EXHIBIT 10.6
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PSA THE BOND MARKET TRADE ASSOCIATION
MASTER
REPURCHASE AGREEMENT
SEPTEMBER 1996 VERSION
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Dated as of ___________ ___, 1997
Between
MERRILL LYNCH MORTGAGE CAPITAL INC.
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and
HEADLANDS MORTGAGE COMPANY
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1. APPLICABILITY
From time to time the parties hereto may enter into transactions in which
one party ("Seller") agrees to transfer to the other ("Buyer") securities
or other assets ("Securities") against the transfer of funds by Buyer, with
a simultaneous agreement by Buyer to transfer to Seller such Securities at
a date certain or on demand, 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, including
any supplemental terms or conditions contained in Annex I hereto and in any
other annexes identified herein or therein as applicable hereunder.
2. DEFINITIONS
(a) "Act of Insolvency," with respect to any party, (i) the commencement
by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, moratorium,
dissolution, delinquency or similar law, or such party seeking the
appointment or election of a receiver, conservator, trustee, custodian
or similar official for such party or any substantial part of its
property, or the convening of any meeting of creditors for purposes of
commencing any such case or proceeding or seeking such an appointment
or election, (ii) the commencement of any such case or proceeding
against such party, or another seeking such an appointment or
election, or the filing against a party of an application for a
protective decree under the provisions of the
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Securities Investor Protection Act of 1970, which (A) is consented to
or not timely contested by such party, (B) results in the entry of an
order for relief, such an appointment or election, the issuance of
such a protective decree or the entry of an order having a similar
effect, or (C) is not dismissed within 15 days, (iii) the making by
such party of a general assignment for the benefit of creditors, or
(iv) the admission in writing by such party of such party's inability
to pay such party's debts as they become due;
(b) "Additional Purchased Securities," Securities provided by Seller to
Buyer pursuant to Paragraph 4(a) hereof;
(c) "Buyer's Margin Amount," with respect to any Transaction as of any
date, the amount obtained by application of the Buyer's Margin
Percentage to the Repurchase Price for such Transaction as of such
date;
(d) "Buyer's Margin Percentage," with respect to any Transaction as of any
date, a percentage (which may be equal to the Seller's Margin
Percentage) agreed to by Buyer and Seller or, in the absence of any
such agreement, the percentage obtained by dividing the Market Value
of the Purchased Securities on the Purchase Date by the Purchase Price
on the Purchase Date for Transaction;
(e) "Confirmation," the meaning specified in Paragraph 3(b) hereof;
(f) "Income," with respect to any Security at any time, any principal
thereof and all interest, dividends or other distributions thereon;
(g) "Margin Deficit," the meaning specified in Paragraph 4(a) hereof;
(h) "Margin Excess," the meaning specified in Paragraph 4(b) hereof;
(i) "Margin Notice Deadline," the time agreed to by the parties in the
relevant Confirmation, Annex I hereto or otherwise as the deadline for
giving notice requiring same-day satisfaction of margin maintenance
obligations as provided in Paragraph 4 hereof (or, in the absence of
any such agreement, the deadline for such purposes established in
accordance with market practice);
(j) "Market Value," with respect to any Securities as of any date, the
price for such Securities on such date obtained from a generally
recognized source agreed to by the parties or the most recent closing
bid quotation from such a source, plus accrued Income to the extent
not included therein (other than any Income credited or transferred
to, or applied to the obligations of, Seller pursuant to Paragraph 5
hereof) as of such date (unless contrary to market practice for such
Securities);
(k) "Price Differential," with respect to any Transaction as of any date,
the aggregate amount obtained by daily application of the Pricing Rate
for such Transaction to the Purchase Price for such
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Transaction on a 360-day-per-year basis for the actual number of days
during the period commencing on (and including) the Purchase Date for
such Transaction and ending on (but excluding) the date of
determination (reduced by any amount of such Price Differential
previously paid by Seller to Buyer with respect to such Transaction);
(l) "Pricing Rate," the per annum percentage rate for determination of the
Price Differential;
(m) "Prime Rate," the prime rate of U.S. commercial banks as published in
The Wall Street Journal (or, if more than one such rate is published,
the average of such rates);
(n) "Purchase Date," the date on which Purchased Securities are to be
transferred by Seller to Buyer;
(o) "Purchase Price," (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to Buyer, and (ii)
thereafter, except where Buyer and Seller agree otherwise, such price
increased by the amount of any cash transferred by Buyer to Seller
pursuant to Paragraph 4(b) hereof and decreased by the amount of any
cash transferred by Seller to Buyer pursuant to Paragraph 4(a) hereof
or applied to reduce Seller's obligations under clause (ii) of
Paragraph 5 hereof;
(p) "Purchased Securities," the Securities transferred by Seller to Buyer
in a Transaction hereunder, and any Securities substituted therefor in
accordance with Paragraph 9 hereof. The term "Purchased Securities"
with respect to any Transaction at any time also shall include
Additional Purchased Securities delivered pursuant to Paragraph 4(a)
hereof and shall exclude Securities returned pursuant to Paragraph
4(b) hereof;
(q) "Repurchase Date," the date on which Seller is to repurchase the
Purchased Securities from Buyer, including any date determined by
application of the provisions of Paragraph 3(c) or 11 hereof;
(r) "Repurchase Price," the price at which Purchased Securities are to be
transferred from Buyer to Seller upon termination of a Transaction,
which will be determined in each case (including Transactions
terminable upon demand) as the sum of the Purchase Price and the Price
Differential as of the date of such determination;
(s) "Seller's Margin Amount," with respect to any Transaction as of any
date, the amount obtained by application of the Seller's Margin
Percentage to the Repurchase Price for such Transaction as of such
date;
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(t) "Seller's Margin Percentage," with respect to any Transaction as of
any date, a percentage (which may be equal to the Buyer's Margin
Percentage) agreed to by Buyer and Seller or, in the absence of any
such agreement, the percentage obtained by dividing the Market Value
of the Purchased Securities on the Purchase Date by the Purchase Price
on the Purchase Date for such Transaction.
3. INITIATION; CONFIRMATION; TERMINATION
(a) An agreement to enter into a Transaction may be made orally or in
writing at the initiation of either Buyer or Seller. On the Purchase
Date for the Transaction, the Purchased Securities shall be
transferred to Buyer or its agent against the transfer of the
Purchased Price to an account of Seller.
(b) Upon agreeing to enter into a Transaction hereunder, Buyer or Seller
(or both), as shall be agreed, shall promptly deliver to the other
party a written confirmation of each Transaction (a "Confirmation").
The Confirmation shall describe the Purchased Securities (including
CUSIP number, if any), identify Buyer and Seller and set forth (i) the
Purchase Date, (ii) the Purchase Price, (iii) the Repurchase Date,
unless the Transaction is to be terminable on demand, (iv) the Pricing
Rate or Repurchase Price applicable to the Transaction, and (v) any
additional terms or conditions of the Transaction not inconsistent
with this Agreement. The Confirmation, together with this Agreement,
shall constitute conclusive evidence of the terms agreed between Buyer
and Seller with respect to the Transaction to which the Confirmation
relates, unless with respect to the Confirmation specific objection is
made promptly after receipt thereof. In the event of any conflict
between the terms of such Confirmation and this Agreement, this
Agreement shall prevail.
(c) In the case of Transactions terminable upon demand, such demand shall
be made by Buyer or Seller, no later than such time as is customary in
accordance with market practice, by telephone or otherwise on or prior
to the business day on which such termination will be effective. On
the date specified in such demand, or on the date fixed for
termination in the case of Transactions having a fixed term,
termination of the Transaction will be effected by transfer to Seller
or its agent of the Purchased Securities and any Income in respect
thereof received by Buyer (and not previously credited or transferred
to, or applied to the obligations of, Seller pursuant to Paragraph 5
hereof) against the transfer of the Repurchase Price to an account of
Buyer.
4. MARGIN MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is
acting as Buyer is less than the aggregate Buyer's Margin Amount for
all such Transactions (a "Margin Deficit"), then Buyer may by notice
to Seller require Seller in such
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Transactions, at Seller's option, to transfer to Buyer cash or
additional Securities reasonably acceptable to Buyer ("Additional
Purchased Securities"), so that the cash and aggregate Market Value of
the Purchased Securities, including any such Additional Purchased
Securities, will thereupon equal or exceed such aggregate Buyer's
Margin Amount (decreased by the amount of any Margin Deficit as of
such date arising from any Transactions in which such Buyer is acting
as Seller).
