--------------------------------------------------------------------------------

 
Exhibit 10.1
 

 
July 16, 2010

Franklin Credit Holding Corporation
Franklin Credit Management Corporation
101 Hudson Street, 25th Floor
Jersey City, New Jersey  07302
Attention: Thomas J. Axon, Chairman

Dear Tom:

Based on our discussions in connection with a proposed sale of certain
identified consumer mortgage loans (the “Loan Sale”) by Franklin Mortgage Asset
Trust 2009-A (“Seller”), an indirect subsidiary of The Huntington National Bank
(“Huntington”), to Vantium Capital Markets, L.P. (“Purchaser”) pursuant to a
Loan Sale Agreement between such parties dated as of July 20, 2010 (the “Sale
Agreement”), Huntington’s reasonable efforts to assist in a potential
restructuring or spin off (the “Potential Restructuring”) by Franklin Credit
Holding Corporation (“Holding”) of its ownership interests in Franklin Credit
Management Corporation (“FCMC”), its wholly owned servicer subsidiary, and the
entry into a servicing agreement (the “New Legacy Servicing Agreement”) between
Seller and FCMC to service consumer loans that are not sold in the Loan Sale,
Huntington, Holding and FCMC have agreed, in connection with the Loan Sale, the
Potential Restructuring and the New Servicing Agreement, and subject to the
consummation of the Sale Agreement, to the terms and conditions contained in
this letter agreement and in Annex 1 attached hereto (together, the “Letter
Agreement”).

You agree that the Letter Agreement is for your confidential use only and will
not be disclosed by you to any person other than your accountants, attorneys,
and other advisors, and then only in connection with the transactions
contemplated hereby and on a confidential basis, except that you may make such
public disclosures of the terms and conditions hereof as you are required by law
to make, in the opinion of your counsel.

The Letter Agreement shall be governed by, and construed in accordance with, the
laws of the State of Ohio.  Delivery of an executed counterpart of the Letter
Agreement by telecopier or PDF shall be effective as delivery of a manually
executed counterpart of the Letter Agreement.

Promptly after full execution and delivery of this Letter Agreement by all
parties, the parties shall commence preparation of definitive documentation that
provides for the transactions described herein.

We hereby refer to the following existing agreements:

(1) a certain Servicing Agreement dated as of March 31, 2009 (the “Existing
Servicing Agreement”) by and between Franklin Mortgage Asset Trust 2009-A and
Franklin Credit Management Corporation;

(2) a certain Amended and Restated Credit Agreement (Licensing) dated March 31,
2009, among The Huntington National Bank, as Administrative Agent, The
Huntington National Bank, and Huntington Finance LLC, as lenders, and Franklin
Credit Management Corporation and Franklin Credit Holding Corporation, as
borrowers (the “Licensing Credit Agreement”);
 
 
 
 
1

--------------------------------------------------------------------------------

 

 
(3) a certain Amended and Restated Credit Agreement dated March 31, 2009, among
The Huntington National Bank, as Administrative Agent, The Huntington National
Bank, Huntington Finance LLC, M&I Marshall & Ilsley Bank and BOS (USA) Inc., as
lenders, and Franklin Credit Asset Corporation, Franklin Asset, LLC and multiple
subsidiary borrowers, as borrowers (the “Legacy Credit Agreement”); and

(4) a certain Transfer and Assignment Agreement dated March 31, 2009, (the
“Transfer Agreement”) among Franklin Mortgage Asset Trust 2009-A, as purchaser,
Franklin Credit Asset Corporation, Franklin Credit Management Corporation,
Tribeca Lending Corp., and each of their respective listed subsidiaries, as
sellers.

The agreements of Huntington hereunder are made solely for the benefit of the
parties hereto and may not be relied upon or enforced by any other person.  The
terms and conditions of this Letter Agreement may be modified only in writing.

Each party hereto irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to this Letter Agreement or the transactions
contemplated hereby or the actions of Huntington in the negotiation, performance
or enforcement hereof.

Please evidence your acceptance of the provisions of this Letter Agreement by
signing a copy of this letter agreement and returning it to the undersigned at
or before 9:00 a.m. (eastern time) on July 16, 2010, the time at which this
Letter Agreement (if not so accepted prior thereto) will expire.
 

