<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1997
REGISTRATION NO. 333-23667
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MID-STATE TRUST VI
(Name of trust issuing Asset Backed Notes)
OF WHICH MID-STATE HOMES, INC. IS DEPOSITOR
(Exact name of registrant as specified in its governing instruments)
------------------------
MID-STATE TRUST VI
C/O WILMINGTON TRUST COMPANY
1100 NORTH MARKET STREET
WILMINGTON, DELAWARE 19890
(302) 651-1000
(Address of principal executive offices)
------------------------
WILMINGTON TRUST COMPANY,
AS OWNER TRUSTEE OF MID-STATE TRUST VI
1100 NORTH MARKET STREET
WILMINGTON, DELAWARE 19890
(302) 651-1000
ATTENTION: CORPORATE TRUST ADMINISTRATION
(Name and address of agent for service)
------------------------
THE COMMISSION IS REQUESTED TO SEND COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C> <C>
JORDAN M. SCHWARTZ, ESQ. EDWARD A. PORTER, ESQ. RENWICK D. MARTIN, ESQ.
PATRICK T. QUINN, ESQ. MID-STATE HOMES, INC. BROWN & WOOD LLP
CADWALADER, WICKERSHAM & TAFT 1500 NORTH DALE MABRY HIGHWAY ONE WORLD TRADE CENTER
100 MAIDEN LANE TAMPA, FLORIDA 33607 NEW YORK, NEW YORK 10048
NEW YORK, NEW YORK 10038 (813) 871-4811 (212) 839-5300
(212) 504-6000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED BE REGISTERED UNIT PRICE* REGISTRATION FEE
<S> <C> <C> <C> <C>
Mid-State Trust VI Asset Backed Notes** $439,150,000 100% $439,150,000 $133,075.76***
</TABLE>
* Estimated for the purpose of calculating the registration fee.
** This Registration Statement also registers an indeterminate amount of Notes
to be sold by Lehman Brothers Inc. in market making transactions, to the
extent required.
*** $303.03 Previously paid.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM AND CAPTION
IN FORM S-11 IN PROSPECTUS
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<C> <S> <C>
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................ Outside Front Cover
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover; Outside Back Cover
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Summary of Terms; Risk Factors
4. Determination of Offering Price....................... *
5. Dilution *
6. Selling Security Holders.............................. *
7. Plan of Distribution.................................. Plan of Distribution
8. Use of Proceeds....................................... Summary of Terms; Use of Proceeds
9. Selected Financial Data............................... *
10. Management's Discussion and Analysis of Financial
Condition and Results of Operations................. *
11. General Information as to Registrant.................. The Issuer
12. Policy with Respect to Certain Activities............. The Issuer; The Indenture; The Servicing Agreement
13. Investment Policies of Registrant..................... The Issuer; The Indenture; The Accounts
14. Description of Real Estate............................ Security; The Accounts
15. Operating Data........................................ *
16. Tax Treatment of Registrant and its Security
Holders............................................. Material Federal Income Tax Consequences
17. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters....... *
18. Description of Registrant's Securities................ Outside Front Cover; Summary of Terms; The Issuer;
Description of the Notes; Security; The Indenture;
Material Federal Income Tax Consequences
19. Legal Proceedings..................................... Risk Factors
20. Security Ownership of Certain Beneficial Owners and
Management.......................................... The Issuer
21. Directors and Executive Officers...................... *
22. Executive Compensation................................ *
23. Certain Relationships and Related Transactions........ The Issuer
24. Selection, Management and Custody of Registrant's
Investments......................................... The Issuer
25. Policies with Respect to Certain Transactions......... *
26. Limitations of Liability.............................. The Issuer
27. Financial Statements and Information.................. *
28. Interests of Named Experts and Counsel................ *
29. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
</TABLE>
- ------------------------
* Omitted since item is not applicable, or answer is negative.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION, DATED MAY 21, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
$439,150,000
MID-STATE TRUST VI
$287,750,000 [ ]% ASSET-BACKED NOTES, CLASS A-1
$ 57,750,000 [ ]% ASSET-BACKED NOTES, CLASS A-2
$ 45,100,000 [ ]% ASSET-BACKED NOTES, CLASS A-3
$ 48,550,000 [ ]% ASSET-BACKED NOTES, CLASS A-4
---------------------
MID-STATE HOMES, INC.
SERVICER
---------------------
Mid-State Trust VI (the "Issuer" or the "Trust"), a business trust
established by Mid-State Homes, Inc. ("Mid-State," the "Depositor" or the
"Servicer"), is offering $439,150,000 aggregate principal amount of Asset Backed
Notes (the "Notes"). The Trust will issue four classes (each, a "Class") of
Notes, designated as the Class A-1, Class A-2, Class A-3 and Class A-4 Notes.
Interest on the Notes will be payable quarterly on each January 1, April 1, July
1 and October 1 (each, a "Payment Date"), commencing July 1, 1997. The amount of
interest payable on each Payment Date will equal the interest accrued during the
three-month period ending on the day prior to such Payment Date (each such
period, an "Interest Accrual Period"). On each Payment Date, subject to the
availability of funds, a payment of principal of the Notes, in the amount
described herein, will be applied to the Notes. See "DESCRIPTION OF THE
NOTES--Interest and Principal Payments."
The Notes will be secured by (i) certain building and installment sale
contracts, promissory notes, related mortgages and other security agreements
(the "Accounts") owned directly or indirectly by the Depositor (collectively,
the "Mortgage Collateral") on February 28, 1997 (the "Cut-Off Date"), which will
be transferred to the Trust on the Closing Date (as defined under "Transaction
Summary" herein), and (ii) the Collection Account described herein under
"SECURITY--Collection Account".
THE RIGHTS OF HOLDERS OF EACH CLASS OF NOTES OTHER THAN THE CLASS A-1 NOTES
TO RECEIVE PAYMENTS WILL, IN EACH CASE, BE SUBORDINATED TO THE RIGHTS OF HOLDERS
OF EACH CLASS WITH A HIGHER NUMERICAL CLASS DESIGNATION.
The Notes may be redeemed on any Payment Date at the option of the Issuer if
the aggregate principal amount of each Class of Notes outstanding is less than
or equal to 10% of the original aggregate principal amount of such Class of
Notes. See "DESCRIPTION OF THE NOTES--Redemption of the Notes."
There is currently no secondary market for the Notes. The underwriters named
herein under "Plan of Distribution" (the "Underwriters") intend to make a
secondary market in the Notes, but have no obligation to do so. There can be no
assurance that a secondary market for the Notes will develop or, if it does
develop, that it will continue. Further, no application will be made to list the
Notes on any securities exchange. Accordingly, the liquidity of the Notes may be
limited.
PROSPECTIVE INVESTORS SHOULD CONSIDER AND REVIEW THE INFORMATION UNDER "RISK
FACTORS" ON PAGE 11.
Capitalized terms used in this Prospectus are defined at the locations
identified in the "Index to Principal Defined Terms" beginning on page 66.
It is a condition of issuance that the Class A-1 Notes be rated "Aaa" by
Moody's Investors Service, Inc. ("Moody's") and "AAA" by Standard & Poor's
Ratings Services ("Standard & Poor's"); the Class A-2 Notes be rated at least
"Aa2" by Moody's and "AA+" by Standard & Poor's; the Class A-3 Notes be rated at
least "A2" by Moody's and "AA" by Standard & Poor's; and the Class A-4 Notes be
rated at least "Baa2" by Moody's and "BBB" by Standard & Poor's.
------------------------------
THE NOTES REPRESENT OBLIGATIONS OF THE TRUST ONLY AND DO NOT REPRESENT
OBLIGATIONS OF OR INTERESTS IN THE DEPOSITOR OR ANY AFFILIATE THEREOF.
NEITHER THE NOTES NOR THE ACCOUNTS WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR ANY OTHER ENTITY.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO PUBLIC (1) UNDERWRITING DISCOUNT DEPOSITOR (1)(2)
<S> <C> <C> <C>
Per Class A-1 Note................................ [ ]% [ ]% [ ]%
Per Class A-2 Note................................ [ ]% [ ]% [ ]%
Per Class A-3 Note................................ [ ]% [ ]% [ ]%
Per Class A-4 Note................................ [ ]% [ ]% [ ]%
Total............................................. $[ ] $[ ] $[ ]
</TABLE>
(1) Plus accrued interest, if any, from April 1, 1997.
(2) Before deducting expenses, estimated to be $1,149,000.
------------------------------
The Notes are offered by the Underwriters subject to prior sale, when, as
and if issued to and accepted by them and subject to the Underwriters' right to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made in book-entry form only through the Same Day Funds Settlement
System of The Depository Trust Company on or about May , 1997.
------------------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
Securities Corporation
MERRILL LYNCH & CO.
NATIONSBANC CAPITAL MARKETS, INC.
SALOMON BROTHERS INC
May , 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES INCLUDING
OVER-ALLOTMENT, AND STABILIZING TRANSACTIONS IN SUCH SECURITIES, DURING AND
AFTER THE OFFERING. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF
DISTRIBUTION."
This Prospectus may be used by Lehman Brothers Inc., to the extent required,
in connection with market making transactions in the Notes. Lehman Brothers Inc.
may act as principal or agent in such transactions.
AVAILABLE INFORMATION
The Issuer has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (including any amendments thereto) under
the Securities Act of 1933, as amended, with respect to the Notes. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete; with respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement and such other reports and
information filed by the Issuer can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Commission also maintains a site on the World Wide Web at
"http://www.sec.gov" at which users can view and download copies of reports,
proxy and information statements and other information filed electronically
through the Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system.
The Issuer has filed the Registration Statement, including all exhibits thereto,
through the EDGAR system and therefore such materials should be available by
logging onto the Commission's Web site. The Commission maintains computer
terminals providing access to the EDGAR system at each of the offices referred
to above. Copies of such material also can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
The address of the principal executive offices of the Issuer is Mid-State
Trust VI, c/o Wilmington Trust Company, 1100 North Market Street, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration and the telephone
number of the principal executive offices of the Issuer is (302) 651-1000.
2
<PAGE>
REPORTS TO NOTEHOLDERS
Unless and until Definitive Notes are issued, quarterly unaudited reports as
to the payments made on the Notes will be prepared by the Indenture Trustee and
sent on behalf of the Issuer only to Cede & Co. ("Cede"), as nominee of The
Depository Trust Company ("DTC") and registered holder of the Notes. Because the
beneficial owners of Notes issued in book-entry form will not be Noteholders, as
that term is used in the Indenture, unless Definitive Notes are issued such
reports will not be made available to such owners. See "Description of the
Notes--Registration of Notes." Such reports will not constitute financial
statements prepared in accordance with generally accepted accounting principles.
The contents of such reports are described herein under "The Indenture--Reports
to Noteholders." The Issuer will file with the Commission such periodic reports
as are required under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder. The
Issuer does not intend to file periodic reports under the Exchange Act following
the expiration of the reporting period prescibed by Rule 15d-1 of Regulation 15D
under the Exchange Act.
3
<PAGE>
SUMMARY OF TERMS
THE FOLLOWING SUMMARY DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN
ITS ENTIRETY BY THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
TERMS NOT DEFINED IN THIS SUMMARY ARE USED AS DEFINED ELSEWHERE IN THIS
PROSPECTUS. SEE "INDEX TO PRINCIPAL DEFINED TERMS" BEGINNING ON PAGE 67.
<TABLE>
<S> <C>
Securities Offered........... The Class A-1, Class A-2, Class A-3 and Class A-4 Notes will
be issued pursuant to an indenture (the "Indenture") dated
as of May 1, 1997, between Mid-State Trust VI, a business
trust, and First Union National Bank of Florida, as trustee
(the "Indenture Trustee") for the benefit of the holders of
the Notes. See "DESCRIPTION OF THE NOTES." The Notes will be
offered for purchase in denominations of $1,000 and integral
multiples thereof in book-entry form only. On or about May
, 1997 (the "Closing Date"), Mid-State will transfer the
Accounts to the Issuer, and the Issuer will issue the Notes,
which will initially be overcollateralized as described
under "RISK FACTORS-- Limited Overcollateralization." The
Issuer's sole source of funds to make payments on the Notes
will be collections on the Accounts. The Notes will have the
characteristics set forth under "DESCRIPTION OF THE NOTES"
and in the following table.
</TABLE>
SUMMARY OF NOTES
<TABLE>
<CAPTION>
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Size........................................... $ 287,750,000 $ 57,750,000 $ 45,100,000 $ 48,550,000
Payment Window (in months)*.................... 302 302 302 302
Initial Weighted Average Life (in years)*...... 10.31 10.31 10.31 10.31
Expected Maturity*............................. July 1, 2022 July 1, 2022 July 1, 2022 July 1, 2022
Stated Maturity Date**......................... July 1, 2025 July 1, 2025 July 1, 2025 July 1, 2025
Maturity Date.................................. July 1, 2035 July 1, 2035 July 1, 2035 July 1, 2035
Initial Subordination.......................... $ 174,537,289 $ 116,787,289 $ 71,687,289 $ 23,137,289
</TABLE>
The Payment Dates for each Class of Notes are January 1, April 1, July 1 and
October 1 commencing July 1, 1997.
- ------------------------
* Assumes 4.5% CPR; computed on the basis of the assumptions under "DESCRIPTION
OF THE NOTES--Weighted Average Life of the Notes."
** Assumes 0% CPR; computed on the basis of the assumptions under "DESCRIPTION
OF THE NOTES--Weighted Average Life of the Notes."
<TABLE>
<S> <C>
Issuer....................... The Issuer is a business trust established under the laws of
Delaware by a trust agreement dated as of March 1, 1997 (the
"Trust Agreement") between the Depositor and Wilmington
Trust Company, not in its individual capacity but solely as
owner trustee (the "Owner Trustee"). The settlor and sole
beneficiary of the Issuer is the Depositor, an indirect
wholly-owned subsidiary of Walter Industries, Inc. ("Walter
Industries"). The Owner Trustee will act as trustee of the
Trust. See "THE ISSUER." The Notes will be obligations
solely of the Issuer.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Interest and Principal
Payments on the Notes...... Interest on each Class of the Notes will be payable from
Available Funds on each Payment Date in an amount equal to
interest accrued during the three-month period ending on the
day prior to the Payment Date (each such period, an
"Interest Accrual Period"), with respect to (i) the Class
A-1 Notes at the Class A-1 Note Rate, (ii) the Class A-2
Notes at the Class A-2 Note Rate, (iii) the Class A-3 Notes
at the Class A-3 Note Rate and (iv) the Class A-4 Notes at
the Class A-4 Note Rate, in each such case on the unpaid
principal balance of the applicable Class of Notes. The
"Note Rate" of the Class A-1, Class A-2, Class A-3 and Class
A-4 Notes is [ ]%, [ ]%, [ ]% and [ ]%, respectively.
Interest will be calculated on the basis of a 360-day year
consisting of twelve 30-day months. See "DESCRIPTION OF THE
NOTES--Interest and Principal Payments."
"Available Funds" for a Payment Date are the funds in the
Collection Account representing (i) collections on the
Accounts during the three-month period (each such period, a
"Collection Period") ending on the close of business on the
last business day of the second month preceding the month in
which such Payment Date occurs plus (ii) any net
reinvestment income earned on funds described in clause (i)
above, from the date two business days prior to the
preceding Payment Date through the date two business days
prior to such Payment Date (each such period, a
"Reinvestment Period"). Available Funds will be net of
Issuer Expenses paid to the time of calculation thereof. On
each Payment Date, Available Funds will be paid first to the
Classes of Notes in the order of their numerical Class
designations until each has received a full payment of
interest together with any unpaid interest which was due in
respect of a previous Payment Date and then to the Classes
of Notes in the order of their numerical Class designations
until each receives the payment in respect of unreimbursed
losses, together with interest thereon, and principal
described herein under "DESCRIPTION OF THE NOTES--Interest
and Principal Payments."
Following the Target Overcollateralization Date, unless
there exists an uncured Trigger Event, the portion, if any,
of the funds remaining on any Payment Date after the
allocation of Available Funds described in the preceding
paragraph will be released to the Issuer on that Payment
Date, free of the lien of the Indenture, and will no longer
be available to make payments on the Notes. Such funds will
then be distributed to the owner of the beneficial interest
in the Issuer, which will initially be Mid-State. See
"DESCRIPTION OF THE NOTES-- Interest and Principal
Payments."
Record Date.................. The record date for each Payment Date is the fifteenth day
of the month preceding the month of such Payment Date (the
"Record Date").
Subordination................ The rights of holders of each Class of Notes other than the
Class A-1 Notes (each, a "Subordinated Class") to receive
payments will, in each case, be subordinated to the extent
described herein, to the
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
rights of holders of each Class with a prior numerical Class
designation. See "RISK FACTORS--Risks of Subordination."
This subordination is intended to enhance the likelihood of
timely receipt by the holders of the Class A-1 Notes of the
full amount of interest and principal to which such Class is
entitled. Similarly, but to decreasing degrees, this
subordination is also intended to enhance the likelihood of
timely receipt by the holders of the Class A-2 and Class A-3
Notes of the full amount of interest and principal to which
such Class is entitled on each Payment Date. The protection
afforded to the holders of the Class A-1, Class A-2 and
Class A-3 Notes by means of subordination will be
accomplished by (i) the allocation of losses on the Accounts
to the respective Classes of Notes in reverse numerical
order of their Class designations and (ii) with respect to
interest, the application of the Available Funds on each
Payment Date in the sequential order provided by the
Available Funds Allocation. See "DESCRIPTION OF THE
NOTES--Interest and Principal Payments."
Optional Redemption of
Notes...................... All (but not less than all) Classes of Notes may be redeemed
on any Payment Date at the option of the Issuer, at 100% of
the unpaid principal amount of each Class of Notes plus
accrued interest, if, after giving effect to the payment of
principal that would be made on such Payment Date absent
such redemption, the aggregate principal amount of each
Class of Notes outstanding (prior to allocations of any
Realized Loss Amounts) is less than or equal to 10% of the
original aggregate principal amount of such Class of Notes.
Events of Default............ An Event of Default with respect to the Notes is defined in
the Indenture to include one or more of the following
events: (i) a default in the payment of any amount due under
the Notes by the Maturity Date; (ii) a failure to apply
funds in the Collection Account in accordance with the
Indenture and such failure continues for a period of two
days; (iii) a default in the payment when due of interest on
any Class of Notes and the expiration of a 30-day grace
period; (iv) the failure to pay the Outstanding Principal
Balance of each class of Notes on the Maturity Date; (v) a
default in the observance of certain negative covenants in
the Indenture, (vi) a default in the observance of any other
covenant in the Indenture, and the continuation of any such
default for a period of thirty days after notice or (vii)
certain events of bankruptcy or insolvency with respect to
the Issuer. Notwithstanding the foregoing, on or prior to
the Maturity Date, any of the events described in the
preceding sentence will not be an Event of Default (i) in
respect of the Class A-2 Notes until the Class A-1 Notes
have been paid in full, (ii) in respect of the Class A-3
Notes until the Class A-1 Notes and Class A-2 Notes have
been paid in full and (iii) in respect of the Class A-4
Notes until the Class A-1 Notes, Class A-2 Notes and Class
A-3 Notes have been paid in full. See "THE INDEN-
TURE--Events of Default."
On or prior to the Maturity Date, upon the occurrence of an
Event of Default, the Indenture Trustee or the holders
entitled to at least 66 2/3% of the Voting Rights of the
Class of Notes with the lowest
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
numerical Class designation then outstanding may declare the
principal of the Notes to be immediately due and payable;
provided, however, that such Class of Notes or the Indenture
Trustee may make such declaration only if the Event of
Default affects, and in the case of a default in the payment
of the Notes such payment default relates to, the Class of
Notes with the lowest numerical Class designation then
outstanding. After the Maturity Date, upon the occurrence of
an Event of Default, the Indenture Trustee or the holders
entitled to at least 66 2/3% of the Voting Rights of any
Class of Notes (provided that the holders entitled to at
least 66 2/3% of the Voting Rights of each Class of Notes
with a lower numerical Class designation then outstanding
consent) may declare the principal of the Notes to be imme-
diately due and payable. See "THE INDENTURE--Rights Upon
Event of Default."
Non-Petition................. The Indenture will provide that no holder of a Class of
Notes will have the right, either directly or through an
affiliate, to petition or otherwise invoke the process of
any court or government authority for the purpose of
commencing or sustaining a case against the Issuer under any
Federal or state bankruptcy, insolvency or similar law or
appointing a receiver, liquidator, assignee, trustee,
custodian, sequester or other similar official of the Issuer
or any substantial part of its property, or ordering the
winding up or liquidation of the affairs of the Issuer,
other than (i) on or prior to the Maturity Date, the holders
entitled to at least 66 2/3% of the Voting Rights of the
Class of Notes with the lowest numercial Class designation
then outstanding, and (ii) after the Maturity Date, the
holders entitled to at least 100% of the Voting Rights of
any Class of Notes (provided that the holders entitled to at
least 100% of the Voting Rights of each Class of Notes with
a lower numerical Class designation then outstanding
consent).
Security..................... Payments of amounts due on the Notes will be secured by the
following (collectively, the "Collateral"):
A. Mortgage Collateral..... 9,220 Accounts, having on February 28, 1997 (the "Cut-Off
Date") an aggregate Economic Balance of approximately
$462,287,289, will secure the Notes. Such Accounts will
have, as of the Cut-Off Date, a weighted average finance
charge of approximately 9.40% and a weighted average
remaining term to maturity of approximately 24.7 years. See
"THE MORTGAGE COLLATERAL" and "SECURITY."
SERVICER; SERVICING AGREEMENT; SUBSERVICING. Mid-State or
any successor servicer will perform all servicing functions
in respect of the Accounts as required by the Servicing
Agreement dated as of May 1, 1997 among the Issuer, the
Servicer and the Indenture Trustee (the "Servicing
Agreement") either directly or through one or more
subservicers. The Servicing Agreement will (i) define the
Servicer's servicing obligations; (ii) provide for the
payment of a servicing fee of $25 per month for each Account
outstanding from the Issuer to the Servicer; (iii) include
certain representations and warranties; (iv) impose
reporting requirements on the Servicer; and (v) include
events of default. Jim Walter Homes, Inc. ("Jim Walter
Homes"), an affiliate of the Depositor or unaffiliated third
parties will perform certain servicing functions with
respect to the Accounts pursuant to a subservicing
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
agreement (the "Subservicing Agreement"). See "THE SERVICING
AGREEMENT."
CERTAIN CONTRACTUAL RIGHTS. The Issuer will assign to the
Indenture Trustee all of its right, title and interest
(including the right to compel performance of the
subservicer) under the Servicing Agreement and under the
Purchase and Sale Agreement described below.
B. Collection Account...... Prior to the Closing Date, a collection account relating to
the Collateral (the "Collection Account") will be
established with and in the name of the Indenture Trustee.
On the Closing Date, the Issuer will deposit into the
Collection Account cash in an amount equal to all payments
(including prepayments) received in respect of the Accounts
since the Cut-Off Date and up to the date that is five
business days prior to the Closing Date. Thereafter, as long
as any Note remains outstanding, all payments received in
respect of the Accounts and required to be so deposited will
be deposited in the Collection Account. The foregoing
amounts deposited into the Collection Account, less Issuer
Expenses, will be available to make payments of principal
of, and interest on, the Notes. Amounts on deposit in the
Collection Account will be invested in Eligible Investments.
See "SECURITY--Collection Account."
Representations and
Warranties Concerning the
Mortgage Collateral........ The Issuer will represent and warrant, among other things,
that (i) the information delivered to the Indenture Trustee
with respect to the Mortgage Collateral is true and correct
as of the date such information was given; (ii) at the
Closing Date, each mortgage, deed of trust or other security
agreement that constitutes the Mortgage Collateral shall
constitute a valid first priority lien upon and secure title
to the property (the "Mortgaged Property") described therein
and such security agreement and the promissory note secured
thereby are enforceable in accordance with their terms; and
(iii) at the Closing Date, the Issuer is the sole owner of
each Account, has good title to such Account and has full
right and authority to transfer such Account and to grant a
security interest in such Account to the Indenture Trustee.
Within 90 days of the earlier of discovery by or notice to
the Issuer of any breach of a representation or warranty
which materially and adversely affects the interests of the
Noteholders in an Account, the Issuer is required to use its
best efforts to cure such breach in all material respects.
If such breach is not or cannot be cured within such 90-day
period or, with the prior written consent of the Indenture
Trustee, such longer period as specified in such consent,
the Issuer is required to either (i) deposit in the
Collection Account an amount equal to 100% of the current
Economic Balance of the affected Account, at which time such
affected Account will be released from the lien of the
Indenture or (ii) remove such Account from the lien of the
Indenture and substitute one or more qualified substitute
accounts. See "THE INDENTURE--Representations and Warran-
ties."
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The obligation of the Issuer to cure any such breach or to
repurchase or substitute for the affected Account will be
the sole remedy available to the Trustee or Noteholders in
respect of the related breach.
Origination of Accounts...... All of the Accounts were originated by Jim Walter Homes. Jim
Walter Homes is in the business of marketing and supervising
the construction of standardized, partially-finished,
detached, single-family residential homes. The homes are
sold directly to customers through approximately 109 branch
offices, serving approximately 24 states, primarily in the
southern region of the United States. The Accounts were
acquired by the Depositor from Jim Walter Homes. See "THE
DEPOSITOR."
Purchase and Sale
Agreement.................. The Depositor and the Issuer will enter into a Purchase and
Sale Agreement dated as of the Closing Date (the "Purchase
and Sale Agreement") pursuant to which the Depositor will
sell and assign, and the Issuer will purchase, all of the
Accounts. See "THE PURCHASE AND SALE AGREEMENT."
Servicer..................... Mid-State Homes, Inc. will act as the Servicer under the
Servicing Agreement. See "THE SERVICING AGREEMENT."
Indenture Trustee............ First Union National Bank of Florida will act as the
Indenture Trustee.
Owner Trustee................ Wilmington Trust Company will be the Owner Trustee pursuant
to the Trust Agreement. The Owner Trustee will be obligated
to (i) execute and deliver the Indenture, the Notes, the
Servicing Agreement, the Purchase and Sale Agreement and all
other documents and instruments related thereto, (ii)
acquire the Collateral and to pledge the Collateral as
security for the Notes, (iii) issue the Notes pursuant to
the Indenture and (iv) take whatever action shall be
required to be taken by the Owner Trustee by, and subject
to, the terms of the Trust Agreement. The liability of the
Owner Trustee in connection with the issuance and sale of
the Notes and in respect of the Issuer's obligations under
the Notes is limited solely to the express obligations of
the Owner Trustee set forth in the Trust Agreement and the
Indenture. See "THE TRUST AGREEMENT."
Risk Factors................. Various risk factors related to the purchase of Notes are
discussed under "Risk Factors," including, among others, (i)
the factors (including the effect of changes in mortgage
market interest rates) affecting the weighted average life
of the Notes and the reinvestment risk borne by investors
and (ii) the risks related to the subordination of each
Class of Notes (other than the Class A-1 Notes) to the
Classes of Notes having prior numerical Class designations.
Legal Investment
Considerations............. The Notes will not constitute "mortgage related securities"
for purposes of the Secondary Mortgage Market Enhancement
Act of 1984, as amended. As a result, the appropriate
characterization of the Notes under various legal investment
restrictions, and thus the ability of investors subject to
these restrictions to purchase the Notes, may be subject to
significant interpretative uncertainties. Investors should
consult their legal advisors to determine whether and to
what extent
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the Notes constitute legal investments for them. See "LEGAL
INVESTMENT CONSIDERATIONS."
ERISA Considerations......... Under the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and the Internal Revenue Code of 1986,
as amended (the "Code"), a pension or other employee benefit
plan covered by ERISA or retirement arrangements which are
subject to ERISA or Section 4975 of the Code (collectively,
"Plans") with respect to which the Depositor or any
affiliate is a service provider, may acquire the Notes only
under certain limited circumstances. Brown & Wood LLP,
counsel for the Underwriters and special counsel for the
Issuer as to ERISA matters, is of the opinion that the Notes
will be considered debt instruments rather than equity
interests of the Issuer for ERISA purposes. See "ERISA
CONSIDERATIONS."
Tax Status of the Notes...... The Notes will be treated as debt for federal income tax
purposes. If the Notes are issued with original issue
discount, Noteholders generally will be required to include
the original issue discount in gross income over the life of
the Notes. The Notes will not constitute "loans secured by
an interest in real property" for "domestic building and
loan associations" or "real estate assets" for "real estate
investment trusts." See "MATERIAL FEDERAL INCOME TAX CONSE-
QUENCES."
Use of Proceeds.............. The net proceeds of the offering of the Notes will be used
by the Issuer to purchase the Mortgage Collateral from the
Depositor. See "USE OF PROCEEDS."
Ratings...................... It is a condition of issuance that the Class A-1 Notes be
rated "Aaa" by Moody's Investors Service, Inc. ("Moody's")
and "AAA" by Standard & Poor's Ratings Services ("Standard &
Poor's"); the Class A-2 Notes be rated at least "Aa2" by
Moody's and "AA+" by Standard & Poor's; the Class A-3 Notes
be rated at least "A2" by Moody's and "AA" by Standard &
Poor's; and the Class A-4 Notes be rated at least "Baa2" by
Moody's and "BBB" by Standard & Poor's. The rating of each
Class of Notes by Standard & Poor's addresses the likelihood
of timely payment of interest and the ultimate payment of
principal on the Notes. The rating of each Class of Notes by
Moody's addresses the likelihood of the ultimate payment of
principal and interest on the Notes. A security rating is
not a recommendation to buy, sell or hold the Notes. See
"NOTE RATINGS."
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RISK FACTORS
Prospective investors should consider the following risk factors in
considering the purchase of Notes.
LIMITED LIQUIDITY OF NOTES
There currently is no secondary market for the Notes. The Underwriters
intend to make a market in the Notes but are not obligated to do so. There can
be no assurance that such a market will develop or, if one does develop, that it
will provide Noteholders with liquidity of investment or will continue for the
life of the Notes. Further, no application will be made to list the Notes on any
securities exchange. Accordingly, the liquidity of the Notes may be limited.
LIMITED ASSETS OF THE ISSUER
The Notes will represent obligations of the Issuer, whose assets will
consist solely of the Collateral pledged as security under the Indenture. No
recourse is available with respect to payments on the Notes to the Depositor,
Jim Walter Homes, or any other affiliate of the Depositor. If the Issuer is
unable to make the payments due on the Notes and an Event of Default under the
Indenture occurs and the maturity of the Notes is accelerated, it is unlikely
that the Issuer will be able to pay the accelerated principal amount due on the
Notes at the time of acceleration. None of the Notes or the Accounts will be
guaranteed or insured by any governmental instrumentality or any other entity.
RISKS IN THE EVENT OF INSOLVENCY OF THE DEPOSITOR
Under the Purchase and Sale Agreement, the Depositor will represent and
warrant that it has validly sold and assigned to the Issuer all of its right,
title and interest in the Accounts. However, if, in a bankruptcy proceeding
involving the Depositor, a bankruptcy trustee, the Depositor as debtor in
possession or a creditor of the Depositor were to take the position that (i) the
transfer of the Accounts to the Issuer should be recharacterized as a transfer
for security rather than a sale or (ii) the assets of the Issuer (including the
Mortgage Collateral) should be substantively consolidated into the bankruptcy
estate of the Depositor, then delays in payments on the Notes could occur and
(should the bankruptcy court rule in favor of such bankruptcy trustee, debtor in
possession or creditor) reductions in payments on the Notes could result. It is
possible that the risk of recharacterizing the sale of the Accounts as a
transfer for security is increased by the position to be taken by the Depositor
that the transfer of the Accounts is not a sale under generally accepted
accounting principles or for income and other tax purposes and that the risk of
substantive consolidation is increased by the fact that the Issuer is a trust of
which the Depositor is the sole beneficiary.
The Purchase and Sale Agreement will provide that, if the intended sale is
recharacterized as a transfer for security, then the Depositor thereby grants to
the Issuer a security interest in the Mortgage Collateral. To the extent that
the Depositor is deemed to have granted a security interest in the Accounts to
the Issuer and such security interest was validly perfected (see "Grant of
Security Interest In Mortgage Collateral; Risks of Defective Security Interest"
below) more than 90 days prior to any insolvency of the Depositor, was not
granted or taken with the intent to hinder, delay or defraud the Depositor or
its creditors and has been validly assigned to the Indenture Trustee, such
security interest should not be subject to avoidance in the event of the
insolvency of the Depositor. In such event, while payments already made to the
Indenture Trustee with respect to the Accounts should not be subject to recovery
by a bankruptcy trustee of the Depositor, delays in payments on the Notes and
possible reductions in the amount of those payments could occur.
LIMITED RIGHTS OF SUBORDINATE NOTEHOLDERS
No holder of any Class of Notes will have the right to declare the principal
of the Notes to be immediately due and payable other than (i) on or prior to the
Maturity Date, the holders entitled to 66 2/3%
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of the Voting Rights of the Class of Notes with the lowest numerical Class
designation then outstanding and (ii) after the Maturity Date, the holders
entitled to 66 2/3% of the Voting Rights of any Class of Notes (provided that
the holders entitled to 66 2/3% of each Class of Notes with a lower numerical
Class designation consent). See "THE INDENTURE--Rights Upon Event of Default."
In addition, no holder of any Class of Notes will have the right to petition or
otherwise invoke any court or government proceeding for the purpose of
commencing or sustaining a case against the Issuer under any Federal or state
bankruptcy, insolvency or similar law other than (i) on or prior to the Maturity
Date, the holders entitled to 66 2/3% of the Voting Rights of the Class of Notes
with the lowest numerical Class designation then outstanding and (ii) after the
Maturity Date, the holders entitled to 100% of the Voting Rights of any Class of
Notes (provided that the holders entitled to 100% of each Class of Notes with a
lower numerical designation consent). See "THE INDENTURE--Non-Petition."
LIMITED OVERCOLLATERALIZATION
As of the Cut-Off Date, the aggregate Economic Balance of the Accounts (the
"Aggregate Economic Balance") was approximately $462,287,289. On each Payment
Date prior to the Target Overcollateralization Date, unless there exists an
uncured Trigger Event, Available Funds (which are net of Issuer Expenses), if
any, in excess of the amount of interest due on the Notes on such Payment Date
("Remaining Available Funds") will be applied to pay principal of the Notes in
accordance with the Available Funds Allocation as set forth under "DESCRIPTION
OF THE NOTES--Interest and Principal Payments" which, in the absence of losses
or delinquencies on the Accounts, will have the effect of increasing the level
of overcollateralization from the original level. The Notes will be
overcollateralized by the Accounts to the extent, if any, by which (a) the
aggregate Economic Balance of the Accounts exceeds (b) the outstanding principal
amount of the Notes. The amount of such overcollateralization will be reduced or
eliminated to the extent that losses incurred in respect of defaulted Accounts,
together with payments on the Accounts, cause the Economic Balance of the
Accounts to decline more than the principal amount of the Notes declines on
account of payments of principal thereon. If the protection afforded to the
Notes by such overcollateralization were to be exhausted, and the Accounts
incurred further losses, such losses would be allocated first to the Class A-4
Notes, then to the Class A-3 Notes, then to the Class A-2 Notes and finally to
the Class A-1 Notes, in each case until the principal balance of such Class of
Notes has been reduced to zero. See "THE ACCOUNTS" and "DESCRIPTION OF THE
NOTES--Interest and Principal Payments."
RISKS OF SUBORDINATION
The protection afforded to the holders of the Class A-1, Class A-2 and Class
A-3 Notes by means of subordination will be accomplished by (i) the allocation
of losses on the Accounts to the Classes of Notes in reverse order of their
numerical Class designations and (ii) with respect to interest, the application
of the Available Funds on each Payment Date in the sequential order provided by
the Available Funds Allocation. The rights of the holders of the Class A-2 Notes
to receive payments of interest on the Class A-2 Notes will be subordinated to
such rights of the holders of the Class A-1 Notes; the rights of the holders of
the Class A-3 Notes to receive payments of interest will be subordinated to such
rights of the holders of the Class A-1 and Class A-2 Notes; and the rights of
the holders of the Class A-4 Notes to receive payments of interest will be
subordinated to such rights of the holders of the Class A-1, Class A-2 and Class
A-3 Notes, all to the extent described herein under "DESCRIPTION OF THE NOTES--
Interest and Principal Payments." Accordingly, on any Payment Date any
deficiency in the availability of funds to pay interest or principal on the
Notes will result in shortfalls in the payment of the Notes first to the Class
A-4 Notes, then to the Class A-3 Notes, then to the Class A-2 Notes and then to
the Class A-1 Notes. Further, in the event that the overcollateralization
described above is exhausted, any losses on the Accounts will be similarly
allocated to the Classes of Notes in reverse numerical order.
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NO ADVANCE OBLIGATION
Since neither the Servicer nor any other party is required to advance
delinquent payments on the Accounts, significant delinquencies (especially if
combined with substantial losses on the Accounts) may result in the inability to
make full payments of interest to all Classes of Notes on a Payment Date.
Because Available Funds are allocated on each Payment Date to the Classes of
Notes in the order of their numerical Class designations, the more subordinate
Classes of Notes are more likely to suffer any such shortfalls than the more
senior Classes of Notes.
LOSSES ON ACCOUNTS
In most cases, amounts realized upon resale of repossessed properties may be
less than the outstanding Economic Balances of the related Accounts at the time
of repossession. In addition, certain states have adopted statutes limiting the
right of mortgagees to obtain deficiency judgments against customers following
foreclosure. In the event that the amount realized upon resale is less than the
outstanding Economic Balance of the related Account, the Servicer may be unable
to collect the amount of such deficiency. If losses incurred in connection with
repossessing homes are at levels higher than those historically experienced, the
ability of the Issuer to make required payments on the Notes may be adversely
affected and the Noteholders may incur a loss on their investment. See "THE
ACCOUNTS" and "CERTAIN LEGAL ASPECTS OF THE ACCOUNTS AND RELATED
MATTERS--Anti-Deficiency Legislation and Other Limitations on Creditors."
MORTGAGE COLLATERAL INCLUDES DELINQUENT ACCOUNTS
As of the Cut-Off Date, approximately 0.98%, 0.55% and 2.67% of the Accounts
as a percentage of total Accounts had payments which were past due 31-60 days,
61-90 days and 91 or more days, respectively. 2.08% of the Accounts were in
foreclosure. Accounts which are in foreclosure or bankruptcy continue to be
included in the applicable delinquency categories described in the preceding
sentence. See "DESCRIPTION OF THE ACCOUNTS--Servicing" and "--Repossessions."
Investors should consider the risk that any of the Accounts may become defaulted
Accounts and subsequently the properties securing such Accounts may become
repossessed properties. See "--Losses on Accounts." Defaults by homeowners on
the Accounts may result in the failure of the Noteholders on a given Payment
Date to receive payments in full in respect of interest or principal. The
allocation of losses on the Accounts to the Classes of Notes in reverse order of
their numerical designations may more likely result in a reduction of the
principal balance of the more subordinate Classes of Notes than of the more
senior Classes of Notes without a corresponding payment of principal thereon.
See "--Risks of Subordination." Such events may cause a significant delay in the
receipt of principal by the holders of the more subordinate Classes of Notes, or
may cause such Classes of Notes to fail to receive any payment in respect of
principal, and to a lesser extent, interest, on a given Payment Date.
EFFECT OF PREPAYMENTS ON YIELD AND WEIGHTED AVERAGE LIFE
The weighted average life and the maturity of each Class of the Notes will
be affected by the prepayment experience on the Accounts and the rate and
frequency of delinquencies of payments due on the Accounts. Prepayments on the
Accounts may be influenced by a variety of economic, geographic, social and
other factors, including national and local economic conditions, repossessions,
aging, seasonality and interest rates. Other factors affecting prepayments on
the Accounts include changes in housing needs, job transfers and unemployment.
Liquidations of defaulted Accounts are generally expected to result in resale of
the repossessed properties and the subsequent origination of new Accounts rather
than cash. In general, if prevailing interest rates fall significantly below the
effective financing rates on the Accounts, the rate of prepayments on the
Accounts is likely to be higher than if prevailing interest rates remain close
to or above the effective financing rates borne by such Accounts. Conversely, if
prevailing interest rates rise above the
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effective financing rates on such Accounts, the rate of prepayment would be
expected to decrease. As noted above, no party is required to advance delinquent
payments on the Accounts. Even if Available Funds are sufficient to make full
payments of interest on all Classes of Notes, any such delinquencies will reduce
the amount of Remaining Available Funds available to make payments of principal
in respect of the Notes. Any such delinquencies occurring on or prior to the
Target Overcollateralization Date or during the existence of an uncured Trigger
Event will have the effect of extending the weighted average lives of all
Classes of Notes. Following the Target Overcollateralization Date, any such
delinquencies may have the effect of extending the weighted average lives of all
Classes of Notes to the extent that such delinquencies exceed the amount
otherwise distributable to the owner of the beneficial interest in the Issuer.
See "DESCRIPTION OF THE NOTES--Weighted Average Life of the Notes."
If Notes are purchased at a discount or a premium to their principal balance
and the purchaser calculates its anticipated yield to maturity based upon an
assumed rate of payment of principal that is faster or slower than that actually
experienced, the purchaser's actual yield to maturity will be different from
that initially calculated by the purchaser. Investors bear the risk of not being
able to reinvest payments of principal at a yield at least equal to the interest
rate borne by the Notes.
CONSUMER PROTECTION LAWS AND RISK OF CONSUMER LITIGATION
The Accounts are subject to any claims or defenses that a customer may have
against Jim Walter Homes in connection with the sale, financing and construction
of such customer's home. Accordingly, the Servicer may not be able to recover
the amount due on an Account if a customer successfully asserts such claims or
defenses. See "CERTAIN LEGAL ASPECTS OF THE ACCOUNTS AND RELATED
MATTERS--Consumer Protection Laws."
In May 1991, 444 plaintiffs filed a group action in a Texas state court and
named as defendants, among others, Mid-State Trust II (which had purchased
almost all of the plaintiffs' accounts from Mid-State) and its trustee,
Wilmington Trust Company. The plaintiffs sought damages, based upon certain
alleged construction defects, for common law fraud and for violation of the
Texas Deceptive Trade Practices Act and the Texas Consumer Credit Code, as well
as injunctive relief to prevent Mid-State Trust II from foreclosing or
attempting to collect on any of the related accounts. Such litigation was
settled pursuant to a court-approved settlement agreement in July 1995. The
settlement amount was approximately $3,600,000 in account balance reductions,
plus an approximate aggregate amount of $27,500 cash to certain homeowner
claimants and $2,900,000 as attorney's fees. In August 1993, the purchasers of
three homes in South Carolina instituted a class action against Jim Walter Homes
and Mid-State for alleged defects in their homes and claims under the South
Carolina Consumer Protection Code (the "South Carolina Code"). The class of
plaintiffs included approximately 1600 homeowners whose homes were completed
after December 27, 1989. The plaintiffs alleged violations of certain provisions
of the South Carolina Code relating to the right of homeowners to choose an
attorney to represent them in the closing of the purchase of their homes. In May
1995, the bankruptcy court approved a settlement of such class action, which
essentially provided for (i) a reduction in the balances owed by the class of
plaintiffs on the accounts in the aggregate principal amount of approximately
$15.5 million; (ii) cash disbursements of $1,000 each (with an aggregate cap of
$300,000) to certain classes of former homeowners who no longer had balances on
their accounts; (iii) waiver of the first two months' payments on the related
accounts after the settlement was implemented; and (iv) legal fees and expenses
for the plaintiffs' counsel in an amount less than $3 million. In February 1995,
Jim Walter Homes and Mid-State filed an adversary action for declaratory
judgment in the bankruptcy court in Tampa, Florida against all South Carolina
homeowners who purchased their homes between July 1, 1982 and December 27, 1989.
The complaint in the adversary action sought a declaration that Jim Walter Homes
and Mid-State did not violate the South Carolina Code. The adversary action was
settled for $3,000,000. The legal fees incurred by Jim Walter Homes and
Mid-State for such action were approximately $360,000. Since the litigation
described in this paragraph has been concluded, the Issuer
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does not believe that such litigation will have a material adverse effect on the
ongoing business, operations or financial condition of Jim Walter Homes or the
Depositor.
No group or class action litigation is currently pending or, to the
knowledge of the Issuer, threatened, against Jim Walter Homes or Mid-State. In
the event that similar actions are brought in Texas, South Carolina or other
jurisdictions involving other accounts, possibly including Accounts to be sold
to the Issuer, it is possible that the Trust would be named a party thereto and
the costs associated with such a litigation could adversely affect payments on
the Notes.
Jim Walter Homes and/or the Depositor are party to a number of other
lawsuits arising in the ordinary course of their businesses. While the results
of litigation cannot be predicted with certainty, the Issuer believes, based on
its assessments of the likelihood of prevailing in such litigation and the
magnitude of potential damages, that the final outcome of such other litigation
will not have a material adverse effect on the ongoing business, operations or
financial condition of Jim Walter Homes or the Depositor.
DEPENDENCE ON SERVICER
The effective servicing of the Accounts requires a significantly greater
local presence and number of employees than does the servicing of traditional
mortgage loans. In addition, although the Servicing Agreement does not allow the
Servicer to resign except under limited circumstances, it does permit the
Issuer, the Indenture Trustee or the holders of a majority of the aggregate
principal amount of the Notes to remove the Servicer under certain limited
circumstances. If Mid-State were removed as Servicer, Mid-State's and Jim Walter
Homes' system and expertise may be difficult for a successor servicer to
replicate, and collections and recoveries on the Accounts may be adversely
affected. See "THE SERVICING AGREEMENT."
GRANT OF SECURITY INTEREST IN MORTGAGE COLLATERAL; RISKS OF DEFECTIVE SECURITY
INTEREST
The Issuer will grant to the Indenture Trustee, on behalf of the
Noteholders, a security interest in the promissory notes, building and
installment sale contracts and other security agreements underlying each Account
comprising the Mortgage Collateral. Local counsel in those jurisdictions where
greater than 1% (based on the Aggregate Economic Balance as of the Cut-Off Date)
of all the Mortgaged Properties are located ("Local Counsel") will render
opinions to the effect that, subject to customary exceptions regarding
enforcement of remedies in bankruptcy and the effect of equitable principles,
and assuming that certain procedures described therein related to the execution,
delivery and recordation of the mortgages and other documents relating to the
Accounts and the collateral assignment of such documents to the Indenture
Trustee are followed, the Indenture Trustee will have a valid assignment of the
mortgages, deeds of trust and similar security instruments included in the
Mortgage Collateral that were originated in each of their respective
jurisdictions. After the issuance of the Notes, the Indenture Trustee and the
Issuer intend to comply with the procedures set forth in such opinions. In
addition, the Issuer intends to comply with procedures customarily followed by
mortgage lenders and recommended by Local Counsel with respect to the creation
and perfection in favor of the Indenture Trustee of a lien on the promissory
notes and building and installment sale contracts and other security agreements
included in the Mortgage Collateral and collections thereof. However, there can
be no assurance that such procedures will be adequate to create and perfect a
security interest in all items included in the Mortgage Collateral and all
amounts in the Collection Account. If the security interest of the Indenture
Trustee is challenged, delays in payments on the Notes and possible reductions
in the amount of payments of principal of, and interest on, the Notes could
occur.
RISKS OF UNDERWRITING PRACTICES
As described herein under "THE ACCOUNTS--Underwriting and Credit Policies,"
Jim Walter Homes does not obtain independent third-party appraisals or title
insurance in connection with the
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origination of accounts. Any losses resulting from the inadequacy of the
property or failures of title, to the extent that such losses exceed the
overcollateralization described above under "--Limited Overcollateralization,"
will be borne by the holders of the Notes.
THE DEPOSITOR
The Depositor was established in 1958 to purchase mortgage installment notes
from Jim Walter Homes relating to homes constructed and sold by Jim Walter Homes
and its predecessor and to service such installment notes. Jim Walter Homes
currently is the eighth largest builder of single-family detached housing in the
nation. Over 96% of the homes sold by Jim Walter Homes are financed by Jim
Walter Homes, which sells the related accounts to Mid-State. As of the Cut-Off
Date, the Depositor's mortgage portfolio (including mortgage indebtedness sold
to others and serviced by the Depositor) had an aggregate Economic Balance of
approximately $2.021 billion. Each of Jim Walter Homes and the Depositor is an
indirect wholly-owned subsidiary of Walter Industries. The offices of the
Depositor are located at 1500 North Dale Mabry Highway, Tampa, Florida 33607.
In December 1989, Walter Industries and 31 of its subsidiaries, including
the Depositor, each filed a voluntary petition for reorganization under Chapter
11 of the United States Bankruptcy Code with the Bankruptcy Court for the Middle
District of Florida, Tampa Division. In March 1995, Walter Industries and its
subsidiaries, including the Depositor, emerged from bankruptcy pursuant to an
Amended Joint Plan of Reorganization dated December 9, 1994 as modified on March
1, 1995. Pursuant to such plan, Walter Industries and its subsidiaries,
including the Depositor, have repaid substantially all of their unsecured claims
and senior and subordinated indebtedness subject to the Chapter 11 proceedings.
Since the Chapter 11 proceedings described above are completed, the Issuer does
not believe that such proceedings will have a material adverse effect on the
ongoing business, operations or financial condition of Jim Walter Homes or the
Depositor.
THE ISSUER
ISSUER
The Issuer has been created pursuant to the Trust Agreement between the
Depositor and the Owner Trustee. Under the terms of the Trust Agreement, the
Depositor has conveyed to the Owner Trustee a nominal amount of cash to
establish the Trust. In exchange, the Depositor has received certificates
evidencing beneficial ownership of the Trust created under such agreement. On
the Closing Date, the Issuer will purchase the Accounts from the Depositor with
the net proceeds from the sale of the Notes. The Issuer will pledge the Accounts
to the Indenture Trustee, for the benefit of the Noteholders, as security for
the Notes. See "USE OF PROCEEDS." Subject to certain restrictions, the Depositor
may sell or assign certificates of beneficial ownership in the Issuer to another
entity or entities.
The Trust Agreement provides that the Issuer may not conduct any activities
other than those related to the issuance and sale of Notes, the purchase of the
Accounts, the financing of properties repossessed by the Issuer, the investment
of certain funds in Eligible Investments, as described under "SECURITY--
Mortgage Collateral--Investment of Funds", and such other limited activities as
may be required in connection with reports and payments to holders of the Notes
and the beneficial interest of the Trust. See "SECURITY--Mortgage
Collateral--Investment of Funds." Neither the Owner Trustee in its individual
capacity nor the holders of the beneficial interest of the Trust are liable for
payment of principal of or interest on the Notes and each holder of Notes will
be deemed to have released the Owner Trustee and each holder of the beneficial
interest of the Trust from any such liability. The Trust Agreement provides that
the Trust will terminate upon the earlier to occur of (i) the final sale or
disposition of the trust estate and the distribution of all proceeds thereof to
the owners or (ii) 21 years less one day following the death of the survivor of
certain individuals described in the Trust Agreement, but in no event later than
April 1, 2062.
16
<PAGE>
It is not contemplated that annual or other regular meetings of the
Noteholders will be held. The Indenture, however, permits Holders of a certain
percentage of principal amount of each Class of Notes to approve certain
amendments to the Indenture and, in certain circumstances, to declare the
principal of the Notes due and payable. See "THE INDENTURE--Modification of
Indenture" and "--Rights Upon Event of Default."
USE OF PROCEEDS
The proceeds from the sale of the Notes will be used by the Issuer to
purchase the Accounts and to pay the expenses of the offering. The Depositor
will use a portion of the net proceeds from its sale of the Accounts to purchase
the Accounts from Mid-State Trust V and the remainder for general corporate
purposes. Mid-State Trust V is a Delaware business trust organized on February
27, 1995 for which Mid-State is the depositor. The Accounts have been owned and
will be owned by Mid-State Trust V until the Closing Date. The price the Issuer
pays for the Accounts will represent the net proceeds from the sale of the
Notes.
DISCUSSION AND ANALYSIS OF ISSUER'S FINANCIAL CONDITION
EXPENSES
Substantially all of the anticipated expenses of the Issuer will consist of
interest payments due on the Notes and amounts payable for the Issuer's
operating expenses (including, without limitation, amounts payable under the
Indenture, the Trust Agreement and the Servicing Agreement that may be payable
by the Trust). Payments on the Accounts are intended to be sufficient to make
timely payments of interest on the Notes and to retire the Notes not later than
the Maturity Date.
CAPITAL RESOURCES AND LIQUIDITY
The primary sources of the Issuer's funds will be collections in respect of
the Accounts and reinvestment income therefrom. The Issuer is expected to have
sufficient liquidity and capital resources to make timely payments of interest
on the Notes and to retire the Notes not later than the Maturity Date. See
"DESCRIPTION OF THE NOTES--Interest and Principal Payments" and "SECURITY."
RESULTS OF OPERATIONS
The Issuer's results of operations will depend primarily on the rate at
which payments are made on the Accounts, the level of income from reinvestment
of payments on the Accounts and the level of the Issuer's operating expenses.
IMPACT OF INFLATION AND CHANGING PRICES
Inflation and increased prices may result in increases in the level of the
Issuer's operating expenses. However, such increases may be offset, in whole or
in part, by increases in income from reinvestment of payments on the Mortgage
Collateral. See "SECURITY."
THE ACCOUNTS
HOMEBUILDING ACTIVITIES
All of the Accounts were originated by Jim Walter Homes. Jim Walter Homes is
in the business of marketing and supervising the construction of standardized,
partially finished, detached, single-family residential homes. The homes are
sold directly to customers through approximately 109 branch offices, serving
approximately 24 states, primarily in the southern region of the United States.
A home is constructed on the customer's land only after a building contract has
been entered into and Jim Walter
17
<PAGE>
Homes is satisfied that the customer has clear title to the land and that the
site is suitable for building. Currently, Jim Walter Homes offers over 30 models
of homes in various stages of completion ranging from a "shell" to a "90%
completed" home. A shell is a home completed on the outside with rough floors,
partition studding and closet framing but without interior walls, floor
finishing, plumbing, electrical wiring and fixtures, doors and cabinetry. A 90%
completed home has a completed interior except for interior paint, floor
covering and utility hook-up.
Jim Walter Homes is a contractor rather than a developer, does not own or
sell land to customers except in connection with resales of repossessed homes
and does not maintain its own construction crews. Local independent contractors
construct the homes using their own construction crews. Jim Walter Homes'
employees, however, supervise construction to ensure that it conforms to its
specifications. The following chart shows the sales volume of Jim Walter Homes
and the percent of homes sold in three stages of completion for fiscal years
1978 to 1996 and for the nine months ended February 28, 1997:
HOMEBUILDING ACTIVITIES
<TABLE>
<CAPTION>
PERCENT OF
UNIT SALES
-------------
UNITS VARIOUS 90%
SOLD SHELL STAGES COMPLETE
------- --- --- ---
<S> <C> <C> <C> <C>
Nine Months Ended February 28, 1997.................... 2,958 10% 1% 89%
<CAPTION>
FISCAL YEAR ENDED MAY 31
- -------------------------------------------------------
<S> <C> <C> <C> <C>
1996................................................... 3,760 18 4 78
1995................................................... 4,126 25 9 66
1994................................................... 4,331 23 10 67
1993................................................... 4,784 26 12 62
1992................................................... 5,305 29 13 58
1991................................................... 5,229 30 13 57
1990................................................... 5,213 30 11 59
1989................................................... 5,126 27 9 64
1988 (nine months)..................................... 4,240 28 7 65
<CAPTION>
FISCAL YEAR ENDED AUGUST 31
- -------------------------------------------------------
<S> <C> <C> <C> <C>
1987................................................... 6,100 30 10 60
1986................................................... 6,403 28 12 60
1985................................................... 7,203 43 25 32
1984................................................... 7,809 37 25 38
1983................................................... 8,706 27 33 40
1982................................................... 10,267 26 34 40
1981................................................... 9,226 27 37 36
1980................................................... 10,095 27 36 37
1979................................................... 9,358 21 38 41
1978................................................... 8,952 20 38 42
</TABLE>
Jim Walter Homes' business has tended to be countercyclical to national home
construction activity when interest rates are high. In times of high interest
rates and limited availability of mortgage funds that result in limited new home
construction, Jim Walter Homes' volume of home sales tends to increase due to
the favorable financing it offers. During the period from 1982 through 1997
mortgage rates have generally declined substantially, creating greater
competition for Jim Walter Homes.
18
<PAGE>
UNDERWRITING AND CREDIT POLICIES
Substantially all homes Jim Walter Homes sells are purchased with financing
it arranges. Generally, 100% of the purchase price is financed. To qualify for
financing a potential customer must provide information concerning his or her
monthly income and employment history as well as a legal description of and
evidence that the customer owns the land on which the home is to be built. A
customer's income and employment usually are verified through telephone
conversations with such customer's employer and by examining his or her pay
stubs, W2 forms or, if the customer is self-employed, income tax returns. An
applicant must have a minimum of one year's continuous employment or, if he or
she has changed jobs, the new job must be in the same field of work. Only a
small percentage of secondary income (second jobs or part-time work) is utilized
in qualifying applicants. Ownership of the land is verified by examining the
title record. In addition, Jim Walter Homes' credit department obtains a credit
report. If a favorable report is obtained and the required monthly payment does
not exceed 25% of the customer's monthly gross income, the application usually
is approved and a building or installment sale contract is executed, a title
report is ordered and frequently a survey of the property is made. Surveys are
performed by independent registered surveyors when, in the opinion of Jim Walter
Homes, additional information beyond examination of the title record is needed.
Such additional information is primarily concerned with verification of legal
description, ownership of land and existence of any encroachments. Jim Walter
Homes does not use a point or grade credit scoring system. Particular attention
is paid to the credit information for the most recent three to five years.
Attention is also given to the customer's total indebtedness and total other
monthly payments on a judgmental basis by the credit department. The customer's
credit standing is considered favorable if the employment history, income and
credit report meet the aforementioned criteria. The building and installment
sale contract is subject to (i) except in the State of Texas, executing a
promissory note which is secured by a first lien on the land and the home to be
built, (ii) executing a mortgage, deed of trust, mechanic's lien contract or
other security instrument, (iii) receiving a satisfactory title report, (iv)
inspecting the land to determine that it is suitable for building and (v)
obtaining required permits. Although the mortgages, deeds of trust and similar
security instruments constitute a first lien on the land and the home to be
built, such security instruments are not insured by the Federal Housing
Administration or guaranteed by the Department of Veterans Affairs or otherwise
insured or guaranteed.
Jim Walter Homes does not obtain appraisals or title insurance. Although
consideration is given to the ratio of the amount financed to the estimated
value of the home and the land securing such amount, there is no explicit
appraisal-based loan-to-value test. However, there is a requirement that the
value of the lot on which the home is to be built, as estimated solely on the
basis of Jim Walter Homes' mortgage servicing division employees' experience and
knowledge, be at least equal to 10% of the cash selling price of the home.
Before occupying a new home, the customer must complete the utility and sewer
hook-ups, and any of the other components not purchased from Jim Walter Homes,
arrange for the building inspection and, if required, obtain a certificate of
occupancy. Upon construction of a new home to the agreed-upon percentage of
completion, Jim Walter Homes conveys the Account represented thereby, including
the underlying documents related thereto, to the Depositor in the ordinary
course of business.
In April 1988 the Depositor sold accounts having an aggregate Economic
Balance of approximately $1.75 billion to Mid-State Trust II; in July 1992 the
Depositor sold accounts having an aggregate Economic Balance of approximately
$301 million to Mid-State Trust III; in March 1995 the Depositor sold accounts
having an aggregate Economic Balance of approximately $827 million to Mid-State
Trust IV. Each of Mid-State Trust II, Mid-State Trust III, and Mid-State Trust
IV securitized their accounts in registered public offerings under the federal
securities laws. As of the Cut-Off Date, there were 9,220 accounts (the "Trust V
Accounts") owned by Mid-State Trust V, with an aggregate Economic Balance of
approximately $462,287,289. The Trust V Accounts were sold by the Depositor to
Mid-State Trust V. Mid-State Trust V is party to a warehouse financing with
Enterprise Funding Corporation ("Enterprise") whereby Enterprise is obligated to
provide up to $500,000,000 of financing, from time to time (as of April 30,
1997, approximately $355,000,000 was outstanding), to Mid-State Trust V. The
operations of Enterprise are administered by an
19
<PAGE>
affiliate of NationsBanc Capital Markets, Inc., one of the Underwriters. The
amounts outstanding under such facility are currently secured by the Trust V
Accounts. At the Closing Date, all of the Trust V Accounts will be released from
the warehouse facility and Mid-State Trust V will transfer such accounts to the
Depositor which accounts will, in turn, be sold to the Issuer and will
thereafter constitute the Accounts. The Enterprise warehouse facility will
continue to remain available to Mid-State Trust V after the transfer of Trust V
Accounts to the Depositor. The Issuer does not intend to enter into any
comparable warehouse financing facility.
Each of Mid-State Trust II, Mid-State Trust III, Mid-State Trust IV and
Mid-State Trust V is a Delaware business trust for which Mid-State is the
depositor. The Depositor continues to service those accounts, and Jim Walter
Homes continues to act as subservicer. (The accounts owned by Mid-State Trust
II, Mid-State Trust III and Mid-State Trust IV are reflected in some of the
tables in this section but are not security for the Notes and will not benefit
the Noteholders in any way). As used herein, the term "account" includes
building and installment sale contracts, related mortgages, mechanic's lien
contracts and other security agreements and promissory notes originated by Jim
Walter Homes, including the accounts sold to Mid-State Trust II, Mid-State Trust
III, Mid-State Trust IV and Mid-State Trust V.
The following table summarizes certain aggregate characteristics of the
portfolio of the accounts during the last 19 fiscal years. The amounts presented
are the gross receivable amounts which consist of the amount financed and the
total dollar amount of finance charges to be paid over the duration of the
related accounts ("Gross Receivable Amount"). Although account production has
declined in recent years, the table shows that the aggregate balance of the
portfolio and scheduled payments thereon have generally increased due to higher
average sales prices resulting from the sale of larger models and a greater
percentage of 90% complete homes sold. The table also shows that repossessions
increased during the early 1990's due to unfavorable economic conditions,
including the real estate market, but since 1992 have generally declined. The
information presented summarizes the aggregate characteristics of such accounts
at the times indicated and is not intended to reflect characteristics of the
Mortgage Collateral.
20
<PAGE>
CERTAIN ACCOUNT CHARACTERISTICS
<TABLE>
<CAPTION>
ACCOUNT AGGREGATE
PRODUCTION ANNUAL ACCOUNT
-------------------- SCHEDULED SALES ENDING
NEW RESALES PAYMENTS REPOSSESSIONS PREPAYMENTS (REPURCHASES) BALANCE
--------- --------- ----------- ------------- ------------ --------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Nine Months Ended
February 28, 1997.................... 420,921 101,081 205,733 $ 96,934 $ 176,846 -- $4,250,741
FISCAL YEAR ENDED MAY 31,
1996................................. 506,604 116,314 318,201 119,790 233,541 -- 4,208,252
1995................................. 527,230 130,687 285,780 128,897 162,414 -- 4,256,866
1994................................. 516,822 118,703 292,117 123,882 230,802 -- 4,176,040
1993................................. 538,172 128,088 290,548 127,468 125,368 (11,810) 4,187,316
1992................................. 551,894 123,715 272,149 131,635 84,988 (7,981) 4,052,630
1991................................. 514,849 109,762 262,908 118,954 58,952 -- 3,857,812
1990................................. 470,725 104,913 248,901 110,971 57,140 (10,616) 3,674,015
1989................................. 420,170 105,846 231,651 127,080 59,163 -- 3,504,773
1988 (nine months)................... 329,526 67,433 168,430 88,553 39,984 -- 3,396,651
FISCAL YEAR ENDED AUGUST 31
1987................................. 461,181 100,104 210,058 121,110 64,382 -- 3,296,659
1986................................. 473,599 90,215 194,142 102,951 49,058 -- 3,130,924
1985................................. 522,706 76,093 176,449 84,018 35,602 -- 2,913,261
1984................................. 545,715 69,817 165,105 76,496 33,113 136,738 2,610,531
1983................................. 591,928 65,443 148,352 69,212 25,109 156,631 2,406,451
1982................................. 669,757 46,656 148,373 45,552 18,879 214,759 2,148,384
1981................................. 501,329 42,974 136,242 39,841 28,101 -- 1,859,534
1980................................. 428,515 32,999 115,047 34,585 28,657 -- 1,519,415
1979................................. 341,512 31,043 97,405 34,296 39,342 -- 1,236,190
1978................................. 282,170 30,868 95,843 33,592 45,727 -- 1,034,678
</TABLE>
DESCRIPTION OF ACCOUNTS
With respect to sales of new homes, each Account (other than those
originated in the State of Texas) is evidenced by a promissory note (each, a
"Promissory Note"), a building contract (each, a "Building Contract"), a related
mortgage and certain other security agreements and each Account originated in
the State of Texas is evidenced by a retail installment contract (each, a "Texas
Building Contract") and a mechanic's lien contract with power of sale (each, a
"Mechanic's Lien Contract"). With respect to sales of repossessed homes, each
Account (other than those originated in the State of Texas) is evidenced by a
Promissory Note, a retail installment sales contract (each, a "Sales Contract,"
and together with the Building Contracts, "Retail Contracts"), a related
mortgage and certain other security agreements and each Account originated in
the State of Texas is evidenced by a retail installment sales contract (each, a
"Texas Sales Contract," and together with the Texas Building Contracts, "Texas
Contracts") and a deed with vendor's lien together with a purchase money deed of
trust (collectively, each, a "Texas Resale Mortgage," and together with the
Mechanic's Lien Contracts, "Texas Mortgages"). Each Account is secured by a
first lien on a single-unit residential home and the real property on which such
home is situated.
