Document:

Exhibit 10.1

 

INCYTE CORPORATION

 

AMENDED AND RESTATED 2010 STOCK INCENTIVE PLAN

 

(As Adopted on April 17, 2013)

 

 

Table of Contents

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 1.
    	
 
    	
ESTABLISHMENT AND PURPOSE
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 2.
    	
 
    	
DEFINITIONS
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
“Affiliate”
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
“Award”
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
“Board of Directors”
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
“Change in Control”
    	
5
    
	
 
    	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
“Code”
    	
6
    
	
 
    	
 
    	
 
    	
 
    
	
(f)
    	
 
    	
“Committee”
    	
6
    
	
 
    	
 
    	
 
    	
 
    
	
(g)
    	
 
    	
“Corporation”
    	
6
    
	
 
    	
 
    	
 
    	
 
    
	
(h)
    	
 
    	
“Consultant”
    	
6
    
	
 
    	
 
    	
 
    	
 
    
	
(i)
    	
 
    	
“Employee”
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
(j)
    	
 
    	
“Exchange Act”
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
(k)
    	
 
    	
“Exercise Price”
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
(l)
    	
 
    	
“Fair Market Value”
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
(m)
    	
 
    	
“ISO”
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
(n)
    	
 
    	
“Nonstatutory Option” or “NSO”
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
(o)
    	
 
    	
“Offeree”
    	
7
    
	
 
    	
 
    	
 
    	
 
    
	
(p)
    	
 
    	
“Option”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(q)
    	
 
    	
“Optionee”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(r)
    	
 
    	
“Outside Director”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(s)
    	
 
    	
“Parent”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(t)
    	
 
    	
“Participant”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(u)
    	
 
    	
“Performance Shares”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(v)
    	
 
    	
“Performance Share Agreement”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(w)
    	
 
    	
“Plan”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(x)
    	
 
    	
“Purchase Price”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(y)
    	
 
    	
“Qualifying Performance Criteria”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(z)
    	
 
    	
“Restricted Share”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(aa)
    	
 
    	
“Restricted Share Agreement”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(bb)
    	
 
    	
“Restricted Stock Unit”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(cc)
    	
 
    	
“Restricted Stock Unit Agreement”
    	
8
    
	
 
    	
 
    	
 
    	
 
    
	
(dd)
    	
 
    	
“SAR”
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
(ee)
    	
 
    	
“SAR Agreement”
    	
9
    

 

i

 

	
(ff)
    	
 
    	
“Service”
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
(gg)
    	
 
    	
“Share”
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
(hh)
    	
 
    	
“Stock”
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
(ii)
    	
 
    	
“Stock Option Agreement”
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
(jj)
    	
 
    	
“Subsidiary”
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
(kk)
    	
 
    	
“Total and Permanent Disability”
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 3.
    	
 
    	
ADMINISTRATION
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Committee Composition
    	
9
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Committee for Non-Officer Grants
    	
10
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Committee Procedures
    	
10
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Committee Responsibilities
    	
10
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 4.
    	
 
    	
ELIGIBILITY
    	
11
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
General Rule
    	
11
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Ten-Percent Stockholders
    	
11
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Attribution Rules
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Outstanding Stock
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 5.
    	
 
    	
STOCK SUBJECT TO PLAN
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Basic Limitation
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Award Limitation
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Additional Shares
    	
12
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 6.
    	
 
    	
RESTRICTED SHARES
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Restricted Share Agreement
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Payment for Awards
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Vesting
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Voting and Dividend Rights
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
Restrictions on Transfer of Shares
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 7.
    	
 
    	
TERMS AND CONDITIONS OF OPTIONS
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Stock Option Agreement
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Number of Shares
    	
13
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Exercise Price
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Withholding Taxes
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
Exercisability and Term
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
(f)
    	
 
    	
Exercise of Options
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
(g)
    	
 
    	
Effect of Change in Control
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
(h)
    	
 
    	
No Rights as a Stockholder
    	
14
    
	
 
    	
 
    	
 
    	
 
    
	
(i)
    	
 
    	
Modification, Extension and Assumption of   Options
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
(j)
    	
 
    	
Restrictions on Transfer of Shares
    	
15
    

 

ii

 

	
(k)
    	
 
    	
Buyout Provisions
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 8.
    	
 
    	
PAYMENT FOR SHARES
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
General Rule
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Surrender of Stock
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Services Rendered
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Cashless Exercise
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
Exercise/Pledge
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
(f)
    	
 
    	
Promissory Note
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
(g)
    	
 
    	
Other Forms of Payment
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
(h)
    	
 
    	
Limitations under Applicable Law
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 9.
    	
 
    	
STOCK APPRECIATION RIGHTS
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
SAR Agreement
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Number of Shares
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Exercise Price
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Exercisability and Term
    	
16
    
	
 
    	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
Effect of Change in Control
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
(f)
    	
 
    	
Exercise of SARs
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
(g)
    	
 
    	
Modification or Assumption of SARs
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
(h)
    	
 
    	
Buyout Provisions
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 10.
    	
 
    	
RESTRICTED STOCK UNITS
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Restricted Stock Unit Agreement
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Payment for Awards
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Vesting Conditions
    	
17
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Voting and Dividend Rights
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
Form and Time of Settlement of   Restricted Stock Units
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
(f)
    	
 
    	
Death of Recipient
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
(g)
    	
 
    	
Creditors’ Rights
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 11.
    	
 
    	
PERFORMANCE SHARES
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Performance Shares and Performance Share   Agreement
    	
18
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Payment for Awards
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Terms of Performance Share Awards
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Voting and Dividend Rights
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
Form and Time of Settlement of   Performance Shares
    	
19
    
	
 
    	
 
    	
 
    	
 
    
	
(f)
    	
 
    	
Death of Recipient
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
(g)
    	
 
    	
Creditors’ Rights
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 12.
    	
 
    	
AUTOMATIC GRANTS TO OUTSIDE DIRECTORS
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Initial Grants
    	
20
    

 

iii

 

	
(b)
    	
 
    	
Annual Grants
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Vesting Conditions
    	
20
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Stock Option Agreement
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
(e)
    	
 
    	
Additional Grants
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 13.
    	
 
    	
ADJUSTMENT OF SHARES; REORGANIZATIONS
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Adjustments
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Dissolution or Liquidation
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Reorganizations
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
(d)
    	
 
    	
Reservation of Rights
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 14.
    	
 
    	
DEFERRAL OF AWARDS
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Committee Powers
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
General Rules
    	
24
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Code Section 409A
    	
24
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 15.
    	
 
    	
PAYMENT OF DIRECTOR’S FEES IN SECURITIES
    	
24
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Effective Date
    	
24
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Elections to Receive NSOs, Restricted   Shares or Restricted Stock Units
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Number and Terms of NSOs, Restricted Shares or Restricted   Stock Units
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 16.
    	
 
    	
AWARDS UNDER OTHER PLANS
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 17.
    	
 
    	
LEGAL AND REGULATORY REQUIREMENTS
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 18.
    	
 
    	
WITHHOLDING TAXES
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
General
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Share Withholding
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 19.
    	
 
    	
OTHER PROVISIONS APPLICABLE TO AWARDS
    	
26
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Transferability
    	
26
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Qualifying Performance Criteria
    	
26
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Restrictions on Full Value Awards
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 20.
    	
 
    	
NO EMPLOYMENT RIGHTS
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 21.
    	
 
    	
APPLICABLE LAW
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
SECTION 22.
    	
 
    	
DURATION AND AMENDMENTS
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
(a)
    	
 
    	
Term of the Plan
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
(b)
    	
 
    	
Right to Amend or Terminate the Plan
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
(c)
    	
 
    	
Effect of Termination
    	
27
    

 

iv

 

INCYTE CORPORATION

 

AMENDED AND RESTATED 2010 STOCK INCENTIVE PLAN

 

SECTION 1.                         ESTABLISHMENT AND PURPOSE.

 

The Plan was adopted by the Board of Directors on March 19, 2010, amended and restated on March 8, 2011 and April 18, 2012, and further amended and restated on April 17, 2013.  The purpose of the Plan is to promote the long-term success of the Corporation and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership.  The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Restricted Stock Units, Performance Shares, Options (which may constitute ISOs or NSOs) and SARs.

 

SECTION 2.                         DEFINITIONS.

 

(a)           “Affiliate” shall mean any entity other than a Subsidiary, if the Corporation and/or one or more Subsidiaries own not less than 50% of such entity.

 

(b)           “Award” shall mean any award of an Option, a SAR, Restricted Shares, Restricted Stock Units or Performance Shares under the Plan.

 

(c)           “Board of Directors” shall mean the Board of Directors of the Corporation, as constituted from time to time.

 

(d)           “Change in Control” shall mean the occurrence of any of the following events:

 

(i)                                     A change in the composition of the Board of Directors, as a result of which fewer than one-half of the incumbent directors are directors who either:

 

(A)                               Had been directors of the Corporation 24 months prior to such change; or

 

(B)                               Were elected, or nominated for election, to the Board of Directors with the affirmative votes of at least a majority of the directors who had been directors of the Corporation 24 months prior to such  change and who were still in office at the time of the election or nomination; or

 

(ii)                                  Any “person” (as defined below) by the acquisition or aggregation of securities is or becomes the beneficial owner (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Corporation representing 50% or more of the combined voting power of the

 

5

 

Corporation’s then outstanding securities ordinarily (and apart from rights accruing under special circumstances) having the right to vote at elections of directors (the “Base Capital Stock”); except that any change in the relative beneficial ownership of the Corporation’s securities by any person resulting solely from a reduction in the aggregate number of outstanding shares of Base Capital Stock, and any decrease thereafter in such person’s ownership of securities, shall be disregarded until such person increases in any manner, directly or indirectly, such person’s beneficial ownership of any securities of the Corporation; or

 

(iii)                               The consummation of a merger or consolidation of the Corporation with or into another entity or any other corporate reorganization, if persons who were not stockholders of the Corporation immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of (A) the continuing or surviving entity and (B) any direct or indirect parent corporation of such continuing or surviving entity; or

 

(iv)                              The consummation of the sale, transfer or other disposition of all or substantially all of the assets of the Corporation.

 

For purposes of subsection (d)(ii) above, the term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude (1) a trustee or other fiduciary holding securities under an employee benefit plan maintained by the Corporation or a Parent or Subsidiary and (2) a corporation owned directly or indirectly by the stockholders of the Corporation in substantially the same proportions as their ownership of the Stock.

 

Any other provision of this Section 2(d) notwithstanding, a transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Corporation’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Corporation’s securities immediately before such a transaction.

 

(e)                                  “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

(f)                                    “Committee” shall mean the committee designated by the Board of Directors to administer the Plan, as described in Section 3 hereof (or in the absence of such designation, the Board of Directors itself).

 

(g)                                 “Corporation” shall mean Incyte Corporation, a Delaware corporation.

 

(h)           “Consultant” shall mean a consultant or advisor who provides bona fide services to the Corporation, a Parent, a Subsidiary or an Affiliate as an independent contractor (not including service as a member of the Board of Directors) or a member of the board of directors of a Parent or a Subsidiary, in each case who is not an Employee.

 

6

 

(i)            “Employee” shall mean any individual who is a common-law employee of the Corporation, a Parent, a Subsidiary or an Affiliate.

 

(j)            “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(k)           “Exercise Price” shall mean (a) in the case of an Option, the amount for which one Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement, and (b) in the case of a SAR, an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one Share in determining the amount payable upon exercise of such SAR.

 

(l)            “Fair Market Value” with respect to a Share, shall mean the market price of one Share, determined by the Committee as follows:

 

(i)                                     If the Stock was traded on The NASDAQ Stock Market, then the Fair Market Value shall be equal to the last reported sale price reported for such date by The NASDAQ Stock Market; or

 

(ii)                                  If the Stock was not traded on The NASDAQ Stock Market but was traded on another United States stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported for such date by the applicable composite-transactions report; or

 

(iii)                               If the Stock was traded over-the-counter on the date in question, then the Fair Market Value shall be equal to the last reported sale price reported for  such date by the OTC Bulletin Board or, if not so reported, shall be equal to the closing sale price quoted for such date by Pink OTC Markets Inc. or similar organization or, if no last reported or closing sale price is reported, shall be equal to the mean between the last reported representative bid and asked prices quoted for such date by the OTC Bulletin Board or, if the Stock is not quoted on the OTC Bulletin Board, by Pink OTC Markets Inc. or similar organization; or

 

(iv)                              If none of the foregoing provisions is applicable, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate.

 

In all cases, the determination of Fair Market Value by the Committee shall be conclusive and binding on all persons.

 

(m)          “ISO” shall mean an employee incentive stock option described in Section 422 of the Code.

 

(n)           “Nonstatutory Option” or “NSO” shall mean an employee stock option that is not an ISO.

 

(o)           “Offeree” shall mean an individual to whom the Committee has offered the right to acquire Shares under the Plan (other than upon exercise of an Option).

 

7

 

(p)           “Option” shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.

 

(q)           “Optionee” shall mean an individual or estate who holds an Option or SAR.

 

(r)            “Outside Director” shall mean a member of the Board of Directors who is not an Employee or a Consultant.

 

(s)            “Parent” shall mean any corporation or other entity (other than the Corporation) in an unbroken chain of corporations or other entities ending with the Corporation, if each of the corporations or other entities other than the Corporation owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation or other entity that attains the status of a Parent on a date after the adoption of the Plan shall be a Parent commencing as of such date.

 

(t)            “Participant” shall mean an individual or estate who holds an Award.

 

(u)           “Performance Shares” shall mean a bookkeeping entry representing the Corporation’s obligation to deliver Shares (or distribute cash) on a future date in accordance with the provisions of a Performance Share Agreement.

 

(v)           “Performance Share Agreement” shall mean the agreement between the Corporation and the recipient of Performance Shares that contains the terms, conditions and restrictions pertaining to such Performance Shares.

 

(w)          “Plan” shall mean this Amended and Restated 2010 Stock Incentive Plan of Incyte Corporation, as amended from time to time.

 

(x)           “Purchase Price” shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Committee.

 

(y)           “Qualifying Performance Criteria” shall have the meaning set forth in Section 19(b).

 

(z)            “Restricted Share” shall mean a Share awarded under the Plan and subject to the terms, conditions and restrictions set forth in a Restricted Share Agreement.

 

(aa)         “Restricted Share Agreement” shall mean the agreement between the Corporation and the recipient of a Restricted Share that contains the terms, conditions and restrictions pertaining to such Restricted Shares.

 

(bb)         “Restricted Stock Unit” shall mean a bookkeeping entry representing the Corporation’s obligation to deliver one Share (or distribute cash) on a future date in accordance with the provisions of a Restricted Stock Unit Agreement.

 

(cc)         “Restricted Stock Unit Agreement”  shall mean the agreement between the Corporation and the recipient of a Restricted Stock Unit that contains the terms, conditions and restrictions pertaining to such Restricted Stock Unit.

 

8

 

(dd)                          “SAR” shall mean a stock appreciation right granted under the Plan.

 

(ee)                            “SAR Agreement” shall mean the agreement between the Corporation and an Optionee that contains the terms, conditions and restrictions pertaining to his or her SAR.

 

(ff)                                “Service” shall mean service as an Employee, Consultant or Outside Director, subject to such further limitations as may be set forth in the Plan or the applicable Stock Option Agreement, SAR Agreement, Restricted Share Agreement, Restricted Stock Unit Agreement or Performance Share Agreement.  Service does not terminate when an Employee goes on a bona fide leave of absence, that was approved by the Corporation in writing, if the terms of the leave provide for continued Service crediting, or when continued Service crediting is required by applicable law.  However, for purposes of determining whether an Option is entitled to ISO status, an Employee’s employment will be treated as terminating 90 days after such Employee went on leave, unless such Employee’s right to return to active work is guaranteed by law or by a contract.  Service terminates in any event when the approved leave ends, unless such Employee immediately returns to active work.  The Corporation shall be entitled to determine in its sole discretion which leaves of absence count toward Service, and when Service terminates for all purposes under the Plan.

 

(gg)                          “Share” shall mean one share of Stock, as adjusted in accordance with Section 13 (if applicable).

 

(hh)                          “Stock” shall mean the common stock of the Corporation, $.001 par value per share.

 

(ii)                                “Stock Option Agreement” shall mean the agreement between the Corporation and an Optionee that contains the terms, conditions and restrictions pertaining to such Option.

 

(jj)                                “Subsidiary” shall mean any corporation, if the Corporation or one or more other Subsidiaries own not less than 50% of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

 

(kk)                            “Total and Permanent Disability” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted, or can be expected to last for a continuous period of not less than one year.

 

SECTION 3.                         ADMINISTRATION.

 

(a)                                 Committee Composition. The Plan shall be administered by the Board of Directors or a Committee appointed by the Board of Directors.  The Committee shall consist of two or more members of the Board of Directors.  In addition, to the extent required by the Board of Directors, the composition of the Committee shall satisfy (i) such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to 

 

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qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and (ii) such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under Section 162(m)(4)(C) of the Code.

 

(b)                                 Committee for Non-Officer Grants.  The Board of Directors may also appoint one or more separate committees of the Board of Directors, each composed of one or more members of the Board of Directors who need not satisfy the requirements of Section 3(a), who may administer the Plan with respect to Employees who are not considered officers or directors of the Corporation under Section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and may determine all terms of such grants.  Within the limitations of the preceding sentence, any reference in the Plan to the Committee shall include such committee or committees appointed pursuant to the preceding sentence.  To the extent permitted by applicable laws, the Board of Directors may also authorize one or more officers of the Corporation to designate Employees, other than persons subject to Section 16 of the Exchange Act, to receive Awards and to determine the number of such Awards to be received by such Employees.

 

(c)                                  Committee Procedures.  The Board of Directors shall designate one of the members of the Committee as chairman.  The Committee may hold meetings at such times and places as it shall determine.  The acts of a majority of the Committee members present at meetings at which a quorum exists, or acts reduced to or approved in writing (including via email) by all Committee members, shall be valid acts of the Committee.

 

(d)                                 Committee Responsibilities.  Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take the following actions:

 

(i)                                     To interpret the Plan and to apply its provisions;

 

(ii)                                  To adopt, amend or rescind rules, procedures and forms relating to the Plan;

 

(iii)                               To adopt, amend or terminate sub-plans established for the purpose of satisfying applicable foreign laws, including qualifying for preferred tax treatment under applicable foreign tax laws;

 

(iv)                              To authorize any person to execute, on behalf of the Corporation, any instrument required to carry out the purposes of the Plan;

 

(v)                                 To determine when Awards are to be granted under the Plan;

 

(vi)                              To select the Offerees and Optionees;

 

(vii)                           To determine the number of Shares to be made subject to each Award;

 

(viii)                        To prescribe the terms and conditions of each Award, including the Exercise Price, the Purchase Price, the performance criteria, the performance period, and the vesting or duration of the Award (including accelerating the vesting of Awards, either at the time of the Award or thereafter, without the consent of the Participant), to determine whether an 

 

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Option is to be classified as an ISO or as a Nonstatutory Option, and to specify the provisions of the agreement relating to such Award;

 

(ix)                              To amend any outstanding Award agreement, subject to applicable legal restrictions and to the consent of the Participant if the Participant’s rights or obligations would be materially impaired;

 

(x)                                 To prescribe the consideration for the grant of each Award or other right under the Plan and to determine the sufficiency of such consideration;

 

(xi)                              To determine the disposition of each Award or other right under the Plan in the event of a Participant’s divorce or dissolution of marriage;

 

(xii)                           To determine whether Awards under the Plan will be granted in replacement of other grants under an incentive or other compensation plan of an acquired business;

 

(xiii)                        To correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award agreement;

 

(xiv)                       To establish or verify the extent of satisfaction of any performance goals or other conditions applicable to the grant, issuance, exercisability, vesting and/or ability to retain any Award; and

 

(xv)                          To take any other actions deemed necessary or advisable for the administration of the Plan.

 

Subject to the requirements of applicable law, the Committee may designate persons other than members of the Committee to carry out its responsibilities and may prescribe such conditions and limitations as it may deem appropriate, except that the Committee may not delegate its authority with regard to the selection for participation of or the granting of Awards under the Plan to persons subject to Section 16 of the Exchange Act.  All decisions, interpretations and other actions of the Committee shall be final and binding on all Participants, and all persons deriving their rights from a Participant.  No member of the Committee shall be liable for any action that he or she has taken or has failed to take in good faith with respect to the Plan or any Award.

 

SECTION 4.                         ELIGIBILITY.

 

(a)                                 General Rule. Only Employees shall be eligible for the grant of ISOs. Only Employees, Consultants and Outside Directors shall be eligible for the grant of Restricted Shares, Restricted Stock Units, Performance Shares, Nonstatutory Options or SARs.

 

(b)                                 Ten-Percent Stockholders. An Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Corporation, a Parent or Subsidiary shall not be eligible for the grant of an ISO unless such grant satisfies the requirements of Section 422(c)(5) of the Code.

 

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(c)                                  Attribution Rules. For purposes of Section 4(b) above, in determining stock ownership, an Employee shall be deemed to own the stock owned, directly or indirectly, by or for such Employee’s brothers, sisters, spouse, ancestors and lineal descendants. Stock owned, directly or indirectly, by or for a corporation, partnership, estate or trust shall be deemed to be owned proportionately by or for its stockholders, partners or beneficiaries.

 

(d)                                 Outstanding Stock. For purposes of Section 4(b) above, “outstanding stock” shall include all stock actually issued and outstanding immediately after the grant but shall not include shares authorized for issuance under outstanding options held by the Employee or by any other person.

 

SECTION 5.                         STOCK SUBJECT TO PLAN.

 

(a)                                 Basic Limitation.  Shares offered under the Plan shall be authorized but unissued Shares or treasury Shares.  The aggregate number of Shares authorized for issuance as Awards under the Plan shall not exceed 21,753,475.  The limitation of this Section 5(a) shall be subject to adjustment pursuant to Section 13.  Notwithstanding the foregoing, the number of Shares that may be issued under the Plan, other than (i) upon exercise of Options or SARs or (ii) pursuant to any sale of Restricted Shares for a Purchase Price at least equal to 100 percent of the Fair Market Value shall not exceed 800,000 Shares, subject to adjustment pursuant to Section 13.  The number of Shares that are subject to Awards outstanding at any time under the Plan shall not exceed the number of Shares which then remain available for issuance under the Plan.  The Corporation, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.  Shares tendered or withheld in full or partial payment of the Exercise Price of an Award or to satisfy tax withholding obligations in connection with an Award, and Shares issued under an Award that are purchased by the Corporation on the open market, shall not be available for future issuance under the Plan.

 

(b)                                 Award Limitation.  Subject to the provisions of Section 13, no Participant may receive Awards under the Plan in any calendar year that relate to more than 800,000 Shares.

 

(c)                                  Additional Shares.  If an Award expires or becomes unexercisable without having been exercised in full, or, with respect to Restricted Shares, Restricted Stock Units or Performance Shares, is forfeited to or repurchased by the Corporation due to failure to vest, the unpurchased Shares (or for Awards other than Options or SARs the forfeited or repurchased Shares) which were subject thereto will become available for future grant or sale under the Plan (unless the Plan has terminated).  With respect to SARs, when a stock settled SAR is exercised, all of the Shares subject to the SAR shall be counted against the number of Shares available for future grant or sale under the Plan, regardless of the number of Shares actually issued pursuant to such exercise.  Shares that have actually been issued under the Plan under any Award will not be returned to the Plan and will not become available for future distribution under the Plan; provided, however, that if Shares issued pursuant to Awards of Restricted Shares, Restricted Stock Units or Performance Shares are repurchased by the Corporation or are forfeited to the Corporation, such Shares will become available for future grant under the Plan.  To the extent an Award under the Plan is paid out in cash rather than Shares, such cash payment will not result in reducing the number of Shares available for issuance under the Plan.

 

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SECTION 6.                         RESTRICTED SHARES.

 

(a)                                 Restricted Share Agreement.  Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted Share Agreement between the recipient and the Corporation. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The provisions of the various Restricted Share Agreements entered into under the Plan need not be identical.

 

(b)                                 Payment for Awards.  Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including cash, cash equivalents, full-recourse promissory notes, past services and future services.

 

(c)                                  Vesting.  Each Award of Restricted Shares shall vest over a minimum period of three years of the Participant’s Service, except as otherwise provided in Section 19(c).  Vesting shall occur, in full or in installments, upon satisfaction of such Service requirement and such other conditions specified in the Restricted Share Agreement.  A Restricted Share Agreement may provide for accelerated vesting in the event of the Participant’s death, Total and Permanent Disability or retirement or other events.  The Committee may determine, at the time of granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested upon a Change in Control.  Except as may be set forth in a Restricted Share Agreement, vesting of the Restricted Shares shall cease on the termination of the Participant’s Service.

 

(d)                                 Voting and Dividend Rights.  The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Corporation’s other stockholders.  A Restricted Share Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares.  Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid.

 

(e)                                  Restrictions on Transfer of Shares.  Restricted Shares shall be subject to such rights of repurchase, rights of first refusal or other restrictions as the Committee may determine. Such restrictions shall be set forth in the applicable Restricted Share Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares.

 

SECTION 7.                         TERMS AND CONDITIONS OF OPTIONS.

 

(a)                                 Stock Option Agreement.  Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Corporation.  Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Committee deems appropriate for inclusion in a Stock Option Agreement.  The Stock Option Agreement shall specify whether the Option is an ISO or an NSO.  The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.  Options may be granted in consideration of a reduction in the Optionee’s other compensation.

 

(b)                                 Number of Shares.  Each Stock Option Agreement shall specify the number of Shares that are subject to the Option (subject to adjustment in accordance with Section 13).

 

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(c)                                  Exercise Price.  Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of a Share on the date of grant, except as otherwise provided in Section 4(b), and the Exercise Price of an NSO shall not be less 100% of the Fair Market Value of a Share on the date of grant.  Subject to the foregoing in this Section 7(c), the Exercise Price under any Option shall be determined by the Committee at its sole discretion.  The Exercise Price shall be payable in one of the forms described in Section 8.

 

(d)                                 Withholding Taxes.  As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Corporation may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise.  The Optionee shall also make such arrangements as the Corporation may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option.

 

(e)                                  Exercisability and Term.  Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable.  The Stock Option Agreement shall also specify the term of the Option; provided, however, that the term of an ISO shall in no event exceed 10 years from the date of grant (five years for Employees described in Section 4(b)). A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee’s death, Total and Permanent Disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s Service. Options may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited. Subject to the foregoing in this Section 7(e), the Committee at its sole discretion shall determine when all or any installment of an Option is to become exercisable and when an Option is to expire.

