Document:

Unassociated Document

    

      Exhibit
        10.2

    

    
 

    BARCLAYS
      BANK PLC,

     

    Agent,

     

    PHH
      MORTGAGE CORPORATION

     

    Seller
      and Servicer,

     

    and

     

    PHH
      CORPORATION

     

    Guarantor

     

    SERVICING
      AGREEMENT

     

    dated
      as of October 30, 2006

     

    

    
      
         

      

      
        S-1

        
          

        

      

      
         

      

    

     

    

      TABLE
        OF CONTENTS

    

    

      
        	 	 	
                Page
                  

              
	
                ARTICLE
                  I

                 

              	
                DEFINITIONS

                 

              	
                1

                 

              
	
                ARTICLE
                  II

                 

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

                 

              	
                1

                 

              
	
                Section
                  2.1

                 

              	
                Possession
                  of Mortgage Loan Files; Maintenance of Mortgage Loan Files.

                 

              	
                1

                 

              
	
                Section
                  2.2

                 

              	
                Books
                  and Records; Transfers of Eligible Mortgage Loans; Custodial
                  Agreement.

                 

              	
                2

                 

              
	
                Section
                  2.3

                 

              	
                Servicer
                  Daily Calculation of Collateral Values and Aggregate Margin Value;
                  Agent
                  Calculation of Collateral Value and Aggregate Margin Value.

                 

              	
                3

                 

              
	
                Section
                  2.4

                 

              	
                Protection
                  of Ownership Interest of the Agent (on behalf of the
                  Principals).

                 

              	
                3

                 

              
	
                Section
                  2.5

                 

              	
                Fees.

                 

              	
                4

                 

              
	
                Section
                  2.6

                 

              	
                Payments
                  and Computations, Etc.

                 

              	
                4

                 

              
	
                ARTICLE
                  III

                 

              	
                REPRESENTATIONS
                  AND WARRANTIES; COVENANTS; REMEDIES AND BREACH

                 

              	
                4

                 

              
	
                Section
                  3.1

                 

              	
                Representations
                  and Warranties of The Company.

                 

              	
                4

                 

              
	
                Section
                  3.2

                 

              	
                [Reserved].

                 

              	
                7

                 

              
	
                Section
                  3.3

                 

              	
                Remedies
                  for Breach of Representations and Warranties.

                 

              	
                7

                 

              
	
                Section
                  3.4

                 

              	
                Covenants.

                 

              	
                7

                 

              
	
                ARTICLE
                  IV

                 

              	
                ADMINISTRATION
                  AND SERVICING OF ELIGIBLE LOANS

                 

              	
                8

                 

              
	
                Section
                  4.1

                 

              	
                The
                  Company to Act as Servicer; Servicing and Administration of the
                  Eligible
                  Mortgage Loans.

                 

              	
                8

                 

              
	
                Section
                  4.2

                 

              	
                Sales
                  and Securitizations.

                 

              	
                9

                 

              
	
                Section
                  4.3

                 

              	
                Liquidation
                  of Eligible Mortgage Loans.

                 

              	
                10

                 

              
	
                Section
                  4.4

                 

              	
                Collection
                  of Eligible Mortgage Loan Payments.

                 

              	
                10

                 

              
	
                Section
                  4.5

                 

              	
                Establishment
                  of, and Deposits to, Funding Account and Collection Account.

                 

              	
                11

                 

              
	
                Section
                  4.6

                 

              	
                Permitted
                  Withdrawals From Margin Call Account.

                 

              	
                11

                 

              
	
                Section
                  4.7

                 

              	
                Establishment
                  of, and Deposits to, Escrow Account.

                 

              	
                11

                 

              
	
                Section
                  4.8

                 

              	
                Permitted
                  Withdrawals From Escrow Account.

                 

              	
                12

                 

              
	
                Section
                  4.9

                 

              	
                Payment
                  of Taxes, Insurance and Other Charges.

                 

              	
                12

                 

              

      

       

       

      
        
           

        

        
          S-2

          
            

          

        

        
           

        

      

       

       TABLE
        OF
        CONTENTS

       

      
        	 	 	
                Page
                  

              
	
                Section
                  4.10

                 

              	
                Protection
                  of Accounts; Investment of Funds.

                 

              	
                13

                 

              
	
                Section
                  4.11

                 

              	
                Maintenance
                  of Hazard Insurance.

                 

              	
                13

                 

              
	
                Section
                  4.12

                 

              	
                Maintenance
                  of Mortgage Impairment Insurance.

                 

              	
                15

                 

              
	
                Section
                  4.13

                 

              	
                Maintenance
                  of Fidelity Bond and Errors and Omissions Insurance.

                 

              	
                15

                 

              
	
                Section
                  4.14

                 

              	
                Inspections.

                 

              	
                15

                 

              
	
                Section
                  4.15

                 

              	
                Restoration
                  of Mortgaged Property.

                 

              	
                15

                 

              
	
                Section
                  4.16

                 

              	
                Maintenance
                  of PMI Policy; Claims.

                 

              	
                16

                 

              
	
                Section
                  4.17

                 

              	
                Title,
                  Management and Disposition of REO Property.

                 

              	
                17

                 

              
	
                Section
                  4.18

                 

              	
                Daily
                  Servicer Reports.

                 

              	
                17

                 

              
	
                Section
                  4.19

                 

              	
                Real
                  Estate Owned Reports.

                 

              	
                18

                 

              
	
                Section
                  4.20

                 

              	
                Liquidation
                  Reports.

                 

              	
                18

                 

              
	
                Section
                  4.21

                 

              	
                Reports
                  of Foreclosures and Abandonments of Mortgaged Property.

                 

              	
                18

                 

              
	
                ARTICLE
                  V

                 

              	
                GENERAL
                  SERVICING PROCEDURES

                 

              	
                18

                 

              
	
                Section
                  5.1

                 

              	
                Transfers
                  of Mortgaged Property.

                 

              	
                18

                 

              
	
                Section
                  5.2

                 

              	
                Satisfaction
                  of Mortgages and Release of Mortgage Loan Files.

                 

              	
                19

                 

              
	
                Section
                  5.3

                 

              	
                Servicing
                  Compensation.

                 

              	
                19

                 

              
	
                Section
                  5.4

                 

              	
                Annual
                  Statement as to Compliance.

                 

              	
                19

                 

              
	
                Section
                  5.5

                 

              	
                Annual
                  Independent Public Accountants' Servicing Report; Audited
                  Financials.

                 

              	
                20

                 

              
	
                Section
                  5.6

                 

              	
                Right
                  to Examine Servicer Records.

                 

              	
                21

                 

              
	
                ARTICLE
                  VI

                 

              	
                REPURCHASE
                  OBLIGATION

                 

              	
                21

                 

              
	
                Section
                  6.1

                 

              	
                Servicer's
                  Purchase Obligations.

                 

              	
                21

                 

              
	
                ARTICLE
                  VII

                 

              	
                SERVICER
                  TO COOPERATE

                 

              	
                21

                 

              
	
                Section
                  7.1

                 

              	
                Provision
                  of Information.

                 

              	
                22

                 

              
	
                ARTICLE
                  VIII

                 

              	
                THE
                  SERVICER

                 

              	
                22

                 

              
	
                Section
                  8.1

                 

              	
                Indemnification
                  of Third-Party Claims.

                 

              	
                22

                 

              
	
                Section
                  8.2

                 

              	
                Corporate
                  Existence of the Servicer.

                 

              	
                22

                 

              
	
                Section
                  8.3

                 

              	
                Limitation
                  on Liability of Servicer and Others.

                 

              	
                22

                 

              
	
                Section
                  8.4

                 

              	
                Limitation
                  on Resignation and Assignment by the Servicer.

                 

              	
                23

                 

              

      

       

       

      
        
           

        

        
          S-3

          
            

          

        

        
           

        

      

       

      TABLE
        OF CONTENTS

       

      
        	 	 	
                Page
                  

              
	
                Section
                  8.5

                 

              	
                Limitation
                  on Assignment of Right.

                 

              	
                23

                 

              
	
                ARTICLE
                  IX

                 

              	
                SERVICER
                  DEFAULT

                 

              	
                23

                 

              
	
                Section
                  9.1

                 

              	
                Servicer
                  Default.

                 

              	
                23

                 

              
	
                Section
                  9.2

                 

              	
                Waiver
                  of Defaults.

                 

              	
                26

                 

              
	
                ARTICLE
                  X

                 

              	
                TERMINATION
                  AND LIQUIDATION

                 

              	
                26

                 

              
	
                Section
                  10.1

                 

              	
                Termination
                  of Agreement.

                 

              	
                26

                 

              
	
                Section
                  10.2

                 

              	
                Termination
                  of Servicing With Respect to Any Eligible Mortgage Loan.

                 

              	
                26

                 

              
	
                ARTICLE
                  XI

                 

              	
                [RESERVED]

                 

              	
                26

                 

              
	
                ARTICLE
                  XII

                 

              	
                MISCELLANEOUS
                  PROVISIONS

                 

              	
                27

                 

              
	
                Section
                  12.1

                 

              	
                Successor
                  to Servicer.

                 

              	
                27

                 

              
	
                Section
                  12.2

                 

              	
                Amendment.

                 

              	
                27

                 

              
	
                Section
                  12.3

                 

              	
                Governing
                  Law.

                 

              	
                28

                 

              
	
                Section
                  12.4

                 

              	
                Duration
                  of Agreement.

                 

              	
                28

                 

              
	
                Section
                  12.5

                 

              	
                Notices.

                 

              	
                28

                 

              
	
                Section
                  12.6

                 

              	
                Severability
                  of Provisions.

                 

              	
                28

                 

              
	
                Section
                  12.7

                 

              	
                Relationship
                  of Parties.

                 

              	
                28

                 

              
	
                Section
                  12.8

                 

              	
                Execution;
                  Successors and Assigns.

                 

              	
                28

                 

              
	
                Section
                  12.9

                 

              	
                Recordation
                  of Assignments of Mortgage.

                 

              	
                29

                 

              
	
                Section
                  12.10

                 

              	
                [RESERVED].

                 

              	
                29

                 

              
	
                Section
                  12.11

                 

              	
                [RESERVED].

                 

              	
                29

                 

              
	
                Section
                  12.12

                 

              	
                Waiver
                  of Offset.

                 

              	
                29

                 

              
	
                ARTICLE
                  XIII

                 

              	
                PHH
                  CORPORATION GUARANTEE

                 

              	
                29

                 

              
	
                Section
                  13.1

                 

              	
                Guarantee
                  of Seller's Representations and Warranties, Servicer’s Performance and
                  Payment Obligations.

                 

              	
                29

                 

              

      

      

    
      
        
          

        

         

      

      
        S-4

        
          

        

      

      
         

        
           

        

      

    

    THIS
      SERVICING AGREEMENT, dated as of October 30, 2006 (as amended, supplemented
      or
      otherwise modified and in effect from time to time, this “Agreement”),
      among
      PHH Mortgage Corporation, a New Jersey corporation (the “Company”),
      as
      Seller (in such capacity, the “Seller”)
      and as
      Servicer (in such capacity, the “Servicer”),
      Barclays Bank PLC, as Agent (the “Agent”),
      and
      PHH Corporation, a Maryland corporation, as Performance Guarantor of the
      Servicer's obligations (the “Performance
      Guarantor”).

     

    W
      I T N E
      S S E T H

     

    WHEREAS,
      the Seller, the Agent and the other parties thereto from time to time are
      parties to that certain Fifth Amended and Restated Master Repurchase Agreement,
      dated as of the date hereof (amended, supplemented or otherwise modified and
      in
      effect from time to time, “Repurchase
      Agreement”)
      pursuant to which such parties have prescribed the manner of sale of each
      Eligible Mortgage Loan and the Related Security;

     

    WHEREAS,
      the Agent, the Servicer and the Performance Guarantor wish to enter into this
      Agreement to prescribe for the management, control and servicing of the Eligible
      Mortgage Loans and the guaranty by the Performance Guarantor of the performance
      of the obligations of the Servicer; and

     

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

     

    ARTICLE
      I

     

    DEFINITIONS

     

    Capitalized
      terms used, but not otherwise defined herein, are used as defined in the
      Repurchase Agreement.

     

    ARTICLE
      II

     

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

     

    Section
      2.1  Possession
      of Mortgage Loan Files; Maintenance of Mortgage Loan Files.

     

    Pursuant
      to Section 2.2(b), as soon as practicable but in any event on or before the
      date
      which is 30 days after any sale of Eligible Mortgage Loans to the Agent (on
      behalf of the Principals), the Seller shall deliver each Mortgage Note, to
      the
      Custodian as agent of the Agent. The Seller shall deliver the related Loan
      Documents to the Servicer and the contents of each Mortgage Loan File shall
      be
      held in trust by the Servicer for the benefit of the Principals. The possession
      of each Mortgage Loan File by the Servicer is at the will of the Agent for
      the
      sole purpose of servicing the related Eligible Mortgage Loan and such retention
      and possession by the Servicer is in a custodial capacity only. Upon the sale
      of
      the Eligible Mortgage Loans, each Mortgage Note, the related Mortgage, the
      Related Security and all Collections and the related Mortgage Loan File shall
      vest immediately in the Agent (on behalf of the Principals), and the ownership
      of all records and documents with respect to the related Eligible Mortgage
      Loan
      prepared by or which come into the possession of the Servicer shall vest
      immediately in the Agent (on behalf of the Principals) and shall be retained
      and
      maintained by the Servicer, in trust, at the will of the Agent (on behalf of
      the
      Principals) and only in such custodial capacity. The Servicer's master data
      processing records shall be marked appropriately to reflect clearly the transfer
      of the related Eligible Mortgage Loans to the Agent (on behalf of the
      Principals). The Custodian shall only release its custody of the contents of
      any
      Mortgage Loan File in its possession in accordance with the Custodial
      Agreement.

     

     

    
      
         

      

      
        S-5

        
          

        

      

      
         

      

    

     

    Section
      2.2  Books
      and Records; Transfers of Eligible Mortgage Loans; Custodial
      Agreement.

     

    (a)  From
      and
      after each related Purchase Date, all rights arising with respect to the
      Eligible Mortgage Loans transferred (not including (i) servicing rights with
      respect to the Eligible Mortgage Loans, which shall be retained by the Servicer
      subject to the terms of the Repurchase Agreement or (ii) the Seller's obligation
      to fund future advances for any HELOC pursuant to the related Home Equity Line
      Agreement up to the Credit Limit) pursuant to any Transaction Notice including
      but not limited to all funds received on or in connection with the Eligible
      Mortgage Loans, shall be received and held by the Servicer in trust for the
      benefit of the Agent (on behalf of the Principals and shall be applied in
      accordance with Section 6 of the Repurchase Agreement). Pursuant to the
      Custodial Agreement, the Custodian shall hold all of the Mortgage Notes as
      described in such Custodial Agreement.

     

    The
      Servicer shall be responsible for maintaining, and shall maintain, a complete
      set of books and records for each Eligible Mortgage Loan which shall be marked
      clearly to reflect the transfer of each Eligible Mortgage Loan to the Agent
      (on
      behalf of the Principals). In particular, the Servicer shall maintain in its
      possession, available for inspection by the Agent, the Principals or their
      respective designees, evidence of compliance with applicable laws, rules and
      regulations. To the extent that original documents are not required for purposes
      of realization of Liquidation Proceeds, Insurance Proceeds, VA Guaranty
      Proceeds, FHA Proceeds or Securitization proceeds, documents maintained by
      the
      Servicer may be in the form of microfilm or microfiche or such other reliable
      means of recreating original documents, including but not limited to, optical
      imagery techniques so long as the Servicer complies with the requirements of
      the
      Guidelines.