Each Promissory Note and Texas Contract obligates the homeowner to pay the
Gross Receivable Amount of the related Account. Each Promissory Note and Texas
Contract generally requires equal monthly payments in amounts sufficient to
amortize the Gross Receivable Amount over the term thereof. The terms of the
Promissory Notes and Texas Contracts generally range from 144 to 360 months. The
Promissory Notes do not have a stated interest rate and neither the Promissory
Notes nor the Texas Contracts divide the monthly payments into interest and
principal portions.
Each Retail Contract and Texas Contract sets forth (i) the amount that is
being financed by the related customer (generally the purchase price of the
related home), (ii) the total finance charge that such
21
<PAGE>
customer will incur through the maturity date of the Promissory Note or the
Texas Contract, as the case may be, and (iii) the annual percentage rate (the
"Effective Financing Rate") used to calculate the total finance charge. Upon a
prepayment in full by a customer or an acceleration of the amount owed by such
customer under the Promissory Note or the Texas Contract, as the case may be,
such customer will be entitled to receive a credit for any unearned finance
charge (i.e., that portion of the total finance charge which has not yet been
earned through the date of the prepayment or acceleration, calculated using
either the actuarial or rule of 78s method, whichever provides for a greater
recovery to the customer).
The "Economic Balance" of an Account is the present value of the future
scheduled monthly payments due on the Account. Such present value is calculated
by discounting the remaining future scheduled monthly payments on an Account by
the Effective Financing Rate thereof. The "Effective Financing Rate" is
determined by calculating the discount rate which, when applied in a present
value calculation, results in the present value of all originally scheduled
monthly payments on such Account being equal to the original amount financed. In
effect, the Economic Balance of an Account is the amount of principal that can
be amortized by the installment payments due over the remaining term of the
Account at the Effective Financing Rate. The Economic Balance of any Account as
to which the related home has been repossessed and disposed of will be equal to
$0 and such Account will be removed from the lien of the Indenture. The Economic
Balance of any Account which is substituted (as described under "-- Recoveries"
below) for an Account described in the preceding sentence will be calculated as
described in this paragraph.
SERVICING
Mid-State, as the Servicer, has serviced and expects to continue to service
all Accounts from Tampa, Florida. Although the Servicer does not escrow payments
for insurance premiums and real estate taxes, it monitors these payments by
customers. Under the terms of the Servicing Agreement, the Servicer will be
responsible for paying unpaid taxes and insurance premiums and recovering such
amounts from customers or, in certain circumstances, from liquidation proceeds.
See "THE SERVICING AGREEMENT-- Insurance; Taxes."
Jim Walter Homes, pursuant to a subservicing agreement, has performed and
will continue to perform substantially all field servicing activities, which
include collecting or foreclosing on delinquent Accounts and reselling
repossessed homes. Mid-State currently intends to continue to use Jim Walter
Homes as a subservicer for such field servicing activities and to perform itself
the remaining servicing activities. Any subservicer engaged by Mid-State other
than Jim Walter Homes would be expected to have experience in servicing loans or
accounts similar to the Accounts and to have sufficient financial resources to
perform its duties. Each month the Servicer will send a delinquency list, which
includes all Accounts which are past due, to the branch and regional offices of
Jim Walter Homes. Representatives of Jim Walter Homes will contact the customer
in person, by phone or by mail. If an Account becomes more than three months
past due, generally, the customer surrenders the property or the Servicer
commences foreclosure proceedings. Mid-State's current policy is to continue to
show an Account as delinquent until it is brought current, the property is
surrendered or foreclosure proceedings are completed.
In the ordinary course of its business, Mid-State keeps historical
delinquency, repossession and real estate owned information according to
separate portfolios of accounts within the total portfolio. Mid-State, however,
believes that the total portfolio information shows the average performance of
its accounts over time, rather than a performance that might be affected by the
relative seasoning of a separate portfolio. In the case of the delinquency and
repossession experience, information as of the Cut-Off Date is given below for
the Accounts separately. No assurance can be given, however, that the future
experience of the Accounts will be comparable to the historical information set
forth below.
The following table summarizes the delinquency characteristics for all
accounts owned or serviced by Mid-State (including, without limitation, the
accounts owned by Mid-State Trust II, Mid-State Trust III,
22
<PAGE>
Mid-State Trust IV and Mid-State Trust V) at the end of each of the past six
fiscal years and at February 28, 1997. As of each such date, the table presents
the number of delinquent accounts and the dollar amount (in millions) in Gross
Receivable Amounts.
<TABLE>
<CAPTION>
DELINQUENCIES AT MAY 31,
------------------------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
-------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accounts/Gross
Receivable
Amount (Dollars
in Millions)... 85,418 $ 3,858 88,751 $ 4,053 88,977 $ 4,187 83,945 $ 4,176 80,182 $ 4,257
Delinquencies(1) as
a Percent of
Accounts/Gross
Receivable
Amount:
31-60 Days....... 1.30% 1.04% 1.36% 1.07% 1.30% 0.96% 1.30% 1.09% 1.66% 1.59%
61-90 Days....... 0.62 0.55 0.57 0.52 0.51 0.45 0.61 0.55 0.54 0.53
91 Days or more.. 4.32 3.04 4.47 3.31 3.99 3.12 4.16 3.23 4.22 3.17
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Total (31 days or
more)............ 6.24% 4.63% 6.40% 4.90% 5.80% 4.53% 6.07% 4.87% 6.42% 5.29%
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<CAPTION>
DELINQUENCIES
AT
FEBRUARY
1996 28, 1997
-------------------- --------------------
<S> <C> <C> <C> <C>
Accounts/Gross
Receivable
Amount (Dollars
in Millions)... 76,112 $ 4,208 73,542 $ 4,251
Delinquencies(1) as
a Percent of
Accounts/Gross
Receivable
Amount:
31-60 Days....... 1.28% 1.10% 1.26% 1.08%
61-90 Days....... 0.63 0.62 0.56 0.64
91 Days or more.. 4.10 3.14 3.74 3.08
--------- --------- --------- ---------
Total (31 days or
more)............ 6.01% 4.86% 5.56% 4.80%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Based on number of days elapsed since the contractual due date.
As of the Cut-Off Date, the delinquency characteristics for the Accounts as
a percentage of total Accounts and as a percentage of Gross Receivable Amounts
of the Accounts, were, respectively, 0.98% and 0.92% for Accounts 31-60 days
past due, 0.55% and 0.63% for Accounts 61-90 days past due, 2.67% and 2.55% for
Accounts 91 days or more past due and 4.20% and 4.10% for all delinquent
Accounts.
REPOSSESSIONS
Repossessed property is rehabilitated, if necessary, and resold. The
following table sets forth certain information concerning the repossession
experience of accounts in the Depositor's servicing portfolio (including,
without limitation, the accounts owned by Mid-State Trust II, Mid-State Trust
III, Mid-State Trust IV and Mid-State Trust V), for each of the past six fiscal
years.
REPOSSESSIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MAY 31,
----------------------------------------------------------------
1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Total accounts outstanding............................. 85,418 88,751 88,977 83,945 80,182 76,112
Accounts repossessed................................... 2,224 2,379 2,180 1,963 1,914 1,676
Accounts repossessed as a percent of total number of
accounts............................................. 2.6% 2.7% 2.5% 2.3% 2.4% 2.2%
</TABLE>
The Mortgage Collateral does not include any real estate which the Servicer
had repossessed as of the Cut-Off Date. As of the Cut-Off Date, Accounts with an
Economic Balance of $8,970,659, representing approximately 1.94% of the
Aggregate Economic Balance were in foreclosure. Additionally, as of the Cut-Off
Date, the obligors on Accounts with an Economic Balance of $17,011,143,
representing approximately 3.68% of the Aggregate Economic Balance, were in
bankruptcy or similar proceedings. Certain of these obligors nevertheless are
making payments on the Accounts. As of the Cut-Off Date, the obligors on
Accounts with an Economic Balance of $1,156,797, representing approximately
0.25% of the Aggregate Economic Balance, were not in foreclosure or bankruptcy,
but were over 120 days delinquent.
23
<PAGE>
RECOVERIES
Generally, repossessed homes are remarketed by field collection personnel of
Jim Walter Homes with assistance from its sales network for new homes.
Typically, the homes are resold with little or no rehabilitation of the
properties and, accordingly, cash expenditures are small. The majority of homes,
including the land on which such homes are located, are resold for a down
payment of generally less than $1,000 and a new account. All other repossessed
homes are sold for cash.
The Subservicing Agreement will require Jim Walter Homes to continue to
perform remarketing services as it has in the past. In certain jurisdictions in
which repossessed homes may be located, local laws require that persons selling
real property be licensed real estate agents or brokers, unless such persons are
selling real estate which they (or their employers) own. The field collection
personnel of Jim Walter Homes are generally not licensed real estate agents or
brokers. It is therefore necessary, with respect to repossessed homes located in
such jurisdictions, for title to such repossessed homes to be taken, in whole or
in part, in the name of Jim Walter Homes (rather than in the name of the Issuer)
pending disposition. Upon disposition, the Trust will receive the cash proceeds,
if any, and the new Accounts originated, in connection with resales of
repossessed properties securing defaulted Accounts. In the event repossessed
property is sold at a loss, such loss will be reflected in the accounting
records of the Issuer. Depending on the age of the repossessed Account and other
factors, such as the condition and location of the related repossessed property,
the amount of a recovery (i.e., the amount of the new Account plus cash, if any)
as a percentage of the Economic Balance will vary. The number of homes held as
real estate owned is set forth in the following aging summary (which includes,
without limitation, the homes held as real estate owned by Mid-State Trust II,
Mid-State Trust III, Mid-State Trust IV and Mid-State Trust V) for the past six
fiscal years and the nine months ended February 28, 1997.
REAL ESTATE OWNED
<TABLE>
<CAPTION>
MAY 31,
---------------------------------------------------------------- FEBRUARY 28,
1991 1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Real Estate Owned as a Percent of Accounts
Outstanding
0-3 Months..................................... 0.11% 0.12% 0.06% 0.07% 0.05% 0.09% 0.12%
4-6 Months..................................... 0.04 0.03 0.01 0.01 0.01 0.02 0.02
More than 6 Months............................. 0.09 0.05 0.02 0.02 0.01 0.01 0.02
--- --- --- --- --- --- ---
Total Real Estate Owned.................. 0.24% 0.20% 0.09% 0.10% 0.07% 0.12% 0.16%
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
</TABLE>
TIME TO RECOVERY
The elapsed time between the initial delinquency of an account and the date
the related home is resold can be divided into three stages: (i) delinquency as
to monthly payment period, (ii) repossession period and (iii) real estate owned
period. An account generally will be no more than three months delinquent before
the Servicer commences foreclosure proceedings. If the Servicer anticipates that
a payment will not be forthcoming, it may commence foreclosure proceedings when
an account has been delinquent as little as two months. The Servicer estimates
that approximately 25% of all repossessed homes are voluntarily surrendered
during the delinquency period and, accordingly, avoid the repossession period,
and it estimates that, although the time to recovery can vary considerably, the
average time following initial delinquency until recovery is approximately ten
months.
Since no party is required to advance required payments on delinquent
Accounts, any such delinquencies that exist at the end of a Collection Period
immediately preceding any Payment Date will reduce the amount of Available Funds
for the related Payment Date. See "RISK FACTORS--Limited Assets of the
24
<PAGE>
Issuer," "--Limited Overcollateralization," "--Risks of Subordination," and
"--Effect of Prepayments on Yield and Weighted Average Life."
THE MORTGAGE COLLATERAL
The Mortgage Collateral which will secure the Notes consists of 9,220
Accounts, which comprise 12.5% of the accounts owned directly or indirectly by
the Depositor on the Cut-Off Date. The Mortgage Collateral had an aggregate
Economic Balance of approximately $462,287,289 as of the Cut-Off Date.
Set forth below is a description of additional characteristics of the
Accounts as of the Cut-Off Date. Such information does not reflect changes that
may have occurred to the Accounts subsequent to the Cut-Off Date.
REMAINING YEARS TO MATURITY OF ACCOUNTS
COMPRISING THE MORTGAGE COLLATERAL
8.50% ACCOUNTS
<TABLE>
<CAPTION>
0-15 16-20 21-25 26-30 TOTAL
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Accounts............... 60 119 1,795 1,184 3,158
Average Economic Balance......... $ 52,754 $ 56,218 $ 48,899 $ 73,517 $ 58,478
Weighted Average Remaining Term
(months)(1).................... 170 233 296 357 320
Weighted Average Effective
Financing Rate................. 8.50% 8.50% 8.50% 8.50% 8.50%
Current Economic Balance......... $ 3,165,228 $ 6,689,938 $ 87,774,223 $ 87,044,312 $ 184,673,700
Original Economic Balance(2)..... $ 3,191,765 $ 6,733,290 $ 88,120,075 $ 87,211,940 $ 185,257,070
</TABLE>
10.00% ACCOUNTS
<TABLE>
<CAPTION>
0-15 16-20 21-25 26-30 TOTAL
------------- ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Number of Accounts............... 482 1,085 3,529 966 6,062
Average Economic Balance......... $ 30,253 $ 35,881 $ 44,448 $ 69,610 $ 45,796
Weighted Average Remaining Term
(months)(1).................... 154 220 281 343 281
Weighted Average Effective
Financing Rate................. 9.98% 10.00% 10.00% 10.00% 10.00%
Current Economic Balance......... $ 14,581,826 $ 38,931,072 $ 156,857,543 $ 67,243,148 $ 277,613,589
Original Economic Balance(2)..... $ 15,595,569 $ 40,074,426 $ 159,037,307 $ 67,772,520 $ 282,479,822
</TABLE>
- ------------------------
(1) The remaining term of an Account is based on the original term of the
Account less the number of months elapsed between the first payment due date
and the Cut-Off Date.
(2) The original Economic Balance for an Account is equal to the original Gross
Receivable Amount less total original finance charges.
25
<PAGE>
EFFECTIVE FINANCING RATE
The Effective Financing Rates borne by 99.99% of the Accounts range from
8.49% to 10.00%. The weighted average Effective Financing Rate for the Accounts
as of the Cut-Off Date is 9.40%.
TOTAL ACCOUNTS COMPRISING THE MORTGAGE COLLATERAL
As of the Cut-Off Date, 8,962 Accounts having an Economic Balance of
$452,747,773 are secured by homes representing new sales, and 258 Accounts
having an Economic Balance of $9,539,516 are secured by homes that have been
repossessed and resold.
The following table sets forth at the Cut-Off Date the years of calculated
scheduled final payment for the Accounts comprising the Mortgage Collateral:
CALCULATED SCHEDULED FINAL PAYMENT(1)
<TABLE>
<CAPTION>
NUMBER OF ECONOMIC
ACCOUNTS BALANCE
---------------------- -------------------------
NUMBER PERCENT AMOUNT PERCENT
----------- --------- -------------- ---------
<S> <C> <C> <C> <C>
Calendar Year of Calculated Scheduled Final Payment:
1997-1998......................................................... 1 0.01% $ 1,022 *
1999-2000......................................................... 2 0.02 27,132 0.01%
2001-2002......................................................... 2 0.02 30,632 0.01
2003-2004......................................................... 8 0.09 108,140 0.02
2005-2006......................................................... 37 0.40 842,506 0.18
2007-2008......................................................... 98 1.06 3,064,490 0.66
2009-2010......................................................... 201 2.18 6,831,456 1.48
2011-2012......................................................... 244 2.65 8,069,070 1.75
2013-2014......................................................... 209 2.27 7,448,267 1.61
2015-2016......................................................... 828 8.98 32,261,439 6.98
2017-2018......................................................... 415 4.50 16,004,845 3.46
2019-2020......................................................... 2,189 23.74 97,536,409 21.10
2021-2022......................................................... 2,836 30.76 135,774,421 29.37
2023-2024......................................................... 51 0.55 2,734,771 0.59
2025-2026......................................................... 1,598 17.33 114,095,142 24.68
2027-2028......................................................... 501 5.43 37,457,547 8.10
----- --------- -------------- ---------
Total(2)........................................................ 9,220 100.00% $ 462,287,289 100.00%
----- --------- -------------- ---------
----- --------- -------------- ---------
Weighted Average Period to Calculated Scheduled Final Payment: 24.7 years.
</TABLE>
- ------------------------
* Indicates an amount greater than zero but less than 0.005% of the Aggregate
Economic Balance.
(1) Calculated Scheduled Final Payment is determined by adding the original term
of an Account to the first payment due date and subtracting one month.
(2) Percentages may not add to 100% due to rounding.
26
<PAGE>
The following three tables set forth the outstanding Economic Balance, the
original Economic Balance and the years of origination of the Accounts
comprising the Mortgage Collateral at the Cut-Off Date:
OUTSTANDING ECONOMIC BALANCE
<TABLE>
<CAPTION>
NUMBER OUTSTANDING
OF ACCOUNTS ECONOMIC BALANCE
---------------------- -------------------------
<S> <C> <C> <C> <C>
NUMBER PERCENT AMOUNT PERCENT
----------- --------- -------------- ---------
Outstanding Economic Balance:
$10,000 and less................................................ 12 0.13% $ 74,840 0.02%
$10,001 to $20,000.............................................. 142 1.54 2,364,405 0.51
$20,001 to $30,000.............................................. 702 7.61 17,841,969 3.86
$30,001 to $40,000.............................................. 1,819 19.73 64,680,525 13.99
$40,001 to $50,000.............................................. 2,452 26.59 110,324,383 23.86
$50,001 to $60,000.............................................. 1,609 17.45 87,861,287 19.01
above $60,000................................................... 2,484 26.94 179,139,880 38.75
----- --------- -------------- ---------
Total (1)..................................................... 9,220 100.00% $ 462,287,289 100.00%
----- --------- -------------- ---------
----- --------- -------------- ---------
</TABLE>
Average outstanding Economic Balance: $50,140.
- ------------------------
(1) Percentages may not add to 100% due to rounding.
ORIGINAL ECONOMIC BALANCE
<TABLE>
<CAPTION>
NUMBER ORIGINAL
OF ACCOUNTS ECONOMIC BALANCE
---------------------- -------------------------
<S> <C> <C> <C> <C>
NUMBER PERCENT AMOUNT PERCENT
----------- --------- -------------- ---------
Original Economic Balance(1):
$10,000 and less................................................ 11 0.12% $ 76,447 0.02%
$10,001 to $20,000.............................................. 121 1.31 2,056,989 0.44
$20,001 to $30,000.............................................. 634 6.88 16,214,619 3.47
$30,001 to $40,000.............................................. 1,756 19.05 62,468,185 13.36
$40,001 to $50,000.............................................. 2,478 26.88 111,520,882 23.84
$50,001 to $60,000.............................................. 1,657 17.97 90,429,418 19.33
above $60,000................................................... 2,563 27.80 184,970,352 39.55
----- --------- -------------- ---------
Total (2)(3)................................................ 9,220 100.00% $ 467,736,892 100.00%
----- --------- -------------- ---------
----- --------- -------------- ---------
</TABLE>
Average Original Economic Balance: $50,731.
- ------------------------
(1) With respect to 1,073 Accounts, representing 7.91% of the Aggregate Economic
Balance as of the Cut-Off Date, the original Economic Balances stated above
are as of the date the Economic Balances of such Accounts were reduced in
connection with the settlement of the class action litigation in South
Carolina in 1995 that is described under "RISK FACTORS--Consumer Protection
Laws and Risk of Consumer Litigation."
(2) The original Economic Balance for an Account is equal to the original Gross
Receivable Amount less total original finance charges.
(3) Percentages may not add to 100% due to rounding.
27
<PAGE>
YEARS OF ORIGINATION
<TABLE>
<CAPTION>
AGGREGATE ECONOMIC
BALANCE AS OF
NUMBER OF ACCOUNTS CUT-OFF DATE
----------------------- ---------------------------
YEAR OF ORIGINATION (1) NUMBER PERCENT AMOUNT PERCENT
- -------------------------------------------------------------- ----------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
1990.......................................................... 191 2.07% $ 5,916,845 1.28%
1991.......................................................... 238 2.58 7,567,069 1.64
1992.......................................................... 281 3.05 9,425,307 2.04
1993.......................................................... 217 2.35 7,825,591 1.69
1994.......................................................... 190 2.06 7,090,405 1.53
1995.......................................................... 2,953 32.03 142,824,172 30.90
1996.......................................................... 3,540 38.39 188,774,791 40.83
1997.......................................................... 1,610 17.46 92,863,109 20.09
----- ---------- --------------- ----------
Total(2)...................................................... 9,220 100.00% $ 462,287,289 100.00%
----- ---------- --------------- ----------
----- ---------- --------------- ----------
</TABLE>
- ------------------------
(1) Calendar year in which the first payment on the Accounts became due.
(2) Percentages may not add to 100% due to rounding.
The following table sets forth the geographical distribution of the Accounts
comprising the Mortgage Collateral by state at the Cut-Off Date.
GEOGRAPHICAL DISTRIBUTION
<TABLE>
<CAPTION>
% OF AGGREGATE
ECONOMIC
% OF TOTAL AGGREGATE BALANCE
NUMBER OF NUMBER OF ECONOMIC OF ALL
STATE ACCOUNTS ACCOUNTS BALANCE ACCOUNTS
- --------------------------------------------------------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C>
Alabama.................................................. 811 8.80% $ 40,873,897 8.84%
Arizona.................................................. 79 0.86 4,969,992 1.08
Arkansas................................................. 342 3.71 16,666,493 3.61
Florida.................................................. 696 7.55 38,855,896 8.41
Georgia.................................................. 549 5.95 30,066,093 6.50
Illinois................................................. 7 0.08 353,696 0.08
Indiana.................................................. 38 0.41 2,310,826 0.50
Kentucky................................................. 181 1.96 9,591,365 2.07
Louisiana................................................ 514 5.57 26,720,047 5.78
Maryland................................................. 1 0.01 38,129 0.01
Mississippi.............................................. 1,212 13.15 54,880,125 11.87
Missouri................................................. 60 0.65 3,143,821 0.68
New Mexico............................................... 47 0.51 3,185,885 0.69
North Carolina........................................... 498 5.40 29,739,191 6.43
Ohio..................................................... 61 0.66 3,474,068 0.75
Oklahoma................................................. 232 2.52 12,354,486 2.67
South Carolina........................................... 1,603 17.39 64,219,585 13.89
Tennessee................................................ 335 3.63 18,012,064 3.90
Texas.................................................... 1,545 16.76 78,912,268 17.07
Virginia................................................. 273 2.96 16,235,362 3.51
West Virginia............................................ 136 1.48 7,684,000 1.66
----- ----------- -------------- ------
Total(1)................................................. 9,220 100.00% $ 462,287,289 100.00%
----- ----------- -------------- ------
----- ----------- -------------- ------
</TABLE>
- ------------------------
(1) Percentages may not add to 100% due to rounding.
28
<PAGE>
CERTAIN LEGAL ASPECTS OF THE ACCOUNTS
AND RELATED MATTERS
CONSUMER PROTECTION LAWS
Numerous federal and state consumer protection laws and related regulations
impose substantial requirements upon creditors providing mortgage financing.
These laws include, without limitation, the Truth-in-Lending Act, the Equal
Credit Opportunity Act, the Federal Trade Commission Act, the Fair Credit
Reporting Act, the Fair Debt Collection Practices Act, the Federal Reserve
Board's Regulations "B" and "Z" and the Uniform Consumer Credit Code (the
"UCCC"). These requirements can impose specific statutory liabilities upon
creditors who fail to comply with their provisions. In some cases, such
liabilities may affect the ability of an assignee (such as the Trust and the
Indenture Trustee) to enforce installment contracts and promissory notes such as
the Accounts.
The so-called "Holder-in-Due-Course" Rule of the Federal Trade Commission
(the "FTC Rule"), the provisions of which are generally duplicated by the UCCC,
has the effect of subjecting not only a seller (and certain related creditors
and their assignees) in a consumer credit transaction but also any assignee of
the seller, to all claims and defenses which the customer could assert against
the seller. Because liability under the FTC Rule is limited to the amounts paid
by such customer under the contract, the holder of the contract may be unable to
collect any remaining balance due thereunder. The Accounts are subject to the
requirements of the FTC Rule. Accordingly, the Issuer, as holder of the Accounts
will be subject to any claims or defenses that the obligor of the related
Account may assert against Jim Walter Homes under the building or sale contract
related to such Account. If a customer successfully asserts any such claim or
defense, the value of such Account could be adversely affected.
The installment contracts utilized by Jim Walter Homes contain provisions
obligating the obligor to pay late charges if payments are not made in a timely
manner. In certain cases, laws of certain states may specifically limit the
amount of late charges that may be collected or prohibit the imposition of late
charges. Late charges will be retained by the Servicer as additional servicing
compensation, and the inability of the Servicer to collect these amounts will
not affect payments to Noteholders.
MORTGAGES, DEEDS OF TRUST AND MECHANIC'S LIEN CONTRACTS
The following discussion contains summaries of certain legal aspects of the
mortgages, deeds of trust, deeds to secure debt and mechanic's lien contracts
(collectively, "Security Instruments") which are general in nature. Because such
legal aspects are governed by applicable state law (which laws may differ
substantially) the summaries do not purport to be complete or to reflect the
laws of any particular state or to encompass the laws of all states in which the
security for the Accounts is situated. The summaries are qualified in their
entirety by reference to the applicable federal and state laws governing such
Accounts.
The Security Instruments generally will be either mortgages or deeds of
trust depending upon the prevailing practice in the state in which the property
securing the related Account is located. A mortgage creates a lien upon the real
property encumbered by the mortgage. There are two parties to a mortgage, the
mortgagor, who is the obligor and homeowner, and the mortgagee, who provides
financing. Generally, the mortgagor delivers to the mortgagee a note and the
mortgage. The lien created by a mortgage is not prior to liens for real estate
taxes and assessments or to certain tax liens (see "--Anti-Deficiency
Legislation and Other Limitations on Creditors"), nor is it prior to certain
other liens which in most jurisdictions are given priority by statute. Priority
between mortgages depends on their terms and generally on the order in which
they are filed with a state or county recording office.
Although a deed of trust is similar to a mortgage, a deed of trust formally
has three parties: the obligor-homeowner called the trustor (similar to a
mortgagor), a creditor (similar to a mortgagee) called the beneficiary, and a
third-party grantee called the trustee. Under a deed of trust, the obligor
grants the property, irrevocably until the debt is paid, in trust, generally
with a power of sale, to the trustee to secure
29
<PAGE>
payment of the obligation. The deed of trust may, by state law, be subordinated
to real estate taxes and assessments and certain other liens which are given
priority by statute. It also may be subordinated to certain tax liens (see
"--Anti-Deficiency Legislation and Other Limitations on Creditors").
In the State of Texas, indebtedness incurred for the purchase of real
property is typically secured by a deed of trust and indebtedness incurred for
the purpose of making improvements on real property is secured by a mechanic's
lien contract, both with power of sale. In all material respects, the mechanic's
lien contract has the same effect as a deed of trust.
FORECLOSURE AND OTHER REMEDIES
The laws of foreclosure vary from state to state. Foreclosure of a mortgage
generally is accomplished by judicial action. The action is initiated by the
service of legal pleadings upon all parties having an interest in the real
property. Delays in completion of the foreclosure may occasionally result from
difficulties experienced in locating necessary party defendants. Judicial
foreclosure proceedings are often not contested by any of the parties defendant.
If a mortgagee's right of foreclosure is contested, the legal proceedings
necessary to resolve the issue can be time consuming. If the court finds for a
mortgagee, it generally issues a judgment of foreclosure and appoints a referee
or other court officer to conduct the sale of the property.
Foreclosure of either a deed of trust or a mechanic's lien contract
generally is accomplished by a non-judicial trustee's sale under a specific
provision in the deed of trust which authorizes the trustee to sell the property
upon any default by the obligor under the terms of the deed of trust or the note
secured thereby. In some states, the trustee must record a notice of default and
send a copy to the obligor and to any person who has recorded a request for a
copy of notice of default and notice of sale. In addition, the trustee must
provide notice in some states to any other individual having an interest in the
real property, including any junior lienholder. In some states, the obligor has
the right to reinstate the obligation at any time following default until
shortly before the trustee's sale. In general, the obligor, or any other person
having a junior encumbrance on the real estate, may, during a reinstatement
period, cure the default by paying the entire amount in arrears plus the costs
and expenses incurred in enforcing the obligation. Generally, state law controls
the amount of foreclosure expenses and costs, including attorneys' fees, which
may be recovered by a creditor. If the deed of trust or mechanic's lien
contract, as the case may be, is not reinstated, a notice of sale must be posted
in a public place and, in most states, published for a specific period of time
in one or more newspapers. In addition, some state laws require that a copy of
the notice of sale be posted on the property and sent to all parties having an
interest in the real property.
In the case of foreclosure under a mortgage, deed of trust or mechanic's
lien contract, the sale by the referee or other designated officer or by the
trustee is at a public sale. However, because of the difficulty a potential
buyer at the sale would have in determining the exact status of title and
because the physical condition of the property may have deteriorated during the
foreclosure proceedings, it is uncommon for a third party to purchase the
property at the foreclosure sale. Instead, it is common for the creditor, or an
affiliate of the creditor, to purchase the property from the trustee or referee
for an amount equal to the unpaid principal amount of note secured by the
mortgage, deed of trust or mechanic's lien contract, accrued and unpaid interest
and the costs and expenses of foreclosure. Thereafter, subject to the right of
the obligor in some states to remain in possession during the redemption period,
the creditor will assume the burdens of ownership, including obtaining insurance
and making such repairs at its own expense as are necessary to render the
property suitable for resale. Depending upon market conditions, the ultimate
proceeds of the sale of the property may not equal the creditor's investment in
the property.
RIGHTS OF REDEMPTION
In some states, after the sale of real property pursuant to a deed of trust
or foreclosure of a mortgage, the obligor and foreclosed junior lienors are
given a statutory period in which to redeem the property from
30
<PAGE>
the foreclosure sale. In some states, redemption may occur only upon payment of
the entire unpaid balance of the cash price, earned finance charges and costs
and expenses of foreclosure. In other states, redemption may be authorized if
the former customer pays only a portion of the sums due. The effect of a
statutory right of redemption is to diminish the ability of the creditor to sell
the foreclosed property. The right of redemption could defeat the title of any
purchaser from the creditor subsequent to foreclosure or sale under a deed of
trust. Consequently, the practical effect of the redemption right is to force
the creditor to retain the property and to pay the expenses of ownership until
the redemption period has run.
ANTI-DEFICIENCY LEGISLATION AND OTHER LIMITATIONS ON CREDITORS
Certain states have imposed statutory prohibitions which limit the remedies
of a beneficiary under a deed of trust or a mortgagee under a mortgage. In some
states, statutes limit the right of the beneficiary or mortgagee to obtain a
deficiency judgment against the obligor following foreclosure or sale under a
mortgage or a deed of trust. A deficiency judgment is a personal judgment
against the obligor equal in most cases to the difference between the net amount
realized upon the public sale of the real property and the amount due to the
creditor. In some states, statutes require the beneficiary or mortgagee to
exhaust the security afforded under a deed of trust or mortgage by foreclosure
in an attempt to satisfy the full debt before bringing a personal action against
the obligor. Finally, other statutory provisions limit any deficiency judgment
against the obligor following a judicial sale to the excess of the outstanding
debt over the fair market value of the property at the time of the sale. The
purpose of these statutes is generally to prevent a beneficiary or mortgagee
from obtaining a large deficiency judgment against the obligor as a result of
low or no bids at the judicial sale.
Numerous other statutory provisions, including the federal bankruptcy laws
and state laws affording relief to debtors, may interfere with or affect the
ability of the secured mortgage creditor to realize upon collateral and/or
enforce a deficiency judgment. For example, under federal bankruptcy law,
virtually all actions (including foreclosure actions and deficiency judgment
proceedings) are automatically stayed upon the filing of a bankruptcy petition,
and often no mortgage payments are made during the course of the bankruptcy
proceeding. In a case under the bankruptcy laws, the secured creditor is
precluded from foreclosing without authorization from the bankruptcy court. In
addition, with respect to federal bankruptcy laws, a court with federal
bankruptcy jurisdiction may permit an obligor through his or her chapter 11 or
chapter 13 rehabilitative plan to cure a monetary default in respect of a
Security Instrument on such obligor's residence by paying arrearages within a
reasonable time period and reinstating the original Security Instrument payment
schedule even though the creditor accelerated the outstanding indebtedness and a
final judgment of foreclosure had been entered in state court (provided no sale
of the residence had yet occurred) prior to the filing of the obligor's
petition. Some courts with federal bankruptcy jurisdiction have approved plans,
based on the particular facts of the reorganization case, that enabled an
obligor to cure a payment default by paying arrearages over a number of years.
In addition, the laws of various states provide for moratoria on the payment of
principal of, and interest on, outstanding indebtedness by obligors meeting
certain qualifications.
Courts with federal bankruptcy jurisdiction also have indicated that the
terms of a mortgage or a deed of trust secured by property not consisting solely
of the obligor's principal residence may be modified. These courts have
suggested that such modifications may include reducing the amount of each
monthly payment, reducing the rate of interest or finance charge, altering the
repayment schedule and reducing the creditor's security interest to the value of
the residence, thus rendering the creditor a general unsecured creditor for the
difference between the value of the residence and the outstanding balance of the
indebtedness. Some courts have permitted such modifications when the mortgage or
deed of trust is secured both by the obligor's principal residence and by
personal property.
The Code provides priority to certain tax liens over the liens of a Security
Instrument. In addition, substantive requirements are imposed upon creditors in
connection with the origination of Security Instruments by numerous federal and
some state consumer protection laws. These laws include the federal
31
<PAGE>
Truth-in-Lending Act, Equal Credit Opportunity Act, Fair Credit Billing Act,
Fair Credit Reporting Act and related statutes. These federal laws and state
laws impose specific statutory liabilities upon creditors who originate Security
Instruments and who fail to comply with the provisions of such laws. In some
cases, this liability may affect assignees of the Security Instruments,
including the Issuer and the Indenture Trustee. See "--Consumer Protection Laws"
above.
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940, as
amended (the "Relief Act"), a homeowner under an Account who enters the military
service after the origination of such homeowner's Account (including a homeowner
who is a member of the National Guard or is in reserve status at the time of the
origination of the Account and is later called to active duty) may not be
charged interest above an annual rate of 6% during the period of such
homeowner's active duty status, unless a court orders otherwise upon application
of the lender. It is possible that similar actions could have an effect, for an
indeterminate period of time, on the ability of the Servicer to collect full
amounts of finance charges on certain of the Accounts. In addition, the Relief
Act imposes limitations which would impair the ability of the Servicer to
foreclose on an affected Account during the homeowner's period of active duty
status. Thus, in the event that such an Account goes into default, there may be
delays and losses occasioned by the inability to realize upon the related
Mortgaged Property in a timely fashion.
ENFORCEABILITY OF CERTAIN PROVISIONS
Upon foreclosure, courts have imposed general equitable principles. These
equitable principles are generally designed to relieve the obligor from the
legal effect of his defaults under the mortgage or deed of trust. Examples of
judicial remedies that have been fashioned include judicial requirements that
the creditor undertake affirmative and extensive actions to determine the causes
for the obligor's default and the likelihood that the obligor will be able to
cure the default. In some cases, courts have substituted their judgment for the
creditors' judgment and have required that creditors reinstate mortgages or
deeds of trust or recast payment schedules in order to accommodate obligors who
are suffering from temporary financial disability. In other cases, courts have
limited the right of creditors to foreclose if the default under the mortgage
instrument is not a monetary default, such as when the obligor fails adequately
to maintain the property or the obligor executes a second mortgage or deed of
trust affecting the property.
ENVIRONMENTAL LEGISLATION
Certain states impose a statutory lien for associated costs on property that
is the subject of a clean-up action by the state on account of hazardous wastes
or hazardous substances released or disposed of on the property. Such a lien
will generally have priority over all subsequent liens on the property and, in
certain of these states, will have priority over prior recorded liens including
the lien of a mortgage or deed of trust. In addition, under federal
environmental legislation and possibly under state law in a number of states, a
secured party which takes a deed in lieu of foreclosure or acquires a mortgaged
property at a foreclosure sale may, in certain limited circumstances, be liable
as an "owner or operator" for the costs of cleaning up a contaminated site.
Although such costs could be substantial, it is unclear whether they would be
imposed on a secured party (such as the Trust). In the event that title to a
Mortgaged Property securing an Account was acquired by the Issuer and cleanup
costs were incurred in respect of the Mortgaged Property, the Noteholders would
be adversely affected if such costs were required to be paid by the Issuer.
However, recent amendments to federal environmental legislation provide for
a "secured creditor exemption" which defines and specifies the range of
permissible actions that may be undertaken by a secured party holding security
in a contaminated facility. In addition, under the amendments, a secured party
continues to be protected from liability as an "owner or operator" after
foreclosure as long as it seeks to divest itself of the facility at the earliest
practicable commercially reasonable time on commercially reasonable terms,
taking into account market conditions and legal and regulatory requirements. The
"secured creditor exemption," however, does not necessarily affect the potential
for liability in actions under other federal or state laws which may impose
liability on "owners or operators" but do not incorporate the "secured creditor
exemption."
32
<PAGE>
SECURITY
MORTGAGE COLLATERAL
GENERAL. The Notes will be secured by assignments to the Indenture Trustee
of Collateral consisting of (i) the Mortgage Collateral, (ii) the payments
received thereon after the Cut-Off Date, (iii) the net reinvestment income of
such payments and (iv) the Servicing Agreement and the Purchase and Sale
Agreement. See "DESCRIPTION OF THE NOTES--Interest and Principal Payments."
ACCOUNTS. In order to enable the Indenture Trustee to obtain a security
interest in the mortgage, deed of trust or other security instrument, as the
case may be, and other documents and instruments underlying each Account
comprising the Mortgage Collateral, upon receipt of such documents and
instruments from the Depositor after the issuance of the Notes, the Indenture
requires the Issuer to: (i) endorse each customer's promissory note in blank and
deliver such note to be held by the Indenture Trustee until such time as such
customer's Account is paid in full or becomes subject to foreclosure
proceedings; (ii) prepare assignments of mortgages, mechanic's lien contracts or
deeds of trust, as the case may be, in recordable form, which collaterally
assign the Issuer's interest in the mortgages, mechanic's lien contracts or
deeds of trust to the Indenture Trustee; and (iii) record such assignments in
the local real estate records where the real property is located. See "RISK
FACTORS--Grant of Security Interest in Mortgage Collateral--Risks of Defective
Security Interest."
INSURANCE PROCEEDS. The Issuer will assign to the Indenture Trustee, as
additional security for the Notes, all payments due under the standard hazard
insurance policies (the "Insurance Policies") insuring the relevant Mortgaged
Property with respect to each of the Accounts comprising the Mortgage
Collateral. Because the Insurance Policies will be underwritten by different
issuers and will cover Mortgaged Properties located in various states, such
policies will not contain identical terms and conditions. The most significant
terms thereof, however, generally will be determined by state law and generally
will be similar. Most such policies typically will not cover any physical damage
resulting from the following: war, governmental actions, floods, earth
movements, nuclear reaction, hazardous wastes or substances, and theft. The
foregoing list is indicative of certain kinds of uninsured risks and is not
all-inclusive. The terms of each Account comprising the Mortgage Collateral
require the customer to maintain an Insurance Policy covering the related
mortgaged property. The terms of the Servicing Agreement require the Servicer
either to cause such Insurance Policy to be maintained in full force and effect,
or to obtain an insurance policy against certain losses with respect to each
such Account. All proceeds of any Insurance Policy collected by the Servicer
(less amounts to be applied to the restoration or repair of the mortgaged
property) will be deposited in the Collection Account. Insurance proceeds
designated for repair or restoration of a Mortgaged Property will be deposited
in a servicing account established in accordance with the terms of the Servicing
Agreement. See "THE SERVICING AGREEMENT--Insurance; Taxes."
At the time of entering into a Retail Contract or Texas Contract, Jim Walter
Homes offers each customer the opportunity to select Best Insurors, Inc.
("Best"), a licensed Florida insurance agency and a wholly-owned subsidiary of
Walter Industries, to provide the Insurance Policy required to be maintained by
such customer under the Retail Contract or Texas Contract. As of the Cut-Off
Date, 5,035 Accounts representing approximately 51% of the Aggregate Economic
Balance have Insurance Policies issued by Best.
Any losses incurred with respect to Accounts comprising the Mortgage
Collateral due to uninsured risks (including earthquakes, mudflows and floods)
or insufficient hazard insurance proceeds will result in a loss which, to the
extent that the overcollateralization existing at the time of such loss is not
sufficient to cover such loss, will result in the reduction of the principal
balance of one or more Classes of Notes without a payment in respect of
principal thereon. See "RISK FACTORS--Risks of Subordination."
INVESTMENT OF FUNDS. Subject to certain limitations set forth in the
Indenture, prior to a default or an Event of Default under the Indenture, funds
in the Collection Account will be invested by the Indenture Trustee, as directed
by the Issuer, in certain eligible investments which may include, among other
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investments, obligations of the United States or any agency thereof backed by
the full faith and credit of the United States, certain obligations issued or
fully guaranteed by the Federal Home Loan Mortgage Corporation ("Freddie Mac")
or the Federal National Mortgage Association ("Fannie Mae"), certificates of
deposit, time deposits and bankers' acceptances that are obligations of eligible
depository institutions, certain repurchase agreements entered into with
eligible depository institutions, commercial paper or other debt securities
issued by corporations meeting certain credit rating standards and other
investments acceptable to the Rating Agencies ("Eligible Investments"). If a
default or an Event of Default under the Indenture occurs and is continuing, the
Issuer shall no longer have the ability to direct the investment of funds in the
Collection Account. See "THE INDENTURE--Events of Default."
Funds in the Collection Account may be invested only in Eligible Investments
so that all investments will mature no later than two Business Days prior to the
next Payment Date. Any income or other gain from Eligible Investments will be
credited to, and any loss resulting from such investments will be charged to,
the Collection Account.
COLLECTION ACCOUNT
Prior to the Closing Date, the Collection Account will be established with,
and in the name of, the Indenture Trustee. On the Closing Date, the Issuer will
deposit cash in an amount equal to all payments (including prepayments) received
on the Accounts comprising the Mortgage Collateral since the Cut-Off Date and up
to the date that is five business days prior to the Closing Date. Thereafter,
all payments (including payments received since and including the date that is
five business days prior to the Closing Date) received in respect of the
Accounts will be deposited in the Collection Account on a weekly basis (which
will include the deposit on the last business day of each Collection Period), in
accordance with information provided by the Servicer. The Indenture Trustee will
transfer amounts in the Holding Account into the Collection Account. Prior to
any such deposit, payments received in respect of the Accounts will be held by
the Indenture Trustee in the Holding Account. See "THE SERVICING AGREEMENT--
Collection of Payments." The foregoing amounts deposited into the Collection
Account, together with the reinvestment income thereon and less Issuer Expenses,
will be available to make payments on the Notes.
CERTAIN CONTRACTUAL RIGHTS
The Issuer will assign to the Indenture Trustee as security for the Notes
all of its right, title and interest in, to and under the Purchase and Sale
Agreement and the Servicing Agreement and the rights to certain servicing
software. See "THE PURCHASE AND SALE AGREEMENT."
DESCRIPTION OF THE NOTES
The following are summaries of the material provisions of the Notes. The
following summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, the Indenture.
AVAILABLE FUNDS
"Available Funds" in respect of a Payment Date are funds equal to the sum of
(i) collections on the Accounts during the Collection Period immediately
preceding such Payment Date that are on deposit in the Collection Account as of
the close of business on the last business day of such Collection Period and
(ii) any net reinvestment income earned on funds described in clause (i) above,
during the Reinvestment Period. Available Funds will be net of Issuer Expenses
paid. "Issuer Expenses" are all of the Issuer's expenses (other than amounts due
on the Notes), including, without limitation, the fees and expenses of the Owner
Trustee, the Indenture Trustee and the fee of the Servicer. See "THE TRUST
AGREEMENT," THE INDENTURE--The Indenture Trustee" and "THE SERVICING
AGREEMENT--Servicing Fee." The "Remaining Available Funds" for a Payment Date
are the Available Funds for such Payment Date reduced by the amount of interest
due on the Notes on such Payment Date.
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INTEREST AND PRINCIPAL PAYMENTS
Interest on each Class of the Notes will be payable from Available Funds on
each Payment Date in an amount up to the Interest Accrual Amount of such Class.
The "Interest Accrual Amount" of any Class for any Payment Date is equal to
interest accrued on the Outstanding Principal Balance of such Class (after
giving effect to payments and allocations of losses on the preceding Payment
Date, if any) during the Interest Accrual Period ending on the day prior to the
Payment Date, at the Note Rate for such Class; provided, however, that such
amount shall not include interest due and payable with respect to unreimbursed
Realized Loss Amounts. The "Note Rate" of the Class A-1, Class A-2, Class A-3
and Class A-4 Notes is [ ]%, [ ]%, [ ]% and [ ]%, respectively. On or
prior to the Maturity Date, an event which would otherwise be an Event of
Default under the Indenture will not be an Event of Default (i) in respect of
the Class A-2 Notes until the Class A-1 Notes have been paid in full, (ii) in
respect of the Class A-3 Notes until the Class A-1 Notes and Class A-2 Notes
have been paid in full and (iii) in respect of the Class A-4 Notes until the
Class A-1 Notes, Class A-2 Notes and Class A-3 Notes have been paid in full.
The "Class A-1 Outstanding Principal Balance" as of any Payment Date will
equal the Class A-1 Initial Principal Balance reduced by (i) all payments, if
any, made on the Class A-1 Notes in reduction of principal balance made on all
prior Payment Dates and (ii) all Class A-1 Realized Loss Amounts with respect to
prior Payment Dates. The "Class A-1 Initial Principal Balance" is equal to
$287,750,000.
The "Class A-2 Outstanding Principal Balance" as of any Payment Date will
equal the Class A-2 Initial Principal Balance reduced by (i) all payments, if
any, made on the Class A-2 Notes in reduction of principal balance made on all
prior Payment Dates and (ii) all Class A-2 Realized Loss Amounts with respect to
prior Payment Dates. The "Class A-2 Initial Principal Balance" is equal to
$57,750,000.
The "Class A-3 Outstanding Principal Balance" as of any Payment Date will
equal the Class A-3 Initial Principal Balance reduced by (i) all payments, if
any, made on the Class A-3 Notes in reduction of principal balance made on all
prior Payment Dates and (ii) all Class A-3 Realized Loss Amounts with respect to
prior Payment Dates. The "Class A-3 Initial Principal Balance" is equal to
$45,100,000.
The "Class A-4 Outstanding Principal Balance" as of any Payment Date will
equal the Class A-4 Initial Principal Balance reduced by (i) all payments, if
any, made on the Class A-4 Notes in reduction of principal balance made on all
prior Payment Dates and (ii) all Class A-4 Realized Loss Amounts with respect to
prior Payment Dates. The "Class A-4 Initial Principal Balance" is equal to
$48,550,000.
The Class A-1 Outstanding Principal Balance, the Class A-2 Outstanding
Principal Balance, the Class A-3 Outstanding Principal Balance and the Class A-4
Outstanding Principal Balance, are each referred to herein generally as an
"Outstanding Principal Balance." The "Aggregate Outstanding Principal Balance"
as of any Payment Date is equal to the sum of the Outstanding Principal Balances
as of such Payment Date.
On any Payment Date, if Available Funds (less any interest paid to the prior
Classes of Notes, on such Payment Date) are less than the Interest Accrual
Amount for a Class of Notes, there will exist a shortfall in interest paid to
such Class of Notes; provided, however, that such amount shall not include
interest due and payable with respect to unreimbursed Realized Loss Amounts (as
to each Class of Notes, a "Class Interest Shortfall"). Class Interest Shortfalls
will be added to the amount of interest payable to the holders of such Class on
subsequent Payment Dates, subject to the availability of funds, and interest
will accrue on the amount of any Class Interest Shortfalls.
Interest will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
On each Payment Date, interest and principal payments on the Notes will be
made from Available Funds in the following order of priority (the "Available
Funds Allocation"):
FIRST, to the holders of the Class A-1 Notes, in an amount up to the
Interest Accrual Amount thereof;
SECOND, to the holders of the Class A-1 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
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THIRD, to the holders of the Class A-2 Notes, in an amount up to the
Interest Accrual Amount thereof;
FOURTH, to the holders of the Class A-2 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
FIFTH, to the holders of the Class A-3 Notes, in an amount up to the
Interest Accrual Amount thereof;
SIXTH, to the holders of the Class A-3 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
SEVENTH, to the holders of the Class A-4 Notes, in an amount up to the
Interest Accrual Amount thereof;
EIGHTH, to the holders of the Class A-4 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon;
NINTH, to the holders of the Class A-1 Notes, in an amount up to the
Class A-1 Optimal Principal Amount;
TENTH, to the holders of the Class A-1 Notes, accrued and unpaid
interest at the related Note Rate on the amount of any unreimbursed Class
A-1 Realized Loss Amounts previously allocated thereto;
ELEVENTH, to the holders of the Class A-1 Notes, in an amount up to the
amount of any unreimbursed Class A-1 Realized Loss Amounts previously
allocated thereto (including any Class A-1 Realized Loss Amount allocated
thereto on such Payment Date);
TWELFTH, to the holders of the Class A-2 Notes, in an amount up to the
Class A-2 Optimal Principal Amount;
THIRTEENTH, to the holders of the Class A-2 Notes, accrued and unpaid
interest at the related Note Rate on the amount of any unreimbursed Class
A-2 Realized Loss Amounts previously allocated thereto;
FOURTEENTH, to the holders of the Class A-2 Notes, in an amount up to
the amount of any unreimbursed Class A-2 Realized Loss Amounts previously
allocated thereto (including any Class A-2 Realized Loss Amount allocated
thereto on such Payment Date);
FIFTEENTH, to the holders of the Class A-3 Notes, in an amount up to the
Class A-3 Optimal Principal Amount;
SIXTEENTH, to the holders of the Class A-3 Notes, accrued and unpaid
interest at the related Note Rate on the amount of any unreimbursed Class
A-3 Realized Loss Amounts previously allocated thereto;
SEVENTEENTH, to the holders of the Class A-3 Notes, in an amount up to
the amount of any unreimbursed Class A-3 Realized Loss Amounts previously
allocated thereto (including any Class A-3 Realized Loss Amount allocated
thereto on such Payment Date);
EIGHTEENTH, to the holders of the Class A-4 Notes, in an amount up to
the Class A-4 Optimal Principal Amount;
NINETEENTH, to the holders of the Class A-4 Notes, accrued and unpaid
interest at the related Note Rate on the amount of any unreimbursed Class
A-4 Realized Loss Amounts previously allocated thereto; and
TWENTIETH, to the holders of the Class A-4 Notes, in an amount up to the
amount of any unreimbursed Class A-4 Realized Loss Amounts previously
allocated thereto (including any Class A-4 Realized Loss Amount allocated
thereto on such Payment Date).
The "Class A-1 Optimal Principal Amount" on any Payment Date is equal to the
product of (i) the Optimal Principal Amount for such Payment Date and (ii) a
fraction, the numerator of which is the Class A-1 Outstanding Principal Balance
for such Payment Date and the denominator of which is the Aggregate
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Outstanding Principal Balance for such Payment Date; such product not to exceed
the Class A-1 Outstanding Principal Balance.
The "Class A-2 Optimal Principal Amount" on any Payment Date is equal to the
product of (i) the Optimal Principal Amount for such Payment Date and (ii) a
fraction, the numerator of which is the Class A-2 Outstanding Principal Balance
for such Payment Date and the denominator of which is the Aggregate Outstanding
Principal Balance for such Payment Date; such product not to exceed the Class
A-2 Outstanding Principal Balance.
The "Class A-3 Optimal Principal Amount" on any Payment Date is equal to the
product of (i) the Optimal Principal Amount for such Payment Date and (ii) a
fraction, the numerator of which is the Class A-3 Outstanding Principal Balance
for such Payment Date and the denominator of which is the Aggregate Outstanding
Principal Balance for such Payment Date; such product not to exceed the Class
A-3 Outstanding Principal Balance.
The "Class A-4 Optimal Principal Amount" on any Payment Date is equal to the
product of (i) the Optimal Principal Amount for such Payment Date and (ii) a
fraction, the numerator of which is the Class A-4 Outstanding Principal Balance
for such Payment Date and the denominator of which is the Aggregate Outstanding
Principal Balance for such Payment Date; such product not to exceed the Class
A-4 Outstanding Principal Balance.
A "Class Optimal Principal Amount" is any of the Class A-1, Class A-2, Class
A-3 or Class A-4 Optimal Principal Amounts, as applicable.
The "Optimal Principal Amount" is equal to (A) on any Payment Date (i) on or
prior to the Target Overcollateralization Date or (ii) after the Target
Overcollateralization Date and on which there exists an uncured Trigger Event,
the Remaining Available Funds; and (B) on any Payment Date after the Target
Overcollateralization Date on which there does not exist an uncured Trigger
Event, the amount which, when paid as principal on the Notes, will result in
achieving or maintaining the Target Overcollateralization Level. In no event
will the Optimal Principal Amount for any Payment Date exceed the Remaining
Available Funds for such Payment Date or the Aggregate Outstanding Principal
Balance of the Notes.
An Event of Default may be cured only if the Indenture Trustee has not
accelerated the Notes.
The "Target Overcollateralization Date" is the Payment Date occurring in
April 2000.
The "Target Overcollateralization Level" as of any Payment Date, is the
level of overcollateralization that would exist if the Overcollateralization
Amount were equal to the greater of (i) the product of (x) the
Overcollateralization Percentage and (y) the Aggregate Economic Balance of the
Accounts as of the first day of the month preceding the month of such Payment
Date and (ii) the Minimum Target Overcollateralization Amount.
The "Overcollateralization Amount" as of any Payment Date, is an amount
equal to (i) the Aggregate Economic Balance of the Accounts as of the first day
of the month preceding the month of such Payment Date, less (ii) the Aggregate
Outstanding Principal Balance and all unreimbursed Realized Loss Amounts, after
giving effect to payments, but prior to the allocation of losses thereon on such
Payment Date.
The "Minimum Target Overcollateralization Amount" for any Payment Date, is
(a) an amount equal to the greater of (i) the product of (x) 10% and (y) the
Aggregate Economic Balance of the Accounts as of the first day of the month
preceding the month of such Payment Date and (ii) $16,180,055 or (b) in the
event that (i) Mid-State is no longer the Servicer, (ii) the cumulative losses
on the Accounts exceed 4.75%, 5.50%, 6.50%, 7.00% and 8.00% of the Aggregate
Economic Balance as of the Cut-Off Date, at the end of four, five, six, seven
and eight years after the Cut-Off Date, respectively, or exceed 8.00%
thereafter, or (iii) the average 60 day delinquency ratio test as defined in the
Indenture as of any Payment Date, exceeds 8.00%, and such event is continuing,
an amount equal to the greater of (x) the Aggregate Outstanding Principal
Balance of the Notes and (y) the Aggregate Economic Balance of the Accounts as
of the month preceeding the month of such Payment Date.
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The "Overcollateralization Percentage" will be a fraction, expressed as a
percentage, the numerator of which is equal to the excess of (i) the Aggregate
Economic Balance of the Accounts as of the first day of the month preceding the
month in which the Target Overcollateralization Date occurs over (ii) the
Aggregate Outstanding Principal Balance of all Classes of Notes and all
unreimbursed Realized Loss Amounts with respect to all Classes of Notes on the
Target Overcollateralization Date (following payments and allocations of losses
on the Target Overcollateralization Date) and the denominator of which is the
Aggregate Economic Balance of the Accounts as of the first day of the month
preceding the month in which the Target Overcollateralization Date occurs.
Following the Target Overcollateralization Date, unless there exists an
uncured Trigger Event, the portion, if any, of the Available Funds remaining
after the Available Funds Allocation, will be released to the Issuer, free of
the lien of the Indenture, and will no longer be available to make payments on
the Notes. Such funds will then be distributed to the owner of the beneficial
interest in the Issuer, which will initially be Mid-State.
ALLOCATION OF LOSSES
As of each Payment Date, the Indenture Trustee will calculate the Class A-1
Realized Loss Amount, the Class A-2 Realized Loss Amount, the Class A-3 Realized
Loss Amount and the Class A-4 Realized Loss Amount.
The "Class A-1 Realized Loss Amount" for any Payment Date will be equal to
the excess of (i) the Class A-1 Outstanding Principal Balance as of such Payment
Date (after application of the Class A-1 Optimal Principal Amount, but prior to
the application of losses on such Payment Date) over (ii) the Aggregate Economic
Balance of the Accounts immediately following the Collection Period related to
such Payment Date, not to exceed the Class A-1 Outstanding Principal Balance.
The "Class A-2 Realized Loss Amount" for any Payment Date will be equal to
the excess of (i) the sum of (a) the Class A-1 Outstanding Principal Balance as
of such Payment Date (after application of the Class A-1 Optimal Principal
Amount, but prior to the application of losses on such Payment Date) and (b) the
Class A-2 Outstanding Principal Balance as of such Payment Date (after
application of the Class A-2 Optimal Principal Amount, but prior to the
application of losses on such Payment Date) over (ii) the Aggregate Economic
Balance of the Accounts immediately following the Collection Period related to
such Payment Date, not to exceed the Class A-2 Outstanding Principal Balance.
The "Class A-3 Realized Loss Amount" for any Payment Date will be equal to
the excess of (i) the sum of (a) the Class A-1 Outstanding Principal Balance as
of such Payment Date (after application of the Class A-1 Optimal Principal
Amount, but prior to the application of losses on such Payment Date), (b) the
Class A-2 Outstanding Principal Balance as of such Payment Date (after
application of the Class A-2 Optimal Principal Amount, but prior to the
application of losses on such Payment Date) and (c) the Class A-3 Outstanding
Principal Balance as of such Payment Date (after application of the Class A-3
Optimal Principal Amount, but prior to the application of losses on such Payment
Date) over (ii) the Aggregate Economic Balance of the Accounts immediately
following the Collection Period related to such Payment Date, not to exceed the
Class A-3 Outstanding Principal Balance.
The "Class A-4 Realized Loss Amount" for any Payment Date will be equal to
the excess of (i) the sum of (a) the Class A-1 Outstanding Principal Balance as
of such Payment Date (after application of the Class A-1 Optimal Principal
Amount, but prior to the application of losses on such Payment Date), (b) the
Class A-2 Outstanding Principal Balance as of such Payment Date (after
application of the Class A-2 Optimal Principal Amount but prior to the
application of losses on such Payment Date), (c) the Class A-3 Outstanding
Principal Amount, but prior to the application of losses on such Payment Date)
and (d) the Class A-4 Outstanding Principal Balance as of such Payment Date
(after application of the Class A-4 Optimal Principal Amount, but prior to the
application of losses on such Payment Date) over (ii) the Aggregate Economic
Balance of the Accounts immediately following the Collection Period related to
such Payment Date, not to exceed the Class A-4 Outstanding Principal Balance.
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The Class A-1 Realized Loss Amount, the Class A-2 Realized Loss Amount, the
Class A-3 Realized Loss Amount and the Class A-4 Realized Loss Amount are
referred to herein generally as the "Realized Loss Amounts."
On each Payment Date, any Class A-1 Realized Loss Amount will be applied in
reduction of the Class A-1 Outstanding Principal Balance; any Class A-2 Realized
Loss Amount will be applied in reduction of the Class A-2 Outstanding Principal
Balance; any Class A-3 Realized Loss Amount will be applied in reduction of the
Class A-3 Outstanding Principal Balance; and any Class A-4 Realized Loss Amount
will be applied in reduction of the Class A-4 Outstanding Principal Balance; in
each case, until the Outstanding Principal Balance of such Class has been
reduced to zero.
Any reimbursement of Realized Loss Amounts with respect to a Class of Notes
will not result in a reduction of the Outstanding Principal Balance of such
Class of Notes.
REDEMPTION OF THE NOTES
All (but not less than all) of the outstanding Notes may be redeemed on any
Payment Date at the option of the Issuer, at 100% of the unpaid principal amount
of the Notes plus accrued interest, if, after giving effect to the payment of
principal to be made on such Payment Date absent such redemption, the aggregate
principal amount of each Class of Notes outstanding (prior to allocations of any
Realized Loss Amounts) is less than or equal to 10% of the original aggregate
principal amount of such Class of Notes.
WEIGHTED AVERAGE LIFE OF THE NOTES
The following information is given solely to illustrate the effect of
prepayments in respect of the Accounts on the weighted average life of each
Class of Notes and is not a prediction of the prepayment rate, the repossession
rate or the effects of repossessions that might actually be experienced in
respect of the Accounts.
The weighted average life of each Class of Notes refers to the average
amount of time that will elapse from the date of its issuance until each dollar
of principal of such Class of Notes will be repaid to the investor. The weighted
average life of the Notes will be influenced by, among other factors, the rate
at which collections are made on the Accounts. Payments on the Accounts may be
in the form of scheduled payments or prepayments (for this purpose, the term
"prepayments" includes prepayments in full and receipt of proceeds from
Insurance Policies that are not applied to the restoration of the home). It is
expected that, consistent with Mid-State's current servicing procedures,
repossessed homes will, in general, be sold in exchange for a new Account
together with a small amount of cash. Consequently, liquidations of Accounts due
to repossessions are not expected to generate much, if any, cash proceeds.
Because of the initial overcollateralization, the likelihood of prepayments
on the Accounts and the application of the Remaining Available Funds to pay
principal of the Notes in accordance with the Available Funds Allocation, it is
expected that each Class of Notes could be fully paid significantly earlier than
the Maturity Date. On the other hand, because no party is required to advance
delinquent payments on the accounts, there will be no cash flow in respect of
Accounts secured by repossessed properties until a new Account is generated upon
the sale, if any, of the related repossessed property; and such cash flow would
normally be in a lesser amount. There can be no assurance that any of the
foregoing events will occur or as to the timing of the occurrence of such
events.
