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CONFIDENTIAL TREATMENT REQUESTED
EXHIBIT 10.89
PARTICIPATION AGREEMENT
This Agreement ("Agreement"), dated as of June 29, 1998, is
made by and between MEGO MORTGAGE CORPORATION, a Delaware corporation, ("Mego")
with offices at 0000 Xxxxxxxx Xxxxxx, Xxxxx Xxxxx, Xxxxxxx, Xxxxxxx 00000 (the
"Seller") and SOVEREIGN BANK, a federally chartered savings bank with offices at
0000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxxxx, Xxxxxxxxxxxx 00000 ("Participant").
RECITALS:
A. Seller is an originator of residential mortgage loans and
may from time to time desire to offer to sell 100% participation interests to
Participant in such loans pursuant to this Agreement.
B. Participant may from time to time purchase some or all of
such participation interests offered by Seller.
C. Seller and Participant wish to set forth the terms and
conditions of Participant's commitment to purchase such participation interests
from Seller.
NOW, THEREFORE, in consideration of the promises and of the
mutual covenants herein contained and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE I.
DEFINITIONS; CONSTRUCTION
1.1 Certain Definitions. In addition to other words and terms
defined elsewhere in this Agreement, as used herein the following words and
terms shall have the following meanings, respectively, unless the context hereof
otherwise clearly requires:
"125 Mortgage Loan" shall mean any Mortgage Loan as
to which the original principal amount plus the amount of any Liens
senior in priority to the Mortgage Loan exceeds the appraised value of
the Mortgaged Property.
"Acceptance Sheet" shall have the meaning given that
term in the Flow Agreement.
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"Acceptance Sheet Mortgage Loan" shall mean any
Mortgage Loan as to which an Acceptance Sheet has been issued.
"Affiliate" shall mean, as to any Person, each other
Person that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, the
Person in question.
"Approved Private Investor" shall have the meaning
given that term in the Custodian Agreement.
"Average Participation Portfolio Balance" means the
average daily Participation Portfolio Balance during the calendar month
immediately preceding the month in which the calculation is made.
"Bailment Agreement" shall have the meaning given
that term in the Custodian Agreement.
"Basic Agreements" means this Agreement, the
Custodian Agreement and the Bailment Agreement and all instruments,
agreements and documents executed in connection with any of the
foregoing.
"Business Day" shall have the meaning given that term
in the Custodian Agreement.
"Change of Control" shall mean the first to occur of:
(a) any "Person" becoming or obtaining
the contractual right to become the beneficial owner, directly or
indirectly, of 10% or more of the combined voting power of the Seller's
then outstanding securities other than a Person who, as of the date
hereof, is or has the right to become the beneficial owner, directly or
indirectly, of 10% or more the combined voting power of the Seller's
outstanding securities;
(b) a contested proxy solicitation of
the Seller's shareholders that results in the contesting party
obtaining the ability to vote securities representing 10% or more of
the combined voting power of the Seller's then outstanding securities
unless the contesting party is a Person who, as of the date hereof, is
or has the right to become the beneficial owner, directly or
indirectly, of 10% or more of the combined voting power of the Seller's
outstanding securities;
(c) a binding written agreement is
executed (and, if legally required, approved by the Seller's
shareholders) providing for a sale, exchange, transfer or other
disposition of substantially all of the assets of the Seller to another
entity;
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(d) the shareholders of the Seller
approve a merger, consolidation, or other reorganization of the Seller;
(e) a plan of liquidation or dissolution
of the Seller, other than pursuant to bankruptcy or insolvency laws, is
adopted; or
(f) during any period of two consecutive
years, individuals who, at the beginning of such period, constituted
the board of directors cease for any reason to constitute at least a
majority of the board unless the election or nomination for election by
the Seller's shareholders of each new director was approved by a vote
of at least two-thirds of the directors then still in office who were
directors at the beginning of the period.
Notwithstanding clause (a) of the preceding
paragraph, a Change in Control shall not be deemed to have occurred if
a Person becomes the beneficial owner, directly or indirectly, of 10%
or more of the combined voting power of the Seller's then outstanding
securities solely as a result of an acquisition by the Seller of its
voting securities which, by reducing the number of shares outstanding,
increases the proportionate number of shares beneficially owned by such
Person to 10% or more of the combined voting power of the Seller's then
outstanding securities; provided, however, that if a Person becomes a
beneficial owner of 10% or more of the combined voting power of the
Seller's then outstanding securities by reason of share purchases by
the Seller and shall, after such share purchases by the Seller, become
the beneficial owner, directly or indirectly, of any additional voting
securities of the Seller (other than as a result of a stock split,
stock dividend or similar transaction), the a Change in Control of the
Seller shall be deemed to have occurred with respect to such Person
under clause (a) of the preceding paragraph.
"City National" shall mean City National Bank of West
Virginia.
"City National Stock Purchase Agreement" shall mean
that certain agreement dated as of June 9, 1998 pursuant to which City
National will purchase convertible preferred stock of the Seller.
"Commitment" shall have the meaning given that term
in the Custodian Agreement.
"Custodian" shall mean State Street Bank and Trust
Company or its successors from time to time as Custodian under the
Custodian Agreement
"Custodian Agreement" shall mean that certain
Custodian Agreement dated as of June 29, 1998, among Seller,
Participant and Custodian.
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"Dry Loan" shall mean a Mortgage Loan as to which
either the Custodian, the Participant or an Approved Private Investor
has possession of the Mortgage Documents.
"Event of Purchase Termination" shall have the
meaning given that term in Section 6.1 hereof.
"Event of Servicing Termination" shall have the
meaning given that term in Section 6.3 hereof.
"FDIC" shall mean the Federal Deposit Insurance
Corporation or its successors.
"FHA" shall mean the Federal Housing Administration
or its successors.
"FHLMC" shall mean the Federal Home Loan Mortgage
Corporation or its successors.
"Fico Score" shall mean the arithmetic score of an
Obligor on the "delinquency predictor" model established by Fair Xxxxx
Co. and shown on a credit report prepared by Equifax, Inc., TRW or
Trans Union.
"FIRREA" shall mean the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, as amended.
"Flood Insurance Policy" shall have the meaning given
that term in Section 4.1(f) hereof, and shall also mean any replacement
policy obtained in accordance with Section 3.6(b) hereof.
"Flow Agreement" shall mean that certain Master
Mortgage Loan Purchase Agreement dated as of June 29, 1998 by and
between the Seller and the Participant.
"FNMA" shall mean the Federal National Mortgage
Association or its successors.
"GAAP" shall mean generally accepted accounting
principles, as in effect from time to time, consistently applied.
"GNMA" shall mean the Government National Mortgage
Association or its successors.
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"Governmental Authority" shall mean any government or
political subdivision or any agency, authority, bureau, central bank,
commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or
domestic.
"Hazard Insurance Policy" shall have the meaning
given that term in Section 4.1(f) hereof, and shall also mean any
replacement policy obtained in accordance with Section 3.6(b) hereof.
"HUD" shall mean the United States Department of
Housing and Urban Development or its successors.
"Indemnified Person" shall have the meaning given
that term in Section 7.4 hereof.
"Indemnifying Person" shall have the meaning given
that term in Section 7.4 hereof.
"Initial Credit File" with respect to a given
Mortgage Loan shall mean a file comprised of a true and correct copy of
each of the following documents relating to such Mortgage Loan (all of
which shall be complete and executed by all parties except as set forth
below, and all of which shall comply with applicable underwriting
standards and applicable law):
(a) Form of Mortgage Note (not executed by
the Obligor but otherwise complete);
(b) Form of Mortgage (not executed by the
Obligor but otherwise complete);
(c) Form of Assignment (not executed by the
Seller but otherwise complete);
(d) Residential loan application, executed
by the Obligor (which shall be in the form required by FNMA and
otherwise reasonably acceptable to Participant and shall among other
things, disclose the purpose for which the Mortgage Loan is sought and
the identity of the Mortgaged Property, and which shall disclose the
purchase price of the Mortgaged Property);
(e) Obligor's financial statement, or
written credit report;
(f) Verification of Obligor's employment;
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(g) Verification of Obligor's down payment
(if applicable);
(h) Verification of Obligor's income;
(i) Records verifying payment of applicable
taxes, assessments and insurance premiums with respect to the Mortgaged
Property;
(j) Verification of Obligor's previous
mortgage or rent payment record;
(k) If applicable, agreement of sale with
respect to the Mortgaged Property, executed by Obligor and the seller;
(l) Appraisal report (to the extent
required by, and in compliance with, applicable underwriting standards
or applicable law);
(m) Survey (to the extent required by, and
in compliance with, applicable underwriting standards, FIRREA, and
other applicable law);
(n) Mortgage Insurance Policy certification
(to the extent required by, and in compliance with, this Agreement,
applicable underwriting standards or applicable law);
(o) Hazard Insurance Policy certification
and, to the extent required by applicable underwriting standards or
applicable law, Flood Insurance Policy certificate; and
(p) Title report and, to the extent required
pursuant to the underwriting guidelines of the Participant or any
applicable Approved Private Investor, title insurance commitment
binder, with all endorsements.
"Investor Proceeds" shall have the meaning given that
term in Section 2.1(i)(a) hereof.
"Law" shall mean any law (including common law),
constitution, statute, treaty, convention, regulation, rule, ordinance,
order, injunction, writ, decree or award of any Governmental Authority.
"Legal Documents" shall, as to a given Mortgage Loan,
collectively refer to (a) the executed original Mortgage Note, duly
endorsed in blank by Seller; (b) a copy of the executed original
Mortgage; and (c) a fully executed original Assignment in blank.
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"Libor" shall mean the rate per annum for U.S. dollar
deposits of one (1) month maturity as reported on Telerate page 3750
(or any successor page) as of 11:00 a.m. London time, on the first
London business day of the relevant interest period (or if not so
reported, then as determined by the Participant by reference to another
recognized source or interbank quotation).
"Lien" shall mean any security interest, pledge,
lien, mortgage, assignment, charge, participation, ownership, interest,
or other encumbrance, security arrangement or adverse claim of any
nature whatsoever.
