Master Repurchase Agreement Governing Purchases and Sales of Mortgage Loans - Lehman Commercial Paper Inc. and NovaStar Financial Inc.
MASTER REPURCHASE AGREEMENT GOVERNING
PURCHASES AND SALES OF MORTGAGE LOANS
Dated as of June 11, 1998
Between
LEHMAN COMMERCIAL PAPER INC.,
as Buyer
and
NOVASTAR FINANCIAL, INC.,
as Seller
1. APPLICABILITY
From time to time, the parties hereto may, subject to the terms hereof, enter
into transactions in which Novastar Financial, Inc. ("Seller") agrees to
transfer to Lehman Commercial Paper Inc. ("Buyer") Mortgage Loans against the
transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer
to Seller such Mortgage Loans at a date certain not later than the date of
transfer specified in the Confirmation, against the transfer of funds by Seller.
Each such transaction shall be referred to herein as a "Transaction" and shall
be governed by this Agreement and the related Confirmation, unless otherwise
agreed in writing. This Agreement does not constitute a commitment of Buyer or
Seller to enter into Transactions but rather sets forth the procedures to be
followed in connection with requests to enter into Transactions by Seller to
Buyer. Seller hereby acknowledges that Buyer is under no obligation to agree to
enter into Transactions under this Agreement.
2. DEFINITIONS
"Act of Insolvency" means, with respect to any party and its Affiliates, (i) the
filing of a petition, commencing, or authorizing the commencement of any case or
proceeding under any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar law relating to the protection of creditors, or suffering
any such petition or proceeding to be commenced by another which is consented
to, not timely contested or results in entry of an order for relief; (ii) the
seeking the
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appointment of a receiver, trustee, custodian or similar official for such party
or an Affiliate or any substantial part of the property of either, (iii) the
appointment of a receiver, conservator, or manager for such party or an
Affiliate by any governmental agency or authority having the jurisdiction to do
so; (iv) the making or offering by such party or an Affiliate of a composition
with its creditors or a general assignment for the benefit of creditors, (v) the
admission by such party or an Affiliate of such party of its inability to pay
its debts or discharge its obligations as they become due or mature; or (vi)
that any governmental authority or agency or any person, agency or entity acting
or purporting to act under governmental authority shall have taken any action to
condemn, seize or appropriate, or to assume custody or control of, all or any
substantial part of the property of such party or of any of its Affiliates, or
shall have taken any action to displace the management of such party or of any
of its Affiliates or to curtail its authority in the conduct of the business of
such party or of any of its Affiliates.
"Additional Loans" means Mortgage Loans or cash provided by Seller to Buyer or
its designee pursuant to Section 4(a).
"Affiliate" means an affiliate of a party as such term is defined in the United
States Bankruptcy Code in effect from time to time.
"Agency" means FNMA, FHLMC or GNMA.
"Agreement" means this Master Repurchase Agreement Governing Purchases and Sales
of Mortgage Loans between Buyer and Seller, as amended from time to time.
"Balloon Mortgage Loan" means any Mortgage Loan that provided on the date of
origination for scheduled payments by the Mortgagor based upon an amortization
schedule extending beyond its maturity date.
"Business Day" means a day other than (i) a Saturday or Sunday, or (ii) a day in
which the New York Stock Exchange is authorized or obligated by law or executive
order to be closed.
"Buyer" has the meaning specified in Section 1.
" "C" Loan" means a Mortgage Loan made by Seller to a Mortgagor with a "C"
credit history which is underwritten in accordance with Seller's underwriting
guidelines for "C" credit Mortgage Loans, a copy of which is attached as Exhibit
VI hereto.
"Collateral" has the meaning specified in Section 6.
"Collateral Amount" means, with respect to any Transaction, the amount obtained
by application of the applicable Collateral Amount Percentage to the related
Repurchase Price for such Transaction.
"Collateral Amount Percentage" means the amount set forth in the Confirmation
which, in any event, (i) shall not be less than 103% with respect to all
Mortgage Loans in determining whether
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a Market Value Collateral Deficit exists pursuant to the first sentence of
Section 4(a) hereof and (ii) shall not be less than 105% with respect to all
Mortgage Loans in determining whether a Securitization Value Collateral Deficit
exists pursuant to the second sentence of Section 4(a) hereof.
"Collateral Deficit" means either a Market Value Collateral Deficit or a
Securitization Value Collateral Deficit.
"Collateral Information" means the following information with respect to each
Mortgage Loan: (i) Seller's loan number, (ii) the Mortgagor's name, (iii) the
address of the Mortgaged Property, (iv) the current interest rate, (v) the
original balance, (vi) current balance as of the last day of the immediately
preceding month, (vii) the principal paid to date, (viii) the appraisal value of
the Mortgaged Property, (ix) whether interest rate is fixed or adjustable (and
if adjustable, the ARM terms, including the index, spread, adjustment frequency,
next adjustment date, caps and floors), (x) whether the Mortgage Loan is
convertible from ARM to fixed, (xi) the occupancy status of the Mortgaged
Property (including whether owner occupied), (xii) whether the Mortgage Loan is
a Balloon Loan, (xiii) the first payment date, (xiv) the maturity date, (xv) the
principal and interest payment, (xvi) the property type of the Mortgaged
Property, (xvii) the applicable credit grade, (xviii) the note date and (xix)
whether the Mortgage Loan is a Wet Ink Mortgage Loan.
"Confirmation" has the meaning specified in Section 3(a).
"Custodial Agreement" means that certain custodial agreement, dated as of June
11, 1998, by and among Buyer, Seller and the Custodian.
"Custodial Delivery" means the form executed by Seller in order to deliver the
Mortgage Loan Schedule and/or the Mortgage File to Buyer or its designee
(including the Custodian) pursuant to Section 7, a form of which is attached
hereto as Exhibit II. Such form shall indicate any Mortgage Loans which are Wet
Ink Mortgage Loans.
"Custodian" means the custodian under the Custodial Agreement. The initial
custodian is First Union National Bank.
" "D" Loan" means a Mortgage Loan made by Seller to a Mortgagor with a "D"
credit history which is underwritten in accordance with Seller's underwriting
guidelines for "D" credit Mortgage Loans, a copy of which is attached as Exhibit
VI hereto.
"Delinquent" means, with respect to any Mortgage Loan, the period of time from
the date on which a Mortgagor fails to pay an obligation under the terms of such
Mortgage Loan (without regard to any applicable grace periods) to the date on
which such payment is made.
"Event of Default" has the meaning specified in Section 13.
"First Mortgage" means a Mortgage that is a first lien on the Mortgaged
Property.
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"FHLMC" means the Federal Home Loan Mortgage Corporation.
"FNMA" means the Federal National Mortgage Association.
"GNMA" means the Government National Mortgage Association.
"Hedge" means, with respect to any or all of the Purchased Mortgage Loans, any
interest rate swap, cap or collar agreement or similar arrangements providing
for protection against fluctuations in interest rates or the exchange of nominal
interest obligations, either generally or under specific contingencies, entered
into by Seller with Buyer or its Affiliates, and reasonably acceptable to the
Buyer.
"HUD" means the United States Department of Housing and Urban Development.
"Income" means, with respect to any Purchased Mortgage Loan at any time, any
principal thereof then payable and all interest, dividends or other
distributions payable thereon less any related servicing fee(s) charged by a
subservicer.
"LIBOR" means the London Interbank Offered Rate for one-month United States
dollar deposits as set forth on page 3750 of Telerate as of 11:00 a.m., London
time, on the date of determination.
