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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest Event
Reported) March 20, 1998
Headlands Mortgage Securities Inc.
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(Exact name of registrant as specified in its charter)
Delaware 333-28031 68-0397342
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(State or Other Jurisdiction of (Commission (I.R.S. Employer
Incorporation) File Number) Identification No.)
900 Larkspur Landing Circle 94939
Suite 240 ----------
Larkspur, California (Zip Code)
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(Address of Principal Executive
Offices)
Registrant's telephone number, including area code (415) 925-5442
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Item 5. Other Events
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In connection with the offering of Home Equity Loan Asset-Backed Notes,
Series 1998-1, Class A and Class S Notes, of which Headlands Home Equity Loan
Trust 1998-1 is the issuer as described in a Prospectus Supplement dated as of
March 20, 1998 to the Prospectus dated as of July 17, 1997, certain agreements
were executed in connection with the issuance of the notes on March 25, 1998.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
1.1 Underwriting Agreement, dated as of March 20, 1998, between
Greenwich Capital Markets Inc., Headlands Mortgage Securities Inc. and
Headlands Mortgage Company.
1.2 Indemnification Agreement, dated as of March 25, 1998, between
Greenwich Capital Markets Inc., Headlands Mortgage Securities Inc.,
Headlands Mortgage Company and Ambac Assurance Corporation.
4.1 Sale and Servicing Agreement, dated as of March 13, 1998, among
Headlands Mortgage Company, Headlands Mortgage Securities Inc. and The
First National Bank of Chicago.
4.2 Indenture, dated as of March 1, 1998, between The First
National Bank of Chicago and The Wilmington Trust Company.
4.3 Trust Agreement, dated as of March 13, 1998, between Headlands
Mortgage Securities Inc. and The Wilmington Trust Company.
4.4 Certificate Guaranty Insurance Policy.
10.1 Mortgage Loan Purchase Agreement, dated as of March 13, 1998,
between Headlands Mortgage Company and Headlands Mortgage Securities Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HEADLANDS MORTGAGE
SECURITIES INC.
By: /s/ Kristen Decker
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Name: Kristen Decker
Title: Vice President
Dated: April 9, 1998
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Exhibit Index
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Exhibit Page
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1.1 Underwriting Agreement, dated as of March 20, 1998, between Greenwich
Capital Markets Inc., Headlands Mortgage Securities Inc. and Headlands
Mortgage Company
1.2 Indemnification Agreement, dated as of March 25, 1998, between
Greenwich Capital Markets Inc., Headlands Mortgage Company, Headlands
Mortgage Securities Inc. and Ambac Assurance Corporation.
4.1 Sale and Servicing Agreement, dated as of March 13, 1998, among
Headlands Mortgage Company, Headlands Mortgage Securities Inc. and The
First National Bank of Chicago
4.2 Indenture, dated as of March 1, 1998, between The First National Bank
of Chicago and The Wilmington Trust Company.
4.3 Trust Agreement, dated as of March 13, 1998, between Headlands Mortgage
Securities Inc. and The Wilmington Trust Company.
4.4 Certificate Guaranty Insurance Policy.
10.1 Mortgage Loan Purchase Agreement, dated as of March 13, 1998, between
Headlands Mortgage Company and Headlands Mortgage Securities Inc.
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Execution Copy
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Exhibit 1.1
HEADLANDS MORTGAGE COMPANY
HEADLANDS MORTGAGE SECURITIES INC.
REVOLVING HOME EQUITY LOAN ASSET-BACKED NOTES
Series 1998-1
Class A and Class S
UNDERWRITING AGREEMENT
New York, New York
March 20, 1998
Greenwich Capital Markets Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Dear Sirs:
Headlands Mortgage Securities Inc., a Delaware corporation (the "Sponsor"),
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proposes to cause Headlands Home Equity Loan Trust 1998-1 (the "Trust") to sell
to you its Revolving Home Equity Loan Asset-Backed Notes in the series and
classes, in the respective original principal amounts and with the designations
set forth in Schedule I hereto (the "Designated Notes"). Only the Designated
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Notes are being purchased by you hereunder. The Designated Notes, will be
issued pursuant to an Indenture (the "Indenture"), dated as of March 1, 1998,
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between the Trust and The First National Bank of Chicago, as indenture trustee
(the "Indenture Trustee"). The Trust will be formed pursuant to a Trust
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Agreement (the "Trust Agreement") to be dated as of March 13, 1998 and entered
into between the Sponsor and Wilmington Trust Company, as Owner Trustee. The
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Designated Notes and a certificate issued to the Sponsor (the "Certificate")
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will be secured by certain Mortgage Loans to be transferred by the Sponsor to
the Trust pursuant to a sale and servicing agreement (the "Sale and Servicing
------------------
Agreement") dated March 13, 1998 among the Sponsor, the Trust, Headlands
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Mortgage Company (the "Company") and the Indenture Trustee and pledged by the
Trust to the Indenture Trustee under the Indenture. The Designated Notes are
described more fully in Schedule I hereto and in a prospectus supplement
furnished to you by the Company.
Capitalized terms used but not otherwise defined herein shall have the
respective meanings assigned to them in the Sale and Servicing Agreement.
1.
Representations and Warranties of the Company and the Sponsor. Each of the
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Company and the Sponsor represents and warrants to, and agrees with, you that:
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(a) A registration statement on Form S-3 has been filed with the
Securities and Exchange Commission (the "Commission") (the file number of
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which is set forth in Schedule I hereto) for the registration of Asset-
Backed Securities, issuable in series under the Securities Act of 1933, as
amended (the "1933 Act"), which registration statement was declared
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effective on the date set forth in Schedule I hereto and copies of which
have heretofore been delivered to you. The Sponsor meets the requirements
for use of Form S-3 under the 1933 Act, and such registration statement, as
amended at the date hereof, meets the requirements set forth in Rule
415(a)(1)(x) under the 1933 Act and complies in all other material respects
with the 1933 Act and the rules and regulations thereunder (the "Rules and
---------
Regulations"). The Sponsor proposes to file with the Commission, with your
-----------
consent, pursuant to Rule 424 under the 1933 Act, a supplement to the form
of prospectus included in such registration statement relating to the
Designated Notes and the plan of distribution thereof, and has previously
advised you of all further information (financial and other) with respect
to the Designated Notes and the Mortgage Pool to be set forth therein.
Such registration statement, including all exhibits thereto, as amended at
the date hereof, is referred to herein as the "Registration Statement";
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such prospectus in the form in which it appears in the Registration
Statement is referred to herein as the "Basic Prospectus" (except that if
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the prospectus filed by the Sponsor pursuant to Rule 424(b) under the 1933
Act differs from the prospectus on file at the time the Registration
Statement became effective, the term "Basic Prospectus" shall refer to such
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Rule 424(b) prospectus from and after the time it is mailed to the
Commission for filing); such form of prospectus supplemented by the
prospectus supplement (the "Prospectus Supplement") relating to the
---------------------
Designated Notes, in the form in which it shall be first filed with the
Commission pursuant to Rule 424(b) under the 1933 Act (including the Basic
Prospectus as so supplemented), is referred to herein as the "Final
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Prospectus".
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(b) As of the date hereof, as of the date on which the Final
Prospectus is first filed pursuant to Rule 424 under the 1933 Act, as of
the date on which, prior to the Closing Date (as hereinafter defined), any
amendment to the Registration Statement becomes effective, as of the date
on which any supplement to the Final Prospectus is filed with the
Commission, and at the Closing Date, (i) the Registration Statement, as
amended as of any such time, and the Final Prospectus, as amended or
supplemented as of any such time, complies and will comply as to form in
all material respects with the applicable requirements of the 1933 Act and
the Rules and Regulations thereunder, (ii) the Registration Statement, as
amended as of any such time, does not contain and will not contain any
untrue statement of a material fact and does not omit and will not omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading, and (iii) the Final
Prospectus, as amended or supplemented as of any such time, does not
contain and will not contain any untrue statement of a material fact and
does not omit and will not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided,however,that the Sponsor makes no representations or
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warranties as to statements contained in or omitted from the
Registration Statement or the Final Prospectus or any amendment or
supplement thereto made in reliance upon and in conformity with information
furnished in writing to the Company by you specifically for use in the
Registration Statement and the Final Prospectus.
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(c) The documents incorporated by reference in the Final Prospectus,
when they became effective or were filed with the Commission, as the case
may be, conformed in all material respects to the requirements of the 1933
Act or the Securities Exchange Act of 1934 (the "1934 Act"), as applicable,
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and the rules and regulations of the Commission thereunder, and none of
such documents contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading; and any further documents so filed
and incorporated by reference in the Final Prospectus, when such documents
become effective or are filed with the Commission, as the case may be, will
conform in all material respects to the requirements of the 1933 Act or the
1934 Act, as applicable, and the rules and regulations of the Commission
thereunder and will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
(d) Since the respective dates as of which information is given in
the Final Prospectus, there has not been any material adverse change in the
general affairs, management, financial condition, or results of operations
of the Company, otherwise than as set forth or contemplated in the
Prospectus as supplemented or amended as of Closing Date.
(e) To the extent that the Underwriter (i) has provided to the
Company or the Sponsor Collateral term sheets (as hereinafter defined) that
such Underwriter has provided to a prospective investor, the Company or the
Sponsor has filed such Collateral term sheets as an exhibit to a report on
Form 8-K within two business days of its receipt thereof, or (ii) has
provided to the Company or the Sponsor Structural term sheets or
Computational Materials (each as defined below) that such Underwriter has
provided to a prospective investor, the Company or the Sponsor will file or
cause to be filed with the Commission a report on Form 8-K containing such
Structural term sheet and Computational Materials, as soon as reasonably
practicable after the date of this Agreement, but in any event, not later
than the date on which the Prospectus is filed with the Commission pursuant
to Rule 424 of the Rules and Regulations.
(f) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of
California, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, has
full power and authority (corporate and other) necessary to own or hold its
properties and to conduct its business as now conducted by it and to enter
into and perform its obligations under this Agreement, the Sale and
Servicing Agreement, the Mortgage Loan Purchase Agreement, dated as of
March 13, 1998 between the Company and the Sponsor (the "Purchase
--------
Agreement") and the Indemnification Agreement dated as of March 25, 1998
---------
(the "Indemnification and Contribution Agreement") between the Company,
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Ambac Assurance Corporation, the Sponsor and you.
(g) The Sponsor has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which its ownership or lease of
property or the conduct of its business requires such qualification, has
full power and authority (corporate or other) necessary to own and hold
3
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its properties and to conduct its business as now conducted by it and to
enter into and perform its obligations under this Agreement, the Trust
Agreement, the Sale and Servicing Agreement, the Purchase Agreement and the
Indemnification and Contribution Agreement.
(h) As of the date hereof, as of the date on which the Final
Prospectus is first filed pursuant to Rule 424 under the 1933 Act, as of
the date on which, prior to the Closing Date, any amendment to the
Registration Statement becomes effective, as of the date on which any
supplement to the Final Prospectus is filed with the Commission, and as of
the Closing Date, there has not and will not have been (i) any request by
the Commission for any further amendment to the Registration Statement or
the Final Prospectus or for any additional information, (ii) any issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threat of any proceeding for
that purpose or (iii) any notification with respect to the suspension of
the qualification of the Designated Notes for sale in any jurisdiction or
any initiation or threat of any proceeding for such purpose.
(i) KPMG Peat Marwick are independent public accountants with
respect to the Company as required by the 1933 Act and the Rules and
Regulations.
(j) This Agreement has been duly authorized, executed and delivered
by the Company and the Sponsor and constitutes a legal, valid, binding and
enforceable agreement of each of the Company and the Sponsor, subject as to
enforceability, to (i) bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally and (ii)
general principles of equity regardless of whether enforcement is sought in
a proceeding in equity or at law.
(k) The Sale and Servicing Agreement, the Indemnification and
Contribution Agreement and the Purchase Agreement when executed and
delivered as contemplated hereby and thereby, will have been duly
authorized, executed and delivered by each of the Company and the Sponsor,
and when so executed and delivered, will constitute legal, valid, binding
and enforceable agreements of each of the Company and the Sponsor, subject,
as to enforceability, to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
(ii) general principles of equity regardless of whether enforcement is
sought in a proceeding in equity or at law.
(l) The Trust Agreement when executed and delivered as contemplated
hereby and thereby will have been duly authorized, executed and delivered
by the Sponsor, and when so executed and delivered, will constitute a
legal, valid, binding and enforceable agreement of the Sponsor, subject, as
to enforceability, to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally and
(ii) general principles of equity regardless of whether enforcement is
sought in a proceeding in equity or at law.
(m) As of the Closing Date, the Designated Notes and the Indenture
will conform in all material respects to the respective descriptions
thereof contained in the Final Prospectus. As of the Closing Date, the
Designated Notes will be duly and validly authorized and, when duly and
validly executed, authenticated and delivered in accordance with the
Indenture and delivered to you against payment therefor as provided
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herein, will be duly and validly issued and outstanding and entitled to the
benefits of the Indenture. The Designated Notes will not be "mortgage
related securities," as such term is defined in the singular in the 1934
Act.
(n) The Indenture, when executed and delivered, will have been duly
qualified under the Trust Indenture Act of 1939.
(o) As of the Closing Date, each of the Mortgage Loans will meet the
criteria for selection described in the Final Prospectus, and on the
Closing Date the representations and warranties of the Company and the
Sponsor with respect to the Mortgage Loans contained in the Purchase
Agreement and the Sale and Servicing Agreement will be true and correct.
(p) Each of the Company and the Sponsor is not in violation of its
certificate of incorporation or by-laws or in default under any agreement,
indenture or instrument the effect of which violation or default would be
material to the Company or the Sponsor. Neither the issuance and sale of
the Designated Notes, nor the execution and delivery by the Company and the
Sponsor of this Agreement, the Sale and Servicing Agreement, the Purchase
Agreement or the Indemnification and Contribution Agreement, nor the
consummation by the Company and the Sponsor of any of the transactions
herein or therein contemplated, nor compliance by the Company and the
Sponsor with the provisions hereof or thereof, does or will conflict with
or result in a breach of any term or provision of the certificate of
incorporation or by-laws of the Company or the Sponsor or conflict with,
result in a breach, violation or acceleration of, or constitute a default
under, the terms of any indenture or other agreement or instrument to which
the Company or the Sponsor is a party or by which it is bound, or any
statute, order or regulation applicable to the Company or the Sponsor of
any court, regulatory body, administrative agency or governmental body
having jurisdiction over the Company or the Sponsor. Each of the Company
and the Sponsor is not a party to, bound by or in breach or violation of
any indenture or other agreement or instrument, or subject to or in
violation of any statute, order or regulation of any court, regulatory
body, administrative agency or governmental body having jurisdiction over
it that materially and adversely affects, or may in the future materially
and adversely affect, (i) the ability of the Company or the Sponsor to
perform its obligations under this Agreement, the Purchase Agreement, the
Sale and Servicing Agreement or the Indemnification and Contribution
Agreement or (ii) the business, operations, financial conditions,
properties or assets of the Company.
(q) The execution and delivery by the Sponsor of the Trust Agreement
does not and will not conflict with or result in a breach of any term or
provision of the certificate of incorporation or bylaws of the Sponsor or
conflict with, result in a breach, violation or acceleration of, or
constitute a default under, the terms of any indenture or other agreement
or instrument to which the Sponsor is bound or is a party or any statute,
order or regulation applicable to the Sponsor.
(r) There are no actions or proceedings against, or investigations
of, the Company or the Sponsor pending, or, to the knowledge of the Company
or the Sponsor, threatened, before any court, arbitrator, administrative
agency or other tribunal (i) asserting the invalidity of this Agreement,
the Trust Agreement, the Sale and Servicing Agreement, the Purchase
Agreement, the Indemnification and Contribution Agreement,
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the Trust Agreement or the Designated Notes, (ii) seeking to prevent the
issuance of the Designated Notes or the consummation of any of the
transactions contemplated by this Agreement, the Trust Agreement, the
Purchase Agreement, the Sale and Servicing Agreement or the Indemnification
and Contribution Agreement, (iii) that are reasonably likely to be
adversely determined and that might materially and adversely affect the
performance by each of the Company and the Sponsor of its obligations
under, or the validity or enforceability of, this Agreement, the Sale and
Servicing Agreement, the Indemnification and Contribution Agreement, the
Trust Agreement or the Designated Notes or (iv) seeking to affect adversely
the federal income tax attributes of the Designated Notes as described in
the Final Prospectus.
(s) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body of the
United States is required for the issuance of the Designated Notes and the
sale of the Designated Notes to you, or the consummation by the Company or
the Sponsor of the other transactions contemplated by this Agreement, the
Sale and Servicing Agreement, the Purchase Agreement, the Trust Agreement
and the Indemnification and Contribution Agreement, except such consents,
approvals, authorizations, registrations or qualifications as may be
required under State securities or Blue Sky laws in connection with the
purchase and distribution of the Designated Notes by you or as have been
obtained.
(t) Each of the Company and the Sponsor possesses all material
licenses, certificates, authorities or permits issued by the appropriate
State, Federal or foreign regulatory agencies or bodies necessary to
conduct the business now conducted by it and as described in the Final
Prospectus, and neither the Company nor the Sponsor has received notice of
any proceedings relating to the revocation or modification of any such
license, certificates, authority or permit which if decided adversely to
the Company or the Sponsor would, singly or in the aggregate, materially
and adversely affect the conduct of its business, operations or financial
condition.
(u) Any taxes, fees and other governmental charges in connection
with the execution and delivery of this Agreement, the Purchase Agreement,
the Trust Agreement, the Sale and Servicing Agreement and the
Indemnification and Contribution Agreement or the execution, delivery and
sale of the Designated Notes have been or will be paid on or prior to the
Closing Date.
(v) Immediately prior to the assignment of the Mortgage Loans to the
Trust as contemplated by the Sale and Servicing Agreement, the Company (i)
had good title to, and was the sole owner of, each Mortgage Loan free and
clear of any pledge, mortgage, lien, security interest or other encumbrance
(collectively, "Liens"), (ii) had not assigned to any person any of its
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right, title or interest in such Mortgage Loans and (iii) will have the
power and authority to sell such Mortgage Loans to the Sponsor pursuant to
the Purchase Agreement and upon the execution and delivery of the Sale and
Servicing Agreement by the Sponsor, the Trust will have acquired all of the
Sponsor's and the Company's right, title and interest in and to the
Mortgage Loans.
(w) At the time of execution and delivery of the Indenture, (1) the
Trust will own the Mortgage Loans being pledged to the Indenture Trustee
pursuant thereto, free and clear of any Liens, except to the extent
permitted in the Indenture, and will not have
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assigned to any person other than the Indenture Trustee any of its right,
title or interest in the Mortgage Loans, (2) the Trust will have the power
and authority to pledge the Trust Estate to the Indenture Trustee and to
transfer the Notes to You and will have duly authorized such action by all
necessary corporate action, (3) upon execution and delivery by the Trust to
the Indenture Trustee of the Indenture, and delivery of the Notes to the
Trust, the Indenture Trustee will have a valid, perfected security interest
of first priority in the Trust Estate free of Liens other than Liens
permitted by the Indenture and (4) upon payment and delivery of the
Designated Notes to you, you will acquire ownership of the Designated
Notes, free of Liens other than Liens permitted by the Indenture or created
or granted by you.
(x) At the Closing Date, the execution and delivery of the Indenture
by the Trust will have been duly authorized by the Sponsor and upon due
execution and delivery thereof by the parties thereto, the Indenture will
constitute a legal, valid and binding agreement enforceable in accordance
with its terms, except as the same may be limited by bankruptcy,
reorganization, insolvency or other similar laws affecting creditors'
rights generally and by general principles of equity.
(y) At the Closing Date, the Trust will have assigned, pledged and
delivered to the Indenture Trustee under the Indenture all of its right,
title and interest in and to, among other things, (i) the Mortgage Loans,
and (ii) cash and/or other assets, if any, in the amount set forth in the
Indenture (the "Initial Collateral").
(z) The Trust has corporate power and authority to assign, pledge
and deliver the Initial Collateral to the Indenture Trustee under the
Indenture, and at the Closing Date will have duly authorized such
assignment, pledge and delivery to the Indenture Trustee by all necessary
corporate actions.
(aa) Neither the Company, the Sponsor nor the Trust is, and neither
the issuance and sale of the Designated Notes nor the activities of the
Trust pursuant to the Indenture will cause the Company, the Sponsor or the
Trust to be, an "investment company" or under the control of an "investment
company" as such terms are defined in the Investment Company Act of 1940,
as amended (the "Investment Company Act").
----------------------
(bb) At the Closing Date, each of the representations and warranties
of the Company and the Sponsor set forth in the Purchase Agreement and in
the Sale and Servicing Agreement will be true and correct in all material
respects.
(cc) At the Closing Date, the Designated Notes shall have been rated
in the highest rating category by at least two nationally recognized rating
agencies.
2. Purchase and Sale. The commitment of the Underwriter to purchase the
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Designated Notes pursuant to this Agreement shall be deemed to have been made on
the basis of the representations and warranties herein contained and shall be
subject to the terms and conditions herein contained and shall be subject to the
terms and conditions herein set forth. The Sponsor agrees to cause the Trust to
sell the Designated Notes to you, and you agree to purchase the Designated Notes
from the Trust, for the purchase price previously agreed between us, before
deducting expenses payable by the Company estimated at $350,000.
3. Delivery and Payment. Delivery of and payment for the Designated
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Notes shall
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be made at the office of Dewey Ballantine LLP prior to 12:00 p.m., Eastern
Standard Time, on the date specified in Schedule I hereto (or such later date
not later than seven business days after such specified date as you shall
designate), which date and time may be changed by agreement between you and the
Sponsor or as provided herein (such date and time of delivery and payment for
the Designated Notes being herein called the "Closing Date"). Delivery of the
------------
Designated Notes shall be made to you against payment by you of the purchase
price therefor in immediately available funds wired to such bank as may be
designated by the Sponsor, or such other manner of payment as may be agreed upon
by the Sponsor and you. The Designated Notes to be so delivered shall be in
definitive fully registered form, unless otherwise agreed, in such denominations
and registered in such names as you may have requested in writing not less than
two full business days in advance of the Closing Date.
The Sponsor agrees to have the Designated Notes available for inspection,
checking and packaging by you at the offices of Dewey Ballantine LLP, not later
than 4:00 p.m. on the business day prior to the Closing Date.
4. Offering of the Designated Notes. It is understood that you propose
--------------------------------
to offer the Designated Notes for sale to the public as set forth in the Final
Prospectus.
5. Covenants of the Company and the Sponsor. Each of the Company and the
----------------------------------------
Sponsor covenants and agrees with you that:
(a) The Company and the Sponsor will prepare a supplement to the
Basic Prospectus setting forth the amount of Designated Notes covered
thereby and the terms thereof not otherwise specified in the Basic
Prospectus, the expected proceeds to the Company from the sale of such
Designated Notes, and such other information as you and the Company may
deem appropriate in connection with the offering of such Designated Notes.
The Company and the Sponsor will file promptly all reports and any
definitive proxy or information statements required to be filed by the
Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d)
of the 1934 Act subsequent to the date of the Final Prospectus. The Company
and the Sponsor promptly will advise you or your counsel (i) when the Final
Prospectus shall have been filed or transmitted to the Commission for
filing pursuant to Rule 424, (ii) when any amendment to the Registration
Statement shall have become effective or any further supplement to the
Prospectus shall have been filed with the Commission, (iii) of any proposal
or request to amend or supplement the Registration Statement, the Basic
Prospectus or the Final Prospectus or any request by the Commission for any
additional information, (iv) when notice is received from the Commission
that any post-effective amendment to the Registration Statement has become
or will become effective, (v) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or post-
effective amendment thereto or the institution or threatening of any
proceeding for that purpose, (vi) of the receipt by the Company or the
Sponsor of any notification with respect to the suspension of the
qualification of the Designated Notes for sale in any jurisdiction or the
institution or threatening of any proceeding for that purpose, and (vii) of
the occurrence of any event that would cause the Registration Statement, as
then in effect, to contain an untrue statement of a material fact or omit
to state a material fact required to be stated
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therein or necessary in order to make the statements therein not
misleading, or that would cause the Final Prospectus, as then in effect, to
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading. The Company and the Sponsor will use its best efforts
to prevent the issuance of any such stop order or suspension and, if
issued, to obtain as soon as possible the withdrawal thereof. The Company
and the Sponsor will cause the Final Prospectus to be transmitted to the
Commission for filing pursuant to Rule 424 under the 1933 Act or will cause
the Final Prospectus to be filed with the Commission pursuant to said Rule
424.
(b) If, at any time when a prospectus relating to the Designated
Notes is required to be delivered under the 1933 Act, any event occurs as a
result of which the Final Prospectus, as then amended or supplemented,
would contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, or if it shall be necessary to amend or supplement
the Final Prospectus to comply with the 1933 Act or the rules and
regulations thereunder, the Company and the Sponsor promptly will prepare
and file with the Commission, at the expense of the Company or the Sponsor,
as the case may be, subject to paragraph (a) of this Section 5, an
amendment or supplement that will correct such statement or omission or an
amendment that will effect such compliance and, if such amendment or
supplement is required to be contained in a post-effective amendment to the
Registration Statement, the Company and the Sponsor will use their best
efforts to cause such amendment to the Registration Statement to be made
effective as soon as possible.
(c) The Company and the Sponsor will furnish to you and your
counsel, without charge, signed copies of the Registration Statement
(including exhibits thereto) and each amendment thereto which shall become
effective on or prior to the Closing Date, and so long as delivery of a
prospectus by you may be required by the 1933 Act, as many copies of any
Final Prospectus and any amendments and supplements thereto as you may
reasonably request.
(d) The Company and the Sponsor will file promptly with the
Commission any amendment to the Registration Statement or the Prospectus or
any supplement to the Prospectus that may, in your judgment or the judgment
of the Company or the Sponsor, be required by the 1933 Act or requested by
the Commission.
(e) The Company and the Sponsor will make generally available to
holders of the Designated Notes as soon as practicable, but in any event
not later than 90 days after the close of the period covered thereby, a
statement of earnings of the Trust (which need not be audited) complying
with Section 11(a) of the 1933 Act and the Rules and Regulations
(including, at the option of the Company and the Sponsor, Rule 158) and
covering a period of at least twelve consecutive months beginning not later
than the first day of the first fiscal quarter following the Closing Date.
(f) Each of the Company and the Sponsor agrees that, so long as the
Designated Notes shall be outstanding, it will deliver to you the annual
statement as to compliance delivered to the Indenture Trustee pursuant to
Section 3.09 of the Sale and Servicing Agreement and the annual statement
of a firm of independent public accountants delivered to the Indenture
Trustee pursuant to Section 3.10 of the Sale and Servicing Agreement, as
soon as such statements are furnished to the Company or the
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Sponsor.
(g) The Company and the Sponsor will furnish such information,
execute such instruments and use their best efforts to qualify the
Designated Notes for sale under the laws of such jurisdictions as you may
designate and will maintain such qualifications in effect so long as
required for the distribution of the Designated Notes; provided, however,
-------- -------
that the Company and the Sponsor shall not be required to
qualify to do business in any jurisdiction where it is not now qualified or
to take any action that would subject it to general or unlimited service of
process in any jurisdiction where it is not now subject to such service of
process. Subject to the foregoing proviso, the Company and the Sponsor will
file or cause the filing of such statements and reports as may be required
by the laws of each jurisdiction in which the Designated Notes have been so
qualified.
(h) The Company and the Sponsor will enter into this Agreement, the
Sale and Servicing Agreement, the Purchase Agreement and the
Indemnification and Contribution Agreement on or prior to the Closing Date.
(i) The Sponsor will enter into the Trust Agreement on or prior to
the Closing Date.
(j) The Company and the Sponsor will apply the net proceeds from the
sale of the Designated Notes in the manner set forth in the Prospectus.
6. Conditions to the Obligations of the Underwriter. Your obligation
------------------------------------------------
hereunder to purchase the Designated Notes shall be subject to the accuracy of
the representations and warranties on the part of the Company and the Sponsor
contained herein as of the date hereof, as of the date of the effectiveness of
any amendment to the Registration Statement filed prior to the Closing Date and
as of the Closing Date, to the accuracy of the statements of the Company and the
Sponsor made in any certificates delivered pursuant to the provisions hereof, to
the performance by the Company and the Sponsor of its obligations hereunder and
to the following additional conditions:
(a) The Registration Statement shall have become effective and no
stop order suspending the effectiveness of the Registration Statement, as
amended from time to time, shall have been issued and not withdrawn and no
proceedings for that purpose shall have been instituted or threatened; and
the Final Prospectus shall have been filed or transmitted for filing with
the Commission in accordance with Rule 424 under the 1933 Act. Any request
of the Commission for inclusion of additional information in the
Registration Statement or the Prospectus shall have been complied with.
(b) You shall have received from Dewey Ballantine LLP, your counsel,
a favorable opinion, dated the Closing Date, to the effect that:
(i) The Registration Statement has become effective under the
1933 Act; to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and not withdrawn, no proceedings for that purpose have been
instituted or threatened and not terminated; and the Registration
Statement and the Final Prospectus, as of their respective effective
or issue dates (other than the financial and statistical
10
<PAGE>
information contained therein, as to which such counsel need express
no opinion), complied as to form in all material respects with the
applicable requirements of the 1933 Act and the Rules and Regulations;
(ii) To the best knowledge of such counsel, there are no
material contracts, indentures or other documents of a character
required to be described or referred to in the Registration Statement
or the Final Prospectus or to be filed as exhibits to the Registration
Statement other than those described or referred to therein or filed
or incorporated by reference as exhibits thereto;
(iii) The statements in the Basic Prospectus and the Final
Prospectus, as the case may be, under the headings "Certain Federal
Income Tax Consequences", "ERISA Considerations" and "Legal
Investment", to the extent that they constitute matters of New York or
federal law or legal conclusions with respect thereto, have been
reviewed by such counsel and constitute a fair and accurate summary
with respect to those consequences or aspects that are discussed;
(iv) The Indenture has been duly authorized, executed and
delivered, has been duly qualified under the Trust Indenture Act, and
constitutes a legal, valid and binding instrument enforceable against
the Sponsor in accordance with its terms (subject as to enforcement of
remedies, to applicable bankruptcy, reorganization, insolvency,
moratorium or other law affecting creditors' rights generally from
time to time in effect); and the Designated Notes have been duly
authorized and, when executed and authenticated in accordance with the
provisions of the Indenture and delivered to and paid for by the
Underwriter pursuant to this Agreement will constitute legal, valid
and binding obligations of the Sponsor entitled to the benefits of the
Indenture.
Such counsel shall also state that nothing has come to its attention that
would lead it to believe that the Registration Statement (other than the
financial and statistical information contained therein, as to which such
counsel need not express an opinion), at the time it became effective, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or that the Final Prospectus (other than (i) the financial and
statistical information contained therein or (ii) the information contained in
the Prospectus Supplement under the headings "DESCRIPTION OF THE MORTGAGE LOANS"
and "SERVICING OF THE MORTGAGE LOANS", as of its date, and on the date hereof,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
Such counsel may: (1) express its reliance as to factual matters on the
representations and warranties made by, and on certificates or other documents
furnished by officers of, the parties to this Agreement, the Trust Agreement,
the Indenture, the Sale and Servicing Agreement, the Purchase Agreement and the
Indemnification and Contribution Agreement; (2) assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than the Company; (3) qualify such opinion only as to
the federal laws of the United States of America, the laws of the State of New
York and the general corporation law of the State of Delaware. Such counsel
shall also confirm that you may rely, on and as of the Closing Date, on any
opinion or opinions of such counsel submitted to the rating
11
<PAGE>
agency or agencies rating the Designated Notes as if addressed to you and dated
the Closing Date.
(c) You shall have received a certificate, signed by the president,
a senior vice president or a vice president of the Company and the Sponsor,
dated the Closing Date, to the effect that the signer of such certificate
has carefully examined the Registration Statement, the Purchase Agreement,
the Trust Agreement, the Indenture, the Sale and Servicing Agreement, the
Indemnification and Contribution Agreement, and this Agreement and that, to
the best of his or her knowledge based upon reasonable investigation:
a. the representations and warranties of the Company and the Sponsor
in this Agreement, as of the Closing Date, and in the Sale and Servicing
Agreement, the Trust Agreement, the Purchase Agreement, and the
Indemnification and Contribution Agreement and in all related agreements,
as of the date specified in such agreements, are true and correct, and the
Company and the Sponsor has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
b. there are no actions, suits or proceedings pending, or to the
best of such officer's knowledge, threatened against or affecting the
Company or the Sponsor which if adversely determined, individually or in
the aggregate, would be reasonably likely to adversely affect the Company's
or the Sponsor's obligations under the Sale and Servicing Agreement, the
Indemnification and Contribution Agreement, the Purchase Agreement or this
Agreement in any material way or the Sponsor's obligations under the Trust
Agreement in any material way; and no merger, liquidation, dissolution or
bankruptcy of the Company or the Sponsor is pending or contemplated;
c. the information contained in the Registration Statement and the
Final Prospectus relating to the Company and the Sponsor, the Mortgage
Loans or the servicing procedures of it or its affiliates or subservicer is
true and accurate in all material respects and nothing has come to his or
her attention that would lead such officer to believe that the Registration
Statement or Final Prospectus includes any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein not misleading;
d. the information set forth in the Schedule of Mortgage Loans
required to be furnished pursuant to the Purchase Agreement and the Sale
and Servicing Agreement is true and correct in all material respects;
e. there has been no amendment or other document filed affecting
the articles of incorporation or bylaws of the Company or the Sponsor since
December 31, 1997, and no such amendment has been authorized. No event has
occurred since December 31, 1997, which has affected the good standing of
the Company under the laws of the State of California or the good standing
of the Sponsor under the laws of the State of Delaware;
f. there has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company, the Sponsor and its subsidiaries, taken as a
whole, from December 31, 1997.
12
<PAGE>
g. on or prior to the Closing Date, there has been no downgrading,
nor has any notice been given of (A) any intended or potential downgrading
or (B) any review or possible changes in rating the direction of which has
not been indicated, in the rating, if any, accorded the Company or its
affiliates or in any rating accorded any securities of the Company, if any,
by any "nationally recognized statistical rating organization," as such
term is defined for purposes of the 1933 Act;
h. each person who, as an officer or representative of the Company
or the Sponsor, signed or signs the Registration Statement, the Sale and
Servicing Agreement, the Trust Agreement, the Indemnification and
Contribution Agreement, this Agreement, the Purchase Agreement or any other
document delivered pursuant hereto, on the date of such execution, or on
the Closing Date, as the case may be, in connection with the transactions
described in the Sale and Servicing Agreement, the Trust Agreement, the
Indemnification and Contribution Agreement, the Purchase Agreement and this
Agreement was, at the respective times of such signing and delivery, and is
now, duly elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such
documents are their genuine signatures; and
i. No stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
instituted or, to the Company's or the Sponsor's knowledge, threatened.
The Company and the Sponsor shall attach to such certificate a true and
correct copy of its certificate or articles of incorporation, as appropriate,
and bylaws which are in full force and effect on the date of such certificate
and a certified true copy of the resolutions of its Board of Directors with
respect to the transactions contemplated herein.
(d) You shall have received from Tobin & Tobin, counsel to the
Company, an opinion, dated the Closing Date, to the effect that:
(i) Each of the Company and the Sponsor has been duly
organized and is validly existing as a corporation in good standing
under the laws of its state of incorporation and is qualified to do
business in each state necessary to enable it to perform its
obligations under the Sale and Servicing Agreement, this Agreement,
the Purchase Agreement, the Trust Agreement and the Indemnification
and Contribution Agreement and has all corporate power and authority
necessary to own or hold its properties and to conduct its business as
now conducted by it and to enter into and perform its obligations
under this Agreement, the Trust Agreement, the Sale and Servicing
Agreement, the Purchase Agreement and the Indemnification and
Contribution Agreement;
(ii) To the best knowledge of such counsel, there are no
actions, proceedings or investigations pending or threatened against
or affecting the Company or the Sponsor before or by any court,
arbitrator, administrative agency or other governmental authority
reasonably likely to be adversely determined that would materially and
adversely affect the ability of the Company or the Sponsor to carry
out the transactions contemplated in this Agreement, the Trust
Agreement, the Sale and Servicing Agreement, the Purchase Agreement or
the Indemnification and Contribution Agreement;
13
<PAGE>
(iii) No consent, approval, authorization or order of, or
filing or registration with, any state or federal court or
governmental agency or body is required for the consummation by the
Company or the Sponsor of the transactions contemplated herein, except
such as may be required under the blue sky laws of any jurisdiction in
connection with the purchase and distribution of the Designated Notes
and except any recordation of the assignments of the Mortgage Loans to
the Indenture Trustee pursuant to the Sale and Servicing Agreement
that have not yet been completed;
(iv) Each of the Company and the Sponsor is not in violation of
its certificate of incorporation or by-laws or in default under any
agreement, indenture or instrument the effect of which violation or
default would be material to the Company or the Sponsor, and neither
the issuance and sale of the Designated Notes, nor the execution or
delivery of or performance under this Agreement, the Trust Agreement,
the Sale and Servicing Agreement, the Purchase Agreement or the
Indemnification and Contribution Agreement, nor the consummation of
any other of the transactions contemplated herein or therein will
conflict with or result in a breach or violation of any term or
provision of, or constitute a default (or an event which with the
passing of time or notification, or both, would constitute a default)
under, the certificate of incorporation or by-laws of the Company or
the Sponsor, or, to the knowledge of such counsel, any indenture or
other agreement or instrument to which the Company or the Sponsor or
any of its affiliates is a party or by which it or any of them is
bound, or any New York or federal statute or regulation applicable to
the Company or the Sponsor or any of its affiliates or, to the
knowledge of such counsel, any order of any New York or federal court,
regulatory body, administrative agency or governmental body having
jurisdiction over the Company or the Sponsor or any of its affiliates;
(v) The Sale and Servicing Agreement, this Agreement, the
Purchase Agreement and the Indemnification and Contribution Agreement
have been duly authorized, executed and delivered by the Company and
the Sponsor and constitute legal, valid and binding agreements of the
Company and the Sponsor, enforceable against the Company and the
Sponsor in accordance with its terms, subject, as to enforceability,
to bankruptcy, insolvency, reorganization, moratorium and other
similar laws affecting creditors' rights generally and to general
principles of equity, regardless of whether enforcement is sought in a
proceeding in equity or at law;
(vi) The Trust Agreement has been duly authorized, executed and
delivered by the Sponsor and constitutes a legal, valid and binding
agreement of the Sponsor enforceable against the Sponsor in accordance
with its terms, subject as to enforceability, to bankruptcy,
insolvency, reorganization, moratorium and other similar laws
affecting creditors' rights generally and to general principles or
equity, regardless of whether enforcement is sought in a proceeding in
equity or at law;
(vii) The direction by the Sponsor to the Indenture Trustee to
execute, authenticate and deliver the Designated Notes has been duly
authorized by the
14
<PAGE>
Sponsor, and the Designated Notes, when executed and authenticated in
the manner contemplated in the Indenture, will be validly issued and
outstanding and entitled to the benefits of the Indenture;
(viii) The Designated Notes and the Indenture conform in all
material respects to the descriptions thereof contained in the Final
Prospectus; and
(ix) Neither the transfer of the Mortgage Loans to the Trust,
the pledge of the Mortgage Loans, the issuance or sale of the
Designated Notes nor the execution, delivery or performance by the
Company and the Sponsor of this Agreement, the Trust Agreement, the
Indemnification and Contribution Agreement, the Sale and Servicing
Agreement or the Purchase Agreement (A) conflicts or will conflict
with or results or will result in a breach of, or constitutes or will
constitute a default under, (i) any term or provision of the
certificate of incorporation or bylaws of the Company or the Sponsor;
(ii) any term or provision of any material agreement, contract,
instrument or indenture, to which the Company or the Sponsor is a
party or is bound and known to such counsel; or (iii) any order,
judgment, writ, injunction or decree of any court or governmental
agency or body or other tribunal having jurisdiction over the Company
or the Sponsor and known to such counsel; or (B) results in, or will
result in the creation or imposition of any lien, charge or
encumbrance upon the Trust or upon the Designated Notes, except as
otherwise contemplated by the Indenture.
Such counsel may: (1) express its reliance as to factual matters on the
representations and warranties made by, and on certificates or other documents
furnished by officers of, the parties to this Agreement, the Trust Agreement,
the Indenture, the Sale and Servicing Agreement, the Purchase Agreement and the
Indemnification and Contribution Agreement; (2) assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than the Company; (3) qualify such opinion only as to
the federal laws of the United States of America, the laws of the State of New
York and the general corporation law of the State of Delaware. Such counsel
shall also confirm that you may rely, on and as of the Closing Date, on any
opinion or opinions of such counsel submitted to the rating agency or agencies
rating the Designated Notes as if addressed to you and dated the Closing Date.
(e) You shall have received from KPMG Peat Marwick, certified public
accountants, one or more letters, including bring-down letters, dated the
date hereof and satisfactory in form and substance to you and your counsel,
to the effect that such accountants have performed certain specified
procedures regarding certain information of an accounting, financial or
statistical nature set forth in the Prospectus Supplement.
(f) You shall have received a rating letter assigning a rating on
the Class A Notes and S Notes of "AAA" and "AAAr", respectively, from
Standard & Poor's Rating Group and "Aaa" and "Aaa", respectively, from
Moody's Investors Service, Inc., which ratings shall not have been
withdrawn.
(g) You shall have received from counsel for the Indenture Trustee a
favorable opinion, dated the Closing Date, in form and substance
satisfactory to you and your counsel, to the effect that the Indenture has
been duly authorized, executed and
15
<PAGE>
delivered by the Indenture Trustee and constitutes a legal, valid, binding
and enforceable agreement of the Indenture Trustee, subject, as to
enforceability, to bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditors' rights in general and by general
principles of equity regardless of whether enforcement is considered in a
proceeding in equity or at law, and as to such other matters as may be
agreed upon by you and the Indenture Trustee.
(h) You shall have received from counsel for the Owner Trustee a
favorable opinion, dated the Closing Date, in form and substance
satisfactory to you and your counsel, to the effect that the Trust
Agreement has been duly authorized, executed and delivered by the Owner
Trustee and constitutes a legal, valid, binding and enforceable agreement
of the Owner Trustee, subject as to enforceability to bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting
creditors' rights in general and by general principles of equity regardless
of whether enforcement is considered in a proceeding in equity or at law,
and as to such other matters as may be agreed upon by you and the Owner
Trustee.
(i) You shall have received from the Indenture Trustee a
certificate, signed by the President, a senior vice president or a vice
president of the Indenture Trustee, dated the Closing Date, to the effect
that each person who, as an officer or representative of the Indenture
Trustee, signed or signs the Designated Notes, the Indenture or any other
document delivered pursuant hereto, on the date hereof or on the Closing
Date, in connection with the transactions described in the Indenture was,
at the respective times of such signing and delivery, and is now, duly
elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such
documents are their genuine signatures.
(j) You shall have received from the Owner Trustee a certificate,
signed by the President, a senior vice president or a vice president of the
Owner Trustee, dated the Closing Date, to the effect that each person who,
as an officer or representative of the Owner Trustee, signed or signs the
Trust Agreement, the Certificates or any other document delivered pursuant
hereto, on the date hereof or on the Closing Date, in connection with the
transactions described in the Trust Agreement was, at the respective times
of such signing and delivery, and is now, duly elected or appointed,
qualified and acting as such officer or representative, and the signatures
of such persons appearing on such documents are their genuine signatures.
(k) The Policy relating to the Designated Notes shall have been duly
executed and issued at or prior to the Closing Date and shall conform in
all material respects to the description thereof in the Prospectus.
(l) You shall have received a favorable opinion of in-house counsel
to the Insurer, dated the Closing Date and in form and substance
satisfactory to your counsel, to the effect that:
(i) The Insurer is an insurance corporation, duly incorporated
and validly existing under the laws of the State of New York. The
Insurer is validly licensed to do business in New York and is
authorized to issue the Policy and perform its obligations under the
Policy in accordance with the terms thereof.
16
<PAGE>
(ii) The execution and delivery by the Insurer of the Policy,
and the Indemnification and Contribution Agreement are within the
corporate power of the Insurer and have been authorized by all
necessary corporate action on the part of the Insurer; the Policy has
been duly executed and is the valid and binding obligation of the
Insurer enforceable in accordance with its terms except that the
enforcement of the Policy may be limited by laws relating to
bankruptcy, insolvency, reorganization, moratorium, receivership and
other similar laws affecting creditors' rights generally and by
general principles of equity.
(iii) The Insurer is authorized to deliver the Indemnification
and Contribution Agreement, and such agreement has been duly executed
and delivered and constitute the legal, valid and binding obligations
of the Insurer enforceable in accordance with its terms except that
the enforcement of the Indemnification and Contribution Agreement may
be limited by laws relating to bankruptcy, insolvency, reorganization,
moratorium, receivership and other similar laws affecting creditors'
rights generally and by general principles of equity and by public
policy considerations relating to indemnification for securities law
violations.
(iv) No consent, approval, authorization or order of any state
or federal court or governmental agency or body is required on the
part of the Insurer, the lack of which would adversely affect the
validity or enforceability of the Policy; to the extent required by
applicable legal requirements that would adversely affect validity or
enforceability of the Policy, the form of the Policy has been filed
with, and approved by, all governmental authorities having
jurisdiction over the Insurer in connection with the Policy.
(v) The Policy is not required to be registered under the
1933 Act.
(vi) The information set forth under the caption "THE INSURER
AND THE POLICY" in the Prospectus forming a part of the Registration
Statement, insofar as such statements constitute a description of the
Policy, accurately summarizes the Policy.
In rendering this opinion, such counsel may rely, as to matters of fact, on
certificates of responsible officers of the Company, the Indenture Trustee, the
Insurer and public officials. Such opinion may assume the due authorization,
execution and delivery of the instruments and documents referred to therein by
the parties thereto other than the Insurer.
(m) On or prior to the Closing Date, there has been no downgrading,
nor has any notice been given of (A) any intended or potential downgrading
or (B) any review or possible changes in rating the direction of which has
not been indicated, in the rating, if any, accorded the Insurer's claims
paying ability by any "nationally recognized statistical rating
organization," as such term is defined for purposes of the 1933 Act.
(n) On or prior to the Closing Date, there has been no downgrading,
nor has any notice been given of (A) any intended or potential downgrading
or (B) any review or possible changes in rating the direction of which has
not been indicated, in the rating, if any, accorded the Company or in any
rating accorded any securities of the Company, if any, by any "nationally
recognized statistical rating organization," as such term is defined
17
<PAGE>
for purposes of the 1933 Act.
(o) There has not occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations, since December
31, 1997, of (A) the Company and its subsidiaries or (B) the Insurer,
that is in your judgment material and adverse and that makes it in
your judgment impracticable to market the Designated Notes on the
terms and in the manner contemplated in the Prospectus.
(p) You shall have received from the Insurer a certificate,
signed by the president, a senior vice president or a vice president
of the Insurer, dated the Closing Date, to the effect that the signer
of such certificate has carefully examined the Policy, the
Indemnification and Contribution Agreement and the related documents
and that, to the best of his or her knowledge based on reasonable
investigation:
(i) There are no actions, suits or proceedings pending
or threatened against or affecting the Insurer which, if
adversely determined, individually or in the aggregate, would
adversely affect the Insurer's performance under the Policy or
the Indemnification and Contribution Agreement;
(ii) Each person who as an officer or representative of
the Insurer, signed or signs the Policy, the Indemnification and
Contribution Agreement or any other document delivered pursuant
hereto, on the date thereof, or on the Closing Date, in
connection with the transactions described in this Agreement
was, at the respective times of such signing and delivery, and
is now, duly elected or appointed, qualified and acting as such
officer or representative, and the signatures of such persons
appearing on such documents are their genuine signatures;
(iii) The tables regarding the Insurer's capitalization
set forth under the heading "THE INSURER AND THE POLICY"
presents fairly the capitalization of the Insurer as of December
31, 1997;
(iv) The audited balance sheet of the Insurer as of
December 31, 1997 and the related statement of income and
retained earnings for the fiscal year then ended, and the
accompanying footnotes, together with opinion of KPMG Peat
Marwick, an independent certificated public accountant, copies
of which are included in the Prospectus Supplement, fairly
present in all material respects the financial condition of the
Insurer as of such date and for the period covered by such
statements in accordance with generally accepted accounting
principles consistently applied; the unaudited balance sheet of
the Insurer as of - December 31, 1997 and the related statement
of income and retained earnings for the three-month period then
ended, copies of which are included in the Prospectus
Supplement, fairly present in all material respects the
financial condition of the Insurer as of such date and for the
period covered by such statements in accordance with generally
accepted accounting principles applied consistently with those
principles applied in preparing the December 31, 1997 audited
statements.
(v) to the best knowledge of such officer, since
December 31, 1997, no
18
<PAGE>
material adverse change has occurred in the financial position
of the Insurer other than as set forth in the Prospectus
Supplement.
The Insurer shall attach to such certificate a true and correct copy of its
certificate or articles of incorporation, as appropriate, and its bylaws, all of
which are in full force and effect on the date of such certificate.
(q) You shall have received such further information,
certificates, documents and opinions as you may reasonably have requested
not less than three business days prior to the Closing Date.
(r) All proceedings in connection with the transactions
contemplated by this Agreement and all documents incident hereto shall be
satisfactory in form and substance to you and your counsel, and you and
such counsel shall have received such information, certificates and
documents as you or they may have reasonably requested.
(s) Prior to the Closing Date, your counsel shall have been
furnished with such documents and opinions as they may reasonably require
for the purpose of enabling them to pass upon the issuance and sale of the
Designated Notes as herein contemplated and related proceedings or in order
to evidence the accuracy and completeness of any of the representations and
warranties, or the fulfillment of any of the conditions, herein contained,
and all proceedings taken by the Company in connection with the issuance
and sale of the Designated Notes as herein contemplated shall be
satisfactory in form and substance to you and your counsel.
(t) Subsequent to the execution and delivery of this Agreement
none of the following shall have occurred: (i) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
the over-the-counter market shall have been suspended or minimum prices
shall have been established on either of such exchanges or such market by
the Commission, by such exchange or by any other regulatory body or
governmental authority having jurisdiction; (ii) a banking moratorium shall
have been declared by Federal or state authorities; (iii) the United States
shall have become engaged in hostilities, there shall have been an
escalation of hostilities involving the United States or there shall have
been a declaration of a national emergency or war by the United States; or
(iv) there shall have occurred such a material adverse change in general
economic, political or financial conditions (or the effect of international
conditions on the financial markets of the United States shall be such) as
to make it, in the judgment of the Underwriter, impractical or inadvisable
to proceed with the public offering or delivery of the Designated Notes on
the terms and in the manner contemplated in the Prospectus.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, if
the Company or the Sponsor is in breach of any covenants or agreements contained
herein or if any of the opinions and certificates referred to above or elsewhere
in this Agreement shall not be in all material respects reasonably satisfactory
in form and substance to you and your counsel, this Agreement and all your
obligations hereunder may be canceled by you at, or at any time prior to, the
Closing Date. Notice of such cancellation shall be given to the Company and the
Sponsor in writing, or by telephone or facsimile transmission confirmed in
writing.
7. Payment of Expenses. The Sponsor or the Company agrees to pay: (a)
-------------------
the costs
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<PAGE>
incident to the authorization, issuance, sale and delivery of the
Designated Notes and any taxes payable in connection therewith; (b) the costs
incident to the preparation, printing and filing under the 1933 Act of the
Registration Statement and any amendments and exhibits thereto; (c) the costs of
distributing the Registration Statement as originally filed and each amendment
thereto and any post-effective amendments thereof (including, in each case,
exhibits), the Basic Prospectus, the Final Prospectus and any amendment or
supplement to the Prospectus or any document incorporated by reference therein,
all as provided in this Agreement; (d) the costs of reproducing and distributing
this Agreement; (e) the fees and expenses of qualifying the Designated Notes
under the securities laws of the several jurisdictions as provided in Section
5(g) hereof and of preparing, printing and distributing a Blue Sky Memorandum
(including related fees and expenses of your counsel); (f) any fees charged by
securities rating services for rating the Designated Notes; and (g) all other
costs and expenses incident to the performance of the obligations of the
Company.
8. Indemnification and Contribution. (a) Each of the Company and the
--------------------------------
Sponsor agrees to indemnify and hold you harmless and each person, if any, who
controls you within the meaning of Section 15 of the 1933 Act from and against
any and all loss, claim, damage or liability, joint or several, or any action in
respect thereof (including, but not limited to, any loss, claim, damage,
liability or action relating to purchases and sales of the Designated Notes), to
which you or any such controlling person may become subject, under the 1933 Act
or otherwise, insofar as such loss, claim, damage, liability or action arises
out of, or is based upon, (i) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, (iii) any untrue
statement or alleged untrue statement of a material fact contained in the Final
Prospectus or (iv) the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading and
shall reimburse you and each such controlling person promptly upon demand for
any legal or other expenses reasonably incurred by you or such controlling
person in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses are
incurred; provided, however, that the Company and the Sponsor shall not be
-------- -------
liable in any such case to the extent that any such loss, claim, damage,
liability or action arises out of, or is based upon, any untrue statement or
alleged untrue statement or omission or alleged omission made in any Basic
Prospectus, the Final Prospectus or the Registration Statement in reliance upon
and in conformity with written information (including any Derived Information)
furnished to the Company or the Sponsor by you specifically for inclusion
therein; and provided, further, that as to any Basic Prospectus this indemnity
-------- -------
shall not inure to your benefit or the benefit of any controlling person on
account of any loss, claim, damage, liability or action arising from the sale of
the Designated Notes to any person by you if you failed to send or give a copy
of the Final Prospectus, as amended or supplemented, to that person within the
time required by the 1933 Act, and the untrue statement or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact in the Preliminary Prospectus was corrected in the Final
Prospectus, unless such failure resulted from non-compliance by the Company or
the Sponsor with Section 5(c). For purposes of the last proviso to the
immediately preceding sentence, the term "Final Prospectus" shall not be deemed
to include the documents incorporated therein by reference, and you shall not be
obligated to send or give any supplement or amendment to any document
incorporated therein by reference to any person other than a person to whom you
had delivered such incorporated document or documents in response to a written
request therefor. The foregoing
20
<PAGE>
indemnity agreement is in addition to any liability which each of the Company
and the Sponsor may otherwise have to you or any person who controls you.
(b) You agree to indemnify and hold harmless each of the Company and
the Sponsor, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
and the Sponsor within the meaning of Section 15 of the 1933 Act against
any and all loss, claim, damage or liability, or any action in respect
thereof, to which the Company, the Sponsor or any such director, officer or
controlling person may become subject, under the 1933 Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or
is based upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement, (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, (iii)
any untrue statement or alleged untrue statement of a material fact
contained in the Final Prospectus or (iv) the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, but in each case only to the extent
that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company and the Sponsor by or on your behalf
specifically for inclusion therein and provided that such written
information was not based upon Company-Provided Information, and shall
reimburse the Company and the Sponsor and any such director, officer or
controlling person for any legal or other expenses reasonably incurred by
the Company and the Sponsor or any director, officer or controlling person
in connection with investigating or defending or preparing to defend
against any such loss, claim, damage, liability or action as such expenses
are incurred. The foregoing indemnity agreement is in addition to any
liability which you may otherwise have to each of the Company and the
Sponsor or any such director, officer or controlling person.
(c) Promptly after receipt by any indemnified party under this
Section 8 of notice of any claim or the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party under this Section 8, notify the
indemnifying party in writing of the claim or the commencement of that
action; provided, however, that the failure to notify an indemnifying party
-------- -------
shall not relieve it from any liability which it may have under this
Section 8 except to the extent it has been materially prejudiced by such
failure, and provided, further, that the failure to notify any indemnifying
-------- -------
party shall not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 8.
If any such claim or action shall be brought against an indemnified party,
and it shall notify the indemnifying party thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it wishes, jointly
with any other similarly notified indemnifying party, to assume the defense
thereof with counsel reasonably satisfactory to the indemnified party. After
notice from the indemnifying party to the indemnified party of its election to
assume the defense of such claim or action, the indemnifying party shall not be
liable to the indemnified party under this Section 8 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
21
<PAGE>
Any indemnified party shall have the right to employ separate counsel in
any such action and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless: (i) the employment thereof has been specifically authorized by the
indemnifying party in writing; (ii) such indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party and in the reasonable judgment of such counsel it is
advisable for such indemnified party to employ separate counsel; or (iii) the
indemnifying party has failed to assume the defense of such action and employ
counsel reasonably satisfactory to the indemnified party, in which case, if such
indemnified party notifies the indemnifying party in writing that it elects to
employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys (in
addition to local counsel) at any time for all such indemnified parties, which
firm shall be designated in writing by you, if the indemnified parties under
this Section 8 consist of you or any of your controlling persons, or by the
Company, if the indemnified parties under this Section 8 consist of the Company,
the Sponsor, or any of the Company's directors, officers or controlling persons.
Each indemnified party, as a condition of the indemnity agreements
contained in Section 8(a), (b) and (c), shall use its best efforts to cooperate
with the indemnifying party in the defense of any such action or claim. No
indemnifying party shall be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment for the plaintiff in any such action, the indemnifying party agrees to
indemnify and hold harmless any indemnified party from and against any loss or
liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such request
prior to the date of such settlement.
(d) You agree to deliver to the Company or the Sponsor no later than
the date on which the Prospectus Supplement is required to be filed
pursuant to Rule 424 with a copy of its Derived Information (defined below)
------- -----------
for filing with the Commission on Form 8-K.
(e) You agree, assuming all Company-Provided Information (defined
below) is accurate and complete in all material respects, to indemnify and
hold harmless the Company, the Sponsor, each of the Company's and the
Sponsor's officers and directors and each person who controls the Company
and the Sponsor within the meaning of Section 15 of the 1933 Act against
any and all losses, claims, damages or liabilities, joint or several, to
which they may become subject under the 1933 Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are
22
<PAGE>
based upon any untrue statement of a material fact contained in the Derived
Information provided by you, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and agrees to
reimburse each such indemnified party for any legal or other expenses
reasonably incurred by him, her or it in connection with investigating or
defending or preparing to defend any such loss, claim, damage, liability or
action as such expenses are incurred. Your obligations under this Section
8(e) shall be in addition to any liability which you may otherwise have.
(f) Each of the Company and the Sponsor agree to indemnify and hold
harmless the Underwriter, each of the Underwriter's officers and directors
and each person who controls the Underwriter within the meaning of Section
15 of the 1933 Act against any and all losses, claims, damages or
liabilities, joint or several, to which they may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement of a material fact contained in the Company-Provided
----------------
Information provided by the Company or the Sponsor, or arise out of or are
-----------
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each such indemnified party for any
legal or other expenses reasonably incurred by him, her or it in connection
with investigating or defending or preparing to defend any such loss,
claim, damage, liability or action as such expenses are incurred. Your
obligation under this Section 8(f) shall be in addition to any liability
which you may otherwise have.
The procedures set forth in Section 8(c) shall be equally applicable to
this Section 8(f).
(g) For purposes of this Section 8, the term Derived Information
-------------------
means such portion, if any, of the information delivered to the Company or
the Sponsor pursuant to Section 8(d) for filing with the Commission on Form
8-K as:
(i) is not contained in the Final Prospectus without taking
into account information incorporated therein by reference;
(ii) does not constitute Company-Provided Information; and
(iii) is of the type of information defined as Collateral term
sheets, Structural term sheets or Computational Materials (as such
terms are interpreted in the No-Action Letters).
"Company-Provided Information" means any computer tape furnished to the
Underwriter by the Company concerning the Mortgage Loans comprising the Trust or
any other information furnished by the Company to the Underwriter that is relied
on or is reasonably anticipated by the parties hereto to be relied on by the
Underwriter in the course of the Underwriter's preparation of its Derived
Information or the written information to be included in the prospectus
supplement by the Underwriter as set forth in Section 8(i) herein.
The terms "Collateral term sheet" and "Structural term sheet" shall have
the respective meanings assigned to them in the February 13, 1995 letter (the
"PSA Letter") of Cleary, Gottlieb,
23
<PAGE>
Steen & Hamilton on behalf of the Public Securities Association (which letter,
and the SEC staff's response thereto, were publicly available February 17,
1995). The term "Collateral term sheet" as used herein includes any subsequent
Collateral term sheet that reflects a substantive change in the information
presented. The term "Computational Materials" has the meaning assigned to it in
the May 17, 1994 letter (the "Kidder letter" and together with the PSA Letter,
the "No-Action Letters") of Brown & Wood on behalf of Kidder, Peabody & Co.,
Inc. (which letter, and the SEC staff's response thereto, were publicly
available May 20, 1994).
(h) If the indemnification provided for in this Section 8 shall for
any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 8(a) or (b) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein,
then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, claim, damage or liability, or
action in respect thereof, (i) in such proportion as shall be appropriate
to reflect the relative benefits received by the Company and the Sponsor on
the one hand and you on the other from the offering of the Designated Notes
or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law or if the indemnified party failed to give the notice
required under Section 8(c), in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Sponsor on the one hand and
you on the other with respect to the statements or omissions which resulted
in such loss, claim, damage or liability, or action in respect thereof, as
well as any other relevant equitable considerations.
The relative benefits of you and the Company and the Sponsor shall be
deemed to be in such proportion so that you are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the Final Prospectus bears to the public offering price appearing
on the cover page of the Final Prospectus.
The relative fault of each of you and the Company and the Sponsor shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company, the Sponsor or by you, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission and other equitable
considerations.
The Company, the Sponsor and you agree that it would not be just and
equitable if contributions pursuant to this Section 8(h) were to be determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the loss, claim, damage or
liability, or action in respect thereof, referred to above in this Section 8(h)
shall be deemed to include, for purposes of this Section 8(h), any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim.
In no case shall you be responsible for any amount in excess of the
underwriting discount applicable to the Designated Notes purchased by you
hereunder. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
24
<PAGE>
(i) You confirm that the information set forth (i) in the Prospectus
Supplement relating to market making and (ii) in the fourth paragraph under
the caption "Underwriting" in the Prospectus Supplement, together with the
Derived Information, is correct and constitutes the only information
furnished in writing to the Company or the Sponsor by you or on your behalf
specifically for inclusion in the Registration Statement and the Final
Prospectus.
9. Termination.
-----------
(a) This Agreement shall be subject to termination in your absolute
discretion, by notice given to the Company or the Sponsor prior to delivery
of and payment for the Designated Notes, if, prior to such time, (i)
trading of securities generally on the New York Stock Exchange or the
American Stock Exchange shall have been suspended or materially limited,
(ii) a general moratorium on commercial banking activities in New York
shall have been declared by either federal or New York State authorities or
(iii) there shall have occurred any material outbreak or declaration of
hostilities or other calamity or crisis the effect of which on the
financial markets of the United States is such as to make it, in your
reasonable judgment, impracticable to market the Designated Notes on the
terms specified herein.
(b) If the sale of the Designated Notes shall not be consummated because
any condition to your obligations set forth in Section 6 hereof is not
satisfied or because of any refusal, inability or failure on the part of
the Company or the Sponsor to perform any agreement herein or comply with
any provision hereof other than by reason of your default, the Company and
the Sponsor shall reimburse you for the reasonable fees and expenses of
your counsel and for such other out-of-pocket expenses as shall have been
incurred by you in connection with this Agreement and the proposed purchase
of the Designated Notes, and upon demand the Company and the Sponsor shall
pay the full amount thereof to you.
(c) This Agreement will survive delivery of and payment for the
Designated Notes. The provisions of Section 7 and this Section 9(c) shall
survive the termination or cancellation of this Agreement.
10. Notices. All communications hereunder will be in writing and
-------
effective only on receipt, and, if sent to you, will be mailed, delivered or
transmitted by facsimile and confirmed to you at 600 Steamboat Road, Greenwich,
Connecticut 06830, attention: Mortgage Finance Department; or, if sent to (i)
the Sponsor, will be mailed, delivered or transmitted by facsimile and confirmed
to it at 700 Larkspur Landing Circle, Suite 240, Larkspur, California 94939,
attention: Finance Department or (ii) the Company, will be mailed, delivered or
transmitted by facsimile and confirmed to it at 700 Larkspur Landing Circle,
Suite 250, Larkspur, California 94939, attention: Finance Department.
11. Successors. This Agreement will inure to the benefit of and be
----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons and their successors and assigns, and no
other person will have any right or obligation hereunder.
12. Applicable Law; Counterparts. This Agreement will be governed by and
----------------------------
construed in accordance with the laws of the State of New York. This Agreement
may be
25
<PAGE>
executed in any number of counterparts, each of which shall for all purposes be
deemed to be an original and all of which shall together constitute but one and
the same instrument.
13. Survival. The respective indemnities, representations, warranties and
--------
agreements of the Company and you contained in this Agreement, or made by or on
behalf of them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Designated Notes and shall remain in full force
and effect, regardless of any investigation made by or on behalf of any of them
or any person controlling any of them.
14. Definition of the Term "Business Day". For purposes of this Agreement,
------------------------------------
"Business Day" means any day on which the New York Stock Exchange, Inc. is open
for trading.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND SHALL BE CONSTRUED IN
ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW,
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
16. Headings. The headings herein are inserted for convenience of
--------
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
26
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us a counterpart hereof, whereupon this letter and
your acceptance shall represent a binding agreement between the Company, the
Sponsor and you.
Very truly yours,
HEADLANDS MORTGAGE COMPANY
By:/s/ Becky Poisson
-----------------
Name: Becky Poisson
Title: Executive Vice President
HEADLANDS MORTGAGE SECURITIES INC.
By:/s/ Kristen Decker
------------------
Name: Kristen Decker
Title: Vice President
The foregoing Agreement is hereby
confirmed and accepted as of
the date first above written.
GREENWICH CAPITAL MARKETS INC.
By: /s/ Brian Bernard
-----------------
Name: Brian Bernard
Title: Senior Vice President
27
<PAGE>
SCHEDULE I
----------
Underwriting Agreement dated March 23, 1998.
As used in this Agreement, the term "Registration Statement" refers to the
Registration Statement on Form S-3 (File No. 333-28031) filed on July 11, 1997
and declared effective by the Commission on July 17, 1998.
Closing Date: March 25, 1998.
- -------------------------------------------------------------------------------
Title, Purchase Price and Description of Designated Notes:
Headlands Mortgage Securities Inc. Revolving Home Equity Loan Asset-Backed
Designated Notes, Series 1998-1, $191,584,000 Class A Variable Rate Notes
and Class S 1.25% Notes.
Initial Cut-off Date Principal Balance: $156,395,696.03
Cut-off Date: 3/13/98.
<PAGE>
EXHIBIT 1.2
AMBAC ASSURANCE CORPORATION
and
GREENWICH CAPITAL MARKETS, INC.
INDEMNIFICATION AGREEMENT
HEADLANDS HOME EQUITY LOAN TRUST 1998-A
Dated as of March 25, 1998
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is for convenience of reference only and shall not
be deemed to be part of this Indemnity Agreement. All capitalized terms used in
this Indemnity Agreement and not otherwise defined shall have the meanings set
forth in Article I of this Indemnity Agreement.)
Page
----
Section 1. Defined Terms.........................................1
Section 2. Other Definitional Provisions.........................1
Section 3. Representations and Warranties of the Underwriter.....2
Section 4. Representations and Warranties of the Insurer.........2
Section 5. Indemnification.......................................3
Section 6. Amendments, Etc.......................................5
Section 7. Notices...............................................5
Section 8. Severability..........................................6
Section 9. Governing Law.........................................6
Section 10. Counterparts.........................................6
Section 11. Headings.............................................6
<PAGE>
INDEMNIFICATION AGREEMENT dated as of March 25, 1998 (the "Indemnity
Agreement"), by and among AMBAC ASSURANCE CORPORATION, as Insurer, and GREENWICH
CAPITAL MARKETS, INC. (the"Underwriter").
Section 1. Defined Terms. Unless the context clearly requires otherwise,
all capitalized terms used but not defined herein shall have the respective
meanings assigned to them in the Sale and Servicing Agreement, the Insurance
Agreement or the Policy. For purposes of this Indemnity Agreement, the following
terms shall have the following meanings:
"Insurance Agreement" means the Insurance and Indemnity Agreement (as may
-------------------
be amended, modified or supplemented from time to time) dated as of March 25,
1998 by and among the Headlands Mortgage Securities Inc., as Sponsor, Headlands
Mortgage Company, as Servicer, the Insurer, the Trust, as Issuer, and the
Indenture Trustee.
"Insurer" means Ambac Assurance Corporation, or any successor thereto, as
-------
issuer of the Policy.
"Insurer Information" has the meaning given such term in Section 4.
-------------------
"Offering Document" means the Prospectus Supplement, dated March 23, 1998,
-----------------
in respect of the Notes, and any amendment or supplement thereto, and any other
offering document in respect of the Notes that makes reference to the Policy.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement,
----------------------------
dated as of March 16, 1998, relating to the Headlands Revolving Home Equity Loan
Asset-Backed Notes, Series 1998-A, by and among the Sponsor, the Servicer and
the Indenture Trustee (as may be amended, modified or supplemented from time to
time as set forth therein).
"Securities Act" means the Securities Act of 1933, including, unless the
--------------
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-----------------------
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Underwriter" means Greenwich Capital Markets, Inc.
-----------
"Underwriter's Information" has the meaning given such term in Section 3.
-------------------------
Section 2. Other Definitional Provisions. The words "hereof," "herein" and
"hereunder" and words of similar import when used in this Indemnity Agreement
shall refer to this Indemnity Agreement as a whole and not to any particular
provision of this Indemnity Agreement, and Section, subsection, Schedule and
Exhibit references are to this Indemnity Agreement unless otherwise specified.
The meanings given to terms defined herein shall be equally applicable to both
the singular and plural forms of such terms. The words "include" and "including"
shall be deemed to be followed by the phrase "without limitation."
<PAGE>
Section 3. Representations and Warranties of the Underwriter. The
Underwriter represents and warrants as of the Closing Date as follows:
(a) Compliance With Laws. The Underwriter will comply in all material
respects with all legal requirements in connection with offers and sales of the
Notes and will make such offers and sales in the manner to be provided in the
Offering Document.
(b) Offering Document. The Underwriter will not use, or distribute to
other broker-dealers for use, any Offering Document in connection with the offer
and sale of the Notes unless such Offering Document includes such information
relating to the Insurer as has been furnished by the Insurer for inclusion
therein and has been approved by the Insurer.
(c) Underwriter' Information. All material provided by the Underwriter for
inclusion in the Offering Document (as revised from time to time), shall be true
and correct in all material respects, it being understood and agreed that the
only such information furnished by any Underwriter consists of the following
information (collectively, the "Underwriter's Information"): the information
contained under the heading "Underwriting" in the Offering Document.
Section 4. Representations and Warranties of the Insurer. The Insurer
represents and warrants to the Underwriter as follows:
(a) Organization and Licensing. The Insurer is a duly organized and
licensed and validly existing Wisconsin stock insurance company duly qualified
to conduct an insurance business in the State of New York.
(b) Corporate Power. The Insurer has the corporate power and authority to
issue the Policy and execute this Indemnity Agreement and to perform all of its
obligations hereunder and thereunder.
(c) Authorization; Approvals. Proceedings legally required for the
issuance of the Policy and the execution, delivery and performance of this
Indemnity Agreement have been taken and all material licenses, orders, consents
or other authorizations or approvals of any governmental boards or bodies
legally required for the enforceability of the Policy have been obtained; any
proceedings not taken and any licenses, authorizations or approvals not obtained
are not material to the enforceability of the Policy.
(d) Enforceability. The Policy, when issued, and this Indemnity Agreement
will each constitute a legal, valid and binding obligation of the Insurer,
enforceable in accordance with its terms, subject to insolvency, reorganization,
moratorium, receivership and other similar laws affecting creditors' rights
generally and by general principles of equity and subject to principles of
public policy limiting the right to enforce the indemnification provisions
contained therein and herein, insofar as such provisions relate to
indemnification for liabilities arising under federal securities laws.
2
<PAGE>
(e) Financial Information. The balance sheet of the Insurer as of December
31, 1996 and the related statements of income, stockholder's equity and cash
flows for the two fiscal years ended December 31, 1996, and the accompanying
footnotes, together with an opinion thereon dated January 30, 1997, of KPMG Peat
Marwick, independent certified public accountants, a copy of which is
incorporated by reference in the Offering Document, fairly present in all
material respects the financial condition of the Insurer as of such dates and
for the periods covered by such statements in accordance with generally accepted
accounting principles consistently applied. The balance sheets of the Insurer as
of September 30, 1996 and September 30, 1997 and the related statements of
income, stockholder's equity and cash flows for the nine-month periods ended
September 30, 1996 and September 30, 1997 and the accompanying footnotes, a copy
of which is incorporated by reference in the Offering Document, fairly present
in all material respects the financial condition of the Insurer as of such date
and for such nine-month periods in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1997, there has been no
material change in such financial condition of the Insurer that would materially
and adversely affect its ability to perform its obligations under the Policy.
(f) Insurer Information. The information in the Offering Document as of
the date hereof under the caption "THE INSURER AND THE POLICY" (the "Insurer
Information") is true and correct in all material respects and does not contain
any untrue statement of a material fact.
(g) Rating. The Insurer is not aware of any facts that if disclosed to
Moody's or Standard & Poor's would be reasonably expected to result in a
downgrade of the rating of the claims paying ability of the Insurer by either of
such Rating Agencies.
(h) No Litigation. There are no actions, suits, proceedings or
investigations pending or, to the best of the Insurer's knowledge, threatened
against it at law or in equity or before or by any court, governmental agency,
board or commission or any arbitrator which, if decided adversely, would result
in a Material Adverse Change or would materially and adversely affect its
ability to perform its obligations under the Policy or this Insurance Agreement.
(i) 1933 Act Registration. The Policy is exempt from registration under
the Act.
Section 5. Indemnification.
(a) The Underwriter hereby agrees to pay, and to protect, indemnify and
hold harmless, the Insurer and its officers, directors, shareholders, employees,
agents and each Person, if any, who controls the Insurer within the meaning of
either Section 15 of the Securities Act or Section 20 of the Securities Exchange
Act from and against, any and all claims, losses, liabilities (including
penalties), actions, suits, judgments, demands, damages, costs or expenses
(including reasonable fees and expenses of attorneys, consultants and auditors
and reasonable costs of investigations) of any nature arising out of or by
reason of any untrue statement of a material fact or an omission to state a
material
3
<PAGE>
fact necessary in order to make the statements therein in light of the
circumstances in which they were made not misleading, contained in the
Underwriter's Information or a breach of any of the representations and
warranties of the Underwriter contained in Section 3.
(b) The Insurer agrees to pay, and to protect, indemnify and hold harmless,
the Underwriter and its respective officers, directors, shareholders, employees,
agents and each Person, if any, who controls such Underwriter within the meaning
of either Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act from and against, any and all claims, losses, liabilities
(including penalties), actions, suits, judgments, demands, damages, costs or
expenses (including reasonable fees and expenses of attorneys, consultants and
auditors and reasonable costs of investigations) of any nature arising out of or
by reason of any untrue statement of a material fact or an omission to state a
material fact necessary in order to make the statements therein in light of the
circumstances in which they were made not misleading, contained in the Insurer
Information or a breach of any of the representations and warranties of the
Insurer contained in Section 4.
(c) If any action or proceeding (including any governmental investigation)
shall be brought or asserted against any Person (individually, an "Indemnified
Party" and, collectively, the "Indemnified Parties") in respect of which the
indemnity provided in this Section 5(a) or (b) may be sought from any
Underwriter, on the one hand, or the Insurer, on the other (each, an
"Indemnifying Party") hereunder, each such Indemnified Party shall promptly
notify the Indemnifying Party in writing, and the Indemnifying Party shall
assume the defense thereof, including the employment of counsel satisfactory to
the Indemnified Party and the payment of all expenses. The Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof at the expense of the Indemnified Party;
provided, however, that the fees and expenses of such separate counsel shall be
at the expense of the Indemnifying Party if (i) the Indemnifying Party has
agreed to pay such fees and expenses, (ii) the Indemnifying Party shall have
failed to assume the defense of such action or proceeding and employ counsel
reasonably satisfactory to the Indemnified Party in any such action or
proceeding or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party, and the Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Indemnifying Party (in which case,
if the Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party, it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for the Indemnified Parties, which
firm shall be designated in writing by the Indemnified Party). The Indemnifying
Party shall not be liable for any settlement of any such action or proceeding
effected without its written
4
<PAGE>
consent to the extent that any such settlement shall be prejudicial to the
Indemnifying Party, but, if settled with its written consent, or if there is a
final judgment for the plaintiff in any such action or proceeding with respect
to which the Indemnifying Party shall have received notice in accordance with
this subsection (c), the Indemnifying Party agrees to indemnify and hold the
Indemnified Parties harmless from and against any loss or liability by reason of
such settlement or judgment.
(d) To provide for just and equitable contribution if the indemnification
provided by the Indemnifying Party is determined to be unavailable or
insufficient to hold harmless any Indemnified Party (other than due to
application of this Section), each Indemnifying Party shall contribute to the
losses incurred by the Indemnified Party on the basis of the relative fault of
the Indemnifying Party, on the one hand, and the Indemnified Party, on the other
hand provided, that no Underwriter shall be liable for any amount in excess of
(i) the excess of the sales prices of the Offered Notes to the public over the
prices paid therefor by the Underwriter over (ii) the aggregate amount of any
damages which the Underwriter have otherwise been required to pay in respect of
the same or any substantially similar claim.
The relative fault of each Indemnifying Party, on the one hand, and each
Indemnified Party, on the other, shall be determined by reference to, among
other things, whether the breach of, or alleged breach of, any of its
representations and warranties set forth within the control of, the Indemnifying
Party or the Indemnified Party, and the parties relative intent, knowledge,
access to information and opportunity to correct or prevent such breach.
No person guilty of fraudulent misrepresentation (within the meaning of
Section (11)f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
Section 6. Amendments, Etc. This Indemnity Agreement may be amended,
modified, supplemented or terminated only by written instrument or written
instruments signed by the parties hereto.
Section 7. Notices. All demands, notices and other communications to be
given hereunder shall be in writing (except as otherwise specifically provided
herein) and shall be mailed by registered mail or personally delivered and
telecopied to the recipient as follows:
5
<PAGE>
(a) To the Insurer:
Ambac Indemnity Corporation
One State Street Plaza
New York, New York 10004
Attention: Structured Finance Department - MBS
Telecopy No.: 212-363-1459
Confirmation: 212-668-0340
(b) To any Underwriter:
Greenwich Capital Markets, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: ________________
Telecopy No.:
Confirmation:
A party may specify an additional or different address or addresses by
writing mailed or delivered to the other parties as aforesaid. All such notices
and other communications shall be effective upon receipt.
Section 8. Severability. In the event that any provision of this Indemnity
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, the parties hereto agree that such holding shall not invalidate or
render unenforceable any other provision hereof. The parties hereto further
agree that the holding by any court of competent jurisdiction that any remedy
pursued by any party hereto is unavailable or unenforceable shall not affect in
any way the ability of such party to pursue any other remedy available to it.
Section 9. Governing Law. This Indemnity Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
Section 10. Counterparts. The Indemnity Agreement may be executed in
counterparts by the parties hereto, and all such counterparts shall constitute
one and the same instrument.
Section 11. Headings. The headings of Sections and the Table of Contents
contained in this Indemnity Agreement are provided for convenience only. They
form no part of this Indemnity Agreement and shall not affect its construction
or interpretation.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Indemnification
Agreement, all as of the day and year first above mentioned.
AMBAC ASSURANCE CORPORATION,
as Insurer
By:/s/ Karl T. Molin
------------------------------------------------
Name: Karl T. Molin
----------------------------------------------
Title: Vice President & Assistant General Counsel
-------------------------------------------
GREENWICH CAPITAL MARKETS, INC.
By:/s/ Brian Bernard
------------------------------------------------
Name: Brian Bernard
----------------------------------------------
Title: Senior Vice President
-------------------------------------------
<PAGE>
EXECUTION COPY
--------------
EXHIBIT 4.1
===============================================================================
HEADLANDS MORTGAGE SECURITIES INC.,
Sponsor,
HEADLANDS MORTGAGE COMPANY,
Servicer,
HEADLANDS HOME EQUITY LOAN TRUST 1998-1,
Issuer,
and
THE FIRST NATIONAL BANK OF CHICAGO,
Indenture Trustee
_______________________
SALE AND SERVICING AGREEMENT
Dated as of March 13, 1998
______________________
Revolving Home Equity Loan Asset-Backed Notes
Series 1998-1
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS......................................................................................... 1
Section 1.01. Definitions...................................................................... 1
Section 1.02. Other Definitional Provisions.................................................... 20
Section 1.03. Interest Calculations............................................................ 21
ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF NOTES;
TAX TREATMENT......................................................................... 21
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to Fund
Advances Under Credit Line Agreements........................................ 21
Section 2.02. Further Encumbrance of Trust Property............................................ 25
Section 2.03. Acceptance by Indenture Trustee; Retransfer of Mortgage Loans.................... 25
Section 2.04. Representations and Warranties Regarding the Servicer and the
Sponsor...................................................................... 27
Section 2.05. Representations and Warranties of the Sponsor Regarding the
Mortgage Loans; Retransfer of Certain Mortgage Loans............................. 29
Section 2.06. Covenants of the Sponsor......................................................... 35
Section 2.07. Retransfers of Mortgage Loans at Election of Sponsor............................. 36
Section 2.08. Execution and Authentication of Notes............................................ 37
Section 2.09. Tax Treatment.................................................................... 37
Section 2.10. Conveyance of the Subsequent Mortgage Loans...................................... 37
ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS.................................................... 39
Section 3.01. The Servicer..................................................................... 39
Section 3.02. Collection of Certain Mortgage Loan Payments..................................... 41
Section 3.03. Withdrawals from the Collection Account.......................................... 43
Section 3.04. Maintenance of Hazard Insurance; Property Protection Expenses.................... 43
Section 3.05. Assumption and Modification Agreements........................................... 44
Section 3.06. Realization Upon Defaulted Mortgage Loans; Repurchase of
Certain Mortgage Loans....................................................... 45
Section 3.07. Indenture Trustee to Cooperate................................................... 45
Section 3.08. Servicing Compensation; Payment of Certain Expenses by Servicer.................. 46
Section 3.09. Annual Statement as to Compliance................................................ 47
Section 3.10. Annual Servicing Report.......................................................... 47
Section 3.11. Annual Opinion of Counsel........................................................ 47
Section 3.12. Access to Certain Documentation and Information Regarding the
Mortgage Loans............................................................... 47
Section 3.13. Maintenance of Certain Servicing Insurance Policies.............................. 48
Section 3.14. Reports to the Securities and Exchange Commission................................ 48
Section 3.15. Tax Returns...................................................................... 48
Section 3.16. Information Required by the Internal Revenue Service Generally
and Reports of Foreclosures and Abandonments of Mortgaged
Property..................................................................... 49
ARTICLE IV SERVICING CERTIFICATE.............................................................................. 49
Section 4.01. Servicing Certificate............................................................ 49
Section 4.02. Claims upon the Policy........................................................... 52
Section 4.03. Spread Account................................................................... 53
Section 4.04. Effect of Payments by the Credit Enhancer; Subrogation........................... 53
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE V THE SERVICER AND THE SPONSOR........................................................................ 54
Section 5.01. Liability of the Servicer and the Sponsor........................................ 54
Section 5.02. Merger or Consolidation of, or Assumption of the Obligations of,
the Servicer or the Sponsor.................................................. 54
Section 5.03. Limitation on Liability of the Servicer and Others............................... 54
Section 5.04. Servicer Not to Resign........................................................... 55
Section 5.05. Delegation of Duties............................................................. 55
Section 5.06. Indemnification of the Trust by the Servicer..................................... 55
Section 5.07. Indemnification of the Trust by the Sponsor...................................... 56
Section 5.08. Limitation on Liability of the Sponsor........................................... 56
ARTICLE VI SERVICING TERMINATION.............................................................................. 57
Section 6.01. Events of Servicing Termination.................................................. 57
Section 6.02. Indenture Trustee to Act; Appointment of Successor............................... 58
Section 6.03. Notification to Securityholders.................................................. 59
ARTICLE VII TERMINATION....................................................................................... 60
Section 7.01. Termination...................................................................... 60
ARTICLE VIII ADMINISTRATIVE DUTIES OF THE SERVICER............................................................ 61
Section 8.01. Administrative Duties............................................................ 61
Section 8.02. Records.......................................................................... 63
Section 8.03. Additional Information to be Furnished to the Issuer............................. 63
ARTICLE IX MISCELLANEOUS PROVISIONS........................................................................... 63
Section 9.01. Amendment........................................................................ 63
Section 9.02. Recordation of Agreement......................................................... 64
Section 9.03. Limitation on Rights of Noteholders.............................................. 65
Section 9.04. Governing Law.................................................................... 65
Section 9.05. Notices.......................................................................... 65
Section 9.06. Severability of Provisions....................................................... 66
Section 9.07. Assignment....................................................................... 66
Section 9.08. Third-Party Beneficiaries........................................................ 66
Section 9.09. Counterparts..................................................................... 66
Section 9.10. Effect of Headings and Table of Contents......................................... 66
Section 9.11. Insurance Agreement.............................................................. 66
Section 9.12. Nonpetition Covenant............................................................. 66
EXHIBITS
EXHIBIT A - MORTGAGE LOAN SCHEDULE............................................................................ A-1
EXHIBIT B - FORM OF OPINION OF COUNSEL........................................................................ B-1
EXHIBIT C - OFFICER'S CERTIFICATES............................................................................ C-1
EXHIBIT D - FORM OF CREDIT LINE AGREEMENT..................................................................... D-1
</TABLE>
ii
<PAGE>
SALE AND SERVICING AGREEMENT, dated as of March 13, 1998, among HEADLANDS HOME
EQUITY LOAN TRUST 1998-1, a Delaware business trust (the "Issuer"), HEADLANDS
MORTGAGE SECURITIES INC., a Delaware corporation (the "Sponsor"), HEADLANDS
MORTGAGE COMPANY, a California corporation (the "Servicer"), and THE FIRST
NATIONAL BANK OF CHICAGO, a national banking association (the "Indenture
Trustee")
WHEREAS, the Issuer desires to purchase a portfolio of Initial
Mortgage Loans arising in connection with Loan Agreements acquired by Headlands
Mortgage Company;
WHEREAS, the Sponsor has purchased such Mortgage Loans from Headlands
Mortgage Company and is willing to sell such Mortgage Loans to the Issuer;
WHEREAS, the Issuer desires to purchase Subsequent Mortgage Loans
arising in connection with Loan Agreements to be acquired by Headlands Mortgage
Company;
WHEREAS, the Sponsor has an agreement to purchase such Subsequent
Mortgage Loans from Headlands Mortgage Company and is willing to sell such
Subsequent Mortgage Loans to the Issuer;
WHEREAS, the Servicer is willing to service all such Mortgage Loans;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions
Section 1.01. Definitions. Whenever used in this Agreement, the
-----------
following words and phrases, unless the context otherwise requires, shall have
the meanings specified in this Article.
