SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report - December 9, 1998
---------------------------------
(Date of Earliest Event Reported)
EQUITY ONE ABS, INC.
------------------------------------------------------
(Exact Name of Registrant as specified in its charter)
Delaware 333-24599 52-2029487
- ------------------------ --------------------- -----------------------
(State of Incorporation) (Commission File No.) (IRS Employer I.D. No.)
103 Springer Building, 3411 Silverside Road, Wilmington, Delaware 19803
-----------------------------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (302) 478-6160
--------------
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits (executed copies). The following executed copies of Exhibits to the
Form S-3 Registration Statement (File No. 333-24599) of the Registrant are
hereby filed:
1.1 Underwriting Agreement, dated as of November 20, 1998, among
Equity One ABS, Inc., Equity One, Inc. and Salomon Smith Barney
Inc.
4.1 Pooling and Servicing Agreement, dated as of November 30,
1998, among Equity One ABS, Inc., as Depositor, Equity One,
Inc. (DE), as Servicer and a Seller, Equity One, Incorporated,
Equity One Mortgage Company, Equity One Mortgage, Inc. (DE),
Equity One, Inc. (MN), Equity One Consumer Loan Company, Inc.,
Equity One of West Virginia, Inc. and Equity One Mortgage,
Inc. (NY), as Sellers, and The Chase Manhattan Bank, as
Trustee (without exhibits or schedules).
4.2 Certificate Guaranty Insurance Policy, dated December 9, 1998 and
delivered by Ambac Assurance Corporation.
4.3 Certificate Guaranty Insurance Policy Endorsement, dated December
9, 1998 and delivered by Ambac Assurance Corporation.
4.4 Insurance and Indemnity Agreement, dated as of December 9, 1998,
among Equity One ABS, Inc., Equity One, Inc. (DE) and Ambac
Assurance Corporation.
8.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to certain
tax matters.
-2-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
EQUITY ONE ABS, INC.
By: /s/ Dennis Kildea
-------------------------------------
Dennis Kildea, Vice President
Dated: December 30, 1998
-3-
<PAGE>
Exhibit Index
Exhibit
Number Document
- ------- --------
1.1 Underwriting Agreement, dated as of November 20, 1998, among
Equity One ABS, Inc., Equity One, Inc. and Salomon Smith Barney
Inc.
4.1 Pooling and Servicing Agreement, dated as of November 30, 1998,
among Equity One ABS, Inc., as Depositor, Equity One, Inc. (DE),
as Servicer and a Seller, Equity One, Incorporated, Equity One
Mortgage Company, Equity One Mortgage, Inc. (DE), Equity One,
Inc. (MN), Equity One Consumer Loan Company, Inc., Equity One of
West Virginia, Inc. and Equity One Mortgage, Inc. (NY), as
Sellers, and The Chase Manhattan Bank, as Trustee (without
exhibits or schedules).
4.2 Certificate Guaranty Insurance Policy, dated December 9, 1998 and
delivered by Ambac Assurance Corporation.
4.3 Certificate Guaranty Insurance Policy Endorsement, dated December
9, 1998 and delivered by Ambac Assurance Corporation.
4.4 Insurance and Indemnity Agreement, dated as of December 9, 1998,
among Equity One ABS, Inc., Equity One, Inc. (DE) and Ambac
Assurance Corporation.
8.1 Opinion of Stradley, Ronon, Stevens & Young, LLP as to certain
tax matters.
-4-
Mortgage Pass-Through Certificates, Series 1998-1
$100,027,563 Class A-1 Certificates 6.70% Pass-Through Rate
$25,002,775 Class A-2 Certificates 6.98% Pass-Through Rate
Equity One ABS, Inc.
Depositor
Equity One, Inc.
Servicer
UNDERWRITING AGREEMENT
November 20, 1998
Salomon Smith Barney Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Equity One ABS Inc., a Delaware corporation ("Depositor"), a wholly owned
subsidiary of Equity One, Inc., a Delaware corporation ("Equity One"), proposes
to sell $125,030,338 aggregate principal amount of Mortgage Pass-Through
Certificates, Series 1998-1, of the classes described in Schedule I hereto (the
"Certificates") to be issued pursuant to a Pooling and Servicing Agreement (the
"Pooling and Servicing Agreement") to be dated as of November 30, 1998 (the
"Cut-Off Date"), among the Depositor, Equity One, as seller and servicer, The
Chase Manhattan Bank, a New York banking corporation, as trustee (the
"Trustee"), and each of the other Sellers named therein, and proposes to sell
the Certificates to you (the "Underwriter"). The assets of the Trust Fund will
include, among other things, a pool of fixed-rate mortgage loans (the "Loans")
secured primarily by first liens on one-to-four family dwellings, units in
condominium developments and mixed-use properties. The Certificates are
described more fully in a registration statement which the Depositor has
furnished to you. This is to confirm the arrangements with respect to your
purchase of the Certificates. To the extent not defined herein, capitalized
terms used herein have the meanings assigned in the Pooling and Servicing
Agreement.
<PAGE>
REPRESENTATIONS AND WARRANTIES. EACH OF THE DEPOSITOR AND EQUITY ONE REPRESENTS
AND WARRANTS TO, AND AGREES WITH, THE UNDERWRITER AS SET FORTH BELOW IN THIS
SECTION 1. CERTAIN TERMS USED IN THIS SECTION 1 ARE DEFINED IN PARAGRAPH (C)
HEREOF.
The Depositor meets the requirements for the use of Form S-3 under the
Securities Act of 1933, as amended (the "Act") and has filed with the Securities
and Exchange Commission (the "Commission") a registration statement (file no.
333-24599), including a related preliminary basic prospectus and a preliminary
prospectus supplement, on Form S-3 for the registration under the Act of the
offering and sale of asset-backed securities, including the Certificates. The
Depositor may have filed one or more amendments thereto, including a preliminary
basic prospectus and preliminary prospectus supplement, each of which has
previously been furnished to you. The Depositor will next file with the
Commission either (i) prior to effectiveness of such registration statement, a
further amendment thereto (including the form of final basic prospectus and
final prospectus supplement), (ii) after effectiveness of such registration
statement, a final basic prospectus and a final prospectus supplement relating
to the Certificates in accordance with Rules 430A and 424(b)(1) or (4) or (iii)
a final basic prospectus and final prospectus supplement relating to the
Certificates in accordance with Rules 415 and 424(b)(2) or (5). In the case of
clauses (ii) and (iii) above, the Depositor has included in such registration
statement, as amended at the Effective Date, all information (other than Rule
430A Information) required by the Act and the rules thereunder to be included in
the Final Prospectus with respect to the Certificates and the offering thereof.
As filed, such amendment and form of final prospectus, or such final prospectus,
as the case may be, shall include all Rule 430A Information together with all
other such required information with respect to the Certificates and the
offering thereof and, except to the extent the Underwriter shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to you prior to the Execution Time or, to the extent not completed at
the Execution Time, shall contain only such specific additional information and
other changes (beyond that contained in the latest preliminary basic prospectus
and preliminary prospectus supplement, if any, that have previously been
furnished to you) as the Depositor has advised you, prior to the Execution Time,
will be included or made therein. If the Registration Statement contains the
undertaking specified in Regulation S-K Item 512(a), the Registration Statement,
at the Execution Time, meets the requirements set forth in Rule 415(a)(1)(x).
On the Effective Date, the Registration Statement did or will, and when the
Final Prospectus is first filed (if required) in accordance with Rule 424(b) and
on the Closing Date, the Final Prospectus (and any supplements thereto) will,
comply in all material respects with the applicable requirements of the Act and
the Exchange Act and the respective rules thereunder; on the Effective Date, the
Registration Statement did not or will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading; and, on the
Effective Date, the Final Prospectus, if not filed pursuant to Rule 424(b), did
not or will not, and on the date of any filing pursuant to Rule 424(b) and on
the Closing Date (as defined in Section 3 below) the Final Prospectus (together
with any supplement thereto) will not, include any untrue statement of a
material fact or omit to
2
<PAGE>
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,
however, that neither the Depositor nor Equity One makes any representations or
warranties as to the information contained in or omitted from (x) the
Registration Statement or the Final Prospectus (or any supplement thereto) in
reliance upon and in conformity with information furnished in writing to the
Depositor by or on behalf of the Underwriter specifically for inclusion in the
Registration Statement or the Final Prospectus (or any supplement thereto) and
(y) any Derived Information set forth in the Computational Materials (each as
defined in Section 9 below), or in any amendment thereof or supplement thereto,
incorporated by reference in such Registration Statement or such Final
Prospectus (or any amendment thereof or supplement thereto) except to the extent
such Derived Information results from an error or omission in any
Seller-Provided Information (as defined in Section 9 below).
For purposes of this Agreement, "Effective Time" means the date and time as of
which such registration statement, or the most recent post-effective amendment
thereto, if any, was declared effective by the Commission, and "Effective Date"
means the date of the Effective Time and each date after the date hereof on
which a document incorporated by reference in the Registration Statement is
filed. "Execution Time" shall mean the date and time that this Agreement is
executed and delivered by the parties hereto. Such registration statement, as
amended at the Effective Time, including all information deemed to be a part of
such registration statement as of the Effective Time pursuant to Rule 430A(b)
under the Act, the exhibits thereto and any material and documents incorporated
by reference therein, is hereinafter referred to as the "Registration
Statement." "Basic Prospectus" shall mean the basic prospectus referred to in
paragraph (a) above contained in the Registration Statement at the Effective
Date; provided, that, if the Basic Prospectus used in connection with any
Preliminary Prospectus Supplement or the Final Prospectus shall differ from the
Basic Prospectus contained in the Registration Statement at the Effective Date,
then "Basic Prospectus" shall mean the Basic Prospectus included with such
Preliminary Prospectus Supplement or the Final Prospectus, as filed pursuant to
Rule 424(b). "Preliminary Prospectus Supplement" shall mean a preliminary
prospectus supplement, if any, to the Basic Prospectus which describes the
Certificates and the offering thereof and is used prior to the filing of the
Final Prospectus. "Final Prospectus" shall mean the prospectus supplement
relating to the Certificates that is first filed pursuant to Rule 424(b) after
the Execution Time, together with the Basic Prospectus or, if no filing pursuant
to Rule 424(b) is required, shall mean the prospectus supplement relating to the
Certificates, including the Basic Prospectus, included in the Registration
Statement at the Effective Date including in each such case any material and
documents incorporated by reference therein. "Rule 430A Information" means
information with respect to the Certificates and the offering of the
Certificates permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A. "Rule 415," "Rule 424," "Rule 430A" and
"Regulation S-K" refer to such rules or regulations under the Act. Any reference
herein to the Registration Statement, any Preliminary Prospectus Supplement or
the Final Prospectus shall be deemed to refer to and include the material and
documents incorporated by reference therein pursuant to Item 12 of Form S-3
which were filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), on
3
<PAGE>
or before the Effective Date of the Registration Statement or the issue date of
the Basic Prospectus, such Preliminary Prospectus Supplement or the Final
Prospectus, as the case may be; and any reference herein to the terms "amend,"
"amendment" or "supplement" with respect to the Registration Statement, the
Basic Prospectus, any Preliminary Prospectus Supplement or the Final Prospectus
shall be deemed to refer to and include the filing of any document under the
Exchange Act after the Effective Date of the Registration Statement, or the
issue date of the Basic Prospectus, any Preliminary Prospectus Supplement or the
Final Prospectus, as the case may be, deemed to be incorporated therein by
reference.
No consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required to be obtained or made by Equity One,
the Depositor or any Seller for the consummation of the transactions
contemplated by this Agreement except such as have been obtained, made under the
Act or as may be required under state securities laws.
None of Equity One, the Depositor or any Seller is in violation of its charter
or by-laws or in default in the performance or observance of any obligation,
agreement, covenant or condition contained in any agreement or instrument to
which it is a party or by which it or its properties is bound that would have a
material adverse effect on the transactions contemplated herein or in the
Pooling and Servicing Agreement. The execution, delivery and performance of this
Agreement and the Pooling and Servicing Agreement and the issuance and sale of
the Certificates and compliance with the terms and provisions thereof will not
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule, regulation or order of any
governmental agency or body or any court having jurisdiction over any of Equity
One, the Depositor or any Seller or any of their properties or any agreement or
instrument to which any of them is a party or by which any of them is bound or
to which any of the properties of any of them is subject or the charter or
by-laws of any of them, and each of them has full power and authority to
authorize, issue and sell the Loans and the Certificates as contemplated by this
Agreement and to enter into this Agreement and the Pooling and Servicing
Agreement.
The computer tape of the Loans created as of November 30, 1998 and made
available to you by Equity One and the Depositor, was complete and accurate as
of the date thereof and includes a description of the Loans that are described
in a schedule to the Pooling and Servicing Agreement.
This Agreement has been duly authorized, executed and delivered by each of
Equity One and the Depositor.
Any taxes, fees and other governmental charges in connection with the execution,
delivery and issuance of this Agreement and the Pooling and Servicing Agreement
or the execution, delivery and sale of the Certificates have been or will be
paid at or prior to the Closing Date, to the extent then due and payable.
4
<PAGE>
Immediately prior to the assignment of the Loans to the Trustee as contemplated
by the Pooling and Servicing Agreement, the Depositor (i) will have good title
to, and will be the sole owner of, each Loan and the other property purported to
be transferred by it to the Trustee pursuant to the Pooling and Servicing
Agreement free and clear of any pledge, mortgage, lien, security interest or
other encumbrance (collectively, "Liens"), (ii) will not have assigned to any
person any of its right, title or interest in such Loans or property or in the
Mortgage Loan Purchase Agreement and (iii) will have the power and authority to
sell such Loans and property to the Trustee, and upon the execution and delivery
of the Pooling and Servicing Agreement by the Trustee, on behalf of the
Certificateholders, the Trustee will have acquired all of the Depositor's right,
title and interest in and to such Loans and property free and clear of any Lien.
All actions required to be taken by the Depositor and Equity One as a condition
to the offer and sale of the Certificates as described herein or the
consummation of any of the transactions described in the Final Prospectus have
been or, prior to the Closing Date, will be taken.
The representations and warranties of each of the Sellers, the Depositor and
Equity One in (or incorporated in) the Pooling and Servicing Agreement and made
in any Officers' Certificate of the Sellers, the Depositor or Equity One
delivered pursuant to the Pooling and Servicing Agreement, will be true and
correct at the time made and on and as of the Closing Date as if set forth
herein.
The Loans conveyed to the Trust Fund had aggregate outstanding balances
determined as of the Cut-off Date in the amount set forth in the Final
Prospectus.
None of the Depositor, Equity One or any Seller will grant, assign, pledge or
transfer to any Person a security interest in, or any other right, title or
interest in, the Loans, except as provided in the Pooling and Servicing
Agreement, and each will take all action necessary in order to maintain the
security interest in the Loans granted pursuant to the Pooling and Servicing
Agreement.
There are no actions, proceedings or investigations pending, or to the best
knowledge of either the Depositor or Equity One, threatened against the Sellers,
the Depositor or Equity One before any court or before any governmental
authority, arbitration board or tribunal which, if adversely determined, could
materially and adversely affect, either in the individual or in the aggregate,
the financial position, business, operations or prospects of the Depositor or
Equity One.
Under generally accepted accounting principles, each Seller will record its
transfer of the Loans to the Depositor pursuant to the Pooling and Servicing
Agreement as a sale of the Loans.
PURCHASE AND SALE. SUBJECT TO THE TERMS AND CONDITIONS AND IN RELIANCE UPON THE
REPRESENTATIONS AND WARRANTIES HEREIN SET FORTH, THE DEPOSITOR AGREES TO SELL TO
THE UNDERWRITER, AND THE UNDERWRITER AGREES TO PURCHASE FROM THE DEPOSITOR,
$125,030,338
5
<PAGE>
AGGREGATE PRINCIPAL AMOUNT OF THE CERTIFICATES, IN THE PRINCIPAL AMOUNTS AND AT
THE PURCHASE PRICES SET FORTH IN SCHEDULE I HERETO.
DELIVERY AND PAYMENT. DELIVERY OF AND PAYMENT FOR THE CERTIFICATES SHALL BE MADE
AT 10:00 A.M. NEW YORK TIME, ON DECEMBER 9, 1998, AT THE OFFICES OF STRADLEY,
RONON, STEVENS & YOUNG, LLP, 2600 COMMERCE SQUARE, PHILADELPHIA, PENNSYLVANIA
19103, OR SUCH LATER TIME OR DATE NOT LATER THAN FIVE BUSINESS DAYS THEREAFTER
AS THE UNDERWRITER SHALL DESIGNATE (SUCH DATE AND TIME OF DELIVERY AND PAYMENT
FOR THE CERTIFICATES BEING HEREIN CALLED THE "CLOSING DATE"). DELIVERY OF 2
(TWO) GLOBAL CERTIFICATES, EACH CERTIFICATE EVIDENCING THE FULL PRINCIPAL AMOUNT
OF EACH OF THE CLASSES OF THE CERTIFICATES, SHALL BE MADE TO THE UNDERWRITER,
AGAINST PAYMENT BY THE UNDERWRITER OF THE PURCHASE PRICE THEREOF TO THE
DEPOSITOR BY WIRE TRANSFER IN IMMEDIATELY AVAILABLE FUNDS. THE GLOBAL
CERTIFICATES TO BE SO DELIVERED TO THE UNDERWRITER SHALL BE REGISTERED IN THE
NAME OF CEDE & CO., AS NOMINEE FOR THE DEPOSITORY TRUST COMPANY ("DTC"). THE
INTEREST OF BENEFICIAL OWNERS OF THE CERTIFICATES WILL BE REPRESENTED BY BOOK
ENTRIES ON THE RECORDS OF DTC AND PARTICIPATING MEMBERS THEREOF. DEFINITIVE
CERTIFICATES EVIDENCING THE CERTIFICATES WILL BE AVAILABLE ONLY UNDER LIMITED
CIRCUMSTANCES.
The Depositor agrees to have the Certificates available for inspection, checking
and packaging by the Underwriter in New York, New York, not later than 1:00 PM
on the business day prior to the Closing Date.
OFFERING BY UNDERWRITER. IT IS UNDERSTOOD THAT THE UNDERWRITER PROPOSES TO OFFER
THE CERTIFICATES FOR SALE TO THE PUBLIC (WHICH MAY INCLUDE SELECTED DEALERS) AS
SET FORTH IN THE FINAL PROSPECTUS.
AGREEMENTS. EACH OF EQUITY ONE AND THE DEPOSITOR AGREES WITH THE UNDERWRITER
THAT:
The Depositor will use its best efforts to cause the Registration Statement, if
not effective at the Execution Time, and any amendment thereto, to become
effective. Prior to the termination of the offering of the Certificates, the
Depositor will not file any amendment of the Registration Statement or
supplement to the Final Prospectus or any Preliminary Prospectus Supplement
unless the Depositor has furnished you a copy for your review prior to filing
and will not file any such proposed amendment or supplement to which you
reasonably object. Subject to the foregoing sentence, if the Registration
Statement has become or becomes effective pursuant to Rule 430A, or filing of
the Final Prospectus is otherwise required under Rule 424(b), the Depositor will
cause the Final Prospectus,
6
<PAGE>
properly completed, and any supplement thereto to be filed with the Commission
pursuant to the applicable paragraph of Rule 424(b) within the time period
prescribed and will provide evidence satisfactory to the Underwriter of such
timely filing. The Depositor will promptly advise the Underwriter (i) when the
Registration Statement, if not effective at the Execution Time, and any
amendment thereto, shall have become effective, (ii) when the Final Prospectus,
and any supplement thereto shall have been filed with the Commission pursuant to
Rule 424(b), (iii) when, prior to termination of the offering of the Securities,
any amendment to the Registration Statement shall have been filed or become
effective, (iv) of any request by the Commission for any amendment of the
Registration Statement or supplement to the Final Prospectus or for any
additional information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the institution or
threatening of any proceeding for that purpose and (vi) of the receipt by the
Depositor or the Trust of any notification with respect to the suspension of the
qualification of the Certificates for sale in any jurisdiction or the initiation
or threatening of any proceeding for such purpose, and will use their best
efforts to prevent the issuance of any such stop order and, if issued, to obtain
as soon as possible the withdrawal thereof.
If, at any time when a prospectus relating to the Certificates is required to be
delivered under the Act, any event occurs as a result of which the Final
Prospectus as then supplemented would include any untrue statement of a material
fact or omit to state any material fact necessary to make the statements therein
in the light of the circumstances under which they were made not misleading, or
if it shall be necessary to amend the Registration Statement or supplement the
Final Prospectus to comply with the Act or the Exchange Act or the respective
rules thereunder, the Depositor promptly will (i) prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section 5,
an amendment or supplement which will correct such statement or omission or
effect such compliance and (ii) supply any supplemented Final Prospectus to you
in such quantities as you may reasonably request.
The Depositor will furnish to the Underwriter and counsel for the Underwriter,
without charge, copies of the Registration Statement (including exhibits
thereto) and, so long as delivery of a prospectus by the Underwriter or a dealer
may be required by the Act, as many copies of any Preliminary Prospectus
Supplement and the Final Prospectus and any supplement thereto as the
Underwriter may reasonably request. The Depositor will pay the expenses of
printing or other production of all documents relating to the offering.
The Depositor will cooperate, when and if requested by the Underwriter at
Depositor's sole expense, in the qualification of the Certificates for sale
under the laws of such jurisdictions as the Underwriter may designate and will
maintain such qualifications in effect so long as required for the distribution
of the Certificates; provided, however, that the Depositor shall not be required
to qualify to do business in any jurisdiction where it is not now so qualified
or to take any action which would subject it to general or unlimited service of
process in any jurisdiction where it is not now so subject.
7
<PAGE>
The Depositor will file with the Commission such reports on Form SR as may be
required pursuant to Rule 463 under the Act.
As soon as practicable, the Depositor will cause the Trust Fund to make
generally available to the Certificateholders and to the Underwriter an earnings
statement or statements of the Trust Fund which will satisfy the provisions of
Section 11(a) of the Act and will satisfy the requirements of Rule 158.
The Depositor will cause any Computational Materials (as defined in Section 9
hereof) with respect to the Certificates which are delivered by an Underwriter
to the Depositor pursuant to Section 9 hereof to be filed with the Commission on
a Current Report on Form 8-K on or before the date of the filing of the Final
Prospectus pursuant to Rule 424.
The Depositor and Equity One will cooperate with the Underwriter and use their
best efforts to permit the Offered Certificates to be eligible for clearance and
settlement through The Depository Trust Company.
For a period from the date of this Agreement until the retirement of the
Certificates, the Servicer will deliver to you the monthly servicing report, the
annual statements of compliance and the annual independent certified public
accountants' reports furnished to the Trustee pursuant to the Pooling and
Servicing Agreement, as soon as such statements and reports are furnished to the
Trustee.
So long as any of the Certificates is outstanding, Equity One will furnish to
you (i) as soon as practicable after the end of the fiscal year all documents
required to be distributed to holders of Certificates or filed with the
Commission pursuant to the Exchange Act or any order of the Commission
thereunder and (ii) from time to time, any other information concerning Equity
One or the Depositor filed with any government or regulatory authority that is
otherwise publicly available, as you may reasonably request.
To the extent, if any, that the rating provided with respect to the Certificates
by Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings
Service ("S&P" and together with Moody's, the "Rating Agencies") is conditional
upon the furnishing of documents or the taking of any actions by the Depositor,
the Depositor shall furnish such documents and take such actions.
Until 30 days following the Closing Date, neither the Depositor nor any trust or
other entity originated, directly or indirectly, by the Depositor or Equity One
will, without the prior written consent of the Underwriter, offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or announce
the offering of, any asset-backed securities collateralized by mortgage loans
(other than the Certificates).
CONDITIONS TO THE OBLIGATIONS OF THE UNDERWRITER. THE OBLIGATIONS OF THE
UNDERWRITER TO PURCHASE THE CERTIFICATES SHALL BE SUBJECT TO THE ACCURACY OF THE
REPRESENTATIONS AND WARRANTIES ON THE PART OF EQUITY ONE AND THE DEPOSITOR
CONTAINED HEREIN AS OF THE EXECUTION TIME AND THE CLOSING DATE,
8
<PAGE>
TO THE ACCURACY OF THE STATEMENTS OF EQUITY ONE AND THE DEPOSITOR MADE IN ANY
CERTIFICATES PURSUANT TO THE PROVISIONS HEREOF, TO THE PERFORMANCE BY EACH OF
EQUITY ONE AND THE DEPOSITOR OF ITS OBLIGATIONS HEREUNDER AND TO THE FOLLOWING
ADDITIONAL CONDITIONS:
If the Registration Statement has not become effective prior to the Execution
Time, unless the Underwriter agrees in writing to a later time, the Registration
Statement will become effective not later than (i) 6:00 p.m. New York City time,
on the date of determination of the public offering price, if such determination
occurred at or prior to 3:00 p.m. New York City time on such date or (ii) 12:00
noon on the business day following the day on which the public offering price
was determined, if such determination occurred after 3:00 p.m. New York City
time on such date; if filing of the Final Prospectus, or any supplement thereto,
is required pursuant to Rule 424(b), the Final Prospectus, and any such
supplement, shall have been filed in the manner and within the time period
required by Rule 424(b); and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or threatened.
The Underwriter shall have received the opinion of Stradley, Ronon, Stevens &
Young, LLP, counsel for Equity One and the Depositor, dated the Closing Date, to
the effect that:
Each of the Depositor and Equity One is a corporation duly organized and validly
existing under the laws of the state of its incorporation with all corporate
power and authority necessary to own or hold its properties, to conduct its
business as described in the Final Prospectus and to enter into and perform its
obligations under this Agreement and the Pooling and Servicing Agreement and is
duly qualified to do business where its ownership or lease of property or the
conduct of its business requires such qualification.
The Pooling and Servicing Agreement has been duly authorized, executed and
delivered by, and constitutes a legal, valid and binding instrument enforceable
against each of the Depositor and Equity One in accordance with its terms
(subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other laws affecting creditors' rights generally
from time to time in effect) (such opinion may also state that the
enforceability of the obligations of Equity One and the Depositor is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law)).
The Certificates and the Class R Certificates have been duly authorized and,
when executed and authenticated in accordance with the provisions of the Pooling
and Servicing Agreement and delivered to and paid for by the Underwriter
pursuant to this Agreement, will be validly issued and outstanding and will be
entitled to the benefits of the Pooling and Servicing Agreement.
To the knowledge of such counsel, there is no pending or threatened action, suit
or proceeding before any court or governmental agency, authority or body or any
arbitrator involving Equity One, the Depositor, any Seller or any of their
subsidiaries, of a character required to be disclosed in the Registration
Statement which is not adequately disclosed in the Final Prospectus, and there
is no franchise, contract or other document of a character required to be
described in the
9
<PAGE>
Registration Statement or Final Prospectus, or to be filed as an exhibit, which
is not described or filed as required.
The Certificates and the Pooling and Servicing Agreement conform in all material
respects to the descriptions thereof contained in the Registration Statement and
the Final Prospectus.
The Registration Statement has become effective under the Act; any required
filing of the Basic Prospectus, any Preliminary Prospectus Supplement, and the
Final Prospectus, and any supplements thereto, pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); to the
knowledge of such counsel, no stop order suspending the effectiveness of the
Registration Statement has been issued, no proceedings for that purpose have
been instituted or threatened, and the Registration Statement and the Final
Prospectus (other than Computational Materials, the financial statements and
other financial and statistical information contained therein as to which such
counsel need express no opinion) comply as to form in all material respects with
the applicable requirements of the Act, the Exchange Act and the respective
rules thereunder; and such counsel has no reason to believe that at the
Effective Date the Registration Statement contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading or that the Final
Prospectus, at the date thereof or at the Closing Date, included or includes any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (other than
Computational Materials, the financial statements and other financial and
statistical information contained therein as to which such counsel need express
no opinion).
This Agreement has been duly authorized, executed and delivered by Equity One
and the Depositor.
The statements in the Registration Statement and the Final Prospectus under the
headings "Summary of Terms Federal Income Tax Consequences", "Federal Income Tax
Consequences" and "ERISA Considerations" in the prospectus supplement and
"Summary of Terms--Federal Income Tax Consequences", "Summary of Terms--ERISA
Considerations", "Federal Income Tax Consequences", "State Tax Consequences" and
"ERISA Considerations" in the basic prospectus, to the extent that they
constitute matters of law or legal conclusions with respect thereto, are correct
in all material respects.
The statements in the Final Prospectus under the headings "Risk Factors--Certain
Other Legal Aspects of the Loans" and "Certain Legal Aspects of the Loans" in
the basic prospectus, to the extent that they constitute matters of law or legal
conclusions with respect thereto, provide a fair and accurate summary of such
law or conclusions.
The Pooling and Servicing Agreement is not required to be qualified under the
Trust Indenture Act of 1939, as amended, and neither the Depositor nor the Trust
Fund is required to be registered under the Investment Company Act of 1940, as
amended.
The trust fund as described in the Final Prospectus and the Pooling and
Servicing Agreement will qualify as a "real estate mortgage investment conduit"
("REMIC") within the meaning of
10
<PAGE>
Section 860D of the Internal Revenue Code of 1986, as amended (the "Code"), the
Certificates will be treated as "regular interests" in such REMIC and the Class
R Certificates will be treated as the single class of "residual interests" in
such REMIC, assuming: (i) an election is made to treat the trust funds as a
REMIC, (ii) compliance with the Pooling and Servicing Agreement and (iii)
compliance with changes in the law, including any amendments to the Code or
applicable Treasury regulations thereunder.
No consent, approval, authorization, order, registration, filing, qualification,
license or permit of or with any court or governmental agency or body is
required for the consummation of the transactions contemplated herein except
such as have been obtained under the Act, such as may be required under the blue
sky laws of any jurisdiction in connection with the purchase and distribution of
the Certificates by the Underwriter, and such other approvals (specified in such
opinion) as have been obtained.
Neither the execution and delivery of the Pooling and Servicing Agreement, the
issue and sale of the Certificates, nor the consummation of any other of the
transactions herein contemplated nor the fulfillment of the terms hereof or of
the Pooling and Servicing Agreement will conflict with, result in a breach of,
or constitute a default under the charter or by-laws of Equity One or the
Depositor or the terms of any indenture or other agreement or instrument known
to such counsel and to which Equity One or the Depositor is a party or bound,
or, to the knowledge of such counsel, any law, order or regulation applicable to
Equity One, or the Depositor of any court, regulatory body, administrative
agency, governmental body or arbitrator having jurisdiction over Equity One or
the Depositor.
To the best knowledge of such counsel and except as set forth in the Prospectus,
no default exists and no event has occurred which, with notice, lapse of time or
both, would constitute a default in the due performance and observance of any
term, covenant or condition of any agreement to which the Depositor is a party
or by which it is bound, which default is or would have a material adverse
effect on the financial condition, earnings, prospects, business or properties
of the Depositor, taken as a whole;
To the best knowledge of such counsel, the Depositor has obtained all material
licenses, permits and other governmental authorizations that are necessary to
the conduct of its business; such licenses, permits and other governmental
authorizations are in full force and effect, and the Depositor is in all
material respects complying therewith; and the Depositor is otherwise in
compliance with all laws, rules, regulations and statutes of any jurisdiction to
which it is subject, except where non-compliance would not have a material
adverse effect on the Depositor;
In rendering such opinions, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the
Commonwealth of Pennsylvania, the State of Delaware, the State of New
Jersey or the United States, to the extent deemed proper by such counsel
and specified in such opinion, upon the opinion of other counsel of good
standing believed to be reliable by such counsel and who are satisfactory
to counsel for the Underwriter and (B) as to matters of fact, to the extent
deemed proper by such counsel, on certificates of responsible officers of
Equity One, the Depositor, the Sellers and the other parties to this
Agreement and the Pooling and Servicing Agreement,
11
<PAGE>
and of public officials. References to the Final Prospectus in this
paragraph (b) include any supplements thereto at the Closing Date.
12
<PAGE>
The Underwriter shall have received from Brown & Wood LLP, counsel for the
Underwriter, such opinion or opinions, dated the Closing Date, with respect to
the issuance and sale of the Certificates, the Pooling and Servicing Agreement,
this Agreement, the Registration Statement, the Final Prospectus and other
related matters as the Underwriter may reasonably require, and shall have
furnished to such counsel such documents as they reasonably request for the
purpose of enabling them to pass on such matters.
The Underwriter shall have received from PricewaterhouseCoopers LLP, certified
public accountants, two letters, one such letter dated the date hereof and
satisfactory in form and substance to the Underwriter and its counsel,
confirming that they are independent accountants within the meaning of the Act
and the Exchange Act and the respective applicable published rules and
regulations thereunder and stating to the effect that they have performed
certain specified procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature set forth in the
Final Prospectus, agrees with the provisions of the Pooling and Servicing
Agreement and the records of Equity One and the Sellers, and the other such
letter dated the Closing Date and satisfactory in form and substance to the
Underwriter and its counsel, confirming that the first such letter remains true
as of the Closing Date.
The representations and warranties in this Agreement shall be true and correct
on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
Underwriter shall have been furnished a certificate of each of Equity One and
the Depositor, signed by the Chairman of the Board or the President and by the
principal financial or accounting officer of Equity One and the Depositor,
respectively, dated the Closing Date, to the effect that the signers of such
certificate have carefully examined the Registration Statement, the Final
Prospectus, any supplement to the Final Prospectus and this Agreement and that:
the representations and warranties of Equity One and the Depositor in this
Agreement are true and correct in all material respects on and as of the Closing
Date with the same effect, as if made on the Closing Date, and each of Equity
One and the Depositor has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to the Closing
Date;
no stop order suspending the effectiveness of the Registration Statement has
been issued, and no proceedings for that purpose have been instituted or, to
such officer's knowledge, threatened; and
since the date of Equity One's most recent audited financial statements, there
has been no material adverse change, or any development respecting a prospective
change, in the condition (financial or other) of Equity One, the Depositor or
any Seller, whether or not arising from transactions in the ordinary course of
business.
Prior to the Closing Date, Equity One, the Depositor, and each Seller shall have
furnished to the Underwriter such further information, certificates and
documents as the Underwriter may reasonably request.
13
<PAGE>
The Certificates have been given the rating of AAA by Standard & Poor's and Aaa
by Moody's.
The Underwriter shall have received from counsel to the Trustee an opinion,
dated the Closing Date and satisfactory in form and substance to the Underwriter
and its counsel to the effect that:
the Trustee is duly organized and validly existing as a New York banking
corporation with the power and authority under the laws of New York to conduct
business and affairs as a trustee;
the Trustee has the corporate power and lawful authority to perform the duties
and obligation of trustee under, to act as successor Servicer upon the terms and
conditions set forth in, and to accept the trust contemplated by, the Pooling
and Servicing Agreement;
the Pooling and Servicing Agreement has been duly authorized, executed,
delivered and accepted by the Trustee, and the Pooling and Servicing Agreement
is a legal, valid and binding obligation enforceable against the Trustee in
accordance with its terms (subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization and other laws affecting creditors' rights
generally from time to time in effect) (such opinion may also state that the
enforceability of the Trustee's obligations is subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law));
the Certificates have been duly authenticated by the Trustee; and
neither the execution nor delivery by the Trustee of the Pooling and Servicing
Agreement nor the consummation of any of the transactions contemplated thereby
require the consent or approval of, the giving of notice to, the registration
with, or the taking of any other action with respect to, any governmental
authority or agency under any existing federal or state law governing the
banking or trust powers of the Trustee.
The Underwriter shall have received such opinions, addressed to the Underwriter
and dated the Closing Date, as are delivered to the Rating Agencies.
The Underwriter shall have received an opinion from Stradley, Ronon, Stevens &
Young, LLP, counsel for Equity One and the Depositor, dated the Closing Date and
satisfactory in form and substance to the Underwriter regarding the true-sale of
the Loans by the Sellers to the Depositor and by the Depositor to the Trustee,
for the benefit of Certificateholders.
The Underwriter shall have received an opinion from counsel for Equity One and
the Depositor, dated the Closing Date and satisfactory in form and substance to
the Underwriter regarding substantive consolidation.
The Underwriter shall have received an opinion from Counsel to the Insurer,
dated the Closing Date and satisfactory in form and substance to the
Underwriter, addressed to the Underwriter and the Trustee.
14
<PAGE>
The Underwriter shall have received a fully executed Insurance Agreement by and
among Equity One, the Depositor and the Insurer, dated as of December 1, 1998
(the "Insurance Agreement"), and all representations and warranties thereunder
or made pursuant thereto shall be true and correct, and the Depositor shall have
performed its obligations thereunder.
The Policy relating to the Certificates shall have been duly executed and issued
at or prior to the Closing Date and shall conform in all material respects to
the description thereof in the Final Prospectus.
Subsequent to the Execution Time, there shall not have been any reduction or
withdrawal by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) under the Securities Act) of the current
rating of any securities issued or originated by the Depositor or Equity One or
any notice given of any intended or potential reduction in or withdrawal of any
such rating or of a possible change in any such rating that does not indicate
the direction of the possible change.
Subsequent to the respective dates as of which information is given in the
Registration Statement and the Final Prospectus and the date of the most recent
audited financial statements of Equity One, there shall not have been any
change, or any development involving a prospective change, which has not been
disclosed to the Underwriter on or before the date hereof in or affecting the
condition, financial or otherwise, of Equity One, the Depositor or any Seller
the effect of which is, in the reasonable judgment of the Underwriter, so
material and adverse as to make it impractical or inadvisable to proceed with
the offering or the delivery of the Certificates as contemplated by the
Registration Statement and the Final Prospectus.
If any of the conditions specified in this Section 6 shall not have been
fulfilled in all material respects when and as provided in this Agreement, or if
any of the opinions and certificates mentioned above or elsewhere in this
Agreement shall not be in all material respects reasonably satisfactory in form
and substance to the Underwriter and counsel for the Underwriter, this Agreement
and all obligations of the Underwriter hereunder may be canceled at, or at any
time prior to, the Closing Date by the Underwriter. Notice of such cancellation
shall be given to the Depositor and Equity One in writing or by telephone or
telegraph confirmed in writing.
REIMBURSEMENT OF UNDERWRITER'S EXPENSES. IF THE SALE OF THE CERTIFICATES
PROVIDED FOR HEREIN IS NOT CONSUMMATED BECAUSE ANY CONDITION TO THE OBLIGATIONS
OF THE UNDERWRITER SET FORTH IN SECTION 6 HEREOF IS NOT SATISFIED, BECAUSE OF
ANY TERMINATION PURSUANT TO SECTION 10 HEREOF OR BECAUSE OF ANY REFUSAL,
INABILITY OR FAILURE ON THE PART OF EQUITY ONE OR THE DEPOSITOR TO PERFORM ANY
AGREEMENT HEREIN OR COMPLY WITH ANY PROVISION HEREOF OTHER THAN BY REASON OF A
DEFAULT BY THE UNDERWRITER, THE DEPOSITOR WILL REIMBURSE THE UNDERWRITER UPON
DEMAND FOR ALL OUT-OF-POCKET EXPENSES (INCLUDING REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL) THAT SHALL HAVE BEEN INCURRED BY IT IN
15
<PAGE>
CONNECTION WITH THE PROPOSED PURCHASE AND SALE OF THE CERTIFICATES.
INDEMNIFICATION AND CONTRIBUTION. 1) EQUITY ONE AND THE DEPOSITOR, JOINTLY AND
SEVERALLY, AGREE TO INDEMNIFY AND HOLD HARMLESS THE UNDERWRITER AND EACH PERSON
WHO CONTROLS THE UNDERWRITER WITHIN THE MEANING OF EITHER THE ACT OR THE
EXCHANGE ACT AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES OR LIABILITIES, JOINT
OR SEVERAL, TO WHICH THEY OR ANY OF THEM MAY BECOME SUBJECT UNDER THE ACT, THE
EXCHANGE ACT OR OTHER FEDERAL OR STATE STATUTORY LAW OR REGULATION, AT COMMON
LAW OR OTHERWISE, INSOFAR AS SUCH LOSSES, CLAIMS, DAMAGES OR LIABILITIES (OR
ACTIONS IN RESPECT THEREOF) ARISE OUT OF OR ARE BASED UPON ANY UNTRUE STATEMENT
OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN THE REGISTRATION
STATEMENT, THE BASIC PROSPECTUS, ANY PRELIMINARY PROSPECTUS SUPPLEMENT OR THE
FINAL PROSPECTUS, OR IN ANY AMENDMENT THEREOF OR SUPPLEMENT THERETO, OR ARISE
OUT OF OR ARE BASED UPON THE OMISSION OR ALLEGED OMISSION TO STATE THEREIN A
MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS
THEREIN NOT MISLEADING, AND AGREES TO REIMBURSE EACH SUCH INDEMNIFIED PARTY, AS
INCURRED, FOR ANY LEGAL OR OTHER EXPENSES REASONABLY INCURRED BY THEM IN
CONNECTION WITH INVESTIGATING OR DEFENDING ANY SUCH LOSS, CLAIM, DAMAGE,
LIABILITY OR ACTION; PROVIDED, HOWEVER, THAT (I) NEITHER EQUITY ONE NOR THE
DEPOSITOR WILL BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LOSS,
CLAIM, DAMAGE OR LIABILITY ARISES OUT OF OR IS BASED UPON ANY SUCH UNTRUE
STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE (X)
THEREIN IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO
THE DEPOSITOR BY THE UNDERWRITER SPECIFICALLY FOR INCLUSION THEREIN, OR (Y) IN
ANY DERIVED INFORMATION (AS DEFINED IN SECTION 9 BELOW) INCLUDED BY THE
UNDERWRITER IN ANY COMPUTATIONAL MATERIALS PROVIDED BY THE UNDERWRITER TO THE
DEPOSITOR OR ANY AMENDMENT OR SUPPLEMENT THEREOF UNLESS SUCH UNTRUE STATEMENT OR
ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN ANY DERIVED
INFORMATION RESULTS FROM AN ERROR OR OMISSION IN ANY SELLER-PROVIDED INFORMATION
(AS DEFINED HEREIN), AND (II) SUCH INDEMNITY WITH RESPECT TO ANY PRELIMINARY
PROSPECTUS SUPPLEMENT OR COMPUTATIONAL MATERIALS SHALL NOT INURE TO THE BENEFIT
OF THE UNDERWRITER (OR ANY PERSON CONTROLLING THE UNDERWRITER) FROM WHOM THE
PERSON ASSERTING ANY SUCH LOSS, CLAIM, DAMAGE OR LIABILITY PURCHASED THE
CERTIFICATES WHICH ARE THE SUBJECT THEREOF IF SUCH PERSON DID NOT RECEIVE A COPY
OF THE FINAL PROSPECTUS (OR THE FINAL PROSPECTUS AS SUPPLEMENTED) AT OR PRIOR TO
THE CONFIRMATION OF THE SALE OF SUCH CERTIFICATES TO
16
<PAGE>
SUCH PERSON IN ANY CASE WHERE SUCH DELIVERY IS REQUIRED BY THE ACT AND THE
UNTRUE STATEMENT OR OMISSION OF A MATERIAL FACT CONTAINED IN THE PRELIMINARY
PROSPECTUS SUPPLEMENT WAS CORRECTED IN THE FINAL PROSPECTUS (OR THE FINAL
PROSPECTUS AS SUPPLEMENTED). THIS INDEMNITY AGREEMENT WILL BE IN ADDITION TO ANY
LIABILITY WHICH EQUITY ONE OR THE DEPOSITOR MAY OTHERWISE HAVE.
The Underwriter agrees to indemnify and hold harmless Equity One and the
Depositor, each of their respective directors, each of their respective officers
who signs the Registration Statement, and each person who controls Equity One or
the Depositor within the meaning of either the Act or the Exchange Act, to the
same extent as the foregoing indemnity from Equity One and the Depositor to the
Underwriter, but only with reference to (x) written information relating to the
Underwriter furnished to the Depositor by the Underwriter specifically for
inclusion in the documents referred to in the foregoing indemnity or (y) any
Derived Information included by the Underwriter in any Computational Materials
provided by the Underwriter to the Depositor or any amendment or supplement
thereof; provided, however that the indemnity with respect to clause (y) above
shall not apply to any untrue statement or alleged untrue statement or omission
or alleged omission made in any Derived Information that results from an error
or omission in any Seller-Provided Information. This indemnity agreement will be
in addition to any liability which the Underwriter may otherwise have. For the
purpose of clause (x) of this indemnity, Equity One and the Depositor
acknowledge that the statements set forth in the last paragraph of the cover
page and under the heading "Underwriting" in any Preliminary Prospectus
Supplement or the Final Prospectus constitute the only information furnished in
writing by the Underwriter for inclusion in the documents referred to in the
foregoing indemnity, and you, as the Underwriter, confirm that such statements
are correct.
Promptly after receipt by an indemnified party under this Section 8 of notice of
the commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under this Section
8, notify the indemnifying party in writing of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 8. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to appoint counsel satisfactory to such indemnified party
to represent the indemnified party in such action; provided, however, that if
the defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to defend such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to such
indemnified party of its election so to appoint counsel to defend such action
and approval by the indemnified party of such counsel, the indemnifying party
will not be liable to such
17
<PAGE>
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel, approved by the Underwriter in the case of
paragraph (a) of this Section 8, representing the indemnified parties under such
paragraph (a) who are parties to such action), (ii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party or (iv) the use of counsel chosen by the indemnifying party
to represent the indemnified party would present such counsel with a conflict of
interest; and except that, if clause (i) or (iii) is applicable, such liability
shall be only in respect of the counsel referred to in such clause (i) or (iii).
In order to provide for just and equitable contribution in circumstances in
which the indemnification provided for in paragraph (a) of this Section 8 is due
in accordance with its terms but is for any reason held by a court to be
unavailable from Equity One or the Depositor on grounds of policy or otherwise,
Equity One and the Depositor, on the one hand, and the Underwriter, on the
other, shall contribute to the aggregate losses, claims, damages and liabilities
(including legal or other expenses reasonably incurred in connection with
investigating or defending same) to which Equity One and the Depositor, on the
one hand, and the Underwriter, on the other, may be subject in such proportion
so that the Underwriter is responsible for that portion represented by the
percentage that the underwriting discount bears to the sum of such discount and
the purchase price of the Certificates, and Equity One and the Depositor are
responsible for the balance; provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person who
controls the Underwriter within the meaning of the Act shall have the same
rights to contribution as the Underwriter, and each person who controls Equity
One or the Depositor within the meaning of either the Act or the Exchange Act,
each officer of Equity One or the Depositor and each director of Equity One or
the Depositor shall have the same rights to contribution as Equity One and the
Depositor, subject in each case to the proviso to the first sentence of this
paragraph (d). Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect of which a claim for contribution may be made against another party
or parties under this paragraph (d), notify such party or parties from whom
contribution may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be sought from
any other obligation it or they may have hereunder or otherwise than under this
paragraph (d).
COMPUTATIONAL MATERIALS. IT IS UNDERSTOOD THAT THE UNDERWRITER MAY PROVIDE TO
PROSPECTIVE INVESTORS CERTAIN COMPUTATIONAL MATERIALS AND ABS TERM SHEETS IN
CONNECTION WITH YOUR OFFERING OF THE CERTIFICATES, SUBJECT TO THE FOLLOWING
CONDITIONS:
18
<PAGE>
The Underwriter shall comply with all applicable laws and regulations in
connection with the use of Computational Materials, including the No-Action
Letter of May 20, 1994 issued by the Commission to Kidder, Peabody Acceptance
Corporation I, Kidder, Peabody & Co. Incorporated and Kidder Structured Asset
Corporation, as made applicable to other issuers and underwriters by the
Commission in response to the request of the Public Securities Association dated
May 24, 1994 (collectively, the "Kidder/PSA Letter"), as well as the PSA Letter
referred to below. The Underwriter shall comply with all applicable laws and
regulations in connection with the use of ABS Term Sheets, including the No
Action Letter of February 17, 1995 issued by the Commission to the Public
Securities Association (the PSA Letter" and, together with the Kidder/PSA
Letter, the "No-Action Letters").