"Loan-to-Value Ratio" means with respect to any Mortgage Loan as of any date,
the fraction, expressed as a percentage, the numerator of which is the principal
balance of such Mortgage Loan at the date of determination and the denominator
of which is the lower of (x) the sale price of the related Mortgaged Property or
(y) the value of the related Mortgaged Property as set forth in the appraisal of
such Mortgaged Property obtained in connection with the origination of such
Mortgage Loan.
"Market Value" means as of any date with respect to any Mortgage Loan, the price
at which such Mortgage Loan could readily be sold as determined by Buyer in its
sole discretion; provided, however, that Buyer shall not take into account, for
purposes of calculating Market Value, any Mortgage Loan (i) which has been
subject to consecutive Transactions for more than 270 days, (ii) which, together
with the other Mortgage Loans subject to then outstanding Transactions, would
cause the 30+ Delinquency Percentage to exceed 5.0%, (iii) which is a Wet Ink
Mortgage Loan for more than 5 Business Days, (iv) which are more than 59 days
Delinquent or (v) with respect to which there is a breach of a representation,
warranty or covenant made by Seller in this Agreement that materially adversely
affects Buyer's interest in such Mortgage Loan and which breach has not been
cured.
"Market Value Collateral Deficit" has the meaning specified in Section 4(a).
"Mortgage" means a mortgage, deed of trust, deed to secure debt or other
instrument, creating a valid and enforceable first or second lien on or a first
or second priority ownership interest in an estate in fee simple in real
property and the improvements thereon, securing a Mortgage Note or similar
evidence of indebtedness.
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"Mortgage File" means the documents specified as the "Mortgage File" in Section
7(d), together with any additional documents and information required to be
delivered to Buyer or its designee (including the Custodian) pursuant to this
Agreement.
"Mortgage Loan" means (i) a non-securitized whole loan, namely a conventional
mortgage loan secured by a first or second lien on a one to four family
residential property which conforms to Seller's underwriting guidelines
(including, without limitation, Wet-Ink Mortgage Loans) or (ii) another type of
non-securitized whole loan as may be agreed upon in writing by the parties
hereto from time to time.
"Mortgage Loan Schedule" means a schedule of Mortgage Loans attached to each
Trust Receipt, Confirmation and Custodial Delivery.
"Mortgage Note" means a note or other evidence of indebtedness of a Mortgagor
secured by a Mortgage.
"Mortgaged Property" means the real property securing repayment of the debt
evidenced by a Mortgage Note.
"Mortgagee" means the record holder of a Mortgage Note secured by a Mortgage.
"Mortgagor" means the obligor on a Mortgage Note and the grantor of the related
Mortgage.
"Periodic Payment" has the meaning specified in Section 5(b).
"Person" means an individual, partnership, corporation, joint stock company,
trust or unincorporated organization or a governmental agency or political
subdivision thereof.
"Price Differential" means, with respect to any Transaction hereunder as of any
date, the aggregate amount obtained by daily application of the Pricing Rate for
such Transaction to the Purchase Price for such 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 Repurchase Date (reduced by any amount of such Price Differential previously
paid by Seller to Buyer with respect to such Transaction).
"Pricing Rate" means the per annum percentage rate specified in the Confirmation
for determination of the Price Differential which shall not exceed LIBOR plus
the applicable Pricing Spread.
"Pricing Spread" means (x) [ ]%; provided that during any period for which
any such Mortgage Loans are Wet Ink Mortgage Loans, the applicable Pricing
Spread in respect of such Mortgage Loan shall be [ ]%.
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"Prime Rate" means the rate of interest published by The Wall Street Journal,
northeast edition, as the "prime rate".
"Purchase Date" means the date on which Purchased Mortgage Loans are transferred
by Seller to Buyer or its designee (including the Custodian) as specified in the
Confirmation.
"Purchase Price" means, on each Purchase Date, the price at which Purchased
Mortgage Loans are transferred by Seller to Buyer or its designee (including the
Custodian), which, subject to compliance with the collateral maintenance
requirements of Section 4, shall equal the outstanding principal amount of such
Purchased Mortgage Loans; provided, however, that the Purchase Price of any
Mortgage Loan shall not in any event exceed the outstanding principal amount
thereof.
"Purchased Mortgage Loans" means the Mortgage Loans sold by Seller to Buyer in a
Transaction, any Additional Loans and any Substituted Mortgage Loans.
"Replacement Loans" has the meaning specified in Section 14(b)(ii).
"Repurchase Date" means the date on which Seller is to repurchase the Purchased
Mortgage Loans from Buyer, including any date determined by application of the
provisions of Sections 3 or 14, as specified in the Confirmation; provided that
in no event shall such date be more than 30 days after the Purchase Date.
"Repurchase Price" means the price at which Purchased Mortgage Loans are to be
transferred from Buyer or its designee (including the Custodian) 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 decreased by all cash,
Income and Periodic Payments actually received by Buyer pursuant to Sections
4(a), 5(a) and 5(b), respectively.
"Second Mortgage" means a Mortgage that is a second lien on the Mortgaged
Property.
"Securitization Value" means, as of any date with respect to any Mortgage Loans,
the price at which such Mortgage Loans could be securitized and sold in a
securitization as determined by Buyer in its sole discretion; provided, however,
that Buyer shall not take into account, for purposes of calculating
Securitization Value, any Mortgage Loan (i) which has been subject to
consecutive Transactions for more than 270 days, (ii) which, together with the
other Mortgage Loans subject to then outstanding Transactions, would cause the
30+ Delinquency Percentage to exceed 5.0%, (iii) which is a Wet Ink Mortgage
Loan for more than 5 Business Days, (iv) which are more than 59 days Delinquent
or (v) with respect to which there is a breach of a representation, warranty or
covenant made by Seller in this Agreement that materially adversely affects
Buyer's interest in such Mortgage Loan and which breach has not been cured.
"Securitization Value Collateral Deficit" has the meaning specified in Section
4(a).
"Seller" has the meaning specified in Section 1.
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"Servicing Agreement" has the meaning specified in Section 25.
"Servicing Records" has the meaning specified in Section 25.
"Substituted Mortgage Loans" means any Mortgage Loans substituted for Purchased
Mortgage Loans in accordance with Section 9 hereof.
"30+ Delinquency Percentage" means the fraction, expressed as a percentage, the
numerator of which is the aggregate Purchase Price of Purchased Mortgage Loans
subject to then outstanding Transactions which are more than 30 days Delinquent
and the denominator of which is the aggregate Purchase Price of all Purchased
Mortgage Loans subject to then outstanding Transactions.
"Transaction" has the meaning specified in Section 1.
"Trust Receipt" means a trust receipt issued by Custodian to Buyer confirming
the Custodian's possession of certain mortgage loan files which are the property
of and held by Custodian for the benefit of the Buyer or the registered holder
of such trust receipt.
"Wet Ink Mortgage Loan" means a non-securitized whole loan, namely a
conventional mortgage loan secured by a first or second lien on a one to four
family residential property for which a Mortgage File has not been delivered to
the Custodian.
3. INITIATION; CONFIRMATION; TERMINATION;
MAXIMUM TRANSACTION AMOUNTS
(a) An agreement to enter into a Transaction may be entered into orally or in
writing at the initiation of either Buyer or Seller. In any event, Buyer shall
confirm the terms of each Transaction by issuing a written confirmation to
Seller promptly after the parties enter into such Transaction in the form of
Exhibit I attached hereto (a "Confirmation"). Such Confirmation shall describe
the Purchased Mortgage Loans, 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 applicable to
the Transaction, (v) the applicable Collateral Amount Percentages and (vi)
additional terms or conditions not inconsistent with this Agreement. After
receipt of the Confirmation, Seller shall, upon its approval thereof and subject
to the provisions of subsection (c) below, sign the Confirmation and promptly
return it to Buyer. With respect to any Transaction, Seller must sell Buyer
sufficient number of Mortgage Loans such that the Purchase Price for such
Transaction shall exceed $1,000,000.