     

    The
      Servicer shall maintain with respect to each Eligible Mortgage Loan and shall
      make available for inspection, upon reasonable advance notice, at the offices
      of
      the Servicer during normal business hours by the Agent, any Principal or any
      of
      their respective designees the related Mortgage Loan File during the time the
      Agent retains ownership of an Eligible Mortgage Loan and thereafter in
      accordance with applicable laws and regulations.

     

    (b)  Pursuant
      to the Custodial Agreement, the Seller shall, from time to time in connection
      with each Transaction pursuant to the terms of the Repurchase Agreement, deliver
      to the Custodian, on or before the date which is 30 days after the related
      Purchase Date, the Mortgage Note for each Eligible Mortgage Loan transferred.
      The Custodian shall hold all Mortgage Notes in trust as agent for the Agent
      (on
      behalf of the Principals).

     

     

    
      
         

      

      
        S-6

        
          

        

      

      
         

      

    

     

     

    Section
      2.3  Servicer
      Daily Calculation of Collateral Values and Aggregate Margin Value; Agent
      Calculation of Collateral Value and Aggregate Margin Value.

     

    (a)  The
      Servicer shall, before 4 p.m. (eastern time) on each Business Day, provide
      a
      transmission of the Collateral Value and Aggregate Margin Value of the Eligible
      Mortgage Loans at such time to the Agent. Such transmission shall be in a form
      mutually agreed upon by the Servicer and the Agent at such times in all material
      respects. 

     

    (b)  The
      Agent
      shall provide, at least once per calendar month, but as often as the Agent
      deems
      necessary, before noon (eastern time) on any Business Day, a transmission of
      the
      aggregate Collateral Value of the Eligible Mortgage Loans (as determined by
      the
      Agent or its designee) and the Aggregate Margin Value (as determined by the
      Agent or its designee) at such time to the Servicer. Such transmission shall
      be
      in a form mutually agreed upon by the Agent and the Servicer at such times
      in
      all material respects. In connection with the foregoing, the Servicer shall
      promptly deliver to the Agent (for its use and for use by any third party that
      the Agent selects to calculate the aggregate Collateral Value and the Aggregate
      Margin Value) any books, records, documents, data tapes or diskettes or other
      information relating to the Eligible Mortgage Loans as the Agent may reasonably
      request. 

     

    Section
      2.4  Protection
      of Ownership Interest of the Agent (on behalf of the Principals).

     

    The
      Servicer agrees that it will from time to time, at its expense, promptly execute
      and deliver all instruments and documents and take all actions as may be
      necessary or as the Agent may reasonably request in order to perfect or protect
      the interest of the Agent (on behalf of the Principals) in the Eligible Mortgage
      Loans or to enable the Agent or the Principals to exercise or enforce any of
      their respective rights hereunder. Without limiting the foregoing, the Seller
      will upon the request of the Agent or any of the Principals, in order to
      accurately reflect any assignment, transfer and conveyance transaction under
      the
      Repurchase Agreement, authorize and file such financing or continuation
      statements or amendments thereto or assignments thereof as may be requested
      by
      the Agent or any of the Principals. The Servicer shall upon request of the
      Agent
      or any of the Principals obtain such additional search reports as the Agent
      or
      any of the Principals shall request. To the fullest extent permitted by
      applicable law, the Agent shall be permitted to file continuation statements
      and
      amendments thereto and assignments thereof without the Seller’s signature.
      Carbon, photographic or other reproduction of this Agreement or any financing
      statement shall be sufficient as a financing statement.

     

    The
      Servicer agrees that it will at its expense, on or prior to the related Purchase
      Date indicate clearly and unambiguously in its master data processing records
      that the Eligible Mortgage Loans have been conveyed to the Agent, for the
      benefit of the Principals pursuant to the Repurchase Agreement. The Servicer
      further agrees to deliver to the Agent a computer file or microfiche list
      containing a true and complete list of all such Eligible Mortgage Loans,
      identified by loan number and by Outstanding Principal Balance as of the related
      Purchase Date. The Servicer agrees to deliver to the Agent within five (5)
      Business Days of the request therefor by the Agent a computer file or microfiche
      list containing a true and complete list of all Eligible Mortgage Loans in
      existence as of the last day of the prior Due Period, identified by loan number
      and by Outstanding Principal Balance as of the last day of the prior Due Period.
      The Servicer agrees, on behalf of the Seller, at its own expense, by the end
      of
      each Due Period in which any Eligible Mortgage Loans have been originated to
      indicate clearly and unambiguously in its master data processing records that
      the Eligible Mortgage Loans created have been conveyed to the Agent, for the
      benefit of the Principals, pursuant to the Repurchase Agreement.

     

     

    
      
         

      

      
        S-7

        
          

        

      

      
         

      

    

     

    Section
      2.5  Fees.

     

    The
      Seller shall pay the non-refundable fees set forth in the Fee Letter. Any of
      the
      fees described in the Fee Letter which are accrued but unpaid on the Termination
      Date shall be paid in full by the Seller on the Termination Date.

     

    Section
      2.6  Payments
      and Computations, Etc.

     

    All
      per
      annum fees payable under this Agreement shall be calculated for the actual
      days
      elapsed on the basis of a 360-day year. All amounts to be paid or deposited
      by
      the Seller or the Servicer hereunder shall be paid or deposited in accordance
      with the terms hereof in immediately available funds no later than 2:00 p.m.
      (eastern time) on the day when due; if such amounts are payable to any Principal
      or Principals they shall be paid or deposited in the Funding Account unless
      otherwise notified by the Agent. The Seller shall, to the extent permitted
      by
      Law, pay to the Agent for the account of each Principal upon demand of the
      Agent, interest on all amounts not paid or deposited when due to the Agent
      for
      the account of each Principal hereunder at a rate equal to the Default Rate.
      All
      computations of interest hereunder shall be made on the basis of a year of
      360
      days for the actual number of days (including the first but excluding the last
      day) elapsed other than computations of interest calculated by reference to
      the
      Base Rate which shall be calculated on the basis of a 365- or 366- day year,
      as
      applicable. 

     

    ARTICLE
      III

     

    REPRESENTATIONS
      AND WARRANTIES; COVENANTS; REMEDIES AND BREACH

     

    Section
      3.1  Representations
      and Warranties of The Company.

     

    The
      Company, as Seller and Servicer, represents and warrants to the Agent (and
      for
      the benefit of the Principals) that as of each applicable Purchase Date and
      as
      of the date of the sale or Securitization of each Eligible Mortgage
      Loan:

     

    (a)  Due
      Organization and Authority.
      The
      Company is duly organized, validly existing and in good standing under the
      laws
      of New Jersey and has all licenses necessary to carry on its business as now
      being conducted and is licensed, qualified and in good standing in each state
      where a Mortgaged Property is located if required to conduct business of the
      type conducted by it, and in any event the Company is in compliance with the
      laws of any such state to the extent necessary to ensure the enforceability
      of
      any Eligible Mortgage Loan sold hereunder and the servicing of any such Eligible
      Mortgage Loan in accordance with the terms of this Agreement and any Transaction
      Notice; the Company has the full power and authority to execute and deliver
      this
      Agreement and any Transaction Notice and to perform its obligations in
      accordance herewith and therewith; the execution, delivery and performance
      of
      this Agreement and any Transaction Notice by the Company and the consummation
      of
      the transactions contemplated hereby and thereby have been duly and validly
      authorized by the Company; all requisite corporate action has been taken by
      the
      Company to make this Agreement and any Transaction Notice valid and binding
      upon
      the Company in accordance with its terms; this Agreement and any Transaction
      Notice each evidences the valid, binding and enforceable obligation of the
      Company, except that (i) the enforceability thereof may be limited by
      bankruptcy, insolvency, moratorium, receivership and other similar laws relating
      to creditors' rights generally and (ii) the remedy of specific performance
      and
      injunctive and other forms of equitable relief may be subject to equitable
      defenses and to the discretion of the court before which any proceeding
      therefore may be brought.

     

     

    
      
         

      

      
        S-8

        
          

        

      

      
         

      

    

     

    (b)  Ordinary
      Course of Business.
      The
      consummation of the transactions contemplated by this Agreement are in the
      ordinary course of business of the Company, and the transfer, assignment and
      conveyance of the Mortgage Notes and the Mortgages by the Company pursuant
      to
      this Agreement are not subject to the bulk transfer or any similar statutory
      provisions in effect in any applicable jurisdiction.

     

    (c)  No
      Conflicts.
      Neither
      the execution and delivery of this Agreement or any Transaction Notice, the
      acquisition of Eligible Mortgage Loans by the Company, the sale of Eligible
      Mortgage Loans to the Agent (on behalf of the Principals) or the transactions
      contemplated hereby or thereby, nor the fulfillment of or compliance with the
      terms and conditions of this Agreement or any Transaction Notice, will conflict
      with or result in a breach of any of the terms, conditions or provisions of
      the
      Company's charter or by-laws or any material agreement or instrument to which
      the Company is now a party or by which it is bound, or constitute a default
      or
      result in an acceleration under any of the foregoing, or result in the violation
      in any material respect of any applicable law, rule, regulation, order, judgment
      or decree to which the Company or its property is subject, or impair the ability
      of the Agent (on behalf of the Principals) to realize on the Eligible Mortgage
      Loans in any material respect, or impair the value of the Eligible Mortgage
      Loans in any material respect, or impair in any material respect the ability
      of
      the Agent (on behalf of the Principals) to realize the full mortgage insurance
      benefits (i) of the FHA Mortgage Insurance Contract with respect to FHA Loans;
      (ii) of the VA Loan Guaranty Certificate with respect to VA Loans; or (iii)
      other insurance benefits accruing pursuant to this Agreement, including but
      not
      limited to any PMI Policy.

     

    (d)  Ability
      to Service.
      The
      Company is an Approved Seller/Servicer of Eligible Mortgage Loans for at least
      two of GNMA, FNMA and FHLMC with the facilities, procedures, and experienced
      personnel necessary for the servicing of Eligible Mortgage Loans. The Company
      is
      in good standing to sell mortgage loans to and service mortgage loans for at
      least two of GNMA, FNMA and FHLMC and no event has occurred, including but
      not
      limited to a change in insurance coverage, which would make the Company unable
      to comply with the eligibility requirements in all material respects of at
      least
      two of GNMA, FNMA and FHLMC. As of each Purchase Date, the Company is an FHA
      Approved Mortgagee and a VA Approved Lender and has the facilities, procedures,
      and experienced personnel necessary for the servicing of mortgage loans of
      the
      same type as the Eligible Mortgage Loans. As of each Purchase Date, the Company
      is in good standing to service mortgage loans for FHA and VA, and no event
      has
      occurred, including but not limited to a change in insurance coverage, which
      would make the Company unable to comply with FHA or VA eligibility requirements
      in all material respects.

     

     

    
      
         

      

      
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    (e)  Reasonable
      Servicing Fee.
      The
      Servicer acknowledges and agrees that the Servicing Fee represents reasonable
      compensation for performing such services as compensation for the servicing
      and
      administration and arranging for the sale or Securitization of the Eligible
      Mortgage Loans pursuant to this Agreement and, if paid shall be treated by
      the
      Servicer, for accounting and tax purposes, as compensation for the servicing
      and
      administration of the Eligible Mortgage Loans pursuant to this Agreement. As
      of
      the date hereof, the Seller does not, and is not expected at a later date to,
      pay any Servicing Fee to any Servicer party hereto on the date this Servicing
      Agreement was first executed and delivered. However, the Seller is expected
      to
      pay Servicing Fees to any Servicer who is not an Affiliate of the
      Seller.

     

    (f)  No
      Litigation Pending.
      There
      is no action, suit, proceeding or investigation pending or to its knowledge
      threatened against the Company (other than Previously Disclosed Matters) which,
      either in any one instance or in the aggregate, may result in any material
      adverse change in the business, operations, financial condition, properties
      or
      assets of the Company, or in any material impairment of the right or ability
      of
      the Company to carry on its business substantially as now conducted, or in
      any
      material liability on the part of the Company, or which would draw into question
      the validity of this Agreement or any Transaction Notice or the Eligible
      Mortgage Loans or of any action taken or to be taken in connection with the
      obligations of the Company contemplated herein, or which would be likely to
      impair materially the ability of the Company to perform under the terms of
      this
      Agreement or any Transaction Notice.

     

    (g)  No
      Consent Required.
      No
      consent, approval, authorization or order of any court or governmental agency
      or
      body including, without limitation, HUD, FHA or VA, is required for the
      execution, delivery and performance by the Company of or compliance by it with
      this Agreement or any Transaction Notice or the sale of the Eligible Mortgage
      Loans, or if required, such consent, approval or authorization has been
      obtained.

     

    (h)  No
      Untrue Information.
      Neither
      this Agreement, any Transaction Notice nor any statement, report or other
      document prepared by the Seller or to be prepared by the Company pursuant to
      this Agreement or any other Transaction Document or in connection with the
      transactions contemplated hereby or thereby (other than Subject Adjustments)
      contains any untrue statement of a material fact relating to the Company or
      the
      Eligible Mortgage Loans or omits to state a fact necessary to make the
      statements herein or therein not materially misleading.

     

    (i)  Ability
      to Perform.
      The
      Company does not believe, nor does it have any reason or cause to believe,
      that
      it cannot perform each and every covenant contained in this Agreement and each
      other Transaction Document in all material respects. The Company is solvent
      and
      the sale of the Eligible Mortgage Loans is not undertaken to hinder, delay
      or
      defraud any of the Company's creditors.

     

     

    
      
         

      

      
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    Section
      3.2  [Reserved].

     

    Section
      3.3  Remedies
      for Breach of Representations and Warranties.

     

    It
      is
      understood and agreed that the representations and warranties set forth in
      Section 3.1 shall survive the sale of the Eligible Mortgage Loans to the Agent
      (on behalf of the Principals) and the delivery of the Loan Documents to the
      Servicer and delivery of the Mortgage Notes to the Custodian and shall inure
      to
      the benefit of the Agent (on behalf of the Principals) notwithstanding any
      restrictive or qualified endorsement on any Mortgage Note or Assignment of
      Mortgage or the examination or failure to examine any Mortgage Loan File. Upon
      discovery by either the Seller, the Servicer or the Agent (on behalf of the
      Principals) of a breach of any of the foregoing representations and warranties
      which materially and adversely affects the value of the Eligible Mortgage Loans
      or the interest of the Agent (on behalf of the Principals) (or which materially
      and adversely affects the interest of the Agent (on behalf of the Principals)
      in
      the related Eligible Mortgage Loan in the case of a representation and warranty
      relating to a particular Eligible Mortgage Loan), the party discovering such
      breach shall give prompt written notice to the other, the Agent and the
      Principals.

     

    Section
      3.4  Covenants.

     

    (a)  Licenses.
      The
      Servicer shall maintain its qualifications to do business and all licenses
      necessary to perform its obligations hereunder.

     

    (b)  Servicing
      Standards/Sales and Securitizations.
      The
      Servicer will administer and service Eligible Mortgage Loans, and arrange for
      the sale and Securitization of Eligible Mortgage Loans, in accordance with
      the
      terms of this Agreement, the Mortgage Notes and Accepted Servicing
      Practices.

     

    (c)  Delivery
      of Mortgage Note.
      The
      Servicer shall deliver each Mortgage Note to the Custodian as soon as
      practicable, but in any event within 30 days of the purchase and, if any
      Mortgage Note is not delivered within 30 days of the purchase, it shall be
      repurchased on such 30th
      day by
      the Seller at the Repurchase Price.

