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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 1-8972
CWM MORTGAGE HOLDINGS, INC.
(Formerly Countrywide Mortgage Investments, Inc.)
(Exact name of registrant as specified in its charter)
DELAWARE 95-3983415
(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
35 NORTH LAKE AVENUE, PASADENA, CALIFORNIA 91101-1857
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (800) 669-2300
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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
requirements for the past 90 days. Yes X No
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the close of the period covered by this report.
Common stock outstanding as of September 30, 1994: 32,256,156 shares
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994 DECEMBER 31, 1993
------------------- ------------------
<S> <C> <C>
ASSETS
Mortgage assets
Mortgage loans held for sale $ 599,845 $ 872,490
Mortgage loans held for investment 307,566 -
Collateral for CMOs (market value $243,600 in 1994 and
$413,000 in 1993) 245,871 402,503
Mortgage securities 89,203 52
Master servicing fees receivable 146,221 45,237
Revolving warehouse lines of credit 60,500 92,058
Cash 8,746 6,866
Other assets 24,253 20,947
------------------- ------------------
Total assets $1,482,205 $1,440,153
=================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Reverse-repurchase agreements $ 991,152 $ 806,557
Collateralized mortgage obligations 214,112 365,886
Accounts payable and accrued liabilities 20,674 17,102
------------------- ------------------
Total liabilities 1,225,938 1,189,545
Commitments and contingencies - -
Shareholders' equity
Common stock - authorized, 60,000,000 shares of
$.01 par value; issued and outstanding, 32,256,156
shares in 1994 and 32,020,484 in 1993 323 320
Additional paid-in capital 257,815 256,587
Net unrealized gain on available-for-sale mortgage
securities 166 -
Cumulative earnings 91,367 72,306
Cumulative distributions to shareholders (93,404) (78,605)
------------------- ------------------
Total shareholders' equity 256,267 250,608
------------------- ------------------
Total liabilities and shareholders' equity $1,482,205 $1,440,153
=================== ==================
</TABLE>
The accompanying notes are an integral part of these statements.
2
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CWM Mortgage Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollar amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended September 30, Nine Months Ended September 30,
--------------------------- -------------------------------
1994 1993 1994 1993
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Interest income
Mortgage loans held for sale $14,647 $10,170 $45,509 $15,880
Mortgage loans held for investment 3,412 - 6,121 674
Collateral for CMOs 5,152 9,860 16,899 33,701
Mortgage securities, net 2,010 - 2,385 -
Master servicing, net 3,585 244 4,415 244
Revolving warehouse lines of credit 913 276 3,055 434
Other 231 1 830 1
------------ ------------ -------------- --------------
Total interest income 29,950 20,551 79,214 50,934
Interest expense
Reverse-repurchase agreements 15,578 4,793 36,849 7,223
Collateralized mortgage obligations 5,917 14,610 21,607 43,409
------------ ------------ -------------- --------------
Total interest expense 21,495 19,403 58,456 50,632
Net interest income 8,455 1,148 20,758 302
Gain on sale of mortgage loans and securities 7,036 2,584 7,782 4,613
Gain on sale of servicing - - 5,834 -
------------ ------------ -------------- --------------
Net revenues 15,491 3,732 34,374 4,915
EXPENSES
Salaries and related expenses 2,140 727 5,924 727
General and administrative 2,196 648 5,450 1,455
Management fees to affiliate 495 111 702 315
------------ ------------ -------------- --------------
Total expenses 4,831 1,486 12,076 2,497
------------ ------------ -------------- --------------
Earnings before income taxes 10,660 2,246 22,298 2,418
Income tax provision 2,363 1,682 3,237 1,682
------------ ------------ -------------- --------------
NET EARNINGS $ 8,297 $ 564 $ 19,061 $ 736
============ ============ ============== ==============
EARNINGS PER SHARE $0.26 $0.03 $0.59 $0.04
============ ============ ============== ==============
Weighted average shares outstanding 32,216,505 21,055,213 32,156,094 16,369,689
============ ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
3
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CWM Mortgage Holdings, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
----------------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 19,061 $ 736
Adjustments to reconcile net earnings
to net cash provided by (used in) operating activities:
Amortization 19,236 10,586
Gain on sale of mortgage loans and securities (7,782) (4,613)
Gain on sale of servicing (5,834) -
Change in other assets and liabilities (3,200) (8,091)
---------------- ----------------
Net cash provided by (used in) operating activities 21,481 (1,382)
Cash flows from investing activities:
Collateral for CMOs:
Purchases of mortgage loans subsequently securitized - (248,269)
Principal payments on collateral 136,841 288,277
Net change in GICs held by trustees 16,532 15,855
Proceeds from sale of collateral for CMOs, net - 33,452
---------------- ----------------
153,373 89,315
Purchases of mortgage loans held for sale (4,314,818) (1,637,838)
Purchases of mortgage loans held for investment (178,787) -
Investment in mortgage securities (116,302) -
Investment in master servicing fees receivable (110,495) -
Proceeds from sale of mortgage loans and securities 4,452,382 1,136,950
Principal payments on mortgage loans and securities 41,539 4,931
Net decrease (increase) in revolving warehouse lines of credit 31,558 (41,481)
Purchase of servicing (18,385) -
Proceeds from sale of servicing 22,281 -
---------------- ----------------
Net cash used in investing activities (37,654) (448,123)
Cash flows from financing activities:
Collateralized mortgage obligations:
Proceeds from issuance of securities - 239,659
Principal payments on securities (152,974) (297,919)
Redemption of securities - (32,689)
---------------- ----------------
(152,974) (90,949)
Net increase in reverse-repurchase agreements 184,595 476,451
Net proceeds from issuance of common stock 1,231 74,802
Cash dividends paid (14,799) (6,270)
---------------- ----------------
Net cash provided by financing activities 18,053 454,034
---------------- ----------------
Net increase in cash 1,880 4,529
Cash at beginning of period 6,866 27
---------------- ----------------
Cash at end of period $ 8,746 $ 4,556
================ ================
Supplemental cash flow information:
Cash paid for interest $ 40,192 $ 44,995
Cash paid for income taxes ================ ================
$ 1 -
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
4
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CWM MORTGAGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The Company has elected to qualify as a real estate investment trust
("REIT") under the requirements of the Internal Revenue Code, and the Company
intends to operate such that it continues to so qualify.
On May 17, 1994, the shareholders approved a change in the Company's name from
Countrywide Mortgage Investments, Inc. to CWM Mortgage Holdings, Inc. ("CWM").
The consolidated financial statements include the accounts of CWM and each of
the entities that is consolidated with CWM for financial reporting purposes
(collectively, the "Company"). The Company's mortgage loan conduit operations
are primarily conducted through a taxable subsidiary that is consolidated with
CWM for financial reporting purposes but is not consolidated for income tax
purposes. All significant intercompany balances and transactions have been
eliminated in consolidation. Certain reclassifications have been made to the
financial statements for the period ended September 30, 1993 to conform to the
September 30, 1994 financial statement presentation.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1994 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1994. For further information with respect to financial reporting,
refer to the consolidated financial statements and footnotes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1993.
NOTE B - MORTGAGE LOANS HELD FOR INVESTMENT
The Company purchases certain mortgage loans to be held as long-term
investments. In addition, mortgage loans transferred from mortgage loans held
for sale to mortgage loans held for investment are recorded at market value on
the date of transfer. Mortgage loans held for investment include various
adjustable rate loans secured by mortgages on single-family residential real
estate. The premiums and discounts and the market valuation related to these
loans are amortized over the estimated life of the loans using the level-yield
method.
NOTE C - MORTGAGE SECURITIES
The Company's mortgage securities consist of mortgage derivatives which
primarily include subordinated securities and principal-only securities retained
upon the issuance of the Company's REMIC securities. In connection with these
investments, the Company has adopted Statement of Financial Accounting Standards
No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS
115"). SFAS 115 requires the classification of debt and equity securities into
one of three categories: held-to-maturity, available-for-sale or trading
securities. Held-to-maturity securities are defined as securities that the
Company has the positive intent and ability to hold to maturity. Trading
securities are defined as securities that are bought and held principally for
the purpose of selling in the near term and are measured at fair value, with
unrealized gains and losses included in earnings. Securities not classified as
either held-to-maturity securities or trading securities are deemed to be
available-for-sale securities and are measured at fair value, with unrealized
gains and losses, net of the related tax effect, reported as a separate
component of stockholders' equity. As of September 30, 1994 mortgage securities
held-to-maturity totaled $33.4 million with an estimated fair value of $32.8
million. Mortgage securities categorized as available-for-sale had a book value
of $55.8 million which is net of an unrealized gain of $166,000, net of a
$120,000 tax effect. The Company had no trading securities at September 30,
1994. As of September 30, 1994, $95.3 million of the Company's mortgage
securities were pledged as collateral under reverse-repurchase agreements.
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NOTE D - RELATED PARTY TRANSACTIONS
The Company has entered into an agreement (the "Management Agreement") with
Countrywide Asset Management Corporation, a subsidiary of Countrywide Credit
Industries, Inc., (the "Manager"), to advise the Company on various facets of
its business and manage its operations, subject to supervision by the Company's
Board of Directors. The Manager has entered into a subcontract with its
affiliate, Countrywide Funding Corporation ("CFC"), to perform such services for
the Company as the Manager deems necessary.
During June 1994, the Company sold approximately $1.8 billion of its purchased
servicing portfolio to CFC. The Company recorded a gain on the sale of these
servicing rights of $5.8 million. Total proceeds from the sale amounted to
$24.6 million.
NOTE E - SUBSEQUENT EVENT
On October 10, 1994, the Board of Directors declared a cash dividend of $.26 per
share to be paid on November 15, 1994 to shareholders of record on October 25,
1994.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
During the first quarter of 1993, the Company commenced operations of a mortgage
loan conduit which purchases mortgage loans from mortgage bankers and financial
institutions which generally retain the servicing rights. The Company generally
purchases mortgage loans originated in regions of the country with higher
volumes of jumbo and non-conforming mortgage loans, including California. As
the mortgage loans are accumulated, they are generally financed through short-
term borrowing sources such as reverse-repurchase agreements. When a sufficient
volume of mortgage loans with similar characteristics has been accumulated, the
loans generally are securitized through the issuance of mortgage-backed
securities in the form of REMIC securities or CMOs or resold in bulk whole loan
sales. The Company's principal sources of revenue from its mortgage conduit
operations are the net interest income earned from holding the mortgage loans
during the accumulation phase and gains or losses on the REMIC securities or
whole loan sale transactions. Alternatively, if the Company elects to invest in
the mortgage loans on a long-term basis using financing provided by CMOs or
other sources, the Company recognizes a net yield on these investments over
time. In addition, the Company earns fee income and net interest income through
its warehouse lending programs which provide warehouse and other types of credit
to third-party mortgage loan originators. Through the warehouse lending
programs, financing is provided for the origination and sale of mortgage loans,
the retention or acquisition of servicing rights, receivables generated through
the sale of servicing rights, and the carrying of mortgage loans pending
foreclosure and/or repurchase from an investor.
In August 1994, the Company commenced its construction lending operation,
through a division of its lending subsidiary named "Construction Lending
Corporation of America". The Company offers both single-family subdivision
construction lending to small-to-medium size builders (tract construction) and
construction-to-permanent financing to individual borrowers who wish to
construct or remodel their principal or second residences. Under the
construction-to-permanent program, one set of documents supports both the
construction and permanent phases of the loan. As of September 30, 1994,
$350,000 and $200,000 were outstanding under the tract construction and
construction-to-permanent programs, respectively. The company earns fee income
and net interest income from these programs.
Prior to 1993, the Company's principal source of earnings had been net interest
income generated from its mortgage portfolio which was primarily financed
through the issuance of CMOs (the "CMO Portfolio"). The amount of net interest
earned on the CMO Portfolio is directly affected by the rate of principal
repayment (including prepayments) of the related mortgage loans as discussed
below.
During all of 1993 and the first quarter of 1994, low mortgage interest rates
resulted in continued high prepayment rates which adversely impacted the net
interest earned on the CMO Portfolio. When prevailing mortgage interest rates
are low relative to interest rates of existing mortgage loans, prepayments on
the underlying mortgage loans generally tend to increase as mortgagors refinance
their existing loans. The cash flow generated by these prepayments is used to
repay the CMOs which are collateralized by these mortgage loans. However, the
remaining loans typically carry a lower coupon, and the interest spread between
these loans and the underlying financing thus narrows. The CMO Portfolio
experienced substantial prepayments during all of 1993 and the beginning of
1994, and since mortgage loan premiums, original issue discount and bond
issuance costs were required to be amortized, losses were ultimately realized on
the portfolio. Due to a decrease in the size of the CMO portfolio and the
decrease in prepayment activity during the quarter ended September 30, 1994,
there was a decrease in the net interest expense realized on the portfolio
during the quarter ended September 30, 1994 compared to the quarter ended
September 30, 1993. Although the recent increase in interest rates has
decreased prepayment activity and the negative impact on the Company's earnings
from its CMO Portfolio, higher interest rates have had an adverse affect on the
Company's mortgage conduit and warehouse lending operations. Higher interest
rates have resulted in increased competition in the market for mortgage-backed
securities, increased hedging costs and lower margins. Higher interest rates
have also resulted in a decrease in the volume of mortgage loans purchased and
warehouse lines outstanding. In addition, the increase in interest rates has
affected the types of loans currently being purchased, as the market shifted
from primarily fixed-rate mortgages to adjustable-rate
7
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mortgages. This trend has resulted in the reduction of net interest income
earned during the loan accumulation phase due to the lower interest rates
typically applicable during the initial phases of an adjustable rate loan.
FINANCIAL CONDITION
CONDUIT AND WAREHOUSE LENDING OPERATIONS: During the nine months ended
September 30, 1994, the Company purchased $4.5 billion of mortgage loans through
its mortgage loan conduit operations, which were financed on an interim basis
using equity and short-term borrowings in the form of reverse-repurchase
agreements. During the nine months ended September 30, 1994, the Company sold
$4.4 billion of mortgage loans through the issuance of REMIC securities and bulk
whole loan sales. At September 30, 1994, the Company was committed to sell
approximately $175 million of mortgage loans in the fourth quarter of 1994. In
addition, at September 30, 1994, the Company held $307.6 million in mortgage
loans as long term-investments.
The Company's warehouse lending program provides secured short-term revolving
financing to small- and medium-size mortgage bankers to finance mortgage loans
from the closing of the loan until it is sold to a permanent investor. In
addition, financing is also provided for the retention or acquisition of
servicing rights, receivables generated through the sales of servicing rights,
and the carrying of mortgage loans pending foreclosure and/or repurchase from an
investor. At September 30, 1994, the Company had extended committed lines of
credit under these programs in the aggregate amount of $328.3 million, of which
$60.5 million was outstanding. Reverse-repurchase agreements associated with
the financing of these lines of credit totaled $36.9 million at September 30,
1994.
CMO PORTFOLIO: As of September 30, 1994, the CMO Portfolio was comprised of 15
series of CMOs issued from the Company's inception through 1990 ("Pre-1993 CMO
Portfolio"). In 1993, two new series of CMOs were issued in connection with the
Company's mortgage conduit operation. Disclosures relative to the CMO Portfolio
include both groups of CMOs.
Collateral for CMOs decreased from $402.5 million at December 31, 1993 to $245.9
million at September 30, 1994. This decrease of $156.6 million included
repayments (including prepayments and premium and discount amortization) of
$138.5 million and a decrease in guaranteed investment contracts ("GICs") held
by trustees and accrued interest receivable of $16.5 million and $1.6 million,
respectively. The Company's CMOs outstanding decreased to $214.1 million at
September 30, 1994 from $365.9 million at December 31, 1993. This decrease of
$151.8 million resulted from principal payments (including discount
amortization) on CMOs of $150.2 million and a decrease in accrued interest
payable on CMOs of $1.6 million.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1994 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1993
NET EARNINGS: The Company's net earnings were $8.3 million or $.26 per share,
based on 32,216,505 weighted average shares outstanding for the quarter ended
September 30, 1994, as compared to $564,000 or $.03 per share, based on
21,055,213 weighted average shares outstanding for the quarter ended September
30, 1993. The increase in net earnings of $7.7 million was primarily due to an
increase in earnings of $3.7 million associated with the Company's mortgage
conduit and warehouse lending operations combined with a decrease in the loss
associated with the CMO Portfolio of $4.0 million.
The increase in earnings associated with the operation of the Company's mortgage
loan conduit and warehouse lending program was primarily due to an increase in
gains on the sale of mortgage loans and securities of $4.5 million, an increase
in net interest income of $3.3 million, offset by an increase in expenses of
$3.4 million and an increase in income taxes of $.7 million for the three months
ended September 30, 1994. The increase in income taxes resulted from an
operating profit recorded by the Company's taxable subsidiary, primarily due to
the gain on the sale of mortgage loans and securities.
INTEREST INCOME: Total interest income was $30.0 million and $20.6 million for
the quarters ended September 30, 1994 and 1993, respectively. This increase of
$9.4 million is due to an increase in interest on mortgage loans held for sale
of $4.5 million and an increase in interest on mortgage loans held for
investment of $3.4 million, and an increase in net master servicing income of
$3.3 million. In addition, interest income on mortgage
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securities and revolving warehouse lines of credit increased $2.0 million and
$.6 million, respectively. These increases in interest income were partially
offset by a decrease in interest income on collateral for CMOs of $4.7 million.
Interest income earned on mortgage loans held for sale, mortgage loans held for
investment and mortgage securities was $14.6 million, $3.4 million and $2.0
million, respectively, for the quarter ended September 30, 1994. Interest was
earned on average principal balances of $898.9 million, $215.7 million and $67.5
million, respectively at an effective yield of 6.52%, 6.33% and 11.91%,
respectively. For the third quarter of 1993, $10.2 million of interest income
was earned on mortgage loans held for sale with an average principal balance of
$619.7 million and an effective yield of 6.56%. The Company did not own any
mortgage loans held for investment or mortgage securities during the three
months ended September 30, 1993, and therefore no interest was earned thereon
during that period.
Interest income earned on revolving warehouse lines of credit was $913,000 for
the third quarter of 1994. The average principal balance outstanding on
revolving warehouse lines of credit approximated $45.7 million for the third
quarter of 1994 and earned interest at an effective yield of approximately
7.99%.
Interest income on collateral for CMOs was $5.2 million and $9.9 million for the
quarters ended September 30, 1994 and 1993, respectively. The decline was
primarily attributable to a decrease in the average aggregate principal amount
of collateral for CMOs outstanding, to $246.5 million for the quarter ended
September 30, 1994 from $569.3 million for the quarter ended September 30, 1993.
This was offset by an increase in the effective yield earned on the collateral
to 8.36% in the third quarter of 1994 from 6.93% in the third quarter of 1993.
The decrease in the average balance of collateral for CMOs was due to the
continued low interest rate environment experienced throughout 1993 and the
first quarter of 1994 which resulted in significant prepayment activity.
Interest income on collateral is reduced by the amortization of premiums paid in
connection with acquiring the portfolio. The acceleration of prepayments
experienced during 1993 required an increase in the amortization of premiums,
resulting in a decrease in the effective yield. During the third quarter of
1994, prepayments slowed significantly, resulting in a lower amount of premium
amortization. In addition, for most of the CMO series, a time lag of 24 to 45
days exists from the date the underlying mortgage is prepaid to the date the
Company actually receives the cash related to the prepayment. During this
interim period, the Company does not earn interest income on the portion of the
mortgage loan or mortgage-backed security that has been prepaid. As a result,
the increase in prepayments during 1993 resulted in a higher balance of
nonearning and lower-earning investments (GICs) which resulted in a lower yield
on the overall CMO collateral. Accordingly, a decrease in prepayments in 1994
has had the effect of decreasing this nonearning asset, which resulted in an
increase in the effective yield earned on the collateral.
INTEREST EXPENSE: Total interest expense was $21.5 million and $19.4 million
for the three months ended September 30, 1994 and 1993, respectively. This
increase of $2.1 million is due to a $10.8 million increase in interest expense
on reverse-repurchase agreements which was offset by a $8.7 million decrease in
interest expense on CMOs.
Interest expense on reverse-repurchase agreements was $15.6 million for the
three months ended September 30, 1994 on average balances of $1.1 billion,
representing 5.43% of the average balance outstanding. For the three months
ended September 30, 1993, interest expense on such reverse-repurchase agreements
was $4.8 million on average balances of $433.5 million, representing 4.42% of
the average balance.
Interest expense on CMOs was $5.9 million and $14.6 million for the three months
ended September 30, 1994 and 1993, respectively. This decrease of $8.7 million
was primarily attributable to a decrease in average aggregate CMOs outstanding
from $528.3 million for the quarter ended September 30, 1993 to $234.2 million
for the quarter ended September 30, 1994 and a decrease in the weighted average
cost of CMOs from 11.06% in the third quarter of 1993 to 10.11% in the third
quarter of 1994. The decrease in the average balance of CMOs was directly
related to the prepayment activity on collateral for CMOs discussed above. The
prepayments are ultimately used to repay the related CMOs. During the quarter
ended September 30, 1993, prepayments were significantly higher than during the
quarter ended September 30, 1994. Interest expense is increased by the
amortization of bond issuance costs and original issue discounts. During the
quarter ended September 30, 1993, the accelerated amortization associated with
increased prepayment activity resulted in a higher weighted average
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cost of CMOs. The decrease in prepayment activity during the quarter ended
September 30, 1994 resulted in a decrease in the amortization of these costs and
a decrease in the weighted average cost of the CMOs.
NET MASTER SERVICING INCOME: In July 1993, as a result of the mortgage conduit
operations, the Company began earning master servicing fee income. At
September 30, 1994, the Company master serviced loans with principal balances
aggregating $6.3 billion, which represents a $1.5 billion increase from the
balances of the loans master serviced at June 30, 1994. The growth in the
Company's master servicing portfolio during the third quarter of 1994 was the
result of loan production and related sales volume from the Company's conduit
operations, partially offset by repayments and prepayments of mortgage loans.
The weighted average interest rate of the mortgage loans in the Company's master
servicing portfolio at September 30, 1994 was 7.22%. It is the Company's
strategy to build and retain its master servicing portfolio because of the
returns the Company can earn from such investment and because the Company
believes that master servicing income is countercyclical to loan production
income. In periods of rising interest rates, prepayments tend to decline and
income from the master servicing portfolio should increase. In periods of
decreasing interest rates, prepayments tend to increase, resulting in a decrease
in the master servicing portfolio and a decrease in the respective income.
Master servicing income was $7.4 million and $1.0 million for the three months
ended September 30, 1994 and 1993, respectively. This income was offset by
amortization of master servicing fees receivable of $3.8 million and $.7
million for the three months ended September 30, 1994 and 1993, respectively.
Net master servicing income amounted to $3.6 million and $.3 million for the
three months ended September 30, 1994 and 1993, respectively.
In September 1994, the Company began securitizing master servicing fees
receivable in order to allow for financing of this asset. As of September 30,
1994, $110.8 million of master servicing fees receivable was securitized and
$105.9 million was pledged as collateral for borrowings under reverse-
repurchase agreements.
SALARIES AND RELATED EXPENSES: Salaries and related expenses were $2.1 million
and $727,000 for the three months ended September 30, 1994 and 1993,
respectively. This increase of $1.4 million was associated with the growth of
the Company's mortgage conduit and warehouse and construction lending
operations. As of September 30, 1994, the Manager employed approximately 113
employees dedicated to the Company's operations. All personnel costs associated
with these employees were reimbursed by the Company. As of September 30, 1993
there were approximately 47 employees.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the three months ended September 30, 1994 and 1993 were $2.2 million and
$648,000, respectively. This increase of $1.6 million was primarily attributed
to costs related to the growth experienced in the mortgage conduit and warehouse
and construction lending operations. Included in the above amounts are
approximately $82,000 and $96,000 attributable to the administration of CMOs for
the three months ended September 30, 1994 and September 30, 1993, respectively.
MANAGEMENT FEES: For the three months ended September 30, 1994, management
fees were $495,000 compared to $111,000 for the three months ended September 30,
1993. This increase is primarily due to an incentive management fee payable to
the Manager in accordance with the management agreement. The incentive
management fee represents a percentage of the Company's earnings that exceed a
specified return on equity. The increase in the incentive management fee is
directly related to the increase in the Company's earnings. Based on the
Company's 1993 earnings, no incentive fee was incurred in the prior year.
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NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1993
NET EARNINGS: The Company's net earnings were $19.1 million or $.59 per share,
based on 32,156,094 weighted average shares outstanding for the nine months
ended September 30, 1994 compared to $736,000 or $.04 per share, based on
16,369,689 weighted average shares outstanding for the nine months ended
September 30, 1993. The increase in net earnings of $18.3 million was due to a
$14.9 million increase in the earnings of the Company's mortgage conduit and
warehouse lending operations. The results of these operations included an
increase in net interest income of $16.1 million, an increase in gains on the
sale of mortgage loans and securities of $4.1 million and a gain on the sale of
servicing amounting to $5.8 million. These increases were offset by an increase
in expenses of $9.5 million and an increase in income tax expense of $1.6
million. Losses recognized on the CMO portfolio decreased $3.4 million, from
$8.4 million for the nine months ended September 30, 1993 to $5.0 million for
the nine months ended September 30, 1994.
The net earnings of the Company for the nine months ended September 30, 1993 did
not include certain personnel and other operating expenses which were absorbed
by the Manager of the Company, under the terms of its Management Agreement. The
Company began paying all expenses of its operations in June 1993.
INTEREST INCOME: Total interest income was $79.2 million and $50.9 million for
the nine months ended September 30, 1994 and 1993, respectively. This increase
in interest income of $28.3 million is primarily due to an increase in interest
on mortgage loans held for sale, mortgage loans held for investment, mortgage
securities and revolving warehouse lines of credit of $29.6 million, $5.4
million, $2.4 million and $2.6 million, respectively. This increase is offset
by a decrease in interest income on collateral for CMOs of $16.8 million.
Interest income earned on mortgage loans held for sale, mortgage loans held for
investment, mortgage securities and revolving warehouse and related lines of
credit was $45.5 million, $6.1 million, $2.4 million and $3.1 million,
respectively, for the nine months ended September 30, 1994. The average
principal balance of mortgage loans held for sale, mortgage loans held for
investment, mortgage securities and revolving warehouse lines of credit
outstanding approximated $935.8 million, $124.4 million, $26.7 million and $54.1
million, respectively, for the first nine months of 1994 and earned interest at
an effective yield of approximately 6.48%, 6.56%, 11.92% and 7.52%,
respectively. Interest income earned on mortgage loans held for sale was $15.9
million on an average principal balance outstanding of $311.7 million
representing an effective yield of 6.79% for the nine months ended September 30,
1993. The warehouse lending operations commenced in May 1993 and generated
$434,000 in interest income during the period ended September 30, 1993. The
Company held no mortgage loans for investment or mortgage securities during the
nine months ended September 30, 1993 and therefore no interest was earned
thereon during that period.
Interest income on collateral for CMOs was $16.9 million and $33.7 million for
the nine months ended September 30, 1994 and September 30, 1993, respectively.
The decline was primarily attributable to a decrease in the average aggregate
principal amount of collateral for CMOs outstanding to $292.6 million for the
first nine months of September 30, 1994 from $582.8 million for the same period
in 1993. The effective yield earned on the collateral decreased slightly to
7.70% for the nine months ended September 30, 1994 from 7.71% for the nine
months ended September 30, 1993. As previously discussed above, the decrease in
the average balance of collateral for CMOs was due to the continued low interest
rate environment experienced throughout 1993 and the beginning of 1994, which
resulted in significant prepayment activity.
INTEREST EXPENSE: For the nine months ended September 30, 1994 and 1993, total
interest expense was $58.5 million and $50.6 million, respectively. This
increase in interest expense of $7.9 million was due to an increase in interest
expense on reverse-repurchase agreements of $29.6 million offset by a decrease
in interest expense on CMOs of $21.7 million.
Interest expense on reverse-repurchase agreements was $36.8 million on average
balances of $1.0 billion representing 4.69% of the average balance outstanding
for the nine months ended September 30, 1994. For the nine months ended
September 30, 1993, interest expense on such reverse-repurchase agreements was
$7.2 million on average balances of $229.3 million, representing 4.20% of the
average balance.
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<PAGE>
For the nine months ended September 30, 1994 and 1993, interest expense on CMOs
was $21.6 million and $43.4 million, respectively. This decrease was primarily
attributable to a decrease in average aggregate CMOs outstanding to $282.5
million for the nine months ended September 30, 1994 from $550.1 million for the
nine months ended September 30, 1993 and a decrease in the weighted average cost
of CMOs to 10.20% in the first nine months of 1994 from 10.52% for the nine
months ended September 30, 1993. The decrease in the average balance and cost
of CMOs was directly related to the decrease in prepayment activity on
collateral for CMOs discussed above.
NET MASTER SERVICING INCOME: The Company began earning income on its master
servicing portfolio in July of 1993. During the nine months ended September 30,
1994, the Company's master servicing portfolio grew from $3.0 billion at
December 31, 1993 to $6.3 billion at September 30, 1994. This growth was the
result of loan production and related sales volume from the Company's conduit
operations, partially offset by repayments and prepayments of mortgage loans.
Master servicing income was $17.9 million for the nine months ended September
30, 1994 compared to $1.0 million for the nine months ended September 30, 1993.
This was offset by amortization of master servicing fees receivable and
servicing hedges of $13.5 million and $.7 million for the nine months ended
September 30, 1994 and 1993, respectively. Net master servicing income was $4.4
million for the first nine months of 1994 compared to $.3 million for the nine
months ended September 30, 1993.
In September 1994, the Company began securitizing master servicing fees
receivable in order to allow for financing of this asset. As of September 30,
1994, $110.8 million of master servicing fees receivable was securitized and
$105.9 million was pledged as collateral for borrowings under reverse-repurchase
agreements.
