Document:

Exhibit 10.11

 

EXECUTION VERSION

 

MASTER REPURCHASE AGREEMENT

 

dated as of November 2, 2010

 

among

 

PennyMac Corp., a Seller,

 

PennyMac Mortgage Investment Trust Holdings I, LLC, a Seller,

 

and

 

Wells Fargo Bank, National Association, Buyer

 

 

TABLE OF CONTENTS

 

	
  ARTICLE 1
  APPLICABILITY

  	
  1

  
	
   

  	
   

  
	
  Section 1.01

  	
  Applicability

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2 DEFINITIONS
  AND INTERPRETATION

  	
  1

  
	
   

  	
   

  
	
  Section 2.02

  	
  Rules of
  Interpretation

  	
  37

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3 THE
  TRANSACTIONS

  	
  39

  
	
   

  	
   

  
	
  Section 3.01

  	
  Procedures

  	
  39

  
	
  Section 3.02

  	
  Transfer of Purchased
  Assets; Servicing Rights

  	
  41

  
	
  Section 3.03

  	
  Maximum Aggregate Purchase
  Price

  	
  42

  
	
  Section 3.04

  	
  Early Repurchase Date;
  Mandatory Repurchases; Ineligibility Cures

  	
  42

  
	
  Section 3.05

  	
  Repurchase; Removal; Sale

  	
  43

  
	
  Section 3.06

  	
  Payment of Price
  Differential and Fees

  	
  44

  
	
  Section 3.07

  	
  Payment, Transfer and
  Custody

  	
  44

  
	
  Section 3.08

  	
  Repurchase Obligations
  Absolute

  	
  45

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4 MARGIN
  MAINTENANCE

  	
  45

  
	
   

  	
   

  
	
  Section 4.01

  	
  Margin Deficit

  	
  45

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5 APPLICATION
  OF INCOME

  	
  47

  
	
   

  	
   

  
	
  Section 5.01

  	
  Accounts; Income

  	
  47

  
	
  Section 5.02

  	
  Before a Default or an
  Event of Default

  	
  47

  
	
  Section 5.03

  	
  After Default or Event of
  Default

  	
  50

  
	
  Section 5.04

  	
  Sellers to Remain Liable

  	
  50

  
	
  Section 5.05

  	
  No Recourse for REO Equity
  Interests

  	
  50

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6 CONDITIONS
  PRECEDENT

  	
  50

  
	
   

  	
   

  
	
  Section 6.01

  	
  Conditions Precedent to
  Initial Transaction

  	
  50

  
	
  Section 6.02

  	
  Conditions Precedent to
  All Transactions

  	
  51

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7
  REPRESENTATIONS AND WARRANTIES OF SELLERS

  	
  54

  
	
   

  	
   

  
	
  Section 7.01

  	
  Seller

  	
  54

  
	
  Section 7.02

  	
  Repurchase Documents

  	
  54

  
	
  Section 7.03

  	
  Solvency

  	
  55

  
	
  Section 7.04

  	
  Taxes

  	
  55

  
	
  Section 7.05

  	
  Financial Condition

  	
  56

  
	
  Section 7.06

  	
  True and Complete
  Disclosure

  	
  56

  
	
  Section 7.07

  	
  Compliance with Laws

  	
  56

  
	
  Section 7.08

  	
  Compliance with ERISA

  	
  57

  

 

 

	
  Section 7.09

  	
  No Default or Material
  Adverse Effect

  	
  57

  
	
  Section 7.10

  	
  Purchased Assets

  	
  58

  
	
  Section 7.11

  	
  Purchased Assets Acquired
  from Transferors

  	
  58

  
	
  Section 7.12

  	
  Transfer and Security
  Interest

  	
  59

  
	
  Section 7.13

  	
  No Broker

  	
  59

  
	
  Section 7.14

  	
  Separateness

  	
  59

  
	
  Section 7.15

  	
  Other Indebtedness

  	
  59

  
	
  Section 7.16

  	
  Location of Books and
  Records

  	
  59

  
	
  Section 7.17

  	
  Chief Executive Office;
  Jurisdiction of Organization

  	
  59

  
	
  Section 7.18

  	
  Investment Company Act

  	
  60

  
	
  Section 7.19

  	
  REMIC Declaration
  Agreement

  	
  60

  
	
  Section 7.20

  	
  REO Entity Interests

  	
  60

  
	
  Section 7.21

  	
  Adverse Selection

  	
  60

  
	
   

  	
   

  
	
  ARTICLE 8 COVENANTS
  OF SELLER

  	
  60

  
	
   

  	
   

  
	
  Section 8.01

  	
  Existence; Governing
  Documents; Conduct of Business

  	
  61

  
	
  Section 8.02

  	
  Compliance with Laws,
  Contractual Obligations and Repurchase Documents

  	
  61

  
	
  Section 8.03

  	
  Structural Changes

  	
  61

  
	
  Section 8.04

  	
  Protection of Buyer’s Interest
  in Purchased Assets

  	
  61

  
	
  Section 8.05

  	
  Actions of Seller Relating
  to Distributions, Indebtedness, Guarantee Obligations, Contractual
  Obligations, Investments and Liens

  	
  62

  
	
  Section 8.06

  	
  Maintenance of
  Property, Insurance

  	
  63

  
	
  Section 8.07

  	
  Financial Covenants

  	
  63

  
	
  Section 8.08

  	
  Delivery of Income

  	
  64

  
	
  Section 8.09

  	
  Delivery of Financial
  Statements and Other Information

  	
  64

  
	
  Section 8.10

  	
  Delivery of Notices

  	
  66

  
	
  Section 8.11

  	
  Escrow Imbalance

  	
  68

  
	
  Section 8.12

  	
  Reserved

  	
  68

  
	
  Section 8.13

  	
  Records

  	
  68

  
	
  Section 8.14

  	
  No Pledge

  	
  68

  
	
  Section 8.15

  	
  No Sale or Material
  Adverse Actions

  	
  68

  
	
  Section 8.16

  	
  Maximum Aggregate Purchase
  Price

  	
  69

  
	
  Section 8.17

  	
  Reserved

  	
  69

  
	
  Section 8.18

  	
  Distributions

  	
  69

  
	
  Section 8.19

  	
  Applicable Law

  	
  69

  
	
  Section 8.20

  	
  Existence

  	
  69

  
	
  Section 8.21

  	
  Chief Executive Office;
  Jurisdiction of Organization

  	
  69

  
	
  Section 8.22

  	
  BPOs

  	
  69

  
	
  Section 8.23

  	
  Maintenance of Interest
  Reserve Account

  	
  69

  
	
  Section 8.24

  	
  Servicer Change of Control

  	
  69

  
	
  Section 8.25

  	
  Entitlement Holder;
  Additional Proceeds

  	
  70

  
	
  Section 8.26

  	
  Voting Rights

  	
  70

  
	
  Section 8.27

  	
  Actions under the REMIC
  Declaration Agreements

  	
  70

  

 

ii

 

	
  ARTICLE 9
  SINGLE-PURPOSE ENTITY

  	
  70

  
	
   

  	
   

  
	
  Section 9.01

  	
  Covenants Applicable to PC
  REO

  	
  70

  
	
  Section 9.02

  	
  Reserved

  	
  71

  
	
  Section 9.03

  	
  Additional Covenants
  Applicable to REO Property

  	
  71

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10 EVENTS OF
  DEFAULT AND REMEDIES

  	
  72

  
	
   

  	
   

  
	
  Section 10.01

  	
  Events of Default

  	
  72

  
	
  Section 10.02

  	
  Remedies of Buyer as Owner
  of the Purchased Assets

  	
  75

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11 SECURITY
  INTEREST; REO DEED

  	
  78

  
	
   

  	
   

  
	
  Section 11.01

  	
  Grant

  	
  78

  
	
  Section 11.02

  	
  Effect of Grant

  	
  79

  
	
  Section 11.03

  	
  Sellers to Remain Liable

  	
  79

  
	
  Section 11.04

  	
  Provisions of REO Deed

  	
  79

  
	
  Section 11.05

  	
  Waiver of Certain Laws

  	
  81

  
	
   

  	
   

  	
   

  
	
  ARTICLE 12 INCREASED
  COSTS; CAPITAL ADEQUACY

  	
  81

  
	
   

  	
   

  
	
  Section 12.01

  	
  Market Disruption

  	
  81

  
	
  Section 12.02

  	
  Illegality

  	
  81

  
	
  Section 12.03

  	
  Breakfunding

  	
  81

  
	
  Section 12.04

  	
  Increased Costs

  	
  81

  
	
  Section 12.05

  	
  Capital Adequacy

  	
  82

  
	
  Section 12.06

  	
  Withholding Taxes

  	
  82

  
	
  Section 12.07

  	
  Payment and Survival of
  Obligations

  	
  84

  
	
   

  	
   

  	
   

  
	
  ARTICLE 13 INDEMNITY
  AND EXPENSES

  	
  84

  
	
   

  	
   

  
	
  Section 13.01

  	
  Indemnity

  	
  84

  
	
  Section 13.02

  	
  Expenses

  	
  86

  
	
   

  	
   

  	
   

  
	
  ARTICLE 14
  INTENT

  	
  86

  
	
   

  	
   

  
	
  Section 14.01

  	
  Intent

  	
  86

  
	
   

  	
   

  	
   

  
	
  ARTICLE 15 DISCLOSURE
  RELATING TO CERTAIN FEDERAL PROTECTIONS

  	
  87

  
	
   

  	
   

  
	
  ARTICLE 16
  NO RELIANCE

  	
  88

  
	
   

  	
   

  	
   

  
	
  Section 16.01

  	
  No Reliance

  	
  88

  
	
   

  	
   

  	
   

  
	
  ARTICLE 17
  SERVICING

  	
  89

  
	
   

  	
   

  
	
  Section 17.01

  	
  Servicing of Purchased
  Assets and Underlying Assets

  	
  89

  
	
  Section 17.02

  	
  Fees and Expenses of
  Servicer

  	
  91

  
	
  Section 17.03

  	
  Servicing Reports

  	
  91

  
				

 

iii

 

	
  Section 17.04

  	
  Servicer; Servicing Data
  File

  	
  91

  
	
   

  	
   

  	
   

  
	
  ARTICLE 18
  MISCELLANEOUS

  	
  91

  
	
   

  	
   

  
	
  Section 18.01

  	
  Governing Law

  	
  91

  
	
  Section 18.02

  	
  Submission to
  Jurisdiction; Service of Process

  	
  91

  
	
  Section 18.03

  	
  WAIVERS

  	
  92

  
	
  Section 18.04

  	
  Integration

  	
  93

  
	
  Section 18.05

  	
  Single Agreement

  	
  93

  
	
  Section 18.06

  	
  Use of Employee Plan
  Assets

  	
  94

  
	
  Section 18.07

  	
  Survival and Benefit of
  Sellers’ Agreements

  	
  94

  
	
  Section 18.08

  	
  Assignments and
  Participations

  	
  94

  
	
  Section 18.09

  	
  Ownership and
  Hypothecation of Purchased Assets

  	
  95

  
	
  Section 18.10

  	
  Confidentiality

  	
  96

  
	
  Section 18.11

  	
  No Implied Waivers

  	
  96

  
	
  Section 18.12

  	
  Notices and Other
  Communications

  	
  96

  
	
  Section 18.13

  	
  Counterparts; Electronic
  Transmission

  	
  97

  
	
  Section 18.14

  	
  No Personal Liability

  	
  97

  
	
  Section 18.15

  	
  Protection of Buyer’s
  Interests in the Purchased Assets; Further Assurances

  	
  97

  
	
  Section 18.16

  	
  Default Rate

  	
  98

  
	
  Section 18.17

  	
  Set-off

  	
  99

  
	
  Section 18.19

  	
  Sellers’ Waiver of Setoff

  	
  100

  
	
  Section 18.20

  	
  Periodic Due Diligence
  Review

  	
  100

  
	
  Section 18.22

  	
  Time of the Essence

  	
  101

  
	
  Section 18.23

  	
  Joint and Several Repurchase
  Obligations

  	
  101

  
	
  Section 18.24

  	
  Patriot Act Notice

  	
  102

  
	
  Section 18.25

  	
  Acknowledgement Of
  Anti-Predatory Lending Policies

  	
  102

  
	
  Section 18.26

  	
  Successors and Assigns; No
  Third Party Beneficiaries

  	
  102

  

 

	
  Schedule
  1-A

  	
   

  	
  Representations
  and Warranties with Respect to Mortgage Loans

  
	
   

  	
   

  	
   

  
	
  Schedule
  1-B

  	
   

  	
  Representations
  and Warranties with Respect to REO Properties

  
	
   

  	
   

  	
   

  
	
  Schedule
  1-C

  	
   

  	
  Representations
  and Warranties with Respect to REMIC Certificates

  
	
   

  	
   

  	
   

  
	
  Schedule
  2

  	
   

  	
  Notice
  Addresses and Wire Instructions

  
	
   

  	
   

  	
   

  
	
  Schedule
  3

  	
   

  	
  Representations
  and Warranties for Ineligible Remedies

  
	
   

  	
   

  	
   

  
	
  Schedule
  4

  	
   

  	
  Schedule
  of Indebtedness

  
	
   

  	
   

  	
   

  
	
  Schedule
  5

  	
   

  	
  Schedule
  of Average State Timelines Regarding Foreclosures

  
	
   

  	
   

  	
   

  
	
  Schedule
  6

  	
   

  	
  Schedule
  of Maximum Foreclosure Aging

  

 

iv

 

	
  EXHIBITS

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBIT A

  	
   

  	
  [Reserved]

  
	
   

  	
   

  	
   

  
	
  EXHIBIT B

  	
   

  	
  Form of
  Servicer Instruction Notice

  
	
   

  	
   

  	
   

  
	
  EXHIBIT C

  	
   

  	
  Form of
  Closing Certificate

  
	
   

  	
   

  	
   

  
	
  EXHIBIT D

  	
   

  	
  Form of
  Compliance Certificate

  
	
   

  	
   

  	
   

  
	
  EXHIBIT E

  	
   

  	
  Form of
  Confirmation

  
	
   

  	
   

  	
   

  
	
  EXHIBIT F

  	
   

  	
  Early
  Repurchase Schedule

  
	
   

  	
   

  	
   

  
	
  EXHIBIT G

  	
   

  	
  Form of
  Investment Advisor Side Letter

  
	
   

  	
   

  	
   

  
	
  EXHIBIT H

  	
   

  	
  Form of
  Mortgage Loan Schedule

  
	
   

  	
   

  	
   

  
	
  EXHIBIT I

  	
   

  	
  Form of
  REO Property Schedule

  
	
   

  	
   

  	
   

  
	
  EXHIBIT J

  	
   

  	
  Form of
  Transaction Request

  
	
   

  	
   

  	
   

  
	
  EXHIBIT K

  	
   

  	
  Form of
  Power of Attorney

  
	
   

  	
   

  	
   

  
	
  EXHIBIT L

  	
   

  	
  Form of
  Purchased Asset Data Summary

  
	
   

  	
   

  	
   

  
	
  EXHIBIT M

  	
   

  	
  Form of
  Assignment and Acceptance

  
	
   

  	
   

  	
   

  
	
  EXHIBIT N

  	
   

  	
  Form of
  “Good-Bye Letter”

  

 

v

 

THIS
MASTER REPURCHASE AGREEMENT, dated as of November 2, 2010 (this “Agreement”),
is made by and among PENNYMAC CORP., a Delaware corporation (“PMC”),
PENNYMAC MORTGAGE INVESTMENT TRUST HOLDINGS I, LLC (a Delaware limited
liability company (“PMIT”; together with PMC and as more specifically
defined below each a “Seller” and collectively the “Sellers”) and
WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association (as more
specifically defined below, “Buyer”). 
Sellers and Buyer (each a “Party”) hereby agree as follows:

 

ARTICLE 1

 

APPLICABILITY

 

Section 1.01           Applicability.  Subject to the terms and conditions of the
Repurchase Documents, from time to time and at the request of a Seller, the
Parties may enter into transactions in which Sellers agree to sell, transfer
and assign to Buyer certain Assets and all related rights in and interests
related to such Assets on a servicing released basis, against the transfer of
funds by Buyer representing the Purchase Price for such Assets, with a
simultaneous agreement by Buyer to transfer to Sellers and Sellers to
repurchase such Assets in a repurchase transaction at a date not later than the
Maturity Date, against the transfer of funds by Sellers representing the
Repurchase Price for such Assets.

 

ARTICLE 2

 

DEFINITIONS
AND INTERPRETATION

 

“Accelerated
Repurchase Date”:  Defined in Section 10.02.

 

“Accepted
Servicing Practices”:  With respect
to any Purchased Mortgage Loan or Underlying Asset, those mortgage servicing
practices of prudent financial or mortgage lending institutions which service
assets of the same type as such assets in the jurisdiction where the related
Underlying Mortgaged Property is located and in a manner at least equal in
quality to the servicing that a Seller or Servicer provides to assets which
they own in their own portfolios.

 

“Account”:
As applicable, any of the Mortgage Loan Interest Reserve Account, REO Property
Interest Reserve Account, REO Collection Account, Participation Account or
Waterfall Account.

 

“Account
Bank”:  Wells Fargo Bank, National
Association, or any other bank approved by Buyer.

 

“Account
Control Agreement” shall mean any collection account control agreement
entered into by the Buyer, Sellers, Servicer, and the Account Bank, in form and
substance acceptable to Buyer with respect to certain of the Accounts.

 

“Actual
Knowledge”:  With respect to any
Person, the actual knowledge of such Person without further inquiry or
investigation; provided, that for the avoidance of doubt, such actual
knowledge shall include the knowledge of such Person and each of its employees,
officers, directors and agents.

 

 

“Additional
Purchased Assets”:  The meaning
specified in Section 4.01.

 

“Adjusted
Tangible Net Worth”:  With respect to
any Person, as of any date of determination, the excess of such Person’s total
assets (net of goodwill and intangible assets, including mortgage servicing
rights) over its total liabilities, calculated in accordance with GAAP as
reflected on such Person’s financial statements.

 

“Affiliate”:  With respect to any Person, any other Person
directly or indirectly Controlling, Controlled by, or under common Control
with, such Person; provided, however, that neither the Servicer
nor the Investment Advisor shall be deemed an Affiliate for the purposes of
this Agreement.

 

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

 

“Aggregate
Purchase Price”:  As of any date of
determination, the aggregate outstanding Purchase Price of all Purchased Assets
subject to a Transaction.

 

“Agreement”:  This Master Repurchase Agreement dated as of
the Closing Date, by and amongst Sellers and Buyer as amended, supplemented or
modified thereto from time to time, which shall include on or prior to the
Effective Date all Schedules and Exhibits thereto.

 

“ALTA”:  The American Land Title Association.

 

“Alternative
Rate”:  A per annum rate based on an
index approximating the behavior of LIBOR, as determined by Buyer.

 

“Anti-Terrorism
Laws”:  Any Requirements of Law
relating to money laundering or terrorism, including Executive Order 13224
signed into law on September 23, 2001, the regulations promulgated by the
Office of Foreign Assets Control of the Treasury Department, and the Patriot
Act.

 

“Applicable
Percentage”:  For each Purchased
Asset, the applicable percentage determined by Buyer for such Purchased Asset
on the Purchase Date thereof, up to the Maximum Applicable Percentage.

 

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

 

“Asset”:  Any Mortgage Loan, any REMIC Certificate, any
REO Entity Interest or any Underlying Asset, as applicable and as the context
may require.

 

“Asset
Documents”:  (i) With respect to
each Mortgage Loan, the Mortgage Loan Documents, (ii) with respect to each
REMIC Certificate, such REMIC Certificate and the REMIC Certificate Documents,
and (iii) with respect to each REO Property, the related REO Entity
Interests and the related REO Property Documents.

 

“Asset
Schedule”:  The Mortgage Loan
Schedule or the REO Property Schedule, as applicable.

 

2

 

“Bankruptcy
Code”:  Title 11 of the United
States Code, as amended.

 

“Blank
Assignment Documents”:  Defined in Section 6.02(j).

 

“BPO”:  An opinion of the BPO Value of an Underlying
Mortgaged Property given by a licensed real estate agent or broker (acceptable
to Buyer and at Sellers’ expense) which generally includes three comparable
sales and three comparable listings.

 

“BPO
Value”:  The stated dollar value
contained in a BPO regarding the fair market value of a mortgaged property or
parcel of real property.

 

“Business
Day”:  Any day other than (a) a
Saturday or a Sunday, (b) a day on which banks in the States of New
York, California or North Carolina are authorized or obligated by law or executive
order to be closed, (c) a day on which the New
York Stock Exchange, the Federal Reserve Bank of New York or the Custodian is authorized
or obligated by law or executive order to be closed, or (d) if the term “Business
Day” is used in connection with the determination of LIBOR, a day dealings in
Dollar deposits are not carried on in the London interbank market.

 

“Buyer”:  Wells Fargo Bank, National Association, in
its capacity as Buyer under this Agreement and the other Repurchase Documents.

 

“Buyer’s
Margin Percentage”:  For any
Purchased Asset or Underlying Asset as of any date, the percentage equivalent
of the quotient obtained by dividing one (1) by the Applicable Percentage
used to calculate the Purchase Price for such Purchased Asset or Underlying
Asset on the related Purchase Date.

 

“Capital
Lease Obligations”:  With respect to
any Person, the amount of all obligations of such Person to pay rent or other
amounts under a lease of property to the extent and in the amount that such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person.

 

“Capital
Stock”:  Any and all shares,
interests, participations or other equivalents (however designated) of capital
stock of a corporation, any and all equivalent equity ownership interests in a
Person which is not a corporation, including, without limitation, any and all
member or other equivalent interests (certificated or un-certificated) in any
limited liability company, any and all partnership or other equivalent
interests in any partnership or limited partnership, any and all trust
certificate representing ownership of the related trust, and any and all
warrants or options to purchase any of the foregoing.

 

“Carryover
Amount” means the sum of (a) the aggregate of any Carryover Amounts in
respect of prior Pricing Periods that have not previously been distributed
under Section 5.02(a)(II), and (b) in respect of the current
Pricing Period, the amount by which any payments due Servicer pursuant to
clause first of Section 5.02(a) of
the PC REO Trust Agreement and clause first of Section 5.02(a)(II) of
the Agreement, exceed 30% of the Income collected by Servicer with respect to
the Purchase Mortgage Loans, the Underlying REO Properties and the Underlying
Mortgage Loans.

 

3

 

“Change
of Control”:  The occurrence of any
of the following events:  (a) any “person”
or “group” (within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended) shall become, or obtain rights (whether by
means of warrants, options or otherwise) to become, the beneficial owner,
directly or indirectly, of 25% or more of the total voting power of all classes
of Equity Interests of any Seller or Guarantor entitled to vote generally in
the election of the directors, (b) Guarantor shall cease to indirectly own and
control, of record and beneficially, 100% of the Equity Interests of either (i)
PMOP or (ii) PennyMac GP OP, Inc., (c) PMOP shall cease to own and control, of
record and beneficially, 100% of the Equity Interests of PMC or PMIT, or (d)
PMC shall cease to own and control, of record and beneficially, 100% of the
Equity Interests of PC REO.

 

“Class A
Participant” Has the meaning ascribed to such term in the related REMIC
Declaration Agreement.

 

“Class
A Participation”:  Has the meaning
ascribed to such term in the related REMIC Declaration Agreement.

 

“Closing
Certificate”:  A true and correct
certificate in the form of Exhibit C, executed by a Responsible
Officer of each Seller.

 

“Closing
Date”:  November 2, 2010.

 

“Code”:  The Internal Revenue Code of 1986, as
amended.

 

“Compliance
Certificate”:  A true and correct
certificate in the form of Exhibit D,   executed by a Responsible Officer of each
Seller and Guarantor.

 

“Confirmation”:  A purchase confirmation in the form of Exhibit E,
duly completed, executed and delivered by a Seller and Buyer in accordance with
Section 3.01.

 

“Contingent
Liabilities”:  With respect to any
Person as of any date, all of the following as of such date:  (a) liabilities and obligations
(including any Guarantee Obligations) of such Person in respect of “off-balance
sheet arrangements” (as defined in the Off-Balance Sheet Rules defined below),
(b) obligations, including Guarantee Obligations, whether or not required
to be disclosed in the footnotes to such Person’s financial statements,
guaranteeing in whole or in part any Non-Recourse Indebtedness, lease, dividend
or other obligation, excluding, however (i) contractual indemnities
(including any indemnity or price-adjustment provision relating to the purchase
or sale of securities or other assets) and (ii) guarantees of non-monetary
obligations that have not yet been called on or quantified, of such Person or
any other Person, and (c) forward commitments or obligations to fund or
provide proceeds with respect to any loan or other financing that is obligatory
and non-discretionary on the part of the lender.  The amount of any Contingent Liabilities
described in the preceding clause (b) shall be deemed to be (i) with
respect to a guarantee of interest or interest and principal, or operating
income guarantee, the sum of all payments required to be made thereunder
(which, in the case of an operating income guarantee, shall be deemed to be
equal to the debt service for the note secured thereby), through (x) in
the case of an interest or interest and principal guarantee, the stated date of
maturity of the obligation (and commencing on the date interest could first be
payable thereunder), or (y) in the case of an operating income guarantee,
the date through which such guarantee will remain in effect, and 

 

4

 

(ii) with
respect to all guarantees not covered by the preceding clause (i), an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such guarantee is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as recorded on the balance sheet and
in the footnotes to the most recent financial statements of such Person.  “Off-Balance Sheet Rules” means the
Disclosure in Management’s Discussion and Analysis About Off-Balance Sheet
Arrangements and Aggregate Contractual Obligations, Securities Act Release
Nos. 33-8182; 34-47264; FR-67 International Series Release No. 1266
File No. S7-42-02, 68 Fed. Reg. 5982 (Feb. 5, 2003) (codified at
17 CFR Parts 228, 229 and 249).

 

“Contractual
Obligation”:  With respect to any
Person, any provision of any securities issued by such Person or any indenture,
mortgage, deed of trust, deed to secure debt, contract, undertaking, agreement,
instrument or other document to which such Person is a party or by which it or
any of its property or assets are bound or are subject.

 

“Contribution
Agreement”: The Contribution Agreement in form and substance satisfactory
to Buyer between PMC and PC REO pursuant to which PMC will convey, transfer and
contribute to PC REO the REO Property resulting from the foreclosure of a
Purchased Mortgage Loan or other Mortgage Loan, as the same may be amended,
modified or supplemented from time to time and approved by Buyer.

 

“Control”:  With respect to any Person, the direct or
indirect possession of the power to direct or cause the direction of the
management or policies of such Person, whether through the ability to exercise
voting power, by contract or otherwise.  “Controlling,”
“Controlled” and “under common Control” have correlative meanings.

 

“Conversion
Date”: As applicable, (i) with respect to any Purchased REMIC Certificate,
the date on which Buyer releases its rights, title and interest in a Removed
Mortgage Loan and such Removed Mortgage Loan becomes subject to a Transaction
as a Purchased Mortgage Loan pursuant to Section 3.01(g)(i) hereof, or
(ii) with respect to any Purchased Mortgage Loan, the date on which Buyer
releases its rights, title and interest in such Purchased Mortgage Loan that
has become a Foreclosed Mortgage Loan, and such Foreclosed Mortgage Loan is
contributed to PC REO to support the related Purchased REO Entity Interests,
pursuant to Section 3.01(g)(ii) hereof.

 

“Custodial
Agreement”:  The Custodial Agreement,
dated as of the date hereof, among Buyer, Sellers and Custodian, substantially
in the form and substance as mutually agreed to between Buyer and Sellers, as
the same may be amended, modified or supplemented from time to time.

 

“Custodian”:  Wells Fargo Bank, National Association, or
any successor permitted by the Custodial Agreement.

 

“Default”:  Any event that, with the giving of notice or
the lapse of time, or both, would become an Event of Default.

 

5

 

“Default
Rate”:  As of any date, the Pricing
Rate in effect on such date plus 400 basis points (4.00%), determined after any
Repurchase Date on the basis of periods corresponding to Pricing Periods.

 

“Derivatives
Contract”:  Any rate swap
transaction, basis swap, credit derivative transaction, forward rate
transaction, commodity swap, commodity option, forward commodity contract,
equity or equity index swap or option, bond or bond price or bond index swap or
option or forward bond or forward bond price or forward bond index transaction,
interest rate option, forward foreign exchange transaction, cap transaction,
floor transaction, collar transaction, currency swap transaction,
cross-currency rate swap transaction, currency option, spot contract, or any
other similar transaction or any combination of any of the foregoing (including
any options to enter into any of the foregoing), whether or not any such
transaction is governed by or subject to any master agreement, including any
obligations or liabilities thereunder.

 

“Derivatives
Termination Value”:  With respect to
any one or more Derivatives Contracts, after taking into account the effect of
any legally enforceable netting agreement relating to such Derivatives
Contracts, (a) for any date on or after the date such Derivatives
Contracts have been closed out and termination value(s) determined in
accordance therewith, such termination value(s), and (b) for any date
prior to the date referenced in the preceding clause (a), the amount(s)
determined as the mark-to-market value(s) for such Derivatives Contracts, as
determined based on one or more mid-market or other readily available quotations
provided by any recognized dealer in such Derivatives Contracts (which may
include Buyer).

 

“Direct
Pass-Through Expenses”: The professional fees, due diligence, accounting
and auditing fees and other direct charges incurred by or for the benefit of
PMC  with respect to the Purchased
Mortgage Loans and Underlying Assets under the Investment Advisor
Agreement.  For any date of
determination, such fees and expenses shall be estimated with respect to the
Purchased Mortgage Loans and Underlying Assets on an asset-by-asset basis
pursuant to an allocation method acceptable to Buyer.

 

“Dollars”
and “$”:  Lawful money of the
United States of America.

 

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

 

“Early
Repurchase”:  The repurchase of any
Purchased Assets by any Seller prior to the Repurchase Date (other than on
account of a Representation Breach).

 

“Early
Repurchase Date”:  Defined in Section 3.04.

 

“Early
Repurchase Schedule”: With respect to any Early Repurchase or a Sale and
Disposition of Purchased Assets on the schedule set forth Exhibit F
attached hereto.

 

“Effective
Date”: The date on which all conditions set forth in 6.01 have been
satisfied in Buyer’s determination.

 

6

 

“Electronic
Tracking Agreement”:  The Electronic
Tracking Agreement among Buyer, Sellers, MERS and MERSCORP, Inc., to the extent
applicable as the same may be amended from time to time.

 

“Eligible
Asset”: An Eligible Mortgage Loan, an Eligible REMIC Certificate, an
Eligible REO Property or any REO Entity Interests, as the case may be.

 

“Eligible
Assignee”:  Any of the following
Persons designated by Buyer for purposes of Section 18.08(c):  (a) a bank, financial institution,
pension fund, insurance company or similar Person, an Affiliate of any of the
foregoing, and an Affiliate of Buyer, and (b) any other Person to which
Sellers have consented; provided, that such consent of Sellers shall not
be unreasonably withheld, delayed or conditioned, and shall not be required at
any time when a Default or Event of Default exists.  Such Person shall provide to Sellers such
duly executed IRS forms as Sellers reasonably request.

 

“Eligible
Mortgage Loan”:  Any Mortgage Loan
(a) as to which each of the representations and warranties in Sections 7.06,
7.10, 7.11, and 7.12 and Schedule 1-A are true and
correct in all material respects, (b) that contains all required Mortgage Loan
Documents without exceptions unless otherwise waived by Buyer or permitted
below and (c) that satisfies each of the following eligibility requirements:

 

(i)            At the time it was made,
such Mortgage Loan complied in all material respects with all applicable local,
state and federal laws, including but not limited to all predatory lending
laws;

 

(ii)           Such Mortgage Loan is
secured by a first priority mortgage or deed of trust on real property;

 

(iii)          The BPO Value for such
Mortgage Loan exceeds $30,000;

 

(iv)          The unpaid principal balance
of such Mortgage Loan is equal to or exceeds $50,000;

 

(v)           The Mortgagor on the
Mortgage Loan did not have a Fair, Isaac & Company, Inc. (“FICO”)
Score at origination of the Mortgage Loan that is less than 500;

 

(vi)          Such Mortgage Loan is not a “Section
32” loan;

 

(vii)         Such Mortgage Loan is not a
High Cost Mortgage Loan;

 

(viii)        The Foreclosure Age of such
Mortgage Loan does not exceed the related maximum foreclosure age as set forth
on Schedule 6 attached hereto; provided  that Buyer such
condition may be waived by Buyer, with respect to any Mortgage Loan  for which foreclosure is imminent;

 

(ix)           The outstanding Protective
Servicing Advances with respect to such Mortgage Loan do not exceed 15% of
either (i) the BPO Value of the related Underlying Mortgaged Property or (ii)
the unpaid principal balance of such Mortgage Loan;

 

7

 

(x)            The information set forth in
the related Mortgage Loan Schedule is true and correct in all material respects
as of the date or dates respecting which the information is furnished;

 

(xi)           No Representation Breach
exists with respect to such Mortgage Loan;

 

(xii)          There are no future funding
obligations on the part of Sellers or Buyer or any other Person with respect to
such Mortgage Loan;

 

(xiii)         A BPO has been conducted on
the related Underlying Mortgaged Property no longer than ninety (90) days prior
to the related Purchase Date with respect to the Mortgage Loan;

 

(xiv)        A BPO has been conducted and
delivered to Buyer with respect to the related Underlying Mortgaged Property
every one hundred and eighty (180) days that such Mortgage Loan is subject to a
Transaction hereunder;

 

(xv)         If such Mortgage Loan is an
Underlying Mortgage Loan, it is a “qualified mortgage loan” as such term is
defined in Section 860(G)(a)(3) of the Code and the related Underlying Mortgage
Property qualifies as foreclosure property within the meaning of Section 856(e)
of the Code if obtained by foreclosure or deed in lieu of foreclosure (without
regard to Treasury Regulation 1.856-6(b)(3));

 

(xvi)        The Mortgaged Property with
respect to such Mortgage Loan located in the United States, and the Underlying
Obligors are domiciled in the United States and are not Sanctioned Entities,
and all obligations thereunder and under the Mortgage Loan Documents are denominated
and payable in Dollars; and

 

(xvii)       Any other eligibility
criteria as mutually agreed to by the Buyer and Sellers.

 

provided, that
notwithstanding the failure of a Mortgage Loan to conform to the requirements
of this definition, Buyer may, subject to such terms, conditions and
requirements and Applicable Percentage adjustments as Buyer may require,
designate in writing any such non-conforming Mortgage Loan as an Eligible
Mortgage Loan, which designation (1) may include a temporary or permanent
waiver of one or more Eligible Mortgage Loan requirements, and (2) shall
not be deemed a waiver of the requirement that all other Mortgage Loans must be
Eligible Mortgage Loan (including any Mortgage Loans that are similar or
identical to the Mortgage Loan subject to the waiver).

 

“Eligible
REMIC Certificate”:  Any REMIC
Certificate (a) as to which each of the representations and warranties in Sections
7.06, 7.10, 7.11, and 7.12 and Schedule 1-C are
true and correct in all material respects, (b) as to which all required REMIC
Certificate Documents have been delivered to Custodian or Buyer without
exceptions unless otherwise waived by Buyer or permitted below, (c) that is
sold or proposed to be sold to Buyer together with each other REMIC regular
interest then issued by PMC pursuant to the related REMIC Declaration
Agreement, and (d) that satisfies each of the following eligibility
requirements:

 

8

 

(i)            Such REMIC Certificate is
backed by Eligible Underlying Mortgage Loans at the time such REMIC Certificate
was issued;

 

(ii)           Such REMIC Certificate is
certificated;

 

(iii)          Such REMIC Certificate is
owned by PMIT;

 

(iv)          No Representation Breach
exists with respect to the REMIC Certificate;

 

(v)           The delivery of which shall
be sufficient to cause Buyer to have a perfected, first priority security
interest in, and to be the “entitlement holder” (as defined in Section
8-102(a)(7) of the UCC) with respect thereto;

 

(vi)          The Mortgage Loan Documents
for the Underlying Mortgage Loans have been delivered to the Custodian without
exception unless otherwise waived by Buyer;

 

(vii)         PMC has pledged all of its
right, title and interest in all Underlying Mortgage Loans supporting such
REMIC Certificate, together with the related Servicing Rights, the related
Records, amounts and property from time to time on deposit in the Participation
Account and the Participation Account itself and all Income related to such
Underlying Mortgage Loans received by PMC or Servicer and all rights to receive
such Income, and all products, proceeds and distributions relating to or
constituting any or all of the foregoing, except to the extent any of PMC’s
rights, title and interest therein have been legally and validly sold,
transferred and assigned by PMC to the Class A Participant in accordance with
the related REMIC Declaration Agreement;

 

(viii)        Such REMIC Certificate is
endorsed in blank;

 

(ix)           Such REMIC Certificate is
not in the possession of or in the name of any Person other than PMIT;  and

 

(x)            Any other eligibility
criteria as mutually agreed to by the Buyer and Sellers.

 

provided, that
notwithstanding the failure of a REMIC Certificate or any related
Underlying  Mortgage Loan to conform to
the requirements of this definition or the definition of “Eligible Mortgage
Loan,” Buyer may, subject to such terms, conditions and requirements and
Applicable Percentage adjustments as Buyer may require, designate in writing
any such non-conforming REMIC Certificate or related Underlying Mortgage Loan
as an Eligible REMIC Certificate or Eligible Mortgage Loan, which designation
(1) may include a temporary or permanent waiver of one or more Eligible
REMIC Certificate or Eligible Mortgage Loan, and (2) shall not be deemed a
waiver of the requirement that all other REMIC Certificates must be Eligible
REMIC Certificates or Eligible Mortgage Loan (including any REMIC Certificates
or Eligible Mortgage Loan that are similar or identical to the REMIC
Certificate or Eligible Mortgage Loan subject to the waiver).

 

“Eligible
REO Property”:  All REO Property
wholly owned by PC REO and (a) as to which each of the representations and
warranties in Section 7.20 and Schedule 1-B are true and 

 

9

 

correct
in all material respects; (b) as to which the related REO Deed has been
recorded or sent for recordation, in either case in the name of the PC REO, and
(c) which satisfies the following eligibility requirements:

 

(i)            The information set forth in
the related REO Property Schedule is true and correct in all material respects
as of the date or dates respecting which the information is furnished;

 

(ii)           No Representation Breach
exists with respect to such REO Property;

 

(iii)          There are no future funding
obligations on the part of Sellers or Buyer or any other Person with respect to
such REO Property;

 

(iv)          The Underlying Mortgaged
Property with respect to such REO Property is located in the United States and
all obligations (if applicable) thereunder and under the Asset Documents are
denominated and payable in Dollars;

 

(v)           A BPO has been conducted on
such REO Property no longer than ninety (90) days prior to the related Purchase
Date;

 

(vi)          A BPO has been conducted and
delivered to Buyer with respect to such REO Property every one hundred and
eighty (180) days that such REO Property is subject to a Transaction hereunder;

 

(vii)         A report containing updated
property value information using the Competitive Market Analysis has been
delivered to Buyer with respect to such REO Property every month that such REO
Property is subject to a Transaction hereunder;

 

(viii)        The REO Aging of such REO
Property does not exceed 360 days;

 

(ix)           The BPO Value for such REO
Property exceeds $30,000;

 

(x)            The outstanding Protective
Servicing Advances with respect to such REO Property do not exceed 15% of the
BPO Value of the related Underlying Mortgaged Property; and

 

(xi)           Any other eligibility criteria as mutually agreed to by
the Buyer and Sellers.

 

provided, that
notwithstanding the failure of an REO Property to conform to the requirements
of this definition, Buyer may, subject to such terms, conditions and
requirements and Applicable Percentage adjustments  as Buyer may require, designate in writing
any such non-conforming REO Property as an Eligible REO Property, which
designation (1) may include a temporary or permanent waiver of one or more
Eligible REO Property requirements, and (2) shall not be deemed a waiver
of the requirement that all other REO Property must be Eligible REO Property  (including any REO Property that is similar
or identical to the REO Property subject to the waiver).

 

10

 

“Eligible
Underlying Mortgage Loan”: An Underlying Mortgage Loan that satisfies the
definition of Eligible Mortgage Loan, except as otherwise set forth in the
related Schedule.

 

“Environmental
Laws”:  Any federal, state, foreign
or local statute, law, rule, regulation, ordinance, code, guideline, written
policy and rule of common law now or hereafter in effect, and any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent decree or judgment, relating to the environment, employee health
and safety or hazardous materials, including CERCLA, RCRA, the Federal Water
Pollution Control Act, the Toxic Substances Control Act, the Clean Air Act, the
Safe Drinking Water Act, the Oil Pollution Act of 1990, the Emergency Planning
and the Community Right-to-Know Act of 1986, the Hazardous Material
Transportation Act, the Occupational Safety and Health Act, and any state and
local or foreign counterparts or equivalents.

 

“Equity
Interests”:  With respect to any
Person, (a) any share, interest, participation and other equivalent
(however denominated) of Capital Stock of (or other ownership, equity or profit
interests in) such Person, (b) any warrant, option or other right for the
purchase or other acquisition from such Person of any of the foregoing,
(c) any security convertible into or exchangeable for any of the
foregoing, and (d) any other ownership or profit interest in such Person
(including partnership, member or trust interests therein), whether voting or
nonvoting, and whether or not such share, warrant, option, right or other
interest is authorized or otherwise existing on any date.

 

“ERISA”:  The Employee Retirement Income Security Act
of 1974, as amended.

 

“ERISA
Affiliate”: Any entity, whether or not incorporated, that is a member of
any group of organizations described in Section 414(b), (c), (m) or (o) of the
Code of which any Seller or Guarantor is a member.

 

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

 

“Estimate
of Guarantor Net Income”:  An amount
resulting from Guarantor’s GAAP net income, including but not limited to its
election of the fair value option under SFAS No. 157, derived from, among other
items, Interest Payments, accretion of expected Purchased Assets and Underlying
Assets gain, amortization of asset purchase discount, gain or loss from short sales,
gain or loss from liquidations, and gain/loss from sales, net of Sellers’
expenses.  These amounts will be
calculated in good faith by Sellers in a commercially reasonable manner and
reported on an individual basis for each Purchased Asset and Underlying Assets.

 

“Event
of Default”:  Defined in Section
10.01.

 

“Facility
Fee”:  The meaning set forth in the
Fee Letter, which definition is incorporated by reference herein.

 

“Fannie
Mae”:  Fannie Mae, or any successor
thereto.

 

11

 

“Fee
Letter”:  The fee and pricing letter,
dated as of the date hereof, between Buyer and Sellers.

 

“Foreclosure
Age”:  With respect to Underlying
Mortgage Loans and Purchased  Mortgage
Loans in foreclosure (or other resolution), the number of days elapsed from the
initial attorney referral date until title to the related REO Property is
vested in PC REO.

 

“Foreclosed
Mortgage Loans”: Any Mortgage Loan in which PMC has released its right,
title and interest in connection with the foreclosure of such Mortgage Loan and
contributed the resulting REO Property to PC REO as support for the Purchased
REO Entity Interests.

 

“Freddie
Mac”:  Freddie Mac, or any successor
thereto.

 

“GAAP”:  Generally accepted accounting principles as
in effect from time to time in the United States, consistently applied.

 

“Governing
Documents”:  With respect to any
Person, its articles or certificate of incorporation or formation, by-laws,
partnership, limited liability company, operating or trust agreement and/or
other organizational, charter or governing documents.