For purposes hereof, "Computational Materials" as used herein shall have the
meaning given such term in the No-Action Letters, but shall include only those
Computational Materials that have been prepared or delivered to prospective
investors by or at the direction of the Underwriter. For purposes hereof, "ABS
Term Sheets" and "Collateral Term Sheets" as used herein shall have the meanings
given such terms in the PSA Letter but shall include only those ABS Term Sheets
or Collateral Term Sheets that have been prepared or delivered to prospective
investors by or at the direction of the Underwriter.
a) All Computational Materials and ABS Term Sheets provided to prospective
investors that are required to be filed with the Commission pursuant to the
No-Action Letters shall bear a legend on each page including the following
statement:
"THE INFORMATION HEREIN IS PRELIMINARY, AND WILL BE SUPERSEDED BY THE
APPLICABLE PROSPECTUS SUPPLEMENT AND BY ANY OTHER INFORMATION SUBSEQUENTLY
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION."
In the case of Collateral Term Sheets, such legend shall also include the
following statement:
"THE INFORMATION CONTAINED HEREIN WILL BE SUPERSEDED BY THE DESCRIPTION OF
THE MORTGAGE POOL CONTAINED IN THE PROSPECTUS SUPPLEMENT RELATING TO THE
CERTIFICATES AND [EXCEPT WITH RESPECT TO THE INITIAL COLLATERAL TERM SHEET]
SUPERSEDES ALL INFORMATION CONTAINED IN ANY COLLATERAL TERM SHEETS RELATING
TO THE MORTGAGE POOL PREVIOUSLY PROVIDED BY SALOMON SMITH BARNEY INC."
The Depositor shall have the right to require additional specific legends or
notations to appear on any Computational Materials or ABS Term Sheets, the right
to require changes regarding the use of terminology and the right to determine
the types of information appearing therein. Notwithstanding the foregoing, this
subsection (c) will be satisfied if all Computational Materials and ABS Term
Sheets referred to therein bear a legend in a form previously approved in
writing by the Depositor.
19
<PAGE>
The Underwriter shall provide the Depositor with representative forms of all
Computational Materials and ABS Term Sheets prior to their first use, to the
extent such forms have not previously been approved by the Depositor for use by
the Underwriter. The Underwriter shall provide to the Depositor, for filing on
Form 8-K, copies (in such format as required by the Depositor) of all
Computational Materials and ABS Term Sheets that are required to be filed with
the Commission pursuant to the No-Action Letters. The Underwriter may provide
copies of the foregoing in a consolidated or aggregated form including all
information required to be filed. All Computational Materials and ABS Term
Sheets described in this subsection (d) must be provided to the Depositor not
later than 10:00 a.m. New York time one business day before filing thereof is
required pursuant to the terms of this Agreement. The Underwriter agrees that it
will not provide to any investor or prospective investor in the Certificates any
Computational Materials or ABS Term Sheets on or after the day on which
Computational Materials and ABS Term Sheets are required to be provided to the
Depositor pursuant to this Section 9(d) (other than copies of Computational
Materials or ABS Term Sheets previously submitted to the Depositor in accordance
with this Section 9(d) for filing with the Commission), unless such
Computational Materials or ABS Term Sheets are preceded or accompanied by the
delivery of a Prospectus to such investor or prospective investor.
All information included in the Computational Materials and ABS Term Sheets
shall be generated based on substantially the same methodology and assumptions
that are used to generate the information in the Prospectus Supplement as set
forth therein; provided, however, that the Computational Materials and ABS Term
Sheets may include information based on alternative methodologies or assumptions
if specified therein. If any Computational Materials or ABS Term Sheets that are
required to be filed were based on assumptions with respect to the Loans
included in the Trust that differ from the final Pool Information in any
material respect or on Certificate structuring terms that were revised in any
material respect prior to the printing of the Prospectus, the Underwriter shall
prepare revised Computational Materials or ABS Term Sheets, as the case may be,
based on the final Pool Information and structuring assumptions, circulate such
revised Computational Materials and ABS Term Sheets to all recipients of the
preliminary versions thereof that indicated or subsequently indicate orally to
the Underwriter they will purchase all or any portion of the Certificates, and
include such revised Computational Materials and ABS Term Sheets (marked, "as
revised") in the materials delivered to the Depositor pursuant to subsection (d)
above. As used herein, "Pool Information" means information with respect to the
characteristics of the Loans, as provide by or on behalf of the Depositor to the
Underwriter in final form and set forth in the Prospectus Supplement.
The Depositor shall not be obligated to file any Computational Materials or ABS
Term Sheets that have been determined to contain any material error or omission;
provided, however, that, at the request of the Underwriter, the Depositor will
file Computational Materials or ABS Term Sheets that contain a material error or
omission if clearly marked "superseded by materials dated _____" and accompanied
by corrected Computational Materials or ABS Term Sheets that are marked,
"material previously dated _____, as corrected." In the event that, within the
period during which the Prospectus relating to the Certificates is required to
be delivered under the Act, any Computational Materials or ABS
20
<PAGE>
Term Sheets are determined, in the reasonable judgment of the Depositor or the
Underwriter, to contain a material error or omission, the Underwriter shall
prepare a corrected version of such Computational Materials or ABS Term Sheets,
shall circulate such corrected Computational Materials and ABS Term Sheets to
all recipients of the prior versions thereof that either indicated orally to the
Underwriter they would purchase all or any portion of the Certificates, or
actually purchased all or any portion thereof, and shall deliver copies of such
corrected Computational Materials and ABS Term Sheets (marked, "as corrected")
to the Depositor for filing with the Commission in a subsequent Form 8-K
submission.
The Depositor and the Underwriter shall receive a letter from
PricewaterhouseCoopers LLP, certified public accountants, satisfactory in form
and substance to the Depositor and the Underwriter, to the effect that such
accountants have performed certain specified procedures agreed to by the
Depositor and the Underwriter, as a result of which they determined that the
specified information that is included in the Computational Materials and ABS
Term Sheets (if any) provided by the Underwriter to the Depositor for filing on
Form 8-K as provided in this Section 9 has been accurately computed or compiled
from the Depositor Provided Information.
If the Underwriter does not provide any Computational Materials or ABS Term
Sheets to the Depositor pursuant to subsection (d) above, the Underwriter shall
be deemed to have represented, as of the Closing Date, that it did not provide
any prospective investors with any information in written or electronic form in
connection with the offering of the Certificates that is required to be filed
with the Commission in accordance with the No-Action Letters.
In the event of any delay in the delivery by the Underwriter to the Depositor of
all Computational Materials and ABS Term Sheets required to be delivered in
accordance with subsection (d) above, or in the delivery of the accountant's
comfort letter in respect thereof pursuant to Section 9(g), the Depositor shall
have the right to delay the release of the Prospectus to investors or to the
Underwriter, to delay the Closing Date and to take other appropriate actions in
each case as necessary in order to allow the Depositor to comply with its
obligation to file the Computational Materials and ABS Term Sheets with the
Commission.
For purposes of this Agreement, as to the Underwriter, the term "Derived
Information" means such portion, if any, of the information that is:
delivered to the Depositor by the Underwriter pursuant to this Section 9 for
filing with the Commission on Form 8-K;
is not contained in the Final Prospectus without taking into account information
incorporated therein by reference; and
does not constitute Seller-Provided Information.
21
<PAGE>
"Seller-Provided Information" means any computer tape concerning the assets
comprising the Trust Fund and any other information with respect to the
Certificates or the Loans furnished to the Underwriter by the Depositor for use
as contemplated herein.
TERMINATION. THIS AGREEMENT SHALL BE SUBJECT TO TERMINATION IN THE ABSOLUTE
DISCRETION OF THE UNDERWRITER, BY NOTICE GIVEN TO THE DEPOSITOR AND EQUITY ONE
PRIOR TO DELIVERY OF AND PAYMENT FOR THE CERTIFICATES, IF PRIOR TO SUCH TIME (I)
TRADING IN SECURITIES GENERALLY ON THE NEW YORK STOCK EXCHANGE SHALL HAVE BEEN
SUSPENDED OR LIMITED OR MINIMUM PRICES SHALL HAVE BEEN ESTABLISHED ON SUCH
EXCHANGE, (II) A BANKING MORATORIUM SHALL HAVE BEEN DECLARED EITHER BY FEDERAL
OR NEW YORK STATE AUTHORITIES OR (III) THERE SHALL HAVE OCCURRED ANY OUTBREAK OR
MATERIAL ESCALATION OF HOSTILITIES, DECLARATION BY THE UNITED STATES OF A
NATIONAL EMERGENCY OR WAR OR OTHER CALAMITY OR CRISIS THE EFFECT OF WHICH ON THE
FINANCIAL MARKETS OF THE UNITED STATES IS SUCH AS TO MAKE IT, IN THE JUDGMENT OF
THE UNDERWRITER, IMPRACTICABLE OR INADVISABLE TO PROCEED WITH THE OFFERING OR
DELIVERY OF THE CERTIFICATES AS CONTEMPLATED BY THE FINAL PROSPECTUS (EXCLUSIVE
OF ANY SUPPLEMENT THERETO).
REPRESENTATIONS AND INDEMNITIES TO SURVIVE. THE RESPECTIVE AGREEMENTS,
REPRESENTATIONS, WARRANTIES, INDEMNITIES AND OTHER STATEMENTS OF EQUITY ONE OR
THE DEPOSITOR OR THEIR RESPECTIVE OFFICERS AND OF THE UNDERWRITER SET FORTH IN
OR MADE PURSUANT TO THIS AGREEMENT WILL REMAIN IN FULL FORCE AND EFFECT,
REGARDLESS OF ANY INVESTIGATION MADE BY OR ON BEHALF OF THE UNDERWRITER, EQUITY
ONE OR THE DEPOSITOR OR ANY OF THE OFFICERS, DIRECTORS OR CONTROLLING PERSONS
REFERRED TO IN SECTION 8 HEREOF, AND WILL SURVIVE DELIVERY OF AND PAYMENT FOR
THE CERTIFICATES. THE PROVISIONS OF SECTIONS 7 AND 8 HEREOF SHALL SURVIVE THE
TERMINATION OR CANCELLATION OF THIS AGREEMENT.
NOTICES. ALL COMMUNICATIONS HEREUNDER WILL BE IN WRITING AND EFFECTIVE ONLY ON
RECEIPT, AND, IF SENT TO THE UNDERWRITER, WILL BE MAILED, DELIVERED OR
TELEGRAPHED AND CONFIRMED TO SALOMON SMITH BARNEY INC, SEVEN WORLD TRADE CENTER,
NEW YORK, NEW YORK 10048; OR, IF SENT TO THE DEPOSITOR OR EQUITY ONE, WILL BE
MAILED, DELIVERED OR TELEGRAPHED AND CONFIRMED TO EQUITY ONE AT EQUITY ONE,
INC., 523 FELLOWSHIP ROAD, SUITE 220, MT. LAUREL, NEW JERSEY 08054, ATTENTION:
TREASURER, AND TO THE DEPOSITOR AT 103 SPRINGER BUILDING, 3411 SILVERSIDE ROAD,
WILMINGTON, DELAWARE 19810, ATTENTION: TREASURER.
SUCCESSORS. THIS AGREEMENT WILL INURE TO THE BENEFIT OF AND BE BINDING UPON THE
PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS
22
<PAGE>
AND THE OFFICERS AND DIRECTORS AND CONTROLLING PERSONS REFERRED TO IN SECTION 8
HEREOF, AND NO OTHER PERSON WILL HAVE ANY RIGHT OR OBLIGATION HEREUNDER.
APPLICABLE LAW. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
COUNTERPARTS. THIS AGREEMENT MAY BE EXECUTED IN ONE OR MORE COUNTERPARTS, EACH
OF WHICH WILL BE DEEMED TO BE AN ORIGINAL, BUT ALL SUCH COUNTERPARTS WILL
TOGETHER CONSTITUTE ONE AND THE SAME AGREEMENT.
23
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter and your acceptance shall represent a binding agreement among Equity One,
the Depositor and the Underwriter.
Very truly yours,
EQUITY ONE ABS, INC.
By: /s/ John N. Martella
------------------------------------
Name: John N. Martella
Title: Vice President
EQUITY ONE, INC.
By: /s/ John N. Martella
------------------------------------
Name: John N. Martella
Title: Executive Vice President
The foregoing Agreement is hereby
confirmed and accepted as of the date
first above written
SALOMON SMITH BARNEY INC
By: /s/ Paul Humphrey
--------------------------------
Name: Paul Humphrey
Title: Associate
24
<PAGE>
SCHEDULE I
TO
UNDERWRITING
AGREEMENT
Mortgage Pass-Through
Certificates, Series 1998-1 Principal Amount Purchase Price
- --------------------------- ---------------- --------------
Class A-1 $100,027,563 99.681977%
Class A-2 $ 25,002,775 99.694699%
25
================================================================================
Equity One ABS, Inc.
Depositor
Equity One, Inc. (DE)
A Seller and the Servicer
Equity One, Incorporated (PA), Equity One Mortgage Company (NC),
Equity One Mortgage, Inc. (DE), Equity One, Inc. (MN), Equity One Consumer Loan
Company, Inc. (NH), Equity One of West Virginia, Inc. (WV) and Equity
One Mortgage, Inc. (NY)
Sellers
and
The Chase Manhattan Bank
Trustee
-----------------------------------
POOLING AND SERVICING AGREEMENT
Dated as of November 30, 1998
----------------------------------
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1998-1
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT..........................................................1
ARTICLE I DEFINITIONS..........................................................3
Adjusted Mortgage Rate.........................................................3
Adjusted Net Mortgage Rate.....................................................3
Advance........................................................................3
Agreement......................................................................3
Amount Held for Future Distribution............................................3
Applicable Group...............................................................3
Available Funds................................................................3
Bankruptcy Code................................................................4
Beneficial Owner...............................................................4
Book-Entry Certificates........................................................4
Business Day...................................................................4
Call Option Date...............................................................4
Certificates...................................................................4
Certificate Account............................................................4
Certificate Balance............................................................4
Certificate Formula Principal Amount...........................................4
Certificate Register...........................................................5
Certificate Registrar..........................................................5
Certificateholder or Holder....................................................5
Class..........................................................................5
Class A Certificates...........................................................5
Class A-1 Available Funds Shortfall............................................5
Class A-2 Available Funds Shortfall............................................5
Class A-1 Distributable Funds..................................................6
Class A-2 Distributable Funds..................................................6
Class A-1 Monthly Spread Account Deposit Amount................................6
Class A-2 Monthly Spread Account Deposit Amount................................6
Class A-1 Spread Account Deposit Amount........................................6
Class A-2 Spread Account Deposit Amount........................................6
Class R Certificates...........................................................6
Class Certificate Balance......................................................6
Class Interest Shortfall.......................................................6
Class Unpaid Interest Amounts..................................................6
Closing Date...................................................................7
Closing Place..................................................................7
Code...........................................................................7
i
<PAGE>
Collateral Value...............................................................7
Combined Loan-to-Value Ratio...................................................7
Corporate Trust Office.........................................................7
Cross-Collateralization Amount.................................................7
Custodial Agreement............................................................7
Custodian......................................................................7
Cut-off Date...................................................................7
Cut-Off Date Group I Principal Balance.........................................8
Cut-Off Date Group II Principal Balance........................................8
Cut-off Date Pool Principal Balance............................................8
Cut-off Date Principal Balance.................................................8
Defective Loan.................................................................8
Definitive Certificates........................................................8
Deleted Loan...................................................................8
Denomination...................................................................8
Depositor......................................................................8
Depository.....................................................................8
Depository Participant.........................................................8
Determination Date.............................................................8
Distribution Account...........................................................8
Distribution Account Deposit Date..............................................9
Distribution Date..............................................................9
Due Date.......................................................................9
Eligible Account...............................................................9
Equity One-Delaware............................................................9
Equity One-Florida.............................................................9
Equity One-Minnesota...........................................................9
Equity One-New Hampshire.......................................................9
Equity One-New York............................................................9
Equity One-North Carolina.....................................................10
Equity One-Pennsylvania.......................................................10
Equity One-West Virginia......................................................10
ERISA.........................................................................10
Escrow Account................................................................10
Event of Default..............................................................10
Excess Proceeds...............................................................10
Expense Rate..................................................................10
FDIC..........................................................................10
FHLMC.........................................................................10
FIRREA........................................................................10
FNMA..........................................................................10
Group.........................................................................10
Group I Loans.................................................................10
ii
<PAGE>
Group II Loans................................................................11
Group Principal Balance.......................................................11
I&I Payments..................................................................11
Indirect Participant..........................................................11
Insurance Agreement...........................................................11
Insurance Policy..............................................................11
Insurance Proceeds............................................................11
Insured Amount................................................................11
Insured Expenses..............................................................11
Insurer.......................................................................11
Insurer Default...............................................................11
Insurer's Monthly Premium.....................................................11
Interest Accrual Period.......................................................12
Interest Distribution Amount..................................................12
Investment Letter.............................................................12
Latest Possible Maturity Date.................................................12
Liquidated Loan...............................................................12
Liquidation Proceeds..........................................................12
Loan Losses...................................................................12
Loans.........................................................................12
Loan Schedule.................................................................12
Majority in Interest..........................................................13
Monthly Statement.............................................................13
Moody's.......................................................................13
Mortgage......................................................................13
Mortgage File.................................................................13
Mortgage Note.................................................................14
Mortgage Rate.................................................................14
Mortgaged Property............................................................14
Mortgagor.....................................................................14
Net Available Funds...........................................................14
Net Prepayment Interest Shortfalls............................................14
Nonrecoverable Advance........................................................14
Notice........................................................................14
Notice of Final Distribution..................................................14
Officer's Certificate.........................................................14
Opinion of Counsel............................................................14
Optional Termination..........................................................15
Original Loan.................................................................15
OTS...........................................................................15
Outstanding...................................................................15
Outstanding Loan..............................................................15
Ownership Interest............................................................15
iii
<PAGE>
Pass-Through Rate.............................................................15
Paying Agent..................................................................15
Percentage Interest...........................................................15
Permitted Investments.........................................................15
Permitted Transferee..........................................................16
Person........................................................................17
Policy........................................................................17
Pool Principal Balance........................................................17
Preference Claim..............................................................17
Prepayment Interest Excess....................................................17
Prepayment Interest Shortfall.................................................18
Prepayment Period.............................................................18
Primary Mortgage Insurance Policy.............................................18
Principal Prepayment..........................................................18
Principal Prepayment in Full..................................................18
Prospectus Supplement.........................................................18
Purchase Price................................................................18
PTCE 95-60....................................................................18
Qualified Insurer.............................................................18
Rating Agency.................................................................19
Record Date...................................................................19
Refinance Loan................................................................19
Relief Act....................................................................19
Relief Act Reductions.........................................................19
REMIC.........................................................................19
REMIC Change of Law...........................................................19
REMIC Provisions..............................................................19
Remittance Amount.............................................................20
REO Property..................................................................20
Request for Release...........................................................20
Required Insurance Policy.....................................................20
Responsible Officer...........................................................20
Rule 144A Letter..............................................................20
Scheduled Payment.............................................................20
Securities Act................................................................20
Sellers.......................................................................20
Servicer......................................................................20
Servicer Advance Date.........................................................20
Servicing Advances............................................................20
Servicing Amount..............................................................21
Servicing Fee.................................................................21
Servicing Fee Rate............................................................21
Servicing Officer.............................................................21
iv
<PAGE>
S&P...........................................................................21
Specified Spread Account Requirement..........................................21
Spread Account................................................................22
Spread Account Draw...........................................................22
Spread Account Excess.........................................................22
Startup Day...................................................................22
Stated Principal Balance......................................................22
Step-down Date................................................................22
Streamlined Documentation Loan................................................22
Subservicer...................................................................22
Substitute Loan...............................................................22
Substitution Adjustment Amount................................................23
Tax Matters Person............................................................23
Tax Matters Person Certificate................................................23
Transfer......................................................................23
Transfer Affidavit............................................................23
Transferor Certificate........................................................23
Trustee.......................................................................23
Trustee Fee...................................................................23
Trustee Fee Rate..............................................................23
Trust Fund....................................................................23
Voting Rights.................................................................24
Weighted Average Adjusted Net Mortgage Rate...................................24
ARTICLE II CONVEYANCE OF LOANS;
REPRESENTATIONS AND WARRANTIES................................................24
SECTION 2.01. Conveyance of Loans............................................24
SECTION 2.02. Acceptance by Trustee of the Loans.............................27
SECTION 2.03. Representations, Warranties and Covenants of the
Sellers and the Servicer.....................................29
SECTION 2.03A. Additional Obligations of Equity One-Delaware..................31
SECTION 2.04. Representations and Warranties of the Depositor
as to the Loans..............................................32
SECTION 2.05. Delivery of Opinion of Counsel in Connection
with Substitutions...........................................32
SECTION 2.06. Execution and Delivery of Certificates.........................33
SECTION 2.07. REMIC Matters..................................................33
SECTION 2.08. Covenants of the Servicer......................................33
ARTICLE III ADMINISTRATION AND SERVICING OF LOANS.............................34
SECTION 3.01. Servicer to Service Loans......................................34
SECTION 3.02. Subservicing; Enforcement of the Obligations
of Servicers.................................................35
SECTION 3.03. Rights of the Depositor and the Trustee in Respect
of the Servicer..............................................35
SECTION 3.04. Trustee to Act as Servicer.....................................35
SECTION 3.05. Collection of Loan Payments; Certificate Account;
Distribution Account; Spread Account.........................36
v
<PAGE>
SECTION 3.06. Payment of Taxes, Assessments, Hazard Insurance
Premiums and Similar Items; Escrow Accounts..................39
SECTION 3.07. Access to Certain Documentation and Information
Regarding the Loans..........................................39
SECTION 3.08. Permitted Withdrawals from the Certificate Account
and Distribution Account.....................................40
SECTION 3.09. Maintenance of Hazard Insurance; Maintenance
of Primary Insurance Policies................................41
SECTION 3.10. Enforcement of Due-on-Sale Clauses;
Assumption Agreements........................................42
SECTION 3.11. Realization Upon Defaulted Loans;
Repurchase of Certain Loans..................................43
SECTION 3.12. Trustee to Cooperate; Release of Mortgage Files................46
SECTION 3.13. Documents Records and Funds in Possession of Servicer
to be Held for the Trustee...................................46
SECTION 3.14. Servicing Compensation.........................................47
SECTION 3.15. Access to Certain Documentation................................48
SECTION 3.16. Annual Statement as to Compliance..............................48
SECTION 3.17. Annual Independent Public Accountants'Servicing Statement;
Financial Statements.........................................48
SECTION 3.18. Errors and Omissions Insurance; Fidelity Bonds.................49
SECTION 3.19. Optional Removal of Servicer by the Insurer....................49
ARTICLE IIIA SPREAD ACCOUNT; POLICY..........................................50
SECTION 3A.01 Establishment of Spread Account; Deposits in Spread
Account; Permitted Withdrawals from Spread Account...........50
SECTION 3A.02 Policy.........................................................51
ARTICLE IV DISTRIBUTIONS AND ADVANCES BY THE SERVICER........................53
SECTION 4.01. Advances.......................................................53
SECTION 4.02. Priorities of Distribution.....................................53
SECTION 4.03. Monthly Statements to Certificateholders.......................55
SECTION 4.04. Bloomberg Reporting............................................57
ARTICLE V THE CERTIFICATES...................................................57
SECTION 5.01. The Certificates...............................................57
SECTION 5.02. Certificate Register; Registration of Transfer and
Exchange of Certificates.....................................58
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates..............63
SECTION 5.04. Persons Deemed Owners..........................................63
SECTION 5.05. Access to List of Certificateholders' Names and Addresses......63
SECTION 5.06. Maintenance of Office or Agency................................64
ARTICLE VI THE DEPOSITOR AND THE SERVICER....................................64
SECTION 6.01. Respective Liabilities of the Depositor and the Servicer.......64
SECTION 6.02. Merger or Consolidation of the Depositor or the Servicer.......64
SECTION 6.03. Limitation on Liability of the Depositor, the Sellers,
the Servicer and Others......................................65
SECTION 6.04. Limitation on Resignation of Servicer..........................65
vi
<PAGE>
SECTION 6.05. Indemnification................................................66
ARTICLE VII DEFAULT..........................................................66
SECTION 7.01. Events of Default..............................................66
SECTION 7.02. Trustee to Act; Appointment of Successor.......................68
SECTION 7.03. Notification to Certificateholders.............................69
ARTICLE VIII CONCERNING THE TRUSTEE.........................................70
SECTION 8.01. Duties of Trustee..............................................70
SECTION 8.02 Certain Matters Affecting the Trustee..........................71
SECTION 8.03. Trustee Not Liable for Certificates or Loans...................73
SECTION 8.04. Trustee May Own Certificates...................................73
SECTION 8.05. Trustee's Fees and Expenses....................................73
SECTION 8.06. Eligibility Requirements for Trustee...........................74
SECTION 8.07. Resignation and Removal of Trustee.............................74
SECTION 8.08. Successor Trustee..............................................75
SECTION 8.09. Merger or Consolidation of Trustee.............................76
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee..................76
SECTION 8.11. Tax Matters....................................................77
SECTION 8.12. Periodic Filings...............................................79
SECTION 8.13. Appointment of Custodians......................................80
SECTION 8.14. Trustee May Enforce Claims Without Possession
of Certificates..............................................80
SECTION 8.15. Suits for Enforcement..........................................80
ARTICLE IX TERMINATION.......................................................80
SECTION 9.01. Termination upon Liquidation or Purchase of all Loans..........80
SECTION 9.02. Final Distribution on the Certificates.........................81
SECTION 9.03. Additional Termination Requirements............................82
ARTICLE X MISCELLANEOUS PROVISIONS...........................................83
SECTION 10.01. Amendment.....................................................83
SECTION 10.02. Recordation of Agreement; Counterparts........................85
SECTION 10.03. Governing Law.................................................85
SECTION 10.04. Intention of Parties..........................................85
SECTION 10.05. Notices.......................................................87
SECTION 10.06. Severability of Provisions....................................89
SECTION 10.07. Assignment....................................................89
SECTION 10.08. Limitation on Rights of Certificateholders....................89
SECTION 10.09. Inspection and Audit Rights...................................90
SECTION 10.10. Certificates Nonassessable and Fully Paid.....................90
SECTION 10.11. The Closing...................................................90
SECTION 10.12. Interpretation................................................90
SECTION 10.13. Rights of the Insurer.........................................91
SECTION 10.14. No Partnership................................................91
vii
<PAGE>
viii
<PAGE>
THIS POOLING AND SERVICING AGREEMENT, dated as of November 30, 1998, by and
among Equity One ABS, Inc., a Delaware corporation, as depositor (the
"Depositor"), Equity One, Inc., a Delaware corporation, as a seller (in such
capacity, "Equity One-Delaware") and as servicer (in such capacity, the
"Servicer"), Equity One, Incorporated, a Pennsylvania corporation ("Equity
One-Pennsylvania"), Equity One Mortgage Company, a North Carolina corporation
("Equity One-North Carolina"), Equity One Mortgage, Inc., a Delaware corporation
("Equity One-Florida"), Equity One, Inc., a Minnesota corporation ("Equity
One-Minnesota"), Equity One Consumer Loan Company, Inc., a New Hampshire
corporation ("Equity One-New Hampshire"), Equity One of West Virginia, Inc., a
West Virginia corporation ("Equity One-West Virginia"), Equity One Mortgage,
Inc., a New York corporation ("Equity One-New York" and, together with Equity
One-Delaware, Equity One-Pennsylvania, Equity One-North Carolina, Equity
One-Florida, Equity One-Minnesota, Equity One-New Hampshire and Equity One-West
Virginia, the "Sellers") and The Chase Manhattan Bank, a New York banking
corporation organized under the laws of the State of New York, as trustee (the
"Trustee").
WITNESSETH THAT
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
PRELIMINARY STATEMENT
The Depositor is the owner of the Trust Fund that is hereby conveyed to the
Trustee in return for the Certificates. The Trust Fund for federal income tax
purposes will consist of a single REMIC. The Certificates will represent the
entire beneficial ownership interest in the Trust Fund. The Class A Certificates
will represent the "regular interests" in the Trust Fund and the Class R
Certificates will represent the single "residual interest" in the Trust Fund.
The "latest possible maturity date" for federal income tax purposes of all
interests created hereby will be the Latest Possible Maturity Date.
The following table sets forth characteristics of the Certificates,
together with the minimum denominations and integral multiples in excess thereof
in which such Classes shall be issuable (except that one Certificate of each
Class of Certificates may be issued in a different amount and, in addition, one
Class R Certificate representing the Tax Matters Person Certificate may be
issued in a different amount):
<PAGE>
<TABLE>
<CAPTION>
Integral
Initial Class Multiples
Certificate Pass-Through Minimum in Excess of
Balance Rate (1) Denomination Minimum
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Class A-1 $100,027,563 6.70% $25,000 $1
Class A-2 $25,002,775 6.98% $25,000 $1
Class R $0 N/A $25,000 N/A
</TABLE>
(1) On any Distribution Date following the Call Option Date, the
Pass-Through Rate for the Class A-1 Certificates shall be 7.20% and the
Pass-Through Rate for the Class A-2 Certificates shall be 7.48%.
All interest rates set forth in this Agreement are calculated based on a
year consisting of twelve 30-day months (30/360).
2
<PAGE>
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
Adjusted Mortgage Rate: As to each Loan, and at any time, the per annum
rate equal to the Mortgage Rate less the Servicing Fee Rate.
Adjusted Net Mortgage Rate: As to each Loan, and at any time, the per annum
rate equal to the Mortgage Rate less the related Expense Rate.
Advance: The payment required to be made by the Servicer with respect to
any Distribution Date pursuant to Section 4.01, the amount of any such payment
being equal to the aggregate of payments of principal and interest (net of the
Servicing Fee) on the Loans that were due on such Loans' respective Due Dates in
the calendar month preceding the month of such Distribution Date and not
received as of the close of business on the Determination Date in the month of
such Distribution Date, less the aggregate amount of any such delinquent
payments that the Servicer, in its good faith judgment, has determined would not
be recoverable out of Insurance Proceeds, Liquidation Proceeds or otherwise.
Agreement: This Pooling and Servicing Agreement, together with all of the
exhibits and schedules hereto, and all amendments or supplements of any of the
foregoing.
Amount Held for Future Distribution: As to any Distribution Date and either
the Class A-1 or Class A-2 Certificates, the aggregate amount held in the
Certificate Account relating to the Applicable Group at the close of business on
the related Determination Date on account of (i) Principal Prepayments relating
to the Applicable Group received after the Prepayment Period corresponding to
such Distribution Date and Liquidation Proceeds relating to the Applicable Group
received in the month of such Distribution Date and (ii) all Scheduled Payments
due after the Applicable Group's Loans' respective Due Dates in the calendar
month preceding the month of such Distribution Date.
Applicable Group: Either the Group I Loans or the Group II Loans as the
case may be, but with respect to the Class A-1 Certificates, the Group I Loans,
and with respect to the Class A-2 Certificates, the Group II Loans.
Available Funds: As to any Distribution Date and either the Class A-1 or
Class A-2 Certificates, the sum of (a) the aggregate amount held in the
Certificate Account relating to the Applicable Group at the close of business on
the related Determination Date net of the Amount Held for Future Distribution
relating to the Applicable Group and net of amounts permitted to be withdrawn
from the Certificate Account pursuant to clauses (i)-(viii), inclusive, of
Section 3.08(a) relating to the Applicable Group and amounts permitted to be
withdrawn from
3
<PAGE>
the Distribution Account pursuant to clauses (i)-(iii) inclusive of Section
3.08(b) relating to the Applicable Group, (b) the amount of the related Advance,
if any, relating to the Applicable Group and (c) in connection with Defective
Loans, as applicable, the aggregate of the Purchase Prices and Substitution
Adjustment Amounts relating to the Applicable Group deposited in the
Distribution Account on the related Distribution Account Deposit Date.
Bankruptcy Code: The United States Bankruptcy Reform Act of 1978, as
amended, and related rules promulgated thereunder.
Beneficial Owner: With respect to any Book-Entry Certificate, the Person
who is the beneficial owner of such Book-Entry Certificate.
Book-Entry Certificates: The Class A Certificates.
Business Day: Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in New York City, or in the city where the chief
executive office of the Servicer is located, are authorized or obligated by law
or executive order to be closed.
Call Option Date: The first Distribution Date following the date on which
the Optional Termination may be exercised by the Servicer.
Certificates: The Class A Certificates and the Class R Certificates in
substantially the forms attached hereto as Exhibits A and B.
Certificate Account: The separate Eligible Account created and maintained
by the Servicer pursuant to Section 3.05 with a depository institution in the
name of the Servicer for the benefit of the Trustee on behalf of
Certificateholders and the Insurer and designated "Certificate Account, Equity
One, Inc., as trustee for the registered holders of Equity One ABS, Inc.,
Mortgage Pass-Through Certificates Series 1998-1."
Certificate Balance: With respect to any Class A Certificate at any time,
the maximum dollar amount of principal to which the Holder thereof is then
entitled hereunder, such amount being equal to the Denomination thereof minus
all distributions of principal previously made with respect thereto.
Certificate Formula Principal Amount: As to any Distribution Date and with
respect to either the Class A-1 Certificates or the Class A-2 Certificates, the
sum of (a) the principal portion of each Scheduled Payment due on each Loan in
the Applicable Group on such Loan's Due Date in the calendar month preceding the
month of such Distribution Date, (b) the Stated Principal Balance of each Loan
in the Applicable Group that was repurchased by a Seller or the Servicer
pursuant to this Agreement as of such Distribution Date, (c) the Substitution
Adjustment Amount in connection with any Deleted Loan from the Applicable Group
received with respect to such Distribution Date, (d) any Insurance Proceeds or
Liquidation Proceeds allocable to recoveries of principal of Loans in the
Applicable Group that are not yet Liquidated
4
<PAGE>
Loans received during the calendar month preceding the month of such
Distribution Date, (e) with respect to each Loan in the Applicable Group that
became a Liquidated Loan during the calendar month preceding the month of such
Distribution Date, the amount of Liquidation Proceeds allocable to principal
received during the calendar month preceding the month of such Distribution Date
with respect to such Loan, (f) all Principal Prepayments on Loans in the
Applicable Group received during the related Prepayment Period and (g) the
principal portion of any Loan Losses on Loans in the Applicable Group incurred
during the calendar month preceding the month of such Distribution Date.
Certificate Register: The register maintained pursuant to Section 5.02.
Certificate Registrar: The Chase Manhattan Bank and its successors and, if
a successor certificate registrar is appointed hereunder, such successor.
Certificateholder or Holder: The person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or any affiliate of the Depositor shall be deemed not to
be Outstanding and the Percentage Interest evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
necessary to effect such consent has been obtained; provided, however, that if
any such Person (including the Depositor) owns 100% of the Percentage Interests
evidenced by a Class of Certificates, such Certificates shall be deemed to be
Outstanding for purposes of any provision hereof that requires the consent of
the Holders of Certificates of a particular Class as a condition to the taking
of any action hereunder. The Trustee is entitled to rely conclusively on a
certification of the Depositor or any affiliate of the Depositor in determining
which Certificates are registered in the name of an affiliate of the Depositor.
Class: All Certificates bearing the same class designation as set forth in
the Preliminary Statement.
Class A Certificates: The certificates representing the "regular interests"
in the Trust Fund, which are designated as the Class A-1 and Class A-2
Certificates.
Class A-1 Available Funds Shortfall: As to any Distribution Date, the
amount, if any, by which the amount of Available Funds relating to the Class A-1
Certificates for such Distribution Date is less than the aggregate amount
required to be distributed to, or in respect of, the Class A-1 Certificates
pursuant to Section 4.02 (a)(i)-(v).
Class A-2 Available Funds Shortfall: As to any Distribution Date, the
amount, if any, by which the amount of Available Funds relating to the Class A-2
Certificates for such Distribution Date is less than the aggregate amount
required to be distributed to, or in respect of, the Class A-2 Certificates
pursuant to Section 4.02(b)(i)-(v).
5
<PAGE>
Class A-1 Distributable Funds : The sum of (i) the amount of Available
Funds relating to the Class A-1 Certificates, (ii) any Spread Account Draw for
the Class A-1 Certificates, (iii) any Insured Amounts for the Class A-1
Certificates and (iv) any Cross-Collateralization Amount for the Class A-1
Certificates.
Class A-2 Distributable Funds : The sum of (i) the amount of Available
Funds relating to the Class A-2 Certificates, (ii) any Spread Account Draw for
the Class A-2 Certificates, (iii) any Insured Amounts for the Class A-2
Certificates and (iv) any Cross-Collateralization Amount for the Class A-2
Certificates
Class A-1 Monthly Spread Account Deposit Amount: On any Distribution Date,
the amount equal to the product of (i) 100% and (ii) the amount of the Class A-1
Spread Account Deposit Amount as of such Distribution Date; provided, however,
that the percentage set forth in clause (i) above may be reduced, solely at the
discretion of the Insurer, at which time written notice shall be sent to each
Seller, the Trustee, the Servicer, S&P and Moody's.
Class A-2 Monthly Spread Account Deposit Amount: On any Distribution Date,
the amount equal to the product of (i) 100% and (ii) the amount of the Class A-2
Spread Account Deposit Amount as of such Distribution Date; provided, however,
that the percentage set forth in clause (i) above may be reduced, solely at the
discretion of the Insurer, at which time written notice shall be sent to each
Seller, the Trustee, the Servicer, S&P and Moody's.
Class A-1 Spread Account Deposit Amount: As to any Distribution Date, the
amount by which (A) Class A-1 Distributable Funds exceeds (B) the sum of the
amounts distributed pursuant to Section 4.02(a)(i)-(vii).
Class A-2 Spread Account Deposit Amount: As to any Distribution Date, the
amount by which (A) Class A-2 Distributable Funds exceeds (B) the sum of the
amounts distributed pursuant to Section 4.02(b)(i)-(vii).
Class R Certificates: The certificates representing the single "residual
interest" in the Trust Fund.
Class Certificate Balance: With respect to any Class of Class A
Certificates and as to any Distribution Date, the aggregate of the Certificate
Balances of all Certificates of such Class as of such date. The Class
Certificate Balance of the Class R Certificates shall be zero.
Class Interest Shortfall: As to any Distribution Date and Class of Class A
Certificates, the amount by which the amount described in clause (i) of the
definition of Interest Distribution Amount for such Class exceeds the amount of
interest actually distributed on such Class on such Distribution Date pursuant
to such clause (i).
Class Unpaid Interest Amounts: As to any Distribution Date and any Class of
Class A Certificates, the amount by which the aggregate Class Interest
Shortfalls for such Class
6
<PAGE>
on prior Distribution Dates exceeds the amount distributed on such Class on
prior Distribution Dates pursuant to clause (ii) of the definition of Interest
Distribution Amount.
Closing Date: December 9, 1998.
Closing Place: The offices of Messrs. Stradley, Ronon, Stevens and Young,
LLP, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103.
Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.
Collateral Value: With respect to any Loan, other than Refinance Loans, an
amount equal to the lesser of (a) the appraised value of the related Mortgaged
Property based on an appraisal obtained by the originator from an independent
fee appraiser at the time of the origination of such Loan, and (b) if the Loan
was originated either in connection with the acquisition of the Mortgaged
Property by the borrower or within one year after acquisition of the Mortgaged
Property by the borrower, the purchase price paid by such borrower for the
Mortgaged Property. In the case of Refinance Loans, the Collateral Value is the
appraised value of the Mortgaged Property based upon the appraisal obtained at
the time of refinancing.
Combined Loan-to-Value Ratio: With respect to any Loan and as to any date
of determination, the fraction, expressed as a percentage, the numerator of
which is the principal balance of such Loan at the date of origination plus, in
the case of a Second Lien Loan, the outstanding principal balance of the related
first lien mortgage loan on the date of origination of such Second Lien Loan,
and the denominator of which is the Collateral Value of the related Mortgaged
Property.
Corporate Trust Office: The designated office of the Trustee in the State
of New York at which at any particular time its corporate trust business with
respect to this Agreement shall be administered, which office at the date of the
execution of this Agreement is located at 450 West 33rd Street, 15th Floor, New
York, New York 10001 (Attention: Structured Finance Services (ABS), facsimile
number: 212-946-8191) and which is the address to which notices to and
correspondence with the Trustee should be directed.
Cross-Collateralization Amount: As to any Distribution Date and the Class
A-1 or Class A-2 Certificates, the amount to be transferred by the Trustee
pursuant to Section 4.02(b)(vi) or Section 4.02(a)(vi), respectively.
Custodial Agreement: As defined in Section 8.12.
Custodian: As defined in Section 8.12.
Cut-off Date: November 30, 1998.
7
<PAGE>
Cut-Off Date Group I Principal Balance: $100,027,563.57.
Cut-Off Date Group II Principal Balance: $25,002,775.06.
Cut-off Date Pool Principal Balance: $125,030,338.63.
Cut-off Date Principal Balance: As to any Loan, the Stated Principal
Balance thereof as of the close of business on the Cut-off Date.
Defective Loan: Any Loan which is required to be repurchased pursuant to
Section 2.02 or 2.03.
Definitive Certificates: Any Certificate issued in lieu of a Book-Entry
Certificate pursuant to Section 5.02(e).
Deleted Loan: As defined in Section 2.03(c).
Denomination: With respect to each Class A Certificate, the amount set
forth on the face thereof as the "Initial Certificate Balance of this
Certificate" or the Percentage Interest appearing on the face thereof.
Depositor: Equity One ABS, Inc., a Delaware corporation, or its successor
in interest.
Depository: The initial Depository shall be The Depository Trust Company,
the nominee of which is CEDE & Co., as the registered Holder of the Book-Entry
Certificates. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(3) of the Uniform Commercial Code of the State of New
York.
Depository Participant: A broker, dealer, bank or other financial
institution or other Person for whom from time to time a Depository effects
book-entry transfers and pledges of securities deposited with the Depository.
Determination Date: As to any Distribution Date, the 21st day of each month
or, if such day is not a Business Day, the next preceding Business Day;
provided, however, that the Determination Date in each month will be at least
two Business Days preceding the related Distribution Date.
Distribution Account: The separate Eligible Account created and maintained
by the Trustee pursuant to Section 3.05 in the name of the Trustee for the
benefit of the Certificateholders and the Insurer and designated "Distribution
Account, The Chase Manhattan Bank, as trustee for the registered holders of
Equity One ABS, Inc. Mortgage Pass-Through Certificates, Series 1998-1." Funds
in the Distribution Account shall be held uninvested in trust for the
Certificateholders and the Insurer for the uses and purposes set forth in this
Agreement.
8
<PAGE>
Distribution Account Deposit Date: As to any Distribution Date, 9:00 a.m.
New York City Time on the Business Day immediately preceding such Distribution
Date.
Distribution Date: The 25th day of each calendar month after the initial
issuance of the Certificates, or if such day is not a Business Day, the next
succeeding Business Day, commencing in January, 1999.
Due Date: With respect to any Loan, the date on which scheduled payments of
interest and/or principal are due thereon, which date is a set day, but not
necessarily the first day, of each month.
Eligible Account: Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company, the
short-term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company) have the highest
short-term ratings of each Rating Agency at the time any amounts are held on
deposit therein, or (ii) an account or accounts in a depository institution or
trust company in which such accounts are insured by the FDIC (to the limits
established by the FDIC) and the uninsured deposits in which accounts are
otherwise secured such that, as evidenced by an Opinion of Counsel delivered to
the Trustee and to each Rating Agency, the Certificateholders have a claim with
respect to the funds in such account or a perfected first priority security
interest against any collateral (which shall be limited to Permitted
Investments) securing such funds that is superior to claims of any other
depositors or creditors of the depository institution or trust company in which
such account is maintained, or (iii) a trust account or accounts maintained with
(a) the trust department of a federal or state chartered depository institution
or (b) a trust company, acting in its fiduciary capacity or (iv) any other
account acceptable to each Rating Agency and the Insurer, as evidenced by a
letter from such Rating Agency and Insurer to the Trustee, without reduction or
withdrawal of the then current ratings of the Certificates. Eligible Accounts
may bear interest, and may include, if otherwise qualified under this
definition, accounts maintained with the Trustee.
Equity One-Delaware: Equity One, Inc., a Delaware corporation.
Equity One-Florida: Equity One Mortgage, Inc., a Delaware corporation.
Equity One-Minnesota: Equity One, Inc., a Minnesota corporation.
Equity One-New Hampshire: Equity One Consumer Loan Company, Inc., a New
Hampshire corporation.
Equity One-New York: Equity One Mortgage, Inc., a New York corporation.
9
<PAGE>
Equity One-North Carolina: Equity One Mortgage Company, a North Carolina
corporation.
Equity One-Pennsylvania: Equity One, Incorporated, a Pennsylvania
corporation.
Equity One-West Virginia: Equity One of West Virginia, Inc., a West
Virginia corporation.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
Escrow Account: The Eligible Account or Eligible Accounts established and
maintained by the Servicer pursuant to Section 3.06(a).
Event of Default: As defined in Section 7.01.
Excess Proceeds: With respect to any Liquidated Loan, the amount, if any,
by which the sum of any Liquidation Proceeds of such Loan received in the
calendar month in which such Loan became a Liquidated Loan, net of any amounts
previously reimbursed to the Servicer as Nonrecoverable Advance(s) with respect
to such Loan pursuant to Section 3.08(a)(iii), exceeds (i) the unpaid principal
balance of such Liquidated Loan as of the Due Date in the calendar month in
which such Loan became a Liquidated Loan plus (ii) accrued interest at the
Mortgage Rate from the Due Date as to which interest was last paid or advanced
(and not reimbursed) to Certificateholders up to the Due Date in the calendar
month in which such Loan became a Liquidated Loan.
Expense Rate: As to each Loan, the sum of the related Servicing Fee Rate,
the Trustee Fee Rate and the rate at which the Insurer's Monthly Premium
accrues.
FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.
FHLMC: The 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.
FIRREA: The Financial Institutions Reform, Recovery, and Enforcement Act of
1989.
FNMA: Fannie Mae, a federally chartered and privately owned corporation
organized and existing under the Federal National Mortgage Association Charter
Act, or any successor thereto.
Group: Either the Group I Loans or the Group II Loans, as the case may be.
Group I Loans: The mortgage loans identified as such on the Loan Schedule.
10
<PAGE>
Group II Loans: The mortgage loans identified as such on the Loan Schedule.
Group Principal Balance: With respect to any Distribution Date and either
the Group I Loans or the Group II Loans, the aggregate of the Stated Principal
Balances of the Loans in such Group that were Outstanding Loans (including Loans
in foreclosure and REO Properties) on their Due Dates in the calendar month
preceding the month of such Distribution Date.
I&I Payments: Any payments due and owing to the Insurer under the Insurance
Agreement other than the Insurer's Monthly Premium.
Indirect Participant: A broker, dealer, bank or other financial institution
or other Person that clears through or maintains a custodial relationship with a
Depository Participant.
