation are generally limited by the provisions of the DLLCA and by applicable case law.
 
22.  Restructuring Charges
 
To respond to the decreased demand in the home equity mortgage market and other market conditions, Nationstar initiated a program to reduce costs and improve operating effectiveness in 2007. This program included the closing of several offices and the termination of a large portion of Nationstar’s workforce. As part of this plan, Nationstar expected to incur lease and other contract termination costs.
 
Nationstar recorded restructuring charges totaling $1.1 million, $2.3 million, and $2.2 million for the years ended December 31, 2011, 2010, and 2009, respectively, related to cancelled lease expenses that are


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
22.  Restructuring Charges (continued)
 
reflected in general and administrative expenses. The following table summarizes, by category, the Company’s restructuring charge activity for the periods noted below.
 
                                 
    Liability Balance
    Restructuring
    Restructuring
    Liability Balance
 
   
at January 1
   
Adjustments
   
Settlements
   
at December 31
 
 
Year-ended December 31, 2009
                               
Restructuring charges:
                               
Lease terminations
  $ 10,903     $ 2,222     $ (3,660 )   $ 9,465  
                                 
Total
  $ 10,903     $ 2,222     $ (3,660 )   $ 9,465  
                                 
Year-ended December 31, 2010
                               
Restructuring charges:
                               
Lease terminations
  $ 9,465     $ 2,287     $ (2,569 )   $ 9,183  
                                 
Total
  $ 9,465     $ 2,287     $ (2,569 )   $ 9,183  
                                 
Year-ended December 31, 2011
                               
Restructuring charges:
                               
Lease terminations
  $ 9,183     $ 1,084     $ (1,807 )   $ 8,460  
                                 
Total
  $ 9,183     $ 1,084     $ (1,807 )   $ 8,460  
                                 
 
23.  Concentrations of Credit Risk
 
Properties collateralizing mortgage loans held for investment and REO were geographically disbursed throughout the United States (measured by principal balance and expressed as a percent of the total outstanding mortgage loans held for investment and REO).
 
The following table details the geographical concentration of mortgage loans held for investment and REO by state for the dates indicated (in thousands).
 
                                 
    December 31,
    December 31,
 
   
2011
   
2010
 
    Unpaid
    % of
    Unpaid
    % of
 
    Principal
    Total
    Principal
    Total
 
State
 
Balance
   
Outstanding
   
Balance
   
Outstanding
 
 
Florida
  $ 54,199       14.2 %   $ 62,775       14.4 %
Texas
    52,620       13.7 %     58,815       13.4 %
California
    32,684       8.5 %     41,019       9.4 %
All other states(1)
    243,377       63.6 %     274,235       62.8 %
                                 
    $ 382,880       100.0 %   $ 436,844       100.0 %
                                 
 
(1) No other state contains more than 5.0% of the total outstanding.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
23.  Concentrations of Credit Risk (continued)
 
 
Additionally, certain loan products’ contractual terms may give rise to a concentration of credit risk and increase Nationstar’s exposure to risk of nonpayment or realization.
 
                 
    December 31,
    December 31,
 
   
2011
   
2010
 
 
Amortizing ARMs:
               
2/28
  $ 68,993     $ 118,815  
3/27
    6,402       8,952  
All other ARMs
    14,343       10,221  
                 
    $ 89,738     $ 137,988  
                 
 
24.  Business Segment Reporting
 
Nationstar currently conducts business in two separate operating segments: Servicing and Originations. The Servicing segment provides loan servicing on Nationstar’s total servicing portfolio, including the collection of principal and interest payments and the assessment of ancillary fees related to the servicing of mortgage loans. The Originations segment involves the origination, packaging, and sale of agency mortgage loans into the secondary markets via whole loan sales or securitizations. Nationstar reports the activity not related to either operating segment in the Legacy Portfolio and Other column. The Legacy Portfolio and Other column includes primarily all subprime mortgage loans originated in the latter portion of 2006 and during 2007 or acquired from Nationstar’s predecessor and consolidated VIEs which were consolidated pursuant to the adoption of new consolidation guidance related to VIEs adopted on January 1, 2010.
 
Nationstar’s segments are based upon Nationstar’s organizational structure which focuses primarily on the services offered. The accounting policies of each reportable segment are the same as those of Nationstar except for 1) expenses for consolidated back-office operations and general overhead-type expenses such as executive administration and accounting and 2) revenues generated on inter-segment services performed. Expenses are allocated to individual segments based on the estimated value of services performed, including estimated utilization of square footage and corporate personnel as well as the equity invested in each segment. Revenues generated or inter-segment services performed are valued based on similar services provided to external parties.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
24.  Business Segment Reporting (continued)
 
 
To reconcile to Nationstar’s consolidated results, certain inter-segment revenues and expenses are eliminated in the “Elimination” column in the following tables.
 
The following tables are a presentation of financial information by segment for the periods indicated (in thousands):
 
                                                 
   
Year Ended December 31, 2011
 
                Operating
    Legacy Portfolio
             
   
Servicing
   
Originations
   
Segments
   
and Other
   
Eliminations
   
Consolidated
 
 
REVENUES:
                                               
Servicing fee income
    $238,394       $—       $238,394       $1,972       $(6,955 )     $233,411  
Other fee income
    17,082       14,109       31,191       3,996             35,187  
                                                 
Total fee income
    255,476       14,109       269,585       5,968       (6,955 )     268,598  
Gain/(loss) on mortgage loans held for sale
          109,431       109,431             (295 )     109,136  
                                                 
Total revenues
    255,476       123,540       379,016       5,968       (7,250 )     377,734  
                                                 
Total expenses and impairments
    177,930       101,607       279,537       26,941       (295 )     306,183  
Other income (expense):
                                               
Interest income
    2,263       12,718       14,981       44,866       6,955       66,802  
Interest expense
    (58,024 )     (10,955 )     (68,979 )     (36,396 )           (105,375 )
Gain on interest rate swaps and caps
    298             298                   298  
Fair value changes—ABS securitizations
                      (12,389 )           (12,389 )
                                                 
Total other income (expense)
    (55,463 )     1,763       (53,700 )     (3,919 )     6,955       (50,664 )
                                                 
NET INCOME (LOSS)
    $22,083       $23,696       $45,779       $(24,892 )     $—       $20,887  
                                                 
Depreciation and amortization
    $2,089       $1,306       $3,395       $668       $—       $4,063  
Total assets
    909,992       600,105       1,510,097       277,834             1,787,931  
 


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
24.  Business Segment Reporting (continued)
 
                                                 
   
Year Ended December 31, 2010
 
                Operating
    Legacy Portfolio
             
   
Servicing
   
Originations
   
Segments
   
and Other
   
Eliminations
   
Consolidated
 
 
REVENUES:
                                               
Servicing fee income
    $175,569       $—       $175,569       $820       $(9,263 )     $167,126  
Other fee income
    7,273       7,042       14,315       2,643             16,958  
                                                 
Total fee income
    182,842       7,042       189,884       3,463       (9,263 )     184,084  
Gain (loss) on mortgage loans held for sale
          77,498       77,498             (154 )     77,344  
                                                 
Total revenues
    182,842       84,540       267,382       3,463       (9,417 )     261,428  
Total expenses and impairments
    107,283       86,920       194,203       26,927       (154 )     220,976  
Other income (expense):
                                               
Interest income
    263       11,848       12,111       77,521       9,263       98,895  
Interest expense
    (51,791 )     (8,806 )     (60,597 )     (55,566 )           (116,163 )
Loss on interest rate swaps
    (9,801 )           (9,801 )                 (9,801 )
Fair value changes—ABS securitizations
                      (23,297 )           (23,297 )
                                                 
Total other income (expense)
    (61,329 )     3,042       (58,287 )     (1,342 )     9,263       (50,366 )
                                                 
NET INCOME (LOSS)
    $14,230       $662       $14,892       $(24,806 )     $—       $(9,914 )
                                                 
Depreciation and amortization
    $1,092       $781       $1,873       $244       $—       $2,117  
Total assets
    689,923       402,627       1,092,550       854,631             1,947,181  
 
                                                 
   
Year Ended December 31, 2009
 
                Operating
    Legacy Portfolio
             
   
Servicing
   
Originations
   
Segments
   
and Other
   
Eliminations
   
Consolidated
 
 
REVENUES:
                                               
Servicing fee income
    $91,266       $—       $91,266       $—       $(1,071 )     $90,195  
Other fee income
    8,867       1,156       10,023                   10,023  
                                                 
Total fee income
    100,133       1,156       101,289             (1,071 )     100,218  
Gain (loss) on mortgage loans held for sale
          54,437       54,437       (75,786 )           (21,349 )
                                                 
Total revenues
    100,133       55,593       155,726       (75,786 )     (1,071 )     78,869  
Total expenses and impairments
    70,897       47,532       118,429       25,009       (1,071 )     142,367  
Other income (expense):
                                               
Interest income
    4,143       4,261       8,404       44,114             52,518  
Interest expense
    (25,877 )     (3,438 )     (29,315 )     (40,568 )           (69,883 )
Loss on interest rate swaps
                       (14 )           (14 )
Fair value changes—ABS securitizations
                                   
                                                 
Total other income (expense)
    (21,734 )     823       (20,911 )     3,532             (17,379 )
                                                 
NET INCOME (LOSS)
    $7,502       $8,884       $16,386       $(97,263 )     $—       $(80,877 )
                                                 
Depreciation and amortization
    $1,004       $538       $1,542       $225       $—       $1,767  
Total assets
    681,543       239,202       920,745       359,440             1,280,185  
 
25.  Guarantor Financial Statement Information
 
Nationstar has $285.0 million aggregate principal amount of 10.875% unsecured senior notes which mature on April 1, 2015. The notes are jointly and severally guaranteed on an unsecured senior basis by all of

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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
Nationstar’s existing and future wholly-owned domestic restricted subsidiaries, with certain exceptions. All guarantor subsidiaries are 100% owned by Nationstar. Presented below are consolidating financial statements of Nationstar and the guarantor subsidiaries for the periods indicated.
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING BALANCE SHEET
December 31, 2011
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Assets
                                       
Cash and cash equivalents
    $62,201       $244       $—       $—       $62,445  
Restricted cash
    49,180       3       22,316             71,499  
Accounts receivable, net
    281,782       7       280,511             562,300  
Mortgage loans held for sale
    458,626                         458,626  
Mortgage loans held for investment, subject to nonrecourse debt—Legacy Asset, net
    5,984             237,496             243,480  
Mortgage loans held for investment, subject to ABS nonrecourse debt (at fair value)
                             
Receivables from affiliates
    41,961       70,541             (107,893 )     4,609  
Mortgage servicing rights—fair value
    251,050                         251,050  
Investment in subsidiaries
    140,880                   (140,880 )      
Property and equipment, net
    23,238       835                   24,073  
REO, net
                3,668             3,668  
Other assets
    106,181                         106,181  
                                         
Total Assets
    $1,421,083       $71,630       $543,991       $(248,773 )     $1,787,931  
                                         
Liabilities and members’ equity
                                       
Notes payable
    $628,605       $—       $244,574       $—       $873,179  
Unsecured senior notes
    280,199                         280,199  
Payables and accrued liabilities
    180,545             3,244             183,789  
Payables to affiliates
                107,893       (107,893 )      
Derivative financial instruments
    5,830             6,540             12,370  
Derivative financial instruments, subject to ABS nonrecourse debt
                             
Nonrecourse debt—Legacy Assets
                112,490             112,490  
Excess spread financing (at fair value)
    44,595                         44,595  
ABS nonrecourse debt (at fair value)
                             
                                         
Total liabilities
    1,139,774             474,741       (107,893 )     1,506,622  
                                         
Total members’ equity
    281,309       71,630       69,250       (140,880 )     281,309  
                                         
Total liabilities and members’ equity
    $1,421,083       $71,630       $543,991       $(248,773 )     $1,787,931  
                                         


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2011
 
                                         
                Non-
             
    Issuer
    Guarantor
    Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Revenues:
                                       
Servicing fee income
    $234,135       $—       $6,231       $(6,955 )     $233,411  
Other fee income
    17,782       15,313       2,092             35,187  
                                         
Total fee income
    251,917       15,313       8,323       (6,955 )     268,598  
Gain on mortgage loans held for sale
    109,136                         109,136  
                                         
Total Revenues
    361,053       15,313       8,323       (6,955 )     377,734  
Expenses and impairments:
                                       
Salaries, wages and benefits
    198,703       3,587                   202,290  
General and administrative
    72,654       3,207       6,322             82,183  
Provision for loan losses
    1,346             2,191             3,537  
Loss on foreclosed real estate and other
    2,613             4,220             6,833  
Occupancy
    11,163       177                   11,340  
                                         
                                         
Total expenses and impairments
    286,479       6,971       12,733             306,183  
Other income (expense):
                                       
Interest income
    14,880             44,967       6,955       66,802  
Interest expense
    (58,452 )           (46,923 )           (105,375 )
Gain/(Loss) on interest rate swaps and caps
                298             298  
Fair value changes in ABS securitizations
    7,695             (20,084 )           (12,389 )
Gain/(loss) from subsidiaries
    (17,810 )                 17,810        
                                         
                                         
Total other income (expense)
    (53,687 )           (21,742 )     24,765       (50,664 )
                                         
Net income/(loss)
    $20,887       $8,342       $(26,152 )     $17,810       $20,887  
                                         


F-55


Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2011
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Operating activities:
                                       
Net income/(loss)
  $ 20,887     $ 8,342     $ (26,152 )   $ 17,810     $ 20,887  
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
                                       
Loss from subsidiaries
    17,810                   (17,810 )      
Share-based compensation
    14,815                         14,815  
(Gain)/loss on mortgage loans held for sale
    (109,136 )                       (109,136 )
Provision for loan losses
    1,346             2,191             3,537  
Loss on foreclosed real estate and other
    2,613             4,220             6,833  
Loss on equity method investments
    107                         107  
(Gain)/loss on ineffectiveness on interest rate swaps and cap
                (2,331 )           (2,331 )
Fair value changes in ABS securitizations
    (7,695 )           20,084             12,389  
Fair value changes in excess spread financing
    3,060                         3,060  
Depreciation and amortization
    4,063                         4,063  
Change in fair value of mortgage servicing rights
    39,000                         39,000  
Amortization of debt discount
    9,070             4,261             13,331  
Amortization of premiums/(discounts)
                (5,042 )           (5,042 )
Mortgage loans originated and purchased, net of fees
    (3,412,185 )                       (3,412,185 )
Cost of loans sold, net of fees
    3,339,859                         3,339,859  
Principal payments/prepayments received and other changes in mortgage loans originated as held for sale
    36,919             26,659             63,578  
Changes in assets and liabilities:
                                       
Accounts receivable
    162,980       (7 )     (246,106 )           (83,133 )
Receivables from/(payables to) affiliates
    (227,455 )     (8,407 )     240,246             4,384  
Other assets
    (44,576 )                       (44,576 )
Accounts payable and accrued liabilities
    99,602             2,055             101,657  
                                         
Net cash provided by/(used in) operating activities
    (48,916 )     (72 )     20,085             (28,903 )
                                         
                                         
Continued on following page.
                                       


F-56


Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
FOR THE YEAR ENDED DECEMBER 31, 2011
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Investing activities:
                                       
Principal payments received and other changes on mortgage loans held for investment, subject to ABS nonrecourse debt
    $—       $—       $40,000       $—       $40,000  
Property and equipment additions, net of disposals
    (19,742 )                       (19,742 )
Acquisition of equity method investment
    (6,600 )                       (6,600 )
Deposit on reverse mortgage servicing rights
    (26,893 )                       (26,893 )
Deposit on / purchase of mortgage servicing rights
    (96,467 )                       (96,467 )
Proceeds from sales of REO
    15,566             12,257             27,823  
                                         
Net cash provided by/(used in) investing activities
    (134,136 )           52,257             (81,879 )
                                         
Financing activities:
                                       
Transfers to/from restricted cash
    8,399       (3 )     8,416             16,812  
Issuance of unsecured senior notes
    35,166                         35,166  
Issuance of excess spread financing
    40,492                         40,492  
Decrease in notes payable, net
    155,655             7,766             163,421  
Repayment of nonrecourse debt—Legacy assets
                (30,433 )           (30,433 )
Repayment of ABS nonrecourse debt
                (58,091 )           (58,091 )
Repayment of excess servicing spread financing
    (2,207 )                       (2,207 )
Distribution to parent
    (4,348 )                       (4,348 )
Debt financing costs
    (3,462 )                       (3,462 )
Tax related share-based settlement of units by members
    (5,346 )                       (5,346 )
                                         
Net cash provided by/(used in) financing activities
    224,349       (3 )     (72,342 )           152,004  
                                         
Net increase/(decrease) in cash
    41,297       (75 )                 41,222  
Cash and cash equivalents at beginning of period
    20,904       319                   21,223  
                                         
Cash and cash equivalents at end of period
    $62,201       $244       $—       $—       $62,445  
                                         


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2010
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Assets
                                       
Cash and cash equivalents
    $20,904       $319       $—       $—       $21,223  
Restricted cash
    57,579             33,546             91,125  
Accounts receivable, net
    437,300             3,975             441,275  
Mortgage loans held for sale
    369,617                         369,617  
Mortgage loans held for investment, subject to nonrecourse debt, Legacy Assets, net
    5,016             261,304             266,320  
Mortgage loans held for investment, subject to ABS nonrecourse debt (at fair value)
                538,440             538,440  
Investment in debt securities—available-for-sale
    597                   (597 )      
Investment in subsidiaries
    158,276                   (158,276 )      
Receivables from affiliates
          62,171       132,353       (185,531 )     8,993  
Mortgage servicing rights
    145,062                         145,062  
Property and equipment, net
    7,559       835                   8,394  
REO, net
    323             27,014             27,337  
Other assets
    29,395                         29,395  
                                         
Total Assets
    $1,231,628       $63,325       $996,632       $(344,404 )     $1,947,181  
                                         
Liabilities and members’ equity
                                       
Notes payable
    $472,950       $—       $236,808       $—       $709,758  
Unsecured senior notes
    244,061                         244,061  
Payables and accrued liabilities
    73,785             1,269             75,054  
Payables to affiliates
    185,531                   (185,531 )      
Derivative financial instruments
                7,801             7,801  
Derivative financial instruments, subject to ABS nonrecourse debt
                18,781             18,781  
Nonrecourse debt—Legacy Assets
                138,662             138,662  
ABS nonrecourse debt (at fair value)
                497,289       (597 )     496,692  
                                         
Total liabilities
    976,327             900,610       (186,128 )     1,690,809  
                                         
Total members’ equity
    255,301       63,325       96,022       (158,276 )     256,372  
                                         
Total liabilities and members’ equity
    $1,231,628       $63,325       $996,632       $(344,404 )     $1,947,181  
                                         


F-58


Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2010
 
                                         
    Issuer
    Guarantor
    Non- Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Revenues:
                                       
Servicing fee income
    $174,660       $1,730       $—       $(9,264 )     $167,126  
Other fee income
    8,259       7,551       1,148             16,958  
                                         
Total fee income
    182,919       9,281       1,148       (9,264 )     184,084  
Gain on mortgage loans held for sale
    77,344                         77,344  
                                         
Total Revenues
    260,263       9,281       1,148       (9,264 )     261,428  
Expenses and impairments:
                                       
Salaries, wages and benefits
    146,746       2,369                   149,115  
General and administrative
    57,329       1,642        (58 )           58,913  
Loss on mortgage loans held for investment and foreclosed real estate
    1,558             1,945             3,503  
Occupancy
    9,289       156                   9,445  
                                         
Total expenses and impairments
    214,922       4,167       1,887             220,976  
Other income / (expense):
                                       
Interest income
    17,019       6       72,606       9,264       98,895  
Interest expense
    (54,075 )           (62,088 )           (116,163 )
Loss on interest rate swaps and caps
                (9,801 )           (9,801 )
Fair value changes in ABS securitizations
                (23,748 )     451       (23,297 )
Gain / (loss) from subsidiaries
    (18,650 )                 18,650        
                                         
Total other income / (expense)
    (55,706 )     6       (23,031 )     28,365       (50,366 )
                                         
Net income / (loss)
    $(10,365 )     $5,120       $(23,770 )     $19,101       $(9,914 )
                                         


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2010
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Operating activities:
                                       
Net income/(loss)
    $(10,365 )     $5,120       $(23,770 )     $19,101       $(9,914 )
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
                                       
Share-based compensation
    12,856                         12,856  
Gain on mortgage loans held for sale
    (77,344 )                       (77,344 )
Provision for loan losses
    1,558             1,740             3,298  
Loss on foreclosed real estate and other
                205             205  
(Gain)/loss on ineffectiveness on interest rate swaps and cap
                8,872             8,872  
Fair value changes in ABS securitizations
                23,297             23,297  
Loss from subsidiaries
    18,650                   (18,650 )      
Depreciation and amortization
    2,104       13                   2,117  
Change in fair value of mortgage servicing rights
    6,043                         6,043  
Amortization of debt discount
    12,380             6,351             18,731  
Amortization of premiums/(discounts)
                (4,526 )           (4,526 )
Mortgage loans originated and purchased, net of fees
    (2,791,639 )                       (2,791,639 )
Cost of loans sold, net of fees
    2,621,275                         2,621,275  
Principal payments/prepayments received and other changes in mortgage loans originated as held for sale
    49,302             (16,634 )           32,668  
Changes in assets and liabilities:
                                       
Accounts receivable
    73,124       3       (31,979 )           41,148  
Receivables from/(payables to) affiliates
    (52,594 )     (5,110 )     61,662             3,958  
Other assets
    (861 )                       (861 )
Accounts payable and accrued liabilities
    8,444        (96 )     (185 )           8,163  
                                         
Net cash provided by/(used) in operating activities
    (127,067 )      (70 )     25,033       451       (101,653 )
                                         
                                         
Continued on following page.
                                       


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
FOR THE YEAR ENDED DECEMBER 31, 2010
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Investing activities:
                                       
Principal payments received and other changes on mortgage loans held for investment, subject to ABS nonrecourse debt
    $—       $—       $48,838       $—       $48,838  
Property and equipment additions, net of disposals
    (3,923 )      (13 )                 (3,936 )
Purchase of mortgage servicing rights
    (17,812 )                       (17,812 )
Proceeds from sales of REO
    504             73,603             74,107  
                                         
Net cash provided by/(used) in investing activities
    (21,231 )      (13 )     122,441             101,197  
                                         
Financing activities:
                                       
Transfers to/from restricted cash
    (38,617 )           4,886             (33,731 )
Issuance of unsecured notes, net of issue discount
    243,013                         243,013  
Decrease in notes payable, net
    (57,972 )           (4,127 )           (62,099 )
Repayment of nonrecourse debt—Legacy assets
                (45,364 )           (45,364 )
Repayment of ABS nonrecourse debt
    (146 )           (102,869 )     (451 )     (103,466 )
Debt financing costs
    (14,923 )                       (14,923 )
Tax related share-based settlement of units by members
    (3,396 )                       (3,396 )
                                         
Net cash provided by/(used) in financing activities
    127,959             (147,474 )     (451 )     (19,966 )
                                         
Net increase/(decrease) in cash
    (20,339 )      (83 )                 (20,422 )
Cash and cash equivalents at beginning of period
    41,243       402                   41,645  
                                         
Cash and cash equivalents at end of period
    $20,904       $319       $—       $—       $21,223  
                                         


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Table of Contents

NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2009
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Revenues:
                                       
Servicing fee income
    $89,151       $1,044       $—       $—       $90,195  
Other fee income
    4,823       5,200                   10,023  
                                         
Total fee income
    93,974       6,244                   100,218  
Loss on mortgage loans held for sale
    (21,349 )                       (21,349 )
                                         
Total Revenues
    72,625       6,244                   78,869  
Expenses and impairments:
                                       
Salaries, wages and benefits
    88,075       2,614                   90,689  
General and administrative
    30,111       379       4             30,494  
Loss on mortgage loans held for investment and foreclosed real estate
    (1,352 )     (10,925 )     19,789             7,512  
Occupancy
    6,621       242                   6,863  
Loss on available-for-sale-securities-other-than-temporary
    6,809                         6,809  
                                         
Total expenses and impairments
    130,264       (7,690 )     19,793             142,367  
Other income / (expense):
                                       
Interest income
    42,160       233       10,125             52,518  
Interest expense
    (52,810 )     (2,694 )     (14,379 )           (69,883 )
Loss on interest rate swaps and caps
     (14 )                       (14 )
Gain / (loss) from subsidiaries
    (12,574 )                 12,574        
                                         
Total other income / (expense)
    (23,238 )     (2,461 )     (4,254 )     12,574       (17,379 )
                                         
Net income / (loss)
    $(80,877 )     $11,473       $(24,047 )     $12,574       $(80,877 )
                                         


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2009
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Operating activities:
                                       
Net income/(loss)
    $(80,877 )     $11,473       $(24,047 )     $12,574       $(80,877 )
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
                                       
Share-based compensation
    827                         827  
(Gain)/loss on mortgage loans held for sale
    21,349                         21,349  
Loss on foreclosed real estate and other
    (1,352 )     (10,925 )     19,789             7,512  
(Gain)/loss on ineffectiveness on interest rate swaps and cap
    14                         14  
Loss from subsidiaries
    12,574                   (12,574 )      
Unrealized gain on derivative financial instruments
    (2,436 )                       (2,436 )
Impairment of investments in debt securities
    6,809                         6,809  
Depreciation and amortization
    1,728       39                   1,767  
Change in fair value of mortgage servicing rights
    27,915                         27,915  
Amortization of debt discount
    19,075             2,212             21,287  
Amortization of premiums/(discounts)
    (1,394 )                       (1,394 )
Mortgage loans originated and purchased, net of fees
    (1,480,549 )                       (1,480,549 )
Cost of loans sold, net of fees
    1,007,369                         1,007,369  
Principal payments/prepayments received and other changes in mortgage loans originated as held for sale
    405,066             66,816             471,882  
Changes in assets and liabilities:
                                       
Accounts receivable
    (155,566 )     1,113       (3,511 )           (157,964 )
Receivables from/(payables to) affiliates
    247,676       (47,397 )     (133,339 )           66,940  
Other assets
    (6,961 )                       (6,961 )
Accounts payable and accrued liabilities
    11,550        (12 )     1,331             12,869  
                                         
Net cash provided by/(used) in operating activities
    32,817       (45,709 )     (70,749 )           (83,641 )
                                         
                                         
Continued on following page.
                                       


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
25.  Guarantor Financial Statement Information (continued)
 
NATIONSTAR MORTGAGE LLC
 
CONSOLIDATING STATEMENT OF CASH FLOWS (continued)
FOR THE YEAR ENDED DECEMBER 31, 2009
 
                                         
    Issuer
    Guarantor
    Non-Guarantor
             
   
(Parent)
   
(Subsidiaries)
   
(Subsidiaries)
   
Eliminations
   
Consolidated
 
    (in thousands)  
 
Investing activities:
                                       
Property and equipment additions, net of disposals
    $(2,990 )     $(39 )     $—       $—       $(3,029 )
Purchase of mortgage servicing rights
    (1,169 )                       (1,169 )
Proceeds from sales of REO
    1,896       32,202       83             34,181  
                                         
Net cash provided by/(used) in investing activities
    (2,263 )     32,163       83             29,983  
                                         
Financing activities:
                                       
Transfers to/from restricted cash
    (18,444 )     13,737       (27,056 )           (31,763 )
Issuance of nonrecourse debt
                191,272             191,272  
Decrease in notes payable, net
    17,346             (77,741 )           (60,395 )
Repayment of nonrecourse debt—Legacy assets
                (15,809 )           (15,809 )
Debt financing costs
    (18,059 )                       (18,059 )
Capital contributions from members
    20,700                         20,700  
                                         
Net cash provided by/(used) in financing activities
    1,543       13,737       70,666             85,946  
                                         
Net increase/(decrease) in cash
    32,097       191                   32,288  
Cash and cash equivalents at beginning of period
    9,146       211                   9,357  
                                         
Cash and cash equivalents at end of period
    $41,243       $402       $—       $—       $41,645  
                                         
 
26.  Related Party Disclosures
 
In September 2010, Nationstar entered into a marketing agreement with Springleaf Home Equity, Inc., formerly known as American General Home Equity, Inc., Springleaf General Financial Services of Arkansas, Inc., formerly known as American General Financial Services of Arkansas, Inc. and MorEquity, Inc. (collectively “Springleaf”), each of which are indirectly owned by investment funds managed by affiliates of Fortress Investment Group LLC. Pursuant to this agreement, Nationstar markets mortgage originations products to customers of Springleaf, and is compensated by the originations fees of loans that Nationstar refinances.
 
Additionally, in January 2011, Nationstar entered into three agreements to act as the loan subservicer for Springleaf for a whole loan portfolio and two securitized loan portfolios totaling $4.4 billion for which Nationstar receives a monthly per loan subservicing fee and other performance incentive fees subject to the agreements with Springleaf. For the year ended December 31, 2011, Nationstar recognized revenue of $9.9 million in additional servicing and other performance incentive fees related to these portfolios. At December 31, 2011, Nationstar had an outstanding receivable from Springleaf of $0.6 million which was included as a component of accounts receivable.


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NATIONSTAR MORTGAGE LLC AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
26.  Related Party Disclosures (continued)
 
 
Nationstar is the loan servicer for two securitized loan portfolios managed by Newcastle Investment Corp. (Newcastle), which is managed by an affiliate of Fortress Investment Group LLC, for which Nationstar receives a monthly net servicing fee equal to 0.50% per annum on the unpaid principal balance of the portfolios, which was $1.1 billion, $1.2 billion, and $1.4 billion for the years ended December 31, 2011, 2010, and 2009, respectively. For the year ended December 31, 2011, 2010, and 2009 Nationstar received servicing fees and other performance incentive fees of $5.8 million, $6.5 million, and $7.5 million, respectively.
 
Additionally, in December 2011, Nationstar entered into another agreement with Newcastle, where Nationstar sold to Newcastle the right to receive 65% of the excess cash flow generated from certain MSRs acquired on September 30, 2011 after receipt of a fixed basic servicing fee per loan. The sale price was $43.7 million. Nationstar will retain all ancillary income associated with servicing such MSRs and 35% of the excess cash flow after receipt of the fixed basic servicing fee. Nationstar will continue to be the servicer of the loans and provide all servicing and advancing functions for the portfolio. Newcastle will not have prior or ongoing obligations associated with this MSR portfolio. Furthermore, should Nationstar refinance any loan in such portfolio, subject to certain limitations, Nationstar will be required to transfer the new loan or a replacement loan of similar economic characteristics into the portfolio. The new or replacement loan will be governed by the same terms set forth in the agreement described above. The fair value on the outstanding liability related to this agreement was $44.6 million at December 31, 2011. Additionally, as a component of the underlying agreement, Newcastle held back a portion of the sales price, amounting to $3.3 million, pending certain conditions being satisfied by Nationstar. Such amount is recorded in accounts receivable.
 
In March 2011, Nationstar entered into a limited partnership agreement with ANC. ANC is the parent company of NREIS, which through the ANC partnership we hold a non-controlling interest in NREIS, an ancillary real estate services and vendor management company that directly and indirectly provides title agency settlement or valuation services for loan originations and default management. As Nationstar is able to exercise significant influence, but not control, over the policies and procedures of the entity, and Nationstar owns less than 50% of the voting interests, Nationstar applies the equity method of accounting. During the year ending December 31, 2011 Nationstar disbursed $4.9 million for servicing-related advances.
 
27.  Unaudited Pro Forma Tax Information
 
Nationstar has elected to be a disregarded entity for federal tax purposes and is treated as a branch of its parent, FIF. FIF is taxed as a partnership, whereby all income is taxed at the member (partner) level. Historically, Nationstar has generated net operating losses for federal and state income tax purposes but has incurred de minimis amounts of state capital, franchise and minimum tax. It is expected that Nationstar will become a wholly owned indirect subsidiary of Nationstar Mortgage Holdings Inc., a new C corporation, upon the Restructuring. (See Note 1—Nature of Business and Basis of Presentation) It is anticipated that Nationstar Mortgage Holdings Inc., Nationstar and all affiliates will join in a consolidated income tax return for US purposes.
 
Nationstar’s pro forma effective tax rate for 2011 is 0%. The pro forma tax provision, before utilization of tax benefits, is $11,448 on pre-tax income of $20,887. Nationstar expects to assume certain tax attributes of certain parent entities of FIF HE Holding LLC as a result of the restructuring, including approximately $196 million of net operating loss carry forwards as of December 31, 2011. Nationstar expects to record a full valuation allowance against any resulting deferred tax asset. The utilization of these tax attributes will be limited pursuant to Sections 382 and 383 of the Internal Revenue Code.


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Through and including          , 2012 (the 25 th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to each dealer’s obligation to deliver a prospectus when acting as underwriter, and with respect to its unsold allotments or subscriptions.
 
16,666,667 Shares
 
(NATIONSTAR MORTGAGE HOLDINGS LOGO)
 
Nationstar Mortgage Holdings Inc.
 
Common Stock
 
 
PROSPECTUS
 
BofA Merrill Lynch
Citigroup
Credit Suisse
Wells Fargo Securities
 
Allen & Company LLC
Barclays Capital
J.P. Morgan
Keefe, Bruyette & Woods
Sterne Agee
 
  , 2012
 


Table of Contents

PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13.    Other Expenses of Issuance and Distribution.
 
The following table sets forth the estimated fees and expenses (except for the SEC registration fee, the Financial Industry Regulatory Authority, Inc. (“FINRA”), filing fee and the NYSE listing fee) payable by the registrant in connection with the distribution of our common stock:
 
         
SEC registration fee
  $ 46,440  
FINRA filing fee
    40,500  
NYSE listing fee
    250,000  
Printing and engraving expenses
    550,000  
Legal fees and expenses
    2,450,000  
Accounting fees and expenses
    350,000  
Transfer agent and registrar fees and expenses
    6,000  
Blue Sky fees and expenses
    10,000  
Miscellaneous
    100,000  
         
Total
  $ 3,802,940  
         
 
We will bear all of the expenses shown above.
 
Item 14.    Indemnification of Directors and Officers.
 
Section 102 of the Delaware General Corporation Law, as amended, or the DGCL, allows a corporation to eliminate the personal liability of directors to a corporation or its stockholders for monetary damages for a breach of a fiduciary duty as a director, except where the director breached his duty of loyalty, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock repurchase or redemption in violation of Delaware corporate law or obtained an improper personal benefit.
 
Section 145 of the DGCL provides, among other things, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the corporation’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding. The power to indemnify applies if (i) such person is successful on the merits or otherwise in defense of any action, suit or proceeding or (ii) such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense expenses (including attorneys’ fees but excluding amounts paid in settlement) actually and reasonably incurred and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event of any adjudication of negligence or misconduct in the performance of his duties to the corporation, unless a court believes that in light of all the circumstances indemnification should apply.


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Section 174 of the DGCL provides, among other things, that a director who willfully and negligently approves of an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time, may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time the action occurred or immediately after the absent director receives notice of the unlawful acts.
 
The Company’s amended and restated certificate of incorporation states that no director shall be personally liable to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as it exists or may be amended. A director is also not exempt from liability for any transaction from which he or she derived an improper personal benefit, or for violations of Section 174 of the DGCL. To the maximum extent permitted under Section 145 of the DGCL, our amended and restated certificate of incorporation authorizes us to indemnify any and all persons whom we have the power to indemnify under the law.
 
Our amended and restated bylaws provide that the Company will indemnify, to the fullest extent permitted by the DGCL, each person who was or is made a party or is threatened to be made a party in any legal proceeding by reason of the fact that he or she is or was a director or officer of the Company or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. However, such indemnification is permitted only if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. Indemnification is authorized on a case-by-case basis by (1) our board of directors by a majority vote of disinterested directors, (2) a committee of the disinterested directors, (3) independent legal counsel in a written opinion if (1) and (2) are not available, or if disinterested directors so direct, or (4) the stockholders. Indemnification of former directors or officers shall be determined by any person authorized to act on the matter on our behalf. Expenses incurred by a director or officer in defending against such legal proceedings are payable before the final disposition of the action, provided that the director or officer undertakes to repay us if it is later determined that he or she is not entitled to indemnification.
 
Prior to completion of this offering, the Company intends to enter into separate indemnification agreements with its directors and officers. Each indemnification agreement will provide, among other things, for indemnification to the fullest extent permitted by law and our amended and restated certificate of incorporation and amended and restated bylaws against any and all expenses, judgments, fines, penalties and amounts paid in settlement of any claim. The indemnification agreements will provide for the advancement or payment of all expenses to the indemnitee and for reimbursement to us if it is found that such indemnitee is not entitled to such indemnification under applicable law and our amended and restated certificate of incorporation and amended and restated bylaws.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the Company pursuant to the foregoing provisions, the Company has been informed that, in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. We maintain directors’ and officers’ liability insurance for our officers and directors.
 
The Company maintains standard policies of insurance under which coverage is provided (a) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to the Company with respect to payments which may be made by the Company to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.


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Item 15.    Recent Sales of Unregistered Securities.
 
In the last three years, we have not issued or sold any unregistered securities.
 
Item 16.    Exhibits and Financial Statement Schedules.
 
(a) Exhibits: The list of exhibits is set forth in beginning on page II-6 of this Registration Statement and is incorporated herein by reference.
 
(b) Financial Statement Schedules: No financial statement schedules are provided because the information called for is not applicable or is shown in the financial statements or notes thereto.
 
Item 17.    Undertakings.
 
* (f) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
 
* (h) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer, or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
 
* (i) The undersigned registrant hereby undertakes that:
 
  •     For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
 
  •     For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
 
* Paragraph references correspond to those of Regulation S-K, Item 512.


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SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lewisville, State of Texas on February 24, 2012.
 
Nationstar Mortgage Holdings Inc.
 
/s/  Jay Bray
  By:   Jay Bray
  Title:  President, Chief Executive Officer and
Chief Financial Officer
 
POWER OF ATTORNEY
 
KNOW ALL MEN BY THESE PRESENTS, that each officer and director of Nationstar Mortgage Holdings Inc. whose signature appears below constitutes and appoints Jay Bray and Anthony W. Villani, and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution and revocation, for him or her and in his or her name, place and stead, in any and all capacities, to execute any or all amendments including any post-effective amendments and supplements to this Registration Statement, and any additional Registration Statement filed pursuant to Rule 462(b), and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
 
* * * *
 
Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
 
             
Name
 
Title
 
Date
 
         
/s/  Jay Bray

Jay Bray
  President, Chief Executive Officer,
Chief Financial Officer and Director
(principal executive, financial
and accounting officer)
  February 24, 2012
         
/s/  Wesley R. Edens

Wesley R. Edens
  Chairman and Director   February 24, 2012
         
/s/  Robert Gidel

Robert Gidel
  Director   February 24, 2012


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Name
 
Title
 
Date
 
/s/  Roy Guthrie

Roy Guthrie
  Director   February 24, 2012
         
/s/  Brett Hawkins

Brett Hawkins
  Director   February 24, 2012
         
/s/  Michael D. Malone

Michael D. Malone
  Director   February 24, 2012


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EXHIBIT INDEX
         
Exhibit
   
Number
 
Description
 
  1 .1   Form of Underwriting Agreement
  2 .1   Master Pre-IPO Restructuring Agreement, dated as of February 17, 2012, by and among FIF HE Holdings LLC, Nationstar Mortgage Holdings Inc., Nationstar Mortgage LLC and the other parties thereto.
  3 .1   Amended and Restated Certificate of Incorporation of Nationstar Mortgage Holdings Inc.
  3 .2   Amended and Restated Bylaws of Nationstar Mortgage Holdings Inc.
  3 .3†   Certificate of Incorporation of Nationstar Mortgage Holdings Inc.
  3 .4†   Bylaws of Nationstar Mortgage Holdings Inc.
  4 .1   Stockholders Agreement, dated as of February 17, 2012, by and among Nationstar Mortgage Holdings Inc and FIF HE Holdings LLC.
  4 .2   Indenture, dated as of March 26, 2010, among Nationstar Mortgage LLC, Nationstar Capital Corporation, and Wells Fargo Bank, N.A., as trustee, including the form of 10.875% Senior Note due 2015 (incorporated by reference to Exhibit 4.1 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  4 .3   Supplemental Indenture, dated as of August 31, 2010, among NSM Recovery Services Inc, a subsidiary of Nationstar Mortgage LLC, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.2 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  4 .4   Supplemental Indenture, dated as of December 13, 2010, among NSM Foreclosure Services Inc, a subsidiary of Nationstar Mortgage LLC, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.3 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  4 .5   Supplemental Indenture, dated as of December 19, 2011, among Nationstar Mortgage LLC, Nationstar Capital Corporation, Centex Land Vista Ridge Lewisville III General Partner, LLC, Centex Land Vista Ridge Lewisville III, L.P., Harwood Service Company LLC, Harwood Insurance Services, LLC, Harwood Service Company of Georgia, LLC, Harwood Service Company of New Jersey, LLC, Homeselect Settlement Solutions, LLC, Nationstar 2009 Equity Corporation, Nationstar Equity Corporation, Nationstar Industrial Loan Company, Nationstar Industrial Loan Corporation, NSM Recovery Services, Inc., NSM Foreclosure Services, Inc., and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 4.1 to Nationstar Mortgage LLC’s Current Report on Form 8-K filed with the SEC on December 19, 2011).
  4 .6   Registration Rights Agreement, dated as of March 26, 2010, among Nationstar Mortgage LLC, Nationstar Capital Corporation, Barclays Capital Inc., Banc of America Securities LLC, Deutsche Bank Securities Inc. and RBS Securities Inc. (incorporated by reference to Exhibit 4.4 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  4 .7   Registration Rights Agreement, dated as of March 26, 2010, among Nationstar Mortgage LLC, Nationstar Capital Corporation, Barclays Capital Inc., Banc of America Securities LLC, Deutsche Bank Securities Inc. and RBS Securities Inc. (incorporated by reference to Exhibit 10.1 to Nationstar Mortgage LLC’s Current Report on Form 8-K filed with the SEC on December 19, 2011).
  4 .8   Form of Stock Certificate
  5 .1   Opinion of Cleary Gottlieb Steen & Hamilton LLP.
  10 .1   Amended and Restated Servicer Advance Early Reimbursement Addendum, dated as of August 16, 2010, between Nationstar Mortgage LLC and Fannie Mae (incorporated by reference to Exhibit 10.1 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .2   Fifth Amended and Restated Master Repurchase Agreement, dated as of January 27, 2010, between The Royal Bank of Scotland plc, as buyer, and Nationstar Mortgage LLC, as seller (incorporated by reference to Exhibit 10.2 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).


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Exhibit
   
Number
 
Description
 
  10 .3   Amendment Number One to Fifth Amended and Restated Master Repurchase Agreement, and Amendment Number One to Fifth Amended and Restated Pricing Side Letter, both dated as of April 6, 2010, between The Royal Bank of Scotland plc and Nationstar Mortgage LLC. (incorporated by reference to Exhibit 10.3 to Amendment No. 3 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on April 27, 2011).
  10 .4   Amendment Number Two to Fifth Amended and Restated Master Repurchase Agreement, and Amendment Number Two to Fifth Amended and Restated Pricing Side Letter, both dated as of February 25, 2011, between The Royal Bank of Scotland plc and Nationstar Mortgage LLC. (incorporated by reference to Exhibit 10.4 to Amendment No. 3 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on April 27, 2011).
  10 .5   Subservicing Agreement, dated as of October 29, 2010, between Fannie Mae and Nationstar Mortgage LLC (incorporated by reference to Exhibit 10.3 to Amendment No. 1 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on February 9, 2011).
  10 .6   Strategic Relationship Agreement, dated as of December 16, 2009, between Fannie Mae and Nationstar Mortgage LLC (incorporated by reference to Exhibit 10.4 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .7   Subservicing Agreement, dated as of February 1, 2011, among MorEquity, Inc., American General Financial Services of Arkansas, Inc. and American General Home Equity, Inc. as owners and as servicers, and Nationstar Mortgage LLC, as subservicer. (incorporated by reference to Exhibit 10.5 to Amendment No. 2 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on March 28, 2011).
  10 .8   Subservicing Agreement (American General Mortgage Loan Trust 2006-1), dated as of February 1, 2011, between MorEquity, Inc., as servicer, and Nationstar Mortgage LLC, as subservicer (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on March 28, 2011).
  10 .9   Subservicing Agreement (American General Mortgage Loan Trust 2010-1), dated as of February 1, 2011, between MorEquity, Inc., as servicer, and Nationstar Mortgage LLC, as subservicer. (incorporated by reference to Exhibit 10.7 to Amendment No. 2 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on March 28, 2011).
  10 .10   Sale and Servicing Agreement, dated as of April 6, 2006, between The Financial Asset Securities Corp., as Depositor, Centex Home Equity Company, LLC, as Originator and Servicer, Newcastle Mortgage Securities Trust 2006-1, as Issuer, and JPMorgan Chase Bank, N.A. (incorporated by reference to Exhibit 10.10 to Amendment No. 5 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on June 10, 2011).
  10 .11   Sale and Servicing Agreement, dated as of July 12, 2007, between Bear Stearns Asset-Backed Securities I LLC, as Depositor, Nationstar Mortgage LLC, as Servicer, Newcastle Mortgage Securities Trust 2007-1, as Issuing Entity, Wells Fargo Bank, N.A., as Master Servicer, Securities Administrator and Custodian, and The Bank of New York, as Indenture Trustee. (incorporated by reference to Exhibit 10.11 to Amendment No. 5 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on June 10, 2011).
  10 .12   Subservicing Agreement, effective as of June 21, 2011, between First Tennessee Bank National Association, as Owner and Master Servicer, and Nationstar Mortgage LLC, as Servicer and Subservicer (incorporated by reference to Exhibit 10.12 to Amendment No. 6 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on June 30, 2011).
  10 .13   Employment Agreement, dated as of January 29, 2008, by and between Nationstar Mortgage LLC and Robert L. Appel (incorporated by reference to Exhibit 10.5 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).


II-7


Table of Contents

         
Exhibit
   
Number
 
Description
 
  10 .14   Amendment, dated as of September 17, 2010, to Employment Agreement dated January 29, 2008 by and between Nationstar Mortgage LLC and Robert L. Appel (incorporated by reference to Exhibit 10.6 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .15   Employment Agreement, dated as of February 19, 2009, by and between Nationstar Mortgage LLC and Douglas Krueger (incorporated by reference to Exhibit 10.7 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .16   Employment Agreement, dated as of September 17, 2010, by and between Nationstar Mortgage LLC and Anthony H. Barone (incorporated by reference to Exhibit 10.8 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .17   Employment Agreement, dated as of September 17, 2010, by and between the Company and Jesse K. Bray (incorporated by reference to Exhibit 10.9 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .18   Employment Agreement, dated as of September 17, 2010, by and between Nationstar Mortgage LLC and Amar Patel (incorporated by reference to Exhibit 10.10 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .19   Form of Restricted Series 1 Preferred Unit Award Agreement under FIF HE Holdings LLC Fifth Amended and Restated Limited Liability Company Agreement (incorporated by reference to Exhibit 10.11 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .20   Form of Series 1 Class A Unit Award Agreement under FIF HE Holdings LLC Fifth Amended and Restated Limited Liability Company (incorporated by reference to Exhibit 10.12 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .21   Form of Series 2 Class A Unit Award Agreement under FIF HE Holdings LLC Fifth Amended and Restated Limited Liability Company (incorporated by reference to Exhibit 10.13 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .22   Nationstar Mortgage LLC Annual Incentive Compensation Plan (incorporated by reference to Exhibit 10.14 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .23   Nationstar Mortgage LLC Incentive Program Summary (incorporated by reference to Exhibit 10.15 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .24   Nationstar Mortgage LLC Long-Term Incentive Plan for Mr. Krueger. (incorporated by reference to Exhibit 10.16 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on December 23, 2010).
  10 .25   Fifth Amended and Restated Limited Liability Company Agreement of FIF HE HOLDINGS LLC (incorporated by reference to Exhibit 10.25 to Amendment No. 6 to Nationstar Mortgage LLC’s Registration Statement on Form S-4 filed with the SEC on June 30, 2011).
  10 .26   Mortgage Servicing Rights Purchase and Sale Agreement, dated and effective as of September 30, 2011, between Bank of America, National Association, as seller, and Nationstar Mortgage LLC, as buyer (incorporated by reference to Exhibit 2.1 to Nationstar Mortgage LLC’s Quarterly Report on Form 10-Q filed with the SEC on November 14, 2011).
  10 .27†   Servicer Rights Sale and Issuer Transfer Agreement, dated December 5, 2011, between Bank of America, National Association, as seller, and Nationstar Mortgage LLC, as buyer.
  10 .28†   Sale Agreement, dated December 8, 2011, between Newcastle Investment Corp., as buyer, and Nationstar Mortgage LLC, as seller.
  10 .29†   Replacement Agreement, dated December 8, 2011, between Newcastle Investment Corp. and Nationstar Mortgage LLC.
  10 .30†   As Soon As Pooled Plus Agreement, dated March 24, 2009, between Fannie Mae and Nationstar Mortgage LLC.


II-8

Exhibit 1.1
NATIONSTAR MORTGAGE HOLDINGS INC.
(a Delaware corporation)
[ ] Shares of Common Stock
UNDERWRITING AGREEMENT
Dated: [ ], 2012

 


 

NATIONSTAR MORTGAGE HOLDINGS INC.
(a Delaware corporation)
[ ] Shares of Common Stock
UNDERWRITING AGREEMENT
[ ], 2012
Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Wells Fargo Securities, LLC
     As Representatives of the
     several Underwriters listed
     in Schedule A hereto
c/o Merrill Lynch, Pierce, Fenner & Smith
                      Incorporated
One Bryant Park
New York, New York 10036
Ladies and Gentlemen:
          Nationstar Mortgage Holdings Inc., a Delaware corporation (the “Company”) and Nationstar Mortgage LLC, a Delaware limited liability company (“Nationstar LLC”), confirm their respective agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”) and each of the other Underwriters named in Schedule A hereto (collectively, the “Underwriters,” which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom you are acting as representatives (in such capacity, the “Representatives”), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $0.01 per share, of the Company (“Common Stock”) set forth in Schedules A and B hereto and (ii) the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [ ] additional shares of Common Stock. The aforesaid [ ] shares of Common Stock (the “Initial Securities”) to be purchased by the Underwriters and all or any part of the [ ] shares of Common Stock subject to the option described in Section 2(b) hereof (the “Option Securities”) are herein called, collectively, the “Securities.”
          The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.
          The Company was formed solely for the purpose of reorganizing the organizational structure of FIF HE Holdings LLC, a Delaware limited liability company (“FIF”), and Nationstar LLC. As of the date of this agreement: (i) FIF holds all of the outstanding equity interests of Nationstar LLC and (ii) the Company has not conducted any activities other than those incident to its formation and the preparation of the Registration Statement (as defined below). Prior to the Closing Time (as defined below), FIF will transfer all of the equity interests of Nationstar LLC to two direct, wholly-owned subsidiaries of the

 


 

Company (the “Restructuring”). Following the Restructuring and the consummation of the transactions contemplated by this Agreement, the Company will be a holding company and will hold, directly or indirectly, all outstanding shares of equity securities of Nationstar LLC.
          For all purposes of this Agreement, Nationstar LLC and its subsidiaries shall be deemed to be subsidiaries of the Company as of the date of this Agreement and at all times prior to the date of this Agreement.
          The Company and the Underwriters agree that up to [ ] shares of the Initial Securities to be purchased by the Underwriters (the “Reserved Securities”) shall be reserved for sale by the Underwriters to certain persons designated by the Company (the “Invitees”), as part of the distribution of the Securities by the Underwriters, subject to the terms of this Agreement, the applicable rules, regulations and interpretations of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and all other applicable laws, rules and regulations. The Company solely determined, without any direct or indirect participation by the Underwriters, the Invitees who will purchase Reserved Securities (including the amount to be purchased by such persons) sold by the Underwriters. To the extent that such Reserved Securities are not orally confirmed for purchase by Invitees by 8:00 A.M. (New York City time) on the first business day after the date of this Agreement, such Reserved Securities may be offered to the public as part of the public offering contemplated hereby.
          The Company has filed with the Securities and Exchange Commission (the “Commission”) a registration statement on Form S-1 (No. 333-174246), including the related preliminary prospectus or prospectuses, covering the registration of the sale of the Securities under the Securities Act of 1933, as amended (the “1933 Act”). Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430A (“Rule 430A”) of the rules and regulations of the Commission under the 1933 Act (the “1933 Act Regulations”) and Rule 424(b) (“Rule 424(b)”) of the 1933 Act Regulations. The information included in such prospectus that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective pursuant to Rule 430A(b) is herein called the “Rule 430A Information.” Such registration statement, including the amendments thereto, the exhibits thereto and any schedules thereto, at the time it became effective, and including the Rule 430A Information, is herein called the “Registration Statement.” Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein called the “Rule 462(b) Registration Statement” and, after such filing, the term “Registration Statement” shall include the Rule 462(b) Registration Statement. Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a “preliminary prospectus.” The final prospectus, in the form first furnished to the Underwriters for use in connection with the offering of the Securities, is herein called the “Prospectus.” For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system or any successor system (“EDGAR”).
          As used in this Agreement:
          “Applicable Time” means [__:00 P./A.M.], New York City time, on [ ], 2012 or such other time as agreed by the Company and Merrill Lynch.
          “General Disclosure Package” means any Issuer General Use Free Writing Prospectuses issued at or prior to the Applicable Time, the most recent preliminary prospectus that is

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distributed to investors prior to the Applicable Time and the information included on Schedule C-1 hereto, all considered together.
          “Issuer Free Writing Prospectus” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations (“Rule 433”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the 1933 Act Regulations (“Rule 405”)) relating to the Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).
          “Issuer General Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “ bona fide electronic road show,” as defined in Rule 433 (the “Bona Fide Electronic Road Show”)), as evidenced by its being specified in Schedule C-2 hereto.
          “Issuer Limited Use Free Writing Prospectus” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.
          SECTION 1. Representations and Warranties .
          (a) Representations and Warranties by the Company and Nationstar LLC . The Company and Nationstar LLC, jointly and severally, represent and warrant to each Underwriter as of the date hereof, the Applicable Time, the Closing Time and any Date of Delivery (as defined below), and agrees with each Underwriter, as follows:
          (i) Registration Statement and Prospectuses . Each of the Registration Statement and any post-effective amendment thereto has become effective under the 1933 Act. No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the knowledge of the Company or Nationstar LLC, threatened by the Commission. The Company has complied with each request (if any) from the Commission for additional information.
          Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus, the Prospectus and any amendment or supplement thereto, at the time each was filed with the Commission, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus delivered by the Company to the Underwriters for use in connection with this offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
          (ii) Accurate Disclosure . Neither the Registration Statement nor any amendment thereto, at its effective time, at the Closing Time or at any Date of Delivery, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not

3


 

misleading. As of the Applicable Time, neither (A) the General Disclosure Package nor (B) any individual Issuer Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Time or at any Date of Delivery, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
          The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement (or any amendment thereto), the General Disclosure Package, any Issuer Free Writing Prospectus or the Prospectus (or any amendment or supplement thereto) made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use therein. For purposes of this Agreement, the only information so furnished shall be the information in the first paragraph under the heading “Underwriting—Commissions and Discounts,” the information in the second, third and fourth paragraphs under the heading “Underwriting—Price Stabilization, Short Positions and Penalty Bids” and the information under the heading “Underwriting—Electronic Distribution” in each case contained in the Prospectus (collectively, the “Underwriter Information”).
          (iii) Issuer Free Writing Prospectuses . No Issuer Free Writing Prospectus conflicts or will conflict with the information contained in the Registration Statement or the Prospectus, and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) such that no filing of any “road show” (as defined in Rule 433(h)) is required in connection with the offering of the Securities.
          (iv) Company Not Ineligible Issuer . At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities, and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.
          (v) Due Organization, Valid Existence and Good Standing . Each of the Company and its subsidiaries has been duly organized, is validly existing and in good standing as a limited liability company, limited partnership, corporation or other business entity under the laws of its jurisdiction of organization and is duly qualified to do business and in good standing as a foreign limited liability company, limited partnership, corporation or other business entity in each jurisdiction in which its ownership or lease of property or the conduct of its businesses requires such qualification, except where the failure to be so qualified or in good standing could not, in the aggregate, reasonably be expected to have a material adverse effect on the condition (financial or otherwise), results of operations, members’ or stockholders’ equity, properties, business or prospects of the Company and its subsidiaries taken as a whole (a “Material Adverse Effect”). Each of the Company and its subsidiaries has all power and authority necessary to own or hold its properties and to conduct the businesses in which it is engaged.

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          (vi) Subsidiaries . The Company does not own or control, directly or indirectly, any corporation, association or other entity other than Nationstar LLC’s ownership of Nationstar Capital Corporation (“Nationstar Corp.”) and the subsidiaries listed on Schedule D hereto. Nationstar Corp. has no subsidiaries. None of the subsidiaries of Nationstar LLC (other than Nationstar Home Equity Loan Trust 2009-A, Nationstar Mortgage Advance Receivables Trust 2010-ADV and Nationstar Residual, LLC) is a “significant subsidiary” (as defined in Rule 405 under the Securities Act).
          (vii) Capitalization . The Company has an authorized capitalization as set forth in each of the Registration Statement, the General Disclosure Package and the Prospectus, and all of the authorized, issued and outstanding shares of capital stock of the Company and Nationstar LLC have been duly authorized and validly issued and are fully paid and non-assessable. All of the issued and outstanding shares of capital stock or other equity interests of each subsidiary of the Company have been duly authorized and validly issued, are fully paid and non-assessable and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, except for such liens, encumbrances, equities or claims as could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
          (viii) Authorization and Description of Securities . The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. The Common Stock conforms in all material respects to all statements relating thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus and such description conforms in all material respects to the rights set forth in the instruments defining the same. No holder of Securities will be subject to personal liability by reason of being such a holder.
          (ix) Power and Authority . The Company and Nationstar LLC have all requisite corporate power and authority to execute, deliver and perform its obligations under this Agreement. This Agreement has been duly and validly authorized, executed and delivered by the Company and Nationstar LLC.
          (x) Absence of Violations, Defaults and Conflicts with this Agreement . The execution, delivery and performance of this Agreement and the consummation of the transactions, including the Restructuring, contemplated herein and in the Registration Statement, the General Disclosure Package and the Prospectus (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described therein under the caption “Use of Proceeds”) will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, impose any lien, charge or encumbrance upon any property or assets of the Company or its subsidiaries, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement, license, lease or other agreement or instrument to which the Company or its subsidiaries is a party or by which the Company or its subsidiaries is bound or to which any of the property or assets of the Company or its subsidiaries is subject, (ii) result in any violation of the provisions of the charter or by-laws (or similar organizational documents) of the Company or its subsidiaries, or (iii) result in any violation of any statute or any judgment, order, decree, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or its subsidiaries or any of their properties or assets, except, with respect to clauses (i) and (iii), conflicts or violations that would not reasonably be expected to have a Material Adverse Effect.

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          (xi) Absence of Further Requirements . No consent, approval, authorization or order of, or filing, registration or qualification with, any court or governmental agency or body having jurisdiction over the Company or its subsidiaries or any of their properties or assets is required for the execution, delivery and performance by the Company or Nationstar LLC of this Agreement, the application of the proceeds from the sale of the Securities as described under “Use of Proceeds” in each of the Registration Statement, the General Disclosure Package and the Prospectus and the consummation by the Company and Nationstar LLC of the transactions contemplated hereby and thereby, including the Restructuring, except (A) such as have been already obtained or as may be required under the 1933 Act, the 1933 Act Regulations, the rules of the New York Stock Exchange, state securities or Blue Sky laws or the rules of FINRA, (B) filings with the Secretary of State of Delaware of an amended and restated certificate of incorporation, (C) such as have been obtained under the laws and regulations of jurisdictions outside the United States in which the Reserved Securities were offered and (D) such consents, approvals, authorizations or orders that would not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
          (xii) Accuracy of Exhibits . There are no contracts or documents which are required to be described in the Registration Statement, the General Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement which have not been so described and filed as required.
          (xiii) Financial Statements; Non-GAAP Financial Measures . The historical financial statements (including the related notes and supporting schedules) included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly in all material respects the financial condition, results of operations and cash flows of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) applied on a consistent basis throughout the periods involved except for any annual year-end adjustment, the adoption of new accounting principles, and except as otherwise noted therein. The supporting schedules, if any, present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included therein. Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included in the Registration Statement, the General Disclosure Package or the Prospectus under the 1933 Act or the 1933 Act Regulations. All disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus, regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Securities Exchange Act of 1934, as amended (the “1934 Act”) and Item 10 of Regulation S-K of the 1933 Act, to the extent applicable.
          (xiv) Independent Auditors . Ernst & Young, LLP, which have audited certain financial statements of Nationstar LLC, the report of which appears in the Registration Statement, the General Disclosure Package and the Prospectus and which have delivered the initial letter referred to in Section 5(e) hereof, are independent auditors with respect to the Company under Rule 101 of the American Institute of Certified Public Accounts’ Code of Professional Conduct, and its related interpretation and ruling.
          (xv) Accounting Controls . The Company and each of its subsidiaries maintain effective internal control over financial reporting (as defined under Rule 13a-15 and 15d-15 under

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the rules and regulations of the Commission under the 1934 Act (the “1934 Act Regulations”) and a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management’s general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, since the end of the Company’s most recent audited fiscal year, there has been (1) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (2) no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
          (xvi) Critical Accounting Policies . The section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Use of Estimates” included in the Registration Statement, the General Disclosure Package and the Prospectus accurately and fully describes (i) the accounting policies that the Company believes are the most important in the portrayal of the Company’s financial condition and results of operations and that require management’s most difficult, subjective or complex judgments; (ii) the judgments and uncertainties affecting the application of critical accounting policies; and (iii) the likelihood that materially different amounts would be reported under different conditions or using different assumptions and an explanation thereof.
          (xvii) No Material Changes . Except as described in each of the Registration Statement, the General Disclosure Package and the Prospectus, since the date of the latest audited financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus, neither the Company nor its subsidiaries has (A) sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor disturbance or dispute or court or governmental action, order or decree, (B) issued or granted any securities (in case of subsidiaries, other than any issuance or grant to the Company or to another subsidiary of the Company in connection with the Restructuring), (C) incurred any material liability or obligation, direct or contingent, other than liabilities and obligations that were incurred in the ordinary course of business, (D) entered into any material transaction not in the ordinary course of business, (E) declared or paid any dividend on its capital stock, and (F) since such date, there has not been any change in the capital stock, limited partnership or membership interests, as applicable, or short- or long-term debt of the Company or its subsidiaries or any adverse change, or any development involving a prospective adverse change, in or affecting the condition (financial or otherwise), results of operations, members’ or stockholders’ equity, properties, management, business or prospects of the Company or its subsidiaries, taken as a whole, in each case except as could not, in the aggregate, reasonably be expected to have a Material Adverse Effect.
          (xviii) Title to Property . Each of the Company and its subsidiaries has good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects, except such liens, encumbrances and defects as are described in the Registration Statement, the General Disclosure Package and the Prospectus and such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or its subsidiaries. All assets held under lease by the Company or its subsidiaries are held by them under valid, subsisting and enforceable leases, with such exceptions as do not

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interfere with the use made and proposed to be made of such assets by the Company or its subsidiaries, except where the invalidity or unenforceability of any such lease could not, in the aggregate, be reasonably expected to have a Material Adverse Effect.
          (xix) Possession of Licenses and Permits . The Company and its subsidiaries have such permits, licenses, patents, franchises, certificates of need and other approvals or authorizations of governmental or regulatory authorities (“Permits”) as are necessary under applicable law to own their properties and conduct their businesses in the manner described in the Registration Statement, the General Disclosure Package and the Prospectus, except for any of the foregoing that could not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect or except as described in the Registration Statement, the General Disclosure Package and the Prospectus. The Company and its subsidiaries have fulfilled and performed all of their obligations with respect to the Permits, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder or any such Permits, except for any of the foregoing that could not reasonably be expected to have a Material Adverse Effect or except as described in the Registration Statement, the General Disclosure Package and the Prospectus. Neither the Company nor its subsidiaries has received notice of any revocation or modification of any such Permits or has reason to believe that any such Permits will not be renewed in the ordinary course, except for any of the foregoing that could not reasonably be expected to have a Material Adverse Effect.
          (xx) Possession of Intellectual Property . The Company and each of its subsidiaries own or possess adequate rights to use all material patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights, licenses, know-how, software, systems and technology (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others, except for such rights or conflicts that would not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.
          (xxi) Absence of Proceedings . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, there are no legal or governmental proceedings pending to which the Company or its subsidiaries is a party or of which any property or assets of the Company or its subsidiaries is the subject that could, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect or could, singly or in the aggregate, reasonably be expected to have a material adverse effect on the performance by the Company of its obligations under this Agreement or the consummation of any of the transactions contemplated hereby, including the Restructuring. To the knowledge of the Company or Nationstar LLC, no such proceedings are threatened by governmental authorities or others.
          (xxii) Authorization of Descriptions of Proceedings . The statements made in the Registration Statement, the General Disclosure Package and the Prospectus under the captions “Risk Factors—Risks Related to Our Business and Industry—Federal, state and local laws and regulations could materially adversely affect our business, financial condition and results of operations,” “Risk Factors—Risks Related to Our Business and Industry—Our business would be adversely affected if we lose our licenses,” “Risk Factors—Risks Related to Our Business and Industry—Changes to government mortgage modification programs could adversely affect future incremental revenues,” “Risk Factors—Risks Related to Our Business and Industry—The conservatorship of Fannie Mae and Freddie Mac and related efforts, along with any changes in

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laws and regulations affecting the relationship between Fannie Mae and Freddie Mac and the U.S. federal government, could adversely affect our business and prospects” and “Business—Regulation,” insofar as they purport to constitute summaries of the terms of statutes, rules or regulations, legal or governmental proceedings or contracts and other documents, constitute accurate summaries of the terms of such statutes, rules and regulations, legal and governmental proceedings and contracts and other documents in all material respects.
          (xxiii) Insurance . The Company and each of its subsidiaries carry, or are covered by, insurance from insurers of recognized financial responsibility in such amounts and covering such risks as management believes is adequate in all material respects for the conduct of their respective businesses and the value of their respective properties. All policies of insurance of the Company and its subsidiaries are in full force and effect; the Company and each of its subsidiaries are in compliance with the terms of such policies in all material respects; and neither the Company nor any of its subsidiaries has received notice from any insurer or agent of such insurer that material capital improvements or other expenditures are required or necessary to be made in order to continue such insurance. Neither the Company nor any such subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that could not reasonably be expected to have a Material Adverse Effect.
          (xxiv) Absence of Labor Dispute . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, no labor disturbance by or dispute with the employees of the Company or any of its subsidiaries exists or, to the knowledge of the Company or Nationstar LLC, is imminent that could reasonably be expected to have a Material Adverse Effect.
          (xxv) Absence of Violations, Defaults and Conflicts by the Company and its Subsidiaries Generally . Neither the Company nor any of its subsidiaries (i) is in violation of its charter, certificate of formation, bylaws, limited partnership agreement or limited liability company agreement (or similar organizational documents), (ii) is in default, and no event has occurred that, with notice or lapse of time or both, would constitute a default, in the due performance or observance of any term, covenant, condition or other obligation contained in any indenture, mortgage, deed of trust, loan agreement, license or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject, or (iii) is in violation of any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over it or its property or assets or has failed to obtain any license, permit, certificate, franchise or other governmental authorization or permit necessary to the ownership of its property or to the conduct of its business, except in the case of clauses (ii) and (iii), to the extent any such conflict, breach, violation or default could not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.
          (xxvi) Environmental Laws . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, (i) there are no proceedings that are pending, or to the knowledge of the Company or Nationstar LLC, threatened, against the Company or any of its subsidiaries under any laws, regulations, ordinances, rules, orders, judgments, decrees, permits or other legal requirements of any governmental authority, including without limitation any international, foreign, national, state, provincial, regional, or local authority, relating to pollution, the protection of human health or safety, the environment, or natural resources, or to use, handling, storage, manufacturing, transportation, treatment, discharge, disposal or release of hazardous or toxic substances or wastes, pollutants or contaminants (“Environmental Laws”) in

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which a governmental authority is also a party, (ii) the Company and its subsidiaries are not aware of any issues regarding compliance with Environmental Laws, including any pending or proposed Environmental Laws, or liabilities or other obligations under Environmental Laws or concerning hazardous or toxic substances or wastes, pollutants or contaminants and (iii) none of the Company and its subsidiaries anticipates capital expenditures relating to Environmental Laws, except to the extent any such proceedings, compliance issues or capital expenditures could not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.
          (xxvii) Payment of Taxes . The Company and its subsidiaries have filed all federal, state, local and foreign tax returns required to be filed through the date hereof, subject to permitted extensions, and have paid all taxes due, and no tax deficiency has been determined adversely to the Company and its subsidiaries, nor does the Company or Nationstar LLC have any knowledge of any tax deficiencies that have been, or could reasonably be expected to be asserted against the Company and its subsidiaries, except any of the foregoing, which could not, singly or in the aggregate, reasonably be expected to have a Material Adverse Effect.
          (xxviii) Employee Benefits . (A) Each “employee benefit plan” (within the meaning of Section 3(3) of the Employee Retirement Security Act of 1974, as amended (“ERISA”)) for which the Company or any member of its “Controlled Group” (defined as any organization which is a member of a controlled group of corporations within the meaning of Section 414 of the Internal Revenue Code of 1986, as amended (the “Code”)) would have any liability (each a “Plan”) has been maintained in all material respects in compliance with its terms and with the requirements of all applicable statutes, rules and regulations including ERISA and the Code; (B) no prohibited transaction, within the meaning of Section 406 of ERISA or Section 4975 of the Code, has occurred with respect to any Plan excluding transactions effected pursuant to a statutory or administrative exemption; (C) with respect to each Plan subject to Title IV of ERISA (I) no “reportable event” (within the meaning of Section 4043(c) of ERISA) has occurred or is reasonably expected to occur, (II) no “accumulated funding deficiency” (within the meaning of Section 302 of ERISA or Section 412 of the Code), whether or not waived, has occurred or is reasonably expected to occur, (III) the fair market value of the assets under each Plan exceeds the present value of all benefits accrued under such Plan (determined based on those assumptions used to fund such Plan), and (IV) neither the Company or any member of its Controlled Group has incurred, or reasonably expects to incur, any liability under Title IV of ERISA (other than contributions to the Plan or premiums to the PBGC in the ordinary course and without default) in respect of a Plan (including a “multiemployer plan,” within the meaning of Section 4001(c)(3) of ERISA); and (C) each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification.
          (xxix) No Restrictions on Dividends by Subsidiaries . No subsidiary of the Company is currently prohibited, directly or indirectly, from paying any dividends to the Company, from making any other distribution on such subsidiary’s capital stock, from repaying to the Company any loans or advances to such subsidiary from the Company or from transferring any of such subsidiary’s property or assets to the Company or any other subsidiary of the Company, except as described in the Registration Statement, the General Disclosure Package and the Prospectus.
          (xxx) Statistical and Market-Related Data . The statistical and market-related data included in the Registration Statement, the General Disclosure Package and the Prospectus and the consolidated financial statements of Nationstar LLC and its subsidiaries included in the Registration Statement, the General Disclosure Package and the Prospectus are based on or derived from sources that the Company believes to be reliable in all material respects and, to the

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extent required, the Company has obtained the written consent to the use of such data from such sources.
          (xxxi) Investment Company Act . Each of the Company and Nationstar LLC is not, and immediately after giving effect to the offer and sale of the Securities as herein contemplated and the application of the proceeds therefrom as described under “Use of Proceeds” in each of the Registration Statement, the General Disclosure Package and the Prospectus, will not be, an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended, and the rules and regulations of the Commission thereunder.
          (xxxii) Authorization of Description of Laws and Documents . The statements set forth in each of the Registration Statement, the General Disclosure Package and the Prospectus under the captions “Certain U.S. Federal Income and Estate Tax Considerations to Non-U.S. Holders,” “Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Description of Certain Indebtedness,” and “Underwriting,” insofar as they purport to summarize provisions of the laws and documents referred to herein, are accurate summaries in all material respects.
          (xxxiii) Registration Rights . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, there are no contracts, agreements or understandings between the Company or Nationstar LLC and any person granting such person the right to require the Company to file a registration statement under the Securities Act with respect to any securities of the Company (other than the registration rights agreements entered into in connection with the Company’s 10.875% senior notes) owned or to be owned by such person or to require the Company to include such securities in the securities registered pursuant to the Registration Statement or in any securities being registered pursuant to any other registration statement filed by the Company under the Securities Act.
          (xxxiv) No Broker . Neither the Company nor any of its subsidiaries is a party to any contract, agreement or understanding with any person (other than this Agreement) that could give rise to a valid claim against any of them or the Underwriters for a brokerage commission, finder’s fee or like payment in connection with the offering and sale of the Securities.
          (xxxv) Absence of Manipulation . The Company and its affiliates have not taken, directly or indirectly, any action designed to or that has constituted or that could reasonably be expected to cause or result in the stabilization or manipulation of the price of any security of the Company in connection with the offering of the Securities.
          (xxxvi) Stabilization Safe Harbor . The Company and Nationstar LLC have not taken any action or omitted to take any action (such as issuing any press release relating to any Securities without an appropriate legend) which may result in the loss by the Underwriter of the ability to rely on any stabilization safe harbor provided by the Financial Services Authority under the Financial Services Markets Act of 2000.
          (xxxvii) Foreign Corrupt Practices Act . Neither the Company nor any of its subsidiaries, nor, to the knowledge of the Company or Nationstar LLC, any director, officer, agent, employee or other person associated with or acting on behalf of the Company or any of its subsidiaries, has (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in

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violation of any provision of the Foreign Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment.
          (xxxviii) Money Laundering Laws . The operations of the Company and its subsidiaries are and have been conducted at all times in compliance with applicable (x) financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, (y) money laundering statutes of all jurisdictions, and rules and regulations thereunder and (z) related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, the “Money Laundering Laws”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Company or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Company or Nationstar LLC, threatened.
          (xxxix) OFAC . Neither the Company nor any of its subsidiaries nor, to the knowledge of the Company or Nationstar LLC, any director, officer, agent or employee of the Company or any of its subsidiaries is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”), the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions collectively (“Sanctions”); and the Company will not directly or indirectly use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities of any person currently subject to any Sanctions.
          (xl) Sales of Reserved Securities . In connection with any offer and sale of Reserved Securities outside the United States, each preliminary prospectus, the Prospectus, any prospectus wrapper and any amendment or supplement thereto, at the time it was distributed, complied and will comply in all material respects with any applicable laws or regulations of foreign jurisdictions in which the same is distributed. The Company has not offered, or caused the Representatives to offer, Reserved Securities to any person with the specific intent to unlawfully influence (i) a customer or supplier of the Company or any of its affiliates to alter the customer’s or supplier’s level or type of business with any such entity or (ii) a trade journalist or publication to write or publish favorable information about the Company or any of its affiliates, or their respective businesses or products.
          (xli) Ratings . Nationstar LLC has ratings as a residential mortgage servicer of “Above Average” by Standard and Poor’s and “RPS2” by Fitch, Inc.
          (xlii) Restructuring . As of (i) the date of this Agreement, (a) the agreements required to effectuate with the Restructuring have been duly authorized and when executed and delivered, will be legally valid and binding and enforceable against the Company and Nationstar LLC in accordance with their terms, except as the enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditor’s rights generally or by general equitable principles and (b) the Company and Nationstar LLC will have filed all notices, reports, documents or other information required to be filed by it pursuant to, and will have obtained any and all authorizations, approvals, orders, consents, licenses, certificates, permits, registrations or qualifications required to be obtained under, and will have otherwise complied with all requirements of, all applicable laws in connection with the consummation of all of the transactions in connection with the Restructuring described in the Registration Statement, the General Disclosure Package and the Prospectus except, in each case, where such failure would not result in a Material Adverse Effect, and (ii) the Closing Time, the

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Restructuring shall have been completed substantially in the manner described in the Registration Statement, the General Disclosure Package and the Prospectus.
          (b) Officer’s Certificates . Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company and Nationstar LLC to each Underwriter as to the matters covered thereby.
          SECTION 2. Sale and Delivery to Underwriters; Closing .
          (a) Initial Securities . On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule A, that proportion of the number of Initial Securities set forth in Schedule B opposite the name of the Company, which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof, bears to the total number of Initial Securities, subject, in each case, to such adjustments among the Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares.
          (b) Option Securities . In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional [ ] shares of Common Stock, as set forth in Schedule B, at the price per share set forth in Schedule A, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted may be exercised for 30 days after the date hereof and may be exercised in whole or in part at any time from time to time upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a “Date of Delivery”) shall be determined by the Representatives, but shall not be earlier than three or later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject, in each case, to such adjustments as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares.
          (c) Payment . Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, or at such other place as shall be agreed upon by the Representatives and the Company, at 10:00 A.M. (New York City time) on the third (fourth, if the pricing occurs after 4:30 P.M. (New York City time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called “Closing Time”).
          In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of such Option Securities shall be made at

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the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company.
          Payment shall be made to the Company by wire transfer of immediately available funds to bank accounts designated by the Company against delivery to the Representatives for the respective accounts of the Underwriters of the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Each of the Representatives, individually (as agreed among the Representatives) and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
          SECTION 3. Covenants of the Company . The Company covenants with each Underwriter as follows:
          (a) Compliance with Securities Regulations and Commission Requests . The Company, subject to Section 3(b), will comply with the requirements of Rule 430A, and will notify the Representatives as soon as practicable (i) when any post-effective amendment to the Registration Statement shall become effective or any amendment or supplement to the Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any preliminary prospectus or the Prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d) or 8(e) of the 1933 Act concerning the Registration Statement and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities. The Company will effect all filings required under Rule 424(b) in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every commercially reasonable effort to prevent the issuance of any stop order, prevention or suspension and, if any such order is issued, to obtain the lifting thereof as soon as practicable.
          (b) Continued Compliance with Securities Laws . The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Registration Statement, the General Disclosure Package and the Prospectus. If at any time when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172 of the 1933 Act Regulations (“Rule 172”), would be) required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) amend or supplement the General Disclosure Package or the Prospectus in order that the General Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is

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delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the General Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly (A) give the Representatives notice of such event, (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the General Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representatives with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representatives or counsel for the Underwriters shall reasonably object. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request.
          (c) Delivery of Registration Statements . The Company has furnished or will deliver upon request to the Representatives and counsel for the Underwriters, without charge, conformed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith or incorporated by reference therein and documents incorporated or deemed to be incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, upon request, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
          (d) Delivery of Prospectuses . The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
          (e) Blue Sky Qualifications . The Company will use its reasonable best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representatives may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Securities; provided, however, that the Company shall not be obligated to file any general consent or otherwise subject itself to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.
          (f) Rule 158 . The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
          (g) Use of Proceeds . The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Registration Statement, the General Disclosure Package and the Prospectus under “Use of Proceeds.”

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          (h) Listing . The Company will use its reasonable best efforts to effect and maintain the listing of the Common Stock (including the Securities) on the New York Stock Exchange.
          (i) Restriction on Sale of Securities . During a period of 180 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (C) any grants of stock options, restricted stock or notional units to employees, directors or contractors pursuant to the terms of any plan in effect as of the Closing Time, issuances of Common Stock pursuant to the exercise of such options or the exercise of any other employee stock options outstanding on the date hereof, (D) any shares of Common Stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (E) any registration statement on Form S-8 under the 1933 Act with respect to the foregoing clauses (B), (C) and (D), and (F) any issuance of options or shares pursuant to an exchange for units of FIF HE Holdings LLC. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period the Company issues an earnings release or material news or a material event relating to the Company occurs or (2) prior to the expiration of the 180-day restricted period, the Company announces that it will issue an earnings release or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day restricted period, the restrictions imposed in this clause (i) shall continue to apply until the expiration of the 18-day period beginning on the date of the issuance of the earnings release or the occurrence of the material news or material event, unless Merrill Lynch waives, in writing, such extension.
          (j) If Merrill Lynch, in its sole discretion, agree to release or waive the restrictions set forth in a lock-up agreement described in Section 5(i) hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver.
          (k) Reporting Requirements . The Company, during the period when the Prospectus is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and 1934 Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Shares as may be required under Rule 463 under the 1933 Act.
          (l) Issuer Free Writing Prospectuses . The Company agrees that, unless it obtains the prior written consent of the Representatives, it will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representatives will be deemed to have consented to the Issuer Free Writing Prospectuses listed on Schedule C-2 hereto and any “road show that is a written

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communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representatives. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representatives as an “issuer free writing prospectus,” as defined in Rule 433, and that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement, any preliminary prospectus or the Prospectus or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.
          (m) Compliance with FINRA Rules . The Company hereby agrees that it will ensure that the Reserved Securities will be restricted as required by FINRA or the FINRA rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of this Agreement. The Underwriters will notify the Company as to which persons will need to be so restricted. At the request of the Underwriters, the Company will direct the transfer agent to place a stop transfer restriction upon such securities for such period of time. Should the Company release, or seek to release, from such restrictions any of the Reserved Securities, the Company agrees to reimburse the Underwriters for any reasonable expenses (including, without limitation, legal expenses) they incur in connection with such release.
          SECTION 4. Payment of Expenses .
          (a) Expenses . The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement other than to the extent described in Section 4(b) below, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of copies of each preliminary prospectus, each Issuer Free Writing Prospectus and the Prospectus and any amendments or supplements thereto and any costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, if any, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company’s counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(e) hereof, including filing fees and the reasonable and documented fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto; provided, however, that all such fees and disbursements shall not exceed $10,000 (vi) the fees and expenses of any transfer agent or registrar for the Securities, (vii) the costs and expenses of the Company relating to investor presentations on any “road show” undertaken in connection with the marketing of the Securities, including without limitation, expenses associated with the production of road show slides and graphics, reasonable and documented fees and expenses of any consultants engaged with the consent of the Company in connection with the road show presentations, travel and lodging expenses of the representatives of the Company (which, for the avoidance of doubt, does not include the Underwriters for purposes of this Section 4(a)((vii)) and officers of the Company and any such consultants, as well as one half (50%) of the cost of aircraft and other transportation chartered in connection with the road show, (viii) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms of the sale of the Securities, (ix) the fees and expenses incurred in connection with the listing of the Securities on the New

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York Stock Exchange and (x) all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, in connection with matters related to the Reserved Securities which are designated by the Company for sale to Invitees. It is understood that, except as provided in this Section 4(a), the Underwriters will pay all of their own costs and expenses, including the fees of their counsel, stock transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they may make.
          (b) Termination of Agreement . If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5, Section 9(a)(i) or (iii), or Section 11 hereof, the Company shall reimburse the Underwriters for all of their reasonable and documented out-of-pocket expenses that were actually incurred, including the reasonable fees and disbursements of counsel for the Underwriters.
          (c) Allocation of Expenses . The provisions of this Section shall not affect any agreement that the Company may make for the sharing of such costs and expenses.
          SECTION 5. Conditions of Underwriters’ Obligations . The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained herein or in certificates of any officer of the Company or any of its subsidiaries delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions:
          (a) Effectiveness of Registration Statement; Rule 430A Information . The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and, at the Closing Time, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, threatened by the Commission; and the Company has complied with each request (if any) from the Commission for additional information. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) without reliance on Rule 424(b)(8) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.
          (b) Opinion of Counsel for Company . At the Closing Time, the Representatives shall have received the opinion, dated the Closing Time, of Cleary Gottlieb Steen & Hamilton LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A hereto.
          (c) Opinion of Counsel for Underwriters . At the Closing Time, the Representatives shall have received the opinion, dated the Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters in form and substance satisfactory to the Underwriters. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York, the General Corporation Law of the State of Delaware and the federal securities laws of the United States, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers and other representatives of the Company and its subsidiaries and certificates of public officials.

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          (d) Officers’ Certificate . At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the Chief Executive Officer or the President of the Company, in their respective capacities as such officers only, and of the chief financial or chief accounting officer of the Company, in their respective capacities as such officers only, dated the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties of the Company and Nationstar LLC in this Agreement are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company and Nationstar LLC have complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement under the 1933 Act has been issued, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to their knowledge, threatened by the Commission.
          (e) Accountant’s Comfort Letter . At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young LLP a letter, dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package and the Prospectus.
          (f) Bring-down Comfort Letter . At the Closing Time, the Representatives shall have received from Ernst & Young LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than three business days prior to the Closing Time.
          (g) Approval of Listing . At the Closing Time, the Securities shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance.
          (h) No Objection . FINRA has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements relating to the offering of the Securities.
          (i) Lock-up Agreements . At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit B hereto signed by the persons listed on Schedule E hereto.
           (j) Maintenance of Rating . Since the execution of this Agreement, there shall not have been any decrease in or withdrawal of the rating of any securities of Nationstar LLC or any of its subsidiaries by any “nationally recognized statistical rating organization” (as defined for purposes of Rule 436(g) under the 1933 Act) or any notice given of any intended or potential decrease in or withdrawal of any such rating or of a possible change in any such rating that does not indicate the direction of the possible change.
          (k) Restructuring . As of the Closing Time, the Restructuring shall have been consummated substantially in the manner described in the Registration Statement, the General Disclosure Package and the Prospectus.

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          (l) Conditions to Purchase of Option Securities . In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company and any of its subsidiaries hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:
          (i) Officers’ Certificate . A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery.
          (ii) Opinion of Counsel for Company . If requested by the Representatives, the favorable opinion of Cleary Gottlieb Steen & Hamilton LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof.
          (iii) Opinion of Counsel for Underwriters . If requested by the Representatives, the favorable opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof.
          (iv) Bring-down Comfort Letter . If requested by the Representatives, a letter from Ernst & Young LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(e) hereof, except that the “specified date” in the letter furnished pursuant to this paragraph shall be a date not more than three business days prior to such Date of Delivery.
          (m) Additional Documents . At the Closing Time and at each Date of Delivery (if any) counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters.
          (n) Termination of Agreement . If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7, 8, 15, 16 and 17 shall survive any such termination and remain in full force and effect.
          SECTION 6. Indemnification .
          (a) Indemnification of Underwriters . The Company and Nationstar LLC, jointly and severally, agree to indemnify and hold harmless each Underwriter, its affiliates (as such term is defined in Rule 501(b) under the 1933 Act (each, an “Affiliate”)), its selling agents, officers, directors, employees

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and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
          (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus, any Issuer Free Writing Prospectus, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission in any preliminary prospectus, Issuer Free Writing Prospectus or in the Prospectus of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
          (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(e) below) any such settlement is effected with the written consent of the Company;
          (iii) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above;
provided, however, that this indemnity provision shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, any Issuer Free Writing Prospectus, any preliminary prospectus, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.
          (b) Indemnification of Company, Directors and Officers . Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, any preliminary prospectus, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) or any Issuer Free Writing Prospectus in reliance upon and in conformity with the Underwriter Information.
          (c) Actions against Parties; Notification . Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially

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prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.
          (d) Settlement without Consent if Failure to Reimburse . If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) or settlement of any claim in connection with any violation referred to in Section 6(e) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
          (e) Indemnification for Reserved Securities . In connection with the offer and sale of the Reserved Securities, the Company agrees to indemnify and hold harmless the Underwriters, their Affiliates and selling agents and each person, if any, who controls any Underwriter within the meaning of either Section 15 of the 1933 Act or Section 20 of the 1934 Act, from and against any and all loss, liability, claim, damage and expense (including, without limitation, any legal or other expenses reasonably incurred in connection with defending, investigating or settling any such action or claim), as incurred, (i) arising out of the violation of any applicable laws or regulations of foreign jurisdictions where Reserved Securities have been offered, (ii) arising out of any untrue statement or alleged untrue statement of a material fact contained in any prospectus wrapper or other material prepared by or with the consent of the Company for distribution to Invitees in connection with the offering of the Reserved Securities or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) caused by the failure of any Invitee to pay for and accept delivery of Reserved Securities which have been orally confirmed for purchase by any Invitee by 8:00 A.M. (New York City time) on the first business day after the date of the Agreement or (iv) related to, or arising out of or in connection with, the offering of the Reserved Securities.
          SECTION 7. Contribution . If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits

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received by the Company, on the one hand, and the Underwriters, on the other hand, from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and of the Underwriters, on the other hand, in connection with the statements or omissions, or in connection with any violation of the nature referred to in Section 6(e) hereof, which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
          The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting discount received by the Underwriters, on the other hand, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus.
          The relative fault of the Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission or any violation of the nature referred to in Section 6(e) hereof.
          The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.
          Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the underwriting commissions received by such Underwriter in connection with the Shares underwritten by it and distributed to the public.
          No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
          For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriter’s Affiliates, officers, directors, employees and selling agents shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters’ respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint.

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          SECTION 8. Representations, Warranties and Agreements to Survive . All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers or directors, any person controlling the Company or Nationstar LLC and (ii) delivery of and payment for the Securities.
          SECTION 9. Termination of Agreement .
          (a) Termination . Merrill Lynch may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, in the judgment of Merrill Lynch, since the time of execution of this Agreement or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of Merrill Lynch, impracticable or inadvisable to proceed with the completion of the offering or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or (iv) if trading generally on the NYSE Amex Equities or the New York Stock Exchange or in the Nasdaq Global Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by order of the Commission, FINRA or any other governmental authority, or (v) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States, or (vi) if a banking moratorium has been declared by either Federal or New York authorities.
          (b) Liabilities . If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7, 8, 15, 16 and 17 shall survive such termination and remain in full force and effect.
          SECTION 10. Default by One or More of the Underwriters . If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the “Defaulted Securities”), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then:
          (i) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or
          (ii) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase, and of the Company to

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sell, the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter.
          No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default.
          In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the (i) Representatives or (ii) the Company shall have the right to postpone Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement, the General Disclosure Package or the Prospectus or in any other documents or arrangements. As used herein, the term “Underwriter” includes any person substituted for an Underwriter under this Section 10.
          SECTION 11. Default by the Company . If the Company shall fail at the Closing Time or a Date of Delivery, as the case may be, to sell the number of Securities that it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any non-defaulting party; provided, however, that the provisions of Sections 1, 4, 6, 7, 8, 15, 16 and 17 shall remain in full force and effect. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default.
          SECTION 12. Notices . All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication.
          Notices to the Underwriters shall be directed to:
Merrill Lynch, Pierce, Fenner & Smith Incorporated
One Bryant Park
New York, New York 10036
attention of Syndicate Department with a copy to ECM Legal
Citigroup Global Markets Inc.
388 Greenwich Street
New York, New York 10013
Attention: General Counsel, Fax: (212) 816-7912
Credit Suisse Securities (USA) LLC
11 Madison Avenue
New York, New York 10010
Attention: General Counsel
Wells Fargo Securities, LLC
375 Park Avenue
New York, New York 10153
Attention: Equity Syndicate Department
          Notices to the Company shall be directed to:

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Nationstar Mortgage Holdings Inc.
350 Highland Drive, Lewisville, Texas 75067
Attention: General Counsel
with a copy to:
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza, New York, New York 10006
Attention: Duane McLaughlin;
          SECTION 13. No Advisory or Fiduciary Relationship . Each of the Company and Nationstar, severally and not jointly, acknowledges and agrees that (a) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the initial public offering price of the Securities and any related discounts and commissions, is an arm’s-length commercial transaction between the Company and Nationstar LLC, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the offering of the Securities and the process leading thereto, each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company or any of its subsidiaries, or the its respective stockholders, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Company or Nationstar LLC with respect to the offering of the Securities or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company or any of its subsidiaries on other matters) and no Underwriter has any obligation to the Company or Nationstar LLC with respect to the offering of the Securities except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of each of the Company and Nationstar LLC, and (e) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering of the Securities and the Company and Nationstar LLC have consulted their own respective legal, accounting, regulatory and tax advisors to the extent it deemed appropriate. The Company and Nationstar LLC hereby waive any claims that the Company and Nationstar LLC may have against the Underwriters with respect to any breach of fiduciary duty in connection with the Securities.
          SECTION 14. Parties . This Agreement shall each inure to the benefit of and be binding upon the Underwriters, the Company and Nationstar LLC and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Company and Nationstar LLC and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company and Nationstar LLC and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.
          SECTION 15. Trial by Jury . The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.
          SECTION 16. GOVERNING LAW . THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL

26


 

BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS.
          SECTION 17. Consent to Jurisdiction; Waiver of Immunity . Any legal suit, action or proceeding arising out of or based upon this Agreement or the transactions contemplated hereby (“Related Proceedings”) shall be instituted in (i) the federal courts of the United States of America located in the City and County of New York, Borough of Manhattan or (ii) the courts of the State of New York located in the City and County of New York, Borough of Manhattan (collectively, the “Specified Courts”), and each party irrevocably submits to the exclusive jurisdiction (except for proceedings instituted in regard to the enforcement of a judgment of any such court (a “Related Judgment”), as to which such jurisdiction is non-exclusive) of such courts in any such suit, action or proceeding. Service of any process, summons, notice or document by mail to such party’s address set forth above shall be effective service of process for any suit, action or other proceeding brought in any such court. The parties irrevocably and unconditionally waive any objection to the laying of venue of any suit, action or other proceeding in the Specified Courts and irrevocably and unconditionally waive and agree not to plead or claim in any such court that any such suit, action or other proceeding brought in any such court has been brought in an inconvenient forum.
          SECTION 18. TIME . TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
          SECTION 19. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.
          SECTION 20. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.

27


 

          If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company and Nationstar LLC a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters, the Company and Nationstar LLC in accordance with its terms.
         
  Very truly yours,

NATIONSTAR MORTGAGE HOLDINGS INC.
 
 
  By      
    Title:   
       
 
  NATIONSTAR MORTGAGE LLC
 
 
  By      
    Title:   
       
 

28


 

         
CONFIRMED AND ACCEPTED,
as of the date first above written:
 
   
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
 
   
By        
  Authorized Signatory     
       
 
CITIGROUP GLOBAL MARKETS INC.
 
   
By        
  Authorized Signatory     
       
 
CREDIT SUISSE SECURITIES (USA) LLC
 
   
By        
  Authorized Signatory     
       
 
WELLS FARGO SECURITIES, LLC
 
   
By        
  Authorized Signatory     
 
For themselves and as Representatives of the several other Underwriters named in Schedule A hereto.

29


 

SCHEDULE A
The initial public offering price per share for the Securities shall be $[ ].
The purchase price per share for the Securities to be paid by the several Underwriters shall be $[ ], being an amount equal to the initial public offering price set forth above less $[ ] per share, subject to adjustment in accordance with Section 2(b) for dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities.
     
    Number of
Name of Underwriter   Initial Securities
     
 
   
Merrill Lynch, Pierce, Fenner & Smith
                  Incorporated
   
Citigroup Global Markets Inc.
   
Credit Suisse Securities (USA) LLC
   
Wells Fargo Securities LLC
   
Allen & Company LLC
   
Barclays Capital Inc.
   
J.P. Morgan Securities LLC
   
Keefe, Bruyette & Woods, Inc.
   
Sterne, Agee & Leach, Inc.
   
 
   
Total
  [ ]
 
   

Sch A-1


 

SCHEDULE B
                 
    Number of Initial   Maximum Number of Option
    Securities to be Sold   Securities to Be Sold
Nationstar Mortgage Holdings Inc.
               
 
               
Total
               

Sch B-1


 

SCHEDULE C-1
Pricing Terms
1. The Company is selling [ ] shares of Common Stock.
2. The Company has granted an option to the Underwriters to purchase up to an additional [ ] shares of Common Stock.
3. The initial public offering price per share for the Securities shall be $[ ].

Sch C-1


 

SCHEDULE C-2
Free Writing Prospectuses

Sch C-2


 

SCHEDULE D
Subsidiaries

Sch D-1


 

SCHEDULE E
List of Persons and Entities Subject to Lock-up
Robert Appel
Jay Bray
Wesley R. Edens
Robert H. Gidel
Roy Guthrie
Brett Hawkins
Douglas Krueger
Michael D. Malone
Amar Patel
Lisa Rogers
Anthony W. Villani
FIF HE Holdings LLC

Sch E-1


 

Exhibit A
[FORM OF OPINION OF COMPANY’S COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)]

A-1


 

Exhibit B
[Form of lock-up from directors, officers or other stockholders pursuant to Section 5(i)]
[ ], 2012
Merrill Lynch, Pierce, Fenner & Smith
                     Incorporated
Citigroup Global Markets Inc.
Credit Suisse Securities (USA) LLC
Wells Fargo Securities, LLC
   As Representatives of the
   several Underwriters listed
   in Schedule A of the Underwriting Agreement
c/o Merrill Lynch, Pierce, Fenner & Smith
                           Incorporated
One Bryant Park
   New York, New York 10036
     Re:   Proposed Public Offering by Nationstar Mortgage Holdings Inc.
Dear Sirs:
     The undersigned, a stockholder [and an officer and/or director] of Nationstar Mortgage Holdings Inc., a Delaware corporation (the “Company”), understands that Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, and Wells Fargo Securities, LLC (collectively, the “Representatives”) propose to enter into an Underwriting Agreement (the “Underwriting Agreement”) with the Company providing for the public offering of shares (the “Securities”) of the Company’s common stock, par value $[ ] per share (the “Common Stock”). In recognition of the benefit that such an offering will confer upon the undersigned as a stockholder [and an officer and/or director] of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Underwriting Agreement that, during the period beginning on the date hereof and ending on the date that is 180 days from the date of the Underwriting Agreement (subject to extensions as discussed below), the undersigned will not, without the prior written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Company’s Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition (collectively, the “Lock-Up Securities”), or exercise any right with respect to the registration of any of the Lock-up Securities, or file or cause to be filed any registration statement in connection therewith, under the Securities Act of 1933, as amended, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Lock-Up Securities, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise. If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing provisions shall be equally applicable to any issuer-directed Securities the undersigned may purchase in the offering.