(b) If at any time the aggregate Market Value of all Purchased Securities
subject to all Transactions in which a particular party hereto is
acting as Seller exceeds the aggregate Seller's Margin Amount for all
such Transactions at such time (a "Margin Excess"), then Seller may by
notice to Buyer require Buyer in such Transactions, at Buyer's option,
to transfer cash or Purchased Securities to Seller, so that the
aggregate Market Value of the Purchased Securities, after deduction of
any such cash or any purchased Securities so transferred, will
thereupon not exceed such aggregate Seller's Margin Amount (increased
by the amount of any Margin Excess as of such date arising from any
Transactions in which such Seller is acting as Buyer).
(c) If any notice is given by Buyer or Seller under subparagraph (a) or
(b) of this Paragraph at or before the Margin Notice Deadline on any
business day, the party receiving such notice shall transfer cash or
Additional Purchased Securities as provided in such subparagraph no
later than the close of business in the relevant market on such day.
If any such notice is given after the Margin Notice Deadline, the
party receiving such notice shall transfer such cash or Securities no
later than the close of business in the relevant market on the next
business day following such notice.
(d) Any cash transferred pursuant to this Paragraph shall be attributed to
such Transactions as shall be agreed upon by Buyer and Seller.
(e) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer or Seller (or both)
under subparagraphs (a) and (b) of this Paragraph may be exercised
only where a Margin Deficit or a Margin Excess, as the case may be,
exceeds a specified dollar amount or a specified percentage of the
Repurchase Prices for such Transactions (which amount or percentage
shall be agreed to by Buyer and Seller prior to entering into any such
Transactions).
(f) Seller and Buyer may agree, with respect to any or all Transactions
hereunder, that the respective rights of Buyer and Seller under
subparagraphs (a) and (b) of this Paragraph to require the elimination
of a Margin Deficit or a Margin Excess, as the case may be, may be
exercised whenever such a Margin Deficit or a Margin Excess exists
with respect to any single Transaction hereunder (calculated without
regard to any other Transaction outstanding under this Agreement).
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5. INCOME PAYMENTS
Seller shall be entitled to receive an amount equal to all Income paid or
distributed on or in respect of the Securities that is not otherwise
received by Seller, to the full extent it would be so entitled if the
Securities had not been sold to Buyer. Buyer shall, as the parties may
agree with respect to any Transaction (or, in the absence of any such
agreement, as Buyer shall reasonably determine in its discretion), on the
date such Income is paid or distributed either (i) transfer to or credit to
the account of Seller such Income with respect to any Purchased Securities
subject to such Transaction or (ii) with respect to Income paid in cash,
apply the Income payment or payments to reduce the amount, if any, to be
transferred to Buyer by Seller upon termination of such Transaction. Buyer
shall not be obligated to take any action pursuant to the preceding
sentence (A) to the extent that such action would result in the creation of
a Margin Deficit, unless prior thereto or simultaneously therewith Seller
transfers to Buyer cash or Additional Purchased Securities sufficient to
eliminate such Margin Deficit, or (B) if an Event of Default with respect
to Seller has occurred and is then continuing at the time such Income is
paid or distributed.
6. SECURITY INTEREST
Although the parties intend that all Transactions hereunder be sales and
purchases and not loans, in the event any such Transactions are deemed to
be loans, Seller shall be deemed to have pledged to Buyer as security for
the performance by Seller of its obligations under each such Transaction,
and shall be deemed to have granted to Buyer a security interest in, all of
the Purchased Securities with respect to all Transactions hereunder and all
Income thereon and other proceeds thereof.
7. PAYMENT AND TRANSFER
Unless otherwise mutually agreed, all transfers of funds hereunder shall be
in immediately available funds. All Securities transferred by one party
hereto to the other party (i) shall be in suitable form for transfer or
shall be accompanied by duly executed instruments of transfer or assignment
in blank and such other documentation as the party receiving possession may
reasonably request, (ii) shall be transferred on the book-entry system of a
Federal Reserve Bank, or (iii) shall be transferred by any other method
mutually acceptable to Seller and Buyer.
8. SEGREGATION OF PURCHASED SECURITIES
To the extent required by applicable law, all Purchased Securities in the
possession of Seller shall be segregated from other securities in its
possession and shall be identified as subject to this Agreement.
Segregation may be accomplished by appropriate identification on the books
and records of the holder, including a financial or securities
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intermediary or a clearing corporation. All of Seller's interest in the
Purchased Securities shall pass to Buyer on the Purchase Date and, unless
otherwise agreed by Buyer and Seller, nothing in this Agreement shall
preclude Buyer from engaging in repurchase transactions with the Purchased
Securities or otherwise selling, transferring, pledging or hypothecating
the Purchased Securities, but no such transaction shall relieve Buyer of
its obligations to transfer Purchased Securities to Seller pursuant to
Paragraph 3, 4 or 11 hereof, or of Buyer's obligation to credit or pay
Income to, or apply Income to the obligations of, Seller pursuant to
Paragraph 5 hereof.
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REQUIRED DISCLOSURE OF TRANSACTIONS IN WHICH THE SELLER RETAINS CUSTODY OF
THE PURCHASED SECURITIES
Seller is not permitted to substitute other securities for those subject to
this Agreement and therefore must keep Buyer's securities segregated at all
times, unless in this Agreement Buyer grants Seller the right to substitute
other securities. If Buyer grants the right to substitute, this means that
Buyer's securities will likely be commingled with Seller's own securities
during the trading day. Buyer is advised that, during any trading day that
Buyer's securities are commingled with Seller's securities, they [will]*
[may]** be subject to liens granted by Seller to [its clearing bank]*
[third parties]** and may be used by Seller for deliveries on other
securities transactions. Whenever the securities are commingled, Seller's
ability to resegregate substitute securities for Buyer will be subject to
Seller's ability to satisfy [the clearing]* [any]** lien to obtain
substitute securities.
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* Language to be used under 17 C.F.R. (S)403.4(e) if Seller is a
government securities broker or dealer other than a financial
institution
** Language to be used under 17 C.F.R. . (S)403.5(d) if Seller is a
financial institution.
9. SUBSTITUTION
(a) Seller may, subject to agreement with and acceptance by Buyer,
substitute other Securities for any Purchased Securities. Such
substitution shall be made by transfer to Buyer of such other
Securities and transfer to Seller of such Purchased Securities. After
substitution, the substituted Securities shall be deemed to be
Purchased Securities.
(b) In Transactions in which Seller retains custody of Purchased
Securities, the parties expressly agree that Buyer shall be deemed,
for purposes of subparagraph (a) of this Paragraph, to have agreed to
and accepted in this Agreement substitution by Seller of other
Securities for Purchased Securities; provided, however, that such
other Securities shall have a Market Value at least
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equal to the Market Value of the Purchased Securities for which they
are substituted.
10. REPRESENTATIONS
Each of Buyer and Seller represents and warrants to the other that (i) it
is duly authorized to execute and deliver this Agreement, to enter into
Transactions contemplated hereunder and to perform its obligations
hereunder and has taken all necessary action to authorize such execution,
delivery and performance, (ii) it will engage in such Transactions as
principal (or, if agreed in writing, in the form of an annex hereto or
otherwise, in advance of any Transaction by the other party hereto, as
agent for a disclosed principal), (iii) the person signing this Agreement
on its behalf is duly authorized to do so on its behalf (or on behalf of
any such disclosed principal), (iv) it has obtained all authorizations of
any governmental body required in connection with this Agreement and the
Transactions hereunder and such authorizations are in full force and effect
and (v) the execution, delivery and performance of this Agreement and the
Transactions hereunder will not violate any law, ordinance, charter, bylaw
or rule applicable to it or any agreement by which it is bound or by which
any of its assets are affected. On the Purchase Date for any Transaction,
Buyer and Seller shall each be deemed to repeat all the foregoing
representations made by it.
11. EVENTS OF DEFAULT
In the event that (i) Seller fails to transfer or Buyer fails to purchase
Purchased Securities upon the applicable Purchase Date, (ii) Seller fails
to repurchase or Buyer fails to transfer Purchased Securities upon the
applicable Repurchase Date, (iii) Seller or Buyer fails to comply with
Paragraph 4 hereof, (iv) Buyer fails, after one business day's notice, to
comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with
respect to Seller or Buyer, (vi) any representation made by Seller or Buyer
shall have been incorrect or untrue in any material respect when made or
repeated or deemed to have been made or repeated, or (vii) Seller or Buyer
shall admit to the other its inability to, or its intention not to, perform
any of its obligations hereunder (each an "Event of Default"):
(a) The nondefaulting party may, at its option (which option shall be
deemed to have been exercised immediately upon the occurrence of an
Act of Insolvency), declare an Event of Default to have occurred
hereunder and, upon the exercise or deemed exercise of such option,
the Repurchase Date for each Transaction hereunder shall, if it has
not already occurred, be deemed immediately to occur (except that, in
the event that the Purchase Date for any Transaction has not yet
occurred as of the date of such exercise or deemed exercise, such
Transaction shall be deemed immediately canceled). The nondefaulting
party shall (except upon the occurrence of an Act of Insolvency) give
notice to the defaulting party of the exercise of such option as
promptly as practicable.