Insurance Agreement: The Insurance and Indemnity Agreement dated as of
December 9, 1998 among the Depositor, Equity One-Delaware (in its capacity as
both a Seller and the Servicer), the Trustee and the Insurer, including any
amendments and supplements thereto.
Insurance Policy: With respect to any Loan included in the Trust Fund, any
insurance policy, including all riders and endorsements thereto in effect,
including any replacement policy or policies for any Insurance Policies.
Insurance Proceeds: Proceeds paid by an insurer (other than the Insurer)
pursuant to any Insurance Policy, in each case other than any amount included in
such Insurance Proceeds in respect of Insured Expenses.
Insured Amount: A payment by the Insurer under the Policy.
Insured Expenses: Expenses covered by an Insurance Policy.
Insurer: Ambac Assurance Corporation, a stock insurance company organized
and created under the laws of the State of Wisconsin, and any successor thereto.
Insurer Default: Either (i) a continuance of any failure by the Insurer to
make a required payment under the Policy or (ii) the existence of a proceeding
in bankruptcy by or against the Insurer.
Insurer's Monthly Premium: The premium payable to the Insurer on each
Distribution Date in an amount equal to one-twelfth of the product of the per
annum rate specified in the Insurance Agreement and the aggregate Certificate
Balance of the Class A Certificates on each Distribution Date (after giving
effect to any distributions of principal to be made on the Certificates on such
Distribution Date).
11
<PAGE>
Interest Accrual Period: With respect to the Class A Certificates and any
Distribution Date, the calendar month prior to the month of such Distribution
Date.
Interest Distribution Amount: With respect to any Distribution Date and any
Class of Class A Certificates, the sum of (i) interest accrued during the
related Interest Accrual Period at the Pass-Through Rate for such Class on the
related Class Certificate Balance and (ii) any Class Unpaid Interest Amounts for
such Class.
Investment Letter: As defined in Section 5.02(b).
Latest Possible Maturity Date: The Distribution Date following the third
anniversary of the scheduled maturity date of the Loan having the latest
scheduled maturity date as of the Cut-off Date.
Liquidated Loan: With respect to any Distribution Date, a defaulted Loan
(including any REO Property) that was liquidated in a calendar month preceding
the month of such Distribution Date and as to which the Servicer has determined
(in accordance with this Agreement) that it has received all amounts it expects
to receive in connection with the liquidation of such Loan, including the final
disposition of an REO Property.
Liquidation Proceeds: Amounts, including Insurance Proceeds, received in
connection with the partial or complete liquidation of defaulted Loans, whether
through trustee's sale, foreclosure sale or otherwise or amounts received in
connection with any condemnation or partial release of a Mortgaged Property and
any other proceeds received in connection with an REO Property, less the
Servicing Amount applicable to such defaulted Loans.
Loan Losses: The aggregate amount, if any, by which (i) the outstanding
principal balance of each Loan that became a Liquidated Loan during the calendar
month preceding the month of the related Distribution Date (such principal
balance determined immediately before such Loan became a Liquidated Loan)
exceeds (ii) the Liquidation Proceeds allocable to principal received during the
calendar month preceding the month of the related Distribution Date in
connection with the liquidation of such Loan which have not theretofore been
used to reduce the Stated Principal Balance of such Loan.
Loans: Group I and Group II Loans, collectively.
Loan Schedule: The list of Group I Loans and Group II Loans (as from time
to time amended by the Servicer to reflect the addition of Substitute Loans to
the Applicable Group and the deletion of Deleted Loans from the Applicable Group
pursuant to the provisions of this Agreement) transferred to the Trustee as part
of the Trust Fund and from time to time subject to this Agreement, attached
hereto as Schedule I, setting forth the following information with respect to
each Loan:
(i) the loan number;
12
<PAGE>
(ii) the Mortgagor's name and the state in which the Mortgaged Property
is located, including the zip code;
(iii) the maturity date;
(iv) the Cut-off Date Principal Balance;
(v) the first payment date of the Loan;
(vi) lien position (either first or second);
(vii) the Scheduled Payment in effect as of the Cut-off Date;
(viii) the Mortgage Rate; and
(ix) for Group I Loans only, the principal balance of the Loan at
origination.
Such schedule shall also set forth the total of the amounts described under
(iv) above for the Group I Loans, the Group II Loans and all of the Loans.
Majority in Interest: As to any Class of Class A Certificates, the Holders
of Certificates of such Class evidencing, in the aggregate, at least 51% of the
Percentage Interests evidenced by all Certificates of such Class.
Monthly Statement: The statement delivered to the Certificateholders
pursuant to Section 4.03.
Moody's: Moody's Investors Service, Inc., or any successor thereto. For
purposes of Section 10.05(b) the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Residential Mortgage Monitoring Department, or such other address as Moody's may
hereafter furnish to the Depositor or the Servicer.
Mortgage: The mortgage, deed of trust or other instrument creating a first
or second lien on an estate in fee simple or leasehold interest in real property
securing a Mortgage Note.
Mortgage File: The mortgage documents listed in Section 2.01 hereof
pertaining to a particular Loan and any additional documents delivered to the
Trustee to be added to the Mortgage File pursuant to this Agreement.
13
<PAGE>
Mortgage Note: The original executed note or other evidence of indebtedness
evidencing the indebtedness of a Mortgagor under a Loan, together with any
amendment or modification thereto.
Mortgage Rate: The annual rate of interest borne by a Mortgage Note as set
forth therein.
Mortgaged Property: The underlying property securing a Loan.
Mortgagor: The obligor(s) on a Mortgage Note.
Net Available Funds: As to any Distribution Date and either the Class A-1
or Class A-2 Certificates, the amount equal to Available Funds for such Class
less the amounts required to be distributed on such Distribution Date pursuant
to Section 4.02(a)(i)-(iii) or 4.02(b)(i)-(iii), respectively.
Net Prepayment Interest Shortfalls: As to any Distribution Date, the amount
by which the aggregate of Prepayment Interest Shortfalls during the calendar
month preceding the month of such Distribution Date exceeds an amount equal to
the aggregate Servicing Fee for such Distribution Date before reduction of the
Servicing Fee in respect of such Prepayment Interest Shortfalls.
Nonrecoverable Advance: Any portion of an Advance previously made or
proposed to be made by the Servicer that, in the good faith judgment of the
Servicer, will not be ultimately recoverable by the Servicer from the related
Mortgagor, related Liquidation Proceeds or otherwise.
Notice: As defined in Section 3A.02.
Notice of Final Distribution: The notice to be provided pursuant to Section
9.02 to the effect that final distribution on any of the Certificates shall be
made only upon presentation and surrender thereof.
Officer's Certificate: A certificate (i) signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Managing Director, a
Vice President (however denominated), an Assistant Vice President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Servicer, or (ii), if provided for in this
Agreement, signed by a Servicing Officer, as the case may be, and delivered to
the Depositor and the Trustee, as the case may be, as required by this
Agreement.
Opinion of Counsel: A written opinion of counsel, who may be counsel for
the Depositor or the Servicer, including, in-house counsel, reasonably
acceptable to the Trustee and the Insurer; provided, however, that with respect
to the interpretation or application of the REMIC Provisions, such counsel must
(i) in fact be independent of the Depositor and the
14
<PAGE>
Servicer, (ii) not have any direct financial interest in the Depositor or the
Servicer or in any affiliate of either, and (iii) not be connected with the
Depositor or the Servicer as an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions.
Optional Termination: The termination of the trust created hereunder in
connection with the purchase of the Loans pursuant to Section 9.01(a) hereof.
Original Loan: The mortgage loan refinanced in connection with the
origination of a Refinance Loan.
OTS: The Office of Thrift Supervision.
Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:
(i) Certificates theretofore canceled by the Trustee or delivered to the
Trustee for cancellation; and
(ii) Certificates in exchange for which or in lieu of which other
Certificates have been executed and delivered by the Trustee pursuant to this
Agreement.
Outstanding Loan: As of any Due Date, a Loan with a Stated Principal
Balance greater than zero, which was not the subject of a Principal Prepayment
in Full prior to such Due Date and which did not become a Liquidated Loan prior
to such Due Date.
Ownership Interest: As to any Class R Certificate, any ownership interest
in such Certificate including any interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial.
Pass-Through Rate: For the Class A Certificates, the per annum rates set
forth or calculated in the manner described in the Preliminary Statement.
Paying Agent: The Chase Manhattan Bank and its successors and, if a
successor paying agent is appointed hereunder, such successor.
Percentage Interest: As to any Class A Certificate, the percentage interest
evidenced thereby in distributions required to be made on the related Class,
such percentage interest being set forth on the face thereof or equal to the
percentage obtained by dividing the Denomination of such Certificate by the
aggregate of the Denominations of all Certificates of the same Class.
Permitted Investments: (i) obligations of the United States or any agency
thereof, provided such obligations are backed by the full faith and credit of
the United States;
15
<PAGE>
(ii) general obligations of or obligations guaranteed by any state of the United
States or the District of Columbia receiving the highest long-term debt rating
of each Rating Agency rating the Class A Certificates, or such lower rating as
will not result in the downgrading or withdrawal of the ratings then assigned to
the Class A Certificates, without taking into account the Policy, by each such
Rating Agency; (iii) commercial or finance company paper which is then receiving
the highest commercial or finance company paper rating of each such Rating
Agency, or such lower rating as will not result in the downgrading or withdrawal
of the ratings then assigned to the Class A Certificates, without taking into
account the Policy, by each such Rating Agency; (iv) certificates of deposit,
demand or time deposits, or bankers' acceptances issued by any depository
institution or trust company incorporated under the laws of the United States or
of any state thereof and subject to supervision and examination by federal
and/or state banking authorities, provided that the commercial paper and/or long
term unsecured debt obligations of such depository institution or trust company
(or in the case of the principal depository institution in a holding company
system, the commercial paper or long-term unsecured debt obligations of such
holding company, but only if Moody's is not a Rating Agency) are then rated the
highest long-term and one of the two highest short-term ratings of each such
Rating Agency for such securities, or such lower ratings as will not result in
the downgrading or withdrawal of the rating then assigned to the Class A
Certificates, without taking into account the Policy, by any such Rating Agency;
(v) demand or time deposits or certificates of deposit issued by any bank or
trust company or savings institution to the extent that such deposits are fully
insured by the FDIC; (vi) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation containing, at the time of the issuance
of such agreements, such terms and conditions as will not result in the
downgrading or withdrawal of the rating then assigned to the Class A
Certificates, without taking into account the Policy, by any such Rating Agency;
(vii) repurchase obligations with respect to any security described in clauses
(i) and (ii) above, in either case entered into with a depository institution or
trust company (acting as principal) described in clause (iv) above; (viii)
securities (other than stripped bonds, stripped coupons or instruments sold at a
purchase price in excess of 115% of the face amount thereof) bearing interest or
sold at a discount issued by any corporation incorporated under the laws of the
United States or any state thereof which, at the time of such investment, have
the highest long term rating and one of the two highest short term ratings of
each Rating Agency (except if the Rating Agency is Moody's, such rating shall be
the highest commercial paper rating of Moody's for any such securities), or such
lower rating as will not result in the downgrading or withdrawal of the rating
then assigned to the Class A Certificates, without taking into account the
Policy, by any such Rating Agency, as evidenced by a signed writing delivered by
each such Rating Agency; and (ix) such other investments having a specified
stated maturity and bearing interest or sold at a discount acceptable to each
Rating Agency and the Insurer as will not result in the downgrading or
withdrawal of the rating then assigned to the Class A Certificates by any such
Rating Agency, as evidenced by a signed writing to such effect delivered by each
such Rating Agency and the Insurer; provided that no such instrument shall be a
Permitted Investment if such instrument evidences the right to receive interest
only payments with respect to the obligations underlying such instrument.
Permitted Transferee: Any person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a
16
<PAGE>
foreign government, International Organization or any agency or instrumentality
of either of the foregoing, (iii) an organization (except certain farmers'
cooperatives described in section 521 of the Code) which is exempt from tax
imposed by Chapter 1 of the Code (including the tax imposed by section 511 of
the Code on unrelated business taxable income) on any excess inclusions (as
defined in section 860E(c)(l) of the Code) with respect to any Class R
Certificate, (iv) rural electric and telephone cooperatives described in section
1381(a)(2)(C) of the Code, (v) a Person that is not a citizen or resident of the
United States, a corporation, partnership, or other entity created or organized
in or under the laws of the United States or any political subdivision thereof,
or an estate whose income from sources without the United States is includible
in gross income for United States federal income tax purposes regardless of its
connection with the conduct of a trade or business within the United States, or
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
Persons have authority to control all substantial decisions of the trust, unless
such Person has furnished the transferor and the Trustee with a duly completed
Internal Revenue Service Form 4224 and (vi) any other Person so designated by
the Depositor based upon an Opinion of Counsel that the Transfer of an Ownership
Interest in a Class R Certificate to such Person may cause the REMIC hereunder
to fail to qualify as a REMIC at any time that the Certificates are outstanding.
The terms "United States," "State" and "International Organization" shall have
the meanings set forth in section 7701 of the Code or successor provisions. A
corporation will not be treated as an instrumentality of the United States or of
any State or political subdivision thereof for these purposes if all of its
activities are subject to tax and, with the exception of the Federal Home Loan
Mortgage Corporation, a majority of its board of directors is not selected by
such government unit.
Person: Any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government, or any agency or political subdivision thereof.
Policy: The Certificate Guaranty Insurance Policy (No. AB0204BE) with
respect to the Class A Certificates, and all endorsements thereto dated the
Closing Date, issued by the Insurer for the benefit of the Holders of each Class
of Class A Certificates, a copy of which is attached hereto as Exhibit K.
Pool Principal Balance: The sum of the Group Principal Balances for the
Group I Loans and the Group II Loans.
Preference Claim: As defined in Section 3A.02(e).
Prepayment Interest Excess: As to any Principal Prepayment received by the
Servicer from the first day through the fifteenth day of any calendar month
beginning in January, 1999, all amounts paid by the related Mortgagor in respect
of interest on such Principal Prepayment. All Prepayment Interest Excess shall
be paid to the Servicer as additional servicing compensation.
17
<PAGE>
Prepayment Interest Shortfall: As to any Distribution Date and any
Principal Prepayment received on or after the sixteenth day of the month
preceding the month of such Distribution Date (or, in the case of the first
Distribution Date, on or after the Cut-off Date) and on or before the last day
of the month preceding the month of such Distribution Date, the amount, if any,
by which one month's interest at the related Mortgage Rate on such Principal
Prepayment, net of the Servicing Fee Rate, exceeds the amount of interest paid
in connection with such Principal Prepayment.
Prepayment Period: As to any Distribution Date, the period from the 16th
day of the calendar month preceding the month of such Distribution Date (or, in
the case of the first Distribution Date, from the Cut-off Date) through the 15th
day of the month of such Distribution Date.
Primary Mortgage Insurance Policy: Each policy of primary mortgage guaranty
insurance or any replacement policy therefor with respect to any Loan.
Principal Prepayment: Any payment of principal by a Mortgagor on a Loan
that is received in advance of its scheduled Due Date and is not accompanied by
an amount representing scheduled interest due on any date or dates in any month
or months subsequent to the month of prepayment. Partial Principal Prepayments
shall be applied by the Servicer in accordance with the terms of the related
Mortgage Note.
Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor
of the entire principal balance of a Loan.
Prospectus Supplement: The Prospectus Supplement dated December 4, 1998
relating to the Class A Certificates.
Purchase Price: With respect to any Loan required to be repurchased by a
Seller pursuant to Section 2.02 or 2.03 hereof or purchased at the option of the
Servicer pursuant to Section 3.11 hereof, an amount equal to the sum of (i) 100%
of the Stated Principal Balance of the Loan on the date of such purchase, and
(ii) accrued interest thereon at the applicable Mortgage Rate (or at the
applicable Adjusted Mortgage Rate if (x) the purchaser is the Servicer or (y)
the purchaser is a Seller and Equity One-Delaware is the Servicer) from the date
through which interest was last paid by the Mortgagor or advanced (and not
reimbursed) by the Servicer to the Determination Date in the month in which the
Purchase Price is to be distributed to Certificateholders.
PTCE 95-60: As defined in Section 5.02(b).
Qualified Insurer: A mortgage guaranty insurance company duly qualified as
such under the laws of the state of its principal place of business and each
state having jurisdiction over such insurer in connection with the insurance
policy issued by such insurer, duly authorized and licensed in such states to
transact a mortgage guaranty insurance business in
18
<PAGE>
such states and to write the insurance provided by the insurance policy issued
by it, approved as a FNMA-approved mortgage insurer and having a claims paying
ability rating of at least "AA" or equivalent rating by a nationally recognized
statistical rating organization. Any replacement insurer with respect to a Loan
must have at least as high a claims paying ability rating as the insurer it
replaces had on the Closing Date.
Rating Agency: Moody's and S&P. If either organization or a successor
thereof is no longer in existence, "Rating Agency" shall be such nationally
recognized statistical rating organization, or other comparable Person, as is
designated by the Depositor with the consent of the Insurer, notice of which
designation shall be given to the Trustee. References herein to a given rating
category of a Rating Agency shall mean such rating category without giving
effect to any modifiers.
Record Date: With respect to any Distribution Date for so long as the Class
A Certificates are not Definitive Certificates, the close of business on the
Business Day immediately preceding such Distribution Date. With respect to any
Distribution Date on which any Definitive Certificates are outstanding, the last
Business Day of the calendar month immediately preceding such Distribution Date.
Refinance Loan: Any Loan originated for the purpose of refinancing an
existing mortgage loan.
Relief Act: The Soldiers' and Sailors' Civil Relief Act of 1940, as
amended.
Relief Act Reductions: With respect to any Distribution Date and any Loan
as to which there has been a reduction in the amount of interest collectible
thereon for the most recently ended calendar month as a result of the
application of the Relief Act, the amount, if any, by which (i) interest
collectible on such Loan for the most recently ended calendar month is less than
(ii) interest accrued thereon for such month pursuant to the Mortgage Note
without taking into account the application of the Relief Act.
REMIC: A "real estate mortgage investment conduit" within the meaning of
section 860D of the Code.
REMIC Change of Law: Any proposed, temporary or final regulation, revenue
ruling, revenue procedure or other official announcement or interpretation
relating to REMICs and the REMIC Provisions issued after the Closing Date.
REMIC Provisions: Provisions of the federal income tax law relating to real
estate mortgage investment conduits, which appear at sections 860A through 860G
of Subchapter M of Chapter 1 of the Code, and related provisions, and
regulations promulgated thereunder, as the foregoing may be in effect from time
to time, as well as provisions of applicable state laws.
19
<PAGE>
Remittance Amount: As to any Distribution Date and either the Class A-1
Certificates or the Class A-2 Certificates, the sum of the Interest Distribution
Amount for such Class and the Certificate Formula Principal Amount for such
Class for such Distribution Date.
REO Property: A Mortgaged Property acquired by the Trust Fund through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted Loan.
Request for Release: The Request for Release submitted by the Servicer to
the Trustee, substantially in the form of Exhibit J.
Required Insurance Policy: With respect to any Loan, any insurance policy
that is required to be maintained from time to time under this Agreement.
Responsible Officer: When used with respect to the Trustee, any officer
assigned to the Corporate Trust Division of the Trustee (or any successor
thereto), including any Vice President, any Assistant Vice President, the
Secretary, any Assistant Secretary, any Trust Officer or any other officer of
the Trustee customarily performing functions similar to those performed by any
of the above designated officers and having direct responsibility for the
administration of this Agreement.
Rule 144A Letter: As defined in Section 5.02(b).
Scheduled Payment: The scheduled monthly payment on a Loan due on any Due
Date allocable to principal and/or interest on such Loan.
Second Lien Loan: Any Loan secured by a mortgage that is second in lien
priority.
Securities Act: The Securities Act of 1933, as amended.
Sellers: Collectively, the following corporations, their successors and
assigns, each in its capacity as a Seller of the Loans to the Depositor: Equity
One-Delaware; Equity One-Florida; Equity One-Minnesota; Equity One-New
Hampshire; Equity One-New York; Equity One-Pennsylvania; Equity One-North
Carolina; and Equity One-West Virginia.
Servicer: Equity One, Inc., a Delaware corporation, and its successors and
assigns, in its capacity as servicer hereunder.
Servicer Advance Date: As to any Distribution Date, the third Business Day
following the end of the related Prepayment Period.
Servicing Advances: All customary, reasonable and necessary "out of pocket"
costs and expenses incurred in the performance by the Servicer of its servicing
obligations, including, but not limited to, the cost of (i) the preservation,
restoration and protection of a
20
<PAGE>
Mortgaged Property, (ii) the foreclosure, trustee's sale, or other liquidation
of any Mortgage or Mortgaged Property, (iii) any expenses reimbursable to the
Servicer pursuant to Section 3.11 and any enforcement or judicial proceedings,
including foreclosures, (iv) the management and liquidation of any REO Property,
(v) compliance with the obligations described in Section 3.06 and (vi) any
payments made by the Servicer pursuant to Section 3.09.
Servicing Amount: The sum of (i) the Servicing Fee, (ii) unreimbursed
Advances and (iii) unreimbursed Servicing Advances.
Servicing Fee: As to each Loan and any Distribution Date, an amount payable
out of each full payment of interest received on such Loan and equal to
one-twelfth of the Servicing Fee Rate multiplied by the Stated Principal Balance
of such Loan as of the Due Date in the month of such Distribution Date (prior to
giving effect to any Scheduled Payments due on such Loan on such Due Date),
subject to reduction as provided in Section 3.14.
Servicing Fee Rate: With respect to each Loan, 0.5% per annum.
Servicing Officer: Any officer of the Servicer involved in, or responsible
for, the administration and servicing of the Loans whose name and facsimile
signature appear on a list of servicing officers furnished to the Trustee (with
a copy to the Insurer) by the Servicer on the Closing Date pursuant to this
Agreement, as such list may from time to time be amended.
S&P: Standard & Poor's, a division of The McGraw-Hill Companies, Inc. For
purposes of Section 10.05(b) the address for notices to S&P shall be Standard &
Poor's, 26 Broadway, 15th Floor, New York, New York 10004, Attention:
Residential Mortgage Surveillance, or such other address as S&P may hereafter
furnish to the Depositor and the Servicer.
Specified Spread Account Requirement: As of:
(x) any date on or prior to the Step-Down Date, the greatest of (a)
$3,000,728.13 (2.40% times the Cut-off Date Pool Principal Balance); (b) the
greatest of (1) the sum of the principal balances of the three largest Loans as
of such date; (2) 0.50% times the Cut-off Date Pool Principal Balance; and (3)
40% times the aggregate principal balance of all Loans that are balloon loans,
as described in the Prospectus Supplement, with original terms of less than 36
months and (c) two times the excess of (i) one-half the aggregate principal
balance of the Loans which are 90 or more days delinquent (including Loans in
foreclosure and REO Properties) over (ii) five times the sum of the Class A-1
Monthly Spread Account Deposit Amount and the Class A-2 Monthly Spread Account
Deposit Amount as of such Distribution Date; and
(y) any date after the Step-Down Date, the greatest of (a) the lesser of (A)
$3,000,728.13 (2.40% times the Cut-off Date Pool Principal Balance) and (B)
4.80% times the outstanding Pool Principal Balance as of such date; (b) the
greatest of (1) the sum of the principal balances of the three largest Loans as
of such date; (2) 0.50% times the Cut-off Date Pool Principal Balance; and
21
<PAGE>
(3) 40% times the aggregate principal balance of all Loans that are balloon
loans, as described in the Prospectus Supplement, with original terms of less
than 36 months; and (c) two times the excess of (i) one-half the aggregate
principal balance of the Loans which are 90 or more days delinquent (including
Loans in foreclosure and REO Properties) over (ii) five times the sum of the
Class A-1 Monthly Spread Account Deposit Amount and the Class A-2 Monthly Spread
Account Deposit Amount as of such Distribution Date.
Spread Account: The separate Eligible Account or Accounts created and
maintained by the Trustee pursuant to Section 3A.01 in the name of the Trustee
for the benefit of the Insurer and the Certificateholders and designated "Spread
Account, The Chase Manhattan Bank, as trustee for the registered holders of
Equity One ABS, Inc. Mortgage Pass-Through Certificates, Series 1998-1." Funds
in the Spread Account shall be held in trust for the Insurer and the
Certificateholders for the uses and purposes set forth in this Agreement.
Spread Account Draw: As defined in Section 3A.01(b)(i).
Spread Account Excess: As to any Distribution Date, any amount in the
Spread Account in excess of the Specified Spread Account Requirement.
Startup Day: The Closing Date.
Stated Principal Balance: As to any Loan, the unpaid principal balance of
such Loan as of its most recent Due Date as specified in the amortization
schedule at the time relating thereto (before any adjustment to such
amortization schedule by reason of any moratorium or similar waiver or grace
period) after giving effect to any previous partial Principal Prepayments and
Liquidation Proceeds allocable to principal (other than with respect to any
Liquidated Loan) and to the payment of principal due on such Due Date and
irrespective of any delinquency in payment by the related Mortgagor.
Step-down Date: The Distribution Date occurring on the later of (a) the
thirtieth Distribution Date or (b) the date upon which the outstanding Pool
Principal Balance is less than 50% of the Cut-off Date Pool Principal Balance.
Streamlined Documentation Loan: Any Loan originated pursuant to the
Seller's no income verification loan documentation program.
Subservicer: Any person to whom the Servicer has contracted for the
servicing of all or a portion of the Loans pursuant to Section 3.02.
Substitute Loan: A Loan substituted by a Seller for a Deleted Loan(s) which
must, on the date of such substitution, as confirmed in a Request for Release,
substantially in the form of Exhibit J, (i) have a Stated Principal Balance not
in excess of, and not more than 10% less than, the Stated Principal Balance(s)
of the Deleted Loans (such Stated Principal Balances to be measured as of the
respective Due Dates in the month of substitution); (ii) have a Mortgage
22
<PAGE>
Rate not lower than, and not more than 1% per annum higher than, that of the
Deleted Loan(s); (iii) have a Combined Loan-to-Value Ratio not higher than that
of the Deleted Loan(s); (iv) have a debt to income ratio not higher than that of
the Deleted Loan(s); (v) have been originated pursuant to the same underwriting
standards as the Deleted Loan(s); (vi) have a remaining term to maturity not
greater than, and not more than one year less than, that of the Deleted Loan(s);
and (vii) comply, as of the date of substitution, with each representation and
warranty set forth or referred to in Section 2.03.
Substitution Adjustment Amount: The meaning ascribed to such term pursuant
to Section 2.03.
Tax Matters Person: The person designated as "tax matters person" in the
manner provided under Treasury regulation ss.1.860F-4(d) and temporary Treasury
regulation ss.301.6231(a)(7)1T. Initially, the Tax Matters Person shall be the
Trustee.
Tax Matters Person Certificate: The Class R Certificate with a Denomination
of .00001%.
Transfer: Any direct or indirect transfer or sale of any Ownership Interest
in a Class R Certificate.
Transfer Affidavit: As defined in Section 5.02(c).
Transferor Certificate: As defined in Section 5.02(b).
Trustee: The Chase Manhattan Bank and its successors and, if a successor
trustee is appointed hereunder, such successor.
Trustee Fee: As to any Distribution Date, an amount equal to one-twelfth of
the Trustee Fee Rate multiplied by the Pool Principal Balance as of such
Distribution Date.
Trustee Fee Rate: With respect to each Loan, the per annum rate agreed upon
in writing on or prior to the Closing Date by the Trustee and the Depositor.
Trust Fund: The corpus of the trust created hereunder consisting of (i) the
Loans and all interest and principal received, or receivable, on or with respect
thereto after the Cut-off Date to the extent not applied in computing the
Cut-off Date Principal Balance thereof and all interest and principal payments
on such Loans received prior to the Cut-off Date in respect of installments of
interest and principal due thereafter; (ii) the Certificate Account, the
Distribution Account, the Spread Account, and all amounts deposited therein
pursuant to the applicable provisions of this Agreement; (iii) property that
secured a Loan and has been acquired by foreclosure, deed-in-lieu of foreclosure
or otherwise; (iv) the Policy; and (v) all proceeds of the conversion, voluntary
or involuntary, of any of the foregoing.
23
<PAGE>
Voting Rights: The portion of the voting rights of all of the Certificates
which is allocated to any Certificate. As of any date of determination, the
percentage of all the Voting Rights allocated to each Class of Certificates
shall be the fraction, expressed as a percentage, the numerator of which is the
Class Certificate Balance of such Class then outstanding and the denominator of
which is the aggregate Stated Principal Balance of the Loans then outstanding.
The Voting Rights allocated to each Class of Certificates shall be allocated
among all Holders of each such Class in proportion to the outstanding
Certificate Balances of their respective Certificates on such date.
Weighted Average Adjusted Net Mortgage Rate: As to any Distribution Date
and either the Group I or Group II Loans, the weighted average of the Adjusted
Net Mortgage Rates of the Outstanding Loans in such Group, such weighted average
to be calculated based on the Stated Principal Balances of such Outstanding
Loans on such Distribution Date.
ARTICLE II
CONVEYANCE OF LOANS;
REPRESENTATIONS AND WARRANTIES
SECTION 2.01. Conveyance of Loans.
(a) Subject to its substitution and repurchase obligations hereunder, each
Seller, concurrently with the execution and delivery hereof, hereby irrevocably
sells, transfers, grants, bargains, assigns, sets over and otherwise conveys to
the Depositor, without recourse, all the right, title and interest of such
Seller in and to that portion of the Loans listed on the Loan Schedule that
pertains to such Seller, including all interest and principal received or
receivable by such Seller on or with respect to such Loans after the Cut-off
Date and all interest and principal payments on such Loans received prior to the
Cut-off Date in respect of installments of interest and principal due
thereafter, but not including payments of principal and interest due and payable
on such Loans on or before the Cut-off Date. On or prior to the Closing Date,
each Seller shall deliver to the Depositor or, at the Depositor's direction, to
the Trustee or other designee of the Depositor, the Mortgage File for each Loan
listed in that portion of the Loan Schedule that pertains to such Seller. Such
delivery of the Mortgage Files shall be made against payment by the Depositor of
the purchase price, previously agreed to by such Seller and the Depositor, for
the Loans listed on the Loan Schedule that pertains to such Seller. With respect
to any Loan that does not require the first payment of principal or interest
thereon to be made on or before such Loan's Due Date in the month of the first
Distribution Date, such Seller shall deposit into the Distribution Account on or
before the Distribution Account Deposit Date relating to the first Distribution
Date, an amount equal to one month's interest at the related Adjusted Mortgage
Rate on the Cut-off Date Principal Balance of such Loan. In addition, on or
prior to the Closing Date, the Depositor shall cause the Insurer to deliver the
Policy to the Trustee.
24
<PAGE>
(b) The Depositor, concurrently with the execution and delivery hereof,
hereby irrevocably sells, transfers, grants, bargains, assigns, sets over and
otherwise conveys to the Trustee for the benefit of the Insurer and the
Certificateholders, without recourse, all the right, title and interest of the
Depositor in and to the Trust Fund together with the Depositor's right to
require the Sellers to cure any breach of a representation or warranty made
herein by the Sellers or to repurchase or substitute for any affected Loan in
accordance herewith.
(c) In connection with the sale, transfer and assignment set forth in
clause (b) above, the Depositor has delivered or caused to be delivered to the
Trustee or a Custodian for the Trustee on or before the Closing Date or shall
deliver or cause to be delivered to the Trustee or a Custodian for the Trustee
on or before such later date as is set forth below, for the benefit of the
Insurer and the Certificateholders the following documents or instruments with
respect to each Loan so sold, transferred and assigned:
(i) the original Mortgage Note endorsed (by manual or facsimile
signature) as follows: "Pay to the order of The Chase Manhattan Bank as
trustee for the benefit of the Certificateholders of Equity One ABS, Inc.
Mortgage Pass-Through Certificates Series 1998-1 without recourse," with
all intervening endorsements and all riders and modifications showing a
complete chain of endorsement from the originator to the Person endorsing
it to the Trustee (each such endorsement being sufficient to transfer all
right, title and interest of the party so endorsing, as noteholder or
assignee thereof, in and to that Mortgage Note);
(ii) except as provided below, the original recorded Mortgage;
(iii) an original recorded assignment of the Mortgage (which may be
included in a blanket assignment or assignments), duly executed by the
appropriate Seller and the Depositor, which assignment will not be
delivered on or before the Closing Date but shall be delivered within the
time period set forth in this Section 2.01, together with, except as
provided below, all interim recorded assignments of such Mortgage, if any,
all riders or modifications to such Mortgage, if any, (each such assignment
to be in recordable form and sufficient to effect the assignment of and
transfer to the assignee thereof, under the Mortgage to which the
assignment relates, with the original to be recorded by the Servicer as
follows: the Servicer shall promptly send such assignments for recording,
and shall return the original recorded assignment to the Trustee once
returned as recorded by the applicable recording office);
(iv) the original of each assumption, modification, written assurance
or substitution agreement, if any; and
(v) except as provided below, the original or duplicate original
lender's title policy and all riders thereto.
25
<PAGE>
In the event that in connection with any Loan the Depositor cannot deliver
(a) the original recorded Mortgage, (b) all interim recorded assignments or (c)
the lender's title policy (together with all riders thereto) satisfying the
requirements of clause (ii), (iii) or (v) above, respectively, concurrently with
the execution and delivery hereof because such document or documents have not
been returned from the applicable public recording office in the case of clause
(ii) or (iii) above, or because the title policy has not been delivered to
either the Servicer or the Depositor by the applicable title insurer in the case
of clause (v) above, and, in the case of the assignments of the Mortgage to the
Trustee as required under (iii) above, the Depositor shall promptly deliver to
the Trustee, in the case of clause (ii) or (iii) above, such original recorded
Mortgage or such original recorded assignment, as the case may be, with evidence
of recording indicated thereon upon receipt thereof from the public recording
office, or a copy thereof, certified, if appropriate, by the relevant recording
office, but in no event shall any such delivery of the original recorded
Mortgage and each such original recorded assignment or a copy thereof,
certified, if appropriate, by the relevant recording office, and each title
policy as required by clause (v) above be made later than one year following the
Closing Date; provided, however, in the event the Depositor is unable to deliver
within one year following the Closing Date each original recorded Mortgage, and
each such original recorded assignment or each such title policy by reason of
the fact that any such documents have not been returned by the appropriate
recording office, or, in the case of each such assignment, because the related
original recorded Mortgage or any related interim recorded assignment have not
been returned by the appropriate recording office or, in the case of each title
policy, because the title insurer has not received the recording information
from the appropriate recording office for such original recorded Mortgage or
original recorded assignment, has not been returned by the appropriate recording
office, the Depositor shall deliver such documents to the Trustee as promptly as
possible upon receipt thereof and, in any event, within 720 days following the
Closing Date. The Depositor shall forward or cause to be forwarded to the
Trustee (a) from time to time additional original documents evidencing an
assumption or modification of a Loan and (b) any other documents required to be
delivered by the Depositor or the Servicer to the Trustee. In the event that the
original recorded Mortgage is not delivered and, in connection with the payment
in full of the related Loan, the public recording office requires the
presentation of a "lost instruments affidavit and indemnity" or any equivalent
document, because only a copy of the Mortgage can be delivered with the
instrument of satisfaction or reconveyance, the Servicer shall execute and
deliver or cause to be executed and delivered such a document to the public
recording office. In the case where a public recording office retains the
original recorded Mortgage or in the case where an original recorded Mortgage is
lost after recordation in a public recording office, the appropriate Seller
shall deliver to the Trustee a copy of such Mortgage certified by such public
recording office to be a true and complete copy of the original recorded
Mortgage.
As promptly as practicable subsequent to such transfer and assignment, and
in any event, within thirty (30) days thereafter, the Servicer shall (i) affix
the Trustee's name to each assignment of Mortgage, as the assignee thereof as
Trustee for the benefit of the Certificateholders, (ii) cause such assignment to
be in proper form for recording in the appropriate public office for real
property records and (iii) cause to be delivered for recording in
26
<PAGE>
the appropriate public office for real property records the assignments of the
Mortgages to the Trustee, except that, with respect to any assignments of
Mortgages as to which the information required to prepare such assignment in
recordable form has not yet been received, the Servicer's obligation to do so
and to deliver the same for such recording shall be as soon as practicable after
receipt of such information and in any event within thirty (30) days after
receipt thereof.
In the case of Loans that have been prepaid in full as of the Closing Date,
the Depositor, in lieu of delivering the above documents to the Trustee, will
deposit in the Certificate Account the portion of such payment that is required
to be deposited in the Certificate Account pursuant to Section 3.05 hereof.
SECTION 2.02. Acceptance by Trustee of the Loans.
The Trustee acknowledges receipt of the documents identified in the initial
certification in the form annexed hereto as Exhibit D and declares that it holds
and will hold such documents and the other documents delivered to it
constituting the Mortgage Files, and that it holds or will hold such other
assets as are included in the Trust Fund, in trust for the exclusive use and
benefit of all present and future Certificateholders and the Insurer. The
Trustee acknowledges that it will maintain possession of the Mortgage Notes in
the State of New York, unless otherwise permitted by the Rating Agencies and the
Insurer. In the event that the Trustee desires to maintain possession of the
Mortgage Notes in a state constituting one of the United States of America, the
Trustee shall, at least thirty (30) days prior to discontinuing possession of
the Mortgage Notes in the State of New York, provide (i) a Notice of such
intention to the Rating Agencies, the Insurer and the Sellers and (ii) an
Opinion of Counsel stating that such relocation of the Mortgage Notes and the
possession by the Trustee of the Mortgage Notes in such other state will not
destroy or impair the perfection by the Trustee of the security interests
assigned and granted to the Trustee pursuant to the provisions of Section 10.04.
The Trustee agrees to execute and deliver on the Closing Date to the
Depositor, the Insurer, the Servicer and the Sellers an initial certification in
the form annexed hereto as Exhibit D. Based on its review and examination, and
only as to the documents identified in such initial certification, the Trustee
shall acknowledge that such documents appear regular on their face and relate to
the Loans listed in the Loan Schedule or shall indicate any noted deviations.
The Trustee, at the time of delivery of the initial certification, shall be
under no duty or obligation (i) to inspect, review or examine said documents,
instruments, certificates or other papers to determine that the same are
genuine, enforceable or appropriate for the represented purpose or that they
have actually been recorded in the real estate records or that they are other
than what they purport to be on their face or (ii) to determine whether the
Mortgage File shall include any of the documents listed in Section 2.01(c),
except for the Mortgage Note. Should there be any exceptions to the Trustee's
initial certification, the appropriate Seller shall have thirty (30) days from
the Closing Date to cure such exception or deliver a Mortgage File or Mortgage
Files for a Substitute Loan or Substitute Loans in accordance with Section
2.03(c).
27
<PAGE>
Not later than 90 days after the Closing Date, the Trustee shall deliver to
the Depositor, the Servicer and the Sellers a final certification in the form
annexed hereto as Exhibit E, with any applicable exceptions noted thereon.
If the Trustee or the Insurer finds any document constituting a part of a
Mortgage File which does not meet the requirements of Section 2.01, the Trustee
shall list such as an exception in the final certification; provided, however
that the Trustee shall not make any determination as to whether (i) any
endorsement is sufficient to transfer all right, title and interest of the party
so endorsing, as noteholder or assignee thereof, in and to that Mortgage Note or
(ii) any assignment is in recordable form or is sufficient to effect the
assignment of and transfer to the assignee thereof under the mortgage to which
the assignment relates. In performing any such review, the Trustee may
conclusively rely on the Depositor as to the purported genuineness of any such
document and any signature thereon. It is understood that the scope of the
Trustee's review of the Mortgage Files is limited solely to confirming that the
documents listed in Section 2.01(c) have been received and further confirming
that any and all documents delivered pursuant to Section 2.01(c) have been
executed and relate to the Loans identified in the Loan Schedule. The Trustee
shall have no responsibility for determining whether any document is valid and
binding, whether the text of any assignment or endorsement is in proper or
recordable form, whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or whether a blanket assignment is
permitted in any applicable jurisdiction. The appropriate Seller shall promptly
correct or cure such defect within 90 days from the date it was so notified of
such defect and, if such Seller does not correct or cure such defect within such
period, such Seller shall either (a) substitute for the related Loan a
Substitute Loan, which substitution shall be accomplished in the manner and
subject to the conditions set forth in Section 2.03, or (b) purchase such Loan
from the Trustee within 90 days from the date such Seller was notified of such
defect in writing at the Purchase Price of such Loan; provided, however, that in
no event shall such substitution or purchase occur more than 540 days from the
Closing Date, except that if the substitution or purchase of a Loan pursuant to
this provision is required by reason of a delay in delivery of any comments by
the appropriate recording office, and there is a dispute between either the
Servicer or such Seller and the Trustee over the location or status of the
recorded document, then such substitution or purchase shall occur within 720
days from the Closing Date; provided, that any Loan that does not constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code shall
be subject to a substitution or repurchase as provided in Section 2.05(b) of
this Agreement. The Trustee shall deliver a report to each Rating Agency and the
Insurer within 720 days from the Closing Date indicating a list of all documents
in each Mortgage File in the possession of the Trustee. Any such substitution
pursuant to (a) above or purchase pursuant to (b) above shall not be effected
prior to the delivery to the Trustee of the Opinion of Counsel required by
Section 2.05 hereof, if any, and any substitution pursuant to (a) above shall
not be effected prior to the additional delivery to the Trustee of a Request for
Release substantially in the form of Exhibit J. No substitution is permitted to
be made in any calendar month after the Determination Date for such month. The
Purchase Price for any such Loan shall be deposited by such Seller in the
Certificate Account on or prior to the Distribution Account Deposit Date for the
Distribution Date in the month following the month of repurchase and, upon
receipt of such deposit and certification with
28
<PAGE>
respect thereto in the form of Exhibit J, the Trustee shall release the related
Mortgage File to such Seller and shall execute and deliver at such Seller's
request such instruments of transfer or assignment prepared by such Seller, in
each case without recourse, as shall be necessary to vest in such Seller, or a
designee, the Trustee's interest in any Loan released pursuant hereto.
The Trustee shall retain possession and custody of each Mortgage File in
accordance with and subject to the terms and conditions set forth herein. The
Servicer shall promptly deliver to the Trustee, upon the execution or receipt
thereof, the originals of such other documents or instruments constituting the
Mortgage File as come into the possession of the Servicer from time to time.
It is understood and agreed that the obligation of the appropriate Seller
to substitute for or to purchase any Loan which does not meet the requirements
of Section 2.01 above shall constitute the sole and exclusive remedy respecting
such defect available to the Trustee, the Depositor and any Certificateholder
against any Seller.
SECTION 2.03. Representations, Warranties and Covenants of the Sellers and
the Servicer.
(a) (i) Equity One-Delaware, Equity One-Florida, Equity One-Minnesota,
Equity One-New Hampshire, Equity One-New York, Equity One-Pennsylvania,
Equity One-North Carolina and Equity One-West Virginia, in their capacities
as Sellers, hereby make the representations and warranties set forth in
Schedules IIA through IIH respectively, and by this reference incorporated
herein, to the Depositor, the Insurer and the Trustee, as of the Closing
Date, or if so specified therein, as of the Cut-off Date; and
(ii) The Servicer hereby makes the representations and warranties set
forth in Schedule IIX, and by this reference incorporated herein, to the
Depositor, the Insurer and the Trustee, as of the Closing Date, or if so
specified therein, as of the Cut-Off Date.
(b) Equity One-Delaware, Equity One-Florida, Equity One-Minnesota, Equity
One-New Hampshire, Equity One-New York, Equity One-Pennsylvania, Equity
One-North Carolina and Equity One-West Virginia, in their capacities as Sellers,
hereby make the representations and warranties set forth in Schedules IIIA
through IIIH respectively, and by this reference incorporated herein, to the
Depositor, the Insurer and the Trustee, as of the Closing Date, or if so
specified therein, as of the Cut-off Date.
(c) Upon discovery by any of the parties hereto or the Insurer of a breach
of a representation or warranty made pursuant to Section 2.03(b) that materially
and adversely affects the interests of the Certificateholders or the Insurer in
any Loan, the party discovering such breach shall give prompt notice thereof to
the other parties. Each Seller, for itself and not jointly and severally for all
other Sellers, hereby covenants that within 90 days of the earlier of its
29
<PAGE>
discovery or its receipt of written notice from any party of a breach of any
representation or warranty made pursuant to Section 2.03(b) which materially and
adversely affects the interests of the Certificateholders or the Insurer in any
Loan listed on the Loan Schedule that pertains to such Seller, such Seller shall
cure such breach in all material respects, and if such breach is not so cured,
shall, (i) if such 90-day period expires prior to the second anniversary of the
Closing Date, remove such Loan (a "Deleted Loan") from the Trust Fund and
substitute in its place a Substitute Loan, in the manner and subject to the
conditions set forth in this Section or (ii) repurchase the affected Loan or
Loans from the Trustee at the Purchase Price in the manner set forth below;
provided, however, that any such substitution pursuant to (i) above shall not be
effected prior to the delivery to the Trustee of the Opinion of Counsel required
by Section 2.05 hereof, if any, and any such substitution pursuant to (i) above
shall not be effected prior to the additional delivery to the Trustee of a
Request for Release substantially in the form of Exhibit J and the Mortgage File
for any such Substitute Loan. Notwithstanding the preceding sentence, any Loan
that does not constitute a "qualified mortgage" within the meaning of Section
860G(a)(3) of the Code shall be subject to substitution or repurchase as
provided in Section 2.05(b) of this Agreement. The appropriate Seller shall
promptly reimburse the Servicer and the Trustee for any expenses reasonably
incurred by the Servicer or the Trustee in respect of enforcing the remedies for
such breach. With respect to the representations and warranties described in
this Section which are made to the best of a Seller's knowledge, if it is
discovered by either the Depositor, the appropriate Seller or the Trustee that
the substance of such representation and warranty is inaccurate and such
inaccuracy materially and adversely affects the value of the related Loan or the
interests of the Certificateholders or the Insurer therein, notwithstanding such
Seller's lack of knowledge with respect to the substance of such representation
or warranty, such inaccuracy shall be deemed a breach by such Seller of the
applicable representation or warranty.
With respect to any Substitute Loan or Loans, such Seller shall deliver to
the Trustee for the benefit of the Certificateholders and the Insurer the
Mortgage Note, the Mortgage, the related assignment of the Mortgage, and such
other documents and agreements as are required by Section 2.01, with the
Mortgage Note endorsed and the Mortgage assigned as required by Section 2.01. No
substitution is permitted to be made in any calendar month after the
Determination Date for such month. Scheduled Payments due with respect to
Substitute Loans in the month of substitution shall not be part of the Trust
Fund and will be retained by the appropriate Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to the relevant
Class will include the monthly payment due on any Deleted Loan from the
Applicable Group for such month and thereafter the appropriate Seller shall be
entitled to retain all amounts received in respect of such Deleted Loan. The
Servicer shall amend the Loan Schedule for the benefit of the Certificateholders
and the Insurer to reflect the removal of such Deleted Loan and the substitution
of the Substitute Loan or Loans and the Servicer shall deliver the amended Loan
Schedule to the Trustee. Upon such substitution, the Substitute Loan or Loans
shall be subject to the terms of this Agreement in all respects, and the
appropriate Seller shall be deemed to have made with respect to such Substitute
Loan or Loans, as of the date of substitution, the representations and
warranties made pursuant to Section 2.03(b). Upon any such substitution and the
deposit to the Certificate Account of the amount required to be deposited
30
<PAGE>
therein in connection with such substitution as described in the following
paragraph, the Trustee shall release the Mortgage File held for the benefit of
the Certificateholders and the Insurer relating to such Deleted Loan to the
appropriate Seller and shall execute and deliver at the appropriate Seller's
direction such instruments of transfer or assignment prepared by such Seller, in
each case without recourse, as shall be necessary to vest title in such Seller,
or its designee, with respect to the Trustee's interest in any Deleted Loan
substituted for pursuant to this Section 2.03.