     

    (d)  Assignment.
      The
      Servicer shall assign to the Agent all right, title and interest of the Company
      under the Additional Collateral Transaction Agreement with respect to Additional
      Collateral Mortgage Loans transferred.

     

    (e)  [Reserved].

     

    (f)  [Reserved].

     

    (g)  Financial
      Covenants.
      For so
      long as any amount shall remain outstanding or unpaid under the Repurchase
      Agreement, unless the Required Principals shall otherwise consent in writing,
      the Company shall not, directly or indirectly, (i) permit PHH Corporation’s
      Consolidated Net Worth on the last day of any fiscal quarter to be less than
      the
      sum of (A) $1,000,000,000 plus
      (B) 25% of Consolidated Net Income, if positive, for each fiscal quarter
      ended after December 31, 2004; or (ii) permit, at any time, the ratio of
      Indebtedness of PHH Corporation and its Subsidiaries to Tangible Net Worth
      to
      exceed 10.0 to 1.0.

     

     

    
      
         

      

      
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    ARTICLE
      IV

     

    ADMINISTRATION
      AND SERVICING OF ELIGIBLE LOANS

     

    Section
      4.1  The
      Company to Act as Servicer; Servicing and Administration of the Eligible
      Mortgage Loans.

     

    (a)  The
      Company, as an independent contractor and owner of the servicing rights to
      the
      Eligible Mortgage Loans, shall diligently service and administer the Eligible
      Mortgage Loans, and shall comply with the Eligibility Criteria, the Portfolio
      Criteria, Portfolio Aging Limitations and Wet Funded Loan Limitation, in the
      best interest of and for the benefit of the Agent and the Principals in
      accordance with applicable law, the terms of this Agreement and the terms of
      the
      respective Eligible Mortgage Loans, with a view to the maximization of timely
      recovery of principal and interest on the Mortgage Notes. Except to the extent
      that this Agreement provides for a contrary specific course of action, the
      Servicer will be required to service and administer the Eligible Mortgage Loans
      (y) in the same manner in which, and with the same care, skill, prudence and
      diligence with which it services and administers similar mortgage loans for
      other third-party portfolios, giving due consideration to customary and usual
      standards of practice of prudent institutional residential mortgage loan
      servicers used with respect to loans comparable to the Eligible Mortgage Loans,
      or (z) in the same manner in which, and with the same care, skill, prudence
      and
      diligence with which, it services and administers similar mortgage loans which
      it owns, whichever standard of care is higher, and taking into account its
      other
      obligations under this Agreement, but without regard to (i) any other
      relationship that Servicer, any sub-servicer or any affiliate of the Servicer
      or
      any sub-servicer may have with the borrowers or any affiliate of such borrowers;
      (ii) the ownership of any interest in an Eligible Mortgage Loan by the Servicer
      or any affiliate; (iii) the Servicer's obligations to incur servicing expenses
      with respect to the Eligible Mortgage Loans; (iv) the Servicer's or any
      sub-servicer's right to receive compensation for its services under this
      Agreement or with respect to any particular transaction; or (v) the ownership,
      servicing or management for others by the Servicer or any sub-servicer of any
      other mortgage loans or property. The Servicer shall maintain its qualification
      to do business and all licenses necessary to perform its obligations
      hereunder.

     

    (b)  The
      Servicer shall be obligated to service and administer the Eligible Mortgage
      Loans. The Servicer may enter into additional servicing or sub-servicing
      agreements with third parties with respect to any of its respective obligations
      hereunder, provided that any such agreement shall be consistent with the
      provisions of this Agreement and no sub-servicer (or its agent or
      subcontractors) shall grant any modification, waiver or amendment to any
      Eligible Mortgage Loan without the approval of the Servicer. Notwithstanding
      any
      servicing or sub-servicing agreement, any of the provisions of this Agreement
      relating to agreements or arrangements between the Servicer and any Person
      acting as servicer or sub-servicer (or its agents or subcontractors) or any
      reference to action taken through any Person acting as servicer or sub-servicer
      or otherwise, the Servicer shall remain obligated and primarily liable to the
      Agent (on behalf of the Principals) for the servicing and administering of
      the
      Eligible Mortgage Loans and arranging for the sale and Securitization of the
      Eligible Mortgage Loans in accordance with the provisions of this Agreement
      without diminution of such obligation or liability by virtue of such servicing
      or sub-servicing agreements or arrangements or by virtue of indemnification
      from
      any Person acting as servicer or sub-servicer (or its agents or subcontractors)
      to the same extent and under the same terms and conditions as if the Servicer
      alone were engaging in such activities. In the event the Servicer is a
      sub-servicer, the Agent (on behalf of the Principals) shall be entitled to
      proceed directly against the Servicer as sub-servicer to enforce the Servicer's
      obligations to the Agent (on behalf of the Principals).

     

     

     

    
      
         

      

      
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    (c)  Subject
      to the above-described servicing standards, the further provisions of this
      Agreement, including but not limited to the Wet Funded Loan Limitation, the
      Eligibility Criteria, the Portfolio Criteria and Portfolio Aging Limitation,
      and
      the terms of the respective Eligible Mortgage Loans, the Servicer shall have
      full power and authority, acting alone, to do or cause to be done any and all
      things in connection with such servicing and administration that it may deem
      necessary or desirable in connection with the servicing and administration
      of
      the Eligible Mortgage Loans. Without limiting the generality of the foregoing,
      the Servicer is hereby authorized and empowered to waive, modify or vary any
      term of any Eligible Mortgage Loan or consent to the postponement of compliance
      with any such term or in any manner grant indulgence to any Borrower if in
      the
      Servicer's reasonable and prudent determination such waiver, modification,
      postponement or indulgence is not materially adverse to the Agent or any of
      the
      Principals; provided, however, that the Servicer shall not make any future
      advances to a Borrower with respect to an Eligible Mortgage Loan and (unless
      the
      Borrower is in default with respect to the Eligible Mortgage Loan or such
      default is, in the judgment of the Servicer, imminent) the Servicer shall not
      permit any modification with respect to any Eligible Mortgage Loan that would
      change the interest rate for the related Mortgage, defer or forgive the payment
      of principal or interest, reduce or increase the outstanding principal balance
      (except for actual payments of principal), release any collateral from the
      Eligible Mortgage Loan or change the final maturity date on such Eligible
      Mortgage Loan. Without limiting the generality of the foregoing, the Servicer
      shall continue, and is hereby authorized and empowered, to execute and deliver
      on behalf of itself and the Agent all instruments of satisfaction or
      cancellation, or of partial or full release, discharge and all other comparable
      instruments, with respect to the Eligible Mortgage Loans and with respect to
      the
      Mortgaged Properties. If reasonably required by the Servicer, the Principals
      shall furnish the Servicer with any powers of attorney, in recordable form,
      and
      other documents necessary or appropriate to enable the Servicer to carry out
      its
      servicing and administrative duties under this Agreement.

     

     

    
      
         

      

      
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    Section
      4.2  Sales
      and Securitizations.

     

    Subject
      to the servicing standards described in Section 4.1, the Servicer shall have
      full power and authority, acting alone, to do or cause to be done any and all
      things in connection with such servicing and administration that it may deem
      necessary and desirable in connection with the sale and/or Securitization of
      Eligible Mortgage Loans with the Seller or third-party purchasers. In connection
      with any Securitization of Eligible Mortgage Loans, in the event the Agent
      (on
      behalf of the Principals) receives securities from the Securitization Vehicle
      in
      exchange for the Eligible Mortgage Loans subject to such Securitization
      (“Securitization
      Securities”),
      the
      Servicer shall, on behalf of the Agent (on behalf of the Principals), arrange
      for the sale of such Securitization Securities. The Servicer shall use its
      best
      efforts to realize for the Agent (on behalf of the Principals) the market value
      for the Securitization Securities but shall have no liability to the Principals
      with respect to any Securitization or Securitization Security provided that
      the
      Servicer arranges for such Securitization or sale in good faith in accordance
      with the procedures utilized by the Servicer in connection with any
      Securitization and Securitization Securities held for its own account. The
      share
      of the proceeds of sale of any Securitization Security due the Principals and
      the proceeds of sale of any whole loan will be remitted to the Collection
      Account for application in accordance with the Repurchase
      Agreement.

     

    All
      mortgage loans not sold or transferred pursuant to a sale or Securitization
      shall continue to be serviced in accordance with the terms of this
      Agreement.

     

    Section
      4.3  Liquidation
      of Eligible Mortgage Loans.

     

    In
      the
      event that any payment due under any Eligible Mortgage Loan is not paid when
      the
      payment becomes due and payable, or in the event that the Borrower fails to
      perform any other covenant or obligation under the Eligible Mortgage Loan and
      such failure continues beyond any applicable grace period, the Servicer shall
      take such action as (1) the Servicer would take under similar circumstances
      with
      respect to a similar Eligible Mortgage Loan held for its own account for
      investment, (2) shall be consistent with Accepted Servicing Practices, (3)
      the
      Servicer shall determine in accordance with Accepted Servicing Practices to
      be
      in the best interest of the Agent and the Principals, and (4) is consistent
      with
      the related PMI Policy, if any; provided,
      however,
      any
      Defaulted Loan will be sold by the Servicer on behalf of the Principals as
      soon
      as practicable after becoming a Defaulted Loan.

     

    Section
      4.4  Collection
      of Eligible Mortgage Loan Payments.

     

    The
      Servicer shall proceed diligently, in accordance with Accepted Servicing
      Practices, to collect all payments called for under the terms and provisions
      of
      the Eligible Mortgage Loans it is obligated to service hereunder and shall
      follow such collection procedures as are consistent with the Transaction
      Documents (including without limitation, the servicing standards set forth
      in
      Section 4.1 hereof). The Servicer shall ascertain and estimate, in accordance
      with Accepted Servicing Practices, Escrow Payments and all other charges that
      will become due and payable with respect to the Eligible Mortgage Loans and
      the
      Mortgaged Property, to the end that the installments payable by the Borrowers
      will be sufficient to pay such charges as and when they become due and payable.
      The Servicer shall segregate and hold all payments received by it separate
      and
      apart from any of its funds and general assets and in trust for the Principals
      and shall apply such payments as provided in the Repurchase Agreement. The
      accounts established by the Servicer pursuant to this Article IV may include
      any
      number of sub-accounts for convenience in administering the Eligible Mortgage
      Loans.

     

     

     

    
      
         

      

      
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    Section
      4.5  Establishment
      of, and Deposits to, Funding Account and Collection Account.

     

    The
      Servicer shall establish single, segregated trust accounts which shall be
      designated as the Funding Account and the Collection Account, respectively,
      which shall be held in trust in the name of the Agent for the benefit of the
      Principals and which shall be subject to Blocked Account Control Agreements,
      into which the Servicer shall from time to time deposit, within two Business
      Days of the receipt thereof, and retain therein, all Collections. The Funding
      Account and the Collection Account shall be established with a Qualified
      Depository acceptable to the Agent. Any funds deposited in the Funding Account
      and the Collection Account shall at all times be fully insured to the full
      extent permitted under applicable law. Any interest earnings on amounts on
      deposit from time to time in the Funding Account and the Collection Account
      shall be remitted to the Servicer in accordance with such arrangements, as
      shall
      be agreed upon by the Servicer and the Agent; provided
      that the
      Servicer shall deposit promptly from its own funds to the Funding Account or
      the
      Collection Account, as applicable, an amount equal to any loss incurred with
      respect to an investment of funds in the Funding Account or the Collection
      Account, as applicable.

     

    Section
      4.6  Permitted
      Withdrawals From Margin Call Account.

     

    (a)  In
      connection with any withdrawals of amounts deposited by the Servicer into the
      Margin Call Account by mistake or overpayment or as otherwise required to make
      adjustments to amounts deposited therein in accordance with ordinary and normal
      servicing adjustments the Servicer shall provide the Agent with a written
      request, including such information with respect to such withdrawals as such
      Agent may reasonably request to justify such withdrawal. Upon approval by the
      Agent of such request, the Agent shall authorize the withdrawal of such amount
      from such account; provided that if such request is for an amount less than
      $10,000 and the aggregate amount withdrawn from such account under this proviso
      in the current Due Period is less than $50,000, such withdrawal may be made
      without approval from the Agent.

     

    (b)  The
      proceeds of any sales and Securitizations, the Repurchase Price of any Eligible
      Mortgage Loans and any other amounts payable in connection with the repurchase
      to the Seller or Servicer of any Eligible Mortgage Loan and repayments in full
      of Eligible Mortgage Loans shall be deposited directly into the Funding Account
      on the same day of receipt for application in accordance with the Repurchase
      Agreement.

     

    Section
      4.7  Establishment
      of, and Deposits to, Escrow Account.

     

    The
      Servicer shall segregate and hold all funds collected and received pursuant
      to
      an Eligible Mortgage Loan constituting Escrow Payments separate and apart from
      any of its own funds and general assets and shall establish and maintain one
      or
      more Escrow Accounts, in the form of time deposit or demand accounts, in a
      manner which shall provide maximum available insurance thereunder. Funds
      deposited in any Escrow Account may be invested by the Servicer which shall
      be
      entitled to any investment income therefrom except as otherwise required by
      law.
      Funds deposited in any Escrow Account may be drawn on by the Servicer in
      accordance with Section 4.8 hereof.

     

     

     

    
      
         

      

      
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    The
      Servicer shall deposit in such Escrow Account within two Business Days of
      receipt thereof and retain therein (a) all Escrow Payments collected on account
      of the Eligible Mortgage Loans, for the purpose of effecting timely payment
      of
      any such items as required under the terms of this Agreement and the other
      Transaction Documents; and (b) all amounts representing Insurance Proceeds
      or
      Condemnation Proceeds which are to be applied to the restoration or repair
      of
      any Mortgaged Property.

     

    The
      Servicer shall make withdrawals from any Escrow Account only to effect such
      payments as are required under this Agreement, as set forth in Section 4.8
      hereof. To the extent required by law, the Servicer shall pay interest on
      escrowed funds to the Borrower notwithstanding that such Escrow Account may
      be
      non-interest bearing or that interest paid thereon is insufficient for such
      purposes.

     

    The
      Seller shall deposit to the Escrow Account an amount equal to all Escrow
      Payments, Insurance Proceeds and Condemnation Proceeds collected on account
      of
      each Eligible Mortgage Loan and held by the Seller as of the date of the
      transfer of such Eligible Mortgage Loan to the Agent (on behalf of the
      Principals).

     

    Section
      4.8  Permitted
      Withdrawals From Escrow Account.

     

    Withdrawals
      from any Escrow Account may be made by the Servicer only:

     

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

     

    (b)  To
      reimburse the Servicer for any servicing advances made by the Servicer pursuant
      to Section 4.9 hereof with respect to a related Eligible Mortgage Loan, but
      only
      from amounts received on the related Eligible Mortgage Loan which represent
      late
      collections of Escrow Payments thereunder;

     

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

     

    (d)  For
      application to restoration or repair of the Mortgaged Property in accordance
      with the procedures outlined in Section 4.15 hereof; and

     

    (e)  To
      pay to
      the Borrower, to the extent required by law, any interest paid on the funds
      deposited in the Escrow Account.

     

     

    
      
         

      

      
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    Section
      4.9  Payment
      of Taxes, Insurance and Other Charges.

