Master Repurchase Agreement - Merrill Lynch Mortgage Capital Inc., Merrill Lynch Credit Corp. and NovaStar Financial inc.
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PSA THE BOND MARKET
TRADE ASSOCIATION
MASTER
REPURCHASE AGREEMENT
SEPTEMBER 1996 VERSION
Dated as of January 31, 1997
Between:
MERRILL LYNCH MORTGAGE CAPITAL INC.
and
MERRILL LYNCH CREDIT CORPORATION
and
NOVASTAR FINANCIAL, INC.
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 of election, or the filing against a
party of an application for a protective decree under the provisions of
the 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, 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;
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(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 such 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 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 the 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 such 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;
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(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;
(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 Purchase
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 another 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 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 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
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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).
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 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 assignments in
blank and
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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 extend 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 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 and
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 for 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 or 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 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 (f) 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 per-
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formance, (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, by-law 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 of 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 this
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.
(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 (ii) 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.
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(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 other 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 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
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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.
(i) The nondefaulting party shall have, in additional to its rights
hereunder, any rights otherwise available to it under any other
agreement or applicable law.
12. 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 have been made in consideration of each
other. Accordingly, each of Buyer and Seller agree (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 to 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 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.
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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 a 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 paragraph (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 Plan Party.
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 this 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",
9
<PAGE>
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
government securities broker or a government securities dealer
registered with the SEC 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 CAPITAL INC. MERRILL LYNCH CREDIT CORPORATION
By:_______________________________ By:_______________________________
Title:____________________________ Title:____________________________
Date:_____________________________ Date:_____________________________
NOVASTAR FINANCIAL, INC.
/s/ Scott F. Hartman
By:_______________________________
Chairman/CEO
Title:____________________________
Jan. 31, 1997
Date:_____________________________
10
<PAGE>
Amendment No. 1
To
Master Repurchase Agreement
and
Supplemental Terms
Dated as of April 22, 1997
Among:
Merrill Lynch Mortgage Capital Inc.
and
Merrill Lynch Credit Corporation
and
NovaStar Financial Inc.
1. APPLICABILITY. This Amendment No. 1 (the "Amendment") to the Master
-------------
Repurchase Agreement dated as of January 31, 1997 (the "Master Repurchase
Agreement") and the Supplemental Terms thereto set forth in Annex 1 (the
"Supplemental Terms" and collectively with the Master Repurchase Agreement, the
"Agreement") modifies the Agreement and the terms and conditions under which the
parties hereto and thereto, from time to time, enter into transactions.
2. DEFINITIONS.
-----------
(a) Capitalized terms used herein and not otherwise defined shall have the
meaning set forth in the Agreement.
(b) "D Quality Mortgage Loans" shall refer to Mortgage Loans that would be
categorized as D quality under the standards set forth in the Seller's
Origination Guide.
(c) "Seller's Origination Guide" shall refer to the origination guidelines
of Seller for first and second lien residential mortgage loans in the form most
recently accepted in writing by Buyer.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------
(a) All representations, warranties and covenants made by Buyer and Seller
shall from and after the date hereof be deemed to
<PAGE>
be made with respect to the Agreement as amended by this Amendment and be deemed
to be made on and as of the date hereof and on and as of the Purchase Date of
each Transaction.
(b) Paragraph 15(c) of the Supplemental Terms is hereby amended by adding
subparagraph "(xii)" as follows:
"(xii) The aggregate outstanding Purchase Price for D Quality Mortgage
Loans as of any date of determination shall not exceed 10% of the aggregate
outstanding Purchase Price for all Purchased Securities under the Agreement."
4. MAXIMUM TRANSACTION AMOUNT; TRANSACTIONS OPTIONAL.
-------------------------------------------------
(a) Paragraph 21(a) of the Supplemental Terms is hereby amended by deleting
the dollar amount of $200,000,000 and substituting therefor the dollar amount of
$300,000,000.
(b) Paragraph 21 of the Supplemental Terms is hereby amended by
adding subparagraph "(d)" as follows:
"(d) The aggregate outstanding Repurchase Price for Purchased Securities
that are D Quality Mortgage Loans shall not at any time exceed 10% of the
aggregate outstanding Repurchase Price for all Purchased Securities under the
Agreement."
5. GOVERNING LAW. This Amendment shall be governed by the laws of the State
-------------
of New York without given effect to the conflict of law principles thereof.
6. COUNTERPARTS. This Amendment may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts shall together constitute but one and the same
instrument.
2
<PAGE>
7. RATIFICATION AND CONFIRMATION. As amended hereby, the Agreement is
-----------------------------
hereby in all respects ratified and confirmed, and the Agreement as amended
hereby shall be read, taken and construed as one and the same instrument.
MERRILL LYNCH MORTGAGE NOVASTAR FINANCIAL, INC.
CAPITAL INC.
By: ______________________________ By: ______________________________
Title: ___________________________ Title: ___________________________
Date: ____________________________ Date: ____________________________
MERRILL LYNCH CREDIT
CORPORATION
By: ______________________________
Title: ___________________________
Date: ____________________________
3
<PAGE>
ANNEX I
SUPPLEMENTAL TERMS AND CONDITIONS TO
MASTER REPURCHASE AGREEMENT,
DATED AS OF JANUARY 31, 1997, AMONG
MERRILL LYNCH MORTGAGE CAPITAL INC. AND
MERRILL LYNCH CREDIT CORPORATION
AND NOVASTAR FINANCIAL, INC.
1. APPLICABILITY. These Supplemental Terms and Conditions (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.
"Acquisition Agreement" shall have the meaning set forth in Paragraph
3(b) of the Master Repurchase Agreement.
"Act of Insolvency" shall have the meaning set forth in Paragraph 2(a)
of the Master Repurchase Agreement except that the number of days
indicated in clause (ii) (C) of such paragraph shall be changed to
forty-five (45).
"Affiliate" means with respect to any Person, a spouse of such Person,
any relative (by blood, adoption or marriage) of such Person within
the third degree, any director, officer, employee or partner of such
Person, and any other Person, directly or indirectly controlling,
controlled by or under common control with such Person, and any
Affiliate of any of the foregoing. The term "control" means the
possession, directly or indirectly, of the power to direct or cause
the direction of the management policies of the Person, whether
through the ownership of securities, by contract or otherwise.
<PAGE>
"Assignment" shall have the meaning set forth in Paragraph 3(b) of the
Master Repurchase Agreement.
"Business Day" shall mean any day excluding Saturday, Sunday and any
day on which banks located in the States of New York or California are
authorized or permitted to close for business. All references to
"business day" in the Master Repurchase Agreement shall be deemed to
be references to Business Day.
"Buyer" shall refer to MLCC, in the case of Eligible Assets secured by
second liens, 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/Funding Request.
"Confirmation/Funding Request" shall have the meaning of
"Confirmation" as set forth in the Master Repurchase Agreement but
shall be substantially in the form attached hereto as Exhibit A.
"Custodian" shall refer to First Union National Bank of Maryland, or
any permitted successor thereto pursuant to the Custody Agreement.
"Custody Agreement" shall refer to a custody agreement pursuant to
which the Custodian acts as bailee for Buyer.
"Eligible Assets" shall refer to duly recorded first or second lien
Mortgage Loans acquired pursuant to an Acquisition Agreement.
