<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended: June 30, 1998
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Commission File Number 000-22567
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THE WMF GROUP, LTD.
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(Exact name of registrant as specified in its charter)
Delaware 54-1647759
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) identification no.)
1593 Spring Hill Road, Suite 400, Vienna, Virginia 22182
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including are code (703) 610-1400
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days, Yes X No
--- ---
Common Stock, $.01 par value, outstanding as of August 14, 1998
5,270,796 Shares of Common Stock
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The WMF GROUP, LTD.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Part I Financial Information
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<S> <C> <C>
Item 1. Financial Statements.
Consolidated Balance Sheets
As of June 30, 1998 (unaudited) and December 31, 1997 1
Consolidated Statements of Operations for the
Three Months Ended June 30, 1998 and 1997 (unaudited),
Six Months Ended June 30, 1998 and 1997 (unaudited) 2
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1998 and 1997 (unaudited) 3
Notes to Unaudited Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Part II. Other Information
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Item 1. Legal Proceedings 11
Items 2 - 3 None 11
Item 4. Submission of Matter to a Vote of Security Holders. 11
Item 5. Other information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
</TABLE>
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PART I
ITEM 1. FINANCIAL STATEMENTS
The WMF GROUP, LTD.
Consolidated Balance Sheets
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $14,583 $10,786
Restricted cash equivalents 1,697 1,576
Mortgage-backed securities, at amortized cost, pledged 3,829 3,851
Mortgage loans held for sale, pledged 362,116 49,431
Principal, interest and other servicing advances 3,058 2,631
Furniture, equipment and leasehold improvements, net 3,674 2,299
Servicing rights, net 27,776 26,796
Goodwill, net 22,174 18,465
Other assets 5,957 3,496
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Total assets $444,864 $119,331
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $5,926 $5,730
Warehouse lines of credit 347,453 48,743
Servicing acquisition line of credit 4,962 5,462
Revolving credit facility 23,348 5,699
Deferred fees 9,243 3,600
Accrued loan servicing losses 5,653 5,125
Other liabilities 4,932 6,147
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Total liabilities 401,517 80,506
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Stockholders' equity:
Common stock, $.01 par value, 25,000,000
shares authorized; 5,267,025 and 5,042,723 issued and
outstanding, respectively 53 50
Additional paid-in capital 39,352 35,178
Retained earnings 3,942 3,597
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Total stockholders' equity 43,347 38,825
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-------- --------
Total liabilities and stockholders' equity $444,864 $119,331
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
1
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THE WMF GROUP, LTD.
Consolidated Statements of Operations
(dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
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1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Servicing fees $3,607 $2,905 $7,301 $5,631
Gain on sale of mortgage loans, net 7,101 3,510 12,334 5,917
Interest income 4,328 1,178 5,484 2,111
Placement fee income 2,076 1,187 4,137 2,312
Other income 1,216 320 2,360 569
------ ------ ------ ------
Total Revenues 18,328 9,100 31,616 16,540
------ ------ ------ ------
Expenses:
Salaries and employee benefits 7,614 4,097 13,885 7,654
General and administrative 3,963 1,516 7,036 2,788
Occupancy 964 510 1,802 1,038
Provision for loan servicing losses 273 279 527 453
Interest 3,280 350 3,858 603
Amortization of servicing rights 1,429 1,126 2,503 2,208
Depreciation and amortization 680 406 1,301 739
------ ------ ------ ------
Total Expenses 18,203 8,284 30,912 15,483
------ ------ ------ ------
Income before income tax expense 125 816 704 1,057
Income tax expense 61 432 359 606
-- --- --- ---
Net income $64 $384 $345 $451
=== ==== ==== ====
Net income per share - Basic $ 0.01 $ 0.09 $ 0.07 $ 0.11
======= ======= ======= =======
Net income per share - Diluted $ 0.01 $ 0.09 $ 0.06 $ 0.11
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
2
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THE WMF GROUP, LTD.
Consolidated Statements Of Cash Flows
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $345 $451
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization of furniture, equipment
and leasehold improvements 497 255
Amortization of mortgage servicing rights 2,503 2,208
Amortization of goodwill 804 458
Compensation related to stock options 160 -
Provision for loan servicing losses 527 453
Mortgage loans originated (1,738,380) (396,201)
Mortgage loans sold 1,425,696 414,818
Increase in principal, interest and other servicing advances (427) (265)
Increase in due to affiliates - 255
Increase in restricted cash equivalents (121) (188)
Decrease (increase) in other assets (2,439) 329
Increase (decrease) in accounts payable and accrued expenses 196 (184)
Increase in deferred fees 5,643 485
Decrease in other liabilities (1,374) (823)
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Net cash provided by (used in) operating activities (306,370) 22,051
--------- ------
Cash flows from investing activities:
Purchase of furniture, equipment and leasehold improvements (1,872) (385)
Purchase of mortgage servicing rights (929) (1,534)
Origination of servicing rights (2,554) (1,135)
Assets acquired and liabilities assumed, net of cash (4,513) -
------- -------
Net cash used in investing activities (9,868) (3,054)
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Cash flows from financing activities:
Repayment of servicing acquisition line of credit (500) (250)
Increase (decrease) in warehouse lines of credit, net 298,710 (19,054)
Increase in revolving credit facility 17,649 -
Exercise of stock options 4,176 -
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Net cash provided by (used in) financing activities 320,035 (19,304)
------- --------
Net increase (decrease) in cash 3,797 (307)
Cash at beginning of period 10,786 6,601
------- ------
Cash at end of period $14,583 $6,294
======= ======
Supplemental disclosures:
Cash paid during the period for interest $2,674 $337
Cash paid during the period for income taxes 758 -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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THE WMF GROUP, LTD.
Notes to unaudited consolidated financial statements
(dollar in thousands, except per share data)
1. ORGANIZATION:
The WMF Group, Ltd. (the "Company") is one of the largest
independent commercial mortgage bankers in the United States as measured by
servicing portfolio size based on the 1997 survey published by the Mortgage
Bankers Association of America ("MBA"), is the largest originator of Federal
National Mortgage Association ("Fannie Mae") multifamily loans based on
statistics provided by Fannie Mae, and is the largest originator of Federal
Housing Authority ("FHA") insured multifamily and healthcare loans based on
statistics provided by Department of Housing and Urban Development ("HUD"). The
Company originates, underwrites, structures, places, sells and services
multifamily and commercial real estate loans. With the formation of WMF Capital
Corp. and WMF Carbon Mesa Advisors, Inc. in the first quarter of 1998, the
Company operates a commercial mortgage conduit, manages commercial mortgage
investment funds and provides special asset management services. Through its
relationships with Government Sponsored Enterprises ("GSEs"), investment banks,
life insurance companies, commercial banks and other investors, the Company
provides and arranges financing to owners of multifamily and commercial real
estate on a nationwide basis using both a retail and wholesale network. The
Company generates revenues through origination fees, servicing fees, net
interest income on loans held for sale and placement fees. The Company expects
that securitization trading profits from WMF Capital Corp. and funds management
fees from WMF Carbon Mesa Advisors, Inc. will provide the Company with
additional sources of revenue. During the second quarter of 1998, the Company
invested in a private real estate investment trust ("REIT") designed to invest
in structured commercial loan products. WMF Carbon Mesa Advisors, Inc. will
manage the REIT called Commercial Mortgage Investment Trust ("COMIT").
The Company is a Delaware corporation formed in October 1992. The
Company has three direct wholly owned subsidiaries: WMF Washington Mortgage
Corp. ("WMF Washington Mortgage") (previously known as Washington Mortgage
Financial Group, Ltd.), WMF Capital Corp., and WMF Carbon Mesa Advisors, Inc.
("WMF Carbon Mesa") which are incorporated under the laws of Delaware. WMF
Washington Mortgage's wholly owned subsidiaries are WMF Huntoon, Paige
Associates Limited ("WMF Huntoon Paige"), WMF Proctor Ltd. ("WMF Proctor"), and
WMF Robert C. Wilson Ltd. ("WMF Robert C. Wilson"), which are incorporated under
the laws of the states of Delaware, Michigan and Texas, respectively.
2. BASIS OF PRESENTATION:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All material intercompany balances
and transactions have been eliminated in consolidation. Certain prior period
amounts have been reclassified to conform with the current period presentation.
The condensed consolidated financial statements of the Company at
June 30, 1998 and for the three and six months ended June 30, 1998 and 1997
included herein are unaudited and include all adjustments necessary for the fair
presentation of the financial position, results of operations and cash flows of
the Company as of and for the periods presented. All such adjustments are of a
normal recurring nature. Interim results are not necessarily indicative of
results that may be expected for the full year.
3. BALANCE SHEET CLASSIFICATION:
The Company prepares its consolidated balance sheet using an
unclassified balance sheet presentation as is customary in the mortgage banking
industry. A classified presentation would have aggregated current assets,
current liabilities, and net working capital as follows:
<TABLE>
<CAPTION>
As of As of
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Current assets $385,714 $66,344
Current liabilities 388,628 67,645
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Net working deficit ($2,914) ($1,301)
======== ========
</TABLE>
4
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4. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No.131, Disclosures About Segments of an Enterprise and Related
Information ("SFAS No. 131"). SFAS No. 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for periods beginning after December 15,
1997, but need not be applied to interim financial statements in the initial
year of application. The impact, if any, of this statement on the Company would
be to require additional disclosures in the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognizes
all derivatives as either assets or liabilities in the statement of financial
position and measures those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and the resulting designation. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of certain exposure to
changes in the fair value of a recognized asset or liability or an unrecognized
firm commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposures. This
Statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. Earlier adoption is permitted. The Company has not yet determined
the impact, if any, of this Statement, including its provisions for the
potential reclassifications of investment securities, on earnings, financial
condition or equity.
5. LITIGATION:
The Company is involved in litigation related to the normal course
of its business. Management is of the opinion that the litigation will not have
a material adverse impact on the Company's financial position or operating
results.
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All statements contained herein that are not historical facts,
including but not limited to statements regarding anticipated future capital
requirements, the Company's future acquisition and development plans, the
Company's ability to obtain additional debt, equity or other financing, and the
Company's ability to generate cash from operations and further savings from
existing operations, are based on current expectations. These statements are
forward looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially from those projected, estimated, assumed or
anticipated. Among the factors that could cause actual results to differ are the
following: the availability of sufficient capital to finance the Company's
business plan on terms satisfactory to the Company; competitive factors, such as
changes in fees earned from originating and servicing multifamily and commercial
mortgage loans, the introduction of new competitors, future acquisitions and
strategic partnerships; general business and economic conditions; and the other
risk factors described from time to time in the Company's reports filed with the
Securities and Exchange Commission. Readers should not place undue reliance on
any such forward-looking statements, which are made pursuant to the Private
Securities Litigation Reform Act of 1995.
OVERVIEW
Over the past several years, the Company has experienced
significant growth in its net income, revenues, annual production volume and
servicing volume. The Company seeks to continue to expand its business through
(i) acquisitions and internal growth; (ii) design and delivery of new mortgage
products; and (iii) expansion into related businesses. On a going-forward basis,
to the extent that the Company is successful in completing acquisitions, the
Company will experience increased expenses associated with the amortization of
goodwill and acquired mortgage servicing rights and, if the acquisitions are
financed by additional indebtedness, an increase in interest expense. Through
the acquisitions, the Company's primary focus is to increase its mortgage
origination capabilities and servicing portfolio as well as to expand into
related businesses. Accordingly, such acquisitions may result in a short-term
decrease in income from operations during the period from acquisition through a
period necessary to integrate the acquired companies.
RESULTS OF OPERATIONS - SUMMARY
The Company's primary business activities are commercial and
multifamily loan servicing, loan origination and sales of the loans to investors
in the secondary market. With the formation of WMF Capital Corp. and WMF Carbon
Mesa, the Company operates a commercial mortgage conduit, manages commercial
mortgage investment funds, and provides special asset management services.
Revenues from mortgage banking activities are earned from the origination of
commercial and multifamily real estate mortgage loans and the servicing of such
loans. The Company's revenue includes loan servicing fees, gains on sale of
mortgage loans (including origination fees and related gains on originated
servicing rights), interest income on loans prior to sale, placement fees
(revenue earned relating to utilization of escrow funds) and other income. The
addition of WMF Capital Corp. and WMF Carbon Mesa are expected to add
securitization profits and funds management fees as sources of revenue. Through
a 20% ownership interest in COMIT REIT, the Company also invests in structured
real estate debt, providing the Company with another source of potential income.
The Company's revenue is significantly influenced by the timing of
origination, sale and securitization of mortgage loans and is sensitive to
economic factors such as the general level of interest rates and demand for
commercial and multifamily real estate. As a result, future revenues may
fluctuate due to changes in these factors. The Company expects that as it
completes acquisitions and expands into related businesses, the sources of
revenues will change. Therefore, the Company's historical results may not be
indicative of future periods.
During the first six months of 1998, the Company originated
approximately $1.7 billion in loans. As of June 30, 1998, $319 million in
mortgage loans are held by the Company for securitization purposes. As the
Company did not previously hold loans for securitization purposes the balance of
loans held for sale and the corresponding borrowings have increased.
6
<PAGE> 9
The following table sets forth information derived from the
Company's consolidated statements of operations for each of the periods
presented:
Summary Financial Information
Results of Operations
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Revenues:
Servicing fees $3,607 $2,905 $7,301 $5,631
Gain on sale of mortgage loans, net 7,101 3,510 12,334 5,917
Interest income 4,328 1,178 5,484 2,111
Placement fee income 2,076 1,187 4,137 2,312
Other income 1,216 320 2,360 569
------ ----- ------ ------
Total Revenues 18,328 9,100 31,616 16,540
------ ----- ------ ------
Expenses:
Salaries and employee benefits 7,614 4,097 13,885 7,654
General and administrative 3,963 1,516 7,036 2,788
Occupancy 964 510 1,802 1,038
Provision for loan servicing losses 273 279 527 453
Warehouse interest expense 2,841 148 3,208 275
Non-operating interest expense 439 202 650 328
Amortization of servicing rights 1,429 1,126 2,503 2,208
Depreciation and amortization 680 406 1,301 739
------ ----- ------ ------
Total Expenses 18,203 8,284 30,912 15,483
------ ----- ------ ------
Income before income tax expense 125 816 704 1,057
Income tax expense 61 432 359 606
-- --- --- ---
Net income $64 $384 $345 $451
=== ==== ==== ====
EBITDA $2,673 $2,550 $5,158 $4,332
====== ====== ====== ======
</TABLE>
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THE THREE AND SIX MONTHS
ENDED JUNE 30, 1997
Net income was $64 thousand and $384 thousand for the three months
ended June 30, 1998 and 1997, respectively, and $345 thousand and $451 thousand
for the six months ended June 30, 1998 and 1997, respectively. The decline in
net income is due primarily to increases in salaries and general and
administrative expenses principally resulting from start-up, integration and
support costs related to the formation of WMF Capital Corp. and recent
acquisitions. The increase in expenses were partially offset by an increase in
gain on loan sales as the result of the Company funding loans totaling $831 and
$366 million during the three months ended June 30, 1998 and 1997, respectively,
and $1,426 and $630 million during the six months ended June 30, 1998 and 1997,
respectively. Loan fundings exclude loan originations by WMF Capital Corp of $15
and $314 million, respectively, during the three and six months ended June 30,
1998. These originations will be recognized in subsequent periods upon sale to
third-parties through a securitization. Higher servicing fee and placement fee
income also contributed to partially offset the increase in expenses as the
Company's servicing portfolio balance ended the quarter at $11.5 billion, up
$4.0 billion from the prior year.
