Document:

ex-10_2.htm

Exhibit 10.2

 

 

LOAN SERVICING AGREEMENT

by and between

BOSCO CREDIT II TRUST SERIES 2010 - 1

as the Owner,

and

FRANKLIN CREDIT MANAGEMENT CORPORATION

as the Servicer

dated and made effective as of November 19, 2010

 

  

  

  

TABLE OF CONTENTS

 

	
ARTICLE I

	
DEFINITIONS; CERTAIN MATTERS OF CONSTRUCTION 

	
1

 

	
ARTICLE II

	
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS  

	
9

 

	
  

	
2.1.

	
The Servicer to Act as the Servicer 

	
9

 

	
  

	
2.2.

	
Liquidation of Mortgage Loans 

	
10

 

	
  

	
2.3.

	
Collection of Mortgage Loan Payments 

	
11

 

	
  

	
2.4.

	
Establishment of and Deposits to Control Account 

	
12

 

	
  

	
2.5.

	
Permitted Withdrawals From Control 

	
12

 

	
  

	
2.6.

	
Establishment of and Deposits to Escrow Account 

	
13

 

	
  

	
2.7.

	
Permitted Withdrawals From Escrow Account 

	
13

 

	
  

	
2.8.

	
Payment of Taxes, Insurance and Other Charges 

	
14

 

	
  

	
2.9.

	
Protection of Accounts 

	
14

 

	
  

	
2.10.

	
Maintenance of Hazard Insurance 

	
14

 

	
  

	
2.11.

	
Reserved 

	
15

 

	
  

	
2.12.

	
Maintenance of Fidelity Bond and Errors and Omissions Insurance 

	
15

 

	
  

	
2.13.

	
Inspections 

	
15

 

	
  

	
2.14.

	
Restoration of Mortgaged Property. 

	
16

 

	
  

	
2.15.

	
Reserved 

	
16

 

	
  

	
2.16.

	
Title, Management and Disposition of REO Property 

	
16

 

	
  

	
2.17.

	
REO Reports 

	
17

 

	
  

	
2.18.

	
Liquidation Reports 

	
17

 

	
  

	
2.19.

	
Reports of Foreclosures and Abandonments of Mortgaged Property 

	
17

 

	
  

	
2.20.

	
Reserved 

	
17

 

	
  

	
2.21.

	
Notification of Adjustments 

	
17

 

	
  

	
2.22.

	
Transfer Notices. 

	
18

 

	
  

	
2.23.

	
Privacy. 

	
18

 

	
  

	
2.24.

	
Losses and Expenses. 

	
19

 

  

  

  

	
ARTICLE III

	
REMITTANCES 

	
20

 

	
  

	
3.1.

	
Reserve 

	
20

 

	
  

	
3.2.

	
Statements to the Owner 

	
20

 

	
  

	
3.3.

	
Monthly Advances by the Servicer 

	
20

 

	
ARTICLE IV

	
GENERAL SERVICING PROCEDURES 

	
20

 

	
  

	
4.1.

	
Transfers of Mortgaged Property 

	
20

 

	
  

	
4.2.

	
Satisfaction of Mortgages and Release of Mortgage Files 

	
21

 

	
  

	
4.3.

	
Servicing Compensation 

	
21

 

	
  

	
4.4.

	
Reserved 

	
21

 

	
  

	
4.5.

	
Right to Examine Servicer Records 

	
21

 

	
ARTICLE V

	
POSSESSION OF MORTGAGE FILES; BOOKS AND RECORDS; CUSTODIAL AGREEMENT; DELIVERY OF DOCUMENTS; SERVICER TO COOPERATE 

	
22

 

	
  

	
5.1.

	
Provision of Information 

	
22

 

	
  

	
5.2.

	
Financial Statements; Servicing Facility 

	
22

 

	
  

	
5.3.

	
Possession of Mortgage Files; Maintenance of Servicing Files 

	
23

 

	
  

	
5.4.

	
Books and Records; Transfers of Mortgage Loans 

	
24

 

	
  

	
5.5.

	
Custodial Agreement; Delivery of Documents 

	
24

 

	
ARTICLE VI

	
REPRESENTATIONS AND WARRANTIES 

	
24

 

	
  

	
6.1.

	
General Representations and Warranties 

	
25

 

	
  

	
6.2.

	
Representations, Warranties and Covenants of the Owner Regarding Individual Mortgage Loans 

	
25

 

	
ARTICLE VII

	
THE SERVICER 

	
26

 

	
  

	
7.1.

	
Indemnification; Third Party Claims. 

	
27

 

	
  

	
7.2.

	
Merger or Consolidation of the Servicer 

	
27

 

	
  

	
7.3.

	
Limitation on Liability of the Servicer and Others 

	
28

 

	
  

	
7.4.

	
Limitation on Assignment by the Servicer 

	
28

 

  

  

  

	
ARTICLE VIII

	
RESERVED 

	
34

 

	
  

	
8.1.

	
Reserved 

	
34

 

	
ARTICLE IX

	
DEFAULT 

	
35

 

	
  

	
9.1.

	
Events of Default 

	
35

 

	
  

	
9.2.

	
Waiver of Defaults 

	
36

 

	
ARTICLE X

	
TERMINATION 

	
37

 

	
  

	
10.1.

	
Termination 

	
37

 

	
  

	
10.2.

	
Termination With Cause 

	
37

 

	
  

	
10.3.

	
Termination Without Cause 

	
37

 

	
ARTICLE XI

	
MISCELLANEOUS PROVISIONS 

	
38

 

	
  

	
11.1.

	
Successor to the Servicer 

	
38

 

	
  

	
11.2.

	
Reserved 

	
38

 

	
  

	
11.3.

	
Amendment; Extension Not a Waiver 

	
38

 

	
  

	
11.4.

	
Governing Law; Venue 

	
39

 

	
  

	
11.5.

	
Duration of Agreement 

	
39

 

	
  

	
11.6.

	
Notices 

	
39

 

	
  

	
11.7.

	
Severability of Provisions 

	
40

 

	
  

	
11.8.

	
Relationship of Parties 

	
40

 

	
  

	
11.9.

	
Execution; Successors and Assigns 

	
40

 

	
  

	
11.10.

	
Assignment by the Owner 

	
40

 

	
  

	
11.11.

	
Time of Payment 

	
40

 

	
  

	
11.11.

	
Force Majeure 

	
40

 

EXHIBITS

Exhibit A                     Mortgage Loan Schedule

Exhibit B                      Contents of Each Mortgage Loan File

Exhibit C                      Reserved

Exhibit D                     Servicing Fee Schedule

Exhibit E                      Reports

Exhibit F                      Reserved

Exhibit G                     Approval Matrix

Exhibit H                     Agreed Servicing Guidelines

 

 

  

  

  

LOAN SERVICING AGREEMENT

 

This Loan Servicing Agreement (the “Agreement”), dated and effective as of November 19, 2010, is by and between BOSCO CREDIT II TRUST SERIES 2010 - 1, a Delaware statutory trust (“Owner”), and Franklin Credit Management Corporation, a Delaware corporation (“Servicer”).

 

WHEREAS, the Mortgage Loans identified on the Mortgage Loan Schedule annexed hereto as Exhibit A have been acquired by Owner; and

 

WHEREAS, the Servicer has agreed to service each Mortgage Loan on behalf of the Owner commencing on the Effective Date (as defined herein), and the parties hereto desire to provide the mechanics of such servicing by the Servicer;

 

NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Owner and the Servicer agree as follows:

 

ARTICLE I

 

DEFINITIONS; CERTAIN MATTERS OF CONSTRUCTION

 

Whenever used herein, the following words and phrases shall have the following meanings:

 

“Accepted Servicing Practices” means, with respect to any Mortgage Loan, those customary and reasonable mortgage servicing practices generally undertaken by prudent mortgage lending institutions that service mortgage loans of the same type as such Mortgage Loan in the jurisdiction where the related Mortgaged Property is located, subject to and in accordance with the Approval Matrix and the Agreed Servicing Guidelines.

 

“Adjustment Date” means, as to each adjustable rate Mortgage Loan, the date on which the Mortgage Interest Rate is adjusted in accordance with the terms of the related Mortgage Note and Mortgage.

 

“Agreed Servicing Guidelines” mean the Agreed Servicing Guidelines attached hereto as Exhibit H.

 

“Agreement” has the meaning assigned to it in the preamble.

 

“Ancillary Income” means all income derived from the Mortgage Loans other than payments of principal and interest on the Mortgage Loans, including any interest that accrues on funds on deposit in the Escrow Account and the Control Account, insufficient fund fees, conversion fees, satisfaction fees, optional insurance administrative fees, assumption fees, escrow account benefits, reinstatement fees, customary real estate referral fees, modification fees, release fees, foreclosure fees, late payment fees,  prepayment penalty fees and all other incidental fees and charges received by the Servicer, but excluding Servicing Fees.

 

  

 

  

 

“Applicable Requirements” means as of the time of reference, with respect to the Mortgage Loans, REO Property and the servicing of the Mortgage Loans, all of the following: (i) all contractual obligations of the Servicer set forth in this Agreement; (ii) the requirements set forth in the related Mortgage Note and the related Mortgage; (iii) all applicable federal, state and local legal and regulatory requirements (including statutes, rules, regulations and ordinances and including the Privacy Requirements); (iv) all other applicable requirements and guidelines of each governmental agency, board, commission, instrumentality and other governmental body or officer having jurisdiction; (v) all other applicable judicial and administrative judgments, orders, stipulations, awards, writs and injunctions; and (vi) Accepted Servicing Practices.

 

“Appraised Value” means with respect to any Mortgage Loan, the lesser of (i) the value set forth on the appraisal made in connection with the origination of the related Mortgage Loan as the value of the related Mortgaged Property, or (ii) the purchase price paid for the Mortgaged Property, provided, however, that in the case of a refinanced Mortgage Loan, such value shall be based solely on the appraisal made in connection with the refinancing of such Mortgage Loan.

 

“Approval Matrix” means the Owner’s specified delegation of authority to the Servicer  for servicing the Accounts, which is set forth on Exhibit G to this Agreement.

 

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

 

“Business Day” means any day other than (i) a Saturday or Sunday, or (ii) a day on which banking institutions located in New York or New Jersey are authorized or obligated by law or executive order to be closed.

 

 “Code” means the Internal Revenue Code of 1986, as it may be amended from time to time or any successor statute thereto, and applicable U.S. Department of the Treasury regulations issued pursuant thereto.

 

“Condemnation Proceeds” means all awards or settlements in respect of a Mortgaged Property, whether permanent or temporary, partial or entire, by exercise of the power of eminent domain or condemnation, to the extent not required to be released to a Mortgagor in accordance with the terms of the related Mortgage Loan Documents.

 

“Control Account” has the meaning assigned to it in the Loan Agreement.

 

“Custodial Agreement” means the agreement governing the retention of the originals of each Mortgage Note, Mortgage, Assignment of Mortgage and other Mortgage Loan Documents.

 

“Custodian” means the custodian under the Custodial Agreement, or its successor in interest or assigns, or any successor to the Custodian under the Custodial Agreement as provided therein.

 

“Customer Information” means any personally identifiable information in any form (written, electronic or otherwise) relating to a Mortgagor, including, but not limited to: a Mortgagor’s name, address, telephone number, Mortgage Loan number, Mortgage Loan payment history, delinquency status, insurance carrier or payment information, tax amount or payment information; the fact that the Mortgagor has a relationship with the servicer of such Mortgagor’s Mortgage Loan; and any other non-public personally identifiable information.

 

 

  

2

  

“Cut-off Date” means the date of this Agreement, or with respect to Mortgage Loans and servicing rights and obligations with respect to such Mortgage Loans made subject to this Agreement after the first Effective Date hereunder, the date agreed to by the Servicer and the Owner.

 

“Damages” means any and all assessments, judgments, claims, liabilities, losses, costs, damages or expenses (including interest, penalties and reasonable attorneys’ fees, expenses and disbursements in connection with any action, suit or proceeding and including any such reasonable attorneys’ fees, expenses and disbursements incurred in enforcing any right of indemnification against any indemnitor).  There shall be no limitation on the amount of Damages under this Agreement except as provided in Section 7.3(c).

 

“Delinquent” means a Mortgage Loan is “Delinquent” when any payment contractually due thereon has not been made by the close of business on the Due Date therefor.  Such Mortgage Loan is “30 days Delinquent” if such contractual payment has not been received by the close of business on the numerically corresponding day of the month immediately succeeding the month in which such contractual payment was due, or, if there is no such numerically corresponding day (e.g., when a 30-day month follows a 31-day month in which a payment was due on the 31st day of such month) then on the last day of such immediately succeeding month. Similarly for “60 days Delinquent” the second immediately succeeding month, and for “90 days Delinquent” the third immediately succeeding month.

 

“Determination Date” means the last calendar day of the month immediately preceding the related Distribution Date.

 

“Distribution Date” means the 10th day (or if such 10th day is not a Business Day, the first Business Day immediately following) of any month, beginning with the first Distribution Date.

 

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

 

“Due Period” means with respect to each Distribution Date, the period commencing on the second day of the month preceding the month of the Distribution Date and ending on the first day of the month of the Distribution Date.

 

“Effective Date” means November 19, 2010, or with respect to Mortgage Loans and servicing rights and obligations with respect to such Mortgage Loans made subject to this Agreement after such date, on the date that the Servicer obtains possession of the Mortgage Loan Documents.

 

 “Errors and Omissions Insurance Policy” means an errors and omissions insurance policy to be maintained by the Servicer pursuant to Section 2.12.

 

  

3

  

“Escrow Account” means the separate account or accounts created and maintained pursuant to Section 2.6.

 

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

 

“Event of Default” means any one of the conditions or circumstances enumerated in Section 9.1.

 

“Expenses” has the meaning assigned to it in Section 2.24.2.

 

“FDIC” means the Federal Deposit Insurance Corporation, or any successor thereto.

 

“FHA” means the Federal Housing Administration, or any successor thereto.

 

“Fidelity Bond” means a fidelity bond to be maintained by the Servicer pursuant to Section 2.12.

 

“Float Benefit” means the net economic benefit resulting from escrow and custodial deposits held for the account of the Servicer or the Owner relating to the Mortgage Loan and servicing thereof. The Float Benefit is based on the Servicer’s selection of the investment facility or interest rate swap or other arrangement offered from time to time by the financial institution holding custodial deposits.

 

“Franklin Trust Loans” means the Mortgage Loans purchased by Bosco Credit II, LLC from Franklin Mortgage Asset Trust 2009-A and subsequently transferred to Owner pursuant to an Omnibus Assignment and Bill of Sale dated as of even date herewith.

 

“Gross Margin” means with respect to each Mortgage Loan, the fixed percentage amount set forth in the related Mortgage Note which is added to the Index in order to determine the related Mortgage Interest Rate, as set forth in the Mortgage Loan Schedule.

 

     “HELOC” means a Mortgage Loan that is a home equity line of credit or any other arrangement under which the Mortgagor has the right to demand further advances from the mortgagee.

“High Cost Loan” means a Mortgage Loan classified as (a) a “high cost” loan under HOEPA, (b) a “high cost home,” “threshold,” “covered,” “high risk home,” “predatory” or similar loan under any other applicable state, federal or local law or (c) a Mortgage Loan categorized as “High Cost” pursuant to the Standard & Poor’s Glossary for File Format for LEVELS®, Appendix E, as revised from time to time.

 

“HOEPA” means the Home Ownership Equity Protection Act of 1994, as amended.

 

  

4

  

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

 

“Insurer” means any entity that insures or guarantees all or part of the risk of loss of a Mortgage Loan, and the providers of any hazard insurance policy, flood insurance policy or title insurance policy.

 

“Insurance Proceeds” means with respect to each Mortgage Loan, proceeds of insurance policies insuring the Mortgage Loan or the related Mortgaged Property.

 

“Lender” means Värde Investment Partners, L.P., a Delaware limited partnership.

“Litigation: means any litigation, arbitration or other proceeding before any governmental, administrative or arbitral court or tribunal, or any government investigation or administrative enforcement action.

 

“Liquidation Proceeds” means cash received in connection with the liquidation of a defaulted Mortgage Loan, whether through the sale or assignment of such Mortgage Loan, trustee’s sale, foreclosure sale or otherwise, or the sale of the related Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage Loan.