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(b) In all Transactions in which the defaulting party is acting as Seller,
if the nondefaulting party exercises or is deemed to have exercised
the option referred to in subparagraph (a) of this Paragraph, (i) the
defaulting party's obligations in such Transactions to repurchase all
Purchased Securities, at the Repurchase Price therefor on the
Repurchase Date determined in accordance with subparagraph (a) of this
Paragraph, shall thereupon become immediately due and payable, (ii)
all Income paid after such exercise or deemed exercise shall be
retained by the nondefaulting party and applied to the aggregate
unpaid Repurchase Prices and any other amounts owing by the defaulting
party hereunder, and (iii) the defaulting party shall immediately
deliver to the nondefaulting party any Purchased Securities subject to
such Transactions then in the defaulting party's possession or
control.
(c) In all Transactions in which the defaulting party is acting as Buyer,
upon tender by the nondefaulting party of payment of the aggregate
Repurchase Prices for all such Transactions, all right, title and
interest in and entitlement to all Purchased Securities subject to
such Transactions shall be deemed transferred to the nondefaulting
party, and the defaulting party shall deliver all such Purchased
Securities to the nondefaulting party.
(d) If the nondefaulting party exercises or is deemed to have exercised
the option referred to in subparagraph (a) of this Paragraph, the
nondefaulting party, without prior notice to the defaulting party,
may:
(i) as to Transactions in which the defaulting party is acting as
Seller, (A) immediately sell, in a recognized market (or
otherwise in a commercially reasonable manner) at such price or
prices as the nondefaulting party may reasonably deem
satisfactory, any or all Purchased Securities subject to such
Transactions and apply the proceeds thereof to the aggregate
unpaid Repurchase Prices and any other amounts owing by the
defaulting party hereunder or (B) in its sole discretion elect,
in lieu of selling all or a portion of such Purchased Securities,
to give the defaulting party credit for such Purchased Securities
in an amount equal to the price therefor on such date, obtained
from a generally recognized source or the most recent closing bid
quotation from such a source, against the aggregate unpaid
Repurchase Prices and any other amounts owing by the defaulting
party hereunder; and
(ii) as to Transactions in which the defaulting party is acting as
Buyer, (A) immediately purchase, in a recognized market (or
otherwise in a commercially reasonable manner) at such price or
prices as the nondefaulting party may reasonably deem
satisfactory, securities ("Replacement Securities") of the same
class and amount as any Purchased Securities that are not
delivered by the defaulting party to the nondefaulting party as
required hereunder or (B) in its sole discretion elect, in lieu
of purchasing Replacement Securities, to be deemed to have
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purchased Replacement Securities at the price therefor on such
date, obtained from a generally recognized source or the most
recent closing offer quotation from such a source.
Unless otherwise provided in Annex I, the parties acknowledge and
agree that (1) the Securities subject to any Transaction hereunder are
instruments traded in a recognized market, (2) in the absence of a
generally recognized source for prices or bid or offer quotations for
any Security, the nondefaulting party may establish the source
therefor in its sole discretion and (3) all prices, bids and offers
shall be determined together with accrued Income (except to the extent
contrary to market practice with respect to the relevant Securities).
(e) As to Transactions in which the defaulting party is acting as Buyer,
the defaulting party shall be liable to the nondefaulting party for
any excess of the price paid (or deemed paid) by the nondefaulting
party for Replacement Securities over the Repurchase Price for the
Purchased Securities replaced thereby and for any amounts payable by
the defaulting party under Paragraph 5 hereof or otherwise hereunder.
(f) For purposes of this Paragraph 11, the Repurchase Price for each
Transaction hereunder in respect of which the defaulting party is
acting as Buyer shall not increase above the amount of such Repurchase
Price for such Transaction determined as of the date of the exercise
or deemed exercise by the nondefaulting party of the option referred
to in subparagraph (a) of this Paragraph.
(g) The defaulting party shall be liable to the nondefaulting party for
(i) the amount of all reasonable legal or other expenses incurred by
the nondefaulting party in connection with or as a result of an Event
of Default, (ii) damages in an amount equal to the cost (including all
fees, expenses and commissions) of entering into replacement
transactions and entering into or terminating hedge transactions in
connection with or as a result of an Event of Default, and (iii) any
other loss, damage, cost or expense directly arising or resulting from
the occurrence of an Event of Default in respect of a Transaction.
(h) To the extent permitted by applicable law, the defaulting party shall
be liable to the nondefaulting party for interest on any amounts owing
by the defaulting party hereunder, from the date the defaulting party
becomes liable for such amounts hereunder until such amounts are (i)
paid in full by the defaulting party or (ii) satisfied in full by the
exercise of the nondefaulting party's rights hereunder. Interest on
any sum payable by the defaulting party to the nondefaulting party
under this Paragraph 11(h) shall be at a rate equal to the greater of
the Pricing Rate for the relevant Transaction or the Prime Rate.
(j) The nondefaulting party shall have, in addition to its rights
hereunder, any rights otherwise available to it under any other
agreement or applicable law.
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12. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereunto and will enter
into each Transaction hereunder in consideration of and in reliance upon
the fact that, all Transactions hereunder constitute a single business and
contractual relationship and have been made in consideration of each other.
Accordingly, each of Buyer and Seller agrees (i) to perform all of its
obligations in respect of each Transaction hereunder, and that a default in
the performance of any such obligations shall constitute a default by it in
respect of all Transactions hereunder, (ii) that each of them shall be
entitled to set off claims and apply property held by them in respect of
any Transaction against obligations owing to them in respect of any other
Transactions hereunder and (iii) that payments, deliveries and other
transfers made by either of them in respect of any Transaction shall be
deemed to have been made in consideration of payments, deliveries and other
transfers in respect of any other Transactions hereunder, and the
obligations to make any such payments, deliveries and other transfers may
be applied against each other and netted.
13. NOTICES AND OTHER COMMUNICATIONS
Any and all notices, statements, demands or other communications hereunder
may be given by a party to the other by mail, facsimile, telegraph,
messenger or otherwise to the address specified in Annex II hereto, or so
sent to such party at any other place specified in a notice of change of
address hereafter received by the other. All notices, demands and requests
hereunder may be made orally, to be confirmed promptly in writing, or by
other communication as specified in the preceding sentence.
14. ENTIRE AGREEMENT; SEVERABILITY
This Agreement shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions. Each
provision and agreement herein shall be treated as separate and independent
from any other provision or agreement herein and shall be enforceable
notwithstanding the unenforceability of any such other provision or
agreement.
15. NON-ASSIGNABILITY; TERMINATION
(a) The rights and obligations of the parties under this Agreement and
under any Transaction shall not be assigned by either party without
the prior written consent of the other party, and any such assignment
without the prior written consent of the other party shall be null and
void. Subject to the foregoing, this Agreement and any Transactions
shall be binding upon and shall inure to the benefit of the parties
and their respective successors and assigns. This Agreement may be
terminated by either party upon giving written notice to the
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other, except that this Agreement shall, notwithstanding such notice,
remain applicable to any Transactions then outstanding.
(b) Subparagraph (a) of this Paragraph 15 shall not preclude a party from
assigning, charging or otherwise dealing with all or any part of its
interest in any sum payable to it under Paragraph 11 hereof.
16. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York
without giving effect to the conflict of law principles thereof.
17. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any
remedy hereunder by any party shall constitute a waiver of its right to
exercise any other remedy hereunder. No modification or waiver of any
provision of this Agreement and no consent by any party to a departure
herefrom shall be effective unless and until such shall be in writing and
duly executed by both of the parties hereto. Without limitation on any of
the foregoing, the failure to give notice pursuant to Paragraph 4(a) or
4(b) hereof will not constitute a waiver of any right to do so at a later
date.
18. USE OF EMPLOYEE PLAN ASSETS
(a) If assets of an employee benefit plan subject to any provision of the
Employee Retirement Income Security Act of 1974 ("ERISA") are intended
to be used by either party hereto (the "Plan Party") in a Transaction,
the Plan Party shall so notify the other party prior to the
Transaction. The Plan Party shall represent in writing to the other
party that the Transaction does not constitute a prohibited
transaction under ERISA or is otherwise exempt therefrom, and the
other party may proceed in reliance thereon but shall not be required
so to proceed.
(b) Subject to the last sentence of subparagraph (a) of this Paragraph,
any such Transaction shall proceed only if Seller furnishes or has
furnished to Buyer its most recent available audited statement of its
financial condition and its most recent subsequent unaudited statement
of its financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Seller
shall be deemed (i) to represent to Buyer that since the date of
Seller's latest such financial statements, there has been no material
adverse change in Seller's financial condition which Seller has not
disclosed to Buyer, and (ii) to agree to provide Buyer with future
audited and unaudited statements of its financial condition as they
are issued, so long as it is a Seller in any outstanding Transaction
involving a Party Plan.