The Company's earnings before non-operating interest expense,
income taxes, depreciation and amortization ("EBITDA") for the three months
ended June 30, 1998 was $2.67 million compared with $2.55 million for the same
period of 1997, an increase of $0.12 million or 4.7%. EBITDA for the six months
ended June 30, 1998 was $5.16 million compared to $4.33 million for the same
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period of 1997, an increase of $0.83 million or 19.1%. The increase in EBITDA
for the three and six months ended June 30, 1998 as compared to the same period
for 1997 is due primarily to growth in revenues as a result of gain on loan
sales resulting from the Company funding loans totaling $1,426 million during
the first half of 1998, compared to $630 million during the same period in 1997.
Higher servicing fee and placement fee income also contributed to the EBITDA
increase as the Company's servicing portfolio balance ended the quarter at $11.5
billion, up $4.0 billion from the prior year. These increases in revenues were
partially offset by increases in salaries and general and administrative
expenses primarily resulting from start-up, integration and support costs
related to the formation of WMF Capital Corp. and recent acquisitions.
EBITDA is widely used in the industry as a measure of a company's
operating performance, but should not be considered as an alternative either (i)
to income from continuing operations (determined in accordance with generally
accepted accounting principles) as a measure of profitability or (ii) to cash
flows from operating activities (determined in accordance with generally
accepted accounting principles). EBITDA does not take into account the Company's
debt service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that are available for discretionary uses.
Servicing fees were $3.6 million for the three months ended June
30, 1998, an increase of $0.7 million or 24.1% from $2.9 million for the three
months ended June 30, 1997 and $7.3 million for the six months ended June 30,
1998, an increase of $1.7 million or 30.4% from $5.6 million for the six months
ended June 30, 1997. Revenue related to mortgage servicing is based upon the
unpaid principal balance of loans serviced. The increase in servicing fees for
the three and six months ended June 30, 1998 is a result of the principal
balance of the Company's servicing portfolio increasing to $11.5 billion as of
June 30, 1998 from $7.5 billion as of June 30, 1997. The percentage increase in
servicing fee revenue is less than the percentage increase in the servicing
portfolio because the servicing fee on the added servicing, primarily that
received from insurance companies, is lower than the Company's historical
average servicing rate.
Gain on sale of mortgage loans was $7.1 million for the three
months ended June 30, 1998, an increase of $3.6 million or 102.8% from $3.5
million for the three months ended June 30, 1997 and $12.3 million for six
months ended June 30, 1998, an increase of $6.4 million or 108.4% from $5.9
million for the six months ended June 30, 1997. For the three and six months
ended June 30, 1998, the Company sold $831 million and $1,426 million mortgage
loans, respectively, as compared to $366 million and $630 million for the three
and six months ended June 30, 1997, respectively. The increase in gain on sale
of mortgage loans primarily results from an increase in cash loan origination
fees and includes the gain on recognizing originated mortgage servicing rights
in the amount of $0.7 million related to the Company's origination of conduit
mortgage loans, and includes an increase in gain on recognizing originated
mortgage servicing rights on FHA insured loans of $1.9 million.
Interest income was $4.3 million for the three months ended June
30, 1998, an increase of $3.1 million or 258.3% from $1.2 million for the three
months June 30, 1997 and $5.5 million for the six months ended June 30, 1998, an
increase of $3.4 million or 161.9% from $2.1 million for the six months ended
June 30, 1997. This increase was due to the increase in loan originations and
the increased balance of loans held for securitization purposes during the three
and six months ended June 30, 1998 compared to the three and six months ended
June 30, 1997.
Placement fee income was $2.1 million for the three months ended
June 30, 1998, an increase of $0.9 million or 75.0% from $1.2 million for the
three months ended June 30, 1997 and $4.1 million for the six months ended June
30, 1998, an increase of $1.8 million or 78.3% from $2.3 million for the six
months ended June 30, 1997. This increase was the result of an increase in the
average investor escrow balances held by the Company.
Other income was $1.2 million for the three months ended June 30,
1998, an increase of $0.9 million or 300.0% from $0.3 million for the three
months ended June 30, 1997 and $2.4 million for the six months ended June 30,
1998, an increase of $1.8 million or 300% from $0.6 million for the six months
ended June 30, 1997. The increase was the result of increased prepayment
penalties, termination fees and loan management fees.
The Company's total expenses consist of salaries and benefits
(including commissions), other general and administrative expenses, provision
for loan servicing losses, operating interest expense, amortization of mortgage
servicing rights, and other depreciation and amortization.
Salaries and benefits, the largest category of costs for the
Company, increase with loan production due primarily to the payment of
commissions on loan originations. Salaries and benefits increased $3.5 million,
or 85.4%, from $4.1 million for the three
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<PAGE> 11
months ended June 30, 1997 to $7.6 million for the three months ended June 30,
1998 and $6.2 million or 80.5%, from $7.7 million for the six months ended June
30, 1997 to $13.9 million for the six months ended June 30, 1998. This increase
is due primarily to increased originations, the acquisitions of WMF Askew, WMF
Robert C. Wilson, WMF New York Urban and WMF Carbon Mesa (the "Acquisitions"),
and the formation of WMF Capital Corp. These factors, combined with the
Company's expansion into non-multifamily commercial lending, contributed to the
increase in the Company's number of employees from 223 as of June 30, 1997 to
402 as of June 30, 1998.
General and administrative expenses consist of professional fees,
travel, management information, occupancy, telephone and equipment rental, and
other expenses. General and administrative expenses were $4.0 million for the
three months ended June 30, 1998, an increase of $2.5 million or 166.7% from
$1.5 million for the three months ended June 30, 1997 and $7.0 million for the
six months ended June 30, 1998, an increase of $4.2 million or 150.0% from $2.8
million for the six months ended June 30, 1997. The increase is a result of
integration and start-up costs associated with Acquisitions and WMF Capital
Corp.
The Company's provision for loan servicing losses remained stable
at $0.3 million for the three months ended June 30, 1998 and 1997 and $0.5 for
the six months ended June 30, 1998 and 1997, respectively. The provision for
losses is the result of management's determination, as part of its ongoing
assessment of the Company's exposure related to its Fannie Mae DUS portfolio.
The Company's principal balance of Fannie Mae DUS loans in the servicing
portfolio was $1,153 million and $815 million as of June 30, 1998 and 1997,
respectively.
Warehouse interest expense was $2.8 million for the three months
ended June 30, 1998, an increase of $2.7 million from $0.1 million for the three
months ended June 30, 1997 and $3.2 million for the six months ended June 30,
1998, an increase of $2.9 million from $0.3 million for the three months ended
June 30, 1997. This increase was primarily due to the increase in WMF Capital
Corp's loans held for securitization.
Non-operating interest expense was $0.4 million for the three
months ended June 30, 1998, an increase of $0.2 million or 100.0% from $0.2
million for the three months ended June 30, 1997. For the six months ended June
30, 1998 non-operating interest expense was $0.7 million, an increase of $0.4
million from $0.3 million for the six months ended June 30, 1997. This increase
was due to increased borrowings related to the capitalization of WMF Capital
Corp. and recent Acquisitions.
Depreciation and amortization was $2.1 million for the three months
ended June 30, 1998, an increase of $0.6 million or 40.0% from $1.5 million for
the three months ended June 30, 1997 and the depreciation and amortization
expense of $3.8 million for the six months ended June 30, 1998 increased by $0.9
million or 31.0% from $2.9 million for the six months ended June 30, 1997. This
increase was due primarily to the amortization related to the goodwill
recognized as a result of the Acquisitions.
The Company's effective tax rate is approximately 51%. The
difference between the effective income tax rate and the Federal and State
income tax rates is due primarily to the amortization of goodwill, a portion of
which is not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financing needs are the financing of loan
origination activities, the pursuit of new company acquisitions and the purchase
of servicing rights. To meet these needs, the Company currently utilizes
warehouse lines of credit, a secured line of credit and a revolving credit
facility. Due to increases in conduit originations, Merrill Lynch Mortgage
Capital Inc. has committed to expand its warehouse line of credit from $500
million to $1 billion. As a part of this commitment, Merrill Lynch Mortgage
Capital, Inc. will temporarily increase the warehouse line of credit by an
additional $300 million until September 30, 1998.
The Company's debt agreements require the maintenance of certain
financial ratios relating to liquidity, leverage, working capital, and net worth
among other restrictions, all of which were met at June 30, 1998.
In connection with its Fannie Mae Delegated Underwriting and
Servicing (DUS) program, the Company is required to establish a letter of credit
to meet the program's requirements.
In the course of the Company's mortgage banking operations, the
Company sells to investors the mortgage loans it originates but generally
retains the right to service the loans, thereby increasing the Company's
investment in loan servicing rights. The
9
<PAGE> 12
Company views the sale of loans on a servicing-retained basis in part as an
investing activity. Significant unanticipated prepayments in the Company's
servicing portfolio could have a material adverse effect on the Company's future
operating results and liquidity.
The Company also originates mortgage loans that are held for
securitization. During the holding period the Company enters into hedging
arrangements to mitigate the impact of adverse changes in interest rates.
Significant fluctuations in interest rates and credit spreads could impact the
effectiveness of the hedging arrangements and consequently could have a material
adverse effect on the Company's future operating results and liquidity.
Additionally, the hedging arrangements do not mitigate the Company's exposure to
credit risk during the holding period, and thus fluctuations in the value of the
underlying properties could have a material adverse effect on the Company's
operating results and liquidity.
Cashflows
Operating Activities: In the six months ended June 30, 1998, the
Company's operating activities used cash of approximately $306 million primarily
to increase its mortgage loans held for securitization purposes. These are
viewed as short-term assets and are generally financed with short-term
borrowings as discussed under "Financing Activities".
Investing Activities: The primary investing activity for which cash
was used during the six months ended June 30, 1998 was the acquisition of WMF
Carbon Mesa and the lending activities of WMF Capital Corp.
Financing Activities: Net cash provided by financing activities
amounted to $320 million for the six months ended June 30, 1998. The increase
primarily reflects increased borrowings used to capitalize WMF Capital Corp. as
well as to finance the increase in mortgage loans held for securitization as
discussed under "Operating Activities".
The Company believes it will need additional capital resources
to meet its operating needs and believes it will have access to such capital
through additional financing arrangements.
YEAR 2000 COMPLIANCE
The Company has developed a plan to deal with the Year 2000 problem
and has begun converting its computer systems to a Year 2000 compliant system.
The plan provides for the conversion efforts to be completed before December 31,
1999. The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. The Company
currently uses vendor-supported software, which is being adjusted to be Year
2000 compliant. Other costs of becoming compliant will be funded through
operating cash flows. Such costs are not currently expected to be material to
the Company's financial condition or results from operations
10
<PAGE> 13
PART II.
OTHER INFORMATION
Item 1: Legal Proceedings
The Company is involved in litigation related to the normal course of
its business. Management is of the opinion that the litigation will not have a
material adverse impact on the Company's financial position or operating results
Item 2: Changes in Securities.
None
Item 3: Defaults upon Senior Securities.
None
Item 4: Submission of Matter to a Vote of Security Holders.
(a) The Company held its Annual Meeting of Stockholders on Tuesday,
June 16, 1998 at 10.00 a.m.
(b) All the existing directors were nominated for re-election. All the
nominated directors were elected at the annual meeting. The
directors elected were as follows: J. Roderick Heller III, Shekar
Narasimhan, Mohammed A. Al-Tuwaijri, Michael R. Eisenson, Tim R.
Palmer, John D. Reilly and Herbert S. Winokur, Jr.
(c) Besides the election of directors, there were two other matters
that were voted upon at the annual meeting. The first matter was to
approve the Employee Stock Purchase Plan. The vote count was as
follows:
<TABLE>
<CAPTION>
Against/ Broker
For Withheld Abstentions Non-votes
--- -------- ----------- ---------
<S> <C> <C> <C>
4,183,005 2,914 2,667 697,842
</TABLE>
The second mattere was ratification of the selection of KPMG Peat
Marwick LLP as the Company's independent public accountants. The vote
count was as follows:
<TABLE>
<CAPTION>
Against/ Broker
For Withheld Abstentions Non-votes
--- -------- ----------- ---------
<S> <C> <C> <C>
4,883,764 1,401 1,273 -
</TABLE>
The following is the tabulation with respect to each nominee:
<TABLE>
<CAPTION>
Total Vote Total Vote Withheld
Each Director Each Director
------------- -------------
<S> <C> <C>
J. Roderick Heller III 4,877,290 9,148
Shekar Narasimhan 4,877,290 9,148
Mohammed A. Al-Tuwaijri 4,735,929 150,509
Michael R. Eisenson 4,877,290 9,148
Tim R. Palmer 4,877,290 9,148
John D. Reilly 4,877,290 9,148
Herbert S. Winokur, Jr. 4,877,290 9,148
</TABLE>
11
<PAGE> 14
Item 5: Other Information.