 

“Loan-to-Value Ratio or LTV” means with respect to any Mortgage Loan, the ratio of the original loan amount of the Mortgage Loan at its origination (unless otherwise indicated) to the Appraised Value of the Mortgaged Property.

 

“Loan Agreement” means that certain Master Loan Agreement between Bosco Credit II, LLC and Lender, and joined in by Owner pursuant to a Joinder dated as of November 19, 2010, as amended, modified, supplemented, replaced or renewed from time to time in accordance with its terms.

 

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

 

“Mortgage” means the mortgage, deed of trust or other instrument securing a Mortgage Note, which creates a lien on Mortgaged Property securing the Mortgage Note.

 

“Mortgage File” means the items pertaining to a particular Mortgage Loan referred to in Exhibit B to this Agreement, and any additional documents required to be added to the Mortgage File pursuant to this Agreement.

 

“Mortgage Interest Rate” means the annual rate of interest borne on a Mortgage Note in accordance with the provisions of the Mortgage Note.

 

“Mortgage Loan” means each Mortgage Loan subject to this Agreement and which is identified on the Mortgage Loan Schedule, which Mortgage Loan includes the Mortgage File, the Monthly Payments, Principal Prepayments, Liquidation Proceeds, Condemnation Proceeds, Insurance Proceeds, REO Disposition Proceeds and all other rights, benefits, proceeds and obligations arising from or in connection with such Mortgage Loan.  To the extent the context shall permit or require, each such reference to Mortgage Loan shall include REO Property.

 

  

5

  

“Mortgage Loan Documents” means with respect to a Mortgage Loan, the original related Mortgage Note with applicable addenda and riders and endorsements, the original related Mortgage and the originals of any required addenda and riders, the original related Assignment of Mortgage and any original intervening related assignments, any guarantees, any written modification agreements, the original related title insurance policy, and the related appraisal report.

 

“Mortgage Loan Remittance Rate” means with respect to each Mortgage Loan, the annual rate of interest remitted to the Owner, which shall be equal to the related Mortgage Interest Rate minus the Servicing Fee Rate.

 

“Mortgage Loan Schedule” means a schedule of Mortgage Loans annexed hereto as Exhibit A, or as the same may be supplemented from time to time by mutual agreement of the Owner and the Servicer, such schedule setting forth the following information with respect to each Mortgage Loan: (1) the Servicer’s Mortgage Loan number; (2) the city state and zip code of the Mortgaged Property; (3) a code indicating whether the Mortgaged Property is a single family residence, two-family residence, three-family residence, four-family residence, PUD, mixed-use property, or condominium; (4) the current Mortgage Interest Rate; (5) the current Mortgage Loan Remittance Rate; (6) the current Monthly Payment; (7) the Gross Margin; (8) the original term to maturity; (9) the scheduled maturity date; (10) the principal balance of the Mortgage Loan as of the Cut-off Date; (11) the Loan-to-Value Ratio; (12) the next Adjustment Date; (13) the lifetime Mortgage Interest Rate cap; (14) a code indicating whether the Mortgage Loan is convertible or not; (15) a code indicating whether the Mortgage Loan Documents contain a prepayment fee, and, if so, additional fields setting forth the terms thereof; and (16) any other information that the Servicer may require.

 

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

 

“Mortgaged Property” means the real property securing repayment of the debt evidenced by a Mortgage Note or, where the context permits or requires (including in Section 6.2), an REO Property.

 

“Mortgagor” means the obligor on a Mortgage Note.

 

“New Loan Data File” means with respect to each Mortgage Loan delivered after the initial Effective Date by the Owner to be serviced by the Servicer under this Agreement, the data file produced by the Owner that is used to enable the Servicer to set up each Mortgage Loan on its servicing system.

 

“Originator” means, with respect to any Mortgage Loan, the entity or entities that (a) took the relevant Mortgagor’s loan application; (b) processed the relevant Mortgagor’s loan application: and/or (c) closed and/or funded such Mortgage Loan.

 

  

6

  

“Owner” means Bosco Credit II Trust Series 2010 - 1, a Delaware statutory trust, or its successor in interest or any successor to the Owner under this Agreement as herein provided.

 

“Owner Indemnitees” has the meaning assigned to it in Section 7.1.1.

 

 “Person” means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision thereof.

 

 “Principal Prepayment” means any payment or other recovery of principal on a Mortgage Loan which is received in advance of its scheduled Due Date, including any prepayment penalty or premium thereon and which is not accompanied by an amount of interest representing scheduled interest due on any date or dates in any month or months subsequent to the month of prepayment.

 

“Principal Prepayment Period” means the month preceding the month in which the related Distribution Date occurs.

 

“Prior Servicer” means all servicers and subservicers, collectively and individually, other than the Servicer, which, at any time prior to the applicable Effective Date, pooled, sold, serviced or subserviced any of the Mortgage Loans.

 

“Privacy Requirements” means the obligations imposed by (i) Title V of the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801 et seq.; (ii) the applicable federal regulations implementing such act and codified at 12 CFR Parts 40, 216, 332, 573, and/or 16 CFR Part 313; (iii) Interagency Guidelines Establishing Standards For Safeguarding Borrower Information published in final form on February 1, 2001 (such final guidelines and/or rules the “Interagency Guidelines”) to establish and maintain an Information Security Program  (as such term is defined in the Interagency Guidelines); and (iv) other applicable federal, state and local laws, rules, regulations, and orders relating to the privacy and security of Customer Information, including the federal Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq., and similar state laws.

 

“Qualified Depository” means a deposit account or accounts maintained with a federal or state chartered depository institution selected by Servicer the deposits in which are insured by the FDIC to the applicable limits and the short-term unsecured debt obligations of which (or, in the case of a depository institution that is a subsidiary of a holding company, the short-term unsecured debt obligations of such holding company) are rated A-1 by Standard & Poor’s Ratings Services or Prime-1 by Moody’s Investors Service, Inc. (or a comparable rating if another rating agency is specified by the Owner by written notice to the Servicer) at the time any deposits are held on deposit therein.

 

“Qualified Insurer” means a mortgage guaranty insurance Insurer duly authorized and licensed where required by law to transact mortgage guaranty insurance business and generally acceptable as an Insurer under Accepted Servicing Practices.

 

“Remittance Date” has the meaning assigned to it in the Loan Agreement.

 

“REO Disposition” means the final sale by the Servicer of any REO Property.

 

  

7

  

“REO Disposition Proceeds” means all amounts received with respect to an REO Disposition pursuant to Section 2.16.

 

“REO Property” means a Mortgaged Property acquired through foreclosure, by deed in lieu of foreclosure or otherwise, as described in Section 2.16.

 

“Servicer” means Franklin Credit Management Corporation, or its successor in interest or assigns, or any successor to the Servicer under this Agreement appointed as herein provided.

 

“Servicer Employees” means Servicer Employees has the meaning set forth in Section 2.12.

 

“Servicer Indemnitees” has the meaning assigned to it in Section 7.1.2.

 

“Servicing Advances” means all customary, reasonable and necessary “out of pocket” costs and expenses (including reasonable attorney’s fees and disbursements) incurred in the performance by the Servicer of its servicing obligations, including, but not limited to, the cost of (a) the preservation, restoration and protection of the Mortgage Loan or Mortgaged Property, (b) any enforcement or judicial proceedings, including foreclosures, money judgments and bankruptcy proceedings, (c) the management and liquidation of any REO Property, including, but not limited to, the cost of environmental inspection or review of such property, (d) compliance with the obligations under Sections 2.8, 2.10, 2.11, 2.14 and 2.15, (e) other Expenses that are the responsibility of the Owner under Section 2.24, and (f) any other amounts expressly  designated as Servicing Advances pursuant to this Agreement.

 

 “Servicing Fee” means with respect to each Mortgage Loan, the fees the Owner shall pay to the Servicer, as set forth on Exhibit D to this Agreement.

 

“Servicing Fee Rate” means with respect to each Mortgage Loan, the percentage set forth on Exhibit D to this Agreement.

 

“Servicing File” means with respect to each Mortgage Loan, the file retained by the Servicer consisting of originals of all documents in the Mortgage File which are not delivered to the Custodian and copies of the Mortgage Loan Documents listed in the Custodial Agreement, the originals of which are delivered to the Custodian pursuant to Section 5.5.

 

“VA:  means the United States Department of Veterans Affairs, or any successor thereto.

 

Construction of this Agreement and Certain Terms and Phrases.

 

(a) Unless the context of this Agreement clearly indicates otherwise, (i) words of any gender include each other gender; (ii) words denoting the singular shall include the plural and vice versa; (iii) the terms “hereof”, “herein”, “hereby” and derivate or similar words refer to this entire Agreement and not to any particular provision of this Agreement; and (iv) the terms “Article”, “Section”, and “Exhibit” without any reference to a specified document refer to the specified Article, Section and Exhibit, respectively, of this Agreement.

 

  

8

  

(b) The words “including”, “include” and “includes” are not exclusive and shall be deemed to be followed by the words “without limitation”.

 

(c) The word “or” shall be construed to mean “and/or” unless the context clearly prohibits that construction.

 

(d) Whenever this Agreement refers to a number of days, such number shall refer to calendar days unless Business Days are specified.

 

(e) Any reference to any federal, state, local or foreign statute or law, including any one or more sections thereof, shall be deemed also to refer to, unless the context requires otherwise, all rules and regulations promulgated thereunder.

 

(f) The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

ARTICLE II

 

ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

 

2.1. The Servicer to Act as the Servicer. The Servicer, as an independent contractor, shall service and administer the Mortgage Loans on an actual/actual basis in accordance with this Agreement, in accordance with Accepted Servicing Practices, and shall have full power and authority, acting alone or through the delegation of duties to third party servicing providers, to do any and all things in connection with such servicing and administration which the Servicer may deem necessary or desirable, consistent with the terms of this Agreement. The Servicer may perform its servicing responsibilities through agents or independent contractors, provided, however, that in no event will the Servicer delegate oversight of servicing, interaction with the Owner or the Custodian, administration of accounts or reporting and in no event will the Servicer be released from any of its responsibilities hereunder on account of any delegation.  Unless otherwise agreed in writing by the Owner, in no event will the Owner act in a manner that is not consistent with the Approval Matrix or the Agreed Servicing Guidelines.

 

From and after the initial Effective Date, the Servicer shall assume responsibility under this Agreement to service and administer additional Mortgage Loans upon the delivery, in accordance with all reasonable instructions and directions which the Servicer may give to the Owner, of the related New Loan Data File and all related Mortgage Loan Documents by the Owner. To the extent available to the Owner and not otherwise available to the Servicer, the Owner shall provide the New Loan Data File for each Mortgage Loan to the Servicer no event later than fifteen (15) days before the Servicer is expected to perform servicing on that Mortgage Loan. To the extent available to the Owner and not otherwise available to the Servicer, the Owner shall notify the Servicer within two (2) Business Days, in writing, of any changes in the information contained in the New Loan Data File. The Owner agrees to take such actions under the Custodial Agreement as are required of the Owner in connection with the delivery to the Servicer of copies of the Mortgage Note, the Mortgage or any other documents which are held by the Custodian with respect to a Mortgage Loan that the Servicer deems reasonably necessary in connection with its performance of the servicing of said Mortgage Loan. The Servicer shall cooperate with the Owner in connection with the transfer of the servicing rights and obligations with respect to the Mortgage Loans.

 

  

9

  

The Servicer shall have no liability hereunder and shall be excused from performance to the extent that such liability or failure to perform is related to the fact that the Servicer has not been provided with the Mortgage Loan Documents.

 

Consistent with the terms of this Agreement, the Servicer may waive, modify or vary any term of any Mortgage Loan or consent to the postponement of strict compliance with any such term or in any manner grant indulgence to any Mortgagor if in the Servicer’s reasonable and prudent determination such waiver, modification, postponement or indulgence is not materially adverse to the Owner and provided that in no event will Servicer (i) make any such waiver, modification, variance or consent unless permitted under the Agreed Servicing Guidelines and/or the Approval Matrix or (ii) make any future advances with respect to a Mortgage Loan. Unless the Mortgagor is in default with respect to the Mortgage Loan or such default is, in the judgment of the Servicer, either imminent or reasonably foreseeable, the Servicer shall not accept short sales or partial payments in full satisfaction of any payment obligation, grant forbearances or permit any modification with respect to any Mortgage Loan that would change the Mortgage Interest Rate, defer or forgive the payment of principal (except for actual payments of principal), capitalize arrearages or change the final maturity date on any Mortgage Loan (a “Prohibited Modification”). Notwithstanding the foregoing sentence, the Servicer may permit a Prohibited Modification if the Owner has consented to the same in writing or the Servicer has reasonably determined that such activities are necessary and desirable and in the best interests of the Owner to maximize recovery of principal and interest over the life of the Mortgage Loans. Without limiting the generality of the foregoing, the Servicer shall continue, and is hereby authorized and empowered, to execute and deliver on behalf of itself and the Owner, all instruments of satisfaction or cancellation, or of partial or full release, discharge and all other comparable instruments, with respect to the Mortgage Loans and with respect to the Mortgaged Properties. If reasonably required by the Servicer, the Owner shall furnish the Servicer with any powers of attorney and other documents necessary or appropriate to enable the Servicer to carry out its servicing and administrative duties under this Agreement.

 

Unless the Servicer agrees for specified Mortgage Loans, the Owner shall not make any Mortgage Loan subject to this Agreement for which the Owner or the Servicer has knowledge that there may be a legal issue regarding the Mortgage Loan, including without limitation, fraudulent origination, theft or identity, or failure to comply with applicable laws and regulations in the origination or prior servicing of the Mortgage Loan. The Owner shall notify the Servicer in writing of those Mortgage Loans, if any, that have been subject to a report to a governmental agency with regard to alleged fraud or identity theft. The Servicer’s assumption of the responsibility to service and administer such Mortgage Loan, if any, shall not constitute a waiver of the Servicer’s rights to indemnification as otherwise provided in this Agreement.

 

2.2. Liquidation of Mortgage Loans. In the event that any payment due under any Mortgage Loan and not postponed pursuant to Section 2.1 is not paid when the same becomes due and payable, or in the event the Mortgagor fails to perform any other covenant or obligation under the Mortgage Loan and such failure continues beyond any applicable grace period, the Servicer shall take such action as shall be consistent with Applicable Requirements.  If foreclosure proceedings are commenced, the Servicer shall make all necessary and proper Servicing Advances, subject to reimbursement in accordance with the terms of this Agreement, provided, however, that the Servicer shall not be required to expend funds in connection with any foreclosure or towards the restoration or preservation of any Mortgaged Property, unless it shall determine that such preservation, restoration and/or foreclosure is reasonably expected to increase the proceeds of liquidation of the Mortgage Loan to the Owner after reimbursement to itself for such expenses.

 

  

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Notwithstanding anything to the contrary contained herein, in connection with a foreclosure or acceptance of a deed in lieu of foreclosure, (a) the Servicer shall have no obligation to commence or continue foreclosure proceedings or obtain title to Mortgaged Property securing a Mortgage Loan as a result of or in lieu of foreclosure or otherwise if (i) such Mortgage Loan is subject to HOEPA or any regulations related thereto, (ii) such Mortgage Loan qualifies as a High Cost Loan under a state or local anti-predatory lending law or regulation, or (iii) the Servicer determines, in its reasonable judgment, that foreclosure and/or acquisition of title to Mortgaged Property would expose it or the Owner to material risk or liability pertaining to the acts, errors or omissions of the Originator or Prior Servicers and (b) in the event the Servicer has reasonable cause to believe that a Mortgaged Property is contaminated by hazardous or toxic substances or wastes.  If the Owner otherwise requests an environmental inspection or review of such Mortgaged Property, such an inspection or review is to be conducted by a qualified inspector. The cost for such inspection or review shall be borne by the Owner. Upon completion of the inspection or review, the Servicer shall promptly provide the Owner with a written report of the environmental inspection.

 

After reviewing the environmental inspection report, the Owner shall determine how the Servicer shall proceed with respect to the Mortgaged Property. In the event (a) the environmental inspection report indicates that the Mortgaged Property is contaminated by hazardous or toxic substances or wastes and (b) the Owner directs the Servicer to proceed with foreclosure or acceptance of a deed in lieu of foreclosure, the Servicer shall be reimbursed for all costs and expenses associated with such foreclosure or acceptance of a deed in lieu of foreclosure and any related environmental clean up costs, as applicable, pursuant to the terms of this Agreement. In the event the Owner directs the Servicer not to proceed with foreclosure or acceptance of a deed in lieu of foreclosure, the Servicer shall be reimbursed for all Servicing Advances and Expenses made with respect to the related Mortgaged Property pursuant to the terms of this Agreement.