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19. INTENT
(a) The parties recognize that each Transaction is a "repurchase
agreement" as that term is defined in Section 101 of Title 11 of the
United States Code, as amended (except insofar as the type of
Securities subject to such Transaction or the term of such Transaction
would render such definition inapplicable), and a "securities
contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended (except insofar as the type of assets
subject to such Transaction would render such definition
inapplicable).
(b) It is understood that either party's right to liquidate Securities
delivered to it in connection with Transactions hereunder or to
exercise any other remedies pursuant to Paragraph 11 hereof is a
contractual right to liquidate such Transaction as described in
Sections 555 and 559 of Title 11 of the United States Code, as
amended.
(c) The parties agree and acknowledge that if a party hereto is an
"insured depository institution," as such term is defined in the
Federal Deposit Insurance Act, as amended ("FDIA"), then each
Transaction hereunder is a "qualified financial contract," as that
term is defined in FDIA and any rules, orders or policy statements
thereunder (except insofar as the type of assets subject to such
Transaction would render such definition inapplicable).
(d) It is understood that this Agreement constitutes a "netting contract"
as defined in and subject to Title IV of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") and each payment
entitlement and payment obligation under any Transaction hereunder
shall constitute a "covered contractual payment entitlement" or
"covered contractual payment obligation," respectively, as defined in
and subject to FDICIA (except insofar as one or both of the parties is
not a "financial institution" as that term is defined in FDICIA).
20. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that:
(a) in the case of Transactions in which one of the parties is a broker or
dealer registered with the Securities and Exchange Commission ("SEC")
under Section 15 of the Securities Exchange Act of 1934 ("1934 Act"),
the Securities Investor Protection Corporation has taken the position
that the provisions of the Securities Investor Protection Act of 1970
("SIPA") do not protect the other party with respect to any
Transaction hereunder;
(b) in the case of Transactions in which one of the parties is a
governmental securities broker or a government securities dealer
registered with the SEC
13
under Section 15C of the 1934 Act, SIPA will not provide protection to
the other party with respect to any Transaction hereunder; and
(c) in the case of Transactions in which one of the parties is a financial
institution, funds held by the financial institution pursuant to a
Transaction hereunder are not a deposit and therefore are not insured
by the Federal Deposit Insurance Corporation or the National Credit
Union Share Insurance Fund, as applicable.
MERRILL LYNCH MORTGAGE HEADLANDS MORTGAGE COMPANY
CAPITAL INC.
By:_________________________ By:_________________________
Title:______________________ Title:______________________
Date:_______________________ Date:_______________________
14
EXECUTION COPY
ANNEX I
(continued)
SUPPLEMENTAL TERMS TO MASTER REPURCHASE AGREEMENT,
DATED AS OF SEPTEMBER 11, 1996, AMONG
MERRILL LYNCH MORTGAGE CAPITAL INC.
AND
MERRILL LYNCH CREDIT CORPORATION
AND
HEADLANDS MORTGAGE COMPANY
1. APPLICABILITY. These Supplemental Terms (the "Supplemental Terms") to
-------------
Master Repurchase Agreement (the "Master Repurchase Agreement", and
collectively with these Supplemental Terms, the "Agreement") modify
the terms and conditions under which the parties hereto, from time to
time, enter into Transactions. To the extent that these Supplemental
Terms conflict with the terms of the Master Repurchase Agreement,
these Supplemental Terms shall control.
2. ADDITIONAL DEFINITIONS.
----------------------
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Master Repurchase Agreement. Capitalized terms
used in the Master Repurchase Agreement whose definitions are modified in
these Supplemental Terms shall, for all purposes of the Agreement, be
deemed to have such modified definitions.
"Agency" shall refer to GNMA, FNMA or FHLMC, as the case may be.
"B Quality Non-Conforming Mortgage Loans" shall refer to Mortgage Loans
qualified under the "B First Lien Standard Program Parameters" described in
the HMC Guide.
"Buyer" shall mean MLCC, in the case of Home Equity Loans, and MLMCI in all
other cases.
"Buyer's Margin Amount" shall have the meaning set forth in the Master
Repurchase Agreement except that the percentage referred to therein for
each Transaction shall be specified in the related Confirmation.
"C Quality Non-Conforming Mortgage Loans" shall refer to Mortgage Loans
qualified under the "C First Lien Standard Program Parameters" described in
the HMC Guide.
1
"Cash Purchase Price" shall refer the cash price, and to the corresponding
cash proceeds, to be paid by a Trade Investor, under its cash purchase
program, for Mortgage Loans sold by HMC that are the subject of a
Transaction.
"Committed Mortgage Loan" shall refer to a Mortgage Loan that has been
assigned a commitment number by HMC, which commitment number has been
communicated by HMC to the Custodian in accordance with the Custody
Agreement, indicating that such Mortgage Loan (i) is the subject of a Trade
Commitment that has been assigned to Buyer or (ii) is to be included in a
pool of Mortgage Loans backing a Mortgage-Backed Security and evidence
thereof, satisfactory to Buyer in its sole discretion, has been provided to
Buyer.
"Confirmation" shall have the meaning set forth in the Master Repurchase
Agreement but shall be substantially in the form attached hereto as Exhibit
A hereto.
"Covenant Compliance Certificate" shall have the meaning set forth in
Paragraph 12 of these Supplemental Terms.
"Custody Agreement" shall refer to the Tri-Party Custody Agreement, dated
as of September 11, 1996, by and among MLMCI, MLCC, HMC and the Custodian
named therein, as the same may be modified and amended from time to time.
"Custodian" shall refer to the custodian under the Custody Agreement.
"Custody Receipt" shall refer to the Collateral Submission Summary
substantially in the form attached as an exhibit to the Custody Agreement.
"FHLMC" shall refer to the Federal Home Loan Mortgage Corporation.
"First Mortgage Loans" shall refer to the fixed or adjustable rate mortgage
loans secured by first liens on single family residential real property
(including, without limitation, planned unit developments) certain
documents relating to which have been delivered to the Custodian pursuant
to the Custody Agreement.
"FNMA" shall refer to the Federal National Mortgage Association.
"Funding Request" shall refer to the request of HMC for the funding of a
Transaction substantially in the form of Exhibit B.
"GNMA" shall refer to the Government National Mortgage Association.
"HMC" shall refer to Headlands Mortgage Company.
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"HMC Guide" shall refer to the HMC origination procedures previously
provided in writing to Buyer, as such guide may hereafter from time to time
be amended with the written approval of Buyer.
"Home Equity Loans" shall refer to the fixed or adjustable rate, open or
closed end, home equity credit line loans made or to be made in the future
under certain home equity credit line loan agreements.
"Jumbo Mortgage Loans" shall refer to any Mortgage Loans so designated by
HMC and acceptable to Buyer, in its sole discretion, and which (i) have
been underwritten generally in accordance with Agency standards and (ii)
would be considered to be of not less than A- quality according to current
industry standards.
"MLCC" shall refer to Merrill Lynch Credit Corporation.
"MLMCI" shall refer to Merrill Lynch Mortgage Capital Inc.
"Mortgage-Backed Securities" shall refer to mortgage-backed securities
backed by Mortgage Loans and issued by an issuer other than an Agency.
"Mortgage Loans" shall refer to First Mortgage Loans or Home Equity Loans,
as applicable.
"Securities" shall, in addition to the definition set forth in the Master
Repurchase Agreement, refer to Mortgage Loans; provided, however, that such
Mortgage Loans shall not be deemed to be securities for the purposes of any
securities or blue sky laws.
"Seller" shall in all cases under the Master Repurchase Agreement and these
Supplemental Terms, refer to HMC.
"Seller's Margin Amount" shall have the meaning set forth in the Master
Repurchase Agreement except that the percentage referred to therein for
each Transaction shall be specified in the related Confirmation.
"Trade Assignment" shall refer to an assignment, substantially in the form
attached hereto as Exhibit C, executed by HMC in favor of Buyer assigning
or pledging all of HMC's rights under a Trade Commitment.
"Trade Commitment" shall refer to a trade confirmation or similar document
from the Trade Investor to HMC confirming the details of a mandatory
forward trade or similar arrangement reasonably acceptable to Buyer between
the Trade Investor and HMC with
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respect to one or more Mortgage Loans, which trade confirmation or similar
document shall be valid, binding and in full force and effect and relate to
pools of Mortgage Loans that satisfy the "good delivery standard" of the
Public Securities Association as set forth in the Public Securities
-----------------
Association Uniform Practices Guide.
-----------------------------------
"Trade Investor" shall refer to a securities dealer, financial institution
or other entity, reasonably acceptable to Buyer, who has made a Trade
Commitment.