SALARIES AND RELATED EXPENSES: Salaries and related expenses were $5.9 million
and $727,000 for the nine months ended September 30, 1994 and 1993,
respectively. This increase was associated with the growth of the Company's
mortgage conduit and warehouse and construction lending operations. As of
September 30, 1994, the Manager employed approximately 113 employees dedicated
to the Company's operations whereas as of September 30, 1993 there were
approximately 47 employees. Personnel costs were absorbed by the Manager until
June 1993 under the terms of the Management Agreement.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses for
the nine months ended September 30, 1994 and 1993 were $5.5 million and $1.5,
respectively. This increase of $4.0 million was primarily attributed to costs
related to the growth of the mortgage conduit and warehouse lending operations.
Included in the above amounts are approximately $324,000 and $237,000
attributable to the administration of CMOs for the nine months ended September
30, 1994 and 1993, respectively. The increase is primarily attributable to two
additional CMOs that were issued during the first half of 1993.
MANAGEMENT FEES: For the nine months ended September 30, 1994 and 1993,
management fees were $702,000 and $315,000, respectively. This increase of
$387,000 is due primarily to a quarterly incentive management fee payable to the
Manager in accordance with the management agreement. The incentive management
fee represents a percentage of the Company's earnings that exceed a specified
return on equity. The increase in the incentive management fee is directly
related to the increase in the Company's earnings. Based on the Company's 1993
earnings, no incentive fee was incurred in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has used proceeds from the issuance of CMOs, reverse-
repurchase agreements, other borrowings and proceeds from the issuance of common
stock to meet its working capital needs. In connection with its mortgage
conduit operations, the Company issues REMIC securities and CMOs to help meet
such needs. The Company may also borrow collateral or funds from CFC to meet
collateral maintenance requirements under reverse-repurchase agreements or
margin calls on forward securities sales or for other corporate purposes. These
borrowings are made pursuant to a $10.0 million one-year, unsecured line of
credit which expires on September 30, 1995 subject to extension by CFC and the
Company. As of September 30, 1994, the Company had no outstanding borrowings
under this agreement.
12
<PAGE>
The Company has established a committed reverse-repurchase facility in an
aggregate amount of up to $500.0 million (with a decreasing annual credit limit)
for its mortgage conduit operations and warehouse lending program that expires
in April 1996. The Company also has obtained credit approval from the same
lender to enter into additional uncommitted reverse-repurchase agreements
associated with the mortgage conduit operations, under which individual
transactions and their terms will be subject to agreement by the parties based
upon market conditions at the time of each transaction. The maximum balance
outstanding under reverse-repurchase agreements during the third quarter of 1994
was $1.5 billion. In August 1994, the Company signed another master repurchase
agreement with a different lender to provide a committed short-term credit line
in the amount of $300.0 million for its mortgage conduit and warehouse lending
operations. This agreement expires in August 1996.
In the second quarter of 1994, the Company signed a commitment letter with a
third lender for a two-year master repurchase agreement to provide a committed
short-term credit line in the amount of $500 million. In November 1994, the
Company signed an agreement for a committed reverse-repurchase facility in the
amount of $225 million to provide financing for certain mortgage-related
securities which have been retained or purchased by the Company. This agreement
expires in November 1996. The Company, to the extent permitted by its by-laws,
may issue other debt securities or incur other types of indebtedness from time
to time.
The collateral maintenance requirements under reverse-repurchase agreements
could adversely affect the Company's liquidity in the event of a significant
decrease in the market value of the mortgage or securities portfolio financed
under such reverse-repurchase agreements. However, the Company has implemented
a hedging strategy for its mortgage loans held for sale which to some extent may
mitigate the effect of adverse market movements.
The REIT provisions of the Internal Revenue Code restrict the Company's ability
to retain earnings and thereby replenish the capital committed to its mortgage
portfolio by requiring the Company to distribute to its shareholders
substantially all of its income from operations.
Management believes that the cash flow from operations and the current and
potential financing arrangements are sufficient to meet current liquidity
requirements. The Company's ability to meet future liquidity requirements is
subject to the renewal of credit facilities or obtaining other sources of
financing, including raising additional equity from time to time.
INFLATION
Interest rates often increase during periods of rising inflation. Higher
interest rates may depress the market value of the Company's mortgage assets if
the yield on such mortgage assets does not keep pace with increases in interest
rates. As a result of decreased market values it could be necessary for the
Company to borrow additional funds and pledge additional assets to maintain
financing for its investments that have not been financed to maturity through
the issuance of CMOs or other debt securities. Increases in short-term
borrowing rates relative to rates earned on investments that have not been
financed to maturity through the issuance of CMOs or other debt securities may
also adversely affect the Company's earnings. However, the Company has
implemented a hedging strategy which may mitigate this adverse effect. In
addition, high levels of interest rates tend to decrease the rate at which
mortgages prepay. A decrease in the rate of prepayments may lengthen the
estimated average lives of the underlying mortgages supporting master servicing
fees receivable and for classes of the CMOs issued by the Company and may result
in higher residual cash flows than would otherwise have been obtained. However,
higher rates of interest may also discourage potential mortgagors from borrowing
or refinancing mortgage loans, thus decreasing the volume of loans available to
be purchased through the Company's mortgage conduit operations. With respect to
mortgage loans held for investment, higher interest rates generally will
negatively affect the net interest earned on these loans, as the interest earned
on certain mortgage loans may be fixed for various periods of time while
financing related to these loans floats to a short-term index and therefore
increases more rapidly with rising interest rates.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
3.1 Certificate of Incorporation for the Company, as amended.
4.1 1994 Stock Incentive Plan adopted May 17, 1994.
10.1 1994 Amended and Extended Loan Purchase and Administrative Services
Agreement, dated as May 15, 1994, by and between the Company and
Countrywide Funding Corporation ("CFC").
10.2 Amended and Restated Credit Agreement, dated as of September 30, 1994,
by and among the Company, Independent National Mortgage Corporation,
Independent Lending Corporation of America, Inc., and CFC.
10.3 First Amendment to 1994 Amended and Extended Management Agreement,
dated as of October 1, 1994, by and between the Company and Countrywide
Asset Management Corporation.
10.4 Master Assignment Agreement dated as of October 28, 1994 between the
Company and Merrill Lynch Mortgage Capital, Inc. and Master Repurchase
Agreement dated as of October 28, 1994 between the Company and Merrill
Lynch, Pierce, Fenner and Smith, Incorporated.
27 Financial Data Schedule of CWM Mortgage Holdings, Inc.
(b) Reports on Form 8-K.
--------------------
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Pasadena, State of California, on November 14, 1994.
CWM MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
__________________________
Michael W. Perry
Executive Vice President and Chief Operating Officer
By: /s/ Carmella L. Grahn
___________________________
Carmella L. Grahn
Senior Vice President and Chief Accounting Officer
15
<PAGE>
EXHIBIT 3.1
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify as follows:
ARTICLE I
NAME
----
The name of the Corporation is: Countrywide Mortgage Investments, Inc.
(the "Corporation").
ARTICLE II
REGISTERED AGENT
----------------
The address of the registered office of the Corporation in the State
of Delaware is: Corporation Trust Center, 1209 Orange Street, New Castle County,
Wilmington, Delaware 19801. The name of the Corporation's registered agent at
such registered office is The Corporation Trust Company.
<PAGE>
ARTICLE III
PURPOSE
-------
The purpose for which the Corporation is formed is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware as now or hereafter in force.
ARTICLE IV
CAPITAL STOCK
-------------
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is Thirty Million (30,000,000),
consisting of Thirty Million (30,000,000) shares of Common Stock having a par
value of $0.01 per share.
Section 2. All persons who shall acquire stock in the Corporation
shall acquire the same subject to the provisions of this Certificate of
Incorporation and the Bylaws of the Company.
Section 3. Each share of Common Stock shall entitle the owner thereof
to vote at the rate of one (1) vote for each share of Common Stock held.
2
<PAGE>
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING AND
REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE DIRECTORS
AND STOCKHOLDERS
-------------------------------------
Section 1. The number of Directors shall be determined by or in the
manner provided in the Bylaws of the Corporation, as they may be amended from
time to time. The names and mailing addresses of the persons who shall serve as
directors until the first annual meeting of stockholders or until their
successors are duly elected and qualified are:
David S. Loeb
Countrywide Mortgage Investments, Inc.
155 North Lake Avenue
Pasadena, California 91109
Angelo R. Mozilo
Countrywide Mortgage Investments, Inc.
155 North Lake Avenue
Pasadena, California 91109
Frederick J. Napolitano
Pembroke Enterprises, Inc.
281 Independence Boulevard
Suite 626
Virginia Beach, Virginia 23462
Harley W. Snyder
Harley Snyder Company
407 East Lincoln Way
Valparaiso, Indiana 46383
Jack Carlson
9901 Bluegrass Road
Potomac, Maryland 20854
3
<PAGE>
Robert J. Donato
PaineWebber Incorporated
700 South Flower Street
Los Angeles, California 90017
The powers of the Incorporator shall terminate upon the filing of this
Certificate of Incorporation.
Section 2. The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares of capital
stock, whether now or hereafter authorized, for such consideration as the Board
of Directors may deem advisable, subject to such limitations as may be set forth
in this Certificate of Incorporation or in the Bylaws of the Corporation or in
the Delaware General Corporation Law.
Section 3. No holder of shares of capital stock of the Corporation
shall, as such holder, have any right to purchase or subscribe for any shares of
the capital stock of the Corporation or any other security of the Corporation
which it may issue or sell (whether out of the number of shares authorized by
this Certificate of Incorporation, or out of any shares of the capital stock of
the Corporation hereafter authorized or acquired by it after the issue thereof,
or otherwise) other than such right, if any, as the Board of Directors, in its
discretion, may determine.
4
<PAGE>
Section 4. A Director of this Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach of the
Directors's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the Director derived any
improper personal benefit. If the Delaware General Corporation Law is amended
after the date hereof to permit the further elimination or limitation of the
personal liability of directors, then the liability of a Director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of this Section 4 of Article V by the stockholders of the Corporation shall not
adversely affect any right or protection of a Director of the Corporation in
respect of any act or omission occurring prior to the time of such repeal or
modification.
Section 5. The Corporation shall indemnify and shall advance expenses
to each Director, officer, employee and agent of this Corporation to the fullest
extent permitted by the Delaware General Corporation Law as now or hereafter in
force. The indemnification provided by this Section shall
5
<PAGE>
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, and the
Board of Directors is expressly authorized to adopt bylaws and/or enter into
agreements whereby the Corporation agrees to indemnify and advance expenses to
its Directors, officers, employees and agents.
Section 6. The Board of Directors of the Corporation may make, alter
or repeal from time to time any of the Bylaws of the Corporation except any
particular Bylaw which is specified in the Bylaws as not subject to alteration
or repeal by the Board of Directors.
Section 7. The Board of Directors may authorize, subject to such
approval of stockholders and other conditions, if any, as may be required by any
applicable statute, bylaw, rule or regulation, the execution and performance by
the Corporation of one or more agreements with any person, corporation,
association, company, trust, partnership (limited or general) or other
organization whereby, subject to the supervision and control of the Board of
Directors, any such other person, corporation, association, company, trust,
partnership (limited or general), or other organization shall render or make
available to the Corporation managerial,
6
<PAGE>
investment, advisory and/or related services, office space and other services
and facilities (including the management or supervision of the investments of
the Corporation) upon such terms and conditions as may be provided in such
agreement or agreements (including the compensation payable thereunder by the
Corporation).
Section 8. The Board of Directors may authorize any agreement of the
character described in Section 7 of this Article V or other contract or
transaction with any one or more Directors or officers or between the
Corporation and any other corporation, partnership (limited or general),
association, trust, company or other organization in which one or more of the
Corporation's Directors or officers are directors or officers, or similar
parties, or otherwise have a financial interest, and no such agreement, contract
or transaction shall be void or voidable solely by reason of the existence of
any such relationship or solely because the Director or officer so interested is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the agreement, contract or transaction, or solely
because such Director's votes are counted for such purpose if: (i) the material
facts as to the Director's or officer's relationship or interest and as to the
agreement or transaction are disclosed or are known to the Board of Directors or
7
<PAGE>
such committee and the Board of Directors or committee in good faith authorizes,
approves or ratifies the agreement, contract or transaction by the affirmative
vote of a majority of the disinterested Directors, even though the disinterested
Directors be less than a quorum; or (ii) the material facts as to such
Director's or officer's relationship or interest and as to the agreement or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the agreement, contract or transaction is authorized, approved or
ratified in good faith by a majority of votes cast by the stockholders entitled
to vote other than the votes of shares owned of record or beneficially by the
interested Director or officer; or (iii) the agreement, contract or transaction
is fair to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the stockholders. Any Director
of the Corporation who is also a director, officer, stockholder or member of
such other entity may be counted in determining the existence of a quorum at any
meeting of the Board of Directors or of a committee which authorizes any such
agreement, contract or transaction. If such a Director votes at a meeting to
approve or disapprove a transaction as described in this Section, such vote
shall not affect the validity of such a transaction provided the provisions of
this Section are otherwise satisfied.
8
<PAGE>
Section 9. Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual meeting
or at a special meeting of stockholders of the Corporation. No action may be
taken by the written consent of the stockholders. Action need not be by written
ballot unless the chairman of the meeting shall so direct.
Section 10. The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the Certificate of Incorporation of the
Corporation, or construed as or deemed by inference or otherwise in any manner
to exclude or limit the powers conferred upon the Board of Directors under the
General Corporation Law of the State of Delaware as now or hereafter in force.
ARTICLE VI
RESTRICTION ON ACQUISITION AND TRANSFER OF SHARES
-------------------------------------------------
Section 1. Whenever it is deemed by the Board of Directors to be
prudent in protecting the status of the Corporation as a "real estate
investment trust" under the Internal Revenue Code of 1986, as amended (the
"Code"), the
9
<PAGE>
Board of Directors may require to be filed with the Corporation as a condition
to permitting any proposed transfer, and/or the registration of any transfer, of
shares of the Corporation a statement or affidavit from any proposed transferee
setting forth the number of shares already owned after application of the
attribution rules (the "Attribution Rules") of Section 544 of the Code by the
transferee and any related person(s) specified in the form prescribed by the
Board of Directors for that purpose. All contracts for the sale or other
transfer of shares of the Corporation shall be subject to this provision.
Section 2. As a condition to the transfer and/or registration of
transfer of any shares of capital stock of the Corporation which would result in
any stockholder owning, directly or indirectly, shares in excess of 9% of the
outstanding shares of capital stock of the Corporation, the transferee of such
shares shall file with the Corporation an affidavit setting forth the number of
shares of capital stock of the Corporation owned directly and indirectly by the
person filing the affidavit. For purposes of this Section, shares of capital
stock not owned directly shall be deemed to be owned indirectly by a person if
that person or a group of which he is a member would be the beneficial owner of
such shares for purposes of Rule 13d-3, or any successor rule
10
<PAGE>
thereto, promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934 (the "Exchange Act"), and/or would be considered
to own such shares by reason of the Attribution Rules. The affidavit to be filed
with the Corporation shall set forth all information required to be reported in
returns filed by stockholders under Regulation 1.857-9 issued by the Internal
Revenue Service, or similar provisions of any successor regulation, and in
reports to be filed under Section 13(d) of the Exchange Act. The affidavit, or
an amendment thereto, must be filed with the Corporation within 10 days after
demand therefor and in any event at least 15 days prior to any transfer,
registration of transfer or transaction which, if consummated, would cause the
filing person to hold shares in excess of 9% of the outstanding shares of
capital stock of the Corporation. No transfer nor any registration of any
purported transfer in violation of the notice provisions of this Section shall
be valid or be given effect. Notwithstanding the foregoing, compliance with the
requirements of this Section 2 shall not validate any purported transfer which
would result in any stockholder owning, directly or indirectly, shares in excess
of the "Limit" as defined in Section 4 of this Article VI.
Section 3. Any acquisition of shares of capital stock of the
Corporation that would result in any stockholder owning, directly or indirectly,
shares in excess of the
11
<PAGE>
"Limit" as defined in Section 4 of this Article VI shall be void ab initio to
the fullest extent permitted under applicable law and the intended transferee of
"Excess Shares," as defined in Section 4 of this Article VI, shall be deemed
never to have had an interest therein. If the foregoing provision is determined
to be void, voidable or invalid by virtue of any legal decision, statute, rule
or regulation, then the transferee of such shares shall be deemed to have acted
as agent on behalf of the Corporation in acquiring such shares and to hold such
shares on behalf of the Corporation.
Section 4. Notwithstanding any other provision herecf to the contrary,
and subject to the provisions of Section 5 of this Article VI, no person, or
persons acting as a group, shall at any time directly or indirectly acquire
ownership in the aggregate of more than 9.8% of the outstanding shares of
capital stock of the Corporation (the "Limit"). Shares which would, but for this
Section 4, be owned by a person or a group of persons in excess of the Limit at
any time shall be deemed "Excess Shares." For the purposes of determining and
dealing with Excess Shares, the term "ownership" shall be defined to include
shares of capital stock constructively owned by a person under the Attribution
Rules and shall also include shares of capital stock beneficially owned by a
person for purposes of Rule 13d-3, or any successor rule thereto, promulgated by
the Securities and Exchange
12
<PAGE>
Commission under the Exchange Act and the term "group" shall have the same
meaning as that term has for purposes of Section 13(d)(3) of such Act. All
shares of the Corporation which any person has the right to acquire upon
exercise of outstanding rights, options and warrants, and upon conversion of any
securities convertible into shares, if any, shall be considered outstanding for
purposes of the Limit if such inclusion will cause such person to own more than
the Limit. Unless otherwise required by applicable law, the Corporation shall
refuse to transfer or register the transfer of, and shall instruct the transfer
agent of the Corporation to refuse to transfer or register the transfer of,
shares to the extent that, as a result of such transfer or registration of
transfer, any person would hold Excess Shares.
Section 5. The Limit set forth in Sections 3 and 4 of this Article VI
and the filing requirements of Section 2 of this Article VI shall not apply to
the acquisition of shares of the Corporation by the Corporation, by an
underwriter in connection with a public offering of shares of the Corporation,
or in any transaction involving the issuance of shares by the Corporation, in
which the Board of Directors determines that the underwriter or other person or
party initially acquiring such shares will timely distribute such shares to or
among others such that, following such distribution, none of such shares will be
Excess Shares. The Board
13
<PAGE>
of Directors in its discretion may exempt from the Limit under Sections 3 and 4
of this Article VI and from the filing requirements of Section 2 of this Article
VI ownership or transfers of certain designated shares while owned by or
transferred to any subsidiary of this Corporation or to any other person in
connection with a reorganization, recapitalization, merger, liquidation or
similar transaction approved by the Board of Directors, provided that such
person has given the Board of Directors evidence and assurances acceptable to
the Board of Directors that the qualification of the Corporation as a "real
estate investment trust" under the Code would not be jeopardized thereby.
Section 6. Notwithstanding Sections 3 and 4 of this Article VI, if at
any time more than 9.8% of the shares of capital stock of the Corporation has
become concentrated in the hands of a "beneficial owner" (as such term is
defined for purposes of Rule 13d-3, or any successor rule thereto promulgated by
the Securities and Exchange Commission, under the Exchange Act), such beneficial
owner and each of his "affiliates" (as such term is defined on December 1, 1986
in Rule 12b-2 under the Exchange Act) owning any shares of capital stock of the
Corporation shall be deemed to have offered to sell to the Corporation or its
designee, on a date fixed by the Corporation, as specified in the Corporation's
notice of its or its designee's acceptance of such offer of
14
<PAGE>
sale, such a number of shares of capital stock sufficient, in the opinion of the
Board of Directors, to maintain or bring the direct or indirect ownership of
shares of capital stock of the Corporation of such beneficial owner to no more
than the Limit. The price at which the Corporation or its designee may purchase
the outstanding shares of capital stock of the Corporation pursuant to the
preceding sentence of this Section (the "Purchase Price") shall be equal to the
closing sales price for the shares, if then listed on a national securities
exchange, or the average of the closing sales prices for the shares if then
listed on more than one national securities exchange, or if the shares are not
then listed on a national securities exchange, the latest bid quotation for the
shares if then traded over-the-counter, on the last business day immediately
preceding the day on which the Corporation's notice of its acceptance of the
beneficial owner's and/or his affiliates' offer of sale is sent, or, if no such
closing sales prices or quotations are available, then the Purchase Price shall
be equal to the net asset value of such stock (determined on the basis of the
fair market value of the assets of the Corporation) as determined by the Board
of Directors in accordance with the provisions of applicable law. The Purchase
Price of any shares acquired by the Corporation or its designee shall be paid,
at the option of the Corporation, in cash or in the form of an unsecured,
subordinated promissory note of the
15
<PAGE>
Corporation or its designee bearing interest and having a term to maturity (to
be not less than five nor more than twenty years) as shall be determined by the
Board of Directors. Payment of the Purchase Price shall be made at such time and
in such manner as may be determined by the Board of Directors and specified in
the notice of acceptance sent to the beneficial owner and/or his affiliates.
From and after the date fixed for purchase by the Board of Directors and the
tender by the Corporation of the Purchase Price therefor, each as specified in
the Corporation's notice of its acceptance of the offer of sale, the holder of
any shares to be so purchased shall cease to be entitled to any rights as a
holder of such shares, excepting only the right to payment of the Purchase Price
fixed as aforesaid.
Section 7. Nothing contained in this Article VI or in any other
provision hereof shall limit the authority of the Board of Directors to take
such other action as it deems necessary or advisable to protect the Corporation
and the interests of its stockholders by preservation of the Corporation's
status as a "real estate investment trust" under the Code.
Section 8. For purposes of this Article VI only, the term "person"
shall include individuals, corporations, limited partnerships, general
partnerships, joint stock
16
<PAGE>
companies or associations, joint ventures, associations, consortia, companies,
trusts, banks, trust companies, land trusts, common law trusts, business trusts
and other entities, and governments and agencies and political subdivisions
thereof; provided, however, that such term shall not include this Corporation or
any of its subsidiaries.
Section 9. If any provision of this Article VI or any application of
any such provision is determined to be invalid by any federal or state court
having jurisdiction over the issues, the validity of the remaining provisions
shall not be affected and other applications of such provision shall be affected
only to the extent necessary to comply with the determination of such court.
ARTICLE VII
AMENDMENTS
----------
The Corporation reserves the right to adopt, repeal, rescind, alter,
restate or amend in any respect any provision contained in this Certificate of
Incorporation in the manner now or hereafter prescribed by applicable law, and
all rights conferred on stockholders herein are granted subject to this
reservation.
17
<PAGE>
ARTICLE VIII
INCORPORATOR
------------
The name of the incorporator is Andrea J. Melville. The Incorporator's
mailing address is 400 South Hope Street, Los Angeles, California 90071-2899.
IN WITNESS WHEREOF, the undersigned incorporator of Countrywide
Mortgage Investments, Inc. hereby executes the foregoing Certificate of
Incorporation and acknowledges the same to be her act and further acknowledges
that, to the best of her knowledge, the matters and facts set forth therein are
true in all material respects under the penalties of perjury.
Dated this 19th day of January, 1987.
---- -------
/s/ ANDREA MELVILLE
- - -------------------------
18
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
Countrywide Mortgage Investments, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
hereby certifies as follows:
1. That at a meeting of the Board of Directors of Countrywide Mortgage
Investments, Inc., (the "Corporation") resolutions were duly adopted setting
forth a proposed amendment of the Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and calling for the
proposal to be presented to the shareholders of the Corporation at a Special
Meeting of the Shareholders. The resolution setting forth the proposed amendment
is as follows:
RESOLVED, That the Certificate of Incorporation of the Corporation be
amended by revising Article IV, Section 1 thereof so that, as amended,
Article IV, Section 1 shall read as follows:
"CAPITAL STOCK
--------------
Section 1. The total number of shares of capital stock which the
Corporation shall have authority to issue is Sixty Million (60,000,000),
consisting of Sixty Million (60,000,000) shares of Common Stock having a
par value of $0.01 per share."
2. That thereafter, the Special Meeting of the Stockholders, held on
December 9, 1993, of said corporation was duly called and held, upon notice in
accordance with Section 222 of the General Corporation Law of the State of
Delaware at which meeting the necessary number of shares as required by statue
were voted in favor of the amendment.
3. That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said Countrywide Mortgage Investments, Inc. has caused
this certificate to be signed by Angelo R. Mozilo, its President, and Sandor E.
Samuels, its Secretary, this 11 th day of December, 1993.
BY: /s/ Angelo R. Mozilo
--------------------------------
Angelo R. Mozilo
President
ATTEST:
/s/ Sandor E. Samuels
- - -------------------------------
Sandor E. Samuels
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
Countrywide Mortgage Investments, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
hereby certifies as follows:
1. That at a meeting of the Board of Directors of Countrywide Mortgage
Investments, Inc., (the "Corporation") resolutions were duly adopted setting
forth proposed amendments of the Certificate of Incorporation of said
Corporation, declaring said amendments to be advisable and calling for the
proposal to be presented to the stockholders of the Corporation at the Annual
Meeting of the Stockholders. The resolutions setting forth the proposed
amendments are as follows:
RESOLVED, That the Certificate of Incorporation of the Corporation be
amended by revising ARTICLE I so that, as amended, ARTICLE I shall read as
follows:
ARTICLE I
"NAME"
------
The name of the Corporation is: CWM Mortgage Holdings, Inc. (the
"Corporation").
RESOLVED FURTHER, That the Certificate of Incorporation of the Corporation
be further amended by adding a new ARTICLE VII to read as follows and by
renumbering the existing ARTICLES VII and VIII as ARTICLES VIII and IX,
respectively:
ARTICLE VII
ACQUISITION OF SHARES BY CERTAIN ORGANIZATIONS
----------------------------------------------
Section 1. Whenever it is deemed by the Board of Directors to be
prudent in avoiding
(a) the direct or indirect imposition of a penalty tax on the
Corporation (including the imposition of an entity-level tax on one or more
real estate mortgage investment conduits ("REMICs") or one or more taxable
mortgage pools in which the Corporation has acquired or plans to acquire an
interest) or
<PAGE>
(b) the endangerment of the tax status of one or more REMICs or one or
more taxable mortgage pools in which the Corporation has acquired or plans
to acquire an interest, the Board of Directors may require to be filed with
the Corporation a statement or affidavit from any holder or proposed
transferee of capital stock of the Corporation stating whether the holder
or proposed transferee is
(i) the United States, any state or political subdivision
thereof, any possession of the United States, any foreign government,
any international organization, or any agency or instrumentality of
the foregoing, or any other organization that is exempt from federal
income taxation (including taxation under the unrelated business
taxable income provisions of the Code) (a "Disqualified Organization")
or
(ii) a partnership, trust, real estate investment trust,
regulated investment company, or other pass-through entity in which a
Disqualified Organization holds or is permitted to hold a direct or
indirect beneficial interest (a "Pass-Through Entity").
Any contract for the sale or other transfer of shares of capital stock of
the Corporation shall be subject to this provision. Furthermore, the Board
of Directors shall have the right, but shall not be required, to refuse to
transfer any shares of capital stock of the Corporation purportedly
transferred, if either
(a) a statement or affidavit requested pursuant to this Section 1 has
not been received, or
(b) the proposed transferee is a Disqualified Organization or
Pass-Through Entity.
Section 2. Any acquisition of shares of capital stock of the
Corporation that could or would
(a) result in the direct or indirect imposition of a penalty tax on
the Corporation (including the imposition of an entity-level tax on one or
more REMICs or one or more taxable mortgage pools in which the Corporation
has acquired or plans to acquire an interest) or
(b) endanger the tax status of one or more REMICs or one or more
taxable mortgage pools in which the Corporation has acquired or plans to
acquire an interest shall be void ab initio to the fullest extent permitted
under applicable law and the intended transferee of the subject shares
shall be deemed never to have had an interest therein.
<PAGE>
If the foregoing provision is determined to be void or invalid by
virtue of any legal decision, statute, rule or regulation, then the
transferee of those shares shall be deemed, at the option of the
Corporation, to have acted as agent on behalf of the Corporation in
acquiring those shares and to hold those shares on behalf of the
Corporation.
Section 3. Whenever it is deemed by the Board of Directors to be
prudent in avoiding
(a) the direct or indirect imposition of a penalty tax on the
Corporation (including the imposition of an entity-level tax on one or more
REMICs or one or more taxable mortgage pools in which the Corporation has
acquired or plans to acquire an interest) or
(b) the endangerment of the tax status of one or more REMICs or one or
more taxable mortgage pools in which the Corporation has acquired or plans
to acquire an interest, the Corporation may redeem shares of its capital
stock.
Any such redemption shall be conducted in accordance with the
procedures set forth in Section 6 of Article VI.
Section 4. Nothing contained in this Article or in any other provision
hereof shall limit the authority of the Board of Directors to take any and
all other action as it in its sole discretion deems necessary or advisable
to protect the Corporation or the interests of its stockholders by avoiding
(a) the direct or indirect imposition of a penalty tax on the
Corporation (including the imposition of an entity-level tax on one or more
REMICs or one or more taxable mortgage pools in which the Corporation has
acquired or plans to acquire an interest) or
(b) the endangerment of the tax status of one or more REMICs or one or
more taxable mortgage pools in which the Corporation has acquired or plans
to acquire an interest.
Section 5. If any provision of this Article or any application of any
such provision is determined to be invalid by any federal or state court
having jurisdiction over the issue, the validity of the remaining
provisions shall be affected only to the extent necessary to comply with
the determination of that court.
2. That thereafter, the Annual Meeting of the Stockholders of the
Corporation was duly called and held on May 17, 1994, upon notice in accordance
with Section 222 of the General Corporation Law of the State of Delaware at
which meeting the
<PAGE>
necessary number of shares as required by statute were voted in favor of the
amendments.
3. That said amendments were duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Countrywide Mortgage Investments, Inc. has caused
this certificate to be signed by Sterling Blair Albernathy, its Senior Vice
President, and Richard H. Wohl, its Secretary, this 20th day of May, 1994.