Accelerated Principal Distribution Amount: With respect to any
-----------------------------------------
Distribution Date, the amount, if any, required to reduce the Class A Note
Principal Balance (after giving effect to the distribution of all other amounts
actually distributed on the Class A Notes on such Distribution Date) so that the
Invested Amount (immediately following such Distribution Date) exceeds the Class
A Note Principal Balance (as so reduced) by the Required Overcollateralization
Amount.
Account: Any account established in accordance with Article IV hereof
-------
or Article VIII of the Indenture.
Additional Balance: As to any Mortgage Loans and day, the aggregate
------------------
amount of all Draws conveyed to the Trust pursuant to Section 2.01.
Adjustment Date: With respect to any Mortgage Loans and Interest Period,
---------------
the second LIBOR Business Day preceding the first day of such Interest Period.
<PAGE>
Affiliate: With respect to any Person, any other Person controlling,
---------
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through ownership of voting securities,
by contract or otherwise and "controlling" and "controlled" shall have meanings
correlative to the foregoing.
Agreement: This Sale and Servicing Agreement and all amendments hereof
---------
and supplements hereto.
Alternative Principal Payment: As to any Distribution Date, the amount
-----------------------------
(but not less than zero) equal to Principal Collections for such Distribution
Date less the aggregate of Draws under the Credit Line Agreements during the
related Collection Period.
Appraised Value: As to any Mortgaged Property, the value established by
---------------
either a full appraisal or a drive by inspection of such Mortgaged Property made
to establish compliance with the underwriting criteria then in effect in
connection with the application for the Mortgage Loans secured by such Mortgaged
Property.
Asset Balance: As to any Mortgage Loans, other than a Liquidated
-------------
Mortgage Loan, and day, the related Cut-Off Date Asset Balance, plus (i) any
----
Additional Balances minus (ii) all collections credited as principal against the
-----
Asset Balance of any such Mortgage Loans in accordance with the related Loan
Agreement. For purposes of this definition, a Liquidated Mortgage Loan shall be
deemed to have an Asset Balance equal to the Asset Balance of the related
Mortgage Loan immediately prior to the final recovery of related Liquidation
Proceeds and an Asset Balance of zero thereafter.
Assignment of Mortgage: With respect to any Mortgage, an assignment,
----------------------
notice of transfer or equivalent instrument, in recordable form, sufficient
under the laws of the jurisdiction in which the related Mortgaged Property is
located to reflect the sale of the Mortgage to the Indenture Trustee, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Mortgage Loans secured by Mortgaged
Properties located in the same jurisdiction.
Basic Documents: This Agreement, the Purchase Agreement, the Indenture,
---------------
the Trust Agreement, the Insurance Agreement, the Indemnification Agreement, the
Management Agreement and other documents delivered in connection therewith.
BIF: The Bank Insurance Fund, as from time to time constituted, created
---
under the Financial Institutions Reform, Recovery and Enhancement Act of 1989,
or if at any time after the execution of this instrument the Bank Insurance Fund
is not existing and performing duties now assigned to it, the body performing
such duties on such date.
Billing Cycle: With respect to any Mortgage Loan and Collection Period,
-------------
the billing period specified in the related Loan Agreement and with respect to
which amounts billed are received during such Collection Period.
2
<PAGE>
Book-Entry Note: means a beneficial interest in a note, ownerships and
---------------
transfers of which shall be made through book entries by a Clearing Agency as
described in Section 2.9 of the Indenture.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a
------------
day on which banking institutions in the State of New York, California, Delaware
or the State in which the Corporate Trust Office is located are required or
authorized by law to be closed.
Capitalized Interest Account: As defined in Section 8.8 of the
----------------------------
Indenture.
Certificate Principal Balance: As of any date of determination, the
-----------------------------
amount equal to (i) the Pool Balance at the end of the day next preceding such
date of determination, plus (ii) amounts on deposit in the Funding Account,
minus (iii) the Invested Amount.
Certificateholder: The Holder of the Certificates, which shall initially
-----------------
be Headlands Mortgage Securities Inc.
Certificateholders' Collections: As to any period, the sum of
-------------------------------
Certificateholders' Interest Collections and Certificateholders' Principal
Collections for such period.
Certificateholders' Interest: As of any Distribution Date, the excess,
----------------------------
if any of (x) the Trust Collateral Value as of such Distribution Date over (y)
the Invested Amount as of such Distribution Date (after taking into account
reductions therein on such Distribution Date).
Certificateholders' Interest Collections: Interest Collections that are
----------------------------------------
not Noteholders' Interest Collections.
Certificateholders' Principal Collections: On any Distribution Date,
-----------------------------------------
Principal Collections received during the related Collection Period minus the
amount of such Principal Collections required to be distributed to Class A
Noteholders pursuant to Section 8.3(b) of the Indenture or required to be
deposited to the Funding Account pursuant to Section 8.7 of the Indenture.
Certificateholders' Subordinated Amount: At the time of reference
---------------------------------------
thereto, $3,910,620.04 less the sum of (i) the aggregate amount of
Certificateholders' Collections previously applied pursuant to Section 8.3(c) of
the Indenture and (ii) the aggregate amount of Loss Amounts that have previously
been reallocated to the Certificate Principal Balance pursuant to the second
sentence of Section 8.3(c) of the Indenture; provided that the Certificate
--------
Subordinated Amount shall not be less than zero.
Certificates: As defined in the Trust Agreement.
------------
Class A Note: Any Class A Note executed and authenticated by the
------------
Indenture Trustee.
Class A Note Interest: With respect to any Distribution Date, interest
---------------------
for the related Interest Period at the applicable Class A Note Rate on the Class
A Note Principal Balance as of the first day of such Interest Period (after
giving effect to the distributions made on the first day of such Interest
Period).
3
<PAGE>
Class A Note Principal Balance: With respect to any Distribution Date,
------------------------------
(a) the Original Class A Note Principal Balance less (b) the aggregate of
----
amounts actually distributed as principal on the Class A Notes.
Class A Note Rate: With respect to the first Interest Period, 5.8875%,
-----------------
and for any subsequent Interest Period, the sum of (a) LIBOR as of the second
LIBOR Business Day prior to the first day of such Interest Period and (b) 0.20%;
provided, however, that in no event shall the Class A Note Rate with respect to
- -------- -------
any Interest Period exceed the Maximum Rate for such Interest Period. After the
First Clean-up Call Date, the Class A Note Rate shall become the sum of (a) one-
month LIBOR and (b) 0.40%.
Class A Noteholder: The Holder of a Class A Note.
------------------
Class S Note: Any Class S Note executed and authenticated by the
------------
Indenture Trustee.
Class S Note Interest: With respect to any Distribution Date, interest
---------------------
for the related Interest Period at the Class S Note Rate on the Class S Notional
Amount as of the first day of such Interest Period (after giving effect to
distributions made on the first day of such Interest Period).
Class S Note Rate: 1.25%.
-----------------
Class S Noteholder: The Holder of a Class S Note.
------------------
Class S Notional Amount: With respect to any Distribution Date, the
-----------------------
Class A Note Principal Balance for such Distribution Date (before giving effect
to distributions made on such Distribution Date).
Closed End Loan: Each Mortgage Loan originated under a Loan Agreement
---------------
providing for a single advance of funds on the date of origination and no
additional advances during the term of such Mortgage Loan.
Closing Date: March 25, 1998.
------------
Code: The Internal Revenue Code of 1986, as the same may be amended from
----
time to time (or any successor statute thereto).
Collection Account: The custodial account or accounts created and
------------------
maintained for the benefit of the Noteholders and the Credit Enhancer pursuant
to Section 3.02(b). The Collection Account shall be an Eligible Account.
Collection Period: With respect to any Distribution Date and any
-----------------
Mortgage Loans, the calendar month preceding such Distribution Date.
Combined Loan-to-Value Ratio: With respect to any HELOC as of any date,
----------------------------
the percentage equivalent of the fraction, the numerator of which is the sum of
(i) the Credit Limit and (ii) the outstanding principal balance as of the date
of execution of the related original Credit Line Agreement (or any subsequent
date as of which such outstanding principal balance may be
4
<PAGE>
determined in connection with an increase in the Credit Limit for such HELOC) of
any mortgage loan or mortgage loans that are senior or equal in priority to the
HELOC and that is or are secured by the same Mortgaged Property and the
denominator of which is the Appraised Value of the related Mortgaged Property.
With respect to any Closed-End Loan, the percentage equivalent of the fraction,
the numerator of which is the sum of (i) the original principal balance of such
Mortgage Loan and (ii) the outstanding principal balance as of the date of
execution of the related Mortgage Loan of any mortgage loan or mortgage loans
that are senior or equal in priority to the Mortgage Loan and that is or are
secured by the same Mortgaged Property and the denominator of which is the
Valuation of the related Mortgaged Property.
Company: Headlands Mortgage Company, a publicly-held California
-------
corporation and any successor thereto.
Corporate Trust Office: The principal corporate trust office of the
----------------------
Indenture Trustee at which, at any particular time, its corporate trust business
shall be administered, which office at the date hereof is located at One First
National Plaza, Suite 0126, Chicago, Illinois 60670-0126, Attention: Corporate
Trust Services Division, except if the place of payment of any Note is New York
City, then such term shall mean the office or agency of the Indenture Trustee in
the Borough of Manhattan, the City of New York, which office at the date hereof
is located at First Chicago Trust Company of New York, 14 Wall Street, Eighth
Floor, New York, New York 10005.
Credit Enhancement Draw Amount: As to any Distribution Date, an amount
------------------------------
equal to the sum of (1) the amount by which (a) the amount to be distributed to
Noteholders pursuant to Sections 8.3(a)(i) and 8.3(a)(ii) of the Indenture
exceeds (b) the sum of (i) the amount of Noteholders' Interest Collections on
deposit in the Collection Account on the Business Day preceding such
Distribution Date that is available to be applied therefor, (ii) the amount
transferred to the Collection Account from the Capitalized Interest Account
pursuant to Section 8.8 of the Indenture, and (iii) any amount transferred from
the Spread Account to the Collection Account pursuant to Section 4.03, all after
giving effect to the allocation of Certificateholders' Interest and Principal
Collections in accordance with Section 8.3(c) of the Indenture, (2) the
Guaranteed Principal Distribution Amount and (3) any Preference Claim for such
Distribution Date.
Credit Enhancer: Ambac Assurance Corporation, a Wisconsin monoline stock
---------------
insurance company.
Credit Enhancer Default: The failure by the Credit Enhancer to make a
----------------
payment required under the Policy in accordance with the terms thereof.
Credit Limit: As to any HELOCs, the maximum Asset Balance permitted
------------
under the terms of the related Credit Line Agreement.
Credit Limit Utilization Rate: As to any HELOCs, the percentage
-----------------------------
equivalent of a fraction the numerator of which is the Cut-Off Date Asset
Balance for such HELOCs and the denominator of which is the related Credit
Limit.
5
<PAGE>
Credit Line Agreement: With respect to any HELOCs, the related credit
---------------------
line account agreement and promissory note executed by the related Mortgagor and
any amendment or modification thereof.
Custodial Agreement: Any Custodial Agreement between any Custodian and
-------------------
the Indenture Trustee, which is reasonably acceptable in form and substance to
the Credit Enhancer, relating to the custody of the Mortgage Loans and the
Related Documents.
Custodian: Any custodian acceptable to the Credit Enhancer and appointed
---------
by the Indenture Trustee under a Custodial Agreement to maintain all or a
portion of the Mortgage Files pursuant to Section 2.01.
Cut-Off Date: With respect to each Initial Mortgage Loan, the close of
------------
business on March 12, 1998 and with respect to each Subsequent Mortgage Loan,
the date on which such Subsequent Mortgage Loan was transferred to the Trust.
Cut-Off Date Asset Balance: With respect to any Mortgage Loan, the
--------------------------
unpaid principal balance thereof as of the applicable Cut-Off Date.
Cut-Off Date Pool Balance: The Pool Balance calculated as of the
-------------------------
applicable Cut-Off Date.
Defective Mortgage Loan: A Mortgage Loan subject to retransfer pursuant
-----------------------
to Section 2.03 or 2.05.
Definitive Notes: As defined in Section 2.11 of the Indenture.
----------------
Delinquent: A Mortgage Loan is "delinquent" if any payment due thereon
----------
is not made by the close of business on the day such payment is scheduled to be
due. A Mortgage Loan is "30 days delinquent" if such payment has not been
received by the close of business on the corresponding day of the month
immediately succeeding the month in which such payment was due, or, if there is
no such corresponding day (e.g., as when a 30-day month follows a 31-day month
in which a payment was due on the 31st day of such month) then on the last day
of such immediately succeeding month. Similarly for "60 days delinquent," "90
days delinquent" and so on.
Depository: The initial Depository shall be The Depository Trust
----------
Company, the nominee of which is Cede & Co., as the registered Holder of Class A
Notes evidencing $191,584,000 in initial aggregate principal amount of the Class
A Notes and as the registered Holder of Class S Notes evidencing $191,584,000 in
initial aggregate notional amount of the Class S Notes. The Depository shall at
all times be a "clearing corporation" as defined in Section 8-102(5) of the UCC
of the State of New York.
Determination Date: With respect to any Distribution Date, the third
------------------
Business Day prior to such Distribution Date.
6
<PAGE>
Distribution Date: The fifteenth day of each month, or if such day is
-----------------
not a Business Day, then the next Business Day, beginning in the month
immediately following the month of the initial issuance of the Notes.
Draw: With respect to any HELOC, an additional borrowing by the
----
Mortgagor subsequent to the related Cut-Off Date in accordance with the related
Credit Line Agreement.
Electronic Ledger: The electronic master record of home equity credit
-----------------
line mortgage loans maintained by the Servicer.
Eligible Account: An account that is either (i) maintained with a
----------------
depository institution whose short-term debt obligations throughout the time of
any deposit therein are rated in the highest short-term debt rating category by
Standard & Poor's and Moody's, (ii) an account or accounts maintained with a
depository institution with a minimum long term unsecured debt rating by
Standard & Poor's and Moody's which is at least investment grade provided that
the deposits in such account or accounts are fully insured by either the BIF or
the SAIF, or (iii) a segregated trust account maintained with the corporate
trust department of the Indenture Trustee in its fiduciary capacity, or (iv) an
account otherwise acceptable to each Rating Agency and the Credit Enhancer, as
evidenced at closing by delivery of a rating letter by each Rating Agency and
thereafter by delivery of a letter from each Rating Agency and the Credit
Enhancer to the Indenture Trustee, within 30 days of receipt of notice of such
deposit.
Eligible Investments: One or more of the following (excluding any
--------------------
callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed
as to timely payment of principal and interest by, the United States or
any agency or instrumentality thereof, provided that such obligations
are backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause
(i) maturing not more than three months from the date of acquisition
thereof, provided that the short-term unsecured debt obligations of the
party agreeing to repurchase such obligations are at the time rated by
each Rating Agency in its highest short-term rating category (which is
A-1+ for Standard & Poor's and P-1 for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than
365 days) of any U.S. depository institution or trust company
incorporated under the laws of the United States or any state thereof
and subject to supervision and examination by federal and/or state
banking authorities, provided that the unsecured short-term debt
obligations of such depository institution or trust company at the date
of acquisition thereof have been rated by each of Moody's and Standard &
Poor's in its highest unsecured short-term debt rating category;
(iv) commercial paper (having original maturities of not more
than 270 days) of any corporation incorporated under the laws of the
United States or any state thereof
7
<PAGE>
which on the date of acquisition has been rated by Standard & Poor's and
Moody's in their highest short-term debt rating categories;
(v) short term investment funds ("STIFS") sponsored by any
trust company or national banking association incorporated under the
laws of the United States or any state thereof which on the date of
acquisition has been rated by Standard & Poor's and Moody's in their
respective highest applicable rating category; and
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time such
interests are held in such fund has a rating of Aaa by Moody's and
either AAAm or AAAm-G by Standard & Poor's or such lower rating as will
not result in the qualification, downgrading or withdrawal of the then-
current rating assigned to the Notes by each Rating Agency without
regard to the Policy;
(vii) other obligations or securities that are acceptable to
each Rating Agency and the Credit Enhancer as an Eligible Investment
hereunder and will not result in a reduction in the then current rating
of the Notes without regard to the Policy, as evidenced by a letter to
such effect from such Rating Agency and the Credit Enhancer and with
respect to which the Servicer has received confirmation that, for tax
purposes, the investment complies with the last clause of this
definition;
provided that no instrument described hereunder shall evidence either the right
- --------
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
-------- -------
that no instrument described hereunder may be purchased at a price greater than
par if such instrument may be prepaid or called at a price less than its
purchase price prior to its stated maturity; and provided, further, that all
-------- -------
instruments described hereunder must mature at least 1 Business Day prior to
each Distribution Date .
Eligible Substitute Mortgage Loan: A Mortgage Loan substituted by the
---------------------------------
Sponsor for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Asset Balance (or in the case of a
substitution of more than one Mortgage Loan for a Defective Mortgage Loan, an
aggregate Asset Balance) not greater than 115% of the Transfer Deficiency, if
any, relating to such Defective Mortgage Loan; (ii) except for Teaser HELOCs
during the Teaser Period, have a Loan Rate not less than the Loan Rate of the
Defective Mortgage Loan and not more than 4.00% in excess of the Loan Rate of
such Defective Mortgage Loan; (iii) with respect to each HELOC, have a Loan Rate
based on the same Index with adjustments to such Loan Rate made on the same
Interest Rate Adjustment Date as that of the Defective HELOC; (iv) except for
Teaser HELOCs during the Teaser Period, with respect to each HELOC, have a Gross
Margin that is not less than the Gross Margin of the Defective Mortgage Loan and
not more than 100 basis points higher than the Gross Margin for the Defective
Mortgage Loan; (v) have a Mortgage of the same or higher level of priority as
the Mortgage relating to the Defective Mortgage Loan at the time such Mortgage
was transferred to the Trust; (vi) have a remaining term to maturity not more
than 120 months earlier and not more than 180 months later than the
8
<PAGE>
remaining term to maturity of the Defective Mortgage Loan; (vii) comply with
each representation and warranty set forth in Section 2.05 (deemed to be made as
of the date of substitution); and (viii) have an original Combined Loan-to-Value
Ratio not greater than that of the Defective Mortgage Loan. More than one
Eligible Substitute Mortgage Loan may be substituted for a Defective Mortgage
Loan if such Eligible Substitute Mortgage Loans meet the foregoing attributes in
the aggregate and such substitution is approved in writing in advance by the
Credit Enhancer.
Event of Servicing Termination: As defined in Section 6.01.
------------------------------
Final Scheduled Distribution Date: With respect to the Class A Notes and
---------------------------------
the Class S Notes, the Distribution Date is March 2025.
FDIC: The Federal Deposit Insurance Corporation or any successor
----
thereto.
FICO: Fair Isaac & Company.
----
First Clean-Up Call Date: The Distribution Date upon which the optional
------------------------
termination referred to in Section 7(b) may be exercised.
Fixed Allocation Percentage: 98%.
---------------------------
Floating Allocation Percentage: With respect to any Distribution Date,
------------------------------
the percentage equivalent of a fraction, the numerator of which is the Invested
Amount at the close of business on the preceding Distribution Date (or at the
Closing Date in the case of the first Distribution Date) and the denominator of
which is the sum as of the beginning of the related Collection Period of (a) the
Pool Balance and (b) amounts on deposit in the Funding Account.
Foreclosure Profit: With respect to a Liquidated Mortgage Loans, the
------------------
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Asset Balance (plus accrued and unpaid interest thereon
at the applicable Loan Rate from the date interest was last paid through the
last day in the related Collection Period) of such Liquidated Mortgage Loans
immediately prior to the final recovery of its Liquidation Proceeds.
Funding Account: The custodial account or accounts established and
---------------
maintained with the Indenture Trustee for the benefit of the Noteholders
pursuant to Section 8.7 of the Indenture. The Funding Account shall be an
Eligible Account.
Funding Period: The period commencing on the Closing Date and ending on
--------------
the earlier of (i) the close of business on the twelfth Distribution Date, and
(ii) the commencement of the Rapid Amortization Period.
Gross Margin: As to any Mortgage Loans, the percentage set forth as the
------------
"Gross Margin" for such Mortgage Loans on Exhibit A hereto.
Guaranteed Distribution: With respect to any Distribution Date, the sum
-----------------------
of the (i) the Guaranteed Principal Distribution Amount and (ii) the amount to
be distributed to Class A and
9
<PAGE>
Class S Noteholders pursuant to Sections 8.3(a)(i) and 8.3(a)(ii) of the
Indenture for such Distribution Date.
Guaranteed Principal Distribution Amount: With respect to (i) any
----------------------------------------
Distribution Date on or after which the Certificateholders' Subordinated Amount
has been reduced to zero, the amount, if any, required to reduce the Class A
Note Principal Balance (after giving effect to the distributions of Interest
Collections and Principal Collections that are allocable to principal on the
Class A Notes on such Distribution Date) to the Invested Amount for such
Distribution Date (after giving effect to distributions of principal, if any,
and allocation of Loss Amounts on such Distribution Date) and (ii) the
Distribution Date in March, 2025, the amount by which the outstanding Class A
Note Principal Balance (after giving effect to all other amounts allocable to
and distributable as principal on the Class A Notes on such Distribution Date)
exceeds the sum of the amounts on deposit in the Collection Account available to
be distributed to the Class A Noteholders pursuant to Section 8.3(b) of the
Indenture.
HELOC: Any Mortgage Loan originated pursuant to a Loan Agreement
-----
providing for Draws.
Indemnification Agreement: The Indemnification Agreement dated as of
-------------------------
March 25, 1998 among the Company, the Sponsor, the Credit Enhancer and Greenwich
Capital Markets, Inc.
Indenture: The Indenture dated as of March 1, 1998, between the Issuer
---------
and The First National Bank of Chicago, as Indenture Trustee, as the same may be
amended and supplemented from time to time.
Indenture Trustee: The First National Bank of Chicago under the
-----------------
Indenture, its successors in interest and any successor trustee under the
Indenture.
Index: With respect to each Interest Rate Adjustment Date for a Mortgage
-----
Loan, the highest "prime rate" as published in the "Money Rates" table of The
---
Wall Street Journal as of the last business day of the previous Billing Cycle.
- -------------------
Initial Cut-Off Date: The close of business on March 12, 1998.
--------------------
Initial Cut-Off Date Pool Balance: $156,395,696.03.
---------------------------------
Initial Mortgage Loan: Each Mortgage Loan transferred and assigned to
---------------------
the Indenture Trustee on the Closing Date.
Insurance Agreement: The insurance and reimbursement agreement dated as
-------------------
of March 25, 1998 among the Sponsor, the Servicer, the Indenture Trustee, the
Issuer and the Credit Enhancer, including any amendments and supplements
thereto.
Insurance Proceeds: Proceeds paid by any insurer (other than the Credit
------------------
Enhancer) pursuant to any insurance policy covering a Mortgage Loan, or amounts
required to be paid by the Servicer pursuant to the last sentence of Section
3.04, net of any component thereof (i) covering any expenses incurred by or on
behalf of the Servicer in connection with obtaining such proceeds, (ii) that is
applied to the restoration or repair of the related Mortgaged Property, (iii)
10
<PAGE>
released to the Mortgagor in accordance with the Servicer's normal servicing
procedures or (iv) required to be paid to any holder of a mortgage senior to
such Mortgage Loan.
Interest Collections: As to any Distribution Date, the sum of all
--------------------
payments by or on behalf of Mortgagors and any other amounts constituting
interest (including, without limitation, such portion of Insurance Proceeds and
Net Liquidation Proceeds as is allocable to interest on the applicable Mortgage
Loan) collected by the Servicer under the Mortgage Loan (excluding any fees
(including annual fees) or late charges or similar administrative fees paid by
Mortgagors) during the related Collection Period and any deposits made to the
Collection Account during such Collection Period pursuant to Section 8.7(c)(i)
of the Indenture minus the Servicing Fee payable to the Servicer with respect to
the related Collection Period. The terms of the related Loan Agreement shall
determine the portion of each payment in respect of such Mortgage Loan that
constitutes principal or interest.
Interest Period: With respect to any Distribution Date other than the
---------------
first Distribution Date, the period beginning on the preceding Distribution Date
and ending on the day preceding such Distribution Date, and in the case of the
first Distribution Date, the period beginning on the Closing Date and ending on
the day preceding the first Distribution Date.
Interest Rate Adjustment Date: With respect to each Mortgage Loan, any
-----------------------------
date on which the Loan Rate is adjusted in accordance with the related Credit
Line Agreement.
Invested Amount: With respect to any Distribution Date, an amount equal
---------------
to the Original Invested Amount minus (i) the amount of Principal Collections
previously distributed to Class A Noteholders (including amounts previously
distributed to Class A Noteholders from Principal Collections on deposit in the
Funding Account), amounts allocable to the Certificates and Noteholders'
Interest Collections that are used to reimburse Loss Amounts and amounts
distributed as Guaranteed Principal Distribution Amounts funded by withdrawals
from the Spread Account or draws under the Policy and minus (ii) an amount equal
to the Loss Amounts not previously absorbed by the Overcollateralization Amount,
funded by collections allocable to the Certificateholders' Interest or
reallocated to the Certificateholders' Interest (up to the Certificateholders'
Subordinated Amount) or funded by withdrawals from the Spread Account or draws
on the Policy.
Issuer: Headlands Home Equity Loan Trust 1998-1.
------
LIBOR: As to any date, the rate for United States dollar deposits for
-----
one month which appear on the Telerate Screen LIBOR Page 3750 as of 11:00 A.M.,
London time. If such rate does not appear on such page (or such other page as
may replace that page on that service, or if such service is no longer offered,
such other service for displaying LIBOR or comparable rates as may be reasonably
selected by the Sponsor after consultation with the Indenture Trustee), the rate
will be the Reference Bank Rate. If no such quotations can be obtained and no
Reference Bank Rate is available, LIBOR will be LIBOR applicable to the
preceding Distribution Date.
LIBOR Business Day: Any day other than (i) a Saturday or a Sunday or
------------------
(ii) a day on which banking institutions in the State of New York or in the city
of London, England are required or authorized by law to be closed.
11
<PAGE>
Lien: Any mortgage, deed of trust, pledge, conveyance, hypothecation,
----
assignment, participation, deposit arrangement, encumbrance, lien (statutory or
other), preference, priority right or interest or other security agreement or
preferential arrangement of any kind or nature whatsoever, including, without
limitation, any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing and the filing of any financing statement under the UCC (other than
any such financing statement filed for informational purposes only) or
comparable law of any jurisdiction to evidence any of the foregoing; provided,
--------
however, that any assignment pursuant to Section 5.02 hereof shall not be deemed
- -------
to constitute a Lien.
Lifetime Rate Cap: With respect to each HELOC with respect to which the
-----------------
related Mortgage Note provides for a lifetime rate cap, the maximum Loan Rate
permitted over the life of such HELOC under the terms of the related Credit Line
Agreement previously delivered to the Indenture Trustee.
Liquidated Mortgage Loan: As to any Distribution Date, any Mortgage Loan
------------------------
in respect of which the Servicer has determined, in accordance with the
servicing procedures specified herein, as of the end of the related Collection
Period, that all Liquidation Proceeds which it expects to recover with respect
to the disposition of such Mortgage Loan or the related REO have been recovered.
Liquidation Expenses: Out-of-pocket expenses (exclusive of overhead)
--------------------
which are incurred by the Servicer in connection with the liquidation of any
Mortgage Loan and not recovered under any insurance policy, including, without
limitation, legal fees and expenses, any unreimbursed amount expended pursuant
to Section 3.06 (including, without limitation, amounts advanced to correct
defaults on any mortgage loan which is senior to such Mortgage Loan and amounts
advanced to keep current or pay off a mortgage loan that is senior to such
Mortgage Loan) respecting the related Mortgage Loan and any related and
unreimbursed expenditures with respect to real estate property taxes, water or
sewer taxes, condominium association dues, property restoration or preservation
or insurance against casualty, loss or damage.
Liquidation Loss Amount: With respect to any Distribution Date and any
-----------------------
Mortgage Loan that becomes a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered Asset Balance thereof at the end of such
Collection Period, after giving effect to the Net Liquidation Proceeds applied
in reduction of such Asset Balance.
Liquidation Proceeds: Proceeds (including Insurance Proceeds) received
--------------------
in connection with the liquidation of any Mortgage Loan or related REO, whether
through trustee's sale, foreclosure sale or otherwise.
Loan Agreement: With respect to any HELOC, the related Credit Line
--------------
Agreement. With respect to any Mortgage Loan, the related Mortgage Note.
Loan Purchase Price: With respect to any Mortgage Loan purchased from
-------------------
the Trust on a Determination Date pursuant to Section 3.06 hereof, an amount
equal to the Asset Balance of such Mortgage Loans as of the date of purchase,
the aggregate amount of (i) all unpaid interest
12
<PAGE>
accrued and (ii) any Credit Enhancement Draw Amounts not previously repaid to
the Credit Enhancer relating to such Mortgage Loan.
Loan Rate: With respect to any HELOC and as of any day, the per annum
---------
rate of interest applicable under the related Credit Line Agreement being Prime
Rate (as defined in the Credit Line Agreement) plus Margin. With respect to any
Mortgage Loan and as of any day, the per annum rate of interest as stated in the
related Mortgage Note.
Loan Rate Cap: With respect to each Mortgage Loan, the lesser of (i) the
-------------
Lifetime Rate Cap, if any, or (ii) the applicable state usury ceiling, if any.
Loss Amount: With respect to any Distribution Date, the amount equal to
-----------
the product of (i) the Floating Allocation Percentage for such Distribution Date
and (ii) the aggregate of the Liquidation Loss Amounts for such Distribution
Date.
Loss Reduction Amount: With respect to any Distribution Date, the
---------------------
portion, if any, of the Loss Amount for such Distribution Date and all prior
Distribution Dates that has not been (a) distributed to Class A Noteholders on
such Distribution Date pursuant to Section 8.3(a)(iii) or 8.3(a)(iv) of the
Indenture or by way of the Credit Enhancement Draw Amount or (b) reallocated to
the Certificate Principal Balance pursuant to Section 8.3(c) of the Indenture.
Managed Amortization Period: The period from the termination of the
---------------------------
Funding Period to the Rapid Amortization Commencement Date.
Management Agreement: The Management Agreement, dated as of March 13,
--------------------
1998, between the Sponsor and the Issuer.
Margin: With respect to each Mortgage Loan with an adjustable rate, the
------
fixed percentage amount set forth in the related Loan Agreement which amount is
added to the Prime Rate in accordance with the terms of the related Loan
Agreement to determine the Loan Rate for such Mortgage Loan, subject to any
maximum.
Maximum Principal Payment: With respect to any Distribution Date, the
-------------------------
Fixed Allocation Percentage of the Principal Collections for such Distribution
Date.
Maximum Rate: As to any Interest Period, the Weighted Average Net Loan
------------
Rate for the Collection Period during which such Interest Period begins
(adjusted to an effective rate reflecting accrued interest calculated on the
basis of the actual number of days in the Collection Period commencing in the
month in which such Interest Period commences and a year assumed to consist of
360 days).
Minimum Certificateholders' Interest: With respect to any date, an
------------------------------------
amount equal to the lesser of (a) 4.0% of the Pool Balance on such date and (b)
the Certificate Principal Balance as of the Closing Date.
Minimum Monthly Payment: With respect to any Mortgage Loan and any
-----------------------
month, the minimum amount required to be paid by the related Mortgagor in that
month.
13
<PAGE>
Moody's: Moody's Investors Service, Inc. or its successor in interest.
-------
Mortgage: The mortgage, deed of trust or other instrument creating a
--------
first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
Mortgage File: The mortgage documents listed in Section 2.01 pertaining
-------------
to a particular Mortgage Loan and any additional documents required to be added
to the Mortgage File pursuant to this Agreement.
Mortgage Loan: The mortgage loans originated pursuant to a Credit Line
-------------
Agreement and, including any Additional Balances with respect thereto, as well
as any Closed-End Loans, that are transferred and assigned to the Indenture
Trustee pursuant to Section 2.01 and Section 2.10, together with the Related
Documents, exclusive of mortgage loans that are retransferred to the Sponsor or
the Servicer from time to time pursuant to Section 2.03, 2.05, 2.07 or 3.06 as
from time to time are held as a part of the Trust. The mortgage loans
originally so held are identified in the Mortgage Loan Schedule delivered on the
Closing Date. The Mortgage Loans shall also include any Eligible Substitute
Mortgage Loans substituted by the Sponsor for a Defective Mortgage Loan pursuant
to Sections 2.03 and 2.05. The term "Mortgage Loan" includes the terms "Initial
Mortgage Loan" and "Subsequent Mortgage Loan."
Mortgage Loan Schedule: With respect to any date, the schedule of
----------------------
Mortgage Loans included in the Trust on such date. The schedule of Initial
Mortgage Loans as of the Initial Cut-Off Date is the schedule set forth herein
as Exhibit A, which schedule sets forth as to each such Mortgage Loan, to the
extent applicable, (i) the Cut-Off Date Asset Balance, (ii) the Credit Limit,
(iii) the Gross Margin, (iv) the Lifetime Rate Cap, (v) the account number, (vi)
the current Loan Rate, (vii) the Combined Loan-to-Value Ratio, (viii) a code
specifying the property type, (ix) a code specifying documentation type and (x)
a code specifying lien position. The Mortgage Loan Schedule will be deemed to be
amended from time to time to reflect Additional Balances, Eligible Substitute
Mortgage Loans and Subsequent Mortgage Loans.
Mortgage Note: With respect to a HELOC, the Credit Line Agreement
-------------
pursuant to which the related Mortgagor agrees to pay the indebtedness evidenced
thereby which is secured by the related Mortgage. With respect to a Closed-End
Loan, the Mortgage Note pursuant to which the related Mortgagor agrees to pay
the indebtedness evidenced thereby which is secured by related Mortgage.
Mortgaged Property: The underlying property, including any real property
------------------
and improvements thereon, securing a Mortgage Loans.
Mortgagor: The obligor or obligors under a Loan Agreement.
---------
Net Liquidation Proceeds: With respect to any Liquidated Mortgage Loan,
------------------------
Liquidation Proceeds net of Liquidation Expenses.
Net Loan Rate: With respect to any Mortgage Loan and as to any day, the
-------------
Loan Rate less the Servicing Fee Rate, the Class S Note Rate, the Premium Fee
Rate, the Trustee Fee Rate, Owner Trustee Fee Rate and, after the twelfth
Distribution Date, 0.50% per annum.
14
<PAGE>
Note Owner: The Person who is the beneficial owner of a Book-Entry Note
----------
or following the issuance of Definitive Notes, the registered owner of the
Notes.
Note Policy Claim Amount: As defined in Section 4.02 herein.
------------------------
Noteholders: The holders of the Notes.
-----------
Noteholders' Collections: As to any period, the sum of Noteholders'
------------------------
Interest Collections and Noteholders' Principal Collections.
Noteholders' Interest Collections: As to any Distribution Date, the
---------------------------------
product of (i) the Interest Collections during the related Collection Period and
(ii) the Floating Allocation Percentage for such Distribution Date.
Officer's Certificate: A certificate signed by the President, an
---------------------
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Sponsor or the Servicer, as the case may be, and
delivered to the Indenture Trustee.
Opinion of Counsel: A written opinion of counsel acceptable to the
------------------
Indenture Trustee, who may be in-house counsel for the Sponsor or the Servicer
(except that any opinion pursuant to Section 2.09 or relating to taxation must
be an opinion of independent outside counsel) and who, in the case of opinions
delivered to the Credit Enhancer and any Rating Agency, is reasonably acceptable
to it.
Original Class A Note Principal Balance: $191,584,000.
---------------------------------------
Original Invested Amount: $191,584,000.
------------------------
Overcollateralization Amount: At the time of reference thereto, the
----------------------------
amount, if any, by which the Invested Amount exceeds the Class A Note Principal
Balance.
Owner Trustee: Wilmington Trust Company, not in its individual capacity
-------------
but solely as Owner Trustee under the Trust Agreement, its successors in
interest or any successor Owner Trustee under the Trust Agreement.
Owner Trustee Fee: A fee which is separately agreed to between the
-----------------
Servicer and the Owner Trustee.
Owner Trustee Fee Rate: The per annum rate at which the Owner Trustee
----------------------
Fee is calculated.
Percentage Interest: As to any Note, the percentage obtained by dividing
-------------------
the principal denomination (or notional amount) of such Note by the aggregate of
the principal denominations (or notional amounts) of all Notes of the same
class.
15
<PAGE>
Person: Any individual, corporation, partnership, joint venture,
------
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
Policy: The financial guaranty insurance policy number AB00161BE, dated
------
as of the Closing Date, issued by the Credit Enhancer to the Indenture Trustee
for the benefit of the Noteholders.
Pool Balance: With respect to any date, the aggregate of the Asset
------------
Balances of all Mortgage Loans as of such date.
Pool Factor: With respect to any Distribution Date, the percentage,
-----------
carried to seven places, obtained by dividing the Class A Note Principal Balance
for such Distribution Date by the Original Class A Note Principal Balance.
Preference Claim: As defined in Section 4.02.
----------------
Premium Fee Rate: As described in the Insurance Agreement.
----------------
Principal Balance: As to any Mortgage Loan, other than a Liquidated
-----------------
Mortgage Loan, and as of any date, the related Cut-Off Date Principal Balance,
plus (i) any Additional Balance in respect of such Mortgage Loan, minus (ii) all
collections credited as principal against the Principal Balance of any such
Mortgage Loan in accordance with the related Loan Agreement prior to such day.
For purposes of this definition, a Liquidated Mortgage Loan shall be deemed to
have a Principal Balance of zero as of the first day of the Collection Period
following the Collection Period in which such Mortgage Loan becomes a Liquidated
Mortgage Loan and at all times thereafter.
Principal Collections: As to any Distribution Date, the sum of all
---------------------
payments by or on behalf of Mortgagors and any other amounts constituting
principal (including, but not limited to, any portion of Insurance Proceeds or
Net Liquidation Proceeds allocable to principal in respect of the applicable
Mortgage Loans, and Transfer Deposit Amounts, but excluding Foreclosure Profits)
collected by the Servicer under the Mortgage Loans during the related Collection
Period. The terms of the related Loan Agreement shall determine the portion of
each payment in respect of a Mortgage Loans that constitutes principal or
interest.
Purchase Agreement: The Mortgage Loan Purchase Agreement, dated as of
------------------
March 13, 1998, between the Company and the Sponsor, with respect to the
Mortgage Loans.
Rapid Amortization Commencement Date: The earlier of (i) the
------------------------------------
Distribution Date in April 2004 and (ii) the Distribution Date next succeeding
the Collection Period in which a Rapid Amortization Event is deemed to occur
pursuant to Section 12.01 of the Indenture.
Rapid Amortization Event: As defined in Section 12.01 of the Indenture.
------------------------
Rapid Amortization Period: The period commencing on the Rapid
-------------------------
Amortization Commencement Date and continuing until the termination of the Trust
pursuant to Section 7.01.
16
<PAGE>
Rating Agency: Moody's and Standard & Poor's. If such agency or a
-------------
successor is no longer in existence, "Rating Agency" shall be such statistical
credit rating agency, or other comparable Person, designated by the Sponsor and
the Credit Enhancer, notice of which designation shall be given to the Indenture
Trustee. References herein to the highest short term unsecured rating category
of a Rating Agency shall mean A-1+ or better in the case of Standard & Poor's
and P-1 or better in the case of Moody's and in the case of any other Rating
Agency shall mean the ratings such other Rating Agency deems equivalent to the
foregoing ratings. References herein to the highest long-term rating category
of a Rating Agency shall mean "AAA" in the case of Standard & Poor's and "Aaa"
in the case of Moody's and in the case of any other Rating Agency, the rating
such other Rating Agency deems equivalent to the foregoing ratings.
Record Date: The last day preceding the related Distribution Date;
-----------
provided, however, that following the date on which Definitive Notes are
- -------- -------
available the Record Date shall be the last day of the calendar month preceding
the month in which the related Distribution Date occurs.
Reference Bank Rate: As to any Interest Period as follows: the
-------------------
arithmetic mean (rounded upwards, if necessary, to the nearest one sixteenth of
a percent) of the offered rates for United States dollar deposits for one month
which are offered by the Reference Banks as of 11:00 A.M., London time, on the
second LIBOR Business Day prior to the first day of such Interest Period to
prime banks in the London interbank market for a period of one month in amounts
approximately equal to the outstanding Class A Note Principal Balance; provided
--------
that at least two such Reference Banks provide such rate. If fewer than two
offered rates appear, the Reference Bank Rate will be the arithmetic mean of the
rates quoted by one or more major banks in New York City, selected by the
Sponsor after consultation with the Indenture Trustee, as of 11:00 A.M., New
York City time, on such date for loans in U.S. Dollars to leading European banks
for a period of one month in amounts approximately equal to the outstanding
Class A Note Principal Balance. If no such quotations can be obtained, the
Reference Bank Rate shall be LIBOR applicable to the preceding Interest Period.
Reference Banks: Three major banks that are engaged in the London
---------------
interbank market, selected by the Sponsor after consultation with the Indenture
Trustee.
Reimbursement Amount: As defined in Section 2.07 herein.
--------------------
Related Documents: As defined in Section 2.01.
-----------------
Remaining Funding Amount: The amount on deposit in the Funding Account
------------------------
on the sixth Distribution Date equal to $39,098,924.01 minus the amount
previously withdrawn from the Funding Account to purchase Subsequent Mortgage
Loans.
REO: A Mortgaged Property that is acquired by the Trust in foreclosure
---
or by deed in lieu of foreclosure.
Required Overcollateralization Amount: As of any Distribution Date, an
-------------------------------------
amount equal to the excess of (a) the "Spread Account Maximum" (as defined in
the Insurance Agreement) as of such Distribution Date over (b) the sum of (i)
the Certificateholders' Subordinated Amount as of
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<PAGE>
such Distribution Date and (ii) the amount of funds on deposit in the Spread
Account as of such Distribution Date.
Responsible Officer: When used with respect to the Indenture Trustee,
-------------------
any officer of the Indenture Trustee with direct responsibility for the
administration of this Agreement and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
Retransfer Date: As defined in Section 2.07.
---------------
Retransfer Notice Date: As defined in Section 2.07.
----------------------
SAIF: The Savings Association Insurance Fund, as from time to time
----
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
Scheduled Principal Collections Distribution Amount: With respect to any
---------------------------------------------------
Distribution Date during the Funding Period or the Managed Amortization Period
and the Class A Notes, an amount equal to the lesser of (i) the Maximum
Principal Payment and (ii) the Alternative Principal Payment. With respect to
any Distribution Date in respect of the Rapid Amortization Period, the Maximum
Principal Payment.
Securityholders: The Noteholders and the Certificateholders.
---------------
Servicer: Headlands Mortgage Company, a publicly-held California
--------
corporation, any successor thereto and, after its termination as Servicer, any
successor hereunder.
Servicing Certificate: A certificate completed and executed by a
---------------------
Servicing Officer in accordance with Section 4.01.
Servicing Fee: With respect to any Distribution Date, the product of (i)
-------------
the Servicing Fee Rate divided by 12 and (ii) the aggregate Asset Balance of the
Mortgage Loans on the first day of the Collection Period preceding such
Distribution Date (or at the Cut-Off Date with respect to the first Distribution
Date).
Servicing Fee Rate: 0.50% per annum.
------------------
Servicing Officer: Any officer of the Servicer involved in, or
-----------------
responsible for, the administration and servicing of the Mortgage Loan whose
name and specimen signature appear on a list of servicing officers furnished to
the Indenture Trustee (with a copy to the Credit Enhancer) by the Servicer on
the Closing Date, as such list may be amended from time to time.
Sponsor: Headlands Mortgage Securities Inc. or its successor in
-------
interest.
Spread Account: The account created pursuant to Section 4.03 and
--------------
maintained pursuant to the Insurance Agreement.
18
<PAGE>
Spread Account Maximum: As defined in the Insurance Agreement.
----------------------
Standard & Poor's: Standard & Poor's Ratings Group, a division of The
-----------------
McGraw-Hill Companies, Inc., or its successor in interest.
Subsequent Cut-Off Date: With respect to any Subsequent Mortgage Loan,
-----------------------
the opening of business on the first day of the calendar month in which the
related Subsequent Transfer Date occurs.
Subsequent Mortgage Loan: Each Mortgage Loan acquired pursuant to
------------------------
Section 2.10 with funds on deposit in the Funding Account during the Funding
Period on the related Subsequent Transfer Date.
Subsequent Transfer Date: With respect to Subsequent Mortgage Loans, any
------------------------
Distribution Date during the Funding Period on which Subsequent Mortgage Loans
are transferred to the Trust.
Teaser HELOCs: Those HELOCs with a Loan Rate that has not become fully
-------------
indexed.
Teaser Period: With respect to any HELOCs, the payment period provided
-------------
under the related Credit Line Agreement during which time the interest rate on
the HELOCs has not been fully indexed.
Teaser Rate: With respect to any HELOCs, the Loan Rate applicable under
-----------
the related Credit Line Agreement during the Teaser Period of the HELOCs.
Telerate Screen LIBOR Page 3750: The display designated as page 3750 on
-------------------------------
the Telerate Service (or such other page as may replace page 3750 on that
service for the purpose of displaying London inter-bank offered rates of major
banks).
Transfer Date: With respect to each Subsequent Mortgage Loan, the
-------------
Subsequent Transfer Date, and with respect to each Eligible Substitute Mortgage
Loan, the date on which such Eligible Substitute Mortgage Loan shall have been
transferred to the Trust.
Transfer Deficiency: As defined in Section 2.03.
-------------------
Transfer Deposit Amount: As defined in Section 2.03.
-----------------------
Trust: The Issuer.
-----
Trust Agreement: The Trust Agreement dated as of March 13, 1998, between
---------------
the Sponsor and the Owner Trustee, as the same may be amended and supplemented
from time to time.
Trust Collateral Value: As of any Distribution Date, the sum of (i) the
----------------------
Pool Balance at the end of the prior calendar month, (ii) the aggregate Asset
Balances as of the related Cut-Off Dates of all Subsequent Mortgage Loans
previously assigned to the Trust during the calendar
19
<PAGE>
month in which such Distribution Date occurs and (iii) the amounts, if any, on
deposit in the Funding Account at the close of business on such Distribution
Date.
Trust Property: The property and proceeds conveyed pursuant to Section
--------------
2.01, and certain other rights under this Agreement.
Trustee Fee: A fee which is separately agreed to between the Servicer
-----------
and the Indenture Trustee.
Trustee Fee Rate: The per annum rate at which the Trustee Fee is
----------------
calculated.
UCC: The Uniform Commercial Code, as amended from time to time, as in
---
effect in any specified jurisdiction.
Unpaid Class A Note Interest Shortfall: With respect to any Distribution
--------------------------------------
Date, the aggregate amount, if any, of Class A Note Interest that was accrued in
respect of a prior Distribution Date and has not been distributed to Class A
Noteholders.
Unpaid Class S Note Interest Shortfall: With respect to any Distribution
--------------------------------------
Date, the aggregate amount, if any, of Class S Note Interest that was accrued in
respect of a prior Distribution Date and has not been distributed to Class S
Noteholders.
Valuation: With respect to any Mortgaged Property and time referred to
---------
herein, the Appraised Value of the Mortgage Property.
Voting Rights: The portion of the aggregate voting rights of all the
-------------
Notes evidenced by a Class of Notes. At all times during the term of this
Agreement, 98% of all of the Voting Rights shall be allocated among Holders of
the Class A Notes and the Holders of the Class S Notes shall be entitled to 2%
of all of the Voting Rights. Voting Rights allocated to a Class of Notes shall
be allocated among the Notes of each such Class in accordance with their
respective Percentage Interests.
Weighted Average Net Loan Rate: As to any Collection Period, the average
------------------------------
of the daily Net Loan Rate for each Mortgage Loan for each day during the
related Billing Cycle, weighted on the basis of the daily average of the related
Asset Balances outstanding for each day in such Billing Cycle for each Mortgage
Loan as determined by the Servicer in accordance with the Servicer's normal
servicing procedures.
Section 1.02. Other Definitional Provisions.
-----------------------------
(a) Capitalized terms used herein and not otherwise defined herein have
the meanings assigned to them in the Indenture, or, if not defined therein, in
the Trust Agreement.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any instrument governed hereby and in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein.
20
<PAGE>
(c) As used in this Agreement, in any instrument governed hereby and in
any certificate or other document made or delivered pursuant hereto or thereto,
accounting terms not defined in this Agreement or in any such instrument,
certificate or other document, and accounting terms partly defined in this
Agreement or in any such instrument, certificate or other document to the extent
not defined, shall have the respective meanings given to them under generally
accepted accounting principles as in effect on the date of this Agreement or any
such instrument, certificate or other document, as applicable. To the extent
that the definitions of accounting terms in this Agreement or in any such
instrument, certificate or other document are inconsistent with the meanings of
such terms under generally accepted accounting principles, the definitions
contained in this Agreement or in any such instrument, certificate or other
document shall control.
(d) Any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; references to a
Person are also to its permitted successors and assigns.
Section 1.03. Interest Calculations. All calculations of interest
---------------------
hereunder that are made in respect of the Asset Balance of a HELOC shall be made
on a daily basis using a 365-day year. All calculations of interest hereunder
that are made in respect of a Closed-End Loan shall be made on a daily basis
using a 360-day year. All calculations of interest on the Notes shall be made on
the basis of the actual number of days in an Interest Period and a year assumed
to consist of 360 days. The calculation of the Servicing Fee shall be made on
the basis of the actual number of days elapsed in a 360-day year. All dollar
amounts calculated hereunder shall be rounded to the nearest penny with one-half
of one penny being rounded down.
ARTICLE II
Conveyance of Mortgage Loans;
Original Issuance of Notes;
Tax Treatment
Section 2.01. Conveyance of Mortgage Loans; Retention of Obligation to
--------------------------------------------------------
Fund Advances Under Credit Line Agreements. In consideration of the Issuer's
- ------------------------------------------
delivery to or upon the order of the Sponsor on the Closing Date of the net
proceeds from the sale of the Notes and Certificates and the other amounts to be
distributed from time to time to the Sponsor in accordance with the terms of
this Agreement, the Sponsor, concurrently with the execution and delivery of
this Agreement, hereby sells, transfers, assigns, sets over and otherwise
conveys to the Issuer, without recourse (subject to Sections 2.03 and 2.05), all
of its right, title and interest in and to (i) each Initial Mortgage Loan,
including its Asset Balance and all collections in respect thereof received on
or after the Initial Cut-Off Date (except with respect to interest payments on
the Initial Mortgage Loans, an amount only equal to the Class A Note Interest,
the Class B Note Interest, the fee paid to the Indenture Trustee, the fee paid
to the Owner Trustee, the fee paid to the Servicer and the insurance premium
paid to the Insurer for a period of 21 days); (ii) property that secured an
Initial Mortgage Loan that is acquired by foreclosure or deed in lieu of
foreclosure; (iii) all of the Sponsor's rights under the Purchase Agreement
(including all
21
<PAGE>
representations and warranties of the Company contained therein); (iv) the
Sponsor's rights under the hazard insurance policies; (v) the Spread Account;
(vi) the Policy; (vii) the Funding Account; (viii) the rights to certain funds
in the Capitalized Interest Account and (ix) any proceeds of the foregoing and
all other assets included or to be included in the Trust for the benefit of
Securityholders; provided, however, neither the Indenture Trustee nor the Trust
-------- -------
assumes the obligation under any Credit Line Agreement that provides for the
funding of future advances to the Mortgagor thereunder, and neither the Trust
nor the Indenture Trustee shall be obligated or permitted to fund any such
future advances. With respect to the HELOCs, Additional Balances shall be part
of the related Asset Balance and are hereby transferred to the Trust on the
Closing Date pursuant to this Section 2.01, and therefore part of the Trust
Property. On or prior to the Closing Date, the Sponsor shall cause the Credit
Enhancer to deliver the Policy to the Indenture Trustee for the benefit of the
Noteholders. It is the intention of the Sponsor that the transfer and assignment
contemplated by this Agreement shall constitute a sale of the Mortgage Loans and
other Trust Property from the Sponsor to the Issuer and the beneficial interest
in and title to the Mortgage Loans and the other Trust Property shall not be
part of the Sponsor's estate in the event of the filing of a bankruptcy petition
by or against the Sponsor under any bankruptcy law. In the event that,
notwithstanding the intent of the Sponsor, the transfer and assignment
contemplated hereby is held not to be a sale, this Agreement shall constitute a
grant of a security interest in the property referred to in this Section 2.01
for the benefit of the Securityholders and the Credit Enhancer.
Each of the Company and the Sponsor agrees to take or cause to be taken
such actions and execute such documents (including, without limitation, the
filing of all necessary continuation statements for the UCC-1 financing
statements filed in the States of California and Delaware, respectively, (which
shall have been filed on or as of the Closing Date) describing the Cut-Off Date
Asset Balances and Additional Balances and naming (i) the Company as debtor and
the Sponsor as secured party, and (ii) the Sponsor as debtor and the Issuer as
secured party and any amendments to UCC-1 financing statements required to
reflect a change in the name or corporate structure of the Company or the
Sponsor or the filing of any additional UCC-1 financing statements due to the
change in the principal office of the Company or the Sponsor (within 10 days of
any event necessitating such filing) as are necessary to perfect and protect the
Noteholders' and Credit Enhancer's interests in each Cut-Off Date Asset Balance
and Additional Balance and the proceeds thereof (other than maintaining
possession by the Indenture Trustee of the Mortgage Loans and the Mortgage
Files).
In connection with such transfer and assignment, the Servicer shall
deliver to the Indenture Trustee the following documents or instruments (each a
"Related Document" and together for each Mortgage Loan, the "Mortgage File")
with respect to each Initial Mortgage Loan on the Closing Date and will deliver
with respect to each Subsequent Mortgage Loan on the related Subsequent Transfer
Date:
(i) the original Mortgage Note endorsed in blank;
(ii) an original Assignment of Mortgage in blank in
recordable form;
(iii) the original recorded Mortgage or, if, in connection
with any Mortgage Loan, the original recorded Mortgage with evidence of
recording thereon cannot be
22
<PAGE>
delivered on or prior to the Closing Date because of a delay caused by
the public recording office where such original Mortgage has been
delivered for recordation or because such original Mortgage has been
lost, the Sponsor shall deliver or cause to be delivered to the
Indenture Trustee, a true and correct copy of such Mortgage, together
with (i) in the case of a delay caused by the public recording office,
an Officer's Certificate of the Sponsor stating that such original
Mortgage has been dispatched to the appropriate public recording
official or (ii) in the case of an original Mortgage that has been lost,
a certificate by the appropriate county recording office where such
Mortgage is recorded;
(iv) if applicable, the original intervening assignments, if
any ("Intervening Assignments"), with evidence of recording thereon,
showing a complete chain of title to the Mortgage from the originator to
the Indenture Trustee or, if any such original Intervening Assignment
has not been returned from the applicable recording office or has been
lost, a true and correct copy thereof, together with (i) in the case of
a delay caused by the public recording office, an Officer's Certificate
of the Sponsor stating that such original Intervening Assignment has
been dispatched to the appropriate public recording official for
recordation or (ii) in the case of an original Intervening Assignment
that has been lost, a certificate by the appropriate county recording
office where such Mortgage is recorded;
(v) either a title policy, a title search or guaranty title
with respect to the related Mortgaged Property;
(vi) the original of any guaranty executed in connection with
the Mortgage Note;
(vii) the original of each assumption, modification,
consolidation or substitution agreement, if any, relating to the
Mortgage Loans; and
(viii) any security agreement, chattel mortgage or equivalent
instrument executed in connection with the Mortgage;
provided, however, that as to any Mortgage Loan, if (a) as evidenced by an
- -------- -------
Opinion of Counsel delivered to and in form and substance satisfactory to the
Indenture Trustee and the Credit Enhancer, (x) an optical image or other
representation of the Related Documents specified in clauses (i) through (viii)
above are enforceable in the relevant jurisdictions to the same extent as the
original of such document and (y) such optical image or other representation
does not impair the ability of an owner of such Mortgage Loan to transfer its
interest in such Mortgage Loan, and (b) the retention of such documents in such
format will not result in a reduction in the then current rating of the Notes,
without regard to the Policy, such optical image or other representation may be
delivered by the Servicer, to the Indenture Trustee in lieu of the physical
documents specified above.
The Sponsor hereby confirms to the Indenture Trustee that it has caused
the portions of the Electronic Ledgers relating to the Initial Mortgage Loans as
of the Closing Date, and that it will cause such Electronic Ledgers with respect
to each Subsequent Mortgage Loans as of the
23
<PAGE>
related Subsequent Transfer Date, to be clearly and unambiguously marked, and
has made, or will make, the appropriate entries in its general accounting
records to indicate that such Mortgage Loans have been transferred to the Trust.
The Servicer hereby confirms to the Indenture Trustee that it has clearly and
unambiguously made appropriate entries in its general accounting records
indicating that such Mortgage Loans constitute part of the Trust and are
serviced by it on behalf of the Trust in accordance with the terms hereof. The
Servicer hereby confirms to the Indenture Trustee that it will clearly and
unambiguously make appropriate entries in its general accounting records
indicating that each Subsequent Mortgage Loan constitutes part of the Trust and
is serviced by it on behalf of the Trust in accordance with the terms hereof as
of the related Subsequent Transfer Date.
Notwithstanding the characterization of the Class A Notes and the Class
S Notes as debt for Federal, state and local income and franchise tax purposes,
the parties hereto intend to treat the transfer of the Mortgage Loans to the
Trust as provided herein as a sale, for certain non-tax purposes, of all the
Sponsor's right, title and interest in and to the Mortgage Loans, whether now
existing or hereafter created, and the other property described above and all
proceeds thereof. In the event such transfer is deemed not to be a sale for such
purposes, the Sponsor grants to the Trust, a security interest in all of such
party's right, title and interest in, to and under the Mortgage Loans, whether
now existing or hereafter created, and the other property described above and
all proceeds thereof; and this Agreement shall constitute a security agreement
under applicable law.
Within 90 days following delivery of the Mortgage Files to the Indenture
Trustee pursuant to this Section, the Indenture Trustee shall review each such
Mortgage File to ascertain that all required documents set forth in this Section
2.01 have been executed and received, and that such documents relate to the
Mortgage Loans identified on the Mortgage Loan Schedule and in so doing the
Indenture Trustee may rely on the purported due execution and genuineness of any
signature thereon. If within such 90-day period the Indenture Trustee finds any
document constituting a part of a Mortgage File not to have been executed or
received or to be unrelated to the Mortgage Loans identified in said Mortgage
Loan Schedule or, if in the course of its review, the Indenture Trustee
determines that such Mortgage File is otherwise defective in any material
respect, the Indenture Trustee shall promptly upon the conclusion of its review
notify the Sponsor and the Credit Enhancer, and the Sponsor shall have a period
of 90 days after such notice within which to correct or cure any such defect.
The Indenture Trustee shall have no responsibility for reviewing any
Mortgage File except as expressly provided in this Section 2.01. In reviewing
any Mortgage File pursuant to this Section, the Indenture Trustee shall have no
responsibility for determining whether any document is valid and binding,
whether the text of any assignment or endorsement is in proper or recordable
form (except, if applicable, to determine if the Indenture Trustee is the
assignee or endorsee), whether any document has been recorded in accordance with
the requirements of any applicable jurisdiction, or whether a blanket assignment
is permitted in any applicable jurisdiction, whether any Person executing any
document is authorized to do so or whether any signature thereon is genuine, but
shall only be required to determine whether a document has been executed, that
it appears to be what it purports to be, and, where applicable, that it purports
to be recorded.
24
<PAGE>
The Sponsor shall take all necessary steps to prepare and submit for
recordation an Assignment or Mortgage in the name of the Indenture Trustee for
each Initial Mortgage Loan within 30 days after the Closing Date and for each
Subsequent Mortgage Loan, within 30 days after the Subsequent Transfer Date.
Section 2.02. Further Encumbrance of Trust Property.
-------------------------------------
(a) Immediately upon the conveyance to the Trust by the Sponsor of any
item of the Trust Property pursuant to Section 2.01, all right, title and
interest of the Sponsor in and to such item of Trust Property shall terminate,
and all such right, title and interest shall vest in the Trust, in accordance
with the Trust Agreement and Sections 3802 and 3805 of the Delaware Business
Trust Act (12 Del. Code, (S) 3801 et seq.).
(b) Immediately upon the vesting of the Trust Property in the Trust, the
Trust shall have the sole right to pledge or otherwise encumber, such Trust
Property. Pursuant to the Indenture and contemporaneously with such property
vesting in the Trust pursuant to (a) above, the Trust shall grant a security
interest in the Trust Property to secure the repayment of the Notes. The
Certificates shall represent the beneficial ownership interest in the Trust
Property, and the Certificateholders shall be entitled to receive distributions
with respect thereto as set forth herein.
(c) Prior to the payment in full on the Notes, the payment of all
amounts due to the Credit Enhancer under the Insurance Agreement, the
termination of the Policy (as defined therein) and the surrender of the Policy
by the Indenture Trustee to the Credit Enhancer, the Indenture Trustee shall
hold the Trust Property on behalf of the Noteholders and the Credit Enhancer.
Following the payment in full of the Notes and the release and discharge of the
Indenture, all covenants of the Issuer under Article III of the Indenture shall,
until payment in full of the Certificates, remain as covenants of the Issuer for
the benefit of the Certificateholders, enforceable by the Certificateholders to
the same extent as such covenants were enforceable by the Noteholders prior to
the discharge of the Indenture. Any rights of the Indenture Trustee under
Article III of the Indenture, following the discharge of the Indenture, shall
vest in the Certificateholders.
(d) The Indenture Trustee shall, at such time as there are no Securities
outstanding and all sums due to (i) the Indenture Trustee or any agent or
counsel thereof pursuant to the Indenture, (ii) the Indenture Trustee pursuant
to this Agreement and (iii) the Credit Enhancer pursuant to the Insurance
Agreement, have been paid, release any remaining portion of the Trust Property
to the Sponsor; provided, that the release of the Spread Account is subject to
--------
Section 2.05 of the Insurance Agreement.
Section 2.03. Acceptance by Indenture Trustee; Retransfer of Mortgage
-------------------------------------------------------
Loans.
- -----
(a) The Trust hereby acknowledges its receipt of the Policy and the
Mortgage Loans, and declares that the Indenture Trustee holds and will hold such
instrument, and to the extent that any documents are delivered to it pursuant to
Section 2.01, will hold such documents, and all amounts received by it
thereunder and hereunder, in trust, upon the terms herein set forth, for the use
and benefit of all present and future Securityholders and the Credit Enhancer.
If the time to
25
<PAGE>
cure any defect in respect of any Mortgage Loan of which the Indenture Trustee
has notified the Sponsor following the review pursuant to Section 2.01 has
expired or if at any time any loss is suffered by the Indenture Trustee on
behalf of the Noteholders or the Credit Enhancer, in respect of any Mortgage
Loan as a result of (i) a defect in any document constituting a part of its
Mortgage File or (ii) an Assignment of Mortgage to the Indenture Trustee not
having been recorded as required by Section 2.01, then on the next succeeding
Business Day upon the deposit to the Collection Account of the Transfer Deposit
Amount (as defined below) or substitution of an Eligible Substitute Mortgage
Loan, if any, and upon satisfaction of the applicable conditions described
herein, all right, title and interest of the Trust in and to such Mortgage Loan
shall be deemed to be retransferred, reassigned and otherwise reconveyed,
without recourse, representation or warranty, to the Sponsor on such Business
Day and the Asset Balance of such Mortgage Loan shall be deducted from the Pool
Balance; provided, however, that interest accrued on the Asset Balance of such
Mortgage Loan to the end of the related Collection Period shall be the property
of the Trust. The Indenture Trustee shall determine if the reduction of such
Asset Balance from the Pool Balance in accordance with the preceding sentence
would cause the Certificate Principal Balance to be less than the Minimum
Certificateholders' Interest (a "Transfer Deficiency"), in which event the
Indenture Trustee shall deliver written notice of such deficiency to the
Sponsor, and within five Business Days after the Business Day of such retransfer
the Sponsor shall either (i) substitute an Eligible Substitute Mortgage Loan or
(ii) deposit into the Collection Account an amount (the "Transfer Deposit
Amount") in immediately available funds equal to the Transfer Deficiency
including all unpaid and accrued interest in the amount by which the Principal
Balance of the Defective Mortgage Loan exceeds the Principal Balance of the
Eligible Substitute Mortgage Loan or a combination of both (i) and (ii) above.
Such reduction or substitution and the actual payment of any Transfer Deposit
Amount, if any, shall be deemed to be payment in full for such Mortgage Loan.
Upon receipt of any Eligible Substitute Mortgage Loan or of written notification
signed by a Servicing Officer to the effect that the Transfer Deposit Amount in
respect of a Defective Mortgage Loan has been deposited into the Collection
Account or, if the Certificate Principal Balance is not reduced below the
Minimum Certificateholders' Interest as a result of the deemed retransfer of a
Defective Mortgage Loan, then as promptly as practicable following such deemed
transfer, the Indenture Trustee shall execute such documents and instruments of
transfer presented by the Sponsor, in each case without recourse, representation
or warranty, and take such other actions as shall reasonably be requested by the
Sponsor to effect such transfer by the Trust of such Defective Mortgage Loan
pursuant to this Section. It is understood and agreed that the obligation of the
Sponsor to accept a transfer of a Defective Mortgage Loan and to either convey
an Eligible Substitute Mortgage Loan or to make a deposit of any related
Transfer Deposit Amount into the Collection Account shall constitute the sole
remedy respecting such defect available to Securityholders, the Indenture
Trustee and the Credit Enhancer against the Sponsor.
The Servicer, promptly following the transfer of a Defective Mortgage
Loan from or to the Trust pursuant to this Section, shall amend the Mortgage
Loan Schedule and make appropriate entries in its general account records to
reflect such transfer. The Servicer shall, following such retransfer,
appropriately mark its records to indicate that it is no longer servicing such
Mortgage Loan on behalf of the Trust. The Sponsor, promptly following such
transfer, shall appropriately mark its Electronic Ledger and make appropriate
entries in its general account records to reflect such transfer.
26
<PAGE>
Notwithstanding any other provision of this Section, a retransfer of a
Defective Mortgage Loan to the Sponsor pursuant to this Section that would cause
the Certificate Principal Balance to be less than the Minimum
Certificateholders' Interest shall not occur if either the Sponsor fails to
convey an Eligible Substitute Mortgage Loan or to deposit into the Collection
Account any related Transfer Deposit Amount required by this Section with
respect to the transfer of such Defective Mortgage Loan.
(b) As to any Eligible Substitute Mortgage Loan or Mortgage Loans, the
Sponsor shall deliver to the Indenture Trustee with respect to such Eligible
Substitute Mortgage Loan or Mortgage Loans such documents and agreements as are
required to be held by the Indenture Trustee in accordance with Section 2.01.
For any Collection Period during which the Sponsor substitutes one or more
Eligible Substitute Mortgage Loans, the Servicer shall determine the Transfer
Deposit Amount which amount shall be notified to and deposited by the Sponsor in
the Collection Account at the time of substitution. All amounts received in
respect of the Eligible Substitute Mortgage Loan or Mortgage Loans during the
Collection Period in which the circumstances giving rise to such substitution
occur shall not be a part of the Trust and shall not be deposited by the
Servicer in the Collection Account. All amounts received by the Servicer during
the Collection Period in which the circumstances giving rise to such
substitution occur in respect of any Defective Mortgage Loans so removed by the
Trust shall be deposited by the Servicer in the Collection Account. Upon such
substitution, the Eligible Substitute Mortgage Loan or Mortgage Loans shall be
subject to the terms of this Agreement in all respects, and the Sponsor shall be
deemed to have made with respect to such Eligible Substitute Mortgage Loan or
Mortgage Loans, as of the date of substitution, the covenants, representations
and warranties set forth in Section 2.05. The procedures applied by the Sponsor
in selecting each Eligible Substitute Mortgage Loans shall not be materially
adverse to the interests of the Indenture Trustee, the Noteholders and the
Credit Enhancer.
Section 2.04. Representations and Warranties Regarding the Servicer and
---------------------------------------------------------
the Sponsor.
- -----------
The Servicer represents and warrants to the Indenture Trustee and the
Credit Enhancer that as of the Closing Date and as of each Subsequent Transfer
Date:
(i) The Servicer is a California corporation, validly
existing and in good standing under the laws of the State of California,
and has the corporate power to own its assets and to transact the
business in which it is currently engaged. The Servicer is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction in which the character of the business
transacted by it or any properties owned or leased by it requires such
qualification and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Servicer;
(ii) The Servicer has the power and authority to make,
execute, deliver and perform this Agreement and all of the transactions
contemplated under this Agreement, and has taken all necessary corporate
action to authorize the execution, delivery and performance of this
Agreement. When executed and delivered, this Agreement will constitute
the legal, valid and binding obligation of the Servicer enforceable in
accordance with its terms, except as enforcement of such terms may be
limited by
27
<PAGE>
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies;
(iii) The Servicer is not required to obtain the consent of
any other party or any consent, license, approval or authorization from,
or registration or declaration with, any governmental authority, bureau
or agency in connection with the execution, delivery, performance,
validity or enforceability of this Agreement, except for such consent,
license, approval or authorization, or registration or declaration, as
shall have been obtained or filed, as the case may be, prior to the
Closing Date;
(iv) The execution, delivery and performance of this
Agreement by the Servicer will not violate any provision of any existing
law or regulation or any order or decree of any court applicable to the
Servicer or any provision of the Certificate of Incorporation or Bylaws
of the Servicer, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Servicer is a party
or by which the Servicer may be bound; and
(v) No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to the
knowledge of the Servicer threatened, against the Servicer or any of its
properties or with respect to this Agreement or the Notes.
The representations and warranties set forth in this Section 2.04(a) shall
survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially and
adversely affects the interests of the Noteholders or the Credit Enhancer, the
person discovering such breach shall give prompt written notice to the other
parties and to the Credit Enhancer. Within 90 days of its discovery or its
receipt of notice of breach, or, with the prior written consent of a Responsible
Officer of the Indenture Trustee and the Credit Enhancer such longer period
specified in such consent, the Servicer shall cure such breach in all material
respects.
(b) The Sponsor represents and warrants to the Indenture Trustee and the
Credit Enhancer that as of the Closing Date and as of each Subsequent Transfer
Date:
(i) The Sponsor is a Delaware corporation, validly existing
and in good standing under the laws of the State of Delaware, and has
the statutory power to own its assets and to transact the business in
which it is currently engaged. The Sponsor is duly qualified to do
business as a foreign limited liability company and is in good standing
in each jurisdiction in which the character of the business transacted
by it or any properties owned or leased by it requires such
qualification and in which the failure so to qualify would have a
material adverse effect on the business, properties, assets, or
condition (financial or other) of the Sponsor;
(ii) The Sponsor has the power and authority to make,
execute, deliver and perform this Agreement and all of the transactions
contemplated under this Agreement, and has taken all necessary corporate
action to authorize the execution, delivery and performance of this
Agreement. When executed and delivered, this Agreement will
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constitute the legal, valid and binding obligation of the Sponsor
enforceable in accordance with its terms, except as enforcement of such
terms may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by the availability of equitable remedies;
(iii) The Sponsor is not required to obtain the consent of any
other party or any consent, license, approval or authorization from, or
registration or declaration with, any governmental authority, bureau or
agency in connection with the execution, delivery, performance, validity
or enforceability of this Agreement;
(iv) The execution, delivery and performance of this
Agreement by the Sponsor will not violate any provision of any existing
law or regulation or any order or decree of any court applicable to the
Sponsor or any provision of the Certificate of Incorporation or bylaws
of the Sponsor, or constitute a material breach of any mortgage,
indenture, contract or other agreement to which the Sponsor is a party
or by which the Sponsor may be bound; and
(v) No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to the
knowledge of the Sponsor threatened, against the Sponsor or any of its
properties or with respect to this Agreement or the Notes.
The representations and warranties set forth in this Section 2.04(b) shall
survive the sale and assignment of the Mortgage Loans to the Trust. Upon
discovery of a breach of any representations and warranties which materially and
adversely affects the interests of the Noteholders or the Credit Enhancer, the
person discovering such breach shall give prompt written notice to the other
parties and to the Credit Enhancer. Within 90 days of its discovery or its
receipt of notice of breach, or, with the prior written consent of a Responsible
Officer of the Indenture Trustee and the Credit Enhancer, such longer period
specified in such consent, the Sponsor shall cure such breach in all material
respects.
Section 2.05. Representations and Warranties of the Sponsor Regarding
-------------------------------------------------------
the Mortgage Loans; Retransfer of Certain Mortgage Loans.
- --------------------------------------------------------
(a) The Sponsor hereby makes the following representations and
warranties as to the Mortgage Loans on which the Issuer is deemed to have relied
in acquiring the Mortgage Loans and upon which the Credit Enhancer is deemed to
rely in issuing the Policy. Such representations and warranties speak as of the
execution and delivery of this Agreement and as of the Closing Date in the case
of the Initial Mortgage Loans and as of the related Transfer Date in the case of
the Subsequent Mortgage Loans, but shall survive the sale, transfer, and
assignment of the Mortgage Loans to the Issuer and the pledge thereof to the
Indenture Trustee pursuant to the Indenture,
(i) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans
and, with respect to any HELOC, as of the date any
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Additional Balance is created, the information set forth in the Mortgage
Loan Schedule for such Mortgage Loans is true and correct in all
material respects;
(ii) The applicable Cut-Off Date Asset Balance has not been
assigned or pledged, and the Sponsor is the sole owner and holder of
such Cut-Off Date Asset Balance free and clear of any and all liens,
claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies having
jurisdiction over the ownership of the applicable Mortgage Loans, to
sell, assign or transfer the same pursuant to this Agreement;
(iii) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
the related Mortgage Note and the Mortgage with respect to each Mortgage
Loan have not been assigned or pledged, and the Sponsor is the sole
owner and holder of the Mortgage Loan free and clear of any and all
liens, claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature, and has full right and
authority, under all governmental and regulatory bodies having
jurisdiction over the ownership of the applicable Mortgage Loans, to
sell and assign the same pursuant to this Agreement;
(iv) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
the related Mortgage is a valid and subsisting first or second lien, as
set forth on the Mortgage Loan Schedule with respect to each related
Mortgaged Property, and as of the applicable Cut-Off Date the related
Mortgaged Property is free and clear of all encumbrances and liens
having priority over the first or second lien, as applicable, of such
Mortgage except for liens for (i) real estate taxes and special
assessments not yet delinquent; (ii) any first mortgage loan secured by
such Mortgaged Property and specified on the Mortgage Loan Schedule;
(iii) covenants, conditions and restrictions, rights of way, easements
and other matters of public record as of the date of recording that are
acceptable to mortgage lending institutions generally; and (iv) other
matters to which like properties are commonly subject which do not
materially interfere with the benefits of the security intended to be
provided by such Mortgage;
(v) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
there is no valid offset, defense or counterclaim of any obligor under
any Loan Agreement or Mortgage;
(vi) To the best knowledge of the Sponsor, as of the Closing
Date with respect to the Initial Mortgage Loans and the applicable
Transfer Date with respect to any Subsequent Mortgage Loans and any
Eligible Substitute Mortgage Loans, there is no delinquent recording or
other tax or fee or assessment lien against any related Mortgaged
Property;
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(vii) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
there is no proceeding pending or, to the best knowledge of the Sponsor,
threatened for the total or partial condemnation of the related
Mortgaged Property, and such property is free of material damage;
(viii) To the best knowledge of the Sponsor, as of the Closing
Date with respect to the Initial Mortgage Loans and the applicable
Transfer Date with respect to any Subsequent Mortgage Loans and any
Eligible Substitute Mortgage Loans, there are no mechanics' or similar
liens or claims which have been filed for work, labor or material
affecting the related Mortgaged Property which are, or may be, liens
prior or equal to the lien of the related Mortgage, except liens which
are fully insured against by the title insurance policy referred to in
clause (xiii);
(ix) No Minimum Monthly Payment is more than ___ days
delinquent (measured on a contractual basis); and with respect to the
Initial Mortgage Loans none were delinquent;
(x) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
for each Mortgage Loans, the related Mortgage File contains each of the
documents and instruments specified to be included therein;
(xi) The related Mortgage Note and the related Mortgage at
origination complied in all material respects with applicable state and
federal laws, including, without limitation, usury, truth-in-lending,
real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loans;
(xii) On the Closing Date with respect to the Initial Mortgage
Loans and, to the extent not already included in such filing, on the
applicable Transfer Date with respect to any Subsequent Mortgage Loans
and any Eligible Substitute Mortgage Loans, the Sponsor has filed UCC-1
financing statements with respect to such Mortgage Loans.
(xiii) Either a lender's title insurance policy or binder was
issued on the date of origination of the Mortgage Loans and each such
policy is valid and remains in full force and effect, or a title search
or guaranty of title customary in the relevant jurisdiction was obtained
with respect to a Mortgage Loans as to which no title insurance policy
or binder was issued;
(xiv) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
none of the Mortgaged Properties is a mobile home or a manufactured
housing unit;
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(xv) As of the Cut-Off Date for the Initial Mortgage Loans no
more than ____% of such Mortgage Loans (by Initial Cut-Off Date Pool
Balance), are secured by Mortgaged Properties located in one United
States postal zip code;
(xvi) The Combined Loan-to-Value Ratio for each Mortgage Loan
was not in excess of ____%;
(xvii) No selection procedure reasonably believed by the
Sponsor to be adverse to the interests of the Securityholders or the
Credit Enhancer was utilized in selecting the Mortgage Loans;
(xviii) The Sponsor has not transferred the Mortgage Loans to
the Trust with any intent to hinder, delay or defraud any of its
creditors;
(xix) The Minimum Monthly Payment with respect to any Mortgage
Loan is not less than the interest accrued at the applicable Loan Rate
on the average daily Asset Balance during the interest period relating
to the date on which such Minimum Monthly Payment is due;
(xx) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
each Loan Agreement and each Mortgage Loans is an enforceable obligation
of the related Mortgagor, except as the enforceability thereof may be
limited by the bankruptcy, insolvency or similar laws affecting
creditors' rights generally;
(xxi) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
there has been no default of any senior mortgage loan related to a
Mortgaged Property that has not been cured by a party other than the
Servicer;
(xxii) The definition of "prime rate" in each Credit Line
Agreement relating to a HELOC does not differ materially from the
definition in the form of Credit Line Agreement in Exhibit D;
(xxiii) The weighted average remaining term to maturity of the
Initial Mortgage Loans on a contractual basis as of the Cut-Off Date is
approximately 215.7 months. On each date that the Loan Rates relating to
HELOCs have been adjusted, interest rate adjustments on the HELOCs were
made in compliance with the related Mortgages and Credit Line Agreement
and applicable law. Over the term of each HELOC, the Loan Rate may not
exceed the related Loan Rate Cap, if any. With respect to the Initial
HELOCs, the Loan Rate Cap is 18%. With respect to the Initial Mortgage
Loans, the margins range between 0% and 6% and the weighted average
margin is approximately 3.29% as of the related Cut-Off Date. The Loan
Rates on the Initial Mortgage Loans range between 5.75% and 14.99% and
the weighted average Loan Rate is approximately 7.2452%;
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<PAGE>
(xxiv) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any
Subsequent Mortgage Loans and any Eligible Substitute Mortgage Loans,
each Mortgaged Property consists of a single parcel of real property
with a one-to-four unit single family residence erected thereon, or an
individual condominium unit, planned unit development unit or townhouse;
(xxv) No more than 2.31% (by Initial Cut-Off Date Pool
Balance) of the Initial Mortgage Loans are secured by real property
improved by individual condominium units, planned development units,
townhouses or two-to-four family residences erected thereon, and
approximately 97.69% (by Initial Cut-Off Date Pool Balance) of the
Initial Mortgage Loans are secured by real property with a detached one-
family residence erected thereon;
(xxvi) The Credit Limits on the Initial HELOCs range between
$8,000 and $400,000 with an average of $47,833.61. As of the applicable
Cut-Off Date, no Initial Mortgage Loans had a principal balance in
excess of approximately $394,517.93 and the average principal balance of
the Initial Mortgage Loans is equal to approximately $37,703.88 and the
average Credit Limit Utilization Rate (weighted by credit line) of the
Initial HELOCs is 76.03%;
(xxvii) 100% of the Initial Mortgage Loans are second liens;
(xxviii) Either (A) this Agreement constitutes a valid transfer
and assignment to the Trust of all right, title and interest of the
Sponsor in and to the Cut-Off Date Asset Balances with respect to the
applicable Mortgage Loans, all monies due or to become due with respect
thereto (excluding payments in respect of accrued interest due prior to
the Cut-Off Date and including with respect to interest payments on the
Initial Mortgage Loans, an amount equal to the Class A Note Interest,
the Class S Note Interest, the fee paid to the Owner Trustee, the fee
paid to the Indenture Trustee, the fee paid to the Servicer and
insurance premium fee paid to the Credit Enhancer for a period of 21
days), and all proceeds of such Cut-Off Date Asset Balances with respect
to the Mortgage Loans and such funds as are from time to time deposited
in the Collection Account (excluding any investment earnings thereon)
and all other property specified in the definition of "Trust" as being
part of the corpus of the Trust conveyed to the Trust, and upon payment
for the Additional Balances, will constitute a valid transfer and
assignment to the Indenture Trustee of all right, title and interest of
the Sponsor in and to the Additional Balances, all monies due or to
become due with respect thereto, and all proceeds of such Additional
Balances and all other property specified in the definition of "Trust"
relating to the Additional Balances or (B) this Agreement constitutes a
grant of a security interest (as defined in the UCC as in effect in New
York) in such property to the Indenture Trustee on behalf of the Trust.