 

(f)                                    Exercise of Options.  Each Stock Option Agreement shall set forth the extent to which the Optionee shall have the right to exercise the Option following termination of the Optionee’s Service with the Corporation and its Subsidiaries, and the right to exercise the Option of any executors or administrators of the Optionee’s estate or any person who has acquired such Option(s) directly from the Optionee by bequest or inheritance.  Such provisions shall be determined in the sole discretion of the Committee, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for termination of Service.

 

(g)                                 Effect of Change in Control.  The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Shares subject to such Option upon a Change in Control.

 

(h)                                 No Rights as a Stockholder.  An Optionee, or a permitted transferee of an Optionee, shall have no rights as a stockholder of the Corporation with respect to any Shares covered by the Option until the date of the issuance of the Shares underlying the Option upon a valid exercise thereof.

 

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(i)                                    Modification, Extension and Assumption of Options.  Within the limitations of the Plan, the Committee may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Corporation or another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price; provided, however, that the Committee may not modify outstanding Options to lower the Exercise Price nor may the Committee assume or accept the cancellation of outstanding Options in return for the grant of new Options with a lower Exercise Price, unless such action has been approved by the Corporation’s stockholders.  The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, materially impair such Optionee’s rights or increase his or her obligations under such Option.

 

(j)                                    Restrictions on Transfer of Shares.  Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Committee may determine.  Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any general restrictions that may apply to all holders of Shares.

 

(k)                                  Buyout Provisions.  Except with respect to an Option whose Exercise Price exceeds the Fair Market Value of the Shares subject to the Option, the Committee may at any time (a) offer to buy out for a payment in cash or cash equivalents an Option previously granted or (b) authorize an Optionee to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.

 

SECTION 8.                         PAYMENT FOR SHARES.

 

(a)                                 General Rule.  The entire Exercise Price or Purchase Price of Shares issued under the Plan shall be payable in lawful money of the United States of America at the time when such Shares are purchased, except as provided in Section 8(b) through Section 8(g) below.

 

(b)                                 Surrender of Stock.  To the extent that a Stock Option Agreement so provides, payment may be made all or in part by surrendering, or attesting to the ownership of, Shares which have already been owned by the Optionee or his representative.  Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan.  The Optionee shall not surrender, or attest to the ownership of, Shares in payment of the Exercise Price if such action would cause the Corporation to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes.

 

(c)                                  Services Rendered.  At the discretion of the Committee, Shares may be awarded under the Plan in consideration of services rendered to the Corporation or a Subsidiary prior to the award.  If Shares are awarded without the payment of a Purchase Price in cash, the Committee shall make a determination (at the time of the award) of the value of the services rendered by the Offeree and the sufficiency of the consideration to meet the requirements of Section 6(b).

 

(d)                                 Cashless Exercise.  To the extent that a Stock Option Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by the Committee) of an 

 

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irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Corporation in payment of the aggregate Exercise Price.

 

(e)                                  Exercise/Pledge.  To the extent that a Stock Option Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by the Committee) of an irrevocable direction to a securities broker or lender to pledge Shares, as security for a loan, and to deliver all or part of the loan proceeds to the Corporation in payment of the aggregate Exercise Price.

 

(f)                                    Promissory Note.  To the extent that a Stock Option Agreement or Restricted Share Agreement so provides, payment may be made all or in part by delivering (on a form prescribed by the Corporation) a full-recourse promissory note.

 

(g)                                 Other Forms of Payment.  To the extent that a Stock Option Agreement or Restricted Share Agreement so provides, payment may be made in any other form that is consistent with applicable laws, regulations and rules.

 

(h)                                 Limitations under Applicable Law.  Notwithstanding anything herein or in a Stock Option Agreement or Restricted Share Agreement to the contrary, payment may not be made in any form that is unlawful, as determined by the Committee in its sole discretion.

 

SECTION 9.                         STOCK APPRECIATION RIGHTS.

 

(a)                                 SAR Agreement.  Each grant of a SAR under the Plan shall be evidenced by a SAR Agreement between the Optionee and the Corporation.  Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan.  The provisions of the various SAR Agreements entered into under the Plan need not be identical.  SARs may be granted in consideration of a reduction in the Optionee’s other compensation.

 

(b)                                 Number of Shares.  Each SAR Agreement shall specify the number of Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Section 13.

 

(c)                                  Exercise Price.  Each SAR Agreement shall specify the Exercise Price, which shall not be less than 100% of the Fair Market Value of a Share on the date of grant.  A SAR Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the SAR is outstanding.

 

(d)                                 Exercisability and Term.  Each SAR Agreement shall specify the date when all or any installment of the SAR is to become exercisable.  The SAR Agreement shall also specify the term of the SAR.  A SAR Agreement may provide for accelerated exercisability in the event of the Optionee’s death, Total and Permanent Disability or retirement or other events.  Except as may be set forth in a SAR Agreement, vesting of the SAR shall cease on the termination of the Participant’s Service.  SARs may be awarded in combination with Options, and such an Award may provide that the SARs will not be exercisable unless the related Options are forfeited. A SAR may be included in an ISO only at the time of grant but may be included in an NSO at the 

 

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time of grant or thereafter. A SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control.

 

(e)                                  Effect of Change in Control.  The Committee may determine, at the time of granting a SAR or thereafter, that such SAR shall become fully exercisable as to all Shares subject to such SAR upon a Change in Control.

 

(f)                                    Exercise of SARs.  Upon exercise of a SAR, the Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Corporation (a) Shares, (b) cash or (c) a combination of Shares and cash, as the Committee shall determine.  The amount of cash and/or the Fair Market Value of Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SARs exceeds the Exercise Price.

 

(g)                                 Modification or Assumption of SARs.  Within the limitations of the Plan, the Committee may modify, extend or assume outstanding SARs or may accept the cancellation of outstanding SARs (whether granted by the Corporation or by another issuer) in return for the grant of new SARs for the same or a different number of Shares and at the same or a different exercise price.  The foregoing notwithstanding, no modification of a SAR shall, without the consent of the holder, materially impair his or her rights or obligations under such SAR.

 

(h)                                 Buyout Provisions.  Except with respect to a SAR whose Exercise Price exceeds the Fair Market Value of the Shares subject to the SAR, the Committee may at any time (a) offer to buy out for a payment in cash or cash equivalents a SAR previously granted, or (b) authorize an Optionee to elect to cash out a SAR previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.

 

SECTION 10.                  RESTRICTED STOCK UNITS.

 

(a)                                 Restricted Stock Unit Agreement.  Each grant of Restricted Stock Units under the Plan shall be evidenced by a Restricted Stock Unit Agreement between the recipient and the Corporation.  Such Restricted Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted Stock Unit Agreements entered into under the Plan need not be identical. Restricted Stock Units may be granted in consideration of a reduction in the recipient’s other compensation.

 

(b)                                 Payment for Awards. To the extent that an Award is granted in the form of Restricted Stock Units, no cash consideration shall be required of the Award recipients.

 

(c)                                  Vesting Conditions.  Each Award of Restricted Stock Units shall vest over a minimum period of three years of the Participant’s Service, except as otherwise provided in Section 19(c).  Vesting shall occur, in full or in installments, upon satisfaction of such Service requirement and such other conditions specified in the Restricted Stock Unit Agreement.  A Restricted Stock Unit Agreement may provide for accelerated vesting in the event of the Participant’s death, Total and Permanent Disability or retirement or other events.  The Committee may determine, at the time of granting Restricted Stock Units or thereafter, that all or

 

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part of such Restricted Stock Units shall become vested in the event that a Change in Control occurs with respect to the Corporation. Except as may be set forth in a Restricted Stock Unit Agreement, vesting of the Restricted Stock Units shall cease on the termination of the Participant’s Service.

 

(d)                                 Voting and Dividend Rights.  The holders of Restricted Stock Units shall have no voting rights.  Prior to settlement or forfeiture, any Restricted Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents.  Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Restricted Stock Unit is outstanding. Dividend equivalents may be converted into additional Restricted Stock Units.  Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both. Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions (including without limitation, any forfeiture conditions) as the Restricted Stock Units to which they attach.

 

(e)                                  Form and Time of Settlement of Restricted Stock Units.  Settlement of vested Restricted Stock Units may be made in the form of (a) cash, (b) Shares or (c) any combination of both, as determined by the Committee.  The actual number of Restricted Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined performance factors.  Methods of converting Restricted Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days.  A Restricted Stock Unit Agreement may provide that vested Restricted Stock Units may be settled in a lump sum or in installments.  A Restricted Stock Unit Agreement may provide that the distribution may occur or commence when all vesting conditions applicable to the Restricted Stock Units have been satisfied or have lapsed, or it may be deferred to any later date.  The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents.  Until an Award of Restricted Stock Units is settled, the number of such Restricted Stock Units shall be subject to adjustment pursuant to Section 13.

 

(f)                                    Death of Recipient. Any Restricted Stock Units that become payable after the recipient’s death shall be distributed to the recipient’s beneficiary or beneficiaries. Each recipient of Restricted Stock Units under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Corporation.  A beneficiary designation may be changed by filing the prescribed form with the Corporation at any time before the Award recipient’s death.  If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Restricted Stock Units that become payable after the recipient’s death shall be distributed to the recipient’s estate.

 

(g)                                 Creditors’ Rights.  A holder of Restricted Stock Units shall have no rights other than those of a general creditor of the Corporation. Restricted Stock Units represent an unfunded and unsecured obligation of the Corporation, subject to the terms and conditions of the applicable Restricted Stock Unit Agreement.

 

SECTION 11.                  PERFORMANCE SHARES.

 

(a)                                 Performance Shares and Performance Share Agreement.  Each grant of Performance Shares under the Plan shall be evidenced by a Performance Share Agreement 

 

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between the recipient and the Corporation.  Such Performance Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Performance Share Agreements entered into under the Plan need not be identical. Performance Shares may be granted in consideration of a reduction in the recipient’s other compensation.

 

(b)                                 Payment for Awards. To the extent that an Award is granted in the form of Performance Shares, no cash consideration shall be required of the Award recipients.

 

(c)                                  Terms of Performance Share Awards.  The Committee shall determine the terms of Performance Share Awards, which may include subjecting such Awards to the attainment of “Qualifying Performance Criteria” as described in Section 19(b) of the Plan.  Each Performance Share Agreement shall set forth the number of Shares subject to such Performance Share Award, the Qualifying Performance Criteria and the performance period.  Except as otherwise provided in Section 19(c), the Participant shall be required to perform Service for the entire performance period (or if less, one year) in order to be eligible to receive payment under the Performance Share Award.  Except as otherwise provided in the Performance Share Agreement, the Performance Share Award shall terminate upon the termination of the Participant’s Service.  Prior to settlement, the Committee shall determine the extent to which Performance Shares have been earned.  Performance periods may overlap and the holders may participate simultaneously with respect to Performance Shares Awards that are subject to different performance periods and different Qualifying Performance Criteria.  The number of Shares may be fixed or may vary in accordance with such Qualifying Performance Criteria as may be determined by the Committee.  A Performance Share Agreement may provide for accelerated vesting in the event of the Participant’s death, Total and Permanent Disability or retirement or other events.  The Committee may determine, at the time of granting Performance Share Awards or thereafter, that all or part of the Performance Shares shall become vested upon a Change in Control.

 

(d)                                 Voting and Dividend Rights. The holders of Performance Shares shall have no voting rights with respect to such Performance Shares.  Prior to settlement or forfeiture, any Performance Share awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents.  Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Performance Share is outstanding.  Dividend equivalents may be converted into additional Performance Shares.  Settlement of dividend equivalents may be made in the form of cash, in the form of Shares, or in a combination of both.  Prior to distribution, any dividend equivalents which are not paid shall be subject to the same conditions and restrictions (including without limitation, any forfeiture conditions) as the Performance Shares to which they attach.

 

(e)                                  Form and Time of Settlement of Performance Shares.  Settlement of Performance Shares may be made in the form of (a) cash, (b) Shares or (c) any combination of both, as determined by the Committee and set forth in the Performance Share Agreements.  The actual number of Performance Shares eligible for settlement may be larger or smaller than the number included in the original Award, based on the Qualifying Performance Criteria.  Methods of converting Performance Shares into cash may include (without limitation) a method based on the average Fair Market Value of Shares over a series of trading days.  A Performance Share Agreement may provide that Performance Shares may be settled in a lump sum or in 

 

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installments.  A Performance Share Agreement may provide that the distribution may occur or commence when all vesting conditions applicable to the Performance Shares have been satisfied or have lapsed, or it may be deferred to any later date.  The amount of a deferred distribution may be increased by an interest factor or by dividend equivalents.  Until an Award of Performance Shares is settled, the number of such Performance Shares shall be subject to adjustment pursuant to Section 13.

 

(f)                                    Death of Recipient. Any Performance Share Award that becomes payable after the recipient’s death shall be distributed to the recipient’s beneficiary or beneficiaries. Each recipient of a Performance Share Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Corporation.  A beneficiary designation may be changed by filing the prescribed form with the Corporation at any time before the Award recipient’s death.  If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Performance Share Award that becomes payable after the recipient’s death shall be distributed to the recipient’s estate.

 

(g)                                 Creditors’ Rights.  A holder of Performance Shares shall have no rights other than those of a general creditor of the Corporation. Performance Shares represent an unfunded and unsecured obligation of the Corporation, subject to the terms and conditions of the applicable Performance Share Agreement.

 

SECTION 12.                  AUTOMATIC GRANTS TO OUTSIDE DIRECTORS

 

(a)                                 Initial Grants.  Each new Outside Director as of the effective date of the Plan, shall receive Nonstatutory Options covering 35,000 Shares within one business day after his or her initial election to the Board of Directors.  The number of Shares included in an Option shall be subject to adjustment under Section 13.

 

(b)                                 Annual Grants. On the first business day following the conclusion of each regular annual meeting of the Corporation’s stockholders, each Outside Director who will continue serving as a member of the Board of Directors thereafter shall receive an Option covering 20,000 Shares, subject to adjustment under Section 13.  Each Outside Director who is not initially elected at a regular annual meeting of the Corporation’s stockholders shall receive an Option to purchase a pro rata portion of 20,000 Shares within 10 business days of such Director’s election based on the number of full months remaining from the date of election until the next regular annual meeting of the Corporation’s stockholders divided by 12.  Any fractional shares resulting from such calculation shall be rounded up to the nearest whole number.

 

(c)                                  Vesting Conditions.  Each Option granted under Subsection (a) of this Section 12 shall become exercisable (i) as to one-fourth (1/4) of the total number of Shares covered by such Option on the first anniversary of the date of grant and (ii) as to one-forty-eighth (1/48) of the total number of Shares covered by such Option on each of a series of 36 monthly installments thereafter.  Except as set forth in the next succeeding sentence and in the last sentence of this Subsection (c), each Option granted under Subsection (b) of this Section 12 shall become exercisable in full on the first anniversary of the date of grant; provided, however, that each such Option shall become exercisable in full immediately prior to the next regular annual meeting of the Corporation’s stockholders following such date of grant in the event such meeting occurs 

 

20

 

prior to such first anniversary date.  Except as set forth in the last sentence of this Subsection (c), each Option granted under Subsection (b) to Outside Directors who were not initially elected at a regular annual meeting of the Corporation’s stockholders shall become exercisable in full immediately prior to the next regular annual meeting of the Corporation’s stockholders following the date of grant.  Notwithstanding the foregoing, each Option granted under Subsection (b) above that is outstanding shall become exercisable in full in the event that a Change in Control occurs with respect to the Corporation.

 

(d)                                 Stock Option Agreement.  All grants to Outside Directors under this Section 12 shall be evidenced by a Stock Option Agreement between the Optionee and the Corporation.  Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to other terms and condition that are not inconsistent with the Plan and that the Board of Directors deems appropriate for inclusion in a Stock Option Agreement.

 

(e)                                  Additional Grants.  Notwithstanding the foregoing provisions of this Section 12, the Board of Directors may from time to time increase the number of Shares subject to an initial or annual grant of Options under Section 12(a) or (b) to any Outside Director to the extent the Board of Directors determines necessary to induce an Outside Director to become or remain an Outside Director or to reflect an increase in the duties or responsibilities of the Outside Director, subject to all terms and conditions of the Plan otherwise applicable to grants of Options.  Each such Option may become exercisable on the same schedule as set forth in Section 12(c) or on a different schedule, as the Board of Directors in each case shall determine.

 

SECTION 13.                  ADJUSTMENT OF SHARES; REORGANIZATIONS.

 

(a)                                 Adjustments.  In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of Shares, a combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make appropriate and equitable adjustments in:

 

(i)                                     The numerical limitations set forth in Sections 5(a) and (b);

 

(ii)                                  The number of Shares covered by all outstanding Awards; and

 

(iii)                               The Exercise Price under each outstanding Option and SAR.

 

(b)                                 Dissolution or Liquidation.  To the extent not previously exercised or settled, all outstanding Awards shall terminate immediately prior to the dissolution or liquidation of the Corporation.

 

(c)                                  Reorganizations.  In the event the Corporation is party to a merger or other reorganization, subject to any vesting acceleration provisions in an Award agreement, outstanding Awards shall be treated in the manner provided in the agreement of merger or reorganization (including as the same may be amended).  Such agreement shall not be required to treat all Awards or individual types of Awards similarly in the merger or reorganization; 

 

21

 

provided, however, that such agreement shall provide for one of the following with respect to all outstanding Awards (as applicable):

 

(i)                                     The continuation of the outstanding Award by the Corporation, if the Corporation is a surviving corporation;

 

(ii)                                  The assumption of the outstanding Award by the surviving corporation or its parent or subsidiary;

 

(iii)                               The substitution by the surviving corporation or its parent or subsidiary of its own award for the outstanding Award;

 

(iv)                              Full exercisability or vesting and accelerated expiration of the outstanding Award, followed by the cancellation of such Award;

 

(v)                                 The cancellation of an outstanding Option or SAR and a payment to the Optionee equal to the excess of (i) the Fair Market Value of the Shares subject to such Option or SAR (whether or not such Option or SARs is then exercisable or such Shares are then vested) as of the closing date of such merger or reorganization over (ii) its aggregate Exercise Price.  Such payment may be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount. Such payment may be made in installments and may be deferred until the date or dates when such Option or SAR would have become exercisable or such Shares would have vested.  Such payment may be subject to vesting based on the Optionee’s continuing Service, provided that the vesting schedule shall not be less favorable to the Optionee than the schedule under which such Option or SAR would have become exercisable or such Shares would have vested (including any vesting acceleration provisions).  If the Exercise Price of the Shares subject to any Option or SAR exceeds the Fair Market Value of the Shares subject thereto, then such Option or SAR may be cancelled without making a payment to the Optionee with respect thereto.  For purposes of this Subsection (v), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security;

 

(vi)                              The cancellation of an outstanding Restricted Stock Unit and a payment to the Participant equal to the Fair Market Value of the Shares subject to such Restricted Stock Unit (whether or not such Restricted Stock Unit is then vested) as of the closing date of such merger or other reorganization.  Such payment may be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount.  Such payment may be made in installments and may be deferred until the date or dates when such Restricted Stock Unit would have vested.  Such payment may be subject to vesting based on the Participant’s continuing Service, provided that the 

 

22

 

vesting schedule shall not be less favorable to the Participant than the schedule under which such Restricted Stock Unit would have vested (including any vesting acceleration provisions).  For purposes of this Subsection (vi), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security; or

 

(vii)                           The cancellation of an outstanding Performance Share Award and a payment to the Participant equal to the Fair Market Value of the target Shares subject to such Performance Share Award (whether or not such Performance Share Award is then vested) as of the closing date of such merger or reorganization.  Such payment may be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount.  Such payment may be made in installments and may be deferred until the date or dates when such Performance Share Award would have settled.  Such payment may be subject to the Participant’s continuing Service and the achievement of performance criteria that are based on the performance criteria set forth in the Performance Share Award, with such changes that may necessary to give effect to the merger or other reorganization, provided that the performance period shall not be less favorable to the Participant than the performance period under such Performance Share Award (including any vesting acceleration provisions).  For purposes of this Subsection (vii), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.

 

(d)                                 Reservation of Rights. Except as provided in Section 13, a Participant shall have no rights by reason of the occurrence of (or relating to) any merger or other reorganization, any transaction described in Section 13(a), or any transaction that results in an increase or decrease in the number of shares of stock of any class of the Corporation.  Any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, Awards. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Corporation to effect any merger or other reorganization, any transaction described in Section 13(a), any dissolution or liquidation of the Corporation or any transaction that results in an increase or decrease in the number of shares of stock of any class of the Corporation.

 

SECTION 14.                  DEFERRAL OF AWARDS.

 

(a)                                 Committee Powers. The Committee in its sole discretion may permit or require a Participant to:

 

(i)                                     Have cash that otherwise would be paid to such Participant as a result of the exercise of a SAR or the settlement of Restricted Stock Units or Performance Shares credited to a deferred compensation account 

 

23

 

established for such Participant by the Committee as an entry on the Corporation’s books;

 

(ii)                                  Have Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR converted into an equal number of Restricted Stock Units; or

 

(iii)                               Have Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR or the settlement of Restricted Stock Units or Performance Shares converted into amounts credited to a deferred compensation account established for such Participant by the Committee as an entry on the Corporation’s books. Such amounts shall be determined by reference to the Fair Market Value of such Shares as of the date when they otherwise would have been delivered to such Participant.

 

(b)                                 General Rules. A deferred compensation account established under this Section 14 may be credited with interest or other forms of investment return, as determined by the Committee. A Participant for whom such an account is established shall have no rights other than those of a general creditor of the Corporation. Such an account shall represent an unfunded and unsecured obligation of the Corporation and shall be subject to the terms and conditions of the applicable agreement between such Participant and the Corporation. If the deferral or conversion of Awards is permitted or required, the Committee in its sole discretion may establish rules, procedures and forms pertaining to such Awards, including (without limitation) the settlement of deferred compensation accounts established under this Section 14.

 

(c)                                  Code Section 409A. Notwithstanding the foregoing, any deferrals of Award payments in respect of an Award held by a Participant who is subject to United States federal income tax shall be subject to the applicable requirements of Section 409A of the Code and the Treasury Regulations promulgated thereunder.  To the extent that the Committee determines that any Award granted under the Plan is subject to Section 409A of the Code, the Award agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code.  In the event that following the grant of an Award the Committee determines that such Award may be subject to Section 409A of the Code, the Committee may adopt such amendments to the applicable Award agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Committee determines are necessary or appropriate to (a) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (b) comply with the requirements of Section 409A of the Code and the Treasury Regulations promulgated thereunder and thereby avoid the application of any penalty taxes under such Section.

 

SECTION 15.                  PAYMENT OF DIRECTOR’S FEES IN SECURITIES

 

(a)                                 Effective Date(i).  No provision of this Section 15 shall be effective unless and until the Board has determined to implement such provision.

 

24

 

(b)                                 Elections to Receive NSOs, Restricted Shares or Restricted Stock Units. An Outside Director may elect to receive his or her annual retainer payment and/or meeting fees from the Corporation in the form of cash, NSOs, Restricted Shares or Restricted Stock Units, or a combination thereof, as determined by the Board.  Such NSOs, Restricted Shares or Restricted Stock Units shall be issued under the Plan.  An election under this Section 15 shall be filed with the Corporation on the prescribed form.

 

(c)                                  Number and Terms of NSOs, Restricted Shares or Restricted Stock Units. The number of NSOs, Restricted Shares or Restricted Stock Units to be granted to Outside Directors in lieu of annual retainers and meeting fees that would otherwise be paid in cash shall be calculated in a manner determined by the Board.  The term of such NSOs, Restricted Shares or Restricted Stock Units shall also be determined by the Board.

 

SECTION 16.                 AWARDS UNDER OTHER PLANS.

 

The Corporation may grant awards under other plans or programs.  Such awards may be settled in the form of Shares issued under this Plan.  Such Shares shall be treated for all purposes under the Plan like Shares issued in settlement of Restricted Stock Units and shall, when issued, reduce the number of Shares available under Section 5.

 

SECTION 17.                  LEGAL AND REGULATORY REQUIREMENTS.

 

Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations and the regulations of any stock exchange on which the Corporation’s securities may then be listed, and the Corporation has obtained the approval or favorable ruling from any governmental agency which the Corporation determines is necessary or advisable.  The Corporation shall not be liable to a Participant or other persons as to: (a) the non-issuance or sale of Shares as to which the Corporation has been unable to obtain from any regulatory body having jurisdiction the authority deemed by the Corporation’s counsel to be necessary to the lawful issuance and sale of any Shares under the Plan; and (b) any tax consequences expected, but not realized, by any Participant or other person due to the receipt, exercise or settlement of any Award granted under the Plan.

 

SECTION 18.                  WITHHOLDING TAXES.

 

(a)                                 General.  To the extent required by applicable federal, state, local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the Corporation for the satisfaction of any withholding tax obligations that arise in connection with the Plan.  The Corporation shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied.

 

(b)                                 Share Withholding.  The Corporation may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Corporation withhold all or a portion of any Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Shares that he or she previously acquired.  Such Shares shall be valued at their 

 

25

 

Fair Market Value on the date when taxes otherwise would be withheld in cash.  In no event may a Participant have Shares withheld that would otherwise be issued to him or her in excess of the number necessary to satisfy the legally required minimum tax withholding.

 

SECTION 19.                  OTHER PROVISIONS APPLICABLE TO AWARDS.

 

(a)                                 Transferability.  Unless the agreement evidencing an Award (or an amendment thereto authorized by the Committee) expressly provides otherwise, no Award granted under this Plan, nor any interest in such Award, may be assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner (prior to the vesting and lapse of any and all restrictions applicable to Shares issued under such Award), other than by will, by designation of a beneficiary (which shall be a family member or family trust) delivered to the Company, or by the laws of descent and distribution; provided, however, that an ISO may be transferred or assigned only to the extent consistent with Section 422 of the Code.  Notwithstanding the foregoing, in no event may a Participant sell or otherwise transfer for value any Award granted under the Plan or any interest in such an Award, other than Shares issued to the Participant that are no longer subject to vesting or other restrictions under the terms of the applicable Award.  Any purported sale, assignment, conveyance, gift, pledge, hypothecation or transfer in violation of this Section 19(a) shall be void and unenforceable against the Corporation.