BY: /s/ Sterling Blair Abernathy
------------------------------------
Sterling Blair Abernathy
Senior Vice President
ATTEST:
/s/ Richard H. Wohl
- - -------------------------------------
Richard H. Wohl
Secretary
<PAGE>
EXHIBIT 4.1
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
1994 STOCK INCENTIVE PLAN
1. Purpose of Plan. The purpose of this 1994 Stock Incentive Plan
---------------
("Plan") of Countrywide Mortgage Investments, Inc., a Delaware corporation (the
----
"Company") is to enable the Company and any subsidiaries to attract, retain and
-------
motivate their employees, consultants, agents, officers and directors by
providing incentives related to equity interests in and the financial
performance of the Company.
2. Persons Eligible Under Plan. Any person, including any director
---------------------------
of the Company, who is an officer or employee of the Company or any subsidiary
or an individual who performs services for the Company or any subsidiary of a
nature similar to those performed by officers or employees, such as consultants
and agents (any of the foregoing, "Employee") shall be eligible to be considered
--------
for the grant of an Award (as defined in Section 5 below) or Awards under
Section 5 of this Plan. No member of the Board of Directors of the Company (the
"Board") who is not an officer or employee of the Company or any subsidiary (a
-----
"Non-Officer Director") shall be eligible to receive any Awards under this Plan,
--------------------
except for nonqualified stock options granted automatically under the provisions
of Section 11 ("Director Options").
----------------
3. Stock Subject to Plan.
---------------------
(a) ISO Limit. The maximum number of Common Shares, $0.01 par
---------
value per share, of the Company (the "Common Shares") that may be issued
-------------
pursuant to options qualified as incentive stock options ("Incentive Stock
---------------
Options") under Section 422 of the Internal Revenue Code of 1986, as
-------
amended (the "Code") granted under this Plan is 1,000,000, subject to
----
adjustment as provided in or pursuant to Section 7 hereof.
(b) Aggregate/Individual Share Limit. The maximum number of
--------------------------------
Common Shares that may be issued pursuant to all Awards (including
Incentive Stock Options) granted under this Plan, other than Common Shares
that are issued pursuant to Awards and subsequently reacquired by the
Company pursuant to the terms and conditions of such Awards ("Reacquired
----------
Common Shares"), is 1,600,000, subject to adjustment as provided in or
-------------
pursuant to Section 7 or 11 hereof and as may be required by Rule 16b-3
under Section 16 ("Rule 16b-3") of the Securities Exchange Act of 1934, as
----------
amended (the "Exchange Act") (such maximum number, as so adjusted, shall be
------------
referred to as the "Share Limit"). Notwithstanding anything contained
-----------
herein to the contrary, the aggregate number of Common Shares subject to
options and stock appreciation rights granted during any calendar year to
any individual shall be limited to 100,000 and the maximum individual limit
on the number of shares in the
<PAGE>
aggregate subject to all Awards under this Plan granted during any calendar
year shall be 150,000.
(c) Share Reservation. No Award may be granted under this Plan
-----------------
unless, on the date of grant, the sum of (i) the maximum number of Common
Shares issuable at any time pursuant to such Award, plus (ii) the number of
Common Shares that have previously been issued pursuant to Awards granted
under this Plan, other than Reacquired Common Shares available for reissue
consistent with any applicable limitations under Rule 16b-3, plus (iii) the
maximum number of Common Shares that may be issued at any time after such
date of grant pursuant to Awards that are outstanding on such date, does
not exceed the Share Limit.
(d) Provisions for Certain Cash Awards. The maximum number of
----------------------------------
Awards payable solely in cash under the Plan that would constitute
derivative securities but for the exclusion in Rule 16a-l(c)(3)(i) under
the Exchange Act ("Cash Only Awards"), to the extent paid in cash, shall be
----------------
based upon the number of shares referenced for purpose of determining the
value or price of the Cash Only Award and shall not, together with the
number of shares previously issued and subject to then outstanding Awards
payable (or deemed payable) in shares under this Plan, exceed 1,600,000
(plus the number of Reacquired Common Shares available for reissue
consistent with the provisions of clause (e) below), subject to adjustments
under Section 7 and 11.
(e) Reissue of Awards and Shares. Cash Only Awards and other
----------------------------
Awards payable in cash or payable in cash or shares that are forfeited or
for any reason are not so paid under this Plan, as well as Common Shares
subject to Awards that expire or for any reason are terminated and are not
issued or constitute Reacquired Common Shares, shall again, except to the
extent prohibited by Rule 16b-3 or applicable law, be available for
subsequent Awards under the Plan. Except as limited by Rule 16b-3, if an
Award is or may be settled only in cash and satisfies the requirements for
exemption under Rule 16b-3 or for exclusion from the definition of
derivative security under Rule 16a-l(c)(3)(ii), such Award need not be
counted against any of the limits under this Section 3.
(f) Fractional Shares/Minimum Issue. Fractional share interests
-------------------------------
shall be disregarded, but may be accumulated. No fewer than 100 Common
Shares may be purchased on exercise of any option granted under this Plan
("Option") at one time unless the number purchased is the total number at
------
the time available for purchase under the Option.
2
<PAGE>
(g) Privileges of Stock Ownership. Except as otherwise expressly
-----------------------------
authorized by this Plan, a Participant shall not be entitled to any
privilege of stock ownership as to any shares of Common Stock subject to an
Option granted under this Plan prior to the satisfaction of all conditions
to the valid exercise of the Option.
4. Administration of Plan.
----------------------
(a) The Committee. Except for the provisions of Section 11 (which
-------------
to the maximum extent feasible shall be self-effectuating), this Plan shall
be administered by a committee of the Board (the "Committee") consisting of
---------
two or more directors, each of whom is a "disinterested person", as such
--------------------
term is defined in Rule 16b-3.
(b) Powers of the Committee. Subject to the express provisions of
-----------------------
this Plan, the Committee shall be authorized and empowered to do all things
necessary or desirable in connection with the administration of this Plan,
including, without limitation, the following:
(i) adopt, amend and rescind rules and regulations relating
to this Plan;
(ii) determine which persons meet the requirements of Section
2 hereof for eligibility under this Plan and to which of such eligible
persons, if any, Awards will be granted hereunder;
(iii) grant Awards to eligible persons and determine the
terms and conditions thereof, including but not limited to the number
of Common Shares issuable pursuant thereto, the time not more than five
(5) years after the date of an Award at which time the Award shall
expire or (if not vested) terminate and the conditions upon which
Awards become exercisable or vest or shall expire or terminate, and the
consideration, if any, to be paid upon receipt, exercise or vesting of
Awards;
(iv) determine whether, and the extent to which, adjustments
are required pursuant to Section 7 hereof;
(v) interpret and construe this Plan and the terms and
conditions of any Award granted under Section 5, whether before or
after the date set forth in Section 6; and
(vi) determine the circumstances under which, consistent with
the provisions of Section 8, any outstanding Award under Section 5 may
be amended;
3
<PAGE>
which authority (except as to clause (ii) and (iii) above) shall remain in
effect so long as any Award remains outstanding under this Plan.
(c) Specific Committee Responsibility and Discretion Regarding
----------------------------------------------------------
Awards. Subject to the express provisions of this Plan, the Committee, in
------
its sole and absolute discretion, shall determine all of the terms and
conditions of each Award granted under Section 5 of this Plan, which terms
and conditions may include, subject to such limitations as the Committee
may from time to time impose, among other things, provisions that:
(i) permit the recipient of such Award, including any
recipient who is a director or officer of the Company, to pay the
purchase price of the Common Shares or other property issuable
pursuant to such Award, or such recipient's tax withholding obligation
upon such issuance or in respect of such Award or Shares, in whole or
in part, by any one or more of the following:
(A) the delivery of previously owned shares of capital
stock of the Company (including shares acquired as or pursuant to
Awards) or other property,
(B) a reduction in the amount of Common Shares or other
property otherwise issuable pursuant to such Award, or
(C) the delivery of a promissory note, under any
applicable financing plan or on such other terms and conditions,
as in either case authorized by the Committee, consistent with
applicable law;
(ii) accelerate the receipt of benefits pursuant to such
Award upon the occurrence of specified events, including, without
limitation, a change of control of the Company, an acquisition of a
specified percentage of the voting power of the Company, the
dissolution or liquidation of the Company, a sale of substantially all
of the property and assets of the Company or an event of the type
described in Section 7 hereof, or in other circumstances or upon the
occurrence of other events as deemed appropriate by the Committee;
(iii) qualify such Award as an Incentive Stock
Option;
4
<PAGE>
(iv) extend the exercisability or term of any or all such
outstanding Awards, change the price of any or all such outstanding
Awards or otherwise change previously imposed terms and conditions, in
the specified events described in clause (ii) above or in other
circumstances or upon the occurrence of other events as deemed
appropriate by the Committee, in each case subject to Section 8;
(v) authorize the conversion, succession or substitution of
outstanding Awards under Section 5 upon the occurrence of an event of
the type described in Section 7, or in other circumstances or upon the
occurrence of other events as deemed appropriate by the Committee;
and/or
(vi) provide for automatic grants of Awards or successive
Awards.
(d) Binding Determinations. Any action taken by, or inaction of,
----------------------
the Company, the Board or the Committee relating or pursuant to this Plan
shall be within the absolute discretion of that entity or body and shall be
conclusive and binding upon all persons. No member of the Board or officer
of the Company shall be liable for any such action or inaction of the
entity or body, of another person or, except in circumstances involving bad
faith, of himself or herself.
(e) Reliance on Experts. In making any determination or in taking
-------------------
or not taking any action under this Plan, the Board and the Committee may
obtain and may rely upon the advice of experts, including professional
advisors to the Company. No director, officer or agent of the Company shall
be liable for any such action or determination taken or made or omitted in
good faith.
(f) Delegation. The Committee may delegate ministerial, non-
----------
discretionary functions to individuals who are officers or employees of the
Company.
5. Awards.
------
(a) Types of Awards. The Committee, on behalf of the Company, is
---------------
authorized under this Plan to enter into any type of arrangement with an
Employee that is not inconsistent with the provisions of this Plan and that
by its terms, involves or might involve the issuance of (i) Common Shares,
(ii) an option, warrant, convertible security, stock appreciation right or
similar right with an exercise or conversion privilege at a fixed or
variable price related to the Common Shares or other equity securities of
the Company and/or the passage of time, the
5
<PAGE>
occurrence of one or more events, or the satisfaction of performance
criteria or other conditions, or any combination of these variables, or
(iii) any similar security with a value derived from the value of the
Common Shares or other equity securities of the Company. The authorization
of any such arrangement (including any benefits described in Section 5(d))
is referred to herein as the grant of an Award. The date of grant may be at
or after (but not before) the date the Committee authorizes the Award. The
Committee may authorize an officer or officers (other than the particular
recipient) to execute any or all agreements memorializing any grant of an
Award by the Committee under this Plan. All Awards shall be evidenced by a
writing ("Award Agreement") executed on behalf of the Company and, if
---------------
required by the Committee, by the recipient of the Award.
(b) Form of Awards. Awards are not restricted to any specified
--------------
form or structure and may include, without limitation, sales or bonuses of
stock, restricted stock, performance restricted stock, stock options,
reload stock options, stock purchase warrants, other rights to acquire
stock, securities convertible into or redeemable for stock, stock
appreciation rights, limited stock appreciation rights, phantom stock,
dividend equivalents, performance units or performance shares, and an Award
may consist of one such security or benefit, or two or more of them in any
combination or alternative.
(c) Special Performance-Based Share Awards. Without limiting the
--------------------------------------
generality of the foregoing, and in addition to options granted under other
provisions of this Section 5, other performance-based awards within the
meaning of Section 162(m) of the Code ("Performance-Based Awards"), whether
------------------------
in the form of restricted stock, performance stock, phantom stock or other
rights, the vesting of which depends on actual net earnings results (the
performance goal) relative to preestablished targeted levels of net
earnings, may be granted under this Plan. The specific net earnings target
must be approved by the Committee in advance of applicable deadlines under
the Code and while the performance relating to target remains substantially
uncertain. Earnings targets may be adjusted to mitigate the unbudgeted
impact of material, unusual or nonrecurring gains and losses, accounting
changes or other extraordinary events not foreseen at the time the targets
were set. Other types of performance and non-performance awards may also be
granted under the other provisions of this Plan.
(1) Eligible Class. The eligible class of persons for Awards
--------------
under this clause (c) shall be executive officers of the Company. For
each executive officer level, a percent will be established ranging
from 25 to 100% of base salary level, which will be
6
<PAGE>
used in the calculation of the Performance-Based Award under clause (c)
above.
(2) Maximum Award. In no event will grants be made in any
-------------
fiscal year to a participant under this clause (c) that relate to more
than 100,000 shares.
(3) Committee Certification. Before any Performance-Based
-----------------------
Award under clause (c) is paid, the Committee must certify that the
material terms of the Performance-Based Award feature were satisfied.
(4) Terms and Conditions of Awards. The Committee will have
-------------------------------
discretion to determine the restrictions or other limitations of the
individual Awards under clause (c).
(d) Price; Consideration; Option Pricing Limit. Common Shares may
------------------------------------------
be issued pursuant to an Award for any lawful consideration as determined
by the Committee, including, without limitation, cash, Common Shares
(valued at then Fair Market Value, as defined in Section 11), or services
rendered by the recipient of such Award; provided that no Common Shares
-------------
shall be issued for less than the minimum lawful consideration and no
option shall be granted with an exercise price that is less than the Fair
Market Value of the underlying shares on the date of grant.
(e) Cash Awards; Loans. The Committee shall have the express
------------------
authority to create, add or include a cash payment or benefit under this
Plan, whether in lieu of, in addition to or as an Award or as a component
of another type of Award, and to make or authorize loans to finance, or to
otherwise accommodate the financing of, the acquisition or exercise of an
Award.
(f) Transfer Restrictions. Any Award that constitutes a
---------------------
derivative security (as defined in Rule 16a-l(c) under the Exchange Act)
and that is granted to or held by a person subject to Section 16 of the
Exchange Act (a "Section 16 Person") shall be subject to the restrictions
-----------------
on exercisability and on transfer set forth in or pursuant to Rule 16b-3,
which restrictions are incorporated herein by this reference.
(g) Tax Withholding. Upon the issuance of shares, the payment of
---------------
cash or any other taxable event in respect of an Award under this Plan,
such number of shares or amount of cash or other consideration, as the case
may be, otherwise issuable or payable may be reduced by the amount
necessary to satisfy the minimum applicable tax withholding requirements
imposed on the Company or any subsidiary in respect of such Award or event,
all to the
7
<PAGE>
extent and in such manner as the Committee may determine. The participant
shall have no discretion as to whether such shares or amount will or will
not be withheld by the Company; and, if the withholding offset is not
mandatory and automatic, the payment of any such Award shall be subject to
the delivery (or provision for delivery) to the Company of the full amount
due for such withholding in cash equivalent.
6. Term of Plan. No Award shall be granted under this Plan after
------------
March 31, 1999. Although Common Shares may be issued after March 31, 1999
pursuant to Awards granted prior to such date, no Common Shares otherwise shall
be issued under this Plan after such date. Notwithstanding the foregoing, any
Award granted prior to such date may vest or be amended after such date in any
manner that would have been permitted prior to such date, except that (except as
provided in Section 7) no such amendment shall increase the number of shares
subject to or comprising such Award, or extend the final expiration date of the
Award or reduce (below the Fair Market Value on the date of the amendment) the
exercise price of or under such Award.
7. Adjustments and Acceleration.
----------------------------
(a) Adjustments. If (i) the outstanding securities of the class
----------- --
then subject to this Plan (the "outstanding shares") (A) are increased,
------------------
decreased, exchanged or converted as a result of a stock split (including a
split in the form of a stock dividend), reverse stock split,
recapitalization, or similar event or (B) are exchanged for or converted
into cash, property or a different number or kind of securities (or if
cash, property or securities are distributed in respect of the outstanding
shares), as a result of a reorganization, merger, consolidation, exchange,
recapitalization, restructuring, or reclassification, or (ii) substantially
all of the property and assets of the Company are sold as an entirety, or
(iii) the Company is liquidated and dissolved, then, the Committee (or, in
----
the case of Director Options, the Board) shall, in such manner and to such
extent (if any) as is equitable and appropriate, make proportionate
adjustments in (x) the number and type of shares or other securities or
cash or other property that may be acquired pursuant to Options and other
Awards previously granted under this Plan (and, where applicable, the
exercise price thereof so as to maintain the same aggregate exercise
price), and (y) the maximum number and type of shares or other securities,
cash, or property that may be issued or delivered pursuant to Options
(including Incentive Stock Options and Director Options) and other Awards
thereafter granted under this Plan, and (z) such other terms as necessarily
are affected by such event. In the case of an extraordinary distribution,
merger, reorganization, consolidation, combination, sale of assets,
exchange, or spin off, the Committee (or the Board, in the
8
<PAGE>
case of Director Options) may make provisions for a substitution or
exchange of any or all outstanding Options or rights (or for the
securities, cash or property deliverable upon exercise of such outstanding
Options or rights), based upon the distribution or consideration payable to
holders of the Common Shares of the Company upon or in respect of such
event; provided, however, that (i) such adjustment and the acting body's
--------- -------
actions in respect thereof are based on objective criteria and (in the case
of holders subject to Section 16(a) of the Exchange Act) satisfy applicable
criteria in respect of anti-dilutive or similar adjustments, substitutions
or exchanges, as the case may be, under Rule 16b-3, and, as to Director
Options, the provisions of Rule 16b-3(c)(2)(ii), and (ii) such adjustment
is approved by shareholders or is otherwise consistent with the effect of
such event on shareholders, and (iii) the accuracy of such adjustments is
confirmed by the Company's independent auditors.
(b) Acceleration.
------------
(i) A "Change in Control" for purposes of this Plan shall
-----------------
mean (u) approval by the shareholders of the Corporation of the
dissolution or liquidation of the Corporation; (v) approval by the
shareholders of the Corporation of an agreement of merger or
consolidation, or other reorganization, with or into one or more
entities that are not subsidiaries or affiliates, as a result of which
less than 50% of the outstanding voting securities of the surviving or
resulting entity immediately after the reorganization are, or will be,
owned by shareholders of the Company immediately before such
reorganization (assuming for purposes of such determination that there
is no change in the record ownership of the Company's securities from
the record date for such approval until such reorganization); (x)
approval by the shareholders of the Company of the sale of
substantially all of the Company's business and/or assets to a person
or entity which is not a subsidiary or other affiliate; (y) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
------
Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3
----------------
under the Exchange Act), directly or indirectly, of securities of the
Company representing more than 50% of the combined voting power of the
Company's then outstanding securities entitled to then vote generally
in the election of directors of the Company; or (z) during any period
not longer than two consecutive years, individuals who at the beginning
of such period constituted the Board cease to constitute at least a
majority thereof, unless the election, or the nomination for election
by the Company's shareholders,
9
<PAGE>
of each new Board member was approved by a vote of at least a majority
of the Board members then still in office who were Board members at the
beginning of such period (including for these purposes, new members
whose election or nomination was so approved, but, in the case of
successors, without duplication).
(ii) Prior to a Change in Control, the Committee may
determine in respect of Awards held by Employees that upon or in
anticipation of the occurrence of the Change in Control benefits under
Awards shall be accelerated only for a limited period of time, not less
than a period of time reasonably necessary to realize the benefits of
such acceleration nor more than one year after the Change in Control.
Unless such a determination is made, then (subject to the last sentence
of this clause) upon the occurrence of a Change in Control (x) each
Option and Stock Appreciation Right shall become immediately
exercisable, (y) Restricted Stock and Performance Restricted Stock
shall immediately vest free of restrictions, and (z) each Performance
Share Award shall become payable to the Participant; provided, however,
-------- -------
that in no event shall any Award be accelerated as to any Section 16
Person to a date less than six months after the date of such Award. The
Committee may override the limitations on acceleration in this Section
7(b)(ii) by express provision in the Award Agreement or otherwise, and
may accord any holder of an Award a right to refuse any acceleration,
whether pursuant to the Award Agreement or otherwise, in such
circumstances as the Committee may approve. Any acceleration of Awards
shall comply with any applicable regulatory requirements, including
without limitation Section 422 of the Code.
(iii) Any Awards that are (or but for a holder's rejection of
acceleration would have been) accelerated under this Section 7 and that
are not exercised or vested prior to a dissolution of the Company or a
reorganization event described in Section 7(a) that the Company does
not survive shall terminate, provided that if provision has been made,
consistent with the terms hereof, for the substitution, exchange or
other settlement of Awards, such Awards shall be substituted, exchanged
or otherwise settled in accordance with such provision.
(iv) Any Awards that are (or but for the holder's rejection
of the acceleration would have been) accelerated that are not exercised
or vested prior to an abandonment or termination of a transaction
subject to shareholder approval that triggered the Change in
10
<PAGE>
Control (as evidenced by public announcement, Board resolution,
execution of documents terminating the transaction, or other action or
document objectively confirming such abandonment or termination),
shall be restored to their prior status (except for the effects of the
passage of time) as if no Change in Control had occurred.
(c) Golden Parachute Limitations. In no event shall an Award be
----------------------------
accelerated under the Plan to an extent or in a manner which would not be
fully deductible by the Company for federal income tax purposes because of
Section 280G of the Code, nor shall any payment hereunder be accelerated if
any portion of such accelerated payment would not be deductible by the
Company because of Section 280G of the Code. If a holder would be entitled
to benefits or payments hereunder and under any other plan or program which
would constitute "parachute payments" as defined in Section 280G of the
Code, then the holder may by written notice to the Company designate the
order in which such parachute payments shall be reduced or modified so that
the Company is not denied federal income tax deductions for any "parachute
payments" because of Section 280G of the Code.
8. Amendment and Termination of Plan. The Board (subject to any
---------------------------------
Committee or shareholder approval required under applicable law) may amend or
terminate this Plan at any time and in any manner. No amendment or termination
of the Plan or change in or affecting any outstanding Award shall deprive in any
material respect the recipient without the consent of such recipient, of any of
his or her rights or benefits under or with respect to the outstanding Award.
Adjustments contemplated by Section 7 shall not be deemed to constitute a change
requiring such consent.
9. Effective Date of Plan; Shareholder Approval. This Plan shall be
--------------------------------------------
effective as of March 31, 1994, the date upon which it was approved by the
Board; provided, however, that no Common Shares may be issued under this Plan
until it has been approved by the affirmative votes of the holders of a majority
of the Common Shares of the Company present, or represented, and entitled to
vote at a meeting duly held in accordance with applicable law.
10. Legal Issues.
------------
(a) Compliance and Choice of Law; Severability. This Plan, the
------------------------------------------
granting and vesting of Awards under this Plan and the issuance and
delivery of Common Shares and/or the payment of money under this Plan or
under Awards granted hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal
11
<PAGE>
margin requirements) and to such approvals by any listing, regulatory or
governmental authority as may, in the opinion of counsel for the Company,
be necessary or advisable in connection therewith. Any securities delivered
under this Plan shall be subject to such restrictions as the Company may
deem necessary or desirable to assure compliance with all applicable legal
requirements. This Plan, the Awards, all documents evidencing Awards and
all other related documents shall be governed by, and construed in
accordance with the laws of the state of incorporation of the Company. If
any provision shall be held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions of this Plan (subject
to Section 10(b)) shall continue in effect.
(b) Plan Construction. It is the intent of the Company that this
-----------------
Plan and Awards hereunder satisfy and be interpreted in a manner that in
the case of recipients who are or may become persons subject to Section 16
of the Exchange Act satisfies the applicable requirements of Rule 16b-3 so
that such persons will be entitled to the benefits of Rule 16b-3 or other
exemptive rules under Section 16 of the Exchange Act and will not be
subjected to avoidable liability thereunder. If any provision of this Plan
or of any Award would otherwise frustrate or conflict with the intent
expressed above, that provision to the extent possible shall be interpreted
and deemed amended so as to avoid such conflict, but to the extent of any
remaining irreconcilable conflict with such intent as to such persons in
the circumstances, such provision shall be deemed inoperative.
(c) REIT Qualification. Notwithstanding anything contained herein
------------------
to the contrary, no participant may receive any Common Shares upon the
grant, exercise or vesting of an option or right or other Award to the
extent it will cause such person to beneficially or constructively own
equity shares in excess of the 9.8% of the equity shares of the Company. In
the event that a participant would be otherwise entitled to claim or seek
to exercise any right which upon delivery of Common Shares would cause such
participant to beneficially or constructively own equity shares in excess
of the ownership limit, the Company shall have the right, notwithstanding
any option or right previously granted to the participant, to deliver a
check or cash to the participant in lieu thereof.
(d) Non-Exclusivity of Plan. Nothing in this Plan shall limit or
-----------------------
be deemed to limit the authority of the Board or the Committee to grant
awards or authorize any other compensation, with or without reference to
the Common Shares, under any other plan or authority.
12
<PAGE>
11. Non-Officer Director Options.
----------------------------
(a) Participation. Awards in respect of not more than 690,000
-------------
(subject to adjustment) of the shares authorized under this Plan shall be
made under this Section 11 only to Non-Officer Directors and shall be
evidenced by an Award Agreement substantially in the form of Exhibit A.
(b) Certain Definitions. The following definitions shall apply to
-------------------
this Section 11:
"Business Day" shall mean any day, other than Saturday, Sunday or
------------
any statutory holiday in the state of California.
"Director Option" shall mean an Option granted to a Non-Officer
---------------
Director pursuant to Section 11.
"Disability" shall mean a "permanent and total disability" within
----------
the meaning of Section 22(e)(3) of the Code.
"Fair Market Value" on a specified date shall mean (i) if the
-----------------
Common Shares are listed or admitted to trade on a national securities
exchange, the average of the high and low reported sales prices of the
Common Shares on the Composite Tape on such date, as published in the
Western Edition of The Wall Street Journal, on the principal national
securities exchange on which the Common Shares are so listed or admitted to
trade, or, if there is no trading of the Shares on such date, then the
average of the high and low reported sales prices of the Common Shares as
quoted on such Composite Tape on the next preceding date on which there was
trading in such Shares; (ii) if the Common Shares are not listed or
admitted to trade on a national securities exchange, the average of the
high and low reported prices for the Common Shares on such date, as
furnished by the National Association of Securities Dealers, Inc. ("NASD")
through the NASDAQ National Market Reporting System (or a similar
organization, if the NASD is no longer reporting such information); (iii)
if the Common Shares are not listed or admitted to trade on a national
securities exchange and are not reported on the National Market Reporting
System, the arithmetic mean between the bid and asked prices for the Shares
on such date, as furnished by the NASD or a similar organization; or (iv)
if the Common Shares are not listed or admitted to trade on a national
securities exchange nor reported on the National Market Reporting System
and if bid and asked prices for the stock are not furnished by the NASD or
a similar organization, the value as established by the Board at such time
for purposes of this Plan.
13
<PAGE>
"Retirement" shall mean retirement or resignation as a director
----------
after at least five (5) years service as a director.
(c) Initial Award. Persons who are Non-Officer Directors in
-------------
office at the time this Plan is first approved by the shareholders of the
Company shall be granted on June 1, 1994 without further action a
nonqualified stock option to purchase 30,000 Common Shares. The grant date
of such Director Options shall be June 1, 1994.
(d) Subsequent Annual Awards. On the first Business Day in June
------------------------
in each subsequent calendar year during the term of the Plan, commencing in
June 1995, there shall be granted automatically (without any action by the
Committee or the Board) a nonqualified stock option (the grant date of
which shall be such date in June) to each Non-Officer Director then in
office to purchase the number of Common Shares equal to 30,000 multiplied
by a fraction, the numerator of which is the earnings per share of Common
Stock (on a fully diluted basis) of the Company for the fiscal year of the
Company ended immediately before the date of grant of the Non-Officer
Director option (as reported in the audited Financial Statements included
in the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission ("SEC"), but in no event less than zero) (the "EPS
---
Numerator Amount") and the denominator of which is (i) in 1995, $1.00, and
----------------
(ii) in each year after 1995, the greater of (x) $1.15 compounded at a rate
of 15% per year (i.e., in 1996, $1.15; in 1997, $1.32; and in 1998, $1.52;
or (y) the EPS Numerator Amount for the fiscal year of the Company ended
immediately before the fiscal year used in determining the EPS Numerator
Amount. The number 30,000 and the specific dollar amounts herein are
subject to adjustment in those events set forth in clause (i) below.
(e) Maximum Number of Shares. Annual grants that would otherwise
------------------------
exceed the maximum number of shares under Section 3(b) shall be prorated
within such limitation. Notwithstanding anything to the contrary contained
herein, a Non-Officer Director shall not receive Options for more than
50,000 Common Shares pursuant to this Section 11 in any year.
(f) Purchase Price. The exercise price for Shares under each Non-
--------------
Officer Director option shall be equal to 100% of the Fair Market Value of
a Common Share on the date the Director Option is granted. The exercise
price of any option granted under this Section shall be paid in full at the
time of each purchase in cash equivalent or in Common Shares valued at
their Fair Market Value on the date of exercise of such option, or partly
in such shares and partly in cash, provided that any such Common Shares
-------- ----
used in
14
<PAGE>
payment shall have been owned by the Non-Officer Director at least six
months prior to the date of exercise.
(g) Option Period and Exercisability. Each Director Option
--------------------------------
granted under this Section 11 shall become fully exercisable on the first
anniversary of the grant date. Each option granted under this Section 11
and all rights or obligations thereunder shall expire on the earlier of the
fifth anniversary of the date of grant or the liquidation or dissolution of
the Company and shall be subject to earlier termination as provided below.
(h) Termination of Directorship. If a Non-Officer Director's
---------------------------
services as a member of the Board of Directors terminate by reason of
death, Disability or Retirement, an option granted pursuant to this Section
then held by such Non-Officer Director shall immediately become and shall
remain exercisable for one year after the date of such termination or until
the expiration of the stated term of such option, whichever first occurs.