If this Agreement constitutes the grant of a security interest to the
Trust in such property, and if the Indenture Trustee obtains and
maintains possession of the Mortgage File for each Mortgage Loans, the
Trust shall have a first priority perfected security interest in such
property, subject to the effect of Section 9-306 of the UCC with respect
to collections on the Mortgage Loans that are deposited in the
Collection Account in accordance with the next to last paragraph of
Section 3.02(b); and
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(xxix) Each Mortgagor as of the Closing Date with respect to
the Initial Mortgage Loans or the Transfer Date with respect to any
Subsequent Mortgage Loans is not insolvent or bankrupt.
With respect to the representations and warranties set forth in this Section
2.05 that are made to the best of the Sponsor's knowledge or as to which the
Sponsor has no knowledge, if it is discovered by the Sponsor, the Servicer, the
Credit Enhancer or a Responsible Officer of the Indenture Trustee that the
substance of such representation and warranty is inaccurate and such inaccuracy
materially and adversely affects the value of the related Mortgage Loan then,
notwithstanding the Sponsor's lack of knowledge with respect to the substance of
such representation and warranty being inaccurate at the time the representation
or warranty was made, such inaccuracy shall be deemed a breach of the applicable
representation or warranty.
(b) It is understood and agreed that the representations and warranties
set forth in this Section 2.05 shall survive delivery of the respective Mortgage
Files to the Indenture Trustee pursuant to Section 2.01 and the termination of
the rights and obligations of the Servicer pursuant to Section 5.04 or 6.02.
Upon discovery by the Sponsor, the Servicer, the Credit Enhancer or a
Responsible Officer of the Indenture Trustee of a breach of any of the foregoing
representations and warranties, without regard to any limitation set forth
therein concerning the knowledge of the Sponsor as to the facts stated therein,
which materially and adversely affects the interests of the Trust or the
Noteholders or the Credit Enhancer in the related Mortgage Loans, the party
discovering such breach shall give prompt written notice to the other parties
and the Credit Enhancer. Within 90 days of its discovery or its receipt of
notice of such breach, the Sponsor shall use all reasonable efforts to cure such
breach in all material respects or shall, not later than the Business Day next
preceding the Distribution Date in the month following the Collection Period in
which any such cure period expired (or such later date that is acceptable to the
Indenture Trustee and the Credit Enhancer as evidenced by their written
consents), either (a) accept a transfer of such Mortgage Loan from the Trust or
(b) substitute an Eligible Substitute Mortgage Loan, each in the same manner and
subject to the same conditions as set forth in Section 2.03; provided, however,
-------- -------
that the cure for any breach of a representation and warranty relating to the
characteristics of the Mortgage Loans in the aggregate shall be a repurchase of
or substitution for only the Mortgage Loans necessary to cause such
characteristics to be in compliance with the related representation and
warranty. Upon accepting such transfer and making any required deposit into the
Collection Account or substitution of an Eligible Substitute Mortgage Loans, as
the case may be, the Sponsor shall be entitled to receive an instrument of
assignment or transfer from the Indenture Trustee to the same extent as set
forth in Section 2.03 with respect to the transfer of Mortgage Loans under that
Section.
It is understood and agreed that the obligation of the Sponsor to
accept a retransfer of a Mortgage Loan as to which a breach has occurred and is
continuing and to make any required deposit in the Collection Account or to
substitute an Eligible Substitute Mortgage Loan, as the case may be, shall
constitute the sole remedy against the Sponsor respecting such breach available
to Noteholders, the Indenture Trustee on behalf of Noteholders and the Credit
Enhancer; provided, however, that the Sponsor shall defend and indemnify the
-------- -------
Indenture Trustee, the Credit Enhancer and the Noteholders against all
reasonable costs and expenses, and all losses, damages, claims and liabilities,
including reasonable fees and expenses of counsel and the amount of any
settlement entered into with the consent of the Sponsor (such consent not to be
34
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unreasonably withheld), which may be asserted against or incurred by any of them
as a result of any third-party action arising out of any breach of any such
representation and warranty. Notwithstanding the foregoing, with regard to any
breach of the representation and warranty set forth in Section 2.05(a)(xxviii),
the sale and assignment of the affected Mortgage Loans to the Trust shall be
deemed void and the Sponsor shall pay to the Trust the sum of (i) the amount of
the related Asset Balances, plus unpaid accrued interest on each such Asset
Balance at the applicable Loan Rate to the date of payment, (ii) the amount of
any loss suffered by the Noteholders or the Credit Enhancer with respect to the
affected Mortgage Loans and (iii) all amounts owing to the Credit Enhancer
pursuant to the Insurance Agreement.
Section 2.06. Covenants of the Sponsor. The Sponsor hereby covenants
------------------------
that:
(a) Security Interests. Except for the transfer hereunder and the pledge
------------------
of the Certificate in connection with the Sponsor's Yield Maintenance
Certificates, Series 1998-1, the Sponsor will not sell, pledge, assign or
transfer to any other Person, or grant, create, incur, assume or suffer to exist
any Lien on any Mortgage Loans, whether now existing or hereafter created, or
any interest therein; the Sponsor will notify the Indenture Trustee and the
Credit Enhancer of the existence of any Lien on any Mortgage Loans immediately
upon discovery thereof; and the Sponsor will defend the right, title and
interest of the Trust in, to and under the Mortgage Loans, whether now existing
or hereafter created, against all claims of third parties claiming through or
under the Sponsor; provided, however, that nothing in this Section
-------- -------
2.06(a) shall prevent or be deemed to prohibit the Sponsor from suffering
to exist upon any of the Mortgage Loans any Liens for municipal or other local
taxes and other governmental charges if such taxes or governmental charges shall
not at the time be due and payable or if the Sponsor shall currently be
contesting the validity thereof in good faith by appropriate proceedings and
shall have set aside on its books adequate reserves with respect thereto.
(b) UCC-1 Financing Statements. On the Closing Date with respect to the
--------------------------
Initial Mortgage Loans and, to the extent not already included in such filing,
on the applicable Transfer Date with respect to any Subsequent Mortgage Loans
and any Eligible Substitute Mortgage Loans, the Sponsor will file UCC-1
financing statements with respect to such Mortgage Loans.
(c) Negative Pledge. The Sponsor hereby agrees not to transfer, assign,
---------------
exchange, pledge, finance, hypothecate, grant a security interest in or
otherwise convey the Certificates except in accordance with Sections 5.05 and
6.02 hereof and in accordance with the Insurance Agreement and the Trust
Agreement and the pledge of the Certificate in connection with the Sponsor's
Yield Maintenance Certificates, Series 1998-1.
(d) Downgrading. The Sponsor will not engage in any activity which would
-----------
result in a downgrading or withdrawal of the ratings on the Notes without regard
to the effect of the Policy.
(e) Amendment to Certificate of Incorporation. The Sponsor will not
-----------------------------------------
amend its Certificate of Incorporation without prior written notice to the
Indenture Trustee and the Rating Agencies and the prior written consent of the
Credit Enhancer which consent shall not be unreasonably withheld.
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(f) Principal Place of Business. The Sponsor's principal place of
---------------------------
business is in California, and the Sponsor will not change its principal place
of business without prior written notice to the Indenture Trustee, the Rating
Agencies and to the Credit Enhancer.
Section 2.07. Retransfers of Mortgage Loans at Election of Sponsor.
----------------------------------------------------
Subject to the conditions set forth below and Section 8.2 of the Indenture, the
Sponsor may, but shall not be obligated to, require the retransfer of Mortgage
Loans from the Trust to the Sponsor as of the close of business on a
Distribution Date (each, a "Retransfer Date"). On the fifth Business Day (the
"Retransfer Notice Date") prior to the Retransfer Date designated in such
notice, the Sponsor shall give the Indenture Trustee, the Credit Enhancer and
the Servicer a notice of the proposed retransfer that contains a list of the
Mortgage Loans to be retransferred. Such retransfers of Mortgage Loans shall be
permitted upon satisfaction of the following conditions:
(i) The Rapid Amortization Period shall not have commenced;
(ii) On the Retransfer Date, the Certificateholders' Interest
(after giving effect to the removal from the Trust of the Mortgage Loans
proposed to be retransferred) is at least equal to the Minimum
Certificateholders' Interest;
(iii) The transfer of any Mortgage Loans on any Retransfer
Date during the Managed Amortization Period shall not, in the reasonable
belief of the Sponsor, cause a Rapid Amortization Event to occur or an
event which with notice or lapse of time or both would constitute a
Rapid Amortization Event;
(iv) On or before the Retransfer Date, the Sponsor shall have
delivered to the Indenture Trustee a revised Mortgage Loan Schedule,
reflecting the proposed transfer and the Retransfer Date, and the
Servicer shall have marked the Electronic Ledger to show that the
Mortgage Loans retransferred to the Sponsor are no longer owned by the
Trust;
(v) The Sponsor shall represent and warrant that no
selection procedures reasonably believed by the Sponsor to be adverse to
the interests of the Noteholders or the Credit Enhancer were utilized in
selecting the Mortgage Loans to be removed from the Trust;
(vi) In connection with each such retransfer of Mortgage
Loans pursuant to this Section, each Rating Agency shall have received
on or prior to the related Retransfer Notice Date notice of such
proposed retransfer of Mortgage Loans and, prior to the Retransfer Date,
shall have notified the Indenture Trustee and the Credit Enhancer in
writing that such retransfer of Mortgage Loans would not result in a
reduction or withdrawal of its then current rating of the Notes without
regard to the Policy; and
(vii) The Sponsor shall have delivered to the Indenture
Trustee and the Credit Enhancer an Officer's Certificate certifying that
the items set forth in subparagraphs (i) through (vi), inclusive, have
been performed or are true and correct, as the case may be. The
Indenture Trustee may conclusively rely on such Officer's Certificate,
shall have no duty to make inquiries with regard to the matters set
forth therein and shall incur no liability in so relying.
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In certain circumstances where the removal of such Mortgage Loans
results in the Certificateholders' Interest being reduced below the Minimum
Certificateholders' Interest the Sponsor shall be permitted to remove such
Mortgage Loans only if the Sponsor deposits an amount equal to the excess of the
Minimum Certificateholders' Interest over the Certificateholders' Interest (the
"Reimbursement Amount") in the Collection Account; provided, that, the Sponsor
--------
shall not remove such Mortgage Loans if the Reimbursement Amount would exceed
$100,000.
Upon receiving the requisite information from the Sponsor, the Servicer
shall perform in a timely manner those acts required of it, as specified above.
Upon satisfaction of the above conditions, on the Retransfer Date the Indenture
Trustee shall deliver, or cause to be delivered, to the Sponsor the Mortgage
File for each Mortgage Loan being so transferred, and the Indenture Trustee
shall execute and deliver to the Sponsor such other documents prepared by the
Sponsor as shall be reasonably necessary to transfer such Mortgage Loans to the
Sponsor. Any such retransfer of the Trust's right, title and interest in and to
Mortgage Loans shall be without recourse, representation or warranty by or of
the Indenture Trustee or the Trust to the Sponsor.
Section 2.08. Execution and Authentication of Notes. The Indenture
-------------------------------------
Trustee, on behalf of the Trust, has caused to be executed, authenticated and
delivered to or upon the order of the Sponsor, in exchange for the Trust,
concurrently with the sale, assignment and conveyance to the Indenture Trustee
of the Trust, Notes representing indebtedness of the Trust in authorized
denominations and the Certificates, evidencing the ownership of the Trust.
Section 2.09. Tax Treatment. It is the intention of the Sponsor and the
-------------
Certificateholders that the Notes will be indebtedness of the Sponsor for
federal, state and local income and franchise tax purposes and for purposes of
any other tax imposed on or measured by income. The Sponsor, the Indenture
Trustee and each Noteholder (or Note Owner) by acceptance of its Note (or, in
the case of a Note Owner, by virtue of such Note Owner's acquisition of a
beneficial interest therein) agrees to treat the Notes (or beneficial interest
therein), for purposes of federal, state and local income or franchise taxes and
any other tax imposed on or measured by income, as indebtedness of the Sponsor
secured by the assets of the Trust and to report the transactions contemplated
by this Agreement on all applicable tax returns in a manner consistent with such
treatment. Each Noteholder agrees that it will cause any Note Owner acquiring an
interest in a Note through it to comply with this Agreement as to treatment of
the Notes as indebtedness for federal, state and local income and franchise tax
purposes and for purposes of any other tax imposed on or measured by income. The
Indenture Trustee will prepare and file all tax reports required hereunder
consistent with this Agreement except as may be required by or provided in
Section 3.15.
Section 2.10. Conveyance of the Subsequent Mortgage Loans.
-------------------------------------------
(a) Subject to the satisfaction of the conditions set forth in Section
2.01 and paragraph (b) below, in consideration of the Indenture Trustee's
delivery on a Subsequent Transfer Date to or upon the order of the Sponsor of
all or a portion of the amount in respect of Principal Collections in the
Funding Account the Sponsor shall, to the extent of the availability thereof, on
the related Subsequent Transfer Date transfer, assign, set over and otherwise
convey to the Trust without recourse (subject to Sections 2.03 and 2.05) all of
its right, title and interest
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in and to the Asset Balances of the Subsequent Mortgage Loans and all Interest
Collections and Principal Collections in respect thereof received after the Cut-
Off Date for the Subsequent Mortgage Loans (excluding payments in respect of
accrued interest due prior to the related Transfer Date) or, with respect to any
Additional Balances with respect thereto, on or after the date of transfer to
the Trust. Future advances made to a Mortgagor under a Loan Agreement relating
to a Subsequent Mortgage Loans shall be part of the related Asset Balance and
transferred to the Trust pursuant to this Section 2.10, and, therefore, part of
the Trust Property upon the sale thereof to the Sponsor under the Purchase
Agreement.
On each Subsequent Transfer Date, the Indenture Trustee shall
acknowledge that the Sponsor has conveyed its right, title and interest in and
to each Subsequent Mortgage Loans and to the corresponding Related Documents and
certain other rights to the Indenture Trustee pursuant to this Agreement, and
the Indenture Trustee shall hold such documents hereunder for the benefit of the
Noteholders.
(b) The obligation of the Indenture Trustee to accept the transfer of
the Subsequent Mortgage Loans and the other property and rights related thereto
described in paragraph (a) above is subject to the satisfaction of each of the
following conditions on or prior to the Subsequent Transfer Date:
(i) the Indenture Trustee shall have been provided with a
letter from the Credit Enhancer consenting to such transfer of the
Subsequent Mortgage Loans (which consent shall not be unreasonably
withheld or delayed);
(ii) the Indenture Trustee shall have been provided with a
Mortgage Loan Schedule, listing the Subsequent Mortgage Loans delivered
or to be delivered on such Subsequent Transfer Date;
(iii) the Sponsor shall have deposited in the Collection
Account all Principal Collections and Interest Collections in respect of
such Subsequent Mortgage Loans received after the Cut-Off Date
(excluding payments in respect of accrued interest due prior to the
related Transfer Date) for the Subsequent Mortgage Loans;
(iv) the representations and warranties of the Sponsor in
Section 2.05 hereof, to the extent such representations and warranties
do not pertain exclusively to the Initial Mortgage Loans, are true and
correct with respect to the Subsequent Mortgage Loans as of the related
Subsequent Transfer Date;
(v) the Indenture Trustee shall have been provided with a
letter from each Rating Agency (except from Moody's on a quarterly basis
only) confirming that the transfer of the Subsequent Mortgage Loans
shall not result in a reduction or withdrawal of its then-current rating
of the Notes;
(vi) the Servicer shall acknowledge in writing that it has
delivered the related Mortgage Files to the Indenture Trustee and
complied with all other requirements with respect to the assignment of
the related Mortgages specified therein;
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(vii) the Servicer shall represent and warrant that no
selection procedures reasonably believed by the Servicer to be adverse
to the interests of the Noteholders or the Credit Enhancer were utilized
in selecting the Subsequent Mortgage Loans; and
(viii) the Sponsor shall have delivered to the Indenture
Trustee an Officer's Certificate confirming the satisfaction of each
condition precedent specified in this paragraph (b).
(c) The obligation of the Trust to purchase any Subsequent Mortgage
Loans on a Subsequent Transfer Date is subject to the following requirements:
(i) the remaining term to maturity of each such Subsequent Mortgage Loan may not
exceed 310 months; (ii) the weighted average margin of the Subsequent Mortgage
Loans (by aggregate Cut-Off Date Asset Balance with respect to such Subsequent
Mortgage Loans) plus any Subsequent Mortgage Loans that are HELOCs previously
transferred to the Trust is at least 2.80%; and the aggregate weighted average
interest rate of all subsequent mortgage loans that are closed-end loans is at
least 10.00%; (iii) the weighted average Combined Loan-to-Value Ratio of the
Subsequent Mortgage Loans (by aggregate Cut-Off Date Asset Balance with respect
to such Subsequent Mortgage Loans) plus any Subsequent Mortgage Loans previously
transferred to the Trust is not more than 86.0%; (iv) no such Subsequent
Mortgage Loans will have a Cut-Off Date Asset Balance in excess of $350,000; (v)
at least 1.0% of such Subsequent Mortgage Loans plus any Subsequent Mortgage
Loans previously transferred to the Trust (by aggregate Cut-Off Date Asset
Balance with respect to such Subsequent Mortgage Loans) are not more than 30
days delinquent (on a contractual basis) as of the Cut-Off Date for such
Subsequent Mortgage Loans; and (vi) the Subsequent Mortgage Loans shall maintain
an average FICO score of 690. On the last Distribution Date of the Funding
Period, the Sponsor shall have provided the Indenture Trustee, the Rating
Agencies and the Credit Enhancer with an Opinion of Counsel to the effect that
the transfers of the Subsequent Mortgage Loans during the Funding Period
constitute a sale of the Asset Balances of the Subsequent Mortgage Loans to the
Sponsor and a sale of or grant of a security interest in the Subsequent Mortgage
Loans to the Indenture Trustee; provided, however, that in the event of a change
-------- -------
of law during the Funding Period that materially affects the method of
perfecting the security interest in the Subsequent Mortgage Loans, the Sponsor
shall (i) provide the Indenture Trustee, the Rating Agencies and the Credit
Enhancer with an Opinion of Counsel to the effect that such transfer constitutes
a sale of the Asset Balances of the Subsequent Mortgage Loans to the Sponsor and
a sale of or grant of a security interest in the Subsequent Mortgage Loans to
the Indenture Trustee, and (ii) take such action as is necessary to perfect the
interests of the Trust in the Subsequent Mortgage Loans.
ARTICLE III
Administration and Servicing
of Mortgage Loans
Section 3.01. The Servicer.
------------
(a) The Servicer is hereby authorized to act as agent for the Trust and
in such capacity shall manage, service, administer and make collections on the
Mortgage Loans and perform the other actions under this Agreement. The Servicer
shall service and administer the
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Mortgage Loans in a manner consistent with the terms of this Agreement and with
general industry practice and shall have full power and authority, acting alone
or through a subservicer, to do any and all things in connection with such
servicing and administration which it may deem necessary or desirable, it being
understood, however, that the Servicer shall at all times remain responsible to
the Indenture Trustee, the Securityholders and the Credit Enhancer for the
performance of its duties and obligations hereunder in accordance with the terms
hereof. Any amounts received by any subservicer in respect of a Mortgage Loan
shall be deemed to have been received by the Servicer whether or not actually
received by it. Without limiting the generality of the foregoing, the Servicer
shall continue, and is hereby authorized and empowered by the Trust, to execute
and deliver, on behalf of the Trust, 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 Mortgage Loans and with respect to
the Mortgaged Properties and to make deposits to and withdrawals from the
Collection Account. The Indenture Trustee and the Owner Trustee shall, upon the
written request of a Servicing Officer, 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 hereunder. The Servicer in
such capacity may also consent to the placing of a lien senior to that of any
Mortgage on the related Mortgaged Property, provided that
(i) such Mortgage succeeded to a first lien position after
the related Mortgage Loan was conveyed to the Trust and, immediately
following the placement of such senior lien, such Mortgage is in a
second lien position and the outstanding principal amount of the
mortgage loan secured by such subsequent senior lien is no greater than
the outstanding principal amount of the senior mortgage loan secured by
the Mortgaged Property as of the date the related Mortgage Loan was
originated; or
(ii) the Mortgage relating to such Mortgage Loan was in a
second lien position as of the Cut-Off Date and the new senior lien
secures a mortgage loan that refinances an existing first mortgage loan
and the outstanding principal amount of the replacement first mortgage
loan immediately following such refinancing is not greater than the
outstanding principal amount of such existing first mortgage loan at the
date of origination of such Mortgage Loan;
provided, further, that such senior lien does not secure a note that provides
- -------- -------
for negative amortization.
The Servicer may also, without prior approval from the Rating Agencies
or the Credit Enhancer, increase the Credit Limits on HELOCs provided that (i)
new appraisals are obtained and the Combined Loan-to-Value Ratios of the HELOCs
after giving effect to such increase are less than or equal to the Combined
Loan-to-Value Ratios of the Mortgage Loans as of the Cut-Off Date and (ii) such
increases are consistent with the Servicer's credit and collection policies. No
material change or departure from the Servicer's credit and collection policies
with respect to any Mortgage Loans as in effect as of the Closing Date shall be
permitted without the prior written consent of the Credit Enhancer.
In addition, the Servicer may agree to changes in the terms of a
Mortgage Loan at the request of the Mortgagor; provided that (i) such changes do
--------
not materially and adversely affect
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the interests of Securityholders or the Credit Enhancer, (ii) such changes are
consistent with prudent and customary business practice as evidenced by a
certificate signed by a Servicing Officer delivered to the Indenture Trustee and
the Credit Enhancer and (iii) the Rating Agencies are promptly notified of the
changes.
In addition to the foregoing, the Servicer may solicit Mortgagors to
change any other terms of the related Mortgage Loans; provided that such changes
--------
(i) do not materially and adversely affect the interest of Securityholders or
the Credit Enhancer and (ii) are consistent with prudent and customary business
practice as evidenced by a certificate signed by a Servicing Officer delivered
to the Indenture Trustee and the Credit Enhancer. Nothing herein shall limit the
right of the Servicer to solicit Mortgagors with respect to new loans (including
mortgage loans) that are not Mortgage Loans.
The relationship of the Servicer (and of any successor to the Servicer
as servicer under this Agreement) to the Indenture Trustee under this Agreement
is intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
(b) In the event that the rights, duties and obligations of the
Servicer are terminated hereunder, any successor to the Servicer in its sole
discretion may, to the extent permitted by applicable law, terminate the
existing subservicer arrangements with any subservicer or assume the terminated
Servicer's rights under such subservicing arrangements which termination or
assumption will not violate the terms of such arrangements.
Section 3.02. Collection of Certain Mortgage Loan Payments.
--------------------------------------------
(a) The Servicer shall make reasonable efforts to collect all payments
called for under the terms and provisions of the Mortgage Loans, and shall, to
the extent such procedures shall be consistent with this Agreement, follow such
collection procedures as it follows with respect to home equity loans in its
servicing portfolio comparable to the Mortgage Loans. Consistent with the
foregoing, and without limiting the generality of the foregoing, the Servicer
may in its discretion (i) waive any late payment charge or any assumption fees
or other fees which may be collected in the ordinary course of servicing such
Mortgage Loans and (ii) arrange with a Mortgagor a schedule for the payment of
interest due and unpaid; provided that such arrangement is consistent with the
--------
Servicer's policies with respect to the home equity loans it owns or services;
provided, further, that notwithstanding such arrangement such Mortgage Loans
- -------- -------
will be included in the information regarding delinquent Mortgage Loans set
forth in the Servicing Certificate and monthly statement to Noteholders pursuant
to Section 4.01.
(b) The Indenture Trustee shall establish and maintain a trust account
(the "Collection Account") titled "The First National Bank of Chicago as
Indenture Trustee, in trust for the registered holders of Revolving Home Equity
Loan Asset-Backed Notes, Series 1998-1 and Ambac Assurance Corporation." The
Collection Account shall be an Eligible Account. The Servicer shall on the
Closing Date deposit into the Collection Account any amounts representing
payments on, and any collections in respect of, the Initial Mortgage Loans
received after the applicable Cut-Off Date and prior to the Closing Date
(exclusive of payments in respect of accrued interest due on or prior to such
Cut-Off Date and with respect to interest payments on the Initial Mortgage
Loans, an amount equal to interest at the Class A Note Rate, interest at the
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Class S Note Rate, the Indenture Trustee's fee, the Owner Trustee's fee and the
Premium Fee for a period of 21 days, and thereafter the Servicer, or the
Sponsor, as the case may be, shall deposit into the Collection Account within
two Business Days following receipt thereof the following payments and
collections received or made by it (without duplication):
(i) all collections on and in respect of the Mortgage Loans;
(ii) the amounts, if any, deposited to the Collection Account
pursuant to Section 3.04;
(iii) Net Liquidation Proceeds;
(iv) Insurance Proceeds (including, for this purpose, any
amount required to be credited by the Servicer pursuant to the last
sentence of Section 3.04 and excluding the portion thereof, if any, that
has been applied to the restoration or repair of the related Mortgaged
Property or released to the related Mortgagor in accordance with the
normal servicing procedures of the Servicer);
(v) any amounts required to be deposited therein pursuant to
Section 7.01;
(vi) any amounts transferred from the Capitalized Interest
Account pursuant to Section 8.8 of the Indenture;
(vii) amounts transferred from the Funding Account pursuant to
Sections 8.7(c)(i) and 8.7(c)(iii)(C) of the Indenture;
(viii) any Transfer Deposit Amounts; and
(ix) any amounts drawn under the Policy pursuant to Section
4.02;
provided, however, that with respect to each Collection Period, the Servicer
- -------- -------
shall be permitted to retain from payments in respect of interest on the
Mortgage Loans, the Servicing Fee for such Collection Period. The foregoing
requirements respecting deposits to the Collection Account are exclusive, it
being understood that, without limiting the generality of the foregoing, the
Servicer need not deposit in the Collection Account amounts representing
Foreclosure Profits, fees (including annual fees) or late charge penalties
payable by Mortgagors, or amounts received by the Servicer for the accounts of
Mortgagors for application towards the payment of taxes, insurance premiums,
assessments, excess pay off amounts and similar items. The Servicer shall remit
all Foreclosure Profits to the Sponsor.
The Indenture Trustee shall hold amounts deposited in the Collection
Account as trustee for the Noteholders and for the Credit Enhancer. The
Servicer shall notify the Indenture Trustee and the Credit Enhancer in writing
on each Determination Date of the amount of payments and collections in the
Collection Account allocable to Interest Collections and Principal Collections
for the related Distribution Date. Following such notification, the Servicer
shall be entitled to withdraw from the Collection Account and retain any amounts
that constitute income and gain realized from the investment of such payments
and collections.
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At the direction of the Servicer, the Indenture Trustee shall invest
funds in the Collection Account in Eligible Investments. All income and gain
realized from any investment in Eligible Investments of funds in the Collection
Account shall be for the benefit of the Servicer and shall be subject to its
withdrawal from time to time. The amount of any losses incurred in respect of
the principal amount of any such investments shall be deposited in the
Collection Account by the Servicer out of its own funds immediately as realized.
Section 3.03. Withdrawals from the Collection Account.
---------------------------------------
From time to time, withdrawals may be made from the Collection Account by the
Servicer for the following purposes:
(i) If not received by the Servicer pursuant to Section
3.02(b), to the Servicer as payment for its Servicing Fee pursuant to
Section 3.08;
(ii) To pay to the Servicer amounts on deposit in the
Collection Account that are not to be included in the distributions and
payments pursuant to Section 8.3 of the Indenture to the extent provided
by the second to the last and the last paragraph of Section 3.02(b);
(iii) To make or to permit the Paying Agent to make
distributions and payments pursuant to Section 8.3 of the Indenture;
(iv) Prior to the Collection Period preceding the Rapid
Amortization Commencement Date, to pay to the Sponsor the amount of any
Additional Balances as and when created during the related Collection
Period, provided, that the aggregate amount so paid to the Sponsor in
respect of Additional Balances at any time during any Collection Period
shall not exceed the amount of Principal Collections theretofore
received for such Collection Period;
(v) To make deposits to the Funding Account pursuant to
Section 8.7 of the Indenture;
(vi) To pay to the Servicer any Liquidation Expenses not
reimbursed prior to the deposit of Net Liquidation Proceeds to the
Collection Account;
(vii) Upon termination of the Trust, to make any payments
required by Section 7.01.
If the Servicer deposits in the Collection Account any amount not
required to be deposited therein or any amount in respect of payments by
Mortgagors made by checks subsequently returned for insufficient funds or other
reason for non-payment it may at any time withdraw such amount from the
Collection Account, and any such amounts shall not be included in the amounts to
be deposited in the Collection Account pursuant to Section 3.02(b), any
provision herein to the contrary notwithstanding.
Section 3.04. Maintenance of Hazard Insurance; Property Protection
----------------------------------------------------
Expenses . The Servicer shall cause to be maintained for each Mortgage Loan
- --------
hazard insurance naming the Servicer or the related subservicer as loss payee
thereunder providing extended coverage in an
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amount which is at least equal to the lesser of (i) the maximum insurable value
of the improvements securing such Mortgage Loan from time to time or (ii) the
combined principal balance owing on such Mortgage Loan and any mortgage loan
senior to such Mortgage Loan from time to time. The Servicer shall also maintain
on property acquired upon foreclosure, or by deed in lieu of foreclosure, hazard
insurance with extended coverage in an amount which is at least equal to the
lesser of (i) the maximum insurable value from time to time of the improvements
which are a part of such property or (ii) the combined principal balance owing
on such Mortgage Loan and any mortgage loan senior to such Mortgage Loan at the
time of such foreclosure or deed in lieu of foreclosure plus accrued interest
and the good-faith estimate of the Servicer of related Liquidation Expenses to
be incurred in connection therewith. Amounts collected by the Servicer under any
such policies shall be deposited in the Collection Account to the extent called
for by Section 3.02. In cases in which any Mortgaged Property is located in a
federally designated flood area, the hazard insurance to be maintained for the
related Mortgage Loan shall include flood insurance. All such flood insurance
shall be in such amounts as are required under applicable guidelines of the
Federal Flood Emergency Act. The Servicer shall be under no obligation to
require that any Mortgagor maintain earthquake or other additional insurance and
shall be under no obligation itself to maintain any such additional insurance on
property acquired in respect of a Mortgage Loan, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Servicer shall obtain and maintain a
blanket policy consistent with prudent industry standards insuring against
hazard losses on all of the Mortgage Loans in an aggregate amount prudent under
industry standards, it shall conclusively be deemed to have satisfied its
obligations as set forth in the first sentence of this Section 3.04 and if there
shall have been a loss which would have been covered by such policy, deposit in
the Collection Account, as the case may be, the amount not otherwise payable
under the blanket policy because of any deductible clause.
Section 3.05. Assumption and Modification Agreements.
--------------------------------------
In any case in which a Mortgaged Property has been or is about to be conveyed
by the Mortgagor, the Servicer shall exercise its right to accelerate the
maturity of such Mortgage Loan consistent with the then current practice of the
Servicer and without regard to the inclusion of such Mortgage Loan in the Trust.
If it elects not to enforce its right to accelerate or if it is prevented from
doing so by applicable law, the Servicer (so long as such action conforms with
the underwriting standards generally acceptable in the industry at the time for
new origination) is authorized to take or enter into an assumption and
modification agreement from or with the Person to whom such Mortgaged Property
has been or is about to be conveyed, pursuant to which such Person becomes
liable under the Loan Agreement and, to the extent permitted by applicable law,
the Mortgagor remains liable thereon. The Servicer shall notify the Indenture
Trustee that any assumption and modification agreement has been completed by
delivering to the Indenture Trustee an Officer's Certificate signed by a
Servicing Officer certifying that such agreement is in compliance with this
Section 3.05 and by forwarding to the Indenture Trustee or to the applicable
Custodian, as agent for the Indenture Trustee, the original copy of such
assumption and modification agreement. Any such assumption and modification
agreement shall, for all purposes, be considered a part of the related Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof. No change in the terms of the related Loan Agreement may be made
by the Servicer in connection with any such assumption to the extent that such
change would not be permitted to be made in respect of the original Loan
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Agreement pursuant to the fourth paragraph of Section 3.01(a). Any fee
collected by the Servicer for entering into any such agreement will be retained
by the Servicer as additional servicing compensation.
Section 3.06. Realization Upon Defaulted Mortgage Loans; Repurchase of
--------------------------------------------------------
Certain Mortgage Loans. The Servicer shall foreclose upon or otherwise
- ----------------------
comparably convert to ownership Mortgaged Properties securing such of the
Mortgage Loans as come into and continue in default when, in the opinion of the
Servicer based upon the practices and procedures referred to in the following
sentence, no satisfactory arrangements can be made for collection of delinquent
payments pursuant to Section 3.02; provided that if the Servicer has actual
knowledge or reasonably believes that any Mortgaged Property is affected by
hazardous or toxic wastes or substances and that the acquisition of such
Mortgaged Property would not be commercially reasonable, then the Servicer will
not cause the Trust to acquire title to such Mortgaged Property in a foreclosure
or similar proceeding. In connection with such foreclosure or other conversion,
the Servicer shall follow such practices (including, in the case of any default
on a related senior mortgage loan, the advancing of funds to correct such
default) and procedures as it shall deem necessary or advisable and as shall be
normal and usual in its general mortgage servicing activities. The foregoing is
subject to the proviso that the Servicer shall not be required to incur any
Liquidation Expenses or to otherwise expend its own funds in connection with any
foreclosure or towards the correction of any default on a related senior
mortgage loan or restoration of any property unless it shall determine that such
expenditure will increase Net Liquidation Proceeds.
In the event that title to any Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be issued to the Indenture Trustee, or to its nominee on behalf of the
Trust.
The Servicer, in its sole discretion, shall have the right but not the
obligation to purchase for its own account from the Trust any Mortgage Loan
which is 91 days or more delinquent. The price for any Mortgage Loan purchased
hereunder (which shall be at a purchase price equal to the Loan Purchase Price
thereof), shall be deposited in the Collection Account and the Indenture
Trustee, upon receipt of a certificate from the Servicer in the form of Exhibit
C-1 hereto, shall release or cause to be released to the Servicer the related
Mortgage File and shall execute and deliver such instruments of transfer or
assignment prepared by the Servicer, in each case without recourse,
representation or warranty, as shall be necessary to vest in the purchaser of
such Mortgage Loans any Mortgage Loans released pursuant hereto and the Servicer
shall succeed to all the Indenture Trustee's right, title and interest in and to
such Mortgage Loans and all security and documents related thereto. Such
assignment shall be an assignment outright and not for security. The Servicer
shall thereupon own such Mortgage Loans, and all security and documents, free of
any further obligation to the Indenture Trustee, the Credit Enhancer or the
Securityholders with respect thereto.
Section 3.07. Indenture Trustee to Cooperate. On or before each
------------------------------
Distribution Date, the Servicer will notify the Indenture Trustee of the payment
in full of the Asset Balance of any Mortgage Loan during the preceding
Collection Period, which notification shall be by a certification (which
certification shall include a statement to the effect that all amounts received
in connection with such payment which are required to be deposited in the
Collection Account
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pursuant to Section 3.02 have been so deposited or credited) of a Servicing
Officer. Upon any such payment in full, the Servicer is authorized to execute,
pursuant to the authorization contained in Section 3.01, if the assignments of
Mortgage have been recorded as required hereunder, an instrument of satisfaction
regarding the related Mortgage, which instrument of satisfaction shall be
recorded by the Servicer if required by applicable law and be delivered to the
Person entitled thereto. It is understood and agreed that no expenses incurred
in connection with such instrument of satisfaction or transfer shall be
reimbursed from amounts deposited in the Collection Account. If the Indenture
Trustee is holding the Mortgage Files, from time to time and as appropriate for
the servicing or foreclosure of any Mortgage Loan, or in connection with the
payment in full of the Asset Balance of any Mortgage Loan shall, upon request of
the Servicer and delivery to the Indenture Trustee of a Request for Release
substantially in the form attached hereto as Exhibit C signed by a Servicing
Officer, release the related Mortgage File to the Servicer and the Indenture
Trustee shall execute such documents, in the forms provided by the Servicer, as
shall be necessary to the prosecution of any such proceedings or the taking of
other servicing actions. Such trust receipt shall obligate the Servicer to
return the Mortgage File to the Indenture Trustee when the need therefor by the
Servicer no longer exists unless the Mortgage Loan shall be liquidated, in which
case, upon receipt of a certificate of a Servicing Officer similar to that
hereinabove specified, the trust receipt shall be released by the Indenture
Trustee or such Custodian to the Servicer.
In order to facilitate the foreclosure of the Mortgage securing any
Mortgage Loan that is in default following recordation of the Assignments of
Mortgage in accordance with the provisions hereof, the Indenture Trustee shall,
if so requested in writing by the Servicer, execute an appropriate assignment in
the form provided to the Indenture Trustee by the Servicer to assign such
Mortgage Loan for the purpose of collection to the Servicer or to the related
subservicer (any such assignment shall unambiguously indicate that the
assignment is for the purpose of collection only), and, upon such assignment,
the Servicer will thereupon bring all required actions in its own name and
otherwise enforce the terms of the Mortgage Loan and deposit the Net Liquidation
Proceeds, exclusive of Foreclosure Profits, received with respect thereto in the
Collection Account. In the event that all delinquent payments due under any
such Mortgage Loan are paid by the Mortgagor and any other defaults are cured,
then the Servicer shall promptly reassign such Mortgage Loan to the Indenture
Trustee and return the related Mortgage File to the place where it was being
maintained.
Section 3.08. Servicing Compensation; Payment of Certain Expenses by
------------------------------------------------------
Servicer. The Servicer shall be entitled to receive the Servicing Fee pursuant
- --------
to Section 3.03 as compensation for its services in connection with servicing
the Mortgage Loans. Moreover, additional servicing compensation in the form of
late payment charges or other receipts not required to be deposited in the
Collection Account (other than Foreclosure Profits) shall be retained by the
Servicer. The Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder (including payment of all other fees
and expenses not expressly stated hereunder to be for the account of the
Securityholders) and shall not be entitled to reimbursement therefor except as
specifically provided herein. Liquidation Expenses are reimbursable to the
Servicer solely from related Liquidation Proceeds.
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Section 3.09. Annual Statement as to Compliance.
---------------------------------
(a) The Servicer will deliver to the Indenture Trustee, the Credit
Enhancer and the Rating Agencies, on or before March 31 of each year, beginning
March 31, 1999, an Officer's Certificate stating that (i) a review of the
activities of the Servicer during the preceding fiscal year (or such shorter
period as is applicable in the case of the first report) and of its performance
under this Agreement has been made under such officer's supervision and (ii) to
the best of such officer's knowledge, based on such review, the Servicer has
fulfilled all of its material obligations under this Agreement throughout such
fiscal year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof.
(b) The Servicer shall deliver to the Indenture Trustee, the Credit
Enhancer and each of the Rating Agencies, promptly after having obtained
knowledge thereof, but in no event later than five Business Days thereafter,
written notice by means of an Officer's Certificate of any event which with the
giving of notice or the lapse of time or both, would become an Event of
Servicing Termination.
Section 3.10. Annual Servicing Report. On or before March 31 of each
-----------------------
year, beginning March 31, 1999, the Servicer, at its expense, shall cause a firm
of nationally recognized independent public accountants (who may also render
other services to the Servicer) to furnish a report to the Indenture Trustee,
the Credit Enhancer and each Rating Agency to the effect that such firm has
examined certain documents and records relating to the servicing of mortgage
loans during the most recent fiscal year then ended under pooling and servicing
agreements (substantially similar to this Agreement, including this Agreement),
that such examination was conducted substantially in compliance with the audit
guide for audits of non-supervised mortgagees approved by the Department of
Housing and Urban Development for use by independent public accountants (to the
extent that the procedures in such audit guide are applicable to the servicing
obligations set forth in such agreements) and that such examination has
disclosed no items of noncompliance with the provisions of this Agreement which,
in the opinion of such firm, are material, except for such items of
noncompliance as shall be set forth in such report.
Section 3.11. Annual Opinion of Counsel. On or before March 31 of
-------------------------
each year, beginning March 31, 1999, the Sponsor, at its expense, shall deliver
to the Indenture Trustee and the Credit Enhancer the applicable Opinion of
Counsel specified in Exhibit B hereto.
Section 3.12. Access to Certain Documentation and Information
-----------------------------------------------
Regarding the Mortgage Loans.
- ----------------------------
(a) The Servicer shall provide to the Indenture Trustee, the Credit
Enhancer, any Noteholders that are federally insured savings and loan
associations, the Office of Thrift Supervision, successor to the Federal Home
Loan Bank Board, the FDIC and the supervisory agents and examiners of the Office
of Thrift Supervision access to the documentation regarding the Mortgage Loans
required by applicable regulations of the Office of Thrift Supervision and the
FDIC (acting as operator of the SAIF or the BIF), such access being afforded
without charge but only upon reasonable request and during normal business hours
at the offices of the Servicer.
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Nothing in this Section 3.12 shall derogate from the obligation of the Servicer
to observe any applicable law prohibiting disclosure of information regarding
the Mortgagors and the failure of the Servicer to provide access as provided in
this Section 3.12 as a result of such obligation shall not constitute a breach
of this Section 3.12.
(b) The Servicer shall supply information in such form as the Indenture
Trustee shall reasonably request to the Indenture Trustee and the Paying Agent,
on or before the start of the Determination Date preceding the related
Distribution Date, as is required in the Indenture Trustee's reasonable judgment
to enable the Paying Agent or the Indenture Trustee, as the case may be, to make
required distributions and to furnish the required reports to Noteholders and to
make any claim under the Policy.
Section 3.13. Maintenance of Certain Servicing Insurance Policies.
---------------------------------------------------
The Servicer shall during the term of its service as servicer maintain in force
(i) a policy or policies of insurance covering errors and omissions in the
performance of its obligations as master servicer hereunder and (ii) a fidelity
bond in respect of its officers, employees or agents. Each such policy or
policies and bond together shall comply with the requirements from time to time
of the Federal National Mortgage Association for persons performing servicing
for mortgage loans purchased by such Association.
Section 3.14. Reports to the Securities and Exchange Commission.
-------------------------------------------------
The Indenture Trustee shall, on behalf of the Trust, cause to be filed with the
Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Indenture Trustee, each of the Servicer and the Sponsor shall
cooperate with the Indenture Trustee in the preparation of any such report and
shall provide to the Indenture Trustee in a timely manner all such information
or documentation as the Indenture Trustee may reasonably request in connection
with the performance of its duties and obligations under this Section.
Section 3.15. Tax Returns.
-----------
In accordance with Section 2.09 hereof, the Servicer shall prepare and file any
Federal, State or local income and franchise tax return for the Trust as well as
any other applicable return and apply for a taxpayer identification number on
behalf of the Trust as provided in Article V of the Trust Agreement, including,
without limitation, forms 1099 and 1065. The Sponsor shall treat the Mortgage
Loans as its property for all Federal, State or local tax purposes and shall
report all income earned thereon (including amounts payable as fees to the
Servicer) as its income for income tax purposes. In the event the Trust shall be
required pursuant to an audit or administrative proceeding or change in
applicable regulations to file Federal, State or local tax returns, the Servicer
shall prepare and file or shall cause to be prepared and filed any tax returns
required to be filed by the Trust; the Indenture Trustee shall promptly sign
such returns and deliver such returns after signature to the Servicer and such
returns shall be filed by the Servicer. The Indenture Trustee shall also prepare
or shall cause to be prepared all tax information required by law to be
distributed to Noteholders. In no event shall the Indenture Trustee or the
Servicer be liable for any liabilities, costs or expenses of the Trust, the
Noteholders, the Certificateholders or the Note Owners arising under any tax
law, including, without limitation, Federal, state or local income and franchise
or excise taxes or any other tax
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imposed on or measured by income (or any interest or penalty with respect
thereto or arising from a failure to comply therewith).
Section 3.16. Information Required by the Internal Revenue Service
----------------------------------------------------
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
- ----------------------------------------------------------------------------
The Servicer shall prepare and deliver all federal and state information reports
when and as required by all applicable state and federal income tax laws. In
particular, with respect to the requirement under Section 6050J of the Code to
the effect that the Servicer shall make reports of foreclosures and abandonments
of any mortgaged property for each year beginning in 1999, the Servicer shall
file reports relating to each instance occurring during the previous calendar
year in which the Servicer (i) on behalf of the Indenture Trustee acquires an
interest in any Mortgaged Property through foreclosure or other comparable
conversion in full or partial satisfaction of a Mortgage Loan, or (ii) knows or
has reason to know that any Mortgaged Property has been abandoned. The reports
from the Servicer shall be in form and substance sufficient to meet the
reporting requirements imposed by Section 6050J.
ARTICLE IV
Servicing Certificate
Section 4.01. Servicing Certificate. Not later than each Determination
---------------------
Date, the Servicer shall deliver (a) to the Indenture Trustee, the Statement to
Noteholders required to be prepared pursuant to Section 8.5 of the Indenture and
(b) to the Indenture Trustee, the Sponsor, the Paying Agent, the Credit Enhancer
and each Rating Agency a Servicing Certificate (in written form or the form of
computer readable media or such other form as may be agreed to by the Indenture
Trustee and the Servicer), together with an Officer's Certificate to the effect
that such Servicing Certificate is true and correct in all material respects,
stating the related Collection Period, Distribution Date, the series number of
the Notes, the date of this Agreement, and:
(i) the aggregate amount of collections received on the
Mortgage Loans on or prior to the Determination Date in respect of such
Collection Period;
(ii) the aggregate amount of (a) Interest Collections and (b)
Principal Collections for such Collection Period;
(iii) the Floating Allocation Percentage and the Fixed
Allocation Percentage for such Collection Period;
(iv) the Noteholders' Interest Collections and Principal
Collections allocated to the Notes for such Collection Period;
(v) the Certificateholders' Interest Collections and
Certificateholders' Principal Collections for such Collection Period;
(vi) Class A Note Interest, the Class A Note Rate and the
Class S Note Interest for the related Interest Period;
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(vii) the amount, if any, of such Class A Note Interest or
Class S Note Interest that is not payable on account of insufficient
Noteholders' Interest Collections;
(viii) the portion of the Unpaid Class A Note Interest
Shortfall and the portion of the Unpaid Class S Note Interest Shortfall,
if any, and the amount of interest on such shortfall at the Note Rate
applicable from time to time (separately stated) to be distributed on
such Distribution Date;
(ix) the Unpaid Class A Note Interest Shortfall and the
Unpaid Class S Note Interest Shortfall, if any, to remain after the
distribution on such Distribution Date;
(x) the Accelerated Principal Distribution Amount and the
portion thereof that will be distributed pursuant to Section
8.3(a)(viii) of the Indenture;
(xi) the Scheduled Principal Collections Distribution Amount,
separately stating the components thereof;
(xii) the amount of any Transfer Deposit Amount paid by the
Sponsor pursuant to Section 2.03 or 2.05;
(xiii) any accrued and unpaid Servicing Fees for previous
Collection Periods and the Servicing Fee for such Collection Period;
(xiv) the Loss Amount for such Collection Period;
(xv) the aggregate amount, if any, of Loss Reduction Amounts
for previous Distribution Dates that have not been previously reimbursed
to Class A Noteholders pursuant to 8.3(a)(iv) of the Indenture;
(xvi) the Pool Balance as of the end of the preceding
Collection Period and as of the end of the second preceding Collection
Period;
(xvii) the Invested Amount as of the end of the preceding
Collection Period;
(xviii) the Class A Note Principal Balance, the Class S
Notional Amount and Pool Factor after giving effect to the distribution
on such Distribution Date and to any reduction on account of the Loss
Amount;
(xix) the Certificate Principal Balance after giving effect to
the distribution on such Distribution Date;
(xx) the aggregate amount of Additional Balances created
during the previous Collection Period;
(xxi) the number and aggregate Asset Balances of Mortgage
Loans (x) as to which the Minimum Monthly Payment is delinquent for 30-
59 days, 60-89 days and 90 or more days, respectively and (y) that have
become REO, in each case as of the end of the preceding Collection
Period;
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(xxii) whether a Rapid Amortization Event has occurred since
the prior Determination Date, specifying each such Rapid Amortization
Event if one has occurred;
(xxiii) whether an Event of Servicing Termination has occurred
since the prior Determination Date, specifying each such Event of
Servicing Termination if one has occurred;
(xxiv) the amount to be distributed to the Credit Enhancer
pursuant to Section 8.3(a)(v), Section 8.3(a)(vi) and Section 8.3(a)(ix)
of the Indenture, stated separately;
(xxv) the amount to be distributed to the Spread Account
pursuant to Section 8.3(a)(vii) of the Indenture;
(xxvi) the Guaranteed Principal Distribution Amount, if any,
for such Distribution Date;
(xxvii) the Credit Enhancement Draw Amount, if any, for such
Distribution Date;
(xxviii) the amount to be distributed to the Certificateholders
pursuant to Section 8.3(a)(xiv) of the Indenture;
(xxix) the amount to be paid to the Servicer pursuant to
Section 8.3(a)(xi) of the Indenture;
(xxx) the Maximum Rate for the related Collection Period and
the Weighted Average Net Loan Rate;
(xxxi) the total amount of funds on deposit in the Spread
Account, the amount to be transferred from the Spread Account to the
Collection Account pursuant to Section 4.03(b) and the applicable Spread
Account Maximum;
(xxxii) the Overcollateralization Amount after giving effect to
the distribution to be made on such Distribution Date;
(xxxiii) the number and Asset Balances of any Mortgage Loans
retransferred to the Sponsor pursuant to Section 2.07;
(xxxiv) the amount of Principal Collections to be deposited in
the Funding Account in respect of such Distribution Date pursuant to
Section 8.7(a) of the Indenture;
(xxxv) the amount on deposit in the Funding Account as of such
Distribution Date and transfers of funds required by Section 8.7(c) of
the Indenture;
(xxxvi) the aggregate of the Asset Balances of the Subsequent
Mortgage Loans purchased on the related Subsequent Transfer Dates; and
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(xxxvii) whether the Distribution Date following the next
Determination Date is expected to be a Subsequent Transfer Date and a
reasonable management estimate of the aggregate Asset Balances of such
intended Subsequent Mortgage Loans.
The Indenture Trustee shall conclusively rely upon the information contained in
a Servicing Certificate for purposes of making distributions pursuant to Section
8.3 of the Indenture, shall have no duty to inquire into such information and
shall have no liability in so relying. The format and content of the Servicing
Certificate may be modified by the mutual agreement of the Servicer, the
Indenture Trustee and the Credit Enhancer. The Servicer shall give notice of
any such change to the Rating Agencies.
Section 4.02. Claims upon the Policy.
----------------------
(a) If, by the close of business on the Determination Date prior to a
Distribution Date, the sum of Noteholders' Interest Collections, Principal
Collections distributable to Noteholders, amounts available from the Capitalized
Interest Account, the Funding Account and amounts on deposit in the Spread
Account are insufficient after the allocation of Certificateholders' Interest
Collections and Certificateholders' Principal Collections in accordance with
Section 8.3(c) of the Indenture to pay the Guaranteed Distribution on such
Distribution Date, then the Indenture Trustee shall give notice (the "Note
Policy Claim Amount") to the Credit Enhancer by telephone or telecopy of the
amount equal to the Credit Enhancement Draw Amount. Such notice of such sum
shall be confirmed in writing to the Credit Enhancer at or before 2:00 p.m., New
York City time, on the Business Day immediately following such Determination
Date. Following receipt by the Credit Enhancer of such notice in such form, the
Credit Enhancer will pay to the Indenture Trustee for deposit into the
Collection Account the amount payable under the Policy on the later to occur of
(i) 12:00 a.m. New York City time, on the Business Day next succeeding receipt
of such notice and (ii) 12:00 a.m., New York City time, on the Business Day
immediately preceding the Distribution Date to which such deficiency relates.
(b) The Indenture Trustee shall keep a complete and accurate record of
the amount of interest and principal paid in respect of any Note from monies
received under the Policy. The Credit Enhancer shall have the right to inspect
such records at reasonable times during normal business hours upon one Business
Day's prior notice to the Indenture Trustee.
(c) The Indenture Trustee shall promptly notify the Credit Enhancer of
any proceeding or the institution of any action, of which a Responsible Officer
of the Indenture Trustee has actual knowledge, seeking the avoidance as a
preferential transfer under applicable bankruptcy, insolvency, receivership or
similar law (a "Preference Claim") of any distribution made with respect to the
Notes. Each Noteholder by its purchase of such Notes, the Servicer, the Sponsor
and the Indenture Trustee hereby agree that, the Credit Enhancer (so long as no
Credit Enhancer Default exists) may at any time during the continuation of any
proceeding relating to a Preference Claim direct all matters relating to such
Preference Claim, including, without limitation, (i) the direction of any appeal
of any order relating to such Preference Claim and (ii) the posting of any
surety, supersedeas or performance bond pending any such appeal. In addition and
without limitation of the foregoing, the Credit Enhancer shall be subrogated to
the rights of the Servicer, the Sponsor, the Indenture Trustee and each
Noteholder in the conduct of any such Preference Claim, including, without
limitation, all rights of any party to an adversary
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proceeding action with respect to any court order issued in connection with any
such Preference Claim.
Section 4.03. Spread Account.
--------------
(a) The Indenture Trustee shall establish and maintain a separate trust
account (the "Spread Account") titled "The First National Bank of Chicago, as
Indenture Trustee, in trust for the registered holders of Revolving Home Equity
Loan Asset Backed Notes, Series 1998-1, Class A and Class S Notes and Ambac
Assurance Corporation" The Spread Account shall be an Eligible Account. Amounts
on deposit in the Spread Account will, at the direction of the Servicer, be
invested in Eligible Investments maturing no later than the day before the next
Distribution Date.
All income and gain realized from any investment of funds in the Spread
Account shall be considered part of the Spread Account until the Spread Account
Maximum is reached. Following that point all earnings shall go to the Sponsor.
The Sponsor will report for Federal, state and local income tax purposes the
income, if any, represented by the Spread Account.
(b) On each Determination Date the Indenture Trustee shall determine
(i) the extent to which Noteholders' Interest Collections and amounts available
in the Capitalized Interest Account pursuant to Section 8.8 of the Indenture are
insufficient after the allocation of Certificateholders' Interest Collections
and Certificateholders' Principal Collections in accordance with Section 8.3(c)
of the Indenture to make distributions as provided in clauses (i) and (ii) of
Section 8.3(a) of the Indenture and (ii) the Guaranteed Principal Distribution
Amount for the related Distribution Date. On each Distribution Date the
Indenture Trustee shall withdraw from the Spread Account and deposit into the
Collection Account the lesser of the amount on deposit in the Spread Account and
an amount equal to the sum of the amounts, if any, determined in clauses (i) and
(ii) of the preceding sentence as per the Servicing Certificate for such
Distribution Date.
(c) Following the termination of the Trust pursuant to Section 7.01
hereof or Section 12.1 of the Indenture, the Indenture Trustee shall withdraw
all amounts then on deposit in the Spread Account pursuant to the Indenture. If
on any Distribution Date the amount on deposit in the Spread Account exceeds the
Spread Account Maximum, the Indenture Trustee shall withdraw such excess and
distribute it to the Sponsor.
Section 4.04. Effect of Payments by the Credit Enhancer; Subrogation.
------------------------------------------------------
Anything herein to the contrary notwithstanding, any payment with respect to
principal of or interest on any of the Notes which is made with monies received
pursuant to the terms of the Policy shall not (for purposes of this subrogation
provision only) be considered payment of such Notes from the Trust and shall not
result in the payment of or the provision for the payment of the principal of or
interest on such Notes within the meaning of Section 8.3 of the Indenture. The
Sponsor, the Servicer and the Indenture Trustee acknowledge, and each Holder by
its acceptance of a Note agrees, that without the need for any further action on
the part of the Credit Enhancer, the Sponsor, the Servicer, the Indenture
Trustee or the Certificate Registrar (a) to the extent the Credit Enhancer makes
payments, directly or indirectly, on account of principal of or interest on any
Notes to the Holders of such Notes, the Credit Enhancer will be fully subrogated
to the rights
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of such Holders to receive such principal and interest from the Trust and (b)
the Credit Enhancer shall be paid such principal and interest but only from the
sources and in the manner provided herein for the payment of such principal and
interest.
The Indenture Trustee and the Servicer shall cooperate in all respects
with any reasonable request by the Credit Enhancer for action to preserve or
enforce the Credit Enhancer's rights or interests under this Agreement without
limiting the rights or affecting the interests of the Noteholders and
Certificateholders as otherwise set forth herein.
ARTICLE V
The Servicer and the Sponsor
Section 5.01. Liability of the Servicer and the Sponsor. The Servicer
-----------------------------------------
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Servicer herein. The Sponsor
shall be liable in accordance herewith only to the extent of the obligations
specifically imposed upon and undertaken by the Sponsor.
Section 5.02. Merger or Consolidation of, or Assumption of the
------------------------------------------------
Obligations of, the Servicer or the Sponsor. Any corporation into which the
- -------------------------------------------
Servicer or the Sponsor may be merged or consolidated, or any corporation
resulting from any merger, conversion or consolidation to which the Servicer or
the Sponsor shall be a party, or any corporation succeeding to the business of
the Servicer or the Sponsor, shall be the successor of the Servicer or the
Sponsor, as the case may be, hereunder, without the execution or filing of any
paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding.
Section 5.03. Limitation on Liability of the Servicer and Others.
--------------------------------------------------
Neither the Servicer nor any of the directors or officers or employees or
agents of the Servicer shall be under any liability to the Trust or the
Securityholders for any action taken or for refraining from the taking of any
action by the Servicer in good faith pursuant to this Agreement, or for errors
in judgment; provided, however, that this provision shall not protect the
-------- -------
Servicer or any such Person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or gross negligence in the
performance of duties of the Servicer or by reason of reckless disregard of
obligations and duties of the Servicer hereunder. The Servicer and any director
or officer or employee or agent of the Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
----- -----
respecting any matters arising hereunder. The Servicer and any director or
officer or employee or agent of the Servicer shall be indemnified by the Trust
and held harmless against any loss, liability or expense incurred in connection
with any legal action relating to this Agreement or the Notes, other than any
loss, liability or expense related to any specific Mortgage Loan (except as any
such loss, liability or expense shall be otherwise reimbursable pursuant to this
Agreement) and any loss, liability or expense incurred by reason of its willful
misfeasance, bad faith or gross negligence in the performance of duties
hereunder or by reason of its reckless disregard of obligations and duties
hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to duties to
service the Mortgage Loans in accordance with this Agreement, and which in its
opinion may involve it in any expense or liability; provided, however, that the
-------- -------
Servicer may in its sole discretion undertake any such action which it may
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deem necessary or desirable in respect of this Agreement, and the rights and
duties of the parties hereto and the interests of the Securityholders hereunder.
In such event, the reasonable legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Trust and the Servicer shall only be entitled to be reimbursed therefor pursuant
to Section 8.3(a)(xi) of the Indenture. The Servicer's right to indemnity or
reimbursement pursuant to this Section 5.03 shall survive any resignation or
termination of the Servicer pursuant to Section 5.04 or 6.01 with respect to any
losses, expenses, costs or liabilities arising prior to such resignation or
termination (or arising from events that occurred prior to such resignation or
termination).
Section 5.04. Servicer Not to Resign. Subject to the provisions of
----------------------
Section 5.02, the Servicer shall not resign from the obligations and duties
hereby imposed on it except (i) upon determination that the performance of its
obligations or duties hereunder are no longer permissible under applicable law
or are in material conflict by reason of applicable law with any other
activities carried on by it or its subsidiaries or Affiliates, the other
activities of the Servicer so causing such a conflict being of a type and nature
carried on by the Servicer or its subsidiaries or Affiliates at the date of this
Agreement or (ii) upon satisfaction of the following conditions: (a) the
Servicer has proposed a successor servicer to the Indenture Trustee and the
Credit Enhancer in writing and such proposed successor servicer is reasonably
acceptable to the Indenture Trustee; (b) each Rating Agency shall have delivered
a letter to the Indenture Trustee and the Credit Enhancer prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the
qualification, reduction or withdrawal of the then current rating of the Notes
without regard to the Policy; and (c) such proposed successor servicer is
reasonably acceptable to the Credit Enhancer, as evidenced by a letter to the
Indenture Trustee; provided, however, that no such resignation by the Servicer
-------- -------
shall become effective until the Indenture Trustee or successor servicer
designated by the Servicer as provided above shall have assumed the Servicer's
responsibilities and obligations hereunder or the Indenture Trustee shall have
designated a successor servicer in accordance with Section 6.02. Any such
resignation shall not relieve the Servicer of responsibility for any of the
obligations specified in Sections 6.01 and 6.02 as obligations that survive the
resignation or termination of the Servicer. Any such determination permitting
the resignation of the Servicer pursuant to clause (i) above shall be evidenced
by an Opinion of Counsel to such effect delivered to the Indenture Trustee and
the Credit Enhancer. The Servicer shall have no claim (whether by subrogation or
otherwise) or other action against any Securityholder for any amounts paid by
the Servicer pursuant to any provision of this Agreement.
Section 5.05. Delegation of Duties. In the ordinary course of
--------------------
business, the Servicer at any time may delegate any of its duties hereunder to
any Person, including any of its Affiliates, or any subservicer referred to in
Section 3.01, who agrees to conduct such duties in accordance with standards
comparable to those with which the Servicer complies pursuant to Section 3.01.
Such delegation shall not relieve the Servicer of its liabilities and
responsibilities with respect to such duties and shall not constitute a
resignation within the meaning of Section 5.04.
Section 5.06. Indemnification of the Trust by the Servicer. The
--------------------------------------------
Servicer shall indemnify and hold harmless the Trust, the Owner Trustee and the
Indenture Trustee from and against any loss, liability, expense, damage or
injury suffered or sustained by reason of the Servicer's
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activities or omissions in servicing or administering the Mortgage Loans that
are not in accordance with this Agreement, including, but not limited to, any
judgment, award, settlement, reasonable attorneys' fees and other costs or
expenses incurred in connection with the defense of any actual or threatened
action, proceeding or claim. Any such indemnification shall not be payable from
the assets of the Trust. The provisions of this indemnity shall run directly to
and be enforceable by an injured party subject to the limitations hereof. The
provisions of this Section 5.06 shall survive termination of this Agreement.
Section 5.07. Indemnification of the Trust by the Sponsor.
-------------------------------------------
Notwithstanding anything to the contrary contained herein, the Sponsor (i)
agrees to be liable directly to the injured party for the entire amount of any
losses, claims, damages, liabilities and expenses of the Trust (other than those
attributable to a Noteholder as a result of defaults on the Mortgage Loans) to
the extent that the Sponsor would be liable if the Trust were a partnership
under the Delaware Revised Uniform Limited Partnership Act in which the Sponsor
was a general partner and (ii) shall indemnify and hold harmless the Trust, the
Owner Trustee and the Indenture Trustee from and against any loss, liability,
expense, damage, claim or injury (other than those attributable to a Noteholder
as a result of defaults on the Mortgage Loans) arising out of or based on this
Agreement by reason of any acts, omissions, or alleged acts or omissions arising
out of activities of the Trust, the Owner Trustee or the Indenture Trustee, or
the actions of the Servicer, including, but not limited to, amounts payable to
the Servicer pursuant to Section 5.03, any judgment, award, settlement,
reasonable attorneys' fees and other costs or expenses incurred in connection
with the defense of any actual or threatened action, proceeding or claim;
provided that the Sponsor shall not indemnify the Owner Trustee or the Indenture
- --------
Trustee (but shall indemnify any other injured party) if such loss, liability,
expense, damage or injury is due to the Owner Trustee's or the Indenture
Trustee's willful malfeasance, bad faith or gross negligence or by reason of the
Owner Trustee's or the Indenture Trustee's reckless disregard of its obligations
hereunder. The provisions of this indemnity shall run directly to and be
enforceable by an injured party subject to the limitations hereof.
Section 5.08. Limitation on Liability of the Sponsor. None of the
--------------------------------------
directors or officers or employees or agents of the Sponsor shall be under any
liability to the Trust, the Owner Trustee or the Indenture Trustee or the
Securityholders, it being expressly understood that all such liability is
expressly waived and released as a condition of, and as consideration for, the
execution of this Agreement and the issuance of the Notes; provided, however,
-------- -------
that this provision shall not protect any such Person against any liability
which would otherwise be imposed by reason of willful misfeasance, bad faith or
gross negligence in the performance of the duties hereunder. Except as provided
in Section 5.07, the Sponsor shall not be under any liability to the Trust, the
Owner Trustee or the Indenture Trustee or the Securityholders for any action
taken or for refraining from the taking of any action in its capacity as Sponsor
pursuant to this Agreement whether arising from express or implied duties under
this Agreement; provided, however, that this provision shall not protect the
-------- -------
Sponsor against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of reckless disregard of its obligations and duties
hereunder. The Sponsor and any director or officer or employee or agent of the
Sponsor may rely in good faith on any document of any kind prima facie properly
----- -----
executed and submitted by any Person respecting any matters arising hereunder.
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ARTICLE VI
Servicing Termination
Section 6.01. Events of Servicing Termination. If any one of the
-------------------------------
following events ("Events of Servicing Termination") shall occur and be
continuing:
(i) Any failure by the Servicer to deposit in the Collection
Account any deposit required to be made under the terms of this
Agreement which continues unremedied for a period of five Business Days
after the date upon which written notice of such failure shall have been
given to the Servicer by the Indenture Trustee or to the Servicer and
the Indenture Trustee by the Credit Enhancer or Holders of Notes
evidencing Percentage Interests aggregating not less than 25%; or
(ii) Failure on the part of the Servicer duly to observe or
perform in any material respect any other covenants or agreements of the
Servicer set forth in the Notes or in this Agreement, which failure
continues unremedied for a period of 60 days after the date on which
written notice of such failure, requiring the same to be remedied, and
stating that such notice is a "Notice of Default" hereunder, shall have
been given to the Servicer by the Indenture Trustee or to the Servicer
and the Indenture Trustee by the Credit Enhancer or the Holders of Notes
evidencing Percentage Interests aggregating not less than 25%; or
(iii) The entry against the Servicer of a decree or order by a
court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a trustee, conservator, receiver or
liquidator in any insolvency, conservatorship, receivership,
readjustment of debt, marshalling of assets and liabilities or similar
proceedings, or for the winding up or liquidation of its affairs, and
the continuance of any such decree or order unstayed and in effect for a
period of 60 consecutive days; or
(iv) The consent by the Servicer to the appointment of a
trustee, conservator, receiver or liquidator in any insolvency,
conservatorship, receivership, readjustment of debt, marshalling of
assets and liabilities or similar proceedings of or relating to the
Servicer or of 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;
(v) the occurrence of an Event of Servicer Termination under
the Insurance Agreement.
then, and in each and every such case, so long as an Event of Servicing
Termination shall not have been remedied by the Servicer, either the Indenture
Trustee, the Credit Enhancer or the Holders of Notes evidencing Voting Rights
aggregating not less than 51% in each case with the consent of the Credit
Enhancer, or the Credit Enhancer, by notice then given in writing to the
Servicer (and to the Indenture Trustee if given by the Credit Enhancer or the
Holders of Notes) may terminate all of the rights and obligations of the
Servicer as servicer under this Agreement.
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Upon the occurrence of a Servicer Termination Delinquency Rate Trigger or
Servicer Termination Loss Trigger as those terms are defined in the Insurance
Agreement, the Credit Enhancer may, in its reasonable discretion, terminate all
of the rights and obligations of the Servicer pursuant to the terms hereof. Any
such notice to the Servicer shall also be given to each Rating Agency and the
Credit Enhancer. On or after the receipt by the Servicer of such written notice,
all authority and power of the Servicer under this Agreement, whether with
respect to the Notes or the Mortgage Loans or otherwise, shall pass to and be
vested in the Indenture Trustee pursuant to and under this Section 6.01; and,
without limitation, the Indenture Trustee 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 transfer and endorsement of each
Mortgage Loan and related documents, or otherwise. The Servicer agrees to
cooperate with the Indenture Trustee in effecting the termination of the
responsibilities and rights of the Servicer hereunder, including, without
limitation, the transfer to the Indenture Trustee for the administration by it
of all cash amounts that shall at the time be held by the Servicer and to be
deposited by it in the Collection Account, or that have been deposited by the
Servicer in the Collection Account or thereafter received by the Servicer with
respect to the Mortgage Loans. All reasonable costs and expenses (including
attorneys' fees) incurred in connection with amending this Agreement to reflect
such succession as Servicer pursuant to this Section 6.01 shall be paid by the
predecessor Servicer (or if the predecessor Servicer is the Indenture Trustee,
the initial Servicer) upon presentation of reasonable documentation of such
costs and expenses.
Notwithstanding the foregoing, a delay in or failure of performance
under Section 6.01(i) for a period of two Business Days or under Section
6.01(ii) for a period of 60 days, shall not constitute an Event of Servicing
Termination 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 the public enemy, acts of declared or undeclared war, public
disorder, rebellion or sabotage, epidemics, landslides, lightning, fire,
hurricanes, earthquakes, floods or similar causes. The preceding sentence shall
not relieve the Servicer from using its best efforts to perform its respective
obligations in a timely manner in accordance with the terms of this Agreement
and the Servicer shall provide the Indenture Trustee, the Sponsor, the Credit
Enhancer and the Noteholders and Certificateholders with an Officer's
Certificate giving prompt notice of such failure or delay by it, together with a
description of its efforts to so perform its obligations. The Servicer shall
immediately notify the Indenture Trustee and the Credit Enhancer in writing of
any Events of Servicing Termination.
Section 6.02. Indenture Trustee to Act; Appointment of Successor.
--------------------------------------------------
(a) On and after the time the Servicer receives a notice of termination
pursuant to Section 6.01 or resigns pursuant to Section 5.04, the Indenture
Trustee 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.
Notwithstanding the above, if the Indenture Trustee becomes the Servicer
hereunder, it shall have no responsibility or obligation (i) of repurchase or
substitution with respect to any Mortgage Loan, (ii) with respect to any
representation or warranty of the Servicer, and (iii) for
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any act or omission of either a predecessor or successor Servicer other than the
Indenture Trustee. As compensation therefor, the Indenture Trustee shall be
entitled to such compensation as the Servicer would have been entitled to
hereunder if no such notice of termination had been given. In addition, the
Indenture Trustee will be entitled to compensation with respect to its expenses
in connection with conversion of certain information, documents and record
keeping, as provided in Section 6.7 and 6.8 of the Indenture. Notwithstanding
the above, (i) if the Indenture Trustee is unwilling to act as successor
Servicer, or (ii) if the Indenture Trustee is legally unable so to act, the
Indenture Trustee may with the consent of the Credit Enhancer (in the situation
described in clause (i)) or shall (in the situation described in clause (ii))
appoint or petition a court of competent jurisdiction to appoint, any
established housing and home finance institution, bank or other mortgage loan or
home equity loan servicer with all licenses and permits required to perform its
obligations under this Agreement and having a net worth of not less than
$15,000,000 as the successor to the Servicer hereunder in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer
hereunder; provided that any such successor Servicer shall be acceptable to the
--------
Credit Enhancer, as evidenced by the Credit Enhancer's prior written consent,
which consent shall not be unreasonably withheld; and provided, further, that
-------- -------
the appointment of any such successor Servicer will not result in the
qualification, reduction or withdrawal of the ratings assigned to the Notes by
the Rating Agencies without regard to the Policy. Pending appointment of a
successor to the Servicer hereunder, unless the Indenture Trustee is prohibited
by law from so acting, the Indenture Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
successor shall be entitled to receive compensation out of payments on Mortgage
Loans in an amount equal to the compensation which the Servicer would otherwise
have received pursuant to Section 3.08 (or such lesser compensation as the
Indenture Trustee and such successor shall agree). The Indenture Trustee and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession.
(b) Any successor, including the Indenture Trustee, to the Servicer as
servicer shall during the term of its service as servicer (i) continue to
service and administer the Mortgage Loans for the benefit of Securityholders and
the Credit Enhancer and (ii) maintain in force a policy or policies of insurance
covering errors and omissions in the performance of its obligations as Servicer
hereunder and a fidelity bond in respect of its officers, employees and agents
to the same extent as the Servicer is so required pursuant to Section 3.13. The
appointment of a successor Servicer shall not affect any liability of the
predecessor Servicer which may have arisen under this Agreement prior to its
termination as Servicer (including, without limitation, any deductible under an
insurance policy pursuant to Section 3.04), nor shall any successor Servicer be
liable for any acts or omissions of the predecessor Servicer or for any breach
by such Servicer of any of its representations or warranties contained herein.
Section 6.03. Notification to Securityholders. Upon any termination
-------------------------------
or appointment of a successor to the Servicer pursuant to this Article VI or
Section 5.04, the Indenture Trustee shall give prompt written notice thereof to
the Securityholders at their respective addresses appearing in the Note
Register, the Certificate Register, the Credit Enhancer and each Rating Agency.
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ARTICLE VII
Termination
Section 7.01. Termination.
-----------
(a) The respective obligations and responsibilities of the Servicer, the
Sponsor and the Indenture Trustee created hereby (other than the obligation of
the Indenture Trustee to make certain payments to Noteholders after the final
Distribution Date and the obligation of the Servicer to send certain notices as
hereinafter set forth) shall terminate upon the last action required to be taken
by the Indenture Trustee on the final Distribution Date pursuant to this Article
VII following the later of (A) the Distribution Date following payment in full
of all amounts owing to the Credit Enhancer and (B) the earliest of (i) the
transfer, under the conditions specified in Section 7.01(b), to the Sponsor of
the Noteholders' interest on each Mortgage Loan and all property acquired in
respect of any Mortgage Loans remaining in the Trust for an amount equal to the
sum of (w) the Class A Note Principal Balance, (x) the sum of accrued and unpaid
Class A Note Interest and Class S Note Interest through the day preceding the
final Distribution Date, and (y) interest accrued on any Unpaid Class A Note
Interest Shortfall or Unpaid Class S Note Interest Shortfall, to the extent
legally permissible, and all amounts due and owing the Credit Enhancer, (ii) the
day following the Distribution Date on which the distribution made to Class A
Noteholders has reduced the Class A Note Principal Balance to zero and no other
amounts are owed to the Class A Noteholders or the Class S Noteholders
hereunder, (iii) the final payment or other liquidation of the last Mortgage
Loan remaining in the Trust (including, without limitation, the disposition of
the Mortgage Loans pursuant to Section 12.1 of the Indenture) or the disposition
of all property acquired upon foreclosure or deed in lieu of foreclosure of any
Mortgage Loan and (iv) the Distribution Date in March, 2025; provided, however,
-------- -------
that in no event shall the trust created hereby continue beyond the expiration
of 21 years from the date of death of the last surviving descendants of Joseph
P. Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date hereof. Upon termination in accordance with clause (B)(i) of
this Section 7.01, the Indenture Trustee shall execute such documents and
instruments of transfer presented by the Sponsor, in each case without recourse,
representation or warranty, and take such other actions as the Sponsor may
reasonably request to effect the transfer of the Mortgage Loans to the Sponsor.
(b) The Sponsor shall have the right to exercise the option to effect
the transfer to the Sponsor of each Mortgage Loan pursuant to Section 7.01(a)
above on any Distribution Date on or after the Distribution Date immediately
prior to which the Class A Note Principal Balance is less than ten percent (10%)
of the Original Class A Note Principal Balance and all amounts due and owing to
the Credit Enhancer for unpaid premiums and unreimbursed draws on the Policy and
all other amounts due and owing to the Credit Enhancer pursuant to the Insurance
Agreement, together with interest thereon as provided under the Insurance
Agreement, have been paid. In the event that the Sponsor does not elect to
repurchase the Mortgage Loans, on the first Distribution Date after the First
Clean-up Call Date, the Class A Note Rate shall increase to One-Month LIBOR plus
0.40%.
(c) The Sponsor, at its expense, shall prepare and deliver to the
Indenture Trustee for execution, at the time the Mortgage Loans are to be
released to the Sponsor, appropriate
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documents assigning each such Mortgage Loan from the Indenture Trustee to the
Sponsor and shall promptly record such assignments.
(d) The Sponsor shall not exercise its right to repurchase the Mortgage
Loans pursuant to Section 7.01(b) hereof if such repurchase would result in a
draw on the policy, without the consent of the Credit Enhancer, which consent
shall not be unreasonably withheld.
ARTICLE VIII
Administrative Duties of the Servicer
Section 8.01. Administrative Duties.
---------------------
(a) Duties with Respect to the Indenture. The Servicer shall perform
------------------------------------
all its duties and the duties of the Issuer under the Indenture. In addition,
the Servicer shall consult with the Owner Trustee as the Servicer deems
appropriate regarding the duties of the Issuer under the Indenture. The Servicer
shall monitor the performance of the Issuer and shall advise the Owner Trustee
when action is necessary to comply with the Issuer's duties under the Indenture.
The Servicer shall prepare for execution by the Issuer or shall cause the
preparation by other appropriate Persons of all such documents, reports,
filings, instruments, certificates and opinions as it shall be the duty of the
Issuer to prepare, file or deliver pursuant to the Indenture. In furtherance of
the foregoing, the Servicer shall take all necessary action that is the duty of
the Issuer to take pursuant to the Indenture.
(b) Duties with Respect to the Issuer.
---------------------------------
(i) In addition to the duties of the Servicer set forth in
this Agreement or any of the Basic Documents, the Servicer shall perform
such calculations and shall prepare for execution by the Issuer or the
Owner Trustee or shall cause the preparation by other appropriate
Persons of all such documents, reports, filings, instruments,
certificates and opinions as it shall be the duty of the Issuer or the
Owner Trustee to prepare, file or deliver pursuant to this Agreement or
any of the Basic Documents or under state and federal tax and securities
laws, and at the request of the Owner Trustee shall take all appropriate
action that it is the duty of the Issuer to take pursuant to this
Agreement or any of the Basic Documents, including, without limitation,
pursuant to Sections 2.6 and 2.11 of the Trust Agreement. In accordance
with the directions of the Issuer or the Owner Trustee, the Servicer
shall administer, perform or supervise the performance of such other
activities in connection with the Mortgage Loans (including the Basic
Documents) as are not covered by any of the foregoing provisions and as
are expressly requested by the Issuer or the Owner Trustee and are
reasonably within the capability of the Servicer.
(ii) Notwithstanding anything in this Agreement or any of the
Basic Documents to the contrary, the Servicer shall be responsible for
promptly notifying the Owner Trustee and the Indenture Trustee in the
event that any withholding tax is imposed on the Issuer's payments (or
allocations of income) to a Certificateholder (as defined in the Trust
Agreement) as contemplated by this Agreement. Any such notice shall be
in
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writing and specify the amount of any withholding tax required to be
withheld by the Owner Trustee or the Indenture Trustee pursuant to such
provision.
(iii) Notwithstanding anything in this Agreement or the Basic
Documents to the contrary, the Servicer shall be responsible for
performance of the duties of the Issuer or the Sponsor set forth in
Section 5.1(a), (b), (c) and (d) of the Trust Agreement with respect to,
among other things, accounting and reports to Certificateholders (as
defined in the Trust Agreement).
(iv) The Servicer shall perform the duties of the Sponsor
specified in Section 10.2 of the Trust Agreement required to be
performed in connection with the resignation or removal of the Owner
Trustee, and any other duties expressly required to be performed by the
Servicer under this Agreement or any of the Basic Documents.
(v) In carrying out the foregoing duties or any of its other
obligations under this Agreement, the Servicer may enter into
transactions with or otherwise deal with any of its Affiliates;
provided, however, that the terms of any such transactions or dealings
-------- -------
shall be in accordance with any directions received from the Issuer and
shall be, in the Servicer's opinion, no less favorable to the Issuer in
any material respect.
(c) Non-Ministerial Matters. With respect to matters that in the
-----------------------
reasonable judgment of the Servicer are non-ministerial, the Servicer shall not
take any action pursuant to this Article VIII unless within a reasonable time
before the taking of such action, the Servicer shall have notified the Owner
Trustee and the Credit Enhancer of the proposed action and the Owner Trustee and
the Credit Enhancer shall not have withheld consent or provided an alternative
direction. For the purpose of the preceding sentence, "non-ministerial matters"
shall include:
(A) the amendment of or any supplement to the Indenture;
(B) the initiation of any claim or lawsuit by the Issuer and
the compromise of any action, claim or lawsuit brought by or against the
Issuer (other than in connection with the collection of the Mortgage
Loans);
(C) the amendment, change or modification of this Agreement or
any of the Basic Documents;
(D) the appointment of successor Note Registrars, successor
Paying Agents and successor Indenture Trustees pursuant to the Indenture
or the appointment of Successor Servicers or the consent to the
assignment by the Note Registrar, Paying Agent or Indenture Trustee of
its obligations under the Indenture; and
(E) the removal of the Indenture Trustee.
(d) Exceptions. Notwithstanding anything to the contrary in this
----------
Agreement, except as expressly provided herein or in the other Basic Documents,
the Servicer, in its capacity hereunder, shall not be obligated to, and shall
not, (1) make any payments to the Noteholders or Certificateholders under the
Basic Documents, (2) sell the Trust Property pursuant to Section 12.1 of the
Indenture, (3) take any other action that the Issuer directs the Servicer not to
take on
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its behalf or (4) in connection with its duties hereunder assume any
indemnification obligation of any other Person.
(e) The Indenture Trustee or any successor Servicer shall not be
responsible for any obligations or duties of the Servicer under Section 8.01.
Section 8.02. Records. The Servicer shall maintain appropriate books
-------
of account and records relating to services performed under this Agreement,
which books of account and records shall be accessible for inspection by the
Issuer and the Indenture Trustee at any time during normal business hours.
Section 8.03. Additional Information to be Furnished to the Issuer.
----------------------------------------------------
The Servicer shall furnish to the Issuer and the Indenture Trustee from time
to time such additional information regarding the Mortgage Loans as the Issuer
and the Indenture Trustee shall reasonably request.
ARTICLE IX
Miscellaneous Provisions
Section 9.01. Amendment. This Agreement may be amended from time to
---------
time by agreement among the Sponsor, the Servicer, and the Indenture Trustee, in
each case without notice to or the consent of any of the Noteholders or
Certificateholders, but only with the consent of the Credit Enhancer (which
consent shall not be unreasonably withheld), (i) to cure any ambiguity, (ii) to
correct any defective provisions or to correct or supplement any provisions
herein that may be inconsistent with any other provisions herein, (iii) to add
to the duties of the Sponsor or the Servicer, (iv) to add any other provisions
with respect to matters or questions arising under this Agreement or the Policy,
as the case may be, which shall not be inconsistent with the provisions of this
Agreement, (v) to add or amend any provisions of this Agreement as required by
any Rating Agency or any other nationally recognized statistical rating
organization in order to maintain or improve any rating of the Notes (it being
understood that, after obtaining the ratings in effect on the Closing Date,
neither the Indenture Trustee, the Sponsor nor the Servicer is obligated to
obtain, maintain or improve any such rating) or (vi) to comply with any
requirement imposed by the Code; provided, however, that such action shall not,
-------- -------
as evidenced by an Opinion of Counsel, materially and adversely affect the
interests of any Noteholder or any Certificateholder or the Credit Enhancer; and
provided, further, that the amendment shall be deemed not to adversely affect in
- -------- -------
any material respect the interests of the Noteholders and the Certificateholders
and no opinion referred to in the preceding proviso shall be required to be
delivered if the Person requesting the amendment obtains a letter from each
Rating Agency stating that the amendment would not result in the downgrading or
withdrawal of the respective ratings then assigned to the Notes without regard
to the Policy.
This Agreement also may be amended from time to time by agreement among
the Servicer, the Sponsor and the Indenture Trustee, with the consent of the
Credit Enhancer and the Holders of the Notes evidencing Voting Rights
aggregating not less than 51%, and the Holders of the Certificates evidencing
Voting Rights aggregating not less than 51% (which consent of such Holders of
Notes and Certificates given pursuant to this Section 9.01 or pursuant to any
other provision of this Agreement shall be conclusive and binding on such Holder
and all future
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Holders of such securities and of any security issued upon the transfer thereof
or in exchange thereof or in lieu thereof whether or not notation of such
consent is made upon the security) for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this Agreement
or of modifying in any manner the rights of the Noteholders or the
Certificateholders; provided, however, that no such amendment shall (i) reduce
-------- -------
in any manner the amount of, or delay the timing of, payments on the Notes or
distributions or payments under the Policy which are required to be made on any
Note without the consent of the Holder of such Note or (ii) reduce the aforesaid
percentage required to consent to any such amendment, without the consent of the
Holders of all then outstanding Notes and Certificates or (iii) adversely effect
in any material respect the interests of the Credit Enhancer.
Following the execution and delivery of any such amendment hereto or to
the Policy, either the Sponsor, if the Sponsor requested the amendment, or the
Servicer, if the Servicer requested the amendment, shall reimburse the Credit
Enhancer for the reasonable out-of-pocket costs and expenses incurred by the
Credit Enhancer in connection with such amendment.