 

“Governmental
Authority”:  Any (a) nation or
government, (b) state or local or other political subdivision thereof,
(c) central bank or similar monetary or regulatory authority,
(d) Person, agency, authority, instrumentality, court, regulatory body,
central bank or other body or entity exercising executive, legislative,
judicial, taxing, quasi-judicial, quasi-legislative, regulatory or
administrative functions or powers of or pertaining to government, (e) court
or arbitrator having jurisdiction over such Person, its Affiliates or its
assets or properties, (f) stock exchange on which shares of stock of such
Person are listed or admitted for trading, (g) accounting board or
authority that is responsible for the establishment or interpretation of
national or international accounting principles, and (h) supra-national
body such as the European Union or the European Central Bank.

 

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

 

“Guarantee
Default”:  Defined in Section 8.12.

 

“Guarantee
Obligation”:  With respect to any
Person (the “guaranteeing person”), any obligation of (a) the
guaranteeing person or (b) another Person (including any bank under any
letter of credit) to induce the creation of the obligations for which the
guaranteeing person has issued a reimbursement, counterindemnity or similar
obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, Contractual Obligation, Derivatives Contract or other
obligations or indebtedness (the “primary obligations”) of any other
third Person (the “primary obligor”) in any manner, whether directly or
indirectly, including any obligation of the guaranteeing person, whether or not
contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation,
or (2) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the primary
obligor, (iii) to purchase property, securities or services 

 

12

 

primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation, or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business.  The amount of any Guarantee Obligation of any
guaranteeing person shall be deemed to be the maximum stated amount of the
primary obligation relating to such Guarantee Obligation (or, if less, the
maximum stated liability set forth in the instrument embodying such Guarantee
Obligation); provided, that in the absence of any such stated amount or
stated liability, the amount of such Guarantee Obligation shall be such
guaranteeing person’s maximum anticipated liability in respect thereof as
reasonably determined by such Person.

 

“Guarantor”:
PennyMac Mortgage Investment Trust, a Maryland real estate investment trust,
together with its permitted successors and assigns.

 

 “Guaranty Agreement”:  The Guaranty Agreement in form and substance
satisfactory to Buyer, made by Guarantor in favor of Buyer in connection with
this Agreement, as the same may be amended, modified or supplemented from time
to time.

 

“High
Cost Mortgage Loan”:  A Mortgage Loan
classified as (a) a “high cost” loan under the Home Ownership and Equity
Protection Act of 1994, (b) a “high cost,” “threshold,” “covered,” or “predatory”
loan under any other applicable state, federal or local law (or a similarly
classified loan using different terminology under a law, regulation or
ordinance imposing heightened regulatory scrutiny or additional legal liability
for residential mortgage loans having high interest rates, points and/or fees)
or (c) a High Cost Loan or Covered Loan, as applicable (as such terms are
defined in the current Standard & Poor’s LEVELS® Glossary Revised, Appendix
E).

 

“HUD”:  The U.S. Department of Housing and Urban
Development.

 

“Income”:  With respect to any Purchased Asset, (in each
case with respect to the entire par amount of the Purchased Asset and not just
with respect to the portion of the par amount represented by the Purchase Price
advanced against such Purchased Asset) all of the following:  (a) all Principal Payments, (b) all
Interest Payments (without duplication of the amounts set forth in clause (f)
with respect to the Underlying Mortgage Loans related to Purchased REMIC
Certificates), (c) all other income, receipts, distributions, dividends,
payments, collections, prepayments, recoveries, proceeds (including insurance
and condemnation proceeds) and other payments or amounts of any kind paid,
received, collected, recovered or distributed on, in connection with or in
respect of such Purchased Asset, including prepayment fees, extension fees,
exit fees, any rental payments, if any, and all proceeds of any Purchased Asset
received upon securitization, liquidation, foreclosure, short sale or other
disposition, transfer fees, make whole fees, late charges, late fees and all
other fees or charges of any kind or nature, premiums, yield maintenance
charges, penalties, default interest, gains, receipts, allocations, rents,
interests, profits, payments in kind, returns or repayment of contributions,
insurance payments, judgments, settlements and proceeds, (d) all payments
received from hedge counterparties pursuant to the portion of any interest rate
protection agreements allocated to such Purchased Asset, if applicable; (e) all
other “proceeds” as defined in Section 9-102(64) of the UCC, including all
collections or distributions thereon or other income or receipts therefrom or
in respect thereof

 

13

 

and
(f) with respect to Purchased REMIC Certificates and Purchased REO Entity
Interests, each of the foregoing amounts collected with respect to the related
Underlying Assets; provided, that any amounts that under the applicable
Asset Documents are required to be deposited into and held in escrow or reserve
to be used for a specific purpose, such as taxes and insurance, shall not be
included in the term “Income” unless and until (i) an event of default
exists under such Asset Documents, (ii) the holder of the related
Purchased Asset or Underlying Asset has exercised or is entitled to exercise
rights and remedies with respect to such amounts, (iii) such amounts are
no longer required to be held for such purpose under such Asset Documents, or
(iv) such amounts may be applied to all or a portion of the outstanding
indebtedness under such Asset Documents.

 

“Indebtedness”:  With respect to any Person and any date, all
of the following with respect to such Person as of such date:  (a) obligations in respect of money
borrowed (including principal, interest, assumption fees, prepayment fees,
yield maintenance charges, penalties, exit fees, contingent interest and other
monetary obligations whether choate or inchoate and whether by loan, the
issuance and sale of debt securities or the sale of property or assets to
another Person subject to an understanding or agreement, contingent or
otherwise, to repurchase such property or assets, or otherwise),
(b) obligations, whether or not for money borrowed (i) represented by
notes payable, letters of credit or drafts accepted, in each case representing
extensions of credit, (ii) evidenced by bonds, debentures, notes or
similar instruments, or (iii) constituting purchase money indebtedness,
conditional sales contracts, title retention debt instruments or other similar
instruments, upon which interest charges are customarily paid or that are
issued or assumed as full or partial payment for property or services rendered,
(c) Capital Lease Obligations, (d) reimbursement obligations under
any letters of credit or acceptances (whether or not the same have been
presented for payment), (e) Off-Balance Sheet Obligations,
(f) obligations to purchase, redeem, retire, defease or otherwise make any
payment in respect of any mandatory redeemable stock issued by such Person or
any other Person (inclusive of forward equity contracts), valued at the greater
of its voluntary or involuntary liquidation preference plus accrued and unpaid
dividends, (g) as applicable, all obligations of such Person (but not the
obligation of others) in respect of any keep well arrangements, credit
enhancements, contingent or future funding obligations under any Purchased
Asset or any obligation senior to any Purchased Asset, unfunded interest
reserve amount under any Purchased Asset or any obligation that is senior to
any Purchased Asset, purchase obligation, repurchase obligation, sale/buy-back
agreement, takeout commitment or forward equity commitment, in each case
evidenced by a binding agreement (excluding any such obligation to the extent
the obligation can be satisfied by the issuance of Equity Interests (other than
mandatory redeemable stock)), (h) net obligations under any Derivatives
Contract not entered into as a hedge against existing indebtedness, in an
amount equal to the Derivatives Termination Value thereof, (i) all
Non-Recourse Indebtedness, recourse indebtedness and all indebtedness of other
Persons that such Person has guaranteed or is otherwise recourse to such
Person, (j) all indebtedness of another Person secured by (or for which
the holder of such indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien (other than certain Permitted Liens) on property or
assets owned by such Person, even though such Person has not assumed or become
liable for the payment of such indebtedness or other payment obligation; provided,
that if such Person has not assumed or become liable for the payment of such
indebtedness, then for the purposes of this definition the amount of such
indebtedness shall not exceed the market value of the property subject to such
Lien, (k) all Contingent Liabilities, (l) all obligations of such
Person incurred in connection with the acquisition or carrying of fixed assets
by such Person or obligations of such Person to pay the 

 

14

 

deferred
purchase or acquisition price of property or assets, including contracts for
the deferred purchase price of property or assets that include the procurement
of services, (m) indebtedness of general partnerships of which such Person
is liable as a general partner (whether secondarily or contingently liable or
otherwise), and (n) obligations to fund capital commitments under any
Governing Document, subscription agreement or otherwise.

 

“Indemnified
Amount”:  Defined in Section 13.01.

 

“Indemnified
Person”:  Defined in Section 13.01.

 

“Independent
Director” or “Independent Manager”: 
An individual who has prior experience as an independent director,
independent manager or independent member with at least three (3) years of
employment experience and who is provided by CT Corporation, Corporation
Service Company, National Registered Agents, Inc., Wilmington Trust
Company, Stewart Management Company, Lord Securities Corporation or, if none of
those companies is then providing professional Independent Directors or
Independent Managers, another nationally recognized company reasonably approved
by Buyer, in each case that is not an Affiliate of a Seller and that provides
professional Independent Directors and Independent Managers and other corporate
services in the ordinary course of its business, and which individual is duly
appointed as a member of the board of directors or board of managers of such
corporation or limited liability company and is not, has never been, and will
not while serving as Independent Director or Independent Manager be, any of the
following:

 

(a)           a member, partner, equity holder,
manager, director, officer or employee of a Seller, any Principal, any of their
respective equity holders or Affiliates (other than (i) as an Independent
Director or Independent Manager of a Seller or Principal and (ii) as an
Independent Director or Independent Manager of an Affiliate of a Seller or
Principal or any of their respective single-purpose entity equity holder that
is not in the direct chain of ownership of a Seller or Principal and that is
required by a creditor to be a single purpose bankruptcy remote entity, provided
that such Independent Director or Independent Manager is employed by a company
that routinely provides professional Independent Directors or Independent
Managers);

 

(b)           a creditor, supplier or service
provider (including provider of professional services) to a Seller, any
single-purpose entity equity holder, or any of their respective equity holders
or Affiliates (other than a nationally-recognized company that routinely
provides professional Independent Directors or Independent Managers and other
corporate services to a Seller, any single-purpose entity equity holder, or any
of their respective equity holders or Affiliates in the ordinary course of
business);

 

(c)           a family member of any such member,
partner, equity holder, manager, director, officer, employee, creditor,
supplier or service provider; or

 

(d)           a Person that controls (whether
directly, indirectly or otherwise) any of the individuals described in the
preceding clauses (a), (b) or (c).

 

An
individual who otherwise satisfies the preceding definition other than
clause (a) by reason of being the Independent Director or Independent
Manager of a “special purpose entity” affiliated with a Seller or Principal
shall not be disqualified from serving as an Independent Director or 

 

15

 

Independent
Manager of a Seller or Principal if the fees that such individual earns from
serving as Independent Directors or Independent Managers of affiliates of a
Seller or Principal in any given year constitute in the aggregate less than 5%
of such individual’s annual income for that year.

 

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

 

“Ineligibility
Remedies”:  Has the meaning set forth
in Section 3.04 hereof.

 

“Insolvency
Action”:  With respect to any Person,
the taking by such Person of any action resulting in an Insolvency Event, other
than solely under clause (g) of the definition thereof.

 

“Insolvency
Event”:  With respect to any Person,
(a) the filing of a decree or order for relief by a court having
jurisdiction in the premises with respect to such Person or any substantial
part of its assets or property in an involuntary case under any applicable
Insolvency Law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar official for
such Person or for any substantial part of its assets or property, or ordering
the winding-up or liquidation of such Person’s affairs, and such decree or
order shall remain unstayed and in effect for a period of thirty
(30) days, (b) the commencement by such Person of a voluntary case
under any applicable Insolvency Law now or hereafter in effect, (c) the
consent by such Person to the entry of an order for relief in an involuntary
case under any Insolvency Law, (d) the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official for such Person or for any
substantial part of its assets or property, (e) the making by such Person
of any general assignment for the benefit of creditors, (f) the admission
in a legal proceeding of the inability of such Person to pay its debts
generally as they become due, (g) the failure by such Person generally to
pay its debts as they become due, or (h) the taking of action by such
Person in furtherance of any of the foregoing.

 

“Insolvency
Proceeding”:  Any case, action or
proceeding before any court or other Governmental Authority relating to any
Insolvency Event.

 

“Insolvency
Laws”:  The Bankruptcy Code and all
other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of payments
and similar debtor relief laws from time to time in effect affecting the rights
of creditors generally.

 

“Interest
Payments”:  With respect to any
Purchased Mortgage Loan or Underlying Mortgage Loan, all payments of interest,
including default interest, received from time to time.

 

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

 

16

 

“Internal
Control Event”:  Material weakness
in, or fraud that involves management or other employees who have a significant
role in, the internal controls of any Seller, Guarantor or any Affiliate
thereof over financial reporting, in each case as described in the Securities
Laws.

 

“Interest
Reserve Account”:  The Mortgage Loan
Interest Reserve Account or the REO Property Interest Reserve Account, as the
context may require.

 

“Investment”:  With respect to any Person, any acquisition
or investment (whether or not of a controlling interest) by such Person,
whether by means of (a) the purchase or other acquisition of any Equity
Interest in another Person, (b) a loan, advance or extension of credit to,
capital contribution to, guaranty or credit enhancement of Indebtedness of, or
purchase or other acquisition of any Indebtedness of, another Person, including
any partnership or joint venture interest in such other Person, or (c) the
purchase or other acquisition (in one transaction or a series of transactions)
of assets of another Person that constitute the business or a division or
operating unit of another Person.  Any
binding commitment or option to make an Investment in any other Person shall
constitute an Investment.  Except as
expressly provided otherwise, for purposes of determining compliance with any
covenant contained in this Agreement, the amount of any Investment shall be the
amount actually invested, without adjustment for subsequent increases or
decreases in the value of such Investment.

 

“Investment
Advisor”: PNMAC Capital Management, LLC, together with its permitted
successors and assigns.

 

“Investment
Advisor Agreement”: That certain management agreement, dated as of August 4,
2009, by and among Guarantor, PennyMac Operating Partnership, L.P. and
Investment Advisor and all amendments, modifications and supplements thereto.

 

“Investment
Advisor Side Letter”:  The side
letter agreement to be entered into among Buyer, Sellers and Investment Advisor
as of the date hereof, in the form attached hereto as Exhibit G
hereof or such other form that is acceptable to Buyer, pursuant to which the
manner in which the Investment Advisor shall take direction from Buyer with
respect to its management of the Purchased Assets and Underlying Assets shall
be set forth after an Event of Default and certain other events set forth
therein.

 

“Investment
Company Act”:  The Investment Company
Act of 1940, as amended, restated or modified from time to time

 

“Knowledge”:  With respect to any Person, means
collectively (i) the Actual Knowledge of such Person, (ii) notice of
any fact, event, condition or circumstance that would cause a reasonably
prudent Person to conduct an inquiry that would give such Person Actual
Knowledge, whether or not such Person actually undertook such an inquiry, and (iii) all
knowledge that is imputed to a Person under any statute, rule, regulation,
ordinance, or official decree or order.

 

“LIBOR”:  For any Pricing Period, the rate (expressed
as a percentage per annum and rounded upward, if necessary, to the next nearest
1/100 of 1%) for deposits in Dollars, for a one-month period, that appears on
Reuters Screen LIBOR01 (or the successor thereto) as the London interbank
offered rate for deposits in Dollars as of 11:00 a.m., London time, on the
Pricing Rate Reset Date for such Pricing Period.  If such rate does not appear on Reuters
Screen LIBOR01 as 

 

17

 

of
11:00 a.m., London time, on such Pricing Rate Reset Date, Buyer shall
request the principal London office of the Reference Banks selected by Buyer to
provide such banks’ offered quotation (expressed as a percentage per annum) to
leading banks in the international Eurocurrency market for deposits in Dollars
for a one-month period as of 11:00 a.m., London time, on such Pricing Rate
Reset Date for amounts of not less than the Aggregate Purchase Price.  If at least two such offered quotations are
so provided, LIBOR shall be the arithmetic mean of such quotations.  If fewer than two such quotations are so
provided, Buyer shall request any three major banks in New York City selected
by Buyer to provide such banks’ rate (expressed as a percentage per annum) for
loans in Dollars to leading banks in the international Eurocurrency market for
a one-month period as of approximately 11:00 a.m., New York City time on
the applicable Pricing Rate Reset Date for amounts of not less than the
Aggregate Purchase Price of all Purchased Assets.  If at least two such rates are so provided,
LIBOR shall be the arithmetic mean of such rates.

 

“LIBO
Rate”:  For any Pricing Period, the
rate (expressed as a percentage per annum and rounded upward, if necessary, to
the next nearest 1/100 of 1%) determined for such Pricing Period in accordance
with the following formula:

 

LIBOR
for such Pricing 

Period

1
- Reserve Requirement

 

“Lien”:  Any mortgage, statutory or other lien,
pledge, charge, right, claim, adverse claim, attachment, levy, hypothecation,
assignment, deposit arrangement, security interest, UCC financing statement or
encumbrance of any kind on or otherwise relating to any Person’s assets or
properties in favor of any other Person or any preference, priority or other
security agreement or preferential arrangement of any kind.

 

“Management
Fees”:  The management fees due to
the Investment Advisor pursuant to the Investment Advisor Agreement.  For any date of determination such fees shall
be estimated with respect to the Purchased Mortgage Loans and Underlying Assets
on an asset-by-asset basis pursuant to an allocation method acceptable to
Buyer.

 

“Margin
Call”:  Defined in Section 4.01.

 

“Margin
Call Notice”:  A notice from Buyer to
the applicable Seller(s), at any time, specifying the occurrence of a Margin
Deficit and a Margin Call Trigger Event and the amount of cash required to be
paid  by each such Seller pursuant to Section 4.01(a).

 

“Margin
Call Trigger Event”:  If at any time
any of the following shall occur:

 

(a)           on a static pool basis, the weighted
average Foreclosure Age exceeds one hundred twenty (120%) percent of the
then-current average state foreclosure timeline values, published by Lender
Processing Services, Inc. (“LPS”) as set forth in Schedule 5
(which values are subject to amendment by LPS) as weighted by the Market Value
of the applicable Purchased Mortgage Loans and Underlying Mortgage Loans;

 

18

 

(b)           the weighted average monthly trailing
90-day roll rate for REO Properties supporting Purchased REO Entity Interests
to reach final liquidation or resolution is less than 12.5% (static pool);

 

(c)           the ratio of the Aggregate Purchase
Price to the aggregate BPO Values of the Purchased Mortgage Loans and
Underlying Assets exceeds 35% at any time. 
For purposes of this test, the BPO Value to be used shall be the lower
of the most recent automated or manually reconciled BPO Value on the system of
record;

 

(d)           (i) the weighted average monthly
trailing ninety (90) day Net Liquidation Proceeds for the Purchased Mortgage
Loans and Underlying Assets with respect to which the related Mortgage Loan or
related Mortgaged Property have been sold, liquidated or otherwise disposed of
during such 90-day period, calculated as the Net Liquidation Proceeds for such
Assets, minus (ii) the sum of (x) the Purchase Price paid by Buyer
for such Assets plus (y) all expenses for such Assets since the related
Purchase Date, is less than or equal to zero at any time, with such weighted
average being based on the Purchase Price of each such Asset;

 

(e)           the aggregate dollar value of all
Sales and Dispositions of Purchased Mortgage Loans and Underlying Assets since (a) the
most recent Margin Call or (b) the Closing Date (to the extent a Margin
Call has never occurred) exceeds 5% of the Aggregate Purchase Price;

 

(f)            the aggregate dollar value of all
repurchases of Purchased Mortgage Loans and Underlying Assets by Sellers
(measured by Repurchase Price) since (a) the most recent Margin Call or (b) the
Closing Date (to the extent a Margin Call has never occurred) exceeds 5% of the
Aggregate BPO Value; or

 

(g)           a Default or an Event of Default.

 

“Margin
Deficit”:  Defined in Section 4.01.

 

“Market
Disruption Event”:  Any event or
events that, in the determination of Buyer, results in (a) a significant
deterioration of the “repo market” or related “lending market” for purchasing
(subject to repurchase) or financing debt obligations secured by residential
mortgage loans from the status of such markets on the Closing Date,
(b) the effective absence of a “market” in the manner that exists as of
the Closing Date, for assets of the type similar to the Purchased Assets and
Underlying Assets, (c) Buyer’s not being able to sell the Purchased Assets
at prices that would have been reasonable as of the Closing Date due to the
occurrence of such event or events since the Closing Date, or (d) the
imposition of a foreclosure moratorium or regulatory changes, the effect of
which would be to materially impair Buyer’s ability to realize on the Purchased
Assets and Underlying Assets.

 

“Market
Value”:  With respect to any
Purchased Mortgage Loan or Underlying Asset, the value, determined by Buyer,
thereof (including the related Servicing Rights in the case of Mortgage Loans
and Underlying Mortgage Loans) if sold in their entirety to a single
third-party purchaser taking into account the fact that the Purchased Assets
and/or the Underlying Assets may be sold under circumstances in which a Seller,
as originator or servicer of the Assets is in default under this
Agreement.  Buyer’s determination of
Market Value shall be conclusive upon 

 

19

 

the
parties, absent manifest error on the part of Buyer.  Buyer shall have the right to mark to market
the Purchased Mortgage Loans and Underlying Assets on a daily basis, which
Market Value with respect to one or more of the Purchased Mortgage Loans and
Underlying Assets may be determined to be zero. Sellers acknowledge that Buyer’s
determination of Market Value is for the limited purpose of determining the
value of Purchased Mortgage Loans and Underlying Assets which are subject to
Transactions hereunder without the ability to perform customary purchaser’s due
diligence and is not necessarily equivalent to a determination of the fair
market value of the Purchased Mortgage Loans and Underlying Assets achieved by
obtaining competing bids in an orderly market in which the originator/servicer
is not in default under a revolving debt facility and the bidders have adequate
opportunity to perform customary asset and servicing due diligence.  For the purpose of determining the related
Market Value, Buyer shall have the right to request at any time from Sellers an
updated valuation for each Purchased Mortgage Loan and Underlying Asset, in a
form acceptable to Buyer. 
Notwithstanding anything else in this definition, the Market Value shall
be deemed to be zero with respect to each Purchased Asset or Underlying Asset
for which such valuation is not provided and with respect to which:

 

(a)           the requirements of the definition of
Eligible Asset are not satisfied, as determined by Buyer;

 

(b)           a Representation Breach exists, as
determined by Buyer;

 

(c)           any statement, affirmation or
certification made or information, document, agreement, report or notice
delivered by Sellers, Servicer or Guarantor to Buyer is untrue in any material
respect;

 

(d)           any Retained Interest, funding
obligation or any other obligation of any kind has been transferred to Buyer;

 

(e)           Sellers fail to repurchase such
Purchased Asset by the Repurchase Date;

 

(f)            Buyer determines that a Material
Adverse Effect has occurred, including, but
not limited to, litigation (other than foreclosure proceedings) involving any
Purchased Asset;

 

(g)           all Asset Documents have not been
delivered to Custodian within the time periods required by this Agreement and
the Custodial Agreement;

 

(h)           any material Asset Document with
respect to a Purchased Mortgage Loan or a Purchased REMIC Certificate has been
released from the possession of Custodian under the Custodial Agreement to a
Seller for more than ten (10) days;

 

(i)            A Seller or Servicer fails to deliver
any reports required hereunder where such failure adversely affects the Market
Value thereof or Buyer’s ability to determine Market Value therefor; or

 

(j)            there is a material exception in the
trust receipt or bailee letter or Buyer has not received a trust receipt or
bailee letter.

 

20

 

For
the sake of clarity, the Market Value of any REMIC Certificates or the REO
Entity Interests on any date shall be calculated with respect to the aggregate
Market Value of the Underlying Assets related to such REMIC Certificates or REO
Entity Interests as of such date.

 

“Master
Servicer”:  The Corporate Trust
Services Division of Wells Fargo Bank, N.A., and its successors and assigns.

 

“Material
Adverse Effect”:  A material adverse
effect on or material adverse change in or to (a) the property, assets,
business, operations, financial condition, credit quality or prospects of any
Seller, Guarantor, Servicer or any Affiliate thereof, (b) the ability of a
Seller to pay and perform the Repurchase Obligations, (c) the validity,
legality, binding effect or enforceability of any Repurchase Document, Asset
Document, Purchased Asset or security interest granted hereunder or thereunder,
(d) the rights and remedies of Buyer or any Indemnified Person under any
Repurchase Document, Asset Document or Purchased Asset, (e) the Market
Value, rating (if applicable), liquidity or other aspect of a material portion
of the Purchased Assets and Underlying Assets, as determined by Buyer, or
(f) the perfection or priority of any Lien granted under any Repurchase
Document or Asset Document.

 

“Materials
of Environmental Concern”:  Any
hazardous, toxic or harmful substances, materials, wastes, pollutants or
contaminants defined as such in or regulated under any Environmental Law.

 

“Maturity
Date”:  The earliest of (a) the
three-hundred-sixty-fourth (364th) day following the Closing Date; (b) any
Accelerated Repurchase Date and (c) any date on which the Maturity Date
shall otherwise occur in accordance with the Repurchase Documents or
Requirements of Law.

 

“Maximum
Aggregate Purchase Price”:  An amount
equal to $100,000,000.

 

“Maximum
Applicable Percentage”:  The meaning
set forth in the Fee Letter, which definition is incorporated by reference
herein.

 

“MERS
Loan”: Any Mortgage Loan as to which the related Mortgage or Assignment of
Mortgage has been recorded in the name of MERS, as agent for the holder from
time to time of the Mortgage Note, and which is identified as a MERS Loan on
the related Mortgage Loan Schedule.

 

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

 

“Moody’s”:  Moody’s Investors Service, Inc. or, if
Moody’s Investors Service, Inc. is no longer issuing ratings, another
nationally recognized rating agency reasonably acceptable to Buyer.

 

“Mortgage”:  Any mortgage, deed of trust, assignment of
rents, security agreement and fixture filing, or other instruments creating and
evidencing a lien on real property and other property and rights incidental
thereto.

 

21

 

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

 

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

 

“Mortgage
File”:  The meaning set forth  in the Custodial Agreement, which definition
is incorporated by reference herein.

 

“Mortgage
Loan”:  Any fixed rate or adjustable
rate and closed-end one-to-four-family residential mortgage loan or closed-end
line of credit that is current (including any modified loans), delinquent
and/or in the process of imminent foreclosure and secured by a first Lien
Mortgage and which the Custodian has been instructed to hold for Buyer or the Class A
Participant pursuant to the Custodial Agreement, and which Mortgage Loan
includes, without limitation, (i) a Mortgage Note, the related Mortgage and
all other Mortgage Loan Documents and (ii) all right, title and interest
of the related Seller in and to the Mortgaged Property covered by such
Mortgage.

 

“Mortgage
Loan Documents”:  With respect to any
Mortgage Loan, those documents identified in the Custodial Agreement and
executed in connection with, evidencing or governing such Mortgage Loan and the
related Underlying Mortgaged Property and which are required to be delivered to
Custodian under the Custodial Agreement.

 

“Mortgage
Loan Interest Reserve Account”:  The
separate trust account established by Sellers and maintained pursuant to this
Agreement for the benefit of the Buyer, which shall at all times contain funds
in an amount equal to the Required Amount with respect to Purchased Mortgage
Loans, to be held for the benefit of the Buyer. 
The Mortgage Loan Interest Reserve Account shall be established with the
Account Bank and shall be subject to an Account Control Agreement.  Interest earnings in respect of funds on
deposit in the Mortgage Loan Interest Reserve Account shall be held for the pro
rata benefit of the Sellers.

 

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

 

“Mortgage
Note”:  The original executed
promissory note or other evidence of the indebtedness of a Mortgagor with
respect to a Mortgage Loan.

 

“Mortgaged
Property”:  The real property
(including all improvements, buildings, fixtures, building equipment and
personal property thereon and all additions, alterations and replacements made
at any time with respect to the foregoing) and all other collateral securing
repayment of the indebtedness evidenced by a Mortgage Note.

 

“Mortgagee”:  The record holder of a Mortgage Note secured
by a Mortgage.

 

22

 

“Mortgagor”:  The obligor on a Mortgage Note, including any
Person who has assumed or guaranteed the obligations of the obligor thereunder.

 

“Multiemployer
Plan”:  A multiemployer plan as
defined in Section 4001(a)(3) of ERISA as to which any Seller,
Guarantor or any ERISA Affiliate has made or is required to make contributions
or has any actual or potential liability.

 

“Negative
Amortization”: With respect to each Negative Amortization Loan, that
portion of interest accrued at the Mortgage Interest Rate in any month which
exceeds the Monthly Payment on the related Mortgage Loan for such month and
which, pursuant to the terms of the Mortgage Note, is added to the principal
balance of the Mortgage Loan.

 

“Negative
Amortization Loan”: Each Mortgage Loan that may be subject to Negative
Amortization.

 

“Net
Income”:  With respect to any Person
for any period, the net income of such Person for such period as determined in
accordance with GAAP.

 

“Net
Liquidation Proceeds”: All amounts received in respect of Principal
Payments on and any other proceeds of any sale, liquidation or other
disposition of a Purchased Mortgage Loan or Underlying Asset.

 

“Non-Recourse
Indebtedness”:  With respect to any
Person and any date, indebtedness of such Person as of such date for borrowed
money in respect of which recourse for payment (except for customary exceptions
for fraud, misapplication of funds, environmental indemnities, Insolvency
Events, non-approved transfers or other events) is contractually limited to
specific assets of such Person encumbered by a Lien securing such Indebtedness.

 

“Nonrecoverable Advance”:
Any Servicing Advance previously made or proposed to be made in respect of a
Purchased Mortgage Loan or any Underlying Asset, which in the good faith
judgment of the Servicer, will not or, in the case of a proposed advance, would
not, be ultimately recoverable from related Income or otherwise from such
Purchased Mortgage Loan or any Underlying Asset. The determination by the
Servicer that it has made a Nonrecoverable Advance or that any proposed
Servicing Advance or advance of principal and interest, if made, would
constitute a Nonrecoverable Advance shall be evidenced by an officer’s
certificate delivered to the Buyer.

 

“Non-Performing
Mortgage Loan”: A Mortgage Loan for which any payment of principal or
interest is thirty (30) or more days contractually delinquent (without regard
to any applicable grace period).

 

“Off-Balance
Sheet Obligations”:  With respect to
any Person and any date, to the extent not included as a liability on the
balance sheet of such Person, all of the following with respect to such Person
as of such date:  (a) monetary
obligations under any financing lease or so-called “synthetic,” tax retention
or off-balance sheet lease transaction that, upon the application of any
Insolvency Laws, would be characterized as indebtedness, (b) monetary
obligations under any sale and leaseback transaction that does not create a
liability on the balance sheet of such Person, or (c) any other monetary
obligation arising with respect to any other transaction that (i) is

 

23

 

characterized
as indebtedness for tax purposes but not for accounting purposes, or
(ii) is the functional equivalent of or takes the place of borrowing but
that does not constitute a liability on the balance sheet of such Person (for
purposes of this clause (c), any transaction structured to provide tax
deductibility as interest expense of any dividend, coupon or other periodic
payment will be deemed to be the functional equivalent of a borrowing).

 

“Participant”:  Defined in Section 18.08(b).

 

“Participation
Account”: Any account established by PMC at the Account Bank in the name of
the PMC for the benefit of the applicable REMIC   and REMIC Certificates (as defined in the
related REMIC Declaration Agreement), the account information for which is set
forth on Schedule I of such REMIC Declaration Agreement, and may be changed
from time to time at the written instruction of PMC after the Release Date (as
defined in the REMIC Declaration Agreement), which account is subject to an
Account Control Agreement.

 

“Patriot
Act”:  The Uniting and Strengthening
America by Providing Appropriate Tools Required to Intercept and Obstruct
Terrorism Act of 2001.

 

“Pay-Option
ARM”:  An adjustable rate mortgage
with flexible payment options (a) pursuant to which the Mortgagor may pay
an initial low rate for the initial Monthly Payments and a substantially higher
rate in the later years of such Mortgage and (b) that is acceptable to
Buyer.

 

“PC
REO”:   PC REO Trust, together with
its permitted successors and assigns.

 

“PC
REO Trust Agreement”:  That certain
Trust Agreement executed and delivered by REO Trustee and PMC, as the same may
be further amended or modified with the written consent of Buyer.

 

“Permitted
Liens”:  Any of the following as to
which no enforcement, collection, execution, levy or foreclosure proceeding has
been commenced:  (a) Liens for
state, municipal, local or other local taxes not yet due and payable,
(b) Liens imposed by Requirements of Law, such as materialmen’s, mechanics’,
carriers’, workmen’s, repairmen’s and similar Liens, arising in the ordinary
course of business securing obligations that are not overdue for more than
thirty (30) days, and (c) Liens granted pursuant to or by the
Repurchase Documents.

 

“Person”:  An individual, corporation, limited liability
company, business trust, partnership, trust, unincorporated organization, joint
stock company, sole proprietorship, joint venture, Governmental Authority or
any other form of entity.

 

“Plan”:  An employee benefit plan as defined in Section 3(3) of
ERISA, subject to Title I of ERISA in respect of which any Seller, Servicer,
Guarantor or any ERISA Affiliate thereof has any actual or potential liability
or, if such plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be, an “employer” as defined in Section 3(5) of
ERISA.

 

“PMC”:
PennyMac Corp., together with its permitted successors and assigns.

 

24

 

“PMI
Policy” or “Primary Insurance Policy”:  A policy of primary mortgage guaranty
insurance issued by a Qualified Insurer.

 

“PMIT”:
PennyMac Mortgage Investment Trust Holdings I, LLC, together with its permitted
successors and assigns.

 

“PMOP”:
PennyMac Operating Partnership, L.P., together with its permitted successors
and assigns.

 

“Price
Differential”:  For any Pricing
Period or portion thereof and (a) for any Purchased Mortgage Loan, any
Purchased REMIC Certificate (calculated with respect to each Underlying
Mortgage Loan) or the Purchased REO Entity Interests (calculated with respect
to each Underlying REO Property) the sum of the products for each day during
such Pricing Period or portion thereof, of (i) 1/360th of the applicable Pricing Rate in effect for
such Asset on such day, times (ii) the Purchase Price for such Asset, (b) for
any outstanding Transaction, the sum of the products, for each day during such
Pricing Period or portion thereof, of (i) 1/360th of the applicable
Pricing Rate in effect for each Purchased Asset (including the Underlying
Assets) subject to such Transaction on such day, times (ii) the Purchase
Price for such Purchased Asset (including the Underlying Assets), or
(c) for all Transactions outstanding, the sum of the amounts calculated in
accordance with the preceding clause (b) for all Transactions.

 

“Pricing
Margin”:  The meaning set forth  in the Fee Letter, which definition is
incorporated by reference herein.

 

“Pricing
Period”:  For any Purchased Asset,
(a) in the case of the first Remittance Date, the period from the Purchase
Date for such Purchased Asset to but excluding the related Pricing Period End
Date, and (b) in the case of any subsequent Remittance Date, the one-month
period commencing on and including the prior Pricing Period End Date and ending
on but excluding such Pricing Period End Date; provided, that no Pricing
Period for a Purchased Asset shall end after the Repurchase Date for such
Purchased Asset.

 

“Pricing
Period End Date”: Two (2) Business Days prior to the related
Remittance Date.

 

“Pricing
Rate”:  For any Pricing Period, the
LIBO Rate for such Pricing Period plus the applicable Pricing Margin, which
shall be subject to adjustment and/or conversion as provided in Sections 12.01
and 12.02; provided, that while an Event of Default exists, the
Pricing Rate shall be the Default Rate.

 

“Pricing
Rate Reset Date”:  (a) In the
case of the first Pricing Period for any Purchased Asset, the Purchase Date for
such Purchased Asset, and (b) in the case of any subsequent Pricing
Period, the related Pricing Period End Date or on any other date as determined
by Buyer, as communicated to Sellers. 
The failure to communicate shall not impair the Buyer’s decision to
reset the Pricing Rate on any date.

 

“Principal
Payments”:  With respect to any
Mortgage Loans or REO Property, as applicable, all payments and prepayments of
principal, including insurance and condemnation proceeds and actual recoveries
received from liquidation or foreclosure, received from time to time.

 

25

 

“Protective Servicing
Advances”:  All customary, reasonable
and necessary “out-of-pocket” costs and expenses (including reasonable
attorneys’ fees and disbursements) incurred (regardless if any such advance is
not, in the reasonable determination of the Servicer, a Nonrecoverable Advance
when made but, thereafter, becomes a Nonrecoverable Advance) 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 Underlying
Mortgaged Property, (b) any fees relating to any enforcement or judicial
proceedings, (c) any appraisals, valuations, broker price opinions,
inspections, or environmental assessments, (d) the management and
liquidation of Underlying Mortgaged Property if the Underlying Mortgaged Property
is acquired in satisfaction of the related Mortgage, (e) taxes,
assessments, water rates, sewer rents, mortgage insurance premiums, fire and
hazard insurance premiums, flood insurance premiums and other charges which are
or may become a lien upon Underlying Mortgaged Property, and (g) executing
and recording instruments of satisfaction, deeds of reconveyance.

 

“Purchase Agreement”:  Any purchase agreement between any Seller and
any Transferor pursuant to which such Seller purchased or acquired a Mortgage
Loan which is subsequently sold to Buyer hereunder.

 

“Purchase
Date”:  For any Purchased Asset or
REO Property, the date on which such Purchased Asset is transferred by Sellers
to Buyer or, as applicable, the date on which Buyer pays an amount of additional
Purchase Price to Sellers in accordance with this Agreement with respect to
such REO Property.

 

“Purchase
Price”:  For any Purchased Asset, (a) as
of the Purchase Date for such Purchased Asset, an amount equal to the product
of the Market Value of such Purchased Asset, times the Applicable Percentage
for such Purchased Asset and (b) as of any other date, the amount
described in the preceding clause (a), as reduced by (i) any amount of
Margin Deficit transferred by Sellers to Buyer pursuant to Section 4.01
(or paid by Guarantor under the Guaranty Agreement) and applied to the Purchase
Price of such Purchased Asset, (ii) any Principal Payments remitted to the
Waterfall Account and which were applied to the Purchase Price of such
Purchased Asset by Buyer pursuant to clause sixth of Section 5.02(a)(I) and
clause ninth of Section 5.02(a)(II) and
Sections 5.02(b) and (c), and (iii) any payments made
by Sellers in reduction of the outstanding Purchase Price, in each case before
or as of such determination date with respect to such Purchased Asset, and, in
the case of Purchased REO Entity Interests, Purchased REMIC Certificates and
Purchased Mortgage Loans, as further increased or reduced, as applicable,
pursuant to Section 3.01(g). 
For the sake of clarity, the Purchase Price for any REMIC Certificates
or the REO Entity Interests on any date shall be calculated with respect to the
Underlying Mortgage Loans supporting such REMIC Certificates or REO Properties
underlying such REO Entity Interests, as the case may be, as of such date.

 

“Purchased
Assets”:  (a)  For any
Transaction, each Asset that is a Mortgage Loan, REMIC Certificate or REO
Entity Interest sold by Sellers to Buyer in such Transaction, (b) for the
Transactions in general, all Assets that are Mortgage Loans, REMIC Certificates
or REO Entity Interests sold by Sellers to Buyer, and (c) any Additional
Purchased Assets that are Mortgage Loans, REMIC Certificates or REO Entity
Interests transferred to Buyer pursuant to Section 4.01, in each
case including, to the extent related, all of Sellers’ right, title and
interest in and to (i) all Records, (ii) mortgage guaranties and
insurance (issued by Governmental 

 

26

 

Authorities
or otherwise) and claims, payments and proceeds thereunder, including but not
limited to, any payments or proceeds under any related PMI Policy and hazard
insurance, (iii) insurance policies, certificates of insurance and claims,
payments and proceeds thereunder, (iv) the principal balance of any such
Mortgage Loan, not just the amount advanced, (v) amounts and property from
time to time on deposit in the Waterfall Account, and each Interest Reserve
Account and the Waterfall Account, and each Interest Reserve Account
themselves, (vi) collection, escrow, reserve, collateral or lock-box
accounts and all amounts and property from time to time on deposit therein, to
the extent of Sellers’ or the holder’s interest therein, (vii) all Income
and all rights to receive Income, (viii) security interests of each Seller
in Derivatives Contracts entered into by Underlying Obligors, (ix) rights
of each Seller under any letter of credit, guarantee, warranty, indemnity,
hedging arrangements, or other credit support or enhancement, (x) the
portion of the interest rate protection agreements allocated to any such
Mortgage Loans (if applicable), (xi) all rights to receive from any third
party or to take delivery of any Records or other documents which constitute a
part of the Asset Document or Servicing File, (xii) Servicing Rights (but
for the avoidance of doubt, excluding Servicing Rights with respect to any
Underlying Mortgage Loans which are pledged separately to Buyer as provided in Section 11.01(b),
and (xiii) all related contracts, collateral and supporting obligations of
any kind; provided, that (A) Purchased Assets shall not include any
Underlying Assets or any Retained Interests, and (B) for purposes of the
grant of security interest by each Seller to Buyer and the other provisions of Article 11,
Purchased Assets shall include all of the following:  general intangibles, accounts, chattel paper,
deposit accounts, securities accounts, instruments, securities, financial
assets, uncertificated securities, security entitlements and investment
property (as such terms are defined in the UCC) and replacements,
substitutions, conversions, distributions or proceeds relating to or
constituting any of the items described in the preceding clauses (i) through
(xiv).

 

“Purchased
Asset Data Summary”: A monthly report with respect to the Purchased Assets
and Underlying Assets in the form of Exhibit L attached hereto.

 

“Purchased
Mortgage Loan”:  Any Purchased Asset
that is a Mortgage Loan.

 

“Purchased
REMIC Certificate”:  Any Purchased
Asset that is a REMIC Certificate.

 

“Purchased
REO Entity Interests”:  Any Purchased
Assets that are REO Entity Interests.

 

“Qualified
Insurer”:  A mortgage guaranty or
hazard insurance company reasonably acceptable to Buyer and duly authorized and
licensed where required by law to transact mortgage guaranty insurance business
and approved as an insurer by Fannie Mae or Freddie Mac.

 

“Qualified
Trustee”: A trustee which is (i) (a) a national bank or (b) a
nationally recognized trust company and (ii) not an Affiliate of any
Seller, Servicer or Guarantor.

 

“Rating
Agencies”:  Each of Fitch, Inc.,
Moody’s and S&P.

 

“Records”:
All instruments, agreements and other books, records, and reports and data
generated by other media for the storage of information maintained by Sellers
or any other person or entity with respect to a Purchased Asset.  Records shall include the Mortgage Notes, any
Mortgages, the Asset Documents, the Servicing Files, the Servicing Records, the
credit files 

 

27

 

related
to each Mortgage Loan and any other instruments necessary to document or
service such Mortgage Loan or manage an REO Property.

 

“Recourse
Limit”:  Has the meaning assigned
thereto in the Guaranty Agreement.

 

“Reference
Banks”:  Banks each of which shall
(a) be a leading bank in the international Eurocurrency market, and
(b) have an established place of business in London.  Initially, the Reference Banks shall be
JPMorgan Chase Bank, Barclays Bank, PLC and Deutsche Bank AG.  If any such Reference Bank should be unwilling
or unable to act as such or if Buyer shall terminate the appointment of any
such Reference Bank or if any of the Reference Banks should be removed from the
Reuters Monitor Money Rates Service or in any other way fail to meet the
qualifications of a Reference Bank, Buyer may designate alternative banks
meeting the criteria specified in the preceding clauses (a) and (b).

 

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

 

“REIT
Status”: With respect to any Person, such Person’s status as a real estate
investment trust, as defined in Section 856(a) of the Code, that
satisfies the conditions and limitations set forth in Section 856(b) and
856(c) of the Code.

 

“Release”:  Any generation, treatment, use, storage,
transportation, manufacture, refinement, handling, production, removal,
remediation, disposal, presence or migration of Materials of Environmental
Concern on, about, under or within all or any portion of any property or
Mortgaged Property.