If a Non-Officer Director's services as a member of the Board terminate for
any other reason, any portion of an option granted pursuant to this Section
which is not then exercisable shall terminate and any portion of such
option which is then exercisable may be exercised for three months after
the date of such termination or until the expiration of the stated term
whichever first occurs.
(i) Adjustments. The provisions of this Section 11 and Director
-----------
Options granted hereunder shall be subject to Section 7. If there shall
occur any event described in Section 7(a), then in addition to the matters
contemplated thereby, the Board shall, in such manner and to such extent
(if any) as is appropriate and equitable, proportionately adjust the dollar
amounts set forth elsewhere in this Section 11.
(j) Acceleration Upon a Change in Control. Upon the occurrence of
-------------------------------------
a Change in Control referred to in Section 7(b), each Director Option
granted under this Section 11 shall become immediately exercisable in full
subject to the terms thereof (other than with respect to the Committee's
discretion); provided, however, that none of the Director Options granted
--------- -------
under this Section 11 shall be accelerated to a date less than six months
after the grant date of such option. To the extent that any Director Option
granted under this Section 11 is not exercised prior to (i) a dissolution
of the Company or (ii) a merger or other corporate event that the Company
does not survive, and no provision is (or consistent with the provisions of
Sections 10 or 11 can be) made for the assumption, conversion, substitution
or exchange of the option, the
15
<PAGE>
Director Option shall terminate upon the occurrence of such event.
(k) Limitation on Amendments and Changes. Without limiting the
------------------------------------
generality of Section 8, the provisions of this Section 11 shall not be
amended more than once every six months (other than as may be necessary to
conform to any applicable changes in the Code or the rules thereunder),
unless such amendment would be consistent with the provisions of Rule
16b-3(c)(2)(ii)(or any successor provision).
(l) Other Provisions. The provisions of Sections 3, 5(e) and 7
----------------
through 10 are incorporated herein by this reference. It is the intent of
the Company that this Section 11 constitute a formula plan within the
meaning of Rule 16b-3(c)(2)(ii) and that this Section 11 be construed in a
manner consistent with such intent. Unless the context otherwise requires
and to the extent required for purposes of Rule 16b-3, the provisions of
this Section 11 shall be construed as a separate plan.
16
<PAGE>
EXHIBIT A
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
ELIGIBLE DIRECTOR
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT dated as of the day of , 19 ,
between Countrywide Mortgage Investments, Inc., a Delaware corporation
(the "Corporation"), and (the "Director").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Corporation has adopted and the shareholders of the
Corporation have approved a 1994 Stock Incentive Plan (the "Plan").
WHEREAS, pursuant to Section 11 of the Plan, the Corporation has
granted an option (the "Option") to the Director upon the terms and conditions
evidenced hereby, as required by the Plan, which Option is not intended as and
shall not be deemed to be an incentive stock option within the meaning of
Section 422 of the Code.
NOW, THEREFORE, in consideration of the services rendered and to be
rendered by the Director, the Corporation and the Director agree to the terms
and conditions set forth herein as required by the terms of the Plan.
1. Option Grant. This Agreement evidences the grant to the
------------
Director, as of _____________ , ____ (the "Option Date"), of an Option to
purchase an aggregate of _____ shares of Common Stock, par value ________ per
share, under Section 11 of the Plan, subject to adjustment as provided in or
pursuant to the Plan.
2. Exercise Price. The Option entitles the Director to purchase,
--------------
subject to the terms hereof, all or any part of the Option shares at a price per
share of $ ________, which represents the Fair Market Value of the shares on the
Option Date.
3. Option Exercisability and Term. The Option shall first become
------------------------------
exercisable on the first anniversary of the Option Date and shall terminate
______________, 19 ____,* unless earlier accelerated or terminated in accordance
with the terms of Section 11 of the Plan.
4. Service. The Director agrees to serve as a director in
-------
accordance with the provisions of the Corporation's Certificate of
Incorporation, bylaws and applicable law.
- - --------------
* insert day before fifth anniversary of Option Date.
<PAGE>
5. General Terms. The Option and this Agreement are subject to, and
-------------
the Corporation and the Director agree to be bound by, the provisions of the
Plan that apply to the Option, including but not limited to Sections 3(f)-(g),
5(f), 7 through 11. Such provisions are incorporated herein by this reference.
The Director acknowledges receiving a copy of the Plan and reading its
applicable provisions. Capitalized terms not otherwise defined herein shall have
the meaning assigned to such terms in the Plan.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
(a Delaware corporation)
By
---------------------------------------
Title
----------------------------------
DIRECTOR
- - ----------------------------------------- (Signature)
- - ----------------------------------------- (Print Name)
- - ----------------------------------------- (Address)
- - ----------------------------------------- (City, State, Zip Code)
<PAGE>
EXHIBIT 10.1
1994 AMENDED AND EXTENDED
LOAN PURCHASE AND ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT is made as of May 15, 1994, by and between
Countrywide Mortgage Investments, Inc., a Delaware corporation (the "Company"),
and Countrywide Funding Corporation, a New York corporation ("CFC").
WITNESSETH:
WHEREAS, the Company has elected to qualify for the tax benefits
accorded by Sections 856 to 860 of the Internal Revenue Code of 1986, as
amended; and
WHEREAS, the Company, directly or through Subsidiaries, in the
conduct of its business primarily operates a mortgage loan conduit, engages in
warehouse lending and invests in mortgage loans and mortgage-related securities
meeting the investment criteria established from time to time by the Board of
Directors; and
WHEREAS, the Company may desire to purchase mortgage loans
originated or purchased by CFC and may want CFC to cause the issuance of Agency
Securities supported by pools of such mortgage loans on its behalf; and
WHEREAS, the Company may desire to appoint CFC to service
mortgage loans originated by others and purchased by the Company through its
mortgage loan conduit operations; and
WHEREAS, the Company and CFC desire to amend and extend the Loan
Purchase and Administrative Services Agreement originally entered into as of
September 3, 1985, for a one-year period through May 14, 1995, upon the terms
and subject to the conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual agreements herein
set forth, the parties hereto agree as follows:
Section 1. Definitions. Whenever used in this Agreement, the
--------- -----------
following terms, unless the context otherwise requires, shall have the following
meanings:
(a) "Affiliate" shall have the meaning attributed to such term in
the Management Agreement.
(b) "Agency Securities" shall mean GNMA Certificates, FHLMC
Certificates and/or FNMA Certificates.
(c) "Agreement" shall mean this 1994 Amended and Extended Loan
Purchase and Administrative Services Agreement.
(d) "Board of Directors" shall mean the Board of Directors of the
Company.
1
<PAGE>
(e) "Conforming Loan" shall mean an FHA Loan, a VA Loan or a
conventional mortgage loan eligible for sale to FNMA or FHLMC.
(f) "FHA Loan" shall mean any mortgage loan insured by the
Federal Housing Administration under the National Housing Act.
(g) "FHLMC" shall mean the Federal Home Loan Mortgage
Corporation, a corporation organized and existing under the laws of the United
States, or any successor thereto.
(h) "FHLMC Certificate" shall mean a mortgage participation
certificate, guaranteed as to payment of interest and principal by FHLMC and
backed by a pool of conventional mortgage loans.
(i) "FNMA" shall mean the Federal National Mortgage Association,
a corporation organized and existing under the laws of the United States, or any
successor thereto.
(j) "FNMA Certificate" shall mean a guaranteed mortgage pass-
through certificate, guaranteed as to timely payment of interest and principal
by FNMA and backed by a pool of FHA Loans, VA Loans, and/or conventional
mortgage loans.
(k) "GNMA" shall mean the Government National Mortgage
Association, a wholly owned corporate instrumentality of the United States
within the Department of Housing and Urban Development, or any successor
thereto.
(l) "GNMA Certificate" shall mean a fully modified pass-through
mortgage-backed certificate guaranteed as to timely payment of interest and
principal by GNMA and backed by a pool of FHA Loans or VA Loans.
(m) "Jumbo Loan" shall mean any mortgage loan which is not a
Conforming Loan.
(n) "Management Agreement" shall mean that certain agreement
dated as of May 15, 1994 between the Company and the Manager governing the
management of the Company's investments and day-to-day operations.
(o) "Manager" shall mean Countrywide Asset Management
Corporation, or any successor thereto, under a Management Agreement with the
Company.
(p) "Mortgage Backed Securities" shall have the meaning
attributed to such term in the Management Agreement.
(q) "Subsidiary" shall have the meaning attributed to such term
in the Management Agreement.
(r) "Unaffiliated Directors" shall mean those members of the
Board of Directors who are not Affiliates of the Manager.
(s) "VA Loan" shall mean any mortgage loan guaranteed by the
Veterans Administration under the Servicemen's Readjustment Act of 1944, as
amended, or Chapter 37 of Title 38, United States Code.
Section 2. Purchase of Mortgage Loans and Agency Securities from
--------- -----------------------------------------------------
CFC by the Company. (a) CFC may sell to the Company mortgage loans, Agency
- - ------------------
Securities and other mortgage-related assets meeting the Company's investment
criteria. CFC agrees that all such
2
<PAGE>
sales shall be made in accordance with the normal and customary industry
practices with respect to the sale of mortgage loans, Agency Securities and
other mortgage-related assets. CFC agrees
3
<PAGE>
that all mortgage loans or other investments sold by it to the Company will meet
the investment criteria of the Company in effect at the time of sales.
(b) CFC agrees that, any sale of mortgage loans, Agency
Securities and other mortgage-related assets from CFC to the Company will be
made at prices no less favorable to the Company than are available to CFC from
other purchasers.
(c) The Company agrees that prior to the delivery of each
mortgage loan purchased, it shall have no interest in such mortgage loan. CFC
shall bear all expenses and costs associated with the mortgage loans prior to
delivery, including the costs associated with mortgage loans that are not sold.
Upon the delivery of such mortgage loan, the Company shall be the sole
beneficial owner of such mortgage loan although legal title to the mortgage and
the mortgage note will be held by CFC if so directed by the Company to permit
the issuance of Agency Securities under Section 3.
(d) Notwithstanding the fact that the Company is the beneficial
owner of the mortgage loans it purchases, the Company and CFC agree that from
and after the date first written above, the Conforming Loans sold to the Company
under this Agreement shall be sold "servicing retained" and the servicing rights
therefor shall remain with CFC or the other holder thereof. Notwithstanding the
foregoing, neither CFC nor such holder may assign its servicing rights to such
Conforming Loans without the consent of the Company prior to the issuance of
Agency Securities backed by such Conforming Loans. The Company agrees that it
will not unreasonably withhold its consent to such an assignment of servicing
rights. CFC's rights to assign the servicing rights to Conforming Loans that
have been pooled and exchanged for Agency Securities shall be subject to
Subsection 3(c).
(e) CFC hereby represents and warrants that at the time of sale
of mortgage loans to the Company such mortgage loans will meet the
representations and warranties required to be made by sellers of mortgage loans
to the Company or any Subsidiary pursuant to the Seller/Servicer Guide
incorporated by reference into the Seller/Servicer Contract executed by CFC.
(f) CFC shall act as an independent contractor and not as an
agent of the Company for purposes of originating and purchasing mortgage loans
and selling to the Company mortgage loans and Agency Securities and other
investments.
Section 3. Pooling of Mortgage Loans; Issuance of Agency
--------- ---------------------------------------------
Securities; Payments of Certain Amounts to Company. (a) If directed by the
- - --------------------------------------------------
Company, CFC on behalf of the Company will pool any FHA Loans and VA Loans
purchased by the Company in accordance with the requirements of FNMA and will
use its best efforts to have GNMA Certificates issued backed by such FHA Loans
and VA Loans. In connection therewith, CFC will (i) apply to GNMA for a
commitment to guarantee mortgage-backed securities by the issuance of such GNMA
Certificates; (ii) once such a commitment has been issued by GNMA, deliver the
pool of mortgage loans to a custodian (selected by CFC and acceptable to the
Company, subject to GNMA requirements) to be held for the benefit of the holder
of the Certificates; and (iii) once the custodian verifies to GNMA that it has
custody of the pool, enter into or cause to be created an appropriate GNMA
guaranty pursuant to which CFC will issue a GNMA Certificate owned by and
registered in the name of or deposited into a depository institution for the
account of the Company. After the issuance of such GNMA Certificates, CFC will
retain all responsibilities and duties to GNMA, including the payment of all
GNMA guaranty fees, with respect to such FHA Loans, VA Loans and GNMA
Certificates and will service such FHA Loans and VA Loans after the issuance of
the GNMA Certificates in accordance with GNMA requirements.
4
<PAGE>
(b) If directed by the Company, CFC on behalf of the Company will
pool any conventional mortgage loans and/or FHA Loans and VA Loans purchased by
the Company in accordance with the requirements of FNMA and/or the requirements
of FHLMC and will use its best efforts to have FNMA Certificates and/or FHLMC
Certificates issued backed by such conventional mortgage loans, FHA Loans and VA
Loans, but only if CFC in its sole discretion determines that such conventional
mortgage loans, FHA Loans and VA Loans meet all FNMA or FHLMC underwriting and
other requirements for such issuance. In connection therewith, CFC will (i)
apply to FNMA or FHLMC for a commitment to issue FNMA Certificates or FHLMC
Certificates and (ii) once such commitment has been approved, CFC will contract
with FNMA or FHLMC to pool such conventional mortgage loans, FHA Loans and VA
Loans and cause to be issued FNMA Certificates or FHLMC Certificates backed by
such loans, which FNMA Certificates or FHLMC Certificates will be owned by and
will be registered in the name of or deposited into a depository institution for
the account of the Company. After the issuance of such FNMA Certificates and
FHLMC Certificates, CFC will retain all responsibilities and duties to FNMA and
FHLMC, including the payment of all FNMA or FHLMC guaranty fees, with respect to
such conventional mortgage loans, FHA Loans, VA Loans, FNMA Certificates and
FHLMC Certificates and will service such conventional mortgage loans, FHA Loans
and VA Loans after the issuance of the FNMA or FHLMC Certificates which they
back, in accordance with FNMA and FHLMC requirements.
(c) If Agency Securities are issued to the Company pursuant to
this Section, CFC agrees that for such time as it is servicing the mortgage
loans underlying each Agency Security on behalf of the Company, in addition to
all duties and obligations imposed on CFC by the servicing agreement which
incorporates the appropriate GNMA, FNMA or FHLMC requirements, CFC shall remit
to the Company at the same time it remits each periodic installment of principal
and interest on the Agency Security, the amount, if any, representing the
difference between (i) the schedules installment of principal and interest on
the mortgage loans underlying the Agency Security, less the applicable GNMA,
FNMA or FHLMC guaranty fee and CFC's servicing fee as agreed to between the
Company and CFC, and (ii) the scheduled installment of principal and interest on
the Agency Security. The obligation of CFC to remit such amounts to the Company
shall arise upon receipt from the mortgagor by CFC of the scheduled installment
of principal and interest on the underlying mortgage loan. CFC agrees that in
the event it assigns its right to service the mortgage loans underlying Agency
Securities, either the successor servicer of such mortgage loans will continue
to remit the amounts referred to above to the Company or CFC will remit to the
Company an amount representing the present value of the anticipated amounts
which would otherwise be received by the Company over the life of the mortgage
loans under this Subsection.
Section 4. Obligation to Assume Servicing. In the event the
--------- ------------------------------
Company or any Subsidiary acquires rights to service mortgage loans or
terminates the servicing rights of any entity which has sold mortgage loans to
the Company or any Subsidiary on a servicing retained basis, the Company and CFC
agree to negotiate a servicing agreement pursuant to which CFC will assume the
servicing function.
Section 5. Additional Activities of CFC. Nothing herein shall
--------- ----------------------------
prevent CFC or its Affiliates from engaging in other businesses or from
rendering services of any kind to any other person or entity, including the
performance of monitoring, administering or servicing activities for others
investing in any type of real estate investment.
Section 6. Bank Accounts. Fidelity Bond. (a) CFC may establish
--------- -----------------------------
and maintain in connection with the services performed hereunder one or more
bank accounts in the name of the Company, at the direction of the Company, and
may collect and deposit into any such account or accounts, and disburse from any
such account or accounts, moneys on behalf of the Company, under such terms and
conditions as the Company may approve; and CFC shall from time to time
5
<PAGE>
render appropriate accountings of such collections and payments to the Company
and, when requested, to the auditors of the Company.
(b) CFC shall maintain a fidelity bond with a responsible surety
company in an amount approved by the Board of Directors covering all officers
and employees of CFC handling funds of the Company and any documents or papers,
which bond shall protect the Company against all losses of any such property
from acts of such officers and employees through theft, embezzlement, fraud,
negligent acts, errors and omissions or otherwise, the premium for said bond to
be paid by CFC.
Section 7. Records; Confidentiality. CFC shall maintain
--------- ------------------------
appropriate books of account and records relating to services performed
hereunder, which books of account and records shall be accessible for inspection
and copying by the Company at any time during normal business hours. CFC agrees
to keep confidential any and all information it obtains from time to time in
connection with the services it renders hereunder and shall not disclose any
portion thereof to nonaffiliated third parties except with the prior written
consent of the Company.
Section 8. Term; Termination. (a) This Agreement shall continue
--------- -----------------
in force through May 14, 1995, and thereafter it may be extended only with the
consent of CFC and by the affirmative vote of a majority of the Unaffiliated
Directors. Each extension shall be executed in writing by both parties hereto
before the expiration of this Agreement or of any extension thereof.
(b) CFC may terminate this Agreement upon 30 days' written notice
if at any time any of the Affiliates of Countrywide Credit Industries, Inc. are
no longer servicing as Manager.
(c) Notwithstanding any other provision herein to the contrary,
this Agreement, or any extension hereof, may be terminated by the Company with
cause, upon 30 days' written notice, or by either party without cause, upon 60
days' written notice, by majority vote of the Unaffiliated Directors or by vote
of the holders of a majority of the outstanding shares of common stock of the
Company, in the case of termination by the Company, or in the case of
termination by CFC, by majority vote of the Directors of CFC.
Section 9. Assignment. This Agreement shall not be assignable in
--------- ----------
whole or in part by CFC, unless such assignment is to a corporation,
association, trust or other organization which shall acquire the property and
carry on the business of CFC, if at the time of such assignment a majority of
the voting stock of such assignee organization shall be owned, directly or
indirectly, by Countrywide Credit Industries, Inc. or unless such assignment is
consented to in writing by the Company with the consent of a majority of the
Unaffiliated Directors. Such an assignment shall bind the assignee hereunder in
the same manner as CFC is bound hereunder, and, to further evidence its
obligations hereunder, the assignee shall execute and deliver to the Company a
counterpart of this Agreement. This Agreement shall not be assignable by the
Company without the consent of CFC, except in the case of an assignment by the
Company to a corporation or other organization which is a successor (by merger,
consolidation or purchase of assets) to the Company, in which case such
successor organization shall be bound hereunder by the terms of said assignment
in the same manner as the Company is bound hereunder.
Section 10. Termination by Company for Cause. At the option
---------- --------------------------------
solely of the Company, this Agreement may be and become terminated upon receipt
of thirty days' written notice of termination from the Board of Directors to CFC
is any of the following events shall occur:
(a) If CFC shall violate any provisions of this Agreement and,
after notice of such violation, shall not cure such default within 30 days; or
6
<PAGE>
(b) There is entered an order for relief or similar decree or
order with respect to CFC by a court having jurisdiction in the premises in an
involuntary case under the federal bankruptcy laws as now or hereafter
constituted or under any applicable federal or state bankruptcy, insolvency or
other similar laws; or CFC (i) ceases or admits in writing its inability to pay
its debts as they become due and payable, or makes a general assignment for the
benefit of, or enters into any composition or arrangement with, creditors; (ii)
applies for, or consents (by admission of material allegations of a petition or
otherwise) to the appointment of a receiver, trustee, assignee, custodian,
liquidator or sequestrator (or other similar official) of CFC or of any
substantial part of its properties or assets, or authorizes such an application
or consent, or proceedings seeking such appointment are commenced without such
authorization, consent or application against CFC and continue undismissed for
30 days; (iii) authorizes or files a voluntary petition in bankruptcy, or
applies for or consents (by admission of material allegations of a petition or
otherwise) to the application of any bankruptcy, reorganization, arrangement,
readjustment of debt, insolvency, dissolution, liquidation or other similar law
of any jurisdiction, or authorizes such application or consent, or proceedings
to such end are instituted against CFC without such authorization, application
or consent and remain undismissed for 30 days or result in adjudication of
bankruptcy or insolvency; or (iv) permits or suffers all or any substantial part
of its properties or assets to be sequestered or attached by court order and the
order remains undismissed for 30 days.
(c) CFC agrees that if any of the events specified in paragraph
(b) of this Section 10 shall occur, it will give prompt written notice thereof
to the Board of Directors after the happening of such event.
Section 11. Action Upon Termination. From and after the effective
---------- -----------------------
date of termination of this Agreement, pursuant to Sections 8, 9 or 10 hereof,
CFC shall not be entitled to compensation for further services hereunder, but
shall be paid all compensation accruing to the date of termination. CFC shall
forthwith upon such termination:
(a) Pay over to the Company any money collected and held for the
account of the Company pursuant to this Agreement or otherwise, after deducting
any accrued compensation to which it is then entitled;
(b) Deliver to the Board of Directors a full accounting,
including a statement showing any payments collected by it and a statement of
any money held by it, covering the period following the date of the last
accounting furnished to the Board of Directors; and
(c) Deliver to the Board of Directors all property and documents
of the Company then in the custody of CFC, except to the extent that to do so
would conflict with the terms of its servicing agreement with the Company.
Section 12. Release of Money or other Property Upon Written
---------- -----------------------------------------------
Request. CFC agrees that any money or other property of the Company held by CFC
- - --------
under this Agreement shall be held for the Company in a custodial capacity, and
CFC's records shall be appropriately marked to clearly reflect the ownership of
such money or other property of the Company. CFC shall release its custody of
any money or other property only in accordance with written instructions from
the Company.
Section 13. Notices. Any notice, report or other communication
---------- -------
required or permitted to be given hereunder shall be in writing, unless some
other method of giving such notice , report or other communication is accepted
by the party to whom it is given, and shall be given by being delivered at the
following addresses of the parties hereto:
7
<PAGE>
The Company: Countrywide Mortgage Investments, Inc.
35 North Lake Avenue
Pasadena, California 91101-1857
Attention: General Counsel
CFC: Countrywide Funding Corporation
155 North Lake Avenue
Post Office 7137
Pasadena, California 91109-7137
Attention: General Counsel
Either party may at any time give notice in writing to the other
party of a change of its address for the purpose of this Section 13.
Section 14. No Joint Venture. The Company and CFC are not
---------- ----------------
partners or joint venturers with each other and nothing herein shall be
construed to make them such partners or joint venturers or impose any liability
as such on either of them.
Section 15. Amendments. This Agreement shall not be amended,
---------- ----------
changed, modified, terminated or discharged in whole or in part, and the
performance of any obligation hereunder may not be waived, except by an
instrument in writing signed by both parties hereto, or their respective
successors or permitted assigns, or otherwise as provided herein.
Section 16. Successors and Assigns. This Agreement shall bind any
---------- ----------------------
successors or permitted assigns of the parties hereto as herein provided..
Section 17. Severability. The invalidity or unenforceability of
---------- ------------
any provision of this Agreement shall not affect the validity of any other
provision, and all other provisions shall remain in full force and effect.
Section 18. Entire Agreement. This instrument contains the entire
---------- ----------------
agreement between the parties as to the rights granted and the obligations
assumed in this instrument.
Section 19. Waiver. Any forbearance by a party to this Agreement
---------- ------
in exercising any right or remedy under this Agreement or otherwise afforded by
applicable laws shall not be a waiver of or preclude the exercise of that or any
other right or remedy.
Section 20. Governing Law. This Agreement shall be governed by,
---------- -------------
construed under and interpreted in accordance with the laws of the State of
California.
Section 21. Supplemental Servicing. From and after the date of
---------- ----------------------
this Agreement the Supplemental Servicing Agreement dated as of May 15, 1987, by
and among the Company, CFC and the Manager shall be of no further force and
effect.
Section 22. Headings and Cross-References. The section headings
---------- -----------------------------
hereof have been inserted for convenience of reference only and shall not be
construed to affect the meaning, construction or effect of this Agreement. Any
reference in this Agreement to a "Section" or "Subsection" shall be construed,
respectively, as referring to a section of this Agreement or a subsection of a
section of this Agreement in which the reference appears.
Section 23. Execution in Counterparts. This Agreement may be
---------- -------------------------
executed in one or more counterparts, any of which shall constitute an original
as against any party whose
8
<PAGE>
signature appears on it, and all of which shall together constitute a single
instrument. This Agreement shall become binding when one or more counterparts,
individually or taken together, bear the signatures of both parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed by their officers thereunto duly authorized as of the day and
year first above written.
COUNTRYWIDE MORTGAGE INVESTMENTS, INC.
By: /s/ Michael W. Perry
_____________________________
Michael W. Perry
Title: Executive Vice President
COUNTRYWIDE FUNDING CORPORATION
By: /s/ Kevin W. Bartlett
_____________________________
Kevin W. Bartlett
Title: Managing Director
The undersigned, as Manager, consents to the foregoing terms and
provisions of this Agreement and agrees to be bound by them in performing its
duties as Manager of the Company.
COUNTRYWIDE ASSET MANAGEMENT
CORPORATION
By: /s/ Stanford L. Kurland
_____________________________
Stanford L. Kurland
Title: President
9
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED
CREDIT AGREEMENT
This Amended and Restated Credit Agreement (this "Agreement") is entered
into as of the 30th day of September, 1994, by and among CWM Mortgage Holdings,
Inc., a Delaware corporation ("CWM"), Independent National Mortgage Corporation,
a Delaware corporation ("INMC"), Warehouse Lending Corporation of America, Inc.,
a Delaware corporation ("WLCA"), and Countrywide Funding Corporation, a New York
corporation ("CFC"). CWM, INMC and WLCA are jointly and severally the borrower
hereunder and may be referred to collectively herein as the "Borrower."
RECITALS
WHEREAS, CWM and CFC previously entered into that certain Credit Agreement
dated September 30, 1993 and desire to amend and restate such Credit Agreement
to incorporate the terms and conditions set forth herein;
WHEREAS, pursuant to an agreement between CWM and Countrywide Asset
Management Corporation, a sister corporation of CFC ("CAMC"), and a subcontract
between CAMC and CFC, CFC performs certain management services for CWM as CAMC
deems necessary;
WHEREAS, CFC owns 100% of the voting common stock of INMC;
WHEREAS, each of CWM, INMC and WLCA may finance a portion of each of their
operations by entering into reverse-repurchase agreements with various entities,
the terms of which may require each of them to supply additional collateral as
security for, or to partially repay, the obligation if the market value of the
collateral borrowed upon declines;
WHEREAS, the Borrower desires to borrow from CFC and CFC has agreed to
lend to the Borrower, amounts to meet these security requirements and for other
general corporate purposes under the terms and conditions specified herein.
NOW, THEREFORE, in consideration of the foregoing recitals and other
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. Subject to the terms and conditions hereof, CFC hereby agrees to lend to
the Borrower from time to time up to an aggregate amount of Ten Million
Dollars ($10,000,000), which amount or any portion thereof may be repaid
and reborrowed by the Borrower at any time during the term of this
Agreement.
-1-
<PAGE>
2. Interest at the rate specified by this Section 2 shall accrue on the unpaid
balance of the amounts borrowed under this Agreement that are outstanding
from time to time, commencing with the date hereof, and shall be due and
payable in immediately available funds on the first business day of each
month until repayment in full of the outstanding principal balance of the
amounts borrowed hereunder, together with all interest accrued and unpaid
thereon. The Borrower shall pay interest on the unpaid principal amount of
the amounts borrowed hereunder that are outstanding from time to time at a
rate equal to the "prime rate" established by Bank of America, N.T. & S.A.
from time to time, computed on the basis of the actual number of days
elapsed from the date of disbursement to but not including the date of
repayment.
3. The amounts borrowed hereunder, together with any interest accrued and
unpaid thereon, shall be due and payable, and the Borrower agrees to pay to
CFC such amounts, on or before September 30, 1995, which date shall be
extended annually for one year, successively, if notice is not given by one
party to the other, on or before the 60th day prior to September 30 of each
year, that such date shall not be so extended.
4. Advances by CFC hereunder shall be made no later than the business day
following the request of the Borrower.
5. Notwithstanding anything to the contrary herein, CFC shall not be obligated
to make advances to the Borrower hereunder to the extent that CFC would
thereby be caused to be in default under that certain Revolving Credit
Agreement, dated September 23, 1994, among CFC and various lenders, as
amended or restated from time to time.
6. The joint and several obligations of each of CWM, INMC and WLCA hereunder
are absolute, unconditional, irrevocable, present and continuing and, with
respect to any obligation to CFC hereunder, this undertaking is a guaranty
of performance of such obligation (and not of collectability) and is in no
way conditional or contingent upon the continued existence of any other
Borrower.
7. Each party hereto hereby represents and warrants that it has the requisite
power and authority to enter into this Agreement and perform its
obligations hereunder, that the execution, delivery and performance of this
Agreement has been duly authorized and that this Agreement constitutes a
legal, valid and binding obligation, enforceable against it in accordance
with its terms, subject to bankruptcy laws and other laws of general
application affecting rights of creditors.
8. This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original.
-2-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as of the day and
year first above written.
CWM MORTGAGE HOLDINGS, INC.
By: /s/Michael W. Perry
-----------------------------------------
Michael W. Perry
Executive Vice President and
Chief Operating Officer
INDEPENDENT NATIONAL MORTGAGE CORPORATION
By: /s/Michael W. Perry
-----------------------------------------
Michael W. Perry
President and Chief Executive Officer
WAREHOUSE LENDING CORPORATION OF
AMERICA, INC.