Prior to the execution of any such amendment, the party hereto
requesting any such amendment shall furnish written notification of the
substance of such amendment to each Rating Agency. In addition, promptly after
the execution of any such amendment made with the consent of the Noteholders,
the Indenture Trustee shall furnish written notification of the substance of
such amendment to each Noteholder and fully executed original counterparts of
the instruments effecting such amendment to the Credit Enhancer.
It shall not be necessary for the consent of Noteholders under this
Section 9.01 to approve the particular form of any proposed amendment or
consent, but it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Securityholders shall be subject to
such reasonable requirements as the Indenture Trustee may prescribe.
In executing any amendment permitted by this Section 9.01, the Indenture
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an Opinion of Counsel stating that such amendment is authorized or
permitted hereby and that all conditions precedent to the execution and delivery
of such amendment have been satisfied. The Indenture Trustee may, but shall not
be obligated to, enter into any such amendment which affects the Indenture
Trustee's own rights, duties or immunities under this Agreement or otherwise.
Section 9.02. Recordation of Agreement. This Agreement is subject to
------------------------
recordation in all appropriate public offices for real property records in all
the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Indenture Trustee, but only upon direction of Noteholders accompanied by an
Opinion of Counsel to the effect that such recordation materially and
beneficially affects the interests of Noteholders. The Noteholders requesting
such recordation shall bear all costs and expenses of such recordation. The
Indenture Trustee shall have no obligation to ascertain whether such recordation
so affects the interests of the Noteholders.
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For the purpose of facilitating the recordation of this Agreement as
herein provided and for other purposes, this Agreement may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 9.03. Limitation on Rights of Noteholders. No Noteholder
-----------------------------------
shall have any right to vote (except as provided in Sections 6.01, 7.01, and
9.01 herein and Section 12.1 of the Indenture) or in any manner otherwise
control the operation and management of the Trust, or the obligations of the
parties hereto, nor shall anything herein set forth, or contained in the terms
of the Notes, be construed so as to constitute the Noteholders from time to time
as partners or members of an association; nor shall any Noteholder be under any
liability to any third person by reason of any action taken by the parties to
this Agreement pursuant to any provision hereof.
No Noteholder shall have any right by virtue or by availing itself of
any provisions of this Agreement to institute any suit, action or proceeding in
equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Indenture Trustee a written notice of
default and of the continuance thereof, as hereinbefore provided, and unless
also the Holders of Notes evidencing Voting Rights aggregating not less than 51%
shall have made written request upon the Indenture Trustee to institute such
action, suit or proceeding in its own name as Indenture Trustee hereunder and
shall have offered to the Indenture Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby, and the Indenture Trustee, for 60 days after its receipt of such
notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding; it being understood and intended,
and being expressly covenanted by each Noteholder with every other Noteholder
and the Indenture Trustee, that no one or more Holders of Notes shall have any
right in any manner whatever by virtue or by availing itself or themselves of
any provisions of this Agreement to affect, disturb or prejudice the rights of
the Holders of any other of the Notes, or to obtain or seek to obtain priority
over or preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner herein provided and for the equal, ratable and
common benefit of all Noteholders. For the protection and enforcement of the
provisions of this Section 9.03, each and every Noteholder and the Indenture
Trustee shall be entitled to such relief as can be given either at law or in
equity.
By accepting its Note, each Noteholder agrees that unless a Credit
Enhancer Default exists, the Credit Enhancer shall have the right to exercise
all rights of the Noteholder under this Agreement without any further consent of
the Noteholder.
Section 9.04. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.
Section 9.05. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified mail, return receipt requested,
to (a) in the case of the Sponsor, Headlands Mortgage Securities Inc., 700
Larkspur Landing Circle, Suite 250, Larkspur, California 94939, Attention: Peter
T. Paul, (b) in the case of the Servicer, Headlands Mortgage Company, 700
Larkspur
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Landing Circle, Suite 250, Larkspur, California 94939, Attention: Gilbert
MacQuarrie, (c) in the case of the Indenture Trustee, at the Corporate Trust
Office, (d) in the case of the Credit Enhancer, Ambac Assurance Corporation
Credit Enhancement, One State Street Plaza, New York, NY 10022-4834, Attention:
Managing Director (telecopy number (212) 891-1456 or (212) 755-5477), (e) in the
case of Moody's, Residential Loan Monitoring Group, 4th Floor, 99 Church Street,
New York, New York 10007, and (f) in the case of Standard & Poor's, 26 Broadway,
New York, New York 10004, or, as to each party, at such other address as shall
be designated by such party in a written notice to each other party. Any notice
required or permitted to be mailed to a Noteholder shall be given by first class
mail, postage prepaid, at the address of such Holder as shown in the Note
Register. Any notice so mailed within the time prescribed in this Agreement
shall be conclusively presumed to have been duly given, whether or not the
Securityholder receives such notice. Any notice or other document required to be
delivered or mailed by the Indenture Trustee to any Rating Agency shall be given
on a best efforts basis and only as a matter of courtesy and accommodation and
the Indenture Trustee shall have no liability for failure to deliver such notice
or document to any Rating Agency.
Section 9.06. 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, 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 or of the Notes or the
rights of the Holders thereof.
Section 9.07. Assignment. Notwithstanding anything to the contrary
----------
contained herein, except as provided in Sections 5.02 and 5.04, this Agreement
may not be assigned by the Sponsor or the Servicer without the prior written
consent of the Credit Enhancer and Holders of the Notes evidencing Percentage
Interests aggregating not less than 66%.
Section 9.08. Third-Party Beneficiaries. This Agreement will inure to
-------------------------
the benefit of and be binding upon the parties hereto, the Certificateholders,
the Note Owners, the Credit Enhancer and their respective successors and
permitted assigns. Except as otherwise provided in this Agreement, no other
Person will have any right or obligation hereunder.
Section 9.09. Counterparts. This instrument may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
Section 9.10. Effect of Headings and Table of Contents. The Article
----------------------------------------
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 9.11. Insurance Agreement. The Indenture Trustee is
-------------------
authorized and directed to execute and deliver the Insurance Agreement and to
perform the obligations of the Indenture Trustee thereunder.
Section 9.12. Nonpetition Covenant. Until one year plus one day shall
--------------------
have elapsed since the termination of the Trust in accordance with Section 7.01,
none of the Sponsor, the
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Company, the Servicer, nor the Indenture Trustee shall petition or otherwise
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Sponsor or the Trust under any
federal or state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Sponsor or the Trust or any substantial part of its property, or ordering
the winding up or liquidation of the affairs of the Sponsor or the Trust.
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IN WITNESS WHEREOF, the Sponsor, the Servicer and the Indenture
Trustee have caused this Agreement to be duly executed by their respective
officers all as of the day and year first above written.
HEADLANDS MORTGAGE SECURITIES INC.,
as Sponsor
By /s/ Kristen Decker
------------------
Name: Kristen Decker
Title: Vice President
HEADLANDS MORTGAGE COMPANY,
as Company and Servicer
By /s/ Becky Poisson
-----------------
Name: Becky Poisson
Title: Executive Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
as Indenture Trustee
By /s/ R Tarnas
------------
Name: R. Tarnas
Title: Vice President
HEADLANDS HOME EQUITY LOAN TRUST
1998-1, as Issuer
By: Wilmington Trust Company, not in its
individual capacity but solely as Owner
Trustee
By /s/ Emmett Harmon
-----------------
Name: Emmett Harmon
Title: Vice President
68
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[Sale and Servicing Agreement]
69
<PAGE>
State of ________ )
) ss.:
County of ________ )
On the ____ day of March, 1998 before me, a notary public in and for
the State of ________, personally appeared _________________, known to me who,
being by me duly sworn, did depose and say that he resides at
______________________; that he is the _____________________ of Headlands
Mortgage Securities Inc., a Delaware corporation, one of the parties that
executed the foregoing instrument; that he knows the seal of said corporation;
that the seal affixed to said instrument is such corporate seal; that it was so
affixed by order of the Board of Directors of said corporation; and that he
signed his name thereto by like order.
-------------------------------------------------
Notary Public
[Notarial Seal]
<PAGE>
State of )
) ss.:
County of )
On the ____ day of March, 1998 before me, a notary public in and for
the State of ________, personally appeared _____________________, known to me
who, being by me duly sworn, did depose and say that he resides at
_________________, ____________, ________ _____; that he is the ______________
of Headlands Mortgage Company, a closely-held California corporation, one of the
parties that executed the foregoing instrument; that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the Board of Directors of said corporation;
and that he signed his name thereto by like order.
------------------------------------------------
Notary Public
[Notarial Seal]
<PAGE>
State of )
) ss.:
County of )
On the ____ day of March, 1998 before me, a notary public in and for
the State of ________, personally appeared _________________, known to me who,
being by me duly sworn, did depose and say that he resides at _______________,
_______________ _____; that he is the _____________ of The First National Bank
of Chicago, a national banking association, one of the parties that executed the
foregoing instrument; and that he signed his name thereto by order of the Board
of Directors of said corporation.
-------------------------------------------------
Notary Public
[Notarial Seal]
<PAGE>
EXHIBIT A
---------
MORTGAGE LOAN SCHEDULE
A-1
<PAGE>
EXHIBIT B
---------
FORM OF OPINION OF COUNSEL
WITH RESPECT TO SECTION 3.11 OF THE
SALE AND SERVICING AGREEMENT
The opinions set forth below may be subject to all the qualifications,
assumptions, limitations and exceptions taken or made in the opinions of counsel
to the Company delivered on the Closing Date. Unless otherwise indicated, all
capitalized terms used herein shall have the meanings ascribed to them in the
Sale and Servicing Agreement dated as of March 13, 1998 among Headlands Mortgage
Company (the "Company" and the "Servicer"), Headlands Mortgage Securities Inc.
(the "Sponsor") and The First National Bank of Chicago, as Indenture Trustee.
Terms used but not defined herein shall have the meaning given to such terms in
the above-referenced Sale and Servicing Agreement.
1. the Indenture Trustee has a valid perfected first priority
security interest with respect to the Sponsor's right, title and
interest in and to the Mortgage Loans (including all Subsequent
Mortgage Loans and Eligible Substitute Mortgage Loans).
B-1
<PAGE>
EXHIBIT C-1
-----------
OFFICER'S CERTIFICATE
---------------------
REQUEST BY THE SERVICER FOR PERMANENT RELEASE
OF MORTGAGE LOANS AND MORTGAGE FILE
----------------------------------------
TO: The First National Bank of Chicago,
as Indenture Trustee
One North State Street, 9th Floor
Chicago, Illinois 60602
Attention: Corporate Trust Office
Gentlemen:
In connection with the payment in full of the Mortgage Loans held by
you as Indenture Trustee, under the Sale and Servicing Agreement dated as of
March 13, 1998 among Headlands Mortgage Company, as Servicer, Headlands Mortgage
Securities Inc., as Sponsor, and you, as Indenture Trustee, the undersigned
requests the release of the Mortgage Loans and the Mortgage Files for the
Mortgage Loans identified in the schedule attached to this Request.
The undersigned hereby certifies that any and all payments received on
the Mortgage Loans identified in the schedule attached to this Request which are
required to be deposited in the Collection Account pursuant to Section 3.02 of
such Sale and Servicing Agreement have been so deposited.
HEADLANDS MORTGAGE COMPANY,
as Servicer
By:
-------------------------
Name:
---------------------
Title:
--------------------
Date:
--------------------
ACKNOWLEDGED BY:
THE FIRST NATIONAL BANK OF CHICAGO,
as Indenture Trustee
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
C-2-1
<PAGE>
EXHIBIT C-2
-----------
OFFICER'S CERTIFICATE
---------------------
REQUEST BY THE SERVICER FOR TEMPORARY RELEASE
OF MORTGAGE LOANS AND MORTGAGE FILES
-----------------------------------------
TO: The First National Bank of Chicago,
as Indenture Trustee
One North State Street, 9th Floor
Chicago, Illinois 60602
Attention: Corporate Trust Office
Gentlemen:
In connection with the administration of the Mortgage Loans held by
you as Indenture Trustee, under the Sale and Servicing Agreement dated as of
March 13, 1998 among Headlands Mortgage Company, as Servicer, Headlands Mortgage
Securities Inc., as Sponsor, and you, as Indenture Trustee, the undersigned
requests the temporary release of the Mortgage Loans and the related Mortgage
Files for the Mortgage Loans identified in the schedule attached to this
Request.
HEADLANDS MORTGAGE COMPANY,
as Servicer
By:
---------------------------
Name:
-----------------------
Title:
----------------------
Date:
-----------------------
ACKNOWLEDGED BY:
THE FIRST NATIONAL BANK OF CHICAGO,
as Indenture Trustee
By:
----------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
C-2-1
<PAGE>
EXHIBIT D
---------
FORM OF CREDIT LINE AGREEMENT
D-1
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
--------------
HEADLANDS HOME EQUITY LOAN TRUST 1998-1
CLASS A Variable Rate Asset Backed Notes
CLASS S 1.25% Asset Backed Notes
INDENTURE
Dated as of March 1, 1998
THE FIRST NATIONAL BANK OF CHICAGO
Indenture Trustee
------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. Definitions and Incorporation by Reference......................................... 2
SECTION 1.1. Definitions................................................................ 2
SECTION 1.2. Incorporation by Reference of the Trust Indenture Act...................... 17
SECTION 1.3. Rules of Construction...................................................... 17
SECTION 1.4. Action by or Consent of Noteholders and Certificateholders................. 17
SECTION 1.5. Conflict with TIA.......................................................... 18
ARTICLE II. The Notes......................................................................... 18
SECTION 2.1. Form....................................................................... 18
SECTION 2.2. Execution, Authentication and Delivery..................................... 18
SECTION 2.3. Registration; Registration of Transfer and Exchange........................ 19
SECTION 2.4. Mutilated, Destroyed, Lost or Stolen Notes................................. 20
SECTION 2.5. Persons Deemed Owners...................................................... 21
SECTION 2.6. Payment of Principal and Interest; Defaulted Interest...................... 21
SECTION 2.7. Cancellation............................................................... 22
SECTION 2.8. Release of Collateral...................................................... 22
SECTION 2.9. Book-Entry Notes........................................................... 22
SECTION 2.10. Notices to Clearing Agency................................................. 23
SECTION 2.11. Definitive Notes........................................................... 23
ARTICLE III. Covenants........................................................................ 24
SECTION 3.1. Payment of Principal and Interest.......................................... 24
SECTION 3.2. Maintenance of Office or Agency............................................ 24
SECTION 3.3. Money for Payments to be Held in Trust..................................... 24
SECTION 3.4. Existence.................................................................. 25
SECTION 3.5. Protection of Trust Property............................................... 26
SECTION 3.6. Opinions as to Trust Property.............................................. 26
SECTION 3.7. Performance of Obligations; Servicing of Mortgage Loans.................... 27
SECTION 3.8. Negative Covenants......................................................... 28
SECTION 3.9. Annual Statement as to Compliance.......................................... 28
SECTION 3.10. Issuer May Not Consolidate or Transfer Assets.............................. 29
SECTION 3.11. No Other Business.......................................................... 29
SECTION 3.12. No Borrowing............................................................... 29
SECTION 3.13. Servicer's Obligations..................................................... 29
SECTION 3.14. Guarantees, Loans, Advances and Other Liabilities.......................... 29
SECTION 3.15. Capital Expenditures....................................................... 29
SECTION 3.16. Compliance with Laws....................................................... 30
SECTION 3.17. Restricted Payments........................................................ 30
SECTION 3.18. Notice of Rapid Amortization Events and Events of Servicing Termination.... 30
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 3.19. Further Instruments and Acts............................................... 30
SECTION 3.20. Amendments of Sale and Servicing Agreement and Trust Agreement............. 30
SECTION 3.21. Income Tax Characterization................................................ 30
ARTICLE IV. Satisfaction and Discharge........................................................ 30
SECTION 4.1. Satisfaction and Discharge of Indenture.................................... 30
SECTION 4.2. Application of Trust Money................................................. 32
SECTION 4.3. Repayment of Monies Held by Note Paying Agent.............................. 32
ARTICLE V. Remedies........................................................................... 32
SECTION 5.1. Rights Upon a Rapid Amortization Event..................................... 32
SECTION 5.2. Limitation of Suits........................................................ 32
SECTION 5.3. Unconditional Rights of Noteholders To Receive Principal and Interest...... 33
SECTION 5.4. Restoration of Rights and Remedies......................................... 33
SECTION 5.5. Rights and Remedies Cumulative............................................. 33
SECTION 5.6. Delay or Omission Not a Waiver............................................. 33
SECTION 5.7. Control by Noteholders..................................................... 34
SECTION 5.8. Undertaking for Costs...................................................... 34
SECTION 5.9. Waiver of Stay or Extension Laws........................................... 34
SECTION 5.10. Action on Notes............................................................ 34
SECTION 5.11. Performance and Enforcement of Certain Obligations......................... 35
SECTION 5.12. Subrogation................................................................ 35
SECTION 5.13. Preference Claims.......................................................... 35
ARTICLE VI. The Indenture Trustee............................................................. 36
SECTION 6.1. Duties of Indenture Trustee................................................ 36
SECTION 6.2. Rights of Indenture Trustee................................................ 38
SECTION 6.3. Individual Rights of Indenture Trustee..................................... 39
SECTION 6.4. Indenture Trustee's Disclaimer............................................. 39
SECTION 6.5. Notice of Defaults......................................................... 39
SECTION 6.6. Reports by Indenture Trustee to Holders.................................... 39
SECTION 6.7. Compensation and Indemnity................................................. 40
SECTION 6.8. Replacement of Indenture Trustee........................................... 40
SECTION 6.9. Successor Indenture Trustee by Merger...................................... 42
SECTION 6.10. Appointment of Co-Indenture Trustee or Separate Indenture Trustee.......... 42
SECTION 6.11. Eligibility: Disqualification.............................................. 43
SECTION 6.12. Preferential Collection of Claims Against Issuer........................... 44
SECTION 6.13. Appointment and Powers..................................................... 44
SECTION 6.14. Performance of Duties...................................................... 44
SECTION 6.15. Limitation on Liability.................................................... 44
SECTION 6.16. Reliance Upon Documents.................................................... 45
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
SECTION 6.17. Representations and Warranties of the Indenture Trustee.................... 45
SECTION 6.18. Waiver of Setoffs.......................................................... 45
SECTION 6.19. Control by the Controlling Party........................................... 45
SECTION 6.20. Trustee May Enforce Claims Without Possession of Notes..................... 45
SECTION 6.21. Suits for Enforcement...................................................... 46
SECTION 6.22. Mortgagor Claims........................................................... 46
ARTICLE VII. Noteholders' Lists and Reports................................................... 47
SECTION 7.1. Issuer To Furnish To Indenture Trustee Names and Addresses of Noteholders.. 47
SECTION 7.2. Preservation of Information; Communications to Noteholders................. 47
SECTION 7.3. Reports by Issuer.......................................................... 47
SECTION 7.4. Reports by Indenture Trustee............................................... 48
ARTICLE VIII. Payments and Statements to Noteholders and Certificateholders; Accounts,
Disbursements and Releases................................................................... 48
SECTION 8.1. Collection of Money........................................................ 48
SECTION 8.2. Release of Trust Property.................................................. 48
SECTION 8.3. Distributions of Noteholders' Interest Collections and Investment Proceeds. 49
SECTION 8.4. Calculation of the Class A Note Rate....................................... 52
SECTION 8.5. Statements to Noteholders.................................................. 52
SECTION 8.6. Rights of Securityholders.................................................. 55
SECTION 8.7. Funding Account............................................................ 55
SECTION 8.8. Capitalized Interest Account............................................... 56
SECTION 8.9. Opinion of Counsel......................................................... 56
ARTICLE IX. Supplemental Indentures........................................................... 57
SECTION 9.1. Supplemental Indentures Without Consent of Noteholders..................... 57
SECTION 9.2. Supplemental Indentures with Consent of Noteholders........................ 58
SECTION 9.3. Execution of Supplemental Indentures....................................... 59
SECTION 9.4. Effect of Supplemental Indenture........................................... 60
SECTION 9.5. Conformity With Trust Indenture Act........................................ 60
SECTION 9.6. Reference in Notes to Supplemental Indentures.............................. 60
ARTICLE X. Redemption of Notes................................................................ 60
SECTION 10.1. Redemption................................................................. 60
SECTION 10.2. Surrender of Notes......................................................... 61
SECTION 10.3. Form of Redemption Notice.................................................. 62
SECTION 10.4. Notes Payable on Redemption Date........................................... 62
ARTICLE XI. Miscellaneous..................................................................... 63
SECTION 11.1. Compliance Certificates and Opinions, etc.................................. 63
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 11.2. Form of Documents Delivered to Indenture Trustee........................... 63
SECTION 11.3. Acts of Noteholders........................................................ 64
SECTION 11.4. Notices, etc., to Indenture Trustee, Issuer and Rating Agencies............ 65
SECTION 11.5. Notices to Noteholders; Waiver............................................. 65
SECTION 11.6. Alternate Payment and Notice Provisions.................................... 66
SECTION 11.7. Conflict with Trust Indenture Act.......................................... 66
SECTION 11.8. Effect of Headings and Table of Contents................................... 66
SECTION 11.9. Successors and Assigns..................................................... 66
SECTION 11.10. Separability............................................................... 67
SECTION 11.11. Benefits of Indenture...................................................... 67
SECTION 11.12. Legal Holidays............................................................. 67
SECTION 11.13. GOVERNING LAW.............................................................. 67
SECTION 11.14. Counterparts............................................................... 67
SECTION 11.15. Recording of Indenture..................................................... 67
SECTION 11.16. Trust Obligation........................................................... 67
SECTION 11.17. No Petition................................................................ 68
SECTION 11.18. Inspection................................................................. 68
SECTION 11.19. Limitation of Liability.................................................... 68
ARTICLE XII. Rapid Amortization Events........................................................ 69
SECTION 12.1. Rapid Amortization Events.................................................. 69
</TABLE>
EXHIBITS
Exhibit A -- Form of Class A Note
Exhibit B -- Form of Class S Note
iv
<PAGE>
INDENTURE dated as of March 1, 1998, between HEADLANDS HOME EQUITY
LOAN TRUST 1998-1, a Delaware business trust (the "Issuer"), and THE FIRST
NATIONAL BANK OF CHICAGO, a national banking association, as trustee (the
"Indenture Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Issuer's Class A
Variable Rate Asset Backed Notes (the "Class A Notes"), Class S 1.25% Asset
Backed Notes (the "Class S Notes" and, together with the Class A Notes, the
"Notes"):
As security for the payment and performance by the Issuer of its
obligations under this Indenture and the Notes, the Issuer has agreed to assign
the Collateral (as defined below) to the Indenture Trustee on behalf of the
Noteholders.
Ambac Assurance Corporation (the "Credit Enhancer") has issued and
delivered a financial guaranty insurance policy, dated the Closing Date (the
"Note Policy"), pursuant to which the Credit Enhancer guarantees the Guaranteed
Distributions (as defined below).
As an inducement to the Credit Enhancer to issue and deliver the Note
Policy, the Issuer and the Credit Enhancer have executed and delivered the
Insurance and Indemnity Agreement, dated as of March 25, 1998 (as amended from
time to time, the "Insurance Agreement"), among the Credit Enhancer, the Issuer,
Headlands Mortgage Company and Headlands Mortgage Securities Inc. and the
Indenture Trustee.
As an additional inducement to the Credit Enhancer to issue the Note
Policy, and as security for the performance by the Issuer of the Credit Enhancer
Issuer Secured Obligations and as security for the performance by the Issuer of
the Indenture Trustee Issuer Secured Obligations, the Issuer has agreed to grant
and assign the Collateral (as defined below) to the Indenture Trustee for the
benefit of the Issuer Secured Parties, as their respective interests may appear.
<PAGE>
GRANTING CLAUSE
The Issuer hereby Grants to the Indenture Trustee at the Closing Date,
for the benefit of the Issuer Secured Parties all of the Issuer's right, title
and interest in and to (i) certain adjustable rate home equity revolving credit
line loans (the "HELCOCs") (including any Additional Balances) and closed-end
loans (the "Closed-End Loans" and together with the HELOCs, the "Mortgage
Loans") made or to be made and conveyed to the Issuer under certain home equity
revolving credit line loan agreements and promissory notes ("Credit Line
Agreements"); (ii) the collections in respect of the Mortgage Loans with due
dates after the Initial Cut-Off Date (except with respect to interest payments
on the Initial Mortgage Loans, an amount equal to the interest on the Class A
Notes, the interest on the Class S Notes, the Owner Trustee's Fee, the Indenture
Trustee's Fee, the fee paid to the Servicer and the premium paid to the Credit
Enhancer for a period of 21 days, (iii) property that secured a Mortgage Loan
that has been acquired by foreclosure or deed in lieu of foreclosure; (iv)
rights of the Sponsor under hazard insurance policies covering the Mortgaged
Properties; (v) the Policy; (vi) amounts on deposit in the Collection Account;
(vii) amounts on deposit in the Funding Account; (viii) amounts on deposit in
the Spread Account; (ix) amounts on deposit in the Capitalized Interest Account;
(x) any and all Subsequent Mortgage Loans (including any Additional Balances
related thereto); (xi) all rights under the Purchase Agreement assigned to the
Issuer (including all representations and warranties of the Seller contained
therein) and all rights of the Issuer under the Sale and Servicing Agreement;
and (xii) any and all proceeds of the foregoing (the foregoing "Collateral").
The foregoing Grant is made in trust to the Indenture Trustee, for the
benefit first, of the Holders of the Notes, and second, for the benefit of the
----- ------
Credit Enhancer. The Indenture Trustee hereby acknowledges such Grant, accepts
the trusts under this Indenture in accordance with the provisions of this
Indenture and agrees to perform its duties required in this Indenture to the
best of its ability to the end that the interests of such parties, recognizing
the priorities of their respective interests may be adequately and effectively
protected.
ARTICLE I.
Definitions and Incorporation by Reference
SECTION 1.1. Definitions. Except as otherwise specified herein, the
-----------
following terms have the respective meanings set forth below for all purposes of
this Indenture.
"Accelerated Principal Distribution Amount" means, with respect to any
-----------------------------------------
Distribution Date, the amount, if any, required to reduce the Class A Note
Principal Balance (after giving effect to the distribution of all other amounts
actually distributed on the Class A Notes on such Distribution Date) so that the
Invested Amount (immediately following such Distribution Date) exceeds the Class
A Note Principal Balance (as so reduced) by the Required Overcollateralization
Amount.
"Act" has the meaning specified in Section 11.3(a).
---
2
<PAGE>
"Affiliate" means, with respect to any specified Person, any other
---------
Person controlling, controlled by or under common control with such Person. For
the purposes of this definition, "control" means the power to direct the
management and policies of a Person, directly or indirectly, whether through
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Alternative Principal Payment" means, as to any Distribution Date,
-----------------------------
the amount (but not less than zero) equal to Principal Collections for such
Distribution Date less the aggregate of Draws under the Credit Line Agreements
during the related Collection Period.
"Authorized Officer" means, with respect to the Issuer and the
------------------
Servicer, any officer or agent acting pursuant to a power of attorney of the
Owner Trustee or the Servicer, as applicable, who is authorized to act for the
Owner Trustee or the Servicer, as applicable, in matters relating to the Issuer
and who is identified on the list of Authorized Officers delivered by each of
the Owner Trustee and the Servicer to the Indenture Trustee on the Closing Date
(as such list may be modified or supplemented from time to time thereafter).
"Authorized Newspaper" means a newspaper of general circulation in the
--------------------
Borough of Manhattan, The City of New York, printed in the English language and
customarily published on each Business Day, whether or not published on
Saturdays, Sundays and holidays.
"Basic Documents" means this Indenture, the Certificate of Trust, the
---------------
Trust Agreement, the Sale and Servicing Agreement, the Purchase Agreement, the
Indemnification Agreement, the Management Agreement, the Insurance and Indemnity
Agreement and other documents and certificates delivered in connection
therewith.
"Book Entry Notes" means a beneficial interest in the Notes, ownership
----------------
and transfers of which shall be made through book entries by a Clearing Agency
as described in Section 2.9.
"BIF" means the Bank Insurance Fund, as from time to time constituted,
---
created under the Financial Institutions Reform, Recovery and Enhancement Act of
1989, or if at any time after the execution of this instrument the Bank
Insurance Fund is not existing and performing duties now assigned to it, the
body performing such duties on such date.
"Business Day" means any day other than a Saturday, Sunday, legal
------------
holiday or other day on which banking institutions in the state of New York or
the state in which the Corporate Trust Office is located are required or
authorized by law to be closed.
"Capitalized Interest Account" has the meaning set forth in Section
----------------------------
8.8 hereof.
"Certificate of Trust" means the certificate of trust of the Issuer
--------------------
substantially in the form of Exhibit B to the Trust Agreement.
"Certificate Principal Balance" means, as of any date of
-----------------------------
determination, the amount equal to (i) the Pool Balance at the end of the day
next preceding such date of determination plus (ii) the amount of Principal
Collections on deposit in the Funding Account, minus (iii) the Invested Amount.
3
<PAGE>
"Certificates" has the meaning set forth in the Trust Agreement.
------------
"Certificateholders' Available Funds" means, as to any Distribution
-----------------------------------
Date, Certificateholders' Collections up to but not exceeding the
Certificateholders' Subordinated Amount immediately prior to such Distribution
Date.
"Certificateholders' Collections" shall mean, as to any period, the
-------------------------------
sum of Certificateholders' Interest Collections and Certificateholders'
Principal Collections for such period.
"Certificateholders' Principal Collections" shall mean, on any
-----------------------------------------
Distribution Date, Principal Collections received during the related Collection
Period minus the amount of such Principal Collections required to be distributed
to Class A Noteholders pursuant to Section 8.3(b) or required to be deposited to
the Funding Account pursuant to Section 8.7.
"Certificateholders' Subordinated Amount" shall mean, at the time of
---------------------------------------
reference thereto, $3,910,620.04 less (i) the aggregate amount of
Certificateholders' Collections previously applied pursuant to Section 8.3(c)
and (ii) the aggregate amount of Noteholders' Loss Amounts that have previously
been reallocated to the Certificateholders' Interest pursuant to the second
sentence of Section 8.3(c); provided that the Certificateholders' Subordinated
Amount shall not be less than zero.
"Class A Note" means any Class A Note executed and authenticated by
------------
the Indenture Trustee.
"Class A Note Distribution Amount" means, as to any Distribution Date,
--------------------------------
the sum of all amounts to be distributed to the Holders of Class A Notes
pursuant to Article VIII.
"Class A Note Principal Balance" means, with respect to any
------------------------------
Distribution Date, (a) the Original Class A Note Principal Balance less (b) the
----
aggregate of amounts actually distributed as principal on the Class A Notes.
"Class A Note Rate" means, (i) with respect to the first Interest
-----------------
Period, 5.8875% and for any subsequent Interest Period until the First Clean-up
Call Date, the sum of (a) LIBOR as of the second LIBOR Business Day prior to the
first day of such Interest Period and (b) 0.20%; for any Interest Period and
(ii) following the First Clean-up Call Date the sum of (a) LIBOR as of the
second LIBOR Business Day prior to the first day of such Interest Period and (b)
0.40% provided, however, that in no event shall the Class A Note Rate with
-------- -------
respect to any Interest Period exceed the Maximum Rate for such Interest Period.
"Class S Note" mean any Class S Note executed and authenticated by the
------------
Indenture Trustee.
"Class S Note Rate" means 1.25% per annum (computed on the basis of
-----------------
the actual days elapsed in a 360-day year).
"Clearing Agency" means an organization registered as a "clearing
---------------
agency" pursuant to Section 17A of the Exchange Act.
4
<PAGE>
"Clearing Agency Participant" means a broker, dealer, bank, other
---------------------------
financial institution or other Person for whom from time to time a Clearing
Agency effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means March 25, 1998.
------------
"Code" means the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" has the meaning specified in the Granting Clause of this
----------
Indenture.
"Collection Account" has the meaning given to it in the Sale and
------------------
Servicing Agreement.
"Company" means Headlands Mortgage Company.
-------
"Controlling Party" means the Credit Enhancer, so long as no Credit
-----------------
Enhancer Default shall have occurred and be continuing, and the Indenture
Trustee, for so long as a Credit Enhancer Default shall have occurred and be
continuing.
"Corporate Trust Office" means the principal corporate trust office of
----------------------
the Indenture Trustee at which at any particular time its corporate trust
business shall be administered, which office at date of the execution of this
Agreement is located at One First National Plaza, Suite 0126, Chicago, Illinois
60670-0126, Attention: Corporate Trust Services Division (for the purposes of
Section 3.2, such office is located at 14 Wall Street, 8th Floor, New York, New
York 10005).
"Credit Enhancer" means Ambac Assurance Corporation, a Wisconsin stock
---------------
insurance company.
"Credit Enhancer Default" means the failure by the Credit Enhancer to
-----------------------
make a payment required under the Note Policy in accordance with the terms
thereof.
"Credit Enhancer Issuer Secured Obligations" means all amounts and
------------------------------------------
obligations which the Issuer may at any time owe to or on behalf of the Credit
Enhancer under this Indenture, the Insurance Agreement or any other Basic
Document.
"Default" means any occurrence that is, or with notice or the lapse of
-------
time or both would become, a Rapid Amortization Event.
"Definitive Notes" has the meaning specified in Section 2.11.
----------------
"Deferred Interest" means the amount by which interest required to be
-----------------
distributed in respect of the Class A Notes on any Distribution Date exceeds the
Maximum Rate.
"Depository Participant" means a broker, dealer, bank or other
----------------------
financial institution or other Person for whom from time to time the Depository
effects book-entry transfers and pledges of securities deposited with the
Depository.
5
<PAGE>
"Eligible Account" means an account that is either (i) maintained with
----------------
a depository institution whose short-term debt obligations throughout the time
of any deposit therein are rated in the highest short-term debt rating category
by Standard & Poor's and Moody's, (ii) an account or accounts maintained with a
depository institution with a minimum long-term unsecured debt rating by
Standard & Poor's and Moody's which is at least investment grade provided that
the deposits in such account or accounts are fully insured by either the BIF or
the SAIF, or (iii) a segregated trust account maintained with the corporate
trust department of the Indenture Trustee in its fiduciary capacity, or (iv) an
account otherwise acceptable to each Rating Agency and the Credit Enhancer, as
evidenced at closing by delivery of a rating letter by each Rating Agency and
thereafter by delivery of a letter from each Rating Agency and the Credit
Enhancer to the Indenture Trustee, within 30 days of receipt of notice of such
deposit.
"Eligible Investments" means one or more of the following (excluding
--------------------
any callable investments purchased at a premium):
(i) direct obligations of, or obligations fully guaranteed as to
timely payment of principal and interest by, the United States or any
agency or instrumentality thereof, provided that such obligations are
backed by the full faith and credit of the United States;
(ii) repurchase agreements on obligations specified in clause (i)
maturing not more than three months from the date of acquisition thereof,
provided that the short-term unsecured debt obligations of the party
agreeing to repurchase such obligations are at the time rated by each
Rating Agency in its highest short-term rating category (which is A-1+ for
Standard & Poor's and P-1 for Moody's);
(iii) certificates of deposit, time deposits and bankers'
acceptances (which, if Moody's is a Rating Agency, shall each have an
original maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than 365
days) of any U.S. depository institution or trust company incorporated
under the laws of the United States or any state thereof and subject to
supervision and examination by federal and/or state banking authorities,
provided that the unsecured short-term debt obligations of such depository
institution or trust company at the date of acquisition thereof have been
rated by each of Moody's and Standard & Poor's in its highest unsecured
short-term debt rating category;
(iv) commercial paper (having original maturities of not more
than 270 days) of any corporation incorporated under the laws of the United
States or any state thereof which on the date of acquisition has been rated
by Standard & Poor's and Moody's in their highest short-term debt rating
categories;
(v) short-term investment funds ("STIFS") sponsored by any
trust company or national banking association incorporated under the laws
of the United States or any state thereof which on the date of acquisition
has been rated by Standard & Poor's and Moody's in their respective highest
applicable rating category; and
6
<PAGE>
(vi) interests in any money market fund which at the date of
acquisition of the interests in such fund and throughout the time such
interests are held in such fund has a rating of Aaa by Moody's and either
AAAm or AAAm-G by Standard & Poor's or such lower rating as will not result
in the qualification, downgrading or withdrawal of the then-current rating
assigned to the Notes by each Rating Agency without regard to the Policy;
(vii) other obligations or securities that are acceptable to
each Rating Agency and the Credit Enhancer as an Eligible Investment
hereunder and will not result in a reduction in the then current rating of
the Notes without regard to the Policy, as evidenced by a letter to such
effect from such Rating Agency and the Credit Enhancer and with respect to
which the Servicer has received confirmation that, for tax purposes, the
investment complies with the last clause of this definition;
provided that no instrument described hereunder shall evidence either the right
- --------
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provided a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations; and provided, further,
-------- -------
that no instrument described hereunder may be purchased at a price greater than
par if such instrument may be prepaid or called at a price less than its
purchase price prior to its stated maturity.
"ERISA" means Employee Retirement Income Security Act of 1974, as
-----
amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Final Scheduled Distribution Date" shall mean, with respect to the
---------------------------------
Class A Notes and the Class S Notes, March 15, 2025.
"First Clean-up Call Date" means the date on which the Sponsor could
------------------------
have exercised its right to repurchase the Mortgage Loans pursuant to Section
7.01(b) of the Sale and Servicing Agreement.
"Fixed Allocation Percentage" means 98% of the Original Funded
---------------------------
Balance.
"Floating Allocation Percentage" means, with respect to any
------------------------------
Distribution Date, the percentage equivalent of a fraction, the numerator of
which is the Invested Amount at the close of business on the preceding
Distribution Date (or at the Closing Date in the case of the first Distribution
Date) and the denominator of which is the sum as of the beginning of the related
Collection Period of (a) the Pool Balance and (b) amounts on deposit in the
Funding Account.
"Fully Indexed Rate" means, with respect to any HELOC, the Loan Rate
--------------------
applicable under the related Credit Agreement when such HELOC is fully indexed
following the Teaser Period.
7
<PAGE>
"Grant" means mortgage, pledge, bargain, sell, warrant, alienate,
-----
remise, release, convey, assign, transfer, create, grant a lien upon and a
security interest in and right of set-off against, deposit, set over and confirm
pursuant to this Indenture. A Grant of the Collateral or of any other agreement
or instrument shall include all rights, powers and options (but none of the
obligations) of the Granting party thereunder, including the immediate and
continuing right to claim for, collect, receive and give receipt for principal
and interest payments in respect of the Collateral and all other monies payable
thereunder, to give and receive notices and other communications, to make
waivers or other agreements, to exercise all rights and options, to bring
proceedings in the name of the Granting party or otherwise and generally to do
and receive anything that the Granting party is or may be entitled to do or
receive thereunder or with respect thereto.
"Guaranteed Distribution" means, with respect to any Distribution
-----------------------
Date, the sum of the (i) the Guaranteed Principal Distribution Amount and (ii)
the amount to be distributed to Class A Noteholders and Class S Noteholders
pursuant to Sections 8.3(a)(i) and 8.3(a)(ii) for such Distribution Date.
"Guaranteed Principal Distribution Amount" means, with respect to (i)
----------------------------------------
any Distribution Date on or after which the Certificateholders' Subordinated
Amount has been reduced to zero, the amount, if any, required to reduce the
Class A Note Principal Balance (after giving effect to the distributions of
Interest Collections and Principal Collections that are allocable to principal
on the Class A Notes on such Distribution Date) to the Invested Amount for such
Distribution Date (after giving effect to distributions of principal, if any,
and allocation of Noteholders' Loss Amounts on such Distribution Date) and (ii)
the Distribution Date in March, 2025, the amount by which the outstanding Class
A Note Principal Balance (after giving effect to all other amounts allocable to
and distributable as principal on the Class A Notes on such Distribution Date)
exceeds the sum of the amounts on deposit in the Collection Account available to
be distributed to the Class A Noteholders pursuant to Section 8.3(b).
"HELOC" has the meaning as defined in the Sale and Servicing
-----
Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is
------ ----------
registered on the Note Register.
"Indebtedness" means, with respect to any Person at any time, (a)
------------
indebtedness or liability of such Person for borrowed money whether or not
evidenced by bonds, debentures, notes or other instruments, or for the deferred
purchase price of property or services (including trade obligations); (b)
obligations of such Person as lessee under leases which should have been or
should be, in accordance with generally accepted accounting principles, recorded
as capital leases; (c) current liabilities of such Person in respect of unfunded
vested benefits under plans covered by Title IV of ERISA; (d) obligations issued
for or liabilities incurred on the account of such Person; (e) obligations or
liabilities of such Person arising under acceptance facilities; (f) obligations
of such Person under any guarantees, endorsements (other than for collection or
deposit in the ordinary course of business) and other contingent obligations to
purchase, to provide funds for payment, to supply funds to invest in any Person
or otherwise to assure a creditor against loss; (g) obligations of such Person
secured by any lien on property or assets of
8
<PAGE>
such Person, whether or not the obligations have been assumed by such Person; or
(h) obligations of such Person under any interest rate or currency exchange
agreement.
"Indenture" means this Indenture as amended and supplemented from time
---------
to time.
"Indenture Trustee" means The First National Bank of Chicago, a
-----------------
national banking association, not in its individual capacity but as trustee
under this Indenture, or any successor trustee under this Indenture.
"Indenture Trustee Issuer Secured Obligations" means all amounts and
--------------------------------------------
obligations which the Issuer may at any time owe to the Indenture Trustee for
the benefit of the Noteholders under this Indenture or the Notes.
"Independent" means, when used with respect to any specified Person,
-----------
that the person (a) is in fact independent of the Issuer, any other obligor upon
the Notes, the Sponsor and any Affiliate of any of the foregoing persons, (b)
does not have any direct financial interest or any material indirect financial
interest in the Issuer, any such other obligor, the Sponsor or any Affiliate of
any of the foregoing Persons and (c) is not connected with the Issuer, any such
other obligor, the Sponsor or any Affiliate of any of the foregoing Persons as
an officer, employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions.
"Independent Certificate" means a certificate or opinion to be
-----------------------
delivered to the Indenture Trustee under the circumstances described in, and
otherwise complying with, the applicable requirements of Section 11.1, prepared
by an Independent appraiser or other expert appointed pursuant to an Issuer
Order and approved by the Indenture Trustee in the exercise of reasonable care,
and such opinion or certificate shall state that the signer has read the
definition of "Independent" in this Indenture and that the signer is Independent
within the meaning thereof.
"Initial Cut-Off Date" means close of business March 12, 1998.
--------------------
"Initial Funded Deposit" means $39,098,924.01.
----------------------
"Initial Mortgage Loans" means Mortgage Loans delivered by the Sponsor
----------------------
to the Trust on the Closing Date.
"Insurance Proceeds" means proceeds paid by any insurer (other than
------------------
the Credit Enhancer) pursuant to any insurance policy covering a Mortgage Loan,
or amounts required to be paid by the Servicer pursuant to the last sentence of
Section 3.04 of the Sale and Servicing Agreement, net of any component thereof
(i) covering any expenses incurred by or on behalf of the Servicer in connection
with obtaining such proceeds, (ii) that is applied to the restoration or repair
of the related Mortgaged Property, (iii) released to the Mortgagor in accordance
with the Servicer's normal servicing procedures or (iv) required to be paid to
any holder of a mortgage senior to such Mortgage Loan.
"Interest Collections" means, as to any Distribution Date, the sum of
--------------------
all payments by or on behalf of Mortgagors and any other amounts constituting
interest (including, without limitation, such portion of Insurance Proceeds and
Net Liquidation Proceeds as is allocable to
9
<PAGE>
interest on the applicable Mortgage Loan) collected by the Servicer under the
Mortgage Loans (excluding fees or late charges or similar administrative fees
paid by Mortgagors) during the related Collection Period plus investment
earnings on funds on deposit in the Funding Account and any deposits made to the
Collection Account during such Collection Period pursuant to Section 8.7(c)(i)
herein minus the Servicing Fee payable to the Servicer with respect to the
related Collection Period. The terms of the related Loan Agreement shall
determine the portion of each payment in respect of such Mortgage Loan that
constitutes principal or interest.
"Interest Rate" means, with respect to the (i) Class A Notes, the
-------------
Class A Note Rate and (ii) Class S Notes, the Class S Note Rate.
"Invested Amount": means, with respect to any Distribution Date, an
---------------
amount equal to the Original Invested Amount minus (i) the amount of Principal
Collections previously distributed to Class A Noteholders, amounts allocable to
the Certificates and Noteholders Interest Collections that are used to reimburse
Noteholders' Loss Amounts and amounts distributed as Guaranteed Principal
Distribution Amounts funded by withdrawals from the Spread Account or draws
under the Policy (including amounts previously distributed to Class A
Noteholders from Principal Collections on deposit in the Funding Account) and
minus (ii) an amount equal to the Noteholders' Loss Amounts not previously
covered by Noteholders Interest Collections, absorbed by the
Overcollateralization Amount, funded by collections allocable to the
Certificateholders' Interest or reallocated to the Certificateholders' Interest
(up to the Certificateholders' Subordinated Amount), or funded by withdrawals
from the Spread Account or draws on the Policy.
"Issuer" means the party named as such in this Indenture until a
------
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the Notes.
"Issuer Order" and "Issuer Request" means a written order or request
------------ --------------
signed in the name of the Issuer by any one of its Authorized Officers and
delivered to the Indenture Trustee.
"Issuer Secured Obligations" means the Credit Enhancer Issuer Secured
--------------------------
Obligations and the Indenture Trustee Issuer Secured Obligations.
"Issuer Secured Parties" means each of the Indenture Trustee in
----------------------
respect of the Indenture Trustee Issuer Secured Obligations and the Credit
Enhancer in respect of the Credit Enhancer Issuer Secured Obligations.
"LIBOR" means, as to any date, the rate for United States dollar
-----
deposits for one month which appear on the Telerate Screen LIBOR Page 3750 as of
11:00 a.m., London time. If such rate does not appear on such page (or such
other page as may replace that page on that service, or if such service is no
longer offered, such other service for displaying LIBOR or comparable rates as
may be reasonably selected by the Sponsor after consultation with the Indenture
Trustee), the rate will be the Reference Bank rate. If no such quotations can
be obtained and no Reference Bank Rate is available, LIBOR will be LIBOR
applicable to the preceding Distribution Date.
10
<PAGE>
"LIBOR Business Day" means any day other than (i) a Saturday or a
------------------
Sunday or (ii) a day on which banking institutions in the State of New York or
in the city of London, England are required or authorized by law to be closed.
"Liquidation Expenses" means out-of-pocket expenses (exclusive of
--------------------
overhead) which are incurred by the Servicer in connection with the liquidation
of any Mortgage Loan and not recovered under any insurance policy, including,
without limitation, legal fees and expenses, any unreimbursed amount expended
pursuant to Section 3.06 of the Sale and Servicing Agreement (including, without
limitation, amounts advanced to correct defaults on any mortgage loan which is
senior to such Mortgage Loan and amounts advanced to keep current or pay off a
mortgage loan that is senior to such Mortgage Loan) respecting the related
Mortgage Loan and any related and unreimbursed expenditures with respect to real
estate property taxes, water or sewer taxes, condominium association dues,
property restoration or preservation or insurance against casualty, loss or
damage.
"Liquidation Loss Amount" means, with respect to any Distribution Date
-----------------------
and any Mortgage Loan that becomes a Liquidated Mortgage Loan during the related
Collection Period, the unrecovered Asset Balance thereof at the end of such
Collection Period, after giving effect to the Net Liquidation Proceeds applied
in reduction of such Asset Balance.
"Liquidation Proceeds" means Proceeds (including Insurance Proceeds)
--------------------
received in connection with the liquidation of any Mortgage Loan or related REO,
whether through trustee's sale, foreclosure sale or otherwise.
"Loan Rate" has the meaning defined in the Sale and Servicing
---------
Agreement.
"Loss Reduction Amount" means, with respect to any Distribution Date,
---------------------
the portion, if any, of the Noteholders' Loss Amount for such Distribution Date
and all prior Distribution Dates that has not been (a) distributed to Class A
Noteholders on such Distribution Date pursuant to Sections 8.3(a)(iii) or
8.3(a)(iv), from funds on deposit in the Spread Account, or by way of the Credit
Enhancement Draw Amount, or (b) paid from collections otherwise allowable to the
Certificateholders' Interest or reallocated to the Certificate Principal Balance
pursuant to Section 8.3(c) or (c) absorbed by the Overcollateralization Amount.
"Managed Amortization Period" means the period from the termination of
---------------------------
the Funding Period to the Distribution Date immediately preceding the Rapid
Amortization Commencement Date.
"Management Agreement" means the Agreement by and between the Company
--------------------
and the Issuer.
"Management Fee" means $1,000 per month.
--------------
"Manager" means the Person acting in such capacity pursuant to the
-------
Management Agreement or its successors or assigns, which shall initially be the
Company.
"Maximum Principal Payment" means, with respect to any Distribution
-------------------------
Date, the Fixed Allocation Percentage of the Principal Collections for such
Distribution Date.
11
<PAGE>
"Minimum Certificateholders' Interest" means, with respect to any
------------------------------------
date, an amount equal to the lesser of (a) 4% of the Pool Balance on such date
and (b) the Certificate Principal Balance as of the Closing Date.
"Mortgage Loan" has the meaning set forth in the Granting Clause.
-------------
"Net Liquidation Proceeds" means, with respect to any Liquidated
------------------------
Mortgage Loan, Liquidation Proceeds net of Liquidation Expenses.
"Net Loan Rate" means, with respect to any Mortgage Loan and as to any
-------------
day, the Loan Rate less the Servicing Fee Rate, the Class S Note Rate, the
Premium Fee Rate and the Trustee Fee Rate.
"Note" means a Class A Note or a Class S Note.
----
"Noteholders' Interest Collections" means, as to any Distribution
---------------------------------
Date, the product of (i) the Interest Collections during the related Collection
Period and (ii) the Floating Allocation Percentage for such Distribution Date.
"Noteholders' Loss Amount" means, with respect to any Distribution
------------------------
Date, the amount equal to the product of (i) the Floating Allocation Percentage
for such Distribution Date and (ii) the aggregate of the Liquidation Loss
Amounts for such Distribution Date.
"Note Owner" means, with respect to a Book-Entry Note, the person who
----------
is the owner of such Book-Entry Note or following the issuance of Definitive
Notes, the registered owner of the Notes.
"Note Paying Agent" means the Indenture Trustee or any other Person
-----------------
that meets the eligibility standards for the Indenture Trustee specified in
Section 6.11 and is authorized by the Issuer to make payments to and
distributions from the Collection Account, including payment of principal of or
interest on the Notes on behalf of the Issuer.
"Note Policy" means the insurance policy issued by the Credit Enhancer
-----------
with respect to the Notes, including any endorsements thereto.
"Note Policy Claim Amount" has the meaning specified in Section 4.02
------------------------
of the Sale and Servicing Agreement.
"Note Register" and "Note Registrar" have the respective meanings
------------- --------------
specified in Section 2.3.
"Officer's Certificate" means a certificate signed by any Authorized
---------------------
Officer of the Issuer, under the circumstances described in, and otherwise
complying with, the applicable requirements of Section 11.1 and TIA (S) 314, and
delivered to the Indenture Trustee.
"Opinion of Counsel" means one or more opinions of counsel who may,
------------------
except as otherwise expressly provided in this Indenture, be employees of or
counsel to the Issuer and, if addressed to the Credit Enhancer, satisfactory to
the Credit Enhancer, and which shall comply
12
<PAGE>
with any applicable requirements of Section 11.1, and if addressed to the Credit
Enhancer, satisfactory to the Credit Enhancer.
"Original Funded Balance" means $195,494,620.04.
-----------------------
"Original Invested Amount" means $191,584,000.
------------------------
"Original Pool Balance" means $156,395,696.03.
---------------------
"Outstanding" means, as of the date of determination, all Notes
-----------
theretofore authenticated and delivered under this Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered
to the Note Registrar for cancellation;
(ii) Notes or portions thereof the payment for which money in the
necessary amount has been theretofore deposited with the Indenture Trustee
or any Note Paying Agent in trust for the Holders of such Notes (provided,
--------
however, that if such Notes are to be redeemed, notice of such redemption
-------
has been duly given pursuant to this Indenture or provision therefor,
satisfactory to the Indenture Trustee); and
(iii) Notes in exchange for or in lieu of other Notes which have
been authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Indenture Trustee is presented that any such Notes are
held by a bona fide purchaser;
provided, however, that Notes which have been paid with proceeds of the Note
- -------- -------
Policy shall continue to remain Outstanding for purposes of this Indenture until
the Credit Enhancer has been paid as subrogee hereunder or reimbursed pursuant
to the Insurance Agreement as evidenced by a written notice from the Credit
Enhancer delivered to the Indenture Trustee, and the Credit Enhancer shall be
deemed to be the Holder thereof to the extent of any payments thereon made by
the Credit Enhancer; provided, further, that in determining whether the Holders
-------- -------
of the requisite Outstanding Amount of the Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or under any Basic
Document, Notes owned by the Issuer, any other obligor upon the Notes, the
Sponsor or any Affiliate of any of the foregoing Persons shall be disregarded
and deemed not to be Outstanding, except that, in determining whether the
Indenture Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that a
Responsible Officer of the Indenture Trustee either actually knows to be so
owned or has received written notice thereof shall be so disregarded. Notes so
owned that have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Indenture Trustee the pledgees
right so to act with respect to such Notes and that the pledgee is not the
Issuer, any other obligor upon the Notes, the Sponsor or any Affiliate of any of
the foregoing Persons.
"Outstanding Amount" means the aggregate principal amount of all
------------------
Notes, or class of Notes, as applicable, outstanding at the date of
determination.
"Overcollateralization Amount" means, at the time of reference
----------------------------
thereto, the amount, if any, by which the Invested Amount exceeds the Class A
Note Principal Balance.
13
<PAGE>
"Owner Trustee" means Wilmington Trust Company, a Delaware banking
-------------
corporation, not in its individual capacity, but solely as owner trustee under
the Trust Agreement, and any successor Owner Trustee thereunder.
"Owner Trustee Fee Rate" has the meaning as defined in the Sale and
----------------------
Servicing Agreement.
"Percentage Interest" means, as to any Note, the percentage obtained
-------------------
by dividing the principal denomination (or notional amount) of such Note by the
aggregate of the principal denominations (or notional amounts) of all Notes of
the same class.
"Pool Balance" means, with respect to any date, the aggregate of the
------------
Asset Balances of all Mortgage Loans as of such date.
"Pool Factor" means, with respect to any Distribution Date, the
-----------
percentage, carried to seven places, obtained by dividing the Class A Note
Principal Balance for such Distribution Date by the Original Class A Note
Principal Balance.
"Predecessor Note" means, with respect to any particular Note, every
----------------
previous Note evidencing all or a portion of the same debt as that evidenced by
such particular Note; and, for the purpose of this definition, any Note
authenticated and delivered under Section 2.4 in lieu of a mutilated, lost,
destroyed or stolen Note shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Note.
"Preference Claim" has the meaning specified in the Sale and Servicing
----------------
Agreement.
"Proceeding" means any suit in equity, action at law or other judicial
----------
or administrative proceeding.
"Purchase Agreement" means the Mortgage Loan Purchase Agreement dated
------------------
as of March 13, 1998 between the Company and the Sponsor with respect to the
Mortgage Loans.
"Rapid Amortization Commencement Date" means the earlier of (i) the
------------------------------------
Distribution Date in April 2004 and (ii) the Distribution Date next succeeding
the Collection Period in which a Rapid Amortization Event is deemed to occur
pursuant to Section 12.1.
"Rapid Amortization Event" shall have the meaning as defined in
------------------------
Section 12.1.
"Rapid Amortization Period" shall mean the period commencing on the
-------------------------
Rapid Amortization Commencement Date and continuing until the termination of the
Trust pursuant to Section 7.01 of the Sale and Servicing Agreement.
"Rating Agency" means Moody's and Standard & Poor's. If such agency
-------------
or a successor is no longer in existence, "Rating Agency" shall be such
statistical credit rating agency, or other comparable Person, designated by the
Sponsor and the Credit Enhancer, notice of which designation shall be given to
the Indenture Trustee. References herein to the highest short term unsecured
rating category of a Rating Agency shall means A1+ or better in the case of
14
<PAGE>
Standard & Poor's and P1 or better in the case of Moody's, and in the case of
any other Rating Agency shall mean the ratings such other Rating Agency deems
equivalent to the foregoing ratings. References herein to the highest long-term
rating category of a Rating Agency shall mean "AAA" in the case of Standard &
Poor's and "Aaa" in the case of Moody's, and in the case of any other Rating
Agency, the rating such other Rating Agency deems equivalent to the foregoing
ratings.
"Record Date" shall mean the last day preceding the related
-----------
Distribution Date; provided, however, that following the date on which
-------- -------
Definitive Notes are available, the Record Date shall be the last day of the
calendar month preceding the month in which the related Distribution Date
occurs.
"Redemption Date" means, in the case of a redemption of the Notes
---------------
pursuant to Section 10.1(a), the Distribution Date specified by the Servicer or
the Issuer pursuant to Section 10.1(a).
"Redemption Price" means, in the case of a redemption of the Notes
----------------
pursuant to Section 10.1, an amount equal to the unpaid principal amount of the
then outstanding principal amount of each class of Notes being redeemed plus
accrued and unpaid interest thereon to but excluding the Redemption Date.
"Reference Banks" means three major banks that are engaged in the
---------------
London interbank market, selected by the Sponsor after consultation with the
Indenture Trustee.
"Remaining Funded Amount" means the Initial Funding Deposit minus the
-----------------------
amount previously withdrawn from the Funding Account to purchase Subsequent
Mortgage Loans.
"Responsible Officer" means, with respect to the Indenture Trustee or
-------------------
any officer of the Indenture Trustee with direct responsibility for the
administration of this Agreement and, also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.
"SAIF" means the Savings Association Insurance Fund, as from time to
----
time constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.
"Sale and Servicing Agreement" means the Sale and Servicing Agreement
----------------------------
dated as of March 13, 1998, among the Issuer, the Sponsor, the Servicer and the
Indenture Trustee, as the same may be amended or supplemented from time to time.
"Scheduled Principal Collections Distribution Amount" means, with
---------------------------------------------------
respect to any Distribution Date during the Funding Period or the Managed
Amortization Period and the Class A Notes, an amount equal to the lesser of (i)
the Maximum Principal Payment and (ii) the Alternative Principal Payment. With
respect to any Distribution Date in respect of the Rapid Amortization Period,
the Maximum Principal Payment.
15
<PAGE>
"Servicer" means the Company, in its capacity as Servicer.
--------
"Sponsor" means Headlands Mortgage Securities Inc. or its successors-
-------
in- interest.
"Subsequent Cut-Off Date" means, with respect to any Subsequent
-----------------------
Mortgage Loan, the opening of business on the first day of the calendar month in
which the related Subsequent Transfer Date occurs.
"Subsequent Mortgage Loans" has the meaning as defined in the Sale
---------------------------
and Servicing Agreement.
"Teaser Period" means, with respect to any Mortgage Loan, the payment
--------------
period provided under the related Credit Line Agreement during which time the
interest rate on the Mortgage Loan has not been fully indexed.
"Termination Date" means the latest of (i) the termination of the Note
----------------
Policy and the return of the Note Policy to the Credit Enhancer for
cancellation, (ii) the date on which the Credit Enhancer shall have received
payment and performance of all Credit Enhancer Issuer Secured obligations and
(iii) the date on which the Indenture Trustee shall have received payment and
performance of all Indenture Trustee Issuer Secured Obligations.
"Transfer Deposit Amount" has the meaning given to it in the Sale and
-----------------------
Servicing Agreement.
"Trust Accounts" means the Spread Account, the Funding Account, the
--------------
Collection Account and the Capitalized Interest Account.
"Trust Property" means all property and proceeds conveyed pursuant to
--------------
Section 2.01 of the Sale and Servicing Agreement, and certain other rights under
that Agreement.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
------------------- ---
as amended and as in force on the date hereof, unless otherwise specifically
provided.
"UCC" means, unless the context otherwise requires, the Uniform
---
Commercial Code, as in effect in the relevant jurisdiction, as amended from time
to time.
"Unpaid Class A Note Interest Shortfall" means, with respect to any
--------------------------------------
Distribution Date, the aggregate amount, if any, of Class A Note Interest that
was accrued in respect of a prior Distribution Date and has not been distributed
to Class A Noteholders.
"Unpaid Class S Note Interest Shortfall" means, with respect to any
--------------------------------------
Distribution Date, the aggregate amount, if any, of Class S Note Interest that
was accrued in respect of a prior Distribution Date and has not been distributed
to Class S Noteholders.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings assigned to them in the Sale and Servicing Agreement or the
Trust Agreement.
16
<PAGE>
SECTION 1.2. Incorporation by Reference of the Trust Indenture Act.
-----------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the provision is
incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the Securities and Exchange Commission.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"Indenture Trustee" or "institutional trustee" means the Indenture
Trustee.
"obligor" on the indenture securities means the Issuer.
All other TIA terms used in this Indenture that are defined by the
TIA, or defined by Commission rule have the meaning assigned to them by such
definitions.
SECTION 1.3. Rules of Construction. Unless the context otherwise
---------------------
requires:
(i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning
assigned to it in accordance with generally accepted accounting principles
as in effect from time to time;
(iii) "or" is not exclusive;
(iv) "including" means including without limitation; and
(v) words in the singular include the plural and words in the
plural include the singular.
SECTION 1.4. Action by or Consent of Noteholders and
---------------------------------------
Certificateholders. Whenever any provision of this Agreement refers to action to
- ------------------
be taken, or consented to, by Noteholders or Certificateholders, such provision
shall be deemed to refer to the Certificateholder or Noteholder, as the case may
be, of record as of the Record Date immediately preceding the date on which such
action is to be taken, or consent given, by Noteholders or Certificateholders.
Solely for the purposes of any action to be taken, or consented to, by
Noteholders or Certificateholders, any Note or Certificate registered in the
name of Headlands Mortgage Company or any Affiliate thereof shall be deemed not
to be outstanding; provided, however, that, solely for the purpose of
-------- -------
determining whether the Indenture Trustee or the Owner Trustee is entitled to
rely upon any such action or consent, only Notes or Certificates which the Owner
Trustee or the Indenture Trustee, respectively, knows to be so owned shall be so
disregarded.
17
<PAGE>
SECTION 1.5. Conflict with TIA. If any provision hereof limits,
-----------------
qualifies or conflicts with a provision of the TIA that is required under the
TIA to be part of and govern this Indenture, the latter provision shall control
and all provisions required by the TIA are hereby incorporated by reference. If
any provision of this Indenture modifies or excludes any provision of the TIA
that may be so modified or excluded, the latter provisions shall be deemed to
apply to this Indenture as so modified or to be excluded, as the case may be.
ARTICLE II.
The Notes
---------
SECTION 2.1. Form. The Class A Notes and the Class S Notes, in each
----
case together with the Indenture Trustee's certificate of authentication, shall
be in substantially the form set forth in Exhibit A and B, respectively, with
such appropriate insertions, omissions, substitutions and other variations as
are required or permitted by this Indenture and may have such letters, numbers
or other marks of identification and such legends or endorsements placed thereon
as may, consistently herewith, be determined by the officers executing such
Notes, as evidenced by their execution of the Notes. Any portion of the text of
any Note may be set forth on the reverse thereof, with an appropriate reference
thereto on the face of the Note.
Each Note shall be dated the date of its authentication. The terms of
the Notes set forth in Exhibits A and B are part of the terms of this Indenture.
SECTION 2.2. Execution, Authentication and Delivery. The Notes shall
--------------------------------------
be executed on behalf of the Issuer by any of its Authorized Officers. The
signature of any such Authorized Officer on the Notes may be original or
facsimile.
Notes bearing the original or facsimile signature of individuals who
were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
The Indenture Trustee shall authenticate and deliver Class A Notes for
original issue in an aggregate principal amount of $191,584,000 and Class S
Notes for original issue in the aggregate notional amount of $191,584,000. The
Class A Notes and the Class S Notes outstanding at any time may not exceed such
amounts except as provided in Section 2.6.
Each Note shall be dated the date of its authentication. The Notes
shall be issuable as registered Notes in the minimum denomination of $1000 and
in integral multiples of $1,000 in excess thereof.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose, unless there appears attached to such Note
a certificate of authentication substantially in the form provided for herein
executed by the Indenture Trustee by the manual signature of one of its
authorized signatories, and such certificate attached to any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
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authenticated and delivered hereunder. Subject to Section 2.11, the Notes shall
be Book-Entry Notes.
SECTION 2.3. Registration; Registration of Transfer and Exchange.
---------------------------------------------------
The Issuer shall cause to be kept a register (the "Note Register") in which,
subject to such reasonable regulations as it may prescribe, the Issuer shall
provide for the registration of Notes and the registration of transfers of
Notes. The Indenture Trustee shall be "Note Registrar" for the purpose of
registering Notes and transfers of Notes as herein provided. Upon any
resignation of any Note Registrar, the Issuer shall promptly appoint a successor
or, if it elects not to make such an appointment, assume the duties of Note
Registrar.
If a Person other than the Indenture Trustee is appointed by the
Issuer as Note Registrar, the Issuer will give the Indenture Trustee prompt
written notice of the appointment of such Note Registrar and of the location,
and any change in the location, of the Note Register, and the Indenture Trustee
shall have the right to inspect the Note Register at all reasonable times and to
obtain copies thereof. The Indenture Trustee shall have the right to rely upon
a certificate executed on behalf of the Note Registrar by an Authorized Officer
thereof as to the names and addresses of the Holders of the Notes and the
principal amounts and number of such Notes.
Upon surrender for registration or transfer of any Note at the office
or agency of the Issuer to be maintained as provided in Section 3.2, and if the
requirements of Section 8-401(1) of the UCC are met, the Issuer shall execute or
cause the Indenture Trustee to authenticate one or more new Notes, in any
authorized denominations, of the same class and a like aggregate principal
amount. A Noteholder may also obtain from the Indenture Trustee, in the name of
the designated transferee or transferees one or more new Notes, in any
authorized denominations, of the same class and a like aggregate principal
amount. Such requirements shall not be deemed to create a duty in the Indenture
Trustee to monitor the compliance by the Issuer with Section 8-401 of the UCC.
At the option of the Holder, Notes may be exchanged for other Notes in
any authorized denominations, of the same class and a like aggregate principal
amount, upon surrender of the Notes to be exchanged at such office or agency.
Whenever any Notes are so surrendered for exchange, and if the requirements of
Section 8-401(1) of the UCC are met, the Issuer shall execute and upon its
request the Indenture Trustee shall authenticate the Notes which the Noteholder
making the exchange is entitled to receive. Such requirements shall not be
deemed to create a duty in the Indenture Trustee to monitor the compliance by
the Issuer with Section 8-401 of the UCC.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Issuer, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
exchange shall be (i) duly endorsed by, or be accompanied by a written
instrument of transfer in the form attached to Exhibits A and B, duly executed
by the Holder thereof or such Holder's attorney duly authorized in writing, with
such signature guaranteed by an "eligible guarantor institution"
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meeting the requirements of the Note Registrar all in accordance with the
Exchange Act, and (ii) accompanied by such other documents as the Note Registrar
may require.
No service charge shall be made to a Holder for any registration of
transfer or exchange of Notes, but the Note Registrar may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 2.4 or 9.6 not involving any transfer.
Any Noteholder using the assets of (i) an employee benefit plan (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) that is subject to the provisions of Title I of ERISA,
(ii) a plan described in Section 4975(e)(1) of the Internal Revenue Code of
1986, as amended, or (iii) any entity whose underlying assets include plan
assets by reason of a plan's investment in the entity to purchase the Notes, or
to whom the Notes are transferred, will be deemed to have represented that the
acquisition and continued holding of the Notes will be covered by a U.S.
Department of Labor Class Exemption.
SECTION 2.4. Mutilated, Destroyed, Lost or Stolen Notes. If (i)
------------------------------------------
any mutilated Note is surrendered to the Note Registrar, or the Note Registrar
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (ii) there is delivered to the Indenture Trustee and the Credit
Enhancer such security or indemnity as may be required by it to hold the Issuer,
the Indenture Trustee and the Credit Enhancer harmless, then, in the absence of
notice to the Issuer, the Note Registrar or the Indenture Trustee that such Note
has been acquired by a bona fide purchaser, and provided that the requirements
of Section 8-405 of the UCC are met, the Issuer shall execute and upon its
request the Indenture Trustee shall authenticate and deliver, in exchange for or
in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement
Note (such requirement shall not be deemed to create a duty in the Indenture
Trustee to monitor the compliance by the Issuer with Section 8-405); provided,
--------
however, that if any such destroyed, lost or stolen Note, but not a mutilated
- -------
Note, shall have become or within seven days shall be due and payable, or shall
have been called for redemption, the Issuer may, instead of issuing a
replacement Note, direct the Indenture Trustee, in writing, to pay such
destroyed, lost or stolen Note when so due or payable or upon the Redemption
Date without surrender thereof. If, after the delivery of such replacement Note
or payment of a destroyed, lost or stolen Note pursuant to the proviso to the
preceding sentence, a bona fide purchaser of the original Note in lieu of which
such replacement Note was issued presents for payment such original Note, the
Issuer, the Indenture Trustee and the Credit Enhancer shall be entitled to
recover such replacement Note (or such payment) from the Person to whom it was
delivered or any Person taking such replacement Note from such Person to whom
such replacement Note was delivered or any assignee of such Person, except a
bona fide purchaser, and shall be entitled to recover upon the security or
indemnity provided therefor to the extent of any loss, damage, cost or expense
incurred by the Issuer or the Indenture Trustee in connection therewith.
Upon the issuance of any replacement Note under this Section, the
Issuer may require the payment by the Holder of such Note of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and any other reasonable expenses (including the fees and expenses of
the Indenture Trustee) connected therewith.
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Every replacement Note issued pursuant to this Section in replacement
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Issuer, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 2.5. Persons Deemed Owners. Prior to due presentment for
---------------------
registration of transfer of any Note, the Issuer, the Indenture Trustee and the
Credit Enhancer and any agent of the Issuer, the Indenture Trustee and the
Credit Enhancer may treat the Person in whose name any Note is registered (as of
the Record Date) as the owner of such Note for the purpose of receiving payments
of principal of and interest, if any on such Note and for all other purposes
whatsoever, whether or not such Note be overdue, and none of the Issuer, the
Credit Enhancer, the Indenture Trustee nor any agent of the Issuer, the Credit
Enhancer or the Indenture Trustee shall be affected by notice to the contrary.
SECTION 2.6. Payment of Principal and Interest; Defaulted Interest.
-----------------------------------------------------
(a) The Notes shall accrue interest as provided herein, and such
amount shall be payable on each Distribution Date as specified herein. Any
installment of interest or principal, if any, payable on any Note which is
punctually paid or duly provided for by the Issuer on the applicable
Distribution Date shall be paid to the Person in whose name such Note (or one or
more Predecessor Notes) is registered on the Record Date, by check mailed first-
class, postage prepaid, to such Person's address as it appears on the Note
Register on such Record Date, except that, unless Definitive Notes have been
issued pursuant to Section 2.11, with respect to Notes registered on the Record
Date in the name of the nominee of the Clearing Agency (initially, such nominee
to be Cede & Co.), payment will be made by wire transfer in immediately
available funds to the account designated by such nominee and except for the
final installment of principal payable with respect to such Note on a
Distribution Date or on the Final Scheduled Distribution Date (and except for
the Redemption Price for any Note called for redemption pursuant to Section
10.1(a)) which shall be payable as provided below. The funds represented by any
such checks returned undelivered shall be held in accordance with Section 3.3.
(b) Upon written notice from the Issuer, the Indenture Trustee shall
notify the Person in whose name a Note is registered at the close of business on
the Record Date preceding the Distribution Date on which the Issuer expects that
the final installment of principal of and interest on such Note will be paid.
Such notice shall be mailed or transmitted by facsimile prior to such final
Distribution Date and shall specify that such final installment will be payable
only upon presentation and surrender of such Note and shall specify the place
where such Note may be presented and surrendered for payment of such
installment. Notices in connection with redemptions of Notes shall be mailed to
Noteholders as provided in Section 10.2.
(c) If the Issuer defaults in a payment of interest on the Notes, the
Issuer shall pay defaulted interest (plus interest on such defaulted interest to
the extent lawful) at the
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applicable Interest Rate to the extent lawful. The Issuer may pay such defaulted
interest to the Persons who are Noteholders on a subsequent special record date,
which date shall be at least five Business Days prior to the payment date. The
Issuer shall fix or cause to be fixed any such special record date and payment
date, and, at least 15 days before any such special record date, the Issuer
shall mail to each Noteholder and the Indenture Trustee a notice that states the
special record date, the payment date and the amount of defaulted interest to be
paid.
(d) Promptly following the date on which all principal of and interest
on the Notes has been paid in full and the Notes have been surrendered to the
Indenture Trustee, the Indenture Trustee shall, upon written notice from the
Servicer of the amounts, if any, that the Credit Enhancer has paid in respect of
the Notes under the Note Policy or otherwise which has not been reimbursed to
it, deliver such surrendered Notes to the Credit Enhancer to the extent not
previously cancelled or destroyed.
SECTION 2.7. Cancellation. Subject to Section 2.6(d), all Notes
------------
surrendered for payment, registration of transfer, exchange or redemption shall,
if surrendered to any Person other than the Indenture Trustee, be delivered to
the Indenture Trustee and shall be promptly canceled by the Indenture Trustee.
Subject to Section 2.6(d), the Issuer may at any time deliver to the Indenture
Trustee for cancellation any Notes previously authenticated and delivered
hereunder which the Issuer may have acquired in any manner whatsoever, and all
Notes so delivered shall be promptly canceled by the Indenture Trustee. No Notes
shall be authenticated in lieu of or in exchange for any Notes canceled as
provided in this Section, except as expressly permitted by this Indenture.
Subject to Section 2.6(d), all canceled Notes may be held or disposed of by the
Indenture Trustee in accordance with its standard retention or disposal policy
as in effect at the time unless the Issuer shall direct by an Issuer Order that
they be destroyed or returned to it; provided that such Issuer Order is timely
and the Notes have not been previously disposed of by the Indenture Trustee.
SECTION 2.8. Release of Collateral. The Indenture Trustee shall,
---------------------
on or after the Termination Date, release any remaining portion of the Trust
Property (except for the Spread Account which release shall be subject to
Section 2.05 of the Insurance Agreement) from the lien created by this Indenture
and deposit in the Collection Account any funds then on deposit in any other
Trust Account. The Indenture Trustee shall release property from the lien
created by this Indenture pursuant to this Section 2.8 only upon receipt of an
Issuer Request by it accompanied by an Officer's Certificate, an Opinion of
Counsel and (if required by the TIA) Independent Certificates in accordance with
TIA (S)(S) 314(c) and 314(d)(1) meeting the applicable requirements of Section
11.1.
SECTION 2.9. Book-Entry Notes. The Notes, upon original issuance,
----------------
will be issued in the form of typewritten Notes representing the Book-Entry
Notes, to be delivered to The Depository Trust Company or its custodian, the
initial Clearing Agency, by, or on behalf of, the Issuer. Such Notes shall
initially be registered on the Note Register in the name of Cede & Co., the
nominee of the initial Clearing Agency, and no Note Owner will receive a
Definitive Note representing such Note Owner's interest in such Note, except as
provided in Section 2.11. Unless and until definitive, fully registered Notes
(the "Definitive Notes") have been issued to Note Owners pursuant to Section
2.11:
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(i) the provisions of this Section shall be in full force and
effect;
(ii) the Note Registrar and the Indenture Trustee shall be entitled
to deal with the Clearing Agency for all purposes of this Indenture
(including the payment of principal of and interest on the Notes and the
giving of instructions or directions hereunder) as the sole Holder of the
Notes, and shall have no obligation to the Note Owners;
(iii) to the extent that the provisions of this Section conflict with
any other provisions of this Indenture, the provisions of this Section
shall control;
(iv) the rights of Note Owners shall be exercised only through the
Clearing Agency and shall be limited to those established by law and
agreements between such Note Owners and the Clearing Agency and/or the
Clearing Agency Participants. Unless and until Definitive Notes are issued
pursuant to Section 2.11, the initial Clearing Agency will make book-entry
transfers among the Clearing Agency Participants and receive and transmit
payments of principal of and interest on the Notes to such Clearing Agency
Participants;
(v) whenever this Indenture requires or permits actions to be taken
based upon instructions or directions of Holders of Notes evidencing a
specified percentage of the Outstanding Amount of the Notes, the Clearing
Agency shall be deemed to represent such percentage only to the extent that
it has received instructions to such effect from Note Owners and/or
Clearing Agency Participants owning or representing, respectively, such
required percentage of the beneficial interest in the Notes and has
delivered such instructions to the Indenture Trustee; and
(vi) Note Owners may receive copies of any reports sent to
Noteholders pursuant to this Indenture, upon written request, together with
a certification that they are Note Owners and payment of reproduction and
postage expenses associated with the distribution of such reports, from the
Indenture Trustee at the Corporate Trust Office.
SECTION 2.10. Notices to Clearing Agency. Whenever a notice or other
--------------------------
communication to the Noteholders is required under this Indenture, unless and
until Definitive Notes shall have been issued to Note Owners pursuant to Section
2.11, the Indenture Trustee shall give all such notices and communications
specified herein to be given to Holders of the Notes to the Clearing Agency, and
shall have no obligation to the Note Owners.
SECTION 2.11. Definitive Notes. If (i) the Servicer advises the
----------------
Indenture Trustee in writing that the Clearing Agency is no longer willing or
able to properly discharge its responsibilities with respect to the Notes, and
the Servicer is unable to locate a qualified successor, (ii) the Servicer at its
option advises the Indenture Trustee in writing that it elects to terminate the
book-entry system through the Clearing Agency or (iii) after the occurrence of a
Rapid Amortization Event, Note Owners representing beneficial interests
aggregating at least a majority of the Outstanding Amount of the Notes advise
the Indenture Trustee through the Clearing Agency in writing that the
continuation of a book entry system through the Clearing Agency is no longer in
the best interests of the Note Owners, then the Clearing Agency shall
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notify all Note Owners and the Indenture Trustee of the occurrence of any such
event and of the availability of Definitive Notes to Note Owners requesting the
same. Upon surrender to the Indenture Trustee of the typewritten Note or Notes
representing the Book-Entry Notes by the Clearing Agency, accompanied by
registration instructions, the Issuer shall execute and the Indenture Trustee
shall authenticate the Definitive Notes in accordance with the instructions of
the Clearing Agency. None of the Issuer, the Note Registrar or the Indenture
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Notes, the Indenture Trustee shall recognize the
Holders of the Definitive Notes as Noteholders.
ARTICLE III.
Covenants
---------
SECTION 3.1. Payment of Principal and Interest. The Issuer will duly
---------------------------------
and punctually pay the principal of and interest on the Notes in accordance with
the terms of the Notes and this Indenture. Without limiting the foregoing, the
Issuer will cause to be distributed all amounts on deposit in the Collection
Account on a Distribution Date deposited therein pursuant to the Sale and
Servicing Agreement (i) for the benefit of the Class A Notes, to Class A
Noteholders and (ii) for the benefit of the Class S Notes, to Class S
Noteholders. Amounts properly withheld under the Code by any Person from a
payment to any Noteholder of interest and/or principal shall be considered as
having been paid by the Issuer to such Noteholder for all purposes of this
Indenture.
SECTION 3.2. Maintenance of Office or Agency. The Issuer will
-------------------------------
maintain in Chicago, Illinois, an office or agency where Notes may be
surrendered for registration, transfer or exchange of the Notes, and where
notices and demands to or upon the Issuer in respect of the Notes and this
Indenture may be served. The Issuer hereby initially appoints the Indenture
Trustee to serve as its agent for the foregoing purposes. The Issuer will give
prompt written notice to the Indenture Trustee of the location, and of any
change in the location, of any such office or agency. If at any time the Issuer
shall fail to maintain any such office or agency or shall fail to furnish the
Indenture Trustee with the address thereof, such surrenders, notices and demands
may be made or served at the Corporate Trust Office, and the Issuer hereby
appoints the Indenture Trustee as its agent to receive all such surrenders,
notices and demands.
SECTION 3.3. Money for Payments to be Held in Trust. The Issuer
--------------------------------------
will cause each Note Paying Agent other than the Indenture Trustee to execute
and deliver to the Indenture Trustee and the Credit Enhancer an instrument in
which such Note Paying Agent shall agree with the Indenture Trustee (and if the
Indenture Trustee acts as Note Paying Agent, it hereby so agrees), subject to
the provisions of this Section, that such Note Paying Agent will:
(i) hold all sums held by it for the payment of amounts due with
respect to the Notes in trust for the benefit of the Persons entitled
thereto until such sums shall be paid to such Persons or otherwise disposed
of as herein provided and pay such sums to such Persons as herein provided;
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(ii) give the Indenture Trustee written notice of any default by the
Issuer (or any other obligor upon the Notes) of which it has actual
knowledge in the making of any payment required to be made with respect to
the Notes;
(iii) at any time during the continuance of any such default, upon
the written request of the Indenture Trustee, forthwith pay to the
Indenture Trustee all sums so held in trust by such Note Paying Agent;
(iv) immediately resign as a Note Paying Agent and forthwith pay to
the Indenture Trustee all sums held by it in trust for the payment of Notes
if at any time it ceases to meet the standards required to be met by a Note
Paying Agent at the time of its appointment; and
(v) comply with all requirements of the Code with respect to the
withholding from any payments made by it on any Notes of any applicable
withholding taxes imposed thereon and with respect to any applicable
reporting requirements in connection therewith.
The Issuer may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, by Issuer
Order direct any Note Paying Agent to pay to the Indenture Trustee all sums held
in trust by such Note Paying Agent, such sums to be held by the Indenture
Trustee upon the same trusts as those upon which the sums were held by such Note
Paying Agent; and upon such a payment by any Note Paying Agent to the Indenture
Trustee, such Note Paying Agent shall be released from all further liability
with respect to such money.
Subject to applicable laws with respect to the escheat of funds, any
money held by the Indenture Trustee or any Note Paying Agent in trust for the
payment of any amount due with respect to any Note and remaining unclaimed for
two years after such amount has become due and payable shall be discharged from
such trust and be paid to the Issuer on Issuer Request, and shall be deposited
by the Indenture Trustee in the Collection Account; and the Holder of such Note
shall thereafter, as an unsecured general creditor, look only to the Issuer for
payment thereof (but only to the extent of the amounts so paid to the Issuer),
and all liability of the Indenture Trustee or such Note Paying Agent with
respect to such trust money shall thereupon cease.
SECTION 3.4. Existence. Except as otherwise permitted by the
---------
provisions of Section 3.10, the Issuer will keep in full effect its existence,
rights and franchises as a business trust under the laws of the State of
Delaware (unless it becomes, or any successor Issuer hereunder is or becomes,
organized under the laws of any other state or of the United States of America,
in which case the Issuer will keep in full effect its existence, rights and
franchises under the laws of such other jurisdiction) 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 Indenture, the Trust Property, the Notes, and each other
instrument or agreement included in the Trust Property.
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SECTION 3.5. Protection of Trust Property. The Issuer intends the
----------------------------
security interest granted pursuant to this Indenture in favor of the Issuer
Secured Parties to be prior to all other liens in respect of the Trust Property,
and the Issuer shall take all actions necessary to obtain and maintain, in favor
of the Indenture Trustee, for the benefit of the Issuer Secured Parties, a first
lien on and a first priority, perfected security interest in the Trust Property.
The Issuer will from time to time prepare (or shall cause to be prepared),
execute and deliver all such supplements and amendments hereto and all such
financing statements, continuation statements, instruments of further assurance
and other instruments, and will take such other action necessary or advisable
to:
(i) Grant more effectively all or any portion of the Trust
Property;
(ii) maintain or preserve the lien and security interest (and the
priority thereof) in favor of the Indenture Trustee for the benefit of the
Issuer Secured Parties created by this Indenture or carry out more
effectively the purposes hereof;
(iii) perfect, publish notice of or protect the validity of any Grant
made or to be made by this Indenture;
(iv) enforce any of the Collateral;
(v) preserve and defend title to the Trust Property and the rights
of the Indenture Trustee in such Trust Property against the claims of all
persons and parties; and
(vi) pay all taxes or assessments levied or assessed upon the Trust
Property when due.