 

2.3. Collection of Mortgage Loan Payments. Continuously from the date hereof until the principal and interest on all Mortgage Loans are paid in full, the Servicer shall proceed diligently to collect all payments due under each of the Mortgage Loans when the same shall become due and payable and, where required under Applicable Requirements, shall use commercially reasonable efforts in ascertaining and estimating Escrow Payments and all other charges that will become due and payable with respect to the Mortgage Loan and the Mortgaged Property.

 

  

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2.4. Establishment of and Deposits to Control Account.  The Servicer shall segregate and hold all funds collected and received pursuant to Mortgage Loans separate and apart from any of its own funds and general assets.  Except as provided herein, the Servicer shall deposit in the Control Account within two (2) Business Days of the Servicer’s receipt, and retain therein, the following collections received by the Servicer after the Cut-off Date or received by the Servicer prior to the Cut-off Date but allocable to a period subsequent thereto:

 

(a) all payments on account of principal on the Mortgage Loans, including all Principal Prepayments (other than any related prepayment penalty fees, which shall be retained by the Servicer);

 

(b) all payments on account of interest on the Mortgage Loans adjusted to the Mortgage Loan Remittance Rate;

 

(c) all Liquidation Proceeds;

 

(d) all Insurance Proceeds (other than proceeds to be held in the Escrow Account in accordance with Section 2.6 and applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with Section 2.14);

 

(e) all Condemnation Proceeds which are not applied to the restoration or repair of the Mortgaged Property or released to the Mortgagor in accordance with Section 2.14; and

 

(f) any amounts received with respect to or related to any REO Property and all REO Disposition Proceeds pursuant to Section 2.16.

 

2.5. Permitted Withdrawals From Control Account

 

On each Remittance Date, the Owner shall cause amounts to be paid from the Control Account as provided in Section 3.4 of the Loan Agreement, including, without limitation, for the following purposes:

 

(a) to pay the Servicing Fee;

 

(b) to pay Servicer for any unreimbursed Servicing Advances or Expenses or Ancillary Income not retained prior to depositing funds in the Control Account or that are otherwise reimbursable to the Servicer pursuant to this Agreement;

 

(c) to reimburse Servicer for expenses incurred and reimbursable to it pursuant to Section 7.1;

 

(d) to pay any amount required to be paid pursuant to Section 2.16 related to any REO Property;

 

(e) to reimburse Servicer for any REO expenses not otherwise reimbursed above; and

 

(f) to remove funds inadvertently placed in the Control Account by the Servicer..

 

If on any Distribution Date the amounts on deposit in the Control Account are insufficient to cover payment or reimbursement to the Servicer of any Servicing Advances or Expenses, the Owner shall reimburse the Servicer for any such amounts within a reasonable time period after receipt of notice of such insufficiency by the Owner.

 

  

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2.6. Establishment of and Deposits to Escrow Account.  The Servicer shall segregate and hold all funds collected and received pursuant to a Mortgage Loan constituting Escrow Payments separate and apart from any of its own funds and general assets and shall establish and maintain one or more Escrow Accounts, in the form of time deposit or demand accounts, titled, “Franklin Credit Management Corporation, in trust for the Owner and/or subsequent the Owners of residential Mortgage Loans, and various Mortgagors - T & I.” The Escrow Accounts shall be established with a Qualified Depository. Upon request of the Owner and within ten (10) days thereof, the Servicer shall provide the Owner with written confirmation of the existence of such Escrow Account. Funds deposited in the Escrow Account may be drawn on by the Servicer in accordance with Section 2.7.

 

The Servicer shall deposit in the Escrow Account or Accounts within two (2) Business Days of the Servicer’s receipt, and retain therein:

 

(a) all Escrow Payments collected on account of the Mortgage Loans, for the purpose of effecting timely payment of any such items as required under the terms of this Agreement; and

 

(b) all amounts representing Insurance Proceeds or Condemnation Proceeds which are to be applied to the restoration or repair of any Mortgaged Property.

 

The Servicer shall make withdrawals from the Escrow Account only to effect such payments as are required under this Agreement, as set forth in Section 2.7. The Servicer shall be entitled to retain any interest or other Float Benefits paid on funds deposited in the Escrow Account by the depository institution, other than interest on escrowed funds required by law to be paid to the Mortgagor. Additionally, any other benefit derived from the Escrow Account associated with the receipt, disbursement and accumulation of principal, interest, taxes, hazard insurance, mortgage insurance, etc. shall accrue to the Servicer. To the extent required by law, the Servicer shall pay interest on escrowed funds to the Mortgagor notwithstanding that the Escrow Account may be non-interest bearing or that interest paid thereon is insufficient for such purposes. Notwithstanding the foregoing sentence, any interest paid to a Mortgagor which exceeds any benefit to the Servicer derived from the Escrow Account, as described in this paragraph, shall be reimbursable in accordance with the terms of this Agreement.

 

2.7. Permitted Withdrawals From Escrow Account.  Withdrawals from the Escrow Account or Accounts may be made by the Servicer only:

 

(a) to effect timely payments of ground rents, taxes, assessments, water rates, mortgage insurance premiums, condominium charges, fire and hazard insurance premiums or other items constituting Escrow Payments for the related Mortgage;

 

(b) to reimburse the Servicer for any unreimbursed Servicing Advances or Expenses made by the Servicer pursuant to Section 2.8;

 

(c) to refund to any Mortgagor any funds found to be in excess of the amounts required under the terms of the related Mortgage Loan;

 

  

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(d) for transfer to the Control Account and application to reduce the principal balance of the Mortgage Loan in accordance with the terms of the related Mortgage and Mortgage Note;

 

(e) for application to the restoration or repair of the Mortgaged Property in accordance with the procedures outlined in Section 2.14;

 

(f) to pay to the Servicer, or any Mortgagor to the extent required by law, any interest or other Float Benefit paid on the funds deposited in the Escrow Account;

 

(g) to remove funds inadvertently placed in the Escrow Account by the Servicer; and

 

(h) to clear and terminate the Escrow Account on the termination of this Agreement.

 

2.8. Payment of Taxes, Insurance and Other Charges.  With respect to each Mortgage Loan that provides for Escrow Payments, the Servicer shall maintain accurate records reflecting the status of ground rents, taxes, assessments, water rates, sewer rents, and other charges which are or may become a lien upon the Mortgaged Property and the status of fire and hazard insurance coverage and shall obtain, from time to time, all bills for the payment of such charges (including renewal premiums) and shall effect payment thereof, if required under Applicable Requirements, prior to the applicable penalty or termination date, employing for such purpose deposits of the Mortgagor in the Escrow Account which shall have been estimated and accumulated by the Servicer for such purposes, as allowed under the terms of the Mortgage. Any Servicing Advances or Expenses to effect payments of such charges are reimbursable in accordance with the terms of this Agreement.

 

2.9. Protection of Accounts.   The Servicer may transfer the Escrow Account to a different Qualified Depository from time to time.

 

2.10. Maintenance of Hazard Insurance.  . The Servicer may in its reasonable discretion cause to be maintained hazard insurance on some or all Mortgaged Properties, subject to reimbursement as a Servicing Advance in accordance with the terms of this Agreement.

 

To the extent required by applicable law or at the prior written direction of the Owner, if the related Mortgaged Property is located in an area identified by the Flood Emergency Management Agency as having special flood hazards (and such flood insurance has been made available), the Servicer shall cause to be maintained for such Mortgage Property a flood insurance policy meeting the requirements of the current guidelines of the Federal Insurance Administration in effect in an amount representing coverage equal to the lesser of (i) the minimum amount required, under the terms of coverage, to compensate for any damage or loss on a replacement cost basis; (ii) the unpaid balance of the related Mortgage; and (iii) the maximum amount of insurance which is available under the Flood Disaster Protection Act of 1973, as amended. The cost of any flood insurance purchased by the Servicer pursuant to the foregoing shall be reimbursable as a Servicing Advance in accordance with the terms of this Agreement.

 

  

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It is understood and agreed that the Servicer shall have no obligation to maintain insurance to cover loss or damage from an earthquake, windstorm or similar casualty.

 

In the event that the Servicer shall determine that a Mortgaged Property should be insured against loss or damage by hazards and risks not covered by the insurance required to be maintained by the Mortgagor pursuant to the terms of the Mortgage, the Servicer shall communicate and consult with the Mortgagor with respect to the need for such insurance and bring to the Mortgagor’s attention the desirability of protection of the Mortgaged Property.

 

All policies required hereunder shall name the Servicer as loss payee and shall be endorsed with standard or union mortgagee clauses, without contribution, which shall provide for at least thirty (30) days’ prior written notice to Servicer of any cancellation, reduction in amount or material change in coverage.

 

Pursuant to Section 2.4, any amounts collected by the Servicer under any such policies (other than amounts to be deposited in the Escrow Account and applied to the restoration or repair of the related Mortgaged Property, or property acquired in liquidation of the Mortgage Loan, or to be released to the Mortgagor, in accordance with the Servicer’s normal servicing procedures as specified in Section 2.14) shall be deposited in the Control Account subject to withdrawal pursuant to Section 2.5.

 

For purposes of this Section 2.10 and Section 2.11, the Owner acknowledges and agrees that an Insurer may be an affiliate of the Servicer. Notwithstanding the foregoing, the Servicer shall not interfere with the Mortgagor’s freedom of choice in selecting either his or her insurance carrier or agent.

 

2.11. Reserved.

 

2.12           Maintenance of Fidelity Bond and Errors and Omissions Insurance. The Servicer shall maintain with responsible companies, at its own expense, a blanket Fidelity Bond and an Errors and Omissions Insurance Policy, with broad coverage on all of its officers, employees or other persons acting in any capacity on behalf of the Servicer requiring such persons to handle funds, money, documents or papers relating to the Mortgage Loans (the “Servicer Employees”). Any such Fidelity Bond and Errors and Omissions Insurance Policy shall be in the form of the Mortgage Banker’s Blanket Bond and shall protect and insure the Servicer against losses, including forgery, theft, embezzlement, fraud, errors and omissions and negligent acts of the Servicer Employees. Such Fidelity Bond and Errors and Omissions Insurance Policy also shall protect and insure the Servicer against losses in connection with the release or satisfaction of a Mortgage Loan without having obtained payment in full of the indebtedness secured thereby. No provision of this Section 2.12 requiring such Fidelity Bond and Errors and Omissions Insurance Policy shall diminish or relieve the Servicer from its duties and obligations as set forth in this Agreement. The minimum coverage under any such Fidelity Bond and Errors and Omissions Insurance Policy shall be at least equal to the amounts acceptable in accordance with Applicable Requirements.  In any event, the Servicer shall maintain such insurance as is required under Section 7.20 of the Loan Agreement.

 

2.13           Inspections. The Servicer shall perform inspections on Mortgaged Property in accordance with Applicable Requirements. The Servicer shall keep a written report of each such inspection.

 

  

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                      2.14           Restoration of Mortgaged Property. The Servicer need not obtain the approval of the Owner prior to releasing any Insurance Proceeds or Condemnation Proceeds to the Mortgagor to be applied to the restoration or repair of the Mortgaged Property if such release is in accordance with Applicable Requirements. For claims greater than $15,000, the Servicer shall comply with the following conditions in connection with any such release of Insurance Proceeds or Condemnation Proceeds:

 

(a) the Servicer shall receive satisfactory independent verification of completion of repairs and issuance of any required approvals with respect thereto;

 

(b)  the Servicer shall take all steps necessary to preserve the priority of the lien of the Mortgage, including, but not limited to requiring waivers with respect to mechanics’ and materialmen’s liens;

 

(c) the Servicer shall verify that the Mortgage Loan is not in default; and

 

(d) pending repairs or restoration, the Servicer shall place the Insurance Proceeds or Condemnation Proceeds in the Escrow Account.

 

If the Owner is named as an additional loss payee, the Servicer is hereby empowered to endorse any loss draft issued in respect of such a claim in the name of the Owner.

      

              2.15           Reserved.

 

                      2.16           Title, Management and Disposition of REO Property.   In the event that title to any Mortgaged Property is acquired in foreclosure, by deed in lieu of foreclosure or otherwise (including by purchase), the deed or certificate of sale shall be taken in the name of the Owner, or, at the direction of the Owner, the deed or certificate of sale shall be taken in the name of a nominee for the Owner. The Person or Persons holding such title other than the Owner shall acknowledge in writing that such title is being held as nominee for the Owner.

 

The Servicer shall manage, conserve, protect and operate each REO Property for the Owner solely for the purpose of its prompt disposition and sale. The Servicer, either itself or through an agent selected by the Servicer, shall manage, conserve, protect and operate the REO Property in the same manner that similar property in the same locality as the REO Property is managed. The Servicer shall attempt to sell the same (and may temporarily rent the same for a period not greater than three years, except as otherwise provided below) on such terms and conditions as the Servicer deems to be in the reasonable interest of the Owner.

 

The Servicer shall use commercially reasonable efforts to dispose of the REO Property as soon as possible and shall sell such REO Property in any event within three years after title has been taken to such REO Property, unless the Servicer determines, and gives notice to the Owner to such effect, that a longer period is necessary for the orderly liquidation of such REO Property [or that to maximize recovery the REO Property should be rented]. If a period longer than three years is permitted under the foregoing sentence and is necessary to sell any REO Property, the Servicer shall report monthly to the Owner as to the progress being made in selling such REO Property.

 

The Servicer shall also maintain on each REO Property fire and hazard insurance with extended coverage in amount which is at least equal to the maximum insurable value of the improvements which are a part of such property, liability insurance and, to the extent required and available under the Flood Disaster Protection Act of 1973, as amended, flood insurance in the amount required above.

 

  

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The disposition of REO Property shall be carried out by the Servicer at such price, and upon such terms and conditions, as the Servicer deems to be in the reasonable interests of the Owner. The proceeds of sale of the REO Property shall be promptly deposited in the Control Account. As soon as practical thereafter, the expenses of such sale shall be paid and the Servicer shall reimburse itself for any related unreimbursed Servicing Advances, Expenses and unpaid Servicing Fees. On the Distribution Date immediately following the Principal Prepayment Period in which such sale proceeds are received, the net cash proceeds of such sale remaining in the Control Account shall be distributed to the Owner, net of any Ancillary Income or unreimbursed Servicing Fees, Expenses or Servicing Advances.

 

The Servicer shall withdraw from the Control Account funds necessary for the proper operation, management and maintenance of the REO Property, including the cost of maintaining any hazard insurance pursuant to Section 2.10 and the fees of any managing agent of the Servicer, or the Servicer itself.

 

                      2.17           REO Reports.  Together with the statement furnished pursuant to Section 3.2, the Servicer shall furnish to the Owner on or before the Distribution Date of each month a statement with respect to any REO Property, which statement shall cover the operation of such REO Property for the previous month and the Servicer's efforts in connection with the sale of such REO Property and any rental of such REO Property incidental to the sale thereof for the previous month.

 

                      2.18           Liquidation Reports.  Upon the foreclosure sale of any Mortgaged Property or the acquisition thereof by the Owner pursuant to a deed in lieu of foreclosure, the Servicer shall submit to the Owner a liquidation report with respect to such Mortgaged Property.

 

                      2.19           Reports of Foreclosures and Abandonments of Mortgaged Property.  Following the foreclosure sale or abandonment of any Mortgaged Property, the Servicer shall report such foreclosure or abandonment as required pursuant to Section 6050J of the Code. The Servicer shall file information reports with respect to the receipt of mortgage interest received in a trade or business and information returns relating to cancellation of indebtedness income with respect to any Mortgaged Property as required by the Code. Such reports shall be in form and substance sufficient to meet the reporting requirements imposed by the Code.

 

                      2.20           Reserved.

 

                      2.21           Notification of Adjustments.  With respect to each adjustable rate Mortgage Loan, the Servicer shall adjust the Mortgage Interest Rate on the related Adjustment Date in compliance with the requirements of applicable law and the related Mortgage and Mortgage Note. The Servicer shall execute and deliver any and all necessary notices required under applicable law and the terms of the related Mortgage Note and Mortgage regarding the Mortgage Interest Rate adjustments.

 

  

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                      2.22           Transfer Notices.