 

 
2

--------------------------------------------------------------------------------

 

 
Very truly yours,
 
THE HUNTINGTON NATIONAL BANK
 
 
By:  /s/ David L. Abshier
Name: David L. Abshier
Title: Authorized Signer
 
 
 
FRANKLIN MORTGAGE ASSET TRUST 2009-A
By:  The Huntington National Bank, not in its individual
    capacity, but solely as a Certificate Trustee
 
By: /s/ James E. Schultz
 
Title: Vice President

ACCEPTED AND AGREED this 16th day of July, 2010

FRANKLIN CREDIT HOLDING CORPORATION

By: /s/ Thomas J. Axon
Title: Chairman and President

FRANKLIN CREDIT MANAGEMENT CORPORATION

By: /s/ Thomas J. Axon
Title: Chairman and President

Acknowledgement, Consent, and Agreement to provide Guaranty and Guarantor
collateral as described in item # 5 of the Letter Agreement below, this 16th day
of July, 2010.

/s/ Thomas J. Axon
Thomas J. Axon, individually

cc Kevin P. Gildea, Chief Legal Officer

 
3

--------------------------------------------------------------------------------

 

Annex 1

1.  
Consummation of Sale Agreement: FCMC agrees to use its best efforts to cooperate
with and assist Huntington and Seller in consummating the Sale Agreement and any
subsequent loan sale agreements between Seller and Purchaser, curing title,
documentation, assignment, file and other issues or deficiencies until such time
as Seller receives all of the payment due or potentially due to Seller as part
of the purchase price and the release of any holdback amount pursuant to periods
specified therefor in the Sale Agreement or any other loan sale agreements
between Seller and Purchaser, and FCMC ratifies and reaffirms each of its
obligations under the Transfer Agreement or the Existing Servicing Agreement in
respect of any such issues or deficiencies.

2.  
Reduction of Licensing Facility:  FCMC agrees on July 20, 2010 to (i) use
unpledged cash to reduce the outstanding balance on the revolving line of credit
under the Licensing Credit Agreement to zero, and (ii) permanently reduce such
revolving line of credit to $1,000,000.

3.  
Reduction of Legacy Facility:  As a result of the permanent reduction pursuant
to item # 2, clause (ii) above, Huntington agrees to release $1,000,000 of cash
collateral under the Licensing Credit Agreement, and the parties agree that on
July 20, 2010, such released cash collateral shall be applied as a $1,000,000
voluntary payment under the terms of the Legacy Credit Agreement.  In
furtherance of the foregoing, Huntington and FCMC agree to execute an amendment
to the Licensing Credit Agreement to be effective as of July 20, 2010, no later
than such date to incorporate the terms of items 2 and 3 hereof.

4.  
Servicing Expense Settle-Up:  FCMC agrees that on July 20, 2010, it shall pay to
Seller and Huntington the aggregate sum of $1,000,000.  Such payment shall be
made from an offset in the amount of $1,000,000 for amounts owed to FCMC from
Seller as of June 30, 2010, for unpaid servicing advances under the Existing
Servicing Agreement.

5.  
Spinoff of FCMC/EBITDA Payment:  As consideration for Huntington’s reasonable
efforts to obtain consents to the Potential Restructuring, efforts to obtain
consent of the required lenders under the Legacy Credit Agreement to the same,
for its efforts in consummating the Sale Agreement, and for its execution of the
New Legacy Servicing Agreement with FCMC, upon condition that (i) the Potential
Restructuring is acceptable to Huntington, and the administrative agent and the
required lenders under the Legacy Credit Agreement in each such party’s sole
discretion, and (ii) the Potential Restructuring does not result in material
tax, legal, regulatory or accounting impediments or issues for Holding or FCMC:

(A) FCMC agrees pay up to an aggregate amount of $3,000,000 to Huntington, for
the benefit of the administrative agent and the lenders under the Legacy Credit
Agreement, which payment shall be made through contingent semi-annual payments
(the “EBITDA Payment”) equal to (i) 50% of FCMC’s GAAP EBITDA for each period,
for the first 18 months after closing of the Sale Agreement and (ii)  70% of
FCMC’s GAAP EBITDA for each period thereafter; and