     

    With
      respect to each Eligible Mortgage Loan, the Servicer shall maintain accurate
      records reflecting the status of ground rents, taxes, assessments, water rates,
      sewer rents, and other charges which are or may become a lien upon the Mortgaged
      Property and the status of PMI Policy premiums, if any, and fire and hazard
      insurance coverage and shall obtain, from time to time, all bills for the
      payment of such charges (including renewal premiums) and shall effect payment
      thereof prior to the applicable penalty or termination date, employing for
      such
      purpose deposits of the Borrower in the Escrow Account which shall have been
      estimated and accumulated by the Servicer in amounts sufficient for such
      purposes, as allowed under the terms of the Mortgage. To the extent that a
      Mortgage does not provide for Escrow Payments, the Servicer shall determine
      that
      any such payments are made by the Borrower at the time they first become due.
      The Servicer assumes full responsibility for the timely payment of all such
      bills and shall effect timely payment of all such charges irrespective of each
      Borrower's faithful performance in the payment of an Eligible Mortgage Loan
      or
      the making of the Escrow Payments, and the Servicer shall make such
      payments.

     

    Section
      4.10  Protection
      of Accounts; Investment of Funds.

     

    Amounts
      on deposit in the Margin Call Account may at the option of the Seller be
      invested in Eligible Investments; provided that in the event that amounts on
      deposit in each such account (which shall be properly titled to insure the
      funds
      in such account on a loan-by-loan basis) exceed the amount fully insured by
      the
      FDIC (the “Insured
      Amount”)
      the
      Servicer shall be obligated to invest the excess amount over the Insured Amount
      in Eligible Investments on the next Business Day as such excess amount becomes
      present in the Margin Call Account. Monies held in the Margin Call Account
      shall
      be invested in Eligible Investments having maturities of no greater than one
      day; provided,
      that if
      there are no Short-Term Notes then outstanding, monies held in each such account
      shall be invested in Eligible Investments having maturities of no greater than
      30 days. If a Termination Event has not occurred and is not continuing, earnings
      on all such Eligible Investments (after deducting any losses), if any, shall
      be
      paid to the Seller. All such Eligible Investments shall be made in the name
      of,
      and shall be payable to, the Agent.

     

    Section
      4.11  Maintenance
      of Hazard Insurance.

     

    The
      Servicer shall cause to be maintained for each Eligible Mortgage Loan (other
      than HELOCs and Closed End Second Mortgage Loans) hazard insurance such that
      all
      buildings upon the Mortgaged Property are insured by a generally acceptable
      insurer rated A:VI or better in the current Best's Key Rating Guide
      (“Best's”)
      against loss by fire, hazards of extended coverage and such other hazards as
      are
      customary in the area where the Mortgaged Property is located, in an amount
      which is at least equal to the lesser of (i) the maximum insurable value of
      the
      improvements securing such Eligible Mortgage Loan and (ii) the greater of (a)
      the outstanding principal balance of the Eligible Mortgage Loan and (b) an
      amount such that the proceeds thereof shall be sufficient to prevent the
      Borrower or the loss payee from becoming a co-insurer.

     

     

    
      
         

      

      
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    If
      upon
      origination or acquisition of the Eligible Mortgage Loan, the related Mortgaged
      Property was located in an area identified in the Federal Register by the
      Federal Emergency Management Agency as having special flood hazards (and such
      flood insurance has been made available) the Servicer shall cause to be in
      effect a flood insurance policy meeting the requirements of the current
      guidelines of the Flood Insurance Administration with a generally acceptable
      insurance carrier rated A:VI or better in Best's in an amount representing
      coverage equal to the lesser of (i) the minimum amount required, under the
      terms
      of coverage, to compensate for any damage or loss on a replacement cost basis
      (or the unpaid balance of the mortgage if replacement cost coverage is not
      available for the type of building insured) and (ii) the maximum amount of
      insurance which is available under the Flood Disaster Protection Act of 1973,
      as
      amended. If at any time during the term of the Eligible Mortgage Loan, the
      Servicer determines in accordance with applicable law and pursuant to the
      Guidelines that a Mortgaged Property is located in a special flood hazard area
      and is not covered by flood insurance or is covered in an amount less than
      the
      amount required by the Flood Disaster Protection Act of 1973, as amended, the
      Servicer shall notify the related Borrower that the Borrower must obtain such
      flood insurance coverage, and if said Borrower fails to obtain the required
      flood insurance coverage within forty-five (45) days after such notification,
      the Servicer shall immediately force place the required flood insurance on
      the
      Borrower’s behalf.

     

    The
      Servicer shall cause to be maintained on each Mortgaged Property such additional
      insurance as may be required pursuant to such applicable laws and regulations
      as
      shall at any time be in force and as shall require such additional insurance,
      or
      pursuant to the requirements of any private mortgage guaranty insurer, or as
      may
      be required to conform with Accepted Servicing Practices.

     

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

     

    The
      Servicer shall not interfere with the Borrower's freedom of choice in selecting
      either his insurance carrier or agent; provided,
      however,
      that
      the Servicer shall not accept any such insurance policies from insurance
      companies unless such companies are rated A:VI or better in Best's and are
      licensed to do business in the jurisdiction in which the Mortgaged Property
      is
      located. The Servicer shall determine that such policies provide sufficient
      risk
      coverage and amounts, that they insure the property owner, and that they
      properly describe the property address. The Servicer shall furnish to the
      Borrower a formal notice of expiration of any such insurance in sufficient
      time
      for the Borrower to arrange for renewal coverage by the expiration
      date.

     

    Pursuant
      to Section 4.5 hereof, any amounts collected by the Servicer under any such
      policies (other than amounts to be deposited in any Escrow Account and applied
      to the restoration or repair of the related Mortgaged Property, or property
      acquired in liquidation of the Eligible Mortgage Loan, or to be released to
      the
      Borrower, in accordance with Accepted Servicing Practices as specified in
      Section 4.15 hereof) shall be deposited in the Collection Account.

     

     

     

    
      
         

      

      
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    Section
      4.12  Maintenance
      of Mortgage Impairment Insurance.

     

    If
      the
      Servicer shall obtain and maintain a blanket policy insuring against losses
      arising from fire and hazards covered under extended coverage on all of the
      Eligible Mortgage Loans, then, to the extent such policy provides coverage
      in an
      amount equal to the amount required pursuant to Section 4.11 hereof and
      otherwise complies with all other requirements of Section 4.11, it shall
      conclusively be deemed to have satisfied its obligations as set forth in such
      Section 4.11. Any amounts collected by the Servicer under any such policy
      relating to an Eligible Mortgage Loan shall be deposited in the Collection
      Account. Such policy may contain a deductible clause, in which case, in the
      event that there shall not have been maintained on the related Mortgaged
      Property a policy complying with Section 4.11 hereof, and there shall have
      been
      a loss which would have been covered by such policy, the Servicer shall deposit
      in the Collection Account at the time of such loss the amount not otherwise
      payable under the blanket policy because of such deductible clause, such amount
      to be deposited from the Servicer's funds, without reimbursement therefor.
      Upon
      request of the Agent, the Servicer shall cause to be delivered to the Agent
      a
      certified true copy of such policy. 

     

    Section
      4.13  Maintenance
      of Fidelity Bond and Errors and Omissions Insurance.

     

    The
      Servicer shall maintain with responsible companies, at its own expense, a
      blanket Fidelity Bond and an Errors and Omissions Insurance Policy, with broad
      coverage on all officers, employees or other persons acting in any capacity
      requiring such persons to handle funds, money, documents or papers relating
      to
      the Eligible Mortgage Loans (“Company
      Employees”).
      Any
      such Fidelity Bond and Errors and Omissions Insurance Policy shall be in the
      form of the Mortgage Banker's Blanket Bond and shall protect and insure the
      Servicer against losses, including forgery, theft, embezzlement, fraud, errors
      and omissions and negligent acts of such Company Employees. Such Fidelity Bond
      and Errors and Omissions Insurance Policy also shall protect and insure the
      Servicer against losses in connection with the release or satisfaction of an
      Eligible Mortgage Loan without having obtained payment in full of the
      indebtedness secured thereby. No provision of this Section 4.13 requiring such
      Fidelity Bond and Errors and Omissions Insurance Policy shall diminish or
      relieve the Servicer from its duties and obligations as set forth in this
      Agreement. The minimum coverage under any such bond and insurance policy shall
      be at least equal to the corresponding amounts required by the Guidelines.
      Upon
      the request of the Agent, the Servicer shall cause to be delivered to the Agent
      a certified true copy of such fidelity bond and insurance policy.

     

    Section
      4.14  Inspections.

     

    The
      Servicer shall inspect the Mortgaged Property as often as deemed necessary
      by
      the Servicer to assure itself that the value of the Mortgaged Property is being
      preserved.

     

    Section
      4.15  Restoration
      of Mortgaged Property.

     

    The
      Servicer need not obtain the approval of the Agent or the Principals prior
      to
      releasing any Insurance Proceeds or Condemnation Proceeds to the Borrower to
      be
      applied to the restoration or repair of the Mortgaged Property if such release
      is in accordance with Accepted Servicing Practices. At a minimum, the Servicer
      shall comply with the following conditions in connection with any such release
      of Insurance Proceeds or Condemnation Proceeds:

     

     

    
      
         

      

      
        S-19

        
          

        

      

      
         

      

    

     

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

     

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

     

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

     

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

     

    Section
      4.16  Maintenance
      of PMI Policy; Claims.

     

    Except
      where the Guidelines exempt certain Eligible Mortgage Loans from this
      requirement, for each Eligible Mortgage Loan (other than FHA Loans, VA Loans,
      Uninsured Loans, HELOCs and Closed End Second Mortgage Loans) with a
      Loan-to-Value Ratio in excess of 80%, the Servicer shall, without any cost
      to
      the Agent or any Principal, maintain or cause the Borrower to maintain in full
      force and effect a PMI Policy insuring that portion of the Eligible Mortgage
      Loan in excess of 80% of value, and shall pay or shall cause the Borrower to
      pay
      the premium thereon on a timely basis, until the Loan-to-Value Ratio of such
      Eligible Mortgage Loan is reduced to 80% or less. In the event that such PMI
      Policy shall be terminated, the Servicer shall, prior to any such termination,
      obtain from another Qualified Insurer a comparable replacement policy, with
      a
      total coverage equal to the remaining coverage of such terminated PMI Policy.
      If
      the insurer shall cease to be a Qualified Insurer, the Servicer shall determine
      whether recoveries under the PMI Policy are jeopardized for reasons related
      to
      the financial condition of such insurer, it being understood that the Servicer
      shall in no event have any responsibility or liability for any failure to
      recover under the PMI Policy for such reason. If the Servicer determines that
      recoveries are so jeopardized, it shall notify the Agent and the Borrower,
      if
      required, and obtain from another Qualified Insurer a replacement insurance
      policy. The Servicer shall not take any action which would result in noncoverage
      under any applicable PMI Policy of any loss which, but for the actions of the
      Servicer, would have been covered thereunder. In connection with any assumption
      or substitution agreement entered into or to be entered into pursuant to Section
      5.1 hereof, the Servicer shall promptly notify the insurer under the related
      PMI
      Policy, if any, of such assumption or substitution of liability in accordance
      with the terms of such PMI Policy and shall take all actions which may be
      required by such insurer as a condition to the continuation of coverage under
      such PMI Policy. If such PMI Policy is terminated as a result of such assumption
      or substitution of liability, the Servicer shall obtain a replacement PMI Policy
      as provided above.

     

     

    
      
         

      

      
        S-20

        
          

        

      

      
         

      

    

     

     

    In
      connection with its activities as Servicer, the Servicer agrees to prepare
      and
      present claims to the insurer under any PMI Policy in a timely fashion in
      accordance with the terms of such PMI Policy and, in this regard, to take such
      action as shall be necessary to permit recovery under any PMI Policy respecting
      a Defaulted Loan. Pursuant to Section 4.5 hereof, any amounts collected by
      the
      Servicer under any PMI Policy shall be deposited in the Collection Account,
      subject to withdrawal pursuant to Section 4.6 hereof.

     

    Section
      4.17  Title,
      Management and Disposition of REO Property.

     

    In
      the
      event that title to any Mortgaged Property is acquired in foreclosure or by
      deed
      in lieu of foreclosure, the deed or certificate of sale shall be taken in the
      name of the Servicer as agent for the Agent, or in the event the Servicer is
      not
      authorized or permitted to hold title to real property in the state where the
      REO Property is located, or would be adversely affected under the “doing
      business” or tax laws of such state by so holding title, the deed or certificate
      of sale shall be taken in the name of such Person or Persons as shall be
      reasonably acceptable to the Agent. The Person or Persons holding such title
      other than the Servicer shall acknowledge in writing that such title is being
      held as nominee for the Servicer.

     

    The
      Servicer shall manage, conserve, protect and operate each REO Property for
      the
      Principals solely for the purpose of its prompt disposition and sale. The
      Servicer, either itself or through an agent selected by the Servicer, shall
      manage, conserve, protect and operate the REO Property in the manner that it
      manages, conserves, protects and operates other foreclosed property for its
      own
      account, and in the manner that similar property in the locality as the REO
      Property is managed. The Servicer shall attempt to sell the Eligible Mortgage
      Loan on such terms and conditions as the Servicer deems to be in the best
      interest of the Agent and the Principals. The Servicer shall dispose of the
      REO
      Property in accordance with Accepted Servicing Practices as soon as
      possible.

     

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

     

    The
      disposition of REO Property shall be carried out by the Servicer at such price
      and, upon such terms and conditions, as the Servicer deems to be in the best
      interest of the Agent and the Principals. The proceeds of sale of the REO
      Property shall be promptly deposited in the Collection Account.

     

    Section
      4.18  Daily
      Servicer Reports.

     

    On
      a
      daily basis, the Servicer shall prepare and forward to the Agent, the Custodian
      and each Principal (i) a report, substantially in the form of Exhibit D (a
“Daily
      Servicer Report”),
      as of
      the close of business on the immediately preceding Business Day (which shall
      include, without limitation, (a) the aggregate Outstanding Principal
      Balance of the Eligible Mortgage Loans, (b) Collections on the Eligible Mortgage
      Loans, (c) the aggregate Outstanding Principal Balance of Delinquent Loans
      and Defaulted Loans and (d) the yield on the Eligible Mortgage Loans, (e) the
      Aggregate Purchase Price, (f) the Aggregate Margin Value, (g) the amount on
      deposit in the Margin Call Account, if any, and (h) the amount of repayment
      of
      maturing related Short-Term Notes, if any, as of the date of such Daily Servicer
      Report), (ii) an updated Daily Loan Inventory and (iii) if requested by the
      Agent, a listing of all Eligible Mortgage Loans together with an aging of such
      Eligible Mortgage Loans and such other information concerning actual historical
      collections experience and other matters as the Agent may reasonably
      request.

     

     

    
      
         

      

      
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    The
      Seller shall, or shall cause the Servicer to, furnish to the Agent at any time
      and from time to time, such other or further information in respect of the
      Eligible Mortgage Loans, the Seller and the Borrowers as the Agent may
      reasonably request.

     

    Section
      4.19  Real
      Estate Owned Reports.

     

    The
      Servicer shall furnish to the Agent on a monthly basis an REO Property report
      in
      form and substance satisfactory to the Agent, together with such other
      information as the Agent shall reasonably request.

     

    Section
      4.20  Liquidation
      Reports.

     

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

     

    Section
      4.21  Reports
      of Foreclosures and Abandonments of Mortgaged Property.

     

    Following
      the foreclosure sale or abandonment of any Mortgaged Property, the Servicer
      shall report such foreclosure or abandonment as required pursuant to Section
      5050J of the Code.