 

(b)                                 Qualifying Performance Criteria.  The number of Shares or other benefits granted, issued, retainable and/or vested under an Award may be made subject to the attainment of performance goals for a specified period of time relating to one or more of the following performance criteria, either individually, alternatively or in any combination, applied to either the Corporation as a whole or to a business unit or Subsidiary, either individually, alternatively or in any combination, and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ or quarter’s results or to the performance of one or more comparable companies or a designated comparison group or index, in each case as specified by the Committee in the Award: (a) cash flow (including operating cash flow), (b) earnings per share, (c) (i) earnings before interest, (ii) earnings before interest and taxes, (iii) earnings before interest, taxes and depreciation, (iv) earnings before interest, taxes, depreciation and amortization, or (iv) earnings before any combination of such expenses or deductions, (d) return on equity, (e) total stockholder return, (f) share price performance, (g) return on capital, (h) return on assets or net assets, (i) revenue, (j) income or net income, (k) operating income or net operating income, (l) operating profit or net operating profit, (m) operating margin or profit margin (including as a percentage of revenue), (n) return on operating revenue, (o) return on invested capital, (p) market segment shares, (q) economic profit, (r) achievement of target levels of discovery and/or development of products, including but not limited to regulatory achievements, (s) achievement of research and development objectives, or (t) formation of joint ventures, strategic relationships or other commercial, research or development collaborations (“Qualifying Performance Criteria”).  The Committee may appropriately adjust any evaluation of performance under a Qualifying Performance Criteria to exclude any of the following events that occur during a performance period: (i) asset write-downs, (ii) litigation or claim judgments or settlements, (iii) the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results, (iv) accruals for reorganization and restructuring programs and (v) any extraordinary, nonrecurring items to be 

 

26

 

disclosed in the Corporation’s financial statements (including footnotes) for the applicable year and/or in management’s discussion and analysis of the financial condition and results of operations appearing in the Corporation’s annual report to stockholders for the applicable year.  If applicable, the Committee shall determine the Qualifying Performance Criteria and any permitted exclusions pursuant to the preceding sentence not later than the 90th day of the performance period, and shall determine and certify, for each Participant (or for all Participants), the extent to which the Qualifying Performance Criteria have been met.  The Committee may not in any event increase the amount of compensation payable under the Plan upon the attainment of a Qualifying Performance Criteria to a Participant who is a “covered employee” within the meaning of Section 162(m) of the Code.

 

(c)                                  Restrictions on Full Value Awards.  Notwithstanding the three-year minimum vesting period for Restricted Shares and Restricted Stock Units specified in Sections 6(c) and 10(c), respectively, and the one-year minimum vesting period for Performance Shares specified in Section 11(c), the Committee shall be permitted to prescribe a shorter minimum vesting period (or no vesting period) if the number of Shares subject to all such Awards qualifying for such different vesting treatment does not exceed 10% of the total number of Shares authorized under the Plan.

 

SECTION 20.                  NO EMPLOYMENT RIGHTS.

 

No provision of the Plan, nor any Award granted under the Plan, shall be construed to give any person any right to become, to be treated as, or to remain an Employee.  The Corporation and its Subsidiaries reserve the right to terminate any person’s Service at any time and for any reason, with or without notice.

 

SECTION 21.                  APPLICABLE LAW.

 

The Plan shall be construed and enforced in accordance with the law of the State of Delaware, without reference to its principles of conflicts of law.

 

SECTION 22.                  DURATION AND AMENDMENTS.

 

(a)                                 Term of the Plan. The Plan, as set forth herein, shall terminate automatically on March 18, 2020 and may be terminated on any earlier date pursuant to Subsection (b) below.

 

(b)                                 Right to Amend or Terminate the Plan. The Board of Directors may amend or terminate the Plan at any time and from time to time. Rights and obligations under any Award granted before amendment of the Plan shall not be materially impaired by such amendment, except with consent of the Participant. An amendment of the Plan shall be subject to the approval of the Corporation’s stockholders only to the extent required by applicable laws, regulations or rules.

 

(c)                                  Effect of Termination. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan shall not affect Awards previously granted under the Plan.

 

27Exhibit 10.1

 

EXECUTION

 

	
 
    

AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT

 

CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC, as buyer 
 (“Buyer”), and

 

PENNYMAC CORP., as seller (“Seller”), and

 

PENNYMAC MORTGAGE INVESTMENT TRUST and PENNYMAC OPERATING PARTNERSHIP, L.P., each a guarantor (collectively, the “Guarantors”)

 

Dated June 1, 2013

	
 
    

 

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
1.
    	
Applicability
    	
1
    
	
 
    	
 
    	
 
    
	
2.
    	
Definitions
    	
1
    
	
 
    	
 
    	
 
    
	
3.
    	
Program; Initiation of Transactions
    	
20
    
	
 
    	
 
    	
 
    
	
4.
    	
Repurchase
    	
21
    
	
 
    	
 
    	
 
    
	
5.
    	
Price Differential
    	
22
    
	
 
    	
 
    	
 
    
	
6.
    	
Margin Maintenance
    	
23
    
	
 
    	
 
    	
 
    
	
7.
    	
Income Payments
    	
24
    
	
 
    	
 
    	
 
    
	
8.
    	
Security Interest
    	
25
    
	
 
    	
 
    	
 
    
	
9.
    	
Payment and Transfer
    	
26
    
	
 
    	
 
    	
 
    
	
10.
    	
Conditions Precedent
    	
26
    
	
 
    	
 
    	
 
    
	
11.
    	
Program; Costs
    	
29
    
	
 
    	
 
    	
 
    
	
12.
    	
Servicing
    	
30
    
	
 
    	
 
    	
 
    
	
13.
    	
Representations and Warranties
    	
31
    
	
 
    	
 
    	
 
    
	
14.
    	
Covenants
    	
38
    
	
 
    	
 
    	
 
    
	
15.
    	
Events of Default
    	
44
    
	
 
    	
 
    	
 
    
	
16.
    	
Remedies Upon Default
    	
48
    
	
 
    	
 
    	
 
    
	
17.
    	
Reports
    	
51
    
	
 
    	
 
    	
 
    
	
18.
    	
Repurchase Transactions
    	
54
    
	
 
    	
 
    	
 
    
	
19.
    	
Single Agreement
    	
55
    
	
 
    	
 
    	
 
    
	
20.
    	
Notices and Other Communications
    	
55
    
	
 
    	
 
    	
 
    
	
21.
    	
Entire Agreement; Severability
    	
56
    
	
 
    	
 
    	
 
    
	
22.
    	
Non assignability
    	
57
    
	
 
    	
 
    	
 
    
	
23.
    	
Set-off
    	
57
    

 

i

 

	
24.
    	
Binding Effect; Governing Law; Jurisdiction
    	
57
    
	
 
    	
 
    	
 
    
	
25.
    	
No Waivers, Etc.
    	
58
    
	
 
    	
 
    	
 
    
	
26.
    	
Intent
    	
58
    
	
 
    	
 
    	
 
    
	
27.
    	
Disclosure Relating to Certain Federal Protections
    	
59
    
	
 
    	
 
    	
 
    
	
28.
    	
Power of Attorney
    	
60
    
	
 
    	
 
    	
 
    
	
29.
    	
Buyer May Act Through Affiliates
    	
60
    
	
 
    	
 
    	
 
    
	
30.
    	
Indemnification; Obligations
    	
60
    
	
 
    	
 
    	
 
    
	
31.
    	
Counterparts
    	
61
    
	
 
    	
 
    	
 
    
	
32.
    	
Confidentiality
    	
61
    
	
 
    	
 
    	
 
    
	
33.
    	
Recording of Communications
    	
62
    
	
 
    	
 
    	
 
    
	
34.
    	
Commitment Fee
    	
63
    
	
 
    	
 
    	
 
    
	
35.
    	
Reserved
    	
63
    
	
 
    	
 
    	
 
    
	
36.
    	
Periodic Due Diligence Review
    	
63
    
	
 
    	
 
    	
 
    
	
37.
    	
Authorizations
    	
63
    
	
 
    	
 
    	
 
    
	
38.
    	
Acknowledgement Of Anti-Predatory Lending Policies
    	
64
    
	
 
    	
 
    	
 
    
	
39.
    	
Documents Mutually Drafted
    	
64
    
	
 
    	
 
    	
 
    
	
40.
    	
General Interpretive Principles
    	
64
    
	
 
    	
 
    	
 
    
	
41.
    	
Amendment and Restatement
    	
65
    
	
 
    	
 
    	
 
    
	
42.
    	
Reaffirmation of Guaranty
    	
65
    

 

SCHEDULES

 

Schedule 1 - Representations and Warranties with Respect to Purchased Mortgage Loans

 

Schedule 2 — Authorized Representatives

 

EXHIBITS

 

Exhibit A — Form of Purchase Confirmation for Exception Mortgage Loans

 

Exhibit B — Form of Mortgage Loan Schedule

 

ii

 

Exhibit C — Form of Servicing Renewal Letter

 

Exhibit D — Form of Power of Attorney

 

Exhibit E — Reserved

 

Exhibit F — Officer’s Certificate

 

Exhibit G — Seller’s and Guarantors’ Tax Identification Numbers

 

Exhibit H — Existing Indebtedness

 

Exhibit I — Escrow Instruction Letter

 

Exhibit J — Form of Servicer Notice and Pledge

 

Exhibit K — Reserved

 

Exhibit L — Form of Trade Assignment

 

iii

 

This is an AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT, dated as of June 1, 2013, by and among CREDIT SUISSE FIRST BOSTON MORTGAGE CAPITAL LLC (the “Buyer”), PENNYMAC CORP., as seller (“Seller”), and PENNYMAC MORTGAGE INVESTMENT TRUST and PENNYMAC OPERATING PARTNERSHIP, L.P., each a guarantor (collectively, the “Guarantors”).

 

The Buyer, the Guarantors and the Sellers previously entered into a Master Repurchase Agreement, dated as of November 2, 2010 (the “Existing Master Repurchase Agreement”);

 

The parties hereto have requested that the Existing Master Repurchase Agreement be amended and restated, in its entirety, on the terms and subject to the conditions set forth herein;

 

NOW, THEREFORE, in consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

1.                                      Applicability

 

From time to time the parties hereto may enter into transactions in which Seller agrees to transfer to Buyer Mortgage Loans (as hereinafter defined) on a servicing released basis against the transfer of funds by Buyer, with a simultaneous agreement by Buyer to transfer to Seller such Mortgage Loans on a servicing released basis at a date certain or on demand, against the transfer of funds by Seller.  This Agreement is a commitment by Buyer to engage in the Transactions as set forth herein up to the Maximum Available Purchase Price; provided, that Buyer shall have no commitment to enter into any Transaction requested that would result in the aggregate Purchase Price of then-outstanding Transactions to exceed the Maximum Available Purchase Price.  Each such transaction shall be referred to herein as a “Transaction” and, unless otherwise agreed in writing, shall be governed by this Agreement, including any supplemental terms or conditions contained in any annexes identified herein, as applicable hereunder.

 

2.                                      Definitions

 

Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:

 

“Acceptable State” means any state acceptable pursuant to the Underwriting Guidelines.

 

“Accepted Servicing Practices” means, with respect to any Mortgage Loan, those mortgage servicing practices of prudent mortgage lending institutions which service mortgage loans of the same type as such Mortgage Loan in the jurisdiction where the related Mortgaged Property is located.

 

“Act of Insolvency” means, with respect to any Person or its Affiliates, (a) the filing of a petition, commencing, or authorizing the commencement of any case or proceeding, or the voluntary joining of any case or proceeding under any bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law relating to the protection of creditors, or

 

 

suffering any such petition or proceeding to be commenced by another which is consented to, not timely contested or results in entry of an order for relief; (b) the seeking of the appointment of a receiver, trustee, custodian or similar official for such party or an Affiliate or any substantial part of the property of either; (c) the appointment of a receiver, conservator, or manager for such party or an Affiliate by any governmental agency or authority having the jurisdiction to do so; (d) the making or offering by such party or an Affiliate of a composition with its creditors or a general assignment for the benefit of creditors; (e) the admission by such party or an Affiliate of such party of its inability to pay its debts or discharge its obligations as they become due or mature; or (f) that any governmental authority or agency or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the property of such party or of any of its Affiliates, or shall have taken any action to displace the management of such party or of any of its Affiliates or to curtail its authority in the conduct of the business of such party or of any of its Affiliates.

 

“Additional Collateral” has the meaning set forth in Section 8 hereof.

 

“Adjusted Tangible Net Worth” means (a) the sum of (i) Net Worth and (ii) Subordinated Debt, minus (b) intangibles, goodwill and receivables from Affiliates.

 

“Affiliate” means, with respect to any Person, any “affiliate” of such Person, as such term is defined in the Bankruptcy Code; provided, however, that any entity that is otherwise not directly or indirectly owned or controlled by Seller or any Guarantor shall not be deemed an “Affiliate” for the purposes of this definition.

 

“Aged Loan” means, other than with respect to Pooled Mortgage Loans, an Aged 60 Day Loan, an Aged 90 Day Loan or an Aged 180 Day Loan.

 

“Aged 60 Day Loan” means a Mortgage Loan (other than a Jumbo Mortgage Loan) which has been subject to a Transaction hereunder for a period of greater than 30 days but not greater than 60 days.

 

“Aged 90 Day Loan” means a Mortgage Loan (other than a Jumbo Mortgage Loan) which has been subject to a Transaction hereunder for a period of greater than 60 days but not greater than 90 days.

 

“Aged 180 Day Loan” means a Jumbo Mortgage Loan which has been subject to a Transaction hereunder for a period of greater than 90 days but not greater than 180 days.

 

“Agency” means Freddie Mac, Fannie Mae or GNMA, as applicable.

 

“Agency Approvals” has the meaning set forth in Section 14w hereof.

 

“Agency Security” means a mortgage-backed security issued by an Agency.

 

“Aging Limit” means with respect to Aged Loans, other than Jumbo Mortgage Loans, 90 days, and with respect to Aged Loans that are Jumbo Mortgage Loans, 180 days.

 

2

 

“Agreement” means this Amended and Restated Master Repurchase Agreement, as it may be amended, supplemented or otherwise modified from time to time.

 

“Amendment Effective Date” means a date when all conditions precedent set forth in Section 10(a) are satisfied.

 

“Appraised Value” means the value set forth in an appraisal made in connection with the origination of the related Mortgage Loan as the value of the Mortgaged Property.

 

“Asset Value” has the meaning assigned to such term in the Pricing Side Letter.

 

“Assignment of Mortgage” means an assignment of the Mortgage, notice of transfer or equivalent instrument in recordable form, sufficient under the laws of the jurisdiction wherein the related Mortgaged Property is located to reflect the sale of the Mortgage to Buyer.

 

“Assignment of Proprietary Lease” means the specific agreement creating a first lien on and pledge of the Co-op Shares and the appurtenant Proprietary Lease securing a Co-op Loan.

 

“Bailee Letter” has the meaning assigned to such term in the Custodial Agreement.

 

“Bankruptcy Code” means the United States Bankruptcy Code of 1978, as amended from time to time.

 

“Bid” has the meaning set forth in Section 4(c) hereof.

 

“Business Day” means any day other than (A) a Saturday or Sunday and (B) a public or bank holiday in New York City.

 

“Buydown Amount” has the meaning set forth in Section 5(c) hereof.

 

“Buyer” means Credit Suisse First Boston Mortgage Capital LLC, and any successor or assign hereunder.

 

“Capital Lease Obligations” means, for any Person, all obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) Property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP, and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.

 

“Cash Equivalents” means  (a) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed or insured by the United States Government or any agency thereof, (b) certificates of deposit and eurodollar time deposits with maturities of 90 days or less from the date of acquisition and overnight bank deposits of Buyer or of any commercial bank having capital and surplus in excess of $500,000,000, (c) repurchase obligations of Buyer or of any commercial bank satisfying the requirements of clause (b) of this

 

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definition, having a term of not more than seven days with respect to securities issued or fully guaranteed or insured by the United States Government, (d) commercial paper of a domestic issuer rated at least A-1 or the equivalent thereof by S&P or P-1 or the equivalent thereof by Moody’s and in either case maturing within 90 days after the day of acquisition, (e) securities with maturities of 90 days or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody’s, (f) securities with maturities of 90 days or less from the date of acquisition backed by standby letters of credit issued by Buyer or any commercial bank satisfying the requirements of clause (b) of this definition or (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition.

 

“Change in Control” means:

 

(a)                                 any transaction or event as a result of which PennyMac Operating Partnership, L.P. ceases to own, beneficially or of record, 100% of the stock of Seller;

 

(b)                                 any transaction or event as a result of which PennyMac Mortgage Investment Trust ceases to own, beneficially or of record, 100% of the stock of PennyMac Operating Partnership, L.P.;

 

(c)                                  the acquisition by any Person or group (within the meaning of the Securities Exchange Act of 1934, as amended, and the rules of the Securities and Exchange Commission thereunder), directly or indirectly, beneficially or of record, of ownership or control of in excess of 50% of the voting common stock of PennyMac Mortgage Investment Trust on a fully diluted basis at any time;

 

(d)                                 the sale, transfer, or other disposition of all or substantially all of Seller’s or any Guarantor’s assets (excluding any such action taken in connection with any securitization transaction); or

 

(e)                                  the consummation of a merger or consolidation of Seller or Guarantors with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s stock outstanding immediately after such merger, consolidation or such other reorganization is owned by Persons who were not stockholders of Seller or Guarantors immediately prior to such merger, consolidation or other reorganization.

 

“Code” means the Internal Revenue Code of 1986, as amended.

 

“Committed Mortgage Loan” means a Mortgage Loan which is the subject of a Take-out Commitment with a Take-out Investor.

 

“Commitment Fee” has the meaning assigned to such term in the Pricing Side Letter.

 

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“Conforming Mortgage Loan” means a first lien Mortgage Loan originated in accordance with the criteria of an Agency for purchase of Mortgage Loans, including, without limitation, conventional Mortgage Loans, as determined by Buyer in its sole discretion.

 

“Co-op” means a private, cooperative housing corporation, having only one class of stock outstanding, which owns or leases land and all or part of a building or buildings, including apartments, spaces used for commercial purposes and common areas therein and whose board of directors authorizes the sale of stock and the issuance of a Proprietary Lease.

 

“Co-op Corporation” means, with respect to any Co-op Loan, the cooperative apartment corporation that holds legal title to the related Co-op Project and grants occupancy rights to units therein to stockholders through Proprietary Leases or similar arrangements.

 

“Co-op Lien Search” means a search for (a) federal tax liens, mechanics’ liens, lis pendens, judgments of record or otherwise against (i) the Co-op Corporation and (ii) seller of the Co-op Unit, (b) filings Uniform Commercial Code financing statements and (c) the deed of the Co-op Project into the Co-op Corporation.

 

“Co-op Loan” means a Mortgage Loan secured by the pledge of stock allocated to a dwelling unit in a residential cooperative housing corporation and collateral assignment of the related Proprietary Lease.

 

“Co-op Project” means, with respect to any Co-op Loan, all real property and improvements thereto and rights therein and thereto owned by a Co-op Corporation including without limitation the land, separate dwelling units and all common elements.

 

“Co-op Shares” means, with respect to any Co-op Loan, the shares of stock issued by a Co-op Corporation and allocated to a Co-op Unit and represented by Stock Certificates.

 

“Co-op Unit” means, with respect to any Co-op Loan, a specific unit in a Co-op Project.

 

“CSCOF” means, in the Buyer’s sole discretion, which may be confirmed by notice to the Seller (which may be electronic), for each day, the rate of interest (calculated on a per annum basis) determined by Buyer (which such determination shall be dispositive absent manifest error), equal to the overnight interest expense incurred by Buyer for borrowing funds.

 

“Current Aggregate Purchase Price” means, as of any date of determination, the aggregate Purchase Price of Purchased Mortgage Loans subject to outstanding Transactions.

 

“Custodial Agreement” means the custodial agreement dated as of November 2, 2010, among Seller, Buyer and Custodian as the same may be amended from time to time.

 

“Custodial Mortgage Loan Schedule” has the meaning assigned to such term in the Custodial Agreement.

 

“Custodian” means Deutsche Bank National Trust Company or such other party specified by Buyer and agreed to by Seller, which approval shall not be unreasonably withheld.

 

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“DE Compare Ratio” means either the DE Compare (public) Ratio or the DE Compare (private) Ratio, as applicable.

 

“DE Compare (public) Ratio” means the Two Year FHA Direct Endorsement Lender Compare Ratio, excluding streamline FHA refinancings, as made publicly available by HUD.

 

“DE Compare (private) Ratio” means the Two Year FHA Direct Endorsement Lender Compare Ratio, including streamline FHA refinancings, as made privately available by HUD to Seller.

 

“Default” means an Event of Default or an event that with notice or lapse of time or both would become an Event of Default.

 

“Dollars” and “$” means dollars in lawful currency of the United States of America.

 

“Due Date” means the day of the month on which the Monthly Payment is due on a Mortgage Loan, exclusive of any days of grace.

 

“EDGAR” mean the Electronic Data-Gathering, Analysis, and Retrieval system maintained by the SEC.

 

“Effective Date” means the date upon which the conditions precedent set forth in Section 10 shall have been satisfied.

 

“Electronic Tracking Agreement” means the Electronic Tracking Agreement dated as of November 2, 2010, among Buyer, Seller, MERS and MERSCORP Holdings, Inc., to the extent applicable as the same may be amended from time to time.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

 

“ERISA Affiliate” means any corporation or trade or business that, together with Seller or Guarantors is treated as a single employer under Section 414(b) or (c) of the Code or solely for purposes of Section 302 of ERISA and Section 412 of the Code is treated as single employer described in Section 414 of the Code.

 

“Escrow Instruction Letter” means the Escrow Instruction Letter from Seller to the Settlement Agent, in the form of Exhibit I hereto, as the same may be modified, supplemented and in effect from time to time.

 

“Escrow Payments” means, with respect to any Mortgage Loan, the amounts constituting ground rents, taxes, assessments, water rates, sewer rents, municipal charges, mortgage insurance premiums, fire and hazard insurance premiums, condominium charges, and any other payments required to be escrowed by the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.

 

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“Event of Default” has the meaning specified in Section 15 hereof.

 

“Event of Termination” means with respect to Seller or Guarantors (a) with respect to any Plan, a reportable event, as defined in Section 4043 of ERISA, as to which the PBGC has not by regulation waived the requirement of Section 4043(a) of ERISA that it be notified with 30 days of the occurrence of such event, or (b) the withdrawal of Seller, Guarantors or any ERISA Affiliate thereof from a Plan during a plan year in which it is a substantial employer, as defined in Section 4001(a)(2) of ERISA, or (c) the failure by Seller, Guarantors or any ERISA Affiliate thereof to meet the minimum funding standard of Section 412 of the Code or Section 302 of ERISA with respect to any Plan, including, without limitation, the failure to make on or before its due date a required installment under Section 412(m) of the Code (or Section 430 (j) of the Code as amended by the Pension Protection Act) or Section 302(e) of ERISA (or Section 303 (j) of ERISA, as amended by the Pension Protection Act), or (d) the distribution under Section 4041 of ERISA of a notice of intent to terminate any Plan or any action taken by Seller, Guarantors or any ERISA Affiliate thereof to terminate any plan, or (e) the failure to meet requirements of Section 436 of the Code resulting in the loss of qualified status under  Section 401(a)(29) of the Code, or (f) the institution by the PBGC of proceedings under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or (g) the receipt by Seller, Guarantors or any ERISA Affiliate thereof of a notice from a Multiemployer Plan that action of the type described in the previous clause (f) has been taken by the PBGC with respect to such Multiemployer Plan, or (h) any event or circumstance exists which may reasonably be expected to constitute grounds for Seller, Guarantors or any ERISA Affiliate thereof to incur liability under Title IV of ERISA or under Sections 412 (b) or 430 (k) of the Code with respect to any Plan.

 

“Exception Mortgage Loan” means any Mortgage Loan which is otherwise ineligible for purchase hereunder, or which otherwise becomes ineligible for purchase hereunder and which is approved by Buyer in its sole discretion; provided, that upon 30 days’ notice to the Seller, Buyer may change such Exception Mortgage Loan approval fee.  Buyer’s approval of a Mortgage Loan as an Exception Mortgage Loan shall expire on the earlier of (a) the date set forth by the Buyer in the written notice that such Mortgage Loan is approved as an Exception Mortgage Loan (an “Exception Notice”) or  (b) the occurrence of any additional event, other than that set forth in the Exception Notice, which would cause the Mortgage Loan to become ineligible for purchase hereunder.  The Pricing Rate, Market Value, Purchase Price and Asset Value with respect to Exception Mortgage Loans shall be set in the sole discretion of Buyer.  Buyer may at any time, and in its sole discretion, no longer consider a Mortgage Loan an Exception Mortgage Loan, in which case such Mortgage Loan shall have a Market Value of zero.

 

“Existing Indebtedness” has the meaning specified in Section 13(a)(23) hereof.

 

“Fannie Mae” means the Federal National Mortgage Association or any successor thereto.

 

“FHA” means the Federal Housing Administration, an agency within the United States Department of Housing and Urban Development, or any successor thereto, and including

 

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the Federal Housing Commissioner and the Secretary of Housing and Urban Development where appropriate under the FHA Regulations.

 

“FHA 203(k) Loan” means an FHA Loan that is eligible for FHA’s 203(k) loan program.

 

“FHA Approved Mortgagee” means a corporation or institution approved as a mortgagee by the FHA under the National Housing Act, as amended from time to time, and applicable FHA Regulations, and eligible to own and service mortgage loans such as the FHA Loans.

 

“FHA Loan” means a Mortgage Loan which is the subject of an FHA Mortgage Insurance Contract.

 

“FHA Mortgage Insurance” means, mortgage insurance authorized under the National Housing Act, as amended from time to time, and provided by the FHA.

 

“FHA Mortgage Insurance Contract” means the contractual obligation of the FHA respecting the insurance of a Mortgage Loan.

 

“FHA Regulations” means the regulations promulgated by the Department of Housing and Urban Development under the National Housing Act, as amended from time to time and codified in 24 Code of Federal Regulations, and other Department of Housing and Urban Development issuances relating to FHA Loans, including the related handbooks, circulars, notices and mortgagee letters.

 

“FICO” means Fair Isaac & Co., or any successor thereto.

 

“Fidelity Insurance” shall mean insurance coverage with respect to employee errors, omissions, dishonesty, forgery, theft, disappearance and destruction, robbery and safe burglary, property (other than money and securities) and computer fraud in an aggregate amount acceptable to Seller’s regulators.

 

“Freddie Mac” means the Federal Home Loan Mortgage Corporation or any successor thereto.