The weighted average life of each Class of Notes as computed herein and the
other information in the tables below assume that: (i) all of the Accounts
constitute eight fully-amortizing fixed-rate accounts: (a) one of which has the
characteristics as set forth under the column "0-15" in the table entitled
"Remaining Years to Maturity of Accounts Comprising the Mortgage Collateral -
8.50% Accounts" (the "8.50% Accounts Table") set forth under "THE MORTGAGE
COLLATERAL"; (b) one of which has the characteristics as set forth under the
column "16-20" in the 8.50% Accounts Table; (c) one of which has the
characteristics as set forth under the column "21-25" in the 8.50% Accounts
Table; (d) one of which has the characteristics as set forth under the column
"26-30" in the 8.50% Accounts Table; (e) one of which has the characteristics as
set forth under the column "0-15" in the table entitled "Remaining Years to
Maturity
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of Accounts Comprising the Mortgage Collateral - 10.00% Accounts (the "10.00%
Accounts Table") set forth under "THE MORTGAGE COLLATERAL"; (f) one of which has
the characteristics as set forth under the column "16-20" in the 10.00% Accounts
Table; (g) one of which has the characteristics as set forth under the column
"21-25" in the 10.00% Accounts Table; and (h) one of which has the
characteristics as set forth under the column "26-30" in the 10.00% Accounts
Table; (ii) Issuer Expenses consist only of the servicing fees; the servicing
fees and losses total 1.15% of the current Aggregate Economic Balance; (iii) no
Event of Default under the Indenture occurs and no Trigger Event occurs; (iv)
there are no delinquent monthly payments; (v) the Issuer does not redeem the
Notes as provided under "Redemption of Notes" above; and (vi) the Notes are
issued on May 22, 1997 and the Class A-1, Class A-2, Class A-3, and Class A-4
Notes are assumed to bear interest at an interest rate equal to 7.46%, 7.61%,
7.80% and 8.09%, respectively. No representation is made that the Accounts will
not experience delinquencies or losses or that resales of repossessed houses
will not occur and new Accounts will not be generated.
Prepayments on Accounts that are not due to repossessions are commonly
measured relative to a prepayment standard or model. The model used in this
Prospectus, the conditional prepayment rate ("CPR"), represents an assumed
annual rate of prepayments relative to the outstanding Economic Balance of the
Accounts at the beginning of an Interest Accrual Period. The CPR is expressed as
an annual rate, which is applied monthly as a percentage of the Accounts
outstanding at the beginning of each month reduced by scheduled payments due on
the Accounts. As used in the tables below, "3.5% CPR" assumes prepayments at an
annual rate of 3.5%; "4.5% CPR" assumes prepayments at an annual rate of 4.5%;
and so on.
Since the tables below were prepared on the basis of the assumptions
specified above, there are discrepancies between the characteristics of the
actual Accounts and the characteristics of the Accounts assumed in preparing the
tables, and discrepancies between the actual Issuer Expenses and the Issuer
Expenses assumed in preparing the tables. Any such discrepancy may have an
effect upon the percentages of the remaining principal amount of each Class of
Notes outstanding and weighted average lives of such Notes set forth in each
table. In addition, since the actual Accounts have characteristics which differ
from those assumed in preparing the tables, the payments of principal on each
Class of Notes may be made earlier or later than as indicated in the tables. The
tables below were also prepared on the basis of the assumptions that there are
no delinquencies in respect of the Accounts. In the actual servicing of the
Accounts, it is expected that there will be delinquencies, losses, resales of
repossessed houses and new Accounts generated that can vary from the assumptions
used in the calculation of the tables on the following pages. In general,
repossessed houses will be sold for a new Account with little or no cash
downpayment, and there will be some period of time between the repossession of
the house and the origination of the new Account (which may have a lower
Economic Balance), during which period no collections are received in respect of
the repossessed house. Such discrepancies may have an effect on the weighted
average life of each Class of Notes and the percentages of the remaining
principal amount of such Notes set forth in each table.
It is not likely that the Accounts will prepay at any constant level of CPR
to maturity or that all the Accounts will prepay at the same rate. In addition,
the diverse remaining terms to maturity of the Accounts (which include recently
originated Accounts) could produce slower or faster payments of principal than
indicated in the table at the various levels of CPR specified even if the
weighted average remaining term to scheduled maturity of the Accounts is 24.7
years.
Investors are urged to make their investment decisions on a basis that
includes their determination as to anticipated repayment rates, repossession
rates and principal amounts of new Accounts assumed to be generated in respect
of repossessions under a variety of their own assumptions as to the matters set
forth above.
There is no assurance that prepayments of the Accounts will conform to any
level of CPR set forth above in this section or any other level of CPR. The
rates of prepayments on the Accounts are influenced by a variety of economic,
geographic, social and other factors. In general, however, if prevailing
interest rates fall, and particularly if they fall significantly below the
Effective Financing Rates of the Accounts, the
40
<PAGE>
rate of repayment on such Accounts is likely to increase. Conversely, if
interest rates rise, and particularly if they rise significantly above the
Effective Financing Rates of the Accounts, the rate of repayment would be
expected to decrease. Other factors affecting prepayment of Accounts include
changes in the homeowner's housing needs, job transfers, unemployment and the
homeowner's net equity in the properties. The CPR does not purport to be either
an historical description of the voluntary prepayment experience of the Accounts
or a prediction of the anticipated amount of prepayments of the Accounts.
Based on the assumptions described above, the following tables indicate the
resulting weighted average life of each Class of Notes and set forth the
percentage of the original principal amount of each Class of Notes that would be
outstanding immediately prior to giving effect to the payment due on each of the
dates shown at the indicated percentages of CPR.
41
<PAGE>
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT OF
THE CLASS A-1 NOTES OUTSTANDING AT THE RESPECTIVE LEVELS OF CPR
<TABLE>
<CAPTION>
PAYMENT DATE 3.5% CPR 4.5% CPR 5.5% CPR 6.5% CPR 7.5% CPR
- ------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
5/22/97................................................ 100% 100% 100% 100% 100%
4/1/98................................................. 94% 93% 92% 91% 90%
4/1/99................................................. 88% 86% 84% 82% 80%
4/1/00................................................. 82% 79% 76% 74% 71%
4/1/01................................................. 78% 74% 71% 68% 65%
4/1/02................................................. 73% 70% 66% 62% 59%
4/1/03................................................. 69% 65% 61% 57% 53%
4/1/04................................................. 65% 61% 56% 52% 48%
4/1/05................................................. 61% 56% 52% 47% 43%
4/1/06................................................. 57% 52% 47% 43% 39%
4/1/07................................................. 54% 48% 43% 39% 35%
4/1/08................................................. 50% 44% 39% 35% 31%
4/1/09................................................. 46% 40% 35% 31% 27%
4/1/10................................................. 42% 37% 32% 27% 23%
4/1/11................................................. 38% 33% 28% 24% 20%
4/1/12................................................. 35% 30% 25% 20% 17%
4/1/13................................................. 31% 26% 21% 17% 14%
4/1/14................................................. 27% 22% 18% 14% 11%
4/1/15................................................. 23% 19% 15% 12% 9%
4/1/16................................................. 20% 15% 12% 9% 7%
4/1/17................................................. 16% 12% 9% 7% 5%
4/1/18................................................. 13% 9% 7% 5% 3%
4/1/19................................................. 9% 6% 4% 3% 1%
4/1/20................................................. 6% 4% 2% 1% 0%
4/1/21................................................. 3% 1% * 0% 0%
4/1/22................................................. 1% * 0% 0% 0%
4/1/23................................................. * 0% 0% 0% 0%
4/1/24................................................. 0% 0% 0% 0% 0%
Weighted Average Life
(Years) (1).......................................... 11.29 10.31 9.44 8.66 7.98
Duration (Years) (2)................................... 6.5 6.1 5.7 5.4 5.1
Principal Payment Window
(Months) (3)......................................... 314 302 290 281 275
Expected Final Maturity................................ 7/1/23 7/1/22 7/1/21 10/1/20 4/1/20
</TABLE>
- ------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (ii) summing the results and
(iii) dividing the sum by the total principal paid on the Note.
(2) Modified Duration assuming an example yield of 7.59%.
(3) The number of months from May 22, 1997 to the month in which the final
payment of principal would be made.
* Indicates an amount greater than zero but less than 0.5% of the original
principal amount.
The Stated Maturity Date of the Class A-1 Notes is July 1, 2025 and the
weighted average life of the Class A-1 Notes is 15.82 years, in each case
assuming a prepayment speed of 0% CPR.
42
<PAGE>
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT OF
THE CLASS A-2 NOTES OUTSTANDING AT THE RESPECTIVE LEVELS OF CPR
<TABLE>
<CAPTION>
PAYMENT DATE 3.5% CPR 4.5% CPR 5.5% CPR 6.5% CPR 7.5% CPR
- ------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
5/22/97................................................ 100% 100% 100% 100% 100%
4/1/98................................................. 94% 93% 92% 91% 90%
4/1/99................................................. 88% 86% 84% 82% 80%
4/1/00................................................. 82% 79% 76% 74% 71%
4/1/01................................................. 78% 74% 71% 68% 65%
4/1/02................................................. 73% 70% 66% 62% 59%
4/1/03................................................. 69% 65% 61% 57% 53%
4/1/04................................................. 65% 61% 56% 52% 48%
4/1/05................................................. 61% 56% 52% 47% 43%
4/1/06................................................. 57% 52% 47% 43% 39%
4/1/07................................................. 54% 48% 43% 39% 35%
4/1/08................................................. 50% 44% 39% 35% 31%
4/1/09................................................. 46% 40% 35% 31% 27%
4/1/10................................................. 42% 37% 32% 27% 23%
4/1/11................................................. 38% 33% 28% 24% 20%
4/1/12................................................. 35% 30% 25% 20% 17%
4/1/13................................................. 31% 26% 21% 17% 14%
4/1/14................................................. 27% 22% 18% 14% 11%
4/1/15................................................. 23% 19% 15% 12% 9%
4/1/16................................................. 20% 15% 12% 9% 7%
4/1/17................................................. 16% 12% 9% 7% 5%
4/1/18................................................. 13% 9% 7% 5% 3%
4/1/19................................................. 9% 6% 4% 3% 1%
4/1/20................................................. 6% 4% 2% 1% 0%
4/1/21................................................. 3% 1% * 0% 0%
4/1/22................................................. 1% * 0% 0% 0%
4/1/23................................................. * 0% 0% 0% 0%
4/1/24................................................. 0% 0% 0% 0% 0%
Weighted Average Life
(Years) (1).......................................... 11.29 10.31 9.44 8.66 7.98
Duration (Years) (2)................................... 6.4 6.0 5.7 5.3 5.0
Principal Payment Window
(Months) (3)......................................... 314 302 290 281 275
Expected Final Maturity................................ 7/1/23 7/1/22 7/1/21 10/1/20 4/1/20
</TABLE>
- ------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (ii) summing the results and
(iii) dividing the sum by the total principal paid on the Note.
(2) Modified Duration assuming an example yield of 7.74%.
(3) The number of months from May 22, 1997 to the month in which the final
payment of principal would be made.
* Indicates an amount greater than zero but less than 0.5% of the original
principal amount.
The Stated Maturity Date of the Class A-2 Notes is July 1, 2025 and the
weighted average life of the Class A-2 Notes is 15.82 years, in each case
assuming a prepayment speed of 0% CPR.
43
<PAGE>
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT OF
THE CLASS A-3 NOTES OUTSTANDING AT THE RESPECTIVE LEVELS OF CPR
<TABLE>
<CAPTION>
PAYMENT DATE 3.5% CPR 4.5% CPR 5.5% CPR 6.5% CPR 7.5% CPR
- ------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
5/22/97................................................ 100% 100% 100% 100% 100%
4/1/98................................................. 94% 93% 92% 91% 90%
4/1/99................................................. 88% 86% 84% 82% 80%
4/1/00................................................. 82% 79% 76% 74% 71%
4/1/01................................................. 78% 74% 71% 68% 65%
4/1/02................................................. 73% 70% 66% 62% 59%
4/1/03................................................. 69% 65% 61% 57% 53%
4/1/04................................................. 65% 61% 56% 52% 48%
4/1/05................................................. 61% 56% 52% 47% 43%
4/1/06................................................. 57% 52% 47% 43% 39%
4/1/07................................................. 54% 48% 43% 39% 35%
4/1/08................................................. 50% 44% 39% 35% 31%
4/1/09................................................. 46% 40% 35% 31% 27%
4/1/10................................................. 42% 37% 32% 27% 23%
4/1/11................................................. 38% 33% 28% 24% 20%
4/1/12................................................. 35% 30% 25% 20% 17%
4/1/13................................................. 31% 26% 21% 17% 14%
4/1/14................................................. 27% 22% 18% 14% 11%
4/1/15................................................. 23% 19% 15% 12% 9%
4/1/16................................................. 20% 15% 12% 9% 7%
4/1/17................................................. 16% 12% 9% 7% 5%
4/1/18................................................. 13% 9% 7% 5% 3%
4/1/19................................................. 9% 6% 4% 3% 1%
4/1/20................................................. 6% 4% 2% 1% 0%
4/1/21................................................. 3% 1% * 0% 0%
4/1/22................................................. 1% * 0% 0% 0%
4/1/23................................................. * 0% 0% 0% 0%
4/1/24................................................. 0% 0% 0% 0% 0%
Weighted Average Life
(Years) (1).......................................... 11.29 10.31 9.44 8.66 7.98
Duration (Years) (2)................................... 6.4 6.0 5.6 5.3 5.0
Principal Payment Window
(Months) (3)......................................... 314 302 290 281 275
Expected Final Maturity................................ 7/1/23 7/1/22 7/1/21 10/1/20 4/1/20
</TABLE>
- ------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (ii) summing the results and
(iii) dividing the sum by the total principal paid on the Note.
(2) Modified Duration assuming an example yield of 7.94%.
(3) The number of months from May 22, 1997 to the month in which the final
payment of principal would be made.
* Indicates an amount greater than zero but less than 0.5% of the original
principal amount.
The Stated Maturity Date of the Class A-3 Notes is July 1, 2025 and the
weighted average life of the Class A-3 Notes is 15.82 years, in each case
assuming a prepayment speed of 0% CPR.
44
<PAGE>
PERCENTAGE OF ORIGINAL PRINCIPAL AMOUNT OF
THE CLASS A-4 NOTES OUTSTANDING AT THE RESPECTIVE LEVELS OF CPR
<TABLE>
<CAPTION>
PAYMENT DATE 3.5% CPR 4.5% CPR 5.5% CPR 6.5% CPR 7.5% CPR
- ------------------------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
5/22/97................................................ 100% 100% 100% 100% 100%
4/1/98................................................. 94% 93% 92% 91% 90%
4/1/99................................................. 88% 86% 84% 82% 80%
4/1/00................................................. 82% 79% 76% 74% 71%
4/1/01................................................. 78% 74% 71% 68% 65%
4/1/02................................................. 73% 70% 66% 62% 59%
4/1/03................................................. 69% 65% 61% 57% 53%
4/1/04................................................. 65% 61% 56% 52% 48%
4/1/05................................................. 61% 56% 52% 47% 43%
4/1/06................................................. 57% 52% 47% 43% 39%
4/1/07................................................. 54% 48% 43% 39% 35%
4/1/08................................................. 50% 44% 39% 35% 31%
4/1/09................................................. 46% 40% 35% 31% 27%
4/1/10................................................. 42% 37% 32% 27% 23%
4/1/11................................................. 38% 33% 28% 24% 20%
4/1/12................................................. 35% 30% 25% 20% 17%
4/1/13................................................. 31% 26% 21% 17% 14%
4/1/14................................................. 27% 22% 18% 14% 11%
4/1/15................................................. 23% 19% 15% 12% 9%
4/1/16................................................. 20% 15% 12% 9% 7%
4/1/17................................................. 16% 12% 9% 7% 5%
4/1/18................................................. 13% 9% 7% 5% 3%
4/1/19................................................. 9% 6% 4% 3% 1%
4/1/20................................................. 6% 4% 2% 1% 0%
4/1/21................................................. 3% 1% * 0% 0%
4/1/22................................................. 1% * 0% 0% 0%
4/1/23................................................. * 0% 0% 0% 0%
4/1/24................................................. 0% 0% 0% 0% 0%
Weighted Average Life (Years) (1)...................... 11.29 10.31 9.44 8.66 7.98
Duration (Years) (2)................................... 6.2 5.9 5.5 5.2 4.9
Principal Payment Window
(Months) (3)......................................... 314 302 290 281 275
Expected Final Maturity................................ 7/1/23 7/1/22 7/1/21 10/1/20 4/1/20
</TABLE>
- ------------------------
(1) The weighted average life of a Note is determined by (i) multiplying the
amount of each principal payment by the number of years from the date of
issuance to the related principal payment date, (ii) summing the results and
(iii) dividing the sum by the total principal paid on the Note.
(2) Modified Duration assuming an example yield of 8.24%.
(3) The number of months from May 22, 1997 to the month in which the final
payment of principal would be made.
* Indicates an amount greater than zero but less than 0.5% of the original
principal amount.
The Stated Maturity Date of the Class A-4 Notes is July 1, 2025 and the
weighted average life of the Class A-4 Notes is 15.82 years, in each case
assuming a prepayment speed of 0% CPR.
45
<PAGE>
REGISTRATION OF NOTES
The Notes will initially be registered in the name of Cede & Co. ("Cede"),
the nominee of the Depository Trust Company ("DTC"). DTC is a limited-purpose
trust company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code, and a "clearing agency" registered pursuant to the
provisions of Section 17A of the 1934 Act. DTC accepts securities for deposit
from its participating organizations ("Participants") and facilitates the
clearance and settlement of securities transactions between Participants in such
securities through electronic book-entry changes in accounts of Participants,
thereby eliminating the need for physical movement of Notes. Participants
include securities brokers and dealers, banks and trust companies and clearing
corporations and may include certain other organizations. Indirect access to the
DTC system is also available to others such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly ("indirect participants").
Note owners who are not Participants but desire to purchase, sell or
otherwise transfer ownership of the Notes may do so only through Participants
and indirect participants (unless and until Definitive Notes, as defined below,
are issued). In addition, Note owners will receive all payments of principal of
and interest on the Notes from the Indenture Trustee through DTC and
Participants. Note owners will not receive or be entitled to receive Notes
representing their respective interests in the Notes, except under the limited
circumstances described below.
Unless and until Definitive Notes (as defined below) are issued, it is
anticipated that the only "Noteholder" of the Notes will be Cede, as nominee of
DTC. Note owners will not be Noteholders as that term is used in the Indenture.
Note owners are only permitted to exercise the rights of Noteholders indirectly
through Participants and DTC.
While the Notes are outstanding (except under the circumstances described
below), under the rules, regulations and procedures creating and affecting DTC
and its operations (the "Rules"), DTC is required to make book-entry transfers
among Participants on whose behalf it acts with respect to the Notes and is
required to receive and transmit payments of principal of, and interest on, the
Notes. Unless and until Definitive Notes are issued, Note owners who are not
Participants may transfer ownership of Notes only through Participants by
instructing such Participants to transfer Notes, by book-entry transfer, through
DTC for the account of the purchasers of such Notes, which account is maintained
with their respective Participants. Under the Rules and in accordance with DTC's
normal procedures, transfers of ownership of Notes will be executed through DTC
and the accounts of the respective Participants at DTC will be debited and
credited.
The Notes will be issued in registered form to Note owners, or their
nominees, rather than to DTC (such Notes being referred to herein as "Definitive
Notes"), only if (i) DTC or the Issuer advises the Indenture Trustee in writing
that DTC is no longer willing or able to discharge properly its responsibilities
as nominee and depository with respect to the Notes and the Issuer or the
Trustee is unable to locate a qualified successor, (ii) the Issuer, at its sole
option elects to terminate the book-entry system through DTC, or (iii) after the
occurrence of an Event of Default, DTC, at the direction of Note owners having a
majority in percentage interests of the Note owners together, advises the
Indenture Trustee in writing that the continuation of a book-entry system
through DTC (or a successor thereto) to the exclusion of any physical notes
being issued to Note owners is no longer in the best interest of Note owners.
Upon issuance of Definitive Notes to Note owners, such Notes will be
transferable directly (and not exclusively on a book-entry basis) and registered
holders will deal directly with the Indenture Trustee with respect to transfers,
notices and payments.
DTC has advised the Issuer and the Indenture Trustee that, unless and until
Definitive Notes are issued, DTC will take any action permitted to be taken by a
Noteholder under the Notes only at the direction of one or more Participants to
whose DTC account the Notes are credited. DTC has advised the
46
<PAGE>
Issuer that DTC will take such action with respect to the Notes only at the
direction of and on behalf of the related Participants, with respect to such
Notes. DTC may take actions, at the direction of the related Participants, with
respect to some Notes which conflict with the actions taken with respect to
other Notes.
Because DTC can only act on behalf of Participants, who in turn act on
behalf of indirect participants, the ability of a Note owner to pledge its Notes
to persons or entities that do not participate in the DTC system, or to
otherwise act with respect to such Notes, may be limited due to the lack of a
physical certificate for such Notes. In addition, under a book-entry format,
Note owners may experience delays in their receipt of payments, since payments
will be made by the Indenture Trustee, to Cede, as nominee for DTC.
Neither the Issuer, the Depositor nor the Indenture Trustee will have any
responsibility for any aspect of the records relating to, or payments made on
account of, beneficial ownership interests of the Notes held by Cede, as nominee
for DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests. In the event of the insolvency of DTC, a
Participant or an indirect participant in whose name Notes are registered, the
ability of the owners of such Notes to obtain timely payment and, if the limits
of applicable insurance coverage by the Securities Investor Protection
Corporation are exceeded or if such coverage is otherwise unavailable, ultimate
payment of amounts paid on such Notes may be impaired.
LEGAL INVESTMENT CONSIDERATIONS
The Notes will not constitute "mortgage related securities" for purposes of
the Secondary Mortgage Market Enhancement Act of 1984, as amended. As a result,
the appropriate characterization of the Notes under various legal investment
restrictions, and thus the ability of investors subject to these restrictions to
purchase the Notes, is subject to significant interpretive uncertainties.
No representation is made as to the proper characterization of any Class of
Notes for legal investment or other purposes, or as to the ability of particular
investors to purchase the Notes under applicable legal investment or other
restrictions. All institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Notes constitute legal investments
for them or are subject to investment, capital or other restrictions.
ERISA CONSIDERATIONS
The Issuer, the Depositor and Walter Industries, an affiliate of the
Depositor, may each be considered a "party in interest" within the meaning of
ERISA, or a "disqualified person" within the meaning of the Code, with respect
to many employee benefit plans or retirement arrangements which are subject to
ERISA or Section 4975 of the Code (collectively, the "Plans"). While Mid-State
has no present intention to transfer the beneficial interest in the Issuer to
any person other than an affiliate of Mid-State (including a trust beneficially
owned by Mid-State or an affiliate), any transferee of such beneficial interest
(including a transferee that is not such an affiliate) may be such a "party in
interest" or "disqualified person." Prohibited transactions within the meaning
of ERISA and the Code may arise if the Notes are acquired by a Plan with respect
to which Walter Industries is a service provider or other category of "party in
interest" or "disqualified person," unless such Notes are acquired pursuant to
an exemption for transactions effected on behalf of such Plan by a "qualified
professional asset manager" or pursuant to any other available exemption.
A possible violation of the prohibited transaction rules also could occur if
a Plan purchased Notes pursuant to this offering if the Issuer, any Underwriter,
or any of their employees, affiliates or financial consultants (i) manage any
part of the Plan's investment portfolio on a discretionary basis, or (ii)
regularly provide advice pursuant to an agreement or understanding, written or
unwritten, with the individual, employer or trustee with discretion over the
assets of such Plan that such advice concerning investment
47
<PAGE>
matters will be used as a primary basis for the Plan's investment decisions.
Accordingly, the Issuer, any Underwriter, Mid-State and their respective
affiliates will not, and no Plan should, allow the purchase of Notes with assets
of any Plan if the Issuer, any Underwriter, Mid-State or any of their respective
employees, affiliates or financial consultants provide with respect to the
assets to be used to acquire such Notes the management services or advice
described in the previous sentence.
On November 13, 1986, the Department of Labor issued a final regulation
concerning the definition of what constitutes the assets of an ERISA-Covered
Plan (Reg. Section 2510.3-101, 51 Fed. Reg. 41262) (the "Final Regulation").
Under the Final Regulation, which became effective on March 13, 1987, the assets
and properties of corporations, trusts, and certain other entities in which a
Plan makes an equity investment could be deemed to be assets of the investing
plan in certain circumstances. Brown & Wood LLP, counsel for the Underwriters
and special counsel for the Issuer as to ERISA matters, is of the opinion that
the Notes will be considered debt instruments rather than equity interests of
the Issuer for ERISA purposes. Counsel's opinion on this issue is not binding on
the Department of Labor or a court reviewing such issue.
If the underlying assets of the Trust (as opposed to the Notes alone) were
to be deemed to be "plan assets" under ERISA, (a) the prudence and other
fiduciary responsibility standards of Part 4 of Subtitle B of Title I of ERISA,
applicable to investments made by Plans and their fiduciaries, would extend to
investments made by the Trust; and (b) certain transactions in which the Trust
might seek to engage could constitute "prohibited transactions" under ERISA and
the Code.
Any Plan fiduciary considering whether to purchase any Notes on behalf of a
Plan should consult with its counsel regarding the applicability of the
fiduciary responsibility and prohibited transaction provisions of ERISA and the
Code to such investment.
48
<PAGE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain of the anticipated material federal income
tax consequences of the purchase, ownership and disposition of the Notes is
based on the advice of Brown & Wood LLP, special federal income tax counsel to
the Issuer and counsel to the Underwriters, in reliance on laws, regulations,
rulings and decisions now in effect or (with respect to regulations) proposed,
all of which are subject to change either prospectively or retroactively. This
summary does not address the federal income tax consequences of an investment in
the Notes applicable to all categories of investors, some of which may be
subject to special rules. Prospective investors should consult their own tax
advisors regarding the federal, state, local and any other tax consequences to
them of the purchase, ownership and disposition of the Notes. Unless stated
otherwise, for purposes of the following summary, references to "Noteholder" and
"holder" mean the beneficial owner of a Note.
GENERAL
Brown & Wood LLP, counsel for the Underwriters and special federal income
tax counsel to the Issuer, has advised the Issuer that in its opinion the Notes
will be treated for federal income tax purposes as indebtedness and not as an
ownership interest in the Accounts nor as an equity interest in the Issuer or a
separate association taxable as a corporation. Brown & Wood LLP has further
advised the Issuer that in its opinion, under current law, the Trust will not be
treated as a taxable mortgage pool ("TMP") as defined in Code Section 7701(i).
Based on the foregoing, for federal income tax purposes, (i) Notes held by a
thrift institution taxed as a domestic building and loan association will not
constitute "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C)(v); (ii) interest on Notes held by a real
estate investment trust will not be treated as "interest on obligations secured
by mortgages on real property or on interests in real property" within the
meaning of Code Section 856(c)(3)(B); (iii) Notes held by a real estate
investment trust will not constitute "real estate assets" or "Government
securities" within the meaning of Code Section 856(c)(5)(A); and (iv) Notes held
by a regulated investment company will not constitute "Government securities"
within the meaning of Code Section 851(b)(4)(A)(i).
ORIGINAL ISSUE DISCOUNT AND PREMIUM
In the opinion of Brown & Wood LLP, the Notes may be issued with "original
issue discount" within the meaning of Section 1273(a) of the Code. Generally,
such original issue discount, if any, will equal the difference between the
"stated redemption price at maturity" of the Notes and their "issue price."
Holders of any Notes issued with original issue discount generally must include
such original issue discount in gross income for federal income tax purposes as
it accrues, in accordance with a constant interest method based on the
compounding of interest, in advance of receipt of the cash attributable to such
income.
Based on Code Sections 1271 through 1273 and Section 1275, Treasury
Regulations under such Code Sections issued on January 27, 1994, as amended on
June 14, 1996 (the "OID Regulations") and certain provisions of the Tax Reform
Act of 1986 (the "1986 Act"), the Depositor anticipates that the amount of
original issue discount required to be included in a Noteholder's income in any
taxable year will be computed as described below. The OID Regulations require
that the amount and rate of accrual of original issue discount be calculated
based on a reasonable assumed prepayment rate for the collateral supporting a
debt instrument ("Prepayment Assumption") and prescribes a method for adjusting
the amount and rate of accrual of such discount where the actual prepayment rate
differs from the Prepayment Assumption. The Prepayment Assumption will include a
reasonable assumed prepayment rate for the Accounts. The OID Regulations provide
that the Prepayment Assumption be the prepayment assumption that is used in
determining the initial offering price of such Notes, and which is not an
unreasonable assumption. The Prepayment Assumption determined by the Depositor
for the purposes of determining the amount and rate of accrual of original issue
discount is set forth in this Prospectus. No representation
49
<PAGE>
is made that the Accounts will prepay at the Prepayment Assumption or at any
other rate. The Prepayment Assumption used to price the Notes will be based in
part on an assumed level of cash recoveries on repossessed properties and also
on an assumed default rate on the Accounts. It is unclear under the 1986 Act and
the OID Regulations whether an assumption as to cash recoveries on repossessed
properties or an assumption as to a default rate on the Accounts will be
acceptable. Moreover, it is not clear whether an assumption as to the expected
timing of payments on an equity interest in a Trust is permissible. The
Depositor intends, however, to use such assumptions for purposes of computing
original issue discount on the Notes unless regulations are issued that prohibit
the use of such assumptions. There can be no assurance, however, that the
Internal Revenue Service (the "IRS") will agree with the positions taken by the
Depositor and any challenge by the IRS could result in holders being required to
include income in different amounts or at different times from those described
below.
In general, each Note will be treated as a single installment obligation
issued with an amount of original issue discount equal to the excess of its
"stated redemption price at maturity" over its "issue price." The "issue price"
of the Notes is the price at which a substantial amount of the Notes are first
sold to the public (excluding bond houses, brokers, underwriters or wholesalers)
regardless of the price paid by subsequent buyers. Generally, the stated
redemption price at maturity of a Note is its stated principal amount. Under a
DE MINIMIS rule contained in the Code, original issue discount will be
considered to be zero, however, if it equals less than 0.25% of the stated
redemption price at maturity of a Note multiplied by its weighted average
maturity. Weighted average maturity is computed, for this purpose, as the sum of
the amounts determined by multiplying (i) the number of full years from the
issue date (rounding down for partial years) until each payment included in the
stated redemption price at maturity is scheduled to be made under the Prepayment
Assumption, by (ii) a fraction, the numerator of which is the amount of each
such payment and the denominator of which is the Note's stated redemption price
at maturity.
Generally, a Noteholder must include in gross income in each taxable year,
the "daily portion," as determined below, of the original issue discount that
accrues on a Note for each day during the taxable year that the Noteholder holds
such Note, including the purchase date but excluding the disposition date. In
the case of an original holder of a Note, a calculation will be made of the
portion of the original issue discount that accrues during each successive
period (an "accrual period") that either begins or ends on the day in the
calendar year corresponding to a Payment Date and begins on the day after the
end of the immediately preceding accrual period (or on the issue date in the
case of the first accrual period). This will be done, in the case of each full
accrual period, by (a) adding (i) the present value at the end of the accrual
period (determined by using as a discount factor the original yield to maturity
of the Note as calculated under the Prepayment Assumption), and (ii) any
principal payments received during such accrual period and (b) subtracting from
the total the "adjusted issue price" of the Note at the beginning of such
accrual period. The "adjusted issue price" of a Note at the beginning of the
first accrual period is its issue price; the "adjusted issue price" of a Note at
the beginning of a subsequent accrual period is the "adjusted issue price" at
the beginning of the immediately preceding accrual period plus the amount of
original issue discount allocable to that accrual period and reduced by the
amount of any principal payment made at the end of or during that accrual
period. The original issue discount accrued during an accrual period will then
be divided by the number of days in the period to determine the daily portion of
original issue discount for each day in the accrual period. With respect to an
initial accrual period shorter than a full accrual period, the daily portions of
original issue discount must be determined according to an appropriate
allocation under a reasonable method set forth under the OID Regulations,
provided that such method is consistent with the method used to determine yield
on the Notes. The calculation of original issue discount as described above will
cause the accrual of original issue discount to either increase or decrease (but
never below zero) in a given accrual period to reflect the fact that prepayments
are occurring faster or slower than under the Prepayment Assumption.
A subsequent purchaser of a Note issued with original issue discount who
purchases the Note at a cost less than the remaining stated redemption price at
maturity but more than its adjusted issue price (i.e., at
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an "acquisition premium"), also will be required to include in gross income the
sum of the daily portions of original issue discount on the Note. In computing
the daily portions of original issue discount for such a purchaser, however, the
daily portion is reduced by the amount that would be the daily portion for such
day (computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that Note exceeds the following amount: (a) the sum of the
issue price plus the aggregate amount of original issue discount that would have
been includable in the gross income of an original Noteholder (who purchased the
Note at its issue price), (b) less any prior payments included in the stated
redemption price at maturity, and the denominator of which is the sum of the
daily portions for that Note for all days beginning on the date after the
purchase date and ending on the maturity date computed under the Prepayment
Assumption.
A purchaser of a Note who purchases the Note at a cost greater than its
remaining stated redemption price at maturity will be considered to have
purchased the Note at a premium, and may elect to amortize such premium under a
constant yield method. The Code provides that amortizable bond premium will be
treated as an offset to interest income rather than as a deductible interest
expense.
The OID Regulations permit a Noteholder to elect to accrue all interest,
discount (including DE MINIMIS market or original issue discount) and premium on
the Notes in income as interest, based on a constant yield method. If such an
election were to be made with respect to a Note with market discount, the
Noteholder would be deemed to have made an election to include in income
currently market discount with respect to all other debt instruments having
market discount that such Noteholder acquires during the year of the election or
thereafter. Similarly, a Noteholder that makes this election for a Note that is
acquired at a premium will be deemed to have made an election to amortize bond
premium with respect to all debt instruments having amortizable bond premium
that such Noteholder owns or acquires. The election to accrue interest, discount
and premium on a constant yield method with respect to a Note is irrevocable
without the consent of the IRS.
MARKET DISCOUNT
In the opinion of Brown & Wood LLP, a purchaser of a Note also may be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the rules set forth in the OID Regulations with
respect to original issue discount, "market discount" equals the excess, if any,
of (i) the Note's stated principal amount or, in the case of a Note with
original issue discount, the adjusted issue price (determined for this purpose
as if the purchaser had purchased such Note from an original holder) over (ii)
the price paid by the purchaser for such Note. Under a DE MINIMIS rule contained
in the Code, market discount with respect to a Note will be considered to be
zero if the amount allocable to the Note is less than 0.25% of the stated
redemption price at maturity of such Note multiplied by the number of complete
years to maturity of the Note remaining after the date of purchase. If market
discount on a Note is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
Note and gain equal to such allocated amount will be recognized when the
corresponding principal payment is made. Investors should consult their own
advisors regarding the application of the market discount rules and advisability
of making any of the elections allowed under Code Sections 1276 through 1278.
The 1986 Act provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount Note
acquired by the taxpayer after the date of enactment of the Act shall be treated
as ordinary income to the extent that it does not exceed the accrued market
discount at the time of such payment. The amount of accrued market discount for
purposes of determining the tax treatment of subsequent principal payments or
dispositions of the Note is to be reduced by the amount so treated as ordinary
income. This rule will not apply, however, if the Noteholder elects to include
market discount in income currently as it accrues on all market discount
obligations acquired by such Noteholder in the taxable year and thereafter.
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The 1986 Act also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, certain rules
described in the legislative history accompanying the 1986 Act will apply. Under
those rules, the holder of a market discount Note may elect to accrue market
discount either on the basis of a constant interest rate (taking into account
the Prepayment Assumption) or according to one of the following methods. For
Notes issued with original issue discount, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
original issue discount accruing during the period and the denominator of which
is the total remaining original issue discount at the beginning of the period.
For Notes issued without original issue discount, the amount of market discount
that accrues during a period is equal to the product of (i) the total remaining
market discount, multiplied by (ii) a fraction, the numerator of which is the
amount of stated interest paid during the accrual period and the denominator of
which is the total amount of stated interest remaining to be paid at the
beginning of the period. For purposes of calculating market discount under any
of the methods in the case of instruments (such as the Notes) which provide for
payments which may be accelerated by reason of prepayments of other obligations
securing such instruments, the Prepayment Assumption will apply. Regulations are
to provide similar rules for computing the accrual of amortizable note premium
on instruments payable in more than one principal installment.
A holder of a Note who acquired such Note at a market discount also may be
required to defer, until the maturity date of such Note or its earlier
disposition in a taxable transaction, the deduction of a portion of the amount
of interest that the holder paid or accrued during the taxable year on
indebtedness incurred or maintained to purchase or carry the Note in excess of
the aggregate amount of interest (including original issue discount) includable
in such holder's gross income for the taxable year with respect to such Note.
The amount of such net interest expense deferred in a taxable year may not
exceed the amount of market discount accrued on the Note for the days during the
taxable year on which the holder held the Note and, in general, would be
deductible when such market discount is includable in income. The amount of any
remaining deferred deduction is to be taken into account in the taxable year in
which the Note matures or is disposed of in a taxable transaction. In the case
of a disposition in which gain or loss is not recognized, in whole or in part,
any remaining deferred deduction will be allowed to the extent gain is
recognized on the disposition. The deferral rule does not apply if the
Noteholder elects to include such market discount in income currently as it
accrues on all market discount obligations acquired by such Noteholder in that
taxable year and thereafter.
Because the regulations described above have not been issued, it is
impossible to predict what effect those regulations might have on the tax
treatment of a Note purchased at a discount or premium in the secondary market.
SALE OR REDEMPTION OF NOTES
In the opinion of Brown & Wood LLP, if a Note is sold or redeemed, the
seller will recognize gain or loss equal to the difference between the amount
realized on the sale or redemption and the seller's adjusted basis in the Note.
Such adjusted basis generally will equal the cost of the Note to the seller,
increased by any original issue discount and market discount included in the
seller's gross income with respect to the Note, and reduced by payments included
in the stated redemption price at maturity previously received by the seller and
by any amortized premium. Similarly, a holder who receives a payment which is
part of the stated redemption price at maturity of a Note will recognize gain
equal to the excess, if any, of the amount of the payment over such holder's
adjusted basis in the Note. A holder of a Note who receives a final payment
which is less than such holder's adjusted basis in the Note will generally
recognize a loss. In general, such gain or loss will be a capital gain or loss,
provided that the Note is held as a "capital asset" (generally, property held
for investment) within the meaning of Code Section 1221.
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FOREIGN INVESTORS
In the opinion of Brown & Wood LLP, generally, payments of interest
(including any payment with respect to accrued original issue discount) on the
Notes to a Noteholder who is a non-United States person ("foreign person") not
engaged in a trade or business within the United States, will not be subject to
Federal income or withholding tax if (i) such Noteholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in Mid-State or any parent corporation thereof, (ii) such
Noteholder is not a controlled foreign corporation (within the meaning of Code
Section 957) related to Mid-State or any parent corporation thereof and (iii)
such Noteholder complies with certain identification requirements (including
delivery of a statement, signed by the Noteholder under penalty of perjury,
certifying that such Noteholder is a foreign person and providing the name and
address of such Noteholder). As used herein, the term "foreign person" means a
person that is, for United States Federal income tax purposes, someone other
than (i) a citizen or resident of the United States, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any political subdivision thereof, (iii) an estate whose
income is subject to United States federal income tax regardless of its source
or (iv) a trust if a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust.
If a tax is withheld by the withholding agent, the Noteholder would be
entitled to a refund of such tax if such Noteholder can prove it is a foreign
person and it is not a 10 percent shareholder of Mid-State or any parent
corporation thereof, or a controlled foreign corporation related to Mid-State or
any parent corporation thereof. A Noteholder may be required to file a U.S.
Federal income tax return to obtain a refund. Foreign investors should consult
their tax advisors regarding the potential imposition of the 30 percent
withholding tax.
BACKUP WITHHOLDING
In the opinion of Brown & Wood LLP, federal income tax laws provide for
"backup withholding" of tax at a rate of 31% in certain circumstances on
"reportable payments," which include payments of principal, interest and
original issue discount (determined in any case as if the Noteholder were the
original holder of the Note), but not market discount, on a Note and of the
proceeds of the disposition of a Note. Persons subject to the requirement of
backup withholding include, in certain circumstances, the Depositor, the Issuer,
the paying agent of the Issuer, a person who collects a payment of interest or
original issue discount as a custodian or nominee on behalf of the Noteholder
and a "broker" (as defined in applicable Treasury regulations) through which the
Noteholder receives the proceeds of the retirement or other disposition of a
Note. Backup withholding applies only if the Noteholder, among other things, (1)
fails to furnish a social security number or other taxpayer identification
number to the person subject to the requirement of backup withholding, (2)
furnishes an incorrect taxpayer identification number to such person, (3) fails
to report properly interest or dividends or (4) under certain circumstances,
fails to provide to such person a certified statement, signed under penalty of
perjury, that the taxpayer identification number furnished is the correct number
and that such Noteholder is not subject to backup withholding.
Backup withholding will not apply, however, with respect to certain payments
made to Noteholders, including payments to certain exempt recipients (such as
tax-exempt organizations) and to certain foreign persons (as discussed under
"Foreign Investors" above). Noteholders should consult their tax advisors
regarding their qualification for exemption from backup withholding and the
procedure for obtaining such an exemption.
The amount of any "reportable payments" made by the Issuer during each
calendar year and the amount of tax withheld, if any, with respect to payments
on the Notes will be reported to the Noteholders and to the IRS.
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TAXABLE MORTGAGE POOLS
Under Code section 7701(i), an entity substantially all the assets of which
consist of mortgage loans and which does not elect REMIC status may be
classified as a taxable mortgage pool only if it is "the obligor under debt
obligations with two or more maturities." On August 4, 1995 the IRS issued
Treasury regulations under Section 7701(i) (the "TMP Regulations"). Because the
Notes will pay principal PRO RATA in the absence of losses on the Accounts and
will have the same Maturity Dates, the Trust will not be classified as a TMP.
THE INDENTURE
The following summaries describe the material provisions of the Indenture
not described elsewhere in this Prospectus. The summaries do not purport to be
complete and are qualified in their entirety by reference to the provisions of
the Indenture. Where particular provisions or terms used in the Indenture are
referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries. The Notes will be secured
under the Indenture.
NEGATIVE COVENANTS
The Issuer will not, among other things, engage in any business or activity
other than in connection with, or relating to, the issuance of Notes and the
purchase of the Accounts or the preservation of the Trust and the release of
assets therefrom pursuant to the Indenture and the Trust Agreement. See "THE
ISSUER."
REVIEW OF ACCOUNT DOCUMENTS
Within 90 days after the Closing Date, the Indenture Trustee will review the
Mortgage Collateral documents with respect to each Account that is part of the
Mortgage Collateral to determine that all documents required to be delivered
have been delivered, that they have been executed as required and that they
relate to the Accounts listed on the Schedule of Accounts attached to the
Indenture. Upon discovery that any Mortgage Collateral document is missing or
defective in a materially adverse manner, the Indenture Trustee will notify the
Servicer and the Issuer.
Within 90 days of the earlier of discovery by or notice to the Issuer that
any Mortgage Collateral document is missing or defective and such omission or
defect materially and adversely affects the interest of the Noteholders in an
Account, the Issuer is required to use its best efforts to cure such omission or
defect. If such omission or defect is not or cannot be cured within such 90-day
period or, with the prior written consent of the Indenture Trustee, such longer
period as specified in such consent, the Issuer is required to either (i)
deposit in the Collection Account an amount equal to 100% of the current
Economic Balance of the affected Account, at which time such affected Account
will be released from the lien of the Indenture or (ii) remove such Account from
the lien of the Indenture and substitute one or more qualified substitute
accounts.
In order to be a "qualified substitute account," an account must comply with
the representations and warranties described under "THE
INDENTURE--Representations and Warranties" below, and must have an Economic
Balance not not less than the Economic Balance of, and an Effective Financing
Rate not less than the Effective Financing Rate of, the Account for which it is
being substituted, all as more specifically set forth in the Indenture.
The obligation of the Issuer to cure any such omission or defect or to
repurchase or substitute for the affected Account will be the sole remedy
available to the Indenture Trustee or Noteholders in respect of the related
omission or defect.
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REPRESENTATIONS AND WARRANTIES
In the Indenture the Issuer will make representations and warranties with
respect to each Account that constitutes part of the Mortgage Collateral to the
effect that as of the Closing Date:
(a) the information set forth with respect to such Account in the
Schedule of Accounts attached to the Indenture is true and correct as of the
date as of which such information is given;
(b) the related building or installment sale contract, as the case may
be, has been duly executed by the parties thereto and the duties to be
performed thereunder prior to the date the first payment in connection with
such contract is due have been performed;
(c) the Mortgage Collateral documents have been duly executed by the
Account obligor and, to the extent required under local law for recordation
or enforcement, properly acknowledged;
(d) the mortgages have been properly recorded as required by law and
such documents constitute a valid first priority lien upon and secure title
to the property described therein, which in each case, is a single family
detached dwelling, and such Mortgage Collateral documents are enforceable in
accordance with their respective terms except as enforceability thereof may
be limited by bankruptcy, insolvency, moratorium and other laws affecting
creditors' rights generally and by general principles of equity (whether
applied in a proceeding in law or at equity);
(e) the Issuer is the sole owner of each Account that is part of the
Mortgage Collateral and has good title to such Account and full right and
authority to grant a lien or security interest on such Account to the
Indenture Trustee and, upon delivery of the related Mortgage Collateral
documents to the Indenture Trustee, the Indenture Trustee will have a valid
and perfected lien or security interest in such Account;
(f) all costs, fees, intangible, documentary, recording taxes and
expenses incurred in making, closing and recording such Account and the
related mortgage and in connection with the issuance of the Notes, have been
paid;
(g) no part of the property purporting to secure any such Account has
been, or shall have been, released from the lien or security title of the
related mortgage, deed of trust, mechanic's lien contract or other security
agreement except for property securing Accounts which have prepaid in full
between the Cut-Off Date and the date that is five business days prior to
the Closing Date which amounts shall be deposited in the Collection Account
on or before the Closing Date;
(h) except to the extent permitted by the Servicing Agreement, no term
or provision of any Account that is part of the Mortgage Collateral has been
or will be altered, changed or modified in any way by the Servicer or the
Issuer without the consent of the Indenture Trustee;
(i) Mid-State and the Issuer acquired title to the Accounts in good
faith, for value and without notice of any adverse claim;
(j) the promissory note or installment contract with respect to each
Account evidences a homeowner's obligation to pay the Gross Receivable
Amount of the related Account with fully amortizing level monthly payments
and each bears a fixed finance charge rate. Each promissory note or
installment contract has an original term to maturity not in excess of 30
years; no less than 87% of the promissory notes or installment contracts
with respect to each Account that have a balance greater than zero were
originated from January 1995 through February 1997 with the exception of
promissory notes or installment contracts which represent subsequent resales
of repossessed houses that secured promissory notes or installment contracts
originated during such period;
(k) except as disclosed in the Indenture, there is no right of
rescission, setoff, defense or counterclaim to the promissory note,
installment contract, mortgage, mechanic's lien contract or other security
agreement with respect to any Account, including both the obligation of the
Account obligor
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to pay the unpaid balance of the cash price or finance charge on such
promissory note or installment contract and the defense of usury;
furthermore, neither the operation of any of the terms of the promissory
note, installment contract, mortgage, mechanic's lien contract or other
security agreement with respect to any Account nor the exercise of any right
thereunder will render such promissory note, installment contract, mortgage,
mechanic's lien contract or other security agreement unenforceable, in whole
or in part, or subject such promissory note or mortgage to any right of
rescission, setoff, counterclaim or defense, including the defense of usury,
and no such right of rescission, setoff, counterclaim or defense has been
asserted with respect thereto;
(l) as of the Closing Date, there are no mechanics' liens or claims for
work, labor or material (and to the best of the Issuer's knowledge, no
rights or claims are outstanding that under law could give rise to such
lien) affecting any mortgaged property which are or may be a lien prior to,
or equal with, the lien of the mortgage, mechanic's lien contract or other
security agreement thereon;
(m) except as disclosed in the Indenture, the promissory note or
installment contract with respect to each Account at origination complied in
all material respects with applicable local, state and federal laws,
including, without limitation, usury, equal credit opportunity,
truth-in-lending and disclosure laws, and consummation of the transactions
contemplated hereby will not involve the violation of any such laws;
(n) as of the Closing Date, with respect to each deed of trust with
respect to any Account, a trustee, duly qualified under applicable law to
serve as such, is properly designated, serving and named in such deed of
trust;
(o) there has been no fraud, dishonesty, misrepresentation or negligence
on the part of the originator or Account obligor in connection with the
origination of the promissory note or installment contract with respect to
any Account or in connection with the sale of the related Account; and
(p) to the best knowledge of the Issuer, except for Mortgaged Properties
for which insurance proceeds are available, each Mortgaged Property is free
of damage which materially and adversely affects the value thereof.
Within 90 days of the earlier of discovery by or notice to the Issuer of any
breach of a representation or warranty which materially and adversely affects
the interest of the Noteholders in an Account, the Issuer is required to use its
best efforts to cure such breach in all material respects. If such breach is not
or cannot be cured within such 90-day period or, with the prior written consent
of the Indenture Trustee, such longer period as specified in such consent, the
Issuer is required to either (i) deposit in the Collection Account an amount
equal to 100% of the current Economic Balance of the affected Account, at which
time such affected Account will be released from the lien of the Indenture or
(ii) remove such Account from the lien of the Indenture and substitute one or
more qualified substitute accounts.
In order to be a "qualified substitute account," an account must comply with
the representations and warranties set forth above and must have an Economic
Balance not less than the Economic Balance of, and an Effective Financing Rate
not less than the Effective Financing Rate of, the Account for which it is being
substituted all as more specifically set forth in the Indenture.
The obligation of the Issuer to cure any such breach or to repurchase or
substitute for the affected Account will be the sole remedy available to the
Trustee or Noteholders in respect of the related breach.
MODIFICATION OF INDENTURE
With the consent of the holders of Notes evidencing not less than 50% of the
Voting Rights of each Class of Notes adversely affected, the Indenture Trustee
and the Issuer may execute a supplemental indenture to add provisions to, or
change in any manner or eliminate provisions of, the Indenture or modify (except
as provided below) in any manner the rights of the holders of the Notes.
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Without the consent of the holders of each outstanding Note affected
thereby, no supplemental indenture shall (a) change the Maturity Date, or the
Payment Date for any installment of interest on, any Note or reduce the
principal amount thereof, the interest rate thereon or the redemption price with
respect thereto, or change the earliest date on which any Note may be redeemed
or any place of payment where, or the coin or currency in which, any Note or any
interest thereon is payable or impair the right to institute suit for the
enforcement of certain provisions of the Indenture regarding payment, (b) reduce
the percentage of the Voting Rights, the consent of the holders of which is
required for any supplemental indenture, or the consent of the holders of which
is required for any waiver of compliance with certain provisions of the
Indenture, or of certain defaults thereunder and their consequences as provided
for in the Indenture, (c) modify the provisions of the Indenture relating to the
sale of property subject to the lien under the Indenture or specifying the
circumstances under which such a supplemental indenture may not change the
provisions of the Indenture without the consent of the holders of each
outstanding Note affected thereby, as applicable, (d) modify or alter the
provisions of the Indenture regarding the voting of Notes held by the Issuer or
an affiliate of the Issuer, (e) permit the creation of any lien ranking prior to
or on a parity with the lien of the Indenture with respect to any part of the
property subject to the lien under the Indenture or terminate the lien of the
Indenture on any property at any time subject thereto or deprive the holder of
any Note of the security afforded by the lien of the Indenture or (f) modify any
of the provisions of the Indenture in such manner as to affect the calculation
of the principal and interest payable on any Note.
VOTING
The voting rights assigned to each Class of Notes (the "Voting Rights") will
be a fraction, expressed as a percentage, the numerator of which is equal to the
aggregate outstanding principal amount of such Class of Notes and the
denominator of which is equal to the aggregate outstanding principal amount of
all Classes of Notes.
EVENTS OF DEFAULT
An Event of Default with respect to the Notes is defined in the Indenture as
one or more of the following events: (i) a default in the payment of any amount
due under the Notes by the Maturity Date; (ii) a failure to apply funds in the
Collection Account in accordance with the Indenture and such failure continues
for a period of two days; (iii) a default in the payment when due of any
interest on any Class of Notes and the expiration of a 30-day grace period; (iv)
the failure to pay the Outstanding Principal Balance of each Class of Notes on
the Maturity Date; (v) a default in the observance of certain negative covenants
in the Indenture; (vi) a default in the observance of any other covenant in the
Indenture and the continuation of any such default for a period of thirty days
after notice to the Issuer by the Indenture Trustee or to the Issuer and the
Indenture Trustee by the holders of Notes entitled to at least 40% of the Voting
Rights, such written notice specifying the Event of Default and stating that
such notice is a "Notice of Default;" or (vii) certain events of bankruptcy or
insolvency with respect to the Issuer. Notwithstanding the foregoing, on or
prior to the Maturity Date, any of the events described in the preceding
sentence will not be an Event of Default (i) in respect of the Class A-2 Notes
until the Class A-1 Notes have been paid in full, (ii) in respect of the Class
A-3 Notes until the Class A-1 Notes and Class A-2 Notes have been paid in full
and (iii) in respect of the Class A-4 Notes until the Class A-1 Notes, Class A-2
Notes and Class A-3 Notes have been paid in full.
RIGHTS UPON EVENT OF DEFAULT
The Indenture provides that the Indenture Trustee may exercise remedies on
behalf of the Noteholders only if an Event of Default has occurred and is
continuing. The Indenture Trustee shall proceed, in its own name, subject to the
Indenture, to protect and enforce its rights and the rights of the Noteholders
by such remedies provided for in the Indenture as the Indenture Trustee shall
deem most effectual to protect and enforce such rights.
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On or prior to the Maturity Date, upon the occurrence of an Event of
Default, the Indenture Trustee or the holders entitled to at least 66 2/3% of
the Voting Rights of the Class of Notes with the lowest numerical Class
designation then outstanding may declare the principal of the Notes to be
immediately due and payable; provided, however, that such Class of Notes or the
Indenture Trustee may make such declaration only if the Event of Default
affects, and in the case of a default in the payment of the Notes such payment
default relates to, the Class of Notes with the lowest numerical Class
designation then outstanding. Upon such declaration, the Indenture Trustee may,
or at the direction of the holders entitled to at least 66 2/3% of the Class of
Notes with the lowest numerical Class designation then outstanding shall, pursue
one or more remedies subject to, and in accordance with the terms of the
Indenture, including without limitation, selling the Accounts at one or more
public or private sales. Notwithstanding the acceleration of the maturity of the
Notes, the Indenture Trustee shall refrain from selling the Accounts and
continue to apply all amounts received on the Accounts to payments due on the
Notes in accordance with their terms if, among other conditions specified in the
Indenture, (i) the Indenture Trustee determines that anticipated collections on
the Accounts would be sufficient to pay the Class of Notes with the lowest
numerical Class designation then outstanding and (ii) the Indenture Trustee has
not been otherwise directed by the holders of all the Notes. On or prior to the
Maturity Date, a Class of Notes which does not have the lowest numerical Class
designation then outstanding will not have any right to direct the Indenture
Trustee to pursue any remedies or actions under the Indenture.
After the Maturity Date, upon the occurrence of an Event of Default, the
Indenture Trustee or the holders entitled to at least 66 2/3% of the Voting
Rights of any Class of Notes (provided that the holders entitled to at least 66
2/3% of the Voting Rights of each Class of Notes with a lower numerical Class
designation then outstanding consent) may declare the principal of the Notes to
be immediately due and payable. Upon such declaration, the Indenture Trustee
may, or at the direction of the holders entitled to at least 66 2/3% of the
Class of Notes that made or consented to such declaration, shall pursue one or
more remedies subject to and in accordance with the terms of the Indenture,
including without limitation selling the Accounts at one or more public or
private sales. Notwithstanding the acceleration of the maturity of the Notes,
the Indenture Trustee shall refrain from selling the Accounts and continue to
apply all amounts received on the Accounts to payments due on the Notes in
accordance with their terms if, among other conditions specified in the
Indenture, (i) the Indenture Trustee determines that anticipated collections on
the Accounts would be sufficient to pay the Classes of Notes that directed, made
or consented to the declaration of the principal of the Notes to be immediately
due and payable (or sufficient to pay all the Classes of Notes then outstanding
if the Indenture Trustee has made such declaration without direction from any of
the holders of Notes) and (ii) the Indenture Trustee has not been otherwise
directed by the holders of all the Notes.
Subject to the provisions of the Indenture relating to the duties of the
Indenture Trustee, if an Event of Default shall occur and be continuing, the
Indenture Trustee shall be under no obligation to exercise any of the rights or
powers under the Indenture at the request or direction of any of the holders of
Notes, unless such holders have offered to the Indenture Trustee security or
indemnity satisfactory to it against loss, liability or expense incurred in
compliance with such request. Subject to such provisions for indemnification and
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the then outstanding Notes (or in the case of any action
described in the immediately preceding two paragraphs, the holders of Notes
otherwise required to take such action) shall have the right to direct the time,
method and place of conducting any proceeding or any remedy available to the
Indenture Trustee or exercising any trust or power conferred on the Indenture
Trustee, and the holders of a majority in principal amount of the Notes then
outstanding may, in certain cases, waive any default with respect thereto,
except a default in the payment of principal or interest or a default in respect
of a covenant or provision of the Indenture that cannot be modified without the
waiver or consent of the holder of each outstanding Note affected thereby. See
"DESCRIPTION OF THE NOTES--Registration of the Notes."
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TRIGGER EVENTS
A "Trigger Event" under the Indenture includes the occurrence of any of the
following events:
(i) the Issuer fails to make a payment due under the Indenture and
such failure continues for two business days;
(ii) the Servicer fails to make a required payment or deposit due
under the Servicing Agreement and such failure continues for
four business days;
(iii) an Event of Default (as defined in the Servicing Agreement)
occurring by reason of (i) the Servicer's failure to perform
any covenants or agreements of the Servicer contained in the
Servicing Agreement; (ii) certain events of insolvency in
respect of the Servicer; or (iii) any representation or
warranty made by the Servicer pursuant to the Servicing
Agreement proves to be incorrect;
(iv) a breach of any covenant of the Servicer in the Servicing
Agreement which may have a materially adverse effect on the
Servicer or its performance under the Servicing Agreement that
is not cured within 60 days after the Servicer becomes aware
thereof or after notice thereof from any Person;
(v) any representation or warranty by Mid-State in the Purchase and
Sale Agreement, or any representation or warranty by the Issuer
in the Indenture, is incorrect and such breach may have a
materially adverse effect on the Issuer or the Noteholders and
is not cured, or the related Account is not substituted for or
repurchased by Mid-State and in either case released from the
lien of the Indenture, within 90 days after notice thereof from
the Indenture Trustee;
(vi) certain events of insolvency in respect of the Issuer;
(vii) the Purchase and Sale Agreement, the Servicing Agreement or the
Indenture ceases to be in full force and effect or;
(viii) the lien of the Indenture ceases to be effective or ceases to
be of a first priority.
LIMITATIONS ON SUITS
No holder of any Note will have the right to institute any proceedings,
judicial or otherwise, with respect to the Indenture, or for the appointment of
a receiver or trustee, or for any other remedy under the Indenture, unless (a)
such holder previously has given to the Indenture Trustee written notice of a
continuing Event of Default, (b) the holders of Notes entitled to not less than
40% of the Voting Rights (in the case of a declaration of the Notes to be
immediately due and payable, sale, foreclosure, or other action with respect to
the Accounts, the required holders of Notes as set forth in the Indenture and
described herein under "THE INDENTURE --Rights Upon Events of Default") have
made written request of the Indenture Trustee to institute such proceedings in
its own name as Indenture Trustee and have offered the Indenture Trustee
reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request, (c) the Indenture Trustee has for 60 days after
its receipt of such notice neglected or refused to institute any such proceeding
and (d) 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 in
principal amount of the then outstanding Notes.
NON-PETITION
The Indenture will provide that no holder of a Class of Notes will have the
right, either directly or through an affiliate, to petition or otherwise invoke
the process of any court or government authority for the purpose of commencing
or sustaining a case against the Issuer under any Federal or state bankruptcy,
insolvency or similar law or appointing a receiver, liquidator, assignee,
trustee, custodian, sequester or other similar official of the Issuer or any
substantial part of its property, or ordering the winding up or liquidation of
the affairs of the Issuer, other than (i) on or prior to the Maturity Date, the
holders entitled to at least 63 2/3% of the Voting Rights of the Class of Notes
with the lowest numerical Class designation
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then outstanding, and (ii) after the Maturity Date the holders entitled to at
least 100% of the Voting Rights of any Class of Notes (provided that the holders
entitled to at least 100% of the Voting Rights of each Class of Notes with a
lower numerical Class designation then outstanding consent).
REPORTS TO NOTEHOLDERS
On each Payment Date the Indenture Trustee is required to deliver to the
Noteholders a written report setting forth the amount of the quarterly payment
which represents principal and the amount which represents interest (in each
case on a per individual Note basis), and the remaining outstanding principal
amount of an individual Note after giving effect to the payment of principal
made on such Payment Date.
ISSUER'S ANNUAL COMPLIANCE STATEMENT
The Issuer will be required to file annually with the Indenture Trustee a
written statement as to the fulfillment of its obligations under the Indenture.
SATISFACTION AND DISCHARGE OF INDENTURE
The Indenture will be discharged in respect of the Accounts upon the
delivery to the Indenture Trustee for cancellation of all the Notes or, with
certain limitations, upon deposit with the Indenture Trustee of funds sufficient
for the payment in full of all the Notes.
THE INDENTURE TRUSTEE
First Union National Bank of Florida, a national banking association, will
be the Indenture Trustee under the Indenture.
THE SERVICING AGREEMENT
GENERAL
The Accounts will be serviced by the Servicer under the Servicing Agreement
between the Servicer and the Issuer, which will be assigned to the Indenture
Trustee as additional security for the Notes. The following summaries describe
the material provisions of the Servicing Agreement. The summaries do not purport
to be complete and are subject to, and qualified in their entirety by reference
to, the provisions of the Servicing Agreement and the Indenture, and where
particular provisions or terms used in the Servicing Agreement or the Indenture
are referred to, the actual provisions (including definitions of terms) are
incorporated by reference as part of such summaries. The offices of the Servicer
are located at 1500 North Dale Mabry Highway, Tampa, Florida 33607. The
Servicer, as Depositor, will be the settlor and initially the sole beneficiary
of the Issuer. The Servicer will perform the services described below and set
forth in the Servicing Agreement.
COLLECTION OF PAYMENTS
The Servicer will service the Accounts and will provide certain accounting
and reporting services with respect to the Accounts. The Servicer will be
obligated to service the Accounts generally in accordance with certain specific
standards set forth in the Servicing Agreement and otherwise in accordance with
reasonable and prudent servicing standards that are employed by a prudent
servicer with respect to the servicing of accounts held in its own portfolio and
in accordance with the Servicer's past practices. Although the Servicer will be
responsible for servicing the Accounts, the Servicer will enter into a
subservicing agreement with Jim Walter Homes pursuant to which Jim Walter Homes
will perform certain day-to-day servicing functions, such as following up on
delinquent accounts and initiating foreclosure proceedings, in accordance with
the standards and provisions of the Servicing Agreement.
Generally, all payments received on the Mortgage Collateral will be
deposited on a daily basis in a holding account (the "Holding Account")
established with and in the name of First Union National Bank of Florida, as
custodian for itself as the Indenture Trustee, prior to the Closing Date. The
Servicer will transfer the payments attributable to the Mortgage Collateral, net
of the applicable servicing fee and other permitted deductions, into the
Collection Account.
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The Servicer will perform certain monitoring and reporting functions for the
Indenture Trustee, including the preparation and delivery of monthly reports to
the Indenture Trustee covering the current payments and prepayments in full
received with respect to the Accounts and reports covering defaulted
Accounts.
SERVICING FEE
The servicing fee will be calculated and paid monthly based upon the number
of Accounts being serviced as of the end of the preceding month. No such fee
will be paid, however, on Accounts that have resulted in repossession. The
servicing fee will be calculated at $25 per Account outstanding per month. The
servicing fee will be paid to the Servicer out of the Holding Account upon
submission of a withdrawal request in accordance with the Servicing Agreement.
In addition to the servicing fee, the Servicer will receive all assumption fees,
late payment charges, interest on taxes and insurance paid on behalf of the
Accounts and similar charges, to the extent such fees and expenses are collected
from obligors.
Out of its servicing fee, the Servicer is obligated to pay normal expenses
and disbursements incurred in connection with servicing the Accounts, including
the fees and disbursements of its independent accountants and expenses incurred
in connection with reports to the Indenture Trustee. Fees and expenses incurred
in connection with realization upon defaulted Accounts are reimbursable from the
Holding Account.