For any month in which the appropriate Seller substitutes one or more
Substitute Loans for one or more Deleted Loans, the Servicer will determine the
amount (if any) by which the aggregate Stated Principal Balance of all such
Substitute Loans is less than the aggregate Stated Principal Balance of all such
Deleted Loans (such Stated Principal Balances to be measured as of the
respective Due Dates in the month of substitution). The amount of such shortage
(the "Substitution Adjustment Amount") plus an amount equal to the aggregate of
any unreimbursed Advances with respect to such Deleted Loans shall be deposited
in the Certificate Account by such Seller on or before the Distribution Account
Deposit Date for the Distribution Date in the month succeeding the calendar
month during which the related Loan became required to be purchased or replaced
hereunder.
In the event that the appropriate Seller shall have repurchased a Loan, the
Purchase Price therefor shall be deposited in the Certificate Account pursuant
to Section 3.05 on or before the Distribution Account Deposit Date for the
Distribution Date in the month following the month during which such Seller
became obligated hereunder to repurchase or replace such Loan and upon such
deposit of the Purchase Price, the delivery of the Opinion of Counsel required
by Section 2.05 and receipt of a Request for Release in the form of Exhibit J,
the Trustee shall release the related Mortgage File held for the benefit of the
Certificateholders and the Insurer to such Seller, and the Trustee shall execute
and deliver at such Seller's direction such instruments of transfer or
assignment prepared by such Seller, in each case without recourse, as shall be
necessary to transfer title from the Trustee. It is understood and agreed that
the obligation under this Agreement of any Seller to cure, repurchase or replace
any Loan as to which a breach of a representation or warranty has occurred and
is continuing shall constitute the sole and exclusive remedy against such
Sellers respecting such breach of a representation and warranty available to
Certificateholders, the Depositor or the Trustee on their behalf.
The representations and warranties made pursuant to this Section 2.03 shall
survive delivery of the respective Mortgage Files to the Trustee for the benefit
of the Certificateholders and the Insurer.
Section 2.03A. Additional Obligations of Equity One-Delaware.
(a) In addition to the representations and warranties made by Equity
One-Delaware in its capacity as a Seller, as described in Section 2.03 and set
forth in Schedules IIA and IIIA, Equity One-Delaware hereby represents and
warrants to the Depositor, the Insurer and the Trustee that all of the
representations and warranties of the other Sellers described in Section
31
<PAGE>
2.03 and set forth in Schedules IIB through IIH and IIIB through IIIH are true
and accurate in all respects.
(b) Equity One-Delaware hereby covenants that it shall comply with the
repurchase and substitution obligations described in Section 2.02 and 2.03 in
the event that (i) a breach of any of the representations and warranties set
forth in Schedules IIIB through IIIH occurs and (ii) the related Seller defaults
on its repurchase and substitution obligations under Sections 2.02 and 2.03.
SECTION 2.04. Representations and Warranties of the Depositor as to the
Loans.
The Depositor hereby represents and warrants to the Trustee and the Insurer
with respect to each Loan that as of the Closing Date, and following the
transfer of the Loans to it by the Sellers, the Depositor had good title to the
Loans and the Mortgage Notes were subject to no offsets, defenses or
counterclaims.
The Depositor, concurrently with the execution and delivery hereof, hereby
irrevocably sells, transfers, assigns, sets over, grants, bargains and otherwise
conveys to the Trustee for the benefit of the Certificateholders and the
Insurer, without recourse, all of its rights, title and interest with respect to
the Loans including, without limitation, the representations and warranties of
the Sellers made pursuant to Sections 2.03(a) and 2.03(b) hereof, together with
all rights of the Depositor to require any applicable Seller to cure any breach
thereof or to repurchase or substitute for any affected Loan in accordance with
this Agreement.
It is understood and agreed that the representations and warranties set
forth in this Section 2.04 shall survive delivery of the Mortgage Files to the
Trustee. Upon discovery by the Depositor, the Insurer or the Trustee of a breach
of any of the foregoing representations and warranties set forth in this Section
2.04, which breach materially and adversely affects the interest of the
Certificateholders or the Insurer, the party discovering such breach shall give
prompt written notice to the other parties and to each Rating Agency.
SECTION 2.05. Delivery of Opinion of Counsel in Connection with
Substitutions.
(a) Notwithstanding any contrary provision of this Agreement, no
substitution pursuant to Section 2.02 or Section 2.03 shall be made more than 90
days after the Closing Date unless the appropriate Seller delivers to the
Trustee and the Insurer an Opinion of Counsel, which Opinion of Counsel shall
not be at the expense of either the Trustee or the Trust Fund, addressed to the
Trustee, to the effect that such substitution will not (i) result in the
imposition of the tax on "prohibited transactions" on the Trust Fund or
contributions after the Startup Day, as defined in Sections 860F(a)(2) and
860G(d) of the Code, respectively, and/or (ii) cause the Trust Fund to fail to
qualify as a REMIC at any time that any Certificates are outstanding.
32
<PAGE>
(b) Upon discovery by the Depositor, the appropriate Seller, the Servicer,
the Insurer or the Trustee that any Loan does not constitute a "qualified
mortgage" within the meaning of Section 860G(a)(3) of the Code, the party
discovering such fact shall promptly (and in any event within five (5) Business
Days of discovery) give written notice thereof to the other parties. In
connection therewith, the Trustee shall require the appropriate Seller, at such
Seller's option, to either (i) substitute, if the conditions in Section 2.03(c)
with respect to substitutions are satisfied, a Substitute Loan for the affected
Loan or (ii) repurchase the affected Loan within 90 days of such discovery in
the same manner as it would repurchase a Loan for a breach of representation or
warranty made pursuant to Section 2.03. The Trustee shall reconvey to such
Seller the Loan to be released pursuant hereto in the same manner, and on the
same terms and conditions, as it would release a Loan repurchased for breach of
a representation or warranty contained in Section 2.03.
SECTION 2.06. Execution and Delivery of Certificates.
The Trustee acknowledges the transfer and assignment to it of the Trust
Fund and, concurrently with such transfer and assignment and in payment
therefor, has executed and delivered to or upon the order of the Depositor, the
Certificates in authorized denominations evidencing directly or indirectly the
entire ownership of the Trust Fund. The Trustee agrees to hold the Trust Fund
and exercise the rights referred to above for the benefit of all present and
future Certificateholders and to perform the duties set forth in this Agreement
to the best of its ability, to the end that the interests of the
Certificateholders may be adequately and effectively protected.
SECTION 2.07. REMIC Matters.
The Preliminary Statement sets forth the designations and "latest possible
maturity date" for federal income tax purposes of all interests created hereby.
The "Startup Day" for purposes of the REMIC Provisions shall be the Closing
Date. The "tax matters person" with respect to the Trust Fund shall be the
Trustee and the Trustee shall hold the Tax Matters Person Certificate. The Trust
Fund's fiscal year shall be the calendar year and, for the purposes of Section
860C of the Code, the taxable income of the REMIC shall be computed under an
accrual method of accounting.
SECTION 2.08. Covenants of the Servicer.
The Servicer hereby covenants to the Depositor, the Insurer and the Trustee
as follows:
(a) the Servicer shall comply in the performance of its obligations under
this Agreement with all reasonable rules and requirements of the insurer under
each Required Insurance Policy; and
(b) no written information, certificate of an officer, statement furnished
in
33
<PAGE>
writing or written report delivered to the Depositor, any affiliate of the
Depositor, the Insurer or the Trustee and prepared by the Servicer pursuant to
this Agreement will contain any untrue statement of a material fact or omit to
state a material fact necessary to make such information, certificate, statement
or report not misleading.
ARTICLE III
ADMINISTRATION AND SERVICING
OF LOANS
SECTION 3.01. Servicer to Service Loans.
For and on behalf of the Certificateholders and the Insurer, the Servicer
shall service and administer the Loans in accordance with the terms of this
Agreement and customary and usual standards of practice of prudent mortgage loan
servicers. In connection with such servicing and administration, the Servicer
shall have full power and authority, acting alone and/or through Subservicers as
provided in Section 3.02 hereof, to do or cause to be done any and all things
that it may deem necessary or desirable in connection with such servicing and
administration, including but not limited to, the power and authority, subject
to the terms hereof, (i) to execute and deliver, on behalf of the
Certificateholders and the Trustee, customary consents or waivers and other
instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any Insurance
Proceeds and other Liquidation Proceeds and (iv) to effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing any Loan;
provided that the Servicer shall not take any action that is inconsistent with
or prejudices the interests of the Trust Fund, the Insurer or the
Certificateholders in any Loan or the rights and interests of the Depositor, the
Insurer, the Trustee and the Certificateholders under this Agreement. The
Servicer shall represent and protect the interests of the Trust Fund in the same
manner as it protects its own interests in mortgage loans in its own portfolio
in any claim, proceeding or litigation regarding a Loan, and shall not make or
permit any modification, waiver or amendment of any Loan which would cause the
Trust Fund to fail to qualify as a REMIC or result in the imposition of any tax
under Section 860F(a) or Section 860G(d) of the Code. Without limiting the
generality of the foregoing, the Servicer, in its own name or in the name of the
Depositor and the Trustee, is hereby authorized and empowered by the Depositor
and the Trustee, when the Servicer believes it appropriate in its reasonable
judgment, to execute and deliver, on behalf of the Trustee, the Depositor, the
Certificateholders or any of them, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge and all other
comparable instruments, with respect to the Loans, and with respect to the
Mortgaged Properties held for the benefit of the Certificateholders. The
Servicer shall prepare and deliver to the Depositor and/or the Trustee such
documents requiring execution and delivery by either or both of them as are
necessary or appropriate to enable the Servicer to service and administer the
Loans to the extent that the Servicer is not permitted to execute and deliver
such documents pursuant to the preceding
34
<PAGE>
sentence. Upon receipt of such documents, the Depositor and/or the Trustee shall
execute such documents and deliver them to the Servicer.
SECTION 3.02. Subservicing; Enforcement of the Obligations of Servicers.
(a) The Servicer may arrange for the subservicing of any Loan by a
Subservicer pursuant to a subservicing agreement; provided, however, that such
subservicing arrangement and the terms of the related subservicing agreement
must provide for the servicing of such Loans in a manner consistent with the
servicing arrangements contemplated hereunder. Unless the context otherwise
requires, references in this Agreement to actions taken or to be taken by the
Servicer in servicing the Loans include actions taken or to be taken by a
Subservicer on behalf of the Servicer. Notwithstanding the provisions of any
subservicing agreement, any of the provisions of this Agreement relating to
agreements or arrangements between the Servicer and a Subservicer or reference
to actions taken through a Subservicer or otherwise, the Servicer shall remain
obligated and liable to the Depositor, the Trustee, the Insurer and the
Certificateholders for the servicing and administration of the Loans in
accordance with the provisions of this Agreement without diminution of such
obligation or liability by virtue of such subservicing agreements or
arrangements or by virtue of indemnification from the Subservicer and to the
same extent and under the same terms and conditions as if the Servicer alone
were servicing and administering the Loans. All actions of each Subservicer
performed pursuant to the related subservicing agreement shall be performed as
an agent of the Servicer with the same force and effect as if performed directly
by the Servicer.
(b) For purposes of this Agreement, the Servicer shall be deemed to have
received any collections, recoveries or payments with respect to the Loans that
are received by a Subservicer regardless of whether such payments are remitted
by the Subservicer to the Servicer.
SECTION 3.03. Rights of the Depositor and the Trustee in Respect of the
Servicer.
The Depositor may, but is not obligated to, enforce the obligations of the
Servicer hereunder and may, but is not obligated to, perform, or cause a
designee to perform, any defaulted obligation of the Servicer hereunder and in
connection with any such defaulted obligation to exercise the related rights of
the Servicer hereunder; provided that the Servicer shall not be relieved of any
of its obligations hereunder by virtue of such performance by the Depositor or
its designee. Neither the Trustee nor the Depositor shall have any
responsibility or liability for any action or failure to act by the Servicer nor
shall the Trustee or the Depositor be obligated to supervise the performance of
the Servicer hereunder or otherwise.
SECTION 3.04. Trustee to Act as Servicer.
In the event that the Servicer shall for any reason no longer be the
Servicer hereunder (including by reason of an Event of Default), the Trustee or
its successor shall thereupon assume all of the rights and obligations of the
Servicer hereunder arising thereafter
35
<PAGE>
(except that the Trustee shall not be (i) liable for losses of the Servicer
pursuant to Section 3.09 hereof or any acts or omissions of the predecessor
Servicer hereunder, (ii) obligated to make Advances if it is prohibited from
doing so by applicable law, (iii) obligated to effectuate repurchases or
substitutions of Loans hereunder including, but not limited to, repurchases or
substitutions of Loans pursuant to Section 2.02 or 2.03 hereof, (iv) responsible
for expenses of the Servicer pursuant to Section 2.03 or (v) deemed to have made
any representations and warranties of the Servicer hereunder). Any such
assumption shall be subject to Section 7.02 hereof. If the Servicer shall for
any reason no longer be the Servicer (including by reason of any Event of
Default), the Trustee or its successor shall succeed to any rights and
obligations of the Servicer under each subservicing agreement.
The Servicer shall, upon request of the Trustee, but at the expense of the
Servicer, deliver to the assuming party all documents and records relating to
each subservicing agreement or substitute subservicing agreement and the Loans
then being serviced thereunder and an accounting of amounts collected or held by
it and otherwise use its best efforts to effect the orderly and efficient
transfer of the substitute subservicing agreement to the assuming party.
SECTION 3.05. Collection of Loan Payments; Certificate Account;
Distribution Account; Spread Account.
(a) The Servicer shall make reasonable efforts in accordance with the
customary and usual standards of practice of prudent mortgage servicers to
collect all payments called for under the terms and provisions of the Loans to
the extent such procedures shall be consistent with this Agreement and the terms
and provisions of any related Required Insurance Policy. Consistent with the
foregoing, the Servicer may in its discretion (i) waive any late payment charge
or any prepayment charge or penalty interest in connection with the prepayment
of a Loan and (ii) extend the due dates for payments due on a Mortgage Note for
a period not greater than 180 days; provided, however, that the Servicer cannot
extend the maturity of any such Loan past the date on which the final payment is
due on the latest maturing Loan as of the Cut-off Date. In the event of any such
arrangement, the Servicer shall make Advances on the related Loan in accordance
with the provisions of Section 4.01 during the scheduled period in accordance
with the amortization schedule of such Loan without modification thereof by
reason of such arrangements. The Servicer shall not be required to institute or
join in litigation with respect to collection of any payment (whether under a
Mortgage, Mortgage Note or otherwise or against any public or governmental
authority with respect to a taking or condemnation) if it reasonably believes
that enforcing the provision of the Mortgage or other instrument pursuant to
which such payment is required is prohibited by applicable law.
(b) The Servicer shall establish and maintain a Certificate Account into
which the Servicer shall deposit or cause to be deposited within one Business
Day of receipt, except as otherwise specifically provided herein, the following
payments and collections remitted by Subservicers or received by it in respect
of the Loans subsequent to the Cut-off Date (other than in respect of principal
and interest due on the Loans on or before the Cut-off Date) and the following
amounts required to be deposited hereunder:
36
<PAGE>
(i) all payments on account of principal on the Loans, including
Principal Prepayments;
(ii) all payments on account of interest on the Loans, net of the related
Servicing Fee;
(iii) all Insurance Proceeds and Liquidation Proceeds, other than proceeds
to be applied to the restoration or repair of the Mortgaged Property or released
to the Mortgagor in accordance with the Servicer's normal servicing procedures;
(iv) any amount required to be deposited by the Servicer pursuant to
Section 3.05(d) in connection with any losses on Permitted Investments;
(v) any amounts required to be deposited by the Servicer pursuant to
Section 3.09(c) and, in respect of net monthly rental income from REO Property,
pursuant to Section 3.11 hereof;
(vi) all Substitution Adjustment Amounts;
(vii) all Advances made by the Servicer pursuant to Section 4.01; and
(viii) any other amounts required to be deposited hereunder.
The foregoing requirements for remittance by the Servicer shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of prepayment penalties, late payment
charges or assumption fees, if collected, need not be remitted by the Servicer.
In the event that the Servicer shall remit any amount not required to be
remitted, it may at any time withdraw or direct the institution maintaining the
Certificate Account to withdraw such amount from the Certificate Account, any
provision herein to the contrary notwithstanding. Such withdrawal or direction
may be accomplished by delivering written notice thereof to the Trustee or such
other institution maintaining the Certificate Account which describes the
amounts deposited in error in the Certificate Account. The Servicer shall
maintain adequate records with respect to all withdrawals made pursuant to this
Section. All funds deposited in the Certificate Account shall be held in trust
for the Certificateholders and the Insurer until withdrawn in accordance with
Section 3.08.
(c) The Trustee shall establish and maintain, on behalf of the
Certificateholders and the Insurer, the Distribution Account. The Trustee shall,
promptly upon receipt, deposit in the Distribution Account and retain therein
the following:
(i) the aggregate amount remitted by the Servicer to the Trustee
pursuant to Section 3.08(a)(ix); and
37
<PAGE>
(ii) any other amounts deposited hereunder which are required to be
deposited in the Distribution Account.
In the event that the Servicer shall remit any amount not required to be
remitted, it may at any time direct the Trustee to withdraw such amount from the
Distribution Account, any provision herein to the contrary notwithstanding. Such
direction may be accomplished by delivering an Officer's Certificate to the
Trustee which describes the amounts deposited in error in the Distribution
Account. All funds deposited in the Distribution Account shall be held by the
Trustee uninvested in trust for the Certificateholders until disbursed in
accordance with this Agreement or withdrawn in accordance with Section 3.08. In
no event shall the Trustee incur liability for withdrawals from the Distribution
Account at the direction of the Servicer.
(d) Each institution at which the Certificate Account and the Spread
Account is maintained shall invest the funds therein as directed in writing by
the Servicer in Permitted Investments, which shall mature not later than, in the
case of the Certificate Account, the second Business Day preceding each
Distribution Account Deposit Date (except that if such Permitted Investment is
an obligation of the institution that maintains such account, then such
Permitted Investment shall mature not later than the Business Day next preceding
such Distribution Account Deposit Date) and shall not be sold or disposed of
prior to its maturity. All such Permitted Investments shall be made in the name
of the Trustee, for the benefit of the Certificateholders and the Insurer. So
long as no Event of Default shall have occurred and be continuing, all income
and gain net of any losses realized from any such investment of funds on deposit
in the Certificate Account shall be for the benefit of the Servicer as servicing
compensation and shall be remitted to it monthly as provided herein. All income
and gain net of any losses realized from Permitted Investments made with funds
on deposit in the Spread Account and, if an Event of Default shall have occurred
and be continuing, from all other Permitted Investments shall be deposited into
the Spread Account. The amount of any realized losses in the Certificate Account
or the Spread Account incurred in any such account in respect of any such
investments shall promptly be deposited by the Servicer in the Certificate
Account or remitted to the Trustee for deposit into the Spread Account, as
applicable. The Trustee in its fiduciary capacity shall not be liable for the
amount of any loss incurred in respect of any investment or lack of investment
of funds held in the Certificate Account or Spread Account and made in
accordance with this Section 3.05.
(e) The Servicer shall give notice to the Trustee, the Insurer, each
Seller, each Rating Agency and the Depositor of any proposed change of the
location of the Certificate Account prior to any change thereof. The Trustee
shall give notice to the Servicer, each Seller, each Rating Agency and the
Depositor of any proposed change of the location of the Distribution Account
prior to any change thereof.
(f) Amounts on deposit in the Spread Account may be invested in Permitted
Investments which shall mature no later than the Business Day immediately
preceding the next Distribution Date; provided, however, that amounts on deposit
in the Spread Account may mature at a later date than that set forth above, upon
receipt by the Trustee of the Insurer's
38
<PAGE>
consent and confirmation in writing from each Rating Agency that such
investment's maturity shall not result in a downgrade of the Class A
Certificates.
SECTION 3.06. Payment of Taxes, Assessments, Hazard Insurance Premiums and
Similar Items; Escrow Accounts.
(a) The Servicer shall require Mortgagors to pay all taxes, assessments,
hazard insurance premiums, flood insurance premiums, condominium association
dues or comparable items for the account of the Mortgagors. To the extent
required by the Seller at the time the related Loan was originated and not
violative of current law, the Servicer shall establish and maintain one or more
accounts (each, an "Escrow Account") and deposit and retain therein all
collections from the Mortgagors (or advances by the Servicer) for the payment of
taxes, assessments, hazard insurance premiums, condominium association dues or
comparable items for the account of the Mortgagors. Nothing herein shall require
the Servicer to compel a Mortgagor to establish an Escrow Account in violation
of applicable law or if the Seller of the related Loan did not require the
establishment of an Escrow Account at the time the Loan was originated.
Withdrawals of amounts so collected from the Escrow Accounts may be made
only to effect timely payment of taxes, assessments, hazard insurance premiums,
condominium association dues, or comparable items, to reimburse the Servicer out
of related collections for any payments made pursuant to Sections 3.01 hereof
(with respect to taxes and assessments and insurance premiums) and 3.09 hereof
(with respect to hazard insurance), to refund to any Mortgagors any sums
determined to be overages, to pay interest, if required by law or the terms of
the related Mortgage or Mortgage Note, to Mortgagors on balances in the Escrow
Account or to clear and terminate the Escrow Account at the termination of this
Agreement in accordance with Section 9.01 hereof. The Escrow Accounts shall not
be a part of the Trust Fund.
(b) The Servicer shall advance any payments referred to in Section 3.06(a)
that are not timely paid by the Mortgagors on the date when the tax, premium or
other cost for which such payment is intended is due, but the Servicer shall be
required so to advance only to the extent that such advances, in the good faith
judgment of the Servicer, are required to be made to protect the lien of the
Mortgage and will be recoverable by the Servicer out of Insurance Proceeds,
Liquidation Proceeds or otherwise. The amount of any such advances made by the
Servicer for the purpose of maintaining any hazard or flood insurance shall not,
for the purpose of calculating monthly distributions to the Certificateholders
or remittances to the Trustee for their benefit, be added to the principal
balance of the related Loan, notwithstanding that the terms of the Loan so
permit. Any advance made by the Servicer pursuant to this Section 3.06 shall be
recoverable as a Servicing Advance to the extent permitted by Section 3.08.
SECTION 3.07. Access to Certain Documentation and Information Regarding the
Loans.
The Servicer shall afford the Depositor, the Insurer, the Trustee and each
Rating Agency reasonable access to all records and documentation regarding the
Loans and all accounts,
39
<PAGE>
insurance information and other matters relating to this Agreement, such access
being afforded without charge, but only upon reasonable request and during
normal business hours at the office designated by the Servicer.
Upon reasonable advance notice in writing, the Servicer will provide to
each Certificateholder which is a savings and loan association, bank or
insurance company certain reports and reasonable access to information and
documentation regarding the Loans sufficient to permit such Certificateholder to
comply with applicable regulations of the OTS or other regulatory authorities
with respect to investment in the Certificates; provided that the Servicer shall
be entitled to be reimbursed by each such Certificateholder for actual expenses
incurred by the Servicer in providing such reports and access.
SECTION 3.08. Permitted Withdrawals from the Certificate Account and
Distribution Account.
(a) The Servicer may from time to time make withdrawals from the
Certificate Account for the following purposes:
(i) to pay to the Servicer (to the extent not previously retained
by the Servicer) the servicing compensation to which it is entitled
pursuant to Section 3.14, and, subject to Section 3.05(d), to pay to the
Servicer, as additional servicing compensation, or to the Spread Account,
as the case may be, earnings on or investment income with respect to funds
in or credited to the Certificate Account;
(ii) to reimburse the Servicer for unreimbursed Advances made by it,
such right of reimbursement pursuant to this subclause (ii) being limited
to amounts received on the Loan(s) in respect of which any such Advance was
made;
(iii) to reimburse the Servicer for any Nonrecoverable Advance
previously made;
(iv) to reimburse the Servicer for Insured Expenses from the related
Insurance Proceeds;
(v) to reimburse the Servicer for (a) unreimbursed Servicing
Advances, the Servicer's right to reimbursement pursuant to this clause
(a) with respect to any Loan being limited to amounts received on such
Loan(s) which represent late recoveries of the payments for which such
Servicing Advances were made pursuant to Section 3.01 or Section 3.06 and
(b) for unpaid Servicing Fees as provided in Section 3.11 hereof;
(vi) to pay to the purchaser, with respect to each Loan or property
acquired in respect thereof that has been purchased pursuant to Section
2.02, 2.03 or 3.11, all amounts received thereon after the date of such
purchase;
40
<PAGE>
(vii) to reimburse the Sellers, the Servicer or the Depositor for
expenses incurred by any of them and reimbursable pursuant to Section 6.03
hereof;
(viii) to withdraw any amount deposited in the Certificate Account and
not required to be deposited therein;
(ix) on or prior to the Distribution Account Deposit Date, to
withdraw an amount equal to the Available Funds for both the Class A-1
Certificates and the Class A-2 Certificates for such Distribution Date and
remit such amount to the Trustee for deposit in the Distribution Account;
and
(x) to clear and terminate the Certificate Account upon termination
of this Agreement pursuant to Section 9.01 hereof.
The Servicer shall keep and maintain separate accounting, on a Loan by Loan
basis, for the purpose of justifying any withdrawal from the Certificate Account
pursuant to such subclauses (i), (ii), (iv), (v) and (vi). Prior to making any
withdrawal from the Certificate Account pursuant to subclause (iii), the
Servicer shall deliver to the Trustee an Officer's Certificate of a Servicing
Officer indicating the amount of any previous Advance determined by the Servicer
to be a Nonrecoverable Advance and identifying the related Loans(s), and their
respective portions of such Nonrecoverable Advance.
(b) The Trustee shall withdraw funds from the Distribution Account for
distributions to Certificateholders in the manner specified in this Agreement
(and to withhold from the amounts so withdrawn, the amount of any taxes that it
is authorized to withhold pursuant to the last paragraph of Section 8.11). In
addition, the Trustee may from time to time make withdrawals from the
Distribution Account for the following purposes:
(i) to pay to itself the Trustee Fee and certain expenses for the
related Distribution Date;
(ii) to withdraw and return to the Servicer any amount deposited in
the Distribution Account and not required to be deposited therein; and
(iii) to clear and terminate the Distribution Account upon termination
of the Agreement pursuant to Section 9.01 hereof.
SECTION 3.09. Maintenance of Hazard Insurance; Maintenance of Primary
Insurance Policies.
(a) The Servicer shall require Mortgagors to maintain, for each Loan,
hazard insurance with extended coverage (i) in the case of a Loan secured by a
Mortgage creating a first lien on the related Mortgaged Property, in an amount
that is at least equal to the original
41
<PAGE>
principal balance of such Loan or the maximum insurable value of the
improvements on such Mortgaged Property, whichever is less, and (ii) in the case
of a Second Lien Loan, in an amount equal to the lesser of the combined
principal balance of such Second Lien Loan and the related first lien mortgage
loan or the maximum insurable value of the improvements on the related Mortgaged
Property. Each such policy of standard hazard insurance shall contain, or have
an accompanying endorsement that contains, a standard mortgagee clause. Any
amounts collected by the Servicer under any such policies (other than the
amounts to be applied to the restoration or repair of the improvements on the
related Mortgaged Property or amounts released to the Mortgagor in accordance
with the Servicer's normal servicing procedures) shall be deposited in the
Certificate Account. It is understood and agreed that no earthquake or other
additional insurance is to be required of any Mortgagor or maintained on
property acquired in respect of a Mortgage other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Mortgaged Property is located at the
time of origination of the Loan in a federally designated special flood hazard
area and such area is participating in the national flood insurance program, the
Servicer shall require the related Mortgagor to maintain flood insurance with
respect to such Loan. Such flood insurance shall be in an amount equal to the
original principal balance of the related Loan.
(b) The Servicer shall not be required to have Mortgagors maintain any
Primary Mortgage Insurance Policy with respect to any Loan, but may do so as
allowed by law, and shall allow the cancellation of any such Primary Mortgage
Insurance Policy as required by law. The Servicer shall not take any action
which would result in non-coverage under any applicable Primary Mortgage
Insurance Policy of any loss which, but for the actions of the Servicer, would
have been covered thereunder. If any Mortgagor fails to pay the premiums for its
Primary Mortgage Insurance Policy, if any, the Servicer may, but shall not be
required to, pay such premiums. Any payment made by the Servicer pursuant to
this Section 3.09(b) shall be recoverable as a Servicing Advance to the extent
permitted by Section 3.08.
(c) In connection with its activities as Servicer of the Loans, the
Servicer agrees to present on behalf of itself, the Trustee, the Insurer and
Certificateholders, claims to the insurer under any Primary Mortgage Insurance
Policies and, in this regard, to take such reasonable action as shall be
necessary to permit recovery under any Primary Mortgage Insurance Policies
respecting defaulted Loans. Any amounts collected by the Servicer under any
Primary Mortgage Insurance Policies shall be deposited in the Certificate
Account.
SECTION 3.10. Enforcement of Due-on-Sale Clauses; Assumption Agreements.
(a) When any property subject to a Mortgage has been conveyed by the
Mortgagor, the Servicer, to the extent that it has knowledge of such conveyance,
may, at its discretion, but is not required to, enforce any due-on-sale clause
contained in any Mortgage Note or Mortgage, to the extent permitted under
applicable law and governmental regulations, but only to the extent that such
enforcement will not adversely affect or jeopardize coverage under any Required
Insurance Policy. The Servicer is authorized, subject to Section 3.10(b), to
take or enter into an assumption and modification agreement from or with the
Person to whom such
42
<PAGE>
property has been or is about to be conveyed, pursuant to which such Person
becomes liable under the Mortgage Note and, unless prohibited by applicable
state law, the Mortgagor remains liable thereon, provided that the Loan shall
continue to be covered (if so covered before the Servicer enters such agreement)
by the applicable Required Insurance Policies. The Servicer, subject to Section
3.10(b), is also authorized with the prior approval of the insurers under any
Required Insurance Policies to enter into a substitution of liability agreement
with such Person, pursuant to which the original Mortgagor is released from
liability and such Person is substituted as Mortgagor and becomes liable under
the Mortgage Note. Notwithstanding the foregoing, the Servicer shall not be
deemed to be in default under this Section by reason of any transfer or
assumption which the Servicer reasonably believes it is restricted by law from
preventing, for any reason whatsoever.
(b) In any case in which a Mortgaged Property has been conveyed to a Person
by a Mortgagor, and such Person is to enter into an assumption agreement or
modification agreement or supplement to the Mortgage Note or Mortgage that
requires the signature of the Trustee, or if an instrument of release signed by
the Trustee is required releasing the Mortgagor from liability on the Loan, the
Servicer shall prepare and deliver or cause to be prepared and delivered to the
Trustee for signature and shall direct, in writing, the Trustee to execute the
assumption agreement with the Person to whom the Mortgaged Property is to be
conveyed and such modification agreement or supplement to the Mortgage Note or
Mortgage or other instruments as are reasonable or necessary to carry out the
terms of the Mortgage Note or Mortgage or otherwise to comply with any
applicable laws regarding assumptions or the transfer of the Mortgaged Property
to such Person. In connection with any such assumption, no material term of the
Mortgage Note may be changed. In addition, the substitute Mortgagor and the
Mortgaged Property must be acceptable to the Servicer in accordance with its
underwriting standards as then in effect. Together with each such substitution,
assumption or other agreement or instrument delivered to the Trustee for
execution by it, the Servicer shall deliver an Officer's Certificate signed by a
Servicing Officer stating that the requirements of this subsection have been met
in connection therewith. The Servicer shall notify the Trustee that any such
substitution or assumption agreement has been completed by forwarding to the
Trustee the original of such substitution or assumption agreement, which in the
case of the original shall be added to the related Mortgage File and shall, for
all purposes, be considered a part of such Mortgage File to the same extent as
all other documents and instruments constituting a part thereof. Any fee
collected by the Servicer for entering into an assumption or substitution of
liability agreement will be retained by the Servicer as additional servicing
compensation.
SECTION 3.11. Realization Upon Defaulted Loans; Repurchase of Certain
Loans.
The Servicer shall use reasonable efforts to foreclose upon or otherwise
comparably convert the ownership of properties securing such of the Loans as
come into and continue in default and as to which no satisfactory arrangements
can be made for collection of delinquent payments. In connection with such
foreclosure or other conversion, the Servicer shall follow such practices and
procedures as it shall deem necessary or advisable and as shall be
43
<PAGE>
normal and usual in its general mortgage servicing activities and meet the
requirements of the insurer under any Required Insurance Policy; provided,
however, that the Servicer shall not be required to expend its own funds in
connection with any foreclosure or towards the restoration of any property
unless it shall determine (i) that such restoration and/or foreclosure will
increase the proceeds of liquidation of the Loan after reimbursement to itself
of such expenses and (ii) that such expenses will be recoverable to it through
Liquidation Proceeds (respecting which it shall have priority for purposes of
withdrawals from the Certificate Account). The Servicer shall be responsible for
all other costs and expenses incurred by it in any such proceedings; provided,
however, that it shall be entitled to reimbursement thereof from the liquidation
proceeds with respect to the related Mortgaged Property, as provided in the
definition of Liquidation Proceeds. If the Servicer has knowledge that a
Mortgaged Property which the Servicer is contemplating acquiring in foreclosure
or by deed in lieu of foreclosure is located within a one mile radius of any
site with environmental or hazardous waste risks known to the Servicer, the
Servicer will, prior to acquiring the Mortgaged Property, (i) consider such
risks and only take action in accordance with its established environmental
review procedures and (ii) consult with the Insurer and obtain the Insurer's
consent to such action.
With respect to any REO Property, the deed or certificate of sale shall be
taken in the name of the Trustee for the benefit of the Certificateholders, or
its nominee, on behalf of the Certificateholders. The Trustee's name shall be
placed on the title to such REO Property solely as the Trustee hereunder and not
in its individual capacity. The Servicer shall ensure that the title to such REO
Property references this Agreement and the Trustee's capacity thereunder. In
order to facilitate sales of REO Properties by the Servicer, upon the Servicer's
request, the Trustee shall promptly provide the Servicer with appropriate
limited durable powers of attorney or such other documentation as may reasonably
be required by the Servicer or purchasers of REO Properties to consummate such
sales. Pursuant to its efforts to sell such REO Property, the Servicer shall
either itself or through an agent selected by the Servicer protect and conserve
such REO Property in the same manner and to such extent as is customary in the
locality where such REO Property is located and may, incident to its
conservation and protection of the interests of the Certificateholders, rent the
same, or any part thereof, as the Servicer deems to be in the best interest of
the Certificateholders for the period prior to the sale of such REO Property.
The Servicer shall prepare for and deliver to the Trustee a statement with
respect to each REO Property that has been rented showing the aggregate rental
income received and all expenses incurred in connection with the management and
maintenance of such REO Property at such times as is necessary to enable the
Trustee to comply with the reporting requirements of the REMIC Provisions. The
net monthly income, if any, from such REO Property shall be deposited in the
Certificate Account no later than the close of business on each Determination
Date. The Servicer shall perform the tax reporting and withholding required by
Sections 1445 and 6050J of the Code with respect to foreclosures and
abandonments, the tax reporting required by Section 6050H of the Code with
respect to the receipt of mortgage interest from individuals and any tax
reporting required by Section 6050P of the Code with respect to the cancellation
of indebtedness by certain financial entities, by preparing such tax and
information returns as may be required, in the form required, and delivering the
same to the Trustee for filing.
44
<PAGE>
In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Loan, the Servicer shall dispose of such Mortgaged Property prior to three years
after its acquisition by the Trust Fund unless the Trustee shall have been
supplied with an Opinion of Counsel (which Opinion of Counsel shall not be at
the expense of the Trustee) to the effect that the holding by the Trust Fund of
such Mortgaged Property subsequent to such three-year period will not result in
the imposition of taxes on "prohibited transactions" of the REMIC hereunder as
defined in section 860F of the Code or cause the REMIC to fail to qualify as a
REMIC at any time that any Certificates are outstanding, in which case the Trust
Fund may continue to hold such Mortgaged Property (subject to any conditions
contained in such Opinion of Counsel). Notwithstanding any other provision of
this Agreement, no Mortgaged Property acquired by the Trust Fund shall be rented
(or allowed to continue to be rented) or otherwise used for the production of
income by or on behalf of the Trust Fund in such a manner or pursuant to any
terms that would (i) cause such Mortgaged Property to fail to qualify as
"foreclosure property" within the meaning of section 860G(a)(8) of the Code or
(ii) subject the REMIC to the imposition of any federal, state or local income
taxes on the income earned from such Mortgaged Property under Section 860G(c) of
the Code or otherwise, unless the Servicer has agreed to indemnify and hold
harmless the Trust Fund with respect to the imposition of any such taxes.
The decision of the Servicer to foreclose on a defaulted Loan shall be
subject to a determination by the Servicer that the proceeds of such foreclosure
would exceed the costs and expenses of bringing such a proceeding.
The proceeds from any liquidation of a Loan, as well as any income from an
REO Property, will be applied in the following order of priority: first, to
reimburse the Servicer for any related unreimbursed Servicing Advances and
Servicing Fees related to such Liquidated Loan; second, to reimburse the
Servicer for any unreimbursed Advances; third, to accrued and unpaid interest
(to the extent no Advance has been made for such amount or any such Advance has
been reimbursed) on the Loan or related REO Property, at the Adjusted Net
Mortgage Rate to the Due Date occurring in the calendar month preceding the
month in which such amounts are required to be distributed; and fourth, as a
recovery of principal of the Loan. Excess Proceeds, if any, from the liquidation
of a Liquidated Loan will be retained by the Servicer as additional servicing
compensation pursuant to Section 3.14.
The Servicer, in its sole discretion, shall have the right to purchase for
its own account or for resale as set forth herein from the Trust Fund any Loan
which is 91 days or more delinquent at a price equal to the Purchase Price. The
Purchase Price for any Loan purchased hereunder shall be deposited in the
Certificate Account and the Trustee, upon receipt of a Request for Release from
the Servicer substantially in the form of Exhibit J, shall release or cause to
be released to the Servicer the related Mortgage File and shall execute and
deliver such instruments of transfer or assignment prepared by the purchaser of
such Loan, in each case without recourse, as shall be necessary to vest in the
Servicer any Loan released pursuant hereto and the Servicer shall succeed to all
the Trustee's right, title and interest in and to such Loan and all security and
documents related thereto. Such assignment shall be a sale and assignment
45
<PAGE>
outright and not for security. The Servicer shall thereupon own such Loan, and
all security and documents, free of any further obligation to the Trustee or the
Certificateholders with respect thereto.
SECTION 3.12. Trustee to Cooperate; Release of Mortgage Files.
Upon the payment in full of any Loan, or the receipt by the Servicer of a
notification that payment in full will be escrowed in a manner customary for
such purposes, the Servicer will immediately notify the Trustee by delivering,
or causing to be delivered, a Request for Release substantially in the form of
Exhibit J. Upon receipt of such request, the Trustee shall promptly release the
related Mortgage File to the Servicer, and the Trustee shall at the Servicer's
direction execute and deliver to the Servicer the request for reconveyance, deed
of reconveyance or release or satisfaction of mortgage or such instrument
releasing the lien of the Mortgage in each case provided by the Servicer.
Expenses incurred in connection with any instrument of satisfaction or deed of
reconveyance shall be chargeable to the related Mortgagor. From time to time and
as shall be appropriate for the servicing or foreclosure of any Loan, including
for such purpose, collection under any policy of flood insurance, any fidelity
bond or errors or omissions policy, or for the purposes of effecting a partial
release of any Mortgaged Property from the lien of the Mortgage or the making of
any corrections to the Mortgage Note or the Mortgage or any of the other
documents included in the Mortgage File, the Trustee shall, upon delivery to the
Trustee of a Request for Release substantially in the form of Exhibit J signed
by a Servicing Officer, release the Mortgage File to the Servicer. Subject to
the further limitations set forth below, the Servicer shall cause the Mortgage
File or documents so released to be returned to the Trustee when the need
therefor by the Servicer no longer exists, unless the Loan is liquidated and the
proceeds thereof are deposited in the Certificate Account, in which case the
Servicer shall deliver to the Trustee a Request for Release substantially in the
form of Exhibit J, signed by a Servicing Officer.
If the Servicer at any time seeks to initiate a foreclosure proceeding in
respect of any Mortgaged Property as authorized by this Agreement, the Servicer
shall deliver or cause to be delivered to the Trustee, for signature, as
appropriate, any court pleadings, requests for trustee's sale or other documents
necessary to effectuate such foreclosure or any legal action brought to obtain
judgment against the Mortgagor on the Mortgage Note or the Mortgage or to obtain
a deficiency judgment or to enforce any other remedies or rights provided by the
Mortgage Note or the Mortgage or otherwise available at law or in equity.
SECTION 3.13. Documents Records and Funds in Possession of Servicer to be
Held for the Trustee.
Notwithstanding any other provisions of this Agreement, the Servicer shall
transmit to the Trustee as required by this Agreement all documents and
instruments in respect of a Loan coming into the possession of the Servicer from
time to time and shall account fully to the Trustee for any funds received by
the Servicer or which otherwise are collected by the Servicer as Liquidation
Proceeds or Insurance Proceeds in respect of any Loan. All Mortgage
46
<PAGE>
Files and funds collected or held by, or under the control of, the Servicer in
respect of any Loans, whether from the collection of principal and interest
payments or from Liquidation Proceeds, including but not limited to, any funds
on deposit in the Certificate Account, shall be held by the Servicer for and on
behalf of the Trustee and shall be and remain the sole and exclusive property of
the Trustee, subject to the applicable provisions of this Agreement. The
Servicer also agrees that it shall not create, incur or subject any Mortgage
File or any funds that are deposited in the Certificate Account, Distribution
Account, or any funds that otherwise are or may become due or payable to the
Trustee for the benefit of the Certificateholders or the Insurer, to any claim,
lien, security interest, judgment, levy, writ of attachment or other
encumbrance, or assert by legal action or otherwise any claim or right of setoff
against any Mortgage File or any funds collected on, or in connection with, a
Loan, except, however, that the Servicer shall be entitled to set off against
and deduct from any such funds any amounts that are properly due and payable to
the Servicer under this Agreement.
SECTION 3.14. Servicing Compensation.
As compensation for its activities hereunder, the Servicer shall be
entitled to retain or withdraw from the Certificate Account an amount equal to
the Servicing Fee for each Loan, provided that the aggregate Servicing Fee for
Loans in a particular Group with respect to any Distribution Date shall be
reduced (i) by an amount equal to the aggregate of the Prepayment Interest
Shortfalls relating to such Group, if any, with respect to such Distribution
Date, up to the full amount of the aggregate Servicing Fee for Loans in such
Group, and (ii) with respect to the first Distribution Date, an amount equal to
any amount relating to such Group to be deposited into the Distribution Account
by the Depositor pursuant to Section 2.01(a) and not so deposited.
Notwithstanding the preceding sentence, the Servicer shall, on each Distribution
Date after the Call Option Date, reduce its Servicing Fee for each of the Group
I Loans to the extent necessary to maintain the Weighted Average Adjusted Net
Mortgage Rate of the Loans in such Group at a rate no less than 7.20%.
Notwithstanding the second preceding sentence, the Servicer shall, on each
Distribution Date, reduce its Servicing Fee for each of the Group II Loans to
the extent necessary to maintain the Weighted Average Adjusted Net Mortgage Rate
of the Loans in such Group at a rate no less than: (i) on or prior to the Call
Option Date for so long as Equity One, Inc. is the Servicer, 6.98% and (ii)
after the Call Option Date, 7.48%.
Additional servicing compensation in the form of Excess Proceeds,
Prepayment Interest Excess, prepayment penalties, assumption fees, late payment
charges and all income and gain net of any losses realized from Permitted
Investments made with funds on deposit in the Certificate Account shall be
retained by the Servicer to the extent not required to be deposited in the
Certificate Account pursuant to Section 3.05 hereof. The Servicer shall be
required to pay all expenses incurred by it in connection with its servicing
activities hereunder and shall not be entitled to reimbursement therefor except
as specifically provided in this Agreement.
47
<PAGE>
SECTION 3.15. Access to Certain Documentation.
The Servicer shall provide to the OTS and the FDIC and to comparable
regulatory authorities supervising certain Certificateholders and the examiners
and supervisory agents of the OTS, the FDIC and such other authorities, access
to the documentation regarding the Loans required by applicable regulations of
the OTS and the FDIC. Such access shall be afforded without charge, but only
upon reasonable and prior written request and during normal business hours at
the offices designated by the Servicer. Nothing in this Section shall limit the
obligation of the Servicer to observe any applicable law prohibiting disclosure
of information regarding the Mortgagors and the failure of the Servicer to
provide access as provided in this Section as a result of such obligation shall
not constitute a breach of this Section.
SECTION 3.16. Annual Statement as to Compliance.
The Servicer shall deliver to the Depositor, the Insurer and the Trustee on
or before 120 days after the end of the Servicer's fiscal year, commencing with
its 1999 fiscal year, an Officer's Certificate stating, as to the signer
thereof, that (i) a review of the activities of the Servicer during the
preceding fiscal year and of the performance of the Servicer under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement 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. The Trustee
shall forward a copy of each such statement to each Rating Agency and to the
Insurer.
SECTION 3.17. Annual Independent Public Accountants' Servicing Statement;
Financial Statements.
On or before 120 days after the end of the Servicer's fiscal year,
commencing with its 1999 fiscal year, the Servicer at its expense shall cause a
nationally or regionally recognized firm of independent public accountants (who
may also render other services to the Servicer, the Seller or any affiliate
thereof) which is a member of the American Institute of Certified Public
Accountants to furnish a statement to the Trustee, the Insurer and the Depositor
to the effect that such firm has examined certain documents and records relating
to the servicing of the Loans under this Agreement and that, on the basis of
such examination, conducted substantially in compliance with the Uniform Single
Attestation Program for Mortgage Bankers or the Audit Program for Mortgages
serviced for FNMA and FHLMC, such servicing has been conducted in compliance
with this Agreement except for such significant exceptions or errors in records
that, in the opinion of such firm, the Uniform Single Attestation Program for
Mortgage Bankers or the Audit Program for Mortgages serviced for FNMA and FHLMC
requires it to report. In rendering such statement, such firm may rely, as to
matters relating to direct servicing of mortgage loans by Subservicers, upon
comparable statements for examinations conducted substantially in compliance
with the Uniform Single Attestation Program for Mortgage Bankers or the Audit
Program for Mortgages serviced for FNMA and FHLMC (rendered within one year
48
<PAGE>
of such statement) of independent public accountants with respect to the related
Subservicer. Copies of such statement shall be provided by the Trustee to any
Certificateholder upon request at the Servicer's expense, provided such
statement is delivered by the Servicer to the Trustee.
SECTION 3.18. Errors and Omissions Insurance; Fidelity Bonds.
The Servicer shall, for so long as it acts as servicer under this
Agreement, obtain and maintain in force (a) a policy or policies of insurance
covering errors and omissions in the performance of its obligations as Servicer
hereunder and (b) a fidelity bond in respect of its officers, employees and
agents. Each such policy or policies and bond shall, together, comply with the
requirements from time to time of FNMA or FHLMC for persons performing servicing
for mortgage loans purchased by FNMA or FHLMC. In the event that any such policy
or bond ceases to be in effect, the Servicer shall obtain a comparable
replacement policy or bond from an insurer or issuer, meeting the requirements
set forth above as of the date of such replacement.