None
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<S> <C>
3.1 Restated Certificate of Incorporation of The WMF Group, Ltd. (the "Company") (1)
3.2 Amendment to the Company's Restated Certificate of Incorporation (2)
3.3 Amended and restated by-laws of The WMF Group, Ltd. (5)
10.1 Mortgage Selling and Servicing Contract between Fannie Mae and the
Company, dated December 21, 1990. (1)
10.2 Delegated Underwriting and Servicing Addendum to Mortgage Selling and Servicing
Contract between Fannie Mae and the Company, dated as of March 1, 1994. (1)
10.3 Delegated Underwriting and Servicing Master Loss Sharing Agreement between Fannie
Mae and the Company, dated as of March 1, 1994. (1)
10.4 Delegated Underwriting and Servicing Reserve Agreement among Fannie Mae, State
Street Bank and Trust Company and the Company, dated as of June 4, 1996. (1)
10.5 Term Loan Promissory Note between the Company, WMF/Huntoon, Paige Associates
Limited and Residential Funding Corporation, dated June 14, 1996. (1)
10.6 Servicing Facility Promissory Note between the Company, WMF/Huntoon, Paige
Associates Limited and Residential Funding Corporation, dated June 14, 1996. (1)
10.7 Letter Agreement dated October 25, 1996 between Washington Mortgage Financing
Group and Michael D. Ketcham. (1)
10.8 Key Employee Incentive Plan. (2)
10.9 Key Employee Incentive Award Agreement. (2)
10.10 Key Employee Deferral Compensation Plan. (2)
10.11 Employee Stock Purchase Plan. (2)
10.12 Stock Purchase Agreement dated as of October 31, 1997 between Washington
Mortgage Financial Group, Ltd. and The Robert C. Wilson Company (3)
10.13 Asset Purchase Agreement dated as of December 16, 1997 between Washington Mortgage
Financial Group, Ltd. and NY Urban West Inc. (4)
10.14 Master Repurchase Agreement dated as of March 5, 1998 between WMF Capital Corp. and
Merrill Lynch Mortgage Capital Inc. * (portions have been omitted pursuant to a request for
confidentiality treatment)
11 Statement re computation of per share earnings *
21 Subsidiaries of the registrant (4)
27 Financial data schedule *
</TABLE>
(b) Report on Form 8-K.
None
- -------------------------
(1) Incorporated by reference to the registration statement on Form 10
previously filed by the Company on August 4, 1997.
(2) Incorporated by reference to the registration statement on Form S-1 filed
by the Company on October 30, 1997.
(3) Incorporated by reference to the Form 8-K previously filed by the Company
on November 20, 1997.
(4) Incorporated by reference to the Company's Form 10-K for the year ended
December 31, 1997 filed on March 31, 1998.
(5) Incorporated by reference to the Company's Form 10-Q for the quarter ended
March 31, 1998 filed on May 15, 1998.
* Filed herewith
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<CAPTION>
THE WMF GROUP, LTD.
<S> <C>
Date: August 14, 1998 By: /s/ Shekar Narasimhan
---------------------
Shekar Narasimhan
Director, President and Chief
Executive Officer
Date: August 14, 1998 By: /s/ Michael D. Ketcham
------------------------
Michael D. Ketcham
Executive Vice President, Chief Financial
Officer and Treasurer (Principal Financial Officer)
</TABLE>
13
<PAGE> 1
AN ASTERISK (*) INDICATES THAT CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AS PART OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE> 2
PSA The Bond Market Trade Association
MASTER REPURCHASE AGREEMENT
September 1996 Version
Dated as of March 5, 1998
By and Between:
WMF CAPITAL CORP.
and
MERRILL LYNCH MORTGAGE CAPITAL 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 or 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, the issuance of such a protective decree
or the entry of an order having a similar effect, or (C) is not
dismissed within 15 days, (iii) the making by such party of a
general assignment for the benefit of creditors, or (iv) the
admission in writing by such party of such party's inability to
pay such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided by Seller
to Buyer pursuant to Paragraph 4(a) hereof;
2
<PAGE> 3
(c) "Buyer's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of the Buyer's Margin
Percentage to the Repurchase Price for such Transaction as of such
date;
(d) "Buyer's Margin Percentage", with respect to any Transaction as of
any date, a percentage (which may be equal to the Seller's Margin
Percentage) agreed to by Buyer and Seller or, in the absence of
any such agreement, the percentage obtained by dividing the Market
Value of the Purchased Securities on the Purchase Date by the
Purchase Price on the Purchase Date for 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 any amount of such Price Differential
previously paid by Seller to Buyer with respect to such
Transaction);
(l) "Pricing Rate", the per annum percentage rate for determination of
the Price Differential;
(m) "Prime Rate", the prime rate of U.S. commercial banks as published
in The Wall Street Journal (or, if more than one such rate is
published, the average of such rates);
(n) "Purchase Date", the date on which Purchased Securities are to be
transferred by Seller to Buyer;
(o) "Purchase Price", (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to Buyer, and (ii)
thereafter, except where Buyer and Seller agree otherwise, such
price increased by the amount of any cash transferred by Buyer to
Seller pursuant to Paragraph 4(b) hereof and decreased by the
amount of any cash transferred by Seller to Buyer pursuant to
Paragraph 4(a) hereof or applied to reduce Seller's obligations
under clause (ii) of Paragraph 5 hereof;
3
<PAGE> 4
(p) "Purchased Securities", the Securities transferred by Seller to
Buyer in a Transaction hereunder, and any Securities substituted
therefor in accordance with Paragraph 9 hereof. The term
"Purchased Securities" with respect to any Transaction at any time
also shall include Additional Purchased Securities delivered
pursuant to Paragraph 4(a) hereof and shall exclude Securities
returned pursuant to Paragraph 4(b) hereof;
(q) "Repurchase Date", the date on which Seller is to repurchase the
Purchased Securities from Buyer, including any date determined by
application of the provisions of Paragraph 3(c) or 11 hereof;
(r) "Repurchase Price", the price at which Purchased Securities are to
be transferred from Buyer to Seller upon termination of a
Transaction, which will be determined in each case (including
Transactions terminable upon demand) as the sum of the Purchase
Price and the Price Differential as of the date of such
determination;
(s) "Seller's Margin Amount", with respect to any Transaction as of
any date, the amount obtained by application of the Seller's
Margin Percentage to the Repurchase Price for such Transaction as
of such date;
(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
the other party a written confirmation of each Transaction (a
"Confirmation"). The Confirmation shall describe the Purchased
Securities (including CUSIP number, if any), identify Buyer and
Seller and set forth (i) the Purchase Date, (ii) the Purchase
Price, (iii) the Repurchase Date, unless the Transaction is to be
terminable on demand, (iv) the Pricing Rate or Repurchase Price
applicable to the Transaction, and (v) any additional terms or
conditions of the Transaction not inconsistent with this
Agreement. The Confirmation, together with this Agreement, shall
constitute conclusive evidence of the terms agreed between Buyer
and Seller with respect to the Transaction to which the
Confirmation relates, unless with respect to the Confirmation
specific objection is made promptly after receipt thereof. In the
event of any conflict between the terms of such Confirmation and
this Agreement, this Agreement shall prevail.
(c) In the case of Transactions terminable upon demand, such demand
shall be made by Buyer or Seller, no later than such time as is
customary in accordance with market practice, by telephone or
otherwise on or prior to the business day on which such
termination will be effective. On the date specified in such
demand,
4
<PAGE> 5
or on the date fixed for termination in the case of Transactions
having a fixed term, termination of the Transaction will be
effected by transfer to Seller or its agent of the Purchased
Securities and any Income in respect thereof received by Buyer
(and not previously credited or transferred to, or applied to the
obligations of, Seller pursuant to Paragraph 5 hereof) against the
transfer of the Repurchase Price to an account of Buyer.
4. MARGIN MAINTENANCE
(a) If at any time the aggregate Market Value of all Purchased
Securities subject to all Transactions in which a particular party
hereto is acting as Buyer is less than the aggregate Buyer's
Margin Amount for all such Transactions (a "Margin Deficit"), then
Buyer may by notice to Seller require Seller in such Transactions,
at Seller's option, to transfer to Buyer cash or additional
Securities reasonably acceptable to Buyer ("Additional Purchased
Securities"), so that the cash and aggregate Market Value of the
Purchased Securities, including any such Additional Purchased
Securities, will thereupon equal or exceed such aggregate Buyer's
Margin Amount (decreased by the amount of any Margin Deficit as of
such date arising from any Transactions in which such Buyer is
acting as Seller).
(b) If at any time the aggregate Market Value of all Purchased
Securities subject to all Transactions in which a particular party
hereto is acting as Seller exceeds the aggregate Seller's Margin
Amount for all such Transactions at such time (a "Margin Excess"),
then Seller may by notice to Buyer require Buyer in such
Transactions, at Buyer's option, to transfer cash or Purchased
Securities to Seller, so that the aggregate Market Value of the
Purchased Securities, after deduction of any such cash or any
Purchased Securities so transferred, will thereupon not exceed
such aggregate Seller's Margin Amount (increased by the amount of
any Margin Excess as of such date arising from any Transactions in
which such Seller is acting as Buyer).
(c) If any notice is given by Buyer or Seller under subparagraph (a)
or (b) of this Paragraph at or before the Margin Notice Deadline
on any business day, the party receiving such notice shall
transfer cash or Additional Purchased Securities as provided in
such subparagraph no later than the close of business in the
relevant market on such day. If any such notice is given after the
Margin Notice Deadline, the party receiving such notice shall
transfer such cash or Securities no later than the close of
business in the relevant market on the next business day following
such notice.
(d) Any cash transferred pursuant to this Paragraph shall be
attributed to such Transactions as shall be agreed upon by Buyer
and Seller.
(e) Seller and Buyer may agree, with respect to any or all
Transactions hereunder, that the respective rights of Buyer or
Seller (or both) under subparagraphs (a) and (b) of this Paragraph
may be exercised only where a Margin Deficit or a Margin Excess,
as the case may be, exceeds a specified dollar amount or a
specified percentage of the Repurchase Prices for such
Transactions (which amount or percentage shall be agreed to by
Buyer and Seller prior to entering into any such Transactions).
5
<PAGE> 6
(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 hereunder shall
be in immediately available funds. All Securities transferred by one
party hereto to the other party (i) shall be in suitable form for
transfer or shall be accompanied by duly executed instruments of transfer
or assignment in blank and such other documentation as the party
receiving possession may reasonably request, (ii) shall be transferred on
the book-entry system of a Federal Reserve Bank, or (iii) shall be
transferred by any other method mutually acceptable to Seller and Buyer.
8. SEGREGATION OF PURCHASED SECURITIES
To the extent required by applicable law, all Purchased Securities in the
possession of Seller shall be segregated from other securities in its
possession and shall be identified as subject to this Agreement.
Segregation may be accomplished by appropriate
6
<PAGE> 7
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 or 11 hereof,
or of Buyer's obligation to credit or pay Income to, or apply Income to
the obligations of, Seller pursuant to Paragraph 5 hereof.
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.
*Language to be used under 17 C.F.R. Section 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. Section 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
7
<PAGE> 8
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 (i) it
is duly authorized to execute and deliver this Agreement, to enter into
Transactions contemplated hereunder and to perform its obligations
hereunder and has taken all necessary action to authorize such execution,
delivery and performance, (ii) it will engage in such Transactions as
principal (or, if agreed in writing, in the form of an annex hereto or
otherwise, in advance of any Transaction by the other party hereto, as
agent for a disclosed principal), (iii) the person signing this Agreement
on its behalf is duly authorized to do so on its behalf (or on behalf of
any such disclosed principal), (iv) it has obtained all authorizations of
any governmental body required in connection with this Agreement and the
Transactions hereunder and such authorizations are in full force and
effect and (v) the execution, delivery and performance of this Agreement
and the Transactions hereunder will not violate any law, ordinance,
charter, 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
the foregoing representations made by it.
11. EVENTS OF DEFAULT
In the event that (i) Seller fails to transfer or Buyer fails to purchase
Purchased Securities upon the applicable Purchase Date, (ii) Seller fails
to repurchase or Buyer fails to transfer Purchased Securities upon the
applicable Repurchase Date, (iii) Seller or Buyer fails to comply with
Paragraph 4 hereof, (iv) Buyer fails, after one business day's notice, to
comply with Paragraph 5 hereof, (v) an Act of Insolvency occurs with
respect to Seller or Buyer, (vi) any representation made by Seller or
Buyer shall have been incorrect or untrue in any material respect when
made or repeated or deemed to have been made or repeated, or (vii) Seller
or Buyer shall admit to the other its inability to, or its intention not
to, perform any of its obligations hereunder (each an "Event of
Default"):
(a) The nondefaulting party may, at its option (which option shall be
deemed to have been exercised immediately upon the occurrence of
an Act of Insolvency), declare an Event of Default to have
occurred hereunder and, upon the exercise or deemed exercise of
such option, the Repurchase Date for each Transaction hereunder
shall, if it has not already occurred, be deemed immediately to
occur (except that, in the event that the Purchase Date for any
Transaction has not yet occurred as of the date of such exercise
or deemed exercise, such Transaction shall be deemed immediately
canceled). The nondefaulting party shall (except upon the
occurrence of an Act of Insolvency) give notice to the defaulting
party of the exercise of such option as promptly as practicable.
(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)
8
<PAGE> 9
of this Paragraph, shall thereupon become immediately due and
payable, (ii) all Income paid after such exercise or deemed
exercise shall be retained by the nondefaulting party and applied
to the aggregate unpaid Repurchase Prices and any other amounts
owing by the defaulting party hereunder, and (iii) the defaulting
party shall immediately deliver to the nondefaulting party any
Purchased Securities subject to such Transactions then in the
defaulting party's possession or control.
(c) In all Transactions in which the defaulting party is acting as
Buyer, upon tender by the nondefaulting party of payment of the
aggregate Repurchase Prices for all such Transactions, all right,
title and interest in and entitlement to all Purchased Securities
subject to such Transactions shall be deemed transferred to the
nondefaulting party, and the defaulting party shall deliver all
such Purchased Securities to the nondefaulting party.
(d) If the nondefaulting party exercises or is deemed to have
exercised the option referred to in subparagraph (a) of this
Paragraph, the nondefaulting party, without prior notice to the
defaulting party, may:
(i) as to Transactions in which the defaulting party is acting
as Seller, (A) immediately sell, in a recognized market (or
otherwise in a commercially reasonably manner) at such
price or prices as the nondefaulting party may reasonable
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
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determined together with accrued Income (except to the extent
contrary to market practice with respect to the relevant
Securities).
(e) As to Transactions in which the defaulting party is acting as
Buyer, the defaulting party shall be liable to the nondefaulting
party for any excess of the price paid (or deemed paid) by the
nondefaulting party for Replacement Securities over the Repurchase
Price for the Purchased Securities replaced thereby and for any
amounts payable by the defaulting party under Paragraph 5 hereof
or otherwise hereunder.
(f) For purposes of this Paragraph 11, the Repurchase Price for each
Transaction hereunder in respect of which the defaulting party is
acting as Buyer shall not increase above the amount of such
Repurchase Price for such Transaction determined as of the date of
the exercise or deemed exercise by the nondefaulting party of the
option referred to in subparagraph (a) of this Paragraph.
(g) The defaulting party shall be liable to the nondefaulting party
for (i) the amount of all reasonable legal or other expenses
incurred by the nondefaulting party in connection with or as a
result of an Event of Default, (ii) damages in an amount equal to
the cost (including all fees, expenses and commissions) of
entering into replacement transactions and entering into or
terminating hedge transactions in connection with or as a result
of an Event of Default, and (iii) any other loss, damage, cost or
expense directly arising or resulting from the occurrence of an
Event of Default in respect of a Transaction.