 

“Remedial
Work”:  Any investigation,
inspection, site monitoring, containment, clean-up, removal, response,
corrective action, mitigation, restoration or other remedial work of any kind
or nature because of, or in connection with, the current or future presence,
suspected presence, Release or threatened Release in or about the air, soil,
ground water, surface water or soil vapor at, on, about, under or within all or
any portion of any property or Mortgaged Property of any Materials of
Environmental Concern, including any action to comply with any applicable
Environmental Laws or directives of any Governmental Authority with regard to
any Environmental Laws.

 

“REMIC
Certificate”:  All certificated
participation interests issued by PMC under a REMIC Declaration Agreement that
represent the 100% beneficial interests in one or more Mortgage Loans owned by
PMC, which is a Class A Participation, and as to which a REMIC election
has been or will be made under Section 860D(b)(1) of the Code.

 

“REMIC
Certificate Documents”: With respect to any Purchased REMIC
Certificate:  (A) a copy of the
executed REMIC Declaration Agreement governing such REMIC Certificate,
certified by Sellers as a true, correct and complete copy of the original, and
all ancillary documents required to be delivered to the certificateholders
thereunder, (B) the Mortgage Loan Documents with respect to each of the
related Underlying Mortgage Loans, (C) the REMIC Certificate and related
documents in accordance with Section 6.02(d), (D) all related
Transfer Documents, and (E) any other documents or instruments necessary
in the reasonable opinion of the Buyer to effect and perfect a legally valid
transfer of the relevant interest granted therein to the Buyers under the
Program Documents.

 

28

 

“REMIC
Declaration Agreement”: Each REMIC Declaration, Servicing and Participation
Agreement entered into among PMC, PMIT, PMOP and Servicer, each in form and
substance satisfactory to Buyer, as the same may be amended, modified or
supplemented from time to time pursuant to which (i) REMIC Certificates
are issued, and (ii) the Servicer is appointed as the servicer and is
responsible for the administration, collection and servicing of the related
Underlying Mortgage Loans.  Each such
REMIC Declaration Agreement shall be certified by Sellers as a true, correct
and complete copy of the original.

 

“Remittance
Date”:  The 22nd day of each month (or if such day is not a
Business Day, the next following Business Day, or if such following Business
Day would fall in the following month, the next preceding Business Day), or
such other day as is mutually agreed to by Sellers and Buyer.

 

“Removed
Mortgage Loans”: Any Underlying Mortgage Loan which is removed from the
pool of mortgage loans supporting a Purchased REMIC Certificate in accordance
with the related REMIC Declaration Agreement on a Conversion Date and held by
PMC.

 

“REO
Aging”:  With respect to any REO
Property, the number of days elapsed from the related foreclosure sale date
until the sale or disposition of such REO Property.

 

“REO
Collection Account”: The Certificate Distribution Account as defined in and
as established  pursuant to the Trust
Agreement for the benefit of PC REO, into which Servicer shall direct all
Income received with respect to the Purchased REO Entity Interests to be
deposited.

 

“REO
Deed”:  With respect to each REO
Property that is acquired by PC REO, the instrument or document required by the
law of the jurisdiction in which the REO Property is located to convey fee
title and identified on the related REO Property Schedule.

 

“REO
Entity Interests”:  100% of the
Capital Stock of PC REO, together with such interests, options or rights of any
nature whatsoever which may be issued or granted by PC REO to PMC while this
Agreement is in effect.  Capital Stock of
PC REO shall be represented by a single trust certificate issued by PC REO.

 

“REO
Property”:  The real property
acquired by or transferred to PC REO, the fee title to which is held by PC REO,
together with all buildings, fixtures and improvements thereon and all other
rights, benefits and proceeds arising from and in connection with such
property.

 

“REO
Property Documents”:  The meaning set
forth  in the Custodial Agreement, which
definition is incorporated by reference herein.

 

“REO
Property Interest Reserve Account”: The separate trust account established
by Sellers and maintained pursuant to this Agreement for the benefit of the
Buyer, which shall at all times contain funds in an amount equal to the
Required Amount with respect to the Purchased REO Entity Interests, to be held
for the benefit of the Buyer.  The REO
Property Interest Reserve Account shall be established with the Account Bank
and shall be subject to an Account Control Agreement.  Interest earnings in respect of funds on deposit
in the REO Property Interest Reserve Account shall be held for the pro rata
benefit of the Sellers.

 

29

 

“REO
Property Schedule”:  A hard copy or
electronic format incorporating the fields identified on Exhibit I,
any other information required by Buyer with respect to REO Entity Interests
and the related REO Property that is purchased hereunder.

 

“REO
Trustee”: Wilmington Trust Company, as Qualified Trustee of PC REO.

 

“Reportable
Event”:  Any event set forth in
Section 4043(c) of ERISA, other than an event as to which the notice
period is waived under Pension Benefit Guaranty Corporation Reg. §4043.

 

“Reporting
Date”: The 8th day of each month or, if such day is not a
Business Day, the next succeeding Business Day.

 

“Representation
Breach”:  Any representation,
warranty, certification, statement or affirmation made or deemed made by any
Seller or Guarantor in any Repurchase Document (including those contained in Schedules 1-A,
1-B and 1-C) or in any certificate, notice, report or other
document delivered pursuant to any Repurchase Document proves to be incorrect,
false or misleading in any material respect when made or deemed made, without
regard to any Knowledge or lack of Knowledge thereof by such Person  and without regard to any qualification,
representation or warranty relating to such Knowledge or lack of Knowledge.

 

“Repurchase
Date”:  For any Purchased Asset, the
earliest of (a) the Maturity Date, (b) any Early Repurchase Date
therefor, and (c) the Business Day on which Seller are to repurchase such
Purchased Asset if specified by Sellers and agreed to by Buyer in the related
Confirmation.

 

“Repurchase
Documents”:  Collectively, this
Agreement, the Custodial Agreement, the Fee Letter, the Servicing Agreement,
the Servicer Instruction Notice, the Investment Advisor Side Letter, each REMIC
Declaration Agreement, PC REO Trust Agreement, all Confirmations, the
Contribution Agreement, the Electronic Tracking Agreement, each Account Control
Agreement, each Power of Attorney, the Guaranty Agreement, all UCC financing
statements, amendments and continuation statements filed pursuant to any other
Repurchase Document, and all additional documents, certificates, agreements or
instruments, the execution of which is required, necessary or incidental to or
desirable for performing or carrying out any other Repurchase Document.

 

“Repurchase
Obligations”:  All obligations of
Sellers to pay the Repurchase Price on the Repurchase Date (including the
obligations set forth in clauses (i) and (ii) of the Ineligibility
Remedies) and all other obligations and liabilities of Sellers to Buyer arising
under or in connection with the Repurchase Documents, whether now existing or
hereafter arising, and all interest and fees that accrue after the commencement
by or against a Seller, or Guarantor or any Affiliate thereof of any Insolvency
Proceeding naming such Person as the debtor in such proceeding, regardless of
whether such interest and fees are allowed claims in such proceeding (in each
case, whether due or accrued).

 

“Repurchase
Price”:  For any Purchased Asset as
of any date, an amount equal to the sum of (a) the outstanding Purchase
Price as of such date, (b) the accrued and unpaid Price Differential for
such Purchased Asset as of such date, (c) all other amounts due and
payable as of 

 

30

 

such
date by Sellers to Buyer under this Agreement or any Repurchase Document, and (d) any
accrued and unpaid fees and expenses and indemnity amounts and any other
amounts owed by Sellers, Guarantor or Affiliates thereof to Buyer under this
Agreement, any Repurchase Document or otherwise.

 

“Required
Amount”: (a) With respect to Purchased REO Entity Interests, as of any
date of determination, an amount equal to the product of (i) 1/4th  of the then current Pricing Rate for the
Transaction related to the Purchased REO Entity Interests, times (ii) the
outstanding Purchase Price of such Purchased REO Entity Interests as of such
date (which, if such date is a Purchase Date for a Transaction involving
Purchased REO Entity Interests shall include any additional REO Entity
Interests or Underlying Purchased REO Property purchased by the Buyer on such
date) and (b) with respect to Purchased Mortgage Loans and the Purchased
Mortgage Certificates, as of any date of determination, an amount equal to the
product of (i) 1/4th of the then current weighted average Pricing
Rate for the Transactions related to the Purchased Mortgage Loans and the
Purchased Mortgage Certificates, with such weighted average being weighted on
the basis of the aggregate Purchase Price of each such Transaction, times and (ii) outstanding
Purchase Price of such Purchased Mortgage Loans and such Purchased REMIC
Certificates as of such date (which, if such date is a Purchase Date for a
Transaction involving Purchased Mortgage Loans or Purchased Mortgage
Certificates shall include any additional Purchased Mortgage Loans or Purchased
Mortgage Certificates purchased by the Buyer on such date).

 

“Requirements
of Law”:  With respect to any Person
or property or assets of such Person and as of any date, all of the following
applicable thereto as of such date:  all
Governing Documents and existing and future laws, statutes, rules, regulations,
treaties, codes, ordinances, permits, certificates, orders and licenses of and
interpretations by any Governmental Authority (including Environmental Laws,
ERISA, regulations of the Board of Governors of the Federal Reserve System, and
laws, rules and regulations relating to usury, licensing, truth in
lending, fair credit billing, fair credit reporting, equal credit opportunity,
fair debt collection practices and privacy), judgments, decrees, injunctions,
writs, awards or orders of any court, arbitrator or other Governmental
Authority.

 

“Reserve
Requirement”:  For any Pricing
Period, the aggregate of the rates (expressed as a decimal fraction) of reserve
requirements in effect during such Pricing Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the
Board of Governors of the Federal Reserve System or other Governmental
Authority having jurisdiction with respect thereto) dealing with reserve
requirements prescribed for Eurocurrency funding (currently referred to as “Eurocurrency
Liabilities” in Regulation D of such Board of Governors) maintained by
Buyer.  As of the Closing Date, the
Reserve Requirement is zero.  The Buyer
will provide the Sellers with no less than thirty (30) days prior written
notice of the implementation of any change in the Reserve Requirement.

 

“Responsible
Officer”:  With respect to any Person
other than Servicer, the chief executive officer, the president, the chief
financial officer, the chief operating officer, the chief credit officer, the
chief accounting officer, the chief legal officer, the secretary or the
treasurer of such Person, and with respect to Servicer, the chief executive
officer, the president, any vice president, the secretary or the treasurer.

 

31

 

“Retained
Interest”:  (a) With respect to
any Purchased Asset, (i) all duties, obligations and liabilities of
Sellers thereunder, including payment and indemnity obligations, (ii) all
obligations of agents, trustees, servicers, administrators or other Persons
under the documentation evidencing such Purchased Asset, and (iii) if any
portion of the Indebtedness related to such Purchased Asset is owned by another
lender or is being retained by Sellers, the interests, rights and obligations
under such documentation to the extent they relate to such portion, and
(b) with respect to any Purchased Asset with an unfunded commitment on the
part of Sellers, all obligations to provide additional funding, contributions,
payments or credits.

 

“S&P”:  Standard and Poor’s Ratings Services, a
division of The McGraw-Hill Companies, Inc. or, if Standard &
Poor’s Ratings Services is no longer issuing ratings, another nationally
recognized rating agency reasonably acceptable to Buyer.

 

“Sale
and Disposition of Purchased Assets”: 
The monetization of Purchased Assets through one or more of the
following courses of action:  (i) securitization
of the Purchased Assets, (ii) competitive auction, or (iii) any sale
of Purchased Assets by a Seller to a third party.  For purposes of clarity, Sale and Disposition
of Purchased Assets shall exclude (x) any Purchased Asset repurchased by
Sellers on account of a Representation Breach, (y) Mortgage Loan subject
to a Conversion Date or (z) any Purchased Asset subject to an asset-level
workout, consisting of pre-payments, short sales and liquidations, by Servicer
in the ordinary course of Servicer’s business; provided that a Sale and
Disposition of Purchased Assets shall not include a sale of any Underlying REO
Property pursuant to clause (iv) of the definition of “Ineligible Remedies”.

 

“Sanctioned
Entity”:  (a) A country or a
government of a country, (b) an agency of the government of a country,
(c) an organization directly or indirectly controlled by a country or its
government, (d) a Person resident in or determined to be resident in a
country, that in each case is subject to a country sanctions program
administered and enforced by the Office of Foreign Assets Control, or (e) a
Person named on the list of Specially Designated Nationals maintained by the
Office of Foreign Assets Control.

 

“Second
Lien Mortgage Loan”:  A Mortgage Loan
secured by the lien on the Mortgaged Property, subject only to one prior lien
on such Mortgaged Property securing financing obtained by the related Mortgagor
and to Permitted Liens.

 

“Securities
Laws”:  The Securities Act of 1933,
the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002 and the
applicable accounting and auditing principles, rules, standards and practices
promulgated, approved or incorporated by the Securities and Exchange Commission
or the Public Company Accounting Oversight Board.

 

“Sellers”:  Jointly and severally, each of PMC and PMIT,
together with their respective permitted successors and assigns.

 

“Seller’s
Power of Attorney”: Defined in Section 18.18.

 

“Servicer”:  PennyMac Loan Services, LLC, a Delaware
limited liability company, together with its permitted successors and assigns.

 

32

 

“Servicer
Change of Control”: At any time any Seller, Guarantor, or any Affiliate
thereof, shall become, or shall obtain rights (whether by means of warrants,
options or otherwise) to become, the beneficial owner, directly or indirectly,
of 25% or more of the total voting power of all classes of Equity Interests of
the Servicer.

 

“Servicer
Termination Event”:  (i) Any
default or event of default (however defined) by the Servicer under any
Servicing Agreement, (ii) any breach by Servicer of the Servicer
Instruction Notice, (iii) any breach by Servicer of the financial
covenants set forth in Section 8.07, or (iv) any breach by Servicer
of any other provision in the Repurchase Documents.

 

“Servicer
Instruction Notice”:  The side letter
agreement to be entered into among Buyer, Sellers, Servicer and PC REO on or
prior to the Effective Date, pursuant to which the manner in which the
servicing shall be performed and the party from whom Servicer shall take
direction with respect to the Purchased Mortgage Loans and Underlying Assets
shall be set forth.

 

“Servicing
Agreement”:  (i) With respect to
the servicing of Purchased Mortgage Loans or REO Property, the flow servicing
agreement, dated as of August 4, 2009 (as amended as of March 3,
2010), by and between PMC and Servicer, and (ii) with respect to REMIC
Certificates and the related Underlying Mortgage Loans, the related REMIC
Declaration Agreement, in each case, as such agreement may be amended,
supplemented or otherwise modified from time to time and approved by Buyer;
provided, however, that Buyer’s failure to approve any such amendment,
supplement or modification shall not affect the validity or enforceability
thereof except as it relates to the Purchased Mortgage Loans and Underlying
Assets, which shall remain subject to the terms of such agreement without
giving effect to such amendment, supplement or modification thereto.

 

“Servicing
Data File”: A computer file or other electronic medium generated by or on
behalf of Sellers and delivered or transmitted to the Buyer and Custodian which
provides information relating to the Mortgage Loans, including the information
set forth in the related Mortgage Loan Schedule, as the case may be, in a
format acceptable to the Buyer.

 

“Servicing
Fees”:  The servicing fees (for which
Servicer has provided proof acceptable to Buyer of such fees), actually
incurred by Servicer and due to Servicer as provided for in the Servicing  Agreement.

 

“Servicing
File”:  With respect to any Purchased
Mortgage Loans and Underlying Assets, the file retained and maintained by
Sellers or Servicer including the originals or copies of all Asset Documents
and other documents and agreements relating to such Purchased Asset, including
to the extent applicable all servicing agreements, files, documents, records,
data bases, computer tapes, insurance policies and certificates, appraisals,
other closing documentation, payment history and other records relating to or
evidencing the servicing of such Purchased Asset, which file shall be held by
Sellers and/or the Servicer for and on behalf of Buyer.

 

“Servicing
Records”:  Any and all servicing
agreements, files, documents, records, data bases, computer tapes, copies of
computer tapes, proof of insurance coverage, insurance policies, appraisals,
other closing documentation, payment history records, and any other records
relating to or evidencing the servicing of the Assets.

 

33

 

“Servicing
Rights”:  With respect to any
Purchased Mortgage Loans and Underlying Assets, all right, title and interest
of Sellers, Servicer, Guarantor or any Affiliate thereof in and to any and all
of the following:  (a) rights to
service and collect such Purchased Mortgage Loans and Underlying Assets,
(b) amounts received by Sellers or any other Person for servicing such
Purchased Mortgage Loans and Underlying Assets, (c) late fees, penalties
or similar payments with respect to the Purchased Mortgage Loans and Underlying
Assets, (d) agreements and documents creating or evidencing any such
rights to service, documents, files and records relating to the servicing of
such Purchased Mortgage Loans and Underlying Assets, and rights of Sellers or
any other Person thereunder, (e) escrow, reserve and similar amounts with
respect to such Purchased Mortgage Loans and Underlying Assets, (f) rights
to appoint, designate and retain any other servicers, sub-servicers, special
servicers, agents, custodians, trustees and liquidators with respect to such
Purchased Mortgage Loans and Underlying Assets, and (g) accounts and other
rights to payment related to such Purchased Mortgage Loans and Underlying
Assets.

 

“Servicing
Standard”:  All of Servicer’s duties
to service the related Purchased Mortgage Loans and Underlying Assets in
accordance with Accepted Servicing Practices and comply with all of its other
obligations and duties herein and pursuant to the Servicing Agreement,
including but not limited to its obligations to:

 

(a)                                  identify on its
systems the Buyer as the owner of Purchased Assets and that such Purchased
Assets and Underlying Mortgage Loans have been pledged to the Buyer;

 

(b)                                 maintain
systems and operating procedures necessary to comply with all the terms of this
Agreement, the Servicing Agreement and the Servicer Instruction Notice,
including but not limited to maintaining records and systems necessary to
indicate cumulative recoveries on each category of Purchased Assets and
Underlying Assets;

 

(c)                                  cooperate with
all Transaction parties on its duties as set forth in this Agreement;

 

(d)                                 (i) remit
all Income received by Servicer with respect to Purchased Mortgage Loans,
including Income consisting of short sales and sale and disposition proceeds,
to the Waterfall Account not later than the second (2nd) Business Day following
Servicer’s receipt thereof, (ii) remit all Income received by Servicer
with respect to Underlying Mortgage Loans to the Participation Account in
accordance with the REMIC Declaration Agreement, and (iii) (x) direct
all net liquidation proceeds payable to PC REO in connection with the sale or
other disposition of any Underlying REO Property to be deposited directly into
the REO Collection Account, and (y) remit all Income received by Servicer
with respect to REO Properties underlying Purchased REO Entity Interests to the
REO Collection Account not later than the second (2nd) Business Day following Servicer’s receipt thereof.

 

(e)                                continue to
make Protective Servicing Advances with respect to the Purchased Mortgage Loans
and Underlying Assets in accordance with the terms and conditions of the
Servicing Agreement.

 

“Single
Employer Plan”:  Any Plan that is not
a Multiemployer Plan.

 

 

34

 

“Solvent”:
 With respect to any Person at any time,
having a state of affairs such that all of the following conditions are met at
such time:  (a) the fair value of
the assets and property of such Person is greater than the amount of such
Person’s liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for
purposes of Section 91(32) of the Bankruptcy Code, (b) the present
fair salable value of the assets and property of such Person in an orderly liquidation
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and property
and pay its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of business,
(d) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person’s ability to pay as such debts
and liabilities mature, and (e) such Person is not engaged in a business
or a transaction, and is not about to engage in a business or a transaction,
for which such Person’s assets and property would constitute unreasonably small
capital.

 

“Special
Purpose Entity”:  A corporation,
limited partnership or limited liability company or trust that, since the date
of its formation (unless otherwise indicated in this Agreement) and at all
times on and after the date hereof, has complied with and shall at all times
comply with the provisions of Article 11.

 

“Subsidiary”:  With respect to any Person, any corporation,
partnership, limited liability company or other entity (heretofore, now or
hereafter established) of which at least a majority of the securities or other
ownership interests having by the terms thereof ordinary voting power to elect
a majority of the board of directors or other persons performing similar
functions of such corporation, partnership, limited liability company or other entity
(without regard to the occurrence of any contingency) is at the time directly
or indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person, and
shall include all Persons the accounts of which are with those of such Person
pursuant to GAAP.

 

“Tangible
Net Worth”:  With respect to any
Person and any date, all amounts that would be included under capital or
shareholder’s equity (or any like caption) on a balance sheet of such Person,
minus (a) amounts owing to such Person from any Affiliate thereof, or from
officers, employees, partners, members, directors, shareholders or other
Persons similarly affiliated with such Person or any Affiliate thereof, (b) intangible
assets, and (c) prepaid taxes and/or expenses, all on or as of such date.

 

“Total
Assets”:  With respect to any Person
and any date, an amount equal to the aggregate book value of all assets owned
by such Person on a consolidated basis and the proportionate share of assets
owned by all non-consolidated Subsidiaries of such Person, less
(a) amounts owing to such Person from any Affiliate thereof, or from
officers, employees, partners, members, directors, shareholders or other
Persons similarly affiliated with such Person or any Affiliate thereof,
(b) intangible assets, and (c) prepaid taxes and expenses, all on or
as of such date.

 

“Total
Indebtedness”:  With respect to any
Person and any date, all amounts of Indebtedness and Contingent Liabilities of
such Person plus the proportionate share of all 

 

35

 

Indebtedness
and Contingent Liabilities not reflected on such Person’s consolidated balance
sheet) of all non-consolidated Affiliates of such Person, on or as of such
date.

 

“Transaction”:  With respect to any Purchased Asset, the sale
and transfer of such Purchased Asset from the applicable Seller(s) to
Buyer pursuant to the Repurchase Documents against the transfer of funds from
Buyer to the applicable Seller(s) representing the Purchase Price or any
additional Purchase Price for such Purchased Asset.

 

“Transaction
Request”:  Defined in Section 3.01(a).

 

“Transfer
Documents”:  All documents,
certificates, and opinions of counsel necessary or required to (i) re-register
REO Entity Interests or REMIC Certificates that are or will be Purchased Assets
in the name of the Buyer, or otherwise to effect a delivery thereof to Buyer,
including without limitation, the original certificate, and (ii) comply
with the restrictions on transfer of REMIC Certificates as set forth in Article VIII
of the applicable REMIC Declaration Agreement.

 

“Transferor”:  The seller of an Asset under a Purchase
Agreement.

 

“Turbo
Trigger Event”:  If at the end of any
month, the monthly average trailing three (3) month (static pool) cash
flow with respect to Purchased Assets and Underlying Assets shall have declined
by 50% relative to the cash flow for the immediately preceding three (3) month
period.

 

“UCC”:  The Uniform Commercial Code as in effect in
the State of New York; provided, that, if, by reason of Requirements of
Law, the perfection or priority of the security interest in any Purchased Asset
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, “Uniform Commercial Code” shall mean the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or priority.

 

“Underlying
Asset” Any Underlying REO Property or Underlying Mortgage Loan.

 

“Underlying
Mortgage Loan”:  With respect to any
REMIC Certificate or Purchased REMIC Certificate, as the context may require, a
Mortgage Loan that supports such REMIC Certificate.

 

“Underlying
Mortgaged Property”:  With respect to
(i) any Mortgage Loan or Underlying Mortgage Loan, the Mortgaged Property
securing such Mortgage Loan, or (ii) any REO Property, the real property
acquired by or transferred to PC REO, together with all buildings, fixtures and
improvements thereon and all other rights, benefits and proceeds arising from
and in connection with such property.

 

“Underlying
Obligor”:  Individually and
collectively, as the context may require, the Mortgagor and other obligor or
obligors under a Mortgage Loan, including (i) any Person that has not signed
the related Mortgage Note but owns an interest in the related Underlying
Mortgaged Property, which interest has been encumbered to secure such Asset,
and (ii) any other Person who has assumed or guaranteed the obligations of
such Mortgagor under the Mortgage Loan Documents relating to an Asset.

 

36

 

“Underwriting
Package”:  With respect to one or
more Assets, the internal document or credit committee memorandum (redacted to
protect confidential information) setting forth all material information
relating to an Asset which is known by Sellers and prepared by Sellers for its
evaluation of such Asset, which shall include, at a minimum, all of the
information required to be set forth in the relevant Confirmation.  In addition, the Underwriting Package shall
include all of the following, to the extent applicable and available with
respect to each Asset, (i) all Asset Documents required to be delivered to
Custodian under Section 2.01 of the Custodial Agreement, (ii) all
Asset Schedules and (ii) all documents, instruments and agreements
received in respect of the closing of the acquisition transaction under the
Purchase Agreement, including, to the extent received: (a) an appraisal,
(b) the current occupancy report, tenant stack and rent roll, if
applicable, (c) third-party reports and agreed-upon procedures, letters
and reports (whether drafts or final forms), site inspection reports, and other
due diligence materials prepared by or on behalf of or delivered to Sellers,
(d) such further documents or information as Buyer may request,
(e) any and all agreements, documents, reports, or other information
concerning the Purchased Assets and Underlying Assets received or obtained in
connection with the origination of the Purchased Assets and Underlying Assets,
and (f) any other material documents or reports concerning the Purchased
Assets and Underlying Assets prepared or executed by Sellers or Guarantor.

 

“Underlying
REO Property”:  With respect to any
REO Entity Interest or Purchased REO Entity Interests, as the context may
require, an REO Property that supports such REO Entity Interest.

 

“Waterfall
Account”:  The separate trust account
established by the Sellers and maintained pursuant to this Agreement for the
benefit of Buyer, into which all Income received with respect to Purchased
Assets shall be deposited.  The Waterfall
Account shall be established at the Account Bank with the account number
communicated to Buyer in writing on or prior to the Effective Date and shall be
subject to an Account Control Agreement.

 

Section 2.02                                Rules of
Interpretation.  Headings
are for convenience only and do not affect interpretation.  The following rules of this Section 2.01
apply unless the context requires otherwise. 
The singular includes the plural and conversely.  A gender includes all genders.  Where a word or phrase is defined, its other
grammatical forms have a corresponding meaning. 
A reference to an Article, Section, Subsection, Paragraph, Subparagraph,
Clause, Annex, Schedule, Appendix, Attachment, Rider or Exhibit is, unless
otherwise specified, a reference to an Article, Section, Subsection, Paragraph,
Subparagraph or Clause of, or Annex, Schedule, Appendix, Attachment, Rider or Exhibit to,
this Agreement, all of which are hereby incorporated herein by this reference
and made a part hereof.  A reference to a
party to this Agreement or another agreement or document includes the party’s
permitted successors, substitutes or assigns. 
A reference to an agreement or document is to the agreement or document
as amended, modified, novated, supplemented or replaced, except to the extent
prohibited by any Repurchase Document.  A
reference to legislation or to a provision of legislation includes a
modification, codification, replacement, amendment or reenactment of it, a
legislative provision substituted for it and a rule, regulation or statutory
instrument issued under it.  A reference
to writing includes a facsimile or electronic transmission and any means of
reproducing words in a tangible and permanently visible form.  A reference to conduct includes an omission,
statement or undertaking, whether or not in writing.  A Default or Event of Default exists until it
has been 

 

37

 

cured or waived in writing by Buyer.  The words “hereof,” “herein,” “hereunder” and
similar words refer to this Agreement as a whole and not to any particular
provision of this Agreement, unless the context clearly requires or the
language provides otherwise.  The word “including”
is not limiting and means “including without limitation.”  The word “any” is not limiting and means “any
and all” unless the context clearly requires or the language provides
otherwise.  In the computation of periods
of time from a specified date to a later specified date, the word “from” means “from
and including,” the words “to” and “until” each mean “to but excluding,” and
the word “through” means “to and including.” 
The words “will” and “shall” have the same meaning and effect.  A reference to day or days without further
qualification means calendar days.  A
reference to any time means New York time. 
This Agreement may use several different limitations, tests or
measurements to regulate the same or similar matters.  All such limitations, tests and measurements
are cumulative and shall each be performed in accordance with their respective
terms.  Unless the context otherwise
clearly requires, all accounting terms not expressly defined herein shall be
construed in accordance with GAAP, and all accounting determinations, financial
computations and financial statements required hereunder shall be made in
accordance with GAAP, without duplication of amounts, and on a consolidated
basis with all Subsidiaries.  All terms
used in Articles 8 and 9 of the UCC, and used but not specifically defined
herein, are used herein as defined in such Articles 8 and 9.  A reference to “fiscal year” and “fiscal
quarter” means the fiscal periods of the applicable Person referenced
therein.  A reference to an agreement
includes a security interest, guarantee, agreement or legally enforceable
arrangement whether or not in writing.  A
reference to a document includes an agreement (as so defined) in writing or a
certificate, notice, instrument or document, or any information recorded in
computer disk form.  Whenever a Person is
required to provide any document to Buyer under the Repurchase Documents, the
relevant document shall be provided in writing or printed form unless Buyer
requests otherwise.  At the request of Buyer,
the document shall be provided in computer disk form or both printed and
computer disk form.  The Repurchase
Documents are the result of negotiations between the Parties, have been
reviewed by counsel to Buyer and counsel to Sellers, and are the product of
both Parties.  No rule of
construction shall apply to disadvantage one Party on the ground that such
Party proposed or was involved in the preparation of any particular provision
of the Repurchase Documents or the Repurchase Documents themselves.  Except where otherwise expressly stated,
Buyer may give or withhold, or give conditionally, approvals and consents, and
may form opinions and make determinations, in its sole and absolute discretion
subject in all cases to the implied covenant of good faith and fair
dealing.  Reference in any Repurchase
Document to Buyer’s discretion, shall mean, unless otherwise expressly stated
herein or therein, Buyer’s sole and absolute discretion, and the exercise of
such discretion shall be final and conclusive. 
In addition, whenever Buyer has a decision or right of determination,
opinion or request, exercises any right given to it to agree, disagree, accept,
consent, grant waivers, take action or no action or to approve or disapprove
(or any similar language or terms), or any arrangement or term is to be
satisfactory or acceptable to or approved by Buyer (or any similar language or
terms), the decision of Buyer with respect thereto shall be in the sole and
absolute discretion of Buyer, and such decision shall be final and
conclusive.  Any requirement of good
faith, discretion or judgment by Buyer shall not be construed to require Buyer
to request or await receipt of information or documentation not immediately
available from or with respect to any Person or the Purchased Assets and
Underlying Assets.

 

38

 

ARTICLE 3

 

THE
TRANSACTIONS

 

Section 3.01                                Procedures.

 

(a)                                          Upon the Closing Date, from time to time but not more frequently than
once per week a Seller may request Buyer to enter into a proposed Transaction
by sending Buyer a notice substantially in the form of Exhibit J (“Transaction
Request”) (i) describing the Transaction and each proposed Asset and
any related Underlying Mortgaged Property and other security therefor in
reasonable detail, (ii) transmitting an Underwriting Package for each
proposed Asset acceptable to Buyer, and (iii) specifying which (if any) of
the representations and warranties of the applicable Seller set forth in this
Agreement (including those contained in Schedules 1-A, 1-B
and 1-C applicable to the related Purchased Asset) the applicable Seller
will be unable to make with respect to such Asset.  The applicable Seller shall promptly deliver
to Buyer any supplemental materials requested at any time by Buyer.  Buyer shall conduct such review of the
Underwriting Package and each such Asset as Buyer deems appropriate in its
determination of whether or not to purchase any or all of the proposed Assets.  It is expressly agreed and acknowledged that
Buyer is entering into the Transactions on the basis of all such
representations and warranties and on the completeness and accuracy of the
information contained in the applicable Underwriting Package, and any
incompleteness or inaccuracies in the related Underwriting Package will only be
acceptable to Buyer if disclosed in writing to Buyer by the applicable Seller
in advance of the related Purchase Date, and then only if Buyer opts to
purchase the related Purchased Asset from the applicable Seller notwithstanding
such incompleteness and inaccuracies.  In
the event of a Representation Breach in respect of a Purchased Mortgage Loan or
an Underlying Asset, Buyer shall have such remedies as provided for in Section 3.04.

 

(b)                                         Buyer shall
give Sellers notice within two (2) Business Days of the date when Buyer
has received a preliminary Underwriting Package and supplemental materials from
Seller and acceptable to Buyer. Such notice shall contain a preliminary
non-binding determination of whether or not Buyer is willing to purchase any or
all of such Assets, and if so, on what terms and conditions (including without
limitation the indicative pricing for such Assets).  Sellers
shall promptly provide Buyer with a completed Underwriting Package and
supplemental materials. Within three (3) Business Days after Buyer
has received the completed Underwriting Package and supplemental materials, and
if its preliminary determination is favorable, Buyer shall communicate to
Sellers a final non-binding indication of its determination.  If Buyer has not communicated in writing, its
final non-binding indication to Sellers by such date, Buyer shall automatically
and without further action be deemed to have determined not to purchase any
such Asset.

 

(c)                                          If Buyer
communicates to Sellers a final non-binding determination in writing that it is
willing to purchase any or all of such Purchased Assets on a Purchase Date,
Sellers shall deliver to Buyer an executed preliminary Confirmation for such
Transaction, describing each such Purchased Asset and related  Underlying Asset, if any, and its proposed
Purchase Date, Market Value, Applicable Percentage, Purchase Price and such
other terms and conditions as Buyer may require.  If Buyer requires changes to the preliminary
Confirmation, 

 

39

 

Sellers shall make such changes and re-execute the
preliminary Confirmation.  If Buyer
determines to enter into the Transaction on the terms described in the
preliminary Confirmation, Buyer shall promptly execute and return the same to
Sellers, which shall thereupon become effective as the Confirmation of the
Transaction.  Buyer’s approval of the
purchase of a Purchased Asset (and the related Underlying Assets) on such terms
and conditions as Buyer may require shall be evidenced only by its execution
and delivery of the related Confirmation. 
For the avoidance of doubt, Buyer shall not (i) be bound by any
preliminary or final non-binding determination referred to above, (ii) be
deemed to have approved the purchase of a Purchased Asset by virtue of the
approval or entering into by Buyer of a rate lock agreement, total return swap
or any other agreement with respect to such Asset, or (iii) be obligated
to purchase a Purchased Asset notwithstanding a Confirmation executed by the
Parties unless and until all applicable conditions precedent in Article 6
have been satisfied or waived by Buyer.

 

(d)                                         Each
Confirmation, together with this Agreement, shall be conclusive evidence of the
terms of the Transaction covered thereby, and shall be construed to be
cumulative to the extent possible.  If
terms in a Confirmation are inconsistent with terms in this Agreement with
respect to a particular Transaction, the Confirmation shall prevail.  Whenever the Applicable Percentage or any
other term of a Transaction (other than the Pricing Rate, Market Value and
outstanding Purchase Price) with respect to an Asset is revised or adjusted in
accordance with this Agreement, an amended and restated Confirmation reflecting
such revision or adjustment and that is otherwise acceptable to the Parties
shall be prepared by Sellers and executed by the Parties.

 

(e)                                          The fact that
Buyer has conducted or has failed to conduct any partial or complete
examination or any other due diligence review of any Asset or Purchased Asset
shall in no way affect any rights Buyer may have under the Repurchase Documents
or otherwise with respect to any representations or warranties or other rights
or remedies thereunder or otherwise, including the right to determine at any time
that such Asset or Purchased Asset is not an Eligible Asset.

 

(f)                                            No Transaction
shall be entered into if (i) any Margin Deficit, Default or Event of
Default exists or would exist as a result of such Transaction, (ii) the
Repurchase Date for the Purchased Assets subject to such Transaction would be
later than the Maturity Date, or (iii) after giving effect to such
Transaction, the Aggregate Purchase Price then outstanding would exceed the
Maximum Aggregate Purchase Price.

 

(g)                                         (i) With
respect to the Purchased REMIC Certificates, the related Underlying Mortgage
Loans may be removed from supporting such REMIC Certificate from time to time
at the option of PMC in accordance with the related REMIC Declaration
Agreement.  Provided that any such
Removed Mortgage Loan is and continues to be an Eligible Mortgage Loan, from
and after the related Conversion Date, such Removed Mortgage Loan shall
automatically be subject to a Transaction with respect to Purchased Mortgage
Loans.  In such case, the aggregate
outstanding Purchase Price of the Transaction for the related Purchased REMIC
Certificate shall be reduced by the Purchase Price of each such Removed
Mortgage Loan and the Purchase Price of the Transaction consisting of such
Mortgage Loans shall be increased by the Purchase Price of each such Removed
Mortgage Loan and the Buyer and Sellers shall reflect the same on their
records. Notwithstanding anything contained herein to the 

 

40

 

contrary, each Conversion Date hereunder shall occur
prior to the date on which the related Removed Mortgage Loans become REO
Properties.

 

(ii)                                  With respect to
the Purchased Mortgage Loans, such Mortgage Loans from time to time at the
option of PMC may be foreclosed upon and the subsequent related REO Property
deeded in the name of PMC or PC REO as the case may be.  Provided that any such Foreclosed Mortgage
Loan is Eligible REO Property and is contributed to PC REO pursuant to the
Contribution Agreement, from and after the related Conversion Date, such
Foreclosed Mortgage Loan shall automatically underlie the Purchased REO Entity
Interests.  In such case, the aggregate
outstanding Purchase Price of the Purchased Mortgage Loans shall be reduced by
the Purchase Price of such Foreclosed Mortgage Loan and the Purchase Price of
the Transaction consisting of such Purchased REO Entity Interests (now
supported by the addition of the Foreclosed Mortgage Loan) shall be increased
by the Purchase Price of such Foreclosed Mortgage Loan and the Buyer and Sellers
shall reflect the same on their records. 
Upon transfer of REO Entity Interests to Buyer as set forth herein and
until termination of any related Transactions as set forth herein, ownership of
the REO Entity Interests held by PMC shall be vested in the Buyer.  At any time an Eligible Mortgage Loan owned
by PMC is transferred to and/or the related Underlying Mortgaged Property is
foreclosed in the name of PC REO, the record title in such REO Property shall
be vested in and retained by PC REO.  It
is a condition precedent to Buyer entering into a Transaction with respect to
such REO Property that the related REO Deed shall have been delivered to the
appropriate recording office for recordation in the name of PC REO.

 

(h)                                      For the
purposes of each Transaction and any Purchased Assets sold to Buyer on a
Purchase Date, Seller shall mean: (i) PMC with respect to any Purchased
Assets which are Mortgage Loans (including, without limitation any Removed
Mortgage Loans) and any REO Entity Interests, and (ii) PMIT, with respect
to any Purchased Assets which are REMIC Certificates.

 

Section 3.02                                Transfer of
Purchased Assets; Servicing Rights.

 

On
the Purchase Date for each Purchased Asset, and subject to the satisfaction of
all applicable conditions precedent in Article 6,
(i) ownership of and title to such Purchased Asset shall be transferred to
and vest in Buyer or its designee against the simultaneous transfer of the
Purchase Price to Sellers’ (identified in the related Confirmation) account
specified in Schedule 2 (or if not specified therein, in the related
Confirmation or as directed by Sellers), and (ii) Sellers hereby sell,
transfer, convey and assign, or with respect to Underlying Mortgage Loans,
pledge as and to the extent provided in Section 11.01(b), to Buyer on a
servicing-released basis all of Sellers’ right, title and interest (but no
Retained Interests) in and to the related Purchased Assets or Underlying
Mortgage Loans, as applicable, together with all related Servicing Rights (in
the case of any Underlying Mortgage Loans as and to the extent provided in Section 11.01(b)).  Subject to this Agreement, upon the Closing
Date, Sellers may sell to Buyer, repurchase from Buyer and re-sell Eligible
Assets to Buyer, but may not substitute other Eligible Assets for Purchased
Assets.  Buyer has the right to designate
the servicer and any sub-servicer of the Purchased Assets and Underlying REO
Property, and following the occurrence of a Servicer Termination Event or other
Event of Default, the servicer and any sub-servicer of the Underlying Mortgage
Loans; provided that Buyer shall not terminate the Servicer with respect to

 

41

 

the
Underlying Mortgage Loans in the absence of an Event of Default without first
obtaining the Class A Participant and Sellers’ consent to such
termination, which consent shall not be unreasonably withheld, conditioned or
delayed, and shall be presumed to be given if Sellers do not respond to Buyer’s
request for such consent within three (3) Business Days of such request;
provided, however, that any replacement Servicer shall be selected in
accordance with Section 17.01(f) The Servicing Rights and other
servicing provisions under this Agreement are not severable from or to be
separated from the Purchased Assets or Underlying Assets under this Agreement
and, such Servicing Rights and other servicing provisions of this Agreement
constitute (x) “related terms” under this Agreement within the meaning of
Section 101(47)(A)(i) of the Bankruptcy Code and/or (y) a
security agreement or other arrangement or other credit enhancement related to
the Repurchase Documents.  Solely for the
purpose of facilitating servicing of the Purchased Mortgage Loans pursuant to Article 17,
Buyer may delay transfer of record title in one or more Purchased Mortgage
Loans, subject to receipt from Sellers of fully executed transfer documentation
in blank.

 

Section 3.03                                Maximum
Aggregate Purchase Price.  The
Aggregate Purchase Price for all Purchased Assets as of any date shall not
exceed the Maximum Aggregate Purchase Price. 
If the Aggregate Purchase Price exceeds the Maximum Aggregate Purchase
Price, Sellers shall immediately pay to Buyer an amount necessary to reduce the
Aggregate Purchase Price to an amount equal to or less than the Maximum
Aggregate Purchase Price.

 

Section 3.04                                Early
Repurchase Date; Mandatory Repurchases; Ineligibility Cures.  Sellers may terminate any Transaction with
respect to any or all Purchased Assets subject to a Sale and Disposition or an
Early Repurchase and repurchase such Purchased Assets on any date prior to the
Repurchase Date (an “Early Repurchase Date”); provided, that
(a) Sellers irrevocably notify Buyer prior to the Early Repurchase Date in
accordance with the timeframes set forth in the Early Repurchase Schedule,
identifying the Purchased Asset(s) to be repurchased and the Repurchase
Price thereof, (b) each Seller delivers a certificate from a Responsible
Officer of such Seller in form and substance satisfactory to Buyer certifying
that no Margin Deficit, Default or Event of Default exists or would exist as a
result of such repurchase and there are no other Liens on the Purchased Assets
other than Buyer’s Lien,  and
(c) Sellers thereafter comply with Section 3.05.  Such early terminations and repurchases shall
be in accordance with the Early Repurchase Schedule.

 

To
the extent (i) any Purchased Mortgage Loan no longer qualifies as an
Eligible Mortgage Loan or any Underlying Mortgage Loan was not an Eligible
Mortgage Loan as of the date the REMIC Certificates were issued, in either case
as determined by Buyer, Sellers shall cure any such defect or repurchase any
such Mortgage Loan within five (5) Business Days after the earlier of
receipt of notice thereof from Buyer or the discovery of such defect by Seller,
(ii) any Underlying REO Property was not an Eligible REO Property as of
the date of contribution to PC REO, as determined by Buyer, PMC shall remove
such REO Property from PC REO pursuant to the terms of the Trust Agreement
Sellers within ten (10) Business Days after the earlier of receipt of
notice thereof from Buyer or the discovery of such defect by Seller, (iii) any
Underlying Mortgage Loan is not an Eligible Mortgage Loan at any time after the
date the REMIC Certificates were issued, as determined by Buyer, Buyer may
assign a Market Value of zero to such Underlying Mortgage Loan, or (iv) any
Underlying REO Property is not an Eligible REO Property at any time after such
REO Property was contributed to PC REO as a result of a 

 

42

 

Representation
Breach with respect to any of those representations and warranties set forth in
Schedule 1-B that are separately listed on Schedule 3 hereto,
PMC, as Administrator of PC REO, shall cause the PC REO to sell such Underlying
REO Property within thirty (30) days of the earlier of (x) discovery by
any Seller or (y) written notice from Buyer (collectively, the “Ineligibility
Remedies”).