 

2.22.1           At least fifteen (15) days before the Servicer initiates servicing under this Agreement, the Servicer and the Owner shall provide any required notice to the Mortgagors of the transactions contemplated herein through a notice jointly prepared and delivered by the Servicer and the Owner in accordance with Applicable Requirements. The parties shall cooperate to accomplish such notification in a timely and efficient manner as will best facilitate the assumption by the Servicer of the servicing responsibilities. The form of the notice to be sent to Mortgagors shall be approved by the Owner and the Servicer before mailing.

 

2.22.2           The Owner shall notify, or cause to be notified, all Insurers, by overnight or registered mail, that all insurance premium billings for the Mortgage Loans must be sent to the Servicer. Additionally, the Owner shall, prior to the applicable Effective Date, obtain the written consent of any Insurers that have the contractual right to approve the assumption of the servicing responsibilities by the Servicer.

 

2.22.3           For any Mortgage Loan that provides for Escrow Payments, the Owner, with the reasonable assistance of the Servicer, shall notify the applicable taxing authorities (except as such is handled through the tax service company) of the assumption of the servicing responsibilities by the Servicer and include instructions to deliver all notices and tax bills to the Servicer or the applicable tax service provider, as the case may be, from and after the Effective Date.

 

2.22.4           The Owner shall notify all attorneys who, on the Effective Date, are providing legal services to or on behalf of the Owner in connection with pending foreclosure or Litigation involving one or more of the Mortgage Loans, of the transfer of the servicing rights and obligations with respect to the Mortgage Loans to the Servicer.

 

2.22.5           All notifications required to be made under this Section 2.22 shall be paid for or reimbursed by the Owner.

 

                      2.23           Privacy.

 

2.23.1           Except in accordance with this Section 2.23, the Servicer shall not disclose any Customer Information to any Person, including, but not limited to, any of the Servicer’s employees, agents, or contractors, or any third party not affiliated with the Servicer. The Servicer shall disclose such Customer Information only to the extent permitted by, or necessary to carry out the Servicer’s express obligations and rights under, this Agreement or under Applicable Requirements and for no other purpose. If and to the extent required by Applicable Requirements, the Servicer shall ensure that each vendor or other Person to which the Servicer intends to disclose Customer Information shall, prior to any such disclosure of information; agree to: (i) keep confidential any such Customer Information; and (ii) use or disclose such Customer Information only to the extent necessary to carry out the Servicer’s  express obligations and rights under this Agreement.

 

2.23.2           Without limiting the scope of the above, the Servicer shall use at least the same physical and other security measures to protect all Customer Information in the Servicer’s possession or control as the Servicer uses for its own confidential and proprietary information of a similar nature.

 

  

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                      2.24           Losses and Expenses.

 

2.24.1           The Owner shall remain responsible, as between the Owner and the Servicer, for losses related to the Owner’s investment in the Mortgage Loans.  Losses of the type referred to above for which the Owner shall remain responsible include, but are not limited to: credit losses, special hazard insurance premiums, earthquake losses, losses resulting from the absence or inadequacy of hazard insurance or flood insurance for a Mortgaged Property in accordance with Applicable Requirements, foreclosure losses, REO Property losses, losses on Mortgage Loans in default or in bankruptcy, and losses in connection with the Soldiers and Sailors Civil Relief Act (and any successor to such Act).

 

2.24.2           In the event withdrawals from the Control Account or Escrow Accounts are insufficient to reimburse the Servicer pursuant to this Agreement the Owner shall promptly upon receipt of an invoice reimburse the Servicer for Servicing Advances and the following expenses (“Expenses”): (i) any out-of-pocket expense the Servicer incurs with the prior approval of the Owner in connection with its servicing and administrative obligations set forth in this Agreement to the extent such expense is not ordinary to the servicing function (but not including salaries, rent and other general operating expenses of the Servicer normally classified as overhead); (ii) expenses that the Owner has expressly agreed to pay or be liable for hereunder; and (iii) expenses incurred in connection with the performance by the Servicer at the request of the Owner of any activity that is not specifically required to be performed by the Servicer under this Agreement and is not reasonably ancillary to any specific requirements of the Owner under this Agreement. Except as otherwise expressly provided in this Agreement, each party shall pay its own expenses incurred in connection with the preparation of and performance under this Agreement, including its own legal fees and expenses of preparing and delivering the notices, documents, reports, accountings and any other information required of it hereunder.

 

2.24.3            On a monthly basis, following receipt of an invoice from the Servicer, the Owner shall promptly reimburse the Servicer for outstanding Servicing Advances, Expenses and Servicing Fees as provided in Section 2.7.

 

2.24.4           The Owner shall be solely responsible for all guaranty fees, credit enhancement fees, custodial fees (and related shipping costs), trustee fees, and costs to record assignments.  Except as otherwise expressly set forth in this Agreement, the Servicer shall be solely responsible for the direct and indirect internal and administrative costs associated with its obligations as the Servicer of the Mortgage Loans hereunder, said costs to include but not be limited to: personnel, facilities; supplies; mailing and computer system expenses, regardless of whether the Servicer elects to contract with third party vendors to perform all or any portion of such internal and administrative functions.

 

2.24.5           Except as otherwise provided in this Section, any Litigation related solely to a single Mortgage Loan (other than Litigation between or among the Owner or any of its affiliates, on the one hand, and the Servicer and any of its affiliates, on the other hand) including foreclosure, evictions, quiet title and bankruptcy filings, shall be managed by the Servicer working with local counsel selected by and working on behalf of the Owner. The costs and expenses of such Litigation shall be deemed a Servicing Advance and be subject to reimbursement pursuant to the terms of this Agreement. The Owner shall reimburse the Servicer for any out-of-pocket costs that the Servicer incurs in connection with any Litigation described in this Section 2.24.5 (other than Litigation between or among the Owner or its affiliates, on the one hand, and the Servicer or its affiliates, on the other hand).  Servicer will not engage in Litigation relating to any single Mortgage Loan unless such Litigation is consistent with the Agreed Servicing Guidelines and the Approval Matrix or as otherwise agreed to in writing by the Owner.

 

  

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ARTICLE III

 

REMITTANCE

 

3.1. Reserved.

 

3.2. Statements to the Owner.  The Servicer shall cause the “Remittance Report” (as defined in the Loan Agreement) to be furnished to Lender as and when required pursuant to the Loan Agreement..

 

3.3. Monthly Advances by the Servicer.  The Servicer shall not be required to advance Delinquent monthly payments to the Owner.

 

ARTICLE IV

 

GENERAL SERVICING PROCEDURES

 

4.1. Transfers of Mortgaged Property.  The Servicer shall use commercially reasonable efforts to enforce any “due-on-sale” provision contained in any Mortgage or Mortgage Note and to deny assumption by the person to whom the Mortgaged Property has been or is about to be sold whether by absolute conveyance or by contract of sale, and whether or not the Mortgagor remains liable on the Mortgage and the Mortgage Note. When the Mortgaged Property has been conveyed by the Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance, exercise its rights to accelerate the maturity of such Mortgage Loan under the “due-on-sale” clause applicable thereto.

 

If the Servicer reasonably believes it is unable under applicable law to enforce such “due-on-sale” clause, the Servicer shall enter into (i) an assumption and modification agreement with the person to whom such property has been conveyed, pursuant to which such person becomes liable under the Mortgage Note and the original Mortgagor remains liable thereon or (ii) in the event the Servicer is unable under applicable law to require that the original Mortgagor remain liable under the Mortgage Note and the Servicer has the prior consent of the primary mortgage guaranty insurer, a substitution of liability agreement with the owner of the Mortgaged Property pursuant to which the original Mortgagor is released from liability and the owner of the Mortgaged Property is substituted as Mortgagor and becomes liable under the Mortgage Note. If an assumption fee is collected by the Servicer for entering into an assumption agreement, the fee will be retained by the Servicer as additional servicing compensation. In connection with any such assumption, neither the Mortgage Interest Rate borne by the related Mortgage Note, the term of the Mortgage Loan, the outstanding principal amount of the Mortgage Loan nor any other materials terms shall be changed without the Owner’s consent.

 

  

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To the extent that any Mortgage Loan is assumable under the terms of the Mortgage Note, the Servicer shall inquire diligently into the credit worthiness of the proposed transferee, and shall use the underwriting criteria for approving the credit of the proposed transferee which are used with respect to underwriting mortgage loans of the same type as the Mortgage Loans. If the credit worthiness of the proposed transferee does not meet such underwriting criteria, the Servicer shall diligently, to the extent permitted by the Mortgage or the Mortgage Note and by applicable law, accelerate the maturity of the Mortgage Loan.

 

4.2. Satisfaction of Mortgages and Release of Mortgage Files. Upon the payment in full of any Mortgage Loan, or the receipt by the Servicer of a notification that payment in full will be escrowed in a manner customary for such purposes, the Servicer shall notify the Owner in the monthly remittance statement as provided in Section 3.2, and may request the release of any Mortgage Loan Documents. The Servicer shall maintain the Fidelity Bond and Errors and Omissions Insurance Policy as provided for in Section 2.12 insuring the Servicer against losses it may sustain with respect to Mortgage Loans not satisfied in accordance with the procedures set forth herein.

 

4.3. Servicing Compensation.  As compensation for its services hereunder, the Servicer shall be entitled to the fees specified in the Servicing Fee Schedule detailed on Exhibit D to this Agreement.  Such fees shall be payable monthly by Servicer’s debit of such fees from the Control Account as provided in Section 2.5. Notwithstanding anything in this Agreement to the contrary, if the Servicer is unable to or otherwise does not withdraw the full amount of the Servicing Fee from the Control Account in any month for any reason, then the outstanding amount of the Servicing Fee due to the Servicer shall be due and payable by the Owner to the Servicer in immediately available funds and the Owner shall pay the Servicer such outstanding upon presentation of an invoice therefore as provided in Section 2.5. All servicing compensation shall be fully earned if the Mortgage Loan is serviced for any portion of the month and shall not be prorated.

 

Any Ancillary Income shall be paid in the same manner as the Servicing Fee. Except as specifically provided for herein, the Servicer shall be required to pay all expenses incurred by it in connection with its servicing activities hereunder (other than Servicing Advances or Expenses) and shall not be entitled to reimbursement thereof.

 

                4.4           Reserved.

 

                                4.5           Right to Examine Servicer Records.  The Owner, or its designee, shall have the right to examine and audit any and all of the books, records, or other information of the Servicer, whether held by the Servicer or by another on its behalf, with respect to or concerning this Agreement or the Mortgage Loans, during business hours or as otherwise acceptable to the Servicer, upon reasonable advance notice. The Owner shall pay all of its or its designees’ costs and expenses associated with such examination.

 

  

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ARTICLE V

 

POSSESSION OF MORTGAGE FILES; BOOKS AND RECORDS; CUSTODIAL AGREEMENT; DELIVERY OF DOCUMENTS; SERVICER TO COOPERATE

 

5.1. Provision of Information.  During the term of this Agreement, the Servicer shall furnish the Owner with the reports listed on Exhibit E to this Agreement. Servicer shall also furnish to the Owner copies or originals of any documents contained in the Servicing File for each Mortgage Loan as well as all special reports or information not provided for herein as shall be necessary, reasonable, and appropriate with respect to the Owner or any regulatory agency and will be provided at the Owner’s expense. All such reports, documents or information shall be provided by and in accordance with all reasonable instructions and directions which the Owner may give to the Servicer.  Servicer shall also assist the Owner in preparing or delivering all reports required to be delivered by the Owner to the Lender under the Loan Agreement.

 

5.2. Financial Statements; Servicing Facility.  In connection with marketing the Mortgage Loans, the Owner may make available to a prospective Owner a Consolidated Statement of Operations of the Servicer for the most recently completed two fiscal years for which such a statement is available, as well as a Consolidated Statement of Condition at the end of the last two fiscal years covered by such Consolidated Statement of Operations to the extent any such statements have been prepared by or on behalf of the Servicer (and are available upon request to members or stockholders of the Servicer or to the public at large).

 

5.3. Possession of Mortgage Files; Maintenance of Servicing Files.  The contents of each Mortgage File not delivered to the Custodian are and shall be held in trust by the Servicer for the benefit of the Owner as owner thereof. The Servicer shall maintain a Servicing File consisting of a copy of the contents of each Mortgage File and the originals of the documents in each Mortgage File not delivered to the Custodian. The Servicer shall release its custody of the contents of any Servicing File only in accordance with written instructions from the Owner, unless such release is required as incidental to the Servicer’s servicing of the Mortgage Loans. All such costs associated with the release, transfer and re-delivery to the Servicer shall be the responsibility of the Owner.

 

5.4. Books and Records; Transfers of Mortgage Loans.  Except as otherwise provided in this Agreement, all rights arising out of the Mortgage Loans, including, but not limited to, all funds received on or in connection with the Mortgage Loans, shall be received and held by the Servicer in trust for the benefit of the Owner as owner of the Mortgage Loans, and any record title to the related Mortgages that the Servicer may have or acquire shall be for the sole purpose of facilitating the servicing and the supervision of the servicing of the Mortgage Loans.

 

The Servicer shall be responsible for maintaining, and shall maintain, a complete set of books and records for each Mortgage Loan which shall be marked clearly to reflect the ownership of each Mortgage Loan by the Owner. To the extent that original documents are not required for purposes of realization of Liquidation Proceeds or Insurance Proceeds, documents maintained by the Servicer may be in the form of microfilm or microfiche or such other reliable means of recreating original documents, including but not limited to, optical imagery techniques so long as the Servicer complies with document retention requirements in accordance with Applicable Requirements.

 

  

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The Servicer shall maintain with respect to each Mortgage Loan and shall make available for inspection by the Owner or its designee the related Servicing File during the time the Owner retains ownership of a Mortgage Loan and thereafter in accordance with Applicable Requirements.

 

The Servicer shall keep at its servicing office, or such other location as the Servicer may designate from time to time, books and records in which, subject to such reasonable policies, procedures, rules and regulations as it may prescribe, the Servicer shall note transfers of Mortgage Loans. No transfer of a Mortgage Loan may be made unless such transfer is in compliance with the terms hereof. For the purposes of this Agreement, the Servicer shall be under no obligation to deal with any person with respect to this Agreement or the Mortgage Loans unless the books and records show such person as the owner of the Mortgage Loan. The Owner may, subject to the terms of this Agreement, sell and transfer one or more of the Mortgage Loans. The Owner also shall advise the Servicer of the transfer. Upon receipt of notice of the transfer, the Servicer shall mark its books and records to reflect the ownership of the Mortgage Loans of such assignee and, unless the Servicer agrees otherwise, the Servicer shall not be responsible for servicing the transferred Mortgage Loan.  If the Servicer receives notification of a transfer less than five (5) Business Days before the last calendar day of the month, the Servicer’s duties to remit and report as required by Section 3 shall begin with the next Due Period.

 

5.5. Custodial Agreement; Delivery of Documents.  To the extent in the Owner’s possession or control, the Owner has delivered and released, or caused to be delivered and released, to the Custodian those Mortgage Loan Documents as required by Exhibit B to this Agreement with respect to each Mortgage Loan.

 

The Custodian has certified its receipt of all such Mortgage Loan Documents required to be delivered pursuant to the Custodial Agreement, as evidenced by the trust receipt of the Custodian in the form annexed to the Custodial Agreement. The Owner will be responsible for the fees and expenses of the Custodian.

 

The Servicer shall forward to the Custodian original documents evidencing an assumption, modification, consolidation or extension of any Mortgage Loan entered into in accordance with Section 2.1 or 4.1 within one (1) week of their execution, provided, however, that the Servicer shall provide the Custodian with a certified true copy of any such document submitted for recordation within ten (10) days of its execution, and shall provide the original of any document submitted for recordation or a copy of such document certified by the appropriate public recording office to be a true and complete copy of the original within ten (10) days following receipt of such document from the public recording office.

 

From time to time, the Servicer may have a need for Mortgage Loan Documents to be released by the Custodian. If the Servicer shall require any of the Mortgage Loan Documents, the Servicer shall notify the Custodian in writing of such request. The Owner shall cause the Custodian to release such documents, to the extent available, promptly upon request. To the extent that the Servicer obtains possession of any such document which is held by the Custodian, the Servicer agrees that it will act as the custodian and bailee and trustee of such documents for the benefit of the Owner during the term of this Agreement.