"Majority Owned Subsidiary" shall have the meaning
given that term in Section 5.16 hereof.
"Mortgage" shall mean, as to a given Mortgage Loan,
the fully executed, acknowledged and recorded mortgage, deed to secure
debt, deed of trust or similar instrument customarily used in the
jurisdiction in which the Mortgaged Property is situate securing such
Mortgage Loan (including all riders, addenda or other supplements
thereto).
"Mortgage Documents" shall have the meaning given
that term in the Custodian Agreement.
"Mortgage Insurance Policy" shall have the meaning
given that term in Section 4.1(g) hereof, and shall also mean any
replacement policy obtained in accordance with Section 3.6(b) hereof.
"Mortgage Loan" shall mean a mortgage loan (either a
Qualifying Mortgage Loan or a Non-Qualifying Mortgage Loan) in which
Participant purchases a Participation pursuant to this Agreement.
"Mortgage Note" shall mean, with respect to a given
Mortgage Loan, the fully executed promissory note evidencing the
underlying obligor's indebtedness to Seller on the Mortgage Loan
(including all riders, addenda or other supplements thereto).
"Mortgaged Property" shall mean, as to a given
Mortgage Loan, all lands, tenements, hereditaments, appurtenances and
real property encumbered by the Mortgage.
"Net Worth" shall mean net worth defined according to
GAAP consistently applied from period to period.
"Non-Qualifying Mortgage Loan" shall mean a mortgage
loan which is not a Qualifying Mortgage Loan.
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"Obligor" with respect to a given Mortgage Loan shall
mean the maker or makers of the Mortgage Note evidencing such Mortgage
Loan, their heirs, personal representatives and permitted assigns.
"OTS" shall mean the Office of Thrift Supervision.
"Outstanding Participation Purchase Price" shall mean
the Participation Purchase Price minus all reductions to the
Outstanding Participation Purchase Price pursuant to Section 3.3
hereof.
"Participation" shall have the meaning given that
term in Section 2.1(c) hereof.
"Participation Amount" shall have the meaning given
that term in Section 2.1(a)(i) hereof.
"Participation Certificate" shall mean each
Participation Certificate in the form attached hereto as Exhibit "A" as
may be delivered from time to time hereunder.
"Participation Portfolio Balance" means, as of any
given time, the total Participation Purchase Price paid by the
Participant for purchase of Mortgage Loans in which Participant then
owns a Participation.
"Participation Purchase Price" shall have the meaning
given that term in Section 2.1(c) hereof.
"Person" shall mean any individual, corporation,
partnership, association, joint-stock company, limited liability
company, Trust, unincorporated organization, joint venture, court or
government or political subdivision or agency thereof.
"Permitted Debt" shall have the meaning given that
term in Section 2.1(h)(iii) hereof.
"Pool Limit" shall initially mean $90,000,000.00 and
shall thereafter mean such larger or smaller number as may be in effect
from time to time pursuant to the terms hereof.
"Proceeding" shall have the meaning given that term
in Section 7.4(b) hereof.
"Proceeds Deficiency" shall have the meaning given
that term in Section 2.1(i)(a)(ii) hereof.
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"Proceeds Excess" shall have the meaning given that
term in Section 2.1(i)(a)(ii) hereof.
"Purchase Termination Notice" shall have the meaning
given that term in Section 6.2 hereof.
"Qualifying Mortgage Loan" shall mean a mortgage loan
which (i) meets all of the criteria set forth in Section 4.1(b)-(1)
hereof, or (ii) is subject to an Acceptance Sheet issued by the
Participant.
"Qualifying Offer" shall have the meaning given that
term in Section 2.1(b) hereof.
"Regular Repurchase Price" with respect to a
Participation or a related Mortgage Loan as of any date shall mean an
amount equal to the sum of (a) the Outstanding Participation Purchase
Price with respect to such Participation, plus (b) accrued interest on
such Outstanding Participation Purchase Price at the rate set forth in
Section 2.1(i) as of such date (to the extent not otherwise received by
Participant to such date), plus (c) any unreimbursed advances made by
Participant with respect to such Mortgage Loan or Participation.
"Servicing Fee" shall have the meaning given that
term in Section 2.1(a)(i) hereof.
"Settlement Date" shall mean the date that the
Participant tenders to the Seller the Participation Purchase Price of
any Dry Loan or Acceptance Sheet Loan or, as to any Mortgage Loan which
is not a Dry Loan or Acceptance Sheet Loan, the date the Participant
tenders to the Seller the first installment of the Participation
Purchase Price pursuant to Section 2.1(c) hereof.
"Shipment Order" shall have the meaning given that
term in the Custodian Agreement.
"Sovereign Stock Purchase Agreement" shall mean that
certain agreement dated as of June 9, 1998 pursuant to which Sovereign
Bancorp, Inc. will purchase convertible preferred stock of the Seller.
"Subordinated Debt Indenture" shall mean that certain
Indenture for 12.5% Subordinated Notes due 2001 dated as of June 29,
1998, as amended, by and between the Seller and American Stock Transfer
& Trust Company, as indenture trustee.
"Subservicing Agreement" shall mean that certain
servicing agreement by and between the Seller and City National dated
as of June 29, 1998.
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"Transmittal Schedule" shall have the meaning given
that term in Section 2.1(a)(i) hereof.
"Underwriting Standards" shall have the meaning given
that term in Section 2.1(h)(i) hereof.
"VA" shall mean the Veteran's Administration or its
successor.
"Wet Loan" shall mean a Mortgage Loan as to which
neither the Custodian, the Participant nor the Approved Private
Investor has possession of the Mortgage Documents.
1.2 General Construction. Unless the context of this
Agreement otherwise clearly requires, references to the plural include the
singular, the singular and the part of the whole; and "or" has the inclusive
meaning represented by the phrase "and/or". The words "hereof", "herein",
"hereunder" and similar terms in this Agreement refer to this Agreement as a
whole and not to any particular provision of this Agreement. The section and
other headings contained in this Agreement are for references purposes only and
shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection and exhibit
references are to this Agreement unless otherwise specified. References in this
Agreement to "applicable law", "compliance with law", and all other phrases
pertaining to legal compliance, shall include but not be limited to laws
applicable to Participant as acquirer or holder of the Participation (which
shall include but not be limited to applicable OTS regulations regarding
mortgage loans and mortgage loan participations found at 12 C.F.R.
ss.563.170(c)(1) and 12 C.F.R. ss.563.170(c)(3), and any similar or successor
regulations from time to time).
ARTICLE II.
SALE AND PURCHASE OF PARTICIPATIONS
2.1 Sale and Purchase of Participations.
(a) Term of Agreement and Offer to Sell
Participation. Subject to the terms and conditions of this Agreement,
Participant agrees to purchase from Seller, during the term of this Agreement,
Seller's requirements of 100% participations in Qualifying Mortgage Loans up to
the Pool Limit in effect at any time. The Participant may also, in its sole
discretion, purchase Non-Qualifying Mortgage Loans. The term of this Agreement
and Participant's commitment to purchase Participations shall terminate on
December 26, 1998, unless extended in a writing signed by Participant.
Participant shall have the option to extend the term of this Agreement for nine
additional terms of six months each upon written notice to the Seller given at
least thirty (30) days before each six month anniversary of the date of this
Agreement. Such option may be exercised for any such six month period
notwithstanding that such option may not have been exercised for any or all
prior six month periods. If the term hereof is extended,
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Participant's commitment to purchase Participations shall thereafter extend to
the date provided in the notice of exercise of option sent by Participant or in
any extension agreement. In any such extension, the terms and conditions of this
Agreement, the Custodian Agreement and the Bailment Agreement shall remain in
full force and effect. Seller acknowledges that Participant has made no
commitment and has no obligation to extend the term of this Agreement.
Subject to the terms and conditions hereof and the
Custodian Agreement, Seller may from time to time elect to offer to sell a
Participation in a mortgage loan to Participant up to the Pool Limit in effect
from time to time. If Seller desires to make such an offer, it shall do so by
delivering to Participant, for each such mortgage loan, at least one Business
Day in advance of the proposed date of sale, the following items:
(i) A Transmittal Schedule, substantially
in the form attached hereto as Exhibit "B" ("Transmittal Schedule"),
duly completed (except for the "Date Received" line at the top and any
signature on behalf of Participant) and executed on behalf of Seller.
On such Transmittal Schedule: (a) the line captioned "Date Transmitted"
shall set forth the date on which Seller transmitted such Transmittal
Schedule to Participant; (b) the line captioned "Mortgage Banker" shall
set forth the name of Seller; (c) the line captioned "Institution Name"
shall set forth the name of Participant; (d) the lines from and
including the line captioned "Loan Number" through and including the
line captioned "Interest Rate" shall set forth the indicated
information about the mortgage loan; (e) the line captioned "Settlement
Date" shall set forth the date on which Seller desires to sell the
Participation to Participant, which shall be a Business Day not less
than one (1) Business Day after, and not later than five (5) Business
Days after the date Seller delivers such Transmittal Schedule to
Participant; (f) the line captioned "Servicing Fee" shall not apply for
mortgage loans hereunder ("Servicing Fee" shall be deemed zero in
consideration of other agreements between Seller and Participant
herein); (g) the line captioned "Committed Investor" shall set forth
the name of the Approved Private Investor with respect to such Mortgage
Loan, and the line captioned "Commitment Expiration Date" shall set
forth the date on which the Approved Private Investor's Commitment to
purchase such Mortgage Loan expires if such information is known or, if
such information is not known, such lines shall be left blank; (h) the
line captioned "Commitment Price" shall set forth the price (expressed
as a percentage of the unpaid principal amount of the mortgage loan,
exclusive of the portion of the price representing settlement for
unpaid interest) at which the Approved Private Investor is committed to
purchase such mortgage loan pursuant to the related Commitment if such
information is known or, if such information is not known, such lines
shall be left blank; (i) the line captioned "Participation Amount"
shall set forth the dollar amount (the "Participation Amount") for such
mortgage loan (or related Participation) equal to the unpaid principal
amount of the mortgage loan as of the Settlement Date; and (j) the line
captioned "Participation Purchase Price" shall set forth the amount of
the Participation Purchase Price for the Participation in such mortgage
loan for such Participation.
