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SERVICING AGREEMENT
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HEARTLAND BANK,
as Owner
and
CREDITRUST CORPORATION,
as Servicer
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Dated August 6, 1997
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SERVICING AGREEMENT
THIS SERVICING AGREEMENT, dated as of August 6, 1997 (this "Agreement")
is made by and between Creditrust Corporation, as servicer (the "Servicer"), and
Heartland Bank, a federally chartered savings association (the "Owner").
Preliminary Statements:
Pursuant to the terms of a letter agreement dated June 18, 1997 (the
"Letter Agreement"), the Owner has appointed the Servicer as its agent for the
purpose of bidding for and completing the purchase of a portfolio of Receivables
(as such term is defined below). The parties have further agreed, that Servicer
shall act as the sole and exclusive servicing agent for Owner with respect to
the Receivables. The parties now desire to enter into this Agreement to set
forth the terms and conditions on which Creditrust Corporation will act as
servicing agent with respect to the Receivables.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, each party agrees as follows:
ARTICLE 1.
DEFINITIONS
SECTION 1.1. Definitions.
Except as otherwise provided in this Agreement, whenever used herein,
the following words and phrases, unless the context otherwise requires, shall
have the following meanings:
Affiliate: with respect to any specified Person, any other Person
controlling or controlled by or under common control with such specified Person.
For the purposes of this definition, "control," when used with respect to any
specified Person, means the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the term "controlling" and
"controlled" have meanings correlative to the foregoing.
Agreement: this Servicing Agreement, as the same may be amended or
supplemented from time to time.
Business Day: any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of Maryland or the State of Missouri are
required or authorized by law, regulation, executive order or governmental
decree to be closed.
Closing Date: the date on which the Owner closes on the purchase of the
Receivables pursuant to the Purchase Agreement.
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Collections Account: the segregated account or accounts, each of which
shall be an Eligible Account, established and maintained pursuant to Section
3.1.
Crossover Date: the last day of the month prior to the Payment Date on
which Owner has received, in aggregate, $8,556,450.20 from Net Collections.
Eligible Account: any segregated account or accounts maintained with an
institution, the deposits of which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC"), and that is (i) a federal savings and loan association duly organized,
validly existing and in good standing under the federal banking laws, (ii) a
banking or savings and loan association duly organized, validly existing and in
good standing under the applicable laws of any state, (iii) a national banking
association duly organized, validly existing and in good standing under the
federal banking laws. Any Eligible Account maintained with Owner shall be deemed
to be in conformity with the requirements of this paragraph.
Gross Collections: with respect to a Receivable and a calendar month,
all monies collected, received or otherwise recovered from or for the account of
the related Obligor on such Receivable during such calendar month.
Lien: any security interest, lien, charge, pledge, equity, encumbrance
or interests of others of any kind.
Minimum Collections: with respect to any calendar month, (i) $101,358
per month for the Minimum Period, (ii) $441,633 for each month after such
Minimum Period until the Crossover Date and (iii) $0 per month, after the
Crossover Date.
Minimum Period: the period from the Closing Date until the earlier of
(i) February 28, 1998 or (ii) the last day of the month in which Net Collections
equals $4,054,320 in the aggregate.
Net Collections: with respect to the Receivables and a calendar month,
the Gross Collections from the Receivables during such calendar month less any
Third Party Expenses actually paid in such calendar month.
Obligor: with respect to any Receivable means any Person who owes or
may be liable for payments under such Receivable.
Officer's Certificate: a certificate signed by the president, or the
chief financial officer of the Servicer, as the case may be, and delivered to
the Owner.
Payment Date: the seventh day of each calendar month or, if such day is
not a Business Day, the next succeeding Business Day, commencing October 7,
1997.
Permitted Investments: at any time, any one or more of the following
obligations and securities:
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(i) obligations of, and obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency thereof, provided such obligations are backed by the full faith
and credit of the United States;
(ii) general obligations of, or obligations guaranteed by,
FNMA or any state of the United States, the District of Columbia or the
Commonwealth of Puerto Rico, which are then rated in one of the two
highest available credit ratings of any nationally recognized rating
agency for such obligations;
(iii) certificates of deposit issued by any FDIC-insured
depository institution (including the Owner) incorporated under the
laws of the United States or of any state thereof, the District of
Columbia or the Commonwealth of Puerto Rico and subject to supervision
and examination by banking authorities of one or more of such
jurisdictions; and
(iv) money market funds, so long as such funds are rated "BBB"
or better by Standard & Poor's (or an equivalent rating by any other
nationally recognized rating agency);
provided that each of the foregoing investments shall mature no later than the
Business Day prior to the Payment Date immediately following the date of
purchase thereof (other than in the case of the investment of monies in
instruments of which the entity at which the Collections Account is located is
the obligor, which may mature on the related Payment Date), and shall be
required to be held to such maturity.
Person: any legal person, including any individual, corporation,
partnership, limited liability company, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
Proprietary Information: the meaning specified in Section 10.1.
Purchase Agreement: that certain Asset Purchase Agreement by and
between the Owner and Citibank pursuant to which Owner will purchase the
Receivables, a copy of which is attached hereto as Exhibit A.
Receivable: any receivable generated on a credit card account,
revolving account or installment account purchased by the Owner pursuant to the
terms of the Purchase Agreement.
Receivable File: with respect to a particular Receivable, means the
following documents:
(i) any documents received from or made available by the
banking institutions and merchants that originated any of the
Receivables and their assignees in respect of such Receivable;
(ii) a copy of marked computer records indicating the
ownership of the Receivable by the Owner; and
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(iii) any and all other documents that the Servicer shall keep
on file, in accordance with its customary procedures, relating to such
Receivable or the related Obligor.
Schedule of Receivables: the true and complete list of all Receivables
purchased by Owner in such form as delivered by Citibank to the Servicer under
the Purchase Agreement, which is incorporated by reference herein, as the same
may be amended from time to time.