INSURANCE; TAXES
The Servicer will not be required to maintain escrow accounts for collection
of taxes or premiums on Insurance Policies on the Accounts. The terms of each
Account require the obligor to maintain a standard Insurance Policy covering the
property underlying such Account. The standard Insurance Policy is generally in
the form of the fire insurance policy with extended coverage that is customary
in the state in which the Mortgaged Property is located. Such standard forms
vary from state to state but generally cover damage by fire, lightning and
windstorm, subject to certain conditions and exclusions. Other causes of damage
(including without limitation floods and earth movements) are not covered. The
Servicing Agreement requires the Servicer to cause such a policy to be
maintained in full force and effect or to maintain a blanket insurance policy
insuring against hazard and certain other losses with respect to each such
Account. The Servicer or Jim Walter Homes, as subservicer, will be required to
monitor the customer's payment of insurance and taxes. If such payments are not
made, the Servicer will be required to make such payments and will not be
reimbursed for such payments except to the extent such amounts are collected
from the obligor, from a subservicer or to the extent recoverable as liquidation
expenses.
If the Servicer obtains an Insurance Policy on behalf of an obligor, it
normally does so through an insurance agency that is an affiliate of the
Servicer, and the reinsurer, if any, of such Insurance Policy is an affiliate of
the Servicer.
REALIZATION UPON DEFAULTED ACCOUNTS
The Servicer will foreclose upon or otherwise comparably convert the
ownership of the property securing any Account that comes into default and as to
which no satisfactory arrangements can be made for collection of delinquent
amounts. In connection with such foreclosure or other conversion, the Servicer
will follow such practices and procedures specified in the Servicing Agreement
as are consistent with its customary servicing procedures. In this regard, the
Servicer may sell the property at a foreclosure or a trustee's sale. Generally,
however, it is expected that the property will be resold primarily in exchange
for a new account and such account will be an Account securing the Notes.
If any property securing a defaulted Account is damaged and the proceeds, if
any, from the related Insurance Policy maintained by the customer or from any
temporary insurance policy obtained by the Servicer are insufficient to restore
the damaged property completely, the Servicer will not be required to expend its
own funds to restore the damaged property unless it determines (i) that such
restoration is likely to increase the liquidation proceeds of the related
Account and (ii) that it will recover such expenses through liquidation or
insurance proceeds.
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RESIGNATION
The Servicer may not resign from its obligations and duties under the
Servicing Agreement unless it determines that its duties thereunder are no
longer permissible by reason of a change in applicable law. No such resignation
will be effective until a successor servicer has assumed the Servicer's
obligations and duties under the Servicing Agreement. Such a successor servicer
must be satisfactory to the Issuer and the Indenture Trustee in the exercise of
their reasonable discretion. The Servicer may, however, enter into subservicing
agreements with any person similar to the one to be entered into with Jim Walter
Homes to perform any of its obligations under the Servicing Agreement, but the
Servicer will remain fully liable for performance of all obligations under the
Servicing Agreement.
ANNUAL ACCOUNTANTS' REPORT
The Servicer is required to cause a firm of independent certified public
accountants to furnish to the Issuer and the Indenture Trustee, on or before 120
days after the end of each of its fiscal years beginning with the fiscal year
ending May 31, 1998, a statement to the effect that such firm (a) has examined
the Servicer's financial statements for the preceding fiscal year in accordance
with generally accepted auditing standards and has issued an opinion thereon,
and (b) has examined certain documents and records relating to the servicing of
the Accounts during the preceding fiscal year in accordance with the Uniform
Single Audit Program for Mortgage Bankers, and has found no material exceptions
relating to the Accounts or has set forth such exceptions.
EVENTS OF DEFAULT
Events of Default under the Servicing Agreement will include: (a) any
failure to deposit into the Holding Account any required payment within two
Business Days after it is required to be deposited; (b) any failure by the
Servicer duly to observe or perform any other of its covenants or agreements in
the Servicing Agreement which continues unremedied for 30 days after the giving
of written notice of such failure by the Indenture Trustee or the holders of
Notes representing a majority in principal amount of the then outstanding Notes;
(c) certain events of bankruptcy, insolvency, receivership or reorganization of
the Servicer, any subservicer or any affiliate of either; (d) any
representation, warranty or statement of the Servicer made in the Servicing
Agreement or any other certificate delivered in connection with the issuance of
the Notes being materially incorrect as of the time such representation,
warranty or statement was made, which defect has not been cured within 30 days
after the Servicer received notice of the defect; and (e) any failure of the
Servicer to deliver to the Indenture Trustee a weekly report covering transfers
from the Holding Account to the Collection Account in the absence of force
majeure.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under the Servicing Agreement remains
unremedied, the Issuer or the Indenture Trustee (in each case subject to the
provisions of the Indenture) or, with the consent of the Indenture Trustee,
holders of Notes entitled to more than 50% of the Voting Rights of each Class of
Notes may terminate all of the rights and obligations of the Servicer under the
Servicing Agreement. Upon such termination, the Issuer will be obligated to
obtain a substitute servicer satisfactory to the Indenture Trustee. If the
Issuer fails to appoint a servicer satisfactory to the Indenture Trustee, the
Indenture Trustee may appoint or petition, in a court of competent jurisdiction,
for the appointment of a servicer to act as successor to the Servicer under the
Servicing Agreement. Pending the appointment of a successor Servicer, the
Indenture Trustee will be obligated to act as Servicer. (If First Union National
Bank of Florida, as Indenture Trustee, were to become Servicer, it is expected
to engage an affiliate as subservicer.) The Indenture Trustee and such successor
may agree upon the servicing compensation to be paid, which in no event may be
greater than the compensation to the Servicer under the Servicing Agreement. No
termination of the Servicer shall be effective until the new servicer enters
into a servicing agreement with the Issuer and the Indenture Trustee.
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TERMINATION AND REPLACEMENT OF SERVICER
If a Trigger Event occurs, the Indenture Trustee will have the option to,
but is not obligated to: (i) terminate the rights of the Servicer under the
Servicing Agreement and appoint a new Servicer thereunder; (ii) compel the
transfer of the software used by the Servicer to service the Accounts; (iii)
direct the homeowners under the Accounts to make payments directly to the
successor Servicer; and/or (iv) avail itself of any other remedies under the
Servicing Agreement or the Indenture. In addition, the occurrence of a Trigger
Event would affect the application of Remaining Available Funds to the payment
of principal of the Notes under the Indenture as described under "DESCRIPTION OF
THE NOTES--Interest and Principal Payments."
AMENDMENTS
The Servicing Agreement may be amended by the Issuer and Mid-State with the
consent of the Indenture Trustee and the holders of Notes entitled to more than
50% of the Voting Rights of each Class of affected Notes, for the purpose of
adding any provisions to, or modifying or eliminating any provisions of, the
Servicing Agreement. However, amendments affecting amounts to be deposited in
the Holding Account or the Collection Account, altering the priorities with
which any allocation of funds shall be made under the Servicing Agreement,
creating liens on the collateral securing the payment of principal and interest
on the Notes or modifying certain specified provisions of the Servicing
Agreement may be approved only with the consent of the Indenture Trustee and all
holders of the Notes. The Servicing Agreement may also be amended without the
consent of the Indenture Trustee or any Noteholder if such amendment does not
adversely affect in any material respect the interests of any Noteholder.
THE TRUST AGREEMENT
Under the terms of the Trust Agreement, the Depositor will have conveyed to
the Owner Trustee a nominal amount of cash to establish the Trust, which will
act as Issuer. In exchange, the Depositor will have received certificates
evidencing beneficial ownership of the Issuer created under such agreement.
Subject to certain restrictions, the Depositor may sell or assign certificates
of beneficial ownership of the Issuer to another entity or entities.
The Trust Agreement will provide that the Owner Trustee will be obligated to
(i) execute and deliver the Indenture, the Notes, the Servicing Agreement, the
Purchase and Sale Agreement and all other documents, agreements and instruments
related thereto, (ii) acquire the Collateral and to pledge the Collateral as
security for the Notes, (iii) issue the Notes pursuant to the Indenture and (iv)
take whatever action shall be required to be taken by the Owner Trustee by, and
subject to, the terms of the Trust Agreement. The Trust Agreement will provide
that the Issuer may not conduct any activities other than those related to the
issuance and sale of Notes, the investment of certain funds in Eligible
Investments, as defined in the Indenture, and such other limited activities as
may be required in connection with reports and payments to holders of the Notes
and the beneficial interest of the Trust. Neither the Owner Trustee in its
individual capacity nor the holders of the beneficial interest of the Trust (the
"Owners") are liable for payment of principal of or interest on the Notes and
each holder of Notes will be deemed to have released the Owner Trustee and the
Owners from any such liability. Upon the payment in full of all outstanding
Notes and the satisfaction and discharge of the Indenture, the Owner Trustee
will succeed to all the rights of the Indenture Trustee, and the Owners will
succeed to all the rights of the Noteholders, under the Servicing Agreement,
except as otherwise provided therein.
The Trust Agreement will provide that the Owner Trustee does not have the
power to commence a voluntary proceeding in bankruptcy with respect to the Trust
until at least 367 days after payment in full of all the Notes and the Owners
shall not direct the Owner Trustee to take any action that would violate such
provision.
The Trust Agreement will provide that the Owner Trustee is entitled to an
annual fee equal to $5,000.
The Trust Agreement may, at the unanimous written request of the Owners, be
supplemented and amended by a written instrument signed by the Owner Trustee and
the Owners, with the written consent of the Indenture Trustee.
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The Trust Agreement will provide that the Trust will terminate upon the
earlier to occur of (i) the final sale or disposition of the trust estate and
the distribution of all proceeds thereof to the Owners or (ii) 21 years less one
day following the death of the survivor of certain individuals described in the
Trust Agreement, but in no event later than April 1, 2062.
THE PURCHASE AND SALE AGREEMENT
The Depositor will sell and assign to the Issuer all its right, title and
interest in the Mortgage Collateral pursuant to the Purchase and Sale Agreement.
Simultaneously, the Issuer will collaterally assign the Mortgage Collateral to
the Indenture Trustee as security for the Notes pursuant to the Indenture.
The Depositor will represent and warrant to the Issuer, with respect to the
Accounts sold pursuant to the Purchase and Sale Agreement, that as of the date
of execution thereof: (i) the related building or installment sale contract, as
the case may be, has been duly executed by the parties thereto and the duties to
be performed thereunder prior to the date the first payment in connection with
such contract is due shall have been performed by both parties thereto; (ii) the
promissory note shall have been duly executed by the customer with respect
thereto and, to the extent required under local law for recordation or
enforcement, the mortgage, mechanic's lien contract or other security agreement
has been duly executed and properly acknowledged; (iii) the Mortgage Collateral
documents, other than the assignments thereof, shall have been properly recorded
as required by law; (iv) the mortgage, deed of trust, mechanic's contract or
other security agreement shall constitute a valid first-priority lien upon and
secure title to the property described therein, and such mortgage, deed of
trust, mechanic's lien contract or other security agreement and the promissory
note or installment sale contract secured thereby shall be fully enforceable in
accordance with their respective terms; (v) all costs, fees, intangible and
documentary recording taxes and expenses incurred in making, closing, and
recording each Account shall have been paid; and (vi) no part of the mortgaged
property securing any promissory note or installment sale contract shall have
been released from the lien or security title of the mortgage, deed of trust,
mechanic's lien contract or other security agreement securing such promissory
note or installment sale contract except for Account notes which have been
prepaid in full since the Cut-Off Date, which amounts will be deposited in the
Collection Account.
Within 90 days of the earlier of discovery by or notice to the Depositor of
any breach of a representation or warranty which materially and adversely
affects the interests of the Issuer in an Account, the Depositor is required to
use its best efforts to cure such breach in all material respects. If such
breach is not or cannot be cured within such 90-day period or, with the prior
written consent of the Indenture Trustee, such longer period as specified in
such consent, the Depositor is required to either (i) repurchase such Account
from the Issuer for an amount equal to 100% of the current Economic Balance of
the affected Account or (ii) substitute for such affected Account one or more
qualified substitute accounts.
In order to be a "qualified substitute account," an account must comply with
the representations and warranties set forth above and must have an Economic
Balance not less than the Economic Balance of, and an Effective Financing Rate
not less than the Effective Financing Rate of, the Account for which it is being
substituted, all as more specifically set forth in the Purchase and Sale
Agreement.
The obligation of the Depositor to cure any such breach or to repurchase or
substitute for the affected Account will be the sole remedy available to the
Issuer in respect of the related breach.
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PLAN OF DISTRIBUTION
The Depositor, as sole beneficial owner of the Issuer, and Walter Industries
have entered into an Underwriting Agreement with Lehman Brothers Inc., as
representative of the several underwriters named therein (Lehman Brothers Inc.,
collectively with the other underwriters, the "Underwriters"). Subject to the
terms and conditions of the Underwriting Agreement, the Depositor has agreed to
cause the Issuer to sell to the Underwriters, and the Underwriters have agreed
to purchase, the respective principal amount of each Class of Notes set forth
opposite their names below.
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT OF AMOUNT OF AMOUNT OF AMOUNT OF
CLASS A-1 CLASS A-2 CLASS A-3 CLASS A-4
UNDERWRITERS NOTES NOTES NOTES NOTES
- --------------------------------------------------- -------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Lehman Brothers Inc................................
Donaldson, Lufkin & Jenrette Securities
Corporation......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.....................................
NationsBanc Capital Markets, Inc...................
Salomon Brothers Inc...............................
-------------- ------------- ------------- -------------
Total........................................ $ 287,750,000 $ 57,750,000 $ 45,100,000 $ 48,550,000
-------------- ------------- ------------- -------------
-------------- ------------- ------------- -------------
</TABLE>
Under the terms of the Underwriting Agreement, the Underwriters have agreed,
subject to the terms and conditions set forth therein, to purchase all of the
Notes, if any of the Notes are purchased.
The Underwriters have advised the Depositor and the Issuer that they propose
to offer the Notes to the public at the prices set forth on the cover page
hereof, and to certain dealers at such prices less a concession not in excess of
[ %], [ %], [ %] and [ %] of the Class A-1 Notes, Class A-2 Notes, Class A-3
Notes and Class A-4 Notes, respectively. The Underwriters may allow and such
dealers may reallow a concession to certain other dealers not in excess of
[ %], [ %], [ %] and [ %] of the Class A-1 Notes, Class A-2 Notes, Class A-3
Notes and Class A-4 Notes, respectively. After the initial public offering, the
public offering prices and such concessions may be changed.
During and after the offering, the Underwriters may purchase and sell Notes
in the open market. These transactions may include overallotment and stabilizing
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Notes, which may be higher than the price that might
otherwise prevail in the open market. These transactions may be effected in the
over-the-counter market or otherwise, and these activities, if commenced, may be
discontinued at any time.
Lehman Brothers Inc. ("Lehman Brothers") owns approximately 14.3% of the
common stock of Walter Industries. Lehman Brothers has the right to have two
representatives on the board of directors of Walter Industries, and currently
two employees of Lehman Brothers are directors on such board.
This Prospectus may be used by Lehman Brothers Inc., to the extent required,
in connection with market making transactions in the Notes. Lehman Brothers Inc.
may act as principal or agent in such transactions.
The Depositor and Walter Industries have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments the Underwriters
may be required to make in respect thereof. The Issuer has been informed that in
the
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opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
LEGAL MATTERS
Certain legal matters will be passed upon for the Owner Trustee in its
individual capacity by Richards, Layton & Finger, Wilmington, Delaware; for the
Depositor by Cadwalader, Wickersham & Taft, New York, New York; for the
Indenture Trustee by Morris, James, Hitchens and Williams, Wilmington, Delaware;
for the Issuer by Cadwalader, Wickersham & Taft, New York, New York, as to the
validity of the Notes and the enforceability of the Indenture under New York
law; by Richards, Layton & Finger, Wilmington, Delaware, as to matters of
Delaware law; by Carlton, Fields, Ward, Emmanuel, Smith & Cutler, P.A., Tampa,
Florida, as to matters of Florida law; by Brown & Wood LLP, New York, New York,
as to matters referred to under "MATERIAL FEDERAL INCOME TAX CONSEQUENCES" and
as to certain ERISA matters referred to under "ERISA CONSIDERATIONS" and for the
Underwriters by Brown & Wood LLP.
FINANCIAL INFORMATION
As of the date of this Prospectus, the Issuer has been formed and the
Depositor has made a $100.00 capital contribution to the Issuer. See "THE
ISSUER." Because financial information concerning the Issuer would not be
meaningful, no financial information regarding the Issuer is provided.
NOTE RATINGS
It is a condition of issuance that the Class A-1 Notes be rated "Aaa" by
Moody's and "AAA" by Standard & Poor's; the Class A-2 Notes be rated at least
"Aa2" by Moody's and "AA+" by Standard & Poor's; the Class A-3 Notes be rated at
least "A2" by Moody's and "AA" by Standard & Poor's; and the Class A-4 Notes be
rated at least "Baa2" by Moody's and "BBB" by Standard & Poor's. Such ratings
will reflect only the views of Moody's and Standard & Poor's. The rating of each
Class of Notes by Standard & Poor's addresses the likelihood of timely payment
of interest and the ultimate payment of principal on the Notes. The rating of
each Class of Notes by Moody's addresses the likelihood of the ultimate payment
of principal and interest on the Notes. When rating securities, Moody's and
Standard & Poor's consider the transaction in its entirety and rely on factors
in addition to the amount and performance of the collateral securing the debt.
An explanation of the significance of such ratings may be obtained from Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10004, telephone
(212) 553-0300 and Standard & Poor's Ratings Services, 25 Broadway, New York,
New York 10017, telephone (212) 208-8000. There is no assurance that such
ratings will continue for any period of time or that they will not be revised or
withdrawn entirely by either of such rating agencies if, in its judgment,
circumstances so warrant. A revision, withdrawal or qualification of either of
such ratings may have an adverse effect on the market price of the Notes. A
security rating is not a recommendation to buy, sell or hold securities.
66
<PAGE>
INDEX TO PRINCIPAL DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- ------------------------------------------------------- ------
<S> <C>
A
account................................................ 20
Accounts............................................... 1
accrual period......................................... 50
Aggregate Economic Balance............................. 11
Aggregate Outstanding Principal Balance................ 35
Available Funds........................................ 5
Available Funds Allocation............................. 35
B
Best................................................... 33
Building Contract...................................... 21
C
Cede................................................... 3
Class.................................................. 1
Class A-1 Initial Principal Balance.................... 35
Class A-1 Optimal Principal Amount..................... 37
Class A-1 Outstanding Principal Balance................ 36
Class A-1 Realized Loss Amount......................... 38
Class A-2 Initial Principal Balance.................... 35
Class A-2 Optimal Principal Amount..................... 37
Class A-2 Outstanding Principal Balance................ 35
Class A-2 Realized Loss Amount......................... 38
Class A-3 Initial Principal Balance.................... 35
Class A-3 Optimal Principal Amount..................... 37
Class A-3 Outstanding Principal Balance................ 35
Class A-3 Realized Loss Amount......................... 38
Class A-4 Initial Principal Balance.................... 35
Class A-4 Optimal Principal Amount..................... 37
Class A-4 Outstanding Principal Balance................ 35
Class A-4 Realized Loss Amount......................... 38
Class Optimal Principal Amount......................... 37
Class Interest Shortfall............................... 35
Closing Date........................................... 4
Code................................................... 9
Collateral............................................. 7
Collection Account..................................... 7
Collection Period...................................... 5
Commission............................................. 2
CPR.................................................... 40
Cut-Off Date........................................... 1
D
Definitive Notes....................................... 46
Depositor.............................................. 1
DTC.................................................... 3
</TABLE>
67
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- ------------------------------------------------------- ------
<S> <C>
E
Economic Balance....................................... 22
EDGAR.................................................. 2
Effective Financing Rate............................... 22
8.50% Accounts Table................................... 39
Eligible Investments................................... 34
Enterprise............................................. 19
ERISA.................................................. 9
Event of Default....................................... 57
Exchange Act........................................... 3
F
Fannie Mae............................................. 34
Final Regulation....................................... 48
foreign person......................................... 53
FTC Rule............................................... 29
Freddie Mac............................................ 34
G
Gross Receivable Amount................................ 20
H
Holding Account........................................ 60
I
Indenture.............................................. 5
Indenture Trustee...................................... 5
indirect participants.................................. 46
Insurance Policies..................................... 33
Interest Accrual Amount................................ 35
Interest Accrual Period................................ 1
IRS.................................................... 50
Issuer................................................. 1
Issuer Expenses........................................ 34
J
Jim Walter Homes....................................... 7
L
Local Counsel.......................................... 15
M
Maturity Date.......................................... 4
Mechanic's Lien Contract............................... 21
Mid-State.............................................. 1
Minimum Target Overcollateralization Amount............ 37
Moody's................................................ 1
Mortgage Collateral.................................... 1
Mortgaged Property..................................... 8
N
1986 ACT............................................... 49
Note Rate.............................................. 5
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- ------------------------------------------------------- ------
<S> <C>
Noteholder............................................. 49
Notes.................................................. 1
Notice of Default...................................... 57
O
OID Regulations........................................ 49
Optimal Principal Amount............................... 37
Outstanding Principal Balance.......................... 35
Overcollateralization Amount........................... 37
Overcollateralization Percentage....................... 38
Owner Trustee.......................................... 5
Owners................................................. 63
P
Participants........................................... 46
Payment Date........................................... 1
Plans.................................................. 9
Prepayment Assumption.................................. 49
prepayments............................................ 39
Promissory Note........................................ 21
Purchase and Sale Agreement............................ 9
R
Realized Loss Amounts.................................. 39
Record Date............................................ 6
Reinvestment Period.................................... 5
Relief Act............................................. 32
Remaining Available Funds.............................. 12
Retail Contracts....................................... 21
Rules.................................................. 46
S
Sales Contract......................................... 21
Security Instruments................................... 29
Servicer............................................... 1
Servicing Agreement.................................... 7
South Carolina Code.................................... 14
Standard & Poor's...................................... 1
Subordinated Class..................................... 6
Subservicing Agreement................................. 7
T
Target Overcollateralization Date...................... 37
Target Overcollateralization Level..................... 37
10.00% Accounts Table.................................. 39
Texas Building Contract................................ 21
Texas Contracts........................................ 21
Texas Mortgages........................................ 21
Texas Resale Mortgage.................................. 21
Texas Sales Contract................................... 21
TMP.................................................... 49
TMP Regulations........................................ 54
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERMS PAGE
- ------------------------------------------------------- ------
<S> <C>
Trigger Event.......................................... 59
Trust.................................................. 1
Trust Agreement........................................ 5
Trust V Accounts....................................... 19
U
UCCC................................................... 29
Underwriters........................................... 1
V
Voting Rights.......................................... 57
W
Walter Industries...................................... 5
</TABLE>
70
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY SECURITIES OTHER THAN THE SECURITIES OFFERED HEREBY NOR AN OFFER OF SUCH
SECURITIES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH OFFER
WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY
THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Available Information........................... 2
Reports to Noteholders.......................... 3
Summary of Terms................................ 4
Risk Factors.................................... 11
The Depositor................................... 16
The Issuer...................................... 16
Use of Proceeds................................. 17
Discussion and Analysis of Issuer's Financial
Condition..................................... 17
The Accounts.................................... 17
The Mortgage Collateral......................... 25
Certain Legal Aspects of the Accounts and
Related Matters............................... 29
Security........................................ 33
Description of the Notes........................ 34
Legal Investment Considerations................. 47
ERISA Considerations............................ 47
Material Federal Income Tax Consequences........ 49
The Indenture................................... 54
The Servicing Agreement......................... 60
The Trust Agreement............................. 63
The Purchase and Sale Agreement................. 64
Plan of Distribution............................ 65
Legal Matters................................... 66
Financial Information........................... 66
Note Ratings.................................... 66
Index to Principal Defined Terms................ 67
</TABLE>
------------------------
UNTIL 90 DAYS AFTER THE DATE HEREOF, ALL DEALERS EFFECTING TRANSACTIONS IN
THE NOTES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
$439,150,000
MID-STATE TRUST VI
$287,750,000 [ ]%
ASSET-BACKED NOTES, CLASS A-1
$57,750,000 [ ]%
ASSET-BACKED NOTES, CLASS A-2
$45,100,000 [ ]%
ASSET-BACKED NOTES, CLASS A-3
$48,550,000 [ ]%
ASSET-BACKED NOTES, CLASS A-4
------------------------
MID-STATE HOMES, INC.
SERVICER
------------------
PROSPECTUS
MAY , 1997
------------------
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
NATIONSBANC CAPITAL
MARKETS, INC.
SALOMON BROTHERS INC
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are the fees and expenses (other than underwriting discounts
and commissions to be incurred with the issuance and distribution of the
shares).
<TABLE>
<S> <C>
SEC Filing Fee................................................. $ 133,076
Indenture Trustee's Fees....................................... 38,751
Owner Trustee's Fees........................................... 9,000
Legal Fees and Expenses........................................ 507,500*
Accounting Fees and Expenses................................... 150,000*
Blue Sky and Legal Investment Fees and Expenses................ 10,000*
Printing Fees and Expenses..................................... 80,000*
Rating Agency Fees and Expenses................................ 210,000*
Miscellaneous.................................................. 10,673*
----------
Total...................................................... $1,149,000*
----------
----------
</TABLE>
- ------------------------
* Estimated.
ITEM 31. SALES OF SPECIAL PARTIES.
Not Applicable.
ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES.
Pursuant to the terms of the Trust Agreement the Issuer will issue and sell
to the Depositor, on or prior to the date of initial issuance of the Notes and
in exchange for the Depositor's covenant to pay for the Issuer's organizational
expenses, a certificate of beneficial interest representing a 100% beneficial
interest in the Issuer, in a transaction exempt from registration under the
Securities Act of 1933 pursuant to Section 4(2) of the Securities Act of 1933.
ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The By-laws of Walter Industries, Inc. ("Walter Industries"), a Delaware
corporation and indirect owner of all of the issued and outstanding shares of
the capital stock of the Depositor, provide that, to the fullest extent
permitted by Delaware law, Walter Industries will indemnify any current or
former director or officer of Walter Industries and may, at the discretion of
the board of directors, indemnify any current or former employee or agent of
Walter Industries, against certain liabilities, including liabilities incurred
by reason of the fact that such person is or was serving, at the request of
Walter Industries, as a director, officer, partner, trustee, employee or agent
of another corporation or partnership, joint venture, trust or other enterprise.
To the extent that directors and officers of the Depositor serve or have
previously served as directors, officers, employees or agents of Walter
Industries, they are eligible for indemnification by Walter Industries against
liabilities in respect of actions taken in their capacities as directors or
officers of the Depositor.
The directors and officers of the Depositor are covered by a directors' and
officers' liability insurance policy maintained by Walter Industries for the
benefit of all of its subsidiaries.
ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.
Not Applicable.
II-1
<PAGE>
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements filed in the Prospectus: not applicable.
(b) Exhibits
<TABLE>
<C> <S>
1. Form of Underwriting Agreement
3.1 Form of Trust Agreement*
4.1 Form of Indenture (including forms of Notes)
5.1 Opinion of Counsel to the Issuer as to the legality of the Notes
8.1 Opinion of Special Federal Income Tax Counsel to the Issuer as to federal income tax
matters
10.1 Form of Servicing Agreement*
10.2 Form of Purchase and Sale Agreement*
23.1 Consents of Counsel and Special Federal Income Tax Counsel to Issuer (included in
exhibits 5.1 and 8.1)
24. Power of Attorney*
25.1 Statement of Eligibility and Qualification on Form T-1 of First Union National Bank of
Florida, as Trustee, under the Trust VI Indenture relating to the Trust VI Notes
</TABLE>
- ------------------------
* Previously filed.
ITEM 36. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Depositor pursuant to the provisions contained in Florida law, the Depositor's
Certificate of Incorporation and By-Laws or otherwise, the Depositor has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the reimbursement by the Depositor of expenses
incurred or paid by a director, officer or controlling person of the Depositor
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Depositor will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in such Act and will be governed by the final adjudication
of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Pre-Effective
Amendment No. 3 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Tampa, Florida on May 21, 1997.
MID-STATE HOMES, INC.
as depositor for Mid-State Trust VI
By: /s/ DEAN M. FJELSTUL
-----------------------------------------
Name: Dean M. Fjelstul
Title: VICE PRESIDENT
II-3
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 3 to Form S-11 Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
*/s/ KENNETH E. HYATT President, Principal
- ------------------------------ Executive Officer and May 21, 1997
Kenneth E. Hyatt Director
*/s/ RICHARD E. ALMY
- ------------------------------ Director May 21, 1997
Richard E. Almy
/s/ DEAN M. FJELSTUL Vice President, Principal
- ------------------------------ Financial Officer and May 21, 1997
Dean M. Fjelstul Director
*/s/ JOSEPH H. KELLY, JR.
- ------------------------------ Controller (Principal May 21, 1997
Joseph H. Kelly, Jr. Accounting Officer)
<TABLE>
<S> <C> <C>
*By: /s/ DEAN M. FJELSTUL
--------------------------------------
Dean M. Fjelstul
Attorney-in-fact(1)
</TABLE>
- ------------------------
(1) Dean M. Fjelstul, by signing his name hereto, does sign the document on
behalf of the person indicated above pursuant to a power of attorney duly
executed by such person and filed with the Securities and Exchange
Commission.
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
1. -- Form of Underwriting Agreement
2. -- Form of Trust Agreement*
4.1 -- Form of Indenture (including forms of Notes)
5.1 -- Opinion of Counsel to the Issuer as to the legality of the Notes
8.1 -- Opinion of Special Federal Income tax Counsel to the Issuer as to federal income tax
matters
10.1 -- Form of Servicing Agreement*
10.2 -- Form of Purchase and Sale Agreement*
23.1 -- Consents of Counsel and Special Counsel to Issuer (included in exhibits 5 and 8)
24. -- Power of Attorney*
25.1 -- Statement of Eligibility and Qualification on Form T-1 of First Union National Bank
of Florida, as Trustee, under the Indenture relating to the Notes**
</TABLE>
- ------------------------
* Previously Filed.
** Exhibit 7 (Statement of Condition of Indenture Trustee) to this Exhibit 25.1
(Form T-1) has been filed in paper format pursuant to a continuing hardship
exemption.
II-5
<PAGE>
MID-STATE TRUST VI
$287,750,000 [ ]% Asset Backed Notes, Class A-1
$ 57,750,000 [ ]% Asset Backed Notes, Class A-2
$ 45,100,000 [ ]% Asset Backed Notes, Class A-3
$ 48,550,000 [ ]% Asset Backed Notes, Class A-4
UNDERWRITING AGREEMENT
May __, 1997
LEHMAN BROTHERS INC.,
as representative of the
several Underwriters named
in Schedule I hereto
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Mid-State Homes, Inc. (the "Company"), a Florida corporation and an
indirect, wholly-owned subsidiary of Walter Industries, Inc. ("Walter
Industries"), has entered into a trust agreement dated as of March 1, 1997 (the
"Trust Agreement") with Wilmington Trust Company, a Delaware banking corporation
(not in its individual capacity, but solely as trustee under the Trust
Agreement, together with its permitted successors and assigns, the "Owner
Trustee") creating Mid-State Trust VI, a business trust established under the
laws of the state of Delaware ("Trust VI" or the "Issuer"). The Issuer will act
at all times through the Owner Trustee.
The Company proposes to direct the Owner Trustee to issue the [ ]% Asset
Backed Notes, Class A-1 (the "Class A-1 Notes"), [ ]% Asset Backed Notes, Class
A-2 (the "Class A-2 Notes"), [ ]% Asset Backed Notes, Class A-3 (the "Class A-3
Notes") and [ ]% Asset Backed Notes, Class A-4 (the "Class A- 4 Notes"), each in
the aggregate principal amount set forth above (the Class A-1 Notes, Class A-2
Notes, Class A-3 Notes and Class A-4 Notes collectively referred to as the
"Notes"). The Notes shall be issued under an indenture (the "Indenture"), dated
as of May 1, 1997, between the Owner Trustee, not in its individual capacity,
but solely as trustee under the Trust Agreement, and
<PAGE>
First Union National Bank of Florida (the "Trustee"). Capitalized terms used but
not defined herein shall have the meanings given to them in the Indenture. The
Company also proposes to direct the Owner Trustee to cause the Notes to be sold
to the Underwriters named in Schedule I hereto (the "Underwriters" or "you")
with respect to the public offering by the Underwriters of the Notes.
The Notes are secured by (i) certain building and installment sale
contracts, promissory notes, related mortgages and other security instruments
("Accounts") owned directly or indirectly by the Company and having an aggregate
outstanding Economic Balance of $462,287,289 as of February 28, 1997 (the
"Cut-Off Date"), (ii) the Collection Account established under the Indenture and
(iii) Trust VI's rights under the Servicing Agreement (the "Servicing
Agreement") dated as of May 1, 1997 among the Issuer, the Trustee and the
Company (in its capacity as Servicer under the Servicing Agreement, together
with its successors and assigns, the "Servicer"). The Company will sell the
Accounts to the Issuer pursuant to the Purchase and Sale Agreement dated as of
the Closing Date (the "Purchase Agreement").
The Company (acting on behalf of Trust VI) has filed with the Securities
and Exchange Commission (the "Commission") a registration statement on Form S-11
(No. 333-23667) and related preliminary prospectus for the registration of the
Notes under the Securities Act of 1933, as amended (the "1933 Act"), has filed
such amendments thereto, if any, and such amended preliminary prospectuses as
may have been required to the date hereof, and will file such additional
amendments thereto and such amended prospectuses as may hereafter be required.
Such registration statement (as amended, if applicable) and the prospectus
constituting a part thereof (including in each case the information, if any,
deemed to be a part thereof pursuant to Rule 430A(b) of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")),
as from time to time amended or supplemented pursuant to the 1933 Act, but
excluding the Statement of Eligibility and Qualification (Form T-1) under the
Trust Indenture Act of 1939, as amended (the "1939 Act"), are hereinafter
referred to as the "Registration Statement" and as the "Prospectus",
respectively, except that if any revised prospectus shall be provided to you by
the Company for use in connection with the offering of the Notes which differs
from the Prospectus on file at the Commission at the time the Registration
Statement becomes effective (whether or not such revised prospectus is required
to be filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations),
the term "Prospectus" shall refer to such revised prospectus from and after the
time it is first provided to you for such use.
2
<PAGE>
The Company understands that you propose to make a public offering of the
Notes as soon as you deem advisable after the Registration Statement becomes
effective and the initial public offering price has been determined. This
Agreement shall confirm the arrangements with respect to your purchase of the
Notes.
SECTION 1. Representations and Warranties. (a) Each of the Company and
Walter Industries represents and warrants to you as of the date hereof and as of
the date of the Prospectus as follows:
(i) The Registration Statement (i) has been prepared by the Company
in conformity with the requirements of the 1933 Act and the 1933 Act
Regulations of the Commission thereunder, (ii) has been filed with the
Commission under the 1933 Act and (iii) has become effective under the
1933 Act. Copies of such Registration Statement have been delivered by the
Company to the Underwriters. As used in this Agreement, "Effective Time"
means the date and the time as of which such Registration Statement, or
the most recent post-effective amendment thereto, if any, was or is
declared effective by the Commission; "Effective Date" means the date of
the Effective Time. The Commission has not issued any order preventing or
suspending the use of any preliminary prospectus. There are no contracts
or documents of the Company which are required to be filed as exhibits to
the Registration Statement pursuant to the 1933 Act or the 1933 Act
Regulations which have not been so filed or incorporated by reference
therein on or prior to the Effective Date of the Registration Statement.
The conditions for use of Form S-3, as set forth in the General
Instructions thereto, have been satisfied.
(ii) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the 1933 Act and the 1933 Act Regulations. The
Registration Statement, as of the Effective Date thereof and of any
post-effective amendment thereto, did not or 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. The Prospectus as of its date, and as amended or supplemented
as of the Closing Date, does not and will not contain any untrue statement
of a material fact or omit 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; provided that no representation or
warranty
3
<PAGE>
is made as to information contained in or omitted from the Registration
Statement or the Prospectus in reliance upon and in conformity with
written information furnished to the Company in writing by Lehman Brothers
Inc. ("Lehman") on behalf of the Underwriters expressly for use therein.
(iii) As of the Effective Date, the Indenture was or will be duly
qualified under, and conformed in all material respects with, the
requirements of the 1939 Act and the rules and regulations thereunder (the
"1939 Act Regulations"), and on the Closing Date, the Indenture will be so
qualified and in conformity.
(iv) Price Waterhouse LLP are independent public accountants with
respect to the Company and Walter Industries as required by the 1933 Act
and the 1933 Act Regulations.
(v) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as otherwise stated
therein, (A) there has been no material adverse change, or any development
involving a prospective material adverse change, in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company or Walter Industries, whether or not arising in
the ordinary course of business and (B) there have been no transactions
entered into by the Company or Walter Industries, other than those in the
ordinary course of business, which are material with respect to the
Company.
(vi) Each of the Company and Walter Industries has been duly
incorporated and is validly existing as a corporation and is in good
standing under the laws of the jurisdiction of its incorporation, with
corporate power to own, lease and operate its property; and the Company is
qualified to do business and is in good standing in each jurisdiction to
the extent necessary to permit the servicing of each Account in accordance
with the terms of the Servicing Agreement.
(vii) The issuance and sale of the Notes to the Underwriter, the
execution, delivery and performance by the Company and Walter Industries,
as applicable, of this Agreement, the Servicing Agreement, the Purchase
Agreement, the Trust Agreement or any other agreement or instrument
contemplated therein or herein and the assignment to Trust VI of the
Accounts and the authorization by the Company of the execution, delivery
and performance by the Owner Trustee of the Indenture and the issuance of
the Notes are within the corporate power and authority of the Company and
Walter
4
<PAGE>
Industries, as applicable, and have been duly authorized by all necessary
corporate action on the part of the Company or Walter Industries, as
applicable; and neither the issuance and sale of the Notes to the
Underwriters nor the execution, delivery and performance of this
Agreement, the Servicing Agreement, the Purchase Agreement, the Trust
Agreement or any other agreement or instrument contemplated herein or
therein nor the consummation of the transactions contemplated herein or
therein nor compliance by the Company with the provisions hereof or
thereof, nor the assignment to the Owner Trustee of the Accounts, nor the
execution, delivery and performance by the Owner Trustee of the Indenture
and the issuance of the Notes, nor compliance by the Owner Trustee with
the provisions thereof conflicts with or results in a material breach or
violation of any of the terms or provisions of or (with or without notice,
lapse of time or both) constitutes a default under any statute, indenture,
mortgage, deed of trust, note or other agreement or instrument to which
the Company is a party or by which it or any of its property is bound, the
Company's certificate of incorporation or by-laws or any order, rule or
regulation of any court or governmental agency or body having jurisdiction
over the Company or any of its properties or results in the creation or
imposition of any lien, charge or encumbrance upon any of its property
pursuant to the terms or provisions of any statute, indenture, mortgage,
deed of trust, note or other agreement or instrument, except for the liens
created or contemplated by the Indenture.
(viii) This Agreement has been and on or prior to the Closing Date,
the Servicing Agreement, the Trust Agreement, and the Purchase Agreement
will have each been duly authorized, executed and delivered by the Company
and, assuming due authorization, execution and delivery by the other
parties hereto and thereto, this Agreement, the Servicing Agreement, the
Trust Agreement, and the Purchase Agreement each constitutes or will
constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and subject,
as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law).
(ix) The Notes and the Indenture will conform in all material
respects to all statements relating thereto in the related Prospectus, and
are duly and validly authorized and, when the related Notes have been
executed, authenticated and
5
<PAGE>
delivered in accordance with the Indenture, and delivered to and paid for
by the Underwriters as provided herein, the related Notes will be entitled
to the benefits and security afforded by the Indenture, and will
constitute legal, valid and binding obligations of the Issuer enforceable
in accordance with their terms and the terms of the Indenture.
(x) Neither the Company nor Walter Industries is in violation of its
certificate of incorporation or any applicable administrative or court
order or decree.
(xi) There is no action, suit or proceeding before or by any court
or governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company or Walter Industries, threatened, against or
affecting either the Company or Walter Industries, which is required to be
disclosed in the Registration Statement (other than as disclosed therein);
all pending legal or governmental proceedings to which the Company or
Walter Industries is a party or of which any of their properties or assets
are the subject which are not described in the Registration Statement
including ordinary routine litigation incidental to the business, are,
considered in the aggregate, not material;
(xii) Each of the Company and Walter Industries possesses such
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, in the case of the Company,
to perform the servicing obligations under the Servicing Agreement, and
neither the Company nor Walter Industries has received notice of
proceedings relating to the revocation or modification of any such
license, certificate, authority or permit which, singly or in the
aggregate, if the subject of any unfavorable decision, ruling or finding,
would materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs or business prospects of the
Company or Walter Industries.
(xiii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the issue and sale of the Notes, or the consummation by the
Company or Walter Industries of the other transactions contemplated by
this Agreement, the Indenture, the Trust Agreement or any other agreement
or instrument contemplated therein or herein, except filings required to
perfect the liens of the Indenture and except such as may be required
under the 1933
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Act or the 1933 Act Regulations or state securities laws and such as have
been obtained and are in effect.
(xiv) Upon the payment by the Issuer for the Accounts in accordance
with the Purchase Agreement, the Company will have duly and validly sold
and assigned all right, title and interest in the Accounts to the Issuer;
the Issuer will have good and valid title to the Accounts free and clear
of all liens, encumbrances, and other interests of others except to the
extent permitted in the Indenture; and the Company will be the sole
beneficial owner of the Issuer.
(xv) The Agreement is effective to establish the Trust under and
pursuant to the laws of the State of Delaware.
(xvi) The Company, Walter Industries and the Issuer are not, and
will not be required as a result of the offer and sale of the Notes to
register as, an "investment company" under the Investment Company Act of
1940, as amended (the "1940 Act") and neither the Company, Walter
Industries nor the Issuer is "controlled" by an "investment company" as
defined in the 1940 Act.
(xvii) The Accounts conform in all material respects to the
statements and description thereof contained in the Registration
Statement.
(b) Any certificate signed by any officer of the Company or Walter
Industries and delivered to you or your counsel shall be deemed a representation
and warranty by the Company or Walter Industries (or by the Company acting
through Walter Industries) as to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters: Closing. (a) On the basis of
the representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company agrees to direct the Owner Trustee to
sell on behalf of the Issuer to each Underwriter, severally and not jointly, and
each Underwriter, severally and not jointly, agrees to purchase from the Owner
Trustee acting on behalf of the respective Issuer, the principal amounts of
Notes set forth opposite the name of such Underwriter at a price equal to
_________% of the principal amount thereof plus accrued interest, if any, from
April 1, 1997 to but not including the Closing Date.
(b) Payment of the purchase price for, and delivery of, the Notes shall be
made at the offices of Brown & Wood LLP, One World Trade Center, New York, New
York 10048, or at such other place as shall be agreed upon by the Underwriters
and the Company at 10:00 A.M. on May __, 1997 or such other time not later than
ten
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business days after such date as shall be agreed upon by the Underwriter and the
Company (such time and date of delivery being herein called the "Closing Date").
Payment shall be made to the Owner Trustee in same day funds against delivery of
the Notes to, or at the direction of, the Underwriters. The Notes to be so
delivered will be initially represented by one or more Notes registered in the
name of Cede & Co., the nominee of The Depository Trust Company ("DTC"). The
interests of beneficial owners of the Notes will be represented by book entries
on the records of DTC and participating members thereof. The Notes will be made
available for examination by the Underwriters not later than 10:00 A.M. on the
last business day prior to the Closing Date. The Notes will be delivered to The
Depository Trust Company in New York, New York on the business day prior to the
Closing Date, to be released upon the purchase thereof and payment therefor in
accordance herewith.
SECTION 3. Covenants. The Company covenants with you as follows:
(i) To prepare the Prospectus in a form approved by the Underwriters
and to file such Prospectus pursuant to Rule 424(b) under the 1933 Act not
later than the Commission's close of business on the second business day
following the execution and delivery of this Agreement; to make no further
amendment or any supplement to the Registration Statement or to the
Prospectus prior to the Closing Date except as permitted herein; to advise
the Underwriters, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus
has been filed and to furnish the Underwriters with copies thereof; to
promptly advise the Underwriters of its receipt of notice of the issuance
by the Commission of any stop order or of: (i) any order preventing or
suspending the use of any preliminary prospectus or the Prospectus; (ii)
the suspension of the qualification of the Notes for offering or sale in
any jurisdiction; (iii) the initiation of or threat of any proceeding for
any such purpose; (iv) any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information. In the event of the issuance of any stop order or
of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus or suspending any such qualification, the
Company promptly shall use its best efforts to obtain the withdrawal of
such order by the Commission.
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(ii) To furnish promptly to the Underwriters and to counsel for the
Underwriters a signed copy of the Registration Statement as originally
filed with the Commission, and of each amendment thereto filed with the
Commission, including all consents and exhibits filed therewith.
(iii) To deliver promptly to the Underwriters such number of the
following documents as the Underwriters shall reasonably request: (i)
conformed copies of the Registration Statement as originally filed with
the Commission and each amendment thereto (in each case including
exhibits); (ii) the preliminary prospectus and the Prospectus; and (iii)
any document incorporated by reference in the Prospectus (including
exhibits thereto). If the delivery of a prospectus is required at any time
prior to the expiration of nine months after the Effective Time in
connection with the offering or sale of the Notes, and if at such time any
events shall have occurred as a result of which the Prospectus as then
amended would include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made when such
Prospectus is delivered, not misleading, or, if for any other reason it
shall be necessary during such same period to amend or supplement the
Prospectus or to file under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), in order to comply with the 1933 Act or the
Exchange Act, the Company shall notify the Underwriters and, upon the
Underwriters' request, shall file such document and prepare and furnish
without charge to the Underwriters and to any dealer in securities as many
copies as the Underwriters may from time to time reasonably request of an
amended Prospectus which corrects such statement or omission or effects
such compliance, and in case the Underwriters are required to deliver a
Prospectus in connection with sales of any of the Notes (including without
limitation sales of Notes in the secondary market after the initial
distribution) at any time nine months or more after the Effective Time,
upon the request of the Underwriters, but at their expense, the Company
shall prepare and deliver to the Underwriters as many copies as the
Underwriter may reasonably request of an amended Prospectus complying with
Section 10(a)(3) of the 1933 Act.
(iv) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the Underwriters,
be required by the 1933 Act or requested by the Commission.
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<PAGE>
(v) Prior to filing with the Commission any (i) preliminary
prospectus, (ii) amendment to the Registration Statement or Prospectus, or
document incorporated by reference in the Prospectus, or (iii) Prospectus
pursuant to Rule 424 of the 1933 Act Regulations, to furnish a copy
thereof to the Underwriters and counsel for the Underwriters and obtain
the consent of the Underwriters to the filing.
(vi) To use its best efforts, in cooperation with the Underwriters,
to qualify the Notes for offering and sale under the applicable securities
laws of such states and other jurisdictions of the United States as the
Underwriters may designate, and maintain or cause to be maintained such
qualifications in effect for as long as may be required for the
distribution of the Notes. The Company will file or cause the filing of
such statements and reports as may be required by the laws of each
jurisdiction in which the Notes have been so qualified.
(vii) Not, without the Underwriters' prior written consent, to
publicly offer or sell or contract to sell any mortgage pass-through
securities, collateralized mortgage obligations or other similar
securities representing interests in or secured by other mortgage-related
assets originated or owned by the Company for a period of thirty (30) days
following the commencement of the offering of the Notes to the public.
(viii) The Issuer will use the net proceeds received by it from the
sale of the Notes in the manner specified in the related Prospectus under
"Use of Proceeds."
(ix) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance
upon Rule 430A of the 1933 Act Regulations, then immediately following the
determination of such information by the Underwriters, the Company will
prepare, and file or transmit for filing with the Commission in accordance
with such Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of
an amended Prospectus, or, if required by such Rule 430A, a post-effective
amendment to the Registration Statement (including an amended Prospectus),
containing all information so omitted.
(x) The Company will cause the Issuer to file with the Commission
such reports on Form SR as may be required pursuant to Rule 463 under the
1933 Act.
(xi) As soon as practicable, the Company will cause to be made
generally available to holders of the Notes and to
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the Underwriters an earnings statement or statements of the Issuer which
will satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158
under the 1933 Act.
(xii) So long as any of the Notes shall be outstanding, the Company
will deliver to you each annual statement as to compliance delivered to
the Trustee pursuant to Section 3.09 of the Indenture, and each statement
of a firm of independent public accountants furnished to the Trustee
pursuant to Section 8.08 of the Indenture, as soon as such statements are
furnished to the Trustee, and will furnish to you monthly a copy of the
magnetic tape containing the Schedule of Accounts information.
SECTION 4. Payment of Expenses. The Company agrees to pay: (a) the
costs incident to the authorization, issuance, sale and delivery of the 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 preliminary prospectus, the Prospectus and any
amendment 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
Notes under the securities laws of the several jurisdictions as provided in
Section 3(vi) hereof and of preparing, printing and distributing a Blue Sky
Memorandum (including related fees and expenses of counsel to the
Underwriters); (f) any fees charged by securities rating services for rating
the Notes; (g) all costs and expenses related to the issuance and delivery of
"True Sale" and tax opinions by Brown & Wood LLP; and (h) all other costs
and expenses incident to the performance of the obligations of the
Underwriters (including half of the costs and expenses of your counsel);
provided that, except as provided in this Section 4, the Underwriters shall
pay any transfer taxes on the Notes which they may sell and the expenses of
advertising any offering of the Notes made by the Underwriters and half the
costs and expenses of their counsel.
If this Agreement is terminated by the Underwriters in accordance with the
provisions of Section 5 or Section 9, the Company shall reimburse the
Underwriters for all reasonable out-of-pocket expenses, including fees and
disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of the
Underwriters hereunder are subject to the accuracy of the representations and
warranties of the Company and Walter Industries herein contained, to the
performance by the
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Company and Walter Industries of their obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 P.M. on the date hereof, or at such later time and date as you
may approve; and on the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threatened by the
Commission.
(b) The Underwriters shall not have discovered and disclosed to the
Company on or prior to the Closing Date that the Registration Statement as
amended at the Effective Time or thereafter or the Prospectus or any
amendment or supplement thereto contained or contains an untrue statement
of a fact or omitted or omits to state a fact which, in the opinion of
Brown & Wood LLP, counsel for the Underwriters, is material and is
required to be stated therein or is necessary to make the statements
therein not misleading.
(c) All corporate proceedings and other legal matters relating to
the authorization, form and validity of this Agreement, the Indenture, the
Trust Agreement, the Purchase Agreement, the Servicing Agreement, the
Registration Statement and the Prospectus, and all other legal matters
relating to this Agreement and the transactions contemplated hereby shall
be satisfactory in all respects to counsel for the Underwriters, and the
Company shall have furnished to such counsel all documents and information
that they may reasonably request to enable them to pass upon such matters.
(d) On the Closing Date, the Underwriters shall have
received:
(1) The opinion, dated the Closing Date, of Cadwalader, Wickersham &
Taft, counsel for the Issuer, substantially in the form attached hereto as
Exhibit A.
(2) The opinion, dated the Closing Date, of Carlton Fields, counsel
for the Company, substantially in the form attached hereto as Exhibit B.
(3) The favorable opinion, dated the Closing Date, of Edward A.
Porter, General Counsel to Walter Industries, in form and substance
satisfactory to you and counsel for the Underwriters, to the effect that:
(i) Walter Industries has been duly organized and is
validly existing as a corporation in good standing under the
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laws of the State of Delaware with corporate power and authority to own,
lease and operate its properties and conduct its business as described in
the Prospectus.
(ii) Walter Industries is not, and will not be, as a result of its
entering into this Agreement and consummating the transactions
contemplated hereby, in violation of its Restated Certificate of
Incorporation or bylaws.
(iii) Except as disclosed in the Registration Statement, there is no
action, suit or proceeding before or by any court or governmental agency
or body, domestic or foreign, now pending, or, to the best of such
counsel's knowledge, against Walter Industries which could reasonably be
expected to interfere with or adversely affect the consummation of the
transactions contemplated herein.
(iv) This Agreement has been duly authorized, executed and delivered
by Walter Industries.
(v) No filing or registration with, notice to or consent, approval,
authorization or order or other action of, any court or governmental
authority or agency, is required for the consummation by Walter Industries
of the transactions contemplated by this Agreement, except such as have
been obtained and except such as may be required under state securities or
Blue Sky laws.
(4) The favorable opinion, dated as of the Closing Date of Richards,
Layton & Finger, P.A., counsel for the Owner Trustee, substantially in the
form attached hereto as Exhibit C.
(5) The favorable opinions of local counsel to the Company in those
jurisdictions determined by the Underwriters, dated the Closing Date, in
form and substance acceptable to the Underwriters and its counsel.
(6) The favorable opinion, dated the Closing Date, of Morris, James,
Hitchens and Williams, counsel for the Trustee, in form and substance
satisfactory to counsel for the Underwriters, to the effect that:
(i) The Trustee, at the time of its execution and delivery of the
Indenture, had full power and authority to execute and deliver the
Indenture and has full power and authority to perform its obligations
thereunder.
(ii) The Indenture has been duly and validly authorized, executed
and delivered by the Trustee and,
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assuming due authorization, execution and delivery thereof by the Issuer,
constitutes the valid and binding agreement of the Trustee enforceable
against the Trustee in accordance with its terms, except as enforcement
thereof may be limited by bankruptcy, insolvency or other laws relating to
or affecting creditors' rights or by general principles of equity.
(iii) No consent, approval or authorization of, or registration,
declaration or filing with, any court or governmental agency or body of
the United States of America or any state thereof was or is required for
the execution, delivery or performance by the Trustee of the Indenture.
(7) The favorable opinion, dated the Closing Date, of Brown & Wood
LLP, counsel for the Underwriters, with respect to the issue and sale of
the Notes, the Registration Statement, this Agreement, the Prospectus and
such other related matters as the Underwriters may require.
(e) On the Closing Date, there shall not have been, since the date
hereof or since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change
in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company or Walter Industries, and the
Underwriters shall have received a certificate of the Chairman of the
Board, the President or any Vice President of Walter Industries, on behalf
of each of Walter Industries and the Company, dated as of the Closing
Date, to the effect that (i) there has been no such material adverse
change, (ii) the representations and warranties in Section 1 are true and
correct with the same force and effect as though expressly made at and as
of the Closing Date, (iii) each of the Company and Walter Industries has
complied with all agreements and satisfied all conditions on its part to
be performed or satisfied at or prior to the Closing Date and (iv) no stop
order suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been initiated or
threatened by the Commission.
(f) At the Closing Date, Price Waterhouse LLP shall have furnished
to you a letter of such firm (I) to the effect that (i) they have made a
statistical sample of the Accounts, compared certain attributes from the
files relating to such Accounts to a magnetic tape prepared by the Issuer,
(ii) as a result of such comparison they are [95]% confident that the
information in Account files for the attributes so tested will not vary
from the corresponding
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information on such magnetic tape by more than [3]% and (iii) based on
certain assumptions supplied to them by the Issuer, the amounts in the
Collection Account on each Payment Date will be sufficient to make the
payment of interest and principal on the Notes issued by the Issuer due on
such Payment Date and to pay the final installment of principal of such
Notes on or before the Maturity Date for such Notes and (II) to the effect
of the letter furnished by them to the Trustee pursuant to Section 2.12(g)
of the Indenture in connection with the issuance of the Notes. (Such
letter may consist of a copy of the letter furnished to the Trustee
accompanied by a letter addressed to you indicating that you may rely on
such letter as if it were addressed to you directly.)
(g) On the Closing Date, Price Waterhouse LLP shall have furnished
to you a letter or letters, dated as of the Closing Date, addressed to
you, to such effect as you reasonably may request in respect of the
Prospectus.
(h) On the Closing Date, you shall have received from the Trustee a
certificate signed by one or more duly authorized officers of the Trustee,
dated as of the Closing Date, as to the due acceptance of the Indenture by
the Trustee and the due execution and delivery of the Notes delivered by
the Trustee thereunder and such other matters as you shall request.
(i) By the Closing Date, the Class A-1 Notes shall be rated "AAA" by
Standard and Poor's and "Aaa" by Moody's, the Class A-2 Notes shall be
rated at least "AA" by Standard and Poor's and "Aa2" by Moody's, the Class
A-3 Notes shall be rated at least "A" by Standard and Poor's and "A2" by
Moody's and the Class A-4 Notes shall be rated at least "BBB" by Standard
and Poor's and "Baa2" by Moody's.
(j) The Holding Account Agreement shall have been duly authorized,
executed and delivered by all parties thereto.
(k) The Purchase Agreement shall have been duly authorized, executed
and delivered by all parties thereto.
(l) Form UCC-1 financing statements with respect to the Trust Estate
shall have been filed in the appropriate offices in (i) the State of
Florida naming the Issuer as seller/debtor and the Trustee as
buyer/secured party and the Company as debtor and the Issuer as secured
party and (ii) the State of Delaware naming the Issuer as debtor and the
Trustee as secured party.
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(m) On the Closing Date, counsel for the Underwriters shall have
been furnished with such documents and opinions as they may require for
the purpose of enabling them to pass upon the issuance and sale of the
Notes as herein contemplated and related proceedings, or in order to
evidence the accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions herein contained; and all proceedings
taken by the Company and Walter Industries in connection with the issuance
and sale of the Notes as herein contemplated shall be satisfactory in form
and substance to the Underwriters and counsel for the Underwriters.
If any condition specified in this Section shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriters by notice to the Company at any time at or prior to the Closing
Date, and such termination shall be without liability of any party to any other
party except as provided in Section 4.
SECTION 6. Indemnification. A. The Company and Walter Industries, jointly
and severally, agree to indemnify and hold harmless the Underwriters and each
person if any, who controls the Underwriters 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 Notes), to which the Underwriters 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 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, provided, however, that the Company
and Walter Industries shall not be liable in any such case if such untrue
statement or omission or such alleged untrue statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company or Walter Industries by any Underwriter through you expressly for use in
the Registration Statement (or any amendment thereto) or in any preliminary
prospectus or each Prospectus (or any amendment or supplement thereto). The
Company and Walter Industries, jointly and severally, shall reimburse the
Underwriters and each such
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controlling person promptly upon demand for any legal or other expenses
reasonably incurred by the Underwriters 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 neither the Company nor Walter Industries shall 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 the Prospectus or the
Registration Statement in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any of the Underwriters
specifically for inclusion therein. The foregoing indemnity agreement is in
addition to any liability which the Company may otherwise have to the
Underwriters or any controlling person of the Underwriters.
B. The Underwriters agree to indemnify and hold harmless the Company, each
of its directors, each of its officers who signed the Registration Statement,
and each person, if any, who controls the Company 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 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 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 or Walter Industries in writing by Lehman
Brothers Inc. on behalf of the Underwriters specifically for inclusion in the
Registration Statement (or any amendment thereto) or in any preliminary
prospectus or each Prospectus (or any amendment or supplement thereto) and shall
reimburse the Company and any such director, officer or controlling person for
any legal or other expenses reasonably incurred by the Company 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 the Underwriters
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may otherwise have to the Company or any such director, officer or controlling
person.
C. Promptly after receipt by any indemnified party under this Section 6 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 6, 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 6 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 6.
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 6 for any legal or other
expenses subsequently incurred by the indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
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
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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 the Underwriters, if the indemnified parties under this
Section 6 consist of the Underwriters or any of their controlling persons, or by
the Company, if the indemnified parties under this Section 6 consists of the
Company or any of the Company's directors, officers or controlling persons.
Each indemnified party, as a condition of the indemnity agreements
contained in Section 6(A) and (B), 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.
SECTION 7. Contribution. If the indemnification provided for in Section 6
shall for any reason be unavailable to or insufficient to hold harmless an
indemnified party under Section 6(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 on the one hand and the Underwriters on the other from
the offering of the Notes or (ii) if the allocation provided by clause (i) above
is not permitted by applicable law, 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 on the one hand and the Underwriters on the
19
<PAGE>
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 the Underwriters and the Company shall be deemed
to be in such proportion so that the Underwriters 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 final cover page of the final Prospectus.
The relative fault of the Underwriters and the Company 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 or by the Underwriters, 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 and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 7 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 7
shall be deemed to include, for purposes of this Section 7, 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 the Underwriters be responsible for any amount in excess
of the underwriting discount applicable to the Notes purchased by the
Underwriters 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.
SECTION 8. Representations Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company and Walter Industries
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Underwriters or
controlling person thereof, or by or on behalf of the Company and Walter
Industries and shall survive delivery of the Notes to the Underwriters.
20
<PAGE>
SECTION 9. Termination of Agreement. (a) The Underwriters may terminate
this Agreement, by notice to the Company and Walter Industries at any time at or
prior to the Closing Date (i) if there has been, since the date of this
Agreement or since the respective dates as of which information is given in the
Registration Statement, any material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Company or Walter Industries whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or any outbreak of hostilities or other
calamity or crisis, the effect of which is such as to make it, in the judgment
of the Underwriter, impracticable to market the Notes or to enforce contracts
for the sale of the Notes, or (iii) if trading generally on either the American
Stock Exchange or the New York Stock Exchange has been suspended, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices for
securities have been required, by either of said Exchanges or by order of the
Commission or any other governmental authority, or if a banking moratorium has
been declared by either Federal or New York authorities.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof.
SECTION 10. Default by One or More of the Underwriters. If one or more of
the Underwriters participating in the offering of Notes shall fail on the
Closing Date to purchase the Notes which it or they are obligated to purchase
hereunder (the "Defaulted Notes"), then such of you as are named herein on
Schedule I shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted Notes in
such amounts as may be agreed upon and upon the terms herein set forth. If,
however, you have not completed such arrangements within such 24-hour period,
then:
(1) if the aggregate principal amount of Defaulted Notes does not
exceed 10% of the aggregate principal amount of the Notes to be purchased
hereunder, the non-defaulting Underwriters named in Schedule I hereto
shall be obligated to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all such non-defaulting Underwriters, or
(2) if the aggregate principal amount of Defaulted Notes exceeds 10%
of the aggregate principal amount of the
21
<PAGE>
Notes to be purchased hereunder, this Agreement shall terminate, without
any liability on the part of any non-defaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriters from liability with respect to any default of such Underwriters
under this Agreement.
In the event, of a default by any Underwriters as set forth in this
Section, either you or the Company shall have the right to postpone the Closing
Date for a period of time not exceeding seven days in order that any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements may be effected.
SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to you shall be
directed to you at Lehman Brothers Inc., Three World Financial Center, 200 Vesey
Street, New York, New York 10285, Attention: Syndicate Department (Fax:
212-528-8822); notices to the Company and Walter Industries shall be directed to
the Company and Walter Industries at 1500 North Dale Mabry Highway, Tampa,
Florida 33622, Attention: Dean M. Fjelstul.
SECTION 12. Parties. This Agreement shall each inure to the benefit of and
be binding upon the Underwriters, the Company, Walter Industries, and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the parties hereto or thereto and their respective successors and the
controlling persons and officers and directors referred to in Section 6 and
their heirs and legal representatives, any legal or equitable right, remedy or
claim under or with respect to this Agreement or any provision herein or therein
contained. This Agreement and all conditions and provisions hereof and thereof
are intended to be for the sole and exclusive benefit of the parties and their
respective successors and said controlling persons and officers and directors
and their heirs and legal representatives and for the benefit of no other
person, firm or corporation. No purchaser of a Note from the Underwriter shall
be deemed to be a successor by reason merely of such purchase.
SECTION 13. Governing Law and Time. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
agreements made and to be performed in said State. Specified times of day refer
to New York City time.
22
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and Walter Industries
counterparts hereof, whereupon this instrument, along with all counterparts,
will become a binding agreement among the Underwriter, the Company and Walter
Industries in accordance with its terms.
Very truly yours,
MID-STATE HOMES, INC.
By:
-----------------------------------
Name:
Title:
WALTER INDUSTRIES, INC.