(b) Any Confirmation sent by Buyer shall be deemed to have been received by
Seller on the date actually received by Seller.
(c) Each Confirmation, together with this Agreement, shall be conclusive
evidence of the terms of the Transaction(s) covered thereby unless objected to
in writing by Seller no more than two (2) Business Days after the date the
Confirmation was received by Seller or unless a corrected
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Confirmation is sent by Buyer. An objection sent by Seller must state
specifically that such writing is an objection, must specify the provision(s)
being objected to by Seller, must set forth such provision(s) in the manner that
the Seller believes they should be stated, and must be received by Buyer no more
than two (2) Business Days after the Confirmation was received by Seller.
(d) In the case of Transactions terminable upon demand, such demand shall be
made by Seller by telephone or otherwise, no later than 4:00 p.m. (New York
Time) on the Business Day prior to the day on which such termination will be
effective.
(e) On the Repurchase Date, termination of the Transaction will be effected by
transfer to Seller or its designee of the Purchased Mortgage Loans (and any
Income in respect thereof received by Buyer not previously credited or
transferred to, or applied to the obligations of, Seller pursuant to Section 5)
against the simultaneous transfer of the Repurchase Price to an account of
Buyer. Seller is obligated to obtain the Mortgage Files from Buyer or its
designee at Seller's expense on the Repurchase Date.
(f) With respect to all Transactions hereunder, the aggregate Purchase Price for
all Purchased Mortgage Loans at any one time subject to then outstanding
Transactions under this Agreement shall not exceed $200,000,000.
(g) The aggregate Purchase Price of all Purchased Mortgage Loans which are
secured by a Wet Ink Mortgage Loans shall not represent more than 10% of the
aggregate Purchase Price for all Purchased Mortgage Loans which are subject to
then outstanding Transactions.
(h) The aggregate Purchase Price of all Purchased Mortgage Loans which are
secured by a Second Mortgage shall not represent more than 10% of the aggregate
Purchase Price for all Purchased Mortgage Loans which are subject to then
outstanding Transactions.
4. COLLATERAL AMOUNT MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased Mortgage Loans
subject to then outstanding Transactions is less than the aggregate Collateral
Amount for all such Transactions (a "Market Value Collateral Deficit"), then
Buyer may by notice to Seller require Seller to transfer to Buyer or its
designee (including the Custodian) Mortgage Loans ("Additional Loans") or cash,
so that the cash and aggregate Market Value of the Purchased Mortgage Loans,
including any such Additional Loans, will thereupon equal or exceed the
aggregate Collateral Amount. If at any time the aggregate Securitization Value
of all Mortgage Loans subject to then outstanding Transactions is less than the
aggregate Collateral Amount for all such Transactions (a "Securitization Value
Collateral Deficit"), then Buyer may by notice to Seller require Seller to
transfer to Buyer or its designee (including the Custodian) Additional Loans or
cash, so that the cash and aggregate Securitization Value of such Mortgage
Loans, including any such Additional Loans, will thereupon equal or exceed the
aggregate Collateral Amount.
(b) Notice required pursuant to subsection (a) above may be given by any means
of telecopier or telegraphic transmission. A notice for the payment or delivery
in respect of a Collateral Deficit received before 9:00 a.m. on a Business Day,
local time of the party receiving the notice, must be met not later than 5:00
p.m. on the Business Day on which the notice was given, local time of the party
receiving the notice. Any notice given on a Business Day after 9:00 a.m., local
time of the party receiving the notice, shall be met not later than 2:00 p.m.
(New York time) on the following Business Day. The failure of Buyer, on any one
or more occasions, to exercise its rights under subsection (a) of this Section
shall not change or alter the terms and conditions to which this Agreement is
subject or limit the right of the Buyer to do so at a later date. Buyer and
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Seller agree that a failure or delay to exercise its rights under subsections
(a) of this Section shall not limit Buyer's rights under this Agreement or
otherwise existing by law or in any way create additional rights for Seller.
(c) In the event that Seller fails to comply with the provisions of this Section
4, Buyer shall not enter into any additional Transactions hereunder after the
date of such failure.
5. INCOME PAYMENTS
(a) Where a particular Transaction's term extends over an Income payment date on
the Purchased Mortgage Loans subject to that Transaction such Income shall, so
long as no Event of Default with respect to Seller shall have occurred and be
continuing, be the property of Seller, and Seller shall be entitled to all
Income with respect to Purchased Mortgage Loans subject to Transactions. Upon
the occurrence and continuance of an Event of Default, all Income with respect
to Purchased Mortgage Loans subject to Transactions shall be held in a
segregated account established by the Custodian for the benefit of Buyer and
distributed under the Custodial Agreement.
(b) Notwithstanding that Buyer and Seller intend that the Transactions
hereunder be sales to Buyer of the Purchased Mortgage Loans, Seller shall pay by
wire transfer to Buyer the accreted value of the Price Differential (less any
amount of such Price Differential previously paid by Seller to Buyer)(each such
payment, a "Periodic Payment") on the first Business Day of each month.
(c) Buyer shall offset against the Repurchase Price of each such Transaction
all Income and Periodic Payments actually received by Buyer pursuant to Sections
5(a) and (b), respectively.
6. SECURITY INTEREST
(a) Buyer and the Seller intend that the Transactions hereunder be sales to
Buyer of the Purchased Mortgage Loans and not loans from Buyer to Seller secured
by the Purchased Mortgage Loans. However, in order to preserve Buyer's rights
under this Agreement in the event that a court or other forum recharacterizes
the Transactions hereunder as loans and as security for the performance by
Seller of all of Seller's obligations to Buyer under this Agreement and the
Transactions entered into pursuant to this Agreement, Seller grants Buyer a
first priority security interest in the Purchased Mortgage Loans, Servicing
Records, insurance relating to the Purchased Mortgage Loans, Income, any and all
Hedges, any and all custodial accounts and escrow accounts relating to the
Purchased Mortgage Loans and any other contract rights, general intangibles and
other assets relating to the Purchased Mortgage Loans or any interest in the
Purchased Mortgage Loans and the servicing of the Purchased Mortgage Loans and
any and all replacements, substitutions, distributions on or proceeds of any and
all of the foregoing (collectively, the "Collateral").
(b) Seller shall pay all reasonable fees and expenses associated with perfecting
Buyer's security interest in the Collateral, including, without limitation, the
cost of filing financing statements under the Uniform Commercial Code and
recording assignments of Mortgage, as and when required by Buyer in its sole
discretion.
(c) Seller covenants to take such further actions as are necessary in order to
perfect Buyer's first priority security interest in the Hedges.
7. PAYMENT, TRANSFER AND CUSTODY
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(a) Unless otherwise mutually agreed in writing, all transfers of funds
hereunder shall be in immediately available funds.
(b) On or before each Purchase Date, Seller shall deliver or cause to be
delivered to Buyer or its designee the Custodial Delivery in the form attached
hereto as Exhibit II.
(c) On the Purchase Date for each Transaction, ownership of the Purchased
Mortgage Loans shall be transferred to the Buyer or its designee (including the
Custodian) against the simultaneous transfer of the Purchase Price to an account
of Seller specified in the Confirmation. Seller, simultaneously with the
delivery to Buyer or its designee (including the Custodian) of the Purchased
Mortgage Loans relating to each Transaction hereby sells, transfers, conveys and
assigns to Buyer or its designee (including the Custodian) without recourse, but
subject to the terms of this Agreement, all the right, title and interest of
Seller in and to the Purchased Mortgage Loans together with all right, title and
interest in and to the proceeds of any related insurance policies.