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"GAAP Net Worth" shall mean net worth determined in accordance with
GAAP.
"CLTV" shall mean the combined loan-to-value ratio calculated as a
fraction, expressed as a percentage, the numerator of which is the
original principal balance of the related Eligible Asset (together, in
the case of an Eligible Asset constituting a second lien Mortgage
Loan, with the related first lien mortgage loan) and the denominator
of which is the lesser of the
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<PAGE>
sales price and the appraised value of the related mortgaged property.
"Market Value" shall mean, with respect to any Securities as of any
date of determination, the value of such Securities on such date as
determined in accordance with Paragraph 12 of these Supplemental
Terms.
"MLCC" shall refer to Merrill Lynch Credit Corporation.
"MLMCI" shall refer to Merrill Lynch Mortgage Capital Inc.
"Mortgage" shall mean a duly recorded first mortgage or first deed of
trust on improved residential real property.
"Mortgage Loan Schedule" shall have the meaning set forth in Paragraph
3(b) of the Master Repurchase Agreement.
"Mortgage Loans" shall mean those first lien or second residential
mortgage loans with respect to which Seller has deposited or caused to
be deposited the Required Loan Documents (or portion thereof) with the
Custodian as bailee under the Custody Agreement.
"Mortgage Loan Income" shall mean income payable with respect to a
Mortgage Loan including all amounts payable on account of such
Mortgage Loan whether principal, interest, partial prepayments,
prepayments in full, penalties, advance payments or expenses and
whether payable by or from the Mortgagor or the servicer for such
Mortgage Loan.
"Person" means a corporation, association, partnership, organization,
business, trust, individual, a government or political subdivision
thereof, any governmental agency or any other entity.
"Related Agreements" shall have the meaning set forth in Paragraph
3(b) of the Master Repurchase Agreement.
"Required Loan Documents" shall refer to the documents required to be
held by the Custodian as bailee under the Custody Agreement.
"Securities" shall, in addition to the definition set forth in the
Master Repurchase Agreement, refer to Mortgage Loans; provided,
--------
however, that such Mortgage
-------
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<PAGE>
Loans shall not be deemed to be securities for the purposes of any
securities or blue sky laws; provided further, however, that
------- -------
"Securities" shall also refer to additional assets as Buyer may
determine at its option and in its sole discretion as evidenced by an
amendment to this Agreement.
"Seller" shall refer to NovaStar Financial, Inc., a Maryland
corporation.
"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/Funding Request.
"Servicer" shall refer to New Century Mortgage Corporation,
discharging its duties through Advanta Mortgage USA as sub-servicer,
or such other FNMA-approved seller/servicer as Buyer may approve in
its sole discretion as the servicer of a Mortgage Loan under a
Servicing Agreement.
"Servicing Agreement" shall have the meaning set forth in Paragraph
3(b) of the Master Repurchase Agreement.
"Third Person" shall refer to any Person to whom Buyer transfers any
portion of its interest in the Eligible Assets.
"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.
"Trust Receipt" shall refer to the Trust Receipt substantially in the
form attached as an exhibit to the Custody Agreement.
3. MODIFICATION OF PARAGRAPH 3(b) OF THE MASTER REPURCHASE AGREEMENT.
-----------------------------------------------------------------
Paragraph 3(b) of the Master Repurchase Agreement is amended by adding at
the end of the first sentence of Paragraph 3(b):
In the case of Transactions involving Securities that are Mortgage
Loans, (a) copies of the documents governing the acquisition of such
Mortgage Loans by Seller (the "Acquisition Agreement"), the servicing
of such Mortgage Loans by Seller or a Servicer (the "Servicing
Agreement"), and the custody of the Required Loan Documents (the
Acquisition Agreement, the
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<PAGE>
Servicing Agreement and the Custody Agreement, collectively, the
"Related Agreements") together with any other documents reasonably
requested by Buyer shall have been delivered to Buyer prior to the
Purchase Date for such Mortgage Loans and such Related Agreements
shall have been specifically approved by Buyer in writing, (b) the
Purchased Securities shall be identified on a detailed listing to be
provided by Seller to Buyer (a "Mortgage Loan Schedule") attached to
an Assignment (as defined below), (c) the Confirmation/Funding Request
shall identify (and shall have as exhibits thereto, if requested by
Buyer) the applicable Related Agreements, (d) Seller shall have, in a
Seller's Warranty Certificate ("Seller's Warranty Certificate") which
shall be substantially in the form of Exhibit B hereto, made, restated
and/or assigned, representations and warranties with respect to the
Mortgage Loans, (e) the Required Loan Documents shall be delivered to
and/or held by the Custodian pursuant to the terms of the Custody
Agreement, pursuant to which Custody Agreement the Custodian shall,
among other things, issue Trust Receipts in a form acceptable to
Buyer, evidencing Custodian's retention of the Required Loan Documents
as custodian for Buyer, (f) the Mortgage Loans shall be serviced for
Buyer by the Servicer pursuant to the Servicing Agreement, and (g) an
assignment agreement (the "Assignment"), substantially in the form of
Exhibit C hereto or in such other form acceptable to Buyer shall have
been executed by Buyer, Seller and the Servicer on the date hereof,
whereby and wherein Seller shall have assigned to Buyer all of its
right, title and interest in the Servicing Agreement to the extent of
all related Purchased Securities hereunder.
4. MODIFICATION OF PARAGRAPH 4 OF THE MASTER REPURCHASE AGREEMENT.
--------------------------------------------------------------
(a) Paragraph 4 of the Master Repurchase Agreement is hereby amended by
adding the following sentence at the end of subparagraph (a):
In case of a Margin Deficit with respect to Mortgage Loans,
Seller shall transfer cash or Mortgage Loans to satisfy its
obligations hereunder; provided, however, Seller may transfer Mortgage
-------- -------
Loans only to the extent that they have been reviewed by the Custodian
pursuant to the Custody Agreement and the Custodian has furnished its
Trust Receipt with respect thereto.
I-5
<PAGE>
(b) Paragraph 4(a) of the Master Repurchase Agreement is hereby further
amended to provide that Seller shall transfer the cash or Mortgage
Loans to Buyer (in the manner contemplated by the Agreement and the
Custody Agreement) in accordance with Paragraph 24 of these
Supplemental Terms.
5. MODIFICATION OF PARAGRAPH 5 OF THE MASTER REPURCHASE AGREEMENT. Paragraph 5
--------------------------------------------------------------
of the Master Repurchase Agreement is hereby amended by adding the
following after the last sentence of such Paragraph:
If an Event of Default shall have occurred and be continuing,
Seller shall collect, or cause to be collected, all Mortgage Loan
Income on behalf of Buyer and, upon request of Buyer, shall forward
such payments to Buyer immediately upon receipt.
6. MODIFICATION OF PARAGRAPH 7 OF THE MASTER REPURCHASE AGREEMENT. Paragraph 7
--------------------------------------------------------------
of the Master Repurchase Agreement is hereby amended by adding the
following after the last sentence of such Paragraph:
Buyer shall disburse funds to an account specified in writing by
Seller. In the case of Mortgage Loans, transfer of such Mortgage Loans
to Buyer shall occur as of the date on which Buyer receives (i) the
Trust Receipt of the Custodian and (ii) a list identifying the
Servicer with respect to each such Mortgage Loan, if not otherwise set
forth in the Trust Receipt.