Servicer's Certificate: a Certificate of the Servicer completed and
executed pursuant to Section 2.8.
Servicer Default: the meaning specified in Section 7.1.
Servicing Fee: means the fee payable to the Servicer on each Payment
Date, determined in accordance with Section 3.3(b), for its services rendered
under this Agreement.
Third-Party Expenses: with respect to a Receivable and any calendar
month, the amount of any fees and compensation paid during such calendar month
to unrelated third-party attorneys retained or otherwise engaged by the Servicer
under fee or compensation arrangements that are contingent upon, and determined
by reference to, amounts recovered in respect of the related Receivable.
SECTION 1.2. Other Definitional Provisions.
(a) All terms in this Agreement shall have the defined meanings when
used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(b) As used in this Agreement and in any certificate or other document
made or delivered pursuant hereto and thereto, accounting terms not defined in
this Agreement or in any such certificate or other document, and accounting
terms partly defined in this Agreement or in any such certificate or other
document to the extent not defined, shall have the respective meanings given to
them under generally accepted accounting principles or regulatory accounting
principles, as applicable. To the extent that the definitions of accounting
terms in this Agreement or in any such certificate or other document are
inconsistent with the meanings of such terms under generally accepted accounting
principles or regulatory accounting principles, as applicable, the definitions
contained in this Agreement or in any such certificate or other document shall
control.
(d) Unless otherwise specified, references to any amount on deposit or
outstanding on any particular date shall mean such amount at the close of
business on such day.
(e) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement; and references to any
Section, Schedule or Exhibit are references to Sections, Schedules and Exhibits
in or to this Agreement unless otherwise specified.
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(f) With respect to all terms in this Agreement, the singular includes
the plural and the plural the singular; words importing any gender include the
other gender; references to "writing" include printing, typing, lithography and
other means of reproducing words in a visible form; references to agreements and
other contractual instruments include all subsequent amendments thereto or
changes therein entered into in accordance with their respective terms and not
prohibited by this Agreement, and references to Persons include their permitted
successors and assigns; and the term "including" means "including without
limitation."
(g) The term "month" or "calendar month" refers to a full calendar
month, except that the first month shall include August and September, 1997, and
the last month shall end on the date that all Receivables have been collected or
sold.
ARTICLE 2.
CUSTODY OF RECEIVABLE FILES
ADMINISTRATION AND SERVICING OF RECEIVABLES
SECTION 2.1. Duties as Custodian.
(a) Safekeeping. The Servicer, in its capacity as custodian, shall hold
the Receivable Files on behalf of the Owner and maintain such accurate and
complete accounts, records and computer systems pertaining to each Receivable
File as shall enable the Servicer to comply with this Agreement. In performing
its duties as custodian, the Servicer shall act with reasonable care, using that
degree of skill and attention that it exercises with respect to the receivable
files of comparable defaulted receivables that the Servicer services for itself.
The Servicer shall conduct, or cause to be conducted, periodic examinations of
the files of receivables owned or serviced by it, which shall include Receivable
Files held by it under this Agreement, and of the related accounts, records and
computer systems, in such a manner as shall enable the Owner to verify the
accuracy of the Servicer's record keeping. The Servicer shall promptly report to
the Owner any failure on its part to hold the Receivable Files and maintain its
accounts, records and computer systems as herein provided and promptly take
appropriate action to remedy any such failure.
(b) Maintenance of and Access to Records. The Servicer shall maintain
each Receivable File at its office specified in the Schedule of Receivables or
at such other office as shall be specified to the Owner. The Servicer shall make
available to the Owner or its duly authorized representatives, attorneys or
auditors the Receivable Files and the accounts, records and computer systems
maintained by the Servicer with respect thereto upon not less than three
Business Days' prior written notice for examination during normal business
hours.
SECTION 2.2. Effective Period and Termination.
The Servicer's appointment as custodian of the Receivable Files shall
become effective as of the Closing Date and shall continue in full force and
effect so long as it is the Servicer under this Agreement. If all of the rights
and obligations of the Servicer have been terminated pursuant to Article 7, the
appointment of the Servicer as custodian of the Receivable Files shall
immediately terminate. As soon as practicable, but not more than five Business
days, after any
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termination of such appointment, the Servicer shall deliver the Receivable Files
to the Owner or its agent at such place or places as the Owner may reasonably
designate.
SECTION 2.3. Duties as Servicer.
The Servicer, as agent for the Owner, shall manage, service, administer
and make collections on and in respect of the Receivables using that degree of
skill and attention that the Servicer exercises with respect to all comparable
defaulted consumer receivables that it services for itself. The Servicer's
duties shall include collecting and posting all payments, responding to
inquiries of Obligors or by federal, state or local government authorities with
respect to the Receivables, investigating delinquencies, implementing of payment
plans, sending payment information to Obligors, reporting tax information to
Obligors in accordance with its customary practices, accounting for collections,
furnishing monthly and annual statements to the Owner with respect to payments,
generating federal income tax information and performing the other duties
specified herein. The Servicer shall follow its customary standards, policies
and procedures and applicable federal and state laws and regulations and shall
have full power and authority, acting alone, to do any and all things in
connection with such managing, servicing, administration and collection that it
may deem necessary or desirable, including the enforcement of the rights of the
Owner against the seller of the Receivables.
