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EXHIBIT 10.1
SERVICING AGREEMENT
by and among
▇▇▇▇▇▇ TRUST AND SAVINGS BANK,
as Trustee and Supervisory Servicer
PMC CAPITAL, L.P. 1999-1
as Issuer
and
PMC CAPITAL, INC.
as Servicer
--------------------
Dated as of June 3, 1999
--------------------
$55,648,773
PMC CAPITAL, L.P. 1999-1
LOAN-BACKED FIXED RATE NOTES
2
ARTICLE I DEFINITIONS.........................................................................................1
ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS...........................................................1
Section 2.1 Representations and Warranties of Servicer............................................1
Section 2.2 Covenants of Servicer.................................................................3
Section 2.3 Closing Certificate and Opinion.......................................................5
Section 2.4 Fidelity Bond and Insurance...........................................................5
Section 2.5 Access to Certain Documentation and Information Regarding the Loans...................6
Section 2.6 Merger or Consolidation...............................................................6
Section 2.7 Indemnification.......................................................................6
ARTICLE III GENERAL ADMINISTRATION AND SERVICING OF LOANS.......................................................7
Section 3.1 General Duties of Servicer............................................................7
Section 3.2 No Assignment or Delegation of Duties by Servicer.....................................8
Section 3.3 Establishment of Lockbox Account; Notices to Obligors; Deposits in Lockbox
Account...............................................................................8
Section 3.4 Permitted Withdrawals From the Lockbox Account........................................9
Section 3.5 Payment of Taxes and Other Charges....................................................9
Section 3.6 Collection of Certain Loan Payments...................................................9
Section 3.7 Limitation of Liability of Servicer's Officers and Others............................10
Section 3.8 Servicing Compensation; Advances and Expenses........................................10
Section 3.9 The Trustee's, the Noteholders' and Supervisory Servicer's Right To Examine
Servicer Records and Audit Operations................................................10
Section 3.10 Maintenance and Release of Loan Documentation; Satisfaction of Mortgages.............11
Section 3.11 Notice of Liens and Other Actions....................................................13
Section 3.12 Waivers, Releases, Condemnations, Easements and Alterations..........................13
Section 3.13 Limitation on Liability of Servicer and Others.......................................13
Section 3.14 Property Address Change..............................................................14
ARTICLE IV SPECIFIC SERVICING PROCEDURES......................................................................14
Section 4.1 Assumption Agreements................................................................14
Section 4.2 Servicing Delinquent Accounts; Liquidation of Loans..................................15
Section 4.3 Foreclosure Expenses.................................................................17
Section 4.4 Title, Management and Disposition of REO Property....................................17
ARTICLE V REPORTS TO BE PROVIDED BY SERVICER.................................................................19
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Section 5.1 Determination Date Reports...........................................................19
Section 5.2 Reports of Foreclosure and Abandonment of Mortgaged Property.........................22
Section 5.3 Quarterly Statement as to Compliance.................................................22
Section 5.4 Annual Independent Public Accountants' Servicing Report..............................22
Section 5.5 Servicer's Financial Statements; Annual Certification................................22
ARTICLE VI DEFAULTS...........................................................................................23
Section 6.1 Servicer Defaults....................................................................23
Section 6.2 Notice of Servicer Default...........................................................24
Section 6.3 Remedies.............................................................................24
Section 6.4 Additional Remedies of Trustee Upon Servicer Defaults................................25
Section 6.5 Supervisory Servicer To Act; Appointment of Successor................................25
Section 6.6 Waiver of Defaults...................................................................26
ARTICLE VII TERMINATION........................................................................................26
Section 7.1 Servicer Not To Resign...............................................................26
Section 7.2 Term of Agreement....................................................................26
ARTICLE VIII MISCELLANEOUS PROVISIONS...........................................................................27
Section 8.1 Amendment............................................................................27
Section 8.2 Governing Law........................................................................27
Section 8.3 Notices..............................................................................27
Section 8.4 Severability of Provisions...........................................................27
Section 8.5 No Partnership.......................................................................27
Section 8.6 Counterparts.........................................................................28
Section 8.7 Successors and Assigns...............................................................28
Section 8.8 Notification to Rating Agency and Noteholders........................................28
Section 8.9 Indulgences; No Waivers..............................................................28
Section 8.10 Titles Not To Affect Interpretation..................................................28
Section 8.11 Entire Agreement.....................................................................28
Section 8.12 Recordation of Agreement.............................................................28
Section 8.13 Further Assurances...................................................................29
EXHIBIT A - Form of Trust Receipt
EXHIBIT B - Form of Lockbox Letter Agreement
EXHIBIT C - Form of Lockbox Notice Letter
EXHIBIT D - Form of Determination Date Report
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EXHIBIT E - Form of Annual Statement
EXHIBIT F - Quarterly Officer's Certificate
EXHIBIT G - Officer's Certificate
EXHIBIT H - Form of Obligor Letter
SCHEDULE - Definitions
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SERVICING AGREEMENT
This Servicing Agreement (this "Agreement"), dated as of June 3, 1999,
is made and entered into by and among ▇▇▇▇▇▇ TRUST AND SAVINGS BANK, as trustee
(the "Trustee"), and as Supervisory Servicer (the "Supervisory Servicer"), PMC
Capital, L.P. 1999-1, a Delaware limited partnership, as issuer (the "Issuer"),
and PMC Capital, Inc., a Florida corporation, as servicer (the "Servicer").
PRELIMINARY STATEMENT
The Issuer is the owner of the Loans and the other property being
pledged, assigned and conveyed by it to the Trustee for inclusion in the Trust
Estate pledged to secure the Notes issued pursuant to the Indenture. The
Servicer is in the business, among other things, of servicing mortgage loans.
The Issuer hereby appoints the Servicer to service the Loans which are included
in the Trust Estate, and the Servicer hereby accepts that appointment.
All covenants and agreements made by the Issuer, the Servicer, the
Supervisory Servicer and the Trustee herein are for the benefit of the Holders
from time to time of the Notes, the Trustee and the Supervisory Servicer. The
Issuer, the Trustee, the Supervisory Servicer and the Servicer are entering into
this Agreement for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged.
In consideration of the mutual agreements herein contained, the Issuer,
the Servicer, the Supervisory Servicer and the Trustee hereby agree as follows:
ARTICLE I
DEFINITIONS
All capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in Schedule 1 attached hereto. Unless
otherwise provided, all calculations of interest pursuant to this Agreement are
based on a 360-day year of twelve 30-day months.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF SERVICER. The Servicer
hereby represents and warrants to the Trustee for the benefit of the
Noteholders, the Supervisory Servicer and the Issuer as of the Closing Date, and
at all times during the term of this Agreement shall be deemed to represent and
warrant, that:
(a) The Servicer has been duly formed and is validly existing under the
laws of the jurisdiction of its formation and is duly qualified to do business
and is in good standing under the laws of each jurisdiction in which the failure
to be so qualified would have a material adverse
SERVICING AGREEMENT - PAGE 1
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effect on the enforceability of, or its ability to service, a Loan and no demand
for such qualification has been made upon the Servicer by any state, and, in any
event the Servicer is or will be in compliance with the laws of any such state
to the extent necessary to insure the enforceability of each Loan and the
servicing of the Loans in accordance with the terms of this Agreement;
(b) The Servicer holds all material licenses, certificates and permits
from all governmental authorities necessary for the conduct of its business
(except where the failure to obtain same would not materially and adversely
affect the Servicer's ability to perform its obligations hereunder in accordance
with the terms of this Agreement) and has received no notice of proceedings
relating to the revocation of any such license, certificate or permit which
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the conduct of the business,
results of operations, net worth or condition (financial or otherwise) of the
Servicer;
(c) The Servicer has the full power and authority to execute, deliver
and perform, and to enter into and consummate all transactions contemplated by
this Agreement, has duly authorized the execution, delivery and performance of
this Agreement, has duly executed and delivered this Agreement and this
Agreement constitutes a legal, valid and binding obligation of the Servicer,
enforceable against it in accordance with its terms, except as such enforcement
may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights in general and
(ii) by general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law);
(d) Neither the execution and delivery by the Servicer of this
Agreement, the consummation by the Servicer of the transactions contemplated
hereby, nor the fulfillment of or compliance by the Servicer with the terms and
conditions of this Agreement will conflict with or result in a breach of any of
the terms, conditions or provisions of the Servicer's organizational documents
or bylaws or any legal restriction or any material agreement or instrument to
which the Servicer 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 of any law, rule, regulation, order, judgment or decree to which
the Servicer or its property is subject;
(e) At the date hereof, the Servicer does not believe, nor does it have
any reason or cause to believe, that it cannot perform each of its covenants
contained in this Agreement;
(f) There is no litigation pending or, to the Servicer's knowledge,
threatened, which, if determined adversely to the Servicer, would materially and
adversely affect the execution, delivery or enforceability of this Agreement, or
the ability of the Servicer to service the Loans hereunder in accordance with
the terms hereof or which would have a material adverse effect on the financial
condition of the Servicer;
(g) No consent, approval, authorization or order of any court or
governmental agency or body is required for the execution, delivery and
performance by the Servicer of or compliance by the Servicer with this Agreement
or the consummation by the Servicer of the transactions contemplated by this
Agreement or if any such consent, approval, authorization or order is
SERVICING AGREEMENT - PAGE 2
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required, the Servicer has obtained or will obtain it prior to the time
necessary for the Servicer to perform its obligations hereunder;
(h) Neither this Agreement nor any statement, report or other document
furnished or to be furnished pursuant to this Agreement or in connection with
the transactions contemplated hereby contains any untrue statement of material
fact or omits to state a material fact necessary to make the statements relating
to the Servicer contained therein not misleading;
(i) The Servicer is not in default with respect to any order or decree
of any court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or other) or operations
of the Servicer or its properties or might have consequences that would
materially and adversely affect its performance hereunder; and
(j) The Servicer has taken all reasonable actions necessary to mitigate
the risk that computer applications used by it may be unable to recognize and
properly perform date-sensitive functions involving certain dates prior to,
during and after the year 2000.
Upon discovery by either the Issuer, the Servicer, the Supervisory
Servicer or the Trustee of a material breach of any of the foregoing
representations and warranties, the party discovering such breach shall give
prompt written notice to the other parties, with a copy to the Noteholders and
the Rating Agency. Within 30 days of its discovery or its receipt of notice of
any such breach of a representation or warranty, the Servicer shall cure such
breach in all material respects; provided that, if such failure shall be of a
nature that it cannot be cured within 30 days, the Servicer shall give written
notice to the Supervisory Servicer and the Trustee, with a copy to the
Noteholders and the Rating Agency, within such 30 day period of the corrective
action, which has been approved by the Initial Purchaser, it proposes to take
and shall thereafter pursue such corrective action diligently until such default
is cured but in no event longer than 90 days from the date of such notice.
SECTION 2.2 COVENANTS OF SERVICER. The Servicer hereby agrees that
during the term of this Agreement:
(a) Compliance With Agreements and Applicable Laws. The Servicer shall
perform each of its obligations under this Agreement and comply with all
material requirements of any law, rule or regulation applicable to it and the
terms of the Loans and any related agreements.
(b) Existence. The Servicer shall maintain its existence and shall at
all times continue to be duly organized under the laws of the state of its
organization and duly qualified and duly authorized (as described in Sections
2.1(a), (b) and (c) hereof) and shall conduct its business in accordance with
the terms of its organizational documents and bylaws.