     

    ARTICLE
      V

     

    GENERAL
      SERVICING PROCEDURES

     

    Section
      5.1  Transfers
      of Mortgaged Property.

     

    The
      Servicer shall enforce any “due-on-sale” provision in accordance with Accepted
      Servicing Practices and applicable law contained in any Mortgage or Mortgage
      Note and to deny assumption by the Person to whom the Mortgaged Property has
      been or is about to be sold whether by absolute conveyance or by contract of
      sale, and whether or not the Borrower remains liable on the Mortgage and the
      Mortgage Note. When the Mortgaged Property has been conveyed by the Borrower,
      the Servicer shall, to the extent it has knowledge of such conveyance, exercise
      its rights to accelerate the maturity of such Eligible Mortgage Loan under
      the
“due-on-sale” clause applicable thereto; provided,
      however,
      that
      the Servicer shall not exercise such rights if prohibited by law from doing
      so
      or if the exercise of such rights would impair or threaten to impair any
      recovery under the related PMI Policy, if any.

     

     

    
      
         

      

      
        S-22

        
          

        

      

      
         

      

    

     

     

    If
      the
      Servicer reasonably believes it is unable under applicable law to enforce such
      “due-on-sale” clause, the Servicer shall enter into (i) an assumption and
      modification agreement with the person to whom such property has been conveyed,
      pursuant to which such person becomes liable under the Mortgage Note and the
      original Borrower remains liable thereon or (ii) in the event that the Servicer
      is unable under applicable law to require that the original Borrower remain
      liable under the Mortgage Note and the Servicer has the prior consent of the
      primary mortgage guaranty insurer, a substitution of liability agreement with
      the purchaser of the Mortgaged Property pursuant to which the original Borrower
      is released from liability and the purchaser of the Mortgaged Property is
      substituted as Borrower and becomes liable under the Mortgage Note.

     

    Section
      5.2  Satisfaction
      of Mortgages and Release of Mortgage Loan Files.

     

    Upon
      the
      payment in full of any Eligible Mortgage Loan, or the receipt by the Servicer
      of
      a notification that payment in full will be escrowed in a manner customary
      for
      such purposes, the Servicer shall notify the Agent.

     

    If
      the
      Servicer satisfies or releases a Mortgage without first having obtained payment
      in full of the indebtedness secured by the Mortgage or should the Servicer
      otherwise prejudice any rights the Agent or the Principals may have under the
      mortgage instruments, upon written demand of the Agent, the Servicer shall
      repurchase the related Eligible Mortgage Loan at the Repurchase Price by deposit
      thereof in the Funding Account within two Business Days of receipt of such
      demand by the Agent for application in reduction of the Aggregate Purchase
      Price. The Servicer shall maintain the Fidelity Bond and Errors and Omissions
      Insurance Policy as provided for in Section 4.13 hereof insuring the Servicer
      against any loss it may sustain with respect to any Eligible Mortgage Loan
      not
      satisfied in accordance with the procedures set forth herein.

     

    Section
      5.3  Servicing
      Compensation.

     

    As
      compensation for its services hereunder, the Servicer shall be entitled to
      the
      Servicing Fee. If the Servicer or an affiliate thereof ceases to be the
      Servicer, the Agent and such successor Servicer may agree to amend such
      Servicing Fee (but not to exceed an amount equal to 110% of the aggregate
      reasonable costs and expenses incurred by such successor Servicer in connection
      with performance of its obligations as Servicer hereunder). The Servicing Fee
      shall be payable only from Collections pursuant to and in accordance with the
      terms of Section 6 of the Repurchase Agreement. To the extent such Collections
      are not sufficient to pay the Servicing Fee in full, none of the Agent or any
      Principal shall have any liability for such deficiency. Each Servicer shall
      be
      required to pay all expense incurred by it in connection with its servicing
      activities hereunder and shall not be entitled to reimbursement therefor except
      as specifically provided herein.

     

     

    
      
         

      

      
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    Section
      5.4  Annual
      Statement as to Compliance.

     

    The
      Servicer shall deliver to the Agent and each Bank Principal, on or before
      April 5 each year beginning in April 2007, an Officer's Certificate,
      stating that (i) a review of the activities of the Servicer during the preceding
      fiscal year ended December 31 and of performance under this Agreement has been
      made under such officer's supervision, (ii) the Servicer has complied with
      the
      provisions of Article II and Article IV hereof, and (iii) to the best of such
      officer's knowledge, based on such review, the Servicer has fulfilled its
      obligations in all material respects under this Agreement throughout such year,
      or, if there has been a default in the fulfillment of any such obligation,
      specifying each such default known to such officer and the nature and status
      thereof and the action being taken by the Servicer to cure such
      default.

     

    Section
      5.5  Annual
      Independent Public Accountants' Servicing Report; Audited
      Financials.

     

    (a)  On
      the
      Effective Date and on or before or before April 6 of each year beginning in
      April 2007, the Servicer, at its expense, shall cause a firm of nationally
      recognized independent public accountants which is a member of the American
      Institute of Certified Public Accountants (or such other accountants acceptable
      to the Agent) to furnish a report to the Agent and each Bank Principal stating
      that such firm has examined PHH Mortgage’s overall servicing operation in
      accordance with the minimum standards identified in the Mortgage Bankers
      Association of America’s Uniform Single Attestation Program for Mortgage Bankers
      (USAP), and stating such firm’s conclusions relating thereto. 

     

    (b)  The
      financial statements of PHH Corporation and its Consolidated Subsidiaries for
      the fiscal year ended December 31, 2005 shall be furnished no later than
      November 30, 2006. The Performance Guarantor shall furnish or cause to be
      furnished to the Agent and each Bank Principal, as soon as available, and in
      any
      event within 100 days after the end of each fiscal year of PHH Corporation
      subsequent to its 2005 fiscal year, the following financial statements:
      (i) either (A) consolidated statements of income (or operations) and
      consolidated statements of cash flows and changes in stockholders’ equity of PHH
      Corporation and its Consolidated Subsidiaries for such year and the related
      consolidated balance sheets as at the end of such year, or (B) the Form
      10-K filed by PHH Corporation with the Securities and Exchange Commission and
      (ii) if not included in such Form 10-K, an opinion of independent certified
      public accountants of recognized national standing, which opinion shall state
      that said consolidated financial statements present fairly the consolidated
      financial position and results of operations of PHH Corporation and its
      Consolidated Subsidiaries as of the end of such fiscal year and that such
      financial statements were prepared in accordance with GAAP applied consistently
      throughout the periods reflected therein and with prior periods.

     

    (c) The
      financial statements of PHH Corporation and its Consolidated Subsidiaries for
      the fiscal quarters ending March 31, 2006, June 30, 2006 and September 30,
      2006
      shall be furnished no later than December 29, 2006. The Performance Guarantor
      shall furnish or cause to be furnished to the Agent and each Bank Principal,
      as
      soon as is practicable, and in any event within 60 days after the end of each
      of
      the first three fiscal quarters of each fiscal year subsequent to the fiscal
      quarter ended on December 31, 2006, either (i) the Form 10-Q filed by PHH
      Corporation with the Securities and Exchange Commission or (ii) the
      unaudited consolidated balance sheet of PHH Corporation and its Consolidated
      Subsidiaries, as of the end of such fiscal quarter, and the related unaudited
      consolidated statements of income and cash flows for such quarter and for the
      period from the beginning of the then current fiscal year to the end of such
      fiscal quarter and the corresponding figures as of the end of the preceding
      fiscal year, and for the corresponding period in the preceding fiscal year,
      in
      each case, together with a certificate (substantially in the form of Exhibit
      C
      to this Agreement) signed by the chief financial officer, the chief accounting
      officer or a vice president responsible for financial administration of PHH
      Corporation to the effect that such financial statements, while not examined
      by
      independent public accountants, reflect, in his\her opinion and in the opinion
      of PHH Corporation, all adjustments necessary to present fairly the consolidated
      financial position of PHH Corporation and its Consolidated Subsidiaries, as
      of
      the end of the fiscal quarter, and the consolidated results of their operations
      for the quarter then ended, in conformity with GAAP consistently applied,
      subject only to year-end audit adjustments and to the absence of footnote
      disclosure.

     

     

    
      
         

      

      
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    Section
      5.6  Right
      to Examine Servicer Records.

     

    The
      Agent
      shall each have the right to reasonable access to the books, records, or other
      information of the Servicer, whether held by the Servicer or by another on
      its
      behalf, with respect to or concerning this Agreement or the Eligible Mortgage
      Loans, during regular business hours or at such other times as may be reasonable
      under applicable circumstances, upon reasonable advance notice.

     

    ARTICLE
      VI

     

    REPURCHASE
      OBLIGATION

     

    Section
      6.1  Servicer's
      Purchase Obligations.

     

    Upon
      receipt by the Servicer of notice from the Agent of a breach of any
      representation or warranty of it contained in this Agreement or any action
      resulting in prejudice to the Principals in accordance with Section 5.2 hereof,
      the Servicer shall promptly notify the Seller and shall, at the direction of
      the
      Agent use its best efforts to cure and correct any such breach, and, in the
      event such breach is not cured and corrected within the applicable grace period,
      if any, the Servicer shall repurchase the related Eligible Mortgage Loan at
      the
      Repurchase Price.

     

    Upon
      deposit by the Servicer of the Repurchase Price in the Funding Account, the
      Servicer shall arrange for the repurchase of Eligible Mortgage Loans adversely
      affected by such breach, and the delivery from the Custodian of any documents
      constituting the Mortgage Loan Files for such repurchased mortgage loans. In
      the
      event of a repurchase, the Servicer shall, simultaneously with such repurchase,
      give written notice to the Seller and the Agent that such repurchase has taken
      place, and amend the Mortgage Loan Schedule to reflect the subtraction of the
      repurchased Eligible Mortgage Loan from the Repurchase
      Agreement.

     

     

    
      
         

      

      
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    ARTICLE
      VII

     

    SERVICER
      TO COOPERATE

     

    Section
      7.1  Provision
      of Information.

     

    During
      the term of this Agreement and the other Transaction Documents, the Servicer
      shall furnish to the Agent such periodic, special, or other reports or
      information, including the Daily Servicer Report required to be delivered to
      the
      Agent, the Bank Principals and the Custodian on each Payment Date, and copies
      or
      originals of any documents contained in the Mortgage Loan File for each Eligible
      Mortgage Loan, whether or not provided for herein, as shall be necessary,
      reasonable, or appropriate with respect to the Principals. All such reports,
      documents or information shall be provided by and in accordance with all
      reasonable instructions and directions which the Agent may give.

     

    The
      Servicer shall execute and deliver all such instruments and take all such action
      as the Agent and the Custodian may reasonably request from time to time, in
      order to effectuate the purposes and to carry out the terms of this
      Agreement.

     

    ARTICLE
      VIII

     

    THE
      SERVICER

     

    Section
      8.1  Indemnification
      of Third-Party Claims.

     

    The
      Servicer agrees to indemnify and hold harmless each of the Principals and the
      Agent against any and all claims, losses, penalties, fines, forfeitures,
      reasonable legal fees and related costs, judgments, and any other costs, fees
      and expenses that they may sustain in any way related to the failure of the
      Servicer to perform its duties and service the mortgage loans in strict
      compliance with the terms of this Agreement or for any losses related to the
      investment of funds in the Escrow Account. The Servicer shall immediately notify
      the Agent if a claim is made by a third party with respect to this Agreement
      or
      the mortgage loans and the Servicer shall assume the defense of any such claim
      and pay all expenses in connection therewith, including counsel fees, and
      promptly pay, discharge and satisfy any judgment or decree which may be entered
      against the Principals and the Agent in respect of such claim. The Servicer's
      indemnification obligation pursuant to this Section 8.1 shall survive the
      termination of this Agreement.

     

    Section
      8.2  Corporate
      Existence of the Servicer.

     

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

     

    Section
      8.3  Limitation
      on Liability of Servicer and Others.

     

    Neither
      the Servicer nor any of the directors, officers, employees or agents of the
      Servicer shall be under any liability to the Agent or any Principal for any
      action taken or for refraining from the taking of any action in good faith
      pursuant to this Agreement, or for errors in judgment; provided,
      however,
      that
      this provision shall not protect the Servicer or any such person against any
      breach of warranties or representations made herein, or failure to perform
      its
      obligations in compliance with any standard of care set forth in this Agreement,
      or any liability which would otherwise be imposed by reason of any breach of
      the
      terms and conditions of this Agreement. The Servicer and any director, officer,
      employee or agent of the Servicer may rely in good faith on any document which
      it in good faith reasonably believes to be genuine and have been adopted or
      signed by the proper authorities respecting any matters arising hereunder.
      The
      Servicer shall not be under any obligation to appear in, prosecute or defend
      any
      legal action which is not incidental to its duties to service the Eligible
      Mortgage Loans in accordance with this Agreement and which in its opinion may
      involve it in any expense or liability; provided,
      however,
      that
      the Servicer may, with the consent of the Required Principals undertake any
      such
      action which it may deem necessary or desirable with respect to this Agreement
      and the rights and duties of the parties hereto. In such event, the Servicer
      shall be entitled to reimbursement from the Agent of the reasonable legal
      expenses and costs of such action.

     

     

    
      
         

      

      
        S-26

        
          

        

      

      
         

      

    

     

     

    Section
      8.4  Limitation
      on Resignation and Assignment by the Servicer.

     

    The
      Agent
      and the Principals have entered into this Agreement and the other Transaction
      Documents to which they are a party with the Company, as Servicer, in reliance
      upon the representations as to the adequacy of its servicing facilities, plant,
      personnel, records and procedures, its integrity, reputation and financial
      standing, and the continuance thereof. The Servicer shall not resign from the
      obligations and duties hereby imposed on it as to any Eligible Mortgage Loan
      except by consent of the Required Principals and the Agent or upon the
      determination that its duties hereunder are no longer permissible under
      applicable law and such incapacity cannot reasonably be cured by the Servicer.
      Notice of any such determination permitting the resignation of the Servicer
      shall be delivered to the Agent and each Bank Principal and any such
      determination shall evidenced by an Opinion of Counsel to such effect delivered
      to the Agent (on behalf of the Principals) which Opinion of Counsel shall be
      in
      form and substance acceptable to the Agent. No such resignation shall become
      effective until a successor shall have assumed the Servicer's responsibilities
      and obligations hereunder in the manner provided in Section 12.1
      hereof.

     

    Section
      8.5  Limitation
      on Assignment of Right.

     

    Except
      pursuant to a resignation approved pursuant to Section 8.4 hereof, the Servicer
      shall not assign, sell or otherwise transfer its right to receive any payments
      (including the Servicing Fee) hereunder.

     

    ARTICLE
      IX

     

    SERVICER
      DEFAULT

     

    Section
      9.1  Servicer
      Default.