(h) To the extent permitted by applicable law, the defaulting party
shall be liable to the nondefaulting party for interest on any
amounts owing by the defaulting party hereunder, from the date the
defaulting party becomes liable for such amounts hereunder until
such amounts are (i) paid in full by the defaulting party or (ii)
satisfied in full by the exercise of the nondefaulting party's
rights hereunder. Interest on any sum payable by the defaulting
party to the nondefaulting party under this Paragraph 11(h) shall
be at a rate equal to the greater of the Pricing Rate for the
relevant Transaction or the Prime Rate.
(i) The nondefaulting party shall have, in addition 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 agrees (i) to
perform all of its obligations in respect of each Transaction hereunder,
and that a default in the performance of any such obligations shall
constitute a default by it in respect of all Transactions hereunder, (ii)
that each of them shall be entitled to set off claims and apply property
held by them in respect of any Transaction against obligations owing to
them in respect of any other Transactions hereunder and (iii) that
payments, deliveries and other transfers made by either of them in
respect of any Transaction shall be deemed to have been made in
consideration of payments, deliveries and other transfers
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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 principals thereof.
17. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party
shall constitute a waiver of any other Event of Default and no exercise
of any remedy hereunder by any party shall constitute a waiver of its
right to exercise any other remedy hereunder. No modification or waiver
of any provision of this Agreement and no consent by any party to a
departure herefrom shall be effective unless and until such shall be in
writing and duly executed by both of the parties hereto. Without
limitation on any of the foregoing, the failure to give 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.
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18. USE OF EMPLOYEE PLAN ASSETS
(a) If assets of an employee benefit plan subject to any provision of
the Employee Retirement Income Security Act of 1974 ("ERISA") are
intended to be used by either party hereto (the "Plan Party") in a
Transaction, the Plan Party shall so notify the other party prior
to the Transaction. The Plan Party shall represent in writing to
the other party that the Transaction does not constitute a
prohibited transaction under ERISA or is otherwise exempt
therefrom, and the other party may proceed in reliance thereon but
shall not be required so to proceed.
(b) Subject to the last sentence of subparagraph (a) of this
Paragraph, any such Transaction shall proceed only if Seller
furnishes or has furnished to Buyer its most recent available
audited statement of its financial condition and its most recent
subsequent unaudited statement of its financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Seller
shall be deemed (i) to represent to Buyer that since the date of
Seller's latest such financial statements, there has been no
material adverse change in Seller's financial condition which
Seller has not disclosed to Buyer, and (ii) to agree to provide
Buyer with future audited and unaudited statements of its
financial condition as they are issued, so long as it is a Seller
in any outstanding Transaction involving a 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 the United States Code, as
amended.
(c) The parties agree and acknowledge that if a party hereto is an
"insured depository institution," as such term is defined in the
Federal Deposit Insurance Act, as amended ("FDIA"), then each
Transaction hereunder is a "qualified financial contract," as that
term is defined in FDIA and any rules, orders or policy statements
thereunder (except insofar as the type of assets subject to such
Transaction would render such definition inapplicable).
(d) It is understood that this Agreement constitutes a "netting
contract" as defined in and subject to Title IV of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
and each payment entitlement and payment obligation under any
Transaction hereunder shall constitute a "covered contractual
payment entitlement" or "covered contractual payment obligation",
respectively, as defined
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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.
WMF CAPITAL CORP. MERRILL LYNCH MORTGAGE
CAPITAL INC.
By: /s/ Michael D. Ketcham By: /s/ Michael Blum
---------------------- ----------------
Title Executive Vice President Title: Managing Director
------------------------ -----------------
Date: March 13, 1998 Date: March 5, 1998
-------------- -------------
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AN ASTERISK (*) INDICATES THAT CONFIDENTIAL INFORMATION HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION AS PART OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE> 15
ANNEX I
(CONTINUED)
SUPPLEMENTAL TERMS AND CONDITIONS TO
THE MASTER REPURCHASE AGREEMENT,
DATED AS OF MARCH 5, 1998, BY AND
BETWEEN WMF CAPITAL CORP. AND
MERRILL LYNCH MORTGAGE CAPITAL INC.
1. APPLICABILITY.
These Supplemental Terms (the "Supplemental Terms") to Master Repurchase
Agreement (the "Master Repurchase Agreement", and collectively with these
Supplemental Terms, the "Agreement") modify the terms and conditions
under which the parties hereto, from time to time, enter into
Transactions. To the extent that these Supplemental Terms conflict with
the terms of the Master Repurchase Agreement, these Supplemental Terms
shall control.
2. ADDITIONAL DEFINITIONS.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Master Repurchase Agreement. Capitalized terms
used in the Master Repurchase Agreement whose definitions are modified in
these Supplemental Terms shall, for all purposes of this Agreement, be
deemed to have such modified definitions.
"Act of Insolvency" shall have the meaning set forth in the Master
Repurchase Agreement except that the number of days set forth in
Paragraph 2(a)(ii)(C) of the Master Repurchase Agreement shall be thirty
(30) days.
"Advance Rate" shall mean a fraction (expressed as a percentage), the
numerator of which is one and the denominator of which is Buyer's Margin
Percentage. The Advance Rate shall be separately determined by MLMCI, in
its sole discretion, for each Eligible Mortgage Loan and shall not exceed
* of the outstanding principal balance for such Eligible Mortgage Loan.
"ALTA Lender's Title Insurance Policy" shall refer to a form of lender's
title insurance policy adopted by the American Land Title Association.
"Appraisal Institute" shall refer to a certain not-for-profit association
of real estate appraisers the principal offices of which are located in
Chicago, Illinois.
"Book Net Worth" shall refer to the equity of Seller determined in
accordance with GAAP.
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"Business Day" shall mean any day excluding Saturday, Sunday and any day
on which banks located in the States of New York and Massachusetts are
authorized or permitted to close for business.
"Buyer's Margin Percentage" shall have the meaning set forth in the
Master Repurchase Agreement except that the percentage referred to
therein shall be (i) * with respect to Purchased Securities for which the
Advance Rate is *, (ii) * with respect to Purchased Securities for which
the related Advance Rate is *, (iii) * with respect to Purchased
Securities for which the related Advance Rate is * and for which * of the
related Repurchase Price is guaranteed by Guarantor pursuant to the
Guaranty and the terms of this Agreement. Notwithstanding anything to the
contrary, MLMCI shall have the ability to adjust the Buyer's Margin
Percentage with respect to any credit lease loans.
"CERCLA" shall refer to the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980.
"Class A Commercial Real Estate Products" shall refer to Commercial Real
Estate Products that are designated as "Class A" by MLMCI in its sole
discretion.
"Closing Agent" shall mean a closing attorney, title insurance company or
other closing agent of Seller set forth on Exhibit D hereto, as the same
shall be amended from time to time with the consent of MLMCI.
"Code" shall refer to the Internal Revenue Code of 1986, as amended.
"Commercial Real Estate Products" shall refer to the mortgage loans (i)
secured by first liens on real property subject to Section 42 of the Code
(regarding low income housing tax credit), (ii) acceptable to MLMCI, in
its sole discretion and (iii) the Mortgage Files relating to which have
been delivered to the Custodian pursuant to the Custody Agreement.
"Confirmation/Funding Request" shall have the meaning of "Confirmation"
set forth in the Master Repurchase Agreement and shall be substantially
in the form attached hereto as Exhibit A.
"Cooperative Loans" shall refer to mortgage loans (i) secured by first
liens on commercial real property that are cooperative buildings, (ii)
acceptable to MLMCI, in its sole discretion and (iii) the Mortgage Files
relating to which have been delivered to the Custodian pursuant to the
Custody Agreement.
"Covenant Compliance Certificate" shall refer to the monthly certificate
required to be delivered by Seller to any Warehouse Lenders under any
Warehouse Facilities.
"Credit Committee Presentation" shall refer to the written presentation
of Seller to its credit committee regarding the origination or
acquisition of a Mortgage Loan, in such detail as MLMCI may reasonably
request.
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"Custodian" shall refer to the custodian named in the Custody Agreement.
"Custody Agreement" shall refer to the Custody Agreement, dated as of
March 5, 1998, by and among Seller, MLMCI and the Custodian named
therein, as the same may be modified and amended from time to time.
"Default Rate" shall mean a per annum percentage rate equal to the
Pricing Rate with respect to any particular Transaction plus thirty (30)
basis points.
"Disbursement Instructions" shall refer to the funding instructions for a
Mortgage Loan sent by Seller to the Closing Agent that is closing the
Mortgage Loan, which instructions shall specifically indicate that the
related Mortgage Loan will be funded with MLMCI's funds and that such
Mortgage Loan has been sold to MLMCI under the Agreement.
"Eligible Mortgage Loans" shall refer to Mortgage Loans (i) that have
been reviewed by MLMCI, (ii) that are conduit eligible (including,
without limitation, Class A Commercial Real Estate Products), as
determined by MLMCI in its sole discretion, and (iii) as to which the
representations and warranties contained in Paragraph 9(b) and 9(c) of
these Supplemental Terms are true as of any date of determination. The
determination of whether a Mortgage Loan constitutes an Eligible Mortgage
Loan shall be made by MLMCI in a commercially reasonable manner. Any
Whole Mortgage Loan that is originated in full compliance with the
Guidelines shall constitute an Eligible Mortgage Loan.
"FDIC" shall refer to the Federal Deposit Insurance Corporation.
"FHA" shall refer to the Federal Housing Administration.
"First Union" shall refer to First Union National Bank.
"FNMA" shall refer to the Federal National Mortgage Association.
"GAAP" shall mean generally accepted accounting principles consistently
applied.
"Guarantor" shall refer to The WMF Group, Ltd., a Delaware corporation.
"Guaranty" shall refer to the guaranty by the Guarantor of the
obligations of Seller under the Agreement and the Custody Agreement, in a
form mutually agreed upon by the parties.
"Guidelines" shall refer to (i) the Origination Requirements and (ii) the
WMF Guidelines.
"Hazardous Materials" shall mean without limitation, gasoline, petroleum
products, explosives, radioactive materials, polychlorinated biphenyls or
related or similar
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materials, asbestos or any material containing asbestos, lead-based paint
and any other substance or material as may be defined as a hazardous or
toxic substance by any federal, state or local environmental law,
ordinance, rule, regulation or order, including, without limitation,
CERCLA, the Clean Air Act, the Clean Water Act, the Resource Conservation
and Recovery Act, the Toxic Substances Control Act and any regulations
promulgated pursuant thereto.
"Key Personnel Termination Event" shall mean that both Lawrence A. Brown
and Michael H. Greco shall, for whatever reason, cease to be employed by,
and to regularly provide services to, Seller as its President and Chief
Executive Officer, respectively (or in an equivalent capacity), on a
full-time basis.
"LIBOR" shall mean the London Interbank Offered Rate for one-month
United States Dollar deposits as set forth on page 8695 of Knight-Ridder
as of 8:00 a.m., New York time, on the date of determination.
"Merrill Lynch" shall refer to Merrill Lynch, Pierce, Fenner & Smith
Incorporated and its affiliates.
"MLMCI" shall refer to Merrill Lynch Mortgage Capital Inc., its
affiliates and its permitted assigns.
"Monthly Mortgage Loan Report" shall refer to a report substantially in
the form of Exhibit E hereto.
"Mortgage" shall mean a duly recorded first mortgage or first deed of
trust on improved commercial real property.
"Mortgage File" shall have the meaning set forth in the Custody
Agreement.
"Mortgage Loans" shall refer to Whole Mortgage Loans, Commercial Real
Estate Products and Cooperative Loans.
"Mortgaged Premises" shall mean the real property, including all
buildings, structures, improvements or fixtures thereon and all
appurtenances, water rights, privileges and benefits pertaining thereto,
that is conveyed, pledged or mortgaged, or in which a security interest
is granted under a mortgage or deed of trust to secure the payment and
performance of a Mortgage Loan.
"NationsBank" shall refer to NationsBank, N.A.
"Net Income" shall mean, for any period, the net income of the Seller for
such period as determined in accordance with GAAP.
"Note" shall mean a promissory note, together with any rider, addendum or
amendment thereto, evidencing a Mortgage Loan.
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"Obligor" shall mean with respect to any Mortgage Loan, the Person or
Persons obligated to make payments with respect to such Mortgage Loan,
including any guarantor thereof.
"Origination Requirements" shall refer to the requirements set forth in
the schedule attached hereto as Exhibit F for the origination of Mortgage
Loans. "Person" means a corporation, association, partnership,
organization, business, trust, individual, a government or political
subdivision thereof, any governmental agency or any other entity.
"Phase I Environmental Hazard Assessment Report" shall refer to a report
prepared in substantial compliance with the procedures described under
the caption "Phase I Environmental Site Assessment Process" in the most
recent edition of the Standard Practice for Environmental Site
Assessments issued by the American Society for Testing and Materials, a
certain not-for-profit association the principal offices of which are
located in Philadelphia, Pennsylvania.
"Price Differential" shall mean, 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 the basis of twelve 30-day months and a 360-day year
during the period commencing on (and including) the Purchase Date for
such Transaction and ending on (but excluding) the date of determination
(reduced by any amount of such Price Differential previously paid by
Seller to MLMCI with respect to such Transaction).
"Pricing Rate" 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. Except as may be otherwise mutually agreed upon at the time of
any particular Transaction, the Pricing Rate shall mean (i) a mutually
agreed upon number of basis points (but not in excess of * basis points)
in excess of LIBOR for all Purchased Securities for which the related
Advance Rate is the Advance Rate requested by Seller (which requested
Advance Rate is subject to the maximum Advance Rate), (ii) * basis points
less than what would otherwise be the mutually agreed upon number of
basis points in excess of LIBOR for all Purchased Securities for which
the related Advance Rate is less than the Advance Rate requested by
Seller (which requested Advance Rate is subject to the maximum Advance
Rate), (iii) * basis points less than what would otherwise be the
mutually agreed upon number of basis points in excess of LIBOR for all
Purchased Securities for which the related Advance Rate is the Advance
Rate requested by Seller (which requested Advance Rate is subject to the
maximum Advance Rate) and for which * of the related Repurchase Price is
guaranteed by Guarantor pursuant to Guaranty and the terms of this
Agreement.
"Purchase Price," with respect to any Transaction shall be determined by
dividing the Market Value of the Eligible Mortgage Loan by the related
Buyer's Margin Percentage. The Purchase Price for any Eligible Mortgage
Loan shall not exceed * of the outstanding
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principal balance of such Eligible Mortgage Loan as of the Purchase Date;
provided, however, that MLMCI may, in its discretion (but without any
obligation to do so), pay a Purchase Price for any Eligible Mortgage Loan
in excess of the outstanding principal balance thereof.