Without limiting the generality of the foregoing, the Servicer shall be
authorized and empowered by the Owner to execute and deliver, on behalf of
itself or the Owner, any and all instruments of satisfaction or cancellation, or
of partial or full release or discharge and all other comparable instruments,
with respect to the Receivables. The Servicer is hereby authorized to commence,
in its own name or in the name of the Owner, a legal proceeding to enforce a
Receivable or to commence or participate in a legal proceeding (including,
without limitation, a bankruptcy proceeding) relating to or involving a
Receivable. If the Servicer commences or participates in such a legal proceeding
in its own name, the Owner shall thereupon be deemed to have automatically
assigned, solely for the purpose of collection on behalf of the party retaining
an interest in such Receivable, such Receivable to the Servicer for purposes of
commencing or participating in any such proceeding as a party or claimant, and
the Servicer is authorized and empowered by the Owner to execute and deliver in
the Servicer's name any notices, demands, claims, complaints, responses,
affidavits or other documents or instruments in connection with any such
proceeding. If, in any enforcement suit or legal proceeding, it shall be held
that the Servicer may not enforce a Receivable on the grounds that it shall not
be a real party in interest or a holder entitled to enforce such Receivable, the
Owner shall, at the Servicer's expense and written direction, take reasonable
steps to enforce such Receivable, including bringing suit in the name of the
Owner. The Servicer shall deposit or cause to be deposited into the Collections
Account all proceeds realized in connection with any such action pursuant to
Section 3.1. The Owner shall furnish the Servicer with any powers of attorney
and other documents and take any other steps which the Servicer may deem
reasonably necessary or appropriate to enable the Servicer to carry out its
servicing and administrative duties under this Agreement.
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SECTION 2.4. Collection of Receivable Payments.
The Servicer shall make reasonable efforts to collect all payments due
and payable in connection with the Receivables, and shall follow such customary
collection procedures as it follows with respect to comparable defaulted
consumer receivables that it services for itself. The Servicer shall be
authorized to write down the balance of any Receivable in accordance with
customary servicing practices and standards without the prior consent of the
Owner. The Servicer may, in accordance with its customary servicing procedures,
waive any charges or fees that otherwise might be collected in the ordinary
course of servicing the Receivables.
SECTION 2.5. Covenants of Servicer.
The Servicer hereby makes the following covenants with respect to the
Receivables:
(a) Fulfillment of Obligations. The Servicer shall duly fulfill all
obligations on its part to be fulfilled by it or the Owner under or in
connection with the Receivables, shall perform its collection activities using
the methods and standards currently used by Servicer in collecting accounts such
as the Accounts. Servicer shall perform its obligations in accordance with such
standards as are currently utilized by the Servicer, which include backup
servicing files and disaster recovery plans, and such other servicing standards
as are currently deemed appropriate or may in the future be deemed appropriate
by the Servicer. Servicer shall maintain in effect all qualifications required
in order to service the Receivables and shall comply in all respects with all
other requirements of law and regulation in connection with servicing the
Receivables, including the Federal Fair Debt Collection Practices Act, if
applicable, the failure to comply with which would have a material adverse
effect on the Owner, provided that Servicer shall not be considered to be in
violation of this provision as a result of any alleged violation of any
applicable law or regulation unless and until such violation has been determined
to exist by a final and non-appealable (whether by decree or lapse of time)
court order.
(b) No Rescission or Cancellation. The Servicer shall not permit any
rescission or cancellation of the Receivables except as ordered by a court of
competent jurisdiction or other governmental authority; provided, however, that
the writing down of any Receivable balance in accordance with customary
servicing procedures shall not be deemed a rescission or cancellation of such
Receivable.
(c) No Impairment. The Servicer shall do nothing to impair the rights
of the Owner with respect to the Receivables; provided, however, that the
writing down of the Receivable balance in accordance with customary servicing
procedures shall not be deemed an impairment of the rights of the Owner.
(d) No Sub-Servicing. The Servicer shall not delegate its servicing
obligations under this Agreement; provided, however, that the delegation of
recovery obligations to third-party attorneys engaged by the Servicer shall not
be deemed a breach of this clause (d).
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SECTION 2.6. Maintenance of Records.
(a) The Servicer shall maintain accounts and records as to each
Receivable accurately and in sufficient detail to permit (i) the reader thereof
to know at any time the status of such Receivable, including payments and
recoveries made and payments owing (and the nature of each, if applicable) and
(ii) reconciliation between payments or recoveries on (or with respect to) each
Receivable and the amounts from time to time deposited in the Collection Account
in respect of such Receivable.
(b) The Servicer shall maintain its computer records so that the
Servicer's master computer records (including any back-up archives) that refer
to any Receivable indicate clearly the interest of the Owner in such Receivable
and that the Receivable is owned by the Owner. Indication of the Owner's
interest in a Receivable shall be deleted from or modified on the Servicer's
computer records when, and only when, the Receivable has been paid in full,
acquired or assigned pursuant to this Agreement.
(c) Upon request, the Servicer shall furnish to the Owner, within five
Business Days of such request, a list of all Receivables (by account number and
name of Obligor) then outstanding, together with a reconciliation of such list
to the Schedule of Receivables and to each of the Servicer's Certificates
furnished before such request indicating removal of Receivables.
SECTION 2.7. Servicing Fee; Payment of Certain Expenses by Servicer.
(a) As compensation for the performance of its servicing obligations
hereunder, the Servicer shall be entitled to receive on each Payment Date (i)
the Servicing Fee, as determined under Section 2.7(b), plus (ii) reimbursement
of all Third Party Expenses incurred by it in servicing the Receivables. Except
to the extent otherwise provided herein, the Servicer shall be required to pay
from its servicing compensation all expenses incurred by Servicer in connection
with servicing the Receivables including, without limitation, recovery and
collection expenses related to the enforcement of the Receivables (other than
those specified in the following sentence), and all other fees and expenses that
are not expressly stated in this Agreement to be payable by the Owner; provided,
however, that the Servicer shall not be liable for any liabilities, costs or
expenses of the Owner arising under any tax law, including without limitation
any federal, state or local income or franchise taxes or any other tax imposed
on or measured by income (or any interest or penalties with respect thereto or
arising from a failure to comply therewith).