In the case of Mortgage Loans transferred by Buyer to a Third
Person, Buyer shall send a notice to the Custodian and transfer of
such Mortgage Loans to any Third Person shall occur when such Third
Person receives the acknowledgment of the Custodian identifying such
Mortgage Loans. Any Mortgage Loans repurchased by Seller pursuant to
Paragraph 3(c) or 11(c) of the Master Repurchase Agreement shall be
transferred to Seller or its agent upon the receipt by the Custodian
from Buyer of a notice of transfer which confirms the release of
Buyer's interest in any such Mortgage Loans.
7. MODIFICATION OF PARAGRAPH 8 OF THE MASTER REPURCHASE AGREEMENT. Paragraph 8
--------------------------------------------------------------
of the Master Repurchase Agreement is amended by adding the following at
the end of the last sentence thereof:
In the case of Mortgage Loans, Buyer hereby grants to Seller the
right to perform in Buyer's stead under
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<PAGE>
any repurchase, reverse repurchase or similar transaction in which
Buyer has sold, loaned or otherwise transferred the Mortgage Loans in
the event that Buyer has defaulted on its obligation to repurchase or
accept redelivery of such Mortgage Loans in conformity with the terms
of any such transaction and so long as an Event of Default under the
Agreement on the part of Seller shall not have occurred and be
continuing.
8. MODIFICATIONS OF PARAGRAPH 11 OF THE MASTER REPURCHASE AGREEMENT. Paragraph
----------------------------------------------------------------
11 of the Master Repurchase Agreement is hereby further amended by adding
new subsections (i), (j), (k) and (l) to such Paragraph:
(i) Any sales of Purchased Securities, pursuant to Paragraph
11(d)(i) of the Agreement, which are Mortgage Loans may be effected in
public or private sales as Buyer may reasonably deem appropriate and
at such price or prices as Buyer may reasonably deem satisfactory. In
the event Buyer elects in lieu of so selling such Purchased Securities
to give Seller credit for such Purchased Securities, such credit shall
be in an amount equal to the Market Value thereof as of the date of
such acceleration.
(j) If an Event of Default shall occur and be continuing, Buyer
shall exercise reasonable efforts (the reasonableness of which shall
be determined by Buyer in its discretion in light of the
circumstances) to provide notice to Seller prior to exercising any
remedy in respect of an Event of Default by Seller, provided, however,
-------- -------
that notwithstanding anything in the Agreement to the contrary, Buyer
shall not be required, prior to exercising any remedy in respect of an
Event of Default by Seller, to give any notice otherwise required
hereunder, if Buyer reasonably believes that (i) the Mortgage Loans
then held by Buyer threaten to decline speedily in value or (ii) any
delay occasioned by the giving of such notice will jeopardize Buyer's
ability to recover, by sale of such Securities or otherwise, all or
part of the then-outstanding amount of the Repurchase Price or of any
other amounts owed to Buyer in connection therewith. If no prior
notice is given, Buyer shall give notice to Seller of the remedies
effected by Buyer promptly thereafter. Buyer may forthwith apply the
cash, if any, then held by it as part of the Purchased Securities
relating to any Transaction to the payment of the Repurchase Price,
and, if there shall be no such cash or the cash so applied shall not
be sufficient to pay in full the
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<PAGE>
Repurchase Price, may thereafter collect, receive, appropriate, retain
and realize upon the Purchased Securities, or any part thereof, and
may forthwith sell, assign, contract to sell, or otherwise dispose of
and deliver the Purchased Securities, or any part thereof, in one or
more parcels at such public or private sale or sales, at such place or
places, at such price or prices and upon such other terms and
conditions as Buyer may deem best (provided, however, that Buyer shall
act in a commercially reasonable manner), for cash or on credit or for
future delivery without assumption of any credit risk, with the right
of Buyer upon any such sale or sales to purchase all or any part of
the Purchased Securities so sold. Upon any sale, transfer or other
disposition of the Purchased Securities pursuant hereto Buyer shall
have the right to deliver, assign and transfer to the transferee
thereof the Purchased Securities so sold. Each transferee upon any
such transfer or other disposition shall hold the property thereby
acquired by it absolutely free from any claim or right of any kind,
including any equity or rights of redemption, of Seller, who hereby
specifically waives all rights of redemption, stay or appraisal which
it has or may have under any rule of law or statute whether now
existing or hereafter adopted (in the latter case, to the extent
permitted thereby). Seller agrees that Buyer need give only such
notice of the time and place of any public or private sale (including
any adjourned private sale) or other intended disposition as may be
required by market conditions and standards of commercial
reasonableness and that Buyer need not in any event give more than
five (5) days' notice that such sale or disposition is to take place.
Seller agrees that the notice provided for in the preceding sentence
is reasonable notification of such matters.
Buyer shall not be obligated to make any sale pursuant to any
such notice. Buyer may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to
time by announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the same may be so
adjourned, provided that Buyer shall act in a commercially reasonable
manner. In case of any sale of all or any part of the Purchased
Securities on credit or for future delivery, the Purchased Securities
so sold may be retained by Buyer until the selling price is paid by
the purchaser thereof, but Buyer shall not incur any liability in case
of the failure of such purchaser to take up and pay for the
I-8
<PAGE>
Purchased Securities so sold, and, in case of any such failure, such
Purchased Securities may again be sold upon like notice. Buyer,
however, instead of exercising the power of sale herein conferred upon
it, may proceed by a suit or suits at law or in equity to foreclose
the lien and security interest created hereby and sell the Purchased
Securities, or any portion thereof, under a judgment or decree of a
court or courts of competent jurisdiction.
(k) Buyer shall have no obligation to realize upon any Purchased
Securities, except through proper application of any distributions
with respect to the Purchased Securities made directly to Buyer or its
agent(s). Seller hereby waives the defense of impairment of the
Purchased Securities; provided, however, that Buyer shall act in a
-------- -------
commercially reasonable manner. Buyer may in its sole discretion elect
to realize upon all or a portion of the Purchased Securities by giving
Seller credit for such Purchased Securities, which credit shall be in
an amount equal to the Market Value thereof as of the date of
acceleration.
(l) Any purchases of Replacement Securities, pursuant to
Paragraph 11(d)(ii) of the Agreement, which are Mortgage Loans shall
be of the same or similar type, maturity and amount as the Purchased
Securities that are not delivered by Buyer and may be effected in
purchases in a commercially reasonable manner at such price or prices
as Seller may reasonably deem appropriate. In the event Seller elects
in lieu of so purchasing such Replacement Securities to be deemed to
have purchased Replacement Securities in a commercially reasonable
manner as provided in Paragraph 11(d)(ii), such Replacement Securities
shall be deemed to have been purchased at the Market Value thereof.
9. DISBURSEMENT OF FUNDS. Seller may request that the parties enter into a
---------------------
transaction hereunder by making a written request for the purchase and sale
of Eligible Assets, either by mail or facsimile transmission, to Buyer.