(d) In connection with each sale, transfer, conveyance and assignment, on or
prior to each Purchase Date with respect to each Mortgage Loan which is not a
Wet Ink Mortgage Loan (or with respect to item (vii) below within five Business
Days after the Purchase Date), the Seller shall deliver or cause to be delivered
and released to the Custodian the following original documents (collectively the
"Mortgage File"), pertaining to each of the Purchased Mortgage Loans identified
in the Custodial Delivery delivered therewith:
(i) the original Mortgage Note bearing all intervening endorsements,
endorsed "Pay to the order of ________ without recourse" and signed in the
name of the last endorsee (the "Last Endorsee") by an authorized officer of
such entity;
(ii) the original of any guarantee executed in connection with the
Mortgage Note (if any);
(iii) the original Mortgage with evidence of recording thereon or copies
certified by Seller to have been sent for recording;
(iv) the originals of all assumption, modification, consolidation or
extension agreements, if any, with evidence of recording thereon or copies
certified by Seller to have been sent for recording;
(v) the original assignment of Mortgage in blank for each Mortgage Loan,
in form and substance acceptable for recording and signed in the name of
the Last Endorsee (in the event that the Mortgage Loan was acquired by the
Last Endorsee in a merger, the signature must be in the following form:
"[the Last Endorsee], successor by merger to [name of predecessor]"; in the
event that the Mortgage Loan was acquired or originated while doing
business under another name, the signature must be in the following form:
"[the Last Endorsee], formerly known as [previous name]");
(vi) the originals of all intervening assignments of mortgage with
evidence of recording thereon or copies certified by Seller to have been
sent for recording;
(vii) the original policy of title insurance or a true copy thereof or, if
such policy has not yet been delivered by the insurer, the commitment or
binder to issue the same; and
(viii) the original of any security agreement, chattel mortgage or
equivalent document executed in connection with the Mortgage (if any).
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(e) In connection with each sale, transfer, conveyance and assignment with
respect to each Mortgage Loan which is a Wet Ink Mortgage Loan, on or prior to
the fifth Business Day following each Purchase Date, Seller shall deliver or
cause to be delivered to the Custodian a complete Mortgage File. Further, if
requested by Buyer, on the Purchase Date with respect to each Mortgage Loan
which is a Wet Ink Mortgage Loan, Seller shall fax an executed copy of the
respective Mortgage Note to the Custodian. On the date on which the Buyer
receives a Trust Receipt from the Custodian certifying that a complete Mortgage
File with respect to a Wet Ink Mortgage Loan is in the possession of the
Custodian, such Wet Ink Mortgage Loan be deemed a standard Mortgage Loan (and no
longer a Wet Ink Mortgage Loan) for all purposes hereunder including, without
limitation, determination of the Pricing Spread and compliance with subsection
(aaa) of Exhibit V.
(f) With respect to all of the Mortgage Loans delivered by Seller to Buyer or
its designee (including the Custodian), Seller shall execute an omnibus power of
attorney substantially in the form of Exhibit III attached hereto irrevocably
appointing Buyer its attorney-in-fact with full power to complete and record the
assignment of Mortgage, complete the endorsement of the Mortgage Note and take
such other steps as may be necessary or desirable to enforce Buyer's rights
against such Mortgage Loans, the related Mortgage Files and the Servicing
Records.
(g) Buyer shall deposit the Mortgage Files representing the Purchased Mortgage
Loans, or direct that the Mortgage Files be deposited directly, with the
Custodian. The Mortgage Files shall be maintained in accordance with the
Custodial Agreement.
(h) Any Mortgage Files not delivered to Buyer or its designee (including the
Custodian) are and shall be held in trust by Seller or its designee for the
benefit of Buyer as the owner thereof. Seller or its designee shall maintain a
copy of the Mortgage File and the originals of the Mortgage File not delivered
to Buyer or its designee. The possession of the Mortgage File by Seller or its
designee is at the will of the Buyer for the sole purpose of servicing the
related Purchased Mortgage Loan, and such retention and possession by the Seller
or its designee is in a custodial capacity only. The books and records
(including, without limitation, any computer records or tapes) of Seller or its
designee shall be marked appropriately to reflect clearly the sale of the
related Purchased Mortgage Loan to Buyer. Seller or its designee (including the
Custodian) shall release its custody of the Mortgage File only in accordance
with written instructions from Buyer, unless such release is required as
incidental to the servicing of the Purchased Mortgage Loans or is in connection
with a repurchase of any Purchased Mortgage Loan by Seller.
8. REHYPOTHECATION OR PLEDGE OF PURCHASED MORTGAGE LOANS
Title to all Purchased Mortgage Loans shall pass to Buyer and Buyer shall have
free and unrestricted use of all Purchased Mortgage Loans. Nothing in this
Agreement shall preclude Buyer from engaging in repurchase transactions with the
Purchased Mortgage Loans or otherwise pledging, repledging, hypothecating, or
rehypothecating the Purchased Mortgage Loans, but no such transaction shall
relieve Buyer of its obligations to transfer Purchased Mortgage Loans to Seller
pursuant to Section 3. Nothing contained in this Agreement shall obligate Buyer
to segregate any Purchased Mortgage Loans delivered to Buyer by Seller.
9. SUBSTITUTION
(a) Subject to Section 9(b), Seller may, upon not less than one (1) Business
Days' written notice to Buyer, with a copy to Custodian, substitute other
Mortgage Loans for any Purchased Mortgage Loans. Such substitution shall be made
by transfer to Buyer or its designee (including the Custodian) of the Mortgage
Files of such other Mortgage Loans together with a Custodial Delivery and
transfer to Seller or its designee of the Purchased Mortgage Loans requested for
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release. After substitution, the substituted Mortgage Loans, shall be deemed to
be Purchased Mortgage Loans subject to the same Transaction as the released
Mortgage Loans.
(b) Notwithstanding anything to the contrary in this Agreement, Seller may not
substitute other Mortgage Loans for any Purchased Mortgage Loans (i) if after
taking into account such substitution, a Collateral Deficit would occur or (ii)
such substitution would cause a breach of any provision of this Agreement.
10. REPRESENTATIONS AND WARRANTIES
(a) 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 the
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; (iii) the
person signing this Agreement on its behalf is duly authorized to do so on its
behalf; (iv) this Agreement is legal, valid and binding obligation of it,
enforceable against it in accordance with its terms, (v) no approval, consent or
authorization of the Transactions contemplated by this Agreement from any
federal, state, or local regulatory authority having jurisdiction over it is
required or, if required, such approval, consent or authorization has been or
will, prior to the Purchase Date, be obtained; (vi) the execution, delivery, and
performance of this Agreement and the Transactions hereunder will not violate
any law, regulation, order, judgment, decree, ordinance, charter, by-law, or
rule applicable to it or its property or constitute a default (or an event
which, with notice or lapse of time, or both would constitute a default) under
or result in a breach of any agreement or other instrument by which it is bound
or by which any of its assets are affected; (vii) it has received approval and
authorization to enter into this Agreement and each and every Transaction
actually entered into hereunder pursuant to its internal policies and
procedures; and (viii) neither this Agreement nor any Transaction pursuant
hereto are entered into in contemplation of insolvency or with intent to hinder,
delay or defraud any creditor.
(b) Seller represents and warrants to Buyer that as of the Purchase Date for
the purchase of any Purchased Mortgage Loans by Buyer from Seller and as of the
date of this Agreement and any Transaction hereunder and at all times while this
Agreement and any Transaction hereunder is in full force and effect:
(i) Organization. Seller is duly organized, validly existing and in good
standing under the laws and regulations of the State of _________ and is
duly licensed, qualified, and in good standing in every state where
Seller transacts business and in any state where any Mortgaged Property
is located if the laws of such state require licensing or qualification
in order to conduct business of the type conducted by Seller therein.