"Transaction" shall, in addition to the definition set forth in the Master
Repurchase Agreement, refer to substitutions pursuant to Paragraph 9 of the
Master Repurchase Agreement.
"Warehouse Facilities" shall refer to the that certain Mortgage Loan
Warehouse Agreement dated October 24, 1994 by and among HMC, The First
National Bank of Chicago, as administrative agent, and the lenders named
therein, as the same may be amended or modified from time to time.
3. MODIFICATIONS TO MASTER REPURCHASE AGREEMENT.
--------------------------------------------
(a) All references to Buyer in the Master Repurchase Agreement shall be
deemed to be references to MLMCI or MLCC, as applicable, and all
references to Seller in the Master Repurchase Agreement shall be
deemed to be references to HMC.
(b) Paragraph 11(d)(ii) of the Master Repurchase Agreement is hereby
deleted in its entirety and restated as follows:
(ii) as to Transactions in which the defaulting party is
Buyer, (A) purchase securities or mortgage loans (collectively,
"Replacement Securities") of the same class and amount, in the case of
securities, and of substantially the same maturity, principal amount
and interest rate as any Mortgage Loans that are not delivered by the
defaulting party to the nondefaulting party as required hereunder or
(B) in its sole discretion elect, in lieu of purchasing Replacement
Securities, to be deemed to have purchased Replacement Securities at
the price therefor on such date, calculated as the average of the
prices obtained from three nationally recognized registered
broker/dealers that buy and sell comparable mortgage loans in the
secondary market.
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4. FUNDING REQUESTS; CONFIRMATIONS.
-------------------------------
(a) Each Funding Request shall be prepared and duly executed by HMC
and delivered to Buyer prior to 5:00 p.m., New York City time, on the
business day prior to the proposed Purchase Date for the related
Transaction. Each such Funding Request delivered by HMC to Buyer
shall be acceptable to Buyer in its sole discretion.
(b) Each Confirmation shall be prepared and duly executed by HMC and
delivered to Buyer prior to 5:00 p.m., New York City time, on the
business day prior to the proposed Purchase Date for the related
Transaction. Each such Confirmation delivered by HMC to Buyer shall
be complete in every respect other than the Purchase Price, the
Pricing Rate, the percentage used to determine Buyer's and Seller's
Margin Amount and the execution thereof by Buyer. Buyer shall, as
soon as practicable on the Buyer Purchase Date, deliver to HMC a
completed Confirmation related to such Transaction executed by Buyer.
(c) Each Confirmation shall be binding upon the parties hereto unless
written notice of objection is given by the objecting party to
the other party within one (1) business day after Buyer has
delivered the completed Confirmation to HMC.
(d) Notwithstanding the last sentence of Paragraph 3(b) of the Master
Repurchase Agreement, in the event of any conflict between the
terms of a Confirmation and the Agreement, such Confirmation
shall prevail.
5. INCOME PAYMENTS. All payments and distributions, whether in cash or in
---------------
kind, made on or with respect to the Mortgage Loans shall, unless otherwise
mutually agreed by Buyer and HMC, be paid, delivered or transferred, so
long as an Event of Default on the part of HMC or an Additional Event of
Termination set forth in Paragraph 11 of these Supplemental Terms shall not
have occurred and be continuing, directly to HMC from the related
mortgagor.
6. MARKET VALUE DETERMINATION. Buyer shall determine the Market Value for the
--------------------------
Mortgage Loans in its reasonable business judgment from time to time and at
such time as it may elect in its sole discretion; provided, however, that
Buyer shall not take into account any Mortgage Loan that has been
delinquent for at least forty-five (45) days or any Mortgage Loan with
respect to which there is a breach of a representation, warranty or
covenant made by HMC in the Agreement or the Custody Agreement that
materially and adversely affects Buyer's interest in such Mortgage Loan and
which breach has not been cured prior to the date on which Market Value is
being determined.
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7. INTENT OF THE PARTIES; SECURITY INTEREST.
----------------------------------------
(a) Each Transaction involving Mortgage Loans is entered into in
contemplation of (i) the sale of Mortgage Loans to a Trade Investor
or (ii) the issuance of Mortgage-Backed Securities. The parties
intend that, in the case of clause (i) of the preceding sentence, the
Cash Purchase Price relating to such Mortgage Loans will be paid by
the related Trade Investor through the Custodian to Buyer.
(b) In the event, for any reason, any Transaction is construed by any
court as a secured loan rather than a purchase and sale, the
parties intend that Buyer shall have a perfected first priority
security interest in all of the Mortgage Loans.
(c) HMC shall pay all fees and expenses associated with perfecting
such security interest.
8. DELIVERY OF ADDITIONAL DOCUMENTS.
--------------------------------
(a) HMC shall, simultaneously with the funding of each Transaction,
deliver directly to Buyer, in the case of clause (iii) below and
to Buyer through the Custodian the following documents:
(i) A fully executed Custody Receipt and all other applicable
documents required by the Custody Agreement;
(ii) In the case of a Transaction involving Mortgage Loans that are
Committed Mortgage Loans intended to be sold to a Trade
Investor, and within one business day of its becoming such a
Committed Mortgage Loan in the case of any Mortgage Loans
that were not such Committed Mortgage Loans at the time the
related Transaction was funded, evidence of the related
Trade Commitment; and
(iii) In the case of a Transaction involving Mortgage Loans that are
Committed Mortgage Loans intended to back a Mortgage-Backed
Security, and within one business day of its becoming such a
Committed Mortgage Loan in the case of any Mortgage Loans
that were not such Committed Mortgage Loans at the time the
related Transaction was funded, evidence satisfactory to
Buyer in its sole discretion that such Mortgage Loans will
back a Mortgage-Backed Security.
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(b) HMC shall deliver to Buyer on a weekly basis (or more frequently if
requested by Buyer), an investor commitment report, substantially in
the form attached hereto as Exhibit D, listing the existing
commitments of Trade Investors relating to any outstanding Funding
Requests.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------
(a) Each party represents and warrants, and shall on and as of the
Purchase Date of any Transaction be deemed to represent and warrant,
as follows:
(i) The execution, delivery and performance of the Agreement and the
performance of each Transaction do not and will not result in or
require the creation of any lien, security interest or other
charge or encumbrance (other than pursuant hereto) upon or with
respect to any of its properties;
(ii) The Agreement is, and each Transaction when entered into under the
Agreement will be, a legal, valid and binding obligation of it
enforceable against it in accordance with the terms of the
Agreement, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at
law); and
(iii) Since the date of the most recent balance sheet or financial
statement delivered by it pursuant to Paragraph 12 hereof, there
has been no material adverse change in its financial condition or
results of operations.
(b) HMC represents and warrants as to each Transaction and the Mortgage
Loans relating thereto as of the Purchase Date of such Transaction as
follows:
(i) All information provided by HMC to Buyer concerning the Mortgage
Loans is true and correct;
(ii) All data and other information provided by or on behalf of HMC to the
Custodian, whether in writing, by electronic transmission or on
computer tape or diskette or otherwise, is true and correct;
(iii) HMC is servicing each Mortgage Loan in strict conformity with the
servicing standards described in Paragraph 16(b) of these
Supplemental Terms;
(iv) Each Mortgage Loan purchased by Buyer under the Agreement conforms to
the requirements for securitization of whole loan collateral into
publicly
I-7
offered mortgage pass-through certificates pursuant to the shelf
registration statements of such entities as may be acceptable to
Buyer in its sole discretion;
(v) With respect to each Transaction involving Home Equity Loans,
Seller possesses all licenses, certificates, authorities or
permits issued by the appropriate regulatory authorities
necessary to originate, purchase, sell and hold such Home Equity
Loans;
(vi) Each Mortgage Loan conforms in all respects to either (1) Seller's
underwriting guidelines, as set forth in the written description
thereof supplied by Seller to Buyer on or prior to the date of
this Agreement (with such amendments thereto, from time to time,
as may be acceptable to Buyer and as are evidenced by the written
acknowledgment of Buyer) or (2) such other standards as may be
acceptable to Buyer, as evidenced by the written acknowledgment
of Buyer;
(vii) Each Mortgage Loan that is a Committed Mortgage Loan conforms in all
respects with all requirements of any Trade Commitment or
Mortgage-Backed Securities relating thereto; and
(viii) Each Trade Commitment assigned or pledged by HMC to Buyer pursuant
to a Trade Assignment is enforceable by Buyer against the related
Trade Investor.