Subject to Paragraph 3(b) of the Master Repurchase Agreement and provided
that Buyer has agreed to enter into a Transaction under the Agreement,
Buyer shall pay the related Purchase Price within one (1) day of receipt of
such notice, so long as the terms and conditions of the Agreement are fully
satisfied and no Event of Default hereunder shall have occurred and be
continuing. The amount of any such Purchase Price of Eligible Assets shall
be in a minimum amount of $1,000,000 and integral multiples of $500,000 in
excess
I-9
<PAGE>
thereof.
10. CONFIRMATIONS.
(a) Each Confirmation shall be binding upon Seller and Buyer unless
written notice of objection is given by the objecting party to the
other party within one (1) business day after the objecting party's
receipt of such Confirmation.
(b) Buyer may, but shall not be required to, deliver Confirmations
confirming periodic adjustments in the Pricing Rate for a particular
Transaction.
(c) Notwithstanding Paragraph 3(b) of the Master Repurchase Agreement, in
the event of any conflict between the terms of a Confirmation and this
Agreement, such Confirmation shall prevail.
11. 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 Seller, be paid, delivered or transferred in
the case of Mortgage Loans, so long as an Event of Default on the part of
Seller shall not have occurred and be continuing, directly to the Servicer
from the related mortgagor.
12. MARKET VALUE DETERMINATION. Buyer shall determine the Market Value for the
--------------------------
Purchased Securities in the good faith exercise of 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 assign a Market Value of
-------- -------
zero with respect to (i) any Mortgage Loan that has been delinquent for at
least sixty (60) days, (ii) any Mortgage Loan with respect to which there
is a breach of a representation, warranty or covenant made by Seller in
this Agreement or the Custody Agreement that materially 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, (iii) any
Mortgage Loan that Buyer determines in its sole discretion has not been
originated in accordance with the Acquisition Agreement and (iv) any
Mortgage Loan with respect to which the initial payment of Mortgage Loan
Income is in default or delinquent.
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<PAGE>
13. SECURITY INTEREST.
-----------------
(a) 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 Purchased Securities.
(b) Seller shall pay all reasonable fees and expenses associated with
perfecting such security interest including, without limitation, the
cost of filing financing statements under the Uniform Commercial Code,
to the extent required by Buyer or its counsel, and any reasonable
fees charged by the Custodian.
14. DELIVERY OF ADDITIONAL DOCUMENTS.
--------------------------------
Seller shall, simultaneously with the funding of each Transaction, deliver
to Buyer through the Custodian a fully executed Trust Receipt.
15. 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; and
(ii) The Agreement is, and each Transaction when entered into under
the Agreement will be, a legal, valid and binding obligation of
such party 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).
(b) Seller represents and warrants as of the date of the Agreement and as
of the Purchase Date of each Transaction, as follows:
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<PAGE>
(i) All information provided by Seller to Buyer or the Custodian
concerning the Mortgage Loans is true and correct in all
material respects;
(ii) No Mortgage Loan shall have any scheduled payments of Mortgage
Loan Income in default or delinquent by more than sixty (60)
days unless the Servicer shall have advanced such payment;
(iii) No Mortgage Loan shall have the initial scheduled payment of
Mortgage Loan Income in default or delinquent;
(iv) Seller shall cause each Mortgage Loan to be serviced in
accordance with standards maintained by the servicers of
mortgage loans that are generally accepted in the mortgage
servicing industry as reasonable and prudent;
(v) Seller, immediately prior to the purchase by Buyer under the
Agreement, is the legal and beneficial owner of the Mortgage
Loans free and clear of any lien, security interest, option or
encumbrance;
(vi) Buyer has a perfected first-priority security interest in each
Mortgage Loan (including all proceeds, distributions and other
amounts realized in respect thereof) subject to no prior lien,
charge, encumbrance or rights of others, and no further action,
other than the possession by the Custodian of certain documents
relating thereto pursuant to the Custody Agreement, including
any filing or recordation of any document, is required in order
to establish and perfect the liens on and security interest in
the Mortgage Loans in favor of Buyer against any third party in
any jurisdiction;
(vii) No Mortgage Loan was subject to any lien or encumbrance at the
time of the purchase thereof by Buyer under the Agreement;
(viii) No Mortgage Loan has an CLTV in excess of 95%;
(ix) The weighted average CLTV of all Mortgage
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<PAGE>
Loans subject to the Agreement does not exceed 85%;
(x) Notwithstanding any other provision of the Agreement and except
as otherwise agreed by Buyer in writing with respect to any
particular Eligible Asset or group of Eligible Assets, no
Eligible Asset subject to any Transaction hereunder shall have
been subject to the Agreement or to the Custody Agreement for
more than one hundred and eighty (180) days in aggregate;
(xi) Each Eligible Asset has been originated in compliance with all
applicable laws and the guidelines described in the Acquisition
Agreement or such other origination guidelines as may be agreed
to by Buyer in writing; and
(xii) Since the date of the most recent balance sheet or financial
statement delivered by Seller to Buyer pursuant to Paragraph 19
of these Supplemental Terms, there has been no material adverse
change in its financial condition or results of operations.
(c) Seller covenants with Buyer as follows:
(i) Seller shall be at the time it delivers any Mortgage Loans to
the Custodian or Buyer for any Transaction, and shall continue
to be, through the Purchase Date relating to each such
Transaction, the legal and beneficial owner of such Mortgage
Loans free and clear of any lien, security interest, option or
encumbrance except for the security interest created by the
Agreement;
(ii) All data and other information relating to the Mortgage Loans
provided at any time by or on behalf of Seller to the
Custodian, whether in writing, by electronic transmission or on
computer tape or diskette or otherwise, will be true and
correct;
(iii) Seller or the Servicer will pay and discharge all taxes,
levies, liens and other charges on its assets and on the
Purchased Securities sold by it to Buyer under the Agreement
which, in each case, in any manner would
I-13
<PAGE>
create any lien or charge upon such Purchased Securities and
which would materially adversely affect the interests of Buyer
except those that are being contested by Seller in good faith
and with respect to which payment has been stayed by a court of
competent jurisdiction;
(iv) On an ongoing basis, at Seller's expense without request of
Buyer, Seller shall provide Buyer with Seller's audited year-
end balance sheet and income statement within ninety (90) days
after the end of Seller's fiscal year and Seller's quarterly
balance sheet and income statement within forty-five (45) days
after the end of each of Seller's three other fiscal quarters;
(v) The weighted average CLTV of all Mortgage Loans subject to the
Agreement shall not exceed 85%;
(vi) Seller shall fail to promptly notify Buyer of (i) the
acceleration of any debt obligation or the termination of any
credit facility of Seller; (ii) the amount and maturity of any
such debt assumed after the date hereof; (iii) any adverse
developments with respect to pending or future litigation
involving Seller; and (iv) any other developments which might
materially and adversely affect the financial condition of
Seller;
(vii) The Eligible Assets relating to each Transaction shall satisfy
the origination quality and credit parameters as have been
agreed to by Buyer in writing;
(viii) Seller's GAAP Net Worth shall not at any time be less than
$30,000,000;
(ix) Seller shall not experience losses or changes in its financial
condition that cause its GAAP Net Worth for any two consecutive
calendar quarters to be less than or equal to 80% of its GAAP
Net Worth as of the commencement of such period;
(x) Seller shall promptly notify Buyer when any Mortgage Loan
becomes more than thirty (30) days delinquent; and
I-14
<PAGE>
(xi) The Custodian shall act as an independent third-party bailee
under the Custody Agreement and shall not be in control of or
under common control with Seller.