The Issuer hereby designates the Indenture Trustee its agent and attorney-in-
fact to execute any financing statement, continuation statement or other
instrument required by the Indenture Trustee pursuant to this Section; provided
--------
that, such designation shall not be deemed to create a duty in the Indenture
Trustee or the Indenture Trustee to monitor the compliance of the Issuer with
respect to its duties under this Section 3.5 or the adequacy of any financing
statement, continuation statement or other instrument prepared by the Issuer.
SECTION 3.6. Opinions as to Trust Property.
-----------------------------
(a) On the Closing Date, the Issuer shall furnish to the Indenture
Trustee and the Credit Enhancer an Opinion of Counsel stating that, in the
opinion of such counsel, such actions have been taken with respect to the
recording and filing of this Indenture, any indentures supplemental hereto, and
any other requisite documents, and with respect to the execution and filing of
any financing statements and continuation statements, as are necessary to
perfect and make effective the first priority lien and security interest in
favor of the Indenture Trustee, for the benefit of the Issuer Secured Parties,
created by this Indenture.
(b) Within 90 days after the beginning of each calendar year,
beginning with the first calendar year beginning more than six months after the
Closing Date, the Issuer shall furnish to the Indenture Trustee and the Credit
Enhancer, an Opinion of Counsel either stating that, in the opinion of such
counsel, such actions have been taken with respect to the recording,
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filing, re-recording and refiling of this Indenture, any indentures supplemental
hereto and any other requisite documents and with respect to the execution and
filing of any financing statements and continuation statements as are necessary
to maintain the lien and security interest created by this Indenture and
reciting the details of such action or stating that in the opinion of such
counsel, no such action is necessary to maintain such lien and security
interest. Such Opinion of Counsel shall also describe the recording, filing, re-
recording and refiling of this Indenture, any indentures supplemental hereto and
any other requisite documents and the execution and filing of any financing
statements and continuation statements that will, in the opinion of such
counsel, be required to maintain the lien and security interest of this
Indenture.
SECTION 3.7. Performance of Obligations; Servicing of Mortgage Loans.
-------------------------------------------------------
(a) The Issuer will not take any action and will use its best efforts
not to permit any action to be taken by others that would release any Person
from any of such Person's material covenants or obligations under any instrument
or agreement included in the Trust Property or that would result in the
amendment, hypothecation, subordination, termination or discharge of, or impair
the validity or effectiveness of, any such instrument or agreement, except as
ordered by any bankruptcy or other court or as expressly provided in this
Indenture, the Basic Documents or such other instrument or agreement.
(b) The Issuer may contract with other Persons acceptable to the
Credit Enhancer to assist it in performing its duties under this Indenture, and
any performance of such duties by a Person identified to the Indenture Trustee
and the Credit Enhancer in an Officer's Certificate of the Issuer shall be
deemed to be action taken by the Issuer. Initially, the Issuer has contracted
with the Servicer to assist the Issuer in performing its duties under this
Indenture.
(c) The Issuer will punctually perform and observe all of its
obligations and agreements contained in this Indenture, the Basic Documents and
in the instruments and agreements included in the Trust Property, including, but
not limited, to preparing (or causing to be prepared) and filing (or causing to
be filed) all UCC financing statements and continuation statements required to
be filed by the terms of this Indenture and the Sale and Servicing Agreement in
accordance with and within the time periods provided for herein and therein.
Except as otherwise expressly provided therein, the Issuer shall not waive,
amend, modify, supplement or terminate any Basic Document or any provision
thereof without the consent of the Indenture Trustee, the Credit Enhancer or the
Holders of at least a majority of the Outstanding Amount of the Notes.
(d) If a Responsible Officer of the Owner Trustee shall have actual
knowledge of the occurrence of an Event of Servicing Termination under the Sale
and Servicing Agreement, the Issuer shall promptly notify the Indenture Trustee,
the Credit Enhancer and the Rating Agencies thereof in accordance with Section
11.4, and shall specify in such notice the action, if any, the Issuer is taking
in respect of such default. If an Event of Servicing Termination shall arise
from the failure of the Servicer to perform any of its duties or obligations
under the Sale and Servicing Agreement with respect to the Mortgage Loans, the
Issuer shall take all reasonable steps available to it to remedy such failure.
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(e) The Issuer agrees that it will not waive timely performance or
observance by the Servicer or the Sponsor of their respective duties under the
Basic Documents (x) without the prior consent of the Credit Enhancer or (y) if
the effect thereof would adversely affect the Holders of the Notes.
SECTION 3.8. Negative Covenants. So long as any Notes are
------------------
Outstanding, the Issuer shall not:
(i) except as expressly permitted by this Indenture or the Basic
Documents, sell, transfer, exchange or otherwise dispose of any of the
properties or assets of the Issuer, including those included in the Trust
Property, without the consent of the Credit Enhancer (which consent may not
be unreasonably withheld; provided, that if a Credit Enhancer Default has
--------
occurred and is continuing, the Noteholders representing 66-2/3% of the
Noteholders may direct the Indenture Trustee to sell or dispose of the
Trust Property if the Indenture Trustee receives the Liquidation Price, as
described in Section 12.1.
(ii) claim any credit on, or make any deduction from the principal or
interest payable in respect of, the Notes (other than amounts properly
withheld from such payments under the Code) or assert any claim against any
present or former Noteholder by reason of the payment of the taxes levied
or assessed upon any part of the Trust Property; or
(iii) (A) permit the validity or effectiveness of this Indenture to be
impaired, or permit the lien in favor of the Indenture Trustee created by
this Indenture to be amended, hypothecated, subordinated, terminated or
discharged, or permit any Person to be released from any covenants or
obligations with respect to the Notes under this Indenture except as may be
expressly permitted hereby, (B) permit any lien, charge, excise, claim,
security interest, mortgage or other encumbrance (other than the lien of
this Indenture) to be created on or extend to or otherwise arise upon or
burden the Trust Property or any part thereof or any interest therein or
the proceeds thereof (other than tax liens, mechanics' liens and other
liens that arise by operation of law, in each case on a Mortgaged Property
and arising solely as a result of an action or omission of the related
Obligor), (C) permit the lien of this Indenture not to constitute a valid
first priority (other than with respect to any such tax, mechanics' or
other lien) security interest in the Trust Property or (D) amend, modify or
fail to comply with the provisions of the Basic Documents without the prior
written consent of the Credit Enhancer, which consent may not be
unreasonably withheld.
SECTION 3.9. Annual Statement as to Compliance. The Issuer will
---------------------------------
deliver to the Indenture Trustee and the Credit Enhancer, within 90 days after
the end of each fiscal year of the Issuer (commencing with the fiscal year ended
December 31, 1998), and otherwise in compliance with the requirements of TIA
Section 314(a)(4) an Officer's Certificate stating, as to the Authorized Officer
signing such Officer's Certificate, that
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(i) a review of the activities of the Issuer during such year and
of performance under this Indenture has been made under such Authorized
Officer's supervision; and
(ii) to the best of such Authorized Officer's knowledge, based on
such review, the Issuer has complied with all conditions and covenants
under this Indenture throughout such year, or, if there has been a default
in the compliance of any such condition or covenant, specifying each such
default known to such Authorized Officer and the nature and status thereof.
SECTION 3.10. Issuer May Not Consolidate or Transfer Assets.
---------------------------------------------
(a) The Issuer may not consolidate or merge with or into any other
Person.
(b) Except as otherwise provided in the Sale and Servicing Agreement,
the Issuer shall not convey or transfer all or substantially all of its
properties or assets, including those included in the Trust Property, to any
Person.
SECTION 3.11. No Other Business. The Issuer shall not engage in
-----------------
any business other than purchasing, owning, selling and managing the Mortgage
Loans and other assets in the manner contemplated by this Indenture and the
Basic Documents and activities incidental thereto.
SECTION 3.12. No Borrowing. The Issuer shall not issue, incur,
------------
assume, guarantee or otherwise become liable, directly or indirectly, for any
Indebtedness except for (i) the Notes, (ii) obligations owing from time to time
to the Credit Enhancer under the Insurance Agreement and (iii) any other
Indebtedness permitted by or arising under the Basic Documents. The proceeds of
the Notes and the Certificates shall be used exclusively to fund the Issuer's
purchase of the Mortgage Loans and the other assets specified in the Sale and
Servicing Agreement, to fund the Funding Account and the Capitalized Interest
Account and the Spread Account and to pay the Issuer's organizational,
transactional and start-up expenses.
SECTION 3.13. Servicer's Obligations. The Issuer shall cause the
----------------------
Servicer to comply with Sections 3.10 and 4.01 of the Sale and Servicing
Agreement and Section 8.5 herein.
SECTION 3.14. Guarantees, Loans, Advances and Other Liabilities.
-------------------------------------------------
Except as contemplated by the Sale and Servicing Agreement or this Indenture,
the Issuer shall not make any loan or advance or credit to, or guarantee
(directly or indirectly or by an instrument having the effect of assuring
another's payment or performance on any obligation or capability of so doing or
otherwise), endorse or otherwise become contingently liable, directly or
indirectly, in connection with the obligations, stocks or dividends of, or own,
purchase, repurchase or acquire (or agree contingently to do so) any stock,
obligations, assets or securities of, or any other interest in, or make any
capital contribution to, any other Person.
SECTION 3.15. Capital Expenditures. The Issuer shall not make any
--------------------
expenditure (by long-term or operating lease or otherwise) for capital assets
(either realty or personality).
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SECTION 3.16. Compliance with Laws. The Issuer shall comply with
--------------------
the requirements of all applicable laws, the non-compliance with which would,
individually or in the aggregate, materially and adversely affect the ability of
the Issuer to perform its obligations under the Notes, this Indenture or any
Basic Document.
SECTION 3.17. Restricted Payments. The Issuer shall not, directly
-------------------
or indirectly, (i) pay any dividend or make any distribution (by reduction of
capital or otherwise), whether in cash, property, securities or a combination
thereof, to the Owner Trustee or any owner of a beneficial interest in the
Issuer or otherwise with respect to any ownership or equity interest or security
in or of the Issuer or to the Servicer, (ii) redeem, purchase, retire or
otherwise acquire for value any such ownership or equity interest or security or
(iii) set aside or otherwise segregate any amounts for any such purpose;
provided, however, that the Issuer may make, or cause to be made, distributions
- -------- -------
to the Servicer, the Owner Trustee, the Indenture Trustee and the
Certificateholders as permitted by, and to the extent funds are available for
such purpose under, the Sale and Servicing Agreement, this Indenture, or Trust
Agreement. The Issuer will not, directly or indirectly, make payments to or
distributions from the Collection Account except in accordance with this
Indenture and the Basic Documents.
SECTION 3.18. Notice of Rapid Amortization Events and Events of
-------------------------------------------------
Servicing Termination. Upon a Responsible Officer of the Owner Trustee having
- ---------------------
actual knowledge thereof, the Issuer agrees to give the Indenture Trustee, the
Credit Enhancer and the Rating Agencies prompt written notice of each Rapid
Amortization Event hereunder or Event of Servicing Termination under the Sale
and Servicing Agreement.
SECTION 3.19. Further Instruments and Acts. Upon request of the
----------------------------
Indenture Trustee or the Credit Enhancer, the Issuer will execute and deliver
such further instruments and do such further acts as may be reasonably necessary
or proper to carry out more effectively the purpose of this Indenture.
SECTION 3.20. Amendments of Sale and Servicing Agreement and Trust
----------------------------------------------------
Agreement. The Issuer shall not agree to any amendment to Section 9.01 of the
- ---------
Sale and Servicing Agreement or Section 11.1 of the Trust Agreement to eliminate
the requirements thereunder that the Indenture Trustee, the Credit Enhancer or
the Holders of the Notes consent to amendments thereto as provided therein.
SECTION 3.21. Income Tax Characterization. For purposes of federal
---------------------------
income, state and local income and franchise and any other income taxes, the
Issuer and the Noteholders will treat the Notes as indebtedness of the Sponsor
and hereby instructs the Indenture Trustee to treat the Notes as indebtedness of
the Sponsor for federal and state tax reporting purposes.
ARTICLE IV.
Satisfaction and Discharge
--------------------------
SECTION 4.1. Satisfaction and Discharge of Indenture. Upon payment
---------------------------------------
in full of the Notes, this Indenture shall cease to be of further effect with
respect to the Notes except as to (i) rights of registration of transfer and
exchange, (ii) substitution of mutilated, destroyed,
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lost or stolen Notes, (iii) rights of Noteholders to receive payments of
principal thereof and interest thereon, (iv) Sections 3.3, 3.4, 3.5, 3.8, 3.10,
3.12, 3.13, 3.20 and 3.21, (v) the rights, obligations and immunities of the
Indenture Trustee hereunder (including the rights of the Indenture Trustee under
Section 6.7 and the obligations of the Indenture Trustee under Section 4.2) and
(vi) the rights of Noteholders as beneficiaries hereof with respect to the
property so deposited with the Indenture Trustee payable to all or any of them,
and the Indenture Trustee, on demand of and at the expense of the Issuer, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture with respect to the Notes, when
(A) either
(1) all Notes theretofore authenticated and delivered (other than (i)
Notes that have been destroyed, lost or stolen and that have been replaced or
paid as provided in Section 2.4 and (ii) Notes for which payment money has
theretofore been deposited in trust or segregated and held in trust by the
Issuer and thereafter repaid to the Issuer or discharged from such trust, as
provided in Section 3.3) have been delivered to the Indenture Trustee for
cancellation and the Note Policy has terminated and been returned to the Credit
Enhancer for cancellation and all amounts owing to the Credit Enhancer have been
paid in full; or
(2) all Notes not theretofore delivered to the Indenture Trustee for
cancellation
(i) have become due and payable,
(ii) will become due and payable at their respective Final
Scheduled Distribution Dates within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Indenture Trustee for the giving of notice
of redemption by the Indenture Trustee in the name, and at the expense, of
the Issuer,
and in the case of (i), (ii) or (iii) above
(A) the Issuer, has irrevocably deposited or caused to be irrevocably
deposited with the Indenture Trustee cash or direct obligations of or
obligations guaranteed by the United States of America (which will mature prior
to the date such amounts are payable), in trust for such purpose, in an amount
sufficient to pay and discharge the entire indebtedness on such Notes not
theretofore delivered to the Indenture Trustee for cancellation when due on the
Final Scheduled Distribution Date or Redemption Date (if Notes shall have been
called for redemption pursuant to Section 10.1(a)), as the case may be;
(B) the Issuer has paid or caused to be paid all Credit Enhancer
Issuer Secured Obligations and all Indenture Trustee Issuer Secured Obligations;
and
(C) the Issuer has delivered to the Indenture Trustee and the Credit
Enhancer an Officer's Certificate, an Opinion of Counsel and if required by the
TIA, the Indenture Trustee or the Credit Enhancer an Independent Certificate
from a firm of certified public accountants, each meeting the applicable
requirements of Section 11.1(a) and each stating that all conditions
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precedent herein provided relating to the satisfaction and discharge of this
Indenture have been complied with.
SECTION 4.2. Application of Trust Money. All monies deposited with
--------------------------
the Indenture Trustee pursuant to Section 4.1 hereof shall be held in trust and
applied by it, in accordance with the provisions of the Notes and this
Indenture, to the payment, either directly or through any Note Paying Agent, as
the Indenture Trustee may determine, to the Holders of the particular Notes for
the payment or redemption of which such monies have been deposited with the
Indenture Trustee, of all sums due and to become due thereon for principal and
interest.
SECTION 4.3. Repayment of Monies Held by Note Paying Agent. In
---------------------------------------------
connection with the satisfaction and discharge of this Indenture with respect to
the Notes, all monies then held by any Note Paying Agent other than the
Indenture Trustee under the provisions of this Indenture with respect to such
Notes shall, upon demand of the Issuer, be paid to the Indenture Trustee to be
held and applied according to Section 3.3 and thereupon such Note Paying Agent
shall be released from all further liability with respect to such monies.
ARTICLE V.
Remedies
--------
SECTION 5.1. Rights Upon a Rapid Amortization Event. If a Rapid
--------------------------------------
Amortization Event as described in Article XII shall have occurred and be
continuing, the Rapid Amortization Period shall immediately commence and the
Class A Noteholders shall be entitled on each Distribution Date to an amount
equal to the Maximum Principal Payment. The rights contained in this Article V
are in addition to any rights which the Noteholders possess pursuant to Article
XII.
SECTION 5.2. Limitation of Suits. No Holder of any Note shall have
-------------------
any right to institute any proceeding, judicial or otherwise, with respect to
this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless:
(i) such Holder has previously given written notice to the
Indenture Trustee of a continuing Rapid Amortization Event;
(ii) the Holders of not less than 25% of the Outstanding Amount of
the Notes have made written request to the Indenture Trustee to institute
such proceeding in respect of such Rapid Amortization Event in its own name
as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee
indemnity reasonably satisfactory to it against the costs, expenses and
liabilities to be incurred in complying with such request;
(iv) the Indenture Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to institute such
proceedings;
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(v) no direction inconsistent with such written request has been
given to the Indenture Trustee during such 60-day period by the Holders of
a majority of the Outstanding Amount of the Notes; and
(vi) a Credit Enhancer Default shall have occurred and be
continuing;
it being understood and intended that no Holders of Notes shall have any right
in any manner whatsoever by virtue of, or by availing of, any provision of this
Indenture to affect, disturb or prejudice the rights of any other Holders of
Notes or to obtain or to seek to obtain priority or preference over any other
Holders or to enforce any right under this Indenture, except in the manner
herein provided.
In the event the Indenture Trustee shall receive conflicting or
inconsistent requests and indemnity from two or more groups of Holders of Notes,
each representing less than a majority of the Outstanding Amount of the Notes,
the Indenture Trustee in its sole discretion may determine what action, if any,
shall be taken, notwithstanding any other provisions of this Indenture.
SECTION 5.3. Unconditional Rights of Noteholders To Receive
----------------------------------------------
Principal and Interest. Notwithstanding any other provisions in this Indenture,
- ----------------------
the Holder of any Note shall have the right, which is absolute and
unconditional, to receive payment of the principal of and interest, if any, on
such Note on or after the respective due dates thereof expressed in such Note or
in this Indenture (or, in the case of redemption, on or after the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
right shall not be impaired without the consent of such Holder.
SECTION 5.4. Restoration of Rights and Remedies. If the Controlling
----------------------------------
Party or any Noteholder has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, then and in every such case the Issuer, the Indenture
Trustee and the Noteholders shall, subject to any determination in such
proceeding, be restored severally and respectively to their former positions
hereunder, and thereafter all rights and remedies of the Indenture Trustee and
the Noteholders shall continue as though no such proceeding had been instituted.
SECTION 5.5. Rights and Remedies Cumulative. No right or remedy
------------------------------
herein conferred upon or reserved to the Controlling Party or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 5.6. Delay or Omission Not a Waiver. No delay or omission
------------------------------
of the Controlling Party or any Holder of any Note to exercise any right or
remedy accruing upon any Default or Rapid Amortization Event shall impair any
such right or remedy or constitute a waiver of any such Default or Rapid
Amortization Event or an acquiescence therein. Every right and remedy given by
this Article V or by law to the Indenture Trustee or to the Noteholders may
33
<PAGE>
be exercised from time to time, and as often as may be deemed expedient, by the
Indenture Trustee or by the Noteholders, as the case may be.
SECTION 5.7. Control by Noteholders. If the Indenture Trustee is
----------------------
the Controlling Party, the Holders of a majority of the Outstanding Amount of
the Notes, with the consent of the Credit Enhancer, shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Indenture Trustee pursuant to Section 12.1 with respect to the
Notes or exercising any trust or power conferred on the Indenture Trustee;
provided that
(i) such direction shall not be in conflict with any rule of law or
with this Indenture;
(ii) the Indenture Trustee may take any other action deemed proper
by the Indenture Trustee that is not inconsistent with such direction;
provided, however, that, subject to Section 6.1, the Indenture Trustee need not
- -------- -------
take any action that it determines might involve it in liability or might
materially adversely affect the rights of any Noteholders not consenting to such
action.
SECTION 5.8. Undertaking for Costs. All parties to this Indenture
---------------------
agree, and each Holder of any Note by such Holder's acceptance thereof shall be
deemed to have agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture, or in any suit
against the Indenture Trustee for any action taken, suffered or omitted by it as
Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to (a) any suit instituted by the
Indenture Trustee, (b) any suit instituted by any Noteholder, or group of
Noteholders, in each case holding in the aggregate more than 10% of the
Outstanding Amount of the Notes or (c) any suit instituted by any Noteholder for
the enforcement of the payment of principal of or interest on any Note on or
after the respective due dates expressed in such Note and in this Indenture (or,
in the case of redemption, on or after the Redemption Date).
SECTION 5.9. Waiver of Stay or Extension Laws. The Issuer covenants
--------------------------------
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead or in any manner whatsoever, claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Indenture; and the Issuer (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Indenture Trustee, but will suffer and permit the execution of every such
power as though no such law had been enacted.
SECTION 5.10. Action on Notes. The Indenture Trustee's right to
---------------
seek and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture. Neither the
34
<PAGE>
lien of this Indenture nor any rights or remedies of the Indenture Trustee or
the Noteholders shall be impaired by the recovery of any judgment by the
Indenture Trustee against the Issuer or by the levy of any execution under such
judgment upon any portion of the Trust Property or upon any of the assets of the
Issuer.
SECTION 5.11. Performance and Enforcement of Certain Obligations.
--------------------------------------------------
(a) Promptly following a request from the Indenture Trustee to do so
and at the Servicer's expense, the Issuer agrees to take all such lawful action
as the Indenture Trustee may request to compel or secure the performance and
observance by the Sponsor and the Servicer, as applicable, of each of their
obligations to the Issuer under or in connection with the Sale and Servicing
Agreement in accordance with the terms thereof, and to exercise any and all
rights, remedies, powers and privileges lawfully available to the Issuer under
or in connection with the Sale and Servicing Agreement to the extent and in the
manner directed by the Indenture Trustee, including the transmission of notices
of default on the part of the Sponsor or the Servicer thereunder and the
institution of legal or administrative actions or proceedings to compel or
secure performance by the Sponsor or the Servicer of each of their obligations
under the Sale and Servicing Agreement.
(b) If the Indenture Trustee is a Controlling Party and if a Rapid
Amortization Event has occurred and is continuing, the Indenture Trustee may,
and, at the written direction of the Holders of 66-2/3% of the Outstanding
Amount of the Notes shall, exercise all rights, remedies, powers, privileges and
claims of the Issuer against the Sponsor or the Servicer under or in connection
with the Sale and Servicing Agreement, including the right or power to take any
action to compel or secure performance or observance by the Sponsor or the
Servicer of each of their obligations to the Issuer thereunder and to give any
consent, request, notice, direction, approval, extension or waiver under the
Sale and Servicing Agreement, and any right of the Issuer to take such action
shall be suspended.
SECTION 5.12. Subrogation. The Indenture Trustee shall receive as
-----------
attorney-in-fact of each Noteholder any Note Policy Claim Amount from the Credit
Enhancer. Any and all Note Policy Claim Amounts disbursed by the Indenture
Trustee from claims made under the Note Policy shall not be considered payment
by the Trust or from the Spread Account with respect to such Notes, and shall
not discharge the obligations of the Trust with respect thereto. The Credit
Enhancer shall, to the extent it makes any payment with respect to the Notes,
become subrogated to the rights of the recipient of such payments to the extent
of such payments. Subject to and conditioned upon any payment with respect to
the Notes by or on behalf of the Credit Enhancer, the Indenture Trustee shall
assign to the Credit Enhancer all rights to the payment of interest or principal
with respect to the Notes which are then due for payment to the extent of all
payments made by the Credit Enhancer, and the Credit Enhancer may exercise any
option, vote right, power or the like with respect to the Notes to the extent
that it has made payment pursuant to the Note Policy.
SECTION 5.13. Preference Claims.
-----------------
(a) In the event that the Indenture Trustee has received a certified
copy of an order of the appropriate court that any payment on a Note has been
avoided in whole or in part as
35
<PAGE>
a preference payment under applicable bankruptcy law, the Indenture Trustee
shall so notify the Credit Enhancer, shall comply with the provisions of the
Note Policy to obtain payment by the Credit Enhancer of such avoided payment,
and shall, at the time it provides notice to the Credit Enhancer, notify Holders
of the Notes by mail that, in the event that any Noteholder's payment is so
recoverable, such Noteholder will be entitled to payment pursuant to the terms
of the Note Policy. The Indenture Trustee shall furnish to the Credit Enhancer
at its written request, the requested records it holds in its possession
evidencing the payments of principal of and interest on Notes, if any, which
have been made by the Indenture Trustee and subsequently recovered from
Noteholders, and the dates on which such payments were made. Pursuant to the
terms of the Note Policy, the Credit Enhancer will make such payment on behalf
of the Noteholder to the receiver, conservator, debtor-in-possession or trustee
in bankruptcy named in the Final Order (as defined in the Note Policy) and not
to the Indenture Trustee or any Noteholder directly.
(b) The Indenture Trustee shall promptly notify the Credit Enhancer of
any proceeding or the institution of any action (of which the Indenture Trustee
has actual knowledge) seeking the avoidance as a preferential transfer under
applicable bankruptcy, insolvency, receivership, rehabilitation or similar law
(a "Preference Claim") of any distribution made with respect to the Notes. Each
Holder, by its purchase of Notes, and the Indenture Trustee hereby agree that so
long as a Credit Enhancer Default shall not have occurred and be continuing, the
Credit Enhancer may at any time during the continuation of any proceeding
relating to a Preference Claim direct all matters relating to such Preference
Claim including, without limitation, (i) the direction of any appeal of any
order relating to any Preference Claim and (ii) the posting of any surety,
supersedes or performance bond pending any such appeal at the expense of the
Credit Enhancer, but subject to reimbursement as provided in the Insurance
Agreement. In addition, and without limitation of the foregoing, as set forth in
Section 5.12, the Credit Enhancer shall be subrogated to, and each Noteholder
and the Indenture Trustee hereby delegate and assign, to the fullest extent
permitted by law, the rights of the Indenture Trustee and each Noteholder in the
conduct of any proceeding with respect to a Preference Claim, including, without
limitation, all rights of any party to an adversary proceeding action with
respect to any court order issued in connection with any such Preference Claim.
ARTICLE VI.
The Indenture Trustee
---------------------
SECTION 6.1. Duties of Indenture Trustee.
---------------------------
(a) If a Rapid Amortization Event has occurred and is continuing, the
Indenture Trustee shall exercise the rights and powers vested in it by this
Indenture and the Basic Documents and use the same degree of care and skill in
its exercise as a prudent person would exercise or use under the circumstances
in the conduct of such person's own affairs; provided, however, that if the
Indenture Trustee is acting as Servicer, it shall use the same degree of care
and skill as is required of the Servicer under the Sale and Servicing Agreement.
(b) Except during the continuance of a Rapid Amortization Event:
36
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(i) The Indenture Trustee undertakes to perform such duties and only
such duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Indenture Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Indenture Trustee and conforming to the
requirements of this Indenture; however, the Indenture Trustee shall
examine the certificates and opinions to determine whether or not they
conform on their face to the requirements of this Indenture.
(c) The Indenture Trustee may not be relieved from liability for its
own negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
this Section;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer unless it is proved
that the Indenture Trustee was negligent in ascertaining the pertinent
facts;
(iii) the Indenture Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in accordance with a
direction received by it pursuant to Section 5.12; and
(iv) the Indenture Trustee shall not be charged with knowledge of any
failure by the Servicer to comply with the obligations of the Servicer
referred to in clauses (i) and (ii) of Section 6.01 of the Sale and
Servicing Agreement unless a Responsible Officer of the Indenture Trustee
at the Corporate Trust Office obtains actual knowledge of such failure or
occurrence or the Indenture Trustee receives written notice of such failure
or occurrence from the Servicer, the Credit Enhancer or the Holders of
Notes evidencing Voting Rights aggregating not less than 51%.
(d) The Indenture Trustee shall not be liable for interest on any
money received by it except as the Indenture Trustee may agree in writing with
the Issuer.
(e) No provision of this Indenture shall require the Indenture Trustee
to expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or indemnity reasonably satisfactory to it against such risk or
liability is not reasonably assured to it.
(f) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Indenture Trustee
shall be subject to the provisions of this Section and to the provisions of the
TIA.
(g) The Indenture Trustee shall, upon three Business Day's prior
written notice to the Indenture Trustee, permit any representative of the Credit
Enhancer, during the Indenture Trustee's normal business hours, to examine all
books of account, records, reports and
37
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other papers of the Indenture Trustee relating to the Notes, to make copies and
extracts therefrom and to discuss the Indenture Trustee's affairs and actions,
as such affairs and actions relate to the Indenture Trustee's duties with
respect to the Notes, with the Indenture Trustee's officers and employees
responsible for carrying out the Indenture Trustee's duties with respect to the
Notes.
(h) The Indenture Trustee shall, and hereby agrees that it will,
perform all of the obligations and duties required of it under the Sale and
Servicing Agreement.
(i) The Indenture Trustee shall, and hereby agrees that it will, hold
the Note Policy in trust, and will hold any proceeds of any claim on the Note
Policy in trust solely for the use and benefit of the Noteholders.
(j) In no event shall The First National Bank of Chicago, in any of
its capacities hereunder, be deemed to have assumed any duties of the Owner
Trustee under the Delaware Business Trust Statute, common law, or the Trust
Agreement.
SECTION 6.2. Rights of Indenture Trustee.
---------------------------
(a) The Indenture Trustee may rely on any document reasonably believed
by it to be genuine and to have been signed or presented by the proper person.
The Indenture Trustee need not investigate any fact or matter stated in the
document.
(b) Before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel. The Indenture Trustee
shall not be liable for any action it takes or omits to take in good faith in
reliance on the Officer's Certificate or Opinion of Counsel.
(c) The Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys or a custodian or nominee.
(d) The Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Indenture Trustee's conduct
-------- -------
does not constitute willful misconduct, negligence or bad faith.
(e) The Indenture Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Notes shall be full and complete authorization and protection from liability
in respect to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such counsel.
(f) The Indenture Trustee shall be under no obligation to institute,
conduct or defend any litigation under this Indenture or in relation to this
Indenture, at the request, order or direction of any of the Holders of Notes or
the Controlling Party, pursuant to the provisions of this Indenture, unless such
Holders of Notes or the Controlling Party shall have offered to the Indenture
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that may be incurred therein or thereby; provided, however, that the
-------- -------
Indenture Trustee shall, upon the
38
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occurrence of a Rapid Amortization Event or Event of Servicing Termination as
defined in the Sale and Servicing Agreement (that has not been cured or waived),
exercise the rights and powers vested in it by this Indenture or the Sale and
Servicing Agreement with reasonable care and skill.
(g) The Indenture Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, approval, bond or
other paper or document, unless requested in writing to do so by the Credit
Enhancer or by the Holders of Notes evidencing not less than 25% of the
Outstanding Amount thereof; provided, however, that if the payment within a
-------- -------
reasonable time to the Indenture Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Indenture Trustee, not reasonably assured to the Indenture
Trustee by the security afforded to it by the terms of this Indenture or the
Sale and Servicing Agreement, the Indenture Trustee may require indemnity
reasonably satisfactory to it against such cost, expense or liability as a
condition to so proceeding; the reasonable expense of every such examination
shall be paid by the Person making such request, or, if paid by the Indenture
Trustee shall be reimbursed by the Person making such request upon demand.
(h) The Indenture Trustee shall not be accountable, shall have no
liability and makes no representation as to any acts or omissions hereunder of
the Servicer until such time as the Indenture Trustee may be required to act as
Servicer.
SECTION 6.3. Individual Rights of Indenture Trustee. The Indenture
--------------------------------------
Trustee in its individual or any other capacity may become the owner or pledgee
of Notes and may otherwise deal with the Issuer or its Affiliates with the same
rights it would have if it were not Indenture Trustee. Any Note Paying Agent,
Note Registrar, co-registrar or co-paying agent may do the same with like
rights. However, the Indenture Trustee must comply with Sections 6.11 and 6.12.
SECTION 6.4. Indenture Trustee's Disclaimer. The Indenture Trustee
------------------------------
shall not be responsible for and makes no representation as to the validity or
adequacy of this Indenture, the Trust Property or the Notes, it shall not be
accountable for the Issuer's use of the proceeds from the Notes, and it shall
not be responsible for any statement of the Issuer in the Indenture or in any
document issued in connection with the sale of the Notes or in the Notes other
than the Indenture Trustee's certificate of authentication.
SECTION 6.5. Notice of Defaults. If a Rapid Amortization Event or
------------------
an Event of Servicing Termination occurs and is continuing and if it is either
known by, or written notice of the existence thereof has been delivered to, a
Responsible Officer of the Indenture Trustee, the Indenture Trustee shall mail
to each Noteholder of such event within 90 days after such knowledge or notice
occurs. Except in the case of a Default in payment of principal of or interest
on any Note, the Indenture Trustee may withhold the notice if and so long as a
committee of its Responsible Officers in good faith determines that withholding
the notice is in the interests of Noteholders.
SECTION 6.6. Reports by Indenture Trustee to Holders. Upon written
---------------------------------------
request, the Note Paying Agent or the Servicer shall on behalf of the Issuer
deliver to each
39
<PAGE>
Noteholder such information as may be reasonably required to enable such Holder
to prepare its Federal and state income tax returns required by law.
SECTION 6.7. Compensation and Indemnity.
--------------------------
(a) Pursuant to Section 8.3 and subject to Section 6.10 herein, the
Issuer shall, or shall cause the Servicer to, pay to the Indenture Trustee from
time to time compensation for its services. The Indenture Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Issuer shall or shall cause the Servicer to reimburse the Indenture
Trustee for all reasonable out-of-pocket expenses incurred or made by it,
including costs of collection, in addition to the compensation for its services.
Such expenses shall include the reasonable compensation and expenses,
disbursements and advances of the Indenture Trustee's agents, counsel,
accountants and experts. The Issuer shall or shall cause the Servicer to
indemnify the Indenture Trustee and its respective officers, directors,
employees and agents against any and all loss, liability or expense (including
attorneys' fees and expenses) incurred by each of them in connection with the
acceptance or the administration of this trust and the performance of its duties
hereunder. The Indenture Trustee shall notify the Issuer and the Servicer
promptly of any claim for which it may seek indemnity. Failure by the Indenture
Trustee to so notify the Issuer and the Servicer shall not relieve the Issuer of
its obligations hereunder or the Servicer of its obligations under Article VIII
of the Sale and Servicing Agreement. The Issuer shall or shall cause the
Servicer to defend the claim, the Indenture Trustee may have separate counsel
and the Issuer shall or shall cause the Servicer to pay the fees and expenses of
such counsel. Neither the Issuer nor the Servicer need reimburse any expense or
indemnify against any loss, liability or expense incurred by the Indenture
Trustee through the Indenture Trustee's own willful misconduct, negligence or
bad faith.
(b) The Issuer's payment obligations to the Indenture Trustee pursuant
to this Section shall survive the discharge of this Indenture. Notwithstanding
anything else set forth in this Indenture or the Basic Documents, the Indenture
Trustee agrees that the obligations of the Issuer (but not the Servicer) to the
Indenture Trustee hereunder and under the Basic Documents shall be recourse to
the Trust Property only and specifically shall not be recourse to the assets of
the Issuer or any Securityholder. In addition, the Indenture Trustee agrees that
its recourse to the Issuer, the Trust Property, the Sponsor and amounts held in
the Spread Account, the Capitalized Interest Account, and the Funding Account
shall be limited to the right to receive the distributions referred to in
Section 8.3 herein.
SECTION 6.8. Replacement of Indenture Trustee. The Indenture
--------------------------------
Trustee may resign at any time by so notifying the Issuer and the Credit
Enhancer by written notice. Upon receiving such notice of resignation, the
Issuer shall promptly appoint a successor Indenture Trustee (approved in writing
by the Credit Enhancer, so long as such approval is not unreasonably withheld)
by written instrument, in duplicate, one copy of such instrument shall be
delivered to the resigning Indenture Trustee (who shall deliver a copy to the
Servicer) and one copy to the successor Trustee; provided, however, that any
-------- -------
such successor Indenture Trustee shall be subject to the prior written approval
of the Servicer. The Issuer may and, at the request of the Credit Enhancer
shall, remove the Indenture Trustee, if:
(i) the Indenture Trustee fails to comply with Section 6.11;
40
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(ii) a court having jurisdiction in the premises in respect of the
Indenture Trustee in an involuntary case or proceeding under federal or
state banking or bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or other similar
law, shall have entered a decree or order granting relief or appointing a
receiver, liquidator, assignee, custodian, trustee, conservator,
sequestrator (or similar official) for the Indenture Trustee or for any
substantial part of the Indenture Trustee's property, or ordering the
winding-up or liquidation of the Indenture Trustee's affairs;
(iii) an involuntary case under the federal bankruptcy laws, as now
or hereafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law is commenced with respect to the
Indenture Trustee and such case is not dismissed within 60 days;
(iv) the Indenture Trustee commences a voluntary case under any
federal or state banking or bankruptcy laws, as now or hereafter
constituted, or any other applicable federal or state bankruptcy,
insolvency or other similar law, or consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
conservator, sequestrator (or other similar official) for the Indenture
Trustee or for any substantial part of the Indenture Trustee's property, or
makes any assignment for the benefit of creditors or fails generally to pay
its debts as such debts become due or takes any corporate action in
furtherance of any of the foregoing; or
(v) the Indenture Trustee otherwise becomes incapable of acting.
If the Indenture Trustee resigns or is removed or if a vacancy exists
in the office of Indenture Trustee for any reason (the Indenture Trustee in such
event being referred to herein as the retiring Indenture Trustee), the Issuer
shall promptly appoint a successor Indenture Trustee acceptable to the Credit
Enhancer. If the Issuer fails to appoint such a successor Indenture Trustee,
the Credit Enhancer may appoint a successor Indenture Trustee.
A successor Indenture Trustee shall deliver a written acceptance of
its appointment to the retiring Indenture Trustee, to the Credit Enhancer and to
the Issuer. Thereupon the resignation or removal of the retiring Indenture
Trustee shall become effective, and the successor Indenture Trustee shall have
all the rights, powers and duties of the retiring Indenture Trustee under this
Indenture. The successor Indenture Trustee shall mail a notice of its
succession to Noteholders. The retiring Indenture Trustee shall promptly
transfer all property held by it as Indenture Trustee to the successor Indenture
Trustee.
If a successor Indenture Trustee does not take office within 30 days
after the retiring Indenture Trustee resigns or is removed, the retiring
Indenture Trustee, the Issuer or the Holders of a majority in Outstanding Amount
of the Notes may petition any court of competent jurisdiction for the
appointment of a successor Indenture Trustee acceptable to the Credit Enhancer.
41
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If the Indenture Trustee fails to comply with Section 6.11, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Indenture Trustee and the appointment of a successor Indenture Trustee
acceptable to the Credit Enhancer.
Any resignation or removal of the Indenture Trustee and appointment of
a successor Indenture Trustee pursuant to any of the provisions of this Section
shall not become effective until acceptance of appointment by the successor
Indenture Trustee pursuant to Section 6.8 and payment of all fees and expenses
owed to the outgoing Indenture Trustee.
Notwithstanding the replacement of the Indenture Trustee pursuant to
this Section, the Issuer's and the Servicer's indemnity obligations under
Section 6.7 shall continue for the benefit of the retiring Indenture Trustee and
the Servicer shall pay any amounts owing to the Indenture Trustee.
SECTION 6.9. Successor Indenture Trustee by Merger. If the
-------------------------------------
Indenture Trustee consolidates with, merges or converts into, or transfers all
or substantially all its corporate trust business or assets to, another
corporation or banking association, the resulting, surviving or transferee
corporation without any further act shall be the successor Indenture Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Indenture Trustee shall succeed to the trusts created by
this Indenture any of the Notes shall have been authenticated but not delivered,
any such successor to the Indenture Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Notes so
authenticated; and in case at that time any of the Notes shall not have been
authenticated, any successor to the Indenture Trustee may authenticate such
Notes either in the name of any predecessor hereunder or in the name of the
successor to the Indenture Trustee; and in all such cases such certificates
shall have the full force which it is anywhere in the Notes or in this Indenture
provided that the certificate of the Indenture Trustee shall have.
SECTION 6.10. Appointment of Co-Indenture Trustee or Separate
-----------------------------------------------
Indenture Trustee.
- -----------------
(a) Notwithstanding any other provisions of this Indenture, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust may at the time be located, the Indenture Trustee
with the consent of the Credit Enhancer shall have the power and may execute and
deliver all instruments to appoint one or more Persons to act as a co-trustee or
co-trustees, or separate trustee or separate trustees, of all or any part of the
Trust, and to vest in such Person or Persons, in such capacity and for the
benefit of the Noteholders, such title to the Trust, or any part hereof, and,
subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Indenture Trustee may consider necessary
or desirable. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 6.11 and no
notice to Noteholders of the appointment of any co-trustee or separate trustee
shall be required under Section 6.8 hereof.
(b) Every separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
42
<PAGE>
(i) all rights, powers, duties and obligations conferred or imposed
upon the Indenture Trustee shall be conferred or imposed upon and exercised
or performed by the Indenture Trustee and such separate trustee or co-
trustee jointly (it being understood that such separate trustee or co-
trustee is not authorized to act separately without the Indenture Trustee
joining in such act), except to the extent that under any law of any
jurisdiction in which any particular act or acts are to be performed the
Indenture Trustee shall be incompetent or unqualified to perform such act
or acts, in which event such rights, powers, duties and obligations
(including the holding of title to the Trust or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such separate
trustee or co-trustee, but solely at the direction of the Indenture
Trustee;
(ii) no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder, including acts or omissions
of predecessor or successor trustees; and
(iii) the Indenture Trustee and the Servicer acting jointly may at any
time accept the resignation of or remove any separate trustee or co-trustee
except that following the occurrence of an Event of Servicing Termination,
the Indenture Trustee acting alone may accept the resignation of or remove
any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Indenture
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article VI. Each separate trustee and co-trustee, upon
its acceptance of the trusts conferred, shall be vested with the estates or
property specified in its instrument of appointment, either jointly with the
Indenture Trustee or separately, as may be provided therein, subject to all the
provisions of this Indenture, specifically including every provision of this
Indenture relating to the conduct of, affecting the liability of, or affording
protection to, the Indenture Trustee. Every such instrument shall be filed with
the Indenture Trustee.
(d) Any separate trustee or co-trustee may at any time constitute the
Indenture Trustee, its agent or attorney-in-fact with full power and authority,
to the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or co-
trustee shall die, dissolve, become insolvent, become incapable of acting,
resign or be removed, all of its estates, properties, rights, remedies and
trusts shall vest in and be exercised by the Indenture Trustee, to the extent
permitted by law, without the appointment of a new or successor trustee.
(e) The Servicer shall be responsible for the fees of any co-trustee
or separate trustee appointed hereunder.
SECTION 6.11. Eligibility: Disqualification. The Indenture Trustee
-----------------------------
shall at all times satisfy the requirements of TIA (S) 310(a). The Indenture
Trustee shall have a combined capital and surplus of at least $50,000,000 as set
forth in its most recent published annual report of condition. The Indenture
Trustee shall provide copies of such reports to the Credit Enhancer upon
request. The Indenture Trustee shall comply with TIA (S) 310(b), including the
optional
43
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provision permitted by the second sentence of TIA (S) 310(b)(9);
provided, however, that there shall be excluded from the operation of TIA (S)
- -------- -------
310(b)(1) any indenture or indentures under which other securities of the Issuer
are outstanding if the requirements for such exclusion set forth in TIA (S)
310(b)(1) are met.
SECTION 6.12. Preferential Collection of Claims Against Issuer. The
------------------------------------------------
Indenture Trustee shall comply with TIA (S) 3.11(a), excluding any creditor
relationship listed in TIA (S) 311(b). An Indenture Trustee who has resigned or
been removed shall be subject to TIA (S) 311(a) to the extent indicated.
SECTION 6.13. Appointment and Powers. Subject to the terms and
----------------------
conditions hereof, each of the Issuer Secured Parties hereby appoints The First
National Bank of Chicago as the Indenture Trustee with respect to the
Collateral, and The First National Bank of Chicago hereby accepts such
appointment and agrees to act as Indenture Trustee with respect to the Trust
Property for the Issuer Secured Parties, to maintain custody and possession of
such Trust Property (except as otherwise provided hereunder) and to perform the
other duties of the Indenture Trustee in accordance with the provisions of this
Indenture and the other Basic Documents. Each Issuer Secured Party hereby
authorizes the Indenture Trustee to take such action on its behalf, and to
exercise such rights, remedies, powers and privileges hereunder, as the
Controlling Party may direct and as are specifically authorized to be exercised
by the Indenture Trustee by the terms hereof, together with such actions,
rights, remedies, powers and privileges as are reasonably incidental thereto.
The Indenture Trustee shall act upon and in compliance with the written
instructions of the Controlling Party delivered pursuant to this Indenture
promptly following receipt of such written instructions; provided that the
Indenture Trustee shall not act in accordance with any instructions (i) which
are not authorized by, or in violation of the provisions of, this Indenture or
(ii) for which the Indenture Trustee has not received reasonable indemnity.
Receipt of such instructions shall not be a condition to the exercise by the
Indenture Trustee of its express duties hereunder, except where this Indenture
provides that the Indenture Trustee is permitted to act only following and in
accordance with such instructions.
SECTION 6.14. Performance of Duties. The Indenture Trustee shall
---------------------
have no duties or responsibilities except those expressly set forth in this
Indenture and the other Basic Documents to which the Indenture Trustee is a
party or as directed by the Controlling Party in accordance with this Indenture.
The Indenture Trustee shall not be required to take any discretionary actions
hereunder except at the written direction and with the indemnification of the
Controlling Party. The Indenture Trustee shall, and hereby agrees that it will,
perform all of the duties and obligations required of it under the Sale and
Servicing Agreement.
SECTION 6.15. Limitation on Liability. Neither the Indenture
-----------------------
Trustee nor any of its directors, officers, employees and agents shall be liable
for any action taken or omitted to be taken by it or them hereunder, or in
connection herewith, except that the Indenture Trustee shall be liable for its
negligence, bad faith or willful misconduct; nor shall the Indenture Trustee be
responsible for the validity, effectiveness, value, sufficiency or
enforceability against the Issuer of this Indenture or any of the Trust Property
(or any part thereof).
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SECTION 6.16. Reliance Upon Documents. In the absence of negligence,
-----------------------
bad faith or willful misconduct on its part, the Indenture Trustee shall be
entitled to rely on any communication, instrument, paper or other document
reasonably believed by it to be genuine and correct and to have been signed or
sent by the proper Person or Persons and shall have no liability in acting, or
omitting to act, where such action or omission to act is in reasonable reliance
upon any statement or opinion contained in any such document or instrument.
SECTION 6.17. Representations and Warranties of the Indenture Trustee
-------------------------------------------------------
The Indenture Trustee represents and warrants to the Issuer and to each Issuer
Secured Party as follows:
(a) Due Organization. The Indenture Trustee is a national banking
----------------
association, duly organized, validly existing and in good standing under
the laws of the United States and is duly authorized and licensed under
applicable law to conduct its business as presently conducted.
(b) Corporate Power. The Indenture Trustee has all requisite
---------------
right, power and authority to execute and deliver this Indenture and to
perform all of its duties as the Indenture Trustee hereunder.
(c) Due Authorization. The execution and delivery by the Indenture
-----------------
Trustee of this Indenture and the other Basic Documents to which it is a
party, and the performance by the Indenture Trustee of its duties hereunder
and thereunder, have been duly authorized by all necessary corporate
proceedings, are required for the valid execution and delivery by the
Indenture Trustee, or the performance by the Indenture Trustee, of this
Indenture and such other Basic Documents.
(d) Valid and Binding Indenture. The Indenture Trustee has duly
---------------------------
executed and delivered this Indenture and each other Basic Document to
which it is a party, and each of this Indenture and each such other Basic
Document constitutes the legal, valid and binding obligation of the
Indenture Trustee, enforceable against the Indenture Trustee in accordance
with its terms, except as (i) such enforceability may be limited by
bankruptcy, insolvency, reorganization and similar laws relating to or
affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles
of general applicability.
SECTION 6.18. Waiver of Setoffs. The Indenture Trustee hereby
-----------------
expressly waives any and all rights of setoff that the Indenture Trustee may
otherwise at any time have under applicable law with respect to any Trust
Account and agrees that amounts in the Trust Accounts shall at all times be held
and applied solely in accordance with the provisions hereof.
SECTION 6.19. Control by the Controlling Party. The Indenture
--------------------------------
Trustee shall comply with notices and instructions given by the Issuer only if
accompanied by the written consent of the Controlling Party.
SECTION 6.20. Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Agreement or the Notes may be
prosecuted and enforced by the Indenture Trustee without the possession of any
of the Notes or the production
45
<PAGE>
thereof in any proceeding relating thereto, and such proceeding instituted by
the Indenture Trustee shall be brought in its own name or in its capacity as
Indenture Trustee. Any recovery of judgment shall, after provision for the
payment of the reasonable compensation, expenses, disbursement and advances of
the Indenture Trustee, its agents and counsel, be for the ratable benefit of the
Noteholders in respect of which such judgment has been recovered.
SECTION 6.21. Suits for Enforcement. In case an Event of Servicing
---------------------
Termination or other default by the Servicer or the Sponsor hereunder shall
occur and be continuing, the Indenture Trustee, if the Controlling Party (and if
not the Controlling Party, with the consent of the Credit Enhancer), may proceed
to protect and enforce its rights and the rights of the Noteholders under this
Agreement by a suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained in
this Agreement or in aid of the execution of any power granted in this Agreement
or for the enforcement of any other legal, equitable or other remedy, as the
Indenture Trustee, being advised by counsel, shall deem most effectual to
protect and enforce any of the rights of the Indenture Trustee and the
Noteholders.
SECTION 6.22. Mortgagor Claims. In connection with any offset
----------------
defenses, or affirmative claim for recovery, asserted in legal actions brought
by Mortgagors under one or more Mortgage Loans based upon provisions therein or
upon other rights or remedies arising from any requirements of law applicable to
the Mortgage Loans:
(a) The Indenture Trustee is the holder of the Mortgage Loans only as
trustee on behalf of the holders of the Notes, and not as a principal or in
any individual or personal capacity.
(b) The Indenture Trustee shall not be personally liable for, or
obligated to pay Mortgagors, any affirmative claims asserted thereby, or
responsible to holders of the Notes for any offset defense amounts applied
against Mortgage Loan payments, pursuant to such legal actions.
(c) The Indenture Trustee will pay, solely from available Trust money,
affirmative claims for recovery by Mortgagors only pursuant to final
judicial orders or judgments, or judicially-approved settlement agreements,
resulting from such legal actions.
(d) The Indenture Trustee will comply with judicial orders and
judgments which require its actions or cooperation in connection with
Mortgagors' legal actions to recover affirmative claims against holders of
the Notes.
(e) The Indenture Trustee will cooperate with and assist the Servicer,
the Sponsor, or holders of the Notes in their defense of legal actions by
Mortgagors to recover affirmative claims if such cooperation and assistance
is not contrary to the interests of the Indenture Trustee as a party to
such legal actions and if the Indenture Trustee is satisfactorily
indemnified for all liability, costs and expenses arising therefrom.
(f) The Issuer hereby agrees to indemnify, hold harmless and defend
the Indenture Trustee from and against any and all liability, loss, costs
and expenses of the
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Indenture Trustee resulting from any affirmative claims for recovery
asserted or collected by Mortgagors under the Mortgage Loans.
ARTICLE VII.
Noteholders' Lists and Reports
------------------------------
SECTION 7.1. Issuer To Furnish To Indenture Trustee Names and
------------------------------------------------
Addresses of Noteholders. The Issuer will furnish or cause to be furnished to
- ------------------------
the Indenture Trustee (a) not more than five days after the earlier of (i) each
Record Date and (ii) three months after the last Record Date, a list, in such
form as the Indenture Trustee may reasonably require, of the names and addresses
of the Holders as of such Record Date, (b) at such other times as the Indenture
Trustee may request in writing, within 30 days after receipt by the Issuer of
any such request, a list of similar form and content as of a date not more than
10 days prior to the time such list is furnished; provided, however, that so
-------- -------
long as the Indenture Trustee is the Note Registrar, no such list shall be
required to be furnished. The Indenture Trustee or, if the Indenture Trustee is
not the Note Registrar, the Issuer shall furnish to the Credit Enhancer or the
Issuer in writing upon their written request and at such other times as the
Credit Enhancer or the Issuer may request a copy of the list.
SECTION 7.2. Preservation of Information; Communications to
----------------------------------------------
Noteholders.
- -----------
(a) The Indenture Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of the Holders contained in the
most recent list furnished to the Indenture Trustee as provided in Section 7.1
and the names and addresses of Holders received by the Indenture Trustee in its
capacity as Note Registrar. The Indenture Trustee may destroy any list furnished
to it as provided in such Section 7.1 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA (S) 312(b) with other
Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Indenture Trustee and the Note Registrar shall
have the protection of TIA (S) 312(c).
SECTION 7.3. Reports by Issuer. (a) The Issuer shall:
-----------------
(i) file with the Indenture Trustee, within 15 days after the
Issuer is required to file the same with the Commission, copies of the
annual reports and copies of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may
from time to time by rules and regulations prescribe) which the Issuer may
be required to file with the Commission pursuant to Section 13 or 15(d) of
the Exchange Act;
(ii) file with the Indenture Trustee and the Commission in
accordance with rules and regulations prescribed from time to time by the
Commission such additional information, documents and reports with respect
to compliance by the Issuer with the
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conditions and covenants of this Indenture as may be required from time to
time by such rules and regulations; and
(iii) supply to the Indenture Trustee (and the Indenture Trustee
shall transmit by mail to all Noteholders described in TIA (S) 313(c)) such
summaries of any information, documents and reports required to be filed by
the Issuer pursuant to clauses (i) and (ii) of this Section 7.3(a) as may
be required by rules and regulations prescribed from time to time by the
Commission.
(b) Unless the Issuer otherwise determines, the fiscal year of the
Issuer shall end on December 31 of each year.
SECTION 7.4. Reports by Indenture Trustee. If required by TIA
----------------------------
(S) 313(a), within 60 days after each March 31, beginning with March 31, 1999,
the Indenture Trustee shall mail to each Noteholder as required by TIA (S)
313(c) a brief report dated as of such date that complies with TIA (S) 313(a).
The Indenture Trustee also shall comply with TIA (S) 313(b).
A copy of each report at the time of its mailing to Noteholders shall
be filed by the Indenture Trustee with the Commission and each stock exchange,
if any, on which the Notes are listed. The Issuer shall notify the Indenture
Trustee if and when the Notes are listed on any stock exchange.
ARTICLE VIII.
Payments and Statements to Noteholders and Certificateholders;
--------------------------------------------------------------
Accounts, Disbursements and Releases
------------------------------------
SECTION 8.1. Collection of Money. Except as otherwise expressly
-------------------
provided herein, the Indenture Trustee may demand payment or delivery of, and
shall receive and collect, directly and without intervention or assistance of
any fiscal agent or other intermediary, all money and other property payable to
or receivable by the Indenture Trustee pursuant to this Indenture and the Sale
and Servicing Agreement. The Indenture Trustee shall apply all such money
received by it as provided in this Indenture and the Sale and Servicing
Agreement. Except as otherwise expressly provided in this Indenture or in the
Sale and Servicing Agreement, if any default occurs in the making of any payment
or performance under any agreement or instrument that is part of the Trust
Property, the Indenture Trustee may take such action as may be appropriate to
enforce such payment or performance, including the institution and prosecution
of appropriate proceedings.
SECTION 8.2. Release of Trust Property.
-------------------------
(a) Subject to Section 8.9 and the payment of its fees and expenses
pursuant to Section 6.7, the Indenture Trustee may, and when required by the
Issuer and the provisions of this Indenture shall, execute instruments to
release property from the lien of this Indenture, in a manner and under
circumstances that are not inconsistent with the provisions of this Indenture or
the Sale and Servicing Agreement. No party relying upon an instrument executed
by the Indenture Trustee as provided in this Article VIII shall be bound to
ascertain the Indenture
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Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any monies.
(b) The Indenture Trustee shall, at such time as there are no Notes
outstanding and all sums due the Indenture Trustee pursuant to Section 6.7 and
to the Credit Enhancer pursuant to the Insurance Agreement have been paid,
release any remaining portion of the Trust Property that secured the Notes from
the lien of this Indenture and release to the Issuer or any other Person
entitled thereto any funds then on deposit in the Trust Accounts (except that
the release of the Spread Account shall be subject to Section 2.05 of the
Insurance Agreement). The Indenture Trustee shall release property from the lien
of this Indenture pursuant to this Section 8.2(b) only upon receipt of an Issuer
Request accompanied by an Officer's Certificate, an Opinion of Counsel and (if
required by the TIA) Independent Certificates in accordance with TIA (S)(S)
314(c) and 314(d)(1) meeting the applicable requirements of Section 11.1.
SECTION 8.3. Distributions of Noteholders' Interest Collections and Investment
-----------------------------------------------------------------
Proceeds.
- ---------
(a) Distributions. On each Distribution Date, the Indenture Trustee
-------------
or the Note Paying Agent, as the case may be, shall distribute out of the
Collection Account to the extent of (x) Noteholders' Interest Collections
collected during the related Collection Period, including any amounts
transferred from the Funding Account pursuant to Section 8.7(c)(i), (y) any
amounts transferred from the Capitalized Interest Account pursuant to Section
8.8, and (z) the amounts transferred from the Spread Account as determined
pursuant to Section 4.03(b) of the Sale and Servicing Agreement, the following
amounts and in the following order of priority to the following Persons (based
on the information set forth in the Servicing Certificate):
(i) the Class A Note Interest for such Distribution Date to the
Class A Noteholders and the Unpaid Class A Note Interest Shortfall, if any,
for such Distribution Date to the Class A Noteholders plus, to the extent
legally permissible, interest thereon at the Class A Note Rate;
(ii) the Class S Note Interest for such Distribution Date to the
Class S Noteholders and the Unpaid Class S Note Interest Shortfall, if any,
for such Distribution Date plus, to the extent legally permissible,
interest thereon at the Class S Note Rate;
(iii) the Noteholders' Loss Amount for such Collection Period to the
Class A Noteholders as principal in reduction of the Class A Note Principal
Balance;
(iv) to Class A Noteholders as principal in reduction of the Class A
Note Principal Balance the aggregate amount of the Loss Reduction Amounts,
if any, for previous Distribution Dates that have not been previously
reimbursed to Class A Noteholders pursuant to this clause (iv);
(v) as payment to the Credit Enhancer for the monthly premium for
the Policy;
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(vi) to reimburse the Credit Enhancer for previously unreimbursed
Credit Enhancement Draw Amounts together with interest thereon at the
applicable rate set forth in the Insurance Agreement;
(vii) to the Indenture Trustee for deposit to the Spread Account up
to 0.25% of the Original Funded Balance;
(viii) the Accelerated Principal Distribution Amount, if any, to the
Class A Noteholders;
(ix) to pay any other amounts owed the Credit Enhancer pursuant to
the Insurance Agreement;
(x) to each of the Indenture Trustee and the Owner Trustee, their
respective accrued and unpaid trustee's fees and expenses;
(xi) any amount required to be paid to the Servicer pursuant to
Section 5.03 of the Sale and Servicing Agreement which has not been
previously paid to the Servicer;
(xii) to pay Deferred Interest on the Class A Notes and interest
thereon at the Class A Note Rate;
(xiii) to pay to the Manager of the Trust, the Management Fee; and
(xiv) any remaining amount to the holders of the Certificates, which
shall initially be the Sponsor, to the extent permitted.
(b) Distribution of Principal Collections. On each Distribution
-------------------------------------
Date during the Funding Period, the Scheduled Principal Collections Distribution
Amount shall be deposited into the Funding Account and shall not be distributed
to the Class A Noteholders. On the sixth Distribution Date, the Indenture
Trustee shall distribute out of the Funding Account to the Class A Noteholders,
the Remaining Funded Amount. On each Distribution Date following the termination
of the Funding Period, the Indenture Trustee shall distribute out of the
Collection Account to the Class A Noteholders the Scheduled Principal
Collections Distribution Amount (together with amounts transferred to the
Collection Account from the Spread Account pursuant to Section 4.03(b) of the
Sale and Servicing Agreement relating to principal up to but not in excess of
the Class A Note Principal Balance). In addition, on the last Distribution Date
of the Funding Period, the Indenture Trustee shall distribute out of the
Collection Account to the Class A Noteholders the amount required to be so
distributed pursuant to Section 8.7(c)(iii). On the Distribution Date in March,
2025, the Indenture Trustee shall distribute to Class A Noteholders, Principal
Collections up to the Class A Note Principal Balance.
(c) Application of Certificate Subordinated Amount. If, after
----------------------------------------------
applying Noteholders' Interest Collections and funds available in the
Capitalized Interest Account pursuant to Section 8.8 as provided in Section
8.3(a) above, any amounts specified in clauses (i) through (iv) remain unpaid,
the Indenture Trustee shall, based on information set forth in the Servicing
Certificate for such Distribution Date, apply Certificateholders' Available
Funds to make such payments and the Certificate Subordinated Amount shall be
reduced in accordance
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with clause (i) of the definition thereof to the extent of such application. If
Certificateholders' Available Funds applied in the order specified in Section
8.3(a) are insufficient to cover the aggregate Loss Amount for such Distribution
Date, then the remaining aggregate Loss Amount (but only to the extent of the
remaining Certificateholders' Subordinated Amount) shall be reallocated to the
Certificate Principal Balance (after giving effect to the Certificateholders'
portion of the Loss Amount) and shall not be allocated to the Class A Notes and
the Certificateholders' Subordinated Amount shall be reduced, as described in
clause (ii) of the definition thereof, by the amount so reallocated.
(d) Distribution of the Credit Enhancement Draw Amount. With
--------------------------------------------------
respect to any Distribution Date, to the extent that Noteholders' Interest
Collections, amounts available in the Capitalized Interest Account pursuant to
Section 8.8, amounts transferred from the Funding Account pursuant to Section
8.7(c)(iii) and amounts transferred from the Spread Account on the related
Distribution Date in respect of the amount determined pursuant to Section
4.03(b)(i) of the Sale and Servicing Agreement after allocation of
Certificateholders' Available Funds in accordance with Section 8.3(c) are
insufficient to make distributions as provided in clauses (i) and (ii) of
Section 8.3(a) above, the Indenture Trustee will make such payments (the
"Deficiency Amount") from the amount drawn under the Policy for such
Distribution Date pursuant to Section 4.02 of the Sale and Servicing Agreement.
For any Distribution Date as to which there is a Guaranteed Principal
Distribution Amount, the Indenture Trustee shall distribute the Guaranteed
Principal Distribution Amount to Noteholders from the amount drawn under the
Policy for such Distribution Date pursuant to Section 4.02 of the Sale and
Servicing Agreement.
The aggregate amount of principal distributed to the Class A
Noteholders under this Agreement shall not exceed the Original Class A Note
Principal Balance.
(e) Method of Distribution. The Indenture Trustee shall make
----------------------
distributions in respect of a Distribution Date to each Noteholder of record on
the related Record Date (other than as provided in Section 10.2 respecting the
final distribution) by check or money order mailed to such Noteholder at the
address appearing in the Note Register, or upon written request by a Noteholder
delivered to the Indenture Trustee at least five Business Days prior to such
Record Date, by wire transfer (but only if such Noteholder is the Sponsor or
such Noteholder owns of record one or more Notes having principal denominations
aggregating at least $1,000,000 and satisfactory wire instructions have been
provided), or by such other means of payment as such Noteholder and the
Indenture Trustee shall agree. Distributions among Noteholders shall be made in
proportion to the Percentage Interests evidenced by the Notes held by such
Noteholders.
(f) Distributions on Book-Entry Securities. Each distribution with
--------------------------------------
respect to a Book-Entry Security shall be paid to the Depository, which shall
credit the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the Note
Owners that it represents and to each indirect participating brokerage firm (a
"brokerage firm" or "indirect participating firm") for which it acts as agent.
Each brokerage firm shall be responsible for disbursing funds to the Note Owners
that it represents. All such credits and disbursements with respect to a Book-
Entry Security are to be made by the Depository and the Depository Participants
in accordance with the provisions of the Notes. None of the Indenture
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Trustee, the Note Paying Agent, the Certificate Registrar, the Sponsor, the
Credit Enhancer or the Servicer shall have any responsibility therefor.
(g) Distributions to Holders of Certificates. On each Distribution
----------------------------------------
Date, the Indenture Trustee shall, based upon the information set forth in the
Servicing Certificate for such Distribution Date, distribute to the holders of
the certificates by wire transfer or by such other means of payment as the
Indenture Trustee and the Sponsor shall agree (i) the Certificateholders'
Interest Collections for the related Collection Period and (ii) the portion, if
any, of Certificateholders' Principal Collections for the related Collection
Period in excess of Additional Balances created during such Collection Period to
the extent such amounts are not required to be distributed to the Class A
Noteholders pursuant to Section 8.3(c); provided that collections allocable to
--------
the Certificates will be distributed to the holders of certificates only to the
extent that such distribution will not reduce the amount of the Certificate
Principal Balance as of the related Distribution Date below the Minimum
Certificateholders' Interest. Amounts not distributed to the holders of
certificates because of such limitations will be retained in the Collection
Account until the Certificate Principal Balance exceeds the Minimum
Certificateholders' Interest, at which time such excess shall be released to the
Certificateholders to the extent that such distribution will not reduce the
amount of the Certificate Principal Balance below the Minimum
Certificateholders' Interest. If any such amounts are still retained in the
Collection Account upon the commencement of the Rapid Amortization Period, such
amounts will be paid to the Class A Noteholders as a reduction of the Class A
Note Principal Balance.
SECTION 8.4. Calculation of the Class A Note Rate. On the second
------------------------------------
LIBOR Business Day immediately preceding each Distribution Date, the Indenture
Trustee shall determine LIBOR for the Interest Period commencing on such
Distribution Date and inform the Servicer (at the facsimile number given to the
Indenture Trustee in writing) of such rates. On each Determination Date, the
Servicer shall determine the applicable Class A Note Rate for the related
Distribution Date.
SECTION 8.5. Statements to Noteholders. Concurrently with each
-------------------------
distribution to Noteholders, the Indenture Trustee shall forward to each
Noteholder, the Servicer, the Credit Enhancer and each Rating Agency a statement
prepared by the Servicer pursuant to Section 4.01 of the Sale and Servicing
Agreement with respect to such distribution setting forth:
(i) the aggregate amount of collections received on the Mortgage
Loans on or prior to the Determination Date in respect of such Collection
Period;
(ii) the aggregate amount of (a) Interest Collections and (b)
Principal Collections for such Collection Period;
(iii) the Floating Allocation Percentage and the Fixed Allocation
Percentage for such Collection Period;
(iv) the Noteholders' Interest Collections and Principal Collections
allocated to the Notes for such Collection Period;
(v) the Certificateholders' Interest Collections and
Certificateholders' Principal Collections for such Collection Period;
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(vi) Class A Note Interest, the Class A Note Rate and the Class S
Note Interest for the related Interest Period;
(vii) the amount, if any, of such Class A Note Interest or Class S
Note Interest that is not payable on account of insufficient Noteholders'
Interest Collections;
(viii) the portion of the Unpaid Class A Note Interest Shortfall and
the portion of the Unpaid Class S Note Interest Shortfall, if any and the
amount of interest on such shortfall at the Note Rate applicable from time
to time (separately stated) to be distributed on such Distribution Date;
(ix) the Unpaid Class A Note Interest Shortfall and the Unpaid
Class S Note Interest Shortfall, if any, to remain after the distribution
on such Distribution Date;
(x) the Accelerated Principal Distribution Amount and the portion
thereof that will be distributed pursuant to Section 8.3(a) (viii);
(xi) the Scheduled Principal Collections Distribution Amount,
separately stating the components thereof;
(xii) the amount of any Transfer Deposit Amount paid by the Sponsor
pursuant to Section 2.03 or 2.05 of the Sale and Servicing Agreement;
(xiii) any accrued and unpaid Servicing Fees for previous Collection
Periods and the Servicing Fee for such Collection Period;
(xiv) the Loss Amount for such Collection Period;
(xv) the aggregate amount, if any, of Loss Reduction Amounts for
previous Distribution Dates that have not been previously reimbursed to
Class A Noteholders pursuant to 8.3(a) (iv);
(xvi) the Pool Balance as of the end of the preceding Collection
Period and as of the end of the second preceding Collection Period;
(xvii) the Invested Amount as of the end of the preceding Collection
Period;
(xviii) the Class A Note Principal Balance, the Class S Notional
Amount and Pool Factor after giving effect to the distribution on such
Distribution Date and to any reduction on account of the Loss Amount;
(xix) the Certificate Principal Balance after giving effect to the
distribution on such Distribution Date;
(xx) the aggregate amount of Additional Balances created during the
previous Collection Period;
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(xxi) the number and aggregate Asset Balances of Mortgage Loans
(x) as to which the Minimum Monthly Payment is delinquent for 30-59 days,
60-89 days and 90 or more days, respectively and (y) that have become REO,
in each case as of the end of the preceding Collection Period;
(xxii) whether a Rapid Amortization Event has occurred since the
prior Determination Date, specifying each such Rapid Amortization Event if
one has occurred;
(xxiii) whether an Event of Servicing Termination has occurred
since the prior Determination Date, specifying each such Event of
Servicing Termination if one has occurred;
(xxiv) the amount to be distributed to the Credit Enhancer
pursuant to Section 8.3(a)(vi) and Section 8.3(a)(ix), stated separately;
(xxv) the amount to be distributed to the Spread Account
pursuant to Section 8.3(a)(vii);
(xxvi) the Guaranteed Principal Distribution Amount, if any, for
such Distribution Date;
(xxvii) the Credit Enhancement Draw Amount, if any, for such
Distribution Date;
(xxviii) the amount to be distributed to the holders of
certificates pursuant to Section 8.3(a)(xiv);
(xxix) the amount to be paid to the Servicer pursuant to Section
8.3(a)(xi);
(xxx) the Maximum Rate for the related Collection Period and the
Weighted Average Net Loan Rate;
(xxxi) the total amount of funds on deposit in the Spread
Account, the amount to be transferred from the Spread Account to the
Collection Account pursuant to Section 4.03(b) of the Sale and Servicing
Agreement and the applicable Spread Account Maximum;
(xxxii) the number and Asset Balances of any Mortgage Loans
retransferred to the Sponsor pursuant to Section 2.07 of the Sale and
Servicing Agreement;
(xxxiii) the amount of Principal Collections to be deposited in the
Funding Account in respect of such Distribution Date pursuant to Section
8.7(a);
(xxxiv) the amount on deposit in the Funding Account as of such
Distribution Date and transfers of fund required by Section 8.7(c);
(xxxv) the aggregate of the Asset Balances of the Subsequent
Mortgage Loans purchased on the related Subsequent Transfer Dates to the
Class A Noteholders pursuant to Section 8.3(b); and
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(xxxvi) whether the Distribution Date following the next
Determination Date is expected to be a Subsequent Transfer Date and a
reasonable management estimate of the aggregate Asset Balances of such
intended Subsequent Mortgage Loans.
In the case of information furnished pursuant to clauses (vii), (viii)
and (ix) in respect of Class A Note Interest above, the amounts shall be
expressed as a dollar amount per Note with a $1,000 denomination.
Within 60 days after the end of each calendar year, the Servicer shall
prepare or cause to be prepared and shall forward to the Indenture Trustee the
information set forth in clause (vi) above aggregated for such calendar year.
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 or a Note Paying Agent pursuant to any requirements of the Code.
SECTION 8.6. Rights of Securityholders. The Notes shall represent
-------------------------
obligations of the Trust, secured by the Trust Property, including the
Collection Account and the right to receive Noteholders' Interest Collections,
Principal Collections, if any, and other amounts at the times and in the amounts
specified in this Agreement; the Certificates shall represent the interest of
the Trust (other than the Capitalized Interest Account, the Spread Account, the
Policy and the Funding Account).
SECTION 8.7. Funding Account.
---------------
(a) The Indenture Trustee shall establish and maintain with itself a
separate trust account (the "Funding Account") entitled "The First National Bank
of Chicago as Indenture Trustee, in trust for the registered holders of
Headlands Home Equity Loan Trust 1998-1, Revolving Home Equity Loan Asset Backed
Notes, Series 1998-1 Funding Account." The Funding Account shall be an Eligible
Account. On each Distribution Date during the Funding Period, the Indenture
Trustee shall withdraw from the Collection Account and deposit to the Funding
Account the Scheduled Principal Collections Distribution Amount for such
Distribution Date.
(b) The Servicer may cause the institution maintaining the Funding
Account to invest any funds in the Funding Account in Eligible Investments which
shall mature or otherwise be available not later than the Business Day next
preceding the Distribution Date or, with the approval of the Credit Enhancer and
the Rating Agencies, on the Distribution Date next following the date of such
investment (except that any investment in an obligation of the institution with
which the Funding Account is maintained may mature on or before 12:00 noon, New
York time, on such Distribution Date) and shall not be sold or disposed of prior
to its maturity. At any time when the Indenture Trustee is maintaining the
Funding Account, any request by the Servicer to invest funds on deposit in the
Funding Account shall be in writing, shall be delivered to the Indenture Trustee
at or before 10:30 a.m., New York time, if such investment is to be made on such
day, and shall certify that the requested investment is an Eligible Investment
which matures at or prior to the time required hereby. Any such investment shall
be registered in the name of the Indenture Trustee as trustee hereunder or in
the name of its nominee, and to the extent such investments are certificated
they shall be maintained in the possession of the Indenture Trustee in the state
of its Corporate Trust Office. All income and
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gain realized from any such investment shall be included as Interest
Collections. The amount of any losses incurred in respect of the principal
amount of any such investment shall be deposited in the Funding Account by the
Servicer out of its own funds immediately as realized. Any investment earnings
on the Funding Account shall be treated as owned by the Sponsor for federal and
state income tax purposes.
(c) From time to time withdrawals shall be made from the Funding
Account by the Indenture Trustee as follows:
(i) on each Distribution Date during the Funding Period, to deposit
to the Collection Account all income realized from Eligible Investments
during the related Interest Period on Principal Collections on deposit in
the Funding Account for distribution as Interest Collections in accordance
with Section 8.3(a);
(ii) on each Distribution Date prior to the last Distribution Date
during the Funding Period, any amounts in respect of Principal Collections
on deposit in the Funding Account shall be withdrawn and applied (a) as
payment to the Sponsor of an amount equal to the Additional Balances
previously acquired by the Trust and for which the Sponsor has not
previously been paid, (b) from any remaining amount on deposit in the
Funding Account, to purchase the Subsequent Mortgage Loans, if any,
transferred to the Trust pursuant to Section 2.10 of the Sale and Servicing
Agreement and (c) on the sixth Distribution Date, as payment of the
Remaining Funded Amount to the Class A Noteholders pursuant to Section
8.3(b); and
(iii) on the last Distribution Date of the Funding Period, any
amounts in respect of Principal Collections on deposit in the Funding
Account that have not been so applied shall be withdrawn and distributed to
the Collection Account, for distribution to the Class A Noteholders
pursuant to Section 8.3(b).
SECTION 8.8. Capitalized Interest Account. The Indenture Trustee
----------------------------
shall establish and maintain with itself a separate trust account (the
"Capitalized Interest Account") entitled "The First National Bank of Chicago, as
Indenture Trustee, in trust for the registered holders of Headlands Home Equity
Loan Trust 1998-1, Revolving Home Equity Loan Asset-Backed Notes, Series 1998-1
Capitalized Interest Account." The Capitalized Interest Account shall be an
Eligible Account. On the Closing Date an amount equal to $1,109,024.69 will be
deposited. On each of the first six Distribution Dates, amounts in the
Capitalized Interest Account in excess of the product of (a) $1,109,024.69 and
(b) a fraction, the numerator of which is the Remaining Funding Amount on such
Distribution Date and the denominator of which is the Original Funded Amount,
will be withdrawn from the Capitalized Interest Account and deposited into the
Collection Account to be applied in accordance with Section 8.3 herein. Any
amounts remaining in the Capitalized Interest Account on the sixth Distribution
Date will be deposited in the Collection Account for distribution. Amounts on
deposit in the Capitalized Interest Account shall be invested in Eligible
Investments at the direction of the Servicer.
SECTION 8.9. Opinion of Counsel. The Indenture Trustee shall
------------------
receive at least seven days' notice when requested by the Issuer to take any
action pursuant to Section 8.2(a), accompanied by copies of any instruments
involved, and the Indenture Trustee shall also
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require as a condition to such action, an Opinion of Counsel, stating the legal
effect of any such action, outlining the steps required to complete the same,
and concluding that all conditions precedent to the taking of such action have
been complied with and such action will not materially and adversely impair the
security for the Notes or the rights of the Noteholders or the Credit Enhancer
in contravention of the provisions of this Indenture; provided, however, that
-------- -------
such Opinion of Counsel shall not be required to express an opinion as to the
fair value of the Trust Property. Counsel rendering any such opinion may rely,
without independent investigation, on the accuracy and validity of any
certificate or other instrument delivered to the Indenture Trustee in connection
with any such action.
ARTICLE IX.
Supplemental Indentures
-----------------------
SECTION 9.1. Supplemental Indentures Without Consent of Noteholders.
------------------------------------------------------
(a) Without the consent of the Holders of any Notes but with the
consent of the Credit Enhancer, as evidenced to the Indenture Trustee, the
Issuer and the Indenture Trustee, when authorized by an Issuer Order, at any
time and from time to time, may enter into one or more indentures supplemental
hereto (which shall conform to the provisions of the Trust Indenture Act as in
force at the date of the execution thereof), in form satisfactory to the
Indenture Trustee, for any of the following purposes:
(i) to correct or amplify the description of any property at any
time subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Indenture Trustee any property subject or required to be
subjected to the lien of this Indenture, or to subject to the lien of this
Indenture additional property;
(ii) to evidence the succession, in compliance with the applicable
provisions hereof, of another person to the Issuer, and the assumption by
any such successor of the covenants of the Issuer herein and in the Notes
contained;
(iii) to add to the covenants of the Issuer, for the benefit of the
Holders of the Notes, or to surrender any right or power herein conferred
upon the Issuer;
(iv) to convey, transfer, assign, mortgage or pledge any property to
or with the Indenture Trustee;
(v) to cure any ambiguity, to correct or supplement any provision
herein or in any supplemental indenture which may be inconsistent with any
other provision herein or in any supplemental indenture or to make any
other provisions with respect to matters or questions arising under this
Indenture or in any supplemental indenture; provided that such action shall
--------
not adversely affect the interests of the Holders of the Notes;
(vi) to evidence and provide for the acceptance of the appointment
hereunder by a successor trustee with respect to the Notes and to add to or
change any of the
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provisions of this Indenture as shall be necessary to facilitate the
administration of the trusts hereunder by more than one trustee, pursuant
to the requirements of Article VI; or
(vii) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA or under any similar federal statute hereafter
enacted and to add to this Indenture such other provisions as may be
expressly required by the TIA.
The Indenture Trustee is hereby authorized to join in the execution of
any such supplemental indenture and to make any further appropriate agreements
and stipulations that may be therein contained.
(b) The Issuer and the Indenture Trustee, when authorized by an Issuer
Order, may, also without the consent of any of the Holders of the Notes but with
the prior written consent of the Credit Enhancer and with prior notice to the
Rating Agencies by the Issuer, as evidenced to the Indenture Trustee, enter into
an indenture or indentures supplemental hereto for the purpose of adding any
provisions to, or changing in any manner or eliminating any of the provisions
of, this Indenture or of modifying in any manner the rights of the Holders of
the Notes under this Indenture; provided, however, that such action shall not,
-------- -------
as evidenced by an Opinion of Counsel, adversely affect in any material respect
the interests of any Noteholder.
SECTION 9.2. Supplemental Indentures with Consent of Noteholders.
---------------------------------------------------
The Issuer and the Indenture Trustee, when authorized by an Issuer Order, also
may, with prior notice to the Rating Agencies, with the consent of the Credit
Enhancer and with the consent of the Holders of not less than a majority of the
Outstanding Amount of the Notes, by Act of such Holders delivered to the Issuer
and the Indenture Trustee, enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to, or changing in any manner or
eliminating any of the provisions of, this Indenture or of modifying in any
manner the rights of the Holders of the Notes under this Indenture; provided,
--------
however, that, subject to the express rights of the Credit Enhancer under the
- -------
Basic Documents, no such supplemental indenture shall, without the consent of
the Holder of each Outstanding Note affected thereby:
(i) change the date of payment of any installment of principal of
or interest on any Note, or reduce the principal amount thereof, the
interest rate thereon or the Redemption Price with respect thereto, change
the provision of this Indenture relating to the application of collections
on, or the proceeds of the sale of, the Trust Property to payment of
principal of or interest on the Notes, or change any place of payment
where, or the coin or currency in which, any Note or the interest thereon
is payable;
(ii) impair the right to institute suit for the enforcement of the
provisions of this Indenture requiring the application of funds available
therefor, as provided in Article V, to the payment of any such amount due
on the Notes on or after the respective due dates thereof (or, in the case
of redemption, on or after the Redemption Date);
(iii) reduce the percentage of the Outstanding Amount of the Notes,
the consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any
waiver of compliance with certain
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provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture;
(iv) modify or alter the provisions of the proviso to the definition
of the term "Outstanding";
(v) reduce the percentage of the Outstanding Amount of the Notes
required to direct the Indenture Trustee to direct the Issuer to sell or
liquidate the Trust Property pursuant to Section 12.1;
(vi) modify any provision of this Section except to increase any
percentage specified herein or to provide that certain additional
provisions of this Indenture or the Basic Documents cannot be modified or
waived without the consent of the Holder of each Outstanding Note affected
thereby;
(vii) modify any of the provisions of this Indenture in such manner
as to affect the calculation of the amount of any payment of interest or
principal due on any Note on any Distribution Date (including the
calculation of any of the individual components of such calculation); or
(viii) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Trust
Property or, except as otherwise permitted or contemplated herein or in any
of the Basic Documents, terminate the lien of this Indenture on any
property at any time subject hereto or deprive the Holder of any Note of
the security provided by the lien of this Indenture.
The Indenture Trustee may determine whether or not any Notes would be
adversely affected by any supplemental indenture upon receipt of an Opinion of
Counsel to that effect and any such determination shall be conclusive upon the
Holders of all Notes, whether theretofore or thereafter authenticated and
delivered hereunder. The Indenture Trustee shall not be liable for any such
determination made in good faith.
It shall not be necessary for any Act of Noteholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
Promptly after the execution by the Issuer and the Indenture Trustee
of any supplemental indenture pursuant to this Section, the Indenture Trustee
shall mail to the Holders of the Notes to which such amendment or supplemental
indenture relates a notice setting forth in general terms the substance of such
supplemental indenture. Any failure of the Indenture Trustee to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
SECTION 9.3. Execution of Supplemental Indentures. In executing,
------------------------------------
or permitting the additional trusts created by, any supplemental indenture
permitted by this Article IX or the modifications thereby of the trusts created
by this Indenture, the Indenture Trustee shall be entitled to receive, and
subject to Sections 6.1 and 6.2, shall be fully protected in relying upon, an
Opinion of Counsel (and, if requested, an Officer's Certificate) stating that
the
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execution of such supplemental indenture is authorized or permitted by this
Indenture. The Indenture Trustee may, but shall not be obligated to, enter into
any such supplemental indenture that affects the Indenture Trustee's own rights,
duties, liabilities or immunities under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indenture. Upon the execution
--------------------------------
of any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to the Notes affected thereby, and the respective rights, limitations of
rights, obligations, duties, liabilities and immunities under this Indenture of
the Indenture Trustee, the Issuer and the Holders of the Notes shall thereafter
be determined, exercised and enforced hereunder subject in all respects to such
modifications and amendments, and all the terms and conditions of any such
supplemental indenture shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 9.5. Conformity With Trust Indenture Act. Every amendment
-----------------------------------
of this Indenture and every supplemental indenture executed pursuant to this
Article IX shall conform to the requirements of the Trust Indenture Act as then
in effect so long as this Indenture shall then be qualified under the Trust
Indenture Act.
SECTION 9.6. Reference in Notes to Supplemental Indentures. Notes
---------------------------------------------
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article IX may, and if required by the Indenture Trustee shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such supplemental indenture. If the Issuer or the Indenture
Trustee shall so determine, new Notes so modified as to conform, in the opinion
of the Indenture Trustee and the Issuer, to any such supplemental indenture may
be prepared and executed by the Issuer and authenticated and delivered by the
Indenture Trustee in exchange for Outstanding Notes.
ARTICLE X.