By: /s/Michael W. Perry
-----------------------------------------
Michael W. Perry
Chairman
COUNTRYWIDE FUNDING CORPORATION
By: /s/Stanford L. Kurland
-----------------------------------------
Stanford L. Kurland
Senior Managing Director and
Chief Operating Officer
-3-
<PAGE>
EXHIBIT 10.3
FIRST AMENDMENT TO
1994 AMENDED AND EXTENDED MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO 1994 AMENDED AND EXTENDED MANAGEMENT AGREEMENT
("the Amendment") is made and dated as of the 1st day of October, 1994 by and
between CWM Mortgage Holdings, Inc., a Delaware corporation which has elected to
qualify as a real estate investment trust, formerly known as Countrywide
Mortgage Investments, Inc. (the "Company"), and Countrywide Asset Management
Corporation, a Delaware corporation. Capitalized terms not otherwise defined
herein shall have the respective meanings given such term in the Agreement (as
defined below).
WITNESSETH
WHEREAS, the Company and the Manager have entered into that certain 1994
Amended and Extended Management Agreement dated as of May 15, 1994 (the
"Agreement"), pursuant to which the Company has retained the Manager to manage
the operations and investments of the Company and its Subsidiaries and to
perform certain administrative services for the Company and its Subsidiaries;
and
WHEREAS, the Company and the Manager wish to amend the Agreement on the
terms and subject to the conditions set forth herein below.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Reduction of Compensation. The parties hereto have agreed to reduce
-------------------------
the fee paid by the Company to the Manager for services rendered with respect to
mortgage loan warehousing activities. In order to effectuate this agreement,
Section 10(b) of the Agreement is hereby deleted and replaced in its entirety as
follows:
"(b) The Manager shall be paid, for services rendered with respect
to mortgage loan warehouse lending activities, a management fee in an
amount equal to 1/5 of 1% of the average daily balance outstanding under
mortgage loan warehouse lines of credit extended by the Company or its
Subsidiaries to originators of mortgage loans."
2. Representations and Warranties. Each party hereto hereby represents
------------------------------
and warrants to the other party as follows:
(a) Such party has the corporate power and authority and the legal
right to execute, deliver and perform this Amendment and has taken all necessary
corporate action to authorize the execution, delivery and performance of this
Amendment.
-1-
<PAGE>
(b) This Amendment has been duly executed and delivered on behalf of
such party and constitutes the legal, valid and binding obligations of such
party, enforceable against such party in accordance with its terms.
3. No Other Amendment. Except as expressly amended herein, the
------------------
Agreement shall remain in full force and effect as currently written.
4. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed to be an original
and all of which when taken together shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers duly authorized as of the day and year
first above written.
CWM MORTGAGE HOLDINGS, INC.
By: /s/Michael W. Perry
-------------------------------------
Michael W. Perry
Executive Vice President
COUNTRYWIDE ASSET MANAGEMENT
CORPORATION
By: /s/Stanford L. Kurland
-------------------------------------
Stanford L. Kurland
President
-2-
<PAGE>
EXHIBIT 10.4
MASTER ASSIGNMENT AGREEMENT
THIS AGREEMENT is made as of the 28th day of October, 1994 by and among CWM
MORTGAGE HOLDINGS, INC. ("CWMMHI"), Independent National Mortgage Corporation
(f/k/a Countrywide Mortgage Conduit, Inc.) ("INMC"; CWMMHI and INMC are each
referred herein as an "Assignor" and collectively as the "Assignors") and
MERRILL LYNCH MORTGAGE CAPITAL INC. ("MLMCI"). By executing this Agreement,
CWMMHI and INMC (jointly and severally) and MLMCI agree to be bound by the terms
of this Agreement.
W I T N E S S E T H
-------------------
WHEREAS the parties elect to enter into this Agreement and, at the request
of an Assignor, MLMCI shall from time to time pursuant to the terms hereof make
one or more Loans to such Assignor which Loans to both Assignors shall be
limited in aggregate outstanding principal amount to the excess of $225,000,000
over the sum of all amounts owed by the Assignors to MLMCI hereunder and all
amounts owed by the Assignors to MLPF&S under the Master Repurchase Agreement,
said Loans to be evidenced by Assignors' Note; and
WHEREAS, in order to induce MLMCI to make Loans from time to time to it,
each Assignor has agreed to assign and pledge to MLMCI and grant to MLMCI a lien
upon and security interest in the Collateral for the purpose of securing the
Obligations of Assignors, jointly and severally, under the Note;
NOW, THEREFORE, in consideration of the foregoing and of the covenants and
agreements hereinafter set forth, Assignors and MLMCI agree as follows:
SECTION 1. DEFINITIONS
-----------
"Act of Insolvency" shall have the meaning set forth in Section 10 hereof.
"Applicable Law" shall refer to any statute, rule, regulation, order,
judgment, decree or other law of any federal, state or local governmental
authority or any self-regulating organization with regulatory jurisdiction over
MLMCI or an Assignor (including, without limitation, the 1934 Act, Regulation T
promulgated by the Board of Governors of the Federal Reserve
1
<PAGE>
System, the rules and regulations of the New York Stock Exchange and the
National Association of Securities Dealers, the Employee Retirement Income
Security Act of 1974, as amended, the Internal Revenue Code of 1986, as amended,
and the regulations and interpretations thereof adopted by the Internal Revenue
Service, and any state or local tax law and any interpretation thereof by the
relevant state or local tax authority) that is binding on MLMCI or an Assignor,
other than corporate income, franchise or other taxes of general application to
MLMCI.
"Book Net Worth" shall refer to the equity of an Assignor determined in
accordance with GAAP less the sum of (i) intercompany receivables, (ii) loans to
officers or employees of such Assignor and (iii) deferred charges.
"Business Day" shall mean any day excluding Saturday, Sunday and any day on
which banks located in the States of New York or California are authorized or
permitted to close for business.
"Change of Applicable Law" shall refer to any substantive change in any
Applicable Law that occurs after the date hereof.
"Closing Date" shall refer, as to any Loan, to the date of the funding
thereof by MLMCI.
"Collateral" shall refer to the Eligible Assets pledged to secure a Loan.
"Confirmation Statement" shall have the meaning set forth in Section 5
hereof.
"Current Margin" shall have the meaning set forth in Section 6 hereof.
"CWMMHI" shall refer to CWM Mortgage Holdings, Inc.
"Eligible Assets" shall refer to assets satisfying the following criteria:
(i) a mortgage pass-through security that evidences a fractional,
undivided ownership interest in a pool of underlying single (1-4)
family, residential mortgage loans (including the right to
receive principal and/or interest payments thereon);
(ii) each mortgage pass-through security may be rated or unrated but
(A) shall have been issued by the Assignor or acquired by the
Assignor directly from the issuer thereof in a transaction not
involving
2
<PAGE>
any public offering and (B) shall not be a Mortgage Related
Security;
(iii) any mortgage pass-through security may be subordinated in right
of payment to one or more other classes of mortgage pass-through
securities backed by the same pool of underlying residential
mortgage loans, including without limitation "interest-only"
securities, "principal-only" securities and any "inverse floater"
security financed by MLMCI under any repurchase or loan agreement
existing between the parties on the date hereof, but specifically
excluding any security that would reasonably subject MLMCI, as
the owner or pledgee thereof, to any potential loss in excess of
the amount advanced by MLMCI to Assignor for such security
hereunder (e.g., a certificate evidencing a "residual interest"
----
in a REMIC);
(iv) if such mortgage pass-through security is a Non-Widely Traded
Security, there is no Applicable Law that would materially
restrict or limit the corporate power or authority of MLMCI to
make a Loan with respect thereto;
(v) if such mortgage pass-through security is a Widely Traded
Security, there is no Change of Applicable Law that would
materially restrict or limit the corporate power or authority of
MLMCI to make a Loan with respect thereto;
(vi) as of the Closing Date of the applicable Loan (and excluding the
dates of any subsequent rollovers), such mortgage pass-through
security is readily salable to sophisticated investors that
purchase similar securities in the secondary mortgage market; and
(vii) as of any date of determination, such mortgage pass-through
security has not become unsalable as a result of the
characteristics of the underlying pool of mortgage loans and/or
any material adverse change in the financial condition or results
of operations of either Assignor or any of their subsidiaries, on
a consolidated basis, (provided that temporary market conditions,
as determined by MLMCI in the good faith exercise of its
reasonable business judgment, shall not in any event render any
mortgage pass-through security unsalable for purposes hereof).
3
<PAGE>
In addition to the foregoing, either Assignor may, from time to time,
request that additional assets qualify as "Eligible Assets" and MLMCI may,
at its option, elect to effect Loans with respect to such additional assets
on a case-by-case basis.
"Event of Default" shall have the meaning set forth in Section 10 hereof.
"GAAP" shall refer to generally accepted accounting principals consistently
applied.
"Income" with respect to any Collateral at any time, shall refer to any
principal thereof then payable and all interest, dividends, or other
distributions thereon.
"INMC" shall refer to Independent National Mortgage Corporation (f/k/a
Countrywide Mortgage Conduit, Inc.).
"Loan" shall refer to a loan made by MLMCI to an Assignor hereunder.
"Margin Requirement" shall have the meaning set forth in Section 6 hereof.
"Market Value" with respect to any Collateral as of any date, shall refer
to the price for such Collateral on such date obtained from a generally
recognized source agreed to by the parties, plus accrued Income to the extent
not included therein (other than any Income credited or transferred to, or
applied to the obligations of each Assignor pursuant to Paragraph 4 hereof) as
of such date (unless contrary to market practice for such Collateral).
"Master Repurchase Agreement" shall refer to the Master Repurchase
Agreement, dated as of October __, 1994, among Assignors and MLPF&S.
"MLPF&S" shall refer to Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"Mortgage-Related Security" shall mean a "mortgage related security" as
such term is defined in Section 3(a)(41) of the 1934 Act.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as amended.
4
<PAGE>
"Non-Widely Traded Security" shall refer to a mortgage pass-through
security that is not of a type that is widely traded among sophisticated
investors that purchase similar securities in the secondary mortgage market as
of the date hereof.
"Note" shall refer to the note of the Assignors, of even date herewith,
substantially in the form of Exhibit A hereto.
"Obligations" shall have the meaning set forth in Section 3 hereof.
"Rating Agency" shall refer to any nationally recognized statistical rating
organization acceptable to MLMCI in its reasonable business judgment.
"REMIC" shall refer to a "real estate mortgage investment conduit" as such
term is defined in the Internal Revenue Code of 1986, as amended.
"Repurchase Agreement" shall refer to the Master Repurchase Agreement and
any other master repurchase agreement between MLMCI (and/or any affiliate
thereof) and either Assignor (and/or any affiliate thereof).
"Supplemental Collateral" shall have the meaning set forth in Section 3
hereof.
"Widely Traded Security" shall refer to a mortgage pass-through security
that is of a type that is widely traded among sophisticated investors that
purchase similar securities in the secondary mortgage market as of the date
hereof.
SECTION 2. COMMITMENT; DISBURSEMENT OF FUNDS
---------------------------------
(i) Subject to the terms and conditions stated herein, and relying upon
the representations, warranties and covenants of Assignors herein set forth,
MLMCI agrees to make one or more Loans to each Assignor, which Loans to both
Assignors in the aggregate shall be limited in outstanding principal amount to
the excess of $225,000,000 over the sum of all amounts owed by the Assignors to
MLMCI hereunder and all amounts owed by the Assignors to MLPF&S under the Master
Repurchase Agreement.
(ii) Assignors agree, jointly and severally, to pay to MLMCI, on behalf of
MLPF&S under the Master Repurchase Agreement and itself hereunder, a structuring
fee applicable to both this Agreement and the Master Repurchase Agreement in the
aggregate amount of $1,125,000.00 simultaneously with the execution of this
Agreement, and the agreement of MLMCI to make Loans hereunder
5
<PAGE>
shall not be effective until such structuring fee has been received by MLMCI.
(iii) Either Assignor may request disbursement of a Loan hereunder by
making a written request, either by mail or facsimile transmission, to MLMCI.
MLMCI shall make such Loan within two (2) days of receipt of such notice, so
long as the terms and conditions of this Agreement are fully satisfied and no
Event of Default hereunder shall have occurred and be continuing. Any such
disbursement shall be in a minimum amount of $1,000,000 and integral multiples
of $100,000 in excess thereof.
(iv) Each Loan hereunder shall bear interest at a rate determined pursuant
to a formula set forth in Annex I hereto. All calculations of interest shall be
made on the basis of a 360-day year and the actual number of days elapsed.
SECTION 3. GRANT OF SECURITY INTEREST
--------------------------
(a) Assignors hereby grant, pledge, assign, transfer and deliver to MLMCI
with respect to each Loan on the Closing Date thereof, and grant to MLMCI a lien
upon and security interest in and upon (i) the collateral (the "Collateral")
described in the Confirmation Statement relating to a Loan; (ii) any additional
collateral with respect to such Loan ("Supplemental Collateral") that may be
granted to MLMCI pursuant to Section 6(c) hereof (provided, however, that any
representations, warranties or covenants contained herein, and the grant of a
security interest with respect to any Supplemental Collateral, shall be
effective as to any Supplemental Collateral (or any proceeds, distributions or
other amounts realized in respect of such Supplemental Collateral) only upon the
delivery of such Supplemental Collateral to MLMCI pursuant to such Section 6(c)
hereof); and (iii) all proceeds, distributions and other amounts realized in
respect of any of the foregoing, as security for the due and punctual payment by
Assignor of the Note and any amounts that may become payable thereunder or
hereunder (the foregoing being herein called the "Obligations").
(b) Assignors shall, with respect to each Loan, deliver to MLMCI the
Collateral registered in the name of MLMCI or its nominee or, if MLMCI agrees in
its sole discretion, with properly endorsed instruments of transfer (including,
without limitation, any opinions of counsel and certificates required for
transfer) that will enable MLMCI to cause such Collateral to be so registered
without further action on the part of MLMCI other than delivering such
Collateral and such instruments of transfer to the appropriate transfer agent.
The right of MLMCI to receive, and the obligation of Assignors to deliver,
Collateral in the form described in the preceding sentence shall not be waived
or
6
<PAGE>
reduced by MLMCI's having accepted and received, knowingly or unknowingly,
Collateral that has not been so registered or is not accompanied by such
instruments of transfer.
SECTION 4. EARNINGS ON COLLATERAL
----------------------
In the event that the Collateral is registered in the name of MLMCI or an
affiliate, all payments and distributions, whether in cash or in kind, made on
or with respect to the Collateral shall, unless otherwise agreed by MLMCI, be
paid, delivered or transferred directly to MLMCI and, within one (1) Business
Day of receipt thereof, shall, so long as an Event of Default as defined in
Section 10 hereof shall not have occurred and be continuing, be paid to the
related Assignor by wire transfer in immediately available funds. Following the
occurrence and during the continuation of an Event of Default, if either
Assignor shall receive any payment or distributions on or with respect to the
Collateral, it shall hold such payment or distribution in trust for the benefit
of MLMCI.
SECTION 5. CONFIRMATION STATEMENT
----------------------
MLMCI shall, with respect to each Loan, deliver a confirmation statement
substantially in the form attached hereto as Exhibit B (in each case, the
"Confirmation Statement") to Assignors confirming the agreement between
Assignors (jointly and severally) and MLMCI as to the specific terms of the
Loan. Each such Confirmation Statement shall constitute a binding agreement
between Assignors (jointly and severally) and MLMCI as provided below, and this
Agreement is hereby incorporated in each such Confirmation Statement and made a
part thereof as if it were set out in full in each such Confirmation Statement.
Each such Confirmation Statement will be binding upon the parties hereto unless
written notice of objection is given by the objecting party to the other party
within two (2) Business Days after the objecting party's receipt of such
Confirmation Statement. MLMCI may, but shall not be required to, deliver
Confirmation Statements confirming periodic adjustments in the interest rate for
a particular Loan.
SECTION 6. MARGIN DETERMINATIONS
---------------------
(a) A margin requirement (the "Margin Requirement") expressed as a
percentage with respect to each Eligible Asset for each Loan shall be set forth
in Annex I hereto. MLMCI shall determine the Market Value for the Collateral in
the good faith exercise of its reasonable business judgment from time to time
and at such time as it may elect in its sole discretion.
7
<PAGE>
(b) MLMCI may, in its sole discretion, from time to time calculate the
current margin (the "Current Margin") with respect to any Loan, which Current
Margin shall equal the amount by which (i) 100% exceeds (ii) a fraction
(expressed as a percentage) (A) the numerator of which is the then outstanding
principal amount of such Loan together with accrued and unpaid interest thereon
to the date of determination and (B) the denominator of which shall be the
Market Value of the related Collateral (including any Supplemental Collateral
delivered pursuant to this Agreement) then held by MLMCI together with accrued
and unpaid interest thereon to the date of determination.
(c) If MLMCI shall at any time determine with respect to a Loan that the
Current Margin is less than the related Margin Requirement, MLMCI may in its
discretion notify either Assignor of such fact, and Assignors shall be
obligated, jointly and severally, on the date of such notice if such notice is
received prior to 10:00 a.m., New York City time, and on the Business Day next
succeeding the day of such notice if such notice is received after 10:00 a.m.,
New York City time, to, and shall, deliver to MLMCI cash or Supplemental
Collateral acceptable to MLMCI in its reasonable business judgment as Collateral
hereunder, which cash shall be applied to reduce the principal balance of the
related Loan and which Supplemental Collateral shall, in the aggregate, equal an
amount such that, after giving effect to the application of such cash and the
delivery of such Supplemental Collateral, the Current Margin for such Loan will
be at least equal to the related Margin Requirement. Delivery of Supplemental
Collateral pursuant to this Section 6(c) shall be in such manner as is
acceptable to, and under such additional conditions as may be required by, MLMCI
in its reasonable business judgment.
(d) If at any time the Current Margin for a Loan exceeds the Margin
Requirement for such Loan, the related Assignor may, upon notice to MLMCI,
demand that MLMCI redeliver all or any portion of the Supplemental Collateral;
provided, however, that after giving effect to such redelivery, the Current
- - -------- -------
Margin for all Loans hereunder would not be less than the Margin Requirement for
all Loans hereunder, and MLMCI shall make good delivery of such Supplemental
Collateral, in a manner equivalent to the manner in which such Supplemental
Collateral was delivered to MLMCI, no later than the Business Day following
receipt by MLMCI of such notice. In such connection, MLMCI shall execute such
other documents and take such other actions as the related Assignor may
reasonably request in order to evidence and give effect to the release of such
Supplemental Collateral from the security interest granted by this Agreement.
An Assignor may, in the alternative, request that an additional Loan be made
under the terms and conditions hereof in an amount equal to the amount by which
the Current Margin for all Loans hereunder exceeds the
8
<PAGE>
Margin Requirement for all Loans hereunder, which Loan shall be secured by the
Supplemental Collateral.
(e) With respect to any Eligible Asset that an Assignor has not acquired
directly from MLPF&S or any of its affiliates, such Assignor will either (i)
provide to MLMCI in a timely manner all data with respect thereto that MLMCI may
reasonably request (which, at a minimum, shall include (x) either (A) a CMO
Passport model for the Eligible Asset, if available at such time, or (B) if a
CMO Passport model is not yet available, price/yield tables prepared by the
underwriter or placement agent for the Eligible Asset with the CMO Passport
model to follow within 30 days after the date of issuance of the Eligible Asset,
and (y) a prospectus and, if applicable, a prospectus supplement for the
Eligible Asset) or (ii) such Eligible Asset will be deemed to have a Market
Value of zero.
SECTION 7. SUBSTITUTION OF COLLATERAL
--------------------------
MLMCI shall allow the related Assignor, in the sole discretion of Assignors
exercised jointly, to provide Eligible Assets acceptable to MLMCI, in MLMCI's
sole reasonable discretion, to be substituted for existing Collateral of equal
Market Value. All certificates or instruments representing such substituted
collateral shall be delivered to MLMCI in accordance with Section 3(b) hereof.
SECTION 8. REPRESENTATIONS AND WARRANTIES
------------------------------
Each Assignor hereby represents and warrants to MLMCI, and shall on and as
of the Closing Date of each Loan be deemed to represent and warrant to MLMCI,
that:
(i) Due Incorporation. Assignor has been duly established and is
-----------------
validly existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) Authorization. Assignor has full power and authority to
-------------
execute and deliver this Agreement and the Note and to perform its obligations
hereunder and thereunder; this Agreement and the Note have each been duly
authorized by all necessary action and neither requires any approval of any
directors or officers or such approval has been obtained, each has been duly
executed and delivered by Assignor and constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization or similar laws of
general applicability relating to or affecting creditors' rights, to the
assumption that enforcement will be undertaken in a commercially reasonable
manner and to general principles of equity and
9
<PAGE>
equitable remedies, regardless of whether enforcement is considered in a
proceeding in equity or at law.
(iii) No Conflict. Neither the execution and delivery nor the
-----------
performance by Assignor of this Agreement or the Note will conflict with the
governing instruments of Assignor or conflict with, result in a breach of or
constitute a default (which conflict, breach or default could reasonably be
expected to result in any material adverse change in the financial condition or
results of operations of Assignor or could reasonably be expected to materially
and adversely affect the properties or assets thereof, including but not limited
to any of the Collateral) or require any consent (other than has been obtained)
under any instrument or agreement to which Assignor is a party or by which
Assignor may be bound, (which, in the event of a failure to receive such
consent, could reasonably be expected to result in any material adverse change
in the financial condition or results of operations of Assignor or could
reasonably be expected to materially and adversely affect the properties or
assets thereof, including but not limited to the Collateral) or any law, order
or regulation applicable to Assignor of any court, governmental agency,
authority or body having jurisdiction over Assignor and 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
Assignor's properties.
(iv) Approvals, etc. Neither the execution and delivery nor the
--------------
performance by Assignor of this Agreement requires any authorization, approval,
consent (which, in the event of a failure to receive such consent, could
reasonably be expected to result in any material adverse change in the financial
condition or results of operations of Assignor or could reasonably be expected
to materially and adversely affect the properties or assets thereof, including
but not limited to the Collateral), license, exemption (other than any self-
executing exemption), filing, registration or the taking of any other action in
respect of any federal or state authority (other than has been obtained).
(v) Good Title. Assignor is the owner of the Collateral assigned
----------
to MLMCI by it and such Collateral is free and clear of all liens, charges,
encumbrances and rights of others, except for the security interest created
hereby; and on the related Closing Date, assuming compliance with this Agreement
by MLMCI, MLMCI has a first priority lien on and security interest in the
Collateral (including all proceeds, distributions and other amounts realized in
respect thereof) in favor of MLMCI, subject to no prior lien, charge,
encumbrance or rights of others, and, assuming that MLMCI has taken and
maintains
10
<PAGE>
possession of the Collateral either (A) registered in the name of MLMCI or its
nominee or (B) delivered with such instruments of transfer as provided in
Section 3(b) hereof, no further action, including any filing or recordation of
any document, is currently required in order to establish and perfect the liens
on and security interests in the Collateral in favor of MLMCI against any third
parties in any jurisdiction.
(vi) Tax Liens. There are no delinquent federal, state, city,
---------
county or other taxes relating to an Assignor, the Collateral assigned by it to
MLMCI or any arrangement pursuant to which such Collateral is issued, and all
such tax liabilities have been satisfied except those that are being contested
by such Assignor in good faith and with respect to which payment has been stayed
by a court of competent jurisdiction.
(vii) Financial Statements. Since the date of the most recent
--------------------
financial statement delivered by Assignor to MLMCI, there has been no material
adverse change in Assignor's financial condition or results of operations.
(viii) Eligible Assets. All Collateral pledged by
---------------
Assignor to MLMCI with respect to any Loan shall qualify as an Eligible Asset.
(ix) Corporate Ownership. No entity owns in excess of ten percent
-------------------
(10%) of the capital stock of CWMMHI.
SECTION 9. COVENANTS AND AGREEMENTS
------------------------
Each Assignor hereby covenants and agrees with MLMCI that:
(a) Taxes. Assignor will pay and discharge all taxes, levies, liens and
-----
other charges on its assets and on the Collateral which, in each case, in any
manner would create any lien or charge upon the Collateral, except those that
are being contested by such Assignor in good faith and with respect to which
payment has been stayed by a court of competent jurisdiction.
(b) Laws. Assignor will at all times comply in all material respects with
----
all laws, ordinances, rules and regulations of any federal, state, municipal or
other public authority having jurisdiction over Assignor or any of its assets
which, in the event of a failure to so comply, could reasonably be expected to
result in any material adverse change in the financial condition or results of
operations of Assignor or could reasonably be expected to materially and
adversely affect the
11
<PAGE>
properties or assets thereof, including but not limited to the Collateral.
(c) Name and Locations. Assignor will immediately advise MLMCI in writing
------------------
of the opening of any new chief executive office or the closing of any such
office and of any change in Assignor's name or the places where the books and
records pertaining to the Collateral assigned to MLMCI by Assignor hereunder are
kept.
(d) Records and Reports. Assignor will maintain records with respect to
-------------------
the Collateral assigned to MLMCI by Assignor hereunder and with respect to the
conduct and operation of its business in conformity with general industry
standards and with no less a degree of prudence than if such Collateral were
held by Assignor for its own account and will furnish MLMCI on request with
reasonable information with respect to such Collateral assigned to MLMCI by
Assignor hereunder and with respect to the conduct and operation of its
business. In addition, Assignor shall, promptly upon receipt and without any
request from MLMCI, furnish MLMCI with any reports, notices or other
communications from the issuer of, trustee for, or other party relating to, the
Eligible Assets pledged as Collateral hereunder that would ordinarily be sent to
the registered holders of such Eligible Assets. Assignor will permit MLMCI or
its designated representative to inspect Assignor's records with respect to the
Collateral assigned to MLMCI by Assignor hereunder upon reasonable notice from
MLMCI or its designated representative, at such reasonable times and as often
as may be reasonably requested, and to make copies or extracts of any and all
thereof. So long as no Event of Default has occurred and is continuing, such
inspection will be at MLMCI's expense.
(e) MLMCI's Duty of Care. Except as herein provided in this Section 9(e),
--------------------
Assignor agrees that MLMCI's sole duty with respect to the Collateral shall be
to use reasonable care in the custody, use, operation and preservation of the
Collateral in its possession or control. MLMCI shall incur no liability to
Assignor for any act of government, act of God, or other destruction in whole or
in part or negligence or wrongful act of custodians or agents selected by and
supervised by MLMCI with reasonable care, or MLMCI's failure to provide adequate
protection or insurance for the Collateral, except to the extent that such
liability has arisen from the gross negligence or willful misconduct of MLMCI.
MLMCI shall have no obligation to take any action to preserve any rights in any
of the Collateral against prior parties, and Assignor hereby agrees to take such
action; Assignor shall defend the Collateral against all such claims and demands
of all persons, at all times, as are adverse to MLMCI. Nothing stated herein
shall relieve MLMCI of its
12
<PAGE>
obligations to retender the Collateral to the related Assignor in accordance
with the terms of this Agreement.
(f) Use of Proceeds. None of the proceeds of any Loan will be used either
---------------
directly or indirectly to acquire any "margin security", as that term is defined
in Regulation G of the Board of Governors of the Federal Reserve System and
Assignor will not take any action which would cause this Agreement or the Note
(and the Loan evidenced hereby and thereby) to violate any regulation of the
Federal Reserve Board.
(g) Credit Covenants.
----------------
(i) The ratio of total liabilities to equity of each Assignor and its
subsidiaries, on a consolidated basis, as determined in accordance with
GAAP (but excluding (1) limited purpose finance subsidiaries of an Assignor
that issue collateralized mortgage obligations and (2) trusts that issue
mortgage pass-through certificates and with respect to which an Assignor
acts as depositor), shall not at any time exceed 25 to 1; and
(ii) The Book Net Worth of CWMMHI and its subsidiaries, on a consolidated
basis, for any two consecutive calendar quarters shall not be less than or
equal to 70% of Assignor's Book Net Worth as of the date set forth on the
first page hereof.
(h) Financial Statements.
--------------------
(i) As of the date hereof, MLMCI and each Assignor shall provide the
other with audited fiscal year-end financial statements and additional
publicly available interim financial statements. MLMCI and each
Assignor shall from time to time each provide the other with audited
year-end financial statements and additional publicly available
interim financial statements upon such other party's reasonable
request.
(ii) Each Assignor shall provide MLMCI, at the expense of such
Assignor without request of MLMCI, all financial statements required
to be filed with the Securities and Exchange Commission in connection
with an Assignor's 10Q and 10K reports as soon after the filing
thereof as practicable.
(iii) Each delivery of the Collateral by each Assignor to MLMCI under
this Agreement will constitute a representation by such Assignor that
there has been no material adverse change in such Assignor's financial
13
<PAGE>
condition not disclosed to MLMCI since the date of such Obligor's most
recent unaudited balance sheet or income statement delivered to MLMCI.
Each Assignor shall provide MLMCI, from time to time at such
Assignor's expense, with such information concerning Assignor of a
financial or operational nature as MLMCI may reasonably request
promptly upon receipt of such request.
(i) Further Covenants. Without prior written consent of MLMCI, Assignor
-----------------
will not: (1) assign, sell, transfer, pledge or grant any security interest in
any of the Collateral to anyone except MLMCI, permit any financing statement
(except any financing statements in favor of MLMCI) or assignment (except for
any assignments in favor of MLMCI) to be on file in any public office with
respect thereto; (2) permit or suffer to exist any lien, charge, encumbrance or
right of others to attach to any of the Collateral, except as contemplated by
this Agreement; or (3) consent to any amendment or supplement to the documents
pursuant to which the Collateral was issued that would materially and adversely
affect MLMCI's interests hereunder.