B-1


 

     Notwithstanding the foregoing, if the undersigned is FIF HE Holdings LLC, the undersigned may (a) pledge the Lock-Up Securities as collateral in connection with any debt financing of FIF HE Holdings LLC or any affiliate thereof or of Fortress Investment Group LLC without the prior written consent of Merrill Lynch, and none of the provisions herein shall prevent collection on the collateral subject to such pledge, and (b) may exchange, transfer or otherwise dispose of options or shares of common stock pursuant to an exchange for units of FIF HE Holdings LLC, provided that with respect to clause (b) Merrill Lynch receives a signed lock-up agreement for the balance of the lockup period from each transferee.
     If the undersigned is an officer or director of the Company, (1) Merrill Lynch agrees that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of the Common Stock, Merrill Lynch will notify the Company of the impending release or waiver, and (2) the Company has agreed in the Underwriting Agreement to announce the impending release or waiver by press release through a major news service at least two business days before the effective date of the release or waiver. Any release or waiver granted by Merrill Lynch hereunder to any such officer or director shall only be effective two business days after the publication date of such press release. The provisions of this paragraph will not apply if (i) the release or waiver is effected solely to permit a transfer not for consideration and (ii) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.
     Notwithstanding the foregoing, and subject to the conditions below, the undersigned may transfer the Lock-Up Securities without the prior written consent of Merrill Lynch, provided that, (1) Merrill Lynch receives a signed lock-up agreement for the balance of the lockup period from each donee, trustee, distributee, or transferee, as the case may be, (2) any such transfer shall not involve a disposition for value, (3) such transfers are not required to be reported with the Securities and Exchange Commission on Form 4 in accordance with Section 16 of the Securities Exchange Act of 1934, as amended, and (4) the undersigned does not otherwise voluntarily effect any public filing or report regarding such transfers:
  (i)   as a bona fide gift or gifts; or
 
  (ii)   to any trust for the direct or indirect benefit of the undersigned or the immediate family of the undersigned (for purposes of this lock-up agreement, “immediate family” shall mean any relationship by blood, marriage or adoption, not more remote than first cousin); or
 
  (iii)   as a distribution to limited partners or stockholders of the undersigned;
 
  (iv)   to funds managed by an affiliate of Fortress Investment Group LLC; or
 
  (v)   to the undersigned’s affiliates or to any investment fund or other entity controlled or managed by the undersigned.
     Furthermore, the undersigned may sell shares of Common Stock of the Company purchased by the undersigned on the open market following the Public Offering if and only if (i) such sales are not required to be reported in any public report or filing with the Securities Exchange Commission, or otherwise and (ii) the undersigned does not otherwise voluntarily effect any public filing or report regarding such sales.
     Notwithstanding the foregoing, if:

B-2


 

     (1) during the last 17 days of the 180-day lock-up period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or
     (2) prior to the expiration of the 180-day lock-up period, the Company announces that it will release earnings results or becomes aware that material news or a material event will occur during the 16-day period beginning on the last day of the 180-day lock-up period,
the restrictions imposed by this lock-up agreement shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, as applicable, unless Merrill Lynch waives, in writing, such extension.
     The undersigned agrees that, prior to engaging in any transaction or taking any other action that is subject to the terms of this lock-up agreement during the period from the date of this lock-up agreement to and including the 34 th day following the expiration of the initial 180-day lock-up period, it will give notice thereof to the Company and will not consummate such transaction or take any such action unless it has received written confirmation from the Company that the 180-day lock-up period (as may have been extended pursuant to the previous paragraph) has expired.
     The undersigned also agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the transfer of the Lock-Up Securities except in compliance with the foregoing restrictions.
     This agreement shall lapse and become null and void if (i) prior to entering the Underwriting Agreement, the Company notifies Merrill Lynch in writing that the Company does not intend to proceed with the offering of the Common Stock through Merrill Lynch and files an application to withdraw the registration statement related to the offering, (ii) the Company, Nationstar Mortgage LLC and Merrill Lynch have not entered into the Underwriting Agreement on or before [ ], 2012, or (iii) for any reason the Underwriting Agreement is terminated prior to the Closing Time (as defined therein).
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

B-3


 

         
    Very truly yours,
 
       
 
       
 
  Signature:    
 
       
 
       
 
  Print Name:    
 
       

B-4


 

Exhibit C
FORM OF PRESS RELEASE
TO BE ISSUED PURSUANT TO SECTION 3(j)
Nationstar Mortgage Holdings Inc.
[Date]
Nationstar Mortgage Holdings Inc. (the “Company”) announced today that BofA Merrill Lynch, the lead book-running manager in the Company’s recent public sale of [ ] shares of common stock, is [waiving] [releasing] a lock-up restriction with respect to            shares of the Company’s common stock held by [certain officers or directors] [an officer or director] of the Company. The [waiver] [release] will take effect on      ,          20   , and the shares may be sold on or after such date.
This press release is not an offer for sale of the securities in the United States or in any other jurisdiction where such offer is prohibited, and such securities may not be offered or sold in the United States absent registration or an exemption from registration under the United States Securities Act of 1933, as amended.

C-1

Exhibit 2.1
MASTER PRE-IPO RESTRUCTURING AGREEMENT
     MASTER PRE-IPO RESTRUCTURING AGREEMENT (the “Agreement”), dated as of February 17, 2012, by and among the following parties:
     
-
  FIF HE HOLDINGS LLC, a Delaware limited liability company (“FIF HE”);
 
   
-
  FORTRESS INVESTMENT FUND III (FUND B) LP, a Delaware limited partnership (“Fund III-B”);
 
   
-
  FORTRESS INVESTMENT FUND III (FUND C) LP, a Delaware limited partnership (“Fund III-C”);
 
   
-
  FORTRESS INVESTMENT FUND IV (FUND B) LP, a Cayman Islands limited partnership (“Fund IV-B”);
 
   
-
  FORTRESS INVESTMENT FUND IV (FUND C) LP, a Cayman Islands limited partnership (“Fund IV-C”);
 
   
-
  FORTRESS INVESTMENT FUND IV (FUND F) LP, a Cayman Islands limited partnership (“Fund IV-F”);
 
   
-
  FORTRESS INVESTMENT FUND IV (FUND G) LP, a Cayman Islands limited partnership (“Fund IV-G,” and together with Fund III-B, Fund III-C, Fund IV-B, Fund IV-C and Fund IV-F, the “Funds”);
 
   
-
  FIF III B HE BLKR LLC, a Delaware limited liability company (“Blocker III-B”);
 
   
-
  FIF III C HE BLKR LLC, a Delaware limited liability company (“Blocker III-C”);
 
   
-
  FIF IV B HE BLKR LLC, a Delaware limited liability company (“Blocker IV-B”);
 
   
-
  FIF IV CFG BLKR LLC, a Delaware limited liability company (“Blocker IV-CFG,” and together with Blocker III-B, Blocker III-C and Blocker IV-B, the “Blockers”);
 
   
-
  Nationstar Mortgage Holdings Inc., a Delaware corporation (the “Public Company”);
 
   
-
  Nationstar Mortgage LLC, a Delaware limited liability company (the “Operating Company”);
 
   
-
  Nationstar Sub1 LLC, a Delaware limited liability company (“Sub1”); and
 
   
-
  Nationstar Sub2 LLC, a Delaware limited liability company (“Sub2”).
     Each of the persons or entities above is referred to herein as a “Party” and together, the “Parties.”

 


 

          WHEREAS, as of the date hereof (a) Fund III-B owns 100% of the membership interests of Blocker III-B, and Blocker III-B owns approximately 16.848% of the Series 1 Class A membership interests of FIF HE; (b) Fund III-C owns 100% of the membership interests of Blocker III-C, and Blocker III-C owns approximately 3.523% of the Series 1 Class A membership interests of FIF HE; (c) Fund IV-B owns 100% of the membership interests of Blocker IV-B, and Blocker IV-B owns approximately 8.797% of the Series 1 Class A membership interests of FIF HE; (d) Fund IV-C owns approximately 58.09% of Blocker IV-CFG; Fund IV-F owns approximately 19.05% of Blocker IV-CFG; Fund IV-G owns approximately 22.86% of Blocker IV-CFG; and Blocker IV-CFG owns approximately 3.593% of the Series 1 Class A membership interests of FIF HE; (e) the remainder of the Series 1 Class A membership interests of FIF HE are owned by current or former members of management of the Operating Company or funds affiliated with Fortress Investment Group LLC; (f) FIF HE owns 100% of the authorized, issued and outstanding capital stock of the Public Company; (g) FIF HE owns 100% of the membership interests in the Operating Company; and (h) the Public Company owns 100% of the membership interests in each of Sub1 and Sub2, in each case as illustrated on Exhibit A hereto;
          WHEREAS, the Public Company is currently contemplating an initial public offering (the “Initial Public Offering”) of its common stock, par value $0.01 per share (the “Common Stock”), pursuant to a registration statement on Form S-1 (File No. 333-174246) (as amended, and together with any exhibits thereto, the “Registration Statement”) filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended;
          WHEREAS, each of the Parties hereto desires to facilitate the Initial Public Offering by undertaking certain corporate and limited liability company actions, including the merger of each of the Blockers into the Public Company and the transferring of certain assets, the effect of which will be to structure the ownership interests between the Parties as illustrated at Exhibit B hereto; and
          WHEREAS, as of the date hereof, FIF HE owns an interest in National Real Estate Information Services LP, a Delaware limited partnership (“NREIS”), held through ANC Acquisition LP, a Delaware limited partnership (“ANC Acquisition”), and desires to transfer its interest in NREIS and ANC Acquisition to the Operating Company prior to the Initial Public Offering;
          NOW THEREFORE, in consideration of the foregoing and the mutual promises, covenants and agreements of the parties hereto, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
     SECTION 1. Transfer of FIF HE’s Interests in the Operating Company .
          (a) Upon a determination by the Public Company that it shall proceed with the Initial Public Offering, FIF HE shall transfer, (A) at a point subsequent to the date on which the Public Company, in consultation with the underwriters, determines the offering price per share of Common Stock in the Initial Public Offering (such date, the “Pricing Date”), but in any event by no later than one business day prior to the anticipated date on which the Public Company will close the Initial Public Offering (such date, the “Closing Date”) or (B) at such earlier date as FIF

 


 

HE, in consultation with the Operating Company, the Public Company and Sub1 and Sub2 shall determine, (A) 99% of its membership interests in the Operating Company to Sub1 and (B) the remaining 1% of its membership interests in the Operating Company to Sub2.
     SECTION 2. Transfer of Interest in NREIS to the Operating Company.
          (a) Following the Pricing Date and prior to the Closing Date, FIF HE shall transfer its entire interest in ANC Acquisition (and as a result, its ownership interest in NREIS), and any other assets that are partially, but not wholly owned, by the Funds, Blockers or FIF HE to the Operating Company.
     SECTION 3. Merger of Blockers and Issuance of Interests to Funds .
          (a) Following the Pricing Date and prior to the Closing Date, each of the Blockers shall issue to the Fund or Funds holding membership interests in such Blocker, membership interests with a fair market value equal to the principal amount of any shareholder debt issued by such Fund and held by such Blocker, plus accrued interests, if any, in satisfaction of such debt.
          (b) Subsequent to the repayment of any outstanding debt and accrued interest contemplated by the preceding paragraph (a), and prior to the Closing Date, FIF HE shall distribute to each of the Blockers shares in the Public Company (which may be fractional shares) in complete redemption of such Blockers’ Series 1 Class A membership interests in FIF HE, the amount of such shares to be calculated based upon the liquidation value of such Blockers’ Series 1 Class A membership interests in FIF HE, calculated in accordance with Section 7.2 of the FIF HE Holdings LLC Fifth Amended and Restated Limited Liability Company Agreement, dated as of September 17, 2010 (the “Operating Agreement”), with such liquidation value to be calculated based upon the offering price per share to the public of Common Stock in the Initial Public Offering (the “Public Offering Price”), and as further calculated as FIF HE shall, in its reasonable judgment, deem appropriate.
          (c) Subsequent to the distribution of shares of Common Stock of the Public Company to the Blockers, as contemplated by the preceding paragraph (b), and prior to the Closing Date, each of the Blockers and the Public Company shall cause the merger of the Blockers into the Public Company, with the Public Company surviving, with the effect that upon the completion of such merger, each of the Funds shall own a direct interest in the Public Company, equivalent to the number of shares issued to the Blocker that was previously owned by such Fund (and in proportion to such Fund’s ownership interest in the Blocker, in the case of Funds owning an interest in Blocker IV-CFG).
          (d) Subsequent to the merger of the Blockers, as contemplated by the preceding paragraph (c), and prior to the Closing Date, each of the Funds shall contribute its shares of Common Stock of the Public Company to FIF HE, and in consideration of such contribution, FIF HE shall issue to each contributing Fund new Series 1 Class A membership interests in FIF HE, equivalent in value to the shares of the Public Company contributed by such Fund, calculated based upon the Public Offering Price. For the avoidance of doubt, the Parties hereto anticipate that such issuance shall result in each Fund holding Series 1 Class A membership interests in FIF

 


 

HE equivalent to the interests that such Fund would have held prior to the transfers contemplated by this Section 3, if such Fund had held its interest in FIF HE directly and not through the Blockers.
     SECTION 4. Covenants . Each Party hereto hereby represents, warrants and agrees that it shall take all necessary and proper action, including the filing of certificates, entry into separate agreements or other actions reasonably contemplated hereby to ensure that this Agreement is put into effect at the times contemplated herein.
     SECTION 5. Representations and Warranties . Each Party hereby acknowledges, represents and warrants to each other Party, solely with respect to itself, severally but not jointly, as of the date hereof, as follows:
          (a) Such Party has the legal capacity or corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. Such Party is duly organized and validly existing under the laws of its jurisdiction of organization, and the execution of this Agreement and/or the consummation of the transactions contemplated hereby have been duly authorized by all necessary action, and no other act or proceeding, corporate or otherwise, on its part is or will be necessary to authorize the execution of this Agreement or the consummation of any of the transactions contemplated hereby. This Agreement has been duly executed by such Party and constitutes its legal, valid and binding obligations, enforceable against it in accordance with its terms;
          (b) Neither the execution of this Agreement by such Party nor the performance by such Party of its obligations hereunder nor the consummation of the transactions contemplated hereby does or will:
          (i) conflict with or violate any constitutive document, certificate of incorporation or charter of such Party;
          (ii) violate, conflict with or result in the breach or termination of, or otherwise give any other person the right to accelerate, renegotiate or terminate or receive any payment, or constitute a default or an event of default (or an event that with notice, lapse of time, or both, would constitute a default or event of default) under the terms of, any contracts or any permits to which it is a party or by which it or any of its assets or operations are bound or affected; or
          (iii) constitute a violation by such Party of any applicable laws or any judgments, orders, rulings or awards of any court, arbitrator or other judicial authority or any governmental, administrative or regulatory authority; and
          (c) No consent, waiver, approval, authorization, exemption, registration, license or declaration is required to be made or obtained by such Party, in connection with (i) the execution or enforceability of this Agreement or (ii) the consummation of any of the transactions contemplated herein.

 


 

     SECTION 6. Miscellaneous .
          (a) Severability . In the event that any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby as long as the remaining provisions do not fundamentally alter the relations among the Parties hereto.
          (b) Waivers . No modification of or amendment to this Agreement shall be valid unless in writing signed by the Parties hereto referring specifically to this Agreement and stating the parties’ intention to modify or amend the same. Any waiver of any term or condition of this Agreement must be in a writing signed by the party sought to be charged with such waiver referring specifically to the term or condition to be waived, and no such waiver shall be deemed to constitute the waiver of any other breach of the same or of any other term or condition of this Agreement.
          (c) Notices . All communications and notices hereunder shall be given as follows:
If to any of FIF HE, the Funds or the Blockers, to:
Fortress Investment Group
1345 Avenue of the Americas, 46 th Floor
New York, New York 10105
Attention: Cameron MacDougall
Phone: (212) 479-1522
Facsimile: (917) 591-8312
Email: cmacdougall@fortress.com
If to any of the Public Company, the Operating Company, Sub1 or Sub2, to:
Nationstar Mortgage Holdings Inc.
350 Highland Drive
Lewisville, Texas 75067
Attention: Anthony Villani
Phone: (972) 316-5429
Facsimile: (469) 549-2085
Email: tony.villani@nationstarmail.com
          (d) Binding Effect; Assignments . Whenever in this Agreement any of the Parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such Party; and all covenants, promises and agreements by or on behalf of any Party that are contained in this Agreement shall bind and inure to the benefit of its successors and assigns and are not intended to benefit any other Person. No Party may assign its rights under this Agreement without the written consent of all Parties.
          (e) Headings; Counterparts . (i) The headings in this Agreement are for purposes of reference only and shall not be considered in construing this Agreement. References

 


 

herein to sections, subsections, schedules, exhibits and annexes without further identification of the document to which reference is made are references to provisions or parts of this Agreement.
          (ii) This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall constitute an original, but all of which shall together constitute one and the same instrument.
          (f) Rules of Construction . All terms defined in this Agreement in the singular shall have the same meaning when used in the plural and vice versa. The words “hereof,” “herein” and “hereunder,” and the words of similar import when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement and the words “paragraph,” “section,” and “Exhibit” refer to this Agreement unless otherwise noted. All requirements for consent in this Agreement shall mean consent provided in writing from any Person from which consent is required. Any reference in this Agreement to any other agreement, including, but not limited to, the Operating Agreement, shall refer to that agreement as it may be amended from time to time in accordance with its terms (unless otherwise expressly stated).
          (g) Governing Law . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, UNITED STATES.
          (h) Entire Agreement . This Agreement and any other documents related hereto constitute the entire understanding between the parties hereto with respect to the subject matter hereof and supercede any prior communications and writings, written or oral, with respect hereto.
[ Signature pages on following page. ]

 


 

Exhibit 2.1
          IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above.
         
  FIF HE HOLDINGS LLC
 
 
  /s/ Pete Smith    
  Name:   Pete Smith   
  Title:   Manager   
 
  FORTRESS INVESTMENT FUND III (Fund B) LP
FORTRESS INVESTMENT FUND III (Fund C) LP
By: Fortress Fund III GP LLC, its general partner
 
 
  /s/ Randal A. Nardone    
  Name:   Randal A. Nardone   
  Title:   Chief Operating Officer   
 
  FORTRESS INVESTMENT FUND IV (Fund B) LP
FORTRESS INVESTMENT FUND IV (Fund C) LP
FORTRESS INVESTMENT FUND IV (Fund F) LP
FORTRESS INVESTMENT FUND IV (Fund G) LP
By: Fortress Fund IV GP LP, its general partner
By: Fortress Fund IV GP Holdings Ltd., its general partner
 
 
  /s/ Randal A. Nardone    
  Name:   Randal A. Nardone   
  Title:   Chief Operating Officer   
 
  FIF III B HE BLKR LLC
FIF III C HE BLKR LLC
FIF IV B HE BLKR LLC
FIF IV CFG BLKR LLC
 
 
  /s/ Pete Smith    
  Name:   Pete Smith   
  Title:   Manager   
 
[Signature page to Page to Master Pre-IPO Restructuring Agreement]

 


 

         
  NATIONSTAR MORTGAGE HOLDINGS INC.
 
 
  /s/ Jay Bray    
  Name:   Jay Bray   
  Title:   Chief Executive Officer, President and Chief Financial Officer   
 
  NATIONSTAR MORTGAGE LLC
 
 
  /s/ Jay Bray    
  Name:   Jay Bray   
  Title:   Chief Executive Officer, President and Chief Financial Officer   
 
  NATIONSTAR SUB1 LLC
NATIONSTAR SUB2 LLC
 
 
  /s/ Jay Bray    
  Name:   Jay Bray   
  Title:   Chief Executive Officer, President and Manager   
 
[Signature Page to Master Pre-IPO Restructuring Agreement]

 


 

Exhibit A
Current Ownership Structure (1)
(GRAPHIC)
 
1   Percentage ownership interests in FIF HE Holdings LLC relate only to Series 1 Class A membership interests, and are approximate and subject to final determination by FIF HE Holdings LLC.

 


 

Exhibit B
Post-Restructuring Ownership Structure (2)
(GRAPHIC)
 
2   Percentage ownership interests in FIF HE Holdings LLC relate only to Series 1 Class A membership interests, and are approximate and subject to final determination by FIF HE Holdings LLC.

 

Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONSTAR MORTGAGE HOLDINGS INC.
 
Pursuant to the
Delaware General Corporation Law
 
     Nationstar Mortgage Holdings Inc. (the “ Corporation ”), a corporation organized and existing under the General Corporation Law of the State of Delaware (the “ DGCL ”), does hereby certify as follows:
     (1) The original certificate of incorporation of the Corporation (the “ Original Certificate ”) was filed with the office of the Secretary of State of the State of Delaware on May 9, 2011.
     (2) This amended and restated certificate of incorporation (this “ Amended and Restated Certificate of Incorporation ”) was duly adopted by the board of directors of the Corporation (the “ Board of Directors ”) and by the stockholders of the Corporation in accordance with Sections 228, 242 and 245 of the DGCL.
     (3) This Amended and Restated Certificate of Incorporation restates and integrates and amends the Original Certificate.
     (4) Effective as of February 24, 2012, the text of the Original Certificate is amended and restated in its entirety as follows:
      FIRST : The name of the Corporation is Nationstar Mortgage Holdings Inc.
      SECOND : The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington,19801, County of New Castle. The name of its registered agent at that address is The Corporation Trust Company.
      THIRD : The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the DGCL.
      FOURTH : (a) Authorized Capital Stock . The total number of shares of stock which the Corporation shall have authority to issue is one billion, three hundred million (1,300,000,000) shares of capital stock, consisting of (i) one billion (1,000,000,000) shares of common stock, par value $0.01 per share (the “ Common Stock ”) and (ii) three hundred million (300,000,000) shares of preferred stock, par value $0.01 per share (the “ Preferred Stock ”).
     (b)  Common Stock . The powers, preferences and rights, and the qualifications, limitations and restrictions, of the Common Stock are as follows:

 


 

          (1) Voting . Except as otherwise expressly provided herein or required by law or the relevant Preferred Stock Designation (as defined in Part (c) of this Article FOURTH) of any class or series of Preferred Stock, each holder of record of shares of Common Stock shall be entitled to vote at all meetings of the stockholders and shall have one vote for each share held by such holder of record.
          (2) Dividends . Subject to applicable law and the preferential rights as to dividends of the holders of all classes or series of stock at the time outstanding, the holders of shares of Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of funds of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.
          (3) Liquidation . In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a “ Liquidation Event ”), the holders of shares of Common Stock shall be entitled to receive, subject to the preferential rights as to distributions upon such Liquidation Event of each of the creditors of the Corporation and the holders of all classes or series of stock at the time outstanding, their ratable and proportionate share of the remaining assets of the Corporation. The term “Liquidation Event” shall not be deemed to be occasioned by or to include any voluntary consolidation or merger of the Corporation with or into any other corporation or entity or other corporations or entities or a sale, lease or conveyance of all or a part of the Corporation’s assets.
          (4) No Cumulative Voting Rights . No holder of shares of Common Stock shall have cumulative voting rights.
          (5) No Preemptive Rights . No holder of shares of Common Stock shall be entitled to preemptive, subscription, redemption or conversion rights.
     (c)  Preferred Stock .
          (1) The Board of Directors is hereby expressly authorized to provide for the issuance of all or any shares of the Preferred Stock in one or more classes or series, by filing a certificate pursuant to the applicable law of the State of Delaware (hereinafter referred to as a “ Preferred Stock Designation ”), to establish from time to time the number of shares to be included in each such series, and to fix for each such class or series such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be authorized by the Board of Directors and stated in the applicable Preferred Stock Designation, providing for the issuance of such class or series, including, without limitation, the authority to provide that any such class or series may be (i) subject to redemption at such time or times and at such price or prices; (ii) entitled to receive dividends (which may be cumulative or non-cumulative) at such rates, on such conditions, and at such times, and payable in preference to, or in such relation to, the dividends payable on any other class or classes or any other series; (iii) entitled to such rights upon the dissolution of, or upon any distribution of the assets of, the Corporation; or (iv) convertible into, or exchangeable for, shares of any other class or classes of stock, or of any other series of the same or any other class or classes of stock, of the Corporation

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at such price or prices or at such rates of exchange and with such adjustments; all as may be stated in such resolution or resolutions.
          (2) The Common Stock shall be subject to the express terms of any series of Preferred Stock. Except as required by a Preferred Stock Designation or applicable law, holders of Preferred Stock shall not be entitled to vote at or receive notice of any meeting of stockholders.
     (d)  Power to Sell and Purchase Shares . Subject to the requirements of applicable law, the Corporation shall have the power to issue and sell all or any part of any shares of any class of stock herein or hereafter authorized to such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not greater consideration could be received upon the issue or sale of the same number of shares of another class, and as otherwise permitted by law. Subject to the requirements of applicable law, the Corporation shall have the power to purchase any shares of any class of stock herein or hereafter authorized from such persons, and for such consideration, as the Board of Directors shall from time to time, in its discretion, determine, whether or not less consideration could be paid upon the purchase of the same number of shares of another class, and as otherwise permitted by law.
      FIFTH : The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders.
     (a)  Number . The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors consisting of not fewer than three nor more than eleven members, the exact number of which shall be fixed from time to time by resolution adopted by the affirmative vote of a majority of the entire Board of Directors.
     (b)  Classes . From and after the date of the first meeting of the Board of Directors following the consummation of an initial public offering of Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, the directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the entire Board of Directors. The term of the initial Class I directors assigned at the time of the filing of this Amended and Restated Certificate of Incorporation shall terminate on the date of the annual meeting of stockholders held in 2013; the term of the initial Class II directors assigned at the time of the filing of this Amended and Restated Certificate of Incorporation shall terminate on the date of the annual meeting of stockholders held in 2014; and the term of the initial Class III directors assigned at the time of the filing of this Amended and Restated Certificate of Incorporation shall terminate on the date of the annual meeting of stockholders held in 2015. At each succeeding annual meeting of stockholders beginning with the annual meeting of stockholders held in 2013, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term and until their successors are duly elected and qualified. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional

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director of any class elected to fill a vacancy resulting from an increase in such class or from the removal from office, death, disability, resignation or disqualification of a director or other cause shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.
     (c)  Removal . Subject to the rights, if any, of the holders of shares of Preferred Stock then outstanding, any director or the entire Board of Directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote in the election of directors (the “ Voting Shares ”), provided , however , that for so long as the Fortress Stockholders (as defined in Part (a) of Article ELEVENTH), collectively, beneficially own (as defined in Part (a) of Article ELEVENTH) at least 40% of the then issued and outstanding Voting Shares, any director or the entire Board of Directors may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of the issued and outstanding Voting Shares. The vacancy or vacancies in the Board of Directors caused by any such removal shall be filled by the stockholders or, if not so filled, by the Board of Directors as provided in Part (e) of this Article FIFTH.
     (d)  Term of Office . A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office.
     (e)  Vacancies and Newly Created Directorships . Unless otherwise required by law, and subject to the terms of any one or more classes or series of Preferred Stock, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors, other than for a vacancy resulting from the removal of a director as provided in Part (c) of this Article FIFTH which may be filled in the first instance by the stockholders, may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor.
     (f)  Powers . In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the DGCL, this Amended and Restated Certificate of Incorporation, and any bylaws adopted by the stockholders; provided , however , that no bylaws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such bylaws had not been adopted.
     (g)  Special Meetings of Stockholders . Unless otherwise required by law, special meetings of stockholders, for any purpose or purposes (a) may be called at any time by either (i) the Chairman of the Board of Directors, if there be one or (ii) the Chief Executive Officer, if

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there be one, and (b) shall be called by any such officer at the request in writing of (i) the Board of Directors, (ii) a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers include the authority to call such meetings or (iii) at any time the Fortress Stockholders, collectively, beneficially own at least 25% of the then issued and outstanding Voting Shares, any stockholders that collectively beneficially own at least 25% of the then issued and outstanding Voting Shares. Such request shall state the purpose or purposes of the proposed meeting. If at any time the Fortress Stockholders do not, collectively, beneficially own at least 25% of the then issued and outstanding Voting Shares, the ability of the stockholders to call or cause a special meeting of stockholders to be called is hereby specifically denied.
     (h)  Amendments to this Article FIFTH . Notwithstanding anything to the contrary contained in this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least 80% of the voting power of all of the shares of Common Stock shall be required to amend, alter or repeal, or adopt any provision inconsistent with this Article FIFTH.
      SIXTH : No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, except (i) to the extent such exemption from liability or limitation thereof is not permitted under the DGCL as the same exists or may hereafter be amended and (ii) for liability (A) for any breach of the director’s duty of loyalty to the Corporation or its stockholders; (B) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (C) under Section 174 of the DGCL; or (D) for any transaction from which the director derived an improper personal benefit. If the DGCL is amended hereafter to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent authorized by the DGCL, as so amended. Any repeal or modification of this Article SIXTH shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification.
      SEVENTH : The Corporation shall indemnify its directors and officers, to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided , however , that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) in connection with a proceeding (or a part thereof) initiated by such person unless such proceeding (or a part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article SEVENTH shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition upon receipt by the Corporation of an undertaking by or on behalf of the director or officer receiving advancement to repay the amount advanced if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation under this Article SEVENTH.

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     The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article SEVENTH to directors and officers of the Corporation.
     The rights to indemnification and to the advance of expenses conferred in this Article SEVENTH shall not be exclusive of any other right which any person may have or hereafter acquire under this Amended and Restated Certificate of Incorporation, the bylaws of the Corporation, as amended and/or restated from time to time (the “ Bylaws ”), any statute, agreement, vote of stockholders or disinterested directors or otherwise.
     The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was or has agreed to become a director, officer, employee or agent of the Corporation against any liability asserted against him or her and incurred by him or her or on his or her behalf in such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability.
     Any repeal or modification of this Article SEVENTH shall not adversely affect any rights to indemnification and to the advancement of expenses of a director or officer of the Corporation existing at the time of such repeal or modification with respect to any acts or omissions occurring prior to such repeal or modification.
      EIGHTH : Any action required or permitted to be taken by the stockholders of the Corporation at any meeting of stockholders may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the stockholders entitled to vote with respect to the subject matter thereof, provided , however , that at any time the Fortress Stockholders, collectively, beneficially own at least 25% of the then issued and outstanding Voting Shares, any action required or permitted to be taken by the stockholders of the Corporation at any meeting of stockholders may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by stockholders holding at least a majority of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote with respect to the subject matter thereof.
      NINTH : Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the DGCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws.
      TENTH : In furtherance and not in limitation of the powers conferred upon it by the laws of the State of Delaware, the Board of Directors shall have the power to adopt, amend, alter or repeal the Bylaws. The affirmative vote of at least a majority of the entire Board of Directors shall be required to adopt, amend, alter or repeal the Bylaws. The Bylaws also may be adopted, amended, altered or repealed by the affirmative vote of the holders of at least 66 2/3% of the voting power of then issued and outstanding shares of capital stock of the Corporation entitled to vote thereon, provided , however , that at any time the Fortress Stockholders, collectively, beneficially own at least 25% of the then issued and outstanding Voting Shares, the Bylaws also may be adopted, amended, altered or repealed by the affirmative vote of the holders of at least a

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majority of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote thereon.
      ELEVENTH : (a) Definitions . For purposes of this Article ELEVENTH, the following definitions shall apply:
     “ Affiliate ” means, with respect to a given person, any other person that, directly or indirectly, controls, is controlled by or is under common control with, such person; provided , however , that for purposes of this definition and this Article ELEVENTH, none of (i) the Nationstar Entities and any entities (including corporations, partnerships, limited liability companies or other persons) in which such Nationstar Entities hold, direct or indirectly, an ownership interest, on the one hand, or (ii) the Fortress Stockholders and their Affiliates (excluding any Nationstar Entities or other entities described in clause (i)), on the other hand, shall be deemed to be “Affiliates” of one another. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as applied to any person, means the possession, directly or indirectly, of beneficial ownership of, or the power to vote, 10% or more of the securities having voting power for the election of directors (or other persons acting in similar capacities) of such person or the power otherwise to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by contract or otherwise.
     “ beneficially own ” and “ beneficial ownership ” and similar terms used herein shall be determined in accordance with Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934.
     “ corporate opportunity ” shall include, but not be limited to, business opportunities which the Corporation is financially able to undertake, which are, from their nature, in the line of the Corporation’s business, are of practical advantage to it and are ones in which the Corporation has an interest or a reasonable expectancy, and in which, by embracing the opportunities, the self-interest of the Fortress Stockholders or any of their Affiliates or their officers or directors will be brought into conflict with that of any of the Nationstar Entities or their Affiliates.
     “ Fortress Affiliate Stockholders ” shall mean (A) any director of the Corporation who may be deemed an Affiliate of Fortress Investment Group LLC (“ FIG ”), (B) any director or officer of FIG and (C) any investment funds (including any managed accounts) managed directly or indirectly by FIG or its Affiliates.
     “ Fortress Stockholders ” shall mean (i) the Initial Stockholder, (ii) each Fortress Affiliate Stockholder and (iii) each Permitted Transferee who becomes a party to or bound by the provisions of the Stockholders Agreement, in accordance with the terms thereof, or Permitted Transferee thereof who is entitled to enforce the provisions of the Stockholders Agreement in accordance with the terms thereof, in each case of clauses (i), (ii) and (iii) to the extent that the Initial Stockholder, Fortress Affiliate Stockholders and Permitted Transferees, together, hold at least an amount of Common Stock equal to 1% of the Common Stock issued and outstanding immediately after the consummation of the initial public offering of Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended.

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     “ Governmental Entity ” shall mean any national, state, provincial, municipal, local or foreign government, any court, arbitral tribunal, administrative agency or commission or other governmental or regulatory authority, commission or agency or any non-governmental, self-regulatory authority, commission or agency.
     “ Initial Stockholder ” shall mean FIF HE Holdings LLC and its Subsidiaries (other than Subsidiaries that constitute Nationstar Entities).
     “ Judgment ” shall mean any order, writ, injunction, award, judgment, ruling or decree of any Governmental Entity.
     “ Law ” shall mean any statute, law, code, ordinance, rule or regulation of any Governmental Entity.
     “ Lien ” shall mean any pledge, claim, equity, option, lien, charge, mortgage, easement, right-of-way, call right, right of first refusal, “tag"- or “drag"- along right, encumbrance, security interest or other similar restriction of any kind or nature whatsoever.
     “ Nationstar Entities ” means the Corporation and its Subsidiaries, and “Nationstar Entity” shall mean any of the Nationstar Entities.
     “ Permitted Transferee ” shall mean, with respect to each Fortress Stockholder, (i) any other Fortress Stockholder, (ii) such Fortress Stockholder’s Affiliates, (iii) in the case of any Fortress Stockholder, (A) any member or general or limited partner of such Fortress Stockholder (including, without limitation, any member of the Initial Stockholder), (B) any corporation, partnership, limited liability company or other entity that is an Affiliate of such Fortress Stockholder or any member, general or limited partner of such Fortress Stockholder (collectively, “ Fortress Stockholder Affiliates ”), (C) any investment funds managed directly or indirectly by such Fortress Stockholder or any Fortress Stockholder Affiliate (a “ Fortress Stockholder Fund ”), (D) any general or limited partner of any Fortress Stockholder Fund, (E) any managing director, general partner, director, limited partner, officer or employee of any Fortress Stockholder Affiliate, or any spouse, lineal descendant, sibling, parent, heir, executor, administrator, testamentary trustee, legatee or beneficiary of any of the foregoing persons described in this clause (E) (collectively, “ Fortress Stockholder Associates ”) or (F) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which, consist solely of any one or more of such Fortress Stockholders, any general or limited partner of such Fortress Stockholders, any Fortress Stockholder Affiliates, any Fortress Stockholder Funds, any Fortress Stockholder Associates, their spouses or their lineal descendants and (iv) any other person that acquires shares of the Corporation’s common stock from such Fortress Stockholder other than pursuant to a Public Offering that agrees to become party to the Stockholders Agreement.
     “ Public Offering ” shall mean an offering of common stock of the Corporation pursuant to an effective registration statement under the Securities Act of 1933, as amended, including an offering in which Fortress Stockholders are entitled to sell the Corporation’s common stock pursuant to the terms of the Stockholders Agreement.

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     “ Restriction ” with respect to any capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security, shall mean any voting or other trust or agreement, option, warrant, preemptive right, right of first offer, right of first refusal, escrow arrangement, proxy, buy-sell agreement, power of attorney or other contract, any Law, license, permit or Judgment that, conditionally or unconditionally, (i) grants to any person the right to purchase or otherwise acquire, or obligates any person to sell or otherwise dispose of or issue, or otherwise results or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, may result in any person acquiring, (A) any of such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security, (B) any of the proceeds of, or any distributions paid or that are or may become payable with respect to, any of such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security or (C) any interest in such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security or any such proceeds or distributions, (ii) restricts or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, is reasonably likely to restrict the transfer or voting of, or the exercise of any rights or the enjoyment of any benefits arising by reason of ownership of, any such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security or any such proceeds or distributions or (iii) creates or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, is reasonably likely to create a Lien or purported Lien affecting such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security, proceeds or distributions.
     “ Stockholders Agreement ” shall mean the stockholders agreement, dated as of February 17, 2012, between the Corporation and the Initial Stockholder, as may be amended from time to time.
     “ Subsidiary ” with respect to any person means: (i) a corporation, a majority of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly owned by such person, by a Subsidiary of such person, or by such person and one or more Subsidiaries of such person, without regard to whether the voting of such capital stock is subject to a voting agreement or similar Restriction, (ii) a partnership or limited liability company in which such person or a Subsidiary of such person is, at the date of determination, (A) in the case of a partnership, a general partner of such partnership with the power affirmatively to direct the policies and management of such partnership or (B) in the case of a limited liability company, the managing member or, in the absence of a managing member, a member with the power affirmatively to direct the policies and management of such limited liability company or (iii) any other person (other than a corporation) in which such person, a Subsidiary of such person or such person and one or more Subsidiaries of such person, directly or indirectly, at the date of determination thereof, has (A) the power to elect or direct the election of a majority of the members of the governing body of such person (whether or not such power is subject to a voting agreement or similar restriction) or (B) in the absence of such a governing body, a majority ownership interest.
     (b)  Fortress Stockholders, etc . In anticipation and in recognition that:

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          (1) the Initial Stockholder or its Permitted Transferees or their Affiliates will be significant stockholders of the Corporation;
          (2) directors, officers and/or employees of the Fortress Stockholders and their Affiliates may serve as directors, officers and/or employees of the Nationstar Entities and their Affiliates;
          (3) the Nationstar Entities and their Affiliates, on the one hand, and the Fortress Stockholders and their Affiliates, on the other hand, may engage in the same, similar or related lines of business and may have an interest in the same, similar or related areas of corporate opportunities;
          (4) the Nationstar Entities and their Affiliates, on the one hand, and the Fortress Stockholders and their Affiliates, on the other hand, may enter into, engage in, perform and consummate contracts, agreements, arrangements, transactions and other business relations; and
          (5) the Nationstar Entities and their Affiliates will derive benefits therefrom and through their continued contractual, corporate and business relations with the Fortress Stockholders and their Affiliates, the provisions of this Article ELEVENTH are set forth to regulate, define and guide, to the fullest extent permitted by Law, the conduct of certain affairs of the Nationstar Entities and their Affiliates as they may involve the Fortress Stockholders and their Affiliates and their officers and directors, and the powers, rights, duties and liabilities of the Nationstar Entities and their Affiliates and their officers, directors and stockholders in connection therewith; provided , however , that nothing in this Article ELEVENTH will impair the ability of the Nationstar Entities or their Affiliates to enter into contractual arrangements with any Fortress Stockholders or their Affiliates, which arrangements restrict such Fortress Stockholders or their Affiliates from engaging in activities otherwise allowed by this Article ELEVENTH, and the following provisions shall be subject to any such contractual obligation of the Nationstar Entities or their Affiliates.
     (c)  Related Business Activities, etc . Except as the Initial Stockholder on behalf of the Fortress Stockholders and their Affiliates, on the one hand, and the Nationstar Entities or their Affiliates, on the other hand, may otherwise agree in writing, the Fortress Stockholders and their Affiliates shall have the right to, and shall have no duty to abstain from exercising such right to, (i) engage or invest, directly or indirectly, in the same, similar or related business activities or lines of business as the Nationstar Entities or their Affiliates, (ii) do business with any client, customer, vendor or lessor of any of the Nationstar Entities or their Affiliates or (iii) employ or otherwise engage any officer, director or employee of the Nationstar Entities or their Affiliates, and, to the fullest extent permitted by Law, the Fortress Stockholders and their Affiliates and officers, directors and employees thereof (subject to Part (e) of this Article ELEVENTH) shall not have or be under any fiduciary duty, duty of loyalty or duty to act in good faith or in the best interests of the Corporation or its stockholders and shall not be liable to the Corporation or its stockholders for any breach or alleged breach thereof or for any derivation of

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any personal economic gain by reason of any such activities of the Fortress Stockholders or any of their Affiliates or of any of their officers’, directors’ or employees’ participation therein.
     (d)  Corporate Opportunity, etc . Except as the Initial Stockholder on behalf of the Fortress Stockholders and their Affiliates, on the one hand, and the Nationstar Entities or their Affiliates, on the other hand, may otherwise agree in writing, if the Fortress Stockholders or any of their Affiliates, or any officer, director or employee thereof (subject to the provisions of Part (e) of this Article ELEVENTH), acquires knowledge of a potential transaction or matter that may be a corporate opportunity for the Fortress Stockholders or any of their Affiliates, none of the Nationstar Entities or their Affiliates or any stockholder thereof shall have an interest in, or expectation that, such corporate opportunity be offered to it or that it be offered an opportunity to participate therein, and any such interest, expectation, offer or opportunity to participate, and any other interest or expectation otherwise due to the Corporation or any other Nationstar Entity with respect to such corporate opportunity, is hereby renounced by the Corporation on its behalf and on behalf of the other Nationstar Entities and their respective Affiliates and stockholders in accordance with Section 122(17) of the Delaware Corporation Law. Accordingly, subject to Part (e) of this Article ELEVENTH and except as the Fortress Stockholders or their Affiliates may otherwise agree in writing, (i) none of the Fortress Stockholders or their Affiliates or any officer, director or employee thereof will be under any obligation to present, communicate or offer any such corporate opportunity to the Nationstar Entities or their Affiliates and (ii) the Fortress Stockholders and any of their Affiliates shall have the right to hold any such corporate opportunity for their own account, or to direct, recommend, sell, assign or otherwise transfer such corporate opportunity to any person or persons other than the Nationstar Entities and their Affiliates, and, to the fullest extent permitted by Law, the Fortress Stockholders and their respective Affiliates and officers, directors and employees thereof (subject to Part (e) of this Article ELEVENTH) shall not have or be under any fiduciary duty, duty of loyalty or duty to act in good faith or in the best interests of the Corporation, the other Nationstar Entities and their respective Affiliates and stockholders and shall not be liable to the Corporation, the other Nationstar Entities or their respective Affiliates and stockholders for any breach or alleged breach thereof or for any derivation of personal economic gain by reason of the fact that the Fortress Stockholders or any of their Affiliates or any of their officers, directors or employees pursues or acquires the corporate opportunity for itself, or directs, recommends, sells, assigns or otherwise transfers the corporate opportunity to another person, or the Fortress Stockholders or any of their Affiliates or any of their officers, directors or employees does not present, offer or communicate information regarding the corporate opportunity to the Nationstar Entities or their Affiliates.
     (e)  Directors, Officers and Employees . Except as the Initial Stockholder on behalf of the Fortress Stockholders and their Affiliates, on the one hand, and the Nationstar Entities or their Affiliates, on the other hand, may otherwise agree in writing, in the event that a director, officer or employee of any of the Nationstar Entities or their Affiliates who is also a director, officer or employee of the Fortress Stockholders or their Affiliates acquires knowledge of a potential transaction or matter that may be a corporate opportunity or is offered a corporate opportunity, if (i) such person acts in good faith and (ii) such knowledge of such potential transaction or matter was not obtained solely in connection with, or such corporate opportunity was not offered to such person solely in, such person’s capacity as director or officer of any of the Nationstar Entities or their Affiliates, then (A) such director, officer or employee, to the

11


 

fullest extent permitted by Law, (1) shall be deemed to have fully satisfied and fulfilled such person’s fiduciary duty to the Corporation, the other Nationstar Entities and their respective Affiliates and stockholders with respect to such corporate opportunity, (2) shall not have or be under any fiduciary duty to the Corporation, the other Nationstar Entities and their respective Affiliates and stockholders and shall not be liable to the Corporation, the other Nationstar Entities or their respective Affiliates and stockholders for any breach or alleged breach thereof by reason of the fact that the Fortress Stockholders or their Affiliates pursues or acquires the corporate opportunity for itself, or directs, recommends, sells, assigns or otherwise transfers the corporate opportunity to another person, or the Fortress Stockholders or their Affiliates or such director, officer or employee does not present, offer or communicate information regarding the corporate opportunity to the Nationstar Entities or their Affiliates, (3) shall be deemed to have acted in good faith and in a manner such person reasonably believes to be in, and not opposed to, the best interests of the Corporation and its stockholders for the purposes of Article SIXTH and the other provisions of this Amended and Restated Certificate of Incorporation and (4) shall not have any duty of loyalty to the Corporation, the other Nationstar Entities and their respective Affiliates and stockholders or any duty not to derive any personal benefit therefrom and shall not be liable to the Corporation, the other Nationstar Entities or their respective Affiliates and stockholders for any breach or alleged breach thereof for purposes of Article SIXTH and the other provisions of this Amended and Restated Certificate of Incorporation as a result thereof and (B) such potential transaction or matter that may be a corporate opportunity, or the corporate opportunity, shall belong to the applicable Fortress Stockholder or respective Affiliates thereof (and not to any of the Nationstar Entities or Affiliates thereof).
     (f)  Agreements with Fortress Stockholders . The Nationstar Entities and their Affiliates may from time to time enter into and perform one or more agreements (or modifications or supplements to pre-existing agreements) with the Fortress Stockholders and their respective Affiliates pursuant to which the Nationstar Entities and their Affiliates, on the one hand, and the Fortress Stockholders and their respective Affiliates, on the other hand, agree to engage in transactions of any kind or nature with each other and/or agree to compete, or to refrain from competing or to limit or restrict their competition, with each other, including to allocate and to cause their respective directors, officers and employees (including any who are directors, officers or employees of both) to allocate corporate opportunities between or to refer corporate opportunities to each other. Subject to Part (e) of this Article ELEVENTH, except as otherwise required by Law, and except as the Initial Stockholder on behalf of the Fortress Stockholders and their Affiliates, on the one hand, and the Nationstar Entities or their Affiliates, on the other hand, may otherwise agree in writing, no such agreement, or the performance thereof by the Nationstar Entities and their Affiliates, or the Fortress Stockholders or their Affiliates, shall be considered contrary to or inconsistent with any fiduciary duty to the Corporation, any other Nationstar Entity or their respective Affiliates and stockholders of any director or officer of the Corporation, any other Nationstar Entity or any Affiliate thereof who is also a director, officer or employee of the Fortress Stockholders or their Affiliates or to any stockholder thereof. Subject to Part (e) of this Article ELEVENTH, to the fullest extent permitted by Law, and except as the Fortress Stockholders or their Affiliates, on the one hand, and the Nationstar Entities or their Affiliates, on the other hand, may otherwise agree in writing, none of the Fortress Stockholders or their Affiliates shall have or be under any fiduciary duty to refrain from entering into any agreement or participating in any transaction referred to in this Part (f) of Article ELEVENTH and no director, officer or employee of the Corporation, any

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other Nationstar Entity or any Affiliate thereof who is also a director, officer or employee of the Fortress Stockholders or their Affiliates shall have or be under any fiduciary duty to the Corporation, the other Nationstar Entities and their respective Affiliates and stockholders to refrain from acting on behalf of the Fortress Stockholders or their Affiliates in respect of any such agreement or transaction or performing any such agreement in accordance with its terms. Any Director of the Corporation who is also a director of a Fortress Stockholder or Affiliate thereof may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee that authorizes the agreement or transaction.
     (g)  Ambiguity . For the avoidance of doubt and in furtherance of the foregoing, nothing contained in this Article ELEVENTH amends or modifies, or will amend or modify, in any respect, any written contractual arrangement between the Fortress Stockholders or any of their Affiliates, on the one hand and the Nationstar Entities or any of their Affiliates, on the other hand.
     (h)  Termination . Except for the definitions set forth in Part (a) of this Article ELEVENTH that are used in other Articles herein, the provisions of this Article ELEVENTH shall have no further force and effect on the date that both (i) the Fortress Stockholders cease to, collectively, beneficially own shares of capital stock of the Corporation representing in the aggregate at least 10% of the voting power of the then issued and outstanding Voting Shares and (ii) no person who is a director or officer of any Nationstar Entity is also a director or officer of the Fortress Stockholders or their Affiliates. In addition to any vote of the stockholders required by this Amended and Restated Certificate of Incorporation, until the expiration of this Article ELEVENTH referred to in the immediately preceding sentence, the affirmative vote of 80% of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote thereon, including the shares of capital stock of the Corporation held by the Fortress Stockholders, shall be required to alter, amend or repeal (including, without limitation, by merger or otherwise) in a manner adverse to the interests of the Fortress Stockholders or any of their Affiliates or any of their officers, directors or employees, or adopt any provision adverse to the interests of the Fortress Stockholders or any of their Affiliates or any of their officers, directors or employees and inconsistent with, any provision of this Article ELEVENTH.
     (i)  Application of Provision, etc . This Article ELEVENTH shall apply as set forth above except as otherwise provided by Law. It is the intention of this Article ELEVENTH to take full advantage of statutory amendments, the effect of which may be to specifically authorize or approve provisions such as this Article ELEVENTH. No alteration, amendment, termination, expiration or repeal of this Article ELEVENTH nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article ELEVENTH shall eliminate, reduce, apply to or have any effect on the protections afforded hereby to any director, officer, employee or stockholder of the Nationstar Entities or their Affiliates for or with respect to any investments, activities or opportunities of which such director, officer, employee or stockholder becomes aware prior to such alteration, amendment, termination, expiration, repeal or adoption, or any matters occurring, or any cause of action, suit or claim that, but for this Article ELEVENTH, would accrue or arise, prior to such alteration, amendment, termination, expiration, repeal or adoption.

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     (j)  Deemed Notice . Any person or entity purchasing or otherwise acquiring any interest in any shares of the capital stock of the Corporation shall be deemed to have notice of and to have consented to the provisions of this Article ELEVENTH.
     (k)  Chairman or Chairman of a Committee . For purposes of this Article ELEVENTH, a director who is chairman of the Board of Directors or chairman of a committee of the Board of Directors is not deemed an officer of the Corporation by reason of holding that position unless that person is a full-time employee of the Corporation.
     (l)  Severability . If this Article ELEVENTH or any portion hereof shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, this Article ELEVENTH shall be deemed to be modified to the minimum extent necessary to avoid a violation of law and, as so modified, this Article ELEVENTH and the remaining provisions hereof shall remain valid and enforceable in accordance with their terms to the fullest extent permitted by law.
     Neither the alteration, amendment or repeal of this Article ELEVENTH nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article ELEVENTH shall eliminate or reduce the effect of this Article ELEVENTH in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article ELEVENTH, would accrue or arise, prior to such alteration, amendment, repeal or adoption. Following the expiration of this Article ELEVENTH, any contract, agreement, arrangement or transaction involving a corporate opportunity shall not by reason thereof result in any breach of any fiduciary duty or duty of loyalty or failure to act in good faith or in the best interests of the Corporation or derivation of any improper benefit or personal economic gain, but shall be governed by the other provisions of this Amended and Restated Certificate of Incorporation, the Bylaws, the DGCL and other applicable law.
      TWELFTH : The Corporation is to have perpetual existence.
      THIRTEEN : The Bylaws may establish procedures regulating the submission by stockholders of nominations, proposals and other business for consideration at meetings of stockholders of the Corporation.
      FOURTEENTH : The Corporation expressly elects not to be governed by Section 203 of the DGCL.
      FIFTEENTH . The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed in this Amended and Restated Certificate of Incorporation, the Bylaws or the DGCL, and all rights herein conferred upon stockholders are granted subject to such reservation; provided , however , that, notwithstanding any other provision of this Amended and Restated Certificate of Incorporation (and in addition to any other vote that may be required by law), the affirmative vote of the holders of at least 80% of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend, alter, change or repeal, or to adopt any provision as part of this Amended and Restated Certificate of Incorporation inconsistent with the purpose and intent of Articles FIFTH,

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EIGHTH, TENTH OR ELEVENTH of this Amended and Restated Certificate of Incorporation or this Article FIFTEENTH.
      SIXTEENTH . In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to adopt, make, alter, amend or repeal the Bylaws of the Corporation. The stockholders of the Corporation may not adopt, amend or repeal any Bylaw, and no provision inconsistent therewith shall be adopted by the stockholders, unless such action is approved by the affirmative vote of the holders of a majority of the voting power of the outstanding Common Stock.
      SEVENTEENTH . The Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director or officer of the Corporation to the Corporation or the Corporation’s stockholders, (iii) any action asserting a claim against the Corporation arising pursuant to any provision of the DGCL or this Amended and Restated Certificate of Incorporation or Bylaws or (iv) any action asserting a claim against the Corporation governed by the internal affairs doctrine.
[Signature page follows]

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     IN WITNESS WHEREOF, the Corporation has caused this Amended and Restated Certificate of Incorporation to be executed on its behalf this 24th day of February, 2012.
         
  NATIONSTAR MORTGAGE HOLDINGS INC.
 
 
  By:   /s/ Jay Bray  
    Name:   Jay Bray   
    Title:   Chief Executive Officer and Director   
 
[Signature Page to Amended and Restated Certificate of Incorporation of Nationstar Mortgage Holdings Inc.]

Exhibit 3.2
BYLAWS
OF
NATIONSTAR MORTGAGE HOLDINGS INC.
A Delaware Corporation
Effective February 20, 2012


 

TABLE OF CONTENTS
         
    Page  
ARTICLE I OFFICES
    1  
 
       
Section 1.1 Registered Office
    1  
Section 1.2 Other Offices
    1  
 
       
ARTICLE II MEETINGS OF STOCKHOLDERS
    1  
 
       
Section 2.1 Place of Meetings
    1  
Section 2.2 Annual Meetings
    1  
Section 2.3 Special Meetings
    1  
Section 2.4 Notice
    2  
Section 2.5 Adjournments
    2  
Section 2.6 Waiver of Notice
    2  
Section 2.7 Quorum
    2  
Section 2.8 Organization
    3  
Section 2.9 Voting
    3  
Section 2.10 Proxies
    3  
Section 2.11 Consent of Stockholders in Lieu of Meeting
    4  
Section 2.12 List of Stockholders Entitled to Vote
    4  
Section 2.13 Record Date
    5  
Section 2.14 Stock Ledger
    6  
Section 2.15 Meetings by Remote Communications
    6  
Section 2.16 Reproductions
    6  
Section 2.17 Conduct of Meetings
    6  
Section 2.18 Inspectors of Election
    7  
Section 2.19 Nature of Business at Meetings of Stockholders
    7  
Section 2.20 Nomination of Directors
    10  
Section 2.21 Requirement to Appear
    13  
 
       
ARTICLE III DIRECTORS
    13  
 
       
Section 3.1 Duties and Powers
    13  
Section 3.2 Number and Election of Directors
    13  
Section 3.3 Vacancies
    15  
Section 3.4 Meetings
    15  
Section 3.5 Organization
    15  
Section 3.6 Resignations and Removals of Directors
    16  
Section 3.7 Quorum
    16  
Section 3.8 Action at Meeting
    16  
Section 3.9 Actions of the Board by Written Consent
    17  
Section 3.10 Meetings by Means of Conference Telephone
    17  
Section 3.11 Rules and Regulations
    17  
Section 3.12 Committees
    17  
Section 3.13 Compensation
    20  
Section 3.14 Interested Directors
    20  

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TABLE OF CONTENTS
(continued)
         
    Page  
ARTICLE IV OFFICERS
    21  
 
       
Section 4.1 General
    21  
Section 4.2 Election
    21  
Section 4.3 Salaries of Elected Officers
    21  
Section 4.4 Voting Securities Owned by the Corporation
    21  
Section 4.5 Chairman of the Board of Directors
    21  
Section 4.6 Chief Executive Officer
    22  
Section 4.7 President
    22  
Section 4.8 Chief Financial Officer
    22  
Section 4.9 Vice Presidents
    23  
Section 4.10 Secretary
    23  
Section 4.11 Other Officers
    23  
Section 4.12 Resignation
    24  
Section 4.13 Removal
    24  
 
       
ARTICLE V STOCK
    24  
 
       
Section 5.1 Issuance and Consideration
    24  
Section 5.2 Share Certificates
    24  
Section 5.3 Uncertificated Shares
    24  
Section 5.4 Lost, Stolen or Destroyed Certificates
    25  
Section 5.5 Transfers
    25  
Section 5.6 Record Owners
    25  
Section 5.7 Transfer and Registry Agents
    25  
Section 5.8 Regulations
    25  
 
       
ARTICLE VI NOTICES
    26  
 
       
Section 6.1 Notices
    26  
Section 6.2 Waivers of Notice
    26  
 
       
ARTICLE VII GENERAL PROVISIONS
    27  
 
       
Section 7.1 Dividends
    27  
Section 7.2 Disbursements
    27  
Section 7.3 Fiscal Year
    27  
Section 7.4 Corporate Seal
    27  
Section 7.5 Records to be Kept
    28  
Section 7.6 Execution of Instruments
    28  
Section 7.7 Certificate of Incorporation
    28  
Section 7.8 Construction
    28  
 
       
ARTICLE VIII INDEMNIFICATION
    28  

ii


 

TABLE OF CONTENTS
(continued)
         
    Page  
Section 8.1 Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation
    28  
Section 8.2 Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation
    29  
Section 8.3 Authorization of Indemnification
    29  
Section 8.4 Good Faith Defined
    30  
Section 8.5 Indemnification by a Court
    30  
Section 8.6 Expenses Payable in Advance
    30  
Section 8.7 Non-exclusivity of Indemnification and Advancement of Expenses
    31  
Section 8.8 Insurance
    31  
Section 8.9 Certain Definitions
    31  
Section 8.10 Survival of Indemnification and Advancement of Expenses
    32  
Section 8.11 Contractual Rights
    32  
Section 8.12 Limitation on Indemnification
    32  
Section 8.13 Indemnification of Employees and Agents
    32  
Section 8.14 Severability
    33  
 
       
ARTICLE IX AMENDMENTS
    33  
 
       
Section 9.1 Amendments
    33  
 
       
ARTICLE X EMERGENCY BYLAWS
    33  
 
       
Section 10.1 Emergency Board of Directors
    33  
Section 10.2 Membership of Emergency Board of Directors
    34  
Section 10.3 Powers of the Emergency Board
    34  
Section 10.4 Stockholders’ Meeting
    34  
Section 10.5 Emergency Corporate Headquarters
    34  
Section 10.6 Limitation of Liability
    34  
Section 10.7 Amendments; Repeal
    34  
 
       
ARTICLE XI DEFINITIONS
    34  
 
       
Section 11.1 Certain Defined Terms
    34  

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BYLAWS
OF
NATIONSTAR MORTGAGE HOLDINGS INC.
     Adopted by the Board of Directors and Stockholders of Nationstar Mortgage Holdings Inc. (the “ Corporation ”) on May 9, 2011, as amended and restated by the Board of Directors of the Corporation on February 20, 2012 (as amended and restated, the “ Bylaws ”).
ARTICLE I
OFFICES
     Section 1.1 Registered Office . The registered office of the Corporation shall be in the State of Delaware at 1209 Orange Street, in the City of Wilmington, County of Newcastle; and the Corporation shall have and maintain at all times a registered agent located at such address whose name is The Corporation Trust Company, until changed from time to time as provided by the General Corporation Law of the State of Delaware, as in effect from time to time (the “ DGCL ”).
     Section 1.2 Other Offices . The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors of the Corporation (the “ Board of Directors ”) may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
     Section 2.1 Place of Meetings . All meetings of the stockholders for the election of directors or for any other purpose shall be held at such time and place, either within or without the State of Delaware (including by remote communication as authorized by Section 211(a)(2) of the DGCL), as shall be designated from time to time by the Board of Directors.
     Section 2.2 Annual Meetings . The Annual Meeting of Stockholders for the election of directors shall be held on such date and at such time as shall be designated from time to time by the Board of Directors. Any other business prescribed by law, by the certificate of incorporation of the Corporation, as amended and restated from time to time (the “ Certificate of Incorporation ”), or elsewhere in these Bylaws may be transacted at the Annual Meeting of Stockholders.
     Section 2.3 Special Meetings . Unless otherwise required by law or by the Certificate of Incorporation, Special Meetings of Stockholders, for any purpose or purposes (a) may be called at any time by either (i) the Chairman of the Board of Directors, if there be one or (ii) the Chief Executive Officer, if there be one, and (b) shall be called by any such officer at the request in writing of (i) the Board of Directors, (ii) a committee of the Board of Directors that has been duly designated by the Board of Directors and whose powers include the authority to call such meetings or (iii) at any time the Fortress Stockholders (as defined in Section 11.1 of Article XI), collectively, beneficially own (as defined in Section 11.1 of Article XI) at least 25% of the then issued and outstanding shares of capital stock of the Corporation entitled to vote in the election

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of directors (the “ Voting Shares ”), any stockholders that collectively beneficially own at least 25% of the then issued and outstanding Voting Shares. Such request shall state the purpose or purposes of the proposed meeting. At any time the Fortress Stockholders do not, collectively, beneficially own at least 25% of the then issued and outstanding Voting Shares, the ability of the stockholders to call or cause a Special Meeting of Stockholders to be called is hereby specifically denied. At a Special Meeting of Stockholders, only such business shall be conducted as shall be specified in the notice of meeting (or any supplement thereto).
     Section 2.4 Notice . Except as otherwise provided by law, these Bylaws or the Certificate of Incorporation, whenever stockholders are required or permitted to take any action at a meeting, a notice of the meeting shall be given in accordance with Section 6.1 hereof, which shall state the place, date and hour of the meeting (or the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person), describing the purpose or purposes for which the meeting is called. Unless otherwise required by law, such notice of any meeting shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to notice of and to vote at such meeting, except that, where any other minimum or maximum notice period for any action to be taken at such meeting is required under the DGCL, then such other minimum or maximum notice period shall control.
     Section 2.5 Adjournments . Any meeting of the stockholders may be adjourned from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting in accordance with the requirements of Section 2.4 hereof shall be given to each stockholder of record entitled to notice of and to vote at the meeting.
     Section 2.6 Waiver of Notice . Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy and shall not, at the beginning of such meeting, object to the transaction of any business because the meeting has not been lawfully called or convened, or who shall, either before or after the meeting, submit a signed waiver of notice or waive notice by electronic transmission, in person or by proxy. To the extent permitted by law, a stockholder’s attendance at a meeting, in person or by proxy, waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the stockholder objects to considering the matter when it is presented. Any stockholder so waiving notice of a meeting shall be bound by the proceedings of such meeting in all respects as if due notice thereof had been given.
     Section 2.7 Quorum . Unless otherwise required by applicable law or the Certificate of Incorporation, the holders of a majority of the Corporation’s capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business. Where a separate vote by one or more series or classes is required, a majority in voting power of the outstanding shares of such one or more series or classes present in person or by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter. A quorum, once established, shall not be

2


 

broken by the withdrawal of enough votes to leave less than a quorum. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, in the manner provided in Section 2.5 hereof, until a quorum shall be present or represented.
     Section 2.8 Organization . Such person as the Chairman of the Board may have designated or, in the absence of such person, such person as the Board of Directors may have designated or, in the absence of such person, the Chief Executive Officer, or in his or her absence, such person as may be chosen by the holders of a majority of the Corporation’s shares of capital stock issued and outstanding and entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary, the secretary of the meeting shall be such person as the chairman of the meeting appoints.
     Section 2.9 Voting . Unless otherwise required by law, the Certificate of Incorporation or these Bylaws or permitted by the rules of any stock exchange on which the Corporation’s shares are listed and traded, any question brought before any meeting of the stockholders, other than the election of directors, shall be decided by the vote of the holders of a majority of the total number of votes of the Corporation’s capital stock present or represented at the meeting and entitled to vote on such question, voting as a single class. Unless otherwise provided in the Certificate of Incorporation, and subject to Section 2.13(a) of this Article II, each stockholder present or represented at a meeting of the stockholders shall be entitled to cast one (1) vote for each share of the capital stock entitled to vote thereat held by such stockholder. Such votes may be cast in person or by proxy as provided in Section 2.10 of this Article II. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of the stockholders, in such officer’s discretion, may require that any votes cast at such meeting shall be cast by written ballot.
     Section 2.10 Proxies . Each stockholder entitled to vote at a meeting of the stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder as proxy, but no such proxy shall be voted upon after three years from its date, unless such proxy provides for a longer period. Any proxy to be used at a meeting of stockholders must be filed with the Secretary or his or her representative at or before the time of the meeting. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby with respect to a meeting of stockholders to vote at any adjournment of such meeting but shall not be valid after final adjournment of such meeting. A proxy with respect to stock held in the name of two or more persons shall be valid if executed by one of them if the person signing appears to be acting on behalf of all the co-owners unless prior to exercise of the proxy the Corporation receives a specific written notice to the contrary from any one of them. Subject to the provisions of Section 212 of the DGCL and to any express limitation on the proxy’s authority provided in the appointment form, the Corporation is entitled to accept the proxy’s vote or other action as that of the stockholder making the appointment. Without limiting the manner in which a stockholder may authorize another person or persons to act for such stockholder as proxy, the following shall constitute a valid means by which a stockholder may grant such authority:

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          (a) A stockholder may execute a writing authorizing another person or persons to act for such stockholder as proxy. Execution may be accomplished by the stockholder or such stockholder’s authorized officer, director, employee or agent signing such writing or causing such person’s signature to be affixed to such writing by any reasonable means, including, but not limited to, by facsimile signature.
          (b) A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that such transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other means of electronic transmission are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information on which they relied.
     Section 2.11 Consent of Stockholders in Lieu of Meeting . Any action required or permitted to be taken by the stockholders of the Corporation at any meeting of stockholders may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by all the stockholders entitled to vote with respect to the subject matter thereof, provided , however , that at any time the Fortress Stockholders, collectively, beneficially own at least 25% of the then issued and outstanding Voting Shares, any action required or permitted to be taken by the stockholders of the Corporation at any meeting of stockholders may be taken without a meeting if a consent in writing, setting forth the action so taken, is signed by stockholders holding at least a majority of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote with respect to the subject matter thereof.
     Section 2.12 List of Stockholders Entitled to Vote . In accordance with Section 219 of the DGCL, the officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make available, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder; provided , however , that if the record date for determining the stockholders entitled to vote is less than 10 days before the meeting date, the list shall reflect the stockholders entitled to vote as of the 10 th day before the meeting date. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting either (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the principal place of business of the Corporation. In the event that the Corporation determines to make the list available on an electronic network, the Corporation may take reasonable steps to ensure that such information is available only to stockholders of the Corporation. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.

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     Section 2.13 Record Date .
          (a) In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of the stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of the stockholders shall apply to any adjournment of the meeting; provided , however , that the Board of Directors may fix a new record date for the adjourned meeting and in such case shall also fix as the record date for stockholders entitled to notice of such adjourned meeting the same or an earlier date as that fixed for determination of stockholders entitled to vote in accordance with the foregoing provisions of this clause (a) at the adjourned meeting.
          (b) In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of the stockholders are recorded. Delivery made to the Corporation’s registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
          (c) Any stockholder’s notice requesting the setting of a record date pursuant to clause (b) of this Section 2.13 shall be valid and effective only if received by the Secretary at the principal executive offices of the Corporation and only if it contains the information set forth in Section 2.20 (and, if such notice relates to the nomination of any person for election or re-election as a director of the Corporation, the questionnaire, representation and agreement required by Section 2.20 must also be delivered with and at the same time as such notice). The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation. In addition, a stockholder requesting a record date for proposed stockholder

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action by consent shall promptly provide any other information reasonably requested by the Corporation.
     Section 2.14 Stock Ledger . The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 2.10 of this Article II or the books of the Corporation, or to vote in person or by proxy at any meeting of the stockholders.
     Section 2.15 Meetings by Remote Communications . Unless otherwise provided in the Certificate of Incorporation, if authorized by the Board of Directors, any annual or special meeting of stockholders, whether such meeting is to be held at a designated place or by means of remote communication, may be conducted in whole or in part by means of remote communication. If authorized by the Board of Directors, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxyholders not physically present at a meeting of stockholders may, by means of remote communications: (a) participate in such meeting of stockholders; and (b) be deemed present in person and vote at such meeting of stockholders whether such meeting is to be held at a designated place or solely by means of remote communication, provided that: (i) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder; (ii) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings; and (iii) if any stockholder or proxyholder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
     Section 2.16 Reproductions . Any copy, facsimile or other reliable reproduction of a vote, consent, waiver, proxy appointment or other action by a stockholder or by the proxy or other agent of any stockholder may be substituted or used in lieu of the original writing or electronic transmission for any and all purposes for which the original writing or electronic transmission could be used, so long as the copy, facsimile or other reproduction is a complete reproduction of the entire original writing or electronic transmission.
     Section 2.17 Conduct of Meetings .
          (a) The Board of Directors of the Corporation may adopt by resolution such rules and regulations for the conduct of any meeting of the stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the chairman of any meeting of the stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present; (iv) limitations on attendance at

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or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants.
          (b) The chairman of any meeting of stockholders shall have the power and duty to determine all matters relating to the conduct of the meeting, including determining whether any nomination or item of business has been properly brought before the meeting in accordance with these Bylaws (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made, solicited (or is part of a group that solicited) or did not so solicit, as the case may be, proxies in support of such stockholder’s nominee or proposal in compliance with such stockholder’s representation as required by Section 2.19), and if the chairman should so determine and declare that any nomination or item of business has not been properly brought before a meeting of stockholders, then such business shall not be transacted or considered at such meeting and such nomination shall be disregarded. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.
     Section 2.18 Inspectors of Election . In advance of any meeting of the stockholders, the Board of Directors, by resolution, the Chairman of the Board or the Chief Executive Officer shall appoint one or more inspectors to act at the meeting and make a written report thereof. One or more other persons may be designated as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of the stockholders, the chairman of the meeting shall appoint one or more inspectors to act at the meeting. Unless otherwise required by applicable law, inspectors may be officers, employees or agents of the Corporation. Each inspector, before entering upon the discharge of the duties of inspector, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of such inspector’s ability. The inspector shall have the duties prescribed by law and shall take charge of the polls and, when the vote is completed, shall make a certificate of the result of the vote taken and of such other facts as may be required by applicable law.
     Section 2.19 Nature of Business at Meetings of Stockholders . Only such business (other than nominations for election to the Board of Directors, which must comply with the provisions of Section 2.20 of this Article II) may be transacted at an Annual Meeting as is (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the Annual Meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof), or (c) otherwise properly brought before the Annual Meeting by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.19 and on the record date for the determination of stockholders entitled to notice of and to vote at such Annual Meeting and (ii) who complies with the notice procedures set forth in this Section 2.19. This Section shall be the exclusive means for a stockholder to make business proposals before a special meeting of stockholders (other than matters properly bought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) and included in the Corporation’s notice of meeting). Subject to Rule 14a-8 under the Exchange Act, nothing in these Bylaws shall be construed to permit any

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stockholder, or give any stockholder the right, to include or have disseminated or described in the Corporation’s proxy statement any business proposal.
     In addition to any other applicable requirements, for business to be properly brought before an Annual Meeting by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
     To be timely, a stockholder’s notice to the Secretary must be delivered to or be mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided , however , that in the event that no annual meeting was held in the previous year, or the Annual Meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not earlier than the opening of business 120 days before the date of such annual meeting, and not later than the close of business on the 10th day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an Annual Meeting, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.
     To be in proper written form, a stockholder’s notice to the Secretary must set forth the following information:
     (a) as to each matter such stockholder proposes to bring before the Annual Meeting, (1) a brief description of the business desired to be brought before the Annual Meeting, (2) the text of the proposal to be voted on by stockholders (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the Bylaws, the language of the proposed amendment); (3) the reasons for conducting such business at the meeting; and (4) a description of any direct or indirect material interest of the stockholder or of any beneficial owner on whose behalf the proposal is made, or their respective affiliates, in such business (whether by holdings of securities, or by virtue of being a creditor or contractual counterparty of the Corporation or of a third party, or otherwise), and all agreements, arrangements and understandings between such stockholder or any such beneficial owner or their respective affiliates and any other person or persons (naming such person or persons) in connection with the proposal of such business; and
     (b) as to the stockholder giving notice and the beneficial owner, if any, on whose behalf the proposal is being made (each, a “ Party ”), (1) the name and address of such Party (in the case of each stockholder, as they appear on the Corporation’s books); (2) the class or series and number of shares of the Corporation that are owned, directly or indirectly, beneficially or held of record by such Party or any of its affiliates (naming such affiliates); (3) a description of any agreement, arrangement or understanding (including any swap or other derivative or short position, profit interest, option, warrant, convertible security, stock appreciation or similar right with exercise or conversion privileges, hedging transactions, and securities lending or borrowing arrangement) to which such Party or any of its affiliates is, directly or indirectly, a party as of the date of such notice (x) with respect to shares of stock of the Corporation; or (y) the effect or

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intent of which is to mitigate loss to, manage the potential risk or benefit of security price changes (increases or decreases) for, or increase or decrease the voting power of such Party or any of its affiliates with respect to securities of the Corporation or which has a value derived in whole or in part, directly or indirectly, from the value (or change in value) of any securities of the Corporation, in each case whether or not subject to settlement in the underlying security of the Corporation (each such agreement, arrangement or understanding, a “ Disclosable Arrangement ”) (specifying in each case (I) the effect of such Disclosable Arrangement on voting or economic rights in securities in the Corporation, as of the date of the notice; and (II) any changes in such voting or economic rights which may arise pursuant to the terms of such Disclosable Arrangement); (4) any proxy, agreement, arrangement, understanding or relationship pursuant to which such Party has a right to vote, directly or indirectly, any shares of any security of the Corporation; (5) any rights to dividends on the shares of the Corporation owned, directly or indirectly, beneficially by such Party that are separated or separable from the underlying shares of the Corporation; (6) any proportionate interest in shares of the Corporation or Disclosable Arrangements held, directly or indirectly, by a general or limited partnership in which such Party is a general partner or, directly or indirectly, beneficially owns an interest in a general partner; (7) any performance-related fees (other than an asset-based fee) that such Party is directly or indirectly entitled to based on any increase or decrease in the value of shares of the Corporation or Disclosable Arrangements, if any, as of the date of such notice, including any such interests held by members of such Party’s immediate family sharing the same household; (8) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination; and (9) a representation whether such Party intends, or is part of a group which intends, (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding shares of capital stock required to approve or adopt the proposal or elect the nominee; and/or (y) otherwise to solicit proxies from stockholders in support of such proposal or nomination. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
     A stockholder providing notice of business proposed to be brought before an Annual Meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.19 shall be true and correct as of the record date for determining the stockholders entitled to receive notice of the Annual Meeting and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the Corporation not later than five business days after the record date for determining the stockholders entitled to receive notice of the Annual Meeting.
     No business shall be conducted at the Annual Meeting of Stockholders except business brought before the Annual Meeting in accordance with the procedures set forth in this Section 2.19; provided , however , that, once business has been properly brought before the Annual Meeting in accordance with such procedures, nothing in this Section 2.19 shall be deemed to preclude discussion by any stockholder of any such business. If the chairman of an Annual Meeting determines that business was not properly brought before the Annual Meeting in accordance with the foregoing procedures, the chairman shall declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted.

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     Nothing contained in this Section 2.19 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act (or any successor provision of law).
     Section 2.20 Nomination of Directors . Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors of the Corporation, except as may be otherwise provided in the Certificate of Incorporation with respect to the right of holders of preferred stock of the Corporation to nominate and elect a specified number of directors in certain circumstances and except as otherwise provided under the Stockholders Agreement (as defined in Section 11.1). Nominations of persons for election to the Board of Directors may be made at any Annual Meeting of Stockholders, or at any Special Meeting of Stockholders called for the purpose of electing directors, (a) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (b) by any stockholder of the Corporation (i) who is a stockholder of record on the date of the giving of the notice provided for in this Section 2.20 and on the record date for the determination of stockholders entitled to notice of and to vote at such Annual Meeting or Special Meeting and (ii) who complies with the notice procedures set forth in this Section 2.20. This Section shall be the exclusive means for a stockholder to make nominations before a special meeting of stockholders (other than matters properly bought under Rule 14a-8 under the Exchange Act and included in the Corporation’s notice of meeting). Subject to Rule 14a-8 under the Exchange Act, nothing in these Bylaws shall be construed to permit any stockholder, or give any stockholder the right, to include or have disseminated or described in the Corporation’s proxy statement any nomination of director or directors.
     In addition to any other applicable requirements, for a nomination to be made by a stockholder, such stockholder must have given timely notice thereof in proper written form to the Secretary of the Corporation.
     To be timely, a stockholder’s notice to the Secretary must be delivered to or be mailed and received at the principal executive offices of the Corporation (a) in the case of an Annual Meeting, not less than 90 days nor more than 120 days prior to the anniversary date of the immediately preceding Annual Meeting of Stockholders; provided, however, that in the event that no annual meeting was held in the previous year, or the Annual Meeting is called for a date that is not within 30 days before or after such anniversary date, notice by the stockholder in order to be timely must be so received not earlier than the opening of business 120 days before the date of such annual meeting, and not later than the close of business on the 10th day following the day on which such notice of the date of the Annual Meeting was mailed or such public disclosure of the date of the Annual Meeting was made, whichever first occurs; and (b) in the case of a Special Meeting of Stockholders called for the purpose of electing directors, not later than the close of business on the 10th day following the day on which notice of the date of the Special Meeting was mailed or public disclosure of the date of the Special Meeting was made, whichever first occurs. In no event shall the adjournment or postponement of an Annual Meeting or a Special Meeting called for the purpose of electing directors, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above. In the event that the number of directors to be elected to the Board of Directors at an annual meeting of stockholders is increased and there is no public announcement by the Corporation naming the nominees for the additional

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directorships at least 100 days prior to the first anniversary of the date of the Corporation’s proxy statement released to stockholders in connection with the previous year’s annual meeting of stockholders, a stockholder’s notice required by this Section 2.20 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10 th day following the day on which such public announcement is first made by the Corporation.
     To be in proper written form, a stockholder’s notice to the Secretary must set forth the following information:
     (a) as to each person whom the stockholder proposes to nominate for election as a director, (1) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case in accordance with Regulation 14A under the Exchange Act and such other information as may be required by the Corporation pursuant to any policy of the Corporation governing the selection of directors publicly available (whether on the Corporation’s website or otherwise) as of the date of such notice; (2) such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected; (3) a statement whether such person, if elected, intends to tender any advance resignation notice(s) requested by the Board of Directors in connection with subsequent elections, such advance resignation to be contingent upon the nominee’s failure to receive a majority of the votes cast by stockholders and acceptance of such resignation by the Board of Directors; and (4) a description of all arrangements or understandings between the stockholder or any beneficial owner on whose behalf such nomination is made, or their respective affiliates, and each nominee or any other person or persons (naming such person or persons) in connection with the making of such nomination or nominations; and
     (b) as to the stockholder giving the notice, and the beneficial owner, if any, on whose behalf the nomination is being made, (1) the name and address of such Party (in the case of each stockholder, as they appear on the Corporation’s books); (2) the class or series and number of shares of the Corporation that are owned, directly or indirectly, beneficially or held of record by such Party or any of its affiliates (naming such affiliates); (3) a description of any Discloseable Arrangement (including any swap or other derivative or short position, profit interest, option, warrant, convertible security, stock appreciation or similar right with exercise or conversion privileges, hedging transactions, and securities lending or borrowing arrangement) to which such Party or any of its affiliates is, directly or indirectly, a party as of the date of such notice (x) with respect to shares of stock of the Corporation; or (y) the effect or intent of which is to mitigate loss to, manage the potential risk or benefit of security price changes (increases or decreases) for, or increase or decrease the voting power of such Party or any of its affiliates with respect to securities of the Corporation or which has a value derived in whole or in part, directly or indirectly, from the value (or change in value) of any securities of the Corporation, in each case whether or not subject to settlement in the underlying security of the Corporation (specifying in each case (I) the effect of such Disclosable Arrangement on voting or economic rights in securities in the Corporation, as of the date of the notice; and (II) any changes in such voting or economic rights which may arise pursuant to the terms of such Disclosable Arrangement); (4) any proxy, agreement, arrangement, understanding or relationship pursuant to which such Party

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has a right to vote, directly or indirectly, any shares of any security of the Corporation; (5) any rights to dividends on the shares of the Corporation owned, directly or indirectly, beneficially by such Party that are separated or separable from the underlying shares of the Corporation; (6) any proportionate interest in shares of the Corporation or Disclosable Arrangements held, directly or indirectly, by a general or limited partnership in which such Party is a general partner or, directly or indirectly, beneficially owns an interest in a general partner; (7) any performance-related fees (other than an asset-based fee) that such Party is directly or indirectly entitled to based on any increase or decrease in the value of shares of the Corporation or Disclosable Arrangements, if any, as of the date of such notice, including any such interests held by members of such Party’s immediate family sharing the same household; (8) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to propose such business or nomination; and (9) a representation whether such Party intends, or is part of a group which intends, (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’s outstanding shares of capital stock required to approve or adopt the proposal or elect the nominee; and/or (y) otherwise to solicit proxies from stockholders in support of such proposal or nomination. Such notice must be accompanied by a written consent of each proposed nominee to being named as a nominee and to serve as a director if elected.
     The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee. In addition, a stockholder seeking to nominate a director candidate or bring another item of business before the annual meeting shall promptly provide any other information reasonably requested by the Corporation. For purposes of these Bylaws, “ public announcement ” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act.
     A stockholder providing notice of any nomination proposed to be made at an Annual Meeting or Special Meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 2.20 shall be true and correct as of the record date for determining the stockholders entitled to receive notice of the Annual Meeting or Special Meeting, and such update and supplement shall be delivered to or be mailed and received by the Secretary at the principal executive offices of the Corporation not later than five business days after the record date for determining the stockholders entitled to receive notice of such Annual Meeting or Special Meeting.
     To be eligible to be a nominee for election or re-election by the stockholders as a director of the Corporation or to serve as a Director of the Corporation, a person must deliver (not later than the deadline prescribed in the foregoing) to the Secretary a written questionnaire with respect to the background and qualification of such person and, if applicable, the background of any other person on whose behalf the nomination is being made (which questionnaire shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person: (i) is not and will not become a party to any agreement, arrangement or understanding with, and has not given any

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commitment or assurance to, any person as to how such person, if elected as a director, will act or vote on any issue or question that has not been disclosed in such questionnaire; (ii) is not and will not become a party to any agreement, arrangement or understanding with any person other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed in such questionnaire; and (iii) in such person’s individual capacity and on behalf of any person on whose behalf the nomination is being made, would be in compliance, if elected as a director, and will comply with, applicable law and all conflict of interest, confidentiality and other policies and guidelines of the Corporation (including the Corporation’s Corporate Governance Guidelines) applicable to directors generally and publicly available (whether on the Corporation’s website or otherwise) as of the date of such representation and agreement.
     No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.20. If the chairman of the meeting determines that a nomination was not made in accordance with the foregoing procedures, the chairman shall declare to the meeting that the nomination was defective and such defective nomination shall be disregarded.
     Section 2.21 Requirement to Appear . Notwithstanding anything to the contrary contained in Section 2.19 and Section 2.20, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual or special meeting of stockholders of the Corporation to present a nomination or item of business, such proposed business shall not be transacted and such nomination shall be disregarded, notwithstanding that proxies in respect of such vote may have been received by the Corporation.
ARTICLE III
DIRECTORS
     Section 3.1 Duties and Powers . The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these Bylaws required to be exercised or done by the stockholders.
     Section 3.2 Number and Election of Directors . The number of directors shall be such number as is from time to time determined in the manner provided in the Certificate of Incorporation. Except to the extent otherwise provided in the Certificate of Incorporation, from and after the date of the first meeting of the Board of Directors following the consummation of an initial public offering of common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, the directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. The initial division of the Board of Directors into classes shall be made by the decision of the affirmative vote of a majority of the entire Board of Directors. The term of the initial Class I directors assigned at the time of the filing of the Certificate of Incorporation shall terminate on

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the date of the annual meeting of stockholders held in 2013; the term of the initial Class II directors assigned at the time of the filing of the Certificate of Incorporation shall terminate on the date of the annual meeting of stockholders held in 2014; and the term of the initial Class III directors assigned at the time of the filing of the Certificate of Incorporation shall terminate on the date of the annual meeting of stockholders held in 2015. At each succeeding annual meeting of stockholders beginning in 2013, successors to the class of directors whose term expires at that annual meeting shall be elected for a three-year term and until their successors are duly elected and qualified. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class or from the removal from office, death, disability, resignation or disqualification of a director or other cause shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.
     The Board of Directors shall present to the stockholders nominations of candidates for election to the Board of Directors (or recommend the election of such candidates as nominated by others) such that, and shall take such other corporate actions as may be reasonably required to provide that, to the best knowledge of the Board of Directors, if such candidates are elected by the stockholders, at least a majority of the members of the Board of Directors shall be Independent Directors (as hereinafter defined). The Board of Directors shall only elect any person to fill a vacancy on the Board of Directors if, to the best knowledge of the Board of Directors, after such person’s election at least a majority of the members of the Board of Directors shall be Independent Directors. The foregoing provisions of this paragraph shall not cause a director who, upon commencing his or her service as a member of the Board of Directors was determined by the Board of Directors to be an Independent Director but did not in fact qualify as such, or who by reason of any change in circumstances ceases to qualify as an Independent Director, from serving the remainder of the term as a director for which he or she was selected. Notwithstanding the foregoing provisions of this paragraph, no action of the Board of Directors shall be invalid by reason of the failure at any time of a majority of the members of the Board of Directors to be Independent Directors.
     Except as provided in Section 3.3 of this Article III, directors shall be elected by a plurality of the votes of the shares of capital stock of the Corporation, present in person or represented by proxy, and entitled to vote on the election of directors at any meeting of stockholders or in any action by written consent in lieu of such a meeting with respect to which (a) the Corporation receives a notice that a stockholder has nominated a person for election to the Board of Directors (including a notice that a stockholder seeks to include a nominee in the Corporation’s proxy materials pursuant to Rule 14a-11 under the Exchange Act) that was timely made in accordance with the applicable nomination periods provided in these Bylaws (or, in the case of a notice that a stockholder seeks to include a nominee in the Corporation’s proxy materials pursuant to Rule 14a-11 under the Exchange Act, the applicable notice periods provided in such rule), and (ii) such nomination or notice has not been withdrawn (and, in the case of a notice under Rule 14a-11, the Corporation has not determined that it will exclude such proposed nominee from its proxy materials) on or before the 10 th day before the Corporation first mails its initial proxy statement in connection with such election of directors; provided , however , that the determination that directors shall be elected by a plurality of the votes cast shall be

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determinative only as to the timeliness of a notice of nomination or notice under Rule 14a-11 and not otherwise as to its validity. If directors are to be elected by a plurality of the votes cast, stockholders shall not be permitted to vote against a nominee.
     Section 3.3 Vacancies . Unless otherwise required by law or the Certificate of Incorporation, and subject to the terms of any one or more classes or series of preferred stock of the Corporation, any vacancy on the Board of Directors that results from an increase in the number of directors may be filled by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring on the Board of Directors, other than for a vacancy resulting from the removal of a director as provided in Section 3.6 which may be filled in the first instance by the stockholders, may be filled by a majority of the Board of Directors then in office, even if less than a quorum, or by a sole remaining director. Any director of any class elected to fill a vacancy resulting from an increase in the number of directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor.
     Section 3.4 Meetings . The Board of Directors and any committee thereof may hold meetings, both regular and special, either within or without the State of Delaware. Regular meetings of the Board of Directors or any committee thereof may be held without notice at such time and at such place as may from time to time be determined by the Board of Directors or such committee, respectively. Special meetings of the Board of Directors may be called by the Chairman, if there be one, the Chief Executive Officer, or by any two directors. Special meetings of any committee of the Board of Directors may be called by the chairman of such committee, if there be one, the Chief Executive Officer or any director serving on such committee. Notice thereof stating the place, date and hour of the meeting shall be given to each director (or, in the case of a committee, to each member of such committee) either by mail not less than 48 hours before the date of the meeting, by telephone, telegram or electronic means on 24 hours’ notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. A notice of a special meeting of the Board of Directors need not specify the purpose of the meeting unless required by the Certificate of Incorporation or these Bylaws. Notice of any meeting of the Board shall not, however, be required to be given to any director who submits a signed waiver of notice, or waives notice of such meeting by electronic transmission, whether before or after the meeting, or if he or she shall be present at such meeting; and any meeting of the Board of Directors shall be a legal meeting without any notice thereof having been given if all the directors of the Corporation then in office shall be present thereat or shall have waived notice thereof.
     The Independent Directors shall meet periodically without any member of management present and, except as the Independent Directors may otherwise determine, without any other director present to consider the overall performance of management and the performance of the role of the Independent Directors in the governance of the Corporation; such meetings shall be held in connection with a regularly scheduled meeting of the Board of Directors except as the Independent Directors shall otherwise determine.
     Section 3.5 Organization . At each meeting of the Board of Directors or any committee thereof, the Chairman of the Board of Directors or the chairman of such committee,

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as the case may be, or, in his or her absence or if there be none, a director chosen by a majority of the directors present, shall act as chairman. Except as provided below, the Secretary of the Corporation shall act as secretary at each meeting of the Board of Directors and of each committee thereof. In case the Secretary shall be absent from any meeting of the Board of Directors or of any committee thereof, an Assistant Secretary shall perform the duties of secretary at such meeting; and in the absence from any such meeting of the Secretary and all the Assistant Secretaries, the chairman of the meeting may appoint any person to act as secretary of the meeting. Notwithstanding the foregoing, the members of each committee of the Board of Directors may appoint any person to act as secretary of any meeting of such committee and the Secretary or any Assistant Secretary of the Corporation may, but need not if such committee so elects, serve in such capacity.
     Section 3.6 Resignations and Removals of Directors . Any director of the Corporation may resign from the Board of Directors or any committee thereof at any time, by giving notice in writing or electronic transmission to (i) the Chairman of the Board of Directors, if there be one, or to the Chief Executive Officer, if there is no Chairman of the Board, and (ii) the Secretary of the Corporation and, in the case of a committee, to the chairman of such committee, if there be one. Such resignation shall take effect at the time therein specified or, if no time is specified, immediately; and, unless otherwise specified in such notice, the acceptance of such resignation shall not be necessary to make it effective. Except as otherwise required by applicable law and subject to the rights, if any, of the holders of shares of preferred stock of the Corporation then outstanding, any director or the entire Board of Directors may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of the then issued and outstanding Voting Shares, provided , however , that at any time the Fortress Stockholders, collectively, beneficially own at least 40% of the then issued and outstanding Voting Shares, any director or the entire Board of Directors may be removed from office at any time, with or without cause, by the affirmative vote of the holders of at least a majority of the voting power of the then issued and outstanding Voting Shares. The vacancy or vacancies in the Board of Directors caused by any such removal shall be filled by the stockholders or, if not so filled, by the Board of Directors as provided in Section 3.3. Any director serving on a committee of the Board of Directors may be removed from such committee at any time by the Board of Directors.
     Section 3.7 Quorum . Except as otherwise required by law, the Certificate of Incorporation or the rules and regulations of any stock exchange on which the Corporation’s shares are listed and traded, at all meetings of the Board of Directors or any committee thereof, a majority of the entire Board of Directors or a majority of the directors constituting such committee, as the case may be, shall constitute a quorum for the transaction of business and the act of a majority of the directors or committee members present at any meeting at which there is a quorum shall be the act of the Board of Directors or such committee, as applicable. If a quorum shall not be present at any meeting of the Board of Directors or any committee thereof, a majority of directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.
     Section 3.8 Action at Meeting . At any meeting of the Board of Directors at which a quorum is present (or such smaller number as may make a determination pursuant to Section 145

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of the DGCL or any successor provision), business shall be transacted in such order and manner as the Board of Directors may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present at such meeting at which there is a quorum, except as is required or provided by law, by the Certificate of Incorporation or by any other provision of these Bylaws.
     Section 3.9 Actions of the Board by Written Consent . Unless otherwise provided in the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all the members of the Board of Directors or such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or such committee. Action taken under this Section 3.9 is effective when the last director signs or delivers the consent, unless the consent specifies a different effective date. A consent signed or delivered under this Section 3.9 has the effect of a meeting vote and may be described as such in any document.
     Section 3.10 Meetings by Means of Conference Telephone . Unless otherwise provided in the Certificate of Incorporation or these Bylaws, members of the Board of Directors of the Corporation, or any committee thereof, may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can simultaneously hear each other, and participation in a meeting pursuant to this Section 3.10 shall constitute presence in person at such meeting.
     Section 3.11 Rules and Regulations . The Board of Directors may adopt such rules and regulations for the conduct of its meetings and the management of the affairs of the Corporation as it may deem proper, not inconsistent with the laws of the State of Delaware, the Certificate of Incorporation or the other provisions of these Bylaws.
     Section 3.12 Committees .
          (a) Delegation of Board Powers . The Board of Directors shall appoint from among its members an audit committee, a compensation committee and a nominating and corporate governance committee, each composed of at least two directors, with such lawfully delegable powers and duties as it thereby confers. Each member of such a committee must meet the requirements for membership, if any, imposed by applicable law and the rules and regulations of any securities exchange or quotation system on which the securities of the Corporation are listed or quoted for trading. Unless otherwise provided by the Certificate of Incorporation, the Board of Directors may from time to time elect from its number one or more other committees of the Board and may delegate thereto such lawfully delegable powers and duties as it thereby confers. All members of any committee of the Board of Directors shall serve at the pleasure of the Board of Directors, and the Board of Directors may abolish any such committee at any time. Any committee to which the Board of Directors delegates any of its powers or duties shall keep records of its meetings and shall report its actions to the Board of Directors. The Board of Directors shall have the power to rescind any action of any such committee, but no such rescission shall have retroactive effect.