Redemption of Notes
-------------------
SECTION 10.1. Redemption. The Notes are subject to redemption in
----------
whole, but not in part, at the direction of the Sponsor pursuant to Section
7.01(b) of the Sale and Servicing Agreement, on any Distribution Date on which
the Sponsor exercises its option to purchase the Trust Property pursuant to said
Section 7.01(b), for a purchase price equal to the Redemption Price. The
Servicer or the Issuer shall furnish the Credit Enhancer notice of such
redemption. If the Notes are to be redeemed pursuant to this Section 10.1(a),
the Servicer or the Issuer shall furnish notice of such election to the
Indenture Trustee not later than 35 days prior to the Redemption Date and the
Issuer shall deposit with the Indenture Trustee in the Collection Account the
Redemption Price of the Notes not less than five Business Days prior to the
Redemption Date whereupon all such Notes shall be due and payable on the
Redemption Date upon the furnishing of a notice complying with Section 10.2.
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SECTION 10.2. Surrender of Notes.
------------------
(a) Notice of any termination, specifying the Distribution Date (which
shall be a date that would otherwise be a Distribution Date) upon which the
Noteholders may surrender their Notes to the Indenture Trustee for payment of
the final distribution and cancellation, shall be given promptly by the
Indenture Trustee (upon receipt of written directions from the Sponsor, if the
Sponsor is exercising its right to transfer of the Mortgage Loans, given not
later than the first day of the month preceding the month of such final
distribution) to the Credit Enhancer and to the Servicer and by letter to
Noteholders mailed not earlier than the 15th day and not later than the 25th day
of the month next preceding the month of such final distribution specifying (i)
the Distribution Date upon which final distribution of the Notes will be made
upon presentation and surrender of Notes at the office or agency of the
Indenture Trustee therein designated, (ii) the amount of any such final
distribution and (iii) that the Record Date otherwise applicable to such
Distribution Date is not applicable, distributions being made only upon
presentation and surrender of the Notes at the office or agency of the Indenture
Trustee therein specified. In the event written directions are delivered by the
Sponsor to the Indenture Trustee as described in the preceding sentence, the
Sponsor shall deposit in the Collection Account on or before the Distribution
Date for such final distribution in immediately available funds an amount which,
when added to the funds on deposit in the Collection Account that are payable to
the Noteholders, will be equal to the retransfer amount for the Mortgage Loans
computed as above provided, together with all amounts due and owing to the
Credit Enhancer for unpaid premiums and unreimbursed draws on the Policy and all
other amounts due and owing to the Credit Enhancer pursuant to the Insurance
Agreement, together with interest thereon as provided under the Insurance
Agreement.
(b) Upon presentation and surrender of the Notes, the Indenture
Trustee shall cause to be distributed to the Holders of Notes on the
Distribution Date for such final distribution, in proportion to the Percentage
Interests of their respective Notes and to the extent that funds are available
for such purpose, an amount equal to (i) if such final distribution is not being
made pursuant to the transfer to the Sponsor pursuant to Section 7.01(a)(B)(i)
of the Sale and Servicing Agreement, the amount required to be distributed to
Noteholders pursuant to Section 5.01 of the Sale and Servicing Agreement for
such Distribution Date and (ii) if such final distribution is being made
pursuant to such retransfer, the amount specified in Section 7.01(a)(B)(i) of
the Sale Servicing Agreement. The distribution on such final Distribution Date
pursuant to a retransfer pursuant to Section 7.01(a)(B)(i) of the Sale and
Servicing Agreement shall be in lieu of the distribution otherwise required to
be made on such Distribution Date in respect of the Notes. On the final
Distribution Date prior to having made the distributions called for above, the
Indenture Trustee shall, based upon the information set forth in the Servicing
Certificate for such Distribution Date, withdraw from the Collection Account and
remit to the Credit Enhancer the lesser of (x) the amount available for
distribution on such final Distribution Date, net of any portion thereof
necessary to pay the amounts described in clauses (i) and (ii) above and (y) the
unpaid amounts due and owing to the Credit Enhancer for unpaid premiums and
unreimbursed draws on the Policy and all other amounts due and owing to the
Credit Enhancer pursuant to the Insurance Agreement, together with interest
thereon as provided under the Insurance Agreement.
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(c) In the event that all of the Noteholders shall not surrender their
Notes for final payment and cancellation on or before such final Distribution
Date, the Indenture Trustee shall on such date cause all funds in the Collection
Account not distributed in final distribution to Noteholders to be withdrawn
therefrom and credited to the remaining Noteholders by depositing such funds in
a separate escrow account for the benefit of such Noteholders and the Sponsor
(if the Sponsor has exercised its right to transfer the Mortgage Loans) or the
Indenture Trustee (in any other case) and shall give a second written notice to
the remaining Noteholders to surrender their Notes for cancellation and receive
the final distribution with respect thereto. If within one year after the second
notice all the Notes shall not have been surrendered for cancellation, the
Indenture Trustee may take appropriate steps, or may appoint an agent to take
appropriate steps, to contact the remaining Noteholders concerning surrender of
their Notes, and the cost thereof shall be paid out of the funds on deposit in
such escrow account.
SECTION 10.3. Form of Redemption Notice. Notice of redemption
-------------------------
supplied to the Indenture Trustee by the Servicer under Section 10.1(a) shall be
given by the Indenture Trustee by facsimile or by first-class mail, postage
prepaid, transmitted or mailed prior to the applicable Redemption Date to each
Holder of Notes of record, as of the close of business on the date which is not
less than 5 days prior to the applicable Redemption Date, at such Holder's
address appearing in the Note Register.
All notices of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) that the Record Date otherwise applicable to such Redemption
Date is not applicable and that payments shall be made only upon
presentation and surrender of such Notes at the place where such Notes are
to be surrendered for payment of the Redemption Price (which shall be the
office or agency of the Issuer to be maintained as provided in Section
3.2); and
(iv) that interest on the Notes shall cease to accrue on the
Redemption Date.
Notice of redemption of the Notes shall be given by the Indenture
Trustee in the name and at the expense of the Issuer. Failure to give notice of
redemption, or any defect therein, to any Holder of any Note shall not impair or
affect the validity of the redemption of any other Note.
SECTION 10.4. Notes Payable on Redemption Date. The Notes to be
--------------------------------
redeemed shall, following notice of redemption as required by Section 10.2, on
the Redemption Date become due and payable at the Redemption Price and (unless
the Issuer shall default in the payment of the Redemption Price) no interest
shall accrue on the Redemption Price for any period after the date to which
accrued interest is calculated for purposes of calculating the Redemption Price.
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ARTICLE XI.
Miscellaneous
-------------
SECTION 11.1. Compliance Certificates and Opinions, etc. Upon any
------------------------------------------
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall furnish to the Indenture
Trustee and to the Credit Enhancer if the application or request is made to the
Indenture Trustee (i) an Officer's Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with, (ii) an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with and (iii) (if required by the TIA) an Independent Certificate from
a firm of certified public accountants meeting the applicable requirements of
this Section, except that, in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(i) a statement that each signatory of such certificate or opinion
has read or has caused to be read such covenant or condition and the
definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(iii) a statement that, in the opinion of each such signatory, such
signatory has made such examination or investigation as is necessary to
enable such signatory to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
signatory such condition or covenant has been complied with.
SECTION 11.2. Form of Documents Delivered to Indenture Trustee. In
------------------------------------------------
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents.
Any certificate or opinion of an Authorized Officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of, or representations by, counsel, unless such officer knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to the matters upon which his or her certificate or
opinion is based are erroneous. Any such certificate of an Authorized Officer
or
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Opinion of Counsel may be based, insofar as it relates to factual matters, upon
a certificate or opinion of, or representations by, an officer or officers of
the Servicer, the Sponsor or the Issuer, stating that the information with
respect to such factual matters is in the possession of the Servicer, the
Sponsor or the Issuer, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever in this Indenture, in connection with any application or
certificate or report to the Indenture Trustee, it is provided that the Issuer
shall deliver any document as a condition of the granting of such application,
or as evidence of the Issuer's compliance with any term hereof, it is intended
that the truth and accuracy, at the time of the granting of such application or
at the effective date of such certificate or report (as the case may be), of the
facts and opinions stated in such document shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to conclusively rely upon the
truth and accuracy of any statement or opinion contained in any such document as
provided in Article VI.
SECTION 11.3. Acts of Noteholders.
-------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by agents
duly appointed in writing; and except as herein otherwise expressly provided
such action shall become effective when such instrument or instruments are
delivered to the Indenture Trustee, and, where it is hereby expressly required,
to the Issuer. Such instrument or instruments (and the action embodied therein
and evidenced thereby) are herein sometimes referred to as the "Act" of the
Noteholders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 6.1) conclusive in
favor of the Indenture Trustee and the Issuer, if made in the manner provided in
this Section.
(b) The fact and date of the execution by any person of any such
instrument or writing may be proved in any customary manner of the Indenture
Trustee.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other action by the Holder of any Notes shall bind the Holder of every
Note issued upon the registration thereof or in exchange therefor or in lieu
thereof, in respect of anything done, omitted or suffered to be done by the
Indenture Trustee or the Issuer in reliance thereon, whether or not notation of
such action is made upon such Note.
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SECTION 11.4. Notices, etc., to Indenture Trustee, Issuer and Rating
------------------------------------------------------
Agencies. Any request, demand, authorization, direction, notice, consent,
- --------
waiver or Act of Noteholders or other documents provided or permitted by this
Indenture to be made upon, given or furnished to or filed with:
(a) The Indenture Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if personally delivered, delivered
by overnight courier or mailed first-class and shall be deemed to have been
duly given upon receipt to the Indenture Trustee at its Corporate Trust
Office and any notice delivered by facsimile shall be addressed to the
Corporate Trust Office, telecopy number (312) 407-1708, or
(b) The Issuer by the Indenture Trustee or by any Noteholder shall be
sufficient for every purpose hereunder if personally delivered, delivered
by facsimile or overnight courier or mailed first class, and shall deemed
to have been duly given upon receipt to the Issuer addressed to: Headlands
Home Equity Loan Trust 1998-1, in care of Wilmington Trust Company, Rodney
Square North, 1100 North Market Street, Wilmington, DE 19890-0001
Attention: Corporate Trust Administration, or at any other address
previously furnished in writing to the Indenture Trustee by Issuer. The
Issuer shall promptly transmit any notice received by it from the
Noteholders to the Indenture Trustee.
(c) The Credit Enhancer by the Issuer or the Indenture Trustee shall
be sufficient for any purpose hereunder if in writing and mailed by first-
class mail personally delivered or telecopied to the recipient as follows:
To the Credit Enhancer: Ambac Assurance Corporation
One State Street Plaza
New York, NY 10004
Telecopy: (212) 363-1459
Notices required to be given to the Rating Agencies by the Issuer, the
Indenture Trustee or the Owner Trustee shall be in writing, personally
delivered, delivered by overnight courier or first class or via facsimile to (i)
in the case of Moody's, at the following address: Moody's Investors Service,
Inc., 99 Church Street, New York, New York 10004, Fax No: (212) 533-0355 and
(ii) in the case of S&P, at the following address: Standard & Poor's Ratings
Group, 26 Broadway (15th Floor), New York, New York 10004, Attention: Asset
Backed Surveillance Department, Fax No: (212) 412-0224; or as to each of the
foregoing, at such other address as shall be designated by written notice to the
other parties.
SECTION 11.5. Notices to Noteholders; Waiver. Where this Indenture
------------------------------
provides for notice to Noteholders of any event, such notice shall be
sufficiently given (unless otherwise herein expressly provided) if in writing
and mailed, first-class, postage prepaid to each Noteholder affected by such
event (and in all cases, the Credit Enhancer shall receive notice), at his
address as it appears on the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Noteholders is given by mail, neither the failure to
mail such notice nor any defect in any notice so mailed to any particular
Noteholder shall affect the sufficiency of such notice with respect to
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other Noteholders, and any notice that is mailed in the manner herein provided
shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
Where this Indenture provides for notice to the Rating Agencies,
failure to give such notice shall not affect any other rights or obligations
created hereunder.
SECTION 11.6. Alternate Payment and Notice Provisions.
---------------------------------------
Notwithstanding any provision of this Indenture or any of the Notes to the
contrary, the Issuer may enter into any agreement with any Holder of a Note
providing for a method of payment, or notice by the Indenture Trustee or any
Note Paying Agent to such Holder, that is different from the methods provided
for in this Indenture for such payments or notices, provided that such methods
are reasonable and consented to by the Indenture Trustee (which consent shall
not be unreasonably withheld). The Issuer will furnish to the Indenture Trustee
a copy of each such agreement and the Indenture Trustee will cause payments to
be made and notices to be given in accordance with such agreements.
SECTION 11.7. Conflict with Trust Indenture Act. If any provision
---------------------------------
hereof limits, qualifies or conflicts with another provision hereof that is
required to be included in this indenture by any of the provisions of the Trust
Indenture Act, such required provision shall control.
The provisions of TIA (S)(S) 310 through 317 that impose duties on any
person (including the provisions automatically deemed included herein unless
expressly excluded by this Indenture) are a part of and govern this Indenture,
whether or not physically contained herein.
SECTION 11.8. Effect of Headings and Table of Contents. The Article
----------------------------------------
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
SECTION 11.9. Successors and Assigns. All covenants and agreements
----------------------
in this Indenture and the Notes by the Issuer shall bind its successors and
assigns, whether so expressed or not. All agreements of the Indenture Trustee in
this Indenture shall bind its successors.
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SECTION 11.10. Separability. In case any provision in this
------------
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality, and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.11. Benefits of Indenture. The Credit Enhancer and its
---------------------
successors and assigns shall be a third-party beneficiary to the provisions of
this Indenture, and shall be entitled to rely upon and directly to enforce such
provisions of this Indenture. Nothing in this Indenture or in the Notes, express
or implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the Credit Enhancer and the Noteholders, and any other
party secured hereunder, and any other person with an ownership interest in any
part of the Trust Property, any benefit or any legal or equitable right, remedy
or claim under this Indenture. The Credit Enhancer may disclaim any of its
rights and powers under this Indenture (in which case the Indenture Trustee may
exercise such right or power hereunder), but not its duties and obligations
under the Note Policy, upon delivery of a written notice to the Indenture
Trustee.
SECTION 11.12. Legal Holidays. In any case where the date on which
--------------
any payment is due shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment need not be made on such date,
but may be made on the next succeeding Business Day with the same force and
effect as if made on the date on which nominally due, and no interest shall
accrue for the period from and after any such nominal date.
SECTION 11.13. GOVERNING LAW. THIS INDENTURE SHALL BE CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REFERENCE TO ITS
CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE
PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 11.14. Counterparts. This Indenture may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but one and the
same instrument.
SECTION 11.15. Recording of Indenture. If this Indenture is subject
----------------------
to recording in any appropriate public recording offices, such recording is to
be effected by the Issuer and at its expense accompanied by an Opinion of
Counsel (which may be counsel to the Trust or any other counsel reasonably
acceptable to the Indenture Trustee and the Credit Enhancer) to the effect that
such recording is necessary either for the protection of the Noteholders or any
other person secured hereunder or for the enforcement of any right or remedy
granted to the Indenture Trustee under this Indenture.
SECTION 11.16. Trust Obligation. No recourse may be taken,
----------------
directly or indirectly, with respect to the obligations of the Issuer, the
Sponsor, the Servicer, the Owner Trustee or the Indenture Trustee on the Notes
or under this Indenture or any certificate or other writing delivered in
connection herewith or therewith, against (i) the Sponsor, the Servicer, the
Indenture Trustee or the Owner Trustee in its individual capacity, (ii) any
owner of a beneficial interest in the Issuer or (iii) any partner, owner,
beneficiary, agent, officer, director, employee or agent of the Sponsor, the
Servicer, the Indenture Trustee or the Owner Trustee in its individual capacity,
any holder of a beneficial interest in the Issuer, the Sponsor, the Servicer,
the Owner
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Trustee or the Indenture Trustee or of any successor or assign of the Sponsor,
the Servicer, the Indenture Trustee or the Owner Trustee in its individual
capacity, except as any such Person may have expressly agreed (it being
understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity. For all purposes of this
Indenture, in the performance of any duties or obligations of the Issuer
hereunder, the Owner Trustee shall be subject to, and entitled to the benefits
of, the terms and provisions of Articles VI, VII and VIII of the Trust
Agreement.
SECTION 11.17. No Petition. The Indenture Trustee, by entering
-----------
into this Indenture, and each Noteholder, by accepting a Note, hereby covenant
and agree that they will not at any time institute against the Sponsor, or the
Issuer, or join in any institution against the Sponsor, or the Issuer of, any
bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings,
or other proceedings under any United States Federal or state bankruptcy or
similar law in connection with any obligations relating to the Notes, this
Indenture or any of the Basic Documents.
SECTION 11.18. Inspection. The Issuer agrees that, on reasonable
----------
prior notice, it will permit any representative of the Indenture Trustee or of
the Credit Enhancer, during the Issuer's normal business hours, to examine all
the books of account, records, reports, and other papers of the Issuer, to make
copies and extracts therefrom, to cause such books to be audited by independent
certified public accountants, and to discuss the Issuer's affairs, finances and
accounts with the Issuer's officers, employees, and independent certified public
accountants, all at such reasonable times and as often as may be reasonably
requested. The Indenture Trustee shall and shall cause its representatives to
hold in confidence all such information except to the extent disclosure may be
required by law (and all reasonable applications for confidential treatment are
unavailing) and except to the extent that the Indenture Trustee may reasonably
determine that such disclosure is consistent with its Obligations hereunder.
SECTION 11.19. Limitation of Liability. It is expressly understood
-----------------------
and agreed by the parties hereto that (a) this Agreement is executed and
delivered by Wilmington Trust Company, not individually or personally but solely
as Owner Trustee of the Issuer under the Trust Agreement, in the exercise of the
powers and authority conferred and vested in it, (b) each of the
representations, undertakings and agreements herein made on the part of the
Issuer is made and intended not as personal representations, undertakings and
agreements by Wilmington Trust Company but is made and intended for the purpose
for binding only the Issuer, (c) nothing herein contained shall be construed as
creating any liability on Wilmington Trust Company individually or personally,
to perform any covenant either expressed or implied contained herein, all such
liability, if any, being expressly waived by the parties to this Agreement and
by any person claiming by, through or under them and (d) under no circumstances
shall Wilmington Trust Company be personally liable for the payment of any
indebtedness or expenses of the Issuer or be liable for the breach or failure of
any obligation, representation, warranty or covenant made or undertaking by the
Issuer under this Agreement or any related documents.
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ARTICLE XII.
Rapid Amortization Events
-------------------------
SECTION 12.1. Rapid Amortization Events. The following shall
-------------------------
constitute Rapid Amortization Events:
(a) failure on the part of the Sponsor, the Servicer or the Company,
as the case may be, (i) to make any payment or deposit required by the
terms of this Agreement, the Sale and Servicing Agreement or the Insurance
Agreement, within five Business Days after such payment or deposit is
required to be made, or (ii) duly to observe or perform in any material
respect the covenants of the Sponsor set forth in Section 2.05(a) of the
Sale and Servicing Agreement, as the case may be, or (iii) duly to observe
or perform in any material respect any other covenants or agreements of the
Sponsor, the Servicer or the Company, as the case may be, set forth in this
Agreement, the Sale and Servicing Agreement or the Insurance Agreement,
which failure, in each case, materially and adversely affects the interests
of the Noteholders or the Credit Enhancer and which, in the case of clause
(iii), continues unremedied and continues to affect materially and
adversely the interests of the Noteholders or the Credit Enhancer for a
period of 60 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Sponsor,
the Servicer or the Company, as the case may be, by the Indenture Trustee,
or to the Sponsor, the Servicer or the Company, as the case may be, and the
Indenture Trustee by the Credit Enhancer or Holders of Notes evidencing
Voting Rights aggregating not less than 51%;
(b) any representation or warranty made by the Sponsor, the Servicer
or the Company, as the case may be, in this Agreement, the Sale and
Servicing Agreement or the Insurance Agreement shall prove to have been
incorrect in any material respect when made, as a result of which the
interests of the Noteholders or the Credit Enhancer are materially and
adversely affected and which continues to be incorrect in any material
respect and continues to affect materially and adversely the interests of
the Noteholders or the Credit Enhancer for a period of 60 days after the
date on which written notice of such failure, requiring the same to be
remedied, shall have been given to the Sponsor, the Servicer or the
Company, as the case may be, by the Indenture Trustee, or to the Sponsor,
the Servicer or the Company, as the case may be, and the Indenture Trustee
by either the Credit Enhancer or the Holders of Notes evidencing Voting
Rights aggregating not less than 51%; provided, however, that a Rapid
-------- -------
Amortization Event pursuant to this subparagraph (b) shall not be deemed to
have occurred hereunder if the Sponsor has accepted retransfer of the
related Mortgage Loan or Mortgage Loans during such period (or such longer
period (not to exceed an additional 60 days as the Indenture Trustee may
specify with the consent of the Credit Enhancer) in accordance with the
provisions hereof;
(c) the Company, the Sponsor or the Trust or any of their
Subsidiaries or Affiliates shall voluntarily go into liquidation, consent
to the appointment of a conservator or receiver or liquidator or similar
person in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to the
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<PAGE>
Company, the Sponsor, or the Trust or of or relating to all or
substantially all of such Person's property, or a decree or order of a
court or agency or supervisory authority having jurisdiction in the
premises for the appointment of a conservator, receiver, liquidator or
similar person in any insolvency, readjustment of debt, marshalling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Company,
the Sponsor of the Trust and such decree or order shall have remained in
force undischarged or unstayed for a period of 30 days; or the Company, the
Sponsor or the Trust 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;
(d) the Trust shall become subject to registration as an "investment
company" under the Investment Company Act of 1940, as amended;
(e) the aggregate of all draws under the Note Policy exceeds 1% of the
Original Funded Balance;
(f) a default in payment of any interest, principal or any installment
of principal on any Note when the same becomes due and payable, if such
default shall continue for a period of five days;
(g) the aggregate net worth of the Servicer falls below $32,000,000;
and
(h) a Servicer Termination Delinquency Rate Trigger or Servicer
Termination Loss Trigger, as those terms are defined in the Insurance and
Indemnity Agreement, has occurred and is continuing.
A Rapid Amortization Event will be deemed to have occurred only if,
after the applicable grace period, if any, described in the foregoing clauses,
either (i) the Indenture Trustee or Noteholders holding Notes evidencing in the
aggregate more than 51% of the Voting Rights, with the consent of the Credit
Enhancer, or (ii) the Credit Enhancer (so long as there is no default by the
Credit Enhancer in the performance of its obligations under the Policy), by
written notice to the Servicer (and to the Indenture Trustee, if given by the
Noteholders) declare that a Rapid Amortization Event has occurred as of the date
of such notice; provided that with respect to clauses (c), (d) and (e) a Rapid
--------
Amortization Event shall occur immediately upon the occurrence of such, without
any such notice.
In addition, the Credit Enhancer may declare a Rapid Amortization
Event to have occurred as of the date of notice thereof upon the occurrence of a
Trigger Event other than as set forth at Sections 6.01(ii), (iv) or (v) of the
Insurance Agreement.
If the Sponsor voluntarily files a bankruptcy petition or goes into
liquidation or any person is appointed a receiver or bankruptcy trustee of the
Sponsor, on the day of any such filing or appointment no further Additional
Balances will be transferred to the Trust, the Sponsor will immediately cease to
transfer Additional Balances to the Trust and the Sponsor will promptly give
notice to the Indenture Trustee and the Credit Enhancer of any such filing or
appointment. Within 15 days, the Indenture Trustee will publish a notice of the
liquidation or the
70
<PAGE>
filing or appointment stating that the Indenture Trustee intends to sell,
dispose of or otherwise liquidate the Mortgage Loans in a commercially
reasonable manner and to the best of its ability. Unless otherwise instructed
within a specified period by Noteholders evidencing in the aggregate more than
51% of the Voting Rights, the Indenture Trustee will sell, dispose of or
otherwise liquidate the Mortgage Loans to a purchaser in a commercially
reasonable manner and on commercially reasonable terms; provided, however, that
-------- -------
the Credit Enhancer's consent to the terms of any such sale shall be required,
which consent shall not be unreasonably withheld. The proceeds of such sale
shall be applied first to the Outstanding Amount due on the Class A Notes plus
accrued and unpaid interest on the Notes, second, to the Credit Enhancer for any
and all amounts owing to the Credit Enhancer and third to the
Certificateholders.
Upon the occurrence of the events described in Section 12.1(n) and if
the Controlling Party is the Indenture Trustee, the Holders of 66 2/3% of the
Outstanding Amount of the Notes, with the consent of the Credit Enhancer (which
consent shall not be unreasonably withheld), shall have the right to direct the
Indenture Trustee to sell or liquidate the Trust Property; provided, however,
-------- -------
that no consent of the Credit Enhancer shall be required if the Indenture
Trustee is able to sell the Trust Property for a price (the "Liquidation Price")
which equals the Outstanding Amount due on the Class A Notes plus accrued and
unpaid interest on the Notes plus any and all amounts owing to the Credit
Enhancer. The Indenture Trustee shall deliver a certificate from a prospective
purchaser stating the Liquidation Price to the Credit Enhancer prior to such
sale.
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their respective officers, hereunto duly
authorized, all as of the day and year first above written.
HEADLANDS HOME EQUITY LOAN TRUST 1998-1,
By: WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee,
By: /s/ Emmett Harmon
---------------------------------------
Name: Emmett Harmon
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO, not in its
individual capacity but solely as Indenture Trustee,
By: /s/ R Tarnas
---------------------------------------
Name: R. Tarnas
Title: Vice President
71
<PAGE>
EXHIBIT A
[Form of Note]
REGISTERED $_____________
No. A
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. ____________
Unless this Note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
THE PRINCIPAL OF THIS NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS NOTE AT ANY TIME
MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF.
HEADLANDS HOME EQUITY LOAN TRUST 1998-1
CLASS A VARIABLE RATE ASSET BACKED NOTES
Headlands Home Equity Loan Trust 1998-1, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, the principal sum of ($_____________), such amount payable
on each Distribution Date in an amount equal to the result obtained by
multiplying (i) a fraction the numerator of which is $__________ and the
denominator of which is $______________ by (ii) the aggregate amount, if any,
payable from the Collection Account in respect of principal on the Class A Notes
pursuant to Section 8.3 of the Indenture; provided, however, that the entire
-------- -------
unpaid principal amount of this Note shall be due and payable on the ________,
20__, Distribution Date (the "Final Scheduled Distribution Date"). The Issuer
will pay interest on this Note at the rate per annum provided in the Indenture
on each Distribution Date until the principal of this Note is paid or made
available for payment, on the principal amount of this Note outstanding on the
preceding Distribution Date (after giving effect to all payments of principal
made on the preceding Distribution Date). Interest on this Note will accrue for
each Distribution Date from the most recent Distribution Date on which interest
has been paid to but excluding such Distribution Date or, if no interest has yet
been paid, from March 25, 1998. Interest will be computed on the basis of the
actual number of days elapsed in a
A-1
<PAGE>
360-day year. Such principal of and interest on this Note shall be paid in the
manner specified on the reverse hereof.
The principal of and interest on this Note are payable in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts. All payments made by the Issuer
with respect to this Note shall be applied first to interest due and payable on
this Note as provided above and then to the unpaid principal of this Note.
The Notes are entitled to the benefits of a financial guaranty
insurance policy (the "Note Policy") issued by Ambac Assurance Corporation (the
"Credit Enhancer"), pursuant to which the Credit Enhancer has unconditionally
guaranteed payments of the Class A Note Interest and Guaranteed Principal
Distribution Amount on each Distribution Date, all as more fully set forth in
the Indenture.
For purposes of federal income, state and local income and franchise
and any other income taxes, the Issuer will treat the Notes as indebtedness of
the Issuer and hereby instructs the Indenture Trustee to treat the Notes as
indebtedness of the Issuer for federal state tax reporting purposes.
Each Noteholder or Note Owner, by acceptance of this Note or, in the
case of a Note Owner, a beneficial interest in a Note, covenants and agrees that
no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Sponsor, the Servicer, the Indenture
Trustee, or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any owner, beneficiary, agent,
officer, director or employee of the Sponsor, the Servicer, the Indenture
Trustee, or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Sponsor, the Servicer, the Owner Trustee
or the Indenture Trustee or of any successor or assign of the Sponsor, the
Servicer, the Indenture Trustee, or the Owner Trustee in its individual
capacity, except as any such Person may have expressly agreed (it being
understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
A-2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer.
Date: March 25, 1998 HEADLANDS HOME EQUITY LOAN TRUST 1998-1
By: WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee under the Trust
Agreement
By:
--------------------------------
Name:
Title:
A-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: March __, 1998 THE FIRST NATIONAL BANK OF CHICAGO, not in its
individual capacity but solely as Indenture Trustee,
By:
--------------------------------
Authorized Signatory
A-4
<PAGE>
REVERSE OF NOTE
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class A Variable Rate Asset Backed Notes (herein called the
"Class A Notes"), all issued under an Indenture dated as of March __, 1998 (such
indenture, as supplemented or amended, is herein called the "Indenture"),
between the Issuer and The First National Bank of Chicago, as trustee (the
"Indenture Trustee", which term includes any successor Indenture Trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Class A Notes and the Class S Notes (together, the "Notes") are
and will be equally and ratably secured by the collateral pledged as security
therefor as provided in the Indenture.
Principal of the Class A Notes will be payable on each Distribution
Date in an amount described on the face hereof. "Distribution Date" means the
fifteenth day of each month, or, if any such date is not a Business Day, the
next succeeding Business Day, commencing __________, 1998. The term
"Distribution Date," shall be deemed to include the Final Scheduled Distribution
Date.
As described above, the entire unpaid principal amount of this Note
shall be due and payable on the earlier of the Final Scheduled Distribution Date
and the Redemption Date, if any, pursuant to Section 10.1(a) of the Indenture.
Notwithstanding the foregoing, the entire unpaid principal amount of the Notes
shall be due and payable if a Credit Enhancer Default shall have occurred and be
continuing, on the date on which a Rapid Amortization Event as described in
Section 12.1(h) shall have occurred and be continuing and the Indenture Trustee
or the Holders of the Notes representing at least 66-2/3% of the Outstanding
Amount of the Notes, with the consent of the Credit Enhancer (which consent
shall not be unreasonably withheld) shall have the right to direct the Indenture
Trustee to sell or liquidate the Trust Property as provided in Section 12.1 of
the Indenture. All principal payments on the Class A Notes shall be made pro
rata to the Class A Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Distribution
Date, together with the installment of principal, if any, to the extent not in
full payment of this Note, shall be made by check mailed to the Person whose
name appears as the Holder of this Note (or one or more Predecessor Notes) on
the Note Register as of the close of business on each Record Date, except that
with respect to Notes registered on the Record Date in the name of the nominee
of the Clearing Agency (initially, such nominee to be Cede & Co.), payments will
be made by wire transfer in immediately available funds to the account
designated by such nominee. Such checks shall be mailed to the Person entitled
thereto at the address of such Person as it appears on the Note Register as of
the applicable Record Date without requiring that this Note be submitted for
notation of payment. Any reduction in the principal amount of this Note (or any
one or more Predecessor Notes) effected by any payments made on any Distribution
Date shall
A-5
<PAGE>
be binding upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not noted hereon. If funds are expected to be available, as provided in the
Indenture, for payment in full of the then remaining unpaid principal amount of
this Note on a Distribution Date, then the Indenture Trustee, in the name of and
on behalf of the Issuer, will notify the Person who was the Holder hereof as of
the Record Date preceding such Distribution Date by notice mailed prior to such
Distribution Date and the amount then due and payable shall be payable only upon
presentation and surrender of this Note at the Indenture Trustee's principal
Corporate Trust Office or at the office of the Indenture Trustee's agent
appointed for such purposes located in The City of New York.
The Issuer shall pay interest on overdue installments of interest at
the Class A Note Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed pursuant to
Section 10.1(a) of the Indenture, in whole, but not in part, at the option of
the Sponsor (with the consent of the Credit Enhancer under certain
circumstances), on any Distribution Date on or after the date on which the Class
A Note Principal Balance is less than or equal to 10% of the Original Class A
Note Principal Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, with such signature guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar which requirements
include membership or participation in Securities Transfer Agents Medallion
Program ("Stamp") or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, Stamp,
all in accordance with the Exchange Act, and (ii) accompanied by such other
documents as the Indenture Trustee may require, and thereupon one or more new
Notes of authorized denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Note, but
the transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Sponsor, the Servicer, the Indenture Trustee or the
Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any owner, beneficiary, agent, officer, director
or employee of the Sponsor, the Servicer, the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Sponsor, the Servicer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Sponsor, the Servicer, the Indenture Trustee
or the Owner Trustee in its individual capacity, except as any such Person may
have expressly agreed (it being
A-6
<PAGE>
understood that the Indenture Trustee and the Owner Trustee have no such
obligations in their individual capacity) and except that any such owner or
beneficiary shall be fully liable, to the extent provided by applicable law, for
any unpaid consideration for stock, unpaid capital contribution or failure to
pay any installment or call owing to such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the Sponsor, or the Issuer or join in any institution
against the Sponsor, or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings, under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, the Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and the Credit Enhancer and any agent of
the Issuer, the Indenture Trustee or the Credit Enhancer may treat the Person in
whose name this Note (as of the day of determination or as of such other date as
may be specified in the Indenture) is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Issuer, the
Indenture Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Credit Enhancer and of the Holders of
Notes representing a majority of the Outstanding Amount of all Notes at the time
Outstanding. Any such consent or waiver by the Holder of this Note (or any one
of more Predecessor Notes) shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder but with the consent of the Credit Enhancer.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the times, place, and rate, and in the coin or currency herein prescribed.
A-7
<PAGE>
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Basic Documents, neither Wilmington Trust
Company in its individual capacity, any owner of a beneficial interest in the
Issuer, nor any of their respective beneficiaries, agents, officers, directors,
employees or successors or assigns shall be personally liable for, nor shall
recourse be had to any of them for, the payment of principal of or interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in this Note or the Indenture, it being expressly
understood that said covenants, obligations and indemnifications have been made
by the Issuer for the sole purposes of binding the interests of the Issuer in
the assets of the Issuer. The Holder of this Note by the acceptance hereof
agrees that except as expressly provided in the Indenture or the Basic
Documents, in the case of an Rapid Amortization Event under the Indenture, the
Holder shall have no claim against any of the foregoing for any deficiency, loss
or claim therefrom; provided, however, that nothing contained herein shall be
-------- -------
taken to prevent recourse to, and enforcement against, the assets of the Issuer
for any and all liabilities, obligations and undertakings contained in the
Indenture or in this Note.
A-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
- ----------------------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: /1/
------------------------ ---------------------
Signature Guaranteed:
------------------------ ---------------------
- ---------------
/1/ NOTE: The signature to this assignment must correspond with the name of
the registered owner as it appears on the face of the within None in every
particular, without alteration, enlargement or any change whatsoever.
A-9
<PAGE>
EXHIBIT B
[Form of Note]
REGISTERED
No. S-1
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP NO. ____________
Unless this Note is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its
agent for registration of transfer, exchange or payment, and any Note issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein.
HEADLANDS HOME EQUITY LOAN TRUST 1998-1
CLASS S 1.25% ASSET BACKED NOTES
Headlands Home Equity Loan Trust 1998-1, a business trust organized
and existing under the laws of the State of Delaware (herein referred to as the
"Issuer"), for value received, hereby promises to pay to CEDE & CO., or
registered assigns, interest payments only on each Distribution Date, as
hereinafter described, which shall be calculated based on a notional principal
balance equal to the aggregate outstanding principal balance of the Class A
Notes. Interest on this Note will accrue for each Distribution Date from the
most recent Distribution Date on which interest has been paid to but excluding
such Distribution Date or, if no interest has yet been paid, from March __,
1998. Interest will be computed on the basis of the actual number of days
elapsed in a 360-day year. Such principal of and interest on this Note shall be
paid in the manner specified on the reverse hereof.
The interest on this Note is payable in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts. No principal payments shall be paid on the Note
The Notes are entitled to the benefits of a financial guaranty
insurance policy (the "Note Policy") issued by Ambac Assurance Corporation (the
"Credit Enhancer"), pursuant to which the Credit Enhancer has unconditionally
guaranteed payments of the Class S Note Interest on each Distribution Date, all
as more fully set forth in the Indenture.
For purposes of federal income, state and local income and franchise
and any other income taxes, the Issuer will treat the Notes as indebtedness of
the Issuer and hereby
B-1
<PAGE>
instructs the Indenture Trustee to treat the Notes as indebtedness of the Issuer
for federal state tax reporting purposes.
Each Noteholder or Note Owner, by acceptance of this Note or, in the
case of a Note Owner, a beneficial interest in a Note, covenants and agrees that
no recourse may be taken, directly or indirectly, with respect to the
obligations of the Issuer, the Owner Trustee or the Indenture Trustee on the
Notes or under the Indenture or any certificate or other writing delivered in
connection therewith, against (i) the Sponsor, the Servicer, the Indenture
Trustee or the Owner Trustee in its individual capacity, (ii) any owner of a
beneficial interest in the Issuer or (iii) any owner, beneficiary, agent,
officer, director or employee of the Sponsor, the Servicer, the Indenture
Trustee or the Owner Trustee in its individual capacity, any holder of a
beneficial interest in the Issuer, the Sponsor, the Servicer, the Owner Trustee
or the Indenture Trustee or of any successor or assign of the Sponsor, the
Servicer, the Indenture Trustee or the Owner Trustee in its individual capacity,
except as any such Person may have expressly agreed (it being understood that
the Indenture Trustee and the Owner Trustee have no such obligations in their
individual capacity) and except that any such owner or beneficiary shall be
fully liable, to the extent provided by applicable law, for any unpaid
consideration for stock, unpaid capital contribution or failure to pay any
installment or call owing to such entity.
Reference is made to the further provisions of this Note set forth on
the reverse hereof, which shall have the same effect as though fully set forth
on the face of this Note.
Unless the certificate of authentication hereon has been executed by
the Indenture Trustee whose name appears below by manual signature, this Note
shall not be entitled to any benefit under the Indenture referred to on the
reverse hereof, or be valid or obligatory for any purpose.
B-2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be
signed, manually or in facsimile, by its Authorized Officer as of the date set
forth below.
HEADLANDS HOME EQUITY LOAN TRUST 1998-1
WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee under the Trust
Agreement
By:
-----------------------------------
Name:
Title:
B-3
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes designated above and referred to in the
within-mentioned Indenture.
Date: March __, 1998 THE FIRST NATIONAL BANK OF CHICAGO, not in its individual
capacity but solely as Indenture Trustee,
By:
---------------------------------
Authorized Signatory
B-4
<PAGE>
REVERSE OF NOTE
This Note is one of a duly authorized issue of Notes of the Issuer,
designated as its Class S _____% Asset Backed Notes (herein called the "Class S
Notes"), all issued under an Indenture dated as of March 1, 1998 (such
indenture, as supplemented or amended, is herein called the "Indenture"),
between the Issuer and The First National Bank of Chicago, as trustee (the
"Indenture Trustee", which term includes any successor Indenture Trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights and
obligations thereunder of the Issuer, the Indenture Trustee and the Holders of
the Notes. The Notes are subject to all terms of the Indenture. All terms used
in this Note that are defined in the Indenture, as supplemented or amended,
shall have the meanings assigned to them in or pursuant to the Indenture, as so
supplemented or amended.
The Class A Notes and the Class S Notes (together, the "Notes") are
and will be equally and ratably secured by the collateral pledged as security
therefor as provided in the Indenture.
Interest only of the Class S Notes will be payable on each
Distribution Date in an amount described on the face hereof. "Distribution Date"
means the fifteenth day of each month, or, if any such date is not a Business
Day, the next succeeding Business Day, commencing April 15, 1998.
As described above, the entire unpaid interest amount of this Note
shall be due and payable on the earlier of the Final Scheduled Distribution Date
and the Redemption Date, if any, pursuant to Section 10.1 of the Indenture.
Notwithstanding the foregoing, the entire unpaid interest amount of the Notes
shall be due and payable if a Credit Enhancer Default shall have occurred and be
continuing, on the date on which a Rapid Amortization Event as described in
Section 12.1(n) shall have occurred and be continuing and the Indenture Trustee
or the Holders of the Notes representing at least 66-2/3% of the Outstanding
Amount of the Notes, with the consent of the Credit Enhancer (which consent
shall not be unreasonably withheld) shall have the right to direct the Indenture
Trustee to sell or liquidate the Trust Property as provided in Section 12.1 of
the Indenture. All interest payments on the Class S Notes shall be made pro
rata to the Class S Noteholders entitled thereto.
Payments of interest on this Note due and payable on each Distribution
Date, to the extent not in full payment of this Note, shall be made by check
mailed to the Person whose name appears as the Holder of this Note (or one or
more Predecessor Notes) on the Note Register as of the close of business on each
Record Date, except that with respect to Notes registered on the Record Date in
the name of the nominee of the Clearing Agency (initially, such nominee to be
Cede & Co.), payments will be made by wire transfer in immediately available
funds to the account designated by such nominee. Such checks shall be mailed to
the Person entitled thereto at the address of such Person as it appears on the
Note Register as of the applicable Record Date without requiring that this Note
be submitted for notation of payment. Any reduction in the interest amount of
this Note (or any one or more Predecessor Notes) effected by any payments made
on any Distribution Date shall be binding upon all future Holders of this Note
and of any Note issued upon the registration of transfer hereof or in exchange
hereof or in lieu hereof,
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<PAGE>
whether or not noted hereon. If funds are expected to be available, as provided
in the Indenture, for payment in full of the then remaining unpaid interest
amount of this Note on a Distribution Date, then the Indenture Trustee, in the
name of and on behalf of the Issuer, will notify the Person who was the Holder
hereof as of the Record Date preceding such Distribution Date by notice mailed
prior to such Distribution Date and the amount then due and payable shall be
payable only upon presentation and surrender of this Note at the Indenture
Trustee's principal Corporate Trust Office or at the office of the Indenture
Trustee's agent appointed for such purposes located in The City of New York.
The Issuer shall pay interest on overdue installments of interest at
the Class S Interest Rate to the extent lawful.
As provided in the Indenture, the Notes may be redeemed (a) pursuant
to Section 10.1 of the Indenture, in whole, but not in part, at the option of
the Sponsor, on any Distribution Date on or after the date on which the Class A
Note Principal Balance is less than or equal to 10% of the Original Class A Note
Principal Balance.
As provided in the Indenture and subject to certain limitations set
forth therein, the transfer of this Note may be registered on the Note Register
upon surrender of this Note for registration of transfer at the office or agency
designated by the Issuer pursuant to the Indenture, (i) duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to the
Indenture Trustee duly executed by, the Holder hereof or his attorney duly
authorized in writing, with such signature guaranteed by an "eligible guarantor
institution" meeting the requirements of the Note Registrar which requirements
include membership or participation in Securities Transfer Agents Medallion
Program ("Stamp") or such other "signature guarantee program" as may be
determined by the Note Registrar in addition to, or in substitution for, Stamp,
all in accordance with the Exchange Act, and (ii) accompanied by such other
documents as the Indenture Trustee may require, and thereupon one or more new
Notes of authorized denominations and in the same aggregate principal amount
will be issued to the designated transferee or transferees. No service charge
will be charged for any registration of transfer or exchange of this Note, but
the transferor may be required to pay a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any such registration
of transfer or exchange.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that no
recourse may be taken, directly or indirectly, with respect to the obligations
of the Issuer, the Owner Trustee or the Indenture Trustee on the Notes or under
the Indenture or any certificate or other writing delivered in connection
therewith, against (i) the Sponsor, the Servicer, the Indenture Trustee or the
Owner Trustee in its individual capacity, (ii) any owner of a beneficial
interest in the Issuer or (iii) any owner, beneficiary, agent, officer, director
or employee of the Sponsor, the Servicer, the Indenture Trustee or the Owner
Trustee in its individual capacity, any holder of a beneficial interest in the
Issuer, the Sponsor, the Servicer, the Owner Trustee or the Indenture Trustee or
of any successor or assign of the Sponsor, the Servicer, the Indenture Trustee
or the Owner Trustee in its individual capacity, except as any such Person may
have expressly agreed (it being understood that the Indenture Trustee and the
Owner Trustee have no such obligations in their individual capacity) and except
that any such owner or beneficiary shall be fully liable, to the
B-6
<PAGE>
extent provided by applicable law, for any unpaid consideration for stock,
unpaid capital contribution or failure to pay any installment or call owing to
such entity.
Each Noteholder or Note Owner, by acceptance of a Note or, in the case
of a Note Owner, a beneficial interest in a Note covenants and agrees that by
accepting the benefits of the Indenture that such Noteholder will not at any
time institute against the Sponsor, or the Issuer or join in any institution
against the Sponsor, or the Issuer of, any bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings, or other proceedings, under
any United States Federal or state bankruptcy or similar law in connection with
any obligations relating to the Notes, the Indenture or the Basic Documents.
Prior to the due presentment for registration of transfer of this
Note, the Issuer, the Indenture Trustee and the Credit Enhancer and any agent of
the Issuer, the Indenture Trustee or the Credit Enhancer may treat the Person in
whose name this Note (as of the day of determination or as of such other date as
may be specified in the Indenture) is registered as the owner hereof for all
purposes, whether or not this Note be overdue, and neither the Issuer, the
Indenture Trustee nor any such agent shall be affected by notice to the
contrary.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Issuer and the rights of the Holders of the Notes under the Indenture at any
time by the Issuer with the consent of the Credit Enhancer and of the Holders of
Notes representing a majority of the Outstanding Amount of all Notes at the time
Outstanding. Any such consent or waiver by the Holder of this Note (or any one
of more Predecessor Notes) shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note. The Indenture
also permits the Indenture Trustee to amend or waive certain terms and
conditions set forth in the Indenture without the consent of Holders of the
Notes issued thereunder, but with the consent of the Credit Enhancer.
The term "Issuer" as used in this Note includes any successor to the
Issuer under the Indenture.
The Notes are issuable only in registered form in denominations as
provided in the Indenture, subject to certain limitations therein set forth.
This Note and the Indenture shall be construed in accordance with the
laws of the State of New York, without reference to its conflict of law
provisions, and the obligations, rights and remedies of the parties hereunder
and thereunder shall be determined in accordance with such laws.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Issuer, which is
absolute and unconditional, to pay the interest on this Note at the times,
place, and rate, and in the coin or currency herein prescribed.
Anything herein to the contrary notwithstanding, except as expressly
provided in the Indenture or the Basic Documents, neither Wilmington Trust
Company in its individual
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<PAGE>
capacity, any owner of a beneficial interest in the Issuer, nor any of their
respective beneficiaries, agents, officers, directors, employees or successors
or assigns shall be personally liable for, nor shall recourse be had to any of
them for, the payment of interest on, or performance of, or omission to perform,
any of the covenants, obligations or indemnifications contained in this Note or
the Indenture, it being expressly understood that said covenants, obligations
and indemnifications have been made by the Issuer for the sole purposes of
binding the interests of the Issuer in the assets of the Issuer. The Holder of
this Note by the acceptance hereof agrees that except as expressly provided in
the Indenture or the Basic Documents, in the case of an Rapid Amortization Event
under the Indenture, the Holder shall have no claim against any of the foregoing
for any deficiency, loss or claim therefrom; provided, however, that nothing
-------- -------
contained herein shall be taken to prevent recourse to, and enforcement against,
the assets of the Issuer for any and all liabilities, obligations and
undertakings contained in the Indenture or in this Note.
B-8
<PAGE>
ASSIGNMENT
Social Security or taxpayer I.D. or other identifying number of assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
- ----------------------------------------------------------------------
(name and address of assignee)
the within Note and all rights thereunder, and hereby irrevocably constitutes
and appoints, attorney, to transfer said Note on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: /2/
----------------------------- ------------------------
Signature Guaranteed:
- ---------------
/2/ NOTE: The signature to this assignment must correspond with the name of the
registered owner as it appears on the face of the within Note in every
particular, without alteration, enlargement or any change whatsoever.
B-9
<PAGE>
EXECUTIVE COPY
--------------
EXHIBIT 4.3
TRUST AGREEMENT
between
HEADLANDS MORTGAGE SECURITIES INC.
Sponsor
and
WILMINGTON TRUST COMPANY
Owner Trustee
Dated as of March 13, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I. Definitions....................................................................................1
SECTION 1.1. Defined Terms..........................................................................1
SECTION 1.2. Other Definitional Provisions..........................................................3
SECTION 1.3. Action by or Consent of Noteholders and Certificateholders.............................4
ARTICLE II. Organization..................................................................................4
SECTION 2.1. Name...................................................................................4
SECTION 2.2. Office.................................................................................4
SECTION 2.3. Purposes and Powers....................................................................4
SECTION 1.4. Appointment of Owner Trustee...........................................................5
SECTION 2.5. Initial Capital Contribution of Trust Estate...........................................5
SECTION 2.6. Declaration of Trust...................................................................5
SECTION 2.7. Liability..............................................................................6
SECTION 2.8. Title to Trust Property................................................................6
SECTION 2.9. Situs of Trust.........................................................................6
SECTION 2.10. Representations and Warranties of the Sponsor..........................................6
SECTION 2.11. Federal Income Tax Allocations.........................................................7
SECTION 2.12. Covenants of the Sponsor...............................................................8
SECTION 2.13. Covenants of the Certificateholders....................................................8
ARTICLE III. Certificates and Transfer of Interests.......................................................9
SECTION 3.1. Initial Ownership......................................................................9
SECTION 3.2. The Certificates.......................................................................9
SECTION 3.3. Authentication of Certificates........................................................10
SECTION 3.4. Registration of Transfer and Exchange of Certificates.................................10
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates.....................................10
SECTION 3.6. Persons Deemed Certificateholders.....................................................11
SECTION 3.7. Access to List of Certificateholders' Names and Addresses.............................11
SECTION 3.8. Maintenance of Office or Agency.......................................................11
SECTION 3.9. ERISA Restrictions....................................................................11
SECTION 3.10. Restrictions on Transfer of Certificates..............................................12
SECTION 3.11. Acceptance of Obligations.............................................................13
SECTION 3.12. Distributions on Certificates.........................................................13
ARTICLE IV. Voting Rights and Other Actions..............................................................13
SECTION 4.1. Prior Notice to Holders with Respect to Certain Matters...............................13
SECTION 4.2. Action by Certificateholders with Respect to Certain Matters..........................14
SECTION 4.3. Action by Certificateholders with Respect to Bankruptcy...............................14
SECTION 4.4. Restrictions on Certificateholders' Power.............................................14
SECTION 4.5. Majority Control......................................................................15
SECTION 4.6. Rights of Credit Enhancer.............................................................15
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE V. Certain Duties................................................................................15
SECTION 5.1. Accounting and Records to the Noteholders, Certificateholders, the
Internal Revenue Service and Others...................................................15
SECTION 5.2. Signature on Returns; Tax Matters Partner.............................................16
SECTION 5.3. Underwriting Agreement................................................................16
ARTICLE VI. Authority and Duties of Owner Trustee........................................................16
SECTION 6.1. General Authority.....................................................................16
SECTION 6.2. General Duties........................................................................17
SECTION 6.3. Action upon Instruction...............................................................17
SECTION 6.4. No Duties Except as Specified in this Agreement or in Instructions....................18
SECTION 6.5. No Action Except under Specified Documents or Instructions............................18
SECTION 6.6. Restrictions..........................................................................18
ARTICLE VII. Concerning the Owner Trustee................................................................18
SECTION 7.1. Acceptance of Trust and Duties........................................................18
SECTION 7.2. Furnishing of Documents...............................................................19
SECTION 7.3. Representations and Warranties........................................................20
SECTION 7.4. Reliance; Advice of Counsel...........................................................20
SECTION 7.5. Not Acting in Individual Capacity.....................................................20
SECTION 7.6. Owner Trustee Not Liable for Certificates or Mortgage Loans...........................20
SECTION 7.7. Owner Trustee May Own Certificates and Notes..........................................21
SECTION 7.8. Payments from Owner Trust Estate......................................................21
SECTION 7.9. Doing Business in Other Jurisdictions.................................................21
ARTICLE VIII. Compensation of Owner Trustee..............................................................22
SECTION 8.1. Owner Trustee's Fees and Expenses.....................................................22
SECTION 8.2. Indemnification.......................................................................22
SECTION 8.3. Payments to the Owner Trustee.........................................................22
SECTION 8.4. Non-recourse Obligations..............................................................22
ARTICLE IX. Termination of Trust Agreement...............................................................23
SECTION 9.1. Termination of Trust Agreement........................................................23
ARTICLE X. Successor Owner Trustees and Additional Owner Trustees........................................24
SECTION 10.1. Eligibility Requirements for Owner Trustee............................................24
SECTION 10.2. Resignation or Removal of Owner Trustee...............................................24
SECTION 10.3. Successor Owner Trustee...............................................................25
SECTION 10.4. Merger or Consolidation of Owner Trustee..............................................25
SECTION 10.5. Appointment of Co-Owner Trustee or Separate Owner Trustee.............................26
ARTICLE XI. Miscellaneous................................................................................27
SECTION 11.1. Supplements and Amendments............................................................27
SECTION 11.2. No Legal Title to Owner Trust Estate in Certificateholders............................28
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
SECTION 11.3. Limitations on Rights of Others.......................................................28
SECTION 11.4. Notices...............................................................................28
SECTION 11.5. Severability..........................................................................28
SECTION 11.6. Separate Counterparts.................................................................28
SECTION 11.7. Assignments; Credit Enhancer..........................................................29
SECTION 11.8. No Petition...........................................................................29
SECTION 11.9. No Recourse...........................................................................29
SECTION 11.10. Headings..............................................................................29
SECTION 11.11. GOVERNING LAW.........................................................................29
SECTION 11.12. Servicer..............................................................................30
</TABLE>
EXHIBITS
Exhibit A Form of Certificate
Exhibit B Form of Certificate of Trust
iii
<PAGE>
TRUST AGREEMENT dated as of March 13, 1998 between HEADLANDS
MORTGAGE SECURITIES INC., a Delaware corporation (the "Sponsor"), and WILMINGTON
TRUST COMPANY, a Delaware banking corporation as Owner Trustee.
ARTICLE I.
Definitions
SECTION 1.1. Defined Terms. For the purposes of this
-------------
Agreement, the following terms shall have the meanings set forth below. All
other capitalized terms used herein but not defined shall have the meanings set
forth in the Sale and Servicing Agreement.
"Affiliate" shall mean with respect to any specified Person, a
Person that directly, or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, or owns, directly or
indirectly, 50% or more of, the Person specified.
"Agreement" shall mean this Trust Agreement, as the same may
be amended and supplemented from time to time.
"Basic Documents" shall mean this Agreement, the Certificate
of Trust, the Sale and Servicing Agreement, the Insurance and Indemnity
Agreement, the Management Agreement, the Indenture and the other documents and
certificates delivered in connection therewith.
"Benefit Plan" shall have the meaning assigned to such term in
Section 3.9.
"Business Trust Statute" shall mean Chapter 38 of Title 12 of
the Delaware Code, 12 Del. Code (S) 3801 et seq. as the same may be amended from
time to time.
"Certificate" means a trust certificate evidencing the
beneficial ownership interest of a Certificateholder in the Trust, substantially
in the form of Exhibit A attached hereto.
"Certificate of Trust" shall mean the Certificate of Trust in
the form of Exhibit B to be filed for the Trust pursuant to Section 3810(a) of
the Business Trust Statute.
"Certificate Register" and "Certificate Registrar" shall mean
the register maintained and the registrar respectively appointed pursuant to
Section 3.4.
"Collection Account" shall mean the account designated as such
as established and maintained pursuant to the Sale and Servicing Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and Treasury Regulations promulgated thereunder.
"Company" shall mean Headlands Mortgage Company.
"Corporate Trust Office" shall mean, with respect to the Owner
Trustee, the principal corporate trust office of the Owner Trustee located at
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001,
Attention: Corporate Trust Administration, or at such other address as the Owner
Trustee may designate by notice to the Certificateholders and the Sponsor, or
the principal
<PAGE>
corporate trust office of any successor Owner Trustee (the address of which the
successor owner trustee will notify the Certificateholders and the Sponsor).
"Credit Enhancer" shall mean Ambac Assurance Corporation, or
its successor-in-interest.
"Definitive Certificates" shall mean Certificates issued in
certificated, fully registered form.
"ERISA" shall have the meaning assigned to such term in
Section 3.9.
"Expenses" shall have the meaning assigned to such term in
Section 8.2.
"Holder" or "Certificateholder" shall mean the Person in whose
name a Certificate is registered on the Certificate Register.
"Indemnification Agreement" shall mean the Indemnification
Agreement dated as of March 25, 1998 among the Credit Enhancer, the Company, the
Sponsor and Greenwich Capital Markets Inc.
"Indemnified Parties" shall have the meaning assigned to such
term in Section 8.2.
"Indenture" shall mean the Indenture dated as of March 1,
1998, among the Issuer and The First National Bank of Chicago, as Indenture
Trustee, as the same may be amended and supplemented from time to time.
"Indenture Trustee" shall mean, initially The First National
Bank of Chicago, in its capacity as indenture trustee, including its successors
in interest, until and unless a successor Person shall have become the Indenture
Trustee pursuant to the Sale and Servicing Agreement and thereafter "Indenture
Trustee" shall mean such successor Person.
"Instructing Party" shall have the meaning assigned to such
term in Section 6.3.
"Insurance and Indemnity Agreement" shall mean the Insurance
and Indemnity Agreement dated as of March 25, 1998 among the Credit Enhancer,
the Trust, the Sponsor, the Servicer, the Issuer, the Indenture Trustee and the
Company.
"Issuer" shall mean Headlands Home Equity Loan Trust 1998-1.
"Management Agreement" shall mean the agreement by and between
Headlands Mortgage Company and Headlands Home Equity Loan Trust 1998-1,
substantially in the form annexed as Exhibit E hereto, as such agreement may be
amended or supplemented.
"Manager" means the Person acting in such capacity pursuant to
the Management Agreement or its successors or assigns, which shall initially be
Headlands Mortgage Company.
"Owner Trust Estate" shall mean all right, title and interest
of the Trust in and to the property and rights assigned to the Trust pursuant to
Article II of the Sale and Servicing Agreement, all funds on deposit from time
to time in the Trust Accounts and the Collection Account and all other property
of the Trust from time to time, including any rights of the Owner Trustee and
the Trust pursuant to the Sale and Servicing Agreement.
2
<PAGE>
"Owner Trustee" shall mean Wilmington Trust Company, a
Delaware banking corporation, not in its individual capacity but solely as owner
trustee under this Agreement, and any successor Owner Trustee hereunder.
"Record Date" shall mean with respect to any Distribution
Date, the close of business on the last Business Day immediately preceding such
Distribution Date.
"Sale and Servicing Agreement" shall mean the Sale and
Servicing Agreement among the Trust, Headlands Mortgage Securities Inc., as
Sponsor, Headlands Mortgage Company, as Servicer and the Indenture Trustee,
dated as of March 13, 1998, as the same may be amended and supplemented from
time to time.
"Secretary of State" shall mean the Secretary of State of the
State of Delaware.
"Security Majority" means a majority by principal amount of
the Noteholders so long as the Notes are outstanding and a majority by principal
amount of the Certificateholders thereafter.
"Servicer" shall mean the Company, in its capacity as
Servicer.
"Sponsor" shall mean Headlands Mortgage Securities Inc. in its
capacity as Sponsor hereunder.
"Spread Account" shall mean the Spread Account established and
maintained pursuant to the Sale and Servicing Agreement.
"Treasury Regulations" shall mean regulations, including
proposed or temporary regulations, promulgated under the Code. References herein
to specific provisions of proposed or temporary regulations shall include
analogous provisions of final Treasury Regulations or other successor Treasury
Regulations.
"Trust" shall mean the trust established by this Agreement.
"Trust Accounts" shall have the meaning ascribed thereto in
the Sale and Servicing Agreement.
SECTION 1.2. Other Definitional Provisions.
(a) Capitalized terms used herein and not otherwise defined
have the meanings assigned to them in the Sale and Servicing Agreement or, if
not defined therein, in the Indenture.
(b) All terms defined 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.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or 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 as in effect on the
date of this Agreement or any such certificate or other document, 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
3
<PAGE>
under generally accepted accounting principles, the definitions contained in
this Agreement or in any such certificate or other document shall control.
(d) The words "hereof," "herein," "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; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
SECTION 1.3. Action by or Consent of Noteholders and
---------------------------------------
Certificateholders . Whenever any provision of this Agreement refers to action
- ------------------
to be taken, or consented to, by Noteholders or Certificateholders, such
provision shall be deemed to refer to the Certificateholder or Noteholder, as
the case may be, of record as of the Record Date immediately preceding the date
on which such action is to be taken, or consent given, by Noteholders or
Certificateholders. Solely for the purposes of any action to be taken, or
consented to, by Noteholders or Certificateholders, any Note or Certificate
registered in the name of the Sponsor or any Affiliate thereof shall be deemed
not to be outstanding; provided, however, that, solely for the purpose of
determining whether the Indenture Trustee is entitled to rely upon any such
action or consent, only Notes or Certificates which the Owner Trustee, or the
Indenture Trustee, respectively, knows to be so owned shall be so disregarded.
ARTICLE II.
Organization
------------
SECTION 2.1. Name. There is hereby formed a trust to be known
----
as "Headlands Home Equity Loan Trust 1998-1", in which name the Owner Trustee
may conduct the business of the Trust, make and execute contracts and other
instruments on behalf of the Trust and sue and be sued.
SECTION 2.2. Office. The office of the Trust shall be in care
------
of the Owner Trustee at the Corporate Trust Office or at such other address as
the Owner Trustee may designate by written notice to the Certificateholders and
the Sponsor.
SECTION 2.3. Purposes and Powers.
-------------------
(a) The purpose of the Trust is, and the Trust shall have the
power and authority, to engage in the following activities:
(i) to issue the Notes pursuant to the Indenture and the
Certificates pursuant to this Agreement, and to sell the Notes;
(ii) with the proceeds of the sale of the Notes, to fund the
Spread Account, Funding Account and the Capitalized Interest
Account and to pay the organizational, start-up and
transactional expenses of the Trust and to pay the balance to
the Sponsor pursuant to the Sale and Servicing Agreement;
4
<PAGE>
(iii) to assign, grant, transfer, pledge, mortgage and convey
the Owner Trust Estate to the Indenture Trustee on behalf of the
Noteholders and for the benefit of the Credit Enhancer and to
hold, manage and distribute to the Certificateholders pursuant
to the terms of the Sale and Servicing Agreement any portion of
the Owner Trust Estate released from the Lien of, and remitted
to the Trust pursuant to, the Indenture;
(iv) to enter into and perform its obligations under the
Basic Documents to which it is a party;
(v) to engage in those activities, including entering into
agreements, that are necessary, suitable or convenient to
accomplish the foregoing or are incidental thereto or connected
therewith; and
(vi) subject to compliance with the Basic Documents, to
engage in such other activities as may be required in connection
with conservation of the Owner Trust Estate and the making of
distributions to the Certificateholders and the Noteholders.
The Trust is hereby authorized to engage in the foregoing activities. The Trust
shall not engage in any activity other than in connection with the foregoing or
other than as required or authorized by the terms of this Agreement or the Basic
Documents.
SECTION 2.4. Appointment of Owner Trustee . The Sponsor hereby
----------------------------
appoints the Owner Trustee as trustee of the Trust effective as of the date
hereof, to have all the rights, powers and duties set forth herein.
SECTION 2.5. Initial Capital Contribution of Trust Estate . The
--------------------------------------------
Sponsor hereby sells, assigns, transfers, conveys and sets over to the Owner
Trustee, as of the date hereof, the sum of $1. The Owner Trustee hereby
acknowledges receipt in trust from the Sponsor, as of the date hereof, of the
foregoing contribution, which shall constitute the initial Owner Trust Estate
and shall be deposited in the Collection Account. On or prior to the Closing
Date, the Owner Trustee will also, upon receipt thereof, acknowledge on behalf
of the Trust receipt of the Mortgage Loans pursuant to the Mortgage Loan
Purchase Agreement. The Sponsor shall pay organizational expenses of the Trust
as they may arise or shall, upon the request of the Owner Trustee, promptly
reimburse the Owner Trustee for any such expenses paid by the Owner Trustee.
SECTION 2.6. Declaration of Trust . The Owner Trustee hereby
--------------------
declares that it will hold the Owner Trust Estate in trust upon and subject to
the conditions set forth herein for the use and benefit of the
Certificateholders, subject to the obligations of the Trust under the Basic
Documents. It is the intention of the parties hereto that the Trust constitute a
business trust under the Business Trust Statute and that this Agreement
constitute the governing instrument of such business trust. It is the intention
of the parties hereto that, solely for income tax purposes, the Trust shall be
treated as a branch; provided, however, that in the event Certificates are owned
by more than one Certificateholder, it is the intention of the parties hereto
that, solely for income and franchise tax purposes, the Trust shall then be
treated as a partnership and that, unless otherwise required by appropriate tax
authorities, only after such time the Trust will file or cause to be filed
annual or other necessary returns, reports and other forms consistent with the
characterization of the Trust as a partnership for such tax purposes. Effective
as of the date hereof, the Owner Trustee shall have all rights, powers and
duties set forth herein and to the extent not inconsistent herewith, in the
Business Trust Statute with respect to accomplishing the purposes of the Trust.
The Owner Trustee shall file the Certificate of Trust with the Secretary of
State.
5
<PAGE>
SECTION 2.7. Liability . No Holder shall have any personal
---------
liability for any liability or obligation of the Trust.
SECTION 2.8. Title to Trust Property.
-----------------------
(a) Legal title to all the Owner Trust Estate shall be vested at
all times in the Trust as a separate legal entity except where applicable law in
any jurisdiction requires title to any part of the Owner Trust Estate to be
vested in a trustee or trustees, in which case title shall be deemed to be
vested in the Owner Trustee, a co-trustee and/or a separate trustee, as the case
may be.
(b) The Holders shall not have legal title to any part of the
Trust Property. The Holders shall be entitled to receive distributions with
respect to their undivided ownership interest therein only in accordance with
Article IX. No transfer, by operation of law or otherwise, of any right, title
or interest by any Certificateholder of its ownership interest in the Owner
Trust Estate shall operate to terminate this Agreement or the trusts hereunder
or entitle any transferee to an accounting or to the transfer to it of legal
title to any part of the Trust Property.
SECTION 2.9. Situs of Trust . The Trust will be located and
--------------
administered in the State of Delaware. All bank accounts maintained by the Owner
Trustee on behalf of the Trust shall be located in the State of Delaware or the
State of New York. Payments will be received by the Trust only in Delaware or
New York and payments will be made by the Trust only from Delaware or New York.
The Trust shall not have any employees in any state other than Delaware;
provided, however, that nothing herein shall restrict or prohibit the Owner
Trustee, the Servicer or any agent of the Trust from having employees within or
without the State of Delaware. The only office of the Trust will be at the
Corporate Trust Office in Delaware.
SECTION 2.10. Representations and Warranties of the Sponsor .
---------------------------------------------
The Sponsor makes the following representations and warranties on which the
Owner Trustee relies in accepting the Owner Trust Estate in trust and issuing
the Certificates and upon which the Credit Enhancer relies in issuing the
Policy.
(a) The Sponsor is duly organized and validly existing as a
Delaware corporation with 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 is proposed to be conducted pursuant to this Agreement
and the Basic Documents;
(b) It is duly qualified to do business as a foreign corporation
in good standing, and has obtained all necessary licenses and approvals, in all
jurisdictions in which the ownership or lease of its property, the conduct of
its business and the performance of its obligations under this Agreement and the
Basic Documents requires such qualification;
(c) The Sponsor has the corporate power and authority to execute
and deliver this Agreement and to carry out its terms; the Sponsor has full
power and authority to sell and assign the property to be sold and assigned to
and deposited with the Trust and the Sponsor has duly authorized such sale and
assignment and deposit to the Trust by all necessary corporate action; and the
execution, delivery and performance of this Agreement has been duly authorized
by the Sponsor by all necessary corporate action;
(d) No consent, license, approval or authorization or
registration or declaration with, any Person or with any governmental authority,
bureau or agency is required in connection with the
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execution, delivery or performance of this Agreement and the Basic Documents,
except for such as have been obtained, effected or made;
(e) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with, result
in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time) a default under, the certificate of
incorporation or by-laws of the Sponsor, or any material indenture, agreement or
other instrument to which the Sponsor is a party or by which it is 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 pursuant to the Basic Documents); nor violate any law or, to the
best of the Sponsor's knowledge, any order, rule or regulation applicable to the
Sponsor of any court or of any Federal or state regulatory body, administrative
agency or other governmental instrumentality having jurisdiction over the
Sponsor or its properties; and
(f) There are no proceedings or investigations pending or, to
its knowledge threatened against it before any court, regulatory body,
administrative agency or other tribunal or governmental instrumentality having
jurisdiction over it or its properties (A) asserting the invalidity of this
Agreement or any of the Basic Documents, (B) seeking to prevent the issuance of
the Certificates or the Notes or the consummation of any of the transactions
contemplated by this Agreement or any of the Basic Documents, (C) seeking any
determination or ruling that might materially and adversely affect its
performance of its obligations under, or the validity or enforceability of, this
Agreement or any of the Basic Documents, or (D) seeking to adversely affect the
federal income tax or other federal, state or local tax attributes of the Notes
or the Certificates.
SECTION 2.11. Federal Income Tax Allocations . In the event that
------------------------------
the Trust is treated as a partnership for Federal income tax purposes, net
income of the Trust for any month as determined for Federal income tax purposes
(and each item of income, gain, loss, credit and deduction entering into the
computation thereof) shall be allocated:
(a) to the extent of available net income, among the
Certificateholders as of the first Record Date following the end of such month,
in proportion to their ownership of principal amount of Certificates on such
date; and
(b) to the Sponsor, to the extent of any remaining net income.
If the net income of the Trust for any month is insufficient for the allocations
described in clause (a) above, subsequent net income shall first be allocated to
make up such shortfall before being allocated as provided in clause (b). Net
losses of the Trust, if any, for any month as determined for Federal income tax
purposes (and each item of income, gain, loss, credit and deduction entering
into the computation thereof) shall be allocated among the Certificateholders as
of the Record Date in proportion to their ownership percentage of principal
amount of Certificates on such Record Date until the principal balance of the
Certificates is reduced to zero. The Sponsor is authorized to modify the
allocations in this paragraph if necessary or appropriate, in its sole
discretion, for the allocations to fairly reflect the economic income, gain or
loss to the Certificateholders, or as otherwise required by the Code.
SECTION 2.12. Covenants of the Sponsor . The Sponsor agrees and
------------------------
covenants for the benefit of each Certificateholder, the Credit Enhancer and the
Owner Trustee, during the term of this Agreement, and to the fullest extent
permitted by applicable law, that:
(a) it shall not create, incur or suffer to exist any
indebtedness or engage in any business, except, in each case, as permitted by
its certificate of incorporation and the Basic Documents;
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(b) it shall not, for any reason, institute proceedings for the
Trust to be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against the Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to the bankruptcy of the Trust, or consent to the
appointment of a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Trust or a substantial part of the property of the
Trust or cause or permit the Trust to make any assignment for the benefit of
creditors, or admit in writing the inability of the Trust to pay its debts
generally as they become due, or declare or effect a moratorium on the debt of
the Trust or take any action in furtherance of any such action;
(c) it shall obtain from each counterparty to each Basic
Document to which it or the Trust is a party and each other agreement entered
into on or after the date hereof to which it or the Trust is a party, an
agreement by each such counterparty that prior to the occurrence of the event
specified in Section 9.1(e) such counterparty shall not institute against, or
join any other Person in instituting against, it or the Trust, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or other
similar proceedings under the laws of the United States or any state of the
United States; and
(d) it shall not, for any reason, withdraw or attempt to
withdraw from this Agreement, dissolve, institute proceedings for it to be
adjudicated a bankrupt or insolvent, or consent to the institution of bankruptcy
or insolvency proceedings against it, or file a petition seeking or consenting
to reorganization or relief under any applicable federal or state law relating
to bankruptcy, or consent to the appointment of a receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of it or a
substantial part of its property, or make any assignment for the benefit of
creditors, or admit in writing its inability to pay its debts generally as they
become due, or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
SECTION 2.13. Covenants of the Certificateholders . Each
-----------------------------------
Certificateholder agrees:
(a) to be bound by the terms and conditions of the Certificates
and of this Agreement, including any supplements or amendments hereto and to
perform the obligations of a Certificateholder as set forth therein or herein,
in all respects as if it were a signatory hereto. This undertaking is made for
the benefit of the Trust, the Owner Trustee, the Credit Enhancer and all other
Certificateholders present and future;
(b) to hereby appoint the Sponsor as such Certificateholder's
agent and attorney-in-fact to sign any federal income tax information return
filed on behalf of the Trust, if any, and agree that, if requested by the Trust,
it will sign such federal income tax information return in its capacity as
holder of an interest in the Trust. Each Certificateholder also hereby agrees
that in its tax returns it will not take any position inconsistent with those
taken in any tax returns that may be filed by the Trust;
(c) if such Certificateholder is other than an individual or
other entity holding its Certificate through a broker who reports securities
sales on Form 1099-B, to notify the Owner Trustee of any transfer by it of a
Certificate in a taxable sale or exchange, within 30 days of the date of the
transfer; and
(d) until the completion of the events specified in Section
9.1(e), not to, for any reason, institute proceedings for the Trust or the
Sponsor to be adjudicated a bankrupt or insolvent, or consent to the institution
of bankruptcy or insolvency proceedings against the Trust, or file a petition
seeking or consenting to reorganization or relief under any applicable federal
or state law relating to bankruptcy, or consent to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Sponsor or the Trust or a substantial part of its property, or
cause or permit
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the Sponsor or the Trust to make any assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally as they
become due, or declare or effect a moratorium on its debt or take any action in
furtherance of any such action.
Except as provided in Section 2.13, and notwithstanding any
other provision to the contrary in this Agreement, no Certificateholder other
than the Sponsor in its capacity as the "Sponsor" shall be deemed to have
adopted, be bound by, or succeed in any way to any representation by, or duty of
indemnification by or any other duty of, the Sponsor, including those contained
in Sections 2.10, 2.12, 3.6, 8.2 or elsewhere herein.
ARTICLE III.
Certificates and Transfer of Interests
--------------------------------------
SECTION 3.1. Initial Ownership . Upon the formation of the
-----------------
Trust by the contribution by the Sponsor pursuant to Section 2.5, the Owner
Trustee, contemporaneously therewith, having full power, authority, and
authorization to do so, has executed, authenticated, dated, issued, and
delivered, in the name and on behalf of the Trust, to the Sponsor, one (1) or
more Certificates representing in the aggregate a 100% interest in the Trust,
and has registered such Certificate(s) on the Certificate Register in the name
of the Sponsor. The Sponsor shall be the sole beneficiary of the Trust. Such
Certificate(s) are duly authorized, validly issued, and entitled to the benefits
of this Agreement. For so long as the Sponsor shall own such 100% interest in
the Trust, the Sponsor shall be the sole beneficial owner of the Trust. The
Sponsor shall at all times keep and own a Certificate or Certificates
representing no less than 1% interest, and at no time will the Sponsor sell or
alienate its interest represented by Certificate(s) in such a way as to reduce
its aggregate beneficial ownership in the Trust to less than 1%.
SECTION 3.2. The Certificates . The Certificates shall be
----------------
issued in denominations of $1,000 and integral multiples of $1000 in excess
thereof. The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature of an authorized officer of the Owner Trustee. Certificates
bearing the manual or facsimile signatures of individuals who were, at the time
when such signatures shall have been affixed, authorized to sign on behalf of
the Trust, shall be validly issued and entitled to the benefit of this
Agreement, notwithstanding that such individuals or any of them shall have
ceased to be so authorized prior to the authentication and delivery of such
Certificates or did not hold such offices at the date of authentication and
delivery of such Certificates. A transferee of a Certificate shall become a
Certificateholder, and shall be entitled to the rights and subject to the
obligations of a Certificateholder hereunder, upon due registration of such
Certificate in such transferee's name pursuant to Section 3.4.
SECTION 3.3. Authentication of Certificates . Concurrently
------------------------------
with the initial sale of the Mortgage Loans to the Trust pursuant to the Sale
and Servicing Agreement, the Owner Trustee shall cause the Certificates to be
executed on behalf of the Trust, authenticated and delivered to or upon the
written order of the Sponsor, signed by its chairman of the board, its president
or any vice president, its treasurer or any assistant treasurer without further
corporate action by the Sponsor, in authorized denominations. No Certificate
shall entitle its holder to any benefit under this Agreement, or shall be valid
for any purpose, unless there shall appear on such Certificate a certificate of
authentication substantially in the form set forth in Exhibit A, executed by the
Owner Trustee, by manual signature; such authentication shall constitute
conclusive evidence that such Certificate shall have been duly authenticated and
delivered hereunder. All Certificates shall be dated the date of their
authentication.
SECTION 3.4. Registration of Transfer and Exchange of
----------------------------------------
Certificates . The Certificate Registrar shall keep or cause to be kept, at the
- ------------
office or agency maintained pursuant to
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Section 3.8, a Certificate Register in which, subject to such reasonable
regulations as it may prescribe, the Owner Trustee shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. The Owner Trustee shall be the initial Certificate Registrar.
In furtherance of and not in limitation of the foregoing, each
Certificateholder, by acceptance of its Certificate, specifically acknowledges
that it has no right to or interest in any monies at any time held in the
Capitalized Interest Account, the Spread Account or the Funding Account or prior
to the release of such monies pursuant to Section 8.3(a)(xiv) of the Indenture,
such monies being held in trust for the benefit of the Noteholders and the
Credit Enhancer. Notwithstanding the foregoing, in the event that it is ever
determined that the monies held in the Capitalized Interest Account, the Spread
Account or the Funding Account constitute a pledge of collateral, then the
provisions of the Sale and Servicing Agreement shall be considered to constitute
a security agreement and the Sponsor and the Certificateholders hereby grant to
the Indenture Trustee and the Credit Enhancer a first priority perfected
security interest in such amounts. In addition, each Certificateholder, by
acceptance of its Certificate, hereby appoints the Sponsor as its agent to
pledge a first priority perfected security interest in the Capitalized Interest
Account, the Spread Account and the Funding Account, and any amounts held
therein from time to time to the Indenture Trustee and the Credit Enhancer and
agrees to execute and deliver such instruments of conveyance, assignment, grant,
confirmation, etc., as well as any financing statements, in each case as the
Credit Enhancer shall consider reasonably necessary in order to perfect the
Indenture Trustee's security interest in the Mortgage Loans.
SECTION 3.5. Mutilated, Destroyed, Lost or Stolen Certificates.
-------------------------------------------------
If (a) any mutilated Certificate shall be surrendered to the Certificate
Registrar, or if the Certificate Registrar shall receive evidence to its
satisfaction of the destruction, loss or theft of any Certificate and (b) there
shall be delivered to the Certificate Registrar, the Owner Trustee and the
Credit Enhancer such security or indemnity as may be required by them to save
each of them harmless, then in the absence of notice that such Certificate shall
have been acquired by a bona fide purchaser, the Owner Trustee on behalf of the
Trust shall execute and the Owner Trustee shall authenticate and deliver, in
exchange for or in lieu of any such mutilated, destroyed, lost or stolen
Certificate, a new Certificate of like class, tenor and denomination. In
connection with the issuance of any new Certificate under this Section, the
Owner Trustee or the Certificate Registrar may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection therewith. Any duplicate Certificate issued pursuant to this Section
shall constitute conclusive evidence of an ownership interest in the Trust, as
if originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 3.6. Persons Deemed Certificateholders . Every Person
---------------------------------
by virtue of becoming a Certificateholder in accordance with this Agreement and
the rules and regulations of the Certificate Registrar shall be deemed to be
bound by the terms of this Agreement. Prior to due presentation of a Certificate
for registration of transfer, the Owner Trustee, the Certificate Registrar and
the Credit Enhancer and any agent of the Owner Trustee, the Certificate
Registrar and the Credit Enhancer, may treat the Person in whose name any
Certificate shall be registered in the Certificate Register as the owner of such
Certificate for the purpose of receiving distributions pursuant to the Sale and
Servicing Agreement and the Indenture and for all other purposes whatsoever, and
none of the Owner Trustee, the Certificate Registrar or the Credit Enhancer nor
any agent of the Owner Trustee, the Certificate Registrar or the Credit Enhancer
shall be bound by any notice to the contrary.
SECTION 3.7. Access to List of Certificateholders' Names and
-----------------------------------------------
Addresses . The Owner Trustee shall furnish or cause to be furnished to the
- ---------
Servicer, the Sponsor or the Credit Enhancer, within 15 days after receipt by
the Owner Trustee of a request therefor from such Person in writing, a list, of
the names and addresses of the Certificateholders as of the most recent Record
Date. If three or more Holders of Certificates or one or more Holders of
Certificates evidencing not less than 25% by Percentage
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Interest apply in writing to the Owner Trustee, and such application states that
the applicants desire to communicate with other Certificateholders with respect
to their rights under this Agreement or under the Certificates and such
application is accompanied by a copy of the communication that such applicants
propose to transmit, then the Owner Trustee shall, within five Business Days
after the receipt of such application, afford such applicants access during
normal business hours to the current list of Certificateholders. Each Holder, by
receiving and holding a Certificate, shall be deemed to have agreed not to hold
any of the Sponsor, the Servicer, the Owner Trustee or the Credit Enhancer or
any agent thereof accountable by reason of the disclosure of its name and
address, regardless of the source from which such information was derived.
SECTION 3.8. Maintenance of Office or Agency . The Owner
-------------------------------
Trustee shall maintain in Wilmington, Delaware an office or offices or agency or
agencies where Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Owner Trustee in respect
of the Certificates and the Basic Documents may be served. The Owner Trustee
initially designates its Corporate Trust Office for such purposes. The Owner
Trustee shall give prompt written notice to the Sponsor, the Certificateholders
and the Credit Enhancer of any change in the location of the Certificate
Register or any such office or agency.
SECTION 3.9. ERISA Restrictions . The Certificates may not be
------------------
acquired by or for the account of (i) an employee benefit plan (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) that is subject to the provisions of Title I of ERISA, (ii) a plan
described in Section 4975(e)(1) of the Internal Revenue Code of 1986, as
amended, or (iii) any entity whose underlying assets include plan assets by
reason of a plan's investment in the entity (each, a "Benefit Plan"). By
accepting and holding its beneficial ownership interest in its Certificate, the
Holder thereof shall be deemed to have represented and warranted that it is not
a Benefit Plan.
SECTION 3.10. Restrictions on Transfer of Certificates.
----------------------------------------
(a) The Certificates shall be assigned, transferred,
exchanged, pledged, financed, hypothecated or otherwise conveyed (collectively,
for purposes of this Section 3.10 and any other Section referring to the
Certificates, "transferred" or a "transfer") only in accordance with this
Section 3.10.
(b) No transfer of a Certificate shall be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. Except for the initial issuance of the
Certificate to the Sponsor and the pledge thereof by the Sponsor in connection
with its Yield Maintenance Certificates, Series 1998-1, the Indenture Trustee
shall require (i) the transferee to execute an investment letter acceptable to
and in form and substance satisfactory to the Indenture Trustee and the Credit
Enhancer certifying to the Indenture Trustee and the Credit Enhancer the facts
surrounding such transfer, which investment letter shall not be an expense of
the Indenture Trustee or the Credit Enhancer or (ii) if the investment letter is
not delivered, a written Opinion of Counsel acceptable to and in form and
substance satisfactory to the Indenture Trustee, the Credit Enhancer and the
Sponsor that such transfer may be made pursuant to an exemption, describing the
applicable exemption and the basis therefor from said Act or is being made
pursuant to said Act, which Opinion of Counsel shall not be an expense of the
Indenture Trustee, the Credit Enhancer or the Sponsor. The Holder of a
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Sponsor and the Credit Enhancer against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.