(b) The Servicing Fee shall be determined as follows:
(i) for the Minimum Period, 85% of Net Collections, provided
that such Servicing Fee will be deferred in any such month to the
extent necessary to permit Owner to receive at least its Minimum
Collections for such month;
(ii) after such Minimum Period and until the Crossover Date,
60% of Net Collections, provided that such Servicing Fee will be
deferred in any such month to the
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extent necessary to permit Owner to receive at least its Minimum
Collections for such month; and
(iii) from and after the Crossover Date, 90% of all Net
Collections.
SECTION 2.8. Servicer's Certificate; Monthly Servicer Report.
On or before each Payment Date, the Servicer shall deliver to the Owner
a Servicer's Certificate and Monthly Servicer Report executed by the President
or chief financial officer of the Servicer containing all information necessary
to support the payments required by Section 3.3(b) in respect of the calendar
month immediately preceding the date of such Servicer's Certificate. Servicer
will provide such additional information as may be requested by the Owner in
writing from time to time provided that Servicer generates similar information
for receivables which it holds for its sole benefit.
SECTION 2.9. Annual Statement as to Compliance.
The Servicer shall deliver to the Owner, on or before March 31 of each
calendar year, beginning in March 1998, an Officer's Certificate, stating that
(i) a review of the activities of the Servicer during the preceding 12-month
period ended December 31 (or, in the case of the first such statement, from the
date of this Agreement through December 31, 1997) and of its performance under
this Agreement has been made under the supervision of the officer executing the
Officer's Certificate, and (ii) to such officer's knowledge, based on such
review, the Servicer has fulfilled all its obligations under this Agreement in
all material respects throughout such period or, if there has been a default in
the fulfillment of any such obligation, specifying each such default known to
such officer and the nature and status thereof.
SECTION 2.10. Annual Accountants' Report.
The Servicer, at its own expense, shall cause a firm of independent
certified public accountants to deliver to the Owner on or before March 31 of
each year, beginning in March 1998, a report concerning the internal financial
and accounting controls of the Servicer with respect to the processing of
consumer receivables during the preceding 12-month period ended December 31 (or,
in the case of the first such report, from the Closing Date through December 31,
1997). Such report shall also indicate that the firm is independent with respect
to the Servicer within the meaning of the Code of Professional Ethics of the
American Institute of Certified Public Accountants.
SECTION 2.11. Financial Statements. Servicer shall furnish to Owner:
(a) as soon as available and in any event within 60 days after the end
of each of the first three quarterly fiscal periods in each fiscal year of the
Servicer: (i) a consolidated balance sheet of the Servicer as at the end of such
fiscal period, and (ii) consolidated statements of income and statements of cash
flow of the Servicer for such fiscal period and for the period from the
beginning of such fiscal year to the end of such fiscal period, prepared in
accordance with generally accepted accounting principles and certified by the
chief financial officer of the Servicer; and
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(b) as soon as available and in any event within 120 days after the end
of each fiscal year of Servicer: (i) a consolidated balance sheet of the
Servicer as at the end of such fiscal year, and (ii) consolidated statements of
income and statements of cash flow of the Servicer for such fiscal year,
accompanied by a report of independent certified public accountants of
recognized standing selected by the Servicer, which report shall be unqualified
as to scope of audit and shall state that said financial statements fairly
present the financial condition and results of operations and changes in
financial position for such fiscal year of the Servicer as at the end of and for
such fiscal year, all in accordance with generally accepted accounting
principles consistently applied.
ARTICLE 3.
COLLECTIONS ACCOUNT; PAYMENTS
SECTION 3.1. Collections Account.
The Servicer shall establish and maintain the Collections Account for
the benefit of the Owner, with withdrawal authority in the Servicer. All amounts
held in the Collections Account shall, to the extent permitted by applicable
laws, rules and regulations, be invested in Permitted Investments by the
FDIC-insured depository institution then maintaining such account only upon
written direction of the Owner; provided, however, in the event the Owner fails
to provide such written direction to the Servicer, and until the Owner provides
such written direction, the Servicer shall invest in Permitted Investments
satisfying the requirements of clause (iv) of the definition thereof. Any losses
and investment expenses relating to any investment of funds in the Collections
Account shall be for the account of the Owner, which shall deposit or cause to
be deposited the amount of such loss (to the extent not offset by income from
other investments of funds in the related Account) in the related account
immediately upon the realization of such loss.
SECTION 3.2. Collections.
The Servicer shall remit to the Collections Account all Gross
Collections it receives by or on behalf of the Obligors on or in respect of the
Receivables no later than the fifth Business Day after receipt thereof.
SECTION 3.3. Application of Funds from Collections Account.
(a) On each Payment Date, the Servicer shall calculate, as applicable,
the amount to be paid over to the Owner and the Servicing Fee to be retained by
it, which amounts shall be set forth in the Servicer's Certificate for the
related Payment Date.
(b) On each Payment Date, the Servicer shall apply all funds then held
in the Collections Account as follows and as reflected in the Servicer's
Certificate for such Payment Date; provided, however, that such payments shall
be made only to the extent of funds then on deposit in the Collections Account:
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(i) throughout the term of this Agreement, to the Servicer in
reimbursement of all Third Party Expenses actually paid by the Servicer
and not previously reimbursed hereunder;
(ii) for the Minimum Period, 85% of Net Collections shall be
paid to the Servicer as its Servicing Fee, provided that such Servicing
Fee will be deferred in any such month to the extent necessary to
permit Owner to receive at least its Minimum Collections for such
month;
(iii) after such Minimum Period and until the Crossover Date,
60% of Net Collections shall be paid to the Servicer as its Servicing
Fee, provided that such Servicing Fee will be deferred in any such
month to the extent necessary to permit Owner to receive at least its
Minimum Collections for such month; and
(iv) from and after the Crossover Date, 90% of Net Collections
shall be paid to the Servicer as its Servicing Fee; and
(v) as an additional Servicing Fee, in each month, Servicer
shall be paid an amount equal to (A) the difference between interest
earned on the Collections Account, minus bank fees charged on the
Collection Account, times (B) a percentage which is the same percentage
stated above relating to Net Collections for such month; and
(vi) the balance in the Collections Account shall be paid to
the Owner.