(c) HMC covenants with Buyer as follows:
(i) HMC shall notify Buyer of any changes in the terms of, or the
parties to, the Warehouse Facilities within twenty-four (24)
hours of HMC becoming aware of such changes, whether or not
such changes have yet become effective;
(ii) Without Buyer's express prior written approval, HMC shall not
execute, in favor of any third party other than Buyer, any
assignment of rights held or purportedly held by HMC under a
given Trade Commitment;
(iii) All financial and other covenants made by HMC under the Warehouse
Facilities shall be deemed to be made directly to Buyer as
though fully set forth herein; provided, however, that any
-------- -------
such covenants that require HMC to obtain Buyer's consent
prior to entering into financing arrangements (other than the
Transactions contemplated hereby) shall be deemed to
I-8
merely require prior written notice by HMC to Buyer of such
financing arrangements without any requirement for the consent of
Buyer;
(iv) HMC shall, immediately prior to a Mortgage Loan becoming subject to
the Agreement, own such Mortgage Loan free and clear of any lien,
security interest, option or encumbrance;
(v) HMC shall deliver to Buyer the Covenant Compliance Certificate
referred to in Paragraph 12 of these Supplemental Terms by the
same manner of delivery and at the same time as HMC is required
to deliver it under the Warehouse Facilities, and Buyer may rely
on such Covenant Compliance Certificate as if it were a direct
addressee;
(vi) HMC shall service the Mortgage Loans in accordance with the
provisions of Paragraph 16 of these Supplemental Terms;
(vii) HMC shall promptly notify Buyer after the occurrence of any change
contemplated by Paragraph 11(a) of these Supplemental Terms;
(viii) Each Mortgage Loan, other than a Home Equity Loan, that is not a
Committed Mortgage Loan at the time it became subject to the
Agreement will become a Committed Mortgage Loan within 90 days of
its initially becoming subject to the Agreement and each Home
Equity Loan that is not a Committed Mortgage Loan at the time it
became subject to the Agreement will become a Committed Mortgage
Loan within 120 days of its initially becoming subject to the
Agreement;
(ix) Notwithstanding any other provision of the Agreement and as of any
date of determination, no more than 20% of the Mortgage Loans
(determined on the basis of the outstanding principal amount of
each Mortgage Loan on the date that such Mortgage Loan first
becomes subject to the Agreement) shall have outstanding
principal balances in excess of $500,000;
(x) Notwithstanding any other provision of the Agreement, no B
Quality Non-Conforming Mortgage Loan or C Quality Non-Conforming
Mortgage Loan or Jumbo Mortgage Loan shall be subject to the
Agreement or to the Custody Agreement for more than 120 days in
aggregate;
(xi) Notwithstanding any other provisions of the Agreement, if not sold
within 120 days of the date hereof, no Home Equity Loan shall be
subject to the
I-9
Agreement or to the Custody Agreement for more than 180 days in
aggregate;
(xii) HMC will maintain on its Mortgage Loans which are Committed Mortgage
Loans a Trade Commitment or evidence that such Committed Mortgage
Loans will back a Mortgage-Backed Security in form and substance
acceptable to Buyer;
(xiii) HMC will provide Buyer upon reasonable request evidence satisfactory
to Buyer of any Trade Commitment or evidence of securitization
applicable to Mortgage Loans which are Committed Mortgage Loans;
(xiv) On an ongoing basis, at HMC's expense without request of Buyer, HMC
shall provide Buyer with HMC's audited year-end balance sheet and
income statement within 120 days after the end of HMC's fiscal
year and HMC's unaudited (or, if available, audited) quarterly
balance sheet and income statement within 90 days after the end
of each of HMC's three other fiscal quarters;
(xv) Each Mortgage Loan that is not a Committed Mortgage Loan will at all
times be the subject of hedging techniques established by HMC
that are reasonable and customary in the mortgage banking
industry; and
(xvi) HMC shall, upon the request of Buyer, provide evidence in form and
substance satisfactory to Buyer indicating that the Mortgage
Loans referred to in clause (xv) above are in fact subject to
hedging techniques established by HMC or by a firm that
specializes in hedging techniques and is acceptable to Buyer.
10. EVENTS OF DEFAULT.
-----------------
(a) The term "Event of Default" shall, in addition to the definition set
forth in the Master Repurchase Agreement, include the following
events:
(i) Any governmental or self-regulatory authority shall take
possession of Buyer or HMC or all or substantially all its
property or appoint any such trustee, receiver, conservator or
other official, or such party shall take any action to authorize
any of the actions set forth in this clause (i).
(ii) Buyer or HMC shall have reasonably determined that the other party is
or will be unable to meet its commitments under the Agreement,
shall have notified such other party of such determination and
such other party shall not
I-10
have responded with appropriate information to the contrary to
the satisfaction of the notifying party within twenty-four (24)
hours.
(iii) A final judgment by any competent court in the United States of
America for the payment of money in an amount of at least
$100,000 is rendered against the defaulting party, and the same
remains undischarged or unpaid for a period of 60 days during
which execution of such judgment is not effectively stayed.
(iv) The Agreement shall for any reason cease to create a valid, first
priority security interest in any of the Mortgage Loans purported
to be covered thereby; provided, however, that such circumstance
-------- -------
shall not constitute an Event of Default if, after determining
the Market Value of the Mortgage Loans without taking into
account the Mortgage Loans with respect to which such
circumstance has occurred, no other Event of Default shall have
occurred and be continuing.
(v) Any representation or warranty made by HMC in the Agreement or the
Custody Agreement shall have been incorrect or untrue when made
or repeated or when deemed to have been made or repeated and
Buyer's interests shall have been materially adversely affected
thereby.
(vi) HMC shall breach any covenant in the Agreement or the Custody
Agreement and Buyer's interests shall have been materially
adversely affected thereby.
(vii) An Act of Insolvency shall occur with respect to HMC or a controlling
entity of HMC.
(b) In addition to the other remedies available to Buyer or HMC upon the
occurrence and during the continuance of an Event of Default by the
other party, Buyer shall have the following additional remedies upon
the occurrence and during the continuance of an Event of Default by
HMC:
(i) All rights of HMC to receive payments which it would otherwise be
authorized to receive pursuant to Paragraph 5 of these
Supplemental Terms shall cease, and all such rights shall
thereupon become vested in Buyer, which shall thereupon have the
sole right to receive such payments and apply them to the
aggregate unpaid Repurchase Prices owed by HMC.
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(ii) All payments that are received by HMC contrary to the provisions of
the preceding clause (i) shall be received in trust for the
benefit of Buyer and shall be segregated from other funds of HMC.
(c) Any sale of Mortgage Loans under Paragraph 11 of the Master Repurchase
Agreement shall be conducted in a commercially reasonable manner.
(d) Expenses incurred in connection with an Event of Default shall include
without limitation those costs and expenses incurred by the
nondefaulting party as a result of the early termination of any
repurchase agreement or reverse repurchase agreement entered into by
the nondefaulting party in connection with the Transaction then in
default.
(c) HMC acknowledges that any delay in the ability of Buyer to exercise
its remedies pursuant to Paragraph 11 of the Master Repurchase
Agreement shall result in irrep arable injury to Buyer.
11. ADDITIONAL EVENTS OF TERMINATION.
--------------------------------
At the option of Buyer, exercised by written notice to HMC, the Repurchase
Date for any or all Transactions under the Agreement shall be deemed to
immediately occur (except as provided below with respect to subparagraph
(d)) in the event that:
(a) In the reasonable judgment of Buyer a material adverse change shall
have occurred in the business, operations, properties, prospects or
condition (financial or otherwise) of HMC;
(b) Buyer shall request written assurances as to the financial well-being
of HMC and such assurances shall not have been provided within twenty-
four (24) hours of such request;
(c) HMC shall be in default with respect to any normal and customary
covenants under any material contract or agreement to which it is a
party which default permits acceleration of the obligations of HMC
under such contract or agreement by any other party thereto;
(d) The senior debt obligations or short-term debt obligations of Merrill
Lynch & Co., Inc. shall be rated below the four highest generic grades
(without regard to any pluses or minuses reflecting gradations within
such generic grades) by any nationally recognized statistical rating
organization;
I-12
(e) HMC shall merge or consolidate into any entity unless the surviving or
resulting entity shall be satisfactory to Buyer and such entity
expressly assumes by written agreement, executed and delivered to
Buyer in form and substance satisfactory to Buyer, the performance of
all of HMC's duties and obligations hereunder and under the Custody
Agreement;
(f) A firm of independent accountants shall have failed to issue an
opinion or shall have issued a qualified opinion in connection with
the most recent audited financial statements of HMC;
(g) Any B Quality Non-Conforming Mortgage Loan or C Quality Non-Conforming
Mortgage Loan or Jumbo Mortgage Loan shall have been subject to the
Agreement or to the Custody Agreement for more than 120 days in
aggregate; and
(h) Any Home Equity Loan shall have been subject to the Agreement or to
the Custody Agreement for more than 180 days in aggregate.