(c) Financial Statements; Accountants' Reports; Other Information. The
Servicer shall keep or cause to be kept in reasonable detail books and records
of account of the Servicer's assets and business, including, but not limited to,
books and records relating to the sale of the Loans to the Issuer and the
Servicing of such Loans by the Servicer, which books and records shall be
furnished to the Trustee upon reasonable request.
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(d) Access to Records; Discussions With Officers and Accountants. The
Servicer shall, upon the reasonable request of the Supervisory Servicer, the
Trustee or any Noteholder, permit the Supervisory Servicer, the Trustee or any
such Noteholder or any of their authorized designees:
(i) to inspect the books and records of the Servicer as they
may relate to the Loans and the obligations of the Servicer under
this Agreement; and
(ii) to discuss the affairs, finances and accounts of the
Servicer relating to the Loans and the obligations of the
Servicer under this Agreement with any Authorized Officer of the
Servicer.
Such inspections and discussions shall be conducted during normal
business hours and shall not unreasonably disrupt the business of the
Servicer. Such inspections shall be at the expense of the party
performing or requesting such inspection unless a Servicer Default
shall have occurred and be continuing, in which case any such
inspection shall be at the expense of the Servicer. The books and
records of the Servicer will be maintained in the United States at the
address of the Servicer designated herein for receipt of notices,
unless the Servicer shall otherwise advise the Supervisory Servicer,
the Trustee and the Noteholders in writing not less than fifteen (15)
Business Days prior to any such change of address.
(e) Notice of Material Events. The Servicer shall promptly and in any
event, within five (5) Business Days of the occurrence thereof, inform the
Supervisory Servicer, the Trustee, the Noteholders and the Rating Agency in
writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation of any
legal process, litigation or administrative or judicial
investigation against the Servicer involving potential damages or
penalties in an uninsured amount in excess of $1,000,000 in any
one instance or $5,000,000 in the aggregate;
(ii) any change in the location of the Servicer's principal
office or any change in the location of the Servicer's books and
records;
(iii) the occurrence of any Servicer Default;
(iv) the commencement of any proceedings instituted by or
against the Servicer in any federal, state or local court or
before any governmental body or agency, or before any arbitration
board, or the promulgation of any proceeding or any proposed or
final rule which, if adversely determined, would result in a
material adverse change in the financial condition or operations
of the Servicer;
(v) the commencement of any proceedings by or against the
Servicer under any applicable bankruptcy, reorganization,
liquidation, rehabilitation, insolvency or other similar law now
or hereafter in effect or of any proceeding in which a receiver,
liquidator, conservator, trustee or similar official shall have
been, or may be, appointed or requested for the Servicer or any
of its assets;
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(vi) the receipt of notice that (A) any license, permit,
charter, registration or approval necessary for the performance
by the Servicer of its obligations under this Agreement is to be,
or may be, suspended or revoked, or (B) the Servicer is to cease
and desist any practice, procedure or policy employed by the
Servicer in the conduct of its business, and such cessation may
result in a material adverse change in the financial condition or
operations of the Servicer;
(vii) any merger, consolidation or sale of substantially all
of the assets of the Servicer; or
(viii) the final payment in full of the Notes.
(f) Maintenance of Licenses. The Servicer shall maintain all licenses,
permits, charters and registrations which are material to the performance by the
Servicer of its obligations under this Agreement.
(g) Notices. The Servicer shall promptly notify the Trustee, the
Noteholders, the Rating Agency and the Supervisory Servicer in writing of any
event, circumstance or occurrence which may materially and adversely affect the
ability of the Servicer to service any Loan or to otherwise perform and carry
out its duties, responsibilities and obligations under and in accordance with
this Agreement.
SECTION 2.3 CLOSING CERTIFICATE AND OPINION. On the Closing Date, the
Servicer will deliver to the Issuer, the Placement Agent, the Supervisory
Servicer, the Noteholders and the Trustee an Opinion of Counsel, dated the
Closing Date, in form and substance satisfactory to the Noteholders, as to the
due authorization, execution and delivery of this Agreement by the Servicer and
the enforceability thereof and such other matters as reasonably requested by the
Noteholders. On the Closing Date, the Servicer shall also deliver an Officers'
Certificate, dated the Closing Date, signed by two Authorized Officers, to the
effect that:
(a) the representations and warranties contained in Section 2.1
hereof are true and correct in all material respects as of the Closing
Date;
(b) no Servicer Default exists hereunder; and
(c) the Servicer maintains such errors and omissions insurance
and fidelity bond coverage as is required by this Agreement.
SECTION 2.4 FIDELITY BOND AND INSURANCE. The Servicer shall maintain
with a responsible company, at its own expense, a blanket fidelity bond in a
minimum amount of $1,000,000 and an errors and omissions insurance policy with
coverage in an amount deemed reasonable by the Servicer but in no event less
than $2,000,000, with 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 Loans ("Servicer Employees"). Any such fidelity bond
and errors and omissions insurance shall protect and insure the Trust Estate and
the Trustee, as Trustee for the Noteholders, its officers, employees and agents
against losses, including losses resulting from forgery, theft, embezzlement,
fraud, errors and omissions and negligent acts of such Servicer Employees. No
provision of this Section 2.4 requiring such
SERVICING AGREEMENT - PAGE 5
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fidelity bond and errors and omissions insurance shall diminish or relieve the
Servicer from its duties and obligations as set forth in this Agreement. Upon
the request of the Trustee, the Servicer shall cause to be delivered to the
Trustee a certified true copy of such fidelity bond and insurance policy.
Coverage of the Servicer under a policy or bond obtained by an Affiliate of the
Servicer and providing the coverage required by this Section shall satisfy the
requirements of this Section.
SECTION 2.5 ACCESS TO CERTAIN DOCUMENTATION AND INFORMATION REGARDING
THE LOANS. The Servicer shall provide to the Trustee, the Issuer, the
Supervisory Servicer, the Noteholders and their representatives or designees
access to the documentation regarding the Loans, such access being afforded
without charge but only upon reasonable request and during normal business hours
at the offices of the Servicer provided that such access shall not be requested
more frequently than is reasonable or justifiable; provided, further, however,
following the occurrence and during the continuance of a Servicer Default, the
Trustee, the Issuer, the Supervisory Servicer and the Noteholders shall have
unfettered access to the documentation regarding the Loans.
The Servicer shall at all times maintain accurate records and books of
account and an adequate system of audit and internal controls. All accounting
and loan servicing records pertaining to each Loan shall be maintained in such
manner as will permit the Trustee, the Noteholders and the Supervisory Servicer
or their duly authorized representatives and designees to examine and audit and
make legible reproductions of records during reasonable business hours. All such
records shall be maintained until no Notes remain Outstanding or such longer
period as is required by Law, including but not limited to, all transaction
registers and loan ledger histories.
SECTION 2.6 MERGER OR CONSOLIDATION. The Servicer will keep in full
effect its existence, rights and franchises, and will obtain and preserve its
qualification to do business 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 Loans and to perform its duties under this Agreement.
Any Person into which the Servicer may be merged or consolidated, or
any Person resulting from any merger, conversion or consolidation to which the
Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be an established mortgage loan servicing institution that has a
net worth of at least $50,000,000 (unless otherwise consented to in writing by
the Trustee and the Noteholders) and shall be the successor of the Servicer
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto except for notice thereof to the Rating
Agency, anything herein to the contrary notwithstanding, provided such successor
accepts the terms and conditions of this Agreement. The Servicer shall, upon
making a determination that it will enter into any such merger or consolidation,
send written notice thereof to the Trustee, the Noteholders, the Supervisory
Servicer and the Rating Agency which shall in no event be less than thirty (30)
days prior written notice.
SECTION 2.7 INDEMNIFICATION. The Servicer agrees to indemnify and hold
the Issuer, the Trust Estate, the Placement Agent, the Supervisory Servicer, the
Trustee and the Noteholders
SERVICING AGREEMENT - PAGE 6
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(and each of their respective officers, directors, employees and agents) each
harmless against any and all claims, losses, damages, penalties, fines,
forfeitures, reasonable legal fees and related costs, judgments, and other costs
and expenses ("Losses") resulting from any claim, demand, defense or assertion
based on or grounded upon, or resulting from, a breach of any of the Servicer's
representations and warranties contained in this Agreement or the negligence,
bad faith or willful misconduct of the Servicer relating to the performance of
its duties hereunder and servicing the Loans in compliance with the terms of
this Agreement. The Servicer agrees to indemnify and hold each of the Trustee
and the Supervisory Servicer and each of their respective officers, directors,
employees and agents harmless against any and all Losses incurred by it except
for such actions to the extent caused by any negligence, bad faith or willful
misconduct on its part, arising out of the administration of this Agreement, the
Indenture or the Supervisory Servicing Agreement or the exercise or performance
of any of its rights, powers or duties hereunder or thereunder. The Issuer, the
Placement Agent, the Supervisory Servicer or the Trustee, as the case may be,
shall immediately notify the Servicer if a claim is made by a third party with
respect to this Agreement or the Loans; provided, however, that failure to so
notify shall not relieve the Servicer of its obligations hereunder.
Notwithstanding anything to the contrary contained herein, no Person acting as
Servicer hereunder shall have any liability under this Section 2.7 for the
indemnification of any claim based upon or arising from the action or omission
of any predecessor Servicer.
ARTICLE III
GENERAL ADMINISTRATION AND SERVICING OF LOANS
SECTION 3.1 GENERAL DUTIES OF SERVICER. (a) For and on behalf of the
Issuer, the Trustee and the Holders, the Servicer shall service and administer
the Loans in accordance with the provisions of this Agreement and the
instructions of the Trustee hereunder. Unless otherwise specified herein with
respect to specific obligations of the Servicer, the Servicer shall service and
administer the Loans in the best interests of, and for the benefit of, the
Holders, in accordance with the Servicing Standard.
(b) Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Loan or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Obligor if, in the Servicer's reasonable determination, such waiver,
modification, postponement or indulgence is not materially adverse to the
interests of the Trustee on behalf of the Noteholders and the Servicer would
make the same determination if it serviced the Loan for its own account;
provided, however, that the Servicer may not permit any modification with
respect to any Loan that would change the Loan Rate or the default rate, forgive
the payment of any principal or interest (unless in connection with the
liquidation of the related Loan), except as permitted by Section 3.6, waive any
prepayment fee or penalty, release any primary collateral (the first lien
Mortgage) securing the Loan or defer or extend the final maturity date of such
Loan beyond the term of the Notes without the written consent of all of the
Noteholders. Without limiting the generality of the foregoing, and subject to
the consent of the Trustee and in accordance with the Servicing Standard, the
Servicer shall continue, and is hereby authorized and empowered, to execute and
deliver on behalf of the Trustee, all instruments of satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
SERVICING AGREEMENT - PAGE 7
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instruments, with respect to the Loans and with respect to the Mortgaged
Properties. If reasonably required by the Servicer, the Trustee shall furnish
the Servicer with any powers of attorney and other documents necessary or
appropriate to enable the Servicer to carry out its servicing and administrative
duties under this Agreement.