(ii) No Litigation. There is no action, suit, proceeding, arbitration or
investigation pending or threatened against Seller which, either in any
one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial condition, properties or
assets of Seller, or in any material impairment of the right or ability
of Seller to carry on its business substantially as now conducted, or in
any material liability on the part of Seller, or which if adversely
determined would affect the validity of this Agreement or any of the
Purchased Mortgage Loans or of any action taken or to be taken in
connection with the obligations of Seller contemplated herein, or which
would be likely to impair materially the ability of Seller to perform
under the terms of this Agreement;
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(iii) No Broker. No broker, investment banker, agent, or other person (except
for Buyer) is entitled to any commission or compensation as a result of
Seller's actions in connection with the sale of Purchased Mortgage Loans
pursuant to this Agreement;
(iv) Good Title to Collateral. Purchased Mortgage Loans shall be free and
clear of any lien, encumbrance or impediment to transfer, and Seller has
good, valid and marketable title and the right to sell and transfer such
Purchased Mortgage Loans to Buyer.
(v) Delivery of Mortgage File. With respect to each of the Purchased
Mortgage Loans which is not a Wet Ink Mortgage Loan, the Mortgage Note,
the Mortgage, the assignment of Mortgage and any other documents
required to be delivered under this Agreement and the Custodial
Agreement for such Mortgage Loan has been delivered to the Custodian.
Seller or its designee is in possession of a complete, true and accurate
Mortgage File with respect to each Mortgage Loan, except for such
documents the originals of which have been delivered to the Custodian.
(vi) Selection Process. Seller has not employed selection procedures that
identified Mortgage Loans relating to a Transactioon as being less
desirable or valuable than other comparable Mortgage Loans in Seller's
portfolio on the related Purchase Date.
(vii) [Reserved].
(viii) No Untrue Statements. To the best of Seller's knowledge, neither this
Agreement nor any written statement made, or any report or other
document issued or delivered or to be issued or delivered by Seller
pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements
contained herein or therein not misleading;
(ix) Origination Practices. The origination practices used by Seller with
respect to each Mortgage Loan (i) have been and are in all respects
legal and proper in the mortgage origination business and (ii) are
either in accordance with (x) the underwriting guidelines attached
hereto as Exhibit VI or (y) such other underwriting guidelines as may be
approved by Buyer in connection with a bulk acquisition with the
exception of compensating factors which allow for reasonable exceptions;
(x) Performance of Agreement. Seller does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and every
covenant contained in this Agreement on its part to be performed;
(xi) Seller Not Insolvent. Seller is not, and with the passage of time does
not expect to become, insolvent; and
(xii) No Event of Default. No Event of Default has occurred and is continuing
hereunder.
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(c) Seller represents and warrants to the Buyer that each Purchased Mortgage
Loan sold hereunder and each pool of Purchased Mortgage Loans sold in a
Transaction hereunder, as of the related Purchase Date, conforms to the
representations and warranties set forth in Exhibit V attached hereto and that
each Mortgage Loan delivered hereunder as Additional Loans or Substituted
Mortgage Loans, as of the date of such delivery, conforms to the representations
and warranties set forth in Exhibit V hereto. Seller further represents and
warrants to the Buyer that, as of the date of its delivery, the Collateral
Information with respect to each Purchased Mortgage Loan is complete, true and
correct in all material respects. It is understood and agreed that the
representations and warranties set forth in Exhibit V hereto, if any, shall
survive delivery of the respective Mortgage File to Buyer or its designee
(including the Custodian).
(d) On the Purchase Date for any Transaction, Buyer and Seller shall each be
deemed to have made all the foregoing representations with respect to itself as
of such Purchase Date.
11. NEGATIVE COVENANTS OF THE SELLER
On and as of the date of this Agreement and each Purchase Date and until this
Agreement is no longer in force with respect to any Transaction, Seller
covenants that it will not:
(a) take any action which would directly or indirectly impair or adversely
affect Buyer's title to or the value of the Purchased Mortgage Loans;
(b) pledge, assign, convey, grant, bargain, sell, set over, deliver or otherwise
transfer any interest in the Purchased Mortgage Loans to any person not a party
to this Agreement nor will the Seller create, incur or permit to exist any lien,
encumbrance or security interest in or on the Purchased Mortgage Loans except as
described in Section 6 of this Agreement; or
(c) create, incur or permit to exist any lien, encumbrance or security interest
in or on any of the Collateral without the prior express written consent of
Buyer.
12. AFFIRMATIVE COVENANTS OF THE SELLER
For so long as this Agreement is in effect:
(a) Seller covenants that it will promptly notify Buyer of any material adverse
change in its business operations and/or financial condition;
(b) Seller shall provide Buyer with copies of such documentation as Buyer may
reasonably request evidencing the truthfulness of the representations set forth
in Section 10, including but not limited to resolutions evidencing the approval
of this Agreement by Seller's board of directors or loan committee and copies of
the minutes of the meetings of Seller's board of directors or loan committee at
which this Agreement and the Transactions contemplated by this Agreement were
approved;
(c) Seller shall, at Buyer's request, take all action necessary to ensure that
Buyer will have a first or second priority security interest, as applicable, in
the Collateral, including, among other things, filing such Uniform Commercial
Code financing statements as Buyer may reasonably request;
(d) Seller shall notify Buyer no later than one (1) Business Day after obtaining
actual knowledge thereof, if any event has occurred that constitutes an Event of
Default with respect to Seller or any event that with the giving of notice or
lapse of time, or both, would become an Event of Default with respect to Seller;
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(e) Seller covenants that each Mortgage Loan subject to this Agreement shall be
serviced by an approved servicer in good standing with the Agencies;
(f) Seller covenants to provide Buyer with a copy of any material changes to
Seller's underwriting guidelines prior to the purchase of any such Mortgage Loan
hereunder;
(g) Seller covenants, upon request of Buyer after the occurrence of a Collateral
Deficit, to enter into hedging transactions with respect to fixed rate Purchased
Mortgage Loans in order to protect adequately, in the reasonable judgment of
Seller against interest rate risks;
(h) Seller covenants to provide Buyer on the first Business Day of each month,
either by direct modem electronic transmission or via a computer diskette, the
Collateral Information in computer readable format with respect to all Purchased
Mortgage Loans then subject to Transactions; and
(i) Seller covenants to provide Buyer with the following financial and reporting
information:
(i) Within 90 days after the last day of its fiscal year, Seller's audited
consolidated and consolidating statements of income and statements of
changes in cash flow for such year and balance sheets as of the end of such
year in each case presented fairly in accordance with GAAP, and
accompanied, in all cases, by an unqualified report of Peat Marwick or
another nationally recognized independent certified public accounting firm
consented to by Buyer (which consent shall not be unreasonably withheld);
(ii) Within 60 days after the last day of the first three fiscal quarters
in any fiscal year, Seller's consolidated and consolidating statements of
income and statements of changes in cash flow for such quarter and balance
sheets as of the end of such quarter presented fairly in accordance with
GAAP;
(iii) Within 30 days after the last day of each calendar month an officer's
certificate from a senior officer of the Seller addressed to Buyer
certifying that, as of the last day such calendar month, (x) Seller is in
compliance in all material respects with all of the terms, conditions and
requirements of this Agreement, and (y) no Event of Default exists; and
(iv) As soon as available, copies of any proxy statements, financial
statements, and reports which Seller sends to its stockholders, and copies
of any regular, periodic and special reports, and all registration
statements under the Securities Act of 1933, as amended, which it files
with the Securities and Exchange Commission or any government authority
which may be substituted therefor, or with any national securities
exchange.