(j) Joint and Several Liability. Each Assignor agrees to be jointly and
---------------------------
severally liable for the obligations of either Assignor hereunder and all
representations, warranties, covenants and agreements made by or on behalf of
either or both Assignors in this Agreement or in any exhibit hereto or any
document, instrument or certificate delivered pursuant hereto shall be deemed to
have been made by each Assignor, jointly and severally. The Assignors further
agree that, notwithstanding any right of MLMCI to investigate fully the affairs
of the Assignors and notwithstanding any knowledge of facts determined or
determinable by MLMCI, MLMCI has the right to rely fully on the representations,
warranties, covenants and agreements of either or both Assignors contained in
this Agreement and upon the accuracy of any document, instrument, certificate or
exhibit given or delivered hereunder. The joint and several obligation of each
Assignor hereunder is absolute, unconditional, irrevocable, present and
continuing and, with respect to any payment to be made to MLMCI, is a guaranty
of payment (and not of collectability) and is in no way conditional or
contingent upon the continued existence of the other Assignor. Any notice or
other communication provided to one Assignor pursuant hereto shall be deemed to
have been given to both Assignors and failure to be sent any notice or
communication contemplated hereby and delivered to the other Assignor shall not
relieve an Assignor from its joint and several liability for the obligations of
the other Assignor hereunder.
SECTION 10. EVENTS OF DEFAULT
-----------------
14
<PAGE>
Each of the following, so long as it shall not have been remedied, shall
constitute an "Event of Default" hereunder:
(a) Nonpayment. Any failure to pay by either Assignor any amounts due
----------
under the Note or any failure to pay by either Assignor any amount due under
this Agreement.
(b) Impairment of Interest. MLMCI shall for any reason cease to have a
----------------------
valid, first priority perfected security interest in any of the Eligible Assets;
provided however, that such circumstance shall not constitute an Event of
- - -------- -------
Default if after determining the market value of the Eligible Assets without
taking into account the Eligible Assets with respect to which such circumstances
have occurred, no other Event of Default shall have occurred and be continuing.
(c) Act of Insolvency. The filing by either Assignor of a petition in
-----------------
bankruptcy, the adjudication of either Assignor as insolvent or bankrupt, the
petition or application by either Assignor for any receiver or trustee for
itself or any substantial part of its property, the commencement by either
Assignor of any proceeding relating to it under any reorganization, arrangement,
dissolution or liquidation law, or the initiation of any such proceeding against
either Assignor if either Assignor indicates by any act its consent thereto or
if such proceeding is not dismissed or stayed within forty-five (45) days (an
"Act of Insolvency").
(d) Material Adverse Change. In the reasonable judgment of MLMCI a
-----------------------
material adverse change shall have occurred in the business, operations,
properties or financial condition of either Assignor.
(e) Default Under Other Contracts and Agreements. Either Assignor shall be
--------------------------------------------
in default with respect to any normal and customary covenants under any contract
or agreement (including, without limitation, any Repurchase Agreement) to which
it is a party (which covenants include, but are not limited to, an Act of
Insolvency of such Assignor or the failure of such Assignor to make required
payments in an aggregate amount in excess of one million dollars ($1,000,000)
under such contract or agreement as they become due) which default is continuing
and permits acceleration of the obligations of such Assignor under such contract
or agreement by any other party thereto.
(f) Merger or Consolidation. Either Assignor shall merge or consolidate
-----------------------
into any entity unless the surviving or resulting entity shall be a corporation
organized under the laws of a state of the United States and such entity
expressly assumes by written agreement, executed and delivered to MLMCI in form
and substance
15
<PAGE>
satisfactory to MLMCI, the performance of all of such Obligor's duties and
obligations hereunder.
(g) Anticipated Insolvency. MLMCI shall request assurances as to the
----------------------
financial well-being of either Assignor and such assurances shall not have been
provided verbally within twenty-four (24) hours and in writing within forty-
eight (48) hours of such request.
(h) Final Judgment. A final judgment by any competent court in the United
--------------
States for the payment of money in an amount of at least $1,000,000 is rendered
against either Assignor, and the same remains undischarged and unpaid for a
period of sixty (60) days during which execution of such judgment is not
effectively stayed.
(i) Breach of Representation or Warranty. Any representation or warranty
------------------------------------
made by either Assignor herein or in the Note shall have been incorrect or
untrue when made or repeated or when deemed to have been made or repeated and
such breach is continuing and MLMCI's interests hereunder are materially
adversely affected thereby.
(j) Opinion. A firm of independent accountants shall have failed to issue
-------
an opinion or shall have issued an opinion qualified adversely in any material
respect in connection with the most recent audited financial statements of an
Obligor.
(k) Breach of Covenant or Agreement. Either Assignor shall breach any
-------------------------------
covenant or agreement made by it herein or in the Note and such breach is
continuing and MLMCI's interests hereunder are materially adversely affected
thereby.
SECTION 11. REMEDIES
--------
(a) Action Regarding Collateral. (i) If an Event of Default shall occur
---------------------------
and be continuing, MLMCI shall exercise reasonable efforts (the reasonableness
of which shall be determined by MLMCI in its discretion in light of the
circumstances) to provide notice to Assignor prior to exercising any remedy in
respect of such Event of Default; provided, however, that notwithstanding
-------- -------
anything in this Agreement to the contrary, MLMCI shall not be required, prior
to exercising any remedy in respect of an Event of Default by such Assignor, to
give notice otherwise required hereunder, if MLMCI reasonably believes that (i)
the Collateral then held by MLMCI threatens to decline speedily in value or (ii)
any delay occasioned by the giving of such notice will jeopardize MLMCI's
ability to recover, by sale of such Collateral, all or part of the Obligations
or of any other amounts payable to MLMCI or any affiliate thereof
16
<PAGE>
pursuant hereto. If no prior notice is given, MLMCI shall give notice to the
related Assignor of the remedies effected by MLMCI promptly thereafter. MLMCI
may forthwith apply the cash, if any, then held by it as part of the Collateral
relating to any Loan to the payment of any of the Obligations, and, if there
shall be no such cash or the cash so applied shall not be sufficient to pay in
full all such Obligations, may thereafter collect, receive, appropriate, retain
and realize upon the Collateral, or any part thereof, and may forthwith sell,
assign, contract to sell, or otherwise dispose of and deliver the Collateral, or
any part thereof, in one or more parcels at such public or private sale or
sales, at such place or places, at such price or prices and upon such other
terms and conditions as MLMCI may deem best (provided, however, that MLMCI shall
act in a commercially reasonable manner), for cash or on credit or for future
delivery without assumption of any credit risk, with the right of MLMCI upon any
such sale or sales to purchase all or any part of the Collateral so sold. Upon
any sale, transfer or other disposition of the Collateral pursuant hereto MLMCI
shall have the right to deliver, assign and transfer to the transferee thereof
the Collateral so sold. Each transferee upon any such transfer or other
disposition shall hold the property thereby acquired by it absolutely free from
any claim or right of any kind, including any equity or rights of redemption, of
either Assignor, each of which hereby specifically waives all rights of
redemption, stay or appraisal which it has or may have under any rule of law or
statute whether now existing or hereafter adopted (in the latter case, to the
extent permitted thereby). Each Assignor agrees that MLMCI need give only such
notice of the time and place of any public or private sale (including any
adjourned private sale) or other intended disposition as may be required by
market conditions and standards of commercial reasonableness and that MLMCI need
not in any event give more than five (5) days' notice that such sale or
disposition is to take place. Each Assignor agrees that the notice provided for
in the preceding sentence is reasonable notification of such matters.
MLMCI shall not be obligated to make any sale pursuant to any such notice.
MLMCI may, without notice or publication, adjourn any public or private sale or
cause the same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or place to
which the same may be so adjourned, provided that MLMCI shall act in a
commercially reasonable manner. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by MLMCI until the selling price is paid by the purchaser thereof, but
MLMCI shall not incur any liability in case of the failure of such purchaser to
take up and pay for the Collateral so sold and, in case of any such failure,
such Collateral may again be sold upon like
17
<PAGE>
notice MLMCI, however, instead of exercising the power of sale herein conferred
upon it, may proceed by a suit or suits at law or in equity to foreclose the
lien and security interest created hereby and sell the Collateral, or any
portion thereof, under a judgment or decree of a court or courts of competent
jurisdiction.
(ii) MLMCI shall have no obligation to realize upon any Collateral, except
through proper application of any distributions with respect to the Collateral
made directly to MLMCI or its agent(s). Assignor hereby waives the defense of
impairment of the Collateral; provided, however, that MLMCI shall act in a
-------- -------
commercially reasonable manner. MLMCI may in its sole discretion elect to
realize upon all or a portion of the Collateral by giving the Assignor credit
for such Collateral, which credit shall be in an amount equal to the Market
Value thereof as of the date of acceleration.
(b) Deficiency. If the proceeds of sale, collection, foreclosure or other
----------
realization of or upon the Collateral are insufficient to cover the costs and
expenses of such realization and the payment in full of the Obligations,
Assignors shall remain jointly and severally liable for any deficiency so long
as MLMCI shall have realized upon the Collateral in a commercially reasonable
manner.
(c) Private Sale. MLMCI shall incur no liability as a result of the sale
------------
of the Collateral (provided, however, that MLMCI shall act in a commercially
reasonable manner), or any part thereof, at any private sale. Each Assignor
hereby waives any claims against MLMCI or any holder or holders of the Note
arising by reason of the fact that the price at which the Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if MLMCI accepts the first offer received and does not offer
the Collateral to more than one offeree (provided, however, that MLMCI shall act
in a commercially reasonable manner).
(d) Application of Proceeds. The proceeds of any sale or other realization
-----------------------
of all or any part of the Collateral, and any other cash at the time held by
MLMCI under this Agreement, shall be applied by MLMCI in the following order of
priority:
First, to the payment of the reasonable costs and expenses of such
-----
sale and all expenses (including the fees and expenses of counsel),
liabilities and advances reasonably made or incurred by MLMCI in connection
therewith.
18
<PAGE>
Second, to the payment of all accrued interest under the Note due or
------
past due.
Third, to the payment of principal upon the Note due or past due.
-----
Fourth, to the payment of all other amounts owed by Assignors jointly
------
and severally under this Agreement.
Fifth, to the payment of any amounts owed by either Assignor to MLMCI,
-----
MLPF&S or any affiliate thereof under a Repurchase Agreement.
Sixth, to the payment of any other amounts owed by either Assignor to
-----
MLMCI or MLPF&S under any other instrument or agreement.
Seventh, to the payment to the related Assignor, or to such other
-------
person as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds and other cash.
As used in this Agreement, "proceeds" of the Collateral shall mean cash and
other property received or otherwise realized in respect of the Collateral.
(e) Default Rate of Interest. After any amounts under the Note become due
------------------------
and payable and until the balance thereof shall be paid, such amounts shall bear
interest at a per annum rate (based on a year of 360 days and actual days
elapsed) equal to two hundred (200) basis points in excess of the prime rate for
short term bank commercial loans as published in The Wall Street Journal,
-----------------------
changing as such published rate changes, but in no event higher than the maximum
rate permitted by law.
(f) Attorney-in-Fact. Effective upon the occurrence and during the
----------------
continuation of an Event of Default hereunder, MLMCI is hereby appointed the
attorney-in-fact of each Assignor for the purpose of carrying out the provisions
of this Agreement and taking any action and executing any instruments which
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, after an Event of Default has
occurred and is continuing, MLMCI shall have the right and power to receive,
endorse and collect all checks made payable to the order of an Assignor
representing any distribution in respect of any of the Collateral or any part
thereof and to give full discharge for the same.
19
<PAGE>
(g) Payments on Collateral to an Assignor.
-------------------------------------
(i) Following the occurrence and during the continuation of an
Event of Default hereunder, all rights of the related Assignor to receive
any payments from the related Collateral which it would otherwise be
authorized to receive shall cease, and all such rights shall thereupon
become vested in MLMCI, which shall thereupon have the sole right to
receive and hold as Collateral such payments.
(ii) Following the occurrence and during the continuation of an
Event of Default hereunder, all payments which are received by either
Assignor contrary to the provisions of the preceding subsection (i) shall
be received in trust for the benefit of MLMCI, shall be segregated from
other funds of both Assignors and shall be promptly paid to MLMCI.
SECTION 12. EFFECTS OF APPLICABLE LAW
-------------------------
(a) In the event that any Applicable Law with respect to a Non-Widely
Traded Security or any Change of Applicable Law with respect to a Widely Traded
Security results in any material restriction or limitation on the corporate
power or authority of MLMCI to enter into a proposed Loan or to continue to
maintain an existing Loan with respect to any Collateral that would otherwise
qualify as an Eligible Asset, (A) the parties hereto shall in good faith
negotiate such additional or revised terms to this Agreement as will result in a
permissible transaction that corresponds to the economic equivalent of the
arrangement originally contemplated by the parties hereunder or (B) if such
Applicable Law or Change of Applicable Law, as the case may be, does not permit
such renegotiation, the commitment of MLMCI to enter into or to continue to
maintain the Loan with respect to such Eligible Asset shall be cancelled or
modified (depending upon the stated effect of the Applicable Law or Change of
Applicable Law, as appropriate), with such cancellation and/or modification to
be operative upon the earlier of (x) the date required by such Applicable Law or
Change of Applicable Law, as appropriate, or (y) the date on which Assignor has
secured alternative financing for the affected Eligible Asset.
(b) In the event that any Applicable Law with respect to a Non-Widely
Traded Security or any Change of Applicable Law with respect to a Widely Traded
Security results in any adverse economic effect on MLMCI that is material with
respect to the particular Loan, the parties hereto shall in good faith negotiate
such additional or revised terms related to pricing that will
20
<PAGE>
result in a Loan that corresponds to the economic equivalent of the arrangement
originally contemplated by MLMCI and Assignors.
SECTION 13. INTEREST PAYMENTS; REPAYMENT OF PRINCIPAL
-----------------------------------------
(a) Interest on each Loan shall be payable on the date described in Annex I
hereto.
(b) The principal portion of each Loan shall be due and payable not later
than the termination date referred to in Section 14(g) hereof and may be repaid
in whole or in part at the discretion of the related Assignor on any date on
which a payment of interest is to be made thereon by an Assignor pursuant to the
terms of this Agreement provided that (i) such Assignor shall have provided
MLMCI with not less than two (2) Business Days' written notice of such
Assignor's intention to effect such repayment and the amount thereof, (ii) all
payments of interest then due and owing on the Loan are paid in full and (iii)
no Event of Default has occurred and is continuing with respect to any of
Assignors' Obligations hereunder or under the Note.
SECTION 14. GENERAL PROVISIONS
------------------
(a) No Waiver. No waiver or amendment of or forbearance in enforcing any
---------
provision of this Agreement nor consent to any departure by any party hereto
shall be effective unless expressly granted in writing and shall be limited to
the extent expressed therein.
(b) Right of Set-Off. MLMCI shall have the right to apply any amounts paid
----------------
on the Collateral and the proceeds of the sale thereof pursuant to this
Agreement against any amounts owed by either Assignor (or any subsidiary
thereof) to MLMCI, MLPF&S or any affiliate thereof under any other instrument or
agreement (including, without limitation, any Repurchase Agreement). The right
of set-off provided for herein shall not diminish any other rights (whether of
set-off, contribution or otherwise) that MLMCI and its affiliates may have with
respect to the Collateral and the distributions thereon and the proceeds
thereof.
(c) Governing Law; Severability. This Agreement shall be governed by and
---------------------------
construed in accordance with the laws of the State of New York applicable to
agreements made and entirely performed therein. Unless otherwise defined
herein, terms defined in the Uniform Commercial Code in the State of New York
are used herein as defined therein. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or be invalid
under such law, such provision shall be ineffective to the extent of such
21
<PAGE>
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
(d) Construction. The captions in this Agreement are for convenience of
------------
reference only and shall not affect the construction or interpretation of any of
the provisions hereof.
(e) Assignment; Right to Transfer. (i) This Agreement shall be binding upon
-----------------------------
and shall inure to the benefit of each of the parties hereto and their
respective successors and assigns; provided, however, that neither this
-------- -------
Agreement nor any rights or other obligations hereunder or under the Note may be
assigned by either Assignor without prior written consent of MLMCI and any
attempted or purported assignment hereof or thereof shall be void. MLMCI may
assign, pledge, sell or hypothecate any or all of its rights hereunder and under
the Note without the consent of any party, provided however, that the Assignor
-------- -------
shall not be required to recognize any holder of the Note other than MLMCI or
its affiliates. (ii) Nothing in this Agreement shall preclude MLMCI from
engaging in transactions with third parties involving the selling pursuant to a
repurchase arrangement, pledging, hypothecating or other transfer of the
Collateral but no such transaction shall relieve MLMCI of its obligations
hereunder.
(f) Notices, Payments, Deliveries. Unless otherwise provided herein, all
-----------------------------
notices and other communications provided for hereunder shall be in writing
(including telegraphic, facsimile or telex communication), and such notices and
other communications shall, when mailed, telegraphed, communicated by facsimile
transmission or telexed, be effective when received at the address for notices
for the party to whom such notice or communications is to be given as follows:
If to MLMCI: Merrill Lynch Mortgage Capital, Inc.
Merrill Lynch World Headquarters
World Financial Center
North Tower - 8th Floor
New York, New York 10281
Attention: Louis V. Molinari
Telephone: (212) 449-5333
Telecopy: (212) 449-6673
Account for Payment:
Bankers Trust New York
For the Account of Merrill Lynch
Mortgage Capital Inc.
Account Number 00812914
ABA No. 021-001-033
If to CWMMHI: CWM Mortgage Holdings, Inc.
22
<PAGE>
35 North Lake Avenue
Pasadena, California 91101
Attention: Michael W. Perry
Executive Vice President
and Chief Operating Officer
Telephone: (818) 304-8400
Telecopy: (818) 304-5899
With Copies to:
Steve West
Treasurer
35 North Lake Avenue
Pasadena, California 91101
Account for Payment: Bank of America
For the Account of CWM Mortgage Holdings, Inc.
Account No. 12350-04627
ABA No. 121-000-358
If to INMC: Independent National Mortgage
Corporation
35 North Lake Avenue
Pasadena, California 91101
Attention: Michael W. Perry
President and Chief
Executive Officer
Telephone: (818) 304-8400
Telecopy: (818) 304-5899
With Copies to:
Steve West
Treasurer
35 North Lake Avenue
Pasadena, California 91101
Account for Payment: Bank of America
For the Account of Independent National
Mortgage Corporation
Account No. 12350-04627
ABA No. 121-000-358
Provided, however, that a facsimile transmission shall be deemed to be received
when transmitted so long as the transmitting machine has provided an electronic
confirmation of such transmission and such transmission has occurred not earlier
than 9:00 a.m. New York City time and not later than 5:00 p.m. New York City
time, and provided further, however, that all financial statements delivered
shall be hand-delivered or sent by first-class mail to MLMCI at such address.
All payments on and deliveries of Collateral hereunder shall be made to the
address
23
<PAGE>
or account for payments and deliveries of such Collateral for the party
to whom such payment or delivery is to be made as set forth above. Any party
may revise any information relating to it by notice in writing to the other
parties, which notice shall be effective on the third Business Day following
receipt thereof.
(g) Termination.
-----------
(i) This Agreement and MLMCI's obligation to make Loans hereunder
pursuant to the terms hereof shall terminate automatically without any
requirement for notice, and all outstanding Obligations of both Assignors
that have not yet become due and payable will be due and payable
automatically without any requirement for notice, upon the earlier of (i)
two years after the date set forth on the first page hereof and (ii) the
written agreement of both Assignors and MLMCI; provided, however, that
-------- -------
notwithstanding the foregoing, this Agreement shall continue in full force
and effect until all Obligations of both Assignors hereunder have been paid
in full. Upon termination of this Agreement and satisfaction of all of
Assignors' Obligations hereunder, MLMCI shall release its lien and security
interest hereunder and assign, transfer and deliver, against receipt, any
remaining Collateral and money received in respect thereof to or on the
order of the related Assignor. Upon the request of the related Assignor,
MLMCI will then execute termination statements and such other documents as
such Assignor may reasonably request as are necessary to make clear upon
the public record the termination of the lien and security interests
created hereby with respect to the Collateral.
(ii) If, at any time prior to the date seventeen (17) months
after the date of this Agreement, Assignors request that MLMCI renew this
Agreement for an additional term of mutually acceptable duration, MLMCI
will notify Assignors not later than the date eighteen (18) months after
the date of this Agreement if it will so renew this Agreement; provided,
--------
however, that (x) no such agreement to renew the term of this Agreement
-------
shall preclude MLMCI from thereafter declining to make Loans hereunder
either (A) pursuant to any provision set forth herein or (B) if there is a
material adverse change in the financial condition or results of operations
of either Assignor or any of its subsidiaries, on a consolidated basis, and
(y) the foregoing shall not preclude Assignors from requesting the renewal
of the term of this Agreement at any other time.
(h) Expenses.
--------
24
<PAGE>
(i) For so long as no Event of Default shall have occurred and shall
be continuing, each party shall bear its own expenses in connection
with the Loans contemplated hereby and any amendments, extension or
modifications hereof.
(ii) Following the occurrence of an Event of Default that either (A)
is continuing or (B) with respect to which MLMCI is exercising its
remedies hereunder, Assignors agree, jointly and severally, to pay to
MLMCI on demand all reasonable costs and expenses (including
reasonable expenses for legal services of every kind) of any
subsequent enforcement of any of the provisions hereof, or of the
performance by MLMCI of any Obligations of either Assignor in respect
of the Collateral which Assignor 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
Collateral and for the custody, care or preservation of the Collateral
(including reasonable insurance costs) and defending or asserting
rights and claims of MLMCI in respect thereof, by litigation or
otherwise, including reasonable expenses of insurance. In addition,
Assignors agree, jointly and severally, to pay to MLMCI on demand all
reasonable costs and expenses (including reasonable expenses for legal
services) of the registration of the Collateral in the name of MLMCI
or its nominee. All such expenses shall be Obligations to MLMCI
secured under this Agreement.
(i) Indemnification. Assignors agree, jointly and severally, to indemnify
---------------
and hold harmless MLMCI against all liabilities and expenses to which MLMCI may
become subject relating to any fees, taxes or liability to any third party
resulting from any action taken or omitted by or upon instructions of either
Assignor with respect to the Collateral.
(j) Confidentiality. Each of the parties hereto acknowledges that the
---------------
Agreement is confidential in nature and each such party agrees that, unless
otherwise directed by a court of regulatory entity of competent jurisdiction or
as may be required by federal or state law (which determination as to federal or
state law shall be based upon written advice of counsel), it shall limit the
distribution of such document to its officers, employees, attorneys, accountants
and agents as required in order to conduct its business with the other parties
hereto. This subparagraph (i) shall not apply to information
25
<PAGE>
which has otherwise lawfully entered the public domain or which the other
parties have given written permission to disclose.
(k) Further Assurances. Each Assignor agrees that, from time to time upon
------------------
the prior written request of MLMCI, it will (i) execute and deliver such further
documents and do such other acts and things as MLMCI may reasonably request in
order to fully effectuate the purposes of this Agreement (including, without
limitation, the delivery of appropriate transfer documentation as contemplated
by Section 3(b) hereof) and (ii) provide such opinions of counsel concerning
matters relating to this Agreement as MLMCI may reasonably request.
(l) Remedies Cumulative. All rights, remedies and powers of MLMCI
-------------------
hereunder and in connection herewith are irrevocable and cumulative, and not
alternative or exclusive, and shall be in addition to all other rights, remedies
and powers of MLMCI whether under law, equity or agreement. In addition to the
rights and remedies granted to it in this Agreement or under the Note, MLMCI
shall have all the rights and remedies of a secured party under the Uniform
Commercial Code.
(m) Consent to Jurisdiction. Notwithstanding any termination of this
-----------------------
Agreement, each Assignor hereby agrees that any legal action or proceeding
against either Assignor in connection with this Agreement may be brought in the
courts of the State of New York or of the United States of America located in
the City and State of New York, Borough of Manhattan, as MLMCI may elect, and
each Assignor hereby irrevocably submits to the non-exclusive jurisdiction of
each of said courts, and waives any objection on the grounds of venue, forum non
conveniens or similar ground.
(n) 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.
(o) Superseding of Prior Agreements. This Agreement shall supersede the
-------------------------------
Master Assignment Agreement, dated as of July 26, 1994, among the parties
hereto, which is hereby terminated. All Loans outstanding thereunder as of the
date hereof shall be deemed to be Loans outstanding hereunder as of the date
hereof without any further action by any party, all amounts due or to become due
thereunder shall hereafter be amounts due or to become due hereunder, and all
Confirmation Statements delivered thereunder shall hereafter be deemed to be
Confirmation Statements delivered hereunder.
26
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CWM MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
-------------------------------
Name: Michael W. Perry
Title: Executive Vice President and
Chief Operating Officer
INDEPENDENT NATIONAL MORTGAGE
CORPORATION (f/k/a Countrywide
Mortgage Conduit, Inc.)
By: /s/ Michael W. Perry
-------------------------------
Name: Michael W. Perry
Title: President and Chief Executive
Officer
MERRILL LYNCH MORTGAGE CAPITAL INC.
By: /s/ Louis V. Molinari
-------------------------------
Name: Louis V. Molinari
Title: Director
27
<PAGE>
EXHIBIT A
---------
THIS NOTE IS NOT A
NEGOTIABLE INSTRUMENT.
NO TRANSFER OR SALE OF THIS NOTE
SHALL BE MADE UNLESS SUCH TRANSFER
IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT
OF 1933, AS AMENDED, AND ANY APPLI-
CABLE STATE SECURITIES LAWS OR IS MADE
IN ACCORDANCE WITH SAID ACT AND LAWS.
NOTE
$225,000,000 New York, New York, October __, 1994
FOR VALUE RECEIVED, CWM MORTGAGE HOLDINGS, INC. and INDEPENDENT
NATIONAL MORTGAGE CORPORATION (f/k/a Countrywide Mortgage Conduit, Inc.) (each
an "Assignor" and collectively, the "Assignors") promise, jointly and severally,
to pay to MERRILL LYNCH MORTGAGE CAPITAL INC. ("MLMCI") the principal sum of Two
Hundred Twenty-Five Million Dollars ($225,000,000) (or so much thereof as shall
have been advanced here against and shall be outstanding), in lawful money of
the United States of America, in immediately available funds, with interest on
each principal sum advanced here against or the unpaid balance thereof with such
frequency as is specified in Annex I to the Master Assignment Agreement (the
"Assignment") dated as of October __, 1994, among Assignors and MLMCI ("Annex
I") (or on such other day and with such other frequency as may be mutually
agreed upon by Assignors and MLMCI) in said money and funds from the date of the
related advance until payment of the unpaid balance hereof at the rate per annum
(based on a year of 360 days and actual days elapsed) indicated on Annex I, but
in no event higher than the maximum rate permitted by law, and after payment if
the unpaid principal balance is due or upon acceleration, until said balances
shall be paid, at the rate per annum (based on a year of 360 days and actual
days elapsed) equal to two hundred (200) basis points in excess of the prime
rate for short term bank commercial loans as published in The Wall Street
---------------
Journal, changing as such published rate changes, but in no event higher than
- - -------
the maximum rate permitted by law.
Advances here against shall be in minimum amounts of $1,000,000 and
integral multiples of $100,000 in excess thereof.
A-1
<PAGE>
Either Assignor may request disbursement of amounts borrowed hereunder upon not
less than two (2) Business Days' written notice to MLMCI. MLMCI is hereby
authorized by Assignors to endorse on the Loan Schedule amounts advanced here
against, the rate of interest relating thereto and any principal prepayments
hereunder (as permitted by the Assignment defined below), it being understood,
however, that failure to make any such endorsement shall not affect the
obligations of Assignors hereunder in respect of the amounts advanced
hereagainst.
This Note is the Note referred to in the Assignment, granting to MLMCI
a first priority perfected security interest in the Collateral, as described
therein. The holder is entitled to the benefits of the Assignment and may
enforce the agreements of Assignors contained therein and exercise the remedies
provided for thereby or otherwise available in respect thereof. All capitalized
terms used in this Note and not otherwise defined shall have the respective
meanings set forth in the Assignment except where the context clearly indicates
otherwise.
Each Assignor agrees to be jointly and severally liable for the
obligations incurred by either Assignor under the Assignment or this Note.
Upon the occurrence and during the continuation of an Event of
Default, this Note and all other present and future obligations of any and all
kinds of either Assignor in favor of the holder hereof, whether created directly
or acquired by assignment, whether absolute or contingent, shall, unless the
holder shall otherwise elect, forthwith be due and payable without notice or
demand of any kind (except as expressly provided in the Assignment).
Assignors hereby agrees that any legal action or proceeding against
either Assignor for enforcement of this Note or of any judgment with respect to
this Note may be brought in the courts of the State of New York or of the United
States of America located in the City and State of New York, Borough of
Manhattan, as the holder may elect, and each Assignor hereby irrevocably submits
to the non-exclusive jurisdiction of each of said courts, and waives any
objection on the grounds of venue, forum non conveniens or similar ground. Each
Assignor irrevocably consents that service of process in any such action or
proceeding may be made upon such Assignor by the mailing thereof by the holder
by United States registered or certified mail, postage prepaid, to such Assignor
at the address set forth herein below the signature of such Assignor, and such
Assignor hereby further agrees that service of process in such manner shall be
full and sufficient notice of any such action or proceeding.
A-2
<PAGE>
To the extent set forth in the Assignment, each Assignor waives
diligence, presentment of any instrument, protest and notice of non-payment and
any and all other notices and demands whatsoever in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
Assignors agree, jointly and severally, to pay on demand all reasonable costs of
collection (including reasonable attorneys' fees) paid or incurred by the holder
in enforcing this Note on default. As used herein, the word "holder" shall mean
MLMCI or any endorsee of this Note who is in possession hereof, if this Note is
at the time payable to the bearer; provided, however, that the Obligor shall not
-------- -------
be required to recognize any holder of the Note other than MLMCI and its
affiliates.
This Note shall be governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and entirely performed therein.
CWM MORTGAGE HOLDINGS, INC.