SECTION 3.2 NO ASSIGNMENT OR DELEGATION OF DUTIES BY SERVICER. The
Servicer, as an independent contractor, shall service and administer the Loans
and shall have full power and authority, acting alone, to do any and all things
in connection with such servicing and administration which the Servicer may deem
necessary or desirable and consistent with the terms of this Agreement. The
Servicer may not enter into subservicing agreements for any servicing and
administration of Loans without the prior written consent of the Required
Noteholders and the Trustee (acting at the written direction of the Required
Noteholders) (which consent shall not be unreasonably withheld) and without
notice thereof to the Rating Agency. Except as expressly provided herein, the
Servicer shall not assign or transfer any of its rights, benefits or privileges
hereunder to any other Person, or delegate to or subcontract with, or authorize
or appoint any other Person to perform any of the duties, covenants or
obligations to be performed by the Servicer hereunder, without notice to the
Rating Agency and without the prior written consent of the Required Noteholders
and the Trustee (acting at the written direction of the Required Noteholders)
(which consent shall not be unreasonably withheld), and absent such written
consent any agreement, instrument or act purporting to effect any such
assignment, transfer, delegation or appointment shall be void. The Servicer
shall be liable for all acts and omissions of any delegate, subcontractor or
other agent appointed pursuant to this Agreement. Nothing contained in this
Section 3.2 shall prohibit or be deemed to prohibit the Servicer from
contracting with third parties to perform duties that are not duties of the
Servicer hereunder that the Servicer deems reasonably necessary in connection
with the servicing of the Loans including, without limitation, title work,
surveying, environmental consulting, property management and maintenance,
construction, engineering and architectural consulting.
SECTION 3.3 ESTABLISHMENT OF LOCKBOX ACCOUNT; NOTICES TO OBLIGORS;
DEPOSITS IN LOCKBOX ACCOUNT. (a) On or prior to the Closing Date, the Trustee
shall cause to be established and maintained, at the Servicer's expense if the
Servicer is PMC, if not, then at the expense of the Trust Estate, the Lockbox
Account with Bank One, Texas, N.A. or another Financial Institution having a
long-term unsecured debt rating of at least A-2 or its equivalent by the Rating
Agency at all times that it holds the Lockbox Account (the "Required Rating").
The creation of the Lockbox Account shall be evidenced by a letter agreement
substantially in the form of Exhibit B hereto. A copy of such executed letter
agreement shall be furnished to the Servicer, the Placement Agent, the
Supervisory Servicer, the Noteholders and the Rating Agency.
(b) Within three (3) Business Days after the Closing Date, the Servicer
will prepare and deliver to each of the Obligors, with a copy of such
correspondence to the Trustee and to the Noteholders, notices in the form
attached hereto as Exhibit C, directing each such Obligor to send all future
Monthly Payments or Principal Prepayments directly to the Lockbox Account.
(c) Notwithstanding the foregoing notices, if the Servicer receives any
Collections, including, without limitation, any Monthly Payments, late payment
charges or other payments relating to a Loan, the Servicer will receive such
funds in trust for the Trustee and, if the Servicer
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is not a financial institution having a rating of at least "P-1" or its
equivalent by the Rating Agency, will forward such funds to the Lockbox Account
no later than the Business Day immediately following the date the Servicer
obtains knowledge of such receipt. In addition, any Liquidation Proceeds
received by the Servicer will be deposited into the Lockbox Account no later
than the Business Day immediately following the day the Servicer obtains
knowledge of such receipt.
(d) Upon receipt of notice that the institution holding the Lockbox
Account no longer has the Required Rating or that Bank One, Texas, N.A. no
longer wishes to hold the Lockbox Account, the Servicer will, within three (3)
Business Days, establish and maintain, at its expense if the Servicer is PMC, or
if not, at the expense of the Trust Estate, a new Lockbox Account at a Financial
Institution having the Required Rating. Such Lockbox Account shall be evidenced
by a letter agreement substantially in the form of Exhibit B hereto. A copy of
the executed letter agreement shall be furnished to the Servicer, the
Noteholders, the Supervisory Servicer and the Rating Agency within five (5)
Business Days after the new Lockbox Account is established. Within five (5)
Business Days of establishing the new Lockbox Account, the Servicer will prepare
and deliver to each of the Obligors, with copies of such correspondence to the
Trustee, and to the Noteholders, notices, in the form of Exhibit C attached
hereto, directing each such Obligor to send all future Monthly Payments directly
to the Lockbox Account.
SECTION 3.4 PERMITTED WITHDRAWALS FROM THE LOCKBOX ACCOUNT. The Trustee
shall have the sole right to withdraw funds from the Lockbox Account and shall,
on a daily basis, withdraw all deposits to the Lockbox Account and transfer such
funds to the Collection Account established under the Indenture. The Trustee
shall cause the entity holding the Lockbox Account to forward funds held therein
as provided herein.
SECTION 3.5 PAYMENT OF TAXES AND OTHER CHARGES. If the Servicer
receives notice that any taxes, assessments or other charges which are or may
become a lien upon the Mortgaged Property are overdue, the Servicer will give a
written demand to the Obligor to pay such amounts and will verify whether such
payment has been made within sixty (60) days after mailing such notice (but in
any event prior to the time that any taxing authority commences to exercise its
available remedies), subject to any right, pursuant to the Mortgage, of an
Obligor who is contesting the validity of such charges and has paid to the
Servicer a deposit or security in the amount of the contested charge plus
possible costs, interest and penalties or who has otherwise established adequate
reserves against such liability in accordance with generally accepted accounting
principles; provided, further, however, that this provision shall not have the
effect of permitting the Servicer to take, or fail to take, any action in
respect of the payments described herein that would adversely affect the
interest of the Trustee in any Mortgaged Property. If such amounts have not been
paid by the Obligor or the Obligor has not deposited or reserved funds therefor
as described in the immediately preceding sentence, the Servicer will promptly
make such payment as a Servicing Expense and request reimbursement from the
Obligor, and from the Trustee in accordance with Section 3.8 hereof.
SECTION 3.6 COLLECTION OF CERTAIN LOAN PAYMENTS. The Servicer shall
make reasonable efforts to collect all payments called for under the terms and
provisions of the Loans. Consistent with the foregoing, the Servicer shall not,
unless the charging or collection of any such late payment charge, prepayment
fee, assumption fee or any penalty or interest would result
SERVICING AGREEMENT - PAGE 9
14
in the violation or contravention of applicable Law, waive or permit to be
waived, except pursuant to the Servicer's customary servicing procedures, any
late payment charge or assumption fee. The Servicer shall not, unless the
charging or collection of any such prepayment fee or penalty would result in the
violation or contravention of applicable Law, waive or permit to be waived any
prepayment fee or any penalty or interest in connection with the prepayment of a
Loan; provided, however, at any time on or after the date on which the
Outstanding Note Amount is less than 15% of the Outstanding Note Amount on the
Closing Date, the Servicer shall have the right, in its sole discretion, to
waive the payment of any prepayment fee or other penalty or interest in
connection with the prepayment of a Loan. Notwithstanding any other provisions
hereof, the Servicer shall not charge or impose on any Obligor, nor seek to
charge or impose on any Obligor, nor assert a right to receive, any fee, charge,
premium or penalty that if charged or collected would violate or contravene any
Law, including usury laws or the terms of the related Loan.
SECTION 3.7 LIMITATION OF LIABILITY OF SERVICER'S OFFICERS AND OTHERS.
No director, officer, employee or agent of the Servicer shall be under any
liability to the Trustee, the Issuer, the Supervisory Servicer, the Holders or
any other persons for any action taken by them or for their refraining to take
any action in good faith pursuant to this Agreement or for errors in judgment;
except that such provision shall not protect any of them from liability which
would be imposed by reason of willful misfeasance, willful misconduct, bad faith
or negligence.
SECTION 3.8 SERVICING COMPENSATION; ADVANCES AND EXPENSES. (a) As
compensation for its services hereunder, the Servicer shall be paid the
Servicing Fee. The Servicer shall be required to pay all expenses incurred by it
in connection with its servicing activities hereunder and shall be entitled to
reimbursement thereof as described below. The Servicing Fee shall be paid to the
Servicer and Servicing Expenses reimbursed to the Servicer pursuant to Section
6.4 of the Indenture.
(b) All reasonable and customary "out-of-pocket" costs and expenses
incurred in the performance by the Servicer of its servicing obligations
hereunder ("Servicing Expenses") shall constitute routine servicing
responsibilities of the Servicer, which shall include, but are not limited to,
expenditures for the following, subject to the provisions of this Agreement, (i)
attorneys' fees, trustee fees under any deed of trust, recording, filing and
publication fees, title report and title search costs, costs associated with
environmental audits, court costs, witness fees and all other costs incurred in
respect of any enforcement of a Loan, any judicial foreclosure, or any
foreclosure sale, trustee's sale or acquisition in lieu of foreclosure, or in
respect of the insurance, sale or other disposition of any Mortgaged Property or
REO Property; (ii) repair, restoration, maintenance or other protection of any
Mortgaged Property (whether incurred before or after such property became an REO
Property) in accordance with and subject to the provisions of this Agreement, as
applicable; and (iii) compliance with the Servicer's obligations under Section
3.5 hereof. Servicing Expenses shall not include any portion of the Servicer's
overhead or normal salary and operating expenses.
SECTION 3.9 THE TRUSTEE'S, THE NOTEHOLDERS' AND SUPERVISORY SERVICER'S
RIGHT TO EXAMINE SERVICER RECORDS AND AUDIT OPERATIONS. The Trustee, the
Noteholders and the Supervisory Servicer and their designees shall have the
right upon reasonable prior notice, during normal business hours and as often as
reasonably required, to examine and audit (at no cost to
SERVICING AGREEMENT - PAGE 10
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the Servicer unless a Servicer Default has occurred and is then continuing) any
and all of the books, records or other information of the Servicer directly
relating to the Loans, whether held by the Servicer or by another on behalf of
the Servicer, which may be relevant to the performance or observance by the
Servicer of the terms, covenants or conditions of this Agreement. The Trustee,
the Noteholders and the Supervisory Servicer shall have the right upon
reasonable prior notice, during normal business hours and as often as reasonably
required to perform ongoing diligence of the Servicer's operations through loan
reviews, re-appraisals (at no cost to the Servicer) or other reasonable review
of Servicer operations. No amounts payable in respect of the foregoing (other
than costs associated with re-appraisals) shall be paid from the Trust Estate
unless a Servicer Default exists and is then continuing.
SECTION 3.10 MAINTENANCE AND RELEASE OF LOAN DOCUMENTATION;
SATISFACTION OF MORTGAGES. (a) The Servicer shall retain, with respect to each
Loan, the originals (or copies if originals are not available) of all of the
instruments and documents relating to the Loan that would be maintained by a
prudent lender servicing such Loan for its own account (the "Servicer Loan
File"), except for those original instruments and documents constituting a part
of the Trustee Loan File that are required to be held by the Trustee.
Each Servicer Loan File shall remain the property of the Issuer pledged
to the Trustee for the benefit of the Holders and shall be held by the Servicer
in trust for the benefit of the Trustee on behalf of the Holders. Upon written
request of the Trustee, the Servicer shall immediately deliver all or any of
such instruments, records and documents in its possession or custody to the
Trustee, together with a list identifying each Loan to which such records
pertain. The Servicer, at its option, may microfilm, microfiche or otherwise
condense any records or documents constituting a part of, or relating to, any
Loan or any Servicer Loan File, provided that the Servicer, upon written request
by the Trustee, promptly reproduces in their entirety any or all such records or
documents at no cost to the Trustee.
(b) The Servicer shall maintain each Servicer Loan File for a period of
four (4) years after the related Loan has been paid in full, is foreclosed upon
or is otherwise liquidated, or such longer period as may be required by Law. The
Servicer shall maintain an appropriate account record for each Loan which shall
include the permanent loan number for each Loan serviced by the Servicer as
shown on the Loan Schedule. Any system utilized for the Loan account records
shall be capable of producing, for any Loan, an account transcript itemizing in
chronological order the date, amount and application of each Monthly Payment by
due date and other information affecting the amounts paid by the Obligor,
including the latest outstanding Loan Principal Balance.