In the event that the condition contemplated by subparagraph (d) shall
occur and Buyer shall provide the aforementioned written notice to HMC,
then the Repurchase Date for any or all Transactions under the Agreement
designated by Buyer shall occur upon the earlier of (i) the date 30 days
after Buyer provides such notice to HMC and (ii) the date that would
otherwise be the Repurchase Date for each designated Transaction if no such
notice had been given. The acceleration of the Repurchase Date as provided
in this Paragraph 11 shall be in addition to any other rights of the
parties to cause such an acceleration under the Agreement.
12. FINANCIAL STATEMENTS.
--------------------
(a) As of the date hereof, Buyer and HMC shall each provide the other with
its audited year-end financial statements and its most recent
available interim financial statement. Buyer and HMC shall from time
to time each provide the other with audited year-end financial
statements and additional available interim financial statements upon
such other party 's reasonable request.
(b) HMC shall provide Buyer, at the expense of HMC without request of
Buyer, with all periodic unaudited balance sheets and income
statements from time to time as soon after the preparation thereof as
practicable. In addition, HMC shall deliver to Buyer the quarterly
certificate (the "Covenant Compliance Certificate") required to be
delivered to the lending banks under the Warehouse Facilities and
Buyer shall be permitted to rely on such Covenant Compliance
Certificate to the same extent as such lending banks.
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(c) Each delivery of Mortgage Loans by HMC to Buyer hereunder will
constitute a representation by HMC that there has been no material
adverse change in HMC's financial condition not disclosed to Buyer
since the date of HMC's most recent unaudited balance sheet or income
statement delivered to Buyer. HMC shall provide Buyer, from time to
time at HMC's expense, with such information of a financial or
operational nature as Buyer may reasonably request promptly upon
receipt of such request.
13. REPURCHASE PRICE; PRICE DIFFERENTIAL. The Price Differential shall be
------------------------------------
payable in arrears with respect to each Transaction, together with the
Purchase Price therefor, on the termination date for the related
Transaction or as may be otherwise mutually agreed upon by the parties and
as specified in the related Confirmation. Payment of the Repurchase Price
(including the Price Differential) shall be made by wire transfer in
immediately available funds.
14. ADDITIONAL INFORMATION; CONFIDENTIALITY.
---------------------------------------
(a) At any reasonable time HMC shall permit Buyer, its agents or
attorneys, to inspect and copy any and all documents and data in their
possession pertaining to each Mortgage Loan that is the subject of any
Transaction. Such inspection shall occur upon the request of Buyer at
a mutually agreeable location during regular business hours and on a
date not more than two (2) business days after the date of such
request.
(b) HMC agrees to provide Buyer from time to time with such information
concerning HMC of a financial or operational nature as Buyer may
reasonably request.
(c) HMC acknowledges that the Agreement and the Custody Agreement are
confidential in nature and HMC agrees that, unless otherwise directed
by a court of competent jurisdiction or as may be required by federal
or state law (which determination as to federal or state law shall be
based upon written advice of counsel), it shall limit the distribution
of such documents to its officers, employees, attorneys, accountants
and agents as required in order to conduct its business with Buyer.
15. MARGIN MAINTENANCE. Paragraph 4(a) of the Master Repurchase Agreement is
------------------
hereby modified to provide that if the notice to be given by Buyer to HMC
under such paragraph is given at or prior to 10:00 a.m. New York City time
on a business day, HMC shall transfer the cash or Additional Purchased
Securities to Buyer (in the manner contemplated by the Agreement and the
Custody Agreement) prior to the close of business in New York City on the
date of such notice, and if such notice is given after
I-14
10:00 a.m. New York City time, HMC shall transfer the cash or Additional
Purchased Securities (in the manner as aforesaid) prior to the close of
business in New York City on the business day following the date of such
notice.
16. SERVICING ARRANGEMENTS.
----------------------
(a) The parties hereto agree and acknowledge that, notwith standing the
purchase and sale of the Mortgage Loans contemplated hereby, HMC shall
continue to service the Mortgage Loans for the benefit of Buyer and,
if Buyer shall exercise its rights to sell the Mortgage Loans pursuant
to the Agreement, Buyer's assigns; provided, however, that the
-------- -------
obligation of HMC to service Mortgage Loans for the benefit of Buyer
as aforesaid shall cease upon the repurchase of Mortgage Loans by or
on behalf of HMC.
(b) HMC shall service and administer the Mortgage Loans in accordance with
prudent mortgage loan servicing standards and procedures generally
accepted in the mortgage banking industry. HMC shall at all times
maintain accurate and complete records of its servicing of the
Mortgage Loans.
(c) HMC shall provide Buyer and its permitted assigns with periodic
reports concerning the Mortgage Loans with such frequency and
containing such information as Buyer or its permitted assigns may
reasonably request. In addition, HMC shall deliver to Buyer on each
business day a schedule of Home Equity Loans reflecting current
balances and such other information as Buyer may reasonably request.
(d) Buyer shall, in connection with the exercise of its rights to sell the
Mortgage Loans pursuant to Paragraph 11(d) of the Master Repurchase
Agreement, have the option to sell the Mortgage Loans on a servicing
released basis without the payment of any termination fee to HMC.
17. FURTHER ASSURANCES. HMC shall promptly provide such further assurances or
------------------
agreements as Buyer may request in order to effect the purposes of the
Agreement and the Takeout Assignment.
18. BUYER AS ATTORNEY-IN-FACT. Buyer is hereby appointed to act after the
-------------------------
occurrence and during the continuation of an Event of Default as the
attorney-in-fact of HMC for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any instruments that
Buyer may deem necessary or advisable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, Buyer shall
have the right and power after the occurrence and during the continuation
of any
I-15
Event of Default to receive, endorse and collect all checks made payable to
the order of HMC representing any payment on account of the principal of or
interest on any of the Mortgage Loans and to give full discharge for the
same.
19. TRANSACTION PROCEDURES. Buyer may, in its sole discretion, reject any
----------------------
Mortgage Loan from inclusion in a Transaction hereunder for any reason.
20. REPURCHASE TRANSACTIONS. Buyer may in its sole election engage in
-----------------------
repurchase transactions with the Mortgage Loans or otherwise pledge or
hypothecate the Mortgage Loans with a counterparty of Buyer's choice;
provided, however, that no such transaction by Buyer shall relieve Buyer of
-------- -------
its obligations to Seller in connection with the repurchase by Seller of
any Mortgage Loans in accordance with the terms of the Agreement.
21. NEW YORK JURISDICTION; WAIVER OF JURY TRIAL. Seller agrees to submit to
-------------------------------------------
personal jurisdiction in the State of New York in any action or proceeding
arising out of the Agreement. Buyer and Seller each hereby waives the right
of trial by jury in any litigation arising hereunder.
22. TERMINATION. Notwithstanding any provisions of Paragraph 15 of the Master
-----------
Repurchase Agreement to the contrary, this Agreement and all Transactions
outstanding hereunder shall terminate automatically without any requirement
for notice on September 10, 1998; provided, however, that this Agreement
and any Transaction outstanding hereunder may be extended by mutual
agreement of Buyer and Seller; and provided further, however, that no such
party shall be obligated to agree to such an extension. This Agreement may
be cancelled by either party upon giving five (5) days' written notice to
the other and so long as no Event of Default shall have occurred and be
continuing, except that this Agreement shall, notwithstanding such notice,
remain applicable to any Transactions then outstanding.
23. APPOINTMENT OF AGENT. MLCC hereby appoints MLMCI as its agent for purposes
--------------------
of reviewing and executing Confirmations and Funding Requests, determining
Market Value, exercising any termination option provided for in Paragraph
11 of these Supplemental Terms, exercising MLCC's rights under any margin
maintenance provision of the Agreement, exercising MLCC's rights under the
default provisions of the Agreement and such other purposes as MLCC may
direct. The appointment of such agent shall not relieve MLCC of its
obligations as Buyer hereunder.
24. BINDING TERMS. All of the covenants, stipulations, promises and agreements
-------------
in the Agreement shall bind the successors and assigns of the parties
hereto, whether expressed or not.
I-16
25. NOTICES AND OTHER COMMUNICATIONS. Any provision of Paragraph 13 of the
--------------------------------
Repurchase Agreement to the contrary notwithstanding, any notice required
or permitted by the Agreement shall be in writing (including telegraphic,
facsimile or telex communication) and shall be effective and deemed
delivered only when received by the party to which it is sent; provided,
--------
however, that a facsimile transmission shall be deemed to be received when
-------
transmitted so long as the transmitting machine has provided an electronic
confirmation of such transmission. Any such notice shall be sent to a party
at the address or facsimile transmission number set forth in Annex II
attached hereto.