ARTICLE 4.
THE SERVICER
SECTION 4.1. Representations of Servicer.
The Servicer hereby makes the following representations on which the
Owner is relying in entering into this Agreement.
(a) Organization and Good Standing. The Servicer is duly organized and
validly existing as a corporation in good standing under the laws of the State
of Maryland, with corporate power and authority to own its properties and to
conduct its business as such properties are currently owned and such business is
presently conducted, and had at all relevant times, and now has, corporate
power, authority and legal right to acquire, own, hold, transfer, convey and.
service the Receivables and to hold the Receivable Files as custodian.
(b) Power and Authority. The Servicer has the corporate power and
authority to execute and deliver this Agreement and to carry out its terms; and
the execution, delivery and performance of this Agreement has been duly
authorized by the Servicer by all necessary corporate action.
(c) Binding Obligations. This Agreement constitutes a legal, valid and
binding obligation of the Servicer enforceable in accordance with its terms,
except as enforceability may
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be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting creditors' rights generally or by general principles of
equity.
(d) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms of this Agreement do not
conflict with, result in any breach of any of the terms and provisions of, nor
constitute (with or without notice or lapse of time) a default under, the
articles of incorporation or bylaws of the Servicer, or conflict with or breach
any of the material terms or provisions of, or constitute (with or without
notice or lapse of time) a default under, any indenture, agreement or other
instrument to which the Servicer is a party or by which it shall be bound; nor
result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than this Agreement); nor violate, any law, order, rule or regulation
applicable to the Servicer of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Servicer or its properties; which breach, default,
conflict, Lien or violation would have a material adverse effect on the
Receivables or the Owner's interests therein.
(e) No Proceedings. There is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now pending, or
to the Servicer's knowledge, threatened, against or affecting the Servicer: (i)
asserting the invalidity of this Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement or (iii)
seeking any determination or ruling that might materially and adversely affect
the performance by the Servicer of its obligations under, or the validity or
enforceability of, this Agreement.
SECTION 4.2. Liability of Servicer; Indemnification Obligations.
(a) The Servicer shall be liable in accordance herewith only to the
extent of the obligations specifically undertaken by the Servicer under this
Agreement, including the indemnity obligations of Section 4.2(b), and shall have
no other obligations or liabilities under this Agreement.
(b) The Servicer shall indemnify, defend and hold harmless the Owner,
its officers, directors, employees and agents and their respective successors
and assigns from and against any and all costs, expenses, losses, claims,
damages and liabilities to the extent that any such cost, expense, loss, claim,
damage or liability is found by a court of competent jurisdiction (or other body
with jurisdiction over the matter) to have arisen out of, and was imposed upon
the Owner, its officers, directors, employees and agents and their respective
successors and assigns through the negligence, misfeasance or bad faith of the
Servicer in the performance of its duties under this Agreement or by reason of
reckless disregard of its obligations and duties under this Agreement.
Indemnification under this Section 4.2(b) shall include, without limitation,
reasonable fees and expenses of counsel and expenses of litigation. If the
Servicer has made any indemnity payments pursuant to this Section and the
recipient thereafter collects any of such amounts from others, the recipient
shall promptly repay such amounts collected to the Servicer, without interest,
so long as no amounts are outstanding to the Owner.
12
The indemnification obligations of the Servicer under this Section 4.2(b) shall
survive the resignation or removal of the Servicer and the termination of this
Agreement.
SECTION 4.3. Limitation on Liability of Servicer and Others.
(a) Neither the Servicer nor any of its directors, officers, employees
or agents shall be under any liability to the Owner, except as provided in this
Agreement, for any action taken or for refraining from the taking of any action
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Servicer or any such person against any
liability that would otherwise be imposed by reason of misfeasance, bad faith or
negligence in the performance of duties or by reason of reckless disregard of
obligations and duties under this Agreement.
(b) Except as provided in this Agreement, the Servicer shall not be
under any obligation to appear in, prosecute, or defend any legal action that
shall not be incidental to its duties to service the Receivables in accordance
with this Agreement, and that in its opinion may involve it in any expense or
liability; provided, however, that the Servicer may undertake any reasonable
action that it may deem necessary or desirable in respect of this Agreement and
the rights and duties of the parties to this Agreement and the interests of the
Owner under this Agreement.
(c) The Servicer and any director, officer, employee or agent of the
Servicer may rely in good faith on the advice of counsel or on any document of
any kind, prima facie properly executed and submitted by any Person respecting
any matters arising under this Agreement.
SECTION 4.4. Servicer Not to Resign.
Creditrust Corporation shall not resign from the obligations and duties
hereby imposed on it as Servicer under this Agreement except upon determination
that the performance of its duties under this Agreement shall no longer be
permissible under applicable law. Notice of any such determination permitting
the resignation of Servicer shall be communicated to the Owner at the earliest
practicable time and any such determination shall be evidenced by an opinion of
counsel to such effect delivered to the Owner concurrently with or promptly
after such notice. No such resignation shall become effective until a successor
servicer shall have assumed the responsibilities and obligations of Servicer
with respect to the Receivables.
ARTICLE 5.
THE OWNER
SECTION 5.1. Representations of Owner.
The Owner hereby makes the following representations as of the date of
this Agreement, on which the Servicer is relying in accepting the obligation to
service the Receivables hereunder.
(a) Organization and Good Standing. The Owner is duly organized and
validly existing as a corporation in good standing under the laws of the United
States, with power and
13
authority to own its properties and to conduct its business as such properties
are currently owned and such business is presently conducted, and had at all
relevant times, and now has, power, authority and legal right to acquire, own,
hold, transfer, assign and convey the Receivables.
(b) Power and Authority. The Owner has the power and authority to
execute and deliver this Agreement and to carry out its terms; and the
execution, delivery and performance of this Agreement has been duly authorized
by the Owner by all necessary action.