By:
-----------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED, as of the date first above written:
LEHMAN BROTHERS INC.
as representative of the Underwriters
By:
-----------------------------------
Name:
Title:
23
<PAGE>
Schedule I
<TABLE>
<CAPTION>
Principal Principal Principal Principal
Amount of Amount of Amount of Amount of
Class A-1 Class A-2 Class A-3 Class A-4
Underwriter Notes Notes Notes Notes
- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Lehman Brothers Inc. $____________ $__________ $__________ $__________
Donaldson, Lufkin & Jenrette
Securities Corporation $____________ $__________ $__________ $__________
Merrill Lynch & Co. $____________ $__________ $__________ $__________
NationsBank Capital
Markets, Inc. $____________ $__________ $__________ $__________
Salomon Brothers Inc $____________ $__________ $__________ $__________
Total $ $ $ $
============ ========== ========== ==========
</TABLE>
24
<PAGE>
EXHIBIT A
[Form of New York Counsel Opinion]
A-1
<PAGE>
EXHIBIT B-l
[Form of Florida Counsel Opinion]
B-1-1
<PAGE>
EXHIBIT B-2
[Form of Florida Counsel Opinion]
B-2-1
<PAGE>
EXHIBIT C
[Form of Owner Trustee Opinion]
C-1
<PAGE>
=============================================================
MID-STATE TRUST VI,
Issuer
and
FIRST UNION NATIONAL BANK OF FLORIDA
Trustee
INDENTURE
Dated as of May 1, 1997
Relating to
$287,750,000 [ ]% Asset Backed Notes, Class A-1
$57,750,000 [ ]% Asset Backed Notes, Class A-2
$45,100,000 [ ]% Asset Backed Notes, Class A-3
$48,550,000 [ ]% Asset Backed Notes, Class A-4
=============================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
PRELIMINARY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . 1
GRANTING CLAUSES . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . I-1
SECTION 1.01 General Definitions. . . . . . . . . . . . . . . . . I-1
ARTICLE II THE NOTES. . . . . . . . . . . . . . . . . . . . . .II-1
SECTION 2.01 Forms Generally. . . . . . . . . . . . . . . . . . .II-1
SECTION 2.02 Forms of Notes and Certificate
of Authentication. . . . . . . . . . . . . . . . . .II-1
SECTION 2.03 Notes; General Provisions with
Respect to Principal and Interest
Payments; Allocation of Realized
Loss Amounts.. . . . . . . . . . . . . . . . . . . .II-1
SECTION 2.04 Denominations. . . . . . . . . . . . . . . . . . . .II-3
SECTION 2.05 Execution, Authentication, Delivery
and Dating . . . . . . . . . . . . . . . . . . . . .II-3
SECTION 2.06 Temporary Notes. . . . . . . . . . . . . . . . . . .II-3
SECTION 2.07 Registration, Registration of
Transfer and Exchange. . . . . . . . . . . . . . . .II-4
SECTION 2.08 Mutilated, Destroyed, Lost or
Stolen Notes . . . . . . . . . . . . . . . . . . . .II-6
SECTION 2.09 Payments of Principal and Interest . . . . . . . . .II-7
SECTION 2.10 Persons Deemed Owners. . . . . . . . . . . . . . . .II-9
SECTION 2.11 Cancellation . . . . . . . . . . . . . . . . . . . II-10
SECTION 2.12 Authentication and Delivery of Notes . . . . . . . II-10
SECTION 2.13 Non-Petition . . . . . . . . . . . . . . . . . . . II-13
ARTICLE III COVENANTS; REPRESENTATIONS AND WARRANTIES. . . . . III-1
SECTION 3.01 Payment of Notes . . . . . . . . . . . . . . . . . III-1
SECTION 3.02 Maintenance of Office or Agency. . . . . . . . . . III-1
SECTION 3.03 Money for Note Payments to Be Held
in Trust . . . . . . . . . . . . . . . . . . . . . III-1
SECTION 3.04 Existence of Issuer. . . . . . . . . . . . . . . . III-4
SECTION 3.05 Protection of Trust Estate . . . . . . . . . . . . III-4
SECTION 3.06 Opinions as to Trust Estate. . . . . . . . . . . . III-5
i
<PAGE>
TABLE OF CONTENTS (CONT'D)
Page
----
SECTION 3.07 Performance of Obligations; Servicing
Agreement. . . . . . . . . . . . . . . . . . . . . III-5
SECTION 3.08 Negative Covenants . . . . . . . . . . . . . . . . III-7
SECTION 3.09 Annual Statement as to Compliance. . . . . . . . . III-8
SECTION 3.10 Recording of Assignments . . . . . . . . . . . . . III-8
SECTION 3.11 Representations and Warranties
Concerning the Accounts. . . . . . . . . . . . . . III-9
SECTION 3.12 Trustee's Review of Account Documents. . . . . . .III-12
SECTION 3.13 Trust Estate; Account Documents. . . . . . . . . .III-15
SECTION 3.14 Amendments to Servicing Agreement. . . . . . . . .III-16
SECTION 3.15 Servicer as Agent and Bailee
of Trustee . . . . . . . . . . . . . . . . . . . .III-16
SECTION 3.16 Investment Company Act . . . . . . . . . . . . . .III-16
SECTION 3.17 Business Activity. . . . . . . . . . . . . . . . .III-17
SECTION 3.18 Liability of Owner Trustee . . . . . . . . . . . .III-17
SECTION 3.19 Exculpation of the Trustee . . . . . . . . . . . .III-18
ARTICLE IV SATISFACTION AND DISCHARGE . . . . . . . . . . . . .IV-1
SECTION 4.01 Satisfaction and Discharge of
Indenture. . . . . . . . . . . . . . . . . . . . . .IV-1
SECTION 4.02 Application of Trust Money . . . . . . . . . . . . .IV-2
ARTICLE V DEFAULTS AND REMEDIES. . . . . . . . . . . . . . . . V-1
SECTION 5.01 Event of Default . . . . . . . . . . . . . . . . . . V-1
SECTION 5.02 Acceleration of Maturity; Rescission
and Annulment. . . . . . . . . . . . . . . . . . . . V-2
SECTION 5.03 Collection of Indebtedness and Suits
for Enforcement by Trustee . . . . . . . . . . . . . V-4
SECTION 5.04 Remedies . . . . . . . . . . . . . . . . . . . . . . V-6
SECTION 5.05 Preservation of Trust Estate . . . . . . . . . . . . V-6
SECTION 5.06 Trustee May File Proofs of Claim . . . . . . . . . . V-8
SECTION 5.07 Trustee May Enforce Claims Without
Possession of Notes. . . . . . . . . . . . . . . . .V-10
SECTION 5.08 Application of Money Collected . . . . . . . . . . .V-10
SECTION 5.09 Limitation on Suits. . . . . . . . . . . . . . . . .V-12
SECTION 5.10 Unconditional Rights of Noteholders
to Receive Principal and Interest. . . . . . . . . .V-13
ii
<PAGE>
TABLE OF CONTENTS (CONT'D)
Page
----
SECTION 5.11 Restoration of Rights and Remedies . . . . . . . . .V-13
SECTION 5.12 Rights and Remedies Cumulative . . . . . . . . . . .V-14
SECTION 5.13 Delay or Omission Not Waiver . . . . . . . . . . . .V-14
SECTION 5.14 Control by the Noteholders . . . . . . . . . . . . .V-14
SECTION 5.15 Waiver of Past Defaults. . . . . . . . . . . . . . .V-15
SECTION 5.16 Undertaking for Costs. . . . . . . . . . . . . . . .V-15
SECTION 5.17 Waiver of Stay or Extension Laws . . . . . . . . . .V-16
SECTION 5.18 Sale of Trust Estate . . . . . . . . . . . . . . . .V-16
SECTION 5.19 Action on Notes. . . . . . . . . . . . . . . . . . .V-18
ARTICLE VI THE TRUSTEE. . . . . . . . . . . . . . . . . . . . .VI-1
SECTION 6.01 Duties of Trustee. . . . . . . . . . . . . . . . . .VI-1
SECTION 6.02 Notice of Default. . . . . . . . . . . . . . . . . .VI-2
SECTION 6.03 Rights of Trustee. . . . . . . . . . . . . . . . . .VI-3
SECTION 6.04 Not Responsible for Recitals or
Issuance of Notes. . . . . . . . . . . . . . . . . .VI-3
SECTION 6.05 May Hold Notes . . . . . . . . . . . . . . . . . . .VI-4
SECTION 6.06 Money Held in Trust. . . . . . . . . . . . . . . . .VI-4
SECTION 6.07 Compensation and Reimbursement . . . . . . . . . . .VI-4
SECTION 6.08 Eligibility; Disqualification. . . . . . . . . . . .VI-5
SECTION 6.09 Trustee's Capital and Surplus. . . . . . . . . . . .VI-5
SECTION 6.10 Resignation and Removal; Appointment
of Successor . . . . . . . . . . . . . . . . . . . .VI-6
SECTION 6.11 Acceptance of Appointment by Successor . . . . . . .VI-7
SECTION 6.12 Merger; Conversion, Consolidation
or Succession to Business of Trustee . . . . . . . .VI-7
SECTION 6.13 Preferential Collection of Claims
Against Issuer . . . . . . . . . . . . . . . . . . .VI-8
SECTION 6.14 Co-trustees and Separate Trustees. . . . . . . . . .VI-8
SECTION 6.15 Authenticating Agents. . . . . . . . . . . . . . . VI-10
ARTICLE VII NOTEHOLDERS' LISTS AND REPORTS . . . . . . . . . . VII-1
SECTION 7.01 Issuer to Furnish Trustee Names and
Addresses of Noteholders . . . . . . . . . . . . . VII-1
SECTION 7.02 Preservation of Information;
Communications to Noteholders. . . . . . . . . . . VII-1
SECTION 7.03 Reports by Trustee . . . . . . . . . . . . . . . . VII-1
iii
<PAGE>
TABLE OF CONTENTS (CONT'D)
Page
----
SECTION 7.04 Reports by Issuer. . . . . . . . . . . . . . . . . VII-2
ARTICLE VIII ACCOUNTS, PAYMENTS OF INTEREST AND
PRINCIPAL, AND RELEASES. . . . . . . . . . . . . .VIII-1
SECTION 8.01 Collection of Moneys . . . . . . . . . . . . . . .VIII-1
SECTION 8.02 Collection Account . . . . . . . . . . . . . . . .VIII-1
SECTION 8.03 General Provisions Regarding the
Collection Account . . . . . . . . . . . . . . . .VIII-5
SECTION 8.04 Reports by Trustee to Noteholders. . . . . . . . .VIII-7
SECTION 8.05 Reports by Trustee . . . . . . . . . . . . . . . .VIII-7
SECTION 8.06 Reports by Independent Accountants . . . . . . . .VIII-8
SECTION 8.07 Reports by the Servicer. . . . . . . . . . . . . .VIII-8
ARTICLE IX SUPPLEMENTAL INDENTURES. . . . . . . . . . . . . . .IX-1
SECTION 9.01 Supplemental Indentures without
Consent of Noteholders . . . . . . . . . . . . . . .IX-1
SECTION 9.02 Supplemental Indentures with Consent
of Noteholders . . . . . . . . . . . . . . . . . . .IX-1
SECTION 9.03 Execution of Supplemental Indentures . . . . . . . .IX-3
SECTION 9.04 Effect of Supplemental Indentures. . . . . . . . . .IX-3
SECTION 9.05 Conformity with Trust Indenture Act. . . . . . . . .IX-4
SECTION 9.06. Reference in Notes to Supplemental
Indentures . . . . . . . . . . . . . . . . . . . . .IX-4
ARTICLE X REDEMPTION OF NOTES. . . . . . . . . . . . . . . . . X-1
SECTION 10.01 Optional Redemption of Notes . . . . . . . . . . . . X-1
SECTION 10.02 Form of Redemption Notice. . . . . . . . . . . . . . X-1
SECTION 10.03 Notes Payable on Redemption Date . . . . . . . . . . X-2
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . .XI-1
SECTION 11.01 Compliance Certificates and Opinions . . . . . . . .XI-1
SECTION 11.02 Form of Documents Delivered to Trustee . . . . . . .XI-1
SECTION 11.03 Acts of Noteholders. . . . . . . . . . . . . . . . .XI-3
SECTION 11.04 Notices, etc., to Trustee and Issuer.. . . . . . . .XI-3
SECTION 11.05 Notices and Reports to Noteholders;
Waiver of Notices. . . . . . . . . . . . . . . . . .XI-4
iv
<PAGE>
TABLE OF CONTENTS (CONT'D)
Page
----
SECTION 11.06 Rules by Trustee and Agents. . . . . . . . . . . . .XI-5
SECTION 11.07 Conflict with Trust Indenture Act. . . . . . . . . .XI-5
SECTION 11.08 Effect of Headings and Table of
Contents . . . . . . . . . . . . . . . . . . . . . .XI-5
SECTION 11.09 Successors and Assigns . . . . . . . . . . . . . . .XI-5
SECTION 11.10 Separability . . . . . . . . . . . . . . . . . . . .XI-5
SECTION 11.11 Benefits of Indenture. . . . . . . . . . . . . . . .XI-6
SECTION 11.12 Legal Holidays . . . . . . . . . . . . . . . . . . .XI-6
SECTION 11.13 Governing Law. . . . . . . . . . . . . . . . . . . .XI-6
SECTION 11.14 Counterparts . . . . . . . . . . . . . . . . . . . .XI-6
SECTION 11.15 Recording of Indenture . . . . . . . . . . . . . . .XI-6
SECTION 11.16 Issuer Obligations . . . . . . . . . . . . . . . . .XI-6
SECTION 11.17 Inspection . . . . . . . . . . . . . . . . . . . . .XI-7
v
<PAGE>
INDENTURE, dated as of May 1, 1997 (herein, as amended or supplemented from
time to time as permitted hereby, called this "Indenture"), between MID-STATE
TRUST VI (the "Issuer"), a Delaware business trust and FIRST UNION NATIONAL BANK
OF FLORIDA, a national banking association, as trustee (herein, together with
its permitted successors in the trusts hereunder, called the "Trustee").
PRELIMINARY STATEMENT
The Issuer is a business trust created by a Trust Agreement dated March 1,
1997 between Wilmington Trust Company (in its capacity as Trustee thereunder,
the "Owner Trustee"), and Mid-State Homes, Inc., as Grantor. The Issuer will
act at all times through the Owner Trustee. The Issuer has duly authorized the
execution and delivery of this Indenture to provide for the issuance of its [
]% Asset Backed Notes, Class A-1 (the "Class A-1 Notes"), [ ]% Asset Backed
Notes, Class A-2 (the "Class A-2 Notes"), [ ]%, Asset Backed Notes, Class
A-3 (the "Class A-3 Notes") and [ ]% Asset Backed Notes, Class A-4 (the "Class
A-4 Notes", and together with the Class A-1 Notes, Class A-2 Notes and Class A-3
Notes, the "Notes") issuable as provided in this Indenture. All covenants and
agreements made by the Issuer herein are for the benefit and security of the
Holders of the Notes and for the benefit and security of the Trustee, in its
individual capacity, to the extent of its interest. The Issuer is entering into
this Indenture, and the Trustee is accepting the trusts created hereby, for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged.
All things necessary to make this Indenture a valid agreement of the Issuer
in accordance with its terms have been done.
GRANTING CLAUSES
The Issuer hereby Grants to the Trustee, for the exclusive benefit of the
Holders of the Notes, all of the Issuer's right, title and interest in and to
(a) the Accounts listed in the Schedule of Accounts delivered to the Trustee
pursuant to this Indenture and property acquired in respect thereof, including
the
<PAGE>
related Account Documents and all Monthly Payments that have not been received
prior to the Cut-Off Date hereof regardless of the Due Date for such Monthly
Payment, (b) the Servicing Agreement (including the right to compel performance
by the Subservicer), (c) the Purchase and Sale Agreement, (d) all cash,
instruments or other property held or required to be deposited in the Collection
Account and the Holding Account, including all investments made with funds in
the Collection Account and the Holding Account and all income from investments
made with funds in the Collection Account and the Holding Account and (e) all
proceeds in any way derived from any of the foregoing, including all proceeds of
the conversion, voluntary or involuntary, of any of the foregoing into cash or
other assets, including, without limitation, all new Accounts originated in
connection with the sale of property acquired in respect of Accounts, all
insurance proceeds and condemnation awards. Such Grants are made, however, in
trust to secure the Notes equally and ratably without priority or
discrimination, except as provided in this Indenture, between any Note and any
other Note by reason of difference in time of issuance or otherwise, and to
secure (i) the payment of all amounts due on the Notes in accordance with their
terms, (ii) the payment of all other sums payable under this Indenture and (iii)
compliance with the provisions of this Indenture, all as provided in this
Indenture. (All terms used in the foregoing Granting Clauses that are defined
in Section 1.01 are used with the meanings given in said Section.)
The Trustee acknowledges such Grant, accepts the trusts hereunder in
accordance with the provisions of this Indenture and agrees to perform the
duties herein required to the end that the interests of the Holders of the Notes
may be adequately and effectively protected.
2
<PAGE>
DEFINITIONS
SECTION 1.01. GENERAL DEFINITIONS.
Except as otherwise specified or as the context may otherwise require, the
following terms have the respective meanings set forth below for all purposes of
this Indenture, and the definitions of such terms are applicable to the singular
as well as to the plural forms of such terms and to the masculine as well as to
the feminine and neuter genders of such terms. The term "including" shall mean
"including without limitation". All other terms used herein that are defined in
the Trust Indenture Act (as hereinafter defined), either directly or by
reference herein, have the meanings assigned to them therein.
"ACCOUNT": (i) a building contract or installment sale contract together
with the related Account Note and Mortgage and (ii) any new Account with a
related Account Note and Mortgage entered into in connection with the
liquidation of the items specified in (i) and the sale of property acquired in
respect thereof. The term "Outstanding Accounts" as of any date means the
Accounts other than those which, as of or prior to such date as indicated in any
report of the Servicer delivered to the Trustee pursuant to Section 3.01 of the
Servicing Agreement, have been the subject of a Full Prepayment or as to which
the Servicer has determined that no further amounts can be recovered.
"ACCOUNT DOCUMENTS": With respect to each Account (i) the building or
installment sale contract relating to such Account, (ii) the Account Note,
endorsed to the order of the Issuer, without recourse, and endorsed by the
Issuer in blank or to the order of the Trustee, without recourse, (iii) the
original of the recorded Mortgage and the originals of all other documents, if
any, securing said Account Note, (iv) unrecorded Assignments in recordable form
to the Trustee, together with originals or certified copies (to the extent
provided below) of any recorded assignment(s) from the originator of such
Account to the Grantor and from the Grantor to the Issuer, (v) the originals of
any assumption agreement, written assurance or substitution agreement required
to be delivered to the Trustee pursuant to Section 2.10 of the Servicing
Agreement, (vi) all insurance policies,
I-1
<PAGE>
including without limitation fire and extended hazard insurance policies,
related to the Accounts, naming the Issuer, the Trustee, the Servicer or the
Subservicer as the loss payee of such policies, and (vii) any and all other
documents or instruments in the possession of the Grantor relating to the
Accounts, which evidence, or were created in connection with the origination of,
or necessary for the administration of the Accounts, including without
limitation any credit reports, copies of deeds, completion certificates, title
search reports and loan applications; if the original copy of any document
described in clause (iii), (iv) or (v) has been retained by the recording office
in which such document was recorded, then a copy thereof certified as true and
correct by a duly authorized representative of such recording office shall be
included as part of the Account Documents for the related Account.
Notwithstanding any provision contained herein, the Trustee shall have no duty
to review, maintain custody of or take any action with respect to the documents
set forth in clauses (vi) and (vii) above.
"ACCOUNT NOTE": The original note, building or installment sale contract
or other evidence of indebtedness executed by an Obligor that evidences the
indebtedness of such Obligor under an Account.
"ACCOUNT NUMBER": With respect to any Account, the number assigned to such
Account by the Issuer.
"ACCOUNTANT": A Person engaged in the practice of accounting who (except
when this Indenture provides that an Accountant must be Independent) may be
employed by or affiliated with the Issuer or an Affiliate of the Issuer.
"ACCRUAL DATE": The date upon which interest begins accruing on the Notes,
which date is April 1, 1997.
"ACT": With respect to any Noteholder, as defined in Section 11.03.
"AFFILIATE": With respect to any Person, any other Person controlling or
controlled by or under common control with such specified Person. For the
purposes of this definition, "control" when used with respect to any specified
Person means the power to direct the management and policies of such Person,
directly or
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indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"AGENT": Any Note Registrar, Paying Agent or Authenticating Agent.
"AGGREGATE ECONOMIC BALANCE": With respect to the Accounts, the aggregate
of the Economic Balances of all such Accounts at the time of determination.
"AGGREGATE OUTSTANDING PRINCIPAL BALANCE": As of any Payment Date, an
amount equal to the sum of the Outstanding Principal Balances as of such Payment
Date.
"ASSIGNMENTS": Collectively, (i) the original instrument of assignment of
such Mortgage, Account Note and other documents made by the Grantor to the
Issuer and (ii) the original instrument of assignment of such Mortgage, Account
Note and other documents made by the Issuer to the Trustee (which in either case
may to the extent permitted by the laws of the state in which the related
Mortgaged Property is located be a blanket instrument of assignment covering
other Mortgages and Account Notes as well and which may also, to the extent
permitted by the laws of the state in which the related Mortgaged Property is
located, be an instrument of assignment running directly from the mortgagee of
record under the related Mortgage to the Trustee).
"AUTHENTICATING AGENT": The Person, if any, appointed as Authenticating
Agent by the Trustee at the request of the Issuer pursuant to Section 6.15,
until any successor Authenticating Agent is named, and thereafter
"Authenticating Agent" shall mean such successor.
"AUTHORIZED OFFICER": In the case of the Owner Trustee, the President, any
Vice-President, Financial Services Officer or Trust Officer or any other officer
of the Owner Trustee who is authorized to act for the Owner Trustee in respect
of the Issuer.
"AVAILABLE FUNDS": With respect to any Payment Date, the sum of (i) the
amount of collections on the Accounts on deposit in the Collection Account at
the close of business on the last Business Day of the related Due Period, plus
(ii) net
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reinvestment income earned on funds in the Collection Account from the date two
Business Days prior to the preceding Payment Date to the date two Business Days
prior to such Payment Date. Available Funds will be net of any Issuer Expenses.
"AVAILABLE FUNDS ALLOCATION": The allocation of Available Funds pursuant
to Section 8.02(c) hereof.
"BANK": Wilmington Trust Company, a Delaware banking corporation, in its
individual capacity and not as Owner Trustee pursuant to the Trust Agreement, or
any successor in its individual capacity.
"BUSINESS DAY": Any day that is not a Saturday, Sunday or other day on
which commercial banking institutions in the City of New York or in the city in
which the Corporate Trust Office is located are authorized or obligated by law
or executive order to be closed.
"CLASS" Any one of the classes of Notes issued pursuant to this Indenture.
"CLASS A-1 INITIAL PRINCIPAL BALANCE": $287,750,000.
"CLASS A-1 OPTIMAL PRINCIPAL AMOUNT": On any Payment Date, an amount equal
to the product of (i) the Optimal Principal Amount for such Payment Date and
(ii) a fraction, the numerator of which is the Class A-1 Outstanding Principal
Balance for such Payment Date and the denominator of which is the Aggregate
Outstanding Principal Balance for such Payment Date; such product not to exceed
the Class A-1 Outstanding Principal Balance.
"CLASS A-1 OUTSTANDING PRINCIPAL BALANCE": As of any Payment Date, the
Class A-1 Initial Principal Balance reduced by (i) all payments, if any, made on
the Class A-1 Notes in reduction of principal balance made on all prior Payment
Dates and (ii) all Class A-1 Realized Loss Amounts with respect to prior Payment
Dates.
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"CLASS A-1 REALIZED LOSS AMOUNT": With respect to any Payment Date, an
amount equal to the excess of (i) the Class A-1 Outstanding Principal Balance as
of such Payment Date (after application of the Class A-1 Optimal Principal
Amount, but prior to the application of losses on such Payment Date) over (ii)
the Aggregate Economic Balance of the Accounts immediately following the Due
Period related to such Payment Date.
"CLASS A-2 INITIAL PRINCIPAL BALANCE": $57,750,000
"CLASS A-2 OPTIMAL PRINCIPAL AMOUNT": On any Payment Date, an amount equal
to the product of (i) the Optimal Principal Amount for such Payment Date and
(ii) a fraction, the numerator of which is the Class A-2 Outstanding Principal
Balance for such Payment Date and the denominator of which is the Aggregate
Outstanding Principal Balance for such Payment Date; such product not to exceed
the Class A-2 Outstanding Principal Balance.
"CLASS A-2 OUTSTANDING PRINCIPAL BALANCE": As of any Payment Date, the
Class A-2 Initial Principal Balance reduced by (i) all payments, if any, made on
the Class A-2 Notes in reduction of principal balance made on all prior Payment
Dates and (ii) all Class A-2 Realized Loss Amounts with respect to prior Payment
Dates.
"CLASS A-2 REALIZED LOSS AMOUNT": With respect to any Payment Date, an
amount equal to the excess of (i) the sum of (a) the Class A-1 Outstanding
Principal Balance as of such Payment Date (after application of the Class A-1
Optimal Principal Amount, but prior to the application of losses on such Payment
Date) and (b) the Class A-2 Outstanding Principal Balance as of such Payment
Date (after application of the Class A-2 Optimal Principal Amount, but prior to
the application of losses on such Payment Date) over (ii) the Aggregate Economic
Balance of the Accounts immediately following the Due Period related to such
Payment Date.
"CLASS A-3 INITIAL PRINCIPAL BALANCE": $45,100,000.
"CLASS A-3 OPTIMAL PRINCIPAL AMOUNT": On any Payment Date, an amount equal
to the product of (i) the Optimal Principal Amount for such Payment Date and
(ii) a fraction, the numerator of which is the Class A-3 Outstanding Principal
Balance for such
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Payment Date and the denominator of which is the Aggregate Outstanding Principal
Balance for such Payment Date; such product not to exceed the Class A-3
Outstanding Principal Balance.
"CLASS A-3 OUTSTANDING PRINCIPAL BALANCE": As of any Payment Date, the
Class A-3 Initial Principal Balance reduced by (i) all payments, if any, made on
the Class A-3 Notes in reduction of principal balance made on all prior Payment
Dates and (ii) all Class A-3 Realized Loss Amounts with respect to prior Payment
Dates.
"CLASS A-3 REALIZED LOSS AMOUNT": With respect to any Payment Date, an
amount equal to the excess of (i) the sum of (a) the Class A-1 Outstanding
Principal Balance as of such Payment Date (after application of the Class A-1
Optimal Principal Amount, but prior to the application of losses on such Payment
Date), (b) the Class A-2 Outstanding Principal Balance as of such Payment Date
(after application of the Class A-2 Optimal Principal Amount, but prior to the
application of losses on such Payment Date) and (c) the Class A-3 Outstanding
Principal Balance as of such Payment Date (after application of the Class A-3
Optimal Principal Amount, but prior to the application of losses on such Payment
Date) over (ii) the Aggregate Economic Balance of the Accounts immediately
following the Due Period related to such Payment Date.
"CLASS A-4 INITIAL PRINCIPAL BALANCE": $48,550,000
"CLASS A-4 OPTIMAL PRINCIPAL AMOUNT": On any Payment Date, an amount equal
to the product of (i) the Optimal Principal Amount for such Payment Date and
(ii) a fraction, the numerator of which is the Class A-4 Outstanding Principal
Balance for such Payment Date and the denominator of which is the Aggregate
Outstanding Principal Balance for such Payment Date; such product not to exceed
the Class A-4 Outstanding Principal Balance.
"CLASS A-4 OUTSTANDING PRINCIPAL BALANCE": As of any Payment Date, the
Class A-4 Initial Principal Balance reduced by (i) all payments, if any, made on
the Class A-4 Notes in reduction of principal balance made on all prior Payment
Dates and (ii) all Class A-4 Realized Loss Amounts with respect to prior Payment
Dates.
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"CLASS A-4 REALIZED LOSS AMOUNT": With respect to any Payment Date, an
amount equal to the excess of (i) the sum of (a) the Class A-1 Outstanding
Principal Balance as of such Payment Date (after application of the Class A-1
Optimal Principal Amount, but prior to the application of losses on such Payment
Date), (b) the Class A-2 Outstanding Principal Balance as of such Payment Date
(after application of the Class A-2 Optimal Principal Amount, but prior to the
application of losses on such Payment Date), (c) the Class A-3 Outstanding
Principal Balance as of such Payment Date (after application of the Class A-3
Optimal Principal Amount, but prior to the application of losses on such Payment
Date) and (d) the Class A-4 Outstanding Principal Balance as of such Payment
Date (after application of the Class A-4 Optimal Principal Amount, but prior to
the application of losses on such Payment Date) over (ii) the Aggregate Economic
Balance of the Accounts immediately following the Due Period related to such
Payment Date.
"CLASS INTEREST SHORTFALL": With respect to a Class of Notes on any
Payment Date, an amount equal to the excess, if any, of the Interest Accrual
Amount for such Class of Notes over Available Funds (less any interest paid on
such Payment Date on each Class of Notes senior to such Class of Notes);
provided, however, that such amount shall not include interest due and payable
with respect to unreimbursed Realized Loss Amounts.
"CLASS OPTIMAL PRINCIPAL AMOUNT": Any of the Class A-1 Optimal Principal
Amount, the Class A-2 Optimal Principal Amount, the Class A-3 Optimal Principal
Amount and the Class A-4 Optimal Principal Amount, as applicable.
"CLOSING DATE": The date on which the Notes are first executed,
authenticated and delivered pursuant to Section 2.12.
"COLLATERAL DEFICIENCY AMOUNT": With respect to a Payment Date, the
amount, if any, by which the Aggregate Outstanding Principal Balance of the
Notes (after giving effect to the principal payment, if any, funded out of
Remaining Available Funds on such Payment Date) exceeds the Aggregate Economic
Balance of the Accounts as of the first day of the month preceding the month of
such Payment Date.
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"COLLECTION ACCOUNT": The trust account or accounts created and maintained
pursuant to Section 8.02.
"COMMISSION": The Securities and Exchange Commission, as from time to time
constituted, created under the Securities Exchange Act of 1934, as amended, or
if at any time such Commission is not existing and performing the duties now
assigned under the Trust Indenture Act, then the body performing such duties at
such time under the Trust Indenture Act or similar legislation replacing the
Trust Indenture Act.
"CORPORATE TRUST OFFICE": The designated corporate trust office of the
Trustee located at 200 South Biscayne Blvd., 14th Floor (FL 6065), Miami,
Florida 33131 or at such other address as the Trustee may designate from time to
time by notice to the Noteholders and the Issuer, or the principal corporate
trust office of any successor Trustee.
"CUMULATIVE ACTUAL NET ECONOMIC LOSSES": With respect to any Payment Date,
the cumulative excess as of the end of the related Due Period of (A) the
Economic Balance of all Accounts that have been repossessed or that have been
charged off, written off or otherwise reduced, in whole or in part, without any
repossession over (B) the Net Liquidation Proceeds, if any, of such Accounts,
any new Account that is part of such Net Liquidation Proceeds being valued for
this purpose at its Economic Balance, and the remaining Outstanding Economic
Balance of any Account that has been charged-off, written-off or reduced for any
reason, in part but not in whole.
"CUT-OFF DATE": February 28, 1997.
"DEBT SERVICE REQUIREMENT DETERMINATION DATE": The date prior to each
Payment Date as of which the Trustee is required to compute the amount due and
payable on the Notes on such Payment Date; such date is the fifth Business Day
prior to a Payment Date.
"DEFAULT": Any occurrence which is, or with notice or the lapse of time or
both would become, an Event of Default.
"DEFECTIVE ACCOUNT": The meaning specified in Section 3.11(b) and Section
3.12(b).
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"DELETED ACCOUNT": The meaning specified in Section 3.11(b) and Section
3.12(b).
"DELINQUENCY RATIO": The ratio (expressed as a percentage), computed for
any Payment Date of (i) the average Aggregate Economic Balance of Accounts for
the related Due Period for which the Monthly Payment thereon remains unpaid for
60 days or more after the Due Date thereof to (ii) the average Aggregate
Economic Balance for such Due Period.
"DUE DATE": With respect to any Account, the date each month on which the
Monthly Payment is payable.
"DUE PERIOD": With respect to a Payment Date, the three-month period
beginning immediately following the end of the preceding Due Period (or, in the
case of the Due Period which is applicable to the first Payment Date, beginning
on the day after the Cut-Off Date) and ending at the close of business on the
last Business Day in the second month prior to the month in which such Payment
Date occurs.
"ECONOMIC BALANCE": With respect to any Account, the present value of all
remaining Monthly Payments from the date of determination discounted monthly at
a rate equal to the Effective Financing Rate; PROVIDED, HOWEVER, that Accounts
with any of the following characteristics on the Cut-Off Date shall be deemed to
have an Economic Balance of zero:
(i) the sum of all Monthly Payments and all other amounts due under
such Account is $200 or less.
(ii) an Economic Balance determined in the manner provided above of
zero or less than zero.
(iii) an Effective Financing Rate of below 8% per annum or above 10.25%
per annum.
(iv) a total number of Monthly Payments greater than 360.
(v) secured by Mortgaged Properties that are not located in Alabama,
Arizona, Arkansas, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky,
Louisiana, Maryland,
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Mississippi, Missouri, New Mexico, North Carolina, Ohio, Oklahoma,
Pennsylvania, South Carolina, Tennessee, Texas, Virginia or West Virginia.
"EFFECTIVE FINANCING RATE": A discount rate which, when applied in a
present value calculation with respect to any Account using monthly compounding,
results in the present value of all originally scheduled Monthly Payments on
such Account being equal to the amount financed stated on the related building
or installment sale contract or other applicable instrument prior to any Monthly
Payments having been made on such Account.
"ELIGIBLE ACCOUNT" (a) A segregated account or accounts maintained with a
depository institution or trust company whose long-term unsecured debt
obligations are rated at least "AA" by S&P and at least "A2" by Moody's at the
time of any deposit therein or whose short-term unsecured debt obligations are
rated at least A-1+ by S&P and at least P-1+ by Moody's (or, if such obligations
are, at the time of such deposit, not rated by S&P or Moody's, then such rating
shall be from any of S&P or Moody's) or (b) a segregated trust account or
accounts maintained with a federal or state chartered depository institution
subject to regulations regarding fiduciary funds on deposit substantially
similar to 12 C.F.R. Section 9.10(b).
"ELIGIBLE INVESTMENTS": Any one or more of the following obligations or
securities:
(a) (i) direct obligations of, and obligations fully guaranteed as
to timely payment by, the United States of America or any agency or
instrumentality of the United States of America, the obligations of which
are backed by the full faith and credit of the United States of America and
(ii) direct obligations of, and obligations guaranteed as to timely payment
by, Federal National Mortgage Association or Federal Home Loan Mortgage
Corporation only if, at the time of investment, they are assigned the
Highest Credit Rating by the Rating Agencies;
(b) demand and time deposits in, certificates of deposit of, or
banker's acceptances issued by any depository institution or trust company
incorporated under the laws of the United States of America (including the
Trustee or any
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agent of the Trustee acting in their respective commercial capacities) or
any State and subject to supervision and examination by federal and/or
State banking authorities; provided that (1) the commercial paper and/or
the debt obligations of such depository institution (or, in the case of the
principal depository institution in a holding company system, the
commercial paper or debt obligations of such holding company) at the time
of such investment or contractual commitment providing for such investment
is assigned the Highest Credit Rating by the Rating Agencies or (2) the
long-term debt securities of such depository institutions are rated "AAA"
and "Aa2" or better by S&P and Moody's respectively;
(c) repurchase obligations pursuant to a written agreement with
respect to (i) any security described in clause (a) above or (ii) any other
security issued or guaranteed by an agency or instrumentality of the United
States of America, in either case entered into with an entity whose debt
obligations are assigned the Highest Credit Rating by the Rating Agencies
(including, if applicable, the Trustee or any agent of the Trustee acting
in their respective commercial capacities) and in each case where the
Trustee has taken delivery of such security;
(d) securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or
any State whose debt obligations are assigned the Highest Credit Rating by
the Rating Agencies at the time of such investment or contractual
commitment providing for such investment; PROVIDED, HOWEVER, that
securities issued by any particular corporation will not be Eligible
Investments to the extent that such an investment therein will cause the
then outstanding principal amount of securities issued by such corporation
and held as part of the Trust Estate for the Notes to exceed 10% of the
Trust Estate for the Notes;
(e) commercial paper (including both non-interest-bearing discount
obligations and interest-bearing obligations payable on demand or on a
specified date not more than one year after the date of issuance thereof)
which
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have been assigned the Highest Credit Rating by the Rating Agencies at the
time of such investment;
(f) certificates or receipts representing ownership interests in
future interest or principal payments on obligations described in clause
(a) above which are held by a custodian on behalf of the holders of such
certificates or receipts;
(g) any other demand or time deposit, obligation, security or
investment provided that the Issuer shall have given prior written notice
of such other investment to the Rating Agencies, and the Trustee shall have
received written confirmation from each of the Rating Agencies that no
reduction, withdrawal or qualification in the rating on the Notes by either
such Rating Agency will result from the addition of such Eligible
Investment; and
(h) Eurodollar denominated certificates of deposit or time deposits
issued by a foreign depository institution or a depository institution
organized under the laws of the United States or any state thereof so long
as at the time of such investment or contractual commitment providing for
such investment (1) the commercial paper or other short-term debt
obligations of such depository institution (or, in the case of a depository
institution which is the principal subsidiary of a holding company, the
commercial paper or other short-term debt obligations of such holding
company) have the Highest Credit Ratings available from the Rating
Agencies; or (2) the long-term debt securities of such depository
institution are rated "AAA" and "Aa2" or better by S&P and Moody's,
respectively.
"ELIGIBLE MONEYS": Any moneys on deposit in trust with the Trustee for the
benefit of the Noteholders with respect to which the Trustee has received an
unqualified opinion of counsel nationally recognized as expert in bankruptcy
acceptable to the Trustee that payment of such amounts to the Noteholders would
not constitute avoidable preferences under Section 547 of the United States
Bankruptcy Code or similar state laws with avoidable preference provisions in
the event of the filing of a petition for relief under the United States
Bankruptcy Code or similar state laws with avoidable preference provisions by or
against the
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Issuer or any borrower or the person from whom the money is received, if other
than the Issuer or the borrower.
"EVENT OF DEFAULT": The meaning specified in Section 5.01.
"FINAL SCHEDULED PAYMENT DATE": The Payment Date on July 1, ____.
"FHLMC": Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.
"FNMA": Federal National Mortgage Association, a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, or any successor thereto.
"FULL PREPAYMENT": Payment to the Servicer, whether by the Obligor or
through Insurance Proceeds, of an amount with respect to an Account such that
the full amount due with respect to such Account has been paid.
"GRANT": To mortgage, pledge, assign and grant a security interest in. A
Grant of an Account and the related Account Documents, an Eligible Investment, a
Servicing Agreement or any other instrument shall include all rights, powers and
options (but none of the obligations) of the Granting party thereunder,
including without limitation the immediate and continuing right to claim,
collect, receive and receipt for payments in respect of the Account or Eligible
Investment, insurance proceeds, condemnation awards, purchase prices and all
other moneys payable thereunder and all proceeds thereof, 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 which the
Granting party is or may be entitled to do or receive thereunder or with respect
thereto.
"GRANTOR": Mid-State Homes, Inc., a Florida corporation, in its capacity
as grantor of the Trust, and as otherwise defined in the Trust Agreement.
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"HAZARD INSURANCE POLICY": With respect to each Account, the policy of
fire and extended coverage insurance required to be maintained for the related
Mortgaged Property, as provided in Section 2.13 of the Servicing Agreement, and
which, as provided in said Section 2.13, may be a blanket mortgage impairment
policy maintained by the Servicer in accordance with the terms and conditions of
said Section 2.13.
"HAZARD INSURER": The named insurer in any Hazard Insurance Policy.
"HIGHEST CREDIT RATING": With respect to Moody's, P-1 or Aaa and with
respect to S&P, A1+ or AAA.
"HOLDING ACCOUNT": The account created and maintained pursuant to the
Holding Account Agreement.
"HOLDING ACCOUNT AGREEMENT": The Holding Account Agreement dated as of May
1, 1997 among First Union National Bank of Florida, as custodian for the
Trustee, the Servicer and the Issuer.
"INDENTURE" or "THIS INDENTURE": This instrument as originally executed
and, if from time to time supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
as so supplemented or amended. All references in this instrument to designated
"Articles", "Sections", "Subsections" and other subdivisions are to the
designated Articles, Sections, Subsections and other subdivisions of this
instrument as originally executed. The words "herein", "hereof", "hereunder"
and other words of similar import refer to this Indenture as a whole and not to
any particular Article, Section, Subsection or other subdivision.
"INDEPENDENT": When used with respect to any specified Person means such a
Person who (1) is in fact independent of the Issuer, any Affiliate of the
Issuer, any other obligor upon the Notes and any Affiliate of any such other
obligor, (2) does not have any direct financial interest or any material
indirect financial interest in the Issuer or in any such other obligor or in an
Affiliate of the Issuer or such other obligor, and (3) is not connected with the
Issuer, any Affiliate of the Issuer, any
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such other obligor or any Affiliate of any such other obligor as an officer,
employee, promoter, underwriter, trustee, partner, director or person performing
similar functions. Whenever it is herein provided that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by an Issuer Order and approved by the Trustee in the exercise of
reasonable care and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
thereof.
"INDIVIDUAL NOTE": A Note of an initial principal amount of $1,000; a Note
of an original principal amount in excess of $1,000 shall be deemed to be a
number of Individual Notes equal to the quotient obtained by dividing such
initial principal amount by $1,000.
"INSURANCE PROCEEDS": Amounts paid by a Hazard Insurer with respect to a
particular Mortgaged Property pursuant to any related Hazard Insurance Policy or
paid by any other insurer with respect to a particular Mortgaged Property
pursuant to any other related insurance policy.
"INSURED EXPENSES": Expenses incurred by the Servicer in connection with
an Account under which the mortgagor is in default which are covered by any
related Hazard Insurance Policy and are paid by the Hazard Insurer under any
such policy.
"INTEREST ACCRUAL AMOUNT": As to any Class of Notes for any Payment Date,
an amount equal to the interest accrued on the Outstanding Principal Balance of
such Class of Notes (after giving effect to payments and allocations of losses
on the preceding Payment Date) during the Interest Accrual Period ending on the
day prior to the Payment Date at the applicable Note Interest Rate for such
Class of Notes; provided, however, that such amount shall not include interest
due and payable with respect to unreimbursed Realized Loss Amounts.
"INTEREST ACCRUAL PERIOD": The three-month period ending on the day prior
to such Payment Date.
"INTEREST PAYMENT DATE": Each January 1, April 1, July 1 and October 1
commencing July 1, 1997.
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"ISSUER": Mid-State Trust VI, a Delaware business trust created pursuant
to the Trust Agreement, until a successor Person shall have become the Issuer
pursuant to the applicable provisions of this Indenture, and thereafter "Issuer"
shall mean such successor Person.
"ISSUER EXPENSES": All operating expenses of the Issuer (exclusive of
interest on the Notes, but including the fees and expenses of the Owner Trustee,
the Trustee (including, without limitation, amounts to which the Trustee is
entitled under Section 5.04), the Successor Servicer and the Servicing Fee).
"ISSUER ORDER" and "ISSUER REQUEST": A written order or request signed in
the name of the Issuer by an Authorized Officer, and delivered to the Trustee.
"LIQUIDATION EXPENSES": Expenses incurred by the Servicer in connection
with the liquidation of any Account which is in default and the sale of any
property acquired in respect thereof which are not recoverable as Insured
Expenses and are otherwise reimbursable to the Servicer in accordance with
Sections 2.07(c), 2.11 and 2.15 of the Servicing Agreement.
"LIQUIDATION PROCEEDS": Cash and new Account Notes with related security
instruments received by the Servicer (before reimbursement of the Servicer for
Liquidation Expenses) in connection with the liquidation of any Account which is
in default and the sale of any property acquired in respect thereof, whether as
Insurance Proceeds or through trustee's sale, foreclosure sale or otherwise.
"MATURITY": With respect to the Notes, the date on which the entire unpaid
principal amount of the Notes becomes due and payable as therein or herein
provided, whether at the date specified therefor in the Notes or by declaration
of acceleration, call for redemption or otherwise.
"MATURITY DATE": With respect to any Account, the date on which the last
payment of principal of such Account shall be due and payable.
"MINIMUM TARGET OVERCOLLATERALIZATION AMOUNT": For any Payment Date, (a)
an amount equal to the greater of (i) the
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product of (x) 10% and (y) the Aggregate Economic Balance of the Accounts as of
the first day of the month preceding the month of such Payment Date and (ii)
$16,180,055 or (b) in the event that (i) Mid-State Homes, Inc. is no longer the
Servicer, (ii) the cumulative losses on the Accounts exceed 4.75%, 5.50%, 6.50%,
7.00% and 8.00% of the Aggregate Economic Balance as of the Cut-Off Date, at the
end of four, five, six, seven and eight years after the Cut-Off Date,
respectively, or exceed 8.00% thereafter or (iii) the Delinquency Ratio as of
any Payment Date exceeds 8.00% and continues, an amount equal to the greater of
(a) the Aggregate Outstanding Principal Balance and (b) the Aggregate Economic
Balance of the Accounts as of the month preceding the month of such Payment
Date.
"MONTH OF CLOSING": The month in which the Closing Date occurs.
"MONTHLY CUT-OFF DATE": As defined in the Servicing Agreement.
"MONTHLY PAYMENT": With respect to any Account, the scheduled monthly
payment payable to the holder of such Account in accordance with the terms of
the related Account Note.
"MOODY'S": Moody's Investors Service, Inc. and its successors.
"MORTGAGE": With respect to an Account, the original mortgage, deed of
trust, mechanic's lien contract or other security instrument executed by an
Obligor which creates a lien on real property and improvements thereon securing
an Account Note, or any Trust Mortgage.
"MORTGAGED PROPERTY": The real property and improvements thereon that are
subject to a Mortgage.
"NET LIQUIDATION PROCEEDS": With respect to any Account, the amount
derived by subtracting from the Liquidation Proceeds of such Account the related
Liquidation Expenses.
"NOTE INTEREST RATE": With respect to each Class, the annual rate at which
interest accrues on such Class of Notes, as specified in such Class of Notes and
in Section 2.03.
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"NOTE REGISTER" and "NOTE REGISTRAR": As defined in Section 2.07.
"NOTES": Any notes authorized by, and authenticated and delivered under,
this Indenture.
"NOTEHOLDER" or "HOLDER": The Person in whose name a Note is registered in
the Note Register.
"OBLIGOR": Each Person who is indebted under an Account Note or who has
acquired real property subject to the Mortgage securing an Account Note.
"OFFICERS' CERTIFICATE": A Certificate signed by two Authorized Officers.
"OPINION OF COUNSEL": A written opinion of counsel who may, except as
otherwise expressly provided in this Indenture, be counsel for the Issuer and
who shall be satisfactory to the Trustee.
"OPTIMAL PRINCIPAL AMOUNT": An amount equal to (A) on any Payment Date (i)
on or prior to the Target Overcollateralization Date or (ii) after the Target
Overcollateralization Date and on which there exists an uncured Trigger Event,
the Remaining Available Funds; and (B) on any Payment Date after the Target
Overcollateralization Date on which there does not exist an uncured Trigger
Event, the amount which, when paid as principal on the Notes, will result in
achieving or maintaining the Target Overcollateralization Level; provided that
in no event will the Optimal Principal Amount for any Payment Date exceed the
Remaining Available Funds for such Payment Date or the Aggregate Outstanding
Principal Balance.
"OUTSTANDING": As of the date of determination, all Notes theretofore
authenticated and delivered under this Indenture except:
(i) Notes theretofore cancelled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes or portions thereof for whose payment or redemption money
(complying with Section 4.01) in the
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necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Issuer) 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 Trustee, has been made; and
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture unless proof
satisfactory to the Trustee is presented that any such Notes are held by a
Holder in due course;
PROVIDED, HOWEVER, that in determining whether the Holders of the requisite
percentage of the Aggregate Outstanding Principal Balance of the Outstanding
Notes have given any request, demand, authorization, direction, notice, consent
or waiver hereunder, Notes owned by the Issuer, any other obligor upon the Notes
or any Affiliate of the Issuer or such other obligor shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand, authorization,
direction, notice, consent, or waiver, only Notes which the Trustee knows to be
so owned shall be so disregarded. Notes so owned which have been pledged in
good faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Notes and that the pledgee is not the Issuer, any other obligor upon the Notes
or any Affiliate of the Issuer or such other obligor.
"OUTSTANDING PRINCIPAL BALANCE": Any of the Class A-1 Outstanding
Principal Balance, Class A-2 Outstanding Principal Balance, Class A-3
Outstanding Principal Balance and Class A-4 Outstanding Principal Balance.
"OVERCOLLATERALIZATION AMOUNT": With respect to a Payment Date, the amount
equal to (a) the Aggregate Economic Balance of the Accounts on the first day of
the month preceding the month of such Payment Date less (b) the sum of the
Aggregate Outstanding Principal Balance and all unreimbursed Realized Loss
Amounts, in each case after giving effect to the payments made but prior to the
allocation of losses thereon on such Payment Date.
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<PAGE>
"OVERCOLLATERALIZATION PERCENTAGE": A fraction expressed as a percentage
the numerator of which is equal to the excess of (i) the Aggregate Economic
Balance of the Accounts as of the first day of the month preceding the month in
which the Target Overcollateralization Date occurs over (ii) the Aggregate
Outstanding Principal Balance of all Classes of Notes and all unreimbursed
Realized Loss Amounts with respect to all Classes of Notes on the Target
Overcollateralization Date (after giving effect to payments and allocations of
losses on the Target Overcollateralization Date) and the denominator of which is
the Aggregate Economic Balance of the Accounts as of the first day of the month
preceding the month in which the Target Overcollateralization Date occurs.
"OWNER TRUSTEE": Wilmington Trust Company, acting not in its individual
capacity but solely as owner trustee with respect to the Issuer, or such
successor person as shall become owner trustee pursuant to applicable provisions
of this Indenture and shall be owner trustee under, or become owner trustee
pursuant to applicable provisions of the Trust Agreement.
"PAYING AGENT": The Trustee or any other depository institution or trust
company that is authorized by the Issuer pursuant to Section 3.03 to pay the
principal of, or interest on, any Notes on behalf of the Issuer.
"PAYMENT DATE": Any date which is an Interest Payment Date or Principal
Payment Date for the Notes.
"PAYMENT DATE STATEMENT": As defined in Section 2.09(d).
"PERSON": Any individual, corporation, partnership, limited liability
company, joint venture, association, joint stock company, trust (including any
beneficiary thereof), unincorporated organization or government or any agency or
political subdivision thereof.
"PREDECESSOR NOTES": 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 2.08 in lieu of a lost, destroyed or stolen Note
shall be
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deemed to evidence the same debt as the lost, destroyed or stolen Note.
"PRINCIPAL PAYMENT DATE": One of the fixed dates on which an installment
of principal is due and payable on the Notes; such dates are each January 1,
April 1, July 1 and October 1 beginning July 1, 1997.
"PROCEEDING": Any suit in equity, action at law or other judicial or
administrative Proceeding.
"PURCHASE AND SALE AGREEMENT": The Purchase and Sale Agreement, dated the
Closing Date, between Mid-State Homes, Inc. and Mid-State Trust VI which
provides for, among other things, the purchase by Mid-State Trust VI of all
interest of Mid-State Homes, Inc. in the Accounts.
"QUALIFIED SUBSTITUTE ACCOUNT" means an account substituted by the Issuer
for a Deleted Account which must, on the date of such substitution, (i) have an
outstanding Economic Balance, after deduction of all scheduled payments due in
the month of substitution, not less than the Economic Balance of the Deleted
Account (the amount of any shortfall will be deposited into the Collection
Account by the Issuer, pursuant to Section 3.11(b), for distribution to
Noteholders in the month following the month of substitution), (ii) have an
Effective Financing Rate not less than the Effective Financing Rate of the
Deleted Account, (iii) comply with each representation and warranty set forth in
Section 3.11(a), (iv) generally be of like quality and type as the Deleted
Account and (v) have an original term to maturity which shall not exceed [June
1, 2031]. In the event that either one account is substituted for more than one
Deleted Account, or more than one account is substituted for one or more Deleted
Accounts, then the amount described in clause (i) hereof shall be determined on
the basis of aggregate Economic Balances.
"RATING AGENCIES": Each of S&P and Moody's.
"REALIZED LOSS AMOUNT": Any of the Class A-1 Realized Loss Amount, Class
A-2 Realized Loss Amount, Class A-3 Realized Loss Amount and Class A-4 Realized
Loss Amount, as applicable.
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"RECORD DATE": With respect to any Payment Date, the date on which the
Persons entitled to receive any payment of principal of or interest on any Notes
(or notice of a payment in full of principal) due and payable on such Payment
Date are determined; such date shall be the 15th day of the month preceding the
month of such Payment Date.
"REDEMPTION DATE": Any Principal Payment Date on which Notes are to be
redeemed at the option of the Issuer pursuant to Article X.
"REDEMPTION PRICE": With respect to any Note to be redeemed pursuant to
Article X hereof, an amount equal to 100% of the Outstanding Principal Balance
of the Note to be so redeemed (prior to allocations of any Realized Loss
Amounts), together with interest on such amount at the applicable Note Interest
Rate from the latest date to which interest has been paid to the applicable
Redemption Date.
"REMAINING AVAILABLE FUNDS": With respect to any Payment Date, an amount
(which shall not be less than zero) equal to (i) the Available Funds for such
Payment Date reduced by (ii) the amount of interest due and payable on the
unpaid principal Balance of the Notes on such Payment Date (excluding interest
on any Realized Loss Amounts).
"REMITTANCE": With respect to any one or more Accounts for any particular
date or period, the net amount with respect to collections or receipts on such
Account or Accounts for such date or period that is required to be remitted by
the Servicer to the Trustee for deposit in the Collection Account.
"REMITTANCE DATE": The first Business Day of each week, beginning with the
week after the Closing Date and the first Business Day following the end of each
Due Period.
"RESPONSIBLE OFFICER": With respect to the Trustee, the chairman or
vice-chairman of the board of directors, the chairman or vice-chairman of the
executive committee of the board of directors, the president, any vice
president, any assistant vice president, the secretary, any assistant secretary,
the treasurer, any assistant treasurer, the cashier, any trust officer or
assistant trust officer, the controller, any assistant controller or
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any other officer of the Trustee customarily performing functions similar to
those performed by any of the above designated officers and also, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"S&P": Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., its successors and their assigns.
"SALE": As defined in Section 5.18.
"SCHEDULE OF ACCOUNTS": Collectively, the list of Accounts being Granted
to the Trustee as part of the Trust Estate on the Closing Date appearing on a
magnetic tape delivered to the Trustee on the Closing Date which list shall set
forth the following information as of the Cut-Off Date with respect to each such
Account in numbered columns:
COLUMN NUMBER INFORMATION
1 Account Number
2 Zip Code
3 First Payment Date
4 Total number of payments
to be made
5 Monthly Payment
6 Original amount of the note
7 Total finance charge over the
term of the note
8 Paid-through date
9 Status code
10 Resale or original
11 Amount of late charges due
12 Date of last payment received
13 Account balance
14 Taxes due
15 Insurance due
16 Late charges due
17 Other charges due
18 Rebate method
"SERVICER": Mid-State Homes, Inc., a Florida corporation, as servicer
under the Servicing Agreement, and its permitted
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successors and assigns thereunder, including any successor servicer appointed
pursuant to Section 3.07(d).
"SERVICER REPORTING DATE": The date each month on which the Servicer is
required pursuant to Section 3.01 of the Servicing Agreement to report to the
Issuer, the Successor Servicer, the Accountants and the Trustee information
concerning the Accounts, including all collections on the Accounts received by
it during the related Remittance Period (as defined in the Servicing Agreement),
which date shall be the 20th day of each month following such Remittance Period
or, if such day is not a Business Day, the next preceding Business Day.
"SERVICING ACCOUNT": As defined in Section 2.08(b) of the Servicing
Agreement.
"SERVICING AGREEMENT": The Servicing Agreement, dated as of May 1, 1997,
among the Issuer, the Servicer and the Trustee, providing, among other things,
for the servicing of the Accounts, as said agreement may be amended or
supplemented from time to time as permitted hereby and thereby. Such term shall
also include any servicing agreement entered into with a successor servicer
pursuant to Section 3.07(d) hereof.
"SERVICING DEFAULT": Any default by the Servicer under the Servicing
Agreement that is an "Event of Default" under the Servicing Agreement, as
specified in Section 5.01 thereof.
"SERVICING FEE": With respect to any Account, other than an Account with
respect to which (i) the related Mortgaged Property has been repossessed or (ii)
the related Economic Balance is zero pursuant to the proviso of the definition
of "Economic Balance", the fee payable to the Servicer under the Servicing
Agreement, which fee shall be $300 annually, payable in equal monthly
installments.
"SERVICING OFFICER": Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Accounts whose name
appears on a list of servicing officers furnished to the Issuer and the Trustee
by the Servicer, as such list may be amended or supplemented from time to time.
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<PAGE>
"STANDBY SERVICING AGREEMENT": The Standby Servicing Agreement dated as of
May 1, 1997 by and among the Servicer, the Issuer and the Successor Servicer.
"STATED MATURITY DATE": July 1, 2025
"SUB-SERVICER": As defined in the Servicing Agreement.
"SUCCESSOR SERVICER": The Person appointed, or required to act as,
Successor Servicer pursuant to Section 3.07 hereof.
"TARGET OVERCOLLATERALIZATION DATE": The Payment Date occurring in April
2000.
"TARGET OVERCOLLATERALIZATION LEVEL": As of any Payment Date, the level of
overcollateralization that would exist if the Overcollateralization Amount were
equal to the greater of (i) the product of (x) the Overcollateralization
Percentage and (y) the Aggregate Economic Balance of the Accounts as of the
first day of the month preceding the month of such Payment Date and (ii) the
Minimum Target Overcollateralization Amount.
"TRIGGER EVENT": Any one of the following events:
(a) the Issuer fails to make a payment due hereunder and such failure
continues for two Business Days;
(b) the Servicer fails to make a required payment or deposit due
under the Servicing Agreement and such failure continues for four
Business Days;
(c) An Event of Default (as defined in the Servicing Agreement)
occurs under Section 5.01(a)(iii), (iv), (v), (vi) or (vii) of
the Servicing Agreement;
(d) a breach of any covenant of the Servicer in the Servicing
Agreement which may have a materially adverse effect on the
Servicer or its performance under the Servicing Agreement is not
cured within 60 days after the Servicer becomes aware thereof or
after notice thereof from any Person;
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(e) any representation or warranty by Mid-State Homes, Inc. in the
Purchase and Sale Agreement, or any representation or warranty by
the Issuer herein, is incorrect and such breach may have a
material adverse effect on the Issuer or the Noteholders and is
not cured or the related Account is not substituted for or
repurchased by Mid-State Homes, Inc. and in either case released
from the lien of this Indenture, within 90 days after notice
thereof from the Trustee;
(f) there shall occur the entry of a decree or order for relief by a
court having jurisdiction in respect of the Issuer in an
involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or any other present or future federal or
state bankruptcy, insolvency or similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of the Issuer or of any substantial
part of its property, or ordering the winding up or liquidation
of the affairs of the Issuer and the continuance of any such
decree or order unstayed and in effect for a period of 60
consecutive days;
(g) there shall occur the commencement by the Issuer of a voluntary
case under the federal bankruptcy laws, as now or hereafter in
effect, or any other present or future federal or state
bankruptcy, insolvency or similar law, or the consent by the
Issuer to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Issuer or of any substantial part of its
property or the making by the Issuer of an assignment for the
benefit of creditors or the failure by the Issuer generally to
pay its debts as such debts become due or the taking of corporate
action by the Issuer in furtherance of any of the foregoing;
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(h) the Purchase and Sale Agreement, the Servicing Agreement or this
Indenture ceases to be in full force and effect; or
(i) the lien of the Indenture ceases to be effective or ceases to be
of a first priority.
"TRUST": The trust established by the Trust Agreement.
"TRUST AGREEMENT": The trust agreement, dated as of March 1, 1997 between
the Bank and the Grantor.
"TRUST ESTATE": All money, instruments and other property subject or
intended to be subject to the lien of this Indenture for the benefit of the
Holders of the Notes as of any particular time (including all property and
interests Granted to the Trustee in the Granting Clauses of this Indenture),
including all proceeds thereof, and all right, title and interest of the Trustee
in, to and under the Servicing Agreement and all money and property received by
the Trustee pursuant thereto in respect of the Accounts.
"TRUST INDENTURE ACT" or "TIA": The Trust Indenture Act of 1939, as
amended, as in force at the Closing Date, unless otherwise specifically
provided.
"TRUST MORTGAGE": Any mortgage, deed of trust or similar security
instrument from the Issuer to the Trustee encumbering a Mortgaged Property owned
by the Issuer whether as part of an Account transferred on the Closing Date or
pursuant to a foreclosure or repossession of Mortgaged Property.
"TRUSTEE": First Union National Bank of Florida, a national banking
association, until a successor Person shall have become the Trustee pursuant to
the applicable provisions of this Indenture, and thereafter "Trustee" shall mean
such successor Person.
"VICE PRESIDENT": With respect to the Trustee, any vice president, whether
or not designated by a number or a word or words added before or after the title
"vice president".
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"VOTING RIGHTS": With respect to a Class of Notes, a fraction, expressed
as a percentage, the numerator of which is equal to the Aggregate Outstanding
Principal Balance of such Class of Notes and the denominator of which is equal
to the Aggregate Outstanding Principal Balance of all Classes of Notes.
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ARTICLE II
THE NOTES
SECTION 2.01. FORMS GENERALLY.
The Notes and the Trustee's certificate of authentication shall be in
substantially the forms set forth in this Article, 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 be
required to comply with the rules of any securities exchange on which the Notes
may be listed, or as may, consistently herewith, be determined by the officers
executing such Notes, as evidenced by their execution thereof. Any portion of
the text of any Note may be set forth on the reverse thereof with an appropriate
reference on the face of the Notes.
The definitive Notes shall be typewritten, printed, lithographed or
engraved or produced by any combination of these methods or may be produced in
any other manner permitted by the rules of any securities exchange on which the
Notes may be listed, all as determined by the officers executing such Notes, as
evidenced by their execution thereof.
SECTION 2.02. FORMS OF NOTES AND CERTIFICATE OF AUTHENTICATION.
(a) The form of the Class A-1 Notes, the Class A-2 Notes, the Class A-3
Notes and the Class A-4 Notes shall be as set forth respectively as Exhibits A,
B, C and D hereto.
SECTION 2.03. NOTES; GENERAL PROVISIONS WITH RESPECT TO PRINCIPAL AND
INTEREST PAYMENTS; ALLOCATION OF REALIZED LOSS AMOUNTS.
(a) The aggregate principal amount of Notes that may be authenticated
and delivered under the Indenture is limited to $439,150,000, except for
Notes authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Notes pursuant to Sections 2.06, 2.07, 2.08
or 9.06 of this Indenture.
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The Notes shall be divided into four Classes having designations, original
principal amounts, Note Interest Rates and Maturity Dates as follows:
Initial
Principal Note Interest Stated
Designation Balance Rate Maturity Date
- ----------- ---------- ------------- -------------
Class A-1 Notes $287,750,000 [ ] July 1, 2025
Class A-2 Notes $57,750,000 [ ] July 1, 2025
Class A-3 Notes $45,100,000 [ ] July 1, 2025
Class A-4 Notes $48,550,000 [ ] July 1, 2025
The principal of each Note shall be payable in installments ending no later
than the Maturity of the final installment of the principal thereof unless the
unpaid principal of such Note becomes due and payable at an earlier date by
declaration of acceleration or call for redemption or otherwise.
Interest on the Notes of each Class shall be payable on each Interest
Payment Date in the amount of the sum of (i) the Interest Accrual Amount for
such Class of Notes and (ii) all Class Interest Shortfalls for such Class of
Notes that have not previously been paid, together with accrued interest on such
Class Interest Shortfalls at the related Note Interest Rate to the extent
permitted by law. All payments made with respect to any Note shall be applied
first to the interest then due and payable on the current principal amount
outstanding on such Note and then to the principal thereof. All computations of
interest accrued on any Note shall be made as if each year consisted of twelve
months of thirty days each.