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Nothing in the Transmittal Schedule or any other information sent by
Seller to Participant shall limit or derogate from Seller's
representations and warranties set forth herein.
(ii) Upon request by the Participant, the
Initial Credit File.
(b) Acceptance of the Offer. Seller shall be deemed
to have made an offer to Participant to sell a Participation on the first
Business Day on which Participant has received the related Transmittal Schedule
and, if requested, Initial Credit File. Subject to the terms of this Agreement,
Participant shall be obligated to accept any offer (a "Qualifying Offer"), to
purchase a Qualifying Mortgage Loan if the offer and the materials submitted to
Participant by Seller comply with the requirements of the Basic Agreements; but
otherwise Participant shall have no obligation to accept any such offer. If
Participant accepts an offer, it shall do so by executing the Transmittal
Schedule, filling in the "Date Received" line, and transmitting a copy of such
executed Transmittal Schedule to Seller by facsimile or similar means not later
than 3:00 p.m., Philadelphia time, on such Business Day (or, if any such item
was received by Participant later than 12:00 Noon, Philadelphia time, on such
Business Day, not later than 3:00 p.m., Philadelphia time, on the next Business
Day). If Participant does not accept such offer by such time, such offer may be
terminated by the Seller upon written notice to the Participant. If Participant
accepts such offer, Seller shall be obligated to sell and Participant shall be
obligated to purchase such Participation, subject to the provisions of this
Agreement. Participant's obligation to purchase any such Participation as to
which it has accepted such offer is subject to the satisfaction of the following
conditions precedent as of the date of such purchase: (i) Seller shall have
performed its obligations to be performed hereunder and under the Custodian
Agreement as of the date of such purchase; (ii) no "Event of Purchase
Termination" or "Event of Servicing Termination" shall have occurred and be
existing, or shall exist after giving effect to such purchase; (iii) the
representations and warranties of Seller contained in each of the Basic
Agreements are true and correct in all material respects as of the date of such
purchase and after giving effect to such purchase; and (iv) such purchase shall
not cause the aggregate unpaid principal amount of Mortgage Loans outstanding on
the date of such purchase, together with the aggregate unpaid principal amount
of all Mortgage Loans in which Participations are to be purchased on the date of
such purchase, to exceed the Pool Limit then in effect. Participant shall not be
obligated to purchase such Participation if any condition to its purchase
obligation is not satisfied.
(c) Purchase; Funding. Notwithstanding any
provision of this Agreement or the Custodian Agreement, the purchase price to be
paid by Participant to Seller for each 100% Participation (the "Participation
Purchase Price") shall be a sum equal to (i) *** of the principal amount of any
Acceptance Sheet Mortgage Loan or, (ii) as to any other Mortgage Loan, the
lesser of: (A) *** of the principal amount of the Mortgage Loan; or (B) the
amount of the Commitment. Seller shall provide Participant, prior to
Participant's purchase of a Participation, with such information as Participant
may reasonably request to establish the information supporting the calculation
of items (A) and (B) above. If Participant has agreed to purchase a
Participation, then, subject to satisfaction of the conditions set forth herein,
Participant shall
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION.
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purchase such Participation by paying to Seller on the Settlement Date an amount
equal to the Participation Purchase Price for any Mortgage Loan which is a Dry
Loan or an Acceptance Sheet Mortgage Loan. As to any Mortgage Loan which is not
a Dry Loan or Acceptance Sheet Loan, the Participation Purchase Price shall be
paid as follows (i) 125 Loans - *** of the Participation Purchase Price on
the Settlement Date and the balance on the date the Mortgage Loan becomes a Dry
Loan, and (ii) all other Mortgage Loans, *** of the Participation Purchase
Price on the Settlement Date and the balance on the date the Mortgage Loan
becomes a Dry Loan. All payments shall be paid to Seller by wire transfer, or by
delivery of a certified or cashier's check to Seller or a closing agent
designated by Seller, as Participant shall elect. Upon Participant's payment of
the portion of the Participation Purchase Price with respect to such
Participation due on the Settlement Date, Participant shall immediately become
vested with a 100% beneficial ownership interest in the related Mortgage Loan,
collections thereon, any related Hazard Insurance Policy, Flood Insurance Policy
and Mortgage Insurance Policy, all other Mortgage Documents (including but not
limited to all books, records and documents of every nature of Seller relating
to such Mortgage Loan), and all other proceeds of and rights related to any of
the foregoing (the foregoing rights being referred to as the "Participation"
with respect to such Mortgage Loan).
(d) Participation Certificate. Each Participation
shall be evidenced in part by a Participation Certificate in substantially the
form attached hereto as Exhibit "A," with the blanks appropriately filled, duly
executed by Seller. A Participation Certificate may evidence Participations in
more than one Mortgage Loan purchased on the same date. Seller shall deliver a
Participation Certificate to Participant in accordance with Section 2.1(f)
hereof, with a copy to Custodian as provided in Section 2.1(e) hereof. Failure
to deliver such a Participation Certificate, or any error therein, shall not
limit or affect the rights of Participant or the obligations of Seller with
respect to such Participation.
(e) Delivery of Documents to Custodian. After the
purchase of any Participation, Seller shall in accordance with the terms of the
Custodian Agreement, deliver the Mortgage Documents to Custodian, so that
Custodian receives the same not later than seven (7) Business Days after the
Settlement Date, together with a completed Shipment Order. The foregoing
notwithstanding, upon written notice by Participant to Seller, the Mortgage
Documents shall be delivered to the Participant rather than the Custodian within
seven (7) Business Days after the Settlement Date in which case Participant
shall act as its own custodian until the Mortgage Loan is purchased or the
Mortgage Documents are delivered to the Custodian, provided the cost to Seller
of Participant acting as its own custodian shall not be any greater than the
cost to Seller of the Custodian's services.
*** OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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In the event that no Approved Private Investor has
been identified at the time of the purchase, Seller shall deliver the Mortgage
Documents as provided above but Seller will not identify an Approved Private
Investor in the Shipment Order. Seller will send notice of the Approved Private
Investor to the Custodian and the Participant within three days of the Approved
Private Investor being identified.
(f) Delivery of Documents to Participant. As
promptly as practicable after the purchase of any Participation, Seller shall
deliver the following documents to Participant, so that Participant receives the
same not later than seven (7) Business Days after the Settlement Date:
(i) The original Participation Certificate
relating to such Participation; and
(ii) If so required pursuant to Section
2.1(e) above, Mortgage Documents or, otherwise, a copy of the executed
Shipment Order relating to such Participation and if an Approved
Private Investor has not been identified such information shall be left
blank on the Shipment Order and such information shall be provided
within three (3) days of identifying such Approved Private Investor.
(g) OTS Certification. Without limitation of any
other provision hereof, Seller hereby certifies that copies of any
documents concerning the Mortgage Loan provided to Participant or
Custodian from time to time are and will be accurate and complete to
the best knowledge of the Seller. Seller agrees to take such further
actions and obtain and/or execute, acknowledge, deliver and/or record
such further documents and instruments, as Participant may reasonably
request to fulfill any obligations Participant may have under
applicable banking regulations or as requested by Participant's
regulatory examiners.
(h) Additional Conditions to Purchase. In addition
to any other conditions set forth herein to Participant's commitment to
purchase Participations, Participant shall have no obligation to
purchase any Participations hereunder unless and until, and only to the
extent that, the following shall have occurred:
(i) Seller shall have made available to
Participant for Participant's review on request, from time to
time, and Participant shall not, in the exercise of its
reasonable discretion, have disapproved in writing all or any
portion of Seller's Mortgage Loan underwriting standards and
guidelines applicable to the Mortgage Loans in which
Participant is to purchase Participations (the "Underwriting
Standards"); and
(ii) Seller shall have delivered to
Participant for Participant's review the financial statements
of Seller required by this Agreement, in form and substance
satisfactory to Seller; and
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(iii) Seller shall not have outstanding any
debt obligations which are not subordinated in payment to Seller's
obligations to Participant under this Agreement, except the following
(herein, "Permitted Debt"): (i) obligations for the purchase or lease
of equipment, supplies and services in the ordinary course of business;
(ii) debt obligations identified on Seller's financial statements
delivered to Participant prior to the date hereof; (iii) debt
obligations secured by liens on the contractual or certificated right
to Excess Spread, as defined in the Subordinated Debt Indenture,
capitalized on the Seller's balance sheet; (iv) debt permitted pursuant
to Section 5.18 hereof; and (v) obligations owed to the Participant.
Seller shall have provided evidence satisfactory to Participant that it
shall have obtained such regulatory approvals or consents, and such
favorable legal opinions, and such other documentation and evidence, as
Participant may deem advisable in connection with Participant's and
Seller's entering into and performing their respective obligations
under this Agreement and their respective authority to do so, including
without limitation a favorable legal opinion from Seller's legal
counsel, in form satisfactory to Participant and its legal counsel,
regarding such matters as Participant may deem appropriate;
(iv) Seller shall have paid the actual,
reasonable expenses of Participant in connection with the negotiation,
execution and closing upon this Agreement, including without limitation
the fees and disbursements of Participant's legal counsel; and
(v) Closing shall have occurred under the
Flow Agreement, the Subordinated Debt Indenture, the Subservicing
Agreement, the Sovereign Stock Purchase Agreement and the City National
Stock Purchase Agreement.
(i) Investor Proceeds; Reconciliation; Interest.
(i) Within five (5) Business Days of
receipt by Participant of the proceeds from the sale of a Mortgage Loan
from the Custodian or upon purchase by the Participant, in its capacity
as an Approved Private Investor, of any Mortgage Loan as to which
Participant is acting as custodian, the proceeds of such sale (the
"Investor Proceeds") shall be applied as follows:
(A) Participant shall first be
reimbursed 100% of the Regular Repurchase Price for the
Mortgage Loan.