 

  

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ARTICLE VI

 

REPRESENTATIONS AND WARRANTIES

 

6.1. General Representations and Warranties.  Each of the Servicer and the Owner hereby represents and warrants to the other that, as of the initial Effective Date:

 

6.1.1. Due Organization and Authority. It is the type of entity first described above, duly organized, validly existing and in good standing under the laws of the state of formation and has all licenses necessary to carry on its business as now being conducted and is licensed, qualified and in good standing in each state where a Mortgaged Property is located if the laws of such state require licensing or qualification in order to conduct business of the type conducted by it, and in any event it is in compliance with the laws of any such state to the extent necessary to ensure the enforceability of the related Mortgage Loan and the servicing of such Mortgage Loan in accordance with the terms of this Agreement.  It has the full corporate power and authority to execute and deliver this Agreement and to perform in accordance herewith.  The execution, delivery and performance of this Agreement by it and the consummation of the transactions contemplated hereby have been duly authorized and approved by all necessary actions on its part.  This Agreement has been duly executed and delivered by it and constitutes legal, valid and binding obligations of it, enforceable against it in accordance with its terms;

 

6.1.2. No Conflicts. Neither the execution and delivery of this Agreement, or the transactions contemplated hereby, nor the fulfillment of or compliance with the terms and conditions of this Agreement will conflict with or result in a breach of any of its articles of incorporation or by-laws or other governing documents or any legal restriction or, except as has been waived prior to the applicable Effective Date, any material agreement or instrument to which it is now a party or by which it is bound, or constitute a default or result in the violation of any law, rule, regulation, order, judgment or decree to which it or its property is subject;

 

6.1.3. No Litigation Pending. There is no action, suit, proceeding or investigation pending or to the best of its knowledge threatened against it which, either in any one instance or in the aggregate, may result in any material adverse change in the business, operations, financial condition, properties or assets of it, or in any material impairment of the right or ability of it to carry on its business substantially as now conducted, or in any material liability on the part of it, or which would draw into question the validity of this Agreement or the Mortgage Loans or of any action taken or to be contemplated herein, or which would be likely to impair materially the ability of it to perform under the terms of this Agreement;

 

6.1.4. No Consent Required. No consent, approval, authorization or order of any court or governmental agency or body is required for the execution, delivery and performance by it of or compliance by it with this Agreement, or if required, such approval has been obtained prior to the applicable Effective Date; and

 

  

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6.2. Representations, Warranties and Covenants of the Servicer Regarding Certain Individual Mortgage Loans

 

In consideration of the Owner’s agreement to retain the Servicer under this Agreement with respect to the Franklin Trust Loans, and in light of the fact that the Servicer previously owned and serviced the Franklin Trust Loans, as to each Franklin Trust Loan (including REO Property, as appropriate), and understanding that the Owner will rely on the following representations, warranties and covenants in accepting the Franklin Trust Loans, the Servicer hereby represents, warrants and covenants to the Owner with respect to the Franklin Trust only, as of the applicable Effective Date:

 

6.2.1. Loan Schedule. The information set forth in the Mortgage Loan Schedule attached hereto as Exhibit A and the information contained in each electronic data file delivered to the Servicer accurately represents the information maintained on the books and records of the Servicer.

 

6.2.2. No Modifications Except as Disclosed in the Mortgage File. Other than as indicated in the Mortgage Loan Schedule, the terms of the Mortgage and the Mortgage Note have not been waived, altered, or modified in any material respect, except by a written instrument that has been recorded, if necessary, and that is a part of the Mortgage File and included with the Mortgage Loan Documents delivered to the Owner by the seller of the Franklin Trust Loans.

 

6.2.3. No Satisfaction, Cancellation, Subordination or Rescission. The Mortgage has not been satisfied, canceled, subordinated or rescinded.  No Mortgagor and no part of any Mortgaged Property has been released, in whole or in part, except as indicated in the Mortgage File and reflected on the Mortgage Loan Schedule. No instrument has been executed that would effect any such release, cancellation, subordination or rescission.

 

6.2.4. No Litigation.  Other than foreclosures or bankruptcies described on the Mortgage Loan Schedule, to the best knowledge of the Servicer, there is no litigation, bankruptcy or governmental proceeding pending or, to the Servicer’s actual knowledge, threatened with respect to a Franklin Trust Loan or the related Mortgaged Property or Mortgagor that will be reasonably likely to materially and adversely affect the Owner’s right, title or interest thereon or the priority of the Mortgage, or the value of the Mortgage Loan.

 

6.2.5. Compliance with Applicable Laws.  To the best knowledge of the Servicer, any and all requirements of any federal, state or local law including, without limitation, usury, truth-in-lending, real estate settlement procedures, consumer credit protection, predatory, abusive and fair lending laws, equal credit opportunity and disclosure laws or unfair and deceptive practices laws applicable to the Mortgage Loan, have been complied with in all material respects in connection with the servicing of the Franklin Trust Loans, except to the extent that non-compliance would not be reasonably likely to materially and adversely affect the Owner’s right, title or interest in the Mortgage Loan or the priority of the Mortgage, or the value of the Mortgage Loan.

 

6.2.6. Full Disbursement of Proceeds.  Each Franklin Trust Loan has been closed and the proceeds of the Mortgage Loan have been fully disbursed and there is no requirement for future advances thereunder, and any and all requirements as to completion of any on-site or off-site improvement and as to disbursements of any escrow funds therefor have been complied with.  All costs, fees and expenses incurred in making or closing the Mortgage Loan and the recording of the Mortgage were paid, and the Mortgagor is not entitled to any refund of any amounts paid or due under the Mortgage Note or Mortgage.

 

  

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6.2.7. Reserved.

 

6.2.8. Single-premium Credit Life Insurance Policy.  In connection with the origination of any Franklin Trust Loan, no proceeds from any Franklin Trust Loan were used to finance or acquire a single-premium credit life insurance policy.  No Mortgagor was required to purchase any single premium credit insurance policy (e.g., life, disability, accident, unemployment or property insurance product) or debt cancellation agreement as a condition of obtaining the extension of credit.  No Mortgagor obtained a prepaid single premium credit insurance policy (e.g., life, disability, accident, unemployment or property insurance policy) in connection with the origination of the Franklin Trust Loan; no proceeds from any Franklin Trust Loan were used to purchase single premium credit insurance policies or debt cancellation agreements as part of the origination of, or as a condition to closing, such Franklin Trust Loan.

 

6.2.9.           Delivery of Books and Records. The Owner will, on or before the applicable Effective Date, deliver, or cause to be delivered, to the Servicer or the Custodian, as applicable, all of the books, records, data, files and Mortgage Loan Documents, including records on microfiche or its equivalent, reasonably required by the Servicer and available to the Owner to document and service each Mortgage Loan.  Such books, records, data, files and documents contain all of the items (including but not limited to hazard insurance policies, flood insurance policies and private mortgage insurance policies) which are required by the Applicable Requirements to service the Mortgage Loans and are true, accurate and complete in all material respects.  It is reasonable for the Servicer to rely thereon.

6.2.10.                      Ownership. With respect to each Mortgage Loan, the Owner is the owner of all the right, title and interest in and to the Mortgage Loan, free and clear of any claims or encumbrances.

 

  

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ARTICLE VII

THE SERVICER

 

 

7.1. Indemnification; Third Party Claims.

 

7.1.1. The Servicer shall indemnify the Owner and the Certificate Trustee, and their affiliates and their respective officers, directors, employees and agents (collectively, “Owner Indemnitees”) and hold each of the Owner Indemnitees harmless from and against any and all third party claims and Damages that the Owner, the Certificate Trustee and the other Owner Indemnitees may sustain to the extent resulting from or related to a breach by the Servicer of any covenant, agreement, representation or warranty in this Agreement. The Owner shall promptly notify the Servicer of any claim covered hereby; provided, however, that the Servicer shall not be relieved of its indemnification obligations hereunder due to the Owner’s failure to give such notice except to the extent that the Owner has knowledge of the breach, fails to notify the Servicer and the Servicer has been prejudiced thereby. In connection with the Servicer’s indemnification obligations hereunder, the Servicer may assume (with the prior written consent of the Owner, if required pursuant to the terms hereof, and with counsel reasonably satisfactory to the Owner) the defense of any such claim and pay all reasonable expenses in connection therewith, including reasonable counsel fees, and promptly pay, discharge and satisfy any final judgment or decree which may be entered against the Owner or any other Owner Indemnitees in respect of such claim.  The Servicer agrees that it will not enter into any settlement of any such claim without the consent of the Owner (which consent shall not be unreasonably withheld or delayed) and such other Owner Indemnitees unless such settlement includes an unconditional release of the Owner and such other Owner Indemnitees from all liability that is the subject matter of such claim.

 

7.1.2. The Owner shall indemnify the Servicer, its affiliates, and their respective officers, directors, employees and agents (collectively, “Servicer Indemnitees”) and hold each of such Persons harmless from and against any and all third party claims and Damages that the Servicer or such Persons may sustain to the extent resulting from or related to a breach by the Owner of any covenant, agreement, representation or warranty in this Agreement.  The Servicer shall notify the Owner of any claim covered hereby; provided, however, that the Owner shall not be relieved of its indemnification obligations hereunder due to the Servicer’s failure to give such notice except to the extent that the Servicer has knowledge of the breach, fails to notify the Owner and the Servicer has been prejudiced thereby.  In connection with the Owner’s indemnification obligations hereunder, the Owner may assume (with the prior written consent of the Servicer, if required pursuant to the terms hereof, and with counsel reasonably satisfactory to the Servicer) the defense of any such claim and pay all reasonable expenses in connection therewith, including reasonable counsel fees, and promptly pay, discharge and satisfy any final judgment or decree which may be entered against the Servicer or any other Servicer Indemnitees in respect of such claim.  The Owner agrees that it will not enter into any settlement of any such claim without the consent of the Servicer (which consent shall not be unreasonably withheld or delayed) and such other indemnified Person unless such settlement includes an unconditional release of the Servicer and such other indemnified Person from all liability that is the subject matter of such claim.

 

  

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7.1.3. In addition to the indemnification set forth in Section 7.1.1 hereof, the Servicer shall indemnify and hold the Owner Indemnitees harmless from and against any Damages resulting from or related to the Servicer’s failure (either under this Agreement or as servicer of any Mortgage Loan prior to this Agreement) to have complied with all Applicable Requirements with respect to the origination, purchase, sale, securitization or servicing of the Mortgage Loans.

 

7.1.4. In addition to the indemnification set forth in Section 7.1.2 hereof, the Owner shall indemnify and hold the Servicer Indemnitees harmless from and against any Damages resulting from or related to:

 

(a) any outstanding Servicing Advance for which the Servicer is not reimbursed in accordance with Section 2.24 hereof or  any outstanding Servicing Fee for which Servicer is not paid in accordance with Section 4.3.hereof ; or

 

(b) any Litigation commenced against the Servicer after the applicable Effective Date as a result of the Servicer’s acting as, or status as, servicer of the Mortgage Loans hereunder, to the extent that such Litigation does not arise out of or result from the Servicer’s breach of any provision of this Agreement (including any failure by the Servicer to disclose such Litigation as required herein).

 

7.1.5. The provisions of this Section 7.1 shall survive termination of this Agreement.

 

7.1.6. For all purposes of this Agreement, knowledge of the Servicer will not be imputed or attributed to the Owner, and knowledge of the Owner will not be imputed or attributed to the Servicer.

 

7.2. Merger or Consolidation of the Servicer.  The Servicer shall keep in full effect its existence, rights and franchises as a corporation, and shall obtain and preserve all required licenses and its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Agreement or any of the Mortgage Loans and to perform its duties under this Agreement.

 

Any person into which the Servicer may be merged or consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Servicer shall be a party, or any Person succeeding to the business of the Servicer, shall be the successor of the Servicer hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Furthermore, in the event the Servicer transfers or otherwise disposes of all or substantially all of its assets to an affiliate of the Servicer, such affiliate shall satisfy the condition above, and shall also be fully liable to the Owner for all of the Servicer’s obligations and liabilities hereunder.

 

  

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7.3. Limitation on Liability of the Servicer and Others.

 

(a) Neither the Servicer nor any of the directors, officers, employees or agents of the Servicer shall be under any liability to the Owner for any action taken or for refraining from the taking of any action in good faith pursuant to this Agreement, or for errors in judgment, provided, however, that this provision shall not protect the Servicer or any such Person against any breach of warranties or representations made herein, or failure to comply with the obligations of the Servicer under this Agreement.  The Servicer and any director, officer, employee or agent of the Servicer may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder.

 

(b)           EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

 

(c)           IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INCIDENTAL, SPECIAL, INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES, REGARDLESS OF THE FORM OF THE CAUSE OF ACTION, WHETHER IN CONTRACT, STATUTE, TORT, INCLUDING, BUT NOT LIMITED TO, NEGLIGENCE, OR OTHERWISE, EVEN IF THE PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

7.4. Limitation on Assignment by the Servicer.  The Owner has entered into this Agreement with the Servicer and subsequent Owners will purchase the Mortgage Loans in reliance upon the independent status of the Servicer, and the representations as to the adequacy of its servicing facilities, personnel, records and procedures, its integrity, reputation and financial standing, and the continuance thereof. Therefore, except as allowed or permitted by Section 7.2 of this Agreement, the Servicer shall neither assign this Agreement or the servicing hereunder without the prior written consent of the Owner, which consent may be given or withheld in the sole discretion of the Owner.

 

  

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ARTICLE VIII

 

Reserved.

 

 

ARTICLE IX

 

DEFAULT

 

9.1. Events of Default.  Each of the following shall constitute an Event of Default on the part of the applicable party hereto:

 

(a) any failure by such party to remit to the other party any payment required to be made under the terms of this Agreement, which continues unremedied for a period of five (5) days after the date upon which written notice of such failure, requiring the same to be remedied, shall have been given to such party; or

 

(b) unless otherwise specified herein, a party shall fail duly to perform or observe any of its covenants, conditions or terms contained herein or in the Custodial Agreement and such failure shall remain uncured for thirty (30) calendar days following notice from the non-defaulting party; provided, however, that if the nature of such breach is such that it cannot reasonably be cured within thirty (30) days following such written notice, but can reasonably be cured within sixty (60) days following such written notice, the defaulting party may cure such breach by commencing in good faith to cure the breach promptly after its receipt of such written notice and prosecuting the cure of such breach to completion with diligence and continuity within a reasonable time thereafter, but in any event within sixty (60) days thereafter; or

 

(c) a decree or order of a court or agency or supervisory authority having jurisdiction for the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, including bankruptcy, marshaling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of its affairs, shall have been entered against such party and such decree or order shall have remained in force undischarged or unstayed for a period of sixty (60) days; or

 

(d) such party shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshaling of assets and liabilities or similar proceedings of or relating to such party or of or relating to all or substantially all of its property; or

 

(e) such party shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency, bankruptcy or reorganization statute, make an assignment for the benefit of its creditors, voluntarily suspend payment of its obligations or cease its normal business operations for three (3) Business Days; or

 

9.2. Waiver of Defaults.  By a written notice, the non-breaching party may waive any default by the breaching Party in the performance of its obligations hereunder and its consequences. Upon any explicit written waiver of a past default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Agreement. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon except to the extent expressly so waived.

 

  

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ARTICLE X

 

TERMINATION

 

10.1. Termination.  This Agreement shall terminate upon the earliest of:  (i) the liquidation and dissolution of the Owner; (ii) mutual consent of the Servicer and the Owner in writing; or (iii) termination of this Agreement pursuant to Section 10.2 or Section 10.3. The termination of this Agreement pursuant to this Article X shall not release either party from liability for its own misrepresentation or for any breach by it of any covenant, agreement or warranty herein prior to such termination.

 

10.2. Termination With Cause.  So long as an Event of Default shall have occurred and shall not have been remedied, the non-breaching party, by notice in writing to the other party, may, in addition to whatever rights such party may have at law or equity to damages, including injunctive relief and specific performance, terminate this Agreement.  Upon written request from the Owner, the Servicer shall prepare, execute and deliver to a successor servicer any and all documents and other instruments relating to the Mortgage Loans, place in such successor’s possession all Mortgage Servicing Files and do or cause to be done all other acts or things necessary or appropriate to effect the purposes of such notice of termination, including, but not limited to, the transfer and endorsement or assignment of the Mortgage Loans and related documents to the successor at the Servicer’s sole expense if the termination is based on a Servicer Event of Default or the Owner’s sole expense if the termination is based on an Owner Event of Default. The Servicer agrees to cooperate with the Owner and such successor in effecting the termination of the Servicer’s responsibilities and rights hereunder, including the transfer to such successor for administration by it of all amounts which shall at the time be credited by the Servicer to the Control Account or Escrow Account or thereafter received with respect to the Mortgage Loans.  In the event of a termination by the Servicer upon an Owner Event of Default pursuant to this Section 10.2, the Owner shall pay the Servicer (1) any fees and costs for which the Servicer is entitled to reimbursement hereunder, and (2) as liquidated damages, the termination fee detailed on Exhibit D with respect to each Mortgage Loan.