On each Payment Date, any Class A-1 Realized Loss Amount will be applied in
reduction of the Class A-1 Outstanding Principal Balance; any Class A-2 Realized
Loss Amount will be applied in reduction of the Class A-2 Outstanding Principal
Balance; any Class A-3 Realized Loss Amount will be applied in reduction of the
Class A-3 Outstanding Principal Balance; and any Class A-4 Realized Loss Amount
will be applied in reduction of the Class A-4 Outstanding Principal Balance; in
each case, until the Outstanding Principal Balance of such Class has been
reduced to zero.
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All payments of principal of and interest on any Note shall be made in the
manner specified in Section 2.09 and in the amounts prescribed in Section 5.08
or 8.02(c), as the case may be.
Notwithstanding any of the foregoing provisions with respect to payments of
principal of and interest on the Notes, if the Notes have become or been
declared due and payable following an Event of Default and such acceleration of
maturity and its consequences have not been rescinded and annulled and the
provisions of Section 5.05(a) are not applicable, then payments of principal of
and interest on the Notes shall be made in accordance with Section 5.08.
All Notes of the same Class shall be identical in all respects except for
the denominations, Note numbers and dates thereof. All Notes of the same class
issued under this Indenture shall be in all respects equally and ratably
entitled to the benefits hereof without preference, priority or distinction on
account of the actual time or times of authentication and delivery, all in
accordance with the terms and provisions of this Indenture.
SECTION 2.04. DENOMINATIONS.
The Notes shall be issuable only as registered Notes in minimum
denominations of $1,000.
SECTION 2.05. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
The Notes shall be executed on behalf of the Issuer by its Authorized
Officer. The signature of any of these officers on the Notes may be manual or
facsimile.
Notes bearing the manual or facsimile signature of individuals who were at
any time Authorized Officers 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.
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The Notes which are authenticated and delivered by the Trustee to or upon
the order of the Issuer on the Closing Date shall be dated the Accrual Date.
All other Notes which are authenticated after the Closing Date for any other
purpose hereunder shall be dated the date of their authentication.
The Notes may be authenticated by the Trustee either at the Corporate Trust
Office or at the Trustee's office or agency in the Borough of Manhattan, City
and State of New York.
No Note shall be entitled to any benefit under this Indenture or be valid
or obligatory for any purpose, unless there appears on such Note a certificate
of authentication substantially in the form provided for in the related exhibit
hereto executed by the Trustee or by any Authenticating Agent by the manual
signature of one of its authorized officers, employees or signatories, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder.
SECTION 2.06 TEMPORARY NOTES.
Pending the preparation of definitive Notes, the Issuer may execute, and
upon Issuer Order the Trustee shall authenticate and deliver, temporary Notes
which are printed, lithographed, type-written, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they may be so issued and with such variations
as the officers executing such Notes may determine, as evidenced by their
execution of such Notes.
If temporary Notes are issued, the Issuer will cause definitive Notes to be
prepared without unreasonable delay. After the preparation of definitive Notes,
the temporary Notes shall be exchangeable for definitive Notes upon surrender of
the temporary Notes at the office or agency of the Issuer to be maintained as
provided in Section 3.02, without charge to the Holder. Upon surrender or
cancellation of any one or more temporary Notes, the Issuer shall execute and
the Trustee shall authenticate and deliver and exchange therefor a like
principal amount of definitive Notes of authorized denominations. Until so
exchanged, the temporary Notes shall in all respects be entitled to the same
benefits under this Indenture as definitive Notes.
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<PAGE>
SECTION 2.07 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 Trustee is hereby initially appointed "Note Registrar" for the
purpose of registering Notes and transfers of Notes as herein provided. Upon
any resignation of any Note Registrar appointed by the Issuer, the Issuer shall
promptly appoint a successor or, in the absence of such appointment, shall
assume the duties of Note Registrar.
At any time at which the Trustee is not also the Note Registrar, the
Trustee shall be a co-Note Registrar. The Trustee, if it shall ever be serving
as co-Note Registrar, shall furnish the Note Registrar promptly after each
authentication of a Note by the Trustee appropriate information with respect
thereto for entry by the Note Registrar into the Note Register. If the Trustee
shall at any time not be authorized to keep and maintain the Note Register, the
Trustee shall have the right to inspect such Note Register at all reasonable
times and to rely conclusively upon a certificate of the Person in charge of the
Note Register as to the names and addresses of the holders of the Notes and the
principal amounts and numbers of such Notes so held.
Upon surrender for registration of transfer of any Note at the office or
agency of the Issuer to be maintained as provided in Section 3.02, the Issuer
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denominations, and of the same Class and a like aggregate principal
amount.
At the option of the Holder, Notes may be exchanged for other Notes of the
same Class of any authorized denominations and of a like aggregate initial
principal amount, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, the Issuer shall
execute, and the Trustee shall authenticate and deliver, the Notes which the
Noteholder making the exchange is entitled to receive.
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<PAGE>
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 duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Trustee duly executed, by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Issuer may require payment of a sum sufficient to
cover any tax or other governmental charge as may be imposed in connection with
any registration of transfer or exchange of Notes, other than exchanges pursuant
to Section 2.08 not involving any transfer.
The Notes will initially be represented by certificated Notes registered in
the name of Cede & Co., as nominee of the Depository Trust Company ("DTC"). No
person acquiring a beneficial interest in a Note will be entitled to receive a
certificated Note, except as described in the next paragraph of this Section
2.07.
The Notes will be issued to and registered in the Note Register in the name
of a person acquiring a beneficial interest in such Notes only if (i) the
Trustee receives a written notice from the Issuer that DTC is no longer willing
or able to discharge properly its responsibilities as depository with respect to
the Notes and the Issuer is unable to locate a qualified successor or (ii) the
Issuer, at its option, elects to terminate the book-entry system through DTC.
Upon the occurrence of either event described in clauses (i) and (ii) above, the
Trustee shall notify DTC of the occurrence of either such event. Upon surrender
by DTC of the certificated Notes and satisfaction of the conditions set forth in
this Section 2.07 of the Indenture for the registration of transfer and receipt
by the Trustee of a list of the names and addresses of the beneficial owners of
the Notes in whose name the Notes are to be registered, new Notes shall be
delivered pursuant to this Section 2.07.
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<PAGE>
SECTION 2.08 MUTILATED, DESTROYED, LOST OR STOLEN NOTES.
If (1) any mutilated Note is surrendered to the Trustee or the Trustee
receives evidence to its satisfaction of the destruction, loss or theft of any
Note, and (2) there is delivered to the Trustee such security or indemnity as
may be required by the Trustee to save each of the Trustee and the Issuer
harmless, then, in the absence of notice to the Issuer or the Trustee that such
Note has been acquired by a bona fide purchaser, the Issuer shall execute and
upon its direction the Trustee shall authenticate and deliver, in exchange for
or in lieu of any such mutilated, destroyed, lost or stolen Note, a new Note or
Notes of the same Class, tenor and aggregate initial principal amount bearing a
number not contemporaneously outstanding; PROVIDED, HOWEVER, that if any such
mutilated, destroyed, lost or stolen Note shall have become or shall be about to
become due and payable, or shall have become subject to redemption in full,
instead of issuing a new Note, the Issuer may pay such Note without surrender
thereof, except that any mutilated Note shall be surrendered. If, after the
delivery of such new 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 new Note was issued presents for payment
such original Note, the Issuer and the Trustee shall be entitled to recover such
new Note (or such payment) from the Person to whom it was delivered or any
Person taking such new Note from 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
Trustee in connection therewith.
Upon the issuance of any new Note under this Section, the Issuer may
require the payment 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 Trustee) connected therewith.
Except to the extent provided in the first paragraph of this Section 2.08,
every new Note issued pursuant to this Section in lieu of any destroyed, lost or
stolen Note shall constitute an original additional contractual obligation of
the Issuer, whether or not the destroyed, lost or stolen Note shall be at any
time
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enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately, to the extent provided herein, 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 2.09. PAYMENTS OF PRINCIPAL AND INTEREST.
(a) Any installment of interest or principal payable on any Note which
is punctually paid or duly provided for by the Issuer on the applicable Payment
Date shall be paid to the Person in whose name such Note (or one or more
Predecessor Notes) is registered at the close of business on the Record Date for
such Payment Date by check mailed to such Person's address as it appears in the
Note Register on such Record Date, except that with respect to a Note registered
in the name of the nominee of a 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 in writing at least two Business
Days prior to such Payment Date and except for the final installment of
principal payable with respect to such Note (or the Redemption Price for any
Note called for redemption), which shall be payable as provided in subsection
(b) of this Section 2.09.
(b) All reductions in the principal amount of a Note (or one or more
Predecessor Notes) effected by means of an allocation of the Realized Loss
Amount or by payments of installments of principal made on any Payment Date
shall be binding upon all Holders of such Note and of any Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof,
whether or not such payment is noted on such Note. The final installment of
principal of each Note (including the Redemption Price of any Note called for
redemption pursuant to Section 10.01) shall be payable only upon presentation
and surrender thereof on or after the Payment Date or Redemption Date therefor
at the Corporate Trust Office or at the office or agency of the Issuer
maintained by it for such purpose set forth in Section 3.02.
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Whenever, on the basis of Remittances on the Accounts received and expected
to be received during the related Due Periods or on the related Payment Date, as
applicable, the Issuer expects that the entire remaining unpaid principal amount
of the Notes will become due and payable on the next Principal Payment Date, it
shall, no later than ten days prior to such Principal Payment Date, mail or
cause to be mailed to each Person in whose name a Note to be so retired is
registered at the close of business on the Record Date that would otherwise be
applicable to such Principal Payment Date a notice to the effect that:
(i) the Issuer expects that funds sufficient to pay such final
installment will be available in the Collection Account on such Principal
Payment Date, and
(ii) if such funds are available, (A) such final installment will be
payable on such Payment Date, but only upon presentation and surrender of
such Note at the Corporate Trust Office or at the office or agency of the
Issuer maintained for such purpose pursuant to Section 3.02 (the addresses
of which shall be set forth in such notice), and (B) no interest shall
accrue on such Note after such Principal Payment Date.
Notices in connection with redemptions of Notes shall contain the information
set forth in, and be mailed in accordance with, Section 10.02.
(c) Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to unpaid principal and
interest that were carried by such other Note. Any checks mailed pursuant to
subsection (a) of this Section 2.09 and returned undelivered shall be held in
accordance with Section 3.03.
(d) Not later than each Debt Service Requirement Determination Date, the
Trustee shall prepare and deliver to the Issuer a statement with respect to the
following Payment Date (a "Payment Date Statement") setting forth:
(i) the amount of Issuer Expenses paid or due to be paid in
respect of the related Due Period;
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(ii) the amount of the Available Funds for such Payment Date;
(iii) the amount of interest then due and payable on the Notes
then Outstanding (stated separately as to each Class);
(iv) the Optimal Principal Amount for each Class;
(v) whether the Available Funds for such Payment Date will be
sufficient to pay on such Payment Date all amounts specified in clause
(iii) and, if not, the percentages of such amount which may be paid in
accordance with the priorities set forth in Section 8.02(c) from the
amounts expected to be available in the Collection Account;
(vi) the Class Interest Shortfall (stated separately as to each
Class);
(vii) the Collateral Deficiency Amount, if any;
(viii) the amounts included in such statement pursuant to clauses
(iii) and (iv), expressed in each case per Individual Note, to be paid on
such Payment Date;
(ix) the amount, if any, to be released to the Issuer pursuant to
clause TWENTY-FIRST of Section 8.02(c);
(x) the total Realized Loss Amount and amount allocated to each
Class of Notes and interest thereon;
(xi) the unpaid principal amount of each Class of Notes which
will remain after giving effect to the payments
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to be made on such Payment Date expressed both on an aggregate basis and
per Individual Note;
(xii) the Cumulative Actual Net Economic Losses as of the end of
the related Due Period;
(xiii) the Economic Balance as of the end of the related Due Period
of Accounts with respect to which there is a material breach of any
representation or warranty made in Section 3.11 or as to which there is a
material defect in the related Account Documents in accordance with Section
3.12(b);
(xiv) the Minimum Target Overcollateralization Amount;
(xv) cumulative unreimbursed Realized Loss Amounts; and
(xvi) the Servicing Fee to be paid on such Payment Date.
Each Payment Date Statement shall be delivered by the Trustee to the
Issuer, each designee of the Issuer specified in writing to the Trustee, Lehman
Brothers Inc., S&P, the firm of Independent Accountants appointed by the Issuer
pursuant to Section 8.06(a) and, upon request, to the beneficial owners of the
Notes.
SECTION 2.10 PERSONS DEEMED OWNERS.
Prior to due presentment for registration of transfer of any Note, the
Issuer, the Trustee, any Agent and any other agent of the Issuer or the Trustee
may treat the Person in whose name any Note is registered as the absolute owner
of such Note for all purposes whatsoever, whether or not such Note is overdue,
and neither the Issuer, the Trustee, any Agent nor any other agent of the Issuer
or the Trustee shall be affected by notice to the contrary.
SECTION 2.11. CANCELLATION.
All Notes surrendered for payment, registration of transfer, exchange or
redemption shall, if surrendered to any Person other
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than the Trustee, be delivered to the Trustee, and such Notes, together with all
such Notes so surrendered directly to the Trustee, shall be promptly cancelled
by it. The Issuer may at any time deliver to the Trustee for cancellation any
Note previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Trustee. No Notes shall be authenticated in lieu of or in
exchange for any Notes cancelled as provided in this Section, except as
expressly permitted by this Indenture. All cancelled Notes held by the Trustee
shall be held by the Trustee in accordance with its standard retention policy,
unless the Issuer shall direct by an Issuer Order that they be destroyed or
returned to it.
SECTION 2.12. AUTHENTICATION AND DELIVERY OF NOTES.
The Notes may be executed by the Issuer and delivered to the Trustee for
authentication, and thereupon the same shall be authenticated and delivered by
the Trustee, upon Issuer Request and upon receipt by the Trustee of the
following items required to be delivered to the Trustee in connection with the
initial authentication and delivery of the Notes on the Closing Date:
(a) an Issuer Order authorizing the authentication and delivery
of the Notes;
(b) an Officers' Certificate of the Issuer, complying with the
requirements of Section 11.01, stating that:
(i) the Issuer is not in Default under this Indenture and the
issuance of the Notes will not result in any breach of any of the terms,
conditions or provisions of, or constitute a default under, the Trust
Agreement or any other constituent documents of the Issuer, or any
indenture, mortgage, deed of trust or other agreement or instrument to
which the Issuer is a party or by which it is bound, or any order of any
court or administrative agency entered in any proceeding to which the
Issuer is a party or by which it may be bound or to which it may be
subject, and all conditions precedent provided in this Indenture relating
to the authentication and delivery of the Notes have been complied with;
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(ii) the Issuer is the owner of and has good title to each
Account, has not assigned any interest or participation in any such Account
(or, if any such interest or participation has been assigned, it has been
released) and has the right to Grant each such Account to the Trustee, and
no other Person has any lien on, security interest in or other rights to
any such Account;
(iii) the Issuer has Granted to the Trustee all of its right,
title, and interest in each Account Granted to the Trustee by it to secure
the Notes;
(iv) the information set forth in the Schedule of Accounts to
this Indenture is correct;
(v) attached thereto are true and correct copies of letters
signed by the Rating Agencies confirming that the Class A-1 Notes have been
rated AAA by S&P and Aaa by Moody's, the Class A-2 Notes have been rated at
least AA by S&P and Aa2 by Moody's, the Class A-3 Notes have been rated at
least A by S&P and A2 by Moody's and the Class A-4 Notes have been rated at
least BBB by S&P and Baa2 by Moody's; and
(vi) each of the Accounts satisfies the requirements of
subsection (c) below;
(c) all of the Accounts and all Account Documents (except that
(A) in lieu of delivering the Account Documents for any Account which has
been the subject of a Full Prepayment received by the Servicer after the
Cut-Off Date but no later than five Business Days prior to the Closing
Date, the Issuer may deliver, or cause to be delivered, as indicated in the
Officers' Certificate from the Servicer delivered pursuant to subsection
(e) of this Section 2.12, the cash proceeds of such Full Prepayment, (B) in
lieu of delivering the Account Documents for any Account with respect to
which foreclosure proceedings have been commenced and such Account
Documents are required in connection with the prosecution of such
proceedings, the Issuer may deliver a trust receipt pursuant to Section
3.13(c) of this Indenture and (C) the Trustee's review of such Account
Documents pursuant to Section 3.12 need not be completed until 90 days
following the Closing Date), which Accounts:
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shall have an aggregate Economic Balance at least equal to
$462,287,289 as of the Cut-Off Date, and
shall satisfy each of the representations and warranties with
respect to such Accounts set forth in Section 3.11 of this Indenture;
(d) an executed counterpart of the Servicing Agreement;
(e) an Officer's Certificate from the Servicer, dated as of
the Closing Date, certifying that all Monthly Payments (net of the
Servicing Fee) on the Accounts due after the Cut-Off Date and received
more than five Business Days prior to the Closing Date plus the
proceeds of each Full Prepayment of any such Account (including any
related payment of interest) received by the Servicer after the
Cut-Off Date but more than five Business Days prior to the Closing
Date have been remitted to the Trustee for deposit in the Collection
Account in accordance with Section 2.08 of the Servicing Agreement and
setting forth the aggregate amount so remitted representing a Full
Prepayment received by the Servicer after the Cut-Off Date but more
than five Business Days prior to the Closing Date;
(f) a letter, addressed to the Trustee and complying with the
requirements of Section 11.01, of a firm of Independent Accountants of
recognized national reputation to the effect that:
(1) they have performed the following procedures (which need
not constitute an examination in accordance with generally accepted
auditing standards):
(A) they have randomly selected a sample of the
Accounts, and compared the Account number, the total number of
Monthly Payments to be made under the Account during its term,
the total finance charge over the term of the related Account
Note, Monthly Payment, amount financed and the original
principal balance set forth in the related Account Documents
to the corresponding item in the Schedule of Accounts;
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(B) they recalculated the Economic Balance for each
Account and compared the Economic Balance calculated by the
Issuer to the Economic Balances calculated by them for each
Account and compared the aggregate Economic Balance for all
Accounts calculated by them to the aggregate initial principal
amount of the Notes proposed to be authenticated and
delivered;
(2) based upon the above-specified procedures, such firm has
determined that:
(A) they are 95% confident that the particular
attributes of the Accounts tested by them as described in
paragraph (1)(A) above will not vary from the corresponding
information set forth on the Schedule of Accounts for more
than
3% of all of the Accounts;
(B) the Economic Balance calculated by the Issuer for
the Accounts does not exceed the Economic Balance for the
Accounts as calculated by them in accordance with the
definition of the term "Economic Balance" and the aggregate of
the Economic Balances calculated by them for all Accounts is
not less than [ ]% of the aggregate initial principal
amount of the Notes proposed to be authenticated and
delivered;
(g) cash in the amount equal to the amount, if any, required
to be remitted to the Trustee pursuant to Section 2.08 of the
Servicing Agreement (as indicated by the Officers' Certificate from
the Servicer delivered pursuant to subsection (e) of this Section
2.12) and deposited in the Collection Account and held by the Trustee
and applied in accordance with Section 8.02;
(h) an executed copy of the Purchase and Sale Agreement;
(i) an executed copy of the Trust Agreement;
(j) an executed copy of the Holding Account Agreement;
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(k) a copy of the fidelity bond required pursuant to Section
4.05 of the Servicing Agreement; and
(l) an Opinion of Counsel in the form required by the
underwriting agreement among Mid-State Homes, Inc., Walter Industries,
Inc. and Lehman Brothers Inc., as representative of the several
underwriters named therein.
SECTION 2.13. NON-PETITION.
Each Holder of any Note by his acceptance thereof shall be deemed to have
agreed not to petition or cause or permit any Affiliate to petition or otherwise
invoke the process of any court or government authority for the purpose of
commencing or sustaining a case against the Issuer under any Federal or state
bankruptcy, insolvency or similar law or appointing a receiver, liquidator,
assignee, trustee, custodian, sequester or other similar official of the Issuer
or any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Issuer, except that (i) on or prior to the
Maturity Date, the holders entitled to 66 2/3% of the Voting Rights of the
Class of Notes with the lowest numerical Class designation then outstanding and
(ii) after the Maturity Date, the holders entitled to 100% of the Voting
Rights of any Class of Notes (provided that the holders entitled to 100% of
each Class of Notes with a lower numerical Class designation consent), may
make such petition or invoke such process.
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SECTION III
COVENANTS; REPRESENTATIONS AND WARRANTIES
SECTION 3.01. PAYMENT OF NOTES.
The Issuer will pay or cause to be duly and punctually paid the principal
of and interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 3.02. MAINTENANCE OF OFFICE OR AGENCY.
The Issuer will maintain in the Borough of Manhattan, the City of New
York, the State of New York and in the city where the Corporate Trust Office is
located an office or agency where Notes may be presented or surrendered for
payment or may be surrendered for registration of transfer or exchange, and
where notices and demands to or upon the Issuer in respect of the Notes and
this Indenture may be served. The Issuer will give prompt written notice to
the Trustee of the location and any change in the location of such office or
agency. Until written notice of any change in the location of such office or
agency is delivered to the Trustee or if at any time the Issuer shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, Notes may be so presented or surrendered, and
such notices and demands may be made or served, at the office of First Union
National Bank of Florida, 40 Broad Street, 5th Floor - Suite 550, New York, New
York 10004, and at the Corporate Trust Office.
The Issuer may also from time to time designate one or more other offices
or agencies (in or outside the City of New York or the city where the Corporate
Trust Office is located) where the Notes may be presented or surrendered for any
or all such purposes and where notices and demands may be served and may from
time to time rescind such designations; PROVIDED, HOWEVER, that (i) no such
designation or rescission shall in any manner relieve the Issuer of its
obligation to maintain an office or agency in the City of New York, for the
purposes set forth in the preceding paragraph and (ii) any designation of an
office or agency for payment of Notes shall be subject to Section 3.03. The
Issuer will give prompt written notice to the Trustee of any such
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designation or rescission and of any change in the location of any such other
office or agency.
SECTION 3.03. MONEY FOR NOTE PAYMENTS TO BE HELD IN TRUST.
All payments of amounts due and payable with respect to any Notes which are
to be made from amounts withdrawn from the Collection Account pursuant to
Section 8.02(c) or Section 5.08 shall be made on behalf of the Issuer by the
Trustee or by another Paying Agent, and no amounts so withdrawn from the
Collection Account for payments of Notes shall be paid over to the Issuer under
any circumstances except as provided in this Section 3.03 or in Section 5.08.
If the Issuer shall have a Paying Agent that is not also the Note
Registrar, it shall furnish, or cause the Note Registrar to furnish no later
than the fifth Business Day after each Record Date, a list, in such form as such
Paying Agent may reasonably require, of the names and addresses of the Holders
of Notes and of the number of Individual Notes held by each such Holder.
Whenever the Issuer shall have a Paying Agent other than the Trustee, it
will, on or before the Business Day next preceding each Payment Date, direct the
Trustee to deposit with such Paying Agent an aggregate sum sufficient to pay all
amounts then becoming due (to the extent funds are then available for such
purpose in the Collection Account), such sum to be held in trust for the benefit
of the Persons entitled thereto. Any moneys deposited with a Paying Agent in
excess of an amount sufficient to pay the amounts then becoming due on the Notes
with respect to which such deposit was made shall, upon Issuer Order, be paid
over by such Paying Agent to the Trustee for application in accordance with
Article VIII.
Any Paying Agent other than the Trustee shall be appointed by Issuer Order,
and the Trustee is hereby appointed, and the Trustee hereby accepts such
appointment, as initial Paying Agent. The Issuer shall not appoint any Paying
Agent which is not, at the time of such appointment, a depository institution or
trust company. The Issuer will cause each Paying Agent other than the Trustee
to execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee (and if the
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Trustee acts as Paying Agent, it hereby so agrees), subject to the provisions of
this Section, that such Paying Agent will:
(1) allocate all sums received for payment to the Holders of
Notes on each Payment Date among such Holders in the proportion specified
in the Payment Date Statement, to the extent permitted by applicable law;
(2) 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;
(3) if such Paying Agent is not the Trustee, immediately resign
as a Paying Agent and forthwith pay to the Trustee all sums held by it in
trust for the payment of Notes if at any time it ceases to meet the
standards set forth above required to be met by a Paying Agent at the time
of its appointment;
(4) if such Paying Agent is not the Trustee, give the Trustee
notice of any Default by the Issuer (or any other obligor upon the Notes)
in the making of any payment required to be made with respect to any Notes;
(5) if such Paying Agent is not the Trustee, at any time during
the continuance of any such Default, upon the written request of the
Trustee, forthwith pay to the Trustee all sums so held in trust by such
Paying Agent; and
(6) comply with all requirements of the Internal Revenue Code of
1986, as amended (or any successor or amendatory statutes), and all
regulations thereunder, 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; PROVIDED, HOWEVER, that with respect to withholding and
reporting requirements applicable to original issue discount (if any) on
the Notes, the Issuer has provided the calculations pertaining thereto to
the Trustee.
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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 Paying Agent, if other than the Trustee, to pay to the Trustee all sums held
in trust by such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by such Paying Agent; and upon
such payment by any Paying Agent to the Trustee, such Paying Agent shall be
released from all further liability with respect to such money.
Any money held by the Trustee or any 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 to the Holder of such Note shall be
discharged from such trust and paid to the Issuer; 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 Trustee or such Paying Agent with respect to such trust
money shall cease upon such payment. The Trustee may adopt and employ, at the
expense of the Issuer, any reasonable means of notification of such repayment
(including, but not limited to, mailing notice of such repayment to Holders
whose Notes have been called but have not been surrendered for redemption or
whose right to or interest in moneys due and payable but not claimed is
determinable from the records of the Trustee or any Agent, at the last address
of record for each such Holder).
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SECTION 3.04. EXISTENCE OF ISSUER.
The Issuer will keep in full effect its existence, rights and franchises as
a statutory 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
Notes, the Trust Estate and each instrument or agreement included in the Trust
Estate.
SECTION 3.05. PROTECTION OF TRUST ESTATE.
(a) The Issuer will from time to time 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 as may be necessary or advisable to
(i) Grant more effectively all or any portion of the Trust Estate.
(ii) maintain or preserve the lien of 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 Account Documents,
(v) preserve and defend title to the Trust Estate and the rights of
the Trustee and of the Noteholders in the Account Documents and the other
property held as part of the Trust Estate against the claims of all persons
and parties, or
(vi) pay all taxes or assessments levied or assessed upon the Trust
Estate when due.
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The Issuer hereby designates the Trustee its agent and attorney-in-fact to
execute any financing statement, continuation statement or other instrument
required pursuant to this Section 3.05; PROVIDED, HOWEVER, that such designation
shall not be deemed to create a duty in the Trustee to monitor the compliance of
the Issuer with the foregoing covenants and PROVIDED, FURTHER, that the duty of
the Trustee to execute any instrument required pursuant to this Section 3.05
shall arise only if the Trustee has knowledge of any failure of the Issuer to
comply with provisions of this Section 3.05. The Issuer shall execute a power
of attorney coupled with an interest which shall be irrevocable, and the Issuer
hereby ratifies and confirms all that the Trustee may do by virtue thereof.
(b) Except as otherwise provided herein and in the Servicing Agreement,
the Trustee shall not remove any portion of the Trust Estate that consists of
money or is evidenced by an instrument, certificate or other writing from the
jurisdiction in which it was held at the date of the most recent Opinion of
Independent Counsel delivered pursuant to Section 3.06 (or from the jurisdiction
in which it was held as described in the Opinion of Counsel delivered at the
Closing Date pursuant to Section 2.12(l), if no Opinion of Independent Counsel
has yet been delivered pursuant to Section 3.06) unless the Trustee shall have
first received an Opinion of Independent Counsel to the effect that the lien and
security interest created by this Indenture with respect to such property will
continue to be maintained after giving effect to such action or actions.
SECTION 3.06. OPINIONS AS TO TRUST ESTATE.
On or before May 15 in each calendar year, beginning in 1998, the Issuer
shall furnish to the Trustee an Opinion of Independent Counsel either stating
that, in the opinion of such counsel, such action has been taken as is necessary
to perfect and to maintain the lien and security interest created by this
Indenture with respect to the Trust Estate 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 address any other matter reasonably requested by the Trustee with
respect to the Trust Estate and describe all such action, if any, that will, in
the opinion of such counsel, be required to be taken to
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maintain the lien and security interest of this Indenture with respect to the
Trust Estate until May 15 in the following calendar year. The Issuer shall be
required to take whatever action set forth in the Opinion of Independent Counsel
to perfect or maintain the lien and security interest in the Trust Estate
created by this Indenture.
SECTION 3.07. PERFORMANCE OF OBLIGATIONS; SERVICING AGREEMENT.
(a) The Issuer will punctually perform and observe all of its obligations
and agreements contained in the Servicing Agreement.
(b) The Issuer will not take any action or permit any action to be taken
by others which would release any Person from any of such Person's covenants or
obligations under any of the Account Documents or under any instrument included
in the Trust Estate, or which would result in the amendment, hypothecation,
subordination, termination or discharge of, or impair the validity or
effectiveness of, any of the Account Documents, or any such instrument, except
for such actions that are expressly provided for in the Servicing Agreement.
(c) If the Issuer shall have knowledge of the occurrence a Servicing
Default, the Issuer shall promptly notify the Trustee thereof, and shall specify
in such notice the action, if any, the Issuer is taking in respect of such
Servicing Default. If any Servicing Default arises from the failure of the
Servicer to perform any of its duties or obligations under the Servicing
Agreement with respect to the Accounts, the Issuer may remedy such failure,
provided that if any Servicing Default arises from the failure by the Servicer
to comply with requirements imposed upon it under Section 2.12 of the Servicing
Agreement regarding advances for taxes, assessments and other charges against
the Mortgaged Property or under Section 2.13 of the Servicing Agreement with
respect to hazard insurance for the Mortgaged Properties securing the Mortgage
Loans, the Issuer shall promptly pay such taxes, assessments or other charges or
such premiums or obtain substitute insurance coverage meeting the requirements
of said Section 2.13. So long as any Servicing Default shall be continuing, the
Trustee may, and upon the direction of the Holders of Notes entitled to more
than 50% of the Voting Rights
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the Trustee shall, terminate all of the rights and powers of the Servicer under
the Servicing Agreement pursuant to Section 5.01 of the Servicing Agreement or
take any other action with respect to such Servicing Default as is permitted
under said Section 5.01. Unless granted or permitted by the Holders of Notes to
the extent provided above, the Issuer may not waive any such Servicing Default
or terminate the rights and powers of the Servicer under the Servicing
Agreement.
(d) Upon any termination of the Servicer's rights and powers pursuant to
Section 5.01 of the Servicing Agreement, the Trustee shall appoint, or shall
petition a court of competent jurisdiction to appoint, a successor servicer or
upon the occurrence of a Trigger Event, the Trustee may appoint such successor
servicer (the "Successor Servicer"). The Trustee may appoint itself Successor
Servicer. Pending the appointment of a Successor Servicer as provided above,
the Trustee shall be the Successor Servicer (subject to and in accordance with
the Standby Servicing Agreement). Upon any termination of the Servicer's rights
and powers pursuant to Section 5.01 of the Servicing Agreement or upon the
occurrence of a Trigger Event, all rights, powers, duties and responsibilities
of the Servicer with respect to the Accounts shall vest in and be assumed by the
Successor Servicer, and the Successor Servicer shall be the successor in all
respects to the Servicer in its capacity as servicer with respect to the
Accounts under the Servicing Agreement. Upon any such termination, the
Successor Servicer, or if the Trustee so elects upon a Trigger Event, the
Trustee, is hereby authorized to mail a notice to each Obligor directing each
such Obligor to mail all Monthly Payments to the Successor Servicer or its agent
at the address specified in such notice. In connection with any such
appointment, the Trustee may make such arrangements for the compensation of such
successor as it and such successor shall agree, and the Issuer shall enter into
an agreement with such successor for the servicing of the Accounts, such
agreement to be substantially similar to the Servicing Agreement or otherwise
acceptable to the Trustee; provided that any such compensation of the Successor
Servicer shall not be in excess of [ ]% of the Servicing Fee payable to the
Servicer under the Servicing Agreement.
(e) The Issuer may enter into contracts with other Persons for the
performance of the Issuer's obligations hereunder, and
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performance of such obligations by such Persons shall be deemed to be
performance of such obligations by the Issuer.
SECTION 3.08. NEGATIVE COVENANTS.
The Issuer will not:
(i) sell, transfer, exchange or otherwise dispose of any portion
of the Trust Estate except as expressly permitted by this Indenture;
(ii) obtain or carry insurance relating to the Accounts separate
from that required by the Servicing Agreement, unless the Trustee shall
have the same rights with respect thereto as it has with respect to the
insurance required by the Servicing Agreement;
(iii) claim any credit on, or make any deduction from, the
principal of, or interest on, any of the Notes by reason of the payment of
any taxes levied or assessed upon any portion of the Trust Estate;
(iv) engage in any business or activity other than in connection
with, or relating to, the issuance of the Notes or the preservation of the
Trust Estate and the release of assets therefrom pursuant to this Indenture
and the Trust Agreement;
(v) dissolve or liquidate in whole or in part;
(vi) (1) permit the validity or effectiveness of this Indenture to
be impaired, or permit the lien of this Indenture to be amended,
hypothecated, subordinated, terminated or discharged, or permit any Person
to be released from any covenants or obligations under this Indenture,
except as may be expressly permitted hereby, (2) permit any lien, charge,
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 Estate or any part thereof or any interest therein or the
proceeds thereof, or (3) except as permitted hereby, permit the lien of
this Indenture not to constitute a valid
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and perfected first priority security interest in the Trust Estate;
(vii) cause or permit any Affiliate to petition or otherwise invoke
the process of any court or government authority for the purpose of
commencing or sustaining a case against the Issuer under any Federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequester or other similar
official of the Issuer or any substantial part of its property, or ordering
the winding up or liquidation of the affairs of the Issuer; or
(viii) amend the Trust Agreement without the consent of the Trustee.
SECTION 3.09. ANNUAL STATEMENT AS TO COMPLIANCE.
On or before 120 days after the first anniversary of the Closing Date and
each subsequent anniversary date of the Closing Date, the Issuer shall deliver
to the Trustee a written statement, signed by two Authorized Officers, stating,
as to each signer thereof, that
(1) a review of the fulfillment by the Issuer during such year of its
obligations under this Indenture has been made under such officer's
supervision; and
(2) to the best of such officer's knowledge, based on such review, the
Issuer has fulfilled all its obligations under this Indenture throughout
such year or, if there has been a Default in the fulfillment of any such
obligation, specifying each such Default known to such officer and the
nature and status thereof.
SECTION 3.10. RECORDING OF ASSIGNMENTS.
The Issuer shall use reasonable best efforts to record substantially all
Assignments and Trust Mortgages within 21 days of the Closing Date and in any
event all Assignments and Trust Mortgages shall be duly recorded not later than
90 days after the date of the Grant of the related Account.
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SECTION 3.11. REPRESENTATIONS AND WARRANTIES CONCERNING THE ACCOUNTS.
(a) The Issuer represents and warrants to the Trustee, with respect to
each Account, that as of the Closing Date (and the Issuer shall be deemed to
have made such representations and warranties at the time of the transfer
thereof to the Trustee with respect to each new Account originated in connection
with the sale of property acquired in respect of an Account):
(i) the information set forth with respect to such Account in the
Schedule of Accounts attached hereto is true and correct as of the date as
of which such information is given;
(ii) the related building or installment sale contract, as the
case may be, has been duly executed by the parties thereto and the duties
to be performed thereunder prior to the date the first payment in
connection with such contract is due have been performed;
(iii) the Account Documents have been duly executed by the related
Obligor and the Mortgage has been duly executed by the Obligor and, to the
extent required under local law for recordation or enforcement, properly
acknowledged;
(iv) the Mortgage has been properly recorded as required by law.
The Mortgage constitutes a valid first priority lien upon and secure title
to the real property and improvements thereon described therein, which
include a single family detached dwelling, and such Mortgage and the
Account Note secured thereby are fully enforceable in accordance with their
terms except as enforceability thereof may be limited by bankruptcy,
insolvency, moratorium and other laws affecting creditors' rights generally
and by general principles of equity (whether applied in a proceeding in law
or at equity);
(v) the Issuer is the sole owner of each Account and has good
title to such Account and full right and authority to transfer such Account
and to Grant such Account to the Trustee and, upon delivery of the related
Account Documents
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to the Trustee, the Trustee will have a valid and perfected lien or
security interest in such Account;
(vi) all costs, fees, intangible, documentary and recording taxes
and expenses incurred in making, closing, and recording each Account and in
connection with the issuance of the Notes have been paid;
(vii) no part of the Mortgaged Property purporting to secure any
Account Note has been, or shall have been, released from the lien or
security title of the Mortgage securing such Account Note except for
Mortgaged Property securing Account Notes which have been prepaid in full
between the Cut-Off Date and the Closing Date, the amount of such
prepayments received more than five days prior to the Closing Date to be
deposited in the Collection Account on or before the Closing Date;
(viii) except to the extent permitted by the Servicing Agreement, no
term or provision of any Account has been or will be altered, changed or
modified in any way by the Servicer or the Issuer without the consent of
the Trustee;
(ix) the Grantor and the Issuer acquired title to the Accounts in
good faith, for value and without notice of any adverse claim;
(x) the Account Notes evidence accounts bearing a fixed finance
charge rate and fully amortizing level monthly payments. Each Account Note
has an original term to maturity not in excess of 30 years. No less than
87% of the Account Notes with respect to Accounts that have an Economic
Balance greater than zero were originated from January 1995 through
February 1997, with the exception of Account Notes which represent
subsequent resales of repossessed houses that secured Account Notes
originated during such period.
(xi) as of the Closing Date, there is no right of rescission,
setoff, defense or counterclaim to any Account Note or Mortgage, including
both the obligation of the Obligor to pay the unpaid cash price or finance
charge on such Account Note and the defense of usury; furthermore, neither
the operation of any of the terms of the Account
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Note and the Mortgage nor the exercise of any right thereunder will render
the Account Note or the Mortgage unenforceable, in whole or in part, or
subject such Account Note or Mortgage to any right of rescission, setoff,
counterclaim or defense, including the defense of usury, and no such right
of rescission, setoff, counterclaim or defense has been asserted with
respect thereto;
(xii) there are no mechanics' liens or claims for work, labor or
material (and to the best of the Issuer's knowledge, no rights or claims
are outstanding that under law could give rise to such lien) affecting any
Mortgaged Property which are or may be a lien prior to, or equal with, the
lien of such Mortgage;
(xiii) each Account Note at origination complied in all material
respects with applicable local, state and federal laws, including, without
limitation, usury, equal credit opportunity, real estate settlement
procedures, truth-in-lending and disclosure laws, and consummation of the
transactions contemplated by the Purchase and Sale Agreement and hereby
will not involve the violation of any such laws;
(xiv) with respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, is properly
designated, serving and named in such Mortgage;
(xv) there has been no fraud, dishonesty, misrepresentation or
negligence on the part of the originator in connection with the origination
of any Account Note or in connection with the sale of the related Account;
and
(xvi) to the best knowledge of the Issuer, except Mortgaged
Properties for which Insurance Proceeds are available, each Mortgaged
Property is free of damage which materially and adversely affects the value
thereof.
(b) If any of the representations, warranties or covenants with respect to
any Account set forth in this Section 3.11 are found to be incorrect as of the
time made in any respect which materially and adversely affects the interest of
the Trustee or
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the Noteholders in the Account, the Issuer or the Servicer shall notify the
Trustee immediately after obtaining knowledge thereof, and the Issuer shall use
its best efforts to eliminate or otherwise cure the circumstances or conditions
in respect of which such representation, warranty or covenant was incorrect as
of the time made within 90 days of such notice to the Trustee. If such breach
is not or cannot be cured within such 90-day period or, with the prior written
consent of a Responsible Officer of the Trustee, such longer period as specified
in such consent, the Issuer shall either (i) deposit in the Collection Account
an amount equal to 100% of the then current Economic Balance of the affected
Account (a "Defective Account"), at which time the Defective Account shall be
released from the lien of the Indenture or (ii) remove such Account from the
Trust Estate and substitute one or more Qualified Substitute Accounts (in which
case the removed Account shall become a "Deleted Account"). The Issuer shall
promptly reimburse the Servicer and the Trustee for any reasonable expenses
(including without limitation reasonable attorney's fees) incurred by the
Servicer and the Trustee, respectively, in respect of any such breach.
As to any Deleted Account for which the Issuer substitutes a Qualified
Substitute Account or Qualified Substitute Accounts, the Issuer shall effect
such substitution by delivery to the Trustee for such Qualified Substitute
Account or Qualified Substitute Accounts the Account Note and such other Account
Documents related thereto, with the Account Note endorsed to the order of the
Issuer, without recourse, and endorsed by the Issuer in blank or to the order of
the Trustee, without recourse. Monthly Payments due with respect to Qualified
Substitute Accounts in the month of substitution are not part of the Trust
Estate and will be retained by the Issuer. Available Funds will include the
Monthly Payment due on any Deleted Account in the month of substitution, and the
Issuer shall deposit such amount in the Collection Account if received by it
subsequent to the month of substitution. The Issuer shall be entitled to
receive all amounts due subsequent to the month of substitution in respect of
such Deleted Account. The Issuer shall give or cause to be given written notice
to the Trustee and the Rating Agencies that such substitution has taken place.
Upon such substitution, such Qualified Substitute Account or Qualified
Substitute Accounts shall be subject to the terms of this Indenture in all
respects, and the Issuer shall be deemed to have made with
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respect to such Qualified Substitute Account or Qualified Substitute Accounts,
as of the date of substitution, the representations and warranties set forth in
this Section 3.11. The Trustee shall at the direction of the Issuer immediately
effect the release of the lien of this Indenture with respect to such Deleted
Account, the form of the instruments effecting such release being specified in
such direction.
For any month in which the Issuer substitutes one or more Qualified
Substitute Accounts for one or more Deleted Accounts, the Issuer will determine
the amount (if any) by which the aggregate outstanding Economic Balance of all
such Qualified Substitute Accounts as of the date of substitution is less than
the aggregate outstanding Economic Balance of all such Deleted Accounts. On the
date of such substitution, the Issuer will deposit from its own funds into the
Collection Account an amount equal to the amount of such shortfall, if any,
without reimbursement therefor.
It is understood and agreed that the obligations of the Issuer set forth in
this Section 3.11(b) to cure, substitute for or deposit funds in the Collection
Account in connection with an Account constitute the sole remedies available to
the Noteholders or to the Trustee on their behalf respecting a breach of the
representations and warranties set forth in Section 3.11(a).
SECTION 3.12. TRUSTEE'S REVIEW OF ACCOUNT DOCUMENTS.
(a) The Trustee agrees, for the benefit of the holders of the Notes, to
review within 90 days after the Closing Date, the Account Documents delivered to
it on or prior to the Closing Date in connection with the Grant of the Accounts
listed on the Schedule of Accounts as security for the Notes. Such review shall
be limited to a determination that all documents referred to in the definition
of the term Account Documents have been delivered with respect to each such
Account (other than the documents related to (i) any Account so listed which has
been subject to a Full Prepayment, the proceeds of which have been deposited in
the Collection Account in lieu of delivery of the applicable Account Documents
and (ii) any Account with respect to which the related Mortgaged Property was
foreclosed, repossessed or otherwise converted subsequent to the Cut-Off Date
and prior to the Closing Date or with respect to which foreclosure
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proceedings have been commenced and the related Account Documents are required
in connection with the prosecution of such foreclosure proceedings and the
Issuer has delivered a trust receipt called for by Section 3.13(c)), that all
such documents have been executed, and that all such documents relate to the
Accounts listed on the Schedule of Accounts; PROVIDED, HOWEVER, that with
respect to the review made of the Accounts in connection with the Closing Date,
assumption or substitution agreements shall not be considered Account
Documents. In performing such review, the Trustee may rely upon the purported
genuineness and due execution of any such document and on the purported
genuineness of any signature thereon.
(b) If any Account Document is defective in any material respect which may
materially and adversely affect the value of the related Account, the priority
of the related Mortgage or the interest of the Trustee or the Noteholders in
such Account or if any document required to be delivered to the Trustee has not
been delivered or if any documents so delivered does not relate to an Account
listed on the Schedule of Accounts, the Trustee shall notify the Issuer and the
Servicer immediately after obtaining knowledge thereof. Within 90 days of the
earlier of discovery by or notice to the Issuer that any Account Document is
missing or defective and such omission or defect materially and adversely
affects the interest of the Noteholders in an Account, the Issuer is required to
use its best efforts to cure such omission or defect. If such omission or
defect is not or cannot be cured within such 90-day period or, with the prior
written consent of a Responsible Officer of the Trustee, such longer period as
specified in such consent, the Issuer shall either (i) deposit in the Collection
Account an amount equal to 100% of the then current Economic Balance of the
affected Account (a "Defective Account"), at which time the Defective Account
shall be released from the lien of the Indenture or (ii) remove such Account
from the Trust Estate and substitute one or more Qualified Substitute Accounts
(in which case the removed Account shall become a "Deleted Account"). The
Issuer shall promptly reimburse the Servicer and the Trustee for any reasonable
expenses (including without limitation reasonable attorney's fees) incurred by
the Servicer and the Trustee, respectively, in respect of any such defect or
omission; PROVIDED, HOWEVER, except for the review by the Trustee pursuant to
Section 3.12(a), the foregoing shall not impose an obligation on the Trustee to
discover defects in the
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Account Documents or to ascertain the priority of the related Mortgage.
As to any Deleted Account for which the Issuer substitutes a Qualified
Substitute Account or Qualified Substitute Accounts, the Issuer shall effect
such substitution by delivery to the Trustee for such Qualified Substitute
Account or Qualified Substitute Accounts the Account Note and such other Account
Documents related thereto, with the Account Note endorsed to the order of the
Issuer, without recourse, and endorsed by the Issuer in blank or to the order of
the Trustee, without recourse. Monthly Payments due with respect to Qualified
Substitute Accounts in the month of substitution are not part of the Trust
Estate and will be retained by the Issuer. Available Funds will include the
Monthly Payment due on any Deleted Account in the month of substitution, and the
Issuer shall deposit such amount in the Collection Account if received by it
subsequent to the month of substitution. The Issuer shall be entitled to
receive all amounts due subsequent to the month of substitution in respect of
such Deleted Account. The Issuer shall give or cause to be given written notice
to the Trustee and the Rating Agencies that such substitution has taken place.
Upon such substitution, such Qualified Substitute Account or Qualified
Substitute Accounts shall be subject to the terms of this Indenture in all
respects, and the Issuer shall be deemed to have made with respect to such
Qualified Substitute Account or Qualified Substitute Accounts, as of the date of
substitution, the representations and warranties set forth in Section 3.11. The
Trustee shall at the direction of the Issuer immediately effect the release of
the lien of this Indenture with respect to such Deleted Account, the form of the
instruments effecting such release being specified in such direction.
For any month in which the Issuer substitutes one or more Qualified
Substitute Accounts for one or more Deleted Accounts, the Issuer will determine
the amount (if any) by which the aggregate outstanding Economic Balance of all
such Qualified Substitute Accounts as of the date of substitution is less than
the aggregate outstanding Economic Balance of all such Deleted Accounts. On the
date of such substitution, the Issuer will deposit from its own funds into the
Collection Account an amount equal to the amount of such shortfall, if any,
without reimbursement therefor.
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It is understood and agreed that the obligations of the Issuer set forth in
this Section 3.12(b) to cure, substitute for or deposit funds in the Collection
Account in connection with an Account constitute the sole remedies available to
the Noteholders or to the Trustee on their behalf respecting an omission or
defect set forth in Section 3.12(a).
SECTION 3.13. TRUST ESTATE; ACCOUNT DOCUMENTS.
(a) When required by the provisions of this Indenture, the Trustee shall
execute instruments to release property from the lien of this Indenture, or
convey the Trustee's interest in the same, in a manner and under circumstances
which are not inconsistent with the provisions of this Indenture. No party
relying upon an instrument executed by the Trustee as provided in this Article
III shall be bound to ascertain the Trustee's authority, inquire into the
satisfaction of any conditions precedent or see to the application of any
moneys.
(b) In order to facilitate the servicing of the Accounts by the Servicer,
the Servicer is hereby authorized in the name and on behalf of the Trustee and
the Issuer, to execute assumption agreements, substitution agreements, and
instruments of satisfaction or cancellation, or of partial or full release or
discharge, and other comparable instruments with respect to the Accounts and
with respect to the Mortgaged Properties subject to the Mortgages (and the
Trustee shall execute any such documents on request of the Servicer), subject to
the obligations of the Servicer under the Servicing Agreement. If from time to
time the Servicer shall deliver to the Trustee copies of any written assurance,
assumption agreement or substitution agreement or other similar agreement
pursuant to Section 2.10 of the Servicing Agreement, the Trustee shall check
that each of such documents purports to be an original executed copy and, if so,
shall file such documents with the related Account Documents. If any such
documents submitted by the Servicer do not meet the above qualifications, such
documents shall promptly be returned by the Trustee to the Servicer, with a
direction to the Servicer to forward the correct documentation.
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(c) Upon Issuer Request accompanied by an Officers' Certificate of the
Servicer pursuant to Section 2.15 of the Servicing Agreement to the effect that
an Account has been the subject of a Full Prepayment or that all Liquidation
Proceeds which have been determined by the Servicer in its reasonable judgment
to be finally recoverable, have been recovered and upon deposit to the Holding
Account of such final Monthly Payment, an amount that satisfies the definition
of Full Prepayment with respect to such Account or, if applicable, Liquidation
Proceeds, the Trustee shall promptly release the related Account Documents to or
upon the order of the Issuer, along with such documents as the Servicer or the
Obligor may request to evidence satisfaction and discharge of such Account. If
from time to time and as appropriate for the servicing or foreclosure of any
Account, the Servicer requests the Trustee to release the related Account
Documents and delivers to the Trustee a trust receipt reasonably satisfactory to
the Trustee and signed by a Servicing Officer, the Trustee shall release the
related Account Documents to the Servicer. If such Account shall be liquidated
and the Trustee receives a certificate from the Servicer as provided above,
then, upon request of the Issuer, the Trustee shall release the trust receipt to
or upon the order of the Issuer.
(d) The Trustee shall, at such time as there are no Notes Outstanding,
release all of the Trust Estate to the Issuer (other than any cash held for the
payment of the Notes pursuant to Section 3.03 or 4.01), subject, however, to the
rights of the Trustee under Section 6.07.
SECTION 3.14. AMENDMENTS TO SERVICING AGREEMENT.
The Trustee may enter into any amendment or supplement to the Servicing
Agreement only in accordance with Section 7.02 of the Servicing Agreement;
PROVIDED, HOWEVER, at any time, the Trustee may, without the consent of the
Noteholders, enter into an amendment to the Servicing Agreement modifying the
repossession, foreclosure and liquidation procedures if such modifications are
likely to minimize payments in connection with any filing or recording required
in any jurisdiction where any Mortgaged Properties are located. The Trustee
may, in its discretion, decline to enter into or consent to any such supplement
or amendment if its own rights, duties or immunities shall be adversely
affected.
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SECTION 3.15. SERVICER AS AGENT AND BAILEE OF TRUSTEE.
In order to facilitate the servicing of the Accounts by the Servicer, the
Servicer shall retain, in accordance with the provisions of the Servicing
Agreement and this Indenture, the moneys to be deposited in each Servicing
Account. Solely for purposes of perfection under Section 9-305 of the Uniform
Commercial Code of the state in which such property is held by the Servicer, the
Trustee hereby acknowledges that the Servicer is acting as agent and bailee of
the Trustee in holding such moneys pursuant to Section 2.09 of the Servicing
Agreement, as well as its agent and bailee in holding any Account Documents
released to the Servicer pursuant to Section 3.13(c), and any other items
constituting a part of the Trust Estate which from time to time come into the
possession of the Servicer. It is intended that, by the Servicer's acceptance
of such agency pursuant to Section 2.09 of the Servicing Agreement, the Trustee,
as a secured party, will be deemed to have possession of such Account Documents,
such moneys and such other items for purposes of Section 9-305 of the Uniform
Commercial Code of the state in which such property is held by the Servicer.
SECTION 3.16. INVESTMENT COMPANY ACT.
The Issuer shall not become an "investment company" as defined in the
Investment Company Act of 1940, as amended (or any successor or amendatory
statute), and the rules and regulations thereunder (taking into account not only
the general definition of the term "investment company" but also any available
exceptions to such general definition); PROVIDED, HOWEVER, that the Issuer shall
be in compliance with this Section 3.16 if it shall have obtained an order
exempting it from regulation as an "investment company" so long as it is in
compliance with the conditions imposed in such order.
SECTION 3.17. BUSINESS ACTIVITY.
(a) The Issuer shall furnish to the Trustee copies of the form of each
proposed amendment to the Trust Agreement at least 60 days prior to the proposed
date of adoption of any such proposed amendment.
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(b) The Issuer will at all times hold itself out to the public, including
creditors of any entity owning more than a 50% undivided interest in the Issuer
(hereinafter referred to as a "Majority Owner" of the Issuer), under the
Issuer's own name and as a separate and distinct entity from Walter Industries,
Inc. or any of its Affiliates.
(c) The Issuer will at all times be responsible for the payment of all
its obligations and indebtedness, will at all times maintain a business office,
records, books of account, and funds separate from its Majority Owner and will
observe all customary formalities of independent existence.
(d) To the extent such compliance involves questions of law, the Issuer
shall be deemed in compliance with the requirements of any provision of this
Section 3.17 if it is acting in accordance with an Opinion of Counsel as to such
requirements.
SECTION 3.18. LIABILITY OF OWNER TRUSTEE.
It is expressly understood and agreed by the parties hereto that (a) this
Indenture is executed and delivered by Wilmington Trust Company, not
individually or personally but solely as Owner Trustee under the Trust
Agreement, in the exercise of the powers and authority conferred and vested in
it as the Owner Trustee, (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 Trust
Estate, (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 Trustee and the Noteholders and by any
Person claiming by, through or under the Trustee and the Noteholders 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 undertaken by the Issuer under this Indenture.
SECTION 3.19. EXCULPATION OF THE TRUSTEE.
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By entering into this Indenture and agreeing to perform the duties of the
Trustee as set forth herein, the Trustee makes no implied or express
representation or warranty to the Noteholders with respect to the sufficiency or
the adequacy in any respect whatsoever of the terms of this Indenture and the
documents executed in connection herewith. Under no circumstances shall the
Trustee have any liability of any kind whatsoever for the failure of any
Noteholder adequately to review and evaluate to the full satisfaction of such
Noteholder the terms and provisions of this Indenture, the Notes, the Servicing
Agreement, the Sub-Servicing Agreement, and the other documents executed in
connection with this Indenture. The Trustee shall in no way be liable for the
decision of any Noteholder to purchase any Notes.
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ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.01. SATISFACTION AND DISCHARGE OF INDENTURE.
(a) Whenever the following conditions shall have been satisfied:
(1) either
(A) all Notes theretofore authenticated and delivered (other than (i)
Notes which have been destroyed, lost or stolen and which have been
replaced or paid as provided in Section 2.08, and (ii) Notes for whose
payment money has theretofore been deposited in trust and thereafter repaid
to the Issuer, as provided in Section 3.03) have been delivered to the
Trustee for cancellation; or
(B) all Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at the Maturity of the final
installment of the principal thereof within one year, or
(iii) are to be called for redemption within one year under
irrevocable arrangements satisfactory to the Trustee for the giving of
notice of redemption by the Trustee in the name, and at the expense of
the Issuer,
and the Issuer, in the case of clauses (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee, in trust for such
purpose, an amount of cash (which cash, in the case of clauses (ii) and
(iii) above must constitute Eligible Moneys) sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore delivered
to the Trustee for cancellation, for principal and interest to the Maturity
of their entire unpaid principal amount or the applicable Redemption Date,
as the case may be;
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(2) the Issuer has paid or caused to be paid all other sums payable
hereunder by the Issuer; and
(3) the Issuer has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel each stating that all conditions precedent herein
provided for the satisfaction and discharge of this Indenture have been
complied with and covering such other matters as the Trustee may reasonably
request;
then, upon Issuer Request this Indenture and the lien, rights and interests
created hereby and thereby shall cease to be of further effect, and the Trustee
and each co-trustee and separate trustee, if any, then acting as such hereunder
shall, at the expense of the Issuer, execute and deliver all such instruments as
may be necessary to acknowledge the satisfaction and discharge of this Indenture
and shall pay, or assign or transfer and deliver, to the Issuer or upon Issuer
Order all cash, securities and other property held by it as part of the Trust
Estate remaining after satisfaction of the conditions set forth in clauses (1)
and (2) above.
(b) Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Trustee under Section 6.07, the obligations of
the Trustee to the Issuer and to the Holders of Notes under Section 3.03, the
obligations of the Trustee to the Holders of Notes under Section 4.02 and the
provisions of Article II with respect to lost, stolen, destroyed or mutilated
Notes, registration of transfers of Notes, and rights to receive payments of
principal of and interest on the Notes shall survive and the provisions of
Section 5.06 as they relate to clause (a) of Section 5.06 shall continue for one
year after such satisfaction and discharge.
SECTION 4.02. APPLICATION OF TRUST MONEY.
All money deposited with the Trustee pursuant to Sections 3.03 and 4.01
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
Paying Agent, as the Trustee may determine, to the Persons entitled thereto, of
the principal and interest for whose payment such money has been deposited with
the Trustee.
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ARTICLE V
DEFAULTS AND REMEDIES
SECTION 5.01. EVENT OF DEFAULT.
"Event of Default", wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment, decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) (i) there shall occur a default in the payment of any amount
due under the Notes by the Maturity Date or (ii) there shall occur a
failure to apply funds in the Collection Account in accordance with Section
8.02(c) and such failure shall continue for a period of two days or (iii)
there shall occur a default in the payment when due of interest on any
Class of Notes and such default shall continue for a period of 30 days
or (iv) there shall occur a failure to pay the Outstanding Principal
Balance of each Class of Notes on the Maturity Date;
(2) the Issuer shall breach or default in the due observance of
any one or more of the covenants set forth in Section 3.08;
(3) the Issuer shall breach, or default in the due observance or
performance of, any other of its other covenants in this Indenture, such
Default shall continue for a period of 30 days after there shall have been
given, by registered or certified mail, to the Issuer by the Trustee or to
the Issuer and the Trustee by the Holders of Notes entitled to at least 40%
of the Voting Rights, a written notice specifying such Default and
requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder;
(4) there shall occur the entry of a decree or order for relief
by a court having jurisdiction in respect of the Issuer in an involuntary
case under the federal bankruptcy laws, as now or hereafter in effect, or
any other present or future federal or state bankruptcy, insolvency or
similar law, or appointing a receiver, liquidator, assignee,
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trustee, custodian, sequestrator or other similar official of the Issuer or
of any substantial part of its property, or ordering the winding up or
liquidation of the affairs of the Issuer and the continuance of any such
decree or order unstayed and in effect for a period of 60 consecutive days;
or
(5) there shall occur the commencement by the Issuer of a
voluntary case under the federal bankruptcy laws, as now or hereafter in
effect, or any other present or future federal or state bankruptcy,
insolvency or similar law, or the consent by the Issuer to the appointment
of or taking possession by a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Issuer or of any
substantial part of its property or the making by the Issuer of an
assignment for the benefit of creditors or the failure by the Issuer
generally to pay its debts as such debts become due or the taking of
corporate action by the Issuer in furtherance of any of the foregoing.
Notwithstanding the foregoing, on or prior to the Maturity Date, any of
the events described in this Section 5.01 will not be an Event of Default (i)
in respect of the Class A-2 Notes until the Class A-1 Notes have been paid in
full, (ii) in respect of the Class A-3 Notes until the Class A-1 Notes and
Class A-2 Notes have been paid in full and (iii) in respect of the Class A-4
Notes until the Class A-1 Notes, Class A-2 Notes and Class A-3 Notes have been
paid in full.
SECTION 5.02. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
On or prior to the Maturity Date, upon the occurrence of an Event of
Default, the Trustee or the holders entitled to at least 66 2/3% of the Voting
Rights of the Class of Notes with the lowest numerical Class designation then
outstanding may declare the principal of the Notes to be immediately due and
payable by a notice in writing to the Issuer (and to the Trustee if given by
such Noteholders); provided, however, that such Class of Notes or the Trustee
may make such declaration only if the Event of Default affects, and in the case
of a default in the payment of the Notes such payment default relates to, the
Class of Notes with the lowest numerical Class designation then Outstanding.
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Upon such declaration, the Trustee may, or at the direction of the holders
entitled to at least 66 2/3% of the Class of Notes with the lowest numerical
Class designation then Outstanding shall, pursue one or more remedies subject
to, and in accordance with the terms of this Indenture, including without
limitation, selling the Accounts at one or more public or private sales.
Notwithstanding the acceleration of the maturity of the Notes, the Trustee shall
refrain from selling the Accounts and continue to apply all amounts received on
the Accounts to payments due on the Notes in accordance with their terms if (i)
the Trustee determines that anticipated collections on the Accounts would be
sufficient to pay the Class of Notes with the lowest numerical Class
designation then Outstanding and (ii) the Trustee has not been otherwise
directed by the holders of all the Notes. On or prior to the Maturity Date, a
Class of Notes which does not have the lowest numerical Class designation then
Outstanding will not have any right to direct the Trustee to pursue any remedies
or actions hereunder.
After the Maturity Date, upon the occurrence of an Event of Default, the
Trustee or the holders entitled to at least 66 2/3% of the Voting Rights of any
Class of Notes (provided that the Holders entitled to at least 66 2/3% of the
Voting Rights of each Class of Notes with a lower numerical Class designation
then Outstanding consent) may declare the principal of the Notes to be
immediately due and payable by a notice in writing to the Issuer (and to the
Trustee if given by the Noteholders). Upon such declaration, the Trustee may,
or at the direction of the holders entitled to at least 66 2/3% of the Class of
Notes that made or consented to such declaration, shall pursue one or more
remedies subject to, and in accordance with the terms hereof, including without
limitation, selling the Accounts at one or more public or private sales.
Notwithstanding the acceleration of the maturity of the Notes, the Trustee shall
refrain from selling the Accounts and continue to apply all amounts received on
the Accounts to payments due on the Notes in accordance with their terms if (i)
the Trustee determines that anticipated collections on the Accounts would be
sufficient to pay the Classes of Notes that directed, made or consented to the
declaration of the principal of the Notes to be immediately due and payable (or
sufficient to pay all the Classes of Notes then outstanding if the Trustee has
made such declaration without direction from any of the holders
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of Notes) and (ii) the Trustee has not been otherwise directed by the holders of
all the Notes.
Notwithstanding the foregoing, the Trustee may not declare the Notes to be
due and payable pursuant to this Section 5.02 as a result of an Event of Default
arising solely from the Issuer's failure to perform any of its agreements set
forth in Section 6.07.
At any time after such a declaration of acceleration of Maturity of the
Notes has been made and before a judgment or decree for payment of the money due
has been obtained by the Trustee as hereinafter in this Article provided, the
Holders of such Class of Notes entitled to the Voting Rights specified above, by
written notice to the Issuer and the Trustee, may rescind and annul such
declaration and its consequences if
(1) the Issuer has paid or deposited with the Trustee a sum
sufficient to pay
(A) all payments of principal of and interest on all Notes and
all other amounts which would then be due hereunder or upon such Notes
if the Event of Default giving rise to such acceleration had not
occurred; and
(B) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of the principal
of Notes which have become due solely by such acceleration, have been cured
or waived as provided in Section 5.15.
No such rescission shall affect any subsequent Default or impair any right
consequent thereon.
SECTION 5.03. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY
TRUSTEE.