(B) If any balance of Investor
Proceeds remain after paying item (i) above (a "Proceeds
Excess"), Participant shall credit the Proceeds Excess to any
demand deposit account of Seller maintained at Participant
and, in the absence of Participant's credit of such amount to
Seller's account, Participant shall pay Seller the balance
thereof, on demand. If the Investor Proceeds are not
sufficient to pay item (i) above (a "Proceeds Deficiency"),
Participant shall be entitled
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to charge any demand deposit account of Seller therefor,
and/or Seller shall pay Participant on demand, the amount of
the Proceeds Deficiency. Any amounts not paid when properly
demanded under this Paragraph shall bear interest from the
date of demand until the date of payment at a per annum rate
equal to ten (10%) percent for any period in question
calculated on the basis of a year consisting of 360 days.
(ii) Participant shall be accountable to
Seller for any Investor Proceeds only to the extent that it
actually receives them in collected funds. Participant shall
have no obligation to enforce any claims on behalf of or for
the benefit of Seller.
(iii) Monthly, on or before the 15th day of
each calendar month, Participant shall provide Seller with an
accounting for each Mortgage Loan for which Participant shall
have received Investor Proceeds during the prior calendar
month, setting forth: (w) the Participation Purchase Price;
(x) the Investor Proceeds received by Participant; (y) the
Regular Repurchase Price; and (z) the net amount, if any,
credited or charged to Seller's deposit account pursuant to
paragraph (i)(B) of this Section.
(iv) From the date of the funding by
Participant of each Mortgage Loan through the date the legal
and beneficial interests in the Mortgage Loan are sold and the
Regular Repurchase Price is received by the Participant,
Seller shall pay to Participant interest on the applicable
Outstanding Participation Purchase Price at a per annum rate
equal to:
125 Loans: the sum of
(a) Libor plus *** multiplied by
the dividend of (i) the lesser of (A) the Average
Participation Portfolio Balance, and (B) $40.0
million, divided by (ii) the Average Participation
Portfolio Balance; plus
(b) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $40.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance; plus
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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(c) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $60.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance.
(d) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $80.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance.
All other Mortgage Loans: the sum of
(a) Libor plus *** multiplied by
the dividend of (i) the lesser of (A) the Average
Participation Portfolio Balance, and (B) $40.0
million, divided by (ii) the Average Participation
Portfolio Balance; plus
(b) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $40.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance; plus
(c) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $60.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance; plus
(d) Libor plus *** multiplied by
the dividend of (i) the greater of (A) the Average
Participation Portfolio Balance minus $80.0 million,
and (B) $0, divided by (ii) the Average Participation
Portfolio Balance.
Interest shall be calculated on the basis of a year
containing 365 days for the actual number of days elapsed. Interest
shall be payable monthly, in arrears, on the 15th day of each month.
Participant is hereby authorized to debit from any account of Seller
maintained at the Participant all payments due under this Paragraph
2.1(i).
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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(j) Overpurchase. Participant shall not be
obligated to purchase any Participation the purchase of which would
cause the aggregate unpaid principal amount of Mortgage Loans
outstanding on the date of such purchase, together with the aggregate
unpaid principal amount of all mortgage loans in which Participations
are to be purchased on the date of such purchase, to exceed the Pool
Limit. If Participant purchases a Participation or Participations
which cause the aggregate unpaid principal amount of all Mortgage
Loans in which Participations have been purchased by Participant to
exceed the Pool Limit at any time (herein, an "Overpurchase"), such
Overpurchase shall not bind Participant to continue to make an
Overpurchase available thereafter, and neither any Overpurchase nor
any course of Overpurchases shall be deemed a waiver of or increase of
the Pool Limit. Seller agrees that it will, immediately upon
Participant's demand, repurchase, at the Regular Purchase Price, any
Participation which causes an Overpurchase.
(k) Intentionally Deleted.
(l) Fees. In addition to any interest payable
hereunder to the Participant, the Seller shall pay fees to the
Participant on the Average Participation Portfolio Balance at a per
annum rate equal to the sum of:
(i) *** of the Average Participation
Portfolio Balance
(ii) *** of the Pool Limit minus the
Average Participation Portfolio
Balance.
Fees shall be calculated on the basis of a 365 day
year for the actual number of days elapsed. Fees shall be payable
monthly, in arrears, on the 15th day of each month. Participant is
hereby authorized to debit from the accounts of the Seller maintained
at the Participant all payments due hereunder.
2.2 Relationship Between Seller and Participant.
(a) Seller as Trustee. With respect to the
Mortgage Loans, the servicing thereof, collections thereon, and related Hazard
Insurance Policy, Flood Insurance Policy and Mortgage Insurance Policy, all
other Mortgage Documents, all other proceeds of and rights related to any of the
foregoing, and the Participation, Seller shall be, and shall hold bare legal
title to the Mortgage Documents solely as trustee for Participant and shall have
fiduciary
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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duties to Participant. Seller, as trustee, shall not transfer legal title to any
Mortgage Loan except to Participant or an Approved Private Investor pursuant to
the terms hereof, or permit any Lien to arise on any Mortgage Loan or any
Mortgage Documents except in favor of the Participant. In performing its trustee
function, Seller shall exercise that degree of care which is legally required of
a trustee. Subsequent to sale of any Participation hereunder and prior to
delivery by the Seller to the Custodian or Participant of the applicable
Mortgage Documents, the Seller shall hold such Mortgage Documents in file
cabinets segregated from all other documents held by the Seller and containing
only Mortgage Documents relating to the Mortgage Loans in which the Participant
has purchased a Participation hereunder. Such file cabinets and Mortgage
Documents shall be conspicuously marked as being held by the Seller as trustee
and custodian for the Participant.
(b) Nature of Participation, etc. Seller shall
cause all loan files relating to Mortgage Loans maintained by it or Servicer to
be marked to indicate Participant's Participation in such Mortgage Loan. Neither
Seller nor Servicer shall represent to anyone that Seller or Servicer owns any
Mortgage Loan except (in the case of Seller) as trustee for Participant. Seller
and Participant agree that the purchase of Participation hereunder does not
represent a loan or extension of credit by Participant to Seller, but rather the
true sale of a Participation, and that the Participation Purchase Price
represents fair consideration and reasonably equivalent value for such
Participation. Seller will reflect the transaction hereunder on its balance
sheets and other financial statements and records as a purchase of an asset by
Participant and the sale of an asset by Seller.
(c) Resale Pursuant to the Commitment. Subject
to the terms and conditions of this Agreement, Seller, as trustee, is hereby
authorized and directed to sell each Mortgage Loan to an Approved Private
Investor pursuant to the related Commitment. Each such sale of a Mortgage Loan
must be for cash in an amount resulting in net cash proceeds not less than the
Regular Repurchase Price of the Participation as of the date of sale.
Participant shall be entitled to receive, on account of its Participation, such
Regular Repurchase Price from the proceeds of sale. Any excess shall be for the
account of Seller. The Approved Private Investor shall be directed to pay the
entire purchase price for the Mortgage Loan to the Custodian for the account of
Participant, in accordance with the terms of the Bailment Agreement and
following such payment Participant shall, within five (5) days, pay to Seller an
amount equal to any portion of such payment to which Seller is entitled pursuant
to this Section 2.2. The foregoing notwithstanding, if the Participant is acting
as custodian and is the Approved Private Investor, the Participant shall
reconcile the Investor Proceeds as required herein without paying the purchase
price to the Custodian. Seller shall use its best efforts to cause all
conditions precedent to the sale of each Mortgage Loan, pursuant to a Commitment
that are within its control to be satisfied in a timely and complete manner,
shall use its best efforts to sell such Mortgage Loan pursuant to such
Commitment and in accordance with the terms of this Agreement, and shall not
terminate or amend any Commitment without the prior written consent of
Participant. Seller agrees that any and all sales of the Mortgage Loans pursuant
to this Section 2.2 shall be made by Seller without recourse to, or
representation or warranty (express or implied) by Participant.
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ARTICLE III.
SERVICING
3.1 Servicing Responsibilities.
(a) Seller's Responsibility for Servicing.
Subject to the terms of this Agreement, Seller hereby assumes the responsibility
for administering and servicing each Mortgage Loan, as specified in this
Agreement. Subject to Participant's right to terminate Seller as Servicer
pursuant to the terms of this Agreement, Seller shall retain such responsibility
so long as this Agreement remains in effect. The term "Servicer" as used herein,
shall refer to the Person actually performing the servicing function. No
servicing functions shall be assigned, transferred, sub-serviced or otherwise
performed by any Person other than Seller, Participant or Participant's designee
without the prior written consent of Participant. Participant hereby consents to
the retention by the Seller of City National to act as subservicer hereunder
pursuant to the terms of the Subservicing Agreement. No appointment of or
delegation to a servicer or subservicer, including City National, shall relieve
Seller of its liability and responsibility with respect to servicing and
administration of the Mortgage Loans, and Seller shall be responsible for
performance of all obligations of Servicer under this Agreement and for all
obligations of City National under the Subservicing Agreement.
(b) Servicing Standards and Administration. The
Mortgage Loans shall be administered and serviced consistent with the terms of
the Subservicing Agreement, whether or not the Subservicing Agreement is in
effect. Seller shall be responsible for the execution of any and all notices,
and other acts necessary in connection with the transfer of ownership of the
respective Participations to Participant, and its successors and assigns, and
for preserving all rights in the Mortgage Loans.
3.2 Servicing Compensation.
(a) Compensation. Neither Seller nor any other
Servicer (including City National) shall be paid any compensation by Participant
for servicing Mortgage Loans in consideration of the other agreements between
Participant and Seller set forth in the Basic Agreements.
(b) No Other Compensation. Seller shall bear
for its own account all expenses incurred by it (including by Servicer) in
connection with the performance of the obligations of Seller and Servicer under
this Agreement, and the Custodian Agreement, and neither Seller nor Servicer
shall be entitled to receive or retain any compensation or reimbursement under
this Agreement or the Custodian Agreement except as expressly provided herein.
Without limitation, Seller shall bear all costs and expenses (whether incurred
by it, Servicer or Custodian) in connection with any sale of the Mortgage Loans
to an Approved Private Investor.