13. EVENTS OF DEFAULT
(a) If any of the following events (each an "Event of Default") occur, Seller
and Buyer shall have the rights set forth in Section 14, as applicable:
(i) Seller or Buyer fails to satisfy or perform any material obligation or
covenant under this Agreement;
(ii) an Act of Insolvency occurs with respect to Seller or Buyer;
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(iii) 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;
(iv) Seller or Buyer shall admit its inability to, or its intention not to,
perform any of its obligations hereunder;
(v) any governmental, regulatory, or self-regulatory authority, including,
but not limited to, the Agencies, takes any action to remove, limit,
restrict, suspend or terminate the rights, privileges, or operations of
the Seller or any of its Affiliates, including suspension as an issuer,
lender or seller/servicer of mortgage loans, which suspension has a
material adverse effect on the ordinary business operations of Seller
or Seller's Affiliate, and which continues for more than 24 hours;
(vi) Seller dissolves, merges or consolidates with another entity (unless
(A) it is the surviving party or (B) the entity into which it merges
has equity and a market value of at least that of the Seller
immediately prior to such merger and such entity expressly assumes the
obligations of the Seller at the time of such merger), or sells,
transfers, or otherwise disposes of a material portion of its business
or assets other than in the ordinary course of its business;
(vii) Buyer, in its good faith judgment, believes that there has been a
material adverse change in the business, operations, corporate
structure or financial condition of Seller or that Seller will not meet
any of its obligations under any Transaction pursuant to this Agreement
or any other agreement between the parties;
(viii) Seller is in default under any other agreement to which it is a party,
provided, however, such a default shall not constitute an Event of
Default if the exercise of such remedies as are available to Seller's
counterparty with respect to such default would not result in a
material adverse change in the business operations or financial
condition of the Seller;
(ix) A final judgment by any competent court in the United States of America
for the payment of money in an amount of at least $500,000 is rendered
against the Seller, and the same remains undischarged or unpaid for a
period of sixty (60) days during which execution of such judgment is
not effectively stayed;
(x) This Agreement shall for any reason cease to create a valid, first
priority security interest in any of the Purchased Mortgage Loans
purported to be covered hereby;
(xi) A Market Value Collateral Deficit or Securitization Value Collateral
Deficit occurs with respect to Seller or Buyer, as applicable, and is
not eliminated within the time period specified in Section 4(b); or
(xii) An "event of default" has occurred pursuant to a Hedge.
(b) In making a determination as to whether an Event of Default has occurred,
the parties hereto shall be entitled to rely on reports published or broadcast
by media sources believed by such
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party to be generally reliable and on information provided to it by any other
sources believed by it to be generally reliable, provided that such party
reasonably and in good faith believes such information to be accurate and has
taken such steps as may be reasonable in the circumstances to attempt to verify
such information.
14. REMEDIES
(a) If an Event of Default occurs with respect to Seller, the following rights
and remedies are available to Buyer:
(i) At the option of Buyer, exercised by written notice to Seller (which
option shall be deemed to have been exercised, even if no notice is
given, immediately upon the occurrence of an Act of Insolvency), the
Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur,
(ii) If Buyer exercises or is deemed to have exercised the option referred to
in subsection (a)(i) of this Section,
(A) Seller's obligations hereunder to repurchase all Purchased Mortgage
Loans in such Transactions shall thereupon become immediately due and
payable,
(B) to the extent permitted by applicable law, the Repurchase Price with
respect to each such Transaction shall be increased by the aggregate
amount obtained by daily application of, on a 360 day per year basis for
the actual number of days during the period from and including the date
of the exercise or deemed exercise of such option to but excluding the
date of payment of the Repurchase Price as so increased, (x) the greater
of the Prime Rate or the Pricing Rate for each such Transaction to (y)
the Repurchase Price for such Transaction as of the Repurchase Date as
determined pursuant to subsection (a)(i) of this Section (decreased as
of any day by (I) any amounts actually in the possession of Buyer
pursuant to clause (C) of this subsection, (II) any proceeds from the
sale of Purchased Mortgage Loans applied to the Repurchase Price
pursuant to subsection (a)(xii) of this Section, and (III) any amounts
applied to the Repurchase Price pursuant to subsection (a)(iii) of this
Section), and
(C) all Income actually received by the Buyer or its designee (including
the Custodian) pursuant to Section 5 shall be applied to the aggregate
unpaid Repurchase Price owed by Seller.
(iii) After one Business Day's notice to Seller (which notice need not be
given if an Act of Insolvency shall have occurred, and which may be the
notice given under subsection (a)(i) of this Section), Buyer may (A)
immediately sell, without notice or demand of any kind, at a public or
private sale and at such price or prices Buyer may reasonably deem
satisfactory any or all Purchased Mortgage Loans subject to a
Transaction hereunder or (B) in its sole discretion elect, in lieu of
selling all or a portion of such Purchased Mortgage Loans, to give
Seller credit for such Purchased Mortgage Loans in an amount equal to
the Market Value of the Purchased Mortgage Loans against the aggregate
unpaid Repurchase Price and any other amounts owing by Seller hereunder.
The proceeds of any disposition of Purchased Mortgage Loans shall be
applied first to the reasonable costs and expenses incurred by Buyer in
connection with Seller's default; second to consequential damages,
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including but not limited to costs of cover and/or related hedging
transactions; third to the Repurchase Price; and fourth to any other
outstanding obligation of Seller to Buyer or its Affiliates.
(iv) The parties recognize that it may not be possible to purchase or sell
all of the Purchased Mortgage Loans on a particular Business Day, or
in a transaction with the same purchaser, or in the same manner
because the market for such Purchased Mortgage Loans may not be
liquid. In view of the nature of the Purchased Mortgage Loans, the
parties agree that liquidation of a Transaction or the underlying
Purchased Mortgage Loans does not require a public purchase or sale
and that a good faith private purchase or sale shall be deemed to have
been made in a commercially reasonable manner. Accordingly, Buyer may
elect, in its sole discretion, the time and manner of liquidating any
Purchased Mortgage Loan and nothing contained herein shall (A)
obligate Buyer to liquidate any Purchased Mortgage Loan on the
occurrence of an Event of Default or to liquidate all Purchased
Mortgage Loans in the same manner or on the same Business Day or (B)
constitute a waiver of any right or remedy of Buyer. However, in
recognition of the parties' agreement that the Transactions hereunder
have been entered into in consideration of and in reliance upon the
fact that all Transactions hereunder constitute a single business and
contractual relationship and that each Transaction has been entered
into in consideration of the other Transactions, the parties further
agree that Buyer shall use its best efforts to liquidate all
Transactions hereunder upon the occurrence of an Event of Default as
quickly as is prudently possible in the reasonable judgment of Buyer.
(v) Buyer shall, without regard to the adequacy of the security for the
Seller's obligations under this Agreement, be entitled to the
appointment of a receiver by any court having jurisdiction, without
notice, to take possession of and protect, collect, manage, liquidate,
and sell the Collateral or any portion thereof, and collect the
payments due with respect to the Collateral or any portion thereof.
Seller shall pay all reasonable costs and expenses incurred by Buyer
in connection with the appointment and activities of such receiver.
(vi) Seller agrees that Buyer may obtain an injunction or an order of
specific performance to compel Seller to fulfill its obligations as
set forth in Section 25, if Seller fails or refuses to perform its
obligations as set forth therein.
(vii) Seller shall be liable to Buyer for the amount of all expenses,
reasonably incurred by Buyer in connection with or as a consequence of
an Event of Default, including, without limitation, reasonable legal
fees and expenses and reasonable costs incurred in connection with
hedging or covering transactions.