(c) The Servicer shall not grant a satisfaction or release of a
Mortgage without having obtained payment in full of the indebtedness secured by
the Mortgage or otherwise prejudice any right the Trustee may have under the
mortgage instruments, subject to Section 4.1 hereof. Upon the prepayment in full
or other liquidation of a Loan, the Servicer shall immediately deposit the
prepayment or Liquidation Proceeds in the Lockbox Account or the Collection
Account and prepare and deliver to the Trustee and Supervisory Servicer a
request for the appropriate instrument releasing the Mortgaged Property from the
lien of the Mortgage, together with an Officer's Certificate (i) certifying that
(A) all amounts that the Obligor is obligated to pay under the Underlying Note,
the Mortgage and any other document pertaining to the Loan, including, but not
limited to, all required payments of principal and interest, have been paid in
full and
SERVICING AGREEMENT - PAGE 11
16
deposited in the Lockbox Account or the Collection Account; or (B) all
Liquidation Proceeds which the Servicer reasonably believes will be collected
with respect to a Liquidated Loan have been collected and deposited in the
Lockbox Account or the Collection Account; and (ii) requesting that (X) the
Trustee Loan File for such Loan be released by the Trustee to the Servicer and
(Y) the Trustee execute and deliver to the Servicer the appropriate instrument
prepared by the Servicer necessary to release the lien of the Mortgage, together
with the Underlying Note bearing written evidence of cancellation or assignment
thereof, as appropriate.
The Trustee shall, upon receipt of a written request from a Servicing
Officer and approval of the Supervisory Servicer, execute any document provided
to the Trustee by the Servicer or take any other action requested in such
request, that is, in the opinion of the Servicer as evidenced by such request,
required by any state or other jurisdiction to discharge the lien of a Mortgage
upon the satisfaction thereof and the Trustee will sign and post, but will not
guarantee receipt of, any such documents to the Servicer, or such other party as
the Servicer may direct in writing, within five (5) Business Days of the
Trustee's receipt of such certificate or documents. Such certificate or
documents shall establish to the Trustee's satisfaction that the related Loan
has been paid in full by or on behalf of the Obligor and that such payment has
been deposited in the Lockbox Account or the Collection Account, as the case may
be.
Upon receipt of the Trustee Loan File, the Servicer shall record the
mortgage release or satisfaction in the proper recording office, deliver the
Underlying Note and/or the recorded original of such instrument of release or
satisfaction to the Obligor, deposit any remaining documents into the Servicer
Loan File, and retain the Servicer Loan File as provided in section (a) and (b)
above. Any costs and expenses associated with the release of any Loan shall be
the expense of the Trust Estate to the extent not paid by the applicable
Obligor.
Any applications for partial release of any part of a Mortgaged
Property must be approved in the manner set forth in Section 3.12 hereof.
(d) From time to time as is appropriate, the Servicer may request the
Trustee to deliver or cause to be delivered to the Servicer all or part of the
documents constituting a part of the Trustee Loan File to facilitate the
servicing or foreclosure of any Loan, the acquisition of any Mortgaged Property
in lieu of foreclosure, the partial release of any Mortgaged Property from the
lien of the Mortgage or the making of any corrections to the Underlying Note or
the Mortgage or other documents constituting the Trustee Loan File. To make such
request, the Servicer shall deliver to the Trustee an Officer's Certificate
requesting that possession of all, or any document constituting part of, the
Trustee Loan File be released to the Servicer; such certificate shall certify
the reason for such release. The Servicer also shall deliver to the Trustee
together with such certificate a Trust Receipt signed by a Servicing Officer, in
substantially the form attached as Exhibit A hereto.
If the Servicer at any time seeks to initiate a foreclosure proceeding
with respect to any Mortgaged Property, then the Servicer shall deliver to the
Trustee, for signature by the Trustee, as appropriate, any court pleadings,
requests for Trustee's sale or other documents necessary to the foreclosure or
to any legal action brought to obtain judgment against the Obligor on the
Underlying Note or the Mortgage, or to obtain a deficiency judgment, or to
enforce any other remedies or rights provided by the Underlying Note or the
Mortgage or otherwise available at law or in equity. The Servicer shall also
deliver to the Trustee an Officer's Certificate requesting
SERVICING AGREEMENT - PAGE 12
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that such pleadings or documents be executed by the Trustee and certifying as to
the reason such documents or pleadings are required and that the execution and
delivery thereof by the Trustee will not invalidate the Mortgage except for the
termination of such lien upon completion of the proposed foreclosure.
Notwithstanding the foregoing, the Servicer shall cause possession of any
Trustee Loan File or documents therein that have been released by the Trustee to
be returned to the Trustee when the need for such file or documents no longer
exists, but in any event within thirty (30) calendar days after release by the
Trustee unless (i) the Loan has been liquidated and the Liquidation Proceeds
relating to the Loan have been deposited in the Lockbox Account or (ii) the
Trustee Loan File or documents so released have been delivered to an attorney, a
public trustee or other public official, as required by Law, to initiate or
pursue legal action or other proceedings to foreclose the applicable Mortgage,
and the Servicer has delivered to the Trustee an Officer's Certificate
certifying as to the name and address of the Person to which the Trustee Loan
File, or documents therefrom, have been delivered and the purpose or purposes of
such delivery.
(e) The Servicer shall, at its expense if the Servicer is PMC, if not,
at the expense of the Trust Estate, prepare and deliver to the Trustee any
instruments required in connection with substitution of a Loan pursuant to
Section 3.3 of the Indenture and will pay any recording or filing costs
associated therewith.
SECTION 3.11 NOTICE OF LIENS AND OTHER ACTIONS. The Servicer shall, at
all times, exercise reasonable efforts to prevent any lien or judicial levy upon
or writ of attachment against a Mortgaged Property of which the Servicer is
notified or otherwise has knowledge, which is, or may be, superior to the lien
of the Mortgage.
SECTION 3.12 WAIVERS, RELEASES, CONDEMNATIONS, EASEMENTS AND
ALTERATIONS. Any applications for partial releases of real property and releases
of personal property which are part of a Mortgaged Property, the creation or
release of easements, waivers of rights under any Mortgage, consent to
alteration, removal or demolition of improvements and other matters affecting
the Mortgage or the Mortgaged Property, other than those which are contractually
provided for in the Underlying Note or related loan documents, shall be subject
to the prior written approval of the Trustee which consent shall not be
unreasonably withheld and which shall be provided only upon written
certification by the Servicer that such action is consistent with the Servicing
Standard and the Mortgage and the ability to collect under the Underlying Note
will not be adversely affected by such release.
SECTION 3.13 LIMITATION ON LIABILITY OF SERVICER AND OTHERS. The
Servicer and any director, officer, employee or agent of the Servicer may rely
on any document of any kind which it in good faith reasonably believes to be
genuine and to have been adopted or signed by the proper authorities respecting
any matters arising hereunder. Subject to the terms of Section 2.7 herein, the
Servicer shall have no obligation to appear with respect to, prosecute or defend
any legal action which is not incidental to the Servicer's duty to service the
Loans in accordance with this Agreement. The Issuer agrees to indemnify and hold
the Servicer harmless from any loss, claim, demand, liability or expense
(including, without limitation, past acts of predecessor Servicers and fees and
expenses of legal counsel) arising from or relating to the performance of
SERVICING AGREEMENT - PAGE 13
18
its duties under this Agreement which do not result from the Servicer's
negligence, bad faith or willful misconduct.
SECTION 3.14 PROPERTY ADDRESS CHANGE. The Servicer shall note in its
records and notify the Trustee of all changes of address of an Obligor or of a
Mortgaged Property of which the Servicer is notified or of which the Servicer
has knowledge.
ARTICLE IV
SPECIFIC SERVICING PROCEDURES
SECTION 4.1 ASSUMPTION AGREEMENTS. When a Mortgaged Property has been
or is about to be conveyed by the Obligor, the Servicer shall, to the extent it
has knowledge of such conveyance or prospective conveyance, exercise its rights
to accelerate the maturity of the related Loan under any "due-on-sale" clause
contained in the related Mortgage or Underlying Note; provided, however, that
the Servicer shall not exercise any such right if the "due-on-sale" clause, in
the reasonable belief of the Servicer, is not enforceable under applicable law
or if such enforcement would materially increase the risk of default or
delinquency on, or materially decrease the security for, such Loan. In such
event, the Servicer shall enter into an assumption and modification agreement
with the person to whom such property has been or is about to be conveyed,
pursuant to which such person becomes liable under the Underlying Note and,
unless prohibited by applicable law or the Mortgage, the Obligor remains liable
thereon, provided that the Servicer may enter into an assumption agreement with
the transferee and release the transferor-Obligor from liability only if (a) the
transferee qualifies for credit under the customary credit policies of the
Servicer, (b) any applicable Law requires that the transferor-Obligor be
released from liability on the Loan, (c) an officer of the Servicer has examined
and approved all instruments as are necessary to carry out the assumption
transaction and approved such instruments as to form and substance, (d) the
execution and delivery of such instruments by all necessary parties will not
cause the unpaid principal balance and any accrued interest thereon for the Loan
to be uncollectible in whole or in part, and (e) upon closing the assumption
transaction (i) the Mortgage will continue to be a first lien upon the Mortgaged
Property, and (ii) the Loan Rate and Monthly Payment for the Loan will not be
changed nor will the term of the Note be extended or shortened. For each
proposed assumption transaction, the Servicer shall deliver an Officer's
Certificate to the Trustee certifying that each of the applicable requirements
specified in the immediately preceding sentence have been satisfied together
with the assumption instruments requiring execution by the Trustee. Such
certificate shall also indicate whether the seller/transferor of the Mortgaged
Property will be released from liability on the Loan and that the Servicer has
made a good faith determination that any such release will not adversely affect
the collectibility of the Loan. The Servicer shall perform substantially the
same level of due diligence with respect to the transferee as was performed on
the seller/transferor in connection with the origination of the Loan.
The Servicer is also authorized with the prior approval of the Trustee
to enter into a substitution of liability agreement with such transferee,
pursuant to which the original Obligor is released from liability and such
person is substituted as Obligor and becomes liable under the
SERVICING AGREEMENT - PAGE 14
19
Underlying Note. The Servicer shall notify the Trustee that any such
substitution or assumption agreement has been completed by forwarding to the
Trustee the original of such substitution or assumption agreement, which
original shall be added by the Trustee to the related Trustee's Loan File and
shall, for all purposes, be considered a part of such Trustee's Loan File to the
same extent as all other documents and instruments constituting a part thereof.
Any fee collected by the Servicer for consenting to any such conveyance or
entering into an assumption or substitution agreement shall be retained by or
paid to the Servicer as additional servicing compensation.
Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Loan by operation of law or any assumption which the Servicer may be restricted
by law from preventing, for any reason whatsoever.
SECTION 4.2 SERVICING DELINQUENT ACCOUNTS; LIQUIDATION OF LOANS. (a)
The Servicer shall exercise diligence in obtaining payment of Monthly Payments
when due under the terms of each Loan and shall use reasonable efforts to
contact any delinquent Obligor.
If any delinquent Obligor shall be or become a bankrupt or otherwise
become the subject of any insolvency or similar proceeding, the Servicer shall
notify the Trustee of such event and, thereafter, shall carry out all reasonable
actions necessary for the benefit and protection of the interests of the Trustee
and the Holders, including, but not limited to, retention of counsel to
represent the Trustee in any bankruptcy or other court proceedings relating to
such Obligor or the Mortgaged Property.