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3.3 Application of Mortgagor Payments. Any amounts
received by the Participant on account of payments by an Obligor shall be
applied first to accrued interest on the Outstanding Participation Purchase
Price at the rate set forth in Section 2.1(g) hereof, next to any unreimbursed
advances made by Participant with respect to the subject Mortgage Loan, next to
the Outstanding Participation Purchase Price and next any excess to the Seller.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 Certain Representations and Warranties of Seller.
Seller hereby represents and warrants to Participant, as of the date of each
sale of a Participation hereunder, as follows:
(a) As to Seller.
(i) Seller is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Seller is qualified to do business as a
foreign corporation and is in good standing in the jurisdiction in
which the Mortgaged Property is located.
(ii) Seller has full power and authority,
corporate and otherwise, to execute, deliver, perform and take all
actions contemplated by this Agreement, and all such action has been
duly and validly authorized by all necessary corporate proceedings on
its part. Without limitation of the foregoing, Seller has the power and
authority to originate Mortgage Loans, to sell Participations
hereunder, and otherwise to transact the business in which it is
presently engaged, and Seller has taken all necessary corporate action
to authorize such actions. Seller has all licenses, permits and
authorizations necessary to originate or acquire the Mortgage Loans, to
sell the Participations and otherwise to perform and take all actions
contemplated by this Agreement and to carry out its business.
(iii) This Agreement has been duly and
validly executed and delivered by Seller. This Agreement constitutes
the legal, valid and binding obligation of Seller, enforceable against
Seller in accordance with its terms, subject to applicable rules of
equity and any applicable insolvency, bankruptcy, receivership and
similar laws and regulations. Neither the sale of Participations nor
the other transfers and assignments provided for herein are subject to
any bulk transfer or similar statutory provision in effect in any
applicable jurisdiction.
(iv) No approval, order, consent,
authorization, certificate, license, permit or validation of, or
exemption or other action by, or filing, recording or registration
with, or notice to, any Governmental Authority is or will be necessary
or advisable in connection with the execution and delivery of this
Agreement,
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consummation by Seller or the transactions herein contemplated, or if
any such is required, it has been obtained and is in full force and
effect.
(v) Neither the execution and delivery of
this Agreement, nor consummation of the transactions herein
contemplated, nor performance of or compliance with the terms and
conditions hereof does or will (a) violate or conflict with any law; or
(b) violate, conflict with or result in a breach of any term or
condition or, or constitute a default under, or result in (or give rise
to any right, contingent or otherwise, of any Person to cause) any
termination, cancellation, prepayment or acceleration of performance
of, (I) the certificate of incorporation or by-laws (or other
constituent documents) of Seller; or (II) any agreement or instrument
to which Seller is a party or by which it or any of its properties may
be subject or bound.
(b) Title, etc. Seller has good and marketable
title to the Mortgage Loan relating to each such Participation, free and clear
of all Liens (other than the interest of Participant under its Participation).
Immediately upon the Settlement Date, Participant shall be the owner of and have
good and marketable title to such Participation, free and clear of any Lien
(other than Liens created by, through or under Participant).
(c) Enforceability. The Mortgage Loan relating
to each such Participation has been fully advanced to the Obligors and is
evidenced by Mortgage Documents which have been duly executed and delivered and,
where applicable, acknowledged, by the Obligors. The Mortgage Loan and such
Mortgage Documents constitute the legal, valid and binding obligations of the
Obligors, enforceable against the Obligors in accordance with their terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency or
other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity limiting the availability
of equitable remedies. Such Mortgage Loan is not limited by the terms of the
respective Mortgage Documents as to the personal liability of any Obligor, and
if executed by more than one Obligor, the liability of each Obligor is primary,
joint and several.
(d) Transmittal Schedule; Compliance with Law,
Underwriting Standards, etc. The information set forth in the Transmittal
Schedule about the Mortgage Loan related to such Participation is true and
correct and complies with the provisions of this Agreement. Such Mortgage Loan,
and the sale of the Participation therein to Seller, complies with all
applicable laws, and meets all of the criteria established by any applicable
Approved Private Investor. In addition, such Mortgage Loan complies with all
underwriting standards previously delivered in writing by Seller to Participant,
and complies with the following additional requirements: (i) the Mortgaged
Property consists of a single parcel of real property with a detached single
family residence erected thereon, or a two to four family residential dwelling
or an individual condominium unit; provided, however, that the Mortgaged
Property does not consist of a manufactured home or mobile home or the land on
which the same has been placed; (ii) no selection procedures adverse to
Participant were used in Seller's determination to
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offer the Participation in such Mortgage Loan; (iii) such Mortgage Loan is an
amount not exceeding ***; (iv) such Mortgage Loan does not have a loan to value
ratio greater than ***, (v) the interest rate on such Mortgage Loan is not
materially greater or less than the interest rate charged by institutional
lenders upon mortgage loans of like type and size, secured by similar property
and originated in the same geographic area; (vi) such Mortgage Loan matures not
more than 30 years from the date of origination; and (vii) the Obligor's Fico
Score is greater than or equal to ***, provided, however, an Obligor's Fico
Score may be between *** and *** if the principal of the subject Mortgage Loan,
when added to the principal of all other Mortgage Loans as to which the
Obligor's Fico Score was less than ***, does not exceed 5% of the Participation
Portfolio Balance (in the event any Mortgage Loan has more than one Obligor, the
relevant Fico Score for the purposes of the foregoing analysis shall be the
score of the primary wage earner).
(e) Mortgage. Each Mortgage constitutes a valid
first or second lien with respect to the Mortgaged Property and has been
properly acknowledged and recorded (or submitted for recordation) in the public
real property records of the jurisdiction in which the Mortgaged Property is
situate. There are no delinquent taxes, assessments, mechanic's liens or the
like encumbering the Mortgaged Property. To the extent required pursuant to
underwriting guidelines of any applicable Approved Private Investor or the
Participant, such Mortgage Loan is insured by a paid-up mortgagee's title
insurance policy issued to Seller by a substantial and reputable title insurance
company, which policy includes assignees of such Mortgage Loan as an insured
thereunder, in an amount at least equal to the original principal amount of the
Mortgage Loan, which insures that the attendant Mortgage Loan constitutes a
valid first or second mortgage lien on the Mortgaged Property.
(f) Hazard and Flood Insurance. The
improvements constructed on the Mortgaged Property are insured against fire and
extended coverage hazards (a "Hazard Insurance Policy", as further defined
herein) by a substantial and reputable insurance company, and if required by law
or applicable underwriting standards, are also insured against flood hazards (a
"Flood Insurance Policy," as further defined herein), in each case with a
substantial and reputable insurance company, with a standard mortgagee's
endorsement in favor of Seller and its assigns (which shall, among other things,
provide that such insurance is not invalidated by acts of Obligor), in an amount
at least equal to the amounts required under the Subservicing Agreement.
(g) Intentionally Deleted.
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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(h) Current Payments; Absence of Defaults. The
Mortgage Loan related to such Participation is current as to the scheduled
payments to be made by the Obligor thereunder. There is no material default
under the Mortgage Documents, and the Mortgage Loan is not subject to any
pending action or proceeding which may adversely affect the title to or the
interest of Participant in such Mortgage Loan.
(i) Documents. Seller has in its possession
(or has delivered to the Custodian or Participant) the Initial Credit File and
all Mortgage Documents and other records required to be maintained for such
Mortgage Loan under applicable law. Seller has no knowledge that any Obligor's
financial condition or that of any guarantor or insurer, is not as described in
the Initial Credit File relating to each Mortgage Loan.
(j) Improvements. The improvements constructed
on the Mortgaged Property secured by each Mortgage are free of substantial
damage and are in good repair.
(k) Commitment. Seller has obtained (or will
obtain within 150 days of the date of purchase of the Participation) with
respect to the Mortgage Loan related to such Participation a Commitment from an
Approved Private Investor to purchase from Seller such Mortgage Loan within a
period of not more than one hundred eighty (180) days from the Settlement Date.
Such Commitment provides (or will provide) for the Approved Private Investor to
purchase such Mortgage Loan at a price at least equal to the Regular Repurchase
Price. Such Commitment is or will be subject only to conditions customarily
found in mortgage loan purchase commitments utilized in the secondary mortgage
market, and such Mortgage Loan (including all related Mortgage Documents)
complies with all conditions for sale pursuant to such Commitment. Seller knows
of no reason why the sale will not be timely consummated pursuant to the
Commitment.
(l) Pool Limit and Wet Loan Limit. The purchase
of such Participation by Participant shall not cause the aggregate unpaid
principal amount of (i) Mortgage Loans outstanding on the date of such purchase,
together with the aggregate unpaid principal amount of all Mortgage Loans in
which Participations are to be purchased on the date of such purchase, to exceed
the Pool Limit, or (ii) Wet Loans outstanding on the date of such purchase,
together with the aggregate unpaid principal amount of all Wet Loans in which
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Participations are to be purchased on the date of such purchase to exceed the
following percentages of total principal outstanding on all Mortgage Loans in
which Participant owns or will purchase a Participation hereunder:
*** of the first ***
*** of the next ***
*** of the next ***
*** of the next ***
*** of any excess
***OMITTED PURSUANT TO A CONFIDENTIAL
TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
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4.2 Certain Presumptions.
(a) Early Payment Default. In any litigation
Over whether Seller has breached the representation and warranty described in
Section 4.1(d) hereof, if the Obligor defaults in the timely payment of the
first installment of principal and interest due after purchase of the
Participation, Seller shall have the burden of proving that it did not breach
such representation and warranty. (Timely payment of the first installment by
the Obligor shall not, however, give rise to any presumption that Seller did not
breach such representation and warranty).
(b) Failure to Sell Pursuant to Commitment. In
any litigation over whether Seller has breached the representation and warranty
described in Section 4.1(k) hereof, if the Approved Private Investor has failed
to purchase the Mortgage Loan pursuant to the Commitment as contemplated herein
within 180 days after purchase of the Participation, Seller shall have the
burden of proving that it did not breach such representation and warranty.