     

    Each
      of
      the following shall constitute a “Servicer
      Default”
on
      the
      part of the Servicer:

     

     

    
      
         

      

      
        S-27

        
          

        

      

      
         

      

    

     

     

    (a)  Any
      failure by the Servicer or the Performance Guarantor to observe or perform
      any
      of the terms, covenants or agreements on the part of the Servicer set forth
      in
      this Agreement (other than those which are incapable of cure) which continues
      unremedied for a period of thirty (30) days after the earlier of the date on
      which the Servicer or the Performance Guarantor has actual knowledge or written
      notice of such failure;

     

    (b)  Any
      representation, warranty, statement or certification made by the Servicer or
      the
      Performance Guarantor shall prove to have been materially incorrect as of the
      time when made, and which continues to be materially incorrect for thirty (30)
      days after the earlier of the date on which the Servicer or the Performance
      Guarantor has actual knowledge or written notice of such
      inaccuracy;

     

    (c)  Any
      failure by the Servicer to maintain any required licenses to do business in
      any
      jurisdiction where the Mortgaged Property is located, except where such failure
      could not reasonably be expected to result in a material adverse effect or
      any
      failure by the Servicer to be an Approved Seller/Servicer for any two of FNMA,
      GNMA or FHLMC;

     

    (d)  Application
      for the appointment of a conservator or receiver or liquidator in any
      insolvency, readjustment of debt, including bankruptcy, marshalling of assets
      and liabilities or similar proceedings, or for the winding-up or liquidation
      of
      its affairs, shall have been entered against the Servicer and a decree or order
      shall have remained in force undischarged or unstayed for a period of 60
      days;

     

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

     

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

     

    (g)  the
      Servicer or the Performance Guarantor enters into a consent agreement or
      otherwise agrees in writing with any federal or state regulatory agency or
      authority to restrict its activities, if the default of such agreement by the
      Servicer or the Performance Guarantor entitles such applicable federal or state
      agency to place the Servicer in receivership or conservatorship;

     

    (h)  failure
      of the Servicer to deposit into the Funding Account on or before 2 Business
      Days
      after the date of sale or Securitization of an Eligible Mortgage Loan the
      proceeds of any such sale or Securitization;

     

    (i)  [reserved];

     

     

    
      
         

      

      
        S-28

        
          

        

      

      
         

      

    

     

     

    (j)  (i)
      The
      Servicer, Performance Guarantor or any of their respective Subsidiaries shall
      fail to (x) pay any Indebtedness or Interest Rate Protection Agreements where
      the amount or amounts of such Indebtedness or Interest Rate Protection Agreement
      exceeds $50,000,000 (or its equivalent thereof in any other currency) in the
      aggregate; or (y) perform any other term, provision or condition with respect
      to
      any Indebtedness or Interest Rate Protection Agreements of greater than
      $50,000,000 (or its equivalent thereof in any other currency), which failure
      results in such Indebtedness becoming due prior to the scheduled date of
      maturity thereof or enables or permits the holder or holders of such
      Indebtedness or any trustee or agent on its or their behalf to cause such
      Indebtedness to become due, or to require the prepayment (other than by a
      regularly scheduled payment), repurchase, redemption or defeasance thereof,
      prior to the scheduled date of maturity thereof; or (ii) any other circumstance
      shall arise (other than the mere passage of time) by reason of which the
      Servicer, the Performance Guarantor or any of their respective Subsidiaries
      is
      required to redeem or repurchase, or offer to holders the opportunity to have
      redeemed or repurchased, any such Indebtedness or Interest Rate Protection
      Agreement where the amount or amounts of such Indebtedness or Interest Rate
      Protection Agreement exceeds $50,000,000 (or its equivalent thereof in any
      other
      currency) in the aggregate;

     

    (k)  at
      any
      time the Delinquency Ratio shall be greater than seven percent (7%) of the
      Aggregate Purchase Price at such time; or

     

    (l)  any
      financial covenant of PHH Corporation contained in Section 3.4(g) shall not
      be
      satisfied; or

     

    (m)  the
      failure on the part of the Servicer to make any payment or deposit required
      under this Agreement or any other Transaction Document on or before 2 Business
      Days after the date such payment or deposit is required to be made.

     

    In
      each
      and every such case, so long as a Servicer Default shall not have been remedied,
      in addition to whatsoever rights the Agent and the Principals may have at law
      or
      in equity to damages, including injunctive relief and specific performance,
      the
      Agent, by notice in writing to the Servicer may terminate all of the rights
      and
      obligations of the Servicer under this Agreement and in and to the Eligible
      Mortgage Loans and the proceeds thereof other than unpaid Servicing Fees. The
      Agent will only remove the Servicer as described above upon the affirmative
      vote
      of the Required Principals.

     

    Upon
      receipt by the Servicer of such written notice, all authority and power of
      the
      Servicer under this Agreement, whether with respect to the Eligible Mortgage
      Loans or otherwise, shall pass to and be vested in the successor appointed
      pursuant to Section 12.1 hereof. Upon written request from the Agent, the
      Servicer shall prepare, execute and deliver to the successor entity designated
      by the Agent any and all documents and other instruments, place in such
      successor's possession all Mortgage Loan Files, and do or cause to be done
      all
      other acts or things necessary or appropriate to effect the purposes of such
      notice of termination, including but not limited to the transfer and endorsement
      or assignment of the Eligible Mortgage Loans and related documents, at the
      Servicer's sole expense. The Servicer shall cooperate with such successor in
      effecting the termination of the Servicer's responsibilities and rights
      hereunder, including without limitation, the transfer to such successor for
      administration by it of all cash amounts which shall at the time be credited
      by
      the Servicer to Margin Call Account or Escrow Account or thereafter received
      with respect to the Eligible Mortgage Loans.

     

     

    
      
         

      

      
        S-29

        
          

        

      

      
         

      

    

     

     

    Section
      9.2  Waiver
      of Defaults.

     

    With
      the
      consent of the Required Principals, the Agent may waive any default by the
      Servicer in the performance of its obligations hereunder and its consequences.
      Upon any waiver of a past default, such default shall cease to exist, and any
      event of default arising therefrom shall be deemed to have been remedied for
      every purpose of this Agreement. No such waiver shall extend to any subsequent
      or other default or impair any right consequent thereon except to the extent
      expressly so waived.

     

    ARTICLE
      X

     

    TERMINATION
      AND LIQUIDATION

     

    Section
      10.1  Termination
      of Agreement.

     

    This
      Agreement shall terminate upon the final payment or other liquidation (or any
      advance with respect thereto) of the last Eligible Mortgage Loan sold under
      the
      Repurchase Agreement.

     

    Section
      10.2  Termination
      of Servicing With Respect to Any Eligible Mortgage Loan.

     

    This
      Agreement shall terminate with respect to any Eligible Mortgage Loan upon the
      occurrence of the following: (i) the receipt into the Funding Account of
      the proceeds of any sale or Securitization of such Eligible Mortgage Loan or
      the
      Repurchase Price or Principal Prepayment in full of such Eligible Mortgage
      Loan;
      or (ii) the effectiveness of the termination of the Company pursuant to
      Section 12.1. No termination shall become effective until a successor shall
      have
      assumed the Servicer's responsibilities and obligations hereunder in the manner
      provided in Section 12.1.

     

    Upon
      written request from the Agent, the Servicer shall prepare, execute and deliver
      to the successor entity designated by the Agent any and all documents and other
      instruments, place in such successor's possession all Mortgage Loan Files,
      and
      do or cause to be done all other acts or things necessary or appropriate to
      effect the purposes of such notice of termination, including but not limited
      to
      the transfer and endorsement or assignment of the Eligible Mortgage Loans and
      related documents, at the Servicer's sole expense. The Servicer shall cooperate
      with such successor in effecting the termination of the Servicer's
      responsibilities and rights hereunder, including without limitation, the
      transfer to such successor for administration by it of all cash amounts which
      shall at the time be credited by the Servicer to the Funding Account, Collection
      Account or Escrow Account or thereafter received with respect to the Eligible
      Mortgage Loans.

     

     

     

    
      
         

      

      
        S-30

        
          

        

      

      
         

      

    

     

    ARTICLE
      XI

     

    [RESERVED]

     

    ARTICLE
      XII

     

    MISCELLANEOUS
      PROVISIONS

     

    Section
      12.1  Successor
      to Servicer.

     

    Prior
      to
      termination of the Servicer's responsibilities and duties under this Agreement
      pursuant to Sections 8.4 or 10.1 hereof, the Agent shall appoint a successor
      which shall succeed to all rights and assume all of the responsibilities, duties
      and liabilities of the Servicer under this Agreement prior to the termination
      of
      the Servicer's responsibilities, duties and liabilities under this Agreement.
      In
      connection with such appointment and assumption, the Agent may make such
      arrangements for the compensation of such successor out of payments on Eligible
      Mortgage Loans as it and such successor shall agree. In the event that the
      Servicer's duties, responsibilities and liabilities under this Agreement should
      be terminated pursuant to the aforementioned sections, the Servicer shall
      discharge such duties, responsibilities and liabilities during the period from
      the date it acquires knowledge of such termination until the effective date
      thereof with the degree of diligence and prudence which it is obligated to
      exercise under this Agreement and shall take no action whatsoever that might
      impair or prejudice the rights or financial condition of its successor. The
      resignation or removal of the Servicer pursuant to the aforementioned Sections
      shall not become effective until a successor shall be appointed pursuant to
      this
      Section 12.1 and such resignation or removal shall in no event relieve the
      Servicer of the representations and warranties made pursuant to Section 3.1
      hereof and the remedies available to the Agent under Section 3.3 hereof, it
      being understood and agreed that the provisions of such Sections 3.1 and 3.3
      shall be applicable to the Servicer notwithstanding any such sale, assignment,
      resignation or termination of the Servicer, or the termination of this
      Agreement.

     

    Any
      successor appointed as provided herein shall execute, acknowledge and deliver
      to
      the Servicer and the Agent an instrument accepting such appointment, wherein
      the
      successor shall make the representations and warranties set forth in Section
      3.1
      hereof, whereupon such successor shall become fully vested with all the rights,
      powers, duties, responsibilities, obligations and liabilities of the Servicer,
      with like effect as if originally named as a party to this Agreement. Any
      termination or resignation of the Servicer or termination of this Agreement
      pursuant to Sections 8.4, or 10.1 hereof shall not affect any claims that the
      Agent or any Principal may have against the Servicer arising out of the
      Servicer's actions or failure to act prior to any such termination or
      resignation.

     

    The
      Servicer shall deliver promptly to the successor Servicer the funds in the
      Margin Call Account, the Collection Account, the Funding Account and the Escrow
      Account and all Mortgage Loan Files and related documents and statements held
      by
      it hereunder and the Servicer shall account for all funds and shall execute
      and
      deliver such instruments and do such other things as may reasonably be required
      to more fully and definitively vest in the successor all such rights, powers,
      duties, responsibilities, obligations and liabilities of the
      Servicer.

     

     

    
      
         

      

      
        S-31

        
          

        

      

      
         

      

    

     

     

    Section
      12.2  Amendment.

     

    This
      Agreement may only be amended with the written consent of the Seller, the Agent,
      the Required Principals, the Performance Guarantor and the Servicer. The costs
      and expenses associated with any such amendment shall be borne by the
      Seller.

     

    Section
      12.3  Governing
      Law.

     

    This
      Agreement shall be construed in accordance with the laws of the State of New
      York and the obligations, rights and remedies of the parties hereunder shall
      be
      determined in accordance with such laws.

     

    Section
      12.4  Duration
      of Agreement.

     

    This
      Agreement shall continue in existence and effect until terminated as herein
      provided.

     

    Section
      12.5  Notices.

     

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

     

    
      	 	
              (i)

            	
              if
                to PHH Mortgage Corporation, to it at its address set forth in Section
                29
                of the Repurchase Agreement or such other address as may hereafter
                be
                furnished to the Agent in writing;

            

    

     

    
      	 	
              (ii)

            	
              if
                to the Agent, to it at its address set forth in Section 29 of the
                Repurchase Agreement; and

            

    

     

    (iii)    if
      to the
      Performance Guarantor, to it at PHH Mortgage Corporation’s address set forth in
      Section 29 of the Repurchase Agreement.

     

    Section
      12.6  Severability
      of Provisions.

     

    If
      any
      one or more of the covenants, agreements, provisions or terms of this Agreement
      shall be held invalid for any reason whatsoever, then such covenants,
      agreements, provisions or terms shall be deemed severable from the remaining
      covenants, agreements, provisions or terms of this Agreement and shall in no
      way
      affect the validity or enforceability of the other provisions of this
      Agreement

     

    Section
      12.7  Relationship
      of Parties.

     

    Nothing
      herein contained shall be deemed or construed to create a partnership or joint
      venture between the parties hereto and the services of the Servicer shall be
      rendered as an independent contractor and not as agent for the Agent or any
      Principal.

     

     

    
      
         

      

      
        S-32

        
          

        

      

      
         

      

    

     

     

    Section
      12.8  Execution;
      Successors and Assigns.

     

    This
      Agreement may be executed in one or more counterparts and by the different
      parties hereto on separate counterparts, each of which, when so executed, shall
      be deemed to be an original; such counterparts, together, shall constitute
      one
      agreement. This Agreement shall inure to the benefit of and be binding upon
      the
      parties hereto and their respective successors and assigns; provided,
      however,
      that
      the rights of the Principals to an indemnity from the Servicer pursuant to
      Section 3.3 hereof are not assignable and shall inure only to the benefit of
      the
      Principals and to no other Person.

     

    Section
      12.9  Recordation
      of Assignments of Mortgage.

     

    To
      the
      extent permitted by applicable law, each of the Assignments of Mortgage is
      subject to recordation in all appropriate public offices for real property
      records in all the counties or other comparable jurisdictions in which any
      or
      all of the Mortgaged Properties are situated, and in any other appropriate
      public recording office or elsewhere, such recordation to be effected at the
      Servicer's expense in the event recordation is either necessary under applicable
      law or requested by the Agent at its sole option.

     

    Section
      12.10  [RESERVED].

     

    Section
      12.11  [RESERVED].

     

    Section
      12.12  Waiver
      of Offset.

     

    The
      Servicer agrees to deliver to the Agent (for itself and for the benefit of
      each
      Principal) all amounts required by this Agreement to be delivered by the
      Servicer to such Persons free and clear of any offset, counterclaim or other
      deduction on account of, or in respect of, any such Person to the Servicer
      hereunder.

     

    ARTICLE
      XIII

     

    PHH
      CORPORATION GUARANTEE

     

    Section
      13.1  Guarantee
      of Seller's Representations and Warranties, Servicer’s Performance and Payment
      Obligations.

     

    For
      value
      received, and in consideration of the financial accommodation accorded to the
      Company by the Agent and the Principals under the Transaction Documents,
      PHH Corporation (the “Performance
      Guarantor”)
      hereby
      fully, unconditionally, and irrevocably guarantees to the Agent, each Principal,
      the holders of all the holders of the Short-Term Notes and the APA Purchasers
      (i) with respect to the Seller, the representations and warranties set forth
      herein and in the other Transaction Documents, and (ii) as to the Servicer,
      the
      due performance of, and punctual payment of all amounts payable by, the Company,
      in its capacity as Servicer under this Agreement and the other Transaction
      Documents when and as such obligations hereunder shall become due and, in the
      case of any payments, payable. The Performance Guarantor will ensure the
      performance and payment of every act, duty, obligation, agreement and
      responsibility of the Servicer set forth herein.

     

     

    
      
         

      

      
        S-33

        
          

        

      

      
         

      

    

     

     

    In
      case
      of the failure or inability of (i) the Seller, regarding its obligations
      pursuant to Section 3.3 hereof with respect to a breach of a representation
      or
      warranty made in any Transaction Document, (iii) the Seller, with respect to
      its
      obligations pursuant to Section 2.2(b) and 3.5 hereof and (iii) the Servicer
      to
      punctually perform any such act, duty, obligation, responsibility or agreement
      or to pay punctually any such amounts, the Performance Guarantor hereby agrees,
      upon written demand by the Agent, to, as applicable, (i) perform any such act,
      duty, obligation, responsibility or agreement and (ii) pay or cause to be paid
      any such amount, punctually when and as the same shall become due and, in the
      case of any payment, payable (exclusive of any grace period).