If any Loan previously reported on a Determination Date Report as more
than ninety (90) days delinquent is subsequently reported as being brought
current, the Servicer will verify with the relevant Obligor that the Obligor
paid the delinquent payments, by sending the Obligor the letter in the form
attached hereto as Exhibit H.
(b) In the event that any payment due under any Loan and not postponed
pursuant to Section 3.1 is not paid when the same becomes due and payable, or in
the event the Obligor fails to perform any other covenant or obligation under
such Loan and such failure continues beyond any applicable grace period, the
Servicer shall take such other action as it shall deem to be in the best
interests of the Trustee and the Holders. The Servicer shall foreclose upon or
otherwise effect the ownership in the name of the Trustee of Mortgaged
Properties relating to defaulted Loans as to which no satisfactory arrangements
can be made for collection of delinquent payments in accordance with the
customary collection policies of the Servicer and the provisions of Section 3.1.
In connection with such foreclosure or other conversion, the Servicer shall
exercise collection and foreclosure procedures with the same degree of care and
skill in its exercise or use as it would exercise or use under the circumstances
in the conduct of its own affairs and shall in any event, comply with the
Servicing Standard. The Servicer shall use its reasonable efforts to realize
upon such defaulted Loans in accordance with the Servicing Standard. The
Servicer shall be responsible for all other costs and expenses incurred by it in
any foreclosure proceedings; provided, however, that it shall be entitled to
reimbursement thereof as contemplated in Sections 3.8 and 4.3 hereof.
SERVICING AGREEMENT - PAGE 15
20
No modification, recast or extension of a Loan other than as provided
above and in Section 3.1 is permitted without the prior written consent of the
Trustee as directed by the Initial Purchaser and which shall be provided only
upon written certification by the Servicer that such action is consistent with
the Servicing Standard and the Mortgage and the ability to collect under the
Underlying Note will not be adversely affected by such release.
Notwithstanding the foregoing provisions of this Section 4.2, the
Servicer shall not without the Initial Purchaser's prior consent, on behalf of
the Trustee, obtain title to a Mortgaged Property by deed in lieu of foreclosure
or otherwise, or take any other action with respect to any Mortgaged Property,
if, as a result of any such action, the Trustee, on behalf of the Noteholders,
could, in the reasonable judgment of the Servicer, made in accordance with the
Servicing Standard, be considered to hold title to, to be a "mortgagee-in
possession" of, or to be an "owner" or "operator" of such Mortgaged Property
within the meaning of CERCLA or any comparable law, unless the Servicer has
previously determined in accordance with the Servicing Standard, based on a
Phase I Environmental Assessment (and any additional environmental testing that
the Servicer deems necessary and prudent) of such Mortgaged Property conducted
by an Independent Person who regularly conducts Phase I Environmental
Assessments and performed during the twelve-month period preceding any such
acquisition of title or other action; that the Mortgaged Property is in material
compliance with applicable environmental laws and regulations or, if not, that
it would maximize the recovery to the Noteholders on a present value basis to
acquire title to or possession of the Mortgaged Property and to effect such
compliance.
(c) If the environmental testing contemplated by Section 4.2(b) above
establishes that any of the conditions set forth therein have not been satisfied
with respect to any Mortgaged Property securing a defaulted Loan, the Servicer
shall, in accordance with the Servicing Standard, prepare a written report to
the Trustee and the Noteholders summarizing the environmental condition of the
Mortgaged Property and proposing a course of action to pursue with respect to
such Mortgaged Property. In the event that the Servicer has not received through
the Trustee the written objection to such proposed course of action of the
Holders of more than 50% of the Outstanding Note Amount within thirty (30) days
of the Trustee's distributing such notice, the Servicer shall be deemed to have
been directed by the Noteholders to take such proposed action.
(d) The Servicer shall report to the Trustee monthly in writing as to
any actions taken by the Servicer with respect to any Mortgaged Property as to
which the environmental testing contemplated in Section 4.2(b) above has
revealed that any of the conditions set forth have not been satisfied, in each
case until the earliest to occur of satisfaction of all such conditions and the
release of the Lien of the related Mortgage on such Mortgaged Property.
(e) If foreclosure has been approved as provided above, the Servicer
shall initiate or cause to be initiated the foreclosure action according to such
procedures as are authorized by Law and the practices in the locality where the
Mortgaged Property is located. In the event that title to the 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 Trustee for the benefit of
the Holders.
SERVICING AGREEMENT - PAGE 16
21
(f) The Servicer shall have the right to determine, in accordance with
the Servicing Standard, the advisability of seeking to obtain a deficiency
judgment if the state in which the Mortgaged Property is located and the terms
of the Loan permit such an action and shall, in accordance with the Servicing
Standard, seek such deficiency judgment if it deems advisable.
(g) After a Loan has become a Liquidated Loan, the Servicer shall
promptly prepare and forward to the Trustee a liquidation report detailing the
Liquidation Proceeds received from the Liquidated Loan, expenses incurred with
respect thereto and any Realized Loss incurred in connection therewith.
(h) If the requirements of Sections 4.2(b) and (c) hereof have been
satisfied, the Servicer may accept a deed in lieu of foreclosure, provided that
(i) marketable title as evidenced by a policy of title insurance can be conveyed
to and acquired by the Trustee or its designee; (ii) no cash consideration is to
be paid to the Obligor by the Trustee; and (iii) the Servicer has obtained from
the Obligor a written acknowledgment that the deed is being accepted as an
accommodation to the Obligor and on the condition that the Mortgaged Property
will be transferred to the Trustee or its designee free and clear of all claims,
liens, encumbrances, attachments, reservations or restrictions except for those
to which the Mortgaged Property was subject at the time the Mortgaged Property
became subject to the Mortgage. Title shall be conveyed directly from the
Obligor to the Trustee for the benefit of the Holders.
(i) The Servicer will indemnify and hold harmless the Trustee, the
Noteholders, the Supervisory Servicer and their respective directors, officers,
agents and employees from and against any and all claims, demands, losses,
penalties, liabilities, costs, damages, injuries and expenses, including,
without limitation, reasonable attorneys' fees and expenses, suffered or
sustained by such parties, either directly or indirectly, relating to or arising
out of the violation of an Environmental Law with respect to a Mortgaged
Property resulting from the Servicer's failure to perform its obligations
hereunder, including without limitation any expenses and other costs incurred in
connection with the defense of any such action, proceeding or claim. This
obligation shall survive the termination of this Agreement, the Indenture and
the Supervisory Servicing Agreement or the earlier resignation or removal of the
Trustee or the Supervisory Servicer, as the case may be.
SECTION 4.3 FORECLOSURE EXPENSES. The Servicer shall prepare a written
estimate of the amount of attorneys' fees, trustee's fees and other costs in
respect of any foreclosure or acquisition in lieu of foreclosure and shall send
copies of such estimate to the Trustee and the Initial Purchaser. The Servicer
shall arrange payment of attorneys' fees, trustees' fees and other foreclosure
costs at the commencement of foreclosure proceedings.
The Servicer may reimburse itself for any Servicing Expenses paid by
the Servicer, made in connection with such Loan or such foreclosure or other
action, out of amounts received by the Servicer in connection with liquidation
of the Loan, prior to remittance of any such amounts to the Lockbox Account.
SECTION 4.4 TITLE, MANAGEMENT AND DISPOSITION OF REO PROPERTY. (a) Upon
the acquisition of REO Property by the Servicer by foreclosure or conveyance in
lieu of foreclosure, the Servicer shall notify the Trustee promptly that the REO
Property has been acquired and shall
SERVICING AGREEMENT - PAGE 17
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thereafter: (i) deliver the deed or certificate of sale to the Trustee, or its
nominee; (ii) manage, conserve and protect the REO Property in the same manner
and to such extent as is customary in the locality where such REO Property is
located including the rental of the same, or any part thereof, as the Servicer
deems to be in the best interest of the Trustee for the benefit of the Holders;
(iii) pay all costs such as taxes and assessments relating to the REO Property;
(iv) process any claims for redemption and otherwise comply with any redemption
procedures required by Law; (v) sell or otherwise dispose of the REO Property
and remit the proceeds to the Trustee; and (vi) timely file any and all federal,
state and local tax or information returns or reports as are required as a
result of the acquisition or disposition of REO Property and perform any
withholding required in connection therewith. The Servicer shall not acquire any
REO Property relating to a Charged-Off Loan that is required to be released from
the lien of the Indenture and disposed of by the Issuer on the next Payment
Date. If any REO Property is expected to be acquired, the Servicer shall inform
the Issuer, the Noteholders and the Trustee and the Issuer shall comply with
Section 5.14 of the Indenture.
The Servicer shall manage, conserve, protect and operate each REO
Property for the Trustee solely for the purpose of its prudent and prompt
disposition and sale. The Servicer shall, either itself or through an agent
selected by the Servicer, manage, conserve, protect and operate the REO Property
in the same manner that it manages, conserves, protects and operates other
foreclosed property for its own account and in the same manner that similar
property in the same locality as the REO Property is managed. The Servicer shall
attempt to sell the same (and may temporarily rent the same) on such terms and
conditions as the Servicer deems to be in the best interest of the Holders.
(b) Until the REO Property is disposed of, the Servicer shall (i) take
appropriate action to secure the REO Property and maintain proper surveillance
over it; (ii) advance all costs such as taxes and assessments; (iii) maintain
the REO Property so as to preserve its value and prevent any additional deferred
maintenance; and (iv) submit monthly statements for services to the Trustee and
the Initial Purchaser, together with additional documentation including
statements of income and expenses (accompanied by copies of paid invoices for
every expense item).
(c) Until the REO Property is disposed of, the Servicer shall maintain
for such REO Property, a standard hazard insurance policy providing fire and
extended coverage in an amount equal to the full replacement cost of all
improvements on the Mortgaged Property, which requirement may be satisfied by a
master force placed or blanket insurance policy insuring against hazard losses.
If the Mortgaged Property is 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) Servicer shall maintain a flood
hazard insurance policy meeting the requirements of the current guidelines of
the Federal Insurance Administration with an insurance carrier generally
acceptable to commercial mortgage lending institutions for properties, similar
to the REO Property in an amount representing coverage not less than the lesser
of (i) the full insurable value of such REO Property, or (ii) the maximum amount
of insurance which is available under the Flood Disaster Protection Act of 1973,
as amended from time to time. The Servicer will also maintain comprehensive
general liability insurance and business interruption insurance (to the extent
applicable) in such amounts as are then customary for similarly situated
properties and businesses.
SERVICING AGREEMENT - PAGE 18
23
(d) The Servicer shall advance all funds necessary for the proper
operation, management, insurance and maintenance of the REO Property. On each
Determination Date Report, the Servicer shall schedule its reasonable expenses
with respect to any REO Property for the related Collection Period.
(e) The Servicer shall deposit all funds collected and received in
connection with the operation or disposition of any REO Property in the Lockbox
Account no later than the Business Day immediately following notice of receipt
of such funds, net of funds necessary for the proper operation, management,
insurance and maintenance of the REO Property.
(f) If as of the date of disposition of any REO Property there remain
unpaid Servicing Fees with respect to the related Loan, the Servicer, shall be
entitled to payment for the unpaid Servicing Fees and reimbursement for the
unreimbursed related Servicing Expenses from proceeds received in connection
with the disposition prior to remittance of any proceeds to the Trustee.