[INSERT ADDITIONAL CREDIT COVENANTS AS MAY
BE REQUIRED BY MERRILL LYNCH CORPORATE CREDIT]
16. 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 Seller, or any Affiliate thereof, 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 Seller shall have reasonably determined that the
other party is or will be unable to meet its commitments under
this Agreement, shall have notified such other party of such
determination and such other party shall not have responded
with appropriate information to the contrary to the
satisfaction of the notifying party within one (1) Business
Day.
(iii) In the reasonable judgment of Buyer a material adverse change
shall have occurred in the business, operations, properties,
prospects or financial condition of Seller;
(iv) The Agreement shall for any reason cease to create a valid,
perfected, first priority security interest in any of the
Purchased Securities; 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;
I-15
<PAGE>
(v) Seller 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 covenants include, but are not
limited to, an Act of Insolvency of Seller or the failure of
Seller to make required payments in an aggregate amount in
excess of $100,000) dollars under such contract or agreement
as they become due) which default permits acceleration of the
obligations of Seller under such contract or agreement by any
other party thereto;
(vi) Seller shall merge or consolidate into any entity unless the
surviving or resulting entity shall be acceptable to Buyer, in
its sole discretion, and such entity expressly assumes by
written agreement, executed and delivered to Buyer in form and
substance satisfactory to Buyer, the performance of all
Seller's duties and obligations hereunder and under the
Custody Agreement;
(vii) Buyer shall request assurances as to the financial well-being
of Seller and such assurances shall not have been provided in
writing within twenty-four (24) hours;
(viii) 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 sixty (60)
days during which execution of such judgment is not
effectively stayed;
(ix) Any representation or warranty made by Seller 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 such breach is continuing; provided, however,
-------- -------
that with respect to any representation or warranty made by
Seller with respect to a Mortgage Loan, such circumstance
shall not constitute an Event of Default if after determining
the Market Value of such Mortgage Loan without taking into
account the Mortgage Loan with respect to which such
circumstances have occurred, no other Event of Default shall
have occurred
I-16
<PAGE>
and be continuing;
(x) Seller shall breach any covenant in the Agreement and such
breach is continuing;
(xi) The filing by Seller or an Affiliate of a petition in
bankruptcy, the adjudication of Seller as insolvent or
bankrupt, the application by Seller or an Affiliate for any
receiver or trustee for itself or any substantial part of its
property, the commencement of any proceeding relating to
Seller or an Affiliate under any reorganization, arrangement,
dissolution or liquidation law, or the initiation of any such
proceeding against Seller or an Affiliate if such party
indicates by any act its consent thereto or if such proceeding
is not dismissed or stayed within forty-five (45) days,
notwithstanding Paragraph 2(a)(ii)(C) of the Master Repurchase
Agreement; and
(xii) A firm of independent accountants shall have failed to issue
an opinion or shall have issued an opinion qualified adversely
in any material respect in connection with the most recent
audited financial statements of Seller.
(b) In addition to the other remedies available to Buyer or Seller upon
the occurrence and during the continuance of an Event of Default by a
defaulting party, Buyer shall have the following additional remedies
upon the occurrence and during the continuance of an Event of Default
by Seller:
(i) All rights of Seller to receive payments on the Mortgage Loans
which it would otherwise be authorized to receive pursuant to
Paragraph 5 of the Master Repurchase Agreement as modified by
Paragraph 4 of these Supplemental Terms shall cease, and all
rights to such payments shall thereupon become vested in
Buyer, which shall thereupon have the sole right to receive
such payments and apply them to the amounts owed by Seller
pursuant to the Agreement.
(ii) All payments that are received by Seller contrary to the
provisions of the preceding
I-17
<PAGE>
clause (i) shall be received in trust for the benefit of
Buyer, shall be segregated from other funds of Seller and
shall be promptly paid to Buyer.
(iii) Buyer may unilaterally instruct the Servicer to direct all
payments of Mortgage Loan Income directly to Buyer.
(iv) Buyer may exercise any self-help remedies permitted by
applicable law.
(c) In addition to the other remedies available to Buyer or Seller upon
the occurrence and during the continuance of an Event of Default by a
defaulting party, the non-defaulting party shall be entitled to the
right of set off with respect to any amounts owed by the defaulting
party or any Affiliate of the defaulting party to the non-defaulting
party or any Affiliate of the non-defaulting party under any
contract, margin account or other arrangement.
(d) Any sale of Purchased Securities under Paragraph 11 of the Master
Repurchase Agreement as modified by these Supplemental Terms shall be
conducted in a commercially reasonable manner.
(e) Expenses reasonably incurred in connection with an Event of Default
shall include without limitation those reasonable 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.
(f) Any provision of the Agreement to the contrary notwithstanding, no
breach of a representation, warranty or covenant with respect to any
Mortgage Loan shall be an Event of Default if, after determining the
Market Value of the Mortgage Loans without taking into account the
Mortgage Loan with respect to which such breach has occurred, no
other Event of Default shall have occurred and be continuing.
I-18
<PAGE>
17. UNILATERAL TERMINATION BY BUYER.
-------------------------------
(a) At the option of Buyer, exercised by thirty (30) days prior written
notice to Seller, the Repurchase Date for some or all of the
Transactions under the Agreement shall be deemed to immediately occur
in the event that 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.
(b) The event specified in Paragraph 17(a) of these Supplemental Terms
which may, at the option of Buyer, cause an acceleration of the
Repurchase Date for a Transaction shall be in addition to any other
rights of Buyer to cause such an acceleration under the Agreement.
18. APPLICATION OF PROCEEDS. The proceeds of any sale or other realization of
-----------------------
all or any part of the Purchased Securities, and any other cash at the time
held by Buyer under the Agreement, shall be applied by Buyer in the
following order of priority:
First, to the payment of all reasonable costs and expenses of
-----
such sale incurred by Buyer and its Affiliates and all reasonable
expenses (including the fees and expenses of counsel), liabilities
and advances reasonably made or incurred by Buyer and its affiliates
in connection therewith.
Second, to the payment of the outstanding Repurchase Price
------
owed by Seller jointly and severally under the Agreement.
Third, to the payment of all other amounts owed by Seller
-----
under the Agreement.
Fourth, to the payment of any other amounts owed by Seller to
------
Buyer or any Affiliate thereof under any other instrument or
agreement.
Fifth, to the payment to Seller, or to such other person as a
-----
court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds and other cash.
As used in the Agreement, "proceeds" of the Purchased
Securities shall mean cash and other property
I-19
<PAGE>
received or otherwise realized in respect of the Purchased
Securities.
19. FINANCIAL STATEMENTS.
--------------------
(a) As of the date hereof, Buyer shall provide Seller with its audited
year-end financial statements and its most recently available interim
financial statement. As of the date hereof, Seller shall provide
Buyer with its most recently available interim financial statement
and Seller shall provide Buyer, not later than February 28, 1997,
with its audited year-end financial statements. Buyer and Seller
shall from time to time each provide the other with audited year-end
financial statements and additional publicly available interim
financial statements upon the other party's reasonable request.