 

“GAAP” means generally accepted accounting principles in effect from time to time in the United States of America and applied on a consistent basis.

 

“GNMA” means the Government National Mortgage Association and any successor thereto.

 

“Governmental Authority” means any nation or government, any state or other political subdivision thereof, or any entity exercising executive, legislative, judicial, regulatory or administrative functions over Seller, Guarantors or Buyer, as applicable.

 

“Governmental Event” means (i) Seller’s failure to obtain licensing from any Governmental Authority where it is required to be licensed and such failure to be licensed and

 

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requirement to be licensed continue for 30 days following notice to or knowledge thereof by Seller, (ii) the imposition of material sanctions on Seller from any Governmental Authority, or (iii) any material dispute, litigation, investigation, proceeding or suspension between Seller and any Governmental Authority or any Person.

 

“Gross Margin” means, with respect to each adjustable rate Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note.

 

“Guarantee” means, as to any Person, any obligation of such Person directly or indirectly guaranteeing any Indebtedness of any other Person or in any manner providing for the payment of any Indebtedness of any other Person or otherwise protecting the holder of such Indebtedness against loss (whether by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, or to take-or-pay or otherwise); provided that the term “Guarantee” shall not include (a) endorsements for collection or deposit in the ordinary course of business, or (b) obligations to make servicing advances for delinquent taxes and insurance or other obligations in respect of a Mortgaged Property, to the extent required by Buyer.  The amount of any Guarantee of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith.  The terms “Guarantee” and “Guaranteed” used as verbs shall have correlative meanings.

 

“Guarantor” means PennyMac Mortgage Investment Trust and PennyMac Operating Partnership, L.P., each in its capacity as guarantor under the Guaranty.

 

“Guaranty” means the guaranty of the Guarantors dated as of November 2, 2010 as the same may be amended from time to time, pursuant to which each Guarantor fully and unconditionally guarantees the obligations of the Seller hereunder as it may be amended, supplemented or otherwise modified from time to time.

 

“High Cost Mortgage Loan” means a Mortgage Loan classified as (a) a “high cost” loan under the Home Ownership and Equity Protection Act of 1994 or (b) a “high cost,” “threshold,” “covered,” or “predatory” loan under any other applicable state, federal or local law (or a similarly classified loan using different terminology under a law, regulation or ordinance imposing heightened regulatory scrutiny or additional legal liability for residential mortgage loans having high interest rates, points and/or fees).

 

“High LTV Loan” shall have the meaning given to such term in the Pricing Side Letter.

 

“HUD” means the United States Department of Housing and Urban Development or any successor thereto.

 

“Income” means with respect to any Purchased Mortgage Loan at any time until repurchased by the Seller, any principal received thereon or in respect thereof and all interest, dividends or other distributions thereon.

 

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“Indebtedness” means, for any Person: at any time, and only to the extent outstanding at such time: (a) obligations created, issued or incurred by such Person for borrowed money (whether by loan, the issuance and sale of debt securities or the sale of Property to another Person subject to an understanding or agreement, contingent or otherwise, to repurchase such Property from such Person); (b) obligations of such Person to pay the deferred purchase or acquisition price of Property or services, other than trade accounts payable (other than for borrowed money) arising, and accrued expenses incurred, in the ordinary course of business, so long as such trade accounts payable are payable within 90 days of the date the respective goods are delivered or the respective services are rendered; (c) Indebtedness of others secured by a Lien on the Property of such Person, whether or not the respective Indebtedness so secured has been assumed by such Person; (d) obligations (contingent or otherwise) of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (e) Capital Lease Obligations of such Person; (f) obligations of such Person under repurchase agreements, sale/buy-back agreements or like arrangements, including, without limitation, any Indebtedness arising hereunder; (g) Indebtedness of others Guaranteed by such Person; (h) all obligations of such Person incurred in connection with the acquisition or carrying of fixed assets by such Person; (i) Indebtedness of general partnerships of which such Person is a general partner and (j) with respect to clauses (a)-(i) above both on and off balance sheet.

 

“Index” means, with respect to any adjustable rate Mortgage Loan, the index identified on the Mortgage Loan Schedule and set forth in the related Mortgage Note for the purpose of calculating the applicable Mortgage Interest Rate.

 

“Interest Only Adjustment Date” means, with respect to each Interest Only Loan, the date, specified in the related Mortgage Note on which the Monthly Payment will be adjusted to include principal as well as interest.

 

“Interest Only Loan” means a Mortgage Loan which only requires payments of interest for a period of time specified in the related Mortgage Note.

 

“Interest Rate Adjustment Date” means the date on which an adjustment to the Mortgage Interest Rate with respect to each Mortgage Loan becomes effective.

 

“Interest Rate Protection Agreement” means, with respect to any or all of the Purchased Mortgage Loans, any short sale of a US Treasury Security, or futures contract, or mortgage related security, or Eurodollar futures contract, or options related contract, or interest rate swap, cap or collar agreement or Take-out Commitment, or similar arrangement providing for protection against fluctuations in interest rates or the exchange of nominal interest obligations, either generally or under specific contingencies, entered into by Seller and an Affiliate of Buyer or such other party acceptable to Buyer in its sole discretion, which agreement is acceptable to Buyer in its sole discretion.

 

“Jumbo Mortgage Loan” means a Mortgage Loan with an original principal balance in an amount in excess of the then applicable conventional conforming limits, including general limits and high-cost area limits, for Mortgaged Properties securing Mortgage Loans in

 

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such county or local area; provided, however, that Jumbo Mortgage Loans shall not include any Mortgage Loan with an original principal balance in excess of $2,000,000.

 

“Lien” means any mortgage, lien, pledge, charge, security interest or similar encumbrance.

 

“Loan to Value Ratio” or “LTV” means with respect to any Mortgage Loan, the ratio of the original outstanding principal amount of such Mortgage Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at origination or (b) if the Mortgaged Property was purchased within 12 months of the origination of such Mortgage Loan, the purchase price of the Mortgaged Property.

 

“Low Percentage Margin Call” has the meaning specified in Section 6(b) hereof.

 

“Margin Call” has the meaning specified in Section 6(a) hereof.

 

“Margin Deadline” has the meaning specified in Section 6(b) hereof.

 

“Margin Deficit” has the meaning specified in Section 6(a) hereof.

 

“Market Value” has the meaning assigned to such term in the Pricing Side Letter.

 

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of Seller, any Guarantor or any Affiliate that is a party to any Program Agreement taken as a whole; (b) a material impairment of the ability of Seller, any Guarantor or any Affiliate that is a party to any Program Agreement to perform under any Program Agreement and to avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability of any Program Agreement against Seller, any Guarantor or any Affiliate that is a party to any Program Agreement, in each case as determined by the Buyer in its sole good faith discretion.

 

“Maximum Available Purchase Price” means the excess, if any, of (a) the Maximum Combined Aggregate Purchase Price, over (b) the PMITH Aggregate Purchase Price.

 

“Maximum Combined Aggregate Purchase Price” means SIX HUNDRED MILLION DOLLARS ($600,000,000).

 

“MERS” means Mortgage Electronic Registration Systems, Inc., a corporation organized and existing under the laws of the State of Delaware, or any successor thereto.

 

“MERS System” means the system of recording transfers of mortgages electronically maintained by MERS.

 

“Monthly Payment” means the scheduled monthly payment of principal and/or interest on a Mortgage Loan.

 

“Moody’s” means Moody’s Investors Service, Inc. or any successors thereto.

 

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“Mortgage” means each mortgage, assignment of rents, security agreement and fixture filing, or deed of trust, assignment of rents, security agreement and fixture filing, deed to secure debt, assignment of rents, security agreement and fixture filing, or similar instrument creating and evidencing a lien on real property and other property and rights incidental thereto, unless such Mortgage is granted in connection with a Co-op Loan, in which case the first lien position is in the stock of the subject cooperative association and in the tenant’s rights in the cooperative lease relating to such stock.

 

“Mortgage File” means, with respect to a Mortgage Loan, the documents and instruments relating to such Mortgage Loan and set forth in an exhibit to the Custodial Agreement.

 

“Mortgage Interest Rate” means the rate of interest borne on a Mortgage Loan from time to time in accordance with the terms of the related Mortgage Note.

 

“Mortgage Interest Rate Cap” means, with respect to an adjustable rate Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set forth in the related Mortgage Note.

 

“Mortgage Loan” means any first lien closed Conforming Mortgage Loan, Pooled Mortgage Loan, FHA Loan, VA Loan, USDA Loan or Jumbo Mortgage Loan which is a fixed or floating-rate, one-to-four-family residential mortgage loan evidenced by a promissory note and secured by a first lien mortgage; provided, that the related Purchase Date is no more than sixty (60) days following the origination date.

 

“Mortgage Loan Documents” means the documents in the related Mortgage File to be delivered to the Custodian.

 

“Mortgage Loan Schedule” means with respect to any Transaction as of any date, a mortgage loan schedule in the form of either (a)  Exhibit B attached hereto or (b) a computer tape or other electronic medium generated by Seller, and delivered to Buyer and  Custodian, which provides information (including, without limitation, the information set forth on Exhibit B attached hereto) relating to the Purchased Mortgage Loans in a format acceptable to Buyer.

 

“Mortgage Note” means the promissory note or other evidence of the indebtedness of a Mortgagor secured by a Mortgage.

 

“Mortgaged Property” means the real property or other Co-op Loan collateral securing repayment of the debt evidenced by a Mortgage Note.

 

“Mortgagor” means the obligor or obligors on a Mortgage Note, including any person who has assumed or guaranteed the obligations of the obligor thereunder.

 

“Multiemployer Plan” means a multiemployer plan defined as such in Section 3(37) of ERISA to which contributions have been or are required to be made by Seller or any ERISA Affiliate and that is covered by Title IV of ERISA.

 

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“Net Income” means, for any period and any Person, the net income of such Person for such period as determined in accordance with GAAP.

 

“Net Worth” means, with respect to any Person, an amount equal to, on a consolidated basis, such Person’s stockholder equity (determined in accordance with GAAP).

 

“1934 Act” means the Securities Exchange Act of 1934, as amended from time to time.

 

“Non-Performing Mortgage Loan” means (a) any Mortgage Loan for which any payment of principal or interest is more than thirty (30) days past due, (b) any Mortgage Loan with respect to which the related mortgagor is in bankruptcy or (c) any Mortgage Loan with respect to which the related mortgaged property is in foreclosure.

 

“Obligations” means (a) all of Seller’s indebtedness, obligations to pay the Repurchase Price on the Repurchase Date, the Price Differential on each Price Differential Payment Date, and other obligations and liabilities, to Buyer, its Affiliates or Custodian arising under, or in connection with, the Program Agreements, whether now existing or hereafter arising; (b) any and all sums paid by Buyer or on behalf of Buyer in order to preserve any Purchased Mortgage Loan or its interest therein; (c) in the event of any proceeding for the collection or enforcement of any of Seller’s indebtedness, obligations or liabilities referred to in clause (a), the reasonable expenses of retaking, holding, collecting, preparing for sale, selling or otherwise disposing of or realizing on any Purchased Mortgage Loan, or of any exercise by Buyer of its rights under the Program Agreements, including, without limitation, attorneys’ fees and disbursements and court costs; (d) all of Seller’s indemnity obligations to Buyer or Custodian or both pursuant to the Program Agreements; and (e) all of Borrower’s and Guarantors’ obligations under the PMITH Facility and other “Program Agreements” as defined in the PMITH Facility.

 

“OFAC” has the meaning set forth in Section 13(a)(27) hereof.

 

“Officer’s Compliance Certificate” has the meaning assigned to such term in the Pricing Side Letter.

 

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

 

“Pension Protection Act” means the Pension Protection Act of 2006.

 

“Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof.

 

“Plan” means an employee benefit or other plan established or maintained by Seller or any ERISA Affiliate and covered by Title IV of ERISA, other than a Multiemployer Plan.

 

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“PMIT” means Pennymac Mortgage Investment Trust, or its permitted successors or assigns.

 

“PMIT Group” means PMIT and its Subsidiaries.

 

“PMITH” means PennyMac Investment Trust Holdings I, LLC.

 

“PMITH Aggregate Purchase Price” means as of any date of determination, the aggregate “Purchase Price” of “Purchased Mortgaged Loans” subject to outstanding “Transactions”, all as defined in, and calculated under the PMITH Facility.

 

“PMITH Facility” means that certain Master Repurchase Agreement, dated as of March 29, 2012, among PMITH, Guarantors and Buyer, as amended, restated, supplemented or otherwise modified from time to time.

 

“Pooled Mortgage Loan” means any Purchased Mortgage Loan that is subject to a Transaction hereunder and is part of a pool of Purchased Mortgage Loans certified by Custodian to an Agency to be either (a) purchased by such Agency or (b) swapped for an Agency Security backed by such pool, in each case, in accordance with the terms of the guidelines issued by the applicable Agency.

 

“Post Default Rate” has the meaning assigned to such term in the Pricing Side Letter.

 

“Power of Attorney” has the meaning specified in Section 28 hereto.

 

“Price Differential” means with respect to any Transaction as of any date of determination, an amount equal to the product of (a) the Pricing Rate for such Transaction and (b) the Purchase Price for such Transaction, calculated daily on the basis of a 360-day year for the actual number of days during the period commencing on (and including) the Purchase Date for such Transaction and ending on (but excluding) the Repurchase Date.

 

“Price Differential Payment Date” means, with respect to a Purchased Mortgage Loan, the 5th day of the month following the related Purchase Date and each succeeding 5th day of the month thereafter; provided, that, with respect to such Purchased Mortgage Loan, the final Price Differential Payment Date shall be the related Repurchase Date; and provided, further, that if any such day is not a Business Day, the Price Differential Payment Date shall be the next succeeding Business Day.

 

“Pricing Rate” has the meaning assigned to such term in the Pricing Side Letter.

 

“Pricing Side Letter” means the amended and restated letter agreement dated as of the date hereof, among Buyer, Seller and the Guarantors as the same may be amended from time to time.

 

“Program Agreements” means, collectively, this Agreement, the Pricing Side Letter, the Guaranty, the Custodial Agreement, the Electronic Tracking Agreement, the Securities Account Control Agreement, the Power of Attorney, the Servicing Agreement, if any,

 

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the Servicer Notice and Pledge and, with respect to each Exception Mortgage Loan, a Purchase Confirmation.

 

“Prohibited Person” has the meaning set forth in Section 13(a)(27) hereof.

 

“Property” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible.

 

“Proprietary Lease” means the lease on a Co-op Unit evidencing the possessory interest of the owner in the Co-op Shares in such Co-op Unit.

 

“Purchase Confirmation” means, with respect to an Exception Mortgage Loan, a confirmation of a Transaction, in the form attached as Exhibit A hereto.

 

“Purchase Date” means the date on which Purchased Mortgage Loans are to be transferred by Seller to Buyer.

 

“Purchase Price” means the price at which each Purchased Mortgage Loan is transferred by Seller to Buyer, which shall equal:

 

(a) on the Purchase Date, the applicable Purchase Price Percentage multiplied by the lesser of either: (x) the Market Value of such Purchased Mortgage Loan or (y) the outstanding principal amount thereof as set forth on the related Mortgage Loan Schedule;

 

(b) on any day after the Purchase Date, except where Buyer and the Seller agree otherwise, the amount determined under the immediately preceding clause (a) decreased by the amount of any cash transferred by the Seller to Buyer pursuant to Section 6 hereof or applied to reduce the Seller’s obligations under Section 4(b)(ii) or Section 4(c) hereof.

 

“Purchase Price Percentage” has the meaning assigned to such term in the Pricing Side Letter.

 

“Purchased Mortgage Loans” means the collective reference to Mortgage Loans together with the Repurchase Assets related to such Mortgage Loans transferred by Seller to Buyer in a Transaction hereunder, listed on the related Mortgage Loan Schedule attached to the related Transaction Request, which such Mortgage Loans the Custodian has been instructed to hold pursuant to the Custodial Agreement.

 

“Qualified Insurer” means an insurance company duly authorized and licensed where required by law to transact insurance business and approved as an insurer by Fannie Mae or Freddie Mac.

 

“Qualified Originator” means an originator of Mortgage Loans which is acceptable under the Underwriting Guidelines.

 

“Recognition Agreement” means, an agreement among a Co-op Corporation, a lender and a Mortgagor with respect to a Co-op Loan whereby such parties (i) acknowledge that

 

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such lender may make, or intends to make, such Co-op Loan, and (ii) make certain agreements with respect to such Co-op Loan.

 

“Records” means all instruments, agreements and other books, records, and reports and data generated by other media for the storage of information maintained by Seller, Servicer, any Guarantor or any other person or entity with respect to a Purchased Mortgage Loan.  Records shall include the Mortgage Notes, any Mortgages, the Mortgage Files, the credit files related to the Purchased Mortgage Loan and any other instruments necessary to document or service a Mortgage Loan.

 

“REIT” means a real estate investment trust, as defined in Section 856 of the Code.

 

“REO Property” means real property acquired by Seller, including a Mortgaged Property acquired through foreclosure of a Mortgage Loan or by deed in lieu of such foreclosure.

 

“Repo Rights” has the meaning set forth in Section 8 hereof.

 

“Reporting Date” means the 5th day of each month or, if such day is not a Business Day, the next succeeding Business Day.

 

“Repurchase Assets” has the meaning assigned thereto in Section 8 hereof.

 

“Repurchase Date” means the earliest of (a) the Termination Date, (b) the date set forth in the applicable Purchase Confirmation with respect to an Exception Mortgage Loan or (c) the date determined by application of Section 16 hereof.

 

“Repurchase Price” means the price at which Purchased Mortgage Loans 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 accrued but unpaid Price Differential as of the date of such determination.

 

“Request for Certification” means a notice sent to the Custodian reflecting the sale of one or more Purchased Mortgage Loans to Buyer hereunder.

 

“Requirement of Law” means, with respect to any Person, any law, treaty, rule or regulation or determination of an arbitrator, a court or other governmental authority, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Responsible Officer” means as to any Person, the chief executive officer or, with respect to financial matters, the chief financial officer of such Person.  The Responsible Officers of Seller and Guarantor as of the date hereof are listed on Schedule 2 hereto.

 

“Restricted Cash” means for any Person, any amount of cash of such Person that is contractually required to be set aside, segregated or otherwise reserved.

 

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“Rolling Termination Date” means, with respect to any date, the date which is 364 days from such date; provided, that on and after the date, if any, on which the Buyer delivers to the Seller a Rolling Termination Notice (the “Rolling Termination Notice Date”) the Rolling Termination Date shall be fixed at the date that is 364 days following the Rolling Termination Notice Date.

 

“Rolling Termination Notice” means written notice that the Buyer shall no longer roll the Rolling Termination Date forward.

 

“S&P” means Standard & Poor’s Ratings Services, or any successor thereto.

 

“SEC” means the Securities and Exchange Commission, or any successor thereto.

 

“Seller” means PennyMac Corp. or its permitted successors and assigns.

 

“Securities Account” means the account established pursuant to the Securities Account Control Agreement, into which all collections and proceeds on or in respect of the Mortgage Loans shall be deposited by Servicer.

 

“Securities Account Control Agreement” means that certain Joint Securities Account Control Agreement dated as of June 4, 2012, among Buyer, Seller and Securities Intermediary and other parties as joined thereto from time to time, as may be amended, supplemented or replaced from time to time.

 

“Securities Intermediary” means City National Bank, and its permitted successors and assigns, or such other party specified by Buyer and agreed to by Seller, which approval shall not be unreasonably withheld.

 

“Servicer” means PennyMac Loan Services, LLC or any other servicer approved by Buyer in its sole discretion, which may be Seller.

 

“Servicer Notice and Pledge” means the amended and restated notice to and pledge by the Servicer substantially in the form of Exhibit J hereto.

 

“Servicing Agreement” means that certain Second Amended and Restated Flow Servicing Agreement, dated as of March 1, 2013, by and between PennyMac Operating Partnership, L.P. and Servicer, as the same may be amended from time to time.

 

“Servicing Rights” means rights of any Person to administer, service or subservice, the Purchased Mortgage Loans or to possess related Records.

 

“Settlement Agent” means, with respect to any Transaction the subject of which is a Wet-Ink Mortgage Loan, the entity approved by Buyer, in its sole good-faith discretion, which may be a title company, escrow company or attorney in accordance with local law and practice in the jurisdiction where the related Wet-Ink Mortgage Loan is being originated.  A Settlement Agent is deemed approved unless Buyer notifies Seller otherwise at any time electronically or in writing.

 

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“SIPA” means the Securities Investor Protection Act of 1970, as amended from time to time.

 

“Stock Certificate” means, with respect to a Co-op Loan, the certificates evidencing ownership of the Co-op Shares issued by the Co-op Corporation.

 

“Stock Power” means, with respect to a Co-op Loan, an assignment of the Stock Certificate or an assignment of the Co-op Shares issued by the Co-op Corporation.

 

“Streamlined Mortgage Loan”  means an FHA Loan originated in accordance with FHA’s streamlined mortgage loan refinance program as set forth in FHA’s Underwriting Guidelines.

 

“Subordinated Debt” means, Indebtedness of Seller which is (a) unsecured, (b) no part of the principal of such Indebtedness is required to be paid (whether by way of mandatory sinking fund, mandatory redemption, mandatory prepayment or otherwise) prior to the date which is one year following the Termination Date and (c) the payment of the principal of and interest on such Indebtedness and other obligations of Seller in respect of such Indebtedness are subordinated to the prior payment in full of the principal of and interest (including post-petition obligations) on the Transactions and all other obligations and liabilities of Seller to Buyer hereunder on terms and conditions approved in writing by Buyer and all other terms and conditions of which are satisfactory in form and substance to Buyer.

 

“Subsidiary” means, with respect to any Person, any corporation, partnership or other entity of which at least a majority of the securities or other ownership interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or other persons performing similar functions of such corporation, partnership or other entity (irrespective of whether or not at the time securities or other ownership interests of any other class or classes of such corporation, partnership or other entity shall have or might have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned or controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person.

 

“Take-out Commitment” means a commitment of Seller to either (a) sell one or more identified Mortgage Loans to a Take-out Investor or (b) (i) swap one or more identified Mortgage Loans with a Take-out Investor that is an Agency for an Agency Security, and (ii) sell the related Agency Security to a Take-out Investor, and in each case, the corresponding Take-out Investor’s commitment back to Seller to effectuate any of the foregoing, as applicable. With respect to any Take-out Commitment with an Agency, the applicable agency documents list Seller as the subscriber to the Agency Security; provided that, such Agency Security is delivered to an account specified by Buyer.

 

“Take-out Investor”  means (a) an Agency, (b) PennyMac Loan Services, LLC or (c) any other institution which has made a Take-out Commitment and has been approved by Buyer.

 

“Termination Date” means the earliest of (a) the Rolling Termination Date; provided that if the Buyer does not deliver a Rolling Termination Notice on or before November

 

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1, 2013, the Termination Date shall be October 31, 2014, (b) the date of the occurrence of an Event of Default.

 

“Test Period” means any one fiscal quarter.

 

“Transaction” has the meaning set forth in Section 1 hereof.

 

“Trade Assignment” means an assignment to Buyer of a forward trade between a Takeout Investor and Seller with respect to one or more Purchased Mortgage Loans that are Pooled Mortgage Loans substantially in the form of Exhibit L hereto.

 

“Transaction Request” means a request via email from Seller to Buyer notifying Buyer that Seller wishes to enter into a Transaction hereunder that indicates that it is a Transaction Request under this Agreement.

 

“Trust Receipt” means, with respect to any Transaction as of any date, a receipt in the form attached as an exhibit to the Custodial Agreement.

 

“Underwriting Guidelines” means the standards, procedures and guidelines of Seller for underwriting Mortgage Loans, as set forth in the written policies and procedures of Seller, copies of which have been provided to Buyer, and, as applicable, the Fannie Mae Single-Family Selling and Servicing Guide, the Freddie Mac Single-Family Seller/Servicer Guide, FHA Underwriting Guidelines or VA Underwriting Guidelines and such other guidelines as are identified and approved in writing by Buyer.

 

“Uniform Commercial Code” means the Uniform Commercial Code as in effect on the date hereof in the State of New York or the Uniform Commercial Code as in effect in the applicable jurisdiction.

 

“USDA Loan” means a first lien Mortgage Loan originated in accordance with the criteria established by and guaranteed by the United States Department of Agriculture.

 

“VA” means the U.S. Department of Veterans Affairs, an agency of the United States of America, or any successor thereto including the Secretary of Veterans Affairs.

 

“VA Approved Lender” means a lender which is approved by the VA to act as a lender in connection with the origination of VA Loans.

 

“VA Loan” means a Mortgage Loan which is subject of a VA Loan Guaranty Agreement as evidenced by a loan guaranty certificate, or a Mortgage Loan which is a vendor loan sold by the VA.

 

“VA Loan Guaranty Agreement” means the obligation of the United States to pay a specific percentage of a Mortgage Loan (subject to a maximum amount) upon default of the Mortgagor pursuant to the Servicemen’s Readjustment Act, as amended.

 

“Violation Deadline” has the meaning assigned thereto in Section 4(c) hereof.

 

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“Warehouse Facility” means a mortgage loan warehouse facility, warehouse line of credit (including both on and off balance sheet facilities), and any other such facility with terms and conditions similar to the terms and conditions of this Agreement and the purpose of which is to fund the origination and/or purchase of newly originated Mortgage Loans pending sale or securitization.

 

“Wet-Ink Documents” means, with respect to any Wet-Ink Mortgage Loan, the (a) Transaction Request and (b) the Mortgage Loan Schedule.

 

“Wet-Ink Mortgage Loan” means a Mortgage Loan which Seller is selling to Buyer simultaneously with the origination thereof.

 

3.                                      Program; Initiation of Transactions

 

a.              From time to time, Buyer will purchase from Seller certain Mortgage Loans that have been originated or acquired by Seller.  This Agreement is a commitment by Buyer to enter into Transactions with Seller for an aggregate amount equal to the Maximum Available Purchase Price.  This Agreement is not a commitment by Buyer to enter into Transactions with Seller for amounts exceeding the Maximum Available Purchase Price, but rather, sets forth the procedures to be used in connection with periodic requests for Buyer to enter into Transactions with Seller.  Seller hereby acknowledges that, beyond the Maximum Available Purchase Price, Buyer is under no obligation to agree to enter into, or to enter into, any Transaction pursuant to this Agreement.  All Purchased Mortgage Loans shall exceed or meet the Underwriting Guidelines, and shall be serviced by Seller or Servicer, as applicable.  The aggregate Purchase Price of Purchased Mortgage Loans subject to outstanding Transactions shall not exceed the Maximum Available Purchase Price.