26. MAXIMUM TRANSACTION AMOUNT. The aggregate outstanding Repurchase Price for
--------------------------
the Mortgage Loans subject to the Agreement as of any date of determination
shall not exceed $250,000,000. The aggregate outstanding Repurchase Price
for the Mortgage Loans that are Home Equity Loans subject to this Agreement
as of any date of determination shall not exceed $100,000,000. The
aggregate outstanding Repurchase Price for the Mortgage Loans that are B
Quality Non-Conforming Mortgage Loans or C Quality Non-Conforming Mortgage
Loans subject to this Agreement as of any date of determination shall not
exceed $50,000,000. The aggregate outstanding Repurchase Price for the
Mortgage Loans that are Jumbo Mortgage Loans subject to this Agreement as
of any date of determination shall not exceed $100,000,000.
27. EXPENSES. HMC shall pay its own expenses and all reasonable out-of-pocket
--------
costs and expenses (including fees and disbursements of counsel): (1) of
Buyer incident to the preparation and negotiation of the Agreement, the
Custody Agreement, any documents relating thereto, any amendments or
waivers thereto, and the protection of the rights of Buyer thereunder, and
(2) of Buyer incident to the enforcement of payment of amounts due under
the Agreement or the Custody Agreement, whether by judicial proceedings or
otherwise, including, without limitation, in connection with bankruptcy,
insolvency, liquidation, reorganization, moratorium or other similar
proceedings involving HMC. Notwithstanding any provision hereof to the
contrary, the obligations of HMC under this Paragraph 27 shall be effective
and enforceable whether or not any Transaction remains outstanding and
shall survive payment of all other obligations owed by HMC to Buyer.
28. COUNTERPARTS. This Agreement may be executed in any number of counterparts,
------------
each of which counterparts shall be deemed to be an original, and such
counterparts shall constitute but one and the same instrument.
29. INCORPORATION OF TERMS. The Master Repurchase Agreement as supplemented
----------------------
hereby shall be read, taken and construed as one and the same instrument.
I-17
EXHIBIT A
CONFIRMATION
TO: Headlands Mortgage Company
700 Larkspur Landing Circle
Suite 250
Larkspur, CA 94939
Attention: Paul Casellini
FROM: [Merrill Lynch Mortgage Capital Inc.]
[Merrill Lynch Credit Corporation
c/o Merrill Lynch Mortgage Capital Inc.]
Merrill Lynch World Headquarters
World Financial Center, North Tower
New York, New York 10281-1208
RE:
[Merrill Lynch Mortgage Capital Inc. ("MLMCI")] [Merrill Lynch Credit
Corporation ("MLCC")] is pleased to confirm your sale and our purchase of the
Mortgage Loans described below pursuant to the Master Repurchase Agreement
(including the supplemental terms set forth in Annex I thereto), dated as of
September 11, 1996 (the "Master Repurchase Agreement") among MLMCI, MLCC and
Headlands Mortgage Company under the following terms and conditions:
CREDIT LIMIT (IN THE CASE OF HOME
EQUITY LOANS):
ORIG. PRINCIPAL AMOUNT OF MORTGAGE LOANS:
CURRENT PRINCIPAL AMOUNT OF MORTGAGE LOANS:
PURCHASE DATE:
REPURCHASE DATE:
PURCHASE PRICE:
PRICING RATE:
MINIMUM REQUIRED MARGIN PERCENTAGE:
PRICE DIFFERENTIAL DUE DATE:
A-1
The Master Repurchase Agreement is incorporated by reference into this
Confirmation and made a part hereof as if it were fully set forth herein. All
capitalized terms used herein but not otherwise defined shall have the meanings
specified in the Master Repurchase Agreement.
[MERRILL LYNCH MORTGAGE CAPITAL INC.]
[MERRILL LYNCH CREDIT CORPORATION
BY: MERRILL LYNCH MORTGAGE CAPITAL
INC.]
BY:
NAME:
TITLE:
A-2
EXHIBIT B
FUNDING REQUEST
===============
Request No. ___
Product Wire Loan Borrower Loan Purchase Market Takeout Note Commitment Takeout Maturity
Investor Type Date Number Last Name Amount Price Value Date Rate Number Price Date
- -------- ---- ---- ------ --------- ----- ----- ----- ---- ---- ------ ----- ----
Amount to be
funded by [MLMCI] [MLCC]: $____________
Headlands Mortgage Company
By: ___________________________
Title: ___________________________
Date: ___________________________
B-1
EXHIBIT C
[TRADE ASSIGNMENT]
[TRADE INVESTOR]
Gentlemen:
Attached hereto is a true, correct and complete copy of your confirmation
of commitment (the "Commitment"), trade-dated _______________, 19__, to purchase
$___________ of mortgage loans (the "Mortgage Loans") referred to therein at a
purchase price of ________________. This is to confirm that (i) the Commitment
is in full force and effect, (ii) the Commitment has been assigned to Merrill
Lynch Mortgage Capital Inc. ("MLMCI"), whose acceptance of such assignment is
indicated below, (iii) you will accept delivery of such Mortgage Loans directly
from MLMCI and (iv) MLMCI or its designee will receive the payment for such
Mortgage Loans. Payment will be made "delivery versus payment" to MLMCI or its
designee in immediately available funds. MLMCI shall have the right to require
you to fulfill your obligation to purchase the Mortgage Loans.
Notwithstanding the foregoing, the obligation to delivery the Mortgage
Loans to you shall be that of Headlands Mortgage Company (the "Seller") and your
sole recourse for the failure of such delivery shall be against the Seller.
If you have any questions concerning this assignment, please call James B.
Cason of MLMCI at (212) 449-1219 immediately.
Very truly yours,
HEADLANDS MORTGAGE COMPANY
By: __________________________
Title: ___________________________
Date: ___________________________
Agreed to:
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: ___________________________
Title: ___________________________
Date: ___________________________
C-1
EXHIBIT D
INVESTOR COMMITMENT REPORT
--------------------------
Trade Investor
Outstanding Funding or Commitment
Requests (listed by #) Securitization Number
---------------------- -------------- ------
D-1
ANNEX II
Names and Addresses for Communications Between Parties
MERRILL LYNCH MORTGAGE CAPITAL INC.
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Attention: James B. Cason
Telephone: (212) 449-1219
Telecopy: (212) 449-6673
HEADLANDS MORTGAGE COMPANY
700 Larkspur Landing Circle
Suite 250
Larkspur, California 94939
Attention: Paul Casellini
Telephone: (415) 925-5422
Telecopy: (415) 461-1329
MERRILL LYNCH CREDIT CORPORATION
c/o Merrill Lynch Mortgage Capital Inc.
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Attention: James B. Cason
Telephone: (212) 449-1219
Telecopy: (212) 449-6673
II-1
[MERRILL LYNCH MORTGAGE CAPITAL INC. LETTERHEAD]
September 11, 1997
Headlands Mortgage Company
700 Larkspur Landing Circle
Suite 250
Larkspur, California 94939
Re: Master Repurchase Agreement among Merrill Lynch Mortgage Capital
Inc., Merrill Lynch Credit Corporation and Headlands Mortgage
-------------------------------------------------------------
Company
-------
Gentlemen:
Reference is made to the Master Repurchase Agreement, dated as of
September 11, 1997 (the "Agreement"), among Merrill Lynch Mortgage Capital Inc.
("MLMCI"), Merrill Lynch Credit Corporation ("MLCC") and Headlands Mortgage
Company (the "Company"). MLCC has appointed MLMCI as its agent under the
Agreement. Capitalized terms used and not otherwise defined herein shall have
the meanings ascribed in the Agreement.
This letter is to confirm that MLMCI, acting on behalf of itself and
MLCC, and the Company have agreed to renew the terms of the Agreement for a
period of one year on an uncommitted basis such that the termination date for
the Agreement is extended to September 10, 1998 (the "Revised Termination
Date"). Any provision of the Agreement or any other document relating thereto to
the contrary notwithstanding, MLMCI, acting on behalf of itself and MLCC, may in
its discretion, but is not required to, enter into Transactions under the
Agreement from the date hereof to the Revised Termination Date.
Please confirm our mutual agreement as set forth herein and
acknowledge receipt of this confirmation letter by executing the enclosed copy
of this letter and returning it to Merrill Lynch Mortgage Capital Inc., Merrill
Lynch World Headquarters, World Financial Center, North Tower, 15th Floor, New
York, New York 10281, Attention: James B. Cason (telecopy number (212) 449-
3673). If you have any questions concerning this matter, please contact Mr.
Cason at (212) 449-1219.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL
INC.
By: /s/ Michael Blum
-----------------
Name: Michael Blum
---------------
Title: Director
---------
ACCEPTED, CONFIRMED AND ACKNOWLEDGED:
HEADLANDS MORTGAGE COMPANY
By: /s/ Paul Casellini
--------------------
Name: Paul Casellini
-----------------
Title: Senior Vice President/Treasurer
-------------------------------
Dated: As of September 11, 1997