 

10.3. Termination Without Cause

 

.  The Owner may terminate the Servicer’s right to service one or more Mortgage Loans under this Agreement, as provided in this Section 11.03 (provided however, that Owner shall not adversely select such Mortgage Loans) upon thirty (30) days prior written notice.  Any such notice of termination shall be in writing and delivered to the Servicer by registered mail as provided in Section 12.06.  In the event that the Servicer is terminated pursuant to this Section 10.3, the Owner shall pay the Servicer an amount equal to (1) the costs and expenses of Servicer to transfer the servicing rights and obligations with respect to such Mortgage Loans, (2) all outstanding Servicing Advances, Expenses and other Servicer expenditures for which Servicer is entitled to reimbursement hereunder, Servicing Fees and other compensation and (3) as liquidated damages, the termination fee detailed on Exhibit D with respect to each such Mortgage Loan.

 

  

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ARTICLE XI

 

MISCELLANEOUS PROVISIONS

 

11.1. Successor to the Servicer.  Upon effectiveness of termination of the Servicer’s servicing of any Mortgage Loans under this Agreement pursuant to Section 10.1, the Owner or its successors shall (i) appoint a successor to assume all of the responsibilities, duties and liabilities of the Servicer under this Agreement or (ii) if no such appointment has been made, automatically and immediately succeed to and assume all of the Servicer’s responsibilities, duties and obligations under this Agreement. In connection with such appointment and assumption, the Owner may make such arrangements for the compensation of such successor out of payments on Mortgage Loans as it and such successor shall agree, subject to having first paid or reimbursed Servicer for all outstanding amounts due to the Servicer. Prior to the transfer of servicing with respect to any Mortgage Loan hereunder, the Servicer shall be reimbursed by the Owner or the successor servicer for any unpaid Servicing Fees, Expenses and Servicing Advances with respect to such Mortgage Loan.

 

The Servicer shall, upon the request of the Owner, deliver promptly to the successor servicer authority over the funds in the Control Account and Escrow Account (subject to any withdrawals permitted under this Agreement and an additional withdrawal amount to be retained as a reserve by the Servicer equal to the Servicer’s estimated fees and expenses, in respect of termination and cessation of services under this Agreement, until termination and cessation is finalized, fees and expenses have been calculated, and permitted withdrawals have been made from the amounts so withheld as a reserve.) and shall deliver all Mortgage Files and related documents and statements held by it hereunder.  The Servicer shall account for all funds and shall execute and deliver such instruments and do such other things as may reasonably be required to more fully and definitively vest in the successor all such rights, powers, duties, responsibilities, obligations and liabilities of the Servicer.

 

Upon a successor’s acceptance of appointment as such, the Owner shall notify by mail the Servicer of such appointment in accordance with Section 11.6.

 

11.2. Reserved.

 

11.3. Amendment; Extension Not a Waiver.  This Agreement sets forth the entire agreement between the parties with respect to the subject matter hereof and supersedes any and all prior or contemporaneous agreements or understandings, written, oral or otherwise with respect to the subject matter hereof.  This Agreement may be amended from time to time by, and only by, a writing signed by the Servicer and the Owner.

 

No delay or omission in the exercise of any power, remedy or right herein provided or otherwise available to any party hereto will impair or affect the right of such party thereafter to exercise the same.  Any extension of time or other indulgence granted to any party hereunder will not otherwise alter or affect any power, remedy or right of any other party hereto, or the obligations of the party to whom such extension or indulgence is granted.

 

11.4. Governing Law; Venue.  This Agreement shall be construed in accordance with the laws of the State of New York applicable to agreements made and fully performed within the State of New York without giving effect to the conflict of laws principles thereof (except for Section 5-1401 of the New York General Obligations Law) and the obligations, rights and remedies of the parties hereunder shall be determined in accordance with such laws.

 

Any action or other legal proceeding brought under this Agreement will be subject to the exclusive jurisdiction of the United States District Court for the Southern District of New York in New York County, New York or the United States District Court for the Eastern District of New York in Kings County, New York and in the absence of federal jurisdiction, the jurisdiction of any state court of general jurisdiction sitting in New York County, New York or Kings County, New York.  Each of the Owner and the Servicer consents to such jurisdiction for actions or legal proceedings brought by either party and waives any objection which it may have to the laying of the venue of such suit, action or proceeding in any of such courts.

 

11.5. Duration of Agreement.  This Agreement shall continue in existence and effect until terminated as herein provided. This Agreement shall continue notwithstanding transfers of the Mortgage Loans by the Owner.

 

  

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11.6. Notices.  All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by registered mail, postage prepaid, addressed as follows:

 

(a) if to the Servicer:

Franklin Credit Management Corporation

101 Hudson Street

Jersey City, NJ 07302

Attn: Chief Operating Officer

With a copy to:

Franklin Credit Management Corporation

101 Hudson Street

Jersey City, NJ 07302

Attn: General Counsel

or such other address as may hereafter be furnished to the Owner in writing by the Servicer;

(b)           if to the Owner:

 

Bosco Credit II Trust Series 2010 - 1

c/o Franklin Credit Management Corporation

101 Hudson Street, 25th Floor

Jersey City, NJ 07302

Attn.:  Thomas J. Axon

With copies to:

Bosco Credit II Trust Series 2010 – 1

Deutsche Bank National Trust Company

c/o DB Services Americas, Inc.

5022 Gate Parkway, Suite 200

Jacksonville, Florida 32256

Appel & Lucas, P.C.

1660 Seventeenth Street, Suite 200

Denver, CO, 80200

Attn: Peter J. Lucas, Esq.

or such other address as may hereafter be furnished to the Servicer in writing by the Owner;

11.7. Severability of Provisions.  If any provision of this Agreement is found to be unenforceable by a court of competent jurisdiction, such unenforceable provision shall not affect the other provisions, but such court shall have the authority to modify such unenforceable provision to the extent necessary to render it enforceable, preserving to the fullest extent permissible the intent of the parties.

 

  

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11.8. Relationship of Parties.  The parties are entering into, and shall perform, this Agreement as independent contractors.  Nothing in this Agreement shall be construed to make either party the agent of the other for any purpose whatsoever, to authorize either party to enter into any contract or assume any obligation on behalf of the other or to establish a partnership, franchise or joint venture between the parties.

 

11.9. Execution; Successors and Assigns.  . This Agreement may be executed in one or more counterparts and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed to be an original; such counterparts, together, shall constitute one and the same agreement.  Subject to Section 7.4, this Agreement shall inure to the benefit of and be binding upon the Servicer and the Owner and their respective successors and assigns.

 

11.10. Assignment by the Owner.  . The Owner shall have the right, without the consent of the Servicer but subject to the limits set forth in Section 5.4 hereof, to assign, in whole or in part, its interest under this Agreement with respect to some or all of the Mortgage Loans, and designate any person to exercise any rights of the Owner hereunder, by executing an assignment and assumption agreement  in a form acceptable to the Servicer and the assignee or designee shall accede to the rights and obligations hereunder of the Owner with respect to such Mortgage Loans.

 

11.11. Time of Payment.  Unless otherwise specifically set forth in this Agreement, any amount due to a party under this Agreement will be due and payable upon receipt by the paying party of the invoice from the other party. All amounts will be payable by wire transfer, in accordance with payment instructions provided from time to time. Any amount not paid when due as set forth in this Agreement will bear interest until paid at a rate of interest equal to the prime rate published from time to time by The Wall Street Journal, “Money Rates.”  If any portion of an amount due to a party under this Agreement is subject to a bona fide dispute between the parties, the other party will pay to that party on the date such amount is due all amounts not disputed in good faith.

 

11.12. Force Majeure.  The Servicer shall not be liable to any other Person for any acts or omissions resulting from circumstances or causes beyond its reasonable control, including fire or other casualty, act of God, strike or labor dispute, war, terrorism  or other violence or any governmental action or any acts or omissions of the other Person.

  

34

  

 

11.13.           Trustee Capacity.  It is expressly understood and agreed by the parties hereto that (a) this Agreement is executed and delivered by Deutsche Bank National Trust Company ("DBNTC") on behalf of the Bosco Credit II Trust Series 2010-1 (the "Trust") pursuant to a Master Trust Agreement, dated November 19, 2010, among Bosco Credit II, LLC, as Depositor, Deutsche Bank National Trust Company, as Certificate Trustee, and Deutsche Bank Trust Company Delaware, as Delaware Trustee (the "Master Trust Agreement"), and not individually or personally but solely as Certificate Trustee, in the exercise of the powers and authority conferred and vested in it under the Master Trust Agreement, (b) each of the representations, undertakings and agreements herein made on the part of the Trust is made and intended not as a personal representation, undertaking or agreement by DBNTC but is made and intended for the purpose of binding only the Trust, (c) nothing herein contained shall be construed as creating any liability on DBNTC, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the parties hereto and by any person or entity claiming by, through or under the parties hereto, and (d) under no circumstances shall DBNTC be personally liable for the payment of any indebtedness or expenses of the Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Trust under this Agreement or otherwise. All persons and entities having any claim against the Trust by reason of the transactions contemplated by this Agreement shall look only to the Trust Estate (as defined in the Master Trust Agreement) of the Trust for payment or satisfaction thereof and it is the specific intent and understanding that the Certificate Trustee executing on behalf of the Trust has no obligation to perform any of the obligations of the Trust (whether the Trust is referenced as Borrower, Company, Borrower Subsidiary, Owner or any other defined term).

 

[Intentionally Blank - Next Page Signature Page]

  

35

  

 

IN WITNESS WHEREOF, the Servicer and the Owner have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written.

 

	  	
FRANKLIN CREDIT MANAGEMENT CORPORATION

 

 

By: /s/ Thomas J. Axon

Name: THOMAS J. AXON

Title: PRESIDENT

	  	  
	  	
BOSCO CREDIT II TRUST SERIES 2010 - 1, a Delaware statutory trust

 By:  DEUTSCHE BANK NATIONAL TRUST COMPANY, not in its individual capacity but solely as Certificate Trustee under the Master Trust Agreement

 

 

By: /s/ Hang Luu

Name: Hang Luu

Authorized Signer

Its:  Authorized Signatory

 

 

And By: /s/ Tiffany Yuan

Name: Tiffany Yuan

Authorized Signer

Its:  Authorized Signatory

	  	  

 

  

36

  

EXHIBIT A

MORTGAGE LOAN SCHEDULE

  

 

  

EXHIBIT B

CONTENTS OF EACH MORTGAGE FILE

With respect to each Mortgage Loan, the Mortgage File shall include each of the following items, which the Owner shall deliver a copy thereof to the Servicer for retention in the Servicing File:

 

	
1.  

	
The original Mortgage Note bearing all intervening endorsements, endorsed “Pay to the order of ______ without recourse” and signed in the name of the Owner by an authorized officer (in the event that the Mortgage Loan was acquired by the Owner in a merger, the signature must be in the following form: “[the Owner], successor by merger to [name of predecessor]”; and in the event that the Mortgage Loan was acquired or originated by the Owner while doing business under another name, the signature must be in the following form: “[the Owner], formerly known as [previous name]”).

 

	
2.  

	
The original of any guarantee executed in connection with the Mortgage Note (if any).

 

	
3.  

	
The original Mortgage, with evidence of recording thereon or a certified true and correct copy of the Mortgage sent for recordation.

 

	
4.  

	
The originals or certified true copies of any document sent for recordation of all assumption, modification, consolidation or extension agreements, with evidence of recording thereon.

 

	
5.  

	
The original Assignment of Mortgage for each Mortgage Loan, in form and substance acceptable for recording (except for the insertion of the name of the assignee and recording information).

 

	
6.  

	
Originals or certified true copies of documents sent for recordation of all intervening assignments of the Mortgage with evidence of recording thereon.

 

	
7.  

	
The original mortgagee policy of title insurance or evidence of title.

 

	
8.  

	
Any security agreement, chattel mortgage or equivalent executed in connection with the Mortgage.

 

With respect to each Mortgage Loan, the Mortgage File shall include each of the following items to the extent in the possession of the Owner or in the possession of the Owner’s agent(s):

 

	
9.  

	
The original hazard insurance policy and, if required by law, flood insurance policy, in accordance with Section 4.10 of the Agreement.

 

	
10.  

	
Residential loan application.

 

	
11.  

	
Mortgage Loan closing statement.

 

  

  

  

 

	
12.  

	
Verification of employment and income, if applicable.

 

	
13.  

	
Verification of acceptable evidence of source and amount of down payment, if applicable.

 

	
14.  

	
Credit report on the Mortgagor.

 

	
15.  

	
Residential appraisal report.

 

	
16.  

	
Photograph of the Mortgaged Property.

 

	
17.  

	
Survey of the Mortgage property, if required by the title owner or applicable law.

 

	
18.  

	
Copy of each instrument necessary to complete identification of any exception set forth in the exception schedule in the title policy, i.e. map or plat, restrictions, easements, sewer agreements, home association declarations, etc.

 

	
19.  

	
All required disclosure statements.

 

	
20.  

	
If available, termite report, structural engineer’s report, water potability and septic certification.

 

	
21.  

	
Sales contract, if applicable.

 

	
22.  

	
Evidence of payment of taxes and insurance premiums, insurance claim files, correspondence, current and historical computerized data files, and all other processing, underwriting and closing papers and records which are customarily contained in a mortgage loan file and which are required to document the Mortgage Loan or to service the Mortgage Loan.

 

	
23.  

	
Amortization schedule, if available.

 

	
24.  

	
Mortgage Loan payment history.

 

	
25.  

	
Original power of attorney, if applicable.

 

 

 

B-2  

 

  

EXHIBIT C

Reserved.

  

 

  

EXHIBIT D

SERVICING FEE SCHEDULE

  

 

  

EXHIBIT E

REPORTS

Trial Balance

Principal and Interest Collections

Prepaid Loans

Delinquent Loans

Unscheduled Principal Collections (Curtailments)

Payoff/Foreclosure Collections

Remittances

Loan Transfers

Cutoff Summary

Investor Payment/Rate Changes

 

 

  

 

  

EXHIBIT F

RESERVED

 

 

  

 

  

EXHIBIT G

APPROVAL MATRIX

TO BE DETERMINED

 

 

  

 

  

EXHIBIT H

AGREED SERVICING GUIDELINES

TO BE DETERMINEDex10-1.htm

Exhibit 10.1 Employment Agreement of Joseph S. Compofelice.

HUNT GLOBAL RESOURCES INC.

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made by and between Hunt Global Resources, Inc., a Colorado corporation (“Company”), and Joseph S. Compofelice (“Executive”).

 

WHEREAS, Company is desirous of employing Executive in an executive capacity on the terms and conditions, and for the consideration, hereinafter set forth, and Executive is desirous of being employed by Company on such terms and conditions and for such consideration;

 

NOW, THEREFORE, for and in consideration of the mutual promises, covenants and obligations contained herein, Company and Executive agree as follows:

 

ARTICLE 1 : EMPLOYMENT AND DUTIES

 

1.1 Employment: Employment as of April 2, 2012 (the “Employment Date”) and continuing for the period of time set forth in Article 2 of this Agreement, Executive’s employment by Company shall be subject to the terms and conditions of this Agreement. The Effective Date of this Agreement shall be January 12, 2012.

 

1.2 Positions: From and after the Employment Date, Company shall employ Executive in the positions of President of Company. The Executive currently serves as a consultant to the Company. Company shall cause Executive to be nominated to serve on the Board of Directors and will use its reasonable efforts to secure Executive’s election and re-election to the Board of Directors. It is the intention of the parties that Executive will continue to serve on the Board of Directors while serving hereunder as President of Company. Prior to December 31, 2012, the Company agrees to appoint the Executive as Chief Executive Officer of the Company. The intent of the Company and the Executive is that George Sharp the Chairman of the Company will continue in that role and shall partner will the Executive in directing the Company.