 

b.              Seller shall request that Buyer enter into a Transaction by delivering (i) to Buyer, a Transaction Request on or before 3:00 p.m. (New York City time) on the Purchase Date for Transactions involving Wet-Ink Mortgage Loans and one (1) Business Day prior to the proposed Purchase Date for Transactions involving all Mortgage Loans other than Wet-Ink Mortgage Loans, and (ii) to Buyer and Custodian a Request for Certification and related Mortgage Loan Schedule, in accordance with the Custodial Agreement. In the event the Mortgage Loan Schedule provided by Seller contains erroneous computer data, is not formatted properly or the computer fields are otherwise improperly aligned, Buyer shall provide written or electronic notice to Seller describing such error and Seller shall correct the computer data, reformat or properly align the computer fields itself and resubmit the Mortgage Loan Schedule as required herein.

 

c.               With respect to each Exception Mortgage Loan, upon receipt of the Transaction Request, Buyer shall, consistent with this Agreement, specify the terms for such proposed Transaction, including the Purchase Price, the Pricing Rate, the Market Value and the Repurchase Date in respect of such Transaction.

 

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The terms thereof shall be set forth in the Purchase Confirmation to be delivered to Seller on or prior to the Purchase Date.

 

d.              With respect to each Exception Mortgage Loan, the Purchase 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 Purchase Confirmation relates, and Seller’s acceptance of the related proceeds shall constitute Seller’s agreement to the terms of such Purchase Confirmation.  It is the intention of the parties that, with respect to each Exception Mortgage Loan, each Purchase Confirmation shall not be separate from this Agreement but shall be made a part of this Agreement.  In the event of any conflict between this Agreement and, with respect to each Exception Mortgage Loan, a Purchase Confirmation, the terms of the Purchase Confirmation shall control with respect to the related Transaction.

 

e.               Upon the satisfaction of the applicable conditions precedent set forth in Section 10 hereof, all of Seller’s interest in the Repurchase Assets shall pass to Buyer on the Purchase Date, against the transfer of the Purchase Price to Seller.  Upon transfer of the Mortgage Loans to Buyer as set forth in this Section and until termination of any related Transactions as set forth in Sections 4 or 16 of this Agreement, ownership of each Mortgage Loan, including each document in the related Mortgage File and Records, is vested in Buyer; provided that, prior to the recordation by the Custodian as provided for in the Custodial Agreement record title in the name of Seller to each Mortgage shall be retained by Seller in trust, for the benefit of Buyer, for the sole purpose of facilitating the servicing and the supervision of the servicing of the Mortgage Loans.

 

f.                With respect to each Wet-Ink Mortgage Loan, by no later than seven (7) Business Days following the applicable Purchase Date, Seller shall cause the related Settlement Agent to deliver to the Custodian the remaining documents in the Mortgage File, as more particularly set forth in the Custodial Agreement.

 

4.                                      Repurchase

 

a.              Seller shall repurchase the related Purchased Mortgage Loans from Buyer on each related Repurchase Date.  Such obligation to repurchase exists without regard to any prior or intervening liquidation or foreclosure with respect to any Purchased Mortgage Loan (but liquidation or foreclosure proceeds received by Buyer shall be applied to reduce the Repurchase Price for such Purchased Mortgage Loan on each Price Differential Payment Date except as otherwise provided herein).  Seller is obligated to repurchase and take physical possession of the Purchased Mortgage Loans from Buyer or its designee (including the Custodian) at Seller’s expense on the related Repurchase Date.

 

b.              Provided that no Default shall have occurred and is continuing, and Buyer has received the related Repurchase Price upon repurchase of the Purchased Mortgage Loans, Buyer agrees to release its ownership interest hereunder in the Purchased

 

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Mortgage Loans (including, the Repurchase Assets related thereto) at the request of Seller.  The Purchased Mortgage Loans (including the Repurchase Assets related thereto) shall be delivered to Seller free and clear of any lien, encumbrance or claim. With respect to payments in full by the related Mortgagor of a Purchased Mortgage Loan, Seller agrees to (i) provide Buyer with a copy of a report from the related Servicer indicating that such Purchased Mortgage Loan has been paid in full, (ii) remit to Buyer, within two (2) Business Days, the Repurchase Price with respect to such Purchased Mortgage Loan and (iii)  provide Buyer a notice specifying each Purchased Mortgage Loan that has been prepaid in full.  Buyer agrees to release its ownership interest in Purchased Mortgage Loans which have been prepaid in full after receipt of evidence of compliance with clauses (i) through (iii) of the immediately preceding sentence.

 

c.               In the event that at any time any Purchased Mortgage Loan violates the applicable sublimit set forth in the definition of Asset Value, Buyer may, in its sole discretion, redesignate such Mortgage Loan as an Exception Mortgage Loan.  If Buyer does not redesignate such Mortgage Loan as an Exception Mortgage Loan, and if Seller fails to notify Buyer within five (5) Business Days following notice or knowledge of such violation that Seller does not want to receive a bid for such Mortgage Loan as described below, Buyer or an Affiliate of Buyer may offer to terminate Seller’s right and obligation to repurchase such Mortgage Loan by paying Seller a price to be set by Buyer in its sole discretion (a “Bid”). Seller, within one (1) Business Day of receipt of Buyer’s bid (the “Violation Deadline”) may, in its sole discretion, either (i) accept Buyer’s bid, terminating Seller’s right and obligation to repurchase such Mortgage Loan under this Agreement or (ii) immediately repurchase the Mortgage Loan at the Repurchase Price in accordance with this Section 4.  Any amount paid by Buyer or its Affiliate to terminate Seller’s right and obligation to repurchase a Purchased Mortgage Loan if a Bid is accepted pursuant to this Section shall be applied by Buyer toward the outstanding Repurchase Price for the applicable Transaction.

 

5.                                      Price Differential.

 

a.              On each Business Day that a Transaction is outstanding, the Pricing Rate shall be reset and, unless otherwise agreed, the accrued and unpaid Price Differential shall be settled in cash on each related Price Differential Payment Date.  Two (2) Business Days prior to the Price Differential Payment Date, Buyer shall give Seller written or electronic notice of the amount of the Price Differential due on such Price Differential Payment Date.  On the Price Differential Payment Date, Seller shall pay to Buyer the Price Differential for such Price Differential Payment Date (along with any other amounts to be paid pursuant to Sections 7 and 34 hereof), by wire transfer in immediately available funds.

 

b.              If Seller fails to pay all or part of the Price Differential by 3:00 p.m. (New York City time) on the related Price Differential Payment Date, with respect to any Purchased Mortgage Loan, Seller shall be obligated to pay to Buyer (in addition to, and together with, the amount of such Price Differential) interest on

 

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the unpaid Repurchase Price at a rate per annum equal to the Post Default Rate until the Price Differential is received in full by Buyer.

 

c.               Seller may remit to Buyer funds in an amount up to the outstanding Purchase Price of the Purchased Mortgage Loans, to be held as unsegregated cash margin and collateral for all Obligations under this Agreement (such amount, to the extent not applied to Obligations under this Agreement, the “Buydown Amount”).  The Buydown Amount shall be used by Buyer in order to calculate the aggregate Price Differential, which will accrue on the aggregate Purchase Price then outstanding minus the Buydown Amount, applied to Transactions involving the lowest Pricing Rate.  The Seller shall be entitled to request a drawdown of the Buydown Amount or remit additional funds to be added to the Buydown Amount no more than one time per week.  Without limiting the generality of the foregoing, in the event that a Margin Call or other Default exists, the Buyer shall be entitled to use any or all of the Buydown Amount to cure such circumstance or otherwise exercise remedies available to the Buyer without prior notice to, or consent from, the Seller.  Within two (2) Business Days’ receipt of written request from Seller, and provided no Margin Call or other Default exists, Buyer shall remit any portion of such Buydown Amount back to Seller.

 

6.                                      Margin Maintenance

 

a.              If at any time the outstanding Purchase Price of any Purchased Mortgage Loan subject to a Transaction is greater than the Asset Value of such Purchased Mortgage Loan subject to a Transaction (a “Margin Deficit”), then Buyer may by notice to Seller require Seller to transfer to Buyer cash in an amount at least equal to the Margin Deficit (such requirement, a “Margin Call”) .

 

b.              Notice delivered pursuant to Section 6(a) may be given by any written or electronic means.  With respect to a Margin Call in the amount of less than 5% of the Purchase Price for all Transactions (a “Low Percentage Margin Call”), any notice given before 5:00 p.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on the following Business Day; notice given after 5:00 p.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on the second Business Day following the date of such notice. With respect to all Margin Calls other than Low Percentage Margin Calls, any notice given before 10:00 a.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on such Business Day; notice given after 10:00 a.m. (New York City time) on a Business Day shall be met, and the related Margin Call satisfied, no later than 5:00 p.m. (New York City time) on the following Business Day. The foregoing time requirements for satisfaction of a Margin Call are referred to as the “Margin Deadlines”).  The failure of Buyer, on any one or more occasions, to exercise its rights hereunder, shall not change or alter the terms and conditions to which this Agreement is subject or limit the right of Buyer to do so at a later date.  Seller and Buyer each agree that a failure or

 

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delay by Buyer to exercise its rights hereunder shall not limit or waive Buyer’s rights under this Agreement or otherwise existing by law or in any way create additional rights for Seller.

 

c.               In the event that a Margin Deficit exists with respect to any Purchased Mortgage Loan, Buyer may retain any funds received by it to which the Seller would otherwise be entitled hereunder, which funds (i) shall be held by Buyer against the related Margin Deficit and (ii) may be applied by Buyer against the Repurchase Price of any Purchased Mortgage Loan for which the related Margin Deficit remains otherwise unsatisfied.  Notwithstanding the foregoing, the Buyer retains the right, in its sole discretion, to make a Margin Call in accordance with the provisions of this Section 6.

 

7.                                      Income Payments

 

a.              If Income is paid in respect of any Purchased Mortgage Loan during the term of a Transaction, such Income shall be the property of Buyer.  Upon an Event of Default, Seller shall and shall cause Servicer to deposit all Income to the account set forth in Section 9, upon receipt thereof, in accordance with Section 12(c) hereof.

 

b.              Provided no Event of Default has occurred and is continuing, on each Price Differential Payment Date, Seller shall remit to Buyer an amount equal to the Price Differential out of the interest portion of the Income paid in respect to the Purchased Mortgage Loans for the preceding month in accordance with Section 5 of this Agreement.  Provided no Event of Default has occurred and is continuing, upon termination of any Transaction or portion thereof, Servicer shall retain from the Income relating thereto any servicing fee and other amounts due under the Servicing Agreement and remit all remaining amounts as follows:

 

(1)         first, to Buyer in payment of any accrued and unpaid Price Differential, to the extent not paid by Seller to Buyer pursuant to Section 5;

 

(2)         second, without limiting the rights of Buyer under Section 6 of this Agreement, to Buyer, in the amount of any unpaid Margin Deficit;

 

(3)         third, to Buyer in reduction of the Repurchase Price of the Purchased Mortgage Loans, an amount equal to the full or partial prepayments of principal received on or with respect to such Purchased Mortgage Loans;

 

(4)         fourth, to the payment of all other costs and fees payable to Buyer pursuant to this Agreement; and

 

(5)         fifth, to Seller, any remaining amounts.

 

c.               Notwithstanding any provision to the contrary in this Section 7, within two (2) Business Days of receipt by Seller of any prepayment of principal in full, with respect to a Purchased Mortgage Loan, Seller shall remit such amount to Buyer

 

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and Buyer shall immediately apply any such amount received by Buyer to reduce the amount of the Repurchase Price due upon termination of the related Transaction.

 

8.                                      Security Interest

 

a.              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, and in any event, Seller hereby pledges to Buyer as security for the performance by Seller of the Obligations and hereby grants, assigns and pledges to Buyer a fully perfected first priority security interest in the Purchased Mortgage Loans, any Agency Security or right to receive such Agency Security when issued to the extent backed by any of the Purchased Mortgage Loans, the Records, and all related Servicing Rights, the Program Agreements (to the extent such Program Agreements and Seller’s right thereunder relate to the Purchased Mortgage Loans), any related Take-out Commitments, any Property relating to the Purchased Mortgage Loans, all insurance policies and insurance proceeds relating to any Purchased Mortgage Loan or the related Mortgaged Property, including, but not limited to, any payments or proceeds under any related primary insurance, hazard insurance and FHA Mortgage Insurance Contracts and VA Loan Guaranty Agreements (if any), Income, the Buydown Amount and any account to which such amount is deposited, Interest Rate Protection Agreements to the extent of the Purchased Mortgage Loans protected thereby, accounts (including any interest of Seller in escrow accounts) and any other contract rights, instruments, accounts, payments, rights to payment (including payments of interest or finance charges), general intangibles and other assets relating to the Purchased Mortgage Loans (including, without limitation, any other accounts) or any interest in the Purchased Mortgage Loans, and any proceeds (including the related securitization proceeds) and distributions with respect to any of the foregoing and any other property, rights, title or interests as are specified on a Transaction Request and/or Trust Receipt, in all instances, whether now owned or hereafter acquired, now existing or hereafter created (collectively, the “Repurchase Assets”).

 

b.              Reserved.

 

c.               The Seller and Guarantors each acknowledge that neither has rights to service the Purchased Mortgage Loans but only has rights as a party to the current Servicing Agreement.  Without limiting the generality of the foregoing and in the event that the Seller or Guarantors are deemed to retain any residual Servicing Rights, and for the avoidance of doubt, each of Seller and Guarantors grants, assigns and pledges to Buyer a security interest in the Servicing Rights and proceeds related thereto and in all instances, whether now owned or hereafter acquired, now existing or hereafter created.

 

d.              The foregoing provisions (a) and (c) are intended to constitute a security agreement or other arrangement or other credit enhancement related to this

 

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Agreement and Transactions hereunder as defined under Sections 101(47)(A)(v) and 741(7)(A)(xi) of the Bankruptcy Code.

 

e.               Seller agrees to execute, deliver and/or file such documents and perform such acts as may be reasonably necessary to fully perfect Buyer’s security interest created hereby.  Furthermore, the Seller hereby authorizes the Buyer to file financing statements relating to the Repurchase Assets, as the Buyer, at its option, may deem appropriate.  The Seller shall pay the filing costs for any financing statement or statements prepared pursuant to this Section 8.

 

9.                                      Payment and Transfer

 

Unless otherwise mutually agreed in writing, all transfers of funds to be made by Seller hereunder shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at the following account maintained by Buyer: Account No. 30809505, for the account of CSFB Buyer/PennyMac Corp.-Inbound Account, Citibank, ABA No. 021 000 089 or such other account as Buyer shall specify to Seller in writing.  Seller acknowledges that it has no rights of withdrawal from the foregoing account.  All Purchased Mortgage Loans transferred by one party hereto to the other party shall be in the case of a purchase by Buyer in suitable form for transfer or shall be accompanied by duly executed instruments of transfer or assignment in blank and such other documentation as Buyer may reasonably request.  All Purchased Mortgage Loans shall be evidenced by a Trust Receipt.  Any Repurchase Price received by Buyer after 2:00 p.m. (New York City time) shall be deemed received on the next succeeding Business Day.

 

10.                               Conditions Precedent

 

a.              Initial Transaction.  As conditions precedent to the effectiveness of this Agreement on the Amendment Effective Date, Buyer shall have received on or before the Amendment Effective Date the following, in form and substance satisfactory to Buyer and duly executed by Seller, Guarantors and each other party thereto:

 

(1)         Program Agreements.  The Program Agreements duly executed and delivered by the parties thereto and being in full force and effect, free of any modification, breach or waiver.

 

(2)         Amended and Restated Servicer Notice.  The Amended and Restated Servicer Notice duly executed by Seller and Servicer.

 

(3)         Power of Attorney.  The Power of Attorney duly executed by Seller.

 

(4)         Securities Account Control Agreement.  The Securities Account Control Agreement duly executed by Buyer, Seller and Securities Intermediary and other parties joined thereto.

 

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(5)         Security Interest.  Evidence that all other actions necessary or, in the opinion of Buyer, desirable to perfect and protect Buyer’s interest in the Purchased Mortgage Loans and other Repurchase Assets have been taken, including, without limitation, duly authorized and filed Uniform Commercial Code financing statements on Form UCC-1 and Form UCC-3.

 

(6)         Organizational Documents.  A certificate of the corporate secretary of the Seller, each Guarantor and PennyMac OP GP, Inc. substantially in the form of Exhibit F hereto, attaching certified copies of Seller’s certificate of incorporation and by-laws, PennyMac Mortgage Investment Trust’s declaration of trust and PennyMac Operating Partnership, L.P.’s limited partnership certificate and limited partnership agreement and in each case resolutions approving the Program Agreements and transactions thereunder (either specifically or by general resolution) and all documents evidencing other necessary corporate action or governmental approvals as may be required in connection with the Program Agreements.

 

(7)         Good Standing Certificate.  A certified copy of a good standing certificate from the jurisdiction of organization of Seller and Guarantors, dated as of no earlier than ten (10) Business Days prior to the Amendment Effective Date.

 

(8)         Incumbency Certificate.  An incumbency certificate of the corporate secretary of each of Seller and Guarantors, certifying the names, true signatures and titles of the representatives duly authorized to request transactions hereunder and to execute the Program Agreements.

 

(9)         Opinion of Counsel.  An opinion of Seller’s and Guarantors’ internal counsel, in form and substance mutually agreed upon by parties hereto.

 

(10)                          Underwriting Guidelines.  A true and correct copy of the Underwriting Guidelines certified by an officer of the Seller.

 

(11)                          Fees.  Payment of any fees due to Buyer hereunder.

 

(12)                          Insurance.  Evidence that Seller has added Buyer as an additional loss payee under the Seller’s Fidelity Insurance.

 

b.              All Transactions.  The obligation of Buyer to enter into each Transaction pursuant to this Agreement is subject to the following conditions precedent:

 

(1)         Due Diligence Review.  Without limiting the generality of Section 36 hereof, Buyer shall have completed, to its satisfaction, its due diligence review of the related Mortgage Loans and Seller, Guarantors and the Servicer.

 

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(2)         Required Documents.

 

(a)         With respect to each Purchased Mortgage Loan which is not a Wet-Ink Mortgage Loan, the Mortgage File has been delivered to the Custodian in accordance with the Custodial Agreement;

 

(b)         With respect to each Wet-Ink Mortgage Loan, the Wet-Ink Documents have been delivered to Buyer or Custodian, as the case may be, in accordance with the Custodial Agreement.

 

(3)         Transaction Documents.  Buyer or its designee shall have received on or before the day of such Transaction (unless otherwise specified in this Agreement) the following, in form and substance satisfactory to Buyer and (if applicable) duly executed:

 

(a)         A Transaction Request and Mortgage Loan Schedule delivered by Seller pursuant to Section 3(b) or 3(c) hereof and a Purchase Confirmation with respect to an Exception Mortgage Loan.

 

(b)         The Request for Certification and the related Mortgage Loan Schedule delivered by Seller, and the Trust Receipt and Custodial Mortgage Loan Schedule delivered by Custodian.

 

(c)          Such certificates, opinions of counsel or other documents as Buyer may reasonably request.

 

(4)         No Default.  No Default or Event of Default shall have occurred and be continuing;

 

(5)         Requirements of Law.  Buyer shall not have determined that the introduction of or a change in any Requirement of Law or in the interpretation or administration of any Requirement of Law applicable to Buyer has made it unlawful, and no Governmental Authority shall have asserted that it is unlawful, for Buyer to enter into Transactions with a Pricing Rate based on CSCOF.

 

(6)         Representations and Warranties.  Both immediately prior to the related Transaction and also after giving effect thereto and to the intended use thereof, the representations and warranties made by Seller in each Program Agreement shall be true, correct and complete on and as of such Purchase Date in all material respects with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date).

 

(7)         Electronic Tracking Agreement. To the extent Seller is selling Mortgage Loans which are registered on the MERS® System, an Electronic Tracking Agreement entered into, duly executed and delivered by the parties thereto and being in full force and effect, free of any modification, breach or waiver.

 

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(8)         Material Adverse Change.  None of the following shall have occurred and/or be continuing:

 

(a)         Credit Suisse AG, New York Branch’s corporate bond rating as calculated by S&P or Moody’s has been lowered or downgraded to a rating below investment grade by S&P or Moody’s;

 

(b)         an event or events shall have occurred in the good faith determination of Buyer resulting in the effective absence of a “repo market” or comparable “lending market” for financing debt obligations secured by mortgage loans or securities or an event or events shall have occurred resulting in Buyer not being able to finance Purchased Mortgage Loans through the “repo market” or “lending market” with traditional counterparties at rates which would have been reasonable prior to the occurrence of such event or events; or

 

(c)          an event or events shall have occurred resulting in the effective absence of a “securities market” for securities backed by mortgage loans or an event or events shall have occurred resulting in Buyer not being able to sell securities backed by mortgage loans at prices which would have been reasonable prior to such event or events; or

 

(d)         there shall have occurred a material adverse change in the financial condition of Buyer which affects (or can reasonably be expected to affect) materially and adversely the ability of Buyer to fund its obligations under this Agreement.

 

(9) Pooled Mortgage Loans.  Solely with respect to Transactions the subject of which are Pooled Mortgage Loans, Buyer shall have received the related Trade Assignment on or prior to the Purchase Date with respect thereto.

 

11.                               Program; Costs

 

a.              Seller shall pay the fees and expenses of Buyer’s counsel in connection with the original preparation and execution of the Program Agreements. Seller shall reimburse Buyer for any of Buyer’s reasonable out-of-pocket costs, including due diligence review costs and reasonable attorney’s fees as further described below and in Section 36, incurred by Buyer in determining the acceptability to Buyer of any Mortgage Loans.  Seller shall also pay, or reimburse Buyer if Buyer shall pay, any termination fee, which may be due any servicer.  Legal fees for any subsequent amendments to this Agreement or related documents shall be borne by Seller.  Seller shall pay ongoing custodial fees and expenses as set forth in the Custodial Agreement, and any other ongoing fees and expenses under any other Program Agreement.

 

b.              If Buyer determines that, due to the introduction of, any change in, or the compliance by Buyer with (i) any eurocurrency reserve requirement or (ii) the interpretation of any law, regulation or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law),

 

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there shall be an increase in the cost to Buyer in engaging in the present or any future Transactions, then Seller agrees to pay to Buyer, from time to time, upon demand by Buyer (with a copy to Custodian) the actual cost of additional amounts as specified by Buyer to compensate Buyer for such increased costs; provided that this Section 11(b) shall only apply to the extent that such increased costs are not reflected in Buyer’s calculation of CSCOF.

 

c.               With respect to any Transaction, Buyer may conclusively rely upon, and shall incur no liability to Seller in acting upon, any request or other communication that Buyer reasonably believes to have been given or made by a person authorized to enter into a Transaction on Seller’s behalf, whether or not such person is listed on the certificate delivered pursuant to Section 10(a)(6) hereof.  In each such case, Seller hereby waives the right to dispute Buyer’s record of the terms of the Purchase Confirmation, request or other communication.

 

d.              Notwithstanding the assignment of the Program Agreements with respect to each Purchased Mortgage Loan to Buyer, Seller agrees and covenants with Buyer to enforce diligently Seller’s rights and remedies set forth in the Program Agreements.

 

e.               Any payments made by Seller or any Guarantor to Buyer shall be free and clear of, and without deduction or withholding for, any taxes; provided, however, that if such payer shall be required by law to deduct or withhold any taxes from any sums payable to Buyer, then such payer shall (A) make such deductions or withholdings and pay such amounts to the relevant authority in accordance with applicable law, (B) pay to Buyer the sum that would have been payable had such deduction or withholding not been made, and (C) at the time Price Differential is paid, pay to Buyer all additional amounts as specified by Buyer to preserve the after-tax yield Buyer would have received if such tax had not been imposed, and otherwise indemnify Buyer for any such taxes imposed.

 

12.                               Servicing

 

a.              Pursuant to the Servicing Agreement, Seller has contracted with Servicer to service the Mortgage Loans consistent with the degree of skill and care that Seller customarily requires with respect to similar Mortgage Loans owned or managed by it and in accordance with Accepted Servicing Practices.  The Seller and Servicer shall (i) comply with all applicable Federal, State and local laws and regulations, (ii) maintain all state and federal licenses necessary for it to perform its servicing responsibilities hereunder and (iii) not impair the rights of Buyer in any Mortgage Loans or any payment thereunder.  Buyer may terminate the servicing of any Mortgage Loan with the then-existing servicer in accordance with Section 12(e) hereof.

 

b.              Seller shall and shall cause the Servicer to hold or cause to be held all escrow funds collected by Seller and Servicer with respect to any Purchased Mortgage

 

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Loans in trust accounts and shall apply the same for the purposes for which such funds were collected.

 

c.               Seller shall and shall cause the Servicer to deposit all collections received by Servicer on the Purchased Mortgage Loans in the account set forth in Section 9 upon an Event of Default.

 

d.              Seller shall provide to Buyer a Servicer Notice and Pledge addressed to and agreed to by the Servicer of the related Purchased Mortgage Loans, advising such Servicer of such matters as Buyer may reasonably request, including, without limitation, recognition by the Servicer of Buyer’s interest in such Purchased Mortgage Loans and the Servicer’s agreement that upon receipt of notice of an Event of Default from Buyer, it will follow the instructions of Buyer with respect to the Purchased Mortgage Loans and any related Income with respect thereto.

 

e.               Upon the occurrence and continuation of an Event of Default hereunder, Buyer shall have the right to immediately terminate the Servicer’s right to service the Purchased Mortgage Loans without payment of any penalty or termination fee under the Servicing Agreement.  Seller and the Servicer shall cooperate in transferring the servicing of the Purchased Mortgage Loans to a successor servicer appointed by Buyer in its sole discretion.

 

f.                If Seller should discover that, for any reason whatsoever, Seller or any entity responsible to Seller for managing or servicing any such Purchased Mortgage Loan has failed to perform fully Seller’s obligations under the Program Agreements or any of the obligations of such entities with respect to the Purchased Mortgage Loans, Seller shall promptly notify Buyer.

 

g.               Servicer shall service the Purchased Mortgage Loans on behalf of Buyer for ninety (90) day intervals which will automatically terminate if not renewed by Buyer, which renewal shall be evidenced by delivery of a renewal letter substantially in the form of Exhibit C hereto.