(Timely purchase of a Mortgage Loan by the Approved Private Investor shall not,
however, give rise to any presumption that Seller did not breach such
representation and warranty).
4.3 Repurchase Obligation. If any material representation
or warranty of Seller set forth in this Article IV made or deemed to be made in
connection with any sale of any Participation is untrue or incorrect in any
respect when made or deemed to have been made or if any Mortgage Loan is or
becomes more than sixty (60) days past due on account of any scheduled payment
or if an Approved Private Investor has failed to purchase any Mortgage Loan
within one hundred eighty (180) days, then, in addition to all other rights and
remedies which Participant may have hereunder, at law, in equity or otherwise,
Participant may at any time and from time to time, by notice to Seller, require
Seller, and Seller shall have the obligation immediately to repurchase such
Participation, for cash in immediately available funds, at the Regular
Repurchase Price of the Participation as of the date of purchase.
ARTICLE V.
SELLER'S COVENANTS
5.1 Maintenance of Books and Records. Seller will
maintain, in accordance with GAAP, accurate records and books of account
showing, among other things, all transactions relating to all Mortgage Loans in
which Participant purchases or agrees to purchase a Participation. Without
limiting the foregoing, Seller and Participant agree that Participant is
purchasing the entire beneficial interest in each Mortgage Loan in which a 100%
Participation is purchased hereunder, and each shall show Seller's purchase of a
100% Participation in a Mortgage Loan as a purchase by Participant and a sale by
Seller of the entire Mortgage Loan in question, and after such purchase and sale
Seller shall not carry any Mortgage Loan as an asset on its balance sheet.
Seller hereby grants to Participant the right to call at Seller's places of
business during regular business hours, at intervals to be determined by
Participant, and, without
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hindrance or delay, to inspect, audit, check, and make extracts and copies from
the books, records, journals, orders, receipts, correspondence and other data
relating to the Mortgage Loans.
5.2 Financial Statements, Reports.
(a) Seller will furnish Participant, within
sixty (60) days after the close of each quarterly period of its fiscal year, a
copy of its quarterly financial statements, including balance sheets and profit
and loss statements reflecting the financial condition of Seller at the end of
each such respective period and the results of its operations during each such
period, and for the fiscal year to date, with a certification by the chief
executive officer and chief financial officer of Seller that the statements
present fairly the financial condition of such Seller at the end of such period
and the results of its operations during such period in accordance with
generally accepted accounting principles consistently applied, subject to audit
and ordinary year-end adjustments and without footnote disclosure.
(b) Seller will furnish Participant, within one
hundred twenty (120) days after the close of each fiscal year of Seller, audited
financial statements together with a full and complete signed copy of the audit
opinion prepared in accordance with generally accepted auditing standards by
certified public accountants acceptable to the Participant, together with
balance sheets as at the end of such year and detailed statements of profit and
loss and sources and uses of funds reflecting operations during such year, and a
complete copy of the management letter delivered to Seller by its auditors in
connection with such audit.
(c) Intentionally Omitted.
(d) Seller will promptly, from time to time, on
request, deliver to Participant copies of all reports, returns and other
documents filed with any Federal, State of local regulatory agencies and provide
such other information regarding the operations, business, affairs, financial
condition, commitments and contingencies of Seller as Participant may reasonably
request.
(e) On or before the earlier of the dates each
respective return or amended return is filed or is required to be filed, Seller
shall have delivered to the Participant complete copies of its U.S. federal
income tax return (with all schedules) for the year covered thereby.
(f) On or before the date that quarterly and
annual financial statements are due to Participant under this Section, a
Compliance Certificate, executed by the chief financial officer of the Seller,
in form acceptable to Participant, showing the Seller's compliance or describing
the nature of the Seller's noncompliance with Seller's obligations under this
Agreement and the Custodian Agreement.
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(g) Seller shall provide Participant, from time
to time upon Participant's request, such additional financial information as
Participant may request.
5.3 Existence, Properties, Etc. Seller will do or cause
to be done all things necessary to obtain, preserve, renew and keep in full
force and effect its existence and its qualification to do business and good
standing in each jurisdiction in which such qualification is necessary for the
proper conduct of its business, and conduct and operate its business in
substantially the manner in which same is presently conducted and operated; at
all times maintain, preserve and protect all material property and contract
rights belonging to Seller; preserve the condition of all property useful in the
conduct of its business and keep the same in good repair, working order and
condition (reasonable wear and tear excepted) and from time to time make, or
cause to be made, all repairs, renewals, replacements, betterments and
improvements thereto, to the extent that the same are necessary for the proper
and advantageous conduct of its business; and comply with all present and future
regulatory and other laws applicable to it in the operation of its businesses,
and with all material agreements to which it is subject.
5.4 Fidelity Bond Coverage; Insurance.
(a) Seller shall comply with its obligations
under the Custodian Agreement regarding insurance, fidelity bond coverage and
errors and omissions insurance.
(b) Without limiting the foregoing, Seller shall
maintain in force, at all times that any of the Basic Agreements is in force, a
fidelity bond or policy or policies of fidelity bond coverage and errors and
omissions coverage, in an aggregate amount at least equal to the amount required
under similar circumstances for seller/servicers with similar characteristics by
FNMA, insuring Seller and Participant and their successors and assigns from and
against all items of loss, fraud, theft and the like as are customarily covered
by mortgage banker and mortgage broker fidelity bonds. The issuer or issuers of
the fidelity bond coverage and the terms and amounts of the fidelity bond
coverage and the issuer of the errors and omissions coverage and the terms and
conditions of the errors and omissions coverage (including without limitation
the amount or amounts of any deductibles) shall at all times be acceptable to
Participant.
(c) Seller agrees (1) to notify Participant in
writing prior to any change in fidelity bond or insurance coverage which would
cause such insurance to not meet the requirements of this Agreement; and (2) to
provide Participant complete copies of all fidelity bonds and insurance
policies, with all endorsements.
(d) All fidelity bonds and similar insurance
coverages shall be endorsed to cover the interest of Participant, and its
successor and assigns, and Seller shall cause the issuers of all such coverages,
or their authorized agents, to deliver to Participant from time to time, without
need of special request by Participant, a current certificate or certificates of
such coverage, stating the effective period for such coverage, addressed to
Participant, and providing
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that such coverage shall not be canceled without at least thirty (30) days'
prior written notice to Participant.
5.5 Financial Covenants. Seller shall comply with the
following at the respective times indicated and thereafter at all times that
Participant shall own any Participations:
(a) Seller shall at all times be in compliance
with the financial covenants contained in the Subordinated Debt Indenture.
(b) Seller shall not have outstanding at any
time any debt obligations which are not subordinated in payment to Seller's
obligations to Participant under this Agreement, except Permitted Debt.
5.6 Intentionally Omitted.
5.7 Notice of Default. If the chief executive officer,
chief operating officer or chief financial officer of Seller knows of any Event
of Purchase Termination under this Agreement or any breach by Seller of any of
its obligations to Participant under any of the Basic Agreements, Seller will
immediately furnish to Participant a written statement as to such event or
occurrence, specifying the nature and extent thereof.
5.8 Changes. Seller will immediately notify Participant
of any and all proposed material changes in its business practices or properties
and of any change in the officers or directors of Seller.
5.9 Further Assurances. From time to time, upon the
written reasonable request of Participant, Seller will do, execute, acknowledge
and deliver or cause or be done, executed, acknowledged and delivered, all such
further acts, deeds, instruments, transfers, powers of attorney or assurances as
may be required in connection with the transactions contemplated by this
Agreement or any of the other Basic Agreements.
5.10 Authorization to Accountants. Seller hereby
irrevocably authorizes all accountants and auditors employed by Seller at any
time while there are any sums owed to Participant during the term of this
Agreement, and thereafter until all of the obligations of Seller hereunder or
under the Custodian Agreement have been fully performed and discharged, to
cooperate with Participant and to exhibit and deliver to Participant copies of
Seller's financial statements, tax returns, trial balances, or other accounting
or tax records or other information of any sort which may be in their
possession, all at Seller's expense.
5.11 Computer Records. Seller hereby irrevocably
authorizes all of Seller's data processors, computer service bureaus or
companies (if any) to give Participant full access to and to deliver to
Participant, at Seller's expense, printouts and all information respecting any
and all financial records now or hereafter maintained by the same for Seller.
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5.12 Visitation. Seller shall permit such person as the
Participant may designate to visit and inspect any of the properties of the
Seller and the subsidiaries, to examine Seller's books and records and take
copies and extracts therefrom and to discuss their respective affairs with
Seller's officers and employees, at such times and as often as the Participant
may reasonably request. Seller hereby authorizes such officers and employees to
discuss with the Participant the affairs of Seller and any subsidiaries.
5.13 Notice of Material Proceedings. Promptly upon
becoming aware thereof, Seller shall give the Participant notice of the
commencement, existence or threat of any action or proceeding by or before any
governmental authority against or affecting Seller or any Affiliate which, if
adversely decided, would have a material adverse effect on the business,
operations, properties or financial condition of Seller or on the ability of
Seller to perform its obligations under this Agreement or any of the other Basic
Agreements.
5.14 Statements Not Misleading, etc. Seller will not
knowingly, after reasonable inquiry, furnish Participant any certificate or
other document that contains any untrue statement of material fact or that omits
to state a material fact necessary to make it not misleading in light of the
circumstances under which it is furnished.
5.15 Intentionally Omitted.
5.16 Disposition of Interests in and Indebtedness of
Subsidiaries or Owned Partnerships. Seller will not directly or indirectly sell,
pledge or otherwise dispose of, or part with control of, any shares of capital
stock of a subsidiary or the ownership interest in any partnership, joint
venture or other Person which is majority owned or controlled at any time
hereafter by Seller ("Majority Owned Subsidiary") or any indebtedness of a
Majority Owned Subsidiary.
5.17 Payment of Participant's Expenses. Seller shall pay
and reimburse Participant, on demand, for any out-of-pocket expenses (other than
salary or overhead expenses) which Participant may pay or be obligated to pay
now or hereafter in connection with the negotiation, administration or amendment
of, or enforcement of Participant's rights under this Agreement, the Custodian
Agreement or the Bailment Agreement, including without limitation, the fees and
disbursements of Participant's legal counsel.