"Responsible Officer" shall mean, as to any Person, any officer of such
Person with direct responsibility for the administration of this
Agreement and also, with respect to a particular matter, any other
officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"Rating Agencies" shall refer to (i) Moody's Investors Service, Inc. and
any successor thereto, (ii) Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc. and any successor thereto,
(iii) Fitch IBCA and any successor thereto, and (iv) Duff & Phelp's
Credit Rating Co. and any successor thereto.
"Securities" shall, in addition to the definition set forth in the Master
Repurchase Agreement, refer to Mortgage Loans.
"Seller" shall, in all cases under the Master Repurchase Agreement and
these Supplemental Terms, refer to WMF Capital Corp.
"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 referred to in the related Confirmation/Funding
Request.
"Servicer" shall refer, as to each Mortgage Loan, to the servicer of such
Mortgage Loan listed on Attachment I to the related Confirmation/Funding
Request, which servicer may be an affiliate of Seller.
"Subsidiary" of any Person means any corporation of which more than 50%
of the issued and outstanding capital stock having ordinary voting power
to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or
classes of such corporation shall or might have voting power upon the
occurrence of any contingency) is at the time directly or indirectly
owned or controlled by such Person, collectively by such Person and one
or more of its Subsidiaries or collectively by one or more of such
Person's other Subsidiaries.
"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.
"UCC" shall refer to the Uniform Commercial Code.
"Warehouse Facilities" shall refer to all credit facilities existing
between either Seller and any counterparty other than MLMCI, as the same
shall be amended and supplemented from time to time.
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"Warehouse Lender" shall mean, individually or collectively, a warehouse
lending institution that has disbursed funds to Seller, and has acquired
a lien on the related Mortgage Loan.
"Whole Mortgage Loans" shall refer to the mortgage loans, including
without limitation credit lease loans, secured by first liens on
commercial real property, the Mortgage Files relating to which have been
delivered to the Custodian pursuant to the Custody Agreement.
"WMF Guidelines" shall mean the origination, underwriting, credit and
collection policies and practices of Seller relating to the Mortgage
Loans which shall incorporate the Origination Requirements and shall be
in form and substance acceptable to MLMCI.
3. MODIFICATIONS TO MASTER REPURCHASE AGREEMENT.
(a) All references to Buyer in the Master Repurchase Agreement shall
be deemed to be references to MLMCI and all references to Seller
in the Master Repurchase Agreement shall be deemed to be
references to Seller as specified in these Supplemental Terms.
(b) Paragraph 3 of the Master Repurchase Agreement is hereby amended
by adding the following sentence at the end of subparagraph (a):
Seller shall assign, transfer, and convey to MLMCI all of
Seller's right (but not its obligations), title, and
interest held directly or indirectly, through a loan
participation contract or otherwise, in and to the Purchased
Securities.
(c) Paragraph 4(a) of the Master Repurchase Agreement is hereby
amended to provide that the Market Value of all Purchased
Securities determined for purposes of assessing the existence of
any Margin Deficit shall assume the conversion of the Purchased
Securities into Commercial Mortgage Backed Securities.
(d) Paragraph 4(b) of the Master Repurchase Agreement is hereby
amended to provide that the Market Value of all Purchased
Securities determined for purposes of assessing the existence of
any Margin Excess shall not exceed the outstanding principal
balance of all Eligible Mortgage Loans then subject to the
Agreement.
(e) Paragraph 11(d)(ii) of the Master Repurchase Agreement is hereby
deleted in its entirety and restated as follows:
(ii) as to Transactions in which the defaulting party is
MLMCI, (A) purchase securities or mortgage loans (collectively,
"Replacement Securities") of the same class and amount, in the
case of securities, and of substantially the same maturity,
principal amount and interest rate, in the case of mortgage loans,
as any Purchased Securities that are not delivered by the
defaulting party to the
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nondefaulting party as required hereunder or (B) in its sole
discretion elect, in lieu of purchasing Replacement Securities, to
be deemed to have purchased Replacement Securities at the price
therefor on such date, calculated as the average of the prices
obtained from three nationally recognized registered
broker/dealers that buy and sell comparable mortgage loans in the
secondary market.
4. CONFIRMATION/FUNDING REQUESTS.
(a) Each Confirmation/Funding Request shall be prepared and duly
executed by Seller and delivered to MLMCI prior to 3:00 p.m., New
York City time, not later than the proposed Purchase Date for the
related Transaction. Each such Confirmation/Funding Request
delivered by Seller to MLMCI shall be complete in every respect
except for the signature of an authorized signatory of MLMCI.
(b) Each Confirmation/Funding Request shall be binding upon Seller and
MLMCI unless written notice of objection is given by the objecting
party to the other party hereto within one (1) Business Day after
MLMCI has delivered the completed Confirmation/Funding Request to
Seller.
(c) Notwithstanding the last sentence of Paragraph 3(b) of the Master
Repurchase Agreement, in the event of any conflict between the
terms of a Confirmation/Funding Request and this Agreement, such
Confirmation/Funding Request shall prevail.
5. INCOME PAYMENTS.
All payments and distributions, whether in cash or in kind, made on or
with respect to the Purchased Securities shall, unless otherwise mutually
agreed by MLMCI 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,
an Additional Event of Termination as set forth in Paragraph 11 of these
Supplemental Terms or a Margin Deficit shall not have occurred and be
continuing, directly to Seller from the related mortgagor or servicer.
Payments and distributions received by MLMCI pursuant to Paragraph
10(b)(i) of the Supplemental Terms shall be applied to the reduction of
the aggregate Repurchase Price owed by Seller pursuant to the terms and
conditions of the Agreement.
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6. MARKET VALUE DETERMINATION.
MLMCI shall determine the Market Value for the Purchased Securities in
its reasonable business judgment from time to time and at such time as it
may elect in its sole discretion; provided, however, that MLMCI shall
assign a Market Value of zero to (i) any Mortgage Loan that is not an
Eligible Mortgage Loan, (ii) any Mortgage Loan that has been delinquent
for at least thirty (30) days (iii) any loan that is not eligible for
securitization as determined in MLMCI's sole discretion or (iv) 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 MLMCI's interest
in such Mortgage Loan and which breach has not been cured prior to the
date on which Market Value is being determined. Without limiting the
foregoing, the parties agree that (i) the value of the hedge transactions
referred to in Paragraph 9(d)(xix) of these Supplemental Terms shall be a
factor incorporated into MLMCI's determination of Market Value and (ii)
MLMCI shall, upon Seller's request, provide to Seller explanations
regarding MLMCI's determination of Market Value (provided, however, that
the determination of Market Value shall be made by MLMCI as aforesaid).
7. INTENT OF THE PARTIES; 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 MLMCI shall have a perfected first priority
security interest in all of the Purchased Securities. In such
event, this Agreement is intended to be a security agreement
pursuant to the Uniform Commercial Code for any and all of the
Purchased Securities purported to be covered by this Agreement,
and Seller hereby grants MLMCI a security interest in said
Purchased Securities and in Seller's rights in any contracts and
agreements relating to said Purchased Securities.
(b) Seller shall pay all fees and expenses associated with perfecting
such security interest.
(c) It is the understanding of the parties that MLMCI shall be
obligated to purchase any Mortgage Loan tendered for sale by
Seller pursuant to the Agreement, subject to the limitations of
Paragraph 23 of these Supplemental Terms, so long as such Mortgage
Loan satisfies the eligibility criteria set forth in the Agreement
and no Event of Default or other event of termination under the
Agreement shall have occurred.
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8. DELIVERY OF ADDITIONAL DOCUMENTS; APPROVAL OF MORTGAGE LOANS.
(a) Seller shall cause each closing attorney to deliver to MLMCI
through the Custodian, prior to the Purchase Date for the initial
Transaction in which such closing attorney acts as Closing Agent,
a letter from such closing attorney addressed to MLMCI (with a
copy to Seller) stating that immediately upon the funding of each
such Mortgage Loan such closing attorney shall hold the related
Mortgage File exclusively for the benefit of MLMCI.
(b) Prior to or simultaneously with the execution of this Agreement,
Seller shall deliver to MLMCI such documentation relating to
Seller and/or Guarantor as MLMCI may reasonably request. Such
documentation may include, without limitation, the authorizing
resolutions of Seller with respect to this Agreement and the
Transactions hereunder, the Certificate of Secretary, Articles of
Incorporation, Bylaws, guaranty, or opinions of external counsel
for Seller and/or Guarantor, as the case may be, which relate to
the transactions contemplated in the Agreement. Such documentation
may also include, without limitation, opinions of counsel for
Seller and/or Guarantor with respect to the status of MLMCI's
first-priority security interests in the Mortgage Loans.
(c) Prior to or simultaneously with the execution of this Agreement,
Seller shall deliver to MLMCI a list of Closing Agents, which list
shall be acceptable to MLMCI in its sole discretion and attached
to these Supplemental Terms as Exhibit D.
(d) Prior to or simultaneously with the execution of this Agreement,
Seller shall deliver to MLMCI a list of Seller's authorized
signatories for purposes of executing Confirmation/Funding
Requests, which list shall be attached to these Supplemental Terms
as Exhibit H.
(e) Seller shall, within two (2) Business Days of the Purchase Date of
any Mortgage Loan, deliver to MLMCI (or its designee) copies of
the Disbursement Instructions and Credit Committee Presentations
relating to such Mortgage Loan. In addition, Seller shall, within
two (2) Business Days of the Purchase Date of any Commercial Real
Estate Products, provide MLMCI with the information set forth at
Exhibit G in order to assist MLMCI in its market analysis. The
provisions of this subparagraph (e) shall be subject to Paragraph
12 of these Supplemental Terms.
(f) The parties acknowledge that the Mortgage File relating to any
Mortgage Loan will not be delivered to the Custodian on the
related Purchase Date but must be delivered to the Custodian (with
copies to MLMCI) within five (5) Business Days of the Purchase
Date.
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(g) Simultaneously with the delivery to the Custodian of the Mortgage
File evidencing a Mortgage Loan pursuant to the Custody Agreement,
Seller shall submit to MLMCI copies of such Mortgage File so that
MLMCI can determine if such Mortgage Loan is an Eligible Mortgage
Loan and subject to purchase by MLMCI hereunder. MLMCI shall make
such determination within two (2) Business Days of its having
received the required documentation. The failure of MLMCI to
respond to Seller within such two (2) Business Day period shall be
deemed to be an affirmative response. Disputes with respect to the
eligibility of a Mortgage Loan shall be submitted to one of the
Rating Agencies for final arbitration.
(h) Seller shall deliver to MLMCI the following items within five (5)
Business Days of the Purchase Date of a Mortgage Loan:
(i) The servicing agreement with the Servicer pursuant to
which the related Mortgage Loan is serviced to the extent
not previously delivered to MLMCI;
(ii) An executed letter of instructions to the related
Servicer, countersigned by such Servicer, substantially in
the form of Exhibit B hereto; and
(iii) A fully executed assignment of any third-party custodial
agreements relating to the Mortgage Loan, with copies of
such assignments attached thereto.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Each party represents and warrants, and shall on and as of the
Purchase Date of any Transaction be deemed to represent and
warrant, as follows:
(i) The execution, delivery and performance of this
Agreement and the performance of each Transaction do not
and will not result in or require the creation of any lien,
security interest or other charge or encumbrance (other
than pursuant hereto) upon or with respect to any of its
properties;
(ii) This Agreement is, and each Transaction when entered
into under this Agreement will be, a legal, valid and
binding obligation of it enforceable against it in
accordance with the terms of this Agreement, subject to
applicable bankruptcy, insolvency and similar laws
affecting creditors' rights generally and subject, as to
enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity
or at law); and
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(iii) Since the date of the most recent balance sheet or
financial statement delivered by it pursuant to Paragraph
13 hereof, there has been no material adverse change in its
financial condition or results of operations.
(b) Seller represents and warrants as to each Transaction and the
Mortgage Loans relating thereto as of the Purchase Date of such
Transaction as follows:
(i) All information prepared and provided by Seller to MLMCI
in connection with each Confirmation/Funding Request
concerning the Mortgage Loans and the related Disbursement
Instructions and Credit Committee Presentation are true and
correct in all material respects;
(ii) All data and other information prepared and provided by
or on behalf of Seller to the Custodian, whether in
writing, by electronic transmission or on computer tape or
diskette or otherwise, is true and correct in all material
respects;
(iii) Seller is causing each Mortgage Loan to be serviced in
conformity with the servicing standards described in
Paragraph 18 of these Supplemental Terms;
(iv) Each Mortgage Loan was originated or purchased by Seller
not earlier than sixty (60) days prior to the related
Purchase Date;
(v) All servicing contracts between Seller and any of its
affiliates under which an affiliate of Seller acts as
Servicer are arms length contracts reflecting terms and
conditions (including, without limitation, servicing fees)
generally prevailing in the mortgage loan market at the
time such contracts became effective;
(vi) Applicable Disbursement Instructions have been provided to the
related Closing Agent and such Closing Agent has agreed
that funds provided by MLMCI for the origination of the
Mortgage Loan are to be held in escrow and not disbursed
until the requirements of such Disbursement Instructions
have been satisfied; and
(vii) No Mortgage Loan is subject to the lien of a Warehouse Lender.
(c) Except as otherwise set forth in a schedule of exceptions (which
schedule shall describe in reasonable detail each exception
applicable to each specific representation and/or warranty for a
particular Mortgage Loan) delivered by Seller to MLMCI prior to
the respective Purchase Date and attached to the related
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Confirmation/Funding request, Seller hereby represents and
warrants as to each Mortgage Loan, as of the Purchase Date of the
related Transaction:
(i) The payments required to be made under the terms of the
Note have not been 30 days (or more) delinquent more than
once in the twelve month period prior to the Purchase Date.
Seller has not advanced funds, or induced, solicited or
received any advance of funds from a party other than the
owner of the Mortgaged Premises, directly or indirectly,
for the payment of any amount required by the Note or
Mortgage. There is no current delinquency, exclusive of any
period of grace, in any payment by the mortgagor
thereunder.
(ii) There are no delinquent taxes, water charges, sewer
rents, assessments (including assessments payable in future
installments), insurance premiums, or other outstanding
charges affecting the Mortgaged Premises. No escrow
payments or other charges or payments due Seller are
delinquent or have been capitalized under the Note.
(iii) The terms of the Note and the Mortgage have not been
impaired, waived, altered or modified in any respect,
except by written instruments that (A) are part of the
Mortgage File, (B) have been recorded in the applicable
public recording office if necessary to maintain the
priority of the lien of the Mortgage, and (C) have been
delivered to the Custodian.
(iv) Neither the Note nor the Mortgage is subject to any
right of rescission, set-off, counterclaim or defense,
including the defense of usury, nor will the operation of
any term of the Note or the Mortgage, nor the exercise of
any right thereunder, render the Note or the Mortgage
unenforceable, in whole or in part, or subject to any right
of rescission, set-off, counterclaim or defense, including
the defense of usury, and no such right of rescission,
set-off, counterclaim or defense has been asserted.