 

Section 3.05                                Repurchase;
Removal; Sale.  On the
Repurchase Date for each Purchased Asset, Sellers shall transfer to Buyer the
Repurchase Price for such Purchased Asset as of the Repurchase Date, and Buyer
shall transfer to the applicable Seller such Purchased Asset whereupon the
Transaction with respect to such Purchased Asset shall terminate.  On the Repurchase Date for any Underlying
Mortgage Loan or Underlying REO Property pursuant to clause (i) or (ii) of
the Ineligibility Remedies or on the sale date for any Underlying REO Property
pursuant to clause (iv) of the Ineligibility Remedies, Sellers shall
transfer to Buyer (or  the
Participation Account with respect to any Underlying Mortgage Loans related to
a REMIC Certificate) the Repurchase Price for such Underlying Asset as of such
date and such Underlying Asset shall be released from the related Purchased
Asset, whereupon the outstanding Purchase Price for the related Purchased REMIC
Certificates or Purchased REO Entity Interests shall be reduced by the Purchase
Price of such Underlying Asset.  Buyer
shall be deemed to have simultaneously released its interests in such Purchased
Asset or Underlying Mortgage Loan, shall authorize Custodian to release to the
applicable Seller the Asset Documents for such Purchased Asset or Underlying
Asset and, to the extent any UCC financing statement filed against Sellers
specifically identifies such Purchased Asset or Underlying Mortgage Loan, upon
a Seller’s request Buyer shall deliver an amendment thereto or termination
thereof evidencing the release of such Purchased Asset or Underlying Mortgage
Loan from Buyer’s security interest therein. 
Any such transfer or release shall be without recourse to Buyer and
without representation or warranty by Buyer, except that Buyer shall represent
to Sellers, to the extent that good title was transferred and assigned by
Sellers to Buyer hereunder on the related Purchase Date, that Buyer is the sole
owner of such Purchased Asset or pledgee of such Underlying Mortgage Loan, free
and clear of any other interests or Liens caused by Buyer’s actions or
inactions.  Any Income with respect to
such Purchased Asset or Underlying Asset received by Buyer or Account Bank
after payment of the Repurchase Price therefor shall be remitted to
Sellers.  Notwithstanding the foregoing,
on or before the Maturity Date, Sellers shall repurchase all Purchased Assets
by paying to Buyer the outstanding Repurchase Price therefor and paying all
other outstanding Repurchase Obligations as set forth herein.  Notwithstanding any provision to the contrary
contained elsewhere in any Repurchase Document, at any time during the
existence of an uncured Default or Event of Default, Sellers cannot repurchase
a Purchased Asset in connection with a full payoff of such Asset by the
Underlying Obligor, unless one-hundred percent (100%) of the net proceeds due
in connection with the relevant payoff shall be paid directly to Buyer;
together with payment of the excess of the then current Repurchase Price of the
related Purchased Asset (if any) over such net proceeds (if any).  The portion of all such net proceeds in
excess of the then-current Repurchase Price of the related Purchased Asset (if
any) shall be applied by Buyer to reduce any other amounts due and payable to
Buyer under this Agreement.

 

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Section 3.06                             Payment of
Price Differential and Fees.

 

(a)                                 Notwithstanding
that Buyer and Sellers intend that the Transactions hereunder be sales to Buyer
of the Purchased Assets for all but U.S. federal income tax purposes and GAAP,
Sellers shall pay to Buyer the accrued value of the Price Differential for each
Purchased Asset on each Remittance Date. 
Buyer shall give Sellers notice of the Price Differential and any fees
and other amounts due under the Repurchase Documents on or prior to the related
Pricing Period End Date; provided, that Buyer’s failure to deliver such
notice shall not affect a Seller’s obligation to pay such amounts.  If the Price Differential includes any
estimated Price Differential, Buyer shall recalculate such Price Differential
after the Remittance Date and, if necessary, make adjustments to the Price
Differential amount due on the following Remittance Date.

 

(b)                                 If a Seller
fails to pay all or part of the Price Differential by 3:00 p.m. (New York
City time) on the related Remittance Date, with respect to any Purchased Asset,
the Sellers shall be obligated to pay to Buyer (in addition to, and together
with, the amount of such Price Differential) interest on the unpaid Repurchase
Price at a rate per annum equal to the Pricing Rate until the Price
Differential is received in full by Buyer.

 

(c)                                  Sellers shall
pay to Buyer all fees and other amounts as and when due as set forth in this
Agreement and the Fee Letter including, without limitation: the Facility Fee,
which shall be due and earned in full by Buyer on the Closing Date and payable
monthly (without reduction, set-off or refund in the event of any early
termination of this Agreement) by Sellers and Guarantor in twelve (12) equal
monthly installments with the first such installment due on the Closing Date.

 

Section 3.07                             Payment,
Transfer and Custody.

 

(a)                                 Unless
otherwise expressly provided herein, all amounts required to be paid or
deposited by Sellers hereunder shall be paid or deposited in accordance with
the terms hereof no later than 3:00 p.m. (New York City time) on the day
when due, in immediately available Dollars and without deduction, setoff or
counterclaim, and if not received before such time shall be deemed to be
received on the next Business Day. 
Whenever any payment hereunder shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next following Business
Day, and such extension of time shall in such case be included in the
computation of such payment.  Amounts
payable to Buyer and not otherwise required to be deposited into an Account
shall be deposited into an account of Buyer. 
Sellers shall have no rights in, rights of withdrawal from, or rights to
give notices or instructions regarding Buyer’s account or the Waterfall
Account.  Amounts in the Waterfall
Account may be invested at the direction of Buyer in cash equivalents before
they are distributed in accordance with Article 5.

 

(b)                                 Any Asset
Documents not delivered to Buyer or Custodian, as may be required herein, are
and shall be held in trust by Sellers or their agent for the benefit of Buyer
as the owner thereof.  Sellers or their
agent shall maintain a copy of the Asset Documents and the originals of the
Asset Documents not delivered to Buyer or Custodian.  The possession of Asset Documents by Sellers
or their agent is in a custodial capacity only at the will of Buyer for the
sole purpose of assisting the Servicer with its duties under the Servicing
Agreement.  Each 

 

44

 

Asset Document retained or
held by Sellers or their agent shall be segregated on each Seller’s books and
records from the other assets of such Seller or its agent, and the books and
records of each Seller or its agent shall be marked to reflect clearly the sale
of the related Purchased Asset to Buyer and with respect to the Purchased
Mortgage Loans and Underlying Mortgage Loans, the sale or pledge in accordance
with Section 11.01(b), respectively, to Buyer thereof on a
servicing-released basis.  Each Seller or
its related agent shall release its custody of the Asset Documents only in
accordance with written instructions from Buyer, unless such release is
required as incidental to the servicing of the Purchased Mortgage Loans and
Underlying Assets by Servicer or is in connection with a repurchase of any
Purchased Asset by Sellers, in each case in accordance with the Custodial
Agreement.

 

Section 3.08                             Repurchase
Obligations Absolute.  All amounts
payable by Sellers under the Repurchase Documents shall be paid without notice,
demand, counterclaim, setoff, deduction or defense (as to any Person and for
any reason whatsoever) and without abatement, suspension, deferment, diminution
or reduction (as to any Person and for any reason whatsoever), and the
Repurchase Obligations shall not be released, discharged or otherwise affected,
except as expressly provided herein, by reason of:  (a) any damage to, destruction of,
taking of, restriction or prevention of the use of, interference with the use
of, title defect in, encumbrance on or eviction from, any Purchased Asset or
related Underlying Mortgaged Property, (b) any Insolvency Proceeding
relating to a Seller or any Underlying Obligor, or any action taken with
respect to any Repurchase Document or Asset Document by any trustee or receiver
of a Seller or any Underlying Obligor or by any court in any such proceeding,
(c) any claim that a Seller has or might have against Buyer under any
Repurchase Document or otherwise, (d) any default or failure on the part
of Buyer to perform or comply with any Repurchase Document or other agreement
with a Seller, (e) the invalidity or unenforceability of any Purchased
Asset, Repurchase Document or Asset Document, or (f) any other occurrence
whatsoever, whether or not similar to any of the foregoing, and whether or not
Sellers have notice or Knowledge of any of the foregoing.  The Repurchase Obligations with respect to
Purchased Mortgage Loans and Purchased REMIC Certificates shall be full
recourse to Sellers, but there shall be no recourse with respect to the
Purchased REO Entity Interests as provided in Section 5.05
hereof.  This Section 3.08
shall survive the termination of the Repurchase Documents and the payment in
full of the Repurchase Obligations.

 

ARTICLE 4

 

MARGIN MAINTENANCE

 

Section 4.01                             Margin Deficit.

 

(a)                                 If on any date
the Market Value of all Purchased Mortgage Loans and Purchased REMIC
Certificates (taking into account the Market Value of the Underlying Mortgage
Loans) is less than the product of (A) Buyer’s Margin Percentage times (B) the
aggregate outstanding Purchase Price for such Purchased Assets as of such date,
a margin deficit shall exist (a “Mortgage Loan/REMIC Margin Deficit”).  If on any date the Market Value of all
Purchased REO Entity Interests (taking into account the Market Value of the
related REO Properties)is less than the product of (A) Buyer’s Margin
Percentage times (B) the aggregate outstanding Purchase Price for such
Purchased Assets as of such date, a margin 

 

45

 

deficit shall exist (an “REO
Margin Deficit”).  If on any date
that a Mortgage Loan/REMIC Margin Deficit exists and a Margin Call Trigger
Event shall have occurred, Buyer may provide a Margin Call Notice to Sellers
notifying Sellers of such Margin Deficit (a “Margin Call”) and such
Margin Call Notice shall require Sellers, upon Buyer’s direction or, in the
case of a Margin Deficit arising solely because one or more of such Purchased
Assets have ceased to be an Eligible Asset, at Seller’s option, to either (i) transfer
cash to Buyer, (ii) transfer to Buyer or its designee (including
Custodian) for no additional consideration additional Eligible Assets (“Additional
Purchased Assets”), or (iii) choose any combination of the foregoing,
so that, after giving effect to such transfers and payments, the aggregate
outstanding Purchase Price for all Purchased Mortgage Loans and Purchased REMIC
Certificates does not exceed the product of (A) the aggregate Market Value
thereof times (B) the Applicable Purchase Price Percentage.  If on any date that an REO Margin Deficit
exists and a Margin Call Trigger Event shall have occurred, Buyer may provide a
Margin Call Notice to Sellers notifying Sellers of such Margin Deficit (a “Margin
Call”) and Sellers may, but shall have no obligation to, (i) transfer
cash to Buyer, (ii) transfer to Buyer or its designee (including
Custodian) for no additional consideration additional Eligible Assets (“Additional
Purchased Assets”), or (iii) choose any combination of the foregoing,
so that, after giving effect to such transfers, repurchases and payments, the
aggregate outstanding Purchase Price for all Purchased REO Entity Interests
does not exceed the product of (A) the aggregate Market Value thereof
times (B) the Applicable Purchase Price Percentage.  Buyer shall apply the funds received in
satisfaction of a Margin Deficit to the Repurchase Obligations in such manner
as Buyer determines; provided that any funds received from Sellers to satisfy
an REO Margin Deficit shall be applied to satisfy such REO Margin Deficit and
any funds received from Sellers to satisfy a Mortgage Loan/REMIC Margin Deficit
shall be applied to satisfy such Mortgage Loan/REMIC Margin Deficit.  For the avoidance of doubt a Margin Call may
be made with respect to a single Purchased Asset or multiple Purchased Assets.

 

(b)                                 Margin Call
Notices delivered pursuant to a Margin Call in Section 4.01(a) may
be given by any written means.  Any
Margin Call Notice with respect to a Mortgage Loan/REMIC Margin Deficit given
before 11:00 a.m. (New York City time) on a Business Day shall be met, and
the related Margin Call satisfied, no later than 5:00 p.m. (New York City
time) on the following Business Day; notice given after 11:00 a.m. (New
York City time) on a Business Day shall be met, and the related Margin Call
satisfied, no later than 11:00 a.m. (New York City time) on the second
Business Day following such notice delivery (the foregoing time requirements
for satisfaction of a Margin Call are referred to as the “Margin Deadlines”).  The failure of Buyer, on any one or more
occasions, to exercise its rights hereunder, shall not change or alter the
terms and conditions to which this Agreement is subject or limit the right of
Buyer to do so at a later date. 
Notwithstanding anything to the contrary herein, in no event shall Buyer
have recourse against any Seller for failing to cure a Margin Deficit with
respect to the REO Entity Interests, and any recourse to the Guarantor for any
such Margin Deficit shall be subject to the Recourse Limit.

 

(c)                                  Buyer’s
election not to deliver a Margin Call at any time there is a Margin Deficit
shall not waive the Margin Deficit or in any way limit or impair Buyer’s right
to deliver a Margin Call at any time when the same or any other Margin Deficit
exists.  Buyer’s rights under this Section 4.01
are in addition to and not in lieu of any other rights of Buyer under the
Repurchase Documents or Requirements of Law.

 

46

 

(d)                                 All cash
transferred to Buyer pursuant to this Section 4.01 with respect to
a Purchased Asset shall be deposited into the Waterfall Account or REO
Collection Account, as applicable, except as directed by Buyer, and
notwithstanding any provision in Section 5.02 to the contrary,
shall be applied to reduce the Purchase Price of such Purchased Asset.

 

ARTICLE 5

 

APPLICATION OF INCOME

 

Section 5.01                             Accounts; Income.

 

Each of the Accounts shall
be established at Account Bank.  Buyer
shall have sole dominion and control (including, without limitation, “control”
within the meaning of Section 9-104(a) of the UCC) over the Waterfall
Account, the Participation Account and each Interest Reserve Account.  No Sellers nor any Person claiming through or
under Sellers shall have any claim to or interest in the Waterfall Account, the
Participation Account (except to the extent provided in the related REMIC
Declaration Agreement) or any Interest Reserve Account.  All Income received with respect to Purchased
Assets or Underlying Assets shall be deposited in to the applicable Account in
accordance with Section 5.01(b). 
All Income on deposit in the Waterfall Account and all amounts on
deposit in each Interest Reserve Account shall be property of the Buyer and
applied to and remitted by Account Bank in accordance with this Article 5.

 

(a)                                 If any Income
is received by Seller, Servicer, Guarantor or any Affiliate thereof, Seller
shall or shall cause such Servicer, Guarantor or such Affiliate to: (i) remit
Income with respect to Purchased Mortgage Loans and Purchased REMIC
Certificates to the Waterfall Account not later than the second (2nd) Business Day following
Servicer’s receipt thereof, (ii) remit all Income with respect to
Underlying Mortgage Loans shall be deposited into the Participation Account in
accordance with the REMIC Declaration Agreement, and (iii) (x) direct all net liquidation proceeds payable to PC REO
in connection with the sale or other disposition of any Underlying REO Property
to be deposited directly into the REO Collection Account, and (y) remit all
Income received by Servicer with respect to REO Properties underlying Purchased
REO Entity Interests to the REO Collection Account not later than the second (2nd) Business Day following receipt by Servicer, any Seller, Guarantor or
any Affiliate thereof.  All Income
remitted by Servicer pursuant to the foregoing shall be remitted on a gross
basis, without deduction for Servicing Fees, Protective Servicing Advances or
any other amounts that Servicer may otherwise be permitted to offset against
Income under the Servicing Agreement. 
All amounts on deposit in the Participation Account and the REO
Collection Account shall be remitted to the Waterfall Account on each
Remittance Date as provided in the REMIC Declaration Agreement and the Trust
Agreement, as applicable. Buyer shall have the right as Paying Agent (as
defined in the REMIC Declaration Agreement) to remit all amounts on deposit in
the Participation Account to the Waterfall Account on each Distribution Date
(as defined in the REMIC Declaration Agreement).

 

Section 5.02                             Before a
Default or an Event of Default.  If no Default or Event of Default exists, all
Income described in Section 5.01 and deposited into the REO
Collection Account or 

 

47

 

the Waterfall Account during each Pricing Period
shall be applied by Account Bank by no later than the next following Remittance
Date as provided in clauses (a), (b), (c) and (d) below:

 

(a)                                 All Income received prior to the occurrence of a Turbo Trigger Event
shall be applied as follows:

 

I.                                        With respect to
Income on deposit in the Waterfall Account with respect to the Purchased REO
Entity Interests:

 

first, to pay to Buyer an amount equal to the Price
Differential accrued with respect to all Purchased REO Entity Interests as of
such Remittance Date;

 

second, to pay to Buyer an amount sufficient to eliminate
any outstanding REO Margin Deficit;

 

third, to deposit any amounts necessary to maintain the
Required Amount with respect to the Purchased REO Entity Interests in the REO
Property Interest Reserve Account;

 

fourth, to pay to Buyer an amount equal to all default
interest, late fees, fees, expenses and Indemnified Amounts then due and
payable from Sellers and other applicable Persons to Buyer under the Repurchase
Documents and allocable to the Purchased REO Entity Interests;

 

fifth, pro-rata, to pay to Sellers, an amount equal to
the sum of the Management Fees and the Direct Pass-Through Expenses then due
and owing for the related Pricing Period and allocable to the Purchased REO
Entity Interests; and

 

sixth, any remaining amounts to the Waterfall Account.

 

II.                                   With respect to
Income on deposit in the Waterfall Account with respect to the Purchased
Mortgage Loans and Purchased REMIC Certificates and any amounts referred to in
clause sixth of (a)(I) above:

 

first, to pay to Servicer, an amount equal to the
Servicing Fees and Protective Servicing Advances then due and owing to Servicer
for the related Pricing Period with respect to the Purchased REMIC Certificates
(and the Underlying Mortgage Loans) and Purchased Mortgage Loans under the
express terms of the related Servicing Agreement;

 

second, to pay to Buyer an amount equal to the Price
Differential accrued with respect to all Purchased REMIC Certificates and
Purchased Mortgage Loans as of such Remittance Date;

 

third, to pay to Buyer an amount sufficient to eliminate
any outstanding Mortgage Loan/REMIC Margin Deficit with respect to the
Purchased REMIC Certificates and the Purchased Mortgage Loans (without limiting
Sellers’ obligation to satisfy a Mortgage Loan/REMIC Margin Deficit in a timely
manner as required by Section 4.01);

 

48

 

fourth, to deposit any amounts necessary to maintain the
Required Amount with respect to the Purchased Mortgage Loans and Purchased
REMIC Certificates in the Mortgage Loan Interest Reserve Account;

 

fifth, to pay to Buyer an amount equal to all default
interest, late fees, fees, expenses and Indemnified Amounts then due and
payable from Sellers and other applicable Persons to Buyer under the Repurchase
Documents and allocable to the Purchased REMIC Certificates and the Purchased
Mortgage Loans;

 

sixth, pro-rata, to pay to Sellers, an amount equal to
the sum of the Management Fees and the Direct Pass-Through Expenses then due
and owing for the related Pricing Period and allocable to the Purchased REMIC
Certificates, Underlying Mortgage Loans and Purchased Mortgage Loans;

 

seventh, to pay to Sellers, an amount equal to the lesser
of (i) the Estimate of Guarantor Net Income or (ii) 15% of all Income
collected during such Pricing Period;

 

eighth, to pay to Servicer, an amount equal to the
Carryover Amount;

 

ninth, to pay to Buyer, the amount needed to reduce the
aggregate outstanding Purchase Price for the Purchased REMIC Certificates and
Purchased Mortgage Loans to zero; and

 

tenth, any remaining amounts to Sellers.

 

Notwithstanding the
foregoing, in no event shall the sum of the aggregate payments to Servicer
and/or Sellers pursuant to the Trust Agreement with respect to REO Properties
and clause fifth in Section 5.02(a)(I) above
and clauses first, sixth,
seventh, and eighth in Section 5.02(a)(II) above, exceed
30% of the Income collected by Servicer during such Pricing Period with respect
to Purchased Mortgage Loans and Underlying Assets.

 

(b)                                 All Income received with respect to Purchased Mortgage Loans and
Purchased REMIC Certificates during the occurrence of a Turbo Trigger Event
shall be paid to Buyer to reduce the aggregate outstanding Purchase Price of
such Purchased Assets to zero.  All
Income received with respect to Purchased REO Entity Interests during the
occurrence of a Turbo Trigger Event shall be paid to Buyer to reduce the
Aggregate Purchase Price to zero.

 

(c)                                  On the Maturity
Date, all Income net of those proceeds used to pay the Price Differential shall
be paid to Buyer to reduce the Aggregate Purchase Price to zero.

 

(d)                                 Notwithstanding anything contained herein to the contrary, if on any
Remittance Date, the amounts then on deposit in the REO Collection Account are
insufficient to satisfy clause first of Section 5.02(a)(I) of
the Agreement or the amounts then on deposit in the Waterfall Account are
insufficient to satisfy clause second of Section 5.02(a)(II) of
the Agreement, Buyer may withdraw from the applicable Interest Reserve Account
an amount of funds necessary to cure such deficiency.

 

(e)                                  On any Remittance Date, after giving effect to any withdrawal from the
Interest Reserve Accounts pursuant to clause (d) and upon written request
from the Sellers, the 

 

49

 

Buyer
shall withdraw from each Interest Reserve Account and pay to the Sellers (in
accordance with their direction) any excess of (x) the amount on deposit
therein, over (y) the related Required Amount; provided, however, that the
Buyer shall have no obligation to make any such payment if an Event of Default
shall have occurred and not been waived by the Buyer.

 

(f)                                   Upon the Maturity Date and the repayment in full by the Sellers of all
Repurchase Obligations hereunder, the Buyer shall withdraw from each Interest
Reserve Account and pay to the Sellers (in accordance with their direction) any
remaining amounts on deposit in each Interest Reserve Account.

 

Section 5.03                             After Default
or Event of Default.  If an Event
of Default exists, Buyer shall have the right to apply all Income deposited
into the Waterfall Account, the REO Collection Account and the Participation
Account in respect of the Purchased Assets and Underlying Assets, on the Business
Day next following the Business Day on which each amount of Income is so
deposited, in any manner Buyer deems appropriate.

 

Section 5.04                             Sellers to Remain Liable.  If the amounts remitted to Buyer as provided
in Sections 5.02 and 5.03 are insufficient to pay all
amounts due and payable from Sellers to Buyer under this Agreement or any
Repurchase Document on a Remittance Date, a Repurchase Date, upon the
occurrence of an Event of Default or otherwise, Sellers shall nevertheless
remain liable for and shall pay to Buyer when due all such amounts other than
with respect to the Purchase REO Entity Interests for which there shall be no
recourse to Sellers, subject to Section 5.05 hereof.

 

Section 5.05                             No Recourse for REO Equity Interests. Notwithstanding anything contained in Section 5.04
hereof, if the amounts remitted to Buyer as provided in Sections 5.02 and 5.03
are insufficient to pay all amounts due and payable from Sellers to Buyer under
this Agreement or any Repurchase Document on a Remittance Date, a Repurchase
Date, upon the occurrence of an Event of Default or otherwise, to the extent
any such amounts are in respect of the Purchased REO Entity Interests, there
shall be no recourse to Sellers for any such amounts.

 

ARTICLE 6

 

CONDITIONS PRECEDENT

 

Section 6.01                             Conditions
Precedent to Initial Transaction.  Buyer shall not be obligated to enter into
any Transaction or purchase any Asset until the following conditions have been
satisfied or waived by Buyer on and as of the Effective Date and the initial
Purchase Date:

 

(a)                                 Buyer has received the following documents, each dated the Closing Date
or as of the Closing Date unless otherwise specified:  (i) each Repurchase Document duly
executed and delivered by the parties thereto (other than with respect to the
Closing Date, any REMIC Declaration Agreement), (ii) an official good
standing certificate dated within fourteen (14) days of the Closing Date with
respect to each Seller, Servicer and Guarantor, (iii) certificates of the
secretary or an assistant secretary of each Seller, Servicer and Guarantor
together with copies of the Governing Documents and applicable resolutions and
the incumbencies and signatures of officers of each Seller, Servicer and
Guarantor executing the Repurchase Documents to which it is a party, evidencing
the respective authority of each Seller, 

 

50

 

Servicer
and Guarantor with respect to the execution, delivery and performance thereof,
(iv) a Closing Certificate, (v) an executed Power of Attorney,
(vi) such opinions from counsel (dated on or prior to the Effective Date)
to Sellers, Servicer and Guarantor as Buyer may require, including with respect
to corporate matters, enforceability, non-contravention, no consents or
approvals required other than those that have been obtained, first priority
perfected security interests in the Purchased Assets and Underlying Mortgage
Loans and related Servicing Rights (except to the extent any of PMC’s rights,
title and interest in such Underlying Mortgage Loans and Servicing Rights have
been legally and validly sold, transferred and assigned by PMC to the Class A
Participant in accordance with the related REMIC Declaration Agreement. and any
other collateral pledged pursuant to the Repurchase Documents, Investment
Company Act matters, local counsel opinions with respect to any Seller or
Guarantor that is domiciled offshore, true sale, substantive non-consolidation,
and the applicability of Bankruptcy Code “securities contract” and “master
netting agreement” safe harbors, and (vii) all other documents,
certificates, information, financial statements, reports, approvals and
opinions of counsel as it may require;

 

(b)                                 (i) UCC
financing statements have been filed against Sellers in all filing offices
required by Buyer, (ii) Buyer has received such searches of UCC filings,
tax liens, judgments, pending litigation, bankruptcy and other matters relating
to Sellers, Servicer, Guarantor and the Purchased Assets and Underlying
Mortgage Loans as Buyer may require, and (iii) the results of such
searches are satisfactory to Buyer;

 

(c)                                  Buyer has
received payment from Sellers of all fees and expenses then payable under the
Fee Letter and the other Repurchase Documents, as contemplated by Section 13.02,
including without limitation the Facility Fee; and

 

(d)                                 Buyer has
completed to its satisfaction such due diligence and modeling as it may
require.

 

Section 6.02                             Conditions
Precedent to All Transactions.  Buyer shall not be obligated to enter into
any Transaction, purchase any Asset, or be obligated to take, fulfill or
perform any other action hereunder, until the following additional conditions
have been satisfied or waived by Buyer, with respect to each Asset on and as of
the Purchase Date therefor:

 

(a)                                 With respect to any Asset proposed to be sold, Buyer has received the
following documents:  (i) a
Transaction Request, (ii) an Underwriting Package, (iii) a
Confirmation, (iv) a fully executed Servicer Instruction Notice together
with the Servicing Agreement (to the extent not already received pursuant to Section 6.01(a)),
(v) a fully executed Investment Advisor Side Letter (to the extent not
already received pursuant to Section 6.01(a)) and (vi) all other
documents, certificates, information, financial statements, reports, approvals
and opinions of counsel (including, without limitation, (x) a true sale opinion to the extent any
Eligible Asset was transferred to Sellers from another Affiliate and was not
transferred pursuant to the Contribution Agreement or any Underlying Mortgage
Loans transferred pursuant to a participation interest by PMC to the Class A
Participant pursuant to any REMIC Declaration Agreement, and (y) if such
Asset being sold is a REMIC Certificate, an Investment
Company Act opinion that covers such Asset and the related REMIC Declaration
Agreement) as Buyer may require;

 

51

 

(b)                                 With respect to
any Mortgage Loan (including, without limitation any Removed Mortgage Loans)
proposed to be sold and any Underlying Mortgage Loan proposed to support REMIC
Certificates, Custodian has received all related Mortgage Loan Documents in
accordance with the provisions of the Custodial Agreement, and Buyer has
received a trust receipt with respect to such Mortgage Loan Documents and
any other item required to be delivered to Buyer under the Custodial Agreement;

 

(c)                                  With respect to
any REO Property (including, without limitation any Foreclosed Mortgage Loans)
proposed to support REO Entity Interests, (i) Custodian has received all
related REO Property Documents in accordance with the provisions of the
Custodial Agreement, (ii) Buyer has received a trust receipt with
respect to such REO Property Documents and any other item required to be
delivered to Buyer under the Custodial Agreement and (iii) Buyer has been
provided “view access” to Sellers’ REO Property management systems;

 

(d)                                 With respect to
any REMIC Certificate proposed to be sold, in addition to the requirements of Section 6.02(b):  (i) the original, definitive REMIC Certificate
in form suitable for transfer, with appropriate Transfer Documents in blank
duly executed or endorsed by PMIT, (ii) any other documents or instruments
necessary in the reasonable opinion of Buyer to effect and perfect a legally
valid delivery of such security to Buyer, and (iii) a copy of the fully
executed, related REMIC Declaration Agreement, certified by Sellers as a true,
correct and complete copy of the original, which REMIC Declaration Agreement
shall be subject to Buyer’s approval, which may be given or withheld in its
discretion.

 

(e)                                  With respect to
any REO Entity Interests proposed to be sold, in addition to the requirements
of Section 6.02(c):  (i) the
original, definitive trust certificate evidencing 100% of the Capital Stock of
PC REO in form suitable for transfer, with appropriate Transfer Documents in
blank duly executed or endorsed by PMC, (ii) any other documents or
instruments necessary in the reasonable opinion of Buyer to effect and perfect
a legally valid delivery of such security to Buyer, and (iii) a copy of
the fully executed, related Trust Agreement, certified by Sellers as a true,
correct and complete copy of the original, which Trust Agreement shall be
subject to Buyer’s approval, which may be given or withheld in its discretion.

 

(f)                                   immediately
before such Transaction and after giving effect thereto and to the intended use
thereof, no Representation Breach (including with respect to any Purchased
Asset), Default, Event of Default, Margin Deficit, Material Adverse Effect or Market
Disruption Event exists;

 

(g)                                  Buyer has
completed its due diligence review of the Underwriting Package, Asset Documents
and such other documents, records and information as Buyer deems appropriate,
and the results of such reviews are satisfactory to Buyer, which shall include
without limitation, ordering BPOs on a representative sample of Assets as
determined by Buyer and its credit review of the data and documentation related
to any Assets proposed for sale under such Transaction.  The Sellers shall pay all reasonable
out-of-pocket costs and expenses incurred by Buyer in connection with Buyer’s
activities pursuant to this Section 6.02(c).  Sellers shall deliver BPOs in addition to the
representative sample upon the request of Buyer or Buyer may order additional
BPOs at anytime, provided that these additional BPOs shall be at the 

 

52

 

Buyer’s sole expense.  Sellers shall provide Buyer with a BPO
Schedule for all Purchased Mortgage Loans and Underlying Assets;

 

(h)                                 Buyer has
(i) determined that such Asset is an Eligible Asset, (ii) approved
the purchase of such Asset or the addition of such Asset (if an Underlying
Asset), and (iii) executed the Confirmation;

 

(i)                                     the Aggregate
Purchase Price of all Transactions does not exceed the Maximum Aggregate
Purchase Price after giving effect to such Transaction;

 

(j)                                    such Purchase
Date occurs on or after the Closing Date and the Repurchase Date is not later
than the Maturity Date;

 

(k)                                 Sellers and
Custodian have satisfied all requirements and conditions and have performed all
covenants, duties, obligations and agreements contained in the Repurchase
Documents to be performed by such Person on or before such Purchase Date;

 

(l)                                     to the extent
the related Asset Documents contain notice, cure and other provisions in favor
of a pledgee under a repurchase or warehouse facility, and without prejudice to
the sale treatment of such Asset to Buyer, Buyer has received evidence that
Sellers have given notice to the applicable Persons of Buyer’s interest in such
Asset and otherwise satisfied any other applicable requirements under such
pledgee provisions so that Buyer is entitled to the rights and benefits of a
pledgee under such pledgee provisions;

 

(m)                             if requested by
Buyer, such opinions from counsel to Sellers and Guarantor as Buyer may
require, including, without limitation, with respect to the first priority
perfected security interest in the Purchased Assets and Underlying Mortgage
Loans (except to the extent any of PMC’s rights, title and interest in such
Underlying Mortgage Loans have been legally and validly sold, transferred and
assigned by PMC to the Class A Participant in accordance with the related
REMIC Declaration Agreement).  and any
other collateral pledged pursuant to the Repurchase Documents;

 

(n)                                 Buyer shall
have received executed blank assignments of all Mortgage Loan Documents in
appropriate form for recording in the jurisdiction in which the Underlying
Mortgaged Property is located (the “Blank Assignment Documents”);

 

(o)                                 If there shall
occur any Servicer Change of Control or if Servicer is otherwise deemed to be
an Affiliate of a Seller or Guarantor, Buyer shall have provided Sellers with
its written consent with respect to such Servicer Change of Control or affiliation;

 

(p)                                 Buyer shall
have received and consented to all amendments, supplements and modifications to
the Servicing Agreement; and

 

(q)                                 (x) each Interest Reserve Account contains funds in an amount equal
to the applicable Required Amount (after giving effect to such purchase), or (y) the
Sellers have irrevocably directed the Buyer to deduct any deficiency in the
amount described in clause (x) from the Purchase Price to be paid the
applicable Seller(s) with respect to such Transaction;

 

53

 

Each
Confirmation delivered by Sellers shall constitute a certification by Sellers
that all of the conditions precedent in this Article 6 have been
satisfied.

 

The
failure of a Seller to satisfy any of the conditions precedent in this Article 6
with respect to any Transaction or Purchased Asset shall, unless such failure
was waived in writing by Buyer on or before the related Purchase Date, give
rise to the right of Buyer at any time to rescind the related Transaction,
whereupon Sellers shall immediately pay to Buyer the Repurchase Price of such
Purchased Asset.

 

ARTICLE 7

 

REPRESENTATIONS
AND WARRANTIES OF SELLERS

 

Each
Seller (unless otherwise specified herein) represents and warrants, on and as
of the date of this Agreement, each Purchase Date, and at all times when any
Repurchase Document or Transaction is in full force and effect, as follows:

 

Section 7.01                             Seller.  Seller has been duly organized and validly
exists in good standing as a corporation, limited liability company or limited
partnership, as applicable, under the laws of the jurisdiction of its
incorporation, organization or formation. 
Seller (a) has all requisite power, authority, legal right,
licenses and franchises, (b) is duly qualified to do business in all
jurisdictions necessary, and (c) has been duly authorized by all necessary
action, to (w) own, lease and operate its properties and assets,
(x) conduct its business as presently conducted, (y) execute, deliver
and perform its obligations under the Repurchase Documents to which it is a party,
and (z) acquire, own, sell, assign, pledge and repurchase the Purchased
Assets and Underlying Mortgage Loans. 
Seller’s exact legal name is set forth in the preamble and signature pages of
this Agreement.  Seller’s location
(within the meaning of Article 9 of the UCC), and the office where Seller
keeps all records (within the meaning of Article 9 of the UCC) relating to
the Purchased Assets and Underlying Assets is at the address of Seller referred
to in Schedule 2.  PMC has not
changed its name or location within the past twelve (12) months.  PMC’s tax identification number is
80-0463416.  PMC has the following
subsidiaries: PC REO.  PMC is a
wholly-owned Subsidiary of PMOP.  The
fiscal year of PMC is the calendar year. 
PMIT has not changed its name or location within the past twelve
(12) months.  PMIT’s tax
identification number is 27-2199755. 
PMIT does not have any subsidiaries. 
PMIT is a wholly-owned Subsidiary of PMOP.  The fiscal year of PMIT is the calendar
year.  PC REO is a wholly-owned Subsidiary
of PMC.  The fiscal year of PC REO is the
calendar year.  PC REO has no
Indebtedness, Contractual Obligations or investments other than
(a) ordinary trade payables (including amounts due and payable to Servicer
for the REO Properties and other service providers in connection therewith),
(b) in connection with Assets acquired or originated for the Transactions,
and (c) the Repurchase Documents. 
PC REO has no Guarantee Obligations.

 

Section 7.02                             Repurchase Documents.  Each Repurchase Document to which Seller is a
party has been duly executed and delivered by Seller and constitutes the legal,
valid and binding obligation of Seller enforceable against Seller in accordance
with its terms, except as such enforceability may be limited by Insolvency Laws
and general principles of equity.  The
execution, delivery and performance by Seller of each Repurchase Document to
which it is a party do not and will not (a) conflict with, result in a
breach of, or constitute (with or without notice or lapse of time or both) a
default under, any (i) Governing Document, Indebtedness, 

 

54

 

Guarantee Obligation or Contractual Obligation
applicable to Seller or any of its properties or assets, (ii) Requirements
of Law, or (iii) approval, consent, judgment, decree, order or demand of
any Governmental Authority, or (b) result in the creation of any Lien
(other than Permitted Liens) on any of the properties or assets of Seller.  All approvals, authorizations, consents,
orders, filings, notices or other actions of any Person or Governmental
Authority required for the execution, delivery and performance by Seller of the
Repurchase Documents to which it is a party and the sale of and grant of a
security interest in each Purchased Asset to Buyer, have been obtained,
effected, waived or given and are in full force and effect.  The execution, delivery and performance of
the Repurchase Documents do not require compliance by Seller with any “bulk
sales” or similar law.  There is no
material litigation, proceeding or investigation pending or, to the Knowledge
of Seller threatened, against Seller or any Affiliate thereof before any
Governmental Authority (a) asserting the invalidity of any Repurchase
Document, (b) seeking to prevent the consummation of any Transaction, or
(c) seeking any determination or ruling that could reasonably be expected
to have a Material Adverse Effect.

 

Section 7.03                             Solvency.  Neither Seller nor any Affiliate of Seller is
or has ever been the subject of an Insolvency Proceeding.  Seller and each Affiliate of Seller is
Solvent and the Transactions do not and will not render Seller or any Affiliate
thereof not Solvent.  Seller is not
entering into the Repurchase Documents or any Transaction with the intent to
hinder, delay or defraud any creditor of Seller or any Affiliate thereof.  Seller has received or will receive
reasonably equivalent value for the Repurchase Documents and each
Transaction.  Seller has adequate capital
for the normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations.  Seller is generally able to pay, and as of
the date hereof is paying, its debts as they come due.

 

Section 7.04                             Taxes.  Seller and each Affiliate of Seller have
filed all required federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by them and have paid all
material taxes (including mortgage recording taxes), assessments, fees, and
other governmental charges payable by them, or with respect to any of their
properties or assets, which have become due, and income or franchise taxes have
been paid or are being contested in good faith by appropriate proceedings
diligently conducted and for which appropriate reserves have been established
in accordance with GAAP.  Seller and each
Affiliate of Seller have paid, or have provided adequate reserves for the
payment of, all such taxes for all prior fiscal years and for the current fiscal
year to date.  There is no material
action, suit, proceeding, investigation, audit or claim relating to any such
taxes now pending or, to the Knowledge of Seller, threatened by any
Governmental Authority which is not being contested in good faith as provided
above.  Neither Seller nor any Affiliate
of Seller has entered into any agreement or waiver or been requested to enter
into any agreement or waiver extending any statute of limitations relating to
the payment or collection of taxes, or is aware of any circumstances that would
cause the taxable years or other taxable periods of Seller or any Affiliate
thereof not to be subject to the normally applicable statute of
limitations.  No tax liens have been
filed against any assets of Seller or any Affiliate thereof.  Seller does not intend to treat any
Transaction as being a “reportable transaction” as defined in Treasury
Regulation Section 1.6011-4.  If
Seller determines to take any action inconsistent with such intention, it will
promptly notify Buyer, in which case Buyer may treat each Transaction as
subject to Treasury Regulation Section 301.6112-1 and will maintain the
lists and other records required thereunder.

 

55

 

Section 7.05                             Financial Condition.  The audited balance sheet of each of Seller
and Servicer as of the fiscal year most recently ended for which such audited
balance sheet is available, and the related audited statements of income and
retained earnings and of cash flows for the fiscal year then ended, setting
forth in each case in comparative form the figures for the previous year,
reported on without a “going concern” or like qualification arising out of the
audit conducted by each of Seller’s and Servicer’s respective independent
certified public accountants, copies of which have been delivered to Buyer, are
complete and correct and present fairly the financial condition of Seller and
Servicer (as the case may be) as of such date and the results of its operations
and cash flows for the fiscal year then ended. 
All such financial statements, including related schedules and notes,
were prepared in accordance with GAAP except as disclosed therein.  Neither Seller nor Servicer has any material
contingent liability or liability for taxes or any long term lease or unusual
forward or long term commitment, including any Derivative Contract, which is
not reflected in the foregoing statements or notes.  Since the date of the financial statements
and other information delivered to Buyer prior to the Closing Date, neither
Seller nor Servicer has sold, transferred or otherwise disposed of any material
part of its property or assets (except pursuant to the Repurchase Documents) or
acquired any property or assets (including Equity Interests of any other
Person) that are material in relation to the financial condition of Seller.

 

Section 7.06                             True and Complete Disclosure.  The information, reports, certificates,
documents, financial statements, operating statements, forecasts, books,
records, files, exhibits and schedules furnished by or on behalf of Seller or
Servicer to Buyer in connection with the Repurchase Documents and the
Transactions, when taken as a whole, do not contain any untrue statement of
material fact or omit to state any material fact necessary to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading.  All written
information furnished after the date hereof by or on behalf of Seller to Buyer
in connection with the Repurchase Documents and the Transactions will be true,
correct and complete in all material respects, or in the case of projections
will be based on reasonable estimates prepared and presented in good faith, on
the date as of which such information is stated or certified.

 

Section 7.07                             Compliance with Laws.  Seller has complied in all material respects
with all Requirements of Laws, and no Purchased Asset contravenes any
Requirements of Laws.  Neither Seller nor
any Affiliate of Seller (a) is an “enemy” or an “ally of the enemy” as
defined in the Trading with the Enemy Act of 1917, (b) is in violation of
any Anti-Terrorism Laws, (c) is a blocked person described in
Section 1 of Executive Order 13224 or to its knowledge engages in any
dealings or transactions or is otherwise associated with any such blocked
person, (d) is in violation of any country or list based economic and
trade sanction administered and enforced by the Office of Foreign Assets
Control, (e) is a Sanctioned Entity, (f) has more than 10% of its
assets located in Sanctioned Entities, or (g) derives more than 10% of its
operating income from investments in or transactions with Sanctioned
Entities.  The proceeds of any
Transaction have not been and will not be used to fund any operations in,
finance any investments or activities in or make any payments to a Sanctioned
Entity.  Seller is a “qualified purchaser”
as defined in the Investment Company Act. 
Neither Seller nor any Affiliate of Seller (a) is or is controlled
by an “investment company” as defined in such Act or is exempt from the
provisions of the Investment Company Act, (b) is a “broker” or “dealer” as
defined in, or could be subject to a liquidation proceeding under, the
Securities Investor Protection Act of 1970, or (c) is subject to
regulation 

 

56

 

by any Governmental Authority limiting its ability
to incur the Repurchase Obligations.  No
properties presently or previously owned or leased by Seller, any Affiliate of
Seller or their respective predecessors contain or previously contained any
Materials of Environmental Concern that constitute or constituted a violation
of Environmental Laws or reasonably could be expected to give rise to liability
of Seller thereunder.  Seller has no
Knowledge of any violation, alleged violation, non-compliance, liability or
potential liability of Seller under any Environmental Law.  Materials of Environmental Concern have not
been released, transported, generated, treated, stored or disposed of in
violation of Environmental Laws or in a manner that reasonably could be expected
to give rise to liability of Seller. 
Seller and all Affiliates of Seller are in compliance with the Foreign
Corrupt Practices Act of 1977 and any foreign counterpart thereto.  Neither Seller nor any Affiliate of Seller
has made, offered, promised or authorized a payment of money or anything else
of value (a) in order to assist in obtaining or retaining business for or
with, or directing business to, any foreign official, foreign political party,
party official or candidate for foreign political office, (b) to any
foreign official, foreign political party, party official or candidate for
foreign political office, or (c) with the intent to induce the recipient
to misuse his or her official position to direct business wrongfully to Seller,
any Affiliate of Seller or any other Person, in violation of the Foreign
Corrupt Practices Act.