(B) Thomas J. Axon agrees to continue his existing guaranty to extend to the
EBITDA Payment pursuant to an amendment to his existing guaranty in form
 
 
 
 
4

--------------------------------------------------------------------------------

 
 
 
satisfactory to Huntington, which will also provide that to the extent the
amount of the EBITDA Payment received from FCMC in respect of any semi-annual
period as calculated pursuant to subparagraph (A) above is less than $500,000,
Mr. Axon will pay any such shortfall pursuant to the guaranty.  Each such
obligation of Mr. Axon will be secured and continue to be secured by the
Guarantor Collateral (as defined under the Licensing Credit Agreement).  The
amended guaranty agreement and collateral documents in respect of such Guarantor
Collateral shall be satisfactory to Huntington, the administrative agent and the
required lenders.

Notwithstanding anything to the contrary herein, the aggregate amount which the
administrative agent and the lenders under the Legacy Credit Agreement shall be
entitled to receive under this paragraph 5, shall not exceed $3,000,000 (the
“Maximum Amount”).  Additionally, the Maximum Amount shall be reduced to the
extent that any distribution made by FCMC after the date of this Letter
Agreement to its shareholders results in the application of any payments to the
administrative agent and the lender under the Legacy Credit
Agreement.  Additionally, any payments made under this paragraph 5 shall be a
credit against future amounts FCMC would otherwise be obligated to pay to the
administrative agent and the lender under the Legacy Credit Agreement in respect
of any distributions made by FCMC after the date of this Letter Agreement to its
shareholders.

In the event that the above conditions are satisfied, Huntington agrees to use
its reasonable efforts to assist Holding and FCMC in connection with such
Potential Restructuring in obtaining approval of the required lenders under the
Legacy Credit Agreement for such Potential Restructuring and will consent to the
change of control under the Licensing Credit Agreement in connection with such
Potential Restructuring.  In connection therewith, FCMC or Holding shall
reimburse and hold harmless Huntington and such lenders from any reasonable
expense incurred thereby in connection with any such Potential Restructuring

6.  
FCMC releases all claims under the Existing Servicing Agreement with respect to
the mortgage loans sold pursuant to the Loan Sale as of the date of such Loan
Sale, except in respect of unpaid servicing advances for services incurred prior
to June 30, 2010, minus the offset described in item 4 above.  As a further
inducement to entering into this Letter Agreement, FCMC hereby represents and
warrants to Seller and Huntington that FCMC has agreed with Purchaser or its
designees to the terms of one or more servicing agreements for the mortgage
loans being purchased pursuant to the Sale Agreement.

7.  
No later than July 20, 2010, FCMC shall refund to Seller the full amount of the
servicing fees paid in advance to FCMC under the Existing Servicing Agreement
for the month of July 2010 and which relates to any period on or after July 1,
2010, attributable solely to the mortgage loans being sold pursuant to the Sale
Agreement.

8.  
Upon the consummation of the Sale Agreement, FCMC agrees that the Existing
Servicing Agreement will be deemed to be terminated in all respects as of July
1, 2010, as to the mortgage loans sold pursuant to such Sale Agreement, except
for FCMC’s obligations thereunder to remedy deficiencies of the type described
in item # 1 above and the assistance and cooperation to be provided by FCMC
pursuant to the provisions of this Letter Agreement.  No later than July 23,
2010, FCMC and Seller agree to terminate effective August 1, 2009, in all
respects the Existing Servicing Agreement as to the loans which are

 
 
 
 
5

--------------------------------------------------------------------------------

 
 
 
not sold pursuant to the terms of such Sale Agreement, and to enter into the New
Legacy Servicing Agreement effective as of August 1, 2010, on market terms as
determined by Seller in good faith.  The New Legacy Servicing Agreement shall be
terminable without cause by Seller at any time on (i) 90 days prior written
notice, or (ii) in connection with the sale of some or all of the loans, at any
time on 30 days prior written notice.
 
9.  
 By the close of business on July 15, 2010, an officer of FCMC and Holding shall
provide and certify that resolutions of their respective boards of directors
have been adopted which approve and ratify all of the actions contemplated in
this Letter Agreement.

 
 
 
 
6