Disposition of REO Property shall be carried out by the Servicer at
such price and upon such terms and conditions as the Servicer, in its judgment,
believes to be in the best interests of the Holders, subject to and in
accordance with Section 4.2. Upon the sale of any Mortgaged Property, the
Servicer shall remit the net cash proceeds remaining after payment of expenses
of the sale to the Lockbox Account.
(g) If any Charged-Off Loan is expected to be released from the lien of
the Indenture on the next Payment Date, the Servicer shall not commence a
foreclosure proceeding or accept a deed in lieu of foreclosure. Any
determination by the Servicer that a Loan is a Charged-Off Loan shall be made in
good faith.
ARTICLE V
REPORTS TO BE PROVIDED BY SERVICER
SECTION 5.1 DETERMINATION DATE REPORTS.
(a) Monthly Reports. Each month, not later than 12:00 noon Dallas time
on the fifth (5th) Business Day preceding each Payment Date, the Servicer shall
deliver to the Trustee, by telecopy, the receipt and legibility of which shall
be confirmed telephonically, with hard copy thereof to be delivered on the next
Business Day, with copies to the Supervisory Servicer (if other than the
Trustee), the Noteholders, the U.S. Small Business Administration and the Rating
Agency, a Determination Date Report in the form attached hereto as Exhibit D
signed by a Servicing Officer stating the date (day, month and year), referring
to this Agreement by name and date and stating, as of the close of business on
the immediately preceding Determination Date:
(i) the aggregate amount of all funds received in respect of
scheduled principal payments on the Loans during the related
Collection Period;
SERVICING AGREEMENT - PAGE 19
24
(ii) the aggregate amount of interest received on the Loans
during the related Collection Period;
(iii) the number and Loan Principal Balances of all Loans which
were the subject of Principal Prepayments during the related
Collection Period and the aggregate amount of Principal Prepayments
received with respect to the Loans during such Collection Period;
(iv) the aggregate Loan Principal Balance of the Loans as of the
related Determination Date, stating any REO Properties separately;
(v) the loan number and Loan Principal Balance of each Delinquent
Loan for the related Collection Period;
(vi) the loan number and the aggregate number and aggregate Loan
Principal Balance of Loans delinquent thirty-one (31) days, ninety-one
(91) days and one hundred eighty-one (181) or more days as of the
Determination Date;
(vii) the loan number and the aggregate number and aggregate Loan
Principal Balance of Loans which were Charged-Off Loans as of the
Determination Date and the related recovery thereon;
(viii) the number and aggregate Loan Principal Balance of Loans
(i) which will be released from the lien of the Indenture during the
related Collection Period or on the related Payment Date, (ii) which
have been repurchased including the Takeout Price therefor and (iii)
which have been substituted for a Substitute Loan including any Asset
Substitution Shortfall therefor;
(ix) the number and aggregate Loan Principal Balance of Loans
which were in foreclosure as of the related Determination Date;
(x) with respect to any Loan that became an REO Property during
the related Collection Period, (a) the Loan Principal Balance of such
Loan as of the date title to such REO Property was acquired, (b) the
book value and length of time held of each REO Property as of the
related Determination Date, and (c) the income and expenses incurred
by the Servicer in connection with any REO Property during the related
Collection Period;
(xi) the amount of any Realized Losses incurred during the
related Collection Period;
(xii) the cumulative Realized Losses since the Closing Date;
(xiii) the Principal Distribution Amount for the related Payment
Date and information as to the calculation of such amount;
SERVICING AGREEMENT - PAGE 20
25
(xiv) the Interest Distribution Amount for the related Payment
Date and information as to the calculation of such amount;
(xv) the Retained Distribution Amount, if any, for the related
Payment Date and information as to the calculation of such amount;
(xvi) the Outstanding Note Amount;
(xvii) the Servicing Fee, Supervisory Servicer's Fee, if any, and
Trustee's Fee due on the related Payment Date;
(xviii) the amount of all Servicing Expenses paid by Servicer
during such Collection Period and any and all other amounts deducted
by the Servicer in accordance with the terms hereof from Collections
received by the Servicer prior to remittance thereof to the Lockbox
Account and a detailed report describing the type and amount of all
such Servicing Expenses and other deductions;
(xix) information as to any Funds Retention Event or Redemption
Trigger Event;
(xx) the Specified Spread Account Requirement, including the
beginning balance of the Spread Account, additions thereto and
transfers therefrom during the related Collection Period; and
(xxi) such other information as the Trustee, the Noteholders or
the Rating Agency may reasonably require.
To the extent that there are inconsistencies between the telecopy of
the Servicer's Certificate and the hard copy thereof, the Trustee shall be
entitled to rely upon the telecopy.
(b) Annual Statement. Within ninety (90) days after the end of each
calendar year, the Servicer shall furnish to the Trustee and the Noteholders
such information in the form attached hereto as Exhibit E as is reasonably
necessary to provide to the Holders a statement containing the aggregate amount
of principal of and interest on the Notes paid during the prior calendar year,
aggregated for such calendar year or applicable portion thereof during which
such Person was a Holder. Such obligation of the Servicer shall be deemed to
have been satisfied to the extent that substantially comparable information
shall be provided by the Servicer pursuant to any requirements of the Code as
from time to time are in force.
(c) Computer Data. Prior to the Closing Date the Servicer shall provide
the Supervisory Servicer with all data on the Servicer's computerized servicing
system relating to the Loans in an electronically readable form specified by the
Supervisory Servicer and shall update such data at least monthly.
(d) Other Reports. The Servicer shall furnish to the Trustee, the
Noteholders, the Rating Agency and the Supervisory Servicer, during the term of
this Agreement, such periodic, special or other reports, Officer's Certificates,
data relating to the Loans or information, whether or not provided for herein,
as shall be reasonably requested, all such reports or information to be
SERVICING AGREEMENT - PAGE 21
26
provided by and in accordance with such applicable instructions and directions
as the Trustee, the Noteholders or the Supervisory Servicer may reasonably
require; provided, however, the Servicer shall be reimbursed for the reasonable
cost of providing such additional reports.
SECTION 5.2 REPORTS OF FORECLOSURE AND ABANDONMENT OF MORTGAGED
PROPERTY. Each year the Servicer shall make any reports of foreclosures and
abandonments of any Mortgaged Property required by the Code.
SECTION 5.3 QUARTERLY STATEMENT AS TO COMPLIANCE. The Servicer will
deliver to the Trustee, the Noteholders, the Rating Agency and the Supervisory
Servicer, quarterly, no later than each April 15, July 15, October 15 and
January 15, for each quarterly period ending on each March 31, June 30,
September 30 and December 31, commencing on July 15, 1999, an Officer's
Certificate in the form attached hereto as Exhibit F stating that (a) the
Servicer has fully complied with the provisions of this Agreement, (b) a review
of the activities of the Servicer during the preceding quarter and of the
Servicer's performance under this Agreement has been made under such officer's
supervision and (c) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all its obligations, duties and
responsibilities under this Agreement throughout such quarterly period (or, with
respect to the first such report, since the Closing Date) and no Servicer
Default exists, or, if there has been a default or failure in the fulfillment of
any such obligation, specifying each such default or failure known to such
officer and the nature and status thereof and the action being taken by the
Servicer to cure such default.
SECTION 5.4 ANNUAL INDEPENDENT PUBLIC ACCOUNTANTS' SERVICING REPORT.
The Servicer at its expense shall cause a nationally recognized firm of
independent certified public accountants to furnish a statement to the Trustee,
the Supervisory Servicer, the Noteholders, and each Rating Agency on or before
May 1 of each year, commencing on May 1, 2000, to the effect that, with respect
to the most recently ended fiscal year, such firm has examined certain records
and documents relating to the Servicer's performance of its servicing
obligations and that, on the basis of such examination, conducted substantially
in compliance with the Uniform Single Attestation Program for Mortgage Bankers,
such firm is of the opinion that such servicing has been conducted substantially
in compliance in all material respects with the requirements of the standard
servicing procedures outlined in the Uniform Single Attestation Program for
Mortgage Bankers, except for such exceptions noted therein. In the event such
firm requires the Trustee or the Supervisory Servicer to agree to the procedures
performed by such firm, the Servicer shall direct the Trustee and the
Supervisory Servicer in writing to so agree; it being understood and agreed that
the Trustee and the Supervisory Servicer will deliver such letter of agreement
in conclusive reliance upon the direction of the Servicer, and each of the
Trustee and the Supervisory Servicer makes no independent inquiry or
investigation as to, and shall have no obligation or liability in respect of,
the sufficiency, validity or correctness of such procedures.
SECTION 5.5 SERVICER'S FINANCIAL STATEMENTS; ANNUAL CERTIFICATION.
Within one hundred twenty (120) days after the end of each fiscal year beginning
with the fiscal year ending December 31, 1999, the Servicer shall submit to the
Trustee, the Noteholders and the Rating Agency a copy of its annual audited
financial statements or in the event the Servicer is not PMC, a copy of the
annual audited consolidated financial statement of its parent. Within forty-five
(45) days after the end of each of the first three (3) fiscal quarters of each
fiscal year beginning with the quarter ending December 31, 1999, the Servicer
shall submit to the Trustee, the Noteholders
SERVICING AGREEMENT - PAGE 22
27
and the Rating Agency a copy of its quarterly financial statements. Such
financial statements shall, to the extent required by the Securities Exchange
Act of 1934, as amended, whether or not the Servicer is subject to such Act,
include a balance sheet, income statement, statement of retained earnings,
beneficiaries' (or shareholders') equity, statement of cash flows and all
related notes and schedules and shall be in comparative form.
Contemporaneously with the submission of the financial statements
required by the preceding paragraph, the Servicer shall deliver to the Trustee,
the Noteholders and the Rating Agency an Officer's Certificate in the form
attached hereto as Exhibit G to the effect that:
(a) such officer has confirmed that the Fidelity Bond, the Errors and
Omissions Insurance Policy and any other bonds or insurance required by Section
2.4 hereof are in full force and effect; and
(b) the representations and warranties of the Servicer set forth in
Section 2.1 are true and correct in all material respects as if made on the date
of such certification.
The Servicer shall also furnish and certify such other information as
to its organization, activities and personnel as the Trustee, the Noteholders
the Rating Agency or the Supervisory Servicer may reasonably request from time
to time.