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The Issuer covenants that if an Event of Default shall occur and be
continuing, the Issuer will pay to the Trustee for the benefit of the Holders of
the Notes:
(1) (A) if the Notes have not been declared due and payable, the whole
amount then due and payable on the Notes in respect of principal, including
Realized Loss Amounts; or
(B) if the Notes have been declared due and payable and such
declaration and its consequences have not been rescinded and annulled, the
principal balance of all Outstanding Notes;
(2) (A) if the Notes have not been declared due and payable, the whole
amount then due and payable on the Notes in respect of interest, including
interest on any overdue installments of principal at the applicable Note
Interest Rate, and, to the extent payment of such interest on interest
shall be legally enforceable, interest on any overdue installments of
interest at the applicable Note Interest Rate and interest due and payable
with respect to unreimbursed Realized Loss Amounts; or
(B) if the Notes have been declared due and payable and such
declaration and its consequences have not been rescinded and annulled, (i)
with respect to the period prior to the date of such declaration, accrued
interest to the date of such declaration, at the applicable Note Interest
Rate, on the Outstanding Principal Balance of each Note and interest to the
date of such declaration at the applicable Note Interest Rate, on any
installment of interest on each Note that was not paid when due, but only
to the extent that payment of such interest on interest shall be legally
enforceable and interest to the date of such declaration at the applicable
Note Interest Rate, on any previously unreimbursed Realized Loss Amounts
and (ii) with respect to the period from and including the date of such
declaration, interest to the date such payment is made, at the applicable
Note Interest Rate, on the Outstanding Principal Balance of each Note and
on any installment of interest on such Note that was not paid when due, but
only to the extent that payment of such interest on interest
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shall be legally enforceable and on any previously unreimbursed Realized
Loss Amounts; and
(3) in addition thereto, such further amounts as shall be sufficient
to cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agent and counsel.
If the Issuer fails to pay such amounts forthwith upon such demand, or in
any event if an Event of Default under clause (2) of Section 5.01 shall have
occurred, the Trustee, in its own name and as trustee of an express trust, may
institute a Proceeding for the collection of the sums so due and unpaid, and may
prosecute such Proceeding to judgment or final decree, and may enforce the same
against the Issuer or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law; provided,
however, in the case of a default under Section 5.01 on the Class A-2 Notes, the
Trustee shall not institute such Proceeding unless the Outstanding Principal
Balance of the Class A-1 Notes has been reduced to zero; in the case of a
default under Section 5.01 on the Class A-3 Notes, the Trustee shall not
institute such Proceeding unless the Outstanding Principal Balance of the Class
A-1 and Class A-2 Notes have been reduced to zero; in the case of a default
under Section 5.01 on the Class A-4 Notes, the Trustee shall not institute such
Proceeding unless the Outstanding Principal Balance of the Class A-1, Class A-2
and Class A-3 Notes have been reduced to zero.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Noteholders by such appropriate Proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or enforce any other proper remedy,
including, without limitation, instituting a Proceeding prior to any declaration
of acceleration of the Maturity of the Notes for the collection of all amounts
then due and unpaid on the Notes, prosecuting such Proceeding to final judgment
or decree, enforcing the same against the Trust Estate and collecting out of the
property, wherever situated, of the Issuer the moneys
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adjudged or decreed to be payable in the manner provided by law, PROVIDED,
HOWEVER, that neither the Trustee nor any owner of any equity interest in the
Issuer, nor any of their respective partners, beneficiaries, agents, officers,
directors, employees or successors or assigns shall be personally liable for any
amounts payable under the Notes or this Indenture.
SECTION 5.04. REMEDIES.
If an Event of Default shall have occurred and be continuing and the Notes
have been declared due and payable and such declaration and its consequences
have not been rescinded and annulled, the Trustee shall (subject to Sections
5.05 and 5.18, to the extent applicable) do one or more of the following:
(a) institute Proceedings for the collection of all amounts then
payable on the Notes, or under this Indenture in respect of Notes, whether
such amounts have become due and payable by declaration of acceleration or
otherwise and all amounts payable under the Servicing Agreement, enforce
any judgment obtained, and collect from the Issuer moneys adjudged due;
(b) sell the Trust Estate or any portion thereof or rights or
interest therein, at one or more public or private Sales called and
conducted in any manner permitted by law;
(c) file or record all Assignments that have not previously been
recorded;
(d) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture; and
(e) exercise any remedies of a secured party under the Uniform
Commercial Code and take any other appropriate action to protect and
enforce the rights and remedies of the Trustee or the Holders of the Notes
hereunder.
In the event the Trustee takes any of the foregoing actions to protect the
Noteholder's rights or interests under the Indenture, the Trustee shall be
indemnified from the Trust Estate against any loss, liability or expense arising
out of or in connection with any such actions.
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SECTION 5.05. PRESERVATION OF TRUST ESTATE.
(a) If the Notes have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, the Trustee shall apply all Remittances and other amounts receivable
with respect to the Trust Estate, first, to the Issuer Expenses that consists of
the fees of the Owner Trustee and the Trustee and the Servicing Fee and then to
the payment of the principal of and interest on the Notes as and when such
principal and interest would have become due pursuant to the terms hereof and of
the Notes and to such other purposes as are specified in this Indenture, with
all such Remittances and other amounts being applied as if there had not been a
declaration of acceleration of the Maturity of the Notes, provided that:
(i) the Trustee shall have determined that the Remittances and
other amounts receivable with respect to the Trust Estate are sufficient to
provide the funds required to pay the principal of and interest on such
Classes of Notes specified in Section 5.02 hereof as and when such
principal and interest would have become due pursuant to the terms hereof
and of the Notes if there had not been a declaration of acceleration of the
Maturity of the Notes;
(ii) all the Holders of the Notes shall not have directed the
Trustee to sell the Trust Estate securing such Notes;
(iii) there shall have been delivered to the Trustee an Opinion of
Counsel to the effect that notwithstanding the acceleration of the Maturity
of the Notes, but after giving effect to the provisions of this Section
5.05:
(A) in accordance with the provisions of this Section 5.05,
the Issuer is legally obligated to make payments of principal of and
interest on the Notes and perform its obligations hereunder in the
same manner and amounts as it was legally obligated to make such
payments prior to the acceleration of the Maturity of the Notes; and
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(B) such obligation is legally enforceable under applicable
law, subject to bankruptcy, reorganization, insolvency and other laws
affecting the enforcement of creditors' rights generally and to
general principles of equity (regardless whether such enforceability
is considered in a proceeding in equity or at law);
(iv) unless the Trust Estate has already been acquired by the
Trustee in a Sale conducted pursuant to Section 5.18 or the lien of this
Indenture has been otherwise foreclosed and all rights of the Issuer in the
Trust Estate have been terminated by such foreclosure, the Issuer shall not
have exercised the Issuer's rights, if any, under applicable law to compel
the Sale of the Trust Estate; and
(v) if the Trustee shall have acquired the entire Trust Estate by
purchasing it at any public or private Sale conducted pursuant to Section
5.18, or the lien of this Indenture shall have been otherwise foreclosed
and all rights of the Issuer in the Trust Estate have been terminated by
such foreclosure, there shall have been delivered to the Trustee an Opinion
of Counsel to the effect that:
(A) the Trust Estate will not as a result of such action be
deemed an association taxable as a corporation under the Internal
Revenue Code of 1986 (or any successor federal income tax statute) and
(B) notwithstanding the acquisition of the Trust Estate by the
Trustee, the rights, powers and duties of the Trustee with respect to
the Trust Estate (or the proceeds thereof) and the Noteholders and the
rights of the Noteholders shall continue to be governed by the terms
of this Indenture.
(b) The Trustee may in its sole discretion rely upon an opinion of an
Independent investment banking firm of national reputation as to the feasibility
of any action proposed to be taken in accordance with subsection (a) of this
Section 5.05 and as to the sufficiency of the Remittances and other amounts
receivable with respect to the Trust Estate to make the required payments of
principal of and interest on the Notes, which opinion
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shall be conclusive evidence as to such feasibility or sufficiency. Such an
opinion may, but need not, be obtained by the Trustee in its sole discretion or
may be delivered to the Trustee by an Independent investment banking firm of
national reputation engaged by the Issuer to prepare and deliver such opinion.
(c) Pending determination by the Trustee as to whether the criteria set
forth in subsection (a) of this Section 5.05 are satisfied, all Remittances and
other amounts receivable with respect to the Trust Estate shall be applied first
to payment of Issuer Expenses that consists of the fees of the Owner Trustee and
the Trustee and the Servicing Fee and then pursuant to Section 8.02(c) to the
payment of the principal of and interest on the Notes as and when such principal
and interest would have become due pursuant to the terms hereof and of the Notes
if there had not been a declaration of acceleration of the Maturity of the
Notes. The Trustee shall make its determination whether the criteria set forth
in subsection (a) of this Section 5.05 can be satisfied as promptly as
practicable following any declaration of acceleration of the Maturity of the
Notes.
(d) If the Trustee determines that the criteria set forth in subsection
(a) of this Section 5.05 are not or cannot be satisfied, then all amounts
collected by the Trustee pursuant to this Section 5.05 or otherwise shall be
applied in accordance with Section 5.08.
SECTION 5.06. TRUSTEE MAY FILE PROOFS OF CLAIM.
(a) The Trustee shall promptly notify the Noteholders of (i) the
commencement of any of the events or proceedings (individually, an "Insolvency
Proceeding") described in Section 5.01(5) or (6) hereof with respect to the
Issuer and (ii) the making of any claim in connection with any Insolvency
Proceeding seeking the avoidance as a preferential transfer (a "Preference
Claim") of any payment of principal of, or interest on, the Notes. The
obligation of the Trustee to notify the Noteholders of any Insolvency Proceeding
or Preference Claims is expressly limited to such matters of which the Trustee
has actual knowledge. The Trustee, on its behalf and on behalf of the Holders,
may, at any time during the continuation of an Insolvency Proceeding, direct all
matters relating to such
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Insolvency Proceeding, including, without limitation, (i) all matters relating
to any Preference Claim, (ii) the direction of any appeal of any order relating
to any Preference Claim and (iii) the posting of any surety, supersedeas or
performance bond pending any such appeal.
(b) In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, composition or other judicial
Proceeding relative to the Issuer or any other obligor upon any of the Notes or
the property of the Issuer or of such other obligor or their creditors, the
Trustee (irrespective of whether the Notes shall then be due and payable as
therein expressed or by declaration or otherwise) shall be entitled and
empowered, by intervention in such Proceeding or otherwise, to
(i) file and prove a claim for the whole amount of principal and
interest owing and unpaid in respect of the Notes and to file such other
papers or documents as may be necessary or advisable in order to have the
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and
counsel) and of the Noteholders allowed in such Proceeding, and
(ii) collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same,
and any receiver, assignee, trustee, liquidator, or sequestrator (or other
similar official) in any such Proceeding is hereby authorized by each Noteholder
to make such payments to the Trustee and, in the event that the Trustee shall
consent to the making of such payments directly to the Noteholders, to pay to
the Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 6.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any plan
of reorganization, arrangement, adjustment, or composition affecting any of the
Notes or the
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rights of any Holder thereof, or to authorize the Trustee to vote in respect of
the claim of any Noteholder in any such Proceeding.
SECTION 5.07. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF NOTES.
All rights of action and claims under this Indenture or any of the Notes
may be prosecuted and enforced by the Trustee without the possession of any of
the Notes or the production thereof in any Proceeding relating thereto, and any
such Proceeding instituted by the Trustee in accordance with Section 5.03 shall
be brought in its own name as trustee of an express trust, and any recovery of
judgment shall be for the benefit of the Holders of the Notes in the priority
specified herein. Any surplus shall be available, in accordance with Section
5.08, for the payment of the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
SECTION 5.08. APPLICATION OF MONEY COLLECTED.
If the Notes have been declared due and payable following an Event of
Default and such declaration and its consequences have not been rescinded and
annulled, any money collected by the Trustee with respect to the Notes pursuant
to this Article or otherwise and any moneys which may then be held or thereafter
received by the Trustee as security for the Notes shall (unless such money is
being applied in accordance with Section 5.05(a)) be applied in the following
order, at the date or dates fixed by the Trustee and, in case of the
distribution of the entire amount due on account of principal of and interest on
any Notes, upon presentation and surrender thereof:
FIRST: To the payment of Issuer Expenses that consists of the fees of
the Owner Trustee and the Trustee and the Servicing Fee;
SECOND: To the holders of the Class A-1 Notes, in an amount up to the
Interest Accrual Amount thereof;
THIRD: To the holders of the Class A-1 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls
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related thereto, together with accrued interest thereon to the extent
legally enforceable;
FOURTH: To the holders of the Class A-2 Notes, in an amount up to the
Interest Accrual Amount thereof ;
FIFTH: To the holders of the Class A-2 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon to the extent legally enforceable;
SIXTH: To the holders of the Class A-3 Notes, in an amount up to the
Interest Accrual Amount thereof;
SEVENTH: To the holders of the Class A-3 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon to the extent legally enforceable;
EIGHTH: To the holders of the Class A-4 Notes, in an amount up to the
Interest Accrual Amount thereof;
NINTH: To the holders of the Class A-4 Notes, in an amount up to all
unreimbursed Class Interest Shortfalls related thereto, together with
accrued interest thereon to the extent legally enforceable;
TENTH: To the holders of the Class A-1 Notes, in an amount up to the
aggregate Class A-1 Outstanding Principal Balance of the Class A-1 Notes,
based upon their respective Class A-1 Outstanding Principal Balances,
ratably, without preference or priority of any kind;
ELEVENTH: To the holders of the Class A-1 Notes, accrued and unpaid
interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-1 Realized Loss Amounts previously allocated to the
Class A-1 Notes;
TWELFTH: To the holders of the Class A-1 Notes, in an amount up to the
amount of any unreimbursed Class A-1 Realized Loss Amounts previously
allocated thereto (including any Class A-1 Realized Loss Amount allocated
thereto on such Payment Date);
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THIRTEENTH: To the holders of the Class A-2 Notes, in an amount up to
the aggregate Class A-2 Outstanding Principal Balance of the Class A-2
Notes, based upon their respective Class A-2 Outstanding Principal
Balances, ratably, without preference or priority of any kind;
FOURTEENTH: To the holders of the Class A-2 Notes, accrued and unpaid
interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-2 Realized Loss Amounts previously allocated to the
Class A-2 Notes;
FIFTEENTH: To the holders of the Class A-2 Notes, in an amount up to
the amount of any unreimbursed Class A-2 Realized Loss Amounts previously
allocated thereto (including any Class A-2 Realized Loss Amount allocated
thereto on such Payment Date);
SIXTEENTH: To the holders of the Class A-3 Notes, in an amount up to
the aggregate Class A-3 Outstanding Principal Balance of the Class A-3
Notes, based upon their respective Class A-3 Outstanding Principal
Balances, ratably, without preference or priority of any kind;
SEVENTEENTH: To the holders of the Class A-3 Notes, accrued and unpaid
interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-3 Realized Loss Amounts previously allocated to the
Class A-3 Notes;
EIGHTEENTH: To the holders of the Class A-3 Notes, in an amount up to
the amount of any unreimbursed Class A-3 Realized Loss Amounts previously
allocated thereto (including any Class A-3 Realized Loss Amount allocated
thereto on such Payment Date);
NINETEENTH: To the holders of the Class A-4 Notes, in an amount up to
the aggregate Class A-4 Outstanding Principal Balance of the Class A-4
Notes, based upon their respective Class A-4 Outstanding Principal
Balances, ratably, without preference or priority of any kind;
TWENTIETH: To the holders of the Class A-4 Notes, accrued and unpaid
interest at the related Note Interest
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Rate on the amount of any unreimbursed Class A-4 Realized Loss Amounts
previously allocated to the Class A-4 Notes;
TWENTY-FIRST: To the holders of the Class A-4 Notes, in an amount up
to the amount of any unreimbursed Class A-4 Realized Loss Amounts
previously allocated thereto (including any Class A-4 Realized Loss Amount
allocated thereto on such Payment Date); and
TWENTY-SECOND: To the payment of the remainder, if any, to the Issuer
or any other Person legally entitled thereto.
SECTION 5.09. LIMITATION ON SUITS.
No Holder of a Note shall have any right to institute any Proceedings,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of Notes entitled to at least 40% of the Voting Rights
(in the case of a declaration that the Notes are immediately due and
payable, a sale, foreclosure or other action with respect to the Accounts,
the required holders of Notes as set forth in Section 5.02 hereof) shall
have made written request to the Trustee to institute Proceedings in
respect of such Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such Proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of Notes entitled
to more than 50% of the Voting Rights;
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it being understood and intended that no one or more Holders of Notes shall
have any right in any manner whatever 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 and for the equal and
benefit of all the Holders of Notes in the priority specified herein.
SECTION 5.10. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE PRINCIPAL AND
INTEREST.
The Holder of any Note shall have the right, to the extent permitted
by applicable law, which right is absolute and unconditional except to the
extent restricted by applicable law, to receive payment of each installment
of interest when due and payable on such Note on the respective Payment Dates
of such installments of interest and to receive payment of each installment
of principal of such Note when due (or in the case of any Note called for
redemption, on the date fixed for such redemption) and to institute suit for
the enforcement of any such payment, and except as otherwise set forth in
this Indenture, such right shall not be impaired without the consent of such
Holder.
SECTION 5.11. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee 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, or has been determined adversely to
the Trustee or to such Noteholder, then and in every such case the Issuer, the
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 Trustee and the
Noteholders shall continue as though no such Proceeding had been instituted.
SECTION 5.12. RIGHTS AND REMEDIES CUMULATIVE.
No right or remedy herein conferred upon or reserved to the Trustee or to
the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the
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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 5.13. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Noteholders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Noteholders, as the
case may be.
SECTION 5.14. CONTROL BY THE NOTEHOLDERS.
The Holders of Notes entitled to 50% of the Voting Rights (in the case of a
declaration that the Notes are immediately due and payable, a sale, foreclosure
or other action with respect to the Accounts, the required holders of Notes as
set forth in Section 5.02 hereof), shall have the right to direct the time,
method and place of conducting any Proceeding for any remedy available to the
Trustee or exercising any trust or power conferred on the Trustee; provided that
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) any direction to the Trustee to undertake a Sale of the Trust
Estate shall be by the Holders of Notes entitled to the percentage of the
Voting Rights specified in Section 5.18(b)(1) or (2), whichever is
applicable,
(3) if the conditions to retention of the Trust Estate set forth in
Section 5.05(a) have been satisfied, then any direction by less than all of
the Noteholders to the Trustee to undertake a Sale of the Trust Estate
shall be of no force and effect, and
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(4) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction; PROVIDED, HOWEVER, that,
subject to Section 6.01, the Trustee need not take action which it
determines might involve it in liability or expense or be unjustly
prejudicial to the Noteholders not consenting.
Notwithstanding anything herein to the contrary, any direction to the
Trustee to declare the Notes due and payable shall be made by those Classes of
Notes as specified in Section 5.02 hereof.
SECTION 5.15. WAIVER OF PAST DEFAULTS.
The Holders of such Class of Notes entitled to the Voting Rights specified
in Section 5.02 hereof may, on behalf of the Holders of all the Notes, waive any
past Default hereunder and its consequences, except a Default
(1) in the payment of any installment of principal of, or interest on,
any Note; or
(2) in respect of a covenant or provision hereof which under Section
9.02 cannot be modified or amended without the consent of the Holder of
each Outstanding Note affected.
Upon any such waiver, such Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured for every purpose
of this Indenture; but no such waiver shall extend to any subsequent or other
Default or impair any right consequent thereon.
SECTION 5.16. UNDERTAKING FOR COSTS.
All parties to this Indenture agree, and each Holder of any Note by his
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 Trustee for any action taken,
suffered or omitted by it as 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
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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 any suit instituted by the Trustee, to any suit instituted by any
Noteholder, or group of Noteholders, holding in the aggregate Notes representing
more than 10% of the Voting Rights, or to any suit instituted by any Noteholder
for the enforcement of the payment of any installment of interest on any Note on
or after the maturity thereof expressed in such Note or for the enforcement of
the payment of any installment of principal of any Note when due (or, in the
case of a Note called for redemption, on or after the applicable redemption
date) or for the enforcement of the payment of any installment of principal of
any Note when due as indicated in the Payment Date Statement prepared and
delivered by the Trustee pursuant to Section 2.09(e).
SECTION 5.17. 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, which may affect the covenants in, 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 Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
SECTION 5.18. SALE OF TRUST ESTATE.
(a) The power to effect any sale or other disposition (a "Sale") of any
portion of the Trust Estate pursuant to Section 5.04 is expressly subject to the
provisions of Section 5.05 and this Section 5.18. The power to effect any such
Sale shall not be exhausted by any one or more Sales as to any portion of the
Trust Estate remaining unsold, but shall continue unimpaired until the entire
Trust Estate shall have been sold or all amounts payable on the Notes and under
this Indenture shall have been paid. To the fullest extent permitted by law,
the Trustee hereby expressly waives its right to any amount fixed by law as
compensation for any Sale.
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(b) The Trustee shall not in any private or public Sale sell the Trust
Estate, or any portion thereof, unless
(1) the required Holders of Outstanding Notes specified in Section
5.02 hereof consent to or direct the Trustee to make, such Sale, or
(2) the Trustee determines, in its sole discretion, that the
conditions for retention of the Trust Estate set forth in Section
5.05(a)(i), (iii) or (iv) cannot be satisfied (in making any such
determination, the Trustee may rely upon an opinion of an Independent
investment banking firm obtained and delivered as provided in Section
5.05(b) unless a contrary opinion is delivered by an Independent investment
banking firm engaged by the Issuer pursuant to Section 5.05(b), in which
event the Trustee shall not be protected in relying solely upon either such
opinion but may nevertheless in its discretion make a determination as to
whether the conditions for retention of the Trust Estate set forth in
Section 5.05(a)(i) and (v) can or cannot be satisfied), and the required
Holders of Notes specified in Section 5.02 hereof consent to such Sale.
The purchase by the Trustee of all or any portion of the Trust Estate at a
private Sale shall not be deemed a Sale or other disposition thereof for
purposes of this Section 5.18(b).
(c) Unless the required Holders of Outstanding Notes specified under
Section 5.02 hereof have otherwise consented or directed the Trustee, at any
public Sale of all or any portion of the Trust Estate at which a minimum bid
equal to or greater than the entire amount which would be payable to the Holders
under the Notes, in full payment thereof in accordance with Section 5.08 on the
Payment Date next succeeding the date of such Sale has not been established by
the Trustee and no Person bids an amount equal to or greater than such amount,
the Trustee shall bid an amount at least $1.00 more than the highest other bid;
provided that the payment for such bid will be limited to the application of the
credit as set forth in Section 5.18(d)(2).
(d) In connection with a Sale of all or any portion of the Trust Estate,
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(1) any Holder or Holders of Notes may bid for and purchase the
property offered for sale, and upon compliance with the terms of sale may
hold, retain and possess and dispose of such property, without further
accountability, and may, in paying the purchase money therefor, deliver any
Outstanding Notes or claims for interest thereon in lieu of cash up to the
amount which shall, upon distribution of the net proceeds of such sale, be
payable thereon, and such Notes, in case the amounts so payable thereon
shall be less than the amount due thereon, shall be returned to the Holders
thereof after being appropriately stamped to show such partial payment;
(2) the Trustee may bid for and acquire the property offered for Sale
in connection with any Sale thereof, and, subject to any requirements of,
and to the extent permitted by, applicable law in connection therewith, may
purchase all or any portion of the Trust Estate in a private Sale, and, in
lieu of paying cash therefor, may make settlement for the purchase price by
crediting the gross Sale price against the sum of (A) the amount which
would be distributable to the Holders of the Notes as a result of such Sale
in accordance with Section 5.08 on the Payment Date next succeeding the
date of such Sale and (B) the expenses of the Sale and of any Proceedings
in connection therewith which are reimbursable to it, without being
required to produce the Notes in order to complete any such Sale or in
order for the net Sale price to be credited against such Notes, and any
property so acquired by the Trustee shall be held and dealt with by it in
accordance with the provisions of this Indenture;
(3) the Trustee shall execute and deliver an appropriate instrument of
conveyance transferring its interest in any portion of the Trust Estate in
connection with a Sale thereof;
(4) the Trustee is hereby irrevocably appointed the agent and
attorney-in-fact of the Issuer to transfer and convey its interest in any
portion of the Trust Estate in connection with a Sale thereof, and to take
all action necessary to effect such Sale; and
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(5) no purchaser or transferee at such a Sale shall be bound to
ascertain the Trustee's authority, inquire into the satisfaction of any
conditions precedent or see to the application of any moneys.
SECTION 5.19. ACTION ON NOTES.
The 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 lien of this
Indenture nor any rights or remedies of the Trustee or the Holders of Notes
shall be impaired by the recovery of any judgment by the Trustee against the
Issuer or by the levy of any execution under such judgment upon any portion of
the Trust Estate.
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ARTICLE VI
THE TRUSTEE
SECTION 6.01. DUTIES OF TRUSTEE.
(a) If an Event of Default known to the Trustee has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture, and use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations of the Trustee shall be read into this Indenture.
(2) In the absence of bad faith on its part, the 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 Trustee and conforming to the requirements of this Indenture. The
Trustee shall, however, examine such certificates and opinions to determine
whether they conform to the requirements of this Indenture but need not
verify the accuracy of the contents thereof or whether procedures specified
by or pursuant to the provisions of this Indenture have been followed in
the preparation thereof.
(c) The Trustee may not be relieved from liability for its own negligent
action, its own negligent failure to act, or its own wilful misconduct, except
that:
(1) This paragraph does not limit the effect of subsection (b) of
this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
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(3) The 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 5.14.
(d) For all purposes under this Indenture, the Trustee shall not be
deemed to have notice of any Event of Default described in Section 5.01(1) or
5.01(3) through 5.01(6) or any Default described in Section 5.01(1) or 5.01(3)
through 5.01(6) unless a Responsible Officer assigned to and working in the
Trustee's corporate trust department has actual knowledge thereof or unless
written notice of any event which is in fact such an Event of Default or Default
is received by the Trustee at the Corporate Trust Office, and such notice
references the Notes, the Issuer, the Trust Estate or this Indenture.
(e) No provision of this Indenture shall require the Trustee to expend or
risk its own funds or otherwise incur any 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 for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it; PROVIDED, HOWEVER, that the Trustee shall not refuse or fail to
perform any of its duties hereunder solely as a result of non-payment of its
normal fees and expenses and, further provided, that nothing in this Section
6.01(e) shall be construed to limit the exercise by the Trustee of any right or
remedy permitted under this Indenture or otherwise in the event of the Issuer's
failure to pay the Trustee's fees and expenses pursuant to Section 6.07. In
determining that such repayment or indemnity is not reasonably assured to it,
the Trustee must consider not only the likelihood of repayment or indemnity by
or on behalf of the Issuer but also the likelihood of repayment or indemnity
from amounts payable to it from the Trust Estate pursuant to Sections 6.07 and
8.02(d).
(f) Every provision of this Indenture that in any way relates to the
Trustee is subject to the provisions of this Section.
(g) Notwithstanding any extinguishment of all right, title and interest
of the Issuer in and to the Trust Estate following an Event of Default and a
consequent declaration of acceleration of the Maturity of the Notes secured
thereby, whether such
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extinguishment occurs through a Sale of the Trust Estate to another Person, the
acquisition of the Trust Estate by the Trustee or otherwise, the rights, powers
and duties of the Trustee with respect to the Trust Estate (or the proceeds
thereof) and the Holders of the Notes and the rights of such Noteholders shall
continue to be governed by the terms of this Indenture.
SECTION 6.02. NOTICE OF DEFAULT.
Upon a Default becoming known to the Trustee, the Trustee shall, within 90
days after the occurrence of such Default becomes known to the Trustee, transmit
notice of such Default by mail to all Holders of Notes as to which such Default
has occurred and to S&P, unless such Default shall have been cured or waived;
PROVIDED, HOWEVER, that except in the case of a Default of the type described in
Section 5.01(2), the Trustee shall be protected in withholding such notice if
and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determine that the withholding of such notice is in the interests of the Holders
of the Notes; and PROVIDED, FURTHER, that in the case of any Default of the
character specified in Section 5.01(4) or 5.01(5) no such notice to Noteholders
shall be given until at least 30 days after the occurrence thereof.
SECTION 6.03. RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel; PROVIDED, HOWEVER, that the
Trustee may not, by relying on an Officer's Certificate or Opinion of Counsel,
refrain from making payments of principal or interest on the Notes or exercise
remedies pursuant to Article V. The Trustee shall not be liable for any action
it takes or omits to take in good faith in reliance on the Certificate or
Opinion.
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(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The 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 as provided herein.
(e) The Trustee shall not be liable for any action it takes or omits to
take in good faith pursuant to Section 5.14 hereof at the direction of Holders
of Notes entitled to more than 50% of the Voting Rights, after notice to the
Holders of the Notes of a Default under this Indenture.
SECTION 6.04. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
The recitals contained herein and in the Notes, except the certificates of
authentication on the Notes, shall be taken as the statements of the Issuer and
the Trustee assumes no responsibility for their correctness. The Trustee makes
no representations with respect to the Trust Estate or as to the validity or
sufficiency of this Indenture or of the Notes. The Trustee shall not be
accountable for the use or application by the Issuer of Notes or the proceeds
thereof or any money paid to the Issuer or upon Issuer Order pursuant to the
provisions hereof.
SECTION 6.05. MAY HOLD NOTES.
The Trustee, any Agent, or any other agent of the Issuer, in its individual
or any other capacity, may become the owner or pledgee of Notes and, subject to
Sections 6.08 and 6.13, may otherwise deal with the Issuer or any Affiliate of
the Issuer with the same rights it would have if it were not Trustee, Agent, or
such other agent.
SECTION 6.06. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds except to the extent required by Section 8.03, by any other
provision of this Indenture or by law. The Trustee shall be under no liability
for interest on any money
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received by it hereunder except as otherwise agreed with the Issuer and except
to the extent of income or other gain on investments which are obligations of
the Trustee, in its commercial capacity, and income or other gain actually
received by the Trustee on investments which are obligations of others.
SECTION 6.07. COMPENSATION AND REIMBURSEMENT.
The Issuer agrees
(1) subject to any separate written agreement with the Trustee,
to pay the Trustee from time to time reasonable compensation for all
services rendered by it hereunder or any documents executed in connection
herewith (which compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse
the Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in connection with the
administration of the Trust Estate pursuant to the terms of this Indenture
(including the reasonable compensation and the expenses and disbursements
of its agents and counsel incurred in connection with litigation affecting
the Trust Estate or the Trustee), except any such expense, disbursement or
advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and its agents for, and to hold them
harmless against, any loss, liability or expense incurred without
negligence or bad faith on their part, arising out of, or in connection
with, the acceptance or administration of this trust, including the costs
and expenses of defending themselves against any claim in connection with
the exercise or performance of any of their powers or duties hereunder,
provided that:
(i) with respect to any such claim, the Trustee shall have
given the Issuer written notice thereof promptly after the Trustee
shall have knowledge thereof;
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(ii) while maintaining absolute control over its own
defense, the Trustee shall cooperate and consult fully with the Issuer
in preparing such defense; and
(iii) notwithstanding anything to the contrary in this
Section 6.07(3), the Issuer shall not be liable for settlement of any
such claim by the Trustee entered into without the prior consent of
the Issuer, which consent shall not be unreasonably withheld.
As security for the performance of the obligations of the Issuer under this
Section, the Trustee shall have a lien ranking junior to the lien of this
Indenture for the benefit of the Holders of the Notes (but senior to all other
liens, if any) upon all property and funds held or collected as part of the
Trust Estate by the Trustee in its capacity as such. The Trustee shall not
institute any Proceeding seeking the enforcement of such lien against the Trust
Estate unless such Proceeding is in connection with a Proceeding in accordance
with Article V for enforcement of the lien of this Indenture for the benefit of
the Holders of the Notes after the occurrence of an Event of Default (other than
an Event of Default arising solely from the Issuer's failure to pay amounts due
the Trustee under this Section 6.07) and a resulting declaration of acceleration
of Maturity of the Notes which has not been rescinded and annulled.
SECTION 6.08. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA Section 310(a)(1) and who is Independent of the Issuer and Servicer.
The Trustee shall always have a combined capital and surplus as stated in
Section 6.09. The Trustee shall be subject to TIA Section 310(b). The Trustee
shall have a place of business in the State of Florida. Any successor Trustee
shall execute the Servicing Agreement and this Indenture.
SECTION 6.09. TRUSTEE'S CAPITAL AND SURPLUS.
The Trustee or any successor or substitute trustee shall at all times have
a combined capital and surplus of at least $50,000,000. If the Trustee
publishes annual reports of condition of the type described in TIA Section
310(a)(2), its combined
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capital and surplus for purposes of this Section 6.09 shall be as set forth in
the latest such report.
SECTION 6.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving written notice thereof to
the Issuer. If an instrument of acceptance by a successor Trustee shall not
have been delivered to the Trustee within 30 days after the giving of such
notice of resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee. The costs and expenses
incurred in connection with the resignation of the Trustee and any petition
filed for appointment of a Successor Trustee shall be paid by the Issuer.
(c) The Trustee may be removed at any time for reasonable cause by Act of
the Holders of Notes entitled to more than 50% of the Voting Rights delivered to
the Trustee and to the Issuer.
(d) If at any time:
(1) the Trustee shall have a conflicting interest prohibited by
Section 6.08 and shall fail to resign or eliminate such conflicting
interest in accordance with Section 6.08 after written request therefor by
the Issuer or by any Noteholder, or
(2) the Trustee shall cease to be eligible under Section 6.09 or shall
become incapable of acting or shall be adjudged a bankrupt or insolvent, or
a receiver of the Trustee or of its property shall be appointed, or any
public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conservation or
liquidation,
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then, in any such case, (i) the Issuer by an Issuer Order may remove the
Trustee, or (ii) subject to Section 5.16, any Noteholder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting,
or if a vacancy shall occur in the office of the Trustee for any cause, the
Issuer by an Issuer Order shall promptly appoint a successor Trustee. If within
one year after such resignation, removal or incapability or the occurrence of
such vacancy, a successor Trustee has not been appointed by the Issuer, then a
successor trustee shall be appointed by Act of the Holders of Notes entitled to
more than 50% of the Voting Rights delivered to the Issuer and the retiring
Trustee. The successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and supersede the
successor Trustee appointed by the Issuer. If no successor Trustee shall have
been so appointed by the Issuer or Noteholders or the successor Trustee shall
not have accepted appointment in the manner hereinafter provided, any Noteholder
who has been a bona fide Holder of a Note for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor Trustee.
(f) The Issuer shall give notice of each resignation and each removal of
the Trustee and each appointment of a successor Trustee to the Noteholders and
S&P. Each notice shall include the name of the successor Trustee and the
address of its Corporate Trust Office.
SECTION 6.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
Every successor Trustee appointed hereunder shall execute, acknowledge and
deliver to the Issuer and the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee.
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Notwithstanding the foregoing, on request of the Issuer or the successor
Trustee, such retiring Trustee shall, upon payment of its charges, execute and
deliver an Instrument transferring to such successor Trustee all the rights,
powers and trusts of the retiring Trustee, and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such retiring
Trustee hereunder subject nevertheless to its lien, if any, provided for in
Section 6.07. Upon request of any such successor Trustee, the Issuer shall
execute and deliver any and all instruments for more fully and certainly vesting
in and confirming to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 6.12. MERGER; CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS
OF TRUSTEE.
Any entity into which the Trustee may be merged or converted or with which
it may be consolidated, or any entity resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any entity succeeding
to all or substantially all of the corporate trust business of the Trustee,
shall be the successor of the Trustee hereunder, provided such entity shall be
otherwise qualified and eligible under this Article, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto. In case any Notes have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and deliver the Notes
so authenticated with the same effect as if such successor Trustee had
authenticated such Notes.
SECTION 6.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST ISSUER.
The Trustee shall be subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b), and a Trustee who has resigned or
been removed shall be subject to TIA Section 311(a) to the extent indicated in
TIA Section 311(a).
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SECTION 6.14. CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal requirements of
the TIA or of any jurisdiction in which any of the Trust Estate may at the time
be located, the Issuer and the Trustee shall have power to appoint, and, upon
the written request of the Trustee or of the Holders of Notes entitled to more
than 50% of the Voting Rights, the Issuer shall for such purpose join with the
Trustee in the execution, delivery and performance of all instruments and
agreements necessary or proper to appoint, one or more Persons approved by the
Rating Agencies and the Trustee either to act as co-trustee, jointly with the
Trustee, of all or any part of the Trust Estate, or to act as separate trustee
of any such property, in either case with such powers as may be provided in the
instrument of appointment, and to vest in such Person or Persons in the capacity
aforesaid, any property, title, right or power deemed necessary or desirable,
subject to the other provisions of this Section. If the Issuer does not join in
such appointment within 15 days after the receipt by it of a request so to do,
or in case an Event of Default has occurred and is continuing, the Trustee alone
shall have power to make such appointment.
Should any written instrument from the Issuer be required by any co-trustee
or separate trustee so appointed for more fully confirming to such co-trustee or
separate trustee such property, title, right or power, any such instrument
shall, on request, be executed, acknowledged and delivered by the Issuer.
Every co-trustee or separate trustee shall, to the extent permitted by law,
but to such extent only, be appointed subject to the following terms:
(1) The Notes shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised,
solely by the Trustee.
(2) The rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or
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imposed upon and exercised or performed by the Trustee or by the Trustee
and such co-trustee or separate trustee jointly, as shall be provided in
the instrument appointing such co-trustee or separate trustee, except to
the extent that under any law of any jurisdiction in which any particular
act is to be performed, the Trustee shall be incompetent or unqualified to
perform such act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such co-trustee or separate
trustee.
(3) The Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Issuer evidenced by an Issuer Order, may
accept the resignation of or remove any co-trustee or separate trustee
appointed under this Section, and, in case an Event of Default has occurred
and is continuing, the Trustee shall have power to accept the resignation
of, or remove, any such co-trustee or separate trustee without the
concurrence of the Issuer. Upon the written request of the Trustee, the
Issuer shall join with the Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee or
separate trustee so resigned or removed may be appointed in the manner
provided in this Section.
(4) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee, or any other such
trustee hereunder, and the Trustee shall not be personally liable by reason
of any act or omission of any co-trustee or other such separate trustee
hereunder.
(5) Any Act of Noteholders delivered to the Trustee shall be deemed
to have been delivered to each such co-trustee and separate trustee.
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SECTION 6.15. AUTHENTICATING AGENTS.
The Trustee may appoint an Authenticating Agent with power to act on
its behalf and subject to its direction in the authentication and delivery of
the Notes designated for such authentication by the Issuer and containing
provisions therein for such authentication (or with respect to which the Issuer
has made other arrangements, satisfactory to the Trustee and such Authenticating
Agent, for notation on the Notes of the authority of an Authenticating Agent
appointed after the initial authentication and delivery of such Notes) in
connection with transfers and exchanges under Sections 2.06 and 2.07 as fully to
all intents and purposes as though the Authenticating Agent had been expressly
authorized by those Sections to authenticate and deliver Notes. For all
purposes of this Indenture (other than in connection with the authentication and
delivery of Notes pursuant to Sections 2.05 and 2.12 in connection with their
initial issuance and for purposes of Section 2.08), the authentication and
delivery of Notes by the Authenticating Agent pursuant to this Section shall be
deemed to be the authentication and delivery of Notes "by the Trustee". Such
Authenticating Agent shall at all times be a Person that both meets the
requirements of Section 6.09 for the Trustee hereunder and has its principal
office in the City and State of New York.
Any Authenticating Agent shall also serve as Note Registrar or co-Note
Registrar as provided in Section 2.07. Any Authenticating Agent appointed by
the Trustee pursuant to the terms of this Section 6.15 shall deliver to the
Trustee as a condition precedent to the effectiveness of such appointment an
instrument accepting the trusts, duties and responsibilities of Authenticating
Agent and of Note Registrar or co-Note Registrar and indemnifying the Trustee
for and holding the Trustee harmless against, any loss, liability or expense
(including reasonable attorneys' fees) incurred without negligence or bad faith
on its part, arising out of or in connection with the acceptance, administration
of the trust or exercise of authority by such Authenticating Agent, Note
Registrar or co-Note Registrar.
Any entity into which any Authenticating Agent may be merged or converted
or with which it may be consolidated, or any entity resulting from any merger,
consolidation or conversion to which any Authenticating Agent shall be a party,
or any entity
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succeeding to the corporate trust business of any Authenticating Agent, shall be
the successor of the Authenticating Agent hereunder, if such successor entity is
otherwise eligible under this Section, without the execution or filing of any
further act on the part of the parties hereto or the Authenticating Agent or
such successor corporation.
Any Authenticating Agent may at any time resign by giving written notice of
resignation to the Trustee and the Issuer. The Trustee may at any time
terminate the agency of any Authenticating Agent by giving written notice of
termination to such Authenticating Agent and the Issuer. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time any
Authenticating Agent shall cease to be eligible under this Section, the Trustee
shall promptly appoint a successor Authenticating Agent, shall give written
notice of such appointment to the Issuer and shall mail notice of such
appointment to all Holders of Notes.
The Issuer agrees to pay to any Authenticating Agent from time to time
reasonable compensation for its services. The provisions of Sections 2.10, 6.04
and 6.05 shall be applicable to any Authenticating Agent.
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ARTICLE VII
NOTEHOLDERS' LISTS AND REPORTS
SECTION 7.01. ISSUER TO FURNISH TRUSTEE NAMES AND ADDRESSES OF
NOTEHOLDERS.
(a) The Issuer will furnish or cause to be furnished to the Trustee (i)
semi-annually, not less than 45 days nor more than 60 days after the Record Date
for each April 1 and October 1 Payment Date, a list, in such form as the Trustee
may reasonably require, of the names and addresses of the Holders of Notes, and
(ii) at such other times, as the 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 Trustee is the Note Registrar,
no such list shall be required to be furnished to the Trustee.
(b) In addition to furnishing to the Trustee the Noteholder lists, if
any, required under subsection (a), the Issuer shall also furnish all Noteholder
lists, if any, required under Section 3.03 at the times required by said Section
3.03.
SECTION 7.02. PRESERVATION OF INFORMATION; COMMUNICATIONS TO NOTEHOLDERS.
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of the Holders of Notes contained in the
most recent list, if any, furnished to the Trustee as provided in Section 7.01
and the names and addresses of the Holders of Notes received by the Trustee in
its capacity as Note Registrar. The Trustee may destroy any list furnished to
it as provided in Section 7.01 upon receipt of a new list so furnished.
(b) Noteholders may communicate pursuant to TIA Section 312(b) with
other Noteholders with respect to their rights under this Indenture or under the
Notes.
(c) The Issuer, the Trustee and the Note Registrar shall have the
protection of TIA Section 312(c).
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SECTION 7.03. REPORTS BY TRUSTEE.
(a) (i) Within 60 days after May 15 of each year (the "reporting date"),
commencing with the year after the issuance of the Notes, the Trustee shall mail
to all Holders (together with all other Persons to whom reports are to be
transmitted under TIA Section 313(c)) a brief report dated as of such reporting
date that complies with TIA Section 313(a); (ii) the Trustee shall also mail to
Holders any reports that are required by TIA Section 313(b)(2) with respect to
any advances made by the Trustee and (iii) the Trustee shall also mail to
Holders of Notes any reports required by TIA Section 313(a)(5) and Section
313(b)(1) with respect to the release and substitution of any Accounts. For
purposes of the information required to be included in any such reports pursuant
to TIA Section 313(a)(3), 313(b)(1) or 313(b)(2), the principal amount of
indenture securities outstanding on the date as of which such information is
provided shall be the Aggregate Outstanding Principal Balance at the date as of
which such information is presented.
(b) A copy of each report required under this Section 7.03 shall, at the
time of such transmission to Noteholders, be filed by the Trustee with the
Commission and with each securities exchange upon which the Notes are listed,
provided that the Issuer has previously notified the Trustee of such listing.
The Issuer will notify the Trustee when the Notes are listed on any securities
exchange.
SECTION 7.04. REPORTS BY ISSUER.
The Issuer (a) shall file with the Trustee within 15 days after it files
them with the Commission copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the foregoing
as the Commission may by rules and regulations prescribe) which the Issuer is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 and (b) shall also comply with the other
provisions of TIA Section 314(a).
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ARTICLE VIII
ACCOUNTS, PAYMENTS OF INTEREST AND PRINCIPAL, AND RELEASES
SECTION 8.01. COLLECTION OF MONEYS.
Except as otherwise expressly provided herein, the 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 Trustee pursuant to this
Indenture. The Trustee shall hold all such money and property received by it as
part of the Trust Estate, and shall apply it as provided in this Indenture.
Except as otherwise expressly provided in this Indenture, if any default occurs
in the making of any payment or performance under the Servicing Agreement, or
any Hazard Insurance Policy or any other related insurance policy, the Trustee
may, and upon the request of the Holders of Notes entitled to more than 50% of
the then Voting Rights, the Trustee shall, take such action as may be
appropriate to enforce such payment or performance including the institution and
prosecution of appropriate Proceedings. Any such action shall be without
prejudice to any right to claim a Default or Event of Default under this
Indenture and to proceed thereafter as provided in Article V.
SECTION 8.02. COLLECTION ACCOUNT.
(a) Prior to the initial authentication and delivery of the Notes, the
Issuer shall open, at the Corporate Trust Office, a segregated trust account
(the "Collection Account") which such account shall be an Eligible Account. All
payments to be made from time to time to the Holders of Notes out of funds in
the Collection Account pursuant to this Indenture shall be made by the Trustee
as the Paying Agent of the Issuer or, pursuant to Section 3.03, by any other
Paying Agent appointed by the Issuer. All moneys deposited from time to time in
the Collection Account, including the deposits to be made by the Servicer in the
Collection Account pursuant to the Servicing Agreement, and all deposits therein
pursuant to this Indenture, and all investments made with such moneys including
all income or other gain from such investments shall be held by the Trustee as
part of the Trust Estate as herein provided. So long as no Servicing Default
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shall have occurred and be continuing, moneys in the Collection Account
representing collections on the Accounts erroneously deposited therein shall be
subject to withdrawals by the Servicer pursuant to Sections 2.07(c)(i) and 2.11
of the Servicing Agreement.
(b) So long as no Default or Event of Default shall have occurred and be
continuing, all or a portion of the Collection Account shall be invested and
reinvested by the Trustee at the Issuer's direction in one or more Eligible
Investments bearing interest or sold at discount. No such investment shall
mature later than two Business Days prior to the next Payment Date (or on such
Payment Date, in the case of obligations referred to in clause (a)(i) of the
definition of Eligible Investments and in the case of Eligible Investments of
which the Trustee is the obligor, so long as at the time of such investment the
long-term unsecured debt securities of the Trustee are rated "AAA" and "Aaa" by
S&P and Moody's, respectively). Notwithstanding the foregoing, any investment
(including repurchase agreements) on which the Trustee, in its commercial
capacity, is the obligor, may mature on a Payment Date if, under this Section
8.02, such investment could otherwise mature on the Business Day immediately
preceding such Payment Date.
All income or other gains from investment of moneys deposited in the
Collection Account shall be deposited by the Trustee in the Collection Account
immediately upon receipt, and any loss resulting from such investment shall be
charged to the Collection Account.
(c) Unless the Notes have been declared due and payable pursuant to
Section 5.02 and moneys collected by the Trustee with respect to the Notes are
being applied in accordance with Section 5.08, the amount on deposit in the
Collection Account on any Payment Date shall, after payment of Issuer Expenses
in accordance with Subsection (d), be withdrawn from the Collection Account, in
the amounts required, for application as follows:
On each Payment Date, interest and principal payments on the Notes will be
made from Available Funds in the following amounts and order of priority:
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FIRST: To the holders of the Class A-1 Notes, in an amount up
to the Interest Accrual Amount thereof;
SECOND: To the holders of the Class A-1 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto,
together with accrued interest thereon;
THIRD: To the holders of the Class A-2 Notes, in an amount up
to the Interest Accrual Amount thereof;
FOURTH: To the holders of the Class A-2 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto,
together with accrued interest thereon;
FIFTH: To the holders of the Class A-3 Notes, in an amount up
to the Interest Accrual Amount thereof;
SIXTH: To the holders of the Class A-3 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto,
together with accrued interest thereon;
SEVENTH: To the holders of the Class A-4 Notes, in an amount
up to the Interest Accrual Amount thereof;
EIGHTH: To the holders of the Class A-4 Notes, in an amount up
to all unreimbursed Class Interest Shortfalls related thereto,
together with accrued interest thereon;
NINTH: To the holders of the Class A-1 Notes, in an amount up
to the Class A-1 Optimal Principal Amount;
TENTH: To the holders of the Class A-1 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-1 Realized Loss Amounts previously allocated to
the Class A-1 Notes;
ELEVENTH: To the holders of the Class A-1 Notes, in an amount
up to the amount of any unreimbursed Class
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<PAGE>
A-1 Realized Loss Amounts previously allocated thereto (including any
Class A-1 Realized Loss Amount allocated thereto on such Payment
Date);
TWELFTH: To the holders of the Class A-2 Notes, in an amount
up to the Class A-2 Optimal Principal Amount;
THIRTEENTH: To the holders of the Class A-2 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-2 Realized Loss Amounts previously allocated to
the Class A-2 Notes;
FOURTEENTH: To the holders of the Class A-2 Notes, in an
amount up to the amount of any unreimbursed Class A-2 Realized Loss
Amounts previously allocated thereto (including any Class A-2 Realized
Loss Amount allocated thereto on such Payment Date);
FIFTEENTH: To the holders of the Class A-3 Notes, in an amount
up to the Class A-3 Optimal Principal Amount;
SIXTEENTH: To the holders of the Class A-3 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of
any unreimbursed
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Class A-3 Realized Loss Amounts previously allocated to the Class A-3
Notes;
SEVENTEENTH: To the holders of the Class A-3 Notes, in an
amount up to the amount of any unreimbursed Class A-3 Realized Loss
Amounts previously allocated thereto (including any Class A-3 Realized
Loss Amount allocated thereto on such Payment Date);
EIGHTEENTH: To the holders of the Class A-4 Notes, in an
amount up to the Class A-4 Optimal Principal Amount;
NINETEENTH: To the holders of the Class A-4 Notes, accrued and
unpaid interest at the related Note Interest Rate on the amount of any
unreimbursed Class A-4 Realized Loss Amounts previously allocated to
the Class A-4 Notes;
TWENTIETH: To the holders of the Class A-4 Notes, in an amount
up to the amount of any unreimbursed Class A-4 Realized Loss Amounts
previously allocated thereto (including any Class A-4 Realized Loss
Amount allocated thereto on such Payment Date); and
TWENTY-FIRST, to the Issuer, free of the lien of this
Indenture, an amount equal to the excess, if any, of (x) the Available
Funds for such Payment Date over (y) the aggregate of the amounts
applied pursuant to subclauses FIRST through TWENTIETH in this clause
(ii) for such Payment Date,
each such amount being the amount thereof set forth in the Payment Date
Statement. Any funds remaining in the Collection Account shall be invested in
accordance with Section 8.02(b).
(d) Funds on deposit in the Collection Account shall be withdrawn
therefrom and applied on each Payment Date to the payment of Issuer Expenses;
provided that (i) funds shall not be withdrawn from the Collection Account for
such purpose during the period from the end of each Due Period through the next
Payment Date if such withdrawal would result in the funds on deposit in the
Collection Account on such Payment Date being less than the
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Available Funds for such Payment Date as set forth in the related Payment Date
Statement and (ii) such Issuer Expenses, to the extent not paid on such Payment
Date because of clause (i), shall be paid as soon as possible after such Payment
Date.
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(e) After the entire principal amount of and accrued and unpaid interest
on the Notes and any unreimbursed Realized Loss Amounts have been paid or
provided for as provided in Section 4.01, the cash balance, if any, then
remaining in the Collection Account shall be withdrawn from such Collection
Account by the Trustee, released from the lien of this Indenture and paid to the
Issuer.
SECTION 8.03. GENERAL PROVISIONS REGARDING THE COLLECTION ACCOUNT.
(a) The Collection Account shall relate solely to the Notes and to the
Accounts, Eligible Investments and other property securing the Notes. Funds and
other property in the Collection Account shall not be commingled with any other
moneys or property of the Issuer or any Affiliate thereof.
(b) The Issuer will not direct the Trustee to make any investment of any
funds in the Collection Account or to sell any investment held in the Collection
Account except under the following terms and conditions:
(i) each such investment shall be made in the name of the Trustee
(in its capacity as such) or in the name of a nominee of the Trustee (or,
if, as indicated by an Opinion of Counsel delivered to the Trustee,
applicable law provides for perfection of pledges of an investment not
evidenced by a certificate or other instrument through registration of such
pledge on books maintained by or on behalf of the issuer of such
investment, such pledge may be so registered),
(ii) the Trustee shall have sole control over such investment, the
income thereon and the proceeds thereof,
(iii) any certificate or other instrument evidencing such investment
shall be delivered directly to the Trustee or its agent, and
(iv) the proceeds of each sale of such an investment shall be
remitted by the purchaser thereof directly to the Trustee for deposit in
the Collection Account.
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(c) If any amounts are needed for disbursement from the Collection
Account and sufficient uninvested funds are not available therein to make such
disbursement, in the absence of an Issuer Order for the liquidation of
investments held therein in an amount sufficient to provide the required funds,
the Trustee shall cause to be sold or otherwise converted to cash a sufficient
amount of the investments in the Collection Account.
(d) The Trustee shall not in any way be held liable by reason of any
insufficiency in the Collection Account except for its liability on investments
which are liabilities of the Trustee in its commercial capacity as an obligor of
any Eligible Investment.
(e) All investments of funds in the Collection Account and all sales of
investments held in the Collection Account shall, except as provided below, be
made by the Trustee in accordance with an Issuer Order; PROVIDED, HOWEVER, such
Issuer Order shall specify investment of such funds only in Eligible
Investments. Subject to compliance with the requirements of Sections 8.02(b)
and 8.03(b), such Issuer Order may authorize the Trustee to make the specific
investments set forth therein, to make investments from time to time consistent
with the general instructions set forth therein, or to make specific investments
pursuant to written, telegraphic or telephonic instructions of the employees or
agents of the Issuer identified therein, in each case only in Eligible
Investments and in such amounts as such Issuer Order shall specify.
In the event that:
(i) the Issuer shall have failed to give investment directions to
the Trustee by 10:30 a.m. Eastern Time on the Business Day prior to any day
on which funds are due to be deposited in the Collection Account (whether
with respect to Remittances or payments of principal of or interest on
Eligible Investments) authorizing the Trustee to invest such funds,
(ii) a Default or Event of Default shall have occurred and be
continuing but the Notes shall not have been declared due and payable
pursuant to Section 5.02, or if such Notes shall have been declared due and
payable following an Event
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of Default, amounts collected or receivable from the Trust Estate are being
applied in accordance with Section 5.05, or
(iii) an Event of Default shall have occurred and be continuing, the
Notes shall have been declared due and payable pursuant to Section 5.02 and
amounts collected or receivable from the Trust Estate are being applied in
accordance with Section 5.08,
the Trustee shall invest and reinvest the funds then in the Collection Account
to the fullest extent practicable, in such manner as the Trustee shall from time
to time determine, but only in Eligible Investments described in paragraph (a)
of the definition thereof. In determining the practicability of making any
investment required by this Section 8.04(e), the Trustee shall be entitled to
take into account the availability to it, in the normal course of its corporate
trust business, of investments of the required maturity and in the amounts
available to be invested. All investments made pursuant to clause (i) above
shall mature on the next Business Day following the date of such investment, all
such investments made pursuant to clause (ii) above shall mature no later than
the maturity date therefor permitted by Section 8.02(b), and all investments
made pursuant to clause (iii) above shall mature no later than the first date
following the date of such investment on which the Trustee proposes to make a
distribution to Holders of Notes pursuant to Section 5.08.
(f) Subject to the restriction on the maturity of investments set forth
in Section 8.02(b) and notwithstanding subsection (e) above, the Issuer will
give appropriate and timely investment directions to the Trustee such that at
the close of business on not more than two Business Days in any one calendar
year not more than an aggregate of $25,000 of funds in the Collection Account
are not invested pursuant, directly or indirectly, to an Issuer Order in
Eligible Investments bearing interest or sold at a discount which mature on or
after the opening of business on the next Business Day.
SECTION 8.04. REPORTS BY TRUSTEE TO NOTEHOLDERS.
On each Payment Date the Trustee shall deliver to the Noteholders a written
report based upon the Payment Date
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Statement for such Payment Date as reviewed by a firm of Independent Accountants
pursuant to Section 8.06(b) setting forth the amount of such payment which
represents principal and the amount which represents interest (in each case on a
per Individual Note basis), and the principal amount of an Individual Note after
giving effect to the payment of principal made on such Payment Date.
SECTION 8.05. REPORTS BY TRUSTEE.
In addition to any statement required to be delivered or prepared by the
Trustee pursuant to Section 2.09, 8.02 or 10.01, the Trustee shall deliver to
the Issuer, the Servicer and the Independent Accountants appointed pursuant to
Section 8.06, within two Business Days after the request of the Issuer, or such
Independent Accountants, a written report setting forth the amount of the
Collection Account established hereunder and the identity of the investments
included therein. Without limiting the generality of the foregoing, the Trustee
shall, upon the request of the Issuer, promptly transmit to the Issuer copies of
all accountings of, and information with respect to, Remittances furnished it by
the Servicer and shall promptly notify the Issuer if, on the fifth day after any
Remittance Date, any Remittance then due or any portion thereof has not been
received by the Trustee.
SECTION 8.06. REPORTS BY INDEPENDENT ACCOUNTANTS.
(a) At the Closing Date the Issuer shall appoint the firm of Independent
Accountants to prepare and deliver the certificate or opinion required to be
delivered under Section 2.12(e), and prior to the time any report or certificate
pursuant to Section 8.06(b) is required to be delivered, the Issuer will appoint
a firm of Independent Accountants as its Independent Accountants for purposes of
preparing and delivering the reports or certificates required by Section
8.06(b). Upon any resignation by such firm the Issuer shall promptly appoint a
successor thereto that shall also be a firm of Independent Accountants of
recognized national reputation. If the Issuer shall fail to appoint a successor
to a firm of Independent Accountants which has resigned within fifteen days
after such resignation, the Issuer shall promptly notify the Trustee of such
failure in writing. If the Issuer shall not have appointed a successor within
ten days thereafter, the Trustee
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shall promptly appoint a successor firm of Independent Accountants of recognized
national reputation. The fees of such successor shall be payable by the Issuer,
and any fees not so paid by the Issuer may be paid by the Trustee on behalf of
the Issuer, from amounts otherwise payable to the Issuer from the related
Collection Account pursuant to Section 8.02(e).
(b) If the Trustee shall fail to deliver to the Issuer any Payment Date
Statement by the due date therefor, the Issuer shall, at the opening of business
on the next Business Day after such due date, direct the firm of Independent
Accountants appointed pursuant to subsection (a) to prepare and deliver to the
Trustee such Payment Date Statement at the expense of the Trustee, no later than
2:00 p.m. on the Business Day following the day on which such direction was
given. Any fees of such Independent Accountants not paid by the Issuer may be
paid by the Trustee, on behalf of the Issuer (unless such fees are for the
account of the Trustee), from amounts otherwise payable to the Issuer from the
Collection Account pursuant to Section 8.02(e).
SECTION 8.07. REPORTS BY THE SERVICER. In the Servicing Agreement the
Servicer has agreed to deliver to the Trustee at the time specified therein the
information called for by Section 3.01(a) of the Servicing Agreement.
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ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.01. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF NOTEHOLDERS.
Without the consent of the Holders of any Notes, the Issuer and the Trustee
when authorized by an Issuer Order, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee for any of the following purposes:
(1) 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 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;
(2) to evidence the succession 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:
(3) to add to the covenants of the Issuer, for the benefit of the
Holders of all Notes, or to surrender any right or power herein conferred
upon the Issuer;
(4) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, which shall not be materially
inconsistent with the other provisions of this Indenture, provided that
such action shall not adversely affect in any material respect the
interests of the Holders of the Notes; or
(5) 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 TIA or under any similar federal statute hereafter
enacted, and to add to this Indenture such other provisions as may be
expressly required by TIA.
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SECTION 9.02. SUPPLEMENTAL INDENTURES WITH CONSENT OF NOTEHOLDERS.
With the consent of the Holders of Notes entitled to at least 50% of the
Voting Rights, by Act of said Holders delivered to the Issuer and the Trustee,
the Issuer, when authorized by an Issuer Order, and the Trustee may 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 no such supplemental
indenture shall, without the consent of the Holder of each Outstanding Note
affected thereby:
(1) change the final installment of principal of, or any
installment of interest on, any Note or reduce the principal amount
thereof, the Note Interest Rate thereon or the Redemption Price with
respect thereto, change the Note Redemption Date, change any place of
payment where, or the coin or currency in which, any Note or any interest
thereon is payable, or impair the right to institute suit for the
enforcement of the payment of any installment of interest due on any Note
on or after the date such payment is due or for the enforcement of the
payment of the entire remaining unpaid principal amount of any Note on or
after the Maturity of the final installment of the principal thereof (or,
in the case of redemption, on or after the applicable Redemption Date);
(2) reduce the percentage of the Voting Rights, 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 provisions of this Indenture or Defaults hereunder and
their consequences provided for in this Indenture;
(3) modify any of the provisions of this Section 9.02, Section
5.14 or Section 5.18(b) or 5.18(c), except to increase any percentage
specified therein or to provide that certain other provisions of this
Indenture cannot be modified or waived without the consent of the Holder of
each Outstanding Note affected thereby;
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(4) modify or alter the provisions of the proviso to the
definition of the term "Outstanding";
(5) 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 Estate or terminate the lien of this Indenture on any property at any
time subject hereto or deprive the Holder of any Note of the security
afforded by the lien this Indenture; or
(6) modify any of the provisions of this Indenture in such manner
as to affect the calculation of the principal or interest for any Payment
Date on any Notes (including the calculation of any of the individual
components of such Debt Service Requirement) or to affect the rights of the
Holders of Notes to the benefits of any provisions contained herein for the
mandatory payment of principal.
The Trustee may in its discretion determine whether or not any Notes would
be affected by any supplemental indenture pursuant to this Section 9.02 or
Section 9.01(4) hereof and any such determination shall be conclusive upon the
Holders of all Notes, whether theretofore or thereafter authenticated and
delivered hereunder. The 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
9.02 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 Trustee of any
supplemental indenture pursuant to this Section, the Issuer shall mail to the
Holders of the Notes to which such supplemental indenture relates a notice
setting forth in general terms the substance of such supplemental indenture.
Any failure of the Issuer 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 9.03. EXECUTION OF SUPPLEMENTAL INDENTURES.
IX-3
<PAGE>
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 6.01) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not
(except to the extent required in the case of a supplemental indenture entered
into under Section 9.01(5)) be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or immunities under
this Indenture or otherwise.
SECTION 9.04. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article, this
Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes to which such supplemental indenture relates which have theretofore
been or thereafter are authenticated and delivered hereunder shall be bound
thereby.
SECTION 9.05. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Section shall
conform to the requirements of the TIA as then in effect, so long as this
Indenture shall then be qualified under the TIA.
SECTION 9.06. REFERENCE IN NOTES TO SUPPLEMENTAL INDENTURES.
Notes authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article may, and if required by the Trustee shall,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Issuer shall so determine, new Notes so
modified as to conform, in the opinion of the Trustee and the Issuer, to any
such supplemental indenture which relates to the Notes may be prepared and
executed by the Issuer and authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
IX-4
<PAGE>
ARTICLE X
REDEMPTION OF NOTES
SECTION 10.01. OPTIONAL REDEMPTION OF NOTES.
The Notes are subject to redemption in whole and not in part at the option
of the Issuer on any Payment Date at the Redemption Price therefor if before or
after giving effect to the payment of principal otherwise required to be made on
such Payment Date the Outstanding Principal Balance of each Class of Notes
outstanding (prior to allocations of any Realized Loss Amounts) equals 10% or
less of the initial principal amount of such Class of Notes.
Payment on the Notes pursuant to any optional redemption may be made only
with Eligible Moneys. If the Issuer elects to so redeem all Notes then
Outstanding, it shall, no later than 30 days prior to the Payment Date selected
for such redemption, deliver notice of such election to the Trustee, together
with an Issuer Order directing the Trustee to effect such redemption and the
Aggregate Redemption Price due on such Payment Date for deposit into the
Collection Account. All such Notes shall be due and payable on such Payment
Date upon the giving of the notice thereof required by Section 10.02.
SECTION 10.02. FORM OF REDEMPTION NOTICE.
Notices of redemptions of Notes shall be given by the Trustee in the name
and at the expense of the Issuer and shall be mailed no later than 10 days prior
to the Redemption Date to the Persons who were Holders of such Notes on the
Record Date that would otherwise be applicable to the Payment Date on which such
notes are to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and
(3) 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
X-1
<PAGE>
3.02) and that no interest shall accrue on such Note for any period after the
date fixed for redemption.