(v) Insurance, issued by one insurer or multiple insurers
each of which is generally acceptable for conduit lending
to commercial lending institutions covering (A) all
buildings upon the Mortgaged Premises, (B) loss of rental
income, and (C) liability of the mortgagor, is in full
force and effect. If upon origination of the Mortgage Loan,
the Mortgaged Premises was in an area identified in the
Federal Register by the Federal Emergency Management Agency
as having special flood hazards (and flood insurance has
been made available) a flood insurance policy that meets
the requirements of FNMA is in effect. Each such insurance
policy contains a standard mortgagee clause naming Seller,
their successors and assigns as the mortgagees and all
premiums thereon have been paid. No person has engaged in
any act or omission that would impair the coverage of such
policy or the benefits of the mortgagees' endorsements. The
Note
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or the Mortgage obligates the mortgagor to maintain all
such insurance at its cost and expense, and on the
mortgagor's failure to do so, authorizes the holder of the
Mortgage to maintain such insurance and to obtain
reimbursement therefor from the mortgagor.
(vi) Any and all requirements of any federal, state or local
law applicable to the origination, sale and servicing of
the Mortgage Loan have been satisfied.
(vii) No portion of the Mortgaged Premises originally subject
to the Mortgage has been released from the lien created by
the Mortgage, in whole or in part, nor has any instrument
been executed that would effect such a release.
(viii) The Mortgage (A) is properly recorded (or, if not
recorded, has been submitted for recording, is in form and
substance acceptable for recording and, when properly
recorded, will be sufficient under the laws of the
jurisdiction wherein the Mortgaged Premises is located to
reflect of record the lien created by such mortgage) and
the Mortgage is a valid, continuing and enforceable first
priority lien (subject only to the matters described in
clause (ix) hereof) on the Mortgaged Premises, including
all improvements on the Mortgaged Premises owned by the
mortgagor, all other fixtures on the Mortgaged Premises
owned by the mortgagor and all additions, alterations and
replacements made at any time with respect to the
foregoing, and (B) provides for an assignment of rents,
income and profits from the Mortgaged Premises, or, if the
Mortgage does not so provide, a separate assignment of all
rents, income and profits from the Mortgaged Premises was
executed by the mortgagor, was properly recorded (or, if
not recorded, has been submitted for recording, is in form
and substance acceptable for recording and, when properly
recorded, will be sufficient under the laws of the
jurisdiction wherein the Mortgaged Premises is located to
reflect of record the lien of such assignment) and creates
a valid, existing and enforceable lien and security
interest of the same priority as the lien created by the
Mortgage, and is either in the possession of the Custodian
or, following recording, will be delivered to the
Custodian.
(ix) The lien created by the Mortgage is subject only to (A)
a lien relating to current real property taxes not yet due
and payable, (B) covenants, conditions and restrictions,
rights of way, easements and other matters of public record
as of the date of recording that are acceptable to mortgage
lending institutions generally, that are specifically
referred to in the lender's title insurance policy
delivered to Seller and that do not adversely affect the
value of the Mortgaged Premises, and (C) other matters to
which like properties are commonly subject that do not
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materially interfere with the benefits of the security
intended to be provided by the Mortgage or the use,
enjoyment, value or marketability of the related Mortgaged
Premises.
(x) Any security agreement, chattel mortgage or equivalent
document delivered in connection with the Mortgage Loan
establishes and creates a valid security interest in the
property described therein and there are no filings in the
appropriate public records evidencing any prior security
interest in such property. A UCC financing statement has
been filed and/or recorded in all places necessary to
perfect a valid security interest in the personal property
subject to the lien created by the mortgage or any separate
security agreement, chattel mortgage or equivalent
document, or a UCC financing statement with respect to the
personal property subject to the lien of the Mortgage or
any separate security agreement, chattel mortgage or
equivalent document has been fully executed in accordance
with applicable laws and is in form and substance
sufficient, upon recordation and/or filing thereof in all
necessary places, to perfect a valid security interest in
such personal property. The Mortgaged Premises was not, as
of the date of origination of the Mortgage Loan, subject to
a mortgage, deed of trust, deed to secure debt or other
security instrument creating a lien other than the lien
created by the Mortgage.
(xi) The Note and the Mortgage, and the other agreements
executed in connection therewith, are genuine and each is
the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, subject
to (A) applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforcement
of creditors' rights generally, and (B) general principles
of equity, regardless of whether such enforcement is
considered in a proceeding in equity or at law.
(xii) The proceeds of the Mortgage Loan have been fully
disbursed to or for the account of the mortgagor, and no
person is obligated to advance additional funds under the
Mortgage Loan. Any and all requirements set forth in any
document evidencing, securing or otherwise executed in
connection with the Mortgage Loan as to completion of any
on-site or off-site improvement and as to disbursements of
any funds escrowed therefor that were to have been complied
with on or before the date on which this representation is
made or is deemed made have been complied with, and all
costs, fees and expenses incurred in connection with the
origination and closing of the Mortgage Loan and the
recording of the Mortgage have been paid.
(xiii) Immediately prior to the assignment of the Mortgage Loan
to MLMCI, Seller was the sole legal, beneficial and
equitable owners of the
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Note and the Mortgage, and Seller assigned the Mortgage
Loan to MLMCI free and clear of any encumbrance, equity,
lien, pledge, charge, claim or security interest.
(xiv) The lien created by the Mortgage is insured by an ALTA
Lender's Title Insurance Policy that insures (subject to
the exceptions referred to in clause (ix) hereof) Seller,
its successors and assigns as to the first priority lien
created by the Mortgage in the original principal amount of
the Mortgage Loan after all advances of principal and, if
the Mortgage Loan is an adjustable rate loan, against any
loss by reason of the invalidity or unenforceability of the
lien resulting from the provisions of the Mortgage
providing for adjustment in the Mortgage interest rate.
Such lender's title insurance policy affirmatively insures
ingress and egress to and from the Mortgaged Premises, and
contains no survey exceptions other than as may be
generally acceptable by regulated institutional commercial
mortgage lenders. Such lender's title insurance policy is
in full force and effect, full premiums for such policy,
including all endorsements and special endorsements, have
been paid. No claims have been made under such lender's
title insurance policy, and no person has done, by act or
omission, anything that would impair the coverage of such
lender's title insurance policy. Such lender's title
insurance policy is assignable to MLMCI without the consent
of or any notification to the insurer.
(xv) There has been no declaration by Seller of, and, to the
best of Seller's knowledge, no event has occurred and is
continuing that would give rise to, a default, breach,
violation or event of acceleration under the Mortgage or
the Note and no event that, with the passage of time or
with notice and the expiration of any grace or cure period,
would constitute a default, breach, violation or event of
acceleration. No default, breach, violation or event of
acceleration has been waived in writing except as such is
included in the Mortgage Files. No person other than the
holder of the Note may declare an event of default or
accelerate the related indebtedness under such Mortgage
Loan.
(xvi) There are no mechanics' or similar liens or claims that
have been filed or recorded for work, labor or material
(and no rights are outstanding that under law could give
rise to such lien) affecting the Mortgaged Premises that
are or may be liens prior to, or equal or coordinate with,
the lien of the related Mortgage.
(xvii) All improvements that were considered in determining the
appraised value of the Mortgaged Premises lie wholly within
the boundaries and building restriction lines of the
Mortgaged Premises, no such improvements encroach upon
easements running thereto or to adjoining properties, and
no improvements on adjoining properties
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encroach upon the Mortgaged Premises or easements running
thereto. All physical amenities, access routes or other
items that materially benefit the Mortgaged Premises are
under the direct control of the mortgagor, constitute
permanent easements that benefit and are part of the
Mortgaged Premises or are public property, and the
Mortgaged Premises, by virtue of such easements or
otherwise, is contiguous to a physically open, dedicated
all weather public street, has all necessary permits and
approvals for ingress and egress and is adequately serviced
by public water, sewer systems and utilities. The Mortgaged
Premises comprises solely one or more tax parcels lying
wholly within the boundaries of the legal description of
the Mortgaged Premises contained in the Mortgage and the
related title insurance policy.
(xviii) The Mortgage Loan was either originated or purchased by
Seller.
(xix) The Mortgaged Premises is in good repair, is free of
damage and waste that would materially and adversely affect
its value and the Mortgaged Premises has not been
materially damaged by fire, wind or other cause, which
damage has not been fully repaired or for which insurance
proceeds have not been received or are not expected to be
received in an amount sufficient to pay for such full
repairs. There is no proceeding pending for the total or
partial condemnation thereof. Seller inspected, or caused
to be inspected, the Mortgaged Premises in connection with
the origination or purchase of the Mortgage Loan.
(xx) The Mortgage Loan contains no equity participation by
the originator and does not provide for any contingent or
additional interest in the form of participation in the
cash flow of the Mortgaged Premises. The indebtedness
evidenced by the Note is not convertible to an ownership
interest in the Mortgaged Premises or the mortgagor, and
Seller has not financed nor does it own, directly or
indirectly, any equity in the Mortgaged Premises or the
mortgagor. The Note and Mortgage contain customary and
enforceable provisions that render the rights and remedies
of the holder thereof adequate for the realization of the
benefits of the security intended to be provided thereby.
Either the Mortgage or applicable law provides for the
appointment of a receiver or other custodian for the rents
in the event of a default thereunder, or, to the extent
permitted by law, allows Seller to enter into possession to
collect rents.
(xxi) No relief has been requested or, to the best of Seller's
knowledge is available, to the mortgagor under the Soldiers
and Sailors Civil Relief Act of 1940, as amended.
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(xxii) The Note is not secured by a lien on any real property
other than the lien created by the related Mortgage.
(xxiii) The Mortgage File contains an appraisal of the
Mortgaged Premises made and signed, prior to the approval
of the Mortgage Loan application, by an appraiser, duly
appointed by Seller or their predecessor in interest, who
had no interest, direct or indirect in the Mortgaged
Premises or in any loan made on the security thereof, whose
compensation was not affected by the approval or
disapproval of the Mortgage Loan, who was state-licensed or
state-certified, if required under the laws of the state in
which the related Mortgage Premises is located, at the time
the appraisal was conducted and signed, who was a member of
the Appraisal Institute and who met the minimum
qualifications required by FNMA. Such appraisal conformed
when made to the requirements applicable to FIRREA or
FDIC-insured savings associations, shows separately the
value of the land and the value of the buildings erected
thereon and states that the appraiser examined the
Mortgaged Premises.
(xxiv) If the Mortgage is a deed of trust, a trustee, duly
qualified under applicable law to serve as such, has been
properly designated and currently so serves or may be
substituted in accordance with applicable law, and is named
in the Mortgage. No fees or expenses are or will become
payable by MLMCI to the trustee under the deed of trust,
except in connection with a trustee's sale after default by
the mortgagor.
(xxv) Seller has no knowledge of any circumstances or
condition with respect to the Mortgage, the Mortgaged
Premises, the mortgagor or the mortgagor's credit standing
that can reasonably be expected to cause institutional
investors to regard the Mortgage Loan as an unacceptable
investment. To the best of Seller's knowledge, there exist
no proceedings that would adversely affect the ability of
the mortgagor to meet its obligations under the Mortgage
Loan. To the best of Seller's knowledge, neither the
mortgagor, nor any guarantor of the Mortgage Loan, is a
party to any bankruptcy, reorganization, insolvency or
comparable proceeding.
(xxvi) The Mortgaged Premises is not subject to a condominium
declaration and the Mortgage Loan does not permit the
improvements on the Mortgaged Premises to be converted to a
condominium. If the Mortgaged Premises is improved by a
multifamily dwelling, no more than twenty (20) percent of
the net rentable space of the Mortgaged Premises is
non-residential, which percentage limitation will not be
increased during the term of the Mortgage Loan. No
commercial lease contains an option to purchase, right of
first refusal or similar provision. All commercial leases
contain acceptable subordination language that makes such
leases expressly subordinate to the Mortgage Loan.
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(xxvii) The Mortgaged Premises is in all material respects in
compliance with and lawfully used, operated and occupied
under applicable zoning and building laws or regulations,
and no Seller has received any notification from any
governmental authority that the Mortgaged Premises does not
comply with such laws or regulations, is being used,
operated or occupied unlawfully or has failed to obtain or
maintain any inspection, license or certificates. If the
Mortgaged Premises constitutes a legal nonconforming use,
Seller have (A) obtained a statement from the appropriate
local authority to the effect that the nonconforming
improvements may be rebuilt to current density and used and
occupied for such nonconforming purposes if damaged or
destroyed, or (B) obtained a "law and ordinance"
endorsement to the related hazard insurance policy that
fully insures against loss due to the operation of the
applicable zoning ordinance.
(xxviii) If the Mortgage Loan is an adjustable rate loan,
Seller (or, if Seller purchased the Mortgage Loan, to the
best of Seller's knowledge, all prior owners) have properly
calculated adjustments in the mortgage interest rate and
monthly payment amount for each adjustment date occurring
prior to the Purchase Date and have notified the related
mortgagor of such adjustments, all in accordance with the
Note and applicable law.
(xxix) The Mortgage Loan is principally and directly secured by
a fee simple interest in real property or secured as
provided in the WMF Guidelines.
(xxx) If any portion of the Mortgaged Premises is owned by a
cooperative apartment corporation, the cooperative
apartment corporation is in compliance with all applicable
federal, state and local law and is a "cooperative housing
corporation" within the meaning of Section 216 of the Code.
(xxxi) The Mortgaged Premises is in material compliance with
all environmental laws, ordinances, rules, regulations and
orders of federal, state or governmental authorities that
pertain thereto. Except for any asbestos or
asbestos-containing material that an environmental site
assessment report recommends be removed or otherwise
treated and as to which recommended action there exists a
holdback sufficient to pay for the cost of such action, no
Hazardous Material has been or is incorporated in, stored
on or under, released from, treated on, transported to or
from or disposed of on or from, the Mortgaged Premises such
that, under applicable law (A) any such Hazardous Material
would be required to be eliminated before the Mortgaged
Premises could be altered, renovated, demolished or
transferred, or (B) the owner of the Mortgaged Premises, or
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the holder of a security interest therein, could be
subjected to liability for the removal of such Hazardous
Material or the elimination of the hazard created thereby.
Neither Seller nor the related mortgagor has received
notification from any federal, state or other governmental
authority relating to any Hazardous Materials on or
affecting the Mortgaged Premises or to any potential or
known liability under any environmental law arising from
the ownership or operation of the Mortgaged Premises.
(xxxii) The Mortgage Loan has a debt service coverage ratio of
at least 1.20 to 1.0 with the exception of credit lease
loans which have a debt service coverage ratio of at least
1.00 to 1.00.