SECTION 3.19. Optional Removal of Servicer by the Insurer.
If any of the following occur, the Insurer shall have the option (but not
the obligation), by notice in writing to the Servicer (with a copy to each
Rating Agency), to terminate all of the rights and obligations of the Servicer
under this Agreement and in and to the Loans and the proceeds thereof, other
than its rights as a Certificateholder hereunder:
(i) if on three consecutive Distribution Dates, the aggregate
outstanding principal balance of Loans more than 60 days contractually
delinquent (including Loans in foreclosure and REO Properties) as of the
end of the related Interest Accrual Period exceeds (a) prior to the
Step-Down Date, 6.00% of the Pool Principal Balance as of the end of the
related Interest Accrual Period or (b) on or after the Step-Down Date,
7.50% of the Pool Principal Balance as of the end of the related Interest
Accrual Period;
(ii) if on any Distribution Date, the cumulative Loan Losses over the
prior twelve month period exceed 1.00% of the average Pool Principal
Balance as of the end of the twelve preceding Interest Accrual Periods; or
(iii) if on any Distribution Date, the cumulative Loan Losses since
the Cut-Off Date exceed 2.50% of the Cut-off Date Pool Principal Balance.
On and after the receipt by the Servicer of the notice described in this
Section, all authority and power of the Servicer hereunder, whether with respect
to the Loans or otherwise, shall pass to and be vested in the Trustee, which
shall act as servicer in accordance with the duties and obligations described in
Sections 7.02 and 7.03.
49
<PAGE>
ARTICLE IIIA
SPREAD ACCOUNT; POLICY
SECTION 3A.01 Establishment of Spread Account; Deposits in Spread Account;
Permitted Withdrawals from Spread Account.
(a) No later than the Closing Date, the Trustee will establish and maintain
for the benefit of the Certificateholders and the Insurer an Eligible Account
titled "Spread Account, The Chase Manhattan Bank, as trustee for the registered
holders of Equity One ABS, Inc. Mortgage Pass-Through Certificates, Series
1998-1." The Spread Account will be initially funded by a deposit in the amount
of $312,576. The Spread Account shall be treated as a "qualified reserve fund"
under applicable Treasury regulations. Except as set forth in clause (d) of this
Section 3A.01, the Trustee shall, promptly upon receipt, deposit into the Spread
Account and retain therein:
(i) on each Distribution Date, the Class A-1 Monthly Spread Account
Deposit Amount transferred by the Trustee pursuant to Section 4.02(a)(viii)
and the Class A-2 Monthly Spread Account Deposit Amount transferred by the
Trustee pursuant to Section 4.02(b)(viii); and
(ii) upon receipt, amounts required to be deposited or to be paid by
the Servicer pursuant to Section 3.05(d) and (f) in connection with losses
and gains on investments of amounts in the Spread Account.
(b) Amounts on deposit in the Spread Account shall be withdrawn on each
Distribution Date by the Trustee in the following order of priority:
(i) to deposit in the Distribution Account, an amount equal to the
lesser of (A) the excess of (1) the sum of the Remittance Amounts for the
Class A-1 and Class A-2 Certificates for such Distribution Date over (2)
the sum of the Net Available Funds for the Class A-1 and the Class A-2
Certificates for such Distribution Date or (B) all remaining amounts in the
Spread Account (any such amount, the "Spread Account Draw"); and
(ii) to the extent that the amount on deposit in the Spread Account
exceeds the Specified Spread Account Requirement as of such Distribution
Date (such excess, a "Spread Account Excess"), an amount equal to such
Spread Account Excess shall be distributed to the Class R
Certificateholders.
(c) The Trustee shall also be entitled to take the following actions with
respect to the Spread Account:
50
<PAGE>
(i) invest amounts on deposit in the Spread Account in Eligible
Investments pursuant to Section 3.05(f);
(ii) withdraw any amount not required to be deposited in the Spread
Account or deposited therein in error at any time; and
(iii) clear and terminate the Spread Account upon the termination of
this Agreement and, upon such termination, to distribute the balance, if
any, to the Class R Certificateholders.
(d) On the Distribution Date on which all remaining principal as well as
any other amounts due have been paid to the Class A Certificateholders,
including the Insurer as subrogee of the Class A Certificateholders, and all I&I
Payments have been paid to the Insurer, the Trustee, after making any
withdrawals from the Spread Account required pursuant to Section 3A.01(b) or
(c), shall:
(i) clear and terminate the Spread Account, liquidate any investments
therein and distribute any uninvested funds therein or the proceeds of such
liquidation to the Class R Certificateholders; and
(ii) distribute future receipts of the Spread Account Deposit Amount
to the Class R Certificateholders.
(e) The Spread Account may be terminated at any time with the prior written
approval of the Insurer and the Rating Agencies and written confirmation that
such termination will not result in a downgrade of the Class A Certificates
without taking the Policy into account.
SECTION 3A.02 Policy.
(a) As soon as possible, and in no event later than 12:00 p.m. New York
City time on the second Business Day immediately preceding the Distribution
Date, the Trustee shall furnish the Insurer and the Servicer with a completed
notice in the form set forth as Exhibit A to the Endorsement to the Policy (the
"Notice") in the event that, with respect to either the Class A-1 Certificates
or the Class A-2 Certificates, the sum of the related Net Available Funds, the
related Cross-Collateralization Amount and the related Spread Account Draw is
insufficient to pay the Remittance Amount for such Class on such Distribution
Date. The Notice shall specify the Insured Amount required and shall constitute
a claim for an Insured Amount pursuant to the Policy. Upon receipt of Insured
Amounts on behalf of the Class A Certificateholders under the Policy, the
Trustee shall deposit such Insured Amounts in the Distribution Account and shall
distribute such Insured Amounts pursuant to Section 4.02.
(b) The Trustee shall receive, as attorney-in-fact of each Holder of a
Class A Certificate, any Insured Amount from the Insurer and disburse the same
to each Holder of a Class A Certificate in accordance with the provisions of
Section 4.02. Insured Amounts
51
<PAGE>
disbursed by the Trustee from proceeds of the Policy shall not be considered
payment by the Trust nor shall such payments discharge the obligation of the
Trust with respect to the related Class of Class A Certificates, and the related
Class Certificate Balance shall be deemed not reduced for such purposes and the
Insurer shall become the owner of such unpaid amounts due from the Trust in
respect of such Class of Class A Certificates. The Trustee hereby agrees on
behalf of each Holder of a Class A Certificate for the benefit of the Insurer
that it recognizes that to the extent the Insurer pays Insured Amounts, either
directly or indirectly (as by paying through the Trustee), to the Class A
Certificateholders, the Insurer will be subrogated to the rights of such Class A
Certificateholders, as applicable, with respect to such Insured Amount, shall be
deemed to the extent of the payments so made to be a registered Class A
Certificateholder for purposes of payment and shall receive all future related
Remittance Amounts until all such Insured Amounts paid by the Insurer have been
fully reimbursed, subject to the following paragraph. To evidence such
subrogation, the Trustee shall note the Insurer's rights as subrogee on the
registration books maintained by the Trustee and on any related Class A
Certificates surrendered for payment upon receipt from the Insurer of proof of
payment of any Insured Amount. Except as otherwise described herein, the Insurer
shall not acquire any voting rights hereunder as a result of such subrogation.
(c) It is understood and agreed that the intention of the parties is that
the Insurer shall not be entitled to reimbursement on any Distribution Date for
amounts previously paid by it unless on such Distribution Date the Class of
Class A Certificateholders shall also have received the full amount of the
related Remittance Amount for such Distribution Date.
(d) The Trustee shall keep complete and accurate records of the amount of
Insured Amounts paid and the Insurer shall have the right to inspect such
records at reasonable times upon one Business Day's prior notice to the Trustee.
(e) The Trustee shall promptly notify the Insurer of any proceeding or the
institution of any action seeking the avoidance as a preferential transfer under
applicable bankruptcy, insolvency, receivership or similar law (a "Preference
Claim") of any distribution made with respect to the Class A Certificates. Each
Holder, by its purchase of Class A Certificates, and the Trustee hereby agree
that the Insurer (so long as no Insurer Default exists) may at any time during
the continuation of any proceeding relating to a Preference Claim direct all
matters relating to such Preference Claim, including, without limitation, (i)
the direction of any appeal of any order relating to any Preference Claim and
(ii) the posting of any surety, supersedeas or performance bond pending any such
appeal. In addition and without limitation of the foregoing, the Insurer shall
be subrogated to the rights of the Trustee and each such Holder in the conduct
of any such Preference Claim, including, without limitation, all rights of any
party to an adversary proceeding action with respect to any order issued in
connection with any such Preference Claim. Insured Amounts paid by the Insurer
to the Trustee shall be received by the Trustee, as agent to the
Certificateholders. The Trustee is not permitted to make a claim on the Trust or
on any Certificateholder for payments made to Certificateholders under the
Policy which are characterized as preference payments by any federal bankruptcy
court having jurisdiction over any bankrupt Mortgagor unless ordered to do so by
such bankruptcy court.
52
<PAGE>
ARTICLE IV
DISTRIBUTIONS AND
ADVANCES BY THE SERVICER
SECTION 4.01. Advances.
The Servicer shall determine on or before each Servicer Advance Date
whether it is required to make an Advance pursuant to the definition thereof. If
the Servicer determines it is required to make an Advance, it shall, on or
before the Servicer Advance Date, either (i) deposit into the Certificate
Account an amount equal to the Advance or (ii) make an appropriate entry in its
records relating to the Certificate Account that any Amount Held for Future
Distribution has been used by the Servicer in discharge of its obligation to
make any such Advance. Any funds so applied shall be replaced by the Servicer by
deposit in the Certificate Account no later than the close of business on the
next Servicer Advance Date. The Servicer shall be entitled to be reimbursed from
the Certificate Account for all Advances of its own funds made pursuant to this
Section as provided in Section 3.08. The obligation to make Advances with
respect to any Loan shall continue if such Loan has been foreclosed or otherwise
terminated and the Mortgaged Property has not been liquidated.
SECTION 4.02. Priorities of Distribution.
(a) On each Distribution Date, the Trustee shall distribute the following
amounts from Class A-1 Distributable Funds, to the extent available, to the
parties and in the priorities indicated:
(i) first, to the Insurer, the portion of the Insurer's Monthly
Premium based upon the Class Certificate Balance of the Class A-1
Certificates;
(ii) second, to the Trustee, the portion of the Trustee Fee based
upon the Group Principal Balance of the Group I Loans, except to the extent
previously paid by withdrawals under Section 3.08;
(iii) third, to the Servicer, an amount equal to the sum of (i) the
aggregate Servicing Fee relating to the Group I Loans, except to the extent
previously paid by withdrawals under Section 3.08, and (ii) any other
amounts expended by the Servicer in connection with Group I Loans and
reimbursable thereto under this Agreement but not previously reimbursed;
(iv) fourth, to the Class A-1 Certificates, the related Interest
Distribution Amount;
53
<PAGE>
(v) fifth, to the Class A-1, Certificates, an amount equal to the
lesser of (A) the Certificate Formula Principal Amount for the Class A-1
Certificates or (B) the amount necessary to reduce the Class Certificate
Balance of the Class A-1 Certificates to zero;
(vi) sixth, to the Class A-2 Certificates to fund any Class A-2
Available Funds Shortfall;
(vii) seventh, to the Insurer, any I&I Payments then due and owing,
except to the extent paid pursuant to clause (b)(vii) below; and
(viii) eighth, for deposit into the Spread Account, the Class A-1
Monthly Spread Account Deposit Amount.
(b) On each Distribution Date, the Trustee shall distribute the following
amounts from Class A-2 Distributable Funds, to the extent available, to the
parties and in the priorities indicated:
(i) first, to the Insurer, the portion of the Insurer's Monthly
Premium based upon the Class Certificate Balance of the Class A-2
Certificates;
(ii) second, to the Trustee, the portion of the Trustee Fee based
upon the Group Principal Balance of the Group II Loans, except to the
extent previously paid by withdrawals under Section 3.08;
(iii) third, to the Servicer, an amount equal to the sum of (i) the
aggregate Servicing Fee relating to the Group II Loans, except to the
extent previously paid by withdrawals under Section 3.08, and (ii) any
other amounts expended by the Servicer in connection with Group II Loans
and reimbursable thereto under this Agreement but not previously
reimbursed;
(iv) fourth, to the Class A-2 Certificates, the related Interest
Distribution Amount;
(v) fifth, to the Class A-2, Certificates, an amount equal to the
lesser of (A) the Certificate Formula Principal Amount for the Class A-2
Certificates or (B) the amount necessary to reduce the Class Certificate
Balance of the Class A-2 Certificates to zero;
(vi) sixth, to the Class A-1 Certificates to fund any Class A-1
Available Funds Shortfall;
(vii) seventh, to the Insurer, any I&I Payments then due and owing,
except to the extent paid pursuant to clause (a)(vii) above; and
54
<PAGE>
(viii) eighth, for deposit into the Spread Account, the Class A-2
Monthly Spread Account Deposit Amount.
(c) On each Distribution Date, following all distributions made pursuant to
clauses (a) and (b) above, the Trustee shall distribute the Spread Account
Excess, if any, to the Class R Certificateholders.
(d) On each Distribution Date, the amount referred to in clause (i) of the
definition of Interest Distribution Amount for each Class of Certificates for
such Distribution Date shall be reduced by the amount of (i) Net Prepayment
Interest Shortfalls on Loans in the Applicable Group and (ii) Relief Act
Reductions on Loans in the Applicable Group incurred during the calendar month
preceding the month of such Distribution Date.
(e) If on any Distribution Date a Spread Account Draw is made by both the
Class A-1 and Class A-2 Certificates and the amount of funds on deposit in the
Spread Account is insufficient to cover both Spread Account Draws, funds on
deposit in the Spread Account shall be distributed to each Class on a pro rata
basis in proportion to the respective amounts of the Spread Account Draw for
each such Class.
SECTION 4.03. Monthly Statements to Certificateholders.
(a) Not later than each Distribution Date, the Trustee shall prepare and
cause to be forwarded by first class mail to each Certificateholder, the
Insurer, the Servicer, the Depositor and each Rating Agency a statement setting
forth with respect to the related distribution:
(i) with respect to each Group, the amount thereof allocable to
principal, separately identifying the aggregate amount of any Principal
Prepayments and Liquidation Proceeds included therein;
(ii) the amount thereof allocable to interest, any Class Unpaid
Interest Amount included in such distribution and any remaining Class
Unpaid Interest Amount after giving effect to such distribution;
(iii) if the distribution to the Holders of a Class of Certificates
is less than the full amount that would be distributable to such Holders if
there were sufficient funds available therefor, the amount of the shortfall
and the allocation thereof as between principal and interest;
(iv) the Class Certificate Balance of each Class of Certificates
after giving effect to the distribution of principal on such Distribution
Date;
55
<PAGE>
(v) the Pool Principal Balance and the Group Principal Balances for
the following Distribution Date;
(vi) with respect to each Group, the amount of the Servicing Fee
paid to or retained by the Servicer with respect to such Distribution Date;
(vii) the Pass-Through Rate for each such Class of Certificates with
respect to such Distribution Date;
(viii) with respect to each Group, the amount of Advances included in
the distribution on such Distribution Date and the aggregate amount of
Advances outstanding as of the close of business on such Distribution Date;
(ix) with respect to each Group, the number and aggregate principal
amounts of Loans (A) delinquent (exclusive of Loans in foreclosure) (1) 1
to 30 days (2) 31 to 60 days (3) 61 to 90 days and (4) 91 or more days and
(B) in foreclosure and delinquent (1) 1 to 30 days (2) 31 to 60 days (3) 61
to 90 days and (4) 91 or more days, as of the close of business on the last
day of the Prepayment Period preceding such Distribution Date;
(x) with respect to each Group and with respect to any Loan that
became an REO Property during the preceding calendar month, the loan number
and Stated Principal Balance of such Loan as of the close of business on
the last day of the Prepayment Period preceding such Distribution Date and
the date of acquisition thereof;
(xi) with respect to each Group, the total number and principal
balance of any REO Properties (and market value, if available) as of the
close of business on the last day of the Prepayment Period preceding such
Distribution Date;
(xii) with respect to each Group, the Cross-Collateralization Amount;
(xiii) with respect to each Group, the Spread Account Draw;
(xiv) the Class A-1 and Class A-2 Monthly Spread Account Deposit
Amounts, the percentage of the Class A-1 and Class A-2 Spread Account
Deposit Amounts used to determine such Class A-1 and Class A-2 Monthly
Spread Account Deposit Amounts, the Class A-1 and Class A-2 Spread Account
Deposit Amounts, the Spread Account Excess and the allocation of such
Spread Account Excess to Class R Certificateholders pursuant to Section
3A.01;
(xv) the amount on deposit in the Spread Account after the
Distribution Date;
(xvi) the Specified Spread Account Requirement; and
56
<PAGE>
(xvii) the amount equal to the sum of the Stated Principal Balances of
the three Loans in the Mortgage Pool with the largest individual Stated
Principal Balances.
(b) The Trustee's responsibility for disbursing the above information to
the Certificateholders is limited to the availability, timeliness and accuracy
of the information provided by the Servicer. On or before the third Business Day
following the end of each Prepayment Period, the Servicer shall deliver to the
Trustee a report, in a form acceptable to the Trustee, containing all of the
necessary information for the Trustee to complete items (i), (v), (vi),
(viii)-(xi) and (xvii) of the statement described in (a) above. The Trustee
shall be responsible for obtaining the necessary information to complete items
(ii), (iii), (iv), (vii) and (xii)-(xvi) of the statement described in (a)
above.
(c) Within a reasonable period of time after the end of each calendar year,
but in no case later than the time prescribed by the Code and applicable
Treasury regulations, the Trustee shall cause to be furnished to each Person who
at any time during the calendar year was a Certificateholder, a statement
containing the information set forth in clauses (a)(i), (a)(ii) and (a)(vii) of
this Section 4.03 aggregated for such calendar year or applicable portion
thereof during which such Person was a Certificateholder. Such obligation of the
Trustee shall be deemed to have been satisfied to the extent that substantially
comparable information shall be provided by the Trustee pursuant to any
requirements of the Code as from time to time in effect.
SECTION 4.04. Bloomberg Reporting.
On each Distribution Date, the Servicer shall provide to the Trustee
current information of the type set forth in Schedule I hereto presented in a
format substantially similar to Exhibit L attached hereto and the Trustee shall
then post such information on its internet bulletin board, or otherwise make
such information available to Bloomberg L.P.
ARTICLE V
THE CERTIFICATES
SECTION 5.01. The Certificates.
The Certificates shall be substantially in the forms attached hereto as
exhibits. The Certificates shall be issuable in the minimum denominations,
integral multiples in excess thereof (except that one Certificate in each Class
may be issued in a different amount which must be in excess of the applicable
minimum denomination) and aggregate denominations per Class set forth in the
Preliminary Statement.
Subject to Section 9.02 hereof respecting the final distribution on the
Certificates, on each Distribution Date the Trustee shall make distributions to
each Certificateholder of record
57
<PAGE>
on the preceding Record Date either (a) by wire transfer in immediately
available funds to the account of such Holder at a bank or other entity having
appropriate facilities therefor, if (i) such Holder has so notified the Trustee
at least five Business Days prior to the related Record Date and (ii) such
Holder shall hold (A) 100% of the Class Certificate Balance of any Class of
Certificates or (B) Certificates of any Class with an aggregate principal
Denomination of not less than $1,000,000 or (b) by check mailed by first class
mail to such Certificateholder at the address of such Holder appearing in the
Certificate Register.
The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer. Certificates bearing the manual
or facsimile signatures of individuals who were, at the time when such
signatures were affixed, authorized to sign on behalf of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the countersignature and delivery of such Certificates
or did not hold such offices at the date of such Certificate. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless countersigned by the Trustee by manual signature, and such
countersignature upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly executed and delivered hereunder.
All Certificates shall be dated the date of their countersignature. On the
Closing Date, the Trustee shall countersign the Certificates to be issued at the
direction of the Depositor, or any affiliate thereof.
The Depositor shall provide, or cause to be provided, to the Trustee on a
continuous basis, an adequate inventory of Certificates to facilitate transfers.
SECTION 5.02. Certificate Register; Registration of Transfer and Exchange
of Certificates.
(a) The Trustee shall maintain, or cause to be maintained in accordance
with the provisions of Section 5.06 hereof, a Certificate Register for the Trust
Fund in which, subject to the provisions of subsections (b) and (c) below and to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided. Upon surrender for registration of transfer of any
Certificate, the Trustee shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class and aggregate Percentage Interest.
At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of the same Class in authorized denominations and evidencing
the same aggregate Percentage Interest upon surrender of the Certificates to be
exchanged at the office or agency of the Trustee. Whenever any Certificates are
so surrendered for exchange, the Trustee shall execute, authenticate, and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for registration
of transfer or exchange shall be accompanied by a written instrument of transfer
in the form of Exhibit G duly executed by the Holder thereof or his attorney
duly authorized in writing.
58
<PAGE>
No service charge to the Certificateholders shall be made for any
registration of transfer or exchange of Certificates, but payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates may be required.
All Certificates surrendered for registration of transfer or exchange shall
be canceled and subsequently destroyed by the Trustee in accordance with the
Trustee's customary procedures.
(b) No transfer of a Class R Certificate shall be made unless such transfer
is made pursuant to an effective registration statement under the Securities Act
and any applicable state securities laws or is exempt from the registration
requirements under said Act and such state securities laws. In the event that a
transfer is to be made in reliance upon an exemption from the Securities Act and
such laws, in order to assure compliance with the Securities Act and such laws,
(i) the Certificateholder desiring to effect such transfer and such
Certificateholder's prospective transferee shall each certify to the Trustee in
writing the facts surrounding the transfer, the Certificateholder by delivering
a certificate in substantially the form set forth in Exhibit G (the "Transferor
Certificate") and the Certificateholder's prospective transferee by delivering a
letter in substantially the form of either Exhibit H (the "Investment Letter")
or Exhibit I (the "Rule 144A Letter") or (ii) there shall be delivered to the
Trustee at the expense of the transferor an Opinion of Counsel that such
transfer may be made pursuant to an exemption from the Securities Act. The
Depositor shall provide to any Holder of a Class R Certificate and any
prospective transferee designated by any such Holder, information regarding the
related Certificates and the Loans and such other information as shall be
necessary to satisfy the condition to eligibility set forth in Rule 144A(d)(4)
for transfer of any such Certificate without registration thereof under the
Securities Act pursuant to the registration exemption provided by Rule 144A. The
Trustee and the Servicer shall cooperate with the Depositor in providing the
Rule 144A information referenced in the preceding sentence, including providing
to the Depositor such information regarding the Certificates, the Loans and
other matters regarding the Trust Fund as the Depositor shall reasonably request
to meet its obligation under the preceding sentence. Each Holder of a Class R
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee and the Depositor, the Sellers and the Servicer against
any liability that may result if the transfer is not so exempt or is not made in
accordance with such federal and state laws.
No transfer of an Class R Certificate shall be made unless the Trustee
shall have received (i) a representation letter from the transferee
substantially in the form of Exhibit H or Exhibit I, to the effect that such
transferee is not an employee benefit plan or arrangement subject to Section 406
of ERISA or a plan or arrangement subject to Section 4975 of the Code, nor a
person acting on behalf of any such plan or arrangement, nor using the assets of
any such plan or arrangement to effect such transfer, (ii) if the purchaser is
an insurance company, a representation that the purchaser is an insurance
company which is purchasing such Certificates with funds contained in an
"insurance company general account" (as such term is defined in Section V(e) of
Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the
59
<PAGE>
purchase and holding of such Certificates are covered under PTCE 95-60 or (iii)
in the case of any such Class R Certificate presented for registration in the
name of an employee benefit plan subject to ERISA, or a plan or arrangement
subject to Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement, or using such plan's or arrangement's assets,
an Opinion of Counsel satisfactory to the Trustee, which Opinion of Counsel
shall not be an expense of either the Trustee or the Trust Fund, addressed to
the Trustee to the effect that the purchase or holding of such Class R
Certificate will not result in the assets of the Trust Fund being deemed to be
"plan assets" and subject to the prohibited transaction provisions of ERISA and
the Code and will not subject the Trustee to any obligation in addition to those
expressly undertaken in this Agreement or to any liability. Notwithstanding
anything else to the contrary herein, any purported transfer of a Class R
Certificate to or on behalf of an employee benefit plan subject to ERISA or to
the Code without the delivery to the Trustee of an Opinion of Counsel
satisfactory to the Trustee as described above shall be void and of no effect.
To the extent permitted under applicable law (including, but not limited
to, ERISA), the Trustee shall be under no liability to any Person for any
registration of transfer of any Class R Certificate that is in fact not
permitted by this Section 5.02(b) or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect to
such Holder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the foregoing requirements.
(c) Each Person who has or who acquires any Ownership Interest in a Class R
Certificate shall be deemed by the acceptance or acquisition of such Ownership
Interest to have agreed to be bound by the following provisions, and the rights
of each Person acquiring any Ownership Interest in a Class R Certificate are
expressly subject to the following provisions:
(i) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate must be a Permitted Transferee and shall promptly
notify the Trustee of any change or impending change in its status as a
Permitted Transferee.
(ii) No Ownership Interest in a Class R Certificate may be registered
on the Closing Date or thereafter transferred, and the Trustee shall not
register the Transfer of any Class R Certificate unless, in addition to the
certificates required to be delivered to the Trustee under subparagraph (b)
above, the Trustee shall have been furnished with an affidavit (a "Transfer
Affidavit") of the initial owner or the proposed transferee in the form
attached hereto as Exhibit F.
(iii) Each Person holding or acquiring any Ownership Interest in a
Class R Certificate shall agree (A) to obtain a Transfer Affidavit from any
other Person to whom such Person attempts to Transfer its Ownership
Interest in a Class R Certificate, (B) to obtain a Transfer Affidavit from
any Person for whom such Person is acting as nominee, trustee or agent in
connection with any Transfer of a Class R Certificate and (C) not to
Transfer its Ownership Interest in a Class R Certificate or to cause the
Transfer of
60
<PAGE>
an Ownership Interest in a Class R Certificate to any other
Person if it has actual knowledge that such Person is not a Permitted
Transferee.
(iv) Any attempted or purported Transfer of any Ownership Interest in
a Class R Certificate in violation of the provisions of this Section
5.02(b) shall be absolutely null and void and shall vest no rights in the
purported Transferee. If any purported transferee shall become a Holder of
a Class R Certificate in violation of the provisions of this Section
5.02(b), then the last preceding Permitted Transferee shall be restored to
all rights as Holder thereof retroactive to the date of registration of
Transfer of such Class R Certificate. The Trustee shall be under no
liability to any Person for any registration of Transfer of a Class R
Certificate that is in fact not permitted by this Section or for making any
payments due on such Certificate to the Holder thereof or taking any other
action with respect to such Holder under the provisions of this Agreement
so long as the Transfer was registered after receipt of the related
Transfer Affidavit, Transferor Certificate and either the Rule 144A Letter
or the Investment Letter. The Trustee shall be entitled but not obligated
to recover from any Holder of a Class R Certificate that was in fact not a
Permitted Transferee at the time it became a Holder or, at such subsequent
time as it became other than a Permitted Transferee, all payments made on
such Class R Certificate at and after either such time. Any such payments
so recovered by the Trustee shall be paid and delivered by the Trustee to
the last preceding Permitted Transferee of such Certificate.
(v) The Depositor shall use its best efforts to make available, upon
receipt of written request from the Trustee, all information necessary to
compute any tax imposed under Section 860E(e) of the Code as a result of a
Transfer of an Ownership Interest in a Class R Certificate to any Holder
who is not a Permitted Transferee.
The restrictions on Transfers of a Class R Certificate set forth in this
Section 5.02(b) shall cease to apply (and the applicable portions of the legend
on a Class R Certificate may be deleted) with respect to Transfers occurring
after delivery to the Trustee of an Opinion of Counsel, which Opinion of Counsel
shall not be an expense of the Trust Fund, the Trustee, the Sellers or the
Servicer, to the effect that the elimination of such restrictions will not cause
the Trust Fund hereunder to fail to qualify as a REMIC at any time that the
Certificates are outstanding or result in the imposition of any tax on the Trust
Fund, a Certificateholder or another Person. Each Person holding or acquiring
any Ownership Interest in a Class R Certificate hereby consents to any amendment
of this Agreement which, based on an Opinion of Counsel furnished to the
Trustee, is reasonably necessary (a) to ensure that the record ownership of, or
any beneficial interest in, a Class R Certificate is not transferred, directly
or indirectly, to a Person that is not a Permitted Transferee and (b) to provide
for a means to compel the Transfer of a Class R Certificate which is held by a
Person that is not a Permitted Transferee to a Holder that is a Permitted
Transferee.
61
<PAGE>
(d) The preparation and delivery of all certificates and opinions referred
to above in this Section 5.02 in connection with transfer shall be at the
expense of the parties to such transfers.
(e) Except as provided below, the Book-Entry Certificates shall at all
times remain registered in the name of the Depository or its nominee and at all
times: (i) registration of the Certificates may not be transferred by the
Trustee except to another Depository; (ii) the Depository shall maintain
book-entry records with respect to the Beneficial Owners and with respect to
ownership and transfers of such Book-Entry Certificates; (iii) ownership and
transfers of registration of the Book-Entry Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iv) the Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (v) the Trustee shall deal with the
Depository, Depository Participants and indirect participating firms as
representatives of the Beneficial Owners of the Book-Entry Certificates for
purposes of exercising the rights of Holders under this Agreement, and requests
and directions for and votes of such representatives shall not be deemed to be
inconsistent if they are made with respect to different Beneficial Owners; and
(vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Beneficial Owners.
All transfers by Beneficial Owners of Book-Entry Certificates shall be made
in accordance with the procedures established by the Depository Participant or
brokerage firm representing such Beneficial Owner. Each Depository Participant
shall only transfer Book-Entry Certificates of Beneficial Owners it represents
or of brokerage firms for which it acts as agent in accordance with the
Depository's normal procedures.
If (x)(i) the Servicer advises the Trustee in writing that the Depository
is no longer willing or able to properly discharge its responsibilities as
Depository, and (ii) the Trustee is unable to locate a qualified successor, (y)
the Servicer at its option advises the Trustee in writing that it elects to
terminate the book-entry system through the Depository or (z) after the
occurrence of an Event of Default or the resignation or removal of the Servicer,
Beneficial Owners representing at least 51% of the aggregate Certificate Balance
of all Book-Entry Certificates together advise the Depository, either directly
or through the Depository Participants, in writing (with instructions to notify
the Trustee in writing) that the continuation of a book-entry system through the
Depository is no longer in the best interests of the Beneficial Owners. Upon the
occurrence of any of the events described in the immediately preceding sentence,
the Trustee shall notify all Beneficial Owners of the occurrence of any such
event and of the availability through the Depository of definitive,
fully-registered Certificates (the "Definitive Certificates") to Beneficial
Owners requesting the same. Upon surrender to the Trustee of the related Class
of Certificates by the Depository, accompanied by the instructions from the
Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Servicer, the Depositor nor the Trustee shall be
liable for any delay in delivery of such instruction and each may conclusively
rely on, and shall be protected in relying on, such
62
<PAGE>
instructions. The Servicer shall provide the Trustee with an adequate inventory
of certificates to facilitate the issuance and transfer of Definitive
Certificates. Upon the issuance of Definitive Certificates all references herein
to obligations imposed upon or to be performed by the Depository shall be deemed
to be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder; provided
that the Trustee shall not by virtue of its assumption of such obligations
become liable to any party for any act or failure to act of the Depository.
SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.
If (a) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate and (b) there is delivered to the Servicer and the Trustee
such security or indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Trustee that such Certificate
has been acquired by a bona fide purchaser, the Trustee shall execute,
countersign and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like Class, tenor
and Percentage Interest. In connection with the issuance of any new Certificate
under this Section 5.03, the Trustee 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 expenses (including the fees and expenses of the Trustee)
connected therewith. Any replacement Certificate issued pursuant to this Section
5.03 shall constitute complete and indefeasible evidence of ownership, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.
SECTION 5.04. Persons Deemed Owners.
The Servicer, the Trustee and any agent of the Servicer or the Trustee may
treat the Person in whose name any Certificate is registered as the owner of
such Certificate for the purpose of receiving distributions as provided in this
Agreement and for all other purposes whatsoever, and neither the Servicer, the
Trustee nor any agent of the Servicer or the Trustee shall be affected by any
notice to the contrary.
SECTION 5.05. Access to List of Certificateholders' Names and Addresses.
If three or more Certificateholders (a) request such information in writing
from the Trustee, (b) state that such Certificateholders desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates and (c) provide a copy of the communication which such
Certificateholders propose to transmit, or if the Depositor or Servicer shall
request such information in writing from the Trustee, then the Trustee shall,
within ten Business Days after the receipt of such request, provide the
Depositor, the Servicer or such Certificateholders at such recipients' expense
the most recent list of the Certificateholders of such Trust Fund held by the
Trustee, if any. The Depositor and every Certificateholder, by receiving and
holding a Certificate, agree that the Trustee shall not be held
63
<PAGE>
accountable by reason of the disclosure of any such information as to the list
of the Certificateholders hereunder, regardless of the source from which such
information was derived.
SECTION 5.06. Maintenance of Office or Agency.
The Trustee will maintain or cause to be maintained at its expense an
office or offices or agency or agencies in New York City where Certificates may
be surrendered for registration of transfer or exchange. The Trustee initially
designates its Corporate Trust Office for such purposes. The Trustee will give
prompt written notice to the Certificateholders of any change in such location
of any such office or agency.
ARTICLE VI
THE DEPOSITOR AND THE SERVICER
SECTION 6.01. Respective Liabilities of the Depositor and the Servicer.
The Depositor and the Servicer shall each be liable in accordance herewith
only to the extent of the obligations specifically and respectively imposed upon
and undertaken by them herein.
SECTION 6.02. Merger or Consolidation of the Depositor or the Servicer.
The Depositor and the Servicer will each keep in full effect their
respective existence, rights and franchises as a corporation under the laws of
the United States or under the laws of one of the states thereof and will each
obtain and preserve their respective qualifications to do business as a foreign
corporation in each jurisdiction in which such qualification is or shall be
necessary to protect the validity and enforceability of this Agreement, or any
of the Loans and to perform its respective duties under this Agreement.
Any Person into which the Depositor or the Servicer may be merged or
consolidated, or any Person resulting from any merger or consolidation to which
the Depositor or the Servicer shall be a party, or any person succeeding to the
business of the Depositor or the Servicer, shall be the successor of the
Depositor or the Servicer, as the case may be, hereunder, without the execution
or filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding; provided, however, that
the successor or surviving Person to the Servicer shall be qualified to sell
mortgage loans to, and to service mortgage loans on behalf of, FNMA or FHLMC and
shall be reasonably acceptable to the Insurer.
64
<PAGE>
SECTION 6.03. Limitation on Liability of the Depositor, the Sellers, the
Servicer and Others.
None of the Depositor, the Sellers, the Servicer or any of the directors,
officers, employees or agents of the Depositor, the Sellers or the Servicer
shall be under any liability to the Certificateholders for any action taken or
for refraining from the taking of any action in good faith pursuant to this
Agreement, or for errors in judgment; provided, however, that this provision
shall not protect the Depositor, the Sellers, the Servicer or any such Person
against any breach of representations or warranties made by it herein or protect
the Depositor, the Sellers, the Servicer or any such Person from any liability
which would otherwise be imposed by reasons of willful misfeasance, bad faith or
gross negligence in the performance of duties or by reason of reckless disregard
of obligations and duties hereunder. The Depositor, the Sellers, the Servicer
and any director, officer, employee or agent of the Depositor, the Sellers or
the Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Depositor, the Sellers, the Servicer and any director, officer,
employee or agent of the Depositor, the Sellers or the Servicer shall be
indemnified by the Trust Fund and held harmless against any loss, liability or
expense incurred in connection with any audit, controversy or judicial
proceeding relating to a governmental taxing authority or any legal action
relating to this Agreement or the Certificates, other than any loss, liability
or expense related to any specific Loan or Loans (except as any such loss,
liability or expense shall be otherwise reimbursable pursuant to this Agreement)
and any loss, liability or expense incurred by reason of willful misfeasance,
bad faith or gross negligence in the performance of duties hereunder or by
reason of reckless disregard of obligations and duties hereunder. None of the
Depositor, the Sellers or the Servicer shall be under any obligation to appear
in, prosecute or defend any legal action that is not incidental to its
respective duties hereunder and which in its opinion may involve it in any
expense or liability; provided, however, that any of the Depositor, the Sellers
or the Servicer may in its discretion undertake any such action that it may deem
necessary or desirable in respect of this Agreement and the rights and duties of
the parties hereto and interests of the Trustee and the Certificateholders
hereunder. In such event, the legal expenses and costs of such action and any
liability resulting therefrom shall be expenses, costs and liabilities of the
Trust Fund, and the Depositor, the Sellers and the Servicer shall be entitled to
be reimbursed therefor out of the Certificate Account.
SECTION 6.04. Limitation on Resignation of Servicer.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) upon appointment of a successor servicer acceptable to
the Insurer and receipt by the Trustee of a letter from each Rating Agency that
such a resignation and appointment will not result in a downgrading of the
rating of any of the Certificates without taking the Policy into account or (b)
upon determination that its duties hereunder are no longer permissible under
applicable law. Any such determination under clause (b) permitting the
resignation of the Servicer shall be evidenced by an Opinion of Counsel to such
effect delivered to the Trustee. No such resignation shall become effective
until the Trustee or a successor servicer reasonably
65
<PAGE>
acceptable to the Insurer shall have assumed the Servicer's responsibilities,
duties, liabilities and obligations hereunder.
SECTION 6.05. Indemnification.
The Servicer agrees to indemnify and hold the Trustee, the Depositor, the
Insurer and each Certificateholder harmless against any and all claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the Depositor, the Insurer or
any Certificateholder may sustain directly resulting from the negligence or
willful misconduct of the Servicer in the performance of its duties hereunder or
in the servicing of the Mortgage Loans in compliance with the terms of this
Agreement. The Servicer shall not be liable or responsible for any of the
representations, covenants, warranties, responsibilities, duties or liabilities
of any prior servicer. The Servicer shall immediately notify the Trustee, the
Depositor, the Insurer and each Certificateholder if a claim is made by a third
party for which any of such parties could require indemnification from the
Servicer under this Section 6.05, and the Servicer shall assume (with the
consent of the Trustee and the Insurer) the defense of any such claim and
advance all expenses in connection therewith, including reasonable counsel fees,
and promptly advance funds to pay, discharge and satisfy any non-appealable,
final judgment or decree which may be entered against the Servicer, the Trustee,
the Depositor, the Insurer and/or the Certificateholder in respect of such
claim. Anything in this Agreement to the contrary notwithstanding, in no event
shall the Trustee be liable for special, indirect or consequential loss or
damage of any kind whatsoever (including but not limited to lost profits), even
if the Trustee has been advised of the likelihood of such loss or damage and
regardless of the form of action. The indemnity provided for in this Section
6.05 shall survive the termination of the Agreement.
ARTICLE VII
DEFAULT
SECTION 7.01. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events:
(i) any failure by the Servicer to deposit in the Certificate
Account or remit to the Trustee any payment (other than a payment required
to be made under Section 4.01 hereof) required to be made with respect to
any Class of Certificates under the terms of this Agreement, which failure
shall continue unremedied for five days after the date upon which written
notice of such failure shall have been given (a) to the Servicer by the
Trustee or the Depositor or (b) to the Servicer, the Depositor and the
Trustee by the Insurer or the Holders of Certificates of such Class
evidencing not less than 25% of the Voting Rights allocated to such Class;
66
<PAGE>
(ii) any failure by the Servicer to duly observe or perform in any
material respect any other of the covenants or agreements on the part of
the Servicer contained in this Agreement, which failure shall continue
unremedied for a period of thirty days after the date on which written
notice of such failure shall have been given (a) to the Servicer by the
Trustee or the Depositor or (b) to the Servicer, the Depositor and the
Trustee by the Insurer or the Holders of Certificates of any Class
evidencing not less than 25% of the Voting Rights allocated to such Class;
(iii) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceeding, or for the winding-up or liquidation
of its affairs, shall have been entered against the Servicer and such
decree or order shall have remained in force undischarged or unstayed for a
period of 60 consecutive days;
(iv) the Servicer shall consent to the appointment of a receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets
and liabilities or similar proceedings of or relating to the Servicer or
all or substantially all of the property of the Servicer;
(v) the Servicer shall admit in writing its inability to pay its
debts generally as they become due, file a petition to take advantage of,
or commence a voluntary case under, any applicable insolvency or
reorganization statute, make an assignment for the benefit of its
creditors, or voluntarily suspend payment of its obligations;
(vi) so long as the Servicer is a Seller, any failure by any Seller
to observe or perform in any material respect any of the other covenants or
agreements on the part of any Seller contained in this Agreement, which
failure shall continue unremedied for a period of 60 days after the date on
which written notice of such failure shall have been given to such Seller
by the Trustee or the Depositor, or to such Seller and the Trustee by the
Insurer or the Holders of Certificates of any Class evidencing not less
than 25% of the Voting Rights allocated to such Class; or
(vii) any failure of the Servicer to make any Advance in the manner
and at the time required to be made pursuant to Section 4.01 which
continues unremedied for a period of one Business Day after the date of
such failure.
If an Event of Default described in clauses (i) to (vi) of this Section
shall occur, then, and in each and every such case, so long as such Event of
Default shall not have been remedied, the Trustee shall, at the direction of the
Insurer, or may, or at the direction of the Holders of Certificates of any Class
evidencing not less than 25% of the Voting Rights allocated to such Class and
with the consent of the Insurer, the Trustee shall by notice in writing to the
Servicer (with a copy to each Rating Agency), terminate all of the rights and
obligations of the
67
<PAGE>
Servicer under this Agreement and in and to the Loans and the proceeds thereof,
other than its rights as a Certificateholder hereunder. If an Event of Default
described in clause (vii) hereof shall occur, the Trustee shall, at the
direction of the Insurer, by notice in writing to the Servicer and the
Depositor, terminate all of the rights and obligations of the Servicer under
this Agreement and in and to the Loans and the proceeds thereof, other than its
rights as a Certificateholder hereunder. On and after the receipt by the
Servicer of such written notice, all authority and power of the Servicer
hereunder, whether with respect to the Loans or otherwise, shall pass to and be
vested in the Trustee. The Trustee shall, subject to Section 3.04 hereof,
4thereupon make any Advance described in clause (vii) hereof. The Trustee is
hereby authorized and empowered to execute and deliver, on behalf of the
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination, whether to
complete the transfer and endorsement or assignment of the Loans and related
documents, or otherwise. Unless expressly provided in such written notice, no
such termination shall affect any obligation of the Servicer to pay amounts owed
pursuant to Article VIII. The Servicer agrees to cooperate with the Trustee in
effecting the termination of the Servicer's responsibilities and rights
hereunder, including, without limitation, the transfer to the Trustee of all
cash amounts which shall at the time be credited to the Certificate Account, or
thereafter be received with respect to the Loans.
Notwithstanding any termination of the activities of the Servicer
hereunder, the Servicer shall be entitled to receive, out of any late collection
of a Scheduled Payment on a Loan which was due prior to the notice terminating
such Servicer's rights and obligations as Servicer hereunder and received after
such notice, that portion thereof to which such Servicer would have been
entitled pursuant to Sections 3.08(a)(i) through (viii), and any other amounts
payable to such Servicer hereunder the entitlement to which arose prior to the
termination of its activities hereunder.
SECTION 7.02. Trustee to Act; Appointment of Successor.
On and after the time the Servicer receives a notice of termination
pursuant to Section 7.01 hereof, the Trustee shall, subject to and to the extent
provided in Section 3.04, be the successor to the Servicer in its capacity as
servicer under this Agreement and the transactions set forth or provided for
herein and shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof and
applicable law including the obligation to make Advances pursuant to Section
4.01. As compensation therefor, the Trustee shall be entitled to all funds
relating to the Loans that the Servicer would have been entitled to charge to
the Certificate Account or Distribution Account if the Servicer had continued to
act hereunder. Notwithstanding the foregoing, if the Trustee has become the
successor to the Servicer in accordance with Section 7.01 hereof, the Trustee
may, if it shall be unwilling to so act, or shall, if it is prohibited by
applicable law from making Advances pursuant to Section 4.01 hereof or if it is
otherwise unable to so act, appoint, or petition a court of competent
jurisdiction to appoint, any established mortgage loan servicing institution the
appointment of which does not adversely affect the then current rating of the
68
<PAGE>
Certificates by each Rating Agency as the successor to the Servicer hereunder in
the assumption of all or any part of the responsibilities, duties or liabilities
of the Servicer hereunder. Any successor to the Servicer shall be reasonably
acceptable to the Insurer and shall be an institution which is a FNMA and FHLMC
approved seller/servicer in good standing, which has a net worth of at least
$10,000,000, and which is willing to service the Loans and executes and delivers
to the Depositor and the Trustee an agreement accepting such delegation and
assignment, which contains an assumption by such Person of the rights, powers,
duties, responsibilities, obligations and liabilities of the Servicer (other
than liabilities of the Servicer under Section 6.03 hereof incurred prior to
termination of the Servicer under Section 7.01), with like effect as if
originally named as a party to this Agreement; and provided further that no such
delegation and assignment shall become effective unless each Rating Agency
acknowledges that its rating of the Certificates in effect immediately prior to
such delegation and assignment will not be qualified or reduced as a result of
such delegation and assignment without taking the Policy into account. Pending
appointment of a successor to the Servicer hereunder, the Trustee, unless the
Trustee is prohibited by law from so acting, shall, subject to Section 3.04
hereof, act in such capacity as hereinabove provided. In connection with such
appointment and assumption, the Trustee may make such arrangements for the
compensation of such successor out of payments on Loans as it and such successor
shall agree; provided, however, that no such compensation shall be in excess of
the Servicing Fee permitted the Servicer hereunder. The Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession. Neither the Trustee nor any other
successor servicer shall be deemed to be in default hereunder by reason of any
failure to make, or any delay in making, any distribution hereunder or any
portion thereof or any failure to perform, or any delay in performing, any
duties or responsibilities hereunder, in either case caused by the failure of
the Servicer to deliver or provide, or any delay in delivering or providing, any
cash, information, documents or records to it.
Any successor to the Servicer as servicer shall give notice to the
Mortgagors of such change of servicer.
SECTION 7.03. Notification to Certificateholders.
(a) Upon any termination or appointment of a successor to the Servicer, the
Trustee shall give prompt written notice thereof to Certificateholders, the
Insurer and to each Rating Agency.
(b) Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.
69
<PAGE>
ARTICLE VIII
CONCERNING THE TRUSTEE
SECTION 8.01. Duties of Trustee.
The Trustee, prior to the occurrence of an Event of Default of which a
Responsible Officer of the Trustee shall have actual knowledge and after the
curing of all Events of Default that may have occurred, shall undertake to
perform such duties and only such duties as are specifically set forth in this
Agreement. In case an Event of Default of which a Responsible Officer of the
Trustee shall have actual knowledge has occurred and remains uncured or waived,
the Trustee shall exercise such of the rights and powers vested in it by this
Agreement, and use the same degree of care and skill in their exercise as a
prudent Person would exercise or use under the circumstances in the conduct of
such Person's own affairs.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement shall examine them to determine whether they are in the form
required by this Agreement; provided, however, that the Trustee shall not be
responsible for the accuracy or content of any such resolution, certificate,
statement, opinion, report, document, order or other instrument.