Failure to give notice of redemption, or any defect therein, to any Holder
of any Note selected for redemption shall not impair or affect the validity of
the redemption of any other Note.
SECTION 10.03. NOTES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as provided in section 10.02, the
Notes so to be redeemed shall, on the applicable 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 such Redemption
Price for any period after such Redemption Date. Upon surrender of such Notes
for redemption in accordance with said notice such Notes shall be paid by or on
behalf of the Issuer at the Redemption Price.
X-2
<PAGE>
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. COMPLIANCE CERTIFICATES AND OPINIONS.
Upon any application or request by the Issuer to the Trustee to take any
action under any provision of this Indenture, the Issuer shall furnish to the
Trustee an Officers' Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, 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
relating to such particular application or request, 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 (including one furnished pursuant to
specific requirements of this Indenture relating to a particular application or
request) shall include to the extent applicable:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) 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;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with;
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with; and
XI-1
<PAGE>
(5) if the signer of such certificate or opinion is required to
be Independent, the statement required by the definition of the term
"Independent".
SECTION 11.02. FORM OF DOCUMENTS DELIVERED TO 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 officer of the Issuer may be based,
insofar as it relates to legal matters, upon a certificate or opinion of
counsel, unless such officer knows, or in the exercise of reasonable care
should know, that the certificate or opinion with respect to the matters upon
which his certificate or opinion is based are erroneous. Any such certificate
or 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 Owner Trustee, the Grantor or any other Person, stating that the
information with respect to such factual matters is in the possession of such
Person, unless such officer or 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. Any Opinion of Counsel may be based on
the written opinion of other counsel, in which event such Opinion of Counsel
shall be accompanied by a copy of such other counsel's opinion and shall
include a statement to the effect that such counsel believes that such counsel
and the Trustee may reasonably rely upon the opinion of such other counsel.
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.
XI-2
<PAGE>
Wherever in this Indenture, in connection with any application or
certificate or report to the 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, 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 Trustee's right to rely upon the truth and accuracy of any statement or
opinion contained in any such document as provided in Section 6.01(b)(2)
Wherever in this Indenture it is provided that the absence of the
occurrence and continuation of a Default or Event of Default is a condition
precedent to the taking of any action by the Trustee at the request or direction
of the Issuer, then, notwithstanding that the satisfaction of such condition is
a condition precedent to the Issuer's right to make such request or direction,
the Trustee shall be protected in acting in accordance with such request or
direction if it does not have knowledge of the occurrence and continuation of
such Default or Event of Default as provided in Section 6.01(d).
SECTION 11.03. 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 agent
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 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 6.01) conclusive in
favor of the Trustee and the Issuer, if made in the manner provided in this
Section.
XI-3
<PAGE>
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of any notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by an officer of a corporation or a member of a partnership on
behalf of such corporation or partnership, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(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 of transfer thereof or in exchange therefor or
in lieu thereof, in respect of anything done, omitted or suffered to be done by
the Trustee or the Issuer in reliance thereon, whether or not notation of such
action is made upon such Notes.
SECTION 11.04. NOTICES, ETC., TO TRUSTEE AND ISSUER.
(a) 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
(1) the Trustee by any Noteholder or by the Issuer shall be
sufficient for every purpose hereunder if filed in writing and mailed by
registered mail to the Trustee at One First Union Financial Center, 200
South Biscayne Boulevard, Miami, Florida 33131, Attention: Corporate Trust
Department with a copy sent to First Union Corporation, Legal Division, One
First Union Center, NC-0013 Charlotte, North Carolina 28288-0013,
Attention: General Counsel, or
(2) the Issuer by the Trustee or by any Noteholder shall be
sufficient for every purpose hereunder (except as provided in Section
5.01(3) and (4)) if in writing and mailed, first-class postage-prepaid, to
the Issuer addressed to it at c/o Wilmington Trust Company, as Owner
Trustee,
XI-4
<PAGE>
Corporate Financial Services Division, Rodney Square North, Wilmington,
Delaware 19890, Attention: Corporate Trust Administration, or at any other
address previously furnished in writing to the Trustee by the Issuer.
(b) Notices required under this Indenture to be sent to Noteholders with
respect to material amendments to the Indenture, the Trust Agreement or the
Servicing Agreement, satisfaction and discharge of the Indenture and any
reports, statements, or other notices required hereunder shall in addition be
sent to each Rating Agency; to Moody's at its address at 99 Church Street, New
York, New York 10007, and to S&P at its address at 25 Broadway, New York, New
York.
SECTION 11.05. NOTICES AND REPORTS TO NOTEHOLDERS; WAIVER OF NOTICES.
Where this Indenture provides for notice to Noteholders of any event or the
mailing of any report to Noteholders, such notice or report shall be
sufficiently given (unless otherwise herein expressly provided) if mailed,
first-class postage prepaid, to each Noteholder affected by such event or to
whom such report is required to be mailed, at the address of such Noteholder 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 or the mailing
of such report. In any case where a notice or report to Noteholders is mailed
in the manner provided above, neither the failure to mail such notice or report,
nor any defect in any notice or report so mailed, to any particular Noteholder
shall affect the sufficiency of such notice or report with respect to other
Noteholders, and any notice or report which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given or provided.
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 Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
XI-5
<PAGE>
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 Trustee shall be deemed to be a
sufficient giving of such notice.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for any meeting of Noteholders. Any
Agent may make reasonable rules and set reasonable requirements for its
functions.
SECTION 11.07. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with another
provision hereof which is required to be included in this Indenture by, or which
is deemed to be included in this Indenture (an "incorporated provision") by
operation of, any of the provisions of TIA, such required provision or
incorporated provision shall control.
SECTION 11.08. 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 11.09. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Issuer shall bind its
successors and assigns, whether so expressed or not.
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.
XI-6
<PAGE>
SECTION 11.11. BENEFITS OF INDENTURE.
Nothing in this Indenture or in the Notes, expressed or implied, shall give
to any Person, other than the parties hereto and their successors hereunder, any
separate trustee or co-trustee appointed under Section 6.14 and the Noteholders
any benefit or any legal or equitable right, remedy or claim under this
Indenture.
SECTION 11.12. LEGAL HOLIDAYS.
In any case where the date of any Payment Date, Redemption Date, or any
other date on which principal of or interest on any Note is proposed to be paid
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 nominal date of any such Payment Date, Redemption Date, or other date for
the payment of principal of or interest on any Note, and no interest shall
accrue for the period from and after any such nominal date, provided such
payment is made in full on such next Succeeding Business Day.
SECTION 11.13. GOVERNING LAW.
This Indenture and each Note shall be construed in accordance with and
governed by the laws of the State of New York applicable to agreements made and
to be performed therein.
SECTION 11.14. 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 11.15. RECORDING OF INDENTURE.
This Indenture is subject to recording in any appropriate public recording
offices, such recording to be effected by the Issuer and at its expense in
compliance with any Opinion of Counsel delivered pursuant to Section 2.12(b) or
3.06.
XI-7
<PAGE>
SECTION 11.16. ISSUER OBLIGATIONS.
No recourse may be taken, directly or indirectly, against (i) the Owner
Trustee in its individual capacity, (ii) any incorporator, subscriber to the
capital stock, stockholder, officer or director of the Owner Trustee or of any
predecessor or successor of the Owner Trustee in its individual capacity, (iii)
any holder of a beneficial interest in the Issuer, (iv) any partner,
beneficiary, agent, officer, director, employee, or successor or assign of a
holder of a beneficial interest in the Issuer, or (v) any incorporator,
subscriber to the capital stock, stockholder, officer, director or employee of
the Trustee or any predecessor or successor of the Trustee with respect to the
Issuer's obligations with respect to the Notes or the obligation of the Issuer
or the Trustee under this Indenture or any certificate or other writing
delivered in connection herewith or therewith.
SECTION 11.17. INSPECTION.
The Issuer and the Note Registrar will agree that, on reasonable prior
notice, they will permit any representative of Trustee, during normal business
hours, to examine all of the books of account, records, reports and other papers
in its possession relating to the Notes, to make copies and extracts therefrom
in the case of the Issuer, to cause such books to be audited by Independent
Accountants selected by the Trustee, and to discuss its affairs, finances and
accounts with its officers, employees and Independent Accountants (and by this
provision the Issuer hereby authorizes its Independent Accountants to discuss
with such representatives such affairs, finances and accounts), all at such
reasonable times and as often as may be reasonably requested. Any expense
incident to the exercise by the Trustee of any right under this Section 11.17
shall be borne by the Issuer.
XI-8
<PAGE>
IN WITNESS WHEREOF, the Owner Trustee on behalf of the Issuer and the
Trustee have caused this Indenture to be duly executed by their respective
officers thereunto duly authorized and the seal of the Owner Trustee and of the
Trustee, duly attested, to be hereunto affixed, all as of the day and year first
above written
MID-STATE TRUST VI
By: Wilmington Trust Company,
not in its individual capacity,
but solely as Owner Trustee
of Mid-State Trust VI
By
---------------------------------
Authorized Officer
Attest:
- ----------------------------
Authorized Officer
FIRST UNION NATIONAL BANK OF FLORIDA,
as Trustee
By
------------------------------
Authorized Officer
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
On the ___ day of _____, ____ before me, a notary public in and for said
State, personally appeared __________________, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person who executed the
within instrument on behalf of one of the corporations therein named, and
acknowledged to me that such corporation executed it.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
-----------------------
Notary Public
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK)
On the ___ day of _____, ____, before me, a notary public in and for said
State, personally appeared ____________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person who executed the within
instrument on behalf of one of the corporations therein named, and acknowledged
to me that such national banking association executed it.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
------------------------
Notary Public
<PAGE>
EXHIBIT A
UNLESS THIS CLASS A-1 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 CERTIFICATE
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.
PRINCIPAL OF THIS CLASS A-1 NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-1 NOTE
AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE ACTUAL
OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-1 NOTE MAY BE ASCERTAINED ONLY BY
OBTAINING A WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE NAMED HEREIN. THE
RIGHTS OF A HOLDER OF THIS CLASS A-1 NOTE ARE SUBJECT TO THE PROVISIONS OF THE
WITHIN-REFERENCED INDENTURE.
A-1
<PAGE>
MID-STATE TRUST VI
_____% ASSET BACKED NOTE, CLASS A-1
DUE: [ ]
ACCRUAL DATE: [ ]
$_________________________ No.________________
Mid-State Trust VI (the "Issuer"), a Delaware business trust governed by a
Trust Agreement dated as of April __, 1997 (the "Trust Agreement"), for value
received, hereby promises to pay to ________________ or registered assigns, the
principal sum of ________ Dollars in quarterly installments on January 1, April
1, July 1, and October 1 (the "Principal Payment Dates") in each year,
commencing on July 1, 1997 and ending on or before [ ] (the "Maturity" of
such final installment of principal) and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the unpaid principal amount of
this Class A-1 Note outstanding from time to time from [ ] (the "Accrual
Date"), or such later date to which interest has been paid, until the principal
amount of this Class A-1 Note is paid in full, at the rate of __________ percent
(_____%) per annum, such interest being payable quarterly on January 1, April 1,
July 1, and October 1 in each year, commencing on July 1, 1997 (the "Interest
Payment Dates"). Installments of principal of this Class A-1 Note are due and
payable in the amounts and on the dates described on the reverse hereof.
The principal of, and interest on, this Class A-1 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 Class A-1 Note shall be applied first to interest
due and payable on this Class A-1 Note as provided above and then to the unpaid
principal of this Class A-1 Note. Any installment of principal or interest
which is not paid when and as due shall bear interest at the rate of interest
borne by the principal of this Class A-1 Note from the date due to the date of
payment thereof, but only to the extent that the payment of such interest shall
be lawful and enforceable.
A-2
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Class A-1 Note shall not be entitled to any
benefit under the Indenture referred to below, or be valid or obligatory for any
purpose.
A-3
<PAGE>
IN WITNESS WHEREOF, Mid-State Trust VI has caused this instrument to be
duly executed by Wilmington Trust Company, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement.
Dated: MID-STATE TRUST VI,
----------------
By: Wilmington Trust Company,
not in its individual capacity
but solely in its capacity as
Owner Trustee under the Trust
Agreement
By
------------------------------
[Title]
A-4
<PAGE>
This Class A-1 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its [ ]% Asset Backed Notes, Class A-1 (herein called
the "Class A-1 Notes"). The Class A-1 Notes are issued and will be issued under
an Indenture dated as of April __, 1997 (herein called the "Indenture"), between
the Issuer and First Union National Bank of Florida, as Trustee (the "Trustee",
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights thereunder of the Issuer, the Trustee and the
Holders of the Class A-1 Notes and the terms upon which the Class A-1 Notes are,
and are to be, authenticated and delivered. Also issued under the Indenture are
the [ ]% Asset Backed Notes, Class A-2, [ ]% Asset Backed Notes, Class A-3
and [ ]% Asset Backed Notes, Class A-4. The Class A-1 Notes are secured by
the collateral pledged as security therefor to the extent provided in the
Indenture. All terms used in this Class A-1 Note which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
An installment of principal shall be paid on the Class A-1 Notes on each
Principal Payment Date in the amount equal to the amount available to be paid
thereon pursuant to Section 8.02(c)(ii) of the Indenture on such Principal
Payment Date; provided that the unpaid principal amount of this Class A-1 Note
shall be due and payable on the Principal Payment Date in ________. Each
payment of principal of the Class A-1 Notes shall be allocated among the Class
A-1 Notes in proportion to their then remaining unpaid principal amounts. The
unpaid principal amount of this Class A-1 Note may be reduced by the allocation
to it (in accordance with Section 2.09 of the Indenture) of Class A-1 Realized
Loss Amounts without any corresponding payment.
Payment of the then remaining unpaid principal amount of this Class A-1
Note on the Maturity of its final installment of principal or on such earlier
date as the Issuer shall be required to apply payments received with respect to
the collateral securing the Class A-1 Notes to payment of the then remaining
unpaid principal amount of this Class A-1 Note or to payment of the Redemption
Price payable on any date as of which this Class A-1 Note has been called for
redemption in full shall be made upon presentation of this Class A-1 Note to the
office or agency of the Issuer maintained for such purpose. Payments of
interest
A-5
<PAGE>
on this Class A-1 Note due and payable on each Interest Payment Date, together
with any installment of principal of this Class A-1 Note due and payable on each
Interest Payment Date which is also a Principal Payment Date for this Class A-1
Note, shall be made by check mailed to the Person whose name appears as the
registered Holder of this Class A-1 Note (or one or more Predecessor Notes) in
the Note Register as of the Record Date preceding such Interest Payment Date,
except that with respect to a Class A-1 Note registered in the name of the
nominee of a 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.
Checks for amounts due on this Class A-1 Note 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 Class A-1
Note be submitted for notation of payment and checks returned undelivered will
be held for payment to the Person entitled thereto, subject to the terms of the
Indenture, at the office or agency in the United States of America designated by
the Issuer for such purpose pursuant to the Indenture. Any reduction in the
principal amount of this Class A-1 Note (or any one or more Predecessor Notes)
effected by any payments made on any Principal Payment Date or by any allocation
of a Class A-1 Realized Loss Amount shall be binding upon all Holders of this
Class A-1 Note and of any Class A-1 Note issued upon the registration of
transfer hereof or in exchange herefor 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 Class A-1
Note on a Principal Payment Date which is prior to the Maturity of the final
installment of principal hereof, then the Trustee, on behalf of the Issuer, will
notify the Person who was the registered Holder hereof on the 15th day of the
month prior to the month in which such Principal Payment Date occurs, by notice
mailed no later than ten days prior to such Principal Payment Date, and the
amount then due and payable shall, if sufficient funds therefor are available,
be payable only upon presentation of this Class A-1 Note to the office or agency
of the Issuer maintained for such purpose.
A-6
<PAGE>
If an Event of Default shall occur and be continuing with respect to the
Class A-1 Notes, the Class A-1 Notes may become or be declared due and payable
in the manner and with the effect provided in the Indenture. Reference is
hereby made to Article V of the Indenture which sets forth certain events which
constitute Events of Default. If any such acceleration of maturity occurs prior
to the Maturity of the final installment of principal of this Class A-1 Note,
the amount payable to the Holder of this Class A-1 Note will be equal to the
aggregate unpaid principal amount of this Class A-1 Note on the date this Class
A-1 Note becomes so due and payable, together with accrued interest on such
unpaid principal amount to the date of payment thereof. The Indenture provides
that, notwithstanding the acceleration of the maturity of the Class A-1 Notes,
under certain circumstances specified therein all amounts collected as proceeds
of the collateral securing the Class A-1 Notes or otherwise shall continue to be
applied to payments of principal of and interest on the Class A-1 Notes as if
they had not been declared due and payable. In such event, interest on the then
unpaid principal amount of all Class A-1 Notes and on any overdue installments
of interest on the Class A-1 Notes following the acceleration of the maturity of
the Class A-1 Notes shall accrue and be payable at the applicable Note Interest
Rate, but only to the extent that the payment thereof shall be lawful and
enforceable.
The Class A-1 Notes are not prepayable or redeemable at the option or
direction of the Issuer except that all of the outstanding Notes may be called
for redemption in whole at the option of the Issuer on any Payment Date, if,
either before or after giving effect to the payment of principal otherwise
required to be made on such Payment Date, each Class of Notes shall be in an
aggregate Outstanding Principal Balance which is 10% or less of the original
principal amount of such Class of Notes, at 100% of the outstanding principal
amount thereof together with interest accrued and unpaid to the date set for
redemption.
As provided in the Indenture the transfer of this Class A-1 Note may be
registered on the Note Register of the Issuer, upon surrender of this Class A-1
Note for registration of transfer at the office or agency designated by the
Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly
A-7
<PAGE>
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and in the same
aggregate initial principal amount will be issued to the designated transferee
or transferees.
Prior to the due presentment for registration of transfer of this Class A-1
Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this Class A-1 Note is registered (i) on any
Record Date, for purposes of making payments, and (ii) on any other date for any
other purpose, as the owner hereof, whether or not this Class A-1 Note be
overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by written 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 Class A-1 Notes under the Indenture
at any time by the Issuer, and the Holders of Notes entitled to more than 50%
of the Voting Rights at the time Outstanding. The Indenture also contains
provisions that permit the Holders of Notes entitled to more than 50% of the
Voting Rights, on behalf of the Holders of all the Notes, to waive compliance
by the Issuer with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder, at the time of the giving thereof, of this Class A-1 Note
(or any one or more Predecessor Notes) shall be conclusive and binding upon
such Holder and upon all future holders of this Class A-1 Note and of any Class
A-1 Note issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof whether or not notation of such consent or waiver is made
upon this Class A-1 Note.
The term "Issuer" as used in this Class A-1 Note includes any successor to
the Issuer under the Indenture.
The Class A-1 Notes are issuable only in registered form in the
denominations provided in the Indenture and subject to certain limitations
therein set forth. The Class A-1 Notes are exchangeable for a like aggregate
initial principal amount of Class A-1 Notes of different authorized
denominations, as requested by the Holder surrendering the same, pursuant to
the terms and conditions set forth in the Indenture.
A-8
<PAGE>
As provided in the Indenture, this Class A-1 Note and the Indenture shall
be construed in accordance with, and governed by, the laws of the State of New
York applicable to agreements made and to be performed therein.
No reference herein to the Indenture and no provision of this Class A-1
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 Class A-1 Note at the times, place and rate, and in the coin or currency,
herein prescribed.
Anything herein to the contrary notwithstanding, neither the Owner Trustee
in its individual capacity, any beneficial owner of the Issuer, the Trustee nor
any of their respective partners, 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 and interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in, this Class A-1 Note or the Indenture, it being
expressly understood that said covenants, obligations and indemnifications have
been made by the Owner Trustee for the sole purpose of binding the respective
interests of the beneficial owners of the Issuer and the Owner Trustee in the
assets of the Issuer. The Holder of this Class A-1 Note by the acceptance
hereof agrees that in the case of an Event of Default 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 the enforcement against, the assets of the
Issuer of any and all liabilities, obligations and undertakings contained in the
Indenture or in this Class A-1 Note.
The Owner Trustee has executed this Class A-1 Note on behalf of the Issuer,
not in its individual capacity but solely as owner trustee under the Trust
Agreement and the Owner Trustee shall be liable hereunder only in respect of the
assets of the trust created by such Trust Agreement.
The remedies of the Holder hereof as provided herein and in the Indenture,
shall be cumulative and concurrent and may be pursued solely against the assets
of the Trust created by the
A-9
<PAGE>
Trust Agreement pledged under the Indenture as security for the Class A-1
Notes. No failure on the part of the holder in exercising any right or remedy
hereunder shall operate as a waiver or release thereof, nor shall any single or
partial exercise of any right or remedy preclude any further exercise thereof
or the exercise of any other right or remedy hereunder.
A-10
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A-1 Notes referred to in the within-mentioned
Indenture.
First Union National Bank of Florida,
as Trustee
By
-----------------------------
Authorized Signatory
A-11
<PAGE>
EXHIBIT B
UNLESS THIS CLASS A-2 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 CERTIFICATE
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.
PRINCIPAL OF THIS CLASS A-2 NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-2 NOTE
AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE ACTUAL
OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-2 NOTE MAY BE ASCERTAINED ONLY BY
OBTAINING A WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE NAMED HEREIN. THE
RIGHTS OF A HOLDER OF THIS CLASS A-2 NOTE ARE SUBJECT TO THE PROVISIONS OF THE
WITHIN-REFERENCED INDENTURE.
THE RIGHTS OF THE CLASS A-2 NOTEHOLDERS TO RECEIVE PAYMENTS IN RESPECT OF
PRINCIPAL AND INTEREST ON THE CLASS A-2 NOTES ARE SUBORDINATE TO THE RIGHTS OF
THE CLASS A-1 NOTEHOLDERS TO RECEIVE PAYMENTS OF PRINCIPAL AND INTEREST.
B-1
<PAGE>
MID-STATE TRUST VI
_____% ASSET BACKED NOTE
DUE: [ ]
ACCRUAL DATE: [ ]
$_________________________ No.________________
Mid-State Trust VI (the "Issuer"), a Delaware business trust governed by a
Trust Agreement dated as of April __, 1997 (the "Trust Agreement"), for value
received, hereby promises to pay to ________________ or registered assigns, the
principal sum of ________ Dollars in quarterly installments on January 1, April
1, July 1, and October 1 (the "Principal Payment Dates") in each year,
commencing on July 1, 1997 and ending on or before [ ] (the "Maturity" of
such final installment of principal) and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the unpaid principal amount of
this Class A-2 Note outstanding from time to time from [ ] (the "Accrual
Date"), or such later date to which interest has been paid, until the principal
amount of this Class A-2 Note is paid in full, at the rate of __________
percent (_____%) per annum, such interest being payable quarterly on January 1,
April 1, July 1, and October 1 in each year, commencing on July 1, 1997 (the
"Interest Payment Dates"). Installments of principal of this Class A-2 Note
are due and payable in the amounts and on the dates described on the reverse
hereof.
The principal of, and interest on, this Class A-2 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 Class A-2 Note shall be applied first to interest
due and payable on this Class A-2 Note as provided above and then to the unpaid
principal of this Class A-2 Note. Any installment of principal or interest
which is not paid when and as due shall bear interest at the rate of interest
borne by the principal of this Class A-2 Note from the date due to the date of
payment thereof, but only to the extent that the payment of such interest shall
be lawful and enforceable.
B-2
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Class A-2 Note shall not be entitled to any
benefit under the Indenture referred to below, or be valid or obligatory for any
purpose.
B-3
<PAGE>
IN WITNESS WHEREOF, Mid-State Trust VI has caused this instrument to be
duly executed by Wilmington Trust Company, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement.
Dated: MID-STATE TRUST VI,
--------------------
By: Wilmington Trust Company,
not in its individual capacity
but solely in its capacity as
Owner Trustee under the Trust
Agreement
By
---------------------------
[Title]
B-4
<PAGE>
This Class A-2 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its [ ]% Asset Backed Notes, Class A-2 (herein called
the "Class A-2 Notes"). The Class A-2 Notes are issued and will be issued under
an Indenture dated as of April __, 1997 (herein called the "Indenture"), between
the Issuer and First Union National Bank of Florida, as Trustee (the "Trustee",
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights thereunder of the Issuer, the Trustee and the
Holders of the Class A-2 Notes and the terms upon which the Class A-2 Notes are,
and are to be, authenticated and delivered. Also issued under the Indenture are
the [ ]% Asset Backed Notes, Class A-1, [ ]% Asset Backed Notes, Class A-3
and [ ]% Asset Backed Notes, Class A-4. The Class A-2 Notes are secured by
the collateral pledged as security therefor to the extent provided in the
Indenture. All terms used in this Class A-2 Note which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
An installment of principal shall be paid on the Class A-2 Notes on each
Principal Payment Date in the amount equal to the amount available to be paid
thereon pursuant to Section 8.02(c)(ii) of the Indenture on such Principal
Payment Date; provided that the unpaid principal amount of this Class A-2 Note
shall be due and payable on the Principal Payment Date in _____. Each payment
of principal of the Class A-2 Notes shall be allocated among the Class A-2 Notes
in proportion to their then remaining unpaid principal amounts. The unpaid
principal amount of this Class A-2 Note may be reduced by the allocation to it
(in accordance with Section 2.09 of the Indenture) of Class A-2 Realized Loss
Amounts without any corresponding payment.
The rights of the Class A-2 Noteholders to receive payments in respect of
principal and interest on the Class A-2 Notes are subordinate to the rights of
the Class A-1 Noteholders to receive payments of principal and interest.
Payment of the then remaining unpaid principal amount of this Class A-2
Note on the Maturity of its final installment of principal or on such earlier
date as the Issuer shall be required to apply payments received with respect to
the collateral securing the Class A-2 Notes to payment of the then remaining
B-5
<PAGE>
unpaid principal amount of this Class A-2 Note or to payment of the Redemption
Price payable on any date as of which this Class A-2 Note has been called for
redemption in full shall be made upon presentation of this Class A-2 Note to the
office or agency of the Issuer maintained for such purpose. Payments of
interest on this Class A-2 Note due and payable on each Interest Payment Date,
together with any installment of principal of this Class A-2 Note due and
payable on each Interest Payment Date which is also a Principal Payment Date for
this Class A-2 Note, shall be made by check mailed to the Person whose name
appears as the registered Holder of this Class A-2 Note (or one or more
Predecessor Notes) in the Note Register as of the Record Date preceding such
Interest Payment Date, except that with respect to a Class A-2 Note registered
in the name of the nominee of a 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.
Checks for amounts due on this Class A-2 Note 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 Class A-2
Note be submitted for notation of payment and checks returned undelivered will
be held for payment to the Person entitled thereto, subject to the terms of the
Indenture, at the office or agency in the United States of America designated by
the Issuer for such purpose pursuant to the Indenture. Any reduction in the
principal amount of this Class A-2 Note (or any one or more Predecessor Notes)
effected by any payments made on any Principal Payment Date or by any allocation
of a Class A-2 Realized Loss Amount shall be binding upon all Holders of this
Class A-2 Note and of any Class A-2 Note issued upon the registration of
transfer hereof or in exchange herefor 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 Class A-2
Note on a Principal Payment Date which is prior to the Maturity of the final
installment of principal hereof, then the Trustee, on behalf of the Issuer, will
notify the Person who was the registered Holder hereof on the 15th day of the
month prior to the month in which such Principal Payment Date occurs, by notice
mailed no later than ten days
B-6
<PAGE>
prior to such Principal Payment Date, and the amount then due and payable shall,
if sufficient funds therefor are available, be payable only upon presentation of
this Class A-2 Note to the office or agency of the Issuer maintained for such
purpose.
If an Event of Default shall occur and be continuing with respect to the
Class A-2 Notes, the Class A-2 Notes may become or be declared due and payable
in the manner and with the effect provided in the Indenture. Reference is
hereby made to Article V of the Indenture which sets forth certain events which
constitute Events of Default. If any such acceleration of maturity occurs prior
to the Maturity of the final installment of principal of this Class A-2 Note,
the amount payable to the Holder of this Class A-2 Note will be equal to the
aggregate unpaid principal amount of this Class A-2 Note on the date this Class
A-2 Note becomes so due and payable, together with accrued interest on such
unpaid principal amount to the date of payment thereof. The Indenture provides
that, notwithstanding the acceleration of the maturity of the Class A-2 Notes,
under certain circumstances specified therein all amounts collected as proceeds
of the collateral securing the Class A-2 Notes or otherwise shall continue to be
applied to payments of principal of and interest on the Class A-2 Notes as if
they had not been declared due and payable. In such event, interest on the then
unpaid principal amount of all Class A-2 Notes and on any overdue installments
of interest on the Class A-2 Notes following the acceleration of the maturity of
the Class A-2 Notes shall accrue and be payable at the applicable Note Interest
Rate, but only to the extent that the payment thereof shall be lawful and
enforceable.
The Class A-2 Notes are not prepayable or redeemable at the option or
direction of the Issuer except that all of the outstanding Notes may be called
for redemption in whole at the option of the Issuer on any Payment Date, if,
either before or after giving effect to the payment of principal otherwise
required to be made on such Payment Date, each Class of Notes shall be in an
aggregate Outstanding Principal Balance which is 10% or less of the original
principal amount of such Class of Notes, at 100% of the outstanding principal
amount thereof together with interest accrued and unpaid to the date set for
redemption.
B-7
<PAGE>
As provided in the Indenture the transfer of this Class A-2 Note may be
registered on the Note Register of the Issuer, upon surrender of this Class A-2
Note for registration of transfer at the office or agency designated by the
Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and in the same aggregate initial
principal amount will be issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Class A-2
Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this Class A-2 Note is registered (i) on any
Record Date, for purposes of making payments, and (ii) on any other date for any
other purpose, as the owner hereof, whether or not this Class A-2 Note be
overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by written 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 Class A-2 Notes under the Indenture
at any time by the Issuer, and the Holders of Notes entitled to more than 50% of
the Voting Rights at the time Outstanding. The Indenture also contains
provisions that permit the Holders of Notes entitled to more than 50% of the
Voting Rights, on behalf of the Holders of all the Notes, to waive compliance by
the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder, at the time of the giving thereof, of this Class A-2 Note (or any one or
more Predecessor Notes) shall be conclusive and binding upon such Holder and
upon all future holders of this Class A-2 Note and of any Class A-2 Note issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this Class
A-2 Note.
The term "Issuer" as used in this Class A-2 Note includes any successor to
the Issuer under the Indenture.
B-8
<PAGE>
The Class A-2 Notes are issuable only in registered form in the
denominations provided in the Indenture and subject to certain limitations
therein set forth. The Class A-2 Notes are exchangeable for a like aggregate
initial principal amount of Class A-2 Notes of different authorized
denominations, as requested by the Holder surrendering the same, pursuant to the
terms and conditions set forth in the Indenture.
As provided in the Indenture, this Class A-2 Note and the Indenture shall
be construed in accordance with, and governed by, the laws of the State of New
York applicable to agreements made and to be performed therein.
No reference herein to the Indenture and no provision of this Class A-2
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 Class A-2 Note at the times, place and rate, and in the coin or currency,
herein prescribed.
Anything herein to the contrary notwithstanding, neither the Owner Trustee
in its individual capacity, any beneficial owner of the Issuer, the Trustee nor
any of their respective partners, 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 and interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in, this Class A-2 Note or the Indenture, it being
expressly understood that said covenants, obligations and indemnifications have
been made by the Owner Trustee for the sole purpose of binding the respective
interests of the beneficial owners of the Issuer and the Owner Trustee in the
assets of the Issuer. The Holder of this Class A-2 Note by the acceptance
hereof agrees that in the case of an Event of Default 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 the enforcement against, the assets of the
Issuer of any and all liabilities, obligations and undertakings contained in the
Indenture or in this Class A-2 Note.
B-9
<PAGE>
The Owner Trustee has executed this Class A-2 Note on behalf of the Issuer,
not in its individual capacity but solely as owner trustee under the Trust
Agreement and the Owner Trustee shall be liable hereunder only in respect of the
assets of the trust created by such Trust Agreement.
The remedies of the Holder hereof as provided herein and in the Indenture,
shall be cumulative and concurrent and may be pursued solely against the assets
of the Trust created by the Trust Agreement pledged under the Indenture as
security for the Class A-2 Notes. No failure on the part of the holder in
exercising any right or remedy hereunder shall operate as a waiver or release
thereof, nor shall any single or partial exercise of any right or remedy
preclude any further exercise thereof or the exercise of any other right or
remedy hereunder.
B-10
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A-2 Notes referred to in the within-mentioned
Indenture.
First Union National Bank of Florida,
as Trustee
By
-------------------------------
Authorized Signatory
B-11
<PAGE>
EXHIBIT C
UNLESS THIS CLASS A-3 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 CERTIFICATE
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.
PRINCIPAL OF THIS CLASS A-3 NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-3 NOTE
AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE ACTUAL
OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-3 NOTE MAY BE ASCERTAINED ONLY BY
OBTAINING A WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE NAMED HEREIN. THE
RIGHTS OF A HOLDER OF THIS CLASS A-3 NOTE ARE SUBJECT TO THE PROVISIONS OF THE
WITHIN-REFERENCED INDENTURE.
THE RIGHTS OF THE CLASS A-3 NOTEHOLDERS TO RECEIVE PAYMENTS IN RESPECT OF
PRINCIPAL AND INTEREST ON THE CLASS A-3 NOTES ARE SUBORDINATE TO THE RIGHTS OF
THE CLASS A-1 NOTEHOLDERS AND CLASS A-2 NOTEHOLDERS TO RECEIVE PAYMENTS OF
PRINCIPAL AND INTEREST.
C-1
<PAGE>
MID-STATE TRUST VI
_____% ASSET BACKED NOTE
DUE: [ ]
ACCRUAL DATE: [ ]
$_________________________ No.________________
Mid-State Trust VI (the "Issuer"), a Delaware business trust governed by a
Trust Agreement dated as of April __, 1997 (the "Trust Agreement"), for value
received, hereby promises to pay to ________________ or registered assigns, the
principal sum of ________ Dollars in quarterly installments on January 1, April
1, July 1, and October 1 (the "Principal Payment Dates") in each year,
commencing on July 1, 1997 and ending on or before [ ] (the "Maturity" of
such final installment of principal) and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the unpaid principal amount of
this Class A-3 Note outstanding from time to time from [ ] (the "Accrual
Date"), or such later date to which interest has been paid, until the principal
amount of this Class A-3 Note is paid in full, at the rate of __________ percent
(_____%) per annum, such interest being payable quarterly on January 1, April 1,
July 1, and October 1 in each year, commencing on July 1, 1997 (the "Interest
Payment Dates"). Installments of principal of this Class A-3 Note are due and
payable in the amounts and on the dates described on the reverse hereof.
The principal of, and interest on, this Class A-3 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 Class A-3 Note shall be applied first to interest
due and payable on this Class A-3 Note as provided above and then to the unpaid
principal of this Class A-3 Note. Any installment of principal or interest
which is not paid when and as due shall bear interest at the rate of interest
borne by the principal of this Class A-3 Note from the date due to the date of
payment thereof, but only to the extent that the payment of such interest shall
be lawful and enforceable.
C-2
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Class A-3 Note shall not be entitled to any
benefit under the Indenture referred to below, or be valid or obligatory for any
purpose.
C-3
<PAGE>
IN WITNESS WHEREOF, Mid-State Trust VI has caused this instrument to be
duly executed by Wilmington Trust Company, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement.
Dated: MID-STATE TRUST VI,
---------------------
By: Wilmington Trust Company,
not in its individual capacity
but solely in its capacity as
Owner Trustee under the Trust
Agreement
By
----------------------------
[Title]
C-4
<PAGE>
This Class A-3 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its [ ]% Asset Backed Notes, Class A-3 (herein called
the "Class A-3 Notes"). The Class A-3 Notes are issued and will be issued under
an Indenture dated as of April __, 1997 (herein called the "Indenture"), between
the Issuer and First Union National Bank of Florida, as Trustee (the "Trustee",
which term includes any successor Trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights thereunder of the Issuer, the Trustee and the
Holders of the Class A-3 Notes and the terms upon which the Class A-3 Notes are,
and are to be, authenticated and delivered. Also issued under the Indenture are
the [ ]% Asset Backed Notes, Class A-1, [ ]% Asset Backed Notes, Class A-2
and [ ]% Asset Backed Notes, Class A-4. The Class A-3 Notes are secured by
the collateral pledged as security therefor to the extent provided in the
Indenture. All terms used in this Class A-3 Note which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
An installment of principal shall be paid on the Class A-3 Notes on each
Principal Payment Date in the amount equal to the amount available to be paid
thereon pursuant to Section 8.02(c)(ii) of the Indenture on such Principal
Payment Date; provided that the unpaid principal amount of this Class A-3 Note
shall be due and payable on the Principal Payment Date in _______. Each payment
of principal of the Class A-3 Notes shall be allocated among the Class A-3 Notes
in proportion to their then remaining unpaid principal amounts. The unpaid
principal amount of this Class A-3 Note may be reduced by the allocation to it
(in accordance with Section 2.09 of the Indenture) of Class A-3 Realized Loss
Amounts without any corresponding payment.
The rights of the Class A-3 Noteholders to receive payments in respect of
principal and interest on the Class A-3 Notes are subordinate to the rights of
the Class A-1 Noteholders and Class A-2 Noteholders to receive payments of
principal and interest.
Payment of the then remaining unpaid principal amount of this Class A-3
Note on the Maturity of its final installment of principal or on such earlier
date as the Issuer shall be required to apply payments received with respect to
the collateral securing the Class A-3 Notes to payment of the then remaining
C-5
<PAGE>
unpaid principal amount of this Class A-3 Note or to payment of the Redemption
Price payable on any date as of which this Class A-3 Note has been called for
redemption in full shall be made upon presentation of this Class A-3 Note to the
office or agency of the Issuer maintained for such purpose. Payments of
interest on this Class A-3 Note due and payable on each Interest Payment Date,
together with any installment of principal of this Class A-3 Note due and
payable on each Interest Payment Date which is also a Principal Payment Date for
this Class A-3 Note, shall be made by check mailed to the Person whose name
appears as the registered Holder of this Class A-3 Note (or one or more
Predecessor Notes) in the Note Register as of the Record Date preceding such
Interest Payment Date, except that with respect to a Class A-3 Note registered
in the name of the nominee of a 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.
Checks for amounts due on this Class A-3 Note 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 Class A-3
Note be submitted for notation of payment and checks returned undelivered will
be held for payment to the Person entitled thereto, subject to the terms of the
Indenture, at the office or agency in the United States of America designated by
the Issuer for such purpose pursuant to the Indenture. Any reduction in the
principal amount of this Class A-3 Note (or any one or more Predecessor Notes)
effected by any payments made on any Principal Payment Date or by any allocation
of a Class A-3 Realized Loss Amount shall be binding upon all Holders of this
Class A-3 Note and of any Class A-3 Note issued upon the registration of
transfer hereof or in exchange herefor 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 Class A-3
Note on a Principal Payment Date which is prior to the Maturity of the final
installment of principal hereof, then the Trustee, on behalf of the Issuer, will
notify the Person who was the registered Holder hereof on the 15th day of the
month prior to the month in which such Principal Payment Date occurs, by notice
mailed no later than ten days
C-6
<PAGE>
prior to such Principal Payment Date, and the amount then due and payable shall,
if sufficient funds therefor are available, be payable only upon presentation of
this Class A-3 Note to the office or agency of the Issuer maintained for such
purpose.
If an Event of Default shall occur and be continuing with respect to the
Class A-3 Notes, the Class A-3 Notes may become or be declared due and payable
in the manner and with the effect provided in the Indenture. Reference is
hereby made to Article V of the Indenture which sets forth certain events which
constitute Events of Default. If any such acceleration of maturity occurs prior
to the Maturity of the final installment of principal of this Class A-3 Note,
the amount payable to the Holder of this Class A-3 Note will be equal to the
aggregate unpaid principal amount of this Class A-3 Note on the date this Class
A-3 Note becomes so due and payable, together with accrued interest on such
unpaid principal amount to the date of payment thereof. The Indenture provides
that, notwithstanding the acceleration of the maturity of the Class A-3 Notes,
under certain circumstances specified therein all amounts collected as proceeds
of the collateral securing the Class A-3 Notes or otherwise shall continue to be
applied to payments of principal of and interest on the Class A-3 Notes as if
they had not been declared due and payable. In such event, interest on the then
unpaid principal amount of all Class A-3 Notes and on any overdue installments
of interest on the Class A-3 Notes following the acceleration of the maturity of
the Class A-3 Notes shall accrue and be payable at the applicable Note Interest
Rate, but only to the extent that the payment thereof shall be lawful and
enforceable.
The Class A-3 Notes are not prepayable or redeemable at the option or
direction of the Issuer except that all of the outstanding Notes may be called
for redemption in whole at the option of the Issuer on any Payment Date, if,
either before or after giving effect to the payment of principal otherwise
required to be made on such Payment Date, each Class of Notes shall be in an
aggregate Outstanding Principal Balance which is 10% or less of the original
principal amount of such Class of Notes, at 100% of the outstanding principal
amount thereof together with interest accrued and unpaid to the date set for
redemption.
C-7
<PAGE>
As provided in the Indenture the transfer of this Class A-3 Note may be
registered on the Note Register of the Issuer, upon surrender of this Class A-3
Note for registration of transfer at the office or agency designated by the
Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and in the same aggregate initial
principal amount will be issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Class A-3
Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this Class A-3 Note is registered (i) on any
Record Date, for purposes of making payments, and (ii) on any other date for any
other purpose, as the owner hereof, whether or not this Class A-3 Note be
overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by written 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 Class A-3 Notes under the Indenture
at any time by the Issuer, and the Holders of Notes entitled to more than 50% of
the Voting Rights at the time Outstanding. The Indenture also contains
provisions that permit the Holders of Notes entitled to more than 50% of the
Voting Rights, on behalf of the Holders of all the Notes, to waive compliance by
the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder, at the time of the giving thereof, of this Class A-3 Note (or any one or
more Predecessor Notes) shall be conclusive and binding upon such Holder and
upon all future holders of this Class A-3 Note and of any Class A-3 Note issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this Class
A-3 Note.
The term "Issuer" as used in this Class A-3 Note includes any successor to
the Issuer under the Indenture.
C-8
<PAGE>
The Class A-3 Notes are issuable only in registered form in the
denominations provided in the Indenture and subject to certain limitations
therein set forth. The Class A-3 Notes are exchangeable for a like aggregate
initial principal amount of Class A-3 Notes of different authorized
denominations, as requested by the Holder surrendering the same, pursuant to the
terms and conditions set forth in the Indenture.
As provided in the Indenture, this Class A-3 Note and the Indenture shall
be construed in accordance with, and governed by, the laws of the State of New
York applicable to agreements made and to be performed therein.
No reference herein to the Indenture and no provision of this Class A-3
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 Class A-3 Note at the times, place and rate, and in the coin or currency,
herein prescribed.
Anything herein to the contrary notwithstanding, neither the Owner Trustee
in its individual capacity, any beneficial owner of the Issuer, the Trustee nor
any of their respective partners, 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 and interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in, this Class A-3 Note or the Indenture, it being
expressly understood that said covenants, obligations and indemnifications have
been made by the Owner Trustee for the sole purpose of binding the respective
interests of the beneficial owners of the Issuer and the Owner Trustee in the
assets of the Issuer. The Holder of this Class A-3 Note by the acceptance
hereof agrees that in the case of an Event of Default 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 the enforcement against, the assets of the
Issuer of any and all liabilities, obligations and undertakings contained in the
Indenture or in this Class A-3 Note.
C-9
<PAGE>
The Owner Trustee has executed this Class A-3 Note on behalf of the Issuer,
not in its individual capacity but solely as owner trustee under the Trust
Agreement and the Owner Trustee shall be liable hereunder only in respect of the
assets of the trust created by such Trust Agreement.
The remedies of the Holder hereof as provided herein and in the Indenture,
shall be cumulative and concurrent and may be pursued solely against the assets
of the Trust created by the Trust Agreement pledged under the Indenture as
security for the Class A-3 Notes. No failure on the part of the holder in
exercising any right or remedy hereunder shall operate as a waiver or release
thereof, nor shall any single or partial exercise of any right or remedy
preclude any further exercise thereof or the exercise of any other right or
remedy hereunder.
C-10
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A-3 Notes referred to in the within-mentioned
Indenture.
First Union National Bank of Florida,
as Trustee
By
--------------------------
Authorized Signatory
C-11
<PAGE>
EXHIBIT D
UNLESS THIS CLASS A-4 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 CERTIFICATE
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.
PRINCIPAL OF THIS CLASS A-4 NOTE IS PAYABLE IN INSTALLMENTS AS SET FORTH
HEREIN. ACCORDINGLY, THE OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-4 NOTE
AT ANY TIME MAY BE LESS THAN THE AMOUNT SHOWN ON THE FACE HEREOF. THE ACTUAL
OUTSTANDING PRINCIPAL AMOUNT OF THIS CLASS A-4 NOTE MAY BE ASCERTAINED ONLY BY
OBTAINING A WRITTEN CONFIRMATION THEREOF FROM THE TRUSTEE NAMED HEREIN. THE
RIGHTS OF A HOLDER OF THIS CLASS A-4 NOTE ARE SUBJECT TO THE PROVISIONS OF THE
WITHIN-REFERENCED INDENTURE.
THE RIGHTS OF THE CLASS A-4 NOTEHOLDERS TO RECEIVE PAYMENTS IN RESPECT OF
PRINCIPAL AND INTEREST ON THE CLASS A-4 NOTES ARE SUBORDINATE TO THE RIGHTS OF
THE CLASS A-1 NOTEHOLDERS, CLASS A-2 NOTEHOLDERS AND CLASS A-3 NOTEHOLDERS TO
RECEIVE PAYMENTS OF PRINCIPAL AND INTEREST.
D-1
<PAGE>
MID-STATE TRUST VI
_____% ASSET BACKED NOTE
DUE: [ ]
ACCRUAL DATE: [ ]
$_________________________ No.________________
Mid-State Trust VI (the "Issuer"), a Delaware business trust governed by a
Trust Agreement dated as of April __, 1997 (the "Trust Agreement"), for value
received, hereby promises to pay to ________________ or registered assigns, the
principal sum of ________ Dollars in quarterly installments on January 1, April
1, July 1, and October 1 (the "Principal Payment Dates") in each year,
commencing on July 1, 1997 and ending on or before [ ] (the "Maturity" of
such final installment of principal) and to pay interest (computed on the basis
of a 360-day year of twelve 30-day months) on the unpaid principal amount of
this Class A-4 Note outstanding from time to time from [ ] (the "Accrual
Date"), or such later date to which interest has been paid, until the principal
amount of this Class A-4 Note is paid in full, at the rate of __________ percent
(_____%) per annum, such interest being payable quarterly on January 1, April 1,
July 1, and October 1 in each year, commencing on July 1, 1997 (the "Interest
Payment Dates"). Installments of principal of this Class A-4 Note are due and
payable in the amounts and on the dates described on the reverse hereof.
The principal of, and interest on, this Class A-4 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 Class A-4 Note shall be applied first to interest
due and payable on this Class A-4 Note as provided above and then to the unpaid
principal of this Class A-4 Note. Any installment of principal or interest
which is not paid when and as due shall bear interest at the rate of interest
borne by the principal of this Class A-4 Note from the date due to the date of
payment thereof, but only to the extent that the payment of such interest shall
be lawful and enforceable.
D-2
<PAGE>
Unless the certificate of authentication hereon has been executed by the
Trustee by manual signature, this Class A-4 Note shall not be entitled to any
benefit under the Indenture referred to below, or be valid or obligatory for any
purpose.
D-3
<PAGE>
IN WITNESS WHEREOF, Mid-State Trust VI has caused this instrument to be
duly executed by Wilmington Trust Company, not in its individual capacity but
solely as Owner Trustee under the Trust Agreement.
Dated: MID-STATE TRUST VI,
----------------------
By: Wilmington Trust Company,
not in its individual capacity
but solely in its capacity as
Owner Trustee under the Trust
Agreement
By
-----------------------------
[Title]
D-4
<PAGE>
This Class A-4 Note is one of a duly authorized issue of Notes of the
Issuer, designated as its [ ]% Asset Backed Notes, Class A-4 (herein called
the "Class A-4 Notes"). The Class A-4 Notes are issued and will be issued
under an Indenture dated as of April __, 1997 (herein called the "Indenture"),
between the Issuer and First Union National Bank of Florida, as Trustee (the
"Trustee", which term includes any successor Trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights thereunder of the Issuer, the
Trustee and the Holders of the Class A-4 Notes and the terms upon which the
Class A-4 Notes are, and are to be, authenticated and delivered. Also issued
under the Indenture are the [ ]% Asset Backed Notes, Class A-1, [ ]% Asset
Backed Notes, A-2 and [ ]% Asset Backed Notes, Class A-3. The Class A-4
Notes are secured by the collateral pledged as security therefor to the extent
provided in the Indenture. All terms used in this Class A-4 Note which are
defined in the Indenture shall have the meanings assigned to them in the
Indenture.
An installment of principal shall be paid on the Class A-4 Notes on each
Principal Payment Date in the amount equal to the amount available to be paid
thereon pursuant to Section 8.02(c)(ii) of the Indenture on such Principal
Payment Date; provided that the unpaid principal amount of this Class A-4 Note
shall be due and payable on the Principal Payment Date in _____. Each payment
of principal of the Class A-4 Notes shall be allocated among the Class A-4 Notes
in proportion to their then remaining unpaid principal amounts. The unpaid
principal amount of this Class A-4 Note may be reduced by the allocation to it
(in accordance with Section 2.09 of the Indenture) of Class A-4 Realized Loss
Amounts without any corresponding payment.
The rights of the Class A-4 Noteholders to receive payments in respect of
principal and interest on the Class A-4 Notes are subordinate to the rights of
the Class A-1 Noteholders, Class A-2 Noteholders and Class A-3 Noteholders to
receive payments of principal and interest.
Payment of the then remaining unpaid principal amount of this Class A-4
Note on the Maturity of its final installment of principal or on such earlier
date as the Issuer shall be required to apply payments received with respect to
the collateral
D-5
<PAGE>
securing the Class A-4 Notes to payment of the then remaining unpaid principal
amount of this Class A-4 Note or to payment of the Redemption Price payable on
any date as of which this Class A-4 Note has been called for redemption in full
shall be made upon presentation of this Class A-4 Note to the office or agency
of the Issuer maintained for such purpose. Payments of interest on this Class
A-4 Note due and payable on each Interest Payment Date, together with any
installment of principal of this Class A-4 Note due and payable on each Interest
Payment Date which is also a Principal Payment Date for this Class A-4 Note,
shall be made by check mailed to the Person whose name appears as the registered
Holder of this Class A-4 Note (or one or more Predecessor Notes) in the Note
Register as of the Record Date preceding such Interest Payment Date, except that
with respect to a Class A-4 Note registered in the name of the nominee of a
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.
Checks for amounts due on this Class A-4 Note 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 Class A-4
Note be submitted for notation of payment and checks returned undelivered will
be held for payment to the Person entitled thereto, subject to the terms of the
Indenture, at the office or agency in the United States of America designated by
the Issuer for such purpose pursuant to the Indenture. Any reduction in the
principal amount of this Class A-4 Note (or any one or more Predecessor Notes)
effected by any payments made on any Principal Payment Date or by any allocation
of a Class A-4 Realized Loss Amount shall be binding upon all Holders of this
Class A-4 Note and of any Class A-4 Note issued upon the registration of
transfer hereof or in exchange herefor 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 Class A-4
Note on a Principal Payment Date which is prior to the Maturity of the final
installment of principal hereof, then the Trustee, on behalf of the Issuer, will
notify the Person who was the registered Holder hereof on the 15th day of the
month prior to the month in which such Principal
D-6
<PAGE>
Payment Date occurs, by notice mailed no later than ten days prior to such
Principal Payment Date, and the amount then due and payable shall, if sufficient
funds therefor are available, be payable only upon presentation of this Class
A-4 Note to the office or agency of the Issuer maintained for such purpose.
If an Event of Default shall occur and be continuing with respect to the
Class A-4 Notes, the Class A-4 Notes may become or be declared due and payable
in the manner and with the effect provided in the Indenture. Reference is
hereby made to Article V of the Indenture which sets forth certain events which
constitute Events of Default. If any such acceleration of maturity occurs prior
to the Maturity of the final installment of principal of this Class A-4 Note,
the amount payable to the Holder of this Class A-4 Note will be equal to the
aggregate unpaid principal amount of this Class A-4 Note on the date this Class
A-4 Note becomes so due and payable, together with accrued interest on such
unpaid principal amount to the date of payment thereof. The Indenture provides
that, notwithstanding the acceleration of the maturity of the Class A-4 Notes,
under certain circumstances specified therein all amounts collected as proceeds
of the collateral securing the Class A-4 Notes or otherwise shall continue to be
applied to payments of principal of and interest on the Class A-4 Notes as if
they had not been declared due and payable. In such event, interest on the then
unpaid principal amount of all Class A-4 Notes and on any overdue installments
of interest on the Class A-4 Notes following the acceleration of the maturity of
the Class A-4 Notes shall accrue and be payable at the applicable Note Interest
Rate, but only to the extent that the payment thereof shall be lawful and
enforceable.
The Class A-4 Notes are not prepayable or redeemable at the option or
direction of the Issuer except that all of the outstanding Notes may be called
for redemption in whole at the option of the Issuer on any Payment Date, if,
either before or after giving effect to the payment of principal otherwise
required to be made on such Payment Date, each Class of Notes shall be in an
aggregate Outstanding Principal Balance which is 10% or less of the original
principal amount of such Class of Notes, at 100% of the outstanding principal
amount thereof together with interest accrued and unpaid to the date set for
redemption.
D-7
<PAGE>
As provided in the Indenture the transfer of this Class A-4 Note may be
registered on the Note Register of the Issuer, upon surrender of this Class A-4
Note for registration of transfer at the office or agency designated by the
Issuer pursuant to the Indenture, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Trustee duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and in the same aggregate initial
principal amount will be issued to the designated transferee or transferees.
Prior to the due presentment for registration of transfer of this Class A-4
Note, the Issuer, the Trustee and any agent of the Issuer or the Trustee may
treat the Person in whose name this Class A-4 Note is registered (i) on any
Record Date, for purposes of making payments, and (ii) on any other date for any
other purpose, as the owner hereof, whether or not this Class A-4 Note be
overdue, and neither the Issuer, the Trustee nor any such agent shall be
affected by written 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 Class A-4 Notes under the Indenture
at any time by the Issuer, and the Holders of Notes entitled to more than 50% of
the Voting Rights at the time Outstanding. The Indenture also contains
provisions that permit the Holders of Notes entitled to more than 50% of the
Voting Rights, on behalf of the Holders of all the Notes, to waive compliance by
the Issuer with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder, at the time of the giving thereof, of this Class A-4 Note (or any one or
more Predecessor Notes) shall be conclusive and binding upon such Holder and
upon all future holders of this Class A-4 Note and of any Class A-4 Note issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof whether or not notation of such consent or waiver is made upon this Class
A-4 Note.
The term "Issuer" as used in this Class A-4 Note includes any successor to
the Issuer under the Indenture.
D-8
<PAGE>
The Class A-4 Notes are issuable only in registered form in the
denominations provided in the Indenture and subject to certain limitations
therein set forth. The Class A-4 Notes are exchangeable for a like aggregate
initial principal amount of Class A-4 Notes of different authorized
denominations, as requested by the Holder surrendering the same, pursuant to the
terms and conditions set forth in the Indenture.
As provided in the Indenture, this Class A-4 Note and the Indenture shall
be construed in accordance with, and governed by, the laws of the State of New
York applicable to agreements made and to be performed therein.
No reference herein to the Indenture and no provision of this Class A-4
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 Class A-4 Note at the times, place and rate, and in the coin or currency,
herein prescribed.
Anything herein to the contrary notwithstanding, neither the Owner Trustee
in its individual capacity, any beneficial owner of the Issuer, the Trustee nor
any of their respective partners, 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 and interest on,
or performance of, or omission to perform, any of the covenants, obligations or
indemnifications contained in, this Class A-4 Note or the Indenture, it being
expressly understood that said covenants, obligations and indemnifications have
been made by the Owner Trustee for the sole purpose of binding the respective
interests of the beneficial owners of the Issuer and the Owner Trustee in the
assets of the Issuer. The Holder of this Class A-4 Note by the acceptance
hereof agrees that in the case of an Event of Default 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 the enforcement against, the assets of the
Issuer of any and all liabilities, obligations and undertakings contained in the
Indenture or in this Class A-4 Note.
D-9
<PAGE>
The Owner Trustee has executed this Class A-4 Note on behalf of the Issuer,
not in its individual capacity but solely as owner trustee under the Trust
Agreement and the Owner Trustee shall be liable hereunder only in respect of the
assets of the trust created by such Trust Agreement.
The remedies of the Holder hereof as provided herein and in the Indenture,
shall be cumulative and concurrent and may be pursued solely against the assets
of the Trust created by the Trust Agreement pledged under the Indenture as
security for the Class A-4 Notes. No failure on the part of the holder in
exercising any right or remedy hereunder shall operate as a waiver or release
thereof, nor shall any single or partial exercise of any right or remedy
preclude any further exercise thereof or the exercise of any other right or
remedy hereunder.
D-10
<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Class A-4 Notes referred to in the within-mentioned
Indenture.
First Union National Bank of Florida,
as Trustee
By
-------------------------------
Authorized Signatory
D-11
<PAGE>
EXHIBIT 5.1
May 21, 1997
Mid-State Trust VI
c/o Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
Re: ASSET-BACKED NOTES
Gentlemen:
We have acted as your counsel in connection with the Registration Statement
(No. 23667), as amended by Pre-Effective Amendment No. 1 thereto filed with the
Securities and Exchange Commission (the 'Commission') on May 1, 1997 and
Pre-Effective Amendment No. 2 thereto filed with the Commission on the date
hereof, pursuant to the Securities Act of 1933, as amended (as amended, the
'Registration Statement'). The Registration Statement covers the Asset-Backed
Notes ('Notes'), Class A-1, Class A-2, Class A-3 and Class A-4 to be sold by
Mid-State Trust VI (the 'Company'). The Notes will be issued pursuant to an
indenture (the 'Indenture') between the Company and First Union National Bank of
Florida, as trustee (the 'Trustee'). A form of Indenture is included as an
Exhibit to the Registration Statement. Capitalized terms used and not otherwise
defined herein have the respective meanings ascribed to such terms in the
Registration Statement.
We have examined originals or copies certified or otherwise identified to
our satisfaction of such documents and records of the Company, and such public
documents and records as we have deemed necessary as a basis for the opinions
hereinafter expressed.
We express no opinion concerning the laws of any jurisdiction other than the
laws of the State of New York and the federal laws of the United States (in each
case without regard to conflicts of laws principles).
Based on the foregoing, we are of the opinion that:
1. When the Indenture for the Notes has been duly and validly executed and
delivered by the Company and the Trustee, the Indenture will constitute a
valid and legally binding agreement of the Company, enforceable against
the Company in accordance with its terms, subject to applicable
bankruptcy, reorganization, insolvency, moratorium and other laws
affecting the enforcement of rights of creditors generally and to general
principles of equity and the discretion of the court (regardless of
whether enforceability is considered in a proceeding in equity or at
law); and
2. When the Indenture for the Notes has been duly and validly executed and
delivered by the Company and the Trustee, and the Notes have been duly
executed, authenticated, delivered and sold as contemplated in the
Registration Statement, the Notes will be legally and validly issued,
fully paid and nonassessable, and the holders of the Notes will be
entitled to the benefits of the Indenture.
We hereby consent to the filing of this letter as an Exhibit to the
Registration Statement and to the reference to this firm under the heading
'Legal Matters' in the Prospectus forming a part of the Registration Statement.
This consent is not to be construed as an admission that we are a person whose
consent is required to be filed with the Registration Statement under the
provisions of the Act.
Very truly yours,
/s/ CADWALADER, WICKERSHAM & TAFT
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EXHIBIT 8.1
May 21, 1997
Mid-State Trust VI
c/oWilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890
Re:Mid-State Trust VI
Registration Statement No. 333-23667
Ladies and Gentlemen:
We have acted as special federal income tax counsel to Mid-State Trust VI, a
Delaware business trust (the "Issuer"), in connection with the issuance and sale
of its asset-backed notes (the "Notes"). The Notes will be issued pursuant to
the Indenture between the Issuer and the Indenture Trustee. Terms used and not
defined herein shall have the meanings given in the Registration Statement
referred to below.
We have advised the Issuer with respect to certain federal income tax
consequences of the proposed issuance of the Notes. This advice is summarized
under the headings "Summary of Terms--Tax Status of the Notes" and "Material
Federal Income Tax Consequences" in the Prospectus relating to the Notes
contained in the Registration Statement (No. 333-23667), as amended by
Pre-Effective Amendment No. 2 on Form S-11 (the "Registration Statement"), as
filed with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), on May 12, 1997 for the
registration of such Notes under the Act.
In rendering the opinions set forth below, we have examined originals or
copies, certified or otherwise identified, of such documents, corporate records
and other instruments as we have deemed necessary or appropriate for the
purposes of this opinion, including the Registration Statement and the current
forms of the Trust Agreement and the Indenture (the "Documents"). Our opinions
are based upon the Internal Revenue Code of 1986, as amended (the "Code"),
administrative rulings, judicial decisions, Treasury regulations and other
applicable authorities. The statutory provisions, regulations and
interpretations upon which our opinion is based are subject to change, and any
such change could apply retroactively. In addition, there can be no assurance
that positions contrary to those stated herein may not be asserted by the
Internal Revenue Service ("IRS").
In rendering the opinions set forth below, we have made such investigations
of such matters of law as we deemed appropriate as a basis for the opinions
expressed below. Further, we have assumed the genuineness of all signatures and
the authenticity of all Documents submitted to us as originals. Our opinions are
also based on the assumption that there are no agreements or understandings with
respect to the transactions contemplated in the documents relating to the
above-mentioned transaction other than those contained in the Documents.
Furthermore, our opinions are based on the assumption that all parties to the
Documents will comply with the terms thereof, including all tax reporting
requirements contained therein.
As to any facts material to the following opinions which we did not
independently establish or verify, we have relied upon statements and
representations of the responsible officers and other representatives of the
Depositor, the Underwriters and public officials and agencies. We have, for
purposes of rendering the opinions, also relied on certain factual, numerical,
and statistical information which is based on the assumptions used in pricing
the Notes.
Although there is no relevant authority directly on point, in our opinion
(i) the Notes will be treated as indebtedness for federal income tax purposes;
(ii) the Trust will not be treated as an association taxable as a corporation or
a publicly traded partnership taxable as a corporation for federal income tax
purposes; (iii) the Trust will not be taxable as a taxable mortgage pool as
defined in Code Section 7701(i), and
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(iv) the advice summarized under the headings "Summary of Terms--Tax Status of
the Notes" and "Material Federal Income Tax Considerations--Federal Taxation" in
the Prospectus, while it does not purport to discuss all possible federal income
tax ramifications of the above referenced transaction, is accurate in all
material respects with respect to those material federal income tax consequences
that are discussed.
The opinions expressed herein are limited as described above, and we do not
express an opinion with respect to any other federal or state law or the law of
any other jurisdiction, except as expressly stated herein. This opinion is
rendered as of the date hereof and we undertake no obligation to update this
opinion or advise you of any changes in the event there is any change in legal
authorities, facts, assumptions or documents on which this opinion is based
(including the taking of any action by any party to the Documents pursuant to
any opinion of counsel or a waiver), or any inaccuracy in any of the
representations, warranties or assumptions upon which we have relied in
rendering this opinion unless we are specifically engaged to do so.
You should be aware that there is no assurance that the IRS would not
challenge the conclusions set forth above. Our opinion also assumes that a court
considering the question would have all facts and legal issues properly
presented to it.
We hereby consent to the filing of this letter as an exhibit to the
Registration Statement and to a reference to this firm (as special federal
income tax counsel to the Issuer) under the heading "Material Federal Income Tax
Consequences" in the Prospectus forming a part of the Registration Statement,
without implying or admitting that we are "experts" within the meaning of the
Act or the rules and regulations of the Commission issued thereunder, with
respect to any part of the Registration Statement or any amendment thereto,
including this exhibit.
Very truly yours,
/s/ Brown & Wood LLP