 

1.3 Duties and Services: Executive agrees to serve in the positions referred to in paragraph 1.2 and to perform diligently and to the best of his abilities the duties and services appertaining to such offices, as well as such additional duties and services appropriate to such offices which the parties mutually may agree upon from time to time. Executive’s employment shall also be subject to the policies maintained and established by Company that are of general applicability to Company’s executive employees, as such policies may be amended from time to time.

 

1.4 Duty of Loyalty: Executive acknowledges and agrees that Executive owes a fiduciary duty of loyalty to act at all times in the best interests of Company. In keeping with such duty, Executive shall make full disclosure to Company of all business opportunities pertaining to Company’s business and shall not appropriate for Executive’s own benefit business opportunities concerning Company’s business.

ARTICLE 2 : TERM AND TERMINATION OF EMPLOYMENT

 

2.1 Term: Unless sooner terminated pursuant to other provisions hereof, Company agrees to employ Executive for the period beginning on the Employment Date and ending on the third anniversary of the Employment Date (the “New Employment Date”); provided, however, that beginning on the New Employment Date, and on any subsequent three year anniversary of the New Employment Date upon which this Agreement would otherwise expire, if this Agreement has not been terminated pursuant to paragraph 2.2 or 2.3, then said term of employment shall automatically be extended for an additional three-year period. Company’s Right to Terminate. Notwithstanding the provisions of paragraph 2.1, Company shall have the right to terminate Executive’s employment under this Agreement at any time for any of the following reasons:

 

(i) upon Executive’s death;

 

  

  

  

(ii) upon Executive’s becoming incapacitated by accident, sickness, or other circumstances which, in the opinion of a physician reasonably selected by Company which selection is reasonably agreed to by Executive, renders him mentally or physically incapable of performing the duties and services required of him hereunder;

 

(iii) for “Cause,” which shall mean Executive (A) has engaged in gross negligence or willful misconduct in the performance of the duties required of him hereunder, (B) has willfully refused without proper legal reason to perform the duties and responsibilities required of him hereunder, (C) has materially breached any material provision of this Agreement or any material corporate policy maintained and established by Company that is of general applicability to Company’s executive employees, (D) has willfully engaged in conduct that he knows or should know is materially injurious to Company or any of its affiliates, (E) has been convicted of a crime involving any felony, or (F) has engaged in any act of serious dishonesty which adversely affects, or reasonably could in the future adversely affect, the value, reliability, or performance of Executive in a material manner; provided, however, that Executive’s employment may be terminated for Cause only if such termination is approved by at least a majority of the members of the Board of Directors (excluding Executive) after Executive has been given written notice by Company of the specific reason for such termination and a reasonable opportunity for Executive, together with his counsel, to be heard before the Board of Directors;

 

(iv) for any other reason whatsoever, in the sole discretion of the Board of Directors.

Members of the Board of Directors may participate in any hearing that is required pursuant to paragraph 2.2(iii) by means of conference telephone or similar communications equipment by means of which all persons participating in the hearing can hear and speak to each other.

 

2.2 Executive’s Right to Terminate. Notwithstanding the provisions of paragraph 2.1, Executive shall have the right to terminate his employment under this Agreement for any of the following reasons:

 

(i) for “Good Reason,” which shall mean, within 60 days of and in connection with or based upon (A) a material breach by Company of any material provision of this Agreement (provided, however, that a reduction in Executive’s annual base salary that is consistent with reductions taken generally by other executives of Company shall not be considered a material breach of a material provision of this Agreement), (B) a material diminution in the nature or scope of Executive’s duties and responsibilities (provided, however, that the failure to get Executive re-elected to the Board of Directors shall not be considered a material diminution in the nature or scope of Executive’s duties and responsibilities if Company used its reasonable efforts to secure Executive’s election or re-election to the Board of Directors), (C) the assignment to Executive of duties and responsibilities that are materially inconsistent with the positions referred to in paragraph 1.2 and that result in a material negative change to Executive (including requiring Executive to report to any person(s) other than the Board of Directors), (D) any material change in the geographic location at which Executive must perform services, (E) Executive not being offered the position of Chief Executive Officer of the “resulting entity” (as defined in paragraph 4.1) in connection with a Change in Control or (F) a material diminution in the Executive Specific Benefits (as defined in paragraph 3.3(iii)) that results in a material negative change to Executive. Prior to Executive’s termination for Good Reason, Executive must give written notice to Company of the reason for his termination and the reason must remain uncorrected for 30 days following such written notice; or

 

(ii) at any time for any other reason whatsoever, in the sole discretion of Executive.

 

2.3 Notice of Termination: If Company desires to terminate Executive’s employment hereunder at any time prior to expiration of the term of employment as provided in paragraph 2.1, it shall do so by giving written notice to Executive that it has elected to terminate Executive’s employment hereunder and stating the effective date and reason for such termination, provided that no such action shall alter or amend any other provisions hereof or rights arising hereunder. If Executive desires to terminate his employment hereunder at any time prior to expiration of the term of employment as provided in paragraph 2.1, he shall do so by giving a 30-day written notice to the Company that he has elected to terminate his employment hereunder and stating the effective date and reason for such termination, provided that no such action shall alter or amend any other provisions hereof or rights arising hereunder.

 

  

  

  

2.4 Deemed Resignations: Any termination of Executive’s employment shall constitute an automatic resignation of Executive as an officer of Company and each affiliate of Company, but is not an automatic resignation of Executive from the Board of Directors or from the position of Chairman of the Board of Directors (if applicable) or from the board of directors of any affiliate of Company or from the board of directors or similar governing body of any corporation, limited liability company or other entity in which Company or any affiliate holds an equity interest and with respect to which board or similar governing body Executive serves as Company’s or such affiliate’s designee or other representative.

 

2.5 Separation from Service: For all purposes of this Agreement, Executive shall be considered to have terminated employment with the Company when Executive incurs a “separation from service” with the Company within the meaning of Section 409A(a)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable administrative guidance issued thereunder.

 

ARTICLE 3 : COMPENSATION AND BENEFITS

 

3.1 Base Salary: During the period of this Agreement, Executive shall receive a minimum annual base salary of $360,000. Executive’s annual base salary shall be reviewed by the Board of Directors (or a committee thereof) on an annual basis, and, in the sole discretion of the Board of Directors (or such committee), such annual base salary may be increased, but not decreased (except for a decrease that is consistent with reductions taken generally by other executives of Company), effective as of any date determined by the Board of Directors. Executive’s annual base salary shall be paid in equal installments in accordance with Company’s standard policy regarding payment of compensation to executives but no less frequently than monthly.

 

3.2 Bonuses: Executive shall be eligible to participate in Company’s annual cash incentive plan as approved from time to time by the Board of Directors in amounts to be determined by the Board of Directors based upon criteria established by the Board of Directors (or such committee, if any). It is the intent of the parties that a target annual bonus of 150% of base salary shall be set but each annual award shall be at the discretion of the Board of Directors.

 

3.3 Other Perquisites: During his employment hereunder, Executive shall be afforded the following benefits as incidences of his employment:

 

(i) Business and Entertainment Expenses - Subject to Company’s standard policies and procedures with respect to expense reimbursement as applied to its executive employees generally, Company shall reimburse Executive for, or pay on behalf of Executive, reasonable and appropriate expenses incurred by Executive for business related purposes, including dues and fees to industry and professional organizations and costs of entertainment and business development. The Executive shall be reimbursed for the period expenses of one country club, which is intended to be used to further the business of the Company.

 

(ii) Vacation — During his employment hereunder, Executive shall be entitled to four weeks of paid vacation each calendar year (or such greater amount of vacation as provided to executives of Company generally) and to all holidays provided to executives of Company generally; provided, however, that for the period beginning on the Effective Date and ending on the last day of the calendar year in which the Effective Date occurs, Executive shall be entitled to four weeks of paid vacation (or such greater amount of vacation as provided to executives of Company generally) reduced by the number of vacation days that Executive has already used during such calendar year and prior to the Effective Date.

 

(iii) Other Company Benefits — Executive and, to the extent applicable, Executive’s spouse, dependents and beneficiaries, shall be allowed to participate in all benefits, plans and programs, including improvements or modifications of the same, which are now, or may hereafter be, available to other executive employees of Company. Such benefits, plans and programs shall include, without limitation, any profit sharing plan, thrift plan, health insurance or healthcare plan, life insurance, disability insurance, pension plan, supplemental retirement plan, vacation and sick leave plan, and the like which may be maintained by Company. Company shall not, however, by reason of this paragraph be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such benefit plan or program, so long as such changes are similarly applicable to executive employees generally. Notwithstanding the foregoing sentence, if Company provides Executive with any specific benefits, plans or programs (other than any compensation or benefits provided to Executive under paragraphs 3.1, 3.2, 3.3(i) and 3.3(ii) above) that are not provided to any other employees of Company (but specifically excluding any compensation or benefits provided to Executive in his capacity as a director) (collectively, the “Executive Specific Benefits”), a material diminution in the Executive Specific Benefits shall constitute “Good Reason” under Section 2.3(i). For purposes of the preceding sentence and paragraph 2.3(i), a material diminution in the Executive Specific Benefits shall only occur if at any time prior to the expiration of the term provided in paragraph 2.1, the diminution in the Executive Specific Benefits results in both: (A) at least a 35% reduction in the total value to Executive of the Executive Specific Benefits and (B) at least a 35% reduction in the total cost to Company to provide Executive with the Executive Specific Benefits.

 

  

  

  

(iv) Stock Based Compensation: The Company agrees in order to incent the Executive to accept the position on the Board of Directors and as President of the Company, and to devote full time to such responsibilities to grant a stock award to the Executive in the amounts and subject to the terms as follows:

 

	
(a) 

	
The Amount of the Award: The Executive shall be granted an award of Restricted Common Stock in the Company in an amount equal to 4% of the fully diluted stock. As of December 31, 2011 the approximate amount of the fully diluted shares of the Company is 188 million shares. The award of Restricted Common Stock to the Executive shall be 7.5 million shares.

	
(b) 

	
Vesting: The Vesting Schedule for such shares shall be 3.75 million shares on the Effective Date; 1.875 million shares twelve months after the Effective Date and 1.875 million shares 36 months after the Effective Date.

	
(c) 

	
Dilution Protection: The full amount of the awarded shares shall be subject to dilution protection until such shares are sold or until such time as the Employment of the Executive is terminated pursuant to Article 2.1 and 2.2.

 

3.4 Other Compensation ---- The Executive has been providing consulting services to the Company beginning December 15, 2012. The Company agrees to compensate the Executive at the rate of $30,000.00 per month during the intended consulting period from December 15, 2011 to March 30, 2012

.

ARTICLE 4 : EFFECT OF TERMINATION AND CHANGE IN CONTROL ON COMPENSATION; ADDITIONAL PAYMENTS

 

4.1 Defined Terms: For purposes of this Article 4, the following terms shall have the meanings indicated:

 

“Change in Control” means (i) a merger of Company with another entity, a consolidation involving Company, or the sale of all or substantially all of the assets of Company to another entity if, in any such case, (A) the holders of equity securities of Company immediately prior to such transaction or event do not beneficially own immediately after such transaction or event equity securities of the resulting entity entitled to 50% or more of the votes then eligible to be cast in the election of directors generally (or comparable governing body) of the resulting entity in substantially the same proportions that they owned the equity securities of Company immediately prior to such transaction or event or (B) the persons who were members of the Board of Directors immediately prior to such transaction or event shall not constitute at least a majority of the board of directors of the resulting entity immediately after such transaction or event, (ii) the dissolution or liquidation of Company, (iii) when any person or entity, including a “group” as contemplated by Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the combined voting power of the outstanding securities of, (A) if Company has not engaged in a merger or consolidation, Company, or (B) if Company has engaged in a merger or consolidation, the resulting entity, or (iv) as a result of or in connection with a contested election of directors, the persons who were members of the Board of Directors immediately before such election shall cease to constitute a majority of the Board of Directors. For purposes of the preceding sentence, (1) “resulting entity” in the context of a transaction or event that is a merger, consolidation or sale of all or substantially all assets shall mean the surviving entity (or acquiring entity in the case of an asset sale) unless the surviving entity (or acquiring entity in the case of an asset sale) is a subsidiary of another entity and the holders of common stock of Company receive capital stock of such other entity in such transaction or event, in which event the resulting entity shall be such other entity, and (2) subsequent to the consummation of a merger or consolidation that does not constitute a Change in Control, the term “Company” shall refer to the resulting entity and the term “Board of Directors” shall refer to the board of directors (or comparable governing body) of the resulting entity.

 

  

  

  

“Change in Control Benefits” means (i) a lump sum cash payment equal to the sum of: (A) 2.99 times Executive’s annual base salary at the rate in effect under paragraph 3.1 on the date of termination of Executive’s employment (or, if higher, Executive’s annual base salary in effect immediately prior to the Change in Control), (B) 2.99 times the higher of (1) Executive’s highest annual bonus paid during the three most recent fiscal years or (2) Executive’s Target Bonus (deemed to be 150% of base salary for this purpose) for the fiscal year in which Executive’s date of termination occurs, and (C) any bonus that Executive has earned and accrued as of the date of termination of Executive’s employment which relates to periods that have ended on or before such date and which have not yet been paid to Executive by Company; (ii) all of the outstanding stock options, restricted stock awards and other equity based awards granted by Company to Executive shall become fully vested and immediately exercisable in full on the date of termination of Executive’s employment; (iii) if such Change in Control occurs within twelve months of the Employment Date an additional $2,000,000 lump sum payment and (iv) Health Coverage for a period of 36 months following a Change in Control.

 

“Health Coverage” means that if Executive elects to continue coverage for himself or his eligible dependents under Company’s group health plans pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”), then during the required period of COBRA continuation coverage with respect to Executive’s termination of employment from Company (but no more than eighteen months) (the “COBRA Period”), Company shall promptly reimburse Executive on a monthly basis for the difference between the amount Executive pays to effect and continue such coverage and the employee contribution amount that active senior executive employees pay for the same or similar coverage under Company’s group health plans. Further, if Executive has continued his COBRA coverage throughout the COBRA Period, then, for the thirty-six-month period beginning on the day immediately following the last day of the COBRA Period (the “Extended Coverage Period”), Company shall provide Executive (and his eligible dependents) with health benefits substantially similar to those provided under its group health plans for active employees for the remainder of the Extended Coverage Period at a cost to Executive that is no greater than the cost of COBRA coverage; provided, however, that such health benefits shall be provided to Executive through an arrangement that satisfies the requirements of sections 105 and 106 of the Code such that the benefits or reimbursements under such arrangement are not includible in Executive’s income. Notwithstanding the preceding provisions of this paragraph, Company’s obligation to reimburse Executive during the COBRA Period and to provide health benefits to Executive during the Extended Coverage Period shall immediately end if and to the extent Executive becomes eligible to receive health plan coverage from a subsequent employer (with Executive being obligated hereunder to promptly report such eligibility to Company). “Termination Benefits” means (i) a lump sum cash payment equal to the sum of: (A) 2.99 times Executive’s annual base salary at the rate in effect under paragraph 3.1 on the date of termination of Executive’s employment, (B)2.99 times the higher of (1) Executive’s highest annual bonus paid during the three most recent fiscal years or (2) Executive’s Target Bonus (deemed to be 150% of base salary for this purpose) for the fiscal year in which Executive’s date of termination occurs, and (C) any bonus that Executive has earned and accrued as of the date of termination of Executive’s employment which relates to periods that have ended on or before such date and which have not yet been paid to Executive by Company; (iii) ) all of the outstanding stock options, restricted stock awards and other equity based awards granted by Company to Executive shall become fully vested and immediately exercisable in full on the date of termination of Executive’s employment (iv) a lump sum payment of $2,000,000 if such termination occurs within twelve months following the Employment Date and (v) Health Coverage.

 

4.2 Termination By Expiration: If Executive’s employment hereunder shall terminate upon expiration of the term provided in Article 2 hereof because either party has provided the notice contemplated in such paragraph, then all compensation and all benefits to Executive hereunder shall continue to be provided until the expiration of such term and such compensation and benefits shall terminate contemporaneously with termination of his employment.