(c) Binding Obligations. This Agreement constitutes a legal, valid and
binding obligation of the Owner enforceable in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization or
other similar laws affecting creditors' rights generally or by general equity
principles.
(d) No Violation. The consummation of the transactions contemplated by
this Agreement and the fulfillment of the terms of this Agreement do not
conflict with, result in any breach of any of the terms or provisions of, nor
constitute (with or without notice or lapse of time) a default under, the
articles of organization or bylaws of the Owner or any indenture, agreement or
other instrument to which the Owner is a party or by which it shall be bound,
nor result in the creation or imposition of any Lien upon any of its properties
pursuant to the terms of any such indenture, agreement or other instrument
(other than this Agreement), nor violate any law, order, rule or regulation
applicable to the Owner of any court or of any federal or state regulatory body,
administrative agency or other governmental instrumentality having jurisdiction
over the Owner or its properties.
(e) No Proceedings. There is no action, suit or proceeding before or by
any court or governmental agency or body, domestic or foreign, now pending, or
to the Owner's knowledge, threatened, against or affecting the Owner: (i)
asserting the invalidity of this Agreement, (ii) seeking to prevent the
consummation of any of the transactions contemplated by this Agreement, (iii)
seeking any determination or ruling that might materially and adversely affect
the performance by the Owner of its obligations under, or the validity or
enforceability of,-this Agreement.
SECTION 5.2. Indemnification Obligations of Owner.
The Owner shall indemnify, defend and hold harmless the Servicer, its
officers, directors, employees and agents and their respective successors and
assigns from and against any and all costs, expenses, losses, claims, damages
and liabilities arising or growing out of or in any way connected with the
performance of services by the Servicer hereunder, except to the extent that any
such costs, expenses, losses, claims, damages and liabilities are found by a
court of competent jurisdiction (or other body with jurisdiction over the
matter) to be due to the negligence, misfeasance or bad faith of the Servicer,
its officers, directors, employees or agents in the performance of the
Servicer's duties under this Agreement or by reason of reckless disregard of its
obligations and duties under this Agreement. Indemnification under this Section
5.2 shall include, without limitation, reasonable fees and expenses of counsel
and
14
expenses of litigation. The indemnification obligations of the Owner under this
Section 5.2 shall survive the resignation or removal of the Servicer and the
termination of this Agreement.
ARTICLE 6.
TERM
SECTION 6.1. Term.
The term of this Agreement shall commence as of the Closing Date and,
unless modified by separate agreement signed by all parties hereto or terminated
as otherwise provided herein, shall terminate on the date that is one hundred
twenty (120) full calendar months from the Closing Date. Except as provided in
Article 7 or Article 8, this Agreement may not be terminated by any party prior
to the end of such 120-month period.
ARTICLE 7.
SERVICER DEFAULT, OWNER DEFAULT AND RELATED REMEDIES
SECTION 7.1. Servicer Default.
For purposes of this Agreement, each of the following shall constitute
a "Servicer Default":
(a) any failure by the Servicer to make any payment to the
Owner required to be made under Section 3.3(b) that continues
unremedied for a period of three Business Days after discovery by an
officer of the Servicer or the date on which written notice has been
given to the Servicer by the Owner; or
(b) the failure of both the following conditions: (i) the
Servicer to collect and the Owner to receive in any three-month period
average Net Collections equal to the average Minimum Collections for
such three-month period and (ii) the Servicer to collect and the Owner
to receive, as of any date, cumulative Net Collections in an amount at
least equal to the cumulative Minimum Collections as of such date; or
(c) any failure on the part of the Servicer duly to observe or
perform any other covenants or agreements of the Servicer set forth in
this Agreement, which failure shall (i) materially and adversely affect
the rights and interests of the Owner in the Receivables and (ii)
continue unremedied for a period of 30 days after discovery by an
officer of the Servicer or the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to
the Servicer by the Owner; or
(d) any representation, warranty or certification made by the
Servicer in this Agreement proves to have been incorrect when made,
which (i) has a material adverse effect on the rights and interests of
the Owner in the Receivables and (ii) continues unremedied for a period
of 30 days after discovery by an officer of the Servicer or the date on
which written notice, requiring the same to be remedied, shall have
been given to the Servicer by the Owner; or
15
(e) the entry of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a trustee in bankruptcy, conservator, receiver or
liquidator for the Servicer in any bankruptcy, insolvency, readjustment
of debt, marshaling of assets and liabilities or similar proceedings,
or for the winding up or liquidation of their respective affairs, and
the continuance of any such decree or order unstayed and in effect for
a period of 30 consecutive days; or
(f) the consent by the Servicer to the appointment of a
trustee in bankruptcy, conservator or receiver or liquidator in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to the Servicer, or
relating to substantially all of its property, or 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 payment of its
obligations.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) above for a period of three Business Days or
referred to under clause (c), (d) or (e) above for a period of 30 days shall not
constitute a Servicer Default until the expiration of an additional five
Business Days or 30 days, respectively, if such delay or failure could not be
prevented by the exercise of reasonable diligence by the Servicer and such delay
or failure was caused by an act of God or other similar occurrence.
SECTION 7.2. Remedies With Respect To Servicer Default.
If a Servicer Default shall occur and be continuing prior to but not
after the Crossover Date, so long as such Servicer Default has not been cured or
waived, Owner may exercise any one or more of its rights and remedies under
common or statutory law and in addition the Owner by notice then given in
writing to the Servicer may terminate all of the rights and obligations of the
Servicer, as Servicer under this Agreement, and in and to the Receivables and
proceeds thereof, except for Servicer's rights under Article 8. The Servicer
shall cooperate with any successor servicer in effecting the termination of the
responsibilities and rights of the Servicer under this Agreement, including,
without limitation, the transfer to the successor servicer for administration by
it of all cash amounts that shall at the time be held by the Servicer for
deposit with respect to the Receivables, or have been deposited by the Servicer
in the Collections Account with respect to the Receivables or thereafter
received by the Servicer with respect to the Receivables. After the Crossover
Date, Owner may exercise any one or more of its rights and remedies under common
or statutory law, other than the right to terminate this Agreement.