ARTICLE VI
DEFAULTS
SECTION 6.1 SERVICER DEFAULTS. The happening of any one or more of the
following events shall constitute a Servicer Default hereunder:
(a) Any failure by the Servicer to make any payment, deposit, advance
or transfer of funds required to be paid, deposited, advanced or transferred
under the terms of this Agreement, and such failure continues unremedied for
five (5) Business Days after discovery by Servicer of such failure or receipt by
Servicer of notice of such failure;
(b) Failure on the part of the Servicer duly to observe or perform in
any material respect any of the covenants or agreements contained in this
Agreement or the Supervisory Servicing Agreement which continues unremedied for
thirty (30) days after the earlier to occur of the Servicer obtaining actual
knowledge of such failure or the Servicer's receipt of written notice of such
failure or breach as the case may be; provided, however, if such failure shall
be of a nature that it cannot be cured within thirty (30) days, such failure
shall not constitute a Servicer Default hereunder if within such 30-day period
the Servicer gives notice to the Trustee and the Supervisory Servicer of the
corrective action it proposes to take, which corrective action is agreed in
writing by the Trustee to be satisfactory and the Servicer shall thereafter
pursue such corrective action diligently until such default is cured but in no
event longer than ninety (90) days;
(c) A decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator or
receiver or liquidator in any insolvency,
SERVICING AGREEMENT - PAGE 23
28
readjustment of debt, marshaling 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 such decree or order shall have remained
in force undischarged or unstayed for a period of ninety (90) days;
(d) The Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings of or relating to the Servicer or
of or relating to all or substantially all of its property;
(e) 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 or reorganization statute, make an assignment for the
benefit of its creditors or voluntarily suspend payments of its obligations;
(f) The Servicer shall cease to be an Eligible Servicer;
(g) A material adverse change occurs in the financial condition of the
Servicer, which change materially impairs the ability of the Servicer to perform
its obligations under this Agreement; or
(h) Any representation or warranty made by the Servicer in any
Transaction Document proves to have been incorrect in any material respect when
made, which has a material adverse effect on the Noteholders and which continues
to have a material adverse effect or be incorrect in any material respect for a
period of thirty (30) days after written notice of such inaccuracy, requiring it
to be remedied, has been given to the Servicer by the Trustee, the Supervisory
Servicer or any Noteholder; provided, however, if such inaccuracy is of a nature
that it cannot be remedied within such 30-day period the Servicer gives notices
to the Trustee and the Supervisory Servicer of the corrective action it proposes
to take, which corrective action is agreed in writing by the Trustee to be
satisfactory and the Servicer shall thereafter pursue such corrective action
diligently until such default is cured but in no event longer than ninety (90)
days from the date of such notice.
SECTION 6.2 NOTICE OF SERVICER DEFAULT. In the case of a Servicer
Default referred to in Section 6.1 hereof or upon any termination of the
Servicer pursuant to Article VII hereof, the Trustee shall immediately notify
the Supervisory Servicer by telephone or telecopy (telephonic notice to be
followed by written notice within one Business Day) and shall promptly notify
the Rating Agency and the Holders in writing.
SECTION 6.3 REMEDIES. So long as any such Servicer Default shall not
have been remedied within any applicable cure period, the Trustee may, and at
the written direction of the Noteholders holding not less than 66 2/3% of the
Outstanding Note Amount shall, by notice in writing specifying the termination
date to the Servicer and the Supervisory Servicer (and to the Trustee if given
by the Holders), terminate all of the rights and obligations of the Servicer
under this Agreement and in and to the Loans and the proceeds thereof. On or
after the receipt by the Servicer of such written notice, all authority and
power shall pass to and be vested in the Supervisory Servicer pursuant to and
under this Section; and, without limitation, the Supervisory
SERVICING AGREEMENT - PAGE 24
29
Servicer is hereby authorized and empowered to execute and deliver, on behalf of
the Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the purposes of such notice of termination, whether to complete the
transfer and assignment of the Loans and related documents or otherwise. All
reasonable costs and expenses (including, without limitation, attorneys' fees)
of the Trustee, the Supervisory Servicer or the Servicer incurred in connection
with such termination and transfer will be at the expense of the Servicer. The
Servicer agrees to cooperate with the Supervisory Servicer and the Trustee in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Supervisory
Servicer for administration by it of any cash amounts held by the Servicer or
thereafter received relating to the Loans and all Servicer Files. In addition to
any other amounts which are then, or, notwithstanding the termination of its
activities as Servicer, may become payable to the Servicer under this Agreement,
the Servicer shall be entitled to receive out of any delinquent payment on
account of interest on a Loan due during a Collection Period prior to the notice
of termination received pursuant to this Section 6.3 and received after such
notice, that portion of such payment which it would have received pursuant to
Section 3.8 hereof if such notice had not been given.
SECTION 6.4 ADDITIONAL REMEDIES OF TRUSTEE UPON SERVICER DEFAULTS. Upon
any Servicer Default, the Trustee, in addition to the rights specified in
Section 6.3 hereof, shall have the right, in its own name and as Trustee, to
take all actions now or hereafter existing at law, in equity or by statute to
enforce its rights and remedies and to protect the interests, and enforce the
rights and remedies, of the Noteholders (including the institution and
prosecution of all judicial, administrative and other proceedings and the
filings of proofs of claim and debt in connection therewith). No remedy provided
for by this Agreement shall be exclusive of any other remedy, and each and every
remedy shall be cumulative and in addition to any other remedy and no delay or
omission to exercise any right or remedy shall impair any such right or remedy
or shall be deemed to be a waiver of any Servicer Default.
SECTION 6.5 SUPERVISORY SERVICER TO ACT; APPOINTMENT OF SUCCESSOR. On
the effective date of any resignation of the Servicer pursuant to Section 7.1
hereof or on the date the Servicer is removed as servicer pursuant to this
Article VI, the Supervisory Servicer (or any successor appointed by the
Supervisory Servicer pursuant to the Supervisory Servicing Agreement) hereof
shall be the successor in all respects to the Servicer in its capacity as
servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof in
accordance with and subject to the terms and conditions of the Supervisory
Servicing Agreement; provided, however, that the Supervisory Servicer or
successor Servicer shall not be liable for any acts or omissions of the Servicer
occurring prior to such succession or for any breach by the Servicer of any of
its representations or warranties contained herein or in any related document or
agreement. The Supervisory Servicer (or other successor) shall assume all of the
rights and obligations of the Servicer in accordance with the terms and
conditions of the Supervisory Servicing Agreement which shall control over any
provisions herein covering the same subject matter. The Servicer shall, upon
request of the Trustee or the Supervisory Servicer but at the expense of the
Servicer, deliver to the Supervisory Servicer (or other successor), all Servicer
Loan Files, documents and records (including computer tapes and diskettes)
relating to the Loans and an accounting of any amounts collected and held by the
SERVICING AGREEMENT - PAGE 25
30
Servicer and otherwise use its reasonable efforts to effect the orderly and
efficient transfer of servicing rights and obligations to the assuming party.
The Servicer agrees to cooperate with the Trustee and the Supervisory
Servicer or any other successor servicer in effecting the termination of the
Servicer's servicing responsibilities and rights hereunder and shall promptly
provide the Supervisory Servicer or such successor servicer, as applicable, all
documents and records reasonably requested by it to enable it to assume the
Servicer's functions hereunder and shall promptly also transfer to the
Supervisory Servicer or such successor servicer, as applicable, all amounts
which then have been or should have been deposited in the Lockbox Account by the
Servicer or which are thereafter received with respect to the Loans. Neither the
Trustee, the Supervisory Servicer nor any other successor servicer shall be held
liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it, or (ii) restrictions imposed by any regulatory authority having jurisdiction
over the Servicer hereunder. The Supervisory Servicer shall provide written
notice of each appointment of a successor to the Servicer hereunder, other than
the Supervisory Servicer, to each Holder and the Rating Agency, and the Trustee.
SECTION 6.6 WAIVER OF DEFAULTS. The Trustee (with the written consent
of Required Noteholders and with notice to the Rating Agency) may, on behalf of
all Noteholders, waive any events permitting removal of the Servicer as servicer
pursuant to this Article VI. Upon any waiver of a past default, such default
shall cease to exist, and any Servicer 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 thereto
except to the extent expressly so waived.
ARTICLE VII
TERMINATION
SECTION 7.1 SERVICER NOT TO RESIGN. The Servicer shall not assign this
Agreement or resign from the obligations and duties hereby imposed on it except
by mutual consent of the Servicer and the Trustee (with the Required
Noteholders' consent), or upon the determination that the Servicer's duties
hereunder are no longer permissible under applicable law and such incapacity
cannot be cured by the Servicer. Any such determination permitting the
resignation of the Servicer shall be evidenced by a Certificate of an Authorized
Officer of the Servicer to such effect delivered to the Trustee, the
Noteholders, the Supervisory Servicer and the Rating Agency. No such resignation
shall become effective until a successor has assumed the Servicer's
responsibilities and obligations hereunder in accordance with Section 6.5.
SECTION 7.2 TERM OF AGREEMENT. This Agreement shall continue in
existence and effect until the earlier of (a) the later of the final payment or
other liquidation of the last Loan or the disposition of all property acquired
upon foreclosure or deed in lieu of foreclosure of any Loan and the remittance
of all funds due thereunder, (b) the payment in full of the Notes in accordance
with the Indenture, in addition to all other amounts payable thereunder, and the
SERVICING AGREEMENT - PAGE 26
31
discharge of the Indenture in accordance with the terms thereof, or (c) mutual
consent of the Servicer, the Trustee, the Supervisory Servicer and all Holders
in writing.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 AMENDMENT. This Agreement may be amended from time to time
by the Servicer, the Issuer and the Trustee (acting at the written direction of
the Required Noteholders) by written agreement, with thirty (30) days prior
written notice to the Rating Agency and with prior written notice to and consent
of the Supervisory Servicer. Notwithstanding the foregoing, this Agreement may
be amended without the written direction of the Required Noteholders to modify
any provisions of this Agreement required by the Rating Agency to maintain the
rating of the Notes or to cure any ambiguity, defect, omission, conflict or
inconsistency in this Agreement or between the terms of this Agreement and any
other document executed or delivered in connection herewith. This Agreement may
also be amended without the written direction of the Required Noteholders, so
long as such amendment does not materially adversely affect the rights of the
Noteholders; provided, however, this Agreement may not be amended without the
prior written consent of the Initial Purchaser.
SECTION 8.2 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
SECTION 8.3 NOTICES. All demands, notices and communications hereunder
shall be in writing and shall be duly given if addressed to the appropriate
Notice Address and delivered by hand or sent by nationally recognized express
courier, or mailed by registered mail, postage prepaid, or transmitted by
telecopy, and shall be effective upon receipt, except when telecopied, in which
case, any such communication shall be effective upon telecopy against receipt of
answer back or written confirmation thereof.
SECTION 8.4 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 covenants, agreements, provisions or terms of this
Agreement. The parties hereto further agree that the holding by any court of
competent jurisdiction that any remedy pursued by the Trustee hereunder is
unavailable or unenforceable shall not affect in any way the ability of the
Trustee to pursue any other remedy available to it.
SECTION 8.5 NO PARTNERSHIP. 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 Trustee.
SERVICING AGREEMENT - PAGE 27
32
SECTION 8.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by the different parties hereto on separate counterparts, each
of which, when so executed, shall be deemed to be an original; such
counterparts, together, shall constitute one and the same agreement.
SECTION 8.7 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the Servicer, the Issuer, the Supervisory
Servicer and the Trustee and their respective successors and assigns.
SECTION 8.8 NOTIFICATION TO RATING AGENCY AND NOTEHOLDERS. The Trustee
shall give prompt notice to the Rating Agency and the Noteholders of the
occurrence of any of the following events of which it has received notice: (a)
any modification or amendment to this Agreement, the Indenture or any other
Transaction Documents, (b) any proposed removal, replacement, resignation or
change of the Trustee or the Servicer, (c) any Event of Default under the
Indenture or any Servicer Default and (d) the final payment in full of the
Notes. Whenever the terms of this Agreement require that notice or reports be
given to the Rating Agency or the Noteholders, the Person to provide such notice
or reports shall first give them to the Trustee who shall provide them to the
Rating Agency or the Noteholders, as applicable. Additionally, the Trustee, upon
receipt, shall provide copies to the Rating Agency and the Noteholders of all
compliance reports, Determination Date Reports, financial statements, operating
reports, environmental reports and any and all other reports received by the
Trustee from the Servicer, the Issuer or the Supervisory Servicer from time to
time to the extent such reports have not been otherwise forwarded to the Rating
Agency and the Noteholders pursuant to the provisions of this Agreement or the
other Transaction Documents.