(viii) Buyer shall have all the rights and remedies provided herein, provided
by applicable federal, state, foreign, and local laws (including,
without limitation, the rights and remedies of a secured party under
the Uniform Commercial Code of the State of New York, to the extent
that the Uniform Commercial Code is applicable, and the right to
offset any
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mutual debt and claim), in equity, and under any other agreement
between Buyer and Seller.
(ix) Buyer may exercise one or more of the remedies available to Buyer
immediately upon the occurrence of an Event of Default and, except to
the extent provided in subsections (a)(i) and (iii) of this Section,
at any time thereafter without notice to Seller. All rights and
remedies arising under this Agreement as amended from time-to-time
hereunder are cumulative and not exclusive of any other rights or
remedies which Buyer may have.
(x) In addition to its rights hereunder, Buyer shall have the right to
proceed against any assets of Seller which may be in the possession of
Buyer or its designee (including the Custodian) including the right to
liquidate such assets and to set off the proceeds against monies owed
by Seller to Buyer pursuant to this Agreement. Buyer may set off cash,
the proceeds of the liquidation of the Purchased Mortgage Loans, any
Collateral or its proceeds, and all other sums or obligations owed by
Seller to Buyer against all of Seller's obligations to Buyer, whether
under this Agreement, under a Transaction, or under any other
agreement between the parties, or otherwise, whether or not such
obligations are then due, without prejudice to Buyer's right to
recover any deficiency. Any cash, proceeds, or property in excess of
any amounts due, or which Buyer reasonably believes may become due, to
it from Seller shall be returned to Seller after satisfaction of all
obligations of Seller to Buyer.
(xi) Buyer may enforce its rights and remedies hereunder without prior
judicial process or hearing, and Seller hereby expressly waives any
defenses Seller might otherwise have to require Buyer to enforce its
rights by judicial process. Seller also waives any defense Seller
might otherwise have arising from the use of nonjudicial process,
enforcement and sale of all or any portion of the Collateral, or from
any other election of remedies. Seller recognizes that nonjudicial
remedies are consistent with the usages of the trade, are responsive
to commercial necessity and are the result of a bargain at arm's
length.
(xii) Buyer and Seller hereby agree that sales of the Purchased Mortgage
Loans shall be deemed to include and permit the sales of Purchased
Mortgaged Loans pursuant to a securities offering.
(xiii) Notwithstanding the foregoing remedies, if the Event of Default (other
than an Event of Default under Section 13(a)(xi)) arises from a breach
of any representation or warranty set forth in Sections 10(b)(iii),
(iv),(v), (vi) or (ix) or in Exhibit V attached hereto with respect to
a Purchased Mortgage Loan, then Seller may elect, subject to Buyer's
written consent (which consent shall not be unreasonably withheld or
delayed), to cure such default by repurchasing such Mortgage Loan or
substituting for such Mortgage Loan within two (2) Business Days of
such Event of Default, provided, however, that Seller shall not have
the right to make the foregoing election if such breach causes a
default with respect to Mortgage Loans that in the aggregate represent
ten percent (10%) or more of the aggregate Purchase Price of all
Purchased Mortgage Loans subject to then outstanding Transactions. The
repurchase price for any such
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repurchase shall be the outstanding Repurchase Price of such Mortgage
Loan, as the case may be. Any such substitution shall be performed in
accordance with Section 9 of this Agreement.
(b) If an Event of Default occurs with respect to Buyer, the following rights
and remedies are available to Seller:
(i) Upon tender by Seller of payment of the aggregate Repurchase Price for
all such Transactions, Buyer's right, title and interest in all
Purchased Mortgage Loans subject to such Transactions shall be deemed
transferred to Seller, and Buyer shall deliver or cause to be
transferred all such Purchased Mortgage Loans to Seller or its designee
at Buyer's expense.
(ii) If Seller exercises the option referred to in subsection (b)(i) of this
Section and Buyer fails to deliver or cause to be delivered the
Purchased Mortgage Loans to Seller or its designee, after one Business
Day's notice to Buyer, Seller may (A) purchase Mortgage Loans
("Replacement Loans") that are as similar as is reasonably practicable
in characteristics, outstanding principal amounts (as a pool) and
interest rate to any Purchased Mortgage Loans that are not delivered by
Buyer to Seller or its designee as required hereunder or (B) in its
sole discretion elect, in lieu of purchasing Replacement Loans, to be
deemed to have purchased Replacement Loans at a price therefor on such
date, equal to the Market Value of the Purchased Mortgage Loans.
(iii) Buyer shall be liable to the Seller, and Buyer shall pay to the Seller
on demand, (A) with respect to Purchased Mortgage Loans (other than
Additional Loans), for any excess of the price paid (or deemed paid) by
Seller for Replacement Loans therefor over the Repurchase Price for
such Purchased Mortgage Loans and (B) with respect to Additional Loans,
for the price paid (or deemed paid) by Seller for the Replacement Loans
therefor. In addition, Buyer shall be liable to Seller for interest on
such remaining liability with respect to each such purchase (or deemed
purchase) of Replacement Loans calculated on a 360-day year basis for
the actual number of days during the period from and including the date
of such purchase (or deemed purchase) until paid in full by Buyer. Such
interest shall be at the greater of the Pricing Rate or the Prime Rate.
(iv) Buyer shall be liable to Seller for the amount of all expenses
reasonably incurred by Seller in connection with or as a consequence of
an Event of Default, including, without limitation, reasonable legal
fees and expenses and reasonable expenses incurred in connection with
covering existing hedging transactions with respect to the Purchased
Mortgage Loans.
(v) Seller shall have all the rights and remedies provided herein, provided
by applicable federal, state, foreign, and local laws, in equity, and
under any other agreement between Buyer and Seller, including, without
limitation, the right to offset any debt or claim.
(vi) Seller may exercise one or more of the remedies available to Seller
immediately upon the occurrence of an Event of Default and at any time
thereafter without notice to Buyer. All rights and remedies arising
under
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this Agreement as amended from time-to-time hereunder are cumulative and
not exclusive of any other rights or remedies which Seller may have.
15. ADDITIONAL CONDITION
Seller shall, on the date of the initial Transaction hereunder and, upon the
request of Buyer, on the date of any subsequent Transaction, cause to be
delivered to Buyer, with reliance thereon permitted as to any Person that
purchases the Purchased Mortgage Loan from Buyer in a repurchase transaction, a
favorable opinion or opinions of counsel with respect to the matters set forth
in Exhibit IV attached hereto.
16. SINGLE AGREEMENT
Buyer and Seller acknowledge that, and have entered hereinto 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 that each has been entered into in consideration of the other
Transactions. 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;
provided, however, that the parties hereto acknowledge and agree that each
Purchased Mortgage Loan is identified and unique and nothing in this Agreement
should limit or reduce Buyer's obligation to deliver the Purchased Mortgage
Loans to Seller as and when provided herein.
17. NOTICES AND OTHER COMMUNICATIONS
Unless another address is specified in writing by the respective party to whom
any written notice or other communication is to be given hereunder, all such
notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in the Confirmation.
18. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Confirmations constitutes the entire
understanding between Buyer and Seller with respect to the subject matter it
covers and shall supersede any existing agreements between the parties
containing general terms and conditions for repurchase transactions involving
Purchased Mortgage Loans. By acceptance of this Agreement, Buyer and Seller
acknowledge that they have not made, and are not relying upon, any statements,
representations, promises or undertakings not contained in this Agreement. 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.