(c) Except for the pledge by the Sponsor in connection with
its Yield Maintenance Certificates, Series 1998-1, the Certificates and any
interest therein shall not be transferred except upon satisfaction of the
following conditions precedent: (i) the Person that acquires a Certificate shall
(A) be
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organized and existing under the laws of the United States of America or
any state thereof or the District of Columbia; (B) expressly assume, by an
agreement supplemental hereto, executed and delivered to the Indenture Trustee
and the Credit Enhancer, the performance of every covenant and obligation of the
Sponsor hereunder and (C) as part of its acquisition of a Certificate, acquire
all rights of the Sponsor or any transferee under this Section 3.10(c) to
amounts payable to such Sponsor or such transferee under Sections 8.3(a)(xii)
and 8.3(g) of the Indenture; (ii) the Holder of the Certificates shall deliver
to the Indenture Trustee and the Credit Enhancer an Officer's Certificate
stating that such transfer and such supplemental agreement comply with this
Section 3.10(c) and that all conditions precedent provided by this Section
3.10(c) have been complied with and an Opinion of Counsel stating that all
conditions precedent provided by this Section 3.10(c) have been complied with,
and the Indenture Trustee may conclusively rely on such Officer's Certificate,
shall have no duty to make inquiries with regard to the matters set forth
therein and shall incur no liability in so relying; (iii) the Holder of the
Certificates shall deliver to the Indenture Trustee and the Credit Enhancer a
letter from each Rating Agency confirming that its rating of the Notes, after
giving effect to such transfer, will not be reduced or withdrawn without regard
to the Policy; (iv) the transferee of the Certificates shall deliver to the
Indenture Trustee and the Credit Enhancer an Opinion of Counsel to the effect
that (a) such transfer will not adversely affect the treatment of the Notes
after such transfer as debt for federal and applicable state income tax
purposes, (b) such transfer will not result in the Trust being subject to tax at
the entity level for federal or applicable state tax purposes, (c) such transfer
will not have any material adverse impact on the federal or applicable state
income taxation of a Noteholder or any Certificateholder and (d) such transfer
will not result in the arrangement created by this Agreement or any "portion" of
the Trust, being treated as a taxable mortgage pool as defined in Section
7701(i) of the Code; (v) all filings and other actions necessary to continue the
perfection of the interest of the Trust in the Mortgage Loans and the other
property conveyed hereunder shall have been taken or made and (vi) the Credit
Enhancer shall have consented to such transfer. Notwithstanding the foregoing,
the requirement set forth in subclause (i)(A) of this Section 3.10(c) shall not
apply in the event the Indenture Trustee shall have received a letter from each
Rating Agency confirming that its rating of the Notes, after giving effect to a
proposed transfer to a Person that does not meet the requirement set forth in
subclause (i)(A), shall not be reduced or withdrawn without regard to the
Policy. Notwithstanding the foregoing, the requirements set forth in this
paragraph (c) shall not apply to the initial issuance of the Certificates to the
Sponsor.
i) Except for the initial issuance of the Certificate to the
Sponsor and the pledge thereof by the Sponsor in connection with its Yield
Maintenance Certificates, Series 1998-1, no transfer of a Certificate shall be
made unless the Indenture Trustee and the Credit Enhancer shall have received a
representation letter from the transferee of such Certificate, acceptable to and
in form and substance satisfactory to the Indenture Trustee and the Credit
Enhancer, to the effect that such transferee is not an employee benefit plan
subject to Section 406 of ERISA, nor a Person acting on behalf of or using the
assets of any such plan, which representation letter shall not be an expense of
the Indenture Trustee or the Credit Enhancer.
(d) No transfer or pledge of the Certificates shall result in
more than 98 other holders of Certificates.
SECTION 3.11. Acceptance of Obligations . The Sponsor, by its
-------------------------
acceptance of the Certificates, agrees to be bound by and to perform all the
duties of the Sponsor set forth in this Agreement.
SECTION 3.12. Distributions on Certificates . The Holders of
-----------------------------
the Certificates will be entitled to distributions on each Distribution Date, as
provided in the Sale and Servicing Agreement and the Indenture.
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ARTICLE IV.
Voting Rights and Other Actions
-------------------------------
SECTION 4.1. Prior Notice to Holders with Respect to Certain
-----------------------------------------------
Matters . With respect to the following matters, the Owner Trustee shall not
- -------
take action unless at least 30 days before the taking of such action, the Owner
Trustee shall have notified the Certificateholders in writing of the proposed
action and the Certificateholders shall not have notified the Owner Trustee in
writing prior to the 30th day after such notice is given that such
Certificateholders have withheld consent or provided alternative direction:
(a) the election by the Trust to file an amendment to the
Certificate of Trust (unless such amendment is required to be filed under the
Business Trust Statute or unless such amendment would not materially and
adversely affect the interests of the Holders);
(b) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is required;
(c) the amendment of the Indenture by a supplemental indenture
in circumstances where the consent of any Noteholder is not required and such
amendment materially adversely affects the interest of the Certificateholders;
or
(d) except pursuant to Section 9.01 of the Sale and Servicing
Agreement, the amendment, change or modification of the Sale and Servicing
Agreement, except to cure any ambiguity or defect or to amend or supplement any
provision in a manner that would not materially adversely affect the interests
of the Certificateholders.
The Owner Trustee shall notify the Certificateholders in writing of any
appointment of a successor Note Registrar, or Certificate Registrar within five
Business Days thereof.
SECTION 4.2. Action by Certificateholders with Respect to
Certain Matters.
(a) The Owner Trustee shall not have the power, except upon
the direction of the Credit Enhancer, to (i) remove the Servicer under the Sale
and Servicing Agreement or (ii) except as expressly provided in the Basic
Documents, sell the Mortgage Loans after the termination of the Indenture. The
Owner Trustee shall take the actions referred to in the preceding sentence only
upon written instructions signed by the Credit Enhancer or the Securityholders,
and the furnishing of indemnification satisfactory to the Owner Trustee by the
Certificateholders.
(b) Upon the written request of any Certificateholder (a
"Proposer"), the Owner Trustee shall distribute promptly to all
Certificateholders any request for action or consent of Certificateholders
submitted by such Proposer, with a copy to the Manager. The Owner Trustee shall
provide a reasonable method for collecting responses to such request and shall
tabulate and report the results thereof to the Certificateholders and the
Manager. The Owner Trustee shall have no responsibility or duty to determine if
any such proposed action or consent is permitted under the terms of this
Agreement or applicable law.
SECTION 4.3. Action by Certificateholders with Respect to
--------------------------------------------
Bankruptcy . Until one year and one day following the day on which the Notes
- ----------
have been paid in full, the Owner Trustee shall not have the power to, and shall
not, commence any proceeding or other actions contemplated by Section 2.12(b)
relating to the Trust without the prior written consent of the Credit Enhancer.
Until one year and
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one day following the day on which the Notes have been paid in full, all amounts
due to the Credit Enhancer under the Insurance Agreement have been paid in full,
the Policy has terminated and the Indenture Trustee has surrendered the Policy
to the Credit Enhancer, the Owner Trustee shall not have the power to, and shall
not, commence any proceeding or other actions contemplated by Section 2.12(b)
relating to the Trust without the prior written consent of all of the
Certificateholders and the delivery to the Owner Trustee by each such
Certificateholder of a certificate certifying that such Certificateholder
reasonably believes that the Trust is insolvent.
SECTION 4.4. Restrictions on Certificateholders' Power.
(a) The Certificateholders shall not direct the Owner Trustee
to take or refrain from taking any action if such action or inaction would be
contrary to any obligation of the Trust or the Owner Trustee under this
Agreement or any of the Basic Documents or would be contrary to Section 2.3 or
otherwise contrary to law nor shall the Owner Trustee be obligated to follow any
such direction, if given.
(b) No Certificateholder (other than the Sponsor as sole
Certificateholder) shall have any right by virtue or by availing itself of any
provisions of this Agreement to institute any suit, action, or proceeding in
equity or at law upon or under or with respect to this Agreement or any Basic
Document, unless the Certificateholders are the Instructing Party pursuant to
Section 6.3 and unless a Certificateholder previously shall have given to the
Owner Trustee a written notice of default and of the continuance thereof, as
provided in this Agreement, and also unless Certificateholders evidencing not
less than 25% by Percentage Interest shall have made written request upon the
Owner Trustee to institute such action, suit or proceeding in its own name as
Owner Trustee under this Agreement and shall have offered to the Owner Trustee
such reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Owner Trustee, for 30
days after its receipt of such notice, request, and offer of indemnity, shall
have neglected or refused to institute any such action, suit, or proceeding, and
during such 30-day period no request or waiver inconsistent with such written
request has been given to the Owner Trustee pursuant to and in compliance with
this Section or Section 6.3; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Owner Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue or by
availing itself or themselves of any provisions of this Agreement to affect,
disturb, or prejudice the rights of the Holders of any other of the
Certificates, or to obtain or seek to obtain priority over or preference to any
other such Holder, or to enforce any right under this Agreement, except in the
manner provided in this Agreement and for the equal, ratable, and common benefit
of all Certificateholders. For the protection and enforcement of the provisions
of this Section 4.4, each and every Certificateholder and the Owner Trustee
shall be entitled to such relief as can be given either at law or in equity.
SECTION 4.5. Majority Control . No Certificateholder shall
----------------
have any right to vote or in any manner otherwise control the operation and
management of the Trust except as expressly provided in this Agreement. Except
as expressly provided herein, any action that may be taken by the
Certificateholders under this Agreement may be taken by the Holders of
Certificates evidencing not less than a majority interest in the Trust. Except
as expressly provided herein, any written notice of the Certificateholders
delivered pursuant to this Agreement shall be effective if signed by
Certificateholders evidencing not less than a majority interest in the Trust at
the time of the delivery of such notice.
SECTION 4.6. Rights of Credit Enhancer . Notwithstanding
-------------------------
anything to the contrary in the Basic Documents, without the prior written
consent of the Credit Enhancer the Owner Trustee shall not (i) remove the
Servicer, (ii) initiate any claim, suit or proceeding by the Trust or compromise
any claim, suit or proceeding brought by or against the Trust, other than with
respect to the enforcement of any Mortgage Loan or any rights of the Trust
thereunder, (iii) authorize the merger or consolidation of the
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Trust with or into any other business trust or other entity, (iv) amend the
Certificate of Trust or (v) amend this Agreement in accordance with Section 11.1
of this Agreement.
ARTICLE V.
Certain Duties
--------------
SECTION 5.1. Accounting and Records to the Noteholders,
------------------------------------------
Certificateholders, the Internal Revenue Service and Others . Subject to
- -----------------------------------------------------------
Sections 8.01(b)(iii) and 8.01(c) of the Sale and Servicing Agreement, the
Sponsor shall (a) maintain (or cause to be maintained) the books of the Trust on
a calendar year basis on the accrual method of accounting, including, without
limitation, the allocations of net income under Section 2.11 hereof, (b) deliver
(or cause to be delivered) to each Certificateholder, as may be required by the
Code and applicable Treasury Regulations, such information as may be required
(including Schedule K-1, if applicable) to enable each Certificateholder to
prepare its Federal and state income tax returns, (c) file or cause to be filed,
if necessary, such tax returns relating to the Trust (including a partnership
information return, Form 1065), and direct the Owner Trustee or the Servicer, as
the case may be, to make such elections as may from time to time be required or
appropriate under any applicable state or Federal statute or rule or regulation
thereunder so as to maintain the Trust's characterization as a branch, or if
applicable, as a partnership, for Federal income tax purposes and (d) collect or
cause to be collected any withholding tax as described in and in accordance with
Section 8.01(b)(ii) of the Sale and Servicing Agreement with respect to income
or distributions to Certificateholders and the appropriate forms relating
thereto. The Owner Trustee or the Servicer, as the case may be, shall make all
elections pursuant to this Section as directed in writing by the Sponsor. The
Owner Trustee shall sign all tax information returns, if any, filed pursuant to
this Section 5.1 and any other returns as may be required by law, and in doing
so shall rely entirely upon, and shall have no liability for information
provided by, or calculations provided by, the Sponsor or the Servicer. The
Sponsor will direct the Owner Trustee and the Owner Trustee shall elect under
Section 1278 of the Code to include in income currently any market discount that
accrues with respect to the Mortgage Loans. The Sponsor shall not direct the
Owner Trustee and the Owner Trustee shall not make the election provided under
Section 754 of the Code.
SECTION 5.2. Signature on Returns; Tax Matters Partner.
-----------------------------------------
(a) Notwithstanding the provisions of Section 5.1 and in the
event that the Trust is characterized as a partnership, the Owner Trustee shall
sign on behalf of the Trust the tax returns of the Trust, unless applicable law
requires a Certificateholder to sign such documents, in which case such
documents shall be signed by the Sponsor.
(b) In the event that the Trust is characterized as a
partnership, the Sponsor shall be the "tax matters partner" of the Trust
pursuant to the Code.
SECTION 5.3. Underwriting Agreement . The Servicer is hereby
----------------------
authorized to execute and deliver the Underwriting Agreement with respect to the
Notes and the Yield Maintenance Purchase Agreement with respect to the
Certificates.
15
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ARTICLE VI.
Authority and Duties of Owner Trustee
-------------------------------------
SECTION 6.1. General Authority . The Owner Trustee is
-----------------
authorized and directed to execute and deliver the Basic Documents to which the
Trust is named as a party and each certificate or other document attached as an
exhibit to or contemplated by the Basic Documents to which the Trust is named as
a party and any amendment thereto, in each case, in such form as the Sponsor
shall approve as evidenced conclusively by the Owner Trustee's execution
thereof, and on behalf of the Trust, to direct the Indenture Trustee to
authenticate and deliver Class A Notes in the aggregate principal amount of
$191,584,000 and Class S Notes in the aggregate notional amount of $191,584,000.
In addition to the foregoing, the Owner Trustee is authorized, but shall not be
obligated, to take all actions required of the Trust pursuant to the Basic
Documents. The Owner Trustee is further authorized from time to time to take
such action as the Instructing Party recommends with respect to the Basic
Documents so long as such activities are consistent with the terms of the Basic
Documents. The Owner Trustee may rely on the Manager to carry out any action
that the Owner Trustee is authorized or directed to perform hereunder, to the
extent permitted by the Management Agreement.
SECTION 6.2. General Duties . It shall be the duty of the
--------------
Owner Trustee to discharge (or cause to be discharged) all of its
responsibilities pursuant to the terms of this Agreement and to administer the
Trust in the interest of the Holders, subject to the Basic Documents and in
accordance with the provisions of this Agreement. Notwithstanding the foregoing,
the Owner Trustee shall be deemed to have discharged its duties and
responsibilities hereunder and under the Basic Documents to the extent the
Servicer has agreed in the Sale and Servicing Agreement to perform any act or to
discharge any duty of the Trust or the Owner Trustee hereunder or under any
Basic Document, and the Owner Trustee shall not be liable for the default or
failure of the Servicer to carry out its obligations under the Sale and
Servicing Agreement or the failure of the Manager to carry out its obligations
under the Management Agreement.
SECTION 6.3. Action upon Instruction.
-----------------------
(a) Subject to Article IV, the Credit Enhancer (the
"Instructing Party") shall have the exclusive right to direct the actions of the
Owner Trustee in the management of the Trust, so long as such instructions are
not inconsistent with the express terms set forth herein or in any Basic
Document. The Instructing Party shall not instruct the Owner Trustee in a manner
inconsistent with this Agreement or the Basic Documents. In acting in accordance
with the direction of the Credit Enhancer pursuant to this Section or pursuant
to Article IV, the Owner Trustee shall not be deemed to (i) owe any fiduciary
obligation to the Credit Enhancer or (ii) have violated any fiduciary
responsibility to the Certificateholders.
(b) The Owner Trustee shall not be required to take any action
hereunder or under any Basic Document if the Owner Trustee shall have reasonably
determined, or shall have been advised by counsel, that such action is likely to
result in liability on the part of the Owner Trustee or is contrary to the terms
hereof or of any Basic Document or is otherwise contrary to law.
(c) Whenever the Owner Trustee is unable to decide between
alternative courses of action permitted or required by the terms of this
Agreement or any Basic Document, the Owner Trustee shall promptly give notice
(in such form as shall be appropriate under the circumstances) to the
Instructing Party requesting instruction as to the course of action to be
adopted, and to the extent the Owner Trustee acts in good faith in accordance
with any written instruction of the Instructing Party received, the Owner
Trustee shall not be liable on account of such action to any Person. If the
Owner
16
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Trustee shall not have received appropriate instruction within ten days of such
notice (or within such shorter period of time as reasonably may be specified in
such notice or may be necessary under the circumstances) it may, but shall be
under no duty to, notwithstanding any other provision of this Agreement, take or
refrain from taking such action, not inconsistent with this Agreement or the
Basic Documents, as it shall deem to be in the best interests of the
Certificateholders, and shall have no liability to any Person for such action or
inaction.
(d) In the event that the Owner Trustee is unsure as to the
application of any provision of this Agreement or any Basic Document or any such
provision is ambiguous as to its application, or is, or appears to be, in
conflict with any other applicable provision, or in the event that this
Agreement permits any determination by the Owner Trustee or is silent or is
incomplete as to the course of action that the Owner Trustee is required to take
with respect to a particular set of facts, the Owner Trustee may give notice (in
such form as shall be appropriate under the circumstances) to the Instructing
Party requesting instruction and, notwithstanding any other provision of this
Agreement, to the extent that the Owner Trustee acts or refrains from acting in
good faith in accordance with any such instruction received, the Owner Trustee
shall not be liable, on account of such action or inaction, to any Person. If
the Owner Trustee shall not have received appropriate instruction within 10 days
of such notice (or within such shorter period of time as reasonably may be
specified in such notice or may be necessary under the circumstances) it may,
but shall be under no duty to, take or refrain from taking such action, not
inconsistent with this Agreement or the Basic Documents, as it shall deem to be
in the best interests of the Certificateholders, and shall have no liability to
any Person for such action or inaction.
SECTION 6.4. No Duties Except as Specified in this Agreement
-----------------------------------------------
or in Instructions . The Owner Trustee shall not have any duty or obligation to
- ------------------
manage, make any payment with respect to, register, record, sell, dispose of, or
otherwise deal with the Owner Trust Estate, or to otherwise take or refrain from
taking any action under, or in connection with, any document contemplated hereby
to which the Owner Trustee is a party, except as expressly provided by the terms
of this Agreement or in any document or written instruction received by the
Owner Trustee pursuant to Section 6.3; and no implied duties or obligations
shall be read into this Agreement or any Basic Document against the Owner
Trustee. The Owner Trustee shall have no responsibility for filing any financing
or continuation statement in any public office at any time or to otherwise
perfect or maintain the perfection of any security interest or lien granted to
it hereunder or to prepare or file any Commission filing for the Trust or to
record this Agreement or any Basic Document. The Owner Trustee nevertheless
agrees that it will, at its own cost and expense, promptly take all action as
may be necessary to discharge any Liens on any part of the Owner Trust Estate
that result from actions by, or claims against, the Owner Trustee (solely in its
individual capacity) and that are not related to the ownership or the
administration of the Owner Trust Estate.
SECTION 6.5. No Action Except under Specified Documents or
---------------------------------------------
Instructions . The Owner Trustee shall not manage, control, use, sell, dispose
- ------------
of or otherwise deal with any part of the Owner Trust Estate except (i) in
accordance with the powers granted to and the authority conferred upon the Owner
Trustee pursuant to this Agreement, (ii) in accordance with the Basic Documents
and (iii) in accordance with any document or instruction delivered to the Owner
Trustee pursuant to Section 6.3.
SECTION 6.6. Restrictions . The Owner Trustee shall not take
------------
any action (a) that is inconsistent with the purposes of the Trust set forth in
Section 2.3 or (b) that, to the actual knowledge of the Owner Trustee, would
result in the Trust's becoming taxable as a corporation or a publicly traded
partnership for Federal income tax purposes. The Certificateholders shall not
direct the Owner Trustee to take action that would violate the provisions of
this Section.
17
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ARTICLE VII.
Concerning the Owner Trustee
----------------------------
SECTION 7.1. Acceptance of Trust and Duties . The Owner
------------------------------
Trustee accepts the trust hereby created and agrees to perform its duties
hereunder with respect to such trust but only upon the terms of this Agreement.
The Owner Trustee also agrees to disburse all monies actually received by it
constituting part of the Owner Trust Estate upon the terms of the Basic
Documents and this Agreement. The Owner Trustee shall not be answerable or
accountable hereunder or under any Basic Document under any circumstances,
except (i) for its own willful misconduct, bad faith or gross negligence, (ii)
in the case of the inaccuracy of any representation or warranty contained in
Section 7.3 expressly made by the Owner Trustee in its individual capacity,
(iii) for liabilities arising from the failure of the Owner Trustee to perform
obligations expressly undertaken by it in the last sentence of Section 6.4
hereof, or (v) for taxes, fees or other charges on, based on or measured by, any
fees, commissions or compensation received by the Owner Trustee. In particular,
but not by way of limitation (and subject to the exceptions set forth in the
preceding sentence):
(a) the Owner Trustee shall not be liable for any error of
judgment, not constituting gross negligence, made by a Responsible Officer of
the Owner Trustee;
(b) the Owner Trustee shall not be liable with respect to any
action taken or omitted to be taken by it if such action or omission is in
accordance with the instructions of the Instructing Party, the Sponsor, the
Servicer or any Certificateholder pursuant to the terms hereof;
(c) or risk funds or otherwise incur any financial liability
in the performance of any of its rights or powers hereunder or under any Basic
Document if the Owner Trustee shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured or provided to it;
(d) by or arising under any of the Basic Documents, including
the principal of and interest on the Notes;
(e) the Owner Trustee shall not be responsible for or in
respect of the validity or sufficiency of this Agreement or for the due
execution hereof by the Sponsor or for the form, character, genuineness,
sufficiency, value or validity of any of the Owner Trust Estate or for or in
respect of the validity or sufficiency of the Basic Documents, other than the
certificate of authentication on the Certificates, and the Owner Trustee shall
in no event assume or incur any liability, duty or obligation to the Sponsor,
the Credit Enhancer, Indenture Trustee, any Certificateholder, other than as
expressly provided for herein and in the Basic Documents;
(f) the Owner Trustee shall not be liable for the default or
misconduct of the Sponsor, the Credit Enhancer, the Indenture Trustee, or the
Servicer under any of the Basic Documents or otherwise and the Owner Trustee
shall have no obligation or liability to perform the obligations under this
Agreement or the Basic Documents that are required to be performed by the
Sponsor under this Agreement, by the Indenture Trustee under the Indenture or
the Servicer under the Sale and Servicing Agreement; and
(g) the Owner Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Agreement, or to institute,
conduct or defend any litigation under this Agreement or otherwise or in
relation to this Agreement or any Basic Document, at the request, order or
18
<PAGE>
direction of the Instructing Party or any of the Certificateholders, unless such
Instructing Party or Certificateholders have offered to the Owner Trustee
security or indemnity satisfactory to it against the costs, expenses and
liabilities that may be incurred by the Owner Trustee therein or thereby. The
right of the Owner Trustee to perform any discretionary act enumerated in this
Agreement or in any Basic Document shall not be construed as a duty, and the
Owner Trustee shall not be answerable for other than its gross negligence, bad
faith or willful misconduct in the performance of any such act.
SECTION 7.2. Furnishing of Documents . The Owner Trustee shall
-----------------------
furnish to the Certificateholders promptly upon receipt of a written request
therefor, duplicates or copies of all reports, notices, requests, demands,
certificates, financial statements and any other instruments furnished to the
Owner Trustee under the Basic Documents.
SECTION 7.3. Representations and Warranties . The Owner
------------------------------
Trustee hereby represents and warrants, in its individual capacity, to the
Sponsor and the Holders (which shall have relied on such representations and
warranties in issuing the Policy), that:
(a) It is a Delaware banking corporation, duly organized and
validly existing in good standing under the laws of the State of Delaware. It
has all requisite corporate power and authority to execute, deliver and perform
its obligations under this Agreement.
(b) It has taken all corporate action necessary to authorize
the execution and delivery by it of this Agreement, and this Agreement will be
executed and delivered by one of its officers who is duly authorized to execute
and deliver this Agreement on its behalf.
(c) Neither the execution nor the delivery by it of this
Agreement, nor the consummation by it of the transactions contemplated hereby
nor compliance by it with any of the terms or provisions hereof will contravene
any federal or Delaware state law, governmental rule or regulation governing the
banking or trust powers of the Owner Trustee or any judgment or order binding on
it, or constitute any default under its charter documents or by-laws or any
indenture, mortgage, contract, agreement or instrument to which it is a party or
by which any of its properties may be bound.
SECTION 7.4. Reliance; Advice of Counsel.
---------------------------
(a) The Owner Trustee shall incur no liability to anyone in
acting upon any signature, instrument, notice, resolution, request, consent,
order, certificate, report, opinion, bond or other document or paper believed by
it to be genuine and believed by it to be signed by the proper party or parties.
The Owner Trustee may accept a certified copy of a resolution of the board of
directors or other governing body of any corporate party as conclusive evidence
that such resolution has been duly adopted by such body and that the same is in
full force and effect. As to any fact or matter the method of the determination
of which is not specifically prescribed herein, the Owner Trustee may for all
purposes hereof rely on a certificate, signed by the president or any vice
president or by the treasurer, secretary or other authorized officers of the
relevant party, as to such fact or matter, and such certificate shall constitute
full protection to the Owner Trustee for any action taken or omitted to be taken
by it in good faith in reliance thereon.
(b) In the exercise or administration of the trusts hereunder
and in the performance of its duties and obligations under this Agreement or the
Basic Documents, the Owner Trustee (i) may act directly or through its agents or
attorneys pursuant to agreements entered into with any of them, and (ii) may
consult with counsel, accountants and other skilled persons to be selected with
reasonable care and employed by it. The Owner Trustee shall not be liable for
anything done, suffered or omitted in good
19
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faith by it in accordance with the written opinion or advice of any such
counsel, accountants or other such persons and according to such opinion not
contrary to this Agreement or any Basic Document.
SECTION 7.5. Not Acting in Individual Capacity . Except as
---------------------------------
provided in this Article VII, in accepting the trusts hereby created Wilmington
Trust Company acts solely as Owner Trustee hereunder and not in its individual
capacity and all Persons having any claim against the Owner Trustee by reason of
the transactions contemplated by this Agreement or any Basic Document shall look
only to the Owner Trust Estate for payment or satisfaction thereof.
SECTION 7.6. Owner Trustee Not Liable for Certificates or
--------------------------------------------
Mortgage Loans . The recitals contained herein and in the Certificates (other
- --------------
than the signature and countersignature of the Owner Trustee on the
Certificates) shall be taken as the statements of the Sponsor and the Owner
Trustee assumes no responsibility for the correctness thereof. The Owner Trustee
makes no representations as to the validity or sufficiency of this Agreement, of
any Basic Document or of the Certificates (other than the signature and
countersignature of the Owner Trustee on the Certificates) or the Notes, or of
any Mortgage Loan or related documents. The Owner Trustee shall at no time have
any responsibility or liability for or with respect to the legality, validity
and enforceability of any Mortgage Loan, or the perfection and priority of any
security interest created by any Mortgage Loan or the maintenance of any such
perfection and priority, or for or with respect to the sufficiency of the Owner
Trust Estate or its ability to generate the payments to be distributed to
Certificateholders under this Agreement or the Noteholders under the Indenture,
including, without limitation: the existence, condition and ownership of any
Mortgage Loan; the existence and enforceability of any insurance thereon; the
existence and contents of any Mortgage Loan on any computer or other record
thereof; the validity of the assignment of any Mortgage Loan to the Trust or of
any intervening assignment; the completeness of any Mortgage Loan; the
performance or enforcement of any Mortgage Loan; the compliance by the Sponsor,
the Servicer or any other Person with any warranty or representation made under
any Basic Document or in any related document or the accuracy of any such
warranty or representation or any action of the Indenture Trustee or the
Servicer or any subservicer taken in the name of the Owner Trustee.
SECTION 7.7. Owner Trustee May Own Certificates and Notes .
--------------------------------------------
The Owner Trustee in its individual or any other capacity may become the owner
or pledgee of Certificates or Notes and may deal with the Sponsor, the Indenture
Trustee and the Servicer in banking transactions with the same rights as it
would have if it were not Owner Trustee.
SECTION 7.8. Payments from Owner Trust Estate . All payments
--------------------------------
to be made by the Owner Trustee under this Agreement or any of the Basic
Documents to which the Trust or the Owner Trustee is a party shall be made only
from the income and proceeds of the Owner Trust Estate and only to the extent
that the Owner Trust shall have received income or proceeds from the Owner Trust
Estate to make such payments in accordance with the terms hereof. Wilmington
Trust Company, or any successor thereto, in its individual capacity, shall not
be liable for any amounts payable under this Agreement or any of the Basic
Documents to which the Trust or the Owner Trustee is a party.
SECTION 7.9. Doing Business in Other Jurisdictions .
-------------------------------------
Notwithstanding anything contained to the contrary, neither Wilmington Trust
Company or any successor thereto, nor the Owner Trustee shall be required to
take any action in any jurisdiction other than in the State of Delaware if the
taking of such action will, even after the appointment of a co-trustee or
separate trustee in accordance with Section 10.5 hereof, (i) require the consent
or approval or authorization or order of or the giving of notice to, or the
registration with or the taking of any other action in respect of, any state or
other governmental authority or agency of any jurisdiction other than the State
of Delaware ; (ii) result in any fee, tax or other governmental charge under the
laws of the State of Delaware becoming payable by Wilmington Trust Company (or
any successor thereto); or (iii) subject Wilmington Trust Company (or any
successor thereto) to personal jurisdiction in any jurisdiction other than the
State of Delaware for causes of action arising from acts unrelated to the
consummation of the transactions by Wilmington Trust Company (or
20
<PAGE>
any successor thereto) or the Owner Trustee, as the case may be, contemplated
hereby.
ARTICLE VIII.
Compensation of Owner Trustee
-----------------------------
SECTION 8.1. Owner Trustee's Fees and Expenses . The Owner
---------------------------------
Trustee shall receive as compensation for its services hereunder such fees as
have been separately agreed upon between the Company and the Owner Trustee, and
the Owner Trustee shall be entitled to be reimbursed by the Sponsor for its
other reasonable expenses hereunder, including the reasonable compensation,
expenses and disbursements of such agents, representatives, experts and counsel
as the Owner Trustee may employ in connection with the exercise and performance
of its rights and its duties hereunder and under the Basic Documents.
SECTION 8.2. Indemnification . The Sponsor shall be liable as
---------------
primary obligor for, and shall indemnify the Owner Trustee (in its individual
and trust capacities) and its officers, directors, successors, assigns, agents
and servants (collectively, the "Indemnified Parties") from and against, any and
all liabilities, obligations, losses, damages, taxes, claims, actions and suits,
and any and all reasonable costs, expenses and disbursements (including
reasonable legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses") which may (in its trust or individual capacities) at
any time be imposed on, incurred by, or asserted against the Owner Trustee or
any Indemnified Party in any way relating to or arising out of this Agreement,
the Basic Documents, the Owner Trust Estate, the administration of the Owner
Trust Estate or the action or inaction of the Owner Trustee hereunder, except
only that the Sponsor shall not be liable for or required to indemnify the Owner
Trustee from and against Expenses arising or resulting from any of the matters
described in the third sentence of Section 7.1. The indemnities contained in
this Section and the rights under Section 8.1 shall survive the resignation or
termination of the Owner Trustee or the termination of this Agreement. In any
event of any claim, action or proceeding for which indemnity will be sought
pursuant to this Section, the Owner Trustee's choice of legal counsel shall be
subject to the approval of the Sponsor which approval shall not be unreasonably
withheld.
SECTION 8.3. Payments to the Owner Trustee . Any amounts paid
-----------------------------
to the Owner Trustee pursuant to this Article VIII shall be deemed not to be a
part of the Owner Trust Estate immediately after such payment.
SECTION 8.4. Non-recourse Obligations . Notwithstanding
------------------------
anything in this Agreement or any Basic Document, the Owner Trustee agrees in
its individual capacity and in its capacity as Owner Trustee for the Trust that
all obligations of the Trust to the Owner Trustee individually or as Owner
Trustee for the Trust shall be recourse to the Owner Trust Estate only and
specifically shall not be recourse to the assets of any Certificateholder.
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ARTICLE IX.
Termination of Trust Agreement
------------------------------
SECTION 9.1. Termination of Trust Agreement.
------------------------------
(a) This Agreement and the Trust shall terminate and be of no
further force or effect upon the later of (i) the maturity or other liquidation
of the last Mortgage Loan (including the purchase by the Sponsor at its option
of the corpus of the Trust as described in Section 7.01(b) of the Sale and
Servicing Agreement) and the subsequent distribution of amounts in respect of
such Mortgage Loans as provided in the Basic Documents or (ii) the payment to
Certificateholders of all amounts required to be paid to them pursuant to this
Agreement and the payment to the Credit Enhancer of all amounts payable or
reimbursable to it pursuant to the Sale and Servicing Agreement and the
Insurance Agreement; provided, however, that the rights to indemnification under
Section 8.2 and the rights under Section 8.1 shall survive the termination of
the Trust. The Servicer shall promptly notify the Owner Trustee and the Credit
Enhancer of any prospective termination pursuant to this Section 9.1. The
bankruptcy, liquidation, dissolution, death or incapacity of any
Certificateholder shall not (x) operate to terminate this Agreement or the
Trust, nor (y) entitle such Certificateholder's legal representatives or heirs
to claim an accounting or to take any action or proceeding in any court for a
partition or winding up of all or any part of the Trust or Owner Trust Estate
nor (z) otherwise affect the rights, obligations and liabilities of the parties
hereto.
(b) Except as provided in clause (a), neither the Sponsor nor
any other Certificateholder shall be entitled to revoke or terminate the Trust.
(c) Notice of any termination of the Trust, specifying the
Distribution Date upon which the Certificateholders shall surrender their
Certificates to the Indenture Trustee for payment of the final distribution and
cancellation, shall be given by the Owner Trustee by letter to
Certificateholders mailed within five Business Days of receipt of notice of such
termination from the Servicer given pursuant to Section 7.01(c) of the Sale and
Servicing Agreement, stating (i) the Distribution Date upon or with respect to
which final payment of the Certificates shall be made upon presentation and
surrender of the Certificates at the office of the Indenture Trustee therein
designated, (ii) the amount of any such final payment and (iii) that the Record
Date otherwise applicable to such Distribution Date is not applicable, payments
being made only upon presentation and surrender of the Certificates at the
office of the Indenture Trustee therein specified. The Owner Trustee shall give
such notice to the Certificate Registrar (if other than the Owner Trustee) and
the Indenture Trustee at the time such notice is given to Certificateholders.
Upon presentation and surrender of the Certificates, the Indenture Trustee shall
cause to be distributed to Certificateholders amounts distributable on such
Distribution Date pursuant to Section 8.3(a)(xiv) of the Indenture.
In the event that all of the Certificateholders shall not
surrender their Certificates for cancellation within six months after the date
specified in the above-mentioned written notice, the Owner Trustee shall give a
second written notice to the remaining Certificateholders to surrender their
Certificates for cancellation and receive the final distribution with respect
thereto. If within one year after the second notice all the Certificates shall
not have been surrendered for cancellation, the Owner Trustee may take
appropriate steps, or may appoint an agent to take appropriate steps, to contact
the remaining Certificateholders concerning surrender of their Certificates, and
the cost thereof shall be paid out of the funds and other assets that shall
remain subject to this Agreement. Any funds remaining in the Trust after
exhaustion of such remedies shall be distributed, subject to applicable escheat
laws, by the Owner Trustee to the Sponsor and Holders shall look solely to the
Sponsor for payment.
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(d) Any funds remaining in the Trust after funds for final
distribution have been distributed or set aside for distribution shall be
distributed by the Owner Trustee to the Sponsor.
(e) Upon the winding up of the Trust and its termination, the
Owner Trustee shall cause the Certificate of Trust to be canceled by filing a
certificate of cancellation with the Secretary of State in accordance with the
provisions of Section 3810 of the Business Trust Statute.
ARTICLE X.
Successor Owner Trustees and Additional Owner Trustees
------------------------------------------------------
SECTION 10.1. Eligibility Requirements for Owner Trustee . The
------------------------------------------
Owner Trustee shall at all times be a corporation (i) satisfying the provisions
of Section 3807(a) of the Business Trust Statute; (ii) authorized to exercise
corporate trust powers; (iii) having a combined capital and surplus of at least
$50,000,000 and subject to supervision or examination by Federal or State
authorities; (iv) having (or having a parent which has) a rating of at least
Baa3 by Moody's or A-1 by Standard & Poors; and (v) acceptable to the Credit
Enhancer in its sole discretion. If such corporation shall publish reports of
condition at least annually, pursuant to law or to the requirements of the
aforesaid supervising or examining authority, then for the purpose of this
Section, the combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. In case at any time the Owner Trustee shall cease to be
eligible in accordance with the provisions of this Section, the Owner Trustee
shall resign immediately in the manner and with the effect specified in Section
10.2.
SECTION 10.2. Resignation or Removal of Owner Trustee . The
---------------------------------------
Owner Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice thereof to the Sponsor (or in the event that
the Sponsor is not the sole Certificateholder, the Holders of Certificates
evidencing not less than a majority in interest in the Trust), the Credit
Enhancer and the Servicer. Upon receiving such notice of resignation, the
Sponsor shall promptly appoint a successor Owner Trustee, meeting the
qualifications set forth in Section 10.1 herein, by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Owner Trustee and one copy to the successor Owner Trustee, provided that the
Sponsor shall have received written confirmation from each of the Rating
Agencies that the proposed appointment will not result in an increased capital
charge to the Credit Enhancer by either of the Rating Agencies. If no successor
Owner Trustee shall have been so appointed and have accepted appointment within
30 days after the giving of such notice of resignation, the resigning Owner
Trustee or the Credit Enhancer may petition any court of competent jurisdiction
for the appointment of a successor Owner Trustee.
If at any time the Owner Trustee shall cease to be eligible in
accordance with the provisions of Section 10.1 and shall fail to resign after
written request therefor by the Sponsor, or if at any time the Owner Trustee
shall be legally unable to act, or shall be adjudged bankrupt or insolvent, or a
receiver of the Owner Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Owner Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation, then the Certificateholder with the consent of the Credit Enhancer
may remove the Owner Trustee. If the Certificateholder shall remove the Owner
Trustee under the authority of the immediately preceding sentence, the Sponsor
shall promptly appoint a successor Owner Trustee, meeting the qualifications set
forth in Section 10.1 herein, by written instrument, in duplicate, one copy of
which instrument shall be delivered to the outgoing Owner Trustee so removed,
one copy to the Credit Enhancer and one copy to the successor Owner Trustee and
the Sponsor shall pay all fees owed to the outgoing Owner Trustee, if not
previously paid by the Trust.
23
<PAGE>
Any resignation or removal of the Owner Trustee and
appointment of a successor Owner Trustee pursuant to any of the provisions of
this Section shall not become effective until acceptance of appointment by the
successor Owner Trustee pursuant to Section 10.3 and payment of all fees and
expenses owed to the outgoing Owner Trustee. The Sponsor shall provide notice of
such resignation or removal of the Owner Trustee to each of the Rating Agencies.
Notwithstanding any other provision of this Agreement, and in
addition to any other method of removal of the Owner Trustee contained herein,
upon a proposal made pursuant to Section 4.2(b) and the subsequent consent of
Certificateholders representing no less than a 66-2/3% interest in the Trust,
the Owner Trustee may be removed as Owner Trustee , subject to the consent of
the Credit Enhancer, which consent is not to be unreasonably withheld. In the
event the Owner Trustee is removed pursuant to this paragraph, the provisions of
this Agreement, including Article X herein, shall apply as if the Owner Trustee
had resigned hereunder.
SECTION 10.3. Successor Owner Trustee . Any successor Owner
-----------------------
Trustee appointed pursuant to Section 10.2 shall execute, acknowledge and
deliver to the Sponsor, the Servicer, the Credit Enhancer and to its predecessor
Owner Trustee an instrument accepting such appointment under this Agreement, and
thereupon the resignation or removal of the predecessor Owner Trustee shall
become effective and such successor Owner Trustee, without any further act, deed
or conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor under this Agreement, with like effect as if
originally named as Owner Trustee. The predecessor Owner Trustee shall upon
payment of its fees and expenses deliver to the successor Owner Trustee all
documents and statements and monies held by it under this Agreement; and the
Sponsor and the predecessor Owner Trustee shall execute and deliver such
instruments and do such other things as may reasonably be required for fully and
certainly vesting and confirming in the successor Owner Trustee all such rights,
powers, duties and obligations.
No successor Owner Trustee shall accept appointment as
provided in this Section unless at the time of such acceptance such successor
Owner Trustee shall be eligible pursuant to Section 10.1.
Upon acceptance of appointment by a successor Owner Trustee
pursuant to this Section, the Servicer shall mail notice of the successor of
such Owner Trustee to all Certificateholders, the Indenture Trustee, the
Noteholders and the Rating Agencies. If the Servicer shall fail to mail such
notice within 10 days after acceptance of appointment by the successor Owner
Trustee, the successor Owner Trustee shall cause such notice to be mailed at the
expense of the Servicer.
SECTION 10.4. Merger or Consolidation of Owner Trustee . Any
----------------------------------------
corporation into which the Owner Trustee may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Owner Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Owner Trustee, shall be the successor of the Owner Trustee
hereunder, provided such corporation shall be eligible pursuant to Section 10.1,
without the execution or filing of any instrument or any further act on the part
of any of the parties hereto, anything herein to the contrary notwithstanding;
provided, further, that the Owner Trustee shall mail notice of such merger or
- -------- -------
consolidation to the Rating Agencies.
SECTION 10.5. Appointment of Co-Owner Trustee or Separate
-------------------------------------------
Owner Trustee . Notwithstanding any other provisions of this Agreement, at any
- -------------
time, for the purpose of meeting any legal requirements of any jurisdiction in
which any part of the Owner Trust Estate or any Mortgaged Property may at the
time be located, the Servicer and the Owner Trustee acting jointly shall have
the power and shall execute and deliver all instruments to appoint one or more
Persons approved by the Owner Trustee and the Credit Enhancer to act as co-
trustee, jointly with the Owner Trustee, or separate trustee or
24
<PAGE>
separate trustees, of all or any part of the Owner Trust Estate, and to vest in
such Person, in such capacity, such title to the Trust, or any part thereof,
and, subject to the other provisions of this Section, such powers, duties,
obligations, rights and trusts as the Servicer and the Owner Trustee may
consider necessary or desirable. If the Servicer shall not have joined in such
appointment within 15 days after the receipt by it of a request so to do, the
Owner Trustee subject to the approval of the Credit Enhancer (which approval
shall not be unreasonably withheld) shall have the power to make such
appointment. No co-trustee or separate trustee under this Agreement shall be
required to meet the terms of eligibility as a successor trustee pursuant to
Section 10.1 and no notice of the appointment of any co-trustee or separate
trustee shall be required pursuant to Section 10.3.
Each separate trustee and co-trustee shall, to the extent
permitted by law, be appointed and act subject to the following provisions and
conditions:
(i) all rights, powers, duties and obligations conferred or
imposed upon the Owner Trustee shall be conferred upon and
exercised or performed by the Owner Trustee and such separate
trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act
separately without the Owner Trustee joining in such act),
except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed, the
Owner Trustee shall be incompetent or unqualified to perform
such act or acts, in which event such rights, powers, duties
and obligations (including the holding of title to the Trust
or any portion thereof in any such jurisdiction) shall be
exercised and performed singly by such separate trustee or co-
trustee, but solely at the direction of the Owner Trustee;
(ii) no trustee under this Agreement shall be personally
liable by reason of any act or omission of any other trustee
under this Agreement; and
(iii) the Servicer and the Owner Trustee acting jointly may
at any time accept the resignation of or remove any separate
trustee or co-trustee.
Any notice, request or other writing given to the Owner
Trustee shall be deemed to have been given to each of the then separate trustees
and co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement and
the conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Owner
Trustee or separately, as may be provided therein, subject to all the provisions
of this Agreement, specifically including every provision of this Agreement
relating to the conduct of, affecting the liability of, or affording protection
to, the Owner Trustee. Each such instrument shall be filed with the Owner
Trustee and a copy thereof given to the Servicer and the Credit Enhancer.
Any separate trustee or co-trustee may at any time appoint the
Owner Trustee, its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Owner Trustee, to the extent permitted by law, without the appointment of
a new or successor trustee.
25
<PAGE>
ARTICLE XI.
Miscellaneous
-------------
SECTION 11.1. Supplements and Amendments.
--------------------------
(a) This Agreement may be amended by the Sponsor and the Owner
Trustee, with the prior written consent of the Credit Enhancer and with prior
written notice to the Rating Agencies, without the consent of any of the
Noteholders or, in the event that the Sponsor is not the sole Certificateholder,
the Certificateholders, (i) to cure any ambiguity or defect or (ii) to correct,
supplement or modify any provisions in this Agreement; provided, however, that
such action shall not, as evidenced by an Opinion of Counsel which may be based
upon a certificate of the Servicer, adversely affect in any material respect the
interests of any Noteholder or Certificateholder.
(b) This Agreement may also be amended from time to time, with
the prior written consent of the Credit Enhancer by the Sponsor and the Owner
Trustee, with prior written notice to the Rating Agencies, and, to the extent
such amendment materially and adversely affects the interests of the
Noteholders, with the consent of the Noteholders evidencing not less than a
majority of the Outstanding Amount of the Notes and, the consent of the
Certificateholders evidencing not less than a majority interest in the Trust
(which consent of any Holder of a Certificate or Note given pursuant to this
Section or pursuant to any other provision of this Agreement shall be conclusive
and binding on such Holder and on all future Holders of such Certificate or Note
and of any Certificate or Note issued upon the transfer thereof or in exchange
thereof or in lieu thereof whether or not notation of such consent is made upon
the Certificate or Note) for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Noteholders or the Certificateholders;
provided, however, that, subject to the express rights of the Credit Enhancer
- -------- -------
under the Basic Documents, no such amendment shall (a) increase or reduce in any
manner the amount of, or accelerate or delay the timing of, collections of
payments on Mortgage Loans or distributions that shall be required to be made
for the benefit of the Noteholders or the Certificateholders or (b) reduce the
aforesaid percentage of the Outstanding Amount of the Notes and the
Certificates, the Holders of which are required to consent to any such
amendment, without the consent of the Holders of all the outstanding Notes and
Holders of all outstanding Certificates.
Promptly after the execution of any such amendment or consent,
the Owner Trustee shall furnish written notification of the substance of such
amendment or consent to each Certificateholder, the Indenture Trustee and each
of the Rating Agencies.
It shall not be necessary for the consent of
Certificateholders, the Noteholders or the Indenture Trustee pursuant to this
Section to approve the particular form of any proposed amendment or consent, but
it shall be sufficient if such consent shall approve the substance thereof. The
manner of obtaining such consents (and any other consents of Certificateholders
provided for in this Agreement or in any other Basic Document) and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Owner Trustee may prescribe.
Promptly after the execution of any amendment to the Certificate of Trust, the
Owner Trustee shall cause the filing of such amendment with the Secretary of
State.
Prior to the execution of any amendment to this Agreement or
the Certificate of Trust, the Owner Trustee shall be entitled to receive and
rely upon an Opinion of Counsel stating that the execution of such amendment is
authorized or permitted by this Agreement and that all conditions precedent to
the execution and delivery of such amendment have been satisfied. The Owner
Trustee may, but shall not be
26
<PAGE>
obligated to, enter into any such amendment which affects the Owner Trustee's
own rights, duties or immunities under this Agreement or otherwise.
SECTION 11.2. No Legal Title to Owner Trust Estate in
---------------------------------------
Certificateholders . The Certificateholders shall not have legal title to any
- ------------------
part of the Owner Trust Estate. The Certificateholders shall be entitled to
receive distributions with respect to their undivided ownership interest therein
only in accordance with Article IX. No transfer, by operation of law or
otherwise, of any right, title or interest of the Certificateholders to and in
their ownership interest in the Owner Trust Estate shall operate to terminate
this Agreement or the trusts hereunder or entitle any transferee to an
accounting or to the transfer to it of legal title to any part of the Owner
Trust Estate.
SECTION 11.3. Limitations on Rights of Others . Except for
-------------------------------
Section 2.7, the provisions of this Agreement are solely for the benefit of the
Owner Trustee, the Sponsor, the Certificateholders, the Servicer and, to the
extent expressly provided herein, the Credit Enhancer, the Indenture Trustee and
the Noteholders, and nothing in this Agreement, whether express or implied,
shall be construed to give to any other Person any legal or equitable right,
remedy or claim in the Owner Trust Estate or under or in respect of this
Agreement or any covenants, conditions or provisions contained herein.
SECTION 11.4. Notices.
-------
(a) Unless otherwise expressly specified or permitted by the
terms hereof, all notices shall be in writing and shall be deemed given upon
receipt personally delivered, delivered by overnight courier or mailed first
class mail or certified mail, in each case return receipt requested, and shall
be deemed to have been duly given upon receipt, if to the Owner Trustee,
addressed to the Corporate Trust Office; if to the Sponsor, addressed to
Headlands Mortgage Securities Inc., 700 Larkspur Landing Circle, Suite 240,
Larkspur, California 94939; if to the Credit Enhancer, addressed to Credit
Enhancer, Ambac Assurance Corporation, One State Street Plaza, New York, New
York 10004, Attention: Surveillance Department, Telecopy No.: (212) 668-0340;
or, as to each party, at such other address as shall be designated by such party
in a written notice to each other party.
(b) Any notice required or permitted to be given to a
Certificateholder shall be given by first-class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Any notice so
mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder receives
such notice.
SECTION 11.5. Severability . Any provision of this Agreement
------------
that is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 11.6. Separate Counterparts . This Agreement may be
---------------------
executed by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 11.7. Assignments; Credit Enhancer.
----------------------------
(a) This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns. This Agreement shall also inure to the benefit of the Credit Enhancer.
Without limiting the generality of the foregoing, all covenants and
27
<PAGE>
agreements in this Agreement which confer rights upon the Credit Enhancer shall
be for the benefit of and run directly to the Credit Enhancer, and the Credit
Enhancer shall be entitled to rely on and enforce such covenants, subject,
however, to the limitations on such rights provided in this Agreement and the
Basic Documents. The Credit Enhancer may disclaim any of its rights and powers
under this Agreement (but not its duties and obligations under the Policy) upon
delivery of a written notice to the Owner Trustee.
(b) In accepting instructions from the Credit Enhancer
pursuant to Article IV or Section 6.3 of this Agreement, and with respect to any
other obligations of the Owner Trustee to the Credit Enhancer under this
Agreement, the Owner Trustee undertakes to perform or observe only its express
obligations under this Agreement, and no implied obligations with respect to the
Credit Enhancer shall be read into this Agreement against the Owner Trustee. The
Owner Trustee shall not be deemed to owe any fiduciary duty to the Credit
Enhancer and it is expressly understood and agreed by the Credit Enhancer that
the Owner Trustee shall not be personally liable or responsible for the payment
of any amount owing on or with respect to the Basic Documents or for the failure
of the Trust to perform its obligations under the Basic Documents or any other
agreement with respect thereto.
SECTION 11.8. No Petition . The Owner Trustee (not in its
-----------
individual capacity but solely as Owner Trustee), by entering into this
Agreement, each Certificateholder, by accepting a Certificate, and the Indenture
Trustee and each Noteholder by accepting the benefits of this Agreement, hereby
covenants and agrees that they will not at any time institute against the
Sponsor, or join in any institution against the Sponsor of, any bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state bankruptcy or similar law
in connection with any obligations relating to the Certificates, the Notes, this
Agreement or any of the Basic Documents.
SECTION 11.9. No Recourse . Each Certificateholder by
-----------
accepting a Certificate acknowledges that such Certificateholder's Certificates
represent beneficial interests in the Trust only and do not represent interests
in or obligations of the Servicer, the Sponsor, the Owner Trustee, the Indenture
Trustee, the Credit Enhancer or any Affiliate thereof and no recourse may be had
against such parties or their assets, except as may be expressly set forth or
contemplated in this Agreement, the Certificates or the Basic Documents.
SECTION 11.10. Headings . The headings of the various Articles
--------
and Sections herein are for convenience of reference only and shall not define
or limit any of the terms or provisions hereof.
SECTION 11.11. GOVERNING LAW . THIS AGREEMENT SHALL BE
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND
REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH
LAWS.
SECTION 11.12. Servicer . The Servicer is authorized to
--------
prepare, or cause to be prepared, execute and deliver on behalf of the Trust all
such documents, reports, filings, instruments, certificates and opinions as it
shall be the duty of the Trust or Owner Trustee to prepare, file or deliver
pursuant to the Basic Documents. Upon written request, the Owner Trustee shall
execute and deliver to the Servicer a limited power of attorney appointing the
Servicer the Trust's agent and attorney-in-fact to prepare, or cause to be
prepared, execute and deliver all such documents, reports, filings, instruments,
certificates and opinions.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Trust
Agreement to be duly executed by their respective officers hereunto duly
authorized as of the day and year first above written.
WILMINGTON TRUST COMPANY
Owner Trustee
By /s/ Emmett Harmon
--------------------------------
Name: Emmett Harmon
Title: Vice President
HEADLANDS MORTGAGE SECURITIES INC.
Sponsor
By /s/ Kristen Decker
--------------------------------
Name: Kristen Decker
Title: Vice President
Acknowledged and Agreed:
HEADLANDS MORTGAGE COMPANY
Servicer
By: /s/ Becky Poisson
--------------------------------
Name: Becky Poisson
Title: Executive Vice President
AMBAC ASSURANCE CORPORATION,
Credit Enhancer
By: /s/ Karl T. Molin
--------------------------------
Name: Karl T. Molin
Title: Vice President & Assistant General Counsel
<PAGE>
CERTIFICATE
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFICATE REPRESENTS CERTAIN RESIDUAL RIGHTS TO PAYMENT TO THE EXTENT
DESCRIBED HEREIN AND IN THE TRUST AGREEMENT REFERRED TO HEREIN.
THIS CERTIFICATE MAY NOT BE HELD BY OR TRANSFERRED TO A NON-UNITED STATES
PERSON.
THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. ANY RESALE, TRANSFER
OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT SUCH REGISTRATION OR
QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES NOT REQUIRE SUCH
REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE PROVISIONS OF SECTION
3.10 OF THE TRUST AGREEMENT REFERRED TO HEREIN.
NO TRANSFER OF THIS CERTIFICATE MAY BE MADE UNLESS THE TRANSFEREE PROVIDES A
REPRESENTATION LETTER FROM THE TRANSFEREE OF SUCH CERTIFICATE, ACCEPTABLE TO AND
IN FORM AND SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE CREDIT
ENHANCER, TO THE EFFECT THAT SUCH TRANSFEREE IS NOT AN EMPLOYEE BENEFIT PLAN
SUBJECT TO SECTION 406 OF ERISA, NOR A PERSON ACTING ON BEHALF OF OR USING THE
ASSETS OF ANY SUCH PLAN, WHICH REPRESENTATION LETTER SHALL NOT BE AN EXPENSE OF
THE INDENTURE TRUSTEE OR THE CREDIT ENHANCER.
NO TRANSFER OF A CERTIFICATE SHALL BE MADE UNLESS SUCH TRANSFER IS EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY
APPLICABLE STATE SECURITIES LAWS OR IS MADE IN ACCORDANCE WITH SAID ACT AND
LAWS. EXCEPT FOR THE INITIAL ISSUANCE OF THE CERTIFICATE TO THE SPONSOR AND THE
PLEDGE THEREOF BY THE SPONSOR IN CONNECTION WITH THE YIELD MAINTENANCE
CERTIFICATES, SERIES 1998-1, THE INDENTURE TRUSTEE SHALL REQUIRE (i) THE
TRANSFEREE TO EXECUTE AN INVESTMENT LETTER ACCEPTABLE TO AND IN FORM AND
SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER
CERTIFYING TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER THE FACTS
SURROUNDING SUCH TRANSFER, WHICH INVESTMENT LETTER SHALL NOT BE AN EXPENSE OF
THE INDENTURE TRUSTEE OR THE CREDIT ENHANCER OR (ii) IF THE INVESTMENT LETTER IS
NOT DELIVERED, A WRITTEN OPINION OF COUNSEL ACCEPTABLE TO AND IN FORM AND
SUBSTANCE SATISFACTORY TO THE INDENTURE TRUSTEE, THE CREDIT ENHANCER AND THE
SPONSOR THAT SUCH TRANSFER MAY BE MADE PURSUANT TO AN EXEMPTION, DESCRIBING THE
APPLICABLE EXEMPTION AND THE BASIS THEREFOR, FROM SAID ACT OR IS BEING MADE
PURSUANT TO SAID ACT, WHICH OPINION OF COUNSEL SHALL NOT BE AN EXPENSE OF THE
INDENTURE TRUSTEE, THE CREDIT ENHANCER OR THE SPONSOR. THE HOLDER OF A
CERTIFICATE DESIRING TO EFFECT SUCH TRANSFER SHALL, AND DOES HEREBY AGREE TO,
INDEMNIFY THE SPONSOR AND THE CREDIT ENHANCER AGAINST ANY LIABILITY THAT MAY
RESULT IF THE TRANSFER IS NOT SO EXEMPT OR IS NOT MADE IN ACCORDANCE WITH SUCH
FEDERAL AND STATE LAWS.
<PAGE>
EXCEPT FOR THE PLEDGE BY THE SPONSOR IN CONNECTION WITH ITS YIELD MAINTENANCE
CERTIFICATES, SERIES 1998-1, THE CERTIFICATES AND ANY INTEREST THEREIN SHALL NOT
BE TRANSFERRED EXCEPT UPON SATISFACTION OF THE FOLLOWING CONDITIONS PRECEDENT:
(I) THE PERSON THAT ACQUIRES A CERTIFICATE SHALL (A) BE ORGANIZED AND EXISTING
UNDER THE LAWS OF THE UNITED STATES OF AMERICA OR ANY STATE OR THE DISTRICT OF
COLUMBIA THEREOF, (B) EXPRESSLY ASSUME, BY AN AGREEMENT SUPPLEMENTAL HERETO,
EXECUTED AND DELIVERED TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER, THE
PERFORMANCE OF EVERY COVENANT AND OBLIGATION OF THE SPONSOR UNDER THE TRUST
AGREEMENT AND (C) AS PART OF ITS ACQUISITION OF A CERTIFICATE, ACQUIRE ALL
RIGHTS OF THE SPONSOR OR ANY TRANSFEREE UNDER SECTION 3.10 OF THE TRUST
AGREEMENT TO AMOUNTS PAYABLE TO THE CERTIFICATE OR SUCH TRANSFEREE UNDER
SECTIONS 8.3(A)(XIV) AND 8.3(g) OF THE INDENTURE; (II) THE HOLDER OF THE
CERTIFICATES SHALL DELIVER TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER AN
OFFICER'S CERTIFICATE STATING THAT SUCH TRANSFER AND SUCH SUPPLEMENTAL AGREEMENT
COMPLY WITH SECTION 3.10(C) OF THE TRUST AGREEMENT AND THAT ALL CONDITIONS
PRECEDENT PROVIDED BY SECTION 3.10(C) OF THE TRUST AGREEMENT HAVE BEEN COMPLIED
WITH AND AN OPINION OF COUNSEL STATING THAT ALL CONDITIONS PRECEDENT PROVIDED BY
SECTION 3.10(C) OF THE TRUST AGREEMENT HAVE BEEN COMPLIED WITH, AND THE
INDENTURE TRUSTEE MAY CONCLUSIVELY RELY ON SUCH OFFICER'S CERTIFICATE, SHALL
HAVE NO DUTY TO MAKE INQUIRIES WITH REGARD TO THE MATTERS SET FORTH THEREIN AND
SHALL INCUR NO LIABILITY IN SO RELYING; (III) THE HOLDER OF THE CERTIFICATES
SHALL DELIVER TO THE INDENTURE TRUSTEE AND THE CREDIT ENHANCER A LETTER FROM
EACH RATING AGENCY CONFIRMING THAT ITS RATING OF THE NOTES, AFTER GIVING EFFECT
TO SUCH TRANSFER, WILL NOT BE REDUCED OR WITHDRAWN WITHOUT REGARD TO THE POLICY;
(IV) THE TRANSFEREE OF THE CERTIFICATES SHALL DELIVER TO THE INDENTURE TRUSTEE
AND THE CREDIT ENHANCER AN OPINION OF COUNSEL TO THE EFFECT THAT (A) SUCH
TRANSFER WILL NOT ADVERSELY AFFECT THE TREATMENT OF THE NOTES AFTER SUCH
TRANSFER AS DEBT FOR FEDERAL AND APPLICABLE STATE INCOME TAX PURPOSES, (B) SUCH
TRANSFER WILL NOT RESULT IN THE TRUST BEING SUBJECT TO TAX AT THE ENTITY LEVEL
FOR FEDERAL OR APPLICABLE STATE TAX PURPOSES, (C) SUCH TRANSFER WILL NOT HAVE
ANY MATERIAL ADVERSE IMPACT ON THE FEDERAL OR APPLICABLE STATE INCOME TAXATION
OF A NOTEHOLDER OR ANY NOTE OWNER AND (D) SUCH TRANSFER WILL NOT RESULT IN THE
ARRANGEMENT CREATED BY THE TRUST AGREEMENT OR ANY "PORTION" OF THE TRUST, BEING
TREATED AS A TAXABLE MORTGAGE POOL AS DEFINED IN SECTION 7701(I) OF THE CODE;
(V) ALL FILINGS AND OTHER ACTIONS NECESSARY TO CONTINUE THE PERFECTION OF THE
INTEREST OF THE TRUST IN THE MORTGAGE LOANS AND THE OTHER PROPERTY CONVEYED
UNDER THE TRUST AGREEMENT SHALL HAVE BEEN TAKEN OR MADE AND (VI) THE CREDIT
ENHANCER SHALL HAVE CONSENTED TO SUCH TRANSFER.
THIS CERTIFICATE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
DELAWARE, WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.
<PAGE>
HEADLANDS HOME EQUITY LOAN TRUST
1998-1 CERTIFICATE
Percentage Interest: 100%
Date of Cut-Off Date:
March 12, 1998
First Distribution Date: Issue Date: March 25, 1998
April 15, 1998
No. 1
_________________________________
OWNER TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Certificates referred to in the within-mentioned Trust
Agreement.
WILMINGTON TRUST COMPANY
not in its individual
capacity but solely as
Owner Trustee
by:____________________________________
Authenticating Agent
The Trust was created pursuant to a Trust Agreement dated as
of March 1, 1998 (the "Trust Agreement"), between the Sponsor and Wilmington
Trust Company, as owner trustee (the "Owner Trustee"), a summary of certain of
the pertinent provisions of which is set forth below. To the extent not
otherwise defined herein, the capitalized terms used herein have the meanings
assigned to them in the Trust Agreement.
This Certificate is one of the duly authorized Certificates
designated as Headlands Home Equity Loan "Asset Backed Certificates" (herein
called the "Certificates"). Also issued under the Indenture dated as of March
13, 1998, among the Trust and The First National Bank of Chicago, as indenture
trustee (the "Indenture Trustee") are two classes of Notes designated as Class A
Notes (the "Class A Notes") and Class S Notes (the "Class S Notes", together
with the Class A Notes, (the "Notes"). These Certificates are issued under and
are subject to the terms, provisions and conditions of the Trust Agreement, to
which Trust Agreement the holder of this Certificate by virtue of the acceptance
hereof
<PAGE>
assents and by which such holder is bound. The property of the Trust includes a
pool of adjustable-rate home equity revolving credit line loans secured by first
or second deeds of trust or Mortgages on primarily one-to-four family
residential properties.
Under the Trust Agreement, there will be distributed on the
15th day of each month or, if such 15th day is not a Business Day, the next
Business Day (the "Distribution Date"), commencing on April 15, 1998, to the
Person in whose name this Certificate is registered at the close of business on
the Business Day preceding such Distribution Date (the "Record Date") such
Certificateholder's Percentage Interest in the amount to be distributed to
Certificateholders on such Distribution Date.
The holder of this Certificate acknowledges and agrees that
its rights to receive distributions in respect of this Certificate are
subordinated to the rights of the Noteholders as described in the Sale and
Servicing Agreement, the Indenture and the Trust Agreement, as applicable.
The holder of this Certificate, by acceptance of this
Certificate, specifically acknowledges that it has no right to or interest in
any monies at any time held pursuant to the Spread Account, Capitalized Interest
Account, the Funding Account or prior to the release of such monies pursuant to
Section 8.3(a)(xiv) of the Indenture, such monies being held in trust for the
benefit of the Noteholders and the Credit Enhancer. Notwithstanding the
foregoing, in the event that it is ever determined that the monies held in the
Spread Account, Capitalized Interest Account, the Funding Account constitute a
pledge of collateral, then the provisions of the Sale and Servicing Agreement
shall be considered to constitute a security agreement and the holder of this
Certificate hereby grants to the Indenture Trustee and the Credit Enhancer a
first priority perfected security interest in such amounts. In addition, each
Certificateholder, by acceptance of its Certificate, hereby appoints the Sponsor
as its agent to pledge a first priority perfected security interest in the
Spread Account, the Capitalized Interest Account and the Funding Account and
agrees to execute and deliver such instruments of conveyance, assignment, grant,
confirmation, etc., as well as any financing statements, in each case as the
Credit Enhancer shall consider reasonably necessary in order to perfect the
Indenture Trustee's security interest in the Trust Property.
It is the intent of the Sponsor, the Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a branch. In the event that the Certificates are held by more than
one Holder, it is the intent of the Sponsor, the Servicer, and the
Certificateholders that, for purposes of Federal income taxes, the Trust will be
treated as a partnership and the Certificateholders will be treated as partners
in that partnership. The Sponsor and any other Certificateholders, by acceptance
of a Certificate, agree to treat, and to take no action inconsistent with the
treatment of, the Certificates for such tax purposes as partnership interests in
the Trust. Each Certificateholder, by its acceptance of a Certificate, covenants
and agrees that such Certificateholder will not at any time institute against
the Trust or the Sponsor, or join in any institution against the Trust or the
Sponsor of, any bankruptcy, reorganization, arrangement, insolvency or
liquidation proceedings, or other proceedings under any United States Federal or
state bankruptcy or similar law in connection with any obligations relating to
the Certificates, the Notes, the Trust Agreement or any of the Basic Documents.
Distributions on this Certificate will be made as provided in
the Sale and Servicing Agreement and the Indenture by the Indenture Trustee by
wire transfer or check mailed to the Certificateholder of record in the
Certificate Register without the presentation or surrender of this Certificate
or the making of any notation hereon. Except as otherwise provided in the Trust
Agreement and notwithstanding the above, the final distribution on this
Certificate will be made after due notice by the Owner Trustee of the pendency
of such distribution and only upon presentation and surrender of this
Certificate at the office or agency maintained for the purpose by the Owner
Trustee in the Corporate Trust Office.
<PAGE>
Reference is hereby made to the further provisions of this
Certificate set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Owner Trustee, by manual
signature, this Certificate shall not entitle the holder hereof to any benefit
under the Trust Agreement or the Sale and Servicing Agreement or be valid for
any purpose.
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee, on behalf of the Trust
and not in its individual capacity, has caused this Certificate to be duly
executed.
HEADLANDS HOME EQUITY LOAN
TRUST 1998-1
By: WILMINGTON TRUST COMPANY not in its individual
capacity but solely as Owner Trustee
Dated: March 25, 1998
By: ________________________________
Name:
Title:
<PAGE>
(Reverse of Certificate)
The Certificates do not represent an obligation of, or an
interest in, the Company, the Sponsor, the Servicer, the Credit Enhancer, the
Owner Trustee or any Affiliates of any of them and no recourse may be had
against such parties or their assets, except as may be expressly set forth or
contemplated herein or in the Trust Agreement, the Indenture or the Basic
Documents. In addition, this Certificate is not guaranteed by any governmental
agency or instrumentality and is limited in right of payment to certain
collections with respect to the Mortgage Loans, as more specifically set forth
herein, in the Sale and Servicing Agreement and in the Indenture. A copy of each
of the Sale and Servicing Agreement and the Trust Agreement may be examined
during normal business hours at the principal office of the Sponsor, and at such
other places, if any, designated by the Sponsor, by any Certificateholder upon
written request.
The Trust Agreement permits, with certain exceptions therein
provided, the amendment thereof and the modification of the rights and
obligations of the Sponsor and the rights of the Certificateholders under the
Trust Agreement at any time by the Sponsor and the Owner Trustee with the prior
written consent of the Credit Enhancer and with the consent of the holders of
the Notes and the Certificates evidencing not less than a majority of the
outstanding Notes and the Certificates. Any such consent by the holder of this
Certificate shall be conclusive and binding on such holder and on all future
holders of this Certificate and of any Certificate issued upon the transfer
hereof or in exchange hereof or in lieu hereof whether or not notation of such
consent is made upon this Certificate. The Trust Agreement also permits the
amendment thereof, in certain limited circumstances, without the consent of the
holders of any of the Certificates (other than the Sponsor or the Credit
Enhancer).
As provided in the Trust Agreement and subject to certain
limitations therein set forth, the transfer of this Certificate is registerable
in the Certificate Register upon surrender of this Certificate for registration
of transfer at the offices or agencies of the Certificate Registrar maintained
by the Owner Trustee in the Corporate Trust Office, accompanied by a written
instrument of transfer in form satisfactory to the Owner Trustee and the
Certificate Registrar duly executed by the holder hereof or such holder's
attorney duly authorized in writing, and thereupon one or more new Certificates
in authorized denominations evidencing the same aggregate interest in the Trust
will be issued to the designated transferee. The initial Certificate Registrar
appointed under the Trust Agreement is Wilmington Trust Company.
Except for Certificates issued to the Sponsor, the
Certificates are issuable only as registered Certificates without coupons in
denominations of $1,000 or integral multiples of $1,000 in excess thereof. As
provided in the Trust Agreement and subject to certain limitations therein set
forth, Certificates are exchangeable for new Certificates in authorized
denominations evidencing the same aggregate denomination, as requested by the
holder surrendering the same. No service charge will be made for any such
registration of transfer or exchange, but the Owner Trustee or the Certificate
Registrar may require payment of a sum sufficient to cover any tax or
governmental charge payable in connection therewith.
The Owner Trustee, the Certificate Registrar, the Credit
Enhancer and any agent of the Owner Trustee, the Certificate Registrar, the
Credit Enhancer or the Credit Enhancer may treat the person in whose name this
Certificate is registered as the owner hereof for all purposes, and none of the
Owner Trustee, the Certificate Registrar, the Credit Enhancer nor any such agent
shall be affected by any notice to the contrary.
The obligations and responsibilities created by the Trust
Agreement and the Trust created thereby shall terminate upon the payment to
Certificateholders of all amounts required to be paid to them
<PAGE>
pursuant to the Trust Agreement, the Indenture and the Sale and Servicing
Agreement and the disposition of all property held as part of the Trust. The
Sponsor may at its option purchase the corpus of the Trust at a price specified
in the Sale and Servicing Agreement, and such purchase of the Mortgage Loans and
other property of the Trust will effect a transfer of the Certificates; however,
such right of purchase is exercisable, subject to certain restrictions, only on
any Distribution Date on or after the Distribution Date immediately prior to
which the Class A Note Principal Balance is less than 10% of the Original Class
A Note Principal Balance and all amounts due and owing to the Credit Enhancer
for unpaid premiums and unreimbursed draws on the Policy and all other amounts
due and owing to the Credit Enhancer pursuant to the Insurance Agreement,
together with interest thereon as provided under the Insurance Agreement, have
been paid.
The recitals contained herein shall be taken as the statements
of the Sponsor or the Servicer, as the case may be, and the Owner Trustee
assumes no responsibility for the correctness thereof. The Owner Trustee makes
no representations as to the validity or sufficiency of this Certificate or of
any Mortgage Loan or related document.
Unless the certificate of authentication hereon shall have
been executed by an authorized officer of the Owner Trustee, by manual or
facsimile signature, this Certificate shall not entitle the holder hereof to any
benefit under the Trust Agreement or the Sale and Servicing Agreement or be
valid for any purpose.
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
- --------------------------------------------------------------------------------
(Please print or type name and address, including postal zip code, of assignee)
- --------------------------------------------------------------------------------
the within Certificate, and all rights thereunder, hereby irrevocably
constituting and appointing
____________________Attorney to transfer said Certificate on the books
of the Certificate Registrar, with full power of substitution in the premises.
Dated:
*
_______________________________
Signature Guaranteed:
*
_______________________________
_____________________
* NOTICE: The signature to this assignment must correspond with the name
of the registered owner as it appears on the face of the within
Certificate in every particular, without alteration, enlargement or any
change whatever. Such signature must be guaranteed by an "eligible
guarantor institution" meeting the requirements of the Certificate
Registrar, which requirements include membership or participation in
STAMP or such other "signature guarantee program" as may be determined
by the Certificate Registrar in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as
amended.
<PAGE>
EXHIBIT B
CERTIFICATE OF TRUST OF
HEADLANDS HOME EQUITY LOAN TRUST 1998-1
This Certificate of Trust of Headlands Home Equity Loan Trust
1998-1 (the "Trust"), dated as of March __, 1998, is being duly executed and
filed by Wilmington Trust Company, a Delaware banking corporation, as trustee,
to form a business trust under the Delaware Business Trust Act (12 Del. Code,
(S) 3801 et seq.).
1. Name. The name of the business trust formed hereby is
----
Headlands Home Equity Loan Trust 1998-1.
2. Delaware Trust. The name and business address of the Owner
--------------
Trustee of the Trust in the State of Delaware is Wilmington Trust Company,
Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001.
Attn: Corporate Trust Administration.
3. This Certificate of Trust will be effective March __, 1998.
IN WITNESS WHEREOF, the undersigned, being the sole trustee of
the Trust, has executed this Certificate of Trust as of the date first above
written.
WILMINGTON TRUST COMPANY
not in its individual capacity but
solely as Owner
Trustee of the Trust.
By:
-------------------------------
Name:
Title:
<PAGE>
AMBAC Ambac Assurance Corporation
CERTIFICATE GUARANTY INSURANCE POLICY c/o CT Corporation Systems
44 East Mifflin Street, Madison, Wisconsin 53703
Administrative Office:
One State Street Plaza, New York, New York 10004
Telephone: (212) 668-0340
Insured Obligations: Policy Number:
Headlands Home Equity Loan Trust AB00161BE
1998-1, $191,584,000 Revolving
Home Equity Loan Asset-
Backed Notes, Series 1998-1,
Class A and Class S Premium:
Calculated as set forth in the Certificate
Guaranty Insurance Endorsement attached hereto
AMBAC ASSURANCE CORPORATION (AMBAC) A Wisconsin Stock Insurance Company in
consideration of the payment of the premium and subject to the terms of this
Policy, hereby agrees unconditionally and irrevocably to pay to the Trustee for
the benefit of the Holders of the Insured Obligations, that portion of the
Insured Amounts which shall become Due for Payment but, shall be unpaid by
reason of Nonpayment.
Ambac will make such payments to the Trustee from its own funds on the later of
(a) one (1) Business Day following notification to Ambac of Nonpayment or (b)
the Business Day on which the Insured Amounts are Due for Payment. Such
payments of principal or interest shall be made only upon presentation of an
instrument of assignment in form and substance satisfactory to Ambac,
transferring to Ambac all rights under such Insured Obligations to receive the
principal of and interest on the Insured Obligation. Ambac shall be subrogated
to all the Holders' rights to payment on the Insured Obligations to the extent
of the insurance disbursements so made. Once payments of the Insured Amounts
have been made to the Trustee, Ambac shall have no further obligation hereunder
in respect of such Insured Amounts.
In the event the Trustee for the Insured Obligations has notice that any payment
of principal or interest on an Insured Obligation which has become Due for
Payment and which is made to a Holder by or on behalf of the Trustee has been
deemed a preferential transfer and theretofore recovered from its Holder
pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court of competent jurisdiction, such Holder will be
entitled to payment from Ambac to the extent of such recovery if sufficient
funds are not otherwise available.
This Policy is noncancelable by Ambac for any reason, including failure to
receive payment of any premium due hereunder. The premium on this Policy is not
refundable for any reason. This Policy does not insure against loss of any
prepayment or other acceleration payment which at any time may become due in
respect of any Insured Obligation, other than at the sole option of Ambac, nor
against any risk other than Nonpayment, including failure of the Trustee to make
any payment due Holders of Insured Amounts.
To the fullest extent permitted by applicable law, Ambac hereby waves and agrees
not to assert any and all rights and defenses, to the extent such rights and
defenses may be available to Ambac, to avoid payment of its obligations under
this Policy in accordance with the express provisions hereof.
Any capitalized terms not defined herein shall have the meaning given such terms
in the endorsement attached hereto or in the Agreement.
In witness whereof, Ambac has caused this Policy to be affixed with its
corporate seal and to be signed by its duly authorized officers in facsimile to
become effective as their original signatures and binding upon Ambac by virtue
of the countersignature of its duly authorized representative.
[CORPORATE SEAL]
President Secretary
/s/ P. Lassiter /s/ Stephen Cooke
Effective Date: March 25, 1998 Authorized Representative
<PAGE>
CERTIFICATE GUARANTY INSURANCE ENDORSEMENT
Attached to and forming Effective Date of Endorsement:
part of Policy #AB00161BE March 25, 1998
issued to:
The First National Bank of Chicago,
as Indenture Trustee for the Holders of
Headlands Revolving Home Equity Loan Asset-Backed
Notes, Series 1998-1, Class A and Class S
For all purposes of this Policy, the following terms shall have the
following meanings:
"Agreement" shall mean the Sale and Servicing Agreement dated as of March
13, 1998 between Headlands Mortgage Securities Inc., as Sponsor, Headlands
Mortgage Company, as Servicer, and the Headlands Home Equity Loan Trust 1998-1,
as Issuer, as such Agreement may be amended, modified or supplemented from time
to time as set forth in the Agreement.
"Certificate Insurance Policy" or "Policy" shall mean this Certificate
Guaranty Insurance Policy together with each and every endorsement hereto.
"Collection Account" shall mean the account created and maintained with the
Trustee for the benefit of the Noteholders and the Insurer pursuant to Section
3.02(b) of the Agreement.
"Deficiency Amount" means the excess, if any, of Required Payments over the
Net Available Distribution Amount for such Distribution Date.
"Distribution Date" shall mean the 15th day of any month (or if such 15th
day is not a Business Day, the first Business Day immediately following)
beginning with the First Distribution Date.
"Due for Payment" shall mean the Business Day immediately preceding the
Distribution Date on which Insured Amounts are due.
"First Distribution Date" shall mean April 15, 1998.
<PAGE>
"Holder" shall mean any person who is the registered owner or beneficial
owner of any Class A Notes or Class S Notes.
"Indenture" shall mean the Indenture between Headlands Home Equity Loan
Trust 1998-1, as Issuer and The First National Bank of Chicago as Indenture
Trustee, dated March 1, 1998.
"Indenture Trustee" shall mean The First National Bank of Chicago or its
successor-in-interest, in its capacity as Indenture trustee under the Indenture,
or if any successor Indenture trustee or any co-trustee shall be appointed as
provided therein, then "Indenture Trustee" shall also mean such successor
trustee or such co-trustee, as the case may be, subject to the provisions
thereof.
"Insurance Agreement" shall mean the Insurance and Indemnity Agreement,
dated as of March 25, 1998, among Headlands Mortgage Securities Inc., as
Sponsor, Headlands Mortgage Company, as Servicer, The First National Bank of
Chicago, as Indenture Trustee, Ambac Assurance Corporation, as Insurer, and the
Headlands Home Equity Loan Trust 1998-1, as Issuer as such Agreement may be
amended, modified or supplemented from time to time.
"Insured Amounts" shall mean, with respect to any Distribution Date, the
Deficiency Amount for such Distribution Date.
"Insured Payments" shall mean, with respect to any Distribution Date, the
aggregate amount actually paid by the Insurer to the Indenture Trustee in
respect of (i) Insured Amounts for such Distribution Date and (ii) Preference
Amounts for any given Business Day.
"Insurer" shall mean Ambac Assurance Corporation, or any successor thereto,
as issuer of the Certificate Insurance Policy.
"Late Payment Rate" shall mean for any Distribution Date, the greater of
(i) the rate of interest, as it is publicly announced by Citibank, N.A. at its
principal office in New York, New York as its prime rate (any change in such
prime rate of interest to be effective on the date such change is announced by
Citibank, N.A.) plus 2% and (ii) the then applicable highest rate of interest on
----
the Investor Certificates. The Late Payment Rate shall be computed on the basis
of a year of 360 days and the actual number of days elapsed. In no event shall
the Late Payment Rate exceed the maximum rate permissible under any applicable
law limiting interest rates.
"Net Available Distribution Amount" means, with respect to any Distribution
Date, the sum of (i) the amount on deposit in the Collection Account on such
Distribution Date minus the Owner Trustee's Fee, the Indenture Trustee's Fee,
-----
the Servicer's Fee and the Premium Amount.
"Nonpayment" shall mean, with respect to any Distribution Date, a
Deficiency Amount, owing in respect of such Distribution Date.
"Notes" shall mean any one of the Class A Notes and Class S Notes
substantially in the form set forth in Exhibit A and Exhibit B, respectively, to
the Indenture.
"Notice" shall mean the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of Exhibit A to the
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Indenture Trustee specifying the Insured Amount which
shall be due and owing on the applicable Distribution Date.
<PAGE>
"Preference Amount" means any payment of principal or interest on a Class A
Note which has become Due for Payment and which is made to a Holder by or on
behalf of the Indenture Trustee which has been deemed a preferential transfer
and theretofore recovered from its Holder pursuant to the United States
Bankruptcy Code in accordance with a final, nonappealable order of a court of
competent jurisdiction.
"Premium Percentage" shall have the meaning set forth in the Insurance
Agreement.
"Reimbursement Amount" shall mean, as to any Distribution Date, the sum of
(x) (i) all Insured Payments paid by the Insurer, but for which the Insurer has
not been reimbursed prior to such Distribution Date pursuant to Section
8.3(a)(vi) of the Indenture, plus (ii) interest accrued thereon, calculated at
----
the Late Payment Rate from the date the Indenture Trustee received the related
Insured Payments, and (y) without duplication (i) any amounts then due and owing
to the Insurer under the Insurance Agreement plus (ii) interest on such amounts
----
at the Late Payment Rate.
"Required Payments" shall mean, as of any Distribution Date, the sum of (i)
the Class A Note Interest and Class S Note Interest (excluding any Relief Act
Shortfalls) plus any Class A Note Interest Shortfall and Class S Note Interest
Shortfall and (ii) the Guaranteed Principal Distribution Amount.
"Trust Agreement" shall mean the Trust Agreement between Headlands Mortgage
Securities Inc., as Sponsor and Wilmington Trust Company as Owner Trustee, dated
as of March 13, 1998.
Capitalized used herein and not otherwise defined shall have the meaning
assigned to them in the Agreement, the Indenture or the Trust Agreement.
As provided by the Policy, the Insurer will pay any amount payable
hereunder no later than 12:00 noon, New York City time, on the later of the
Distribution Date on which the related Insured Amount is due or the Business Day
following receipt in New York, New York on a Business Day by the Insurer of a
Notice; provided that, if such Notice is received after 12:00 noon, New York
City time, on such Business Day, it will be deemed to be received on the
following Business Day. If any such Notice is not in proper form or is
otherwise insufficient for the purpose of making a claim under the Policy, it
shall be deemed not to have been received for purposes of this paragraph, and
the Insurer shall promptly so advise the Indenture Trustee and the Indenture
Trustee may submit an amended Notice.
The Insurer hereby agrees that if it shall be subrogated to the rights of
Holders by virtue of any previous payment under this Policy, no recovery of such
payment will occur unless the full amount of the Holders' allocable
distributions for such Distribution Date can be made. In so doing, the Insurer
does not waive its rights to seek full payment of all Reimbursement Amounts owed
to it under the Agreement.
The terms and provisions of the Agreement constitute the instrument of
assignment referred to in the second paragraph of the face of this Policy.
<PAGE>
A premium will be payable on this Policy on each Distribution Date as
provided in Section 8.3(a)(v) of the Indenture, beginning with the first
Distribution Date, in an amount equal to the Premium.
Claims arising under the Policy would be excluded from coverage by the
California Insurance Guaranty Association established pursuant to the laws of
California.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy to which this Endorsement is attached and of which it forms a
part is hereby amended to provide that there shall be no acceleration payment
due under the Policy unless such acceleration is at the sole option of the
Insurer.
Nothing herein contained shall be held to vary, alter, waive or extend any
of the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
This Policy is issued under and pursuant to, and shall be construed under,
the laws of the State of Illinois.
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this Endorsement to the Policy
to be signed by its duly authorized officers.