(xxxiii) The loan to value ratio of the Mortgage Loan is
not greater than 80% with the exception of credit lease
loans which have a loan to value ratio of not greater than
100%.
(xxxiv) The title company and law firm engaged in the
origination of each Mortgage Loan is listed in Exhibit H
attached hereto.
(xxxv) Each Mortgage Loan was originated in conformity with the
WMF Guidelines, which guidelines are consistent with
underwriting procedures for commercial mortgage loans
securitized in rated public offerings.
(d) Seller covenants with MLMCI as follows:
(i) Seller shall notify MLMCI of any material changes in the
terms of, or the parties to, the Warehouse Facilities
within one (1) Business Day of Seller receiving written
notice of such changes, whether or not such changes have
yet become effective;
(ii) All financial and other covenants made by such Seller
under the Warehouse Facilities shall be deemed to be made
directly to MLMCI as though fully set forth herein;
provided, however, that any such covenants that require
such Seller to obtain MLMCI's consent prior to entering
into financing arrangements (other than the Transactions
contemplated hereby) shall be deemed to merely require
prior written notice by such Seller to MLMCI of such
financing arrangements without any requirement for the
consent of MLMCI;
(iii) Seller shall be at the time it delivers any Purchased
Securities to the Custodian or MLMCI for any Transaction,
and shall continue to be, through the Purchase Date
relating to each such Transaction, the legal and beneficial
owner of such Purchased Securities free and clear of any
lien, security interest, option or encumbrance except for
the security interest
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created by this Agreement and any security interest created
by the Warehouse Facilities;
(iv) Seller shall deliver to MLMCI the Covenant Compliance
Certificate by the same manner of delivery and at the same
time as such Seller is required to deliver it under the
Warehouse Facilities, and MLMCI may rely on such Covenant
Compliance Certificate as if it were a direct addressee;
(v) Each Mortgage Loan shall be serviced by the related
Servicer in accordance with the provisions of Paragraph 18
of these Supplemental Terms;
(vi) Seller shall promptly notify MLMCI after the occurrence
of any change contemplated by Paragraph 11(a) of these
Supplemental Terms;
(vii) Notwithstanding any other provision of this Agreement,
no Mortgage Loan shall be subject to this Agreement or to
the Custody Agreement for more than three hundred
sixty-four (364) days in aggregate;
(viii) Seller shall provide MLMCI with a Monthly Mortgage Loan
Report not later than the last Business Day of each
calendar month with respect to the Mortgage Loans sold by
Seller hereunder;
(ix) Seller shall provide an officer's certificate to MLMCI
within thirty (30) days following the end of each calendar
month certifying that Seller is in compliance with the
requirements of Paragraphs 9(d)(xxi), 9(d)(xxiii) and
11(h);
(x) Not more than 20% of the aggregate outstanding
Repurchase Price for all Transactions, as of any date of
determination, shall relate to Eligible Mortgage Loans that
are Class A Commercial Real Estate Products;
(xi) Seller agrees to retain Merrill Lynch to (i) advise
and consult with Seller regarding the economics and
structure of any proposed securitization that includes
Mortgage Loans originated by Seller and which are purchased
under the Agreement, (ii) prepare, with the assistance of
Seller and its affiliates, any communication necessary to
arrange for a securitization, including presentations to
the Rating Agencies, preparation of a prospectus or private
placement memorandum, (iii) serve as underwriter in a
public securitization or placement agent in a private
placement or Merrill Lynch placement, as the case may be,
at an underwriting fee of 18.75 basis points, with the
exception of Mortgage Loans secured by Class A Commercial
Real Estate Products;
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(xii) Seller shall offer or cause to be offered exclusively to
Merrill Lynch, the position of sole lead manager or sole
lead placement agent of each offering of commercial
mortgage-backed securities by Seller where the underlying
mortgage loans include (i) mortgage loans originated by
MLMCI and/or (ii) Mortgage Loans originated by Seller and
subject to this Agreement; provided, however, that Seller
shall not be obliged to offer such position to Merrill
Lynch in the event that the Pricing Rate for any
Transaction exceeds * basis points in excess of LIBOR
without Seller's prior consent;
(xiii) Seller agrees to offer or cause to be offered to Merrill
Lynch the position of sole lead manager or sole lead
placement agent with respect to Seller's next two (2)
issuances of Commercial Mortgage Backed Securities ("CMBS")
provided the execution of the first CMBS is deemed
successful by Merrill Lynch and Seller; Seller acknowledges
and agrees that the issuances of publicly offered CMBS
contemplated in this Paragraph 9(d)(xiii) shall be made
under the shelf registration statement of Merrill Lynch;
MLMCI agrees to contribute the lesser of (i) 35% of the
total underlying mortgage loans for each CMBS or (ii) the
total amount of commercial mortgage loans then outstanding
in its inventory; not to exceed $750,000,000 in any
calendar year;
(xiv) Seller agrees to grant to MLMCI the right of first
refusal to provide any other secured commercial mortgage
loan credit facility relating to Eligible Mortgage Loans;
(xv) In the event that a collateral pool originated by First
Union, or one of its affiliates (the "First Union Loans")
or NationsBank, or one of its affiliates (the "NationsBank
Loans") is contributed to the pool of Mortgage Loans
eligible for securitization, MLMCI hereby agrees that
Merrill Lynch will not charge the 18.75 basis points on the
First Union Loans or the NationsBank Loans;
(xvi) MLMCI agrees that Merrill Lynch will accept First Union
or NationsBank as co-managers on any securitizations at the
request of Seller; the parties agree that acceptance of any
other co-managers will be by mutual consent of Merrill
Lynch and Seller, which consent shall not be unreasonably
withheld;
(xvii) Subject to Seller contributing 25% of the underlying
mortgage loans or assets to any securitization as
contemplated herein, MLMCI agrees to grant to Seller and or
its affiliates the right of first refusal to acquire at
market price the (i) master servicing; (ii) primary
servicing that is available for sale from MLMCI; (iii)
special servicing; and (iv) "B"
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pieces, as defined by those securities rated BB-, B, B- and
unrated, by any of the Rating Agencies, resulting from such
securitization;
(xviii) In the event that a securitization, as contemplated by
this Agreement, should fail to occur, Seller shall pay to
MLMCI a fee equal to the amount obtained by applying twenty
(20) basis points to the aggregate outstanding Repurchase
Prices as of the date such securitization is deemed to have
failed;
(xix) Each Mortgage Loan will at all times be the subject of
hedging techniques established by Seller that are prudent,
reasonable and customary in the mortgage banking industry;
Seller shall, upon request of MLMCI, provide in form and
substance satisfactory to MLMCI indicating that the
Mortgage Loans are in fact subject to hedging techniques;
Seller shall engage Merrill Lynch to conduct the hedging
transactions contemplated herein these Supplemental Terms
subject to reasonable market terms and costs; Seller hereby
assigns, transfers, and conveys to MLMCI all of Seller's
right (but not its obligations), title, and interest held
directly or indirectly, in and to such hedges on the
Mortgage Loans;
(xx) Seller shall promptly notify MLMCI with respect to any
development, including but not limited to changes to
Seller's senior management, which might materially and
adversely affect the financial condition of Seller;
(xxi) Seller shall maintain a minimum Book Net Worth of
$15,000,000, evidence of which shall be provided in form
and substance satisfactory to MLMCI prior to any
Transaction;
(xxii) The proceeds from any Warehouse Facility obtained by
Seller following the date hereof, subject to the terms and
conditions set forth in this Agreement, shall be no more
than * of the Market Value of the collateral securing such
proceeds;
(xxiii) Seller shall retain no less than 75% of its Net Income
for any period during which its Book Net Worth is less than
$30,000,000;
(xxiv) Seller shall prepare (in form and substance acceptable
to MLMCI) and deliver to MLMCI the WMF Guidelines no later
than thirty (30) days following the date hereof;
(xxv) In the event that Seller's Book Net Worth at any time is
less than $30,000,000, Seller shall, for so long as its
Book Net Worth is below such amount, provide MLMCI on a
semiannual basis within forty-five (45) days after the end
of the second and fourth calendar quarter of each
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calendar year, with an explanation of any financial
statements, statements of financial condition and
statements of income provided to MLMCI pursuant to
Paragraph 12 hereof relating to the preceding semiannual
period (or the period from the date hereof if such
explanation is required to be provided before the
expiration of two calendar quarters after the date hereof)
in such detail as MLMCI may reasonably request; and
(xxvi) Seller shall promptly notify MLMCI if either Lawrence A.
Brown or Michael H. Greco shall, for whatever reason, cease
to be employed by, and to regularly provide services to,
Seller as its President and Chief Executive Officer,
respectively (or in an equivalent capacity), on a full-time
basis.
10. EVENTS OF DEFAULT.
(a) The term "Event of Default" shall, in addition to the definition
set forth in the Master Repurchase Agreement, include the
following events:
(i) Any governmental or self-regulatory authority shall take
possession of MLMCI or Seller or all or substantially all
of 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) MLMCI shall have reasonably determined that Seller is or
will be unable to meet its commitments under this
Agreement, shall have notified Seller of such determination
and Seller shall not have responded with appropriate
information to the contrary within one (1) Business Day.
(iii) A final judgment by any competent court in the United
States of America for the payment of money in an amount of
at least $100,000 is rendered against Seller, and the same
remains undischarged or unpaid for a period of sixty (60)
days during which execution of such judgment is not
effectively stayed.
(iv) This Agreement shall for any reason cease to create a
valid, first priority security interest in any of the
Mortgage Loans purported to be covered thereby.
(v) Any representation or warranty made by Seller in this
Agreement or any Custodial Agreement shall have been
incorrect or untrue in any material respect when made or
repeated or when deemed to have been made or repeated;
provided, however, that with respect to the representations
and warranties contained in 9(c) of these Supplemental
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Terms, such circumstance shall not constitute an Event of
Default if, after taking into account 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.
(vi) Any covenant made by Seller in the Agreement or any
Custodial Agreement shall have been breached in any
material respect; provided, however, that in the case of
covenants made with respect to the Purchased Securities
that are Mortgage Loans, such circumstances 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 the which such
circumstances have occurred, no other Event of Default
shall have occurred and be continuing.
(vii) Any event of default or any event which with notice, the
passage of time or both shall occur and be continuing under
any repurchase or other financing agreement for borrowed
funds or indenture for borrowed funds by which Seller is
bound or affected shall occur and be continuing including,
without limitation, any such agreement of Seller to which
MLMCI is a party.
(viii) An Act of Insolvency shall occur with respect to MLMCI,
Seller or a controlling entity of either MLMCI or Seller.
(b) In addition to the other remedies available to MLMCI, upon the
occurrence and during the continuance of an Event of Default by
Seller, MLMCI shall have the following additional remedies:
(i) All rights of Seller to receive payments which it would
otherwise be authorized to receive pursuant to Paragraph 5
of these Supplemental Terms shall cease, and all such
rights shall thereupon become vested in MLMCI, which shall
thereupon have the sole right to receive such payments and
apply them to the aggregate unpaid Repurchase Prices owed
by Seller.
(ii) All payments that are received by Seller contrary to the
provisions of the preceding clause (i) shall be received in
trust for the benefit of MLMCI, shall be segregated from
other funds of such Seller and shall be promptly remitted
to MLMCI.
(iii) MLMCI may exercise any self-help remedies permitted by
applicable law.
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(iv) MLMCI shall be entitled to the right of set off with
respect to any amounts owed by MLMCI or any affiliate of
MLMCI to Seller as set forth in Paragraph 22 of these
Supplemental Terms.
(c) Any sale of Purchased Securities under Paragraph 11 of the Master
Repurchase Agreement shall include sales in connection with a
securitization and in all cases shall be conducted in a
commercially reasonable manner.
(d) Expenses incurred in connection with an Event of Default shall
include without limitation those costs and expenses incurred by
the nondefaulting party as a result of the early termination of
any repurchase agreement or reverse repurchase agreement entered
into by the nondefaulting party in connection with the Transaction
then in default.
11. EVENTS OF TERMINATION.
At the option of MLMCI, exercised by written notice to Seller, the
Repurchase Date for any or all Transactions under this Agreement shall be
deemed to immediately occur in the event that:
(a) In the reasonable judgment of MLMCI a material adverse change
shall have occurred in the business, operations, properties,
prospects or condition (financial or otherwise) of Seller, MLMCI
shall have notified Seller of such determination (i) prior to 5:00
p.m., New York City time, on a Business Day and Seller shall not
have responded with information to the contrary satisfactory to
MLMCI by 12:00 p.m., New York City time, on the next Business Day
or (ii) after 5:00 p.m., New York City time, on a Business Day and
Seller shall not have responded with information to the contrary
satisfactory to MLMCI by 12:00 p.m., New York City time, on the
second succeeding Business Day;
(b) MLMCI shall request written assurances as to the financial well
being of Seller and such assurances shall not have been provided
within 48 hours of such request;
(c) Seller shall be in default with respect to any normal and
customary covenants under any debt contract or agreement, any
servicing agreement or any lease to which it is a party, which
default could materially adversely affect the financial condition
of Seller (which covenants include, but are not limited to, an Act
of Insolvency of Seller or the failure of Seller to make required
payments under such contract or agreement as they become due);
(d) Seller shall merge or consolidate into any entity unless the
surviving or resulting entity shall be acceptable to MLMCI, in its
sole discretion, and such entity expressly assumes by written
agreement, executed and delivered to MLMCI in form and substance
satisfactory to MLMCI, the performance of all of such Seller's
duties and obligations hereunder and under the Custody Agreement;
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(e) In the event 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 pluses or minuses
reflecting gradations within such generic grades) by one of the
Rating Agencies, both Seller and MLMCI agree to terminate future
financing and reduce existing outstanding advances to a zero
balance in a prudent and commercially reasonable manner;
(f) A firm of independent accountants shall have failed to issue an
opinion or shall have issued a qualified opinion in connection
with the most recent audited financial statements of Seller or
Guarantor;
(g) Any Mortgage Loan shall have been subject to this Agreement or to
the Custody Agreement for more than three hundred sixty-four (364)
days in aggregate; and
(h) Seller's Book Net Worth shall at any time be less than
$15,000,000.
The acceleration of the Repurchase Date as provided in this Paragraph 11
shall be in addition to any other rights of the parties to cause such an
acceleration under this Agreement.
Any provision hereof to the contrary notwithstanding, MLMCI is not
required to enter into any Transactions after it has determined, in its
reasonable judgment, that a material adverse change shall have occurred
in the business, operations, properties, prospects or condition
(financial or otherwise) of Seller.
12. KEY PERSONNEL TERMINATION EVENT.
(a) In the event that MLMCI becomes aware of a Key Personnel
Termination Event, MLMCI shall have the option, exercised by
written notice to Seller, to cause the Repurchase Date for any and
all Transactions under this Agreement to occur on the earlier of
(i) the date specified in the related Confirmation and (ii) one
hundred and twenty (120) days after the date of occurrence of the
Key Personnel Termination Event specified in such written notice.