(b) Seller shall provide Buyer, at the expense of Seller when requested
by Buyer, with all periodic unaudited balance sheets and income
statements from time to time within forty-five (45) days after the
preparation thereof.
(c) Each delivery of Purchased Securities by Seller to Buyer hereunder
will constitute a representation by Seller that there has been no
material adverse change in Seller's financial condition not disclosed
to Buyer since the date of Seller's most recent unaudited balance
sheet or income statement delivered to Buyer. Seller shall provide
Buyer, from time to time at Seller's expense, with such information
concerning Seller of a financial or operational nature as Buyer may
reasonably request promptly upon receipt of such request.
20. PRICE DIFFERENTIAL; REPURCHASE PRICE; PRICING RATE; BUYER'S MARGIN
------------------------------------------------------------------
PERCENTAGE.
----------
(a) 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.
(b) All calculations of Price Differential shall be made on the basis of
a 360-day year and the actual number of days elapsed.
(c) Payment of the Repurchase Price (including the Price Differential)
shall be made by wire transfer in
I-20
<PAGE>
immediately available funds or in such other manner as may be
mutually agreed upon by Buyer and Seller in writing. Amounts received
by Buyer after 3:00 p.m., New York City time, on any Business Day
shall be deemed to have been paid by Seller and received by Buyer on
the next succeeding Business Day.
(d) Any provision of the Agreement to the contrary notwithstanding, Buyer
has the right, in its sole discretion, to change the Pricing Rate and
the Buyer's Margin Percentage with respect to any Purchased Security
that is a Mortgage Loan more than thirty (30) days delinquent. Any
such adjustment in the Pricing Rate and the Buyer's Margin Percentage
shall be immediately effective even though the Repurchase Date for
the related Transaction shall not have occurred.
21. MAXIMUM TRANSACTION AMOUNT; TRANSACTIONS OPTIONAL.
-------------------------------------------------
(a) The aggregate outstanding Repurchase Price for the Purchased
Securities that are Mortgage Loans shall not at any time exceed
$200,000,000.
(b) The aggregate outstanding Repurchase Price for the Purchased
Securities that are second lien Mortgage Loans shall not at any time
exceed $30,000,000.
(c) Any provision of the Agreement to the contrary notwithstanding, Buyer
is not required to enter into any Transactions under the Agreement,
Buyer may in its sole discretion reject any assets proposed to be
sold to it hereunder and any decision to enter into a Transaction
under the Agreement shall be made by Buyer in its sole discretion.
22. TERMINATION. Notwithstanding any provisions of Paragraph 15 of the
-----------
Master Repurchase Agreement to the contrary, the Agreement and all
Transactions outstanding hereunder shall terminate automatically without
any requirement for notice on the date occurring on the earlier of (i)
eleven months and twenty-nine days after the date of the Agreement and (ii)
the written agreement of Seller and Buyer; provided, however, that
-------- -------
notwithstanding the foregoing, the Agreement shall continue in full force
and effect until any outstanding Repurchase Price has been paid in full.
Upon termination of the Agreement and the payment of the Repurchase Price
with respect to all Transactions, Buyer shall release its lien and security
interest under the Agreement and assign, transfer and deliver, against
receipt, any remaining Purchased Securities and money received in respect
thereof to or on the order of Seller. Upon the
I-21
<PAGE>
request of Seller, Buyer will then execute termination statements and such
other documents as Seller may reasonably request as are necessary to make
clear upon the public record the termination of the lien and security
interests created by the Agreement with respect to the Purchased
Securities.
23. ADDITIONAL INFORMATION; CONFIDENTIALITY.
---------------------------------------
(a) At any reasonable time, Seller 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 such 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) Seller agrees to provide Buyer from time to time with such
information concerning Seller of a financial or operational nature as
Buyer may reasonably request.
(c) Each of the parties acknowledges that the Agreement and the Custody
Agreement are confidential in nature and each such party agrees that,
unless otherwise directed by a court or regulatory entity 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
document to its officers, employees, attorneys, accountants and
agents as required in order to conduct its business with the other
parties hereto. This subparagraph (c) shall not apply to information
which has entered the public domain through means other than a breach
of the foregoing covenant by the party seeking to distribute such
documents or which the other party has given written permission to
disclose.
24. 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
Seller under such paragraph is given at or prior to 10:00 a.m. New York
City time on a Business Day, Seller 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 10:00 a.m.
New York City time, Seller shall transfer the cash or Additional Purchased
Securities (in the manner as aforesaid) prior to the close
I-22
<PAGE>
of business in New York City on the Business Day following the date of such
notice.
25. OPINIONS OF COUNSEL. Seller shall, on the date of the first 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 or entity that purchases the Eligible Assets
from Buyer in a repurchase transaction, a favorable opinion of Seller's
counsel with respect to the matters set forth in Exhibit D hereto, in form
and substance reasonably acceptable to Buyer.
26. FURTHER ASSURANCES. Seller shall promptly provide such further assurances
------------------
or agreements as Buyer may request in order to effect the purposes of the
Agreement.
27. BUYER AS ATTORNEY-IN-FACT. Upon the occurrence and during the continuation
-------------------------
of an Event of Default, Buyer is hereby appointed the attorney-in-fact of
Seller for the purpose of carrying out the provisions of the 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, after an Event of Default has
occurred and is continuing, Buyer shall have the right and power to (i)
take any action Buyer deems prudent to direct the receipt of payments on
any Mortgage Loan from the Servicer thereof to Buyer or its designee,
including, without limitation, the sending of any letter which irrevocably
instructs such Servicer to make all payments directly to Buyer or its
designee, and (ii) receive, endorse and collect all checks made payable to
the order of Seller representing any payment on account of the principal of
or interest on any of the Purchased Securities and to give full discharge
for the same.
28. PERMITTED ASSIGNMENT.
--------------------
(a) Seller shall not assign to any Person its duties and obligations
under the Agreement or the Custody Agreement or its liabilities with
respect to the Agreement or the Custody Agreement without the express
written consent of Buyer.
(b) Notwithstanding any assignment of rights as contemplated by Paragraph
28(a) of these Supplemental Terms, Seller shall remain obligated to
Buyer pursuant to the terms of the Agreement as though no such
assignment had occurred.
I-23
<PAGE>
(c) Buyer's rights and remedies with respect to the Mortgage Loans and
otherwise under the Agreement shall not be affected by any such
assignment.
29. APPOINTMENT OF AGENT. MLCC hereby appoints MLMCI as its agent for purposes
--------------------
of reviewing and executing Confirmation/Funding Requests, determining
Market Value, exercising any termination option provided for in the
Agreement, 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.
30. EXPENSES. Seller shall pay its own expenses incurred in connection with
--------
the transactions contemplated hereby. In addition, Seller shall pay the
reasonable fees and expenses incurred by Buyer in connection with the
transactions contemplated hereby (including without limitation the fees and
expenses of Buyer's counsel) up to an amount equal to $20,000.
31. COUNTERPARTS. The 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.
32. 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.
33. NOTICES AND OTHER COMMUNICATIONS. Any provision of Paragraph 13 of the
--------------------------------
Master 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.