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          (b) Audit Committee . The audit committee (the “ Audit Committee ”) shall be composed of at least three members of the Board of Directors. The Audit Committee shall assist the Board of Directors in overseeing the Corporation’s financial reporting and shall have such authority and responsibility as is provided in the Audit Committee’s charter (as hereinafter provided for) and, subject thereto, as is normally incident to the functioning of the audit committee of a publicly-traded company and shall perform the other functions provided to be performed by it by the Bylaws and such other functions as are from time to time assigned to it by the Board of Directors.
          (c) Compensation Committee . The compensation committee (the “ Compensation Committee ”) shall assist the Board of Directors in overseeing the compensation of the Corporation’s officers, the Corporation’s employee stock option or other equity-based compensation plans and programs and the Corporation’s management compensation policies and shall have such authority and responsibility as is provided in the committee’s charter (as hereinafter provided for) and, subject thereto and subject to other direction of the Board of Directors, as is normally incident to the functioning of the compensation committee of a publicly-traded company and shall perform the other functions provided to be performed by it by the Bylaws and such other functions as are from time to time assigned to it by the Board of Directors. No member of the Compensation Committee shall be eligible to participate in any compensation plan or program of the Corporation or any subsidiary of the Corporation that is administered or overseen by the Compensation Committee. Unless reviewed and, if necessary, approved by the Compensation Committee, the Corporation shall not cause or permit any Subsidiary of the Corporation to pay or grant any compensation to any officer or employee of the Corporation which, if paid or granted by the Corporation, would require review or approval of the Compensation Committee.
          (d) Nominating and Corporate Governance Committee . The nominating and corporate governance committee (the “ Nominating and Corporate Governance Committee ”) shall have authority and responsibility to recommend to the Board of Directors for approval the candidates to be recommended by the Board of Directors to the stockholders for election as directors of the Corporation or to be elected by the Board of Directors to fill a vacancy on the Board of Directors, who shall be such as to cause, if such candidates are elected, the composition of the Board of Directors to satisfy the requirements of the Certificate of Incorporation regarding director independence and the requirements of this section, (ii) shall advise the Board of Directors on its policies and procedures for carrying out its responsibilities and on the Corporation’s policies and procedures respecting shareholder participation in corporate governance and (iii) shall have such authority and responsibility as is provided in the Nominating and Corporate Governance Committee’s charter (as hereinafter provided for) and, subject thereto and subject to other direction of the Board of Directors, as is normally incident to the functioning of the nominating or governance committee of a publicly-traded company and (iv) shall perform the other functions provided to be performed by it by the Bylaws and such other functions as are from time to time assigned to it by the Board of Directors.
          (e) Committee Charters . The Board of Directors, by majority of the entire Board of Directors, shall approve a charter describing the purposes, functions and responsibilities of each standing committee of the Board of Directors (each, a “ Board-approved Charter ”). Each standing committee of the Board of Directors shall prepare and recommend to the Board of

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Directors for its approval the committee’s charter and shall, at least annually, review and report to the Board of Directors on the adequacy thereof. In addition to and without limiting the provisions of paragraphs (a) through (d) of this section, each standing committee of the Board of Directors shall have the authority and responsibility provided by its Board-approved charter, subject to further action by the Board of Directors, and no further authorization of the Board of Directors shall be necessary for actions by a committee within the scope of its charter. Any other committee of the Board of Directors may likewise prepare and recommend to the Board of Directors a charter for the committee and shall have the authority and responsibility provided by its Board-approved charter.
          (f) Committee Advisors and Resources . Each standing committee of the Board of Directors shall have the authority to retain, at the Corporation’s expense, such legal and other counsel and advisors as it determines to be necessary or appropriate to carry out its responsibilities within the scope of its charter. Each other committee of the Board of Directors shall have like authority to the extent provided by its charter or otherwise authorized by the Board of Directors. The Corporation shall pay the compensation of the independent auditor of the Corporation for all audit services, as approved by the Audit Committee, without need for further authorization.
          (g) Alternate Members . The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of any such committee. Subject to the rules and regulations of any stock exchange on which the Corporation’s shares are listed and traded, in the absence or disqualification of a member of a committee, and in the absence of a designation by the Board of Directors of an alternate member to replace the absent or disqualified member, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another qualified member of the Board of Directors to act at the meeting in the place of any absent or disqualified member.
          (h) Committee Powers . Any committee, to the extent permitted by law and provided in the resolution establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) required by the DGCL to be submitted to stockholders for approval; or (ii) adopt, amend or repeal the Bylaws of the Corporation. The Board of Directors shall have the power to rescind any action of any such committee, but no such rescission shall have retroactive effect.
          (i) Committee Procedures . Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings. A majority of the members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Notwithstanding anything to the contrary contained in this Article III, the resolution of the Board of Directors establishing any committee of the Board of Directors and/or the charter of any such

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committee may establish requirements or procedures relating to the governance and/or operation of such committee that are different from, or in addition to, those set forth in these Bylaws and, to the extent that there is any inconsistency between these Bylaws and any such resolution or charter, the terms of such resolution or charter shall be controlling.
          (j) Modification, Termination and Removal . The Board, subject to the requirements specifically set forth in this Section 3.12, may at any time change, increase or decrease the number of members of a committee or terminate the existence of a committee. A director’s membership on a committee shall terminate on the date of his or her death or resignation, but the Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may, subject to any requirements specifically set forth in this Section 3.12, fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee.
     Section 3.13 Compensation . The Board of Directors, by affirmative vote of a majority of the directors then in office, and irrespective of any personal interest of any of its members, may establish reasonable compensation (including reasonable pensions, disability or death benefits, and other benefits or payments) of directors for services to the Corporation as directors, or may delegate such authority to an appropriate committee. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary for service as director, payable in cash or securities. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for service as committee members.
     Section 3.14 Interested Directors . No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because any such director’s or officer’s vote is counted for such purpose if: (i) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to the director’s or officer’s relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

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ARTICLE IV
OFFICERS
     Section 4.1 General . The officers of the Corporation shall be chosen by the Board of Directors and shall be a Chief Executive Officer, a President, a Chief Financial Officer and a Secretary. The Board of Directors, in its discretion, also may choose a Chairman of the Board of Directors (who must be a director but is not required to be an employee of the Corporation), a Treasurer and one or more Vice Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any number of offices may be held by the same person, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation nor, except in the case of the Chairman of the Board of Directors (who must be a director), need such officers be directors of the Corporation. Whenever an officer or officers is absent, or whenever for any reason the Board of Directors may deem it desirable, the Board may delegate the powers and duties of any officer or officers to any director or directors. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any other provision hereof.
     Section 4.2 Election . The Board of Directors shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and each officer of the Corporation shall hold office until such officer’s successor is elected and qualified, or until such officer’s earlier death, resignation or removal. Any officer elected by the Board of Directors may be removed at any time by the Board of Directors, including by unanimous written consent. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors.
     Section 4.3 Salaries of Elected Officers . The salaries of all officers of the Corporation shall be fixed from time to time by the Board of Directors. An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he or she is also a director of the Corporation.
     Section 4.4 Voting Securities Owned by the Corporation . Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the President or any Vice President or any other officer authorized to do so by the Board of Directors and any such officer may, in the name of and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and power incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.
     Section 4.5 Chairman of the Board of Directors . The Chairman of the Board of Directors, if there be one, shall preside at all meetings of the stockholders and of the Board of Directors. The Chairman of the Board of Directors shall be designated by the Board of Directors

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and, except where by law the signature of the President is required, the Chairman of the Board of Directors shall possess the same power as the President to sign all contracts, certificates and other instruments of the Corporation which may be authorized by the Board of Directors. During the absence or disability of the President, the Chairman of the Board of Directors shall exercise all the powers and discharge all the duties of the President. The Chairman of the Board of Directors shall also perform such other duties and may exercise such other powers as may from time to time be assigned by these Bylaws or by the Board of Directors.
     Section 4.6 Chief Executive Officer . The Chief Executive Officer shall, subject to the control of the Board of Directors and if there be one, the Chairman of the Board, have general supervision of the affairs of the Corporation and general and active control of all its business. In the absence or disability of the Chairman of the Board of Directors, or if there be none, the Chief Executive Officer shall preside at all meetings of the stockholders and, provided the Chief Executive Officer is also a director, the Board of Directors. The Chief Executive Officer shall see that all orders and resolutions of the Board of Directors and the stockholders are carried into effect. The Chief Executive Officer shall have general authority to execute bonds, deeds and contracts in the name of the Corporation and affix the corporate seal thereto; to sign stock certificates; to cause the employment or appointment of such employees and agents of the Corporation as the proper conduct of operations may require, and to fix their compensation, subject to the provisions of these Bylaws; to remove or suspend any employee or agent who shall have been employed or appointed under the Chief Executive Officer’s authority or under authority of an officer subordinate to the Chief Executive Officer; to suspend for cause, pending final action by the authority which shall have elected or appointed the Chief Executive Officer, any officer subordinate to the Chief Executive Officer; and, in general, to exercise all the powers and authority usually appertaining to the chief executive officer of a corporation, except as otherwise provided in these Bylaws.
     Section 4.7 President . The President shall, subject to the control of the Board of Directors and, if there be one, the Chairman of the Board of Directors, have general supervision of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all bonds, mortgages, contracts and other instruments of the Corporation requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except that the other officers of the Corporation may sign and execute documents when so authorized by these Bylaws, the Board of Directors or the President. If there be no Chairman of the Board of Directors, or if the Board of Directors shall otherwise designate, the President shall be the Chief Executive Officer of the Corporation. The President shall also perform such other duties and may exercise such other powers as may from time to time be assigned to such officer by these Bylaws or by the Board of Directors.
     Section 4.8 Chief Financial Officer . The Chief Financial Officer shall, subject to the control of the Board of Directors, and if there be one, the Chairman of the Board, the Chief Executive Officer and President, keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all monies and other valuable effects in the name and to the credit of the Corporation in such depositories as shall be designated by the Board of Directors or, in the absence of such designation in such depositories, as the Chief Financial Officer shall from time to time deem proper. The Chief Financial Officer shall be the

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treasurer of the Corporation, unless a Treasurer shall be appointed. The Chief Financial Officer, Treasurer or Assistant Chief Financial Officer, shall sign all stock certificates as treasurer of the Corporation. The Chief Financial Officer shall disburse the funds of the Corporation as shall be ordered by the Board of Directors, taking proper vouchers for such disbursements, shall promptly render to the Chief Executive Officer and to the Board of Directors such statements of his or her transactions and accounts as the Chief Executive Officer and Board of Directors respectively may from time to time require, and in general, shall exercise all the powers and authority usually appertaining to the chief financial officer of a corporation, except as otherwise provided in these Bylaws.
     Section 4.9 Vice Presidents . At the request of the President or in the President’s absence or in the event of the President’s inability or refusal to act (and if there be no Chairman of the Board of Directors), the Vice President, or the Vice Presidents if there are more than one (in the order designated by the Board of Directors), shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Chairman of the Board of Directors and no Vice President, the Board of Directors shall designate an officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of the President to act, shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President.
     Section 4.10 Secretary . Except as otherwise provided herein, the Secretary shall record all the proceedings of meetings of the Board of Directors and all meetings of the stockholders in a book or books to be kept for that purpose, and the Secretary shall also perform like duties for committees of the Board of Directors when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board of Directors or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, and if there be no Assistant Secretary, then either the Board of Directors or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of the seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest to the affixing by such officer’s signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.
     Section 4.11 Other Officers . Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.

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     Section 4.12 Resignation . Any officer may resign by delivering his or her written resignation to the Corporation at its principal office, and such resignation shall be effective upon receipt unless it is specified to be effective at a later time. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the successor shall not take office until the effective date. An officer’s resignation shall not affect the Corporation’s contract rights, if any, with the officer.
     Section 4.13 Removal . The Board of Directors may remove any officer with or without cause. Nothing herein shall limit the power of any officer to discharge any subordinate.
ARTICLE V
STOCK
     Section 5.1 Issuance and Consideration . Subject to any applicable requirements of law, the Certificate of Incorporation or these Bylaws, the Board of Directors may direct the Corporation to issue the number of shares of each class or series of stock authorized by the Certificate of Incorporation. The Board of Directors may authorize shares to be issued for any valid consideration. Before the Corporation issues shares, the Board of Directors shall determine that the consideration received or to be received for shares to be issued is adequate. That determination by the Board of Directors is conclusive insofar as the adequacy of consideration for the issuance of shares relates to whether the shares are validly issued, fully paid and nonassessable. Subject to any applicable requirements of law or the Certificate of Incorporation, the Board of Directors shall determine the terms upon which the rights, options, or warrants for the purchase of shares or other securities of the Corporation are issued by the Corporation and the terms, including the consideration, for which the shares or other securities are to be issued.
     Section 5.2 Share Certificates . If shares are represented by certificates, at a minimum each share certificate shall state on its face: (a) the name of the Corporation and that it is organized under the laws of the State of Delaware; (b) the name of the person to whom issued; and (c) the number and class of shares and the designation of the series, if any, the certificate represents. The front or back of each certificate shall also set forth any information or statement required to be set forth thereon by the DGCL. Unless shares can be issued only in uncertificated form as contemplated by Section 5.3, each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, either manually or in facsimile, the Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, General Counsel or Secretary (if there be such officers appointed) or any two officers designated by the Board of Directors, certifying the name of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile, and any such certificate shall bear the corporate seal or its facsimile. If the person who signed, either manually or in facsimile, a share certificate no longer holds office when the certificate is issued, the certificate shall be nevertheless valid.
     Section 5.3 Uncertificated Shares . The Board of Directors may authorize the issue of some or all of the shares of any or all of the Corporation’s classes or series of capital stock without certificates. The authorization shall not affect shares already represented by certificates until they are surrendered to the Corporation. Except as otherwise provided in a resolution

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approved by the Board of Directors, all shares of capital stock of the Corporation issued after February 20, 2012 shall be uncertificated shares. To the extent required by the DGCL, within a reasonable time after the issue or transfer of shares without certificates, the Corporation shall send the stockholder a written statement of the information required by the DGCL to be on physical share certificates of the Corporation.
     Section 5.4 Lost, Stolen or Destroyed Certificates . The Board of Directors may, subject to Delaware Code, Title 6, Section 8-405, determine the conditions upon which a new share certificate may be issued in place of any certificate alleged to have been lost, destroyed, or wrongfully taken. The Board of Directors may, in its discretion, require the owner of such share certificate, or his or her legal representative, to give a bond, sufficient in its opinion, with or without surety, to indemnify the Corporation against any loss or claim which may arise by reason of the issue of the new certificate.
     Section 5.5 Transfers . Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of stock of the Corporation. Subject to any restrictions on transfer and except when a certificate is issued in accordance with Section 5.4, shares of stock represented by certificates may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment and power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require. Upon receipt of proper transfer instructions from the registered owner of uncertificated shares, such uncertificated shares shall be cancelled and the issuance of new equivalent uncertificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the Corporation. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer.
     Section 5.6 Record Owners . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise required by law.
     Section 5.7 Transfer and Registry Agents . The Corporation may from time to time maintain one or more transfer offices or agencies and registry offices or agencies at such place or places as may be determined from time to time by the Board of Directors.
     Section 5.8 Regulations . The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

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ARTICLE VI
NOTICES
     Section 6.1 Notices . Whenever written notice is required by law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, such notice may be given by mail, addressed to such director, member of a committee or stockholder, at such person’s address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Corporation under applicable law, the Certificate of Incorporation or these Bylaws shall be effective if given by a form of electronic transmission if consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Corporation. Any such consent shall be deemed to be revoked if (i) the Corporation is unable to deliver by electronic transmission two (2) consecutive notices by the Corporation in accordance with such consent and (ii) such inability becomes known to the Secretary or Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice; provided, however, that the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action. Notice given by electronic transmission, as described above, shall be deemed given: (i) if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice; (ii) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (iii) if by a posting on an electronic network, together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (iv) if by any other form of electronic transmission, when directed to the stockholder. An affidavit of the mailing or other means of giving any notice of any stockholders’ meeting, executed by the Secretary, an Assistant Secretary or any transfer agent of the Corporation giving the notice, shall be prima facie evidence of the giving of such notice or report. Notice shall be deemed to have been given to all stockholders of record who share an address if notice is given in accordance with the “householding” rules set forth in Rule 14a-3(e) under the Exchange Act, and Section 233 of the DGCL. Notice to directors or committee members may be given personally or by telegram, telex, cable or other means of electronic transmission.
     Section 6.2 Waivers of Notice . Whenever any notice is required by applicable law, the Certificate of Incorporation or these Bylaws, to be given to any director, member of a committee or stockholder, a waiver thereof in writing, signed by the person or persons entitled to notice, or a waiver by electronic transmission by the person or persons entitled to notice, or a waiver by electronic transmission by the person or persons entitled to notice whether before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting, present in person or represented by proxy, shall constitute a waiver of notice of such meeting, except where the person attends the meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any Annual or Special Meeting of Stockholders or any regular or special meeting of the directors or members of a committee of directors need be specified in any written waiver of notice unless so required by law, the Certificate of Incorporation or these Bylaws.

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ARTICLE VII
GENERAL PROVISIONS
     Section 7.1 Dividends .
          (a) Dividends upon the capital stock of the Corporation, subject to the requirements of the DGCL and the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting of the Board of Directors (or any action by written consent in lieu thereof in accordance with Section 3.8 of Article III hereof), and may be paid in cash, in property, or in shares of the Corporation’s capital stock. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors from time to time, in its absolute discretion, deems proper as a reserve or reserves to meet contingencies, or for purchasing any of the shares of capital stock, warrants, rights, options, bonds, debentures, notes, scrip or other securities or evidences of indebtedness of the Corporation, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for any proper purpose, and the Board of Directors may modify or abolish any such reserve.
          (b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than 60 days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
     Section 7.2 Disbursements . All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
     Section 7.3 Fiscal Year . The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. If the Board makes no determination to the contrary, the fiscal year of the Corporation shall be the twelve months ending with December 31 in each year.
     Section 7.4 Corporate Seal . The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words “Corporate Seal, Delaware”. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal (the original of which shall be kept with the Secretary) may be kept and used by the Treasurer or by an Assistant Treasurer or Assistant Secretary (if there be such officers appointed).

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     Section 7.5 Records to be Kept.
          (a) The Corporation shall keep as permanent records minutes of all meetings of its stockholders and Board of Directors, a record of all actions taken by the stockholders or Board of Directors without a meeting, and a record of all actions taken by a committee of the Board of Directors in place of the Board of Directors on behalf of the Corporation. The Corporation or its agent shall maintain a record of its stockholders, in a form that permits preparation of a list of the names and addresses of all stockholders, in alphabetical order by class or series of shares showing the number and class or series of shares held by each. The Corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.
          (b) The Corporation shall keep within the State of Delaware a copy of such records at its principal office or an office of its transfer agent or of its Secretary or Assistant Secretary or of its registered agent as may be required by law.
     Section 7.6 Execution of Instruments . The Board of Directors may authorize, or provide for the authorization of, officers, employees or agents to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization must be in writing or by electronic transmission and may be general or limited to specific contracts or instruments.
     Section 7.7 Certificate of Incorporation . All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time, including any certificate of designations in effect from time to time with respect to Preferred Stock.
     Section 7.8 Construction . The words “include” and “including” and similar terms shall be deemed to be followed by the words “without limitation.” Whenever used in these Bylaws, any noun or pronoun shall be deemed to include the plural as well as the singular and to cover all genders. Any reference in these Bylaws to provision of any statute shall be deemed to include any successor provision. Unless the context otherwise requires, the term “person” shall be deemed to include any natural person or any corporation, organization or other entity.
ARTICLE VIII
INDEMNIFICATION
     Section 8.1 Power to Indemnify in Actions, Suits or Proceedings other than Those by or in the Right of the Corporation . Subject to Section 8.3 of this Article VIII, the Corporation shall indemnify and hold harmless to the fullest extent authorized by Delaware law any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation), by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether the basis of such proceeding is

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alleged action in an official capacity as a director or officer or in any other capacity while serving in such official capacity, against expenses (including attorneys’ fees), liability, loss, judgments, fines, penalties and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.
     Section 8.2 Power to Indemnify in Actions, Suits or Proceedings by or in the Right of the Corporation . Subject to Section 8.3 of this Article VIII, the Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether the basis of such proceeding is alleged action in an official capacity as a director or officer or in any other capacity while serving in such official capacity, against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
     Section 8.3 Authorization of Indemnification . Any indemnification under this Article VIII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 8.1 or Section 8.2 of this Article VIII, as the case may be. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (i) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (iv) by the stockholders. Such determination shall be made, with respect to former directors and officers, by any person or persons having the authority to act on the matter on behalf of the Corporation. To the extent, however, that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or

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proceeding described above, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith, without the necessity of authorization in the specific case.
     Section 8.4 Good Faith Defined . For purposes of any determination under Section 8.3 of this Article VIII, a person shall be deemed to have acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, or, with respect to any criminal action or proceeding, to have had no reasonable cause to believe such person’s conduct was unlawful, if such person’s action is based on the records or books of account of the Corporation or another enterprise, or on information supplied to such person by the officers of the Corporation or another enterprise in the course of their duties, or on the advice of legal counsel for the Corporation or another enterprise or on information or records given or reports made to the Corporation or another enterprise by an independent certified public accountant or by an appraiser or other expert selected with reasonable care by the Corporation or another enterprise. The provisions of this Section 8.4 shall not be deemed to be exclusive or to limit in any way the circumstances in which a person may be deemed to have met the applicable standard of conduct set forth in Section 8.1 or Section 8.2 of this Article VIII, as the case may be.
     Section 8.5 Indemnification by a Court . Notwithstanding any contrary determination in the specific case under Section 8.3 of this Article VIII, and notwithstanding the absence of any determination thereunder, any director or officer may apply to the Court of Chancery of the State of Delaware or any other court of competent jurisdiction in the State of Delaware for indemnification to the extent otherwise permissible under Section 8.1 or Section 8.2 of this Article VIII. The basis of such indemnification by a court shall be a determination by such court that indemnification of the director or officer is proper in the circumstances because such person has met the applicable standard of conduct set forth in Section 8.1 or Section 8.2 of this Article VIII, as the case may be. Neither a contrary determination in the specific case under Section 8.3 of this Article VIII nor the absence of any determination thereunder shall be a defense to such application or create a presumption that the director or officer seeking indemnification has not met any applicable standard of conduct. Notice of any application for indemnification pursuant to this Section 8.5 shall be given to the Corporation promptly upon the filing of such application. If successful, in whole or in part, the director or officer seeking indemnification shall also be entitled to be paid the expense of prosecuting such application; provided , however , that such notice shall not be a requirement for an award of or a determination of entitlement to indemnification or advancement of expenses.
     Section 8.6 Expenses Payable in Advance . To the fullest extent authorized by Delaware law, expenses (including attorneys’ and other professionals’ fees and disbursements and court costs) incurred by a director or officer in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation as authorized in this Article VIII. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.

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     Section 8.7 Non-exclusivity of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, it being the policy of the Corporation that indemnification of and advancement of expenses to the persons specified in Section 8.1 and Section 8.2 of this Article VIII shall be made to the fullest extent permitted by law, including as a result of any amendment of the DGCL expanding the right of corporations to indemnify and advance expenses. The provisions of this Article VIII shall not be deemed to preclude the indemnification of any person who is not specified in Section 8.1 or Section 8.2 of this Article VIII but whom the Corporation has the power or obligation to indemnify under the provisions of the DGCL, or otherwise. The Corporation’s obligation, if any, to indemnify, to hold harmless, or to provide advancement of expenses to any indemnitee who was or is serving at its request as a director, officer, employee, agent or manager of another corporation, partnership, limited liability company, joint venture, trust or other enterprise or nonprofit entity (including service with respect to an employee benefit plan) shall be reduced by any amount such indemnitee actually collects as indemnification, holding harmless, or advancement of expenses from such other corporation, partnership, limited liability company, joint venture, trust or other enterprise nonprofit entity.
     Section 8.8 Insurance . The Corporation may, but shall not be required, to purchase and maintain at its expense insurance on behalf of any person who is or was a director or officer of the Corporation, or is or was a director or officer of the Corporation serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Corporation would have the power or the obligation to indemnify such person against such liability under the provisions of this Article VIII or Delaware law. Nothing contained in this Article VIII shall prevent the Corporation from entering into with any person any agreement that provides independent indemnification, hold harmless or exoneration rights to such person or further regulates the terms on which indemnification, hold harmless or exoneration rights are to be provided to such person or provides independent assurance of the Corporation’s obligation to indemnify, hold harmless and/or exonerate such person, whether or not such indemnification, hold harmless or exoneration rights are on the same or different terms than provided for by this Article VIII or is in respect of such person acting in any other capacity, and nothing contained herein shall be exclusive of, or a limitation on, any right to indemnification, to be held harmless, to exoneration or to advancement of expenses to which any person is otherwise entitled. The Corporation may create a trust fund, grant a security interest or use other means (including a letter of credit) to ensure the payment of such amounts as may be necessary to effect indemnification and the advancement of expenses as provided in this Article VIII.
     Section 8.9 Certain Definitions . For purposes of this Article VIII, references to the “Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors

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or officers, so that any person who is or was a director or officer of such constituent corporation, or is or was a director or officer of such constituent corporation serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. The term “another enterprise” as used in this Article VIII shall mean any other corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise of which such person is or was serving at the request of the Corporation as a director, officer, employee or agent. For purposes of this Article VIII, references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director or officer with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VIII.
     Section 8.10 Survival of Indemnification and Advancement of Expenses . The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VIII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors and administrators of such a person.
     Section 8.11 Contractual Rights . The rights conferred upon any person in this Article VIII shall be contract rights and such rights shall continue as to any person who has ceased to be a director, officer, employee, trustee or agent, and shall inure to the benefit of such person’s heirs, executors and administrators. A right to indemnification or to advancement of expenses arising under any provision of this Article VIII shall not be eliminated or impaired by an amendment, alteration or repeal of any provision of the Bylaws of this Corporation after the occurrence of the act or omission that is the subject of the proceeding for which indemnification or advancement of expenses is sought (even in the case of a proceeding based on such a state of facts that is commenced after such time).
     Section 8.12 Limitation on Indemnification . Notwithstanding anything contained in this Article VIII to the contrary, except for proceedings to enforce rights to indemnification (which shall be governed by Section 8.5 of this Article VIII), the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors or personal or legal representatives) or advance expenses in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors of the Corporation.
     Section 8.13 Indemnification of Employees and Agents . Subject to applicable law, the Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article VIII to directors and officers of the Corporation.

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     Section 8.14 Severability . If this Article VIII or any portion hereof shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, this Article VIII shall be deemed to be modified to the minimum extent necessary to avoid a violation of law and, as so modified, this Article and the remaining provisions hereof shall remain valid and enforceable in accordance with their terms to the fullest extent permitted by law.
ARTICLE IX
AMENDMENTS
     Section 9.1 Amendments . These Bylaws may be altered, amended or repealed, in whole or in part, or new Bylaws may be adopted by the stockholders or by the Board of Directors; provided, however, that notice of such alteration, amendment, repeal or adoption of new Bylaws be contained in the notice of such meeting (if there is one) of the stockholders or Board of Directors, as the case may be. All such alterations, amendments, repeals or adoptions must be approved by either the affirmative vote of the holders of at least 66 2/3% of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote thereon or by a majority of the entire Board of Directors, provided , however , that at any time the Fortress Stockholders, collectively, beneficially own at least 25% of the then issued and outstanding Voting Shares, any such alterations, amendments, repeals or adoptions may be approved by either the affirmative vote of the holders of at least a majority of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote thereon or by a majority of the entire Board of Directors. Notwithstanding the foregoing or any other provision of these Bylaws (and in addition to any other vote that may be required by law), the affirmative vote of the holders of at least 80% of the voting power of the then issued and outstanding shares of capital stock of the Corporation entitled to vote thereon shall be required to amend, alter, change or repeal, or to adopt any provision as part of these Bylaws inconsistent with the purpose and intent of Section 2.3, Section 2.11, Section 3.1, Section 3.2, Section 3.3, Section 3.6, this Article IX and Article XI.
ARTICLE X
EMERGENCY BYLAWS
     Section 10.1 Emergency Board of Directors . In case of an attack on the United States or on a locality in which the Corporation conducts its business or customarily holds meetings of the Board of Directors or its stockholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors or a committee thereof cannot readily be convened for action in accordance with the provisions of the Bylaws, the business and affairs of the Corporation shall be managed by or under the direction of an Emergency Board of Directors (hereinafter called the “ Emergency Board ”) established in accordance with Section 10.2.

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     Section 10.2 Membership of Emergency Board of Directors . The Emergency Board shall consist of at least three of the following persons present or available at the Emergency Corporate Headquarters determined according to Section 10.5: (a) those persons who were directors at the time of the attack or other event mentioned in Section 10.1, and (b) any other persons appointed by such directors to the extent required to provide a quorum at any meeting of the Board of Directors. If there are no such directors present or available at the Emergency Corporate Headquarters, the Emergency Board shall consist of the three highest-ranking officers or employees of the Corporation present or available and any other persons appointed by them.
     Section 10.3 Powers of the Emergency Board . The Emergency Board will have the same powers as those granted to the Board of Directors in these Bylaws, but will not be bound by any requirement of these Bylaws which a majority of the Emergency Board believes impracticable under the circumstances.
     Section 10.4 Stockholders’ Meeting . At such time as it is practicable to do so, the Emergency Board shall call a meeting of stockholders for the purpose of electing directors. Such meeting will be held at a time and place (or by means of remote communication) to be fixed by the Emergency Board and pursuant to such notice to stockholders as it is deemed practicable to give. The stockholders entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum.
     Section 10.5 Emergency Corporate Headquarters . Emergency Corporate Headquarters shall be at such location as the Board of Directors or the Chief Executive Officer shall determine prior to the attack or other event, or if not so determined, at such place as the Emergency Board may determine.
     Section 10.6 Limitation of Liability . No officer, director or employee acting in accordance with the provisions of this Article X shall be liable except for willful misconduct.
     Section 10.7 Amendments; Repeal . At any meeting of the Emergency Board, the Emergency Board may modify, amend or add to the provisions of this Article X so as to make any provision that may be practical or necessary for the circumstances of the emergency. The provisions of this Article X shall be subject to repeal or change by further action of the Board of Directors or by action of the stockholders, but no such repeal or change shall modify the provisions of Section 10.6 with regard to action taken prior to the time of such repeal or change.
ARTICLE XI
DEFINITIONS
     Section 11.1 Certain Defined Terms . For purposes of these Bylaws, the following terms shall have the following meanings:
          (a) “ Affiliate ” means, with respect to a given person, any other person that, directly or indirectly, controls, is controlled by or is under common control with, such person; provided , however , that for purposes of this definition, none of (i) the Nationstar Entities and any entities (including corporations, partnerships, limited liability companies or other persons) in which such Nationstar Entities hold, direct or indirectly, an ownership interest, on the one hand,

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or (ii) the Fortress Stockholders and their Affiliates (excluding any Nationstar Entities or other entities described in clause (i)), on the other hand, shall be deemed to be “Affiliates” of one another. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as applied to any person, means the possession, directly or indirectly, of beneficial ownership of, or the power to vote, 10% or more of the securities having voting power for the election of directors (or other persons acting in similar capacities) of such person or the power otherwise to direct or cause the direction of the management and policies of such person, whether through the ownership of voting securities, by contract or otherwise.
          (b) “ beneficially own ” and “ beneficial ownership ” and similar terms used herein shall be determined in accordance with Rules 13d-3 and 13d-5 under the Exchange Act.
          (c) “ entire Board of Directors ” means the total number of directors which the Corporation would have if there were no vacancies.
          (d) “ Fortress Affiliate Stockholders ” shall mean (A) any director of the Corporation who may be deemed an Affiliate of Fortress Investment Group LLC (“ FIG ”), (B) any director or officer of FIG and (C) any investment funds (including any managed accounts) managed directly or indirectly by FIG or its Affiliates.
          (e) “ Fortress Stockholders ” shall mean (i) the Initial Stockholder, (ii) each Fortress Affiliate Stockholder and (iii) each Permitted Transferee who becomes a party to or bound by the provisions of the Stockholders Agreement, in accordance with the terms thereof, or Permitted Transferee thereof who is entitled to enforce the provisions of the Stockholders Agreement in accordance with the terms thereof, in each case of clauses (i), (ii) and (iii) to the extent that the Initial Stockholder, Fortress Affiliate Stockholders and Permitted Transferees, together, hold at least an amount of the Corporation’s common stock equal to 1% of the Corporation’s common stock issued and outstanding immediately after the consummation of the initial public offering of the Corporation’s common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended.
          (f) “ Governmental Entity ” shall mean any national, state, provincial, municipal, local or foreign government, any court, arbitral tribunal, administrative agency or commission or other governmental or regulatory authority, commission or agency or any non-governmental, self-regulatory authority, commission or agency.
          (g) “ Independent Director ” shall mean a director who (i) qualifies as an “independent director” within the meaning of the corporate governance listing standards from time to time adopted by the NYSE (or, if at any time the Corporation’s common stock is not listed on the NYSE and is listed on a stock exchange other than the NYSE, the applicable corporate governance listing standards of such stock exchange) with respect to the composition of the board of directors of a listed company (without regard to any independence criteria applicable under such standards only to the members of a committee of the board of directors) and (ii) also satisfies the minimum requirements of director independence of Rule 10A-3(b)(1) under the Exchange Act (as from time to time in effect), whether or not such director is a member of the audit committee.

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          (h) “ Initial Stockholder ” shall mean FIF HE Holdings LLC and its Subsidiaries (other than Subsidiaries that constitute Nationstar Entities).
          (i) “ Judgment ” shall mean any order, writ, injunction, award, judgment, ruling or decree of any Governmental Entity.
          (j) “ Law ” shall mean any statute, law, code, ordinance, rule or regulation of any Governmental Entity.
          (k) “ Lien ” shall mean any pledge, claim, equity, option, lien, charge, mortgage, easement, right-of-way, call right, right of first refusal, “tag”- or “drag”- along right, encumbrance, security interest or other similar restriction of any kind or nature whatsoever.
          (l) “ Nationstar Entities ” means the Corporation and its Subsidiaries, and “ Nationstar Entity ” shall mean any of the Nationstar Entities.
          (m) “ NYSE ” shall mean the New York Stock Exchange.
          (n) “ Permitted Transferee ” shall mean, with respect to each Fortress Stockholder, (i) any other Fortress Stockholder, (ii) such Fortress Stockholder’s Affiliates, (iii) in the case of any Fortress Stockholder, (A) any member or general or limited partner of such Fortress Stockholder (including, without limitation, any member of the Initial Stockholder), (B) any corporation, partnership, limited liability company or other entity that is an Affiliate of such Fortress Stockholder or any member, general or limited partner of such Fortress Stockholder (collectively, “ Fortress Stockholder Affiliates ”), (C) any investment funds managed directly or indirectly by such Fortress Stockholder or any Fortress Stockholder Affiliate (a “ Fortress Stockholder Fund ”), (D) any general or limited partner of any Fortress Stockholder Fund, (E) any managing director, general partner, director, limited partner, officer or employee of any Fortress Stockholder Affiliate, or any spouse, lineal descendant, sibling, parent, heir, executor, administrator, testamentary trustee, legatee or beneficiary of any of the foregoing persons described in this clause (E) (collectively, “ Fortress Stockholder Associates ”) or (F) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which, consist solely of any one or more of such Fortress Stockholder, any general or limited partner of such Fortress Stockholder, any Fortress Stockholder Affiliates, any Fortress Stockholder Fund, any Fortress Stockholder Associates, their spouses or their lineal descendants and (iv) any other person that acquires shares of the Corporation’s common stock from such Fortress Stockholder other than pursuant to a Public Offering that agrees to become party to the Stockholders Agreement.
          (o) “ Public Offering ” shall mean an offering of common stock of the Corporation pursuant to an effective registration statement under the Securities Act of 1933, as amended, including an offering in which Fortress Stockholders are entitled to sell the Corporation’s common stock pursuant to the terms of the Stockholders Agreement.
          (p) “ Restriction ” with respect to any capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security, shall mean any voting or other trust or agreement, option, warrant, preemptive right, right of first offer, right of first refusal, escrow arrangement, proxy, buy-sell agreement, power of attorney or other

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contract, any Law, license, permit or Judgment that, conditionally or unconditionally, (i) grants to any person the right to purchase or otherwise acquire, or obligates any person to sell or otherwise dispose of or issue, or otherwise results or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, may result in any person acquiring, (A) any of such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security, (B) any of the proceeds of, or any distributions paid or that are or may become payable with respect to, any of such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security or (C) any interest in such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security or any such proceeds or distributions, (ii) restricts or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, is reasonably likely to restrict the transfer or voting of, or the exercise of any rights or the enjoyment of any benefits arising by reason of ownership of, any such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security or any such proceeds or distributions or (iii) creates or, whether upon the occurrence of any event or with notice or lapse of time or both or otherwise, is reasonably likely to create a Lien or purported Lien affecting such capital stock, partnership interest, membership interest in a limited liability company or other equity interest or security, proceeds or distributions.
          (q) “ Stockholders Agreement ” shall mean the stockholders agreement, dated as of February 17, 2012, between the Corporation and the Initial Stockholder, as may be amended from time to time.
          (r) “ Subsidiary ” with respect to any person means: (i) a corporation, a majority in voting power of whose capital stock with voting power, under ordinary circumstances, to elect directors is at the time, directly or indirectly owned by such person, by a Subsidiary of such person, or by such person and one or more Subsidiaries of such person, without regard to whether the voting of such capital stock is subject to a voting agreement or similar Restriction, (ii) a partnership or limited liability company in which such person or a Subsidiary of such person is, at the date of determination, (A) in the case of a partnership, a general partner of such partnership with the power affirmatively to direct the policies and management of such partnership or (B) in the case of a limited liability company, the managing member or, in the absence of a managing member, a member with the power affirmatively to direct the policies and management of such limited liability company or (iii) any other person (other than a corporation) in which such person, a Subsidiary of such person or such person and one or more Subsidiaries of such person, directly or indirectly, at the date of determination thereof, has (A) the power to elect or direct the election of a majority of the members of the governing body of such person (whether or not such power is subject to a voting agreement or similar restriction) or (B) in the absence of such a governing body, a majority ownership interest.
* * *
Adopted as of: February 20, 2012

37

Exhibit 4.1
STOCKHOLDERS AGREEMENT
BY AND AMONG

NATIONSTAR MORTGAGE HOLDINGS INC.
AND

FIF HE HOLDINGS LLC
 
DATED AS OF FEBRUARY 17, 2012

 


 

TABLE OF CONTENTS
         
    Page  

ARTICLE I
DEFINITIONS
 
       
Section 1.1. Certain Defined Terms
    1  
Section 1.2. Construction
    5  
 
       

ARTICLE II
TRANSFER
 
       
Section 2.1. Binding Effect on Transferees
    5  
Section 2.2. Additional Purchases
    5  
Section 2.3. Charter Provisions
    5  
Section 2.4. Legend
    6  
Section 2.5. Share Certificates
    6  

ARTICLE III
BOARD OF DIRECTORS
 
       
Section 3.1. Board
    6  
Section 3.2. Committees
    8  
 
       

ARTICLE IV
REGISTRATION RIGHTS
 
       
Section 4.1. Demand Registration
    8  
Section 4.2. Piggyback Registrations
    11  
Section 4.3. Shelf Registration
    12  
Section 4.4. Withdrawal Rights
    14  
Section 4.5. Registration Procedures
    14  
Section 4.6. Registration and Offering Expenses
    20  
Section 4.7. Indemnification
    21  
 
       

ARTICLE V
MISCELLANEOUS
 
       
Section 5.1. Headings
    23  
Section 5.2. Entire Agreement
    24  
Section 5.3. Further Actions; Cooperation
    24  
Section 5.4. Notices
    24  
Section 5.5. Applicable Law
    25  
Section 5.6. Severability
    25  
Section 5.7. Successors and Assigns
    25  

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TABLE OF CONTENTS
(continued)
         
    Page  
Section 5.8.   Amendments
    26  
Section 5.9.   Waiver
    26  
Section 5.10. Counterparts
    26  
Section 5.11. Submission To Jurisdiction
    26  
Section 5.12. Injunctive Relief
    27  
Section 5.13. Recapitalizations, Exchanges, Etc. Affecting the Shares of Common Stock; New Issuance
    27  
Section 5.14. Termination
    27  
Section 5.15. Third Party Beneficiary
    27  
Section 5.16. Rule 144
    27  
Section 5.17. Information
    28  

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STOCKHOLDERS AGREEMENT
     THIS STOCKHOLDERS AGREEMENT (this “ Agreement ”) is made as of February 17, 2012, by and between FIF HE Holdings LLC (the “ Initial Stockholder ”) and Nationstar Mortgage Holdings Inc., a Delaware corporation (the “ Company ”). Unless otherwise indicated, references to articles and sections shall be to articles and sections of this Agreement.
     WHEREAS, the Company has agreed to provide the registration rights and other rights set forth herein.
     NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
     SECTION 1.1. Certain Defined Terms . For purposes of this Agreement, the following terms shall have the following meanings:
     (a) “ Affiliate ” shall have the meaning set forth in Rule 12b-2 promulgated under the Exchange Act; provided that no Stockholder shall be deemed an Affiliate of any other Stockholder solely by reason of any investment in the Company.
     (b) “ Agreement ” shall have the meaning assigned to it in the preamble.
     (c) A Person shall be deemed to “ Beneficially Own ” securities if such Person is deemed to be a “beneficial owner” within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act as in effect on the date of this Agreement.
     (d) “ Board ” shall mean the board of directors of the Company.
     (e) “ Bylaws ” shall mean the bylaws of the Company, as may be amended and/or restated from time to time.
     (f) “ Certificate of Incorporation ” shall mean the certificate of incorporation of the Company, as may be amended and/or restated from time to time.
     (g) “ Commission ” shall mean the United States Securities and Exchange Commission or any successor agency.
     (h) “ Common Stock ” shall mean the Company’s common stock, par value $0.01 per share, and any and all securities of any kind whatsoever of the Company which may be issued and outstanding on or after the date hereof in respect of, in exchange for, or upon conversion of shares of Common Stock pursuant to a merger, consolidation, stock split, stock dividend, recapitalization of the Company or otherwise.

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     (i) “ Company ” shall have the meaning assigned to it in preamble.
     (j) “ Company Securities ” shall mean (i) any Common Stock and (ii) any other securities of the Company entitled to vote generally in the election of directors of the Company.
     (k) “ Demand ” shall have the meaning assigned to it in Section 4.1(a).
     (l) “ Demand Registration ” shall have the meaning assigned to it in Section 4.1(a).
     (m) “ Exchange Act ” shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
     (n) “ FIG LLC ” shall mean FIG LLC, a Delaware limited liability company, or any other Person designated as “FIG LLC” by Fortress Investment Group LLC in a written notice to the Company.
     (o) “ FINRA ” shall mean the Financial Industry Regulatory Authority.
     (p) “ Fortress Affiliate Stockholder ” shall mean (A) any director of the Company who may be deemed an Affiliate of Fortress Investment Group LLC (“FIG”), (B) any director or officer of FIG LLC and (C) any investment funds (including any managed accounts) managed directly or indirectly by FIG or its Affiliates.
     (q) “ Form S-3 ” shall have the meaning assigned to it in Section 4.3(a).
     (r) “ Free Writing Prospectus ” shall mean a free writing prospectus, as defined in Rule 405 under the Securities Act.
     (s) “ Identified Director ” shall have the meaning assigned to it in Section 3.1(e)(i).
     (t) “ Initial Public Offering ” shall mean the initial public offering of Common Stock pursuant to an effective registration statement under the Securities Act.
     (u) “ Initial Stockholder ” shall have the meaning assigned to it in preamble.
     (v) “ Inspectors ” shall have the meaning assigned to it in Section 4.5(a)(viii).
     (w) “ IPO Underwriting Agreement ” shall mean the underwriting agreement, dated February [___], 2012, by and among the Company, the Initial Stockholder and the underwriters named therein.
     (x) “ Issuer Free Writing Prospectus ” shall mean an issuer free writing prospectus, as defined in Rule 433 under the Securities Act.
     (y) “ Losses ” shall have the meaning assigned to it in Section 4.7(a).

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     (z) “ Notice ” shall have the meaning assigned to it in Section 3.1(e)(i).
     (aa) “ Notification Event ” shall have the meaning assigned to it in Section 3.1(e).
     (bb) “ Other Demanding Sellers ” shall have the meaning assigned to it in Section 4.2(b).
     (cc) “ Other Proposed Sellers ” shall have the meaning assigned to it in Section 4.2(b).
     (dd) “ Permitted Transferee ” shall mean, with respect to each Stockholder, (i) any other Stockholder, (ii) such Stockholder’s Affiliates, (iii) in the case of any Stockholder, (A) any member or general or limited partner of such Stockholder (including any member of the Initial Stockholder), (B) any corporation, partnership, limited liability company or other entity that is an Affiliate of such Stockholder or any member, general or limited partner of such Stockholder (collectively, “ Stockholder Affiliates ”), (C) any investment funds managed directly or indirectly by such Stockholder or any Stockholder Affiliate (a “ Stockholder Fund ”), (D) any general or limited partner of any Stockholder Fund, (E) any managing director, general partner, director, limited partner, officer or employee of any Stockholder Affiliate, or any spouse, lineal descendant, sibling, parent, heir, executor, administrator, testamentary trustee, legatee or beneficiary of any of the foregoing persons described in this clause (E) (collectively, “ Stockholder Associates ”) or (F) any trust, the beneficiaries of which, or any corporation, limited liability company or partnership, the stockholders, members or general or limited partners of which, consist solely of any one or more of such Stockholder, any general or limited partner of such Stockholder, any Stockholder Affiliates, any Stockholder Fund, any Stockholder Associates, their spouses or their lineal descendants and (iv) any other Person that acquires shares of Common Stock from such Stockholder other than pursuant to a Public Offering that agrees to become party to this Agreement.
     (ee) “ Person ” shall mean any individual, firm, corporation, partnership, limited liability company or other entity, and shall include any successor (by merger or otherwise) of such entity.
     (ff) “ Piggyback Notice ” shall have the meaning assigned to it in Section 4.2(a).
     (gg) “ Piggyback Registration ” shall have the meaning assigned to it in Section 4.2(a).
     (hh) “ Piggyback Seller ” shall have the meaning assigned to it in Section 4.2(a).
     (ii) “ Public Offering ” shall mean an offering of equity securities of the Company pursuant to an effective registration statement under the Securities Act, including an offering in which Stockholders are entitled to sell Common Stock pursuant to the terms of this Agreement.

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     (jj) “ Records ” shall have the meaning assigned to it in Section 4.5(a)(viii).
     (kk) “ Registrable Amount ” shall mean a number of shares of Common Stock equal to 1% of the Common Stock issued and outstanding immediately after the consummation of the Initial Public Offering.
     (ll) “ Registrable Securities ” shall mean any Common Stock currently owned or hereafter acquired by any Stockholder. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (x) a registration statement registering such securities under the Securities Act has been declared effective and such securities have been sold or otherwise transferred by the holder thereof pursuant to such effective registration statement or (y) such securities are sold in accordance with Rule 144 (or any successor provision) promulgated under the Securities Act.
     (mm) “ Requesting Stockholder ” shall have the meaning assigned to it in Section 4.1(a).
     (nn) “ Securities Act ” shall mean the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
     (oo) “ Selling Holders ” shall have the meaning assigned to it in Section 4.5(a)(i).
     (pp) “ Shelf Notice ” shall have the meaning assigned to it in Section 4.3(a).
     (qq) “ Shelf Registration Effectiveness Period ” shall have the meaning assigned to it in Section 4.3(d).
     (rr) “ Shelf Registration Statement ” shall have the meaning assigned to it in Section 4.3(a).
     (ss) “ Stockholders ” shall mean (i) the Initial Stockholder, (ii) each Fortress Affiliate Stockholder and (iii) each Permitted Transferee who becomes a party to or bound by the provisions of this Agreement in accordance with the terms hereof or a Permitted Transferee thereof who is entitled to enforce the provisions of this Agreement in accordance with the terms hereof, in each case of clauses (i), (ii) and (iii) to the extent that the Initial Stockholder, Fortress Affiliate Stockholders and Permitted Transferees, together, hold at least a Registrable Amount.
     (tt) “ Suspension Period ” shall have the meaning assigned to it in Section 4.3(e).
     (uu) “ Underwritten Offering ” shall mean a sale of securities of the Company to an underwriter or underwriters for reoffering to the public.
     (vv) “ Voting Power of the Company ” shall mean the total number of votes that may be cast in the election of directors of the Company if all issued and outstanding

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Company Securities entitled to vote for the election of directors were present and voted at a meeting held for such purpose.
     SECTION 1.2. Construction . For the purposes of this Agreement (i) words (including capitalized terms defined herein) in the singular shall be held to include the plural and vice versa and words (including capitalized terms defined herein) of one gender shall be held to include the other gender as the context requires, (ii) the terms “hereof,” “herein” and “herewith” and words of similar import shall, unless otherwise stated, be construed to refer to this Agreement as a whole and not to any particular provision of this Agreement, and Article and Section references are to Articles and Sections of this Agreement, unless otherwise specified, (iii) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” (iv) all references to any period of days shall be deemed to be to the relevant number of calendar days unless otherwise specified, and (v) all references herein to “$” or dollars shall refer to United States dollars, unless otherwise specified.
ARTICLE II
TRANSFER
     SECTION 2.1. Binding Effect on Transferees . A Permitted Transferee shall become a Stockholder hereunder, without any further action by the Company, following a transfer by a Stockholder of Company Securities to such Permitted Transferee upon the execution by such Permitted Transferee of a joinder providing that such Person shall be bound by and shall fully comply with the terms of this Agreement (including the provisions of Article IV with respect to the Company Securities being transferred to such transferee). The Fortress Affiliate Stockholders shall be deemed to be Stockholders without any further action.
     SECTION 2.2. Additional Purchases . Any Company Securities owned by a Stockholder on or after the date of this Agreement shall have the benefit of and be subject to the terms and conditions of this Agreement.
     SECTION 2.3. Charter Provisions . The parties hereto shall use their respective reasonable efforts (including voting or causing to be voted all of the Company Securities held of record by such party or Beneficially Owned by such party by virtue of having voting power over such Company Securities) so as to cause no amendment to be made to the Certificate of Incorporation or Bylaws as in effect as of the date of this Agreement in a manner that would (a) add restrictions to the transferability of the Company Securities by the Initial Stockholder, any Fortress Affiliate Stockholder or their Permitted Transferees who remain a “Stockholder” (as such term is used herein) at the time of such an amendment, which restrictions are beyond those then provided for in the Certificate of Incorporation, this Agreement or applicable securities laws or (b) nullify any of the rights of the Initial Stockholder, any Fortress Affiliate Stockholder or their Permitted Transferees who remain a “Stockholder” (as such term is used herein) at the time of such amendment, including but not limited to rights that are explicitly provided for in this Agreement, unless, in each such case, such amendment shall have been approved by such Stockholder.

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     SECTION 2.4. Legend . Any certificate representing Company Securities issued to a Stockholder shall be stamped or otherwise imprinted with a legend in substantially the following form:
     “The shares represented by this certificate are subject to the provisions contained in the Stockholders Agreement, dated as of February 17, 2012, by and among Nationstar Mortgage Holdings Inc. and the stockholder of Nationstar Mortgage Holdings Inc. described therein.”
     The Company shall make customary arrangements to cause any Company Securities issued in uncertificated form to be identified on the books of the Company in a substantially similar manner.
     SECTION 2.5. Share Certificates . Upon request by a Stockholder, the Company shall take all necessary actions to promptly issue or reissue, as the case may be, Company Securities in certificated or uncertificated form.
ARTICLE III
BOARD OF DIRECTORS
     SECTION 3.1. Board .
     (a) For so long as this Agreement is in effect, the Company and each Stockholder shall take all reasonable actions within their respective control (including voting or causing to be voted all of the Company Securities held of record by such Stockholder or Beneficially Owned by such Stockholder by virtue of having voting power over such Company Securities, and, with respect to the Company, as provided in Sections 3.1(c) and (d)) so as to cause to be elected to the Board, and to cause to continue in office, not more than six directors (or such other number of directors as FIG LLC may agree to in writing), at any given time. For so long as the Stockholders, together, have Beneficial Ownership of:
     (i) at least 40% of the Voting Power of the Company, FIG LLC shall have the right to designate a number of directors equal to a majority of the Board; provided that if the Board consists of more than six directors, then FIG LLC shall have the right to designate a number of directors equal to a majority of the Board plus one director;
     (ii) at least 20% but less than 40% of the Voting Power of the Company, FIG LLC shall have the right to designate at least three directors; provided that if the Board consists of more than six directors, then FIG LLC shall have the right to designate a number of directors equal to a majority of the Board minus one director;
     (iii) at least 10% but less than 20% of the Voting Power of the Company, FIG LLC shall have the right to designate at least two directors; provided that if the Board consists of more than six directors, then FIG LLC shall have the right to designate a number of directors (rounded up to the nearest whole

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number) that would be required to maintain the proportion of Board representation that FIG LLC would have under this clause (iii) if the Board consisted of six directors; and
     (iv) at least 5% but less than 10% of the Voting Power of the Company, FIG LLC shall have the right to designate at least one director; provided that if the Board consists of more than six directors, then FIG LLC shall have the right to designate a number of directors (rounded up to the nearest whole number) that would be required to maintain the proportion of Board representation that FIG LLC would have under this clause (iv) if the Board consisted of six directors.
     (b) If FIG LLC notifies the Stockholders of its desire to remove, with or without cause, any director previously designated by it, the Stockholders shall vote or cause to be voted all of the shares of Company Securities held of record by such Stockholders or Beneficially Owned by such Stockholders by virtue of having voting power over such Company Securities and take all other reasonable actions within its control to cause the removal of such director.
     (c) The Company agrees to include in the slate of nominees recommended by the Board those persons designated by FIG LLC in accordance with Section 3.1(a) and to use its reasonable best efforts to cause the election of each such designee to the Board, including nominating such designees to be elected as directors, in each case subject to applicable law.
     (d) In the event that a vacancy is created at any time by the death, disability, retirement, resignation or removal of any director who is designated by FIG LLC in accordance with Section 3.1(a), the Company agrees to take at any time and from time to time all actions necessary to cause the vacancy created thereby to be filled as promptly as practicable by a new designee of FIG LLC. In the event that the size of the Board is expanded to more than six directors, the Company agrees to take at any time and from time to time all actions necessary to cause the Board to continue to have the number of FIG LLC designees that corresponds to the requirements of Section 3.1(a).
     (e) In the event that at any time the number of directors entitled to be designated by FIG LLC pursuant to Section 3.1(a) decreases (a “ Notification Event ”), FIG LLC, the Initial Stockholder and its Permitted Transferees and the Company will take the following steps:
     (i) FIG LLC will notify (the “ Notice ”) the Company which directors previously designated by FIG LLC to serve as directors will be de-designated by FIG LLC (each director, an “ Identified Director ”). FIG LLC will provide such notification to the Company either orally or in writing by the date that is forty-five days prior to the date on which the Company is required to file its next annual proxy statement with the Commission. For the avoidance of doubt, FIG LLC has the sole right to (a) determine which designated director(s) will be an Identified Director and (b) select any of its designated directors to be an Identified Director.

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     (ii) Within thirty days of the Company’s receipt of the Notice, the nominating committee of the Company may elect to require the Initial Stockholder to take reasonable actions to cause each Identified Director to resign from the Board at the end of such Identified Director’s term such that the number of directors designated by FIG LLC after such resignation(s) equals the number of directors FIG LLC would have been entitled to designate pursuant to Section 3.1(a) as of the date of the applicable Notification Event. Any vacancies created by such resignation may remain vacant until the next annual meeting of shareholders or filled by a majority vote of the Board.
     (iii) If the nominating committee does not make the election described in clause (ii) above, then (a) the Initial Stockholder will not be required to cause such Identified Director to resign from the Board at or prior to the end of such Identified Director’s term and (b) such Identified Director shall no longer be considered a designee of FIG LLC as of the thirty-first day of the Company’s receipt of the Notice.
     SECTION 3.2. Committees . For so long as this Agreement is in effect, the Company shall take all reasonable actions within its control at any given time so as to cause to be appointed to any committee of the Board a number of directors designated by FIG LLC that is up to the number of directors that is proportionate (rounding up to the next whole director) to the representation that FIG LLC is entitled to elect to the Board under this Agreement, to the extent such directors are permitted to serve on such committees under the applicable rules of the Commission and the NYSE or by any other applicable stock exchange. It is understood by the parties hereto that FIG LLC shall not be required to have its directors represented on any committee and any failure to exercise such right in this section in a prior period shall not constitute any waiver of such right in a subsequent period.
ARTICLE IV
REGISTRATION RIGHTS
     SECTION 4.1. Demand Registration .
     (a) At any time after the date that is 180 days after the date hereof (or such earlier date (i) as would permit the Company to cause any filings required hereunder to be filed on the 180 th day after the date hereof or (ii) as is permitted by waiver of the IPO Underwriting Agreement), any Person that is a Stockholder (a “ Requesting Stockholder ”) on the date a Demand is made shall be entitled to make a written request of the Company (a “ Demand ”) for registration under the Securities Act of a number of Registrable Securities that, when taken together with the number of Registrable Securities requested to be registered under the Securities Act by such Requesting Stockholder’s Affiliates, equals or is greater than the Registrable Amount (a “ Demand Registration ”) and thereupon the Company will, subject to the terms of this Agreement, use its commercially reasonable efforts to effect the registration under the Securities Act of:

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     (i) the Registrable Securities that the Company has been so requested to register by the Requesting Stockholders for disposition in accordance with the intended method of disposition stated in such Demand, which may be an Underwritten Offering;
     (ii) all other Registrable Securities that the Company has been requested to register by the Registering Stockholder pursuant to Section 4.1(b);
     (iii) all shares of Common Stock that the Company may elect to register in connection with any offering of Registrable Securities pursuant to this Section 4.1, but subject to Section 4.1(f); and
     (iv) all to the extent necessary to permit the disposition (in accordance with the intended methods thereof) of the Registrable Securities and the additional Common Stock, if any, to be so registered.
     (b) A Demand shall specify: (i) the aggregate number of Registrable Securities requested to be registered in such Demand Registration, (ii) the intended method of disposition in connection with such Demand Registration, to the extent then known and (iii) the identity of the Requesting Stockholder (or Requesting Stockholders). Within five days after receipt of a Demand, the Company shall give written notice of such Demand to any other Persons that on the date a Demand is delivered to the Company is a Stockholder. Subject to Section 4.1(f), the Company shall include in the Demand Registration covered by such Demand all Registrable Securities with respect to which the Company has received a written request for inclusion therein within five days after such notice by the Company has been given. Such written request shall comply with the requirements of a Demand as set forth in this Section 4.1(b).
     (c) Each Stockholder shall be entitled to an unlimited number of Demand Registrations until such time as the Stockholders, together, Beneficially Own less than a Registrable Amount.
     (d) Demand Registrations shall be on such registration form of the Commission for which the Company is eligible as shall be selected by the Requesting Stockholders whose shares represent a majority of the Registrable Securities that the Company has been requested to register, including, to the extent permissible, an automatically effective registration statement or an existing effective registration statement filed by the Company with the Commission, and shall be reasonably acceptable to the Company.
     (e) The Company shall not be obligated to effect any Demand Registration (A) within three months of a “firm commitment” Underwritten Offering in which all Stockholders were given “piggyback” rights pursuant to Section 4.2 (subject to Section 4.1(f)) and provided that at least 50% of the number of Registrable Securities requested by such Stockholders to be included in such Demand Registration were included) or (B) within three months of any other Underwritten Offering pursuant to Section 4.3(e). In addition, the Company shall be entitled to postpone (upon written

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notice to all Stockholders) for a reasonable period of time not to exceed 60 days in succession the filing or the effectiveness of a registration statement for any Demand Registration (but no more than twice, or for more than 90 days in the aggregate, in any twelve-month period) if the Board determines in good faith and in its reasonable judgment that the filing or effectiveness of the registration statement relating to such Demand Registration would cause the disclosure of material, non-public information that the Company has a bona fide business purpose for preserving as confidential. In the event of a postponement by the Company of the filing or effectiveness of a registration statement for a Demand Registration, the holders of a majority of Registrable Securities held by the Requesting Stockholder(s) shall have the right to withdraw such Demand in accordance with Section 4.4.
     (f) The Company shall not include any securities other than Registrable Securities in a Demand Registration, except with the written consent of Stockholders participating in such Demand Registration that hold a majority of the Registrable Securities included in such Demand Registration. If, in connection with a Demand Registration, any managing underwriter (or, if such Demand Registration is not an Underwritten Offering, a nationally recognized investment bank engaged in connection with such Demand Registration) advises the Company, that, in its opinion, the inclusion of all of the securities, including securities of the Company that are not Registrable Securities, sought to be registered in connection with such Demand Registration would adversely affect the marketability of the Registrable Securities sought to be sold pursuant thereto, then the Company shall include in such registration statement only such securities as the Company is advised by such underwriter or investment bank can be sold without such adverse effect as follows and in the following order of priority: (i) first, up to the number of Registrable Securities requested to be included in such Demand Registration by the Stockholders, which, in the opinion of the underwriter can be sold without adversely affecting the marketability of the offering, pro rata among such Stockholders requesting such Demand Registration on the basis of the number of such securities held by such Stockholders and such Stockholders that are Piggyback Sellers; (ii) second, securities the Company proposes to sell; and (iii) third, all other securities of the Company duly requested to be included in such registration statement, pro rata on the basis of the number of such other securities requested to be included or such other method determined by the Company.
     (g) Any investment bank(s) that will serve as an underwriter with respect to such Demand Registration or, if such Demand Registration is not an Underwritten Offering, any investment bank engaged in connection therewith, shall be selected (i) by FIG LLC, for so long as a majority of the Common Stock of the Company is owned by the Initial Stockholder, its Permitted Transferees and any Fortress Affiliate Stockholder, and thereafter (ii) by the Stockholder participating in such Demand Registration that holds (together with its Permitted Transferees) a number of Registrable Securities included in such Demand Registration constituting a plurality of all Registrable Securities included in such Demand Registration.

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     SECTION 4.2. Piggyback Registrations .
     (a) Subject to the terms and conditions hereof, whenever the Company proposes to register any of its equity securities under the Securities Act (other than a registration by the Company (x) on a registration statement on Form S-4, (y) on a registration statement on Form S-8 or (z) otherwise solely pursuant to any employee benefit plan arrangement (or, in any of the cases of (x) or (y), on any successor forms thereto)) (each, a “ Piggyback Registration ”), whether for its own account or for the account of others, the Company shall give the Stockholders prompt written notice thereof (but not less than five days prior to the filing by the Company with the Commission of any registration statement with respect thereto). Such notice (a “ Piggyback Notice ”) shall specify, at a minimum, the number of equity securities proposed to be registered, the proposed date of filing of such registration statement with the Commission, the proposed means of distribution and the proposed managing underwriter or underwriters (if any and if known). Upon the written request of any Person that on the date of such Piggyback Notice is a Stockholder, given within five days after such Piggyback Notice is received by such Person (any such Person, a “ Piggyback Seller ”) (which written request shall specify the number of Registrable Securities then presently intended to be disposed of by such Piggyback Seller), the Company, subject to the terms and conditions of this Agreement, shall use its commercially reasonable efforts to cause all such Registrable Securities held by Piggyback Sellers with respect to which the Company has received such written requests for inclusion to be included in such Piggyback Registration on the same terms and conditions as the Company’s equity securities being sold in such Piggyback Registration.
     (b) If, in connection with a Piggyback Registration, any managing underwriter (or, if such Piggyback Registration is not an Underwritten Offering, a nationally recognized investment bank engaged in connection with such Demand Registration) advises the Company in writing that, in its opinion, the inclusion of all the equity securities sought to be included in such Piggyback Registration by (i) the Company, (ii) others who have sought to have equity securities of the Company registered in such Piggyback Registration pursuant to rights to demand (other than pursuant to so-called “piggyback” or other incidental or participation registration rights) such registration (such Persons being “ Other Demanding Sellers ”), (iii) the Piggyback Sellers and (iv) any other proposed sellers of equity securities of the Company (such Persons being “ Other Proposed Sellers ”), as the case may be, would adversely affect the marketability of the equity securities sought to be sold pursuant thereto, then the Company shall include in the registration statement applicable to such Piggyback Registration only such equity securities as the Company is so advised by such underwriter or investment bank can be sold without such an effect, as follows and in the following order of priority:
     (i) if the Piggyback Registration relates to an offering for the Company’s own account, then (A) first, such number of equity securities to be sold by the Company as the Company, in its reasonable judgment and acting in good faith and in accordance with sound financial practice, shall have determined, (B) second, Registrable Securities of Piggyback Sellers and securities sought to be registered by Other Demanding Sellers (if any), pro rata on the basis of the

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number of shares of Common Stock held by such Piggyback Sellers and Other Demanding Sellers and (C) third, other equity securities held by any Other Proposed Sellers; or
     (ii) if the Piggyback Registration relates to an offering other than for the Company’s own account, then (A) first, such number of equity securities sought to be registered by each Other Demanding Seller and the Piggyback Sellers (if any), pro rata in proportion to the number of shares of Common Stock held by all such Other Demanding Sellers and Piggyback Sellers and (B) second, other equity securities held by any Other Proposed Sellers or to be sold by the Company as determined by the Company and with such priorities among them as may from time to time be determined or agreed to by the Company.
     (c) In connection with any Underwritten Offering under this Section 4.2 for the Company’s account, the Company shall not be required to include a holder’s Registrable Securities in the Underwritten Offering unless such holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company; provided , that any applicable underwriting agreement includes only customary terms and conditions.
     (d) If, at any time after giving written notice of its intention to register any of its equity securities as set forth in this Section 4.2 and prior to the time the registration statement filed in connection with such Piggyback Registration is declared effective, the Company shall determine for any reason not to register such equity securities, the Company may, at its election, give written notice of such determination to each Stockholder and thereupon shall be relieved of its obligation to register any Registrable Securities in connection with such particular withdrawn or abandoned Piggyback Registration (but not from its obligation to pay the Registration Expenses in connection therewith as provided herein); provided , that Stockholders may continue the registration as a Demand Registration pursuant to the terms of Section 4.1.
     SECTION 4.3. Shelf Registration .
     (a) Subject to Section 4.3(e), and further subject to the availability to the Company of a Registration Statement on Form S-3 or a successor form, which may be an automatically effective registration statement at any time the Company is eligible (“ Form S-3 ”), the Initial Stockholder or any of its Permitted Transferees (in each case to the extent a Stockholder hereunder) may by written notice delivered (which notice can be delivered at any time after the eleven month anniversary of the date hereof) to the Company (the “ Shelf Notice ”) require the Company to (i) file as promptly as practicable (but no later than 30 days after the date the Shelf Notice is delivered), and to use commercially reasonable efforts to cause to be declared effective by the Commission at the earliest possible date permitted under the rules and regulations of the Commission (but no later than 60 days after such filing date), a Form S-3, or (ii) use an existing Form S-3 filed with the Commission, in each case providing for an offering to be made on a continuous basis pursuant to Rule 415 under the Securities Act relating to the offer and sale, from time to time, of the Registrable Securities owned by the Initial Stockholder or

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the Fortress Affiliate Stockholders (or any of their Permitted Transferees), as the case may be, and any other Persons that at the time of the Shelf Notice meet the definition of a Stockholder who elect to participate therein as provided in Section 4.3(b) (a “ Shelf Registration Statement ”).
     (b) The Initial Stockholder and its Permitted Transferees shall be entitled to require the Company to file an unlimited number of Shelf Registration Statements until such time as the Stockholders, together, Beneficially Own less than a Registrable Amount.
     (c) Within five business days after receipt of a Shelf Notice pursuant to Section 4.3(a), the Company will deliver written notice thereof to each Stockholder. Each Stockholder may elect to participate in the Shelf Registration Statement by delivering to the Company a written request to so participate.
     (d) Subject to Section 4.3(e), the Company will use commercially reasonable efforts to keep the Shelf Registration Statement continuously effective until the date on which all Registrable Securities covered by the Shelf Registration Statement have been sold thereunder in accordance with the plan and method of distribution disclosed in the prospectus included in the Shelf Registration Statement, or otherwise (the “ Shelf Registration Effectiveness Period ”).
     (e) Notwithstanding anything to the contrary contained in this Agreement, the Company shall be entitled, from time to time, by providing notice to the Stockholders who elected to participate in the Shelf Registration Statement, to require such Stockholders to suspend the use of the prospectus for sales of Registrable Securities under the Shelf Registration Statement for a reasonable period of time not to exceed 60 days in succession or 90 days in the aggregate in any twelve-month period (a “ Suspension Period ”) if the Board determines in good faith and in its reasonable judgment that it is required to disclose in the Shelf Registration Statement material, non-public information that the Company has a bona fide business purpose for preserving as confidential. Immediately upon receipt of such notice, the Stockholders covered by the Shelf Registration Statement shall suspend the use of the prospectus until the requisite changes to the prospectus have been made as required below. Any Suspension Period shall terminate at such time as the public disclosure of such information is made. After the expiration of any Suspension Period and without any further request from a Stockholder, the Company shall as promptly as practicable prepare a post-effective amendment or supplement to the Shelf Registration Statement or the prospectus, or any document incorporated therein by reference, or file any other required document so that, as thereafter delivered to purchasers of the Registrable Securities included therein, the prospectus will not include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
     (f) At any time, and from time-to-time, during the Shelf Registration Effectiveness Period (except during a Suspension Period), each of the Initial Stockholder, the Fortress Affiliate Stockholders or any of their Permitted Transferees (in each case to

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the extent a Stockholder hereunder) may notify the Company of their intent to sell Registrable Securities covered by the Shelf Registration Statement (in whole or in part) in an Underwritten Offering (a “ Shelf Underwritten Offering ”); provided that the Company shall not be obligated to participate in more than four underwritten offerings during any twelve-month period. Such notice shall specify (x) the aggregate number of Registrable Securities requested to be registered in such Shelf Underwritten Offering and (y) the identity of the Stockholder(s) requesting such Shelf Underwritten Offering. Upon receipt by the Company of such notice, the Company shall promptly comply with the applicable provisions of this Agreement, including those provisions of Section 4.5 relating the Company’s obligation to make filings with the Commission, assist in the preparation and filing with the Commission of prospectus supplements and amendments to the Shelf Registration Statement, participate in “road shows,” agree to customary “lock-up” agreements with respect to the Company’s securities and obtain “comfort” letters, and the Company shall take such other actions as necessary or appropriate to permit the consummation of such Shelf Underwritten Offering as promptly as practicable. Each Shelf Underwritten Offering shall be for the sale of a number of Registrable Securities equal to or greater than the Registrable Amount. In any Shelf Underwritten Offering, the Company shall select the investment bank(s) and managers that will serve as lead or co-managing underwriters with respect to the offering of such Registrable Securities.
     SECTION 4.4. Withdrawal Rights . Any Stockholder having notified or directed the Company to include any or all of its Registrable Securities in a registration statement under the Securities Act shall have the right to withdraw any such notice or direction with respect to any or all of the Registrable Securities designated by it for registration by giving written notice to such effect to the Company prior to the effective date of such registration statement. In the event of any such withdrawal, the Company shall not include such Registrable Securities in the applicable registration and such Registrable Securities shall continue to be Registrable Securities for all purposes of this Agreement. No such withdrawal shall affect the obligations of the Company with respect to the Registrable Securities not so withdrawn; provided , however , that in the case of a Demand Registration, if such withdrawal shall reduce the number of Registrable Securities sought to be included in such registration below the Registrable Amount, then the Company shall as promptly as practicable give each holder of Registrable Securities sought to be registered notice to such effect and, within ten days following the mailing of such notice, such holder(s) of Registrable Securities still seeking registration shall, by written notice to the Company, elect to register additional Registrable Securities, when taken together with elections to register Registrable Securities by its Permitted Transferees, to satisfy the Registrable Amount or elect that such registration statement not be filed or, if previously filed, be withdrawn. During such ten day period, the Company shall not file such registration statement if not previously filed or, if such registration statement has been previously filed, the Company shall not seek, and shall use commercially reasonable efforts to prevent, the effectiveness of such registration statement.
     SECTION 4.5. Registration Procedures .
     (a) If and whenever the Company is required to use commercially reasonable efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Sections 4.1, 4.2 and 4.3, the Company shall as promptly as practicable (in each case, to the extent applicable):

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     (i) prepare and file with the Commission a registration statement to effect such registration, cause such registration statement to become effective at the earliest possible date permitted under the rules and regulations of the Commission, and thereafter use commercially reasonable efforts to cause such registration statement to remain effective pursuant to the terms of this Agreement; provided, however, that the Company may discontinue any registration of its securities that are not Registrable Securities at any time prior to the effective date of the registration statement relating to such securities; provided , further that before filing such registration statement or any amendments thereto, the Company will furnish to the counsel selected by the holders of Registrable Securities that are to be included in such registration (“ Selling Holders ”) copies of all such documents proposed to be filed, which documents will be subject to the review of and comment by such counsel (it being understood that counsel to the Selling Holders will conduct its review and provide any comments promptly);
     (ii) prepare and file with the Commission such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection therewith and any Exchange Act reports incorporated by reference therein as may be necessary to keep such registration statement effective and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until the earlier of such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the Selling Holder(s) set forth in such registration statement or (i) in the case of a Demand Registration pursuant to Section 4.1, the expiration of 60 days after such registration statement becomes effective or (ii) in the case of a Piggyback Registration pursuant to Section 4.2, the expiration of 60 days after such registration statement becomes effective or (iii) in the case of a Shelf Registration pursuant to Section 4.3, the Shelf Registration Effectiveness Period;
     (iii) furnish to each Selling Holder and each underwriter, if any, of the securities being sold by such Selling Holder such number of conformed copies of such registration statement and of each amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus contained in such registration statement (including each preliminary prospectus and any summary prospectus) and any other prospectus filed under Rule 424 under the Securities Act, in conformity with the requirements of the Securities Act, and any Issuer Free Writing Prospectus and such other documents as such Selling Holder and underwriter, if any, may reasonably request in order to facilitate the public sale or other disposition of the Registrable Securities owned by such Selling Holder;
     (iv) use commercially reasonable efforts to register or qualify such Registrable Securities covered by such registration statement under such other securities laws or blue sky laws of such jurisdictions as any Selling Holder and any underwriter of the securities being sold by such Selling Holder shall reasonably request, and take any other action which may be reasonably necessary

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or advisable to enable such Selling Holder and underwriter to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Selling Holder, except that the Company shall not for any such purpose be required to qualify generally to do business as a foreign corporation in any jurisdiction wherein it would not but for the requirements of this clause (iv) be obligated to be so qualified, to subject itself to taxation in any such jurisdiction or to file a general consent to service of process in any such jurisdiction;
     (v) use best efforts to cause such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if no such securities are so listed, use commercially reasonable efforts to cause such Registrable Securities to be listed on the New York Stock Exchange or the Nasdaq Stock Market;
     (vi) use commercially reasonable efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the Selling Holder(s) thereof to consummate the disposition of such Registrable Securities;
     (vii) in connection with an Underwritten Offering, obtain for each Selling Holder and underwriter:
     (1) an opinion of counsel for the Company, covering the matters customarily covered in opinions requested in underwritten offerings and such other matters as may be reasonably requested by such Selling Holder and underwriters, and
     (2) a “comfort” letter (or, in the case of any such Person which does not satisfy the conditions for receipt of a “comfort” letter specified in AU Section 634 of the AICPA Professional Standards, an “agreed upon procedures” letter) signed by the independent registered public accountants who have certified the Company’s financial statements included in such registration statement (and, if necessary, any other independent registered public accountant of any subsidiary of the Company or any business acquired by the Company from which financial statements and financial data are, or are required to be, included in the registration statement);
     (viii) promptly make available for inspection by any Selling Holder, any underwriter participating in any disposition pursuant to any registration statement, and any attorney, accountant or other agent or representative retained by any Selling Holder or underwriter (collectively, the “ Inspectors ”), all financial and other records, pertinent corporate documents and properties of the Company (collectively, the “ Records ”), as shall be reasonably necessary to enable such Selling Holder or underwriter to exercise their due diligence responsibility, and cause the Company’s officers, directors and employees to supply all information

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requested by any such Inspector in connection with such registration statement promptly; provided , however , that, unless the disclosure of such Records is necessary to avoid or correct a misstatement or omission in the registration statement or the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction, the Company shall not be required to provide any information under this clause (viii) if (i) the Company believes, after consultation with counsel for the Company, that to do so would cause the Company to forfeit an attorney-client privilege that was applicable to such information or (ii) if either (A) the Company has requested and been granted from the Commission confidential treatment of such information contained in any filing with the Commission or documents provided supplementally or otherwise or (B) the Company reasonably determines in good faith that such Records are confidential and so notifies the Inspectors in writing unless prior to furnishing any such information with respect to (i) or (ii) such holder of Registrable Securities requesting such information agrees, and causes each of its Inspectors, to enter into a confidentiality agreement on terms reasonably acceptable to the Company; and provided , further , that each holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company and allow the Company, at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential;
     (ix) promptly notify in writing each Selling Holder and the underwriters, if any, of the following events:
     (1) the filing of the registration statement, the prospectus or any prospectus supplement related thereto, any Issuer Free Writing Prospectus or post-effective amendment to the registration statement, and, with respect to the registration statement or any post-effective amendment thereto, when the same has become effective;
     (2) any request by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information;
     (3) the issuance by the Commission of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings by any Person for that purpose;
     (4) when any Issuer Free Writing Prospectus includes information that may conflict with the information contained in the registration statement; and
     (5) the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation or threat of any proceeding for such purpose;

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     (x) notify each Selling Holder, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and, at the request of any Selling Holder, promptly prepare and furnish to such Selling Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading;
     (xi) use every reasonable best effort to obtain the withdrawal of any order suspending the effectiveness of such registration statement;
     (xii) use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission, and make available to Selling Holders, as promptly as practicable, an earnings statement covering the period of at least 12 months, but not more than 18 months, beginning with the first day of the Company’s first full quarter after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
     (xiii) use reasonable best efforts to assist Stockholders who made a request to the Company to provide for a third party “market maker” for the Common Stock; provided , however , that the Company shall not be required to serve as such “market maker”;
     (xiv) cooperate with any Selling Holder and any underwriter to facilitate the timely preparation and delivery of certificates (which shall not bear any restrictive legends unless required under applicable law), if necessary or appropriate, representing securities sold under any registration statement, and enable such securities to be in such denominations and registered in such names as the managing underwriter or such Selling Holder may request and keep available and make available to the Company’s transfer agent prior to the effectiveness of such registration statement a supply of such certificates as necessary or appropriate;
     (xv) have appropriate officers of the Company prepare and make presentations at any “road shows” and before analysts and rating agencies, as the case may be, take other actions to obtain ratings for any Registrable Securities (if they are eligible to be rated);
     (xvi) have appropriate officers of the Company, and cause representatives of the Company’s independent registered public accountants, to

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participate in any due diligence discussions reasonably requested by any Selling Holder or any underwriter;
     (xvii) if requested by any underwriter, agree, and cause the Company, any directors or officers of the Company to agree, to be bound by customary “lock-up” agreements restricting the ability to dispose of Company securities;
     (xviii) if requested by any Selling Holders or any underwriter, promptly incorporate in the registration statement or any prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such Selling Holders may reasonably request to have included therein, including, without limitation, information relating to the “Plan of Distribution” of the Registrable Securities;
     (xix) cooperate and assist in any filings required to be made with FINRA and in the performance of any due diligence investigation by any underwriter that is required to be undertaken in accordance with the rules and regulations of FINRA;
     (xx) otherwise use reasonable best efforts to cooperate as reasonably requested by the Selling Holders and the underwriters in the offering, marketing or selling of the Registrable Securities;
     (xxi) otherwise use commercially reasonable efforts to comply with all applicable rules and regulations of the Commission and all reporting requirements under the rules and regulations of the Exchange Act, and
     (xxii) use reasonable best efforts to take any action requested by the Selling Holders, including any action described in clauses (i) through (xxi) above to prepare for and facilitate any “over-night deal” or other proposed sale of Registrable Securities over a limited timeframe.
The Company may require each Selling Holder and each underwriter, if any, to furnish the Company in writing such information regarding each Selling Holder or underwriter and the distribution of such Registrable Securities as the Company may from time to time reasonably request to complete or amend the information required by such registration statement.
     (b) Without limiting any of the foregoing, in the event that the offering of Registrable Securities is to be made by or through an underwriter, the Company shall enter into an underwriting agreement with a managing underwriter or underwriters containing representations, warranties, indemnities and agreements customarily included (but not inconsistent with the covenants and agreements of the Company contained herein) by an issuer of common stock in underwriting agreements with respect to offerings of common stock for the account of, or on behalf of, such issuers. In connection with any offering of Registrable Securities registered pursuant to this Agreement, the Company shall furnish to the underwriter, if any (or, if no underwriter, the Selling Holder), unlegended certificates representing ownership of the Registrable Securities being sold (unless, in the Company’s sole discretion, such Registrable

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Securities are to be issued in uncertificated form pursuant to the customary arrangements for issuing shares in such form), in such denominations as requested and instruct any transfer agent and registrar of the Registrable Securities to release any stop transfer order with respect thereto.
     (c) Each Selling Holder agrees that upon receipt of any notice from the Company of the happening of any event of the kind described in Section 4.5(a)(ix), such Selling Holder shall forthwith discontinue such Selling Holder’s disposition of Registrable Securities pursuant to the applicable registration statement and prospectus relating thereto until such Selling Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 4.5(a)(ix) and, if so directed by the Company, deliver to the Company, at the Company’s expense, all copies, other than permanent file copies, then in such Selling Holder’s possession of the prospectus current at the time of receipt of such notice relating to such Registrable Securities. In the event the Company shall give such notice, any applicable 60 day period during which such registration statement must remain effective pursuant to this Agreement shall be extended by the number of days during the period from the date of giving of a notice regarding the happening of an event of the kind described in Section 4.5(a)(ix) to the date when all such Selling Holders shall receive such a supplemented or amended prospectus and such prospectus shall have been filed with the Commission.
     SECTION 4.6. Registration and Offering Expenses
     (a) All expenses incident to the Company’s performance of, or compliance with, its obligations under this Agreement including (i)(1) all registration and filing fees, all fees and expenses of compliance with securities and “blue sky” laws, (2) all fees and expenses associated with filings required to be made with FINRA (including, if applicable, the fees and expenses of any “qualified independent underwriter” as such term is defined in FINRA Rule 5121), (3) all fees and expenses of compliance with securities and “blue sky” laws, (4) all printing (including expenses of printing certificates, if any, for the Registrable Securities in a form eligible for deposit with the Depository Trust Company and of printing prospectuses if the printing of prospectuses and Issuer Free Writing Prospectuses is requested by a holder of Registrable Securities) and copying expenses, (5) all messenger and delivery expenses, (6) all fees and expenses of the Company’s independent certified public accountants and counsel (including with respect to “comfort” letters, “agreed-upon procedures” letter and opinions), (7) fees and expenses of one counsel to the Stockholders selling in such registration (which firm shall be selected by the Stockholders selling in such registration that hold a majority of the Registrable Securities included in such registration), (8) except as provided in clause (b) below, the fees and expenses (including underwriting discounts and commissions and transfer taxes) of every nationally recognized investment bank engaged in connection with a Demand Registration or a Piggyback Registration that is not an Underwritten Offering, (collectively, the “ Registration Expenses ”) and (ii) any expenses described in clauses (i)(1) through (8) above incurred in connection with the marketing and sale of Registrable Securities (“ Offering Expenses ”) shall be borne by the Company, regardless of whether a registration is effected, marketing is commenced or sale is made. The Company will pay its internal expenses (including all salaries and expenses of its officers

20


 

and employees performing legal or accounting duties, the expense of any annual audit and the expense of any liability insurance) and the expenses and fees for listing the securities to be registered on each securities exchange and included in each established over-the-counter market on which similar securities issued by the Company are then listed or traded.
     (b) Each Selling Holder shall pay its portion of all underwriting discounts and commissions and transfer taxes, if any, relating to the sale of such Selling Holder’s Registrable Securities pursuant to any registration.
     SECTION 4.7. Indemnification .
     (a) The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder, its officers, directors, employees, managers, members, partners and agents and each Person who controls (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) such Selling Holder or such other indemnified Person from and against all losses, claims, damages, liabilities and expenses (including reasonable expenses of investigation and reasonable attorneys’ fees and expenses) (collectively, the “ Losses ”) caused by, resulting from or relating to any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, any Issuer Free Writing Prospectus, any prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission (or alleged omission) of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except insofar as the same are caused by any information furnished in writing to the Company by such Selling Holder expressly for use therein. In connection with an Underwritten Offering and without limiting any of the Company’s other obligations under this Agreement, the Company shall also indemnify such underwriters, their officers, directors, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) such underwriters or such other indemnified Person to the same extent as provided above with respect to the indemnification (and exceptions thereto) of the holders of Registrable Securities being sold. Reimbursements payable pursuant to the indemnification contemplated by this Section 4.7(a) will be made by periodic payments during the course of any investigation or defense, as and when bills are received or expenses incurred.
     (b) In connection with any registration statement, each Selling Holder will furnish to the Company in writing information regarding such Selling Holder’s ownership of Registrable Securities and its intended method of distribution thereof and, to the extent permitted by law, shall, severally and not jointly, indemnify the Company, its directors, officers, employees and agents and each Person who controls (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act) the Company or such other indemnified Person against all Losses caused by any untrue statement of material fact contained in the registration statement, any Issuer Free Writing Prospectus, any prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission of a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they

21


 

were made, not misleading, but only to the extent that such untrue statement or omission is caused by and contained in such information so furnished in writing by such Selling Holder expressly for use therein; provided , however , that each Selling Holder’s obligation to indemnify the Company hereunder shall, to the extent more than one Selling Holder is subject to the same indemnification obligation, be apportioned between each Selling Holder based upon the net amount received by each Selling Holder from the sale of Registrable Securities, as compared to the total net amount received by all of the Selling Holders of Registrable Securities sold pursuant to such registration statement. Notwithstanding the foregoing, no Selling Holder shall be liable to the Company for amounts in excess of the lesser of (i) such apportionment and (ii) the net amount received by such holder in the offering giving rise to such liability.
     (c) Any Person entitled to indemnification hereunder shall give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification; provided, however, the failure to give such notice shall not release the indemnifying party from its obligation, except to the extent that the indemnifying party has been materially prejudiced by such failure to provide such notice on a timely basis.
     (d) In any case in which any such action is brought against any indemnified party, and it notifies an indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party will not (so long as it shall continue to have the right to defend, contest, litigate and settle the matter in question in accordance with this paragraph) be liable to such indemnified party hereunder for any legal or other expense subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation, supervision and monitoring (unless (i) such indemnified party reasonably objects to such assumption on the grounds that there may be defenses available to it which are different from or in addition to the defenses available to such indemnifying party or (ii) the indemnifying party shall have failed within a reasonable period of time to assume such defense and the indemnified party is or is reasonably likely to be prejudiced by such delay, in either event the indemnified party shall be promptly reimbursed by the indemnifying party for the expenses incurred in connection with retaining separate legal counsel). An indemnifying party shall not be liable for any settlement of an action or claim effected without its consent. The indemnifying party shall lose its right to defend, contest, litigate and settle a matter if it shall fail to diligently contest such matter (except to the extent settled in accordance with the next following sentence). No matter shall be settled by an indemnifying party without the consent of the indemnified party (which consent shall not be unreasonably withheld, it being understood that the indemnified party shall not be deemed to be unreasonable in withholding its consent if the proposed settlement imposes any obligation on the indemnified party other than the payment of money or if the proposed settlement does not include an unconditional release of such indemnified party for all claims relating to such matter).

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     (e) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified Person and will survive the transfer of the Registrable Securities and the termination of this Agreement.
     (f) If recovery is not available under the foregoing indemnification provisions for any reason or reasons other than as specified therein, any Person who would otherwise be entitled to indemnification by the terms thereof shall nevertheless be entitled to contribution with respect to any Losses with respect to which such Person would be entitled to such indemnification but for such reason or reasons. In determining the amount of contribution to which the respective Persons are entitled, there shall be considered the Persons’ relative knowledge and access to information concerning the matter with respect to which the claim was asserted, the opportunity to correct and prevent any statement or omission, and other equitable considerations appropriate under the circumstances. It is hereby agreed that it would not necessarily be equitable if the amount of such contribution were determined by pro rata or per capita allocation. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not found guilty of such fraudulent misrepresentation. Notwithstanding the foregoing, no Selling Holder or transferee thereof shall be required to make a contribution in excess of the net amount received by such holder from its sale of Registrable Securities in connection with the offering that gave rise to the contribution obligation.
     (g) Not less than three days before the expected filing date of each registration statement pursuant to this Agreement, the Company shall notify each Stockholder who has timely provided the requisite notice hereunder entitling the Stockholder to register Registrable Securities in such registration statement of the information, documents and instruments from such Stockholder that the Company or any underwriter reasonably requests in connection with such registration statement, including, but not limited to a questionnaire, custody agreement, power of attorney, lock-up letter and underwriting agreement (the “ Requested Information ”). If the Company has not received, on or before the day before the expected filing date, the Requested Information from such Stockholder, the Company may file the Registration Statement without including Registrable Securities of such Stockholder. The failure to so include in any registration statement the Registrable Securities of a Stockholder (with regard to that registration statement) shall not in and of itself result in any liability on the part of the Company to such Stockholder.
ARTICLE V
MISCELLANEOUS
     SECTION 5.1. Headings . The headings in this Agreement are for convenience of reference only and shall not control or effect the meaning or construction of any provisions hereof.

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     SECTION 5.2. Entire Agreement . This Agreement constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants, conditions or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings between the parties hereto with respect to the subject matter hereof.
     SECTION 5.3. Further Actions; Cooperation . Each of the Stockholders agrees to use its reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to give effect to the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, each of the Stockholders (i) acknowledges that such Stockholder will prepare and file with the Commission filings under the Exchange Act, including under Section 13(d) of the Exchange Act, relating to its Beneficial Ownership of the Common Stock and (ii) agrees to use its reasonable efforts to assist and cooperate with the other parties in promptly preparing, reviewing and executing any such filings under the Exchange Act, including any amendments thereto.
     SECTION 5.4. Notices . All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by email, facsimile, nationally recognized overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed to such party at the address set forth below or such other address as may hereafter be designated on the signature pages of this Agreement or in writing by such party to the other parties:
     If to the Initial Stockholder, to:
c/o Fortress Investment Group, LLC
1345 Avenue of the Americas, 46th Floor
New York, NY 10105
Fax: (212) 798-6122
Email: rnardone@fortress.com
Attn: Randal A. Nardone
     with a copy (which shall not constitute notice) to:
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, NY 10006
Fax: (212) 225-3999
Email: dmclaughlin@cgsh.com
Attn: Duane McLaughlin, Esq.

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     If to the Company, to:
Nationstar Mortgage Holdings Inc.
350 Highland Drive
Lewisville, TX 75067
Fax: (469) 549-2085
Email: Tony.Villani@nationstarmail.com
Attn: General Counsel
     If to a Stockholder that is not the Initial Stockholder, then to the address set forth in the written agreement of such Stockholder provided for in Section 2.1 hereof.
     All such notices, requests, consents and other communications shall be deemed to have been given or made if and when received (including by overnight courier) by the parties at the above addresses or sent by email, facsimile, with confirmation received, to the email addresses or facsimile numbers specified above (or at such other address or facsimile number for a party as shall be specified by like notice). Any notice delivered by any party hereto to any other party hereto shall also be delivered to each other party hereto simultaneously with delivery to the first party receiving such notice.
     SECTION 5.5. Applicable Law . The substantive laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement, without regard to conflicts of law doctrines. THE PARTIES HERETO WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO DISPUTES HEREUNDER.
     SECTION 5.6. Severability . The provisions of this Agreement are independent of and separable from each other. The invalidity, illegality or unenforceability of one or more of the provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement, including any such provisions, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. The parties hereto shall endeavor in good faith negotiations to replace any invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provision, as applicable.
     SECTION 5.7. Successors and Assigns . Except as otherwise provided herein, all the terms and provisions of this Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the respective successors and permitted assigns of the parties hereto. No Stockholder may assign any of its rights hereunder to any Person other than a Permitted Transferee. Each Permitted Transferee of any Stockholder shall be subject to all of the terms of this Agreement, and by taking and holding such shares such Person shall be entitled to receive the benefits of and be conclusively deemed to have agreed to be bound by and to comply with all of the terms and provisions of this Agreement; provided , however , no transfer of rights permitted hereunder shall be binding upon or obligate the Company unless and until (i) if required under Section 2.1 hereof, the Company shall have received written notice of such transfer and the joinder of the transferee provided for in Section 2.1 hereof, and (ii) such transferee can establish Beneficial Ownership or ownership of record of a Registrable Amount (whether individually or

25


 

together with its Affiliates that are Stockholders or transferees of Stockholders and, if applicable, its other Permitted Transferees that are Stockholders or transferees of Stockholders). The Company may not assign any of its rights or obligations hereunder without the prior written consent of each of the Stockholders, and any assignment attempted or effected without obtaining such required consent shall be null and void. Notwithstanding the foregoing, no successor or assignee of the Company shall have any rights granted under this Agreement until such Person shall acknowledge its rights and obligations hereunder by a signed written statement of such Person’s acceptance of such rights and obligations.
     SECTION 5.8. Amendments . This Agreement may not be amended, modified or supplemented unless such amendment, modification or supplement is in writing and signed by each of the Stockholders and the Company.
     SECTION 5.9. Waiver . The failure of a party hereto at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver by a party of any condition or of any breach of any term, covenant, representation or warranty contained in this Agreement shall be effective unless in a writing signed by the party against whom the waiver is to be effective, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty.
     SECTION 5.10. Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same Agreement.
     SECTION 5.11. Submission To Jurisdiction . ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK LOCATED IN THE BOROUGH OF MANHATTAN OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH PARTY HERETO HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND THE APPELLATE COURTS THEREOF. EACH PARTY HERETO IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT THE ADDRESS FOR NOTICES SET FORTH HEREIN. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

26


 

     SECTION 5.12. Injunctive Relief . Each party hereto acknowledges and agrees that a violation of any of the terms of this Agreement will cause the other parties irreparable injury for which an adequate remedy at law is not available. Therefore, the Stockholders agree that each party shall be entitled to, an injunction, restraining order, specific performance or other equitable relief from any court of competent jurisdiction, restraining any party from committing any violations of the provisions of this Agreement, without the need to post a bond or prove the inadequacy of monetary damages.
     SECTION 5.13. Recapitalizations, Exchanges, Etc. Affecting the Shares of Common Stock; New Issuance . The provisions of this Agreement shall apply, to the full extent set forth herein, with respect to Company Securities and to any and all equity or debt securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets, or otherwise) which may be issued in respect of, in exchange for, or in substitution of, such Company Securities and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, reclassifications, recapitalizations, reorganizations and the like occurring after the date hereof.
     SECTION 5.14. Termination . Upon the mutual consent of all of the parties hereto or, with respect to each Stockholder, at such earlier time as such Stockholder and its Affiliates and Permitted Transferees ceases to Beneficially Own a Registrable Amount, the terms of this Agreement shall terminate, and be of no further force and effect; provided , however , that the following shall survive the termination of this Agreement: (i) the provisions of Sections 4.2 (which shall terminate, and be of no further force and effect, with respect to each Stockholder, at such time as such Stockholder and its Affiliates and Permitted Transferees ceases to Beneficially Own a Registrable Amount), 4.6, 4.7, 5.5, 5.11, this Section 5.14, and Sections 5.15 and 5.16; (ii) the rights with respect to the breach of any provision hereof by the Company and (iii) any registration rights vested or obligations accrued as of the date of termination of this Agreement to the extent, in the case of registration rights so vested, if such Stockholder ceases to meet the definition of a Stockholder under this Agreement subsequent to the vesting of such registration rights as a result of action taken by the Company.
     SECTION 5.15. Third Party Beneficiary . FIG LLC shall be a third party beneficiary to the agreements made hereunder between the Company and the Initial Stockholder and shall have the right to enforce such agreements directly to the extent it deems such enforcement necessary or advisable to protect its rights hereunder.
     SECTION 5.16. Rule 144 . The Company covenants and agrees that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder (or, if it is not required to file such reports, it will, upon the request of any holder of Registrable Securities, make publicly available other information so long as necessary to permit sales in compliance with Rule 144 under the Securities Act), and it will take such further reasonable action, to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 under the Securities Act, as such Rule 144 may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission. Upon the reasonable request of any holder of Registrable

27


 

Securities, the Company will deliver to such holder a written statement as to whether it has complied with such information and filing requirements.
     SECTION 5.17. Information . The Company covenants and agrees that for so long as the Stockholders, together, have Beneficial Ownership of at least 1% of the Voting Power of the Company, it will provide or cause to be provided, upon request, to persons affiliated with FIG LLC who are covered by applicable FIG LLC confidentiality policies, all information about the Company and its operations as the Company would ordinarily provide to a director upon his or her request.
[Remainder of page left blank intentionally]

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     IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their respective officers thereunto duly as of the date first above written.
         
  Nationstar Mortgage Holdings Inc.
 
 
  By:   /s/ Jay Bray    
    Name:   Jay Bray   
    Title:   Chief Executive Officer, President
and Chief Financial Officer 
 
 
  FIF HE Holdings LLC
 
 
  By:   /s/ Pete Smith    
    Name:   Pete Smith   
    Title:   Manager   
 
[Signature Page to Stockholders Agreement]

29

Exhibit 4.8
()
Exhibit 4.8 NUMBER SHARES Nationstar MORTGAGE COMMON STOCK INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP ID °l I Tnis certifies thati- I&TMQWNERQE FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $0.01 PAR VALUE PER SHARE, OF i nationstar mortgage holdings inc. transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate and the shares represented hereby are subject to the laws of the State of Delaware, and to the Certificate of Incorporation and Bylaws of the Corporation, as now in effect or as hereafter amended. This certificate is not valid until countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. dated: cT            V SEAL 2O11
;|eH990 COLUMBIA FINANCIAL PRINTING SECRETARY

 


 

()
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM — as tenants in common            UNIFGIFTMINACT- .. Custodian TEN ENT — as tenants by the entireties (Cust)(Minor) JT TEN — as joint tenants with right of            under Uniform Gifts to Minors survivorship and not as tenants in common            Act. (State) Additional abbreviations may also be used though not in the above list. For Value Received, ..... hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE — (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)         . Shares of the stock represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed By_ The Signature(s) must be guaranteed by an eligible guarantor institution (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with membership in an approved Signature Guarantee Medallion Program), pursuant to SEC Rule 17Ad-15. THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE BOARD TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ANY CLASS OR SERIES. SUCH REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION OR TO THE TRANSFER AGENT NAMED ON THIS CERTIFICATE. columbia financial printing corp. - www.stockinformation.com

 

Exhibit 5.1
(CLEARY GOTTLIEB STEEN & HAMILTON LLP LETTERHEAD)
Writer’s Direct Dial: (212) 225-2106
E-Mail: dmclaughlin@cgsh.com
February 24, 2012
Nationstar Mortgage Holdings Inc.
350 Highland Drive
Lewisville, Texas 75067
Ladies and Gentlemen:
               We have acted as counsel to Nationstar Mortgage Holdings Inc., a corporation organized under the laws of Delaware (the “Company”), in connection with the preparation of a registration statement on Form S-1 (No. 333-174246) (the “Registration Statement”) filed by the Company with the Securities and Exchange Commission (the “Commission”) pursuant to the Securities Act of 1933, as amended (the “Securities Act”). The Registration Statement relates to the registration of the sale by the Company of shares of the Company’s common stock, par value $.01 per share (the “Common Stock”) (together, with additional shares of the Common Stock to be issued and sold by the Company upon the exercise of the underwriters’ option to purchase additional shares, the “Company Securities”).
               In arriving at the opinion expressed below, we have reviewed the following documents:
     (a) the Registration Statement;
     (b) the Amended and Restated Certificate of Incorporation of the Company, included as Exhibit 3.1 to the Registration Statement; and
     (c) the form of underwriting agreement by and among the Company, the Initial Stockholder and the several underwriters named in Schedule A thereto, included as Exhibit 1.1 to the Registration Statement (the “Underwriting Agreement”).