(b) In the event that Seller notifies MLMCI in writing of the
occurrence of a Key Personnel Termination Event, MLMCI shall
advise Seller within thirty (30) days of MLMCI's receipt of such
notice as to whether or not MLMCI intends to exercise its
termination option pursuant to subparagraph (a) above.
(c) Any provision hereof to the contrary notwithstanding, if a Key
Personnel Termination Event shall have occurred, the Disbursement
Instructions, Credit Committee Presentations and, in the case of
Commercial Real Estate Products, the information set forth at
Exhibit G referred to in Paragraph 8(e) of these Supplemental
Terms shall be delivered to MLMCI (or its designee) three (3)
Business Days prior to the Purchase Date for the related Mortgage
Loan for any Transaction occurring after such Key Personnel
Termination Event. MLMCI
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shall determine if the related Mortgage Loan is an Eligible
Mortgage Loan and subject to purchase by MLMCI hereunder within
three (3) Business Days of its having received the aforesaid
documentation. The failure of MLMCI to respond to Seller within
such three (3) Business Day period shall be deemed to be an
affirmative response.
13. FINANCIAL STATEMENTS.
(a) Seller shall provide MLMCI (i) within one hundred and twenty (120)
days after the end of the fiscal year of Guarantor an audited
year-end consolidating financial statement for such fiscal year,
together with the report of independent certified accountants,
(ii) within sixty (60) days after the end of each of the first
three fiscal quarters in each fiscal year unaudited consolidated
statements of financial condition and consolidated statement of
income of Seller certified to be true and correct by the chief
financial officer or other Responsible Officer of Seller stating
that such financial statements are fairly presented in accordance
with generally accepted accounting principles and that no Event of
Default exists under the Agreement, and (iii) within thirty (30)
days after the last day of each calendar month consolidated
statements of income for such month and balance sheets as of the
end of such month accompanied in each case by a certificate of the
chief financial officer or other Officer of Seller stating that
such financial statements are fairly presented in accordance with
generally accepted accounting principles and that no Event of
Default exists under the Agreement.
(b) Each delivery of Purchased Securities by Seller to MLMCI hereunder
will constitute a representation by Seller that there has been no
material adverse change in Seller's and Guarantor's financial
condition not disclosed to MLMCI since the date of Seller's and
Guarantor's most recent unaudited balance sheet or income
statement delivered to MLMCI. Seller shall provide MLMCI, from
time to time at Seller's expense, with such information of a
financial or operational nature as MLMCI may reasonably request
promptly upon receipt of such request.
14. REPURCHASE PRICE; PRICE DIFFERENTIAL.
The Price Differential shall be payable in arrears with respect to each
Transaction, together with the Purchase Price therefor, on the
termination date for the related Transaction or as may be otherwise
mutually agreed upon by the parties in the related Confirmation/Funding
Request. Payment of the Repurchase Price (including the Price
Differential) shall be made by wire transfer in immediately available
funds.
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15. NEW YORK JURISDICTION; WAIVER OF JURY TRIAL.
Seller agrees to submit to personal jurisdiction in the State of New York
in any action or proceeding arising out of this Agreement. MLMCI and
Seller each hereby waives the right of trial by jury in any litigation
arising hereunder.
16. ADDITIONAL INFORMATION; CONFIDENTIALITY.
(a) Seller agree to provide MLMCI with such information, documents,
and data as MLMCI may reasonably request concerning any Mortgage
Loan that is the subject of review by MLMCI for qualification as
an Eligible Mortgage Loan. Such information may include, but is
not limited to, the items listed in Exhibit G and the Mortgage
File. At any reasonable time Seller shall permit MLMCI, its agents
or attorneys, to inspect and copy any and all documents and data
in their possession pertaining to each Mortgage Loan that is the
subject of any Transaction. Such inspection shall occur upon the
request of MLMCI at a mutually agreeable location during regular
business hours and on a date not more than three (3) Business Days
after the date of such request.
(b) Seller acknowledges that this Agreement and the Custody Agreement
(including any drafts and versions thereof) are confidential in
nature and Seller agrees that, unless otherwise directed by a
court of competent jurisdiction or as may be required by federal
or state law (which determination as to federal or state law shall
be based upon written advice of counsel), it shall limit the
distribution of such documents to its officers, employees,
attorneys, accountants and agents as required in order to conduct
its business with MLMCI.
(c) MLMCI acknowledges that the information relating to the Mortgage
Loans provided by Seller to MLMCI is confidential in nature and
MLMCI agrees that, unless otherwise directed by a court of
competent jurisdiction or as may be required by federal or state
law (which determination as to federal or state law shall be based
upon written advice of counsel), it shall limit the dissemination
of such information to its officers, employees, attorneys,
accountants and agents as required in order to conduct its
business with Seller. MLMCI agrees that neither it nor any of its
affiliates will use information provided to MLMCI by Seller to
solicit the owner (or any of its affiliates) of the property
securing any Mortgage Loan for the purpose of refinancing said
Mortgage Loan or otherwise providing mortgage financing to said
owner (or any of its affiliates).
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17. MARGIN MAINTENANCE.
Paragraph 4(a) of the Master Repurchase Agreement is hereby modified to
provide that if notice is given by MLMCI to Seller under such paragraph,
Seller shall transfer the cash or Additional Purchased Securities to
MLMCI (in the manner contemplated by this Agreement and the Custody
Agreement) prior to the close of business in New York City on the third
Business Day following the date of such notice. In the event that a
Margin Deficit should remain outstanding 24 hours following notice of
such Margin Deficit, Seller shall immediately deliver to MLMCI
documentation evidencing Seller's request for funds from its financial
institution to cure such Margin Deficit. In the event that a Margin
Deficit should remain outstanding beyond the period of time permitted
pursuant to this Paragraph 17, MLMCI shall have the right to proceed, as
set forth in Paragraph 22 of these Supplemental Terms, against any assets
held by MLMCI under any other agreement or transaction with Seller or any
of Seller's affiliates, including any transactions involving the
securitization of the Mortgage Loans, in order to cure such Margin
Deficit. For any period during which there exists a Margin Deficit,
including the day on which MLMCI provides Seller with notice of such
Margin Deficit, the Price Differential for all outstanding Transactions
shall be calculated on the basis of the Default Rate.
18. SERVICING ARRANGEMENTS AND ASSIGNMENT.
(a) Seller hereby assigns for security purposes only its rights under
each servicing agreement relating to a Mortgage Loan to MLMCI.
(b) The parties hereto agree and acknowledge that, notwithstanding the
purchase and sale of any Mortgage Loan contemplated hereby and the
assignment for security purposes by Seller to MLMCI of Seller's
rights under each related servicing agreement (as contemplated by
subparagraph (a) above and Exhibit B), Seller shall cause the
Mortgage Loans to continue to be serviced for the benefit of MLMCI
and, if MLMCI shall exercise its rights to sell the Mortgage Loans
pursuant to the Agreement prior to the related Repurchase Date,
MLMCI's assigns.
(c) Seller shall cause each Mortgage Loan to be serviced by the
related Servicer in accordance with pertinent prudent commercial
mortgage loan servicing standards and procedures generally
accepted in the mortgage banking industry and consistent with
applicable law and regulations.
(d) Upon the occurrence and during the continuation of an Event of
Default, MLMCI may, at its option exercise Seller's rights, powers
and obligations under any servicing agreement that has been
assigned by Seller to MLMCI pursuant to the terms hereof.
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(e) Each Servicer of Mortgage Loans other than an affiliate of Seller
and each related servicing agreement must be reasonably acceptable
to MLMCI.
(f) Seller shall provide or cause the related Servicer to provide
MLMCI and its permitted assigns with periodic reports in the form
of Exhibit E hereto concerning the Mortgage Loans that are the
subject of a Transaction with such frequency and containing such
information as MLMCI or its permitted assigns may reasonably
request, but in any event at least once every month while a
Transaction is outstanding.
(g) MLMCI acknowledges and agrees that each servicing agreement
between the Seller and the respective Servicer, including any
servicing agreement relating to a Mortgage Loan, will be or may be
subject to a first priority security interest, with respect to
said Servicer's rights in each servicing agreement, in favor of a
secured party other than MLMCI, which security interest has been
or may be granted to such secured party by the Servicer. MLMCI
acknowledges and agrees that notwithstanding anything to the
contrary in this Agreement, it accepts the Seller's assignment for
security purposes of the Seller's rights in each servicing
agreement between the Seller and a Servicer subject to the rights
of the Servicer under the servicing agreement, and to the rights
of any secured party of the Servicer to whom the Servicer has
granted a security interest in the Servicer's rights under the
servicing agreement.
19. OPINIONS OF COUNSEL.
Seller shall, on the date of the first Transaction hereunder and, upon
the request of MLMCI, on the date of any subsequent Transaction, cause to
be delivered to MLMCI, with reliance thereon permitted as to any person
or entity that purchases the Mortgage Loans from MLMCI in a repurchase
transaction, a favorable opinion of Seller's counsel with respect to the
matters set forth in Exhibit C hereto, in form and substance reasonably
acceptable to MLMCI.
20. FURTHER ASSURANCES.
Seller shall promptly provide such further assurances or agreements as
MLMCI may request in order to effect the purposes of this Agreement.
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21. MLMCI AS ATTORNEY-IN-FACT.
MLMCI is hereby appointed to act as the attorney-in-fact of Seller upon
the occurrence and during the continuation of an Event of Default for the
purpose of carrying out the provisions of this Agreement and taking any
action and executing any instruments that MLMCI 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, MLMCI shall have the right and
power after the occurrence and during the continuation of any Event of
Default to 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.
22. CROSS-COLLATERALIZATION; RIGHT OF SET-OFF.
MLMCI may, in its sole discretion upon the occurrence and during the
continuation of an Event of Default hereunder, proceed against any assets
held by it or any of its affiliates under any hedging related agreement
with Seller and shall have a right of set-off against any amounts owed by
MLMCI or any of its affiliates to Seller under any hedging related
agreement with Seller. In addition, the parties agree that MLMCI or any
of its affiliates may, in its sole discretion upon the occurrence and
during the continuation of an event of default under any other agreement
with Seller, proceed against any assets held by it hereunder and shall
have a right of set-off against any amount owed by MLMCI to Seller
hereunder.
23. MAXIMUM TRANSACTION AMOUNT.
The aggregate outstanding Repurchase Price as of any date of
determination for all Transactions hereunder for which the related
Mortgage Loans were originated by a Closing Agent other than a title
insurance company shall not exceed $100,000,000 without twenty-four (24)
hours prior notice to, and the consent of, MLMCI.
The Purchase Price for any Eligible Mortgage Loan shall not exceed * of
the outstanding principal balance of such Eligible Mortgage Loan as of
the Purchase Date.
The aggregate outstanding Repurchase Price for the Purchased Securities
subject to this Agreement as of any date of determination shall not
exceed $500,000,000.
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24. TERMINATION.
Notwithstanding any provisions of Paragraph 16 of the Master Repurchase
Agreement to the contrary, this Agreement and all Transactions
outstanding hereunder shall terminate automatically without any
requirement for notice on the date occurring twenty-three (23) calendar
months and twenty-nine (29) days after the date as of which this
Agreement is entered into. Either party may terminate this Agreement and
all Transactions outstanding hereunder upon six (6) months' prior notice.
25. EXPENSES.
(i) Seller shall pay its own costs and expenses and all
reasonable third-party out of pocket costs and expenses of MLMCI
(including, without limitation, reasonable fees and expenses for legal
services) incident to the preparation and negotiation of this Agreement,
the Custody Agreement and any documents relating thereto, up to a maximum
of $35,000 in the aggregate. Notwithstanding the preceding sentence,
MLMCI shall pay its own costs and expenses relating to any due diligence
activities which it conducts with respect to any of the Eligible Mortgage
Loans.
(ii) Seller agrees to pay to MLMCI on demand all reasonable
third-party out-of-pocket costs and expenses (including reasonable
expenses for legal services) of any subsequent enforcement of any of the
provisions hereof, or of the performance by MLMCI of any obligations of
Seller in respect of the Mortgage Loans which Seller has failed or
refused to perform, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of
the Mortgage Loans and for the custody, care or preservation of the
Mortgage Loans (including insurance costs) and defending or asserting
rights and claims of MLMCI in respect thereof, by litigation or
otherwise, including expenses of insurance.
(iii) MLMCI agrees to pay to Seller on demand all reasonable
costs and expenses (including reasonable expenses for legal services) of
any subsequent enforcement of any of the provisions hereof occasioned by
actions or omissions that are solely and exclusively in the control of
MLMCI. The parties hereby agree that MLMCI shall not be liable for the
acts or omissions of the Custodian.
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which counterparts shall be deemed to be an
original, and such counterparts shall constitute but one and the same
instrument.
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27. INCORPORATION OF TERMS. The Master Repurchase Agreement as supplemented
hereby shall be read, taken and construed as one and the same instrument.
WMF CAPITAL CORP. MERRILL LYNCH MORTGAGE
CAPITAL INC.
By: /s/ Michael D. Ketcham By: /s/ Michael Blum
---------------------- ----------------
Name: Michael D. Ketcham Name: Michael Blum
------------------ ------------
Title: Executive Vice President Title: Managing Director
------------------------ -----------------
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THE WMF GROUP, LTD.
(dollars in thousands, except per share data)
EXHIBIT 11
Statement re computation of per share earnings
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
----------------------------------------------------------------------------------------------------------
NET PER SHARE NET PER SHARE NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS $64 5,250 $0.01 $384 4,217 $0.09 $345 5,163 $0.07 $451 4,217 $0.11
Effect of
dilutive
securities:
Options - 284 (.00) - - - - 257 (0.01) - - -
--- ----- ----- ---- ----- ----- ---- ----- ------ ---- ----- -----
DILUTED EPS $64 5,534 $0.01 $384 4,217 $0.09 $345 5,420 $0.06 $451 4,217 $0.11
--- ----- ----- ---- ----- ----- ---- ----- ------ ---- ----- -----
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,280
<SECURITIES> 3,829
<RECEIVABLES> 3,058
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 385,714
<PP&E> 4,907
<DEPRECIATION> 1,233
<TOTAL-ASSETS> 444,864
<CURRENT-LIABILITIES> 388,628
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 42,294
<TOTAL-LIABILITY-AND-EQUITY> 444,864
<SALES> 0
<TOTAL-REVENUES> 31,616
<CGS> 0
<TOTAL-COSTS> 22,723
<OTHER-EXPENSES> 3,804
<LOSS-PROVISION> 527
<INTEREST-EXPENSE> 3,858
<INCOME-PRETAX> 704
<INCOME-TAX> 359
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 345
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.06
</TABLE>