 

Section 7.08                             Compliance with ERISA.  With respect to Seller, Servicer or any ERISA
Affiliate thereof, during the immediately preceding five (5) year period,
(a) neither a Reportable Event nor an “accumulated funding deficiency” nor
“an unpaid minimum required contribution” as defined in the Code or ERISA has
occurred, (b) each Plan has complied in all material respects with the
applicable provisions of the Code and ERISA, (c) no termination of a
Single Employer Plan has occurred resulting in any liability that has remained
underfunded, and (d) no Lien in favor of the PBGC or a Plan has
arisen.  The present value of all
accumulated benefit obligations under each Single Employer Plan (based on the
assumptions used for the purposes of Financial Accounting Statement Bulletin
87) relating to Seller, Servicer or any ERISA Affiliate thereof did not, as of
the last annual valuation date prior to the date hereof, exceed the value of the
assets of such Plan allocable to such accumulated benefit obligations.  Neither Seller nor any Affiliate of Seller is
currently subject to any liability for a complete or partial withdrawal from a
Multiemployer Plan.  Seller does not
provide any medical or health benefits to former employees other than as
required by the Consolidated Omnibus Budget Reconciliation Act, as amended, or
similar state or local law (collectively, “COBRA.”) at no cost to the
employer.  None of the assets of Seller
are deemed to be plan assets within the meaning of 29 C.F.R. 2510.3-101 as
modified by Section 3(42)  of ERISA.

 

Section 7.09                             No Default or Material Adverse Effect.  No Default or Event of Default exists.  No default or event of default (however
defined) exists under any Indebtedness, Guarantee Obligations or Contractual
Obligations of Seller.  Seller believes
that it is and will be able to pay and perform each agreement, duty, obligation
and covenant contained in the Repurchase Documents and Asset Documents to which
it is a party, and that it is not subject to any agreement, obligation,
restriction or Requirements of Law which would unduly burden its ability to do
so or could reasonably be expected to have a Material Adverse Effect.  Seller has no Knowledge of any actual or
prospective development, event or other fact that could reasonably be expected
to have a Material Adverse Effect.  No
Internal Control Event has occurred. 
Seller has delivered to Buyer all underlying servicing agreements (or
provided the Buyer with access to a service, internet website or other system
where the Buyer can successfully access such 

 

57

 

agreements) with respect to the Purchased Assets and
Underlying Assets, and to Seller’s Knowledge no material default or event of
default (however defined) exists thereunder. 
No default or event of default (however defined) on the part of Seller
exists under any credit facilities, repurchase facilities or substantially similar
facilities of Seller that are presently in effect.

 

Section 7.10                             Purchased Assets.  Each Purchased Asset is an Eligible
Asset.  Each representation and warranty
of the Seller set forth in the Repurchase Documents (including those contained
in Schedules 1-A, 1-B and 1-C applicable to related
Purchased Asset) and the Asset Documents with respect to each Purchased Asset
is true and correct.  The review and
inquiries made on behalf of Seller in connection with the next preceding
sentence have been made by Persons having the requisite expertise, knowledge
and background to verify such representations and warranties.  Seller has complied with all requirements of
the Custodial Agreement with respect to each Purchased Asset, including
delivery to Custodian of all required Asset Documents.  Seller has no Knowledge of any fact that
could reasonably lead it to expect that any Purchased Asset will not be paid in
full or the Market Value thereon not be obtained or realized.  No Purchased Asset is or has been the subject
of any compromise, adjustment, extension, satisfaction, subordination,
rescission, setoff, counterclaim, defense, abatement, suspension, deferment,
deduction, reduction, termination or modification, whether arising out of
transactions concerning such Purchased Asset or otherwise, by Seller or any
Affiliate thereof, Transferor, Underlying Obligor or other Person, except as
set forth in the Asset Documents delivered to Buyer.  Each proposed Purchased Asset was acquired in
accordance with and satisfies applicable standards established by Seller or any
Affiliate thereof.  None of the Asset
Documents has any marks or notations indicating that it has been sold,
assigned, pledged, encumbered or otherwise conveyed to any Person other than
Buyer.  If any Asset Document requires
the holder or transferee of the related Purchased Asset to be a qualified
transferee, qualified institutional lender or qualified lender (however
defined), Seller meets such requirement. 
Assuming that Buyer also meets such requirement, the assignment and
pledge of such Purchased Asset to Buyer pursuant to the Repurchase Documents do
not violate such Asset Document.  Seller
and all Affiliates of Seller (a) have sold and transferred all Servicing
Rights with respect to the Purchased Assets to Buyer, and (b) have no
Retained Rights except as may be provided in the Repurchase Documents.  At Buyer’s election (and, prior to an Event
of Default, at Buyer’s sole cost and expense), Buyer may complete and record
any or all of the Blank Assignment Documents as further evidence of Buyer’s ownership
interest in the related Purchased Assets.

 

Section 7.11                             Purchased Assets Acquired from Transferors.  With respect to each Purchased Asset
purchased by Seller or an Affiliate of Seller from a Transferor, (a) such
Purchased Asset was acquired and transferred on a true sale basis pursuant to a
Purchase Agreement, (b) such Transferor received reasonably equivalent
value in consideration for the transfer of such Purchased Asset, (c) no
such transfer was made for or on account of an antecedent debt owed by such
Transferor to Seller or an Affiliate of Seller, (d) no such transfer is or
may be voidable or subject to avoidance under the Bankruptcy Code, and
(e) the representations and warranties made by such Transferor to Seller
or such Affiliate in such Purchase Agreement are hereby incorporated herein mutatis mutandis and are hereby remade by Seller to Buyer on
each date as of which they speak in such Purchase Agreement.

 

58

 

Section 7.12                             Transfer and Security Interest.  The Repurchase Documents constitute a valid
and effective transfer to Buyer of all right, title and interest of Seller in,
to and under all Purchased Assets (together with all related Servicing Rights
with respect to such Purchased Assets), free and clear of any Liens (other than
Permitted Liens).  With respect to the
protective security interest granted by Seller in Section 11.01,
upon the delivery of the Confirmations and the Asset Documents to Custodian,
and the filing of the UCC financing statements as provided herein, such
security interest shall be a valid first priority perfected security interest
to the extent such security interest can be perfected by possession, filing or
control under the UCC, subject only to Permitted Liens.  Upon receipt by Custodian of each Asset
Document required to be endorsed in blank by Seller and payment by Buyer of the
Purchase Price for the related Purchased Asset, Buyer shall either own such
Purchased Asset and the related Asset Documents or have a valid first priority
perfected security interest in such Asset Document.  The Purchased Assets constitute the
following, as defined in the UCC:  a
general intangible, instrument, investment property, security, deposit account,
financial asset, uncertificated security, certificated security, securities
account, or security entitlement.  Seller
has not sold, assigned, pledged, encumbered or otherwise conveyed any of the
Purchased Assets or Underlying Assets to any Person other than pursuant to the
Repurchase Documents.  Seller has not
authorized the filing of and is not aware of any UCC financing statements filed
against Seller as debtor that include the Purchased Assets or Underlying
Assets, other than any financing statement that has been terminated or filed
pursuant to this Agreement or any other Repurchase Document.

 

Section 7.13                             No Broker.  Neither Seller nor any Affiliate of Seller
has dealt with any broker, investment banker, agent or other Person, except for
Buyer or an Affiliate of Buyer, who may be entitled to any commission or
compensation in connection with any Transaction.

 

Section 7.14                             Separateness.  Seller is in compliance with the requirements
of Article 9.

 

Section 7.15                             Other Indebtedness.  All Indebtedness (other than Indebtedness as
evidenced by this Agreement or Indebtedness to Seller’s or Servicer’s sole
stockholder or member included in the calculation of Adjusted Tangible Net
Worth) of the Seller or Servicer existing on the date hereof are listed on Schedule
4 hereto.

 

Section 7.16                             Location of Books and Records.  The location where Seller keeps its books and
records, including all computer tapes and records relating to the Purchased
Assets and Underlying Assets is its chief executive office.

 

Section 7.17                             Chief Executive Office; Jurisdiction of Organization.  On the Closing Date, chief executive office
of (i) PMC is and has been located at 27001 Agoura Road, Third Floor,
Calabasas, CA 91301, (ii) PMIT is and has been located at 27001 Agoura
Road, Third Floor, Calabasas, CA 91301 and (iii) PC REO is and has been
located at 27001 Agoura Road, Third Floor, Calabasas, CA 91301.  On the Closing Date, the jurisdiction of
organization of (x) PMC is Delaware, (y) PMIT is Delaware and (z) PC
REO is Delaware.  Seller shall provide
Buyer with thirty (30) days advance notice of any change in Seller’s principal
office or place of business or jurisdiction. 
Except as set forth on Schedule 7.17, Seller has no trade
name.  Seller was previously known as TRS
I, Inc. and, since the date of its incorporation, has not been known by or
done business under any other name, corporate or fictitious, and has not filed
or had filed against it any bankruptcy receivership or similar petitions nor
has it made any assignments for the benefit of creditors.

 

59

 

Section 7.18                             Investment Company Act.  None of Seller or any Affiliate thereof is an
“investment company”, or a company “controlled” by an “investment company”,
within the meaning of the Investment Company Act.

 

Section 7.19                             REMIC Declaration Agreement.  All of the representations and warranties of
PMC in any REMIC Declaration Agreement related to a Purchased REMIC Certificate
are true and correct in all material respects and are incorporated herein by
reference mutatis mutandis.  PMC is not in default under any related REMIC
Declaration Agreement related to any Purchased REMIC Certificate.

 

Section 7.20                             REO Entity Interests.

 

The shares of REO Entity
Interests issued and outstanding as of the Closing Date constitute all the
issued and outstanding shares of all classes of the Capital Stock of PC REO.

 

(a)                                 All of the
shares of REO Entity Interests have been duly and validly issued in compliance
with applicable law and related organizational documents and are fully paid and
nonassessable.

 

(b)                                 PMC is the
record and beneficial owner of, and has title to, the REO Entity Interests
representing substantially all of the economic interests in PC REO, free of any
and all liens or options in favor, of, or claims of, any other Person, except
the interests created by the Repurchase Documents or by or through Buyer.

 

(c)                                  REO Entity
Interests are unencumbered, other than Liens created in favor of Buyer pursuant
to the Repurchase Documents created by or through Buyer.

 

(d)                                 It is the
intent of the parties hereto that the REO Entity Interests constitute “securities”
as that term is defined in Section 8-102 of the Uniform Commercial Code
and that the REO Entity Interests be governed by Article 8 of the Uniform
Commercial Code.

 

Section 7.21                             Adverse
Selection. No procedures believed by Seller to be adverse to
Buyer were utilized by Seller, Servicer or Investment Advisor in identifying or
selecting the proposed Purchased Assets for sale to Buyer.

 

ARTICLE 8

 

COVENANTS
OF SELLER

 

From
the date hereof until the Repurchase Obligations are paid in full and the
Repurchase Documents are terminated, each Seller (unless otherwise specified
herein) shall perform and observe the following covenants, which shall
(a) be given independent effect (so that if a particular action or
condition is prohibited by any covenant, the fact that it would be permitted by
an exception to or be otherwise within the limitations of another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists), and (b) shall also apply to all
Subsidiaries of each Seller:

 

60

 

Section 8.01                             Existence; Governing Documents; Conduct of
Business.  Seller
shall (a) preserve and maintain its legal existence, (b) qualify and
remain qualified in good standing in each jurisdiction where the failure to be
so qualified would have a Material Adverse Effect, (c) comply with its
Governing Documents, including all special purpose entity provisions, and (d) not
modify, amend or terminate its Governing Documents.  Seller shall (a) continue to engage in
the same (and no other) general lines of business as presently conducted by it
and (b) maintain and preserve all of its material rights, privileges,
licenses and franchises necessary for the operation of its business.  Seller shall not (a) change its name,
organizational number, tax identification number, fiscal year, method of
accounting, identity, structure or jurisdiction of organization (or have more
than one such jurisdiction), move the location of its principal place of
business and chief executive office, as defined in the UCC) from the location
referred to in Section 7.01, or (b) move, or consent to
Custodian moving, the Asset Documents from the location thereof on the Closing
Date, unless in each case Seller has given at least thirty (30) days prior
notice to Buyer and has taken all actions required under the UCC to continue
the first priority perfected security interest of Buyer in the Purchased Assets
and the Underlying Mortgage Loans (except to the extent any of PMC’s rights,
title and interest in such Underlying Mortgage Loans have been legally and
validly sold, transferred and assigned by PMC to the Class A Participant
in accordance with the related REMIC Declaration Agreement).  Seller shall enter into each Transaction as
principal, unless Buyer agrees before a Transaction that Seller may enter into
such Transaction as agent for a principal and under terms and conditions disclosed
to Buyer.

 

Section 8.02                             Compliance with Laws, Contractual Obligations
and Repurchase Documents. 
Seller shall comply in all material respects with all Requirements of
Laws, including those relating to any Purchased Asset and to the reporting and
payment of taxes.  No part of the proceeds
of any Transaction shall be used for any purpose that violates
Regulation T, U or X of the Board of Governors of the Federal Reserve
System.  Seller shall conduct the
requisite due diligence in connection with the origination or acquisition of
each Asset for purposes of complying with the Anti-Terrorism Laws, including
with respect to the legitimacy of the applicable Underlying Obligor and the
origin of the assets used by such Person to purchase the Underlying Mortgaged
Property, and will maintain sufficient information to identify such Person for
purposes of the Anti-Terrorism Laws. 
Seller shall maintain the Custodial Agreement in full force and
effect.  Seller shall not directly or
indirectly enter into any agreement that would be violated or breached by any
Transaction or the performance by Seller of any Repurchase Document.

 

Section 8.03                             Structural Changes.  Seller shall not enter into a merger or
consolidation, or liquidate, wind up or dissolve, or sell all or substantially
all of its assets or properties, or permit any changes in the ownership of its
Equity Interests, without the consent of Buyer. 
Seller shall ensure that all Equity Interests of Seller shall continue
to be owned by the owner or owners thereof as of the date hereof.  Seller shall ensure that neither the Equity
Interests of Seller nor any property or assets of Seller shall be pledged to
any Person other than Buyer.  Seller
shall not enter into any transaction with an Affiliate of Seller unless such
transaction is on market and arm’s-length terms and conditions.

 

Section 8.04                             Protection of Buyer’s Interest in Purchased
Assets.  With respect to each Purchased
Asset and the Underlying Mortgage Loans (except to the extent any of PMC’s
rights, 

 

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title and interest in such Underlying Mortgage Loans
have been legally and validly sold, transferred and assigned by PMC to the Class A
Participant in accordance with the related REMIC Declaration Agreement), Seller
shall take all action necessary or required by the Repurchase Documents, Asset
Documents or Requirements of Law, or requested by Buyer, to perfect, protect
and more fully evidence the security interest granted in the Repurchase
Documents and Buyer’s ownership of and first priority perfected security
interest in such Purchased Asset and related Asset Documents, including
executing or causing to be executed (a) such other instruments or notices
as may be necessary or appropriate and filing and maintaining effective UCC
financing statements, continuation statements and assignments and amendments
thereto, and (b) all documents necessary to both collaterally and
absolutely and unconditionally assign all rights (but none of the obligations)
of Seller under each Purchase Agreement, in each case as additional collateral
security for the payment and performance of each of the Repurchase
Obligations.  Seller shall comply with
all requirements of the Custodial Agreement with respect to each Purchased
Asset, including the delivery to Custodian of all required Asset
Documents.  Seller shall (a) not
assign, sell, transfer, pledge, hypothecate, grant, create, incur, assume or
suffer or permit to exist any security interest in or Lien (other than
Permitted Liens) on any Purchased Asset to or in favor of any Person other than
Buyer, (b) defend such Purchased Asset against, and take such action as is
necessary to remove, any such Lien, and (c) defend the right, title and
interest of Buyer in and to all Purchased Assets and Underlying Mortgage Loans
(to the extent pledged hereunder, but excluding any of PMC’s rights, title and
interest therein have been legally and validly sold, transferred and assigned
by PMC to the Class A Participant as part of the issuance of REMIC
Certificates in accordance with the related REMIC Declaration Agreement)
against the claims and demands of all Persons whomsoever.  Notwithstanding the foregoing, if Seller
grants a Lien on any Purchased Asset in violation of this Section 8.04
or any other Repurchase Document, Seller shall be deemed to have simultaneously
granted an equal and ratable Lien on such Purchased Asset in favor of Buyer to
the extent such Lien has not already been granted to Buyer; provided,
that such equal and ratable Lien shall not cure any resulting Event of
Default.  Seller shall not materially
amend, modify, waive or terminate any provision of any Purchase Agreement or
Servicing Agreement.  Seller shall not,
or permit Servicer to, extend, amend, waive, terminate, rescind, cancel, release
or otherwise modify the material terms of or any collateral, guaranty or
indemnity for, or exercise any material right or remedy of a holder (including
all lending, corporate and voting rights, remedies, consents, approvals and
waivers) of, any Purchased Asset or Asset Document except in accordance with
Accepted Servicing Practices and the Servicing Standard.  Seller shall mark its computer records and
tapes to evidence the interests granted to Buyer hereunder.  Seller shall not take any action to cause any
Purchased Asset that is not evidenced by an instrument or chattel paper (as
defined in the UCC) to be so evidenced. 
If a Purchased Asset becomes evidenced by an instrument or chattel
paper, the same shall be immediately delivered to Custodian on behalf of Buyer,
together with endorsements required by Buyer.

 

Section 8.05                             Actions of Seller Relating to Distributions, Indebtedness,
Guarantee Obligations, Contractual Obligations, Investments and Liens.  Seller shall not declare or make any payment
on account of, or set apart assets for, a sinking or similar fund for the
purchase, redemption, defeasance, retirement or other acquisition of any Equity
Interest of Seller or any Affiliate thereof, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of Seller or any
Affiliate thereof; provided, that Seller may declare and pay dividends
in accordance with its 

 

62

 

Governing Documents if no Default or Event of
Default exists or would exist as a result thereof.  Seller shall not contract, create, incur,
assume or permit to exist any Indebtedness, Guarantee Obligations, Contractual
Obligations or Investments, except to the extent (a) arising or existing
under the Repurchase Documents, (b) existing as of the Closing Date, as
referenced in the financial statements delivered to Buyer prior to the Closing
Date, and any renewals, refinancings or extensions thereof in a principal
amount not exceeding that outstanding as of the date of such renewal,
refinancing or extension and (c) incurred after the Closing Date to
originate or acquire assets or to provide funding with respect to assets.  Seller shall not (a) contract, create,
incur, assume or permit to exist any Lien on or with respect to any of its
property or assets (including the Purchased Assets and Underlying Assets) of
any kind (whether real or personal, tangible or intangible), whether now owned
or hereafter acquired, except for Permitted Liens, or (b) except as
provided in the preceding clause (a), grant, allow or enter into any
agreement or arrangement with any Person that prohibits or restricts or
purports to prohibit or restrict the granting of any Lien on any of the
foregoing.

 

Section 8.06                             Maintenance of Property, Insurance.  Seller shall (a) keep all property
useful and necessary in its business in good working order and condition,
(b) maintain insurance on all its properties in accordance with customary
and prudent practices of companies engaged in the same or a similar business,
and (c) furnish to Buyer upon request information and certificates with
respect to such insurance.

 

Section 8.07                             Financial Covenants.

 

(a)                                 Servicer’s Adjusted Tangible Net Worth shall at all times be greater than
or equal to the sum of (i) $5,000,000 and (ii) 50% of Servicer’s
positive quarterly income.

 

(b)                                 Servicer’s
unrestricted cash shall at all times be greater than or equal to $2,500,000;

 

(c)                                  Servicer’s
residential mortgage servicing portfolio shall at all times be in excess of
$2,000,000,000 in un-amortized principal balance of loans;

 

(d)                                 The ratio of
Servicer’s Total Indebtedness, to Tangible Net Worth shall at all times be less
than 10:1;

 

(e)                                  Servicer’s
consolidated Net Income shall be equal to or greater than $1.00 for each
calendar quarter;

 

(f)                                   Sellers shall
cause Servicer not to incur any additional material Indebtedness, other than
such current Indebtedness identified on Schedule 4 attached hereto, Indebtedness
under the Repurchase Documents or as otherwise acceptable to Buyer.

 

(g)                                  Seller shall
not and shall cause Servicer not to convey, sell, lease, assign, transfer or
otherwise dispose of (collectively, “Transfer”), all or substantially
all of its Property, business or assets (including, without limitation,
receivables and leasehold interests) whether now owned or hereafter acquired or
allow any Subsidiary to Transfer substantially all of its assets to any Person;
provided, that Servicer may after prior written notice to Buyer allow
such

 

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action with respect to any Subsidiary which is not a
material part of Servicer’s overall business operations.

 

Section 8.08                             Delivery of
Income.  Seller shall, and pursuant to
the Servicer Instruction Notice shall cause the Servicer and all other
applicable Persons to, deposit all Income in respect of the Purchased Assets
and Underlying Assets into the applicable Account in accordance with Section 5.01(b).  Seller and Servicer (a) shall comply
with and enforce the Servicer Instruction Notice, (b) shall not amend,
modify, waive, terminate or revoke the Servicer Instruction Notice without
Buyer’s consent, and (c) shall take all reasonable steps to enforce the
Servicer Instruction Notice.  In
connection with each principal payment or prepayment under a Purchased Asset,
Seller shall provide or cause to be provided to Buyer and Custodian sufficient
detail to enable Buyer and Custodian to identify the Purchased Asset to which
such payment applies.  If Seller receives
any rights, whether in addition to, in substitution of, as a conversion of, or
in exchange for any Purchased Assets or Underlying Mortgage Loan, or otherwise
in respect thereof, Seller shall accept the same as Buyer’s agent, hold the
same in trust for Buyer and immediately deliver the same to Buyer or its
designee in the exact form received, together with duly executed instruments of
transfer, stock powers or assignment in blank and such other documentation as
Buyer shall reasonably request.

 

Section 8.09                             Delivery of Financial Statements and Other
Information.  Seller
shall deliver the following to Buyer and Master Servicer, as soon as available
and in any event within the time periods specified:

 

(a)                                 within thirty (30) days after the end of each month and each fiscal
quarter (i) the unaudited balance sheets of Servicer as at the end of such
period, (ii) the related unaudited statements of income, retained earnings
and cash flows for such period and the portion of the fiscal year through the
end of such period, setting forth in each case in comparative form the figures
for the previous year, and (iii) a Compliance Certificate;

 

(b)                                 within forty
(40) days after the end of each month, (i) the consolidating financial
statements of Guarantor as of the end of each month and (ii) a Compliance
Certificate;

 

(c)                                  within ninety
(90) days after the end of each fiscal year of Servicer, (i) the
audited balance sheets of Servicer as at the end of such fiscal year,
(ii) the related statements of income, retained earnings and cash flows
for such year, setting forth in each case in comparative form the figures for
the previous year, (iii) an opinion thereon of independent certified
public accountants of recognized national standing, which opinion shall not be
qualified as to scope of audit or going concern and shall state that said
financial statements fairly present the financial condition and results of
operations of Servicer as at the end of and for such fiscal year in accordance
with GAAP, (iv) a certification from such accountants that, in making the
examination necessary therefor, no information was obtained of any Default or
Event of Default except as specified therein, (v) projections of Servicer
of the operating budget and cash flow budget of Servicer for the following
fiscal year, and (vi) a Compliance Certificate of Seller;

 

(d)                                 all reports
submitted to Servicer by independent certified public accountants in connection
with each annual, interim or special audit of the books and records of 

 

64

 

Servicer made by such accountants,
including any management letter commenting on Servicer’s internal controls;

 

(e)                                  with respect to
each Purchased Asset and related Underlying Mortgaged Property serviced by
Seller or an Affiliate of Seller: 
(i) within thirty (30) days after the end of each fiscal
quarter of Seller, a quarterly report of the following:  delinquency, loss experience, internal risk
rating, occupancy and other property-level information, and (ii) within
ten (10) days after receipt or preparation thereof by Seller or Servicer,
remittance, servicing, securitization, exception and other reports, operating
and financial statements of Underlying Obligors, and modifications or updates
to the items contained in the Underwriting Materials;

 

(f)                                   all financial
statements and material reports, notices and other documents that Servicer
sends to holders of its Equity Interests or makes to or files with any
Governmental Authority, promptly after the delivery or filing thereof;

 

(g)                                  within eight
(8) days after the end of each month,

 

(i)                      a report of all
proposed sales, repurchases and other transactions with respect to the
Purchased Assets and Underlying Assets, which schedule shall be acceptable to
Buyer;

 

(ii)                   a properly completed
Purchased Asset Data Summary, substantially in the form of Exhibit L,
with respect to each Purchased Asset and Underlying Asset;

 

(iii)                servicing reports for the
prior month, including static pool analyses, liquidity (cash and availability)
and identification of any modifications to any Purchased Assets or Underlying
Assets;

 

(iv)               servicing data feeds for the
prior month detailing Mortgage Loan level or REO Property level attributes;

 

(v)                  reports reflecting those
Purchased Mortgage Loans that are expected to become REO Properties within 60
days;

 

(h)                                 a copy of all
monthly reports that are required to be delivered to holders of any REMIC
Certificate (as defined in the REMIC Declaration Agreement) pursuant to the
REMIC Declaration Agreement;

 

(i)                                     daily/weekly/monthly
reports to Buyer as required and mutually agreed upon prior to the Purchased
Date of the first Transaction;

 

(j)                                    within five (5) days
after any material amendment, modification or supplement to the Servicing
Agreement a certified, fully executed copy of such amendment, modification or
supplement;

 

(k)                                 any other
material agreements, correspondence, documents or other information not
included in an Underwriting Package which is related to Seller or the Purchased

 

65

 

Assets and Underlying
Assets, as soon as possible after the discovery thereof by Seller or any
Affiliate thereof;

 

(l)                                     as soon as
available, and in any event within thirty (30) days of receipt, (x) copies
of relevant portions of any final written Agency and Governmental Authority and
investor audits, examinations, evaluations, monitoring reviews and reports of
its operations (including those prepared on a contract basis) which provide for
or relate to (i) material corrective action required, (ii) material
sanctions proposed, imposed or required, including without limitation notices
of defaults, notices of termination of approved status, notices of imposition
of supervisory agreements or interim servicing agreements, and notices of
probation, suspension, or non-renewal, or (iii) “report cards,” “grades”
or other classifications of the quality of the Seller’s operations and (y) any
other material issues raised upon examination of the Seller or their facilities
by any Governmental Authority;

 

(m)                             promptly upon
reasonable request by Buyer, information regarding any Seller’s or Guarantor’s
portfolio including information regarding asset allocation, leverage,
liquidity, and such other information respecting the condition or operations,
(financial or otherwise), of such Seller, Guarantor, Servicer, or Investment
Advisor;

 

(n)                                 (x) the
first date on which a margin call or margin calls (however defined or described
in the applicable underlying Indebtedness documents) in excess of $1,000,000 or
other similar request is/are made upon any Seller, Servicer, Guarantor or any
Affiliate thereof (each a “Seller Party”) in the aggregate to post
additional cash or assets in connection with any Indebtedness on or after the
Effective Date, and (y) thereafter, at any time a margin call or margin
calls (however defined or described in the applicable underlying Indebtedness
documents) in excess of $1,000,000 or other similar request is/are made upon
any Seller Party in the aggregate to post additional cash or assets in
connection with any Indebtedness since the most recent to occur of (i) the
date on which Seller shall have provided a notice to Buyer under this Section 8.09(n) or
(ii) the date of the immediately preceding financial statement of any such
Seller Party, in each case Sellers shall promptly (and in no event later than
two (2) days after any such margin call or request) give the Buyer notice
of any such margin call or request which details (A) the amount of such
margin call, (B) the time period for such margin call to be satisfied, (C) how
satisfied (in cash or other assets) and (D) which facility the margin call
was issued under; and

 

(o)                                 such other
information regarding the financial condition, operations or business of
Servicer as Buyer may reasonably request.

 

Section 8.10                             Delivery of
Notices.  Seller shall immediately
notify Buyer of the occurrence of any of the following of which Seller has
Knowledge, together with a certificate of a Responsible Officer of Seller
setting forth details of such occurrence and any action Seller has taken or
proposes to take with respect thereto:

 

(a)                                 a Representation Breach;

 

(b)                                 any of the
following:  (i) with respect to any
Purchased Asset or related Underlying Mortgaged Property:  material change in Market Value, material
loss or damage, material licensing or permit issues, violation of Requirements
of Law, discharge of or damage 

 

66

 

from Materials of
Environmental Concern or any other actual or expected event or change in
circumstances that could reasonably be expected to result in a default or
material decline in value or cash flow, and (ii) with respect to Seller,
Servicer and Guarantor:  violation of
Requirements of Law, material decline in the value of Seller’s assets or
properties, an Internal Control Event or other event or circumstance that could
reasonably be expected to have a Material Adverse Effect;

 

(c)                                  the existence
of any Default, Event of Default under any Repurchase Document, or material
default under or related to a Purchased Asset, Asset Document, Indebtedness,
Guarantee Obligation or Contractual Obligation of Seller;

 

(d)                                 the occurrence
of any Servicer Termination Event or the resignation or termination of Servicer
under any Servicing Agreement with respect to any Purchased Asset or Underlying
Asset;

 

(e)                                  the establishment
of a rating by any Rating Agency applicable to Seller, Servicer, Guarantor or
any Affiliate thereof and any downgrade in or withdrawal of such rating once
established;

 

(f)                                   any Reportable
Event or failure to meet the minimum funding standard of Section 412 of
the Code or Sections 302 or 303 of ERISA, includes the failure to make on or
before its due date a required installment under Section 430(j) of
the Code or Section 303(j) of ERISA, or any request for a waiver
under Section 412(c) of the Code for any Plan; a notice of intent to
terminate any Plan or any action taken by Seller, Guarantor or an ERISA
Affiliate to terminate any Plan or the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by Seller, Guarantor or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action has been
taken by PBGC with respect to such Multiemployer Plan; the complete or partial
withdrawal from a Multiemployer Plan by Seller, Guarantor or any ERISA
Affiliate that results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt by Seller, Guarantor or any ERISA Affiliate
of notice from a Multiemployer Plan that it is in reorganization or insolvency
pursuant to Section 4241 or 4245 of ERISA or that it intends to terminate
or has terminated under Section 4041A of ERISA or the institution of a
proceeding by a fiduciary of any Multiemployer Plan against Seller, Guarantor
or any ERISA Affiliate to enforce Section 515 of ERISA, which proceeding
is not dismissed within 30 days; and the adoption of an amendment to any Plan
that, pursuant to Section 401(a)(29) of the Code, would result in the loss
of tax-exempt status of the trust of which such Plan is a part;

 

(g)                                  the
commencement of, settlement of or material judgment in any litigation, action,
suit, arbitration, investigation or other legal or arbitrable proceedings
before any Governmental Authority that affects Seller, Servicer, Guarantor or
any Affiliate thereof, Purchased Asset or Underlying Mortgaged Property and
(i) questions or challenges the validity or enforceability of any
Repurchase Document, Transaction, Purchased Asset or Asset Document, or
(ii) individually or in the aggregate, if adversely determined, could
reasonably be likely to have a Material Adverse Effect;

 

67

 

(h)                                 the receipt of
any Information Document Request from the Internal Revenue Service with respect
to any Purchased REMIC Certificate or other written inquiry from the Internal
Revenue Service relating to the REMIC qualifications of any such REMIC
Certificate or related Underlying Mortgage Loans.

 

Section 8.11                             Escrow
Imbalance.  Seller
shall, no later than five (5) Business Days after learning of any
material overdraw, deficit or imbalance in any escrow or reserve account
relating to a Purchased Asset, correct and eliminate the same, including by
depositing its own funds into such account.

 

Section 8.12                             [Reserved]

 

Section 8.13                             Records.

 

Seller shall collect and
maintain or cause to be collected and maintained all Records relating to the
related Purchased Assets and Underlying Assets in accordance with industry
custom and practice for assets similar to the Purchased Assets and Underlying
Assets, including those maintained pursuant to the preceding subparagraph, and
all such Records constituting Asset Documents shall be in Custodian’s possession
except as otherwise provided under the Custodial Agreement.  Seller will not allow any such papers,
records or files that are an original or an only copy and part of the Asset
Document to leave Custodian’s possession, except in accordance with the terms
of the Custodial Agreement.  Seller shall
or shall cause Servicer to maintain all such Records not in the possession of
Custodian in good and complete condition in accordance with industry practices
for assets similar to the Purchased Assets and Underlying Assets and preserve
them against loss.

 

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

 

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

 

Section 8.14                             No Pledge.  Other than with respect to any pledge to
Buyer hereunder, Seller shall not pledge, transfer or convey any security
interest in any Account to any Person without the express written consent of
Buyer, other than the pledge of the Participation Account to the Buyer under
the REMIC Declaration Agreement.

 

Section 8.15                             No Sale or Material Adverse Actions.  If an Event of Default shall have occurred
hereunder, Seller shall not permit any REO Property that is a Purchased Asset
to be sold, transferred or otherwise liquidated without the express written
consent of Buyer.  With 

 

68

 

respect to any REO Property that is a Purchased
Asset, Seller shall not take any action nor permit Servicer to take any action
that could have a material adverse effect on the direct interests of PC REO or
the indirect interests of Buyer therein, without first procuring the express
written consent of Buyer to such action.

 

Section 8.16                             Maximum Aggregate Purchase Price.  If at any time, the Aggregate Purchase Price
exceeds the Maximum Aggregate Purchase Price, Seller shall, at Buyer’s request,
repurchase Purchased Assets subject to Transactions and remit to Buyer the
Repurchase Price with respect to each such Purchased Asset such that the
Aggregate Purchase Price following such repurchase shall be less than or equal
to the Maximum Aggregate Purchase Price, by 5:00 p.m. (New York City time)
on the Business Day following Buyer’s request if made before 11:00 a.m.
(New York City time) on a Business Day, or if such request is made after 11:00 a.m.
(New York City time) on a Business Day, by no later than 4:00 p.m. (New
York City time) on the second Business Day following such request.

 

Section 8.17                             Reserved.

 

Section 8.18                             Distributions.  If an Event of Default has occurred and is
continuing, no Seller shall pay any dividends with respect to any capital stock
or other equity interests in such entity, whether now or hereafter outstanding,
or make any other distribution in respect thereof, either directly or
indirectly, whether in cash or property or in obligations of such Seller.

 

Section 8.19                             Applicable Law.  Seller shall comply with the requirements of
all applicable laws, rules, regulations and orders of any Governmental
Authority.

 

Section 8.20                             Existence.  Seller shall preserve and maintain its legal
existence and all of its material rights, privileges, licenses and franchises.

 

Section 8.21                             Chief Executive Office; Jurisdiction of Organization.  Seller shall not move its respective chief
executive office from the addresses referred to in Section 7.17 or
change its respective jurisdiction of organization from the jurisdictions
referred to in Section 7.17 unless it shall have provided Buyer
thirty (30) days’ prior written notice of such change.

 

Section 8.22                             BPOs.  Seller shall deliver Buyer BPOs with respect
to each Underlying Mortgaged Property every one hundred and eighty (180) days
that such Purchased Asset is subject to a Transaction.

 

Section 8.23                             Maintenance of Interest Reserve Account.  Seller shall at all times, maintain in each
Interest Reserve Account, funds in an amount equal to the applicable Required
Amount.

 

Section 8.24                             Servicer Change of Control.  Seller shall not permit any Servicer Change
of Control without the prior written consent of Buyer thereto, such consent not
to be unreasonably withheld or delayed; provided that upon any such Servicer
Change of Control Seller shall continue to cause Servicer to perform all of Servicer’s
responsibilities, duties and obligations owed to Buyer and Seller in accordance
with the terms of this Agreement, the Repurchase Documents and the Servicing
Agreement.

 

69

 

Section 8.25                             Entitlement Holder; Additional Proceeds.  With respect to any Income or other amounts
paid or distributed in respect of REO Entity Interests or REMIC Certificates
that are received by PMC (whether in its capacity as Servicer or otherwise)
PMIT, Sellers shall hold such Income or other amounts in trust for the Buyer
segregated from other funds of Sellers as part of the Purchased Assets pending
the repurchase by Seller, until paid or delivered to Buyer as required
hereunder.  If any Seller shall become
entitled to receive or shall receive any rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for such REO Entity
Interests or REMIC Certificates, or otherwise in respect thereof, such Seller
shall accept the same as Buyer’s agent, hold the same in trust for Buyer and
deliver the same forthwith to Buyer in the exact form received, duly endorsed
by such Seller to Buyer, if required, together with duly executed Transfer
Documents and with, if Buyer so requests, signature guaranteed, to be held by Buyer
hereunder as part of the Purchased Assets.

 

Section 8.26                             Voting Rights.  Unless a Default or an Event of Default shall
have occurred and be continuing, Sellers shall be entitled to exercise all
voting and corporate rights with respect to Purchased REO Entity Interests and
Purchased REMIC Certificates, provided, however, that no vote
shall be cast or other action taken which, in Buyer’s judgment, could impair
such Purchased REO Entity Interests or Purchased REMIC Certificates or which
would be inconsistent with or result in any violation of any provision of this
Agreement.

 

Section 8.27                             Actions under the REMIC Declaration Agreements.  Sellers shall not (i) cancel, terminate,
amend, modify or supplement or consent to any cancellation, amendment, modification
or supplement to any REMIC Declaration Agreement related to any Purchased REMIC
Certificate, (ii) waive any provision thereof or take, direct, instruct or
request any action under any such REMIC Declaration Agreement in contravention
of the direction of Buyer or (iii) where the permission of any Seller is
so required, permit any party to such REMIC Declaration Agreement to take any
action thereunder, in each case which would reasonably be likely to have a
Material Adverse Effect or which would violate the terms of this Agreement.

 

ARTICLE 9

 

SINGLE-PURPOSE
ENTITY

 

Section 9.01                             Covenants
Applicable to PC REO.  Sellers shall cause PC REO to comply with the
following: PC REO shall (a) own no assets, and shall not engage in any
business, other than the assets and transactions specifically contemplated by
this Agreement and any other Repurchase Document, (b) not incur any
Indebtedness or other obligation, secured or unsecured, direct or indirect,
absolute or contingent (including guaranteeing any obligation), other than
(i) with respect to the Asset Documents and the Retained Interests and
(ii) as otherwise permitted under this Agreement, (c) not make any
loans or advances to any Affiliate or third party and shall not acquire
obligations or securities of its Affiliates, in each case other than in
connection with the acquisition of Assets for purchase under the Repurchase
Documents, (d) pay its debts and liabilities (including, as applicable,
shared personnel and overhead expenses) only from its own assets, (e) comply
with the provisions of its Governing Documents, (f) do all things
necessary to observe organizational formalities and to preserve its existence,
and shall not amend, modify, waive provisions of or otherwise change its
Governing Documents, (g) maintain all of its books, records, financial
statements and bank accounts separate from those of its Affiliates (except that

 

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such financial statements may be consolidated to the
extent consolidation is required under GAAP or as a matter of Requirements of
Law, provided, that (i) appropriate notation shall be made on such
financial statements to indicate the separateness of such Seller from such
Affiliate and to indicate that such Seller’s assets and credit are not
available to satisfy the debts and other obligations of such Affiliate or any
other Person and (ii) such assets shall also be listed on such Seller’s
own separate balance sheet) and file its own tax returns (except to the extent
consolidation is required or permitted under Requirements of Law), (h) be,
and at all times shall hold itself out to the public as, a legal entity
separate and distinct from any other entity (including any Affiliate), shall
correct any known misunderstanding regarding its status as a separate entity,
shall conduct business in its own name, and shall not identify itself or any of
its Affiliates as a division of the other, (i) maintain adequate capital
for the normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations and shall remain
Solvent, (j) not engage in or suffer any Change of Control, dissolution,
winding up, liquidation, consolidation or merger in whole or in part or convey
or transfer all or substantially all of its properties and assets to any Person
(except as contemplated herein), (k) not commingle its funds or other
assets with those of any Affiliate or any other Person and shall maintain its
properties and assets in such a manner that it would not be costly or difficult
to identify, segregate or ascertain its properties and assets from those of
others, (l) maintain its properties, assets and accounts separate from
those of any Affiliate or any other Person, (m) not hold itself out to be
responsible for the debts or obligations of any other Person, (n) not,
without the prior unanimous written consent of all of its Independent
Directors, if any, take any Insolvency Action, (o) be administered by a
Qualified Trustee, (p) ensure its Governing Documents provide that Buyer be given at least two
(2) Business Days prior notice of the removal and/or replacement of its
Qualified Trustee, together with the name and contact information of the
replacement Qualified Trustee and evidence of the replacement’s satisfaction of
the definition of Qualified Trustee, (q) not enter into any
transaction with an Affiliate of such Seller except on commercially reasonable
terms similar to those available to unaffiliated parties in an arm’s-length
transaction, (r) maintain a sufficient number of employees in light of
contemplated business operations, (s) allocate fairly and reasonably any
overhead for shared office space and for services performed by an employee of
an affiliate, (t) not pledge its assets to secure the obligations of any
other Person, and (u) not form, acquire or hold any Subsidiary or own any
Equity Interest in any other entity.

 

Section 9.02                             Reserved.

 

Section 9.03                             Additional Covenants Applicable to REO
Property.  Sellers
shall cause PC REO to comply with the following additional provisions if PC REO
is a limited partnership, a corporation, a limited liability company with more
than one member or a single-member limited liability (as the case may be):

 

(a)                                 if PC REO is a limited partnership, each such entity shall have at least
one general partner and shall have, as its only general partners, Special
Purpose Entities each of which (i) is a corporation or single-member
Delaware limited liability company, (ii) has at least one Independent
Director, and (iii) holds a direct interest as general partner in the
limited partnership of not less than 0.5% (or 0.1% if the limited partnership
is a Delaware entity);

 

71

 

(b)                                 if PC REO is a
corporation, each such entity shall have at least one Independent Director, and
shall not cause or permit the board of directors of such entity to take any
Insolvency Action with respect to itself, or any action requiring the unanimous
affirmative vote of 100% of the members of its board of directors unless all of
its Independent Directors shall have participated in such vote and shall have
voted in favor of such action;

 

(c)                                  if PC REO is a
limited liability company (other than a limited liability company meeting all
of the requirements applicable to a single-member limited liability company set
forth in Section 9.03(d), it shall have at least one member that is
a Special Purpose Entity, that is a corporation or a single-member Delaware
limited liability company, that has at least one Independent Director and that
directly owns at least 0.5% of the equity of the limited liability company (or
0.1% if the limited liability company is a Delaware entity); and

 

(d)                                 if PC REO is a
single-member limited liability company, it (i) shall be a Delaware limited
liability company, (ii) shall have at least one Independent Director or
Independent Manager serving as manager of such company, (iii) shall not
take any Insolvency Action and shall not cause or permit the members or
managers of such entity to take any Insolvency Action, either with respect to
itself or, if the company is a Principal, with respect to PC REO, in each case
unless all of its Independent Directors or Independent Managers then serving as
managers of the company shall have consented in writing to such action, and
(iv) shall have either (A) a member which owns no economic interest
in the company, has signed the company’s limited liability company agreement
and has no obligation to make capital contributions to the company, or
(B) two natural persons or one entity that is not a member of the company,
that has signed its limited liability company agreement and that, under the
terms of such limited liability company agreement becomes a member of the
company immediately prior to the resignation or dissolution of the last
remaining member of the company.

 

(e)                                  if PC REO is a
trust it (i) shall be a Delaware statutory trust, (ii) shall have a
Qualified Trustee serving as its trustee and (iii) shall not take any
Insolvency Action and shall not cause or permit the trustee with respect to
itself to take any Insolvency Action.