     

    (a)  Performance
      Guarantor hereby agrees that its obligations under this Section 13.1 constitute
      a guarantee of performance and payment when due and not of
      collection.

     

    (b)  Performance
      Guarantor hereby agrees that its obligations under this Section 13.1 shall
      be
      unconditional, irrespective of the validity, regularity or enforceability of
      this Agreement or any other Transaction Document against the Company, the
      absence of any action to enforce the Company's obligations under any Transaction
      Document, any waiver or consent by the Agent, and Principal or any APA Purchaser
      with respect to any provisions thereof, the entry by the Company and the Agent
      and the Principals into additional transactions under the Repurchase Agreement
      or any other circumstance which might otherwise constitute a legal or equitable
      discharge or defense of a guarantor (other than the defenses of statute of
      limitations or payment, which are not waived); provided,
      however,
      that
      Performance Guarantor shall be entitled to exercise any right that the Servicer
      could have exercised under any Transaction Document to cure any default in
      respect of its obligations thereunder or to set-off, counterclaim or withhold
      payment in respect of any event of default or potential event of default in
      respect of the Agent or any Principal or any Affiliate, but only to the extent
      such right is provided to the Company under the applicable Transaction Document.
      The Performance Guarantor acknowledges that the Servicer and the Agent (for
      and
      on behalf of the Principals) may from time to time enter into one or more
      transactions pursuant to the Repurchase Agreement and agrees that the
      obligations of the Performance Guarantor under this Section 13.1 will upon
      the
      execution of any such transaction extend to all such transactions without the
      taking of further action by the Performance Guarantor.

     

    (c)  The
      Performance Guarantor hereby waives (i) promptness, diligence, presentment,
      demand of payment, protest, order and, except as set forth in paragraph (a)
      hereof, notice of any kind in connection with any Transaction Document and
      this
      Section 13.1, or (ii) any requirement that the Agent, any Principal or any
      APA
      Purchaser exhaust any right to take any action against the Company or any other
      person prior to or contemporaneously with proceeding to exercise any right
      against the Performance Guarantor under this Section 13.1.

     

    

    
      
        
        

         

      

      
        S-34

        
          

        

      

      
         

        
          

        

      

    

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

     

     

    PHH
      MORTGAGE CORPORATION,

    as
      Seller
      and Servicer

     

    By:
      /s/
      Mark E. Johnson

    Name:
      Mark. E. Johnson

    Title:
      Vice President & Treasurer

     

    PHH
      CORPORATION, solely in its capacity as Performance Guarantor 

     

    By:
      /s/
      Terence We. Edwards

    Name:
      Terence W. Edwards

    Title:
      Chief Executive Officer

     

    
      
         

         

      

      
        S-35

        
          

        

      

      
         

      

    

    BARCLAYS
      BANK PLC, as Agent

     

    By:
      /s/
      Pierre Duleyrie

    Name:
      Pierre Duleyrie

    Title:
      Director

    
      
        
           

        

         

      

      
        S-36

        
          

        

      

      
         

        
          

        

      

    

    EXHIBIT
      C

    

    FORM
      OF COMPLIANCE CERTIFICATE

    

     

    [PERIOD
      END _______]

     

    I,
      [ ]
      hereby certify:

     

    1.  I
      am the
      duly elected and authorized [Chief Financial Officer or Vice President
      responsible for financial administration or Chief Accounting Officer] of PHH
      Corporation, a Maryland corporation (the “Company”).

     

    2.  I
      am
      familiar with the terms and conditions of (i) the Fifth Amended and Restated
      Master Repurchase Agreement, dated as of October 30, 2006, among PHH Mortgage
      Corporation, a New Jersey corporation (“PHH
      Mortgage”),
      as
      seller, Barclays Bank PLC, as agent (in such capacity, the “Agent”)
      and
      the various financial institutions from time to time party thereto (as such
      agreement may be amended, supplemented or otherwise modified, renewed or
      replaced from time to time, the “Repurchase
      Agreement”;
      capitalized terms used but not defined herein are used as defined in the
      Repurchase Agreement) and (ii) the Servicing Agreement, dated as of October
      30,
      2006, among PHH Mortgage, as servicer (in such capacity, the “Servicer”),
      the
      Company, as performance guarantor and the Agent (as such agreement may be
      amended, supplemented or otherwise modified, renewed or replaced from time
      to
      time, the “Servicing
      Agreement”);

     

    3.  The
      attached financial statements of the Company and its Consolidated Subsidiaries
      for the end of the fiscal period referred to above have been prepared from
      the
      books of the Company and its Consolidated Subsidiaries in accordance with the
      generally accepted accounting principles used in the preparation of the fiscal
      [
      ] financial statements and, to the best of my knowledge, information, and
      belief, upon due inquiry, present fairly the financial position of the Company
      and its Consolidated Subsidiaries as at the end of such fiscal period and the
      results of their operations for the period then ended[, subject, in the case
      of
      quarterly statements, to year-end audit and audit adjustments and to the absence
      of footnote disclosure.]1

     

    4.  To
      the
      best of my knowledge, information, and belief, after due inquiry, there exists
      no Event of Default, Default, Servicer Default or unmatured Servicer Default,
      except as otherwise may be set forth herein.

     

    5.  Attached
      hereto, in reasonable detail, are the computations and comparisons required
      to
      demonstrate compliance with the provisions of Section 3.4(g) of the Servicing
      Agreement.

     

     

    
      
         

      

      
        H-1

        
          

        

      

      
         

      

    

     

     

    The
      foregoing certifications, together with the computations and comparisons set
      forth in the attachments hereto and the financial statements attached to this
      certificate in support hereof, are made and delivered this _____ day of
      ________, _____ pursuant to [Section 5.5 (c)] of the Servicing
      Agreement.

     

    By: __________________________

     

     

    ____________

    
      1  Only
        applicable to quarterly financial statements.

    

    
      
         

         

      

      
        H-2

        
          

        

      

      
         

      

    

    Attachments

     

     

    1.  financial
      statements; and

     

     

    2.  the
      computations and comparisons (in reasonable detail) required to demonstrate
      compliance with the provisions of Section 3.4(g) of the Servicing
      Agreement.

     

    

    

    

      

        
          
            
               

            

             

          

          
            H-3

            
              

            

          

          
             

            
               

            

          

        

    

    EXHIBIT
      D

    

    FORM
      OF DAILY SERVICER REPORT

     

    [TO
      BE INSERTED]Exhibit 10.1

     

    Exhibit
      10.1

     

     

    KRISPY
      KREME DOUGHNUTS, INC.

    [FORM
      OF] NONQUALIFIED STOCK OPTION AGREEMENT

     

    THIS
      NONQUALIFIED STOCK OPTION AGREEMENT (this “Agreement”) is made as of
      _______________ (the “Grant Date”), by and between Krispy Kreme Doughnuts, Inc.,
      a North Carolina corporation (the “Corporation”), and _______________ (the
“Optionee”).

     

    WHEREAS,
      the Committee appointed under the Krispy Kreme Doughnuts, Inc. 2000 Stock
      Incentive Plan (the “Committee”) has granted Optionee an option to purchase
      shares of the Corporation’s Common Stock, no par value per share (the “Common
      Stock” or the “Stock”), pursuant to the Krispy Kreme Doughnuts, Inc. 2000 Stock
      Incentive Plan (the “Plan”) (capitalized terms used herein shall have the
      meanings set out in the Plan unless otherwise specified in this Agreement),
      as
      set forth below; and

     

    WHEREAS,
      this Agreement evidences the grant of such option.

     

    NOW,
      THEREFORE, in consideration of the foregoing, of the mutual promises set forth
      below and of other good and valuable consideration, the receipt and sufficiency
      of which are hereby acknowledged, the parties hereto, intending to be legally
      bound, agree as follows:

     

    1.  Summary
      of Grant

     

    Optionee:

    Number
      of
      Shares:

    Option
      Exercise Price:

    Date
      of
      Grant:

     

    2.  Grant
      of Option

     

    The
      Committee has granted Optionee a nonqualified option to purchase from the
      Corporation, during the period specified in Sections 3 and 4 of this Agreement,
      a total of _________ shares of Common Stock, at the purchase price of $______
      per share (the “Exercise Price”), in accordance with the terms and conditions
      stated in this Agreement. The shares of Common Stock subject to the option
      granted hereby are referred to below as the “Shares,” and the option to purchase
      such Shares is referred to below as the “Option.”

     

    3.  Vesting
      and Exercise of Option

     

    The
      Option
      shall vest and become exercisable in accordance with the schedule set forth
      below, provided
      that the
      Option shall vest and become exercisable with respect to an increment as
      specified only if the Optionee has not incurred a Termination of Employment
      prior to the vesting date:

     

    (a)  the
      Option
      shall vest and become exercisable with respect to 50% of the Shares subject
      to
      the Option if and when the following conditions are met (i) the second

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
 

    anniversary
      of the Grant Date has occurred, and (ii) following the Grant Date, the
      closing price per Share on the principal securities exchange on which the Shares
      are then traded has exceeded 120% of the Exercise Price for at least ten (10)
      consecutive trading days; and 

     

    (b)  the
      Option
      shall vest and become exercisable with respect to the remaining 50% of the
      Shares subject to the Option if and when the following conditions are met
      (i) the second anniversary of the Grant Date has occurred, and
      (ii) following the Grant Date, the closing price per Share on the principal
      securities exchange on which the Shares are then traded has exceeded 140% of
      the
      Exercise Price for at least ten (10) consecutive trading days.

     

    Notwithstanding
      the vesting provisions described above, the Option shall vest and become
      exercisable with respect to 100% of the Shares upon the Optionee’s Termination
      of Employment if the Optionee’s Termination of Employment is due to his or her
      Retirement, death or Disability.

     

    The
      schedule set forth above is cumulative, so that Shares as to which the Option
      has become vested and exercisable pursuant to (a) or (b) above may be purchased
      pursuant to exercise of the Option at any subsequent date prior to termination
      of the Option. The Option may be exercised at any time and from time to time
      to
      purchase up to the number of Shares as to which it is then vested and
      exercisable.

     

    The
      Option
      will become vested and exercisable in full upon a Change in Control, provided
      that Optionee has not incurred a Termination of Employment prior to the date
      of
      such Change in Control. In the event of a Change in Control, the Board, in
      its
      sole discretion, may send Optionee prior written notice of the effectiveness
      of
      such event and the last day on which Optionee may exercise the Option. In such
      event, Optionee may, upon compliance with all of the terms of this Agreement
      and
      the Plan, purchase any or all of the Shares with respect to which the Option
      is
      vested and exercisable on or prior to the last day specified in such notice,
      and, to the extent the Option is not exercised, it shall terminate at 5:00
      P.M.,
      Eastern Standard Time, on the last day specified in such notice. For purposes
      hereof, Change in Control shall have the meaning set forth in the Plan, except
      in the case of a transaction described in clauses (1) or (3) of paragraph (b)
      of
      such definition, the consummation of such a transaction, rather than the
      approval by shareholders of the Corporation of such transaction or agreement
      to
      effect such a transaction, shall constitute a Change in Control.

     

    4.  Termination
      of Option

     

    Unless
      adjusted by the Committee in its sole discretion, the Option shall remain
      exercisable as specified in Section 3 above until 5:00 p.m., Eastern Standard
      Time, on the earliest to occur of the dates specified below, upon which date
      the
      Option shall terminate:

     

    (a)  the
      date
      all of the Shares are purchased pursuant to the terms of this
      Agreement;

     

    
      
        
        

      

      
        -2-

        
          

        

      

      
        
        

      

    

    

     

    (b)  upon
      the
      expiration of 60 days following the Optionee’s Termination of Employment for any
      reason other than his or her Retirement, death, Disability, or for
      Cause;

     

    (c)  upon
      the
      expiration of 180 days following Optionee’s Termination of Employment on account
      of his or her Disability;

     

    (d)  upon
      the
      expiration of 360 days following Optionee’s Termination of Employment on account
      of his or her death;

     

    (e)  immediately
      upon Optionee’s Termination of Employment for Cause, as defined below in Section
21(a);

     

    (f)  on
      the
      last date specified in the notice described in Section 3 above in the event
      of a
      Change in Control; or

     

    (g)  on
      the ten
      year anniversary of the Grant Date (the “Expiration Date”).

     

    Upon
      its
      termination, the Option shall have no further force or effect and Optionee
      shall
      have no further rights under the Option or to any Shares which have not been
      purchased pursuant to prior exercise of the Option.

     

    5.  Manner
      of Exercise of Option

     

    (a)  Exercise.  The
      Option
      may be exercised only by (i) Optionee’s completion, execution and delivery to
      the Corporation of a notice of exercise and (ii) the payment to the Corporation,
      pursuant to the terms of this Agreement, of an amount equal to the Exercise
      Price multiplied by the number of Shares being purchased as specified in
      Optionee’s notice of exercise (the “Purchase Price”). Optionee’s notice of
      exercise shall be given in the manner specified in Section 11 but any exercise
      of the Option shall be effective only when the items required by the preceding
      sentence are actually received by the Corporation. The notice of exercise may
      be
      in the form attached to this Agreement. Notwithstanding anything to the contrary
      in this Agreement, the Option may be exercised only if compliance with all
      applicable federal and state securities laws can be effected, as determined
      by
      the Committee in its discretion.

     

    (b)  Form
      of Payment.
      Payment
      of the Purchase Price may be made (i) by check payable to the order of the
      Corporation for an amount in U.S. dollars equal to the Purchase Price of such
      Shares; (ii) by delivery or attestation of shares of Stock held by the Optionee
      for the requisite period necessary to avoid a charge to the Corporation’s
      earnings for financial reporting purposes, as determined by the Committee in
      its
      discretion, and having an aggregate Fair Market Value equal to the amount of
      cash that would otherwise be required to pay the full Purchase Price; (iii)
      by
      authorizing a third party to sell a portion of the Shares acquired upon exercise
      of the Option and remit to the Corporation a sufficient portion of the sales
      proceeds to pay the full Purchase Price; or (iv) by combining the above
      methods.

     

    To
      the
      extent that shares of Stock are used in making full or partial payment of the
      Purchase Price, each such share will be valued at the Fair Market Value thereof
      as of the date of ex-

     

    
      
        
        

      

      
        -3-

        
          

        

      

      
        
        

      

    

    ercise.
      Any overpayment will be promptly refunded, and any underpayment will be deemed
      an exercise of such lesser whole number of shares as the amount paid is
      sufficient to purchase.

     

    (c)  Issuance
      and Delivery of Shares.  As
      soon as
      practicable following receipt of such notice and payment, the Corporation shall
      notify the Optionee of any payment or other allocation required under subsection
      (d) below. The Corporation shall deliver a certificate or certificates for
      the
      Shares to the Optionee as soon as practicable after the Optionee has made any
      payment and/or allocation required under subsection (d) below. Shares of Stock
      issued pursuant to the exercise of this option will be issued only in the name
      of Optionee and may not be transferred into the name of any agent of or nominee
      for Optionee until such time as Optionee has complied with the terms of this
      Agreement.

     

    (d)  Withholding
      Obligation.  Issuance
      of Shares upon exercise of the Option shall be subject to the condition that
      the
      Optionee shall pay to the Corporation, in addition to the Purchase Price, the
      minimum amount the Corporation is required by law or regulation of any
      governmental authority, whether federal, state or local, domestic or foreign,
      to
      withhold in connection with such exercise of the Option, if any, as determined
      by the Committee in its discretion. In lieu of the payment specified in this
      paragraph, the Committee may in its sole discretion permit the Optionee to
      satisfy the obligation, in whole or in part, by the methods specified in
      subsection (b) above, or by the Corporation retaining sufficient Shares to
      satisfy its withholding obligations.