 


 

Nationstar Mortgage Holdings Inc., p. 2
In addition, we have reviewed the originals or copies certified or otherwise identified to our satisfaction of all such records of the Company and such other documents, and we have made such investigations of law, as we have deemed appropriate as a basis for the opinion expressed below.
               In rendering the opinion expressed below, we have assumed the authenticity of all documents submitted to us as originals and the conformity to the originals of all documents submitted to us as copies. In addition, we have assumed and have not verified the accuracy as to factual matters of each document we have reviewed.
               Based on the foregoing and subject to the further assumptions and qualifications set forth below, it is our opinion that the Company Securities have been duly authorized by all necessary corporate action of the Company and, upon (i) due action of the pricing committee of the Board of Directors of the Company and (ii) the due issuance of the Company Securities against payment therefor in the manner described in the Underwriting Agreement, will be validly issued by the Company and fully paid and nonassessable.
               The foregoing opinion is limited to the General Corporation Law of the State of Delaware, including the applicable provisions of the Delaware Constitution and reported judicial decisions interpreting such laws.

 


 

Nationstar Mortgage Holdings Inc., p. 3
               We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to this firm under the heading “Legal Matters” in the Registration Statement and the related prospectus included in the Registration Statement. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act or the rules and regulations of the Commission thereunder.
         
  Very truly yours,

CLEARY GOTTLIEB STEEN & HAMILTON LLP
 
 
  By /s/ Duane McLaughlin   
  Duane McLaughlin, a Partner   
     
 

 

Exhibit 10.39
CONSULTING SERVICES AGREEMENT
     This Agreement (this “ Agreement ”) is made as of February 20, 2012, by and between Anthony H. Barone (“ Consultant ”) and Nationstar Mortgage LLC (“ Company ”).
     WHEREAS, Company desires that Consultant provide Company with consulting services and advice with respect to the business, operations and finances of Company, FIF HE Holdings LLC (“ FIF ”) and their respective subsidiaries, including, without limitation, at the request of Company, serving as a member of the board of directors or board of managers of Company, FIF and/or any of their respective subsidiaries (the “ Services ”); and
     WHEREAS, Consultant, in consideration of the payment by Company of the Consultant Fee as specified herein and for other consideration discussed herein, is willing to provide such Services.
     NOW THEREFORE, Consultant and Company agree that the following terms and conditions will govern the provision by Consultant to Company of the Services described in this Agreement.
1. SERVICES TO BE PROVIDED
     1.1 Consultant agrees to provide Company with Services during the Term (as defined in Section 4.1) as may reasonably be requested from time to time by Company in connection with its business activities.
     1.2 As and when requested, Consultant will agree to serve and will serve on the board of directors or board of managers of Company, FIF and/or any of their respective subsidiaries, and any their respective committees, and, if so requested by any such entity, Consultant will serve as chairman of the board of directors or board of managers of such entity. With respect to the foregoing, Consultant shall have such duties and responsibilities that are customary for a member of or chairman of any such board of directors, board of managers or committee, including but not limited to attendance at board and committee meetings and participation on related telephone conference calls. Promptly upon the request of Company, Consultant shall take all necessary actions to resign from any and all such director positions.
     1.3 Upon termination of this Agreement for any reason, unless requested otherwise by Company, Consultant shall resign each position (if any) that Consultant then holds as a member of the board of directors or board of managers of FIF, Company or any of their respective affiliates. Consultant’s execution of this Agreement shall be deemed to be a grant by Consultant to the officers of Company and its affiliates of a limited power of attorney to sign in Consultant’s name and on Consultant’s behalf any such documentation as may be required to be executed solely for the limited purposes of effectuating any of the resignations contemplated by Section 1.2 or Section 1.3.
2. FEES, BENEFITS AND EXPENSE REIMBURSEMENT
     2.1 Company agrees to pay Consultant an annual fee of $500,000 (the “ Consultant Fee ”). The Consultant Fee will be payable twice per month upon submission of an invoice for services rendered in performance of this Agreement.

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     2.2 In addition to the Consultant Fee, for each calendar year ending during the Term, Company may, in its sole and absolute discretion, pay an annual bonus to Consultant. Any annual bonus granted hereunder shall be paid to Consultant on or before March 15 of the calendar year following the year in respect to which such annual bonus is granted, provided that Consultant is providing Services hereunder on the applicable payment date and has not given any notice of termination to Company or received any notice of termination from Company as of such date.
     2.3 During the Term, Consultant shall be eligible to participate in the Company’s medical, dental and vision plans subject to and in accordance with the applicable limitations and requirements imposed by the terms of the documents governing such benefits, as from time to time in effect. Nothing, however, shall require Company to maintain any benefit, plan or arrangement or provide any type or level of benefits to Company’s employees.
     2.4 Consultant acknowledges and agrees that he shall not be entitled to receive any additional fees, payments or other consideration, including equity or other securities, from Company, FIF or any of their affiliates in the event that Consultant serves on the board of directors or board of managers of any of the foregoing during the Term, except to the extent that any such entity otherwise expressly agrees.
     2.5 Company shall reimburse Consultant for all reasonable out-of-pocket expenses incurred by Consultant which are directly related to the provision of the Services; provided , however, that all such expenses shall be pre-approved by Company and shall be evidenced by written receipts and submitted in writing.
     2.6 If Consultant is asked to be a member of the board of directors or board of managers of any company which has publicly-traded equity securities, then Consultant will be provided the opportunity to enter into an indemnification agreement in form and substance the same as indemnification agreements offered to other members of the board of directors or board of managers of such company. To the extent that Consultant is asked to be a member of the board of directors or board of managers of a company which does not have any publicly-traded equity securities, then Company shall ensure that any such company will indemnify Consultant to the fullest extent permitted by such company’s organizational documents in effect from time to time.
3. CONFIDENTIALITY
     All books of account, records, systems, correspondence, documents, and any and all other data, in whatever form, concerning or containing any reference to the works and business of Company or any of its affiliates shall belong to Company and shall be given up to Company whenever Company requires Consultant to do so. Consultant agrees that Consultant shall not at any time during the Term or thereafter, without Company’s prior written consent, disclose to any person (individual or entity) any information or any trade secrets, plans or other information or data, in whatever form (including, without limitation, (i) any financing strategies and practices, pricing information and methods, training and operational procedures, advertising, marketing, and sales information or methodologies or financial information and (ii) any Proprietary Information (as defined below)), concerning Company’s or any of its affiliates’ or customers’ practices, businesses, procedures, systems, plans or policies (collectively, “ Confidential Information ”), nor shall Consultant utilize any

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such Confidential Information in any way or communicate with or contact any such customer other than in connection with Consultant’s engagement hereunder. Consultant hereby confirms that all Confidential Information constitutes Company’s exclusive property, and that all of the restrictions on Consultant’s activities contained in this Agreement and such other nondisclosure policies of Company are required for Company’s reasonable protection. Confidential Information shall not include any information that has otherwise been disclosed to the public not in violation of this Agreement. These confidentiality provisions shall survive the termination of this Agreement and shall not be limited by any other confidentiality agreements entered into with Company or any of its affiliates.
     Consultant agrees that he shall promptly disclose to the Company in writing all information and inventions generated, conceived or first reduced to practice by him alone or in conjunction with others, during or after working hours, in connection with the provision of Services hereunder (all of which is collectively referred to in this Agreement as “ Proprietary Information ”); provided , however , that such Proprietary Information shall not include (i) any information that has otherwise been disclosed to the public not in violation of this Agreement and (ii) general business knowledge and work skills of Consultant, even if developed or improved by Consultant while providing Services hereunder. All such Proprietary Information shall be the exclusive property of Company and is hereby assigned by Consultant to Company. Consultant’s obligation relative to the disclosure to the Company of such Proprietary Information anticipated in this Section 3 shall continue beyond the end of the Term and Consultant shall, at Company’s expense, give Company all assistance it reasonably requires to perfect, protect and use its right to the Proprietary Information. In addition, Consultant agrees that he will not disclose to or use on behalf of Company any proprietary information of a third party without that party’s consent.
4. TERM; TERMINATION
     4.1 This Agreement shall commence on the date first written above and shall terminate upon the earliest to occur of (a) the 30th day after delivery of written notice of termination from one party to the other party (except as otherwise provided in clause (b)), (b) delivery from Company to Consultant of written notice of termination for Cause (as defined in Section 4.4), (c) the failure of Consultant to execute the release contemplated by the letter agreement, dated as of February 20, 2012, by and among Consultant, FIF and Company (the “ Letter Agreement ”), within the time frame contemplated in the Letter Agreement, or (d) the revocation of the release contemplated by the Letter Agreement prior to the expiration of the revocation period provided for in such release (such period, the “ Term ”).
     4.2 If notice of termination is given, the Company shall be required to pay the Consultant Fee in respect of (i) previously completed months for which Consultant has not yet been paid and (ii) if this Agreement is terminated pursuant to clause (a) of Section 4.1, the month of termination, and the amount due shall equal the Consultant Fee times a fraction, the numerator of which is the number of days in the month of termination that shall have elapsed through the termination date and the denominator of which is the number of days in the month of termination.
     4.3 The provisions set forth in Sections 3, 6, 7 and this Section 4 shall survive any expiration or termination of this Agreement; provided that the termination of this Agreement shall not relieve a party from liability for any breach of violation of this Agreement by such party prior to such termination.

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     4.4 For purposes of this Agreement, “ Cause ” shall mean (a) conviction of, guilty plea concerning or confession of any felony, (b) any act of misappropriation or fraud committed by you in connection with Company’s, FIF’s or any of their respective subsidiaries’ business, (iii) any material breach by you of this Agreement, the Letter Agreement or any other agreement between you and FIF, Company and/or any of their respective subsidiaries, after written notice thereof from FIF, Company or any of their respective subsidiaries is given in writing and such breach is not cured to the satisfaction of FIF, Company and/or the applicable subsidiary or subsidiaries within a reasonable period of time (not greater than 30 days) under the circumstances, (iv) any material breach of any reasonable and lawful rule or directive of Company, FIF and/or any of their respective subsidiaries, (v) the gross or willful neglect of duties or gross misconduct by you, or (vi) the habitual use of drugs or habitual, excessive use of alcohol to the extent that any of such uses in Company’s good faith determination materially interferes with the performance of your duties under this Agreement or the Letter Agreement.
5. COVENANTS
     By virtue of the provision of Services hereunder, Consultant acknowledges that, during the Term, he shall have access to Confidential Information, and will receive specialized knowledge of the mortgage lending business and the mortgage servicing business.
     5.1 Consultant agrees that, from the date hereof through the last day of the Term (or through December 31, 2012, in the event that this Agreement terminates pursuant to clause (b), (c) or (d) of Section 4.1 prior to December 31, 2012), Consultant shall not, anywhere in the United States, directly or indirectly, either as a principal, agent, employee, employer, consultant, partner, shareholder of a closely held corporation or shareholder in excess of five (5%) percent of a publicly traded corporation, corporate officer or director, or in any other individual or representative capacity, engage or otherwise participate in any manner or fashion in any business that is in competition in any manner whatsoever with (a) the mortgage lending business of FIF, Company or any of their respective subsidiaries (including, but not limited to, the business of originating, servicing or owning residential mortgages and related assets), provided that nothing herein shall prohibit Consultant from personal investment in residential mortgages and related assets or (b) any other business (i) in which Company, FIF or any of their respective subsidiaries is engaged or which is part of Company’s Developing Business (as defined below) and (ii) in which Consultant learns Confidential Information or meets and develops relationships with potential and existing suppliers, financing sources, clients, customers and employees or in which Consultant receives specialized training or knowledge. For purposes of the foregoing, “ Developing Business ” shall mean the new business concepts and services FIF, Company or any of their respective subsidiaries have developed and is in the process of developing during the Term. Consultant further covenants and agrees that this restrictive covenant is reasonable as to duration, terms and geographical area and that the same protects the legitimate interests of Company and its affiliates, imposes no undue hardship on Consultant, is not injurious to the public, and that any violation of this restrictive covenant shall be specifically enforceable in any court with jurisdiction upon short notice.
     5.2 Consultant agrees that, from the date hereof through the last day of the Term (or through December 31, 2012, in the event that this Agreement terminates pursuant to clause (b), (c) or (d) of Section 4.1 prior to December 31, 2012), Consultant shall not, directly or indirectly,

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(a) encourage, persuade, or attempt to encourage or persuade any client or customer of FIF, Company or any of their respective subsidiaries, or potential client or customer of FIF, Company or any of their respective subsidiaries, in each case, with which or with whom Consultant was involved as part of the provision of Services or regarding which or whom Consultant learned Confidential Information during the provision of Services hereunder, to cease or refrain from doing business with or to reduce its current or contemplated level of doing business with FIF, Company or any of their respective subsidiaries; or (b) contact, solicit, or attempt to contact or solicit any client or customer of FIF, Company or any of their respective subsidiaries, or potential client or customer of FIF, Company or any of their respective subsidiaries, in each case, with which or with whom Consultant was involved as part of the provision of Services hereunder or regarding which or whom Consultant learned Confidential Information during the provision of Services hereunder, for purposes of soliciting any business in which FIF, Company or any of their respective subsidiaries is engaged.
     5.3 Consultant agrees that, from the date hereof through the last day of the Term (or through December 31, 2012, in the event that this Agreement terminates pursuant to clause (b), (c) or (d) of Section 4.1 prior to December 31, 2012), Consultant shall not, directly or indirectly, (i) solicit or induce any officer, director, employee, agent or consultant of FIF, Company or any of their respective successors, assigns, subsidiaries or affiliates to terminate his, her or its employment or other relationship with FIF, Company or any of their respective successors, assigns, subsidiaries or affiliates, or otherwise encourage any such person or entity to leave or sever his, her or its employment or other relationship with FIF, Company or any of their respective successors, assigns, subsidiaries or affiliates, for any other reason or (ii) hire any individual who left the employ of Company or any of its affiliates during the immediately preceding one (1) year period.
     Nothing contained in this Section 5 shall limit any common law or statutory obligation that Consultant may have to Company or any of its affiliates. For purposes of this Section 5, “Company” refers to Company and any incorporated or unincorporated affiliates of Company, including any entity which engages Consultant as a consultant as a result of any reorganization or restructuring of Company for any reason.
6. STATUS; TAXES
     6.1 Consultant shall not be an employee of Company or any of its affiliates and shall not be entitled to participate in any employee benefit plans or other benefits or conditions of employment (including, for the avoidance of doubt, any right to indemnification) available to employees of Company or any of its affiliates except as explicitly set forth herein. Consultant shall have no authority to act as an agent of Company or any of its affiliates, and he shall not represent the contrary to any person. Consultant shall only consult, render advice and perform such tasks as Consultant determines are necessary to achieve the results specified by Company. Consultant shall not direct the work of any employee of Company or any of its affiliates, make any management decisions, or undertake to commit Company or any of its affiliates to any course of action in relation to third persons. Nothing herein shall be construed to deem the parties hereto as partners or joint venturers, either as agent of the other, or create an employee/employer relationship between Company (or any affiliate thereof) and Consultant, or any employee or service provider of Consultant and Consultant’s affiliates. By virtue of the relationship described herein, Consultant’s relationship to Company shall be only that of independent contractor.

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     6.2 It is intended that the fees and other amounts paid hereunder (excluding reimbursement of expenses) shall constitute revenues to Consultant. To the extent consistent with applicable law, Company will not withhold any amounts therefrom as federal income tax withholding from wages or as contributions under the Federal Insurance Contributions Act or any other state or federal laws. Consultant shall be solely responsible for the withholdings and/or payment of any federal, state or local income or payroll taxes and shall hold Company and its affiliates, and their respective officers, directors, and employees, harmless from any liability arising from the failure to withhold such amounts.
7. MISCELLANEOUS
     7.1 This Agreement sets forth the entire agreement and understanding of the parties with respect to the subject matter hereof and supersedes all prior oral and written agreements and understandings relating thereto, except for the Letter Agreement, which shall remain in full force and effect. No representation, promise, inducement or statement of intention has been made by either party which is not set forth in this Agreement, and neither shall be bound by or liable for any alleged representation, promise, inducement or statement of intention not so set forth. No waiver, alteration, modification, or cancellation of any of the provisions of this Agreement shall be binding unless made in writing and signed by the parties.
     7.2 Company may assign its rights and delegate its obligations under this Agreement to any affiliate or successor-in-interest to its business. Consultant may not assign any of his rights or delegate any of his duties under this Agreement without the consent of Company, and any attempted assignment in violation of this Section 7.2 shall be void and of no force and effect. Subject to the foregoing limitations set forth in this Section 7.2, this Agreement shall be binding and inure to the benefit of successors-in-interest and permitted assigns of Company and Consultant.
     7.3 This Agreement shall be subject to and interpreted in accordance with the laws of the State of Texas, without regard to its principles of conflicts of laws.
     7.4 Consultant acknowledges that damages for any breach of Sections 3 or 5 of this Agreement will be difficult to determine and inadequate to remedy the harm which may be caused, and Consultant therefore consents that the restrictions contained in any such Section may be enforced by temporary or permanent injunction, without the need by Company to post a bond or prove the inadequacy of monetary damages. Such injunctive relief shall be in addition to and not in place of any other remedies available at law or in equity. Should any court or tribunal decline to enforce any provisions of Sections 3 or 5 on the basis that such provisions are overly restrictive of the activities of Consultant as to time, scope, or geography, such provisions shall be deemed to be modified to restrict Consultant’s activities to the maximum extent of time, scope, and geography which such court or tribunal shall find enforceable, and such provisions shall be enforced.
     7.5 Any notices provided hereunder must be in writing and shall be deemed effective upon the earlier of one (1) business day following personal delivery (including personal delivery by facsimile), or the third business day after mailing by first class mail to the recipient at the address indicated below:
To Company:

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Nationstar Mortgage LLC
350 Highland Drive
Lewisville, Texas 75067
Attention: Mark O’Brien
Facsimile: 972.315.6957
With a copy to:
FIF HE Holdings LLC
c/o Fortress Investment Group LLC
1345 Avenue of Americas
New York, New York 10105
Attention: Randal A. Nardone
Facsimile: 212.798.6120
To Consultant:
Anthony H. Barone
1001 Parkview Court
Southlake, Texas 76092
Facsimile: 972.966.4911
or to such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party
     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
                     
CONSULTANT:       COMPANY:    
ANTHONY H. BARONE       NATIONSTAR MORTGAGE LLC    
 
                   
By:
  /s/ Anthony H. Barone       By:   /s/ Jay Bray    
 
 
 
         
 
   
 
          Name:   Jay Bray    
 
             
 
   
 
          Title:   President, CEO and CFO    
 
             
 
   

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Exhibit 10.40
FIF HE HOLDINGS LLC
c/o Fortress Investment Group LLC
1345 Avenue of the Americas
New York, NY 10105
NATIONSTAR MORTGAGE LLC
350 Highland Drive
Lewisville, Texas 75067
February 20, 2012
Anthony H. Barone
1001 Parkview Court
Southlake, Texas 76092
Dear Mr. Barone:
          Reference is made to (i) the Employment Agreement, dated September 17, 2010, by and between Nationstar Mortgage LLC (“Nationstar”) and Mr. Barone (the “Employment Agreement”), (ii) the Series 1 Class A Unit Award Agreement, dated September 17, 2010, by and between FIF HE Holdings LLC (“FIF”) and Mr. Barone (the “Series 1 Award Agreement”), (iii) the Series 2 Class A Unit Award Agreement, dated September 17, 2010, by and between FIF and Mr. Barone (the “Series 2 Award Agreement”), and (iv) the Restricted Series 1 Preferred Stock Unit Award Agreement, dated September 17, 2010, by and between FIF and Mr. Barone (the “Preferred Award Agreement”, and collectively with the Employment Agreement, the Series 1 Award Agreement and the Series 2 Award Agreement, the “Agreements”).
          Pursuant to our earlier conversations, this letter agreement (this “Letter Agreement”) sets forth our understanding with respect to matters involving your employment with Nationstar and your rights and obligations under each of the Agreements.
  1.   Except as provided herein, your Employment Agreement has expired and shall be of no further force and effect.
 
  2.   You agree that, as of October 7, 2011, you will be deemed to have voluntarily resigned from any and all managerial positions, boards and officer, director or trustee positions, if any, with FIF and any of its affiliates or subsidiaries, except for your director positions on the board of managers of Nationstar, the board of directors of Nationstar Mortgage Holdings Inc. (“Holdings”), and the board of managers of each of Nationstar Sub1 LLC and Nationstar Sub2 LLC.

 


 

  3.   You shall continue to be employed with Nationstar until January 2, 2012, subject to the following terms and conditions:
    The term of your continued employment hereunder shall begin on the date hereof and shall end on January 2, 2012, or upon any earlier termination of employment (the “Termination Date” and such period, the “Term”);
 
    You shall have such duties, responsibilities and authority as are prescribed by Nationstar from time to time during the Term;
 
    You may be appointed as chairman of the board of directors of Nationstar and, at the discretion of Nationstar and FIF, you may be appointed as chairman of the board of directors of Holdings, and/or FIF (the “Chairman”);
 
    You shall, effective January 2, 2012, resign all director positions you have with FIF and its subsidiaries, subject to any contrary provisions in the Consulting Agreement (as defined in Section 5 below);
 
    You shall continue to receive your current base salary for the remainder of the Term; and
 
    You shall continue your participation in Nationstar’s medical and other welfare plans at your current levels for the remainder of the Term.
  4.   In the event you remain employed through January 2, 2012 and are continuing to provide services under the Consulting Agreement (as defined in Section 5 below) as of the applicable payment date, or in the event your service under the Consulting Agreement is earlier terminated by Nationstar without Cause (as defined in Section 16 below), and provided you execute a separation agreement containing a general release of claims in the form substantially attached hereto as Exhibit A (the “Release”), and the applicable revocation period expires with respect to such Release within 60 days following the Termination Date, you shall be entitled to participate in the Nationstar Mortgage LLC Annual Incentive Compensation Plan (the “Plan”) with respect to Nationstar’s 2011 fiscal year. Pursuant to the terms of the Plan, you shall be entitled to receive a payment equal to 31.7% of the “Bonus Pool” (as such term is defined in the Plan) relating to Nationstar’s 2011 fiscal year. Such payment shall be made in accordance with the terms of the Plan and no later than March 15, 2012; provided , however , that you shall not be entitled to any payment under the Plan if you are not in continued compliance with this Letter Agreement and the Covenants (as defined in Section 12 hereof) and, if applicable, any restrictive covenants contained in the Consulting Agreement (as defined in Section 5 hereof), as of the date of payment.
  5.   In the event you remain employed through January 2, 2012, the parties shall enter into an agreement (the “Consulting Agreement”) as soon as practicable after such date, containing the terms outlined below and otherwise containing customary terms and provisions:

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    You shall provide such advisory and consulting services as are reasonably requested by Nationstar, or its designee;
 
    At the discretion of Nationstar and FIF, you may be appointed as a member of, or as the non-executive chairman of, the board of directors of one or more of Holdings, FIF and/or Nationstar, and you shall not be entitled to any additional compensation in respect of such board service;
 
    You shall receive an annual fee of $500,000 for providing such services, payable in accordance with Nationstar’s then effective payroll practices and in such installments as Nationstar pays its senior management;
 
    At the discretion of Nationstar and FIF, you may be entitled to receive an annual bonus in connection with such service;
 
    You shall be entitled to participate in Nationstar’s medical, dental and vision plans in a manner similar to the participation by Nationstar’s senior management, to the extent permitted under the applicable plans;
 
    The Consulting Agreement may be terminated (i) by either party with 30 days advance written notice or (ii) by Nationstar at any time for Cause; provided, however, that the Consulting Agreement shall automatically terminate in the event (A) you fail to execute the Release as contemplated herein or (B) you revoke the Release prior to the expiration of the applicable revocation period; and
 
    You shall be subject to restrictive covenants which are consistent with those contained in the Employment Agreement.
  6.   In the event you remain employed through January 2, 2012 and are continuing to provide services under the Consulting Agreement on June 30, 2012, and provided you are in continued compliance with this Letter Agreement, the Consulting Agreement, any restrictive covenants contained in the Consulting Agreement, and the Covenants (as defined in Section 12 hereof) at the time of the contemplated vesting, all unvested Series 1 Class A Units of FIF (“Series 1 Class A Units”) granted to you under the Series 1 Award Agreement and all unvested Series 2 Class A Units of FIF (“Series 2 Class A Units”) granted to you under the Series 2 Award Agreement, and all unvested Series 1 Class C Preferred Units of FIF (“Class C RSUs”) and all unvested Series 1 Class D Preferred Units of FIF (“Class D RSUs”) granted to you under the Preferred Award Agreement shall vest on June 30, 2012. The parties agree that for purposes of Section 3 of each of the Series 1 Award Agreement and Series 2 Award Agreement, your employment shall not be deemed to have been terminated with Cause (as such term is defined in such agreements). The Class C Units and Class D Units relating to the Class C RSUs and Class D RSUs shall be delivered to you within 30 days following the vesting date set forth above.
  7.   In the event (i) your employment is terminated by Nationstar without Cause prior to January 2, 2012 or (ii) your Consulting Agreement is terminated by Nationstar without Cause prior to June 30, 2012, and provided you are in continued compliance with this Letter Agreement, the Consulting Agreement

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      and any restrictive covenants contained in the Consulting Agreement, if applicable, and the Covenants (as defined in Section 12 hereof) as of the date of your termination of employment or service, all unvested Series 1 Class A Units granted to you under the Series 1 Award Agreement and all unvested Series 2 Class A Units granted to you under the Series 2 Award Agreement, and all unvested Class C RSUs and all unvested Class D RSUs granted to you under the Preferred Award Agreement shall vest on the date of your termination of employment, or service, as applicable. The Class C Units and Class D Units relating to the Class C RSUs and Class D RSUs shall be delivered to you within 30 days following the date of termination.
  8.   In the pay period following the Termination Date, you will receive payment for (a) any earned but unpaid salary through the Termination Date, (b) any accrued but unpaid paid time off, (c) any reimbursable business expenses through the Termination Date, (d) any vested benefits in accordance with the terms of Nationstar’s employee benefit plans or programs and (e) any benefit continuation and/or conversion rights in accordance with the terms of Nationstar’s employee benefit plans or programs.
  9.   Your basic life insurance, long term disability insurance, short term disability insurance and accidental death and dismemberment insurance under Nationstar’s group insurance plan will terminate on your Termination Date. You have the choice to continue the basic life insurance policy by either porting the policy or converting the policy to a whole or term life plan. Specific information on continuing your basic life insurance policy will be forwarded to you separately.
  10.   You and your eligible dependents will be eligible to continue medical, dental and vision coverage (the “Health Coverage”) under Nationstar’s group health plan which will continue under the same terms and conditions applicable to all Company employees. Coverage under a Flexible Spending Account program (the “FSA”) will terminate on the Termination Date. All claims relating to the FSA must be submitted within 60 days following the Termination Date; and only those claims incurred prior to the Termination Date will be reimbursed. Upon termination of your Consulting Services Agreement, you will be provided an opportunity to continue, at your own cost, Health Coverage and the healthcare portion of the FSA for yourself and qualifying dependents under Nationstar’s group health plan in accordance with the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). Specific information on COBRA, including its rate structure, will be forwarded to you separately. Your coverage and cost levels are subject to adjustment in accordance with the terms of the documents governing the program.
  11.   Except as otherwise specifically set forth in this Letter Agreement and the Consulting Agreement, after the Termination Date you shall no longer be entitled to any further equity securities, compensation or any monies from

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      Nationstar, FIF or any of their respective affiliates or subsidiaries or to receive any of the benefits made available to you during your employment at Nationstar.
  12.   You agree that you remain bound by the cooperation obligation contained in Section 2 of the Employment Agreement and the obligations contained in Sections 6 and 7 of the Employment Agreement, provided that the term of each of (a) the noncompete obligation under Section 6(a) of the Employment Agreement, (b) the customer non-solicitation obligation under Section 6(b) of the Employment Agreement, and (c) the employee nonsolicitation and no-hire obligation under Section 6(c) of the Employment Agreement, shall continue as defined in Sections 5.1 and 5.3 of your Consulting Services Agreement, through July 1, 2012 (such obligations, as amended by this Section 12, the “Covenants”).
  13.   You agree that, to the extent applicable and to the extent not otherwise modified pursuant to this Letter Agreement, Section 6-12 of the Employment Agreement will continue to apply to the terms and provisions of this Letter Agreement.
  14.   You agree that, if in connection with, or at any time after, Holdings, FIF or any of their respective subsidiaries conducts a public offering of its equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended, you are requested by Nationstar to exchange any or all of your Series 1 Class A Units, Series 2 Class A Units, Class C RSUs, Class C Units, Class D RSUs and Class D Units for equity securities of the entity making such public offering, you shall take any and all actions necessary or reasonably requested by such entity to exchange any of your Series 1 Class A Units, Series 2 Class A Units, Class C Units, Class C RSUs, Class D RSUs or Class D Units for an amount of equity securities of the entity which made such public offering having a value equal to the value of the securities exchanged by you, as determined in good faith by FIF.
  15.   The intent of the parties is that payments and benefits under this Letter Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended, to the extent subject thereto, and accordingly, to the maximum extent permitted, this Letter Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, you shall not be considered to have terminated employment with Nationstar for purposes of any payments under this Agreement which are subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) until you have incurred a “separation from service” from Nationstar within the meaning of Section 409A of the Code. Each amount to be paid or benefit to be provided under this Letter Agreement shall be construed as a separate identified payment for purposes of Section 409A of the Code. Without limiting the foregoing and notwithstanding anything

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      contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Letter Agreement during the six-month period immediately following your separation from service shall instead be paid on the first business day after the date that is six months following your separation from service (or, if earlier, your date of death). To the extent required to avoid an accelerated or additional tax under Section 409A of the Code, amounts reimbursable to you under this Agreement shall be paid to you on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in kind benefits provided to you) during one year may not affect amounts reimbursable or provided in any subsequent year. Nationstar makes no representation that any or all of the payments described in this Agreement will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment.
  16.   Cause ” means (i) conviction of, guilty plea concerning or confession of any felony, (ii) any act of misappropriation or fraud committed by you in connection with FIF’s or its subsidiaries’ business, (iii) any material breach by you of this Letter Agreement, the Consulting Agreement (if applicable), the Covenants and any other agreement between you and FIF or Nationstar, after written notice thereof from FIF or Nationstar is given in writing and such breach is not cured to the satisfaction of FIF or Nationstar within a reasonable period of time (not greater than 30 days) under the circumstances, (iv) any material breach of any reasonable and lawful rule or directive of Nationstar or FIF, (v) the gross or willful neglect of duties or gross misconduct by you, or (vi) the habitual use of drugs or habitual, excessive use of alcohol to the extent that any of such uses in FIF’s good faith determination materially interferes with the performance of your duties under this Letter Agreement or the Consulting Agreement, if applicable.

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     Please acknowledge your receipt of this Letter Agreement and your agreement with the terms hereof by executing this Letter Agreement in the appropriate space below.
             
    Nationstar Mortgage LLC
 
           
 
  By:   /s/ Jay Bray    
 
           
 
  Name:   Jay Bray    
 
  Title:   President, CEO and CFO    
             
    FIF HE Holdings LLC
 
           
 
  By:   /s/ Pete Smith    
 
           
 
  Name:   Pete Smith    
 
  Title:   Manager    
Agreed to and Accepted By:
Anthony Barone
/s/ Anthony Barone                                         

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EXHIBIT A
SEPARATION AGREEMENT AND GENERAL RELEASE
This Separation Agreement and General Release (“ Agreement ”) is made by and between Anthony Barone (“ Employee ”), Nationstar Mortgage LLC (“ Nationstar ”) and FIF HE Holdings LLC (“FIF”) (each, a “ Party ” and collectively, the “ Parties ”) as of the below-indicated dates.
      WHEREAS, Employee was employed by Nationstar pursuant to an Employment Agreement between Nationstar and Employee, dated September 17 th , 2010 and terminating on September 17, 2011 (the “ Prior Agreement ”);
      WHEREAS , Employee continued employment with Nationstar pursuant to a Letter Agreement, dated February  , 2012 between Employee, FIF and Nationstar (the “ Letter Agreement ”, and together with the Prior Agreement, the “ Employment Agreements ”);
      WHEREAS , Employee’s employment with Nationstar terminated as of January 2, 2012 (the “ Termination Date ”); and
      WHEREAS , by entering into this Agreement, the Parties intend to resolve any and all of Employee’s disputes, claims, complaints, grievances, charges, actions, petitions, liabilities and demands that Employee may have against the Released Parties (as defined herein), including, without limitation, attorney’s fees, disbursements, monetary fines, damages, equitable relief, and/or any other benefits or other remuneration from the Released Parties.
NOW THEREFORE , for and in consideration of the bonus payment described in Section 4 of the Letter Agreement, the vesting described in Section 6 and 7 of the Letter Agreement, and the opportunity to enter into the Consulting Agreement (as described in Section 5 of the Letter Agreement) and other good and valuable consideration:
  1.   You, for and on behalf of yourself and your heirs, administrators, executors, and assigns, do fully and forever release, remise and discharge (“ release ”) Nationstar, FIF, the direct and indirect parents, subsidiaries and affiliates of each of Nationstar and FIF, together with the respective officers, directors, partners, shareholders, attorneys, employees and agents of Nationstar, FIF and their respective parents, subsidiaries and affiliates (collectively, the “ Group ”), from any and all Claims (as defined below) which you had, may have had, or now have against Nationstar, FIF or any other member of the Group through the date upon which Employee signs this Agreement, for or by reason of any matter, cause or thing whatsoever, whether known or unknown, including any Claim arising out of the Employment Agreements, whether pursuant to Section 5 of the Prior Agreement or any other provision of the Employment Agreements, or with respect to past or future incentive or equity compensation in respect of your employment with Nationstar, and any Claim arising out of

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      or attributable to your employment or the termination of your employment with Nationstar, including but not limited to Claims of breach of contract, wrongful termination, unjust dismissal, defamation, libel or slander, or under any federal, state or local law dealing with discrimination based on age, race, sex, national origin, handicap, religion, disability or sexual preference. This release of Claims includes, but is not limited to, all Claims arising under Title VII of the Civil Rights Act, the Texas Human Rights Act, the Americans with Disabilities Act, the Civil Rights Act of 1991, the Family and Medical Leave Act, the Equal Pay Act, the Worker Adjustment and Retraining Notification Act, the Executive Retirement Income Security Act, the Civil Rights Acts of 1866, 1964 and 1991, the Civil Rights Act of 1991, the Equal Pay Act, the Immigration and Reform Control Act, the Vocational Rehabilitation Act of 1973, the Uniform Services Employment and Re-Employment Act, the Rehabilitation Act of 1973, Executive Order 11246, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and all other federal, state and local labor and anti-discrimination laws, the common law and any other purported restriction on an employer’s right to terminate the employment of employees. To the fullest extent permitted by law, you further waive your right to participate in any collective or class action under the Fair Labor Standards Act or any similar state or local law, and you agree to opt-out of any such collective or class action against Nationstar, FIF or any other member of the Group to which you may be or become a party or class member. Further, you specifically release all Claims under the Older Workers Benefit Protection Act and Age Discrimination in Employment Act (collectively, the “ ADEA ”) relating to your employment and its termination. Notwithstanding the foregoing, this release does not release (i) Claims that cannot be waived under applicable law, (ii) Claims to enforce the terms of this Agreement, (iii) Claims that arise after the date that you sign this Agreement, (iv) your rights under the operating agreement of FIF, as amended from time to time, and (v) your rights under the Series 1 Award Agreement, Series 2 Award Agreement, and the Preferred Award Agreement (provided that you acknowledge and agree that you have no rights to receive any additional securities of FIF, Nationstar or any of their respective affiliates or subsidiaries under any of such agreements except to the extent provided for herein, and except for Series 1 Class A Units, Series 2 Class A Units, Class C Units and Class D Units already owned by you as of the date hereof). As used in this Agreement, the term “ Claims ” shall include all claims, covenants, warranties, promises, undertakings, actions, suits, causes of action, obligations, debts, attorneys’ fees, accounts, judgments, losses and liabilities of whatsoever kind or nature, in law, equity or otherwise.
  2.   You represent that you have not filed or permitted to be filed any legal action, charge or complaint, in any forum whatsoever, against any member of the Group, individually or collectively, and you covenant and agree that you will not file or permit to be filed any lawsuits at any time hereafter with respect to the subject matter of this Agreement and Claims released pursuant to this

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      Agreement (including, without limitation, any Claims relating to the termination of your employment), except as may be necessary to enforce this Agreement or to seek a determination of the validity of the waiver of your rights under the ADEA. Nothing in this Agreement shall be construed to prohibit you from filing a charge with or participating in any investigation or proceeding conducted by the Equal Employment Opportunity Commission or a comparable state or local agency. Notwithstanding the foregoing, you agree to waive your right to recover monetary damages in any charge, complaint, or lawsuit filed by you or by anyone else on your behalf. Except as otherwise provided in this paragraph, you will not voluntarily participate in any judicial proceeding of any nature or description against any member of the Group that in any way involves the allegations and facts that you could have raised against any member of the Group as of the date upon which Employee signed this Agreement. You further agree that you will not encourage or voluntarily cooperate with current or former employees of the Group or any other potential plaintiff, to commence any legal action or make any claim against any of the Group in respect of such person’s employment or termination of employment with or by the Group or otherwise.
  3.   You agree that you remain bound by the Covenants (as defined in Section 12 of the Letter Agreement).
 
  4.   You acknowledge that you have read this Agreement in its entirety, fully understand its meaning and are executing this Agreement voluntarily and of your own free will with full knowledge of its significance.
 
  5.   You agree to maintain the confidentiality of this Agreement, and to refrain from disclosing or making reference to its terms, except (a) as required by law; or (b) with your accountant or attorney for the sole purposes of obtaining, respectively, financial or legal advice; or (c) with your immediate family members (the parties in clauses (b) and (c), “ Permissible Parties ”); provided that the Permissible Parties agree to keep the terms and existence of this Agreement confidential. You acknowledge and agree that any disclosure of any information by you or the Permissible Parties contrary to the provisions of this Agreement shall be a breach of this Agreement.
 
  6.   Nationstar and FIF shall be entitled to have the provisions of this Agreement, the Employment Agreements and the Covenants specifically enforced through injunctive relief, without having to prove the adequacy of the available remedies at law, and without being required to post bond or security, it being acknowledged and agreed that such breach will cause irreparable injury to Nationstar and FIF and that money damages will not provide an adequate remedy to Nationstar and FIF. Moreover, you understand and agree that if you breach any provisions of this Agreement, the Employment Agreements or the Covenants, or challenge the validity or enforceability of the Covenants, the Employment Agreement or this Agreement (except as provided in the first

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      three sentences of Section 2 of this Agreement), in addition to any other legal or equitable remedy Nationstar or FIF may have, Nationstar and FIF shall be entitled to cease making any payments or providing any equity securities to you under Sections 4, 6 and 7 of the Letter Agreement, and you shall forfeit all rights and entitlements under Sections 4, 6 and 7 of the Letter Agreement. The remedies set forth in this Section 7 shall apply to any challenge to the validity of the waiver and release of your rights under the ADEA. In the event you challenge the validity of the waiver and release of your rights under the ADEA, then Nationstar’s and FIF’s right to attorneys’ fees and costs shall be governed by the provisions of the ADEA. Any such action permitted to Nationstar and FIF by the foregoing, however, shall not affect or impair any of your obligations under this Agreement, including without limitation, the release of claims in Section 1 hereof.
 
  7.   In the event that any one or more of the provisions of this Agreement or the Employment Agreements is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. Moreover, if any one or more of the provisions contained in this Agreement or the Employment Agreements is held to be excessively broad as to duration, scope, activity or subject, such provisions will be construed by limiting and reducing them so as to be enforceable to the maximum extent compatible with applicable law.
 
  8.   Nothing herein shall be deemed to constitute an admission of wrongdoing by Nationstar or any member of the Group. Neither this Agreement nor any of its terms shall be used as an admission or introduced as evidence as to any issue of law or fact in any proceeding, suit or action, other than an action to enforce this Agreement.
 
  9.   This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
  10.   The terms of this Agreement and all rights and obligations of the parties thereto, including its enforcement, shall be interpreted and governed by the laws of the State of Texas, without regard to principles of conflict of law.
 
  11.   You understand that you have forty-five (45) days from the original date of presentment of this Agreement, January  , 2012 , to consider whether or not to execute this Agreement, although you may elect to sign it sooner. You shall have a period of seven (7) days after the day on which you sign this Agreement to revoke your consent thereto, which revocation must be in writing delivered to Nationstar, to the attention of Anthony Villani in Nationstar’s Legal department, and this Agreement shall not become effective until the eighth day following your execution of it (the “Effective Date”). You understand that if you revoke your consent within such seven (7) day

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      period, all of the obligations of Nationstar and FIF to you under this will immediately cease, and Nationstar and FIF will not be required to make the payments to you as contemplated by Section 4 of the Letter Agreement and effect the vesting of equity securities as contemplated by Section 5 of the Letter Agreement. You are advised to have this Agreement reviewed by legal counsel of your choice.
 
  12.   The terms contained in this Agreement, as well as the cooperation paragraph in Section 2 of the Employment Agreement, Sections 6-12 of the Employment Agreement and Sections 4, 5, 6, 7, 11 and 13 of the Letter Agreement, constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior negotiations, representations or agreements relating thereto, whether written or oral, with the exception of any agreements or provisions in agreements concerning confidentiality, trade secrets, restrictive covenants, or any nonsolicitation or nonservicing agreements, all of which agreements shall remain in full force and effect, and are hereby confirmed and ratified. In further consideration of this Agreement and notwithstanding anything herein to the contrary, you agree to abide by and hereby reaffirm any confidentiality or restrictive covenant obligations contained in any agreements you may have entered into or otherwise are bound by with Nationstar or FIF, including the Covenants, the terms of which are hereby incorporated by reference. You represent that in executing this Agreement, you have not relied upon any representation or statement not set forth herein. No amendment or modification of this Agreement shall be valid or binding upon the parties unless in writing and signed by all the parties hereto.
[signature page follows]

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     Please acknowledge your receipt of this Agreement and your agreement with the terms hereof by executing this Agreement in the appropriate space below.
Nationstar Mortgage LLC
             
 
  By:        
 
     
 
   
 
  Name:        
 
           
 
  Title:        
FIF HE Holdings LLC
             
 
  By:        
 
     
 
   
 
  Name:        
 
           
 
  Title:        
Agreed to and Accepted By:
Anthony Barone
                                                              
Date:                                                      

13

Exhibit 10.49
          AMENDMENT, dated as of February 21, 2012 (this “ Amendment ”), to the Fifth Amended and Restated Master Repurchase Agreement dated as of January 27, 2010 (as amended from time to time, the “ Agreement ”), between Nationstar Mortgage LLC, a Delaware limited liability company (the “ Company ”) and The Royal Bank of Scotland PLC (the “ Bank ”).
          WHEREAS, FIF HE Holdings LLC (“ FIF ”), a wholly-owned subsidiary of Fortress Investment Group LLC, owns 100% of the equity interests in the Company;
          WHEREAS, FIF owns 100% of the equity interests in Nationstar Mortgage Holdings Inc., a newly formed Delaware corporation (“ NMH ”), which in turn owns 100% of the equity interests in Nationstar Sub1 LLC (“ Sub 1 ”) and Nationstar Sub2 LLC (“ Sub 2 ”), each of which is a Delaware limited liability company (collectively, the “ Subsidiary LLCs ”);
          WHEREAS, NMH expects to effect a registered initial public offering of its common stock pursuant to a registration statement on Form S-1 (the “ IPO ”);
          WHEREAS, in connection with the IPO, FIF expects to transfer all of its equity interests in the Company to the Subsidiary LLCs (the “ Restructuring ” and, collectively with the IPO, the “ Transactions ”), such that Sub 1 and Sub 2, collectively, will own 100% of the Company following the Restructuring;
          NOW, THEREFORE, in consideration of the premises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
          I. Amendment of the Agreement . The definition of “Change of Control” set forth in Section 2(a) of the Agreement is hereby deleted in its entirety and replaced with the following:
          “ Change of Control ” means:
          (a) at any time prior to the consummation of an initial public offering of common equity interests pursuant to a registration statement on Form S-1 or any comparable successor form by Seller or any direct or indirect parent of Seller, the acquisition by any other Person, or two or more other Persons acting in concert, of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended) of outstanding shares of voting stock of Seller at any time if, after giving effect to such acquisition, the Permitted Holders do not own, directly or indirectly, more than fifty percent (50%) of such outstanding voting stock; and
          (b) at any time upon or after the consummation of an initial public offering of common equity interests pursuant to a registration statement on Form S-1 or any comparable successor form by Seller or any direct or indirect parent of Seller, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person and its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than one or more Permitted Holders, becomes the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under such Act), of more than the greater of (x) 35% of the then-outstanding

 


 

voting power of Seller’s voting equity interests and (y) the percentage of the then-outstanding voting power of Seller’s voting equity interests owned, in the aggregate, directly or indirectly, beneficially and of record, by the Permitted Holders; unless the Permitted Holders have, at such time, the right or the ability by voting power, contract or otherwise to elect or designate for election at least a majority of Seller’s board of directors.
          “ Permitted Holders ” means Fortress Investment Group LLC and any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Fortress Investment Group LLC. For purposes of this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative of the foregoing.
          II. Representations and Warranties. The Company represents and warrants to the Bank that as of the date hereof:
               A. The execution, delivery and performance of this Amendment have been duly authorized by all necessary corporate action by the Company, and do not and will not (i) contravene the terms of the Company’s organizational documents, (ii) result in any breach or contravention of any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which the Company is subject; or (iii) violate any applicable law; except with respect to any breach, contravention or violation referred to in clauses (ii) and (iii), to the extent that such breach, contravention or violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
               B. The Agreement, as amended hereby, constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with the terms thereof, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general principles of equity;
               C. The representations and warranties of the Company contained in the Agreement are true and correct in all material respects; provided that, to the extent that such representations and warranties specifically refer to an earlier date, they are true and correct in all material respects as of such earlier date; provided , further , that, any representation and warranty that is qualified as to “materiality,” “Material Adverse Effect” or similar language is true and correct (after giving effect to any qualification therein) in all respects on such respective dates; and
               D. No Default or Event of Default has occurred or is continuing under the Agreement.
          III. Applicable Law . THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL GOVERN).

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          IV. Effect of Amendment. This Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Bank under the Agreement, and, except as expressly set forth herein, shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Agreement, all of which are ratified and affirmed in all respects and shall continue in full force and effect.
          V. Miscellaneous.
               A. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.
               B. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which when taken together shall constitute a single instrument. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart hereof.
               C. Terms used but not otherwise defined herein shall have the meaning ascribed to them in the Agreement.
               D. By executing this Amendment, the Bank hereby consents to any disclosure and filing of this Amendment required by law.
[ signature pages follow ]

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          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.
         
 



NATIONSTAR MORTGAGE LLC
 
 
  By:   /s/ Anthony W. Villani    
    Name:   Anthony W. Villani   
    Title:   Executive Vice President & General Counsel   

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  THE ROYAL BANK OF SCOTLAND PLC
 
 
  By:   /s/ Regina Abayev    
    Name:   Regina Abayev   
    Title:   Director   
 

5

Exhibit 10.50
     AMENDMENT AND WAIVER, dated as of February 21, 2012 (this “ Amendment and Waiver ”), to the Amended and Restated Master Repurchase Agreement dated as of February 24, 2010 (as amended from time to time the “ MRA ”), and the Transition Subservicing Agreement dated as of December 5, 2011 (as amended from time to time, the “ TSA ” and, collectively with the MRA, the “ Agreements ”), in each case between Nationstar Mortgage LLC, a Delaware limited liability company (the “ Company ”) and Bank of America, N.A. (the “ Bank ”).
     WHEREAS, FIF HE Holdings LLC (“ FIF ”), a wholly-owned subsidiary of Fortress Investment Group LLC, owns 100% of the equity interests in the Company;
     WHEREAS, FIF owns 100% of the equity interests in Nationstar Mortgage Holdings Inc., a newly formed Delaware corporation (“ NMH ”), which in turn owns 100% of the equity interests in Nationstar Sub1 LLC (“ Sub 1 ”) and Nationstar Sub2 LLC (“ Sub 2 ”), each of which is a Delaware limited liability company (collectively, the “ Subsidiary LLCs ”);
     WHEREAS, NMH expects to effect a registered initial public offering of its common stock pursuant to a registration statement on Form S-1 (the “ IPO ”);
     WHEREAS, in connection with the IPO, FIF expects to transfer all of its equity interests in the Company to the Subsidiary LLCs (the “ Restructuring ” and, collectively with the IPO, the “ Transactions ”), such that Sub 1 and Sub 2, collectively, will own 100% of the Company following the Restructuring;
     NOW, THEREFORE, in consideration of the premises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:
     I.  Amendment of the Agreements .
          A. Subsections (a), (b), and (c) of the definition of “Change of Control” set forth in Exhibit A to the MRA are hereby deleted in their entirety and replaced with the following:
     “ Change of Control ” means:
     (a) at any time prior to the consummation of an initial public offering of common equity interests pursuant to a registration statement on Form S-1 or any comparable successor form by Seller or any direct or indirect parent of Seller, less than 100% of the Seller’s equity securities are owned, directly or indirectly, by FIF HE Holdings LLC;
     (b) at any time upon or after the consummation of an initial public offering of common equity interests pursuant to a registration statement on Form S-1or any comparable successor form by Seller or any direct or indirect parent of Seller, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding any employee benefit plan of such person and its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than one or more Permitted Holders, becomes the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-

 


 

5 under such Act), of more than the greater of (x) 35% of the then-outstanding voting power of Seller’s voting equity interests and (y) the percentage of the then-outstanding voting power of Seller’s voting equity interests owned, in the aggregate, directly or indirectly, beneficially and of record, by the Permitted Holders; unless the Permitted Holders have, at such time, the right or the ability by voting power, contract or otherwise to elect or designate for election at least a majority of Seller’s board of directors;
     “ Permitted Holders ” means Fortress Investment Group LLC and any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Fortress Investment Group LLC. For purposes of this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative of the foregoing.
          B. Subsections (d), (e), (f) and (g) of the definition of “Change of Control” set forth in Exhibit A to the MRA are hereby renamed Subsections (c), (d), (e), and (f).
          C. The words “the foregoing” are hereby deleted from Subsection (f) of the definition of “Change of Control” set forth in Exhibit A to the MRA, and replaced with the words “(a), (c), (d), and (e) of this definition” so that the clause reads as follows:
     (f) any transaction or series of related transactions that has the substantial effect of any one or more of (a), (c), (d), and (e) of this definition.
          D. The definition of “Change of Control” set forth in Section 2.01 of the TSA is hereby deleted in its entirety and replaced with the following:
     “ Change of Control ” means:
     (a) at any time prior to the consummation of an initial public offering of common equity interests pursuant to a registration statement on Form S-1 or any comparable successor form by Client or any direct or indirect parent of Client , less than 100% of the Client equity securities are owned, directly or indirectly, by FIF HE Holdings LLC;
     (b) at any time upon or after the consummation of an initial public offering of common equity interests pursuant to a registration statement on Form S-1 or any comparable successor form by the Client or any direct or indirect parent of the Client, any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person and its Subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan), other than one or more Permitted Holders, becomes the “beneficial owner” (as defined in Rules 13(d)-3 and 13(d)-5 under such Act), of more than the greater of (x) 35% of the then-outstanding voting power of the Client’s voting equity interests and (y) the percentage of the then-outstanding voting power of the Client’s voting equity interests owned, in the aggregate, directly or indirectly, beneficially and of record, by the Permitted Holders; unless the Permitted

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Holders have, at such time, the right or the ability by voting power, contract or otherwise to elect or designate for election at least a majority of the Client’s board of directors.
     “ Permitted Holders ” means Fortress Investment Group LLC and any other Person who directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, Fortress Investment Group LLC. For purposes of this definition, the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative of the foregoing.
     II.  Waivers under the Agreements . The Bank hereby consents to the Transactions, waives any claim the Bank may now, or in the future, have for breach of Section 10.9(e) of the MRA or Section 10.01(a)(ii)(11) of the TSA solely as a result of the Transactions.
     III. Representations and Warranties . The Company represents and warrants to the Bank that as of the date hereof:
          A. The execution, delivery and performance of this Amendment and Waiver have been duly authorized by all necessary corporate action by the Company, and do not and will not (i) contravene the terms of the Company’s organizational documents, (ii) result in any breach or contravention of any contractual obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which the Company is subject; or (iii) violate any applicable law; except with respect to any breach, contravention or violation referred to in clauses (ii) and (iii), to the extent that such breach, contravention or violation would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect as that term is defined in the MRA;
          B. The Agreements, as amended and waived hereby, constitute valid and binding agreements of the Company, enforceable against the Company in accordance with the terms thereof, subject to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors’ rights and to general principles of equity;
          C. The representations and warranties of the Company contained in the Agreements are true and correct in all material respects; provided that, to the extent that such representations and warranties specifically refer to an earlier date, they are true and correct in all material respects as of such earlier date; provided , further , that, any representation and warranty that is qualified as to “materiality,” “Material Adverse Effect” or similar language is true and correct (after giving effect to any qualification therein) in all respects on such respective dates;
          D. Company is in full compliance in all material respects with all of the terms and conditions of the Principal Agreements (as defined in the MRA) and the TSA; and
          E. No default, Event of Default, or Client Event of Default has occurred or is continuing under the Agreements.
     IV.  Applicable Law . THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE

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STATE OF NEW YORK WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL GOVERN).
     V.  Effect of Amendment and Waiver . Except as expressly set forth herein, this Amendment and Waiver shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Bank under the Principal Agreements or the TSA, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Principal Agreements and the TSA, all of which are ratified and affirmed in all respects and shall continue in full force and effect. The failure of the Bank at any time hereafter to require strict performance by the Company of any of the provisions, warranties, terms or conditions contained in the Principal Agreements or the TSA shall not waive, modify, diminish or otherwise affect any right of the Bank at any time thereafter to demand strict performance thereof, and no rights of the Bank under the Principal Agreements and the TSA shall be deemed to have been waived or modified by any act or knowledge of the Bank, or their respective officers or employees, unless such waiver or modification is contained in an instrument in writing signed by the appropriate officers of the Bank and directed to the Company specifying such waiver or modification.
     VI.  Miscellaneous .
          A. The headings of this Amendment and Waiver are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.
          B. This Amendment and Waiver may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which when taken together shall constitute a single instrument. Delivery of an executed counterpart of a signature page of this Amendment and Waiver by facsimile or electronic transmission shall be effective as delivery of a manually executed counterpart hereof.
          C. Terms used but not otherwise defined herein shall have the meaning ascribed to them in the Agreements.
          D. By executing this Amendment and Waiver, the Bank hereby consents to any disclosure and filing of this Amendment and Waiver required by law .
[ signature pages follow ]

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     IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be duly executed as of the date first above written.
         
  NATIONSTAR MORTGAGE LLC
 
 
  By:   /s/ Anthony W. Villani   
    Name: Anthony W. Villani  
    Title:   Executive Vice President & General Counsel   
 

 


 

         
  BANK OF AMERICA, N.A.
 
 
  By:   /s/ Baron Silverstein    
    Name:   Baron Silverstein   
    Title:   Managing Director   
 

 

Exhibit 10.51
EXECUTION COPY
 
 
RECEIVABLES PURCHASE AGREEMENT
AMONG
NATIONSTAR MORTGAGE ADVANCE RECEIVABLES TRUST 2010-ADV1
AS ISSUER
NATIONSTAR ADVANCE FUNDING II LLC
AS DEPOSITOR
AND
NATIONSTAR MORTGAGE LLC
AS SELLER
DATED AS OF November 15, 2010
 
 

 


 

TABLE OF CONTENTS
         
    Page
 
       
ARTICLE I. DEFINITIONS
    1  
Section 1.01. Certain Defined Terms
    1  
Section 1.02. Other Definitional Provisions
    4  
 
       
ARTICLE II. SALE OF RECEIVABLES; CLOSING; ACKNOWLEDGMENT AND CONSENT
    4  
Section 2.01. Sale of Receivables
    4  
Section 2.02. Closing
    6  
Section 2.03. Seller’s Acknowledgement and Consent to Assignment
    7  
 
       
ARTICLE III. CONDITIONS PRECEDENT TO CLOSING
    7  
Section 3.01. Closing Subject to Conditions Precedent
    7  
 
       
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE ISSUER
    9  
Section 4.01. Representations and Warranties
    9  
 
       
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR
    9  
Section 5.01. Representations and Warranties
    9  
 
       
ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF THE SELLER
    12  
Section 6.01. Representations and Warranties
    12  
Section 6.02. Repurchase Upon Breach
    19  
 
       
ARTICLE VII. INTENTION OF THE PARTIES; SECURITY INTEREST
    20  
Section 7.01. Intention of the Parties
    20  
Section 7.02. Security Interest
    21  
 
       
ARTICLE VIII. COVENANTS OF THE SELLER
    22  
Section 8.01. Information
    22  
Section 8.02. Acknowledgment
    22  
Section 8.03. Access to Information
    22  
Section 8.04. Ownership and Security Interests; Further Assurances
    23  
Section 8.05. Covenants
    23  
Section 8.06. Assignment of Rights
    24  
 
       
ARTICLE IX. ADDITIONAL COVENANTS
    24  
Section 9.01. Legal Conditions to Closing
    24  
Section 9.02. Expenses
    24  

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TABLE OF CONTENTS
(continued)
         
    Page
 
       
Section 9.03. Mutual Obligations
    24  
Section 9.04. Servicing Standards
    25  
Section 9.05. Transfer of Servicing
    26  
Section 9.06. Bankruptcy
    26  
Section 9.07. Legal Existence
    26  
Section 9.08. Compliance With Laws
    27  
Section 9.09. Taxes
    27  
Section 9.10. No Liens, Etc. Against Receivables and Trust Property
    27  
Section 9.11. Amendments to Servicing Contract
    27  
Section 9.12. No Netting or Offsetting
    28  
Section 9.13. Books and Records
    28  
Section 9.14. Verification Agent
    28  
Section 9.15. Exclusive
    28  
Section 9.16. Recovery
    29  
Section 9.17. Merger; Change of Control
    29  
Section 9.18. Use of Proceeds
    29  
Section 9.19. Seller Procedures and, Methodology
    29  
Section 9.20. Financial Covenants
    29  
 
       
ARTICLE X. INDEMNIFICATION
    30  
Section 10.01. Indemnification
    30  
 
       
ARTICLE XI. MISCELLANEOUS
    31  
Section 11.01. Amendments
    31  
Section 11.02. Notices
    32  
Section 11.03. No Waiver; Remedies
    32  
Section 11.04. Binding Effect; Assignability
    32  
Section 11.05. GOVERNING LAW; JURISDICTION
    32  
Section 11.06. Execution in Counterparts
    32  
Section 11.07. Survival
    33  
Section 11.08. Third Party Beneficiary
    33  
Section 11.09. General
    33  

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TABLE OF CONTENTS
(continued)
         
    Page
 
       
Section 11.10. LIMITATION OF DAMAGES
    33  
Section 11.11. WAIVER OF JURY TRIAL
    34  
Section 11.12. No Recourse
    34  
Section 11.13. Confidentiality
    34  

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Schedule I
    Information for Notices
Schedule II
    Amendments to Servicing Contracts
Exhibit A
    Reserved
Exhibit B
    Funding Notice
Exhibit C
    Form of Bill of Sale from Depositor to Issuer
Exhibit D
    Form of Subordinated Note

 


 

          RECEIVABLES PURCHASE AGREEMENT, dated as of November 15, 2010 (this “ Receivables Purchase Agreement ”) or this “ Agreement ”), among NATIONSTAR MORTGAGE ADVANCE RECEIVABLES TRUST 2010-ADV1 (the “ Issuer ”), NATIONSTAR ADVANCE FUNDING II LLC (the “ Depositor ”) and NATIONSTAR MORTGAGE LLC (the “ Seller ” or “ Nationstar ”).
          In consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
          Section 1.01. Certain Defined Terms . Capitalized terms used herein without definition shall have the meanings set forth in the Indenture. Additionally, the following terms shall have the following meanings:
          “ Aggregate Value ” means, with respect to the Receivables sold by the Seller to the Depositor on a Funding Date, the product of (a) the Receivables Balance of such Receivables on such Funding Date and (b) a factor equal to the sum of the applicable Discount Factor and one half of the amount by which 100% exceeds such Discount Factor.
          “ Bankruptcy Code ” means the Federal Bankruptcy Code, as set forth in Title 11 of the United States Code, as amended, and any successor statute and/or any bankruptcy, insolvency, reorganization or similar law.
          “ Capital Lease Obligations ” shall mean, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.
          “ Cash Equivalents ” shall mean (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by Standard and Poor’s Ratings Group or P-1 or the equivalent thereof by Moody’s Investors Service, Inc. and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by any commercial bank satisfying the requirements of clause (b) of this definition, or (f) shares of money market mutual or similar

 


 

funds which invest exclusively in assets satisfying the requirements of clauses (a) through (e) of this definition.
          “ Cash Purchase Price ” means, with respect to the Initial Receivables or with respect to the Additional Receivables sold and/or contributed on a Funding Date, the Collateral Value of such Receivables.
          “ Closing ” shall have the meaning set forth in Section 2.02.
          “ Contribution ” shall have the meaning set forth in Section 2.01(c).
          “ Depositor Material Adverse Effect ” shall have the meaning set forth in Section 5.01(a).
          “ Governmental Actions ” means any and all consents, approvals, permits, orders, authorizations, waivers, exceptions, variances, exemptions or licenses of, or registrations, declarations or filings with, any Governmental Authority required under any Governmental Rules.
          “ Governmental Authority ” means the United States of America, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and having jurisdiction over the applicable Person.
          “ Governmental Rules ” means any and all laws, statutes, codes, rules, regulations, ordinances, orders, writs, decrees and injunctions of any Governmental Authority and any and all legally binding conditions, standards, prohibitions, requirements and judgments of any Governmental Authority.
          “ Indebtedness ” shall mean, for any Person: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business so long as such trade accounts payable are payable within ninety (90) days of the date the respective goods are delivered or the respective services are rendered; (c) indebtedness of others secured by a lien on the property of such Person, whether or not the respective indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements or like arrangements; (g) indebtedness of others guaranteed by such Person (to the extent so guaranteed); (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; (i) indebtedness of general partnerships of which such Person is a general partner; and (j) any other indebtedness of such Person by a note, bond, debenture or similar instrument.

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          “ Indemnified Party ” shall have the meaning set forth in Section 10.01(b).
          “ Indenture ” means, the Indenture, dated as of November 15, 2010, between the Issuer and the Indenture Trustee as the same may be amended, modified or supplemented from time to time.
          “ Intangible Assets ” means assets that are considered to be intangible under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.
          “ Lien ” means, with respect to any asset, (a) any mortgage, lien, pledge, charge, security interest, hypothecation, option or encumbrance of any kind in respect of such asset or (b) the interest of a vendor or lessor under any conditional sale agreement, financing lease or other title retention agreement relating to such asset.
          “ Liquidity ” means with respect to the Seller, the sum of (i) its unrestricted cash, plus (ii) its unrestricted Cash Equivalents, plus (iii) the aggregate amount of unused capacity available to such Person (taking into account applicable haircuts) under committed mortgage loan warehouse and servicer advance facilities for which the Seller has unencumbered eligible collateral to pledge thereunder.
          “ Material Adverse Effect ” shall mean a Depositor Material Adverse Effect or Seller Material Adverse Effect, as applicable.
          “ Net Worth ” shall mean, with respect to the Servicer, the excess of total assets of the Servicer, over total liabilities of the Servicer, determined in accordance with GAAP.
          “ Non-Funding Election ” shall have the meaning set forth in Section 2.01(e).
          “ Payment Clearing Account ” shall mean account number 4121967343 held at Wells Fargo Bank, N.A. and entitled “Nationstar Mortgage LLC and in trust for the Benefit of Certain Investors.”
          “ Receivables Related Collateral ” shall have the meaning set forth in Section 7.01.
          “ Relevant UCC ” means the Uniform Commercial Code as in effect in any applicable jurisdiction.
          “ Repurchase Price ” shall have the meaning set forth in Section 6.02.
          “ Seller Material Adverse Effect ” shall have the meaning set forth in Section 6.01(a).
          “ Subordinated Loan ” has the meaning set forth in Section 2.01(c).
          “ Subordinated Loan Proceeds ” has the meaning set forth in Section 2.01(c).

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          “ Subordinated Note ” means the promissory note in substantially the form of Exhibit D hereto as more fully described in Section 2.01(c), as the same may be amended, restated, supplemented or otherwise modified from time to time.
          “ Tangible Net Worth ” shall mean, with respect to the Seller, an amount equal to (A) its Net Wroth, minus (B) any of its Intangible Assets (including, without limitation, goodwill, capitalized financing costs and capitalized administrative costs, but excluding any originated or purchased servicing rights or retained residual securities) and any and all advances to, investments in receivables held from Affiliates, provided , however , that the non-cash effect (gain or loss) of mark-to-market adjustments made directly to stockholders’ equity for fluctuation of the value of financial instruments as mandated under the Statement of Financial Accounting Standards No. 133 (or any successor statement) shall be excluded from the calculation of Tangible Net Worth.
          “ Total Indebtedness ” shall mean with respect to the Seller, for any period, the aggregate Indebtedness of the Seller and its subsidiaries during such period, less the amount of any nonspecific consolidated balance sheet reserves maintained in accordance with GAAP and less the amount of any non-recourse debt, including any securitization debt.
          Section 1.02. Other Definitional Provisions .
          (a) All terms defined in this Agreement shall have the meanings defined herein when used in any certificate or other document made or delivered pursuant hereto unless otherwise defined therein.
          (b) As used herein and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.01, and accounting terms partially defined in Section 1.01 to the extent not defined, shall have the respective meanings given to them under GAAP. To the extent that the definitions of accounting terms herein are inconsistent with the meanings of such terms under GAAP, the definitions contained herein shall control.
          (c) The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, subsection, Schedule and Exhibit references contained in this Agreement are references to Sections, subsections, Schedules and Exhibits in or to this Agreement unless otherwise specified.
ARTICLE II.
SALE OF RECEIVABLES; CLOSING; ACKNOWLEDGMENT AND CONSENT
          Section 2.01. Sale of Receivables .
          (a) Reserved .
          (b) On the Initial Funding Date, the Seller shall sell to the Depositor and the Depositor shall acquire from the Seller, in accordance with the procedures and subject to the

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terms and conditions set forth herein and in the Indenture, the Initial Receivables. On each subsequent Funding Date during the Funding Period, the Seller shall sell to the Depositor and the Depositor shall acquire from the Seller, in accordance with the procedures and subject to the terms and conditions set forth herein and in the Indenture, Additional Receivables representing the contractual rights to be reimbursed for all of the Delinquency Advances and Servicing Advances with respect to the Securitization Trusts made prior to such Funding Date and not previously sold to the Depositor. On the Initial Funding Date, the Depositor shall sell and/or contribute to the Issuer and the Issuer shall acquire from the Depositor, in accordance with the procedures and subject to the terms and conditions set forth herein and in the Indenture, the Initial Receivables. On each subsequent Funding Date during the Funding Period, the Depositor shall sell and/or contribute to the Issuer and the Issuer shall acquire from the Depositor, in accordance with the procedures and subject to the terms and conditions set forth herein and in the Indenture, the Additional Receivables acquired by the Depositor on such Funding Date.
          Subject to the satisfaction of the Funding Conditions on each Funding Date, the Issuer shall pay to the Depositor and the Depositor shall pay to the Seller the Cash Purchase Price in respect of the Initial Receivables or Additional Receivables sold on the Initial Funding Date or such subsequent Funding Date, as applicable, in accordance with Section 7.01 of the Indenture. In consideration of the sale and/or contribution of the Initial Receivables by the Depositor on the Initial Funding Date, the Issuer shall pay, subject to the terms and conditions hereof and of the Indenture, to the Depositor the Cash Purchase Price with respect to the Initial Receivables and deliver to the Depositor the Trust Certificates. In consideration of the sale of the Additional Receivables by the Depositor on each Funding Date during the Funding Period, the Issuer shall, in accordance with the procedures set forth herein and in the Indenture and subject to the satisfaction of the Funding Conditions, pay to the Depositor the aggregate Cash Purchase Price with respect to the Additional Receivables sold and/or contribution by the Depositor to the Issuer on such Funding Date, to the extent of funds available therefor on such Funding Date.
          (c) In consideration of the sale of the Initial Receivables by the Seller on the Initial Funding Date, or in consideration of the sale of Additional Receivables by Seller on any subsequent Funding Date, the Depositor shall pay, subject to the terms and conditions hereof and of the Indenture, to the Seller the aggregate Cash Purchase Price with respect to such Receivables plus the proceeds of a subordinated revolving loan from the Seller to the Depositor (a “ Subordinated Loan ”) in an amount not to exceed the remaining unpaid portion of the related Aggregate Value (such proceeds, the “ Subordinated Loan Proceeds ”).
          Subject to the limitations set forth in this Section 2.01(c), the Agent, on behalf of the Depositor, shall request borrowings under the Subordinated Loan with respect to each purchase by the Depositor of Receivables during the Funding Period to the extent necessary to make the payments set forth in Sections 2.01(b) and (c) in connection with purchases of the Initial Receivables and Additional Receivables, and the Seller irrevocably agrees to advance such amounts under the Subordinated Loan so requested; provided , however , that the Depositor may not make any borrowing under the Subordinated Loan unless at the time of (and immediately after) each such borrowing thereunder, (i) the Depositor’s total assets exceed its total liabilities both before and after the sale transaction, (ii) the Depositor’s cash on hand is sufficient to satisfy all of its current obligations (other than its obligations under the

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Subordinated Note and the obligation to pay the Cash Purchase Price), (iii) the Depositor is adequately capitalized at a commercially reasonable level and (iv) the Depositor has determined that its financial capacity to meet its financial commitment under the Subordinated Loan and Subordinated Note is adequate. The Subordinated Loan shall be evidenced by, and shall be payable in accordance with the terms and provisions of the Seller’s Subordinated Note. The Seller is hereby authorized by Depositor to endorse on the schedule attached to the Subordinated Note an appropriate notation evidencing the date and amount of each advance thereunder, as well as the date of each payment with respect thereto, provided that the failure to make such notation shall not affect any obligation of the Depositor thereunder. The Seller shall record in its books and records all increases in and payments in reduction of the outstanding principal amount of the Subordinated Note.
          The excess of (i) the Aggregate Value of the Initial Receivables or Additional Receivables sold and/or contributed on the Initial Funding Date or any subsequent Funding Date over (ii) the Cash Purchase Price with respect to such Initial Receivables or Additional Receivables sold and/or contributed on the Initial Funding Date or such subsequent Funding Date shall be a capital contribution by the Depositor to the Issuer (the “ Contribution ”). The Aggregate Receivables at any time of determination shall consist of the Initial Receivables and the Additional Receivables sold and/or contributed to the Issuer prior to such time of determination.
          (d) With respect to Servicing Advances, one (1) Business Day prior to the Initial Funding Date and each subsequent Funding Date on which Additional Note Balances are to be purchased, by no later than 12:00 PM Eastern time and, with respect to Delinquency Advances by no later than 10:00 AM Eastern time (or, in the case of a Delinquency Advance to be made on such Funding Date, such other time as the Servicer, the Seller, the Agent and the Indenture Trustee may mutually agree) on the Initial Funding Date and each subsequent Funding Date on which Additional Note Balances are to be purchased, the Seller shall deliver to the Depositor and the Depositor shall deliver to the Issuer, with copies to the Agent and the Indenture Trustee, the funding notice (such notice, the “ Funding Notice ”) and a bill of sale (the “ Bill of Sale ”), in substantially the forms annexed as Exhibits B and C hereto, respectively, with respect to the Receivables to be sold and/or contributed on such Funding Date.
          (e) On any Funding Date, the Seller may elect to sell all Receivables to the Depositor in exchange for Subordinated Loan Proceeds without payment of any Cash Purchase Price by the Depositor, and the depositor may simultaneously contribute such Receivables to the Issuer, if the Seller and the Depositor determine that such actions are in their best interests (such action, a “ Non-Funding Election ”); provided that, on the related Funding Date, the Seller shall notify the Noteholders, the Agent and the Indenture Trustee of such Non-Funding Election.
          Section 2.02. Closing . The closing (“ Closing ”) of the execution of this Agreement upon and concurrent with the closing under the Note Purchase Agreement, shall take place at 2:00 PM at the offices of SNR Denton US LLP, 2 World Financial Center, New York, New York 10281 on November 15 , 2010, or if the conditions precedent to closing set forth in Article III of this Agreement shall not have been satisfied or waived by such date, as soon as practicable after such conditions shall have been satisfied or waived, or at such other time, date

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and place as the parties shall agree upon (the date of the Closing being referred to herein, the “ Closing Date ”).
          Section 2.03. Seller’s Acknowledgement and Consent to Assignment . Seller hereby acknowledges that the Depositor has assigned to the Issuer and the Issuer has Granted to the Indenture Trustee, on behalf of the secured Parties, the rights of the Depositor and the Issuer as purchasers under this Agreement, including, without limitation, the right to enforce the obligations of the Seller hereunder. The Seller hereby consents to such assignment by the Depositor and Grant in the Indenture by the Issuer to the Indenture Trustee, on behalf of the Secured Parties, and, agrees to remit the Repurchase Price in respect of any repurchased Receivable directly to the Reimbursement Account as provided for in Section 6.02 hereof. The Seller acknowledges that the Indenture Trustee, on behalf of the Secured Parties, shall be a third party beneficiary in respect of the representations, warranties, covenants, rights and benefits arising hereunder that are so Granted by the Issuer. The Seller hereby authorizes the Issuer and the Indenture Trustee, as the Issuer’s assignee, on behalf of the Seller, to execute and deliver such documents or certificates as may be necessary in order to enforce its rights to or collect under the Receivables. The Seller hereby agrees to be bound by and perform all of the covenants and obligations of the Seller and the Servicer set forth in the Indenture.
ARTICLE III.
CONDITIONS PRECEDENT TO CLOSING
          Section 3.01. Closing Subject to Conditions Precedent . The Closing is subject to the satisfaction at the time of the Closing of the following conditions (any or all of which may be waived by the Agent in its sole discretion):
          (a) Performance by the Seller and the Depositor . All the terms, covenants, agreements and conditions of the Transaction Documents to be complied with and performed by the Seller and the Depositor on or before the Closing Date shall have been complied with and performed in all material respects.
          (b) Representations and Warranties . Each of the representations and warranties of the Seller and the Depositor made in the Transaction Documents shall be true and correct in all material respects as of the Closing Date (except to the extent they expressly relate to an earlier or later time).
          (c) Officer’s Certificate . The Agent and the Indenture Trustee shall have received in form and substance reasonably satisfactory to the Agent and its counsel an Officer’s Certificate from the Seller and the Depositor, dated the Closing Date, certifying to the satisfaction of the conditions set forth in the preceding paragraphs (a) and (b).
          (d) Opinions of Counsel to the Seller, the Depositor and the Servicer . Counsel to the Seller, the Depositor and the Servicer shall have delivered to the Agent and the Indenture Trustee favorable opinions as to matters described in Section 4.01 of the Note Purchase Agreement dated as of the Closing Date and reasonably satisfactory in form and substance to the Agent and its counsel.

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          (e) Filings and Recordations . As of the Closing Date, the Agent and the Indenture Trustee shall have received evidence reasonably satisfactory to the Agent of (i) the completion of all recordings, registrations and filings as may be necessary or, in the reasonable opinion of the Agent, desirable to perfect or evidence the assignment by the Seller to the Depositor of the Seller’s ownership interest in the Aggregate Receivables and the proceeds thereof and the assignment by the Depositor to the Issuer of the Depositor’s ownership interest in the Aggregate Receivables and the proceeds thereof and (ii) the completion of all recordings, registrations, and filings as may be necessary or, in the reasonable opinion of the Agent, desirable to perfect or evidence the Grant of a first priority perfected security interest in the Issuer’s ownership interest in the Trust Estate, in favor of the Indenture Trustee, subject to no liens prior to the Lien created by the Indenture.
          (f) Documents . The Agent and the Indenture Trustee shall have received a duly executed counterpart of this Agreement (in a form acceptable to the Agent), each of the other Transaction Documents and each and every document or certification delivered by the Seller and the Depositor in connection with this Agreement or any other Transaction Document, and each such document shall be in full force and effect.
          (g) Actions or Proceedings . No action, suit, proceeding or investigation by or before any Governmental Authority shall have been instituted to restrain or prohibit the consummation of, or to invalidate, any of the transactions contemplated by the Transaction Documents and the documents related thereto in any material respect.
          (h) Approvals and Consents . All Governmental Actions of all Governmental Authorities required to consummate the transactions contemplated by the Transaction Documents and the documents related thereto shall have been obtained or made.
          (i) Fees, Costs and Expenses . The fees, costs and expenses payable by the Seller pursuant to Section 9.02 hereof and any other Transaction Document shall have been paid, including but not limited to, the Structuring Fee payable to the Agent in accordance with the terms and provisions of the Fee Side Letter.
          (j) Other Documents . The Seller and the Depositor shall have furnished to the Agent and the Indenture Trustee such other opinions, information, certificates and documents as the Agent may reasonably request.
          (k) Reserved .
          If any condition specified in this Section 3.01 shall not have been fulfilled when and as required to be fulfilled, this Agreement may be terminated by the Issuer by notice to the Depositor and the Seller and by the Depositor by notice to the Seller and the Issuer at any time at or prior to the Closing Date, and the Issuer or Depositor, as applicable, shall incur no liability as a result of such termination.

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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE ISSUER
          Section 4.01. Representations and Warranties . The Issuer hereby makes the following representations and warranties on which the Seller and the Depositor are relying in executing this Agreement and selling and/or contributing the Aggregate Receivables:
          (a) Organization . The Issuer is a statutory trust duly formed and validly existing in good standing under the laws of the State of Delaware and is duly qualified to do business and is in good standing in each jurisdiction in which such qualification is necessary in order to perform its obligations under this Agreement and the other Transaction Documents to which it is a party.
          (b) Power and Authority . The Issuer has all requisite trust power and authority and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being conducted and to execute and deliver and perform its obligations under this Agreement.
          (c) Authorization of Transaction . All appropriate and necessary action has been taken by the Issuer to authorize the execution and delivery of this Agreement and all other Transaction Documents to which it is a party, and the authorize the performance and observance of the terms hereof and thereof.
          (d) Agreement Binding . This Agreement and each of the other Transaction Documents to which the Issuer is a party constitute the legal, valid and binding obligation of the Issuer enforceable against it in accordance with their terms except as may be limited by laws governing insolvency or creditors’ rights or by rules of equity. The execution, delivery and performance by the issuer of this Agreement and the other Transaction Documents to which the Issuer is a party will not violate any provision of law, regulation, order or other governmental directive, or conflict with, constitute a default under, or result in the breach of any provision of any material agreement, ordinance, decree, bond, indenture, order or judgment to which the Issuer is a party or by which it or its properties are bound.
          (e) Consents . All licenses, consents and approvals required from, and all registrations and filings required to be made by the Issuer, with any governmental or other public body or authority for the making and performance by the Issuer of this Agreement and the other Transaction Documents to which it is a party have been obtained and are in effect.
          (f) Organizational Information . The Issuer’s Federal Tax ID Number is as follows: 27-6907842.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE DEPOSITOR
          Section 5.01. Representations and Warranties . The Depositor hereby makes the following representations and warranties on which the Issuer and the Seller are relying in

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executing this Agreement. The representations are made as of the execution and delivery of this Agreement, and as of each date of conveyance of any Receivables. Such representations and warranties shall survive the sale of any Aggregate Receivables to the Depositor and are as follows:
          (a) Organization . The Depositor is a limited liability company duly formed and validly existing in good standing under the laws of the state of Delaware and is duly qualified to do business and is in good standing in each jurisdiction in which such qualification is necessary, except where the failure to be so qualified or in good standing would not reasonably be expected to have a material adverse effect on (i) the business, operations or financial condition of (A) the Depositor or (B) the Depositor and its Affiliates taken as a whole or (ii) the validity or enforceability of this Agreement or any of the other Transaction Documents to which the Depositor is a party or the rights or remedies of the Seller, the Issuer or the Indenture Trustee hereunder or thereunder or (iii) the ability of the Depositor to perform its obligations under this Agreement or (iv) the enforceability or recoverability of any of the Aggregate Receivables or (v) the status of all Receivables conveyed under this Agreement being free and clear of all liens (other than the Lien created by the Indenture) (any of (i) through (v), a “ Depositor Material Adverse Effect ”).
          (b) Power and Authority . The Depositor has all requisite power and authority and has all material governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being conducted and to execute and deliver and perform its obligations under this Agreement and any other Transaction Document to which it is a party and, except to the extent not necessary in order to execute and deliver and perform its obligations under this Agreement and any other Transaction Document to which it is a party, to own its asset and carry on its business as now being conducted.
          (c) Authorization of Transaction . All appropriate and necessary action has been taken by the Depositor to authorize the execution and delivery of this Agreement and all other Transaction Documents to which it is a party, and to authorize the performance and observance of the terms hereof and thereof.
          (d) Agreement Binding . This Agreement and each of the other Transaction Documents to which the Depositor is a party constitute the legal, valid and binding obligation of the Depositor, enforceable in accordance with their terms except as may be limited by laws governing insolvency or creditors’ rights or by rules of equity.
          (e) No Violations or Conflicts . The execution, delivery and performance by the Depositor of this Agreement and the other Transaction Documents to which the Depositor is a party will not violate any provision of law, regulation, order or other governmental directive, or conflict with, constitute a default under, or result in the breach of any provision of any material agreement, ordinance, decree, bond, indenture, order or judgment to which the Depositor is a party or by which it or its properties is or are bound.
          (f) Compliance with Law . The Depositor is conducting its business and operations in compliance with all applicable laws, regulations, ordinances and directives of governmental authorities, except where the failure to comply would not reasonably be expected

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to have a Depositor Material Adverse Effect. The Depositor has filed all tax returns required to be filed and has paid all taxes in respect of the ownership of its assets or the conduct of its operations prior to the date after which penalties attach for failure to pay, except to the extent that the payment or amount of such taxes is being contested in good faith by it in appropriate proceedings and adequate reserves have been provided for the payment thereof.
          (g) Consents . All licenses, consents and approvals required from and all registrations and filings required to be made by the Depositor with any governmental or other public body or authority for the making and performance by the Depositor of this Agreement and the other Transaction Documents to which it is a party have been obtained and are in effect.
          (h) Litigation . There is no action, suit or proceeding at law or in equity by or before any court, governmental agency or authority or arbitral tribunal now pending or, to the knowledge of the Depositor, threatened against or affecting it which has a reasonable possibility of being determined adversely in a manner or amount that would have a Depositor Material Adverse Effect.
          (i) Other Obligations . The Depositor is not in default in the performance, observance or fulfillment of any obligations, covenant or condition in any agreement or instrument to which it is a party or by which it is bound the result of which should reasonably be expected to have a Depositor Material Adverse Effect.
          (j) 1940 Act . The Depositor is not required to be registered as an “investment company” and is not a company “controlled” by an investment company within the meaning of the 1940 Act.
          (k) Solvency . The Depositor, both prior to and after giving effect to each sale and/or contribution of Aggregate Receivables on the Initial Funding Date or on any Funding Date thereafter (i) is not, and will not be, “insolvent” (as such term is defined in § 101(32)(A) of the Bankruptcy Code), (ii) is, and will be, able to pay its debts as they become due, and (iii) does not have unreasonably small capital for the transactions contemplated in the Transaction Documents.
          (l) Full Disclosure . No document, certificate or report furnished by or on behalf of the Depositor, in writing, pursuant to this Agreement, any other Transaction Document or in connection with the transactions contemplated hereby or thereby contains or will contain when furnished any untrue statement of a material fact. There are no facts relating to and known by the Depositor, which when taken as a whole, materially adversely affect the financial condition or assets or business of the Depositor, or which should reasonably be expected to impair the ability of the Depositor to perform its obligations under this Agreement or any other Transaction Document, which have not been disclosed herein or in the certificates and other documents furnished by or on behalf of the Depositor pursuant hereto or thereto. All books, records and documents delivered in connection with the Transaction Documents are and will be true, correct and complete.
          (m) ERISA . All Plans maintained by the Depositor or any of its Affiliates are in substantial compliance with all applicable laws (including ERISA).

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          (n) Fair Market Value and Fair Consideration . The Depositor is receiving fair consideration and reasonably equivalent value in exchange for any sales of Receivables to the Issuer under this Agreement.
          (o) Bulk Transfers . No sale, contribution, transfer, assignment or conveyance of Aggregate Receivables by the Depositor to the Issuer contemplated by this Agreement will be subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction.
          (p) Name . The legal name of the Depositor is as set forth in this Agreement and the Depositor does not have any trade names, fictitious names, assumed names or “doing business” names.
          (q) Organizational Information . The Depositor’s Federal Tax ID Number is as follows: 27-3917956.
          (r) Chief Executive Office . On the date of this Agreement, Depositor’s chief executive office and principal place of business is located at 350 Highland Drive, Lewisville, Texas 75067.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF THE SELLER
          Section 6.01. Representations and Warranties . The Seller hereby makes the following representations and warranties on which the Depositor and the Issuer are relying in accepting the Aggregate Receivables and executing this Agreement. The representations are made as of the execution and delivery of this Agreement, and as of each date of conveyance of any Additional Receivables. Such representations and warranties shall survive the sale of any Aggregate Receivables to the Depositor and are as follows:
          (a) Organization . The Seller is a limited liability company duly formed and validly existing in good standing under the laws of the state of Delaware and is duly qualified to do business and is in good standing in each jurisdiction in which such qualification is necessary except where the failure to be so qualified or in good standing would not reasonably be expected to have a material adverse effect on (i) the business, operations or financial condition of (A) the Seller or (B) the Seller and its Affiliates taken as a whole or (ii) the validity or enforceability of this Agreement or any of the other Transaction Documents or the rights or remedies of the Depositor, the Issuer or the Indenture Trustee hereunder or thereunder or (iii) the ability of the Seller to perform its obligations under this Agreement or (iv) the enforceability or recoverability of any of the Aggregate Receivables or (v) the status of all Receivables conveyed under this Agreement being free and clear of all Liens (other than the Lien created by the Indenture) (any of (i) through (v), a “ Seller Material Adverse Effect ”).
          (b) Power and Authority . The Seller has all requisite limited liability company power and authority and has all material governmental licenses, authorizations, consents and approvals necessary to execute and deliver and perform its obligations under this Agreement and any other Transaction Document to which it is a party and, except to the extent

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not necessary n order to execute and deliver and perform its obligations under this Agreement and any other Transaction Document to which it is a party, to own its assets and carry on its business as now being conducted.
          (c) Authorization of Transaction . All appropriate and necessary action has been taken by the Seller to authorize the execution and delivery of this Agreement and all other Transaction documents which it is a party, and to authorize the performance and observance of the terms hereof and thereof.
          (d) Agreement Binding . This Agreement and each of the other Transaction Documents to which the Seller is a party constitute the legal, valid and binding obligation of the Seller enforceable in accordance with their terms except as may be limited by laws governing insolvency or creditors’ rights or by rules of equity.
          (e) No Violations or Conflicts . The execution, delivery and performance by the Seller of this Agreement and the other Transaction Documents to which the Seller is a party will not violate any provision of law, regulation, order or other governmental directive, or conflict with, constitute a default under, or result in the breach of any provision of any agreement, ordinance, decree, bond, indenture, order or judgment to which the Seller is a party or by which it or its properties is or are bound.
          (f) Compliance with Law . The Seller is conducting its business and operations in compliance with all applicable laws, regulations, ordinances and directives of governmental authorities, except where the failure to comply would not reasonably be expected to have a Seller Material Adverse Effect. The Seller has filed all tax returns required to be filed and has paid all taxes in respect of the ownership of its assets or the conduct of its operations prior to the date after which penalties attach for failure to pay, except to the extent that the payment or amount of such taxes is being contested in good faith by it in appropriate proceedings and adequate reserves have been provided for the payment thereof.
          (g) Consents . All licenses, consents and approvals required from and all registrations and filings required to be made by the Seller with any governmental or other public body or authority for the making and performance by the Seller of this Agreement and the other Transaction Documents to which it is a party have been obtained and are in effect.
          (h) Litigation . There is no action, suit or proceeding at law or in equity by or before any court, governmental agency or authority or arbitral tribunal now pending or, to the knowledge of the Seller, threatened against or affecting it which has a reasonable possibility of being determined adversely in a manner or amount that would reasonably be expected to have a Seller Material Adverse Effect.
          (i) Other Obligations . The Seller is not in default in the performance, observance or fulfillment of any obligation, covenant or condition in any agreement or instrument to which it is a party or by which it is bound the result of which should reasonably be expected to have a Seller Material Adverse Effect.

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          (j) 1094 Act . The Seller is not required to be registered as an “investment company” and is not a company “controlled” by an investment company within the meaning of the 1940 Act.
          (k) Solvency . The Seller, both prior to and after giving effect to each sale of Aggregate Receivables on the Initial Funding Date or on any Funding Date thereafter (i) is not, and will not be, “insolvent” (as such term is defined in § 101(32)(A) of the Bankruptcy Code), (ii) is, and will be, able to pay its debts as they become due, and (iii) does not have unreasonably small capital for the business in which it is engaged or for any business or transaction in which it is about to engage.
          (l) Full Disclosure . No document, certificate or report furnished by or on behalf of the Seller or the Servicer, in writing, pursuant to this Agreement, any other Transaction Document or in connection with the transactions contemplated hereby or thereby contains or will contain when furnished any untrue statement of a material fact. There are no facts relating to and known by the Seller, which when taken as a whole, materially adversely affect the financial condition or assets or business of the Seller or the Servicer, or which should reasonably be expected to impair the ability of the Seller or the Servicer to perform its obligations under this Agreement or any other Transaction Document or Servicing Contract, which have not been disclosed herein or in the certificates and other documents furnished by or on behalf of the Seller or the Servicer pursuant hereto or thereto. All books, records and documents delivered in connection with the Transaction Documents are and will be true, correct and complete.
          (m) ERISA . All Plans maintained by the Seller or any of its Affiliates are in substantial compliance with all applicable laws (including ERISA).
          (n) Fair Market Value and Fair Consideration . The Seller is receiving fair market value and reasonably equivalent value in exchange for any sales of Receivables to the Depositor under this Agreement.
          (o) Bulk Transfers . No sale, contribution, transfer, assignment or conveyance of Aggregate Receivables by the Seller to the Depositor contemplated by this Agreement will be subject to the bulk transfer or any similar statutory provisions in effect in any applicable jurisdiction.
          (p) Name . The legal name of the Seller is as set forth in this Agreement and the Seller does not have any trade names, fictitious names, assumed names or “doing business” names other than the “doing business” name “Champion Mortgage Company”.
          (q) Organizational Information . The Seller’s Federal Tax ID Number is as follows: 72-2921540.
          (r) Chief Executive Office . On the date of this Agreement, Seller’s chief executive office and principal place of business is located at 350 Highland Drive, Lewisville, Texas 75067.

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          (s) Repayment of Receivables . The Seller has no reason to believe that at the time of the sale of any Receivables to the Depositor pursuant hereto, such Receivables will not be paid in full.
          (t) Reimbursement Amounts . The Seller has not waived or forgiven any obligation of a Mortgagor to repay any Delinquency Advance or Servicing Advance.
          (u) Aggregate Receivables . As of the Initial Funding Date with respect to the Initial Receivables and as of the related Funding Date with respect to the Additional Receivables, as applicable:
  (i)   Each Initial Receivable and Additional Receivable is payable in United States dollars and has been created pursuant to and in accordance with the terms of the related Servicing Contract, in accordance with the Seller’s customary procedures with respect to the applicable Securitization Trust and in the ordinary course of business of the Seller.
 
  (ii)   The sale to the Depositor and the sale and/or contribution to the Issuer of the rights to reimbursement for the Delinquency Advances and Servicing Advances under each Securitization Trust, and the assignment and Grant thereof to the Indenture Trustee, does not violate the terms of the related Servicing Contract or any other document or agreements to which the Seller is a party or to which its assets or properties are subject.
 
  (iii)   No Receivable has been sold, transferred, assigned or pledged by the Seller to any Person other than the Depositor or by the Depositor to any other Person other than the Issuer. Immediately prior to the transfer and assignment herein contemplated, the Seller was the sole owner with respect to each such Receivable, and had the right to transfer and sell such Receivable, free and clear of all Liens and rights of others; immediately upon the transfer and assignment thereof, the Issuer shall own all of such interest in and to such Receivable, free and clear of all Liens and rights of others (other than the Lien created by the Indenture).
 
  (iv)   Seller has not taken any action that, or failed to take any action the omission of which, would materially impair the rights of the Depositor, the Issuer, the Indenture Trustee (or any Secured Party) with respect to any such Receivable.
 
  (v)   No such Receivable has been identified by the Seller or reported to the Seller as having resulted from fraud perpetrated by any Person with respect to such Receivable.
 
  (vi)   All filings (including UCC filings) necessary in any jurisdiction to perfect the transfers and assignments herein contemplated, and

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      solely in the event that any of the transfers contemplated hereby were to be recharacterized as a pledge or secured loan from the Depositor to the Seller and an assignment thereof from the Depositor to the Issuer rather than absolute sales, to perfect the Depositor’s and the Issuer’s respective security interests in the Aggregate Receivables that are prior, as applicable, to any other interest held or to be held by any other Person (except the Indenture Trustee on behalf of the Secured Parties), have been made.
 
  (vii)   Such Receivable constitutes a “general intangible” within the meaning of Section 9-102(a)(42) of the UCC or a “payment intangible” within the meaning of Section 9-102(a)(61) of the UCC; no Receivable is secured by “real property” or “fixtures” or evidenced by an “instrument” as such quoted terms are used for purposes of creating and perfecting a security interest under the Relevant UCC.
 
  (viii)   Each such Receivable is the legal, valid and binding obligation of the related Securitization Trust and is enforceable in accordance with its terms. There is no valid and enforceable offset; defense or counterclaim to the obligation of the related Securitization Trust to make payment of any such Receivable.
 
  (ix)   Each such Receivable is entitled to be paid, has not been repaid in whole or been compromised, adjusted (except by partial payment); extended, satisfied, subordinated, rescinded, amended or modified, and is not subject to compromise, adjustment, extension, satisfaction, subordination; rescission, set-off, counterclaim, defense, amendment or modification by the Seller.
 
  (x)   No such Receivable includes amounts payable as a result of accounting or other errors, or the failure to deposit funds or the misapplication of funds by the Servicer.
 
  (xi)   No such Receivable has been identified by the Seller as a Nonrecoverable Advance (as defined in the Servicing Contracts) for which reimbursement has not been sought from the Securitization Trust in accordance with the related Servicing Contract.
 
  (xii)   The Initial Receivables shall constitute all of the outstanding Receivables with respect to the Securitization Trusts as of the Initial Funding Date except for Receivables repurchased by the Seller pursuant to Section 6.02 hereof or Section 2.19 of the Indenture. The Additional Receivables conveyed on any Funding Date constitute all of the Receivables related to Delinquency

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      Advances and/or Servicing Advances with respect to the Securitization Trusts (other than the Initial Receivables), as of such Funding Date, not previously sold to the Depositor hereunder, except for Receivables repurchased by the Seller pursuant to Section 6.02 hereof or Section 2.19 of the Indenture. The Seller has not sold, assigned, transferred or conveyed, without the Agent’s consent, the right to reimbursement for any Delinquency Advance or Servicing Advance with respect to the Securitization Trusts to any Person other than the Depositor.
 
  (xiii)   Other than any Bottom of the Waterfall Servicing Advances, if the related Delinquency Advance or Servicing Advance becomes a Nonrecoverable Advance after the related Funding Date, the related Servicing Contract provides for the reimbursement of such Delinquency Advance or Servicing Advance from the general collections of the Securitization Trust prior to any payments to related Securitization Trust certificateholders.
 
  (xiv)   Each Servicing Contract is in full force and effect and, other than as set forth in Schedule II, has not been amended or modified; no party thereto, to the knowledge of the Seller, is in default thereunder; no Servicing Contract requires the Servicer to make Nonrecoverable Advances (as such term is defined in the Servicing Contracts); each Servicing Contract requires reimbursement in full of all applicable Delinquency Advances and Servicing Advances in connection with any redemption of Securitization Trust certificates or termination of the Securitization Trust under such Servicing Contract prior to any payments to related Securitization Trust certificateholders; and, to the extent known to the Seller at the time of a material modification of a Mortgage Loan, all Delinquency Advances and Servicing Advances related to such Mortgage Loan are reimbursed in full upon such modification.
 
  (xv)   Each such Receivable is an obligation of a Securitization Trust for which the related Servicing Contract provides that (A) the Servicer may enter into an advance facility with any Person which provides that such Person may receive an assignment or pledge of the Servicer’s rights to be reimbursed, for Delinquency Advances and Servicing Advances under such Servicing Contract, (B) all Delinquency Advances and Servicing Advances as to a Mortgage Loan are reimbursed on a First In First Out (“FIFO”) basis, such that the Delinquency Advances and Servicing Advances of a particular type that were disbursed first in time will be reimbursed prior to Delinquency Advances and Servicing Advances of the same type with respect to that Mortgage Loan that were disbursed later in time, and (C) all Delinquency Advances and Servicing Advances will be fully reimbursed in connection with any

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      redemption of Securitization Trust certificates or notes or the termination of the Securitization Trust under such Servicing Contract.
 
  (xvi)   No such Receivable prior to conveyance hereunder is an obligation of a Securitization Trust for which a Securitization Termination Event has occurred and is continuing.
 
  (xvii)   The principal amount of any Receivable, when added to the aggregate outstanding principal amount of all Receivables under the related Securitization Trust, does not cause the aggregate outstanding principal amount of all such Receivables to exceed 30% of the aggregate outstanding principal amount of all Receivables.
 