 

ARTICLE 10

 

EVENTS OF DEFAULT AND
REMEDIES

 

Section 10.01                      Events of
Default.  Each of the following events
shall be an “Event of Default”:

 

(a)                                 A Seller fails to make a payment of (i) Margin Deficit or Repurchase
Price (other than Price Differential) when due, whether by acceleration or
otherwise, (ii) Price Differential within one (1) Business Day of
when due, or (iii) any other amount within two (2) Business Days of
when due (unless otherwise specified in this Section 10.01), in each case
under the Repurchase Documents;

 

(b)                                 A Seller fails
to observe or perform in any material respect any other covenant or Repurchase
Obligation of such Seller under the Repurchase Documents or the Asset Documents
to which such Seller is a party, and (except in the case of a failure to
perform 

 

72

 

or observe the Repurchase
Obligations of such Seller under Section 8.04, and 18.08(a))
such failure continues unremedied for five (5) Business Days after the
earlier of receipt of notice thereof from Buyer or the discovery of such
failure by any Seller;

 

(c)                                  Any Representation Breach (other than a Representation Breach regarding
any representation contained in Section 7.10 or Schedules 1-A,
1-B or 1-C attached hereto, the sole remedy for which is a
Repurchase Obligation as set forth in Section 3.04) exists and
continues unremedied for five (5) Business Days after the earlier of
receipt of notice thereof from Buyer or the discovery of such failure by Seller
or PMC’s failure to comply with clause (iv) of the Ineligibility Remedies
with respect to any Underlying REO Property;

 

(d)                                 A Seller or
Guarantor defaults beyond any applicable grace period in paying any amount or
performing any obligation under any Indebtedness, Guarantee Obligation or
Contractual Obligation with an outstanding amount of at least $1,000,000 with
respect to each Seller or $1,000,000 with respect to Guarantor, and the effect
of such default is to permit the acceleration thereof (regardless of whether
such default is waived or such acceleration occurs);

 

(e)                                  A Seller,
Guarantor or any Affiliate thereof defaults beyond any applicable grace period
in paying any amount or performing any obligation due to Buyer or any Affiliate
of Buyer under any other financing, hedging, security or other agreement (other
than under this Agreement) between a Seller, Guarantor or any Affiliate thereof
and Buyer or any Affiliate of Buyer;

 

(f)                                   An Insolvency
Event occurs with respect to a Seller, Guarantor, Servicer or any Affiliate
thereof;

 

(g)                                  A Change of
Control occurs with respect to a Seller, Guarantor, or any Affiliate thereof
without Buyer’s consent;

 

(h)                                 A Servicer
Change of Control occurs;

 

(i)                                     A final
judgment or judgments for the payment of money in excess of $1,000,000 with
respect to any Seller or $1,000,000 with respect to Guarantor in the aggregate
that is not insured against is entered against such Seller or Guarantor by one
or more Governmental Authorities and the same is not satisfied, discharged (or
provision has not been made for such discharge) or bonded, or a stay of
execution thereof has not been procured, within thirty (30) days from the
date of entry thereof;

 

(j)                                    A Governmental
Authority takes any action to (i) condemn, seize or appropriate, or assume
custody or control of, all or any substantial part of the property of a Seller,
(ii) displace the management of a Seller or curtail its authority in the
conduct of the business of a Seller, (iii) terminate the activities of a
Seller as contemplated by the Repurchase Documents, or (iv) remove, limit
or restrict the approval of a Seller of the foregoing as an issuer, buyer or
seller of securities, and in each case such action is not discontinued or
stayed within thirty (30) days;

 

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(k)                                  A Seller,
Servicer, Guarantor or any Affiliate thereof admits that it is not Solvent or
is not able or not willing to perform any of its Repurchase Obligations,
Contractual Obligations, Guarantee Obligations, Capital Lease Obligations or
Off-Balance Sheet Obligations;

 

(l)                                     Any provision
of the Repurchase Documents, any right or remedy of Buyer or obligation,
covenant, agreement or duty of a Seller thereunder, or any Lien, security
interest or control granted under or in connection with the Repurchase Documents
or Purchased Assets terminates, is declared null and void, ceases to be valid
and effective, ceases to be the legal, valid, binding and enforceable
obligation of a Seller or any other Person, or the validity, effectiveness,
binding nature or enforceability thereof is contested, challenged, denied or
repudiated by a Seller or any other Person, in each case directly, indirectly,
in whole or in part;

 

(m)                               Buyer ceases
for any reason to have a valid and perfected first priority security interest
in any material portion (as determined by Buyer) of the Purchased Assets or
interest in the Underlying Mortgage Loans pledged pursuant to Section 11.01
hereunder (which for the avoidance of doubt, shall not include any of PMC’s
rights, title and interest therein have been legally and validly sold,
transferred and assigned by PMC to the Class A Participant as part of the
issuance of REMIC Certificates in accordance with the related REMIC Declaration
Agreement);

 

(n)                                 A Seller,
Servicer, Guarantor or any Affiliate thereof is required to register as an “investment
company” (as defined in the Investment Company Act) or the arrangements
contemplated by the Repurchase Documents shall require registration of a
Seller, Servicer, Guarantor as an “investment company”;

 

(o)                                 A Seller
engages in any conduct or action where Buyer’s prior consent is required by any
Repurchase Document and such Seller fails to obtain such consent;

 

(p)                                 A Seller or
Servicer fails to deposit to the applicable Account all Income and other
amounts as required by Section 5.01 and other provisions of this
Agreement within one (1) Business Day of when due;

 

(q)                                 A Servicer
Termination Event shall have occurred which shall not have been waived by
Buyer;

 

(r)                                    Guarantor’s
audited annual financial statements or the notes thereto or other opinions or
conclusions stated therein are qualified or limited by reference to the status
of Guarantor as a “going concern” or a reference of similar import, other than
a qualification or limitation expressly related to Buyer’s rights in the
Purchased Assets and Underlying Assets;

 

(s)                                  Guarantor
breaches any of the obligations, terms or conditions set forth in the Guaranty
Agreement;

 

(t)                                    Any Person
shall engage in any “prohibited transaction” (as defined in Section 406 of
ERISA or Section 4975 of the Code) involving any Plan, (ii) a
determination that a Plan is “at risk” (within the meaning of Section 302
(of ERISA) or any Lien in favor of the PBGC or a Plan shall arise on the assets
of any Seller, Guarantor or any ERISA Affiliate, 

 

74

 

(iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to have a
trustee appointed, or a trustee shall be appointed, to administer or to
terminate, any Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of Buyer, likely to
result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any
Plan shall terminate for purposes of Title IV of ERISA, (v) Sellers,
Guarantor or any ERISA Affiliate shall, or in the reasonable opinion of Buyer
is likely to, incur any liability in connection with a withdrawal from, or the
insolvency or reorganization of, a Multiemployer Plan, (vi) Sellers,
Guarantor or any ERISA Affiliate shall file an application for a minimum
funding waiver under Section 302 of ERISA or Section 412 of the Code
with respect to any Plan, (vii) any obligation for post-retirement medical
costs (other than as required by COBRA) exists, or (viii) any other event
or condition shall occur or exist with respect to a Plan; and in each case in
clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, could reasonably be expected
to have a Material Adverse Effect; or (ix) the assets of any Seller or
Guarantor are treated as “plan assets” under 29 C.F.R. 2510.3-101 as amended by
Section 3(42) of ERISA;

 

(u)                                 Failure of
Sellers to maintain in any Interest Reserve Account at all times funds in an
amount equal to the applicable Required Amount and such failure continues
unremedied for a period of two (2) Business Days;

 

(v)                                 Except as
described elsewhere in this Section 10.01, there shall have
occurred a material default or breach under any of the Repurchase Documents;

 

(w)                               Any condition
or circumstance exists which causes, constitutes or may cause or constitute a
Material Adverse Effect, as determined by Buyer; and

 

(x)                                   At any time,
the Guarantor shall fail to maintain its REIT Status under all applicable laws
and regulations or shall fail to satisfy any of the conditions set forth in Section 856
(c)(2), (3) and (4) of the Code and any Treasury Regulations
promulgated thereunder.

 

Section 10.02                          Remedies of
Buyer as Owner of the Purchased Assets.  If an Event of Default exists, at the option
of Buyer, exercised by notice to Sellers (which option shall be deemed to be
exercised, even if no notice is given, automatically and immediately upon the
occurrence of an Event of Default under Section 10.01(f), (g) or
(j)), the Repurchase Date for all Purchased Assets shall be deemed
automatically and immediately to occur (the date on which such option is
exercised or deemed to be exercised, the “Accelerated Repurchase Date”).  If Buyer exercises or is deemed to have
exercised the foregoing option:

 

(a)                                  All Repurchase Obligations shall become immediately due and payable on
and as of the Accelerated Repurchase Date.

 

(b)                                 All amounts in
the Accounts and all Income paid after the Accelerated Repurchase Date shall be
retained by Buyer and applied in accordance with Article 5.

 

(c)                                  Buyer may
complete any assignments, allonges, endorsements, powers or other documents or
instruments executed in blank and otherwise obtain physical possession of all
Records and all other instruments, certificates and documents then held by
Custodian under the Custodial Agreement. 
Buyer may obtain physical possession of all Servicing Files, 

 

75

 

Servicing Records, Servicing
Agreement and other files and records of Sellers or Servicer.  Sellers shall deliver to Buyer such
assignments and other documents with respect thereto as Buyer shall request.

 

(d)                                 Buyer may
immediately, at any time and from time to time, exercise either of the
following remedies with respect to any or all of the Purchased Assets:  (i) sell such Purchased Assets on a
servicing-released basis in a recognized market and by means of a public or
private sale at such price or prices as Buyer accepts, and apply the net
proceeds thereof in accordance with Article 5, or (ii) retain
such Purchased Assets and give Sellers credit against the Repurchase Price for
such Purchased Assets (or if the amount of such credit exceeds the Repurchase
Price for such Purchased Assets, to other Repurchase Obligations due and any
other amounts then owing to Buyer by any other Person pursuant to any
Repurchase Document, in such order and in such amounts as determined by Buyer),
in an amount equal to the Market Value of such Purchased Assets.  Until such time as Buyer exercises either
such remedy with respect to a Purchased Asset, Buyer may hold such Purchased
Asset for its own account and retain all Income with respect thereto.

 

(e)                                  The Parties
agree that the Purchased Assets are of such a nature that they may decline
rapidly in value, and may not have a ready or liquid market.  Accordingly, Buyer shall not be required to
sell more than one Purchased Asset on a particular Business Day, to the same
purchaser or in the same manner.  Buyer
may determine whether, when and in what manner a Purchased Asset shall be sold,
it being agreed that both a good faith public and a good faith private sale
shall be deemed to be commercially reasonable. 
Buyer shall not be required to give notice to Sellers or any other Person
prior to exercising any remedy in respect of an Event of Default.  If no prior notice is given, Buyer shall give
notice to Sellers of the remedies exercised by Buyer promptly thereafter.

 

(f)                                    Buyer shall
have the right to direct Servicer to remit all collections on the Purchased
Assets to Buyer, and if any such payments are received by the Sellers,
Guarantor or Servicer, Sellers shall not and shall not permit Guarantor or
Servicer to commingle the amounts received with other funds of the Sellers, Guarantor
or Servicer and shall promptly pay them over to Buyer.  Buyer shall also have the right to terminate
Servicer with or without cause.  In
addition, Buyer shall have the right to immediately sell the Purchased Assets
and liquidate all Purchased Assets.  Such
disposition of Purchased Assets may be, at Buyer’s option, on a
servicing-released basis.  Buyer shall
not be required to give any warranties as to the Purchased Assets with respect
to any such disposition thereof.  Buyer
may specifically disclaim or modify any warranties of title or the like
relating to the Purchased Assets.  The
foregoing procedure for disposition of the Purchased Assets and liquidation of
the Purchased Assets shall not be considered to adversely affect the commercial
reasonableness of any sale thereof. 
Sellers agree that it would not be commercially unreasonable for Buyer
to dispose of the Purchased Assets or the Purchased Assets or any portion
thereof by using Internet sites that provide for the auction of assets similar
to the Purchased Assets, or that have the reasonable capability of doing so, or
that match buyers and sellers of assets. 
Buyer shall be entitled to place the Purchased Assets in a pool for
issuance of mortgage-backed securities at the then-prevailing price for such
securities and to sell such securities for such prevailing price in the open
market.  Buyer shall also be entitled to
sell any or all of such Assets individually for the prevailing price.  Buyer shall also be entitled, to elect, in
lieu of selling all or a portion of such Purchased Assets, to give the 

 

76

 

Sellers credit for such
Purchased Assets in an amount equal to the Market Value of the Purchased Assets
against the aggregate unpaid Repurchase Price and any other amounts owing by
the Sellers hereunder.

 

(g)                                 Upon the
occurrence of one or more Events of Default, Buyer may apply any proceeds from
the liquidation of the Purchased Assets and/or Underlying Assets to the
Repurchase Prices hereunder and all other Repurchase Obligations in the manner
Buyer deems appropriate.

 

(h)                                 Other than with
respect to Purchased REO Entity Interests for which the related Obligations are
non-recourse to Sellers, Sellers shall be liable to Buyer for (i) any
amount by which the Repurchase Obligations due to Buyer exceed the aggregate of
the net proceeds and credits referred to in the preceding clause (d), (ii) the
amount of all actual out-of-pocket expenses, including reasonable legal fees
and expenses, actually incurred by Buyer in connection with or as a consequence
of an Event of Default, (iii) any costs and losses payable under Section 12.03,
and (iv) any other actual loss, damage, cost or expense resulting from the
occurrence of an Event of Default.

 

(i)                                     Buyer shall be
entitled to an injunction, an order of specific performance or other equitable
relief to compel Sellers to fulfill any of its obligations as set forth in the
Repurchase Documents, including this Article 10, if a Seller fails
or refuses to perform its obligations as set forth herein or therein.

 

(j)                                     Each Seller
hereby appoints Buyer as attorney-in-fact of such Seller for purposes of
carrying out the Repurchase Documents and Buyer’s rights under this Section 10.02,
including executing, endorsing and recording any instruments or documents and
taking any other actions that Buyer deems necessary or advisable to accomplish
such purposes (the “Repurchase Document Purposes”), which appointment is
coupled with an interest and is irrevocable. 
Upon the occurrence of a Default or an Event of Default Buyer shall be
entitled to use appointment to carry out the Repurchase Document Purposes.

 

(k)                                  Buyer may,
without prior notice to Sellers, exercise any or all of its set-off rights
including those set forth in Section 18.17.  This Section 10.02(k) shall
be without prejudice and in addition to any right of set-off, combination of
accounts, Lien or other rights to which any Party is at any time otherwise
entitled.

 

(l)                                     All rights and
remedies of Buyer under the Repurchase Documents, including those set forth in Section 18.17,
are cumulative and not exclusive of any other rights or remedies that Buyer may
have and may be exercised at any time when an Event of Default exists.  Such rights and remedies may be enforced
without prior judicial process or hearing. 
Each Seller agrees that nonjudicial remedies are consistent with the
usages of the trade, are responsive to commercial necessity and are the result
of a bargain at arm’s-length.  Each
Seller hereby expressly waives any defenses such Seller might have to require
Buyer to enforce its rights by judicial process or otherwise arising from the
use of nonjudicial process, disposition of any or all of the Purchased Assets,
or any other election of remedies.

 

77

 

ARTICLE 11

 

SECURITY INTEREST; REO DEED

 

Section 11.01                          Grant.

 

(a) 
                            Buyer and
Sellers intend that all Transactions shall be sales to Buyer of the Purchased
Assets and not loans from Buyer to Sellers secured by the Purchased
Assets.  However, to preserve and protect
Buyer’s rights with respect to the Purchased Assets and under the Repurchase
Documents in the event that any Governmental Authority recharacterizes the
Transactions as other than sales, and as security for Sellers’ performance of
the Repurchase Obligations, each Seller hereby grants, assigns and pledges to
Buyer a fully perfected first priority security interest in all of its rights,
title and interest in, to and under the Purchased Assets (which for this
purpose shall be deemed to include the items described in the proviso in
the definition thereof) and the transfers of the Purchased Assets to Buyer
shall be deemed to constitute and confirm such grant, to secure the payment and
performance of the Repurchase Obligations (including the obligation of Sellers
to pay the Repurchase Price, or if the Transactions are recharacterized as
loans, to repay such loans for the Repurchase Price).

 

(b)                                 Each Seller acknowledges and agrees that its rights with respect to the
Purchased Assets (including without limitation, any security interest Sellers
may have in the Purchased Assets and any other collateral granted by Sellers to
Buyer pursuant to any other agreement) are and shall continue to be at all
times junior and subordinate to the rights of Buyer hereunder.  Each Seller further acknowledges that it has
no rights to the Servicing Rights related to the Purchased Assets.  Without limiting the generality of the foregoing
and for the avoidance of doubt, in the event that a Seller is deemed to retain
any residual Servicing Rights related to the Purchased Assets, such Seller
grants, assigns and pledges to Buyer a first priority security interest in all
of its rights, title and interest in and to the Servicing Rights as indicated
hereinabove.  In addition, (x) Sellers
shall and shall cause, Servicer to grant, assign and pledge to Buyer a first
priority security interest in and to all Servicing Records and rights to
receive Servicing Records or other documents which constitute a part of the
Asset Document or Servicing File with respect to each of the Purchased Assets,
and all Income related to the Purchased Assets received by Sellers or Servicer
and all rights to receive such Income, and all products, proceeds and
distributions relating to or constituting any or all of the foregoing and (y) PMC
grants, assigns and pledges to Buyer a first priority security interest in all
of its rights, title and interest in and to the Underlying Mortgage Loans
supporting each Purchased REMIC Certificate, together with the related
Servicing Rights, the related Records, amounts and property from time to time
on deposit in the Participation Account and the Participation Account itself
and all Income related to such Underlying Mortgage Loans received by PMC or
Servicer and all rights to receive such Income, and all products, proceeds and
distributions relating to or constituting any or all of the foregoing, in each
case except to the extent any of PMC’s rights, title and interest therein have
been legally and validly sold, transferred and assigned by PMC to the Class A
Participant as part of the issuance of REMIC Certificates in accordance with
the related REMIC Declaration Agreement (collectively, and together with the
pledge of Servicing Rights in the immediately preceding sentence, the “Related
Credit Enhancement”).  The Related
Credit Enhancement is hereby pledged as further security for Sellers’
Repurchase Obligations to Buyer hereunder.

 

78

 

Section 11.02                          Effect of Grant.  If any circumstance described in Section 11.01
occurs, (a) this Agreement shall also be deemed to be a security agreement
as defined in the UCC, (b) Buyer shall have all of the rights and remedies
provided to a secured party by Requirements of Law (including the rights and
remedies of a secured party under the UCC and the right to set off any mutual
debt and claim) and under any other agreement between Buyer and Sellers,
(c) without limiting the generality of the foregoing, Buyer shall be
entitled to set off the proceeds of the liquidation of the Purchased Assets
against all of the Repurchase Obligations, without prejudice to Buyer’s right
to recover any deficiency, (d) the possession by Buyer or any of its
agents, including Custodian, of the Asset Documents, the Purchased Assets and
such other items of property as constitute instruments, money, negotiable
documents, securities or chattel paper shall be deemed to be possession by the
secured party for purposes of perfecting such security interest under the UCC
and Requirements of Law, and (e) notifications to Persons (other than
Buyer) holding such property, and acknowledgments, receipts or confirmations
from Persons (other than Buyer) holding such property, shall be deemed
notifications to, or acknowledgments, receipts or confirmations from,
securities intermediaries, bailees or agents (as applicable) of the secured
party for the purpose of perfecting such security interest under the UCC and
Requirements of Law.  The security
interest of Buyer granted herein shall be, and each Seller hereby represents
and warrants to Buyer that it is, a first priority perfected security
interest.  For the avoidance of doubt,
(i) each Purchased Asset secures the Repurchase Obligations of Sellers
with respect to all other Transactions and all other Purchased Assets,
including any Purchased Assets that are junior in priority to the Purchased
Asset in question, and (B) if an Event of Default exists, no Purchased
Asset relating to a Purchased Asset will be released from Buyer’s Lien or
transferred to Sellers until the Repurchase Obligations are indefeasibly paid
in full.  Notwithstanding the foregoing,
the Repurchase Obligations (other than with respect to the Purchased REO Entity
Interests) shall be full recourse to Sellers.

 

Section 11.03                          Sellers to Remain Liable.  Buyer and Sellers agree that the grant of a
security interest under this Article 11 shall not constitute or
result in the creation or assumption by Buyer of any Retained Interest or other
obligation of Sellers or any other Person in connection with any Purchased
Asset, whether or not Buyer exercises any right with respect thereto.  Sellers shall remain liable under the
Purchased Assets and Asset Documents to perform all of Sellers’ duties and
obligations thereunder to the same extent as if the Repurchase Documents had
not been executed.

 

Section 11.04                          Provisions of REO Deed.

 

(a)                                  If any Seller shall acquire, or contemplate the acquisition of, any REO
Property or desires to extinguish any Mortgage Note in connection with the foreclosure
of the related Eligible Mortgage Loan, a transfer of the real property
underlying the Mortgage Note in lieu of foreclosure or other transfer of such
real property, such Seller shall cause such real property to be owned in fee
simple by REO Deed in the name of PC REO. 
Each such REO Deed shall be duly executed, be in recordable form in
accordance with applicable law and, shall have been recorded in or delivered
for recordation to the recordation office of the jurisdiction in which the REO
Property is located.

 

(b)                                 PMC shall cause
PC REO, with respect to any REO Property owned by it or transferred to it, to
deliver a correct and complete REO Property File to Buyer or its designee 

 

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as a condition precedent to
any Transaction involving such REO Property. 
A certified copy of the file-stamped REO Deed shall be delivered to
Buyer promptly upon receipt thereof by any Seller.  Each copy of an REO Deed delivered to the
Buyer or its designee as part of an REO Property File (including intervening
deeds) shall be a true, correct and complete copy of the original REO Deed, and
if recorded in the name of PC REO (as indicated on the related REO Property
Schedule), the original REO Deed shall be in recordable form, acceptable in all
respects for recording under the laws of the jurisdiction in which the REO
Property is located and shall have been delivered for recordation to the
appropriate recording office.  Each title
commitment, ‘date-down’ or trustee’s sale guarantee delivered to the Buyer or
its designee as part of an REO Property File shall be a true, correct and
complete copy of the original document.

 

(c)                                  All costs and
expenses in connection with the preparation, execution, delivery and filing or
recording of any REO Deed, and any filing, transfer or recording tax or other
charges with respect thereto shall be borne by Sellers.

 

(d)                                 Upon the
acquisition of title to an REO Property by PC REO, PC REO will be deemed to
make the representations and warranties hereto with respect to such REO
Property as set forth in Section 7.18 and Schedule 1-B
attached hereto.  Sellers shall, at their
sole cost and expense, take all such other steps as may be necessary in
connection with the preservation of Buyer’s rights in and interests to the REO
Entity Interests.

 

(e)                                  If PMC shall
become entitled to receive or shall receive any certificate evidencing any
option rights or any other equity interest in PC REO, whether in addition to,
in substitution for, as a conversion of, or in exchange for the REO Entity
Interests, or otherwise in respect thereof, PMC shall assign and deliver the
same forthwith to Buyer in the exact form received, duly indorsed by PMC,
together with an undated transfer power, if required, covering such certificate
duly executed in blank.  Any sums paid
upon or in respect of REO Entity Interests upon the liquidation or dissolution
of the REO Entity shall be paid over to Buyer and applied to the payment of the
outstanding Repurchase Price.

 

(f)                                    Unless an Event
of Default shall have occurred and be continuing, PMC shall be permitted to
exercise all voting and member rights inuring to each of them with respect to
the REO Entity Interests in accordance with the terms of the PC REO Trust
Agreement; provided, however, that no vote shall be cast or
member right exercised or other action taken which would impair such REO Entity
Interests or Buyer’s rights to such REO Entity Interests or which would be
inconsistent with or result in a violation of any provision of this Agreement.  Without the prior consent of Buyer, PMC shall
not (i) vote to enable, or take any other action to permit PC REO to issue
any equity interests of any nature or to issue any other equity interests
convertible into or granting the right to purchase or exchange for any equity
interests of PC REO, or (ii) sell, assign, transfer, exchange or otherwise
dispose of, or grant any option with respect to, REO Entity Interests or (iii) create,
incur or permit to exist any Lien or option in favor of, or any claim of any
Person with respect to, REO Entity Interests, or any interest therein, except
for the Lien provided for by this Agreement, or (iv) enter into any
agreement (other than this Agreement) or undertaking restricting the right or
ability of PMC to sell, pledge, assign or transfer any REO Entity Interests.

 

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Section 11.05                          Waiver of
Certain Laws.  Each Seller
agrees, to the extent permitted by Requirements of Law, that neither it nor
anyone claiming through or under it will set up, claim or seek to take
advantage of any appraisement, valuation, stay, extension or redemption law now
or hereafter in force in any locality where any Purchased Assets may be
situated in order to prevent, hinder or delay the enforcement or foreclosure of
this Agreement, or the absolute sale of any of the Purchased Assets, or the
final and absolute putting into possession thereof, immediately after such
sale, of the purchasers thereof, and each Seller, for itself and all who may at
any time claim through or under it, hereby waives, to the full extent that it
may be lawful so to do, the benefit of all such laws and any and all right to
have any of the properties or assets constituting the Purchased Assets
marshaled upon any such sale, and agrees that Buyer or any court having
jurisdiction to foreclose the security interests granted in this Agreement may
sell the Purchased Assets as an entirety or in such parcels as Buyer or such
court may determine.

 

ARTICLE 12

 

INCREASED
COSTS; CAPITAL ADEQUACY

 

Section 12.01                          Market
Disruption.  If prior to
any Pricing Period, Buyer determines that, by reason of circumstances affecting
the relevant market, adequate and reasonable means do not exist for
ascertaining the LIBO Rate for such Pricing Period, Buyer shall give prompt
notice thereof to Sellers, whereupon the Pricing Rate for such Pricing Period,
and for all subsequent Pricing Periods until such notice has been withdrawn by
Buyer, shall be the Alternative Rate.

 

Section 12.02                          Illegality.  If the adoption of or any change in any
Requirements of Law or in the interpretation or application thereof after the
date hereof shall make it unlawful for Buyer to effect or continue Transactions
as contemplated by the Repurchase Documents, (a) any commitment of Buyer
hereunder to enter into new Transactions shall be terminated, (b) the
Pricing Rate shall be converted automatically to the Alternative Rate on the
last day of the then current Pricing Period or within such earlier period as
may be required by Requirements of Law, and (c) if required by such
adoption or change, the Maturity Date shall be deemed to have occurred.

 

Section 12.03                          Breakfunding.  Sellers shall indemnify Buyer and hold Buyer
harmless from any loss, cost or expense (including reasonable legal fees and
expenses) which Buyer may sustain or incur arising from (a) the failure by
Sellers to terminate any Transaction after a Seller has given a notice of
termination pursuant to Section 3.04, (b) any failure by a
Seller to sell Eligible Assets to Buyer after a Seller has notified Buyer of a
proposed Transaction and Buyer has agreed to purchase such Eligible Assets in
accordance with this Agreement, or (c) any conversion of the Pricing Rate
to the Alternative Rate because the LIBO Rate is not available for any reason
on a day that is not the last day of the then current Pricing Period.

 

Section 12.04                          Increased Costs.  If the adoption of or any change in any
Requirements of Law or in the interpretation or application thereof by any
Governmental Authority or compliance by Buyer with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority having jurisdiction over Buyer made after the date of
this Agreement (a) shall subject Buyer to any tax of any kind whatsoever
with respect to the Repurchase Documents, any Purchased Asset or any
Transaction, or change the basis of taxation of payments to Buyer in respect
thereof (except for income taxes and any changes in the rate of 

 

81

 

tax on Buyer’s overall net income), (b) shall
impose, modify or hold applicable any reserve, special deposit, compulsory loan
or similar requirement against assets held by, deposits or other liabilities in
or for the account of, advances, loans or other extensions of credit by, or any
other acquisition of funds by, any office of Buyer, or (c) shall impose on
Buyer any other condition; and the result of any of the preceding
clauses (a), (b) and (c) is to increase the cost to Buyer, by an
amount that Buyer deems to be material, of entering into, continuing or
maintaining Transactions, or to reduce any amount receivable under the
Repurchase Documents in respect thereof, then, in any such case, Sellers shall
pay to Buyer such additional amount or amounts as reasonably necessary to fully
compensate Buyer for such increased cost or reduced amount receivable.  Upon written notice to Sellers of any change
or event pursuant to which additional amounts are due or to become due under
this Section 12.04, Sellers shall (a) pay all additional amounts due
under this Section 12.04 which are incurred or accrue beginning thirty
(30) days following such written notice or (b) repurchase all of the
Purchased Assets in accordance with Section 3.05 prior to thirty (30) days
following such written notice.

 

Section 12.05                          Capital
Adequacy.  If Buyer
determines that the adoption of or any change in any Requirements of Law
regarding capital adequacy or in the interpretation or application thereof or
compliance by Buyer or any corporation Controlling Buyer with any request or
directive regarding capital adequacy (whether or not having the force of law)
from any Governmental Authority made after the date of this Agreement has or
shall have the effect of reducing the rate of return on Buyer’s or such
corporation’s capital as a consequence of its obligations hereunder to a level
below that which Buyer or such corporation could have achieved but for such
adoption, change or compliance (taking into consideration Buyer’s or such
corporation’s policies with respect to capital adequacy) by an amount deemed by
Buyer to be material, then, in any such case, Sellers shall pay to Buyer such
additional amount or amounts as reasonably necessary to fully compensate Buyer
for such reduction.  Upon written notice
to Sellers of any change or event pursuant to which additional amounts are due
or to become due under this Section 12.05, Sellers shall (a) pay all
additional amounts due under this Section 12.05 which are incurred or accrue
beginning thirty (30) days following such written notice or (b) repurchase
all of the Purchased Assets in accordance with Section 3.05 prior to
thirty (30) days following such written notice.

 

Section 12.06                          Withholding Taxes.  (a)  All payments made by Sellers to
Buyer or any other Indemnified Person under the Repurchase Documents and by
Underlying Obligors with respect to the Purchased Assets shall be made free and
clear of and without deduction or withholding for or on account of any present
or future taxes, levies, imposts, deductions, charges or withholdings, and all
liabilities (including penalties, interest and additions to tax) with respect
thereto imposed by any Governmental Authority therewith or thereon, excluding
income taxes, branch profits taxes, franchise taxes or any other tax imposed on
net income by the United States, a state or a foreign jurisdiction under the
laws of which Buyer or such other Indemnified Person is organized or of its
applicable lending office, or a state or foreign jurisdiction with respect to
which Buyer or such other Indemnified Person has a present or former
connection, or any political subdivision thereof (collectively, “Taxes”),
all of which shall be paid by Sellers for their own account not later than the
date when due.  If any taxes are required
to be deducted or withheld from any amounts payable to Buyer and/or any other
Indemnified Person, then Sellers shall (a) make such deduction or
withholding, (b) pay the amount so deducted or withheld to the appropriate
Governmental Authority not later than the date when due; and (c) pay to
Buyer or 

 

82

 

other Indemnified Person such additional amounts
(the “Additional Amount”) as may be necessary so that every net payment
made under this Agreement after deduction or withholding for or on account of
any Taxes (including any Taxes on such increase and any penalties) is not less
than the amount that would have been paid absent such deduction or withholding.  The foregoing obligation to pay Additional
Amounts, however, will not apply with respect to (i) net income or
franchise taxes imposed on Buyer and/or any other Indemnified Person, with
respect to payments required to be made by Sellers under the Repurchase
Documents, by a taxing jurisdiction in which Buyer and/or any other Indemnified
Person is organized, conducts business or is paying taxes (as the case may
be).  Promptly after Sellers pay any
taxes referred to in this Section 12.06, Sellers will send Buyer
appropriate evidence of such payment, or (ii) any U.S. federal withholding
tax imposed on “withholdable payments” made after December 31, 2012, if
the Buyer is a “foreign financial institution” that fails to comply with the
requirements of section 1471(b) of the Code or a “non-financial foreign
entity” that fails to comply with section 1472(b) of the Code, each as in
effect on the date hereof, or Treasury regulations or administrative guidance
promulgated thereunder.

 

(b)                                 In addition,
Sellers agree to pay to the relevant Governmental Authority in accordance with
applicable law any current or future stamp or documentary taxes or any other
excise or property taxes, charges or similar levies (including, without
limitation, mortgage recording taxes, transfer taxes and similar fees) imposed
by the United States or any taxing authority thereof or therein that arise from
any payment made hereunder or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement (“Other Taxes”).

 

(c)                                  Sellers agree
to indemnify Buyer for the full amount of Taxes (including additional amounts
with respect thereto) and Other Taxes, and the full amount of Taxes of any kind
imposed by any jurisdiction on amounts payable under this
Section 12.06(c), and any liability (including penalties, interest and
expenses arising thereon or with respect thereto) arising therefrom or with
respect thereto, provided that Buyer shall have provided Sellers with evidence,
reasonably satisfactory to Sellers, of payment of Taxes or Other Taxes, as the
case may be.

 

(d)                                 If a Person
acquires any of the rights and obligations of Buyer as an Eligible Assignee
under this Agreement, and such Person is not organized under the laws of the
United States, any state thereof or the District of Columbia (a “Non-U.S.
Person”), such Non-U.S. Person shall deliver to Sellers on or before the
date on which such Person becomes a party to this Agreement, two duly completed
and executed copies of, as applicable, IRS Form W-8BEN or IRS Form W-8ECI
or any successor forms thereto designated as such by the IRS.  If the Non-U.S. Person is eligible for and
wishes to claim exemption from or reduction in U.S. federal withholding tax
through benefit of a treaty, such Person shall deliver a Form W-8ECI.  If the Non-U.S. Person is eligible for and
wishes to claim exemption from U.S. federal withholding tax under Section 871(h) or
Section 881(c) of the Code with respect to payments of “portfolio
interest,” such Person shall deliver both the Form W-8BEN and a statement
certifying that such Person is not a bank, a “10 percent shareholder” or a “controlled
foreign corporation” within the meaning of Section 881(c)(3) of the
Code.  If any previously delivered form
or statement becomes inaccurate with respect to the Non-U.S. Person that delivered
it, the Non-U.S. Person shall promptly notify Sellers of this fact.

 

83

 

(e)                                  Without
prejudice to the survival or any other agreement of Sellers hereunder, the
agreements and obligations of Sellers contained in this Section 12.06(e) shall
survive the termination of this Agreement. 
Nothing contained in this Section 12.06(e) shall require Buyer
to make available any of their tax returns or other information that it deems
to be confidential or proprietary.

 

(f)                                    Each party to
this Agreement acknowledges that it is its intent solely for purposes of U.S.
federal, state and local income and franchise taxes to treat each Transaction
as indebtedness of the applicable Seller that is secured by the Purchased
Assets and that the Purchased Assets are owned by the applicable Seller in the
absence of an Event of Default by a Seller. 
All parties to this Agreement agree to such treatment and agree to take
no action inconsistent with this treatment, unless required by law.

 

Section 12.07                          Payment and
Survival of Obligations. 
Buyer may at any time send Sellers a notice showing the calculation of any
amounts payable pursuant to this Article 12, and Sellers shall pay
such amounts to Buyer within ten (10) Business Days after Sellers receive
such notices.  The obligations of Sellers
under this Article 12 shall apply to Eligible Assignees and
Participants and survive the termination of the Repurchase Documents.

 

ARTICLE 13

 

INDEMNITY
AND EXPENSES

 

Section 13.01                          Indemnity.

 

(a)                                  Sellers shall release, defend, indemnify and hold harmless Buyer,
Affiliates of Buyer and its and their respective officers, directors,
shareholders, partners, members, owners, employees, agents, attorneys,
Affiliates and advisors (each an “Indemnified Person” and collectively
the “Indemnified Persons”), on a net after-tax basis, from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, taxes (other than net income taxes and franchise taxes of
Buyer), fees, costs, expenses (including reasonable legal fees and expenses),
penalties or fines of any kind that may be imposed on, incurred by or asserted
against such Indemnified Person (collectively, the “Indemnified Amounts”)
in any way relating to, arising out of or resulting from or in connection with
(i) the Repurchase Documents, the Asset Documents, the Purchased Assets,
the Underlying Assets, the Transactions, any Underlying Mortgaged Property or
related property, or any action taken or omitted to be taken by any Indemnified
Person in connection with or under any of the foregoing, or any transaction
contemplated hereby or thereby, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of any Repurchase Document,
any Transaction, any Purchased Asset, any Asset Document (ii) any claims,
actions or damages by an Underlying Obligor or lessee with respect to a
Purchased Asset, (iii) any violation or alleged violation of,
non-compliance with or liability under any Requirements of Law,
(iv) ownership of, Liens on, security interests in or the exercise of
rights or remedies under any of the items referred to in the preceding
clause (i), (v) any accident, injury to or death of any person or
loss of or damage to property occurring in, on or about any Underlying
Mortgaged Property or on the adjoining sidewalks, curbs, parking areas, streets
or ways, (vi) any use, nonuse or condition in, on or about, or possession,
alteration, repair, operation, maintenance or management of, any Underlying
Mortgaged Property or on the adjoining sidewalks, curbs, 

 

84

 

parking
areas, streets or ways, (vii) any failure by Sellers to perform or comply
with any Repurchase Document, Asset Document or Purchased Asset,
(viii) performance of any labor or services or the furnishing of any
materials or other property in respect of any Underlying Mortgaged Property or
Purchased Asset, (ix) any claim by brokers, finders or similar Persons
claiming to be entitled to a commission in connection with any lease or other
transaction involving any Repurchase Document, Purchased Asset, Underlying Asset
or Underlying Mortgaged Property, (x) any taxes attributable to the
execution, delivery, filing or recording of any Repurchase Document, Asset
Document or any memorandum of any of the foregoing, (xi) any Lien or claim
arising on or against any Purchased Asset, Underlying Asset or related
Underlying Mortgaged Property under any Requirements of Law or any liability
asserted against Buyer or any Indemnified Person with respect thereto,
(xii) (1) a past, present or future violation or alleged violation of
any Environmental Laws in connection with any property or Underlying Mortgaged
Property by any Person or other source, whether related or unrelated to Sellers
or any Underlying Obligor, (2) any presence of any Materials of
Environmental Concern in, on, within, above, under, near, affecting or
emanating from any Underlying Mortgaged Property, (3) the failure to
timely perform any Remedial Work, (4) any past, present or future activity
by any Person or other source, whether related or unrelated to Sellers or any
Underlying Obligor in connection with any actual, proposed or threatened use,
treatment, storage, holding, existence, disposition or other release,
generation, production, manufacturing, processing, refining, control,
management, abatement, removal, handling, transfer or transportation to or from
any Underlying Mortgaged Property of any Materials of Environmental Concern at
any time located in, under, on, above or affecting any Underlying Mortgaged
Property, (5) any past, present or future actual Release (whether
intentional or unintentional, direct or indirect, foreseeable or unforeseeable)
to, from, on, within, in, under, near or affecting any Underlying Mortgaged
Property by any Person or other source, whether related or unrelated to Sellers
or any Underlying Obligor, (6) the imposition, recording or filing or the
threatened imposition, recording or filing of any Lien on any Underlying
Mortgaged Property with regard to, or as a result of, any Materials of
Environmental Concern or pursuant to any Environmental Law, or (7) any
misrepresentation or failure to perform any obligations pursuant to any
Repurchase Document or Asset Document relating to environmental matters in any
way, or (xiii) a Seller’s conduct, activities, actions and/or inactions in
connection with, relating to or arising out of any of the foregoing clauses of
this Section 13.01, that, in each case, results from anything
whatsoever other than any Indemnified Person’s gross negligence or intentional
misconduct, as determined by a court of competent jurisdiction pursuant to a
final, non-appealable judgment.  In any
suit, proceeding or action brought by an Indemnified Person in connection with
any Purchased Asset for any sum owing thereunder, or to enforce any provisions
of any Purchased Asset, Sellers shall defend, indemnify and hold such
Indemnified Person harmless from and against all expense, loss or damage
suffered by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the account debtor or Underlying Obligor
arising out of a breach by a Seller of any obligation thereunder or arising out
of any other agreement, indebtedness or liability at any time owing to or in
favor of such account debtor or Underlying Obligor from Sellers.  In the case of an investigation, litigation
or other proceeding to which the indemnity in this Section 13.01
applies, such indemnity shall be effective whether or not such investigation,
litigation or proceeding is brought by a Seller, an Indemnified Person or any
other Person or any Indemnified Person is otherwise a party thereto and whether
or not any Transaction is entered into.

 

85

 

(b)                                 If for any
reason the indemnification provided in this Section 13.01 is
unavailable to the Indemnified Person or is insufficient to hold an Indemnified
Person harmless, even though such Indemnified Person is entitled to
indemnification under the express terms thereof, then Sellers shall contribute
to the amount paid or payable by such Indemnified Person as a result of such
loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative benefits received by such Indemnified Person on the one
hand and Sellers on the other hand, the relative fault of such Indemnified Person,
and any other relevant equitable considerations.

 

(c)                                  An Indemnified
Person may at any time send Sellers a notice showing the calculation of
Indemnified Amounts, and Sellers shall pay such Indemnified Amounts to such
Indemnified Person within ten (10) Business Days after Sellers receive
such notices.  The obligations of Sellers
under this Section 13.01 shall apply to Eligible Assignees and
Participants and survive the termination of this Agreement.

 

Section 13.02                          Expenses.  Sellers shall promptly on demand pay to or as
directed by Buyer all third-party out-of-pocket costs and expenses (including
legal, accounting and advisory fees and expenses) incurred by Buyer in
connection with (a) the development, evaluation, preparation, negotiation,
execution, consummation, delivery and administration of, and any amendment,
supplement or modification to, or extension, renewal or waiver of, the
Repurchase Documents and the Transactions, (b) any Asset or Purchased
Asset, including due diligence, inspection, testing, review, recording,
registration, travel custody, care, insurance or preservation, (c) the
enforcement of the Repurchase Documents or the payment or performance by
Sellers of any Repurchase Obligations, and (d) any actual or attempted
sale, exchange, enforcement, collection, compromise or settlement relating to
the Purchased Assets or Underlying Assets.

 

ARTICLE 14

 

INTENT

 

Section 14.01                          Intent.

 

(a)                                  The Parties intend (i) for each Transaction to qualify for the safe
harbor treatment provided by the Bankruptcy Code and for Buyer to be entitled
to all of the rights, benefits and protections afforded to Persons under the
Bankruptcy Code with respect to a “repurchase agreement” as defined in
Section 101(47) of the Bankruptcy Code (except with respect to Purchased
REO Entity Interests), a “master netting agreement” as defined in Section 101(38A)
of the Bankruptcy Code and a “securities contract” as defined in
Section 741(7) of the Bankruptcy Code and that payments under this
Agreement are deemed “margin payments” or “settlement payments,” as defined in
Section 101 of the Bankruptcy Code, (ii) for the grant of a security
interest set forth in Article 11 to also be a “securities contract”
as defined in Section 741(7)(A)(xi) of the Bankruptcy Code and a “repurchase
agreement” as defined in Section 101(47)(A)(v) of the Bankruptcy Code
(except with respect to Purchased REO Entity Interests), and a “master netting
agreement” as defined in Section 101(38A) of the Bankruptcy Code and
(iii) that Buyer (for so long as Buyer is a “financial institution,” “financial
participant” or other entity listed in Section 555, 559, 362(b)(6), 362(b)(7) or
362(b)(27) of the Bankruptcy Code) shall be entitled to the “safe harbor”
benefits and protections afforded under 

 

86

 

the
Bankruptcy Code with respect to a “repurchase agreement” (except with respect
to Purchased REO Entity Interests)  a “securities
contract,” and a “master netting agreement” including (x) the rights, set
forth in Article 10 and in Section 555, 559 (except with
respect to Purchased REO Entity Interests) and 561 of the Bankruptcy Code, to
liquidate the Purchased Assets and terminate this Agreement, and/or
Transactions hereunder (y) the right to offset or net out as set forth in Article 10
and Section 18.17 and in Sections 362(b)(6), 362(b)(7) or
362(b)(27) of the Bankruptcy Code and (z) the non-avoidability of
transfers made in connection with this Agreement as set forth in Section 546(e),
546(f) and 546(j) of the Bankruptcy Code.