     

    (e)  Deferral
      of Issuance of Shares.  Anything
      in this Agreement to the contrary notwithstanding, if, at any time specified
      herein for the issuance of Shares to Optionee, any law, or any regulation or
      requirement of the Securities and Exchange Commission or other governmental
      authority having jurisdiction in the premises shall require either the
      Corporation or Optionee to take any action in connection with the Shares then
      to
      be issued, the issuance of such Shares shall be deferred until such action
      shall
      have been taken; the Corporation shall be under no obligation to take such
      action; and the Corporation shall have no liability whatsoever as a result
      of
      the non-issuance of such shares, except to refund to Optionee any consideration
      tendered in respect of the Purchase Price.

     

    (f)  Stop
      Transfer Instructions.  The
      Corporation may impose stop-transfer instructions with respect to any Shares
      (or
      other securities) subject to any restriction set forth in this Agreement until
      the restriction has been satisfied or terminates.

     

    6.  Restrictions
      on Transfer of Option

     

    (a)  Except
      as
      otherwise provided in subsections (b), (c) and (d) below, the Option may not
      be
      sold, exchanged, delivered, assigned, bequeathed or gifted, pledged, mortgaged,
      hypothecated or otherwise encumbered, transferred or permitted to be
      transferred, or otherwise disposed of, whether voluntarily, involuntarily or
      by
      operation of law (including, without limitation, the laws of bankruptcy,
      intestacy, descent and distribution or succession) or on an absolute or
      contingent basis. For purposes of this Section, any reference to Optionee shall
      (when applicable) be deemed to be and include references to Optionee’s estate,
      executors or administrators, personal or legal representatives and transferees
      (direct or indirect).

     

    
      
        
        

      

      
        -4-

        
          

        

      

      
        
        

      

    

    

     

    (b)  If
      permitted by the Committee, Optionee may transfer this Option to members of
      his
      or her Immediate Family (as defined below), to one or more trusts for the
      benefit of such Immediate Family members, to one or more partnerships where
      such
      Immediate Family members are the only partners, or to one or more limited
      liability companies (or similar entities) where such Immediate Family members
      are the only members or beneficial owners of the entity, if (i) the Optionee
      does not receive any consideration in any form whatsoever for such transfer,
      (ii) such transfer is permitted under applicable tax laws, and (iii) if the
      Optionee is an “Insider,” such transfer is permitted under Rule 16b-3 of the
      Exchange Act as in effect from time to time. For purposes hereof, “Immediate
      Family” means the Optionee and the Optionee’s spouse, children and
      grandchildren.

     

    (c)  In
      the
      event of Optionee’s death, the Option may be transferred to any executor,
      administrator, personal or legal representative, legatee, heir or distributee
      of
      the estate of Optionee.

     

    (d)  In
      the
      event of Optionee’s divorce, Optionee may transfer some or all of the Option to
      his former spouse incident to Optionee’s divorce from the former
      spouse.

     

    (e)  As
      a
      condition precedent to the transfer of the Option, each and every prospective
      transferee shall (i) provide or cause to be provided to the Corporation, at
      its
      request, sufficient evidence of the legal right and authority of such
      prospective transferee to have the Option so transferred and (ii) comply with
      the provisions of this Agreement. Any Option so transferred pursuant to this
      Section shall continue to be subject to the same terms and conditions in the
      hands of the transferee as were applicable to said Option immediately prior
      to
      the transfer thereof, and any reference in this Agreement to the performance
      of
      services for the Corporation by the Optionee shall continue to refer to the
      performance by the transferring Optionee.

     

    7.  Share
      Ownership Policy

     

    Optionee
      agrees that he or she will comply with the Company’s share ownership policy, as
      in effect from time to time.

     

    8.  Rights
      Prior to Exercise

     

    Optionee
      shall not be deemed for any purpose to be a shareholder of the Corporation
      with
      respect to any Shares as to which this Option shall not have been exercised
      and
      payment made as hereby provided and a stock certificate for such Shares actually
      issued to Optionee. No adjustment will be made for dividends or other rights
      for
      which the record date is prior to the date of such issuance.

     

    9.  Employment
      of Optionee

     

    Nothing
      in
      this Agreement shall be construed as constituting a commitment, guarantee,
      agreement or understanding of any kind or nature that the Corporation shall
      continue to employ Optionee, nor shall this Agreement affect in any way the
      right of the Corporation to terminate the employment or other service of
      Optionee at any time and for any reason. By Optionee’s execution of this
      Agreement, Optionee acknowledges and agrees that Optionee’s employment or other

    
      
        
        

      

      
        -5-

        
          

        

      

      
        
        

      

    

    service
      to
      the Corporation is “at will.” No change of Optionee’s duties with respect to the
      Corporation shall result in, or be deemed to be, a modification of any of the
      terms of this Agreement.

    

    10.  Burden
      and Benefit

     

    This
      Agreement shall be binding upon, and shall inure to the benefit of, the
      Corporation and Optionee, and their respective heirs, personal and legal
      representatives, successors and permitted assigns.

     

    11.  Notices

     

    Any
      and
      all notices under this Agreement shall be in writing, and sent by hand delivery
      or by certified or registered mail (return receipt requested and first-class
      postage prepaid), in the case of the Corporation, to its principal executive
      offices to the attention of the Chief Financial Officer, and, in the case of
      Optionee, to Optionee’s address as shown on the Corporation’s
      records.

     

    12.  Specific
      Performance

     

    Strict
      compliance by Optionee shall be required with each and every provision of this
      Agreement. The parties hereto agree that the Shares are unique, that Optionee’s
      failure to perform the obligations provided by this Agreement will result in
      irreparable damage to the Corporation and that specific performance of
      Optionee’s obligations may be obtained by suit in equity.

     

    13.  Entire
      Agreement

     

    The
      parties hereto agree that this Agreement sets forth all of the promises,
      agreements, conditions, understandings, warranties, and representations between
      the parties with respect to the Option and Shares and that there are no
      promises, agreements, conditions, understandings, warranties, or
      representations, oral or written, express or implied between the parties with
      respect to the Option and Shares other than as set forth in this Agreement.
      Any
      modifications or any waiver of any provision contained in this Agreement shall
      not be valid unless made in writing and signed by the person or persons sought
      to be bound by such waiver or modifications.

     

    14.  Severability

     

    The
      provisions of the Agreement are severable and if any one or more provisions
      are
      determined to be illegal or otherwise unenforceable, in whole or in part, the
      remaining provisions, and any partially unenforceable provision to the extent
      enforceable in any jurisdiction, shall nevertheless be binding and
      enforceable.

     

    15.  Waiver

     

    The
      waiver
      by the Corporation of a breach of any provision of this Agreement by the
      Optionee shall not operate or be construed as a waiver of any subsequent breach
      by the Optionee.

     

    
      
        
        

      

      
        -6-

        
          

        

      

      
        
        

      

    

    

     

    16.  Terms
      and Conditions of Plan

     

    The
      terms
      and conditions included in the Plan, the receipt of a copy of which Optionee
      hereby acknowledges by execution of this Agreement, are incorporated by
      reference herein, and to the extent that any conflict may exist between any
      term
      or provision of this Agreement and any term or provision of the Plan, such
      term
      or provision of the Plan shall control.

     

    17.  Authority
      of Committee

     

    All
      determinations made by the Committee with respect to the interpretation,
      construction and application of any provision of this Agreement shall be final,
      conclusive and binding on the parties.

     

    18.  Covenants
      and Representations of Optionee

     

    Optionee
      represents, warrants, covenants and agrees with the Corporation as
      follows:

     

    (a)  Optionee
      has not relied upon the Corporation with respect to any tax consequences related
      to the grant or exercise of this Option, or the disposition of Shares purchased
      pursuant to its exercise. Optionee acknowledges that, as a result of the grant
      and/or exercise of the Option, Optionee may incur a substantial tax liability.
      Optionee assumes full responsibility for all such consequences and the filing
      of
      all tax returns and elections Optionee may be required or find desirable to
      file
      in connection therewith. In the event the Corporation is required by applicable
      law to collect any withholding, payroll or similar taxes by reason of the grant
      or any exercise of the Option, Optionee agrees that the Corporation may withhold
      such taxes from any monetary amounts otherwise payable by the Corporation to
      Optionee and that, if such amounts are insufficient to cover the taxes required
      to be collected by the Corporation, Optionee will pay to the Corporation such
      additional amounts as are required.

     

    (b)  Optionee
      will not distribute or resell any Shares (or other securities) issuable upon
      exercise of the Option granted hereby in violation of the Act. Optionee shall
      comply with all provisions of the Corporation’s Securities Trading
      Policy.

     

    (c)  The
      agreements, representations, warranties and covenants made by Optionee herein
      with respect to the Option shall also extend to and apply to all of the Shares
      issued to Optionee from time to time pursuant to exercise of the Option.
      Acceptance by Optionee of any certificate representing Shares shall constitute
      a
      confirmation by Optionee that all such agreements, representations, warranties
      and covenants made herein shall be true and correct at that time.

     

    19.  Limitation
      of Liability

     

    The
      liability of the Corporation, the Committee, and their officers, employees
      and
      agents, under this Agreement and in the award of the Shares hereunder is limited
      to the obligations set forth with respect to such award, and nothing herein
      contained shall be interpreted as imposing any liability in favor of the
      Optionee with respect to any loss, cost or expense which such
      recipi-

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

      

    

    ent
      may
      incur in connection with or arising out of any transaction involving the Shares
      that is subject to the provisions of this Agreement.

     

    20.  Governing
      Law

     

    This
      Agreement shall be construed and enforced in accordance with the laws of the
      State of North Carolina, without giving effect to the conflict of laws
      provisions thereof.

     

    21.  Definitions

     

    (a)  “Cause”
      shall be
      limited to the following events: (i) drug abuse by Optionee; (ii) alcohol abuse
      by Optionee if it interferes with the efficient conduct of business by Optionee;
      (iii) theft, embezzlement or other similar act by Optionee of any tangible
      or
      intangible asset of the Corporation or any customer or supplier of the
      Corporation; (iv) commission of any other criminal act by Optionee (whether
      or
      not Optionee is prosecuted and convicted) if such act causes or is likely to
      cause damage to the business of the Corporation; (v) a material breach by
      Optionee of any written agreement between the Corporation and Optionee, or
      any
      written policy of the Corporation known by and applicable to all its employees,
      but a mere mistake in business judgment shall not constitute “Cause” unless it
      is a part of a continuing pattern of bad judgment that has caused actual damage
      to the Corporation or its business, and (vi) willful failure by Optionee to
      follow the instructions of the Board or an officer or other supervisory employee
      of the Corporation duly authorized by the Board, the Bylaws of the Corporation
      or an officer of the Corporation authorized to give instructions to Optionee,
      to
      the extent such instructions are reasonably related to the business of the
      Corporation, are given in good faith to promote the interest of the Corporation,
      would not require Optionee to commit any illegal act and are not given to
      provide the Corporation with cause for terminating Optionee.

     

    (b)  “Retirement”
      shall
      mean the Optionee’s Termination of Employment at a time when for an employee,
      the sum of the Optionee’s age and years of employment with the Corporation
      equals or exceeds 65.

     

    (c)  “Termination
      of Employment”
      means the
      discontinuance of the Optionee’s service relationship with the Corporation,
      including but not limited to service as an employee of the Corporation, as
      a
      non-employee member of the board of directors of the Corporation, or as a
      consultant or advisor to the Corporation. Except to the extent provided
      otherwise in an Agreement or determined otherwise by the Committee, a
      Termination of Employment shall not be deemed to have occurred if the capacity
      in which the Optionee provides service to the Corporation changes (for example,
      a change from consultant status to Employee status) or if the Optionee transfers
      among the various entities constituting the Corporation, so long as there is
      no
      interruption in the provision of service by the Optionee to the Corporation.
      The
      determination of whether a Optionee has incurred a Termination of Employment
      shall be made by the Committee in its discretion. A Optionee shall not be deemed
      to have incurred a Termination of Employment if the Optionee is on military
      leave, sick leave, or other bona fide leave of absence approved by the
      Corporation of 90 days or fewer (or any longer period during which the Optionee
      is guaranteed reemployment by statute or contract.) In the event a Optionee
’s
      leave of absence exceeds this period, he will be deemed to have incurred a
      Termination of Employment on the day following the expiration date of such
      period. 

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

      

    

    

     

    IN
      WITNESS
      WHEREOF, the Corporation and Optionee have executed this Agreement hereto as
      of
      the day and year first above written.

     

    
      	
               

              KRISPY
                KREME DOUGHNUTS, INC.

               

            
	
               

              By:
                ______________________________________

            
	
              Print
                Name: _______________________________

            
	
              Title:
                

               

            
	_______________________________ 
	
              Optionee

               

            

    

    

    

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

      

    

    

    STOCK
      OPTION EXERCISE FORM

     

    This
      form
      must be completed and returned to Krispy Kreme’s Chief Financial Officer on or
      before 1:00 p.m. Eastern Standard Time on date of exercise.

     

    
      	
              NAME
                (please print)

               

            	
              SOCIAL
                SECURITY NO.

               

            

    

    

    

      
        	
                SECTION
                  I

              	 
	
                HOME
                  ADDRESS:

              	
                WORK
                  ADDRESS:

              
	 	 
	
                HOME
                  TELEPHONE:

              	
                WORK
                  TELEPHONE:

              

      

    

     

     

    
      	
              SECTION
                II: I wish to exercise the following options:

            
	
               

              A

              GRANT
                DATE

            	
               

              B

              NUMBER
                OF OPTIONS

            	
               

              C

              EXERCISE
                PRICE

            	
              D

              TOTAL
                PURCHASE PRICE:

              (COLUMN
                B x COLUMN C)

            
	 	 	 	 
	 	 	 	 
	 	 	 	 
	
              TOTAL

            	 

    

     

    

    
      	
              SECTION
                III

               

            	 	
              SECTION
                IV

               

            
	
              I
                elect to pay for my shares (check one):

               

            	___ 	
              I
                elect to pay my taxes on this transaction (check one):

               

            
	
              ____

               

            	
              Broker
                assisted Cashless Exercise for Cash

               

            	
              ____

               

            	
              Sell
                shares to cover taxes (Cashless Exercise for Cash/Stock)

               

            
	
              ___

            	
              Broker
                assisted Cashless Exercise for Stock

               

            	
              ____

               

            	
              Check
                (payable to Krispy Kreme Doughnuts, Inc.) (required for Cash
                Purchases)

               

            
	
              ___

            	
              Cash
                Purchase by Check (payable to

              Krispy
                Kreme Doughnuts, Inc.)

               

            	
              ____

               

            	
              Deduction
                from shares I receive from this transaction (Stock Swap)

               

            
	
              ____

               

            	
              Stock
                Swap using value of previously

              owned
                shares

               

            	 	 

    

    
 

    
      	___________________________________________	____________________________________________
	
              Signature

            	
              Date
                of Exercise

            

    

     

     

    

      
        	
                Return
                  form to:

              	
                KRISPY
                  KREME DOUGHNUT CORPORATION

              
	 	
                ATTN:
                  Chief Financial Officer

              
	 	
                P.O.
                  Box 83

              
	 	
                Winston-Salem,
                  NC 27102

              
	 	
                Phone:
                  336-725-2981

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