_____________________ ____________________________________
Vice President Secretary
<PAGE>
EXHIBIT A
TO THE CERTIFICATE GUARANTY INSURANCE POLICY
--------------------------------------------
Policy No. AB00161BE
NOTICE OF NONPAYMENT AND DEMAND
FOR PAYMENT OF INSURED AMOUNTS
Date: [ ]
Ambac ASSURANCE CORPORATION
One State Street Plaza
New York, New York 10004
Attention: General Counsel
Reference is made to Certificate Guaranty Insurance Policy No. AB00161BE
(the "Policy") issued by Ambac Assurance Corporation ("AMBAC"). Terms
capitalized herein and not otherwise defined shall have the meanings specified
in the Policy and the Indenture, as the case may be, unless the context
otherwise requires.
The Indenture Trustee hereby certifies as follows:
1. The Indenture Trustee is the Indenture Trustee under the Indenture for the
Holders.
2. The relevant Distribution Date is [date].
3. Payment on the Notes in respect of the Distribution Date is due
to be received on __________________________________ under the
Indenture, in an amount equal to $______________________.
4. There is an Insured Amount of $______________________________ in
respect of the certificates, which amount is an Insured Amount
pursuant to the terms of the Indenture.
5. The sum of $____________________ is the Insured Amount that is
Due For Payment.
6. The Indenture Trustee has not heretofore made a demand for the
Insured Amount in respect of the Distribution Date.
7. The Indenture Trustee hereby requests the payment of the Insured
Amount that is Due For Payment be made by AMBAC under the Policy
and directs that payment under the Policy be made to the
following account by bank wire transfer of federal or other
immediately available funds in accordance
<PAGE>
with the terms of thePolicy to: _____________________________
Indenture Trustee's account number.
8. The Indenture Trustee hereby agrees that, following receipt of
the Insured Amount from AMBAC, it shall (a) hold such amounts in
trust and apply the same directly to the distribution of payment
on the Notes when due; (b) not apply such funds for any other
purpose; (c) deposit such funds to the Note Account and not
commingle such funds with other funds held by Trustee and (d)
maintain an accurate record of such payments with respect to each
certificate and the corresponding claim on the Policy and
proceeds thereof.
By:_____________________________
Indenture Trustee
Title:_____________________________
(Officer)
<PAGE>
EXHIBIT 10.1
Execution Copy
--------------
MORTGAGE LOAN PURCHASE AGREEMENT
Between
HEADLANDS MORTGAGE COMPANY,
as Seller
and
HEADLANDS MORTGAGE SECURITIES INC.,
as Purchaser
Dated as of March 13, 1998
<PAGE>
Table of Contents
Page
----
ARTICLE I Definitions........................................ 1
ARTICLE II Procedures for Purchases of Mortgage Loans;
Conditions Precedent;
Settlements........................................ 7
Section 2.01. Purchase and Sale.................................. 7
Section 2.02. Delivery of Documents; Purchase of Initial
Mortgage Loans..................................... 7
Section 2.03. Delivery of Documents; Purchases of Subsequent
Mortgage Loans..................................... 8
Section 2.04. Purchase Requests.................................. 8
Section 2.05. Survival of Representations........................ 9
Section 2.06. Proceeds of Mortgage Loans......................... 9
Section 2.07. Defective Mortgage Loans........................... 9
ARTICLE III Intent of Parties; Security Interest............... 9
Section 3.01. Intent of Parties; Security Interest............... 9
ARTICLE IV Representations and Warranties..................... 10
Section 4.01. Representations and Warranties of Seller........... 10
Section 4.02. Representations and Warranties Regarding Mortgage
Loans.............................................. 11
Section 4.03. Representations and Warranties of Purchaser........ 15
Section 4.04. Remedies for Breach of Representations and
Warranties; Repurchase
Obligation......................................... 16
ARTICLE V Covenants and Warranties of Seller................. 17
Section 5.01. Affirmative Covenants.............................. 17
Section 5.02. Negative Covenants................................. 19
ARTICLE VI Sale of Mortgage Loans from the Purchaser to the
Trust.............................................. 20
Section 6.01. Sale and Servicing Agreement....................... 20
ARTICLE VII Seller's Servicing Obligations..................... 21
Section 7.01. Seller's Servicing Obligations..................... 21
ARTICLE VIII Fees and other Costs............................... 21
Section 8.01. Fees and Expenses.................................. 21
ARTICLE IX Termination; Additional Remedies.................. 22
<PAGE>
Section 9.01. Termination of Commitment to Purchase.............. 22
Section 9.02. Additional Remedies................................ 22
ARTICLE X Payment of Purchase Price.......................... 22
Section 10.01. Purchase Price Payments............................ 22
Section 10.02. The Purchaser Note................................. 22
ARTICLE XI Confidentiality.................................... 23
ARTICLE XII Term............................................... 24
ARTICLE XIII Exclusive Benefit of Parties; Assignment........... 24
ARTICLE XIV Amendment; Waivers................................. 24
ARTICLE XV Execution in Counterparts.......................... 24
ARTICLE XVI Effect of Invalidity of Provisions................. 25
ARTICLE XVII Governing Law...................................... 25
ARTICLE XVIII Notices............................................ 25
ARTICLE XIX Entire Agreement................................... 25
ARTICLE XX Indemnities........................................ 25
ARTICLE XXI RESPA Obligations.................................. 27
ARTICLE XXII Survival........................................... 27
ARTICLE XXIII Right of Set-off................................... 27
ARTICLE XXIV Consent to Service................................. 27
ARTICLE XXV Submission to Jurisdiction; Waiver of Trial by
Jury............................................... 28
ARTICLE XXVI Construction....................................... 28
ARTICLE XXVII Further Agreements................................. 28
EXHIBIT A
EXHIBIT B
ii
<PAGE>
MORTGAGE LOAN PURCHASE AGREEMENT ("Agreement") dated as of March 13,
1998 between Headlands Mortgage Company, a California corporation ("Seller"),
and Headlands Mortgage Securities Inc., a Delaware corporation ("Purchaser").
WHEREAS, Seller desires to sell from time to time to Purchaser the
Initial Mortgage Loans and Subsequent Mortgage Loans (each as hereinafter
defined), and Purchaser desires to purchase such Initial Mortgage Loans and
Subsequent Mortgage Loans, each in accordance with the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, the parties, in consideration of good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound, hereby agree as follows:
ARTICLE I
Definitions.
Capitalized terms not defined herein shall have the meanings set forth
in the Sale and Servicing Agreement. As used in this Agreement, the following
terms shall have the following meanings:
"Additional Balance": As to any HELOC and day, the aggregate amount
of all Draws conveyed to the Trust pursuant to Section 2.01 of the Sale and
Servicing Agreement.
"Asset Balance": As to any Mortgage Loan, other than a Liquidated
Mortgage Loan, and day, the related Cut-Off Date Asset Balance, plus, any
Additional Balance in respect of such Mortgage Loan minus (ii) all collections
credited as principal against the Asset Balance of any such Mortgage Loan in
accordance with the related Loan Agreement. For purposes of this definition, a
Liquidated Mortgage Loan shall be deemed to have an Asset Balance equal to the
Asset Balance of the related Mortgage Loan immediately prior to the final
recovery of related Liquidation Proceeds and an Asset Balance of zero
thereafter.
"Assignment of Mortgage": With respect to any Mortgage, an
assignment, notice of transfer or equivalent instrument, in recordable form,
sufficient under the laws of the jurisdiction in which the related Mortgaged
Property is located to reflect the sale of the Mortgage to the Trust, which
assignment, notice of transfer or equivalent instrument may be in the form of
one or more blanket assignments covering the Mortgage Loan secured by Mortgaged
Properties located in the same jurisdiction.
"Business Day": A day on which banks are open for business in New
York, California or Delaware and on which dealings in United States dollars are
carried on in the London interbank market.
"Class A Note": Any note executed and authenticated by the Indenture
Trustee substantially in the form set forth in Exhibit A to the Indenture.
"Class A Noteholder": The holder of a Class A Note.
<PAGE>
"Class S Note": Any note executed and authenticated by the Indenture
Trustee substantially in the form set forth in Exhibit B to the Indenture.
"Class S Noteholder": The holder of a Class S Note.
"Closed End Loan": Each Mortgage Loan originated under a Loan
Agreement providing for a single advance of funds on the date of origination and
no additional advances during the term of such Mortgage Loans.
"Closing Date": March 25, 1998.
"Collateral": As defined in Article III hereof.
"Collection Account": The custodial account or accounts created and
maintained for the benefit of the Noteholders and the Credit Enhancer pursuant
to Section 3.02(b) of the Sale and Servicing Agreement. The Collection Account
shall be an Eligible Account.
"Collection Period": With respect to any Distribution Date and any
Mortgage Loan, the calendar month preceding such Distribution Date.
"Credit Line Agreement": With respect to any Mortgage Loan, all of
the Seller's rights under the related credit line account agreement and
promissory note executed by the related Mortgagor and any amendment or
modification thereof but none of the Seller's obligations thereunder.
"Cut-Off Date": With respect to each Initial Mortgage Loan, the close
of business March 12, 1998 and with respect to each Subsequent Mortgage Loan,
the date on which such Subsequent Mortgage Loan was transferred to the Trust.
"Cut-Off Date Asset Balance": With respect to any Mortgage Loan, the
unpaid principal balance thereof as of the applicable Cut-Off Date.
"Distribution Date": The fifteenth day of each month, or if such day
is not a Business Day, then the next Business Day, beginning in the month
immediately following the month of the initial issuance of the Class A and Class
S Notes.
"Due Date": The twenty-fifth day of the month.
"Draw": An additional borrowing by the Mortgagor subsequent to the
Cut-Off Date in accordance with the related Mortgage Note.
"Event of Termination": As defined in Article IX hereof.
"FHA": The Federal Housing Administration or its successors in
interest.
"FHLMC": The Federal Home Loan Mortgage Corporation or its successors
in interest.
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"FNMA": The Federal National Mortgage Association or its successors
in interest.
"GAAP": means generally accepted accounting principles, consistently
applied.
"HELOC ": The adjustable rate home equity revolving credit line loans
sold by the Seller to the Purchaser pursuant to this Agreement, as set forth on
the initial Mortgage Loan Schedule and all subsequent Mortgage Loan Schedules,
including any Subsequent Mortgage Loans.
"HUD": The United States Department of Housing and Urban Development.
"Indenture": The Indenture dated as of March 1, 1998 between the
Issuer and the Indenture Trustee.
"Indenture Trustee": The First National Bank of Chicago or any
successor Indenture Trustee appointed in accordance with the Indenture that has
accepted such appointment in accordance with the Indenture.
"Initial Mortgage Loan": Each Mortgage Loan transferred and assigned
to the Indenture Trustee on the Closing Date, together with any Eligible
Substitute Mortgage Loans delivered for Defective Mortgage Loans.
"Issuer": Headlands Home Equity Loan Trust 1998-1.
"Liquidated Mortgage Loan": As to any Distribution Date, any Mortgage
Loan in respect of which the Servicer has determined, in accordance with the
servicing procedures specified herein, as of the end of the related Collection
Period, that all Liquidation Proceeds which it expects to recover with respect
to the disposition of such Mortgage Loan or the related REO have been recovered.
"Loan Rate": As defined in the Sale and Servicing Agreement.
"Losses": Any and all out-of-pocket losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees and disbursements)
directly incurred by any person specified in this Agreement, resulting from
transactions entered into under this Agreement (other than liability for taxes).
Losses must be accounted for and presented for reimbursement documented in
reasonable detail and within a reasonable time.
"Mortgage": The mortgage, deed of trust or other instrument creating
a first or second lien on an estate in fee simple interest in real property
securing a Mortgage Loan.
"Mortgage Loan": Has the meaning given to it in the Sale and Servicing
Agreement. The term "Mortgage Loan" includes the terms "Initial Mortgage Loan"
and "Subsequent Mortgage Loan."
"Mortgage Loan File": With respect to each Mortgage Loan:
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(i) the original Mortgage Note endorsed in blank;
(ii) an original Assignment of Mortgage in blank in recordable form;
(iii) the original recorded Mortgage or, if, in connection with any
Mortgage Loan, the original recorded Mortgage with evidence of recording thereon
cannot be delivered on or prior to the Closing Date (or the relevant Subsequent
Transfer Date with respect to Subsequent Mortgage Loans) because of a delay
caused by the public recording office where such original Mortgage has been
delivered for recordation or because such original Mortgage has been lost, the
Seller shall deliver or cause to be delivered to the Purchaser, a true and
correct copy of such Mortgage, together with (i) in the case of a delay caused
by the public recording office, an Officer's Certificate of the Seller stating
that such original Mortgage has been dispatched to the appropriate public
recording official or (ii) in the case of an original Mortgage that has been
lost, a certificate by the appropriate county recording office where such
Mortgage is recorded;
(iv) if applicable, the original intervening assignments, if any
("Intervening Assignments"), with evidence of recording thereon, showing a
complete chain of title to the Mortgage from the originator to the Indenture
Trustee or, if any such original Intervening Assignment has not been returned
from the applicable recording office or has been lost, a true and correct copy
thereof, together with (i) in the case of a delay caused by the public recording
office, an Officer's Certificate of the Seller stating that such original
Intervening Assignment has been dispatched to the appropriate public recording
official for recordation or (ii) in the case of an original Intervening
Assignment that has been lost, a certificate by the appropriate county recording
office where such Mortgage is recorded;
(v) either a title policy, a title search or guaranty of title
(vi) with respect to the related Mortgaged Property;
(vii) the original of any guaranty executed in connection with the
Mortgage Note;
(viii) the original of each assumption, modification, consolidation or
substitution agreement; if any, relating to the Mortgage Loan; and
(ix) any security agreement, chattel mortgage or equivalent instrument
executed in connection with the Mortgage;
provided, however, that if, as to any Mortgage Loan, (x) an optical image or
- -------- -------
other representation of the related documents specified in clauses (i) through
(viii) above are enforceable in the relevant jurisdictions to the same extent as
the original of such document and (y) such optical image or other representation
does not impair the ability of an owner of such Mortgage Loan to transfer its
interest in such Mortgage Loan, and does not result in a reduction in the then
current rating of the Class A and Class S Notes, such optical image or other
representation may be transferred to the Purchaser in lieu of the physical
documents specified above.
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"Mortgage Loan Schedules": The schedule of Initial Mortgage Loans
attached hereto as Schedule 1, and any additional Mortgage Loan Schedules in
connection with the transfer of any Subsequent Mortgage Loans.
"Mortgage Note": The Credit Line Agreement and related promissory
note to which the related mortgagor agrees to pay the indebtedness evidenced
thereby and secured by the related Mortgage.
"Mortgaged Property": The underlying property, including any real
property and improvements thereon, securing a Mortgage Loan.
"Mortgagor": The obligor or obligors under a Loan Agreement.
"Officer's Certificate": A certificate signed by the President, an
Executive Vice President, a Senior Vice President, a Vice President, an
Assistant Vice President, the Treasurer, Assistant Treasurer, Controller or
Assistant Controller of the Seller or the Purchaser, as the case may be.
"Original Pool Balance": $156,395,696.03.
"Policy": The financial guaranty insurance policy number AB00161BE,
dated as of the Closing Date, issued by Ambac Assurance Corporation to the
Indenture Trustee for the benefit of the Class A and Class S Noteholders.
"PUD": A planned unit development.
"Purchase": Any purchase of Subsequent Mortgage Loans by Purchaser
from Seller pursuant to the terms hereof and of the applicable Purchase Request.
"Purchase Date": With respect to the Subsequent Mortgage Loans, the
Subsequent Transfer Date.
"Purchase Price": With respect to the Asset Balance of the Initial
Mortgage Loans as of the Cut-Off Date (and any Eligible Substitute Mortgage Loan
as of the date delivered) 100%; with respect to the Asset Balances of all
Additional Balances and all Subsequent Mortgage Loans 100%.
"Purchase Request": A request for the purchase of Subsequent Mortgage
Loans in the form of Exhibit A hereto.
"Purchaser Note": As defined in Section 10.02.
"Reference Bank": Three major banks that are engaged in the London
interbank market, as selected by the Purchaser.
"Reference Bank Rate": The arithmetic mean (rounded upwards, if
necessary, to the nearest one sixteenth of a percent) of the offered rates for
United States dollar deposits for one month which are offered by the Reference
Banks as of 11:00 a.m., London time, on the
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second Business Day prior to the date of determination to prime banks in the
London interbank market for a period of one month.
"Related Documents": As defined in Section 2.01 of the Sale and
Servicing Agreement.
"REO": A Mortgaged Property that is acquired by the Trust in
foreclosure or by deed in lieu of foreclosure.
"Repurchase Price": The sum of (a) product of (i) the outstanding
principal balance of the related Mortgage Loan as of such date of repurchase and
(ii) the related Purchase Price, plus (b) any accrued interest as of such date.
"Sale and Servicing Agreement": The Sale and Servicing Agreement
dated as of March 13, 1998 among the Seller, the Purchaser, the Issuer and the
Indenture Trustee.
"SEC": The Securities and Exchange Commission and any successor
thereto.
"Servicer": Headlands Mortgage Company, a California corporation, any
successor thereto and, after its termination as Servicer, any successor
hereunder.
"Shareholder's Equity": The aggregate "assets" of Seller less the
aggregate "liabilities" of Seller, with the term "asset" having the meaning
ascribed to such term by GAAP and the term "liabilities" being those obligations
or liabilities of the Seller which, in accordance with GAAP, would be included
on the liability side of the Seller's balance sheet.
"Sponsor": Headlands Mortgage Securities Inc.
"Subsequent Mortgage Loans": Mortgage Loans sold by the Seller to the
Purchaser on any Subsequent Transfer Date.
"Subsequent Transfer Date": Any date on which the Seller transfers to
the Purchaser Subsequent Mortgage Loans in accordance with the Sale and
Servicing Agreement.
"Termination Date": The date of termination of the Trust in
accordance with the Trust Agreement.
"Trust": The trust created by the Trust Agreement, the corpus of
which consists of the Mortgage Loans, such other assets as shall from time to
time be identified as deposited in a Collection Account in accordance with the
Sale and Servicing Agreement (and with respect to the interest payments on the
Initial Mortgage Loans, an amount equal to interest at the Class A Note Rate,
interest at the Class S Note Rate, fee paid to the Servicer, the Indenture
Trustee fee, the Owner Trustee's fee and the Premium Fee for a period of 21
days), property that secured a Mortgage Loan and that has become REO, the rights
of the Sponsor in certain hazard insurance policies maintained by the Mortgagors
or the Servicer in respect of the Mortgage Loans, the Policy, an assignment of
certain rights of the Sponsor under this Agreement, such assets as may be
deposited from time to time in a funding account, rights to certain amounts in a
spread account and a deferred interest account and all proceeds of each of the
foregoing (exclusive of
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payments of accrued interest on the Mortgage Loans which are due on or prior to
the Cut-Off Date).
"Trust Agreement": The Trust Agreement dated as of March 13, 1998
between the Sponsor and Wilmington Trust Company, as Owner Trustee.
ARTICLE II
Procedures for Purchases of Mortgage Loans; Conditions Precedent; Settlements.
Section 2.01. Purchase and Sale. (a) On the Closing Date in
---------------- -----------------
consideration for the Purchase Price the Seller hereby sells, transfers,
assigns, sets over and otherwise conveys to the Purchaser, without recourse, all
of its right, title and interest in and to (i) each Initial Mortgage Loan,
including its Asset Balance and all collections in respect thereof received on
or after the Cut-Off Date (excluding payments in respect of accrued interest due
prior to the Cut-Off Date and with respect to interest payments on the Initial
Mortgage Loans, interest at the Class A Note Rate, interest at the Class S Note
Rate, fee paid to the Servicer, the Indenture Trustee fee, the Owner Trustee's
fee and the Premium Fee for a period in excess of 21 days); (ii) property that
secured an Initial Mortgage Loan that is acquired by foreclosure or deed in lieu
of foreclosure; (iii) the Seller's rights under the hazard insurance policies
and (iv) all proceeds with respect to the foregoing. From time to time, with
respect to any Subsequent Mortgage Loan pursuant to the terms of this Agreement,
Seller shall, on the related Subsequent Transfer Date transfer, assign, set over
and otherwise convey to the Purchaser without recourse all of its right, title
and interest in and to the Asset Balances of the Subsequent Mortgage Loan and
all collections in respect thereof received after the Cut-Off Date for the
Subsequent Mortgage Loan with respect to any Additional Balances with respect
thereto, on or after the date of transfer to the Trust.
(b) Each such purchase with respect to the Subsequent Mortgage Loans,
shall be initiated by Seller pursuant to the delivery to Purchaser of a Purchase
Request in the manner set forth in Section 2.04.
Section 2.02. Delivery of Documents; Purchase of Initial Mortgage
---------------------------------------------------
Loans. Prior to the purchase of Initial Mortgage Loans:
- -----
(a) Seller shall have delivered to the Purchaser or any agent
appointed by the Purchaser the Mortgage Loan File for each of the Mortgage
Loans.
(b) Purchaser shall have received a Mortgage Loan Schedule pertaining
to the related Mortgage Loans.
(c) Purchaser shall have received copies of the resolutions of the
Board of Directors of Seller, certified by its respective Secretary, approving
this Agreement.
(d) Purchaser shall have received the Articles of Incorporation of
Seller certified by the Secretary of State of the State of California.
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(e) Purchaser shall have received a certificate of the Secretary or
Assistant Secretary of Seller certifying (i) the names and signatures of the
officers authorized on its behalf to execute this Agreement, and any other
documents to be delivered by it hereunder and (ii) a copy of Seller's By-laws.
(f) Purchaser shall have received an opinion of counsel to Seller as
to the due authorization, execution and delivery by the Seller of this Agreement
and as to the validity and enforceability of the transfers contemplated
hereunder and addressing such other matters as the Purchaser may reasonably
request.
(g) Seller shall have instructed the applicable debtor, trustee,
paying agent, authenticating agent, transfer agent, registrar, predecessor in
interest, owner (if the Mortgage Loans are in the form of a security agreement),
or servicer, if any, in respect of the related Mortgage Loans to reflect on
their books and records the transfer of such Mortgage Loans to Purchaser, as
owner or secured party (if the Mortgage Loans are in the form of a security
agreement).
(h) Purchaser shall have received the most recent available standard
servicing or lien reports in summary form, if any, with respect to all of the
mortgages in Seller's portfolio similar to the Mortgage Loans.
(i) The Purchaser shall be permitted to perform its standard loan
review of each Mortgage Loan to be purchased.
(j) UCC-1 financing statements duly executed by Seller as debtor shall
have been filed in California naming the Purchaser as secured party and the
Indenture Trustee on behalf of the Trust as assignee.
Section 2.03. Delivery of Documents; Purchases of Subsequent
----------------------------------------------
Mortgage Loans. Prior to any purchase of Subsequent Mortgage Loans after the
- --------------
purchase of Initial Mortgage Loans, the actions, conditions and deliveries
specified in Section 2.02 shall have been taken or made, as the case may be with
respect to the Subsequent Mortgage Loans.
Section 2.04. Purchase Requests. Seller shall deliver to Purchaser a
-----------------
Purchase Request at least three Business Days prior to the proposed Purchase
Date for any Purchase (unless otherwise agreed by the parties). Purchaser shall
indicate its acceptance or declination of each Purchase Request by completing
the appropriate section of the Purchase Request and returning the copy thereof
to Seller; provided, however, that Purchaser hereby agrees to accept each
--------
Purchase Request if all of the conditions to such Purchase provided for in this
Agreement (including, without limitation, Section 2.02 hereof and the conditions
with respect to the purchase of Subsequent Mortgage Loans) have been satisfied.
With respect to all Purchase Requests, if Purchaser does not send a
copy of a completed Purchase Request to Seller within at least three Business
Days prior to the proposed Purchase Date (five Business Days, if the related
Purchase Request was received by Purchaser at least two calendar weeks prior to
the proposed Purchase Date), Purchaser shall be deemed to have accepted such
Purchase Request. Each Purchase Request accepted by Purchaser shall be
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irrevocable and binding on Purchaser and Seller. Seller shall indemnify
Purchaser and hold it harmless against any Losses incurred by Purchaser as a
result of any failure by Seller to timely deliver the Subsequent Mortgage Loans
subject to such Purchase. On the applicable Purchase Date, the Purchaser shall
pay Seller the Purchase Price for the related Subsequent Mortgage Loans against
receipt of the documents required to be delivered by Seller pursuant to Section
2.03.
Section 2.05. Survival of Representations. The terms and conditions
---------------------------
of the purchase of each Mortgage Loan shall be as set forth in this Agreement.
Seller will be deemed on the Closing Date and on each Purchase Date to have made
to Purchaser the representations and warranties set forth in Article IV hereof
and such representations and warranties of Seller shall be true and correct on
and as of the Closing Date and on and as of such Purchase Date. Each Purchase
Request made by Seller shall be deemed to be a restatement of each of the
covenants of Seller made pursuant to Article V of this Agreement. In addition,
Seller shall reaffirm the representations and warranties contained in Article IV
on the date of disposition of the Mortgage Loans by the Purchaser pursuant to
the Sale and Servicing Agreement.
Section 2.06. Proceeds of Mortgage Loans. The transfer and sale
--------------------------
hereby of all of the Seller's right, title and interest in and to each Mortgage
Loan shall include all proceeds, products and profits derived therefrom,
including, without limitation, all scheduled payments of principal of and
interest on such Mortgage Loans and other amounts due or payable or to become
due or payable in respect thereof and proceeds thereof, including, without
limitation, all moneys, goods and other tangible or intangible property received
upon the liquidation or sale thereof, except any payments in respect of accrued
interest due prior to the Cut-Off Date and with respect to interest payments on
the Initial Mortgage Loans, an amount equal to interest at the Class A Note
Rate, interest at the Class S Note Rate, the fee paid to the Servicer, the Owner
Trustee's Fee, the Indenture Trustee's Fee and the Premium Fee for 21 days.
Section 2.07. Defective Mortgage Loans. If any Mortgage Loan is
------------------------
re-transferred to the Purchaser pursuant to Section 2.03 of the Sale and
Servicing Agreement, the Seller shall, at the Purchaser's option, either (a)
repurchase such Mortgage Loan at the Repurchase Price, or (b) provide an
Eligible Substitute Mortgage Loan if the Seller has any such loans available for
sale at the time, subject to the terms and conditions of the Sale and Servicing
Agreement.
ARTICLE III
Intent of Parties; Security Interest
Section 3.01. Intent of Parties; Security Interest. Purchaser and
------------------------------------
Seller confirm that the transactions contemplated herein are intended as
purchases and sales rather than as loan transactions. In the event, for any
reason, and solely in such event, any transaction hereunder is construed by any
court or regulatory authority as a loan or other purchase and sale of the
related Mortgage Loans, Seller shall be deemed to have hereby pledged to
Purchaser as security for the performance by Seller of all of its obligations
from time to time arising hereunder and under any and all Purchases effected
pursuant thereto, and shall be deemed to have granted to Purchaser a
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security interest in, the related Mortgage Loans and all distributions in
respect thereof, and the proceeds of any and all of the foregoing (collectively,
the "Collateral"). In furtherance of the foregoing, (i) this Agreement shall
constitute a security agreement, (ii) Purchaser shall have all of the rights of
a secured party with respect to the Collateral pursuant to applicable law and
(iii) Seller shall execute all documents, including, but not limited to,
financing statements under the Uniform Commercial Code as in effect in any
applicable jurisdictions, as the Purchaser may reasonably require to effectively
perfect and evidence Purchaser's first priority security interest in the
Collateral. Seller also covenants not to pledge, assign or grant any security
interest to any other party in any Mortgage Loan sold to Purchaser.
ARTICLE IV
Representations and Warranties.
Section 4.01. Representations and Warranties of Seller. The Seller
----------------------------------------
represents, warrants and covenants to the Purchaser as of the Closing Date and
with respect to the Subsequent Mortgage Loans as of each related Subsequent
Transfer Date that:
(i) the Seller is duly organized, validly existing and in good
standing under the laws of the State of California and is duly authorized and
qualified to transact any and all business contemplated by this Agreement to be
conducted by the Seller in any state in which a Mortgaged Property is located to
the extent necessary to ensure the enforceability of each Mortgage Loan and the
servicing of the Mortgage Loan in accordance with the terms of this Agreement;
(ii) the Seller has the full corporate power and authority to
service each Mortgage Loan, and to execute, deliver and perform, and to enter
into and consummate the transactions contemplated by this Agreement and the
execution, delivery and performance of this Agreement by the Seller has been
duly authorized by all necessary corporate action on the part of the Seller; and
this Agreement, assuming the due authorization, execution and delivery thereof
by the Purchaser, constitutes a legal, valid and binding obligation of the
Seller, enforceable against the Seller in accordance with its respective terms,
except to the extent that (a) the enforceability thereof may be limited by
federal or state bankruptcy, insolvency, moratorium, receivership and other
similar laws relating to creditors' rights generally and (b) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought;
(iii) the execution and delivery of this Agreement by the
Seller, the servicing of the Mortgage Loans by the Seller hereunder, the
consummation by the Seller of the transactions herein contemplated, and the
fulfillment by the Seller of or compliance by the Seller with the terms hereof
will not (A) result in a breach of any term or provision of the charter or by-
laws of the Seller or (B) conflict with, result in a breach, violation or
acceleration of, or result in a default under, the terms of any other material
agreement or instrument to which the Seller is a party or by which it may be
bound, or any statute, order or regulation applicable to the Seller of any
court, regulatory body, administrative agency or governmental body having
jurisdiction over
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the Seller, which breach, violation, default or non-compliance would have a
material adverse effect on (a) the business, operations, financial condition,
properties or assets of the Seller taken as a whole or (b) the ability of the
Seller to perform its obligations under this Agreement; and the Seller is not a
party to, bound by, or in breach or violation of any material indenture or other
material agreement or instrument, or subject to or in violation of any statute,
order or regulation of any court, regulatory body, administrative agency or
governmental body having jurisdiction over it, which materially and adversely
affects or, to the Seller's knowledge, would in the future reasonably be
expected to materially and adversely affect, (x) the ability of the Seller to
perform its obligations under this Agreement or (y) the business, operations,
financial condition, properties or assets of the Seller taken as a whole;
(iv) the Seller is, and currently intends to remain, in good
standing and qualified to do business in each jurisdiction where failure to be
so qualified or licensed would have a material adverse effect on (a) the
business, operations, financial condition, properties or assets of the Seller
taken as a whole or (b) the enforceability of any Mortgage Loan or the servicing
of the Mortgage Loans in accordance with the terms of this Agreement;
(v) there is no litigation pending or, to the Seller's actual
knowledge, overtly threatened against the Seller that would materially and
adversely affect the execution, delivery or enforceability of this Agreement or
the ability of the Seller to service the Mortgage Loans or for the Seller to
perform any of its other obligations hereunder in accordance with the terms
hereof;
(vi) no consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery and
performance by the Seller of, or compliance by the Seller with, this Agreement
or the consummation of the transactions contemplated hereby (except for such
consents, approvals, authorizations, or orders to be obtained in connection with
each Purchase Date with respect to future transactions to be consummated
hereunder), or if any such consent, approval, authorization or order not
relating to a future transaction is required, the Seller has obtained the same;
and
(vii) the Seller has caused to be performed any and all acts
required to preserve the rights and remedies of the Purchaser in any insurance
policies of the Seller or a mortgagee applicable to the Mortgage Loans sold by
the Seller.
Section 4.02. Representations and Warranties Regarding Mortgage Loans.
-------------------------------------------------------
(a) With respect to the Mortgage Loans, Seller represents and warrants to
Purchaser as of the Closing Date with respect to each Initial Mortgage Loan and
as of the related Subsequent Transfer Date with respect to each Subsequent
Mortgage Loan as follows:
(i) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans and, with respect to
any HELOC, as of the date any Additional Balance is created, the information set
forth in the Mortgage Loan Schedule for such Mortgage Loans is true and correct
in all material respects;
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(ii) The applicable Cut-Off Date Asset Balance has not been
assigned or pledged, and the Sponsor is the sole owner and holder of such Cut-
Off Date Asset Balance free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or security
interests of any nature, and has full right and authority, under all
governmental and regulatory bodies having jurisdiction over the ownership of the
applicable Mortgage Loans, to sell, assign or transfer the same pursuant to this
Agreement;
(iii) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, the related Mortgage
Note and the Mortgage with respect to each Mortgage Loan have not been assigned
or pledged, and the Sponsor is the sole owner and holder of the Mortgage Loan
free and clear of any and all liens, claims, encumbrances, participation
interests, equities, pledges, charges or security interests of any nature, and
has full right and authority, under all governmental and regulatory bodies
having jurisdiction over the ownership of the applicable Mortgage Loans, to sell
and assign the same pursuant to this Agreement;
(iv) As of the Closing Date with respect to the Initial Mortgage
Loans and the applicable Transfer Date with respect to any Subsequent Mortgage
Loans and any Eligible Substitute Mortgage Loans, the related Mortgage is a
valid and subsisting first or second lien, as set forth on the Mortgage Loan
Schedule with respect to each related Mortgaged Property, and as of the
applicable Cut-Off Date the related Mortgaged Property is free and clear of all
encumbrances and liens having priority over the first or second lien, as
applicable, of such Mortgage except for liens for (i) real estate taxes and
special assessments not yet delinquent; (ii) any first mortgage loan secured by
such Mortgaged Property and specified on the Mortgage Loan Schedule; (iii)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording that are acceptable to
mortgage lending institutions generally; and (iv) other matters to which like
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by such Mortgage;
(v) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, there is no valid
offset, defense or counterclaim of any obligor under any Loan Agreement or
Mortgage;
(vi) To the best knowledge of the Sponsor, as of the Closing
Date with respect to the Initial Mortgage Loans and the applicable Transfer Date
with respect to any Subsequent Mortgage Loans and any Eligible Substitute
Mortgage Loans, there is no delinquent recording or other tax or fee or
assessment lien against any related Mortgaged Property;
(vii) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, there is no
proceeding pending or, to the best knowledge of the Sponsor, threatened for the
total or partial condemnation of the related Mortgaged Property, and such
property is free of material damage;
(viii) To the best knowledge of the Sponsor, as of the Closing
Date with respect to the Initial Mortgage Loans and the applicable Transfer Date
with respect to any Subsequent
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Mortgage Loans and any Eligible Substitute Mortgage Loans, there are no
mechanics' or similar liens or claims which have been filed for work, labor or
material affecting the related Mortgaged Property which are, or may be, liens
prior or equal to the lien of the related Mortgage, except liens which are fully
insured against by the title insurance policy referred to in clause (xiii);
(ix) No Minimum Monthly Payment is more than 89 days delinquent
(measured on a contractual basis);
(x) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, for each Mortgage
Loans, the related Mortgage File contains each of the documents and instruments
specified to be included therein ;
(xi) The related Mortgage Note and the related Mortgage at
origination complied in all material respects with applicable state and federal
laws, including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity or
disclosure laws applicable to the Mortgage Loans;
(xii) On the Closing Date with respect to the Initial Mortgage
Loans and, to the extent not already included in such filing, on the applicable
Transfer Date with respect to any Subsequent Mortgage Loans and any Eligible
Substitute Mortgage Loans, the Sponsor has filed UCC-1 financing statements with
respect to such Mortgage Loans.
(xiii) Either a lender's title insurance policy or binder was
issued on the date of origination of the Mortgage Loans and each such policy is
valid and remains in full force and effect, or a title search or guaranty of
title customary in the relevant jurisdiction was obtained with respect to a
Mortgage Loans as to which no title insurance policy or binder was issued;
(xiv) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, none of the Mortgaged
Properties is a mobile home or a manufactured housing unit;
(xv) As of the Cut-Off Date for the Initial Mortgage Loans no
more than 1.41% of such Mortgage Loans (by Initial Cut-Off Date Pool Balance),
are secured by Mortgaged Properties located in one United States postal zip
code;
(xvi) The Combined Loan-to-Value Ratio for each Mortgage Loan
was not in excess of 100%;
(xvii) No selection procedure reasonably believed by the Sponsor
to be adverse to the interests of the Securityholders or the Credit Enhancer was
utilized in selecting the Mortgage Loans;
(xviii) The Sponsor has not transferred the Mortgage Loans to
the Trust with any intent to hinder, delay or defraud any of its creditors;
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(xix) The Minimum Monthly Payment with respect to any Mortgage
Loan is not less than the interest accrued at the applicable Loan Rate on the
average daily Asset Balance during the interest period relating to the date on
which such Minimum Monthly Payment is due;
(xx) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, each Loan Agreement
and each Mortgage Loans is an enforceable obligation of the related Mortgagor,
except as the enforceability thereof may be limited by the bankruptcy,
insolvency or similar laws affecting creditors' rights generally;
(xxi) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, there has been no
default of any senior mortgage loan related to a Mortgaged Property that has not
been cured by a party other than the Servicer;
(xxii) The definition of "prime rate" in each Credit Line
Agreement relating to a HELOC does not differ materially from the definition in
the form of Credit Line Agreement in Exhibit D;
(xxiii) The weighted average remaining term to maturity of the
Initial Mortgage Loans on a contractual basis as of the Cut-Off Date is
approximately 215.7 months. On each date that the Loan Rates relating to HELOCs
have been adjusted, interest rate adjustments on the HELOCs were made in
compliance with the related Mortgages and Credit Line Agreement and applicable
law. Over the term of each HELOC, the Loan Rate may not exceed the related Loan
Rate Cap, if any. With respect to the Initial HELOCs, the Loan Rate Cap is 18%.
With respect to the Initial Mortgage Loans, the margins range between 0% and 6%
and the weighted average margin is approximately 3.29% as of the related Cut-Off
Date. The Loan Rates on the Initial Mortgage Loans range between 5.75% and
14.99% and the weighted average Loan Rate is approximately 7.2452%;
(xxiv) As of the Closing Date with respect to the Initial
Mortgage Loans and the applicable Transfer Date with respect to any Subsequent
Mortgage Loans and any Eligible Substitute Mortgage Loans, each Mortgaged
Property consists of a single parcel of real property with a one-to-four unit
single family residence erected thereon, or an individual condominium unit,
planned unit development unit or townhouse;
(xxv) No more than 2.31% (by Initial Cut-Off Date Pool Balance)
of the Initial Mortgage Loans are secured by real property improved by
individual condominium units, planned development units, townhouses or two-to-
four family residences erected thereon, and approximately 97.69% (by Initial
Cut-Off Date Pool Balance) of the Initial Mortgage Loans are secured by real
property with a detached one-family residence erected thereon;
(xxvi) The Credit Limits on the Initial HELOCs range between
$8,000 and $400,000 with an average of $47,833.61. As of the applicable Cut-Off
Date, no Initial Mortgage Loans had a principal balance in excess of
approximately $394,517.93 and the average principal balance of the Initial
Mortgage Loans is equal to approximately $37,703.88 and the average Credit Limit
Utilization Rate (weighted by credit line) of the Initial HELOCs is 76.03%;
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(xxvii) 100% of the Initial Mortgage Loans are second liens;
(xxviii) Either (A) this Agreement constitutes a valid transfer
and assignment to the Trust of all right, title and interest of the Sponsor in
and to the Cut-Off Date Asset Balances with respect to the applicable Mortgage
Loans, all monies due or to become due with respect thereto (excluding payments
in respect of accrued interest due prior to the Cut-Off Date and with respect to
interest payments on the Initial Mortgage Loans, an amount equal to the Class A
Note Rate, the Class S Note Rate, the fee paid to the Servicer, the Owner
Trustee's fee, the Indenture Trustee's fee and the Premium Fee for a period of
21 days), and all proceeds of such Cut-Off Date Asset Balances with respect to
the Mortgage Loans and such funds as are from time to time deposited in the
Collection Account (excluding any investment earnings thereon) and all other
property specified in the definition of "Trust" as being part of the corpus of
the Trust conveyed to the Trust, and upon payment for the Additional Balances,
will constitute a valid transfer and assignment to the Indenture Trustee of all
right, title and interest of the Sponsor in and to the Additional Balances, all
monies due or to become due with respect thereto, and all proceeds of such
Additional Balances and all other property specified in the definition of
"Trust" relating to the Additional Balances or (B) this Agreement constitutes a
grant of a security interest (as defined in the UCC as in effect in New York) in
such property to the Indenture Trustee on behalf of the Trust. If this Agreement
constitutes the grant of a security interest to the Trust in such property, and
if the Indenture Trustee obtains and maintains possession of the Mortgage File
for each Mortgage Loans, the Trust shall have a first priority perfected
security interest in such property, subject to the effect of Section 9-306 of
the UCC with respect to collections on the Mortgage Loans that are deposited in
the Collection Account in accordance with the next to last paragraph of Section
3.02(b) of the Sale and Servicing Agreement; and
(xxix) Each Mortgagor as of the Closing Date with respect to
the Initial Mortgage Loans or the Transfer Date with respect to any Subsequent
Mortgage Loans is not insolvent or bankrupt.
(b) Seller represents and warrants to Purchaser that each
Mortgage Loan shall have been originated in conformity with and meets, as of the
Purchase Date, the underwriting standards for the Seller's home equity loans
described in the Prospectus Supplement dated March 20, 1998 with respect to the
Class A and Class S Notes.
(c) Each Mortgage Loan conforms to the representations and
warranties set forth in Section 2.05 of the Sale and Servicing Agreement.
Section 4.03. Representations and Warranties of Purchaser.
-------------------------------------------
Purchaser hereby makes the following representations and warranties, each of
which representations and warranties (i) is material and being relied upon by
Seller and (ii) is true in all respects as of the date of this Agreement:
(i) Purchaser has been duly organized and is validly
existing as a corporation under the laws of the State of Delaware.
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(ii) Purchaser has the requisite power and authority and
legal right to execute and deliver, engage in the transactions contemplated by,
and perform and observe the terms and conditions of, this Agreement to be
performed by it.
(iii) This Agreement has been duly authorized and executed by
Purchaser, is valid, binding and enforceable against Purchaser in accordance
with its terms, and the execution, delivery and performance by Purchaser of this
Agreement does not conflict with any material term or provision of any other
agreement to which Purchaser is a party or any term or provision of the
Certificate of Incorporation or the By-laws of the Purchaser, or any law, rule,
equation, order, judgment, writ, injunction or decree applicable to Purchaser of
any court, regulatory body, administrative agency or governmental body having
jurisdiction over Purchaser.
(iv) No consent, approval, authorization or order of,
registration or filing with, or notice to any governmental authority or court is
required under applicable law in connection with the execution and delivery by
Purchaser of this agreement.
(v) To the best knowledge of Purchaser, there is no action,
proceeding or investigation pending or threatened against Purchaser before any
court, administrative agency or other tribunal (i) asserting the invalidity of
this Agreement, (ii) seeking to prevent the consummation of any of the
transactions contemplated by this Agreement, or (iii) which is likely to
materially and adversely affect the performance by Purchaser of its obligations
under, or the validity or enforceability of, this Agreement.
(vi) Each purchase of Initial Mortgage Loans and, Subsequent
Mortgage Loans hereunder shall constitute a representation by Purchaser to
Seller that Purchaser understands, and that Purchaser has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of, its investment in the relevant Mortgage Loans.
Section 4.04. Remedies for Breach of Representations and
------------------------------------------
Warranties; Repurchase Obligation. It is understood and agreed that the
- ---------------------------------
representations and warranties set forth in Section 4.01 and 4.02 shall survive
each sale of Mortgage Loans to the Purchaser and shall inure to the benefit of
the Purchaser and subsequent transferees notwithstanding any restrictive or
qualified endorsement on any Mortgage Note or Assignment of Mortgage or the
examination or failure to examine any Mortgage Loan File. With respect to the
representations and warranties contained in Sections 4.01 and 4.02 which are
made to the best of the Seller's knowledge or to the actual knowledge of the
Seller, if it is discovered by either the Seller or the Purchaser that the
substance of such representation and warranty is inaccurate and such inaccuracy
materially and adversely affects the value of the related Mortgage Loan or the
Purchaser's interest therein, then notwithstanding the Seller's lack of
knowledge with respect to the inaccuracy at the time the representation or
warranty was made, the Seller shall repurchase the related Mortgage Loan in
accordance with this Section 4.04 as if the applicable representation or
warranty was breached, subject to the terms and conditions of the Sale and
Servicing Agreement. Upon discovery by either the Seller or the Purchaser of a
breach of any of the foregoing representations and warranties which materially
and adversely affects the value of the Mortgage Loans or the interest of the
Purchaser (or which materially and adversely affects the interests of the
Purchaser in the related Mortgage Loan in the case of a representation and
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warranty relating to a particular Mortgage Loan), the party discovering such
breach shall give prompt written notice to the others.
Within 60 days of the earlier of either discovery by or notice to the
Seller of any breach of a representation or warranty which materially and
adversely affects the value of any Mortgage Loan or the Purchaser's interest
therein, the Seller shall use its best efforts promptly to cure such breach in
all material respects and, if such breach cannot be cured or is not cured or is
not being diligently pursued as evidenced by a notice acceptable to the
Purchaser, as evidenced by the Purchaser's agreement thereto, at the end of such
60-day period, the Seller shall, at the Purchaser's option, either (a)
repurchase such Mortgage Loan at the Repurchase Price, or (b) provide an
Eligible Substitute Mortgage Loan, if the Seller has any such loans available
for sale at the time subject to the terms and conditions of the Sale and
Servicing Agreement.
At the time of repurchase or substitution, the Purchaser and the
Seller shall arrange for the assignment of such Mortgage Loan to the Seller and
the delivery by the Purchaser to the Seller of the related Mortgage Loan Files.
In addition to such cure and repurchase obligation, the Seller shall
indemnify the Purchaser and hold it harmless against any losses, damages,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach of
the representations and warranties contained in this Article IV (notwithstanding
any limitation in such representation and warranty as to the Seller's
knowledge). It is understood and agreed that the obligations of the Seller set
forth in this Section 4.04 to cure or repurchase a defective Mortgage Loan and
to indemnify the Purchaser as provided in this Section 4.04 constitute the sole
remedies of the Purchaser respecting a breach of the foregoing representations
and warranties.
Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties made in Sections 4.01 or 4.02
shall accrue as to any Mortgage Loan upon (i) discovery of such breach by the
Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by the
Seller to cure such breach or repurchase such Mortgage Loan as specified above,
and (iii) demand upon the Seller by the Purchaser for compliance with the
relevant provisions of this Agreement.
ARTICLE V
Covenants and Warranties of Seller.
So long as this Agreement remains in effect or Seller shall have any
obligations hereunder, Seller hereby covenants and agrees with Purchaser as
follows:
Section 5.01. Affirmative Covenants. (a) Until the later to occur of
---------------------
(i) the discharge and payment of all of Seller's obligations under this
Agreement and (ii) the Termination Date of this Agreement, Seller shall,
promptly upon preparation, but in no event later than 60 days following the end
of each such party's first three fiscal quarters, deliver to Purchaser its
unaudited company-prepared financial statements as of the end of each such
fiscal quarter,
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prepared in accordance with GAAP. Seller shall, promptly upon preparation, but
in no event later than 90 days following the end of such party's fourth fiscal
quarter, deliver to Purchaser its audited and certified financial statements,
prepared in accordance with GAAP, as of the end of the most recently ended
fiscal year, which audits and certifications shall each be prepared by a
nationally recognized independent accounting firm or by a regionally recognized
independent accounting firm with the prior written consent of Purchaser, which
consent shall not be unreasonably withheld. In all cases, financial statements
shall include, without limitation, a balance sheet, a profit and loss statement
and a statement of cash flows. Notwithstanding anything in this Agreement to the
contrary, if (x) the audited and certified financial statements described in the
immediately preceding sentence are not delivered within the above-specified 90
days, (y) Seller is diligently using its best efforts to deliver such financial
statements, and (z) Seller provides Purchaser with a notice specifying the
reason for the delay and a date, within a reasonable time period (as determined
by Purchaser), on which such financial statements will be delivered, and they
are so delivered; then failure to deliver such financial statements within the
above-specified 90 days, as the case may be, shall not be deemed to be an Event
of Termination of this Agreement.
(b) Upon request of Purchaser, Seller shall, to the extent lawful,
promptly upon filing, deliver to Purchaser copies of all material public filings
made by Seller with any governmental or quasi-governmental body.
(c) Seller shall (i) with respect to any Mortgage Loans serviced by
Seller or any of its affiliates or otherwise use its best efforts to cause to be
delivered to Purchaser monthly, the report, if any, prepared by the relevant
trustee or servicer setting forth payment activity, defaults and delinquencies
with respect to each Mortgage Loan acquired by Purchaser and (ii) prepare and
deliver reports each month, detailing, with respect to all Purchases, such
information as the Purchaser may from time to time reasonably request.
(d) Seller shall do all things necessary to remain duly
incorporated, validly existing and in good standing as a domestic corporation in
its jurisdiction of incorporation and maintain all requisite authority to
conduct its business in each jurisdiction in which its business is conducted
except where failure to maintain such authority would not have a material
adverse effect on the ability of Seller to conduct its business or to perform
its obligations under this Agreement.
(e) At all times during this Agreement, Seller shall possess
sufficient net capital and liquid assets (or ability to access the same) to
satisfy its obligations as they become due in the normal course of business.
(f) Seller will notify Purchaser in writing of any of the following
promptly upon learning of the occurrence thereof, describing the same and, if
applicable, any remedial steps being taken with respect thereto;
(i) The occurrence or likelihood of occurrence of an Event of
Termination hereunder;
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(ii) The institution of any litigation, arbitration proceeding or
governmental proceeding which, in the opinion of counsel to Seller, will have a
material adverse effect on Seller or the Mortgage Loans;
(iii) The entry of any judgment or decree against Seller if the
aggregate amount of all judgments and decrees then outstanding against Seller
exceeds $10,000,000 after deducting (A) the amount with respect to which Seller
is insured and with respect to which the insurer has assumed responsibility in
writing, and (B) the amount for which Seller is otherwise indemnified if the
terms of such indemnification are reasonably satisfactory to Purchaser; or
(iv) The occurrence or likelihood of any event which would allow the
obligee under any material loan agreement to which Seller is bound to declare an
event of default or accelerate the obligations of Seller thereunder.
(g) Seller shall permit the Purchaser or its accountants,
attorneys or other agents access to all of the books and records relating to
Mortgage Loans purchased and retained by Purchaser for inspection and copying
during normal business hours at all places where Seller conducts business.
Section 5.02. Negative Covenants. (a) Seller shall not assign or
------------------
attempt to assign this Agreement or any rights hereunder, without first
obtaining the specific written consent of Purchaser.
(b) Seller shall not amend its Articles of Incorporation or By-laws,
which amendment shall have or is likely to have an adverse effect upon Purchaser
or its interests under this Agreement, without the prior written consent of
Purchaser.
(c) During the term of this Agreement, Seller shall not engage in
any business other than as a consumer and mortgage finance lender and servicer,
except with the prior written consent of Purchaser.
(d) Seller shall not (i) dissolve or terminate its existence or (ii)
transfer any assets to any affiliate except as otherwise expressly permitted or
contemplated hereby.
(e) Except with the written consent of the Purchaser, the Seller
shall not guarantee, endorse or otherwise in any way become or be responsible
for any obligations of any other person, entity or affiliate, including, without
limitation, whether directly or indirectly by agreement to purchase the
indebtedness of any other person or through the purchase of goods, supplies or
services, or maintenance of working capital or other balance sheet covenants or
conditions, or by way of stock purchase, capital contribution, advance or loan
for the purposes of paying or discharging any indebtedness or obligation of such
other person or otherwise; provided, however, that nothing contained herein
shall prevent Seller from indemnifying its officers, directors and agents
pursuant to its By-laws and its Articles of Incorporation.
(f) Seller will not commit any act in violation of applicable laws,
or regulations promulgated pursuant thereto that relate to the Mortgage Loans or
that materially and adversely affect the operations or financial conditions of
Seller.
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ARTICLE VI
Sale of Mortgage Loans from the Purchaser to the Trust.
Section 6.01. Sale and Servicing Agreement. It is the intent of the
----------------------------
Seller and the Purchaser that with respect to the Mortgage Loans, the Purchaser
shall concurrently sell all of its right, title and interest to the Mortgage
Loans and all other property conveyed to it hereunder to the Trust pursuant to
the Sale and Servicing Agreement.
With respect to such sale, the Seller agrees:
(i) to cooperate fully with the Purchaser and the Trust with respect
to all reasonable requests and due diligence procedures including participating
in meetings with rating agencies, credit enhancers and such other parties as the
Purchaser shall designate and participating in meetings with the Trust and
providing information reasonably requested by the Trust;
(ii) to execute the Sale and Servicing Agreement and all other
necessary documents to effect the transactions contemplated therein;
(iii) the Seller shall make the representations and warranties set
forth herein regarding the Seller and the Mortgage Loans as of the date of the
transfer to the Trust;
(iv) to deliver to the Purchaser for inclusion in any prospectus or
other offering material such publicly available information regarding the
Seller, its financial condition and the mortgage loan delinquency, foreclosure
and loss experience of its portfolio as is customarily set forth in a prospectus
supplement with respect to a comparable mortgage pool, the underwriting of
mortgage loans, the servicer, the servicing and collection of mortgage loans,
lending activities and loan sales of the servicer, regulatory matters and
delinquency and loss experience and any additional information reasonably
requested by the Purchaser, and to deliver to the Purchaser unaudited
consolidated financial statements of the Seller, in which case the Purchaser
shall bear the cost of having such statements audited by certified public
accountants if the Purchaser desires such an audit, or as is otherwise
reasonably requested by the Purchaser and which the Seller is capable of
providing without unreasonable effort or expense, and to indemnify the Purchaser
and its affiliates for material misstatements or omissions contained in such
information;
(v) to deliver to the Purchaser and to any person designated by the
Purchaser, at the Purchaser's expense, such statements and audit letters issued
by reputable, certified public accountants pertaining to information provided by
the Seller pursuant to clause (iv) above as shall be reasonably requested by the
Purchaser (it being acknowledged by Purchaser that the delivery of such
statements and letters is subject to the consent of such accountants);
(vi) to deliver to the Purchaser, and to any Person designated by the
Purchaser, such legal documents and in-house opinions of counsel as are
customarily delivered by originators or servicers, as the case may be, and
reasonably determined by the Purchaser to be necessary in connection with the
transactions contemplated by the Sale and Servicing
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Agreement, it being understood that the cost of any opinions of outside special
counsel that may be required shall be the responsibility of the Seller;
(vii) to cooperate fully with the Purchaser and any prospective
Purchaser with respect to the preparation of Mortgage Loan documents and other
documents and with respect to servicing requirements reasonably requested by the
rating agencies and credit enhancers; and
(viii) to negotiate and execute one or more custodial and servicing
agreements among the Purchaser, the Seller and a third party custodian/trustee
which is generally considered to be a prudent custodian/trustee in the secondary
mortgage market designated by the Purchaser in its sole discretion after
consultation with the Seller, in either case for the purpose of securitizing the
Mortgage Loans.
ARTICLE VII
Seller's Servicing Obligations.
Section 7.01. Seller's Servicing Obligations. The Seller, as
------------------------------
independent contract servicer, shall service and administer the Mortgage Loans
in accordance with the terms and provisions set forth in Articles III, IV, V,
VII and VIII of the Sale and Servicing Agreement which sections are hereby
incorporated in this Agreement in their entirety (with, however, the changes and
adjustments as provided in this Agreement) as if the same were contained in this
Article VII.
To the extent any provision of any definition set forth in the Sale and
Servicing Agreement shall conflict with any provision set forth in this
Agreement, the provision or definition in this Agreement shall govern.
ARTICLE VIII
Fees and other Costs.
Section 8.01. Fees and Expenses. The Purchaser shall pay any salaries
-----------------
and other compensation due its employees and the legal fees and expenses of its
attorneys and accountants. All other costs and expenses incurred in connection
with the transfer and delivery of the Mortgage Loans pursuant to this Agreement
or the Sale and Servicing Agreement, including, without limitation, recording
fees, fees for title policy endorsements and continuations, and fees for
recording intervening assignments of Mortgage, shall be paid by the Seller. To
the extent not paid out of the Trust pursuant to Section 8.3(a)(x) of the
Indenture, the Seller shall pay the on-going fees of any custodian or trustee
under the Sale and Servicing Agreement, the Trust Agreement or the Indenture.
The Seller shall pay (i) the acceptance and file review fees of any custodian or
trustee under this Agreement, the Indenture, the Trust Agreement or the Sale and
Servicing Agreement and (ii) the costs of legal counsel and legal opinions,
accounting comfort letters and fees, printing of disclosure documents, rating
agency fees, credit enhancement provider up-front fees, SEC filing fees and the
costs of any and all related document preparations associated with the Sale and
Servicing Agreement, the Trust Agreement, the Indenture or this
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Agreement unless stated otherwise in the Purchase Request with respect to any
Subsequent Mortgage Loans. The Seller also agrees to pay the fees and other
amounts for which the Seller or Servicer is obligated under the Insurance
Agreement.
ARTICLE IX
Termination; Additional Remedies.
Section 9.01. Termination of Commitment to Purchase. The agreement of
-------------------------------------
the Purchaser to purchase Mortgage Loans from the Seller hereunder, and the
agreement of the Seller to sell Mortgage Loans hereunder, shall terminate
automatically on the first day of the Rapid Amortization Period. All other
provisions hereof shall continue in force and effect until the Termination Date.
Section 9.02. Additional Remedies. Upon the occurrence of a Rapid
-------------------
Amortization Event under the Indenture due to an act or omission of the Seller
(an "Event of Termination"), the Purchaser and its assignees shall have, in
addition to all other rights and remedies under this Agreement or otherwise, all
other rights and remedies provided under the UCC of each applicable jurisdiction
and other applicable laws, which rights shall be cumulative. Without limiting
the foregoing, the occurrence of an Event of Termination shall not deny to the
Purchaser or its assignees any remedy in addition to termination of its
obligations to make purchases hereunder to which the Purchaser or its assignee
may be otherwise appropriately entitled, whether by statute or applicable law,
at law or in equity.
ARTICLE X
Payment of Purchase Price.
Section 10.01. Purchase Price Payments. On the Closing Date, and on
-----------------------
the Business Day following each other day on which any Mortgage Loans are
purchased from the Seller by the Purchaser pursuant to Article II hereof or
Additional Balances relating to Mortgage Loans are funded by the Seller, on the
terms and subject to the conditions of this Agreement, the Purchaser shall pay
to the Seller the applicable Purchase Price by (i) making or causing to be made
a cash payment to the Seller or its designee in such amount determined by the
Purchaser, and (ii) automatically increasing the principal amount outstanding
under the Purchaser Note by the amount of the excess of the Purchase Price to be
paid to the Seller for such purchased assets over the amount of any cash payment
made on such day to the Seller and/or any capital contribution made by the
Seller to the Purchaser, subject to a cap on such note at any time equal to $10
million. Such $10 million cap may be increased upon the occurrence of and in the
amount of any cash capital contributions made by the Seller to the Purchaser.
Section 10.02. The Purchaser Note. (a) On the Closing Date, the
------------------
Purchaser shall deliver to the Seller a promissory note, substantially in the
form of Exhibit B, payable to the order of the Seller (such promissory note,
---------
as the same has been or hereafter may be amended, supplemented, endorsed or
otherwise modified from time to time, together with any promissory
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note issued from time to time in substitution therefor or renewal thereof in
accordance with this Agreement, being herein called the "Purchaser Note"), which
--------------
Purchaser Note shall, in accordance with its terms, be subordinated to all
interests of the Trust, all claims to the cash flows from Trust assets and all
obligations of the Purchaser, of any nature, now or hereafter arising under or
in connection with the Sale and Servicing Agreement. The Purchaser Note shall
evidence all amounts outstanding thereunder as of the Closing Date in addition
to amounts subsequently incurred thereunder as provided in this Agreement.
Subject to the foregoing, the Purchaser Note shall be payable in full on the
date which is one year and one day after the Termination Date. The Purchaser
Note shall bear interest at the "prime rate" as determined by the Indenture
Trustee from time to time in effect. The Purchaser may prepay all or part of the
outstanding balance of the Purchaser Note and interest accrued thereon from time
to time without any premium or penalty, unless a Rapid Amortization Event has
occurred and is continuing or would result from such prepayment or payment.
(b) The Servicer shall hold the Purchaser Note for the benefit of
the Seller, and shall make all appropriate recordkeeping entries with respect to
the Purchaser Note or otherwise to reflect the payments on and adjustments of
the Purchaser Note. The Servicer's books and records shall constitute rebuttable
presumptive evidence of the principal amount of and accrued interest on the
Purchaser Note at any time. The Seller hereby irrevocably authorizes the
Servicer to mark the Purchaser Note "CANCELLED" and to return the Purchaser Note
to the Purchaser upon the full and final payment thereof after the Termination
Date.
(c) The Seller hereby agrees not to transfer, assign, exchange or
otherwise convey or pledge, hypothecate or otherwise grant a security interest
in the Purchaser Note or any interest represented thereby, and any attempt to
transfer, assign, exchange, convey, pledge, hypothecate or grant a security
interest in the Purchaser Note or any interest represented thereby shall be void
and of no effect. Notwithstanding anything to the contrary herein, the Seller
may pledge the Purchaser Note to secure its obligations under the Master
Repurchase Facility between Greenwich Capital Financial Products Inc. and
Headlands Mortgage Company.
ARTICLE XI
Confidentiality.
Purchaser and Seller each acknowledges that the information heretofore
provided to them pursuant to the operation of this Agreement, is highly
confidential, proprietary information of Seller or Purchaser, as the case may
be. Purchaser and Seller each agrees that it will hold such information in
strict confidence and will not disclose any part of such information to any
person or entity, other than to its accountants and lawyers to the extent
necessary for the performance of their duties and as required by law and other
than to such other persons to the extent necessary, as determined by the
Purchaser in its sole discretion, to complete the transactions contemplated
hereunder and in the Sale and Servicing Agreement including the offering and
issuance of the Class A and Class S Notes; provided, however, that copies of
-------- -------
this Agreement may be included as part of any filing made pursuant to the
Securities Act of 1933 and the Securities Exchange Act of 1934 and any
regulations promulgated thereunder. In furtherance of the foregoing, Purchaser
and Seller each covenants that it will adhere to its established procedures for
the maintenance of confidentiality with respect to such information. Purchaser
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and Seller each further agrees that it will not distribute such information
within its own organization except to persons with a need to know such
information in connection with the transactions contemplated by this Agreement.
ARTICLE XII
Term.
This Agreement shall terminate on the Termination Date.
ARTICLE XIII
Exclusive Benefit of Parties; Assignment.
This Agreement is for the exclusive benefit of the parties hereto and
their respective successors and assigns and shall not be deemed to give any
legal or equitable right to any other person except the Sponsor, the Trust, the
holders of the Class A and Class S Notes and the Credit Enhancer. This
Agreement may not be assigned by any party hereto without the prior written
consent of the other party hereto except to the Trust.
ARTICLE XIV
Amendment; Waivers.
This Agreement may be amended from time to time only by written
agreement of Seller and Purchaser with the prior written consent of the Credit
Enhancer, which consent shall not be unreasonably withheld. Any forbearance,
failure, or delay by a party in exercising any right, power, or remedy hereunder
shall not be deemed to be a waiver thereof, and any single or partial exercise
by a party of any right, power or remedy hereunder shall not preclude the
further exercise thereof. Every right, power and remedy of a party shall
continue in full force and effect until specifically waived by it in writing.
No right, power or remedy shall be exclusive, and each such right, power or
remedy shall be cumulative and in addition to any other right, power or remedy,
whether conferred hereby or hereafter available at law or in equity or by
statute or otherwise.
ARTICLE XV
Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same instrument.
24
<PAGE>
ARTICLE XVI
Effect of Invalidity of Provisions.
In case any one or more of the provisions contained in this Agreement
should be or become invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall in no way be affected, prejudiced or disturbed thereby.
ARTICLE XVII
Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without regard to its rules regarding
conflict of laws.
ARTICLE XVIII
Notices.
Any notices, consents, directions, demands and other communications
given under this Agreement (unless otherwise specified herein) shall be in
writing and shall be deemed to have been duly given when personally delivered at
or telecopied to the respective addresses or facsimile numbers, as the case may
be, set forth on the signature page hereof for Seller and Purchaser, or to such
other address or facsimile number as either party shall give notice to the other
party pursuant to this Section. Notices, consents, etc., may also be effected
by first class mail, postage prepaid sent to the foregoing addresses and will be
effective upon receipt by the intended recipient.
ARTICLE XIX
Entire Agreement.
This Agreement, including the Exhibits and Schedules hereto, contains
the entire agreement of the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements between them,
whether oral or written, of any nature whatsoever with respect to the subject
matter hereof.
ARTICLE XX
Indemnities.
Without limiting any other rights which Purchaser or Seller may have
hereunder or under applicable law, and in addition to any other indemnity
provided hereunder, Seller hereby agrees to indemnify Purchaser and its
respective officers, directors, agents and employees
25
<PAGE>
(each, an "Indemnified Party") from and against any and all Losses incurred by
any of them relating to or resulting from:
(1) any representation or warranty made by Seller (or any officers,
employees or agents of Seller) under or in connection with this Agreement,
any periodic report required to be furnished thereunder or any other
information or document delivered by Seller pursuant hereto, which shall
have been false or incorrect in any material respect when made or deemed
made;
(2) the failure by Seller to (a) comply with any applicable law,
rule or regulation with respect to any Purchase or (b) perform or observe
any material obligation or covenant hereunder; or
(3) the failure by Seller (if so requested by Purchaser) to execute
and properly file, or any delay in executing and properly filing, financing
statements or other similar instruments or documents under the Uniform
Commercial Code of any applicable jurisdiction or other applicable laws
with respect to the Mortgage Loans.
Promptly after receipt by an Indemnified Party under this Article XX
of notice of the commencement of any action, such Indemnified Party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Article XX, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability that it may have to any Indemnified Party otherwise than
under this Article XX. In case any such action is brought against any
Indemnified Party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein, and to
the extent that it may elect by written notice delivered to the Indemnified
Party promptly after receiving the aforesaid notice from such Indemnified Party,
to assume the defense thereof, with counsel satisfactory to such Indemnified
Party; provided, however, that if the defendants in any such action include both
-------- -------
the Indemnified Party and the indemnifying party and the Indemnified Party or
parties shall have reasonably concluded that there may be legal defenses
available to it or them and/or other Indemnified Parties that are different from
or additional to those available to the indemnifying party, the Indemnified
Party or parties shall have the right to elect separate counsel to assert such
legal defenses and to otherwise participate in the defense of such action on
behalf of such Indemnified Party or parties. Upon receipt of notice from the
indemnifying party to such Indemnified Party of its election so to assume the
defense of such action and approval by the Indemnified Party of counsel, the
indemnifying party will not be liable for any legal or other expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof, unless (i) the Indemnified Party shall have employed separate counsel
in connection with the assertion of legal defenses in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by you in the case of Article XX, representing the
Indemnified Parties under this Article XX, who are parties to such action), (ii)
the indemnifying party shall not have employed counsel satisfactory to the
Indemnified Party to represent the Indemnified Party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized the employment of counsel for the Indemnified Party at the expense of
the indemnifying party; and except that, if clause (i) or (iii) is applicable,
such liability shall only be in respect of the counsel referred to in such
clause (i) or (iii).
26
<PAGE>
ARTICLE XXI
RESPA Obligations.
Seller agrees to discharge on Purchaser's behalf all obligations,
including, without limitation, all disclosure obligations, which Purchaser may
have under the Real Estate Settlement Procedures Act of 1974, as amended, in
connection with Purchaser's purchases of Mortgage Loans hereunder. Purchaser
agrees to provide Seller with such information as is reasonably necessary for
Seller to discharge such obligations and hereby appoints Seller as its agent in
its name for the purposes of, and only for the purposes of, performing such
obligations. Seller hereby agrees to indemnify Purchaser and its respective
officers, directors, agents and employees from any losses suffered by any such
party in connection with Seller's obligations under this Article XXI.
ARTICLE XXII
Survival.
All indemnities and undertakings of Seller and Purchaser hereunder
shall survive the termination of this Agreement.
ARTICLE XXIII
Right of Set-off.
Upon the occurrence of any event or circumstance which requires Seller
to make a payment hereunder, Purchaser is hereby authorized then or at any time
or times thereafter, without notice to Seller (any such notice being expressly
waived by Seller), to set-off and apply any and all deposits (general or
special, time or demand, provisional or final), at any time held and other
indebtedness at any time owing by Purchaser to or for the credit or the account
of Seller against any and all of the obligations of Seller now or hereafter
existing hereunder, irrespective of whether or not Purchaser shall have made any
demand hereunder. Purchaser agrees promptly to notify Seller after any such
set-off and application made by Purchaser; provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of Purchaser under this Article XXIII are in addition to other rights and
remedies which Purchaser may have.
ARTICLE XXIV
Consent to Service.
Each party irrevocably consents to the service of process by
registered or certified mail, postage prepaid, to it at its address given
pursuant to Article XVIII hereof.
27
<PAGE>
ARTICLE XXV
Submission to Jurisdiction; Waiver of Trial by Jury.
With respect to any claim arising out of this Agreement each party
irrevocably submits to the exclusive jurisdiction of the courts of the State of
New York and the United States District Court located in the Borough of
Manhattan, City of New York, and each party irrevocably waives any objection
which it may have at any time to the laying of venue of any suit, action or
proceeding arising out of or relating hereto brought in any such court,
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in any inconvenient forum and further
irrevocably waives the right to object, with respect to such claim, suit, action
or proceeding brought in any such court, that such court does not have
jurisdiction over such party; provided that service of process is made as set
forth in Article XXIV hereof, or by any other lawful means. To the extent
permitted by applicable law, Purchaser and Seller each irrevocably waive all
right of trial by jury in any action, proceeding or counterclaim arising out of
or in connection with this Agreement or any matter arising hereunder.
ARTICLE XXVI
Construction.
The headings in this Agreement are for convenience only and are not
intended to influence its construction. References to Articles, Sections,
Schedules and Exhibits in this Agreement are to the Articles, Sections of and
Schedules and Exhibits to this Agreement. The Schedules and Exhibits are hereby
incorporated into and form a part of this Agreement. In this Agreement, the
singular includes the plural, the plural the singular, the words "and" and "or"
are used in the conjunctive or disjunctive as the sense and circumstances may
require and the word "including" means "including, but not limited to." Unless
otherwise stated in this Agreement, in the computation of a period of time from
a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding."
ARTICLE XXVII
Further Agreements.
The Seller and the Purchaser each agree to execute and deliver to the
other such reasonable and appropriate additional documents, instruments or
agreements as may be necessary or appropriate to effectuate the purposes of this
Agreement.
28
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller have caused their
names to be signed hereto by their respective officers thereunto duly
authorized, all as of the date first written above.
HEADLANDS MORTGAGE SECURITIES
INC., as Purchaser
700 Larkspur Landing
Circle, Suite 240
Larkspur, California 94939
By: /s/ Kristen Decker
-----------------------------------
Name: Kristen Decker
Title: Vice President
HEADLANDS MORTGAGE COMPANY,
as Seller
700 Larkspur Landing
Circle, Suite 250
Larkspur, California 94939
By: /s/ Becky Poisson
-----------------------------------
Name: Becky Poisson
Title: Executive Vice President
[Mortgage Loan Purchase Agreement]
<PAGE>
EXHIBIT A
Mortgage Loan Purchase Agreement
[Form of Purchase Request]
Headlands Mortgage Securities Inc.
700 Larkspur Landing Circle
Suite 240
Larkspur, California 94939
Pursuant to Section 2.04 of the Mortgage Loan Purchase Agreement dated
as of March 13, 1998 between Headlands Mortgage Company and you, we hereby offer
to sell, transfer and assign to you all of Headlands Mortgage Company's right,
title and interest in and to the Subsequent Mortgage Loans identified in the
attached schedule on the following date (the "Purchase Date"): ____________,
including any Additional Balances thereto.
Please acknowledge your acceptance of such offer by executing this
Purchase Request in the space provided below and returning it to Headlands
Mortgage Company at ___________ by facsimile with an original acceptance to
follow by first class mail.
The failure of Headlands Mortgage Securities Inc. to return this
Purchase Request after execution by Headlands Mortgage Securities Inc., to
Headlands Mortgage Company in the manner provided above within three Business
Days prior to the Purchase Date (five business days, if this Purchase Request
was received by you at least two calendar weeks prior to the above-referenced
Purchase Date) shall constitute an acceptance of the offer communicated hereby.
Very truly yours,
Headlands Mortgage Company
By:___________________________
Name:
Title:
Agreed to and acknowledged
this ____ day of, ____________, _____.
Headlands Mortgage Securities Inc.
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT B
FORM OF NON-NEGOTIABLE HEADLANDS MORTGAGE
SECURITIES INC. PROMISSORY NOTE
March __, 1998
EXCEPT TO THE EXTENT PROVIDED IN THE PURCHASE AGREEMENT REFERRED TO
BELOW, THIS PROMISSORY NOTE AND ANY INTEREST REPRESENTED HEREBY SHALL
NOT BE TRANSFERRED, ASSIGNED, EXCHANGED, CONVEYED, PLEDGED,
HYPOTHECATED OR OTHERWISE THE SUBJECT OF THE GRANT OF A SECURITY
INTEREST AND ANY ATTEMPT TO TRANSFER, ASSIGN, EXCHANGE, CONVEY,
PLEDGE, HYPOTHECATE OR GRANT A SECURITY INTEREST IN THIS PROMISSORY
NOTE OR ANY INTEREST REPRESENTED HEREBY SHALL BE VOID AND OF NO
EFFECT.
For VALUE RECEIVED, the undersigned, HEADLANDS MORTGAGE SECURITIES
INC., a Delaware corporation (the "Purchaser"), promises to pay to HEADLANDS
---------
MORTGAGE COMPANY, a California corporation (the "Seller"), on the terms and
------
subject to the conditions set forth herein and in the Purchase Agreement
referred to below, the aggregate unpaid Purchase Price of all assets purchased
and to be purchased by the Purchaser pursuant to the Purchase Agreement. Such
amount as shown in the records of the Seller will be rebuttable presumptive
evidence of the principal amount owing under this Note.
1. Purchase and Sale Agreement. This Note is the Purchaser Note described
---------------------------
in, and is subject to the terms and conditions set forth in, that certain
Mortgage Loan Purchase Agreement dated as of March 13, 1998 (as the same may be
amended, supplemented, restated or otherwise modified in accordance with its
terms, the "Purchase Agreement"), between the Seller and the Purchaser.
Reference is hereby made to the Purchase Agreement for a statement of certain
other rights and obligations of the Purchaser and the Seller.
2. Definitions. Capitalized terms used (but not defined) herein have the
-----------
meanings ascribed thereto in the Purchase Agreement. In addition, as used
herein, the following terms have the following meanings:
"Bankruptcy Proceedings" has the meaning set forth in clause (a) of
----------------------
paragraph 7 hereof."
"Final Maturity Date" means the date that falls one year and one day
-------------------
after the Termination Date.
"Junior Liabilities" means all obligations of the Purchaser to the
------------------
Seller under this Note and under all similar Notes issued by the Purchaser to
the Seller in connection with any previous or future securitization
transactions.
<PAGE>
"Senior Liabilities" means all obligations of the Purchaser to the
------------------
Trust and any other obligations of the Purchaser arising under or in connection
with the Sale and Servicing Agreement, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or thereafter existing,
or due or to become due on or before the Final Maturity Date.
"Subordination Provisions" means, collectively, clauses (a) through
------------------------
(i) of paragraph 7 hereof.
3. Interest. Subject to the Subordination Provisions and paragraph 10
--------
hereof, the Purchaser promises to pay interest on the aggregate unpaid principal
amount of this Note outstanding on each day, at a variable rate equal to the
rate publicly announced by the Indenture Trustee from time to time as its "prime
lending rate."
4. Interest Payment Dates. Subject to the Subordination Provisions,
----------------------
paragraph 10 hereof and Section 10.02 of the Purchase Agreement, the Purchaser
shall pay accrued interest on this Note on each Distribution Date and on the
Final Maturity Date. The Purchaser also shall pay accrued interest on the
principal amount of each prepayment hereof on the date of each such prepayment.
5. Basis of Computation. Interest accrued hereunder shall be computed for
--------------------
the actual number of days elapsed on the basis of a 360-day year.
6. Principal Payment Dates. Subject to the Subordination Provisions, any
-----------------------
unpaid principal of this Note shall be paid on the Final Maturity Date (or, if
such date is not a Business Day, the next succeeding Business Day). Subject to
the Subordination Provisions, paragraph 10 hereof and Section 10.02 of the
Purchase Agreement, the principal amount of and accrued interest on this Note
may be prepaid on any Business Day without premium or penalty.
7. Subordination Provisions. The Purchaser covenants and agrees, and the
------------------------
Seller, by its acceptance of this Note, likewise covenants and agrees, that the
payment of all Junior Liabilities is hereby expressly subordinated in right of
payment to the payment and performance of the Senior Liabilities to the extent
and in the manner set forth in the following clauses of this paragraph 7:
(a) (i) In the event of any dissolution, winding up, liquidation,
readjustment, reorganization or other similar event relating to the Purchaser,
whether voluntary or involuntary, partial or complete, and whether in
bankruptcy, insolvency, receivership or other similar proceedings, or upon an
assignment for the benefit of creditors, or any other marshalling of the assets
and liabilities of the Purchaser or any sale of all or substantially all of the
assets of the Purchaser except pursuant to the Sale and Servicing Agreement
(such proceedings being herein collectively called "Bankruptcy Proceedings"),
and (ii) on and after the occurrence of a Rapid Amortization Event, the Senior
Liabilities shall first be paid and performed in full and in cash before the
Seller shall be entitled to receive and to retain any payment or distribution in
respect of the Junior Liabilities. In order to implement the foregoing: (x) all
payments and distributions of any kind or character in respect of the Junior
Liabilities to which the Seller would be entitled
B-2
<PAGE>
except for this clause (a) shall be made directly to the Indenture Trustee
------
(for the benefit of the Noteholders); and (y) the Seller hereby irrevocably
agrees that the Indenture Trustee (on behalf of the Noteholders), in the name of
the Seller or otherwise, may demand, sue for, collect, receive and receipt for
any and all such payments or distributions, and file, prove and vote or consent
in any such Bankruptcy Proceedings with respect to any and all claims of the
Seller relating to the Junior Liabilities, in each case until the Senior
Liabilities shall have been paid and performed in full and in cash.
(b) following the occurrence of any of the events described in
clause (a)(i) or (ii), in the event that the Seller receives any payment or
- --------------------
other distribution of any kind or character from the Purchaser or from any other
source whatsoever, in respect of the Junior Liabilities, such payment or other
distribution shall be received in trust for the Indenture Trustee and shall be
turned over by the Seller to the Indenture Trustee (for the benefit of the
Noteholders) forthwith. All payments and distributions received by the Indenture
Trustee in respect of this Note, to the extent received in or converted into
cash, may be applied by the Indenture Trustee (for the benefit of the
Noteholders) first to the payment of any and all reasonable expenses (including
reasonable attorneys' fees and legal expenses) paid or incurred by the Indenture
Trustee or the Noteholders in enforcing these Subordination Provisions, or in
endeavoring to collect or realize upon the Junior Liabilities, and any balance
thereof shall, solely as between the Seller and the Noteholders, be applied by
the Indenture Trustee toward the payment of the Senior Liabilities in a manner
determined by the Indenture Trustee to be in accordance with the Indenture; but
as between the Purchaser and its creditors, no such payments or distributions of
any kind or character shall be deemed to be payments or distributions in respect
of the Senior Liabilities.
(c) Upon the final payment in full and in cash of all Senior
Liabilities, the Seller shall be subrogated to the rights of the Indenture
Trustee to receive payments or distributions from the Purchaser that are
applicable to the Senior Liabilities until the Junior Liabilities are paid in
full.
(d) These Subordination Provisions are intended solely for the purpose
of defining the relative rights of the Seller, on the one hand, and the
Indenture Trustee (on behalf of Noteholders), on the other hand. Nothing
contained in these Subordination Provisions or elsewhere in this Note (subject
to paragraph 10 hereof) is intended to or shall impair, as between the
Purchaser, its creditors (other than the Noteholders) and the Seller, the
Purchaser's obligation, which is unconditional and absolute, to pay the Junior
Liabilities as and when the same shall become due and payable in accordance with
the terms hereof (subject to paragraph 10 hereof) and of the Purchase Agreement
or to affect the relative rights of the Seller and creditors of the Purchaser
(other than the Noteholders).
(e) The Seller shall not, until the Senior Liabilities have been
finally paid and performed in full and in cash, (i) cancel, waive, forgive,
transfer or assign, or commence legal proceedings to enforce or collect, or
subordinate to any obligation of the Purchaser, howsoever created, arising or
evidenced, whether direct or indirect, absolute or contingent, or now or
thereafter existing, or due or to become due (other than the Senior
Liabilities), the Junior Liabilities or any rights in respect hereof or (ii)
convert the Junior Liabilities into an equity interest in the Purchaser, unless,
in the case of each of clauses (i) and (ii) above, the Seller shall
-------------------
B-3
<PAGE>
have received the prior written consent of the Indenture Trustee and the Credit
Enhancer in each case.
(f) The Seller shall not, except without the advance written consent
of the Indenture Trustee and the Credit Enhancer, commence, or join with any
other Person in commencing, any Bankruptcy Proceedings with respect to the
Purchaser until at least one year and one day have passed since the Termination
Date.
(g) If, at any time, any of the payment (in whole or in part) made
with respect to any Senior Liabilities is rescinded or must be restored or
returned by the Indenture Trustee or Noteholders (whether in connection with any
Bankruptcy Proceedings or otherwise), these Subordination Provisions shall
continue to be effective or shall be reinstated, as the case may be, as though
such payment had not been made.
(h) The Indenture Trustee (on behalf of Noteholders) may, from time to
time, with the consent of the Credit Enhancer without notice to the Seller, and
without waiving any of its rights under these Subordination Provisions, take any
or all of the following actions: retain or obtain an interest in any property to
secure any of the Senior Liabilities; (ii) retain or obtain the primary or
secondary obligations of any other obligor or obligors with respect to any of
the Senior Liabilities; (iii) extend or renew for one or more periods (whether
or not longer than the original period), alter or exchange any of the Senior
Liabilities, or release or compromise any obligation of any nature with respect
to any of the Senior Liabilities; (iv) amend, supplement, amend and restate, or
otherwise modify the Sale and Servicing Agreement or any related document; and
(v) release its security interest in or surrender, release or permit any
substitution or exchange for all or any part of any rights or property securing
any of the Senior Liabilities, or extend or renew for one or more periods
(whether or not longer than the original period) or release, compromise, alter
or exchange any obligations of any nature of any obligor with respect to any
such rights or property.
(i) The Seller hereby waives: (i) notice of acceptance of these
Subordination Provisions by any of the Noteholders, (ii) notice of the
existence, creation, non-payment or non-performance of all or any of the Senior
Liabilities; and (iii) all diligence in enforcement, collection or protection
of, or realization upon, the Senior Liabilities, or any thereof, or any security
therefor.
(j) These Subordination Provisions constitute a continuing offer from
the Purchaser to all Persons who become the holders of, or who continue to hold,
Senior Liabilities; and these Subordination Provisions are made for the benefit
of the Noteholders, and the Indenture Trustee may proceed to enforce such
provisions on behalf of each of such Persons.
8. General. No failure or delay on the part of the Seller in
-------
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No amendment, modification or waiver of, or consent with respect to, any
provision of this Note shall in any event be effective unless (a) the same shall
be in writing and signed and delivered by the Purchaser and the Seller, and (b)
all consents required for such actions under the Purchase Agreement and the Sale
B-4
<PAGE>
and Servicing Agreement shall have been received by the appropriate Persons. The
rights and remedies granted hereunder to the Indenture Trustee and the
Noteholders are subject to exercise as provided in the Purchase Agreement and
the Sale and Servicing Agreement.
9. Limitation on Interest. Notwithstanding anything in this Note
----------------------
to the contrary, the Purchaser shall never be required to pay unearned interest
on any amount outstanding hereunder, and shall never be required to pay interest
on the principal amount outstanding hereunder at a rate in excess of the maximum
interest rate that may be contracted for, charged or received without violation
of applicable federal or state law.
10. Acknowledgment. The Seller acknowledges and agrees that it has
--------------
no rights to payment under this Note, and will not make any claim for payment
hereunder, unless funds are available for payment by the Purchaser in excess of
amounts due and payable by it at the time under the Sale and Servicing
Agreement.
11. No Negotiation. This Note is not negotiable.
--------------
12. GOVERNING LAW. THIS NOTE SHALL BE DEEMED TO BE A CONTRACT
-------------
MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
13. Captions. Paragraph captions used in this Note are provided
--------
solely for convenience of reference only and shall not affect the meaning or
interpretation of any provision of this Note
HEADLANDS MORTGAGE SECURITIES
INC.
By:_________________________________
Name:______________________________
Title:_______________________________
B-5