  (xviii)   None the Receivables are related to Delinquency Advances or Servicing Advances reimbursed other than in accordance with the terms and provisions of the related Servicing Contacts;
 
  (xix)   If a Receivable relates to a Loan-Level Delinquency Advance or a Servicing Advance that relates to a Mortgage Loan secured by a second or more junior lien on the related mortgaged property, the outstanding principal amount of that Receivable, when added to the aggregate outstanding principal amount of all Receivables that relate to Loan-Level Delinquency Advances and Servicing Advances that relate to Mortgage Loans secured by second or more junior lien on the respective related mortgaged properties, does not cause the aggregate principal amount of all Receivables secured by second or more junior liens on mortgaged properties to exceed 2.00% of the aggregate principal amount of all Receivables.
 
  (xx)   No such Receivable is a Forbearance Receivable with respect to which 100% of the Noteholders have not given consent; with respect to a Forbearance Receivable with respect which 100% of the Noteholders have given consent, the Receivables Balance of such Receivable, when added to the aggregate Receivables Balance of all other Forbearance Receivables under the related Securitization Trust, does not cause the aggregate Receivables Balance of all Forbearance Receivables under such Securitization Trust to exceed 1% of the aggregate Receivables Balance of all Receivables under such Securitization Trust;
 
  (xxi)   No Receivable relates to a Mortgage Loan with respect which any applicable federal or state foreclosure moratorium is set by legislation or regulatory or administrative action for which there is no clearly definable period of time for which such moratoriums has

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      been established (as determined in the sole and absolute discretion of the Agent).
 
  (xxii)   With respect to the Mortgage Loan relating to such Receivable, any related Delinquency Advances or Servicing Advances have been fully funded by the Servicer using its own funds or; with respect to Delinquency Advances, Amounts Held for Future Distribution.
 
  (xxiii)   The principal amount of any Receivable relating to a Bottom of the Waterfall Servicing Advance, when added to the aggregate outstanding principal amount of all Receivables relating to Bottom of the Waterfall Servicing Advances does not cause the aggregate outstanding principal amount of all such Receivables to exceed 2.0% of the principal amount of all Receivables.
 
  (xxiv)   With respect to Bottom of the Waterfall Servicing Advances, the Receivables Balance of such Receivable when added to the aggregate outstanding Receivables Balance of all Receivables relating to Bottom of the Waterfall Servicing Advances related to such Mortgage Loan, does not cause the Loan-Level Valuation Ratio relating to such Mortgage Loan to be less than 2.0:1.
 
  (xxv)   With respect to Receivables related to Bottom of the Waterfall Servicing Advances, the related Servicing Advance has not become a Nonrecoverable Advance.
 
  (xxvi)   No Receivable relates to a “high-cost mortgage loan” or “higher-priced mortgage loan” (as such terms, or term of substantially similar import, are defined in Section 32 of the Truth in Lending Act (Regulation Z) or any corresponding law in effect in the state in which the related Mortgage Loan was originated).
          Section 6.02. Repurchase Upon Breach . The Issuer, the Depositor, the Indenture Trustee or the Seller, as the case may be, shall inform the Issuer, the Depositor or the Seller (as applicable), the Agent and the Indenture Trustee promptly (but in no event later than two (2) Business Days following such discovery), in writing, upon the discovery of any breach of the Seller’s or Depositor’s representations and warranties hereunder. If any such representation or warranty pertains to a Receivable (including the representations under Sections 5.01(a)(iv) and 6.01(a)(iv)), upon the direction of the Agent, unless such breach shall have been cured by the earlier of (i) the Funding Date immediately following such breach, or (ii) thirty (30) days after the earlier to occur of (A) the discovery of such breach by the Issuer, the Depositor or the Seller (as applicable) or (B) receipt of written notice of such breach by the Issuer, the Depositor, the Agent, the Indenture Trustee or the Seller (as applicable), the Seller or the Depositor, as applicable, shall repurchase such Receivable from the Issuer at a price equal to the outstanding Receivables Balance of such Receivable as of the date of repurchase (the “ Repurchase Price ”). The Seller or the Depositor, as applicable, shall pay any Repurchase Price directly to the Indenture Trustee for deposit into the Reimbursement Account.

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ARTICLE VII.
INTENTION OF THE PARTIES; SECURITY INTEREST
          Section 7.01. Intention of the Parties . It is the intention of the parties hereto that each transfer and assignment contemplated by this Agreement shall constitute an absolute sale of the related Receivables from the Seller to the Depositor and an absolute sale or contribution, or a combination thereof, as applicable, of the related Receivables from the Depositor to the Issuer and that the related Receivables shall not be part of the Seller’s or the Depositor’s estate or otherwise be considered property of the Seller or the Depositor in the event of the bankruptcy, receivership, insolvency, liquidation, conservatorship or similar proceeding relating to the Seller or the Depositor or any of their property. Except as set forth below, it is not intended that any amounts available for reimbursement of Receivables be deemed to have been pledged by the Seller to the Depositor or by the Depositor to the Issuer or the Indenture Trustee to secure a debt or other obligation of the Seller or the Depositor. In the event that (A) the purchase of Receivables by the Depositor or the Issuer is deemed by a court or applicable regulatory, administrative or other governmental body contrary to the express intent of the parties to constitute a pledge rather than a sale or contribution, or a combination thereof, of the Receivables; or (B) if amounts available now or in the future for reimbursement of any Receivables are held to be property of the Seller or the Depositor or a loan to the Seller or the Depositor, or (C) if for any reason this Agreement is held or deemed to be a financing or some other similar arrangement or agreement, then: (i) this Agreement is and shall be a security agreement within the meaning of Articles 8 and 9 of the Relevant UCC; (ii) the Issuer shall be treated as having a first priority, perfected security interest in and to, and lien on, the Receivables transferred and assigned to the Issuer hereunder; (iii) the agreement of the Seller and the Depositor hereunder to sell, assign, convey and transfer the Receivables shall be a grant by the Seller to the Depositor and by the Depositor to the Issuer of, and the Seller does hereby grant to the Depositor and the Depositor does hereby grant to the Issuer, a security interest in all of the Seller’s and Depositor’s, as applicable, property and right (including the power to convey title thereto), title, and interest, whether now owned or hereafter acquired in and to the Aggregate Receivables, together with (A) all amounts payable now or in the future by or with respect to the Receivables and (B) any and all general intangibles consisting of, arising from or relating to any of the foregoing, and all proceeds of the conversion, voluntary or involuntary, of the foregoing into cash, instruments, securities or other property, including without limitation all such amounts from time to time held or invested in accounts maintained by or on behalf of the Seller, by or on behalf of the Securitization Trusts or by or on behalf of the Depositor, whether in the form of cash, instruments securities or other property (the “ Receivables Related Collateral ”). The possession by the Issuer or its agent of notes and such other goods, money, documents or such other items of property as constitute instruments, money, negotiable documents or chattel paper, in each case, which constitute any of the items described in the foregoing sentence, or proceeds thereof, shall be “possession by the secured party,” or possession by a purchaser or a person designated by such secured party, for purposes of perfecting the security interest pursuant to the Relevant UCC of any applicable jurisdiction; and notifications to persons holding such property, and acknowledgments, receipts or confirmations from persons holding such property, shall be

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notifications to, or acknowledgments, receipts or confirmations from, financial intermediaries, bailees or agents (as applicable) of any such holder for the purpose of perfecting such security interest under applicable law.
          Section 7.02. Security Interest .
          (a) The Seller shall, to the extent “consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in (i) any of the Aggregate Receivables, (ii) the amounts reimbursable now or in the future by or with respect to the Securitization Trusts in respect of any of the Aggregate Receivables or (iii) the other property described above (including any and all Receivables Related Collateral), such security interest would be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. The Seller shall execute such documents and instruments as the Depositor may reasonably request from time to time in order to effectuate the foregoing and shall to the Depositor the executed copy of such documents and instruments. Without limiting the generality of the foregoing, the Depositor shall forward for fling, or shall cause to be forwarded for filing, at the expense of the Seller, all filings necessary to maintain the effectiveness of any original filings necessary under the Relevant UCC to perfect the Depositor’s security interest described above, including without limitation (x) UCC continuation statements, and (y) such other statements as may be occasioned by (1) any change of name of the Seller or the Depositor (such preparation and filing shall be at the expense of the Depositor, if occasioned by a change in such party’s name) or (2) any change of location of the jurisdiction of organization of the Seller.
          (b) The Depositor shall, to the extent consistent with this Agreement, take such actions as may be necessary to ensure that, if this Agreement were deemed to create a security interest in (i) any of the Aggregate Receivables, (ii) the amounts reimbursable now or in the future by or with respect to the Securitization Trusts in respect of any of the Aggregate Receivables or (iii) the other property described above (including any and all Receivables Related Collateral), such security interest would be a perfected security interest of first priority under applicable law and will be maintained as such throughout the term of this Agreement. At the Issuer’s direction, the Depositor shall execute such documents and instruments as the Issuer may reasonably request from time to time in order to effectuate the foregoing and shall return to the Issuer the executed copy of such documents and instruments. Without limiting the generality of the foregoing, the Issuer shall forward for filing, or shall cause to be forwarded for filing, at the expense of the Depositor, all filings necessary to maintain the effectiveness of any original filings necessary under the Relevant UCC to perfect the Issuer’s security interest described above, including without limitation (x) UCC continuation statements and (y) such other statements as may be occasioned by (1) any change of name of the Depositor or the Issuer (such preparation and filing shall be at the expense of the Issuer, if occasioned by a change in such party’s name) or (2) any change in the jurisdiction of organization of the Depositor.

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ARTICLE VIII.
COVENANTS OF THE SELLER
          Section 8.01. Information . The Seller shall furnish to the Depositor, the Issuer, the Indenture Trustee, the Calculation. Agent, the Agent and the Secured Parties:
          (a) such information (including financial information), documents, records or reports with respect to the Aggregate Receivables, the Securitization Trusts, the Seller, the Servicer as the Issuer, the Depositor, the Indenture Trustee, the Calculation Agent, the Agent, the Noteholders or the Secured Parties may from time to time reasonably request;
          (b) prompt notice of any Event of Default, Securitization Termination Event, Servicer Termination Event, Early Amortization Event or Funding Interruption Event under the Indenture, or any event known to the Seller which, with the passage of time or the giving of notice or both, would become an Event of Default, Securitization Termination Event, Early Amortization Event or Funding Interruption Event under the Indenture;
          (c) prompt written notice of a change in name, or address of the jurisdiction of organization of the Seller, the Depositor, or the Issuer;
          (d) prompt notice of the occurrence of any Servicer Termination Event or “event of default” by the Servicer under any Servicing Contract (as such term or term of substantially similar import is defined in such Servicing Contract) without regard to whether such “event of default” has been cured; and
          (e) the information and reports required pursuant to Section 6.02 of the Indenture.
          Section 8.02. Acknowledgment . Prior to the date on which a Securitization Trust is added to any of Schedule I through Schedule III to the Indenture, the Seller shall have obtained the consent of the Securitization Trustee of such Securitization Trust or seek acknowledgment of receipt of such Securitization Trustee’s notice, in each case as required under the applicable Servicing Contract, that the Seller intends to enter into an “Advance Facility” (as such term or term of substantially similar import is defined in each Servicing Contract), whereby the Seller will sell and assign the Receivables to the Depositor, following which the Depositor will sell and/or contribute to the Issuer, who will pledge and assign such Receivables to the Indenture Trustee, acting on behalf of the Noteholders, as an “Advance Financing Person” (as such term of substantially similar import is defined in each Servicing Contract), and that the Transaction Documents shall constitute such “Advance Facility”.
          Section 8.03. Access to Information .
          (a) The Seller shall, at any time and from time to time during regular business hours, or at such other reasonable times upon reasonable notice to the Seller permit the Depositor, the Issuer, the Indenture Trustee, the Agent, the Noteholders or their agents or representatives, at the Seller’s expense; provided , however , (i) to the extent the Agent, the Noteholders or their agents exercise their rights under this Section 8.03(a) more than twice in any

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given calendar year any expense incurred in connection with the exercise of such rights shall be subject to the approval of the Seller and (ii) any expense incurred in connection with the exercise of such rights in excess of $5,000 per calendar year shall be subject to the approval of the Seller; provided , further , the limitations set forth in this Section 8.03 shall be in addition to and in no way affect the terms and provisions of the Verification Agent Letter or Section 9.04; provided , further , that, no such limitations shall apply after an Event of Default or an Early Amortization Event, but only so long as that does not unreasonably interfere with the Seller’s conduct of its business:
  (i)   to examine all books, records and documents (including computer tapes and disks) in the possession or under the control of the Seller relating to the Aggregate Receivables or the Transaction Documents as may be requested;
 
  (ii)   to visit the offices and property of the Seller for the purpose of examining such materials described in clause (i) above; and
 
  (iii)   to conduct verification procedures alongside the Verification Agent, including access to the appropriate servicing personnel of the Seller.
          Section 8.04. Ownership and Security Interests; Further Assurances . The Seller will take all action necessary to maintain the Indenture Trustee’s security interest in the Receivables and the other items pledged to the Indenture Trustee pursuant to the Indenture.
          The Seller agrees to take any and all acts and to execute any and all further instruments reasonably necessary or requested by the Depositor, the Issuer, the Indenture Trustee, the Agent or the holders of 66 2/3% of the Commitments of the Notes to more fully effect the purposes of this Agreement.
          Section 8.05. Covenants . The Seller shall duly observe and perform each of its covenants set forth in each of the Transaction Documents to which it is a party. The Seller shall duly observe and perform all of the covenants and obligations of the Seller and the Servicer set forth in the Indenture as if the Seller was a party thereto. The Seller in its capacity as Servicer shall duly observe and perform each of its covenants set forth in each Servicing Contract, and hereby covenants to pay as and when billed by the Depositor, the Issuer, the Indenture Trustee, the Calculation Agent or the Agent all of the reasonable out-of-pocket costs and expenses incurred in connection with the administration of the transactions contemplated hereby, including, without limitation, all reasonable fees, disbursements and expenses of counsel to the Depositor; the Issuer, the Agent, the Indenture Trustee and the Calculation Agent. The Seller shall, promptly upon making its determination that a Delinquency Advance or Servicing Advance is a Nonrecoverable Advance, seek reimbursement for that advance in accordance with the related Servicing Contract.
          The Seller hereby covenants that except for the sales hereunder, the Seller will not sell, pledge, assign or transfer to any other Person, or grant, create, incur, assume or suffer to exist any lien on, any Receivable, or any interest therein; and the Seller will defend the right, title

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and interest of the Issuer, as assignee of the Depositor, in, to and under the Receivables, against all claims of third parties claiming through or under the Seller.
          Section 8.06. Assignment of Rights . Either (i) while an Event of Default has occurred and is continuing or (ii) in the absence of an Event of Default but only for the limited purpose of effecting buybacks for defective Receivables, the Seller, the Depositor, and the Issuer hereby constitute and irrevocably appoint the Indenture Trustee, with full power of substitution and revocation, as the Seller’s, the Depositor’s and the Issuer’s true and lawful agent and attorney-in-fact, with the power to the full extent permitted by law, to exercise with respect to the Receivables conveyed under this Agreement, all the rights, powers and remedies of an owner. The power of attorney granted pursuant to this Agreement and all authority hereby conferred are granted and conferred solely to protect the Secured Parties’ respective interests in the Receivables and shall not impose any duty upon the Indenture Trustee to exercise any power. The Seller, the Depositor and the Issuer shall execute any documentation, including, without limitation, any powers of attorney and/or irrevocable proxies, requested by the Indenture Trustee to effectuate such assignment. The foregoing grant and assignment are powers coupled with an interest and are irrevocable.
ARTICLE IX.
ADDITIONAL COVENANTS
          Section 9.01. Legal Conditions to Closing . The parties hereto will take all reasonable action necessary to obtain (and will cooperate with one another in taking such action to obtain) any consent, authorization, permit, license, franchise, order or approval of, or any exemption by, any Governmental Authority or any other Person, required to be obtained or made by it in connection with any of the transactions contemplated by this Agreement.
          Section 9.02. Expenses .
          (a) The Seller covenants that, whether or not the Closing takes place, except as otherwise expressly provided herein, all reasonable costs and expenses incurred by the Agent, the Calculation Agent or the Indenture Trustee in connection with this Agreement and the transactions contemplated hereby shall be paid by the Seller.
          (b) Except as otherwise expressly set forth in the Indenture, the Seller covenants to pay as and when billed by the Depositor, the Issuer, the Indenture Trustee, the Calculation Agent, the Agent or any Noteholder all of the reasonable out-of-pocket costs and expenses incurred in connection with the consummation of the transactions contemplated hereby, including, without limitation, all reasonable fees, disbursements and expenses of counsel to the Depositor, the Issuer, the Agent, the Indenture Trustee, the Calculation Agent and the Noteholders.
          Section 9.03. Mutual Obligations . On and after the Closing, each party hereto will do, execute and perform all such other acts, deeds and documents as one or more other parties may from time to time reasonably require in order to carry out the intent of this Agreement.

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          Section 9.04. Servicing Standards . At all times, the Seller, as Servicer shall, unless otherwise consented to by the Agent:
  (i)   continue to make Delinquency Advances and Servicing Advances and seek reimbursement, including reimbursement of Delinquency Advances and Servicing Advances deemed Nonrecoverable Advances by the Servicer, in accordance with the related Servicing Contract;
 
  (ii)   apply the Advance Reimbursement Amount on a First In First Out (“ FIFO ”) basis;
 
  (iii)   identify on its systems the Issuer as the owner of each Delinquency Advance and Servicing Advance and that such Delinquency Advance or Servicing Advance has been pledged to the Indenture Trustee;
 
  (iv)   maintain systems and operating procedures necessary to comply with all the terms of the Transaction Documents, including but not limited to maintaining records and systems necessary to indicate cumulative recoveries on each category of Delinquency Advance and Servicing Advance;
 
  (v)   cooperate with the Verification Agent in its duties set forth in the Transaction Documents;
 
  (vi)   cooperate with the Calculation Agent and the Indenture Trustee in their respective duties set forth in the Transaction Documents;
 
  (vii)   make all Delinquency Advances within the period required under the related Servicing Contract, unless the same is the result of inadvertence and is corrected on or prior to the related Distribution Date for the applicable Securitization Trust;
 
  (viii)   with respect to all Delinquency Advances, agree to deposit the Advance Reimbursement Amount from the Collection Account of the related Securitization Trust directly to the Reimbursement Account on a daily basis not later than the second Business Day following receipts thereof and not deposit any Advance Reimbursement Amount at any time in the Servicer’s own accounts;
 
  (ix)   with respect to all Servicing Advances, agree to deposit the Advance Reimbursement Amount from the Payment Clearing Account directly to the Reimbursement Account on a daily basis not later than the second Business Day following receipt thereof and not deposit any Advance Reimbursement Amount at any time in the Servicer’s own accounts;

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  (x)   as it relates to Delinquency Advances on Mortgage Loans with Forbearance Agreements, continue the practice of reimbursing the oldest Delinquency Advance with any current payment received;
 
  (xi)   maintain, or cause to be maintained, accurate records with respect to the Mortgage Loans in each Securitization Trust reflecting the status of all Pool-Level Delinquency Advances, Loan Level Delinquency Advances (Non-Judicial States), Loan-Level Delinquency Advances (Judicial States), Corporate Advances (Non-Judicial States), Corporate Advances (Judicial States), Escrow Advances (Non-Judicial States) and Escrow Advances (Judicial States) for such Securitization Trust, including the cumulative recoveries related to such Delinquency Advances and Servicing Advances;
 
  (xii)   service all Mortgage Loans related to all Securitization Trusts in accordance with the terms of the related Servicing Contract without regard to any ownership of any securities issued by the related Securitization Trust; and
 
  (xiii)   other than with respect to an amendment to a Servicing Contract executed in accordance with Section 9.11 hereof, not change reimbursement mechanics of Delinquency Advances on any Securitization Trust from Pool-Level Advances to Loan-Level Delinquency Advances or from Loan-Level Delinquency Advances to Pool-Level Advances.
          Section 9.05. Transfer of Servicing . Upon a transfer of servicing by the Seller as Servicer, the Seller shall use commercially reasonable efforts to negotiate payment in full by the successor servicer of the aggregate Receivables Balance relating to the Aggregate Receivables; provided , however , that the Seller as Servicer shall not agree to any negotiated payment of such aggregate Receivables Balance by the successor servicer without the consent of the Agent.
          Section 9.06. Bankruptcy . The Seller shall not take any action in any capacity to file any bankruptcy, reorganization or insolvency proceedings against the Depositor or the Issuer, or cause the Depositor or the Issuer to commence any reorganization, bankruptcy or insolvency proceedings under any applicable state or federal law, including without limitation any readjustment of debt, or marshaling of assets or liabilities or similar proceedings. The Depositor shall not take any action in any capacity to file any bankruptcy, reorganization or insolvency proceedings against the Issuer, or cause the Issuer to commence any reorganization bankruptcy or insolvency proceedings under any applicable state or federal law, including without limitation any readjustment of debt, or marshaling of assets or liabilities or similar proceedings. The Seller and the Depositor are not transferring and will not transfer any of the Receivables with intent to hinder, delay or defraud any Person.
          Section 9.07. Legal Existence . The Seller and the Depositor shall do or cause to be done all things necessary on their part to preserve and keep in full force and effect their

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existence as limited liability companies or corporations, as applicable, and the Issuer shall do or cause to be done all things necessary on its part to preserve and keep in full force and effect its existence as a Delaware statutory trust, and each of the Seller, the Depositor and the Issuer shall do or cause to be done all things necessary on their part to maintain each of theirs licenses, approvals, registrations or qualifications in all jurisdictions in which their ownership or lease of property or the conduct of their business requires such licenses, approvals, registrations or qualifications; except for failures to maintain any such licenses, approvals, registrations or qualifications which, individually or in the aggregate; would not have a Material Adverse Effect.
          Section 9.08. Compliance With Laws . The Seller and the Depositor shall comply with all laws, rules and regulations and orders of any Governmental Authority applicable to the Seller and the Depositor, except where the failure to comply would not have a Material Adverse Effect.
          Section 9.09. Taxes . The Seller and the Depositor shall pay and discharge all taxes, assessments and governmental charges or levies imposed upon the Seller and the Depositor, as applicable, or upon such party’s income and profits, or upon any of such party’s property or any part thereof, before the same shall become in default; provided, that the Seller and the Depositor shall not be required to pay and discharge any such tax, assessment, charge or levy so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Seller and the Depositor shall have set aside on its books adequate reserves with respect to any such tax, assessment, charge or levy so contested, or so long as the failure to pay any such tax, assessment, charge or levy would not, individually or in the aggregate, have a Material Adverse Effect.
          Section 9.10. No Liens, Etc. Against Receivables and Trust Property . Each of the Seller and the Depositor hereby covenants and agrees not to create or suffer to exist (by operation of law or otherwise) any Lien upon or with respect to any of the Aggregate Receivables or any of its interest therein, if any, or upon or with respect to any of its interest in any Account, or assign any right to receive income in respect thereof, except for the Lien created by the Indenture. Each of the Seller and the Depositor shall immediately notify the Indenture Trustee of the existence of any Lien on’-any of the Aggregate Receivables and shall defend the right, title and interest of each of the Depositor, the Issuer and the Indenture Trustee in, to and under the Aggregate Receivables, against all claims of third parties.
          Section 9.11. Amendments to Servicing Contract . The Seller, in its capacity as Servicer under the Servicing Contracts, with respect to the Securitization Trusts, hereby covenants and agrees not to amend or agree to the amendment of any of the Servicing Contracts without providing ten (10) days prior written notice to the Agent and the Indenture Trustee (for subsequent distributions to Noteholders) (in each case, such written notice delivered by certified mail, return receipt requested) and, if such amendment has a material adverse effect on the Trust Estate or the interests of the Noteholders as determined by the Agent, without receipt of the prior written consent of the Agent and the Required Noteholders. The Agent shall notify the Seller, in its capacity as Servicer, that it reasonably believes such amendment to have a material adverse effect on the Trust Estate within such ten (10) days of its receipt of the notice of the Seller of the applicable amendment, provided , however , that if no such notice is received by the Seller from the Agent within such ten (10) day period, the Agent will be deemed to have notified the Seller,

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in its capacity as Servicer, that it reasonably believes such amendment does not have a material adverse effect on the Trust Estate or the interests of the Noteholders at the expiration of such ten (10) days. Notwithstanding the foregoing, the Seller, in its capacity as Servicer under the Servicing Contracts with respect to the Securitization Trusts, may amend a Servicing Contract with the written consent of the Agent and the Required Noteholders.
          Section 9.12. No Netting or Offsetting . The Seller, in its capacity as Servicer, shall collect and deposit gross collections with respect to the Securitization Trusts into the related Collection Accounts in accordance with the related Servicing Contracts, without netting, off-set or deduction from such collections or deposits for any purpose, with the exception of Servicing Compensation due and payable to the Servicer. The Seller shall make all Delinquency Advances and Servicing Advances out of its own funds, without the utilization of any netting or offsetting of amounts in any account of the Securitization Trust, except as permitted under the Servicing Contracts with respect to amounts paid ahead by Mortgagors (or such substantially similar term as is used in each such Servicing Contract). The Seller shall repay any amounts borrowed with respect to amounts paid ahead by Mortgagors (or such substantially similar term as is used in each such Servicing Contract) pursuant to the terms and provisions of the Servicing Contracts.
          Section 9.13. Books and Records . The Seller shall maintain accounts and records as to each Receivable accurately and in sufficient detail to permit the reader thereof to know at any time the status of such Receivable, including payments and recoveries made and payments owing (and the nature of each, if applicable). The Seller shall maintain its computer records so that, from and after the time of the Granting of the security interest under the Indenture on the Receivables to the Indenture Trustee, the Seller’s master computer records (including any back-up archives) that refer to any Receivables indicate clearly the interest of the Issuer in such Receivables and that the Receivable is owned by the Issuer and pledged to the Indenture Trustee on behalf of the Secured Parties.
          The Depositor shall maintain (or cause to be maintained) accounts and records as to each Aggregate Receivable accurately and in sufficient detail to permit the reader thereof to know at any time the interest of the Issuer in such Receivables and that the Receivable is owned by the Issuer and pledged to the Indenture Trustee on behalf of the Secured Parties.
          Section 9.14. Verification Agent . Each of the Seller and the Depositor shall cooperate with the Verification Agent and shall allow the Verification Agent access to its books, records, computer system and employees during ordinary business hours upon reasonable notice and, subject to the terms of the Verification Agent Letter, shall allow the Verification Agent to review all collections and to make copies of any books, records and documents requested by the Verification Agent, but solely to the extent such items and review relate to the Aggregate Receivables and the obligations of the Seller, the Servicer and the Depositor under the Transaction Documents and the Servicing Contracts for the Securitization Trusts.
          Section 9.15. Exclusive . The Initial Receivables to be sold to the Depositor and to be sold and/or contributed from the Depositor to the Issuer on the Initial Funding Date shall consist of all of the Receivables with respect to the Securitization Trusts outstanding as of the Initial Funding Date. The Additional Receivables sold on each Funding Date shall consist of all of the Receivables with respect to the Securitization Trusts other than the Initial Receivables and

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the Receivables previously sold to the Depositor hereunder (other than Receivables repurchased by the Seller pursuant to Section 6.02 hereof or Section 2.19 of the Indenture) as of the related Funding Date. During the Funding Period, the Seller shall not sell, assign, transfer, pledge or convey any Receivable with respect to the Securitization Trusts to any Person other than the Depositor.
          Section 9.16. Recovery . The Seller shall diligently endeavor to collect reimbursement of Aggregate Receivables and shall not waive or forgive the obligation of a mortgagor to pay such amounts except as may be required pursuant to the related Servicing Contracts or in accordance with accepted servicing practices (as set forth in such Servicing Contracts); provided , however , that upon waiving the right to collect all or part of any such Receivable, the Seller shall immediately notify the Agent of such waiver and, upon the direction of the Agent, purchase the related Receivable from the Issuer at an amount equal to the applicable Repurchase Price.
          Section 9.17. Merger; Change of Control . Without the prior written consent of the Agent, the Seller and the Depositor shall not enter into any transaction of merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation, wind up or dissolution). In addition, without the prior written consent to the Agent, the Seller hereby covenants that it shall not enter into any agreement or understanding, engage in any transaction or take any other action that shall result in a Change of Control with respect to the Seller.
          Section 9.18. Use of Proceeds . The Seller shall utilize the proceeds of each purchase of Initial Receivables and Additional Receivables for general corporate purposes.
          Section 9.19. Seller Procedures and, Methodology . The Seller shall provide the Agent and the Noteholders with 30 days written notice prior to the modification of its procedures or methodology relating to (i) the reimbursement mechanics of Delinquency Advances or Servicing Advances; (ii) the way in which it determines that a Delinquency Advance or Servicing Advance is a Nonrecoverable Advance and the extent to which it is no longer obligated to make any such Delinquency Advance or Servicing Advance under the “related Servicing Contract; and (iii) the way in which it calculates the Reconciled Market Value of a residential property subject to a Mortgage Loan or an REO property.
          Section 9.20. Financial Covenants . The Seller, acting as Servicer, covenants that:
          (a) the ratio of its Total Indebtedness to Tangible Net Worth (excluding any residual securities issued in connection with an MBS securitization transaction) shall not at any time be greater than 9:1;
          (b) the Seller shall maintain minimum Liquidity in an amount of not less than $20,000,000 as of the end of each calendar month; and
          (c) the Tangible Net Worth of Seller shall at all times be greater than $150,000,000.

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ARTICLE X.
INDEMNIFICATION
          Section 10.01. Indemnification .
          (a) Without limiting any other rights that an Indemnified Party may have hereunder or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party (as defined below) from and against any and all Indemnified Amounts (as defined below) which may be imposed on, incurred by or asserted against an Indemnified Party in any way arising out of or relating to any breach of the Seller’s or the Servicer’s obligations or covenants under this Agreement or any other Transaction Document, or the ownership of the Aggregate Receivables or in respect of the Aggregate Receivables, excluding, however, Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party.
          Without limiting or being limited by the foregoing, the Seller shall pay on demand to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from:
  (i)   a breach of any representation or warranty made by the Seller under or in connection with this Agreement;
 
  (ii)   the failure by the Seller or the Servicer to comply with any term, provision or covenant contained in this Agreement, or any agreement executed by it in connection with this Agreement or with any applicable law, rule or regulation with respect to any Aggregate Receivable, or the nonconformity or any Aggregate Receivable with any such applicable law, rule or regulation; or
 
  (iii)   the failure to vest and maintain vested in the Issuer, or to transfer, to the Issuer, ownership of the Aggregate Receivables, together with all collections in respect thereof, free and clear of any adverse claim (except as permitted hereunder and in the Indenture), whether existing at the time of the transfer of such Aggregate Receivable or at any time thereafter, or the failure to vest and maintain vested in the Indenture Trustee the perfection of the security interest in the Aggregate Receivables free and clear of any adverse claim (except as permitted hereunder and in the Indenture), whether existing at the time of the transfer of such Aggregate Receivable or at any time thereafter.
          (b) Any Indemnified Amounts subject to the indemnification provisions of this Section 10.01 shall be paid to the Indemnified Party within twenty (20) Business Days following demand therefor. “ Indemnified Party ” means any of the Depositor, the Issuer, the Indenture Trustee, the Calculation Agent, the owner Trustee, the Agent, the Noteholders and any Swap Provider and their officers, employees, directors and successors or assigns. “ Indemnified

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Amounts ” means any and all claims, losses, liabilities, obligations, damages, penalties, actions, judgments, suits, and related reasonable costs and reasonable expenses of any nature whatsoever, including reasonable attorneys’ fees and disbursements (subject to the following paragraph), incurred by an Indemnified Party.
          (c) Promptly after an Indemnified Party shall have been served with the summons or other first legal process or shall have received written notice of the threat of a claim in respect of which an indemnity may be claimed against the Seller under this Section 10.01, the Indemnified Party shall notify the Seller in writing of the service of such summons, other legal process or written notice, giving information therein as to the nature and basis of the claim, and providing a copy thereof; provided , however , that failure so to notify the Seller shall not relieve the Seller from any liability which it may have hereunder or otherwise except to the extent that the Seller is prejudiced by such failure so to notify the Seller. The Seller will be entitled, at its own expense, to participate in the defense of any such claim or action and to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Party, unless the defendants in any such action include both the Indemnified Party and the Seller, and the Indemnified Party (upon the advice of counsel) shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to the Seller, or one or more Indemnified Parties, and which in the reasonable opinion of such counsel are sufficient to create a conflict of interest for the same counsel to represent both the Seller and such Indemnified party; provided , however , that the Seller shall not be responsible for the fees and expenses of more than one firm of attorneys for all Indemnified Parties related to the Depositor, one firm of attorneys for all Indemnified Parties related to the Issuer, one firm of attorneys for all Indemnified Parties related to the Agent, one firm of attorneys for all Indemnified Parties related to the Noteholders and one firm of attorneys for all Indemnified Parties related to the Indenture Trustee. Each Indemnified Party shall cooperate with the Seller in the defense of any such action or claim. The Seller shall not, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such proceeding or threatened proceeding.
ARTICLE XI.
MISCELLANEOUS
          Section 11.01. Amendments . No amendment or waiver of any provision of this Agreement shall in any event be effective unless the same shall be in writing and signed by all of the parties hereto and consented to in writing by the Agent, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, that, except as otherwise provided in Section 8.01 of the Indenture or expressly provided therein, the Issuer shall not make, or permit any person to make, any amendment, modification or change to, or provide any waiver under this Agreement or any other Transaction Document to which the Issuer is a party without the prior written consent of the Required Noteholders.

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          Section 11.02. Notices . All notices and other communications provided for hereunder shall, unless otherwise stated herein, be in writing (including telecopies) and mailed or e-mailed, telecopied (with a copy delivered by overnight courier) or delivered, as to each party hereto, at its address as set forth in Schedule I hereto or at such other address as shall be designated by such party in a written notice to the other parties hereto. All such notices and communications shall be deemed effective upon receipt thereof, and in the case of telecopies, when receipt is confirmed by telephone.
          Section 11.03. No Waiver; Remedies . No failure on the part of any party hereto to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
          Section 11.04. Binding Effect; Assignability .
          (a) This Agreement shall be binding upon and inure to the benefit of the Seller, the Depositor and the Issuer and their respective permitted successors and assigns; provided , however , that the Seller shall not have any right to assign its respective rights hereunder or interest herein (by operation of law or otherwise) without the prior written consent of the Agent and the Depositor shall not have any right to assign its respective rights hereunder or interest herein (by operation of law or otherwise) without the prior written consent of the Agent.
          (b) This Agreement shall create and constitute the continuing obligation of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time as the Indenture has terminated.
          Section 11.05. GOVERNING LAW; JURISDICTION . THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND ANY APPELLATE COURT HAVING JURISDICTION TO REVIEW THE JUDGMENTS THEREOF. EACH OF THE PARTIES HEREBY WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER IN ANY OF THE AFOREMENTIONED COURTS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT.
          Section 11.06. Execution in Counterparts . This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

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          Section 11.07. Survival . All representations, warranties, covenants, guaranties and indemnifications contained in this Agreement and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the sale, transfer or repayment of the Aggregate Receivables.
          Section 11.08. Third Party Beneficiary . The Seller and the Depositor acknowledge and agree that the Indenture Trustee, the Calculation Agent, the Agent and the other Secured Parties are intended third party beneficiaries of this Agreement.
          Section 11.09. General . (a) No course of dealing and no delay or failure of the Issuer (or the Indenture Trustee as its assignee) in exercising any right, power or privilege under this Agreement shall affect any other or future exercise thereof or the exercise of any other right, power or privilege; nor shall any single or partial exercise of any such right, power or privilege or any abandonment or discontinuance of steps to enforce such a right, power or privilege preclude any further exercise thereof or of any other right, power or privilege. The rights and remedies of the Issuer (and the Indenture Trustee as its assignee) under this Agreement are cumulative and not exclusive of any rights or remedies which the Issuer would otherwise have.
          (b) The obligations of the Seller and the Depositor under this Agreement shall be absolute and unconditional and shall remain in full force and effect without regard to, and shall not be released, discharged or in any way affected by (a) any exercise or nonexercise of any right, remedy, power or privilege under or in respect of this Agreement or applicable law, including, without limitation, any failure to set-off or release in whole or in part by the Issuer of any balance of any deposit account or credit on its books in favor of the issuer or any waiver, consent, extension, indulgence or other action or inaction in respect of any thereof, or (b) any other act or thing or omission or delay to do any other act or thing which would operate as a discharge of the Issuer as a matter of law.
          (c) This Agreement sets forth the entire understanding of the parties relating to the subject matter hereof and thereof, and supersedes all prior understandings and agreements, whether written or oral with respect to the subject matter hereof and thereof.
          (d) The Seller shall pay the Depositor’s and the Issuer’s costs and expenses reasonably incurred in connection with the enforcement of any of the Seller’s obligations hereunder.
          (e) Any provision of this Agreement which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality, of such provision in any other jurisdiction.
          Section 11.10. LIMITATION OF DAMAGES .
NOTWITHSTANDING ANYTHING CONTAINED HEREIN TO THE CONTRARY, THE PARTIES AGREE THAT NO PARTY SHALL BE LIABLE TO ANY OTHER FOR ANY SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES WHATSOEVER, WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE AND STRICT LIABILITY) OR ANY

33


 

OTHER LEGAL OR EQUITABLE PRINCIPLES; PROVIDED, THAT, THE FOREGOING PROVISION SHALL NOT LIMIT OR RELIEVE ANY PARTY OF ANY OBLIGATION UNDER THIS AGREEMENT TO INDEMNIFY ANY OTHER PARTY AGAINST ANY DAMAGES IMPOSED (INCLUDING SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES) UPON SUCH PARTY BY A FINAL ORDER OF ANY COURT OF COMPETENT JURISDICTION IN CONNECTION WITH ANY LEGAL ACTION BROUGHT AGAINST SUCH PARTY BY ANY THIRD PARTY.
          Section 11.11. WAIVER OF JURY TRIAL .
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, THE PURCHASES OR THE ACTIONS OF ANY PARTY IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF.
          Section 11.12. No Recourse . It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by Wilmington Trust Company, not individually or personally but solely as trustee of the Issuer, in the exercise of the powers and authority conferred and vested in it, (b) each of the representations, undertakings and agreements herein made on the part of the Issuer is made and intended not as personal representations, undertakings and agreements by Wilmington Trust Company but is made and intended for the purpose of binding only the Issuer, (c) nothing herein contained shall be construed as creating any liability on Wilmington Trust Company, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto and by any Person claiming by, through or under the parties hereto and (d) under no circumstances shall Wilmington Trust Company be personally liable for the payment of any indebtedness or expenses of the Issuer or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Issuer under this Receivables Purchase Agreement or any other related documents.
          Section 11.13. Confidentiality .
          (a) The Seller covenants and agrees to hold in confidence, and not disclose to any Person, the terms of this Agreement or of any other Transaction Document (including any fees payable in connection with this Agreement or the other Transaction Documents or the identity of any Noteholder), except as the Agent or any Noteholder may have consented to in writing prior to any proposed disclosure and except it may disclose such information (i) to Affiliates of the Seller or its or their respective directors, officers, employees, agents, advisors, counsel, underwriters, financing sources and other representatives who are informed of the confidential nature of such information and instructed to keep it confidential, (ii) to the extent it should be (A) required by law, rule, regulation, subpoena, or in connection with any legal or regulatory proceeding or (B) requested by any governmental or regulatory authority having jurisdiction over the disclosing party; provided, that, in the case of clause (ii)(A), the disclosing party will use all reasonable efforts to maintain confidentiality and will (unless otherwise prohibited by law) notify the Agent and the Noteholders of its intention to make any such

34


 

disclosure prior to making such disclosure, (iii) to the extent required to be included in the financial statements or filings with the Securities and Exchange Commission of the Seller or an Affiliate thereof, (iv) to the extent required to exercise any rights or remedies under the Transaction Documents, and (v) to the extent required to consummate and administer the transactions contemplated under the Transaction Documents:
          (b) Notwithstanding the generality of the foregoing, Seller and its Affiliates shall maintain the confidentiality of the sensitive economic terms (i.e., Discount Factors, Margin Rate, Default Additional Rate, Post-ARD Additional Rate and the like) set forth in any of the Transaction Documents in negotiations, discussions, agreements or due diligence in connection with any financing, repurchase, credit or similar transactions with any third-party (including any credit facility or any similar structure with respect to mortgage related assets including mortgage loans, RMBS or any similar assets); provided however , this requirement snail not apply to the tax structure or tax treatment of the transactions contemplated by the Transaction Documents and the Seller and its Affiliates (and any employee, representative, or agent of the Seller and its Affiliates) may disclose to any and all persons without limitation of any kind, the tax structure and tax treatment of such transactions and facts relevant to such tax structure and tax treatment; provided , further the sensitive economic terms referenced above (i.e., Discount Factors, Margin Rate, Default Additional Rate, Post-ARD Additional Rate) shall not be treated by the parties as facts relevant to such tax structure and tax treatment.
[Signature Page Follows]

35


 

          IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers hereunto duly authorized, as of the date first above written.
     
 
  NATIONSTAR MORTGAGE ADVANCE
RECEIVABLES TRUST 2010-ADVI
 
   
 
  By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
 
   
 
  By: /s/ Bethany J. Taylor
 
 
 
 
  Name: Bethany J. Taylor
 
  Title: Financial Services Officer
 
   
 
  NATIONSTAR ADVANCE FUNDING II
LLC
 
   
 
  By: /s/ Gregory Oniu
 
 
 
 
  Name: Gregory Oniu
 
  Title: SVP
 
   
 
  NATIONSTAR MORTGAGE LLC
 
   
 
  By: /s/ Gregory Oniu
 
 
 
 
  Name: Gregory Oniu
 
  Title: SVP
Consented to by:
WELLS FARGO SECURITIES, LLC
as Agent
By: /s/ Benjamin Peterson
Name: Benjamin Peterson
Title: Vice President

36


 

WELLS FARGO BANK, N.A.
as Noteholder
By: /s/ Andrew W. Riebe
Name: Andrew W. Riebe
Title: Director

37


 

SCHEDULE I
INFORMATION FOR NOTICES
1.   If to the Issuer:
    NATIONSTAR MORTGAGE ADVANCE RECEIVABLES
TRUST 2010-ADV1
c/o Wilmington Trust Company
Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
Attention:         Corporate Trust Administration
Facsimile:         (302) 636-4140
Telephone:      (302) 651-1000
    (with a copy to the Seller)
2.   if to the Depositor:
    NATIONSTAR ADVANCE FUNDING II LLC
350 Highway Drive
Lewisville, Texas 75067
Attention:         Greg Oniu
Facsimile:         (469) 549-2085
Telephone:      (469) 549-2477
3.   if to the Seller:
    NATIONSTAR MORTGAGE LLC
350 Highland Drive
Lewisville, Texas 75067
Attention:         Greg Oniu
Facsimile:         (469) 549-2085
Telephone:      (469) 549-2477
4.   if to the Indenture Trustee on behalf of the Secured Parties or the Calculation Agent:
    Use Notice Address provided in the Indenture.

 


 

5.   if to the Agent:
    WELLS FARGO SECURITIES, LLC
301 South College Street
MAC D1053-083
Charlotte, North Carolina 28288
Attention:         Benjamin Peterson
Facsimile:         (704) 383-8001
Telephone:      (704) 715-9707
6.   if to the Noteholders:
    WELLS FARGO BANK, N.A.
301 South College Street
MAC D1053-082
Charlotte, North Carolina 28288
Attention:         Andrew Riebe
Facsimile:         (704) 383-8001
Telephone:      (704) 715-1403

39


 

SCHEDULE II
AMENDMENTS TO SERVICING CONTRACTS
AVAILABLE UPON REQUEST

 


 

EXHIBIT A
[RESERVED]

 


 

EXHIBIT B
FORM OF FUNDING NOTICE
[Insert date]
     
Nationstar Mortgage Advance Receivables
  Wells Fargo Bank, N.A.
Trust 2010-ADV1
  9062 Old Annapolis Road
c/o Wilmington Trust Company
  Columbia, Maryland 20145-1951
Rodney Square North
  Client Manager — Nationstar Mortgage
1100 North Market Street
  Advance Receivables Trust 2010-ADV1
Wilmington, Delaware 19890
  Facsimile: (410) 715-2380
Attention: Corporate Trust Administration
  Telephone: (410) 884-2000
Facsimile: (302) 636-4140
   
Telephone: (302) 651-1000
   
 
   
Wells Fargo Securities, LLC
  PricewaterhouseCoopers LLP
301 South College Street
  1301 K Street NW, Suite 800W
MAC D1053-082
  Washington, DC 20005
Charlotte, North Carolina 28288
  Attention: David L. Jones
Attention: Benjamin Peterson
  Facsimile: (813) 329-2008
Facsimile: (704) 383-8001
  Telephone: (202) 414-1874
Telephone: (704) 715-9707
   
     Re: Receivables Purchase Agreement, dated as of November 15, 2010; Funding Notice
     Pursuant to Section 2.01 of the Receivables Purchase Agreement, dated as of November 15, 2010 (the “ Receivables Purchase Agreement ”), among Nationstar Mortgage Advance Receivables Trust 2010-ADV1 (the “ Issuer ”), Nationstar Advance Funding II LLC (the “ Depositor ”) and Nationstar Mortgage LLC (the “ Seller ”), the undersigned hereby notifies you that the Receivables listed on Exhibit A hereto, in the amount of $[___________], are being sold by the Seller to the Depositor and by the Depositor to the Issuer on the Funding Date occurring on [insert date].
     The Seller also hereby certifies that (i) the Funding conditions contained in Sections 7.02(ii), (iv), (v), (vi), (vii), (viii), (xiv), (xv), and (xvii) of the Indenture, dated as of November 15, 2010, between the Issuer and Wells Fargo Bank, N.A. have been met, and (ii) the representations and warranties contained in Section 6 of the Receivables Purchase Agreement are true and correct as of the date hereof.
     The Depositor also hereby certifies that the representations and warranties contained in Section 5 of the Receivables Purchase Agreement are true and correct as of the date hereof.

 


 

Very truly yours,
NATIONSTAR MORTGAGE LLC
         
 
  By:    
 
 
 
   
 
  Name:    
 
 
 
   
 
  Title:    
 
 
 
   
NATIONSTAR ADVANCE FUNDING II
         
 
  By:    
 
 
 
   
 
  Name:    
 
 
 
   
 
  Title:    
 
 
 
   
We have performed the subset of the procedures set forth in Exhibit 1 of our engagement letter for Agreed Upon Procedures reports with Wells Fargo Securities, LLC and Nationstar Mortgage LLC dated [__________]. We noted no exceptions as a result of these procedures. All restrictions, terms and conditions of the engagement letter apply to these procedures.
[PricewaterhouseCoopers LLP (signed)]
[Date]
 
By:                                                                                                              

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EXHIBIT C
FORM OF BILL OF SALE
     Nationstar Mortgage LLC (the “ Seller ”) hereby absolutely sells to Nationstar Advance Funding II LLC, and Nationstar Advance Funding II LLC (the “ Depositor ”) hereby absolutely sells to Nationstar Mortgage Advance Receivables Trust 2010-ADV1, a statutory trust organized under the laws of the State of Delaware (the “ Purchaser ”). Without recourse, except as set forth in the Receivables Purchase Agreement:
  (a)   all right, title and interest in and to the Receivables indentified in the Schedule attached hereto as Exhibit A ; and
 
  (b)   All principal, interest and other proceeds of any kind received with respect to such Receivables, including but not limited to proceeds derived from the conversion, voluntary or involuntary, of any of such assets into cash or other liquidated property.
     The ownership of the Receivables is vested in Purchaser and the ownership of all records and documents with respect to the related Receivables prepared by or which come into the possession of the Seller or the Depositor shall immediately vest in Purchaser and shall be retained and maintained, in trust, by the Seller or the Depositor, as applicable at the will of Purchaser in such custodial capacity only. The sale of the Receivables shall be reflected as a sale on the Seller’s and the Depositor’s business records, tax returns and financial statements.
     This Bill of Sale is made pursuant to, and is subject to the terms and conditions of, that certain Receivables Purchase Agreement dated as of November 15, 2010, among Nationstar Mortgage LLC, as seller, Nationstar Advance Funding II LLC, as depositor and Nationstar Mortgage Advance Receivables Trust 2010-ADV1, as issuer (the (“ Agreement ”). The Seller confirms to Purchaser that the representations and warranties set forth in Article 6 of the Agreement are true and correct as if made on the date hereof (except to the extent that they expressly relate to an earlier or later date). The Depositor confirms to Purchaser that the representations and warranties set forth in Article 5 of the Agreement are true and correct as if made on the date hereof (except to the extent that they expressly relate to an earlier or later date).
     Capitalized terms use herein and not otherwise defined shall have the meanings set forth in the Agreement.

 


 

DATED:                                                               
         
 
  NATIONSTAR MORTGAGE LLC    
 
       
 
  By:    
 
 
 
   
 
  Name:    
 
 
 
   
 
  Title:    
 
 
 
   
 
       
 
  NATIONSTAR ADVANCE FUNDING II    
 
       
 
  By:    
 
 
 
   
 
  Name:    
 
 
 
   
 
  Title:    
 
 
 
   

45


 

EXHIBIT D
FORM OF SUBORDINATED NOTE
      THIS SUBORDINATED NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ ACT ”), OR ANY STATE SECURITIES LAW, AND MAY NOT BE DIRECTLY OR INDIRECTLY OFFERED OR SOLD OR OTHERWISE DISPOSED OF BY THE OWNER HEREOF UNLESS SUCH TRANSACTION IS EXEMPT FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, AND WILL NOT BE A “PROHIBITED TRANSACTION” UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ ERISA ”). BY ACCEPTANCE OF THIS SUBORDINATED NOTE, THE HOLDER AGREES TO BE BOUND BY ALL THE TERMS OF THE RECEIVABLES PURCHASE AGREEMENT.
[___], 2010
     FOR VALUE RECEIVED, the undersigned, Nationstar Advance Funding II LLC, a Delaware limited liability company (the “ Depositor ”), promises to pay to the order of Nationstar Mortgage LLC, a Delaware limited liability company (the “ Seller ”), on [______], 20[__] (the “ Maturity Date ”) the aggregate unpaid principal amount of all amounts loaned hereunder pursuant to Section 2.01(c) of that certain Receivables Purchase Agreement, dated as of November 15, 2010 (together with all amendments and other modifications, if any, from time to time thereafter made thereto, the “ Receivables Purchase Agreement ”), among the Seller, the Depositor and Nationstar Mortgage Advance Receivables Trust 2010-ADV1 (the “ Issuer ”), together with any and all accrued and unpaid interest on all amounts loaned hereunder.
     Interest will accrue on the average daily balance of the unpaid principal amount of all amounts loaned hereunder for each day from the date such loan amounts are made until they become due and or are paid in full, at a rate per annum equal to the sum of (i) the LIBOR Rate (as defined below) and (ii) a spread designated as such in writing by the Seller to the Depositor from time to time (the “ Spread ”). Interest will be computed on the basis of a 360-day year and paid for the actual number of days elapsed (including the first but excluding the last day). Should any principal of, or accrued interest on, any amounts loaned hereunder not be paid when due, such amount will bear interest from its due date until paid in full, at a rate per annum equal to the sum of (i) the LIBOR Rate (ii) the Spread and (iii) [1.00]%. Interest shall be payable on the unpaid principal balance of this note (this “ Subordinated Note ”) commencing on [________], 200[____] and continuing on the [___] day of each [January, April, July, and October]. With respect to any such [___] day that is not a Business Day, the interest payment otherwise due on such [___] day shall be due on the next subsequent day that is a Business Day.
     For the purposes of this Subordinated Note, “ LIBOR Rate ” shall mean the offered rate for one-month U.S. dollar deposits as such rate appears on Reuters Screen LIBOR01 Page (as defined in the International Swaps and Derivatives Association, Inc. 2000 Definitions) or such other page as may replace Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time) on such date; provided that if such rate does not appear on Telerate Page 3750, the rate for such date will be determined on the basis of the rates at which one-month U.S. dollar deposits are offered

 


 

by [Name of Banks] (the “ Reference Banks ”) at approximately 11:00 a.m. (London time) on such date; to prime banks in the London interbank market. In such event, the Seller will request the principal London office of each of the Reference Banks to provide a quotation of its rate. If at least two such quotations are provided, the rate for that date will be the arithmetic mean of the quotations (rounded upwards if necessary to the nearest whole multiple of 1/16%). If fewer than two quotations are provided as requested, the rate for that will be the arithmetic mean of the rates quoted by major banks in New York City, selected by the Seller, at approximately 11:00 a.m. (New York City time) on such date for one-month U.S. dollar loans to leading European banks.
     Unless plainly wrong, the computer records of the holder hereof shall on any day conclusively evidence the unpaid balance of this Subordinated Note and its advances and payments history posted up to that day. All loans and advances, and all payments and permitted prepayments made hereon may be (but are not required to be) set forth by or on behalf of such holder on the schedule which is attached hereto or otherwise recorded in such holder’s computer or manual records; provided , that any failure to make notation of any principal advance or accrual of interest shall not cancel, limit or otherwise affect Depositor’s obligations or any of such holder’s rights with respect to that advance or accrual. Unless otherwise defined, capitalized terms used herein have the meanings provided in or specified in accordance with the Receivables Purchase Agreement.
     The obligation of the Depositor to pay the principal of, and interest on, all loans and advances on this Subordinated Note shall be absolute and unconditional, shall be binding and, to the fullest extent permitted by law, enforceable in all circumstances whatsoever and shall not be subject to setoff, recoupment or counterclaim; provided , however , that the Depositor shall only be obligated to pay principal and interest on this Subordinated Note from cash actually received by the Depositor from distributions on the Receivables after payment of all amounts due the Noteholder under the Indenture, dated as of November 15, 2010, between the Issuer and Wells Fargo Bank, N.A., as indenture trustee.
     Depositor may prepay at any time, without penalty or fee, the principal or interest outstanding hereunder or any portion of such principal or interest. Payments of both principal and interest are to be made in lawful money of the United States of America in same day or immediately available funds.
     The Seller hereby agrees, prior to the date that is 367 days after the Maturity Date, not to acquiesce, petition, or invoke the process of any court or government authority (or to encourage or cooperate with others) for the purpose of commencing or sustaining a case against the Seller under any Federal or state bankruptcy, insolvency or similar law or appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator or other similar official of or for the Seller or any substantial part of its property, or ordering the winding up or liquidation of the affairs of the Seller. The foregoing shall not limit the rights of the Depositor to file any claim in, or to otherwise take any action with respect to, any insolvency proceeding instituted against the Seller by any other unaffiliated entity.
     Notwithstanding anything contained herein to the contrary, to the extent that the Seller is deemed to have any interest in any assets of the Depositor, the Seller agrees that its interest in those assets is subordinate to claims or rights of all other creditors of the Depositor. The Seller

47


 

agrees that this Subordinated Note constitutes a subordinated note for purposes of Section 510(a) of the United States Bankruptcy Code, as amended from time to time (11 U.S.C. §§ 101 et seq.).
     As set forth in Section 2.01(c) of the Receivables Purchase Agreement, the Depositor hereby represents and warrants as of each loan and advance made hereon that at the time of (and immediately after) each loan and advance made hereunder, (i) the Depositor’s total assets exceed its total liabilities both before and after the sale transaction, (ii) the Depositor’s cash on hand is sufficient to satisfy all of its current obligations (other than its obligations under this Subordinated Note and the obligation to pay the Cash Purchase Price), (iii) the Depositor is adequately capitalized at a commercially reasonable level and (iv) the Depositor has determined that its financial capacity to meet its financial commitment under the Subordinate Loan and this Subordinated Note is adequate. Each loan or advance made hereunder by the Seller to the Depositor is subject to the accuracy of the representations and warranties herein made on the part of the Depositor.
     This Subordinated Note is the Subordinated Note referred to in, and evidences indebtedness incurred under, the Receivables Purchase Agreement, and the holder hereof is entitled to the benefits, Receivables Purchase Agreement. Upon and subject to the terms and conditions of the Receivables Purchase Agreement, Depositor may borrow, repay and reborrow against this note under the circumstances, in the manner and for the purposes specified in the Receivables Purchase Agreement and this Subordinated Note, but for no other purposes. All parties hereto, whether as makers, endorsers or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor.
     THIS SUBORDINATED NOTE SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY OTHERWISE APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS.
[Signature Page Follows]

48


 

         
 
  NATIONSTAR ADVANCE FUNDING II LLC
 
     
 
       
 
  By:    
 
 
 
   
 
  Name:    
 
 
 
   
 
  Title:    
 
 
 
   

49

Exhibit 10.52
FORM OF INDEMNIFICATION AGREEMENT
     AGREEMENT, dated as of ___________________ (this “Agreement”), between Nationstar Mortgage Holding Inc., a Delaware corporation (the “Company”), and _____________________________ (“Indemnitee”).
     WHEREAS, it is essential to the Company to retain and attract as directors and officers the most capable persons available;
     WHEREAS, Indemnitee is a director and/or officer of the Company and/or its subsidiaries;
     WHEREAS, both the Company and Indemnitee recognize the increased risk of litigation and other claims being asserted against directors and officers of public companies in today’s environment;
     WHEREAS, the Company’s Amended and Restated Certificate of Incorporation (“Certificate of Incorporation”) and Amended and Restated Bylaws (“Bylaws”) require the Company to indemnify and advance expenses to its directors and officers to the fullest extent permitted by law and the Indemnitee has been serving and continues to serve as a director and/or officer of the Company in part in reliance on such Certificate of Incorporation and Bylaws;
     WHEREAS, uncertainties as to the availability of indemnification created by recent court decisions may increase the risk that the Company will be unable to retain and attract as directors and officers the most capable persons available;
     WHEREAS, the board of directors of the Company (“Board of Directors”) has determined that the inability of the Company to retain and attract as directors and officers the most capable persons would be detrimental to the interests of the Company and that the Company therefore should seek to assure such persons that indemnification and insurance coverage will be available in the future;
     WHEREAS, the parties intend that any rights the Indemnitee may have from Indemnitee-Related Entities (as defined herein) shall be secondary to the primary obligation of the Company to indemnify and hold harmless the Indemnitee under this Agreement; and
     WHEREAS, in recognition of Indemnitee’s need for protection against personal liability, and in part to provide Indemnitee with specific contractual assurance that the protection promised by the Company’s Certificate of Incorporation and Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Certificate of Incorporation and Bylaws or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement, and for the continued coverage of Indemnitee under the directors’ and officers’ liability insurance policy of the Company.

 


 

     NOW, THEREFORE, in consideration of the premises and of Indemnitee continuing to serve the Company directly or, at its request, another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:
     1.  Certain Definitions . In addition to terms defined elsewhere herein, the following terms have the following meanings when used in this Agreement:
          (a)  Change in Control : shall be deemed to have occurred if (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than Fortress Investment Group LLC and its affiliates and other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing 20% or more of the total voting power represented by the Company’s then outstanding Voting Securities, or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof, or (iii) the stockholders of the Company approve a merger or consolidation of the Company with any other entity other than a merger or consolidation which would result in the Voting Securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into Voting Securities of the surviving entity) at least 80% of the total voting power represented by the Voting Securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, or the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of (in one transaction or a series of transactions) all or substantially all the Company’s assets.
          (b)  Claim : means any threatened, asserted, pending or completed action, suit or proceeding, whether civil, criminal, administrative, investigative or other, including any arbitration or other alternative dispute resolution mechanism, or any appeal of any kind thereof, or any inquiry or investigation, whether instituted by (or in the right of) the Company or any governmental agency or any other person or entity, in which Indemnitee was, is, may be or will be involved as a party, witness or otherwise.
          (c)  Expenses : include attorneys’ fees and all other direct or indirect costs, expenses and obligations, including judgments, fines, penalties, interest, appeal bonds, amounts paid in settlement with the approval of the Company, and counsel fees and disbursements (including, without limitation, experts’ fees, court costs, retainers, appeal bond premiums, transcript fees, duplicating, printing and binding costs, as well as telecommunications, postage and courier charges) paid or incurred in connection with investigating, prosecuting, defending, being a witness in or participating in (including on appeal), or preparing to investigate, prosecute, defend, be a witness in or participate in, any Claim relating to any Indemnifiable Event, and shall include (without limitation) all attorneys’ fees and all other expenses incurred by or on behalf of

2


 

an Indemnitee in connection with preparing and submitting any requests or statements for indemnification, advancement or any other right provided by this Agreement (including, without limitation, such fees or expenses incurred in connection with legal proceedings contemplated by Section 2(d) hereof).
          (d)  Indemnifiable Amounts : means (i) any and all liabilities, Expenses, damages, judgments, fines, penalties, ERISA excise taxes and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or in respect of such liabilities, Expenses, damages, judgments, fines, penalties, ERISA excise taxes or amounts paid in settlement) arising out of or resulting from any Claim relating to an Indemnifiable Event, (ii) any liability pursuant to a loan guaranty or otherwise, for any indebtedness of the Company or any subsidiary of the Company, including, without limitation, any indebtedness which the Company or any subsidiary of the Company has assumed or taken subject to, and (iii) any liabilities which an Indemnitee incurs as a result of acting on behalf of the Company (whether as a fiduciary or otherwise) in connection with the operation, administration or maintenance of an employee benefit plan or any related trust or funding mechanism (whether such liabilities are in the form of excise taxes assessed by the United States Internal Revenue Service, penalties assessed by the Department of Labor, restitutions to such a plan or trust or other funding mechanism or to a participant or beneficiary of such plan, trust or other funding mechanism, or otherwise).
          (e)  Indemnifiable Event : means any event or occurrence, whether occurring before, on or after the date of this Agreement, related to the fact that Indemnitee is or was a director and/or officer or fiduciary of the Company, or is or was serving at the request of the Company as a director, officer, employee, manager, member, partner, tax matter partner, trustee, agent, fiduciary or similar capacity, of another corporation, limited liability company, partnership, joint venture, employee benefit plan, trust or other entity or enterprise, or by reason of anything done or not done by Indemnitee in any such capacity (in all cases whether or not Indemnitee is acting or serving in any such capacity or has such status at the time any Indemnifiable Amount is incurred for which indemnification, advancement or any other right can be provided by this Agreement). The term “Company”, where the context requires when used in this Agreement, may be construed to include such other corporation, limited liability company, partnership, joint venture, employee benefit plan, trust or other entity or enterprise.
          (f)  Indemnitee-Related Entities : means any corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other entity or enterprise (other than the Company or any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise Indemnitee has agreed, on behalf of the Company or at the Company’s request, to serve as a director, officer, employee or agent and which service is covered by the indemnity described in this Agreement) from whom an Indemnitee may be entitled to indemnification or advancement of Expenses with respect to which, in whole or in part, the Company may also have an indemnification or advancement obligation.
          (g)  Independent Legal Counsel : means an attorney or firm of attorneys (following a Change in Control, selected in accordance with the provisions of Section 3 hereof) who is experienced in matters of corporate law and who shall not have otherwise performed services for the Company or Indemnitee within the last five years (other than with respect to matters

3


 

concerning the rights of Indemnitee under this Agreement, or of other indemnitees under similar indemnity agreements).
          (h)  Jointly Indemnifiable Claim : means any Claim for which the Indemnitee may be entitled to indemnification from both an Indemnitee-Related Entity and the Company pursuant to applicable law, any indemnification agreement or the certificate of incorporation, bylaws, partnership agreement, operating agreement, certificate of formation, certificate of limited partnership or comparable organizational documents of the Company and an Indemnitee-Related Entity.
          (i)  Reviewing Party : means any appropriate person or body consisting of a member or members of the Board of Directors or any other person or body appointed by the Board of Directors who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or Independent Legal Counsel.
          (j)  Voting Securities : means any securities of the Company which vote generally in the election of directors.
     2.  Basic Indemnification Arrangement; Advancement of Expenses .
          (a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim by reason of (or arising in part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than thirty (30) days after written demand is presented to the Company, and hold Indemnitee harmless against any and all Indemnifiable Amounts.
          (b) If so requested by Indemnitee, the Company shall advance (within two business days of such request) any and all Expenses incurred by Indemnitee (an “Expense Advance”). The Company shall, in accordance with such request (but without duplication), either (i) pay such Expenses on behalf of Indemnitee, or (ii) reimburse Indemnitee for such Expenses. Subject to Section 2(d), Indemnitee’s right to an Expense Advance is absolute and shall not be subject to any prior determination by the Reviewing Party that the Indemnitee has satisfied any applicable standard of conduct for indemnification.
          (c) Notwithstanding anything in this Agreement to the contrary, Indemnitee shall not be entitled to indemnification or advancement of Expenses pursuant to this Agreement in connection with any Claim initiated by Indemnitee unless (i) the Company has joined in or the Board of Directors has authorized or consented to the initiation of such Claim or (ii) the Claim is one to enforce Indemnitee’s rights under this Agreement.
          (d) Notwithstanding the foregoing, (i) the indemnification obligations of the Company under Section 2(a) shall be subject to the condition that the Reviewing Party shall not have determined (in a written legal opinion, in any case in which the Independent Legal Counsel is involved as required by Section 3 hereof) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 2(b) shall be subject to the condition that, if, when and to the extent

4


 

that the Reviewing Party determines (in a written legal opinion, in any case in which the Independent Legal Counsel is involved as required by Section 3 hereof) that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid (it being understood and agreed that the foregoing agreement by Indemnitee shall be deemed to satisfy any requirement that Indemnitee provide the Company with an undertaking to repay any Expense Advance if it is ultimately determined that the Indemnitee is not entitled to indemnification under applicable law); provided, however, that if Indemnitee has commenced or thereafter commences legal proceedings in a court of competent jurisdiction to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s undertaking to repay such Expense Advances shall be unsecured and interest-free. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control, the Reviewing Party shall be the Independent Legal Counsel referred to in Section 3 hereof. If there has been no determination by the Reviewing Party within thirty (30) days after written demand is presented to the Company or if the Reviewing Party determines that Indemnitee would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in any court in the State of Texas or the State of Delaware having subject matter jurisdiction thereof and in which venue is proper seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof, including the legal or factual bases therefor, and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee.
     3.  Change in Control . The Company agrees that if there is a Change in Control then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any provision of the Bylaws or of the Certificate of Incorporation now or hereafter in effect, the Company shall seek legal advice only from Independent Legal Counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably delayed, conditioned or withheld). Such counsel, among other things, shall render its written opinion to the Company and Indemnitee as to whether and to what extent the Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the Independent Legal Counsel and to indemnify fully such counsel against any and all expenses (including attorneys’ fees), claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
     4.  Indemnification for Additional Expenses . The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall advance such Expenses to Indemnitee subject to and in accordance with Section 2(b), which are incurred by Indemnitee in connection with any action brought by Indemnitee for (i) indemnification or an Expense Advance by the Company under this Agreement or any provision of the Bylaws or of the Certificate of Incorporation now or hereafter in effect and/or (ii) recovery under any

5


 

directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, Expense Advance or insurance recovery, as the case may be; provided that Indemnitee shall be required to reimburse such Expenses in the event that a final judicial determination is made (as to which all rights of appeal therefrom have been exhausted or lapsed) that such action brought by Indemnitee, or the defense by Indemnitee of an action brought by the Company or any other person, as applicable, was frivolous or in bad faith.
     5.  Partial Indemnity, Etc . If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses or other Indemnifiable Amounts in respect of a Claim but not, however, for all of the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith.
     6.  Burden of Proof, Etc . In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder the Reviewing Party, court, any finder of fact or other relevant person shall presume that the Indemnitee has satisfied the applicable standard of conduct and is entitled to indemnification, and the burden of proof shall be on the Company (or any other person or entity disputing such conclusions) to establish, by clear and convincing evidence, that Indemnitee is not so entitled.
     7.  Reliance as Safe Harbor . For purposes of this Agreement, Indemnitee shall be deemed to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee’s actions or omissions to act are taken in good faith reliance upon the records of the Company, including its financial statements, or upon information, opinions, reports or statements furnished to Indemnitee by the officers or employees of the Company in the course of their duties, or by committees of the Board of Directors, or by any other person (including legal counsel, accountants and financial advisors) as to matters Indemnitee reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Company. In addition, the knowledge and/or actions, or failures to act, of any director, officer, agent or employee of the Company shall not be imputed to Indemnitee for purposes of determining the right to indemnity hereunder.
     8.  No Other Presumptions . For purposes of this Agreement, the termination of any Claim by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief or that a court has determined that indemnification is not permitted by applicable law. In addition, neither the failure of the Reviewing Party to have made a determination as to whether Indemnitee has met any particular standard of conduct or had any particular belief, nor an actual determination by the Reviewing Party that Indemnitee has not met such standard of conduct or did not have such belief, prior to the commencement of legal proceedings by Indemnitee to secure a judicial

6


 

determination that Indemnitee should be indemnified under applicable law shall be a defense to Indemnitee’s claim or create a presumption that Indemnitee has not met any particular standard of conduct or did not have any particular belief.
     9.  Nonexclusivity, Etc . The rights of the Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Bylaws or Certificate of Incorporation or the Delaware General Corporation Law or otherwise. To the extent that a change in applicable law (whether by statute or judicial decision) permits greater indemnification by agreement than would be afforded currently under the Bylaws or Certificate of Incorporation or this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. To the extent that there is a conflict or inconsistency between the terms of this Agreement and the Certificate of Incorporation or Bylaws, it is the intent of the parties hereto that the Indemnitee shall enjoy the greater benefits regardless of whether contained herein, in the Certificate of Incorporation or Bylaws. No amendment or alteration of the Certificate of Incorporation or Bylaws or any other agreement shall adversely affect the rights provided to Indemnitee under this Agreement.
     10.  Liability Insurance . To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, the Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for the Company’s directors and officers. If the Company has such insurance in effect at the time the Company receives from Indemnitee any notice of the commencement of an action, suit or proceeding, the Company shall give prompt notice of the commencement of such action, suit or proceeding to the insurers in accordance with the procedures set forth in the policy. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policy.
     11.  Period of Limitations . No legal action shall be brought and no cause of action shall be asserted by or in the right of the Company against Indemnitee, Indemnitee’s spouse, heirs, executors or personal or legal representatives after the expiration of two years from the date of accrual of such cause of action, and any claim or cause of action of the Company shall be extinguished and deemed released unless asserted by the timely filing of a legal action within such two-year period; provided, however, that if any shorter period of limitations is otherwise applicable to any such cause of action such shorter period shall govern.
     12.  Amendments, Etc . No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.
     13.  Subrogation . Subject to Section 14 hereof, in the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers reasonably required and shall do everything that may be reasonably necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights. The

7


 

Company shall pay or reimburse all Expenses actually and reasonably incurred by Indemnitee in connection with such subrogation.
     14.  Jointly Indemnifiable Claims . Given that certain Jointly Indemnifiable Claims may arise due to the relationship between the Indemnitee-Related Entities and the Company and the service of the Indemnitee as a director and/or officer of the Company at the request of the Indemnitee-Related Entities, the Company acknowledges and agrees that the Company shall be fully and primarily responsible for the payment to the Indemnitee in respect of indemnification and advancement of expenses in connection with any such Jointly Indemnifiable Claim, pursuant to and in accordance with the terms of this Agreement, irrespective of any right of recovery the Indemnitee may have from the Indemnitee-Related Entities. Under no circumstance shall the Company be entitled to any right of subrogation or contribution by the Indemnitee-Related Entities and no right of recovery the Indemnitee may have from the Indemnitee-Related Entities shall reduce or otherwise alter the rights of the Indemnitee or the obligations of the Company hereunder. In the event that any of the Indemnitee-Related Entities shall make any payment to the Indemnitee in respect of indemnification or advancement of Expenses with respect to any Jointly Indemnifiable Claim, the Company agrees that such payment or advancement shall not extinguish or affect in any way the rights of the Indemnitee under this Agreement and further agrees that the Indemnitee-Related Entity making such payment shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee against the Company. Each of the Indemnitee-Related Entities shall be third-party beneficiaries with respect to this Section 14, entitled to enforce this Section 14 against the Company as though each such Indemnitee-Related Entity were a party to this Agreement.
     15.  No Duplication of Payments . Subject to Section 14 hereof, the Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under any insurance policy, or any provision of the Bylaws or of the Certificate of Incorporation or otherwise) of the amounts otherwise indemnifiable hereunder.
     16.  Defense of Claims . The Company shall be entitled to participate in the defense of any Claim relating to an Indemnifiable Event or to assume the defense thereof, with counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee believes, after consultation with counsel selected by Indemnitee, that (i) the use of counsel chosen by the Company to represent Indemnitee would present such counsel with an actual or potential conflict of interest, (ii) the named parties in any such Claim (including any impleaded parties) include both the Company and Indemnitee and Indemnitee concludes that there may be one or more legal defenses available to him or her that are different from or in addition to those available to the Company, or (iii) any such representation by such counsel would be precluded under the applicable standards of professional conduct then prevailing, then Indemnitee shall be entitled to retain separate counsel (but not more than one law firm plus, if applicable, local counsel in respect of any particular Claim) at the Company’s expense. The Company shall not be liable to Indemnitee under this Agreement for any amounts paid in settlement of any Claim relating to an Indemnifiable Event effected without the Company’s prior written consent. The Company shall not, without the prior written consent of the Indemnitee, effect any settlement of any Claim relating to an Indemnifiable Event which the Indemnitee is or could have been a party unless

8


 

such settlement solely involves the payment of money and includes a complete and unconditional release of Indemnitee from all liability on all claims that are the subject matter of such Claim. Neither the Company nor Indemnitee shall unreasonably withhold, condition or delay its or his or her consent to any proposed settlement; provided that Indemnitee may withhold consent to any settlement that does not provide a complete and unconditional release of Indemnitee. In no event shall Indemnitee be required to waive, prejudice or limit attorney-client privilege or work-product protection or other applicable privilege or protection.
     17.  No Adverse Settlement . The Company shall not seek, nor shall it agree to, consent to, support, or agree not to contest any settlement or other resolution of any Claim(s), or settlement or other resolution of any other claim, action, proceeding, demand, investigation or other matter that has the actual or purported effect of extinguishing, limiting or impairing Indemnitee’s rights hereunder, including without limitation the entry of any bar order or other order, decree or stipulation, pursuant to 15 U.S.C. § 78u-4 (the Private Securities Litigation Reform Act), or any similar foreign, federal or state statute, regulation, rule or law.
     18.  Binding Effect, Etc . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee and his or her counsel, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as an officer and/or director of the Company or of any other entity or enterprise at the Company’s request.
     19.  Security . To the extent requested by Indemnitee and approved by the Board of Directors, the Company may at any time and from time to time provide security to Indemnitee for the obligations of the Company hereunder through an irrevocable bank line of credit, funded trust or other collateral or by other means. Any such security, once provided to Indemnitee, may not be revoked or released without the prior written consent of such Indemnitee.
     20.  Severability . If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever, (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and (b) to the fullest extent possible, the provisions of this Agreement (including, without limitation, all portions of any paragraph of this Agreement containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable and to give effect to the terms of this Agreement.

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     21.  Specific Performance, Etc . The parties recognize that if any provision of this Agreement is violated by the Company, Indemnitee may be without an adequate remedy at law. Accordingly, in the event of any such violation, Indemnitee shall be entitled, if Indemnitee so elects, to institute proceedings, either in law or at equity, to obtain damages, to enforce specific performance, to enjoin such violation, or to obtain any relief or any combination of the foregoing as Indemnitee may elect to pursue.
     22.  Notices . All notices, requests, consents and other communications hereunder to any party shall be deemed to be sufficient if contained in a written document delivered in person or sent by facsimile, nationally recognized overnight courier or personal delivery, addressed to such party at the address set forth below or such other address as may hereafter be designated on the signature pages of this Agreement or in writing by such party to the other parties:
  (a)   If to the Company, to:
Nationstar Mortgage Holding Inc.
350 Highland Drive
Lewisville, Texas 75067
Fax: (469) 549-2085
Attn: General Counsel
with a copy (which shall not constitute notice) to:
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
Fax: (212) 225-3999
Attn: Duane McLaughlin, Esq.
  (b)   If to the Indemnitee, to the address set forth on the signature page hereto.
All such notices, requests, consents and other communications shall be deemed to have been given or made if and when received (including by overnight courier) by the parties at the above addresses or sent by electronic transmission, with confirmation received, to the facsimile numbers specified above (or at such other address or facsimile number for a party as shall be specified by like notice). Any notice delivered by any party hereto to any other party hereto shall also be delivered to each other party hereto simultaneously with delivery to the first party receiving such notice.
     23.  Counterparts . This Agreement may be executed in counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
     24.  Headings . The headings of the sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction or interpretation thereof.

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     25.  Governing Law . This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed in such state without giving effect to the principles of conflicts of laws.
[ Signature page follows ]

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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
NATIONSTAR MORTGAGE HOLDING INC.
         
By:
       
 
 
 
Name:
   
 
  Title:    
             
By:
           
 
 
 
Name:
       
 
  Title:        
             
 
  Address:        
 
     
 
   
 
           
 
     
 
   
 
           
 
     
 
   
 
           
 
     
 
   
 
           
 
  Facsimile:        
 
     
 
   
[SIGNATURE PAGE TO INDEMNIFICATION AGREEMENT]

12

Exhibit 10.53
LEASE AGREEMENT
BETWEEN
CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P.,
AS LANDLORD
AND
CENTEX HOME EQUITY COMPANY, LLC,
AS TENANT
MAY 20, 2003
LEWISVILLE OFFICE II
LEWISVILLE, TEXAS

 


 

TABLE OF CONTENTS
         
SECTION 1 — DEFINITIONS
    1  
1.1 Definitions
    1  
SECTION 2 — PREMISES
    4  
2.1 Lease Grant
    4  
2.2 Initial Improvements
    4  
2.3 WAIVER OF WARRANTIES: ACCEPTANCE OF CONDITION
    4  
SECTION 3 — LEASE TERM
    4  
3.1 Lease Term
    4  
3.2 Confirmation of Commencement Date
    5  
3.3 Delay in Commencement Date
    5  
3.4 Holding Over
    5  
3.5 Renewal Option
    5  
SECTION 4 — RENT
    5  
4.1 Payment of Rent
    5  
4.2 Basic Operating Costs
    6  
4.3 Other Amounts Owing to Landlord
    9  
4.4 Late Payments; Dishonored Checks
    9  
4.5 Net Lease
    9  
SECTION 5 — CREDIT ENHANCEMENT
    10  
SECTION 6 — LEGAL AND CONTRACTUAL LIMITATIONS ON USE OF PREMISES
    10  
6.1 Use
    10  
6.2 Compliance with Laws Generally
    10  
6.3 Compliance with Accessibility Laws
    10  
6.4 Building Rules and Regulations
    10  
6.5 Quiet Enjoyment
    10  
SECTION 7 — OPERATIONAL MATTERS
    11  
7.1 Services to the Premises
    11  
7.2 Parking
    11  
7.3 Graphics; Signage
    11  
7.4 Repairs and Maintenance by Landlord
    12  
7.5 Maintenance by Tenant
    12  
7.6 Repairs and Replacements by Tenant
    12  

- i -


 

TABLE OF CONTENTS
(continued)
         
    Page No.  
7.7 Alterations, Improvements
    12  
7.8 Telecommunications
    14  
7.9 Change of Building Name
    14  
7.10 Entry by Landlord
    14  
SECTION 8 — TRANSFER OF LEASEHOLD RIGHTS
    14  
8.1 Transfers by Tenant
    14  
8.2 Affiliate Transfers
    15  
8.3 Transfer Requirements
    15  
8.4 Transfers by Landlord
    16  
SECTION 9 — INSURANCE; CASUALTY; ALLOCATION OF LIABILITY
    16  
9.1 Property Insurance
    16  
9.2 Liability Insurance
    17  
9.3 Casualty Damage
    17  
9.4 INDEMNITY BY TENANT
    18  
9.5 INDEMNITY BY LANDLORD
    19  
9.6 Waiver of Claims and Subrogation Rights
    19  
9.7 Damages from Certain Causes
    20  
SECTION 10 — CONDEMNATION
    20  
10.1 Condemnation
    20  
10.2 Condemnation Award
    21  
SECTION 11 — TITLE ENCUMBRANCES
    21  
11.1 Subordination to Mortgage
    21  
11.2 Mechanic’s Liens
    21  
11.3 Access and Signage Easements
    22  
SECTION 12 — DEFAULT; DISPUTES; REMEDIES
    22  
12.1 Default by Tenant
    22  
12.2 Landlord’s Remedies
    22  
12.3 Default by Landlord
    24  
12.4 Limitation on Landlord’s Liability
    24  
12.5 Attorney’s Fees
    24  

- ii -


 

TABLE OF CONTENTS
(continued)
         
    Page No.  
SECTION 13 — MISCELLANEOUS
    25  
13.1 Notices
    25  
13.2 Estoppel Agreements
    25  
13.3 No Implied Waiver
    25  
13.4 Independent Obligations
    25  
13.5 Severability
    25  
13.6 Recording
    25  
13.7 Governing Law
    26  
13.8 Force Majeure
    26  
13.9 Time of Performance
    26  
13.10 Commissions
    26  
13.11 Merger of Estates
    26  
13.12 Survival of Indemnities and Covenants
    26  
13.13 Headings
    26  
13.14 Entire Agreement
    26  
13.15 Amendment
    27  
13.16 Joint and Several Liability
    27  
13.17 Multiple Counterparts
    27  
13.18 Effect of Delivery of This Lease
    27  

- iii -


 

LEASE AGREEMENT
     THIS LEASE AGREEMENT (“ Lease ”) is executed effective as of May 20, 2003 (the “ Effective Date ”), between CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P., a Delaware limited partnership (“ Landlord ”) , and CENTEX HOME EQUITY COMPANY, LLC, a Delaware limited liability company (“ Tenant ”).
SECTION 1 — DEFINITIONS
     1.1 Definitions . As used in this Lease, the following terms have the meanings set forth below:
          “ Base Rent ” means the following:
                         
    Base Rent per Square        
    Foot of Area in the        
    Building   Anticipated Base   Anticipated Base
Lease Year   (per Year)   Rent per Lease Year   Rent Per Month
1
  $ 13.00     $ 2,080,000.00     $ 173,333.33  
2
  $ 13.26     $ 2,121,600.00     $ 176,800.00  
3
  $ 13.53     $ 2,164,032.00     $ 180,336.00  
4
  $ 13.80     $ 2,207,312.00     $ 183,943.00  
5
  $ 14.07     $ 2,251,459.00     $ 187,621.58  
6
  $ 14.35     $ 2,296,488.00     $ 191,374.00  
7
  $ 14.64     $ 2,342,418.00     $ 195,201.50  
8
  $ 14.93     $ 2,389,266.00     $ 199,105.50  
9
  $ 15.23     $ 2,437,052,00     $ 203,087.67  
10
  $ 15.54     $ 2,485,792.00     $ 207,149.33  
          The “Base Rent per Square Foot of Area” and “Base Rent per Lease Year” amounts set forth above reflect a 2% compounded annual increase during each year of the Lease Term. Such amounts are subject to adjustment pursuant to the terms of the Improvements Agreement. Landlord and Tenant anticipate that the Building will contain 160,000 square feet of area but agree to confirm the exact square footage in the Acceptance of Premises Memorandum. The annual and monthly amounts set forth above are based on the anticipated square footage, but all computations of Base Rent will be based on the number set forth in the Acceptance of Premises Memorandum.
          “ Basic Operating Costs ” has the meaning given to such term in Section 4.2 .
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          “ Building ” means the office building to be constructed upon the Property.
          “ Commencement Date ” means the earlier of (i) the date that Tenant factually occupies the Premises for the conduct of its business, or (ii) the date on which the Premises is Ready For Occupancy.
          “ Default Rate ” means the lesser of (i) the rate of 18% per year, or (ii) the maximum rate of interest then permissible for a commercial loan to Tenant in the State.
          “ Improvements Agreement ” means the Improvements Agreement attached to this Lease as Exhibit “D” .
          “ Initial Improvements ” has the meaning given to such term in the Improvements Agreement.
          “ Landlord-Related Party ” means any officer, director, partner, employee, agent or contractor of Landlord.
          “ Lease Term ” means the period that begins on the Commencement Date and ends on the last day of the 120th full calendar month after the Commencement Date.
          “ Lease Year ” means a period of 12 consecutive calendar months. If the Commencement Date does not occur on the first day of a month, the first Lease Year will begin on the first day of the month following the Commencement Date.
          “ Market Area ” means the office market of the Vista Ridge Business Park.
          “ Notice Address ” means:
     
With respect to Landlord:   With a copy to:
 
Centex Office Vista Ridge
  Centex Office Vista Ridge Lewisville II, L.P.
Lewisville II, L.P.
  c/o Centex Development Company
c/o Centex Development Company
  2728 North Harwood
2728 North Harwood
  Dallas, Texas 75201
Dallas, Texas 75201
  Attn: General Counsel
Attn: Project Manager (Dallas)
  Tel: 214.981.6944
Tel: 214.981.6709
  Fax: 214.981.6180
Fax: 214.981.6888
   
     
With respect to Tenant:   With a copy to:
 
Centex Home Equity Company, LLC
  Centex Home Equity Company, LLC
2828 North Harwood
  2828 North Harwood
Dallas, Texas 75201
  Dallas, Texas 75201
Attn: Bob Bottorff
  Attn: General Counsel
Tel: 214.758.7697
  Tel: 214.758.7045
Fax: 214.758.7875
  Fax: 214.758.7868
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          “ Parking Areas ” means those areas located upon the Property designated by Landlord, from time to time, to be parking areas.
          “ Premises ” means the Property and all improvements constructed thereon, including the Building and the Parking Areas, as shown on the site plan attached to this Lease as Exhibit “B” .
          “ Property ” means the land described in Exhibit “A” attached hereto, subject to modification in accordance with Section 2.1 .
          “ Punchlist Items ” means touch-up, minor finish, mechanical adjustment, or similar work to be performed as a part of completing the Initial Improvements that does not unreasonably interfere with the conduct of Tenant’s business at the Premises.
          “ Ready For Occupancy ” means the Initial Improvements are Substantially Complete and all actions required to be taken by Landlord in order to obtain a temporary or final certificate of occupancy have been performed.
          “Rent” means, collectively, the Base Rent, the Basic Operating Costs, any amounts to be paid by Tenant pursuant to the Improvements Agreement, and all other sums of money becoming due and payable to Landlord under this Lease.
          “ Rules and Regulations ” means the rules and regulations for the Premises set forth on Exhibit “C” attached hereto, and any reasonable, non-discriminatory rules and regulations that may be adopted or altered by Landlord in accordance with this Lease.
          “ State ” means the State of Texas,
          “ Substantially Complete ” means that the Initial Improvements have been completed substantially in accordance with the Plans and Specifications (as defined in the Improvements Agreement), excluding Punchlist Items.
          “ Taxes ” means all taxes, assessments and governmental charges, whether federal, state, county or municipal, and whether they be by taxing districts or authorities presently taxing the Premises or by others, subsequently created or otherwise and any other taxes, association dues and assessments attributable to the Premises or its operation. The term “Taxes ” does not include, federal and state income taxes, franchise taxes, inheritance, estate, gift, corporation, net profits or any similar tax for which Landlord becomes liable and/or which may be imposed upon or assessed against Landlord. If, at any time during the Lease Term, the present method of taxation is changed so that in lieu of the whole or any part of any taxes, assessments or governmental charges levied, assessed or imposed on the Premises, there is levied, assessed or imposed on Landlord a capital levy or other tax directly on the Rent, or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon the Rent, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, will be included with the term “ Taxes ”.
          “ Tenant-Related Party ” means any officer, director, partner, employee, agent or contractor of Tenant.
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SECTION 2 — PREMISES
     2.1 Lease Grant . Landlord leases to Tenant, and Tenant leases from Landlord, the Premises, subject to all of the terms and conditions of this Lease. Landlord retains the right to grant easements and similar rights over and upon the Premises so long as Landlord’s exercise of such right does not adversely affect Tenant’s rights hereunder in any material respect. Landlord reserves the right to replat the Property prior to the Commencement Date and in such event, the definition of “Property” in this Lease will be modified automatically so long as the general size and configuration of the Property do not change in any material respect.
     2.2 Initial Improvements . Landlord agrees to construct the Initial Improvements in accordance with all applicable laws and the terms of the Improvements Agreement.
     2.3 WAIVER OF WARRANTIES: ACCEPTANCE OF CONDITION .
          (a) TENANT ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS LEASE (INCLUDING THE IMPROVEMENTS AGREEMENT), NEITHER LANDLORD NOR ANY LANDLORD-RELATED PARTY HAS MADE ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE HABITABILITY, MERCHANTABILITY, SUITABILITY, QUALITY, CONDITION OR FITNESS FOR ANY PARTICULAR PURPOSE (COLLECTIVELY, THE “ DISCLAIMED WARRANTIES ”) WITH REGARD TO THE PREMISES. TENANT HEREBY WAIVES, TO THE EXTENT PERMITTED BY LAW, THE DISCLAIMED WARRANTIES WITH REGARD TO THE PREMISES.
          (b) Tenant’s taking possession of the Premises will be conclusive evidence that (i) Tenant has inspected (or has caused to be inspected) the Premises, (ii) Tenant accepts the Premises as being in good and satisfactory condition and suitable for Tenant’s purposes, and (iii) the Premises fully complies with Landlord’s covenants and obligations hereunder.
          (c) Notwithstanding the foregoing, Tenant does not waive the right to cause Landlord to (i) correct any defective work covered by any warranty in the Improvements Agreement, (ii) complete any Punchlist Items in accordance with the terms of the Improvements Agreement, or (iii) correct any “latent defects” (i.e., defects not reasonably discoverable during a thorough investigation of the Premises) in or affecting the Premises. If Tenant does not give Landlord written notice within 9 months following the Commencement Date regarding alleged defects in the performance of the work under the Improvements Agreement, such failure will constitute a waiver of any further claims of Tenant regarding such defects. However, nothing contained in this Section 2.3(e) limits the right of Tenant to enforce the repair and maintenance obligations of Landlord under this Lease.
SECTION 3 — LEASE TERM
     3.1 Lease Term . This Lease will continue in force during a period beginning on the Effective Date of this Lease and ending on the expiration of the Lease Term, unless this Lease is terminated early or extended to a later date pursuant to the terms of this Lease. The Lease Term will commence and Rent will accrue beginning on the Commencement Date.
LEASE AGREEMENT — Page 4

 


 

     3.2 Confirmation of Commencement Date . On or about the Commencement Date, Landlord and Tenant will execute a Memorandum Regarding Acceptance of Premises in the form of Exhibit “F” attached hereto confirming the Commencement Date and the acceptance of the Premises by Tenant (subject to the completion of any remaining Punchlist Items).
     3.3 Delay in Commencement Date . Subject to the limitations set forth herein, Landlord agrees to make the Premises Ready For Occupancy on or before the later of (i) the date which is 240 days after the date on which Landlord receives all permits and approvals required for the construction of the Shell Work (as defined in the Improvements Agreement), or (ii) the date which is 60 days after the date on which Landlord receives all permits and approvals required for the construction of the Finish Work (as defined in the Improvements Agreement). If the Commencement Date is delayed due to a Tenant Delay (as defined in the Improvements Agreement), the obligations of Tenant under this Lease (including, without limitation, the obligation to pay Rent) will commence as of the date that the Commencement Date would have occurred but for the Tenant Delay. If, however, the Commencement Date is delayed due to any reason other than a Tenant Delay (subject to Section 13.8 hereof), then, as Tenant’s sole remedy for the delay in Tenant’s occupancy of the Premises, Tenant will be entitled to deduct from future installments of Base Rent an amount equal to $750.00 for each day of delay (up to a maximum of $45,000.00). The foregoing amounts have been agreed to by Landlord and Tenant as liquidated damages, the precise amount of such damage not being susceptible to exact proof.
     3.4 Holding Over . If Tenant continues to occupy the Premises after the expiration of the Lease Term without the prior written consent of Landlord, such occupancy will be a tenancy at sufferance under all of the terms, covenants and conditions of this Lease, but the Base Rent will increase to a daily Base Rent equal to the number determined by multiplying the Base Rent for the final mouth of the tease Term by 150%, and then dividing by 30. Tenant will also pay any and all costs, expenses or damages sustained by Landlord as a result of such holdover.
     3.5 Renewal Option . Landlord grants to Tenant the right to renew the Lease Term in accordance with the provisions set out in Exhibit “G” attached hereto and made a part hereof for all purposes.
SECTION 4 — RENT
     4.1 Payment of Rent.
          (a) Except as otherwise expressly provided in this Lease, Tenant must pay Rent to Landlord in advance in monthly installments on the first day of each calendar month during the Lease Term, at Landlord’s Notice Address or to such other person or at such other address as Landlord may from time to time designate in writing.
          (b) Landlord may, at its option, bill Tenant for Rent, but no delay or failure by Landlord in providing such a bill will relieve Tenant from the obligation to pay the Rent on the first day of each month as provided herein. Rent must be paid without notice, demand, abatement, deduction or offset, except as otherwise expressly provided in this Lease.
          (c) If the Lease Term commences on a day other than the first day of a calendar month, then the Base Rent for such partial month will be prorated and paid at the rental
LEASE AGREEMENT — Page 5

 


 

rate applicable during the first full month of the Lease Term. Tenant must pay the Base Rent due for the first full month of the Lease Term when Tenant delivers to Landlord an executed copy of this Lease.
     4.2 Basic Operating Costs .
          (a) Prior to the commencement of each calendar year during the Lease Term (not including the calendar year in which the Lease Term commences), Landlord may, at its option, provide Tenant with a then-current estimate of Basic Operating Costs for the upcoming calendar year. Tenant must pay, as additional rental, in monthly installments in accordance with Section 4.1 , the reasonably estimated Basic Operating Costs for the calendar year in question. The failure of Landlord to estimate Basic Operating Costs and bill Tenant on a monthly basis will not relieve Tenant of its obligation to pay Basic Operating Costs. If any Basic Operating Costs arise for which Landlord requests reimbursement, Tenant will be responsible for such amount in accordance with Section 4.3 .
          (b) By April 1 of each calendar year during Tenant’s occupancy (including the calendar year following the year in which the Lease Term is terminated), or as soon thereafter as possible, Landlord will furnish to Tenant a statement of Basic Operating Costs (the “ Statement ”). Landlord and Tenant will determine whether there is any difference between the amount, if any, collected by Landlord from Tenant for the estimated Basic Operating Costs and the actual amount of Basic Operating Costs. If there is an underpayment, Tenant must pay the amount of such underpayment to Landlord within 30 days following delivery of the Statement. If there has been an overpayment by Tenant, Landlord will, at Tenants option, either refund such overpayment to Tenant in cash or credit such overpayment against Rent next coming due under the Lease. At the end of the Lease Term, if no Event of Default exists, Landlord will refund any overpayment to Tenant in cash. If the Lease Term commences or ends at any time other than the first day of a calendar year, Basic Operating Costs will be prorated for such calendar year according to the number of days of the Lease Term in such calendar year.
          (c) If there exists any dispute as to the calculation of Basic Operating Costs (a “ Dispute ”), the events, errors, acts or omissions giving rise to the Dispute will not constitute a breach or default by Landlord nor shall Landlord be liable to Tenant, except as specifically provided below. If there is a Dispute, Tenant must notify Landlord in writing within 60 days after receipt of the Statement, specifying the items in Dispute. Notwithstanding the existence of a Dispute, Tenant must timely pay the amount in dispute as and when required under this Lease, but payment will be without prejudice to Tenant’s position. Upon receipt of the payment, Landlord will give Tenant such supplementary information regarding the items in Dispute as may be reasonably requested by Tenant in an effort to resolve such Dispute. If Landlord and Tenant are unable to resolve the Dispute, the Dispute will be referred to a mutually satisfactory third party certified public accountant for final resolution, although Tenant will retain the audit rights contained in Section 4.2(d) . The cost of the certified public accountant will be paid by the party found to be least accurate (in terms of dollars in dispute). The decision of the certified public accountant will be final and binding. Final settlement must be made within 30 days after receipt of such accountant’s decision. If a Dispute is resolved in favor of Tenant, Landlord must pay to Tenant the amount of the overpayment plus interest thereon from the time of such overpayment at the Default Rate. If Tenant fails to dispute the calculation of Basic Operating
LEASE AGREEMENT — Page 6

 


 

Costs in accordance with the procedures and within the time periods specified in this Section 4.2(c) , or if Tenant fails to request an audit of Basic Operating Costs in accordance with the procedures and within the time periods specified in Section 4.2(d) , the Statement will be considered final and binding for the calendar year in question.
          (d) Tenant, at Tenant’s expense, will have the right, no more frequently than once per calendar year, following 30 days’ prior written notice (such written notice to be given within 60 days following Tenant’s receipt of the Statement) to Landlord, to audit Landlord’s books and records relating to Basic Operating Costs for the immediately preceding calendar year only. Tenant’s right to audit Landlord’s books and records is subject to the following conditions:
               (1) Basic Operating Costs for the calendar year in question must have increased by more than 3% over Basic Operating Costs for the immediately preceding calendar year.
               (2) Tenant must conduct the audit in a manner that will not unreasonably interfere with the conduct of Landlord’s business.
               (3) Tenant must conduct the audit during normal business hours and at the location where Landlord maintains its books and records in either Dallas, Tarrant, Denton, or Collin County, Texas.
               (4) Tenant must deliver to Landlord a copy of the final results of such audit within 10 days after its receipt by Tenant.
               (5) No audit will be permitted if an Event of Default by Tenant (including any failure by Tenant to pay an amount in Dispute) has occurred and is continuing.
               (6) Tenant must reimburse Landlord for the cost of all copies requested by Tenant’s auditor.
               (7) The audit must be conducted by Tenant or an independent, nationally-recognized accounting firm or a local accounting firm reasonably acceptable to Landlord that is not being compensated by Tenant on a contingency fee basis. The auditor and Tenant must agree with Landlord in writing to keep the results of the audit confidential by executing and delivering to Landlord a confidentiality agreement in a form acceptable to Landlord, in Landlord’s reasonable discretion. Such confidentiality agreement must not prevent disclosure (i) in the case of litigation or alternative dispute resolution proceedings between Landlord and Tenant, or (ii) if Tenant is otherwise obligated to disclose such information under applicable laws or judicial order.
               (8) No subtenant will have the right to audit Landlord.
               (9) Tenant and its permitted assignees will be permitted only a total of 1 audit per calendar year.
               (10) Provided Landlord timely provides access to Landlord’s books and records, Tenant must conclude the audit within 90 days after Tenant’s receipt of the Statement.
LEASE AGREEMENT — Page 7