5.18 Exclusivity and Right of First Refusal. During the
term of this Agreement (including any extensions) Seller shall not finance any
mortgage loan nor sell participations in any mortgage loan (other than to
Participant) unless (a) at the time of such financing and/or sale of a
participation, the Participation Portfolio Balance equals or exceeds the Pool
Limit, (b) the Seller has requested that the Participant increase the Pool Limit
by an amount sufficient to allow for the purchase by the Participant of a
Participation in such mortgage loan without exceeding the Pool Limit and
Participant has declined to grant such increase, and (c) Seller has provided
Participant with at least five (5) Business Days prior written notice of the
material terms of any
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such financing or participation sale and the Participant has failed, within the
said five (5) Business Day period to provide the Seller with a commitment to
match such material terms.
ARTICLE VI.
EVENT OF PURCHASE TERMINATION
6.1 Events of Purchase Termination. An Event of Purchase
Termination shall mean the occurrence or existence of one or more of the
following events or conditions (for any reason, whether voluntary, involuntary
or effected or required by law):
(a) Seller (or any Servicer to which Seller
assigns, transfers or sub- services the performance of any Servicer functions,
other than the Participant) shall default in the performance of any covenant
contained herein provided, as to any default of any covenant not involving the
payment of money, the Participant shall have given the Seller ten (10) days
written notice of and opportunity to cure such default.
(b) Any representation or warranty made by
Seller hereunder shall prove to have been untrue in any material respect as of
the time when made or deemed made; or any statement made by Seller in any
report, notice or document to Participant is untrue in any material respect and
Participant shall have given Seller ten (10) days written notice of and
opportunity to cure such default.
(c) (i) Seller shall, or shall purport to,
delegate or subcontract its servicing function as to any Mortgage Loan to any
Person, except a Servicer permitted in accordance with the provisions of this
Agreement; or (ii) any Mortgage Insurance Policy, Flood Insurance Policy, Hazard
Insurance Policy or title insurance policy with respect to a given Mortgage Loan
lapses, becomes void or coverage under such policy is terminated as a result of
the act or omission of Seller provided, as to (ii) only, Participant shall have
given Seller ten (10) days written notice of and opportunity to cure such
default.
(d) A Governmental Authority shall issue a cease
and desist order or its equivalent against Seller, Servicer (other than the
Participant), any Affiliate of the foregoing, or any directors or officers
involving the safety, soundness or financial viability of Seller, Servicer
(other than the Participant) or such Affiliate;
(e) A material adverse change shall have occurred
in the business, operations, condition (financial or otherwise) or prospects of
Seller, Servicer (other than the Participant) or any Affiliate of either of
them; or Seller or Servicer (other than the Participant) shall become, in the
judgment of Participant, unable to perform its obligations hereunder in a
satisfactory manner;
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(f) An Approved Private Investor fails to
purchase a Mortgage Loan in accordance with the terms hereof within one hundred
eighty (180) days of the purchase of the Participation in such Mortgage Loan
(whether or not such failure was in breach of the Commitment) and the Seller
shall fail to repurchase such Mortgage Loan within fifteen (15) days thereafter;
(g) Any creditor of Seller declares, or becomes
entitled to declare, any indebtedness of Seller or any Affiliate in an aggregate
amount in excess of $1,000,000 to be due and payable prior to its expressed
maturity, or any such indebtedness becomes due by its terms and shall not be
promptly paid or extended; or Seller shall breach any material contract (now
existing or hereafter existing) to which it is a party under which it is
obligated to sell mortgage loans to, or service mortgage loans for, another
Person;
(h) Any creditor of Seller or of any Affiliate
of Seller issues or obtains issuance of execution in a sum in excess of $500,000
against Seller or any Affiliate or any of their assets or properties;
(i) A Proceeding shall have been instituted in
respect of Seller or any Affiliate or either of them which, if adversely
instituted, shall either (x) result in the entry of an order granting relief
against Seller or such Affiliate or (y) shall not have been dismissed in favor
of Seller or such Affiliate within 90 days of its filing: (i) seeking to have an
order for relief entered in respect of such Person, or seeking a declaration or
entering a finding that such Person is insolvent or a similar declaration or
finding, or seeking dissolution, winding up, charter revocation or forfeiture,
liquidation, reorganization or other similar relief with respect to such
Person under any law relating to bankruptcy, insolvency, receivership, relief of
debtors or protection of creditors, termination of legal entities or any other
similar law now or hereafter in effect; or (ii) seeking appointment of a
receiver, trustee, liquidator, assignee, sequestrator or other custodian for
such Person or for all or any substantial part of its property provided the
foregoing shall not apply to the dissolution of any nonoperating Affiliate;
(j) Seller shall become insolvent or shall fail
to pay, become unable to pay, or state that it is or will be unable to pay, its
debts as they become due; or Seller or any Affiliate shall: (i) voluntarily
suspend transaction of its business; (ii) make a general assignment for the
benefit of creditors; (iii) institute (or fail to controvert in a timely and
appropriate manner) a proceeding described in Section 6.1(i)(i) hereof, or
(whether or not any such proceeding has been instituted) shall consent to or
acquiesce in any such order for relief, declaration, finding or relief described
therein; (iv) institute (or fail to controvert in a timely and appropriate
manner) a proceeding described in Section 6.1(i) or (ii) hereof, or (whether or
not any such proceeding has been instituted) shall consent to or acquiesce in
any such appointment or to the taking of possession by any such custodian of all
or any substantial part of its property; (v) dissolve, wind up, revoke or
forfeit its charter (or other constituent documents) or liquidate itself or any
substantial party of its property; or (vi) take any action in furtherance of any
of the foregoing, provided the foregoing shall not apply to the dissolution of
any nonoperating affiliate;
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(k) A Change of Control shall occur;
(l) The fidelity bond coverage and errors and
omissions coverage required hereunder shall at any time cease to be in force, or
Seller shall in any respect fail to comply with its obligations under this
Agreement in relation to fidelity bond or other insurance coverage;
(m) There shall occur any default by Seller
under the Flow Agreement or the Subordinated Debt Indenture;
(n) Any Event of Servicing Termination shall
occur;
(o) The board of directors of the Seller shall
fail to include at least one (1) nominee of Sovereign Bancorp, Inc. for a period
in excess of ten (10) Business Days unless (i) Sovereign Bancorp, Inc. has
consented in writing or (ii) such failure is due to a voluntary act by Sovereign
Bancorp, Inc.
6.2 Participant's Rights. If any Event of Purchase
Termination shall occur, then, upon receipt by the Seller of notice of the
occurrence of the Event of Purchase Termination (the "Purchase Termination
Notice") in addition to all other rights and remedies which Participant may have
hereunder, or otherwise at law, in equity or otherwise:
(a) Participant's commitments hereunder shall no
longer be in force, and Participant may exercise any or all of the remedies
available to Participant hereunder or under the Basic Agreements. Without
limiting the foregoing, Participant shall have no further obligation to purchase
any mortgage loans, or to fund any purchase;
(b) Participant shall also be entitled to set
off any sums of Seller held by Participant or any debts owed to Seller by
Participant against any obligations owed to Participant by Seller.
If any Event of Purchase Termination shall occur, Participant
agrees to continue to take any actions required of it under the Basic Agreements
to facilitate Seller's sale to an Investor of any Mortgage Loans in which
Participant shall have purchased a Participation, provided, however, that
Participant shall only be obligated to do so to facilitate a sale to an Approved
Private Investor on the purchase terms and conditions on which Participant's
Participation purchase was based, and further provided, that such actions shall
not expose Participant to liability or claims of liability to Seller or any
third person.
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6.3 Termination of Servicing.
(a) Upon the occurrence of an Event of
Servicing Termination, Participant shall have the right, from time to time,
immediately upon notice to Seller, to terminate Seller's servicing (and the
Subservicing Agreement, if necessary, as it relates to Mortgage Loans) in favor
of Participant, or transfer servicing to any third party, with respect to any
one or more or all of the Mortgage Loans in which Participant shall have
purchased a 100% Participation in which case Participant or Participant's
designee may charge its customary servicing fee which fee shall be paid by the
Seller. An "Event of Servicing Termination" shall mean (i) any breach by the
Seller or Servicer (including City National) of the provisions of Article III
hereof, (ii) any "Event of Purchase Termination", or (iii) any breach or
termination of the Subservicing Agreement.
(b) Upon a termination or transfer of servicing
for any one or more Mortgage Loans:
(i) Seller shall immediately take all such
actions and execute, acknowledge and deliver in recordable form such
documents and instruments as Participant may reasonably request to
evidence the transfer to Participant of legal title to each Mortgage
Loan as to which servicing has been terminated or transferred;
(ii) Seller shall cooperate fully with
Participant or any third party servicer, at Seller's expense, including
without limitation by providing such documents and information as
Participant or such third party may reasonably request and providing
such notices to mortgagors and third parties as Participant or such
third party may reasonably request.
Whenever servicing of a Mortgage Loan has been
terminated or transferred, and at all times thereafter, Seller shall hold for
Participant as trustee, and shall pay over to Participant or its designee
immediately upon receipt, in the form received, any monies, checks, items of
payment, instruments, notices and other documents which may come into Seller's
possession with respect to such Mortgage Loan. Termination of servicing shall
not affect any other rights or remedies of the parties hereto.
ARTICLE VII.
MISCELLANEOUS
7.1 Notices. Except to the extent otherwise expressly
permitted hereunder, all notices, requests, demands, directions and other
communications (collectively, "Notices") under this Agreement shall be sent by
nationally recognized overnight courier, or by telex or telecopier (with
confirmation in writing), or by machine readable electronic transmission, or by
personal delivery. All notices shall be sent to the applicable party at the
address provided therefore from
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time to time, in all cases with postage or other charges prepaid. Any such
properly given notice shall be effective on the earliest to occur of receipt,
telephone confirmation of receipt of telexed or telecopied communication or one
(1) Business Day after delivery to a nationally recognized overnight courier.