 

(b)                                 The Parties
acknowledge and agree that Buyer’s right to liquidate Purchased Assets
delivered to it in connection with Transactions hereunder or to exercise any
other remedies pursuant to Articles 10 and 11 and as
otherwise provided in the Repurchase Documents is a contractual right to
liquidate such Transactions as described in Section 555, 559 and 561 of
the Bankruptcy Code.

 

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

 

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

 

ARTICLE 15

 

DISCLOSURE
RELATING TO CERTAIN FEDERAL PROTECTIONS

 

The
Parties acknowledge that they have been advised and understand that:

 

(a)                                  in the case of Transactions in which one of the Parties is a broker or
dealer registered with the Securities and Exchange Commission under
Section 14 of the Securities Exchange Act of 1934, the Securities Investor
Protection Corporation has taken the position that the provisions of the
Securities Investor Protection Act of 1970 do not protect the other Party with
respect to any Transaction;

 

(b)                                 in the case of
Transactions in which one of the Parties is a government securities broker or a
government securities dealer registered with the Securities and Exchange
Commission under Section 14C of the Securities Exchange Act of 1934, the
Securities Investor Protection Act of 1970 will not provide protection to the
other Party with respect to any Transaction;

 

87

 

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

 

(d)                                 in the case of
Transactions in which one of the Parties is an “insured depository institution”
as that term is defined in Section 1813(c)(2) of Title 12 of the
United States Code, funds held by the financial institution pursuant to a
Transaction are not a deposit and therefore are not insured by the Federal
Deposit Insurance Corporation, the Savings Association Insurance Fund or the
Bank Insurance Fund, as applicable.

 

ARTICLE 16

 

NO RELIANCE

 

Section 16.01                          No Reliance. Each Party
acknowledges, represents and warrants to the other Party that, in connection
with the negotiation of, entering into, and performance under, the Repurchase
Documents and each Transaction:

 

(a)                                  It is not relying (for purposes of making any investment decision or
otherwise) on any advice, counsel or representations (whether written or oral)
of the other Party, other than the representations expressly set forth in the
Repurchase Documents;

 

(b)                                 It has
consulted with its own legal, regulatory, tax, business, investment, financial
and accounting advisors to the extent that it has deemed necessary, and it has
made its own investment, hedging and trading decisions (including decisions
regarding the suitability of any Transaction) based on its own judgment and on
any advice from such advisors as it has deemed necessary and not on any view
expressed by the other Party;

 

(c)                                  It is a
sophisticated and informed Person that has a full understanding of all the
terms, conditions and risks (economic and otherwise) of the Repurchase
Documents and each Transaction and is capable of assuming and willing to assume
(financially and otherwise) those risks;

 

(d)                                 It is entering
into the Repurchase Documents and each Transaction for the purposes of managing
its borrowings or investments or hedging its Underlying Assets or liabilities
and not for purposes of speculation;

 

(e)                                  It is not
acting as a fiduciary or financial, investment or commodity trading advisor for
the other Party and has not given the other Party (directly or indirectly
through any other Person) any assurance, guaranty or representation whatsoever
as to the merits (either legal, regulatory, tax, business, investment,
financial accounting or otherwise) of the Repurchase Documents or any
Transaction; and

 

(f)                                    No partnership
or joint venture exists or will exist as a result of the Transactions or
entering into and performing the Repurchase Documents.

 

88

 

ARTICLE 17

 

SERVICING

 

This
Article 17 shall apply to all Purchased Assets and Underlying
Assets to the extent that the servicing thereof is within the direct or
indirect control of Sellers or an Affiliate of Sellers.

 

Section 17.01                          Servicing of Purchased Assets and Underlying
Assets.

 

(a)                                  During the period the Purchased Assets and Underlying Assets are subject
to a Transaction hereunder, Sellers agree that (i) Buyer is the owner of
the related Servicing Rights and all Servicing Files and Servicing Records with
respect to the Purchased Assets and pledgee of the related Servicing Rights and
all Servicing Files and Servicing Record with respect to the Underlying
Mortgage Loans (to the extent set forth in Section 11.01), and (ii) that
the Servicer shall service the Purchased Assets and Underlying Assets for
exclusive benefit of the Buyer (and with respect to the Underlying Mortgage
Loans, the Class A Participant) as owner and pledgee, respectively.

 

(b)                                 Sellers, on
Buyer’s (or in the case of Underlying Mortgage Loans, the holder of the Class A
Participation’s) behalf, shall contract with Servicer to service the Purchased
Assets and Underlying Assets consistent with the degree of skill and care that
the Sellers customarily requires with respect to similar Mortgage Loans and REO
Properties owned or managed by it and in accordance with Accepted Servicing
Practices and the Servicing Standard. 
Servicer shall also (i) comply with all applicable Federal, State
and local laws and regulations, (ii) maintain all state and federal
licenses necessary for it to perform its servicing responsibilities hereunder
and (iii) not impair the rights of Buyer (or the holder of the Class A
Participation) in any Purchased Assets or Underlying Assets or any payment
thereunder.  Buyer (or in the case of
Underlying Mortgage Loans, the holder of the Class A Participation) may
terminate the servicing of any Purchased Asset with the Servicer in accordance
with Section 17.01(f) hereof.

 

(c)                                  Sellers shall
cause Servicer to hold or cause to be held all escrow funds collected by the
Servicer with respect to any Purchased Assets in trust accounts and shall apply
the same for the purposes for which such funds were collected.

 

(d)                                 Sellers shall
cause Servicer to remit or deposit all Income received by the Servicer on the
Purchased Assets and Underlying Assets in strict accordance with Section 5.01
hereof.

 

(e)                                  As a condition
precedent to Buyer funding any Transactions hereunder and following the
termination of Servicer pursuant to the terms hereof and upon the appointment
of any successor Servicer, Sellers shall provide to Buyer a Servicer
Instruction Notice addressed to and executed by Servicer, advising Servicer of
such matters as Buyer may reasonably request, including, without limitation, (i) recognition
by Servicer of Buyer’s ownership interest in such Purchased Assets and security
interest in the Underlying Mortgage Loans as provided hereunder, (ii) recognition
by Servicer that it owes its duties to the Buyer as owner or pledgee of such
Assets (subject to each Seller’s right to direct and control servicing of 

 

89

 

such Assets prior to an
Event of Default or with respect to the Purchased Mortgage Loans and REO
Properties, Servicer termination pursuant to Section 17.01(h) below),
(iii) agreement by Servicer to comply with the Servicing Standards, and (iv) acknowledgment
by Servicer that upon receipt of notice of an Event of Default from Buyer, it
will follow the instructions of Buyer with respect to the Purchased Assets and
Underlying Assets and any related Income with respect thereto.

 

(f)                                    Upon the
occurrence of an Event of Default hereunder or Servicer Termination Event,
Buyer shall have the right to immediately terminate Servicer’s right to service
the Purchased Assets and Underlying Assets without payment of any penalty or
termination fee.  Sellers and Servicer
shall cooperate in transferring the servicing of the Purchased Assets and
Underlying Assets to Buyer or its designee, or in the case of a Servicer
Termination Event for which Buyer did not declare an Event of Default, a
successor servicer selected by (i) the Class A Participant with
respect to the Underlying Mortgage Loans, and (ii) Sellers with respect to
the Purchased Mortgage Loans, in each case as approved by Buyer, all at no cost
or expense to Buyer, it being agreed that Sellers will pay any fees and
expenses required to terminate the Servicing Agreement and transfer servicing
to Buyer, its designee or a successor Servicer, as the case may be.  Seller shall cause any such successor
Servicer to execute a Servicer Instruction Notice and such successor Servicer
shall be bound by the terms of such notice and the terms of this Agreement.

 

(g)                                 If Sellers
should discover that, for any reason whatsoever, Sellers, or Servicer or any
entity responsible for managing or servicing any such Purchased Asset has
failed to perform fully the any Seller’s obligations under the Program
Agreements or any of the obligations of such entities with respect to the
Purchased Assets and Underlying Assets, the Sellers shall promptly notify
Buyer.

 

(h)                                 The Servicer shall service the Purchased Mortgage Loans and Underlying
REO Properties for a term of thirty (30) days, beginning on each Remittance
Date and ending thirty (30) days therafter unless renewed in writing by Buyer
(the “Servicing Term”).  If the Servicing
Term is not renewed by Buyer as provided in the foregoing sentence, Sellers and
Servicer shall cooperate in effectively transferring the servicing of the Purchased
Mortgage Loans and Underlying REO Properties and shall deliver the Servicing
Files and Servicing Records (except with respect to the Purchased REMIC
Certificates and Underlying Mortgage Loans) and the physical and contractual
servicing to the designee of the Buyer, in each case within the thirty (30) day
period immediately following the expiration of the Servicing Term.  Any such transfer of servicing at the end of
each non-renewed Servicing Term shall be in accordance with customary and
prudent mortgage banking standards for the transfer of servicing for assets
similar to the Purchased Assets and REO Properties and such transfer shall
include the transfer of the gross amount of all escrows held for the related
mortgagors (without reduction for unreimbursed advances or “negative escrows”).  For the avoidance of doubt, Servicer’s
servicing of the Underlying Mortgage Loans shall not be subject to the
Servicing Term.

 

(i)                                     Buyer shall
have the right to appoint a third party to perform due diligence with respect
to Servicer at any time.  Upon the
occurrence of a Servicer Change of Control that is approved by Buyer, Sellers
shall cooperate and cause Servicer to cooperate with 

 

90

 

Buyer and/or its designees
to provide access to the Servicer’s servicing facilities, as applicable,
including without limitation its books and records with respect to the Servicer’s
servicing portfolio and the related Purchased Assets and Underlying Assets and
any other information Buyer may reasonably request regarding Servicer or its
servicing activities.  In addition to the
foregoing, Sellers shall permit Buyer to inspect upon reasonable prior written
notice at a mutually convenient time, such Servicer’s servicing facilities, as
the case may be, for the purpose of satisfying Buyer that the Servicer, has the
ability to service the Assets as provided in this Agreement.  In addition, at any time that Servicer is not
otherwise an Affiliate of a Seller, Guarantor or any Affiliate thereof, Sellers
shall use its best efforts to enable Buyer to inspect the servicing facilities
of Servicer and to cause Servicer to cooperate with Buyer and/or its designees
in connection with any due diligence performed by Buyer and/or such designees
in accordance with this Section 17.01(e).  Sellers and Buyer further agree that all
reasonable out-of-pocket costs and expenses incurred by Buyer in connection
with any due diligence or inspection performed pursuant to this Section 17.01(e) shall
be paid by Sellers.

 

Section 17.02                          Fees and
Expenses of Servicer.  All fees
and expenses of any Servicer shall be borne solely by the Sellers (and with respect
to the REO Property, by PC REO in accordance with the PC REO Trust Agreement.

 

Section 17.03                          Servicing Reports.  Sellers shall deliver and cause Servicer to
deliver to Buyer, Master Servicer and Custodian a monthly remittance report on
or before the 15th day of each month containing servicing information,
including those fields reasonably requested by Buyer from time to time, on an
asset-by-asset and in the aggregate, with respect to the Purchased Assets and
Underlying Assets serviced by Servicer for the month (or any portion thereof)
before the date of such report.

 

Section 17.04                          Servicer; Servicing Data File.  Upon the occurrence of any of the following (a) the
occurrence and continuation of an Event of Default, (b) the twenty-fifth
(25th) calendar day
(or if such calendar day is not a Business Day, the immediately following
Business Day) of each month, or (c) upon the request of Buyer, the Sellers
shall cause Servicer to provide to Buyer, electronically, in a format mutually
acceptable to Buyer and the Sellers, a Servicing Data File by no later than the
Reporting Date.  The Sellers shall not
cause the Assets to be serviced by any servicer other than Servicer unless
expressly approved in writing by Buyer.

 

ARTICLE 18

 

MISCELLANEOUS

 

Section 18.01                          Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to conflicts of laws principles thereof other than Section 5-1401
of the New York General Obligations law, which shall govern.

 

Section 18.02                          Submission to Jurisdiction; Service of Process.  Buyer irrevocably and unconditionally
submits, for itself and its property, to the nonexclusive jurisdiction of the
courts of the State of New York sitting in the Borough of Manhattan and of the
United States District Court of the Southern District of New York, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to the Repurchase Documents, or for recognition 

 

91

 

or enforcement of any judgment, and each Party
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such State court or, to the
fullest extent permitted by applicable law, in such Federal court.  Each Party agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by
law.  Nothing in this Agreement or the
other Repurchase Documents shall affect any right that Buyer may otherwise have
to bring any action or proceeding arising out of or relating to the Repurchase
Documents against any Seller or its properties in the courts of any
jurisdiction.  Each Seller irrevocably
and unconditionally waives, to the fullest extent permitted by Requirements of
Law, any objection that it may now or hereafter have to the laying of venue of
any action or proceeding arising out of or relating to the Repurchase Documents
in any court referred to above, and the defense of an inconvenient forum to the
maintenance of such action or proceeding in any such court.  Each Party irrevocably consents to service of
process in the manner provided for notices in Section 18.12.  Nothing in this Agreement will affect the
right of any party hereto to serve process in any other manner permitted by applicable
law.

 

Section 18.03                          WAIVERS.

 

(a)                                  EACH SELLER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN
ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY BUYER OR ANY INDEMNIFIED PERSON.

 

(b)                                 TO THE EXTENT
PERMITTED BY REQUIREMENTS OF LAW, EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE BETWEEN THEM, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING
OUT OF, CONNECTED WITH OR RELATED TO THE REPURCHASE DOCUMENTS, THE PURCHASED
ASSETS, THE UNDERLYING ASSETS, THE TRANSACTIONS, ANY DEALINGS OR COURSE OF
CONDUCT BETWEEN THEM, OR ANY STATEMENTS (WRITTEN OR ORAL) OR OTHER ACTIONS OF
EITHER PARTY.  NEITHER PARTY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED.  INSTEAD, ANY
SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A
JURY.

 

(c)                                  TO THE EXTENT
PERMITTED BY REQUIREMENTS OF LAW, EACH SELLER HEREBY WAIVES ANY RIGHT TO CLAIM
OR RECOVER IN ANY LITIGATION WHATSOEVER INVOLVING ANY INDEMNIFIED PERSON, ANY
SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES OF ANY KIND OR NATURE WHATSOEVER OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES, WHETHER SUCH WAIVED DAMAGES ARE BASED ON STATUTE,
CONTRACT, TORT, COMMON LAW OR ANY OTHER LEGAL THEORY, WHETHER THE LIKELIHOOD OF
SUCH DAMAGES WAS KNOWN AND REGARDLESS OF THE FORM OF THE CLAIM OF ACTION, INCLUDING
ANY CLAIM OR ACTION ALLEGING GROSS NEGLIGENCE, RECKLESS DISREGARD, WILLFUL OR
WONTON MISCONDUCT, FAILURE TO EXERCISE 

 

92

 

REASONABLE CARE OR FAILURE
TO ACT IN GOOD FAITH.  NO INDEMNIFIED
PERSON SHALL BE LIABLE FOR ANY DAMAGES ARISING FROM THE USE BY UNINTENDED
RECIPIENTS OF ANY INFORMATION OR OTHER MATERIALS DISTRIBUTED BY IT THROUGH
TELECOMMUNICATIONS, ELECTRONIC OR OTHER INFORMATION TRANSMISSION SYSTEMS IN
CONNECTION WITH ANY REPURCHASE DOCUMENT OR THE TRANSACTIONS.

 

(d)                                 EACH SELLER
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF BUYER OR AN INDEMNIFIED
PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BUYER OR AN INDEMNIFIED
PERSON WOULD NOT SEEK TO ENFORCE ANY OF THE WAIVERS IN THIS SECTION 18.03
IN THE EVENT OF LITIGATION OR OTHER CIRCUMSTANCES.  THE SCOPE OF SUCH WAIVERS IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT
AND THAT RELATE TO THE SUBJECT MATTER OF THE REPURCHASE DOCUMENTS, REGARDLESS
OF THEIR LEGAL THEORY.

 

(e)                                  EACH PARTY
ACKNOWLEDGES THAT THE WAIVERS IN THIS SECTION 18.03 ARE A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT SUCH PARTY HAS ALREADY
RELIED ON SUCH WAIVERS IN ENTERING INTO THE REPURCHASE DOCUMENTS, AND THAT SUCH
PARTY WILL CONTINUE TO RELY ON SUCH WAIVERS IN THEIR RELATED FUTURE
DEALINGS.  EACH PARTY FURTHER REPRESENTS
AND WARRANTS THAT IT HAS REVIEWED SUCH WAIVERS WITH ITS LEGAL COUNSEL AND THAT
IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL AND OTHER RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.

 

(f)                                    THE WAIVERS IN
THIS SECTION 18.03 ARE IRREVOCABLE, MEANING THAT THEY MAY NOT
BE MODIFIED EITHER ORALLY OR IN WRITING, AND SHALL APPLY TO ANY AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO ANY OF THE REPURCHASE DOCUMENTS.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

(g)                                 THE PROVISIONS
OF THIS SECTION 18.03 SHALL SURVIVE TERMINATION OF THE REPURCHASE
DOCUMENTS AND THE PAYMENT IN FULL OF THE OBLIGATIONS.

 

Section 18.04                          Integration.  The Repurchase Documents supersede and
integrate all previous negotiations, contracts, agreements and understandings
(whether written or oral) between the Parties relating to a sale and repurchase
of Purchased Assets and the other matters addressed by the Repurchase
Documents, and contain the entire final agreement of the Parties relating to
the subject matter thereof.

 

Section 18.05                          Single Agreement.  Each Seller agrees that (a) each
Transaction is in consideration of and in reliance on the fact that all
Transactions constitute a single business and contractual relationship, and
that each Transaction has been entered into in consideration of the other
Transactions, (b) a default by it in the payment or performance of any its
obligations under

 

93

 

a Transaction shall constitute a default by it with
respect to all Transactions, (c) Buyer may set off claims and apply
properties and assets held by or on behalf of Buyer with respect to any
Transaction against the Repurchase Obligations owing to Buyer with respect to
other Transactions, and (d) payments, deliveries and other transfers made
by or on behalf of Sellers with respect to any Transaction shall be deemed to
have been made in consideration of payments, deliveries and other transfers
with respect to all Transactions, and the obligations of Sellers to make any
such payments, deliveries and other transfers may be applied against each other
and netted.

 

Section 18.06                      Use of Employee Plan Assets.  No assets of an employee benefit plan subject
to any provision of ERISA shall be used by either Party in a Transaction.

 

Section 18.07                      Survival and Benefit of Sellers’ Agreements.  The Repurchase Documents and all Transactions
shall be binding on and shall inure to the benefit of the Parties and their
successors and permitted assigns.  All of
Sellers’ representations, warranties, agreements and indemnities in the
Repurchase Documents shall survive the termination of the Repurchase Documents
and the payment in full of the Repurchase Obligations, and shall apply to and
benefit Eligible Assignees and Participants. 
No other Person shall be entitled to any benefit, right, power, remedy
or claim under the Repurchase Documents.

 

Section 18.08                      Assignments and Participations.

 

(a)                                 Sellers shall not sell, assign or transfer any of its rights or the
Repurchase Obligations or delegate its duties under this Agreement or any other
Repurchase Document without the prior written consent of Buyer, and any attempt
by a Seller to do so without such consent shall be null and void.

 

(b)                                 Buyer may at
any time, without the consent of or notice to Sellers or Guarantor, sell
participations to any Person (other than a natural person or Sellers, Guarantor
or any Affiliate thereof) (a “Participant”) in all or any portion of
Buyer’s rights and/or obligations under the Repurchase Documents; provided,
that (i) Buyer’s obligations under the Repurchase Documents shall remain
unchanged, (ii) Buyer shall remain solely responsible to Sellers for the
performance of such obligations, and (iii) Sellers shall continue to deal
solely and directly with Buyer in connection with Buyer’s rights and
obligations under the Repurchase Documents. 
No Participant shall have any right to approve any amendment, waiver or
consent with respect to any Repurchase Document, except to the extent that the
Repurchase Price or Price Differential of any Purchased Asset would be reduced
or the Repurchase Date of any Purchased Asset would be postponed.  Each Participant shall be entitled to the
benefits of Article 12 to the same extent as if it had acquired its
interest by assignment pursuant to Section 18.08(c), but shall not
be entitled to receive any greater payment thereunder than Buyer would have
been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with each Seller’s prior written consent. 
To the extent permitted by Requirements of Law, each Participant shall
be entitled to the benefits of Sections 10.02(j) and 18.17
to the same extent as if it had acquired its interest by assignment pursuant to
Section 18.08(c).

 

(c)                                  Buyer may at
any time, without consent of Sellers or Guarantor but upon notice to Sellers,
sell and assign to any Eligible Assignee all or any portion of all of the rights

 

94

 

and obligations or duties of
Buyer under the Repurchase Documents. 
Each such assignment shall be made pursuant to an Assignment and
Acceptance substantially in the form of Exhibit F (an “Assignment
and Acceptance”).  From and after the
effective date of such Assignment and Acceptance, (i) such Eligible
Assignee shall be a Party and, to the extent provided therein, have the rights
and obligations of Buyer under the Repurchase Documents with respect to the
percentage and amount of the Repurchase Price allocated to it, (ii) Buyer
shall, to the extent provided therein, be released from such obligations (and,
in the case of an Assignment and Acceptance covering all or the remaining
portion of Buyer’s rights and obligations under the Repurchase Documents, Buyer
shall cease to be a Party), (iii) the obligations of Buyer shall be deemed
to be so reduced, and (iv) Buyer will give prompt written notice thereof
(including identification of the Eligible Assignee and the amount of Repurchase
Price allocated to it) to each Party (but Buyer shall not have any liability
for any failure to timely provide such notice). 
Any sale or assignment by Buyer of rights or obligations under the
Repurchase Documents that does not comply with this Section 18.08(c) shall
be treated for purposes of the Repurchase Documents as a sale by such Buyer of
a participation in such rights and obligations in accordance with Section 18.08(b).

 

(d)                                 Sellers shall
cooperate with Buyer in connection with any such sale and assignment of
participations or assignments and shall enter into such restatements of, and
amendments, supplements and other modifications to, the Repurchase Documents to
give effect to any such sale or assignment; provided, that none of the
foregoing shall change any economic or other material term of the Repurchase
Documents in a manner adverse to Sellers without the consent of Sellers in its
respective discretion.

 

(e)                                  Buyer shall
have the right to partially or completely syndicate and or all of its rights
under the Agreement and the other Repurchase Documents to any Eligible
Assignee.

 

Section 18.09                      Ownership and
Hypothecation of Purchased Assets.  Title to all Purchased Assets shall pass to
and vest in Buyer on the applicable Purchase Dates; provided that Buyer may
delay transfer of record title in one or more of the Purchased Assets, subject
to receipt from Sellers of fully executed transfer documentation in blank,
solely for the purpose of facilitating servicing.  Subject to the terms of the Repurchase
Documents, Buyer or its designee shall have free and unrestricted use of all
Purchased Assets and be entitled to exercise all rights, privileges and options
relating to the Purchased Assets as the owner thereof, including rights of
subscription, conversion, exchange, substitution, voting, consent and approval,
and to direct any servicer or trustee. 
Buyer or its designee may engage in repurchase transactions with the
Purchased Assets or otherwise sell, pledge, repledge, transfer, hypothecate, or
rehypothecate the Purchased Assets, all on terms that Buyer may determine; provided,
that no such transaction shall affect the obligations of Buyer to transfer the
Purchased Assets to Sellers on the applicable Repurchase Dates free and clear
of any pledge, Lien, security interest, encumbrance, charge or other adverse
claim.  In the event Buyer engages in a
repurchase transaction with any of the Purchased Assets or otherwise pledges or
hypothecates any of the Purchased Assets, Buyer shall have the right to assign
to Buyer’s counterparty any of the applicable representations or warranties
herein and the remedies for breach thereof, as they relate to the Purchased
Assets that are subject to such repurchase transaction.

 

95

 

Section 18.10                      Confidentiality.  All information regarding the terms set forth
in any of the Repurchase Documents or the Transactions, and the identities of
the parties hereto, shall be kept confidential and shall not be disclosed by
either Party to any Person except (a) to the Affiliates of such Party or
its or their respective directors, officers, employees, agents, advisors,
underwriters, financing sources and other representatives who are informed of
the confidential nature of such information and instructed to keep it
confidential, (b) to the extent requested by any regulatory authority or
required by Requirements of Law, (c) to the extent required to be included
in the financial statements or filings with the Securities and Exchange
Commission of either Party or an Affiliate thereof; provided, that
Sellers shall cause Guarantor to (i) in connection with the execution of
this Agreement, provide Buyer with copies of any such filing with the
Securities and Exchange Commission on Form 8-K at least one (1) day
prior to filing such statement and Buyer shall have the right to provide
comments in its discretion and (ii) use its commercially reasonable
efforts to provide Buyer with copies of any other filings (other than Form 10-Q
and Form 10-K) to be made with the Securities and Exchange Commission in
connection with this Agreement at least one (1) day prior to filing such
statements,  (d) to the extent required
to exercise any rights or remedies under the Repurchase Documents, Purchased
Assets, Underlying Assets or Underlying Mortgaged Properties, (e) to the
extent required to consummate and administer a Transaction, (f) to any
actual or prospective Participant or Eligible Assignee which agrees to comply
with this Section 18.10; provided, further  that
no such disclosure made with respect to any Repurchase Document shall include a
copy of such Repurchase Document to the extent that a summary would suffice,
but if it is necessary for a copy of any Repurchase Document to be disclosed,
all pricing and other economic terms set forth therein shall be redacted before
disclosure. Notwithstanding the generality of the foregoing, Sellers, Guarantor, Investment
Advisor and any of their respective Affiliates shall maintain the
confidentiality of the sensitive economic terms (i.e., Applicable Percentage,
Pricing Margin and the like) set forth in any of the Repurchase Documents or
the Transactions in negotiations, discussions, agreements or due diligence in
connection with any financing, repurchase, credit or similar transactions with
any third-party (including any credit facility or any similar structure with
respect to mortgage related assets including mortgage loans, RMBS or any
similar assets).

 

Section 18.11                      No Implied Waivers.  No failure on the part of Buyer to exercise,
or delay in exercising, any right or remedy under the Repurchase Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right or remedy thereunder preclude any further exercise thereof or the
exercise of any other right.  The rights
and remedies in the Repurchase Documents are cumulative and not exclusive of
any rights and remedies provided by law. 
Application of the Default Rate after an Event of Default shall not be
deemed to constitute a waiver of any Event of Default or Buyer’s rights and
remedies with respect thereto, or a consent to any extension of time for the
payment or performance of any obligation with respect to which the Default Rate
is applied.  Except as otherwise
expressly provided in the Repurchase Documents, no amendment, waiver or other
modification of any provision of the Repurchase Documents shall be effective
without the signed agreement of Sellers and Buyer.  Any waiver or consent under the Repurchase
Documents shall be effective only if it is in writing and only in the specific
instance and for the specific purpose for which given.

 

Section 18.12                      Notices and Other Communications.  Unless otherwise provided in this Agreement,
all notices, consents, approvals, requests and other communications required or
permitted to be given to a Party hereunder shall be in writing and sent prepaid
by hand delivery, 

 

96

 

by certified or registered mail, by expedited
commercial or postal delivery service, or by facsimile or email if also sent by
one of the foregoing, to the address for such Party specified in Schedule 2
or such other address as such Party shall specify from time to time in a notice
to the other Party.  Any of the foregoing
communications shall be effective when delivered or upon the first attempted
delivery on a Business Day.  A Party
receiving a notice that does not comply with the technical requirements of this
Section 18.12 may elect to waive any deficiencies and treat the notice
as having been properly given.

 

Section 18.13                      Counterparts; Electronic Transmission.  This Agreement and any other Repurchase
Document may be executed by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.  The parties agree that this Agreement, any
documents to be delivered pursuant to this Agreement, any other Repurchase
Document and any notices hereunder may be transmitted between them by email
and/or facsimile.  The parties intend
that faxed signatures and electronically imaged signatures such as .pdf files
shall constitute original signatures and are binding on all parties.

 

Section 18.14                      No Personal Liability.  No administrator, incorporator, Affiliate,
owner, member, partner, stockholder, officer, director, employee, agent or
attorney of Buyer, any Indemnified Person, Sellers, or Guarantor, as such,
shall be subject to any recourse or personal liability under or with respect to
any obligation of Buyer, Sellers, or Guarantor under the Repurchase Documents,
whether by the enforcement of any assessment, by any legal or equitable
proceeding, by virtue of any statute or otherwise; it being expressly agreed that
the obligations of Buyer, Sellers, or Guarantor under the Repurchase Documents
are solely their respective corporate, limited liability company or partnership
obligations, as applicable, and that any such recourse or personal liability is
hereby expressly waived.  This Section 18.14
shall survive the termination of the Repurchase Documents.

 

Section 18.15                      Protection of Buyer’s Interests in the
Purchased Assets; Further Assurances.

 

(a)                                 Sellers shall cause the Repurchase Documents and/or all financing statements
and continuation statements and any other necessary documents covering the
right, title and interest of Buyer to the Purchased Assets and Underlying
Assets to be promptly recorded, registered and filed, and at all times to be
kept recorded, registered and filed, all in such manner and in such places as
may be required by law fully to preserve and protect such right, title and
interest.  Sellers shall deliver to Buyer
file-stamped copies of, or filing receipts for, any document recorded,
registered or filed as provided above, as soon as available following such
recording, registration or filing. 
Sellers shall execute any and all documents reasonably required to
fulfill the intent of this Section 18.15.

 

(b)                                 Sellers will
promptly at its expense execute and deliver such instruments and documents and
take such other actions as Buyer may reasonably request from time to time in
order to perfect, protect, evidence, exercise and enforce Buyer’s rights and
remedies under and with respect to the Repurchase Documents, the Transactions
and the Purchased Assets.

 

(c)                                  If a Seller
fails to perform any of its Repurchase Obligations, Buyer may (but shall not be
required to) perform or cause to be performed such Repurchase Obligation, 

 

97

 

and the costs and expenses
incurred by Buyer in connection therewith shall be payable by Sellers.  Without limiting the generality of the
foregoing, each Seller authorizes Buyer, at the option of Buyer and the expense
of Sellers, at any time and from time to time, to take all actions and pay all
amounts that Buyer deems necessary or appropriate to protect, enforce,
preserve, insure, service, administer, manage, perform, maintain, safeguard,
collect or realize on the Purchased Assets and Underlying Assets and Buyer’s
Liens and interests therein or thereon and to give effect to the intent of the
Repurchase Documents.  No Default or
Event of Default shall be cured by the payment or performance of any Repurchase
Obligation by Buyer on behalf of Sellers. 
Buyer may make any such payment in accordance with any bill, statement
or estimate procured from the appropriate public office or holder of the claim
to be discharged without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax assessment, sale, forfeiture, tax
Lien, title or claim except to the extent such payment is being contested in
good faith by Sellers in appropriate proceedings and against which adequate
reserves are being maintained in accordance with GAAP.

 

(d)                                 Without
limiting the generality of the foregoing, Sellers will no earlier than six (6) or
later than three (3) months before the fifth (5th) anniversary of the date of filing of each UCC
financing statement filed in connection with to any Repurchase Document or any
Transaction, (i) deliver and file or cause to be filed an appropriate
continuation statement with respect to such financing statement; provided that
Buyer may elect to file such continuation statement, and (ii) deliver or
cause to be delivered to Buyer an opinion of counsel, in form and substance
reasonably satisfactory to Buyer, confirming and updating the opinion delivered
pursuant to Section 6.01(a) with respect to perfection and
otherwise to the effect that the security interests hereunder continue to be
enforceable and perfected security interests, subject to no other Liens of
record except as provided herein or otherwise permitted hereunder, which
opinion may contain usual and customary assumptions, limitations and exceptions.

 

(e)                                  Except as
provided in the Repurchase Documents, the sole duty of Buyer, Custodian or any
other designee or agent of Buyer with respect to the Purchased Assets shall be
to use reasonable care in the custody, use, operation and preservation of the
Purchased Assets in its possession or control. 
Buyer shall incur no liability to Sellers or any other Person for any
act of Governmental Authority, act of God or other destruction in whole or in
part or negligence or wrongful act of custodians or agents selected by Buyer
with reasonable care, or Buyer’s failure to provide adequate protection or
insurance for the Purchased Assets. 
Buyer shall have no obligation to take any action to preserve any rights
of Sellers in any Purchased Asset against prior parties, and Sellers hereby
agree to take such action.  Buyer shall
have no obligation to realize upon any Purchased Asset except through proper
application of any distributions with respect to the Purchased Assets made
directly to Buyer or its agent(s).  So
long as Buyer and Custodian shall act in good faith in their handling of the
Purchased Assets, Sellers waive or are deemed to have waived the defense of
impairment of the Purchased Assets by Buyer and Custodian.

 

Section 18.16                      Default Rate.  To the extent permitted by Requirements of
Law, Sellers shall pay interest at the Default Rate on the amount of all
Repurchase Obligations not paid when due under the Repurchase Documents until
such Repurchase Obligations are paid or satisfied in full.

 

98

 

Section 18.17                      Set-off.  In addition to any rights now or hereafter
granted under the Repurchase Documents, Requirements of Law or otherwise,
Sellers and Guarantor, each on behalf of itself and each of its respective
Affiliates, hereby grants to Buyer and each Indemnified Person, to secure
repayment of the Repurchase Obligations, a right of set-off upon any and all of
the following:  (i)  monies,
securities, collateral or other property of each Seller, Guarantor and each of
their respective Affiliates and any proceeds from the foregoing, now or
hereafter held or received by Buyer (other than prior to an Event of Default,
amounts held in the Participation Account and the Underlying Mortgage Loans),
any Affiliate of Buyer or any Indemnified Person, for the account of Sellers or
such Affiliate of a Seller, whether for safekeeping, custody, pledge,
transmission, collection or otherwise, (ii) any and all deposits (general,
specified, special, time, demand, provisional or final) and credits, claims or
Indebtedness of Sellers, Guarantor or any Affiliate thereof at any time
existing, (iii) any obligation owed by Buyer or any Affiliate of Buyer to
a Seller, Guarantor or any Affiliate thereof and (iv) any Repurchase
Obligations or Indebtedness owed by a Seller, Guarantor or any Affiliate
thereof and any Indebtedness owed by Buyer or any Affiliate of Buyer to
Sellers, Guarantor or any Affiliate thereof, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, whether or not arising
under the Repurchase Documents and irrespective of the currency, place of
payment or booking office of the amount or obligation and in each case at any
time held or owing by Buyer, any Affiliate of Buyer or any Indemnified Person
to or for the credit of a Seller, Guarantor or any Affiliate thereof.  Each of Buyer, each Affiliate of Buyer and
each Indemnified Person is hereby authorized upon any amount becoming due and
payable by Sellers, Guarantor or any Affiliate thereof to Buyer or any Indemnified
Person under the Repurchase Documents, the Repurchase Obligations or otherwise
or upon the occurrence of an Event of Default, without notice to Sellers,
Guarantor or any Affiliate thereof, any such notice being expressly waived by
Sellers and each Affiliate of any Seller to the extent permitted by any
Requirements of Law, to set-off, appropriate, apply and enforce such right of
set-off against any and all items hereinabove referred to against any amounts
owing to Buyer or any Indemnified Person by Sellers, Guarantor or any Affiliate
thereof under the Repurchase Documents and the Repurchase Obligations,
irrespective of whether Buyer, any Affiliate of Buyer or any Indemnified Person
shall have made any demand under the Repurchase Documents and regardless of any
other collateral securing such amounts, and in all cases without waiver or
prejudice of Buyer’s rights to recover any deficiency.  Notwithstanding the foregoing, with respect
to obligations owing to Buyer regarding the Purchased REO Entity Interests, (a) Buyer
shall have no right to (i) set off such obligations against Purchased
Mortgage Loans or Purchased REMIC Certificates or other collateral held by it
with respect to any Seller, or (ii) set off collateral held by it on
behalf of any Seller against such obligations or collateral held by it with
respect to such Purchased REO Entity Interests and (b) any such set off
rights exercised by Buyer against Guarantor in respect of such obligations
shall be subject to the Recourse Limit. 
Sellers and all Affiliates of each Seller shall be deemed directly
indebted to Buyer and the other Indemnified Persons in the full amount of all
amounts owing to Buyer and the other Indemnified Parties by Sellers and all
Affiliates of each Seller under the Repurchase Documents and the Repurchase
Obligations, and Buyer and the other Indemnified Persons shall be entitled to
exercise the rights of set-off provided for above.  ANY AND ALL RIGHTS TO REQUIRE BUYER OR OTHER
INDEMNIFIED PERSONS TO EXERCISE THEIR RIGHTS OR REMEDIES WITH RESPECT TO THE
PURCHASED ASSETS OR OTHER INDEMNIFIED PERSONS UNDER THE REPURCHASE DOCUMENTS,
PRIOR TO EXERCISING THE FOREGOING RIGHT OF SET-OFF, ARE 

 

99

 

HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED
BY SELLERS AND EACH AFFILIATE OF EACH SELLER.

 

Buyer
or any Indemnified Person shall promptly notify the Sellers or Affiliate of
each Seller after any such set-off and application made by Buyer or such
Indemnified Person; provided that the failure to give such notice shall not
affect the validity of such set-off and application.  If an amount or obligation is unascertained,
Buyer may in good faith estimate that obligation and set-off in respect of the
estimate, subject to the relevant Party accounting to the other Party when the
amount or obligation is ascertained. 
Nothing in this Section 18.17 shall be effective to create a
charge or other security interest.  This Section 18.17
shall be without prejudice and in addition to any right of set-off, combination
of accounts, Lien or other rights to which any Party is at any time otherwise
entitled.

 

Section 18.18                      Power of Attorney.  Sellers hereby authorize Buyer to file such
financing statement or statements relating to the Purchased Assets without any Seller’s
signature thereon as Buyer, at its option, may deem appropriate.  Each Seller hereby appoints Buyer as such
Seller’s agent and attorney in fact to execute any such financing statement or
statements in such Seller’s name and to perform all other acts which Buyer
deems appropriate to perfect and continue its ownership interest in and/or the
security interest granted hereby, if applicable, and to protect, preserve and
realize upon the Purchased Assets, including, but not limited to, the right to
endorse notes, complete blanks in documents, transfer servicing (including, but
not limited, to sending “good-bye letters” on behalf of Sellers and Servicer to
any Mortgagor in the form of Exhibit N with respect to Purchased Assets
which are Mortgage Loans), and sign assignments on behalf of each Seller as its
agent and attorney in fact.  This agency
and power of attorney is coupled with an interest and is irrevocable without
Buyer’s consent.  Notwithstanding the
foregoing, the power of attorney hereby granted may be exercised only during
the occurrence and continuance of any Event of Default hereunder. The Sellers
shall pay the filing costs for any financing statement or statements prepared
pursuant to this Section 18.18.  In
addition, Sellers shall execute and deliver to Buyer and power of attorney in
the form set forth in Exhibit K attached hereto (“Seller’s Power of
Attorney”).

 

Section 18.19                      Sellers’ Waiver of Setoff.  Each Seller hereby waives any right of setoff
it may have or to which it may be or become entitled under the Repurchase
Documents or otherwise against Buyer, any Affiliate of Buyer, any Indemnified
Person or their respective assets or properties.

 

Section 18.20                      Periodic Due Diligence Review.  Buyer may perform continuing due diligence
reviews with respect to the Purchased Assets, Sellers and Affiliates of any
Seller, including ordering new third party reports, for purposes of, among
other things, verifying compliance with the representations, warranties,
ordering BPOs at any time during the term of this Agreement, covenants,
agreements, duties, obligations and specifications made under the Repurchase
Documents or otherwise.  Upon reasonable
prior notice to Sellers, unless a Default or Event of Default exists, in which
case no notice is required, Buyer or its representatives may during normal
business hours inspect any properties and examine, inspect and make copies of
the books and records of Sellers and Affiliates of any Seller, the Asset
Documents and the Servicing Files. 
Sellers shall make available to Buyer one or more knowledgeable
financial or accounting officers and representatives of the independent
certified public accountants of Sellers for the 

 

100

 

purpose of answering questions of Buyer concerning
any of the foregoing.  Sellers shall
cause Servicer to cooperate with Buyer by permitting Buyer to conduct due
diligence reviews of the related Servicing Files and Servicing Records.  Buyer may purchase Purchased Assets from
Sellers based solely on the information provided by Sellers to Buyer in the
Underwriting Materials and the representations, warranties, duties, obligations
and covenants contained herein, and Buyer may at any time conduct a partial or
complete due diligence review on some or all of the Purchased Assets, including
ordering new credit reports and new appraisals on the Underlying Mortgaged
Properties and otherwise regenerating the information used to originate and
underwrite such Purchased Assets.  Buyer
may underwrite such Purchased Assets itself or engage a mutually acceptable
third-party underwriter to do so. 
Sellers shall be responsible for all of the due diligence costs and
expenses incurred by Buyer.

 

Section 18.22                      Time of the
Essence.  Time is of the essence with
respect to all obligations, duties, covenants, agreements, notices or actions
or inactions of a Seller under the Repurchase Documents.

 

Section 18.23                      Joint and Several Repurchase Obligations.

 

(a)                                 Subject to Section 18.23(c), at all times when there is more
than one Seller under this Agreement, each Seller hereby acknowledges and
agrees that (i) each Seller shall be jointly and severally liable to
Buyer to the maximum extent permitted by Requirements of Law for each
Transaction and all Repurchase Obligations, (ii) the liability of each
Seller (A) shall be absolute and unconditional and shall remain in full
force and effect (or be reinstated) until all Repurchase Obligations shall have
been paid in full and the expiration of any applicable preference or similar
period pursuant to any Insolvency Law, or at law or in equity, without any
claim having been made before the expiration of such period asserting an
interest in all or any part of any payment(s) received by Buyer, and
(B) until such payment has been made, shall not be discharged, affected,
modified or impaired on the occurrence from time to time of any event,
including any of the following, whether or not with notice to or the consent of
each Seller, (1) the waiver, compromise, settlement, release, termination
or amendment (including any extension or postponement of the time for payment
or performance or renewal or refinancing) of any of the Repurchase Obligations,
(2) the failure to give notice to each Seller of the occurrence of an
Event of Default, (3) the release, substitution or exchange by Buyer of
any Purchased Asset (whether with or without consideration) or the acceptance
by Buyer of any additional collateral or the availability or claimed
availability of any other collateral or source of repayment or any nonperfection
or other impairment of collateral, (4) the release of any Person primarily
or secondarily liable for all or any part of the Repurchase Obligations,
whether by Buyer or in connection with any Insolvency Proceeding affecting any
Seller or any other Person who, or any of whose property, shall at the time in
question be obligated in respect of the Repurchase Obligations or any part
thereof, or (5) to the extent permitted by Requirements of Law, any other
event, occurrence, action or circumstance that would, in the absence of this Section 18.22,
result in the release or discharge of any or all of Sellers from the
performance or observance of any Repurchase Obligation, (iii) Buyer shall
not be required first to initiate any suit or to exhaust its remedies against
any Seller or any other Person to become liable, or against any of the
Purchased Assets, in order to enforce the Repurchase Documents and each Seller
expressly agrees that, notwithstanding the occurrence of any of the foregoing,
each Seller shall be and remain directly and primarily liable for all 

 

101

 

sums
due under any of the Repurchase Documents, (iv) when making any demand
hereunder against any Seller, Buyer may, but shall be under no obligation to,
make a similar demand on any other Seller, and any failure by Buyer to make any
such demand or to collect any payments from any other Seller, or any release of
any such other Seller shall not relieve any Seller in a respect of which a
demand or collection is not made or Sellers not so released of their
obligations or liabilities hereunder, and shall not impair or affect the rights
and remedies, express or implied, or as a matter of law, of Buyer against
Sellers, and (v) on disposition by Buyer of any property encumbered by any
Purchased Assets, each Seller shall be and shall remain jointly and severally
liable for any deficiency.