 


 

               (11) Any assignee’s audit right will be limited to the period after the effective date of the assignment.
Unless Landlord in good faith disputes the results of the audit, an appropriate adjustment will be made between Landlord and Tenant to reflect any overpayment or underpayment of Basic Operating Costs within 30 days after delivery of such audit to Landlord, in the manner described in Section 4.2(b) . If Landlord in good faith disputes the results of any such audit, the parties will in good faith attempt to resolve any disputed items. If Landlord and Tenant are able to resolve such dispute, final settlement will be made within 30 days after resolution of the dispute. If the parties are unable to resolve any such dispute, either Landlord or Tenant may trigger the Dispute mechanism described in Section 4.2(c) . If the audit conducted by Tenant correctly discloses that Tenant’s Share of Basic Operating Costs has been overstated by more than 5%, then within 30 days after receipt of an invoice from Tenant, Landlord must reimburse Tenant for the reasonable cost of performing such audit together with interest on any overpayment from the time of such overpayment at the Default Rate.
     (e) “ Basic Operating Costs ” means all costs and expenses incurred by Landlord in each calendar year of operating, maintaining, managing, repairing, managing and, except to the extent otherwise expressly provided herein, owning the Premises. “ Basic Operating Costs ” may include, without limitation, the cost of utilities attributable to the Premises, insurance, Taxes, water service and sewer charges, interior and exterior maintenance, property owners’ association dues and assessments, property management fees, parking lot maintenance, and any and all sales, use or other taxes with respect to the foregoing charged by 1 a more applicable authorities.
     (f) “ Basic Operating Costs ” will not include any expenses or costs for the following items:
               (1) Depreciation or amortization of the Building or its contents or components;
               (2) Expenses for the preparation of space (including tenant finish out costs) or other similar type work which Landlord performs for any tenant or prospective tenant of the Building;
               (3) Expenses incurred in leasing or obtaining new tenants or retaining existing tenants, such as marketing costs and leasing commissions;
               (4) Legal expenses;
               (5) Interest, amortization or other costs associated with any mortgage, loan or refinancing of the Premises;
               (6) Any ground rent incurred for the Premises;
               (7) Any building or property management fees in excess of 2% of Rent (provided that this limitation will apply only to the extent this Lease continues to cover the entire Premises); or
LEASE AGREEMENT — Page 8

 


 

               (8) Any expenses paid directly by Tenant or any expenses for which Landlord is reimbursed or which Landlord recovers (through insurance or otherwise) from a third party.
     4.3 Other Amounts Owing to Landlord . If Landlord incurs any expenses on behalf of Tenant or is otherwise due reimbursement from Tenant under this Lease, such amounts will be additional Rent. Tenant must pay the amounts owing within 30 days after its receipt of an invoice from Landlord.
     4.4 Late Payments; Dishonored Checks .
          (a) If Landlord does not receive any installment of Rent within 5 days after the date due, Tenant, to the extent permitted by law, must pay, in addition to the installment of Rent, a late payment charge equal to 5% of the installment of Rent past due. The late payment charge will increase to 10% of the installment of Rent past due if Tenant becomes responsible for a late payment charge more than twice during any consecutive 12-month period. The late payment charge will revert to 5% after Tenant has paid Rent for 12 consecutive months without incurring a late payment charge. Because the additional costs and expenses resulting to Landlord from late payments are difficult to ascertain precisely, this late payment charge constitutes a reasonable and good faith estimate by the parties of the extent of such additional costs and expenses.
          (b) In addition to the late payment charge contained in Section 4.4(a) , all Rent, if not paid within 30 days after the date due, will, at the option of Landlord, and to the extent permitted by law, bear interest from the date due until paid at the Default Rate.
          (c) Acceptance of a late payment charge by Landlord does not constitute a waiver of Tenant’s default with respect to the overdue amount, nor will it be construed as a waiver by Landlord of the requirement for timely payment nor create a course of dealing permitting such late payments. Any payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Rent due under this Lease will be deemed to be on account of the earliest Rent due hereunder. No endorsement or statement on any check or any letter accompanying any check or payment as Rent will be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy provided in this Lease.
     4.5 Net Lease . Except as otherwise provided in Section 7.4(a) , this Lease is intended to be a fully net lease, so that this Lease will yield, net to Landlord, the Rent specified in this Lease. In that regard, except as otherwise provided in Section 7.4(a) of this Lease, all Basic Operating Costs, utility charges, maintenance expenses, repair and replacement expenses; expenses relating to compliance with all applicable laws and all other costs, fees, charges, expenses, reimbursements and obligations of every kind and nature whatsoever relating to the Premises which may arise or become due during the Lease Term must be paid and discharged by Tenant.
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SECTION 5 — CREDIT ENHANCEMENT
     The obligations of Tenant under this Lease, financial and otherwise, will be guaranteed by Centex Financial Services, Inc., a Nevada corporation (“ Guarantor ”), pursuant to the terms of that certain Guaranty Agreement (the “ Guaranty ”) in the form attached hereto as Exhibit “E” . The Guaranty must be signed by Guarantor concurrently with the execution of this Lease.
SECTION 6 — LEGAL AND CONTRACTUAL LIMITATIONS ON USE OF PREMISES
     6.1 Use . The Premises must be used solely for general office purposes. The Premises may not be used for any other purpose.
     6.2 Compliance with Laws Generally .
          (a) Tenant, at Tenant’s sole cost and expense, must comply with all current and future federal, state, municipal and other laws and ordinances applicable to the use of the Premises permitted in Section 6.1 , the employees, agents, visitors and invitees of Tenant, and the business conducted in the Premises by Tenant, including, without limitation, all environmental laws and regulations.
          (b) Tenant may not place or permit to remain within the Premises any “ hazardous materials ” as such term is now or hereafter defined under applicable environmental laws. Tenant may store and use, however, cleaning supplies, copier toner or other similar type products commonly found in commercial office space, so long as such items are properly labeled, stored and disposed of in accordance with all applicable governmental requirements.
     6.3 Compliance with Accessibility Laws . Tenant, at its sole cost, is responsible for compliance with the Americans With Disabilities Act and comparable federal, state and local statutes or regulations relating to accessibility of facilities (the ‘Accessibility Laws ”) with respect to the Premises. Tenant will not be in default under this Section 6.3 for its failure to comply with Accessibility laws so long as Tenant is either contesting in good faith, and by legal means, the enforcement of Accessibility Laws, or is undertaking diligent efforts to comply with Accessibility Laws.
     6.4 Building Rules and Regulations . Landlord has the right to adopt and modify reasonable, non-discriminatory Rules and Regulations governing the use and occupancy of the Premises, but Landlord may not enforce against Tenant any modified Rules and Regulations which materially and adversely affect Tenant’s rights under this Lease or materially increase Tenant’s monetary obligations under this Lease. Tenant must comply with the Rules and Regulations and must cause all of its Tenant-Related Parties, contractors, invitees and visitors to do so as well. Landlord may change the Rules and Regulations from time to time, as Landlord reasonably deems necessary. Any changes to the Rules and Regulations will be effective when sent by Landlord to Tenant in writing. Landlord will have no liability to Tenant or any other person for its failure to enforce the Rules and Regulations, but Landlord agrees to enforce the Rules and Regulations on a nondiscriminatory basis.
     6.5 Quiet Enjoyment . Tenant, on paying all sums required under this Lease and performing and observing all of its covenants and agreements, may peaceably and quietly occupy
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and use the Premises during the Lease Term. Such occupancy and use is subject to the provisions of this Lease, all matters of record affecting the Premises and applicable governmental laws, rules, and regulations. Landlord warrants and forever defends Tenant’s right to such occupancy against the claims of any and all persons lawfully claiming the same or any part thereof, subject only to the provisions of this Lease, all matters of record affecting the Premises and all applicable governmental laws, rules, and regulations.
SECTION 7 — OPERATIONAL MATTERS
     7.1 Services to the Premises . Landlord is not required to furnish any utility services and Tenant must pay the appropriate utility provider directly for all water, gas, heat, light, power, telephone, sewer, fire sprinkler, lawn sprinkler charges and other utilities and similar services used on or from the Premises, together with any taxes, penalties, surcharges, or the like pertaining thereto and any maintenance charges required in connection with such utilities. If any services to the Premises are interrupted, Tenant will have no claim for rebate of Rent, damages (including damages for business interruption) or eviction on account thereof. In no event will Landlord be liable for any interruption or failure of utility services on the Premises.
     7.2 Parking .
          (a) Landlord is providing the Parking Areas for the non-exclusive and common use of Landlord, all tenants of the Building, and their respective employees, agents, subtenants, licensees, visitors, guests and invitees. Use of the Parking Areas is subject to availability, but Landlord must provide at least 1,170 parking spaces in the Parking Areas. If any parking spaces become unavailable to Tenant due to casualty damage, flooding, condemnation or repairs, Landlord will use reasonable efforts to provide Tenant with reasonably satisfactory alternative parking arrangements until the use of the parking spaces is restored. Tenant will have no right, however, to terminate this Lease by reason of the loss of any parking spaces.
          (b) Tenant, the Tenant-Related Parties, and Tenant’s contractors, licensees and invitees must comply with the Rules and Regulations regarding the Parking Areas. Landlord is entitled and authorized to place a wheel lock or other device restricting mobility of any vehicle violating the Rules and Regulations and to have the vehicle towed away, at the sole risk and expense of the vehicle owner. Landlord may, but is not obligated to, use such access devices as Landlord deems necessary to ensure that only authorized persons will use the Parking Areas.
     7.3 Graphics; Signage .
          (a) Tenant is required to obtain Landlord’s prior written approval for any signage to be located at the Premises (other than interior signage that is not visible from the exterior of the Building). All such signage is subject to any applicable governmental laws, ordinances, regulations, Landlord’s standard sign criteria, subdivision codes, covenants and restrictions. Tenant, at its sole cost and expense, must remove all signage upon the termination of this Lease and repair any damage caused by such removal, all to the reasonable satisfaction of Landlord.
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          (b) In addition to the interior signage described above, Landlord will allow Tenant to place a panel on any monument sign for the Building. Landlord makes no representation or warranty as to the availability of such signage and Tenant acknowledges that in all cases the signage will be subject to approval by Landlord (not to be unreasonably withheld) and the applicable governmental authorities prior to installation.
     7.4 Repairs and Maintenance by Landlord .
          (a) Landlord must maintain and keep in good repair, reasonable wear and tear excepted, the following at its sole cost and expense: the roof structure, the structural soundness of the exterior walls of the Building (not including windows, glass or plate glass, doors, special store fronts or office entries), exterior painting of the Building, and the foundation of the Building. All requests for repairs must be submitted to Landlord or its manager in writing, except in the case of an emergency. The cost of repairs and maintenance by Landlord pursuant to this Section 7.4(a) will be borne solely by Landlord and will not be included in Basic Operating Costs. If Tenant’s use of the Premises is materially impaired as a result of Landlord’s failure to perform any maintenance or repairs required by this Section 7.4(a) and such failure continues for 20 days after Tenant delivers written notice to Landlord specifying the required maintenance or repairs, then Tenant will be entitled to an equitable abatement of Base Rent during the period that Tenant’s use is so impaired.
          (b) Landlord also must maintain and keep in good repair, reasonable wear and tear excepted, those portions of the Premises not described in Section 7.4(a) . However, the cost of repairs and maintenance by Landlord pursuant to this Section 7.4(b) will be included in Basic Operating Costs. With Tenant’s prior approval (not to be unreasonably withheld), Landlord may engage a property manager to handle such responsibilities, in which case Tenant agrees to coordinate all requests with the property manager.
     7.5 Maintenance by Tenant . Tenant must cooperate with Landlord to maintain the Premises in a clean, orderly and sanitary condition. Tenant must not commit or allow any waste to be committed on any portion of the Premises. Tenant must provide regular janitorial service for the Premises if not included in the services provided by Landlord or its manager. At the expiration or early termination of this Lease, Tenant will deliver up the Premises to Landlord in as good condition as at the Commencement Date, ordinary wear and tear and damage by fire or casualty loss excepted.
     7.6 Repairs and Replacements by Tenant . Tenant will be responsible for the cost of repairing or replacing all items that are not the responsibility of Landlord under Section 7.4(a) , including any damage to the Premises, or any part thereof, caused by Tenant, any Tenant-Related Party or any subtenant, guest, licensee or invitee of Tenant.
     7.7 Alterations, Improvements .
          (a) Except as provided below, Tenant may make no alteration, change, improvement, replacement or addition to the Premises (collectively, “ Alterations ”) without the prior written consent of Landlord. Landlord may condition its consent on the requirement that Tenant remove any Alterations upon or prior to the expiration or termination of this Lease.
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Notwithstanding the foregoing, however, Landlord’s consent is not required for interior Alterations that cost less than $10,000 and that do not materially and adversely affect, in any way, the mechanical, electrical, plumbing, HVAC, structural or fire and life safety components of the Building (“ Non-Structural Alteration ”). Tenant agrees to notify Landlord prior to performing Non-Structural Alterations. Landlord may, at its option, require Tenant to submit plans and specifications to Landlord for approval prior to commencing any Alterations that are not Non-Structural Alterations. Landlord agrees to use reasonable efforts to review such plans and specifications and either approve or disapprove of the same within 10 days after receipt from Tenant. If Landlord has not approved of such plans and specifications within such 10-day period, then Tenant may send a second notice to Landlord requesting approval. If Landlord does not respond with approval or objections within the 5 days thereafter, then the plans and specifications will be deemed approved.
          (b) All Alterations must be done in a good and workmanlike manner and in compliance with all applicable laws and ordinances. All Alterations (other than Non-Structural Alterations) must be performed by a contractor reasonably acceptable to Landlord. Any contractors used by Tenant must carry a comprehensive liability (including builder’s risk) insurance policy in such amounts as Landlord may reasonably require and must provide proof of such insurance to Landlord prior to the commencement of any Alterations. Upon completion of any Alterations, Tenant must provide Landlord with a copy of its building permit, final inspection tag and, if plans and specifications were required by Landlord, final “as built” plans and specifications, together with evidence of the lien-free completion of such Alterations. All Alterations now or hereafter placed or constructed on the Premises at the request of Tenant will beat Tenant’s cost. If Landlord performs Alterations on Tenant’s behalf; Tenant must pay the cost of such Alterations (plus a construction management fee equal to 5% of hard costs).
          (c) Upon the expiration or early termination of this Lease, Tenant may remove its trade fixtures, office supplies and movable office furniture and equipment not attached to the Building provided (i) such removal is made prior to the expiration or within 5 days after the termination of the Lease Term; (ii) Tenant is not then in default in the timely performance of any obligation or covenant under this Lease; and (iii) Tenant promptly repairs all damage caused by such removal. All other property at the Premises, any Alterations to the Premises, and any other articles attached or affixed to the floor, wall, or ceiling of the Premises will, immediately upon installation, be deemed the property of Landlord and will be surrendered with the Premises at the termination or expiration of this Lease, without payment or compensation therefor. If, however, Landlord so requests in writing, Tenant must, at Tenant’s sole cost and expense, prior to the expiration or within 5 days after the termination of the Lease Term, remove any and all trade fixtures, office supplies and office furniture and equipment placed or installed by Tenant in the Premises, and any Alterations (other than the Initial Improvements) installed by Tenant or installed by Landlord at Tenant’s request if Landlord notified Tenant at the time it approved the plans and specifications that Landlord would require the removal of such Alterations upon the expiration or termination of this Lease. Tenant must repair any damage caused by such removal.
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     7.8 Telecommunications .
          (a) If Tenant desires to utilize the services of a telephone or telecommunications provider whose equipment is not servicing the Building as of the Effective Date (the “ Telecommunications Provider ”), Tenant must notify Landlord. The Telecommunications Provider must obtain the written consent of Landlord, which consent will not be unreasonably withheld, conditioned, or delayed, before installing its lines or equipment or otherwise providing service within the Building.
          (b) Landlord’s consent under this section will not be deemed any kind of warranty or representation by Landlord as to the suitability, competence, or financial strength of the Telecommunications Provider. All telephone and telecommunications services desired by Tenant will be ordered and utilized at the sole risk and expense of Tenant. Tenant agrees that if service by the Telecommunications Provider is interrupted, curtailed, or discontinued for any reason other than the negligence or misconduct of Landlord or a Landlord-Related Party, Landlord will have no obligation or liability with respect thereto and that Tenant will have the sole obligation to obtain substitute service at its expense.
     7.9 Change of Building Name . Landlord reserves the right at any time to change the name of the Building. Landlord will use reasonable efforts to give Tenant 30 days’ advance written notice of such change.
     7.10 Entry by Landlord . Tenant agrees that Landlord and its employees, agents, contractors or representatives may enter into and upon any part of the Premises at all reasonable hours upon reasonable prior notice (and in the case of emergencies at all times and without notice) to inspect the same, or to show the Premises to prospective purchasers, mortgagees, or insurers or, within the last 12 months of the Lease Term only, to prospective tenants, or to clean or make repairs, alterations or additions thereto. Tenant will not be entitled to any abatement or reduction of Rent by reason of any such entry. Landlord will use reasonable efforts to minimize any disruption to the conduct of Tenant’s business by reason of any such entry.
SECTION 8 — TRANSFER OF LEASEHOLD RIGHTS
     8.1 Transfers by Tenant.
          (a) Tenant may not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge or hypothecate its leasehold interest or grant any concession or license within the Premises (any such assignment, sublease, mortgage, pledge, hypothecation, or grant of a concession or license by Tenant is referred to in this Section 8 as a “ Transfer ”) without the prior written consent of Landlord, which consent will not be unreasonably withheld, conditioned, or delayed. Any attempt to effect a Transfer without the consent of Landlord will be void and of no effect.
          (b) To make a Transfer, Tenant must request in writing Landlord’s consent at least 30 days in advance of the date on which Tenant desires to make a Transfer and pay Landlord a $250.00 fee for reviewing the request plus the amount of any fee charged by Landlord’s lender in connection with the review of any proposed Transfer (the “ Review Fee ”). The request must include the name of the proposed assignee or sublessee, current financial
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information on the proposed assignee or sublessee, the terms of the proposed Transfer, and, if the Transfer is a sublease or assignment of only a portion of the Premises, information regarding access or construction issues that must be addressed to facilitate the Transfer. The request also must state that Landlord’s failure to respond within the designated period will result in a deemed approval of the Transfer. Landlord will, within 15 days following receipt of such request, notify Tenant in writing that Landlord elects (i) to permit Tenant to assign or sublet such space in accordance with the terms provided to Landlord, or (ii) to refuse consent to Tenant’s requested Transfer and to continue this Lease in full force and effect as to the entire Premises. If Landlord fails to notify Tenant in writing of such election within the 15-day period, Landlord will be deemed to have elected option (i) above.
          (c) The consent by Landlord to a particular Transfer will not be deemed a consent to any other subsequent Transfer. If this Lease, the Premises or the Tenant’s leasehold interest, or any portion of the foregoing, is transferred, or if the Premises are occupied in whole or in part by anyone other than Tenant without the prior consent of Landlord as provided herein, Landlord may collect rent from the transferee or other occupant and apply the net amount collected to the Rent payable hereunder. Such collection or application of rent by Landlord, however, will not be deemed a waiver of the provisions hereof or a release of Tenant from the further performance by Tenant of its covenants, duties and obligations hereunder.
     8.2 Affiliate Transfers . As used herein, the term “ Transfer ” includes any consolidation, reorganization, merger, sale of assets, sale of a controlling interest in stock, transfer by operation of law, or similar transaction. However, Tenant has the right, subject to Section 8.3 , without Landlord’s consent, to assign this Lease or sublet all or any portion of the Premises to any person or entity who controls, is controlled by, or is under common control with the original Tenant named in this Lease (an “ Affiliate Transfer ”). The term “ control ” means, with respect to a corporation, the right to exercise, directly or indirectly, more than 50% of the voting rights attributable to the shares of the controlled corporation, and, with respect to a person or entity that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled person or entity. Tenant must provide Landlord with written notice of any Affiliate Transfer within 10 days after the effective date of such the Affiliate Transfer.
     8.3 Transfer Requirements . The following requirements apply to all Transfers (including Affiliate Transfers):
          (a) Tenant must, in the case of an assignment, cause the assignee to expressly assume and agree to perform, all of the covenants, duties and obligations of Tenant under this Lease arising after the effective date of the assignment. The assignee will be jointly and severally liable under the Lease along with Tenant.
          (b) The use of the Premises by the assignee or transferee must be consistent with the terms of this Lease. All of the terms and provisions of this Lease will continue to apply after a Transfer.
          (c) Tenant will remain directly and primarily liable for the performance of all the covenants, duties and obligations of Tenant under this Lease (including, without limitation,
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the obligation to pay Rent). Landlord will be permitted to enforce the provisions of this Lease against the undersigned Tenant or any transferee, or both, without demand upon or proceeding in any way against any other persons.
     8.4 Transfers by Landlord . Landlord will have the right to transfer and assign, in whole or in part, all of its rights and obligations hereunder and in the Premises. Upon the assumption by the transferee of the obligations of Landlord hereunder, Landlord will be released from any further obligations accruing after the date of transfer, and Tenant will look solely to such successor-in-interest of Landlord for the performance of such obligations.
SECTION 9 — INSURANCE; CASUALTY; ALLOCATION OF LIABILITY
     9.1 Property Insurance.
          (a) Landlord must maintain an insurance policy or policies of “risks of direct physical loss” in a “special form” basis (or comparable coverage by whatever name denominated), if reasonably available, on the portion of the Premises that is the property of Landlord (including Alterations by Tenant that have become the property of Landlord), in an amount equal to not less than 90% of the replacement cost. Such insurance and any other insurance required by Landlord’s lender (including, without limitation, rent loss coverage and terrorism insurance) will be maintained at the expense of Landlord (as a part of the Basic Operating Costs), and payments for losses thereunder will be made solely to Landlord or to the mortgagees of Landlord as their interests may appear. If insurance premiums for the Premises increase due to: (i) any subsequent improvements made by Tenant to the Premises or made by Landlord at Tenant’s request, or (ii) as a result of Tenant’s use of the Premises, Landlord may elect to require Tenant to pay directly for the increased premiums rather than including such increased premiums in Basic Operating Costs. From time to time following Tenant’s written request (but not more than once annually), Landlord must provide to Tenant a current certificate of insurance evidencing Landlord’s compliance with this Section 9.1 .
          (b) Tenant must maintain an insurance policy or policies of “risks of direct physical loss” in a “special form” basis (or comparable coverage by whatever name denominated), if reasonably available, on all of its personal property, including removable trade fixtures, office supplies and movable office furniture and equipment, located on the Premises, in an amount equal to full replacement cost and endorsed to provide that Tenant’s insurance is primary in the event of any overlapping coverage with the insurance carried by Landlord. Such insurance will be maintained at the expense of Tenant and payment for losses thereunder will be made solely to Tenant or to the mortgagees of Tenant (if permitted hereunder) as their interests may appear. Tenant must, prior to occupancy of the Premises and at Landlord’s request from time to time (but not more than once annually), provide to Landlord a current certificate of insurance evidencing Tenant’s compliance with this Section 9.1 . Tenant must obtain the agreement of Tenant’s insurers to notify Landlord at least 30 days prior to any cancellation or expiration of a property insurance policy.
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     9.2 Liability Insurance .
          (a) Landlord must maintain a policy or policies of commercial general liability insurance covering the Premises on ISO Form CG 0001 or its equivalent, insuring against claims for personal or bodily injury or death or property damage (including contractual indemnity and liability coverage without contractual exclusion) occurring upon, in or about the Premises, with premiums thereon paid on or before the due date. The policy or policies must be issued and binding upon an insurance company licensed to do business in the State of Texas having an A.M. Best rating of “A-VIII” or better. Such insurance must provide coverage of not less than $2,000,000 per occurrence for bodily injury and property damage, $2,000,000 per occurrence for personal and advertising injury, $2,000,000 for general aggregate liability, and such other coverage as Landlord may deem appropriate. Such insurance must be maintained at the expense of Landlord (as a part of the Basic Operating Costs), and payments for losses thereunder will be made solely to Landlord or any additional insured, as appropriate. From time to time following Tenant’s written request (but not more than once annually), Landlord must provide to Tenant a certificate of insurance evidencing Landlord’s compliance with this Section 9.2 .
          (b) Tenant must maintain a policy or policies of commercial general liability insurance covering the Premises and Tenant’s use thereof on ISO Form CG 0001 or its equivalent, insuring against claims for personal or bodily injury or death or property damage (including contractual indemnity and liability coverage without contractual exclusion) occurring upon, in or about the Premises, with the premiums thereon fully paid on or before the due date. The policy or policies must be issued by and binding upon an insurance company licensed to do business in the State having an A.M. Best Rating of “A-VIII” or better. Such insurance must provide minimum protection of not less than $2,000,000 per occurrence of bodily injury and property damage, $2,000,000 per occurrence for personal and advertising injury, $2,000,000 for general aggregate liability. Tenant’s insurance must contain an endorsement that Tenant’s insurance is primary for claims arising out of an incident or event occurring within the Premises. Tenant’s insurance must contain a provision naming Landlord (and any mortgagee designated by Landlord) as an additional insured. Tenant must, prior to occupancy of the Premises and at Landlord’s request from time to time, provide Landlord with a current certificate of insurance evidencing Tenant’s compliance with this Section 9.2 . Tenant must obtain the agreement of Tenant’s insurers to notify Landlord at least 30 days prior to any cancellation or expiration of a liability insurance policy.
          (c) Tenant must also maintain worker’s compensation insurance coverage in accordance with applicable law.
          (d) The minimum coverage requirements set forth in this Section 9.2 will automatically increase by 15% at the beginning of every fifth Lease Year during the Lease Term.
     9.3 Casualty Damage .
          (a) If the Premises is damaged by fire or other casualty, Tenant must give prompt written notice to Landlord.
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     (b) Landlord may terminate the Lease due to a casualty if:
               (1) The Building is so damaged by fire or other casualty that substantial alteration or reconstruction of the Building will, in the judgment of an independent architect selected by Landlord, be required;
               (2) Any mortgagee under a first mortgage or first deed of trust covering the Building requires that the insurance proceeds payable as a result of the casualty be used to reduce or retire the mortgage debt;
               (3) The casualty is not insured under the insurance policy or policies of “risks of direct physical loss” required to be carried by Landlord pursuant to the terms of Section 9.1; or
               (4) Landlord reasonably determines that insurance proceeds will be insufficient to restore the Building.
          (c) If Landlord does not terminate this Lease, Landlord will, as soon as practicable, but no more than 90 days after the date of the casualty, commence to repair and restore the Building and will proceed with reasonable diligence to restore the Building to substantially its condition prior to the occurrence of the casualty. However, Landlord will not be required to rebuild, repair, or replace any part of Tenant’s removable furniture, fixtures and equipment or any Alterations to the Premises made by Tenant following the Commencement Date which were not approved by Landlord in writing. Furthermore, Landlord will not be required to spend for the restoration work an amount in excess of the insurance proceeds actually received by Landlord as a result of the casualty, plus any deductible amounts thereunder (but Landlord may choose, at its option, to provide the extra funds necessary to complete the restoration).
          (d) If Landlord does not either commence the repairs to the Building within the time required herein or complete the repairs to the Building within 270 days after the date of the casualty, Tenant may terminate the Lease by written notice to Landlord given no later than 30 days following the date on which Landlord was to commence or complete such repairs, as the case may be.
          (e) Landlord will not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from the casualty or its repair. However, Landlord will allow Tenant an equitable abatement of Rent during the time and to the extent the Premises are unfit for occupancy. But if the Premises is damaged by a casualty resulting from the intentional acts of Tenant or any Tenant Related Party, subtenant, or licensee of Tenant, Rent will not be abated during the repair of such damage.
     9.4 INDEMNITY BY TENANT . TENANT HEREBY INDEMNIFIES, DEFENDS AND HOLDS HARMLESS LANDLORD AND LANDLORD-RELATED PARTIES FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, DAMAGES, CLAIMS, SUITS, LOSSES, CAUSES OF ACTION, LIENS, JUDGMENTS AND EXPENSES (INCLUDING COURT COSTS, ATTORNEY’S FEES AND REASONABLE COSTS OF INVESTIGATION) OF ANY KIND, NATURE OR
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DESCRIPTION RESULTING FROM ANY INJURIES TO OR DEATH OF ANY PERSON OR ANY DAMAGE TO PROPERTY WHICH ARISES, OR IS CLAIMED TO ARISE FROM THE FOLLOWING (COLLECTIVELY, THE “ TENANT-RELATED CLAIMS ”): (1) AN INCIDENT OR EVENT WHICH OCCURRED WITHIN OR ON THE PREMISES; OR (2) THE BREACH OF THIS LEASE BY TENANT. SUCH INDEMNIFICATION WILL BE IN EFFECT EVEN IF THE TENANT-RELATED CLAIM IS THE RESULT OF OR CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF LANDLORD OR ANY LANDLORD-RELATED PARTY. The indemnity obligations of Tenant under this Section 9.4 will not apply to a Tenant-Related Claim arising out of the gross negligence or intentional misconduct of Landlord or any Landlord-Related Party.
     9.5 INDEMNITY BY LANDLORD . LANDLORD HEREBY INDEMNIFIES, DEFENDS AND HOLDS HARMLESS TENANT AND TENANT-RELATED PARTIES FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, DAMAGES, CLAIMS, SUITS, LOSSES, CAUSES OF ACTION, LIENS, JUDGMENTS AND EXPENSES (INCLUDING COURT COSTS, ATTORNEYS’ FEES AND REASONABLE COSTS OF INVESTIGATION) OF ANY KIND, NATURE OR DESCRIPTION RESULTING FROM ANY INJURIES TO OR DEATH OF ANY PERSON OR ANY DAMAGE TO PROPERTY WHICH ARISES, OR IS CLAIMED TO ARISE FROM THE FOLLOWING (COLLECTIVELY, THE “ LANDLORD-RELATED CLAIMS ”): (1) THE BREACH OF THIS LEASE BY LANDLORD; OR (2) THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR ANY LANDLORD-RELATED PARTY. SUCH INDEMNIFICATION WILL BE IN EFFECT EVEN IF THE LANDLORD-RELATED CLAIM IS THE RESULT OF OR CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF TENANT OR ANY TENANT-RELATED PARTY. The indemnity obligations of Landlord under this Section 9.5 will not apply to a Landlord-Related Claim arising out of the gross negligence or intentional misconduct of Tenant or any Tenant-Related Party. Furthermore, all claims against Landlord are limited by Section 12.4 ,
     9.6 Waiver of Claims and Subrogation Rights . So long as it is permissible to do so as under the laws and regulations governing the writing of insurance within the State, all insurance carried by either Landlord or Tenant will provide for a waiver of rights of subrogation against Landlord and Tenant on the part of the insurance carrier. Unless the waivers contemplated by this sentence are not obtainable for the reasons described in this Section 9.6 , Landlord waives any and all rights of recovery, claims, actions or causes of action against Tenant and the Tenant-Related Parties, and Tenant waives any and all rights of recovery, claims, actions or causes or action against Landlord and the Landlord-Related Parties, for any loss or damage to property or any injuries to or death of any person which is covered or would have been covered under the insurance policies required under this Lease. The foregoing release will not apply to losses or damages in excess of actual or required policy limits (whichever is greater) nor to any deductible (up to a maximum of $10,000) applicable under any policy obtained by the waiving party. The failure of either party (the “ Defaulting Party ”) to take out or maintain any insurance policy required under this Lease will be a defense to any claim asserted by the Defaulting Party against the other party hereto by reason of any loss sustained by the Defaulting Party that would have been covered by any such required policy. The waivers set forth in the immediately preceding sentence will be in addition to, and not in substitution for, any other waivers, indemnities, or exclusions of liabilities set forth in this Lease.
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     9.7 Damages from Certain Causes . Notwithstanding anything contained in this Lease to the contrary, and subject to the terms of Section 9.6 , neither Landlord nor any Landlord-Related Party will be liable for damages to Tenant or any party claiming through Tenant for any injury to or death of any person or damage to property or for interruption or damage to business resulting from (and Tenant, for itself and the Tenant-Related Parties, specifically waives and releases any claims it may have with respect to) any of the following:
          (a) any act, omission or negligence of any other tenant within the Building, or any of their respective employees, agents, contractors, tenants, assignees, licensees, invitees or customers;
          (b) vandalism, theft, burglary and other criminal acts (other than those committed by Landlord’s employees) in or about the Premises;
          (c) any defect in or failure of equipment, pipes, wiring, heating or air conditioning equipment, stairs, elevators, or sidewalks, the bursting of any pipes or the leaking, escaping or flowing of gas, water, steam, electricity, or oil, broken glass, or the backing up of any drains, except to the extent caused by the negligence or willful misconduct of Landlord or any Landlord-Related Party; or
          (d) injury done or occasioned by wind, snow, rain or ice, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition, order of any governmental body or authority.
Under no circumstances will Landlord be liable for damages related to business interruption or loss of profits absent the gross negligence or willful misconduct of Landlord. The provisions of this Section 9.7 will not limit the obligations of Landlord under this Lease or the rights of Tenant to seek enforcement of the terms of this Lease, so long as such enforcement by Tenant does not involve a claim for damages.
SECTION 10 — CONDEMNATION
     10.1 Condemnation . If the whole or substantially the whole of the Building, or the whole or such portion of the Building or the Parking Areas as will render the remainder unfit for Tenant’s use, is taken for any public or quasi-public use, by right of eminent domain or otherwise, or sold in lieu of condemnation, then either Landlord or Tenant may terminate this Lease within 30 days after the terminating party receives notice of such taking. The effective date of the termination will be the date when an enforceable order of condemnation is enforced or the effective date of a sale in lieu of condemnation. If this Lease is not terminated upon any such taking or sale, the Base Rent payable hereunder will be reduced by an amount representing that portion of Base Rent applicable to the portion of the Building subject to such taking or sale. Landlord will to the extent Landlord deems feasible, restore the Building to substantially its former condition. However, Landlord will not be required to rebuild, repair, or replace any Alterations to the Premises made by Tenant following the Commencement Date which were not approved by Landlord in writing. Furthermore, Landlord will not be required to spend for such work an amount in excess of the amount received by Landlord as compensation for such taking.
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     10.2 Condemnation Award . All amounts awarded upon a taking of any part or all of the Premises will belong to Landlord, and Tenant will not be entitled to and expressly waives all claims to any such compensation. Tenant may, however, make a separate claim upon the condemning authority for expenses related to relocation and for the unamortized cost of leasehold improvements paid for by Tenant.
SECTION 11 — TITLE ENCUMBRANCES
     11.1 Subordination to Mortgage .
          (a) This Lease will be subordinate to any mortgage, deed of trust or other lien now existing upon the Premises, and to any renewals, modifications, consolidations, refinancings, and extensions thereof. Upon Tenant’s receipt of a subordination, attornment, and nondisturbance agreement in form reasonably acceptable to Tenant, this Lease will be subordinate to any mortgage, deed of trust or other lien hereafter placed on the Premises, and to any renewals, modifications, consolidations, refinancings, and extensions thereof. Tenant agrees that any such mortgagee or deed of trust beneficiary will have the right at any time to subordinate such mortgage, deed of trust or other lien to this Lease on such terms and subject to such conditions as such mortgagee or deed of trust beneficiary may deem appropriate, in its discretion, provided such terms and conditions do not materially or adversely affect the rights or increase the monetary obligations of Tenant under this Lease. If any proceedings are brought for the foreclosure of, or in the event of the exercise of the power of sale under, any such mortgage, deed of trust or other lien, Tenant agrees, without further action hereunder, to attorn to the purchaser upon such foreclosure (or any deed in lieu of foreclosure) and recognize such purchaser as the Landlord under this Lease. Landlord is hereby irrevocably vested with full power and authority to subordinate this Lease to any mortgage, deed of trust or other lien now existing or hereafter placed upon the Premises. Tenant agrees to execute such instruments subordinating this Lease or attorning to the holder of any such liens as Landlord or its lender may reasonably request.
          (b) Upon Tenant’s written request, Landlord will use reasonable efforts to obtain from Landlord’s lender a subordination, non-disturbance and attornment agreement on such lender’s form and otherwise reasonably satisfactory to Landlord, Tenant and such lender. Tenant must pay all fees, costs and expenses incurred by Landlord in connection therewith (but no more than $1,500 per request).
     11.2 Mechanic’s Liens . Tenant may not permit any mechanic’s liens, materialmen’s liens or other liens to be placed upon the Premises for any work performed by or at the request of Tenant, or any assignee, sublessee or licensee of Tenant, unless such work was performed by Landlord. If any such lien is attached to the Premises and not discharged by payment, bonding or otherwise within 30 days after receipt of written notice from Landlord, then, in addition to any other right or remedy of Landlord, Landlord may, but is not obligated to, discharge the same. Any amount paid by Landlord for the aforesaid purpose will be paid by Tenant to Landlord on demand as additional Rent and will bear interest at the Default Rate from the date paid by Landlord until reimbursed by Tenant.
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     11.3 Access and Signage Easements . Tenant hereby consents to Landlord’s execution of the Access Easement attached hereto as Exhibit “H” and the Signage Easement attached hereto as Exhibit “I” . Tenant subordinates its interests under this Lease to the Access Easement and Signage Easement.
SECTION 12 — DEFAULT; DISPUTES; REMEDIES
     12.1 Default by Tenant . The following events will be deemed to be events of default by Tenant under this Lease (each an “ Event of Default ”):
          (a) Tenant fails to timely pay any Rent and such failure continues for a period of 10 days after written notice of such default has been delivered to Tenant (but if Landlord has given Tenant 2 such notices during any 12-month period, Landlord will not be required to give further notice; thereafter, the failure by Tenant to make any payment of Rent when due hereunder will be an Event of Default without notice or grace period); provided that if Tenant timely pays Rent during any consecutive 12-month period thereafter, the notice and opportunity to cure provision will be reinstated at the end of such 12-month period;
          (b) Tenant fails to comply with any terms, provisions or covenants of this Lease (other than a failure related to the non-payment of Rent), all of which terms, provisions and covenants will be deemed material, and such failure continues for a period of 30 days after written notice of such failure is delivered to Tenant, or if such failure cannot reasonably be cured within a 30-day period, Tenant fails to commence to cure such failure within such 30-day period and/or thereafter fails to prosecute the cure diligently and continuously or fails to complete the cure within 60 days after the date of Landlord’s notice of default;
          (c) Tenant takes any action to, or notifies Landlord that Tenant or any Guarantor intends to, file a petition under any section or chapter of the United States Bankruptcy Code, as amended from time to time, or under any similar law or statute of the United States or any state thereof; or a petition is filed against Tenant under any such statute and is not dismissed within 120 days thereafter;
          (d) A receiver or trustee is appointed for Tenant’s leasehold interest in the Premises or for all or a substantial part of the assets of Tenant or any Guarantor; or
          (e) Tenant refuses to take initial occupancy of the entire Premises.
     12.2 Landlord’s Remedies .
          (a) Upon the occurrence of any Event of Default, Landlord may, at its option and without further notice to Tenant and without judicial process, in addition to all other remedies given hereunder or by law or equity, do any 1 or more or the following: (i) terminate this Lease, in which event Tenant will immediately surrender possession of the Premises to Landlord; (ii) enter upon and take possession of the Premises and expel or remove Tenant therefrom, with or without having terminated this Lease; (iii) change or re-key all locks to entrances to the Premises, and Landlord will have no obligation to give Tenant a new key to the Premises until such Event of Default is cured; and (iv) remove from the Premises any furniture, fixtures, equipment or other personal property of Tenant, without liability for trespass or
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conversion, and store such items at the sole cost of Tenant and without liability to Tenant. Any of such furniture, fixtures, equipment or personal property not claimed within 30 days from the date of removal will be deemed abandoned.
          (b) Exercise by Landlord of any 1 or more remedies hereunder will not constitute forfeiture or an acceptance of surrender of the Premises by Tenant. Such surrender can be effected only by the written agreement of Landlord and Tenant.
          (c) If Landlord terminates this Lease by reason of an Event of Default, Tenant must pay to Landlord the sum of (i) the cost of recovering the Premises (including attorney’s fees and costs), (ii) the unpaid Rent and all other indebtedness accrued hereunder to the date of such termination, (iii)the amounts stated in Section 12.2(e), (iv) the total Rent which Landlord would have received under this Lease for the remainder of the Lease Term minus the Fair Market Rental Value (hereinafter defined) of the Premises for the same period, both discounted to present value at the Prime Rate (hereinafter defined) in effect upon the date of determination, and (v) any other damages or relief which Landlord may be entitled to at law or in equity. For the purposes of this section, “ Fair Market Rental Value ” will be the rental rate that would be received from a comparable tenant for a comparable lease for premises and other properties of equivalent quality, size, condition and location as the Premises, taking into account any free rent or other concessions that are generally prevailing in the marketplace at the time of Tenant’s default, market conditions and the period of time the Premises may reasonably be expected to remain vacant before Landlord is able to re-let the Premises to a suitable new tenant. For purposes of this section, “ Prime Rate ” will mean the per annum rate of interest announced or published from time to time by Bank of America, N.A., Dallas, Texas (or its successors or assigns) as its prime commercial lending rate.
          (d) If Landlord repossesses the Premises without terminating this Lease, then Tenant must pay to Landlord the sum of (i) the cost of recovering the Premises (including attorney’s fees and costs), (ii) the unpaid Rent and other indebtedness accrued to the date of such repossession, and (iii) the total Rent that Landlord would have received under this Lease for the remainder of the Lease Term minus any net sums thereafter received by Landlord through reletting the Premises during said period after deducting expenses incurred by Landlord in connection with such reletting for advertising costs, brokerage commissions, architectural fees, tenant improvement costs and allowances and any other allowances or concessions provided by Landlord (amortized pro rata over the term of such new lease). Re-entry by Landlord will not affect the obligations of Tenant for the unexpired Lease Term. Tenant will not be entitled to any excess of rent obtained by reletting over the Rent required to be paid by Tenant hereunder. Actions to collect amounts due by Tenant may be brought 1 or more times, without the necessity of Landlord’s waiting until the expiration of the Lease Term. In addition, Landlord may, at any time following repossession of the Premises without termination of the Lease, elect to terminate the Lease and pursue the remedies available to Landlord pursuant to Section 12.2(e) above in lieu of the remedies available to Landlord pursuant to this Section 12.2(d) .
          (e) If Landlord has terminated this Lease pursuant to Section 12.2(c) , Tenant must also pay to Landlord the unamortized portion (assuming level amortization at 12% interest over the Lease Term), calculated as of the date of termination, of all leasing commissions, tenant
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improvement costs and allowances, architectural costs and allowances any other allowances provided by Landlord and all other out-of-pocket costs of Landlord related to this Lease.
          (f) Upon termination of this Lease or repossession of the Premises due to the occurrence of an Event of Default, Landlord will use reasonable efforts to attempt to relet the Premises. Tenant acknowledges that Landlord may satisfy such obligation by listing the Premises with a reputable local brokerage company and that Landlord will have no obligation to expand or divide the Premises or lease the Premises if other space owned by Landlord in the Market Area is available for lease as well.
          (g) If Tenant fails to make any payment, perform any obligation, or cure any default hereunder within 10 days after receipt of written notice thereof (or such longer period of time that is expressly provided in this Lease), Landlord, without obligation to do so and without thereby waiving such failure or default, may make such payment, perform such obligation, and/or remedy such other default for the account of Tenant (and enter the Premises for such purpose). Tenant must pay all costs, expenses and disbursements (including attorneys’ fees) incurred by Landlord in taking such remedial action, plus, at the option of Landlord, interest thereon at the Default Rate.
     12.3 Default by Landlord . Landlord will be in default under this Lease if Landlord fails to perform any of its obligations hereunder and such failure continues for a period of 30 days after Tenant delivers written notice of such failure to Landlord. Tenant must also deliver written notice at such failure to the holder(s) of any indebtedness or other obligations secured by any mortgage or deed of trust affecting the Premises, of which Tenant has received notice. If such failure cannot reasonably be cured within the 30-day period, Landlord will not be in default hereunder as long as Landlord or such holder(s) commences the remedying of such failure within the 30-day period and diligently prosecutes the same to completion. Landlord will not be liable to Tenant for consequential, special or punitive damages by reason of a failure to perform (or a default) by Landlord under this Lease.
     12.4 Limitation on Landlord’s Liability . Tenant will be entitled to look solely to Landlord’s equity in the Premises for the recovery of any judgment against Landlord, and Landlord will not be personally liable for any deficiency with respect to the recovery of such judgment. This recourse limitation will not limit any right that Tenant might otherwise have to obtain specific performance of Landlord’s obligations under this Lease.
     12.5 Attorney’s Fees . If Landlord or Tenant employs an attorney to assert or defend any action arising out of the breach of any term, covenant or provision of this Lease, or to bring legal action for the unlawful detainer of the Premises, the prevailing party will be entitled to recover from the non-prevailing party reasonable attorney’s fees and costs of suit incurred in connection therewith. For purposes of this Section 12.5 , a party will be considered to be the “prevailing party” if (a) such party initiated the litigation and substantially obtained the relief which it sought (whether by judgment, voluntary agreement or action of the other party, trial, or alternative dispute resolution process), (b) such party did not initiate the litigation and either (i) received a judgment in its favor, or (ii) did not receive judgment in its favor, but the party receiving the judgment did not substantially obtain the relief which it sought, or (iii) the other
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party to the litigation withdrew its claim or action without having substantially received the relief which it was seeking.
SECTION 13 — MISCELLANEOUS
     13.1 Notices . Any notice under this Lease must be in writing and must be sent to the appropriate Notice Address by (a) personal delivery, (b) a recognized overnight courier, (c) United States mail, postage prepaid, certified mail, return receipt requested, or (d) facsimile with either electronic or telephonic verification of receipt, so long as the original of the facsimile notice is deposited in the United States mail within 3 days after the fax notice is sent. Notice by personal delivery or overnight courier will be effective upon receipt, notice by mail will be effective upon deposit in the United States mail in the manner above described and notice by facsimile will be effective upon electronic or telephonic verification of receipt. Any party may change its Notice Address by delivering appropriate written notice to the other party. The change in Notice Address will be effective 10 days after the date of the notice.
     13.2 Estoppel Agreements . Landlord and Tenant will, from time to time, within 10 days after written request by the other party, execute and deliver to such persons as the requesting party will designate, an estoppel agreement in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as so modified), stating the dates to which Rent and other charges payable under this Lease have been paid, stating that the requesting party is not in default hereunder (or if the party executing such estoppel alleges a default, stating the nature of such alleged default) and further stating such other matters as the requesting party will reasonably require.
     13.3 No Implied Waiver . The failure of either party to insist at any time upon the strict performance of any covenant or agreement in this Lease or to exercise any right, power or remedy contained in this Lease will not be construed as a waiver or a relinquishment thereof for the flame.
     13.4 Independent Obligations . The obligation of Tenant to pay Rent hereunder and the obligation of Tenant to perform Tenant’s other covenants and duties hereunder constitute independent, unconditional obligations to be performed at all times provided for hereunder and, except to the extent expressly provided in this Lease, are independent of the Landlord’s performance of Landlord’s duties and obligations hereunder.
     13.5 Severability . If any term or provision of this Lease, or the application thereof to any person or circumstance will, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, will not be affected thereby, and each term and provision of this Lease will be valid and enforced to the fullest extent permitted by law.
     13.6 Recording . Tenant agrees not to record this Lease or any memorandum of this Lease.
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     13.7 Governing Law . This Lease will be governed by the laws of the State. This Lease is performable in, and the exclusive venue for any action brought with respect hereto, will be in Dallas County in the State.
     13.8 Force Majeure . Whenever a period of time is herein prescribed for the taking of any action by Landlord or Tenant, the party responsible for taking such action will not be liable or responsible for any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions, or any other cause whatsoever (other than financial inability) beyond the control of the party responsible for taking such action. The period of time for taking action will be extended by the number of days of delay. However, the provisions of this Section 13.8 will never be construed as allowing an extension of time with respect to Tenant’s obligation to pay Rent when and as due under this Lease.
     13.9 Time of Performance . Except as otherwise expressly provided herein, time is of the essence under this Lease.
     13.10 Commissions . Landlord and Tenant represent to one another that no broker is involved in the procurement, negotiation or execution of this Lease. Landlord and Tenant hereby agree to defend, indemnify and hold each other harmless against any loss, claim, expense or liability with respect to any commissions or brokerage fees claimed on account of the execution and/or renewal of this Lease or the expansion of the Premises due to any action of the indemnifying party.
     13.11 Merger of Estates . The voluntary or involuntary surrender of this Lease by Tenant, or a mutual cancellation thereof, will not constitute a merger of the Landlord’s fee estate in the Property and the leasehold interest created hereby. In that event, Landlord will have the option, in Landlord’s sole discretion, to either terminate or assume all or any existing subleases or subtenancies.
     13.12 Survival of Indemnities and Covenants . All indemnities of Landlord or Tenant and all covenants of Landlord or Tenant not fully performed on the date of the expiration or termination of this Lease will survive such expiration or termination.
     13.13 Headings . Descriptive headings are for convenience only and will not control or affect the meaning or construction of any provision of this Lease.
     13.14 Entire Agreement . This Lease, including the exhibits listed in this section, embodies the entire agreement between the parties hereto with relation to the leasing of the Premises. There are no covenants, agreements, representations, warranties or restrictions between the parties hereto, other than those specifically set forth in this Lease. The following exhibits are attached hereto and incorporated herein and made a part of this Lease for all purposes:
             
Exhibit “A”
 
    Property Description    
Exhibit “B”
 
    Site Plan    
Exhibit “C”
 
    Rules and Regulations    
Exhibit “D”
 
    Improvements Agreement    
Exhibit “E”
 
    Guaranty Agreement    
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Exhibit “F”
 
    Acceptance of Premises Memorandum    
Exhibit “G”
 
    Renewal Option    
Exhibit “H”
 
    Access Easement    
Exhibit “I”
 
    Signage Easement    
     13.15 Amendment . To be effective, any amendment or modification of this Lease must be in writing and signed by Landlord and Tenant.
     13.16 Joint and Several Liability . If Tenant consists of more than 1 person or entity, the obligations of such parties under this Lease will be joint and several . .
     13.17 Multiple Counterparts . This Lease may be executed in multiple counterparts, each of which will constitute an original instrument, but all of which will constitute one and the same agreement.
     13.18 Effect of Delivery of This Lease . Landlord has delivered a copy of this Lease to Tenant for Tenant’s review only, and the delivery hereof does not constitute an offer to Tenant or an option to be exercised by Tenant. This Lease will not be effective until a copy of this Lease executed by both Landlord and Tenant is delivered by Landlord to Tenant.
[Signature page follows.]
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     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the effective date.
         
WITNESS:   LANDLORD:
 
       
    CENTEX OFFICE VISTA RIDGE LEWISVILLE II,
    L.P., a Delaware limited partnership
 
       
/s/ Deborah Case
 
  By:    Centex Office General Partner, LLC,
 
      a Delaware limited liability company;
its general partner
 
       
 
  By:   /s/ Michael D. Wadsworth
 
       
 
      Name: Michael D. Wadsworth
 
      Title: Vice President
 
       
WITNESS:   TENANT:
 
       
    CENTEX HOME EQUITY COMPANY, LLC, a
Delaware firm d liability company
 
       
/s/
  By:   /s/ Jay Bray
 
       
 
      Name: Jay Bray
 
      Title: EVP/CFO

 


 

EXHIBIT “A”
PROPERTY DESCRIPTION
The northern portion of Lot 3R-1A, Block E, according to the plat thereof recorded in Cabinet U, Page 46 of the Property Records of Denton County, Texas. The Property is More particularly shown on the Site Plan and consists of approximately 11.7 acres. The Property description is subject to change in accordance with Section 2.1 of this Lease and a revised description may be attached to the Acceptance of Premises Memorandum. In either case, the definition of “Property” will be modified accordingly.
EXHIBIT “A”, Site Plan — Cover Page

 


 

EXHIBIT “B”
SITE PLAN
EXHIBIT “B”, Site Plan — Cover Page

 


 

(GRAPHIC)

EXHIBIT B — page 1 of 1


 

EXHIBIT “C”
RULES AND REGULATIONS
     Any capitalized terms not defined in this Exhibit “C” have the meaning set forth in the Lease to which this Exhibit “C” is attached.
     1. Sidewalks, doorways, vestibules, halls, stairways, and similar areas may not be obstructed, nor will refuse, furniture, boxes or other items be placed therein by Tenant or Tenant-Related Parties. Such areas are to be used solely for ingress and egress to and from the Premises, or for going from one part of the Building to another part of the Building. Tenant will be responsible, at its sole cost, for the removal of any large boxes or crates not used in the ordinary course of business. Nothing May be swept or thrown into the corridors, halls, elevator shafts or stairways.
     2. Canvassing, soliciting, distributing handbills, advertising and peddling in the Building are prohibited.
     3. Plumbing fixtures and appliances may be used only for the purpose for which such were constructed or installed, and no unsuitable material may be placed therein. Tenant will bear the cost of repair of any stoppage or damage to any such fixtures or appliances from misuse on the part of Tenant or Tenant. Related Parties, guests and customers.
     4. Tenant may not do, or permit to be done, anything in or about the Building, or bring or keep anything therein, that will in any way increase the rate of fire or other insurance on the Building, or on property kept therein, or otherwise increase the possibility of fire or other casualty. No cooking (other than cooking through the use of a microwave oven), including grills or barbecues, will be permitted within the Premises or on any patio adjoining the Premises.
     5. Landlord has the power to prescribe the weight and position of heavy equipment or objects that may overstress any portion of the floor of the Building. Tenant will bear the cost of repair of damage done to the Building by the improper placing of such heavy items. Tenant must notify the Building manager when safes or other heavy equipment are to be taken in or out of the Building. The moving of such equipment may be done only after written permission is obtained from Landlord and must be performed under such conditions as Landlord may reasonably require.
     6. Corridor doors, when not in use, must be kept closed.
     7. All deliveries must be made via the service enhance and service elevator, during normal business hours. Any delivery after normal business hours must be coordinated with the Building manager. When conditions are such that Tenant must dispose of crates, boxes, and other such items, Tenant will dispose of such items prior to or after normal business hours.
     8. Tenant may not cause any improper noises in the Building, or allow any unpleasant odors to emanate from the Building, or otherwise interfere, injure or annoy in my way other tenants, or persons having business with such tenants.

EXHIBIT “C” , Rules and Regulations — Page 1


 

     9. No animals or birds, other than those assisting the disabled, may be brought into or kept in or about the Building.
     10. No machinery of any kind, other than ordinary office machines such as copiers, fax machines, personal computers and related mainframe equipment, electric typewriters and word processing equipment, may be operated on the Premises without the prior written consent of Landlord, which consent will not be unreasonably withheld or delayed.
     11. Tenant may not use or keep in the Building, any flammable or explosive fluid or substance (including Christmas trees and ornaments), or any illuminating materials, without the prior written approval of the Building manager.
     12. No bicycles, motorcycles or similar vehicles are allowed in the Building.
     13. No nails, hooks, or screws (other than those necessary for hanging artwork, diplomas, posterboards and other such items on interior walls) may be driven into or inserted in any part of the Building (including doors), except as approved by Landlord.
     14. Landlord may evacuate the Building in the event of an emergency or catastrophe. Tenant will cause its officers, agents and employees to participate in any fire safety or emergency evacuation drills scheduled by Landlord.
     15. No food or beverages may be prepared, cooked or distributed from the Building without the prior written approval of Landlord, which approval will not be unreasonably withheld or delayed. However, Tenant will be permitted to (a) have food catered to the Premises, and (b) install refrigerators, microwave ovens, coffee machines and vending machines for the use of its own employees and guests.
     16. No additional or replacement locks may be placed upon any exterior doors without the prior written approval of Landlord, which approval will not be unreasonably withheld or delayed. All keys necessary to enter the Building will be furnished by Landlord. Upon termination of the Lease, Tenant must return all keys to Landlord and provide to Landlord the combination of all locks on doors or vaults. No duplicates of keys may be made by Tenant.
     17. Tenant may not locate furnishings or cabinets adjacent to mechanical or electrical access panels or over air conditioning outlets in a manner that will prevent Landlord’s personnel or contractors from servicing such units as routine or emergency service may require. Tenant will pay the cost of moving such furnishings for Landlord’s access. Tenant will instruct all of its employees to refrain from any attempts to adjust thermostats. The lighting and air conditioning equipment of the Building will be exclusively controlled by Landlord’s personnel.
     18. No portion of the Building may be used for the purpose of lodging rooms.
     19. No supplemental heating, air ventilation or air conditioning equipment, including space heaters and fans, may be installed or used by Tenant without the prior written consent of Landlord.

EXHIBIT “C” , Rules and Regulations — Page 2


 

     20. No smoking may be permitted within the Building other than those smoking areas designated by the Landlord.
     21. No unattended children are allowed within the Building.
     22. Tenant and its employees, agents, subtenants, licensees and visitors will follow the following rules and regulations for the Parking Areas:
          (a) Cars must be parked entirely within the stall lines painted on the ground or on the floor.
          (b) All directional signs and arrows must be observed.
          (c) The speed limit is 5 miles per hour.
          (d) Parking is prohibited in areas not striped for parking, aisles, areas where no parking” signs are posted, in cross-hatched areas and in such other areas as may be designated by Landlord or Landlord’s agent(s) (including areas designated as “Visitor Parking”).
          (e) Every vehicle owner is required to park and lock his own car.
          (f) Spaces which are designated for small, intermediate or full-sized cars will be so used. No intermediate or full-size cars may be parked in parking spaces limited to compact cars.
          (g) No vehicle may be stored in the Parking Areas. Any vehicle remaining in the Parking Areas without interruption for 5 business days is deemed to have been stored in the Parking Areas.
          (h) Landlord is entitled and is hereby authorized to place a wheel lock or other device restricting mobility upon such vehicle or have any such vehicle towed away, at the sole risk and expense of the vehicle owner.
     23. In the event of any inconsistency between these Rules and Regulations and the terms of the Lease, the terms of the Lease will control.

EXHIBIT “C” , Rules and Regulations — Page 3


 

EXHIBIT “D”
IMPROVEMENTS AGREEMENT
     This Improvements Agreement (herein so called) describes and specifies the rights and obligations of Landlord and Tenant under the Lease to which this Exhibit “D” is attached, with respect to the design, construction and payment for the completion of the Initial Improvements at the Premises.
     1.  Definitions . Any capitalized terms not defined in this Improvements Agreement will have the meaning set forth in the Lease. Additionally, as used in this Improvements Agreement, the following terms (when delineated with initial capital letters) will have the respective meaning indicated for each, as follows:
          (a) “ Construction Allowance ” means $25.00 per square foot, multiplied by the number of square feet of area in the Building. The Construction Allowance is subject to increase as provided in Section 5(b) of this Improvements Agreement.
          (b) “ Cost of Finish Work ” means the hard and soft costs of performing the Finish Work, plus a development management fee equal to 5% of such costs (up to a maximum fee amount of $50,000).
          (c) “ Excess Amount ” means the amount by which the Cost of Finish Work exceeds the Construction Allowance.
          (d) “ Finish Work ” means the finish improvements to be constructed by Landlord in accordance with Tenant’s Plans.
          (e) “ Initial Improvements ” means the Shell Work and the Finish Work.
          (f) “ Landlord’s Plans ” means the detailed construction documents for the Shell Work prepared by Landlord pursuant to this Improvements Agreement.
          (g) “ Plans and Specifications ” means, collectively, the Landlord’s Plans and the Tenant’s Plans.
          (h) “ Shell Work ” means the base building improvements to be constructed by Landlord in accordance with Landlord’s Plans.
          (i) “ Tenant’s Plans ” has the meaning specified in Section 3 of this Improvements Agreement.
     2.  Shell Work . Promptly after the Effective Date, Landlord must diligently work toward completion of the Landlord’s Plans. Landlord has made application for various permits and approvals required to construct the Shell Work prior the Effective Date. After the Effective Date, Landlord must diligently pursue receipt of such permits and approvals. Promptly after such receipt, Landlord will perform the Shell Work. Landlord must perform the Shell Work in accordance with the Landlord’s Plans and all applicable laws.

EXHIBIT “D” , Improvements Agreement — Page 1


 

     3.  Finish Work . No later than August 31, 2003, Tenant must prepare and deliver construction documents for the Finish Work to Landlord for approval. Landlord must deliver notice to Tenant to evidence Landlord’s approval or disapproval of such construction documents within 10 days after receipt thereof. If Landlord does not respond within such 10-day period, then Landlord will be deemed to have approved the construction documents for the Finish Work. If Landlord responds and disapproves the construction documents, Landlord must specifically identify its objections and Tenant must revise such construction documents to address Landlord’s objections and re-submit the same to Landlord for approval within 10 days hereafter. The foregoing process will be implemented repeatedly (as necessary) until Landlord has approved (or is deemed to have approved) Tenant’s construction documents. Upon approval by Landlord, such construction documents will constitute the ‘Tenant’s Plans ” hereunder. Tenant acknowledges that Landlord’s approval of the Tenant’s Plans does not imply that the Tenant’s Plans comply with, and Landlord has no responsibility for compliance of Tenant’s Plans with, applicable federal, state and local statutes, codes, ordinances and other regulations. Promptly after the finalization and approval of Tenant’s Plans and Landlord’s receipt of all required permits and approvals, Landlord must commence construction of the Finish Work and thereafter diligently pursue completion of the Finish Work in accordance with the Tenant’s Plans.
     4.  Completion and Acceptance of Initial Improvements .
          (a) When Landlord believes the Initial Improvements are Substantially Complete, Landlord must notify Tenant of such fact. Within 2 business days thereafter, Landlord and Tenant will conduct a walk-through of the Premises (the “ Inspection ”) and specify in writing the Punchlist Items which remain to be performed by Landlord, if any. Landlord agrees to expeditiously complete any Punchlist Items. Except for (i) the Punchlist Items so identified, (ii) the obligation of Landlord to correct defective work pursuant to Section 4(b) of this Improvements Agreement, and (iii) the obligation to correct latent defects pursuant to Section 2 . 3(c) of the Lease, all obligations of Landlord in regard to the Initial Improvements will be deemed to have been satisfied upon completion of the Inspection. Following the Inspection and Tenant’s acceptance of the Initial Improvements (other than Punchlist Items, if any), the Initial Improvements wit be Substantially Complete.
          (b) If, at the Inspection, Tenant notifies Landlord that the Initial Improvements are not Substantially Complete, Landlord will perform or correct such items at its own expense. Following Landlord’s correction or performance of such items, Landlord must notify Tenant of such fact and the parties will conduct another Inspection. The foregoing process will be repeated until the Initial Improvements are Substantially Complete.
          (c) If any delays occur in the completion of the Initial Improvements as the result of (i) Tenant’s failure to timely provide to Landlord the Tenant’s Plans or any other information required by Landlord in connection with the obtainment of required permits or the construction of the Initial Improvements, or (ii) any other act, omission, delay or default of Tenant or any Tenant-Related Party, including any violation of the provisions of the Lease or any delay in giving authorizations or approvals pursuant to this Improvements Agreement, then any such delay will be considered a Tenant Delay and will be subject to the terms of Section 3.3 of the Lease.

EXHIBIT “D” , Improvements Agreement — Page 2


 

     5.  Construction Allowance .
          (a) Landlord will credit the Construction Allowance against the Cost of the Finish Work, Tenant must pay the Excess Amount (or any portion thereof billed by Landlord) within 10 days after receipt of an invoice for such costs. The Construction Allowance will not be used for any purpose other than for . payment of the cost of the Finish Work. No portion of the Construction Allowance will be applied against Rent.
          (b) Tenant will have the right to increase the Construction Allowance by up to $5.00 per square foot of area in the Building by notifying Landlord in writing of such election at least 30 days prior to the Commencement Date. If Tenant elects to increase the Construction Allowance as provided herein, the annual “Base Rent per Square Foot of Area in the Building” payable under the Lease will increase by an amount required to fully amortize the increased Construction Allowance amount (calculated on a per square foot basis) on a straight-line basis over the Lease Term plus an additional 10%. In such event, Landlord and Tenant will execute an amendment to the Lease setting forth the new Base Rent amounts prior to the Commencement Date. By way of example, if Tenant elects to increase the Construction Allowance by $1.00 per square foot of area (to $26.00 total), then the annual Base Rent payable (on a per square foot basis) during the first Lease Year will increase by $0.11 (or $1.00 divided by 10 plus an additional 10% of such amount) to $13.11. The annual Base Rent payable would be $13.37 in the second Lease Year, $13.64 in the third Lease Year, and so on.
     6.  Notices . All notices required or contemplated hereunder will be given to the parties in the manner specified for giving notices under the Lease.
     7.  Indemnity . During the construction of the Initial Improvements, Tenant and the Tenant-Related Parties may enter upon the Premises to inspect the progress of the Shell Work and Finish Work after giving advance notice of such entry to Landlord. Landlord agrees to indemnify, defend and hold harmless Tenant and the Tenant-Related Parties from and against any and all liabilities, damages, losses and expenses resulting from any injuries to or death of any person or any damage to property which arises, or is claimed to arise, from the negligence or willful misconduct of Landlord or any Landlord-Related Party. However, the indemnity obligations of Landlord under this Section 7 will not apply to a claim arising out of the gross negligence or intentional Misconduct of Tenant or any Tenant-Related Party. Furthermore, all claims against Landlord are limited by Section 12.4 of the Lease.

EXHIBIT “D” , Improvements Agreement — Page 3


 

EXHIBIT “E”
GUARANTY AGREEMENT
     In consideration of the making of that certain Lease Agreement (as same may be amended from time to time, the “ Lease ”) dated May 20, 2003, between Centex Office Vista Ridge Lewisville II, L.P., a Delaware limited partnership (“ Landlord ”) , and Centex Home Equity Company; LLC, a Delaware limited liability company (“ Tenant ”) covering the building within the Vista Ridge Business Park located in Lewisville, Texas, and for the purpose of inducing Landlord to enter into and make the Lease, the undersigned hereby unconditionally guarantees the full and prompt payment of Rent (as defined in the Lease) and all other sums required to be paid by Tenant under the Lease (including, without limitation, all Rent payable with respect to the initial Premises and all expansion space) (individually, a “ Guaranteed Payment ”, and collectively, the “ Guaranteed Payments ”) and the full and faithful performance of all terms, conditions, covenants, obligations and agreements contained in the Lease on the Tenant’s part to be performed (individually, a “ Guaranteed Obligation ”, and collectively, the “ Guaranteed Obligations ”). The undersigned further promises to pay all of Landlord’s costs and expenses (including reasonable attorneys’ fees) incurred in endeavoring to collect the Guaranteed Payments or to enforce the Guaranteed Obligations or incurred in enforcing this Guaranty Agreement (“ Guaranty ”) , as well as all damages which Landlord may suffer in consequence of any default or breach under the Lease or this Guaranty.
     1. Landlord may at any time and from time to time, without notice to or consent by the undersigned, take any or all of the following actions without affecting or impairing the liability and obligations of the undersigned on this Guaranty:
          (a) grant an extension or extensions of time for payment of any Guaranteed Payment or time for performance of any Guaranteed Obligation;
          (b) grant an indulgence or indulgences in the payment of any Guaranteed Payment or in the performance of any Guaranteed Obligation;
          (c) modify or amend the Lease or any term thereof or any obligation of Tenant arising thereunder;
          (d) consent to any assignment or assignments, sublease or subleases and successive assignments or subleases by Tenant or by Tenant’s successors or assigns;
          (e) consent to an extension or extensions of the term of the Lease;
          (f) accept other guarantees or guarantors; and/or
          (g) release any person primarily or secondarily liable hereunder or under the Lease or under any other guaranty of the Lease.
     The liability of the undersigned under this Guaranty will not be affected or impaired by any failure or delay by Landlord in enforcing any Guaranteed Payment or Guaranteed Obligation or this Guaranty or any security therefor or in exercising any right or power in respect thereto, or

EXHIBIT “E” , Guaranty Agreement — Page 1


 

by any compromise, waiver, settlement, change, subordination, modification or disposition of any Guaranteed Payment or guaranteed Obligation or of any security therefor. In order to hold the undersigned liable hereunder, there will be no obligation on the part of Landlord, at any time, to resort to Tenant or to any other guaranty or to any security or other rights and remedies for payment or performance, and Landlord will have the right to enforce this Guaranty irrespective of whether or not other proceedings or actions are pending or being taken seeking resort to or realization upon or from any of the foregoing.
     2. The undersigned waives all diligence in collection or in protection of any security, presentment, protest, demand, notice of dishonor or default, notice of acceleration or intent to accelerate, notice of acceptance of this Guaranty, notice of any extensions granted or other action taken in reliance hereon and all demands and notices of any kind in connection with this Guaranty or any Guaranteed Payment or Guaranteed Obligation.
     3. The undersigned hereby acknowledges full and complete notice and knowledge of all the terms, conditions, covenants, obligations and agreements of the Lease.
     4. The payment by the undersigned of any amount pursuant to this Guaranty will not in any way entitle the undersigned to any right, title or interest (whether by subrogation or otherwise) of Tenant under the Lease or to any security being held for any Guaranteed Payment or Guaranteed Obligation.
     5. This Guaranty will be continuing, absolute and unconditional and will remain in full force and effect until all Guaranteed Payments are made, all Guaranteed Obligations are performed and all obligations of the undersigned under this Guaranty are fulfilled
     6. This Guaranty will also bind the heirs, personal representatives, successors and assigns of the undersigned and will inure to the benefit of Landlord and Landlord’s successors and assigns.
     7. This Guaranty will be governed by and construed according to the laws of the State of Texas and will be performed in the county identified in the first paragraph of this Guaranty. The situs for the resolution (including any judicial proceedings) of any disputes arising under or relating to this Guaranty will be the county referenced in the first paragraph of this Guaranty.
     8. If this Guaranty is executed by more than one person, all singular nouns and verbs herein relating to the undersigned will include the plural number, the obligations of the several guarantors will be joint and several and Landlord may enforce this Guaranty against any one or more guarantors without joinder of any other guarantor (hereunder or otherwise).
     9. Landlord and the undersigned intend and believe that each provision of this Guaranty comports with all applicable law. However, if any provision of this Guaranty is found by a court to be invalid for any reason, the remainder of this Guaranty will continue in full force and effect and the invalid provision will be construed as if it were not contained herein.
     10. Guarantor will, from time to time, but no more than 3 times in any calendar year, within 20 days after written request by Landlord, execute and deliver to such persons as

EXHIBIT “E” , Guaranty Agreement — Page 2


 

Landlord will designate, an estoppel agreement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as so modified), stating the dates to which Rent and other charges payable under this Lease have been paid, stating that, to Guarantor’s actual knowledge, the Landlord is not in default hereunder (or if Guarantor alleges a default, stating the nature of such alleged default) and further stating such other matters as Landlord will reasonably require.
[Signature page follows.]
     IN WITNESS WHEREOF, the undersigned has executed and delivered this Guaranty as of May 20, 2003.
                 
    GUARANTOR:    
 
               
    CENTEX FINANCIAL SERVICES, INC.,
a Nevada corporation
   
 
               
 
  By:   /s/ Leldon E. Echols        
             
 
      Name: Leldon E. Echols      
 
      Title:       EVP and CFO, Center Corporation
 
         
ADDRESS:
2828 N. Harwood
Dallas, Texas 75201

EXHIBIT “E” , Guaranty Agreement — Page 3


 

EXHIBIT “F”
ACCEPTANCE OF PREMISES MEMORANDUM
     This ACCEPTANCE OF PREMISES MEMORANDUM (“ Memorandum ”) is entered into on _____________, 200___, between CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P., a Delaware limited partnership (“ Landlord ”) , and CENTEX HOME EQUITY COMPANY, LLC, a Delaware limited liability company (‘Tenant”).
RECITALS
     A. Landlord and Tenant entered into that certain Lease Agreement dated April __, 2003 (the “ Lease ”). All terms used but not defined herein have the meanings set forth in the Lease.
     B. Landlord and Tenant wish to confirm certain matters relating to the Lease and the work performed by Landlord at the Premises.
AGREEMENT
     1.  Commencement Date . Landlord and Tenant certify that the Commencement Date under the Lease is ____________, 200
     2.  Acceptance of Premises . Except for the items listed on the Punch List dated 200(a copy of which is attached to this Memorandum as Exhibit “  ” ), Landlord has completed all work required to be completed by Landlord under the Lease.
     3.  Size of Building: Base Rent Landlord and Tenant agree that the Building contains __________ square feet of area and all computations of Base Rent under the Lease will be based on such figure. Accordingly, the new Base Rent schedule is attached hereto as Exhibit “  ” .
     4.  Property Description . Landlord and Tenant agree that the legal description of the “Property” is set forth on Exhibit “  ” attached hereto and all relevant definitions in and exhibits to the Lease are hereby modified accordingly.
     5.  No Amendment . Except as expressly provided herein, this Memorandum does not amend the Lease and the Lease has not otherwise been amended.
     6.  Reliance . Tenant agrees that this Memorandum may be relied upon by Landlord and its partners, lenders, prospective purchasers, and their respective successors and assigns.
[Signature page follows.]

EXHIBIT “F” , Acceptance of Premises Memorandum — Page 1


 

     EXECUTED as of the date set forth above.
                 
    LANDLORD:    
 
               
 
            , a  
         
 
               
         
 
               
 
  By:            
             
 
      Name:        
 
      Title:  
 
   
 
         
 
   
 
               
    TENANT:    
 
               
 
            , a  
         
 
               
         
 
               
 
  By:            
             
 
      Name:        
 
      Title:  
 
   
 
         
 
   
Attachments —   Punch List
Property Description
Base Rent Schedule

EXHIBIT “F” , Acceptance of Premises Memorandum — Page 2


 

Base Rent Schedule
                         
    Base Rent per Square        
    Foot of Area in the        
    Building   Anticipated Base   Anticipated Base
Lease Year   (per Year)   Rent per Lease Year   Rent Per Month
I
  $ 13.00                  
2
  $ 13.26                  
3
  $ 13.53                  
4
  $ 13.80                  
5
  $ 14.07                  
6
  $ 14.35                  
7
  $ 14.64                  
8
  $ 14.93                  
9
  $ 15.23                  
10
  $ 15.54                  

EXHIBIT “F” , Acceptance of Premises Memorandum — Page 3


 

EXHIBIT “G”
RENEWAL OPTION
     1. Provided no Event of Default exists and Tenant is occupying the Premises at the time of such election, Tenant may renew this Lease for 1 additional period of 5 years (the “ Renewal Term ”) , by delivering written notice (“ Renewal Notice ”) of the exercise thereof to Landlord no earlier than 9 months or later than 6 months before the expiration of the Lease Term. On or before the commencement date of the Renewal Term, Landlord and Tenant shall execute an amendment to this Lease extending the Lease Term on the same terms provided in this Lease, except as follows:
          (a) The Base Rent payable for each month during the Renewal Term shall be the prevailing rental rate at which space is then being offered in the Building, at the commencement of the Renewal Term, for space of equivalent quality, size, utility and location, with the length of the Renewal Term and the credit standing of Tenant to be taken into account (the “ Market Rental Rate ”). The Base Rent will increase annually during the Renewal Term by 2% beginning on the first day of each Lease Year during the Renewal Term beginning with the second Lease Year of the Renewal Term;
          (b) Tenant shall have no further renewal option unless expressly granted by Landlord in writing; and
          (c) Landlord shall lease to Tenant the Premises in their then-current condition, and Landlord shall not provide to Tenant any allowances (e.g., moving allowance, construction allowance, and the like) or other tenant inducements. Notwithstanding the foregoing, in determining the Market Rental Rate applicable to the Renewal Term, such rate shall be adjusted to reflect that Tenant will be. accepting the Premises in their then-current condition, and that Landlord shall not be providing to Tenant any allowances or other tenant inducements.
     2. Within 15 days after receipt of Tenant’s Renewal Notice (and any required supporting information), Landlord will notify Tenant in writing of Landlord’s estimate of the Market Rental Rate. Landlord and Tenant will in good faith attempt to determine the Market Rental Rate to be used to calculate the Base Rent. In the event that the parties cannot agree on the Market Rental Rate within 30 days attn . Landlord’s initial communication to Tenant, Landlord will select an M.A.I. appraiser, who will determine the Market Rental Rate to be used to calculate the Base Rent and communicate his or her determination to the parties within 15 days after his or her appointment, which determination will be binding upon the parties. Each party will pay half of the cost of the appraisal. Within 15 days thereafter, Tenant will notify Landlord that Tenant either (a) accepts the Market Rental Rate established by the appraiser in which event the parties will promptly enter into an amendment to the Lease incorporating such terms, or (b)reject Landlord’s renewal terms, in which event the Lease will end at the expiration of the initial Lease Term and Landlord will have no further obligations or liability hereunder. The failure of Tenant to respond within such 15-day period will be deemed rejection of Landlord’s terms.
     The failure of Tenant to exercise the Renewal Option within the time period set forth herein will constitute a waiver and termination of such Renewal Option. This Renewal Option is personal to Tenant and is not assignable to any third parties, including, but not limited to, any assignee or sublessee of Tenant.

EXHIBIT “G” , Renewal Option — Solo Page


 

EXHIBIT “H”
ACCESS EASEMENT

EXHIBIT “H” , Access Easement — Solo Page


 

AFTER RECORDING RETURN TO:
Centex Development Company, L.P.
2728 N. Harwood
Dallas, Texas 75201
Attn: Jay M. Thompson
ACCESS EASEMENT AGREEMENT
     THIS ACCESS EASEMENT AGREEMENT (this “ Agreement ”) is made and entered into as of ________________, 2003, by and between CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P., a Delaware limited partnership (“ Grantor ”) , and CENTEX OFFICE VISTA RIDGE LEWISVILLE L.P., a Delaware limited partnership (“ Grantee ”).
RECITALS
     A. Grantor is the owner in fee of certain real property located in Denton County, Texas (the “ Grantor Property ”) , being more particularly described as follows:
REPLACE WITH NEW DESCRIPTION OF PHASE II LAND — [Lot 3R-2, Block E
of Final Plat of Centex Office Campus North, filed in Cabinet U,
Page 45, Plat Records, Denton County, Texas, and Volume 2001204,
Page 00016, Plat Records, Dallas County, Texas.]
     B. Grantee is the owner in fee of certain real property located in Denton County, Texas (the “ Grantee Property ”) , being more particularly described as follows:
REPLACE WITH NEW DESCRIPTION OF PHASE III LAND — [Lot 3R-1A, Block
E of Final Plat of Centex Office Campus North, filed in Cabinet U,
Page 45, Plat Records, Denton County, Texas, and Volume 2001204,
Page 00016, Plat Records, Dallas County, Texas.]
     C. Grantor and Grantee desire to enter into this Agreement for the purpose of providing a means of ingress and egress to the Grantee Property.
AGREEMENT
     NOW, THEREFORE; for and in consideration of the sum of Ten and No/100 Dollars ($10 - .00) in hand paid by Grantee to Grantor, and for the sealing and delivery of these presents, the mutual covenants — and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the parties hereto intending to be legally bound, do hereby covenant and agree as follows:
ARTICLE I — EASEMENT
     1.1 Declaration and Grant of Access Easement . Grantor hereby grants and conveys unto Grantee, for the benefit of the Grantee Property, a non-exclusive, perpetual easement (the “ Access Easement ”) over, across, and upon a portion of the Grantor Property being more

1


 

particularly described on Exhibit “A” attached hereto and incorporated herein by reference (the “ Access Easement Area ”). The Access Easement is for the limited purpose of permitting pedestrian and vehicular ingress and egress to and from the Grantee Property over a driveway (the “ Common Driveway ”) situated upon the Grantor Property. Grantee and its respective employees, agents, tenants, licensees, and invitees will have the right to use the Common Driveway. However, Grantee will not have the right to use any portion of the Access Easement Area or the Common Driveway for construction activities or the movement of construction vehicles relating to any construction activities conducted on the Grantee Property.
     1.2 Removal of Parking Spaces . Upon at least 5 business days written notice to Grantor, Grantee will have the right, at Grantee’s sole cost and expense, to enter upon the Grantor Property and remove the curbs and up to 5 parking spaces, if necessary, in the areas identified as “Future Access Drive” on Exhibit “A” within the Access Easement Area to connect the Common Driveway to the access drives on the Grantee Property; provided (a) Grantee shall complete such work promptly and shall not unreasonably interfere with the use of the Grantor Property by Grantor or its tenants; (b) Grantee shall construct, replace and provide, at Grantee’s sole cost and expense, in a location to be approved by Grantor (in its reasonable discretion) in writing prior to the removal of any existing curbs or parking spaces, 1 parking space on the Grantor Property for each parking space removed by Grantee so long as the construction of such space(s) is permitted under applicable governmental requirements and is feasible without incurring unusually high construction costs (e.g., the cost to build a retaining wall or structured parking); (c) Grantee shall restore and repair, at Grantee’s sole cost and expense, the Grantor Property affected by such work to a comparable condition after completion of Grantee’s work herein (including, without limitation, landscaping thereon); (d) Grantee shall indemnify, defend and hold harmless Grantor from and against all costs, expenses, liens and claims (including, without limitation, reasonable attorney’s fees) relating to the work of Grantee referenced in this Section 1.2 ; and (e) the work performed by Grantee under this Section 1.2 must not cause the Grantor Property to contain less than 1,170 parking spaces.
     1.3 Maintenance . Grantor agrees to undertake and perform any and all maintenance and repair work within the Access Easement Area that may from time to time be reasonably necessary with regard to the Common Driveway in order to maintain the Common Driveway in good condition and repair. If Grantor fails to perform the maintenance obligations created pursuant to this Section 1 . 3 for a period of 30 days after notice from Grantee of such failure, then Grantee will have the right (but not the obligation) to perform such maintenance.
     1.4 Maintenance Costs . The cost of the maintenance and repair work described in Section 1.3 hereof (the “ Costs ”) will be shared by Grantor and Grantee based on the number of parking spaces on the Grantor Property and the Grantee Property (expressed as a fraction of the total number of parking spaces on both properties). For example, if the Grantor Property has 1,170 parking spaces and the Grantee Property has 390 parking spaces (a total of 1,560 parking spaces), then Grantor will pay 3/4” or 75% of the Costs and Grantee will pay 1/4 th or 25% of the Costs. If either Grantor or Grantee performs any maintenance or repairs within the Access Easement Area pursuant to Section 1.3 , then following, such maintenance or repair the performing party may deliver to the non-performing party itemized invoices of the Costs incurred and the non-performing party must reimburse the performing party for its share of such Costs within 30 days after the receipt of such invoices. In all cases where reimbursement is

2


 

required by either Grantor or Grantee, interest shall accrue on the portion of the Costs payable by such party at the rate of 12% per annum beginning 30 days from the date such party receives the itemized invoices. If either Grantor or Grantee performs maintenance or repair work within the Access Easement Area and fails to deliver invoices to the other party within 12 months after the date of such performance, then the non-performing party will not be obligated to reimburse the performing party for any portion of the Costs incurred. As used herein, the term “Costs” includes only the actual and reasonable costs of performing maintenance and repairs within the Access Easement Area and does not include any other costs associated with the ownership of the Access Easement Area (including, without limitation, property taxes, insurance premiums, or other similar expenses).
     1.5 Assumption of Risk; Indemnification; Insurance .
          (a) Grantee assumes the risk of loss arising out of its use of the Access Easement Area and releases and discharges Grantor, its successors and assigns, and their respective directors, officers, shareholders, partners, members, agents, servants, employees and contractors (collectively, with Grantor, the “ Grantor Group ”) from any and all claims, losses, liabilities, damages and demands by Grantee for damage to either person or property, including bodily injury and death, or loss of business or income, arising out of use by Grantee, its tenants, agents and contactors and their respective employees, invitees and guests (collectively, with Grantee, the “ Grantee Parties ”) of the Access Easement Area or the physical condition of the Access Easement Area. However, nothing herein shall be construed to release the Grantor Group or any of them from any liability for their own negligence or willful misconduct.
          (b) Grantee shall indemnify, protect, defend and hold harmless the Grantor Group and each of them from and against any and all actions, causes of action, claims, demands, liabilities, losses, damages, costs and expenses, including but not limited to reasonable attorney’s fees, court costs and litigation expenses (collectively, “ Claims ”) , caused by the use of the Access Easement Area by any of the Grantee Parties, including any Claims based upon any accidents occurring on or about the Access Easement Area involving any of the Grantee . Parties. However, the Grantor Group shall not be indemnified to the extent that any Claims arise out of the negligence or willful misconduct of the Grantor Group or any of them.
          (c) Grantee shall maintain in effect at all times, or if the Grantee Property is occupied by a tenant, will cause its tenant to maintain in effect, commercial general liability insurance and commercial automobile liability insurance (each written on a primary and non-contributory basis) in commercially reasonable amounts; provided, each liability policy shall contain a minimum combined single limit of at least $2,000,000.00 per occurrence. Grantee agrees to name Grantor’s mortgagee and any tenant of the Grantor Property as an additional insured on any liability insurance policies carried by Grantee pursuant to this Section 1.5(c) . Grantee agrees that the insurance policies required to be maintained hereunder by Grantee shall be issued by financially responsible insurance companies which are qualified to do business in the State of Texas and Grantee shall, upon request of Grantor, cause to be furnished to Grantor a certificate providing such information as reasonably requested evidencing the existence and limits of its insurance coverage, which certificate shall be delivered within 15 days following such request. In the event Grantee fails to comply with the provisions of this Section 1.5(c) and such failure continues for a period of 15 days following written notice to Grantee, Grantor may

3


 

cause such additional insurance policies to be issued as required hereby, in which event all costs and expenses incurred by such Grantor shall be reimbursed by Grantee within 30 days following the written request for such reimbursement.
     1.6 Speed Control Mechanisms . Grantor reserves the right to install, at its sole cost and expense, speed bumps or other reasonable speed control mechanisms within the Access Easement Area.
ARTICLE 2 — EFFECT OF INSTRUMENT
     2.1 Mortgage Subordination . Any mortgage, security deed, or deed of trust affecting any portion of the property affected hereby (collectively, a “ Mortgage ”) shall at all times be subject and subordinate to the terms of this Agreement and any party foreclosing any such Mortgage, or acquiring title by deed in lieu of foreclosure or trustee’s sale, shall acquire title subject to all of the terms and provisions of this Agreement. However, no breach of the covenants, conditions or restrictions contained in this Agreement shall affect, impair, defeat or render invalid the lien or charge of any Mortgage, and neither any mortgagee, beneficiary nor other person acquiring title to any part of the property affected hereby by foreclosure, deed in lieu of foreclosure or otherwise shall have any liability for obligations under this Agreement arising prior to its acquisition of title. Neither a mortgagee nor beneficiary of a Mortgage nor any person acquiring title to any part of the property affected hereby by foreclosure of such Mortgage or deed in lieu of foreclosure shall be bound by any amendment of this Agreement made without the consent of such mortgagee or beneficiary, as the case may be.
     2.2 Binding Effect . Any transferee of any property or portion of any property affected hereby shall automatically be deemed, by acceptance of the title to such property, to have assumed all rights and obligations of this Agreement, relating thereto to the extent of its interest in its respective property occurring after the date of such acceptance and to have agreed with the then owners of all other properties affected hereby to execute any and all instruments and to do any and all things reasonably required to carry out the intention of this Agreement, and the transferor shall upon the completion of such transfer be relieved of all further liability under this Agreement except liability with respect to matters that may have arisen during its period of ownership of the property so conveyed that remain unsatisfied. Nothing set forth herein shall impose, or be deemed to impose, any obligations (including, without limitation, any construction obligations) as to any party or property burdened hereby, unless such obligations are expressly set forth herein.
     2.3 Non-Dedication . Nothing contained in this Agreement shall be deemed to be a gift or dedication of any property affected hereby, or any portion thereof, to the general public or for any public use or purpose whatsoever, it being the intention of the Agreement and its successors-in-title that nothing in this Agreement, expressed or implied, shall confer upon any person, other than the parties hereto and their successors-in-title, any rights or remedies under or by reason of this Agreement.
     2.4 Running with the Land . The easements, covenants, and obligations created herein are intended to run with title to the Grantor Property and Grantee Property and such rights, easements, covenants, and obligations shall inure to the benefit of and burden the successors in

4


 

interest to Grantor and Grantee, including, without limitation, all future owners and ground lessees of the Grantor Property and the Grantee Property.
ARTICLE 3 — NOTICES
     3.1 Notices . Each notice (“ Notice ”) shall be in writing and shall be, at the option of the party giving the Notice, deemed to have been properly given or served if (i) personally delivered, (ii) by overnight delivery service (including FedEx), or (iii) transmitted by postage prepaid, certified mail, return receipt requested, and addressed as hereinafter provided. Any Notice shall be deemed to have been given on (x) the date of receipt if delivered personally or (y) the day it shall have been posted if transmitted by mail. Delivery by a commercial courier or express mail service shall be deemed personal delivery effective when provided to such service for delivery. The time period for any response to a Notice or action in connection therewith shall not commence to run, however, until actual receipt or rejection or inability to deliver such Notice. By giving to the other parties at least 10 days’ Notice thereof, any party shall have the right from time to time during the term of this Agreement to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the United States of America. Notices shall be addressed as set forth herein below.
To Grantor:   Centex Office Vista Ridge Lewisville II, L.P.
2728 North Harwood Street
Dallas, Texas 75201
Attn: Project Manager
To Grantee:   Centex Office Vista Ridge Lewisville III, L.P.
2728 North Harwood Street
Dallas, Texas 75201
Attn: Project Manager
ARTICLE 4 — MISCELLANEOUS
     4.1 Severability . If any provision of this Agreement, or the application thereof to any person or circumstance, shall be to any extent held invalid, inoperative or unenforceable, the remainder of this Agreement, or the application of such provision to any other persons or circumstances, shall not be affected thereby; it shall not be deemed that any such invalid provision affects the consideration for this Agreement; and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
     4.2 Governing Law . This Agreement shall be construed in accordance with the laws of the State of Texas.
     4.3 Headings . The Article headings in this Agreement are for convenience only, shall in no way define or limit the scope or content of this Agreement, and shall not be considered in any construction or interpretation of this Agreement or any part thereof.
     4.4 No Partnership . Nothing in this Agreement shall be construed to make any of the parties hereto partners or joint venturers or render any of said parties liable for the debts or obligations of any other party.

5


 

     4.5 Exhibits . This Agreement shall be deemed to include all exhibits attached hereto, which exhibits are incorporated herein by reference, and shall be binding upon and inure to the benefit of the parties hereto and their successors-in-title.
     4.6 Amendments . The provisions of this Agreement may be abrogated, modified, rescinded or amended in whole or in part only by a written instrument duly executed, delivered, and recorded that is entered into by the parties hereto, or their respective successors, assigns, or successors-in-title.
     4.7 Estoppel . Any party hereto may, at any time and from time to time, in connection with the sale or transfer of its respective property or in connection with the financing or refinancing of its respective property by a bona fide mortgage or sale and leaseback made in good faith and for value, deliver a written notice to the other party or its successors-in-title requesting such party to execute a certificate certifying that such party making such request is not in default in the performance of its obligations under this Agreement, or, if in default, describing therein the nature and amount of any default. The party receiving such request shall execute and return such certificate within 30 days following its receipt thereof. Such certificate may be relied upon by all transferees, mortgagees, and security deed holders.
     4.8 Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute one agreement and the signatures of any party to any counterpart shall be deemed to be a signature to, and may be appended to, any other counterpart.
     4.9 Attorney’s Fees . In the event of any litigation between the parties arising out of this Agreement or the Access Easement Area, the prevailing party shall be entitled to recover its reasonable attorney’s fees, court costs and litigation expenses.