34. INCORPORATION OF TERMS. The Master Repurchase Agreement as supplemented
----------------------
hereby shall be read, taken and construed as one and the same instrument.
35. CONTROLLING AGREEMENT. The Agreement shall supersede all
---------------------
I-24
<PAGE>
other agreements between the parties relating to the subject matter hereof.
I-25
<PAGE>
EXHIBIT A
CONFIRMATION/FUNDING REQUEST
TO: NovaStar Financial, Inc. FROM: Merrill Lynch Mortgage Capital Inc.
------------------------- 101 Hudson Street, 12th Floor
----------------------- Jersey City, NJ 07302
Attention: ] Attention: Michael Jackson
------------------
Merrill Lynch Mortgage Capital Inc. ("Buyer") is pleased to confirm your sale
and our purchase of the Mortgage Loans listed on Attachment I hereto pursuant to
the Master Repurchase Agreement (including the supplemental terms set forth in
Annex I thereto), dated as of January _, 1997 (the "Master Repurchase
Agreement") among Buyer and NovaStar Financial, Inc. under the following terms
and conditions:
ORIG PRIN AMT OF MTG LOANS:
----- ----- ----- ----- ------
REM PRIN AMT OF MTG LOANS:
----- ----- ----- ----- ------
PURCHASE DATE:
----- ----- ----- ----- ------
REPURCHASE DATE:
----- ----- ----- ----- ------
PURCHASE PRICE:
----- ----- ----- ----- ------
PRICING RATE:
----- ----- ----- ----- ------
PRICE DIFFERENTIAL DUE:
----- ----- ----- ----- ------
BUYER'S MARGIN AMOUNT:
----- ----- ----- ----- ------
SELLER'S MARGIN AMOUNT:
----- ----- ----- ----- ------
The Master Repurchase Agreement is incorporated by reference into this
Confirmation/Funding Request 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.
NOVASTAR FINANCIAL, INC.
BY: BY:
------------------------- ---------------------------
A-1
<PAGE>
NAME: NAME:
---------------------- ------------------------
TITLE: TITLE:
---------------------- ------------------------
A-2
<PAGE>
ATTACHMENT I
TO EXHIBIT A
CONFIRMATION/FUNDING REQUEST FOR MORTGAGE LOANS
-----------------------------------------------
Request No. ___
Date: _________
Product Wire Loan Borrower Loan Purchase Market Takeout Note Commitment Takeout Maturity
Investor Type Date Number Last Amount Price Value Date Rate Number* Price Date
-------- ------ ---- ------ ----- ------ ------ ------ ------ ---- ------- ------- ------
TOTALS:
NovaStar Financial, Inc.
By:
------------------------------
Title:
------------------------------
Date:
------------------------------ Amount to be
funded by Buyer:
-----------------
$
------------
* To be provided within 2 Business Days of funding if not currently available.
** NovaStar Financial, Inc. hereby represents that no warehouse lien or other
lien or encumbrance exists with respect to the above-referenced Mortgage Loans.
A-3
<PAGE>
EXHIBIT B
---------
SELLER'S WARRANTY CERTIFICATE
I, ___________________, hereby certify that I am the duly appointed
_____________ of NovaStar Financial, Inc. ("Seller").
Pursuant to its sale to Merrill Lynch Mortgage Capital Inc. and
Merrill Lynch Credit Corporation, as applicable ("Buyer"), from time to time as
Buyer and Seller may agree, of mortgage loans ("Mortgage Loans") purchased by
Seller from Salomon Brothers Realty Corp. pursuant to an agreement dated as of
January 17, 1997 (the "Acquisition Agreement") in which Salomon Brothers Realty
Corp. assigned to Seller all of its right, title and interest in and to the
Mortgage Loans. New Century Mortgage Corporation will service the Mortgage Loans
pursuant to the Mortgage Loan Purchase and Interim Servicing Agreement, dated as
of December 1, 1996, between Salomon Brothers Realty Corp. and New Century
Mortgage Corporation (the "New Century Servicing Agreement"). New Century
Mortgage Corporation will discharge its servicing duties through Advanta
Mortgage USA, as subservicer, pursuant to a Loan Servicing Agreement, dated as
of March 22, 1996, between New Century Mortgage Corporation and Advanta Mortgage
USA (the "Advanta Servicing Agreement ", and together with the New Century
Servicing Agreement, the "Servicing Agreement"). The documents relating to the
Mortgage Loans will be held by First Union National Bank of Maryland, as
custodian (the "Custodian"), pursuant to a Custody Agreement, dated as of
January 31, 1997 among Buyer, Seller and the Custodian (the "Custody Agreement")
and pursuant to the Master Repurchase Agreement, dated as of January 31, 1997
(the "Master Repurchase Agreement"), between Seller and Buyer. Seller hereby
represents, warrants and covenants as of the date hereof, which representations,
warranties and covenants shall be deemed to be repeated on each Purchase Date
and on each date a Transaction is outstanding with respect to the Mortgage
Loans, as follows:
1. Capitalized terms used herein and not defined shall have the meanings
assigned to such terms in the Master Repurchase Agreement.
2. Seller hereby sells, transfers, assigns, sets over and otherwise
conveys to Buyer all of its right (including the power to assign the same),
title and interest in and to the Acquisition Agreement with respect to each
Mortgage Loan.
3. Seller hereby represents to Buyer as follows with respect to each
Mortgage Loan:
B-1
<PAGE>
(a) Attached as exhibits hereto are true, accurate and complete
copies of the Acquisition Agreement and the Servicing Agreement with
respect to the Mortgage Loan, which agreements are in full force and
effect as of the date hereof, and which have not been waived, amended
or modified in any respect, nor have any notices of termination been
given thereunder.
(b) Seller has good and marketable title to, and is the sole owner
of, the Mortgage Loan, free and clear of any lien, charge or
encumbrance or any ownership or participation interest in favor of any
other person, and the mortgage note has not been assigned, pledged,
hypothecated or otherwise transferred to any person.
4. Seller hereby restates for the benefit of Buyer and hereby makes as of
the date hereof the representations and warranties contained in the Acquisition
Agreement with respect to the Mortgage Loans, which representations and
warranties regardless of whether they were made as, at and to the origination of
the Mortgage Loans by the maker thereunder, shall be deemed to be restated and
made by Seller on each Purchase Date and on each date on which a Transaction is
outstanding with respect to the Mortgage Loans.
5. It is understood and affirmed by Seller that the representations and
warranties set forth herein shall survive the sale of the Mortgage Loans to
Buyer and shall inure to the benefit of Buyer and its successors and assigns,
notwithstanding any restrictive or qualified endorsement on any mortgage note or
assignment or the examination of any Mortgage File and without regard to any
applicable statute of limitations. It is further understood and affirmed that
with respect to the representations and warranties contained in the Acquisition
Agreement which were made to the best of the knowledge of the maker of such
restated representation or warranty thereunder, if it is discovered by Seller or
Buyer that the substance of such representation or warranty is inaccurate and
such inaccuracy materially and adversely affects the value of the related
Mortgage Loan or materially and adversely affects Buyer's interest in such
Mortgage Loan, Buyer shall be entitled to all the remedies to which it would be
entitled for breach of a representation or warranty made herein, including,
without limitation, the indemnification remedy contained herein, notwithstanding
the original maker's or Seller's lack of knowledge with respect to the
inaccuracy at the time the representation or warranty was initially made or
restated by Seller. Upon the discovery by Seller of a breach of any of the
foregoing representations and warranties which materially and adversely affects
the value of the Mortgage Loans or the interest of Buyer in any Mortgage Loan,
Seller shall give prompt written notice to Buyer.