7.2 No Partnership. Neither the execution of this
Agreement, the sharing in the sales proceeds of the Mortgage Loans nor any
agreement to share in any other profit, loss, income or expense arising as a
result of the transactions contemplated by this Agreement shall be construed to
be or to create, any partnership, joint venture, or other joint enterprise or
joint adventure between Seller and Participant.
7.3 Assignment. This Agreement shall be binding upon and
shall inure to the benefit of Seller, Participant and their respective
successors and permitted assigns. Seller may not sell, pledge, assign or
otherwise transfer any of its rights under this Agreement, and any such
purported transfer shall be void. Participant may from time to time sell,
pledge, assign or otherwise transfer Participations purchased hereunder
provided, Participant may not assign rights hereunder if the effect of any such
assignment, when combined with any prior assignments, would be to create
obligations hereunder on the part of the Seller to more than five (5) Persons.
7.4 Indemnity.
(a) Seller, on the one hand, and Participant, on
the other hand each for itself and its successors (herein, each an "Indemnifying
Person") hereby agrees to reimburse and indemnify and upon request, defend the
other, its Affiliates, and their respective directors, officers, employees and
agents, and their respective heirs, personal representatives, successors and
assigns of the foregoing (herein, each an "Indemnified Person") from and against
any and all losses, liabilities, claims, damages, expenses, obligations,
penalties, actions, judgments, suits, costs or disbursements of any kind or
nature whatever (including, without limitation, the fees and disbursements of
counsel in connection with the investigative, administrative or judicial
proceedings commenced or threatened, whether or not such Indemnified Person is a
party thereto) that may at any time be imposed on, asserted against or incurred
by such Indemnified Person as a result of, or arising out of any breach of a
representation, warranty, covenant, agreement or duty under or in connection
with this Agreement or the Custodian Agreement by an Indemnifying Person. The
obligations of each Indemnifying Person under this Section shall survive the
termination of this Agreement.
(b) If any action, claim or proceeding shall be
brought or asserted against any Indemnified Person in respect of which indemnity
may be sought under this Agreement from an Indemnifying Person, the Indemnified
Person shall give prompt written notice of such action, claim or proceeding to
the Indemnifying Person who shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Person and the
payment of all of such counsel's fees and expenses (it being understood and
agreed that such counsel's fees and expenses are an indemnifiable loss under
this Agreement)
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provided that any delay or failure to so notify the Indemnifying Person of its
obligations hereunder shall release the Indemnifying Person of its obligations
hereunder only to the extent, if at all, that it is prejudiced by reason of such
delay or failure. Any such notice shall refer to this Section of this Agreement
and shall state that the Indemnified Person may undertake the defense of the
applicable action, claim or proceeding (herein, a "Proceeding"), unless it is
assumed by the Indemnifying Person within fifteen (15) Business Days after the
date it receives such notice. The Indemnifying Person will keep the Indemnified
Person advised as to all material developments in connection with any
Proceeding, including, but not limited to, promptly furnishing to the
Indemnified Person copies of all documents filed or served in connection
therewith. The Indemnified Person shall have the right to employ one separate
counsel per jurisdiction in any Proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
the Indemnified Person unless both the Indemnified Person and the Indemnifying
Person are named as parties and the Indemnified Person shall in good faith
determine that the representation by the same counsel is inappropriate due to
actual or potential differing interests between them. In the event that the
Indemnifying Person, within fifteen (15) Business Days after receiving written
notice of any Proceeding fails to assume the defense thereof, the Indemnified
Person shall have the right, subject to the further provisions hereof, to
undertake the defense, compromise or settlement of such Proceeding for the
account of the Indemnifying Person. Anything in this Section notwithstanding,
the Indemnifying Person shall not, without the Indemnified Person's prior
written consent, settle or compromise any action or claim or consent to the
entry of any judgment if such settlement, compromise or judgment requires
anything other than money damages paid by the Indemnifying Person. The
Indemnifying Person may, without the Indemnified Person's prior written consent,
settle or compromise any Proceeding or consent to the entry of any judgment that
requires solely the payment of money damages by the Indemnifying Person and that
includes as an unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Person from all liability in respect of such
Proceeding. As a condition to asserting any rights as an Indemnified
Person claiming by virtue of its relationship with the Participant, such
Indemnified Person must appoint the Participant as its sole agent for all
matters relating to any claim hereunder.
7.5 Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania.
7.6 Entire Agreement Relationship of Basic Agreements.
This Agreement together with the other Basic Agreements constitute the entire
agreement of the parties hereto with respect to their subject matter, and the
Basic Agreements supersede all prior and contemporaneous understandings and
agreements, whether written or oral, between the parties hereto relating to the
transactions provided for herein. Any provision of the Custodian Agreement shall
control to the extent it affects the rights or obligations of the Custodian.
Otherwise, to the extent of any conflict between this Agreement and any other
Basic Agreement, this Agreement shall control.
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7.7 Amendments; No Implied Waiver; Cumulative Remedies.
No amendments, modification or waiver of any provision of this Agreement, nor
any consent to any departure by Seller or Participant from any provision of this
Agreement, shall in any event be effective unless the same shall be in writing
and executed by the party against whom enforcement is sought, and then such
waiver or consent shall be effective only in the specified instance and for the
purpose for which given. No course of dealing and no delay or failure by
Participant or Seller in exercising any right, power or privilege under this
Agreement shall affect any other right, power or privilege; nor shall any single
or partial exercise of any such right, power or privilege preclude any further
exercise thereof or of any other right, power or privilege. The rights and
remedies of Participant and Seller under this Agreement are cumulative and not
exclusive of any right or remedies which it may otherwise have hereunder, under
the Custodian Agreement, at law, in equity or otherwise.
7.8 Jurisdictional Consent. In any litigation arising out
of or relating to the Basic Agreements, Seller hereby consents to the personal
jurisdiction of the Courts of the Commonwealth of Pennsylvania and/or the
Federal Courts of the Commonwealth of Pennsylvania.
7.9 Survival. All representations, warranties, covenants,
agreements and duties of Seller contained herein or made in connection herewith
shall survive the making of, and shall not be waived by the execution and
delivery of, any Transmittal Schedule or Participation Certificate, any
investigation by or knowledge of Participant, the purchase of any Participation,
or any other event of condition whatever.
7.10 Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall be held
invalid or unenforceable in whole or in part in any jurisdiction, such provision
shall, as to such jurisdiction, be ineffective to the extent of such invalidity
or unenforceability without in any manner affecting the validity or
enforceability thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
7.11 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
such counterparts shall together constitute one and the same instrument.
7.12 Expenses. Without limitation of any other provision
hereof, Seller shall pay and save Participant harmless against liability for the
payment of all reasonable out-of-pocket costs and expenses (including but not
limited to fees and expenses of counsel) incurred by Participant from time to
time arising from the enforcement or preservation of rights under this Agreement
or the Custodian Agreement (including but not limited to the collection or
enforcement of any amount owing hereunder by Seller, and any litigation,
proceeding, dispute, or work-out related to this Agreement or the Custodian
Agreement).
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7.13 Further Assurances. Seller shall perform such other
duties, furnish such reports, and execute such other documents (including but
not limited to precautionary financing statements) and provide such other and
further assurances in connection with this Agreement as Participant from time to
time may reasonably request.
7.14 Security Interest Grant and Priority. Seller hereby
grants to the Participant a security interest in all Mortgage Loans and all
accounts, instruments, general intangibles, deposits, books and records relating
to Mortgage Loans and in the Subservicing Agreement. Such security interest
shall secure all obligations of the Seller to the Participant hereunder and
shall, at all times, be senior in priority to any other liens on such property.
Seller shall, from time to time, execute such additional documents, including
Uniform Commercial Code financing statements, as Participant may reasonably
request for the purpose of effecting or perfecting the security interest granted
herein.
7.15 Liability Limitation. Notwithstanding any other term
or provision hereof, the monetary obligations of the Seller to the Participant
created hereunder shall not exceed, at any point in time, (a) 120% of the
principal amount of all Mortgage Loans outstanding at the time of payment of
such obligations, minus (b) an amount equal to the greater of (i) $0, and (ii)
any amounts previously paid by the Seller to the Participant (other than
remittance of funds held in trust by the Seller for the Participant) pursuant
hereto on account of any individual Mortgage Loan, minus 120% of the principal
amount of such individual Mortgage Loan on the date of such previous payment.
The foregoing limitation shall not apply to (x) any obligation of the Seller (or
Servicer) to remit funds held in trust, or (y) any obligation arising out of the
Seller's bad faith failure to perform or observe any term, condition or covenant
hereof.
IN WITNESS WHEREOF, the parties hereto, by their officers
thereunto duly authorized, have executed and delivered this Agreement as of the
date first above written.
MEGO MORTGAGE CORPORATION
By /s/ Xxxxxxx X. Xxxxx
-------------------------------------
XXXXXXX X. XXXXX
Attest: /s/ Xxxxx X. Xxxxxx
--------------------------------
XXXXX X. XXXXXX
SOVEREIGN BANK
By /s/ Xxx X. Xxxxx
-------------------------------------
XXX X. XXXXX
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EXHIBIT "A"
FORM OF PARTICIPATION CERTIFICATE
No. ________
PARTICIPATION CERTIFICATE
This certifies that ______________________________ ("Seller")
has sold, assigned, transferred and conveyed to SOVEREIGN BANK ("Participant"),
upon the representations and warranties set forth in the Participation Agreement
referred to below, Participations representing 100% undivided beneficial
ownership interests in the Mortgage Loans described in the Annex A hereto.
Reference is hereby made to the Participation Agreement dated
as of June 29, 1998 between Seller and Participant (as amended, modified or
supplemented from time to time, the "Participation Agreement"). Capitalized
terms used herein and not otherwise defined have the meanings given them in the
Participation Agreement. The rights and obligations of Participant and Seller
with respect to this Participation Certificate and the Participations evidenced
hereby are governed by such Participation Agreement.
WITNESS the due execution hereof as of ______________, 19___.
[SELLER]
By:
-------------------------------
Title:
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