EXHIBIT 1.2
INDEMNITY AGREEMENT
INDEMNITY AGREEMENT
Reference is made to the Prospectus Supplement dated May 27,
1999 (the "Prospectus Supplement") relating to the Asset Backed Notes, Series
1999-1 Class A-1 and Class A-2 (together, the "Notes"), which Notes will be
issued by Mortgage Lenders Network Home Equity Loan Trust, Series 1999-1.
Capitalized terms used but not defined herein shall have the meanings assigned
to them in the Prospectus Supplement.
Mortgage Lenders Network USA, Inc., a Delaware corporation
(the "Company"), hereby represents and warrants to Residential Asset Funding
Corporation ("RAFC") and First Union Capital Markets, a division of Wheat First
Securities, Inc. ("First Union") and Prudential Securities Incorporated,
(together with First Union, the "Underwriters") that (a) it provided to RAFC the
information relating to the Company, the Mortgage Loans and the servicing of
such loans set forth in the Prospectus Supplement under "Summary of Terms--The
Mortgage Loan Pool," "Issuer--Mortgage Lenders Network USA, Inc.," "Description
of the Mortgage Pool," "Servicing of the Mortgage Loans--General" and "Servicing
of the Mortgage Loans--Customary Servicing Procedures" (collectively, the
"Company Information"), and (b) such Company Information does not contain an
untrue statement of material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading. The
Company acknowledges and understands that RAFC is relying on the aforesaid
representation and warranty and is causing the issuance of the Notes in partial
reliance thereon and the Company agrees, in consideration for RAFC facilitating
the financing of the Company's Mortgage Loans and in consideration of the
Underwriters' purchase of the Notes, to indemnify and hold harmless RAFC, each
of RAFC's directors, each of RAFC's officers who signed the Registration
Statement and each person if any who controls RAFC within the meaning of the
Securities Act of 1933, as amended, and the Underwriters and each person who
controls the Underwriters within the meaning of the Securities Act of 1933, as
amended, for any losses, claims, damages or liabilities joint or several it
incurs as a result of (i) a breach of such representation and warranty or (ii)
as a result of a Mortgage Pool Error from which any Computational or ABS Term
Sheets were derived, and will reimburse any legal or other expenses incurred by
RAFC or any such director, officer or controlling person and the Underwriters or
any such controlling person in connection with investigating any such loss,
claim, damage, liability or action. "Computational Materials" shall mean those
materials delivered within the meaning of the no-action letter dated May 20,
1994 issued by the Division of Corporation Finance of the Commission to Xxxxxx,
Xxxxxxx Acceptance Corporation I, Xxxxxx, Peabody & Co., Incorporated, and
Xxxxxx Structured Asset Corporation and the no-action letter dated May 27, 1994
issued by the Division of Corporation Finance of the Commission to the Public
Securities Association for which the filing of such material is a condition of
the relief granted in such letters. "ABS Term Sheet" shall mean those materials
delivered in the form of "Structural Term Sheets" or "Collateral Term Sheets",
in each case within the meaning of the no-action letter dated February 13, 1995
issued by the Division of Corporation Finance of the Commission to the Public
Securities Association for which
the filing of such material is a condition of the relief granted in such letter.
For purposes hereof, a "Mortgage Pool Error" shall mean an error in information
regarding the characteristics of the Mortgage Loans provided by the Company to
the Underwriters for the preparation of Computational Materials or ABS Term
Sheets.
Each obligation of the Company to indemnify RAFC and the
Underwriters (each, an "Indemnified Party") is conditioned upon the following:
the related Indemnified Party shall promptly notify the Company in writing of
the existence of any fact or circumstance known to such Indemnified Party giving
rise to the Company's obligation of indemnity and in the case of any claim or
litigation which may give rise to such an obligation, the Indemnified Party
shall promptly notify the Company in writing of the making of such claim or the
commencement of such litigation when the same become known to such Indemnified
Party. The Company shall have the option of defending the Indemnified Party in
connection with any such claim or litigation using the Company's own counsel,
which counsel shall be reasonably satisfactory to the Indemnified Party: if the
Company exercises such option, the Company shall not be responsible for the
Indemnified Party's attorneys' fees incurred after the Indemnified Party
receives notification of the Company's exercise of such option and the
Indemnified Party has acknowledged its approval of the selected counsel. The
Company shall have the right to settle any such claim or litigation with the
approval the Indemnified Party, which approval shall not be unreasonably
withheld. If the Indemnified Party recovers from any third party any amount paid
by the Company to the Indemnified Party in satisfaction of the Company's
obligations to indemnify the Indemnified Party, the Indemnified Party shall
promptly pay to the Company the full amount so recovered. The Company shall have
no obligation to indemnify each Indemnified Party for any claims, liabilities,
losses, costs, damages, attorneys' fees, or other expenses which would have been
avoided had the Indemnified Party taken reasonable action to mitigate such
claims, liabilities, losses, costs, damages, attorneys' fees, or other expenses.
The Company shall have no obligation to indemnify each Indemnified Party from
any claim, liability, loss, cost, damage, attorneys' fees or other expenses
arising from the negligence or willful misconduct of such Indemnified Party or
its officers, employees, or agents.
The obligations of the Company hereunder shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the related
Indemnified Party and to each person, if any, who controls such Indemnified
Party within the meaning of the Securities Act of 1933, as amended.
The agreement shall be construed in accordance with the
substantive laws of the State of New York (without regard to conflicts of laws
principles).
2
IN WITNESS WHEREOF, the Company has executed this Indemnity
Agreement as of May 27, 1999
MORTGAGE LENDERS NETWORK USA, INC.
BY: /s/ Xxxxxx X. Xxxxxx
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Name: Xxxxxx X. Xxxxxx
Title: Senior Vice President
[Indemnity Agreement]