Unless an Event of Default of which a Responsible Officer of the Trustee
shall have actual knowledge shall have occurred and be continuing, the duties
and obligations of the Trustee shall be determined solely by the express
provisions of this Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be read into this Agreement
against the Trustee and the Trustee may conclusively rely, as to the truth of
the statements and the correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Agreement which it believed in good faith to be genuine and
to have been duly executed by the proper authorities respecting any matters
arising hereunder.
The Trustee shall not be liable for an error of judgment made in good faith
by a Responsible Officer or other officers of the Trustee, unless it shall be
finally proven that the Trustee was negligent in ascertaining the pertinent
facts.
The Trustee shall not be liable with respect to any action taken, suffered
or omitted to be taken by it in good faith in accordance with this Agreement or
with the direction of the Insurer or Holders of Certificates evidencing not less
than 25% of the Voting Rights of the Certificates relating to the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee under this
Agreement.
70
<PAGE>
Subject to the other provisions of this Agreement and without limiting the
generality of this Section 8.01, the Trustee shall have no duty (A) to see to
any recording, filing, or depositing of this Agreement or any agreement referred
to herein or any financing statement or continuation statement evidencing a
security interest, or to see to the maintenance of any such recording or filing
or depositing or to any re-recording, refiling or redepositing of any thereof,
(B) to see to any insurance, (C) to see to the payment or discharge of any tax,
assessment, or other governmental charge or any lien or encumbrance of any kind
owing with respect to, assessed or levied against any part of the Trust Fund
other than from funds available in the Certificate Account or (D) to confirm or
verify the contents of any reports or certificates of the Servicer delivered to
the Trustee pursuant to this Agreement believed by the Trustee to be genuine and
to have been signed or presented by the proper party or parties; provided,
however, that the provisions of this Section 8.01(iv) shall not apply during any
period during which the Trustee is acting in the capacity of servicer.
Notwithstanding anything contained in this Section 8.01 to the contrary, no
provision of this Agreement shall be construed to relieve the Trustee from
liability for its own negligent action, its own negligent failure to act or its
own willful misconduct.
SECTION 8.02 Certain Matters Affecting the Trustee.
Except as otherwise provided in Section 8.01:
(i) the Trustee (acting as Trustee, Tax Matters Person or as agent
of the Tax Matters Person for the REMIC) may request and rely upon and
shall be protected in acting or refraining from acting upon any resolution,
Officers' Certificate, Opinion of Counsel, certificate of auditors or any
other certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties and the Trustee shall have no responsibility to ascertain or
confirm the genuineness of any signature of any such party or parties;
(ii) the Trustee (acting as Trustee, Tax Matters Person or as agent
of the Tax Matters Person for the REMIC) may consult with counsel,
financial advisers or accountants and the advice of any such counsel,
financial advisers or accountants and any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance with
such Opinion of Counsel;
(iii) the Trustee shall not be liable for any action taken, suffered
or omitted by it in good faith and believed by it to be authorized or
within the discretion or rights or powers conferred upon it by this
Agreement;
(iv) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion,
71
<PAGE>
report, notice, request, consent, order, approval, bond or other paper or
document, unless requested in writing so to do by Holders of Certificates
evidencing not less than 25% of the Voting Rights allocated to each Class
of Certificates; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the security afforded
to it by the terms of this Agreement, the Trustee may require reasonable
indemnity against such cost, expense or liability as a condition to taking
any such action. The reasonable expense of every such examination shall be
paid by the Servicer or if paid by the Trustee, shall be repaid by the
Servicer upon demand from the Servicer's own funds;
(v) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents,
accountants, custodians or attorneys, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent,
accountant, custodian or attorney appointed by the Trustee with due care;
(vi) the Trustee shall not be required to risk or expend its own
funds or otherwise incur any financial liability in the performance of any
of its duties or in the exercise of any of its rights or powers hereunder
if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not assured
to it, and none of the provisions contained in this Agreement shall in any
event require the Trustee to perform, or be responsible for the manner of
performance of, any of the obligations of the Servicer under this Agreement
except during such time, if any, as the Trustee shall be the successor to,
and be vested with the rights, duties, powers and privileges of the
Servicer in accordance with the terms of this Agreement;
(vii) the Trustee shall not be liable for any loss on any investment
of funds pursuant to this Agreement (other than as issuer of the investment
security);
(viii) the Trustee shall not be required to take notice or be deemed
to have knowledge of any Event of Default (except an event of nonpayment by
the Servicer) until a Responsible Officer of the Trustee shall have
received written notice thereof, and in the absence of receipt of such
notice, the Trustee may conclusively assume that there is no default or
Event of Default;
(ix) the Trustee shall be under no obligation to exercise any of the
trusts, rights or powers vested in it by this Agreement or to institute,
conduct or defend any litigation hereunder or in relation hereto at the
request, order or direction of any of the Certificateholders, pursuant to
the provisions of this Agreement, unless such Certificateholders shall have
offered to the Trustee reasonable security or indemnity satisfactory to the
Trustee against the costs, expenses and liabilities which may be incurred
therein or thereby;
72
<PAGE>
(x) the right of the Trustee to perform any discretionary act
enumerated in this Agreement shall not be construed as a duty, and the
Trustee shall not be answerable for other than its negligence or willful
misconduct in the performance of such act; and
(xi) the Trustee shall not be required to give any bond or surety in
respect of the execution of the Trust Fund created hereby or the powers
granted hereunder.
SECTION 8.03. Trustee Not Liable for Certificates or Loans.
The recitals contained herein and in the Certificates shall be taken as the
statements of the Depositor or the Sellers, as the case may be, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates or of any Loan or related document other than with respect to the
Trustee's execution and counter-signature of the Certificates. The Trustee shall
not be accountable for the use or application by the Depositor or the Servicer
of any of the Certificates or of the proceeds of such Certificates or for the
use and application of any funds paid to the Depositor or the Servicer in
respect of the Loans or deposited in or withdrawn from the Certificate Account
by the Depositor or the Servicer. The Trustee shall not be responsible for the
legality or validity of this Agreement or the validity, priority, perfection or
sufficiency of the security for the Certificates issued or intended to be issued
hereunder; provided, however, that the foregoing language shall not apply to the
Trustee's obligations under this Agreement.
SECTION 8.04. Trustee May Own Certificates.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates, and may otherwise deal with the parties hereto with the
same rights as it would have if it were not the Trustee.
SECTION 8.05. Trustee's Fees and Expenses.
The Trustee, as compensation for its activities hereunder, shall be
entitled to withdraw from the Distribution Account on each Distribution Date an
amount equal to the Trustee Fee (which shall not be limited by any provision of
law in regard to the compensation of a trustee of an express trust) for such
Distribution Date. The Trustee and any director, officer, employee or agent of
the Trustee shall be indemnified by the Servicer and held harmless against any
loss, liability or expense (including reasonable attorney's fees) (i) incurred
in connection with any claim or legal action relating to (a) this Agreement, (b)
the Certificates or (c) in connection with the performance of any of the
Trustee's duties hereunder, other than any loss, liability or expense incurred
by reason of willful misfeasance, bad faith or negligence in the performance of
any of the Trustee's duties hereunder and (ii) resulting from any error in any
tax
73
<PAGE>
or information return prepared by the Servicer. Such indemnity shall survive
the termination of this Agreement or the resignation or removal of the Trustee
hereunder. Without limiting the foregoing, the Servicer covenants and agrees,
except as otherwise agreed upon in writing by the Depositor and the Trustee, and
except for any such expense, disbursement or advance as may arise from the
Trustee's negligence, bad faith or willful misconduct, to pay or reimburse the
Trustee, for all reasonable expenses, disbursements and advances incurred or
made by the Trustee in accordance with any of the provisions of this Agreement
with respect to the following: (A) the reasonable compensation and the expenses
and disbursements of its counsel not associated with the closing of the issuance
of the Certificates, (B) the reasonable compensation, expenses and disbursements
of any accountant, engineer or appraiser that is not regularly employed by the
Trustee, to the extent that the Trustee must engage such persons to perform acts
or services hereunder and (C) printing and engraving expenses in connection with
preparing any Definitive Certificates. Except as otherwise provided herein, the
Trustee shall not be entitled to payment or reimbursement for any routine
ongoing expenses incurred by the Trustee in the ordinary course of its duties as
Trustee, Certificate Registrar, Tax Matters Person or Paying Agent hereunder or
for any other expenses.
SECTION 8.06. Eligibility Requirements for Trustee.
The Trustee hereunder shall at all times be a corporation or association
organized and doing business under the laws of a state or the United States of
America, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 subject to supervision or
examination by federal or state authority and with a credit rating which would
not cause either of the Rating Agencies to reduce their respective then current
ratings of the Certificates (or having provided such security from time to time
as is sufficient to avoid such reduction) without taking the Policy into
account. If such corporation or association publishes reports of condition at
least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 8.06
the combined capital and surplus of such corporation or association shall be
deemed to be its combined capital and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance with the provisions of this Section 8.06, the Trustee
shall resign immediately in the manner and with the effect specified in Section
8.07 hereof. The entity serving as Trustee may have normal banking and trust
relationships with the Depositor and its affiliates or the Servicer and its
affiliates; provided, however, that such entity cannot be an affiliate of the
Servicer other than the Trustee in its role as successor to the Servicer.
SECTION 8.07. Resignation and Removal of Trustee.
The Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice of resignation to the Depositor, the Insurer
and the Servicer and each Rating Agency not less than 60 days before the date
specified in such notice when, subject to Section 8.08, such resignation is to
take effect, and acceptance by a successor trustee in accordance with Section
8.08 meeting the qualifications set forth in Section 8.06. If no successor
74
<PAGE>
trustee meeting such qualifications shall have been so appointed and have
accepted appointment within 30 days after the giving of such notice or
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.06 hereof and shall fail to resign after written
request thereto by the Depositor, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged as 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, or a tax
is imposed with respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different trustee, then the Depositor or the Servicer may
remove the Trustee, and shall, within 30 days after such removal, appoint a
successor trustee by written instrument, in triplicate, one copy of which
instrument shall be delivered to the Trustee, one copy of which shall be
delivered to the Servicer and one copy to the successor trustee.
The Insurer or the Holders of Certificates entitled to at least 51% of the
Voting Rights may at any time remove the Trustee and appoint a successor trustee
by written instrument or instruments, in triplicate, signed by the Insurer or
such Holders or their attorneys-in-fact duly authorized, one complete set of
which instruments shall be delivered by the successor trustee to the Servicer,
one complete set to the Trustee so removed and one complete set to the successor
so appointed. Notice of any removal of the Trustee shall be given to each Rating
Agency by the successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section 8.07 shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.08 hereof.
SECTION 8.08. Successor Trustee.
Any successor trustee appointed as provided in Section 8.07 hereof shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
and the Servicer an instrument accepting such appointment hereunder and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The Depositor, the Servicer and the predecessor trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for more fully and certainly vesting and confirming in
the successor trustee all such rights, powers, duties, and obligations.
No successor trustee shall accept appointment as provided in this Section
8.08 unless at the time of such acceptance such successor trustee shall be
eligible under the provisions
75
<PAGE>
of Section 8.06 hereof, is approved in writing by the Insurer and its
appointment shall not adversely affect the then current rating of the
Certificates.
Upon acceptance of appointment by a successor trustee as provided in this
Section 8.08, the Depositor shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates at their addresses as shown in the
Certificate Register. If the Depositor fails to mail such notice within 10 days
after acceptance of appointment by the successor trustee, the successor trustee
shall cause such notice to be mailed at the expense of the Depositor.
SECTION 8.09. Merger or Consolidation of Trustee.
Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided that such corporation shall be eligible under
the provisions of Section 8.06 hereof without the execution or filing of any
paper or further act on the part of any of the parties hereto, anything herein
to the contrary notwithstanding.
SECTION 8.10. Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Fund or property securing any Mortgage Note may at the time be
located, the Servicer and the Trustee acting jointly shall have the power and
shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee to act as co-trustee or co-trustees jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders, such title to the Trust Fund or any part
thereof, whichever is applicable, and, subject to the other provisions of this
Section 8.10, such powers, duties, obligations, rights and trusts as the
Servicer and the Trustee may consider necessary or desirable. If the Servicer
shall not have joined in such appointment within 15 days after the receipt by it
of a request to do so, or in the case an Event of Default shall have occurred
and be continuing, the Trustee alone shall have the power to make such
appointment. No co-trustee or separate trustee hereunder shall be required to
meet the terms of eligibility as a successor trustee under Section 8.06 and no
notice to Certificateholders of the appointment of any co-trustee or separate
trustee shall be required under Section 8.08.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) to the extent necessary to effectuate the purposes of this
Section 8.10, all rights, powers, duties and obligations conferred or
imposed upon the Trustee, except for the obligation of the Trustee under
this Agreement to advance funds on behalf of the Servicer, shall be
conferred or imposed upon and exercised or performed by the
76
<PAGE>
Trustee and such separate trustee or co-trustee jointly (it being
understood that such separate trustee or co-trustee is not authorized to
act separately without the Trustee joining in such act), except to the
extent that under any law of any jurisdiction in which any particular act
or acts are to be performed (whether as Trustee hereunder or as successor
to the Servicer hereunder), the Trustee shall be incompetent or unqualified
to perform such act or acts, in which event such rights, powers, duties and
obligations (including the holding of title to the applicable Trust Fund or
any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee;
(ii) no trustee hereunder shall be held personally liable by reason
of any act or omission of any other trustee hereunder and such appointment
shall not, and shall not be deemed to, constitute any such separate trustee
or co-trustee as agent of the Trustee;
(iii) the Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee; and
(iv) the Servicer, and not the Trustee, shall be liable for the
payment of reasonable compensation, reimbursement and indemnification to
any such separate trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the separate trustees and co-trustees, when and as
effectively as if given to each of them. Every instrument appointing any
separate trustee or co-trustee shall refer to this Agreement and the conditions
of this Article VIII. Each separate trustee and co-trustee, upon its acceptance
of the trusts conferred, shall be vested with the estates or property specified
in its instrument of appointment, either jointly with the Trustee or separately,
as may be provided therein, subject to all the provisions of this Agreement,
specifically including every provision of this Agreement relating to the conduct
of, affecting the liability of, or affording protection to, the Trustee. Every
such instrument shall be filed with the Trustee and a copy thereof given to the
Servicer and the Depositor.
Any separate trustee or co-trustee may, at any time, constitute the Trustee
its agent or attorney-in-fact, with full power and authority, to the extent not
prohibited by law, to do any lawful act under or in respect of this Agreement on
its behalf and in its name. If any separate trustee or co-trustee shall die,
become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.
SECTION 8.11. Tax Matters.
It is intended that the assets with respect to which any REMIC election is
to be made, as set forth in the Preliminary Statement, shall constitute, and
that the conduct of matters
77
<PAGE>
relating to such assets shall be such as to qualify such assets as, a "real
estate mortgage investment conduit" as defined in and in accordance with the
REMIC Provisions. In furtherance of such intention, the Trustee covenants and
agrees that it shall act as agent (and the Trustee is hereby appointed to act as
agent) on behalf of the REMIC and that in such capacity it shall: (a) prepare
and file, or cause to be prepared and filed, in a timely manner, a U.S. Real
Estate Mortgage Investment Conduit Income Tax Return (Form 1066 or any successor
form adopted by the Internal Revenue Service) and prepare and file or cause to
be prepared and filed with the Internal Revenue Service and applicable state or
local tax authorities income tax or information returns for each taxable year
with respect to the REMIC, containing such information and at the times and in
the manner as may be required by the Code or state or local tax laws,
regulations, or rules, and furnish or cause to be furnished to
Certificateholders the schedules, statements or information at such times and in
such manner as may be required thereby; (b) within thirty days of the Closing
Date, furnish or cause to be furnished to the Internal Revenue Service, on Forms
8811 or as otherwise may be required by the Code, the name, title, address, and
telephone number of the person that the holders of the Certificates may contact
for tax information relating thereto, together with such additional information
as may be required by such Form, and update such information at the time or
times in the manner required by the Code; (c) make or cause to be made elections
that such assets be treated as a REMIC on the federal tax return for its first
taxable year (and, if necessary, under applicable state law); (d) prepare and
forward, or cause to be prepared and forwarded, to the Certificateholders and to
the Internal Revenue Service and, if necessary, state tax authorities, all
information returns and reports as and when required to be provided to them in
accordance with the REMIC Provisions, including without limitation, the
calculation of any original issue discount using the prepayment assumption
described in the Prospectus Supplement; (e) provide information necessary for
the computation of tax imposed on the transfer of a Class R Certificate to a
Person that is not a Permitted Transferee, or an agent (including a broker,
nominee or other middleman) of a non-Permitted Transferee, or a pass-through
entity in which a non-Permitted Transferee is the record holder of an interest
(the reasonable cost of computing and furnishing such information may be charged
to the Person liable for such tax); (f) to the extent that they are under its
control, conduct matters relating to such assets at all times that any
Certificates are outstanding so as to maintain the status as a REMIC under the
REMIC Provisions; (g) not knowingly or intentionally take any action or omit to
take any action that would cause the termination of the REMIC status; (h) pay,
from the sources specified in the last paragraph of this Section 8.11, the
amount of any federal or state tax, including prohibited transaction taxes as
described below, imposed on the REMIC prior to its termination when and as the
same shall be due and payable (but such obligation shall not prevent the Trustee
or any other appropriate Person from contesting any such tax in appropriate
proceedings and shall not prevent the Trustee from withholding payment of such
tax, if permitted by law, pending the outcome of such proceedings); (i) ensure
that federal, state or local income tax or information returns shall be signed
by the Trustee or such other person as may be required to sign such returns by
the Code or state or local laws, regulations or rules; (j) maintain records
relating to the REMIC, including, but not limited to, the income, expenses,
assets and liabilities thereof and the fair market value and adjusted basis of
the assets determined at such intervals as may be required by the Code, as may
be necessary to prepare the foregoing returns, schedules, statements or
information; and (k) as and when necessary and appropriate, represent the REMIC
78
<PAGE>
in any administrative or judicial proceedings relating to an examination or
audit by any governmental taxing authority, request an administrative adjustment
as to any taxable year of the REMIC, enter into settlement agreements with any
governmental taxing agency, extend any statute of limitations relating to any
tax item of the REMIC, and otherwise act on behalf of the REMIC in relation to
any tax matter or controversy involving it.
In order to enable the Trustee to perform its duties as set forth herein,
the Depositor shall provide, or cause to be provided, to the Trustee within ten
(10) days after the Closing Date all information or data that the Trustee
requests in writing and determines to be relevant for tax purposes to the
valuations and offering prices of the Certificates, including, without
limitation, the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Loans. Thereafter, the Depositor shall provide to the
Trustee promptly upon written request therefor, any such additional information
or data that the Trustee may, from time to time, reasonably request in order to
enable the Trustee to perform its duties as set forth herein. The Depositor
hereby indemnifies the Trustee for any losses, liabilities, damages, claims or
expenses of the Trustee arising from any errors or miscalculations of the
Trustee that result from any failure of the Depositor to provide, or to cause to
be provided, accurate information or data to the Trustee on a timely basis.
In the event that any tax is imposed on "prohibited transactions" of the
REMIC as defined in Section 860F(a)(2) of the Code, on the "net income from
foreclosure property" of the REMIC as defined in Section 860G(c) of the Code, on
any contribution to the REMIC after the Startup Day pursuant to Section 860G(d)
of the Code, or any other tax is imposed, if not paid as otherwise provided for
herein, such tax shall be paid by (i) the Trustee, if such tax arises out of or
results from a breach by the Trustee of any of its obligations under this
Agreement, (ii) the Servicer, or if such tax arises out of or results from a
breach by the Servicer or a Seller of any of their obligations under this
Agreement, (iii) the Sellers, if any tax arises out of or results from any
Seller's obligation to repurchase a Loan pursuant to Section 2.02 or 2.03 or
(iv) in all other cases, or in the event that the Trustee, the Servicer or a
Seller fails to honor its obligations under the preceding clause (i),(ii) or
(iii), such tax will be paid with amounts otherwise to be distributed to the
Certificateholders, as provided in Section 3.08(b).
SECTION 8.12. Periodic Filings.
The Depositor shall prepare, execute and file all periodic reports required
under the Securities Exchange Act of 1934. In connection with the preparation
and filing of such periodic reports, the Servicer shall timely provide to the
Depositor all material information available to it which is required to be
included in such reports and not known to it to be in the possession of the
Depositor and such other information as the Depositor reasonably may request
from it and otherwise reasonably shall cooperate with the Depositor. The
Depositor shall have no liability with respect to any failure to properly
prepare or file such periodic reports resulting from or relating to the
Depositor's inability or failure to obtain any information not resulting from
its own negligence or willful misconduct.
79
<PAGE>
SECTION 8.13. Appointment of Custodians.
The Trustee may, with the consent of the Servicer, appoint one or more
Custodians to hold all or a portion of the Trustee's Mortgage Files as agent for
the Trustee, by entering into a Custodial Agreement. The Trustee agrees to
comply with the terms of each Custodial Agreement and to enforce the terms and
provisions thereof against the Custodian for the benefit of the
Certificateholders and the Insurer. The Trustee shall be liable for the fees of
any Custodian appointed hereunder. Each Custodian shall be a depository
institution subject to supervision by federal or state authority and shall be
qualified to do business in the jurisdiction in which it holds any Trustee's
Mortgage File.
SECTION 8.14. Trustee May Enforce Claims Without Possession of
Certificates.
All rights of action and claims under this Agreement or the Certificates
may be prosecuted and enforced by the Trustee without the possession of any of
the Certificates or the production thereof in any proceeding relating thereto,
any such proceeding instituted by the Trustee shall be brought in its own name
or in its capacity as Trustee. Any recovery of judgment shall, after provision
for the payment of the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, be for the ratable benefit of
the Insurer or the Certificateholders in respect of which such judgment has been
recovered.
SECTION 8.15. Suits for Enforcement.
In case an Event of Default or other default by the Servicer hereunder
shall occur and be continuing, the Trustee, in its discretion, may proceed to
protect and enforce its rights and the rights of the Insurer and the
Certificateholders under this Agreement by a suit, action or proceeding in
equity or at law or otherwise, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the execution of
any power granted in this Agreement or for the enforcement of any other legal,
equitable or other remedy, as the Trustee, being advised by counsel, shall deem
most effectual to protect and enforce any of the rights of the Trustee, the
Insurer or the Certificateholders.
ARTICLE IX
TERMINATION
SECTION 9.01. Termination upon Liquidation or Purchase of all Loans.
Subject to Section 9.03, the obligations and responsibilities of the
Depositor, the Servicer and the Trustee created hereby with respect to the Trust
Fund shall terminate upon the earlier of (a) subject to the last sentence of
this Section 9.01, the purchase by the Servicer of all Loans (and REO
Properties) remaining in the Trust Fund at a price equal to the sum of (i) 100%
of the Stated Principal Balance of each Loan plus accrued and unpaid interest
thereon at the
80
<PAGE>
applicable Pass-Through Rate and (ii) 100% of the Stated Principal Balance of
each Loan related to any REO Property plus accrued and unpaid interest thereon
at the applicable Pass-Through Rate or (b) the later of (i) the maturity or
other liquidation (or any Advance with respect thereto) of the last Loan
remaining in the Trust Fund and the disposition of all REO Property and (ii) the
distribution to Certificateholders of all amounts required to be distributed to
them pursuant to this Agreement. In no event shall the trusts created hereby
continue beyond the earlier of (i) the expiration of 21 years from the death of
the survivor of the descendants of Joseph P. Kennedy, the late Ambassador of the
United States to the Court of St. James, living on the date hereof or (ii) the
Latest Possible Maturity Date. The right to purchase all Loans and REO
Properties pursuant to clause (a) above shall be conditioned upon the Pool
Principal Balance, at the time of any such repurchase, aggregating less than or
equal to five percent (5%) of the aggregate Cut-off Date Principal Balance of
the Loans.
SECTION 9.02. Final Distribution on the Certificates.
If on any Determination Date, the Servicer determines that there are no
Outstanding Loans and no other funds or assets in the Trust Fund other than the
funds in the Certificate Account, the Servicer shall direct the Trustee promptly
to send a final distribution notice to each Certificateholder. If the Servicer
elects to terminate the Trust Fund pursuant to clause (a) of Section 9.01, at
least 20 days prior to the date notice is to be mailed to the affected
Certificateholders, the Servicer shall notify the Depositor, the Insurer and the
Trustee of the date the Servicer intends to terminate the Trust Fund and of the
applicable repurchase price of the Loans and REO Properties.
Notice of any termination of the Trust Fund, specifying the Distribution
Date on which Certificateholders may surrender their Certificates for payment of
the final distribution and cancellation, shall be given promptly by the Trustee
by letter to Certificateholders mailed not earlier than the 10th day and not
later than the 15th day of the month next preceding the month of such final
distribution. Any such notice shall specify (a) the Distribution Date upon which
final distribution on the Certificates will be made upon presentation and
surrender of Certificates at the office therein designated, (b) the amount of
such final distribution, (c) the location of the office or agency at which such
presentation and surrender must be made, and (d) that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of the Certificates at the office therein
specified. The Servicer will give such notice to each Rating Agency at the time
such notice is given to Certificateholders.
In the event such notice is given, the Servicer shall cause all funds in
the Certificate Account to be remitted to the Trustee for deposit in the
Distribution Account on the Business Day prior to the applicable Distribution
Date in an amount equal to the final distribution in respect of the
Certificates. Upon such final deposit with respect to the Trust Fund and the
receipt by the Trustee of a Request for Release therefor, the Trustee shall
promptly release to the Servicer the Mortgage Files for the Loans.
81
<PAGE>
Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to Certificateholders of each Class, in the order set
forth in Section 4.02 hereof, on the final Distribution Date and in proportion
to their respective Percentage Interests, with respect to Certificateholders of
the same Class, an amount equal to (i) as to each Class of Class A Certificates,
the Certificate Balance thereof plus accrued interest thereon, and (ii) as to
the Class R Certificates, the amount, if any, which remains on deposit in the
Distribution Account (other than the amounts retained to meet claims) after
application pursuant to clause (i) above.
In the event that any affected Certificateholders shall not surrender
Certificates for cancellation within six months after the date specified in the
above mentioned written notice, the Trustee shall give a second written notice
to the remaining Certificateholders to surrender their Certificates for
cancellation and receive the final distribution with respect thereto. If within
six months after the second notice all the applicable Certificates shall not
have been surrendered for cancellation, the Trustee may take appropriate steps,
or may appoint an agent to take appropriate steps, to contact the remaining
Certificateholders concerning surrender of their Certificates, and the cost
thereof shall be paid out of the funds and other assets which remain a part of
the Trust Fund. If within one year after the second notice all Certificates
shall not have been surrendered for cancellation, the Class R Certificateholders
shall be entitled to all unclaimed funds and other assets of the Trust Fund
which remain subject hereto.
SECTION 9.03. Additional Termination Requirements.
(a) In the event the Servicer exercises its purchase option as provided in
Section 9.01, the Trust Fund shall be terminated in accordance with the
following additional requirements, unless the Trustee has been supplied with an
Opinion of Counsel, at the expense of the Servicer, to the effect that the
failure to comply with the requirements of this Section 9.03 will not (i) result
in the imposition of taxes on "prohibited transactions" on the REMIC as defined
in section 860F of the Code, or (ii) cause the Trust Fund to fail to qualify as
a REMIC at any time that any Certificates are outstanding:
(1) Within 90 days prior to the final Distribution Date set forth in
the notice given by the Servicer under Section 9.02, the Servicer shall
prepare and the Trustee, at the expense of the Tax Matters Person, shall
adopt a plan of complete liquidation within the meaning of section
860F(a)(4) of the Code which, as evidenced by an Opinion of Counsel (which
opinion shall not be an expense of the Trustee or the Tax Matters Person),
meets the requirements of a qualified liquidation; and
(2) Within 90 days after the time of adoption of such a plan of
complete liquidation, the Trustee shall sell all of the assets of the Trust
Fund to the Servicer for cash in accordance with Section 9.01.
(b) The Trustee as agent for any REMIC hereby agrees to adopt and sign such
a plan of complete liquidation upon the written request of the Servicer, and the
receipt of the
82
<PAGE>
Opinion of Counsel referred to in Section 9.03(a)(1) and to take such other
action in connection therewith as may be reasonably requested by the Servicer.
(c) By their acceptance of the Certificates, the Holders thereof hereby
authorize the Servicer to prepare and the Trustee to adopt and sign a plan of
complete liquidation.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.01. Amendment.
This Agreement may be amended from time to time by the Depositor, the
Sellers, the Servicer and the Trustee with the consent of the Insurer, but
without the consent of any of the Certificateholders, to cure any ambiguity, or
to correct or supplement any provisions herein, or to make such other provisions
with respect to matters or questions arising under this Agreement as shall not
be inconsistent with any other provisions herein; provided that such action
shall not, as evidenced by an Opinion of Counsel (which Opinion of Counsel shall
not be an expense of the Trustee or the Trust Fund), adversely affect in any
material respect the interests of any Certificateholder; provided, however, that
the amendment shall not be deemed to adversely affect in any material respect
the interests of the Certificateholders if the Person requesting the amendment
obtains a letter from each Rating Agency stating that the amendment would not
result in the downgrading or withdrawal of the respective ratings then assigned
to the Certificates; it being understood and agreed that any such letter in and
of itself will not represent a determination as to the materiality of any such
amendment and will represent a determination only as to the credit issues
affecting any such rating. The Trustee, the Depositor, the Sellers, and the
Servicer also may at any time and from time to time amend this Agreement without
the consent of the Certificateholders to modify, eliminate or add to any of its
provisions to such extent as shall be necessary or helpful to maintain the
qualification of the Trust Fund as a REMIC under the Code or to avoid or
minimize the risk of the imposition of any tax on the REMIC pursuant to the Code
that would be a claim at any time prior to the final redemption of the
Certificates, provided that the Trustee has been provided an Opinion of Counsel,
which opinion shall be an expense of the party requesting such opinion but in
any case shall not be an expense of the Trustee or the Trust Fund, to the effect
that such action is necessary or helpful to maintain such qualification or to
avoid or minimize the risk of the imposition of such a tax.
This Agreement may be amended from time to time by the Seller, the
Servicer, the Depositor and the Trustee, without the consent of any of the
Certificateholders, to provide for termination of the Spread Account as
contemplated in Section 3A.01(e).
This Agreement may also be amended from time to time by the Depositor, the
Sellers, the Servicer and the Trustee with the consent of the Insurer and the
Holders of a Majority
83
<PAGE>
in Interest of each Class of Certificates affected thereby for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in (i),
without the consent of the Holders of Certificates of such Class evidencing, as
to such Class, Percentage Interests aggregating 66%, or (iii) reduce the
aforesaid percentages of Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Certificates then outstanding. Prior to the execution of any amendment to this
Agreement, the Trustee shall be entitled to receive and rely upon an Opinion of
Counsel (which Opinion of Counsel shall not be at the expense of the Trustee or
the Trust Fund) stating that the execution of such amendment is authorized or
permitted by this Agreement. The Trustee may, but shall not be obligated to,
enter into any such amendment which affects the Trustee's own rights, duties or
immunities under this Agreement.
Notwithstanding any contrary provision of this Agreement, the Trustee shall
not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel, which opinion shall not be an expense of the
Trustee or the Trust Fund, to the effect that such amendment will not cause the
imposition of any tax on the REMIC or the Certificateholders or cause the Trust
Fund to fail to qualify as a REMIC at any time that any Certificates are
outstanding.
Promptly after the execution of any amendment to this Agreement requiring
the consent of Certificateholders or the Insurer, the Trustee shall furnish
written notification of the substance or a copy of such amendment to each
Certificateholder, the Insurer and each Rating Agency.
It shall not be necessary for the consent of Certificateholders or the
Insurer under this Section to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.
Nothing in this Agreement shall require the Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Trust Fund) satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that all
requirements for amending this Agreement have been complied with and (ii) either
(A) the amendment does not adversely affect in any material respect the
interests of any Certificateholder or the Insurer or (B) the conclusion set
forth in the immediately preceding clause (A) is not required to be reached
pursuant to this Section 10.01.
84
<PAGE>
SECTION 10.02. Recordation of Agreement; Counterparts.
This Agreement is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Servicer at its expense, but only upon direction by the
Trustee accompanied by an Opinion of Counsel to the effect that such recordation
materially and beneficially affects the interests of the Certificateholders.
For the purpose of facilitating the recordation of this Agreement as herein
provided and for other purposes, this Agreement may be executed simultaneously
in any number of counterparts, each of which counterparts shall be deemed to be
an original, and such counterparts, taken together, shall constitute one and the
same instrument.
SECTION 10.03. Governing Law.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED IN THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW
PRINCIPLES AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HERETO AND
THE CERTIFICATEHOLDERS SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
SECTION 10.04. Intention of Parties.
It is the express intent of the parties hereto that the conveyance of the
Loans by the Sellers to the Depositor pursuant to Article II of this Agreement
be, and be construed as, an absolute sale thereof to the Depositor. It is,
further, not the intention of the parties that such conveyance be deemed a
pledge thereof by the Sellers to the Depositor to secure a borrowing by the
Sellers from the Depositor. However, in the event that, notwithstanding the
intent of the parties, such assets are held to be the property of the Sellers or
any one of them, or if this Agreement is held or deemed to constitute or have
created a loan, lending transaction or an extension of credit by the Depositor
to the Sellers or any one of them, then and only then (i) this Agreement shall
be deemed, effective as of November 30, 1998, to be a security agreement within
the meaning of the Uniform Commercial Code of the State of New York and (ii) the
conveyance by the Sellers to the Depositor provided for in this Agreement shall
be deemed, effective as of November 30, 1998, to be an assignment and a grant by
the Sellers to the Depositor, and each of the Sellers does hereby grant and
assign to the Depositor, a security interest in, and lien upon, all of the
assets that constitute the Mortgage Notes and the Trust Fund, and all of the
proceeds thereof, whether now owned or hereafter acquired.
The Sellers, for the benefit of the Depositor, shall, in connection with
the perfection of the security interest described in the preceding paragraph of
this Section 10.04,
85
<PAGE>
deliver to the Depositor on the Closing Date the financing statements described
in Schedule IV. The Sellers shall also arrange for the delivery to the Depositor
of any appropriate Uniform Commercial Code continuation statements as may be
necessary or appropriate to continue the perfection of the security interest of
the Depositor in the Mortgage Notes and the Trust Fund, and all of the proceeds
thereof, whether now owned or hereafter acquired. The Sellers, for the benefit
of the Depositor, shall, to the extent consistent with this Agreement, take such
actions as may be necessary to ensure that, if this Agreement is held or deemed
to constitute or have created a loan, lending transaction or an extension of
credit by the Depositor to the Sellers or any one of them, then and only then
(i) this Agreement shall be deemed, effective as of November 30, 1998, to be a
security agreement within the meaning of the Uniform Commercial Code of the
State of New York and (ii) the conveyance by the Sellers to the Depositor
provided for in this Agreement shall be deemed, effective as of November 30,
1998, to be an assignment and a grant by the Sellers to the Depositor, and each
of the Sellers does hereby grant and assign to the Depositor, a security
interest in, and lien upon, all of the assets that constitute the Mortgage Notes
and the Trust Fund, and all of the proceeds thereof, whether now owned or
hereafter acquired, such security interest shall be deemed to be a perfected
security interest of first priority under applicable law, and will be maintained
as such throughout the term of this Agreement. The Sellers shall arrange for
filing any appropriate Uniform Commercial Code financing statements,
continuation statements or other appropriate forms, notices or documents in
connection with any security interest granted or assigned to the Depositor.
The Depositor does hereby assign the security interest in and lien on the
Mortgage Notes and the Trust Fund, and all proceeds thereof, whether now owned
or hereafter acquired, to the Trustee for the benefit of the Certificateholders
and the Insurer. The Depositor shall arrange for filing of such Uniform
Commercial Code financing statements as are necessary to effect the assignment
of the security interest and lien to the Trustee for the benefit of the
Certificateholders and the Insurer.
It is the express intent of the parties hereto that the conveyance of the
Trust Fund by the Depositor to the Trustee pursuant to Article II of this
Agreement be, and be construed as, an absolute sale thereof to the Trustee. It
is, further, not the intention of the parties that such conveyance be deemed a
pledge thereof by the Depositor to the Trustee to secure a borrowing by the
Depositor from the Trustee. However, in the event that, notwithstanding the
intent of the parties, the assets constituting the Trust Fund are held to be the
property of the Depositor, or if this Agreement is held or deemed to constitute
or have created a loan, lending transaction or an extension of credit by the
Trustee to the Depositor, then and only then (i) this Agreement shall be deemed,
effective as of November 30, 1998, to be a security agreement within the meaning
of the Uniform Commercial Code of the State of New York and (ii) the conveyance
by the Depositor to the Trustee provided for in this Agreement shall be deemed,
effective as of November 30, 1998, to be an assignment and a grant by the
Depositor to the Trustee, and the Depositor does hereby grant and assign to the
Trustee, for the benefit of the Certificateholders, a security interest in, and
lien upon, all of the assets that constitute the Mortgage Notes and the Trust
Fund, and all of the proceeds thereof, whether now owned or hereafter acquired.
86
<PAGE>
The Depositor, for the benefit of the Trustee, the Insurer and the
Certificateholders, shall, in connection with the perfection of the security
interest described in the preceding paragraph of this Section 10.04, deliver to
the Trustee on the Closing Date the financing statements described in Schedule
V. The Depositor shall also arrange for the delivery to the Trustee of any
appropriate Uniform Commercial Code continuation statements as may be necessary
or appropriate to continue the perfection of the security interest of the
Trustee in the Trust Fund, and all of the proceeds thereof, whether now owned or
hereafter acquired. The Depositor, for the benefit of the Trustee and the
Certificateholders, shall, to the extent consistent with this Agreement, take
such actions as may be necessary to ensure that, if this Agreement is held or
deemed to constitute or have created a loan, lending transaction or an extension
of credit by the Trustee to the Depositor, then and only then (i) this Agreement
shall be deemed, effective as of November 30, 1998, to be a security agreement
within the meaning of the Uniform Commercial Code of the State of New York and
(ii) the conveyance by the Depositor to the Trustee provided for in this
Agreement shall be deemed, effective as of November 30, 1998, to be an
assignment and a grant by the Depositor to the Trustee, and the Depositor does
hereby grant and assign to the Trustee, for the benefit of the
Certificateholders, a security interest in, and lien upon, all of the assets
that constitute the Mortgage Notes and the Trust Fund, and all of the proceeds
thereof, whether now owned or hereafter acquired, such security interest shall
be deemed to be a perfected security interest of first priority under applicable
law and will be maintained as such throughout the term of this Agreement. The
Servicer shall, within ten (10) days of the Closing Date, present to the
appropriate filing offices in the jurisdictions set forth on Schedules IV and V
all of the financing statements delivered on the Closing Date by the Sellers to
the Depositor, the assignments thereof delivered by the Depositor to the Trustee
on the Closing Date and the financing statements delivered by the Depositor to
the Trustee on the Closing Date. The Servicer shall arrange for filing any
appropriate Uniform Commercial Code continuation statements or other appropriate
forms, notices or documents in connection with any security interest granted or
assigned to the Trustee.
SECTION 10.05. Notices.
(a) The Trustee shall use its best efforts to promptly provide notice to
the Insurer and each Rating Agency with respect to each of the following of
which it has actual knowledge:
1. any material change or amendment to this Agreement;
2. the occurrence of any Event of Default that has not been cured;
3. the resignation or termination of the Servicer or the Trustee and
the appointment of any successor;
4. the repurchase or substitution of Loans pursuant to Section 2.03;
and
87
<PAGE>
5. the final payment to Certificateholders.
In addition, the Trustee shall promptly furnish to each Rating Agency
copies of the following:
1. each report to Certificateholders described in Section 4.03;
2. each annual statement as to compliance described in Section 3.16;
3. each annual independent public accountants' servicing report
described in Section 3.17; and
4. any notice of a purchase of a Loan pursuant to Section 2.02, 2.03
or 3.11.
(b) All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given when delivered to (a) in the case of the
Depositor, Equity One ABS, Inc., 103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19810, Attention: President, facsimile number: (302)
478-3667, (b) in the case of the Servicer, Equity One, Inc., 523 Fellowship
Road, Suite 230, Mt. Laurel, New Jersey 08054, Attention: President, facsimile
number: (609) 273-3752, or such other address as may be hereafter furnished to
the Depositor and the Trustee by the Servicer in writing, (c) in the case of
Equity One-Florida, Equity One Mortgage, Inc., 3820 Northdale Boulevard, Tampa,
FL 33624, Attention: President, facsimile number: (813) 960-8899, (d) in the
case of Equity One-Minnesota, Equity One, Inc., 2626 East 82nd Street, 1st
Floor/Suite 102, Bloomington, Minnesota 55425, Attention: President, facsimile
number: (612) 854-4820, (e) in the case of Equity One-New Hampshire, Equity One
Consumer Loan Company, Inc., 25 South River Road, Suite 304, Bedford, NH 03110,
Attention: President, facsimile number: (603) 622-6499, (f) in the case of
Equity One-New York, Equity One Mortgage, Inc., 270 Spagnoli Road, Melville, NY
11747, Attention: President, facsimile number: (516) 249-2270, (g) in the case
of Equity One-North Carolina, Equity One Mortgage Company, 4614 A West Market
Street, Greensboro, NC 27407, Attention: President, facsimile number: (910)
854-7794, (h) in the case of Equity One-Pennsylvania, Equity One, Incorporated,
340 East Maple Avenue, Suite 304, Langhorne, PA 19047, Attention: President,
facsimile number: (215) 741-4161, (i) in the case of Equity One-West Virginia,
Equity One of West Virginia, Inc., 2610 Aikens Center, Martinsburg, WV 25401,
Attention: President, facsimile number: (304) 264-9403, (j) in the case of the
Trustee, The Chase Manhattan Bank, 450 West 33rd Street, New York, New York
10001, Attention: Structured Finance Services (ABS), facsimile number:
212-946-8191, or such other address as the Trustee may hereafter furnish to the
Depositor or Servicer, (k) in the case of the Insurer, Ambac Assurance
Corporation, One State Street Plaza, New York, New York 10004, Attention:
Structured Finance - Mortgage Backed Securities, facsimile number: (212)
363-1459 and (l) in the case of the Rating Agencies, the address specified
therefor in the definition corresponding to the name of such Rating Agency.
Notices to Certificateholders shall be deemed given when
88
<PAGE>
mailed, first class postage prepaid, to their respective addresses appearing in
the Certificate Register.
SECTION 10.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be for any reason whatsoever held invalid, then such
covenants, agreements, provisions or terms shall be deemed severable from the
remaining covenants, agreements, provisions or terms of this Agreement and shall
in no way affect the validity or enforceability of the other provisions of this
Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 10.07. Assignment.
Notwithstanding anything to the contrary contained herein, except as
provided in Section 6.02, this Agreement may not be assigned by the Servicer
without the prior written consent of the Trustee, Insurer and Depositor.
SECTION 10.08. Limitation on Rights of Certificateholders.
The death or incapacity of any Certificateholder shall not operate to
terminate this Agreement or the trust created hereby, nor entitle such
Certificateholder's legal representative or heirs to claim an accounting or to
take any action or commence any proceeding in any court for a petition or
winding up of the trust created hereby, or otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as provided
herein) or in any manner otherwise control the operation and management of the
Trust Fund, or the obligations of the parties hereto, nor shall anything herein
set forth or contained in the terms of the Certificates be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association; nor shall any Certificateholder be under any liability to any third
party by reason of any action taken by the parties to this Agreement pursuant to
any provision hereof.
No Certificateholder shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of an Event
of Default and of the continuance thereof, as herein provided, and unless the
Holders of Certificates evidencing not less than 25% of the Voting Rights
evidenced by the Certificates shall also have made written request to the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses, and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by
89
<PAGE>
each Certificateholder with every other Certificateholder and the Trustee, that
no one or more Holders of Certificates shall have any right in any manner
whatever by virtue or by availing itself or themselves of any provisions of this
Agreement to affect, disturb or prejudice the rights of the Holders of any other
of the Certificates, or to obtain or seek to obtain priority over or preference
to any other such Holder or to enforce any right under this Agreement, except in
the manner herein provided and for the common benefit of all Certificateholders.
For the protection and enforcement of the provisions of this Section 10.08, each
and every Certificateholder and the Trustee shall be entitled to such relief as
can be given either at law or in equity.
SECTION 10.09. Inspection and Audit Rights.
The Servicer agrees that, on reasonable prior notice, it will permit and
will cause each Subservicer to permit any representative of the Depositor, the
Insurer or the Trustee during the Servicer's normal business hours, to examine
all the books of account, records, reports and other papers of the Servicer
relating to the Loans, to make copies and extracts therefrom, to cause such
books to be audited by independent certified public accountants selected by the
Depositor or the Trustee and to discuss its affairs, finances and accounts
relating to the Loans with its officers, employees and independent public
accountants (and by this provision the Servicer hereby authorizes said
accountants to discuss with such representative such affairs, finances and
accounts), all at such reasonable times and as often as may be reasonably
requested. Any out-of-pocket expense incident to the exercise by the Depositor
or the Trustee of any right under this Section 10.09 shall be borne by the party
requesting such inspection; all other such expenses shall be borne by the
Servicer or the related Subservicer.
SECTION 10.10. Certificates Nonassessable and Fully Paid.
It is the intention of the Depositor that Certificateholders shall not be
personally liable for obligations of the Trust Fund, that the interests in the
Trust Fund represented by the Certificates shall be nonassessable for any reason
whatsoever, and that the Certificates, upon due authentication thereof by the
Trustee pursuant to this Agreement, are and shall be deemed fully paid.
SECTION 10.11. The Closing.
The closing of the transactions contemplated by this Agreement shall occur
at 10:00 a.m. Philadelphia Time on the Closing Date at the Closing Place.
SECTION 10.12. Interpretation.
Unless the context of this Agreement clearly requires otherwise, (a)
references to the plural include the singular, the singular the plural, the part
the whole, (b) references to one gender includes all genders, (c) "or" has the
inclusive meaning frequently identified with the phrase "and/or," (d)
"including" has the inclusive meaning frequently identified with the phrase "but
not limited to" and (e) references to "hereunder," "hereof" or "herein" relate
to this
90
<PAGE>
Agreement. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
SECTION 10.13. Rights of the Insurer.
(a) The Insurer is an express third-party beneficiary of this Agreement.
(b) On each Distribution date the Trustee shall forward to the Insurer a
copy of the reports furnished to the Class A Certificateholders and the
Depositor on such Distribution Date.
(c) The Trustee shall provide to the Insurer copies of any report, notice,
Opinion of Counsel, Officer's Certificate, request for consent or request for
amendment to any document related hereto promptly upon the Trustee's production
or receipt thereof.
(d) Unless an Insurer Default exists, the Trustee and the Depositor shall
not agree to any amendment to this Agreement without first having obtained the
prior written consent of the Insurer, if such consent is not unreasonably
withheld.
(e) So long as there does not exist a failure by the Insurer to make a
required payment under the Policy, the Insurer shall have the right to exercise
all rights of the Holders of the Class A Certificates under this Agreement
without any consent of such Holders, and such Holders may exercise such rights
only with the prior written consent of the Insurer, except as provided herein.