 

h.              For the avoidance of doubt, the Seller retains no economic rights to the servicing of the Purchased Mortgage Loans; provided that the Seller shall and shall cause the Servicer to continue to service the Purchased Mortgage Loans hereunder as part of the Obligations hereunder.  As such, the Seller expressly acknowledges that the Purchased Mortgage Loan are sold to Buyer on a “servicing released” basis.

 

13.                               Representations and Warranties

 

a.              Except as otherwise specifically set forth below, each of Seller and Guarantors represents and warrants to Buyer as of the date hereof and as of each Purchase Date for any Transaction that:

 

(1)         Seller and Guarantors Existence.  Seller has been duly organized and is validly existing as a corporation in good standing under the laws

 

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of the State of Delaware.  PennyMac Mortgage Investment Trust has been duly organized and is validly existing as a real estate investment trust in good standing under the laws of the State of Maryland.  PennyMac Operating Partnership, L.P. has been duly organized and is validly existing as a limited partnership in good standing under the laws of the State of Delaware.

 

(2)         Licenses.  Each of Seller and Guarantors is duly licensed or is otherwise qualified in each jurisdiction in which it transacts business for the business which it conducts and is not in default of any applicable federal, state or local laws, rules and regulations unless, in either instance, the failure to take such action is not reasonably likely (either individually or in the aggregate) to cause a Material Adverse Effect.  The Seller has the requisite power and authority, legal right and necessary licenses (including from VA and FHA) to originate and purchase Mortgage Loans (as applicable) and to own, sell and grant a lien on all of its right, title and interest in and to the Mortgage Loans, and to execute and deliver, engage in the transactions contemplated by, and perform and observe the terms and conditions of, each Program Agreement and any Transaction Request.  Seller is an FHA Approved Mortgagee and VA Approved Lender as of the Purchase Date for the initial Transaction involving an FHA Loan or VA Loan, respectively, and as of each Purchase Date thereafter.

 

(3)         Power.  Each of Seller and Guarantors has all requisite corporate or other power, and has all governmental licenses, authorizations, consents and approvals necessary to own its assets and carry on its business as now being or as proposed to be conducted, except where the lack of such licenses, authorizations, consents and approvals would not be reasonably likely to have a Material Adverse Effect.

 

(4)         Due Authorization.  Each of Seller and Guarantors has all necessary corporate or other power, authority and legal right to execute, deliver and perform its obligations under each of the Program Agreements, as applicable.  Each Program Agreement has been (or, in the case of Program Agreements not yet executed, will be) duly authorized, executed and delivered by Seller and Guarantors, all requisite or other corporate action having been taken, and each is valid, binding and enforceable against Seller and Guarantors in accordance with its terms except as such enforcement may be affected by bankruptcy, by other insolvency laws, or by general principles of equity.

 

(5)         Financial Statements.  Each of PennyMac Mortgage Investment Trust and Seller have heretofore furnished to Buyer (a) a copy of its consolidated balance sheets and the consolidated balance sheets of its consolidated Subsidiaries for the fiscal year ended December 31, 2012 and the related consolidated statements of income and retained earnings and of cash flows for it and its consolidated Subsidiaries for such fiscal year, with the opinion thereon of Deloitte & Touche LLP and (b) its consolidated balance sheets and the consolidated balance sheets of its consolidated Subsidiaries for the quarterly fiscal periods ended March 31, 2013 and the related consolidated statements of income

 

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and retained earnings and of cash flows for it and its consolidated Subsidiaries for such quarterly fiscal periods. All such financial statements are complete and correct and fairly present, in all material respects, the consolidated financial condition of PennyMac Mortgage Investment Trust, Seller and their consolidated Subsidiaries, as applicable and the consolidated results of their operations as at such dates and for such fiscal periods, all in accordance with GAAP (other than monthly financial statements solely with respect to footnotes, year-end adjustments and cash flow statements) applied on a consistent basis.  Each of Seller and each Guarantor has, on the date of the statements delivered pursuant to this Section (the “Statement Date”) no liabilities, direct or indirect, fixed or contingent, matured or unmatured, known or unknown, or liabilities for taxes, long-term leases or unusual forward or long-term commitments not disclosed by, or reserved against in, said balance sheet and related statements, and at the present time there are no material unrealized or anticipated losses from any loans, advances or other commitments of Seller except as heretofore disclosed to Buyer in writing.

 

(6)         Event of Default.  There exists no Event of Default under Section 15(b) hereof, which default gives rise to a right to accelerate indebtedness as referenced in Section 15(b) hereof, under any mortgage, borrowing agreement or other instrument or agreement pertaining to indebtedness for borrowed money or to the repurchase of mortgage loans or securities.

 

(7)         Solvency.  Each of Seller and Guarantors is solvent and will not be rendered insolvent by any Transaction and, after giving effect to such Transaction, will not be left with an unreasonably small amount of capital with which to engage in its business.  Neither Seller nor Guarantors intend to incur, nor believe that they have incurred, debts beyond their ability to pay such debts as they mature and are not contemplating the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, conservator, trustee or similar official in respect of such entity or any of its assets.  The amount of consideration being received by Seller upon the sale of the Purchased Mortgage Loans to Buyer constitutes reasonably equivalent value and fair consideration for such Purchased Mortgage Loans.  Seller is not transferring any Purchased Mortgage Loans with any intent to hinder, delay or defraud any of its creditors.

 

(8)         No Conflicts.  The execution, delivery and performance by each of Seller and each Guarantor of each Program Agreement do not conflict with any term or provision of the formation documents or by-laws of Seller or Guarantors or any law, rule, regulation, order, judgment, writ, injunction or decree applicable to Seller or either Guarantor of any court, regulatory body, administrative agency or governmental body having jurisdiction over Seller or any Guarantor, which conflict would have a Material Adverse Effect and will not result in any violation of any such mortgage, instrument, agreement or obligation to which Seller or any Guarantor is a party.

 

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(9)         True and Complete Disclosure.  All information, reports, exhibits, schedules, financial statements or certificates of Seller, Guarantors, or any Affiliate thereof or any of their officers furnished or to be furnished to Buyer in connection with the initial or any ongoing due diligence of Seller, Guarantors, or any Affiliate or officer thereof, negotiation, preparation, or delivery of the Program Agreements are true and complete and do not omit to disclose any material facts necessary to make the statements herein or therein, in light of the circumstances in which they are made, not misleading.  All financial statements have been prepared in accordance with GAAP (other than monthly financial statements solely with respect to footnotes, year-end adjustments and cash flow statements).

 

(10)                          Approvals.  No consent, approval, authorization or order of, registration or filing with, or notice to any governmental authority or court is required under applicable law in connection with the execution, delivery and performance by Seller or any Guarantor of each Program Agreement.

 

(11)                          Litigation.  There is no action, proceeding or investigation pending with respect to which either Seller or either Guarantor has received service of process or, to the best of Seller’s or either Guarantor’s knowledge threatened against it before any court, administrative agency or other tribunal (A) asserting the invalidity of any Program Agreement, (B) seeking to prevent the consummation of any of the transactions contemplated any Program Agreement, (C) makes a claim individually or in an aggregate amount greater than $5,000,000, (D) which requires filing with the Securities and Exchange Commission in accordance with the 1934 Act or any rules thereunder or (E) which might materially and adversely affect the validity of the Mortgage Loans or the performance by it of its obligations under, or the validity or enforceability of any Program Agreement.

 

(12)                          Material Adverse Change.  There has been no material adverse change in the business, operations, financial condition, properties or prospects of Seller, Guarantors or their Affiliates since the date set forth in the most recent financial statements supplied to Buyer as determined by Buyer in its sole good faith discretion.

 

(13)                          Ownership.  Upon payment of the Purchase Price and the filing of the financing statement and delivery of the Mortgage Files to the Custodian and the Custodian’s receipt of the related Request for Certification, Buyer shall become the sole owner of the Purchased Mortgage Loans and related Repurchase Assets, free and clear of all liens and encumbrances.

 

(14)                          Underwriting Guidelines.  The Underwriting Guidelines provided to Buyer are the true and correct Underwriting Guidelines of the Seller.

 

(15)                          Taxes. Seller, Guarantors and their Subsidiaries have timely filed all tax returns that are required to be filed by them and have paid all

 

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taxes, except for any such taxes as are being appropriately contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves have been provided.  The charges, accruals and reserves on the books of Seller, Guarantors and their Subsidiaries in respect of taxes and other governmental charges are, in the opinion of Seller or Guarantors, as applicable, adequate.

 

(16)                          Investment Company.  None of Seller, any Guarantor or any of their Subsidiaries is an “investment company,” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended; provided, however, that any entity that is under the management of PNMAC Capital Management LLC in its capacity as an “investment adviser” within the meaning of the Investment Advisers Act of 1940 and is otherwise not directly or indirectly owned or controlled by Seller shall not be deemed a “Subsidiary” for the purposes of this Section 13(a)(16).

 

(17)                          Chief Executive Office; Jurisdiction of Organization.  On the Effective Date, Seller’s chief executive office, is, and has been, located at 6101 Condor Drive, Moorpark, CA 93021.  On the Effective Date, Seller’s jurisdiction of organization is the State of Delaware.  Seller shall provide Buyer with thirty days advance notice of any change in Seller’s principal office or place of business or jurisdiction.  Seller has no trade name.  During the preceding five years, Seller has not been known by or done business under any other name, corporate or fictitious, and has not filed or had filed against it any bankruptcy receivership or similar petitions nor has it made any assignments for the benefit of creditors.

 

(18)                          Location of Books and Records.  The location where Seller keeps its books and records, including all computer tapes and records relating to the Purchased Mortgage Loans and the related Repurchase Assets is its chief executive office.

 

(19)                          Adjusted Tangible Net Worth.  On the Amendment Effective Date, (A) Seller’s Adjusted Tangible Net Worth is not less than $150,000,000, (B) PennyMac Operating Partnership, L.P.’s Adjusted Tangible Net Worth is not less than $700,000,000 and (C) PMIT’s Adjusted Tangible Net Worth is not less than $860,000,000.

 

(20)                          ERISA.  Each Plan to which Seller, Guarantors or their Subsidiaries make direct contributions, and, to the knowledge of Seller, each other Plan and each Multiemployer Plan, is in compliance in all material respects with, and has been administered in all material respects in compliance with, the applicable provisions of ERISA, the Code and any other Federal or State law.

 

(21)                          Adverse Selection.  Seller has not selected the Purchased Mortgage Loans in a manner so as to adversely affect Buyer’s interests.

 

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(22)                          Agreements.  Neither Seller nor any Subsidiary of Seller is a party to any agreement, instrument, or indenture or subject to any restriction materially and adversely affecting its business, operations, assets or financial condition, except as disclosed in the financial statements described in Section 13(a)(5) hereof.  Neither Seller nor any Subsidiary of Seller is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, instrument, or indenture which default could have a material adverse effect on the business, operations, properties, or financial condition of Seller as a whole.  No holder of any indebtedness of Seller or of any of its Subsidiaries has given notice of any asserted default thereunder.

 

(23)                          Other Indebtedness.  All Indebtedness (other than Indebtedness evidenced by this Agreement) of Seller existing on the date hereof is listed on Exhibit H hereto (the “Existing Indebtedness”).

 

(24)                          Agency Approvals.  With respect to each Agency Security and to the extent necessary, Seller is an FHA Approved Mortgagee, a VA Approved Lender and/or a GNMA Approved Lender.  On and after approval by the Agencies, Seller will be, to the extent necessary, approved by Fannie Mae as an approved lender and Freddie Mac as an approved seller/servicer, and, to the extent necessary, approved by the Secretary of Housing and Urban Development pursuant to Sections 203 and 211 of the National Housing Act.  On and after approval by the Agencies, Seller is in good standing, with no event having occurred or Seller having any reason whatsoever to believe or suspect will occur prior to the issuance of the Agency Security or the consummation of the Take-out Commitment, as the case may be, including, without limitation, a change in insurance coverage which would either make Seller unable to comply with the eligibility requirements for maintaining all such applicable approvals or require notification to the relevant Agency or to the Department of Housing and Urban Development, FHA or VA.  If, on and after approval by the Agencies, Seller for any reason ceases to possess all such applicable approvals, or should notification to the relevant Agency or to the Department of Housing and Urban Development, FHA or VA be required, Seller or Guarantors shall so notify Buyer immediately in writing.

 

(25)                          No Reliance.  Each of Seller and each Guarantor has made its own independent decisions to enter into the Program Agreements and each Transaction and as to whether such Transaction is appropriate and proper for it based upon its own judgment and upon advice from such advisors (including without limitation, legal counsel and accountants) as it has deemed necessary.  Neither Seller nor any Guarantor is relying upon any advice from Buyer as to any aspect of the Transactions, including without limitation, the legal, accounting or tax treatment of such Transactions.

 

(26)                          Plan Assets. Neither Seller nor Guarantors are an employee benefit plan as defined in Section 3 of Title I of ERISA, or a plan described in Section 4975(e)(1) of the Code, and the Purchased Mortgage Loans are not “plan

 

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assets” within the meaning of 29 CFR §2510.3 101 as amended by Section 3(42) of ERISA, in the Seller’s hands, and transactions by or with Seller or Guarantors are not subject to any state or local statute regulating investments or fiduciary obligations with respect to governmental plans within the meaning of Section 3(32) of ERISA.

 

(27)         No Prohibited Persons. Neither the Seller nor any of its Affiliates, officers, directors, partners or members, is an entity or person (or to the  Seller’s knowledge, owned or controlled by an entity or person): (i) that is listed in the Annex to, or is otherwise subject to the provisions of Executive Order 13224 issued on September 24, 2001 (“EO13224”); (ii) whose name appears on the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) most current list of “Specifically Designated National and Blocked Persons” (which list may be published from time to time in various mediums including, but not limited to, the OFAC website, http:www.treas.gov/ofac/t11sdn.pdf); (iii) who commits, threatens to commit or supports “terrorism”, as that term is defined in EO13224; or (iv) who is otherwise affiliated with any entity or person listed above (any and all parties or persons described in clauses (i) through (iv) above are herein referred to as a “Prohibited Person”).

 

(28)         Servicing.  Seller has adequate financial standing and, through the Servicing Agreement with Servicer, access to adequate servicing facilities, procedures and experienced personnel necessary for the sound servicing of mortgage loans of the same types as may from time to time constitute Mortgage Loans and in accordance with Accepted Servicing Practices.

 

(29)         Real Estate Investment Trust.  PennyMac Mortgage Investment Trust is a REIT and has not engaged in any material “prohibited transactions” as defined in Section 857(b)(6)(B)(iii) of the Code. PennyMac Mortgage Investment Trust for its current taxable year is entitled to a dividends paid deduction under the requirements of Section 857 of the Code with respect to any dividends paid by it with respect to each taxable year for which it claims a deduction in its Form 1120-REIT filed with the United States Internal Revenue Service.

 

b.     With respect to every Purchased Mortgage Loan, each of Seller and each Guarantor jointly and severally represents and warrants to Buyer as of the applicable Purchase Date for any Transaction and each date thereafter that each representation and warranty set forth on Schedule 1 is true and correct.

 

c.     The representations and warranties set forth in this Agreement shall survive transfer of the Purchased Mortgage Loans to Buyer and shall continue for so long as the Purchased Mortgage Loans are subject to this Agreement.  Upon discovery by Seller, Servicer or Buyer of any breach of any of the representations or warranties set forth in this Agreement, the party discovering such breach shall promptly give notice of such discovery to the others.  Buyer has the right to 

 

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require, in its unreviewable discretion, Seller to repurchase within one (1) Business Day after receipt of notice from Buyer any Purchased Mortgage Loan (i) for which a breach of one or more of the representations and warranties referenced in Section 13(b) exists and which breach has a material adverse effect on the value of such Mortgage Loan or the interests of Buyer or (ii) which is determined by Buyer, in its good faith discretion, to be generally unacceptable for inclusion in a securitization.

 

14.          Covenants

 

Each of Seller and each Guarantor covenants with Buyer that, during the term of this facility:

 

a.     Litigation. Seller and each Guarantor, as applicable, will promptly, and in any event within ten (10) days after service of process on any of the following, give to Buyer notice of all litigation, actions, suits, arbitrations, investigations (including, without limitation, any of the foregoing which are threatened or pending) or other legal or arbitrable proceedings affecting Seller, Guarantors or any of their Subsidiaries or affecting any of the Property of any of them before any Governmental Authority that (i) questions or challenges the validity or enforceability of any of the Program Agreements or any action to be taken in connection with the transactions contemplated hereby, (ii) makes a claim individually or in an aggregate amount greater than $5,000,000, or (iii) which, individually or in the aggregate, if adversely determined, could be reasonably likely to have a Material Adverse Effect.  Seller and each Guarantor, as applicable, will promptly provide notice of any judgment, which with the passage of time, could cause an Event of Default hereunder.

 

b.     Prohibition of Fundamental Changes.  Seller shall not enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or dissolution) or sell all or substantially all of its assets; provided, that Seller may merge or consolidate with (a) any wholly owned subsidiary of Seller, or (b) any other Person if Seller is the surviving corporation; and provided further, that if after giving effect thereto, no Default would exist hereunder.

 

c.     Servicing.  Seller shall not cause the Mortgage Loans to be serviced by any servicer other than a servicer expressly approved in writing by Buyer, which approval shall be deemed granted by Buyer with respect to Servicer with the execution of this Agreement.

 

d.     Insurance.  The Seller or Guarantors shall continue to maintain, for Seller and its Subsidiaries, Fidelity Insurance in an aggregate amount at least equal to $300,000.  The Seller or Guarantors shall maintain, for Seller and its Subsidiaries, Fidelity Insurance in respect of its officers, employees and agents, with respect to any claims made in connection with all or any portion of the Repurchase Assets.  The Seller or Guarantors shall notify the Buyer of any material change in the terms of any such Fidelity Insurance.

 

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e.     No Adverse Claims.  Seller warrants and will defend, and shall cause any Servicer to defend, the right, title and interest of Buyer in and to all Purchased Mortgage Loans and the related Repurchase Assets against all adverse claims and demands.

 

f.     Assignment.  Except as permitted herein, neither Seller nor any Servicer shall sell, assign, transfer or otherwise dispose of, or grant any option with respect to, or pledge, hypothecate or grant a security interest in or lien on or otherwise encumber (except pursuant to the Program Agreements), any of the Purchased Mortgage Loans or any interest therein, provided that this Section shall not prevent any transfer of Purchased Mortgage Loans in accordance with the Program Agreements.

 

g.     Security Interest.  Seller shall do all things necessary to preserve the Purchased Mortgage Loans and the related Repurchase Assets so that they remain subject to a first priority perfected security interest hereunder.  Without limiting the foregoing, Seller will comply with all rules, regulations and other laws of any Governmental Authority and cause the Purchased Mortgage Loans or the related Repurchase Assets to comply with all applicable rules, regulations and other laws.  Seller will not allow any default for which Seller is responsible to occur under any Purchased Mortgage Loans or the related Repurchase Assets or any Program Agreement and Seller shall fully perform or cause to be performed when due all of its obligations under any Purchased Mortgage Loans or the related Repurchase Assets and any Program Agreement.

 

h.     Records.

 

(1)   Seller shall collect and maintain or cause to be collected and maintained all Records relating to the Purchased Mortgage Loans in accordance with industry custom and practice for assets similar to the Purchased Mortgage Loans, including those maintained pursuant to the preceding subparagraph, and all such Records shall be in Custodian’s possession unless Buyer otherwise approves.  Except in accordance with the Custodial Agreement, Seller will not allow any such papers, records or files that are an original or an only copy to leave Custodian’s possession, except for individual items removed in connection with servicing a specific Mortgage Loan, in which event Seller will obtain or cause to be obtained a receipt from a financially responsible person for any such paper, record or file.  Seller or the Servicer of the Purchased Mortgage Loans will maintain all such Records not in the possession of Custodian in good and complete condition in accordance with industry practices for assets similar to the Purchased Mortgage Loans and preserve them against loss.

 

(2)   For so long as Buyer has an interest in or lien on any Purchased Mortgage Loan, Seller will hold or cause to be held all related Records in trust for Buyer.  Seller shall notify, or cause to be notified, every other party holding any such Records of the interests and liens in favor of Buyer granted hereby.

 

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(3)   Upon reasonable advance notice from Custodian or Buyer, Seller shall (x) make any and all such Records available to Custodian or Buyer to examine any such Records, either by its own officers or employees, or by agents or contractors, or both, and make copies of all or any portion thereof, and (y) permit Buyer or its authorized agents to discuss the affairs, finances and accounts of Seller with its chief operating officer and chief financial officer and to discuss the affairs, finances and accounts of Seller with its independent certified public accountants.

 

i.      Books.  Seller shall keep or cause to be kept in reasonable detail books and records of account of its assets and business and shall clearly reflect therein the transfer of Purchased Mortgage Loans to Buyer.

 

j.      Approvals.  Seller shall maintain all licenses, permits or other approvals necessary for Seller to conduct its business and to perform its obligations under the Program Agreements, and Seller shall conduct its business in all material respects in accordance with applicable law.

 

k.     Material Change in Business.  Neither Seller nor Guarantors shall  make any material change in the nature of its business as carried on at the date hereof.

 

l.      Underwriting Guidelines.  Without the prior written consent of Buyer, Seller shall not amend or otherwise modify the Underwriting Guidelines in any material respect.  Without limiting the foregoing, in the event that Seller makes any amendment or modification to the Underwriting Guidelines, Seller shall promptly deliver to Buyer a complete copy of the amended or modified Underwriting Guidelines, specifying in detail the amendments and modifications set forth therein from the previous copy delivered.

 

m.   Distributions. If an Event of Default has occurred and is continuing, neither Seller nor Guarantors shall pay any dividends with respect to any capital stock or other equity interests in such entity, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Seller or Guarantors.

 

n.     Applicable Law.  Seller and each Guarantor shall comply in all material respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority.

 

o.     Existence.  Seller and the Guarantors shall preserve and maintain their legal existence and all of their material rights, privileges, material licenses and franchises.

 

p.     Chief Executive Office; Jurisdiction of Organization.  Seller shall not move its chief executive office from the address referred to in Section 13(a)(17) or change its jurisdiction of organization from the jurisdiction referred to in Section 13(a)(17) unless it shall have provided Buyer 30 days’ prior written notice of such change.

 

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q.     Taxes.  Seller and each Guarantor shall timely file all tax returns that are required to be filed by them and shall timely pay and discharge all taxes, assessments and governmental charges or levies imposed on it or on its income or profits or on any of its property prior to the date on which penalties attach thereto, except for any such tax, assessment, charge or levy the payment of which is being contested in good faith and by proper proceedings and against which adequate reserves are being maintained.

 

r.      Transactions with Affiliates.  Seller will not enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of property or the rendering of any service, with any Affiliate unless such transaction is (a) otherwise permitted under the Program Agreements, (b) in the ordinary course of Seller’s business and (c) upon fair and reasonable terms no less favorable to Seller than it would obtain in a comparable arm’s length transaction with a Person which is not an Affiliate, or make a payment that is not otherwise permitted by this Section to any Affiliate.

 

s.     Guarantees.  Seller shall not create, incur, assume or suffer to exist any Guarantees, except (i) to the extent reflected in Seller’s financial statements or notes thereto and (ii) to the extent the aggregate Guarantees of Seller do not exceed $250,000.

 

t.      Indebtedness. Seller shall not incur any additional material Indebtedness (other than (i) the Existing Indebtedness in amounts not to exceed the amounts specified on Exhibit H hereto; (ii) usual and customary accounts payable for a mortgage company; (iii) Indebtedness incurred in connection with another secured lending facility; and (iv) Indebtedness incurred in connection with an intercompany lending agreement) without the prior written consent of Buyer.

 

u.     Hedging. Seller has entered into Interest Rate Protection Agreements with respect to the Purchased Mortgage Loans, having terms with respect to protection against fluctuations in interest rates acceptable to Buyer in its sole discretion.  In the event that Seller intends to make any change to its policy regarding Interest Rate Protection Agreements, Seller shall notify Buyer in writing 30 days prior to implementing any such change.

 

v.     True and Correct Information.  All information, reports, exhibits, schedules, financial statements or certificates of Seller, each Guarantor, any Affiliate thereof or any of their officers furnished to Buyer hereunder and during Buyer’s diligence of Seller and Guarantors are and will be true and complete and do not omit to disclose any material facts necessary to make the statements herein or therein, in light of the circumstances in which they are made, not misleading.  All required financial statements, information and reports delivered by Seller to Buyer pursuant to this Agreement shall be prepared in accordance with U.S. GAAP, or, if applicable, to SEC filings, the appropriate SEC accounting regulations.

 

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w.    Agency Approvals.  On and after approval by the Agencies, Seller shall maintain its status with Fannie Mae as an approved lender and Freddie Mac as an approved seller/servicer, in each case in good standing (“Agency Approvals”).  Seller shall service all Purchased Mortgage Loans which are Committed Mortgage Loans in accordance with the applicable Agency guide.  On and after approval by the Agencies, if Seller, for any reason, cease to possess all such applicable Agency Approvals, or should notification to the relevant Agency or to the Department of Housing and Urban Development, FHA or VA be required, Seller shall so notify Buyer immediately in writing.  Notwithstanding the preceding sentence, Seller shall take all necessary action to maintain all of its applicable Agency Approvals at all times during the term of this Agreement and each outstanding Transaction.

 

x.     Take-out Payments. With respect to each Committed Mortgage Loan, Seller shall arrange that all payments under the related Take-out Commitment shall be paid directly to Buyer at the account set forth in Section 9 hereof, or to an account approved by Buyer in writing prior to such payment. With respect to any Agency Take-out Commitment, if applicable, (1) with respect to the wire transfer instructions as set forth in Freddie Mac Form 987 (Wire Transfer Authorization for a Cash Warehouse Delivery) such wire transfer instructions are identical to Buyer’s wire instructions or Buyer has approved such wire transfer instructions in writing in its sole discretion, or (2) the Payee Number set forth on Fannie Mae Form 1068 (Fixed-Rate, Graduated-Payment, or Growing-Equity Mortgage Loan Schedule) or Fannie Mae Form 1069 (Adjustable-Rate Mortgage Loan Schedule), as applicable, shall be identical to the Payee Number that has been identified by Buyer in writing as Buyer’s Payee Number or Buyer shall have previously approved the related Payee Number in writing in its sole discretion; with respect to any Take-out Commitment with an Agency, the applicable agency documents shall list Buyer as sole subscriber, unless otherwise agreed to in writing by Buyer, in Buyer’s sole discretion.

 

y.     Reserved.