6


 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
         
    GRANTOR :
 
       
    CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P.,
a Delaware limited partnership
 
       
 
  By:   Centex Office General Partner, LLC,
a Delaware limited liability company,
its sole general partner
             
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
   
     
STATE OF TEXAS
  §
 
  §
COUNTY OF DALLAS
  §
     On ___________________, 2003, before me, the undersigned, personally appeared __________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
         
My commission expires:
       
 
     
 
 Notary Public — State of Texas
 
      Printed Name: _____________
 
       
[Continued on following page]

7


 

         
    GRANTEE :
 
       
    CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P.,
a Delaware limited partnership
 
       
 
  By:   Centex Office General Partner, LLC,
a Delaware limited liability company,
its sole general partner
             
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
   
     
STATE OF TEXAS
  §
 
  §
COUNTY OF DALLAS
  §
     On ___________________, 2003, before me, the undersigned, personally appeared __________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
         
My commission expires:
       
 
     
 
 Notary Public — State of Texas
 
      Printed Name: _____________
 
       

8


 

EXHIBIT “A”
ACCESS EASEMENT AREA

EXHIBIT “A” — Cover Page


 

EXHIBIT “I”
SIGNAGE EASEMENT

EXHIBIT “I” , Signage Easement — Solo Page


 

AFTER RECORDING RETURN TO:
Centex Development Company, L.P.
2728 N. Harwood
Dallas, Texas 75201
Attn: Jay M. Thompson
SIGNAGE AND ENTRY EASEMENT AGREEMENT
     THIS SIGNAGE AND ENTRY EASEMENT AGREEMENT (this “ Agreement ”) is made and entered into as of ___, 2003, by and between CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P., a Delaware limited partnership (“ Grantor ”) , and CENTEX OFFICE VISTA RIDGE LEWISVILLE III, L.P., a Delaware limited partnership (“ Grantee ”).
RECITALS
     A. Grantor is the owner in fee of certain real property located in Denton County, Texas (the “ Grantor Property ”) being more particularly described as follows:
REPLACE WITH NEW DESCRIPTION OF PHASE II LAND — [Lot 3R-2, Block E of Final Plat of Centex Office Campus North, filed in Cabinet U, Page 45, Plat Records, Denton County, Texas, and Volume 2001204, Page 00016, Plat Records, Dallas County, Texas.]
     B. Grantee is the owner in fee of certain real property located in Denton County, Texas (the “ Grantee Property ”) being more particularly described as follows:
REPLACE WITH NEW DESCRIPTION OF PHASE III LAND — [Lot 3R-1A, Block E of Final Plat of Centex Office Campus North, filed in Cabinet U, Page 45, Plat Records, Denton County, Texas, and Volume 2001204, Page 00016, Plat Records, Dallas County, Texas.]
     C. Grantor and Grantee desire to enter into this Agreement for the purpose of allowing Grantee to erect and maintain a sign on the Grantor Property for the benefit of the Grantee Property.
AGREEMENT
     NOW, THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) in hand paid by Grantee to Grantor, and for the sealing and delivery of these presents, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the parties hereto intending to be legally bound, do hereby covenant and agree as follows:

1


 

ARTICLE I — EASEMENT
     1.1 Declaration and Grant of Signage and Entry Easement . Grantor hereby grants and conveys unto Grantee, for the benefit of the Grantee Property, a non-exclusive, perpetual easement (the “ Easement ”) over, across, and upon a portion of the Grantor Property shown as the “10’ x 10’ Sign Reservation Area” on Exhibit “A” attached hereto and incorporated herein by reference (the “ Easement Area ”). The Easement is for the limited purpose of enabling Grantee to (i) construct, inspect, maintain, repair, remove, and reconstruct a sign (the “ Sign ”) within the Easement Area that identifies the buildings on the Grantee Property (or their occupants), and (ii) enter upon the Grantor Property (after at least two (2) business days notice to Grantor) to access the Easement Area for such purposes. Grantor must not permit the construction or placement of any improvements or items upon the Grantor Property that adversely affect the visibility of the Sign from the roadway adjacent to the Grantor Property.
     1.2 Approval of Signage . Prior to constructing the Sign, Grantee must deliver to Grantor for its approval plans and specifications detailing the size and color scheme of the Sign and the type of construction materials to be used. The dimensions of the sign must not exceed the lesser of (i) the dimensions of the existing “Business Sign” shown on Exhibit “A” , or (ii) 10 feet in width, 6 feet in height, and 3 feet in depth. Grantor must not unreasonably withhold or condition its approval, and acting in good faith, Grantor must approve or disapprove such plans and specifications within 10 business days after receipt thereof. The failure of Grantor to disapprove the plans and specifications within such 10 business day period will constitute approval by Grantor. If Grantor, acting in good faith, disapproves such plans and specifications, Grantor specifically must identify its objections and Grantee must revise such plans and specifications to address Grantor’s objections and re-submit the same to Grantor for approval within 10 days thereafter. The foregoing process will be implemented repeatedly until, acting in good faith, Grantor and Grantee have agreed to plans and specifications for the Sign. Following the approval (or deemed approval) by Grantor, Grantee may construct the Sign within the Easement Area, at Grantee’s sole cost and expense, in accordance with all applicable laws. Grantee shall promptly pay all costs related to construction of the Sign, and Grantee shall indemnify, defend and hold harmless Grantor from and against any and all costs, liens, claims or expenses relating to the Sign.
     1.3 Maintenance .
          (a) Grantor agrees to undertake and perform any and all maintenance and repair work within the Easement Area (excluding maintenance and repair of the Sign itself) that may from time to time be reasonably necessary to maintain the Easement Area in good condition and repair (such as, without limitation, mowing the lawn and maintaining any irrigation equipment and landscaping). If Grantor fails to perform such maintenance or repair work for a period of 30 days after notice from Grantee of such failure, then Grantee will have the right (but not the obligation) to perform such work.
          (b) Grantee agrees to undertake and perform any and all maintenance and repair work pertaining to the Sign that may from time to time be reasonably necessary to maintain the Sign in good condition and repair, in a clean and sightly condition and in accordance with all applicable laws. If Grantee fails to perform such maintenance or repair work

2


 

for a period of 30 days after notice from Grantor of such failure, then Grantor will have the right (but not the obligation) to perform such work. However, Grantor will not have the right to remove or tear down the Sign.
          (c) Other than (i) maintenance and repairs intended to return the Sign to substantially its original condition, and (ii) changes to the graphics of the individual sign panels within the Sign, the Grantee shall not change any aspect of the appearance of the Sign without the prior written consent of the Grantor, which consent shall not be unreasonably withheld.
     1.4 Maintenance Costs . The cost of the maintenance and repair work described in Section 1.3(a) will be borne solely by Grantor and the cost of the maintenance and repair work described in Section 1.3(b) will be borne solely by Grantee. If either Grantor or Grantee performs any maintenance or repairs within the Easement Area following notice of non-performance to the other party pursuant to Section 1.3 , then following such maintenance or repair the performing party may deliver to the non-performing party itemized invoices of the Costs (as hereinafter defined) incurred and the non-performing party must reimburse the performing party for its share of such Costs within 30 days after the receipt of such invoices. In all cases where reimbursement is required by either Grantor or Grantee, interest shall accrue on the portion of the Costs payable by such party at the rate of 12% per annum beginning 30 days from the date such party receives the itemized invoices. If either Grantor or Grantee performs maintenance or repair work within the Easement Area and fails to deliver invoices to the other party within 12 months after the date of such performance, then the non-performing party will not be obligated to reimburse the performing party for any portion of the Costs incurred. As used herein, the term “ Costs ” includes only the actual and reasonable costs of performing maintenance and repairs within the Easement Area and does not include any other costs associated with the ownership of the Easement Area (including, without limitation, property taxes, insurance premiums, or other similar expenses).
     1.5 Assumption of Risk; Indemnification; Insurance
          (a) Grantee assumes the risk of loss arising out of its use of the Easement Area and releases and discharges Grantor, its successors and assigns, and their respective directors, officers, shareholders, partners, members, agents, servants, employees and contractors (collectively, with Grantor, the “ Grantor Group ”) from any and all claims, losses, liabilities, damages and demands by Grantee for damage to either person or property, including bodily injury and death, or loss of business or income, arising out of use by Grantee, its tenants, agents and contractors and their respective employees, invitees and guests (collectively, with Grantee, the “ Grantee Parties ”) of the Easement Area or the physical condition of the Easement Area. However, nothing herein shall be construed to release the Grantor Group or any of them from any liability for their own negligence or willful misconduct.
          (b) Grantee shall indemnify, protect, defend and hold harmless the Grantor Group and each of them from and against any and all actions, causes of action, claims, demands, liabilities, liens, losses, damages, costs and expenses, including but not limited to reasonable attorney’s fees, court costs and litigation expenses (collectively, “ Claims ”), caused by the use of the Easement Area by any of the Grantee Parties, including any Claims based upon any accidents occurring on or about the Easement Area involving any of the Grantee Parties. However, the

3


 

Grantor Group shall not be indemnified to the extent that any Claims arise out of the negligence or willful misconduct of the Grantor Group or any of them.
          (c) Grantee shall maintain in effect at all times, or if the Grantee Property is occupied by a tenant, will cause its tenant to maintain in effect, commercial general liability insurance and commercial automobile liability insurance (each written on a primary and non-contributory basis) in commercially reasonable amounts; provided, each liability policy shall contain a minimum combined single limit of at least $2,000,000.00 per occurrence. Grantee agrees to name Grantor, Grantor’s mortgagee and any tenant of the Grantor Property as an additional insured on any liability insurance policies carried by Grantee pursuant to this Section 1.5(c) . Grantee agrees that the insurance policies required to be maintained hereunder by Grantee shall be issued by financially responsible insurance companies which are qualified to do business in the State of Texas and Grantee shall, upon request of Grantor, cause to be furnished to Grantor a certificate providing such information as reasonably requested evidencing the existence and limits of its insurance coverage, which certificate shall be delivered within 15 days following such request. In the event Grantee fails to comply with the provisions of this Section 1.5(c) and such failure continues for a period of 15 days following written notice to Grantee, Grantor may cause such additional insurance policies to be issued as required hereby, in which event all cost and expenses incurred by such Grantor shall be reimbursed by Grantee within 30 days following the written request for such reimbursement.
ARTICLE 2 — EFFECT OF INSTRUMENT
     2.1 Mortgage Subordination . Any mortgage, security deed, or deed of trust affecting any portion of the property affected hereby (collectively, a “ Mortgage ”) shall at all times be subject and subordinate to the terms of this Agreement and any party foreclosing any such Mortgage, or acquiring title by deed in lieu of foreclosure or trustee’s sale, shall acquire title subject to all of the terms and provisions of this Agreement. However, no breach of the covenants, conditions or restrictions contained in this Agreement shall affect, impair, defeat or render invalid the lien or charge of any Mortgage, and neither any mortgagee, beneficiary nor other person acquiring title to any part of the property affected hereby by foreclosure, deed in lieu of foreclosure or otherwise shall have any liability for obligations under this Agreement arising prior to its acquisition of title. Neither a mortgagee nor beneficiary of a Mortgage nor any person acquiring title to any part of the property affected hereby by foreclosure of such Mortgage or deed in lieu of foreclosure shall be bound by any amendment of this Agreement made without the consent of such mortgagee or beneficiary, as the case may be.
     2.2 Binding Effect . Any transferee of any property or portion of any property affected hereby shall automatically be deemed, by acceptance of the title to such property, to have assumed all rights and obligations of this Agreement relating thereto to the extent of its interest in its respective property occurring after the date of such acceptance and to have agreed with the then owners of all other properties affected hereby to execute any and all instruments and to do any and all things reasonably required to carry out the intention of this Agreement, and the transferor shall upon the completion of such transfer be relieved of all further liability under this Agreement except liability with respect to matters that may have arisen during its period of ownership of the property so conveyed that remain unsatisfied. Nothing set forth herein shall impose, or be deemed to impose, any obligations (including, without limitation, any construction

4


 

obligations) as to any party or property burdened hereby, unless such obligations are expressly set forth herein.
     2.3 Non-Dedication . Nothing contained in this Agreement shall be deemed to be a gift or dedication of any property affected hereby, or any portion thereof, to the general public or for any public use or purpose whatsoever, it being the intention of the Agreement and its successors-in-title that nothing in this Agreement, expressed or implied, shall confer upon any person, other than the parties hereto and their successors-in-title, any rights or remedies under or by reason of this Agreement.
     2.4 Running with the Land . The easements, covenants, and obligations created herein are intended to run with title to the Grantor Property and Grantee Property and such rights, easements, covenants, and obligations shall inure to the benefit of and burden the successors in interest to Grantor and Grantee, including, without limitation, all future owners and ground lessees of the Grantor Property and the Grantee Property.
ARTICLE 3 — NOTICES
     3.1 Notices . Each notice (“ Notice ”) shall be in writing and shall be, at the option of the party giving the Notice, deemed to have been properly given or served if (i) personally delivered, (ii) by overnight delivery service (including FedEx), or (iii) transmitted by postage prepaid, certified mail, return receipt requested, and addressed as hereinafter provided. Any Notice shall be deemed to have been given on (x) the date of receipt if delivered personally or (y) the day it shall have been posted if transmitted by mail. Delivery by a commercial courier or express mail service shall be deemed personal delivery effective when provided to such service for delivery. The time period for any response to a Notice or action in connection therewith shall not commence to run, however, until actual receipt or rejection or inability to deliver such Notice. By giving to the other parties at least 10 days’ Notice thereof, any party shall have the right from time to time during the term of this Agreement to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the United States of America. Notices shall be addressed as set forth herein below.
To Grantor:   Centex Office Vista Ridge Lewisville II, L.P.
2728 North Harwood Street
Dallas, Texas 75201
Attn: Project Manager
To Grantee:   Centex Office Vista Ridge Lewisville III, L.P.
2728 North Harwood Street
Dallas, Texas 75201
Attn: Project Manager
ARTICLE — MISCELLANEOUS
     4.1 Severability . If any provision of this Agreement, or the application thereof to any person or circumstance, shall be to any extent held invalid, inoperative or unenforceable, the remainder of this Agreement, or the application of such provision to any other persons or circumstances, shall not be affected thereby; it shall not be deemed that any such invalid

5


 

provision affects the consideration for this Agreement; and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
     4.2 Governing Law . This Agreement shall be construed in accordance with the laws of the State of Texas.
     4.3 Headings . The Article headings in this Agreement are for convenience only, shall in no way define or limit the scope or content of this Agreement, and shall not be considered in any construction or interpretation of this Agreement or any part hereof.
     4.4 No Partnership . Nothing in this Agreement shall be construed to make any of the parties hereto partners or joint venturers or render any of said parties liable for the debts or obligations of any other party.
     4.5 Exhibits . This Agreement shall be deemed to include all exhibits attached hereto, which exhibits are incorporated herein by reference, and shall be binding upon and inure to the benefit of the parties hereto and their successors-in-title.
     4.6 Amendments . The provisions of this Agreement may be abrogated, modified, rescinded or amended in whole or in part only by a written instrument duly executed, delivered, and recorded that is entered into by the parties hereto, or their respective successors, assigns, or successors-in-title.
     4.7 Estoppel . Any party hereto may, at any time and from time to time, in connection with the sale or transfer of its respective property or in connection with the financing or refinancing of its respective property by a bona fide mortgage or sale and leaseback made in good faith and for value, deliver a written notice to the other party or its successors-in-title requesting such party to execute a certificate certifying that such party making such request is not in default in the performance of its obligations under this Agreement, or, if in default, describing therein the nature and amount of any default. The party receiving such request shall execute and return such certificate within 30 days following its receipt thereof. Such certificate may be relied upon by all transferees, mortgagees, and security deed holders.
     4.8 Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute one agreement and the signatures of any party to any counterpart shall be deemed to be a signature to, and may be appended to, any other counterpart.
     4.9 Attorney’s Fees . In the event of any litigation between the parties arising out of this Agreement or the Easement Area, the prevailing party shall be entitled to recover its reasonable attorney’s fees, court costs and litigation expenses.

6


 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
         
    GRANTOR :
 
       
    CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P.,
a Delaware limited partnership
 
       
 
  By:   Centex Office General Partner, LLC,
a Delaware limited liability company,
its sole general partner
             
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
   
     
STATE OF TEXAS
  §
 
  §
COUNTY OF DALLAS
  §
     On ___________________, 2003, before me, the undersigned, personally appeared __________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
         
 
 
 
Notary Public — State of Texas
   
[Continued on following page]

7


 

         
    GRANTEE :
 
       
    CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P.,
a Delaware limited partnership
 
       
 
  By:   Centex Office General Partner, LLC,
a Delaware limited liability company,
its sole general partner
             
 
  By:        
 
  Name:  
 
   
 
  Title:  
 
   
 
     
 
   
     
STATE OF TEXAS
  §
 
  §
COUNTY OF DALLAS
  §
     On ___________________, 2003, before me, the undersigned, personally appeared __________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
         
 
 
 
Notary Public — State of Texas
   

 

Exhibit 10.54
FIRST AMENDMENT TO LEASE AGREEMENT
          This FIRST AMENDMENT TO LEASE AGREEMENT (this “ Amendment ”) is entered into effective as of May 31, 2004, by and between CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P., a Delaware limited partnership (“ Landlord ”), and CENTEX HOME EQUITY COMPANY, LLC, a Delaware limited liability company (“Tenant”).
RECITALS:
          A. Landlord and Tenant entered into that certain Lease Agreement with an Effective Date of May 20, 2003 (the “ Lease ”), for the lease of certain space more particularly described therein located in Denton County, Lewisville, Texas (the “ Premises ”),
          B. Landlord and Tenant now desire to amend the Lease to modify certain provisions of the Lease upon the terms and conditions set forth below.
AGREEMENTS:
          NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and confessed, the parties hereby agree as follows:
          1. The definition of “ Base Rent ” in Section 1.1 of the Lease is hereby deleted in its entirety and replaced with the following:
          “ Base Rent ” means the following:
                         
    Base Rent per Square        
    Foot of Area in the        
    Building   Anticipated Base   Anticipated Base
Lease Year   (per Year)   Rent per Lease Year   Rent Per Month
1
  $ 13.00     $ 2,091,830.00     $ 174,319.16  
2
  $ 13.26     $ 2,133,666.60     $ 177,805.55  
3
  $ 13.53     $ 2,177,112.30     $ 181,426.02  
4
  $ 13.80     $ 2,220,558.00     $ 185,046.50  
5
  $ 14.07     $ 2,264,003.70     $ 188,666.97  
6
  $ 14.35     $ 2,309,058.50     $ 192,421.54  
7
  $ 14.64     $ 2,355,722.40     $ 196,310.20  
8
  $ 14.93     $ 2,402,386.30     $ 200,198.85  
9
  $ 15.23     $ 2,450,659.30     $ 204,221.60  
10
  $ 15.54     $ 2,500,541.40     $ 208,378.45  
          The “Base Rent per Square Foot of Area” and “Base Rent per Lease Year” amounts set forth above reflect a 2% compounded annual increase during each year of the Lease

FIRST AMENDMENT TO LEASE AGREEMENT — Page 1


 

Term. Such amounts are subject to adjustment pursuant to the terms of the Improvements Agreement. Landlord and Tenant stipulate that the Building will contain 160,910 square feet of area but agree to confirm the exact square footage in the Acceptance of Premises Memorandum. The annual and monthly amounts set forth above are based on the anticipated square footage, but all computations of Base Rent will be based on the number set forth in the Acceptance of Premises Memorandum.
          2. The definition of “ Commencement Date ” in Section 1.1 of the Lease is hereby deleted in its entirety and replaced with the following:
          “ Commencement Date ” means June 1, 2004.
          3. The above recitals are incorporated herein by reference. All capitalized terms not otherwise defined herein shall have the same meaning as ascribed to them in the Lease.
          4. The terms, covenants, conditions and provisions contained in this Amendment shall be binding upon and inure to the benefit of Landlord and Tenant, their respective heirs, representatives, successors and permitted assigns.
          5. This Amendment may not be modified, amended or terminated nor any of its provisions waived except by written agreement signed by both parties. Except as amended or supplemented hereby, the Lease shall remain in full force and effect, enforceable in accordance with its terms.
          6. To facilitate execution, this instrument may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this instrument to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.
          7. Each party executing this Amendment represents that it has the capacity and authority to execute this Amendment.

FIRST AMENDMENT TO LEASE AGREEMENT — Page 2


 

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and effective as of the date first above written.
                     
    LANDLORD :        
 
    CENTEX OFFICE VISTA RIDGE LEWISVILLE II, L.P.,        
    a Delaware limited partnership        
 
                   
    By:   Centex Office General Partner, LLC,
        a Delaware limited liability company,
        its sole general partner
 
                   
 
      By:   /s/ Terry N. Whitman        
 
                   
 
      Name:   Terry N. Whitman        
 
                   
 
      Title:   Vice President        
 
                   
             
 
  TENANT:        
 
           
 
           
    CENTEX HOME EQUITY COMPANY, LLC,
    a Delaware limited liability company
 
           
 
  By:   /s/ Jay Bray    
 
           
 
  Name:   Jay Bray    
 
           
 
  Title:   CEO    
 
           

FIRST AMENDMENT TO LEASE AGREEMENT — Page 3

Exhibit 10.55
LEASE AGREEMENT
BETWEEN
CENTEX OFFICE VISTA RIDGE LEWISVILLE I, L.P.,
AS LANDLORD
AND
CENTEX HOME EQUITY COMPANY, LLC,
AS TENANT
OCTOBER 8, 2001
LEWISVILLE OFFICE I
LEWISVILLE, TEXAS

 


 

TABLE OF CONTENTS
                     
                  Page  
SECTION 1 — DEFINITIONS        
 
    1.1     Definitions     1  
SECTION 2 — PREMISES        
 
    2.1     Lease Grant     3  
 
    2.2     Initial Improvements     3  
 
    2.3     WAIVER OF WARRANTIES; ACCEPTANCE OF CONDITION     3  
 
    2.4     Expansion Right     4  
SECTION 3 — LEASE TERM        
 
    3.1     Lease Term     4  
 
    3.2     Confirmation of Commencement Date     5  
 
    3.3     Delay in Commencement Date     5  
 
    3.4     Holding Over     5  
 
    3.5     Renewal Option     5  
SECTION 4 — RENT        
 
    4.1     Payment of Rent     6  
 
    4.2     Basic Operating Costs     6  
 
    4.3     Other Amounts Owing to Landlord     8  
 
    4.4     Late Payments; Dishonored Checks     9  
 
    4.5     Net Lease     9  
SECTION 5 — CREDIT ENHANCEMENT        
SECTION 6 — LEGAL AND CONTRACTUAL LIMITATIONS ON USE OF PREMISES        
 
    6.1     Use     9  
 
    6.2     Compliance with Laws Generally     9  
 
    6.3     Compliance with Accessibility Laws     10  
 
    6.4     Building Rules and Regulations     10  
 
    6.5     Quiet Enjoyment     10  
SECTION 7 — OPERATIONAL MATTERS        
 
    7.1     Services to the Premises     10  
 
    7.2     Parking     10  
 
    7.3     Graphics; Signage     11  
 
    7.4     Repairs and Maintenance by Landlord     11  
 
    7.5     Maintenance by Tenant     11  
 
    7.6     Repairs and Replacements by Tenant     12  
 
    7.7     Alterations, Improvements     12  
 
    7.8     Telecommunications     13  
 
    7.9     Change of Building Name     13  
 
    7.10     Entry by Landlord     13  

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TABLE OF CONTENTS
(continued)
                     
                  Page  
SECTION 8 — TRANSFER OF LEASEHOLD RIGHTS        
 
    8.1     Transfers by Tenant     13  
 
    8.2     Affiliate Transfers     14  
 
    8.3     Transfer Requirements     14  
 
    8.4     Transfers by Landlord     14  
SECTION 9 — INSURANCE; CASUALTY; ALLOCATION OF LIABILITY        
 
    9.1     Property Insurance     15  
 
    9.2     Liability Insurance     15  
 
    9.3     Casualty Damage     16  
 
    9.4     INDEMNITY BY TENANT     17  
 
    9.5     INDEMNITY BY LANDLORD     17  
 
    9.6     Waiver of Claims and Subrogation Rights     17  
 
    9.7     Damages from Certain Causes     18  
SECTION 10 — CONDEMNATION        
 
    10.1     Condemnation     18  
 
    10.2     Condemnation Award     19  
SECTION 11 — TITLE ENCUMBRANCES        
 
    11.1     Subordination to Mortgage     19  
 
    11.2     Mechanic’s Liens     19  
SECTION 12 — DEFAULT; DISPUTES; REMEDIES        
 
    12.1     Default by Tenant     20  
 
    12.2     Landlord’s Remedies     20  
 
    12.3     Default by Landlord     22  
 
    12.4     Limitation on Landlord’s Liability     22  
 
    12.5     Attorney’s Fees     22  
SECTION 13 — MISCELLANEOUS        
 
    13.1     Notices     22  
 
    13.2     Estoppel Agreements     22  
 
    13.3     No Implied Waiver     23  
 
    13.4     Independent Obligations     23  
 
    13.5     Severability     23  
 
    13.6     Recording     23  
 
    13.7     Governing Law     23  
 
    13.8     Force Majeure     23  
 
    13.9     Time of Performance     23  
 
    13.10     Commissions     23  
 
    13.11     Merger of Estates     23  
 
    13.12     Survival of Indemnities and Covenants     23  
 
    13.13     Headings     23  
 
    13.14     Entire Agreement     24  
 
    13.15     Amendment     24  

-ii-


 

TABLE OF CONTENTS
(continued)
                     
                  Page  
 
    13.16     Joint and Several Liability     24  
 
    13.17     Multiple Counterparts     24  
 
    13.18     Effect of Delivery of This Lease     24  

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LEASE AGREEMENT
     THIS LEASE AGREEMENT (“ Lease ”) is executed effective as of October 8, 2001 (the “ Effective Date ”), between CENTEX OFFICE VISTA RIDGE LEWISVILLE I, L.P., a Delaware limited partnership (“ Landlord ”), and CENTEX HOME EQUITY COMPANY, LLC, a Delaware limited liability company (“ Tenant ”).
SECTION 1 — DEFINITIONS
     1.1 Definitions . As used in this Lease, the following terms have the meanings set forth below:
          “ Base Rent ” means the following:
                         
    Base Rent per Square              
    Foot of Area in the              
    Building     Base Rent per     Base Rent Per  
Lease Year   (per Year)     Lease Year     Month  
1
  $ 12.50     $ 503,125.00     $ 41,927.08  
2
  $ 12.75     $ 513,187.50     $ 42,765.63  
3
  $ 13.01     $ 523,451.25     $ 43,620.94  
4
  $ 13.27     $ 533,920.28     $ 44,493.36  
5
  $ 13.53     $ 544,598.68     $ 45,383.22  
6
  $ 13.80     $ 555,490.65     $ 46,290.88  
7
  $ 14.08     $ 566,600.47     $ 47,216.70  
8
  $ 14.36     $ 577,932.48     $ 48,161.04  
9
  $ 14.65     $ 589,491.13     $ 49,124.26  
10
  $ 14.94     $ 601,280.95     $ 50,106.74  
11
  $ 15.24     $ 613,306.57     $ 51,108.88  
12
  $ 15.54     $ 625,572.70     $ 52,131.05  
     The “Base Rent” amounts set forth above reflect a 2% annual increase during each year of the Lease Term. If the Lease Term is extended beyond 12 years in accordance with Section 2.4 , then the “Base Rent” payable beyond the 12 th year will be increased by 2% annually as well. The “Base Rent per Square Foot of Area in the Building” is in all cases subject to adjustment pursuant to the terms of the Improvements Agreement. Landlord and Tenant stipulate that the Building contains 40,250 square feet of area and that all computations of Base Rent will be based on such figure.
          “ Basic Operating Costs ” has the meaning given to such term in Section 4.2 .
          “ Building ” means the office building located upon the Property.
          “ Commencement Date ” means the earlier of (i) the date that Tenant actually occupies the Premises for the conduct of its business, or (ii) the date on which the Premises is Ready For Occupancy.
          “ Default Rate ” means the lesser of (i) the rate of 18% per year, or (ii) the maximum rate of interest then permissible for a commercial loan to Tenant in the State.
          “ Improvements Agreement ” means the Improvements Agreement attached to this Lease as Exhibit “D” .

 


 

          “ Initial Improvements ” has the meaning given to such term in the Improvements Agreement.
          “ Landlord-Related Party ” means any officer, director, partner, employee, agent or contractor of Landlord.
          “ Lease Term ” means the period that begins on the Commencement Date and ends on the last day of the 144th full calendar month after the Commencement Date, subject to modification in accordance with Section 2.4 and Section 3.1(b) .
          “ Lease Year ” means a period of 12 consecutive calendar months. If the Commencement Date does not occur on the first day of a month, the first Lease Year will begin on the first day of the month following the Commencement Date.
          “ Market Area ” means the office market of the Vista Ridge Business Park.
          “ Notice Address ” means:
     
With respect to Landlord:
  With a copy to:
 
   
 
   
Centex Office Vista Ridge Lewisville I, L.P.
  Centex Office Vista Ridge Lewisville I, L.P.
c/o Centex Development Company
  c/o Centex Development Company
2728 North Harwood
  2728 North Harwood
Dallas, Texas 75201
  Dallas, Texas 75201
Attn: Project Manager (Dallas)
  Attn: General Counsel
Tel: 214-981-6709
  Tel: 214-981-6997
Fax: 214-981-6888
  Fax: 214-981-6180
 
   
With respect to Tenant:
  With a copy to:
 
   
 
   
Centex Home Equity Company, LLC
  Centex Home Equity Company, LLC
2828 N. Harwood
  2828 N. Harwood
Dallas, Texas 75201
  Dallas, Texas 75201
Attn: Bob Bottorff
  Attn: General Counsel
Tel: 214.758.7697
  Tel: 214.758.7045
Fax: 214.758.7875
  Fax: 214.758.7868
          “ Parking Areas ” means those areas located upon the Property designated by Landlord, from time to time, to be parking areas.
          “ Premises ” means the Property and all improvements constructed thereon, including the Building and the Parking Areas, as shown on the site plan attached to this Lease as Exhibit “B” .
          “ Property ” means the land described in Exhibit “A” attached hereto.
          “ Punchlist Items ” means touch-up, minor finish, mechanical adjustment, or similar work to be performed as a part of completing the Initial Improvements that does not unreasonably interfere with the conduct of Tenant’s business at the Premises.

2


 

          “ Ready For Occupancy ” means the Initial Improvements are Substantially Complete and all actions required to be taken by Landlord in order to obtain a temporary or final certificate of occupancy have been performed.
          “ Rent ” means, collectively, the Base Rent, the Basic Operating Costs, any amounts to be paid by Tenant pursuant to the Improvements Agreement, and all other sums of money becoming due and payable to Landlord under this Lease.
          “ Rules and Regulations ” means the rules and regulations for the Premises set forth on Exhibit “C” attached hereto, and any reasonable, non-discriminatory rules and regulations that may be adopted or altered by Landlord in accordance with this Lease.
          “ State ” means the State of Texas.
          “ Substantially Complete ” means that the Initial Improvements have been completed substantially in accordance with the Plans and Specifications (as defined in the Improvements Agreement), excluding Punchlist Items.
          “ Taxes ” means all taxes, assessments and governmental charges, whether federal, state, county or municipal, and whether they be by taxing districts or authorities presently taxing the Premises or by others, subsequently created or otherwise and any other taxes, association dues and assessments attributable to the Premises or its operation. The term “ Taxes ” does not include, federal and state income taxes, franchise taxes, inheritance, estate, gift, corporation, net profits or any similar tax for which Landlord becomes liable and/or which may be imposed upon or assessed against Landlord. If, at any time during the Lease Term, the present method of taxation is changed so that in lieu of the whole or any part of any taxes, assessments or governmental charges levied, assessed or imposed on the Premises, there is levied, assessed or imposed on Landlord a capital levy or other tax directly on the Rent, or a franchise tax, assessment, levy or charge measured by or based, in whole or in part, upon the Rent, then all such taxes, assessments, levies or charges, or the part thereof so measured or based, will be included with the term “ Taxes ”.
          “ Tenant-Related Party ” means any officer, director, partner, employee, agent or contractor of Tenant.
SECTION 2 — PREMISES
     2.1 Lease Grant . Landlord leases to Tenant, and Tenant leases from Landlord, the Premises, subject to all of the terms and conditions of this Lease. Landlord retains the right to grant easements and similar rights over and upon the Premises so long as Landlord’s exercise of such right does not adversely affect Tenant’s rights hereunder in any material respect.
     2.2 Initial Improvements . Landlord agrees to construct the Initial Improvements in accordance with all applicable laws and the terms of the Improvements Agreement.
     2.3 WAIVER OF WARRANTIES; ACCEPTANCE OF CONDITION .
           (a) TENANT ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS LEASE (INCLUDING THE IMPROVEMENTS AGREEMENT), NEITHER LANDLORD NOR ANY LANDLORD-RELATED PARTY HAS MADE ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE HABITABILITY, MERCHANTABILITY, SUITABILITY,

3


 

QUALITY, CONDITION OR FITNESS FOR ANY PARTICULAR PURPOSE (COLLECTIVELY, THE “ DISCLAIMED WARRANTIES ”) WITH REGARD TO THE PREMISES. TENANT HEREBY WAIVES, TO THE EXTENT PERMITTED BY LAW, THE DISCLAIMED WARRANTIES WITH REGARD TO THE PREMISES.
          (b) Tenant’s taking possession of the Premises will be conclusive evidence that (i) Tenant has inspected (or has caused to be inspected) the Premises, (ii) Tenant accepts the Premises as being in good and satisfactory condition and suitable for Tenant’s purposes, and (iii) the Premises fully complies with Landlord’s covenants and obligations hereunder.
          (c) Notwithstanding the foregoing, Tenant does not waive the right to cause Landlord to (i) correct any defective work covered by any warranty in the Improvements Agreement, (ii) complete any Punchlist Items in accordance with the terms of the Improvements Agreement, or (iii) correct any “latent defects” (i.e., defects not reasonably discoverable during a thorough investigation of the Premises) in or affecting the Premises. If Tenant does not give Landlord written notice within 9 months following the Commencement Date regarding alleged defects in the performance of the work under the Improvements Agreement, such failure will constitute a waiver of any further claims of Tenant regarding such defects. However, nothing contained in this Section 2.3(c) limits the right of Tenant to enforce the repair and maintenance obligations of Landlord under this Lease.
     2.4 Expansion Right . At any time prior to the date that is 2 years after the Commencement Date (the “ Expansion Deadline ”), Tenant may notify Landlord in writing that Tenant desires to enter into a lease (the “ Expansion Lease ”) for a second building to be constructed by Landlord or an affiliate of Landlord (the “ Expansion Building ”) on up to 6.5 acres of land adjacent to the Property on the north (the “ Expansion Premises ”). Accordingly, Landlord agrees not to sell or develop the Expansion Premises until the earlier of (i) the Expansion Deadline, or (ii) Tenant’s waiver of the expansion right pursuant to Section 3.1(b) . Following Landlord’s receipt of Tenant’s written notice of exercise of the expansion right, Landlord and Tenant agree to reasonably cooperate to design a building suitable to Tenant. Neither Landlord nor Tenant will be obligated to - enter into the Expansion Lease or any other binding agreement regarding the Expansion Building. If Landlord and Tenant do reach an agreement, then Landlord and Tenant agree promptly to enter into the Expansion Lease, which must be in form and substance substantially the same as this Lease, except (i) the lease term under the Expansion Lease will be 10 years, (ii) Tenant will have no further expansion right under the Expansion Lease, and (iii) the base rental figures, construction timing, and other matters specific to the Expansion Building will be based upon the terms negotiated by Landlord and Tenant pursuant to this Section 2.4 . Furthermore, if the Expansion Lease is signed, Landlord and Tenant agree that the Lease Term of this Lease will be shortened or lengthened (as the case may be) to become coterminous with the 10-year lease term of the Expansion Lease. If Tenant timely notifies Landlord of its desire to enter into the Expansion Lease but Landlord and Tenant have not entered into the Expansion Lease within 9 months after Landlord’s receipt of such notice, then the expansion right described in this Section 2.4 will be void and of no further force or effect and Landlord will be free to sell, utilize, or develop the Expansion Premises for any purpose. Likewise, if Tenant does not notify Landlord of its desire to enter into the Expansion Lease by the Expansion Deadline, then the expansion right described in this Section 2.4 will be void and of no further force or effect and Landlord will be free to sell, utilize, or develop the Expansion Premises for any purpose.
SECTION 3 — LEASE TERM
     3.1 Lease Term.
          (a) This Lease will continue in force during a period beginning on the Effective Date of this Lease and ending on the expiration of the Lease Term, unless this Lease is terminated early or

4


 

extended to a later date pursuant to the terms of this Lease. The Lease Term will commence and Rent will accrue beginning on the Commencement Date.
          (b) At any time prior to the Expansion Deadline, Tenant may give written notice to Landlord that Tenant is waiving its expansion right under Section 2.4 . If such notice is given timely, the Lease Term will be reduced to 10 years from the date of Landlord’s receipt thereof. Although the Lease Term may be modified, the Base Rent payable by Tenant will remain consistent with the “Base Rent” definition in Section 1.1 . By way of example, if Tenant notifies Landlord of its waiver of the Section 2.4 expansion right 6 months after the Commencement Date, then the Lease Term will be reduced by 18 months (i.e., to 10 years and 6 months from the Commencement Date), and the Base Rent amount payable during the last 6 months of the Lease Term will be $15.24 per foot. If, however, Tenant notifies Landlord of its waiver of the Section 2.4 expansion right 15 months after the Commencement Date, then the Lease Term will be reduced by only 9 months (i.e., to 11 years and 3 months from the Commencement Date), and the Base Rent amount payable during the last 3 months of the Lease Term will be $15.54 per foot.
     3.2 Confirmation of Commencement Date . On or about the Commencement Date, Landlord and Tenant will execute a Memorandum Regarding Acceptance of Premises in the form of Exhibit “F” attached hereto confirming the Commencement Date and the acceptance of the Premises by Tenant (subject to the completion of any remaining Punchlist Items).
     3.3 Delay in Commencement Date . Subject to the limitations set forth herein, Landlord agrees to make the Premises Ready For Occupancy on or before the later of (i) the date which is 180 days after the date on which Landlord receives all permits and approvals required for the construction of the Shell Work (as defined in the Improvements Agreement), or (ii) the date which is 60 days after the date on which Landlord receives all permits and approvals required for the construction of the Finish Work (as defined in the Improvements Agreement). If the Commencement Date is delayed due to a Tenant Delay (as defined in the Improvements Agreement), the obligations of Tenant under this Lease (including, without limitation, the obligation to pay Rent) will commence as of the date that the Commencement Date would have occurred but for the Tenant Delay. If, however, the Commencement Date is delayed due to any reason other than a Tenant Delay (subject to Section 13.8 hereof), then, as Tenant’s sole remedy for the delay in Tenant’s occupancy of the Premises, Tenant will be entitled to deduct from future installments of Base Rent an amount equal to $750.00 for each day of delay (up to a maximum of $45,000.00). The foregoing amounts have been agreed to by Landlord and Tenant as liquidated damages, the precise amount of such damage not being susceptible to exact proof.
     3.4 Holding Over . If Tenant continues to occupy the Premises after the expiration of the Lease Term without the prior written consent of Landlord, such occupancy will be a tenancy at sufferance under all of the terms, covenants and conditions of this Lease, but the Base Rent will increase to a daily Base Rent equal to the number determined by multiplying the Base Rent for the final month of the Lease Term by 150%, and then dividing by 30. Tenant will also pay any and all costs, expenses or damages sustained by Landlord as a result of such holdover.
     3.5 Renewal Option . Landlord grants to Tenant the right to renew the Lease Term in accordance with the provisions set out in Exhibit “G” attached hereto and made a part hereof for all purposes.

5


 

SECTION 4 — RENT
     4.1 Payment of Rent .
     (a) Except as otherwise expressly provided in this Lease, Tenant must pay Rent to Landlord in advance in monthly installments on the first day of each calendar month during the Lease Term, at Landlord’s Notice Address or to such other person or at such other address as Landlord may from time to time designate in writing.
     (b) Landlord may, at its option, bill Tenant for Rent, but no delay or failure by Landlord in providing such a bill will relieve Tenant from the obligation to pay the Rent on the first day of each month as provided herein. Rent must be paid without notice, demand, abatement, deduction or offset, except as otherwise expressly provided in this Lease.
     (c) If the Lease Term commences on a day other than the first day of a calendar month, then the Base Rent for such partial month will be prorated and paid at the rental rate applicable during the first full month of the Lease Term. Tenant must pay the Base Rent due for the first full month of the Lease Term when Tenant delivers to Landlord an executed copy of this Lease.
     4.2 Basic Operating Costs .
          (a) Prior to the commencement of each calendar year during the Lease Term (not including the calendar year in which the Lease Term commences), Landlord may, at its option, provide Tenant with a then-current estimate of Basic Operating Costs for the upcoming calendar year. Tenant must pay, as additional rental, in monthly installments in accordance with Section 4.1 , the reasonably estimated Basic Operating Costs for the calendar year in question. The failure of Landlord to estimate Basic Operating Costs and bill Tenant on a monthly basis will not relieve Tenant of its obligation to pay Basic Operating Costs. If any Basic Operating Costs arise for which Landlord requests reimbursement, Tenant will be responsible for such amount in accordance with Section 4.3 .
          (b) By April 1 of each calendar year during Tenant’s occupancy (including the calendar year following the year in which the Lease Term is terminated), or as soon thereafter as possible, Landlord will furnish to Tenant a statement of Basic Operating Costs (the “ Statement ”). Landlord and Tenant will determine whether there is any difference between the amount, if any, collected by Landlord from Tenant for the estimated Basic Operating Costs and the actual amount of Basic Operating Costs. If there is an underpayment, Tenant must pay the amount of such underpayment to Landlord within 30 days following delivery of the Statement. If there has been an overpayment by Tenant, Landlord will, at Tenant’s option, either refund such overpayment to Tenant in cash or credit such overpayment against Rent next coming due under the Lease. At the end of the Lease Term, if no Event of Default exists, Landlord will refund any overpayment to Tenant in cash. If the Lease Term commences or ends at any time other than the first day of a calendar year, Basic Operating Costs will be prorated for such calendar year according to the number of days of the Lease Term in such calendar year.
          (c) If there exists any dispute as to the calculation of Basic Operating Costs (a “ Dispute ”), the events, errors, acts or omissions giving rise to the Dispute will not constitute a breach or default by Landlord nor shall Landlord be liable to Tenant, except as specifically provided below. If there is a Dispute, Tenant must notify Landlord in writing within 60 days after receipt of the Statement, specifying the items in Dispute. Notwithstanding the existence of a Dispute, Tenant must timely pay the amount in dispute as and when required under this Lease, but payment will be without prejudice to Tenant’s position. Upon receipt of the payment, Landlord will give Tenant such supplementary information regarding the items in Dispute as may be reasonably requested by Tenant in an effort to

6


 

resolve such Dispute. If Landlord and Tenant are unable to resolve the Dispute, the Dispute will be referred to a mutually satisfactory third party certified public accountant for final resolution, although Tenant will retain the audit rights contained in Section 4.2(d) . The cost of the certified public accountant will be paid by the party found to be least accurate (in terms of dollars in dispute). The decision of the certified public accountant will be final and binding. Final settlement must be made within 30 days after receipt of such accountant’s decision. If a Dispute is resolved in favor of Tenant, Landlord must pay to Tenant the amount of the overpayment plus interest thereon from the time of such overpayment at the Default Rate. If Tenant fails to dispute the calculation of Basic Operating Costs in accordance with the procedures and within the time periods specified in this Section 4.2(c) , or if Tenant fails to request an audit of Basic Operating Costs in accordance with the procedures and within the time periods specified in Section 4.2(d) , the Statement will be considered final and binding for the calendar year in question.
          (d) Tenant, at Tenant’s expense, will have the right, no more frequently than once per calendar year, following 30 days’ prior written notice (such written notice to be given within 60 days following Tenant’s receipt of the Statement) to Landlord, to audit Landlord’s books and records relating to Basic Operating Costs for the immediately preceding calendar year only. Tenant’s right to audit Landlord’s books and records is subject to the following conditions:
               (1) Basic Operating Costs for the calendar year in question must have increased by more than 3% over Basic Operating Costs for the immediately preceding calendar year.
               (2) Tenant must conduct the audit in a manner that will not unreasonably interfere with the conduct of Landlord’s business.
               (3) Tenant must conduct the audit during normal business hours and at the location where Landlord maintains its books and records in either Dallas, Tarrant, Denton, or Collin County, Texas.
               (4) Tenant must deliver to Landlord a copy of the final results of such audit within 10 days after its receipt by Tenant.
               (5) No audit will be permitted if an Event of Default by Tenant (including any failure by Tenant to pay an amount in Dispute) has occurred and is continuing.
               (6) Tenant must reimburse Landlord for the cost of all copies requested by Tenant’s auditor.
               (7) The audit must be conducted by Tenant or an independent, nationally-recognized accounting firm or a local accounting firm reasonably acceptable to Landlord that is not being compensated by Tenant on a contingency fee basis. The auditor and Tenant must agree with Landlord in writing to keep the results of the audit confidential by executing and delivering to Landlord a confidentiality agreement in a form acceptable to Landlord, in Landlord’s reasonable discretion. Such confidentiality agreement must not prevent disclosure (i) in the case of litigation or alternative dispute resolution proceedings between Landlord and Tenant, or (ii) if Tenant is otherwise obligated to disclose such information under applicable laws or judicial order.
               (8) No subtenant will have the right to audit Landlord.
               (9) Tenant and its permitted assignees will be permitted only a total of 1 audit per calendar year.

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               (10) Provided Landlord timely provides access to Landlord’s books and records, Tenant must conclude the audit within 90 days after Tenant’s receipt of the Statement.
               (11) Any assignee’s audit right will be limited to the period after the effective date of the assignment.
Unless Landlord in good faith disputes the results of the audit, an appropriate adjustment will be made between Landlord and Tenant to reflect any overpayment or underpayment of Basic Operating Costs within 30 days after delivery of such audit to Landlord, in the manner described in Section 4.2(b) . If Landlord in good faith disputes the results of any such audit, the parties will in good faith attempt to resolve any disputed items. If Landlord and Tenant are able to resolve such dispute, final settlement will be made within 30 days after resolution of the dispute. If the parties are unable to resolve any such dispute, either Landlord or Tenant may trigger the Dispute mechanism described in Section 4.2(c) . If the audit conducted by Tenant correctly discloses that Tenant’s Share of Basic Operating Costs has been overstated by more than 5%, then within 30 days after receipt of an invoice from Tenant, Landlord must reimburse Tenant for the reasonable cost of performing such audit together with interest on any overpayment from the time of such overpayment at the Default Rate.
          (e) “ Basic Operating Costs ” means all costs and expenses incurred by Landlord in each calendar year of operating, maintaining, managing, repairing, managing and, except to the extent otherwise expressly provided herein, owning the Premises. “ Basic Operating Costs ” may include, without limitation, the cost of utilities attributable to the Premises, insurance, Taxes, water service and sewer charges, interior and exterior maintenance, property owners’ association dues and assessments, property management fees, parking lot maintenance, and any and all sales, use or other taxes with respect to the foregoing charged by 1 or more applicable authorities.
          (f) “ Basic Operating Costs ” will not include any expenses or costs for the following
items:
               (1) Depreciation or amortization of the Building or its contents or components;
               (2) Expenses for the preparation of space (including tenant finish out costs) or other similar type work which Landlord performs for any tenant or prospective tenant of the Building;
               (3) Expenses incurred in leasing or obtaining new tenants or retaining existing tenants, such as marketing costs and leasing commissions;
               (4) Legal expenses;
               (5) Interest, amortization or other costs associated with any mortgage, loan or refinancing of the Premises;
               (6) Any ground rent incurred for the Premises; or
               (7) Any expenses paid directly by Tenant or any expenses for which Landlord is reimbursed or which Landlord recovers (through insurance or otherwise) from a third party.
     4.3 Other Amounts Owing to Landlord . If Landlord incurs any expenses on behalf of Tenant or is otherwise due reimbursement from Tenant under this Lease, such amounts will be additional Rent. Tenant must pay the amounts owing within 30 days after its receipt of an invoice from Landlord.

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     4.4 Late Payments; Dishonored Checks .
          (a) If Landlord does not receive any installment of Rent within 5 days after the date due, Tenant, to the extent permitted by law, must pay, in addition to the installment of Rent, a late payment charge equal to 5% of the installment of Rent past due. The late payment charge will increase to 10% of the installment of Rent past due if Tenant becomes responsible for a late payment charge more than twice during any consecutive 12-month period. The late payment charge will revert to 5% after Tenant has paid Rent for 12 consecutive months without incurring a late payment charge. Because the additional costs and expenses resulting to Landlord from late payments are difficult to ascertain precisely, this late payment charge constitutes a reasonable and good faith estimate by the parties of the extent of such additional costs and expenses.
          (b) In addition to the late payment charge contained in Section 4.4(a) , all Rent, if not paid within 30 days after the date due, will, at the option of Landlord, and to the extent permitted by law, bear interest from the date due until paid at the Default Rate.
          (c) Acceptance of a late payment charge by Landlord does not constitute a waiver of Tenant’s default with respect to the overdue amount, nor will it be construed as a waiver by Landlord of the requirement for timely payment nor create a course of dealing permitting such late payments. Any payment by Tenant or receipt by Landlord of a lesser amount than the monthly installment of Rent due under this Lease will be deemed to be on account of the earliest Rent due hereunder. No endorsement or statement on any check or any letter accompanying any check or payment as Rent will be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or pursue any other remedy provided in this Lease.
     4.5 Net Lease . Except as otherwise provided in Section 7.4(a) , this Lease is intended to be a fully net lease, so that this Lease will yield, net to Landlord, the Rent specified in this Lease. In that regard, except as otherwise provided in Section 7.4(a) of this Lease, all Basic Operating Costs, utility charges, maintenance expenses, repair and replacement expenses, expenses relating to compliance with all applicable laws and all other costs, fees, charges, expenses, reimbursements and obligations of every kind and nature whatsoever relating to the Premises which may arise or become due during the Lease Term must be paid and discharged by Tenant.
SECTION 5 — CREDIT ENHANCEMENT
     The obligations of Tenant under this Lease, financial and otherwise, will be guaranteed by Centex Financial Services, Inc., a Nevada corporation (“ Guarantor ”), pursuant to the terms of that certain Guaranty Agreement (the “ Guaranty ”) in the form attached hereto as Exhibit “E” . The Guaranty must be signed by Guarantor concurrently with the execution of this Lease.
SECTION 6 — LEGAL AND CONTRACTUAL LIMITATIONS ON USE OF PREMISES
     6.1 Use . The Premises must be used solely for general office purposes. The Premises may not be used for any other purpose.
     6.2 Compliance with Laws Generally .
          (a) Tenant, at Tenant’s sole cost and expense, must comply with all current and future federal, state, municipal and other laws and ordinances applicable to the use of the Premises permitted in Section 6.1 , the employees, agents, visitors and invitees of Tenant, and the business

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conducted in the Premises by Tenant, including, without limitation, all environmental laws and regulations.
          (b) Tenant may not place or permit to remain within the Premises any “ hazardous materials ” as such term is now or hereafter defined under applicable environmental laws. Tenant may store and use, however, cleaning supplies, copier toner or other similar type products commonly found in commercial office space, so long as such items are properly labeled, stored and disposed of in accordance with all applicable governmental requirements.
     6.3 Compliance with Accessibility Laws . Tenant, at its sole cost, is responsible for compliance with the Americans With Disabilities Act and comparable federal, state and local statutes or regulations relating to accessibility of facilities (the “ Accessibility Laws ”) with respect to the Premises. Tenant will not be in default under this Section 6.3 for its failure to comply with Accessibility laws so long as Tenant is either contesting in good faith, and by legal means, the enforcement of Accessibility Laws, or is undertaking diligent efforts to comply with Accessibility Laws.
     6.4 Building Rules and Regulations . Landlord has the right to adopt and modify reasonable, non-discriminatory Rules and Regulations governing the use and occupancy of the Premises, but Landlord may not enforce against Tenant any modified Rules and Regulations which materially and adversely affect Tenant’s rights under this Lease or materially increase Tenant’s monetary obligations under this Lease. Tenant must comply with the Rules and Regulations and must cause all of its Tenant-Related Parties, contractors, invitees and visitors to do so as well. Landlord may change the Rules and Regulations from time to time, as Landlord reasonably deems necessary. Any changes to the Rules and Regulations will be effective when sent by Landlord to Tenant in writing. Landlord will have no liability to Tenant or any other person for its failure to enforce the Rules and Regulations, but Landlord agrees to enforce the Rules and Regulations on a non-discriminatory basis.
     6.5 Quiet Enjoyment . Tenant, on paying all sums required under this Lease and performing and observing all of its covenants and agreements, may peaceably and quietly occupy and use the Premises during the Lease Term. Such occupancy and use is subject to the provisions of this Lease, all matters of record affecting the Premises and applicable governmental laws, rules, and regulations. Landlord warrants and forever defends Tenant’s right to such occupancy against the claims of any and all persons lawfully claiming the same or any part thereof, subject only to the provisions of this Lease, all matters of record affecting the Premises and all applicable governmental laws, rules, and regulations.
SECTION 7 — OPERATIONAL MATTERS
     7.1 Services to the Premises . Landlord is not required to furnish any utility services and Tenant must pay the appropriate utility provider directly for all water, gas, heat, light, power, telephone, sewer, fire sprinkler, lawn sprinkler charges and other utilities and similar services used on or from the Premises, together with any taxes, penalties, surcharges, or the like pertaining thereto and any maintenance charges required in connection with such utilities. If any services to the Premises are interrupted, Tenant will have no claim for rebate of Rent, damages (including damages for business interruption) or eviction on account thereof. In no event will Landlord be liable for any interruption or failure of utility services on the Premises.
     7.2 Parking .
          (a) Landlord is providing the Parking Areas for the non-exclusive and common use of Landlord, all tenants of the Building, and their respective employees, agents, subtenants, licensees, visitors, guests and invitees. Use of the Parking Areas is subject to availability, but Landlord must provide

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at least 300 parking spaces in the Parking Areas. If any parking spaces become unavailable to Tenant due to casualty damage, flooding, condemnation or repairs, Landlord will use reasonable efforts to provide Tenant with reasonably satisfactory alternative parking arrangements until the use of the parking spaces is restored. Tenant will have no right, however, to terminate this Lease by reason of the loss of any parking spaces.
          (b) Tenant, the Tenant-Related Parties, and Tenant’s contractors, licensees and invitees must comply with the Rules and Regulations regarding the Parking Areas. Landlord is entitled and authorized to place a wheel lock or other device restricting mobility of any vehicle violating the Rules and Regulations and to have the vehicle towed away, at the sole risk and expense of the vehicle owner. Landlord may, but is not obligated to, use such access devices as Landlord deems necessary to ensure that only authorized persons will use the Parking Areas.
     7.3 Graphics; Signage .
          (a) Tenant is required to obtain Landlord’s prior written approval for any signage to be located at the Premises (other than interior signage that is not visible from the exterior of the Building). All such signage is subject to any applicable governmental laws, ordinances, regulations, Landlord’s standard sign criteria, subdivision codes, covenants and restrictions. Tenant, at its sole cost and expense, must remove all sign age upon the termination of this Lease and repair any damage caused by such removal, all to the reasonable satisfaction of Landlord.
          (b) In addition to the interior signage described above,. Landlord will allow Tenant to place a panel on any monument sign for the Building. Landlord makes no representation or warranty as to the availability of such signage and Tenant acknowledges that in all cases the signage will be subject to approval by Landlord (not to be unreasonably withheld) and the applicable governmental authorities prior to installation.
     7.4 Repairs and Maintenance by Landlord .
          (a) Landlord must maintain and keep in good repair, reasonable wear and tear excepted, the following at its sole cost and expense: the roof structure, the structural soundness of the exterior walls of the Building (not including windows, glass or plate glass, doors, special store fronts or office entries), exterior painting of the Building, and the foundation of the Building. All requests for repairs must be submitted to Landlord or its manager in writing, except in the case of an emergency. The cost of repairs and maintenance by Landlord pursuant to this Section 7.4(a) will be borne solely by Landlord and will not be included in Basic Operating Costs. If Tenant’s use of the Premises is materially impaired as a result of Landlord’s failure to perform any maintenance or repairs required by this Section 7.4(a) , then Tenant will be entitled to an equitable abatement of Base Rent during the period that Tenant’s use is so impaired.
          (b) Landlord also must maintain and keep in good repair, reasonable wear and tear excepted, those portions of the Premises not described in Section 7.4(a) . However, the cost of repairs and maintenance by Landlord pursuant to this Section 7.4(b) will be included in Basic Operating Costs. With Tenant’s prior approval (not to be unreasonably withheld), Landlord may engage a property manager to handle such responsibilities, in which case Tenant agrees to coordinate all requests with the property manager.
     7.5 Maintenance by Tenant . Tenant must cooperate with Landlord to maintain the Premises in a clean, orderly and sanitary condition. Tenant must not commit or allow any waste to be committed on any portion of the Premises. Tenant must provide regular janitorial service for the Premises if not

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included in the services provided by Landlord or its manager. At the expiration or early termination of this Lease, Tenant will deliver up the Premises to Landlord in as good condition as at the Commencement Date, ordinary wear and tear and damage by fire or casualty loss excepted.
     7.6 Repairs and Replacements by Tenant . Tenant will be responsible for the cost of repairing or replacing all items that are not the responsibility of Landlord under Section 7.4(a) , including any damage to the Premises, or any part thereof, caused by Tenant, any Tenant-Related Party or any subtenant, guest, licensee or invitee of Tenant.
     7.7 Alterations, Improvements .
          (a) Except as provided below, Tenant may make no alteration, change, improvement, replacement or addition to the Premises (collectively, “ Alterations ”) without the prior written consent of Landlord. Landlord may condition its consent on the requirement that Tenant remove any Alterations upon or prior to the expiration or termination of this Lease. Notwithstanding the foregoing, however, Landlord’s consent is not required for interior Alterations that cost less than $10,000 and that do not materially and adversely affect, in any way, the mechanical, electrical, plumbing, HVAC, structural or fire and life safety components of the Building (“ Non-Structural Alterations ”). Tenant agrees to notify Landlord prior to performing Non-Structural Alterations. Landlord may, at its option, require Tenant to submit plans and specifications to Landlord for approval prior to commencing any Alterations that are not Non-Structural Alterations. Landlord agrees to use reasonable efforts to review such plans and specifications and either approve or disapprove of the same within 10 days after receipt from Tenant. If Landlord has not approved of such plans and specifications within such 10-day period, then Tenant may send a second notice to Landlord requesting approval. If Landlord does not respond with approval or objections within the 5 days thereafter, then the plans and specifications will be deemed approved.
          (b) All Alterations must be done in a good and workmanlike manner and in compliance with all applicable laws and ordinances. All Alterations (other than Non-Structural Alterations) must be performed by a contractor reasonably acceptable to Landlord. Any contractors used by Tenant must carry a comprehensive liability (including builder’s risk) insurance policy in such amounts as Landlord may reasonably require and must provide proof of such insurance to Landlord prior to the commencement of any Alterations. Upon completion of any Alterations, Tenant must provide Landlord with a copy of its building permit, final inspection tag and, if plans and specifications were required by Landlord, final “as built” plans and specifications, together with evidence of the lien-free completion of such Alterations. All Alterations now or hereafter placed or constructed on the Premises at the request of Tenant will be at Tenant’s cost. If Landlord performs Alterations on Tenant’s behalf, Tenant must pay the cost of such Alterations (plus a construction management fee equal to 5% of hard costs).
          (c) Upon the expiration or early termination of this Lease, Tenant may remove its trade fixtures, office supplies and movable office furniture and equipment not attached to the Building provided (i) such removal is made prior to the expiration or within 5 days after the termination of the Lease Term; (ii) Tenant is not then in default in the timely performance of any obligation or covenant under this Lease; and (iii) Tenant promptly repairs all damage caused by such removal. All other property at the Premises, any Alterations to the Premises, and any other articles attached or affixed to the floor, wall, or ceiling of the Premises will, immediately upon installation, be deemed the property of Landlord and will be surrendered with the Premises at the termination or expiration of this Lease, without payment or compensation therefor. If, however, Landlord so requests in writing, Tenant must, at Tenant’s sole cost and expense, prior to the expiration or within 5 days after the termination of the Lease Term, remove any and all trade fixtures, office supplies and office furniture and equipment placed or installed by Tenant in the Premises, and any Alterations (other than the Initial Improvements) installed by Tenant or installed by

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Landlord at Tenant’s request if Landlord notified Tenant at the time it approved the plans and specifications that Landlord would require the removal of such Alterations upon the expiration or termination of this Lease. Tenant must repair any damage caused by such removal.
     7.8 Telecommunications .
          (a) If Tenant desires to utilize the services of a telephone or telecommunications provider whose equipment is not servicing the Building as of the Effective Date (the “ Telecommunications Provider ”), Tenant must notify Landlord. The Telecommunications Provider must obtain the written consent of Landlord, which consent will not be unreasonably withheld, conditioned, or delayed, before installing its lines or equipment or otherwise providing service within the Building.
          (b) Landlord’s consent under this section will not be deemed any kind of warranty or representation by Landlord as to the suitability, competence, or financial strength of the Telecommunications Provider. All telephone and telecommunications services desired by Tenant will be ordered and utilized at the sole risk and expense of Tenant. Tenant agrees that if service by the Telecommunications Provider is interrupted, curtailed, or discontinued for any reason other than the negligence or misconduct of Landlord or a Landlord-Related Party, Landlord will have no obligation or liability with respect thereto and that Tenant will have the sole obligation to obtain substitute service at its expense.
     7.9 Change of Building Name . Landlord reserves the right at any time to change the name of the Building. Landlord will use reasonable efforts to give Tenant 30 days’ advance written notice of such change.
     7.10 Entry by Landlord . Tenant agrees that Landlord and its employees, agents, contractors or representatives may enter into and upon any part of the Premises at all reasonable hours upon reasonable prior notice (and in the case of emergencies at all times and without notice) to inspect the same, or to show the Premises to prospective purchasers, mortgagees, or insurers or, within the last 12 months of the Lease Term only, to prospective tenants, or to clean or make repairs, alterations or additions thereto. Tenant will not be entitled to any abatement or reduction of Rent by reason of any such entry. Landlord will use reasonable efforts to minimize any disruption to the conduct of Tenant’s business by reason of any such entry.
SECTION 8 — TRANSFER OF LEASEHOLD RIGHTS
     8.1 Transfers by Tenant.
          (a) Tenant may not assign this Lease or sublease the Premises or any part thereof or mortgage, pledge or hypothecate its leasehold interest or grant any concession or license within the Premises (any such assignment, sublease, mortgage, pledge, hypothecation, or grant of a concession or license by Tenant is referred to in this Section 8 as a “ Transfer ”) without the prior written consent of Landlord, which consent will not be unreasonably withheld, conditioned, or delayed. Any attempt to effect a Transfer without the consent of Landlord will be void and of no effect.
          (b) To make a Transfer, Tenant must request in writing Landlord’s consent at least 30 days in advance of the date on which Tenant desires to make a Transfer and pay Landlord a $250.00 fee for reviewing the request plus the amount of any fee charged by Landlord’s lender in connection with the review of any proposed Transfer (the “ Review Fee ”). The request must include the name of the proposed assignee or sublessee, current financial information on the proposed assignee or sublessee, the terms of the proposed Transfer, and, if the Transfer is a sublease or assignment of only a portion of the

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Premises, information regarding access or construction issues that must be addressed to facilitate the Transfer. The request also must state that Landlord’s failure to respond within the designated period will result in a deemed approval of the Transfer. Landlord will, within 15 days following receipt of such request, notify Tenant in writing that Landlord elects (i) to permit Tenant to assign or sublet such space in accordance with the terms provided to Landlord, or (ii) to refuse consent to Tenant’s requested Transfer and to continue this Lease in full force and effect as to the entire Premises. If Landlord fails to notify Tenant in writing of such election within the 15-day period, Landlord will be deemed to have elected option (1) above.
          (c) The consent by Landlord to a particular Transfer will not be deemed a consent to any other subsequent Transfer. If this Lease, the Premises or the Tenant’s leasehold interest, or any portion of the foregoing, is transferred, or if the Premises are occupied in whole or in part by anyone other than Tenant without the prior consent of Landlord as provided herein, Landlord may collect rent from the transferee or other occupant and apply the net amount collected to the Rent payable hereunder. Such collection or application of rent by Landlord, however, will not be deemed a waiver of the provisions hereof or a release of Tenant from the further performance by Tenant of its covenants, duties and obligations hereunder.
     8.2 Affiliate Transfers . As used herein, the term “ Transfer ” includes any consolidation, reorganization, merger, sale of assets, sale of a controlling interest in stock, transfer by operation of law, or similar transaction. However, Tenant has the right, subject to Section 8.3, without Landlord’s consent, to assign this Lease or sublet all or any portion of the Premises to any person or entity who controls, is controlled by, or is under common control with the original Tenant named in this Lease (an “ Affiliate Transfer ”). The term “ control ” means, with respect to a corporation, the right - to exercise, directly or indirectly, more than 50% of the voting rights attributable to the shares of the controlled corporation, and, with respect to a person or entity that is not a corporation, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled person or entity. Tenant must provide Landlord with written notice of any Affiliate Transfer within 10 days after the effective date of such the Affiliate Transfer.
     8.3 Transfer Requirements . The following requirements apply to all Transfers (including Affiliate Transfers):
          (a) Tenant must, in the case of an assignment, cause the assignee to expressly assume and agree to perform, all of the covenants, duties and obligations of Tenant under this Lease arising after the effective date of the assignment. The assignee will be jointly and severally liable under the Lease along with Tenant.
          (b) The use of the Premises by the assignee or transferee must be consistent with the terms of this Lease. All of the terms and provisions of this Lease will continue to apply after a Transfer.
          (c) Tenant will remain directly and primarily liable for the performance of all the covenants, duties and obligations of Tenant under this Lease (including, without limitation, the obligation to pay Rent). Landlord will be permitted to enforce the provisions of this Lease against the undersigned Tenant or any transferee, or both, without demand upon or proceeding in any way against any other persons.
     8.4 Transfers by Landlord . Landlord will have the right to transfer and assign, in whole or in part, all of its rights and obligations hereunder and in the Premises. Upon the assumption by the transferee of the obligations of Landlord hereunder, Landlord will be released from any further obligations accruing

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after the date of transfer, and Tenant will look solely to such successor-in-interest of Landlord for the performance of such obligations.
SECTION 9 — INSURANCE; CASUALTY; ALLOCATION OF LIABILITY
     9.1 Property Insurance.
          (a) Landlord must maintain an insurance policy or policies of “risks of direct physical loss” in a “special form” basis (or comparable coverage by whatever name denominated), if reasonably available, on the portion of the Premises that is the property of Landlord (including Alterations by Tenant that have become the property of Landlord), in an amount equal to not less than 90% of the replacement cost. Such insurance will be maintained at the expense of Landlord (as a part of the Basic Operating Costs), and payments for losses thereunder will be made solely to Landlord or to the mortgagees of Landlord as their interests may appear. If insurance premiums for the Premises increase due to: (i) any subsequent improvements made by Tenant to the Premises or made by Landlord at Tenant’s request, or (ii) as a result of Tenant’s use of the Premises, Landlord may elect to require Tenant to pay directly for the increased premiums rather than including such increased premiums in Basic Operating Costs. From time to time following Tenant’s written request (but not more than once annually), Landlord must provide to Tenant a current certificate of insurance evidencing Landlord’s compliance with this Section 9.1 .
          (b) Tenant must maintain an insurance policy or policies of “risks of direct physical loss” in a “special form” basis (or comparable coverage by whatever name denominated), if reasonably available, on all of its personal property, including removable trade fixtures, office supplies and movable office furniture and equipment, located on the Premises, in an amount equal to full replacement cost and endorsed to provide that Tenant’s insurance is primary in the event of any overlapping coverage with the insurance carried by Landlord. Such insurance will be maintained at the expense of Tenant and payment for losses thereunder will be made solely to Tenant or to the mortgagees of Tenant (if permitted hereunder) as their interests may appear. Tenant must, prior to occupancy of the Premises and at Landlord’s request from time to time (but not more than once annually), provide to Landlord a current certificate of insurance evidencing Tenant’s compliance with this Section 9.1 . Tenant must obtain the agreement of Tenant’s insurers to notify Landlord at least 30 days prior to any cancellation or expiration of a property insurance policy.
     9.2 Liability Insurance .
          (a) Landlord must maintain a policy or policies of commercial general liability insurance covering the Premises on ISO Form CG 0001 or its equivalent, insuring against claims for personal or bodily injury or death or property damage (including contractual indemnity and liability coverage without contractual exclusion) occurring upon, in or about the Premises, with premiums thereon paid on or before the due date. The policy or policies must be issued and binding upon an insurance company licensed to do business in the State of Texas having an A.M. Best rating of “A-VIII” or better. Such insurance must provide coverage of not less than $2,000,000 per occurrence for bodily injury and property damage, $2,000,000 per occurrence for personal and advertising injury, $2,000,000 for general aggregate liability, and such other coverage as Landlord may deem appropriate. Such insurance must be maintained at the expense of Landlord (as a part of the Basic Operating Costs), and payments for losses thereunder will be made solely to Landlord or any additional insured, as appropriate. From time to time following Tenant’s written request (but not more than once annually), Landlord must provide to Tenant a certificate of insurance evidencing Landlord’s compliance with this Section 9.2 .

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          (b) Tenant must maintain a policy or policies of commercial general liability insurance covering the Premises and Tenant’s use thereof on ISO Form CO 0001 or its equivalent, insuring against claims for personal or bodily injury or death or property damage (including contractual indemnity and liability coverage without contractual exclusion) occurring upon, in or about the Premises, with the premiums thereon fully paid on or before the due date. The policy or policies must be issued by and binding upon an insurance company licensed to do business in the State having an A.M. Best Rating of “A-VIII” or better. Such insurance must provide minimum protection of not less than $2,000,000 per occurrence of bodily injury and property damage, $2,000,000 per occurrence for personal and advertising injury, $2,000,000 for general aggregate liability. Tenant’s insurance must contain an endorsement that Tenant’s insurance is primary for claims arising out of an incident or event occurring within the Premises. Tenant’s insurance must contain a provision naming Landlord (and any mortgagee designated by Landlord) as an additional insured. Tenant must, prior to occupancy of the Premises and at Landlord’s request from time to time, provide Landlord with a current certificate of insurance evidencing Tenant’s compliance with this Section 9.2. Tenant must obtain the agreement of Tenant’s insurers to notify Landlord at least 30 days prior to any cancellation or expiration of a liability insurance policy.
          (c) Tenant must also maintain worker’s compensation insurance coverage in accordance with applicable law.
          (d) The minimum coverage requirements set forth in this Section 9.2 will automatically increase by 15% at the beginning of every fifth Lease Year during the Lease Term.
     9.3 Casualty Damage .
          (a) If the Premises is damaged by fire or other casualty, Tenant must give prompt written notice to Landlord.
          (b) Landlord may terminate the Lease due to a casualty if:
               (1) The Building is so damaged by fire or other casualty that substantial alteration or reconstruction of the Building will, in the judgment of an independent architect selected by Landlord, be required;
               (2) Any mortgagee under a first mortgage or first deed of trust covering the Building requires that the insurance proceeds payable as a result of the casualty be used to reduce or retire the mortgage debt;
               (3) The casualty is not insured under the insurance policy or policies of “risks of direct physical loss” required to be carried by Landlord pursuant to the terms of Section 9.1 ; or
               (4) Landlord reasonably determines that insurance proceeds will be insufficient to restore the Building.
          (c) If Landlord does not terminate this Lease, Landlord will, as soon as practicable, but no more than 90 days after the date of the casualty, commence to repair and restore the Building and will proceed with reasonable diligence to restore the Building to substantially its condition prior to the occurrence of the casualty. However, Landlord will not be required to rebuild, repair, or replace any part of Tenant’s removable furniture, fixtures and equipment or any Alterations to the Premises made by Tenant following the Commencement Date which were not approved by Landlord in writing. Furthermore, Landlord will not be required to spend for the restoration work an amount in excess of the insurance proceeds actually received by Landlord as a result of the casualty, plus any deductible amounts

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thereunder (but Landlord may choose, at its option, to provide the extra funds necessary to complete the restoration).
          (d) If Landlord does not either commence the repairs to the Building within the time required herein or complete the repairs to the Building within 270 days after the date of the casualty, Tenant may terminate the Lease by written notice to Landlord given no later than 30 days following the date on which Landlord was to commence or complete such repairs, as the case may be.
          (e) Landlord will not be liable for any inconvenience or annoyance to Tenant or injury to the business of Tenant resulting in any way from the casualty or its repair. However, Landlord will allow Tenant an equitable abatement of Rent during the time and to the extent the Premises are unfit for occupancy. But if the Premises is damaged by a casualty resulting from the intentional acts of Tenant or any Tenant-Related Party, subtenant, or licensee of Tenant, Rent will not be abated during the repair of such damage.
      9.4 INDEMNITY BY TENANT . TENANT HEREBY INDEMNIFIES, DEFENDS AND HOLDS HARMLESS LANDLORD AND LANDLORD-RELATED PARTIES FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, DAMAGES, CLAIMS, SUITS, LOSSES, CAUSES OF ACTION, LIENS, JUDGMENTS AND EXPENSES (INCLUDING COURT COSTS, ATTORNEY’S FEES AND REASONABLE COSTS OF INVESTIGATION) OF ANY KIND, NATURE OR DESCRIPTION RESULTING FROM ANY INJURIES TO OR DEATH OF ANY PERSON OR ANY DAMAGE TO PROPERTY WHICH ARISES, OR IS CLAIMED TO ARISE FROM THE FOLLOWING (COLLECTIVELY, THE “ TENANT-RELATED CLAIMS ”): (1) AN INCIDENT OR EVENT WHICH OCCURRED WITHIN OR ON THE PREMISES; OR (2) THE BREACH OF THIS LEASE BY TENANT. SUCH INDEMNIFICATION WILL BE IN EFFECT EVEN IF THE TENANT-RELATED CLAIM IS THE RESULT OF OR CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF LANDLORD OR ANY LANDLORD-RELATED PARTY. The indemnity obligations of Tenant under this Section 9.4 will not apply to a Tenant-Related Claim arising out of the gross negligence or intentional misconduct of Landlord or any Landlord-Related Party.
      9.5 INDEMNITY BY LANDLORD . LANDLORD HEREBY INDEMNIFIES, DEFENDS AND HOLDS HARMLESS TENANT AND TENANT-RELATED PARTIES FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, DAMAGES, CLAIMS, SUITS, LOSSES, CAUSES OF ACTION, LIENS, JUDGMENTS AND EXPENSES (INCLUDING COURT COSTS, ATTORNEYS’ FEES AND REASONABLE COSTS OF INVESTIGATION) OF ANY KIND, NATURE OR DESCRIPTION RESULTING FROM ANY INJURIES TO OR DEATH OF ANY PERSON OR ANY DAMAGE TO PROPERTY WHICH ARISES, OR IS CLAIMED TO ARISE FROM THE FOLLOWING (COLLECTIVELY, THE “ LANDLORD-RELATED CLAMS ”): (1) THE BREACH OF THE LEASE BY LANDLORD; (2) THE CONSTRUCTION OF THE BUILDING OR INITIAL IMPROVEMENTS BY LANDLORD; OR (3) THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD OR ANY LANDLORD-RELATED PARTY. SUCH INDEMNIFICATION WILL BE IN EFFECT EVEN IF THE LANDLORD-RELATED CLAIM IS THE RESULT OF OR CAUSED BY THE NEGLIGENT ACTS OR OMISSIONS OF TENANT OR ANY TENANT-RELATED PARTY. The indemnity obligations of Landlord under this Section 9.5 will not apply to a Landlord-Related Claim arising out of the gross negligence or intentional misconduct of Tenant or any Tenant-Related Party. Furthermore, all claims against Landlord are limited by Section 12.4 .
     9.6 Waiver of Claims and Subrogation Rights . So long as it is permissible to do so as under the laws and regulations governing the writing of insurance within the State, all insurance carried by

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either Landlord or Tenant will provide for a waiver of rights of subrogation against Landlord and Tenant on the part of the insurance carrier. Unless the waivers contemplated by this sentence are not obtainable for the reasons described in this Section 9.6 , Landlord waives any and all rights of recovery, claims, actions or causes of action against Tenant and the Tenant-Related Parties, and Tenant waives any and all rights of recovery, claims, actions or causes or action against Landlord and the Landlord-Related Parties, for any loss or damage to property or any injuries to or death of any person which is covered or would have been covered under the insurance policies required under this Lease. The foregoing release will not apply to losses or damages in excess of actual or required policy limits (whichever is greater) nor to any deductible (up to a maximum of $10,000) applicable under any policy obtained by the waiving party. The failure of either party (the “ Defaulting Party ”) to take out or maintain any insurance policy required under this Lease will be a defense to any claim asserted by the Defaulting Party against the other party hereto by reason of any loss sustained by the Defaulting Party that would have been covered by any such required policy. The waivers set forth in the immediately preceding sentence will be in addition to, and not in substitution for, any other waivers, indemnities, or exclusions of liabilities set forth in this Lease.
     9.7 Damages from Certain Causes . Notwithstanding anything contained in this Lease to the contrary, and subject to the terms of Section 9.6 , neither Landlord nor any Landlord-Related Party will be liable for damages to Tenant or any party claiming through Tenant for any injury to or death of any person or damage to property or for interruption or damage to business resulting from (and Tenant, for itself and the Tenant-Related Parties, specifically waives and releases any claims it may have with respect to) any of the following:
          (a) any act, omission or negligence of any other tenant within the Building, or any of their respective employees, agents, contractors, tenants, assignees, licensees, invitees or customers;
          (b) vandalism, theft, burglary and other criminal acts (other than those committed by Landlord’s employees) in or about the Premises;
          (c) any defect in or failure of equipment, pipes, wiring, heating or air conditioning equipment, stairs, elevators, or sidewalks, the bursting of any pipes or the leaking, escaping or flowing of gas, water, steam, electricity, or oil, broken glass, or the backing up of any drains, except to the extent caused by the negligence or willful misconduct of Landlord or any Landlord-Related Party; or
          (d) injury done or occasioned by wind, snow, rain or ice, fire, act of God, public enemy, injunction, riot, strike, insurrection, war, court order, requisition, order of any governmental body or authority.
Under no circumstances will Landlord be liable for damages related to business interruption or loss of profits absent the gross negligence or willful misconduct of Landlord. The provisions of this Section 9.7 will not limit the obligations of Landlord under this Lease or the rights of Tenant to seek enforcement of the terms of this Lease, so long as such enforcement by Tenant does not involve a claim for damages.
SECTION 10 — CONDEMNATION
     10.1 Condemnation . If the whole or substantially the whole of the Building, or the whole or such portion of the Building or the Parking Areas as will render the remainder unfit for Tenant’s use, is taken for any public or quasi-public use, by right of eminent domain or otherwise, or sold in lieu of condemnation, then either Landlord or Tenant may terminate this Lease within 30 days after the terminating party receives notice of such taking. The effective date of the termination will be the date when an enforceable order of condemnation is enforced or the effective date of a sale in lieu of condemnation. If this Lease is not terminated upon any such taking or sale, the Base Rent payable

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hereunder will be reduced by an amount representing that portion of Base Rent applicable to the portion of the Building subject to such taking or sale. Landlord will to the extent Landlord deems feasible, restore the Building to substantially its former condition, However, Landlord will not be required to rebuild, repair, or replace any Alterations to the Premises made by Tenant following the Commencement Date which were not approved by Landlord in writing. Furthermore, Landlord will not be required to spend for such work an amount in excess of the amount received by Landlord as compensation for such taking.
     10.2 Condemnation Award . All amounts awarded upon a taking of any part or all of the Premises will belong to Landlord, and Tenant will not be entitled to and expressly waives all claims to any such compensation. Tenant may, however, make a separate claim upon the condemning authority for expenses related to relocation and for the unamortized cost of leasehold improvements paid for by Tenant.
SECTION 11 — TITLE ENCUMBRANCES
     11.1 Subordination to Mortgage.
          (a) This Lease will be subordinate to any mortgage, deed of trust or other lien now existing upon the Premises, and to any renewals, modifications, consolidations, refinancings, and extensions thereof. Upon Tenant’s receipt of a subordination, attornment, and nondisturbance agreement in form reasonably acceptable to Tenant, this Lease will be subordinate to any mortgage, deed of trust or other lien hereafter placed on the Premises, and to any renewals, modifications, consolidations, refinancings, and extensions thereof. Tenant agrees that any such mortgagee or deed of trust beneficiary will have the right at any time to subordinate such mortgage, deed of trust or other lien to this Lease on such terms and subject to such conditions as such mortgagee or deed of trust beneficiary may deem appropriate, in its discretion, provided such terms and conditions do not materially or adversely affect the rights or increase the monetary obligations of Tenant under this Lease. If any proceedings are brought for the foreclosure of, or in the event of the exercise of the power of sale under, any such mortgage, deed of trust or other lien, Tenant agrees, without further action hereunder, to attorn to the purchaser upon such foreclosure (or any deed in lieu of foreclosure) and recognize such purchaser as the Landlord under this Lease. Landlord is hereby irrevocably vested with full power and authority to subordinate this Lease to any mortgage, deed of trust or other lien now existing or hereafter placed upon the Premises. Tenant agrees to execute such instruments subordinating this Lease or attorning to the holder of any such liens as Landlord or its lender may reasonably request.
          (b) Upon Tenant’s written request, Landlord will use reasonable efforts to obtain from Landlord’s lender a subordination, non-disturbance and attornment agreement on such lender’s form and otherwise reasonably satisfactory to Landlord, Tenant and such lender. Tenant must pay all fees, costs and expenses incurred by Landlord in connection therewith (but no more than $1,500 per request).
     11.2 Mechanic’s Liens . Tenant may not permit any mechanic’s liens, materialmen’s liens or other liens to be placed upon the Premises for any work performed by or at the request of Tenant, or any assignee, sublessee or licensee of Tenant, unless such work was performed by Landlord. If any such lien is attached to the Premises and not discharged by payment, bonding or otherwise within 30 days after receipt of written notice from Landlord, then, in addition to any other right or remedy of Landlord, Landlord may, but is not be obligated to, discharge the same. Any amount paid by Landlord for the aforesaid purpose will be paid by Tenant to Landlord on demand as additional Rent and will bear interest at the Default Rate from the date paid by Landlord until reimbursed by Tenant.

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SECTION 12 — DEFAULT; DISPUTES; REMEDIES
     12.1 Default by Tenant . The following events will be deemed to be events of default by Tenant under this Lease (each an “ Event of Default ”):
          (a) Tenant fails to timely pay any Rent and such failure continues for a period of 10 days after written notice of such default has been delivered to Tenant (but if Landlord has given Tenant 2 such notices during any 12-month period, Landlord will not be required to give further notice; thereafter, the failure by Tenant to make any payment of Rent when due hereunder will be an Event of Default without notice or grace period); provided that if Tenant timely pays Rent during any consecutive 12-month period thereafter, the notice and opportunity to cure provision will be reinstated at the end of such 12-month period;
          (b) Tenant fails to comply with any terms, provisions or covenants of this Lease (other than a failure related to the non-payment of Rent), all of which terms, provisions and covenants will be deemed material, and such failure continues for a period of 30 days after written notice of such failure is delivered to Tenant, or if such failure cannot reasonably be cured within a 30-day period, Tenant fails to commence to cure such failure within such 30-day period and/or thereafter fails to prosecute the cure diligently and continuously or fails to complete the cure within 60 days after the date of Landlord’s notice of default;
          (c) Tenant takes any action to, or notifies Landlord that Tenant or any Guarantor intends to, file a petition under any section or chapter of the United States Bankruptcy Code, as amended from time to time, or under any similar law or statute of the United States or any state thereof; or a petition is filed against Tenant under any such statute and is not dismissed within 120 days thereafter;
          (d) A receiver or trustee is appointed for Tenant’s leasehold interest in the Premises or for all or a substantial part of the assets of Tenant or any Guarantor; or
          (e) Tenant refuses to take initial occupancy of the entire Premises.
     12.2 Landlord’s Remedies .
          (a) Upon the occurrence of any Event of Default, Landlord may, at its option and without further notice to Tenant and without judicial process, in addition to all other remedies given hereunder or by law or equity, do any 1 or more of the following: (i) terminate this Lease, in which event Tenant will immediately surrender possession of the Premises to Landlord; (ii) enter upon and take possession of the Premises and expel or remove Tenant therefrom, with or without having terminated this Lease; (iii) change or re-key all locks to entrances to the Premises, and Landlord will have no obligation to give Tenant a new key to the Premises until such Event of Default is cured; and (iv) remove from the Premises any furniture, fixtures, equipment or other personal property of Tenant, without liability for trespass or conversion, and store such items at the sole cost of Tenant and without liability to Tenant. Any of such furniture, fixtures, equipment or personal property not claimed within 30 days from the date of removal will be deemed abandoned.
          (b) Exercise by Landlord of any 1 or more remedies hereunder will not constitute forfeiture or an acceptance of surrender of the Premises by Tenant. Such surrender can be effected only by the written agreement of Landlord and Tenant.
          (c) If Landlord terminates this Lease by reason of an Event of Default, Tenant must pay to Landlord the sum of (i) the cost of recovering the Premises (including attorney’s fees and costs),

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(ii) the unpaid Rent and all other indebtedness accrued hereunder to the date of such termination, (iii) the amounts stated in Section 12.2(e) , (iv) the total Rent which Landlord would have received under this Lease for the remainder of the Lease Term minus the Fair Market Rental Value (hereinafter defined) of the Premises for the same period, both discounted to present value at the Prime Rate (hereinafter defined) in effect upon the date of determination, and (v) any other damages or relief which Landlord may be entitled to at law or in equity. For the purposes of this section, “ Fair Market Rental Value ” will be the rental rate that would be received from a comparable tenant for a comparable lease for premises and other properties of equivalent quality, size, condition and location as the Premises, taking into account any free rent or other concessions that are generally prevailing in the marketplace at the time of Tenant’s default, market conditions and the period of time the Premises may reasonably be expected to remain vacant before Landlord is able to re-let the Premises to a suitable new tenant. For purposes of this section, “ Prime Rate ” will mean the per annum rate of interest announced or published from time to time by Bank of America, N.A., Dallas, Texas (or its successors or assigns) as its prime commercial lending rate.
          (d) If Landlord repossesses the Premises without terminating this Lease, then Tenant must pay to Landlord the sum of (i) the cost of recovering the Premises (including attorney’s fees and costs), (ii) the unpaid Rent and other indebtedness accrued to the date of such repossession, and (iii) the total Rent that Landlord would have received under this Lease for the remainder of the Lease Term minus any net sums thereafter received by Landlord through reletting the Premises during said period after deducting expenses incurred by Landlord in connection with such reletting for advertising costs, brokerage commissions, architectural fees, tenant improvement costs and allowances and any other allowances or concessions provided by Landlord (amortized pro rata over the term of such new lease). Re-entry by Landlord will not affect the obligations of Tenant for the unexpired Lease Term. Tenant will not be entitled to any excess of rent obtained by reletting over the Rent required to be paid by Tenant hereunder. Actions to collect amounts due by Tenant may be brought 1 or more times, without the necessity of Landlord’s waiting until the expiration of the Lease Term. In addition, Landlord may, at any time following repossession of the Premises without termination of the Lease, elect to terminate the Lease and pursue the remedies available to Landlord pursuant to Section 12.2(c) above in lieu of the remedies available to Landlord pursuant to this Section 12.2(d) .
          (e) If Landlord has terminated this Lease pursuant to Section 12.2(c) , Tenant must also pay to Landlord the unamortized portion (assuming level amortization at 12% interest over the Lease Term), calculated as of the date of termination, of all leasing commissions, tenant improvement costs and allowances, architectural costs and allowances, any other allowances provided by Landlord and all other out-of-pocket costs of Landlord related to this Lease.
          (f) Upon termination of this Lease or repossession of the Premises due to the occurrence of an Event of Default, Landlord will use reasonable efforts to attempt to relet the Premises. Tenant acknowledges that Landlord may satisfy such obligation by listing the Premises with a reputable local brokerage company and that Landlord will have no obligation to expand or divide the Premises or lease the Premises if other space owned by Landlord in the Market Area is available for lease as well.
          (g) If Tenant fails to make any payment, perform any obligation, or cure any default hereunder within 10 days after receipt of written notice thereof or such longer period of time that is expressly provided in this Lease), Landlord, without obligation to do so and without thereby waiving such failure or default, may make such payment, perform such obligation, and/or remedy such other default for the account of Tenant (and enter the Premises for such purpose). Tenant must pay all costs, expenses and disbursements (including attorneys’ fees) incurred by Landlord in taking such remedial action, plus, at the option of Landlord, interest thereon at the Default Rate.

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     12.3 Default by Landlord . Landlord will be in default under this Lease if Landlord fails to perform any of its obligations hereunder and such failure continues for a period of 30 days after Tenant delivers written notice of such failure to Landlord. Tenant must also deliver written notice at such failure to the holder(s) of any indebtedness or other obligations secured by any mortgage or deed of trust affecting the Premises, of which Tenant has received notice. If such failure cannot reasonably be cured within the 30-day period, Landlord will not be in default hereunder as long as Landlord or such holder(s) commences the remedying of such failure within the 30-day period and diligently prosecutes the same to completion. Landlord will not be liable to Tenant for consequential, special or punitive damages by reason of a failure to perform (or a default) by Landlord under this Lease.
     12.4 Limitation on Landlord’s Liability . Tenant will be entitled to look solely to Landlord’s equity in the Premises for the recovery of any judgment against Landlord, and Landlord will not be personally liable for any deficiency with respect to the recovery of such judgment. This recourse limitation will not limit any right that Tenant might otherwise have to obtain specific performance of Landlord’s obligations under this Lease.
     12.5 Attorney’s Fees . If Landlord or Tenant employs an attorney to assert or defend any action arising out of the breach of any term, covenant or provision of this Lease, or to bring legal action for the unlawful detainer of the Premises, the prevailing party will be entitled to recover from the non-prevailing party reasonable attorney’s fees and costs of suit incurred in connection therewith. For purposes of this Section 12.5 , a party will be considered to be the “prevailing party” if (a) such party initiated the litigation and substantially obtained the relief which it sought (whether by judgment, voluntary agreement or action of the other party, trial, or alternative dispute resolution process), (b) such party did not initiate the litigation and either (i) received a judgment in its favor, or (ii) did not receive judgment in its favor, but the party receiving the judgment did not substantially obtain the relief which it sought, or (iii) the other party to the litigation withdrew its claim or action without having substantially received the relief which it was seeking.
SECTION 13 — MISCELLANEOUS
     13.1 Notices . Any notice under this Lease must be in writing and must be sent to the appropriate Notice Address by (a) personal delivery, (b) a recognized overnight courier, (e) United States mail, postage prepaid, certified mail, return receipt requested, or (d) facsimile with either electronic or telephonic verification of receipt, so long as the original of the facsimile notice is deposited in the United States mail within 3 days after the fax notice is sent. Notice by personal delivery or overnight courier will be effective upon receipt, notice by mail will be effective upon deposit in the United States mail in the manner above described and notice by facsimile will be effective upon electronic or telephonic verification of receipt. Any party may change its Notice Address by delivering appropriate written notice to the other party. The change in Notice Address will be effective 10 days after the date of the notice.
     13.2 Estoppel Agreements . Landlord and Tenant will, from time to time, within 10 days after written request by the other party, execute and deliver to such persons as the requesting party will designate, an estoppel agreement in recordable form certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as so modified), stating the dates to which Rent and other charges payable under this Lease have been paid, stating that the requesting party is not in default hereunder (or if the party executing such estoppel alleges a default, stating the nature of such alleged default) and further stating such other matters as the requesting party will reasonably require.

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     13.3 No Implied Waiver . The failure of either party to insist at any time upon the strict performance of any covenant or agreement in this Lease or to exercise any right, power or remedy contained in this Lease will not be construed as a waiver or a relinquishment thereof for the future.
     13.4 Independent Obligations . The obligation of Tenant to pay Rent hereunder and the obligation of Tenant to perform Tenant’s other covenants and duties hereunder constitute independent, unconditional obligations to be performed at all times provided for hereunder and, except to the extent expressly provided in this Lease, are independent of the Landlord’s performance of Landlord’s duties and obligations hereunder.
     13.5 Severability . If any term or provision of this Lease, or the application thereof to any person or circumstance will, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, will not be affected thereby, and each term and provision of this Lease will be valid and enforced to the fullest extent permitted by law.
     13.6 Recording . Tenant agrees not to record this Lease or any memorandum of this Lease.
     13.7 Governing Law . This Lease will be governed by the laws of the State. This Lease is performable in, and the exclusive venue for any action brought with respect hereto, will be in Dallas County in the State.
     13.8 Force Majeure . Whenever a period of time is herein prescribed for the taking of any action by Landlord or Tenant, the party responsible for taking such action will not be liable or responsible for any delays due to strikes, riots, acts of God, shortages of labor or materials, war, governmental laws, regulations or restrictions, or any other cause whatsoever (other than financial inability) beyond the control of the party responsible for taking such action. The period of time for taking action will be extended by the number of days of delay. However, the provisions of this Section 13.8 will never be construed as allowing an extension of time with respect to Tenant’s obligation to pay Rent when and as due under this Lease.
     13.9 Time of Performance . Except as otherwise expressly provided herein, time is of the essence under this Lease.
     13.10 Commissions . Landlord and Tenant represent to one another that no broker is involved in the procurement, negotiation or execution of this Lease. Landlord and Tenant hereby agree to defend, indemnify and hold each other harmless against any loss, claim, expense or liability with respect to any commissions or brokerage fees claimed on account of the execution and/or renewal of this Lease or the expansion of the Premises due to any action of the indemnifying party.
     13.11 Merger of Estates . The voluntary or involuntary surrender of this Lease by Tenant, or a mutual cancellation thereof, will not constitute a merger of the Landlord’s fee estate in the Property and the leasehold interest created hereby. In that event, Landlord will have the option, in Landlord’s sole discretion, to either terminate or assume all or any existing subleases or subtenancies.
     13.12 Survival of Indemnities and Covenants . All indemnities of Landlord or Tenant and all covenants of Landlord or Tenant not fully performed on the date of the expiration or termination of this Lease will survive such expiration or termination.
     13.13 Headings . Descriptive headings are for convenience only and will not control or affect the meaning or construction of any provision of this Lease.

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     13.14 Entire Agreement . This Lease, including the exhibits listed in this section, embodies the entire agreement between the parties hereto with relation to the leasing of the Premises. There are no covenants, agreements, representations, warranties or restrictions between the parties hereto, other than those specifically set forth in this Lease. The following exhibits are attached hereto and incorporated herein and made a part of this Lease for all purposes:
             
Exhibit “A”
 
    Property Description    
Exhibit “B”
 
    Site Plan    
Exhibit “C”
 
    Rules and Regulations    
Exhibit “D”
 
    Improvements Agreement    
Exhibit “E”
 
    Guaranty Agreement    
Exhibit “F”
 
    Acceptance of Premises Memorandum    
Exhibit “G”
 
    Renewal Option    
     13.15 Amendment . To be effective, any amendment or modification of this Lease must be in writing and signed by Landlord and Tenant.
     13.16 Joint and Several Liability . If Tenant consists of more than 1 person or entity, the obligations of such parties under this Lease will be joint and several.
     13.17 Multiple Counterparts . This Lease may be executed in multiple counterparts, each of which will constitute an original instrument, but all of which will constitute one and the same agreement.
     13.18 Effect of Delivery of This Lease . Landlord has delivered a copy of this Lease to Tenant for Tenant’s review only, and the delivery hereof does not constitute an offer to Tenant or an option to be exercised by Tenant. This Lease will not be effective until a copy of this Lease executed by both Landlord and Tenant is delivered by Landlord to Tenant.
[Signature page follows.]

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     IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the effective date.
                 
WITNESS:
  LANDLORD:    
 
 
 
           
(GRAPHIC)   CENTEX OFFICE VISTA RIDGE LEWISVILLE I,
  L.P., a Delaware limited partnership
 
             
 
  By:       Centex Office General Partner, LLC,    
 
          a Delaware limited liability    
 
          company, its general partner    
 
               
 
      By:   /s/ Daniel B. Anderson    
 
               
 
      Name:   Daniel B. Anderson
 
   
 
      Title:   Vice President    
 
               
             
WITNESS:
  TENANT:        
 
           
 
           
(GRAPHIC)   CENTEX HOME EQUITY COMPANY, LLC,
  a Delaware limited liability company
 
         
 
  By:   /s/ Jay Bray    
 
           
 
  Name:   Jay Bray    
 
  Title:   EVP/CFO    
 
           

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EXHIBIT “A”
METES AND BOUNDS DESCRIPTION
4.9698 ACRE TRACT
BEING a 4.9698 acre tract of land situated in the City of Lewisville, Texas, and situated in the G.C. Woolsey Survey, Abstract No. 1402, Dallas and Denton Counties, Texas, and being part of Lot 3R-1, Block E, Vista Ridge an addition-to the City of Lewisville, Texas, as recorded by plat in Cabinet P, page 194, Denton Country Records, and being more particularly described as follows:
BEGINNING at the southeast corner of said Lot 3R-1, Block E, same being the southwest corner of Lot 4R-2, Block E, Vista Ridge as shown on the plat recorded in Cabinet N, Page 308, Denton County Records, said corner lying on the northerly line of State Highway 121;
THENCE South 52 degrees 38 minutes 45 seconds West, along said northerly line, distance of 475.00 feet to a point for corner, the southwest corner of said Lot 3R-1;
THENCE North 37 degrees 21 minutes 15 seconds West, departing said northerly line and along the westerly line of said Lot 3R-1, a distance of 175.04 feet to the point of curvature of a circular curve to the right having a radius of 1,030.00 feet and whose chord bears North 35 degrees 01 minutes 31 seconds West, a distance of 83.71 feet;
THENCE in a northerly direction, along said circular curve and continuing along said westerly line, through a central angle of 4 degrees 39 minutes 28 seconds an arc distance of 83.73 feet to a point of tangency;
THENCE North 32 degrees 41 minutes 47 seconds West, continuing along said westerly line, a distance of 121.72 feet to a point for corner;
THENCE North 52 degrees 38 minutes 45 seconds East, departing said westerly line, a distance of 665.71 feet to a point for corner on the common line between said Lots 3R-1 and 4R-2;
THENCE South 07 degrees 24 minutes 19 seconds East, along said common line, a distance of 257.82 feet to a point for corner;
THENCE South 11 degrees 40 minutes 43 seconds East, continuing along said common line, a distance of 173.76 feet to THE POINT OF BEGINNING ANL) CONTAINING 216,484 square feet or 4.9698 acres of 1 and more or less.