(b) No failure or delay on the part of Owner in exercising any
right, power or privilege hereunder and no course of dealing between Owner and
Servicer shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies provided herein are cumulative
and not exclusive of any rights or remedies which Owner would otherwise have.
16
SECTION 7.3. Owner Default.
Each of the following events or circumstances shall be an Owner Default
under this Agreement:
(a) if Owner shall breach or otherwise fail to fulfill any
covenant or agreement of Owner in this Agreement which is not cured
within thirty (30) days after Servicer gives Owner written notice
thereof; or
(b) the entry of a decree or order by a court or agency or
supervisory authority having jurisdiction in the premises for the
appointment of a conservator or receiver for the Owner in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings, or for the winding up or
liquidation of its respective affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 30 consecutive
days; or
(c) the consent by the Owner to the appointment of a
conservator or receiver in any bankruptcy, insolvency, readjustment of
debt, marshaling of assets and liabilities or similar proceedings of or
relating to the Owner of or relating to substantially all of its
property.
Notwithstanding the foregoing, a delay in or failure of performance
referred to under clause (a) or (b) above for a period of 30 days shall not
constitute a Owner Default until the expiration of an additional 30 days if such
delay or failure could not be prevented by the exercise of reasonable diligence
by the Owner and such delay or failure was caused by an act of God or other
similar occurrence.
SECTION 7.4. Remedies With Respect to Owner Default.
Upon the occurrence of any Owner Default, and in addition to such other
rights and remedies as Servicer may have under other provisions of this
Agreement, Servicer may exercise any one or more of its rights and remedies
under common or statutory law and in addition, may elect to require the sale of
the Receivables by the Owner in connection with a securitization by Servicer
pursuant to the terms set forth in Article 8. No failure or delay on the part of
Servicer in exercising any right, power or privilege hereunder and no course of
dealing between Owner and Servicer shall operate as a waiver thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
Servicer would otherwise have.
17
ARTICLE 8.
ENGAGEMENT OF CREDITRUST AS MARKETING AGENT
SECTION 8.1. Engagement of Creditrust as Marketing Agent.
(a) Subject to the further terms and conditions of this Agreement,
Owner hereby engages Servicer, and Servicer hereby accepts such engagement, to
act as the exclusive marketing and sales agent of Owner with respect to the
sale, securitization, exchange or other disposition of all or part of the
Receivables. The services to be performed by Servicer on behalf of Owner
pursuant to this Agreement are as follows:
(i) marketing the Receivables or any portion thereof and
soliciting offers for the sale, securitization, exchange or other
disposition to potential purchasers who are not Affiliates of the
Servicer (except that the purchaser may be an Affiliate of the Servicer
in the case of a securitization of the Receivables initiated by
Servicer);
(ii) negotiating (including the execution of non-binding
letters of intent) with potential purchasers in the name and on behalf
of the Owner the terms and conditions, including the amount and form of
consideration, for any sale, securitization, exchange or other
disposition;
(iii) if the Owner approves a sale, securitization, exchange
or other disposition of all or part of the Receivables or such sale,
securitization, exchange or other disposition is authorized hereunder,
executing and delivering in the name and on behalf of the Owner such
documents, agreements and certificates in form approved by Owner (which
approval shall not be unreasonably withheld) and doing and performing
all such acts and things and taking all such other steps as Servicer
reasonably may deem to be necessary, proper or convenient in order to
consummate the sale, securitization, exchange or other disposition of
the Receivables on terms consistent with provisions hereof.
(b) By entering into this Agreement, Owner hereby irrevocably approves
and commits to promptly accept and consummate any offer for the securitization,
sale, exchange or other disposition of all or any portion of the Receivables
negotiated by the Servicer; provided that the net cash proceeds (the "Base
Price") immediately due to the Owner upon the consummation of securitization,
sale, exchange or other disposition shall be sufficient, when added to all other
amounts previously received by Owner with respect to the Receivables, to provide
aggregate net cash proceeds to the Owner of $8,556,450.20. In the case of a
sale, exchange or other disposition which is not a securitization, Servicer
shall be entitled to receive as a disposition and servicing fee, after receipt
by Owner of the Base Price, an amount equal to ninety percent (90%) of the
amount by which the net cash proceeds from such sale, exchange, or other
disposition exceed the Base Price. In the case of a securitization of the
Receivables initiated by Servicer, the Servicer shall be entitled to receive, as
a disposition and servicing fee, an amount equal to (i) 90% of the amount by
which net cash proceeds from the securitization of the Receivables exceed the
Base Price plus (ii) all of the amounts subsequently distributed by the trustee
under the securitization documents for the account of the transferor of the
Receivables in
18
the securitization until such distributions plus the amount of the disposition
and servicing fee received by the Servicer pursuant to Clause (i) aggregate an
amount equal to the excess of $15,371,354.50 over the amount of servicing fees
received by Servicer prior to the securitization, plus (iii) 90% of all such
distributions thereafter for the account of the transferor of the Receivables in
the securitization, (with the balance of 10% of such distributions to be paid to
the Owner). In making the foregoing calculations of the amounts payable under
clauses (i), (ii) and (iii), any servicing fees collected by Servicer pursuant
to the securitization documents shall be credited against amounts to which
Servicer is entitled. The disposition of funds provided for in clauses (ii) and
(iii) above will be provided for in the securitization documents and the trustee
shall make such distributions to the parties in accordance therewith. Owner
further commits and agrees to execute all such documents, agreements and
certificates, to perform all such acts and things and to take all such other
steps as Servicer may reasonably request in order to consummate any such sale,
securitization, exchange or other disposition containing such representations,
warranties, terms and other conditions as are customary to transactions of
similar nature.