 

z.     Plan Assets. Neither Seller  nor Guarantors shall be an employee benefit plan as defined in Section 3 of Title I of ERISA, or a plan described in Section 4975(e)(1) of the Code and the Seller shall not use “plan assets” within the meaning of 29 CFR §2510.3 101, as amended by Section 3(42) of ERISA to engage in this Agreement or any Transaction hereunder. Transactions by or with Seller or Guarantors shall not be subject to any state or local statute regulating investments of or fiduciary obligations with respect to governmental plans within the meaning of Section 3(32) of ERISA.

 

aa.  Sharing of Information.  The Seller shall allow the Buyer to exchange information related to the Seller and the Transaction hereunder with third party lenders and the Seller shall permit each third party lender to share such information with the Buyer.

 

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bb.  DE Compare Ratio.  With respect to Seller, in the event that either (i) less than or (ii) equal to or greater than, in either case, 500 originations are used in determining the applicable DE Compare Ratio, then the (a) DE Compare (public) Ratio or (b) DE Compare (private) Ratio, as applicable, shall not exceed 150%.

 

cc.   Quality Control.  Seller shall maintain an internal quality control program that verifies, on a regular basis, the existence and accuracy of all legal documents, credit documents, property appraisals, and underwriting decisions related to Mortgage Loans.  Such program shall be capable of evaluating and monitoring the overall quality of Seller’s loan production and servicing activities.  Such program shall (i) ensure that the Mortgage Loans are originated and serviced in accordance with prudent mortgage banking practices and accounting principles; (ii) guard against dishonest, fraudulent, or negligent acts; and (iii) guard against errors and omissions by officers, employees, or other authorized persons.

 

dd.  Financial Covenants. Seller and Guarantor shall at all times comply with all financial covenants and/or financial ratios set forth below:

 

(i)                           Adjusted Tangible Net Worth.  (A) Seller shall maintain an Adjusted Tangible Net Worth of at least $150,000,000, (B) PennyMac Operating Partnership, L.P. shall maintain an Adjusted Tangible Net Worth of at least $700,000,000 and (C) PMIT shall maintain an Adjusted Tangible Net Worth of at least $860,000,000.

 

(ii)                        Indebtedness to Adjusted Tangible Net Worth Ratio.  Seller’s ratio of Indebtedness (on and off balance sheet) to Adjusted Tangible Net Worth shall not exceed 10:1.  PMIT’s ratio of Indebtedness (on and off balance sheet) to Adjusted Tangible Net Worth shall not exceed 5:1. PennyMac Operating Partnership, L.P.’s ratio of Indebtedness (on and off balance sheet) to Adjusted Tangible Net Worth shall not exceed 5:1.

 

(iii)                     Maintenance of Profitability.  Seller shall maintain profitability of at least $1.00 in Net Income for at least one of the two prior Test Periods.

 

(iv)                    Maintenance of Liquidity.  The Seller, PennyMac Operating Partnership, L.P. and PMIT shall ensure that, as of the end of each calendar month, they have consolidated cash and Cash Equivalents other than Restricted Cash in amounts not less than (i) with respect to the Seller, $10,000,000, (ii) with respect to PMIT, $40,000,000, (iii) with respect to PennyMac Operating Partnership, L.P., $40,000,000 and (iv) with respect to Seller and PMITH, $25,000,000 in the aggregate.

 

(v)                       Additional Warehouse Line.  The Seller shall maintain at least one additional warehouse or repurchase facility in a combined amount at least equal to the Maximum Combined Aggregate Purchase Price.

 

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ee.   Most Favored Status.  Seller, Guarantors and the Buyer each agree that should Seller enter into a Warehouse Facility with any Person other than the Buyer or an Affiliate of the Buyer which by its terms provides more favorable terms to the Buyer with respect to the financial covenants referred to in Section 14dd hereof (a “More Favorable Agreement”), the terms of this Agreement shall be deemed automatically amended to include such more favorable terms contained in such More Favorable Agreement; provided, that in the event that such More Favorable Agreement is terminated, upon notice by the Seller to the Buyer of such termination, the original terms of this Agreement shall be deemed to be automatically reinstated.  The Seller, the Guarantors, and the Buyer further agree to execute and deliver any new agreements or amendments to this Agreement evidencing such provisions, provided that the execution of such amendment shall not be a precondition to the effectiveness of such amendment, but shall merely be for the convenience of the parties hereto.  Promptly upon Seller entering into a repurchase agreement or other credit facility with any Person other than the Buyer, Seller shall notify Buyer that it has entered into such repurchase agreement or other credit facility and deliver to Buyer a summary of the material terms related to the comparable financial covenants of such repurchase agreement or other credit facility in form and substance acceptable to Buyer.

 

15.          Events of Default

 

Each of the following shall constitute an “Event of Default” hereunder:

 

a.     Payment Failure.  Failure of Seller to (i) make any payment of Price Differential or Repurchase Price or any other sum which has become due, on a Price Differential Payment Date or a Repurchase Date or otherwise, whether by acceleration or otherwise, under the terms of this Agreement, any other warehouse and security agreement or any other document evidencing or securing Indebtedness of Seller to Buyer or to any Affiliate of Buyer, or (ii) cure any Margin Deficit when due pursuant to Section 6 hereof.

 

b.     Cross Default.  Seller, any Guarantor or any Affiliates thereof shall be in default under (i) any Indebtedness, in the aggregate, in excess of $1.5 million of Seller, any Guarantor or any Affiliate thereof, which default (1) involves the failure to pay a matured obligation, or (2) permits the acceleration of the maturity of obligations by any other party to or beneficiary with respect to such Indebtedness, or (ii) any other contract or contracts, in the aggregate in excess of $1.5 million to which Seller, any Guarantor or any Affiliate thereof is a party which default (1) involves the failure to pay a matured obligation, or (2) permits the acceleration of the maturity of obligations by any other party to or beneficiary of such contract.

 

c.     Assignment.  Assignment or attempted assignment by Seller or any Guarantor of this Agreement or any rights hereunder without first obtaining the specific written consent of Buyer, or the granting by Seller of any security interest, lien or 

 

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other encumbrances on any Purchased Mortgage Loans to any person other than Buyer.

 

d.     Insolvency.  An Act of Insolvency shall have occurred with respect to Seller, any Guarantor or any Affiliate.

 

e.     Material Adverse Change.  Any material adverse change in the Property, business, financial condition or operations of Seller, any Guarantor or any of their Affiliates shall occur, in each case as determined by Buyer in its sole good faith discretion, or any other condition shall exist which, in Buyer’s sole good faith discretion, constitutes a material impairment of Seller’s ability to perform its obligations under this Agreement or any other Program Agreement.

 

f.     Breach of Specified Representation or Covenant or Obligation. A breach by Seller or either Guarantor of any of the representations, warranties or covenants or obligations set forth (i) in Sections 13(a)(1), 13(a)(7), 13(a)(12), 13(a)(19), 14b, 14m, 14o, 14s or 14z of this Agreement or (ii) Sections  13(a)(23), 14t, 14dd or 14ee of this Agreement and such breach identified in this clause (ii) shall remain unremedied for one Business Day.

 

g.     Breach of Take-out Payment Covenant.  A breach by Seller or any Guarantor of the covenant set forth in Section 14x, if such breach is not cured within one (1) Business Day.

 

h.     Breach of Non-Specified Representation or Covenant.  A breach by Seller or any Guarantor of any other representation, warranty or covenant set forth in this Agreement in any material respect (and not otherwise specified in Sections 15(f) and (g) above), if such breach is not cured within five (5) Business Days (other than the representations and warranties set forth in Schedule 1, which shall be considered solely for the purpose of determining the Asset Value, the existence of a Margin Deficit and the obligation to repurchase such Purchased Mortgage Loan) unless (i) such party shall have made any such representations and warranties with knowledge that they were materially false or misleading at the time made, (ii) any such representations and warranties have been determined by Buyer in its sole discretion to be materially false or misleading on a regular basis, or (iii) Buyer, in its sole discretion, determines that such breach of a material representation, warranty or covenant materially and adversely affects (A) the condition (financial or otherwise) of such party, its Subsidiaries or Affiliates; or (B) Buyer’s determination to enter into this Agreement or Transactions, with such party, then such breach shall constitute an immediate Event of Default and Seller shall have no cure right hereunder).

 

i.      Change of Control.  The occurrence of a Change in Control.

 

j.      Failure to Transfer.  Seller fails to transfer the Purchased Mortgage Loans to Buyer on the applicable Purchase Date (provided Buyer has tendered the related Purchase Price).

 

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k.     Judgment.  A final judgment or judgments for the payment of money in excess of $1,000,000 in the aggregate shall be rendered against the Seller or any of its Affiliates by one or more courts, administrative tribunals or other bodies having jurisdiction and the same shall not be satisfied, discharged (or provision shall not be made for such discharge) or bonded, or a stay of execution thereof shall not be procured, within 30 days from the date of entry thereof.

 

l.      Government Action.  Any Governmental Authority or any person, agency or entity acting or purporting to act under governmental authority shall have taken any action to condemn, seize or appropriate, or to assume custody or control of, all or any substantial part of the Property of Seller, Guarantors or any Affiliate thereof, or shall have taken any action to displace the management of Seller, Guarantors or any Affiliate thereof or to curtail its authority in the conduct of the business of Seller, Guarantors or any Affiliate thereof, or takes any action in the nature of enforcement to remove, limit or restrict the approval of Seller, Guarantors or Affiliate as an issuer, buyer or a seller/servicer of Mortgage Loans or securities backed thereby, and such action provided for in this Section 15l shall not have been discontinued or stayed within 30 days.

 

m.   Inability to Perform.  A Responsible Officer of Seller or any Guarantor shall admit its inability to, or its intention not to, perform any of the Obligations hereunder or any Guarantor’s obligations hereunder or under the Guaranty.

 

n.     Security Interest.  This Agreement shall for any reason cease to create a valid, first priority security interest in any material portion of the Purchased Mortgage Loans or other Repurchase Assets purported to be covered hereby.

 

o.     Financial Statements.  Seller’s or Guarantors’ audited annual financial statements or the notes thereto or other opinions or conclusions stated therein shall be qualified or limited by reference to the status of Seller or Guarantors as a “going concern” or a reference of similar import.

 

p.     Guarantor Breach.  A breach by any Guarantor of any material representation, warranty or covenant set forth in the Guaranty or any other Program Agreement, any “event of default” by any Guarantor under the Guaranty, any repudiation of the Guaranty by any Guarantor, or if the Guaranty is not enforceable against  any Guarantor.

 

q.     REIT Asset and Income Tests.  The failure of PennyMac Mortgage Investment Trust to satisfy any of the following asset or income tests and Buyer has delivered notice of an Event of Default to the Sellers with respect thereto:

 

(1)   At the close of each of PennyMac Mortgage Investment Trust’s taxable years, at least 75 percent of PennyMac Mortgage Investment Trust’s gross income (excluding gross income from “prohibited transactions” as defined in Section 857(b)(6)(B)(iii) of the Code and taking into account Section 856(c)(5)(G) of the Code) consists of (a) “rents from real property” within the

 

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meaning of Section 856(c)(3)(A) of the Code, (b) interest on obligations secured by mortgages on real property or on interests in real property, within the meaning of Section 856(c)(3)(B) of the Code, (c) gain from the sale or other disposition of real property (including interests in real property and interests in mortgages on real property) which is not property described in Section 1221(a)(1) of the Code, within the meaning of Section 856(c)(3)(C) of the Code, (d) dividends or other distributions on, and gain (other than gain from prohibited transactions) from the sale or other disposition of, transferable shares (or transferable certificates of beneficial interest) in other REITs, within the meaning of Section 856(c)(3)(D) of the Code, and (e) amounts described in Sections 856(c)(3)(E) through 856(c)(3)(I) of the Code.

 

(2)         At the close of each of PennyMac Mortgage Investment Trust’s taxable years, at least 95 percent of PennyMac Mortgage Investment Trust’s gross income (excluding gross income from “prohibited transactions” as defined in Section 857(b)(6)(iii) of the Code and taking into account Section 856(c)(5)(G) of the Code) consists of (a) the items of income described in paragraph (i) hereof (other than those described in Section 856(c)(3)(I) of the Code or the requirements in any successor or replacement provision in the Code), (b) gain realized from the sale or other disposition of stock or securities which are not property described in Section 1221(a)(1) of the Code or the requirements in any successor or replacement provision in the Code, if any, (c) interest and (d) dividends, in each case within the meaning of Section 856(c)(2) of the Code or the requirements in any successor or replacement provision thereto.

 

(3)         At the close of each quarter of each of PennyMac Mortgage Investment Trust’s taxable years, at least 75 percent of the value of PennyMac Mortgage Investment Trust’s total assets (as determined in accordance with Treasury Regulations Section 1.856-2(d)) consists of “real estate assets” within the meaning of Section 856(c)(5)(B) of the Code, cash and cash items (including receivables which arise in the ordinary course of PennyMac Mortgage Investment Trust’s operations, but not including receivables purchased from another person), and Government Securities; unless (a) the test described in this paragraph (iii) has been satisfied as of the end of the immediately preceding quarter of PennyMac Mortgage Investment Trust’s taxable year, (b) the failure of such test is the result of the acquisition of a security or property during the quarter of PennyMac Mortgage Investment Trust’s taxable year to which such failure relates, (c) PennyMac Mortgage Investment Trust delivers to Buyer prompt, but in no event more than 30 days after the end of the quarter of PennyMac Mortgage Investment Trust’s taxable year to which such failure relates, notice that such test is not satisfied, (d) such test is satisfied within the 30 day period prescribed by the last sentence of Section 856(c)(4) of the Code for such satisfaction, and (e) an officer of PennyMac Mortgage Investment Trust certifies as to such satisfaction within such 30 day period, and provides documentation reasonably satisfactory to Buyer evidencing such satisfaction.

 

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(4)         At the close of each quarter of each of PennyMac Mortgage Investment Trust’s taxable years, (a) not more than 25 percent of the value of PennyMac Mortgage Investment Trust’s total assets is represented by securities (other than those described in paragraph (iii)), (b) not more than 25 percent of the value of PennyMac Mortgage Investment Trust’s total assets is represented by securities of one or more “taxable REIT subsidiaries” (as defined in Section 856(1) of the Code), and (c) (1) not more than 5 percent of the value of PennyMac Mortgage Investment Trust’s total assets is represented by securities of any one issuer (other than Government Securities and securities of taxable REIT subsidiaries), and (2) PennyMac Mortgage Investment Trust does not hold securities possessing more than 10 percent of the total voting power or value of the outstanding securities of any one issuer (other than Government Securities and securities of taxable REIT subsidiaries); unless (aa) the tests described in this paragraph (iv) have been satisfied as of the end of the immediately preceding quarter of PennyMac Mortgage Investment Trust’s taxable year, (bb) the failure of any such test is the result of the acquisition of a security or property during the quarter of PennyMac Mortgage Investment Trust’s taxable year to which such failure relates, (cc)  PennyMac Mortgage Investment Trust delivers to Buyer, within 10 days of the end of the quarter of PennyMac Mortgage Investment Trust’s taxable year to which such failure relates, notice that such test is not satisfied, (dd) such test is satisfied within the 30 day period prescribed by the last sentence of Section 856(c)(4) of the Code for such satisfaction, and (ee) an officer of PennyMac Mortgage Investment Trust certifies as to such satisfaction within such 30 day period, and provides documentation reasonably satisfactory to Buyer evidencing such satisfaction.

 

r.                 Governmental Event.  Buyer shall determine, in its sole discretion, that a Governmental Event, individually or collectively, and whether unforeseen or arising out of Seller’s existing applications, communications and correspondence with any Governmental Authority or Person, has had, or is likely to have, a Material Adverse Effect, or an adverse effect upon its ability to perform its obligations under this Agreement or any other material agreement to which it is a party or that may otherwise materially impair, limit or restrict Seller’s ability to conduct its business or its operations.

 

An Event of Default shall be deemed to be continuing unless expressly waived by Buyer in writing.

 

16.                               Remedies Upon Default

 

In the event that an Event of Default shall have occurred:

 

a.              Buyer may, at its option (which option shall be deemed to have been exercised immediately upon the occurrence of an Act of Insolvency of Seller or any Affiliate), declare an Event of Default to have occurred hereunder and, upon the exercise or deemed exercise of such option, the Repurchase Date for each Transaction hereunder shall, if it has not already occurred, be deemed

 

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immediately to occur (except that, in the event that the Purchase Date for any Transaction has not yet occurred as of the date of such exercise or deemed exercise, such Transaction shall be deemed immediately canceled).  Buyer shall (except upon the occurrence of an Act of Insolvency) give notice to Seller and Guarantors of the exercise of such option as promptly as practicable.

 

b.              If Buyer exercises or is deemed to have exercised the option referred to in subparagraph (a) of this Section, (i) Seller’s obligations in such Transactions to repurchase all Purchased Mortgage Loans, at the Repurchase Price therefor on the Repurchase Date determined in accordance with subparagraph (a) of this Section, shall thereupon become immediately due and payable, (ii) all Income paid after such exercise or deemed exercise shall be retained by Buyer and applied, in Buyer’s sole discretion, to the aggregate unpaid Repurchase Prices for all outstanding Transactions and any other amounts owing by Seller hereunder, and (iii) Seller shall immediately deliver to Buyer the Mortgage Files relating to any Purchased Mortgage Loans subject to such Transactions then in Seller’s possession or control.

 

c.               Buyer also shall have the right to obtain physical possession, and to commence an action to obtain physical possession, of all Records and files of Seller relating to the Purchased Mortgage Loans and all documents relating to the Purchased Mortgage Loans (including, without limitation, any legal, credit or servicing files with respect to the Purchased Mortgage Loans) which are then or may thereafter come in to the possession of Seller or any third party acting for Seller.  To obtain physical possession of any Purchased Mortgage Loans held by Custodian, Buyer shall present to Custodian a Trust Receipt.  Without limiting the rights of Buyer hereto to pursue all other legal and equitable rights available to Buyer for Seller’s failure to perform its obligations under this Agreement, Seller acknowledges and agrees that the remedy at law for any failure to perform obligations hereunder would be inadequate and Buyer shall be entitled to specific performance, injunctive relief, or other equitable remedies in the event of any such failure. The availability of these remedies shall not prohibit Buyer from pursuing any other remedies for such breach, including the recovery of monetary damages.

 

d.              Buyer shall have the right to direct all servicers then servicing any Purchased Mortgage Loans to remit all collections thereon to Buyer, and if any such payments are received by Seller, Seller shall not commingle the amounts received with other funds of Seller and shall promptly pay them over to Buyer.  Buyer shall also have the right to terminate any one or all of the servicers then servicing any Purchased Mortgage Loans with or without cause.  In addition, Buyer shall have the right to immediately sell the Purchased Mortgage Loans and liquidate all Repurchase Assets.  Such disposition of Purchased Mortgage Loans may be, at Buyer’s option, on either a servicing-released or a servicing-retained basis.  Buyer shall not be required to give any warranties as to the Purchased Mortgage Loans with respect to any such disposition thereof.  Buyer may specifically disclaim or modify any warranties of title or the like relating to the Purchased Mortgage

 

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Loans.  The foregoing procedure for disposition of the Purchased Mortgage Loans and liquidation of the Repurchase Assets shall not be considered to adversely affect the commercial reasonableness of any sale thereof.  Seller agrees that it would not be commercially unreasonable for Buyer to dispose of the Purchased Mortgage Loans or the Repurchase Assets or any portion thereof by using Internet sites that provide for the auction of assets similar to the Purchased Mortgage Loans or the Repurchase Assets, or that have the reasonable capability of doing so, or that match buyers and sellers of assets.  Buyer shall be entitled to place the Purchased Mortgage Loans in a pool for issuance of mortgage-backed securities at the then-prevailing price for such securities and to sell such securities for such prevailing price in the open market.  Buyer shall also be entitled to sell any or all of such Mortgage Loans individually for the prevailing price. Buyer shall also be entitled, in its sole discretion to elect, in lieu of selling all or a portion of such Purchased Mortgage Loans, to give the Seller credit for such Purchased Mortgage Loans and the Repurchase Assets in an amount equal to the Market Value of the Purchased Mortgage Loans against the aggregate unpaid Repurchase Price and any other amounts owing by the Seller hereunder.

 

e.               Upon the happening of one or more Events of Default, Buyer may apply any proceeds from the liquidation of the Purchased Mortgage Loans and Repurchase Assets to the Repurchase Prices hereunder and all other Obligations in the manner Buyer deems appropriate in its sole discretion.

 

f.                Seller shall be liable to Buyer for (i) the amount of all reasonable legal or other expenses (including, without limitation, all costs and expenses of Buyer in connection with the enforcement of this Agreement or any other agreement evidencing a Transaction, whether in action, suit or litigation or bankruptcy, insolvency or other similar proceeding affecting  creditors’ rights generally, further including, without limitation, the reasonable fees and expenses of counsel (including the costs of internal counsel of Buyer) incurred in connection with or as a result of an Event of Default, (ii) damages in an amount equal to the cost (including all fees, expenses and commissions) of entering into replacement transactions and entering into or terminating hedge transactions in connection with or as a result of an Event of Default, and (iii) any other loss, damage, cost or expense directly arising or resulting from the occurrence of an Event of Default in respect of a Transaction.

 

g.               To the extent permitted by applicable law, Seller shall be liable to Buyer for interest on any amounts owing by Seller hereunder, from the date Seller becomes liable for such amounts hereunder until such amounts are (i) paid in full by Seller or (ii) satisfied in full by the exercise of Buyer’s rights hereunder.  Interest on any sum payable by Seller under this Section 16(g) shall accrue at a rate equal to the Post-Default Rate.

 

h.              Buyer shall have, in addition to its rights hereunder, any rights otherwise available to it under any other agreement or applicable law.

 

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i.                  Buyer may exercise one or more of the remedies available to Buyer immediately upon the occurrence of an Event of Default and, except to the extent provided in subsections (a) and (d) of this Section, at any time thereafter without notice to Seller.  All rights and remedies arising under this Agreement as amended from time to time hereunder are cumulative and not exclusive of any other rights or remedies which Buyer may have.

 

j.                 Buyer may enforce its rights and remedies hereunder without prior judicial process or hearing, and Seller hereby expressly waives any defenses Seller might otherwise have to require Buyer to enforce its rights by judicial process.  Seller also waives any defense (other than a defense of payment or performance) Seller might otherwise have arising from the use of nonjudicial process, enforcement and sale of all or any portion of the Repurchase Assets, or from any other election of remedies.  Seller recognizes that nonjudicial remedies are consistent with the usages of the trade, are responsive to commercial necessity and are the result of a bargain at arm’s length.

 

k.              Buyer shall have the right to perform reasonable due diligence with respect to Seller and the Mortgage Loans, which review shall be at the expense of Seller.

 

17.                               Reports

 

a.              Default Notices.  Seller  or Guarantors shall furnish to Buyer (i) promptly, copies of any material and adverse notices (including, without limitation, notices of defaults, breaches, potential defaults or potential breaches) and any material financial information that is not otherwise required to be provided by Seller hereunder which is given to Seller’s lenders and (ii) immediately, notice of the occurrence of any (A) Event of Default hereunder, (B) default or breach by Seller or Servicer or Guarantors of any obligation under any Program Agreement or any material contract or agreement of Seller or Servicer or Guarantors or (C) event or circumstance that such party reasonably expects has resulted in, or will, with the passage of time, result in, a Material Adverse Effect or an Event of Default or such a default or breach by such party.

 

b.              Financial Notices.  Seller or PennyMac Mortgage Investment Trust shall furnish to Buyer:

 

(1)         as soon as available and in any event within forty (40) calendar days after the end of each calendar month, the unaudited consolidated balance sheets of Seller and PennyMac Mortgage Investment Trust and their consolidated Subsidiaries as at the end of such period and the related unaudited consolidated statements of income and retained earnings for the Seller and PennyMac Mortgage Investment Trust and their consolidated Subsidiaries for such period and the portion of the fiscal year through the end of such period, accompanied by a certificate of a Responsible Officer of Seller and PennyMac Mortgage Investment Trust, which certificate shall state that said consolidated financial statements fairly present in all material respects the consolidated financial

 

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condition and results of operations of Seller and PennyMac Mortgage Investment Trust and their consolidated Subsidiaries in accordance with GAAP (other than solely with respect to footnotes, year-end adjustments and cash flow statements) consistently applied, as at the end of, and for, such period;

 

(2)         to the extent not filed with the SEC on EDGAR, as soon as available and in any event within ninety (90) days after the end of each fiscal year of Seller or PennyMac Mortgage Investment Trust, the consolidated balance sheets of Seller, PennyMac Mortgage Investment Trust and their consolidated Subsidiaries as at the end of such fiscal year and the related consolidated statements of income and retained earnings and of cash flows for the Seller or PennyMac Mortgage Investment Trust and their consolidated Subsidiaries for such year, setting forth in each case in comparative form the figures for the previous year, accompanied by an opinion thereon of independent certified public accountants of recognized national standing, which opinion and the scope of audit shall be acceptable to Buyer in its sole discretion, shall have no “going concern” qualification and shall state that said consolidated financial statements fairly present the consolidated financial condition and results of operations of Seller or PennyMac Mortgage Investment Trust and their respective consolidated Subsidiaries as at the end of, and for, such fiscal year in accordance with GAAP

 

(3)         at the time the Seller or PennyMac Mortgage Investment Trust furnish each set of financial statements pursuant to Section 17(b)(1) or (2) above (or, with respect to (2) above, at the time filed with the SEC on EDGAR), a certificate of a Responsible Officer of Seller in the form of Exhibit A to the Pricing Side Letter;

 

(4)         by access through Seller’s or PennyMac Mortgage Investment Trust’s website, copies of any 10-Ks, 10-Qs, registration statements and other “corporate finance” SEC filings by Seller or PennyMac Mortgage Investment Trust, within five (5) Business Days of its filing with the SEC; provided, that, Seller or PennyMac Mortgage Investment Trust will make available to Buyer on its website a copy of the annual 10-K filed with the SEC by Seller or PennyMac Mortgage Investment Trust, no later than ninety (90) days after the end of the year; and

 

(5)         as soon as available and in any event within thirty (30) days of receipt thereof:

 

(a)                                 reserved;

 

(b)                                 copies of relevant portions of all final written Agency, FHA, VA, Governmental Authority and investor audits, examinations, evaluations, monitoring reviews and reports of its operations (including those prepared on a contract basis) which provide for or relate to (i) material corrective action required, (ii) material sanctions proposed, imposed or required, including

 

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without limitation notices of defaults, notices of termination of approved status, notices of imposition of supervisory agreements or interim servicing agreements, and notices of probation, suspension, or non-renewal, or (iii) “report cards,” “grades” or other classifications of the quality of Seller’s operations to the extent applicable and/or permitted;

 

(c)                                  such other information regarding the financial condition, operations, or business of the Seller or Guarantors as Buyer may reasonably request; and

 

(d)                                 the particulars of any Event of Termination in reasonable detail.