(f) The Insurer shall not be entitled to exercise any of its rights
hereunder so long as there exists a failure by the Insurer to make a required
payment under the Policy.
SECTION 10.14. No Partnership.
Nothing herein contained shall be deemed or construed to create a
co-partnership or joint venture between the parties hereto and the services of
the Trustee and the Servicer shall be rendered as an independent contractor and
not as agent for the Certificateholders.
* * * * * *
91
<PAGE>
IN WITNESS WHEREOF, the Depositor, the Trustee, each of the Sellers and the
Servicer have caused their names to be signed hereto by their respective
officers thereunto duly authorized as of the day and year first above written.
Equity One ABS, Inc., as Depositor
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Vice President
The Chase Manhattan Bank, as Trustee
By: /s/ Kimberly K. Costa
------------------------------------------------------
Name: Kimberly K. Costa
Title: Second Vice President
Equity One, Inc. (DE), as a Seller and Servicer
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Executive Vice President
Equity One, Incorporated (PA), as a Seller
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Executive Vice President
Equity One Mortgage Company (NC), as a Seller
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Executive Vice President
92
<PAGE>
Equity One Mortgage, Inc. (DE), as a Seller
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Executive Vice President
Equity One, Inc. (MN), as a Seller
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Executive Vice President
Equity One Consumer Loan Company, Inc. (NH), as a Seller
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Executive Vice President
Equity One of West Virginia, Inc. (WV), as a Seller
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Executive Vice President
Equity One Mortgage, Inc. (NY), as a Seller
By: /s/ John N. Martella
------------------------------------------------------
Name: John N. Martella
Title: Executive Vice President
93
[LETTERHEAD]
Insured Obligations: Policy Number: AB0204BE
Equity One ABS, Inc.
Mortgage Pass-Through
Certificates, Series 1998-1,
Class A-1 and A-2
Premium:
As specified in the endorsement
attached hereto
Ambac Assurance Corporation (Ambac) A Wisconsin Stock Insurance Company in
consideration of the payment of the premium and subject to the terms of this
Policy, hereby agrees unconditionally and irrevocably to pay to the Trustee for
the benefit of the Holders of the Insured Obligations, that portion of the
Insured Amounts which shall become Due for Payment but shall be unpaid by reason
of Nonpayment.
Ambac will make such payments to the Trustee from its own funds on the later of
(a) one (1) Business Day following notification to Ambac of Nonpayment or (b)
the Business Day on which the Insured Amounts are Due for Payment. Such payments
of principal or interest shall be made only upon presentation of an instrument
of assignment in form and substance satisfactory to Ambac, transferring to Ambac
all rights under such Insured Obligations to receive the principal of and
interest on the Insured Obligation. Ambac shall be subrogated to all the
Holders' rights to payment on the Insured Obligations to the extent of the
insurance disbursements so made. Once payments of the Insured Amounts have been
made to the Trustee, Ambac shall have no further obligation hereunder in respect
of such Insured Amounts.
In the event the Trustee for the Insured Obligations has notice that any payment
of principal or interest on an Insured Obligation which has become Due for
Payment and which is made to a Holder by or on behalf of the Trustee has been
deemed a preferential transfer and theretofore recovered from its Holder
pursuant to the United States Bankruptcy Code in accordance with a final,
nonappealable order of a court of competent jurisdiction, such Holder will be
entitled to payment from Ambac to the extent of such recovery if sufficient
funds are not otherwise available.
This Policy is noncancelable by Ambac for any reason, including failure to
receive payment of any premium due hereunder. The premium on this Policy is not
refundable for any reason. This Policy does not insure against loss of any
prepayment or other acceleration payment which at any time may become due in
respect of any Insured Obligation, other than at the sole option of Ambac, nor
against any risk other than Nonpayment, including failure of the Trustee to make
any payment due Holders of Insured Amounts.
To the fullest extent permitted by applicable law, Ambac hereby waives and
agrees not to assert any and all rights and defenses, to the extent such rights
and defenses may be available to Ambac, to avoid payment of its obligations
under this Policy in accordance with the express provisions hereof.
Any capitalized terms not defined herein shall have the meaning given such terms
in the endorsement attached hereto or in the Agreement.
In witness whereof, Ambac has caused this Policy to be affixed with its
corporate seal and to be signed by its duly authorized officers in facsimile to
become effective as their original signatures and binding upon Ambac by virtue
of the countersignature of its duly authorized representative.
/s/ P. Lassiter /s/ Stephen D. Cooke
President [SEAL] Secretary
/s/ Warren Tong
-------------------------
Effective Date: December 9, 1998 Authorized Representative
EXECUTED VERSION
----------------
CERTIFICATE GUARANTY INSURANCE POLICY ENDORSEMENT
Attached to and forming Effective Date of Endorsement:
part of Policy No. AB0204BE December 9, 1998
issued to:
The Chase Manhattan Bank, as
Trustee on behalf of, and for the
benefit of the Holders of, the
Mortgage Pass-Through Certificates,
Series 1998-1, Class A
Certificates as Issued pursuant
to the Agreement
For all purposes of this Policy, the following terms shall have the
following meanings:
"Affiliated Seller" shall mean each of Equity One, Incorporated, a
Pennsylvania corporation; Equity One Mortgage Company, a North Carolina
corporation; Equity One Mortgage, Inc., a Delaware corporation; Equity One,
Inc., a Minnesota corporation; Equity One Consumer Loan Company, Inc., a New
Hampshire corporation; Equity One of West Virginia, Inc., a West Virginia
corporation; and Equity One Mortgage, Inc., a New York corporation.
"Agreement" shall mean the Pooling and Servicing Agreement, dated as of
November 30, 1998, among Equity One ABS, Inc., as Depositor, Equity One, Inc.,
as a Seller and the Servicer, each Affiliated Seller, as a Seller, and the
Trustee, as Trustee, without regard to any amendment or supplement thereto.
"Business Day" shall mean any day other than a Saturday, a Sunday or a day
on which banking institutions in New York City or in the city in which the
corporate trust office of the Trustee under the Agreement or the Insurer is
located are authorized or obligated by law or executive order to close.
"Deficiency Amount" shall mean, with respect to the Class A Certificates,
as of any Distribution Date (i) any shortfall in amounts available in the
Distribution Account to pay the
<PAGE>
Interest Distribution Amounts for the related Interest Accrual Period, (ii) the
Guaranteed Principal Distribution Amount and (iii) without duplication of the
amount specified in clause (ii), the aggregate Class Certificate Balance of all
classes of Class A Certificates to the extent unpaid on the related Last
Scheduled Distribution Date or earlier termination of the Trust Fund pursuant to
the terms of the Agreement. For purposes of determining the Deficiency Amount,
the Interest Distribution Amounts for the related Interest Accrual Period for
any Distribution Date shall be reduced by any Net Prepayment Interest Shortfalls
and any Relief Act Reduction incurred during the calendar month preceding the
month of such Distribution Date.
"Due for Payment" shall mean the Distribution Date on which Insured Amounts
are due.
"Guaranteed Principal Distribution Amount" shall mean, for any Distribution
Date, the sum of (i) the amount, if any, by which the Class Certificate Balance
of the Class A-1 Certificates exceeds the Group Principal Balance of the Group I
Loans as of such Distribution Date, plus (ii) the amount, if any, by which the
Class Certificate Balance of the Class A-2 Certificates exceeds the Group
Principal Balance of the Group II Loans as of such Distribution Date.
"Holder" shall mean any person who is the registered owner or beneficial
owner of any of the Class A Certificates.
"Insurance Agreement" shall mean the Insurance and Indemnity Agreement (as
may be amended, modified or supplemented from time to time), dated as of
December 9, 1998, by and among the Insurer, Equity One, Inc., as a Seller of the
Loans to the Depositor and as Servicer, the Depositor and The Chase Manhattan
Bank, as Trustee.
"Insurance Policy" or "Policy" shall mean this Certificate Guaranty
Insurance Policy together with each and every endorsement hereto.
"Insured Amounts" shall mean, with respect to any Distribution Date, any
Deficiency Amount plus any Preference Amount for such Distribution Date.
"Insured Obligations" shall mean the Class A Certificates.
"Insured Payments" shall mean, with respect to any Distribution Date, the
aggregate amount actually paid by the Insurer to the Trustee in respect of
Insured Amounts for such Distribution Date.
"Insurer" shall mean Ambac Assurance Corporation, or any successor thereto,
as issuer of the Insurance Policy.
"Last Scheduled Distribution Date" shall mean, for the Class A-1
Certificates, the Distribution Date in December 2029 and, for the Class A-2
Certificates, the Distribution Date in November 2029.
"Late Payment Rate" shall mean the lesser of (a) the greater of (i) the per
annum rate of interest publicly announced from time to time by Citibank, N.A. as
its prime or base lending rate
-2-
<PAGE>
(any change in such rate of interest to be effective on the date such change is
announced by Citibank, N.A.), and (ii) the then applicable highest rate of
interest on any of the Class A Certificates and (b) the maximum rate permissible
under applicable usury or similar laws limiting interest rates. The Late Payment
Rate shall be computed on the basis of the actual number of days elapsed over a
year of 360 days for any Distribution Date.
"Nonpayment" shall mean, with respect to any Distribution Date, an Insured
Amount owing in respect of such Distribution Date.
"Notice" shall mean the telephonic or telegraphic notice, promptly
confirmed in writing by telecopy substantially in the form of Exhibit A to the
Policy, the original of which is subsequently delivered by registered or
certified mail, from the Trustee specifying the Insured Amount which shall be
due and owing on the applicable Distribution Date.
"Preference Amount" shall mean any amount previously distributed to a
Certificateholder that is recoverable and sought to be recovered as a voidable
preference by a trustee in bankruptcy pursuant to the Bankruptcy Code in
accordance with a final nonappealable order of a court having competent
jurisdiction.
"Premium Percentage" shall have the definition set forth in the Insurance
Agreement.
"Reimbursement Amount" shall mean, as to any Distribution Date, the sum of
(x)(i) all Insured Payments paid by the Insurer, but for which the Insurer has
not been reimbursed prior to such Distribution Date pursuant to Section 3A.02 of
the Agreement, plus (ii) interest accrued thereon, calculated at the Late
Payment Rate from the date the Trustee received the related Insured Payments,
and (y)(i) any other amounts then due and owing to the Insurer under the
Insurance Agreement, but for which the Insurer has not been reimbursed prior to
such Distribution Date pursuant to Section 3A.02 of the Agreement, plus (ii)
interest on such amounts at the Late Payment Rate.
"Trustee" shall mean, for the purposes of the Policy, The Chase Manhattan
Bank, or any successor thereto under the Agreement.
Capitalized terms used herein and not otherwise defined shall have the
meaning assigned to them in the Agreement.
The Insurer hereby agrees that if, as of any Distribution Date, it has
become subrogated to the rights of Holders by virtue of a previous payment under
this Policy, no recovery of such payment will occur unless the full amount of
the Holders' allocable distributions for such Distribution Date can be made. In
so doing, the Insurer does not waive its rights to seek full payment of all
Reimbursement Amounts owed to it under the Agreement.
As provided by the Policy, the Insurer will pay any amount payable
hereunder no later than 12:00 noon, New York City time, on the later of the
Distribution Date on which the related Deficiency Amount or Preference Amount is
due or the Business Day following receipt in New York, New York on a Business
Day by the Insurer of a Notice; provided that, if such Notice is received after
12:00 noon, New York City time, on such Business Day, it will be deemed to be
-3-
<PAGE>
received on the following Business Day. If any such Notice is not in proper form
or is otherwise insufficient for the purpose of making claim under the Policy,
it shall be deemed not to have been received for purposes of this paragraph, and
the Insurer shall promptly so advise the Trustee and the Trustee may submit an
amended Notice.
The terms and provisions of the Agreement constitute the instrument of
assignment referred to in the second paragraph of the face of this Policy.
A premium will be payable on this Policy as provided in Sections 4.02(a)
and 4.02(b) of the Agreement, on the Closing Date and on each Distribution Date,
in an amount equal to 1/12th of the product of (i) the Premium Percentage and
(ii) the aggregate Certificate Principal Balance of the Class A Certificates on
each Distribution Date (after giving effect to any distributions of principal to
be made on such Distribution Date); provided that the initial premium will be
equal to 1/12th of the product of the (i) Premium Percentage and (ii) aggregate
Certificate Principal Balance of the Class A Certificates as of the Cut-off Date
and will be paid on the Closing Date.
The insurance provided by the Policy is not covered by the
Property/Casualty Insurance Security Fund specified in Article 76 of the New
York Insurance Law.
The Policy to which this Endorsement is attached and of which it forms a
part is hereby amended to provide that there shall be no acceleration payment
due under the Policy unless such acceleration is at the sole option of the
Insurer. This Policy does not cover shortfalls, if any, attributable to the
liability of the Trust Fund, the REMIC or the Trustee for withholding taxes, if
any (including interest and penalties in respect of any such liability).
Nothing herein contained shall be held to vary, alter, waive or extend any
of the terms, conditions, provisions, agreements or limitations of the above
mentioned Policy other than as above stated.
This Policy is issued under and pursuant to, and shall be construed under,
the laws of the State of New York (without giving effect to the conflict of laws
provisions thereof).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
IN WITNESS WHEREOF, the Insurer has caused this Endorsement to the Policy
to be signed by its duly authorized officers.
First Vice President Assistant Secretary
/s/ Warren Tong /s/ Craig T. Beazer
- -------------------------------- -----------------------------
-5-
<PAGE>
EXHIBIT A
TO THE CERTIFICATE GUARANTY INSURANCE POLICY
--------------------------------------------
Policy No. AB0204BE
NOTICE OF NONPAYMENT AND DEMAND
FOR PAYMENT OF INSURED AMOUNTS
Date: [ ]
AMBAC ASSURANCE CORPORATION
One State Street Plaza
New York, New York 10004
Attention: General Counsel
Reference is made to Certificate Guaranty Insurance Policy No. No. AB0204BE
(the "Policy") issued by Ambac Assurance Corporation ("Ambac"). Terms
capitalized herein and not otherwise defined shall have the meanings specified
in the Policy and the Agreement, as the case may be, unless the context
otherwise requires.
The Trustee hereby certifies as follows:
1. The Trustee is the Trustee under the Agreement for the Class A
Certificates.
2. The relevant Distribution Date or Last Scheduled Distribution Date is
[date].
3. Payment on the Class A Certificates in respect of the Distribution Date is
due to be received on ____________________________ under the Agreement, in
an amount equal to $_____________________.
[3. The amount to be paid to the Holders of the Class A Certificates on the Last
Scheduled Distribution Date is $__________.]
4. There is a Deficiency Amount and/or Preference Amount of
$__________________ in respect of the Class A Certificates, which amount is
an Insured Amount pursuant to the terms of the Agreement.
5. The sum of $__________________ is the Insured Amount that is Due for
Payment.
6. The Trustee has not heretofore made a demand for the Insured Amount in
respect of the Distribution Date.
7. The Trustee hereby requests the payment of the Insured Amount that is Due
for Payment be made by Ambac under the Policy and directs that payment
under the Policy be made to the following account by bank wire transfer of
federal or other immediately available funds in accordance with the terms
of the Policy to:
A-1
<PAGE>
[Name and account information for Trustee.]
8. The Trustee hereby agrees that, following receipt of the Insured Amount
from Ambac, it shall (a) hold such amounts in trust and apply the same
directly to the distribution of payment on the Class A Certificates when
due; (b) not apply such funds for any other purpose; (c) deposit such funds
to the Distribution Account and not commingle such funds with other funds
held by the Trustee and (d) maintain an accurate record of such payments
with respect to the Class A Certificates and the corresponding claim on the
Policy and proceeds thereof.
[Name of Trustee]
By:______________________________
Title:___________________________
(Officer)
A-2
EXECUTED VERSION
----------------
AMBAC ASSURANCE CORPORATION,
as Insurer,
EQUITY ONE, INC.,
as a Seller and the Servicer,
EQUITY ONE ABS, INC.,
as Depositor
and
THE CHASE MANHATTAN BANK,
as Trustee
INSURANCE AND INDEMNITY AGREEMENT
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 1998-1
Dated as of December 9, 1998
<PAGE>
TABLE OF CONTENTS
(This Table of Contents is for convenience of reference only and shall not
be deemed to be part of this Agreement. All capitalized terms used in this
Agreement and not otherwise defined shall have the meanings set forth in Article
I of this Agreement.)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS ................................................................................... 1
Section 1.01. Defined Terms ................................................................. 1
Section 1.02. Other Definitional Provisions ................................................. 4
Section 1.03 EOI as Representative of Affiliated Sellers.................................... 4
ARTICLE II REPRESENTATIONS, WARRANTIES AND COVENANTS .................................................... 4
Section 2.01. Representations and Warranties of EOI, the Affiliated
Sellers and the Depositor ..................................................... 4
Section 2.02. Affirmative Covenants of EOI, the Affiliated Sellers
and the Depositor ............................................................. 8
Section 2.03. Negative Covenants of EOI, the Affiliated Sellers and the
Depositor......................................................................13
Section 2.04. Representations, Warranties and Covenants of the Insurer.......................14
ARTICLE III THE POLICY; REIMBURSEMENT ...................................................................16
Section 3.01. Issuance of the Policy ........................................................16
Section 3.02. Payment of Fees and Premium ...................................................18
Section 3.03. Reimbursement Obligation ......................................................18
Section 3.04. Indemnification ...............................................................19
Section 3.05. Payment Procedure .............................................................22
Section 3.06. Joint and Several Liability ...................................................22
ARTICLE IV FURTHER AGREEMENTS ...........................................................................22
Section 4.01. Effective Date; Term of the Insurance Agreement ...............................22
Section 4.02. Further Assurances and Corrective Instruments .................................22
Section 4.03. Obligations Absolute ..........................................................23
Section 4.04. Assignments; Reinsurance; Third-Party Rights ..................................24
Section 4.05. Liability of the Insurer ......................................................25
25
Section 4.06. Annual Servicing Audit and Certification ......................................25
ARTICLE V DEFAULTS AND REMEDIES .........................................................................25
Section 5.01. Defaults ......................................................................25
Section 5.02. Remedies; No Remedy Exclusive .................................................26
Section 5.03. Waivers .......................................................................27
ARTICLE VI MISCELLANEOUS ................................................................................27
Section 6.01. Amendments, Etc................................................................27
Section 6.02. Notices .......................................................................28
Section 6.03. Severability ..................................................................29
Section 6.04. Governing Law .................................................................29
Section 6.05. Consent to Jurisdiction .......................................................29
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 6.06. Consent of the Insurer ........................................................30
Section 6.07. Counterparts ..................................................................30
Section 6.08. Headings ......................................................................30
Section 6.09. Trial by Jury Waived ..........................................................30
Section 6.10. Limited Liability .............................................................30
Section 6.11. Entire Agreement ..............................................................31
</TABLE>
ii
<PAGE>
INSURANCE AND INDEMNITY AGREEMENT (as may be amended, modified or
supplemented from time to time, this "Insurance Agreement"), dated as of
December 9, 1998, by and among AMBAC ASSURANCE CORPORATION, as Insurer, EQUITY
ONE, INC., as a Seller and the Servicer, EQUITY ONE ABS, INC., as Depositor, and
THE CHASE MANHATTAN BANK, as Trustee.
W I T N E S S E T H :
WHEREAS, a Pooling and Servicing Agreement, dated as of November 30, 1998,
by and among the Depositor, EOI, the Affiliated Sellers and the Trustee (as may
be amended, modified or supplemented from time to time as set forth therein, the
"P & S Agreement") provides for, among other things, the sale of certain Loans
by EOI and each of the Affiliated Sellers to the Depositor, the sale of such
Loans by the Depositor to the Trustee for the benefit of the Certificateholders
and the Insurer and the issuance of Mortgage Pass-Through Certificates, Series
1998-1 (the "Certificates") evidencing the entire beneficial ownership interest
in a trust fund (the "Trust Fund") consisting primarily of a pool of
conventional, fixed rate, residential and mixed use mortgage loans (the "Loans")
deposited into the Trust Fund by the Depositor;
WHEREAS, EOI has undertaken under the P & S Agreement to perform certain
obligations of the Affiliated Sellers if an Affiliated Seller fails to do so and
EOI wishes to provide similar undertakings to the Insurer as set forth in this
Insurance Agreement;
WHEREAS, the Insurer has issued the Policy, pursuant to which it has agreed
to pay in favor of the Trustee for the benefit of the Holders of the Class A
Certificates, certain payments in respect of the Loans;
WHEREAS, the Insurer shall be paid a Premium as set forth herein; and
WHEREAS, each of EOI and the Depositor has undertaken certain obligations
in consideration for the Insurer's issuance of its Policy;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Defined Terms. Unless the context clearly requires otherwise,
all capitalized terms used but not defined herein shall have the respective
meanings assigned to them in the P & S Agreement or the Policy described below.
For purposes of this Insurance Agreement, the following terms shall have the
following meanings:
"Affiliated Seller" means each of Equity One, Incorporated, a Pennsylvania
corporation; Equity One Mortgage Company, a North Carolina corporation; Equity
One Mortgage, Inc., a Delaware corporation; Equity One, Inc., a Minnesota
corporation; Equity One Consumer Loan Company, Inc., a New Hampshire
corporation; Equity One of West Virginia, Inc., a West Virginia corporation; and
Equity One Mortgage, Inc., a New York corporation.
"Certificates" has the meaning given such term in the recitals.
<PAGE>
"Closing Date" means December 9, 1998.
"Commission" means the Securities and Exchange Commission.
"Default" means any event which results, or which with the giving of notice
or the lapse of time or both would result, in an Event of Default.
"Depositor" means Equity One ABS, Inc., a Delaware corporation, or any
successor thereto, as Depositor under the P & S Agreement.
"Documents" has the meaning given such term in Section 2.01(j).
"EOI" means Equity One, Inc., a Delaware corporation, as one of the Sellers
and as the Servicer under the P & S Agreement.
"Event of Default" means any event of default specified in Section 5.01 of
this Insurance Agreement.
"Financial Statements" means, with respect to EOI, (i) the consolidated
statements of financial condition as of November 30, 1996 and 1997 and the
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended November 30, 1997 and the notes thereto,
and (ii) the unaudited quarterly statements of financial condition as of August
31, 1998.
"Holder" has the meaning given such term in the Policy.
"Insurance Agreement" has the meaning given such term in the initial
paragraph hereof.
"Insurer" means Ambac Assurance Corporation, or any successor thereto, as
issuer of the Policy.
"Insurer Information" has the meaning given such term in Section
3.04(a)(v).
"Investment Company Act" means the Investment Company Act of 1940,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Late Payment Rate" means the lesser of (a) the greater of (i) the per
annum rate of interest publicly announced from time to time by Citibank, N.A. as
its prime or base lending rate (any change in such rate of interest to be
effective on the date such change is announced by Citibank, N.A.), and (ii) the
then applicable highest rate of interest on any of the Class A Certificates and
(b) the maximum rate permissible under applicable usury or similar laws limiting
interest rates. The Late Payment Rate for any Distribution Date shall be
computed on the basis of the actual number of days elapsed over a year of 360
days.
"Loans" has the meaning given such term in the recitals.
"Material Adverse Change" means, in respect of any Person, a material
adverse change in the ability of such Person to perform its obligations under
any of the Operative
-2-
<PAGE>
Documents, including any material adverse change in the business, financial
condition, results of operations or properties of such Person on a consolidated
basis with its subsidiaries which might have such effect.
"Moody's" means Moody's Investors Service, Inc., and any successor thereto.
"Offering Document" means the Prospectus, dated August 31, 1998, as
supplemented by the Prospectus Supplement, dated December 4, 1998, in respect of
the Class A Certificates.
"Operative Documents" means this Insurance Agreement, the Certificates, and
the P & S Agreement.
"P & S Agreement" has the meaning given such term in the recitals.
"Person" means an individual, joint stock company, trust, unincorporated
association, joint venture, corporation, business or owner trust, partnership or
other organization or entity (whether governmental or private).
"Policy" means the Certificate Guaranty Insurance Policy No. AB0204BE,
together with all endorsements thereto, issued by the Insurer in favor of the
Trustee, for the benefit of the Holders of the Class A Certificates.
"Premium" means the premium payable in accordance with the Policy which
shall be an amount equal to 1/12th of the product of (i) the Premium Percentage
and (ii) the aggregate Certificate Principal Balance of the Class A Certificates
on each Distribution Date (after giving effect to any distributions of principal
to be made on such Distribution Date); provided that the initial premium will be
equal to 1/12th of the product of the (i) Premium Percentage and (ii) aggregate
Certificate Principal Balance of the Class A Certificates as of the Cut-off Date
and will be paid on the Closing Date.
"Premium Percentage" shall mean 0.15% per annum.
"Registration Statement" means the registration statement on Form S-3 (No.
333-24599), including the prospectus, relating to the Class A Certificates, at
the time it became effective.
"S&P" means Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., and any successor thereto.
"Securities Act" means the Securities Act of 1933, including, unless the
context otherwise requires, the rules and regulations thereunder, as amended
from time to time.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
including, unless the context otherwise requires, the rules and regulations
thereunder, as amended from time to time.
"Transaction" means the transactions contemplated by the Operative
Documents, including the transactions described in the Offering Document.
-3-
<PAGE>
"Trust Fund" has the meaning given such term in the recitals.
"Trustee" means The Chase Manhattan Bank, a New York banking corporation,
as trustee under the P & S Agreement, and any successor thereto under the P & S
Agreement.
"Underwriter" means Salomon Smith Barney Inc.
"Underwriting Agreement" means the Underwriting Agreement, dated November
20, 1998, among the Underwriter, the Depositor and EOI, as may be amended,
modified or supplemented from time to time.
Section 1.02. Other Definitional Provisions. The words "hereof," "herein"
and "hereunder" and words of similar import when used in this Insurance
Agreement shall refer to this Insurance Agreement as a whole and not to any
particular provision of this Insurance Agreement, and Section, subsection,
Schedule and Exhibit references are to this Insurance Agreement unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms. The words
"include" and "including" shall be deemed to be followed by the phrase "without
limitation."
Section 1.03. EOI as Representative of Affiliated Sellers. Each of the
Affiliated Sellers is a direct or indirect wholly owned subsidiary of EOI.
Pursuant to this Insurance Agreement and in consideration of the issuance of the
Policy, EOI, on behalf of each Affiliated Seller, is making representations and
warranties to the Insurer concerning each Affiliated Seller and is undertaking
to assure the Insurer that each Affiliated Seller will perform the covenants
that EOI, on behalf of each Affiliated Seller, has agreed that each Affiliated
Seller will perform. Each representation, warranty or covenant made or
undertaken by an Affiliated Seller pursuant to this Insurance Agreement shall be
deemed also to be made or undertaken by EOI as representative of the Affiliated
Seller and EOI shall be fully responsible to the Insurer for any breach of any
representation or warranty made with respect to any Affiliated Seller or for any
failure of any Affiliated Seller to perform any covenant applicable to such
Affiliated Seller.
ARTICLE II
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 2.01. Representations and Warranties of EOI, the Affiliated Sellers
and the Depositor. Each of EOI, the Affiliated Sellers and the Depositor
represents and warrants as of the Closing Date, and as of the date of the
transfer of each of the Loans pursuant to the P & S Agreement, as follows:
(a) Due Organization and Qualification. Each of EOI, the Affiliated
Sellers and the Depositor is a corporation, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation. Each of EOI, the Affiliated Sellers and the Depositor is, or
will become, duly qualified to do business, is, or will be, in good
standing and has obtained, or will obtain, all necessary licenses, permits,
charters, registrations and approvals (together, "approvals") necessary for
the conduct of its business as currently conducted and as described in the
Offering Document and the
-4-
<PAGE>
performance of its obligations under the Operative Documents to which it is
a party in each jurisdiction in which the failure to be so qualified or to
obtain such approvals would render any Operative Document unenforceable in
any respect or would have a material adverse effect upon the Transaction.
(b) Power and Authority. Each of EOI, the Affiliated Sellers and the
Depositor has all necessary power and authority to conduct its business as
currently conducted and as described in the Offering Document, to execute,
deliver and perform its obligations under the Operative Documents to which
it is a party and to consummate the Transaction.
(c) Due Authorization. The execution, delivery and performance of the
Operative Documents by each of EOI, the Affiliated Sellers and the
Depositor has been duly authorized by all necessary action and does not
require any additional approvals or consents, or other action by or any
notice to or filing with any Person, including any governmental entity or
any of the stockholders of EOI, the Affiliated Sellers or the Depositor,
which have not previously been obtained or given by EOI, the Affiliated
Sellers or the Depositor.
(d) Noncontravention. The execution and delivery by each of EOI, the
Affiliated Sellers or the Depositor of the Operative Documents to which it
is a party, the consummation of the Transaction and the satisfaction of the
terms and conditions of the Operative Documents do not and will not:
(i) conflict with or result in any breach or violation of any
provision of the applicable organizational documents of EOI, an
Affiliated Seller or the Depositor or any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award
currently in effect having applicability to EOI, an Affiliated Seller
or the Depositor or any of their respective material properties,
including regulations issued by any administrative agency or other
governmental authority having supervisory powers over EOI, an
Affiliated Seller or the Depositor, which conflict, breach or
violation reasonably could result in a Material Adverse Change;
(ii) constitute a default by EOI, an Affiliated Seller or the
Depositor under, result in the acceleration of any obligation under,
or breach any provision of any loan agreement, mortgage, indenture or
other agreement or instrument to which EOI, an Affiliated Seller or
the Depositor is a party or by which any of their respective
properties is or may be bound or affected, which default, acceleration
or breach reasonably could result in a Material Adverse Change; or
(iii) result in or require the creation of any lien upon or in
respect of any assets of EOI, an Affiliated Seller or the Depositor,
which lien reasonably could result in a Material Adverse Change.
(e) Legal Proceedings. There is no action, proceeding or investigation
by or before any court, governmental or administrative agency or arbitrator
against or affecting EOI, an Affiliated Seller or the Depositor or any of
their respective subsidiaries, any properties or rights of EOI, an
Affiliated Seller or the Depositor or any of their respective
-5-
<PAGE>
subsidiaries or any of the Loans pending or, to EOI's, an Affiliated
Seller's or the Depositor's knowledge after reasonable inquiry, threatened,
which, in any case, if decided adversely to EOI, an Affiliated Seller or
the Depositor or any such subsidiary could result in a Material Adverse
Change with respect to EOI, an Affiliated Seller or the Depositor.
(f) Valid and Binding Obligations. The Operative Documents (other than
the Certificates), when executed and delivered by EOI, an Affiliated Seller
or the Depositor, will constitute the legal, valid and binding obligations
of each of EOI, an Affiliated Seller and the Depositor, enforceable in
accordance with their respective terms, except as such enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally and general equitable
principles and public policy considerations as to rights of indemnification
for violations of federal securities laws. The Certificates, when executed,
authenticated and delivered in accordance with the P & S Agreement, will be
validly issued and outstanding and entitled to the benefits of the P & S
Agreement. Each of EOI, the Affiliated Sellers and the Depositor will not
at any time in the future deny that the Operative Documents to which it is
a party constitute the legal, valid and binding obligations of EOI, the
Affiliated Sellers and the Depositor, as applicable.
(g) Financial Statements. The Financial Statements of EOI, copies of
which have been furnished to the Insurer, (i) are, as of the dates and for
the periods referred to therein, complete and correct in all material
respects, (ii) present fairly the financial condition and results of
operations of EOI as of the dates and for the periods indicated and (iii)
have been prepared in accordance with generally accepted accounting
principles consistently applied, except as noted therein (subject as to
interim statements to normal year-end adjustments). Since the date of the
most recent Financial Statements, there has been no Material Adverse Change
in respect of EOI, any Affiliated Seller or the Depositor. Except as
disclosed in the Financial Statements, EOI is not subject to any contingent
liabilities or commitments that, individually or in the aggregate, have a
material possibility of causing a Material Adverse Change in respect of
EOI, any Affiliated Seller or the Depositor.
(h) Compliance with Law, Etc. No practice, procedure or policy
employed, or proposed to be employed, by EOI, any Affiliated Seller or the
Depositor in the conduct of its business violates any law, regulation,
judgment, agreement, order or decree applicable to EOI, any Affiliated
Seller or the Depositor that, if enforced, could result in a Material
Adverse Change with respect to EOI, any Affiliated Seller or the Depositor.
(i) Taxes. Each of EOI, any Affiliated Seller or the Depositor has
filed prior to the date hereof all federal and state tax returns that are
required to be filed and has paid all taxes, including any assessments
received by it that are not being contested in good faith, to the extent
that such taxes have become due. Any taxes, fees and other governmental
charges payable by EOI, any Affiliated Seller or the Depositor in
connection with the Transaction, the execution and delivery of the
Operative Documents and the issuance of the Certificates have been paid or
shall have been paid at or prior to the Closing Date if such taxes, fees or
other governmental changes were due on or prior to the Closing Date.
-6-
<PAGE>
(j) Accuracy of Information. Neither the Operative Documents nor other
material information relating to the Loans, the operations of EOI, any
Affiliated Seller or the Depositor or the financial condition of EOI, any
Affiliated Seller or the Depositor (collectively, the "Documents"), as
amended, supplemented or superseded, furnished to the Insurer in writing or
in electronic form by EOI, any Affiliated Seller or the Depositor contains
any statement of a material fact which was untrue or misleading in any
material respect when made. Each of EOI, the Affiliated Sellers and the
Depositor has no knowledge of any circumstances that could reasonably be
expected to cause a Material Adverse Change with respect to EOI, the
Affiliated Sellers or the Depositor. Since the furnishing of the Documents,
there has been no change nor any development or event involving a
prospective change known to EOI, any Affiliated Seller or the Depositor
that would render any of the Documents untrue or misleading in any material
respect.
(k) Compliance With Securities Laws. The offer of the Class A
Certificates complies in all material respects with all requirements of
law, including all registration requirements of applicable securities laws.
Without limiting the foregoing, the Offering Document does not contain any
untrue statement of a material fact and does not omit to state a material
fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that no representation is made with respect to the information in
the Offering Document regarding the Insurer set forth under the captions
"THE INSURER" and "DESCRIPTION OF THE CERTIFICATES -- Certificate Guaranty
Insurance Policy" or the financial statements of the Insurer included in or
incorporated by reference in the Offering Document. The offer of the Class
A Certificates has not been and will not be in violation of the Securities
Act or any other federal or state securities laws. Based upon advice of
legal counsel, the P & S Agreement is not required to be qualified under
the Trust Indenture Act and the Trust Fund is not required to be registered
as an "investment company" under the Investment Company Act. EOI will
satisfy in all material respects any of the information reporting
requirements of the Securities Exchange Act arising out of the Transaction
to which it, the Affiliated Sellers or the Depositor are subject.
(l) Operative Documents. Each of the representations and warranties of
EOI, any Affiliated Seller and the Depositor contained in the applicable
Operative Documents and the Underwriting Agreement is true and correct in
all material respects and each of EOI, the Affiliated Sellers and the
Depositor hereby makes each such representation and warranty to, and for
the benefit of, the Insurer as if the same were set forth in full herein;
provided, however, that the remedy for any breach of a representation and
warranty of EOI in Sections 2.03 and 2.03A, any Affiliated Seller in
Section 2.03 and the Depositor in Section 2.04 of the P & S Agreement and
the remedy with respect to any defective Loan or any Loan as to which there
has been a breach of a representation or warranty under Sections 2.03,
2.03A or 2.04 of the P & S Agreement shall each be limited to the remedies
specified in the P & S Agreement.
(m) Solvency; Fraudulent Conveyance. Each of EOI, the Affiliated
Sellers and the Depositor is solvent and will not be rendered insolvent by
the Transaction and, after giving effect to the Transaction, EOI, the
Affiliated Sellers and the Depositor will not be left with an unreasonably
small amount of capital with which to engage in the ordinary course of its
business, and each of EOI, the Affiliated Sellers and the Depositor
-7-
<PAGE>
does not intend to incur, or believe that it has incurred, debts beyond its
ability to pay as they mature. Each of EOI, the Affiliated Sellers and the
Depositor does not contemplate the commencement of insolvency, liquidation
or consolidation proceedings or the appointment of a receiver, liquidator,
conservator, trustee or similar official in respect of EOI, the Affiliated
Sellers and the Depositor or any of their respective assets. The amount of
consideration being received by EOI and each Affiliated Seller upon the
sale of the Loans to the Depositor constitutes reasonably equivalent value
and fair consideration for the Loans. The amount of consideration being
received by the Depositor upon the sale of the Class A Certificates
constitutes reasonably equivalent value and fair consideration for the
ownership interest evidenced by the Class A Certificates. EOI and each
Affiliated Seller is not transferring the Loans to the Depositor nor is the
Depositor selling the Class A Certificates, as provided in the Operative
Documents, with any intent to hinder, delay or defraud any of EOI's, any
Affiliated Seller's or the Depositor's creditors.
(n) Principal Place of Business. The principal place of business of
EOI is Mt. Laurel, New Jersey. The principal place of business of the
Depositor is Wilmington, Delaware.
Section 2.02. Affirmative Covenants of EOI, the Affiliated Sellers and the
Depositor. Each of EOI, the Affiliated Sellers and the Depositor hereby agrees
that during the term of this Insurance Agreement, unless the Insurer shall
otherwise expressly consent in writing:
(a) Compliance With Agreements and Applicable Laws. Each of EOI, the
Affiliated Sellers and the Depositor shall comply in all material respects
with the terms and conditions of and perform its obligations under the
Operative Documents to which it is a party in all cases in which failure to
so comply or perform would result in a default thereunder and shall comply
with all requirements of any law, rule or regulation applicable to it in
all circumstances where non-compliance reasonably could result in a
Material Adverse Change.
(b) Corporate Existence. Each of EOI, the Affiliated Sellers and the
Depositor and their respective successors and permitted assigns shall
maintain its corporate existence and shall at all times continue to be duly
organized under the laws of their formation and duly qualified and duly
authorized (as described in subsections 2.01(a), (b) and (c) hereof) and
shall conduct its business in accordance with the terms of its applicable
organizational documents.
(c) Financial Statements; Accountants' Reports; Other Information.
Each of EOI, the Affiliated Sellers and the Depositor shall keep or cause
to be kept in reasonable detail books and records of account of its assets
and business relating to the Transaction, and shall, as applicable, clearly
reflect therein the sale of the Loans to the Depositor, the transfer of the
Loans to the Trust Fund and the sale of the Certificates, respectively, as
a sale of the Loans by EOI and the Affiliated Sellers to the Depositor, a
sale of the Loans to the Trust Fund and a sale of the beneficial ownership
interest in the Trust Fund to the Holders of the Certificates. EOI shall
furnish or cause to be furnished to the Insurer:
-8-
<PAGE>
(i) Annual Financial Statements. As soon as available, and in any
event within 105 days after the close of each fiscal year of EOI, the
audited consolidated statement of financial condition of EOI and its
subsidiaries as of the end of such fiscal year and the related audited
consolidated statements of operations, stockholders' equity and cash
flows for such fiscal year, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and
period in the preceding fiscal year, prepared in accordance with
generally accepted accounting principles, consistently applied, and
accompanied by the audit opinion of EOI's independent accountants
(which shall be a nationally recognized independent public accounting
firm or otherwise acceptable to the Insurer) and by the certificate
specified in Section 2.02(d).
(ii) Quarterly Financial Statements. Upon the reasonable request
of the Insurer, the unaudited consolidated statement of financial
condition of EOI and its subsidiaries as of the end of the first three
quarters of each fiscal year of EOI and the related unaudited
consolidated statements of operations, stockholders' equity and cash
flows for the portion of the fiscal year then ended, all in reasonable
detail and stating in comparative form the respective figures for the
corresponding date and period in the preceding fiscal year, prepared
in accordance with generally accepted accounting principles
consistently applied (subject to normal year-end adjustments); each
delivery of quarterly financial statements shall be accompanied by a
certificate of one (or more) corporate officers stating that the
quarterly financial statements are correct in all material respects
and present fairly the financial condition and results of operations
of EOI and its subsidiaries as of the dates and for the periods
indicated, in accordance with generally accepted accounting principles
consistently applied (subject to normal year-end adjustments).
(iii) Initial Report. On or before the Closing Date, a copy of
the magnetic tape or Loan Schedule to be delivered to the Trustee on
the Closing Date setting forth, as to each Loan, the information
required under the definition of "Loan Schedule" in the P & S
Agreement.
(iv) Certain Information. Upon the reasonable request of the
Insurer, copies of any requested proxy statements, financial
statements, reports and registration statements that EOI or the
Depositor files with, or delivers to, the Commission or any national
securities exchange.
(v) Other Information. (A) Promptly upon receipt thereof, copies
of all schedules, financial statements or other similar reports
delivered to or by EOI, any Affiliated Seller, the Depositor or the
Trustee pursuant to the terms of any of the Operative Documents,
including all reports provided to either the Trustee or any
Certificateholder pursuant to the P & S Agreement, (B) promptly upon
request, such other data as the Insurer may reasonably request and (C)
all information required to be furnished to the Trustee or the
Certificateholders simultaneously with the furnishing thereof to the
Trustee or the Certificateholders, as the case may be.
-9-
<PAGE>
All financial statements specified in clauses (i) and (ii) of this
subsection (c) shall be furnished in consolidated form for EOI and all its
subsidiaries in the event that EOI shall consolidate its financial
statements with its subsidiaries.
(d) Compliance Certificate. Each of EOI (in its capacity as Servicer)
and the Depositor shall deliver to the Insurer, on or before March 31 of
each year beginning with March 31, 2000, certificates of one (or more) of
its officers stating that:
(i) a review of the performance of EOI or the Depositor, as
applicable, under the Operative Documents to which it is a party
during such period has been made under such officer's supervision;
(ii) to the best of such officer's knowledge following reasonable
inquiry, no Default or Event of Default has occurred, or if a Default
or Event of Default has occurred, specifying the nature thereof and,
if EOI or the Depositor has a right to cure pursuant to Section 5.01,
stating in reasonable detail (including, if applicable, any supporting
calculations) the steps, if any, being taken by EOI or the Depositor
to cure such Default or Event of Default or to otherwise comply with
the terms of the agreement to which such Default or Event of Default
relates; and
(iii) EOI, as Servicer, has in full force and effect a fidelity
bond (or direct surety bond) and an errors and omissions policy in
accordance with the terms and requirements of Section 3.18 of the P &
S Agreement.
So long as EOI shall continue to act as Servicer, the annual Officer's
Certificate prepared by EOI as Servicer pursuant to Section 3.16 of the P &
S Agreement shall be deemed to satisfy EOI's obligations as imposed by
clauses (i) and (ii) of this Section 2.02(d).
(e) Access to Records; Discussions with Officers and Accountants. On
an annual basis, or upon the occurrence of a Material Adverse Change, EOI,
each Affiliated Seller and the Depositor shall, upon the reasonable request
of the Insurer, permit the Insurer or its authorized agents:
(i) to inspect the books and records of EOI, each Affiliated
Seller and the Depositor as they may relate to the Certificates, the
obligations of EOI, each Affiliated Seller and the Depositor under the
Operative Documents to which it is a party and the Transaction;
(ii) to discuss the affairs, finances and accounts of EOI with
the Chief Operating Officer and the Chief Financial Officer of EOI;
and
(iii) if the Insurer reasonably believes that a Material Adverse
Change may have occurred and with EOI's consent, which consent shall
not be unreasonably withheld or delayed, to discuss the affairs,
finances and accounts of EOI with EOI's independent accountants;
provided, however, that an officer of EOI shall have the right to be
present during such discussions.
-10-
<PAGE>
Such inspections and discussions shall be conducted during normal
business hours and shall not unreasonably disrupt the business of EOI, any
Affiliated Seller or the Depositor. The books and records of EOI and the
Depositor shall be maintained at the address of EOI designated herein for
receipt of notices, unless EOI shall otherwise advise the parties hereto in
writing.
(f) Notice of Material Events. EOI, each Affiliated Seller and the
Depositor shall be obligated (which obligation shall be satisfied as to
each if performed by EOI or the Depositor) promptly to inform the Insurer
in writing of the occurrence of any of the following:
(i) the submission of any claim or the initiation or threat of
any legal process, litigation or administrative or judicial
investigation, or rule making or disciplinary proceeding by or against
EOI, any Affiliated Seller or the Depositor that (A) would be required
to be disclosed to the Commission or EOI's shareholders or (B) could
result in a Material Adverse Change with respect to EOI, any
Affiliated or the Depositor, or to the best of the knowledge of EOI or
the Depositor, the promulgation of any proceeding or any proposed or
final rule which, would likely result in a Material Adverse Change
with respect to EOI, any Affiliated Seller or the Depositor or any of
their respective subsidiaries;
(ii) any change in the location of the principal office of EOI or
the Depositor or any of their respective subsidiaries;
(iii) the occurrence of any Default or Event of Default or any
Material Adverse Change in respect of EOI, any Affiliated Seller or
the Depositor;
(iv) the commencement of any proceedings by or against EOI, any
Affiliated Seller or the Depositor under any applicable bankruptcy,
reorganization, liquidation, rehabilitation, insolvency or other
similar law now or hereafter in effect or of any proceeding in which a
receiver, liquidator, conservator, trustee or similar official shall
have been, or may be, appointed or requested for EOI, any Affiliated
Seller or the Depositor or any of their respective assets; or
(v) the receipt of notice that (A) EOI, any Affiliated Seller or
the Depositor is being placed under regulatory supervision, (B) any
license, permit, charter, registration or approval necessary for the
conduct of EOI's, any Affiliated Seller's or the Depositor's business
is to be, or may be, suspended or revoked or (C) EOI, any Affiliated
Seller or the Depositor is to cease and desist any practice, procedure
or policy employed by EOI, any Affiliated Seller or the Depositor in
the conduct of their respective business, and such suspension,
revocation or cessation may reasonably be expected to result in a
Material Adverse Change with respect to EOI, any Affiliated Seller or
the Depositor.
(g) Financing Statements and Further Assurances. EOI will cause to be
filed all necessary financing statements or other instruments, and any
amendments or continuation statements relating thereto, necessary to be
kept and filed in such manner and in such places as may be required by law
to preserve and protect fully the interest of
-11-
<PAGE>
the Trustee in the Trust Estate. Each of EOI and the Depositor shall, upon
the reasonable request of the Insurer, from time to time, execute,
acknowledge and deliver, or cause to be executed, acknowledged and
delivered, within ten days of such request, such amendments hereto and such
further instruments and take such further action as may be reasonably
necessary to effectuate the intention, performance and provisions of the
Operative Documents. In addition, each of EOI and the Depositor agrees to
cooperate with S&P and Moody's in connection with any review of the
Transaction that may be undertaken by S&P and Moody's after the date
hereof.
(h) Maintenance of Licenses. Each of EOI, the Affiliated Sellers and
the Depositor, and any successors thereof, shall maintain all licenses,
permits, charters and registrations the loss or suspension of which could
result in a Material Adverse Change.
(i) Retirement of Class A Certificates. EOI and the Depositor shall
instruct the Trustee, upon a retirement or other payment of all of the
Class A Certificates, to surrender the Policy to the Insurer for
cancellation.
(j) Disclosure Document. Any Offering Document delivered with respect
to the Class A Certificates shall clearly disclose that the Policy is not
covered by the property/casualty insurance security fund specified in
Article 76 of the New York Insurance Law.