 

(b)                                 To the extent
that any Seller (the “paying Seller”) pays more than its proportionate
share of any payment made hereunder, the paying Seller shall be entitled to
seek and receive contribution from and against any other Seller that has not
paid its proportionate share; provided, that the provisions of this Section 18.22
shall not limit the duties, covenants, agreements, obligations and liabilities
of any Seller to Buyer, and, notwithstanding any payment or payments made by
the paying Seller hereunder or any setoff or application of funds of the paying
Seller by Buyer, the paying Seller shall not be entitled to be subrogated to
any of the rights of Buyer against any other Seller or any collateral security
or guarantee or right of setoff held by Buyer, nor shall the paying Seller seek
or be entitled to seek any contribution or reimbursement from any other Seller
in respect of payments made by the paying Seller hereunder, until all
Repurchase Obligations are paid in full. 
If any amount shall be paid to the paying Seller on account of such
subrogation rights at any time when all such amounts shall not have been paid
in full, such amount shall be held by the paying Seller in trust for Buyer,
segregated from other funds of the paying Seller, and shall, forthwith upon
receipt by the paying Seller, be turned over to Buyer in the exact form
received by the paying Seller (duly indorsed by the paying Seller to Buyer, if
required), to be applied against the Repurchase Obligations, whether matured or
unmatured, in such order as Buyer may determine.

 

(c)                                  The Repurchase
Obligations with respect to the Purchased Mortgage Loans and Purchased REMIC
Certificates are full recourse obligations to each Seller, and each Seller
hereby forever waives, demises, acquits and discharges any and all defenses,
and shall at no time assert or allege any defense to the contrary.  Notwithstanding anything to the contrary
herein, Buyer shall have no recourse to any Seller for any Repurchase
Obligations with respect to the Purchased REO Entity Interests.

 

Section 18.24                      Patriot Act
Notice.  Buyer hereby notifies Sellers
that Buyer is required by the Patriot Act to obtain, verify and record
information that identifies Sellers.

 

Section 18.25                      Acknowledgement Of Anti-Predatory Lending
Policies.  Sellers and
Buyer each have in place internal policies and procedures that expressly
prohibit their purchase of any High Cost Mortgage Loan.

 

Section 18.26                      Successors and Assigns; No Third Party
Beneficiaries.  Subject to
the foregoing, the Repurchase Documents and any Transactions shall be binding
upon and shall inure to the benefit of the Parties and their successors and
permitted assigns.  Nothing in the
Repurchase Documents, express or implied, shall give to any Person other than
the Parties any benefit or any legal or equitable right, power, remedy or claim
under the Repurchase Documents.

 

102

 

[ONE OR MORE UNNUMBERED SIGNATURE PAGES FOLLOW]

 

103

 

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

 

 

	
  PENNYMAC
  CORP., as a Seller

  	
   

  	
  WELLS
  FARGO BANK, NATIONAL ASSOCIATION, 

  
	
   

  	
   

  	
  as
  Buyer 

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  	
  By:

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Its:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PENNYMAC
  MORTGAGE INVESTMENT TRUST 

  	
   

  	
   

  
	
  HOLDINGS
  I, LLC, as a Seller

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  
	
  Its:

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
   

  

 

Signature
Page to Master Repurchase AgreementExhibit 10.12

 

EXECUTION VERSION

 

GUARANTY AGREEMENT

 

THIS
GUARANTY AGREEMENT, dated as of November 2, 2010, (as amended,
supplemented and otherwise modified from time to time, this “Guaranty”),
is made by PennyMac Mortgage Investment Trust, a Maryland real estate
investment trust (“Guarantor”) in favor of Wells Fargo Bank, National
Association (“Buyer”).

 

RECITALS

 

A.            Pursuant to the Master Repurchase
Agreement, dated as of  November 2,
2010 (as amended, supplemented or otherwise modified from time to time, the “Repurchase
Agreement”), among PennyMac Corp. (“PMC”), PennyMac Mortgage
Investment Trust Holdings I, LLC (“PMIT”; together with PMC and as more
specifically defined below, each a “Seller” and collectively the “Sellers”),
and Buyer, Buyer has agreed to purchase certain loans, REMIC certificates, REO
entity interests and related assets (as more particularly defined in the
Repurchase Agreement, collectively the “Assets”) from Sellers and
Sellers have agreed to repurchase such Assets upon the terms and subject to the
conditions set forth therein.

 

B.            It is a condition precedent to the
obligation of Buyer to purchase the Assets from Sellers under the Repurchase
Agreement that Guarantor shall have executed and delivered this Guaranty to
Buyer.

 

NOW,
THEREFORE, for good and valuable consideration, receipt of which by the parties
hereto is hereby acknowledged, the parties hereto hereby agree as follows:

 

1.             Defined Terms.

 

(a)           Unless
otherwise defined herein, terms defined in the Repurchase Agreement and used herein
shall have the meanings given to them in the Repurchase Agreement.

 

“ERISA”
shall mean The Employee Retirement Income Security Act of 1974, as amended.

 

“ERISA
Affiliate” shall mean any entity, whether or not incorporated, that is a
member of any group of organizations described in Section 414(b), (c), (m) or
(o) of the Code of which Guarantor is a member.

 

“Expiration
Date” shall have the meaning set forth in Section 2(c) hereof.

 

“Multiemployer
Plan” shall mean a multiemployer plan as defined in Section 4001(a)(3) of
ERISA as to which Guarantor or any ERISA Affiliate has made or is required to
make contributions or has any actual or potential liability.

 

“Obligations”
shall mean the obligations and liabilities of each Seller to Buyer, whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, or out of or in
connection with the Repurchase Agreement or any other Repurchase Document,
including without limitation the Repurchase Obligations.

 

“Plan”
shall mean an employee benefit plan as defined in Section 3(3) of
ERISA, subject to Title I of ERISA in respect of which Guarantor or any ERISA
Affiliate thereof has any actual or

 

 

potential
liability or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be, an “employer” as defined in
Section 3(5) of ERISA.

 

“Recourse
Limit” shall have the meaning assigned thereto in Section 2(e) hereof.

 

“Reportable
Event” shall mean any event set forth in Section 4043(c) of
ERISA, other than an event as to which the notice period is waived under
Pension Benefit Guaranty Corporation Reg. §4043.

 

“Repurchase
Documents” shall mean the “Repurchase Documents” as such term is defined in
the Repurchase Agreement.

“Repurchase
Obligations” shall mean the “Repurchase Obligations” as such term is
defined in the Repurchase Agreement.

 

“Seller”
shall have the meaning set forth in the introductory paragraph hereto.

 

“Single
Employer Plan” shall mean any Plan that is not a Multiemployer Plan.

 

“UCC”
shall mean the Uniform Commercial Code as in effect in the State of New York at
any time.

 

(b)           The
words “hereof”, “herein” and “hereunder” and words of similar import when used
in this Guaranty shall refer to this Guaranty as a whole and not to any
particular provision of this Guaranty, and section and paragraph references are
to this Guaranty unless otherwise specified.

 

(c)           The
meanings given to terms defined herein shall be equally applicable to both the
singular and plural forms of such terms.

 

2.             Recourse Guaranty.

 

(a)           Guarantor
hereby, unconditionally and irrevocably, guarantees to Buyer and its
successors, indorsees, transferees and assigns the prompt and complete payment
and performance by Sellers when due (whether at the stated maturity, by
acceleration, demand or otherwise) of the Obligations.

 

(b)           Notwithstanding
the foregoing, Guarantor further agrees to pay any and all expenses (including,
without limitation, all reasonable fees, expenses and disbursements of counsel)
which may be paid or incurred by Buyer in enforcing any rights with respect to,
or collecting, any or all of the Repurchase Obligations and/or enforcing any
rights with respect to, or collecting against, Guarantor under this Guaranty.  This Guaranty shall remain in full force and
effect until the Repurchase Obligations are paid in full, notwithstanding that
from time to time prior thereto one or more Sellers may be free from any
Repurchase Obligations.

 

(c)           No
payment or payments made by any Seller or any other Person or received or
collected by Buyer from any Seller or any other Person by virtue of any action
or proceeding or any set-off or appropriation or application at any time or
from time to time in reduction of or in payment of the Obligations shall be
deemed to modify, reduce, release or otherwise affect the liability of
Guarantor hereunder.  Guarantor shall
remain liable under this Guaranty until the Repurchase Obligations are
satisfied and paid in full and the Repurchase Agreement and the other Repurchase
Documents are 

 

2

 

terminated (such date, the “Expiration Date”),
notwithstanding any payment or payments referred to in the foregoing sentence.

 

(d)           Guarantor
agrees that whenever, at any time, or from time to time, it shall make any
payment to Buyer on account of its liability hereunder, it will notify Buyer in
writing that such payment is made under this Guaranty for such purpose.

 

(e)           Notwithstanding
the foregoing or anything contained in this Guaranty to the contrary, the
Guarantor’s liability hereunder on any date of determination solely regarding
Obligations with respect to the Purchased Assets consisting of REO Entity
Interests shall not exceed an amount equal to the excess (if any) of (x) the
product of (i) ten percent (10%) and (ii) the sum of the aggregate
Purchase Price (calculated as of the Purchase Date) of all REO Properties then
owned by the REO SPE, over (y) the amount of all payments previously made
by the Guarantor on or at any time prior to such date of determination pursuant
to the terms hereof with respect to such Obligations (the “Recourse Limit”);
provided that such Recourse Limit shall not (i) constitute a waiver,
release or impairment of any obligation evidenced or secured by the Repurchase
Documents; (ii) impair the right of Buyer to name the Guarantor or any
Seller as a party or defendant in any action or suit for judicial foreclosure
and sale under the Repurchase Documents; (iii) impair the right of Buyer
to obtain the appointment of a receiver; (iv) impair the right of Buyer to
bring suit (and seek a money judgment therein) with respect to breach of
contract, tort, fraud or intentional misrepresentation by the Guarantor or any
Seller or any other person or entity in connection with the Repurchase
Documents; (v) impair the right of Buyer to obtain payments on the REO
Equity Interests or with respect to any such REO Properties received by the
Guarantor or any Seller after the occurrence of an Event of Default under the
Repurchase Agreement; (vi) impair the right of Buyer to bring suit (and
seek a money judgment therein) with respect to any misappropriation by the
Guarantor or any Seller of payments collected in advance with respect to the
REO Equity Interests or with respect to any such REO Properties; (vii) impair
the right of Buyer to apply to losses arising out of any misrepresentation,
willful misconduct or fraud by the Guarantor or any Seller or any of their
agents or employees, any suit or money judgment related thereto; (viii) limit
Guarantor’s liability for any Repurchase Obligations as they relate to a breach
of the representations and warranties set forth on Schedule 1-B of the
Repurchase Agreement with respect to the REO Equity Interests or with respect
to any such REO Properties; or (ix) limit the Guarantor’s liability for
any amount paid to the Buyer by any Seller that is avoided pursuant to any
insolvency, bankruptcy, reorganization, receivership or other debtor relief
law, or any judgment, order or decision thereunder. For the avoidance of doubt,
Guarantor’s liability hereunder shall be full recourse and the Recourse Limit
shall not apply with respect to any Repurchase Obligations with respect to
Mortgage Loans and REMIC Certificates (insofar as such Repurchase Obligations
are Obligations of PMC and PMIT).

 

3.             Representations and Warranties of Guarantor.  Guarantor hereby represents and warrants
that:

 

(a)           Guarantor.  Guarantor has been duly organized and validly
exists in good standing as a real estate investment trust under the laws of the
jurisdiction of its formation. Guarantor (i) has all requisite power,
authority, legal right, licenses and franchises, (ii) is duly qualified to
do business in all jurisdictions necessary, and (iii) has been duly authorized
by all necessary action, to (x) own, lease and operate its properties and
assets, (y) conduct its business as presently conducted and
(z) execute, deliver and perform its obligations under this Guaranty.  Guarantor’s exact legal name is set forth in
the preamble and signature pages of this Guaranty.  Guarantor’s tax identification number is
27-0186273.  Guarantor has the following
subsidiaries:  PennyMac GP OP, Inc.,
PennyMac Operating Partnership, L.P., PennyMac Mortgage Investment Trust
Holdings I, LLC, PennyMac Corp., and PC REO Trust.  The fiscal year of the Guarantor is the
calendar year.

 

3

 

(b)           Licenses.  Guarantor is duly licensed or is otherwise
qualified in each jurisdiction in which it transacts business for the business
which it conducts and is not in default of any applicable federal, state or
local laws, rules and regulations.

 

(c)           Power.  Guarantor has all requisite corporate or
other power, and has all governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now being or as
proposed to be conducted.

 

(d)           Guaranty.  This Guaranty has been duly executed and
delivered by Guarantor and constitutes the legal, valid and binding obligation
of Guarantor enforceable against Guarantor in accordance with its terms, except
as such enforceability may be limited by Insolvency Laws and general principles
of equity.  The execution, delivery and
performance by Guarantor of this Guaranty does not and will not (i) conflict
with, result in a breach of, or constitute (with or without notice or lapse of
time or both) a default under, any (x) Governing Document, Indebtedness,
Guarantee Obligation or Contractual Obligation applicable to Guarantor or any
of its properties or assets, (y) Requirements of Law, or
(z) approval, consent, judgment, decree, order or demand of any
Governmental Authority, or (ii) result in the creation of any Lien on any
of the properties or assets of Guarantor. 
All approvals, authorizations, consents, orders, filings, notices or
other actions of any Person or Governmental Authority required for the
execution, delivery and performance by Guarantor of this Guaranty have been
obtained, effected, waived or given and are in full force and effect.

 

(e)           Solvency;
Fraudulent Conveyance.  Guarantor is
solvent and will not be rendered insolvent by the transactions contemplated
hereby.  Guarantor does not intend to
incur, nor does it believe that it has incurred, debts beyond its ability to
pay such debts as they mature and is not contemplating the commencement of
insolvency, bankruptcy, liquidation or consolidation proceedings or the
appointment of a receiver, liquidator, conservator, trustee or similar official
in respect of such entity or any of its assets.

 

(f)            Compliance
with Law.  Guarantor has complied in
all respects with all Requirements of Law. 
Guarantor  (i) is not an “enemy”
or an “ally of the enemy” as defined in the Trading with the Enemy Act of 1917,
(ii) is not in violation of any Anti-Terrorism Laws, (iii) is not a
blocked person described in Section 1 of Executive Order 13224 or to its
knowledge engages in any dealings or transactions or is otherwise associated
with any such blocked person, (iv) is not in violation of any country or
list based economic and trade sanction administered and enforced by the Office
of Foreign Assets Control, (v) is not a Sanctioned Entity, (vi) does
not have more than 10% of its assets located in Sanctioned Entities, or
(vii) does not derive more than 10% of its operating income from
investments in or transactions with Sanctioned Entities.  Neither Guarantor nor any Affiliate of
Guarantor (x) is a “broker” or “dealer” as defined in, or could be subject
to a liquidation proceeding under, the Securities Investor Protection Act of
1970, or (y) is subject to regulation by any Governmental Authority
limiting its ability to incur the Obligations. 
No properties presently or previously owned or leased by Guarantor, any
Affiliate of Guarantor or their respective predecessors contain or previously
contained any Materials of Environmental Concern that constitute or constituted
a violation of Environmental Laws or reasonably could be expected to give rise
to liability of Guarantor thereunder. 
Guarantor has no Knowledge of any violation, alleged violation,
non-compliance, liability or potential liability of Guarantor under any
Environmental Law.  Materials of
Environmental Concern have not been released, transported, generated, treated,
stored or disposed of in violation of Environmental Laws or in a manner that
reasonably could be expected to give rise to liability of Guarantor
thereunder.  Guarantor and all Affiliates
of Guarantor are in compliance with the Foreign Corrupt Practices Act of 1977
and any foreign counterpart thereto. 
Neither Guarantor nor any Affiliate of Guarantor has made, offered,
promised or authorized a payment of money or anything else of value (1) in
order to assist in obtaining or retaining business for or with, or directing
business to, any foreign official, foreign political party, party official or
candidate for foreign political office, (2) to any foreign official,
foreign political party, party official or candidate for foreign political 

 

4

 

office, or (3) with the intent to induce the
recipient to misuse his or her official position to direct business wrongfully
to Guarantor, any Affiliate of Guarantor or any other Person, in violation of
the Foreign Corrupt Practices Act.

 

(g)           True
and Complete Disclosure.  All
information, reports, exhibits, schedules, financial statements or certificates
of Guarantor or any of its officers furnished or to be furnished to Buyer in
connection with the initial or any ongoing due diligence of Guarantor or any
officer thereof, negotiation, preparation, or delivery of this Guaranty are
true and complete and do not omit to disclose any material facts necessary to
make the statements herein or therein, in light of the circumstances in which
they are made, not misleading.

 

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

 

(i)            Litigation.  There is no material litigation, proceeding
or investigation pending or, to the knowledge of Guarantor threatened, against
Guarantor before any Governmental Authority (i) asserting the invalidity
of any this Guaranty, or (ii) seeking any determination or ruling that
could reasonably be expected to have a Material Adverse Effect.

 

(j)            Material
Adverse Change.  There has been no
material adverse change in the business, operations, financial condition,
properties or prospects of Guarantor since the date set forth in the most
recent financial statements supplied to Buyer.

 

(k)           Taxes.  Guarantor has timely filed all tax returns
that are required to be filed by it and has paid all taxes, except for any such
taxes as are being appropriately contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves
have been provided.  The charges,
accruals and reserves on the books of Guarantor in respect of taxes and other
governmental charges are, in the opinion of Guarantor, adequate.  No tax liens have been filed against any
assets of the Guarantor or any Affiliate thereof.

 

(l)            Investment
Company.  Neither Guarantor nor any
of its Subsidiaries is required to register as an “investment company”, or as a
company “controlled” by an “investment company,” within the meaning of the
Investment Company Act of 1940, as amended.

 

(m)          Chief
Executive Office; Jurisdiction of Organization.  On the date hereof, Guarantor’s chief
executive office, is, and has been, located at 27001 Agoura Road, Calabasas,
California 91301.  Guarantor does not
have a trade name.  On the date hereof,
Guarantor’s jurisdiction of organization is Maryland. During the preceding five
(5) years, Guarantor has not been known by or done business under any
other name, corporate or fictitious, and has not filed or had filed against it
any bankruptcy receivership or similar petitions nor has it made any
assignments for the benefit of creditors.

 

(n)           Location
of Books and Records.  The location
where Guarantor keeps its books and records is its chief executive office.

 

(o)           Compliance
with ERISA.  With respect to
Guarantor or any ERISA Affiliate thereof, during the immediately preceding five
(5) year period, (i) neither a Reportable Event nor an “accumulated
funding deficiency” nor “an unpaid minimum required contribution” as defined in
the Code or ERISA has occurred, (ii) each Plan has complied in all
material respects with the applicable provisions of the Code and ERISA,
(iii) no termination of a Single Employer Plan has occurred resulting in
any liability that has remained underfunded, and (iv) no Lien in favor of
the PBGC or a Plan has arisen.  The 

 

5

 

present value of all accumulated benefit obligations
under each Single Employer Plan (based on the assumptions used for the purposes
of Financial Accounting Statement Bulletin 87) relating to Guarantor or any
ERISA Affiliate thereof did not, as of the last annual valuation date prior to
the date hereof, exceed the value of the assets of such Plan allocable to such
accumulated benefit obligations.  Neither
Guarantor nor any Affiliate of Guarantor is currently subject to any liability
for a complete or partial withdrawal from a Multiemployer Plan.  Guarantor does not provide any medical or
health benefits to former employees other than as required by the Consolidated
Omnibus Budget Reconciliation Act, as amended, or similar state or local law
(collectively, “COBRA.”) at no cost to the employer.  None of the assets of Guarantor are deemed to
be plan assets within the meaning of 29 C.F.R. 2510.3-101 as modified by Section 3(42)  of ERISA.

 

(p)           Agreements.  Guarantor is not a party to any agreement,
instrument, or indenture or subject to any restriction materially and adversely
affecting its business, operations, assets or financial condition.  Guarantor is not in default in the
performance, observance or fulfillment of any of the  Obligations, covenants or conditions
contained in any agreement, instrument, or indenture which default could have a
material adverse effect on the business, operations, properties, or financial
condition of Guarantor as a whole.  No
holder of any indebtedness of Guarantor has given notice of any asserted
default thereunder.

 

(q)           No
Reliance.  Guarantor has made its own
independent decisions to enter into this Guaranty based upon its own judgment
and upon advice from such advisors (including without limitation, legal counsel
and accountants) as it has deemed necessary, and Guarantor is not relying upon
any advice from Buyer as to any aspect of this Guaranty.

 

(r)            Repurchase
Agreement.  Guarantor has received
and reviewed copies of the Repurchase Agreement.

 

(s)           Financial
Representations and Warranties.

 

(i)            Guarantor’s Adjusted Tangible Net Worth is greater than
or equal to the sum of (x) $265,000,000 and (y) 75% of the aggregate
net proceeds received by Guarantor in connection with any future equity
issuances;

 

(ii)           Guarantor’s unrestricted cash is greater than or equal to
$5,000,000;

 

(iii)          The ratio of Guarantor’s Total Indebtedness to Tangible Net
Worth is less than 3:1.

 

4.             Covenants of Guarantor.  Guarantor hereby covenants and agrees that:

 

(a)           Existence;
Governing Documents; Conduct of Business. 
Guarantor  shall (i) preserve
and maintain its legal existence, (ii) qualify and remain qualified in
good standing in each jurisdiction where it does business, (iii) comply
with its Governing Documents, (iv) continue to engage in the same (and no
other) general lines of business as presently conducted by it,
(v) maintain and preserve all of its material rights, privileges,
licenses, permits, franchises and other approvals necessary for the operation
of its business and perform its obligations under this Guaranty and (vi) conduct
its business in accordance with applicable law. 
Guarantor shall not (x) change its name, organizational number, tax
identification number, fiscal year, method of accounting, identity, structure
or jurisdiction of organization (or have more than one such jurisdiction) or (y) move
the location of its principal place of business and chief executive office, as
defined in the UCC) from the location referred to in Section 3(m) hereof,
unless Guarantor has given at least thirty (30) days prior notice to
Buyer.

 

6

 

(b)           Litigation.  At all times during the term of this
Guaranty, Guarantor will promptly, and in any event within ten (10) days
after service of process on any of the following, give to Buyer notice of all
litigation, actions, suits, arbitrations, investigations (including, without
limitation, any of the foregoing which are threatened or pending) or other
legal or arbitrable proceedings affecting Guarantor or affecting any of
Guarantor’s Property before any Governmental Authority that (i) questions
or challenges the validity or enforceability of this Guaranty or any action to
be taken in connection with the transactions contemplated hereby, (ii) makes
a claim individually in an amount greater than $1,000,000 or in an aggregate
amount greater than $2,500,000, or (iii) which, individually or in the
aggregate, if adversely determined, could be reasonably likely to have a
Material Adverse Effect.

 

(c)           Prohibition
of Fundamental Changes.  At all times
during the term of this Guaranty, neither Guarantor nor any of its Subsidiaries
shall enter into a merger or consolidation, or liquidate, wind up or dissolve,
or convey, sell, lease, assign, transfer or otherwise dispose of all or
substantially all of its assets or properties (whether now owned or hereafter
acquired) to any Person, or permit any changes in the ownership of its Equity
Interests, without the consent of Buyer in its discretion.  Guarantor shall ensure that all Equity
Interests of Guarantor shall continue to be owned by the owner or owners
thereof as of the date hereof.

 

(d)           Insurance.  Guarantor will continue to maintain insurance
coverage with respect to employee dishonesty, forgery or alteration, theft,
disappearance and destruction, robbery and safe burglary, property (other than
money and securities) and computer fraud in an aggregate amount reasonably
acceptable to Buyer, and shall have added Seller as an additional insured in
connection with any such insurance coverage.

 

(e)           Books.  Guarantor shall keep or cause to be kept in
reasonable detail books and records of account of its assets and business.

 

(f)            Material
Change in Business.  Guarantor shall
not make any material change in the nature of its business as carried on at the
date hereof.  There shall be no material
change in the senior management of Guarantor.

 

(g)           Applicable
Law.  Guarantor shall comply with the
requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority.

 

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

 

(i)            Transactions
with Affiliates.  Guarantor shall not
(i) enter into transactions, including, without limitation, any purchase,
sale, lease or exchange of property or the rendering of any service, with any
Seller or any Subsidiary unless such transaction is (x) otherwise not
prohibited under any Repurchase Document, (y) in the ordinary course of
Guarantor’s business and (z) upon fair and reasonable terms no less
favorable to Guarantor than it would obtain in a comparable arm’s length
transaction with a Person which is not a Subsidiary, or (ii) make a
payment that is not otherwise pursuant to the transactions permitted by this Section 4(i) to
any Affiliate.

 

(j)            True
and Correct Information.  All
information, reports, exhibits, schedules, financial statements or certificates
of Guarantor or any of its officers furnished to Buyer hereunder and 

 

7

 

during Buyer’s diligence of Guarantor are and will
be true and complete and do not omit to disclose any material facts necessary
to make the statements herein or therein, in light of the circumstances in
which they are made, not misleading.

 

(k)           Bankruptcy.  Guarantor shall not file or cause or suffer
to be filed with respect to any Seller a voluntary petition in bankruptcy to
seek relief for such Seller under any provision of any bankruptcy,
reorganization, moratorium, delinquency, arrangement, insolvency, readjustment
of debt, dissolution or liquidation law of any jurisdiction whether now or
subsequently in effect, or consent to the filing of any petition against any
Seller under any such law, or consent to the appointment of or taking
possession by a custodian, receiver, conservator, trustee, liquidator,
sequestrator or similar official for any Seller, or of all or any part of such
Seller’s Property, or make an assignment for the benefit of any Seller.

 

(l)            ERISA.  Guarantor shall immediately notify Buyer of
the occurrence of any of the following of which Guarantor has Knowledge,
together with a certificate of a Responsible Officer of Guarantor setting forth
details of such occurrence and any action Guarantor has taken or proposes to
take with respect thereto any Reportable Event or failure to meet the minimum
funding standard of Section 412 of the Code or Sections 302 or 303 of
ERISA, includes the failure to make on or before its due date a required
installment under Section 430(j) of the Code or Section 303(j) of
ERISA, or any request for a waiver under Section 412(c) of the Code
for any Plan; a notice of intent to terminate any Plan or any action taken by
Guarantor or an ERISA Affiliate to terminate any Plan or the institution by
PBGC of proceedings under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any Plan, or the receipt by
Guarantor or any ERISA Affiliate of a notice from a Multiemployer Plan that
such action has been taken by PBGC with respect to such Multiemployer Plan; the
complete or partial withdrawal from a Multiemployer Plan by Guarantor or any
ERISA Affiliate that results in liability under Section 4201 or 4204 of
ERISA (including the obligation to satisfy secondary liability as a result of a
purchaser default) or the receipt by Guarantor or any ERISA Affiliate of notice
from a Multiemployer Plan that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA or the institution of a proceeding
by a fiduciary of any Multiemployer Plan against Guarantor or any ERISA
Affiliate to enforce Section 515 of ERISA, which proceeding is not dismissed
within 30 days; and the adoption of an amendment to any Plan that, pursuant to Section 401(a)(29)
of the Code, would result in the loss of tax-exempt status of the trust of
which such Plan is a part.

 

(m)          Use
of Employee Plan Assets. No assets of an employee benefit plan subject to
any provision of ERISA shall be used by either party in a connection with this
Guaranty.

 

(n)           Financial
Covenants.

 

(i)            Guarantor’s Adjusted Tangible Net Worth shall at all
times be greater than or equal to the sum of (i) $265,000,000 and (ii) 75%
of the aggregate net proceeds received by Guarantor in connection with any
future equity issuances;

 

(ii)           Guarantor’s unrestricted cash shall at all times be
greater than or equal to $5,000,000;

 

(iii)          The ratio of Guarantor’s Total Indebtedness to Tangible Net
Worth shall at all times be less than 3:1.

 

(o)           Financial
Statements. Guarantor shall deliver its financial statements to Buyer
pursuant to the terms of the Repurchase Agreement.

 

8

 

5.             No Subrogation.  Notwithstanding any payment or payments made
by Guarantor hereunder or any set-off or application of funds of Guarantor by
Buyer or any of its Affiliates, Guarantor shall not be entitled to be
subrogated to any of the rights of Buyer against any related Seller or any
collateral security or guarantee or right of offset held by Buyer for the
payment of the Obligations, nor shall Guarantor seek or be entitled to seek any
contribution or reimbursement from any related Seller in respect of payments
made by Guarantor hereunder, until all amounts owing to Buyer by the related
Sellers on account of the Obligations are paid and satisfied in full and the
Repurchase Agreement is terminated.  If
any amount shall be paid to Guarantor on account of such subrogation rights at
any time when all of the Obligations shall not have been paid and satisfied in
full, such amount shall be held by Guarantor in trust for Buyer, segregated
from other funds of Guarantor, and shall, forthwith upon receipt by Guarantor,
be turned over to Buyer in the exact form received by Guarantor (duly indorsed
by Guarantor to Buyer, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as Buyer may determine.

 

6.             Amendments, Etc. with Respect to the Obligations.  Guarantor shall remain obligated hereunder
notwithstanding that, without any reservation of rights against Guarantor and
without notice to or further assent by Guarantor, any demand for payment of any
of the Obligations made by Buyer may be rescinded by Buyer and any of the
Obligations continued, and the Obligations, or the liability of any other party
upon or for any part thereof, or any collateral security or guarantee therefor
or right of offset with respect thereto, may, from time to time, in whole or in
part, be renewed, extended, amended, modified, accelerated, compromised,
terminated, waived, surrendered or released by Buyer, and the Repurchase
Agreement and any other documents executed and delivered in connection therewith
may be amended, modified, supplemented or terminated, in whole or in part, as
Buyer may deem advisable from time to time, and any collateral security,
guarantee or right of offset at any time held by Buyer for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released.  Buyer shall not have any obligation to
protect, secure, perfect or insure any lien at any time held by it as security
for the Obligations or for this Guaranty or any property subject thereto.  When making any demand hereunder against
Guarantor, Buyer may, but shall be under no obligation to, make a similar
demand on any related Seller, and any failure by Buyer to make any such demand
or to collect any payments from any related Seller or any release of any related
Seller shall not relieve Guarantor of its obligations or liabilities hereunder,
and shall not impair or affect the rights and remedies, express or implied, or
as a matter of law, of Buyer against Guarantor. 
For the purposes hereof “demand” shall include the commencement and
continuance of any legal proceedings.

 

7.             Waiver of Rights.  Except as otherwise expressly provided
herein, Guarantor waives any and all notice of any kind including, without
limitation, notice of the creation, renewal, extension or accrual of any of the
Obligations, and notice of or proof of reliance by Buyer upon this Guaranty or
acceptance of this Guaranty; the Obligations, and any of them, shall
conclusively be deemed to have been created, contracted or incurred, or
renewed, extended, amended or waived, in reliance upon this Guaranty; and all
dealings between any related Seller and Guarantor, on the one hand, and Buyer,
on the other hand, likewise shall be conclusively presumed to have been had or
consummated in reliance upon this Guaranty. Guarantor waives diligence,
presentment, protest, demand for payment and notice of default or nonpayment to
or upon any related Seller or Guarantor with respect to its Repurchase
Obligations or the Obligations, respectively. 
In addition, Guarantor waives any requirement that Buyer exhaust any
right, power or remedy or proceed against any related Seller.

 

8.             Guaranty Absolute and Unconditional.  Guarantor understands and agrees that this
Guaranty shall be construed as a continuing, absolute and unconditional
guarantee of the full and punctual payment and performance of the Obligations
and not of their collectibility only and is in no way conditioned upon any
requirement that Buyer first attempt to collect any of the Obligations from any
related Seller, without regard to (a) the validity, regularity or
enforceability of the Repurchase Agreement

 

9

 

or any other Repurchase Document, any of the
Obligations therefor or guarantee or right of offset with respect thereto at
any time or from time to time held by Buyer, (b) any defense, set-off,
deduction, abatement, recoupment, reduction or counterclaim (other than a
defense of payment or performance) which may at any time be available to or be
asserted by any related Seller against Buyer, or (c) any other
circumstance whatsoever (with or without notice to or knowledge of any related
Seller or Guarantor) which constitutes, or might be construed to constitute, an
equitable or legal discharge of Guarantor from this Guaranty, in bankruptcy or
in any other instance. When pursuing its rights and remedies hereunder against
Guarantor, Buyer may, but shall be under no obligation to, pursue such rights,
powers, privileges and remedies as it may have against any related Seller or
any other Person or any right of offset with respect thereto, and any failure
by Buyer to pursue such other rights or remedies or to collect any payments
from any related Seller or any such other Person or to exercise any such right
of offset, or any release of any related Seller or any such other Person or
right of offset, shall not relieve Guarantor of any liability hereunder, and
shall not impair or affect the rights, powers, privileges and remedies, whether
express, implied or available as a matter of law or equity, of Buyer against
Guarantor.  This Guaranty shall remain in
full force and effect and be binding in accordance with and to the extent of
its terms upon Guarantor and the successors and assigns thereof, and shall
inure to the benefit of Buyer, and its successors, indorsees, transferees and
assigns, until all the Repurchase Obligations and the Obligations of Guarantor
under this Guaranty shall have been satisfied by performance and payment in
full and the Repurchase Agreement and the other Repurchase Documents shall have
been terminated, notwithstanding that from time to time during the term of the
Repurchase Agreement, one or more Sellers may be free from any Repurchase
Obligations.

 

9.             Reinstatement.  This Guaranty shall continue to be effective,
or be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the Obligations is rescinded or must otherwise be restored
or returned by Buyer upon the insolvency, bankruptcy, dissolution, liquidation
or reorganization of any related Seller or Guarantor, or upon or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, any related Seller or Guarantor or any substantial part of
its property, or otherwise, all as though such payments had not been made.

 

10.          Payments.  Guarantor hereby guarantees that payments
hereunder will be paid to Buyer without deduction, abatement, recoupment,
reduction, set-off or counterclaim, in U.S. Dollars and in accordance with the
wiring instructions of Buyer.

 

11.          Notices.  Any and all notices statements, demands or
other communications hereunder may be given by a party to the other by mail,
facsimile, messenger or otherwise to the address specified at the “Address for
Notices” specified on the signature page for Guarantor or specified below
for Buyer, or so sent to such party at any other place specified in a notice of
change of address hereafter received by the other.  All notices, demands and requests hereunder
may be made orally, to be confirmed promptly in writing, or by other
communication as specified in the preceding sentence.

 

Address
for Notices to Buyer:

 

Wells
Fargo Bank, National Association

301
S. College St.

MAC
D1053-082

Charlotte,
North Carolina 28288

Attention:
Goetz Rokahr

Telephone:
(704) 374-3455

 

12.          Entire Agreement; Severability.  This Guaranty shall supersede any existing
agreements between the parties containing general terms and conditions for
repurchase transactions.  Each 

 

10

 

provision and agreement herein shall be treated as
separate and independent from any other provision or agreement herein and shall
be enforceable notwithstanding the unenforceability of any such other provision
or agreement

 

13.          Integration.  This Guaranty represents the agreement of
Guarantor with respect to the subject matter hereof and thereof and there are
no promises or representations by Buyer relative to the subject matter hereof
or thereof not reflected herein or therein.

 

14.          Amendments in Writing; No Waiver; Cumulative Remedies.

 

(a)           None
of the terms or provisions of this Guaranty may be waived, amended,
supplemented or otherwise modified except by a written instrument executed by
Guarantor, and Buyer; provided that any provision of this Guaranty may be
waived in writing by Buyer.

 

(b)           Buyer
shall not be deemed by any act (except by a written instrument pursuant to
Section 14(a) hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right, power, privilege or remedy hereunder or to
have acquiesced in any Default or Event of Default under the Repurchase
Agreement or in any breach of any of the terms and conditions hereof.  No failure to exercise, nor any delay in
exercising, on the part of Buyer, any right, power, remedy or privilege
hereunder shall operate as a waiver thereof. 
No single or partial exercise of any right, power, remedy or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by Buyer of any right, power,
privilege or remedy hereunder on any one occasion shall not be construed as a
bar to any right, power, privilege or remedy which Buyer would otherwise have
on any future occasion.

 

(c)           The
rights and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any other rights or remedies provided by
law.

 

15.          Section Headings.  The section headings used in this Guaranty
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.

 

16.          Successors and Assigns.  This Guaranty shall be binding upon the
successors and permitted assigns of Guarantor and shall inure to the benefit of
Buyer and its successors and assigns. 
This Guaranty may not be assigned by Guarantor without the express
written consent of Buyer in its sole discretion and any attempt to assign or
transfer this Guaranty without such consent shall be null and void and of no
effect whatsoever.

 

17.          Governing Law.  THIS GUARANTY SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO CONFLICTS OF LAWS PRINCIPLES THEREOF OTHER THAN SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATIONS LAW, WHICH SHALL GOVERN.

 

18.          Waiver Of Jury Trial; Consent To Jurisdiction And Venue;
Service Of Process. 
Buyer irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of the courts of the State of New
York sitting in the Borough of Manhattan and of the United States District
Court of the Southern District of New York, and any appellate court from any
thereof, in any action or proceeding arising out of or relating to this
Guaranty, or for recognition or enforcement of any judgment, and each party
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such State court or, to the
fullest extent permitted by applicable law, in such Federal court.  Each party agrees that a final judgment in
any such action or 

 

11

 

proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other manner provided
by law.  Nothing in this Guaranty shall
affect any right that Buyer may otherwise have to bring any action or
proceeding arising out of or relating to this Guaranty against Guarantor or its
properties in the courts of any jurisdiction. 
Guarantor irrevocably and unconditionally waives, to the fullest extent
permitted by Requirements of Law, any objection that it may now or hereafter
have to the laying of venue of any action or proceeding arising out of or
relating to this Guaranty in any court referred to above, and the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.  Each party irrevocably consents
to service of process in the manner provided for notices in Section 11.  Nothing in this Guaranty will affect the
right of any party hereto to serve process in any other manner permitted by
applicable law.

 

19.          Waivers.

 

(a)           GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT TO ASSERT A COUNTERCLAIM, OTHER THAN A COMPULSORY COUNTERCLAIM, IN
ANY ACTION OR PROCEEDING BROUGHT AGAINST IT BY BUYER.

 

(b)           TO THE EXTENT PERMITTED BY
REQUIREMENTS OF LAW, EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY
WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE BETWEEN
THEM, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, ARISING OUT OF,
CONNECTED WITH OR RELATED TO THIS GUARANTY, ANY DEALINGS OR COURSE OF CONDUCT
BETWEEN THEM, OR ANY STATEMENTS (WRITTEN OR ORAL) OR OTHER ACTIONS OF EITHER
PARTY.  NEITHER PARTY WILL SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED.  INSTEAD, ANY
SUCH DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A
JURY.

 

(c)           TO THE EXTENT PERMITTED BY REQUIREMENTS OF LAW, GUARANTOR
HEREBY WAIVES ANY RIGHT TO CLAIM OR RECOVER IN ANY LITIGATION WHATSOEVER
INVOLVING BUYER, ANY SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT, INCIDENTAL
OR CONSEQUENTIAL DAMAGES OF ANY KIND OR NATURE WHATSOEVER OR ANY DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES, WHETHER SUCH WAIVED DAMAGES ARE BASED
ON STATUTE, CONTRACT, TORT, COMMON LAW OR ANY OTHER LEGAL THEORY, WHETHER THE
LIKELIHOOD OF SUCH DAMAGES WAS KNOWN AND REGARDLESS OF THE FORM OF THE
CLAIM OF ACTION, INCLUDING ANY CLAIM OR ACTION ALLEGING GROSS NEGLIGENCE,
RECKLESS DISREGARD, WILLFUL OR WONTON MISCONDUCT, FAILURE TO EXERCISE
REASONABLE CARE OR FAILURE TO ACT IN GOOD FAITH.  BUYER SHALL NOT BE LIABLE FOR ANY DAMAGES
ARISING FROM THE USE BY UNINTENDED RECIPIENTS OF ANY INFORMATION OR OTHER
MATERIALS DISTRIBUTED BY IT THROUGH TELECOMMUNICATIONS, ELECTRONIC OR OTHER
INFORMATION TRANSMISSION SYSTEMS IN CONNECTION WITH THIS GUARANTY.

 

(d)           GUARANTOR CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF BUYER HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BUYER WOULD NOT
SEEK TO ENFORCE ANY OF THE WAIVERS IN THIS SECTION 19 IN THE EVENT
OF LITIGATION OR OTHER CIRCUMSTANCES. 
THE SCOPE OF SUCH WAIVERS IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND
ALL DISPUTES THAT MAY BE 

 

12

 

FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS GUARANTY, REGARDLESS OF THEIR LEGAL
THEORY.

 

(e)           EACH PARTY ACKNOWLEDGES THAT THE WAIVERS IN THIS SECTION 19
ARE A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT SUCH
PARTY HAS ALREADY RELIED ON SUCH WAIVERS IN ENTERING INTO THIS GUARANTY, AND
THAT SUCH PARTY WILL CONTINUE TO RELY ON SUCH WAIVERS IN THEIR RELATED FUTURE
DEALINGS.  EACH PARTY FURTHER REPRESENTS
AND WARRANTS THAT IT HAS REVIEWED SUCH WAIVERS WITH ITS LEGAL COUNSEL AND THAT
IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL AND OTHER RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.

 

(f)            THE WAIVERS IN THIS SECTION 19 ARE
IRREVOCABLE, MEANING THAT THEY MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND SHALL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS THIS GUARANTY.  IN THE
EVENT OF LITIGATION, THIS GUARANTY MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.

 

20.          Agents.  Buyer may employ agents and attorneys-in-fact
in connection herewith and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by them in good
faith.

 

21.          Counterparts.  This Guaranty may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.  The parties
agree that this Guaranty, any documents to be delivered pursuant to this
Guaranty and any notices hereunder may be transmitted between them by email
and/or facsimile. The parties intend that faxed signatures and electronically
imaged signatures such as .pdf files shall constitute original signatures and
are binging on all parties.

 

[SIGNATURE PAGE TO FOLLOW]

 

13

 

IN
WITNESS WHEREOF, the parties hereto have caused this Guaranty to be duly
executed and delivered as of the day and year first above written.

 

	
   

  	
  PENNYMAC
  MORTGAGE INVESTMENT TRUST, as Guarantor

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Address
  for Notices:

  
	
   

  	
   

  
	
   

  	
  27001
  Agoura Road

  
	
   

  	
  Calabasas,
  CA 91301

  
	
   

  	
  Attn:
  Chief Legal Officer

  

 

Guarantee Agreement — Wells Fargo-PennyMac

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