 

c.               Notices of Certain Events.  As soon possible and in any event within five (5) Business Days of knowledge thereof, Seller shall furnish to Buyer notice of the following events:

 

(1)         a change in the insurance coverage required of Seller, Servicer or any other Person pursuant to any Program Agreement, with a copy of evidence of same attached;

 

(2)         any material dispute, litigation, investigation, proceeding or suspension between Seller or Servicer, on the one hand, and any Governmental Authority or any Person;

 

(3)         any material change in accounting policies or financial reporting practices of Seller or Servicer;

 

(4)         with respect to any Purchased Mortgage Loan, that the underlying Mortgaged Property has been damaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado or other casualty, or otherwise damaged so as to affect adversely the value of such Mortgaged Loan;

 

(5)         any material issues raised upon examination of Seller or Seller’s facilities by any Governmental Authority;

 

(6)         any material change in the Indebtedness of the Seller, including, without limitation, any default, renewal, non-renewal, termination, increase in available amount or decrease in available amount related thereto;

 

(7)         any default related to any Repurchase Asset or any lien or security interest (other than security interests created hereby or by the other Program Agreements) on, or claim asserted against, any of the Purchased Mortgage Loans;

 

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(8)         any other event, circumstance or condition that has resulted, or has a possibility of resulting, in a Material Adverse Effect with respect to Seller or Servicer;

 

(9)         the occurrence of any material employment dispute and a description of the strategy for resolving it that has the possibility of resulting in a Material Adverse Effect; and

 

(10)                          without limiting any of the other reporting obligations of Seller hereunder, Seller shall promptly notify Buyer of any Governmental Event or update thereto, and shall include the particulars of each update with sufficient detail as is satisfactory to Buyer.

 

d.              Portfolio Performance Data.  On the first Reporting Date of each calendar month, Seller will furnish to Buyer (i) in the event the Mortgage Loans are serviced on a “retained” basis, an electronic Mortgage Loan performance data, including, without limitation, delinquency reports and volume information, broken down by product (i.e., delinquency, foreclosure and net charge-off reports) and (ii) electronically, in a format mutually acceptable to Buyer and Seller, servicing information, including, without limitation, those fields reasonably requested by Buyer from time to time, on a loan-by-loan basis and in the aggregate, with respect to the Purchased Mortgage Loans serviced by Seller or any Servicer for the month (or any portion thereof) prior to the Reporting Date.  In addition to the foregoing information on each Reporting Date, Seller will furnish to Buyer such information upon (i) the occurrence and continuation of an Event of Default and (ii) upon any Purchased Mortgage Loan becoming an Aged Loan.

 

e.               Other Reports. Seller shall deliver to Buyer any other reports or information reasonably requested by Buyer or as otherwise required pursuant to this Agreement.

 

18.                               Repurchase Transactions

 

Buyer may, in its sole election, engage in repurchase transactions with the Purchased Mortgage Loans or otherwise pledge, hypothecate, assign, transfer or otherwise convey the Purchased Mortgage Loans with a counterparty of Buyer’s choice.  Unless an Event of Default shall have occurred, no such transaction shall relieve Buyer of its obligations to transfer Purchased Mortgage Loans to Seller pursuant to Section 4 hereof, or of Buyer’s obligation to credit or pay Income to, or apply Income to the obligations of, Seller pursuant to Section 7 hereof.  In the event Buyer engages in a repurchase transaction with any of the Purchased Mortgage Loans or otherwise pledges or hypothecates any of the Purchased Mortgage Loans, Buyer shall have the right to assign to Buyer’s counterparty any of the applicable representations or warranties herein and the remedies for breach thereof, as they relate to the Purchased Mortgage Loans that are subject to such repurchase transaction.

 

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19.                               Single Agreement

 

Buyer and Seller acknowledge they have 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.

 

20.                               Notices and Other Communications

 

Any and all notices (with the exception of Transaction Requests or Purchase Confirmations, which shall be delivered via facsimile only), statements, demands or other communications hereunder may be given by a party to the other by mail, email, facsimile, messenger or otherwise to the address specified below, or so sent to such party at any other place specified in a notice of change of address hereafter received by the other.  All notices, demands and requests hereunder may be made orally, to be confirmed promptly in writing, or by other communication as specified in the preceding sentence.  In all cases, to the extent that the related individual set forth in the respective “Attention” line is no longer employed by the respective Person, such notice may be given to the attention of a Responsible Officer of the respective Person or to the attention of such individual or individuals as subsequently notified in writing by a Responsible Officer of the respective Person.

 

If to Seller or Guarantors:

 

PennyMac Corp.
 6101 Condor Drive
 Moorpark, CA 93021
 Attention: Pamela Marsh/Michael Wong
 Phone Number: (805) 330-6059/(818) 224-7055
 E-mail: pamela.marsh@pnmac.com; michael.wong@pnmac.com

 

with a copy to:

 

PennyMac Corp.
 6101 Condor Drive
 Moorpark, CA 93021
 Attention: Jeff Grogin
 Phone Number: (818) 224-7050
 E-mail: jeff.grogin@pnmac.com

 

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If to Buyer:

 

For Transaction Requests and Purchase Confirmations:

 

CSFBMC LLC

c/o Credit Suisse Securities (USA) LLC

One Madison Avenue, 2nd floor

New York, New York  10010

Attention: Christopher Bergs, Resi Mortgage Warehouse Ops

Phone:  212-538-5087

E-mail: christopher.bergs@credit-suisse.com

 

with a copy to:

 

Credit Suisse First Boston Mortgage Capital LLC

c/o Credit Suisse Securities (USA) LLC

Eleven Madison Avenue, 4th Floor

New York, NY 10010

Attention: Bruce Kaiserman

E-mail: bruce.kaiserman@credit-suisse.com

 

For all other Notices:

 

Credit Suisse First Boston Mortgage Capital LLC

c/o Credit Suisse Securities (USA) LLC

Eleven Madison Avenue, 4th Floor

Attention: Margaret Dellafera

Phone Number: 212-325-6471

Fax Number:  212-743-4810

E-mail: margaret.dellafera@credit-suisse.com

 

with a copy to:

 

Credit Suisse First Boston Mortgage Capital LLC

c/o Credit Suisse Securities (USA) LLC

One Madison Avenue, 9th Floor

New York, NY 10010

Attention: Legal Department—RMBS Warehouse Lending

Fax Number: (212) 322-2376

 

21.                               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.

 

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22.                               Non assignability

 

The Program Agreements are not assignable by Seller or either Guarantor.  Buyer may from time to time assign all or a portion of its rights and obligations under this Agreement and the Program Agreements; provided, however that Buyer shall maintain as agent of Seller, for review by Seller upon written request, a register of assignees and a copy of an executed assignment and acceptance by Buyer and assignee (“Assignment and Acceptance”), specifying the percentage or portion of such rights and obligations assigned.  Upon such assignment, (a) such assignee shall be a party hereto and to each Program Agreement to the extent of the percentage or portion set forth in the Assignment and Acceptance, and shall succeed to the applicable rights and obligations of Buyer hereunder, and (b) Buyer shall, to the extent that such rights and obligations have been so assigned by it to either (i) an Affiliate of Buyer which assumes the obligations of Buyer or (ii)  another Person approved by Seller (such approval not to be unreasonably withheld) which assumes the obligations of Buyer, be released from its obligations hereunder and under the Program Agreements.  Unless otherwise stated in the Assignment and Acceptance, Seller shall continue to take directions solely from Buyer unless otherwise notified by Buyer in writing.  Buyer may distribute to any prospective assignee any document or other information delivered to Buyer by Seller.

 

23.                               Set-off

 

In addition to any rights and remedies of the Buyer hereunder and by law, the Buyer shall have the right, without prior notice to the Seller or Guarantors, any such notice being expressly waived by the Seller and Guarantors to the extent permitted by applicable law to set-off and appropriate and apply against any Obligation from Seller, any Guarantor or any Affiliate thereof to Buyer or any of its Affiliates any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other obligation (including to return excess margin), credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by or due from the Buyer or any Affiliate thereof to or for the credit or the account of the Seller, any Guarantor or any Affiliate thereof.  The Buyer agrees promptly to notify the Seller or Guarantors after any such set off and application made by the Buyer; provided that the failure to give such notice shall not affect the validity of such set off and application.

 

24.                               Binding Effect; Governing Law; Jurisdiction

 

a.              This Agreement shall be binding and inure to the benefit of the parties hereto and their respective successors and permitted assigns.  Seller acknowledges that the obligations of Buyer hereunder or otherwise are not the subject of any guaranty by, or recourse to, any direct or indirect parent or other Affiliate of Buyer.  THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF (EXCEPT FOR SECTION 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

 

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b.              SELLER AND EACH GUARANTOR HEREBY WAIVE TRIAL BY JURY.  SELLER AND EACH GUARANTOR HEREBY IRREVOCABLY CONSENT TO THE EXCLUSIVE JURISDICTION OF ANY COURT OF THE STATE OF NEW YORK, OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, ARISING OUT OF OR RELATING TO THE PROGRAM AGREEMENTS IN ANY ACTION OR PROCEEDING.  SELLER AND EACH GUARANTOR HEREBY SUBMIT TO, AND WAIVE ANY OBJECTION THEY MAY HAVE TO, EXCLUSIVE PERSONAL JURISDICTION AND VENUE IN THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, WITH RESPECT TO ANY DISPUTES ARISING OUT OF OR RELATING TO THE PROGRAM AGREEMENTS.

 

25.                               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 Section 6(a), 16(a) or otherwise, will not constitute a waiver of any right to do so at a later date.

 

26.                               Intent

 

a.              The parties intend that: (i) each Transaction is a “repurchase agreement” as that term is defined in section 101(47) of the Bankruptcy Code, and, therefore, are subject to the protections of certain sections of the Bankruptcy Code including, without limitation, section 559 with respect to the exercise by Buyer of its rights hereunder to cause the liquidation, termination, or acceleration of such Transactions upon Seller becoming the subject of a proceeding under the Bankruptcy Code, (ii) each Transaction is a “securities contract” as that term is defined in Section 741 of the Bankruptcy Code, and, therefore, are subject to the protections of certain sections of the Bankruptcy Code including, without limitation, section 555 with respect to the exercise by Buyer of its rights hereunder to cause the liquidation, termination, or acceleration of such Transactions upon Seller becoming the subject of a proceeding under the Bankruptcy Code, and (iii) this Agreement is a “master netting agreement,” as that term is defined in section 101(38A) of the Bankruptcy Code and, therefore, is subject to the protections of certain sections of the Bankruptcy Code including without limitation, section 561 with respect to Buyer’s rights to offset or net termination values, payment amounts, or other transfer obligations arising under or in connection with the termination, liquidation, or acceleration of Transactions hereunder.

 

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b.              The parties agree and acknowledge that if a party hereto is an “insured depository institution,” as such term is defined in the Federal Deposit Insurance Act, as amended (“FDIA”), then each Transaction hereunder is a “qualified financial contract,” as that term is defined in FDIA and any rules, orders or policy statements thereunder (except insofar as the type of assets subject to such Transaction would render such definition inapplicable).

 

c.               It is understood that this Agreement constitutes a “netting contract” as defined in and subject to Title IV of the Federal Deposit Insurance Corporation Improvement Act of 1991 (“FDICIA”) and each payment entitlement and payment obligation under any Transaction hereunder shall constitute a “covered contractual payment entitlement” or “covered contractual payment obligation”, respectively, as defined in and subject to FDICIA (except insofar as one or both of the parties is not a “financial institution” as that term is defined in FDICIA).

 

d.              For U.S. federal tax purposes, the Seller, the Guarantors, the Buyer, and each Buyer assignee by acquiring an interest in any Transaction agree to treat and report each Transaction as indebtedness issued by Guarantor or Seller as the case may be, which indebtedness, in the case of each obligor, shall have but a single maturity for purposes of Code section 7701(i)(2)(A)(ii) and U.S. Treasury Regulation section 301.7701(i)-1(e).

 

e.               Each party agrees that this Agreement is intended to create mutuality of obligations among the parties, and as such, the Agreement constitutes a contract which (i) is between all of the parties and (ii) places each party in the same “right” and “capacity”.

 

27.                               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 SEC under Section 15 of the 1934 Act, the Securities Investor Protection Corporation has taken the position that the provisions of the SIPA do not protect the other party with respect to any Transaction hereunder;

 

b.              in the case of Transactions in which one of the parties is a government securities broker or a government securities dealer registered with the SEC under Section 15C of the 1934 Act, SIPA will not provide protection to the other party with respect to any Transaction hereunder; and

 

c.               in the case of Transactions in which one of the parties is a financial institution, funds held by the financial institution pursuant to a Transaction hereunder are not a deposit and therefore are not insured by the Federal Deposit Insurance Corporation or the National Credit Union Share Insurance Fund, as applicable.

 

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28.                               Power of Attorney

 

Seller hereby authorizes Buyer to file such financing statement or statements relating to the Repurchase Assets without Seller’s signature thereon as Buyer, at its option, may deem appropriate.  Seller hereby appoints Buyer as Seller’s agent and attorney-in-fact to execute any such financing statement or statements in Seller’s name and to perform all other acts which Buyer deems appropriate to perfect and continue its ownership interest in and/or the security interest granted hereby, if applicable, and to protect, preserve and realize upon the Repurchase Assets, including, but not limited to, the right to endorse notes, complete blanks in documents, transfer servicing, and sign assignments on behalf of Seller as its agent and attorney-in-fact.  This agency and power of attorney is coupled with an interest and is irrevocable without Buyer’s consent.  Notwithstanding the foregoing, the power of attorney hereby granted may be exercised only during the occurrence and continuance of any Default hereunder. Seller shall pay the filing costs for any financing statement or statements prepared pursuant to this Section 28.  In addition the foregoing, the Seller agrees to execute an amended and restated power of attorney, the form of Exhibit D hereto (the “Power of Attorney”), to be delivered on the date hereof.

 

29.                               Buyer May Act Through Affiliates

 

Buyer may, from time to time, designate one or more Affiliates for the purpose of performing any action hereunder.

 

30.                               Indemnification; Obligations

 

a.              Each of Seller and each Guarantor agrees to hold Buyer and each of its respective Affiliates and their officers, directors, employees, agents and advisors (each, an “Indemnified Party”) harmless from and indemnify each Indemnified Party (and will reimburse each Indemnified Party as the same is incurred) against all liabilities, losses, damages, judgments, costs and expenses (including, without limitation, reasonable fees and expenses of counsel) of any kind which may be imposed on, incurred by, or asserted against any Indemnified Party relating to or arising out of this Agreement, any Transaction Request, Purchase Confirmation, any Program Agreement or any transaction contemplated hereby or thereby resulting from anything other than the Indemnified Party’s gross negligence or willful misconduct.  Each of Seller and each Guarantor also agrees to reimburse each Indemnified Party for all reasonable expenses in connection with the enforcement of this Agreement and the exercise of any right or remedy provided for herein, any Transaction Request, Purchase Confirmation and any Program Agreement, including, without limitation, the reasonable fees and disbursements of counsel.  Seller’s and each Guarantor’s agreements in this Section 30 shall survive the payment in full of the Repurchase Price and the expiration or termination of this Agreement.  Each of Seller and each Guarantor hereby acknowledges that its obligations hereunder are recourse obligations of Seller and  such Guarantor and are not limited to recoveries each Indemnified Party may have with respect to the Purchased Mortgage Loans.  Each of Seller and each Guarantor also agrees not to assert any claim against Buyer or any of its Affiliates, or any of their respective officers, directors, employees, attorneys and

 

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agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the facility established hereunder, the actual or proposed use of the proceeds of the Transactions, this Agreement or any of the transactions contemplated thereby.  THE FOREGOING INDEMNITY AND AGREEMENT NOT TO ASSERT CLAIMS EXPRESSLY APPLIES, WITHOUT LIMITATION, TO THE NEGLIGENCE (BUT NOT GROSS NEGLIGENCE OR WILLFUL MISCONDUCT) OF THE INDEMNIFIED PARTIES.

 

b.              Without limitation to the provisions of Section 4, if any payment of the Repurchase Price of any Transaction is made by Seller other than on the then scheduled Repurchase Date thereto as a result of an acceleration of the Repurchase Date pursuant to Section 16 or for any other reason, Seller shall, upon demand by Buyer, pay to Buyer an amount sufficient to compensate Buyer for any losses, costs or expenses that it may reasonably incur as of a result of such payment.

 

c.               Without limiting the provisions of Section 30(a) hereof, if Seller fails to pay when due any costs, expenses or other amounts payable by it under this Agreement, including, without limitation, fees and expenses of counsel and indemnities, such amount may be paid on behalf of Seller by Buyer, in its sole discretion.

 

31.                               Counterparts

 

This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, and all such counterparts shall together constitute one and the same instrument.

 

32.                               Confidentiality

 

a.              This Agreement and its terms, provisions, supplements and amendments, and notices hereunder, are proprietary to Buyer and shall be held by Seller and each Guarantor in strict confidence and shall not be disclosed to any third party without the written consent of Buyer except for (i) disclosure to Seller’s or Guarantors’ direct and indirect Affiliates and Subsidiaries, attorneys or accountants, but only to the extent such disclosure is necessary and such parties agree to hold all information in strict confidence, or (ii)  disclosure required by law, rule, regulation or order of a court or other regulatory body.  Notwithstanding the foregoing or anything to the contrary contained herein or in any other Program Agreement, the parties hereto may disclose to any and all Persons, without limitation of any kind, the federal, state and local tax treatment of the Transactions, any fact relevant to understanding the federal, state and local tax treatment of the Transactions, and all materials of any kind (including opinions or other tax analyses) relating to such federal, state and local tax treatment and that may be relevant to understanding such tax treatment; provided that Seller may not disclose the name of or identifying information with respect to Buyer or any

 

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pricing terms (including, without limitation, the Pricing Rate, Commitment Fee, Purchase Price Percentage and Purchase Price) or other nonpublic business or financial information (including any sublimits and financial covenants) that is unrelated to the federal, state and local tax treatment of the Transactions and is not relevant to understanding the federal, state and local tax treatment of the Transactions, without the prior written consent of the Buyer.

 

b.              Notwithstanding anything in this Agreement to the contrary, the Seller shall comply with all applicable local, state and federal laws, including, without limitation, all privacy and data protection law, rules and regulations that are applicable to the Purchased Mortgage Loans and/or any applicable terms of this Agreement (the “Confidential Information”).  The Seller understands that the Confidential Information may contain “nonpublic personal information”, as that term is defined in Section 509(4) of the Gramm-Leach-Bliley Act (the “Act”), and the Seller agrees to maintain such nonpublic personal information that it receives hereunder in accordance with the Act and other applicable federal and state privacy laws.  The Seller shall implement such physical and other security measures as shall be necessary to (a) ensure the security and confidentiality of the “nonpublic personal information” of the “customers” and “consumers” (as those terms are defined in the Act) of Buyer or any Affiliate of Buyer which the Seller holds, (b) protect against any threats or hazards to the security and integrity of such nonpublic personal information, and (c) protect against any unauthorized access to or use of such nonpublic personal information. The Seller represents and warrants that it has implemented appropriate measures to meet the objectives of Section 501(b) of the Act and of the applicable standards adopted pursuant thereto, as now or hereafter in effect.  Upon request, the Seller will provide evidence reasonably satisfactory to allow Buyer to confirm that the providing party has satisfied its obligations as required under this Section.  Without limitation, this may include Buyer’s review of audits, summaries of test results, and other equivalent evaluations of the Seller.  The Seller shall notify Buyer immediately following discovery of any breach or compromise of the security, confidentiality, or integrity of nonpublic personal information of the customers and consumers of Buyer or any Affiliate of Buyer provided directly to the Seller by Buyer or such Affiliate.  The Seller shall provide such notice to Buyer by personal delivery, by facsimile with confirmation of receipt, or by overnight courier with confirmation of receipt to the applicable requesting individual.

 

33.                               Recording of Communications

 

Buyer, Seller and Guarantors shall have the right (but not the obligation) from time to time to make or cause to be made tape recordings of communications between its employees and those of the other party with respect to Transactions.  Buyer, Seller and Guarantors consent to the admissibility of such tape recordings in any court, arbitration, or other proceedings.  The parties agree that a duly authenticated transcript of such a tape recording shall be deemed to be a writing conclusively evidencing the parties’ agreement.

 

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34.                               Commitment Fee

 

Seller shall pay to Buyer in immediately available funds, due and owing on the date hereof, a non refundable Commitment Fee.  The Commitment Fee shall be a per annum amount set forth in the Pricing Side Letter paid in equal installments every three months commencing on the Price Differential Payment Date.  All such payments shall be made in Dollars, in immediately available funds, without deduction, set-off or counterclaim, to Buyer at such account designated by Buyer.

 

35.                               Reserved

 

36.                               Periodic Due Diligence Review

 

Seller acknowledges that Buyer has the right to perform continuing due diligence reviews with respect to the Seller and the Mortgage Loans, for purposes of verifying compliance with the representations, warranties and specifications made hereunder, for the purpose of performing quality control review of the Mortgage Loans or otherwise, and Seller agrees that upon reasonable (but no less than one (1) Business Day’s) prior notice unless an Event of Default shall have occurred, in which case no notice is required, to Seller, Buyer or its authorized representatives will be permitted during normal business hours to examine, inspect, and make copies and extracts of, the Mortgage Files and any and all documents, data, records, agreements, instruments or information relating to such Mortgage Loans (including, without limitation, quality control review) in the possession or under the control of Seller and/or the Custodian.  Seller also shall make available to Buyer a knowledgeable financial or accounting officer for the purpose of answering questions respecting the Mortgage Files and the Mortgage Loans.  Without limiting the generality of the foregoing, Seller acknowledges that Buyer may purchase Mortgage Loans from Seller based solely upon the information provided by Seller to Buyer in the Mortgage Loan Schedule and the representations, warranties and covenants contained herein, and that Buyer, at its option, has the right at any time to conduct a partial or complete due diligence review on some or all of the Mortgage Loans purchased in a Transaction, including, without limitation, ordering Broker’s price opinions, new credit reports and new appraisals on the related Mortgaged Properties and otherwise re-generating the information used to originate such Mortgage Loan.  Buyer may underwrite such Mortgage Loans itself or engage a mutually agreed upon third party underwriter to perform such underwriting.  Seller agrees to cooperate with Buyer and any third party underwriter in connection with such underwriting, including, but not limited to, providing Buyer and any third party underwriter with access to any and all documents, records, agreements, instruments or information relating to such Mortgage Loans in the possession, or under the control, of Seller.  Seller further agrees that Seller shall pay all out- of-pocket costs and expenses incurred by Buyer in connection with Buyer’s activities pursuant to this Section 36 (“Due Diligence Costs”).

 

37.                               Authorizations

 

Any of the persons whose signatures and titles appear on Schedule 2 are authorized, acting singly, to act for Seller or Buyer, as the case may be, under this Agreement.

 

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38.                               Acknowledgement Of Anti-Predatory Lending Policies

 

Buyer has in place internal policies and procedures that expressly prohibit its purchase of any High Cost Mortgage Loan.

 

39.                               Documents Mutually Drafted

 

The Seller and the Buyer agree that this Agreement and each other Program Agreement prepared in connection with the Transactions set forth herein have been mutually drafted and negotiated by each party, and consequently such documents shall not be construed against either party as the drafter thereof.

 

40.                               General Interpretive Principles

 

For purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:

 

a.              the terms defined in this Agreement have the meanings assigned to them in this Agreement and include the plural as well as the singular, and the use of any gender herein shall be deemed to include the other gender;

 

b.              accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP;

 

c.               references herein to “Articles”, “Sections”, “Subsections”, “Paragraphs”, and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, Paragraphs and other subdivisions of this Agreement;

 

d.              a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to Paragraphs and other subdivisions;

 

e.               the words “herein”, “hereof”, “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision;

 

f.                the term “include” or “including” shall mean without limitation by reason of enumeration;

 

g.               all times specified herein or in any other Program Agreement  (unless expressly specified otherwise) are local times in New York, New York unless otherwise stated; and

 

h.              all references herein or in any Program Agreement to “good faith” means good faith as defined in Section 1-201(19) of the UCC as in effect in the State of New York.

 

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41.                               Amendment and Restatement

 

The terms and provisions of the Existing Master Repurchase Agreement shall be amended and restated in their entirety by the terms and provisions of this Agreement and shall supersede all provisions of the Existing Master Repurchase Agreement as of the date hereof.  From and after the date hereof, all references made to the Existing Master Repurchase Agreement in any Program Agreement or in any other instrument or document shall, without more, be deemed to refer to this Agreement.

 

42.                               Reaffirmation of Guaranty

 

Each Guarantor hereby (i) agrees that the liability of Guarantor or rights of Buyer under the Guaranty shall not be affected as a result of amending and restating this Agreement, (ii) ratifies and affirms all of the terms, covenants, conditions and obligations of the Guaranty and (iii) acknowledges and agrees that such Guaranty is and shall continue to be in full force and effect.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the date first above written.

 

 

Credit Suisse First Boston Mortgage Capital LLC, as Buyer

 

 

	
By:
    	
/s/   Adam Loskove
    	
 
    
	
 
    	
Name:   Adam Loskove
    	
 
    
	
 
    	
Title:   Vice President
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
PennyMac   Corp., as Seller
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Pamela Marsh
    	
 
    
	
 
    	
Name:   Pamela Marsh
    	
 
    
	
 
    	
Title:   Managing Director and Treasurer
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
PennyMac   Mortgage Investment Trust, as Guarantor
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Pamela Marsh
    	
 
    
	
 
    	
Name:   Pamela Marsh
    	
 
    
	
 
    	
Title:   Managing Director and Treasurer
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
PennyMac   Operating Partnership, L.P., as Guarantor
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:   PennyMac GP OP, Inc., its General Partner
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Pamela Marsh
    	
 
    
	
 
    	
Name:   Pamela Marsh
    	
 
    
	
 
    	
Title:   Managing Director and Treasurer
    	
 
    

 

Signature Page to the Amended and Restated Master Repurchase Agreement

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00218-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00218-of-00352.parquet"}]]