ARTICLE 9
(RESERVED)
ARTICLE 10
MISCELLANEOUS PROVISIONS
SECTION 10.1. Confidential Information.
The Owner and Seller acknowledge that, in the course of meeting their
respective duties and obligations under this Agreement, either Owner or Servicer
may obtain information relating to the other party that is of a confidential and
proprietary nature ("Proprietary Information"). Such Proprietary Information may
include, but is not limited to, non-public trade secrets, invention techniques,
processes, programs, schematics, software source documents, data, and financial
information. The Owner and Servicer shall at all times, both during the term of
this Agreement and for a period of three (3) years after its termination, keep
in trust and confidence all such Proprietary Information, and shall not use such
Proprietary Information other than in the course of their respective duties
under this Agreement, nor shall either party disclose any such Proprietary
Information of the other party without the written consent of the other party
unless legally required to disclose such information. Each of the parties
further agrees to immediately return all Proprietary Information of the other
party (including copies thereof) in its possession, custody, or control to the
other party upon termination of this Agreement for any reason.
Neither party shall disclose, advertise or publish the existence or the
terms or conditions of this Agreement without prior written consent of the other
party. Notwithstanding the
19
foregoing, this Section 10.1 shall not prohibit disclosure of information that
is required to be disclosed pursuant to federal or state laws or regulation. In
particular, each party agrees that it shall not, without the prior consent of
the other party, disclose the existence of this Agreement or any of the terms
herein to any Person other than counsel or an employee or director with a need
to know in order to implement this Agreement and only if such employee or
director or counsel agrees to maintain the confidentiality of this Agreement.
The parties hereto agree that each of them shall have the right to enforce these
nondisclosure provisions by an action for specific performance filed in any
court of competent jurisdiction in the State of Maryland.
SECTION 10.2. Amendment.
Neither this Agreement nor any term hereof may be amended, released,
changed or modified in any manner except by an instrument in writing which
refers to this Agreement and is executed by each of the parties hereto.
SECTION 10.3. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland and the obligations, rights and remedies of
the parties under this Agreement shall be determined in accordance with such
laws.
SECTION 10.4 Notices.
(a) Written Notices. All notices, demands or requests that are required
or permitted to be given pursuant to this Agreement, to be effective, must be in
writing and delivered personally, or by commercial carrier, or by registered or
certified mail, postage prepaid, addressed to a party as stated below.
(b) Owner's Address for Notices:
Heartland Bank
βββ βββββ βββββββ, βββββ βββ
βββββββ, ββββββββ βββββ
Attention: Mr. ββββββ ββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
Copy to:
ββββββββ ββββββββ, Esquire
βββββ ββββ LLP
βββ ββββ ββββββ, β.β.
ββββββββββ, β.β. βββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
20
(c) Servicer's Address for Notices:
Creditrust Corporation
ββββ ββββββββ βββββββββ
βββββββββ, ββββββββ βββββ
Attention: ββ. ββββββ β. ββββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
Copy to:
ββββββ β. ββββββββ, Esquire
Piper & Marbury L.L.P.
ββ βββββ βββββββ ββββββ
βββββββββ, ββββββββ βββββ
Telephone: (βββ) βββ-ββββ
Facsimile: (βββ) βββ-ββββ
(d) Effective Date. Notice given personally or by commercial carrier
shall be effective upon delivery. Notice given by United States mail shall be
effective the third United States Post Office delivery day after the date of
mailing.
(e) Change of Address. Any party may change its address for notices by
notice given pursuant to this section.
SECTION 10.5 Integration and Nature of Agreement.
The making, execution and delivery of this Agreement by the parties has
not been induced by any representations, statements, warranties or agreements
other than those expressed in this Agreement. This Agreement and the Letter
Agreement embody the entire understanding of the parties. Other than the Letter
Agreement, there are no other agreements or undertakings, written or oral, in
effect between the parties relating to the subject matter of this Agreement,
unless expressly referenced in this Agreement. Neither party has made any
representation to the other regarding the manner in which this Agreement may be
treated by other persons. No provision of this Agreement shall be construed as
creating a joint venture between the parties or authorizing any party to this
Agreement to bind the other party unless expressly authorized by this Agreement.
SECTION 10.6 Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid or unenforceable
in any jurisdiction, then such covenants, agreements, provisions or terms shall
be deemed severable from the remaining covenants, agreements, provisions or
terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
21
SECTION 10.7 No Assignment.
Notwithstanding anything to the contrary contained in this Agreement,
except as provided in the provisions of this Agreement concerning the
resignation of the Servicer, this Agreement may not be assigned by the Owner or
the Servicer without the prior written consent of the other such party. Except
as otherwise expressly provided in this Agreement, Owner shall not sell, assign,
exchange or otherwise transfer all or any portion of the Receivables or permit
any such event to occur, other than a sale or assignment in connection with a
sale or exchange of all or substantially all of its assets; provided, however,
that any such transferee shall acquire and hold the transferred Receivables
subject to the terms of this Agreement.
SECTION 10.8 Execution in Counterparts.
This Agreement may be executed simultaneously in any number of
counterparts, each of which shall be deemed to be an original, and all of which
shall constitute but one and the same instrument.
22
IN WITNESS WHEREOF, the parties have caused this Servicing Agreement to
be duly executed by their respective officers as of August 6, 1997.
CREDITRUST CORPORATION,
as Servicer
By: /s/ ββββββ β. ββββββ
----------------------------------
Name: ββββββ β. ββββββ
Title: President
HEARTLAND BANK,
as Owner
By: /s/ ββββββββ β. ββββββββ
----------------------------------
Name: ββββββββ β. ββββββββ
Title: Chairman of the Board
23
EXHIBIT A
PURCHASE AGREEMENT
24