B-2
<PAGE>
Seller shall indemnify Buyer and its successors and assigns and hold
them harmless against any loss, damages, penalties, fines, forfeitures, legal
fees and related costs, judgments, and other costs and expenses resulting from
any claim, demand, defense or assertion based on or grounded upon, or resulting
from a breach of the representations and warranties contained herein, made by
Seller to Buyer. It is understood and agreed that the obligations of Seller set
forth herein to indemnify Buyer as provided herein are in addition to any other
remedies of Buyer respecting a breach of the foregoing representations and
warranties.
IN WITNESS WHEREOF, I have hereunto signed my name as the duly
authorized representative of Seller.
Dated: January 31, 1997 NOVASTAR FINANCIAL, INC.
By:
-----------------------------
Name:
Title:
B-3
<PAGE>
EXHIBIT C
---------
ASSIGNMENT, ASSUMPTION AND RECOGNITION AGREEMENT
This is an Assignment, Assumption and Recognition Agreement ("Agreement")
made this 31st day of January, 1997, among Merrill Lynch Mortgage Capital Inc.
and Merrill Lynch Credit Corporation (collectively, "Buyer"), NovaStar
Financial, Inc. ("Seller") and New Century Mortgage Corporation (the
"Servicer").
Buyer and Seller are contemporaneously herewith entering into a transaction
pursuant to which Buyer shall purchase the mortgage loans identified on the
schedule attached hereto as Schedule I (the "Mortgage Loans"), with a
simultaneous agreement by Seller to repurchase such Mortgage Loans on demand or
at a date certain, in accordance with the terms and conditions of the Master
Repurchase Agreement (the "Master Repurchase Agreement"), dated as of January
31, 1997, between Buyer and Seller, and a written confirmation between Buyer and
Seller.
In consideration of the mutual promises contained herein and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that the Mortgage Loans, which are
serviced by the Servicer for Seller pursuant to the Mortgage Loan Purchase and
Interim Servicing Agreement, dated as of December 1, 1996, between Salomon
Brothers Realty Corp. and New Century Mortgage Corporation (the "New Century
Servicing Agreement"). New Century Mortgage Corporation will discharge its
servicing duties through Advanta Mortgage USA, as subservicer, pursuant to a
Loan Servicing Agreement, dated as of March 22, 1996, between New Century
Mortgage Corporation and Advanta Mortgage USA (the "Advanta Servicing Agreement
", and together with the New Century Servicing Agreement, the "Servicing
Agreement"). The Servicing Agreement, a copy of which is annexed hereto as
Exhibit One, shall be subject to the terms of this Agreement. Capitalized terms
used herein and not defined herein shall have the meanings assigned to those
terms in the Master Repurchase Agreement and the Servicing Agreement.
Warranties
----------
1. The Servicer and Seller warrant and represent that (a) attached
hereto as Exhibit One is a true, accurate and complete copy of the Servicing
Agreement which agreement is in full force and effect as of the date hereof
which has not been waived, amended or modified in any respect nor have any
notices of termination been given thereunder and (b) the Mortgage Loans
constitute all of the mortgage loans serviced by the Servicer under the
Servicing Agreement and that there are no real estate-owned properties managed
or administered by the Servicer under the Servicing Agreement.
C-1
<PAGE>
Assignment and Assumption
-------------------------
2. Seller hereby assigns to Buyer all of its right, title, and interest
in, to, and under the Mortgage Loans and, as permitted by and in accordance with
the Servicing Agreement, the Servicing Agreement. Notwithstanding Seller's
assignment herein of all of its right, title and interest, in, to, and under the
Servicing Agreement, Seller shall not be relieved of its obligations under the
Servicing Agreement and shall be the sole obligor to the Servicer thereunder.
Advanta Mortgage USA shall discharge its duties as subservicer pursuant to the
Advanta Servicing Agreement, which servicing agreement shall be subject to the
terms of this Agreement.
Recognition of Buyer
--------------------
3. From and after the date hereof, the Servicer shall recognize Buyer as
the owner of the Mortgage Loans and assignee of Seller under the Servicing
Agreement and will service the Mortgage Loans for Buyer in accordance with the
terms of the Servicing Agreement as modified herein. It is the intention of
Seller, the Servicer and Buyer that this Agreement will be the entire agreement
between the Servicer and Buyer with respect to the Mortgage Loans and shall be
binding upon and for the benefit of the respective successors and assigns of the
parties hereto.
4. From and after the date hereof, Buyer hereby authorizes and directs
the Servicer to remit all income from, and all proceeds of, the Mortgage Loans
to Seller until otherwise notified by Buyer. Buyer shall so notify the Servicer
in the event that Buyer determines that Seller is in default under the Master
Repurchase Agreement or the Related Agreements, and the Servicer shall
thereafter make all remittances to Buyer or its nominee. The receipt of such
income and proceeds by Seller shall not create nor imply any interest or right
whatsoever of Seller in or to the Mortgage Loans or such income or proceeds.
Seller shall have no right to terminate the Servicer as servicer of the Mortgage
Loans and Seller shall provide Buyer with prior written notice of any and all
actions to be taken by Seller pursuant to its obligations under the Servicing
Agreement with respect to the Mortgage Loans.
Governing Law
-------------
5. This Agreement shall be construed in accordance with the laws of the
State of New York without regard to any conflicts of law provisions, and the
obligations, rights and remedies of the parties hereunder shall be determined in
accordance with the laws of the State of New York.
C-2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
the day and year first above written.
MERRILL LYNCH MORTGAGE
CAPITAL INC.
Buyer
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
MERRILL LYNCH CREDIT CORPORATION
Buyer
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
NOVASTAR FINANCIAL, INC.,
Seller
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
NEW CENTURY MORTGAGE CORPORATION
Servicer
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
ADVANTA MORTGAGE USA
Sub-Servicer
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
C-3
<PAGE>
Exhibit One
SERVICING AGREEMENT
C-4
<PAGE>
Schedule 1
MORTGAGE LOAN SCHEDULE
C-5
<PAGE>
EXHIBIT D
OPINION OF COUNSEL TO SELLER
D-1
<PAGE>
ANNEX II
Names and Addresses for Communications Between Parties
MERRILL LYNCH MORTGAGE CAPITAL INC.
James B. Cason
Vice President
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Telephone: (212) 449-1219
Telecopy: (212) 449-6673
MERRILL LYNCH CREDIT CORPORATION
c/o Merrill Lynch Mortgage Capital Inc.
James B. Cason
Vice President
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Telephone: (212) 449-1219
Telecopy: (212) 449-6673
in each case with a copy to
Michael A. Blum
Director
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Telephone: (212) 449-8486
Telecopy: (212) 449-6673
NOVASTAR FINANCIAL, INC.
Scott F. Hartman
1900 West 47th Place
Suite 205
Westwood, Kansas 66205
Telephone: (913) 362-1090
Telecopy: (913) 362-1011
II-1