By: /s/ Michael W. Perry
-------------------------------
Name: Michael W. Perry
------------------------------
Title: Executive Vice President and
Chief Operating Officer
-----------------------------
Address: CWM Mortgage Holdings, Inc.
35 North Lake Avenue
Pasadena, California 91101
INDEPENDENT NATIONAL MORTGAGE CORPORATION
(f/k/a Countrywide Mortgage Conduit, Inc.)
By: /s/ Michael W. Perry
-----------------------
Name: Michael W. Perry
---------------------
Title: President and Chief Executive
Officer
--------------------
Address: Independent National Mortgage
Corporation
35 North Lake Avenue
Pasadena, California 91101
A-3
<PAGE>
LOAN SCHEDULE
-------------
This Note evidences Loans made by MLMCI to Assignors and the repayment
of principal by Assignors to MLMCI, in the principal amounts and on the dates
and with the related interest rates set forth below as well as the total amount
advanced here against as of each such date:
PRINCIPAL AMOUNT INTEREST PRINCIPAL AMOUNT TOTAL
DATE LOANED RATE REPAID OUTSTANDING
- - ------ ---------------- -------- ---------------- -----------
______ ________________ ________ ________________ ___________
______ ________________ ________ ________________ ___________
______ ________________ ________ ________________ ___________
______ ________________ ________ ________________ ___________
______ ________________ ________ ________________ ___________
______ ________________ ________ ________________ ___________
A-4
<PAGE>
EXHIBIT B
---------
MERRILL LYNCH MORTGAGE CAPITAL INC.'S CONFIRMATION STATEMENT
To: CWM MORTGAGE HOLDINGS, INC.
and
INDEPENDENT NATIONAL MORTGAGE CORPORATION
(f/k/a Countrywide Mortgage Conduit, Inc.)
Re: LOAN PURSUANT TO MASTER ASSIGNMENT AGREEMENT
Gentlemen:
Merrill Lynch Mortgage Capital Inc. ("MLMCI") is pleased to confirm our Loan to
the borrower designated below pursuant to the Master Assignment Agreement (the
"Master Assignment Agreement"), dated as of October __, 1994, among CWM Mortgage
Holdings, Inc. ("CWMMHI"), Independent National Mortgage Corporation (f/k/a
Countrywide Mortgage Conduit, Inc.)("INMC") and MLMCI under the following terms
and conditions:
1. Borrower (check one): ______ CWMMHI ________ INMC
2. Collateral Description: _______________________________
A. Security Issue Date: ______
B. Face Amount: $____________
C. Current Mkt Value: $____________
D. Current Factor: ______
3. LOAN - ____ New Funds _____ Roll
A. Amount: $____________
B. Closing Date: _______
C. Margin Requirement: _______
B-1
<PAGE>
The Note, dated October __, 1994, which evidences advances under the Master
Assignment Agreement will be annotated on the schedule attached thereto to
reflect the date, amount and interest rate relating to this advance.
The Master Assignment Agreement is incorporated by reference into this
Confirmation Statement and made a part hereof as if it were fully set forth
herein. All capitalized terms used herein but not otherwise defined shall have
the meanings specified in the Master Assignment Agreement.
Very truly yours,
MERRILL LYNCH MORTGAGE CAPITAL INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
B-2
<PAGE>
Public Securities Association
40 Broad Street, New York, NY 10004-2373
Telephone (212)809-7000
MASTER REPURCHASE AGREEMENT
Dated as of October 28, 1994
Among:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("Buyer")
and
CWM MORTGAGE HOLDINGS, INC. ("Seller")
and
INDEPENDENT NATIONAL MORTGAGE CORPORATION ("Seller")
(F/K/A Countrywide Mortgage Conduit, 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
financial instruments ("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 shall be governed
by this Agreement, including any supplemental terms or conditions contained in
Annex I hereto, unless otherwise agreed in writing.
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, dissolution or similar law, or such party seeking
the appontment of a receiver, trustee, custodian or similar official for such
party or any substantial part of its property, or (ii) the commencement of any
such case or proceeding against such party, or another seeking such an
appointment, 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, 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 a party of a general
assignment for the benefit of creditors, or (iv) the admission in writing by a
party of such party's inability to pay such party's debts as they become due;
(b) "Additional Purchased Securities", Securities provided by Seller to
Buyer pursuant to Paragraph 4(a) hereof;
(c) "Buyer's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of a percentage (which may be equal
to the percentage that is agreed to as the Seller's Margin Amount under
subparagraph (q) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date;
(d) "Confirmation", the meaning specified in Paragraph 3(b) hereof;
(e) "Income", with respect to any Security at any time, any principal
thereof then payable and all interest, dividends of other distributions thereon;
(f) "Margin Deficit", the meaning specified in Paragraph 4(a) hereof;
(g) "Margin Excess", the meaning specified in Paragraph 4(b) hereof;
(h) "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);
(i) "Price Differential", with respect to any Transaction hereunder as of
any date, the aggregate amount obtained by daily application of the Pricing
Rate for such Transaction to the Purchase Price for such Transaction on a 360
day per year basis for the actual number of days during the period commencing
on (and including) the Purchase Date for such Transaction and ending on (but
excluding) the date of determination (reduced by any amount of such Price
Differential previously paid by Seller to Buyer with respect to such
Transaction);
<PAGE>
(j) 'Pricing Rate", the per annum percentage rate for determination of the
Price Differential;
(k) "Prime Rate", the prime rate of U.S. money center commercial banks as
published in The Wall Street Journal;
(l) "Purchase Date", the date on which Purchased Securities are transferred
by Seller to Buyer;
(m) "Purchase Price", (i) on the Purchase Date, the price at which
Purchased Securities are transferred by Seller to Buyer, and (ii) thereafter,
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;
(n) "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) and shall exclude Securities
returned pursuant to Paragraph 4(b);
(o) "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 Paragraphs 3(c) or 11 hereof;
(p) "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, increased by any amount determined by the application of the
provisions of Paragraph 11 hereof;
(q) "Seller's Margin Amount", with respect to any Transaction as of any
date, the amount obtained by application of a percentage (which may be equal
to the percentage that is agreed to as the Buyer's Margin Amount under
subparagraph (c) of this Paragraph), agreed to by Buyer and Seller prior to
entering into the Transaction, to the Repurchase Price for such Transaction as
of such date.
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, 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) Any cash transferred pursuant to this Paragraph shall be attributed to
such Transactions as shall be agreed upon by Buyer and Seller.
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<PAGE>
(d) 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 Margin Excess 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).
(e) 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 Margin Excess exists with respect to any single Transaction hereunder
(calculated without regard to any other Transaction outstanding under this
Agreement).
5. INCOME PAYMENTS
Where a particular Transaction's term extends over an income payment date
on the Securities subject to that Transaction, Buyer shall, as the parties may
agree with respect to such Transaction (or, in the absence of any agreement, as
Buyer shall reasonably determine in its discretion), on the date such income is
payable either (i) transfer to or credit to the account of Seller an amount
equal to such income payment or payments with respect to any Purchased
Securities subject to such Transaction or (ii) apply the income payment or
payments to reduce the amount to be transferred to Buyer by Seller upon
termination of the Transaction. Buyer shall not be obligated to take an action
pursuant to the preceding sentence 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.
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 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. As used herein with respect to Securities, "transfer" is
intended to have the same meaning as when used in Section 8-313 of the New York
Uniform Commercial Code or, where applicable, in any federal regulation
governing transfers of the Securities.
8. SEGREGATION OF PURCHASED SECURITIES
To the extent required by applicable law, all Purchased Securities in the
possession of Seller shall be segregated from other securities in its possession
and shall be identified as subject to this Agreement. Segregation may be
accomplished by appropriate identification on the books and records of the
holder, including a financial intermediary or a clearing corporation. Title to
all Purchased Securities shall pass to Buyer and, unless otherwise agreed by
Buyer and Seller, nothing in this Agreement shall preclude Buyer from engaging
in repurchased transactions with the Purchased Securities or otherwise pledging
or hypothecating the Purchased Securities, but no such transaction shall relieve
Buyer of its obligations to transfer Purchased Securities to Seller pursuant to
Paragraphs 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. 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. 403.5(d) if Seller is a financial
institution.
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<PAGE>
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 the Seller retains custody of Purchased
Securities, the parties expressly agree that Buyer shall be deemed, for purposes
of subparagraph (a) of this Paragraph, to have agreed to and accepted in this
Agreement substitution by Seller of other Securities for Purchased Securities;
provided, however, that such other Securities shall have a Market Value at least
equal to the Market Value of the Purchased Securities for which they are
substituted.
10. REPRESENTATIONS
Each of Buyer and Seller represents and warrants to the other that (i) it
is duly authorized to execute and deliver this Agreement, to enter into the
Transactions contemplated hereunder and to perform its obligations hereunder and
has taken all necessary action to authorize such execution, delivery and
performance, (ii) it will engage in such Transactions as principal (or, if
agreed in writing 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 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 repurchase or Buyer fails to transfer
Purchased Securities upon the applicable Repurchase Date, (ii) Seller or Buyer
fails, after one business day's notice, to comply with Paragraph 4 hereof, (iii)
Buyer fails to comply with Paragraph 5 hereof, (iv) an Act of Insolvency occurs
with respect to Seller or Buyer, (v) 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 (vi) 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) At the option of the non defaulting party, exercised by written notice
to the defaulting party (which option shall be deemed to have been exercised,
even if no notice is given, immediately upon the occurrence of an Act of
Insolvency), the Repurchase Date for each Transaction hereunder shall be deemed
immediately to occur.
(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 hereunder to repurchase all Purchased Securities in such
Transactions shall thereupon become immediately due and payable, (ii) to the
extent permitted by applicable law, the Repurchase Price with respect to each
such Transaction shall be increased by the aggregate amount obtained by daily
application of (x) the greater of the Pricing Rate for such Transaction or the
Prime Rate to (y) the Repurchase Price for such Transaction as of the Repurchase
Date as determined pursuant to subparagraph (a) of this Paragraph (decreased as
of any day by (A) any amounts retained by the nondefaulting party with respect
to such Repurchase Price pursuant to clause (iii) of this subparagraph, (B) any
proceeds from the sale of Purchased Securities pursuant to subparagraph (d)(i)
of this Paragraph, and (C) any amounts credited to the account of the defaulting
party pursuant to subparagraph (e) of this Paragraph) on a 360 day per year
basis for the actual number of days during the period from and including the
date of the Event of Default giving rise to such option to but excluding the
date of payment of the Repurchase Price as so increased, (iii) all Income paid
after such exercise or deemed exercise shall be retained by the nondefaulting
party and applied to the aggregate unpaid Repurchase Prices owed by the
defaulting party, and (iv) the defaulting party shall immediately deliver to the
nondefaulting party any Purchased Securities subject to such Transactions then
in the defaulting party's possession.
(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, the defaulting party's right, title and
interest in 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) After one business day's notice to the defaulting party (which notice
need not be given if an Act of Insolvency shall have occurred, and which may be
the notice given under subparagraph (a) of this Paragraph or the notice referred
to in clause (ii) of the first sentence of this Paragraph), the nondefaulting
party may:
(i) as to Transactions in which the defaulting party is acting as
Seller, (A) immediately sell, in a recognized market at such price or
prices as the nondefaulting party may reasonably deem satisfactory, any or
all Purchased Securities subject to such Transactions and apply the
proceeds thereof to the aggregate unpaid Repurchase Prices and any other
amounts owing by the defaulting party hereunder or (B) in its sole
discretion elect, in lieu of selling all or a portion of such Purchased
Securities, to give the defaulting party
37
<PAGE>
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) purchase 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 bid quotation from such a source.
(e) As to Transactions in which the defaulting party is acting as Buyer,
the defaulting party shall be liable to the nondefaulting party (i) with respect
to Purchased Securities (other than Additional Purchased Securities), for any
excess of the price paid (or deemed paid) by the nondefaulting party for
Replacement Securities therefor over the Repurchase Price for such Purchased
Securities and (ii) with respect to Additional Purchased Securities, for the
price paid (or deemed paid) by the nondefaulting party for the Replacement
Securities therefor. In addition, the defaulting party shall be liable to the
nondefaulting party for interest on such remaining liability with respect to
each such purchase (or deemed purchase) of Replacement Securities from the date
of such purchase (or deemed purchase) until paid in full by Buyer. Such interest
shall be at a rate equal to the greater of the Pricing Rate for such Transaction
or the Prime Rate.
(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 its option under subparagraph (a) of this Paragraph.
(g) The defaulting party shall be liable to the nondefaulting party for the
amount of all reasonable legal or other expenses incurred by the nondefaulting
party in connection with or as a consequence of an Event of Default, together
with interest thereon at a rate equal to the greater of the Pricing Rate for the
relevant Transaction or the Prime Rate.
(h) 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 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
Unless another address is specified in writing by the respective party to
whom any notice or other communication is to be given hereunder, all such
notices or communications shall be in writing or confirmed in writing and
delivered at the respective addresses set forth in Annex II attached hereto.
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
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. 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 canceled 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.
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<PAGE>
16. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York
without giving effect to the conflict of law principles thereof.
17. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by either party shall
constitute a waiver of any other Event of Default and no exercise of any remedy
hereunder by any party shall constitute a waiver of its right to exercise any
other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Without limitation on any of the foregoing, the failure to give
a notice pursuant to subparagraphs 4(a) or 4(b) hereof will not constitute a
waiver of any right to do so at a later date.
18. USE OF EMPLOYEE PLAN ASSETS
(a) If assets of an employee benefit plan subject to any provision of the
Employee Retirement Income Security Act of 1974 ("ERISA") are intended to be
used by either party hereto (the "Plan Party") in a Transaction, the Plan Party
shall so notify the other party prior to the Transaction. The Plan Party shall
represent in writing to the other party that the Transaction does not constitute
a prohibited transaction under ERISA or is otherwise exempt therefrom, and the
other party may proceed in reliance thereon but shall not be required so to
proceed.
(b) Subject to the last sentence of subparagraph (a) of this Paragraph, any
such Transaction shall proceed only if Seller furnishes or has furnished to
Buyer its most recent available audited statement of its financial condition and
its most recent subsequent unaudited statement of its financial condition.
(c) By entering into a Transaction pursuant to this Paragraph, Seller shall
be deemed (i) to represent to Buyer that since the date of Seller's latest such
financial statements, there has been no material adverse change in Seller's
financial condition which Seller has not disclosed to Buyer, and (ii) to agree
to provide Buyer with future audited and unaudited statements of its financial
condition as they are issued, so long as it is a Seller in any outstanding
Transaction involving a 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 State 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.
(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.
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, the Federal Savings and Loan
Insurance Corporation or the National Credit Union Share Insurance Fund, as
applicable.
<TABLE>
<CAPTION>
<S> <C> <C>
MERRILL LYNCH, PIERCE, FENNER & CWM MORTGAGE HOLDINGS, INC. INDEPENDENT NATIONAL MORTGAGE
SMITH INCORPORATED CORPORATION (F/K/A COUNTRYWIDE MORTGAGE CONDUIT, INC.)
By: /s/ Louis V. Molinari By: /s/ Michael W. Perry By: /s/ Michael W. Perry
______________________ ______________________ _____________________
Name: Louis V. Molinari Name: Michael W. Perry Name: Michael W. Perry
____________________ ____________________ ___________________
Title: Director Title: Executive Vice Persident Title: President & Chief Executive
___________________ and Chief Operating Officer Officer
___________________________ ___________________________
Date: October 28, 1994 Date: November 9, 1994 Date: November 9, 1994
____________________ ____________________________ ___________________________
</TABLE>
39
<PAGE>
ANNEX I
A. MARGIN REQUIREMENT:
------------------
The Margin Requirement for each Eligible Asset will be determined by MLMCI prior
to the Closing Date for the related Loan in accordance with the following
parameters:
1. 7%-15% for Eligible Assets that both (A) are rated AAA or AA (or the
equivalent) by at least one nationally recognized statistical rating
organization and (B) are Mortgage-Related Securities;
2. 20%-30% for Eligible Assets that either (A) are rated AAA or AA (or
the equivalent) by at least one nationally recognized statistical
rating organization but are not Mortgage-Related Securities or (B) are
rated A or BBB (or the equivalent) by at least one nationally
recognized statistical rating organization;
3. 25%-30% for Eligible Assets that are rated BB or B (or the equivalent)
by at least one nationally recognized statistical rating organization;
and
4. 30%-50% for Eligible Assets that are unrated.
The Margin Requirement for each Loan will be reflected in the related
Confirmation Statement.
B. LOAN INTEREST RATE:
------------------
Unless otherwise agreed by the parties and reflected in the Confirmation
Statement, each Loan will bear interest at the following spreads over the
prevailing London Interbank Offered Rate for one-month United States Dollar
deposits as set forth on page 4833 of Telerate as of 8:00 a.m. New York City
time on the date of determination ("LIBOR"):
1. 20 basis points in excess of LIBOR for Eligible Assets that are rated
AAA or AA (or the equivalent) by at least one nationally recognized
statistical rating organization;
2. 30 basis points in excess of LIBOR for Eligible Assets that are rated
A (or the equivalent) by at least one nationally recognized
statistical rating organization;
I-1
<PAGE>
3. 40 basis points in excess of LIBOR for Eligible Assets that are rated
BBB (or the equivalent) by at least one nationally recognized
statistical rating organization;
4. 55 basis points in excess of LIBOR for Eligible Assets that are rated
BB or B (or the equivalent) by at least one nationally recognized
statistical rating organization; and
5. 65 basis points in excess of LIBOR for Eligible Assets that are
unrated.
Unless otherwise agreed by the parties and reflected in the Confirmation
Statement, the interest rate for each Loan will reset monthly on the one-month
anniversary of the Closing Date for such Loan.
C. DATE FOR PAYMENT OF INTEREST:
----------------------------
Interest on each Loan will be payable monthly in arrears on the last business
day of each calendar month or, if earlier, on the expiration of the term of such
Loan, on the termination date referred to in Section 14(g) hereof or at such
other times as may be specified in this Agreement.
ANNEX I
(continued)
SUPPLEMENTAL TERMS TO MASTER REPURCHASE AGREEMENT,
DATED AS OF OCTOBER 28, 1994, AMONG
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
CWM MORTGAGE HOLDINGS, INC. AND
INDEPENDENT NATIONAL MORTGAGE CORPORATION
(f/k/a Countrywide Mortgage Conduit, Inc.)
1. APPLICABILITY.
-------------
These Supplemental Terms (the "Supplemental Terms") to Master Repurchase
Agreement (the "Master Repurchase Agreement", and collectively with these
Supplemental Terms,
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the "Agreement") modify the terms and conditions under which the
parties hereto, from time to time, enter into Transactions. To the extent
that these Supplemental Terms conflict with the terms of the Master
Repurchase Agreement, these Supplemental Terms shall control.
2. ADDITIONAL DEFINITIONS.
----------------------
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Master Repurchase Agreement. Capitalized terms
used in the Master Repurchase Agreement whose definitions are modified in
these Supplemental Terms shall, for all purposes of the Agreement, be
deemed to have such modified definitions.
"Act of Insolvency" shall have the meaning set forth in the Master
Repurchase Agreement except that subsection (C) shall state "is not stayed
or dismissed within 45 days".
"Applicable Law" shall refer to any statute, rule, regulation, order,
judgment, decree or other law of any federal, state or local governmental
authority or any self-regulating organization with regulatory jurisdiction
over MLPF&S, or an Obligor (including, without limitation, the 1934 Act,
Regulation T promulgated by the Board of Governors of the Federal Reserve
System, the rules and regulations of the New York Stock Exchange and the
National Association of Securities Dealers, the Employee Retirement Income
Security Act of 1974, as amended, the Internal Revenue Code of 1986, as
amended, and the regulations and interpretations thereof adopted by the
Internal Revenue Service, and any state or local tax law and any
interpretation thereof by the relevant state or local tax authority) that
is binding on MLPF&S, MLMCI or an Obligor, other than corporate income,
franchise or other taxes of general application to MLPF&S.
"Book Net Worth" shall refer to the equity of an Obligor determined in
accordance with GAAP less the sum of (i) intercompany receivables, (ii)
loans to officers or employees of such Obligor and (iii) deferred charges.
"Business Day" shall mean any day excluding Saturday, Sunday and any day on
which banks located in the States of New York or California are authorized
or permitted to close for business. All references to "business day" in
the Master Repurchase Agreement shall be deemed to be references to
Business Day.
"Buyer" shall, in all cases under the Master Repurchase Agreement and these
Supplemental Terms, refer to MLPF&S.
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<PAGE>
"Change of Applicable Law" shall refer to any substantive change in any
Applicable Law that occurs after the date hereof.
"CWMMHI" shall refer to CWM Mortgage Holdings, Inc.
"Eligible Assets" shall refer to assets satisfying the following criteria:
(i) a mortgage pass-through security that evidences a fractional,
undivided ownership interest in a pool of underlying single
(1-4) family, residential mortgage loans (including the right
to receive principal and/or interest payments thereon);
(ii) a mortgage pass-through security that is either (A) a rated or
unrated security (i) that is issued pursuant to a registration
statement filed with the SEC under Section 5 of the Securities
Act of 1933, as amended, (ii) that is part of an issue with an
aggregate original principal amount of not less than
$25,000,000 and (iii) current reports relating to the issue
have been filed with the SEC or (B) a Mortgage-Related Security
(provided that, at the time of any proposed Transaction,
Section 11(d) of the 1934 Act does not prohibit MLPF&S from
entering into a Transaction with respect to such security);
(iii) any mortgage pass-through security may be subordinated in right
of payment to one or more other classes of mortgage pass-
through securities backed by the same pool of underlying
residential mortgage loans, including without limitation
"interest-only" securities, "principal-only" securities and any
"inverse floater" security financed by MLPF&S under any
repurchase or loan agreement existing between the parties on
the date hereof, but specifically excluding any security that
would reasonably subject MLPF&S, as the owner or pledgee
thereof, to any potential loss in excess of the amount advanced
by MLPF&S to an Obligor for such security hereunder (e.g., a
----
certificate evidencing a "residual interest" in a REMIC);
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<PAGE>
(iv) if such mortgage pass-through security is a Non-Widely Traded
Security, there is no Applicable Law that would materially
restrict or limit the corporate power or authority of MLPF&S to
enter into a Transaction with respect thereto;
(v) if such mortgage pass-through security is a Widely Traded
Security, there is no Change of Applicable Law that would
materially restrict or limit the corporate power or authority
of MLPF&S to enter into a Transaction with respect thereto;
(vi) as of the Purchase Date of the applicable Transaction (and
excluding the dates of any subsequent rollovers), such mortgage
pass-through security is readily salable to sophisticated
investors that purchase similar securities in the secondary
mortgage market; and
(vii) as of any date of determination, such mortgage pass-through
security has not become unsalable as a result of the
characteristics of the underlying pool of mortgage loans and/or
any material adverse change in the financial condition or
results of operations of Obligor or any of its subsidiaries, on
a consolidated basis, (provided that temporary market
conditions, as determined by MLPF&S in the good faith exercise
of its reasonable business judgment, shall not in any event
render any mortgage pass-through security unsalable for
purposes hereof).
In addition to the foregoing, either Obligor may, from time to time,
request that additional assets qualify as "Eligible Assets" and MLPF&S may,
at its option, elect to effect Transactions with respect to such additional
assets on a case-by-case basis.
"Financing Agreement" shall refer to the Master Assignment Agreement and
any master repurchase agreement between MLPF&S (and/or any affiliate
thereof) and either Obligor (and/or any affiliate thereof).
"GAAP" shall refer to generally accepted accounting principles consistently
applied.
"INMC" shall refer to Independent National Mortgage Corporation (f/k/a
Countrywide Mortgage Conduit, Inc.).
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<PAGE>
"Master Assignment Agreement" shall refer to the Master Assignment
Agreement, of even date herewith, among Obligors and MLMCI.
"MLMCI" shall refer to Merrill Lynch Mortgage Capital Inc.
"MLPF&S" shall refer to Merrill Lynch, Pierce, Fenner & Smith Incorporated.
"MLPF&S's Margin Amount" shall have the meaning set forth in the Master
Repurchase Agreement except that the percentage referred to therein for
each Transaction shall be specified in Exhibit I hereto.
"Mortgage-Related Security" shall mean a "mortgage related security" as
such term is defined in Section 3(a)(41) of the 1934 Act.
"1934 Act" shall refer to the Securities Exchange Act of 1934, as amended.
"Non-Widely Traded Security" shall refer to a mortgage pass-through
security that is not of a type that is widely traded among sophisticated
investors that purchase similar securities in the secondary mortgage market
as of the date hereof.
"Obligor" shall, in all cases under the Master Repurchase Agreement and
these Supplemental Terms, refer to one or both Obligors as the context may
require.
"Obligors" shall refer to CWMMHI and INMC.
"Obligor's Margin Amount" shall have the meaning set forth in the Master
Repurchase Agreement except that the percentage referred to therein for
each Transaction shall be specified in Exhibit I hereto.
"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 Exhibit I hereto.
"Rating Agency" shall refer to any nationally recognized statistical rating
organization acceptable to MLPF&S in its reasonable business judgment.
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<PAGE>
"REMIC" shall refer to a "real estate mortgage investment conduit" as such
term is defined in the Internal Revenue Code of 1986, as amended.
"SEC" shall refer to the Securities and Exchange Commission.
"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.
"Widely Traded Security" shall refer to a mortgage pass-through security
that is of a type that is widely traded among sophisticated investors that
purchase similar securities in the secondary mortgage market as of the date
hereof.
3. MODIFICATIONS OF PARAGRAPH 11 OF THE MASTER REPURCHASE AGREEMENT.
----------------------------------------------------------------
Subparagraph (v) of Paragraph 11 of the Master Repurchase Agreement is
hereby modified in its entirety to read as follows:
"any representation or warranty 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, provided, however, that such breach
-------- -------
of representation or warranty shall not constitute an Event of Default with
respect to an Eligible Asset if after taking into account the Market Value
of the Eligible Assets without taking into account the Eligible Assets with
respect to which such breach occurred no other Event of Default shall have
occurred and be continuing."
Paragraph 11 of the Master Repurchase Agreement is hereby further amended
by adding new subsections (i) and (j) to such Paragraph:
(i) Any sales of Purchased Securities, pursuant to Paragraph
11(d)(i) of the Agreement, may be effected in a commercially
reasonable manner in public or private sales as MLPF&S may reasonably
deem appropriate and at such price or prices as MLPF&S may reasonably
deem satisfactory. In the event MLPF&S elects in lieu of so selling
such Purchased Securities to give an Obligor credit for such Purchased
Securities, such credit shall be in an amount equal to the Market
Value thereof as of the date of acceleration.
(j) If an Event of Default shall occur and be continuing, MLPF&S
shall exercise reasonable efforts
I-7
<PAGE>
(the reasonableness of which shall be determined by MLPF&S in its
discretion in light of the circumstances) to provide notice to an
Obligor prior to exercising any remedy in respect of an Event of
Default by such Obligor, provided, however, that notwithstanding
-------- -------
anything in the Agreement to the contrary, MLPF&S shall not be
required, prior to exercising any remedy in respect of an Event of
Default by such Obligor, to give any notice otherwise required
hereunder, if MLPF&S reasonably believes that (i) the Purchased
Securities then held by MLPF&S threaten to decline speedily in value
or (ii) any delay occasioned by the giving of such notice will
jeopardize MLPF&S's ability to recover, by sale of such Purchased
Securities or otherwise, all or part of the then outstanding amount
of the Repurchase Price or of any other amounts payable to MLPF&S or
any affiliate thereof pursuant hereto. If no prior notice is given,
MLPF&S shall give notice to the related Obligor of the remedies
effected by MLPF&S promptly thereafter. MLPF&S may forthwith apply
the cash, if any, then held by it as part of the Purchased Securities
relating to any Transaction to the payment of the Repurchase Price,
and, if there shall be no such cash or the cash so applied shall not
be sufficient to pay in full the Repurchase Price, may thereafter
collect, receive, appropriate, retain and realize upon the Purchased
Securities, or any part thereof, and may forthwith sell, assign,
contract to sell, or otherwise dispose of and deliver the Purchased
Securities, or any part thereof, in one or more parcels at such
public or private sale or sales, at such place or places, at such
price or prices and upon such other terms and conditions as MLPF&S
may deem best (provided, however, that MLMCI shall act in a
commercially reasonable manner), for cash or on credit or for future
delivery without assumption of any credit risk, with the right of
MLPF&S upon any such sale or sales to purchase all or any part of the
Purchased Securities so sold. Upon any sale, transfer or other
disposition of the Purchased Securities pursuant hereto MLPF&S shall
have the right to deliver, assign and transfer to the transferee
thereof the Purchased Securities so sold. Each transferee upon any
such transfer or other disposition shall hold the property thereby
acquired by it absolutely free from any claim or right of any kind,
including any equity or rights of redemption, of either Obligor, each
of which hereby specifically waives all rights of redemption, stay or
appraisal which it has or may have under any rule of law or statute
whether now existing or hereafter adopted (in the latter case, to
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<PAGE>
the extent permitted thereby). Each Obligor agrees that MLPF&S need
give only such notice of the time and place of any public or private
sale (including any adjourned private sale) or other intended
disposition as may be required by market conditions and standards of
commercial reasonableness and that MLPF&S need not in any event give
more than five (5) days' notice that such sale or disposition is to
take place. Each Obligor agrees that the notice provided for in the
preceding sentence is reasonable notification of such matters.