(k) Third-Party Beneficiary. Each of EOI, the Affiliated Sellers and
the Depositor agrees that the Insurer shall have all rights provided to the
Insurer in the Operative Documents and that the Insurer shall constitute a
third-party beneficiary with respect to such rights in respect of the
Operative Documents and hereby incorporates and restates its
representations, warranties and covenants as set forth therein for the
benefit of the Insurer; provided, however, that the remedy for any breach
of a representation and warranty of EOI in Sections 2.03 and 2.03A, any
Affiliated Seller in Section 2.03 and the Depositor in Section 2.04 of the
P & S Agreement and the remedy with respect to any defective Loan or any
Loan as to which there has been a breach of a representation or warranty
under Sections 2.03, 2.03A or 2.04 of the P & S Agreement shall each be
limited to the remedies specified in the P & S Agreement.
(l) Servicing of Loans. All Loans will be serviced in all material
respects in compliance with the P & S Agreement, and EOI, as Servicer,
agrees that the P & S Agreement shall provide that EOI's obligations under
this Insurance Agreement shall be binding on any successor Servicers
thereunder but only to the extent of EOI's obligations as Servicer under
the P & S Agreement and from the effective time of any such succession.
(m) Closing Documents. EOI and the Depositor shall provide or cause to
be provided to the Insurer an executed original copy of each document
executed in connection with the Transaction within 30 days after the
Closing Date.
(n) Distribution, Spread and Certificate Accounts. Monies on deposit
in the Distribution, Spread and Certificate Accounts shall be invested in
Permitted Investments maturing as provided in the P & S Agreement.
-12-
<PAGE>
(o) Corporate Formalities. Each of EOI, the Affiliated Sellers and the
Depositor shall observe all the formalities necessary to preserve its
corporate existence under the laws of the State of its formation,
including, as applicable, (i) the obligation to hold annual meetings of its
members, beneficial owners, shareholders or its board of directors and (ii)
the obligation to prepare and file annual income, franchise and other tax
returns.
(p) Due Diligence. The Insurer shall have the right, so long as the
Class A Certificates remain outstanding, to conduct an ongoing review of
EOI's practices as Servicer through reviews of the Loans, reappraisals of
Mortgaged Properties and reviews of servicing practices. Such ongoing due
diligence shall be conducted at the expense of the Insurer and in a
reasonable manner convenient to both EOI and the Insurer.
EOI shall use its best efforts to cause the Depositor to observe the
provisions of this Section 2.02.
Section 2.03. Negative Covenants of EOI, the Affiliated Sellers and the
Depositor. Each of EOI, the Affiliated Sellers and the Depositor hereby agrees
that during the term of this Insurance Agreement, unless the Insurer shall
otherwise expressly consent in writing:
(a) Impairment of Rights. Neither EOI, any Affiliated Seller nor the
Depositor shall take any action, or fail to take any action, if such action
or failure to take action may result in a Material Adverse Change with
respect to EOI, any Affiliated Seller or the Depositor, nor interfere in
any material respect with the enforcement of any rights of the Insurer
under or with respect to any of the Operative Documents. EOI, each
Affiliated Seller and the Depositor shall give the Insurer written notice
of any such action or, to the best of the knowledge of any of EOI, an
Affiliated Seller or the Depositor, any such failure to act on the earlier
of: (i) the date upon which any publicly available filing or release is
made with respect to such action or failure to act and (ii) promptly prior
to the date of consummation of such action or failure to act. Each of EOI,
any Affiliated Seller and the Depositor shall furnish to the Insurer all
information reasonably requested by it that is necessary to determine
compliance with this paragraph.
(b) Waiver, Amendments, Etc. Neither EOI, any Affiliated Seller nor
the Depositor shall modify, waive or amend, or consent to any modification,
waiver or amendment of, any of the terms, provisions or conditions of the
Operative Documents to which it is a party (other than any amendment to the
Offering Document required by law) without the prior written consent of the
Insurer thereto, which consent shall not be unreasonably withheld,
conditioned or delayed.
(c) Limitation on Mergers, Etc. EOI and the Depositor shall not
consolidate with or merge with or into any Person or transfer all or
substantially all of its assets to any Person or liquidate or dissolve
except as provided in the Operative Documents or as permitted hereby. EOI
and the Depositor shall furnish to the Insurer all information requested by
it that is reasonably necessary to determine compliance with this
paragraph.
(d) Successors. Neither EOI, any Affiliated Seller nor the Depositor
shall terminate or designate, or consent to the termination or designation
of, any successor
-13-
<PAGE>
Servicer, Paying Agent, or Trustee without the prior written approval of
the Insurer, which approval shall not be unreasonably withheld, conditioned
or delayed.
EOI shall use its best efforts to cause the Depositor to observe the
provisions of this Section 2.03.
Section 2.04. Representations, Warranties and Covenants of the Insurer. The
Insurer represents, warrants and covenants to the Underwriter, EOI, each
Affiliated Seller and the Depositor as follows:
(a) Organization and Licensing. The Insurer is a duly organized,
validly existing and in good standing Wisconsin stock insurance company
duly qualified to conduct an insurance business in the State of New York
and in any other jurisdiction where qualification may be necessary to
accomplish the Transaction.
(b) Corporate Power. The Insurer has the corporate power and authority
to issue the Policy and execute and deliver this Insurance Agreement and to
perform all of its obligations hereunder and thereunder.
(c) Authorization; Approvals. Proceedings legally required for the
issuance and execution of the Policy and the execution, delivery and
performance of this Insurance Agreement have been taken and licenses,
orders, consents or other authorizations or approvals of any governmental
boards or bodies legally required for the enforceability of the Policy and
the conduct by the Insurer of the business and activities contemplated by
the Transaction have been obtained; any proceedings not taken and any
licenses, authorizations or approvals not obtained are not material to the
enforceability of the Policy.
(d) Enforceability. The Policy, when issued, and this Insurance
Agreement will each constitute a legal, valid and binding obligation of the
Insurer, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium, receivership and other similar laws
affecting creditors' rights generally and to general principles of equity
and subject to principles of public policy limiting the right to enforce
the indemnification provisions contained therein and herein, insofar as
such provisions relate to indemnification for liabilities arising under
federal securities laws.
(e) Financial Information. The balance sheet of the Insurer as of
December 31, 1997 and the related statements of income, stockholder's
equity and cash flows for the three fiscal years ended December 31, 1997,
and the accompanying footnotes, together with an opinion thereon dated
January 29, 1998 of KPMG Peat Marwick, independent certified public
accountants, a copy of which is incorporated by reference into the Offering
Document, fairly present in all material respects the financial condition
of the Insurer as of such dates and for the periods covered by such
statements in accordance with generally accepted accounting principles
consistently applied. The balance sheet of the Insurer as of September 30,
1998 and the related statements of operations, stockholder's equity and
cash flows for the nine-month period ended September 30, 1998 and the
accompanying footnotes, a copy of which is incorporated by reference into
the Offering Document relating to the Class A Certificates, fairly present
in all material respects the financial condition of the Insurer as of such
date and for such
-14-
<PAGE>
nine-month period in accordance with generally accepted accounting
principles consistently applied. Since September 30, 1998, there has been
no material change in such financial condition of the Insurer that would
materially and adversely affect its ability to perform its obligations
under the Policy.
(f) Insurer Information. The Insurer Information is true and correct
in all material respects and does not contain any untrue statement of a
material fact.
(g) No Litigation. There are no actions, suits, proceedings or
investigations pending or, to the best of the Insurer's knowledge,
threatened against it at law or in equity or before or by any court,
governmental agency, board or commission or any arbitrator which, if
decided adversely, would materially and adversely affect its ability to
perform its obligations under the Policy or this Insurance Agreement.
(h) Confidential Information. The Insurer agrees that it and its
shareholders, directors, agents, accountants and attorneys shall keep
confidential any matter of which it becomes aware during the inspections
conducted or discussions had pursuant to Section 2.02(e), unless such
information is readily available from public sources or except as may be
otherwise required by regulation, law or court order or requested by
appropriate governmental authorities or as necessary to preserve its rights
or security under or to enforce the Operative Documents; provided, however,
that the foregoing shall not limit the right of the Insurer to make such
information available to its regulators, securities rating agencies,
reinsurers, credit and liquidity providers, counsel and accountants. If the
Insurer is requested or required (by oral questions, interrogatories,
requests for information or documents subpoena, civil investigative demand
or similar process) to disclose any information of which it becomes aware
through such inspections or discussions, the Insurer will promptly notify
EOI of such request(s) so that EOI may seek an appropriate protective order
and/or waive the Insurer's compliance with the provisions of this Insurance
Agreement. If, in the absence of a protective order or the receipt of a
waiver hereunder, the Insurer is, nonetheless, in the opinion of its
counsel, compelled to disclose such information to any tribunal or else
stand liable for contempt or suffer other censure or significant penalty,
the Insurer may disclose such information to such tribunal that the Insurer
is compelled to disclose; provided, however, that a copy of all information
disclosed is provided to EOI promptly upon such disclosure.
(i) Compliance with Law, Etc. No practice, procedure or policy
employed, or proposed to be employed, by the Insurer in the conduct of its
business violates any law, regulation, judgment, agreement, order or decree
applicable to the Insurer that, if enforced, could result in a Material
Adverse Change with respect to the Insurer.
ARTICLE III
THE POLICY; REIMBURSEMENT
Section 3.01. Issuance of the Policy. The Insurer agrees to issue the
Policy on the Closing Date subject to satisfaction of the conditions precedent
set forth below on or prior to the Closing Date:
(a) [RESERVED];
-15-
<PAGE>
(b) Operative Documents. The Insurer shall have received a copy of each of
the Operative Documents, in form and substance reasonably satisfactory to the
Insurer, duly authorized, executed and delivered by each party thereto;
(c) Certified Documents and Resolutions. The Insurer shall have received
(i) a copy of the applicable organizational documents of EOI and the Depositor
and (ii) a certificate of the Secretary or Assistant Secretary of each of EOI
and the Depositor dated the Closing Date stating that attached thereto is a
true, complete and correct copy of resolutions duly adopted by the Board of
Directors or other governing body, as applicable, of EOI and the Depositor
authorizing the execution, delivery and performance by EOI and the Depositor of
the Operative Documents to which it is a party and the consummation of the
Transaction and that such applicable organizational documents and resolutions
are in full force and effect without amendment or modification on the Closing
Date;
(d) Incumbency Certificate. The Insurer shall have received a certificate
of the Secretary or an Assistant Secretary of each of EOI and the Depositor
certifying the names and signatures of the officers of EOI and the Depositor
authorized to execute and deliver the Operative Documents to which it is a party
and that shareholder consent to the execution and delivery of such documents is
not necessary or has been obtained;
(e) Representations and Warranties. The representations and warranties of
EOI, each Affiliated Seller and the Depositor dated the Closing Date set forth
or incorporated by reference in this Insurance Agreement shall be true and
correct on and as of the Closing Date as if made on the Closing Date;
(f) Opinions of Counsel. The Insurer shall have received all opinions of
counsel addressed to any of Moody's, S&P, the Trustee, EOI, any Affiliated
Seller, the Depositor and the Underwriter, in respect of EOI, any Affiliated
Seller and the Depositor or any of the other parties to the Operative Documents
and the Transaction dated the Closing Date in form and substance reasonably
satisfactory to the Insurer, addressed to the Insurer and addressing such
matters as the Insurer may reasonably request, and the counsel providing each
such opinion shall have been instructed by its client to deliver such opinion to
the addressees thereof;
(g) Approvals, Etc. The Insurer shall have received true and correct copies
of all approvals, licenses and consents, if any, including any required approval
of the shareholders of EOI, any Affiliated Seller and the Depositor, required in
connection with the Transaction;
(h) No Litigation, Etc. No suit, action or other proceeding, investigation
or injunction, or final judgment relating thereto, shall be pending or
threatened before any court, governmental or administrative agency or arbitrator
in which it is sought to restrain or prohibit or to obtain damages or other
relief in connection with any of the Operative Documents or the consummation of
the Transaction;
(i) Legality. No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any government or governmental or
administrative
-16-
<PAGE>
agency or court that would make the Transaction illegal or otherwise prevent the
consummation thereof;
(j) Satisfaction of Conditions of the Underwriting Agreement. All
conditions in the Underwriting Agreement relating to the Underwriter's
obligation to purchase the Class A Certificates shall have been satisfied,
without taking into account any waiver by the Underwriter of any condition
unless such waiver has been approved by the Insurer. The Insurer shall have
received copies of each of the documents, and shall be entitled to rely on each
of the documents, required to be delivered to the Underwriter pursuant to the
Underwriting Agreement;
(k) Issuance of Ratings. The Insurer shall have received confirmation that
the risk secured by the Policy constitutes at least a "BBB" risk by S&P and a
"Baa2" risk by Moody's and that the Certificates, when issued, will be rated
"AAA" by S&P and "Aaa" by Moody's;
(l) No Default. No Default or Event of Default shall have occurred;
(m) [RESERVED];
(n) Satisfactory Documentation. The Insurer and its counsel shall have
reasonably determined that all documents, certificates and opinions to be
delivered in connection with the Certificates conform to the terms of the P & S
Agreement, the Registration Statement, the Offering Document and this Insurance
Agreement; and
(o) Indemnification Letter. The Insurer shall have received from the
Underwriter an indemnification letter or agreement with respect to securities
law matters in form and substance reasonably satisfactory to the Insurer.
Section 3.02. Payment of Fees and Premium.
(a) Legal, Accounting and Due Diligence Fees. EOI shall pay or cause to be
paid to the Insurer, at the Closing Date, legal fees, due diligence expenses and
accounting fees incurred by the Insurer in connection with the issuance of the
Policy in an amount not to exceed $45,000.
(b) Rating Agency Fees. EOI shall promptly pay or cause to be paid the
initial fees of S&P and Moody's with respect to the Certificates and the
Transaction following receipt of a statement with respect thereto. All periodic
and subsequent fees of S&P or Moody's with respect to, and directly allocable
to, the Certificates shall be for the account of, and shall be billed to, EOI.
The fees for any other rating agency shall be paid by the party requesting such
other agency's rating unless such other agency is a substitute for S&P or
Moody's in the event that S&P or Moody's is no longer rating the Certificates,
in which case the fees for such agency shall be paid by EOI.
(c) Premium.
(i) In consideration of the issuance by the Insurer of the Policy, the
Insurer shall be entitled to receive the Premium, in the amount set forth
in the
-17-
<PAGE>
Policy, as and when due in accordance with and from the funds specified by
Section 4.02 of the P & S Agreement.
(ii) The Premium paid under the P & S Agreement shall be nonrefundable
without regard to whether the Insurer makes any payment under the Policy or
any other circumstances relating to the Class A Certificates or provision
being made for payment of the Class A Certificates prior to maturity.
Section 3.03. Reimbursement Obligation.
(a) As and when due in accordance with and from the funds specified in
Section 4.02 of the P & S Agreement, the Insurer shall be entitled to
reimbursement for any payment made by the Insurer under the Policy, which
reimbursement shall be due and payable on the date that any amount is paid
thereunder, in an amount equal to the amount to be so paid and all amounts
previously paid that remain unreimbursed, together with interest on any and all
such amounts remaining unreimbursed (to the extent permitted by law, if in
respect of any unreimbursed amounts representing interest) from the date such
amounts became due until paid in full (after as well as before judgment), at a
rate of interest equal to the Late Payment Rate.
(b) EOI agrees to pay to the Insurer as follows: anything in Sections
2.01(l), 2.02(k) and 3.03(a) to the contrary notwithstanding, the Insurer shall
be entitled to reimbursement from EOI and shall have full recourse against EOI
for (i) any payment made under the Policy arising as a result of EOI's failure
to substitute for or deposit an amount in respect of any defective Loan as
required pursuant to Sections 2.03 and 2.04 of the P & S Agreement, together
with interest on any and all such amounts remaining unreimbursed (to the extent
permitted by law, if in respect of any such unreimbursed amounts representing
interest) from the date such amounts became due until paid in full (after as
well as before judgment), at a rate of interest equal to the Late Payment Rate,
and (ii) any payment made under the Policy arising as a result of EOI's, any
Affiliated Seller's or the Depositor's failure to pay or deposit any amount
required to be paid or deposited pursuant to the Operative Documents.
(c) EOI agrees to pay to the Insurer any and all charges, fees, costs and
expenses that the Insurer may reasonably pay or incur, including reasonable
attorneys' and accountants' fees and expenses, in connection with (i) the
enforcement, defense or preservation of any rights in respect of any of the
Operative Documents, including defending, monitoring or participating in any
litigation or proceeding (including any insolvency proceeding in respect of any
Transaction participant or any affiliate thereof) relating to any of the
Operative Documents, any party to any of the Operative Documents (in its
capacity as such a party) or the Transaction or (ii) any amendment, waiver or
other action with respect to, or related to, any Operative Document, whether or
not executed or completed. Provided that three Business Days written notice of
the intended payment or incurrence shall have been given to EOI by the Insurer,
such reimbursement shall be due on the dates on which such charges, fees, costs
or expenses are paid or incurred by the Insurer.
(d) EOI agrees to pay to the Insurer interest on any and all amounts
described in subsections 3.03(b), 3.03(c) and 3.03(e) and Sections 3.02 and 3.04
from the date such
-18-
<PAGE>
amounts become due or, in the case of subsections 3.02(b) or 3.03(c) or Section
3.04, are incurred or paid by the Insurer until payment thereof in full (after
as well as before judgment), at the Late Payment Rate.
(e) EOI agrees to pay to the Insurer as follows: any payments advanced by
the Insurer to EOI or the Depositor, or any payments made by the Insurer on
behalf of EOI or the Depositor, in either case which are required to be paid by
EOI or the Depositor pursuant to the Class A Certificates or any Operative
Documents, on the date any such payment is made or advanced by the Insurer.
Section 3.04. Indemnification.
(a) In addition to any and all of the Insurer's rights of reimbursement,
indemnification, subrogation and to any other rights of the Insurer pursuant
hereto or under law or in equity, EOI, each Affiliated Seller and the Depositor
agree, jointly and severally, to pay, and to protect, indemnify and save
harmless, the Insurer and its officers, directors, shareholders, employees,
agents and each Person, if any, who controls the Insurer within the meaning of
either Section 15 of the Securities Act or Section 20 of the Securities Exchange
Act from and against, any and all claims, losses, liabilities (including
penalties), actions, suits, judgments, demands, damages, costs or expenses
(including reasonable fees and expenses of attorneys, consultants and auditors
and reasonable costs of investigations) of any nature arising out of or relating
to the breach by EOI, any Affiliated Seller or the Depositor of any of the
representations or warranties contained in Section 2.01 or arising out of or
relating to the transactions contemplated by the Operative Documents by reason
of:
(i) any omission or action (other than of or by the Insurer) in
connection with the offering, issuance or delivery of the Certificates by
EOI, the Depositor or the Trustee;
(ii) the negligence, bad faith, willful misconduct, misfeasance,
malfeasance or theft committed by any director, officer, employee or agent
of EOI, any Affiliated Seller, the Depositor or the Trustee in connection
with any Transaction arising from or relating to the Operative Documents;
(iii) the violation by EOI, any Affiliated Seller or the Depositor of
any domestic or foreign law, rule or regulation, or any judgment, order or
decree applicable to it, which violation reasonably could result in a
Material Adverse Change;
(iv) the breach by EOI, any Affiliated Seller or the Depositor of any
representation, warranty (other than a representation or warranty in
respect of the Loans contained in Section 2.03 or Section 2.04 of the P & S
Agreement), or covenant under any of the Operative Documents or the
occurrence, in respect of EOI, any Affiliated Seller or the Depositor,
under any of the Operative Documents of any "event of default" or any event
which, with the giving of notice or the lapse of time or both, would
constitute any "event of default"; or
-19-
<PAGE>
(v) any untrue statement or alleged untrue statement of a material
fact contained in the Offering Document or the Registration Statement or
any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, except
insofar as such claims, losses, liabilities (including penalties), actions,
suits, judgments, demands, damages, costs or expenses (including reasonable
fees and expenses of attorneys, consultants and auditors and reasonable
costs of investigations) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact or omission or
alleged omission of a material fact in information included in the Offering
Document or the Registration Statement and furnished by or approved by the
Insurer in writing expressly for use therein (all such information so
furnished being referred to herein as "Insurer Information"), it being
understood that, in respect of the Offering Document and the Registration
Statement, the Insurer Information is limited to the information with
respect to the Insurer included under the captions "THE INSURER" and
"DESCRIPTION OF THE CERTIFICATES -- Certificate Guaranty Insurance Policy"
and the financial statements of the Insurer incorporated therein by
reference.
(b) The Insurer agrees to pay, and to protect, indemnify and save harmless,
EOI, each Affiliated Seller and the Depositor and their respective officers,
directors, shareholders, employees, agents and each Person, if any, who controls
EOI, each Affiliated Seller and the Depositor within the meaning of either
Section 15 of the Securities Act or Section 20 of the Securities Exchange Act
from and against, any and all claims, losses, liabilities (including penalties),
actions, suits, judgments, demands, damages, costs or expenses (including
reasonable fees and expenses of attorneys, consultants and auditors and
reasonable costs of investigations) of any nature arising out of or by reason of
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Insurer Information or any omission or alleged omission to
state in the Insurer Information a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, (ii) any failure of the Insurer to make a
payment required to be made under the Policy or (iii) a breach of any of the
representations and warranties of the Insurer contained in Section 2.04.
(c) If any action or proceeding (including any governmental investigation)
shall be brought or asserted against any Person (individually, an "Indemnified
Party" and, collectively, the "Indemnified Parties") in respect of which the
indemnity provided in Section 3.04(a) or (b) may be sought from EOI, any
Affiliated Seller or the Depositor, on the one hand, or the Insurer, on the
other (each, an "Indemnifying Party") hereunder, each such Indemnified Party
shall promptly notify the Indemnifying Party in writing, and the Indemnifying
Party shall assume the defense thereof, including the employment of counsel
reasonably satisfactory to the Indemnified Party and the payment of all
expenses. The Indemnified Party shall have the right to employ separate counsel
in any such action and to participate in the defense thereof at the expense of
the Indemnified Party; provided, however, that the fees and expenses of such
separate counsel shall be at the expense of the Indemnifying Party if (i) the
Indemnifying Party has agreed to pay such fees and expenses, (ii) the
Indemnifying Party shall have failed within a reasonable
-20-
<PAGE>
period of time to assume the defense of such action or proceeding and employ
counsel reasonably satisfactory to the Indemnified Party in any such action or
proceeding or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both the Indemnified Party and the
Indemnifying Party, and the Indemnified Party shall have been advised by counsel
that there may be one or more legal defenses available to it which are different
from or additional to those available to the Indemnifying Party (in which case,
if the Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party, the
Indemnifying Party shall not have the right to assume the defense of such action
or proceeding on behalf of such Indemnified Party, it being understood, however,
that the Indemnifying Party shall not, in connection with any one such action or
proceeding or separate but substantially similar or related actions or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for the Indemnified Parties, which
firm shall be designated in writing by the Indemnified Party and shall be
reasonably satisfactory to the Indemnifying Party). The Indemnifying Party shall
not be liable for any settlement of any such action or proceeding effected
without its written consent, which consent shall not be unreasonably withheld,
conditioned or delayed, but, if settled with its written consent, or if there is
a final judgment for the plaintiff in any such action or proceeding with respect
to which the Indemnifying Party shall have received notice in accordance with
this subsection (c), the Indemnifying Party agrees to indemnify and hold the
Indemnified Parties harmless from and against any loss or liability by reason of
such settlement or judgment.
(d) To provide for just and equitable contribution if the indemnification
provided by the Indemnifying Party is determined to be unavailable or
insufficient to hold harmless any Indemnified Party (other than due to
application of this Section), each Indemnifying Party shall contribute to the
losses incurred by the Indemnified Party on the basis of the relative fault of
the Indemnifying Party, on the one hand, and the Indemnified Party, on the other
hand.
Section 3.05. Payment Procedure. In the event of any payment by the
Insurer, EOI and the Depositor agree to accept the voucher or other evidence of
payment as prima facie evidence of the propriety thereof and the liability, if
any, described in Section 3.03 therefor to the Insurer. All payments to be made
to the Insurer under this Insurance Agreement shall be made to the Insurer in
lawful currency of the United States of America in immediately available funds
at the notice address for the Insurer as specified in the P & S Agreement on the
date when due or as the Insurer shall otherwise direct by written notice to the
other parties hereto. In the event that the date of any payment to the Insurer
or the expiration of any time period hereunder occurs on a day that is not a
Business Day, then such payment or expiration of time period shall be made or
occur on the next succeeding Business Day with the same force and effect as if
such payment was made or time period expired on the scheduled date of payment or
expiration date.
Section 3.06. Joint and Several Liability. EOI and the Depositor shall be
jointly and severally liable for all amounts due and payable to the Insurer
hereunder by any such parties.
-21-
<PAGE>
ARTICLE IV
FURTHER AGREEMENTS
Section 4.01. Effective Date; Term of the Insurance Agreement. This
Insurance Agreement shall take effect on the Closing Date and shall remain in
effect until the later of (a) such time as the Insurer is no longer subject to a
claim under the Policy and the Policy shall have been surrendered to the Insurer
for cancellation and (b) all amounts payable to the Insurer by EOI or the
Depositor hereunder or from any other source hereunder or under the Operative
Documents and all amounts payable under the Class A Certificates have been paid
in full; provided, however, that the provisions of Sections 3.02, 3.03 and 3.04
hereof shall survive any termination of this Insurance Agreement.
Section 4.02. Further Assurances and Corrective Instruments.
(a) Except at such times as a default in payment under the Policy
shall exist or shall have occurred, none of EOI, any Affiliated Seller or
the Depositor nor the Trustee shall grant any waiver of rights under any of
the Operative Documents to which any of them is a party without the prior
written consent of the Insurer, which shall not be unreasonably withheld,
conditioned or delayed and any such waiver without prior written consent of
the Insurer shall be null and void and of no force or effect.
(b) To the extent permitted by law, each of EOI and the Depositor
agrees that it will, from time to time, execute, acknowledge and deliver,
or cause to be executed, acknowledged and delivered, such supplements
hereto and such further instruments as the Insurer may reasonably request
and as may be required in the Insurer's reasonable judgment to effectuate
the intention of or facilitate the performance of this Insurance Agreement.
Section 4.03. Obligations Absolute.
(a) So long as no Insurer Default shall have occurred and shall have
continued beyond any period of cure applicable thereto, the obligations of
EOI, each Affiliated Seller and the Depositor hereunder shall be absolute
and unconditional and shall be paid or performed strictly in accordance
with this Insurance Agreement under all circumstances irrespective of:
(i) any lack of validity or enforceability of, or any amendment
or other modifications of, or waiver, with respect to any of the
Operative Documents or the Certificates that have not been approved by
the Insurer;
(ii) any exchange or release of any other obligations hereunder;
(iii) the existence of any claim, setoff, defense, reduction,
abatement or other right that EOI, any Affiliated Seller or the
Depositor may have at any time against the Insurer or any other
Person;
(iv) any document presented in connection with the Policy proving
to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
-22-
<PAGE>
(v) any payment by the Insurer under the Policy against
presentation of a certificate or other document that does not strictly
comply with terms of the Policy;
(vi) any failure of EOI, any Affiliated Seller or the Depositor
to receive the proceeds from the sale of the Certificates; and
(vii) any other circumstances, other than payment in full, that
might otherwise constitute a defense available to, or discharge of,
EOI, any Affiliated Seller or the Depositor in respect of any
Operative Document.
(b) So long as no Insurer Default shall have occurred and shall have
continued beyond any period of cure applicable thereto, EOI, each Affiliated
Seller and the Depositor and any and all others who are now or may become liable
for all or part of the obligations of EOI, any Affiliated Seller or the
Depositor under this Insurance Agreement renounce the right to assert as a
defense to the performance of their respective obligations each of the
following: (i) to the extent permitted by law, any and all redemption and
exemption rights and the benefit of all valuation and appraisement privileges
against the indebtedness and obligations evidenced by any Operative Document or
by any extension or renewal thereof; (ii) presentment and demand for payment,
notices of nonpayment and of dishonor, protest of dishonor and notice of
protest; (iii) all notices in connection with the delivery and acceptance hereof
and all other notices in connection with the performance, default or enforcement
of any payment hereunder, except as required by the Operative Documents; and
(iv) all rights of abatement, diminution, postponement or deduction, or to any
defense other than payment, or to any right of setoff or recoupment arising out
of any breach under any of the Operative Documents, by any party thereto or any
beneficiary thereof, or out of any obligation at any time owing to EOI, any
Affiliated Seller or the Depositor.
(c) EOI, each Affiliated Seller and the Depositor and any and all others
who are now or may become liable for all or part of the obligations of EOI, each
Affiliated Seller or the Depositor under this Insurance Agreement agree to be
bound by this Insurance Agreement and (i) agree that any consent, waiver or
forbearance hereunder with respect to an event shall operate only for such event
and not for any subsequent event; (ii) consent to any and all extensions of time
that may be granted by the Insurer with respect to any payment hereunder or
other provisions hereof and to the release of any security at any time given for
any payment hereunder, or any part thereof, with or without substitution, and to
the release of any Person or entity liable for any such payment; and (iii)
consent to the addition of any and all other makers, endorsers, guarantors and
other obligors for any payment hereunder, and to the acceptance of any and all
other security for any payment hereunder, and agree that the addition of any
such obligors or security shall not affect the liability of the parties hereto
for any payment hereunder.
(d) Nothing herein shall be construed as prohibiting EOI, any Affiliated
Seller or the Depositor from pursuing any rights or remedies it may have against
any Person in a separate legal proceeding.
Section 4.04. Assignments; Reinsurance; Third-Party Rights.
-23-
<PAGE>
(a) This Insurance Agreement shall be a continuing obligation of the
parties hereto and shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. EOI and the
Depositor may not assign its rights under this Insurance Agreement, or delegate
any of its duties hereunder, without the prior written consent of the Insurer.
Any assignments made in violation of this Insurance Agreement shall be null and
void.
(b) The Insurer shall have the right to give participations in its rights
under this Insurance Agreement and to enter into contracts of reinsurance with
respect to the Policy upon such terms and conditions as the Insurer may in its
discretion determine; provided, however, that no such participation or
reinsurance agreement or arrangement shall relieve the Insurer of any of its
obligations hereunder or under the Policy.
(c) Except as provided herein with respect to participants and reinsurers,
nothing in this Insurance Agreement shall confer any right, remedy or claim,
express or implied, upon any Person, including, particularly, any Holder, other
than the Insurer against EOI, any Affiliated Seller or the Depositor, or EOI,
any Affiliated Seller or the Depositor against the Insurer and all the terms,
covenants, conditions, promises and agreements contained herein shall be for the
sole and exclusive benefit of the parties hereto and their successors and
permitted assigns. Neither the Trustee nor any Holder shall have any right to
payment from any Premiums paid or payable hereunder or under the P & S Agreement
or from any amounts paid by EOI pursuant to Sections 3.02 or 3.03.
Section 4.05. Liability of the Insurer. Neither the Insurer nor any of its
officers, directors or employees shall be liable or responsible for: (a) the use
that may be made of the Policy by the Trustee or for any acts or omissions of
the Trustee in connection therewith; or (b) the validity, sufficiency, accuracy
or genuineness of documents delivered to the Insurer in connection with any
claim under the Policy, or of any signatures thereon, even if such documents or
signatures should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged (unless the Insurer shall have actual
knowledge thereof). In furtherance and not in limitation of the foregoing, the
Insurer may accept documents that appear on their face to be in order, without
responsibility for further investigation.
Section 4.06. Annual Servicing Audit and Certification. The annual
servicing audit required pursuant to Section 3.17 of the P & S Agreement shall
be performed by an independent third party reasonably acceptable to the Insurer.
Any one of the six major nationally recognized firms of independent public
accountants is deemed to be acceptable.
ARTICLE V
DEFAULTS AND REMEDIES
Section 5.01. Defaults. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Any representation or warranty made by EOI, any Affiliated Seller
or the Depositor hereunder or under the Operative Documents, or in any
certificate furnished
-24-
<PAGE>
hereunder or under the Operative Documents, shall prove to be untrue or
incomplete in any material respect;
(b) (i) EOI or the Depositor shall fail to pay when due any amount
payable by EOI or the Depositor hereunder or (ii) a legislative body has
enacted any law that declares or a court of competent jurisdiction shall
find or rule that this Insurance Agreement or any other Operative Document
is not valid and binding on EOI or the Depositor, provided that, with
respect to any law or judicial action within the scope of this clause (ii),
EOI and the Depositor shall have 30 days to reinstate the binding effect of
this Insurance Agreement or any other Operative Document; the Insurer
agrees to take such actions as may be reasonably requested of it to
facilitate the reinstatement of such binding effect;
(c) The occurrence and continuance of an "event of default", or any
event which given the lapse of time or notice would constitute an "event of
default", under any Operative Document;
(d) Any failure on the part of EOI, any Affiliated Seller or the
Depositor duly to observe or perform in any material respect any other of
the covenants or agreements on the part of EOI, any Affiliated Seller or
the Depositor contained in this Insurance Agreement (other than the
covenants or agreements contained in Sections 2.02(a), 2.02(l) and 2.02(n))
which continues unremedied for a period of 30 days after the date on which
written notice of such failure, requiring the same to be remedied, shall
have been given to EOI by the Insurer (with a copy to the Trustee) or by
the Trustee (with a copy to the Insurer);
(e) A decree or order of a court or agency or supervisory authority
having jurisdiction in the premises in an involuntary case under any
present or future federal or state bankruptcy, insolvency or similar law or
the appointment of a conservator or receiver or liquidator or other similar
official in any bankruptcy, insolvency, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against EOI or the
Depositor and such decree or order shall have remained in force
undischarged or unstayed for a period of 90 consecutive days;
(f) EOI or the Depositor shall consent to the appointment of a
conservator or receiver or liquidator or other similar official in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities or similar proceedings of or relating to EOI or the Depositor
or of or relating to all or substantially all of their respective property;
(g) EOI or the Depositor shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage
of or otherwise voluntarily commence a case or proceeding under any
applicable bankruptcy, insolvency, reorganization or other similar statute,
make an assignment for the benefit of its creditors or voluntarily suspend
payment of its obligations; or
(h) the Trust Fund shall become subject to an entity level tax or to
registration as an investment company under the Investment Company Act.
-25-
<PAGE>
Section 5.02. Remedies; No Remedy Exclusive.
(a) Upon the occurrence of an Event of Default, the Insurer may exercise
any one or more of the rights and remedies set forth below:
(i) declare all indebtedness of every type or description then owed by
EOI, any Affiliated Seller or the Depositor to the Insurer to be
immediately due and payable, and the same shall thereupon be immediately
due and payable;
(ii) exercise any rights and remedies under the P & S Agreement in
accordance with the terms thereof or direct the Trustee or the Servicer to
exercise such rights and remedies in accordance with the terms of the P & S
Agreement; or
(iii) take whatever action at law or in equity as may appear necessary
or desirable in its judgment to collect the amounts, if any, then due under
this Insurance Agreement or any other Operative Document or to enforce
performance and observance of any obligation, agreement or covenant of EOI,
any Affiliated Seller or the Depositor under this Insurance Agreement or
any other Operative Documents.
(b) Unless otherwise expressly provided, no remedy herein conferred or
reserved is intended to be exclusive of any other available remedy, but each
remedy shall be cumulative and shall be in addition to other remedies given
under this Insurance Agreement, the P & S Agreement or existing at law or in
equity. No delay or omission to exercise any right or power accruing under this
Insurance Agreement or the P & S Agreement upon the happening of any event set
forth in Section 5.01 shall impair any such right or power or shall be construed
to be a waiver thereof, but any such right and power may be exercised from time
to time and as often as may be deemed expedient. In order to entitle the Insurer
to exercise any remedy reserved to the Insurer in this Article, it shall not be
necessary to give any notice, other than such notice as may be required by this
Article.
Section 5.03. Waivers.
(a) No failure by the Insurer to exercise, and no delay by the Insurer in
exercising, any right hereunder shall operate as a waiver thereof. The exercise
by the Insurer of any right hereunder shall not preclude the exercise of any
other right, and the remedies provided herein to the Insurer are declared in
every case to be cumulative and not exclusive of any remedies provided by law or
equity.
(b) The Insurer shall have the right, to be exercised in its complete
discretion, to waive any Event of Default hereunder, by a writing setting forth
the terms, conditions and extent of such waiver signed by the Insurer and
delivered to EOI. Unless such writing expressly provides to the contrary, any
waiver so granted shall extend only to the specific event or occurrence which
gave rise to the Event of Default so waived and not to any other similar event
or occurrence which occurs subsequent to the date of such waiver.
-26-
<PAGE>
ARTICLE VI
MISCELLANEOUS
Section 6.01. Amendments, Etc. This Insurance Agreement may be amended,
modified, supplemented or terminated only by written instrument or written
instruments signed by the parties hereto. EOI agrees to provide a copy of any
amendment to this Insurance Agreement promptly to the Trustee and the rating
agencies maintaining a rating on the Class A Certificates. No act or course of
dealing shall be deemed to constitute an amendment, modification, supplement or
termination hereof.
Section 6.02. Notices. All demands, notices and other communications to be
given hereunder shall be in writing (except as otherwise specifically provided
herein) and shall be mailed by registered mail or personally delivered and
telecopied to the recipient as follows:
(a) To the Insurer:
Ambac Assurance Corporation
One State Street Plaza
New York, New York 10004
Attention: Structured Finance --
Mortgage Backed Securities
Facsimile: (212) 363-1459
Confirmation: (212) 208-3387
(in each case in which notice or other communication to the
Insurer refers to an Event of Default, a claim on the Policy or
with respect to which failure on the part of the Insurer to
respond shall be deemed to constitute consent or acceptance, then
a copy of such notice or other communication should also be sent
to the attention of the general counsel of each of EOI and the
Trustee and, in all cases, both any original and all copies shall
be marked to indicate "URGENT MATERIAL ENCLOSED.")
(b) To EOI:
Equity One, Inc.
523 Fellowship Road
Suite 230
Mt. Laurel, New Jersey 08054
Attention: Vice President - Finance
Facsimile: (609) 273-1119
Confirmation: (609) 273-1929
Notice to EOI shall also constitute notice to each Affiliated
Seller and to the Depositor to the extent the party providing such
notice is required to provide notice to all such parties (in each case
in which notice or other communication to EOI refers to an Event of
Default, a claim against EOI, an Affiliated Seller or the Depositor or
with respect to which failure on the part of EOI, an Affiliated Seller
or the Depositor to respond shall be deemed to constitute consent or
acceptance, then a copy of such notice or other communication should
-27-
<PAGE>
also be sent to the attention of the general counsel of each of the
Insurer and the Trustee and, in all cases, both any original and all
copies shall be marked to indicate "URGENT MATERIAL ENCLOSED.").
(c) To the Trustee:
The Chase Manhattan Bank
450 West 33rd Street
15th Floor
New York, New York 10001
Attention: Global Trust Services
Facsimile: (212) 946-8191
Confirmation: (212) 946-3015
A party may specify an additional or different address or addresses by
writing mailed or delivered to the other parties as aforesaid. All such notices
and other communications shall be effective upon receipt.
Section 6.03. Severability. In the event that any provision of this
Insurance Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, the parties hereto agree that such holding shall not
invalidate or render unenforceable any other provision hereof. The parties
hereto further agree that the holding by any court of competent jurisdiction
that any remedy pursued by any party hereto is unavailable or unenforceable
shall not affect in any way the ability of such party to pursue any other remedy
available to it.
Section 6.04. Governing Law. This Insurance Agreement shall be governed by
and construed in accordance with the laws of the State of New York (without
giving effect to the conflict of laws provisions thereof).
Section 6.05. Consent to Jurisdiction.
(a) The parties hereto hereby irrevocably submit to the non-exclusive
jurisdiction of the United States District Court for the Southern District
of New York and any court in the State of New York located in the City and
County of New York, and any appellate court from any thereof, in any
action, suit or proceeding brought against it and to or in connection with
any of the Operative Documents or the Transaction or for recognition or
enforcement of any judgment, and the parties hereto hereby irrevocably and
unconditionally agree that all claims in respect of any such action or
proceeding may be heard or determined in such New York state court or, to
the extent permitted by law, in such federal court. The parties hereto
agree that a final unappealable judgment in any such action, suit or
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. To the
extent permitted by applicable law, the parties hereto hereby waive and
agree not to assert by way of motion, as a defense or otherwise in any such
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such courts, that the suit, action or proceeding is
brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper or that the related documents or the subject matter
thereof may not be litigated in or by such courts.
-28-
<PAGE>
(b) To the extent permitted by applicable law, the parties hereto
shall not seek and hereby waive the right to any review of the judgment of
any such court by any court of any other nation or jurisdiction which may
be called upon to grant an enforcement of such judgment.
(c) Service on EOI, any Affiliated Seller or the Depositor may be made
by mailing or delivering copies of the summons and complaint and other
process which may be served in any suit, action or proceeding to the
Servicer addressed as follows: Equity One, Inc., 523 Fellowship Road, Suite
230, Mt. Laurel, New Jersey 08054 Attention: General Counsel. Such address
may be changed by the applicable party or parties by written notice to the
other parties hereto. The provision of notice to change the address set
forth in Section 6.02 shall constitute notice for purposes of the preceding
sentence, unless such notice shall expressly state to the contrary.
(d) Nothing contained in this Insurance Agreement shall limit or
affect any party's right to serve process in any other manner permitted by
law or to start legal proceedings relating to any of the Operative
Documents against any other party or its properties in the courts of any
jurisdiction.
Section 6.06. Consent of the Insurer. In the event that the consent of the
Insurer is required under any of the Operative Documents, the determination
whether to grant or withhold such consent shall be made by the Insurer in its
sole discretion without any implied duty towards any other Person, except as
otherwise expressly provided therein.
Section 6.07. Counterparts. This Insurance Agreement may be executed in
counterparts by the parties hereto, and all such counterparts shall constitute
one and the same instrument.
Section 6.08. Headings. The headings of Articles and Sections and the Table
of Contents contained in this Insurance Agreement are provided for convenience
only. They form no part of this Insurance Agreement and shall not affect its
construction or interpretation.
Section 6.09. Trial by Jury Waived. Each party hereby waives, to the
fullest extent permitted by law, any right to a trial by jury in respect of any
litigation arising directly or indirectly out of, under or in connection with
any of the Operative Documents or any of the transactions contemplated
thereunder. Each party hereto (A) certifies that no representative, agent or
attorney of any party hereto has represented, expressly or otherwise, that it
would not, in the event of litigation, seek to enforce the foregoing waiver and
(B) acknowledges that it has been induced to enter into the Operative Documents
to which it is a party by, among other things, this waiver.
Section 6.10. Limited Liability. No recourse under any Operative Document
or the Underwriting Agreement shall be had against, and no personal liability
shall attach to, any officer, employee, director, affiliate or shareholder of
any party hereto, as such, by the enforcement of any assessment or by any legal
or equitable proceeding, by virtue of any statute or otherwise in respect of any
of the Operative Documents or the Underwriting Agreement, the Certificates or
the Policy, it being expressly agreed and understood that each Operative
Document or the Underwriting Agreement is solely a corporate obligation of each
party hereto, and that any and all personal liability, either at common law or
in equity, or by statute or
-29-
<PAGE>
constitution, of every such officer, employee, director, affiliate or
shareholder for breaches of any party hereto of any obligations under any
Operative Document or the Underwriting Agreement is hereby expressly waived as a
condition of and in consideration for the execution and delivery of this
Insurance Agreement.
Section 6.11. Entire Agreement. This Insurance Agreement and the Policy set
forth the entire agreement between the parties with respect to the subject
matter hereof and thereof, and this Insurance Agreement supersedes and replaces
any agreement or understanding that may have existed between the parties prior
to the date hereof in respect of such subject matter.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-30-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, all as
of the day and year first above mentioned.
AMBAC ASSURANCE CORPORATION,
as Insurer
By: /s/ Warren K. Tong
-----------------------------------------
Name: Warren K. Tong
Title: First Vice President
EQUITY ONE, INC.,
as a Seller and the Servicer
By: /s/ Dennis Kildea
-----------------------------------------
Name: Dennis Kildea
Title: Vice President-Finance
EQUITY ONE ABS, INC.,
as Depositor
By: /s/ Dennis Kildea
-----------------------------------------
Name: Dennis Kildea
Title: Vice President
THE CHASE MANHATTAN BANK,
as Trustee
By: /s/ Kimberly K. Costa
-----------------------------------------
Name: Kimberly K. Costa
Title: Second Vice President
-31-
[LETTERHEAD]
December 9, 1998
Equity One ABS, Inc.
103 Springer Building
3411 Silverside Road
Wilmington, DE 19810
RE: Equity One ABS, Inc. Mortgage Pass-Through Certificates, Series 1998-1
Ladies and Gentlemen:
We have acted as counsel to and for Equity One ABS, Inc., a Delaware
corporation (the "Company"), in connection with the offer and sale by the
Company of Mortgage Pass-Through Certificates, Series 1998-1, in an aggregate
principal amount of $125,030,338 (the "Securities"), pursuant to the Company's
Prospectus dated August 31, 1998 (the "Prospectus"), as supplemented by the
Company's Prospectus Supplement dated December 4, 1998 (the "Prospectus
Supplement"), in the form transmitted for filing with the United States
Securities and Exchange Commission pursuant to Rule 424(b) under the Securities
Act of 1933 on December 8, 1998. The Securities will be issued pursuant to a
certain Pooling and Servicing Agreement dated as of November 30, 1998, among the
Company, as depositor, Equity One, Inc., as servicer and seller ("Equity One"),
certain affiliates of the Company, as sellers (the "Sellers"), and The Chase
Manhattan Bank, as trustee (the "Agreement").
We have examined copies of the Prospectus and Prospectus Supplement, a
signed copy of the Agreement, a specimen certificate of each class of the
Securities, and such other records, documents and statutes as we have deemed
necessary for purposes of this opinion letter.
In rendering the opinion below, we express no opinion as to any laws other
than the Internal Revenue Code of 1986, as amended, the applicable Treasury
Regulations promulgated thereunder, the present positions of the Internal
Revenue Service as set forth in published revenue rulings and revenue
procedures, present administrative positions of the Internal Revenue Service,
and existing federal judicial decisions, all of which are subject to change
either prospectively or retroactively.
<PAGE>
Equity One ABS, Inc.
December 9, 1998
Page 2
This opinion letter is given only with respect to laws and regulations
presently in effect. We assume no obligation to advise you of any changes in law
which may occur, whether the same are retroactively or prospectively applied, or
to update or supplement this letter in any fashion to reflect any facts or
circumstances which hereafter come to our attention.
Based upon, and subject to, the foregoing, we are of the opinion that:
1. The information set forth in the Prospectus and Prospectus Supplement
under the caption "Federal Income Tax Consequences," to the extent it
constitutes matters of law or legal conclusions, is correct in all material
respects. The opinions set forth in the Prospectus and Prospectus Supplement
under the heading "Federal Income Tax Consequences" are hereby confirmed.
We have relied without independent investigation upon the representations
and warranties of the Company, Equity One and the Sellers in the Agreement.
Furthermore, we have assumed and relied upon, without independent investigation,
(i) the authenticity and due authorization, execution, and delivery of all
documents submitted to us as originals, (ii) the genuineness of all signatures
on all documents submitted to us as originals, and (iii) conformity to the
originals of all documents submitted to us as certified or photostatic copies.
We hereby consent to the filing of this opinion letter by the Company as an
exhibit to a Current Report on Form 8-K with respect to the Securities.
Very truly yours,
Stradley, Ronon, Stevens & Young, LLP
By: /s/ William S. Pilling, III
----------------------------------
William S. Pilling, III, a Partner