A-1


 

EXHIBIT “B”
SITE PLAN
()

B-1


 

EXHIBIT “C”
RULES AND REGULATIONS
     Any capitalized terms not defined in this Exhibit “C” have the meaning set forth in the Lease to which this Exhibit “C” is attached.
     1. Sidewalks, doorways, vestibules, halls, stairways, and similar areas may not be obstructed, nor will refuse, furniture, boxes or other items be placed therein by Tenant or Tenant-Related Parties. Such areas are to be used solely for ingress and egress to and from the Premises, or for going from one part of the Building to another part of the Building. Tenant will be responsible, at its sole cost, for the removal of any large boxes or crates not used in the ordinary course of business. Nothing may be swept or thrown into the corridors, halls, elevator shafts or stairways.
     2. Canvassing, soliciting, distributing handbills, advertising and peddling in the Building are prohibited.
     3. Plumbing fixtures and appliances may be used only for the purpose for which such were constructed or installed, and no unsuitable material may be placed therein. Tenant will bear the cost of repair of any stoppage or damage to any such fixtures or appliances from misuse on the part of Tenant or Tenant-Related Parties, guests and customers.
     4. Tenant may not do, or permit to be done, anything in or about the Building, or bring or keep anything therein, that will in any way increase the rate of fire or other insurance on the Building, or on property kept therein, or otherwise increase the possibility of fire or other casualty. No cooking (other than cooking through the use of a microwave oven), including grills or barbecues, will be permitted within the Premises or on any patio adjoining the Premises.
     5. Landlord has the power to prescribe the weight and position of heavy equipment or objects that may overstress any portion of the floor of the Building. Tenant will bear the cost of repair of damage done to the Building by the improper placing of such heavy items. Tenant must notify the Building manager when safes or other heavy equipment are to be taken in or out of the Building. The moving of such equipment may be done only after written permission is obtained from Landlord and must be performed under such conditions as Landlord may reasonably require.
     6. Corridor doors, when not in use, must be kept closed.
     7. All deliveries must be made via the service entrance and service elevator, during normal business hours. Any delivery after normal business hours must be coordinated with the Building manager. When conditions are such that Tenant must dispose of crates, boxes, and other such items, Tenant will dispose of such items prior to or after normal business hours.
     8. Tenant may not cause any improper noises in the Building, or allow any unpleasant odors to emanate from the Building, or otherwise interfere, injure or annoy in any way other tenants, or persons having business with such tenants.
     9. No animals or birds, other than those assisting the disabled, may be brought into or kept in or about the Building.
     10. No machinery of any kind, other than ordinary office machines such as copiers, fax machines, personal computers and related mainframe equipment, electric typewriters and word processing
EXHIBIT “C” , Rules and Regulations — Page C-1

 


 

equipment, may be operated on the Premises without the prior written consent of Landlord, which consent will not be unreasonably withheld or delayed.
     11. Tenant may not use or keep in the Building any flammable or explosive fluid or substance (including Christmas trees and ornaments), or any illuminating materials, without the prior written approval of the Building manager.
     12. No bicycles, motorcycles or similar vehicles are allowed in the Building.
     13. No nails, hooks, or screws (other than those necessary for hanging artwork, diplomas, posterboards and other such items on interior walls) may be driven into or inserted in any part of the Building (including doors), except as approved by Landlord.
     14. Landlord may evacuate the Building in the event of an emergency or catastrophe. Tenant will cause its officers, agents and employees to participate in any fire safety or emergency evacuation drills scheduled by Landlord.
     15. No food or beverages may be prepared, cooked or distributed from the Building without the prior written approval of Landlord, which approval will not be unreasonably withheld or delayed. However, Tenant will be permitted to (a) have food catered to the Premises, and (b) install refrigerators, microwave ovens, coffee machines and vending machines for the use of its own employees and guests.
     16. No additional or replacement locks may be placed upon any exterior doors without the prior written approval of Landlord, which approval will not be unreasonably withheld or delayed. All keys necessary to enter the Building will be furnished by Landlord. Upon termination of the Lease, Tenant must return all keys to Landlord and provide to Landlord the combination of all locks on doors or vaults. No duplicates of keys may be made by Tenant.
     17. Tenant may not locate furnishings or cabinets adjacent to mechanical or electrical access panels or over air conditioning outlets in a manner that will prevent Landlord’s personnel or contractors from servicing such units as routine or emergency service may require. Tenant will pay the cost of moving such furnishings for Landlord’s access. Tenant will instruct all of its employees to refrain from any attempts to adjust thermostats. The lighting and air conditioning equipment of the Building will be exclusively controlled by Landlord’s personnel.
     18. No portion of the Building may be used for the purpose of lodging rooms.
     19. No supplemental heating, air ventilation or air conditioning equipment, including space heaters and fans, may be installed or used by Tenant without the prior written consent of Landlord.
     20. No smoking may be permitted within the Building other than those smoking areas designated by the Landlord.
     21. No unattended children are allowed within the Building.
     22. Tenant and its employees, agents, subtenants, licensees and visitors will follow the following rules and regulations for the Parking Areas:
          (a) Cars must be parked entirely within the stall lines painted on the ground or on the floor.
EXHIBIT “C” , Rules and Regulations — Page C-2

 


 

          (b) All directional signs and arrows must be observed.
          (c) The speed limit is 5 miles per hour.
          (d) Parking is prohibited in areas not striped for parking, aisles, areas where “no parking” signs are posted, in cross-hatched areas and in such other areas as may be designated by Landlord or Landlord’s agent(s) (including areas designated as “Visitor Parking”).
          (e) Every vehicle owner is required to park and lock his own car.
          (f) Spaces which are designated for small, intermediate or full-sized cars will be so used. No intermediate or full-size cars may be parked in parking spaces limited to compact cars.
          (g) No vehicle may be stored in the Parking Areas. Any vehicle remaining in the Parking Areas without interruption for 5 business days is deemed to have been stored in the Parking Areas.
          (h) Landlord is entitled and is hereby authorized to place a wheel lock or other device restricting mobility upon such vehicle or have any such vehicle towed away, at the sole risk and expense of the vehicle owner.
     23. In the event of any inconsistency between these Rules and Regulations and the terms of the Lease, the terms of the Lease will control.
EXHIBIT “C” , Rules and Regulations — Page C-3

 


 

EXHIBIT “D”
IMPROVEMENTS AGREEMENT
     This Improvements Agreement (herein so called) describes and specifies the rights and obligations of Landlord and Tenant under the Lease to which this Exhibit “D” is attached, with respect to the design, construction and payment for the completion of the Initial Improvements at the Premises.
     1.  Definitions . Any capitalized terms not defined in this Improvements Agreement will have the meaning set forth in the Lease. Additionally, as used in this Improvements Agreement, the following terms (when delineated with initial capital letters) will have the respective meaning indicated for each, as follows:
          (a) “ Construction Allowance ” means $25.00 per square foot, multiplied by the number of square feet of area in the Building. The Construction Allowance is subject to increase as provided in Section 5(b) of this Improvements Agreement.
          (b) “ Cost of Finish Work ” means the hard and soft costs of performing the Finish Work, plus a development management fee equal to 5% of such costs (up to a maximum fee amount of $50,000).
          (c) “ Excess Amount ” means the amount by which the Cost of Finish Work exceeds the Construction Allowance.
          (d) “ Finish Work ” means the finish improvements to be constructed by Landlord in accordance with Tenant’s Plans.
          (e) “ Initial Improvements ” means the Shell Work and the Finish Work.
          (f) “ Landlord’s Plans ” means the detailed construction documents for the Shell Work described on Schedule 1 attached to this Improvements Agreement.
          (g) “ Plans and Specifications ” means, collectively, the Landlord’s Plans and the Tenant’s Plans.
          (h) “ Shell Work ” means the base building improvements to be constructed by Landlord in accordance with Landlord’s Plans.
          (i) “ Tenant’s Plans ” has the meaning specified in Section 3 of this Improvements Agreement.
     2.  Shell Work . Landlord has prepared and Tenant has approved the Landlord’s Plans. Landlord has made application for the various permits and approvals required to construct the Shell Work prior the Effective Date. After the Effective Date, Landlord must diligently pursue receipt of such permits and approvals. Promptly after such receipt, Landlord will perform the Shell Work. Landlord must perform the Shell Work in accordance with the Landlord’s Plans and all applicable laws.
     3.  Finish Work . No later than October 31, 2001, Tenant must prepare and deliver construction documents to Landlord for approval. Landlord must approve or disapprove such construction documents within 10 days after receipt thereof, If Landlord does not approve such construction documents, Landlord will specifically identify its objections and Tenant will revise such construction
EXHIBIT “D” , Improvements Agreement — Page D-1

 


 

documents to address Landlord’s objections and re-submit the same to Landlord for approval within 10 days thereafter, The foregoing process will be implemented repeatedly until Landlord has approved Tenant’s construction documents. Upon approval by Landlord, such construction documents will constitute the “ Tenant’s Plans ” hereunder. Tenant acknowledges that Landlord’s approval of the Tenant’s Plans does not imply that the Tenant’s Plans comply with, and Landlord has no responsibility for compliance of Tenant’s Plans with, applicable federal, state and local statutes, codes, ordinances and other regulations. Promptly after the finalization and approval of Tenant’s Plans and Landlord’s receipt of all required permits and approvals, Landlord must commence construction of the Finish Work and thereafter diligently pursue completion of the Finish Work.
     4.  Completion and Acceptance of Initial Improvements .
          (a) When Landlord believes the Initial Improvements are Substantially Complete, Landlord must notify Tenant of such fact. Within 2 business days thereafter, Landlord and Tenant will conduct a walk-through of the Premises (the “ Inspection ”) and specify in writing the Punchlist Items which remain to be performed by Landlord, if any. Landlord agrees to expeditiously complete any Punchlist Items. Except for (i) the Punchlist Items so identified, (ii) the obligation of Landlord to correct defective work pursuant to Section 4(b) of this Improvements Agreement, and (iii) the obligation to correct latent defects pursuant to Section 2.3(d) of the Lease, all obligations of Landlord in regard to the Initial Improvements will be deemed to have been satisfied upon completion of the Inspection. Following the Inspection and Tenant’s acceptance of the Initial Improvements (other than Punchlist Items, if any), the Initial Improvements will be Substantially Complete.
          (b) If, at the Inspection, Tenant notifies Landlord that the Initial Improvements are not Substantially Complete, Landlord will perform or correct such items at its own expense, Following Landlord’s correction or performance of such items, Landlord must notify Tenant of such fact and the parties will conduct another Inspection. The foregoing process will be repeated until the Initial Improvements are Substantially Complete.
          (c) If any delays occur in the completion of the Initial Improvements as the result of (i) Tenant’s failure to timely provide to Landlord the Tenant’s Plans or any other information required by Landlord in connection with the obtainment of required permits or the construction of the Initial Improvements, or (ii) any other act, omission, delay or default of Tenant or any Tenant-Related Party, including any violation of the provisions of the Lease or any delay in giving authorizations or approvals pursuant to this Improvements Agreement, then any such delay will be considered a Tenant Delay and will be subject to the terms of Section 3.3 of the Lease.
     5.  Construction Allowance.
          (a) Landlord will credit the Construction Allowance against the Cost of the Finish Work, Tenant must pay the Excess Amount (or any portion thereof billed by Landlord) within 10 days after receipt of an invoice for such costs. The Construction Allowance will not be used for any purpose other than for payment of the cost of the Finish Work. No portion of the Construction Allowance will be applied against Rent.
          (b) Tenant will have the right to increase the Construction Allowance by up to $5.00 per square foot of area in the Building by notifying Landlord in writing of such election at least 30 days prior to the Commencement Date. If Tenant elects to increase the Construction Allowance as provided herein, the annual “Base Rent per Square Foot of Area in the Building” payable under the Lease will increase by an amount required to fully amortize the increased Construction Allowance amount (calculated on a per square foot basis) on a straight-line basis over the Lease Term plus an additional
EXHIBIT “D” , Improvements Agreement — Page D-2

 


 

10%. In such event, Landlord and Tenant will execute an amendment to the Lease setting forth the new Base Rent amounts prior to the Commencement Date. By way of example, if Tenant elects to increase the Construction Allowance by $1.00 per square foot of area (to $26.00 total), then the annual Base Rent payable (on a per square foot basis) during the first Lease Year will increase by $0.11 (or $1.00 divided by 10 plus an additional 10% of such amount) to $12.61. The annual Base Rent payable would be $12.86 in the second Lease Year, $13.12 in the third Lease Year, and so on.
     6.  Notices . All notices required or contemplated hereunder will be given to the parties in the manner specified for giving notices under the Lease.
EXHIBIT “D” , Improvements Agreement — Page D-3

 


 

SCHEDULE I
TO
EXHIBIT “D” — IMPROVEMENTS AGREEMENT
SCHEDULE OF LANDLORD’S PLANS
                 
ARCHITECTURAL            
Sheet Number   Name of Plan   Prepared By   Dated prepared
 
A1.1
  Site Plan   BOKA Powell     07.16.01  
A1.2
  Side Walk Plan and Details   BOKA Powell     07.16.01  
A1.3
  Site Lighting Plan   BOKA Powell     07.16.01  
 
               
A2.1
  Ground Floor Plan   BOKA Powell     07.16.01  
A2.2
  Roof Plan   BOKA Powell     07.16.01  
 
               
A3.1
  Door/Window Schedule/Details   BOKA Powell     07.16.01  
 
               
A4.1
  Elevations   BOKA Powell     07.16.01  
A4.2
  Enlarged Elevations   BOKA Powell     07.16.01  
 
               
A5.1
  Wall Sections   BOKA Powell     07.16.01  
A5.2
  Wall Sections   BOKA Powell     07.16.01  
A5.3
  Wall Sections   BOKA Powell     07.16.01  
 
               
A6.1
  Misc. Details   BOICA Powell     07.16.01  
A6.2
  Misc. Details   BOKA Powell     07.16.01  
A6.3
  Misc. Details   B OKA Powell     07.16.01  
                 
STRUCTURAL            
Sheet Number   Name of Plan   Prepared By   Dated prepared
 
S1.0
  Foundation Plan   Hunt & Joiner, Inc.     06.21.01  
S2.0
  Roof Framing Plan   Hunt & Joiner, Inc.     06.21.01  
S3.0
  Foundation Sections   Hunt & Joiner, Inc.     06.21.01  
S4.0
  Roof Framing Section   Hunt & Joiner, Inc.     06.21.01  
S5.0
  Typical Panel Details   Hunt & Joiner, Inc.     06.21.01  
S6.0
  Panel Elevations   Hunt & Joiner, Inc.     06.21.01  
S7.0
  Typical Details & General Notes   Hunt & Joiner, Inc.     06.21.01  
SCHEDULE 1 , Schedule of Landlord’s Plans — Page 1

 


 

                 
LANDSCAPE ARCHITECT                
Sheet Number   Name of Plan   Prepared By Dated prepared
 
L1.01
  Landscape Plan   SMR     07.16.01  
L1.02
  Irrigation Plan   SMR     07.16.01  
L1.03
  Landscape Specs and Details   SMR     07.16.01  
L1.04
  Irrigation Specs and Details   SMR     07.16.01  
SCHEDULE 1 , Schedule of Landlord’s Plans — Page 2

 


 

EXHIBIT “E”
GUARANTY AGREEMENT
     In consideration of the making of that certain Lease Agreement (as same may be amended from time to time, the “ Lease ”) dated October 1, 2001, between Centex Office Vista Ridge Lewisville I, L.P., a Delaware limited partnership (“ Landlord ”), and Centex Home Equity Company, LLC, a Delaware limited liability company (“ Tenant ”) covering the building within the Vista Ridge Business Park located in Lewisville, Texas, and for the purpose of inducing Landlord to enter into and make the Lease, the undersigned hereby unconditionally guarantees the full and prompt payment of Rent (as defined in the Lease) and all other sums required to be paid by Tenant under the Lease (including, without limitation, all Rent payable with respect to the initial Premises and all expansion space) (individually, a “ Guaranteed Payment ”, and collectively, the “ Guaranteed Payments ”) and the full and faithful performance of all terms, conditions, covenants, obligations and agreements contained in the Lease on the Tenant’s part to be performed (individually, a “ Guaranteed Obligation ”, and collectively, the “ Guaranteed Obligations ”). The undersigned further promises to pay all of Landlord’s costs and expenses (including reasonable attorneys’ fees) incurred in endeavoring to collect the Guaranteed Payments or to enforce the Guaranteed Obligations or incurred in enforcing this Guaranty Agreement (“ Guaranty ”), as well as all damages which Landlord may suffer in consequence of any default or breach under the Lease or this Guaranty.
     1. Landlord may at any time and from time to time, without notice to or consent by the undersigned, take any or all of the following actions without affecting or impairing the liability and obligations of the undersigned on this Guaranty:
          (a) grant an extension or extensions of time for payment of any Guaranteed Payment or time for performance of any Guaranteed Obligation;
          (b) grant an indulgence or indulgences in the payment of any Guaranteed Payment or in the performance of any Guaranteed Obligation;
          (c) modify or amend the Lease or any term thereof or any obligation of Tenant arising thereunder;
          (d) consent to any assignment or assignments, sublease or subleases and successive assignments or subleases by Tenant or by Tenant’s successors or assigns;
          (e) consent to an extension or extensions of the term of the Lease;
          (f) accept other guarantees or guarantors; and/or
          (g) release any person primarily or secondarily liable hereunder or under the Lease or under any other guaranty of the Lease.
     The liability of the undersigned under this Guaranty will not be affected or impaired by any failure or delay by Landlord in enforcing any Guaranteed Payment or Guaranteed Obligation or this Guaranty or any security therefor or in exercising any right or power in respect thereto, or by any compromise, waiver, settlement, change, subordination, modification or disposition of any Guaranteed Payment or Guaranteed Obligation or of any security therefor. In order to hold the undersigned liable hereunder, there will be no obligation on the part of Landlord, at anytime, to resort to Tenant or to any other guaranty or to any security or other rights and remedies for payment or performance, and Landlord

EXHIBIT “E”
, Guaranty Agreement — Page E-1

 


 

will have the right to enforce this Guaranty irrespective of whether or not other proceedings or actions are pending or being taken seeking resort to or realization upon or from any of the foregoing.
     2. The undersigned waives all diligence in collection or in protection of any security, presentment, protest, demand, notice of dishonor or default, notice of acceleration or intent to accelerate, notice of acceptance of this Guaranty, notice of any extensions granted or other action taken in reliance hereon and all demands and notices of any kind in connection with this Guaranty or any Guaranteed Payment or Guaranteed Obligation.
     3. The undersigned hereby acknowledges full and complete notice and knowledge of all the terms, conditions, covenants, obligations and agreements of the Lease.
     4. The payment by the undersigned of any amount pursuant to this Guaranty will not in any way entitle the undersigned to any right, title or interest (whether by subrogation or otherwise) of Tenant under the Lease or to any security being held for any Guaranteed Payment or Guaranteed Obligation.
     5. This Guaranty will be continuing, absolute and unconditional and will remain in full force and effect until all Guaranteed Payments are made, all Guaranteed Obligations are performed and all obligations of the undersigned under this Guaranty are fulfilled.
     6. This Guaranty will also bind the heirs, personal representatives, successors and assigns of the undersigned and will inure to the benefit of Landlord and Landlord’s successors and assigns.
     7. This Guaranty will be governed by and construed according to the laws of the State of Texas and will be performed in the county identified in the first paragraph of this Guaranty. The situs for the resolution (including any judicial proceedings) of any disputes arising under or relating to this Guaranty will be the county referenced in the first paragraph of this Guaranty.
     8. If this Guaranty is executed by more than one person, all singular nouns and verbs herein relating to the undersigned will include the plural number, the obligations of the several guarantors will be joint and several and Landlord may enforce this Guaranty against any one or more guarantors without joinder of any other guarantor (hereunder or otherwise).
     9. Landlord and the undersigned intend and believe that each provision of this Guaranty comports with all applicable law. However, if any provision of this Guaranty is found by a court to be invalid for any reason, the remainder of this Guaranty will continue in full force and effect and the invalid provision will be construed as if it were not contained herein.
     10. Guarantor will, from time to time, but no more than 3 times in any calendar year, within 20 days after written request by Landlord, execute and deliver to such persons as Landlord will designate, an estoppel agreement certifying that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as so modified), stating the dates to which Rent and other charges payable under this Lease have been paid, stating that, to Guarantor’s actual knowledge, the Landlord is not in default hereunder (or if Guarantor alleges a default, stating the nature of such alleged default) and further stating such other matters as Landlord will reasonably require.
[Signature page follows]

EXHIBIT “E”
, Guaranty Agreement — Page E-2

 


 

     IN WITNESS WHEREOF, the undersigned has executed and delivered this Guaranty this 8th day of October, 2001.
                 
WITNESS:       GUARANTOR:    
 
               
 
      CENTEX FINANCIAL SERVICES, INC.,
a Nevada corporation
   
 
               
 
      By:        
 
      Name:  
 
   
 
      Title:  
 
   
 
         
 
   
     
ADDRESS    
 
 
   
 
   
 
   
EXHIBIT “E” , Guaranty Agreement — Page E-3

 


 

EXHIBIT “F”
ACCEPTANCE OF PREMISES MEMORANDUM
     This ACCEPTANCE OF PREMISES MEMORANDUM (“ Memorandum ”) is entered into on ___________, 200                      ,between ___________, a ___________(“ Landlord ”), and ___________, a ___________ (“Tenant”).
RECITALS
     A. Landlord and Tenant entered into that certain Lease Agreement dated ,200 (the “ Lease ”). All terms used but not defined herein have the meanings set forth in the Lease.
     B. Landlord and Tenant wish to confirm certain matters relating to the Lease and the work performed by Landlord at the Premises.
AGREEMENT
     1.  Commencement Date . Landlord and Tenant certify that the Commencement Date under the Lease is__________, 200_.
     2.  Acceptance of Premises . Except for the items listed on the Punch List dated___________, 200 (a copy of which is attached to this Memorandum), Landlord has completed all work required to be completed by Landlord under the Lease.
     3.  No Amendment . This Memorandum does not amend the Lease and the Lease has not otherwise been amended.
     4.  Reliance . Tenant agrees that this Memorandum may be relied upon by Landlord and its partners, lenders, prospective purchasers, and their respective successors and assigns.
[Signature page follows]
EXHIBIT “F” , Acceptance of Premises Memorandum — Page F-1

 


 

EXECUTED as of the date set forth above.
             
    LANDLORD:    
 
        ,  
     ,    
 
  a        
         
 
           
 
  By:        
 
     
 
   
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   
 
           
    TENANT:    
 
        ,  
     ,    
 
  a        
         
 
           
 
  By:        
 
     
 
   
 
  Name:        
 
     
 
   
 
  Title:        
 
     
 
   
EXHIBIT “F” , Acceptance of Premises Memorandum — Page F-2

 


 

EXHIBIT “G”
RENEWAL OPTION
     1. Provided no Event of Default exists and Tenant is occupying the Premises at the time of such election, Tenant may renew this Lease for 1 additional period of 5 years (the “ Renewal Term ”), by delivering written notice (“ Renewal Notice ”) of the exercise thereof to Landlord no earlier than 9 months or later than 6 months before the expiration of the Lease Term. On or before the commencement date of the Renewal Term, Landlord and Tenant shall execute an amendment to this Lease extending the Lease Term on the same terms provided in this Lease, except as follows:
          (a) The Base Rent payable for each month during the Renewal Term shall be the prevailing rental rate at which space is then being offered in the Building, at the commencement of the Renewal Term, for space of equivalent quality, size, utility and location, with the length of the Renewal Term and the credit standing of Tenant to be taken into account (the “ Market Rental Rate ”). The Base Rent will increase annually during the Renewal Term by 2% beginning on the first day of each Lease Year during the Renewal Term beginning with the second Lease Year of the Renewal Term;
          (b) Tenant shall have no further renewal option unless expressly granted by Landlord in writing; and
          (c) Landlord shall lease to Tenant the Premises in their then-current condition, and Landlord shall not provide to Tenant any allowances (e.g., moving allowance, construction allowance, and the like) or other tenant inducements. Notwithstanding the foregoing, in determining the Market Rental Rate applicable to the Renewal Term, such rate shall be adjusted to reflect that Tenant will be accepting the Premises in their then-current condition, and that Landlord shall not be providing to Tenant any allowances or other tenant inducements.
     2. Within 15 days after receipt of Tenant’s Renewal Notice (and any required supporting information), Landlord will notify Tenant in writing of Landlord’s estimate of the Market Rental Rate. Landlord and Tenant will in good faith attempt to determine the Market Rental Rate to be used to calculate the Base Rent. In the event that the parties cannot agree on the Market Rental Rate within 30 days after Landlord’s initial communication to Tenant, Landlord will select an M.A.I. appraiser, who will determine the Market Rental Rate to be used to calculate the Base Rent and communicate his or her determination to the parties within 15 days after his or her appointment, which determination will be binding upon the parties. Each party will pay half of the cost of the appraisal. Within 15 days thereafter, Tenant will notify Landlord that Tenant either (a) accepts-the Market Rental Rate established by the appraiser in which event the parties will promptly enter into an amendment to the Lease incorporating such terms, or (b) reject Landlord’s renewal terms, in which event the Lease will end at the expiration of the initial Lease Term and Landlord will have no further obligations or liability hereunder. The failure of Tenant to respond within such 15-day period will be deemed rejection of Landlord’s terms.
          The failure of Tenant to exercise the Renewal Option within the time period set forth herein will constitute a waiver and termination of such Renewal Option. This Renewal Option is personal to Tenant and is not assignable to any third parties, including, but not limited to, any assignee or sublessee of Tenant.

1

Exhibit 10.56
FIRST AMENDMENT TO LEASE AGREEMENT
     This FIRST AMENDMENT TO LEASE AGREEMENT (the “ Amendment ”) is entered into effective as of August 28, 2002, by and between CENTEX OFFICE VISTA RIDGE LEWISVILLE I, L.P., a Delaware limited partnership (“ Landlord ”), and CENTEX HOME EQUITY COMPANY, LLC, a Delaware limited liability company (“Tenant”).
RECITALS:
     A. Landlord and Tenant entered into that certain Lease Agreement dated effective as of October 8, 2001 (the “ Lease ”), for the lease of certain real property and improvements thereon located at 397 State Highway 121 Bypass, Lewisville, Texas (the “ Premises ”).
     B. Landlord and Tenant hereby mutually agree to amend the Lease as provided herein.
AGREEMENT:
     NOW, THEREFORE, for and in consideration of the mutual covenants contained herein and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and confessed, the parties hereby agree as follows:
     1. The above recitals are incorporated herein by reference. All capitalized terms not otherwise defined herein shall have the same meaning as ascribed to them in the Lease.
     2. The definition of “Lease Term” set forth in Section 1.1 of the Lease is hereby deleted in its entirety and replaced with the following:
Lease Term” means the period that begins on the Commencement Date and ends on April 30, 2014.
     3. Section 2.4 of the Lease is hereby deleted in its entirety.
     4. Section 3.1 of the Lease is hereby deleted in its entirety and replaced with the following:
Lease Term, This Lease will continue in force during a period beginning on the Effective Date of this Lease and ending on the expiration of the Lease Term, unless this Lease is terminated early or extended to a later date pursuant to the terms of this Lease. The Lease Term will commence and Rent will accrue beginning on the Commencement Date.
     5. Tenant hereby (i) consents to Landlord’s execution of the Access Easement Agreement attached hereto as Exhibit “A” and the Signage Easement Agreement attached hereto as Exhibit “B” (collectively, the “ Easements ”), and (ii) subordinates its interests under the Lease to the Easements.
     6. The terms, covenants, conditions and provisions contained in this Amendment shall be binding upon and inure to the benefit of Landlord and Tenant, - their respective heirs, representatives, successors and permitted assigns.
FIRST AMENDMENT TO LEASE AGREEMENT — Page 1

 


 

     IN WITNESS . WHEREOF, the parties hereto have caused this Amendment to be executed and effective as of the date first above written.
         
  LANDLORD :

CENTEX OFFICE VISTA RIDGE LEWISVILLE I, L.P.,
a Delaware limited partnership
 
 
  By:   Centex Office General Partner, LLC,
a Delaware limited liability company,
its sole general partner  
 
         
     
  By:   /s/  Daniel B. Anderson  
    Name:   Daniel B. Anderson  
    Title:   Vice President  
         
  TENANT:

CENTEX HOME EQUITY COMPANY, LLC, a Delaware limited liability company
 
 
  By:   /s/ Jay Bray    
    Name:   Jay Bray   
    Title:   EVP, CFO   
 
FIRST AMENDMENT TO LEASE AGREEMENT — Page 2

 


 

EXHIBIT “A”
Access Easement Agreement
EXHIBIT “A” — Cover Page

 


 

AFTER RECORDING RETURN TO:
Centex Development Company, L.P.
2728 N. Harwood
Dallas, Texas 75201
Attn: Jay M. Thompson
ACCESS EASEMENT AGREEMENT
     THIS ACCESS EASEMENT AGREEMENT (this “ Agreement ”) is made and entered into as of _______________, 2002, by and between CENTEX OFFICE VISTA RIDGE LEWISVILLE I, LP., a Delaware limited partnership (“ Grantor ”), and CENTEX LAND HOLDINGS, L.P., a Delaware limited partnership (“ Grantee ”),
RECITALS
     A. Grantor is the owner in fee of certain real property located in Dallas and Denton Counties, Texas (the “ Grantor Property ”), being more particularly described as follows:
Lot 3R-2, Block E of Final Plat of Centex Office Campus North, filed in Cabinet U, Page 45, Plat Records, Denton County, Texas, and Volume 2001204, Page 00016, Plat Records, Dallas County, Texas.
     B. Grantee is the owner in fee of certain real property located in Denton County, Texas (the “ Grantee Property ”), being more particularly described as follows:
Lot 3R-1A, Block E of Final Plat of Centex Office Campus North, filed in Cabinet U, Page 45, Plat Records, Denton County, Texas, and Volume 2001204, Page 00016, Plat Records, Dallas County, Texas.
     C. Grantor and Grantee desire to enter into this Agreement for the purpose of providing a means of ingress and egress to the Grantee Property.
AGREEMENT
     NOW, THEREFORE, for and in consideration of the sum of Ten and No/100 Dollars ($10.00) in hand paid by Grantee to Grantor, and for the sealing and delivery of these presents, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the parties hereto intending to be legally bound, do hereby covenant and agree as follows:
ARTICLE 1 — EASEMENT
     1.1 Declaration and Grant of Access Easement . Grantor hereby grants and conveys unto Grantee, for the benefit of the Grantee Property, a non-exclusive, perpetual easement (the “ Access Easement ”) over, across, and upon a portion of the Grantor Property being more particularly described on Exhibit “A” attached hereto and incorporated herein by reference (the “ Access Easement Area ”). The Access Easement is for the limited purpose of permitting pedestrian and vehicular ingress and egress to and from the Grantee Property over a driveway (the “ Common Driveway ”) situated upon the Grantor Property. Grantee and its respective employees, agents, tenants, licensees, and invitees will have the right to use the Common Driveway, However, Grantee will not have the right to use any portion of the Access

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Easement Area or the Common Driveway for construction activities or the movement of construction vehicles relating to any construction activities conducted on the Grantee Property.
     1.2 Removal of Parking Spaces . Upon at least 5 business days written notice to Grantor, Grantee will have the right, at Grantee’s sole cost and expense, to enter upon the Grantor Property and remove the curbs and up to 15 parking spaces, if necessary, in the Access Easement Area to connect the Common Driveway to the access drives on the Grantee Property; provided (a) Grantee shall complete such work promptly and shall not unreasonably interfere with the use of the Grantor Property by Grantor or its tenants; (b) Grantee shall construct, replace and provide, at Grantee’s sole cost and expense, 1 — parking space on the Grantor Property for each parking space removed by Grantee so long as the construction of such space(s) is permitted under applicable governmental requirements and is feasible without incurring unusually high construction costs (e.g., the cost to build a retaining wall or structured . parking); (c) Grantee shall restore and repair, at Grantee’s sole cost and expense, the Grantor Property affected by such work to a comparable condition after completion of Grantee’s work herein (including, without limitation, landscaping thereon); (d) Grantee shall indemnify, defend and hold harmless Grantor from and against all costs, expenses, liens and claims (including, without limitation, reasonable attorney’s fees) relating to the work of Grantee referenced in this Section 1.2 ; and (e) the work performed by Grantee under this Section 1.2 must not cause the Grantor Property to contain less than 300 parking spaces.
     1.3 Maintenance . Grantor agrees to undertake and perform any and all maintenance and repair work within the Access Easement Area that may from time to time be reasonably necessary with regard to the Common Driveway in order to maintain the Common Driveway in good condition and repair. If Grantor fails to perform the maintenance obligations created pursuant to this Section 1.3 for a period of 30 days after notice from Grantee of such failure, then Grantee will have the right (but not the obligation) to perform such maintenance.
     1.4 Maintenance Costs . The cost of the maintenance and repair work described in Section 1.3 hereof (the “ Costs ”) will be shared by Grantor and Grantee based on the number of parking spaces on the Grantor Property and the Grantee Property (expressed as a fraction of the total number of parking spaces on both properties). For example, if the Grantor Property has 300 parking spaces and the Grantee Property has 200 parking spaces (a total of 500 parking spaces), then Grantor will pay 3/5 ths or 60% of the Costs and Grantee will pay 2/5 ths or 40% of the Costs. If either Grantor or Grantee performs any maintenance or repairs within the Access Easement Area pursuant to Section 1.3 , then following such maintenance or repair the performing party may deliver to the non-performing party itemized invoices of the Costs incurred and the non-performing party must reimburse the performing party for its share of such Costs within 30 days after the receipt of such invoices. In all cases where reimbursement is required by either Grantor or Grantee, interest shall accrue on the portion of the Costs payable by such party at the rate of 12%-per annum beginning - 30 days from the date - such party receives - the - itemized invoices. If either Grantor or Grantee performs maintenance or repair work within the Access Easement Area and fails to deliver invoices to the other party within 12 months after the date of such performance, then the non-performing party will not be obligated to reimburse the performing party for any portion of the Costs incurred. As used herein, the term “Costs” includes only the actual and reasonable costs of performing maintenance and repairs within the Access Easement Area and does not include any other costs associated with the ownership of the Access Easement Area (including, without limitation, property taxes, insurance premiums, or other similar expenses).
     1.5 Assumption of Risk; Indemnification; Insurance .
          (a) Grantee assumes the risk of loss arising out of its use of the Access Easement Area and releases and discharges Grantor, its successors and assigns, and their respective directors,

2


 

officers, shareholders, partners, members, agents, servants, employees and contractors (collectively, with Grantor, the “ Grantor Group ”) from any and all claims, losses, liabilities, damages and demands by Grantee for damage to either person or property, including bodily injury and death, or loss of business or income, arising out of use by Grantee, its tenants, agents and contractors and their respective employees, invitees and guests (collectively, with Grantee, the “ Grantee Parties ”) of the Access Easement Area or the physical condition of the Access Easement Area. However, nothing herein shall be construed to release the Grantor Group or any of them from any liability for their own negligence or willful misconduct.
          (b) Grantee shall indemnify, protect, defend and hold harmless the Grantor Group and each of them from and against any and all actions, causes of action, claims, demands, liabilities, losses, damages, costs and expenses, including but not limited to reasonable attorney’s fees, court costs and litigation expenses (collectively, “ Claims ”), caused by the use of the Access Easement Area by any of the Grantee Parties, including any Claims based upon any accidents occurring on or about the Access Easement Area involving any of the Grantee Parties. However, the Grantor Group shall not be indemnified to the extent that any Claims arise out of the negligence or willful misconduct of the Grantor Group or any of them.
          (c) Grantee shall maintain in effect at all times, or if the Grantee Property is occupied by a tenant, will cause its tenant to maintain in effect, commercial general liability insurance and commercial automobile liability insurance (each written on a primary and non-contributory basis) in commercially reasonable amounts; provided, each liability policy shall contain a minimum combined single limit of at least $2,000,000.00 per occurrence. Grantee agrees to name Grantor’s mortgagee and any tenant of the Grantor Property as an additional insured on any liability insurance policies carried by Grantee pursuant to this Section 1.5(c) . Grantee agrees that the insurance policies required to be maintained hereunder by Grantee shall be issued by financially responsible insurance companies which are qualified to do business in the State of Texas and Grantee shall, upon request of Grantor, cause to be furnished to Grantor a certificate providing such information as reasonably requested evidencing the existence and limits of its insurance coverage, which certificate shall be delivered within 15 days following such request. In the event Grantee fails to comply with the provisions of this Section 1.5(c) and such failure continues for a period of 15 days following written notice to Grantee, Grantor may cause such additional insurance policies to be issued as required hereby, in which event all cost and expenses incurred by such Grantor shall be reimbursed by Grantee within 30 days following the written request for such reimbursement.
     1.6 Speed Control Mechanisms . Grantor reserves the right to install, at its sole cost and expense, speed bumps or other reasonable speed control mechanisms within the Access Easement Area.
ARTICLE 2 — EFFECT OF INSTRUMENT
     2.1 Mortgage Subordination . Any mortgage, security deed, or deed of trust affecting any portion of the property affected hereby (collectively, a “ Mortgage ”) shall at all times be subject and subordinate to the terms of this Agreement and any party foreclosing any such Mortgage, or acquiring title by deed in lieu of foreclosure or trustee’s sale, shall acquire title subject to all of the terms and provisions of this Agreement. However, no breach of the covenants, conditions or restrictions contained in this Agreement shall affect, impair, defeat or render invalid the lien or charge of any Mortgage, and neither any mortgagee, beneficiary nor other person acquiring title to any part of the property affected hereby by foreclosure, deed in lieu of foreclosure or otherwise shall have any liability for obligations under this Agreement arising prior to its acquisition of title. Neither a mortgagee nor beneficiary of a Mortgage nor any person acquiring title to any part of the property affected hereby by foreclosure of such Mortgage or deed in lieu of foreclosure shall be bound by any amendment of this Agreement made without the consent of such mortgagee or beneficiary, as the case may be.

3


 

     2.2 Binding Effect . Any transferee of any property or portion of any property affected hereby shall automatically be deemed, by acceptance of the title to such property, to have assumed all rights and obligations of this Agreement relating thereto to the extent of its interest in its respective property occurring after the date of such acceptance and to have agreed with the then owners of all other properties affected hereby to execute any and all instruments and to do any and all things reasonably required to carry out the intention of this Agreement, and the transferor shall upon the completion of such transfer be relieved of all further liability under this Agreement except liability with respect to matters that may have arisen during its period of ownership of the property so conveyed that remain unsatisfied. Nothing set forth herein shall impose, or be deemed to impose, any obligations (including, without limitation, any construction obligations) as to any party or property burdened hereby, unless such obligations are expressly set forth herein.
     2.3 Non-Dedication . Nothing contained in this Agreement shall be deemed to be a gift or dedication of any property affected hereby, or any portion thereof, to the general public or for any public use or purpose whatsoever, it being the intention of the Agreement and its successors-in-title that nothing in this Agreement, expressed or implied, shall confer upon any person, other than the parties hereto and their successors-in-title, any rights or remedies under or by reason of this Agreement.
     2.4 Running with the Land . The easements, covenants, and obligations created herein are intended to run with title to the Grantor Property and Grantee Property and such rights, easements, covenants, and obligations shall inure to the benefit of and burden the successors in interest to Grantor and Grantee, including, without limitation, all future owners and ground lessees of the Grantor Property and the Grantee Property.
ARTICLE 3 — NOTICES
     3.1 Notices . Each notice (“ Notice ”) shall be in writing and shall be, at the option of the party giving the Notice, deemed to have been properly given or served if (i) personally delivered, (ii) by overnight delivery service (including FedEx), or (iii) transmitted by postage prepaid, certified mail, return receipt requested, and addressed as hereinafter provided. Any Notice shall be deemed to have been given on (x) the date of receipt if delivered personally or (y) the day it shall have been posted if transmitted by mail. Delivery by a commercial courier or express mail service shall be deemed personal delivery effective when provided to such service for delivery. The time period for any response to a Notice or action in connection therewith shall not commence to run, however, until actual receipt or rejection or inability to deliver such Notice. By giving to the other parties at least 10 days’ Notice thereof, any party shall have the right from time to time during the term of this Agreement to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the United States of America. Notices shall be addressed as set forth herein below.
     
To Grantor:
  Centex Office Vista Ridge Lewisville I, L.P.
 
  2728 North Harwood Street
 
  Dallas, Texas 75201
 
  Attn: Project Manager
 
   
To Grantee:
  Centex Land Holdings, L.P.
2728 North Harwood Street
 
  Dallas, Texas 75201
 
  Attn: Project Manager

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ARTICLE 4 — MISCELLANEOUS
     4.1 Severability . If any provision of this Agreement, or the application thereof to any person or circumstance, shall be to any extent held invalid, inoperative or unenforceable, the remainder of this Agreement, or the application of such provision to any other persons or circumstances, shall not be affected thereby; it shall not be deemed that any such invalid provision affects the consideration for this Agreement; and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
     4.2 Governing Law . This Agreement shall be construed in accordance with the laws of the State of Texas.
     4.3 Headings . The Article headings in this Agreement are-for convenience only, shall in no way define or limit the scope or content of this Agreement, and shall not be considered in any construction or interpretation of this Agreement or any part hereof.
     4.4 No Partnership . Nothing in this Agreement shall be construed to make any of the parties hereto partners or joint venturers or render any of said parties liable for the debts or obligations of any other party.
     4.5 Exhibits . This Agreement shall be deemed to include all exhibits attached hereto, which exhibits are incorporated herein by reference, and shall be binding upon and inure to the benefit of the parties hereto and their successors-in-title.
     4.6 Amendments . The provisions of this Agreement may be abrogated, modified, rescinded or amended in whole or in part only by a written instrument duly executed, delivered, and recorded that is entered into by the parties hereto, or their respective successors, assigns, or successors-in-title.
     4.7 Estoppel . Any party hereto may, at any time and from time to time, in connection with the sale or transfer of its respective property or in connection with the financing or refinancing of its respective property by a bona fide mortgage or sale and leaseback made in good faith and for value, deliver a written notice to the other party or its successors-in-title requesting such party to execute a certificate certifying that such party making such request is not in default in the performance of its obligations under this Agreement, or, if in default, describing therein the nature and amount of any default. The party receiving such request shall execute and return such certificate within 30 days following its receipt thereof. Such certificate may be relied upon by all transferees, mortgagees, and security deed holders.
     4.8 Counterparts . This Agreement . may be executed hi multiple counterparts, each of which shall be deemed an original and all of which shall constitute one agreement and the signatures of any party to any counterpart shall be deemed to be a signature to, and may be appended to, any other counterpart.
     4.9 Attorney’s Fees . In the event of any litigation between the parties arising out of this Agreement or the Access Easement Area, the prevailing party shall be entitled to recover its reasonable attorney’s fees, court costs and litigation expenses.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
         
  GRANTOR :

CENTEX OFFICE VISTA RIDGE LEWISVILLE I, L.P.,
a Delaware limited partnership
 
 
  By:   Centex Office General Partner, LLC,
a Delaware limited liability company,
its sole general partner  
 
         
  By:      
    Name:      
    Title:      
 
     
STATE OF TEXAS
  §
 
  §
COUNTY OF DALLAS
  §
     On _______________, 2002, before me, the undersigned, personally appeared ___________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
                 
My commission expires:
               
             
        Notary Public — State of Texas    
 
      Printed Name:        
 
         
 
   
[Continued on following-page]

6


 

         
  GRANTEE:

CENTEX LAND HOLDINGS, L.P.,
a Delaware limited Partnership
 
 
  By:   Centex Land Holdings GenPar, LLC,
a Delaware limited liability company,
its sole general partner  
 
         
     
  By:      
    Name:      
    Title:      
 
     
STATE OF TEXAS
  §
 
  §
COUNTY OF DALLAS
  §
     On _______________, 2002, before me, the undersigned, personally appeared ___________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
                 
My commission expires:
               
             
        Notary Public — State of Texas    
 
      Printed Name:        
 
         
 
   

7


 

EXHIBIT “A”
ACCESS EASEMENT AREA
EXHIBIT “A” — Cover Page

 


 

(MAP)


 

EXHIBIT “B”
Signage Easement Agreement
EXHIBIT “B” — Cover Page

 


 

AFTER RECORDING RETURN TO:
Centex Development Company, L.P.
2728 N. Harwood
Dallas, Texas 75201
Attn: Jay M. Thompson
SIGNAGE AND ENTRY EASEMENT AGREEMENT
     THIS SIGNAGE AND ENTRY EASEMENT AGREEMENT (this “ Agreement ”) is made and entered into as of _______________, 2002, by and between CENTEX OFFICE VISTA RIDGE LEWISVILLE I, L.P., a Delaware limited partnership (“ Grantor ”), and CENTEX LAND HOLDINGS, L.P., a Delaware limited partnership (“ Grantee ”).
RECITALS
     A. Grantor is the owner in fee of certain real property located in Dallas and Denton Counties, Texas (the “ Grantor Property ”), being more particularly described as follows:
Lot 3R-2, Block E of Final Plat of Centex Office Campus North, filed in Cabinet U, Page 45, Plat Records, Denton County, Texas, and Volume 2001204, Page 00016, Plat Records, Dallas County, Texas.
     B. Grantee is the owner in fee of certain real property located in Denton County, Texas (the “ Grantee Property ”), being more particularly. described as follows:
Lot 3R-1A, Block E of Final Plat of Centex Office Campus North, filed in Cabinet U, Page 45, Plat Records, Denton County, Texas, and Volume 2001204, Page 00016, Plat Records, Dallas County, Texas.
     C. Grantor and Grantee desire to enter into this Agreement for the purpose of allowing Grantee to erect and maintain a sign on the Grantor Property for the benefit of the Grantee Property.
AGREEMENT
     NOW, THEREFORE, for and in Consideration of the sum of Ten and No/100 Dollars ($10.00) in hand paid by Grantee to Grantor, and for the sealing and delivery of these presents, the mutual covenants and agreements set forth herein, and other good and valuable consideration, the receipt and sufficiency whereof are hereby acknowledged, the parties hereto intending to be legally bound, do hereby covenant and agree-as-follows:
ARTICLE 1 — EASEMENT
     1.1 Declaration and Grant of Signage and Entry Easement . Grantor hereby grants and conveys unto Grantee, for the benefit of the Grantee Property, a non-exclusive, perpetual easement (the “ Easement ”) over, across, and upon a portion of the Grantor Property being more particularly described on Exhibit “A” attached hereto and incorporated herein by reference (the “ Easement Area ”). The Easement is for the limited purpose of enabling Grantee to (i) construct, inspect, maintain, repair, remove, and reconstruct a sign (the “ Sign ”) that identifies the buildings on the Grantee Property (or their occupants), and (ii) enter upon the Grantor Property (after at least two (2) business days notice to Grantor) to access the Easement Area for such purposes. Grantor must not permit the construction or placement of

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any improvements or items upon the Grantor Property that adversely affect the visibility of the Sign from the highway adjacent to the Grantor Property.
     1.2 Approval of Signage . Prior to constructing the Sign, Grantee must deliver to Grantor for its approval plans and specifications detailing the size and color scheme of the Sign and the type of construction materials to be used. The dimensions of the sign must not exceed 10 feet in width, 6 feet in height, or 3 feet in depth. Grantor must not unreasonably withhold or condition its approval, and acting in good faith, Grantor must approve or disapprove such plans and specifications within 10 business days after receipt thereof. The failure of Grantor to disapprove the plans and specifications within such 10 business day period will constitute approval by Grantor. If Grantor, acting in good faith, disapproves such plans and specifications, Grantor specifically must identify its objections and Grantee must revise such plans and specifications to address Grantor’s objections and re-submit the same to Grantor for approval within 10 days thereafter. The foregoing process will be implemented repeatedly until, acting in good faith, Grantor and Grantee have agreed to plans and specifications for the Sign. Following the approval (or deemed approval) by Grantor, Grantee may construct the Sign within the Easement Area, at Grantee’s sole cost and expense, in accordance with all applicable laws. Grantee shall promptly pay all costs related to construction of the Sign, and Grantee shall indemnify, defend and hold harmless Grantor from and against any and all costs, liens, claims or expenses relating to the Sign.
     1.3 Maintenance .
     (a) Grantor agrees to undertake and perform any and all maintenance and repair work within the Easement Area (excluding maintenance and repair of the Sign itself) that may from time to time be reasonably necessary to maintain the Easement Area in good condition and repair (such as, without limitation, mowing the lawn and maintaining any irrigation equipment and landscaping). If Grantor fails to perform such. maintenance or repair work for a period of 30 days after notice from Grantee of such failure, then Grantee will have the right (but not the obligation) to perform such work.
     (b) Grantee agrees to undertake and perform any and all maintenance and repair work pertaining to the Sign that may from time to time be reasonably necessary to maintain the Sign in good condition and repair, in a clean and sightly condition and in accordance with all applicable laws. If Grantee fails to perform such maintenance or repair work for a period of 30 days after notice from Grantor of such failure, then Grantor will have the right (but not the obligation) to perform such work. However, Grantor will not have the right to remove or tear down the Sign.
     (c) Other than (i) maintenance and repairs intended to return the Sign to substantially its original condition, and (ii) changes to the graphics of the individual sign panels within the Sign, the Grantee shall not change any aspect of the appearance of the Sign without the prior written consent of the Grantor, which consent shall not be unreasonably withheld.
     1.4 Maintenance Costs . The cost of the maintenance and repair work described in Section 1.3(a) will be borne solely by Grantor and the cost of the maintenance and repair work described in Section 1.3(b) will be borne solely by Grantee. If either Grantor or Grantee performs any maintenance or repairs within the Easement Area following notice of non-performance to the other party pursuant to Section 1.3 , then following such maintenance or repair the performing party may deliver to the non-performing party itemized invoices of the Costs (as hereinafter defined) incurred and the nonperforming party must reimburse the performing party for its share of such Costs within 30 days after the receipt of such invoices. In all cases where reimbursement is required by either Grantor or Grantee, interest shall accrue on the portion of the Costs payable by such party at the rate of 12% per annum beginning 30 days from the date such party receives the itemized invoices. If either Grantor or Grantee performs maintenance or repair work within the Easement Area and fails to deliver invoices to the other party

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within 12 months after the date of such performance, then the non-performing party will not be obligated to reimburse the performing party for any portion of the Costs incurred. As used herein, the term “ Costs ” includes only the actual and reasonable costs of performing maintenance and repairs within the Easement Area and does not include any other costs associated with the ownership of the Easement Area (including, without limitation, property taxes, insurance premiums, or other similar expenses).
     1.5 Assumption of Risk; Indemnification; Insurance .
     (a) Grantee assumes the risk of loss arising out of its use of the Easement Area and releases and discharges Grantor, its successors and assigns, and their respective directors, officers, shareholders, partners, members, agents, servants, employees and contractors (collectively, with Grantor, the “ Grantor Group ”) from any and all claims, losses, liabilities, damages and demands by Grantee for damage to either person or property, including bodily injury and death, or loss of business or income, arising out of use by Grantee, its tenants, agents and contractors and their respective employees, invitees and guests (collectively, with Grantee, the “ Grantee Parties ”) of the Easement Area or the physical condition of the Easement Area. However, nothing herein shall be construed to release the Grantor Group or any of them from any liability for their own negligence or willful misconduct.
     (b) Grantee shall indemnify, protect, defend and hold harmless the Grantor Group and each of them from and against any and all actions, causes of action, claims, demands, liabilities, liens, losses, damages, costs and expenses, including but not limited to reasonable attorney’s fees, court costs and litigation expenses (collectively, “ Claims ”), caused by the use of the Easement Area by any of the Grantee Parties, including any Claims based upon any accidents occurring on or about the Easement Area involving any of the Grantee Parties. However, the Grantor Group shall not be indemnified to the extent that any Claims arise out of the negligence or willful misconduct of the Grantor Group or any of them.
     (c) Grantee shall maintain in effect at all times, or if the Grantee Property is occupied by a tenant, will cause its tenant to maintain in effect, commercial general liability insurance and commercial automobile liability insurance (each written on a primary and non-contributory basis) in commercially reasonable amounts; provided, each liability policy shall contain a minimum combined single limit of at least $2,000,000.00 per occurrence. Grantee agrees to name Grantor, Grantor’s mortgagee and any tenant of the Grantor Property as an additional insured on any liability insurance policies carried by Grantee pursuant to this Section 1.5(c) . Grantee agrees that the insurance policies required to be maintained hereunder by Grantee shall be issued by financially responsible insurance companies which are qualified to do business in the State of Texas and Grantee shall, upon request of Grantor, cause to be furnished to Grantor a certificate providing such information as reasonably requested evidencing the existence and limits of its insurance coverage, which certificate shall be delivered within 15 days following such request. In the event Grantee fails to comply with the provisions of this Section 1.5(c) and such failure continues for a period of 15 days following written notice to Grantee, Grantor may cause such additional insurance policies to be issued as required hereby, in which event all cost and expenses incurred by such Grantor shall be reimbursed by Grantee within 30 days following the Written request for such reimbursement.
ARTICLE 2 — EFFECT OF INSTRUMENT
     2.1 Mortgage Subordination . Any mortgage, security deed, or deed of trust affecting any portion of the property affected hereby (collectively, a “ Mortgage ”) shall at all times be subject and subordinate to the terms of this Agreement and any party foreclosing any such Mortgage, or acquiring title by deed in lieu of foreclosure or trustee’s sale, shall acquire title subject to all of the terms and provisions Of this Agreement. However, no breach of the covenants, conditions or restrictions contained in this Agreement shall affect, impair, defeat or render invalid the lien or charge of any Mortgage, and

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neither any mortgagee, beneficiary nor other person acquiring title to any part of the property affected hereby by foreclosure, deed in lieu of foreclosure or otherwise shall have any liability for obligations under this Agreement arising prior to its acquisition of title. Neither a mortgagee nor beneficiary of a Mortgage nor any person acquiring title to any part of the property affected hereby by foreclosure of such Mortgage or deed in lieu of foreclosure shall be bound by any amendment of this Agreement made without the consent of such mortgagee or beneficiary, as the case may be.
     2.2 Binding Effect . Any transferee of any property or portion of any property affected hereby shall automatically be deemed, by acceptance of the title to such property, to have assumed all rights and obligations of this Agreement relating thereto to the extent of its interest in its respective property occurring after the date of such acceptance and to have agreed with the then owners of all other properties affected hereby to execute any and all instruments and to do any and all things reasonably required to carry out the intention of this Agreement, and the transferor shall upon the completion of such transfer be relieved of all further liability under this Agreement except liability with respect to matters that may have arisen during its period of ownership of the property so conveyed that remain unsatisfied. Nothing set forth herein shall impose, or be deemed to impose, any obligations (including, without limitation, any construction obligations) as to any party or property burdened hereby, unless such obligations are expressly set forth herein.
     2.3 Non-Dedication . Nothing contained in this Agreement shall be deemed to be a gift or dedication of any property affected hereby, or any portion thereof, to the general public or for any public use or purpose whatsoever, it being the intention of the Agreement and its successors-in-title that nothing in this Agreement, expressed or implied, shall confer upon any person, other than the parties hereto and their successors-in-title, any rights or remedies under or by reason of this Agreement.
     2.4 Running with the Land . The easements, covenants, and obligations created herein are intended to run with title to the Grantor Property and Grantee Property and such rights, easements, covenants, and obligations shall inure to the benefit of and burden the successors in interest to Grantor and Grantee, including, without limitation, all future owners and ground lessees of the Grantor Property and the Grantee Property.
ARTICLE 3 — NOTICES
     3.1 Notices . Each notice (“ Notice ”) shall be in writing and shall be, at the option of the party giving the Notice, deemed to have been properly given or served if (i) personally delivered, (ii) by overnight delivery service (including FedEx), or (iii) transmitted by postage prepaid, certified mail, return receipt requested, and addressed as hereinafter provided. Any Notice shall be deemed to have been given on (x) the date of receipt if delivered personally or (y) the day it shall have been posted if transmitted by mail. Delivery by a commercial courier or express mail service shall be deemed personal delivery effective when provided to such service for delivery. The time period for any response to a Notice or action in connection therewith shall not commence to run, however, until actual receipt or rejection or inability to deliver such Notice. By giving to the other parties at least 10 days’ Notice thereof, any party shall have the right from time to time during the term of this Agreement to change the address(es) thereof and to specify as the address(es) thereof any other address(es) within the United States of America. Notices shall be addressed as set forth herein below.
     
To Grantor:
  Centex Office Vista Ridge Lewisville I, L.P.
 
  2728 North Harwood Street
 
  Dallas, Texas 75201
 
  Attn: Project Manager

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To Grantee:
  Centex Land Holdings, L.P.
 
  2728 North Harwood Street
 
  Dallas, Texas 75201
 
  Attn: Project Manager
ARTICLE 4 — MISCELLANEOUS
     4.1 Severability . If any provision of this Agreement, or the application thereof to any person or circumstance, shall be to any extent held invalid, inoperative or unenforceable, the remainder of this Agreement, or the application of such provision to any other persons or circumstances, shall not be affected thereby; it shall not be deemed that any such invalid provision affects the consideration for this Agreement; and each provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
     4.2 Governing Law . This Agreement shall be construed in accordance with the laws of the State of Texas.
     4.3 Headings . The Article headings in this Agreement are for convenience only, shall in no way define or limit the scope or content of this Agreement, and shall not be considered in any construction or interpretation of this Agreement or any part hereof.
     4.4 No Partnership . Nothing in this Agreement shall be construed to make any of the parties hereto partners or joint venturers or render any of said parties liable for the debts or obligations of any other party.
     4.5 Exhibits . This Agreement shall be deemed to include all exhibits attached hereto, which exhibits are incorporated herein by reference, and shall be binding upon and inure to the benefit of the parties hereto and their successors-in-title.
     4.6 Amendments . The provisions of this Agreement may be abrogated, modified, rescinded or amended in whole or in part only by a written instrument duly executed, delivered, and recorded that is entered into by the parties hereto, or their respective successors, assigns, or successors-in-title.
     4.7 Estoppel . Any party hereto may, at any time and from time to time, in connection with the sale or transfer of its respective property or in connection with the financing or refinancing of its respective property by a bona fide mortgage or sale and leaseback made in good faith and for value, deliver a written notice to the other party or its successors-in-title requesting such party to execute a certificate certifying that such party making such request is not in default in the performance of its obligations under this Agreement, or, if in default, describing therein the nature and amount of any default. The party receiving such request shall execute and return such certificate within 30 days following its receipt thereof. Such certificate may be relied upon by all transferees, mortgagees, and security deed holders.
     4.8 Counterparts . This Agreement may be executed in multiple counterparts, each of which shall be deemed an original and all of which shall constitute one agreement and the signatures of any party to any counterpart shall be deemed to be a signature to, and may be appended to, any other counterpart.
     4.9 Attorney’s Fees . In the event of any litigation between the parties arising out of this Agreement or the Easement Area, the prevailing party shall be entitled to recover its reasonable attorney’s fees, court costs and litigation expenses.

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the day and year first above written.
         
  GRANTOR :

CENTEX OFFICE VISTA RIDGE LEWISVILLE I, L.P.,
a Delaware limited partnership

 
  By:   Centex Office General Partner, LLC,
a Delaware limited liability company,
its sole general partner  
 
         
     
  By:      
    Name:      
    Title:      
 
     
STATE OF TEXAS
  §
 
  §
COUNTY OF DALLAS
  §
     On _______________, 2002, before me, the undersigned, personally appeared ___________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
         
     
     
  Notary Public — State of Texas   
[Continued on following-page]

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  GRANTEE:

CENTEX LAND HOLDINGS, L.P.,
a Delaware limited partnership
 
 
  By:   Centex Land Holdings GenPar, LLC,
a Delaware limited liability company,
its sole general partner  
 
         
     
  By:      
    Name:      
    Title:      
 
     
STATE OF TEXAS
  §
 
  §
COUNTY OF DALLAS
  §
     On _______________, 2002, before me, the undersigned, personally appeared ___________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument, and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.
         
     
     
  Notary Public — State of Texas   
     

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EXHIBIT “A”
ACCESS EASEMENT AREA
EXHIBIT “A” — Cover Page

 


 

(MAP)

1

Exhibit 10.57
NATIONSTAR MORTGAGE HOLDINGS INC.
2012 INCENTIVE COMPENSATION PLAN
(As Adopted February 24, 2012)
1. Purpose of the Plan
          This Nationstar 2012 Incentive Plan is intended to promote the interests of Nationstar and its shareholders by providing employees, consultants and directors of the Company, who are largely responsible for the management, growth and protection of the business of the Company, with incentives and rewards to encourage them to continue in the service of the Company and with a proprietary interest in pursuing the long-term growth, profitability and financial success of the Company.
2. Definitions
          As used in the Plan or in any instrument governing the terms of any Award, the following definitions apply to the terms indicated below:
  (a)        “Award” means one or more Stock Incentive Awards and Cash-Based Awards, collectively.
 
  (b)        “Board of Directors” means the Board of Directors of Nationstar.
 
  (c)        “Cash-Based Award” means an award granted pursuant to Section 8 of the Plan.
 
  (d)        “Change in Control” has the meaning assigned to such term in Section 19 of the Plan.
 
  (e)        “Code” means the Internal Revenue Code of 1986, as amended from time to time, and all regulations, interpretations and administrative guidance issued thereunder.
 
  (f)        “Committee” means the Compensation Committee of the Board of Directors or such other committee as the Board of Directors shall appoint from time to time to administer the Plan and to otherwise exercise and perform the authority and functions assigned to the Committee under the terms of the Plan.
 
  (g)        “Common Stock” means Nationstar’s Common Stock, $0.01 par value per share, or any other security into which the common stock shall be changed pursuant to the adjustment provisions of Section 10 of the Plan.
 
  (h)        “Company” means Nationstar and all of its Subsidiaries, collectively.

 


 

  (i)        “Covered Employee” means any person who is an executive officer of Nationstar at the time as of which reference to this definition is made.
 
  (j)        “Effective Date” means February 24, 2012.
 
  (k)        “Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
  (l)        “Fair Market Value” means, with respect to a share of Common Stock, as of the applicable date of determination (i) the average of the high and low sales prices on the immediately preceding business day of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading or (ii) if not so reported, the average of the closing bid and ask prices on the immediately preceding business day as reported on the National Association of Securities Dealers Automated Quotation System or (iii) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Committee. In the event that the price of a share of Common Stock shall not be so reported, the Fair Market Value of a share of Common Stock shall be determined by the Committee in its sole discretion.
 
  (m)        “Incentive Pool” means an amount available to be paid to one or more Participants as Performance-Based Compensation, which amount is determined in accordance with Section 162(m) of the Code.
 
  (n)        “Nationstar” means Nationstar Mortgage Holdings Inc., a Delaware corporation and any successor thereto.
 
  (o)        “Other Stock-Based Award” means an award granted to a Participant pursuant to Section 7 of the Plan.
 
  (p)        “Participant” means a director, employee or consultant of the Company who is eligible to participate in the Plan and to whom one or more Awards have been granted pursuant to the Plan and, following the death of any such Person, his successors, heirs, executors and administrators, as the case may be.
 
  (q)        “Performance-Based Compensation” means compensation that satisfies the requirements of Section 162(m) of the Code for deductibility of remuneration paid to Covered Employees.
 
  (r)        “Performance Measures” means such measures as are described in Section 9 on which performance goals are based in order to qualify certain Awards granted hereunder as Performance-Based Compensation.
 
  (s)        “Performance Percentage” means the factor determined pursuant to a Performance Schedule that is to be applied to a Target Award or Incentive Pool and that reflects actual performance compared to the Performance Target.

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  (t)        “Performance Period” means the period of time during which the performance goals must be met in order to determine the degree of payout and/or vesting with respect to an Award that is intended to qualify as Performance-Based Compensation. Performance Periods may be overlapping.
 
  (u)        “Performance Schedule” means a schedule or other objective method for determining the applicable Performance Percentage to be applied to each Target Award or Incentive Pool.
 
  (v)        “Performance Target” means performance goals and objectives with respect to a Performance Period.
 
  (w)        “Person” means a “person” as such term is used in Section 13(d) and 14(d) of the Exchange Act, including any “group” within the meaning of Section 13(d)(3) under the Exchange Act.
 
  (x)        “Plan” means this Nationstar 2012 Incentive Compensation Plan, as it may be amended from time to time.
 
  (y)        “Securities Act” means the Securities Act of 1933, as amended.
 
  (z)        “Stock Incentive Award” means a Stock Option or Other Stock-Based Award granted pursuant to the terms of the Plan.
 
  (aa)        “Stock Option” means a stock option to purchase shares of Common Stock granted to a Participant pursuant to Section 6.
 
  (bb)        “Subsidiary” means any “subsidiary” within the meaning of Rule 405 under the Securities Act.
 
  (cc)        “Target Award” means a Cash-Based Award of a specific dollar amount or portion of an Incentive Pool, determined by the Committee, pursuant to Performance Measures as described in Section 9 of the Plan.
 
  (dd)        “Voting Securities” means, at any time, Nationstar’s then outstanding voting securities.
3. Stock Subject to the Plan and Limitations on Cash-Based Awards
          (a) Stock Subject to the Plan
          The maximum number of shares of Common Stock that may be covered by Awards granted under the Plan shall not exceed 5,200,000 shares of Common Stock in the aggregate, subject, during the term of the Plan, to annual increases of 150,000 shares of Common Stock on each anniversary of the Effective Date. The shares referred to in the preceding sentences of this paragraph shall in each case be subject to adjustment as provided in

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Section 10 and the following provisions of this Section 3. Shares of Common Stock issued under the Plan may be either authorized and unissued shares or treasury shares, or both, at the sole discretion of the Committee.
          For purposes of the preceding paragraph, shares of Common Stock covered by Awards shall only be counted as used to the extent they are actually issued and delivered to a Participant (or such Participant’s permitted transferees as described in the Plan) pursuant to the Plan. For purposes of clarity, in accordance with the preceding sentence if an Award is settled for cash or if shares of Common Stock are withheld to pay the exercise price of a Stock Option or to satisfy any tax withholding requirement in connection with an Award, only the shares issued (if any), net of the shares withheld, will be deemed delivered for purposes of determining the number of shares of Common Stock that are available for delivery under the Plan. In addition, if shares of Common Stock are issued subject to conditions which may result in the forfeiture, cancellation or return of such shares to the Company, any portion of the shares forfeited, cancelled or returned shall be treated as not issued pursuant to the Plan. In addition, if shares of Common Stock owned by a Participant (or such Participant’s permitted transferees as described in the Plan) are tendered (either actually or through attestation) to the Company in payment of any obligation in connection with an Award, the number of shares tendered shall be added to the number of shares of Common Stock that are available for delivery under the Plan. Shares of Common Stock covered by Awards granted pursuant to the Plan in connection with the assumption, replacement, conversion or adjustment of outstanding equity-based awards in the context of a corporate acquisition or merger (within the meaning of Section 303A.08 of the New York Stock Exchange Listed Company Manual) shall not count as used under the Plan for purposes of this Section 3.
          (b) Individual Award Limits
          Subject to adjustment as provided in Section 10 of the Plan, the maximum number of shares of Common Stock that may be covered by Awards granted under the Plan to any single Participant in any calendar year shall not exceed 3,000,000 shares. The amount payable to any Participant with respect to any calendar year for all Cash-Based Awards for which the Performance Period is not longer than one year shall not exceed $20,000,000. The amount payable to any Participant with respect to any calendar year for all Cash-Based Awards for which the Performance Period is longer than one year shall not exceed $20,000,000. For purposes of the preceding sentences, the phrase “amount payable with respect to any calendar year” means the amount of cash, or value of other property, required to be paid based on the achievement of applicable Performance Measures during a Performance Period that ends in a calendar year, disregarding any deferral pursuant to the terms of a deferred compensation plan or agreement.
4. Administration of the Plan
          The Plan shall be administered by a Committee of the Board of Directors consisting of two or more persons, each of whom qualifies as a “non-employee director” (within the meaning of Rule 16b-3 promulgated under Section 16 of the Exchange Act), an “outside director” within the meaning of Treasury Regulation Section 1.162-27(e)(3) and as “independent” within the

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meaning of any applicable stock exchange or similar regulatory authority. The Committee shall, consistent with the terms of the Plan, from time to time designate those employees and consultants of the Company who shall be granted Awards under the Plan and the amount, type and other terms and conditions of such Awards. All of the powers and responsibilities of the Committee under the Plan may be delegated by the Committee, in writing, to any subcommittee thereof. In addition, the Committee may from time to time authorize a subcommittee consisting of one or more members of the Board of Directors (including members who are employees of the Company) or employees of Nationstar to grant Awards to persons who are not “executive officers” of Nationstar (within the meaning of Rule 16a-1 under the Exchange Act), subject to such restrictions and limitation as the Committee may specify. In addition, the Board of Directors may, consistent with the terms of the Plan, from time to time grant Awards to Directors.
          The Committee shall have full discretionary authority to administer the Plan, including discretionary authority to interpret and construe any and all provisions of the Plan and the terms of any Award (and any agreement evidencing any Award) granted thereunder and to adopt and amend from time to time such rules and regulations for the administration of the Plan as the Committee may deem necessary or appropriate. Without limiting the generality of the foregoing, the Committee shall determine whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment. The employment of a Participant with the Company shall be deemed to have terminated for all purposes of the Plan if such Participant is employed by or provides services to a Person that is a Subsidiary of the Company and such Person ceases to be a Subsidiary of the Company, unless the Committee determines otherwise. Decisions of the Committee shall be final, binding and conclusive on all parties.
          Upon the occurrence of a Change in Control, the Committee shall have full discretionary authority to (i) accelerate the vesting of any Award, and/or (ii) provide for payment of any Award.
          On or after the date of grant of an Award under the Plan, the Committee may (i) accelerate the date on which any such Award becomes vested, exercisable or transferable, as the case may be, (ii) extend the term of any such Award, including, without limitation, extending the period following a termination of a Participant’s employment during which any such Award may remain outstanding, (iii) waive any conditions to the vesting, exercisability or transferability, as the case may be, of any such Award or (iv) provide for the payment of dividends or dividend equivalents with respect to any such Award; provided , that the Committee shall not have any such authority to the extent that the grant of such authority would cause any tax to become due under Section 409A of the Code.
          No member of the Committee shall be liable for any action, omission, or determination relating to the Plan, and Nationstar shall indemnify and hold harmless each member of the Committee and each other director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim

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with the approval of the Committee) arising out of any action, omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company.
5. Eligibility
          The Persons who shall be eligible to receive Awards pursuant to the Plan shall be those employees and consultants of the Company and directors whom the Committee shall select from time to time, including those key employees (including officers of Nationstar, whether or not they are directors) who are largely responsible for the management, growth and protection of the business of the Company. Each Award granted under the Plan shall be evidenced by an instrument in writing in form and substance approved by the Committee.
6. Stock Options
          The Committee may from time to time grant Stock Options, subject to the following terms and conditions:
          (a) Exercise Price
          The exercise price per share of Common Stock covered by any Stock Option shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date on which such Stock Option is granted. Each Stock Option granted hereunder is intended to be a non-qualified Stock Option and is not intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code.
          (b) Term and Exercise of Stock Options
          (1) Each Stock Option shall become vested and exercisable on such date or dates, during such period and for such number of shares of Common Stock as shall be determined by the Committee on or after the date such Stock Option is granted; provided , however that no Stock Option shall be exercisable after the expiration of ten years from the date such Stock Option is granted; and, provided , further , that each Stock Option shall be subject to earlier termination, expiration or cancellation as provided in the Plan or in the agreement evidencing such Stock Option.
          (2) Each Stock Option may be exercised in whole or in part; provided , however that no partial exercise of a Stock Option shall be for an aggregate exercise price of less than $1,000. The partial exercise of a Stock Option shall not cause the expiration, termination or cancellation of the remaining portion thereof.
          (3) A Stock Option shall be exercised by such methods and procedures as the Committee determines from time to time, including without limitation through net physical settlement or other method of cashless exercise.

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          (4) Stock Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of a Participant, only by the Participant; provided , however that the Committee may permit Stock Options to be sold, pledged, assigned, hypothecated, transferred, or disposed of, on a general or specific basis, subject to such conditions and limitations as the Committee may determine.
          (c) Effect of Termination of Employment or Other Relationship
          The agreement evidencing the award of each Stock Option shall specify the consequences with respect to such Stock Option of the termination of the employment, service as a director or other relationship between the Company and the Participant holding the Stock Option.
7. Other Stock-Based Awards
          The Committee may grant equity-based or equity-related awards not otherwise described herein in such amounts and subject to such terms and conditions as the Committee shall determine. Without limiting the generality of the preceding sentence, each such Other Stock-Based Award may (i) involve the transfer of actual shares of Common Stock to Participants, either at the time of grant or thereafter, or payment in cash or otherwise of amounts based on the value of shares of Common Stock, (ii) be subject to performance-based and/or service-based conditions, (iii) be in the form of stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred share units or share-denominated performance units, (iv) be designed to comply with applicable laws of jurisdictions other than the United States and (v) be designed to qualify as Performance-Based Compensation; provided , that each Other Stock-Based Award shall be denominated in, or shall have a value determined by reference to, a number of shares of Common Stock that is specified at the time of the grant of such award.
8. Cash-Based Awards
          The Committee may grant Cash-Based Awards with respect to any Performance Period, subject to the terms and conditions of the Plan. Cash-Based Awards may be settled in cash or in other property, including shares of Common Stock, provided that the term “Cash-Based Award” shall exclude any Stock Option or Other Stock-Based Award. Cash-Based Awards may be designed to qualify as Performance-Based Compensation. Without limiting the generality of the foregoing, a Cash-Based Award may provide for Target Awards based on allocation among Participants of an Incentive Pool.
9. Performance-Based Compensation
          (a) Calculation
          The amount payable with respect to an Award that is intended to qualify as Performance-Based Compensation shall be determined in any manner permitted by Section 162(m) of the Code.

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          (b) Discretionary Reduction
          The Committee may, in its discretion, reduce or eliminate the amount payable to any Participant with respect to an Award that is intended to qualify as Performance-Based Compensation, based on such factors as the Committee may deem relevant, but the Committee may not increase any such amount above the amount established in accordance with the relevant Performance Schedule. For purposes of clarity, the Committee may exercise the discretion provided for by the foregoing sentence in a non-uniform manner among Participants.
          (c) Performance Measures
          The performance goals upon which the payment or vesting of any Award (other than Stock Options and stock appreciation rights) to a Covered Employee that is intended to qualify as Performance-Based Compensation depends shall relate to one or more of the following Performance Measures: (i) net income or operating net income (before or after taxes, interest, depreciation, amortization, and/or nonrecurring/unusual items), (ii) return on assets, return on capital, return on equity, return on economic capital, return on other measures of capital, return on sales or other financial criteria, (iv) revenue or net sales, (v) gross profit or operating gross profit, (vi) cash flow, (vii) productivity or efficiency ratios, (viii) share price or total shareholder return, (ix) earnings per share, (x) budget and expense management, (xi) customer and product measures, including market share, high value client growth, and customer growth, (xii) working capital turnover and targets, (xiii) margins, and (xiv) economic value added or other value added measurements, and (xv) any other measure of financial performance that can be determined pursuant to U.S. generally accepted accounting principles, or any combination of any of the foregoing, in any such case (x) considered absolutely or relative to historic performance or relative to one or more other businesses and (y) determined for the Company or any business unit or division thereof.
          Within 90 days after the beginning of a Performance Period, and in any case before 25% of the Performance Period has elapsed, the Committee shall establish (a) Performance Targets for such Performance Period, (b) Target Awards for each Participant, and (c) Performance Schedules for such Performance Period.
          The measurement of any Performance Measure(s) may exclude the impact of charges for restructurings, discontinued operations, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of accounting changes, each as defined by generally accepted accounting principles and as identified in the Company’s audited financial statements, including the notes thereto. Any Performance Measure(s) may be used to measure the performance of the Company or a Subsidiary as a whole or any business unit of the Company or any Subsidiary or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or a published or special index that the Committee, in its sole discretion, deems appropriate.

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          Nothing in this Section 9 is intended to limit the Committee’s discretion to adopt conditions with respect to any Award that is not intended to qualify as Performance-Based Compensation that relate to performance other than the Performance Measures. In addition, the Committee may, subject to the terms of the Plan, amend previously granted Awards in a way that disqualifies them as Performance-Based Compensation.
10. Adjustment Upon Certain Changes
          (a) Shares Available for Grants
          In the event of any change in the number of shares of Common Stock outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the maximum aggregate number of shares of Common Stock with respect to which the Committee may grant Awards and the maximum aggregate number of shares of Common Stock with respect to which the Committee may grant Awards to any individual Participant in any year shall be appropriately adjusted by the Committee. In the event of any change in the number of shares of Common Stock outstanding by reason of any other similar event or transaction, the Committee may, to the extent deemed appropriate by the Committee, make such adjustments in the number and class of shares of Common Stock with respect to which Awards may be granted.
          (b) Increase or Decrease in Issued Shares Without Consideration
          Subject to any required action by the shareholders of Nationstar, in the event of any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares of Common Stock or the payment of a stock dividend (but only on the shares of Common Stock), or any other increase or decrease in the number of such shares effected without receipt or payment of consideration by the Company, the Committee may, to the extent deemed appropriate by the Committee, adjust the number of shares of Common Stock subject to each outstanding Award and the exercise price per share of Common Stock of each such Award.
          (c) Certain Mergers
          Subject to any required action by the shareholders of Nationstar, in the event that Nationstar shall be the surviving corporation in any merger, consolidation or similar transaction as a result of which the holders of shares of Common Stock receive consideration consisting exclusively of securities of such surviving corporation, the Committee may, to the extent deemed appropriate by the Committee, adjust each Award outstanding on the date of such merger or consolidation so that it pertains and applies to the securities which a holder of the number of shares of Common Stock subject to such Award would have received in such merger or consolidation.

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          (d) Certain Other Transactions
          In the event of (i) a dissolution or liquidation of Nationstar, (ii) a sale of all or substantially all of the Company’s assets (on a consolidated basis), (iii) a merger, consolidation or similar transaction involving Nationstar in which Nationstar is not the surviving corporation or (iv) a merger, consolidation or similar transaction involving Nationstar in which Nationstar is the surviving corporation but the holders of shares of Common Stock receive securities of another corporation and/or other property, including cash, the Committee shall, in its sole discretion, have the power to:
     (i) cancel, effective immediately prior to the occurrence of such event, each Award (whether or not then exercisable), and, in full consideration of such cancellation, pay to the Participant to whom such Award was granted an amount in cash, for each share of Common Stock subject to such Award equal to the value, as determined by the Committee in its reasonable discretion, of such Award, provided that with respect to any outstanding Stock Option such value shall be equal to the excess of (A) the value, as determined by the Committee in its reasonable discretion, of the property (including cash) received by the holder of a share of Common Stock as a result of such event over (B) the exercise price of such Stock Option; or
     (ii) provide for the exchange of each Award (whether or not then exercisable or vested) for an Award with respect to, as appropriate, some or all of the property which a holder of the number of shares of Common Stock subject to such Award would have received in such transaction and, incident thereto, make an equitable adjustment as determined by the Committee in its reasonable discretion in the exercise price of the Award, or the number of shares or amount of property subject to the Award or, if appropriate, provide for a cash payment to the Participant to whom such Award was granted in partial consideration for the exchange of the Award.
          (e) Other Changes
          In the event of any change in the capitalization of Nationstar or corporate change other than those specifically referred to in paragraphs (b), (c) or (d), the Committee may make such adjustments in the number and class of shares subject to Awards outstanding on the date on which such change occurs and in such other terms of such Awards as the Committee may consider appropriate.
          (f) Cash-Based Awards
          In the event of any transaction or event described in this Section 10, including without limitation any corporate change referred to in paragraph (e) hereof, the Committee may, in its sole discretion, make such adjustments in any Performance Schedule, Performance Target or Target Award, and in such other terms of any Cash-Based Awards, as the Committee may consider appropriate in respect of such transaction or event, provided that such adjustment is consistent with the requirements of Section 162(m) of the Code and the regulations thereunder.

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          (g) No Other Rights
          Except as expressly provided in the Plan, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger or consolidation of Nationstar or any other corporation. Except as expressly provided in the Plan, no issuance by Nationstar of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares or amount of other property subject to, or the terms related to, any Award.
          (h) Savings Clause
          No provision of this Section 10 shall be given effect to the extent that such provision would cause any tax to become due under Section 409A of the Code.
11. Rights Under the Plan
          No person shall have any rights as a stockholder with respect to any shares of Common Stock covered by or relating to any Award granted pursuant to the Plan until the date of the issuance of a stock certificate or of the entry on the Company’s books with respect to such shares. Except as otherwise expressly provided in Section 10 hereof, no adjustment of any Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued or book entry is made. Nothing in this Section 11 is intended, or should be construed, to limit authority of the Committee to cause the Company to make payments based on the dividends that would be payable with respect to any share of Common Stock if it were issued or outstanding, or from granting rights related to such dividends.
          The Company shall not have any obligation to establish any separate fund or trust or other segregation of assets to provide for payments under the Plan. To the extent any person acquires any rights to receive payments hereunder from the Company, such rights shall be no greater than those of an unsecured creditor.
12. No Special Employment Rights; No Right to Award
          (a) Nothing contained in the Plan or any Award shall confer upon any Participant any right with respect to the continuation of his employment by or service to the Company or interfere in any way with the right of the Company at any time to terminate such employment or service or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Award.
          (b) No person shall have any claim or right to receive an Award hereunder. The Committee’s granting of an Award to a Participant at any time shall neither require the Committee to grant an Award to such Participant or any other Participant or other person at any time nor preclude the Committee from making subsequent grants to such Participant or any other Participant or other person.

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13. Securities Matters
          (a) Nationstar shall be under no obligation to effect the registration pursuant to the Securities Act of any shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, Nationstar shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Common Stock pursuant to the Plan unless and until Nationstar is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. The Committee may require, as a condition to the issuance and delivery of certificates evidencing shares of Common Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee deems necessary or desirable.
          (b) The exercise of any Stock Option granted hereunder shall only be effective at such time as counsel to Nationstar shall have determined that the issuance and delivery of shares of Common Stock pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. Nationstar may, in its sole discretion, defer the effectiveness of an exercise of a Stock Option hereunder or the issuance or transfer of shares of Common Stock pursuant to any Award pending or to ensure compliance under federal or state securities laws. Nationstar shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of a Stock Option or the issuance or transfer of shares of Common Stock pursuant to any Award. During the period that the effectiveness of the exercise of a Stock Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto.
14. Withholding Taxes
          (a) Cash Remittance
          Whenever shares of Common Stock are to be issued upon the exercise of a Stock Option or the grant or vesting of an Award, and whenever any amount shall become payable in respect of any Award, Nationstar shall have the right to require the Participant to remit to Nationstar in cash an amount sufficient to satisfy federal, state and local withholding tax requirements, if any, attributable to such exercise, grant, vesting or payment prior to the delivery of any certificate or certificates or the entry on the Company’s books for such shares or the effectiveness of the lapse of such restrictions or making of such payment. In addition, upon the exercise or settlement of any Award in cash, or any payment with respect to any Award, Nationstar shall have the right to withhold from any payment required to be made pursuant thereto an amount sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise, settlement or payment.
          (b) Stock Remittance

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          At the election of the Participant, subject to the approval of the Committee, when shares of Common Stock are to be issued upon the exercise, grant or vesting of an Award, the Participant may tender to Nationstar a number of shares of Common Stock having a Fair Market Value at the tender date determined by the Committee to be sufficient to satisfy the minimum federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting but not greater than the minimum withholding obligations. Such election shall satisfy the Participant’s obligations under Section 14(a) hereof, if any.
          (c) Stock Withholding
          At the election of the Participant, subject to the approval of the Committee, when shares of Common Stock are to be issued upon the exercise, grant or vesting of an Award, Nationstar shall withhold a number of such shares having a Fair Market Value at the exercise date determined by the Committee to be sufficient to satisfy the minimum federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting but not greater than the minimum withholding obligations. Such election shall satisfy the Participant’s obligations under Section 14(a) hereof, if any.
15. Amendment or Termination of the Plan
          The Board of Directors may at any time suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided , however , that to the extent that any applicable law, regulation or rule of a stock exchange requires shareholder approval in order for any such revision or amendment to be effective, such revision or amendment shall not be effective without such approval. The preceding sentence shall not restrict the Committee’s ability to exercise its discretionary authority hereunder pursuant to Section 4 hereof, which discretion may be exercised without amendment to the Plan. No provision of this Section 15 shall be given effect to the extent that such provision would cause any tax to become due under Section 409A of the Code. Except as expressly provided in the Plan, no action hereunder may, without the consent of a Participant, reduce the Participant’s rights under any previously granted and outstanding Award. Nothing in the Plan shall limit the right of the Company to pay compensation of any kind outside the terms of the Plan.
16. No Obligation to Exercise
          The grant to a Participant of an Award shall impose no obligation upon such Participant to exercise such Award.

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17. Transfers Upon Death
          Upon the death of a Participant, outstanding Awards granted to such Participant may be exercised only by the executors or administrators of the Participant’s estate or by any person or persons who shall have acquired such right to exercise by will or by the laws of descent and distribution. No transfer by will or the laws of descent and distribution of any Award, or the right to exercise any Award, shall be effective to bind Nationstar unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Award that are or would have been applicable to the Participant and to be bound by the acknowledgements made by the Participant in connection with the grant of the Award.
18. Expenses and Receipts
          The expenses of the Plan shall be paid by Nationstar. Any proceeds received by Nationstar in connection with any Award will be used for general corporate purposes.
19. Definition of Change in Control .
          As used in any instrument governing the terms of any Award, the term “Change in Control” means the occurrence of any of the following, provided that any of the following actions by Fortress Investment Group LLC or its affiliates shall not constitute a Change in Control:
     (i) any one person, or more than one person acting as a group (as defined under U.S. Department of Treasury Regulation (“Treasury Regulation”) § 1.409A-3(i)(5)(v)(B)) acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50 percent of the total fair market value or total voting power of the stock of the Company;
     (ii) any one person, or more than one person acting as a group (as defined under Treasury Regulation § 1.409A-3(i)(5)(v)(B)) acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30 percent or more of the total voting power of the stock of the Company;
     (iii) a majority of members of the Board of Directors is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board of Directors before the date of the appointment or election.
          The foregoing clauses (i) through (iii) shall be interpreted in a manner that is consistent with the Treasury Regulations promulgated pursuant to Section 409A of the Code so that all, and only, such transactions or events that could qualify as a “change in control event” within the meaning of Treasury Regulation § 1.409A-3(i)(5)(i) will be deemed to be a Change in Control for purposes of this Plan.

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20. Governing Law
          The Plan and the rights of all persons under the Plan shall be construed and administered in accordance with the laws of the State of New York without regard to its conflict of law principles.
21. Effective Date and Term of Plan
          The Plan was adopted by the Board of Directors on February 24, 2012 subject to the approval of the Plan by the shareholders of Nationstar. No grants of Awards may be made under the Plan after February 24, 2021.

15

Exhibit 10.58
AMENDMENT NUMBER FOUR
to the
FIFTH AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT
Dated as of January 27, 2010
between
NATIONSTAR MORTGAGE LLC
and
THE ROYAL BANK OF SCOTLAND PLC
     This AMENDMENT NUMBER FOUR (this “ Amendment Number Four ”) is made this 25 th day of February, 2012 (the “ Amendment Effective Date ”) between NATIONSTAR MORTGAGE LLC (“ Seller ”) and THE ROYAL BANK OF SCOTLAND PLC (“ Buyer ”), to that certain Fifth Amended and Restated Master Repurchase Agreement, dated as of January 27, 2010, between Seller and Buyer (as amended, supplemented or otherwise modified from time to time, the “ Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Agreement.
RECITALS
     WHEREAS, Seller and Buyer desire to amend the Agreement to extend the termination date, modify certain pricing terms and provide for the sale of certain types of loans under the Agreement; and
     WHEREAS, Seller and Buyer have agreed to amend the Agreement as set forth herein.
     NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and for the mutual covenants herein contained, the parties hereto hereby agree as follows:
          SECTION 1. Amendments . As of the Amendment Effective Date, the Agreement is hereby amended as follows:
     (a) Section 1 of the Agreement is hereby amended and restated in its entirety to read as follows:
     “Buyer shall, with respect to the Committed Amount and may, with respect to the Uncommitted Amount, from time to time, upon the terms and conditions set forth herein, agree to enter into transactions in which Seller transfers to Buyer Eligible Loans or 100% beneficial interests in Eligible Loans evidenced by Eligible Participation Certificates, which are then exchanged for Eligible Securities, against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller Purchased Assets at a date certain, against the transfer of funds by Seller. Each such transaction shall be referred to herein as a “ Transaction ”, and, unless otherwise agreed in writing, shall be governed by this Agreement. It is hereby understood and agreed that the repurchase facility provided for in this Agreement with respect to the Uncommitted Amount is an uncommitted facility.”
     (b) Section 2 of the Agreement is hereby amended by adding the following new definitions thereto in proper alphabetical order:
     “ 2012 Renewal Commitment Fee ” shall have the meaning assigned to it in the Pricing Side Letter.
     “ Committed Amount ” shall mean $150,000,000.
     “ Uncommitted Amount ” shall mean $150,000,000.

 


 

     (c) The definitions of “Maximum Aggregate Purchase Price”, “Termination Date” and “Transaction Notice” in Section 2 of the Agreement are hereby amended and restated in their entirety to read as follows:
     “ Maximum Aggregate Purchase Price ” shall mean, as of any date of determination, shall mean (i) the sum of (A) the Committed Amount and (B) in the Buyer’s sole discretion, the Uncommitted Amount minus (ii) the aggregate outstanding “Purchase Price” (as such term is defined in the Bond Repurchase Agreement) under the Bond Repurchase Agreement as of such date.
     “ Termination Date ” shall mean February 22, 2013, or such earlier date on which this Agreement shall terminate in accordance with the provisions hereof or by operation of law.
     “ Transaction Notice ” shall mean a written request by Seller delivered to Buyer to enter into a Transaction, which may be delivered electronically in the form attached hereto as Exhibit D , or in the form of an Asset Schedule, and in any case in a form mutually agreed upon between Seller and Buyer.
     (d) Section 3(a) of the Agreement is hereby amended and restated in its entirety to read as follows:
     “(a) Subject to the terms and conditions of the Program Documents, Buyer shall (with respect to the Committed Amount) and may in its sole discretion (with respect to the Uncommitted Amount) enter into Transactions from time to time with an aggregate Purchase Price for all Purchased Assets acquired by Buyer not to exceed the Maximum Aggregate Purchase Price. Buyer shall have the obligation to enter into Transactions up to the Committed Amount, subject to the terms and conditions herein, but shall have no obligation to enter into Transactions with respect to the Uncommitted Amount. Unless otherwise agreed to between Buyer and Seller in writing, all purchases of Eligible Assets shall be first deemed committed up to the Committed Amount and then the remainder, if any, shall be deemed uncommitted up to the Uncommitted Amount. Buyer shall have the right, upon written notice to Seller, to terminate any Transactions with respect to the Uncommitted Amount and require the repurchase of any such Purchased Assets within thirty (30) calendar days of such notice. Unless otherwise agreed, Seller shall request that Buyer enter into a Transaction by delivering (i) a Transaction Notice, appropriately completed, to Buyer and an Asset Schedule to Buyer and Custodian; provided that in connection with any Transaction Notice, Seller shall be deemed to have made the certifications and representations and warranties set forth in Exhibit D hereto regardless of the form of such Transaction Notice and (ii) the Mortgage File to Custodian for each Loan (other than a Wet Loan) proposed to be included in such Transaction (whether or not such Loan is subject to a Participation Certificate), which, Transaction Notice, Asset Schedule and Mortgage File must be received no later than 12:00 p.m. (New York City time) on the requested Purchase Date. Such Transaction Notice shall clearly indicate those Loans that are intended to be Wet Loans and Dry Loans and include a Asset Schedule in respect of the Assets that Seller proposes to include in the related Transaction. Each Transaction Notice shall specify the proposed Purchase Date, Purchase Price, Pricing Rate and Repurchase Date. In the event that the parties hereto desire to enter into a Transaction on terms other than as set forth in this Agreement and the Transaction Notice, Buyer shall deliver to Seller, in electronic or other format, a “Confirmation” specifying such terms prior to entering into such Transaction, including, without limitation, the Purchase Date, the Purchase Price, the Pricing Rate therefor and the Repurchase Date. Following its receipt of a Transaction Notice, the Buyer shall deliver to the Seller, in electronic or other format, a “Confirmation” confirming the terms thereof prior to entering into such Transaction, including, without limitation, the Purchase Date, the Purchase Price, the Pricing Rate therefor and the Repurchase

2


 

Date, all of which terms shall be as specified in the related Transaction Notice and the Program Documents. By entering into a Transaction with Buyer, Seller consents to the terms set forth in any related Confirmation. Any such Confirmation and the related Transaction Notice, together with this Agreement, shall constitute conclusive evidence of the terms agreed to between Buyer and Seller with respect to the Transaction to which the Transaction Notice and Confirmation, if any, relates. In the event of any conflict between this Agreement and a Confirmation, the terms of the Confirmation shall control with respect to the related Transaction. It is acknowledged and agreed that, notwithstanding any other provision of this Agreement to the contrary, the facility with respect to the Uncommitted Amount provided under this Agreement is an uncommitted facility and Buyer shall have no obligation to enter into any Transactions hereunder in excess of the Committed Amount.”
     (e) Section 4(c) of the Agreement is hereby amended by adding the following new language at the end thereof:
     “In connection with the extension of the Termination Date from February 24, 2012 to February 22, 2013, Seller agrees to pay to Buyer an additional commitment fee for the period beginning on February 24, 2012 through February 22, 2013, equal to the 2012 Renewal Commitment Fee, such payment to be made in Dollars, in immediately available funds, without deduction, set off or counterclaim, to Buyer on or prior to February 24, 2012. Buyer may, in its sole discretion, the payment of the 2012 Renewal Commitment Fee then due and payable from the proceeds of any Purchase Price paid to Seller. The 2012 Renewal Commitment Fee is and shall be deemed to be fully earned and non-refundable as of February 24, 2012.”
     (f) Section 4(d) of the Agreement is hereby amended and restated in its entirety to read as follows:
     “(d) Non-Utilization Fee . On a quarterly basis and on the Termination Date, Buyer shall determine the average utilization of the facility during the preceding calendar quarter (or portion thereof with respect to (i) the first utilization calculation, during the period from the Effective Date to the calculation date, or (ii) with respect to the Termination Date, during the period from the date through which the last non-utilization fee calculation has been made to the Termination Date) by Seller by dividing (a) the sum of the Purchase Prices outstanding on each day during such period, by (b) the number of days in such period. If such average amount determined for any period as a percentage of the Committed Amount (the “ Utilization Percentage ”) is less than 75%, Seller shall pay to Buyer on the Repurchase Dates in occurring in the last month of each calendar quarter or the Termination Date (as applicable), the Non-Utilization Fee; provided that Seller shall not be obligated to pay any Non-Utilization Fee to Buyer for any period with respect to which the Utilization Percentage in such period is greater than or equal to 75%. All payments shall be made to Buyer in Dollars, in immediately available funds, without deduction, setoff or counterclaim. Buyer may, in its sole discretion, net such Non-Utilization Fee from the proceeds of any Purchase Price paid to any Seller. Each payment of the Non-Utilization Fee is and shall be deemed to be non-refundable when paid.”
     (g) The introduction to Section 9(b) of the Agreement is hereby amended and restated in its entirety to read as follows:
     “(b) The obligation of Buyer to enter into each Transaction pursuant to this Agreement (including the initial Transaction) with respect to the Committed Amount and the agreement by Buyer (if any) to enter into each Transaction pursuant to this Agreement (including the initial Transaction) with respect to the Uncommitted Amount is subject to the following

3


 

further conditions precedent, both immediately prior to any Transaction and also after giving effect thereto and to the intended use thereof:”
     (h) Section 17 of the Agreement is hereby amended and restated in its entirety to read as follows:
     “17. ACCELERATION OF REPURCHASE DATE
     Buyer may, at any time, with respect to the Uncommitted Amount only, terminate this Agreement by providing written notice to Seller. Within thirty (30) calendar days of receipt of such notice, Seller agrees to repurchase all Purchased Assets which were financed from the Uncommitted Amount at the Repurchase Price and to satisfy all of its Obligations with respect to such Purchased Assets hereunder.”
          SECTION 2. Defined Terms . Any terms capitalized but not otherwise defined herein shall have the respective meanings set forth in the Agreement.
          SECTION 3. Fees and Expenses . Seller agrees to pay to Buyer all reasonable out of pocket costs and expenses incurred by Buyer in connection with this Amendment Number Four (including all reasonable fees and out of pocket costs and expenses of the Buyer’s legal counsel) in accordance with Sections 23 and 25 of the Agreement.
          SECTION 4. Conditions Precedent . This Amendment Number Four shall become effective on the Amendment Effective Date, provided that the Buyer shall have received this Amendment Number Four delivered by a duly authorized officer of the Seller and such other documents as the Buyer or counsel to the Buyer may reasonably request.
          SECTION 5. Representations . Seller hereby represents to Buyer that as of the date hereof, Seller is in full compliance with all of the terms and conditions of the Agreement and each other Program Document and no Default or Event of Default has occurred and is continuing under the Agreement or any other Program Document.
          SECTION 6. Governing Law . THIS AMENDMENT NUMBER FOUR SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND THE OBLIGATIONS, RIGHTS, AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO CONFLICT OF LAWS DOCTRINE APPLIED IN SUCH STATE (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW WHICH SHALL GOVERN).
          SECTION 7. Counterparts . This Amendment Number Four may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which together shall constitute but one and the same agreement. This Amendment Number Four, to the extent signed and delivered by facsimile or other electronic means, shall be treated in all manner and respects as an original agreement and shall be considered to have the same binding legal effect as if it were the original signed version thereof delivered in person. No signatory to this Amendment Number Four shall raise the use of a facsimile machine or other electronic means to deliver a signature or the fact that any signature or agreement was transmitted or communicated through the use of a facsimile machine or other electronic means as a defense to the formation or enforceability of a contract and each such Person forever waives any such defense.
          SECTION 8. Limited Effect . Except as amended hereby, the Agreement shall continue in full force and effect in accordance with its terms. Reference to this Amendment Number Four

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need not be made in the Agreement or any other instrument or document executed in connection therewith, or in any certificate, letter or communication issued or made pursuant to, or with respect to, the Agreement, any reference in any of such items to the Agreement being sufficient to refer to the Agreement as amended hereby.
[Signature Page Follows]

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     IN WITNESS WHEREOF, Seller and Buyer have caused this Amendment Number Four to be executed and delivered by their duly authorized officers as of the Amendment Effective Date.
             
    NATIONSTAR MORTGAGE LLC    
    (Seller)    
 
           
 
  By:   /s/ Gregory A. Oniu    
 
  Name:  
Gregory A. Oniu
   
 
  Title:   SVP     
 
           
    THE ROYAL BANK OF SCOTLAND PLC    
    (Buyer)    
 
           
 
  By:  RBS Securities Inc., its agent    
 
           
 
  By:   /s/ Regina Abayev    
 
  Name:  
Regina Abayev
   
 
  Title:   Director    
Amendment Number Four to the Fifth Amended and Restated Master Repurchase Agreement (Nationstar Mortgage LLC & The Royal Bank of Scotland plc)

Exhibit 21.1
NATIONSTAR MORTGAGE HOLDINGS INC.
List of Subsidiaries as of the completion of this offering
     
    Jurisdiction of
Organization
Centex Land Vista Ridge Lewisville III General Partner, LLC
  Delaware
 
   
Centex Land Vista Ridge Lewisville III, L.P.
  Delaware
 
   
Harwood Insurance Services, LLC
  California
 
   
Harwood Service Company LLC
  Delaware
 
   
Harwood Service Company Of Georgia, LLC
  Georgia
 
   
Harwood Service Company Of New Jersey, LLC
  New Jersey
 
   
Homeselect Settlement Solutions, LLC
  Delaware
 
   
Nationstar 2009 Equity Corporation
  Delaware
 
   
Nationstar Advance Funding LLC
  Delaware
 
   
Nationstar Advance Funding II, LLC
  Delaware
 
   
Nationstar Agency Advance Funding LLC
  Delaware

 


 

     
Nationstar Agency Advance Funding Trust 2011-1
  Delaware
 
   
Nationstar Capital Corporation
  Delaware
 
   
Nationstar Equity Corporation
  Nevada
 
   
Nationstar Funding LLC
  Delaware
 
   
Nationstar Home Equity Loan Trust 2009-A
  Delaware
 
   
Nationstar Home Equity Loan 2009-A REO LLC
  Delaware
 
   
Nationstar Industrial Loan Company
  Tennessee
 
   
Nationstar Industrial Loan Corporation
  Minnesota
 
   
Nationstar Mortgage Advance Receivables Trust 2010-ADV1
  Delaware
 
   
Nationstar Mortgage LLC
  Delaware
 
   
Nationstar Residual, LLC
  Delaware
 
   
Nationstar Sub1 LLC
  Delaware
 
   
Nationstar Sub2 LLC
  Delaware
 
   
NSM Recovery Services Inc.
  Delaware

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NSM Foreclosure Services Inc.
  Delaware

3

\
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption “Experts” and to the use of our report dated February 23, 2012, with respect to the consolidated financial statements of Nationstar Mortgage LLC included in Amendment No. 4 to the Registration Statement (Form S-1 No. 333-174246) dated February 24, 2012 and the related Prospectus of Nationstar Mortgage Holdings Inc. for the registration of shares of its common stock.
/s/Ernst & Young LLP
Dallas, Texas
February 24, 2012