 

  

  

  

4.3 Termination By Company: If Executive’s employment hereunder shall be terminated by Company prior to expiration of the term provided in paragraph 2.1, then, upon such termination, regardless of the reason therefor, all compensation and benefits to Executive hereunder shall terminate contemporaneously with the termination of such employment; provided, however, that, subject to paragraph 4.8 below, if such termination shall be for any reason other than those encompassed by paragraph 2.1(i), 2.1(ii), 2.1(iii) the Company shall provide Executive with the Termination Benefits, except that if Executive is entitled to the Change in Control Benefits pursuant to paragraph 4.5 as a result of such termination, then Executive will not receive the Termination Benefits provided by Company under this paragraph. All lump sum cash payments due to Executive pursuant to the preceding sentence shall be paid to Executive within five business days of the date Executive’s release pursuant to paragraph 4.8 becomes irrevocable.

 

4.4 Termination By Executive: If Executive’s employment hereunder shall be terminated by Executive prior to expiration of the term provided in paragraph 2.1, then, upon such termination, regardless of the reason therefor, all compensation and benefits to Executive hereunder shall terminate contemporaneously with the termination of such employment provided, however, that, subject to paragraph 4.8 below, if such termination occurs for Good Reason, then Company shall provide Executive with the Termination Benefits, except that if Executive is entitled to the Change in Control Benefits pursuant to paragraph 4.5 as a result of such termination, then Executive will not receive the Termination Benefits provided by Company under this paragraph. All lump sum cash payments due to Executive pursuant to this paragraph shall be paid to Executive within five business days of the date Executive’s release pursuant to paragraph 4.8 becomes irrevocable.

 

4.5 Change in Control Benefits: If Executive’s employment is terminated pursuant to paragraph 2.1(vi) or paragraph 2.2(i) in connection with, based upon, or within 12 months after, a Change in Control, then Company shall provide Executive with the Change in Control Benefits. Any lump sum cash payment due to Executive pursuant to the preceding sentence shall be paid to Executive within five business days of the date of Executive’s termination of employment with Company.

 

4.6 Certain Delayed Payments: Notwithstanding any provision of this Agreement to the contrary, if the payment of any amount or benefit under this Agreement would be subject to additional taxes and interest under Section 409A of the Code because the timing of such payment is not delayed as provided in Section 409A(a)(2)(B)(i) of the Code and the regulations thereunder, then any such payment or benefit that Executive would otherwise be entitled to during the first six months following the date of Executive’s termination of employment shall be accumulated and paid or provided, as applicable, on the date that is six months after the date of Executive’s termination of employment (or if such date does not fall on a business day of Company, the next following business day of Company), or such earlier date upon which such amount can be paid or provided under Section 409A of the Code without being subject to such additional taxes and interest. If the provisions of the preceding sentence become applicable such that the payment of any amount is delayed, any payments that are so delayed shall accrue interest on a non-compounded basis, from the date of Executive’s termination of employment to the actual date of payment, at the prime or base rate of interest announced by JPMorgan Chase Bank (or any successor thereto) at its principal office in New York on the date of such termination (or the first business day following such date if such termination does not occur on a business day) and shall be paid in a lump sum on the actual date of payment of the delayed payment amount. Executive hereby agrees to be bound by Company’s determination of its “specified employees” (as such term is defined in Section 409A of the Code) in accordance with any of the methods permitted under the regulations issued under Section 409A of the Code.

 

4.7 Additional Payments by Company: (i) In the event that any payments or benefits made or provided to or for the benefit of Executive in connection with this Agreement, or Executive’s employment with Company or the termination thereof (the “Payments”) are determined to be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the “Excise Tax”), Company shall pay to Executive an additional payment (a “Gross-up Payment”) in an amount such that after payment by Executive of all taxes (including any interest and penalties imposed with respect to such taxes) including any Excise Tax imposed on any Gross-up Payment, Executive retains an amount of the Gross-up Payment equal to the Excise Tax imposed upon the Payments. The Gross-up Payment attributable to a particular Payment shall be made at the time such Payment is made; provided, however, that in no event shall the Gross-up Payment be made later than the end of Executive’s taxable year next following Executive’s taxable year in which Executive remits the related taxes. The determination of whether the Payments are subject to the Excise Tax and, if so, the amount of the Gross-Up Payment, shall be made by a nationally recognized United States public accounting firm that has not, during the two years preceding the date of its selection, acted in any way on behalf of Company or any of its affiliates; provided, however, that if the accounting firm has determined that Section 4999 does not apply, and the Internal Revenue Service claims that Section 4999 applies to the Payments (or any portion thereof), then Section 4.6(ii) shall be applicable.

 

  

  

  

(ii) Executive shall notify Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by Company of a Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after Executive is informed in writing of such claim and shall apprise Company of the nature of such claim and the date on which such claim is requested to be paid. Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If Company notifies Executive in writing prior to the expiration of such period that it desires to contest such claim, Executive shall:

 

(A) give Company any information reasonably requested by Company relating to such claim,

 

(B) take such action in connection with contesting such claim as Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by Company,

 

(C) cooperate with Company in good faith in order effectively to contest such claim,

 

(D) permit Company to participate in any proceedings relating to such claim, and provided, however, that Company shall bear and pay directly all costs and expenses (including additional interest, penalties, accountant’s and legal fees) incurred in connection with such contest and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this subsection, Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct Executive to pay the tax claimed and commence a proceeding to obtain a refund or contest the claim in any permissible manner, and Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as Company shall determine; provided, however, that if Company directs Executive to pay such claim and seek a refund, Company shall advance the amount of such payment to Executive, on an interest-free basis, and shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder, and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

 

(iii) If, after the receipt by Executive of an amount advanced by Company pursuant to the foregoing, Executive becomes entitled to receive any refund with respect to such claim, Executive shall (subject to Company’s complying with the requirements of the foregoing) promptly pay to Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by Executive of an amount advanced by Company pursuant to the previous subsection, a determination is made that Executive shall not be entitled to any refund with respect to such claim and Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

 

  

  

  

(iv) Notwithstanding the foregoing, Company may use reasonable tax planning options with respect to Executive’s outstanding equity awards, if any, to mitigate the effects of the Excise Tax and Executive agrees to cooperate fully with Company in using all available tax planning options with respect to Executive’s equity awards to mitigate the effects of the Excise Tax; provided, however, Company shall ensure that Executive will receive additional equity awards and/or cash consideration that is at least equal to the reduction, if any, in the value (on an after-tax basis) of Executive’s equity awards as a result of Company’s implementation of such tax planning options; provided further, however, that Company shall bear and pay directly or indirectly all costs and expenses (including additional interest and penalties) incurred in connection with using such tax planning options and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of Company’s use of such tax planning options.

 

4.8 Release and Full Settlement: Anything to the contrary herein notwithstanding, as a condition to the receipt of Termination Benefits under paragraph 4.3 or 4.4 hereof, Executive shall first execute a mutual release, in the form mutually agreed between the Company and the Executive releasing the Board of Directors, Company, and Company’s parent corporation, subsidiaries, affiliates, and their respective shareholders, partners, officers, directors, employees, attorneys and agents from any and all claims and from any and all causes of action of any kind or character including, but not limited to, all claims or causes of action arising out of Executive’s employment with Company or its affiliates or the termination of such employment, but excluding all claims to vested benefits and payments Executive may have under any compensation or benefit plan, program or arrangement, including this Agreement. No Duty to Mitigate Losses. Executive shall have no duty to find new employment following the termination of his employment under circumstances which require Company to pay any amount to Executive pursuant to this Article 4. Except to the extent Executive becomes eligible to receive health plan coverage from a subsequent employer as provided in paragraph 4.1 with respect to Health Coverage, any salary or remuneration received by Executive from a third party for the providing of personal services (whether by employment or by functioning as an independent contractor) following the termination of his employment under circumstances pursuant to which this Article 4 apply shall not reduce Company’s obligation to make a payment to Executive (or the amount of such payment) pursuant to the terms of this Article 4.

 

4.9 Other Benefits: This Agreement governs the rights and obligations of Executive and Company with respect to Executive’s base salary and certain perquisites of employment. Except as expressly provided herein, Executive’s rights and obligations both during the term of his employment and thereafter with respect to stock options, restricted stock, incentive and deferred compensation, life insurance policies insuring the life of Executive, and other benefits under the plans and programs maintained by Company shall be governed by the separate agreements, plans and other documents and instruments governing such matters.

 

ARTICLE 5 : OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS

 

5.1 Disclosure to Executive: Executive acknowledges that Company promises in this Agreement to disclose to Executive, or place Executive in a position to have access to or develop, more detailed information concerning trade secrets or confidential information of Company and its affiliates; and/or entrust Executive with business opportunities of Company and its affiliates; and/or place Executive in a position to develop business good will on behalf of Company and its affiliates. Executive acknowledges that this information will be new to him and more detailed and extensive than that provided to him prior to his employment under this Agreement.

 

5.2 Property of Company: All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Executive, individually or in conjunction with others, during Executive’s employment by Company (whether during business hours or otherwise and whether on Company’s premises or otherwise) which relate to the business, products or services of Company or its affiliates shall be disclosed to Company and are and shall be the sole and exclusive property of Company and its affiliates. Moreover, all documents, drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, E-mail, voice mail, electronic databases, maps and all other writings or materials of any type embodying any of such information, ideas, concepts, improvements, discoveries, and inventions are and shall be the sole and exclusive property of Company and its affiliates. Upon Executive’s termination of employment for any reason, Executive shall deliver the same, and all copies thereof, to Company.

 

  

  

  

5.3 Patent and Copyright Assignment: Executive agrees to assign and transfer to Company or its designee, without any separate remuneration or compensation, his entire right, title and interest in and to all Inventions and Works in the Field (as hereinafter defined), together with all United States and foreign rights with respect thereto, and at Company’s expenses to execute and deliver all appropriate patent and copyright applications for securing United States and foreign patents and copyrights on such Inventions and Works in the Field, and to perform all lawful acts, including giving testimony and executing and delivering all such instruments, that may be necessary or proper to vest all such Inventions and Works in the Field and patents and copyrights with respect thereto in Company, and to assist Company in the prosecution or defense of any interference which may be declared involving any of said patent applications or patents or copyright applications or copyrights. For purposes of this Agreement the words “Inventions and Works in the Field” shall include any discovery, process, design, development, improvement, application, technique, program or invention, whether patentable or copyrightable or not and whether reduced to practice or not, conceived or made by Executive, individually or jointly with others (whether on or off Company’s premises or during or after normal working hours) while employed by Company; provided, however, that no discovery, process, design, development, improvement, application, technique, program or invention reduced to practice or conceived by Executive off Company’s premises and after normal working hours or during hours when Executive is not performing services for Company, shall be deemed to be included in the term “Inventions and Works in the Field” unless directly or indirectly related to the business then being conducted by Company or its affiliates or any business which Company or its affiliates is then actively exploring.

 

5.4 No Unauthorized Use or Disclosure: Executive acknowledges that the business of Company and its affiliates is highly competitive and that their strategies, methods, books, records, and documents, their technical information concerning their products, equipment, services, and processes, procurement procedures and pricing techniques, the names of and other information (such as credit and financial data) concerning their customers and business affiliates, all comprise confidential business information and trade secrets which are valuable, special, and unique assets which Company and its affiliates use in their business to obtain a competitive advantage over their competitors. Executive further acknowledges that protection of such confidential business information and trade secrets against unauthorized disclosure and use is of critical importance to Company and its affiliates in maintaining their competitive position. Executive hereby agrees that Executive will not, at any time during or after Executive’s employment by Company, make any unauthorized disclosure of any confidential business information or trade secrets of Company and its affiliates, or make any use thereof, except in the carrying out of Executive’s employment responsibilities hereunder. Company and its affiliates shall be third party beneficiaries of Executive’s obligations under this paragraph. As a result of Executive’s employment by Company, Executive may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Company and its affiliates. Executive also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as the confidential business information and trade secrets of Company and its affiliates. These obligations of confidence apply irrespective of whether the information has been reduced to a tangible medium of expression (e.g., is only maintained in the minds of Company’s employees) and, if it has been reduced to a tangible medium, irrespective of the form or medium in which the information is embodied (e.g., documents, drawings, memoranda, notes, records, files, correspondence, manuals, models, specifications, computer programs, E-mail, voice mail, electronic databases, maps and all other writings or materials of any type).

 

5.5 Assistance by Executive: Both during the period of Executive’s employment by Company and thereafter, Executive shall assist Company and its affiliates and their respective nominees, at any time, in the protection of Company’s and its affiliates’ worldwide rights, titles, and interests in and to information, ideas, concepts, improvements, discoveries, and inventions, and their copyrighted works, including without limitation, the execution of all formal assignment documents requested by Company and its affiliates or their respective nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. The Company shall facilitate such assistance by enabling the Executive to retain the laptop computer, cell phones and other such devices used during the course of his Employment.

 

5.6 Remedies: Executive acknowledges that money damages would not be sufficient remedy for any breach of this Article 5 by Executive, and Company shall be entitled to enforce the provisions of this Article 5 by terminating any payments then owing to Executive under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 5, but shall be in addition to all remedies available at law or in equity to Company and its affiliates, including the recovery of damages from Executive and Executive’s agents involved in such breach and remedies available to Company and its affiliates pursuant to other agreements with Executive.

 

  

  

  

ARTICLE 6 : NON-COMPETITION OBLIGATIONS

 

6.1 Non-competition Obligations: In return for Company’s provision to Executive hereunder the trade secrets and confidential information of Company and its affiliates relating to the business good will of Company and its affiliates, Company and Executive agree to the provisions of this Article 6. Executive agrees that during the period of Executive’s non-competition obligations hereunder, Executive shall not, directly or indirectly for Executive or for others, in any geographic area or market where Company or its affiliates are conducting any business as of the date of termination of the employment relationship or have during the previous 12 months conducted any business, engage in any business that directly competes with the business of the Company.

 

This non-competition obligation shall apply during the period that Executive is employed by Company and shall continue for six months following the termination of Executive’s employment. Executive understands that the foregoing restrictions may limit Executive’s ability to engage in certain businesses anywhere in the United States during the period provided for above, but acknowledges that Executive will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction.

6.2 Reformation: It is expressly understood and agreed that Company and Executive consider the restrictions contained in this Article 6 to be reasonable and necessary to protect the proprietary information of Company and its affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced.

 

ARTICLE 7 : MISCELLANEOUS

 

7.1 Notices: For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Company to:                 Hunt Global Resources, Inc.

24 Waterway Ave.

Suite 200

The Woodlands, Texas 77380

Attention: George Sharp

If to Executive to: Joseph S. Compofelice

________________

________________

or to such other address as either party may furnish to the other in writing in accordance herewith, except that notices or changes of address shall be effective only upon receipt.

7.2 Applicable Law: This Agreement is entered into under, and shall be governed for all purposes by, the laws of the State of Texas.

 

7.3 No Waiver: No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

 

  

  

  

7.4 Severability: If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement and all other provisions shall remain in full force and effect.

 

7.5 Counterparts: This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement.

 

7.6 Withholding of Taxes and Other Employee Deductions: Company may withhold from any benefits and payments made pursuant to this Agreement all federal, state, city and other taxes as may be required pursuant to any law or governmental regulation or ruling and all other normal employee deductions made with respect to Company’s employees generally.

 

7.7 Headings: The paragraph headings have been inserted for purposes of convenience and shall not be used for interpretive purposes.

 

7.8 Gender and Plurals: Wherever the context so requires, the masculine gender includes the feminine or neuter, and the singular number includes the plural and conversely.

 

7.9 Assignment: This Agreement shall be binding upon and inure to the benefit of Company and any successor of Company, by merger or otherwise.

 

7.10 Term: This Agreement has a term co-extensive with the term of employment provided in Article 2. Termination shall not affect any right or obligation of any party which is accrued or vested prior to such termination.

 

7.11 Entire Agreement: This Agreement constitutes the entire agreement of the parties with regard to the subject matter hereof, and contains all the covenants, promises, representations, warranties and agreements between the parties with respect to employment of Executive by Company. Without limiting the scope of the preceding sentence, all understandings and agreements preceding the date of execution of this Agreement and relating to the subject matter hereof (other than the agreements described in clause (i) of the preceding sentence) are hereby null and void and of no further force and effect. Any modification of this Agreement will be effective only if it is in writing and signed by the party to be charged.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 7th day of February, 2012, to be effective as of the Effective Date.

 

HUNT GLOBAL RESOURCES, INC.

By: /s/ George Sharp

Name: George Sharp

Title: Chief Executive Officer

EXECUTIVE

/s/ Joseph S. Compofelice

Joseph S. Compofelice

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