19. NON-ASSIGNABILITY
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 Buyer. Subject to
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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. Nothing in this Agreement express or implied, shall give to any person,
other than the parties to this Agreement and their successors hereunder, any
benefit or any legal or equitable right, power, remedy or claim under this
Agreement.
20. TERMINABILITY
This Agreement shall terminate upon written notice from either party to the
other to such effect, except that this Agreement shall, notwithstanding the
clause above, remain applicable to any Transaction then outstanding.
Notwithstanding any such termination or the occurrence of an Event of Default,
all of the representations and warranties hereunder (including those made in
Exhibit V) shall continue and survive.
21. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CONFLICT OF
LAW PRINCIPLES THEREOF.
22. CONSENT TO JURISDICTION AND ARBITRATION
The parties irrevocably agree to submit to the personal jurisdiction of the
United States District Court for the Southern District of New York, the parties
irrevocably waiving any objection thereto. If, for any reason, federal
jurisdiction is not available, and only if federal jurisdiction is not
available, the parties irrevocably agree to submit to the personal jurisdiction
of the Supreme Court of the State of New York, the parties irrevocably waiving
any objection thereto. Notwithstanding the foregoing two sentences, at either
party's sole option exercisable at any time not later than thirty (30) days
after an action or proceeding has been commenced, the parties agree that the
matter may be submitted to binding arbitration in accordance with the commercial
rules of the American Arbitration Association then in effect in the State of New
York and judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction thereof within the City, County and State of New
York; provided, however, that the arbitrator shall not amend, supplement, or
reform in any regard this Agreement or the terms of any Confirmation, the rights
or obligations of any party hereunder or thereunder, or the enforceability of
any of the terms hereof or thereof. Any arbitration shall be conducted before a
single arbitrator who shall be reasonably familiar with repurchase transactions
and the secondary mortgage market in the City, County, and State of New York.
23. 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. Any such waiver or modification shall be effective only in the
specific instance and for the specific purpose for which it was given.
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24. INTENT
The parties understand and intend that this Agreement and each Transaction
hereunder constitute a "repurchase agreement" and a "securities contract" as
those terms are defined under the relevant provisions of Title 11 of the United
States Code, as amended.
25. SERVICING
(a) Notwithstanding the purchase and sale of the Purchased Mortgage Loans
hereby, Seller shall cause the Purchased Mortgage Loans to be serviced by an
Affiliate of Seller for the benefit of Buyer and, if Buyer shall exercise its
rights to pledge or hypothecate the Purchased Mortgage Loan prior to the related
Repurchase Date pursuant to Section 8, Buyer's assigns; provided, however, that
the obligations of such Affiliate of Seller to service the Purchased Mortgage
Loans shall cease, at Seller's option, upon the payment by Seller to Buyer of
the Repurchase Price therefor. Such Affiliate of Seller shall service the
Purchased Mortgage Loans in accordance with the servicing standards maintained
by other prudent mortgage lenders with respect to mortgage loans similar to the
Purchased Mortgage Loans.
(b) Seller agrees that Buyer is the owner of all servicing records, including
but not limited to any and all servicing agreements, files, documents, records,
data bases, computer tapes, copies of computer tapes, proof of insurance
coverage, insurance policies, appraisals, other closing documentation, payment
history records, and any other records relating to or evidencing the servicing
of Purchased Mortgage Loans (the "Servicing Records"). Seller grants Buyer a
security interest in all servicing fees and rights relating to the Purchased
Mortgage Loans and all Servicing Records to secure the obligation of the Seller
or its designee to service in conformity with this Section and any other
obligation of Seller to Buyer. Seller covenants to safeguard such Servicing
Records.
(c) Upon the occurrence and continuance of an Event of Default with respect to
Seller, Buyer may, in its sole discretion, (i) sell its right to the Purchased
Mortgage Loans on a servicing released basis or (ii) terminate the Seller as
servicer of the Purchased Mortgage Loans with or without cause, in each case
without payment of any termination fee.
(d) Seller shall not employ sub-servicers to service the Purchased Mortgage
Loans without the prior written approval of Buyer.
(e) Seller shall cause any sub-servicers engaged by Seller to execute a letter
agreement with Buyer acknowledging Buyer's security interest and agreeing that,
upon notice from Buyer (or the Custodian on its behalf) that an Event of Default
has occurred and is continuing hereunder, it shall deposit all Income with
respect to the Purchased Mortgage Loans in the account described in the second
sentence of Section 5(a).
26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that in the case of
Transactions in which one of the parties is an "insured depository institution"
as that term is defined in Section 1831(a) of Title 12 of the United States
Code, as amended, 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, the Savings Association Insurance Fund or
the Bank Insurance Fund, as applicable.
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27. NETTING
If Buyer and Seller are "financial institutions" as now or hereinafter defined
in Section 4402 of Title 12 of the United States Code ("Section 4402") and any
rules or regulations promulgated thereunder:
(a) All amounts to be paid or advanced by one party to or on behalf of the other
under this Agreement or any Transaction hereunder shall be deemed to be "payment
obligations" and all amounts to be received by or on behalf of one party from
the other under this Agreement or any Transaction hereunder shall be deemed to
be "payment entitlements" within the meaning of Section 4402, and this Agreement
shall be deemed to be a "netting contract" as defined in Section 4402.
(b) The payment obligations and the payment entitlements of the parties hereto
pursuant to this Agreement and any Transaction hereunder shall be netted as
follows. In the event that either party (the "Defaulting Party") shall fail to
honor any payment obligation under this Agreement or any Transaction hereunder,
the other party (the "Nondefaulting Party") shall be entitled to reduce the
amount of any payment to be made by the Nondefaulting Party to the Defaulting
Party by the amount of the payment obligation that the Defaulting Party failed
to honor.
28. MISCELLANEOUS
(a) Time is of the essence under this agreement and all Transactions and all
references to a time shall mean New York time in effect on the date of the
action unless otherwise expressly stated in this Agreement.
(b) Buyer shall be authorized to accept orders and take any other action
affecting any accounts of the Seller in response to instructions given in
writing or orally by telephone or otherwise by any person with apparent
authority to act on behalf of the Seller, and the Seller shall indemnify Buyer,
defend, and hold Buyer harmless from and against any and all liabilities,
losses, damages, costs, and expenses of any nature arising out of or in
connection with any action taken by Buyer in response to such instructions
received or reasonably believed to have been received from the Seller, except in
the case of any liabilities, losses, damages, costs or expenses resulting from
the gross negligence, bad faith or willful miosconduct of Buyer.
(c) If there is any conflict between the terms of this Agreement or any
Transaction entered into hereunder and the Custodial Agreement, this Agreement
shall prevail.
(d) If there is any conflict between the terms of a Confirmation or a corrected
Confirmation issued by the Buyer and this Agreement, the Confirmation shall
prevail.
(e) This Agreement may be executed in counterparts, each of which so executed
shall be deemed to be an original, but all of such counterparts shall together
constitute but one and the same instrument.
(f) Seller agrees to reimburse Buyer for all reasonable out-of-pocket costs and
expenses of Buyer in connection with entering into this Agreement, including,
without limitation, the reasonable fees, expenses and disbursement of counsel to
Buyer (not in excess of $15,000).
(g) The headings in this Agreement are for convenience of reference only and
shall not affect the interpretation or construction of this Agreement.
[Signature page follows.]
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IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date set forth above.
LEHMAN COMMERCIAL PAPER INC.,
Buyer
By: /s/ Francis X. Gilhool
------------------------------------
Title: Authorized Signatory
---------------------------------
Date: June 11, 1998
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NOVASTAR FINANCIAL, INC.,
Seller
By: /s/ David J. Lee
------------------------------------
Title: Vice President
---------------------------------
Date: June 11, 1998
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