MLMCI shall not be obligated to make any sale pursuant to any
such notice. MLMCI may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to
time by announcement at the time and place fixed for the sale, and
such sale may be made at any time or place to which the same may be so
adjourned, provided that MLMCI shall act in a commercially reasonable
manner. In case of any sale of all or any part of the Collateral on
credit or for future delivery, the Collateral so sold may be retained
by MLMCI until the selling price is paid by the purchaser thereof, but
MLMCI shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold, and, in case
of any such failure, such Collateral may again be sold upon like
notice. MLMCI, however, instead of exercising the power of sale
herein conferred upon it, may proceed by a suit or suits at law or in
equity to foreclose the lien and security interest created hereby and
sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(k) MLPF&S shall have no obligation to realize upon any Purchased
Securities, except through proper application of any distributions
with respect to the Purchased Securities made directly to MLPF&S or
its agent(s). Obligor hereby waives the defense of impairment of the
Purchased Securities; provided, however, that MLPF&S shall act in a
-------- -------
commercially reasonable manner. MLPF&S may in its sole discretion
elect to realize upon all or a portion of the Purchased Securities by
giving the Obligor credit for such Purchased Securities, which credit
shall be in an amount equal to the Market Value thereof as of the date
of acceleration.
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<PAGE>
4. COMMITMENT; DISBURSEMENT OF FUNDS.
---------------------------------
(i) Subject to the terms and conditions stated herein, and
relying upon the representations, warranties and covenants of Obligors
herein set forth, MLPF&S agrees to enter into one or more Transactions
with each Assignor. The outstanding Repurchase Price for both
Obligors under the Agreement shall be limited to the excess of
$225,000,000 over the sum of all amounts owed by the Obligors to
MLPF&S hereunder and all amounts owed by the Obligors to MLMCI under
the Assignment Agreement.
(ii) Obligors agree, jointly and severally, to pay to MLMCI, on
behalf of MLPF&S hereunder and on behalf of itself under the Master
Assignment Agreement, a structuring fee applicable to both this
Agreement and the Master Assignment Agreement in the aggregate amount
of $1,125,000.00 simultaneously with the execution of this Agreement,
and the agreement of MLPF&S to enter into Transactions hereunder shall
not be effective until such structuring fee has been received by
MLMCI.
(iii) Either Obligor may request that the parties enter into a
transaction hereunder by making a written request, either by mail or
facsimile transmission, to MLPF&S. MLPF&S shall pay the Purchase
Price within two (2) days of receipt of such notice, so long as the
terms and conditions of this Agreement are fully satisfied and no
Event of Default hereunder shall have occurred and be continuing. The
amount of any such Purchase Price shall be in a minimum amount of
$1,000,000 and integral multiples of $100,000 in excess thereof.
(iv) The Pricing Rate shall be specified in Exhibit I hereto.
5. CONFIRMATION.
------------
(a) Each Confirmation shall be binding upon Obligors (jointly and
severally) and MLPF&S unless written notice of objection is given by
the objecting party to the other parties within two (2) Business Days
after the objecting party's receipt of the Confirmation.
(b) MLPF&S may, but shall not be required to, deliver Confirmations
confirming periodic adjustments in the Pricing Rate for a particular
Transaction.
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<PAGE>
(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 and the Agreement, such Confirmation shall prevail.
6. MARKET VALUE DETERMINATION.
--------------------------
(a) MLPF&S shall determine the Market Value for the Purchased Securities
in the good faith exercise of its reasonable business judgment from
time to time and at such time as it may elect in its sole discretion.
(b) With respect to any Purchased Security that an Obligor has not
acquired directly from MLPF&S or any of its affiliates, either (i)
such Obligor will provide to MLPF&S in a timely manner all data with
respect thereto that MLPF&S may reasonably request (which, at a
minimum, shall include (x) either (A) a CMO Passport model for the
Eligible Asset, if available at such time, or (B) if a CMO Passport
model is not yet available, price/yield tables prepared by the
underwriter or placement agent for the Eligible Asset with the CMO
Passport model to follow within 30 days after the date of issuance of
the Eligible Asset, and (y) a prospectus and, if applicable, a
prospectus supplement for the Eligible Asset) or (ii) such Purchased
Security will be deemed to have a Market Value of zero.
7. DELIVERY OF PURCHASED SECURITIES AND ADDITIONAL DOCUMENTS.
---------------------------------------------------------
(a) The Purchased Securities shall be delivered to MLPF&S registered in
the name of MLPF&S or, if MLPF&S shall agree in its sole discretion,
with properly endorsed instruments of transfer (including, without
limitation, any opinions of counsel and certificates required for
transfer) that will enable MLPF&S to cause such Purchased Securities
to be so registered without further action on the part of MLPF&S other
than delivering such Purchased Securities and such instruments of
transfer to the appropriate transfer agent. The right of MLPF&S to
receive, and the obligation of Obligors to deliver, Purchased
Securities in the form described in the preceding sentence shall not
be waived or reduced by MLPF&S's having accepted and received,
knowingly or unknowingly, Purchased Securities that have not been so
registered or are not accompanied by such instruments of transfer.
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<PAGE>
(b) Each Obligor agrees that, from time to time upon the prior written
request of MLPF&S, it will (i) execute and deliver such further
documents and do such other acts and things as MLPF&S may reasonably
request in order to fully effectuate the purposes of the Agreement
(including, without limitation, the delivery of appropriate transfer
documentation as contemplated by Paragraph (6)(a) hereof) and (ii)
provide such opinions of counsel concerning matters relating to the
Agreement as MLPF&S may reasonably request.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------
(a) Each party represents and warrants, as of the date of this Agreement
and as of the Purchase Date of each Transaction, as follows:
(i) The execution, delivery and performance of the Agreement and
the performance of each Transaction do not and will not result
in or require the creation of any lien, security interest or
other charge or encumbrance (other than pursuant hereto) upon
or with respect to any of its properties;
(ii) The Agreement is, and each Transaction when entered into under
the Agreement will be, a legal, valid and binding obligation of
it enforceable against it in accordance with the terms of the
Agreement, subject as to enforcement, to applicable bankruptcy,
insolvency, reorganization and similar laws relating to or
affecting creditors' rights, to the assumption that enforcement
will be undertaken in a commercially reasonable manner, and to
general principles of equity, regardless of whether enforcement
is sought in a proceeding in equity or at law; and
(iii) Since the date of the most recent balance sheet or financial
statement delivered by it pursuant to Paragraph 11 hereof,
there has been no material adverse change in its financial
condition or results of operations.
(b) Each Obligor represents and warrants as to each Transaction as of the
Purchase Date of each Transaction, as follows:
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<PAGE>
(i) All information provided by such Obligor to MLPF&S concerning
the Purchased Securities is true and correct in all material
respects;
(ii) MLPF&S has a first priority lien on and security interest in
the Purchased Securities (including all proceeds, distributions
and other amounts realized in respect thereof) in favor of
MLPF&S, subject to no prior lien, charge, encumbrance or rights
of others, and, assuming that MLPF&S has taken and maintains
possession of the Purchased Securities either (A) registered in
the name of MLPF&S or its nominee or (B) delivered with such
instruments of transfer as provided in Paragraph 7(a) of these
Supplemental Terms, no further action, including any filing or
recordation of any document, is currently required in order to
establish and perfect the liens on and security interests in
the Purchased Securities in favor of MLPF&S against any third
parties in any jurisdiction;
(iii) There are no delinquent federal, state, city, county or other
taxes relating to an Obligor, any Purchased Security sold by it
to MLPF&S under the Agreement or any arrangement pursuant to
which such Purchased Security is issued, and all such tax
liabilities have been satisfied except those that are being
contested by such Obligor in good faith and with respect to
which payment has been stayed by a court of competent
jurisdiction; and
(iv) Each Purchased Security is an Eligible Asset.
(c) Each Obligor covenants with MLPF&S as follows:
(i) Obligor will pay and discharge all taxes, levies, liens and
other charges on its assets and on the Purchased Securities
sold by it to MLPF&S under the Agreement which, in each case,
in any manner would create any lien or charge upon such
Purchased Securities and which would materially adversely
affect the interests of MLPF&S except those that are being
contested by such Obligor in good faith and with respect to
which payment has been stayed by a court of competent
jurisdiction;
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(ii) The ratio of total liabilities to equity of each Obligor and
its subsidiaries, on a consolidated basis, as determined in
accordance with GAAP (but excluding (1) limited purpose finance
subsidiaries of Obligor that issue collateralized mortgage
obligations and (2) trusts that issue mortgage pass-through
certificates and with respect to which an Obligor acts as
depositor), shall not at any time exceed 25 to 1; and
(iii) The Book Net Worth of Obligor for any two consecutive calendar
quarters shall not be less than or equal to 70% of Obligor's
Book Net Worth as of the date set forth on the first page
hereof; and
9. EVENTS OF DEFAULT; REMEDIES.
---------------------------
(a) The term "Event of Default" shall, in addition to the definition set
forth in the Master Repurchase Agreement, include the following
events:
(i) In the reasonable judgment of MLPF&S a material adverse change
shall have occurred in the business, operations, properties or
financial condition of an Obligor;
(ii) MLPF&S shall for any reason cease to have a valid, first
priority perfected security interest in any of the Purchased
Securities; provided however, that such circumstance shall not
-------- -------
constitute an Event of Default if after determining the Market
Value of the Eligible Assets without taking into account the
Eligible Assets with respect to which such circumstances have
occurred, no other Event of Default shall have occurred and be
continuing.
(iii) An Obligor shall be in default with respect to any normal and
customary covenants under any material contract or agreement
(including, without limitation, any Financing Agreement) to
which it is a party (which covenants include, but are not
limited to, an Act of Insolvency of such Obligor or the failure
of such Obligor to make required payments in an aggregate
amount in excess of one million ($1,000,000) dollars under such
contract or agreement as they become due)
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<PAGE>
which default permits acceleration of the obligations of such
Obligor under such contract or agreement by any other party
thereto;
(iv) An Obligor shall merge or consolidate into any entity unless
the surviving or resulting entity shall be a corporation
organized under the laws of a state of the United States and
such entity expressly assumes by written agreement, executed
and delivered to MLPF&S in form and substance satisfactory to
MLPF&S, the performance of all of such Obligor's duties and
obligations hereunder;
(v) MLPF&S shall request assurances as to the financial well-being
of an Obligor and such assurances shall not have been provided
verbally within twenty-four (24) hours and in writing within
forty-eight (48) hours of such request;
(vi) A final judgment by any competent court in the United States of
America for the payment of money in an amount of at least
$1,000,000 is rendered against the defaulting party, and the
same remains undischarged or unpaid for a period of sixty (60)
days during which execution of such judgment is not effectively
stayed;
(vii) Any representation or warranty made by any party in the
Agreement shall have been incorrect or untrue when made or
repeated or when deemed to have been made or repeated and the
interests of MLPF&S, in the case of a breach by an Obligor, or
of an Obligor, in the case of a breach by MLPF&S, shall have
been materially adversely affected thereby, and such breach is
continuing;
(viii) Any party shall breach any covenant in the Agreement and the
interests of MLPF&S, in the case of a breach by an Obligor, or
of an Obligor, in the case of a breach by MLPF&S, shall have
been materially adversely affected thereby, and such breach is
continuing;
(ix) The filing by either Obligor of a petition in bankruptcy, the
adjudication of either Obligor as insolvent or bankrupt, the
petition or application by either Obligor or a controlling
entity of INMC for any receiver or trustee for
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<PAGE>
itself or any substantial part of its property, the
commencement of any proceeding relating to it under any
reorganization, arrangement, dissolution or liquidation law, or
the initiation of any such proceeding against either Obligor if
either Obligor indicates by any act its consent thereto or if
such proceeding is not dismissed or stayed within forty-five
(45) days;
(x) A firm of independent accountants shall have failed to issue an
opinion or shall have issued an opinion qualified adversely in
any material respect in connection with the most recent audited
financial statements of an Obligor.
The acceleration of the Repurchase Date as provided in this Paragraph 9
shall be in addition to any other rights of the parties to cause such an
acceleration under the Agreement.
(b) In addition to the other remedies available to the parties upon the
occurrence and during the continuance of an Event of Default by a
defaulting party, MLPF&S shall have the following additional remedies
upon the occurrence and during the continuance of an Event of Default
by an Obligor;
(i) All rights of Obligors to receive payments which either of them
would otherwise be authorized to receive pursuant to Paragraph
6 of the Agreement shall cease, and all such rights shall
thereupon become vested in MLPF&S, which shall thereupon have
the sole right to receive such payments and apply them to the
amounts owed jointly and severally by Obligors pursuant to the
Agreement.
(ii) All payments that are received by either Obligor contrary to
the provisions of the preceding clause (i) shall be received in
trust for the benefit of MLPF&S and shall be segregated from
other funds of Obligors and shall be promptly paid to MLPF&S.
(c) Any sale of Purchased Securities under Paragraph 11 of the Master
Repurchase Agreement shall be conducted in a commercially reasonable
manner.
10. APPLICATION OF PROCEEDS.
-----------------------
(a) The proceeds of any sale or other realization of all or any part of
the Purchased Securities, and any other
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cash at the time held by MLPF&S under this Agreement, shall be applied
by MLPF&S in the following order of priority:
First, to the payment of all reasonable costs and expenses of such
-----
sale incurred by MLPF&S and its affiliates and all expenses (including the
fees and expenses of counsel), liabilities and advances reasonably made or
incurred by MLPF&S and its affiliates in connection therewith.
Second, to the payment of the outstanding Repurchase Price owed by
------
Obligors jointly and severally under this Agreement.
Third, to the payment of all other amounts owed by Obligors jointly
-----
and severally under this Agreement.
Fourth, to the payment of any amounts owed by either Obligor to MLMCI,
------
MLPF&S or any affiliate thereof under a Financing Agreement.
Fifth, to the payment of any other amounts owed by either Obligor to
-----
MLMCI or MLPF&S under any other instrument or agreement.
Sixth, to the payment to the related Obligor, or to such other person
-----
as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds and other cash.
As used in the Agreement, "proceeds" of the Purchased Securities shall
mean cash and other property received or otherwise realized in respect of
the Purchased Securities.
(b) Expenses incurred in connection with an Event of Default where MLPF&S
is the nondefaulting party shall include without limitation those
costs and expenses incurred by MLPF&S as a result of the early
termination of any repurchase agreement or reverse repurchase
agreement entered into by MLPF&S in connection with any Transaction.
11. FINANCIAL STATEMENTS.
--------------------
(a) As of the date hereof, MLPF&S and each Obligor shall each provide the
other with its audited year-end financial statements and its most
recent publicly available interim financial statement. MLPF&S and
each Obligor shall from time to time each provide the other with
audited year-end financial statements and additional
I-17
<PAGE>
publicly available interim financial statements upon such other
party's reasonable request.
(b) Each Obligor shall provide MLPF&S, at the expense of such Obligor
without request of MLPF&S, with all financial statements required to
be filed with the Securities and Exchange Commission in connection
with an Obligor's 10Q and 10K reports as soon after the filing thereof
as practicable.
(c) Each delivery of Purchased Securities by each Obligor to MLPF&S under
the Agreement will constitute a representation by such Obligor that
there has been no material adverse change in such Obligor's financial
condition not disclosed to MLPF&S since the date of such Obligor's
most recent unaudited balance sheet or income statement delivered to
MLPF&S. Each Obligor shall provide MLPF&S, from time to time at such
Obligor's expense, with such information concerning Obligor of a
financial or operational nature as MLPF&S may reasonably request
promptly upon receipt of such request.
12. PRICE DIFFERENTIAL; PRICING RATE; REPURCHASE PRICE.
--------------------------------------------------
(a) The Price Differential shall be payable in arrears with respect to
each Transaction, together with the Purchase Price therefor, on the
termination date for the related Transaction or as may be otherwise
mutually agreed upon by the parties and as specified in the related
Confirmation.
(b) The Pricing Rate shall be reset monthly on the one-month anniversary
of the Purchase Date for the Transaction unless otherwise specified in
the related Confirmation.
(c) All calculations of Price Differential shall be made on the basis of a
360-day year and the actual number of days elapsed.
(d) Payment of the Repurchase Price (including the Price Differential)
shall be made by wire transfer in immediately available funds or in
such other manner as may be mutually agreed upon by MLPF&S and the
related Obligor in writing. Amounts received by MLPF&S after 3:00
p.m., New York City time, on any Business Day shall be deemed to have
been paid by the related Obligor and received by MLPF&S on the next
succeeding Business Day.
13. ADDITIONAL INFORMATION; CONFIDENTIALITY.
---------------------------------------
I-18
<PAGE>
(a) Each Obligor agrees to provide to MLPF&S, as received, any payment
statements, notices or other communications directed to holders of the
Purchased Securities.
(b) Each of the parties hereto acknowledges that the Agreement is
confidential in nature and each such party agrees that, unless
otherwise directed by a court or regulatory entity of competent
jurisdiction or as may be required by federal or state law (which
determination as to federal or state law shall be based upon written
advice of counsel), it shall limit the distribution of such document
to its officers, employees, attorneys, accountants and agents as
required in order to conduct its business with the other parties
hereto. This subparagraph (b) shall not apply to information which
has otherwise lawfully entered the public domain or which the other
parties have given written permission to disclose.
14. MARGIN MAINTENANCE.
------------------
Paragraph 4(a) of the Master Repurchase Agreement is hereby modified to
provide that if the notice to be given by MLPF&S to an Obligor under such
paragraph is given at or prior to 10:00 a.m. New York City time on a
Business Day, such Obligor shall transfer the cash or Additional Purchased
Securities to MLPF&S (in the manner contemplated by the Agreement) prior to
the close of business in New York City on the date of such notice, and if
such notice is given after 10:00 a.m. New York City time, such Obligor
shall transfer the cash or Additional Purchased Securities (in the manner
as aforesaid) prior to the close of business in New York City on the
Business Day following the date of such notice.
15. MLPF&S AS ATTORNEY-IN-FACT.
--------------------------
Effective upon the occurrence and during the continuation of an Event of
Default, MLPF&S is hereby appointed the attorney-in-fact of each Obligor
for the purpose of carrying out the provisions of the Agreement and taking
any action and executing any instruments which MLPF&S may deem necessary or
advisable to accomplish the purposes of the Agreement, which appointment as
attorney-in-fact is irrevocable and coupled with an interest. Without
limiting the generality of the foregoing, after an Event of Default has
occurred and is continuing, MLPF&S shall have the right and power to
receive, endorse and collect all checks made payable to the order of an
Obligor representing any
I-19
<PAGE>
distribution in respect of any of the Collateral
or any part thereof and to give full discharge for the same.
16. EFFECTS OF APPLICABLE LAW.
-------------------------
(a) In the event that any Applicable Law with respect to a Non-Widely
Traded Security or any Change of Applicable Law with respect to a
Widely Traded Security results in any material restriction or
limitation on the corporate power or authority of MLPF&S to enter into
a proposed Transaction or to continue to maintain an existing
Transaction with respect to any Security that would otherwise qualify
as an Eligible Asset, (A) the parties hereto shall in good faith
negotiate such additional or revised terms to the Agreement as will
result in a permissible transaction that corresponds to the economic
equivalent of the arrangement originally contemplated by the parties
under the Agreement or (B) if such Applicable Law or Change of
Applicable Law, as the case may be, does not permit such
renegotiation, the commitment of MLPF&S to enter into or to continue
to maintain the Transaction with respect to such Security shall be
cancelled or modified (depending upon the stated effect of the
Applicable Law or Change of Applicable Law, as appropriate), with such
cancellation and/or modification to be operative upon the earlier of
(x) the date required by such Applicable Law or Change of Applicable
Law, as appropriate, or (y) the date on which the related Obligor has
secured alternative financing for the affected Security.
(b) In the event that any Applicable Law with respect to a Non-Widely
Traded Security or any Change of Applicable Law with respect to a
Widely Traded Security results in any adverse economic effect on
MLPF&S that is material with respect to the particular Transaction,
the parties hereto shall in good faith negotiate such additional or
revised terms related to pricing that will result in a Transaction
that corresponds to the economic equivalent of the arrangement
originally contemplated by MLPF&S and Obligors.
17. TERMINATION.
-----------
(a) Notwithstanding any provisions of Paragraph 15 of the Master
Repurchase Agreement to the contrary, the Agreement and all
Transactions outstanding hereunder shall terminate automatically
without any requirement for notice on the date occurring on the
earlier of (i) two years after the date set forth on the first page
I-20
<PAGE>
hereof and (ii) the written agreement of Obligors and MLPF&S;
provided, however, that notwithstanding the foregoing, the Agreement
-------- -------
shall continue in full force and effect until any outstanding
Repurchase Price has been paid in full. Upon termination of the
Agreement and the payment of the Repurchase Price with respect to all
Transactions, MLPF&S shall release its lien and security interest
under the Agreement and assign, transfer and deliver, against receipt,
any remaining Purchased Securities and money received in respect
thereof to or on the order of the related Obligor. Upon the request
of the related Obligor, MLPF&S will then execute termination
statements and such other documents as such Obligor may reasonably
request as are necessary to make clear upon the public record the
termination of the lien and security interests created the Agreement
with respect to the Purchased Securities.
(b) If, at any time prior to the date seventeen (17) months after the date
of the Agreement, Obligors request that MLPF&S renew the Agreement for
an additional term of mutually acceptable duration, MLPF&S will notify
Obligors not later than the date eighteen (18) months after the date
of the Agreement if it will so renew the Agreement; provided, however,
-------- -------
that (i) no such agreement to renew the term of the Agreement shall
preclude MLPF&S from thereafter declining to enter into Transactions
hereunder either (A) pursuant to any provision set forth in the
Agreement or (B) if there is a material adverse change in the
financial condition or results of operations, of an Obligor or any of
its subsidiaries and (ii) the foregoing shall not preclude Obligors
from requesting the renewal of the term of the Agreement at any other
time.
18. RIGHT OF SET-OFF.
----------------
MLPF&S shall have the right to apply any distributions on the Purchased
Securities and the proceeds of the sale thereof pursuant to the Agreement
against any amounts owed by either Obligor to MLMCI, MLPF&S or any
affiliate thereof under any other instrument or agreement (including,
without limitation, any Financing Agreement). The right of set-off
provided for herein shall not diminish any other rights (whether of set-
off, contribution or otherwise) that MLPF&S and its affiliates may have
with respect to the Purchased Securities and the distributions thereon and
the proceeds thereof.
I-21
<PAGE>
19. JOINT AND SEVERAL LIABILITY OF OBLIGORS.
---------------------------------------
The Obligors agree to be jointly and severally liable for the obligations
of either Obligor hereunder and all representations, warranties, covenants
and agreements made by or on behalf of either or both Obligors in the
Agreement or in any exhibit hereto or any document, instrument or
certificate delivered pursuant hereto shall be deemed to have been made by
each Obligor, jointly and severally. The Obligors further agree that,
notwithstanding any right of MLPF&S to investigate fully the affairs of the
Obligors and notwithstanding any knowledge of facts determined or
determinable by MLPF&S, MLPF&S has the right to rely fully on the
representations, warranties, covenants and agreements of either or both
Obligors contained in the Agreement and upon the accuracy of any document,
instrument, certificate or exhibit given or delivered hereunder. The joint
and several obligation of each Obligor hereunder is absolute,
unconditional, irrevocable, present and continuing and, with respect to any
payment to be made to MLPF&S, is a guaranty of payment (and not of
collectability) and is in no way conditional or contingent upon the
continued existence of the other Obligor. Any notice or other
communication provided to one Obligor pursuant hereto shall be deemed to
have been given to both Obligors and failure to be sent any notice or
communication contemplated hereby and delivered to the other Obligor shall
not relieve an Obligor from its joint and several liability for the
obligations of the other Obligor hereunder.
20. CONSENT TO JURISDICTION.
-----------------------
Notwithstanding any termination of the Agreement, each Obligor hereby
agrees that any legal action or proceeding against either Obligor in
connection with the Agreement may be brought in the courts of the State of
New York or of the United States of America located in the City and State
of New York, Borough of Manhattan, as MLPF&S may elect, and each Obligor
hereby irrevocably submits to the non-exclusive jurisdiction of each of
said courts, and waives any objection on the grounds of venue, forum non
conveniens or similar ground.
21. EXPENSES.
--------
Each party shall bear its own expenses in connection with the Transactions
contemplated hereby and any amendments, extensions or modifications hereof.
22. COUNTERPARTS.
------------
I-22
<PAGE>
The Agreement may be executed in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
23. BINDING TERMS.
-------------
All of the covenants, stipulations, promises and agreements in the
Agreement shall bind the successors and assigns of the parties hereto,
whether expressed or not.
24. NOTICES AND OTHER COMMUNICATIONS.
--------------------------------
Any provision of Paragraph 13 of the Master Repurchase Agreement to the
contrary notwithstanding, any notice required or permitted by the Agreement
shall be in writing (including telegraphic, facsimile or telex
communication) and shall be effective and deemed delivered only when
received by the party to which it is sent; provided, however, that a
-------- -------
facsimile transmission shall be deemed to be received when transmitted so
long as the transmitting machine has provided an electronic confirmation of
such transmission and such transmission has occurred not earlier than 9:30
a.m. New York City time and not later than 5:00 p.m. New York City time and
provided further that all financial statements delivered shall be hand-
delivered or sent by first-class mail to MLPF&S at such address. Any such
notice shall be sent to a party at the address or facsimile transmission
number set forth in Annex II attached hereto.
25. INCORPORATION OF TERMS.
----------------------
The Master Repurchase Agreement as supplemented hereby shall be read, taken
and construed as one and the same instrument.
26. SUPERSEDING OF PRIOR AGREEMENTS.
-------------------------------
In accordance with Paragraph 14 of the Master Repurchase Agreement, this
Agreement shall supersede the Master Repurchase Agreement, dated as of July 26,
1994, among the parties hereto, which is hereby terminated. All Transactions
outstanding thereunder as of the date hereof shall be deemed to be Transactions
outstanding hereunder as of the date hereof without any further action by any
party, all amounts due or to become due thereunder shall hereafter be amounts
due or to become due hereunder, and all Confirmation delivered thereunder shall
hereafter be deemed to be Confirmations delivered hereunder.
I-23
<PAGE>
ANNEX II
Names and Addresses for Communications Between Parties
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Louis V. Molinari
Director
Merrill Lynch World Headquarters
World Financial Center, North Tower
New York, New York 10281-1306
Telephone No. (212) 449-5333
Facsimile No. (212) 449-6673
CWM MORTGAGE HOLDINGS, INC.
Michael W. Perry
Executive Vice President and
Chief Operating Officer
35 North Lake Avenue
Pasadena, California 91101
Telephone No. (818) 304-8400
Facsimile No. (818) 304-5899
With copies to
Steve West
Treasurer
35 North Lake Avenue
Pasadena, California 91101
INDEPENDENT NATIONAL MORTGAGE CORPORATION
Michael W. Perry
President and Chief Executive Officer
35 North Lake Avenue
Pasadena, California 91101
Telephone No. (818) 304-8400
Facsimile No. (818) 304-5899
With copies to
Steve West
<PAGE>
Treasurer
35 North Lake Avenue
Pasadena, California 91101
<PAGE>
EXHIBIT I
A. PERCENTAGE FOR CALCULATING BUYER'S MARGIN AMOUNT:
------------------------------------------------
The percentage for calculating Buyer's Margin Amount for each Eligible Asset
will be determined by MLPF&S prior to the Closing Date for the related
Transaction in accordance with the following parameters:
1. 7%-15% for Eligible Assets that both (A) are rated AAA or AA (or the
equivalent) by at least one nationally recognized statistical rating
organization and (B) are Mortgage-Related Securities;
2. 20%-30% for Eligible Assets that either (A) are rated AAA or AA (or
the equivalent) by at least one nationally recognized statistical
rating organization but are not Mortgage-Related Securities or (B) are
rated A or BBB (or the equivalent) by at least one nationally
recognized statistical rating organization;
3. 25%-30% for Eligible Assets that are rated BB or B (or the equivalent)
by at least one nationally recognized statistical rating organization;
and
4. 30%-50% for Eligible Assets that are unrated.
The percentage for calculating Buyer's Margin Amount for each Transaction will
be reflected in the related Confirmation.
B. PRICING RATE:
------------
Unless otherwise agreed by the parties and reflected in the Confirmation, the
Pricing Rate for each Transaction will be the following spreads over the
prevailing London Interbank Offered Rate for one-month United States Dollar
deposits as set forth on page 4833 of Telerate as of 8:00 a.m. New York City
time on the date of determination ("LIBOR"):
1. 20 basis points in excess of LIBOR for Eligible Assets that are rated
AAA or AA (or the equivalent) by at least one nationally recognized
statistical rating organization;
1
<PAGE>
2. 30 basis points in excess of LIBOR for Eligible Assets that are rated
A (or the equivalent) by at least one nationally recognized
statistical rating organization;
3. 40 basis points in excess of LIBOR for Eligible Assets that are rated
BBB (or the equivalent) by at least one nationally recognized
statistical rating organization;
4. 55 basis points in excess of LIBOR for Eligible Assets that are rated
BB or B (or the equivalent) by at least one nationally recognized
statistical rating organization; and
5. 65 basis points in excess of LIBOR for Eligible Assets that are
unrated.
Unless otherwise agreed by the parties and reflected in the Confirmation, the
Pricing Rate for each Transaction will reset monthly on the one-month
anniversary of the Closing Date for such Transaction.
C. DATE FOR PAYMENT OF PRICE DIFFERENTIAL:
--------------------------------------
The Price Differential on each Transaction will be payable monthly on the last
business day of each calendar month or, if earlier, on the expiration of the
term of such Transaction, on the termination date referred to in Section 17
hereof or at such other times as may be specified in this Agreement.
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 8,746
<SECURITIES> 89,203
<RECEIVABLES> 616,657
<ALLOWANCES> 0
<INVENTORY> 599,845
<CURRENT-ASSETS> 0
<PP&E> 1,585
<DEPRECIATION> 169
<TOTAL-ASSETS> 1,482,205
<CURRENT-LIABILITIES> 0
<BONDS> 214,112
<COMMON> 323
0
0
<OTHER-SE> 255,944
<TOTAL-LIABILITY-AND-EQUITY> 1,482,205
<SALES> 0
<TOTAL-REVENUES> 92,830
<CGS> 0
<TOTAL-COSTS> 70,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,298
<INCOME-TAX> 3,237
<INCOME-CONTINUING> 19,061
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,061
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