SECTION 8.9 INDULGENCES; NO WAIVERS. Neither the failure nor any delay
on the part of a party to exercise any right, remedy, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, remedy, power or privilege preclude any other or
further exercise of the same or of any other right, remedy, power or privilege,
nor shall any waiver of any right, remedy, power or privilege with respect to
any occurrence be construed as a waiver of such right, remedy, power or
privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such
waiver.
SECTION 8.10 TITLES NOT TO AFFECT INTERPRETATION. The titles of
paragraphs and subparagraphs contained in this Agreement are for convenience
only, and they neither form a part of this Agreement nor are they to be used in
the construction or interpretation hereof.
SECTION 8.11 ENTIRE AGREEMENT. This Agreement contains the entire
agreement and understanding among the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or written,
of any nature whatsoever with respect to the subject matter hereof. The express
terms hereof control and supersede any course of performance and/or usage of the
trade inconsistent with any of the terms hereof.
SECTION 8.12 RECORDATION OF AGREEMENT. To the extent permitted by
applicable law, this Agreement is subject to recordation in all appropriate
public offices for real property records
SERVICING AGREEMENT - PAGE 28
33
in all the counties or the comparable jurisdictions in which any Mortgaged
Property is situated, and in any other appropriate public recording office or
elsewhere, such recordation to be effected by the Servicer and at its expense
upon the written request of the Trustee.
SECTION 8.13 FURTHER ASSURANCES. Notwithstanding any other provision of
this Agreement, neither Trustee nor the Supervisory Servicer shall have any
obligation to consent to any amendment or modification of this Agreement unless
it has been provided reasonable security or indemnity against its out-of-pocket
expenses (including reasonable attorneys' fees) to be incurred in connection
therewith by the person requesting the amendment. To the extent permitted by
law, the Servicer agrees that it will, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, such further
instruments as the Trustee may reasonably request to effectuate the intention of
or facilitate the performance of this Agreement.
[The immediately following page contains the signatures.]
SERVICING AGREEMENT - PAGE 29
34
IN WITNESS WHEREOF, the Issuer, the Servicer, the Supervisory Servicer
and the Trustee have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
PMC CAPITAL, INC., as Servicer
By:
-------------------------------
▇▇▇ ▇. ▇▇▇▇▇
Executive Vice President
▇▇▇▇▇▇ TRUST AND SAVINGS BANK,
as Trustee
By:
-------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Assistant Vice President
▇▇▇▇▇▇ TRUST AND SAVINGS BANK,
as Supervisory Servicer
By:
-------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Assistant Vice President
PMC CAPITAL, L.P. 1999-1
as Issuer
By: PMC Capital Corp. 1999-1
Its General Partner
By:
----------------------------
▇▇▇ ▇. ▇▇▇▇▇
Executive Vice President
SERVICING AGREEMENT - PAGE 30
35
EXHIBIT A
TO
SERVICING AGREEMENT
FORM OF TRUST RECEIPT
Loan Information
Name of Obligor:
----------------------------------------------------------
Servicer Loan No.:
--------------------------------------------------------
Trustee Loan No.:
---------------------------------------------------------
Trustee
Name:
---------------------------------------------------------------------
Address:
------------------------------------------------------------------
The undersigned Servicer hereby acknowledges that it has received from
the Trustee the documents referred to below (the "Documents"). All capitalized
terms not otherwise defined in this Trust Receipt shall have the meanings given
them in the Servicing Agreement.
( ) Deed of Trust Note dated ___________________ in the original principal
sum of $_________ made by _________ , payable to, or endorsed to the order
of, the Trustee.
( ) Mortgage recorded on _____ as instrument no. ________ in the County
Recorder's Office of the County of_____________________________ , State
of_________________________ in book/reel/docket _______________ of official
records at page/image _________________________
( ) Deed of Trust recorded on ______ as instrument no. _______ in the County
Recorder's Office of the County of _______, State of _______________ in
book/reel/docket _______________ of official records at page/image
__________
( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on _____
as instrument no. __________________ in the County Recorder's Office of the
County of ________________, State of _____________________ in
book/reel/docket _______________ of official records at page/image
________________________
( ) Power of Attorney to other instrument authorizing _______________ to sign
on behalf of the Obligor.
( ) Other documents as follows (describe by date, names of parties and title of
documents):
( )
--------------------------
36
( )
--------------------------
( )
--------------------------
( )
--------------------------
1. The Servicer shall hold and retain possession of the Documents in
trust for the benefit of the Trustee, solely for the purposes provided in the
Servicing Agreement.
2. The Servicer shall not cause or permit the Documents to become
subject to, or encumbered by, any claim, liens, security interest, charges,
writs of attachment or other impositions nor shall the Servicer assert or seek
to assert any claims or rights of setoff to or against the Documents or any
proceeds thereof.
3. The Servicer shall not retain possession or custody of the Documents
for more than 30 days following the date such Documents are released by the
Trustee, and the Servicer shall return the Documents to the Trustee within such
time, unless (i) the Loan relating to the Documents has been liquidated and paid
in full and the proceeds thereof have been remitted to the Lockbox Account prior
to the expiration of the 30-day period, or (ii) the Documents have been
delivered to an attorney, or to a public trustee or other public official as
required by law, for purposes of initiating or pursuing legal action or other
proceedings for the foreclosure of the Mortgaged Property, either judicially or
nonjudicially, and the Servicer has delivered to the Trustee an Officer's
Certificate certifying as to name and address of the Person to which the
Documents were delivered and the purpose of such delivery.
4. The Documents and any proceeds thereof, and any proceeds of
proceeds, coming into the possession or control of the Servicer, shall at all
times be earmarked for the account of the Trustee and the Servicer shall keep
the Documents and any proceeds separate and distinct from all other property in
the Servicer's possession, custody or control.
PMC CAPITAL, INC., Servicer
By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------
Dated:
37
EXHIBIT B
TO
SERVICING AGREEMENT
FORM OF LOCKBOX AGREEMENT
38
EXHIBIT C
TO
SERVICING AGREEMENT
FORM OF LOCKBOX NOTICE LETTER
[PMC Capital, Inc., Letterhead]
[Date]
[Name of Obligor]
[Address]
[Address]
[Address]
Re: PMC Capital, Inc., (PMC)
Loan Number
Dear [Obligor]:
Please send all future payments on your loan including, all monthly
payments of principal and interest and any and all prepayments to the following
address:
PMC Capital, Inc.
P. O. Box ______
Dallas, Texas ______
You should, however, continue to direct any and all inquiries or other
correspondence relating to your loan to the following address:
PMC Capital, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
If you have any questions, please contact the undersigned at (XXX)
XXX-XXXX.
Sincerely,
[Officer]
[Title]
39
EXHIBIT D
TO
SERVICING AGREEMENT
DETERMINATION DATE REPORT
D-1
40
EXHIBIT E
TO
SERVICING AGREEMENT
FORM OF ANNUAL STATEMENT
PMC CAPITAL, L.P. 1999-1
LOAN-BACKED FIXED RATE NOTES
ANNUAL STATEMENT FROM SERVICER REQUIRED BY SECTION 5.1(b) OF THE SERVICING
AGREEMENT
YEAR XX/XX/XX THRU XX/XX/XX
NOTEHOLDER INFORMATION Total
Beginning Noteholder Balance XXX,XXX.XX
Less: Principal Paid XXX,XXX.XX
(Due but not paid XXX,XXX.XX)
Ending Noteholder Balance XXX,XXX.XX
Interest Paid XXX,XXX.XX
Interest Accrued XXX,XXX.XX
Total
Beginning Loan Balance XXX,XXX.XX
Less: Principal Paid XXX,XXX.XX
Ending Loan Balance XXX,XXX.XX
▇-▇
▇▇
▇▇▇▇▇▇▇ ▇
TO
SERVICING AGREEMENT
QUARTERLY OFFICER'S CERTIFICATE
------------, -----
I, _______________, ________________, of [PMC Capital, Inc.] (the
"Servicer"), pursuant to the provisions of Section 5.3 of the Servicing
Agreement dated as of June ____, 1999 (the "Agreement"), by and among ▇▇▇▇▇▇
Trust and Savings Bank, in its capacity as Trustee and Supervisory Servicer, PMC
Capital, L.P. 1999-1 and the Servicer, do hereby certify as follows:
(i) the Servicer has fully complied with the provisions of the
Agreement;
(ii) a review of the activities of the Servicer during the
preceding quarter and of the Servicer's performance under the
Agreement has been made under my supervision; and
(iii) to the best of my knowledge, based on the review referred
to in (ii) above, the Servicer has fulfilled all of its obligations,
duties and responsibilities under the Agreement throughout the
preceding quarterly period, and unless otherwise described on Schedule
I hereto, no Servicer Default exists.
Capitalized terms used but not otherwise defined herein shall have the
same meanings ascribed to such terms in the Agreement.
IN WITNESS WHEREOF, I have executed this certificate this ____ day of
_________, 19____.
PMC CAPITAL, INC., Servicer
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
42
EXHIBIT G
TO
SERVICING AGREEMENT
OFFICER'S CERTIFICATE
------------, ------
I, ________________, ______________________, of [PMC Capital, Inc.]
(the "Servicer"), pursuant to the provisions of Section 5.5 of the Servicing
Agreement dated as of June ____, 1999 (the "Agreement"), by and among ▇▇▇▇▇▇
Trust and Savings Bank, in its capacity as Trustee and Supervisory Servicer, PMC
Capital, L.P. 1999-1 and the Servicer, do hereby certify as follows:
(iv) I have confirmed that the Fidelity Bond, the Errors and
Omissions Insurance Policy and any other bonds required by Section 2.4
of the Agreement are in full force and effect; and
(v) The representations and warranties of the Servicer set forth
in Section 2.1 of the Agreement are true and correct in all material
respects as if made on the date hereof.
Capitalized terms used but not otherwise defined herein shall have the
same meanings ascribed to such terms in the Agreement.
IN WITNESS WHEREOF, I have executed this certificate this ____ day of
_________, _____.
PMC CAPITAL, INC., Servicer
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
G-1
43
EXHIBIT H
TO
SERVICING AGREEMENT
FORM OF OBLIGOR LETTER
[Date]
VIA CERTIFIED MAIL
[Obligor]
[Address]
[Address]
[Address]
Re: PMC Capital, Inc. ("PMC")
Loan Number
------------------------
Dear [Obligor]:
Your loan serviced by PMC is part of a pool of loans for which
___________________ serves as trustee. As part of our servicing responsibility
we are required to verify certain information with respect to your loan.
Our records indicate your loan was previously delinquent by more than
90 days and has recently been brought current. We are required to demonstrate
that you did in fact make the delinquent payments.
If these facts are correct, please indicate your acknowledgment by
signing and returning a copy of this letter to our attention, in the envelope
provided. If these facts are not correct, please indicate your disagreement by
signing this letter and indicating your disagreement beneath your signature and
returning a copy of this letter to our attention, in the envelope provided.
If we do not hear from you within 30 days of the date of this letter we
will assume that these facts are true.
H-1
44
If you have any questions, please contact the undersigned at (XXX)
XXX-XXXX.
Sincerely,
[Officer]
[Title]
Acknowledged by:
----------------------------------
Mortgagor Name Date
H-2
45
Schedule 1
to
Quarterly Officer's Certificate
SERVICER DEFAULTS
[Describe any Servicer Defaults and the status thereof and the action
being taken by the Servicer to cure any such Servicer Default.]
