Item 1.01 Entry into a Material Definitive Agreement.
On August 13, 2020, Altisource Asset Management Corporation (“AAMC” or the “Company”) entered into a Termination and Transition Agreement (the “Termination Agreement”) with Front Yard Residential Corporation (“Front Yard”) and Front Yard Residential L.P. (“FYR LP”) to terminate that certain Amended and Restated Asset Management Agreement, dated as of May 7, 2019 (the “AMA”), by and among the Front Yard, FYR LP and AAMC, and to provide for a transition plan to facilitate the internalization of Front Yard’s asset management function (the “Transition Plan”).
Pursuant to the terms of the Termination Agreement, effective on the date that the parties mutually agree that the Transition Plan has been satisfactorily completed (the “Termination Date”), which will be no later than February 9, 2021, the AMA will be terminated in its entirety.
In connection with the Termination Agreement, AAMC will be paid by Front Yard an aggregate termination fee (the “Termination Fee”) of $46,000,000, with payments consisting of $15,000,000 in cash payable within two business days after the execution of the Termination Agreement, $15,000,000 in cash payable on the Termination Date and $16,000,000 in cash or Front Yard common stock (“Common Stock”), at Front Yard’s election, payable on the Termination Date. During the transition period, AAMC will continue to be paid the base management fee provided for in the AMA (equal to $3,584,000 per quarter as contemplated by the AMA) and a pro rata portion of the base management fee for any partial calendar quarter during such period, until such time as Front Yard determines that the transition has been satisfactorily completed. The incentive fee provided for in the AMA will not be due or payable to AAMC under any circumstances, unless earned by AAMC in the period between the date of the execution of the Termination Agreement and the Termination Date.
In addition, in connection with the termination, the Company will transfer to Front Yard, at Front Yard’s election, either the equity interests or assets of the Company’s Indian subsidiary, the equity interests of the Company’s Cayman Islands subsidiary, the right to solicit and hire designated employees of the Company that currently oversee the management of Front Yard’s business and other assets of the Company that are used in connection with the operation of Front Yard’s business (the “Transferred Assets”). The aggregate purchase price (the “Purchase Price”) for the Transferred Assets is $8,200,000, with payments consisting of $3,200,000 in cash payable within two business days after the execution of the Termination Agreement and $5,000,000 in cash or Common Stock, at the Front Yard’s election, payable on the Termination Date. The Company has the right to retain certain employees that do not currently oversee the management of Front Yard’s business and the right to solicit and retain certain other designated employees of the Company. In addition to the retention of such key employees, AAMC will retain certain assets and operating subsidiaries to continue to build out its asset management businesses focused on the origination and underwriting of short duration construction loans backed by single-family rental homes as well as other new business initiatives.
For any portion of the Termination Fee or Purchase Price that is paid in Common Stock, the value of each share of Common Stock will be the volume-weighted average share price, as determined by reference to a Bloomberg terminal, of Common Stock for the five business days immediately preceding the date on which such portion is actually paid. In addition, for any portion of the Termination Fee or Purchase Price that is paid in Common Stock, the Company has agreed to vote any such shares of Common Stock in accordance with recommendations of Front Yard’s board of directors for a period of one year following the Termination Date.
The Termination Agreement contains various covenants, including, among others, that until the Termination Date, AAMC will perform its obligations under the AMA and manage the business of the Front Yard and its subsidiaries in the ordinary course of business consistent with past practice, except as otherwise directed by the board of directors of Front Yard in accordance with the AMA.
The foregoing description of the Termination Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the full text of the Termination Agreement, which is filed as Exhibit 10.1 hereto and is incorporated herein by reference.